Par Technology Corp Q4 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the PAR Technology Fiscal Year 2025 Fourth Quarter Financial Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Byrnes, Senior Vice President, Investor Relations and Business Development. Please go ahead.

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us today for PAR Technology 2025 Fourth Quarter Financial Results Call. Earlier this afternoon, 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 Q4 financials presentation as well as in our related Form 8-K furnished to the SEC. Before we begin, please be advised that remarks today will contain forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our earnings release and our other reports filed with the SEC. Also, we will be discussing or providing certain non-GAAP financial measures today, which we believe will provide additional clarity regarding our ongoing performance. For a full reconciliation of the non-GAAP financial measures discussed in this call to the most comparable GAAP measures in accordance with SEC regulations, please see our press release furnished as an exhibit to our Form 8-K filed this afternoon and the earnings presentation available on the Investor Relations section of our website. Joining me on the call today is PAR's CEO, 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. Savneet.

Good afternoon, everyone, and thank you for joining us. Before sharing details of a strong Q4 today, I want to reaffirm PAR's thesis. PAR is becoming an AI-driven hospitality platform company. Our two verticals, restaurants and retail, are individually mid-teens ARR growers with significant white space, anchored by mission-critical systems of record with deep domain expertise. The compounding nature of PAR's enterprise platform is driven by simultaneously allowing customers to play offense and defense via revenue generation and cost efficiency. This is especially true in times of underlying market instability, where falling behind in digital adoption and its resulting margin loss is a formula for customer pain. Aggressive investment into our AI platform will deepen our performance and provide further customer expansion opportunities. We have never felt more confident about our positioning and the opportunity set in front of us. Now to review the numbers. In Q4, we delivered revenue of $120.1 million, up 14% year-over-year, driven primarily by continued strength in subscription services and an increase in hardware revenue. On a non-GAAP basis, we generated $2.6 million of net income, marking our third consecutive quarter of non-GAAP profitability. Adjusted EBITDA in the quarter was $7 million. Full year revenue reached $455.5 million, up $105 million year-over-year, including 21% organic growth with subscription services growing 40%. Most importantly, full year non-GAAP net income improved by over $30 million year-over-year, proving that our operating model is scaling. We continue to stress operating expense efficiency as we scale our business; Q4 was no different. As a percentage of subscription revenue, R&D came in at 25% and sales and marketing at a solid 13%, respectively, at or ahead of our targets. Turning to ARR, we exited Q4 with ARR of $315.4 million, representing 15% organic growth. Crucially, second half growth was more than double first half growth and was powered by cross-sell, with over 80% of deals being multiproduct. Growth was broad-based, led by POS momentum and the resumed Burger King rollout, along with continued steady performance from Punchh and Plexure. The former continues to win new marquee brands, while the latter benefits from McDonald's international expansion, including a successful Japan launch. We also saw improving trends in ordering and payments. Now to review our business performance in Q4, starting with the operator solutions business. Q4 revalidated our platform strategy. We were selected by Papa Johns for a decade-long partnership with their 3,200 sites, and we'll be rolling out PAR POS and PAR OPS to power their in-store tech stack. This win builds our momentum in the pizza category with TAM expansion already reflected in a significant pizza pipeline for 2026. Further, we anticipate increasing our partnership with Papa Johns in the future, with both expansion to select international markets and continued expansion within our platform. In addition to this marquee project, our bookings exceeded internal expectations and hit record highs with over $25 million booked for PAR POS alone. The mix skewed heavily towards enterprise, multiunit, multiproduct deployments. Enterprise customers are not buying point solutions; they're buying a unified platform with POS as a gateway into the broader PAR ecosystem. Our attach rates confirm this. Nearly 90% of Q4 operator deals were multiproduct in nature. Additionally, we continue to progress on our large Tier 1 opportunities. The world's largest brands continue to show more interest in the PAR platform, and we'll update investors as we convert these opportunities to bookings. We're hopeful that our intense focus on AI helps accelerate these opportunities, as these brands are looking for ways to become AI-driven ahead of their peers. PAR OPS, our back office offering, is evolving from analytics to intelligence and even more importantly, product capability accelerated. Our first AI product, Coach AI, is now being utilized by nearly 1,000 stores with roughly 1,000 active users, indicating high usability and market fit. Since launch, we've added enhancements and improved both usability and contextual awareness. The current version of Coach AI moves us into prescriptive operator recommendations, not just showing personnel what happened, but telling them what to do next. Crucially, we are embedding AI directly into daily workflows and are building towards a full self-driving product that is capable of direct and immediate store optimization. This is not incremental enhancement. This is marginal margin-driving capability for operators. The industry does not need more dashboards. It needs fewer decisions and better ones. Our goal is to embed intelligence into every operational layer such that actions drive outcomes. One of the most encouraging signals this quarter was the breadth and quality of momentum across our Engagement Cloud, both with new logos and existing customers. Starting with Punchh, we signed two new noteworthy brands, including Shake Shack, and also expanded meaningfully into the adjacent entertainment vertical with Lucky Strike Entertainment, which opens up a compelling new category for us. These wins reinforce Punchh's position as a category leader and validate our ability to extend the platform into new high-value segments. Ordering continued its strong momentum, adding six new brands in the quarter, including Savvy Sliders and Smokey Mo's. Importantly, these weren't stand-alone wins. They increasingly came as part of a broader multiproduct engagement, which speaks to how customers are buying the platform rather than the point solution. Across