Good day and thank you for standing by. Welcome to PAR Technologies’ Second Quarter 2023 Financial Results. 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] Please be advised, today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, Chris Byrnes, Senior Vice President of Business Development..

Thank you, James, and good afternoon, everyone. Thank you for joining us for PAR Technologies second quarter 2023 financial results call. Our earnings press release was issued at the close of market this afternoon and is posed on our website.

With me on the call today are Savneet Singh, PAR’s Chief Executive Officer; and Bryan Menar, the company’s Chief Financial Officer. After preliminary remarks, we will open the call to a question-and-answer session.

During this call we may make statements related to our business that would be considered forward-looking statements under Federal Securities laws, including projections of future operating results. Due to a number of factors, actual results may differ materially from those set forth in such statements.

These factors are set forth in the earnings press release that we issued today under caption forward-looking statements, and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings.

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation for the most directly comparable GAAP financial measures is also available in our second quarter 2023 earnings press release and investor presentation, which can be found at www.partech.com in the Investor Relations page.

With that, I would like to turn the call over to our Chief Executive Officer, Savneet Singh. Savneet..

Thanks, Chris and good afternoon. In the second quarter, PAR again delivered strong results. Restaurants of all types and at all stages are using PAR as their growth enabler, leveraging our offerings to create a more seamless, cost effective and simpler infrastructure.

In my position as PAR CEO, I have the privilege and opportunity to sit down face-to-face with our customers our top integration partners regularly. The message I’m hearing is remarkably consistent. Again and again, I hear that large enterprise restaurants are focused on creating consistent customer experiences across multiple ordering channels.

But in today’s world, they are also trying to reduce costs, mitigate risk and convert cost centers to profit centers. For years, they viewed technology as a capital investment, and today, they are coming around to the idea that software is now a key investment in the OpEx line of their P&Ls.

We believe PAR is well situated to take share with these dynamics. At the end of Q2, subscription services revenue increased by 31.2% from last year’s second quarter and ARR topped $122.5 million, a 24.3% year-over-year increase, demonstrating the continued growth and scaling of our subscription services engine.

Contracted annual recurring revenue ended the quarter at $140.2 million, a strong 7% sequential increase from Q1. Importantly, we are keeping operating expenses flat from our Q4 2022 run rate. Operator Solutions ARR grew 38.4% to $50 million in Q2 compared to the same period last year.

Even more impressive is that Operator Solutions ARR increased 11% from the sequential prior quarter. During Q2, Operator Solutions added 115 new stores and new bookings totaled approximately 1100. Churn continues to be extremely low at 3.6% annualized for Brink in the quarter.

Brent continues to be our land and expand product, and this expansion is demonstrated by an increase of over 14% in ARR per site for Operator Solutions from Q2 last year.

With opportunities in table service continuing to surface, and interest from the largest of quick service restaurant organizations increasing, the new customer pipeline for Operator Solutions continues to drive new business. The Operator Solutions weighted pipeline continues to be at an all time high.

Payments is an important part of our growth for Operator Solutions. Rolling out new payments customer sites return to the pace we had expected and was much faster than Q1.

We continue to offer a compelling and transparent pricing model along with a strong set of integrations and coupled with the ease of doing business with PAR that is winning for our customers.

We saw momentum in the second quarter, which resulted in record quarterly activations and gross processing volumes, along with customer adoption across our in store, online and loyalty platforms. This is highlighted by the full rollout of our one tap loyalty solution powered by Apple Pay with Salsarita’s in Q2.

We are confident this momentum will deliver strong results for the rest of the year. Moving to guest engagement ARR that includes our leading customer engagement at Punchh and our digital ordering platform MENU. Guest engagement ARR grew 14 a half percent in Q2, when compared to Q2 2022 in total approximately $61 million.

We continue to work hard to deliver in our current environment our hyper focused on delivering scalability and innovation at the same time. In the quarter, we successfully kicked-off the deployment of a 2400 unit fast casual chain, and we launched our new subscriptions product.

Active store count on a year-over-year basis increased by 13% and we believe business will continue to improve as the year progresses. We did this during the quarter, where we saw record campaign usage on the Punchh platform well beyond anything we would ever seen.

Usage has increased four times in just the last 12-months, creating both tremendous opportunities and challenges for PAR. This growth has challenged us to scale up our infrastructure quickly, while also thinking through the optimal long-term business model for Punchh.

We are humbled by the trust given to us by our customers and are committed to helping them to drive ROI from our products. MENU continued its migration to the United States this quarter. We have been impressed by the early response MENU has received from prospective customers this year.

