Earnings Call Transcript - PAR Q1 2025

Operator, Operator

Good day and thank you for standing by. Welcome to the PAR Technology 2025 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Christopher Byrnes, Senior Vice President of Investor Relations and Business Development. Please go ahead.

Christopher Byrnes, Senior Vice President of Investor Relations and Business Development

Thank you, Daniel, and good morning, everyone. And thank you for joining us today for PAR Technology’s first quarter financial results call. Earlier this morning, we released our Q1 financial results. The earnings release is available on the Investor Relations page of our website at partech.com, where you can also find the Q1 financial 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 subject to the Safe Harbor statement, including our earnings release this morning, and in our annual and quarterly filings with the SEC. Joining me on the call today is PAR CEO and President, Savneet Singh; and Bryan Menar, PAR 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?

Savneet Singh, CEO and President

Thanks, Chris, and good morning, everyone. We reported $104 million in revenues in Q1, an increase of more than 48% year-over-year. Subscription services revenue increased by 78% in the quarter to $68.4 million from last year, with 20% organic growth compared to Q1 2024. Total ARR was reported at $282 million, representing a 52% increase, including 18% organic growth from Q1 last year. After adjusting for constant currency, sequential ARR grew by $10 million from Q4. Alongside this revenue growth, our non-GAAP gross profit grew organically by nearly 35% year-over-year, and we ended the quarter with subscription service gross margins exceeding 69%. Adjusted EBITDA was reported at $4.5 million for the quarter, showing an improvement of nearly $15 million from Q1 last year, mainly driven by organic improvements, excluding M&A, which highlights the significant operating leverage we’ve achieved with our core assets. Our strategy of investing in long-term profitable dollar growth continues to yield positive results. Moving into more detailed business aspects, Total Operator Solutions ARR grew 49% this quarter, with organic growth at 18% compared to the same period last year, reaching $117 million in ARR for this business unit. As mentioned in the last quarter's call, we paused the PAR POS implementation for Burger King in Q1 to adjust for a dual PAR POS plus Data Central implementation with the customer. I’m pleased to report that the rollout has now resumed, and we are receiving positive feedback from both corporate and franchisee stakeholders. We anticipate a strong ramp-up in the second half of the year, with installation velocity expected to peak in Q3 and Q4 for both product offerings. Importantly, the slowdown with Burger King this quarter was balanced by solid performance across other initiatives in our Operator business. We continue to observe a healthy operational buying environment, illustrated by the addition of five new PAR POS customers in Q1, consistent with trends from last quarter, with all deals being multiproduct in nature. These multiproduct rollouts have yet to be reflected in our financials but will create significant revenue opportunities in the latter half of this year and well into 2026. As we've previously noted, these multiproduct deals significantly enhance LTV without incurring additional acquisition costs. Our "Better Together" strategy is proving effective. Additionally, our TASK platform is gaining traction under the PAR umbrella, being positioned alongside PAR POS domestically and as a standalone option for globally focused prospects. The TASK platform pipeline has reached a record high, and we believe PAR's total POS offerings now provide complete coverage of the enterprise hospitality POS market. Beyond POS, our Operator Solutions business unit continues to grow through our back office catalog. In March, we successfully unveiled our new PAR OPS product line at a major industry conference. PAR OPS includes Data Central and the newly acquired Delaget, offering an advanced and feature-rich back office solution tailored to meet the needs of both corporate and franchise stakeholders. The merged PAR OPS pipeline shows strong and consistent growth as enterprise food service companies prioritize back office initiatives to enhance operational efficiencies and improve margins and labor productivity. We've effectively integrated Delaget's functionalities with our current customers while also cross-positioning our existing PAR catalog with Delaget's extensive customer base. Emphasizing the increasing significance of back office technology in today's marketplace, I'm excited to share that we have been selected by Popeyes Louisiana Kitchen as the preferred back-of-house vendor for over 3,500 stores. This, along with our previously announced back office partnership with Burger King, underscores our valued partnership with RBI and reinforces our investment in Operator products. PAR OPS has achieved its largest weighted pipeline to date. We expect ongoing macroeconomic pressures to drive further upgrades in back office technology, enhancing efficiency. Moving to Payments, PAR Payment Services saw high transaction volumes and processing counts during Q1. Despite the typically slower season, PAR Payments continued to expand, adding five new concepts to its customer base, including Lennys Grill & Subs, Rocky Mountain Chocolate Factory, Hooters of America, and Chow Time Canada. Furthermore, we experienced continued multiproduct adoption by onboarding Mr. Pickles and Cargo Coffee on both our wallet and Ordering Solutions. The introduction of our PAR Gift Card offering has further enabled customers to enhance customer engagement and gain operational efficiencies while saving costs. In summary, PAR is strategically positioned in the market to address both revenue maximization and cost control needs. Shifting to the Engagement Cloud, in today's economy, where consumers are more budget-conscious, digital engagement has become essential rather than optional. Loyalty programs and personalized digital offers are now critical for driving customer traffic and frequency. We are witnessing this change across our platforms, with record growth in engagement and usage. Brands are focusing on guest engagement, and our tools are demonstrating measurable impact. The number of digital offers distributed and loyalty program users reached record levels in Q1, reflecting significant growth in both the restaurant and retail sectors. We expect this