PAR engagement, co-sell and cross-sell momentum continues to build. More than 80% of new deals are now multiproduct, consistent with last quarter and still trending higher. This quarter included the first large sale of PAR catering to Condado Tacos, where we successfully displaced a competitor. We also had the first major deployment of PAR Games with Smoothie King and the first significant sale of PAR Smart passes. Our retail delivered a strong quarter that demonstrated continued scale, engagement and execution across the platform, particularly with our largest enterprise customers. One of PAR Retail's newest and largest C-store customers is driving improved results, as their program now exceeds 3.6 million members and continues to drive measurable changes in customer behavior. We are seeing higher visitor frequency, richer customer data and clear monetization benefits across categories. We continue to see broad adoption of PAR Retail as three new customers launched on the platform in Q4, but it gets better. I'm also excited to announce the launch of our newest AI product for C-stores and fuel retailers, PAR Drive AI, a fully integrated AI suite built directly into our unified platform. This isn't AI layered on top. It's intelligence embedded into the systems convenience and fuel retailers already use every single day. Not only making us AI native but building AI into the workflow our customers run today alongside the security, data, and intelligence our customers trust today. We also saw a strong performance in the quarter, driven by increased hardware demand by our restaurant customers and deployment activity across several of our large enterprise customers. Some of this acceleration is due to the switchover by restaurants to edge compute. Later this year, we'll be coming out with PAR's own portfolio to help support this move. We also saw strong momentum with new store openings and continued kiosk expansion, reinforcing the role of self-service and digital ordering within large QSR environments. In Q4, we experienced steady demand across large POS enterprise brands, including Dairy Queen and Burger King, where ongoing remodel activity, platform upgrades and new unit growth continue to drive consistent deployment volume. Even with the strong Q4, we saw significant cost pressures on key components, including solid-state drives, memory, and processors being driven by significant demand from AI infrastructure build-outs, which is tightening availability and creating elevated pricing across the broader compute supply chain. We're moving early and aggressively with measures to protect our core hardware product lines while also rationalizing configuration offerings based on component availability and evolving customer needs. As of today, we expect component cost pressures and constrained availability to persist until supply more fully catches up with demand, which we believe could extend into 2027. Importantly, we remain focused on mitigation through supplier diversification, product flexibility and pricing discipline to ensure we can continue supporting customers. Before turning the call over to Bryan, I wanted to share a perspective on AI and its impact on software and even more specifically on PAR. The market fear around the durability of software in an AI-first world is palpable. I would be tone-deaf not to address this directly. PAR is suffering extreme sell-down. We are at one of those rare moments where a technology shift is structural. For those of us in the restaurant technology space, we believe this moment represents an opportunity to lead. There are two key realities that guide us as we position PAR to be the leader in AI technology for restaurants. First, food service chains are among the most compelling environments for AI to create real measurable value. Brands compete on speed, consistency, and quality, and their guests are already conditioned to engage digitally. At the same time, rising costs, structural labor challenges and tight margins mean AI isn't being evaluated as a future capability, but rather as a near-term operational imperative. We believe that among all physical businesses, restaurant AI adoption by end users will be among the fastest. And second, PAR is uniquely positioned to be the company that delivers it. PAR owns and is the ecosystem of record for tens of thousands of restaurants: every transaction, every labor input, every menu item, every guest interaction, every payment event. PAR is best positioned to be the provider that delivers an intelligent operating system, where POS captures the data, payments enrich the data, loyalty identifies the guests, PAR OPS structures the insight, and PAR AI delivers prescriptive action. We believe that the winners of AI have three key components: a massive trove of industry-wide first- and third-party data; a complex integration into an end-to-end workflow; and customer trust, the least measurable and hardest to come by of the three. For PAR, we have all three. Our AI strategy isn't about adding a chatbot on top of our products. We are rethinking our entire product suite to deliver measurable outcomes autonomously. The vision stated plainly: we are building a platform that gives every restaurant brand the firepower of the biggest brands in their segments. A single marketing manager at a 200-location chain should be able to execute with the precision, personalization, and speed of the entire marketing department of the world's largest restaurant. We will empower them with a team of AI agents that actually do the work, strategize the new plan, build segmented audiences, configure campaigns, deploy one-to-one offers, optimize in real-time, and report back what worked and what didn't. Or imagine the regional OPS leader overseeing 150 stores, empowering them with the situational awareness of a Fortune 500 field organization through an AI layer that watches every location, flags what matters, recommends what to do, and executes to fix it before it becomes a problem. Now let’s zoom into the General Manager opening the store at 5:00 a.m. This lead should walk in with the preparedness of an executive chef running Eleven Madison, knowing exactly what to prep, who's coming in, what's trending and where yesterday's gaps were. A guest pulling into the drive-thru should experience something that feels like their favorite local spot remembers them and they're talking to a friend. The pattern is the same in every case. AI eliminates the gap between what small teams can do and what the best operators in the world actually do. Nobody needs another chat interface. What brands need is a system that advises you before you ask, assists while you execute, and answers when you need it across every function at every location, with the ultimate goal of driving profitable revenue. That level of scale and dependency makes PAR well-situated in the deterministic orchestration layer of this new world. AI won't replace enterprise orchestration but rather leverage it. We are seeing this firsthand with our customers today.