We are signing customers at a brisk pace, and I’m pleased to report, we are in the final stages of signing three additional brands this quarter that will more than double the number of stores signed to date. As we scale up our operations, I expect the logo and store count to grow meaningfully.

These early signings validate our investment thesis with MENU, and the product features and functionality that are driving this early success will continue to give us the opportunity to unify our customers ordering channels.

MENU is a special product and we believe truly the next generation ordering, allowing us to grow our footprint outside the store and set us up for the expected proliferation and ordering channels to come. As I mentioned last quarter, we have aggressively started tooling the business for the U.S.

domestic market and we expect revenue to start particularly in Q3. We feel more confident now than we did at the same time of the acquisition that MENU will grow into a dominant product line as a result, we increased our infrastructure investments in the quarter.

We are doing this methodically by focusing on customers that we can take lives sooner, in balancing our desire to build more for customers with our belief that we should first deliver on today’s promises. Demand isn’t the problem as our existing customers see the power of MENU coupled with Punchh.

So it is on us to build up our operations, support and service teams to deliver on those trusting us today. Back office and data center delivered a strong quarter as well. Reported ARR of $11.6 million in Q2 was a 25.3% increase from last year’s Q2. We had activations of 221 stores in the quarter and now have more than 7200 active stores.

Before handing the call over to Brian to review the financials, I wanted to touch briefly on our gross margins in the quarter and specifically margins for our prescription services business. We reported lower than normal adjusted gross margins for subscription services at 61% for the quarter and 65% year-to-date.

This decline was driven by two factors. First, as mentioned above, we made a large investment in MENU and PAR payments in advance of revenue we expect to take live later this year and throughout 2024. These investments, while short-term painful, are needed in order to build out our pipeline and then future revenue.

We believe we are at peak of that spend and investments to moderate from here. Second, as I referenced, we experienced a dramatic growth in usage across our products and in particular, Punchh. This usage was beyond anything we had planned for and resulted in us having short-term disruptions which led to one-time customer credits to certain customers.

To ensure we can support this new baseline of usage, we have ramped up spend and importantly tooling so that we don’t encounter these issues again. As CEO, unplanned spend is not fun, but I’m confident this investment spend is more important in part being able to deliver for our customers.

And I believe we will make up for it many times over, as I believe we are likely the only player in our category able to deploy at such a large scale. To summarize on margins, we expect consistent future growth, as PAR payments and menu revenues continue to scale.

While it is challenging to have given out credits, those are one time in nature, and we are going all in on our infrastructure and now to enjoy the spoils of 2024 and beyond. Our spend in margins will normalize as we deliver on core investments that will again increase our efficiency.

In summary, we are heading into the second half of the year with significant momentum and a strong pipeline, and as we will approach 2024 with the same focus, ambition and values that have shaped our company. Bryan will now review the numbers in more detail. Brian..

Thank you Savneet and good afternoon everyone. Total revenues were 100.5 million for the three months ended June 30, 2023 an increase of 18.2% compared to the three-months ended June 30, 2022, with growth coming from both restaurant retail and government segments.

Net loss for the second quarter of 2023 was 19.7 million or $0.72 loss per share compared to a net loss of 18.8 million or $0.70 loss per share reported for the same period in 2022.

Adjusted net loss for the second quarter of 2023 was 14.1 million or $0.52 loss per share compared to an adjusted net loss of 9.8 million or $0.36 loss per share for the same period in 2022. Adjusted EBITDA for the second quarter of 2023 was a loss of 9.9 million compared to an adjusted EBITDA loss of 5.8 million for the same period in 2022.

Hardware revenue in the quarter was 26.4 million, a decrease of two million or 7% from the 28.4 million reported in the prior year. Sequentially, Q2 hardware revenue was flat compared to Q1 and ahead of our forecast as we continue to see strong hardware sales, both with our Tier 1 legacy customers and across our Brink customer base.

Subscription services revenue was reported at 30.4 million, an increase of 7.2 million or 31.2% from the 23.2 million reported in the prior year.

The increase was substantially driven by increased subscription services revenue from our Operator Solutions business of 3.3 million, driven by a 21% increase in active sites and 19% increase in average revenue per site.

The residual increase of 2.9 million was driven by increase subscription service revenue from our guest engagement business driven by a 13% increase in active sites, a 7% increase in average revenue per site, and 0.5 million of post-acquisition menu revenue.

The annual recurring revenue exiting the quarter was 122.5 million, an increase of 24.3% from last year’s Q2 with Operator Solutions up 38%, guest engagement up 14% and back of house up 25%. Professional services revenue was reported at 12.8 million, an increase of $0.2 million or 1.1% from the 12.6 million reported in the prior year.