trend to accelerate as more businesses invest in infrastructures that yield ROI, operational leverage, and actionable guest insights. Market leaders are adopting seamless identification, app-less loyalty features, gamification, AI, and connected technologies. This is where our integrated platform, with its Better Together approach, delivers superior results. Our Engagement Cloud business exhibited impressive financial performance in Q1, exceeding internal targets with a 54% increase in ARR, including 18% organic growth compared to Q1 last year. This growth can be attributed to our excellent gross retention of over 95% and the acquisition of a multiproduct deal with a Tier 1 burger brand. These outcomes reflect our consistent execution in providing best-in-class products with integrated functionalities. Our momentum across all sectors of PAR is reinforcing our position for future success. We're securing multiproduct deals at an impressive pace, with 57% of new signed Engagement deals categorized as multiproduct, a significant increase from just 16% in Q1 2024, largely driven by our Ordering solutions. In Q1, we launched Ordering 2.0, achieving our best sales figures for online ordering in over two years. Following extensive market analysis and product enhancements over the past year, Ordering 2.0 now enables true enterprise menu management and features such as order throttling to help kitchens handle high volumes. The latest version also includes AI-driven upsell capabilities, using guest cohort data from Punchh to facilitate personalized upselling and maximize check sizes. With over 200 million guests using Punchh, we have the potential to establish one of the most robust upsell models in the restaurant segment. Additionally, our new POS import feature guarantees real-time menu management across all Ordering channels, streamlining customer operations. These features represent a powerful suite of capabilities that we believe no point-to-point integration can replicate, validating our Better Together model. In our C-Store and Field business segment, we are building the foundation for our growth flywheel. A highlight from Q1 was EG Group's rollout of smart rewards across over 1,500 sites, with expectations for a 275% increase in engagement signups this year, an impressive target even before their comprehensive marketing strategy is fully implemented. In Q1, we also expanded into retail with the acquisition of GoSkip, which provides self-checkout kiosks and scan-and-go solutions. Integrating GoSkip into our platform goes beyond adding a feature; it enhances our technology capabilities within stores. From our experiences in the restaurant sector, we know that an interconnected, full-stack solution both in-store and above-store maximizes the utility of data within our business flywheel. GoSkip strengthens our digital loyalty offerings, increasing data collection, and engagement while enabling us to capitalize on the growing retail media network. This acquisition is an excellent opportunity for expanding our retail capabilities. We see immediate potential for incremental revenue growth among our existing customers and plan to continue seeking acquisitions in the convenience and retail sectors. Before reviewing our Q1 hardware figures, I want to briefly address the impact of tariffs. The uncertainty surrounding these measures, along with retaliatory tariffs imposed by other countries, has led to volatility in global trade policies and supply chains. Fortunately, after the disruptions caused by COVID, we intentionally reduced our dependence on China and diversified our sourcing across other Southeast Asian countries. On average, we import less than $1 million of peripheral devices per quarter from China. We are continually assessing the current landscape and will undertake necessary steps to mitigate any impact on our business. Luckily, hardware now constitutes only 21% of our revenues, which gives us confidence in our ability to manage and counteract any potential adverse effects from tariffs. Regarding our hardware business performance in Q1, we saw improved results with a 20% increase in hardware revenues compared to the same quarter last year. We experienced strong demand for our latest platform, the PAR WAVE, and observed an uptick in both domestic and global sales. Contributing to this recovery was the introduction of the new PAR Clear drive-thru solution, which is setting a benchmark for drive-thru communications and positioning itself as the industry leader in QSR drive-thru systems. In summary, we are committed to our Better Together philosophy of multiproduct innovation, which is fundamental to our go-to-market strategy. A prime example of this was the successful implementation of PAR POS-powered in-store loyalty sign-up and intelligent upselling in Q1. By leveraging Punchh's code within PAR POS, our customers can seamlessly acquire loyalty customers within their restaurants and utilize AI insights to personalize product upsells. This functionality is in high demand among our largest clients and recently enabled a successful loyalty upsell for a rapidly growing Tier 1 POS concept. Separately, our work on the PAR Data platform is progressing rapidly. PAR's diverse product portfolio provides unmatched data breadth and depth, which enables us to deliver powerful proactive analytics. By leveraging AI, we create comparative performance insights while also offering proactive analytics that encourage operators, for instance, to sell expiring inventory through specially designed incentives to boost profits and minimize operational costs. In a future filled with uncertainties, leading brands seek a competitive edge. We provide them with this edge through intelligent data utilization. Our three-tier strategy of Best-in-Class, Better Together, and Open continues to receive validation from the market. We believe we are just beginning to tap into the potential of our product-led cross-sell initiatives. However, cross-selling must be complemented by new logo adoption. A little over a year ago, after our win with Burger King, we indicated that we had an additional seven Tier 1 clients in our pipeline. I’m pleased to announce that we have successfully secured four of those deals and replenished our pipeline since then. We anticipate this trend will continue, leading to deeper opportunities for multiproduct growth over time. This comprehensive approach validates our platform strategy. In the long run, platforms, rather than point solutions, will prevail. Bryan will now provide a detailed overview of the numbers. Bryan?