Thank you, Savneet. Good afternoon, everyone. We closed out 2025 with our most successful quarter in recent history. From our strong bookings, incremental ARR of $17 million, and down through to our $7 million adjusted EBITDA, we continue to execute to our plan of driving organic growth across our products and the verticals we serve, while also driving profit improvement, all while ensuring the company has the right resourcing to execute with excellence on our growth trajectory and an aggressive AI transformation. Subscription services continue to fuel our organic growth and represented 63% of total Q4 revenue. The growth from higher-margin revenue streams resulted in a consolidated non-GAAP gross margin of $61 million, an increase of $8 million or 16% compared to Q4 of the prior year. We managed the growth while limiting operating expenses, which has enabled us to grow adjusted EBITDA for the third quarter in a row. Now to the financial details. Total revenues were $120 million for Q4 2025, an increase of 14% compared to the same period in 2024, driven by subscription service revenue growth of 18%. Net loss from continuing operations for the fourth quarter of 2025 was $21 million, a $0.51 loss per share, compared to a net loss from continuing operations of $25 million or $0.68 loss per share reported for the same period in 2024. Non-GAAP net income for the fourth quarter of 2025 was $2.6 million or $0.06 earnings per share, compared to a non-GAAP net loss of $37,000 or effectively $0.00 per share for the prior year. Adjusted EBITDA for the fourth quarter of 2025 was $7 million, an improvement of $1.2 million sequentially from Q3 and $1.3 million compared to the same period in 2024. This positive movement is indicative of our ability to continue to drive growth with profitability. Now for more details on revenue. Subscription service revenue was reported at $76 million, an increase of $12 million or 18% from the $64 million reported in the prior year. It now represents 63% of total PAR revenue. Organic subscription service revenue grew 11% compared to the prior year when excluding revenue from our trailing 12-month acquisitions. ARR exiting the quarter was $315 million, an increase of 16% from last year's Q4, with Engagement Cloud up 19% and Operator Cloud up 12%. Total organic ARR was up 15% year-over-year. Incremental ARR growth accelerated in the second half of the year, and we reported a record $17 million increase in Q4. This progression reflects strong underlying momentum in the business and positions us well entering 2026. Our growth is being driven by both site growth and increased ARPU, reflecting successful execution of our Better Together thesis, which is driving momentum in both multiproduct deals and cross-selling into our existing customer base. Hardware revenue in the quarter was $28 million, an increase of $2 million or 7% from the $26 million reported in the prior year. The increase was driven by continued penetration of hardware attachment into our expanding software customer base. Professional service revenue was reported at $16 million, relatively unchanged from the $15 million reported in the prior year. Now turning to margins. Gross margin was $49 million, an increase of $4 million or 10% from the $45 million reported in the prior year. The increase was driven by subscription services with gross margins of $39 million, an increase of $4 million or 13% from the $34 million reported in the prior year. Subscription service margin for the quarter was 51%, compared to 53% reported in Q4 of the prior year. The decrease in margin is due to an intangible impairment recorded in the current period related to the write-off of capitalized software development costs within our drive-thru business. Excluding the amortization of intangible assets, stock-based compensation, severance, and the impairment loss, non-GAAP subscription service margin for Q4 2025 was 65.8%, compared to 64.7% for Q4 2024. That margin includes the impact of a fixed product contract that we acquired from one of our 2024 acquisitions. Excluding that contract, which is not reflective of core operational performance, non-GAAP subscription service margin was 71% for the quarter, an improvement of 190 basis points versus the prior year. The continued improvement is a strong sign of our ability to leverage economies at scale. Hardware margin for the quarter was 23% versus 26% in the prior year. The decrease in margin year-over-year was driven by increased supply chain costs resulting from recently implemented U.S. tariff policies and supply chain constraints with memory components related to a significant increase in demand driven by the AI infrastructure industry. We continue to evaluate and implement pricing adjustments and modify procurement plans to mitigate the impact of supply chain cost movements on our hardware margins. We expect this environment to persist through 2026 and will continue to manage mitigation plans. Professional service margin for the quarter was 28%, unchanged from the 28% reported in the prior year. In regard to operating expenses, GAAP sales and marketing was $12 million, an increase of $2 million from the $10 million reported in the prior year. The increase was primarily driven by inorganic increases related to our acquisitions, while organic sales and marketing expenses increased a modest $700,000 year-over-year. GAAP G&A was $30 million, a decrease of $1 million from the $31 million reported in the prior year. The decrease was driven by a $1.5 million decrease of organic G&A expense year-over-year, partially offset by inorganic G&A expenses. GAAP R&D was $22 million, an increase of $4 million from the $17 million recorded in the prior year. The increase was substantially driven by a $3 million increase in development costs as we continue to invest to innovate our product and service offerings. The residual increase was driven by inorganic R&D expenses. Operating expenses, excluding non-GAAP adjustments, was $54 million, an increase of $7 million or 15% versus Q4 2024. When excluding inorganic growth, organic operating expenses increased a modest 8%, primarily driven by an increase in R&D investment during the quarter. Now to provide information on the company's cash flow and balance sheet position. As of December 31, 2025, we had cash and cash equivalents of $80 million. For the year ended December 31, cash used in operating activities from continuing operations was $27 million versus $21 million for the prior year. The increase in cash used in operating activities compared to the prior year was largely attributable to increased accounts receivable. We view the increase as an interim position and expect the days sales outstanding to stabilize and pull into historical levels during 2026. Cash used in investing activities was $13 million for the year ended December 31 versus $180 million for the prior year. Investing activities included $4 million of net cash consideration in connection with the tuck-in asset acquisition of GoSkip, capital expenditures of $3 million for fixed assets and capital expenditures of $6 million for developed technology costs associated with our software platforms. Cash provided by financing activities was $12 million for the year ended December 31, compared to $279 million for the prior year. Financing activities primarily consisted of the net proceeds from the 2030 notes of $111 million, of which $94 million was utilized to repay the credit facility in full. I'd now like to take a moment to reiterate and thank our PAR team and how they manage a successful strong second half of the year. We pride ourselves in making accretive capital allocation decisions and through our focus on operational execution position PAR for sustained growth and success. We're proud of what we have been able to achieve, but we are, by no means, content with where we stand. We need to double down on executing to our strategy as we progress to 2026. We expect ARR to continue to grow in the mid-teens, and similar to last year, the net growth will be more muted in the first half of the year versus the second half, as Savneet mentioned. I will now turn the call back over to Savneet for closing remarks prior to moving to Q&A.