7.1 million of the professional services revenue in the quarter consisted of recurring revenue, primarily from our hardware support contracts. Contract revenue from our government business was 31 million at increase of 10.1 million, or 48.2% from the 20.9 million reported in the second quarter of 2022.

The increase in contract revenues was driven by a 12.6 million increase in government ISR Solutions product line. The increase was substantially driven by continued growth of counter SUAS task orders. Contract backlog associated with our government business as of June 30, 2023 was 297 million.

An increase of 61% compared to the 184.5 million backlog as of June 30, 2022. Total funded backlog as of June 30, 2023 was 96.6 million, 102% increase compared to the funded backlog of 47.9 million for the prior year. Now turning to margins. Hardware margin for the quarter was 19.2% versus 14.7% in Q2 2022.

The increase in margin year-over-year was due to an inventory charge in Q2 2022. We continue to expect hardware margins of 20% as we go forward. Subscription services margin for the quarter was 43.3% compared to 53.9% in the second quarter of 2022. The decrease in margin is reflected of a continued growth within our early phase products.

In addition to increased hosting cost resulting from significant utilization of our guest engagement products, we made the additional investments to ensure the quality of our customer’s experience was not impacted.

Sequentially, subscription services margin during the three months ended June 30, 2023, included 5.3 million of amortization of identifiable intangible assets compared to 5.7 million for Q1. Excluding the amortization of intangible assets, total adjusted subscription service margin for the three months ended June 30th was 61% compared to 71% in Q1.

Professional services margin for the quarter was 7.7% compared to 16.8% reported in the second quarter of 2022. The decrease in margin was driven by one-time charges. We expect professional services margin to transition back to the mid-teens for the second half of the year.

Government contract margins were 4.3% as compared to 11.1% for the second quarter of 2022. The decrease in margin was related to lower mix in direct labor associated with the Counter-UAS revenue. We expect contract margins to trend back to higher single digit margins as we progress through the second half of the year.

In regards to operating expenses, GAAP SG&A was 25.6 million, a decrease of 0.8 million from the 26.4 million reported in Q2 2022. The decrease was driven by lower acquisition costs and corporate expenses. Net R&D was 14.9 million, an increase of 4.8 million from the 10.1 million recorded in Q2 2022.

Backing out menu and non-GAAP adjustments, the growth in R&D is 2.4 million or 24%. The increases related to personnel hired as we continue to improve and diversify our product and service offerings. Sequentially, net R&D expense of 14.9 million in Q2 was up 0.6 million from the 14.3 million reported in Q1.

Total non-GAAP operating expenses was 36.9 million an increase of 4.2 million versus Q2 2022. Menu accounted for 3.9 million of the increase as we indicated at the end of 2022, we will continue to manage the growth of our business, while keeping operating expenses flat during 2023.

Net interest expense was 1.7 million, compared to 2.5 million recorded in Q2 2022. The decreases driven by increased interest revenue from our short-term investments in 2023. Now, to provide information on the company’s cash flow and balance sheet position.

For the six months ended June 30th, cash use and operating activities was 12.8 million versus 31.6 million for the prior year. Operating cash flow for Q2 was 4 million net positive due to efficient management of our network and capital needs.

Cash used in investing activities was 6.2 million for the six-month ended June 30th versus five million for the prior year.

Investing activities during the six month ended June 30, 2023 included capital expenditures of 3.2 million for internal use software, two million for developed technology costs associated with our restaurant retail software platforms and 0.9 million for reinvestment of short-term investments.

Cash used in financing activities was 2.5 million for the six month ended June 30th compared to 1.8 million for the prior year. Financing activities for 2023 was driven by stock-based compensation related transactions.

Day sales outstanding for the restaurants and retail segment increased from 53-days as of December 31, 2022 to 62-days as of June 30, 2023. We expect DSO levels to come back to historical levels within the lower 50-day range. Day sales outstanding for the government segment decreased from 55-days as of December 31, 2022 to 52-days as of June 30, 2023.

I will now turn the call back over to Savneet for closing remarks prior to moving to Q&A..

Let me wrap up with a few key messages before we open the call for Q&A. PAR’s business, organizational model and growth strategy are strong, resilient and reliable. I believe this is most demonstrated in our ability to continue to maintain our growth without growing operating investments.

This fine balance is a result of a deep focus on operating efficiency, recruiting top talent and an expectation that we can do more. While there is always a chance end markets could continue to be volatile, we feel our growth engine is on strong footing. We wake up excited at the opportunities in front of us.

Whether it be unification of their tech stack or vendor consolidation, our customers continue to look to simplify their life and we believe PAR is well-positioned to help. As I said in Q1, we believe that the M&A environment is also ripe to enhance our value creation.

