Earnings Call Transcript - PAR Q2 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the 2022 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's is being recorded. I would now like to hand the conference over to your speaker today. Mr. Chris Byrnes, Vice President of Business Development. Please go ahead.

Chris Byrnes, Vice President of Business Development

Thank you, Michelle, and good morning to everyone. I'd also like to welcome you today to the call for PAR's 2022 second quarter financial results review. The complete disclosure of our results can be found in our press release issued this afternoon, as well as in our related Form 8-K furnished to the SEC. To access the press release and the financial details, please see the Investor Relations and News section of our website at www.partech.com. I also want to be sure all participants today have access to our Earnings Presentation and Business Review slide deck. Individuals on the webcast should have access to the deck when they logged on to the call this morning. For those just dialing in on the conference call, the presentation can be accessed on the Investor page of the website and we also included it as an attachment on the 8-K we filed this afternoon as well. At this time, I'd like to take care of certain details regarding the call today. Participants on the call should be aware that we are recording the call and it will be available for playback. If you ask a question, it will be included in both our live conference and in any future use of the recording. I'd also like to remind participants that this conference call includes forward-looking statements that reflect PAR management's expectations based on currently available data. However, actual results are subject to future events and uncertainties. The information on this conference call related to projections or other forward-looking statements may be relied upon and is subject to the Safe Harbor statement included in our earnings release this afternoon and in our annual and quarterly filings with the SEC. Joining me on the call today is PAR's CEO and President, Savneet Singh, and Bryan Menar, PAR's Chief Financial Officer. I'd now like to turn the call over to Savneet for the formal remarks portion of the call, which will be followed by a general Q&A.

