Good day ladies and gentlemen and welcome to the PAR Technology Fiscal Year 2019 First Quarter Financial Results Conference Call. At that time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference is being recorded.

I would like to introduce your host for today's conference, Mr. Chris Byrnes, Vice President of Business and Financial Leadership. Sir, please go ahead..

Thank you, Michelle, and good afternoon. I'd also like to welcome you today to the call for PAR 2019 first quarter 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 new section of our Web site at www.partech.com. At this time, I'd like to take care of certain details in regards to the call today. Participants on the call should be aware that we're recording the call this afternoon and it will be available for playback.

Also, we are broadcasting the conference call via the worldwide web, so please be advised 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 management's expectations based on currently available data. However, actual results are subject to future events and uncertainties.

The information on this conference call relates to projections or other forward-looking statements may be relied upon and subject to the Safe Harbor statement including our earnings release this afternoon 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's Chief Financial Officer. Now, I would 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 good afternoon. And thank you all for joining us today. I will begin today's call with an overview of our first quarter results for fiscal 2019. I'll then turn over the call to Bryan Menar, our CFO, who'll review our financial performance for the quarter in further detail.

I will then conclude today's prepared comments by discussing our segment performance and milestones related to our growth drivers and steps we're taking to improve execution of our strategic plan.

To begin, I'm very happy to report on our recent convertible debt offering and capital raise of $80 million, what we believe to be is -- what we believe is a very favorable terms.

The proceeds will allow our company to invest in specific areas to accelerate our business growth, solidify our leadership position in enterprise point of sale software for restaurants and finance potential acquisitions to build out our payment solution.

We are positioning our business to take advantage of significant opportunities that are in front of us. We are focusing on enhancing features and functions in our restaurant tech platforms, restructuring our management teams and sharpening our go-to-market with a constant focus on CAC to LTV.

I'm pleased to update you on the China Singapore investigation and its current status as well. On April 10, the Securities and Exchange Commission notified us that based on current information it did not intend to recommend enforcement against PAR. Shortly thereafter, the U.S. Department of Justice advised that it too do not intend to proceed.

I am proud of the control initiatives we have put in place in response to this matter and our overall compliance program. Now to review our first quarter 2019. This afternoon the company reported first quarter revenues of $44.7 million compared to $55.6 million in the first quarter last year and 19.7% decrease.

This decrease is primarily due to lower hardware revenues associated with Tier 1 customers down 41% year-over-year and 6.3% decline in government contract revenues versus Q1 last year.

We reported a GAAP net loss of $2.7 million and a loss per share of $0.17 in the quarter which included non-GAAP adjustments totaling $0.9 million which are detailed in our press release. On an non-GAAP basis, we reported a net loss of $1.8 million and a loss per share of $0.11 in the quarter.

This compares to a non-GAAP net income of $0.6 million and $0.04 per diluted share last year. I would now like to turn the call over Bryan for more detailed reporting on the quarter's financials.

Bryan?.

Thank you, Savneet, and good afternoon everyone. I would now like to take this opportunity to provide some additional details surrounding our first quarter results.

Product revenue for the quarter was $15.5 million down $10.8 million, 41.1% decrease compared to Q1 2018 primarily due to reduced hardware projects with a Tier 1 customer in the first quarter 2018. Product revenue related to Brink was $4.5 million, an increase of 71% from $2.6 million for the same period in 2018.

Service revenue for the quarter was $14 million up $0.9 million, a 6.4% increase compared to Q1 2018. The increase was primarily due to Brink service revenue of $5 million, an increase of 58% from $3.1 million for the same period in 2018.

Contract revenue from our government operating segment was $15.1 million down $1 million, 6.2% decrease compared to Q1 2018. The decrease reflects reduction in the ISR our business line due to contract funding and ceiling limitations largely attributable to one of ISR programs that is currently undergoing an organizational funding transition.