Today, we are pushing on a number of opportunities, all of which we thank add new product and talent to PAR, while increasing our financial profile. M&A has been a strong value driver to PAR and it will continue to be as we go forward. I look forward to keeping you up to date on our progress. Lastly, I wanted to pass on an employee update.

While we work to drive results for the customer, alongside this focus is also desired to drive a fulfilling and rewarding work experience. Earlier this year, PAR was named by Energage, as a Top Workplace in 2023 for the technology industry.

Their survey touched almost every employee at PAR, and we are humbled by the employee response, and motivated not to stay static and improve from here. As always, I would like to thank all of PAR’s employees for their dedication and effort over the past quarter. With that, I will open the call for Q&A. Operator..

Thank you. [Operator Instructions] Our first question comes from ..

Hey, guys. It is actually Sam on for Mayank today. Thanks for taking the questions here. Wanted to start on Operator Solutions, which saw a really nice growth this quarter.

Can you guys just unpack, what drove some of the strength here, and how we should think about growth in the back half of the year?.

Yes. It is a relatively simple growth algorithm. I think we have got a continued nice addition of sites, as we talked about, 1150 went live. But also, growth in -- Brink ARPU is very high alongside the attachment of payments. And so, our goal is to land with Brink at a higher price than we have historically, and then bring in our payments business.

I think is impressive is, just in the last year, the total base ARPU has grown by about, I think, 14%. And that is with still a large portion of our base at the very, very old contract price. And so it is moving up nicely. Payments being the biggest driver followed by the list price of Brink moving up throughout the last year or so..

Got it. That is helpful. And then appreciate the color you gave on the subscription gross margins there this quarter.

I guess, could you talk a little bit more about, how we should think about gross margins in the back half of the year and maybe into 2024? And maybe dive in a little bit more into how we should think about those investments that are being made in the MENU and PAR payments..

Absolutely. So we will expect to call back some of that next quarter. As I mentioned, some of this is one time in nature, and that will come back to us, next quarter. And you know, like I said, I think this is the peak of the investments spend on menu in particular.

And par pay is growing faster than our base, and so it brings down gross margin because it is still not to the SaaS gross margin it will be at. So I think you will see us from this quarter on claw back on gross margins. And then I think, as we get to 2024, we will get back to low seventies hopefully, and then higher.

And you know, the key aspect here is these investments we are making, they really are for both the short-term and the long-term. Because not only do they help us recapture the gross margins that we should be at, but they also set us up to have higher gross margins once we get through these investments that we are making.

It also has kind of, I think, forced us to think about how we price our product, how we charge our product, given how much usage we have, which are all things that I think down the road we can, we can play lever on.

So, I think we will see gross margins climb next quarter, the following quarter in subsequent quarters going forward as we get back to our historical base of the low seventies..

Our next question comes from Jeremy Sahler from Jefferies..

I guess maybe first on the three chains that you signed for menu, can you maybe talk about, I guess what drove those wins and then were these existing customers and are you replacing an existing solution?.

Sure, and we have signed more than three chains that I was just highlighting that, we have got three more that are in the hopper they are about to sign that will double the store account we have already. So it has been very exciting. I think what is driving this is a few things.

The first is when you partner or couple Brink, excuse me, menu and Punchh it is a really a hard solution to be, the integration is strong. Obviously the interactions between our products is very tight and our teams and so there is a real value add to the customer overnight and they see that.

The second is that menu fundamentally we believe is the best product in the market. The best way is sort of seeing a demo. When we show demos to our customers, it is always a little bit of like, wow, how did you crawl into my head and know exactly all the challenges I have with my existing solution? And so our demo is, is why we win.

And I mentioned this in the last call, but we won a decent chunk of business, without really driving hard on the sales initiatives like we do on other products and that will come. So, the product itself is really what is winning and that partnership with Punchh is very powerful.

As far as who we are displacing, we are displacing the legacy online ordering companies that exist for a long time. There is a couple big players that we see pretty much in every logo. And it is very exciting because, we are just starting and this is going to be a snowball over time.

One point I should mention is, I believe, I’m pretty sure every single online ordering deal we sign also includes payments, and so it is a nice two for deal, if you will..

And can you maybe provide an update on table services? Are you targeting any specific customer sizes and kind of, I guess where is the product now? Any features that you still need?.

Yes, so, you know, one of the things that is I think really exciting about the bring business is just, how much it is, it is pulled in for this year, but the large table service chains that we won at the end of 2022 are actually going live, as I mentioned on the last call in 2024.