Savneet Singh, CEO and President

Thanks, Christopher, and thanks everyone for joining us to review PAR's second quarter 2022 results. During the second quarter, we continued to drive growth in our subscription services revenue and saw strong gross margin expansion as we continue to realize the benefits of scale and operational efficiency. The business is performing and the strategy is working. We continue to measure against near-term expectations while simultaneously making strategic progress against this large opportunity that's in front of us. As a company, we delivered a strong second quarter with the reported total Q2 revenues of $85.1 million, a 23.4% increase from one year ago. Our revenue growth was driven across all business lines, specifically around our software recurring revenues, resulting in $98.6 million of total live ARR at quarter end and a year-over-year growth rate of 29% from Q2 last year. This acceleration continues to be driven by a 32% growth in ARR coming from Punchh and a 31% increase coming from Brink. Equally important as we scale is the dramatic improvement we have been able to drive in gross margin on our subscription services revenue. At the end of Q2 2022, we've now achieved a 73% gross margin, a significant improvement from the 53% we reported at the end of Q2 2020. We expect this positive trajectory to continue to expand over time. This growth has been driven by intense ROI-focused engineering, improved Brink architecture, and economies of scale. Strong results this quarter continue to be driven by a high level of execution across the business and the continued strong demand for PAR's Unified Commerce. We've established strong momentum and have continued to build on that throughout the quarter. In Q2, we activated 962 new Brink sites and on that basis, churn for Brink active store account now totals over 17,700, a 34% increase from one year ago. Brink bookings totaled nearly 950 stores in the quarter. We expect both metrics, activations and bookings, to increase in the second half of this year as inventory concerns are subsiding alongside strong visibility and a ramp up and go-live dates for new customers. Additionally, we continue to see ARPU extension of pipeline, which will help the revenue momentum. We continue to see impressive low churn rates for Brink, approximately 4% annualized. This low churn rate shows the trust our customers have in our products and ensures our ability to provide and also capture value for PAR in the long run. Now, turning to Punchh, we continue to outperform with Punchh and added more than 3,500 sites in the quarter, totaling more than 62,300 sites, a 29% increase in the last 12 months. We signed 12 new customer logos in Q2 that added to our impressive contracts. Punchh further enhanced this impressive list of integration partners with the addition of nine new partners in the quarter. We also added important product features and enhancements that include campaign management, mobile framework, royalty platform, offers management along with machine learning and AI. Applications like Punchh make it easier for brands to connect with their most loyal customers and increase customer lifetime value. We're also beginning to see momentum within the grocery and feed store segment and hope to announce future customer wins later this year. The growth in these emerging verticals is validation of the work the team has put in to expand our content in the last couple of years. PAR payment services had another strong quarter and we're extremely excited by the pipeline of customers who have engaged with PAR for our integrated payments services. They're attracted to PAR payments for those competitive pricing, transparent costs, and full integration with Brink and Punchh. PAR Payments cut across all PAR customer types and we look forward to sharing more data later this year. Even though we are still early on in our payments initiative, we've seen notable customer wins during 2022 and believe this revenue stream will be meaningful and an accelerator to our future financial performance, giving us strong confidence in hitting our 2022 goals. To update you on Data Central, we experienced a solid bounce back in Q2 and saw net new activations of more than 350 stores. As we went live in California Pizza Kitchen and signed a sizeable franchise of other Tier 1 chains. I'm encouraged about the opportunity that Data Central has ahead of it because it's a proven solution that solves the biggest challenges the restaurant industry faces today. For the last two plus years, restaurants have focused tech spend on the front of house with CRM, loyalty, digital, and delivery. Now, most restaurants have upgraded the front of house tech stack, they're struggling with operational issues and profit leaking out the back door via prudent labor challenges. We've added to our sales staff to take advantage of this opportunity, and importantly, have improved the scheduling features of the product and expect to accelerate sales and marketplace around labor solutions. As we continue to strive to report meaningful metrics to our fast-growing subscription services revenue, we'll now report 12-month contracted ARR, which is live sites plus sites signed with the expectation of going live in the next 12 months, with much of that contracted ARR going live in just the next six months. This number should give investors a more accurate view of our future revenues and is the number I personally track internally. Today, 12-month CARR stands now at $215 million, paving the way for a strong rest of the year and beyond. Our product and hardware revenue continues to perform well in a difficult and challenging environment. Product revenues in the quarter continued to strengthen year-over-year, and we reported $28.4 million in this recently ended quarter, a 19% increase from one year ago. The capital purchase environment for restaurants is always tricky, and this has been even more so with pandemics, inflation pressures, and the global supply chain difficulties. As