Par Technology Corp Q2 FY2024 Earnings Call

Good day, and thank you for being here. Welcome to the PAR Technology Fiscal Year 2024 Second Quarter Financial Results Conference Call. I would now like to turn the call over to Chris Byrnes, Senior Vice President of Investor Relations and Business Development. Please proceed.

Thank you, everyone, and thank you for joining us today for PAR Technologies 2024 Second Quarter Financial Results Call. Earlier this morning, we released our financial results. The earnings release is available on the Investor Relations page of our website at partech.com, where you can also find the Q2 financials presentation, as well as in our related Form 8-K furnished to the SEC. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items along with a reconciliation of non-GAAP measures to the most comparable GAAP measures can be found in our earnings release. 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, 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 morning and in our annual and quarterly filings with the SEC. Finally, I'd like to remind everyone that this call is being recorded and it will be made available for replay via a link available on the Investor Relations section of our website. Joining me on the call today 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 general Q&A.

Thank you, Chris. Good morning and welcome to everyone on the call. Q2 marked an inflection point for PAR. We delivered meaningful growth on a near-flat OpEx base, launched our Burger King rollout, integrated Stuzo, completed the work to close the TASK acquisition and launched Wendy's in July. Equally important is that we divested our government business, clearing the way for us to be a pure-play foodservice technology business. We are marching towards becoming a very profitable business while increasing our ability to effectuate change at our customers. Subscription services continues to be the growth engine of our company, and subscription services revenue grew by 48% in the quarter versus the same period last year. Our relentless focus on customer success, along with the commitment to delivering best-in-class products continue to drive our results. Excluding Stuzo, now branded PAR Retail, second quarter ARR grew organically by 24% when compared to Q2 23. This is an impressive number given we're just kicking off Burger King, launched Wendy's in July. And as you know, we recognized payments revenue on a net basis. At the end of Q2, ARR stood at $192 million, a 57% increase from the second quarter last year. Additionally, post Q2, we closed our acquisition of TASK, which will contribute an additional $40 million of ARR. Operator Cloud ARR grew by 37% to $84 million in Q2 when compared to the same period last year. Operator Cloud growth is being driven by increased win rates at Brink with stronger multiproduct attachment of Data Central on PAR payments, as well as continued ARPU improvement. ARPU increased by 14% from the same period last year due to higher value deals, API monetizations, upsell price increases, and PAR payment services going live. We expect the growth in ARPU to continue given the current white space and existing high-value accounts, as well as a very robust pipeline of Tier one deals. To put this into perspective, the successful attachment of both Data Central payments into a Brink concept increases the ARR opportunity by over 3x. As I mentioned, we officially launched the Burger King rollout on April 1 and Burger King is extremely pleased with the progress made to date, including both from a product, as well as an implementation perspective. We feel confident that PAR can be the enabler of BK's digital success and are giving them every reason to accelerate our rollout and hopefully add additional products down the road. It is critical Burger King meets their implementation thresholds for the year and we are partnering closely to ensure that they do. As we mentioned in the last call, whatever we don't install this year will get quickly rolled out in '25 and the early parts of 2026. Turning to PAR Payments. In Q2, PAR Payments achieved our highest-ever gross processing volume run rate of $2.5 billion. Pipeline execution led to the signing of several new concepts such as Chow Time Canada, Wings Over, and Miami Growth, to name a few, which will be going live before the end of the year. In Q2, we went live with three new customer logos and continued our rollout with Smoothie King. Importantly, many of our new wins include processing for above-store transactions, not just our traditional in-store POS processing. Our pipeline of new customers is strong and we expect continued momentum following the launch of our Punchh wallet offering at the start of Q3. I'll give more details on Punchh wallet later in the call. Looking forward, the team is fully engaged on integrating payment capabilities into PAR Retail and TASK to unlock further growth. Adding payments to the PAR Retail sales bag is very exciting. Data Central also delivered a strong Q2. This quarter included the signing of seven new customers across the restaurant and C-store space, including pilot travel stops and the ongoing rollout of Love's Travel centers. We continue to build out a robust pipeline with four new Tier 1 concepts and see additional opportunities for Data Central to attach to Brink deals. Data Central is winning off the strength that brings tremendous growth and reputation, creating a road map for future upsell of new products. The enterprise market is seeing how the connection of the POS, back office, and payments processing delivers improved operations, enhanced data capture, and significant value to their business. This trend will continue. Our Engagement Cloud, which includes Punchh, Menu and now PAR Retail, continued a steady growth trajectory in Q2. After a period of rapid change, our near-term goal for Punchh is to drive stable new business wins of 500 to 1,000 new locations quarterly. Our exciting new product launch with Punchh wallet demonstrates Better Together innovation and is driving new revenue with Punchh for PAR Pay. This has amazing potential to enable Starbucks-like payment experiences for all Punchh brands. Punchh wallet is a clear demonstration of PAR's Better Together strategy in providing improved outcomes for our customers. Features include safe payment options, store value