Good day and thank you for standing by. Welcome to the Fiscal Year 2022 First 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. [Operator Instructions] I would now like to hand the conference over to your speaker today. Mr. Chris Byrnes, Vice President of Business Development. please go ahead.

Thank you, Sarah. And good afternoon, everyone. I'd also like to welcome you today to the call for PAR's 2022 first 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 that we will use later in the call to better communicate the momentum in our software business. Individuals on the webcast should have access to the deck when they logged on to the call this afternoon. 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. At this time, I would like to take care of certain details in regards to 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 any future use of the recording. I'd also like to remind participants that this conference call includes forward-looking statements that reflect the 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, 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 general Q&A. Savneet?

Thanks, Chris. And thanks, everyone, for joining us to review PAR's first quarter 2022 results. As always, there's a lot we want to share in the prepared remarks, so let's get started. Q1 saw us continue to hit our ARR growth targets of 30% to 40% growth with consistent margin expansion. Every quarter continues to prove out the long-term growth and profitability of our Unified Commerce initiatives. As a company, we delivered a strong first quarter with reported total Q1 revenues of $80.3 million, a 47% increase from one year ago. This revenue growth was driven across all business lines, and specifically around our software recurring revenues, resulting in $94.4 million of total live ARR at quarter end and year-over-year growth rate of 172% from Q1 last year. When adjusting for the Punchh acquisition, ARR grew 34% year-over-year. This acceleration continues to be driven by 40% growth in ARR coming from Punchh and 35% from Brink. Contract ARR now totaled more than $116 million as of March 31, paving the way for a strong rest of year and beyond. Equally important, as we scale ARR, is the dramatic improvement we've been able to drive to gross margin expansion on our subscription revenue. When new management stepped in a little over a year ago, two years ago, recurring revenue gross margin was in the low 40s. At the end of Q1 2022, we've now achieved 72%, a significant improvement from just one year ago. We expect this positive trajectory to continue to expand over time. This growth has been driven by an intense ROI focused engineering and by dramatic improvement in Brink's scalability. Our strong results this quarter continued to be driven by high level execution across the business and continued demand for PAR's Unified Commerce Cloud. We have established strong…

Thank you, Savneet. And good afternoon, everyone. Total revenues were $80.3 million for the three months ended March 31, 2022, an increase of 47.4% compared to three months ended March 31, 2021. Net loss for the first quarter of 2022 was $15.7 million or $0.58 loss per share compared to a net loss of $8.3 million or $0.38 loss per share reported for the same period in 2021. Adjusted net loss for the first quarter of 2022 was $7.1 million or $0.26 loss per share compared to an adjusted net loss of $7.6 million or $0.34 loss per share for the same period in 2021. Product revenue in the quarter was $25.1 million, an increase of $6.5 million or 35% from the $18.6 million reported in the prior year. The strong growth was primarily driven by hardware refresh investments by our domestic tier 1 accounts. Service revenue was reported at $33.8 million, an increase of $15.8 million or 87% from the $18 million reported in the prior year. The increase was primarily driven by revenues of Punchh of $11.2 million, which included SaaS and related recurring services of $10.8 million and other services of $0.4 million. Total subscription services revenue reported in Q1 2022 was $21.7 million compared to $8.4 million in Q1 2021. The annual run rate of subscription services exiting the quarter was $94.4 million. The company continues to expand our total recurring revenue base, which includes both software related services and hardware support contracts. Of the $33.8 million of service revenue reported in Q1 2022, $29..2 million is comprised of recurring revenue contracts as compared to $15.2 million in Q1 2021. Contract revenue from our government business was $21.4 million, an increase of $3.5 million or 20% from the $17.9 million reported in the first quarter of…

[Operator Instructions]. Your first question comes from the line of Mayank Tandon with Needham.

This is actually Kyle Peterson on for Mayank. Just wanted to touch on client conversations, particularly in this kind of higher inflation environment. I know kind of everyone is dealing with it differently. It seems like at least a lot of restaurants anecdotally have been able to push on some prices through higher menu costs and such. Are you guys able to kind of push similar pricing increases through, especially given some of the supply concerns on the hardware side?