I mentioned previously, we are not immune to these challenges from supply chain and we've experienced some marginal impact with costs associated with the current situation. We continue to monitor the supply chain environment closely and the reality occurring in Asia, specifically China in regards to the pandemic and the impact of specific shutdowns. Now, to briefly report on the government business. PAR government has delivered a strong year-over-year performance for the second quarter. PAR government is up 17.4% in revenue over the same period last year and has outpaced its Q2 2021 profitability by 48%. Enhanced focus on contract financial performance is resulting in bottom-line acceleration. Our government segment performed above plan for both revenue and earnings. Our ISR business had a solid quarter, driven by increased demands for recurring services resulting in a 28% year-over-year revenue growth and improved contract margins. Our government segments also delivered improved performance from mission systems and product business lines, and I'm confident this segment will continue to outperform for the foreseeable future with a solid contract backlog and future award opportunities. Now, to our acquisition. As most of you hopefully saw this morning, we announced that we acquired MENU Technologies, a fast-growing omni-channel ordering solution. The MENU acquisition has a robust e-commerce solution including online ordering kiosk, menu management, delivery management, dispatch, and much more. MENU now allows parties to consolidate the restaurants' off-premise and on-premise orders into one unified tech stack. This is important to our company. Although small in size, we believe MENU is the best-kept secret in restaurant technology. We worked incredibly hard to win the MENU team over as we think MENU brings a level of product specification we have not seen elsewhere. Our logic in buying the business is simple. First, MENU provides PAR with best-of-breed solutions for off-premise ordering. Our customers have been asking us for an alternative view, and we feel we just acquired the modern version of today's incumbent, a product that gives restaurants complete configurations end-to-end commerce in a very special customer-focused culture. This acquisition should help significantly expand PAR's ARPU and provide years of potential upsell. In enterprise software, product wins, and we think we've acquired the most innovative solution in the market. MENU already has corporate contracts with several of the largest restaurant brands in the industry, extending PAR's leadership in restaurant tech in the upper echelons of Tier 1. Second, the MENU acquisition marks PAR's expansion into international markets. MENU is already offering solutions to enterprise restaurants in 25 countries located in Europe, North, and South America, and now allows PAR to leverage its brand and reputation to push not only MENU but other portfolio products internationally. Third, and most importantly, MENU accelerates PAR's plans to unify the restaurants. Beginning immediately, PAR will initiate an effort to unify MENU within PAR's Unified Commerce solution. This way, brands no longer need to maintain two different systems for on-premise and off-premise ordering. One cloud-based system will manage all transactions, become a true system of record, and allow for extensibility. As innovation accelerates, the number of ordering channels will expand, and a unified system allows that channel expansion to function seamlessly while ensuring uninterrupted operations. Other benefits of adding MENU to PAR include a more seamless experience that puts the customer at the center of every transaction, regardless of the channel they use to order and pay. This centralized acquisition includes key functions like MENU management for all systems to a shared model across both commerce and loyalty solutions. It also natively connects kitchen management systems across channels to better manage customer experiences and manage demand into the kitchen. The combination will also provide a material reduction in costs for brands that may be managing multiple systems to offer innovative customer ordering through multiple channels while also accelerating innovation for brands as new possibilities are unlocked by Unified Commerce. I certainly hope you're as excited as I am about this addition to PAR and our Unified Commerce offering. We diligently thought out the correct partner we needed to acquire, we literally evaluated every player in the space, and we're confident that MENU accelerates our path to becoming the world's largest restaurant technology company. I also want to reiterate that we're just getting started as we seek out other transactions of best-in-class companies that we can add to our Unified Commerce offering. Each time we allocate your capital, it's with a purpose to drive long-term shareholder value. I'm incredibly humbled by the work that's happening at PAR. We believe our vision of Unified Commerce gives us the opportunity to become a once-in-a-generation company. With our unit economics and technology advantages, we believe we'll win Unified Commerce to key vertical markets. Looking ahead, we have sufficient cash to execute our strategy. We're prioritizing and making excellent progress on integrating past acquisitions while simultaneously making notable progress on our internally developed projects as well. We feel confident hitting our 30% to 40% growth targets for the year and while the macro environment could be challenged, we have real reasons to be optimistic at PAR. As always, I'd like to thank all of PAR's employees for their dedication and effort over the past quarter. Across the organization, people have stepped up to ensure we meet the needs of our customers while embracing the changes necessary to create a company for long-term sustainable success. They continue to act as owners of our company. With that, I'd like to hand it off to Bryan who will review our financial performance in greater detail.