Thanks, Bryan. 2025 is a strong year for PAR after a slow start. We added record ARR in Q3 and Q4, with a large swing in EBITDA and net income. We enhanced our platform functionality; we're first in our sector to commercialize an AI-native product in Coach AI. We won the industry's largest projects and drove multiproduct attachment across nearly 100% of our deals. In 2026, you should expect three things from us. First, continued growth momentum. We will sustain mid-teens organic ARR growth at scale, driven by multiproduct attachment, new logos and deeper partnerships with our existing customers. Similar to last year, we expect our second half will be stronger than our first half, as we manage out some of our legacy low-margin customers in Q1. We preserve in-year upside from commercialization of new market-to-market AI functionality and pipeline conversion of our large Tier 1 opportunities. Second, you should expect a step change in operational efficiency. We expect to eliminate roughly $15 million annualized OpEx through AI-driven automation and the natural synergies of operating at our scale by the end of Q1. Illustrative of this, we've reached 100% adoption of AI across R&D teams with a meaningful shift towards agentic development. Most of our development is now happening via agents without human involvement in code. A year ago, developers were still touching almost 100% of code generated. That's driving real velocity, and we have doubled our roadmap commits into production in the last year. Third, you should expect for us to deploy parts of our operational expense savings into AI platform production. We will deliver code faster, bring new and commercializable AI-led products to market, and demonstrably enhance our workflows with unified data. RAI investments are not a hedge for our existing business, but a mandate. All of this is to set up 2027 for where we want to be: a leaner operating structure, a more powerful platform, and a product roadmap that positions PAR to reaccelerate growth. PAR is only at the start of its growth runway. Our average customer uses just 1.8 PAR products from a list of 6 to 8 core software SKUs, meaning there is at least 3x organic upside within our base. Furthermore, far from driving customer tech inertia, the ongoing restaurant value wars and implied margin pressures in the restaurant business favor consolidation behind a platform vendor like PAR and the move away from point solutions. Brands cannot afford to not compete across the entire operations frontier, and we are the only enterprise vendor that facilitates this; nearly 100% of our deals are multiproduct for a reason. Additionally, AI platform investments will naturally drive ARPU expansion as customers are willing to pay for excess value. If technology unlocks a larger pie, it will be adopted with Coach AI as an early proof point. The food service technology market is being re-won now, and the companies that win will be the ones with the data, the platform, the trust, and the conviction to move decisively. PAR has all four, along with a track record of execution and reinvention. We are quietly and confidently building our future. Operator, we can open the line for questions.