Bryan Menar, CFO

Thank you, Savneet, and good morning, everyone. We started 2025 with the same successful execution of our strategy as we displayed exiting 2024. Subscription services continue to fuel our organic growth and represented 66% of total Q1 revenue. Equally important, our consolidated non-GAAP gross margin continued to improve at 54%, driven by improved subscription services non-GAAP gross margin of 69%, all while continuing to drive efficient leverage of our operating expenses. As a result, for the third quarter in a row, we reported positive adjusted EBITDA, reporting 4.5 million, a 14.7 million improvement compared to Q1 prior year. We are executing in line with our company plan while also being aware of the ever-changing macro environment, analyzing and appropriately adjusting our executions depending upon impacts to our vendors, customers, and ultimately to the consumers they service. Now to the financial details. Total revenues were 104 million for Q1 2025, an increase of 48% compared to the same period in 2024, driven by subscription service revenue growth of 78%, inclusive of 20% organic growth. Net loss from continuing operations for the first quarter of 2025 was $25 million or $0.61 loss per share, compared to a net loss from continuing operations of $20 million or $0.69 loss per share reported for the same period in 2024. Non-GAAP net loss for the first quarter of 2025 was approximately $250,000 or $0.01 loss per share, a significant improvement compared to a non-GAAP net loss of $14 million or $0.47 loss per share for the prior year. Now for more details on revenue. Subscription services revenue was reported at $68 million, an increase of $30 million or 78% from the $38 million reported in the prior year and now represents 66% of total PAR revenue. Organic subscription service revenue grew 20% compared to the prior year when excluding revenue from our trailing 12-month acquisitions. ARR exiting the quarter was 282 million, an increase of 52% from last year’s Q1, with the Engagement Cloud up 54% and Operator Cloud up 49%. Total organic ARR was up 18% year-over-year. Accounting for constant currency, sequential ARR grew $10 million or 3.7% from Q4 2024. Hardware revenue in the quarter was $22 million, an increase of $4 million or 20% from the $18 million reported in the prior year. The increase was driven by both Tier 1 enterprise customers and the continued penetration of the hardware in our expanding software customer base. Professional service revenue was reported at $13.6 million, relatively unchanged from the $13.5 million reported in the prior year. Now turning to margins. Gross margin was $48 million, an increase of $22 million or 86% from the $26 million reported in the prior year. The increase was driven by subscription services with gross margin of $40 million, an increase of $20 million or 100% from the $20 million reported in the prior year. GAAP subscription service margin for the quarter was 57.8%, compared to 51.6% reported in Q1 of the prior year. The increase in margin is driven by a continued focus on efficiency improvements with our hosting and customer support contracts, as well as the creative margin contributions from recent acquisitions. Excluding the amortization of intangible assets, stock-based compensation and severance, total non-GAAP subscription service margin for Q1 2025 was 69.1%, compared to 65.7% for Q1 2024, demonstrating strong margin growth from our core business. Hardware margin for the quarter was 24.6% versus 22.3% in the prior year. The improvement in margin year-over-year was substantially driven by favorable product mix, as well as year-over-year reduction in expense as we aligned our hardware related workforce with organizational priorities. Professional service margin for the quarter was 25.4%, compared to 16.5% reported in the prior year. In regard to operating expenses, GAAP sales and marketing was $12 million, an increase of $1 million from the $11 million reported for the prior year. The increase was primarily driven by inorganic increases related to our acquisitions. While organic sales and marketing expenses decreased $1.4 million year-over-year. GAAP G&A was $29 million, an increase of $4 million from the $25 million reported in the prior year. The increase was once again primarily driven by inorganic increases, while organic G&A expenses decreased by $1.4 million year-over-year. GAAP R&D was $20 million, an increase of $4 million from the $16 million recorded in the prior year. The increase was primarily driven by inorganic expenses, while organic R&D expenses increased $0.4 million year-over-year. Operating expenses excluding non-GAAP adjustments was $52 million, an increase of $9 million or 22% versus Q1 2024 and when excluding inorganic growth, operating expenses actually decreased 3%. The organic decrease was primarily driven by a reduction in sales and marketing expenses. The acceleration of new multiproduct deals along with efficient execution of cross-sell wins is enabling us to realize synergies in our sales operating model. Exiting Q1, non-GAAP OpEx as a percent of total revenue was 49.8%, a 1060-basis-point improvement from 60.4% in Q1 of the prior year, as we continue to scale efficiently and demonstrate strong operating leverage. Now to provide information on the company’s cash flow and balance sheet position. As of March 31, 2025, we had cash and cash equivalents of $92 million and short-term investments of $0.5 million. For the three months ended March 31st, cash used in operating activities from continuing operations was $17 million versus $24 million for the prior year. Cash usage this quarter was primarily driven by seasonal networking capital needs, including annual variable compensation and an increase of accounts receivable primarily related to an annual contracts we have been collecting post-Q1. We expect operating cash flow to improve meaningfully back to positive for the remainder of the year. Cash used in investing activities was $6 million for the three months ended March 31st versus $152 million for the prior year. Investing activities included $4 million of net cash considerations in connection with the tuck-in asset acquisition of GoSkip and capital expenditures of $1 million for developed technology costs associated with our software platforms. Cash provided by financing activities was $11 million for the three months ended March 31st versus $191 million for the prior year. Financing activities primarily consisted of the net proceeds in the 2030 notes of $111 million of which $94 million was utilized to repay the credit facility in full. Before handing the call back over to Savneet, I would like to provide some insights in how we are managing the fluid environment around tariffs, international trade and the respective impact they’re having on capital expenditure velocity. As Savneet stated, our direct tariff exposure is specifically tied to our hardware business. Our international vendor relationships are primarily with Southeast Asia and we strategically reduced our exposure to China when we addressed the supply chain challenges resulting from the COVID-19 pandemic. The go forward tariff baseline is still being negotiated with the respective countries but considering our country allocation exposure, we are in a competitive position and can execute the appropriate supply chain adjustments while minimizing price impact to our customers. We also continue to analyze potential impact of businesses waiting on the sideline to make capital expenditure decisions until a clear economic picture emerges. As of now, we have not seen a direct impact, but we will continue to monitor closely. I’ll now turn the call back over to Savneet for closing remarks prior to moving to Q&A.