Bryan Menar, Chief Financial Officer

Thank you, Savneet, and good morning, everyone. Total revenues were $85.1 million for the three months ended June 30th, 2022, an increase of 23.4% compared to the three months ended June 30th, 2021, with growth coming from both restaurant retail and government segments. The net loss for the second quarter of 2022 was $18.8 million or $0.70 loss per share compared to the net loss of $10 million or $0.39 loss per share reported for the same period in 2021. The adjusted net loss for the second quarter of 2022 was $9.8 million or $0.36 loss per share compared to an adjusted net loss of $9.2 million or $0.36 loss per share for the same period in 2021. Product revenue in the quarter was $28.4 million, an increase of $4.5 million, or 18.6% from the $23.9 million reported in the prior year. We continue to see strong hardware sales both with our Tier 1 legacy customers and across our Brink customer base. Service revenue was reported at $35.8 million, an increase of $8.6 million or 31.6% from the $27.2 million reported in the prior year, driven by subscription services revenue from our Punchh and Brink offerings. Total subscription services revenue reported in Q2 2022 was $23.4 million compared to $16.5 million in Q2 2021. The annual recurring revenue rate of subscription services exiting the quarter was $98.6 million, an increase of 25% compared to Q2 2021, driven by 31% growth in Brink and 32% growth in Punchh. Our recurring revenue base, which includes both software-related services and hardware support contracts, continues to expand. Of the $35.8 million of service revenue recorded in Q2 2022, $31 million was comprised of recurring revenue contracts as compared to $23 million in Q2 2021. Contract revenue from our government business was $20.9 million, an increase of $3.1 million or 17.4% from the $17.8 million recorded in the second quarter of 2021. The increase in contract revenue was driven by a $2.4 million or 27% increase in our ISR solutions product line. The contract backlog continues to be significant, noting a total backlog of $184.5 million as of June 30th, 2022 compared to $141.2 million backlog as of June 30th, 2021. Now, turning to margins. Product margin for the quarter was 14.7% versus 22.8% in Q2 2021. The decreased margin was primarily driven by a $1.5 million charge for excess and obsolete inventory. Product margin excluding the excess and obsolete charge was 20% for Q2 2022. We are keenly focused on product delivery in a supply-challenged market, but we continue to improve processes to efficiently balance customer demand with more modest inventory levels. We continue to also monitor our pricing to properly reflect changes in a dynamic and cost environment. Service margin for the quarter was 40.9% compared to 30.3% reported in the second quarter of 2021. The substantial margin improvement over multiple periods continues to be driven by improvements in hosting and support services costs and a higher mix of SaaS software. The service margin during the three months ended June 30th, 2022, included $5.4 million of amortization of identifiable intangible assets compared to $5 million during the three months ended June 30th, 2021. Excluding the amortization of intangible assets, total service margin for the three months ended June 30th, 2022 was 55.6%, an increase of 49.2% for the three months ended June 30th, 2021. Government contract margins were 11.1% as compared to 7.9% for the second quarter of 2021. The increase was driven by higher margin mission systems contracts and lower corporate expenses across all product lines. In regards to operating expenses, GAAP SG&A was $26.4 million, an increase of $3.5 million from the $22.9 million recorded in Q2 2021. The increase was primarily driven by $1.9 million in sales and marketing expenses, $1 million in internal technology infrastructure costs, and a $0.6 million increase in corporate management. Net R&D was $10.1 million, an increase of $1.5 million from $8.6 recorded in Q2 2021 as we increased spending across our software product development organization. Net interest expense was $2.5 million compared to $4.9 million recorded in Q2 2021. The decrease is driven by the refinancing of the loan with the issuance of the 2027 notes in September 2021 and the reduction of attrition resulting from January 1st, 2022 adoption of recent accounting pronouncements. Now, to provide information on the company's cash flow and balance sheet position. For the six months ended June 30th, 2022, cash used in operating activities was $31.6 million versus $33.1 million for the prior year. Cash used for the six months ended June 30th, 2022 was primarily driven by additional net working capital requirements due to an $11.6 million increase in accounts receivable related to our government segment and a $7 million increase in inventory. These increases will be temporary as we expect the accounts receivable and inventories to revert back closer to December 31st, 2021 levels during the second half of 2022. Cash used in investing activities was $5 million for the six months ended June 30th, 2022 versus $381.7 million for the six months ended June 30th, 2021. Investing activities during the six months ended June 30th, 2022 included $1.2 million of cash consideration for the first quarter 2022 acquisition. Capitalized software for developed technology costs for the six months ended June 30th, 2022 was $3.2 million versus $3.8 million for the six months ended June 30th, 2021. Cash used in financing activities was $1.8 million for the six months ended June 30th, 2022 versus $319.3 million for the prior year. Financing activities for 2022 was driven by stock-based compensation related transactions, while 2021 activities included financing related to the Punchh acquisition. Day sales outstanding decreased within the restaurant retail segment from 58 days at December 31st, 2021 to 47 days at June 30th, 2022. Day sales outstanding increased within the government segment from 55 days at December 31st to 89 days at June 30th, 2022. The interim increase is expected to be reduced to normalized levels during the third quarter. This concludes my formal remarks, and we'll move to Q&A.