Our first question comes from George Sutton of Craig-Hallum.

Savneet, you mentioned you never felt more confident about the opportunity set. You've not lacked for enthusiasm in the past. So I just want to put that into perspective. If you can give us a little bit more clarity on what you mean there.

Yes. I think that specifically, my excitement is really in the AI investments and the AI excitement from our customers. As I mentioned, we really do think, categorically, the restaurant and retail categories are one of the best places to adopt AI technology. These are businesses that are fighting extreme margin pressures, labor challenges, operational complexity, and I think that AI is an operational imperative for them, not just a nice tool to try. And so when we see the end markets we serve open to new products and then we look at our platform as truly the platform of choice, we really think it sets us up for an exciting opportunity to be the AI platform that our customers look to build their future on.

Now speaking of AI, you mentioned these large enterprise deals that you are chasing. You are hoping that through using the AI components, you can speed up those deals. Can you just give us a sense of how that has been accomplished many times? I know you're in pilot with these folks?

Yes. My perspective is that as restaurants in particular look to adopt AI faster and faster, it should accelerate the sales processes from vendors that can provide them those AI tools to become AI native. And so I think given how much time and investment and candidly, how far ahead we are of our peers, it could potentially accelerate some of these deals that we are working really hard to get done.

Our next question comes from the line of Mayank Tandon of Needham.

Savneet, could you speak to the state of the restaurant market? I ask because it seems like the traffic data is pretty mixed right now, but same-store sales have still been fairly healthy given some of the pricing leverage restaurant chains have. How does that square with what you're seeing on the ground in terms of demand for your products? Should we be looking at that as maybe a signal of how demand would impact you? Or is that maybe not that linear a tie-in or correlation?