Savneet Singh, CEO and President

Thanks, Bryan. Let me wrap up with a few key messages before we open the call for Q&A. We had a strong Q1 with solid growth, excellent gross margin expansion and adjusted EBITDA. While much of our focus is on revenue, it’s really worth highlighting that our OpEx organically came down year-over-year. Today, our sales and marketing expense is 14% of subscription service revenues and R&D is 26% of subscription service revenues. Both are now near our long-term goals of 15% and 25%, respectively. We’ve continued to show success in cutting expenses while growing at a rapid rate. I believe this margin expansion will continue over time. Earlier, I talked about how our product flywheel is really working as we had more multiproduct deals this quarter than ever before, repeating the trend from last quarter. While this is an incredible demonstration of our product muscle integrating our acquired products, it’s also important to acknowledge the tremendous financial impacts that can come from integrated suites of products. An often misunderstood aspect of software M&A is that a roll-up can create value in simply acquiring businesses. I think that model is flawed as disintegrated roll-ups provide value as capital allocation vehicles, not operating vehicles. The underwriting of those investments are really investments in an allocator which invests behind an operating strategy with defined allocation goals. What I’ve learned from PAR is that as we acquire new products, we’re able to accelerate growth through technology integration in consolidated sales and product teams. When we integrate an acquired product, we make it easier to buy our product, but also prove that two products integrated contain new features unavailable before an acquisition. This leads to greater sales. As customers buy more products from PAR, our products become far stickier. It’s harder to rip out three integrated products than one siloed module. This stickier base then has a longer and larger customer value with higher retention, thereby increasing the ROIC of each equity dollar invested. And in my opinion, suggests arguing for a higher and durable trading multiple than a disaggregated roll-up. The key is that each new acquisition actually accelerates growth once integrated, lowers churn and increases the duration of the customer cash flow stream, hence expanding LTV and increasing the value of PAR far more than standard M&A. This is why we view our M&A motion as both a product and financial initiative. Today, it’s clear that restaurants and food service businesses are seeing a slowdown in traffic. To combat this, they will need to embrace more technology. Those that lean in will be the winners. The impact of the macro uncertainty is hard to time. Today, while demand for PAR products continues to be strong, we’re fully prepared to deal with any potential slowdown. We operate in a market where large deals can take multiple quarters or even years to execute. We’re upfront R&D at the times needed to win large deals and we’re maximizing lifetime value of a customer can come at the expense of quarterly metrics. We will always choose the path of maximizing long-term value. We are not a reactive organization. We have built an unparalleled in parallel sector flywheel. This will not change irrespective of short-term macroeconomic gyrations, tariffs or otherwise. This is the secret of our longevity and why our flywheel is only in its infancy. But this is our time to be aggressive. The fear in the market excites our team at PAR because we know this is where we are at our best. While others are fearful, we’ll continue to make the investments organically and inorganically to expand and accelerate our flywheel. As always, I want to thank my PAR teammates for their hard work in making these results possible. At our company, it’s our day one mentality that drives our collective hunger and ambition. Thank you for your time this morning and we will now open the call up for questions.

Operator, Operator

Our first question comes from Mayank Tandon with Needham. Your line is open.

Mayank Tandon, Analyst

Thank you. Good morning. Savneet, it sounds like with the BK rollout and these new deals that you won, there might be a step function in growth in the back half. To that extent, could you speak to the cadence of the growth as we look across the next three quarters and as these goal lives start to impact your revenue? And in that sense, are you still looking at a 20% ARR organic growth number for the year or do you think it could actually be better because now you have some of these new deals that could go live in the back half?

Savneet Singh, CEO and President

We’re still going to continue to target 20% plus organic growth for the year. What’s been really exciting, as I mentioned, is we had those seven Tier 1 deals we talked about a little over a year ago. We won four of them. And I think the most exciting part about the company is that almost all the deals we’re signing now are multiproduct, which creates far more revenue than an individual deal in our past. As you suggested, we’ll see more impact from these deals and our big POS rollout in the second half of the year. So I think you’ll see gradual Q2 and Q1 be relatively similar, and then you’ll see a nice pickup in Q3 and Q4. And I think what’s going to be super exciting is that you’ll also see significant EBITDA expansion towards the end of the year, because we are now at a scale where we’re getting the operating leverage on the individual large customers we launched in the last, call it 12 months. So it’s a really exciting second half of the year. And I think given the continually high win rates across these Tier 1 deals, it also makes for a pretty strong 2026.

Mayank Tandon, Analyst

Savneet, just as a quick follow-up, I would love to hear, if you could, provide more details on the five new logos of those multiproduct wins. I think you mentioned Popeyes as one of them. I’m assuming that’s one of the Tier 1s you won this quarter. But if you could maybe reconcile the two new Tier 1s that I believe you won this quarter, because you already had won two last year, and then the five new logos, could you share any ARR metrics around that and any other details you could provide on those wins?