And the contract backlog continues to be healthy knowing the total backlog of over $135 million as of March 31, 2019 and trailing 12-month book of 1.3x. In regards to margin performance for the quarter, product margin for the quarter was 27.6% compared to 26.2% in Q1 2018. The increase in product margin was primarily due to favorable sales mix.

Service margin for the quarter was 28.6% compared to 27.7% in Q1 2018, increase in service margin was due to a favorable [Technical Difficulty] growth of Brink. Government contract margin for the quarter was 9.7% compared to 8.1% in Q1 2018.

Increase in margin was primarily due to improved ISR profitability and favorable profit margins with the product sales business line revenue included in the 2019 contract mix. Now to operating expenses.

GAAP SG&A was $8.6 million consistent with Q1 2018, the company increased investment in Brink's sales and marketing by $0.3 million offset by cost savings in G&A and sales costs within other business lines.

Non-GAAP SG&A was $7.8 million down $0.3 million versus Q1 2018, non-GAAP SG&A adjustments for Q1 2019 include 0.2 million related to the investigation of conduct in China, Singapore offices $0.3 million for equity- based compensation and $0.3 million for severance.

Research and development expenses were $3.1 million up $0.2 million versus Q1 2018 with Brink development up $0.3 million. Now to provide information on the company's cash flow and balance sheet position.

For the three months ended March 31, 2019, cash used by operations was $3.2 million primarily driven by net operating loss and additional net working capital requirements.

Cash used from investing activities was $1.9 million for the three months ended March 31, 2019, with capital expenditures of $0.9 million related to the implementation of our enterprise resource planning system and $1 million of capitalized costs associated with investments in our restaurant retail segment software platforms.

Cash provided from financing activities was $5.8 million primarily driven by $8.3 million of financing from our line of credit offset by $2.6 million distribution related to the final payment for the acquisition of Brink. As of March 31, 2019, the inventory balance was $22.6 million and decreased to $0.1 million from December 31, 2018.

Inventory turns were 3x for our domestic and international operations. Accounts receivable of $29.3 million increased $3.1 million or 13% compared to December 31, 2018. Receivable balance was broken down between government segment for $10.2 million and restaurant retail segment of $19.1 million.

Restaurant retail segment day sales outstanding increased from 52 days as of December 2018 to 57 days as of March 2019. Government day sales outstanding increased from 45 days as of December 2018 to 53 days as of March 2019. I would now like to turn the call back over to Savneet to review our business performance in the quarter..

Thanks Bryan. Now let's review our second performance. First, for our restaurant retail segment, we've taken the necessary steps to restructure our company that'll allow us to support and grow Brink at levels we need to be at to enhance shareholder value.

This restructuring separated our two business units Brink and Core and allowed for the segmenting of operations, marketing, HR and installation and services to each organization.

I believe that our historical model around centralization created complexity, slow-decision making and a lack of direct accountability, [indiscernible] around organizational structure.

I believe today that our decentralized model will allow both our Core and Brink businesses to achieve their potential and be built around their respective teams, business models and return profiles that will highlight our focus on measurable return on invested capital and allow each business line to grow as to their performance.

In addition, we're taking steps to reduce the amount of SKUs in our inventory and free up additional capital resources. In 2019, we are targeting a 50% reduction of SKUs associated with our Brink business and a 35% SKU reduction related to our Core business.

These reductions are expected to yield an 18.4% overall reduction in manufacturing inventory by year's end. It's my belief that will also help streamline our sales cycle and lower long-term service costs.

We're also taking additional actions to mitigate the estimated $3.6 million China tariff -line hit our business is taking by managing our supply chain substituting products when able in specific price modifications. We expect that these practice tests will reduce the tariff impacts by $1.6 million.

Another area we are restructuring our operations is field service. We have changed our operating model to improve field service offering margins and reduced our fixed operating costs. Importantly, PAR will continue to maintain ownership of our customer relationships, contracts and service level commitments.

We expect this restructuring will deliver a $900,000 margin gain in 2019. In the first quarter, we activated 683 new Brink restaurant sites.