I don't think the situation is completely linear at this point, but I do believe it's trending positively for us. The restaurant environment is quite complex right now. Many are experiencing stagnant or declining traffic; there are value battles ongoing, cost pressures from labor and inflation affecting food prices; and there's the significant challenge of attracting new digital customers. All these factors indicate the need for investments to thrive in this environment rather than scaling back. Therefore, we see this as an ideal time to sell, and particularly advantageous for using AI to integrate these products. Consider how difficult it is to maintain efficient operations when utilizing various tools for online ordering, loyalty programs, drive-throughs, and digital marketing through loyalty and social media. It’s quite challenging. This current situation, characterized by intense pressure to attract customers while simultaneously reducing costs, creates a strong opportunity for vendors if we can demonstrate value to enhance their profitability. We feel the timing is excellent. Regarding direct trends, we are observing some stabilization. Last year was tough for our restaurant clients, but Q3 showed improvement, and in Q4, we noted stabilization along with solid holiday traffic. Feedback from some companies indicates mixed results, but we aren’t seeing the severe declines we experienced last year, which gives me hope that we've moved past that difficult phase.

That's good to hear. For my follow-up, I wanted to just ask about how the ARR guidance, we can call it that, squares with what you would expect on the subscription growth side in terms of the trajectory over the course of the year? And the same question would be applicable to your margin aspirations for 2026. How should we expect that to trend? Can you provide a little bit more color on sort of where you would look to exit the year if you could share that?

Yes. I think that we, similar to last year, our first half will be lower than our second half. Our second half is looking to be extraordinarily strong right now from the book deals that we have, and so I feel very good about the second half. The first half will be a little bit slower in Q1 and a little bit in Q2. We are, as I mentioned, leaving legacy brands that are candidly not paying the value for the services that we have, which will lead to us having higher margins over time. And even with that, we feel really confident in getting to mid-teens growth. And as I mentioned, I think we've got a couple of nice levers to expand beyond that with first some of these new AI product launches and second, the large Tier 1 opportunities. And so we guided to the mid-teens. And obviously, there's upside there, but we want to make sure we give you something we can hit. And the margin flow-through will come through very similar to last year's margin profile. So I expect the growth to be the driver of margin there. And again, upside there is dependent upon how we deploy the savings I mentioned on the OpEx side. As far as an exit, we expect the exit rate in Q4 to be meaningfully higher than Q1 or Q2. We haven't given guidance, but we expect that to be very significant, getting us pretty close to the run rate margins we want to get to as a company over time.

Our next question comes from the line of Stephen Sheldon of William Blair.

At a high level, I guess, what are you seeing in terms of restaurants being willing to make software changes and decisions right now? It seems like you have had a handful of encouraging wins with Papa Johns, Shake Shack, and obviously some others. So is it becoming a better environment for customers to make decisions on what to do with their front-of-house and back-of-house software, even with uncertainty around AI and dynamic consumer spending environment? And does that look any different in the mid-market versus enterprise?

Good question. You're cutting a little bit in and out. So Steve, I'm going to take some liberties in guessing what you're saying. But I think that it's a great environment right now to be in our category. As I mentioned, we had record bookings last year ahead of our expectations. It was really, really exciting to see what was happening in Q4, and we expect that to continue. And we are definitely seeing that in the larger chains. We are continually surprised how many large chains are coming into the funnel. And I do think that is because some of the macro challenges that you mentioned, but the last caller mentioned as well, where brands really do need to figure out how to increase frequency but also cut costs, and we're a great solution. I think the other core secular driver, though, is AI. I think there's not a brand in the world that is not exploring ways to leverage their data better. And we, through luck or design, are really the only platform that, given that holistic view both front and back of house. And so to your question on where we are seeing in the front and back of house, we're seeing it everywhere. Both our engagement side and our operation side grew really strongly last year. We are seeing it a little bit more on the operations side of our business right now, where our brands are really going aggressive on upgrading the foundation of technology that back of house, if you will. But the front of house is not slowing, but we are seeing a little bit more there. In terms of are we seeing it in the mid-market or the enterprise, I would say we're seeing more pipeline created from the large enterprise, but the medium enterprise, call it the chains that are a couple of hundred up to 1,000, are moving as well. But I think there's a little bit of the larger chain having the budget to make those investments. But we are seeing broad-based adoption. And I don't know if it’s comfortable saying it’s more here or there. I just think we're seeing it everywhere at the moment.

Very helpful. And hopefully, you can hear me. On the R&D, I think you talked about a $3 million increase in development costs. So can you give more detail on that? What drove that higher? And specifically, is that tied to some of the Tier 1 opportunities you're pursuing?