And so, we have been able to kind of continue this momentum and Brink without those, but specific to your question. We continue to see deals inbound from the very largest of chains on the table server side to smaller and medium-sized chains. And so that pipeline is growing really nicely very high ARPU.

And it continues, I think to highlight the sheer fact that Brink is even in the RFPs, I think highlights the product market fit that we have started to hit with our customers..

Our next question comes from Eric Martinuzzi from Lake Street Capital Markets..

Yes. I wanted to first focus on the guest engagement. You are obviously making a pretty substantial investment in your emerging business lines. You talk about a second half scale up.

Is that in anticipation of winning business or servicing business you have already won?.

We have already won. So, MENU was won a number of deals and end of Q1, Q2, and then we expect a couple nicer ones this quarter. So it is very much deals that are signed that we need to get out the door..

And then on the operator solution side of the house. Curious to know if the pipeline tempo.

Are you seeing any change in the rate of progression for some of your up funnel conversations?.

I don’t think we see any change. I think it just continues to be high. I think, what is been exciting about this year is our engagement with some of the largest change in the world, coupled with a focus on the emerging change that we have always been very strong with. So I don’t think there is been a change. It just seems very consistent.

There is not one sense of slow down because of the macro at all in that business. And I think what is really starting to click obviously is that consistent bundling payments with Brink. Not only valuing, creating tons of value for PAR, but creating, um, a lot more value for our customers..

Our next question comes from Will Nance from Goldman Sachs..

I wanted to ask on the Punchh business, I know you said exceeded your expectations, that seems to be a, maybe a little bit of an understatement. It looked like it was a pretty substantially sequentially.

Just wondering if you could talk about the sustainability of this pace of activations in that business and just how you are thinking about the remainder of the year?.

As we message on Punchh, I think we are kind of getting our footing here. We have spent a ton of money scaling the platform, the usage on Punchh. As I mentioned, it is kind of crazy, but the usage of the platform is up four times in just one year. And it was already a really big base of usage. And so, we have grown into that.

We have definitely got some bruises through that. But I think what is great is. It also provides a great moat for us because there are not, we are not aware of any other organization that has the ability to deploy at the scale that we do.

And so while, it is painful to make investments, obviously in this environment, it is also exciting because there really isn’t anybody that can kind of step into that scale like we can. And so it is a long-term strategic advantage and the pipeline looks better now than the last quarter. And it looks better than when, if you asked me two quarters ago.

And so we see nice momentum, I just met with the sales, one of the sales leaders, the sales leader a couple days ago. The pipeline looks strong for Q3, Q4, but we have going to close that business. We have going to win that business and make sure we pull it into 2023..

And then I know you mentioned a little bit of investments on the payment side.

I’m just wondering if you could kind of revisit attach rates there and any updates to the expectation for 10 million to 15 million of ARR exiting the year?.

We feel very good about hitting that target on payments. You can see just the big jump we had this quarter. I expect us to hit that range. I also think that, like the year with a very strong backlog for 2024, given what we see today. Detachment rates of payments on Brink is still very high. It is 80% plus is my guess.

I will come back to you with the with the actual number, but it is very, very high. When we get a new customer, we are usually successful in attaching payments because it creates a ton of value to the end customer. It is generally more cost effective, simpler, one hand to shake, the servicing is - all of the above.

And then, for some reason, if we don’t win the payments business, it is generally either because they are in an existing contract with somebody else that doesn’t have a buyout clause. And then we will weigh around the quarter for that opportunity to come back to us..

And you are seeing how that attachment is high too through the ARPU increase, right, in Operator Solutions, because it is in essence attached through there on top of Brink. So the ARPU per site that has now both for Brink and also the payments is driving that increase..

Our next question comes from Patrick Mcilwee from William Blair..

Hey, guys. I’m on for Stephen Sheldon today.

My first one, given some of the one-time expenses and profit that came in a little bit late quarter, how should we be thinking about the trajectory for profit adjusted EBITDA over the rest of the year and is it fair to expect we kind of return to pretty steady progress towards breakeven?.

Absolutely. I think this quarter, to get on the gross margins, but the OpEx lines they were exactly where we wanted to be, and our growth was strong. I think growth will continue to be strong through the year. And the key for us hitting our profitability goals will be getting to the high end of our guidance, from the beginning of the year.

Like I mentioned earlier, I think we feel confident we are going to call back some of the gross margin, next quarter and then the following quarter and moving forward. And I think there is no doubt, profitability is around the corner. And if we can deliver on the high end of the revenue side, I think we will hit there. If we don’t, we will miss.

But I think it is on us to kind of execute fast as we can to get there. But I think the directory is very clean from here..