Operator, Operator

Please stand by for the next question. Our first question comes from Mayank Tandon with Needham. Your line is now open.

Mayank Tandon, Analyst

Thank you. Good morning. Congrats on the quarter. Savneet, you shared a lot of information on the acquisition, but just to clarify, maybe I missed this, how much did you pay for the acquisition? I'm pretty sure any financial metrics in terms of ARR growth and revenue contribution, and how that should flow through the balance of 2022 into 2023?

Bryan Menar, Chief Financial Officer

Yes. So, in regards to the acquisition costs, we'll see this also as a subsequent event in our 10-Q filing later on today. The base investment was $25 million comprised of a mix of both cash and equity. And there is an earn-out that’s linked to that, primarily driven by ARR growth over the next 24 months.

Savneet Singh, CEO and President

As far as revenue expectations, it's minimal now, but with a very strong ramp expected over the next 12 months here. What's amazing about MENU, as I mentioned, we really do think it's the best-kept secret in restaurant technology. They've signed meaningful contracts with some of the largest restaurant brands internationally. And right now they're at the point where they're taking contracted revenue live. So, it'll be small this year, and we expect to accelerate meaningfully in the out years with pretty decent visibility.

Mayank Tandon, Analyst

Understood. And then in terms of the contracted ARR, that's a very helpful metric. But could you just provide any framework in terms of how you're thinking about the back half of the year, given all the concerns around the recession or economic slowdown? Have you seen any slowdown in decision-making from your customers and prospects? Doesn't sound like it, but we'd love to get any sort of thought process around your expectations for the back half of the year especially?

Savneet Singh, CEO and President

Yes, at the start of the year, we guided for 30% to 40% annual recurring revenue growth, and we remain very confident about that. We believe that the next few quarters will actually see faster growth than the last quarter if the global situation improves. Much of this growth is driven by our Brink initiative with payments, which is experiencing strong adoption. We haven’t encountered any customer pushback due to the macroeconomic environment, and we haven't observed any significant changes. The pipeline is expanding rather than contracting, which gives us confidence. In other areas of our business, we anticipate a slowdown in hardware revenues in the latter half of the year. Although we haven't seen this slowdown yet, we expect that as interest rates increase and the economy slows, franchisees of large Tier 1 chains that rely solely on hardware may begin to pull back. We're preparing for that, even though we haven't seen any drastic signs yet; there have been small indications here and there. Our contracted annual recurring revenues that I shared are a solid indicator; we expect to activate most of that over the next six months, which is why we track that internally. It serves as a good guide for our annual recurring revenue expectations. However, if the economy experiences a significant slowdown, we would expect it to impact our hardware business.

Mayank Tandon, Analyst

Great. Thanks for that color. I'll get back in the queue. Thank you.

Operator, Operator

Please stand by for the next question. Our next question comes from Stephen Sheldon with William Blair. Your line is now open.

Stephen Sheldon, Analyst

Hey, thanks. I wanted to also ask about the ARR. I guess, specifically, great to see that that contracted ARR number. I think that all goes live, I think that would imply about 30% ARR growth. But is what you're also seeing on the pipeline side also giving you some confidence about that 30% to 40% ARR growth number? Just any detail on the pipeline across different businesses?