Savneet Singh, CEO and President

Certainly. Let me clarify the numbers for you. We secured five new POS deals this quarter, compared to eight in Q4. We've also achieved similar success with our Engagement Cloud. Overall, the volume of deals is quite significant. However, I'm unable to disclose specifics about deal sizes or names due to contract confidentiality. Generally, with larger deals, we find ourselves well-positioned to launch effectively and introduce a second product swiftly, as demonstrated with Burger King and others. For mid-size deals, we can bundle multiple products at the outset. So, we’re managing a mix of larger single-product deals, followed by adding a second product within the first year, and mid-size deals where multiple products are offered right from the beginning. Unfortunately, I can't share specifics on deal sizes related to any particular client due to privacy considerations. Nevertheless, it's worth noting that even after winning the previously discussed deal a year ago, our pipeline has significantly replenished. The digital transformation within the underlying category remains strong.

Operator, Operator

Thank you. Our next question comes from Stephen Sheldon with William Blair. Your line is open.

Stephen Sheldon, Analyst

Hey. Good morning. Thanks for taking my questions and congrats, a big congrats on the sales momentum. First, it looks like reported ARR for the third quarter and fourth quarter were brought down just a touch, relative to what you reported last time. Can you give some detail on that? I guess it has something to do with acquired ARR, but just any additional context there would be great?

Savneet Singh, CEO and President

It's actually related to foreign exchange. The business we acquired in the second half of last year, TASK, generates almost all of its revenue from outside the United States.

Bryan Menar, CFO

And so when you account for the constant currency, Stephen, that’s where I kind of referenced the earnings and going from Q4 to Q1, we saw the $10 million, 3.7% incremental growth on constant currency.

Stephen Sheldon, Analyst

Okay. Got it. Thanks. And then maybe following up on the last question, I mean, you’ve got a lot of encouraging wins here. And if we’re just assuming somewhat reasonable implementation schedules, I guess, do you have any early read on what organic ARR growth could potentially look like next year, or just generally how much visibility do you have now, especially with the four Tier 1 wins that you’ve talked about, do you already have good line of sight to over 20% growth next year, given what you’ve already won?

Savneet Singh, CEO and President

I don’t think we have enough visibility at the beginning of May for 2026 yet. What I can say is that we feel really good at the moment because not only are we winning these deals, but we’re also attaching multiple products. As a result, the value of the deals is higher than what we have historically experienced, where it used to be one deal at a time, and now it’s more like two. So right now, while I can’t definitively say we are there, we are definitely aiming for it based on the progress we've made so far.

Operator, Operator

Thank you. Our next question comes from Will Nance with Goldman Sachs. Your line is open.

Will Nance, Analyst

Hey. I appreciate you taking the question. I appreciate the detail on FX. I think that may have got lost in some of the morning shuffle. So if I’m hearing that right, it sounds like a lot of, is it Australia dollar? I mean, I think most currencies have weakened year-to-date, but I think the Aussie dollar is actually stronger year-to-date. So just wanted to confirm that that’s the case and maybe you could give us an update on the currency exposure, so we can think about constant currency going forward?

Savneet Singh, CEO and President

Yeah. That’s right. So it’s New Zealand dollar and Australian dollar. New Zealand, actually bigger. And so that’s where the FX is there. If you adjust for constant currency, the sequential ARR grows with $10 million. So it does have an impact going forward.

Will Nance, Analyst

Yeah. That makes sense. That makes sense. Okay. Did you have a number on just like the percentage of ARR that is outside of the U.S.?

Savneet Singh, CEO and President

25%, 25%.

Bryan Menar, CFO

It’s less than that. It’s just under 20%.

Will Nance, Analyst

All right. Very helpful. Appreciate that. Okay. And then just an update on the competitive environment. You’ve seen some of the down market competitors making some traction, up market. What are you seeing in the RFP processes and any notable changes in conversations?

Savneet Singh, CEO and President

We're very pleased with our competitive position. In terms of table service deals, as we've previously mentioned, we're experiencing growth and starting to make a significant impact on those sales processes. These processes can be quite lengthy. However, we observe strong competitive positioning here. I can't recall a time when a customer told us we lacked the product needed to succeed, although it doesn't guarantee that we always come out on top. Economic factors or relationships can influence outcomes. Overall, from a product perspective, we feel very confident, and we're convinced that in the end, an enterprise software product will prevail. We're performing exceptionally well in Tier 1 deals, which gives me confidence. That said, we keep a close eye on every competitor to see how we measure up.

Operator, Operator

Thank you. Our next question comes from Andrew Harte with BTIG. Your line is open.

Andrew Harte, Analyst

Hey. Thanks for the question. So you talked a lot today, I think, about just multiproduct adoption. I guess when you think about how the PAR platform as a whole has evolved over the past year or so with all these different solutions and different ways to serve customers. What is the cross-sell opportunity or pipeline look like? I guess, like, what would fully baked ARPU look like for a customer versus what it’s like today? Just trying to get an idea of what the penetration of that cross-sell is and how much room for growth there is going forward? Thanks.