Our deployments over the past 12 months increased our MRR by 60% for Q1 2018 and at the end of Q1 2019, the annualized run rate now totals $15.8 million that includes SaaS and service a significant increase from one-year ago when the ARR stood at $10.3 million.

We also booked 719 stores in Q1 have 552 stores in our open order and yet to be told to point backlog in the quarter.

It's very important to note new bookings in the first quarter are now signing on for an average monthly subscription rate of approximately $200 per site as restaurants are investing in value and operational benefits Brink provides to their business. The $200 ASP includes SaaS subscription and service.

We are striving to seek out additional revenue streams associated with Brink wherever possible. We've been successful in increasing sufficient prices and driving value from partners in our ecosystem accessibility to our Brink portfolio is extremely valuable to our partners in areas such as delivery management, kiosks.

digital signage and labor and scheduling to name just a few. And we will continue to build out these partnerships to accelerate print revenues. It's no secret the development has been a bottleneck for us to scale.

We've spent considerable resources in Q4 last year and Q1 this year to achieve an improvement in tech efficiency in order to onboard customers more quickly and add unnecessary features and functionality to satisfy the stringent requirements of many types of restaurant organizations.

We have dramatically reduced critical tech metrics such as time to stabilize which was zero days in the last two Brink releases, time to fully deploy which was seven weeks and five respectively in our last two releases and the number of bills necessary to deploy the last two releases required only one build down from a high of 181 builds in the middle of 2017.

These improvements are a direct result of the investments we made into our dev ops team at end of 2018 and we'll continue to make for the future. On the payments front, we're on plan to roll out our Payment Immersion Services Solution later this year.

It provides for real stickiness with customers in small and midsize restaurants are looking for an integrated point of sale and payment solution. While we expect payments to be a significant addition to our recurring revenue, we believe it merely illustrates the value we can add to our customers via new products or partners.

This resulted in continued MRR expansion per customer through the year as we saw this quarter with the addition of new products and partnerships. Now turning to our government segment. In the quarter, our government business reported 6.3% lower quarterly revenue compared to last year.

This reduction was planned for and in our forecast as the timing of certain contract awards and funding gaps is not always seamless. We reported healthy contract margins of 9.7% for the quarter and net income before tax improved by 2.7% for the quarter over Q1 2018.

We continue to focus new business development efforts on Intel solutions to support intelligence agencies armed services and tactical edge warfighters. Our government business continues to provide stability, G&A relief and cash flow. In summary, it's been an exciting start to 2019.

Our strategic capital raises significantly strengthen our financial position to support our future growth. We've adopted policies to streamline our operations that improve our decision-making.

We are aligning our teams, tools and processes for our customer focus and I see excellent opportunities ahead to invest and grow our business and expand margins. As I've previously said our capital allocation will continue to be the chief priority of our company.

We are confident that the initiatives we have started and are building upon will contribute to long-term creation for our shareholders -- value creation for our shareholders and we look forward to evaluating all opportunities to ensure enhanced shareholder value.

In closing I want to relay that I've spent considerable time these past two months meeting with and listening to our customers. While we have immense work in front of us, our customers stand committed to Brink and if asked to prove that trust right. We value that trust and now have the resource to prove that commitment right.

Our new capital raise will significantly help us in this regard. I would like to express my sincere appreciation to the employees at PAR for their efforts and dedication towards achieving our goals during the quarter with rapid and dramatic change. That concludes our remarks and I would now like to open the call up for questions..

Thank you, ladies and gentlemen. [Operator Instructions] Our first question comes from the line of William Gibson with ROTH Capital Partners. Your line is open. Please go ahead..

Thank you. First, I missed a number when you were running through everything Savneet.

How many locations have yet been booked?.

How many locations booked this quarter or yet to be booked?.

Yet to be booked..

Yet to be shipped is 552..

Okay.

And what was -- do we have that number?.