Savneet Singh, CEO and President

Yes, absolutely. I'll go through this step by step to provide some clarity. In short, we believe we will reach that number as I mentioned. However, the economy could change, and if it does, we feel optimistic about our current position. Looking at our hardware business, the pipeline is challenging due to its short timeline, and customer behavior can shift quickly. We anticipate receiving orders as we typically have strong quarters, but we expect the pipeline to contract if the economy slows. For the Brink and payment segments, we see a robust pipeline of go-lives and have good visibility for the next six months. We're working with a few large accounts that will ensure a solid setup for the coming year. As of now, the pipeline appears strong enough for us to achieve our goals. We're confident we can meet those goals, or we wouldn't state it. We feel positive about the Brink pipeline, but the real focus for the second half will be whether we can expand that pipeline to ensure a successful 2023. Regarding 2022, we believe there is little we can do to drastically alter this year's outcome, but it will significantly influence 2023. For Punchh, everything contracted or booked to date will all execute in the second half. Any business signed in the latter part of the year related to Punchh will likely go live in 2023, excluding upsells and cross-sells. We have strong visibility into Punchh's revenue for the remaining six months. Everything we sign in that timeframe will contribute to recurring revenue for the following year. In short, we have clear visibility on revenue for Punchh because it has been booked and is scheduled to roll out in the second half of the year. The payments sector can have an immediate impact on 2022 and does not have a lengthy go-live timeline since most customers are already on Brink. Here, we undoubtedly have our most robust pipeline. The demand for payments is increasing beyond our expectations. As hardware supply chains weaken, this should benefit our Brink payment devices, which are currently our limiting factor for live revenue. The payments pipeline is very strong, and I would argue that if the economy weakens, this business will strengthen due to the cost savings we offer our customers. That creates an easy decision for CFOs and CIOs. Lastly, regarding Data Central, the expectations are modest. Overall, we feel momentum, and we have a great leader in Marcus Wasdin who notes that while we have strong momentum, it's also fragile. We expect to see that continue to grow, and we are involved in processes that we feel confident about. Therefore, the Data Central pipeline looks very strong. In summary, because our businesses involve contracts and longer sales cycles, the remainder of the year will focus on executing what has been signed this year, particularly in payments and parts of Brink. We have excellent visibility for this year, and this will influence our outcomes heading into 2023.

Stephen Sheldon, Analyst

Got it. That's incredibly helpful. Maybe shifting to the MENU acquisition, that was great to see and clearly a lot to dig into there. But can you give some more background there between their focus on SMB versus enterprise? And how aggressively do you plan to take this out as an option to your current U.S. enterprise customer base as an alternative to the other online ordering solution?

Savneet Singh, CEO and President

PAR is an open solution that will always be compatible with every restaurant technology company. We view other companies as past incumbents that have stifled innovation, and we want to change that. Our approach won't affect any of our partners. Regarding the acquisition, our top priority is to start generating revenue based on the contracts MENU has already secured. MENU offers a unique range of products. I have encountered many digital ordering and kiosk companies, and MENU stands out as the best product we’ve seen. It's not just one product; it includes online ordering, mobile access, loyalty programs, kiosk solutions, and dispatch services, all designed specifically for enterprise needs. This alignment is important for PAR. Our objective with MENU is to activate the revenue they've built over the past few years, primarily in the 25 international markets I mentioned earlier. However, we also see significant potential in introducing their products to the United States. Our customers have encouraged us to seek alternatives to their current solutions. Eventually, we plan to introduce it in the U.S. and integrate it into our Unified Commerce solution, which is the main reason for this acquisition. I believe that over time, the U.S. will be a major market for MENU, but right now, our focus is on activating the contracted revenue. We are genuinely excited about this incredible product.

Stephen Sheldon, Analyst

Great. Thank you.

Operator, Operator

Please stand by for the next question. Our next question comes from Jim Masako with FactSet. Your line is now open.

Samad Samana, Analyst

Good morning Savneet and Bryan. I hope you are doing well. I have a few questions. I wanted to clarify the Contract ARR from last quarter's presentation, which was above $116 million, specifically $115 million in the second quarter. I'm curious why it decreased by $1 million from the previous quarter. Was there a change in what is included in that figure? Please help me understand. I also have a couple of follow-up questions.