I think there's two questions there. So, from client conversations, it's probably consistent what you've been hearing, which is restaurants have been able to pass on without a major impact to their bottom line yet. And so, we've seen them been able to do that without a ton of traffic in fact. On our business, we've been pretty good at passing on the – particularly the hardware inflation to our customers. So, if you look at our hardware margins, they've been expanding the last two quarters, which is a combination of the product mix, but passing on the price increases to our customers. So, so far, we've been able to withstand it. Part of that is that we may be invested in inventory, part of that is to be able to pass on prices. But I think we sort of feel like now we've kind of figured it out up until this point, and we'll see how things move going forward.

I guess just a quick follow-up on the 1Q strength, particularly on the hardware side. Was there any pull forward with some of the planned hardware investments from some of your clients into the first quarter or is some of that strength and momentum due to that pricing that you were kind of just touching on? Just want to see if you had any more color on the really strong hardware growth.

Kyle, this is Bryan. We've been seeing over the past couple of quarters some really strong hardware sale results that we've had. A lot of it actually is timing of some of our tier one accounts that were kind of delayed out in 2020 and the early part of 2021 with COVID. And so, we actually had very good year-over-year this quarter, actually lower than the past two quarters. But that's what really kind of drove that. And we did not see any kind of pushback from price increases that we implemented in the mid part of last year as an impact on our sales the past three quarters.

Your next question comes from the line of Samad Samana with Jefferies.

Savneet, there was a lot in your prepared remarks. So, I'm going to try to unpack it as best as I can. Maybe first, just when I think about the growth for Brink in the quarter, it's clearly continuing to get better than some of the last few quarters you posted. How much of that is a function of better activations versus pipeline conversion that's happening from prior deals versus new deals that are coming into the pipeline that are closing in periods. Let's maybe start there.

Great question. Generally, what you see in this quarter is a reflection of sales work six months to a year ago. So, it's really executing on deals we signed and getting them out the door. So, the success we've had in the last few quarters is – a lot of the work that happened during the pandemic in the prior quarters and us just becoming really, really programmatic about getting activations out the door. We've had some new leadership kind of run our activations for the last few quarters, and it's just really made a big difference. And we've been able to burn down that backlog from the strong sales we had the prior year.

I want to make sure I understood the developer impact. Is that specific to Data Central itself or is that more broadly on your software portfolio that you're seeing a bit of a headwind? I think it's understandable there's obviously much bigger concerns, and there's a lot of companies that are being impacted by this. But I'm just curious if you could help us understand kind of more specifically what you were calling out.

It's just the Data Central product line, not the other product lines. And I think we've been able to move a lot of the team, but I think our team estimates this is about a 20% to 30% hit on production. So, the team is still performing really, really well, better than we all expected. But there's no doubt that, just given the situation, there are limitations on what we can get done, but it's just that product line. And we expect that to get better given the relocation that we've been able to push through.

Maybe on the pricing in the quarter. I know you mentioned that ARPU melted upward. Is that primarily due to payments attaching more and more? Or is that just better pricing like-for-like for Brink? Maybe just help us understand what's driving that upward dynamic for ARPU?

It's without question better pricing. We've been talking a little bit – last year, we activated a lot of stores. But as you saw, the price point per activated store was lower than average, and that was very much driven by legacy deals. What you're seeing now is the deals that we signed over the last year that came in at the pricing that we've been telling folks that is better than our legacy deals. And so, you should continue to see that happen as we kind of lap some of these legacy deals that have kept pricing down.

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

Really strong results here. First, with the three assets that you have, I guess, where are you at in terms of integrating them from a back-end technology perspective, if you look between Brink, Punchh and Data Central? Are they fully integrated now or is there a lot more work to do on that front?