balances, digital wallets, and subscriptions. Punchh wallet allows for up to 2.5 times faster checkout times, a 23% increase in repeat store visits, and an increase in customer lifetime value of more than 150%. Year-over-year ARR growth for engagement cloud was 11%, driven by the deals we signed at the end of 2023 and very early in 2024. This past quarter saw significant new customer growth with nine new brands launching on the Punchh platform, and we also saw 12 upsell deals to existing customers. In early July, we went live with Wendy's, a deal that we announced in Q1, record time for a go-live for a large enterprise deal. Looking ahead, we expect Punchh to be a strong profit contributor to PAR. The newest part of Engagement Cloud is Stuzo, which has been rebranded as PAR Retail. PAR Retail is a leading digital engagement software provider to convenience and fuel retailers. The product is in more than 20,000 stores and provides a beachhead to cross-sell additional products like payments and back office. Our pipeline looks strong for the second half of the year. And importantly, we hope to launch our first payment product for this market, which will continue to prove our Better Together strategy. Menu, our digital ordering application, also delivered an impressive Q2. We continued launching new customers and officially reached more U.S.-based active sites than our international base, highlighting key initiatives we had entering the year, which is getting Menu to be U.S.-ready. We launched five new concepts in Q2, and every new customer is an existing customer of another PAR product, proving that our customers desire a more unified experience. Additionally, some of our customers continue to test additional modules of Menu. We were encouraged by the progress so far with Menu and expect a solid second half of 2024. Engagement cloud ARR now totaled $108 million at the end of Q2 and has approximately 95,000 foodservice outlets utilizing our software. We continue to see PAR as uniquely positioned in the foodservice technology sector with best-in-class software across key operational and engagement pillars. Our ability to deliver better outcomes across our products and producing a better-together experience with multiple products sets PAR up to be the industry standard. Q2 hardware revenue grew 10% quarter-over-quarter and is starting to claw back some of the challenges we had in Q1. Hardware is always hard to predict as 40% to 50% of our business is outside of Brink. But given the strong pipeline of Brink, we expect hardware to stabilize and hopefully start growing while our team works to upgrade our base of long-term hardware-only customers. Stepping back to review our consolidated results, in Q2 our adjusted EBITDA was negative $4.3 million. This number, though, includes $2.5 million of one-time charges related to customer credits and Stuzo purchase price accounting adjustments. When further adjusting for these charges, our adjusted EBITDA came in at negative $1.8 million, giving us tremendous confidence in our previously communicated goals of inflecting to adjusted EBITDA positive in Q3. This fast slope in EBITDA is impressive, especially in light of the over $10 million of annual EBITDA we gave up as part of our government sale. The team is proving that our customer flywheel is leading to dramatic operating leverage. Our EBITDA swing is being driven by both subscription services revenue and stringent expense management. On the expense side, our non-GAAP operating expenses, including PAR Retail grew by only 3% year-over-year, continuing our trend of intense expense controls while scaling ARR quickly and simultaneously launching both Burger King and Wendy's. This is not easy to do, and I commend the team for their commitment to only spending in areas where we can improve ROI. I think it bears repeating that this is the sixth quarter in a row where operating expenses were near flat while ARR grew organically greater than 20%. Drilling down into the components of expenses, subscription, sales and marketing expense as a percentage of revenue this quarter is 18%, a significant sequential 300 basis point improvement from the 21% we had in Q1. Sales and marketing expenses actually decreased $1.1 million organically. As I noted on the last call, we want this number to get to 15% or lower and are sprinting our way there. This is being driven primarily by our ability to take price and upsell while continuing to realize just how many products an individual AE can sell. Our subscription R&D expense as a percentage of revenue was 31%. This number improved 400 basis points sequentially, and our organic R&D spend actually decreased $1 million. We have our sights on eventually taking this number to 25% and lower. Brink, in particular, is leading the charge here, proving that we can launch large and diverse concepts off of one core platform. The work we did to retail Brink is now paying significant dividends. These numbers don't include TASK, which as most of you know is a very profitable business that we're rapidly integrating into PAR. While the passive profitability is very clear, we understand that in the end our success will be dictated by the success of our customers. So while we've done a commendable job becoming efficient, our team will not lose sight of the fact that our ability to drive these unit economics is predicated on our customers winning. As I've said in the past, words like consolidation and bundling have had negative connotations and I think for the right reasons. The prior attempts to consolidate were not done around industry-leading products. It required customers to trade off functionality for simplicity. This is explicitly what we are not doing at PAR. Our products must stand on their own be best-in-class, integrate natively and when unified deliver surprise and delight. This is what's truly driving the financial outcomes you are seeing today. To recap, Q2 was a very successful quarter across many fronts for our company. I'm energized by the Better Together experiences and what that means for our customer relationships and outcomes both existing and prospective. The combined effort of the PAR team around the globe has put us in a unique position to further our mission of fueling the future of food service and retail. We're at day one of a massive opportunity. Bryan will now review the numbers in more detail.