Yes. I think it kind of comes in a few buckets. So the first is we're making some pretty aggressive investments into AI. As you heard, we've already launched two products, soon to be three, and we'll continue to push that going forward. It is not whitewashing. It is not just putting an interface. These are real products that drive real value that we are charging for. These aren't, hey, we're now an AI product and it's the same price. And so there's a real investment going on there. The second part of it is when you're pushing into these large Tier 1 opportunities, there's more investment for us because these are categories that we have not been in before. For example, we are growing into pizza, and that is a new space for us. Entertainment is a new space for us, and at the same time, the configuration and changes needed to go after these new potential opportunities are important. The good part is all that is reusable across others in that category. So that's the second part. And then the third part is we are making investments to modernize every product at PAR. And so we built a really nice moat and a really nice lead, but we think the worst thing we can do is kind of sit here and do nothing. Now if you look collectively, our R&D expense is still 25% of sales, which we think is a very comfortable position to be in. But we really do have the reinvestments going on, and it's only because we see so much opportunity in front of us today that candidly wasn't there 18 months ago, particularly as it related to AI.

Our next question comes from the line of Samad Samana of Jefferies.

This is Jeremy Sahler on for Samad. I guess first on the Papa Johns, you called out intra-quarter that you're expecting an ARPU of around $4,500 per store with price escalators. Are these stores below list price and the escalators getting them back up to the list? Or are the escalators to take you above the typical list price? And then I know you called out you have the opportunity to expand the deal with additional products. Should we expect something similar to the Burger King win, where it can happen in same-store rollout? Or are you just speaking of a future opportunity that is kind of more greenfield?

So it's market pricing for us. So I think it's great. We got really good pricing here. We're really happy with it, and I think Papa Johns is equally happy with it. It's PAR point-of-sale and PAR back office. So good, high-quality deal for both of us. So, market pricing. And our escalators are pretty normal now with any contract that we have. So very much in line with the brands we're signing today. As far as future opportunities, we sort of see two direct potential opportunities. The first is potentially upselling the brand on other products we have. That could be ordering, it could be payments, it could be all sorts of stuff that we've got, the AI products that I mentioned. And the second avenue for opportunity will be international expansion, as we continue to internationalize core parts of our product, and we want to, and are pushing to try to win the international markets that they operate in.

That's helpful information. Regarding the mid-teens ARR guidance, could you clarify how much of that is generated from new locations compared to cross-sell products? Additionally, I know there are some significant legacy renewals approaching, which presents an opportunity for pricing adjustments. How much of the guidance is expected from those renewals?

Yes. I think we're probably 70-30 new logo versus existing customer. A lot of it will depend on some of the rollouts we have throughout the year, but it's probably a 70-30 split from new products to expansions, which is an incredible change for PAR, as you probably remember. For years, it was much more dependent on renewals.

Our next question comes from the line of Andrew Harte, BTIG.

Congrats on the share buyback authorization. I guess maybe if you could just talk about how you feel about the balance sheet, how do you plan to deploy that $100 million authorization? And I guess it also leads to what you're thinking about profitability and EBITDA margins continuing to scale for this year as well.

Thanks, Andrew. We want to have the optionality to return capital to our investors in every way possible. And the prices that our shares are trading at, we don't think make a ton of sense given the opportunity set, the white space, and the long-term growth we see in front of us, and obviously, the margin profile we want to get to. And so we want to make sure that we have that tool to operate and ensure that our shareholders are getting the best return. And so as we look to allocate capital, we sort of first look at what are the organic opportunities in front of us because those are the ones that we have tons of control and data to look back at. We'll look at the inorganic opportunities in front of us, and then we'll look at buying back shares. And so we want to make sure that we have the ability to do all three and figure out where we can get the highest return. We expect a strong year this year. As I mentioned, the second half, we're going to have a very strong year cash generation. And so we want to make sure we're prepared to be in the market when and if we see these disruptions that we've been seeing because we don't think it makes a lot of sense and completely understand a lot of the AI fears. But as a company, we truly expect to be a net winner in this AI market. We think it's important that we eat our own cooking.

And then kind of a two-part question on growth. You said in the fourth quarter, the PAR POS results significantly exceeded your internal expectations. So I would like to hear where that came from or what drove that? And then when you think about 2026 growth to, let's just call it, mid-teens, so call it 15%, and it's a bit slower in the first half, and then faster in the back half. I guess, how much of that, call it, 15% for the entire year, is stuff that you feel really good about versus how much do you need some wins that you're tracking on to come across the finish line?