Savneet Singh, CEO and President

I believe Bryan and I have mentioned this before: if every customer purchased every product, our revenue could potentially increase by at least four times from where we are now. While that scenario is unlikely because some customers won't make those purchases, there is significant opportunity. The reason I've been discussing this for the past two quarters is that there are two key aspects to consider. First, we need to examine whether our products are being integrated in a way that enhances competitive dynamics. This quarter, we had a notable customer win with a large Tier 1 chain that realized they could access their loyalty data at the point of sale. By combining Punchh and PAR POS in-store, cashiers are prompted with AI-suggestive upsells and loyalty data, which is a unique advantage that we currently offer. This robust functionality enables easier cross-selling since customers would find it hard to forgo such features. This exciting technical integration coming from PAR is fueling our cross-sell opportunities. It's not about merely increasing our sales team, which has become smaller and more efficient; it's this technical aspect that's securing deals. The Ordering side is also showing strong growth. The second aspect of our multiproduct strategy is the financial outcome. Although we haven't yet seen that reflected in our P&L, I'm eager about the latter half of this year and into 2026. Selling two products at the price of one in terms of acquisition cost is highly profitable, providing us with an intriguing lever for profitability in the coming years.

Andrew Harte, Analyst

Great, thanks. Following up on some questions about ARR growth, I believe there are many factors at play, and I'd like to delve into it further. Regarding the delayed Burger King relationship expansion, it seems like everyone agrees that's a positive development. Could you clarify what the growth headwind was due to the pause on Burger King? It's encouraging to know that things have resumed. On another note, you mentioned additional areas where you've made progress, including the seven Tier 1s in the pipeline from a year ago, with four having gone live. Savneet, could you discuss the implementation timeline for those? Do these four successes provide you with two or three years of consistent ARR growth? I'm interested in understanding the durability of ARR growth beyond the next few quarters.

Savneet Singh, CEO and President

Sure. Let me do the second first. So those four that we won, they’ve been won, not rolled out. So there’s still a lot of revenue to come. So just a quick clarification, which again is probably, I think, really exciting, which is those deals, for the most part, are not driving the growth that we saw in this quarter. Those are still to come. So that’s really exciting. And I think, as far as durability of revenue growth, that’s where we feel really strong today because we see that, we have these deals rolled out plus the other deals that I mentioned on the call that we’ve won. So, I think for the next couple of years, we see pretty strong revenue growth where we’ve got a nice backlog, if you can call it backlog, to get rolled out. The timeline to roll out a deal varies significantly. From our engagement side of our business, it’s about six months from signing to launch to get it live. And that’s been pretty consistent since we’ve acquired and worked on the Punchh product line. On the POS side, from the moment you sign the deal, you can usually guide that if you’re a thousand store chain, it takes us about a year to get you live, provided we have your commitment and support. And for larger chains, it can take two years. But those ones are a little harder to forecast because you’re working in tandem with the corporate, but those ones give you longer visibility because you’re rolling out over time, kind of like we’re doing on Burger King. To your first question, I feel really great, without our biggest customer rolling out, we still hit 18% growth really comfortably, without any of those big deals going. And so I think that just shows, we don’t need to depend on large mega deals to still grow at pretty high rates. So I was really happy with the quarter.

Bryan Menar, CFO

I think I would just add to what Savneet said there too, is the fact that now we’re seeing some acceleration on the flywheel for the cross-sell, as that becomes a bigger percent of our total growth that comes over, that kind of fills in the gaps that may happen in between these large sales cycles and some of these larger logos. So it helps to smooth out the ARR growth as we go forward.

Operator, Operator

Thank you. Our next question comes from Samad Samana with Jefferies. Your line is open.

Samad Samana, Analyst

Hey. Good morning. Appreciate you guys taking the questions as always. Maybe first, Savneet, appreciate the commentary on what differentiates your M&A strategy versus maybe some other companies that have a kind of a more of a financial sponsor type of view on M&A. And maybe if I build on the question, just as we think about all the transactions that you guys have done and the balance sheet where it is today, if you think about future potential M&A, especially if you think about something transformative are, one, I guess, are you thinking about an opportunity like that? And if so, should we think about it as something, like how would you think about approaching the balance sheet, just given where you’ve already spent capital recently?

Savneet Singh, CEO and President

That’s a great question. So short answer is, we’re going to be aggressive. I think some of the big, we’re a company that’s constantly sort of assessing where are we great and can we, where do we suck? And one of the things that we learn in kind of that really sort of transparent environment is how do we continue to make our M&A better and better? And I think what I can say to you is, because we’re so obsessed on the product fitting within PAR, we haven’t made a lot of mistakes. If I look at our M&A deals, I sort of think we really, really got it right. And a lot of that is the integration of the people. If I look at the acquisitions we made last year, we retained well over 90% plus of those employees, well over, and that’s kind of rare. And that’s allowed us to kind of build the momentum from the flywheel from the product side. So that foundational point is, we’re going to do it again and again. And I think the transformative deals are exciting to us if they fit a product rubric that allows us to create more value to the customer. Because in the end, if we combine the products together and we create more value to the customer, we can then take more value back to PAR and our shareholders. So we’ll absolutely do that. How we fund that? I think, is really dependent upon a few things. One, what’s our cost of capital of the levers that we have at the time that we’re making the deal? And so if we’re buying a business at a multiple that’s meaningfully discounted to our equity, we look to use equity. If it’s a smaller transaction, like we did with Skip this quarter, we’re comfortable using cash on the balance sheet. And then I think, given the success we’ve had in the convert market, we can continue to look at the convert and debt markets, but it really, really is dependent on what’s our cost of capital at that time. And then looking at that lens of what doesn’t limit our flexibility going forward. Because I think if you’ve seen with us, we’ve gone through a period of two years of doing nothing, and then one year doing two or three deals. And so it’s that combination of lowest cost of capital that doesn’t mess up our flexibility for the future is kind of how I think about it.