Thank you, Savneet. Good morning, everyone. Q2 was a successful quarter for PAR as we were able to drive both positive results and momentum while managing an efficient integration of PAR Retail, administering the closure of the TASK acquisition and effectively managing a smooth divestiture of PAR Government. To emphasize Savneet's earlier statement, Q2 represents a pivotal inflection point in PAR's journey from our beginnings as a quasi restaurant tech and government contractor company to a pure-play food service tech led organization. The construct of our Q2 2024 statement of operations is indicative of that inflection point, as I will highlight. Before moving forward, I'd like to properly call out that all 2024 and comparative 2023 results that we will discuss this morning exclude any contributions from PAR Government. As those results, including the gains on the respective sale of PAR Government, have been isolated within our discontinued operations results. Total revenues was $78.2 million for the three months ended June 30, 2024, an increase of 12% compared to the three months ended June 30, 2023, driven by subscription service revenue growth of 48%, partially offset by a decrease in hardware revenue of 24%. Net loss from continuing operations for the second quarter of 2024 was $23.6 million or $0.69 loss per share compared to a net loss from continuing operations of $21.8 million or $0.87 loss per share reported for the same period in 2023. Non-GAAP net loss for the second quarter of 2024 was $7.9 million or $0.23 loss per share, a significant improvement compared to a non-GAAP net loss of $16.3 million or $0.60 loss per share for the same period in 2023. Adjusted EBITDA for the second quarter of 2024 was a loss of $4.3 million. Once again, a meaningful improvement compared to an adjusted EBITDA loss of $12.3 million for the same period in 2023, driven by increased margin contribution from subscription services, partially offset by a reduction in hardware revenue and margin. As Savneet mentioned, our Q2 results included $2.5 million of one-time charges within subscription services. Excluding those items, adjusted EBITDA would have been a loss of $1.8 million. Now for more details on revenue. Subscription service revenue was reported at $44.9 million, an increase of $14.5 million or 48% from a $30.4 million reported in the prior year. Excluding PAR Retail, organic subscription service revenue grew 15% compared to prior year. The annual recurring revenue exiting the quarter was $192.2 million, an increase of 57% from last year's Q2 with Engagement Cloud up 77% and Operator Cloud up 37%. Excluding PAR Retail, total organic annual recurring revenue was up 24% year-over-year. Hardware revenue in the quarter was $20.1 million, a decrease of $6.3 million or 24% from the $26.4 million reported in the prior year. Sequentially, compared to Q1 this year, hardware was up $1.9 million or 10%. The continued interest from our legacy hardware customers as well as the continued high attachment of hardware sales within our expanding software customer base gives us confidence that our hardware business will continue to contribute meaningful revenue and respective margin. Professional service revenue was reported at $13.2 million, an increase of $0.4 million or 3% from the $12.8 million reported in the prior year. Historically, our professional service revenue trend is correlated to our hardware revenue trend but we are pleased with our team's ability to grow professional service revenue while hardware revenue contracted. Our team has executed this by expanding our service contract base with the successful demonstration of our service team's value proposition. $8.2 million of the professional service revenue in the quarter consisted of recurring revenue primarily from our hardware support contracts versus $7.2 million in 2023. Now turning to margins, gross profit was $32 million, an increase of $12.8 million or 67% from the $19.2 million reported in the prior year. The increase was driven by subscription services with gross profit of $23.8 million, an increase of $10.7 million or 81% from the $13.1 million reported in the prior year. Subscription Service margin for the quarter was 53.1% compared to 43.3% reported in the second quarter of 2023. The increase in margin is driven by a continued focus on efficiency improvements with our hosting and customer support costs, as well as accretive margin contributions from PAR Retail operations. Excluding the amortization of intangible assets, stock-based compensation and severance included in subscription service margin, total non-GAAP subscription service margin for the three months ended June 30 was 66% compared to 61% in the second quarter of 2023. Hardware margin for the quarter was 22.8% versus 19.2% in Q2 2023. In light of our year-over-year revenue decrease, we were still able to improve margins by taking price as we continue to demonstrate our value while also driving savings within our cost structure. Professional service margin for the quarter was 27.5% compared to 7.7% reported in the second quarter of 2023. Q2 2023 results were negatively impacted by one-time charges. Excluding those charges, Q2 2023 professional margin would have been 20% reflective of our normalized historical margin rates. We expect margins to be approximately 20% for the remainder of this year. In regard to operating expenses, GAAP sales and marketing was $9.8 million, a decrease of $0.3 million from the $10.1 million reported for Q2 2023, with organic sales and marketing decreasing $1.1 million year-over-year. GAAP, G&A was $25.4 million, an increase of $8.9 million from the $16.4 million reported in Q2 2023. The increase was driven by non-GAAP adjustment items for M&A transaction fees and stock-based compensation, as well as post-acquisition PAR Retail costs. GAAP R&D was $16.2 million, an increase of $1.3 million from the $14.9 million recorded in Q2 2023. The increase was primarily driven by post-acquisition PAR Retail expense while organic R&D decreased $1 million year-over-year. Q2 2024 operating expense excluding non-GAAP adjustments was $43.5 million, an increase of $5.7 million or 15% versus Q2 2023. And excluding the inorganic growth from post-acquisition PAR Retail, organic operating expenses only increased 3%. Our ability to manage our operating expenses while driving substantial margin improvement will continue to be the catalyst for continued consistent EBITDA growth. Now to provide information on the company's cash flow and balance sheet position. As of June 30, 2024, we had cash and cash equivalents of $114.9 million and short-term investments of $27.5 million. For the six months ended June 30, cash used in operating activities was $37.4 million versus $12.8 million for the prior year. $12 million of the variance was driven by cash activity associated with discontinued operations and the remainder primarily driven by a change in net working capital. Cash used in investing activities was $72.9 million for the six months ended June 30 versus $6.2 million for the prior year. Investing activities during the six months ended June 30 included $166.3 million of net cash consideration in connection with the Stuzo acquisition and capital expenditures of $2.7 million for developed technology costs associated with our software platforms. Partially offset by $87.1 million of cash consideration received in connection with the disposition of PAR Government and $9.4 million of proceeds from net sales of short-term health maturity investments. Cash provided by financing activities was $191.5 million for the six months ended June 30 compared to cash used in financing activities of $2.5 million for the prior year. Financing activities during the six months ended June 30 were substantially driven by a private placement of common stock. I would like to take a moment to reiterate and thank our PAR team for continuing to execute our operating plan while successfully managing the integration of the PAR Retail organization and also manage a smooth divestiture of PAR Government. As a result, we drove significant improvement in key financial metrics, with 24% organic ARR growth, $12.8 million or 67% improvement in gross margin, all while maintaining modest growth in operating expenses. This has resulted in meaningful adjusted EBITDA growth and positions us well to be adjusted EBITDA positive in Q3. I will now turn the call back over to Savneet for closing remarks prior to moving to Q&A.