I think with security administration, we have reset, like, on the subscription margin. We ended this quarter at lower 60s.

We are seeing the visibility for mid 60s and then to higher 60s as we go to Q3, Q4, getting ourselves back onto that 70% margin that we were at the end of last year before we were kind of putting the fore on the gas in regards to the investments on the younger products..

And what I think is interesting there is that, most of that is coming back from a little bit of efficiencies, but also just revenue turning on for these investments we have made, particularly MENU, which starts adding revenue this quarter, and this quarter being Q3 and then really in Q4.

But what that growth that Bryan talked about doesn’t take into account is the actual investments we are making in Punchh and Brink and so on and so forth, which will come in 2024. So I think this will be the story. This year has been the story of holding out that flat while maintaining growth.

I think next year, will be a deep focus on trying to get the best in class gross margins while maintaining growth..

Okay, great. And at Punchh, you had or guest engagement, I should say you had 3400 activations in the quarter, but only saw, I think about a $1.5 million step up in ARR sequentially.

So I just wanted to ask, is that step up as expected or have you seen any pickup and churn there related to some of the budget headwinds or some of the capacity issues you had this quarter on that front?.

So, I think it is as expected. I think there is always some churn quarter to quarter, but not anything meaningful or concerning on our end, but there is definitely churn, in the quarter for Punchh that offset some of that activation. And then as you suggested there were at least one time issues that that kind of impacted it.

But no, there is been Punchh, as you can see from the sites versus the ARR, Punchh pricing is up a little bit, so it is not, there is no discount or anything like that..

But it is what we kind of forecast or look at and may call in the beginning of the year, we were expecting some churn in the first half of this year. Right. And as this was the year that we kind of had that, the pivot reflection point with PON and we are right on forecast and those expectations and 70, right.

That is the one with the ARPU that is been kind of consistent, primarily site growth is driving the ARR growth..

Our next question comes from George Sutton from Craig-Hallum..

This is actually Adam of George. Savneet it was great to see the growth in ARPU this quarter.

I was hoping you could provide a little more detail on, exactly how high you are thinking about ARPU going in the future?.

It is going to continue to trend upward. What you are seeing is the results of the new deals we have been taking live plus payments. And as more and more of these new concepts and stores go live, it will continue to move upward. And the deals that we have in pipeline today and then we win them are at meaningfully fair prices.

And so, I think it is just a base catching up to what we have been doing the last year or two. So we expect that ARPU to continue to trend upward for a long time here. And you can see it across all products. You see it even data central, obviously within Operator Solutions. It is super meaningful, but even Punchh a little bit.

So I think we feel pretty good about that lever now..

And just a one follow-up question from me. With the acquisition of menu, you brought along some international accounts with that acquisition. Would love to better understand how you are now thinking about the international market and how you are managing those international accounts, given that you are, you have been primarily focused on the U.S.

up to this point?.

It is a great question. So we made this street decision, I would say at the beginning of this year to not focus on those international accounts and business and retool the business to the United States, which is why the cost structure is so high because we sort of operating in two different geographies.

So think about it as support teams, sales teams in different geos plus DevOps infrastructure and different geos, that is why it is so expensive. And the reason why we did that was demand base. It was very clear how much demand there was for this product in the United States.

And instead of waiting for it in Europe and doing it there, we thought we should bring it here and take advantage of that. And that is why you also see the cost structure flip, hopefully nicely the other way as the revenue turns on here that we have booked and signed.

So it is very much a swimming to where the customers want our stuff and so we are feeling really excited about that. In time I think, we will eventually go back and build that out today. I think the main focus is getting our U.S.

customers live because it is not just the pipeline as long the deals we have wanted have been significant and we got to get those live so we can make sure we can take on this pipeline. It is a unique situation where sales isn’t the problem if get, it is us getting the door stuff up the door, that is the next challenge.

And then we will increase the funnel and increase the funnel. So today we are really focused on delivering for customers that need what we have and I think tomorrow will be okay. Where can we expand from there..

Our next question comes from Adam Wyden from ADW Capital..

Obviously, we are seeing the investment in Punchh and menu and there seems to be a little bit of a stop gap between the revenue being turned on in the next couple quarters and the investment on the front end. But you made a comment, that basically said, no one else can do what you do, right.

I mean, toast is a big company, but no one else is really out there winning these large logos.

And based on our channel check work, there are two I would call Tier 1 customers, one being Burger King Restaurant brands that is doing an RFP for the basically their entire tech stack North America, which could be 15,000 units and then when these 5,500 units. I mean, is this your way of saying that basically, you have got all the products.

