PAR Technology Corporation (NYSE:PAR) Q1 2025 Earnings Call Transcript

PAR Technology Corporation (NYSE: PAR ) Q1 2025 Earnings Call Transcript May 9, 2025

PAR Technology Corporation beats earnings expectations. Reported EPS is $-0.01, expectations were $-0.05.

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. [Operator Instructions] 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: 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: 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, and 20% organic growth was compared to Q1 2024. Total ARR was reported at $282 million and grew 52%, including 18% organic from Q1 last year. Accounting for constant currency, sequential ARR grew $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 of over 69%. Adjusted EBITDA came in at $4.5 million for the quarter and nearly $15 million improvement from Q1 last year.

This was primarily driven by organic improvements, excluding M&A, showing the tremendous operating leverage we've demonstrated in our core assets. Our commitment to investing in long-term duration-of-profit dollars continues to really play out. Now to dig into our business with further detail. Total Operator Solutions ARR grew 49% in the quarter, with organic growth at 18% when compared to the same period last year. ARR for this business unit now totals $117 million. As we messaged on last quarter's call, in Q1, we paused the PAR POS implementation of Burger King in order to recalibrate for a dual PAR POS plus data central implementation with the customer. I'm happy to report that the rollout has since restarted and we are receiving highly positive feedback from corporate and franchisee stakeholders alike.

We are forecasting a strong ramp up in the second half, with install velocity expected to peak in Q3 and Q4 for both product offerings. Crucially, the BK slowdown this quarter was offset by strong performance on other initiatives within our Operator business. We continue to see a broader and healthy operational buying environment in the marketplace, demonstrated by the signing of five new PAR POS customers in Q1. Continuing the trend from last quarter, all deals were multiproduct in nature. The impact of these multiproduct rollouts has yet to flow into our P&L and we will provide a strong -- will provide strong revenue opportunities in the second half of this year and well into 2026. As we've mentioned before, these multiproduct deals increase LTV meaningfully, without an additional dollar of acquisition cost.

Our Better Together thesis is working. Further, our TASK platform is seeing continued traction under the PAR umbrella. We have been successful in positioning this product line alongside PAR POS domestically, as well as standalone to global-minded prospects. The TASK platform pipeline is at a record high and we believe PAR's total POS offering now ensure full coverage of the enterprise hospitality POS market. Outside of POS, our Operator Solutions business unit continues to scale via our back office catalog. In March, we successfully launched our new PAR OPS product line at a large industry conference. PAR OPS includes Data Central and a newly acquired Delaget, and delivers an enhanced and feature-rich back office offering that is calibrated to meet both corporate and franchisee needs.

The new and combined PAR OPS pipeline is showing strong and consistent growth, as enterprise food service businesses emphasize back office initiatives to drive operational efficiencies that ensure favorable and improved operating margins and labor productivity. More specifically, we have been successful in positioning Delaget-related functionality with our existing customers, while similarly cross-positioning the existing PAR catalog with the large Delaget customer base. Validating this rising importance of back office in today's business environment, I'm excited to announce that we were recently selected by Popeyes Louisiana Kitchen as the preferred back-of-house vendor for their network of 3,500-plus stores. This news, along with the previously reported back office partnership with Burger King, underscores our valued and strategic partnership with RBI and validates our investment thesis into Operator products.

PAR OPS has the largest-weighted pipeline we have seen to-date. We anticipate macroeconomic pressure to continue the ongoing drive of concepts to upgrade their back office technology and optimize efficiency. Now on to Payments. In Q1, PAR Payment Services continued to drive high transaction counts and processing volumes across our customer base. Despite being a seasonally slower period, PAR Payments continued to grow and added five new concepts to its base. In the quarter, we rolled out Lennys Grill & Subs, Rocky Mountain Chocolate Factory, Hooters of America, and Chow Time Canada. Additionally, we saw continued multiproduct adoption with the signing of Mr. Pickles and Cargo Coffee on both our wallet and Ordering Solutions. The launch of PAR Gift Card offering further enabled our customers to benefit from increased customer engagement, operational efficiencies, and cost savings.

In short, PAR is uniquely positioned and hedged in the market to service both the dual need of revenue maximization and cost control. Moving to the Engagement Cloud. In today's environment, where consumers are more wallet-conscious than ever, digital engagement is no longer a luxury, it's a necessity. Loyalty programs and personalized digital offers are now central to driving traffic and frequency. We're seeing this shift play out across our platforms, with record growth in engagement and usage. Brands are doubling down on guest engagement and our tools are making measurable impact. The number of digital offers distributed and loyalty programs users reached, reached record highs in Q1, feeling growth at scale in both restaurant and retail.

We believe this trend will accelerate as more businesses move beyond just getting online to investing in infrastructure that provides ROI, operational leverage and actionable guest insights. Winners in the market are embracing seamless identification, app-less loyalty, gamification, AI and connected technology. This is where integrated platforms like ours, offering a Better Together approach, drive superior outcomes. Our Engagement Cloud business delivered standout financial performance in Q1. We exceeded internal targets with ARR increasing 54%, including 18% organic growth when compared to Q1 last year. This was driven by our excellent gross retention of over 95% and the addition of a multiproduct Tier 1 Burger brand. This reflects our ability to execute consistently, offering best-in-class product with better-together functionality.