Thanks, Bryan. Let me wrap up with a few key messages before we open the call for Q&A. While the macro environment has been and will always be volatile, the end market we're selling to continues to be strong. There is no doubt that macroeconomic shocks will impact all businesses. What we love about our end categories is that in times of duress they outperform; customers trade down and demand more ways to access their food and fuel. Moreover, the products we sell are built to drive ROI, ostensibly helping our customers deal with whatever external pressures they are facing. We track this data very closely and are seeing not only resilience but growth in our base. Same-store sales within our Brink base on average increased 5.5% this quarter from a year ago, suggesting that our customers are taking share from adjacent categories. We've seen this happen time and time again. I also think our recent results prove this out. Despite an uncertain macro environment, PAR delivered its sixth straight quarter of greater than 20% growth with almost no OpEx growth. What's more, during this time, we've launched our largest POS and loyalty customers respectively without having to add tremendous costs or offsetting any costs with internal efficiencies. We are funding tomorrow's growth engines without net new expense. In uncertain markets, customers aren't looking for speculative tech but best-in-class products with proven ROI. This is where our multiproduct model wins. We're just starting to scratch the surface of the white space in our TAM and are continuing to build a roadmap to programmatically earn a greater share of our customers' wallets. We're an ambitious team at PAR and treat every day as day one. For the first time in our history, we are a pure-play food service technology business, providing greater focus and transparency to our investors and our employees. This focus will help us accelerate our innovation, deliver for our customers and create value for our shareholders. With that, I'll open the call for Q&A. Operator?