Savneet Singh, CEO and President

Sure. Yes. We mentioned on the call it's definitely not down. We changed the definition of Contracted ARR to be just the next 12 months, and most of that next 12 months CARR is the next six months. We think that gives you a lot more visibility. It's a number that I track, which is what's the revenue we've contracted that's going to go live in the next 12 months, and again, most of it will go live in the next six months.

Samad Samana, Analyst

Got you. I apologize. I must have missed that part. Okay, that's helpful. And then I guess just as I think about Punchh, it's still growing above the overall ARR growth, but I guess I am curious; if I think back to when you guys acquired it, it was growing well, north of the mid-40s this quarter. I know it's a tough comp, but you're talking about growth decelerating to the low 30s. I'm just curious; what's driving some of that slowdown in that Punchh ARR growth?

Savneet Singh, CEO and President

Yes. When we bought the business, it had grown about 30% year-over-year from the prior year. Then it obviously started a lot with our go-live motion plus the cross-sell, upsell. I think it's just scale, right? We're still adding huge amounts of ARR every quarter and every year. So as we scale, I think that growth rate will stabilize. We want to maintain that 30% to 40% growth rate, and it's continuing to take that product internationally, leveraging the MENU acquisition and new product upsell. We believe we will continue to grow the Punchh business in that range. When we were growing 45%, that was a moment in time where we had incredible cross-sell opportunities through the Brink acquisition, but we think it will stabilize around this rate as we go. We think for all of our products will be sort of in that 30% to 40% range.

Bryan Menar, Chief Financial Officer

And we're seeing good movement now in adjacency; Marcus was with grocers and also with convenience, especially with that product.

Samad Samana, Analyst

Great. And then maybe just one last one for me. Just any update on the new Brink ARR trends in terms of ARPU per site, are you seeing better pricing? Are you seeing similar pricing to what you've seen maybe over the last two or three quarters? Just anything that you can see that gives us an idea of maybe the size and scale of the deals you're landing and the price you're able to retain even as you do that?

Savneet Singh, CEO and President

Thanks for bringing up that question; I wish I had elaborated on it more. In short, we have been launching many sites that were contracted back in 2016 without significantly affecting the average revenue per user. The average ARPU for Brink based on contracts signed over the past year has been much higher than those from 2016. In the second half of the year, we expect to leverage the momentum from these signed deals, allowing us to increase revenue growth within the Brink product line. You will start to see a gradual improvement, and by 2023, we’ll gain substantial benefits from activating the contracts we've secured. Brink's pricing has increased considerably in the last year, and as we find more ways to monetize features like APIs and additional product modules, we anticipate continued growth. We will see a reversal of the previous trend. However, the revenue from contracts that go live is often from older agreements, which indicates that we are finally activating revenue from contracts established years ago. We have been somewhat unlucky in fully benefiting from all these sites, but I believe we are about to see a positive change.

Samad Samana, Analyst

Great. Thanks for taking my questions.

Operator, Operator

Please stand by for the next question. Our next question comes from Anja Soderstrom with Sidoti. Your line is now open.

Anja Soderstrom, Analyst

Hi, and thank you for taking my questions. A lot of good questions asked already. I'm just curious, how did you come about with a MENU Technology acquisition? And how long have you worked on it and why now?

Savneet Singh, CEO and President

We've invested considerable time into the concept of Unified Commerce, which requires integrating off-premise and on-premise orders. Off-premise encompasses online and mobile orders, everything outside the store. Until now, we lacked a solution for this, and we spent about two years, or more accurately a year and a half, searching for a product that would meet our needs. The main challenge in this market is that most solutions cater to the SMB market, which are excellent and rapidly growing companies, but transitioning an SMB product to an enterprise-level solution, particularly in the restaurant sector, is quite challenging. We thoroughly researched the market to find the best available product. As I mentioned earlier, regardless of having top marketing, sales, or management, success ultimately hinges on the product, and we had to find the right one. We discovered MENU around nine months to a year ago, and honestly, we were surprised by what we found; we had never encountered a product from a company that had such a comprehensive offering while still being relatively young. It took us some time to integrate with PAR, during which we developed a deep appreciation not only for their product suite but also for their commitment to customer satisfaction, something we can learn from. While this acquisition is small, it has garnered support from our entire team, and we are excited about the growth it will bring. Interestingly, this wasn't our initial goal, but it now provides us with an international presence that we plan to expand. We will begin by promoting Punchh internationally and will eventually roll out all our products. This acquisition fills the gap we had in off-premise ordering and opens the door for international expansion, particularly since there isn’t a strong dominant player in that space. A significant advantage is that they have existing contracts; it's not a new experience for them as they are familiar with the RFP, testing, and security processes. We are very enthusiastic about what we have discovered.

