PAR TECHNOLOGY CORP Q1 FY2023 earnings

PAR Technology posted first quarter revenue of $100.4 million for the three months ended March 31, 2023, up 25.1% from $80.3 million in the prior-year quarter. Gross profit rose 12.5% to $23.2 million, though gross margin slipped to 23.1% from 25.7%. The operating loss widened to $13.9 million from $12.8 million, but operating margin improved to -13.8% from -16.0% because revenue grew faster than the cost base. The net loss widened to $15.9 million from $15.7 million a year earlier. Diluted loss per share was flat at $0.58. The adjusted picture is weaker. Adjusted net loss was $12.7 million, or $0.46 per share, against $7.1 million, or $0.26 per share, and adjusted EBITDA went from a loss of $2.9 million to a loss of $8.8 million. A $5.2 million reduction in the fair value of the MENU contingent consideration liability ran through operating expenses in the quarter and is excluded from those adjusted figures.

Revenue mix tilted toward government work. Contract revenue climbed 48.6%, led by ISR Solutions at 80.8% growth on continued Counter-small Unmanned Aircraft System task orders. Subscription service revenue, the line management watches most closely, rose 31.4%. Hardware revenue was up 6.8% and professional service revenue up 10.8%. Product margins did the damage. Hardware margin fell to 16.4% from 20.2% after a charge to inventory, and professional service margin dropped to 17.9% from 26.5% on softer implementation and repair work. Subscription service gross margin was nearly unchanged at 50.2%. Adjusted subscription service gross margin, which excludes amortization of acquired and internally developed technology, fell to 71% from 74%.

The recurring revenue base keeps growing. ARR totaled $115.9 million at March 31, 2023, a 22.7% increase from $94.4 million a year earlier. Guest Engagement ARR reached $59.4 million, Operator Solutions $45.2 million, and Back Office $11.3 million. Active sites expanded across all three groups, to 68.1 thousand in Guest Engagement (up 15.7%), 20.5 thousand in Operator Solutions (up 21.6%), and 7.1 thousand in Back Office (up 18.1%). Operator Solutions booked 1.2 thousand sites and activated 1.1 thousand during the quarter. Guest Engagement added roughly 325 new store activations and Back Office roughly 350.

Expenses grew faster than revenue in several areas. SG&A increased 22.8% to $27.5 million on higher internal technology infrastructure and sales and marketing spending. R&D increased 32.0% to $14.3 million, with $1.9 million of the increase coming from a full quarter of MENU spending that was not present a year ago. Cash used in operating activities was $16.7 million, better than the $21.2 million used a year earlier. Capital expenditures were $0.8 million, up from $0.3 million. At March 31, 2023 the company held $48.7 million of cash and cash equivalents and $40.8 million of short-term investments against $389.7 million of long-term debt. Management pointed to $34.0 million of contractual obligations over the next 12 months, including $24.5 million of purchase commitments and $8.0 million of interest payments.

Two balance sheet items point to softer forward visibility. Current deferred revenue fell 44.4% to $9.1 million and remaining performance obligations fell 34.6% to $13.7 million. Those declines sit oddly next to the ARR gains and are worth watching. The company repeated a broad risk list, including unfavorable macroeconomic conditions, bank failures, higher interest rates, inflation, weaker consumer confidence and discretionary spending, component shortages, and geopolitical tension such as the Russia-Ukraine war. The release contained no numeric guidance for the next quarter or the full fiscal year. Management instead framed ARR growth from integrated cloud platforms as the route to profitability and positive cash flow, a case that has to be weighed against a quarter with a $15.9 million net loss and $16.7 million of cash used in operations.