Thank you. Our first question comes from Mayank Tandon of Needham. Your line is now open.

Thank you. Good morning, Savneet, Bryan, Chris. Congrats on the quarter. I wanted to start with a question around the integration of Stuzo and I know you just closed TASK. I would be curious to hear what the customer response has been, integration process, any surprises, positive or negative early in the process of integrating Stuzo. Then also, I know it's only been a few weeks, but any comments around cash as well?

Sure, regarding Stuzo, which we've rebranded as PAR Retail, the integration has gone exceptionally well. This has been one of our smoothest mergers and acquisitions. Customer feedback has been very positive, and we’ve been proactive in engaging with them. Importantly, our existing convenience store customers are responding favorably, and I believe many will be enthusiastic about our future plans with the combined resources. Having a dedicated focus on the industry will significantly enhance our efforts. From a talent perspective, several members of the Stuzo team are now part of PAR, and we feel we've brought on an outstanding team. We're looking forward to strong performance in the second half of the year. I'm actively involved in several go-to-market initiatives. Overall, we feel optimistic about the integration, and cultural alignment has been a key component of this M&A deal. On the TASK integration, we're only a couple of weeks in, so I don't want to get overly excited just yet. However, I can confidently say that their senior leadership team is impressive, bringing valuable ideas and insights, particularly regarding international expansion in our category. Their strong emphasis on efficiency will also be crucial for us as we continue to improve. We've seen significant operational leverage at PAR, and that team will help us continue on this path. It may still be early for customer feedback on this front, but there haven't been any negative signs so far.

That's helpful information. Savneet, regarding the financial impact of the two acquisitions, when you finalized these deals in March, the anticipated contribution was $80 million in annual recurring revenue from Stuzo and TASK, along with approximately $20 million in adjusted EBITDA. Is that forecast still accurate, or do you anticipate any changes, whether positive or negative, since the initial announcement of these acquisitions?

That's all right. Obviously, we're an ambitious team, so we assume there's a little bit of upside and opportunity there, but we're still really excited with those numbers, we feel really confident about.

Hi, good morning. Thanks for taking my question. First, just looking at page nine of the presentation with the organic and total ARR breakdown, it seems like Stuzo's ARR might have been down just a touch sequentially. I think organic ARR was up over $7 million sequentially. Total ARR was up by less than $7 million. I just wanted to make sure, am I thinking about that right what would cause Stuzo's ARR to be down slightly sequentially? And just generally, how are you thinking about the growth outlook going forward now that it's integrated and rebranded for that asset?

The adjustment related to the purchase price accounting for Stuzo is a common aspect of business operations. It was not due to churn but rather a result of our integration of the businesses and the corresponding accounting adjustments. I wouldn’t categorize this as operational; it’s more about accounting. We are genuinely excited about the second half of the year. We secured three signings in July and anticipate more to come. A key advantage of Stuzo is that every deal we sign goes live immediately, allowing us to recognize that revenue in the current quarter. We feel very optimistic about this, and there are significant opportunities ahead. Even if we do not capture those larger opportunities, I still believe we will achieve our target, reaching around 20% growth for this business, similar to what we have planned for the rest of PAR.

And Steve, to add to what Savneet mentioned, the adjustments from Q1 and Q2 were about establishing a new baseline as we finalized our balance sheet. It's a reset that we are implementing moving forward.

Got it. So then we should probably expect a step-up then in Stuzo from 2Q to 3Q?

Got it. Exactly.

That's right. I wanted to explore further how you are approaching joint go-to-market efforts between your existing domestic capabilities and TASK's international capabilities. Given that it's still early with TASK, are there many cross-selling opportunities that you plan to pursue quickly? Additionally, what do those cross-selling initiatives typically look like?