Samad Samana, Analyst

Thank you for that. I also appreciate your use of the industry standard for evaluation. I feel the same way about my own performance. Now, regarding a follow-up for Bryan, I noticed in the slide deck that some of the historical annual recurring revenue figures might have been updated. Can you clarify if this is due to a divestiture or if it's a result of currency adjustments? I'm looking to understand what changes were made in the slide deck concerning those historical figures, and I’m wondering if you have that information readily available.

Bryan Menar, CFO

Yes. It’s purely related 100% to the FX currency and that’s why we referenced the constant currency. So you saw that in Q3, Q4, post the acquisition of TASK Clutcher.

Operator, Operator

Thank you. Our next question comes from Charles Nabhan with Stephens. Your line is open.

Charles Nabhan, Analyst

Good morning and thank you for taking my question. Sounds like you’re getting a lot of good traction in the Payments business. My question there is, I know a few quarters ago, you had mentioned that Payments was still a bit diluted to adjusted gross margin. I wanted to just get a sense for the impact on gross margin from the Payments business, as well as any color you could provide around the size of Payments relative to either subscription revenue or total revenue?

Savneet Singh, CEO and President

Sure. So Payments is still diluted to gross margin, but going in the right direction. So as you can see, we continue to have nice gross margin expansion. And so even though Payments is not yet at the company-wide gross margins, it’s working its way up there. In totality, Payments is still less than 10% of our revenues. And remember, critical to us, we collect Payments or we report Payments on a net basis. So it’s still small, but it’s working its way there. And I think once it gets to a meaningful size, we’ll start breaking it out. But we’re not yet at 10% total revenue, which is exciting because we have a lot of penetration still to go.

Charles Nabhan, Analyst

Got it. And as a follow-up, appreciate the comments on tariff exposure and sounds like you’ve made some actions over the past few years that help alleviate that headwind to some degree. But as we think about that exposure, could you give us a little color around how quickly that book, the hardware book, turns over? I assume the exposure lies in your incremental deals, as well as the contracts that are coming up for renewal. So any color...

Savneet Singh, CEO and President

Yeah.

Bryan Menar, CFO

Sure, I’ll address that and then Savneet can provide further details. We ensure that our contracts allow for pricing flexibility in response to factors like tariffs. Additionally, due to the strong hardware attachment rate to our software, we collaborate with customers to find suitable solutions. We feel confident about our country exposure and maintain transparency with our customers regarding these developments. The discussions have been positive, and we don’t anticipate any issues. From a supply chain perspective, we have taken steps to secure pricing and bring in some of our point of sale systems that we planned for later in the year, enabling us to serve our customers effectively. Many customers recall how we were able to supply them during COVID when others could not, and we are now starting to receive point of sale requests from them, which helps us leverage that experience.

Operator, Operator

Thank you. Our next question is a follow-up from Adam Wyden with ADW Capital. Your line is open.

Adam Wyden, Analyst

Sure. Just to clarify, you mentioned that four out of the seven have not been rolled out. Can you explain if you're referring to new Tier 1 clients that you haven't acquired yet? For instance, is Popeyes’ Data Central excluded from that? And if you already have a point-of-sale system for Wendy’s, does that count even though you have Wendy’s Punchh? I'm trying to understand your perspective on Tier 1 clients. Are they entirely new clients that you haven't engaged with at all, or could it include significant products like Wendy’s point-of-sale that you don’t currently possess? Do you see what I’m getting at? How do you define a Tier 1 client?

Savneet Singh, CEO and President

Sure. The seven logos we mentioned are the ones we referred to a little over a year ago, after we filed for bankruptcy, when we talked about the pipeline. We said we were in the process of requesting proposals from seven new customers. Out of those, we won four. We consider Tier 1 to be stores with over 1,000 locations.

Adam Wyden, Analyst

Okay.

Savneet Singh, CEO and President

And they would be, of those seven, six would be net new logos. One would be a major upsell into an existing customer. So six of the seven will be net new logos to PAR.

Adam Wyden, Analyst

Okay. And just to clarify, then I have one other question. You’re saying the four out of seven have not been rolled out, but then you also sort of said your pipeline has been replenished. So on top of that, you would argue that even though you won those four out of seven, you have another four Tier 1 logos that are in RFP. Is that sort of how you define it being replenished?

Savneet Singh, CEO and President

I would say that one of the four has been partially rolled out, and we have three more expected soon. In terms of our pipeline being replenished, the dollar value of the pipeline, based on a weighted average, is higher than it was when I made that statement over a year ago.

Adam Wyden, Analyst

Amazing. And then a little bit more on M&A, obviously, you’ve done a really nice job on M&A. Obviously, you’ve sort of said you want to be the largest sort of player in restaurant tech. I’m just curious, like, can you talk about sort of some of the things that you think might be coming to market? And obviously, I know it has to be product specific and it has to be sort of integrated. But I mean, if you were to say, like, what would an ideal PAR look to you like in three years to five years? Like what would sort of be the margin structure and growth rate and sort of scale? I mean, I’m just curious sort of like, if you had a canvas and you could say, hey, this is what the business could look like three years and five years. Like, what does that look like to you?

