Par Technology Corp Q2 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the PAR Technology Fiscal Year 2021 Second Quarter Financial Results Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your first speaker for today, Mr. Chris Byrnes, Vice President of Business Development. Please go ahead.

Thank you, RJ, and good afternoon. I’d also like to welcome you today to the call for PAR’s 2021 second quarter financial results review. The complete disclosure of our results can be found in our press release issued this afternoon as well as in our related Form 8-K furnished to the SEC. To access the press release and the financial details, please see the Investor Relations and News section of our website at www.partech.com. At this time, I’d like to take care of certain details regarding the call today. Participants on the call should be aware that we are recording this call this afternoon and it will be available for playback. We are also broadcasting the conference call via the worldwide web. Please be advised that if you ask a question, it will be included in both our live conference and any future use of the recording. I’d also like to remind participants that this conference call includes forward-looking statements that reflect management’s expectations based on currently available data. However, actual results are subject to future events and uncertainties. The information on this conference call related to projections or other forward-looking statements may be relied upon and is subject to the safe harbor statement included in our earnings release this afternoon and in our annual and quarterly filings with the SEC. Joining me on the call today is PAR’s CEO and President, Savneet Singh; and Bryan Menar, PAR’s Chief Financial Officer. I’d now like to turn the call over to Savneet for the formal remarks portion of the call, which will be followed by a general Q&A. Savneet?