So I'll share the concept. We'll see if we can implement it, and we usually do, but it's quite straightforward. The first thing we're assessing is identifying the right focus for our resources. The TASK product is comprehensive, exceptionally designed, and features a dynamic team. Our immediate opportunities involve determining which customers in the United States are seeking national solutions and which TASK products we should offer them. That's the first step, and we are actively working on it. We plan to incorporate some traditional resources into the TASK go-to-market team to further this effort. Secondly, there are specific regions in the United States where certain features of the TASK platform could be introduced, and though I won't delve into specifics, we see significant and unique potential there. The third point is that TASK effectively serves adjacent markets. For instance, TASK is arguably the leading stadium provider in Australia and is involved in many projects. We will evaluate if this is a good fit for us. Between our U.S. base looking to expand internationally and the TASK modules that can cater to our U.S. customers in areas where we currently do not operate, there is ample opportunity ahead. Additionally, we can explore other ideas in the future. I believe we will have plenty of options, but our focus will be on one or two initiatives that we can demonstrate quickly.

Great to hear. Thanks for taking the question.

It was interesting to hear your perspective on the competitive landscape, especially in relation to two of the larger competitors in the POS market. Now that the acquisition of TASK has been completed, how does that impact your competitive position internationally?

Well, I think before that we weren't international. So I don't think we had a solution. And at the time of the acquisition, one of the things that I've sort of been observing is that our big US brands are growing far faster outside the United States than in the United States. And over time the decision makers for those businesses will probably gravitate towards the international side because that's where they're deploying their capital. And I think that puts us at a point of weakness. So we may have the best solution in the US, but if somebody has a better global solution, maybe the B+ product wins over the A+ product in the US because they want something more connected. And that was a big part of the rationale for the acquisition. So I think it makes us far more competitive on these mega-large deals. Obviously, as you know TASK has got one or two mega brands already, I think soon to be three and I think we will be able to help accelerate that. So I think it makes us more competitive holistically whereas before I think our large customers would sort of think of us as a US-only solution.

Can you provide an estimate for the normalized interest expense and share count for the rest of the year following the close on July 18 for TASK?

Absolutely, Bryan, would you like to discuss the interest on some of the Blue Owl?

What you're referring to, Eric, is our recent acquisition, which was financed with a mix of cash on our balance sheet and about 37% to 38% in equity. We also utilized approximately $90 million from a term loan with Blue Owl, which carries an effective interest rate of around 10%. We anticipate that this will be a short-term loan on our balance sheet, so while you can expect a temporary increase from that 10%, I wouldn’t consider it as a long-term expectation. We plan to make the necessary adjustments to our balance sheet moving forward. This loan has effectively minimized our deal risk. When we signed the deal in March, we were uncertain about the equity and cash proportions and the exact timing of the PAR Government divestiture. It was crucial for us to ensure the deal was solid, and as Savneet explained, we have that value secured. We will continue with our usual disciplined capital allocation strategy to ensure a good return on investment.

Right. And the share count is going to…

Referring to the 8-K I believe it's at right now we just had I think it's about another $2.3 million in shares on top of where we were versus what you see in the 8-K.

Got you. Thank you.

Good morning. Thank you for including me. First, it's impressive to see how much change your team has managed in the second quarter, which has really set a strong foundation for the company. It's encouraging to see all of that progress. You've provided some guidance on organic growth, particularly regarding what could drive you towards the historical upper bounds you've mentioned. Now that you've completed this significant period of change in Q2, could you help us understand how we should view organic ARR growth for the remainder of the year? Do you feel more confident in targeting the upper end of that range? I also have a couple of follow-up questions.

Thank you, Samad. I appreciate your feedback. What excites me is that our growth is not slowing down. We've made some significant changes in our government business, and I hope we've communicated that our operating leverage is impressive. Our EBITDA was negative $1.8 million after selling off over $10 million of EBITDA, which highlights how quickly our financial profile is evolving alongside the business transformation you mentioned. From a growth standpoint, we remain very confident, aiming for over 20%. Currently, we're in the mid-24% to 25% range. Regarding our ability to accelerate growth, we are still in the early stages of the Burger King rollout. If we continue to execute well and maintain their enthusiasm, we clearly have a path to reach the higher end of our growth target. However, as of now, I don't want to make any premature changes to our outlook; we feel quite confident. I believe, although it's subjective, that this rollout is unprecedented compared to our previous efforts, and we are dedicated to our customers, which gives us a strong position to gain their trust and expand further. At this moment, our planning is quite month-to-month regarding our next steps. Another growth opportunity lies in the PAR Retail business, previously known as Stuzo. We currently have a strong pipeline with some significant deals. The unique aspect of this business is that with major deals, we begin billing immediately. Thus, we have another lever to help us reach the upper range of growth, but that will be more apparent in Q4.

Great. On the Wendy's rollout, it seems that the implementation has progressed much faster than anticipated. I understand this took place in the third quarter. Can you remind us whether Wendy's is already included in the Annual Recurring Revenue, or since they went live in the third quarter, will it be reflected in the Q3 numbers? We're trying to understand the extent of the contribution and where it fits in.

So it will be in the third quarter because we launched in July and we bill when we launch. Even though we grew by 24% this quarter, it didn't include the Wendy's number. So again, the third quarter will see a nice boost. Unfortunately, we can't disclose the size of that contract in public forums due to our relationship with the customer, but I'm very comfortable saying that it is one of our top two largest Punchh customers.

Great. For my last question, I think we’ve discussed how much the business has grown and changed. I’m curious about your operational approach and how you plan to allocate your time moving forward. Additionally, are you considering evolving the leadership to align with the scale you've achieved over the past year?

That's a great question, Samad. It’s something our board focuses on a lot. I've spent considerable time thinking about organizational design, including whether we want to operate functionally or through business units, and how we can maximize our market approach and talent development. Much of this involves studying successful companies from the past and present. We maintain a relatively decentralized structure with separate business units for our Engagement Cloud and Operator Cloud. Both of those leaders are exceptional, and the growth in our Operator Cloud reflects that. I often joke that after I stepped back from daily operations, the business improved—this highlights the strength of our team. In response to your question, our organizational design is scalable. The successful integration of PAR Retail was largely due to our capable team, which ensured seamless integration and alignment with our culture. I genuinely believe there are several individuals at PAR who could outperform me as CEO, and I would confidently wager my salary on that. Therefore, the key lies in combining exceptional talent with a flexible organizational structure. My focus can be categorized into three or four areas. Firstly, there's strategy. When we acquired PAR, we noted that subscription service revenue was around $5 million in Q4 of 2018, and now it's well over $200 million with TASK. As our vision evolves, it’s crucial that it aligns with the ambitions of our talented staff, as they may not stick around if our targets are not sufficiently challenging. This strategic alignment takes up a significant portion of my time. I also act as an advocate for the company, ensuring our values shape our hiring, promotions, and terminations. I prioritize accountability and maintain close communication with customers to set expectations for our team. Another major focus of mine is talent recruitment, as I'm actively seeking out great additions for PAR. Lastly, I concentrate on capital allocation. We rigorously manage operating expenses, so deciding where to invest is a complex discussion—should we prioritize payments, PAR Retail, or Brink, which is showing remarkable growth? These discussions involve navigating uncertainties, and I invest substantial energy into determining where to make incremental investments while also considering the potential for mergers and acquisitions.

Thank you. I appreciate the answer and congrats on all the success.

Hey everyone. This is really exciting and congratulations. I feel like I've been waiting for this call for six years. I want to break down my questions into qualitative and quantitative. Looking at the $2.5 million of add-backs, which I assume are legitimate, and noting that Savneet mentioned it’s minus $1 million of EBITDA excluding government, I noticed the contract revenue you reported last quarter was 35%. There seems to be some corporate absorption and allocation in the government segment. If I apply a 9% margin to that, it appears to translate to about $3 to $3.5 million of EBITDA. I understand you mentioned over 10%, but could you clarify the specifics? Is it closer to 12% or 13%? Are there any corporate G&A costs you believe you could reduce that haven’t been addressed yet? Additionally, could you provide an estimate of the ongoing EBITDA contribution? Essentially, you were profitable in the second quarter without TASK, which is what I’m trying to understand. It would be helpful to unpack that, and then I have a few more questions about the pipeline and qualitative aspects.

So, I think if we have the government business we would have crossed EBITDA profitability really comfortably this year.

This quarter.

This quarter, with over $10 million in EBITDA plus allocations, I don't believe it was just a $5 million swing because that's too significant. However, I think a few million dollars would have moved us in the right direction, allowing us to reach that inflection point. The point I was making is that despite the headwind on EBITDA, we still achieved these numbers, demonstrating how efficient our core business is becoming. In short, I believe we would have crossed that threshold this quarter, or we will next quarter, likely by a few million dollars. It's a bit challenging due to the need to rationalize office expenses and allocations.

Right and then on the TASK side, do you sort of still expect to get $8 million to $10 million per year, I guess I mean you don't think that there's an additional huge investment on the TASK side from a G&A perspective. I mean is it fair to assume that you still think you're going to get sort of 2% to 2.5% on TASK per quarter?