From an organizational perspective, they're all within the same product and technology organization, which is super important because they all report in to the same person, the same head of engineering, same head of product. And so, that really creates a sense of unification across what we're doing. We're constantly working on how you make – if you buy all three products, what you get that someone who doesn't have that. [indiscernible] get better and better. But from a back-end perspective, it is united. And one of the things we're most excited for this year is exactly what you're talking about, where we're coming out with products that – or features that you could not get if you didn't buy those products altogether. And it's all in the effort to say, hey, there's value if you buy the suite of products as opposed to just one.

Just on Brink, really strong activations there again this quarter, and especially, I think in light of Omicron during the quarter, but the bookings did slow a touch. I guess anything to call out there in terms of the bookings slowdown? And how much visibility do you still have in terms of signed concepts where the franchisee locations are not yet showing up in the booking metrics?

We've historically said we want to do at least 1,000 bookings a quarter and there will be volatility from quarter to quarter because it's sort of – you signed the corporate and then you are signing up to individual franchisees, which is a bit of a sale to a small business. And that process generally becomes heavy at the quarter end, and so you don't have a ton of visibility always. We feel very good about confidently exceeding our target for the year there. And like I said, it won't be consistent quarter to quarter, but we kind of want to clear that 1,000 every quarter at least.

Your next question comes from the line of George Sutton with Craig-Hallum. Your line is open.

Savneet, I wanted to go a little bit more into the whole concept of the unified sale. And you talked about closing several large brands who chose multiple solutions, and you separately talked about what you get if you buy all three products. Can you just give us a little bit better picture as to what that means to the buyer of those multiple products?

And it's a core part of what we're looking to deliver. But I can try to unpack that a bit. So, the simplest way that I think software [indiscernible] installed is very much a bundle. 'Hey, you get this and you get a price discount.' And we're very much against that because the idea that – the foundation of all of this is if you put it together, you actually are able to have a holistic picture of your store of your business. And that is impossible today. So, I'll give you one example. Today, when you're running a restaurant, you've got your in-store transactions, which are people coming in your store, people going to your drive-thru and potentially people coming in and using some sort of QR code pickup. But you also have your online orders coming from your digital ordering partner, your loyalty orders hopefully coming in through Punchh, your Uber Eats orders or DoorDash orders. And so, one of the advantages of having unified commerce across PAR is that you can get the data across every single order, and it allows you then to do something that we call omni spotting, omni throttling, where you can throttle orders to make sure that you can fulfill the orders that are coming in. So, as an example, you may want to shut off your third-party delivery options like a DoorDash because you're concerned that you can't handle that within the kitchen. Or conversely, you may want to turn on that channel because you've got capacity in the kitchen. And you can only figure that out if you know what's happening from every single point of order within the restaurant, and you also know what's happening in the kitchen and with your labor. And so, that's an example of some value that we can provide that we can't really do without being unified. I'll give you a second one, which sounds very silly. We once surveyed our largest customers and asked them for their biggest technological needs, number one and number two on everyone's list, which is going to shock you, was that they wanted a better integration between their online ordering system and their POS and between their loyalty system and their online ordering system. And the idea here is that the integration is actually very hard to get right. And when you build them natively together, you don't have to worry about integration. And so, if one product is updates and that's – you don't have to worry about that update cascading, causing problems for all the products that that's integrated into. And so, that ease-of-use, that simplicity is really, really powerful to our end customers.

One other question. You gave a number that was very encouraging. You have 150 million unique profiles. I did a little quick Google search. There's 322 million people in the country, so that's about half. Help me understand the value you get when you bring that number of unique profiles to your potential customer.

So, I was highlighting more in terms of the breadth of how wide Punchh is distributed, but there's certainly opportunity there as we think over time. We're not focused on that yet. But I think without question, just the immense amount of data we have is hard to ignore.

Your next question comes from the line of Anja Soderstrom with Sidoti. Your line is open.

Congratulations on the great quarter again. Just had a follow-up on that data you said you're collecting from those unique profiles. Would you be owning that data or does that belong to your customers?

It's customer by customer dependent. Unfortunately, it's not consistent across everybody. And we would never do anything without our customers' approval. But one of the things that it obviously gives us is a ton of anonymized data to share back to our customers and provide value on how is their offers, campaigns, promotions, loyalty program working versus a comp or how it should be going. So, it really helps them run their business better. And maybe down the road, there's an opportunity to do something else there, but that's still a little bit out there.