Thanks, Chris, and good afternoon, everyone, and thank you for joining our call today. To begin, I first want to welcome the Punchh team and shareholders of PAR. Together, our firms are working quickly towards building a unified commerce platform. I’m pleased to report on our continued progress in this quarter, as we reported sequential and strong year-over-year growth in our business and see strong momentum within our Brink business lines early in Q3. First, to update you on the Punchh acquisition and our success in the first three months post-closing and then move on to review the quarter’s results. As you know, we completed the acquisition of Punchh during the second quarter on April 8. With the purchase price of approximately $500 million plus the assumption of stock-based compensation, Punchh was by far our largest acquisition to date. Punchh is a leading provider of loyalty and customer experience solutions that serves approximately 40 of the largest 100 restaurant companies. We believe that the combination of Punchh and PAR provides tremendous opportunities for incremental growth in both business lines. The combined company is a market leader in providing a unified commerce cloud platform for large enterprise restaurants. We plan to use Punchh’s technology suite to expand our customer reach. We also have an opportunity to leverage Punchh’s strong brand and customer relationships to deliver the PAR platform at the enterprise level for restaurants. We discussed our vision for those opportunities on our investor call in early May. I’m pleased with the progress we’ve made towards the initial objectives in the three months that Punchh has been part of PAR. Our teams have prioritized their opportunities and are very engaged, working well together in a regular cadence. Our pre-acquisition impressions regarding the dependability of the backlog have come through in the high degree of compatibility between the cultures of the two organizations; this has thus far proven to be accurate. Our product teams have begun to work together, and we are excited as we learn more about each company’s strengths and how complementary they are. We’ll quickly be working on combined roadmaps, combining guests, transactions, payments, and back office. The goal is to deliver a platform to our customers that can run their restaurant but also gives our customers control over their destiny. They can build on top, configure, or integrate. While restaurant technology has proliferated tremendously over the last few years, most restaurant companies have yet to truly benefit from their technological journey. Said differently, while restaurant technology companies have won, the restaurant operator has not. We aim to change that. Together, Punchh and the entire PAR platform can now provide the most expansive set of capabilities for enterprise restaurants. As a result of those capabilities, we saw demand for our platform offerings grow. As I cited earlier, restaurants are in the midst of a remarkable bounce back of their business from the hardships caused by the COVID pandemic. Many of PAR’s restaurant customers are experiencing record growth in same-store sales, foot traffic, and average ticket price. These conditions provide an environment of investment for restaurants, and technology is at the top of that list. Now to briefly review the second quarter reported numbers before Bryan gives further details. In Q2, we reported revenues of $69 million, a 51% increase from one year ago. Today, we also reported a GAAP net loss of $10 million or $0.39 loss per share compared to a GAAP net loss of $9 million or $0.49 loss per share for the same period in 2020. On an adjusted basis, the non-GAAP net loss for the second quarter of 2021 was $9.2 million or $0.36 loss per share compared to a non-GAAP net loss of $4 million or $0.21 loss per share for the same period in 2020. Now moving to our business performance. We reported ARR of $76.7 million, a 166% increase aided by the acquisition of Punchh. The growth is led by Punchh and Brink, with Data Central still in a period of recovery. Adjusting for Punchh’s Q2 contribution compared to Q2 2020, the combined ARR growth would be around 42.5%. The underlying growth at Punchh in Q2 continued the strong momentum we saw in Q1. Brink's growth this quarter was notable as we activated 1,099 new stores during this quarter, solid performance in the face of several challenges in the hardware supply chain. More importantly though, is the velocity of activations in Brink exiting Q2 and it should lay the foundation for strong ARR growth through the second half of the year. We’re seeing record activations and expect that to continue. In Q2, we reported Brink ARR of $27.6 million, a 29% increase from Q2 2020. This growth came from improved activation, and as I mentioned earlier, exit velocity was very strong. At the end of Q2, we now have 13,234 active stores, and our reported open order backlog number within the second quarter was over 3,100 stores yet to be installed. Brink bookings for Q2 came in at 1,012, a 24% increase from Q2 2020. Bookings are assigned purchase orders and continue to be a significant KPR for our company that demonstrates the velocity of our business. It’s important to point out this metric is not totally linear from quarter to quarter as order patterns from customer to customer vary, but our pipeline is deep, not only with prime customers, but also new customers as well. While lower than the number we reported in Q1, I’m very confident in our pipeline. Turning to Punchh, their contribution to Q2 results is as of April 8, and as expected, they did not disappoint. Our Punchh product line added 2,774 new live sites in Q2 and now has a total of nearly 48,400 sites at the end of June, a 56% increase in live sites over the last 12 months. Punchh’s ARR at the end of Q2 was reported at $40.3 million, a 61% year-over-year increase and a $4.4 million increase since just the end of Q1. Contracted ARR at the end of Q2 totaled $60.5 million, a significant number that proves the value and demand for loyalty and customer experience by restaurants. We’re extremely pleased and fortunate to have added this industry leader to the PAR platform. Data Central, our back office software acquired in the Restaurant Magic transaction, saw improved bookings in the quarter at 346, a 67% increase from last year’s Q2 and ARR reported at $8.8 million. Combined ARR of Brink and Restaurant Magic is now $36.4 million at the end of Q2. As I mentioned last quarter, we continue to see some near-term weakness in demand for non-customer-facing technology in restaurants. I’m encouraged by the bookings improvement within Data Central and expect a more normal bookings pace as 2021 progresses and similar to our expected growth in Brink activations for the back half, we expect Data Central to also improve as 2021 plays out. Now to quickly review our product business in the quarter, which includes our point-of-sale hardware and Drive-Thru Communication Systems business. Product revenues in the quarter improved dramatically from the COVID-impacted Q2 2020 quarter. Product sales reported at $23.9 million in this most recent quarter, a 94% increase. As we are seeing the favorable impact of vaccine rollout and improving capital purchase environment for restaurants, we will continue to see higher sales throughout 2021. It is important to note that the current industry-wide challenges such as supply chain constraints, price inflation, and significant increases to freight and logistics costs require ongoing management vigilance. We have experienced some margin impact from the costs associated with the current supply chain rallies, including dramatic growth in shipping charges. To mitigate this pain, we’ve implemented price increases and other addressable actions and are already seeing margin improvements in Q3, which I hope will continue into Q4. While we don’t know how long supply chain challenges will exist, our customers have remained committed to us and allowed us to pass on parts of this challenge to them. Now to review our Government segment. Our Government business reported revenues of $17.8 million, a minor decrease of 1.1% when compared to Q2 last year. Our contract backlog at the end of Q2 was $141.6 million. We continue to seek out contract opportunities where we can leverage our decade-long experience and performance excellence, specifically in value-added revenue contracts that include more direct labor and high-tech contract work with our Intel Solutions business line. In summary, we have considerable optimism as the entire restaurant industry is in the midst of record store sales and customer traffic levels. We had a busy and active second quarter. We closed on a transformative acquisition with Punchh, announced large new customers, and the new customer pipeline continues to be strong. Looking towards the second half of 2021, we anticipate accelerated deployments in Q3 and Q4 of Brink, which should drive strong ARR growth. Given the success of the Punchh acquisition, we will look to continue to build on our platform both organically and inorganically that will increase our subscription rates and make us more attractive to more customers. And with that, I’ll turn the call over to Bryan for more details on the Q1 numbers and then take your questions.

Thank you, Savneet, and good afternoon, everyone. Product revenue in the quarter was $23.9 million, an increase of $11.6 million or 94% from the $12.3 million reported in the prior year. Our product revenue during the quarter was the highest compared to the preceding 12 quarters. Growth was driven by multiple factors, including continued growth in drive-thru and kitchen display systems, hardware refresh investments by some of our Tier 1 legacy accounts, and hardware revenue associated with the rollout of Brink POS to new customers. Service revenue that includes revenue streams from our subscription software was reported at $27.2 million, an increase of $11.9 million or 77.8% from the $15.3 million reported in the prior year. The increase was primarily driven by the inclusion of Punchh revenue of $8.1 million, a $1.7 million increase in other software revenue and a $1.7 million increase in implementation revenue. The company continues to expand our recurring revenue base, which includes both software-related services and hardware support contracts. In total, the recurring software revenue streams contributed $9.6 million of the increase in service revenue. Of the $27.2 million of service revenue reported in Q2 2021, $23 million or 85% is comprised of revenue contracts as compared to $13.2 million or 86% of service revenue in Q2 2020. Contract revenue from our Government business was $17.8 million, a decrease of $0.3 million or 1.7% from the $18.1 million recorded in the first quarter of 2020. The decrease in contract revenues was driven by a $0.5 million decrease in our ISR solutions product line, partially offset by a $0.3 million increase in our Mission Systems product line. Contract backlog continues to be significant, noting a total backlog of over $141 million as of June 30. Now turning to margins. Product margin for the quarter was 22.8% versus 19.1% in Q2 2020. The increase in margin was primarily due to a more effective absorption of overhead fixed costs compared to Q2 2020, which was a low product revenue quarter. The favorable impact from absorption was partially offset by higher material costs. Service margin for the quarter was 30.3%, compared to 35.2% reported in the second quarter of 2020. The decrease in margin is primarily driven by an increase in amortization expense for the $2.9 million acquired developed technology intangible in the Punchh acquisition in addition to incremental costs incurred while transitioning our field operations organization. Important to note, the service margin would be 40.8% excluding the amortization of Punchh intangibles. Government contract margins were 7.9% as compared to 7.4% in the second quarter of 2020. The increase was driven by productivity improvements on existing contracts. GAAP SG&A was $22.9 million, an increase of $12.9 million from the $10 million reported in Q2 2020. The increase was primarily driven by $9.8 million in total Punchh related expenses, of which $2.7 million were acquisition costs and $7.1 million were operational expenses. Punchh operational expenses included $2.5 million, with stock-based compensation assumed as part of the transaction. Other drivers included increases of $0.8 million for sales and marketing, $1 million for variable compensation, $0.7 million for internal technology infrastructure costs, and $0.6 million for corporate management expenses. Net R&D was $8.6 million, an increase of $4.1 million or 91% from the $4.5 million reported in Q2 2020. The increase is driven primarily by $2.9 million for Punchh and $1.1 million related to the additional investments in our existing product development organization. Net interest expense was $4.9 million compared to $2.1 million recorded in Q2 2020. The increase is driven by the Owl Rock credit agreement we entered into as part of the Punchh acquisition. Net interest for the quarter includes $1.7 million of non-cash accretion of debt discount and amortization of issuance costs compared to $1.1 million for the same period last year. In regards to taxes, there was a net tax benefit for the quarter of $12.3 million driven by a $12.3 million partial release of the company’s deferred tax valuation allowance as a result of the deferred tax liability created by the Punchh acquisition. A net tax provision of $1 million for Q2 2020 was driven by a $1 million adjustment to the deferred tax benefit recorded in 2020 for the 2026 notes issuance. Now to provide information on the company’s cash flow and balance sheet position. For the six months ended June 30, 2021, net cash used in operating activities was $33.1 million versus $13.6 million for the prior year. Cash used for the six months ended June 30, 2021, was primarily driven by net operating losses, net of non-cash charges and additional net working capital requirements, primarily driven by an increase in inventory of $8.8 million and other current assets of $11 million, which was driven by an increase in prepaid assets as the company took advantage of repricing opportunities with key strategic partners. Cash used in investing activities was $381.7 million for the six months ended June 30, 2021 versus $4.6 million for the six months ended June 30, 2020. Investing activities during the six months ended June 30, 2021 included $377.3 million of cash consideration in connection with the Punchh acquisition. Capitalized software for the six months ended June 30, 2021 was $3.8 million associated with investments in various hospitality software platforms versus $4.6 million for the six months ended June 30, 2020. Cash used by financing activities was $319.3 million for the six months ended June 30, 2021 versus $49.1 million for the prior year. During the six months ended June 30, 2021, we received net proceeds of $155.7 million from the private placement of our common stock with Act III and certain funds and accounts advised by T. Rowe Price Associates. Net proceeds of $170.7 million from the term loan under the Owl Rock credit agreement were also received. During the six months ended June 30, 2020, we received net proceeds of $49.7 million from the $120 million issuance of the 2026 notes offset by the repurchase of the majority of the 2024 notes. Inventory increased from December 31, 2020, by $8.8 million. We increased our inventory on hand to mitigate some of the supply chain shortages and delays while ensuring we can meet our enterprise customers’ demand for installations in the second half of 2021. Accounts receivable increased by $1.5 million compared to December 31, 2020 due to increased sales volume. Days outstanding improved within restaurants and retail from 74 days at December 31, 2020 to 61 days at June 30, 2021. Days outstanding increased within Government from 51 days at December 31, 2020, to 55 days at June 30, 2021. This concludes my formal remarks, and we will now move to Q&A.

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

Hi, good afternoon, and thanks for taking my questions. Maybe first, Savneet, if I start with you, when I think about the demand environment and bookings, I know you talked about the activations trajectory, but can you maybe help us understand how the bookings environment has looked, especially as now, I think there’s concerns around the Delta variant? And then to the extent you can comment on the first 30 days of the third quarter, I think it would be helpful for us to understand maybe what bookings activity looks like, both in 2Q and then so far into 3Q?

Sure. We haven’t seen any impact yet from the Delta variant regarding bookings or activations. Obviously, we have a huge push on activations just given the backlog built up over the pandemic. So a lot of focus is there, and we haven’t seen any change there, nor on the bookings front. Yes, that all can change as it did 1.5 years ago, but I haven’t seen any big changes there. I would say early in this quarter, bookings are sort of fine; they’re on track. A lot of our bookings come in the last month. So what happens in July is not super illustrative of what could happen for the quarter, just because there’s always a rush at the end of the quarter. So, it’s too early to say. But I would say where we would first see the pain would be if the Delta variant causes any issues would be on the activation side because that requires us to come in-store or for parties to come to the store. We haven’t seen that at all; in fact, like I mentioned, we’re seeing incredible momentum on the activation side, just turning on ARR.

Great, which I guess brings me to my follow-up question. If I think about activations over just the last 12 months, obviously, the low was the second quarter of last year. But in the past, you guys have averaged or been able to do kind of well north of like 700, 800; this quarter was really sharp at 1,100. How should we maybe think about site activations for the next couple of quarters? And again, I think it would be helpful if you helped us understand what maybe that increased velocity looks like; are we on track for another 1,000-plus sites activated type of quarter? Or should we kind of get back to that more of a 2H 2020 type of assumptions level in our model?

Yes. I expect that to clear Q2 very easily in Q3. I think it will be a significant quarter-over-quarter growth in activations, and I hope that continues in Q4. Obviously, we’ll see when we get closer. But I think we’re on pace for a very meaningful continued upswing in the activations, which is just reflective of – we have all the stack we built up over the pandemic that’s now just ready to go. So I wouldn’t expect us to come back anywhere close to what we had in the second half of 2020.

Okay, great. And then just as I think about the Punchh acquisition, it seems like the early folding them into the organization is off to a good start. How should we think about maybe the technology integration? How long should we think that it will take? And then a similar question on the go-to-market model. Are you starting to kind of give incentives to the two different company sales organizations to go out there and sell? Just maybe an update on the integration process.

Yes. So in the first few months, we’ve been focused more on what I would call the G&A functions, getting together there, more strategically. In a month or two, we’ll combine product and tech so that we have a combined roadmap. That’s the most important part. We want to make sure that the roadmaps are tied together. And that will not only help us on our internal product development but also guide a lot of our M&A strategy. So that will be next. And then I think sales would be last. The key will be us proving that we can make one-plus-one equal three on each one of those G&A product and tech and then obviously, sales. So I’d say we’re doing the G&A. We’re moving on to product and tech, which is a long process but the one we’re most excited about, and then we’ll move on to sales. We are certainly seeing the ability for strong upsell amongst it. We haven’t yet gotten to the point where we’re dramatically compensating; that’s just because we haven’t gotten to the point of the sales force yet.

Great. And then maybe one more for me. I don’t want to hog too much of the Q&A. But for the supply chain issues, could you maybe double-click into that a little bit more? Just is that impacting more the kind of traditional point-of-sale terminal business? Or is this impacting Brink as well? And how should we factor that into maybe the backlog? I know it’s down only modestly quarter-over-quarter, but is it having any impact on the ability to close deals for Brink?

Not yet. There was a little bit of that in Q1, nothing now. I don’t expect that to continue. Where it has impacted is the cost of the inputs to what we buy has gone up as well as shipping, and that was hitting our margins in Q2. Albeit because we had strong revenue, we still managed to recover and had strong margin growth year-over-year. It would have been even stronger if not for those impacts. They will impact margins in Q3 and Q4, but I said it should get better as we’ve put through some price increases; our customers accepted it, they’ve been really supportive, and we've done some better mitigation activity. So I think it’s the margin where it has impacts; I think we feel pretty good on bookings and activations not being slowed down. This is super dynamic though, Samad, so it could all change overnight, but we feel very good about where we are now.

Understood. And that leaves me to my last question. Just as I think about last quarter, I think that the company had a lot of confidence in accelerating Brink ARR growth in the back half of the year. And now that we’re rounding August, would you say that your confidence is the same as it was this time a quarter ago, or more or less the same? Just how should we think about the next six months?

Yes, I would say we’re more confident now than we were then just because I’ve seen July was a record month for activations, i.e., turning on ARR, and I expect that to continue in August and hopefully September. So I think we feel even more confident now in Q2 being super strong, and then I expect that will continue in Q4 unless there was some other unexpected expense issue we didn’t predict. I think we feel even stronger that the Brink second half will be very strong. The other part of the Brink second half is that, in the first half, we activated a decent number of stores. And I would say those are sort of priced at historical pricing that are below. So there were some – they weren’t our highest-priced customers. In the second half, I feel that the customer mix is also very positive for us.

Great. Thanks again for taking my questions. I’ll turn it over to the next analyst.

Thanks a lot.

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

Thank you. I wondered if you could address the payment opportunity, and we were excited to see that you signed your first customer, I believe, Mr. Pickle’s, at least from a formal announcement perspective. Can you talk about the payment opportunity as you see it here?

Yes, absolutely. So we’re definitely starting to get some momentum. That was a good customer win for us, and they sort of buy all of our products. So that’s fantastic to see. I think we’ve now got a full-time person focused on payment sales. So we’ve had a product person. We just approved the development team. Payments is going to be a meaningful part of our revenue next year. We’re starting to gain momentum this year. And as I mentioned a couple of months ago, I hope that by the end of the year, we’ll win at least one, but hopefully a couple of larger customers that will be unexpected. So I think we’ll see good revenue by the end of the year, and then I think it will be a decent part of our revenue in 2022 as we’ve learned a lot in the first six months. Everything I would suggest is – while it’s taking us a little bit longer to get here, I think the net of it will be a better outcome than we expected going in.

You discussed a great quick service restaurant environment to sell into right now. There are a couple of significant trends occurring, and I wondered if you could address those relative to your opportunity. First, the digital design innovations that we’re seeing are obviously suggesting that QSRs are going to look very different than they have in the past. And second, the labor shortages and that issue and what your product can be doing for those challenges?

Absolutely. So on the digital design side, we win there, right? We’re the platform and a lot of the stuff is closely data measured both inside the store and outside the store on your app. All that comes from products that we sell, and we want to be the platform that powers that. So we are huge beneficiaries of that trend, and I think that’s an exciting point. And part of the point I was making was if you look at the restaurants across PAR, it’s not just that the average restaurant has more same-store sales than they did 18 months ago, but also higher average ticket order volume. It’s not just the average, it’s almost every single one of them. So it’s pretty amazing to see the resiliency, which should hopefully allow them to reinvest in that digital redesign that you’ve talked about. We will be absolutely a net beneficiary of that because most of those products are coming off of the point-of-sale platform or are bundled into their customer engagement loyalty product. We launched Punchh Pickup, which is a good example of some of that change. On your second question around the labor challenges, it’s certainly an opportunity for PAR. Our restaurant management solution, our back office Data Central, assists with scheduling labor. But I would say that it’s something that we will – I expect at some point to address through product acquisition. And certainly, as we’ve historically talked about most of our M&A focus being on things like digital ordering in the front of the store, I do think it’s definitely given how strongly our customers are talking about these labor challenges; you might see us look to address that hole in our solution. I believe this is a problem that’s going to continue for a long time.

Lastly for me, you had an interesting article. I’m sure most people on the call were not able to see this relative to ambient technology. Can you just give us a quick summary of your thoughts there and your product set that will meet that opportunity?

For sure. A big part of the foundational thesis of acquiring Punchh is that – with Punchh, we sort of know the customer; with PAR, we know the payment information; we have the transaction; we know what’s going on in the back office in the kitchen. Together, this platform should be able to power an ambient experience. What I mean by that is, George, you should be able to walk into a restaurant one day, and that restaurant should – if you decide to opt into this, should be able to know who you are, adjust the menu, and adjust all your preferences for you. You should be able to sit down and order your food without ever taking out your phone or your wallet; all your loyalty information, your Punchh cards, your payments, your gift cards, all sort of done through, I expect something like VoLTE, like Voice over LTE. That’s really the dream. How do you create that almost Amazon Go store experience at the restaurant, such that the technology is actually enhancing that in-store experience, rather than making it feel farther away from that brand, making you feel closer to that brand because technology helps, and also having that ability outside the store? So that’s really what we want to create.

Beautiful. Thank you very much.

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

Hi, this is actually Pat McIlwee on for Stephen. I think we covered a lot of it, but I just had one more quick one here. So you touched a bit on the upsell and the cross-sell with Punchh, but just curious on what kind of traction you’re seeing there? If you could talk a bit more about that? And then specifically, what drove the strong ARR growth this quarter?

I would say our cross-sell businesses, assuming Punchh was here in Q2 2020, we had sort of 42.5% ARR growth. A lot of that growth, I think, is coming from just the point that we were talking about with George's last question; there is just a move to get digital quickly, and we are a huge beneficiary of that. I would say in the first few months, there’s definitely been cross-sell. There are customers that have been won on the Punchh side that came from Brink. Eventually, I think that will happen vice versa, and that will continue. But the real impact will be later in this year as we continue to sort of get together and push this under a more formal banner. The other thing that I think was not expected is that the vast majority of customers, and I’ve spoken to almost all of them, were very excited about the acquisition because the idea of consolidating vendors is attractive to them. Today, they’re managing too many vendors. They’re actually overwhelmed managing a dozen different software products for stores with a lot of work. I think there will be interesting customer opportunities that may have not picked Punchh or Brink that we could push into those solutions.

Okay. Makes sense. Thanks for the question.

Your next question comes from the line of Adam Wyden from ADW Capital. Your line is open.

Hey, Savneet. Look, I had a couple of questions. One, could you give people a little bit of clarity? I know you talked at certain conferences about gross margin, and there’s been some sort of, I guess, misinterpretation or confusion on Twitter and among people. I mean, can you talk to people about the conservative nature of your accounting relative to your peer group and what that implies for gross margin modeling going forward? And your path to EBITDA profitability?

Sure. We are very conservative in how we account for gross margin as a business. Historically, if I was to break out Brink software. Our service line encompasses all sorts of other stuff, including Brink software. It’s historically been sort of in the 50s in gross margins, and as we’ve talked about in the past, it’s got to be 70s plus. We’ve got a strong path there, strong path to get there, I’d say, over the next year or two as we get the benefits of scale, but also get to lap all of the rework we’ve been doing over the last two years here. We’ve overspent to get better, and I think we’re obviously seeing the results of that. The other huge tailwind we have is that our largest ARR contributor, Punchh, is already at what I’d call natural high software margins. I think we’ll have strong margin expansion just because we’ve got the benefit of the Punchh revenue. The Brink margins will continue – will expand as we move forward. We also get this interesting benefit that as our hardware business grows, and as you saw, we had pretty tremendous growth this quarter, that helps everything get economies of scale, including our service which I’d say has been a very low margin and faced challenges over the last year; that will now turn as well.

Yes. I mean, look, I think a major part of the story for me is less about the ARR growth, although that’s forthcoming, but the fact that your churn is very low and that because of the enterprise nature, that once this thing gets going, I mean, this really has the potential to have best-in-class gross margins and EBITDA margins for that matter. So it will be exciting.

Certainly, yes, Adam. I think Brink was historically a very tiny business. As you get scale, you see immense impacts. You also have to remember the last two years, none of the focus of management has been on margin. It’s been 100% on getting the product right. I don’t want to over-engineer, but it was a ton of focus on building out a product group, building on engineering teams, putting a ton of investment spending behind that. We haven’t benefitted from those investments yet, but those are to come, particularly as we launch new products off of that same team. You see the margin expansion from scaling our existing products, but also each additional product should be incrementally much higher gross margin, which I absolutely expect for us to be the case.

Right. So second off, just from a valuation perspective, I think you’ve been pretty clear that if you think about the PAR opportunity holistically and from a macro view, I mean, Brink is effectively the spinal cord of the restaurant – call it the Bloomberg, all that ever going to call it, and whether it’s Restaurant Magic, Data Central, Punchh, or XYZ delivery company or payments. All of these things are relatively easier upsells in that, as you noted on the call, you can just click on the switch over the cloud and you don’t have to be on-site; that doesn’t require hardware. This is much more about the M&A story, buying modules and upselling to existing clients than it is kind of Brink activations. And then against that backdrop, PAR today probably trades at the largest discount to what I would call analyst 12-month sell-side targets for price. How do you think about kind of solving for that cost of capital now that you’ve got the scale? What is it that you think is missing to get that cost of capital? Because obviously, incrementally, it’s going to be more expensive to do deals even though you’re executing. I’m just kind of curious how you think about narrowing the cost of capital gap and your M&A pipeline in terms of upselling these modules because I think that’s a super exciting story for me if you can kind of get all the balls aligned there?

Yes, for sure. We are super cognizant of our cost of capital. I think we’ve demonstrated in our ability to execute and the acquisitions we’ve done, and the way that we raise capital has been very sensitive to how we get to those numbers. I think the way that you close the gap is, first and foremost, execution. We’ve got to continue to grow. As I mentioned, we feel really excited about the second half; I think we had 42.5% ARR growth this quarter. I expect us to have really good growth in the second half of this year, and that’s point one. Point two is also continuing to get the story out. I think because we’ve been successful in our M&A, and we feel very good about it, we’re going to continue to do that. It’s vital that we do this well. Getting that message out is important, especially when we have used our capital; I think we’ve cleared our hurdles. The last thing relates to getting the story out to people; we do see the valuations of companies that are in our category, and we feel very good about our position.

Yes. I’ll leave you with this. I mean, look, Goldman Sachs was an M&A adviser for the company on the Punchh deal and they don’t really have coverage. I would say that the vast majority of these analysts on this conference call, I don’t want to single anyone out, target smaller investors. It’s clear to me that at $1.5 billion market cap or whatever it is, it’s kind of in between kind of micro-cap and mid-cap; this is a super exciting story. I mean, look, as you know, we purchased our first shares for $8 a share, I believe, at 16 million shares outstanding. So we purchased this thing when it was left for dead – $128 million market cap and roughly $7 million of ARR, in utter shambles, and here we are over $100 million of year-end ARR. We like the story more today than we did when we bought it. I mean, look, you’re there; you’ve got Shyam and the restaurant management team. You’ve really built a corporation and a little entrepreneurial culture. It’s really astounding to me that we are cheaper today than arguably we’ve been in kind of its modern history with this corporate governance. I mean, I’m just kind of flabbergasted. So excellent execution. I encourage you guys to find creative ways to get that cost of capital, and I look forward to the path ahead; I've owned it for three years ARR, round from $7 million to $110 million, that’s call it, 14x. I don’t see any reason why you can’t 14x ARR over the next three to five years. Hopefully, between now and then, we’ll actually get our cost of capital. But unbelievable execution and just keep up the good work.

Great. Thanks, Adam.

There are no further questions over the phone line at this time. I would now like to turn the call back to Mr. Savneet Singh. Sir?

Thanks, everyone, for joining. We look forward to updating you in the next quarter.

Ladies and gentlemen, this concludes today’s conference call. We thank you all for participating. You may now disconnect.