Savneet Singh, CEO and President

It’s an impossible question because if you asked me five years ago, I’m not sure I would have designed where we are today. I would have been wrong and happy with what we have today than what I would have guessed five years ago. What I think is going to happen when we’re shooting for a PAR is, we are really ambitious, ambitious team. And candidly, if we just stay in our swim lane, I think we’d all be disappointed about what we accomplished. And so I think if you look at us three years to five years from now, I suspect that we’ll be running the same playbook we’ve done in restaurants in the retail space as we’ve just started there and other adjacent categories where we truly are not the restaurant leader, but the dominant food service leader across many categories more. And so, you and I have talked about my love of certain businesses like Ropar and others. I think we want to do that, but we wanted to do that in a more industry specific manner because, as I mentioned on the call, I think what I’ve learned at PAR is that when you can integrate M&A and create true, revenue growth plus stickier customers, and that integration is really critical. I believe you actually deserve a higher multiple because ostensibly every acquisition actually makes your business better because it increases the lifetime value of an individual customer because whether they’re more sticky or you can increase revenue, so on and so forth. And so I think that’s the way that we think about it. And so I would love to create the next version of one of those businesses, but each vertical will be very, very integrated, like we’ve done at PAR because I think that’s really served us well.

Operator, Operator

Thank you. Our next question comes from George Sutton with Craig-Hallum. Your line is open.

George Sutton, Analyst

Thank you. Particular congratulations on the Mr. Pickles deal. So, Savneet, I’m curious when we talk about the better together in the context of how the RFPs are coming into you. My assumption is the RFPs are typically around one specific area, and then through that process, you try to cross-sell or after that process, you try to cross-sell. Do you see a scenario where the RFPs graduate to a more mature thought around a broadened technology suite that really limits the potential to you as the provider?

Savneet Singh, CEO and President

That's a great question. The short answer is yes. RFPs typically focus on a single product initially, and we then try to introduce additional products to the customer. The reason I found your question compelling is that it reflects what we're observing now. In the past, we had separate deals for Engagement and POS, but those are now merging into one. We are seeing more customers converge their digital and operational needs, which historically were managed by separate teams in marketing, IT, and operations. This shift is crucial for how we view our business and our efforts to consolidate our offerings. In short, we are advocating for the approach you described. I believe the market is trending towards combined solutions, where customers are more interested in achieving specific outcomes rather than just receiving a back-office solution. It's even better than that. In the Operator Solution side, we have two separate business units, as you know. For the Operator Solution side, 100% of deals in the last two quarters have been multiproduct, which is impressive. On the Engagement side, 57% of new deals are multiproduct, up from 14%. It has been very exciting. A significant part of this success comes from the rebuilt PAR Ordering product, which is now being included in many deals. That's why I've emphasized this a lot during the call. It also relates to your earlier question, as the market appears to be moving in that direction.

Operator, Operator

Thank you. Our next question comes from Eric Martinuzzi with Lake Street Capital Markets. Your line is open.

Eric Martinuzzi, Analyst

Yeah. I was curious to know on the PAR OPS product, which is the amalgamation of the Data Central and Delaget, what was prior to the acquisition of Delaget, what was the ARR for a typical Data Central location?

Savneet Singh, CEO and President

About $1500 a year.

Eric Martinuzzi, Analyst

Okay. What does that amount to if someone adds on a Delaget, or is it now just part of the bundle?

Savneet Singh, CEO and President

So Delaget has a couple of different modules. So it’s anywhere from call it $500 up to $1,300, $1,400 depending on all three modules or just one.

Operator, Operator

Got it. And then a question regarding the hardware. Was there any evidence of people pulling ahead orders in Q1 and anticipation of potential tariff related inflation?

Savneet Singh, CEO and President

We observed some activity in Q2, and we believe it will be strong from a hardware standpoint. However, hardware only constitutes about 20% of our overall business, so we don't view its impact as significantly affecting our quarterly results. The situation with tariffs, while concerning for some, is something we feel we can manage effectively. Our team handled challenges during COVID very well, resulting in redundant supply chains with minimal exposure to China. We have noticed some trends and expect to see a bit more this quarter, but we anticipate hardware remaining strong at least through Q2 and hopefully beyond. To date, neither Bryan nor I have seen any orders postponed due to hardware costs, which we attribute to successfully navigating the China tariff situation.

Operator, Operator

Thank you. Our next question is a follow-up from Adam Wyden with ADW Capital. Your line is open.

Adam Wyden, Analyst

Thank you for taking my question. I understand you mentioned the rebasing of the ARR by about $3.5 million for constant currency. Can you explain the impact on EBITDA during the quarter and what the actual effect on revenue was? It seems like you could have achieved significantly higher EBITDA and revenue on a constant currency basis. Additionally, do you anticipate higher incremental margins moving forward as the other businesses continue to grow? Could you elaborate on that?

Bryan Menar, CFO

Yeah. Good question, Adam. I think from an EBITDA standpoint or from a PAR revenue standpoint would have impacted probably about a $1 million from an FX exposure standpoint. And then you’re roughly below that call $700,000 and change from an EBITDA there.

Operator, Operator

Thank you. I’m showing no further questions at this time. I would now like to turn it back over to Christopher Byrnes for closing remarks.

Christopher Byrnes, Senior Vice President of Investor Relations and Business Development

Well, thank you, Daniel, and thank you to everyone for joining us today. We look forward to updating you further in the coming weeks and days. Please have a great weekend and have a nice day.

Operator, Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect.