SEC Form 10-Q filed by PAR Technology Corporation
$PAR
Office Equipment/Supplies/Services
Miscellaneous
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2024
OR
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number: 1-09720
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices, including zip code) | |||||
( | |||||
| (Registrant’s telephone number, including area code) | |||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated Filer ☐ | Non-Accelerated Filer ☐ | |||||||
Smaller Reporting Company | Emerging Growth Company | |||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of August 6, 2024, 36,283,935 shares of the registrant’s common stock, $0.02 par value, were outstanding.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
| Item Number | Description | Page | ||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II | ||||||||
| OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
“PAR®,” “Brink POS®,” “Punchh®,” “MENUTM,” “Data Central®,” "Open Commerce®,” "PAR® Pay”, “PAR® Payment Services”, "StuzoTM," "PAR RetailTM," and other trademarks identifying our products and services appearing in this Quarterly Report belong to us. This Quarterly Report may also contain trade names and trademarks of other companies. Our use of such other companies’ trade names or trademarks is not intended to imply any endorsement or sponsorship by these companies of us or our products or services.
Unless the context indicates otherwise, references in this Quarterly Report to "we," "us," "our," the "Company," and "PAR" mean PAR Technology Corporation and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature, but rather are predictive of PAR's future operations, financial condition, financial results, business strategies and prospects. Forward-looking statements are generally identified by words such as “believe,” “could”, “continue,” “expect,” “estimate,” “future”, “may,” “will,” “would,” and similar expressions.
Forward-looking statements are based on management's current expectations and assumptions and are inherently uncertain. Actual results and outcomes could differ materially from those expressed in or implied by forward-looking statements, including statements relating to and PAR's expectations regarding:
•the plans, strategies and objectives of management for future operations, including PAR’s service and product offerings, its go-to-market strategies and the expected development, demand, performance, market share, or competitive performance of its products and services;
•PAR's ability to achieve and sustain profitability;
•projections of net revenue, margins, expenses, cash flows, or other financial items;
•PAR's annual recurring revenue, active sites, subscription service margins, net loss, net loss per share, and other key performance indicators and non-GAAP financial measures;
•PAR's expectations about the availability and terms of product and component supplies for our hardware;
•the timing and expected benefits of acquisitions, divestitures, and capital markets transactions;
•PAR’s human capital strategies and engagement;
•current or future macroeconomic trends or geopolitical events and the impact of those trends and events on PAR and its business, financial condition, and results of operations;
•claims, disputes, or other litigation matters; and
•assumptions underlying any of the foregoing.
Factors, risks, trends, and uncertainties that could cause PAR’s actual results to differ materially from those expressed in or implied by forward-looking statements include:
•PAR's ability to successfully develop or acquire and transition new products and services and enhance existing products and services to meet evolving customer needs and respond to emerging technological trends, including artificial intelligence;
•PAR's ability to add and maintain active sites, retain and manage suppliers, secure alternative suppliers, and manage inventory levels, navigate manufacturing disruptions or logistics challenges, shipping delays and shipping costs;
•the effects, costs and timing of acquisitions, divestitures, and capital markets transactions;
•PAR's ability to integrate acquisitions into its operations and the timing, complexity and costs associated therewith, including the acquisitions of Stuzo Holdings, LLC and TASK Group Holdings Limited;
•macroeconomic trends, such as a recession or slowed economic growth, fluctuating interest rates, inflation, and changes in consumer confidence and discretionary spending;
•geopolitical events, such as effects of the Russia-Ukraine war, tensions with China and between China and Taiwan, the Israel-Hamas conflict, other hostilities in the Middle East, and political and regulatory uncertainty relating to the 2024 presidential election in the United States;
•PAR's ability to successfully attract, develop and retain necessary qualified employees to develop and expand its business, execute product installations and respond to customer service level needs;
•the protection of PAR's intellectual property;
•PAR's ability to retain and add integration partners, and its success in acquiring and developing relevant technology for current, new, and potential customers for its service and product offerings;
•risks associated with PAR's international operations;
•PAR’s ability to generate sufficient cash flow or access additional financing sources as needed to repay its outstanding debts, including amounts owed under outstanding convertible notes and its credit facility;
•the effects of global pandemics, such as COVID-19 or other public health crises;
•changes in estimates and assumptions PAR makes in connection with the preparation of its financial statements, or in building its business and operational plans and in executing PAR's strategies;
•disruptions in operations from data breaches and cyberattacks, including heightened risks due to the rapid development and adoption of artificial intelligence technologies globally;
•PAR's ability to maintain proper and effective internal control over financial reporting;
•PAR's ability to execute its business, operational plans, and strategies and manage its business continuity risks, including disruptions or delays in product assembly and fulfillment;
•potential impacts, liabilities and costs from pending or potential investigations, claims and disputes; and
•other factors, risks, trends and uncertainties disclosed in our filings with the Securities and Exchange Commission ("SEC"), particularly those listed under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in this Quarterly Report.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities law.
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (unaudited)
PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(unaudited)
| Assets | June 30, 2024 | December 31, 2023 | |||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Cash held on behalf of customers | |||||||||||
| Short-term investments | |||||||||||
| Accounts receivable – net | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Current assets of discontinued operations | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment – net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets – net | |||||||||||
| Lease right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Noncurrent assets of discontinued operations | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities and Shareholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued salaries and benefits | |||||||||||
| Accrued expenses | |||||||||||
| Customers payable | |||||||||||
| Lease liabilities – current portion | |||||||||||
| Customer deposits and deferred service revenue | |||||||||||
| Current liabilities of discontinued operations | |||||||||||
| Total current liabilities | |||||||||||
| Lease liabilities – net of current portion | |||||||||||
| Long-term debt | |||||||||||
| Deferred service revenue – noncurrent | |||||||||||
| Other long-term liabilities | |||||||||||
| Noncurrent liabilities of discontinued operations | |||||||||||
| Total liabilities | |||||||||||
| Shareholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | |||||||||
See accompanying notes to unaudited interim condensed consolidated financial statements
3
PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues, net: | |||||||||||||||||||||||
| Hardware | $ | $ | $ | $ | |||||||||||||||||||
| Subscription service | |||||||||||||||||||||||
| Professional service | |||||||||||||||||||||||
| Total revenues, net | |||||||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||
| Hardware | |||||||||||||||||||||||
| Subscription service | |||||||||||||||||||||||
| Professional service | |||||||||||||||||||||||
| Total cost of sales | |||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Amortization of identifiable intangible assets | |||||||||||||||||||||||
| Adjustment to contingent consideration liability | ( | ( | ( | ( | |||||||||||||||||||
| Gain on insurance proceeds | ( | ( | |||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating loss | ( | ( | ( | ( | |||||||||||||||||||
| Other (expense) income, net | ( | ( | |||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Loss from continuing operations before (provision for) benefit from income taxes | ( | ( | ( | ( | |||||||||||||||||||
| (Provision for) benefit from income taxes | ( | ( | ( | ||||||||||||||||||||
| Net loss from continuing operations | ( | ( | ( | ( | |||||||||||||||||||
| Net income from discontinued operations | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Net income (loss) per share (basic and diluted): | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Weighted average shares outstanding (basic and diluted) | |||||||||||||||||||||||
See accompanying notes to unaudited interim condensed consolidated financial statements
4
PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Other comprehensive income (loss), net of applicable tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
See accompanying notes to unaudited interim condensed consolidated financial statements
5
PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(unaudited)
| Common Stock | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Treasury Stock | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon the exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Net issuance of restricted stock awards and restricted stock units | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for acquisition (see Note 3) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Proceeds from private placement of common stock, net of issuance costs of $ | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon the exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Net issuance of restricted stock awards and restricted stock units | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plan | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited interim condensed consolidated financial statements
6
PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(unaudited)
| Common Stock | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Treasury Stock | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon the exercise of stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net issuance of restricted stock awards and restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon the exercise of stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net issuance of restricted stock awards and restricted stock units | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited interim condensed consolidated financial statements
7
PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Net income from discontinued operations | ( | ( | |||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Accretion of debt in interest expense, net | |||||||||||
| Accretion of discount on held to maturity investments in interest expense, net | |||||||||||
| Current expected credit losses | |||||||||||
| Provision for obsolete inventory | |||||||||||
| Stock-based compensation | |||||||||||
| Adjustment to contingent consideration liability | ( | ( | |||||||||
| Deferred income tax | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Other current assets | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued salaries and benefits | ( | ( | |||||||||
| Accrued expenses | ( | ||||||||||
| Customer deposits and deferred service revenue | ( | ||||||||||
| Customers payable | |||||||||||
| Other long-term liabilities | ( | ( | |||||||||
| Cash used in operating activities - continuing operations | ( | ( | |||||||||
| Cash (used in) provided by operating activities - discontinued operations | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Cash paid for acquisition, net of cash acquired | ( | ||||||||||
| Capital expenditures | ( | ( | |||||||||
| Capitalization of software costs | ( | ( | |||||||||
| Proceeds from sale of held to maturity investments | |||||||||||
| Purchases of held to maturity investments | ( | ( | |||||||||
| Cash used in investing activities - continuing operations | ( | ( | |||||||||
| Cash provided by (used in) investing activities - discontinued operations | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from private placement of common stock, net of issuance costs | |||||||||||
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | ( | ( | |||||||||
| Proceeds from employee stock purchase plan | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Cash provided by (used in) financing activities - continuing operations | ( | ||||||||||
| Cash provided by (used in) in financing activities - discontinued operations | |||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
See accompanying notes to unaudited interim condensed consolidated financial statements
8
PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(unaudited)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents and cash held on behalf of customers | ( | ||||||||||
| Cash and cash equivalents and cash held on behalf of customers at beginning of period | |||||||||||
| Cash and cash equivalents and cash held on behalf of customers at end of period | $ | $ | |||||||||
| Reconciliation of cash and cash equivalents and cash held on behalf of customers | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Cash held on behalf of customers | |||||||||||
| Total cash and cash equivalents and cash held on behalf of customers | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes | |||||||||||
| Capitalized software recorded in accounts payable | |||||||||||
| Capital expenditures in accounts payable | |||||||||||
| Common stock issued for acquisition | |||||||||||
Cash flows are presented on a consolidated basis and include $0.8 million and $0.2 million of cash and cash equivalents presented in current assets of discontinued operations in the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, respectively. Refer to “Note 4 – Discontinued Operations” for additional information related to cash flows from discontinued operations.
See accompanying notes to unaudited interim condensed consolidated financial statements
9
PAR TECHNOLOGY CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Summary of Significant Accounting Policies
Nature of Business
PAR Technology Corporation (the “Company” or “PAR,” “we,” or “us”), through its consolidated subsidiaries, operates in one
Basis of Presentation
The accompanying financial statements of PAR Technology Corporation and its consolidated subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions to Form 10-Q and Regulation S-X pertaining to interim financial statements as promulgated by the SEC. In the opinion of management, the Company's financial statements include all normal and recurring adjustments necessary in order to make the financial statements not misleading and to provide a fair presentation of the Company's financial results for the interim period included in this Quarterly Report. Interim results are not necessarily indicative of results for the full year or any future periods. The information included in this Quarterly Report should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report”).
Use of Estimates
10
Cash and Cash Equivalents and Cash Held on Behalf of Customers
Cash and cash equivalents and cash held on behalf of customers consist of the following:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Cash and cash equivalents | |||||||||||
| Cash | $ | $ | |||||||||
| Money market funds | |||||||||||
| Cash held on behalf of customers | |||||||||||
| Total cash and cash equivalents and cash held on behalf of customers | $ | $ | |||||||||
The Company maintained bank balances that, at times, exceeded the federally insured limit during the six months ended June 30, 2024. The Company has not experienced losses relating to these deposits and management does not believe that the Company is exposed to any significant credit risk with respect to these amounts.
Short-Term Investments
The carrying value of investment securities consist of the following:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Short-term investments | |||||||||||
| Treasury bills and notes | $ | $ | |||||||||
| Total short-term investments | $ | $ | |||||||||
The Company did not have any material gains or losses on these securities during the six months ended June 30, 2024. The estimated fair value of these securities approximated their carrying value as of June 30, 2024 and December 31, 2023.
Discontinued Operations
In determining whether a group of assets which has been disposed of (or is to be disposed of) should be presented as a discontinued operation, the Company analyzes whether the group of assets being disposed of represented a component of the entity; that is, whether it had historic operations and cash flows that were clearly distinguished (both operationally and for financial reporting purposes). In addition, the Company considers whether the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
The assets and liabilities of a discontinued operation, other than goodwill, are measured at the lower of carrying amount or fair value less cost to sell. When a portion of a goodwill reporting unit that constitutes a business is to be disposed of, the goodwill associated with that business is included in the carrying amount of the business based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. The Company allocates interest to discontinued operations if the interest is directly attributable to the discontinued operations or is interest on debt that is required to be repaid as a result of the disposal.
Other Assets
Other assets include deferred implementation costs of $8.2 million and $8.8 million and deferred commissions of $3.1 million and $2.6 million at June 30, 2024 and December 31, 2023, respectively.
11
The following table summarizes amortization expense for deferred implementation costs and deferred commissions:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Amortization of deferred implementation costs | $ | $ | $ | $ | ||||||||||||||||||||||
| Amortization of deferred commissions | ||||||||||||||||||||||||||
Other Long-Term Liabilities
Gain on Insurance Proceeds
During the six months ended June 30, 2023, the Company received $0.5 million of insurance proceeds in connection with the settlement of a legacy claim. No insurance proceeds were received during the six months ended June 30, 2024.
Related Party Transactions
During the six months ended June 30, 2023, Ronald Shaich, the sole member of Act III Management LLC ("Act III Management"), served as a strategic advisor to the Company's board of directors pursuant to a strategic advisor agreement, which terminated on June 1, 2023. Keith Pascal, a director of the Company, is an employee of Act III Management and serves as its vice president and secretary. Mr. Pascal does not have an ownership interest in Act III Management.
Recently Adopted Accounting Pronouncements
There were no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2024 that are of significance or potential significance to the Company.
Note 2 — Revenue Recognition
Deferred Revenue
Deferred revenue is as follows:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Current | $ | $ | |||||||||
| Non-current | |||||||||||
| Total | $ | $ | |||||||||
Most performance obligations greater than one year relate to service and support contracts, that the Company expects to fulfill within 36 months. The Company expects to fulfill 100 % of service and support contracts within 60 months.
12
The changes in deferred revenue, inclusive of both current and long-term, are as follows:
| (in thousands) | 2024 | 2023 | |||||||||
| Beginning balance - January 1 | $ | $ | |||||||||
| Acquired deferred revenue (Note 3) | |||||||||||
| Recognition of deferred revenue | ( | ( | |||||||||
| Deferral of revenue | |||||||||||
| Ending balance - June 30 | $ | $ | |||||||||
The above tables exclude customer deposits of $1.8 million and $1.6 million as of the six months ended June 30, 2024 and 2023, respectively. During the three months ended June 30, 2024 and 2023, the Company recognized revenue included in deferred revenue at the beginning of each respective period of $2.1 million and $2.9 million. During the six months ended June 30, 2024 and 2023, the Company recognized revenue included in deferred revenue at the beginning of each respective period of $4.9 million and $6.0 million.
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers by major product line because the Company believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by contract terms and economic factors.
Disaggregated revenue is as follows:
| Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | ||||||||||||||||||||||
| (in thousands) | Restaurant/Retail point in time | Restaurant/Retail over time | Restaurant/Retail point in time | Restaurant/Retail over time | |||||||||||||||||||
| Hardware | $ | $ | $ | $ | |||||||||||||||||||
| Subscription service | |||||||||||||||||||||||
| Professional service | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | ||||||||||||||||||||||
| (in thousands) | Restaurant/Retail point in time | Restaurant/Retail over time | Restaurant/Retail point in time | Restaurant/Retail over time | |||||||||||||||||||
| Hardware | $ | $ | $ | $ | |||||||||||||||||||
| Subscription service | |||||||||||||||||||||||
| Professional service | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Note 3 — Acquisitions
On March 8, 2024, ParTech, Inc. ("ParTech"), acquired 100 % of the outstanding equity interests of Stuzo Blocker, Inc., Stuzo Holdings, LLC and their subsidiaries (collectively, “Stuzo” and such acquisition, the “Stuzo Acquisition”), a digital engagement software provider to convenience and fuel retailers ("C-Stores"), for purchase consideration of approximately $170.5 million paid in cash (the "Cash Consideration"), subject to certain adjustments (including customary adjustments for Stuzo cash, debt, debt-like items, and net working capital), and $19.2 million paid in shares of Company common stock. 441,598 shares of common stock were issued as purchase consideration, determined using a fair value share price of $43.41 . The Company acquired Stuzo to expand its footprint in the C-Stores market vertical with Stuzo's industry-leading guest engagement platform (PAR Retail) serving major brands in the space.
$1.5 million of the Cash Consideration was deposited into an escrow account administered by a third party to fund potential post-closing adjustments and obligations. The balance in the escrow account was $1.5 million as of June 30, 2024.
13
The Company incurred acquisition expenses related to the Stuzo Acquisition of approximately $2.8 million which are included in general and administrative in the condensed consolidated statements of operations.
The Stuzo Acquisition was accounted for as a business combination in accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations. Accordingly, assets acquired and liabilities assumed have been accounted for at their preliminarily determined respective fair values as of March 8, 2024, (the "Acquisition Date"). The fair value determinations were based on management's estimates and assumptions, with the assistance of independent valuation and tax consultants. Preliminary fair values are subject to measurement period adjustments within the permitted measurement period (up to one year from the Acquisition Date) as management finalizes its procedures and net working capital adjustments (if any) are settled.
During the three months ended June 30, 2024, preliminary fair values of assets and liabilities as of the Acquisition Date were adjusted to reflect ongoing acquisition valuation analyses and net working capital adjustments. These adjustments included changes to accounts receivable, customer relationships, trademarks, non-competition agreements, goodwill, deferred revenue, and deferred taxes to reflect changes in underlying fair value assumptions. The Company is in the process of finalizing valuation assumptions for the intangibles and the sales tax liability exposure as of the Acquisition Date.
The following table presents management's current purchase price allocation and the initial purchase price allocation:
| (in thousands) | Current purchase price allocation | Initial purchase price allocation | |||||||||
| Cash | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Property and equipment | |||||||||||
| Developed technology | |||||||||||
| Customer relationships | |||||||||||
| Trademarks | |||||||||||
| Non-competition agreements | |||||||||||
| Prepaid and other acquired assets | |||||||||||
| Goodwill | |||||||||||
| Total assets | |||||||||||
| Accounts payable | |||||||||||
| Accrued expenses | |||||||||||
| Deferred revenue | |||||||||||
| Deferred taxes | |||||||||||
| Consideration paid | $ | $ | |||||||||
Intangible Assets
The Company identified four acquired intangible assets in the Stuzo Acquisition: developed technology; customer relationships; trademarks; and non-competition agreements. The preliminary fair value of developed technology and customer relationship intangible assets were determined utilizing the “multi-period excess earnings method”, which is predicated upon the calculation of the net present value of after-tax net cash flows respectively attributable to each asset. The Company applied a seven-year economic life and discount rate of 12.5 % in determining the Stuzo developed technology preliminary intangible fair value and applied a 7.0 % estimated annual attrition rate and discount rate of 12.5 % in determining the Stuzo customer relationships intangible preliminary fair value. The preliminary fair value of trademarks intangible was determined utilizing the “relief from royalty” approach, which is a form of the income approach that attributes savings incurred from not having to pay a royalty for the use of an asset. The Company applied a fair and reasonable royalty rate of 1.0 % and discount rate of 12.5 % in determining the trademarks intangible preliminary fair value. The preliminary fair value of the Stuzo non-competition agreements was determined utilizing the discounted earnings method. The estimated useful life of these identifiable intangible assets was preliminarily determined to be: seven years for developed technology; fifteen years for customer relationships related to SaaS platform and related support; five years for customer relationships related to managed platform development services; indefinite for the trademarks; and five years for the non-competition agreements.
14
Goodwill
Goodwill represents the excess of consideration transferred for the fair value of net identifiable assets acquired and is tested for impairment at least annually. The goodwill value represents expected synergies from the product acquired and other benefits. It is not deductible for income tax purposes.
Deferred Taxes
The Company determined the deferred tax position to be recorded at the time of the Stuzo Acquisition in accordance with ASC Topic 740, Income Taxes, resulting in recognition of $7.9 million in deferred tax liabilities for future reversing of taxable temporary differences primarily for intangible assets.
The net deferred tax liability relating to the Stuzo Acquisition was determined by the Company to provide future taxable temporary differences that allow for the Company to utilize certain previously fully reserved deferred tax assets. Accordingly, the Company recognized a reduction to its valuation allowance resulting in a net tax benefit of $7.7 million for the six months ended June 30, 2024.
Pro Forma Financial Information - unaudited
For the three and six months ended June 30, 2024, the Stuzo Acquisition resulted in additional revenues of $10.1 million and $12.7 million, respectively and income before income taxes of $1.4 million and $1.8 million, respectively.
The following table summarizes the Company's unaudited pro forma results of operations for the three months ended June 30, 2023 and the six months ended June 30, 2024 and 2023 as if the Stuzo Acquisition had occurred on January 1, 2023:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Total revenue | $ | $ | $ | ||||||||||||||||||||
| Net loss from continuing operations | ( | ( | ( | ||||||||||||||||||||
The unaudited pro forma results presented above are for illustrative purposes only and do not reflect the realization of actual cost savings or any related integration costs. The unaudited pro forma results do not purport to be indicative of the results that would have been obtained, or to be a projection of results that may be obtained in the future. These unaudited pro forma results include certain adjustments, primarily due to increases in amortization expense due to the fair value adjustments of intangible assets, acquisition related costs and the impact of income taxes on the pro forma adjustments. $2.4 million of acquisition costs have been reflected in the 2023 pro forma results.
Note 4 — Discontinued Operations
On June 7, 2024 (the “Closing Date”), the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Booz Allen Hamilton Inc. ("Booz Allen Hamilton") for the sale of PAR Government Systems Corporation ("PGSC"), a wholly owned subsidiary of the Company. Pursuant to the Purchase Agreement, on the Closing Date, Booz Allen Hamilton acquired 100% of the issued and outstanding shares of common stock of PGSC for a cash purchase price of $95.0 million, before customary post-closing adjustments based on PGSC’s indebtedness, working capital, cash, and transaction expenses at closing. At closing we entered into a transition services agreement with Booz Allen Hamilton ("TSA") pursuant to which the Company and Booz Allen Hamilton provide certain transitional services to each other as contemplated by and subject to the Purchase Agreement. The service period for the transitional services generally ends during the third quarter of 2025.
Additionally, on June 10, 2024, the Company announced that it had entered into an acquisition agreement for the sale of 100% of the issued and outstanding equity interests of Rome Research Corporation (“RRC”), a wholly-owned subsidiary of the Company. The sale was completed on July 1, 2024. Refer to “Note 15 – Subsequent Events” for additional information on the sale of RRC. The sale of PGSC and RRC comprise the sale of 100% of the Company's Government segment.
15
The Company recognized a pre-tax gain on sale of $76.8 million from the sale of PGSC for the three months ended June 30, 2024. Pursuant to the Purchase Agreement, within 120 days following the Closing Date Booz Allen Hamilton is required to deliver to the Company a closing statement setting forth its determination of net working capital and any resulting net working capital surplus or deficit. To the extent there is an adjustment to net working capital, as agreed to by the Company and Booz Allen Hamilton pursuant to the Purchase Agreement, any such change will be recorded as an adjustment to the gain on sale of discontinued operations for the period such change occurs.
As of June 30, 2024, the Company estimated the federal taxable gain on sale to be $73.9 million, however, we expect to offset the taxable gain through the utilization of several tax benefits including $41.4 million of our net operating loss carryforwards, $22.2 million of our Section 163(j) interest expense limitation carryforwards, and $1.6 million of our research and development tax credits. Additionally, the income tax associated with the gain will be impacted by the final allocation of the sales price, which may be materially different from the Company’s estimates. The impact of changes in estimated income tax (if any) will be recorded as an adjustment to discontinued operations in the period such change in estimate occurs.
The Company incurred expenses related to its disposition of PGSC of approximately $6.6 million which are included in net income from discontinued operations in the condensed consolidated statements of operations.
The accounting requirements for reporting the disposition of PGSC and RRC as discontinued operations were met when the disposition of PGSC was completed and the sale of RRC was deemed probable. Accordingly, the historical results of PGSC and RRC have been presented as discontinued operations and, as such, have been excluded from continuing operations for all periods presented.
The following table presents the major classes of assets and liabilities of discontinued operations for PGSC and RRC as of December 31, 2023 and RRC as of June 30, 2024:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Accounts receivable – net | $ | $ | |||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Noncurrent assets | |||||||||||
| Total assets of discontinued operations | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued salaries and benefits | |||||||||||
| Accrued expenses | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Noncurrent liabilities | |||||||||||
| Total liabilities of discontinued operations | $ | $ | |||||||||
16
The following table presents the major categories of income from discontinued operations:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Contract revenue | $ | $ | $ | $ | |||||||||||||||||||
| Contract cost of sales | ( | ( | ( | ( | |||||||||||||||||||
| Operating income from discontinued operations | |||||||||||||||||||||||
| General and administrative expense | ( | ( | ( | ||||||||||||||||||||
| Other expense, net | ( | ( | ( | ||||||||||||||||||||
| Gain on sale of discontinued operations | |||||||||||||||||||||||
| Income from discontinued operations before provision for income taxes | |||||||||||||||||||||||
| Provision for income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Net income from discontinued operations | $ | $ | $ | $ | |||||||||||||||||||
In accordance with ASC Topic 205, Presentation of Financial Statements, the Company adjusted contract cost of sales to exclude corporate overhead allocated to discontinued operations for all periods presented.
The following table presents selected non-cash operating and investing activities related to cash flows from discontinued operations:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | |||||||||||||||||||
| Capital expenditures | |||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
Note 5 — Accounts Receivable, net
At June 30, 2024 and December 31, 2023, the Company had current expected credit losses of $2.8 million and $1.9 million, respectively, against accounts receivable.
Changes in the current expected credit loss for the six months ended June 30 were:
| (in thousands) | 2024 | 2023 | |||||||||
| Beginning Balance - January 1 | $ | $ | |||||||||
| Provisions | |||||||||||
| Write-offs | ( | ( | |||||||||
| Ending Balance - June 30 | $ | $ | |||||||||
17
Note 6 — Inventories, net
The components of inventory, adjusted for reserves, consisted of the following:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Finished goods | $ | $ | |||||||||
| Work in process | |||||||||||
| Component parts | |||||||||||
| Service parts | |||||||||||
| Inventories, net | $ | $ | |||||||||
At June 30, 2024 and December 31, 2023, the Company had excess and obsolescence reserves of $9.6 million and $9.0 million, respectively, against inventories.
Note 7 — Identifiable Intangible Assets and Goodwill
The Company's identifiable intangible assets represent intangible assets acquired in acquisitions and software development costs. The components of identifiable intangible assets are:
| (in thousands) | June 30, 2024 | December 31, 2023 | Estimated Useful Life | Weighted-Average Amortization Period | |||||||||||||||||||
| Acquired developed technology | $ | $ | |||||||||||||||||||||
| Internally developed software costs | |||||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||
| Trade names | |||||||||||||||||||||||
| Non-competition agreements | |||||||||||||||||||||||
| Impact of currency translation on intangible assets | |||||||||||||||||||||||
| Less: accumulated amortization | ( | ( | |||||||||||||||||||||
| Internally developed software costs not meeting general release threshold | |||||||||||||||||||||||
| Trademarks, trade names (non-amortizable) | Indefinite | ||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
Software costs placed into service during the three months ended June 30, 2024 and 2023, were $1.5 million and $1.4 million, respectively. Software costs placed into service during the six months ended June 30, 2024 and 2023, were $1.9 million and $2.2 million, respectively.
The following table summarizes amortization expense for acquired developed technology and internally developed software:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Amortization of acquired developed technology | $ | $ | $ | $ | ||||||||||||||||||||||
| Amortization of internally developed software | ||||||||||||||||||||||||||
| Amortization of identifiable intangible assets recorded in cost of sales | ||||||||||||||||||||||||||
| Amortization expense recorded in operating expenses | ||||||||||||||||||||||||||
| Impact of foreign currency translation on intangible assets | ( | ( | ( | |||||||||||||||||||||||
18
The expected future amortization of intangible assets, assuming straight-line amortization of capitalized software development costs and acquisition related intangibles, excluding software development costs not meeting the general release threshold is:
| (in thousands) | |||||
| 2024, remaining | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
Goodwill carried is as follows:
| (in thousands) | 2024 | 2023 | |||||||||
| Beginning balance - January 1 | $ | $ | |||||||||
| Stuzo Acquisition | |||||||||||
| Foreign currency translation | ( | ||||||||||
| Ending balance - June 30 | $ | $ | |||||||||
Note 8 — Debt
The following table summarizes information about the net carrying amounts of long-term debt as of June 30, 2024:
| (in thousands) | 2026 Notes | 2027 Notes | Total | ||||||||||||||
| Principal amount of notes outstanding | $ | $ | $ | ||||||||||||||
| Unamortized debt issuance cost | ( | ( | ( | ||||||||||||||
| Total notes payable | $ | $ | $ | ||||||||||||||
The following table summarizes information about the net carrying amounts of long-term debt as of December 31, 2023:
| (in thousands) | 2026 Notes | 2027 Notes | Total | ||||||||||||||
| Principal amount of notes outstanding | $ | $ | $ | ||||||||||||||
| Unamortized debt issuance cost | ( | ( | ( | ||||||||||||||
| Total notes payable | $ | $ | $ | ||||||||||||||
The following table summarizes interest expense recognized on the long-term debt:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Contractual interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Accretion of debt in interest expense | |||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
19
The following table summarizes the future principal payments as of June 30, 2024:
| (in thousands) | |||||
| 2024, remaining | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
Note 9 — Common Stock
In connection with, and to partially fund the Cash Consideration related to the Stuzo Acquisition, on March 7, 2024, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with funds and accounts advised by T. Rowe Price Investment Management, Inc., ADW Capital, Voss Capital, Greenhaven Road Capital, Jane Street, Progeny 3, Fund 1 Investments LLC, Newtyn Capital, Ghisallo Capital Management and Burkehill Global Management (collectively, the “Purchasers”) to raise approximately $200 million through a private placement of PAR common stock. Pursuant to the Securities Purchase Agreement, PAR issued and sold 5,174,638 shares of its common stock at a 10 % discount to the Purchasers for a gross purchase price of approximately $200 million ($38.65 per share). Net proceeds from the Securities Purchase Agreement were approximately $194.4 million, net of issuance costs of $5.5 million.
On January 2, 2024, the Company entered into a consulting agreement with PAR Act III, LLC ("PAR Act III") pursuant to which PAR Act III provides the Company with strategic consulting, merger and acquisition technology due diligence, and other professional and expert services that may be requested from time to time by the Company’s Chief Executive Officer through April 8, 2026. In consideration for the services provided under the consulting agreement, the Company amended its common stock purchase warrant issued to PAR Act III on April 8, 2021 (the "Warrant") to extend the termination date of the Warrant to April 8, 2028, subject to the consulting agreement remaining in effect through April 8, 2026.
The issuance date fair value of the Warrant extension was determined to be $4.5 million based on using the Black-Scholes model with the following assumptions as of January 2, 2024:
| Original Warrant | Modified Warrant | ||||||||||
| Expected term | |||||||||||
| Risk free interest rate | % | % | |||||||||
| Expected volatility | % | % | |||||||||
| Expected dividend yield | None | None | |||||||||
| Fair value (per warrant) | $ | $ | |||||||||
In connection with the Company's private placement of its common stock on March 7, 2024 to partially fund the Stuzo Acquisition, an additional 6,312 shares of common stock are available for purchase under the Warrant, increasing the total to 510,287 shares of common stock available for purchase at an exercise price of $74.96 per share.
The Warrant is accounted for as stock-based compensation to non-employees pursuant to ASC Topic 718, Stock Compensation, by way of ASC Topic 815, Derivatives and Hedging, due to the Warrant extension being in exchange for consulting services. The issuance date fair value of the Warrant extension of $4.5 million will be recognized as stock-based compensation expense ratably over the requisite service period for the Warrant extension ending April 8, 2026.
20
Note 10 — Stock-Based Compensation
Stock-based compensation expense, net of forfeitures and adjustments of $(0.4 ) million and $0.2 million, was $6.3 million and $3.6 million for the three months ended June 30, 2024 and 2023, respectively. Stock-based compensation expense, net of forfeitures and adjustments of $0.2 million and $0.3 million, was $10.7 million and $6.6 million for the six months ended June 30, 2024 and 2023, respectively.
At June 30, 2024, the aggregate unrecognized compensation expense related to unvested equity awards was $36.7 million, which is expected to be recognized as compensation expense in fiscal years 2024 through 2027.
A summary of stock option activity for the six months ended June 30, 2024 is below:
| (in thousands, except for weighted average exercise price) | Options outstanding | Weighted average exercise price | |||||||||
| Outstanding at January 1, 2024 | $ | ||||||||||
| Exercised | ( | ||||||||||
| Canceled/forfeited | ( | ||||||||||
| Outstanding at June 30, 2024 | $ | ||||||||||
A summary of unvested restricted stock units activity for the six months ended June 30, 2024 is below:
| (in thousands, except for weighted average award value) | Restricted Stock Unit Awards | Weighted average award value | |||||||||
| Outstanding at January 1, 2024 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Canceled/forfeited | ( | ||||||||||
| Outstanding at June 30, 2024 | $ | ||||||||||
Note 11 — Net Income (Loss) Per Share
Note 12 — Commitments and Contingencies
21
Note 13 — Geographic Information and Customer Concentration
The following table represents revenues by country based on the location of the revenue:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| International | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The following table represents assets by country based on the location of the assets:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| United States | $ | $ | |||||||||
| International | |||||||||||
| Total | $ | $ | |||||||||
Customers comprising 10% or more of the Company’s total revenues are summarized as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| McDonald’s Corporation | % | % | % | % | |||||||||||||||||||
| Yum! Brands, Inc. | % | % | % | % | |||||||||||||||||||
| Dairy Queen | % | % | % | % | |||||||||||||||||||
| All Others | % | % | % | % | |||||||||||||||||||
| Total | % | % | % | % | |||||||||||||||||||
No other customer within "All Others" represented 10% or more of the Company’s total revenue for the three and six months ended June 30, 2024 or 2023.
Note 14 — Fair Value of Financial Instruments
The Company’s financial instruments have been recorded at fair value using available market information and valuation techniques. The fair value hierarchy is based upon three levels of input, which are:
Level 1 — quoted prices in active markets for identical assets or liabilities (observable)
Level 2 — inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable market data for essentially the full term of the asset or liability (observable)
Level 3 — unobservable inputs that are supported by little or no market activity, but are significant to determining the fair value of the asset or liability (unobservable)
The Company’s financial instruments primarily consist of cash and cash equivalents, cash held on behalf of customers, short-term investments, debt instruments and deferred compensation assets and liabilities. The carrying amounts of cash and cash equivalents, cash held on behalf of customers, and short-term investments as of June 30, 2024 and December 31, 2023 were considered representative of their fair values because of their short-term nature and are classified as Level 1 of the fair value hierarchy. Debt instruments are recorded at principal amount net of unamortized debt issuance cost and discount (refer to "Note 8 - Debt" for additional information). The estimated fair value of the 2.875 % Convertible Senior Notes due 2026 (the "2026 Notes") and 1.50 % Convertible Senior Notes due 2027 (the "2027 Notes") at June 30, 2024 was $152.9 million and $247.8 million respectively. The estimated fair value of the 2026 Notes and 2027 Notes at December 31, 2023 was $145.6 million and $236.1 million respectively. The valuation techniques used to determine the fair value of the Company's long-term debt are classified in Level 2 of the fair value hierarchy as they are derived from broker quotations.
22
Deferred compensation assets and liabilities primarily relate to the Company’s deferred compensation plan, which allows for pre-tax salary deferrals for certain key employees. Changes in the fair value of the deferred compensation liabilities are derived using quoted prices in active markets of the asset selections made by plan participants. Deferred compensation liabilities are classified in Level 2, the fair value classification as defined under FASB ASC Topic 820, Fair Value Measurements, because their inputs are derived principally from observable market data by correlation to the hypothetical investments. The Company holds insurance investments to partially offset the Company’s liabilities under its deferred compensation plan, which are recorded at fair value each period using the cash surrender value of the insurance investments.
The cash surrender value of the life insurance policy was $3.3 million and $3.3 million at June 30, 2024 and December 31, 2023, respectively, and is included in other assets on the condensed consolidated balance sheets. Amounts owed to employees participating in the deferred compensation plan at June 30, 2024 were $0.3 million compared to $0.4 million at December 31, 2023 and are included in other long-term liabilities on the condensed consolidated balance sheets.
The Company uses a Monte Carlo simulation of a discounted cash flow model to determine the fair value of the earn-out liability associated with the acquisition of MENU Technologies AG (the "MENU Acquisition"). Significant inputs used in the simulation are not observable in the market and thus the liability represents a Level 3 fair value measurement as defined in ASC 820. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the liability on the acquisition date will be reflected as cash used in financing activities in the Company's condensed consolidated statements of cash flows. Any amount paid in excess of the liability on the acquisition date will be reflected as cash used in operating activities.
During the three months ended June 30, 2024, the Company determined that there would be no earn-out payment related to the MENU Acquisition. As such, the Company wrote off the remaining fair value of the earn-out liability.
The following table presents the changes in the estimated fair values of the Company’s liabilities for contingent consideration measured using significant unobservable inputs (Level 3) for the six months ended June 30:
| (in thousands) | 2024 | 2023 | |||||||||
| Balance at January 1 | $ | $ | |||||||||
| Change in fair value of contingent consideration | ( | ( | |||||||||
| Balance at June 30 | $ | $ | |||||||||
The balance of the fair value of the liability was recorded within "Accrued expenses" in the condensed consolidated balance sheets. The change in fair value of contingent consideration was recorded within "" in the condensed consolidated statements of operations.
The following table provides quantitative information associated with the fair value measurement of the Company’s liabilities for contingent consideration as of December 31, 2023:
| Contingency Type | Maximum Payout (1) (undiscounted) (in thousands) | Fair Value | Valuation Technique | Unobservable Inputs | Weighted Average or Range | |||||||||||||||||||||||||||
| Revenue based payments | $ | $ | Monte Carlo | Revenue volatility | % | |||||||||||||||||||||||||||
| Discount rate | % | |||||||||||||||||||||||||||||||
| Projected year of payments | 2024 | |||||||||||||||||||||||||||||||
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Note 15 — Subsequent Events
On July 1, 2024, the Company sold 100% of the issued and outstanding equity interests of RRC, a wholly-owned subsidiary of the Company, to NexTech Solutions Holdings, LLC for a cash purchase price of $7.0 million, before customary post-closing adjustments based on RRC’s indebtedness, working capital, cash, and transaction expenses at closing. The Company will recognize a pre-tax gain on sale of $0.6 million from the sale of RRC in the third quarter of 2024.
On July 5, 2024, the Company entered into a credit agreement (the "Credit Agreement"), as the borrower, with certain of its U.S. subsidiaries, as guarantors, the lenders party thereto, Blue Owl Capital Corporation, as administrative agent and collateral agent, and Blue Owl Credit Advisors, LLC, as lead arranger and bookrunner, that provides for a term loan in an initial aggregate principal amount of $90.0 million (the "Credit Facility" and, the loans thereunder, the “Term Loans”).
The Credit Facility matures on the earlier of (i) July 5, 2029 and (ii) the date on which the Company's 2027 Notes become due and payable in accordance with their terms. The Term Loans bear interest at a rate equal to either of the following, as selected by the Company: (i) an alternate base rate plus an applicable margin of 4.50 %, 4.00 % or 3.50 % based on a total net recurring revenue leverage ratio, or (ii) a secured overnight financing rate plus an applicable margin of 5.50 %, 5.00 % or 4.50 % based on a total net recurring revenue leverage ratio. Voluntary prepayments of the Term Loans, as well as certain mandatory prepayments of the Term Loans, require payment of a prepayment premium of 4.0 % during the first year of the Credit Facility, 3.0 % during the second year of the Credit Facility, and 1.0 % during the third year of the Credit Facility. Under the Credit Agreement, the Company is required to maintain liquidity of at least $20.0 million and a total net annual recurring revenue leverage ratio of no greater than 1.25 to 1.00 .
On July 18, 2024 (New York Time), July 19, 2024 (Sydney Time) (the "TASK Closing Date"), the Company completed its acquisition of TASK Group Holdings Limited (“TASK”) pursuant to a court-approved scheme of arrangement. On the TASK Closing Date, the Company paid holders of TASK shares approximately $131.5 million in cash consideration, and issued 2,163,393 shares of common stock at a price of $52.70 per share of Company common stock, for a total purchase consideration of $245.5 million.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto included under "Part I, Item 1. Financial Statements (unaudited)" of this Quarterly Report and our audited consolidated financial statements and the notes thereto included under "Part II, Item 8. Financial Statements and Supplementary Data" of the 2023 Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under "Forward-Looking Statements".
OVERVIEW
Q2 2024 Operating Performance Highlights
Organic - Year-over-year growth of 23.9% | Total - Year-over-year growth of 56.9% | ||||
GAAP - Year-over-year 9.8% improvement | ||
Non-GAAP - Year-over-year 5.5% improvement | ||
Net Loss from Cont. Ops. Year-over-year decline of $1.7 million | ||
Adjusted EBITDA Year-over-year improvement of $7.9 million | ||
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Q2 2024 Corporate Development Highlights
•Sale of PAR Government Systems Corporation: In June 2024, the Company sold PAR Government Systems Corporation for $95.0 million, before customary post-closing adjustments.
•After Period End - Completed Sale of Rome Research Corporation: On July 1, 2024, the Company sold Rome Research Corporation for $7.0 million, before customary post-closing adjustments.
•After Period End - Completed Acquisition of TASK: In July 2024, the Company secured a $90.0 million Credit Facility which was used to complete its acquisition of TASK Group Holdings Limited ("TASK"). TASK, an Australia-based entity, offers international unified commerce solutions, including interactive customer engagement and seamless integration, tailored for major brands worldwide. This has made TASK’s transaction management platform the platform of choice for some of the world’s most successful and recognized foodservice brands including, Starbucks and Guzman Y Gomez, while its loyalty customer engagement platform is used by McDonald’s in 65 markets. With the addition of TASK, the Company will be able to serve the top enterprise foodservice brands across the globe with a unified commerce approach from front-of-house to back-of-house.
Refer to “Note 15 – Subsequent Events” of the notes to interim condensed consolidated financial statements in "Part I, Item 1. Financial Statements and Supplementary Data" of this Quarterly Report for additional information about the sale of RRC, the Credit Facility, and the acquisition of TASK.
Refer to "Key Performance Indicators and Non-GAAP Financial Measures" below for important information on key performance indicators and non-GAAP financial measures, including annual recurring revenue ("ARR"), non-GAAP subscription service gross margin percentage, and adjusted EBITDA. We use these key performance indicators and non-GAAP financial measures to evaluate our performance.
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RESULTS OF OPERATIONS
Consolidated Results:
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Revenues, net: | |||||||||||||||||||||||||||||
| Hardware | $ | 20,116 | $ | 26,390 | 25.7 | % | 38.0 | % | (23.8) | % | |||||||||||||||||||
| Subscription service | 44,872 | 30,372 | 57.4 | % | 43.7 | % | 47.7 | % | |||||||||||||||||||||
| Professional service | 13,162 | 12,767 | 16.8 | % | 18.4 | % | 3.1 | % | |||||||||||||||||||||
| Total revenues, net | $ | 78,150 | $ | 69,529 | 100.0 | % | 100.0 | % | 12.4 | % | |||||||||||||||||||
| Gross margin: | |||||||||||||||||||||||||||||
| Hardware | $ | 4,577 | $ | 5,064 | 5.9 | % | 7.3 | % | (9.6) | % | |||||||||||||||||||
| Subscription service | 23,831 | 13,139 | 30.5 | % | 18.9 | % | 81.4 | % | |||||||||||||||||||||
| Professional service | 3,620 | 983 | 4.6 | % | 1.4 | % | > 200% | ||||||||||||||||||||||
| Total gross margin | $ | 32,028 | $ | 19,186 | 41.0 | % | 27.6 | % | 66.9 | % | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Sales and marketing | $ | 9,811 | $ | 10,075 | 12.6 | % | 14.5 | % | (2.6) | % | |||||||||||||||||||
| General and administrative | 25,369 | 16,434 | 32.5 | % | 23.6 | % | 54.4 | % | |||||||||||||||||||||
| Research and development | 16,237 | 14,888 | 20.8 | % | 21.4 | % | 9.1 | % | |||||||||||||||||||||
| Amortization of identifiable intangible assets | 1,946 | 465 | 2.5 | % | 0.7 | % | > 200% | ||||||||||||||||||||||
| Adjustment to contingent consideration liability | (600) | (2,300) | (0.8) | % | (3.3) | % | (73.9) | % | |||||||||||||||||||||
| Gain on insurance proceeds | — | (500) | — | % | (0.7) | % | (100.0) | % | |||||||||||||||||||||
| Total operating expenses | $ | 52,763 | $ | 39,062 | 67.5 | % | 56.2 | % | 35.1 | % | |||||||||||||||||||
| Operating loss | $ | (20,735) | $ | (19,876) | (26.5) | % | (28.6) | % | 4.3 | % | |||||||||||||||||||
| Other (expense) income, net | (610) | 155 | (0.8) | % | 0.2 | % | (493.5) | % | |||||||||||||||||||||
| Interest expense, net | (1,630) | (1,735) | (2.1) | % | (2.5) | % | (6.1) | % | |||||||||||||||||||||
| Loss from continuing operations before benefit from (provision for) income taxes | (22,975) | (21,456) | (29.4) | % | (30.9) | % | 7.1 | % | |||||||||||||||||||||
| Provision for income taxes | (612) | (383) | (0.8) | % | (0.6) | % | 59.8 | % | |||||||||||||||||||||
| Net loss from continuing operations | $ | (23,587) | $ | (21,839) | (30.2) | % | (31.4) | % | 8.0 | % | |||||||||||||||||||
| Net income from discontinued operations | 77,777 | 2,137 | 99.5 | % | 3.1 | % | > 200% | ||||||||||||||||||||||
| Net income (loss) | $ | 54,190 | $ | (19,702) | 69.3 | % | (28.3) | % | (375.0) | % | |||||||||||||||||||
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Consolidated Results (continued):
| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Revenues, net: | |||||||||||||||||||||||||||||
| Hardware | $ | 38,342 | $ | 53,167 | 25.9 | % | 38.5 | % | (27.9) | % | |||||||||||||||||||
| Subscription service | 83,251 | 58,337 | 56.2 | % | 42.2 | % | 42.7 | % | |||||||||||||||||||||
| Professional service | 26,630 | 26,609 | 18.0 | % | 19.3 | % | 0.1 | % | |||||||||||||||||||||
| Total revenues, net | $ | 148,223 | $ | 138,113 | 100.0 | % | 100.0 | % | 7.3 | % | |||||||||||||||||||
| Gross margin: | |||||||||||||||||||||||||||||
| Hardware | $ | 8,633 | $ | 9,460 | 5.8 | % | 6.8 | % | (8.7) | % | |||||||||||||||||||
| Subscription service | 43,616 | 27,179 | 29.4 | % | 19.7 | % | 60.5 | % | |||||||||||||||||||||
| Professional service | 5,837 | 3,459 | 3.9 | % | 2.5 | % | 68.7 | % | |||||||||||||||||||||
| Total gross margin | $ | 58,086 | $ | 40,098 | 39.2 | % | 29.0 | % | 44.9 | % | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Sales and marketing | $ | 20,737 | $ | 19,473 | 14.0 | % | 14.1 | % | 6.5 | % | |||||||||||||||||||
| General and administrative | 50,544 | 35,401 | 34.1 | % | 25.6 | % | 42.8 | % | |||||||||||||||||||||
| Research and development | 32,005 | 29,203 | 21.6 | % | 21.1 | % | 9.6 | % | |||||||||||||||||||||
| Amortization of identifiable intangible assets | 2,878 | 929 | 1.9 | % | 0.7 | % | > 200% | ||||||||||||||||||||||
| Adjustment to contingent consideration liability | (600) | (7,500) | (0.4) | % | (5.4) | % | (92.0) | % | |||||||||||||||||||||
| Gain on insurance proceeds | — | (500) | — | % | (0.4) | % | (100.0) | % | |||||||||||||||||||||
| Total operating expenses | $ | 105,564 | $ | 77,006 | 71.2 | % | 55.8 | % | 37.1 | % | |||||||||||||||||||
| Operating loss | $ | (47,478) | $ | (36,908) | (32.0) | % | (26.7) | % | 28.6 | % | |||||||||||||||||||
| Other (expense) income, net | (310) | 146 | (0.2) | % | 0.1 | % | (312.3) | % | |||||||||||||||||||||
| Interest expense, net | (3,338) | (3,402) | (2.3) | % | (2.5) | % | (1.9) | % | |||||||||||||||||||||
| Loss from continuing operations before benefit from (provision for) income taxes | (51,126) | (40,164) | (34.5) | % | (29.1) | % | 27.3 | % | |||||||||||||||||||||
| Benefit from (provision for) income taxes | 7,173 | (698) | 4.8 | % | (0.5) | % | < 200% | ||||||||||||||||||||||
| Net loss from continuing operations | $ | (43,953) | $ | (40,862) | (29.7) | % | (29.6) | % | 7.6 | % | |||||||||||||||||||
| Net income from discontinued operations | 79,855 | 5,255 | 53.9 | % | 3.8 | % | > 200% | ||||||||||||||||||||||
| Net income (loss) | $ | 35,902 | $ | (35,607) | 24.2 | % | (25.8) | % | (200.8) | % | |||||||||||||||||||
Revenues, Net
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Hardware | $ | 20,116 | $ | 26,390 | 25.7 | % | 38.0 | % | (23.8) | % | |||||||||||||||||||
| Subscription service | 44,872 | 30,372 | 57.4 | % | 43.7 | % | 47.7 | % | |||||||||||||||||||||
| Professional service | 13,162 | 12,767 | 16.8 | % | 18.4 | % | 3.1 | % | |||||||||||||||||||||
| Total revenues, net | $ | 78,150 | $ | 69,529 | 100.0 | % | 100.0 | % | 12.4 | % | |||||||||||||||||||
For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
Total revenues were $78.2 million for the three months ended June 30, 2024, an increase of $8.6 million or
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12.4% compared to $69.5 million for the three months ended June 30, 2023.
Hardware revenues were $20.1 million for the three months ended June 30, 2024, a decrease of $6.3 million or 23.8% compared to $26.4 million for the three months ended June 30, 2023. The decrease primarily consists of decreases in hardware revenues from terminals of $2.8 million, kitchen display systems of $2.1 million, and peripherals (scanners, printers, and components) of $0.6 million. These decreases were all substantially driven by the timing of tier one enterprise customer hardware refresh cycles, onboarding of Operator Cloud customers buying hardware, and the Company's market launch of its next generation PAR headset.
Subscription service revenues were $44.9 million for the three months ended June 30, 2024, an increase of $14.5 million or 47.7% compared to $30.4 million for the three months ended June 30, 2023. The increase includes increased subscription service revenues from our Engagement Cloud services of $9.1 million, of which revenues of $10.1 million were contributed by the business and products that we acquired in the Stuzo Acquisition, and now sold under PAR Retail. Refer to “Note 3 – Acquisitions” of the notes to interim condensed consolidated financial statements in "Part I, Item 1. Financial Statements and Supplementary Data" of this Quarterly Report for additional information regarding Stuzo and the Stuzo Acquisition. Our Operator Cloud services increased $5.3 million driven by an 18.4% increase in active sites and a 14.0% increase in average revenue per site equally driven by cross-selling initiatives, upselling, and price increases.
Professional service revenues were $13.2 million for the three months ended June 30, 2024, an increase of $0.4 million or 3.1% from $12.8 million for the three months ended June 30, 2023. The increase was substantially driven by a $1.0 million increase in hardware repair services and a $0.5 million increase in field operations, partially offset by a $1.2 million decrease in installation services.
| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Hardware | $ | 38,342 | $ | 53,167 | 25.9 | % | 38.5 | % | (27.9) | % | |||||||||||||||||||
| Subscription service | 83,251 | 58,337 | 56.2 | % | 42.2 | % | 42.7 | % | |||||||||||||||||||||
| Professional service | 26,630 | 26,609 | 18.0 | % | 19.3 | % | 0.1 | % | |||||||||||||||||||||
| Total revenues, net | $ | 148,223 | $ | 138,113 | 100.0 | % | 100.0 | % | 7.3 | % | |||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
Total revenues were $148.2 million for the six months ended June 30, 2024, an increase of $10.1 million or 7.3% compared to $138.1 million for the six months ended June 30, 2023.
Hardware revenues were $38.3 million for the six months ended June 30, 2024, a decrease of $14.8 million or 27.9% compared to $53.2 million for the six months ended June 30, 2023. The decrease primarily consists of decreases in hardware revenues from terminals of $6.0 million, peripherals of $3.4 million, and kitchen display systems of $3.4 million. These decreases were all substantially driven by the timing of tier one enterprise customer hardware refresh cycles, onboarding of Operator Cloud customers buying hardware, and the Company's market launch of its next generation PAR headset.
Subscription service revenues were $83.3 million for the six months ended June 30, 2024, an increase of $24.9 million or 42.7% compared to $58.3 million for the six months ended June 30, 2023. The increase was substantially driven by increased subscription service revenues from our Engagement Cloud services of $13.6 million, of which revenues of $12.7 million were contributed by the business and products that we acquired in the Stuzo Acquisition, and now sold under PAR Retail. The residual increase of $0.9 million from our Engagement Cloud services was driven by a 3.9% organic increase in active sites. Our Operator Cloud services increased $11.2 million driven by a 19.7% increase in active sites and a 17.8% increase in average revenue per site equally driven by cross-selling initiatives, upselling, and price increases.
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Professional service revenues were $26.6 million for the six months ended June 30, 2024, which was relatively unchanged from $26.6 million for the six months ended June 30, 2023.
Gross Margin
| Three Months Ended June 30, | Gross Margin Percentage | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Hardware | $ | 4,577 | $ | 5,064 | 22.8 | % | 19.2 | % | 3.6 | % | |||||||||||||||||||
| Subscription service | 23,831 | 13,139 | 53.1 | % | 43.3 | % | 9.8 | % | |||||||||||||||||||||
| Professional service | 3,620 | 983 | 27.5 | % | 7.7 | % | 19.8 | % | |||||||||||||||||||||
| Total gross margin | 32,028 | 19,186 | 41.0 | % | 27.6 | % | 13.4 | % | |||||||||||||||||||||
For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
Total gross margin as a percentage of revenue for the three months ended June 30, 2024, increased to 41.0% as compared to 27.6% for the three months ended June 30, 2023.
Hardware margin as a percentage of hardware revenue for the three months ended June 30, 2024, increased to 22.8% as compared to 19.2% for the three months ended June 30, 2023. The increase in margin primarily consisted of increased margins from terminals and kitchen display systems, both substantially driven by price increases.
Subscription service margin as a percentage of subscription service revenue for the three months ended June 30, 2024, increased to 53.1% as compared to 43.3% for the three months ended June 30, 2023. The increase was substantially driven by a continued focus on efficiency improvements with our hosting and customer support costs as well as improved margins stemming from post-acquisition operations of PAR Retail.
Professional service margin as a percentage of professional service revenue for the three months ended June 30, 2024, increased to 27.5% as compared to 7.7% for the three months ended June 30, 2023. The increase primarily consists of increases in margins for hardware service repair and field operations.
| Six Months Ended June 30, | Gross Margin Percentage | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Hardware | $ | 8,633 | $ | 9,460 | 22.5 | % | 17.8 | % | 4.7 | % | |||||||||||||||||||
| Subscription service | 43,616 | 27,179 | 52.4 | % | 46.6 | % | 5.8 | % | |||||||||||||||||||||
| Professional service | 5,837 | 3,459 | 21.9 | % | 13.0 | % | 8.9 | % | |||||||||||||||||||||
| Total gross margin | 58,086 | 40,098 | 39.2 | % | 29.0 | % | 10.2 | % | |||||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
Total gross margin as a percentage of revenue for the six months ended June 30, 2024, increased to 39.2% as compared to 29.0% for the six months ended June 30, 2023.
Hardware margin as a percentage of hardware revenue for the six months ended June 30, 2024, increased to 22.5% as compared to 17.8% for the six months ended June 30, 2023. The increase in margin primarily consisted of improved inventory management resulting in lower excess and obsolescent inventory charges, and improved margins from terminals and kitchen display systems, primarily driven by price increases.
Subscription service margin as a percentage of subscription service revenue for the six months ended June 30, 2024, increased to 52.4% as compared to 46.6% for the six months ended June 30, 2023. The increase was substantially driven by a continued focus on efficiency improvements with our hosting and customer support costs as well as improved margins stemming from post-acquisition operations of PAR Retail.
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Professional service margin as a percentage of professional service revenue for the six months ended June 30, 2024, increased to 21.9% as compared to 13.0% for the six months ended June 30, 2023. The increase primarily consists of an increase in margin for hardware service repair and field operations.
Sales and Marketing Expense ("S&M")
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Sales and marketing | $ | 9,811 | $ | 10,075 | 12.6 | % | 14.5 | % | (2.6) | % | |||||||||||||||||||
For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
S&M expenses were $9.8 million for the three months ended June 30, 2024, a decrease of $0.3 million or 2.6% compared to $10.1 million for the three months ended June 30, 2023. The decrease primarily consists of a decrease in organic S&M expense of $1.1 million due to decreases in marketing expense and commissions, partially offset by an increase in inorganic S&M expense of $0.8 million stemming from post-acquisition operations of PAR Retail.
| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Sales and marketing | $ | 20,737 | $ | 19,473 | 14.0 | % | 14.1 | % | 6.5 | % | |||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
S&M expenses were $20.7 million for the six months ended June 30, 2024, an increase of $1.3 million or 6.5% compared to $19.5 million for the six months ended June 30, 2023. The increase primarily consists of an increase in inorganic S&M expense of $1.0 million stemming from post-acquisition operations of PAR Retail. Organic S&M expense remained flat for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.
General and Administrative Expense ("G&A")
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| General and administrative | $ | 25,369 | $ | 16,434 | 32.5 | % | 23.6 | % | 54.4 | % | |||||||||||||||||||
For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
G&A expenses were $25.4 million for the three months ended June 30, 2024, an increase of $8.9 million or 54.4% compared to $16.4 million for the three months ended June 30, 2023. The increase primarily consists of a $2.7 million increase in stock-based compensation and a $1.7 million increase in costs related to transaction due diligence, which are both classified as non-GAAP adjustments for management reporting. Please refer to "Non-GAAP Financial Measures" below for additional information regarding non-GAAP adjustments.
The residual increase was primarily driven by inorganic G&A expense of $1.2 million stemming from post-acquisition operations of PAR Retail and higher organic compensation costs of $2.2 million.
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| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| General and administrative | $ | 50,544 | $ | 35,401 | 34.1 | % | 25.6 | % | 42.8 | % | |||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
G&A expenses were $50.5 million for the six months ended June 30, 2024, an increase of $15.1 million or 42.8% compared to $35.4 million for the six months ended June 30, 2023. The increase primarily consists of increases of $5.0 million in costs related to transaction due diligence, $4.5 million in stock-based compensation, $0.6 million in severance, and $0.5 million in depreciation and amortization, which are classified as non-GAAP adjustments for management reporting. Please refer to "Non-GAAP Financial Measures" below for additional information regarding non-GAAP adjustments.
The residual increase was primarily driven by inorganic G&A expense of $1.5 million stemming from post-acquisition operations of PAR Retail and higher organic compensation costs of $2.5 million.
Research and Development Expenses ("R&D")
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Research and development | $ | 16,237 | $ | 14,888 | 20.8 | % | 21.4 | % | 9.1 | % | |||||||||||||||||||
For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
R&D expenses were $16.2 million for the three months ended June 30, 2024, an increase of $1.3 million or 9.1% compared to $14.9 million for the three months ended June 30, 2023. The increase primarily consists of an increase in inorganic R&D expense of $2.3 million driven by post-acquisition operations of PAR Retail, partially offset by a decrease in organic R&D expense for our other Engagement Cloud offerings of $0.8 million as we right sized our headcount associated with our early stage product offerings.
| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Research and development | $ | 32,005 | $ | 29,203 | 21.6 | % | 21.1 | % | 9.6 | % | |||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
R&D expenses were $32.0 million for the six months ended June 30, 2024, an increase of $2.8 million or 9.6% compared to $29.2 million for the six months ended June 30, 2023. The increase primarily consists of an increase in inorganic R&D expense of $2.9 million driven by post-acquisition operations of PAR Retail. Organic R&D expense remained flat for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.
Other Operating Expenses
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Amortization of identifiable intangible assets | $ | 1,946 | $ | 465 | 2.5 | % | 0.7 | % | > 200% | ||||||||||||||||||||
| Adjustment to contingent consideration liability | (600) | (2,300) | (0.8) | % | (3.3) | % | (73.9) | % | |||||||||||||||||||||
| Gain on insurance proceeds | — | (500) | — | % | (0.7) | % | (100.0) | % | |||||||||||||||||||||
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For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
Amortization of identifiable intangible assets was $1.9 million for the three months ended June 30, 2024, an increase of $1.5 million as compared to $0.5 million for the three months ended June 30, 2023. The increase primarily consists of an increase in amortizable intangible assets stemming from the Stuzo Acquisition.
Included in operating expenses for the three months ended June 30, 2024, was a $0.6 million decrease to the fair value of the contingent consideration liability for certain post-closing revenue focused milestones from the MENU Acquisition compared to a $2.3 million decrease for the three months ended June 30, 2023.
Gain on insurance proceeds was $0.5 million for the three months ended June 30, 2023, which consists of $0.5 million in proceeds received from the settlement of a legacy insurance claim. There was no comparable gain for the three months ended June 30, 2024.
| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Amortization of identifiable intangible assets | $ | 2,878 | $ | 929 | 1.9 | % | 0.7 | % | > 200% | ||||||||||||||||||||
| Adjustment to contingent consideration liability | (600) | (7,500) | (0.4) | % | (5.4) | % | (92.0) | % | |||||||||||||||||||||
| Gain on insurance proceeds | — | (500) | — | % | (0.4) | % | (100.0) | % | |||||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
Amortization of identifiable intangible assets was $2.9 million for the six months ended June 30, 2024, an increase of $1.9 million as compared to $0.9 million for the six months ended June 30, 2023. The increase was primarily driven by an increase in amortizable intangible assets stemming from the Stuzo Acquisition.
Included in operating expenses for the six months ended June 30, 2024, was a $0.6 million decrease to the fair value of the contingent consideration liability for certain post-closing revenue focused milestones from the MENU Acquisition compared to a $7.5 million decrease for the six months ended June 30, 2023.
Gain on insurance proceeds was $0.5 million for the six months ended June 30, 2023, which consists of $0.5 million in proceeds received from the settlement of a legacy insurance claim. There was no comparable gain for the six months ended June 30, 2024.
Other (Expense) Income, Net
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Other (expense) income, net | $ | (610) | $ | 155 | (0.8) | % | 0.2 | % | (493.5) | % | |||||||||||||||||||
For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
Other (expense) income, net was $(0.6) million for the three months ended June 30, 2024, a decrease of $0.8 million compared to $0.2 million for the three months ended June 30, 2023. Other (expense) income, net primarily consists of rental income, net of applicable expenses, foreign currency transactions gains and losses and other non-operating income/expenses. The change was substantially driven by increases in sales and use tax expense and other miscellaneous expenses.
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| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Other (expense) income, net | $ | (310) | $ | 146 | (0.2) | % | 0.1 | % | (312.3) | % | |||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
Other (expense) income, net was $(0.3) million for the six months ended June 30, 2024, a decrease of $0.5 million compared to $0.1 million for the six months ended June 30, 2023. Other (expense) income, net primarily consists of rental income, net of applicable expenses, foreign currency transactions gains and losses and other non-operating income/expenses. The change was substantially driven by increases in sales and use tax expense and other miscellaneous expenses.
Interest Expense, Net
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Interest expense, net | $ | (1,630) | $ | (1,735) | (2.1) | % | (2.5) | % | (6.1) | % | |||||||||||||||||||
For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
Interest expense, net was relatively unchanged at $1.6 million for the three months ended June 30, 2024 as compared to $1.7 million for the three months ended June 30, 2023.
| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Interest expense, net | $ | (3,338) | $ | (3,402) | (2.3) | % | (2.5) | % | (1.9) | % | |||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
Interest expense, net was relatively unchanged at $3.3 million for the six months ended June 30, 2024 as compared to $3.4 million for the six months ended June 30, 2023.
Taxes
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Provision for income taxes | $ | (612) | $ | (383) | (0.8) | % | (0.6) | % | 59.8 | % | |||||||||||||||||||
For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
Provision for income taxes was $0.6 million for the three months ended June 30, 2024, an increase of $0.2 million as compared to $0.4 million for the three months ended June 30, 2023. The change was substantially driven by an increase in foreign jurisdiction tax obligations.
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| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Benefit from (provision for) income taxes | $ | 7,173 | $ | (698) | 4.8 | % | (0.5) | % | (1127.7) | % | |||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
Benefit from (provision for) income taxes was $7.2 million for the six months ended June 30, 2024, an increase of $7.9 million as compared to $(0.7) million for the six months ended June 30, 2023. The change was substantially driven by a reduction of the Company’s valuation allowance which resulted from the establishment of deferred tax liabilities related to the Stuzo Acquisition.
Net Income from Discontinued Operations
| Three Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Net income from discontinued operations | $ | 77,777 | $ | 2,137 | 99.5 | % | 3.1 | % | > 200% | ||||||||||||||||||||
For the three months ended June 30, 2024 compared to the three months ended June 30, 2023
Net income from discontinued operations was $77.8 million for the three months ended June 30, 2024, an increase of $75.6 million as compared to $2.1 million for the three months ended June 30, 2023. The increase was substantially driven by a $76.8 million gain from the sale of PGSC. The residual amount represents PGSC and RRC operating income, offset by a provision for income taxes relating to the gain from the sale of PGSC.
| Six Months Ended June 30, | Percentage of total revenue | Increase (decrease) | |||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||||||||||||
| Net income from discontinued operations | $ | 79,855 | $ | 5,255 | 53.9 | % | 3.8 | % | > 200% | ||||||||||||||||||||
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023
Net income from discontinued operations was $79.9 million for the six months ended June 30, 2024, an increase of $74.6 million as compared to $5.3 million for the six months ended June 30, 2023. The increase was substantially driven by a $76.8 million gain from the sale of PGSC. The residual amount represents PGSC and RRC operating income, offset by a provision for income taxes relating to the gain from the sale of PGSC.
Key Performance Indicators and Non-GAAP Financial Measures:
We monitor certain key performance indicators and non-GAAP financial measures in the evaluation and management of our business; certain key performance indicators and non-GAAP financial measures are provided in this Quarterly Report because we believe they are useful in facilitating period-to-period comparisons of our business performance. Key performance indicators and non-GAAP financial measures do not reflect and should be viewed independently of our financial performance determined in accordance with GAAP. Key performance indicators and non-GAAP financial measures are not forecasts or indicators of future or expected results and should not have undue reliance placed upon them by investors.
Key Performance Indicators
Within this Quarterly Report the Company makes reference to annual recurring revenue, or ARR, and active sites, which are both key performance indicators. The Company uses ARR and active sites as key performance indicators of the scale of our subscription services for both new and existing customers.
ARR is the annualized revenue from our subscription services, which includes subscription fees for our SaaS solutions and related support, managed platform development services, and transaction-based fees for payment processing services. We generally calculate ARR by annualizing the monthly recurring revenue for all
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active sites as of the last day of each month for the respective reporting period. ARR is an operating measure, it does not reflect our revenue determined in accordance with GAAP, and ARR should be viewed independently of, and not combined with or substituted for, our revenue and other financial information determined in accordance with GAAP. Further, ARR is not a forecast of future revenue and investors should not place undue reliance on ARR as an indicator of our future or expected results.
Active sites represent locations active on our subscription services as of the last day of the respective reporting period.
Our key performance indicators ARR and active sites are presented as two subscription service product lines: Engagement Cloud (Punchh, PAR Retail, and MENU) and Operator Cloud (Brink POS, PAR Payment Services, PAR Pay, and Data Central).
Annual Recurring Revenue
| As of June 30, | Increase (decrease) | ||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||
| Engagement Cloud: | |||||||||||||||||
| Organic | 67,577 | 60,893 | 11.0 | % | |||||||||||||
| Inorganic | 40,356 | — | — | % | |||||||||||||
| Total Engagement Cloud* | 107,933 | 60,893 | 77.3 | % | |||||||||||||
| Operator Cloud | 84,235 | 61,601 | 36.7 | % | |||||||||||||
| Total | $ | 192,168 | $ | 122,494 | 56.9 | % | |||||||||||
*Inorganic Engagement Cloud ARR represents PAR Retail ARR only in the six months ended June 30, 2024. During the three months ended June 30, 2024, PAR Retail ARR was adjusted as of the acquisition date as a result of measurement periods adjustments to the purchase price allocation in accordance with ASC Topic 805, Business Combinations.
Active Sites
| As of June 30, | Increase (decrease) | ||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 vs 2023 | ||||||||||||||
| Engagement Cloud: | |||||||||||||||||
| Organic | 73.9 | 70.5 | 4.8 | % | |||||||||||||
| Inorganic | 20.7 | — | — | % | |||||||||||||
| Total Engagement Cloud* | 94.6 | 70.5 | 34.2 | % | |||||||||||||
| Operator Cloud | 27.7 | 23.4 | 18.4 | % | |||||||||||||
*Inorganic Engagement Cloud active sites includes PAR Retail active sites only in the six months ended June 30, 2024.
Non-GAAP Financial Measures
In addition to disclosing financial results in accordance with GAAP, this Quarterly Report contains references to the non-GAAP financial measures below. We believe these non-GAAP financial measures provide investors with useful supplemental information about our operating performance, enable comparison of financial trends and results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business and measuring our performance. Our non-GAAP financial measures reflect adjustments based on one or more of the following items below. The income tax effect of the below adjustments, with the exception of (provision for) benefit from income taxes, were not tax-effected due to the valuation allowance on all of our net deferred tax assets.
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Our non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Additionally, these measures may not be comparable to similarly titled measures disclosed by other companies.
Beginning with this Quarterly Report, we have modified our definition of adjusted subscription service gross margin percentage and have renamed this non-GAAP measure to non-GAAP subscription service gross margin percentage. Non-GAAP subscription service gross margin percentage is adjusted to exclude amortization from acquired and internally developed software, stock-based compensation, and severance costs included within subscription service cost of sales. Our prior definition of adjusted subscription service gross margin percentage only excluded amortization from acquired and internally developed software. This change was made to conform with the methodology that we use to calculate other non-GAAP measures, including adjusted EBITDA outlined below, and to align with how management views our core operating performance.
| Non-GAAP Measure | Definition | Usefulness to management and investors | ||||||
| Non-GAAP subscription service gross margin percentage | Non-GAAP subscription service gross margin percentage represents subscription service gross margin percentage adjusted to exclude amortization from acquired and internally developed software, stock-based compensation, and severance. | We believe that non-GAAP subscription service gross margin percentage and adjusted EBITDA provide useful perspectives with respect to the Company's core operating performance and ongoing cash earnings by adjusting for certain non-cash and non-recurring charges that may not be indicative of our financial performance. | ||||||
| Adjusted EBITDA | Adjusted EBITDA represents net income (loss) before income taxes, interest expense and depreciation and amortization adjusted to exclude certain non-cash and non-recurring charges that may not be indicative of our financial performance. | |||||||
| Non-GAAP diluted net loss per share | Non-GAAP diluted net loss per share represents net loss per share excluding amortization of acquired intangible assets and certain non-cash and non-recurring charges that may not be indicative of our financial performance. | We believe that adjusting our non-GAAP diluted net loss per share to remove non-cash and non-recurring charges provides a useful perspective with respect to the Company's operating performance as well as comparisons to past and competitor operating results. | ||||||
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| Non-GAAP Adjustment | Definition | Usefulness to management and investors | ||||||
| Stock-based compensation | Stock-based compensation consists of charges related to our employee equity incentive plans. | We exclude stock-based compensation because these non-cash charges are not viewed by management as part of our core operating performance. This adjustment facilitates a useful evaluation of our current operating performance as well as comparisons to past and competitor operating results. | ||||||
| Contingent consideration | Adjustment reflects a non-cash reduction to the fair market value of the contingent consideration liability related to the MENU Acquisition. | We exclude changes to the fair market value of our contingent consideration liability because management does not view these non-cash, non-recurring charges as part of our core operating performance. This adjustment facilitates a useful evaluation of our current operating performance as well as comparisons to past and competitor operating results. | ||||||
| Transaction costs | Adjustment reflects non-recurring professional fees incurred in transaction due diligence, including costs incurred in the acquisitions of Stuzo and TASK. | We exclude professional fees incurred in corporate development because management does not view these non-recurring charges, which are inconsistent in size and are significantly impacted by the timing and valuation of our transactions, as part of our core operating performance. This adjustment facilitates a useful evaluation of our current operating performance, comparisons to past and competitor operating results, and additional means to evaluate expense trends. | ||||||
| Gain on insurance proceeds | Adjustment reflects the gain on insurance proceeds due to the settlement of a legacy claim. | We exclude these non-recurring adjustments because these costs do not reflect our core operating performance. These adjustments facilitate a useful evaluation of our current operating performance as well as comparisons to past and competitor operating results. | ||||||
| Severance | Adjustment reflects the severance included in cost of sales, sales and marketing expense, general and administrative expense, and research and development expense. | |||||||
| Discontinued operations | Adjustment reflects income from discontinued operations related to the disposition of our Government segment. | |||||||
| Other expense (income), net | Adjustment reflects foreign currency transaction gains and losses, rental income and losses, and other non-recurring expenses recorded in other expense (income), net, in the accompanying statements of operations. | |||||||
| (Provision for) benefit from income taxes | Adjustment reflects a partial release of our deferred tax asset valuation allowance resulting from the Stuzo Acquisition. | We exclude these non-cash and non-recurring adjustments for purposes of calculating non-GAAP diluted net loss per share because these costs do not reflect our core operating performance. These adjustments facilitate a useful evaluation of our current operating performance, comparisons to past and competitor operating results, and additional means to evaluate expense trends. | ||||||
| Non-cash interest | Adjustment reflects non-cash amortization of issuance costs related to the Company's long-term debt. | |||||||
| Acquired intangible assets amortization | Adjustment reflects amortization expense of acquired developed technology included within cost of sales and amortization expense of acquired intangible assets. | |||||||
The tables below provide reconciliations between net income (loss) and adjusted EBITDA, diluted net income (loss) per share and non-GAAP diluted net loss per share, and subscription service gross margin percentage and non-GAAP subscription service gross margin percentage.
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| (in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| Reconciliation of Net Income (Loss) to Adjusted EBITDA | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income (loss) | $ | 54,190 | $ | (19,702) | $ | 35,902 | $ | (35,607) | |||||||||||||||
| Discontinued operations | (77,777) | (2,137) | (79,855) | (5,255) | |||||||||||||||||||
| Net loss from continuing operations | (23,587) | (21,839) | (43,953) | (40,862) | |||||||||||||||||||
| Provision for (benefit from) income taxes | 612 | 383 | (7,173) | 698 | |||||||||||||||||||
| Interest expense, net | 1,630 | 1,735 | 3,338 | 3,402 | |||||||||||||||||||
| Depreciation and amortization | 8,834 | 6,817 | 16,127 | 13,584 | |||||||||||||||||||
| Stock-based compensation | 6,286 | 3,601 | 10,696 | 6,609 | |||||||||||||||||||
| Contingent consideration | (600) | (2,300) | (600) | (7,500) | |||||||||||||||||||
| Transaction costs | 1,573 | — | 4,978 | — | |||||||||||||||||||
| Gain on insurance proceeds | — | (500) | — | (500) | |||||||||||||||||||
| Severance | 294 | — | 1,728 | 253 | |||||||||||||||||||
| Other expense (income), net | 610 | (155) | 310 | (146) | |||||||||||||||||||
| Adjusted EBITDA | $ | (4,348) | $ | (12,258) | $ | (14,549) | $ | (24,462) | |||||||||||||||
| (in thousands, except per share amounts) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| Reconciliation between GAAP and Non-GAAP Diluted Net Income (Loss) per share | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Diluted net income (loss) per share | $ | 1.60 | $ | (0.72) | $ | 1.09 | $ | (1.30) | |||||||||||||||
| Discontinued operations | (2.29) | (0.08) | (2.42) | (0.19) | |||||||||||||||||||
| Diluted net loss per share from continuing operations | (0.69) | (0.80) | (1.33) | (1.49) | |||||||||||||||||||
| Provision for (benefit from) income taxes | 0.01 | — | (0.23) | — | |||||||||||||||||||
| Non-cash interest | 0.02 | 0.02 | 0.03 | 0.04 | |||||||||||||||||||
| Acquired intangible assets amortization | 0.20 | 0.16 | 0.36 | 0.32 | |||||||||||||||||||
| Stock-based compensation | 0.18 | 0.13 | 0.32 | 0.24 | |||||||||||||||||||
| Contingent consideration | (0.02) | (0.08) | (0.02) | (0.27) | |||||||||||||||||||
| Transaction costs | 0.05 | — | 0.15 | — | |||||||||||||||||||
| Gain on insurance proceeds | — | (0.02) | — | (0.02) | |||||||||||||||||||
| Severance | 0.01 | — | 0.05 | 0.01 | |||||||||||||||||||
| Other expense (income), net | 0.02 | (0.01) | 0.01 | (0.01) | |||||||||||||||||||
| Non-GAAP diluted net loss per share | $ | (0.23) | $ | (0.60) | $ | (0.66) | $ | (1.18) | |||||||||||||||
| Diluted weighted average shares outstanding | 34,015 | 27,357 | 32,935 | 27,381 | |||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Reconciliation between GAAP and Non-GAAP Subscription Service Gross Margin Percentage | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Subscription Service Gross Margin Percentage | 53.1 | % | 43.3 | % | 52.4 | % | 46.6 | % | |||||||||||||||
| Depreciation and amortization | 13.1 | % | 17.4 | % | 13.4 | % | 18.8 | % | |||||||||||||||
| Stock-based compensation | 0.2 | % | 0.2 | % | 0.2 | % | 0.2 | % | |||||||||||||||
| Severance | — | % | — | % | 0.1 | % | — | % | |||||||||||||||
| Non-GAAP Subscription Service Gross Margin Percentage | 66.4 | % | 60.9 | % | 66.1 | % | 65.6 | % | |||||||||||||||
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LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash and cash equivalents and short-term investments. As of June 30, 2024, we had cash and cash equivalents of $114.9 million and short-term investments of $27.5 million. Cash and cash equivalents consist of highly liquid investments with maturities of 90 days or less, including money market funds. Short-term investments are held-to-maturity investment securities consisting of investment-grade interest bearing instruments, primarily treasury bills and notes, which are stated at amortized cost.
Cash used in operating activities was $37.4 million for the six months ended June 30, 2024, compared to $12.8 million for the six months ended June 30, 2023. Cash used in operating activities for the six months ended June 30, 2024 primarily consisted of a net loss from continuing operations net of non cash charges of $21.2 million and additional net working capital requirements substantially driven by an increase in accounts receivable of $8.0 million resulting from revenue growth.
Cash used in investing activities was $72.9 million for the six months ended June 30, 2024 compared to $6.2 million for the six months ended June 30, 2023. Cash used in investing activities during the six months ended June 30, 2024 included $166.3 million of cash consideration paid in connection with the Stuzo Acquisition (net of cash acquired) and capital expenditures of $2.7 million for developed technology costs associated with our software platforms, partially offset by $87.1 million of cash consideration received in connection with the disposition of PGSC and $9.4 million of proceeds from net sales of short-term held-to-maturity investments.
Cash provided by financing activities was $191.5 million for the six months ended June 30, 2024, compared to cash used in financing activities of $2.5 million for the six months ended June 30, 2023. Cash provided by financing activities during the six months ended June 30, 2024 primarily consisted of a private placement of common stock of $194.5 million (net of issuance costs). We do not have any off-balance sheet arrangements or obligations.
We expect our available cash and cash equivalents will be sufficient to meet our operating needs for at least the next 12 months. Over the next 12 months our total contractual obligations are $44.6 million, consisting of purchase commitments for normal operations (purchase of inventory, software licensing, use of external labor, and third-party cloud services) of $36.1 million, principal and interest payments on long-term debt of $7.4 million and facility lease obligations of $1.1 million. We expect to fund such commitments with cash provided by operating activities and our sources of liquidity.
Our non-current contractual obligations are $442.7 million, consisting of purchase commitments for normal operations (purchase of inventory, software licensing, use of external labor, and third-party cloud services) of $43.4 million, interest payments of $12.0 million and principal payments of $385.0 million related to long-term debt, and facility leases of $2.3 million. Refer to “Note 8 – Debt” of the notes to interim condensed consolidated financial statements in "Part I, Item 1. Financial Statements and Supplementary Data" of this Quarterly Report for additional information.
Our actual cash needs will depend on many factors, including our rate of revenue growth, growth of our SaaS revenues, the timing and extent of spending to support our product development and acquisition integration efforts, the timing of introductions of new products and enhancements to existing products, market acceptance of our products, and the factors described above in "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations”, elsewhere in this Quarterly Report, in the 2023 Annual Report, and in our other filings with the SEC.
From time to time, we may seek to raise additional capital through equity, equity-linked, and debt financing arrangements. In addition, our board of directors and management regularly evaluate our business, strategy, and financial plans and prospects. As part of this evaluation, the board of directors and management periodically consider strategic alternatives to maximize value for our shareholders, including strategic transactions such as an acquisition, or a sale or spin-off of non-strategic company assets or businesses. We cannot provide assurance that any additional financing or strategic alternatives will be available to us on acceptable terms or at all.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements are based on the application of accounting principles generally accepted in the United States of America. GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. Valuations based on estimates are reviewed for reasonableness and adequacy on a consistent basis. Significant items subject to these estimates and assumptions include revenue recognition, stock-based compensation, the recognition and measurement of assets acquired and liabilities assumed in business combinations at fair value, the carrying amount of property, plant, and equipment including right-to-use assets and liabilities, identifiable intangible assets and goodwill, valuation allowances for receivables, valuation of excess and obsolete inventories, and measurement of contingent consideration at fair value. Actual results could differ from these estimates. Our estimates are subject to uncertainties, including those associated with market conditions, risks and trends. Refer to "Part II, Item 1A. Risk Factors" of this Quarterly Report for additional information. Our critical accounting policies have not changed materially from the discussion of those policies included under “Critical Accounting Policies and Estimates” in our 2023 Annual Report.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
Our primary exposures relate to certain non-dollar denominated sales and operating expenses in Canada, Europe, Asia, and Australia. These primary currencies are the Great British Pound, the Euro, the Swiss Franc, the Serbian Dinar, the Australian dollar, the Singapore dollar, the Canadian dollar, the Indian Rupee and the Chinese Renminbi. Accordingly, changes in exchange rates may negatively affect our revenue and net income (loss) as expressed in U.S. dollars. We also have foreign currency risk related to foreign currency transactions and monetary assets and liabilities, including intercompany balances denominated in currencies that are not the functional currency. We have experienced and will continue to experience fluctuations in our net income (loss) as a result of gains (losses) on these foreign currency transactions and the remeasurement of monetary assets and liabilities. As of June 30, 2024, the impact of foreign currency exchange rate changes on our revenues and net income (loss) was not material. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy.
Interest Rate Risk
As of June 30, 2024, we had $120.0 million, and $265.0 million in aggregate principal amount outstanding on the 2026 Notes and the 2027 Notes, respectively.
We carry the long-term debt at face value less amortized debt issuance costs on the condensed consolidated balance sheets. Since the long-term debt bears interest at fixed rates, we have no financial statement risk associated with changes in interest rates. However, the fair value of the long-term debt changes when the market price of our common stock fluctuates or interest rates change.
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Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2024. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2024.
Changes in Internal Control Over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, did not identify changes that occurred in our internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The information in Note 12 – "Commitments and Contingencies” of the notes to the financial statements in Part I, Item 1. "Financial Statements" is incorporated herein by reference. We do not believe that we have any pending litigation that would have a material adverse effect on our financial condition or results of operations.
Item 1A. RISK FACTORS
The risks described in the Part I, Item 1A. "Risk Factors” section of our 2023 Annual Report could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. Except as modified, updated, or supplemented below, the Risk Factors section in our 2023 Annual Report remains current in all material respects. Refer also to the other information set forth in this Quarterly Report, including in the sections "Forward-Looking Statements," Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Part 1, Item 1. "Financial Statements (unaudited)."
We may not have sufficient cash flow from our operating subsidiaries to pay our debt, which may seriously harm our business.
As of June 30, 2024, we had $385.0 million of aggregate principal amount outstanding under our 2.875% Convertible Senior Notes due 2026 (the “2026 Notes”) and 1.50% Convertible Senior Notes due 2027 (the “2027 Notes”, and together with the 2026 Notes, the “Senior Notes”). On July 5, 2024, we entered into the Credit Agreement which provided for a $90.0 million term loan (the "Credit Facility"). Our ability to make scheduled payments or to refinance the Senior Notes and Credit Facility depends on our performance, which is subject to economic, financial, competitive, geopolitical, and other factors that may be beyond our control. If our operating subsidiaries are unable to generate sufficient cash flow from operations to service our debt under the Senior Notes and Credit Facility, we may be required to adopt one or more alternatives to secure cash flow, such as selling assets or obtaining additional capital; any sale of assets or transaction to raise capital could be on terms that may be onerous or highly dilutive. Our ability to raise funds through debt or equity issuances and otherwise access the credit and capital markets at the times and in the amounts needed and on acceptable terms will depend on our financial condition and the condition of the capital markets at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default under the indentures governing the Senior Notes, the Credit Agreement governing the Credit Facility and other debt obligations.
Our indebtedness under the Senior Notes and Credit Facility, could, among other things, restrict or limit our ability to plan and react to changes in our business and our industries; place us at a disadvantage compared to our competitors who have less debt; and limit our ability to borrow additional amounts to fund acquisitions, for working capital, and for other general corporate purposes.
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The covenants in the Credit Agreement that govern our Credit Facility may limit our operating and financial flexibility.
The covenants in the Credit Agreement limit our ability to:
•incur debt and liens;
•make investments, loans and advances;
•consummate a merger or consolidation;
•sell, lease, assign, transfer or otherwise dispose of property;
•declare or pay dividends;
•prepay, redeem or repurchase debt;
•engage in affiliate transactions;
•change our business; and
•terminate or modify our organizational documents.
Under the Credit Agreement, the Company is required to maintain liquidity of at least $20 million and a first lien net annual recurring revenue leverage ratio of no greater than 1.25 to 1.00.
These covenants may limit our ability to make strategic acquisitions, fund investments or otherwise engage in other business activities that could be in our interest.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 12, 2024, the Company issued 11,018 shares of its common stock, representing an issuance date fair value of $0.5 million, as a stock award to a former employee in connection with the sale of PGSC. The shares of common stock were issued without registration in a private transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
Under our equity incentive plan, employees may elect to have us withhold shares to satisfy minimum statutory federal, state and local tax withholding obligations arising from the vesting of their restricted stock and restricted stock units. When we withhold these shares, we are required to remit to the appropriate taxing authorities the market price of the shares withheld, which could be deemed a purchase of shares by us on the date of withholding. For the three months ended June 30, 2024, 4,684 shares were withheld.
The table below presents information regarding the Company's purchases of its common stock for the time periods presented.
| Period | Total Number of Shares Withheld | Average Price Paid Per Share | ||||||||||||
| April 1, 2024 - April 30, 2024 | — | $ | — | |||||||||||
| May 1, 2024 - May 31, 2024 | — | $ | — | |||||||||||
| June 1, 2024 - June 30, 2024 | 4,684 | $ | 45.26 | |||||||||||
| Total | 4,684 | $ | 45.26 | |||||||||||
Item 5. OTHER INFORMATION
During the three months ended June 30, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted terminated
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Item 6. EXHIBITS
| Exhibit Number | Incorporated by reference into this Quarterly Report on Form 10-Q | Date Filed or Furnished | ||||||||||||
| Exhibit Description | Form | Exhibit No. | ||||||||||||
| 2.1 | Form 8-K (File No.001-09720) | 2.1 | 6/10/2024 | |||||||||||
| 3.1 | Form 8-K (File No.001-09720) | 3.2 | 6/6/2024 | |||||||||||
| 3.2 | Form 8-K (File No.001-09720) | 3.1 | 2/14/2024 | |||||||||||
| 10.1 | Filed herewith | |||||||||||||
| 31.1 | Filed herewith | |||||||||||||
| 31.2 | Filed herewith | |||||||||||||
| 32.1 | Furnished herewith | |||||||||||||
| 32.2 | Furnished herewith | |||||||||||||
| 101.INS | Inline XBRL Instance Document | Filed herewith | ||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed herewith | ||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith | ||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith | ||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed herewith | ||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith | ||||||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | Filed herewith | ||||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PAR TECHNOLOGY CORPORATION | ||||||||
| (Registrant) | ||||||||
| Date: | August 8, 2024 | /s/ Bryan A. Menar | ||||||
| Bryan A. Menar | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
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