No one else is sort of has sort of the direct integration and the ability to service the customers and that, this is sort of investment to basically in customer service and support because you anticipate winning these big logos and sort of an acceleration in your growth.

Is that sort of a fair way to think about it?.

Let me first comment on my comment. So what I was actually suggesting was on the Punchh side. We made some big investments in the DevOps infrastructure, it really scaling the platform. And what I think we realized was given how large Punchh penetration is, I think it is 45, 46 of the top a hundred restaurant chains in America.

It is been very hard for people to compete with us to deliver the sheer volume of campaigns that we deliver to our customers. If you think about it, Punchh is the largest clearly invested. I think close to the most or the most and for someone to come in and then put that investment, I just don’t see that happening.

And so, I think what we are doing is building just a scalability moat along with the product mode and the service mode we want to continue to build and get better at. But it is going to be very hard for those big, for our competitors to come in and undercut us or do whatever they want to do to try to win large restaurant logos.

I think it is going to be hard given the sheer infrastructure investments we have made I think will create a nice gap.

the second part you are saying, I think what is exciting is I do believe that in the enterprise restaurant category, there are not a lot of people that can deliver what we do, particularly when you put it under the lens of being cloud first and also being able to provide the full solution, with high quality products.

And so we feel really well situated to start breaking into that market and I think as we hopefully win one of our large next logos, we will be able to then go to the next one and with that proof point.

But, I think, I would say categorically what you are saying roughly is, would be my pitch to our customers, which is who else has the scale and the product to deliver what you need.

Because if think about it, if you are a large restaurant organization, you are taking a huge leap of faith on your POS in this example provider or your loyalty provider to deliver to your customers and your franchisees. And so the more that we can show that we have that breadth and depth of product, the easier those conversations become..

So, set a different way. You have obviously taken gross margins down to basically invest in product, in anticipation of larger customer needs.

And these obviously whether it is payments upsell or whether it is winning a Burger King or a Wendy’s? I mean, is it fair to assume that, you keep, you said it will be EBITDA breakeven if we hit the high-end of our revenue range.

Is it unfair to assume that we can expect you know, sort of, the company to grow revenues at a faster pace than 2024 and 2025 and sort of this is sort of the short-term pain for sort of accelerated revenue growth in the future..

I hope so. I mean, I think, we can’t talk about customers. We haven’t disclosed publicly yet. The math is pretty simple, right. You win one large super Tier 1 and it is equivalent to, like, half our revenues. It is enormous step functions. And so, our goal is we got to continue growing as we are growing.

We hope and expect to win those type of customers and those create that step function upward. But without question, on the margin side, we are going to make that whether we win a large deal or not. That is just blocking, tackling, getting it right, making those investments.

And in many ways, I wish we made these investments earlier because we have more customers live now and we would have never dealt with credits and things like that. So on the margin side, we are going to do that irregardless of who we win..

Okay. Second question is around M&A. On the last call, you basically said PAR for sale every day. Obviously, the company still trades at a pretty big discount to what I would call sort of low churn enterprise front software businesses that are being bought out by private equity or other ones in the public markets.

I guess that you are making investments now. But, you are seeing this sort of accelerated ARR growth and you have public company costs and what not.

I guess what I would say is a meaningful part of sort of getting that value realized and creating this company a pure play and sort of divesting the government business to sort of get the company in a place where it would be easy for you to sell to a strategic or someone that could sort of get rid of all that sort of public company costs.

I mean, I know it was sort of a challenge a few years ago to sell it because you were waiting for this contract to basically be one. But now you sort of have this multiyear pipeline on fast and you have gotten to a certain amount of scale and you have got the balance sheet.

I mean, what is the holdup in terms of selling that government business and sort of making this a pure play for others for state the company as a standalone?.

So there is no hold up. I think we have delivered, when we told the total shareholders, we want to deliver a year of strong growth from this contract. We needed to do that. That was important, so we would get the multiple there and now we have. So we are always focused on creating value.

And as I have said many times over, I think it is very logical for part to make that decision, but I can’t say anything until we come out with that decision..

Can you can you comment on the tuck-in M&A? I mean, obviously, you did MENU, which obviously was sort of a technology investment that you basically are internally skunk working growth.

But, I mean, there are plenty of companies now that are sort of orphaned in the VC world that are doing anywhere from $10 million to $40 million of ARR that might be able to leverage our public company costs and be acquired accretively and sort of help you sort of balance this sort of organic growth investment with cash flow and public company costs and whatnot.

I mean, can you comment about, like, sort of what your, you said on the call, look, data central was good. Punchh was good. Those were sort of tucked-in. Those are nice scale businesses. They are growing nicely and generating positive contribution margin.