I would say the majority of our plan for the year is pretty much there. There's not a lot to go get for us in our model right now, which is why I mentioned the upside to our model is to get incremental adoption of our new AI products and potentially the bookings of large Tier 1 opportunities we're working on. So, a good portion of it is booked and planned. Now listen, things can change; we could screw up, so on and so forth, but we feel pretty good about the visibility that we have there.

Our next question comes from the line of Charles Nabhan of Stephens.

Savneet, appreciate the comments around the supply chain and hardware, given some of the price inflation in the chip market. But my question there is, are you seeing any impact on RFP activity from higher hardware costs? Or are you seeing restaurants and operators still willing to upgrade their software while maintaining their hardware?

Great question, Chuck. So the short answer is, we're not seeing any impact yet on the revenue side. In fact, as you can see, we've had a really good revenue year last year for hardware, and I hope that continues this year. So it is not slowing down refresh cycles, whether those refresh cycles are tied to software upgrades or to net new just refreshing hardware, not refreshing software. But we are seeing on the cost side, where our margins were mid-20s, I think we expect margins will be 20%-21% from a hardware perspective. So not the end of the world, but the increased volume has helped us offset the gross dollars. If prices continue to spike very, very meaningfully, it could potentially have an impact on our customers wanting to maybe hold off until they saw pricing come down. But we have not seen that, and these pricing pressures have started since April of last year. So we've had a pretty strong demand year even with that in place. But we're monitoring it very carefully. And it's just so hard to predict month-to-month, even week-to-week. And so as we mentioned, as Bryan mentioned, we're putting a lot of mitigation activities in place from reconfiguration to accelerated buying to ensure that we don't have any disruptions. And the reason we're focused on disruption is we haven't seen a slowdown in demand.

I would like to add that our mitigation plans are not just focused on managing hardware margins. We are also ensuring that these plans allow us to maintain our software growth and rollout without any impact. While we remain hardware agnostic, many of our customers prefer to work with a single vendor because we can provide comprehensive service. However, we also have the flexibility to deliver what they need from a software perspective. This will factor into our strategy moving forward. We are managing both aspects carefully to ensure that the software side is not affected.

Got it. And as a follow-up, I wanted to ask about profitability as we think about our EBITDA estimates for the next couple of years. I know not all the ARR from this year is going to flow through to EBITDA. But in the past, you've talked about roughly a 70%-75% flow-through to the EBITDA line from ARR based on roughly flattish OpEx. Is there any reason to expect a deviation from that framework? Or is that still a fair way of thinking about it?

We discussed that the subscription services ARR has gross margins around 70%. Bryan noted it was 71% if we exclude one business unit. We've consistently indicated that we anticipate a $0.20 incremental cost, or 20%, although we haven't seen that due to relatively flat operating expenses. I don't expect those trends to change significantly, although we will make some investments in R&D this year, which won't be substantial. Our focus remains on continuing to invest in AI. Therefore, I believe the margins for subscription services will remain steady, and we will see gross profit dollars that support EBITDA growth and cover any investments we are considering.

Our final question comes from the line of Maxwell Michaelis of Lake Street Capital Markets.

I have one question. Regarding the Bridg technology acquisition you made last month, I understand you are expecting approximately $15 million in operational savings in 2026. Are you planning to invest in that platform?

Of course, we're going to invest in it, but that is not going to result in a cash burn for Bridg. We've planned for it to be profitable within PAR. If we identify many opportunities, we will pursue them, but we have budgeted for profitability within PAR and believe it will be successful. The early feedback from customers has been very positive.

Yes. And I think we’ll be able to speak more to it when we get through the next quarter's earnings call, right, as we're closing on that in the near future. So we are definitely excited about how we can leverage that platform within our existing framework.

If we focus on the M&A trend, how would you rank it in terms of capital allocation for 2026 compared to share buybacks and other investment areas?

Today, we are disappointed with our stock price. The threshold for mergers and acquisitions is very high. Bridg was a unique opportunity for us, acquired at approximately twice its annual recurring revenue, which we anticipate will grow and be profitable. Ultimately, it was a strategic decision from a product standpoint and at a favorable price. While we are continually exploring opportunities, M&A is currently a lower priority given our stock price.

All right. Thank you. I'm showing no further questions at this time. I would now like to turn it back to Chris Byrnes for closing remarks.

Thank you, Stephen, and we want to thank everyone for joining us today on the call. We do look forward to updating you further in the coming weeks. Please have a nice evening.

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