I believe that after the cuts from the transaction, the costs associated with being a public company that we're eliminating seem reasonable. When we reported, our guidance was in the range of 6% to 8%. I think by adjusting various expenses such as reporting fees, board fees, and audit fees, we hope to save a bit more than what we previously mentioned during the announcement call. That said, I assume for now that we won't find additional ways to grow the business, although I expect that won't be the case. To sum up, our outlook remains unchanged from what we reported in March.

I don’t want to dwell on this too much, but to summarize, if you consider the $3 million adjustment related to government factors, it brings you to about $1 million or $2 million, along with another $2 million from TASK. This means you are a solidly profitable company. Now, regarding Agilysys, I understand that it operates differently since you have multiple products. However, with the integration of the engagement cloud and the merger with Stuzo and Punchh, you're achieving cost and revenue synergies by transitioning Punchh customers to Stuzo and increasing ARPU. The integration with Data Central is also advancing. Agilysys is operating at a 17% margin, even though it has a much smaller ARR. Can you share your perspective on the Rule of 40? From our calculations, it appears you might reach it sooner than expected. How do you approach the combination of ARR growth and overall company margin in relation to the 40% target? Do you have any timeline or insights on your path to achieving this, especially considering the recent acquisition and potential cost efficiencies?

We're experiencing growth in the mid-20s range. We've added $6 million to $8 million of tax EBITDA before synergies, and you haven't yet seen the momentum we have as we secure new PAR Retail deals. The key factor for our profitability remains our core business becoming highly efficient. Notably, we haven't increased costs in six quarters and have limited cost increases over the past seven or eight quarters, all while our revenue continues to grow, which is a significant contributor to our success. While we're not providing specific guidance right now, we're fully committed to achieving the Rule of 40, with each of our business units independently focused on that target. We expect to reach it quickly, especially given the rapid pace of our EBITDA growth, which we believe will continue into 2025 as we implement these large agreements. We're dedicated to this goal and are striving to reach it swiftly. Importantly, I highlight our sales, marketing, and R&D expenses because you can see how quickly we're progressing on an organic basis, even excluding TASK. We're prioritizing growth, and while we could accelerate cash flow by slowing down our growth efforts, we're focused on capturing market share to maintain high growth levels. Furthermore, there is significant white space within our total addressable market. As reflected in our numbers, we've learned how to bundle and sell more products together. We're only at the initial stages of this strategy. We're increasingly successful in selling multiple products at once rather than waiting a year to add another. We're at the start of this opportunity, and I'm very enthusiastic about our potential. While I can't provide a specific timeline right now, we will share more updates in our upcoming calls.

I want to clarify something. Adam, I want to ensure I understand this as well. The Q2 numbers did not factor in PAR Government. So when we refer to the $1.8 million loss, that's the baseline we should use for Q2. As we mentioned, this reflects pure foodservice technology as the foundation, and we will build on that with the anticipated growth driven by certain services and the addition of TASK.

Chris, I've got one last question.

Okay.

On the pipeline, Savneet, you mentioned two super mega brands and expressed hope to achieve one-third. Can you elaborate on that? At the end of 2023, you stated that the pipeline was the largest it has ever been. I understand that you're very mindful of customers, and I want those listening to this call to recognize that while you may not be disclosing specific details, we are attending trade shows trying to identify opportunities for RFPs. It seems there are numerous large mega brands conducting feasibility studies for point-of-sale and vertical solutions. For instance, Wendy's has successfully integrated Punchh into their loyalty online ordering platform, indicating a shift in their approach. Burger King is another case in point. Can you provide insights on that third mega brand related to TASK? Additionally, you've mentioned Burger King as a mega brand, but there seem to be even larger entities as well. Could you discuss the pipeline further, along with table service? Thank you.

I can't discuss any specific brands at this time. However, I can say that we have never had such a strong pipeline, especially within operator cloud, as we do now. It feels like every week I'm traveling with a team member to secure these deals. Despite the macro environment seeming daunting, we find it quite exciting. Our customers, for instance, are seeing a 5.5% increase in same-store sales this quarter, which is significantly higher than the average for restaurants. They are still making investments, and we have not experienced any slowdown in our pipeline. In particular, the expansion of our pipeline in Data Central is notably promising. While I cannot comment on specific brands yet, we are optimistic about our position. If we were noticing any decline in our pipeline, I would bring that up, but this environment is currently working in our favor.

But the prospect of mega brands beyond Burger King, do you think that that's on the table that's all I'm trying to get at. But there are mega brands larger than Burger King that you think are feasible in terms of selling more products. That's what I was trying to get at.

I would say we are actively in conversations with mega brands and I think many people are going to this constant debate of internal versus vendor-based tech and I think they're going to move to vendors over time.

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