I mean, how do we think about sort of that next layer of products and sort of getting scale that way as well.

I mean, is that is that something that is a 2023 possibility? And what is the quantum of M&A you think you can do over the next 12-months?.

So, yes, I would say without question, I expect us to be in acquisitive. Now things can change and we won’t be, but we are excited by that opportunity. And you know, so we don’t, I don’t think we would look to buy something to offset public company costs because then you can literally buy anything that generates cash flow.

I think we have to buy stuff that creates synergy within our existing product suite, within our customers and that is where you will great get the operating leverage on your sales and marketing, and hopefully your R&D over time. And we see a number of deals that we think are very, very interesting to us.

And I think we are very interesting to the sellers. So you will see par active there, and I do expect that to happen. It is hard to break these things, but I think you will see us very active. As far as dimensionalizing the sizing of that, we want it - I think we like you believe in the economies of scale here.

And as we are able have been able to show that, we are very good at leveraging our OpEx space to continue. To grow I think, scale helps. And so, I think we like larger assets because there we can push them through.

They are e established, the product is more developed, I don’t think you will see us acquire science experiments or things that need a ton of R&D projects. I think we will see us buy more mature assets where we think there is tons of synergy for our customers, and then we can integrate them nicely and create a good home for those teams.

So, I think you will see us very active here. It is a core focus of mine, I have definitely shifted a decent portion of my own focus just to get these over the finish line..

Our next caller is Andrew Harte from BTIG..

Obviously it sounds like par pay was a big driver of the Operator Solutions ARPU jump. Is there anything else you would call out there kind of benefiting obviously I think table service will come into the next year.

And then I guess bigger picture on par pay, how penetrated is it within the existing base today and what will par pay gross margins look like, once it kind of reaches a more mature level? Thanks..

Great question. So, the other big drivers just price. You know, we have taken price Brink nicely and you know, I think, I hate to say we are take price. I think we are getting the value that we deliver to our customers. And you know, I think as you know, a large portion of our initial base of Brink was very, very underpriced.

Because it was startup trying to get in business and build the logos. And so that is the other big driver is just pure price. And I think our customers, transparently know exactly what we are charging. So there is not like a, we are trying to sneak one by them, we really want to be open and transparent with them and show them the value we drive.

And so, I don’t, we don’t lose on price and we are not the cheap, the cheapest product in the market. So, I think it is capturing value there. As far as payments, payments is not even 10% penetrated to the Brink base yet, and it is already a meaningful measure of the Operator Solutions revenue.

So, I think you will see us, have a lot of white space within the Brink base for payments. I’m rearing up for these renewals that are coming up where, we can show, what we have at par. And you know what is fascinating about it is, we are processing meaningful amounts of volume every single month now.

We are well over a billion dollars of annual GPV and as that business scales, it helps the cost structure because as we process more volume, our rates come down more, and it allows us to expand the margin there, which is a good segue into your last question on margins.

Steady state super scale payments margins should get close to what our SaaS margins are. But what is unique about our payments business is that it is not just processing. We have a gateway product we have got a reporting product, we have got a fraud product. We have got a fraud product.

There is a number of product innovation that is happening in there that all of which will expand those gross margins. So I don’t expect gross margin, sorry, payments to forever be a drag on gross margins as is today because it is scaling.

And I think there is many ways we are excited of the products we can build on top of payments because, one of the things I feel passionate about is, anybody can sell cheap payments, like literally anybody. What the value brings to the customer around the payments is really what is going to make them sticky.

And I think we are seeing how valuable that is today..

And then, something you have talked about in the past of kind of this year, Operator Solutions and backed office offsetting some headwinds and guest engagement. But guest engagement, at least on the activation side, like seems like a really strong quarter and kind of ahead of our expectations.

Do you still feel that is kind of the dynamic for the back half of the year where back office and Operator Solutions carry a lot of the weight or is guest engagement holding in better than where we were thinking about a quarter ago?.

I think, we expect it to keep saying it will get better and it keeps getting better every quarter. And so I think it is a grind up. Purely from like just the sizing, right. You can’t take a business that is 61 million of revenue and flip it in a quarter back to 30, but it is climbing that it is climbing. We are climbing up now.

And listen, Operator Solutions is just got great momentum. We will continue to have great momentum and so it will be the driver you can see how fast it is growing almost 40%. And we don’t expect that to really slow down much. And so, I think one on size, but two, just the existing pipeline is there..

At this time I’m showing no further questions.

I would like to turn the conference back to Savneet Singh for closing remarks?.

Thanks everyone for joining us. We look forward to updating you next quarter..

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