I have some follow-up on the Data Center. I understand you have some challenges there with the development team in Ukraine. But you also had that seeing a little bit of slowdown during COVID, but then you saw a pickup in the demand there. What do you see in terms of the demand for Data Central?

We think it will turn in the second half of this year. We've got a great new leader in there who's been driving really wonderful change. We see a pipeline, which we hadn't seen candidly in the last couple of years. And we started to win some real logos. We're talking about CPK. There are couple of other good logos after that. So, we think – we feel pretty good about the opportunity for that business going forward.

And this year, so that tailwind in that business helped by the inflationary environment maybe?

Absolutely. One of the things I mentioned was that we recently broke out a module on the labor side, and we've been able to sell that as an individual product. And I think that highlights the challenges on labor that you're talking about. And so, in seeing that, we've been able to kind of create a little bit of a monetization effort focused just on solving that one labor challenge that we see today.

Just one last question about the M&A market. What do you see there? And are you actively looking? And sort of what's the environment like?

We're always very active in that environment given how well the Punchh acquisition has gone and how much it's pulled PAR forward. The M&A market is, I'd say – listen, depending where our stock price is, our cost of capital is very expensive. But what we're seeing for the first time is that the market is also turning rational as it relates to private businesses that we spend most of our time with. I don't think that anyone is kind of holding out anymore for 2021 prices, if you will. So, we expect to be active. We think we'll be successful in that endeavor because I think the market has also come around the belief that the public market is the anchoring for future private market exits.

[Operator instructions]. Your next question comes from the line of Adam Wyden with ADW Capital. Your line is open.

I've got a few questions here. So, just to make sure the operator doesn't cut me off. But the first question is there's been a lot of talk about inflation. And I think software is – and technology, in general, has been rather deflationary. And you guys talk about bodies to bits. I think it might be helpful for you guys – and by the way, a lot of technology companies, they were beneficiaries of COVID and they brought forward demand. I think our growth was somewhat stalled during COVID. I think it might be helpful for you to talk about the ability to accelerate adoption as a function of bodies to bits, lowering cost, lowering labor, lowering food. Do you think that that's a reality, has something changed? Or is this an opportunity for you guys to really accelerate revenue growth even in a softer economic environment or an inflationary environment?

Yeah, without question. I think our customers are feeling the pressure of inflation across the board, whether it's labor or food. And they are looking for more technology, not less. The data center example is a good one where we were able to pull on a labor module. I don't know if we could have done that before this environment because I don't know if there was an appetite. Today, it's probably the number one issue our customers face. So, I think technology is deflationary, and we expect that trend to be very helpful for us. And I think particularly for QSR restaurants that are actually enabled to put in all this technology, for them, they can actually provision this much faster than that market.

My second of three questions is, as it relates to engineering – engineers, we've done some kind of work on engineering and engineering efficiency. And it seems to me that we've been – I think you might have mentioned on one of your calls or fireside chats that you are overstaffed from an engineering perspective, and that was based on the tail end of solving technical debt. We haven't done – with the exception of payments, which isn't really technology, we haven't really rolled out a new module. Can you talk about reallocating those engineering resources to kind of roll out new modules and how that affects ARPU and kind of the ARR trends over the next couple of years.

I think without question, if you look at our engineering spend, it's too weighted toward technical debt and the sort of the backward-looking stuff, not the forward-looking stuff. But that's also what's led to the ability to build out this platform and vision that we've talked about. And so, it's been very, very worthwhile. Said differently, without those changes, we couldn't have acquired Punchh, we could not have maintained the revenue growth, and we couldn't have grown the gross margins as high as we've gotten them in just a very short period of time. I think that as we continue to get better with our technical debt, particularly on the Brink product, we should be able to switch those percentages around to where more of that spend is going to new product development as opposed to the historical work of fixing the past. And particularly, in this year, we've talked about new product leases coming, and that's only possible because we now have the ability to take on a new product, where historically, we haven't. And we are very – becoming very, very specific about this with our own engineering leadership where we know on every product how much money is going to technical debt, how much is going to infrastructure, how much is going to new product development, how much is going to enhancements that we can manage it in a way where we can be dynamic about that spend and also be transparent.