Our flywheel is real in getting momentum across all sectors of PAR, which positions us for continued success. We're winning multiproduct deals at an impressive rate. In Q1, 57% of new signed Engagement deals were multiproduct, including Punchh, Ordering and Payment. This is a major leap from just 16% in Q1 2024. Much of this is driven by Ordering. In Q1, we soft-launched Ordering 2.0, marking our best sales quarter in online ordering in over two years. After a year of deep market analysis and product enhancements, Ordering 2.0 now offers true enterprise menu management and features like order throttling to help kitchens manage high volumes. Our latest version of Ordering also provides for AI-driven upsells, seamlessly leveraging Punchh's guest cohort data that enables more personalized upselling and higher check sizes.

With over 200 million guests on Punchh, we're positioned to build one of the most powerful upsell models in the restaurant industry. Additionally, our new POS import feature ensures real-time menu management across all Ordering channels, streamlining operations for customers. This is a powerful set of features that we don't believe any point-to-point integration can solve, proving our Better Together model. In our C-Store and Field business, we're laying the groundwork for our flywheel. The highlight in Q1 was EG Group's launch of smart rewards across 1,500 plus sites. EG anticipates a 275% lift in engagement signups this year, which is an outstanding expectation even before their full marketing strategy kicks in. In Q1, we also made our first retail acquisition with the acquihire of GoSkip.

GoSkip provides self-checkout kiosks and scan-and-go solutions. Integrating GoSkip into our platform isn't just about adding a feature, it's about bringing our technology in the store. We've seen in our restaurant business that a connected, full-stack solution in-store and above-store truly unlocks the power of data in the business flywheel. GoSkip enhances the utility and stickiness of our digital loyalty solutions, delivering more data, more engagement and the opportunity to attack the growing retail media network. This acquisition is a great way to grow power retail. We see immediate runway to drive incremental revenue within our existing customers and will continue to be acquisitive in the convenience and retail industry. Before digging into Q1 hardware numbers, I want to briefly comment on the tariffs.

The uncertainty around these actions, along with retaliatory tariffs imposed by other countries, have introduced increased volatility in global trade policies and supply chains. Fortunately, after the COVID supply chain disruptions, we've purposely reduced our reliance on China and distributed our sourcing to other countries in Southeast Asia. On average, we import less than $1 million of peripheral devices per quarter from China. We're continuing to evaluate the current environment and will take the necessary steps to mitigate the impacts on our business to the best of our ability. Fortunately, hardware now only comprises 21% of our revenues and so our confidence is high that we can manage and mitigate any negative impacts resulting from the tariffs.

In regards to our hardware business in Q1, we reported improved performance and increased hardware revenues by 20% in Q1 versus the same quarter last year. In the quarter, we saw good demand for our newest platform, the PAR WAVE, and we're seeing increases in both domestic and global sales. Also contributing to the turnaround was the new PAR Clear drive-thru solution that is setting the standard for drive-thru communications and is positioned to be the industry leader in QSR drive-thru systems. In summary, we continue to deliver on our Better Together philosophy of multiproduct innovation, which is core to our go-to-market flywheel. A great example of this came in Q1 with the completion of PAR POS-powered in-store loyalty sign-up and intelligent upsell.

By leveraging Punchh code within PAR POS, our customers are able to instantly acquire loyalty customers within the four walls of their restaurant and via AI Insights upsell personalized product offerings. This functionality is keenly desired by our largest customers and recently drove a loyalty upsell into a fast growth Tier 1 POS concept. Separately, our work on the PAR Data platform continues at full speed. PAR's multifaceted product portfolio affords an unmatched breadth and depth of data that when connected, unlocks powerful proactive analytics. Not only are we able to leverage AI to produce comparative performance insights, we're also delivering proactive analytics that prompt operators, for example, to sell expiring inventory via specially designed incentives that maximize profits and minimize operational costs.

In an uncertain future, leading brands want an edge. We utilize smart data to give this edge to them. Our three-tier strategy of Best-in-Class, Better Together and Open continues to be validated by the market. We believe we're only scratching the surface with our product-led cross-sell initiatives. A cross-sell must also be matched by new logo adoption. A little over a year ago, post our Burger King win, we had communicated that we had an additional seven Tier 1s in our pipeline. I'm happy to report that since that time, we have now won four of those seven deals and our pipeline has since then been replenished. We think this dynamic will continue, creating a deeper opportunity set to go multiproduct over time. This holistic approach is a key validation of our platform thesis.

In the long run, platforms, not point solutions, will dominate. Bryan will now review the numbers in more detail. Bryan?

Bryan Menar: Thank you, Savneet, and good morning, everyone. We started 2025 with the same successful execution of our strategy as we displayed exiting 2024. Sufficient services continue to fuel our organic and rep -- 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 sufficient 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 to our company plan while also being aware of the ever-changing macro environment, analyzing and appropriately adjusting our execution 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 sufficient 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 represent 66% of total PAR revenue.

Organic subscription service revenue grew 20% compared to 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 this $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. Increase primarily consists of margin improvement in field operations and repair services, substantially driven by improved cost management and reductions in third-party spending. 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: 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 suite 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 Instructions] Our first question comes from Mayank Tandon with Needham. Your line is open.

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