552.

Oh, 552. Thank you.

And when Merchant Services the payments picks up, are you going to break that out separately or does that get thrown in with the FAS revenue?.

We came through that part of our recurring revenue similar to the other partnerships that we're pulling through as you kind of saw the increase in moral this quarter..

Okay.

So basically, we should expect to keep seeing that number go up with better margins?.

We expect to..

Okay. Thank you..

Thank you. And our next question comes from the line of Adam Wyden with ADW Capital. Your line is open. Please go ahead..

Hey Savneet. Congratulations on the capital raise and the permanent seat. We're really excited. So yes, and look a big part of our, I guess original activist thesis was that there was a lot of excess corporate G&A and excess costs and legacy businesses and obviously not enough resources being allocated to your subscription FAS product.

There have been press releases, I know you guys did a big firm wide reduction, but obviously we were really surprised actually to the upside about kind of the cash burn. It looks like you guys really mitigated operating losses and as SaaS ramps up, I mean the need for government cash flow reduced dramatically.

It also seems as if investors are not even really giving you credit for that business. I mean can you give us a timetable for divestment or your thoughts around that government business because you've got to convert down and you didn't get a lot of the cost restructuring and kind of how you're thinking about that business going forward..

Sure. Obviously, I can't comment on any formal plans or lack of foreign plans around the best thing about it. What I can tell is that the way we look at it is synergistic toward core and Brink operations. It's not. But at the moment, it is a distraction as those efforts is not.

But, in the long run, I think meshing a government contracting business and with a restaurant business probably doesn't make the most logical sense and so I think we're constantly evaluating to get -- at what price is it makes sense for us to give up that call it essentially provides for us today.

I think we're still and constantly valuing that and I think a little bit has to do with the size of the business and so we are extremely confident about that business.

As you've heard me say in other calls, we think we're near the highest margin in that segment, but we need to make sure that we get a price that rewards the cash when it spins off to us today because I don't think we want to be a chief seller on something that has great visibility into cash flow..

Got it. A couple more questions. Second question, so a big knock on this company I mean obviously was legacy management and clearly that's a 180 from today. But now a lot of the knock has been enough capital to kind of accelerate the growth -- accelerate growth ahead of SaaS revenues. So now you've got a big bucket of cash.

I mean you talked a little bit in the past about kind of the replatforming that needed to take place to kind of get the infrastructure in kind of the platform in place for kind of this next big growth spurt. Obviously, you've got -- we've seen a lot of stuff on Dairy Queen and I heard about some other kind of Tier 1 players.

Can you talk a little bit about your pipeline and kind of your ability to -- let me rephrase it? It seems as if the installs have kind of slowed a little bit as you kind of replatformed a little bit.

And can you talk a little bit about the pipeline and your kind of ability to get back up to 2500 plus installs per quarter and kind of the cadence of that.

Is it resource driven, is a backlog driven, And can you talk a little bit about the cadence about acceleration of growth?.

Since it is interesting, the reacceleration growth is actually not right now being negatively impacted by customer demand. In fact, I think if we let our sales team lose, we again sort of run through the resource bottleneck issues we face.

So, our ability to add storage at a more rapid pace is -- comes down to development as I represent in the remarks today. If we've done -- as I mentioned in the last call, we've done a bad job of explaining how much of our resources we shifted in Q3, Q4 and announced Q1 and Q2 to call up the architecture build.

And so, we very purposely took off resources that could have been added for new customers, our new customer features of existing clients to focus on that foundation which should set us up for a very strong Q3 and particularly very strong Q4.

And so, we think 2020 will be incredibly exciting because we're making those challenging decisions today where we have customers that we want to bring on, but we're focusing to make sure that we have a foundation for a very, very explosive 2020.

And so, we're making that tradeoff and I think it's the right long-term product because if the foundation is strong we'll be able to continue to accelerate going forward. So, it's the ability to scale is not customer driven right now it's been primarily resource driven.