This is my third question. It revolves around capital allocation. So, look, it's not lost on us that software companies and technology companies kind of, broadly speaking, have been somewhat kind of, call it, attacked or gone down interest rate fears. Look, this is a little bit like deja vu because I think I remember having a similar conversation with you in May of 2020. Or March. And on that quarter, you said, well, I don't – COVID, it's unchartered territory, I don't have a ton of visibility. And I think now having gone through COVID and everyone realized they need software, I kind of do the same math, and I'm going to do it for everybody. So just hang in there with me for a second. But there's 27 million shares outstanding. It's an $800 million market cap. The government business effectively signed a contract to double. So it was worth $100 million, maybe it's worth $200 million today. Hardware and maintenance has grown precipitously as a function of Brink. You've got the headset division, you can do this tuck-in, drive-through blah, blah, blah. You've got, call it, $400 million of non-core asset value against $200 million of debt. So you've got $200 million in non-core value on an $800 million cap, it's whatever, $600 million and $120 million of contracted ARR, plus or minus, not including a lot of other things that don't go into it. So you're trading at 5 times revenue. You've got a huge cash balance. What is the opportunity – we didn't really get that moment in time during COVID to really put our cash to work. What is the opportunity to use that cash to repurchase shares? I think M&A seems to be hard. Look, obviously, if you can get some guy to sell you his business at two or three times revenue, great. But the way you create lasting shareholder value, and you quote the outsiders, is giving it to people in the backside when they're giving it to you. And we never really got our stock to a price where we can put it to work. And now, we have an opportunity to kind of catch everybody offsides. What are you prepared to do, whether it be selling government, doing a share buyback? Us being long-term shareholders, is there an opportunity to kind of play offense? And how do you kind of think about all that?

Yeah. Listen, first of all, I think we've been pretty good allocators. We sold shares at the top when we financed the Punchh acquisition, and then we sold shares literally six weeks before the crazy software sell-off.

No, no, no. You've allocated capital intelligently, but you've never really gotten the cost of capital that other people did.

I think to your point, we want to drive shareholder value. As an organization, we just had our first ever global leadership offsite and was the top focus of the company. And the vast majority was on it, driving shareholder return and how do we build the ROI. And of course, if we think an investment in our shares is a higher return than an acquisition, we will pull that lever. We have plenty of cash. Our margins are expanding. There's not a reason we wouldn't do that. I think as it relates to M&A, to me, it's all about – is it accretive? And there are deals that are not accretive in year one that are very accretive in year two, three. And conversely, there are deals that are accretive in year one that could be destructive in year two and three. And so, you always got to kind of balance that. I think as the last caller talked about, we are seeing deals that we think are very accretive to PAR. And now, it's about deciding if we want to pull that trigger. But we're very committed to driving value, whether it's through a share repurchase or through an acquisition or continued investment in our existing products. But we feel very good from a cash decision, which gives us that flexibility to make that decision.

And the government business, now seeing that government backlog ramp up and, obviously, in light of what's going on, owning a government asset that is somewhat economically kind of invincible, what is the opportunity? Look, getting that cash from government today is more valuable for M&A and buybacks than it might have been 12 months ago. Now you've got the revenues coming in, you've got the backlog. Can we finally pull a ripcord on that?

As you know, I can't talk too much about that. But I think it's also the time where our margins continue to expand outside of the government business, so the company would also do well. But, unfortunately, can't talk too much about it. But as I've been saying, now that we've demonstrated the growth of that large contract we won, I suspect we'll be able to get to the multiple and the price that we want.

Look, keep up the good work. It's been a roller coaster, but I'd love to see you guys find ways to play offense and magnify the shareholder return over time.

I am showing no further question at this time. I would like to turn the conference back to Mr. Savneet Singh.

Thanks, everyone. We look forward to updating you on our progress next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.