Anja Soderstrom, Analyst

Okay. And you're also benefiting from the stronger dollar, I guess, when you acquired it.

Savneet Singh, CEO and President

I think so. Maybe it was part stock, part cash. We did benefit on that, but the key of the acquisition for the MENU team will be their ability to grow the ARR efficiently and hit some of the earn-out targets that we put out something which will be in our subsequent events filing, which you'll see. I think to them, the motivation is to drive that earn-out.

Anja Soderstrom, Analyst

Okay. And how do you see in general, that M&A environment now and what does that mean for your government's business potential spin-off?

Savneet Singh, CEO and President

I believe this is our second quarter where we've generated revenue from our new contract, which is contributing significantly to our growth. As we continue to observe this and the margin expansion, we will keep looking for opportunities within that business. Given the growth and the margin expansion, it is a business that should receive a favorable valuation if our board chooses to monetize it.

Anja Soderstrom, Analyst

Okay. And then, lastly, just in terms of the sort of the uncertain economy, have their customers tended to mess with sort of sales cycle being affected, if at all, by what's going on in the economy now for you?

Savneet Singh, CEO and President

Today, we're not seeing tremendous change. As I mentioned in the call, we expect to see it in our hardware business. I think what we would potentially see it in other parts of our business, but we're not; it's one of those things where we talked about it with our customers, but we're not seeing that elongation of sales cycles quite yet. Without question, it can and should happen, and we're, if it does happen, I think it'll be more of a 2023 issue as 2022 is very much being booked now. It's something that I think if it happens, we'll be ready for it. We're taking precautions, slowing down hiring, focusing on price to be more efficient. But today, I would say we continue to be surprised that revenue is going live.

Anja Soderstrom, Analyst

Okay. And actually, one more last one. In terms of our Unified Solution, when you added the MENU acquisition, is there like to have a hit list of potential customers that you think are going to be more prone to signing on now when you have an even more robust solution?

Savneet Singh, CEO and President

Of course. I think first and foremost, as we integrate the MENU product into PAR, it will make us more attractive to our existing products; those customers that are in sales cycles for just brand or just Punchh, or Data Central should find us more attractive because we can unify their on-premise, off-premise to the back office. That is a really attractive proposition. So, illustratively, if we're in a process, and let's just say Brink is in second place, not first place, this should help us push that over the finish line. I think it will just naturally bring more revenue forward on our existing products. The second part of your question, the MENU product is very well focused on the enterprise customer. It's not a product for the single-store restaurant. It's a product for global international brands that want an alternative to the incumbents that exist today. We're highly focused on being scalable, completely configurable, and really giving control back to the restaurant. Today, I think if you talk to restaurant companies, they're happy with what they have, but they're not blown away, especially regarding the ability to be configurable and integrated such that the kitchen is a smart Italian ordering system, and they're speaking the same language, and none of that exists today. MENU gives them that opportunity now.

Anja Soderstrom, Analyst

Okay. Great, thank you. That was helpful for me.

Operator, Operator

I am not showing any other questions at this time. I would now like to turn the conference back to Savneet Singh for closing remarks.

Savneet Singh, CEO and President

Thanks everybody for joining, and we look forward to updating you next quarter.

Operator, Operator

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