And so, this fundraise gives us the opportunity to start hiring very quickly, get that ramped up and so that we can really, really have a strong 2021, so the bodies are integrated and trained up..

So, on the ARPU and price side, I mean obviously you gave us a little bit of a look into the ARPU on the bookings, But I mean, if I look at [indiscernible] and even to micros to some degree, I mean the ARPU not including payments is like 6,000 per year on [indiscernible] and on micros.

I mean you're seeing numbers as high as 15, 20 I mean big numbers. So obviously, your average location does significantly more in AUVs and product like Toast and you're creating a lot of hard dollar savings. I mean can you talk a little bit about how you're thinking about that ARPU opportunity in the short, medium and long-term.

And obviously, based on our scuttlebutt we're seeing FDDs at new types of change at much higher prices.

I guess my question is, can you talk a little bit about how you think that ARPU opportunity can kind of trend obviously in relation to hybrid cloud and kind of on-prem solutions that aren't delivering the value that you're delivering to your customer?.

Yes. I'll put in a few buckets. So the first and obvious one is, just we have much better and more significant pricing controls on our salesforce so that we make sure we're pricing every opportunity effectively.

And so that will create some price discipline as we price our new customers to make sure that that CAC LTV formula [indiscernible] makes sense.

The second bucket, I think is the one you're addressing is all the other products and services you can add onto a point of sale system, which in many times customer wants is the most significant one is payment, so where -- us like you do see customers in medium and small business segment making 2, 3, 4 times we make per store because they're making that spread on payments and that's why we've got this payment initiative going forward and we are pleased to see results on that this year.

And so, I think you'll continue to see that sort of new MRR per store continue expand this year as we add those customers onboard -- product onboard. The third bucket and this is the one that I think I'm most excited for, in the short run is partnerships and resale agreements would call it, adjacent products that plug into the Brink.

So, there are many times that we're brought into a customer where they're looking for a certain kiosk solution, delivery management solution, online ordering, online menu so and so forth. And we can partner with another organization and extract revenue that way.

So, we're very, very quickly realized at the beginning of this year, I think we realized that while we make these investments in our foundation [indiscernible] 2020 and going forward. We can still drive very significant revenue growth by making these partnership deals.

So, you've seen one or two of those announcements so far, I think you'll see a lot more happen in the back half the year. And that's the third bucket I expect to see this expansion come from. So I think we're coming off a very low point as long as the customer review and I see an expansion going forward..

So, building on that question, I mean can you talk a little bit about the M&A versus building versus joint venture? I mean on some of these types of things we're seeing, we're seeing kind of new Brink being sold with Restaurant Magic and I know crunch time is a back solution. I mean oftentimes they're sold in conjunction with Brink.

I mean can you -- and then on top of that, we're hearing stuff about some very large chains saying look we're waiting until there's a fully integrated solution so maybe -- they don't want to integrate another thing inside. So, they want to wait until you have back to the house or labor inventory.

Can you talk about kind of you're a little bit more about your ability to JV with partners that can accelerate your, one? And then, how do you think about buying these assets or internally building these assets such that you get that ARPU, I mean it seems as if like -- on some of these big tier ones, they have a lot of different stuff going on and if they want to -- the idea is that once you kind of cover all the bases, then you're set for life with them and you're making $10,000 a year.

And so, I guess my question is, I think it's kind of based on what you said previously on the other question, but I mean you know how do you think kind of internalizing all that such that you get all of that ARPU mix and you can accelerate that as adoption?.

Yes. Let me first say, I think one of the things that's exciting most about the point of sale business is that I have not yet to find a customer that is happy with their point of sale vendor and that includes us. And I often times go to our team and say the bar is so low for us to over achieve. So, we should be over achieving.

And so, I think first we got to do a great job with the product that we have. And I think we're making lots of very, very important decisions this year to make sure we can accomplish that. Part two, I think is doing exactly what you're saying. So, in many ways our ability to partner -- our step one was partnering and then M&A.

But first partnering is because our customers are looking for something closer to integrate solution and it is challenging them to manage a dozen different software products in a restaurant particularly if they're very heavily franchised organization that's a lot to keep managing.

And so, we can be the brain of that organization, it's incredibly strategic for them to help leverage us to do that. And we see that happening now. That's why we started a partnership because we can execute them quickly and it gives us some good data, it's saying hey, is this working or not.

I think -- and part of the reason we did the capital raise was we absolutely intend to be active in the M&A business. There are lots of adjacencies, I don't want to do on this call, because I don't want to create competitive dynamics.

But we feel pretty excited at some of the M&A opportunities out there today to add to our offering because as you listed out in some places like that I think are absolutely perfect. We're not there. And so, there's no reason we shouldn't be there.

So, think of it as first we want to do a great job with our product because I think we've done -- we haven't done the best job, we could have -- a lot of that was resource issues and so we're going to get better there. Second, we're going to partner with the ecosystem to add value to the Brink solution.

And third will be M&A and we're working all three of those with the number one being the most important..

Great. All right. While this is exciting stuff. That's it for me..

Thank you. [Operator Instructions] Our next question comes from the line of [indiscernible] Sidoti & Company. Your line is open. Please go ahead..

Thank you for taking my question. I was piggybacking on the previous caller's question.

I was going to say in terms of the monthly pricing that you're seeing $200 a month, in a price sensitive environment, do you think it would be hard to implement price increases as you have a more broader rollout of Brink in the second half of 2019 let's say?.

So, I would say this, it's very hard to get through price transparency in the point of sale business because this was the last caller mentioned a lot of it is bundled into payments.

And so, it's hard sometimes for restaurants to see the true cost of ownership, something our sales force did a good job of highlighting and something we'll continue to highlight. So, in general, the apples-to-apples comparison is a bit challenging.

The second reason the apples-to-apples comparison is challenging is oftentimes you're looking at different solutions. So, is it point of sale, or you adding in inventory and the 10 other modules that we and others have, it is again very challenging to have perfect apples-to-apples comparison.

But on your question, we feel very confident we can expand our MRR by adding value to our customers. So, it's just not saying hey we're raising prices. That's not all we're doing. We're really going to hey we're adding a lot of tangible value to you, we'll prove that value and as a result, it's the price that we need to get there.

And so, it's all about if we can prove that value to the customer, we feel good about it. Similarly, if we can prove that value to -- these other softer products that we're partnering with they too are excited to partner with us. So, they look at their -- our ability to distribute their product as a real big win for them.

And so, they're more than willing to truly partner on the revenue side. So, if we can deliver value to the customer, I haven't -- we haven't felt an issue having to defend that and similar to our partners I think we feel the same way..

Okay. Got it. And my next question, in terms of the Merchant Services, how has your like early deployments -- how has the reception been in terms of customer response.

Can you give me a little color on that?.

So, we're not launching that till the second half of the year. So, we don't have any data yet..

From your initial test experiments none of them?.

So, it's not something you can test, it's quite a process to become a payment facilitator and see if you through a -- you can't put your toe in the water, you've really got to go all in. So, what we've done and I think is -- I will give you a couple of things that I think are interesting.

So, the first is pretty much every other company -- and sort of the newer company in this space which has been successful in rolling out this model. And so, I would be surprised if we were not successful just because that's the way the market has gone and we have been -- remissed and we should have done this earlier.

So, a little bit of this is playing catch up. Second, we're in pretty active dialogue with our customers all the time saying this is something that they would find interesting. And we've been surprised how strong that's been. Third, today many times we refer to payments or merchant services to a third-party.

And I think we are encouraged how many people have taken up their product not our product. So, we've had some, I call it early indications that it should be successful, but we won't know until we actually launch..

Okay. Got it. Thank you..

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Savneet Singh for any closing remarks..

Thank you all for joining today's call. Look forward to keeping you updated..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day..