UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
þ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 20172022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number 1-09720
PAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
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| Delaware | 16-1434688 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
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PAR Technology Park, 8383 Seneca Turnpike, New Hartford, New York | 13413-4991 |
| (Address of principal executive offices) | (Zip Code) (zip code) |
(315) 738-0600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| Common Stock, $.02 par value | PAR | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
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Title of Each Class | Name of Each Exchange on Which Registered |
Common Stock, $.02 par value | New York Stock Exchange |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐☑ No þ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No þ☑
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 þ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T §232.405(§232.405 of the Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K §229.405 is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ¨
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“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer ☑ | Accelerated Filerfiler ☐ | Accelerated Filer þ
Non-accelerated filer ☐ |
Non Accelerated Filer ☐ | Smaller reporting company þ ☐ | Emerging growth company ☐ |
| | (Do not check if a smaller reporting company) | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transactiontransition 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ☑
The aggregate market value of the registrant’s voting common stock held by non-affiliates (computed by reference to the price at which the common stock was last sold) was $86,678,852$1,004,244,555 on June 30, 2017.2022.
There were 16,010,81827,315,382 shares of common stock outstanding as of March 1, 2018.February 27, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 20182023 Annual Meeting of StockholdersShareholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K.
EXPLANATORY NOTE
The registrant met the “accelerated filer” requirements as of the end of its 2017 year pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended. However, pursuant to Rule 12b-2 and SEC Release No. 33-8876, the registrant (as a smaller reporting company transitioning to the larger reporting company system based on its public float as of June 30, 2017) is not required to satisfy the larger reporting company requirements until its first quarterly report on Form 10-Q for the 2018 year, and is thus eligible to check the “smaller reporting company” box on the cover of this Form 10-K.
PAR Technology CorporationTECHNOLOGY CORPORATION
Form 10-K
For the Fiscal Year Ended December 31, 20172022
TABLE OF CONTENTS
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Forward Looking Statements
This Annual Report on Form 10-K (“Annual Report”) contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”)“PAR®, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature, but rather are predictive of our future operations, financial condition, business strategies and prospects. Forward-looking statements are generally identified by words such as “anticipate”, “believe,” “belief,“Brink POS®,” “continue,“Punchh®,” “could”“MENUTM, “expect,” “estimate,“Data Central®,” “intend,” “may,” “opportunity,” “plan,” “should,” “will,” “would,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those expressed in, or implied by, the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report, including in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”. 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
General.
PAR Technology Corporation, through its wholly-owned subsidiaries - ParTech, Inc. and PAR Government Systems Corporation - operates in two distinct reporting segments, Restaurant/Retail and Government. Our Restaurant/Retail segment provides point-of-sale (“POS”), food safety, and management technology solutions; and, our Government segment provides intelligence, surveillance, and reconnaissance (“ISR”) solutions and mission systems support. Information about our segment revenues, operating income, and identifiable assets (including certain information by geographic areas) is set forth in Note 11 - Segment and Related Information - of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report).
In this Annual Report, the terms “PAR”, “the Company”, “we”, “us”, and “our” refer to PAR Technology Corporation and its consolidated subsidiaries, unless the context indicates otherwise.
“PAR”, “Brink POS”, “SureCheck”, “Pixelpoint”"PAR® Pay”, “PAR EverServ”® Payment Services” and other trademarks of PAR’sidentifying our products and services appearing in this Annual Report belong to PAR.us. This Annual Report containsmay 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 PARus or itsour products or services.
Unless the context indicates otherwise, references in this Annual Report to "we," "us," "our," the "Company," and "PAR" mean PAR Technology Corporation and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This Annual Report for the year ended December 31, 2022 contains forward-looking statements within the meaning of Section 21E of the Securities 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 “anticipate,” “believe,” “can”, “could”, “continue,” “expect,” “estimate,” “future”, “goal”, “intend,” “may,” “opportunity,” “plan,” “should,” “target”, “will,” “would,” “will likely result,” and similar expressions. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties, many of which are beyond PAR’s control, which could cause PAR’s actual results to differ materially from those expressed in or implied by forward-looking statements, including statements relating to and PAR’s expectations regarding: the effects of COVID-19 on its business, financial condition, and results of operations; the timing and expected benefits of acquisitions, divestitures, and capital markets transactions; the plans, strategies and objectives of management for future operations, including PAR’s unified experience service and product offerings and its go-to-market strategy; the expected development, demand, performance, market share or competitive performance of PAR’s products and services; PAR's ability to achieve and sustain profitability; projections of net revenue, margins, expenses, effective tax rates, net earnings, net earnings per share, cash flows, deferred taxes, or other financial items; PAR's annual recurring revenue, active sites, net loss, net loss per share and other key performance indicators and financial measures; potential supply constraints, product and component shortages, manufacturing disruptions or logistics challenges; 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 financial performance; 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: the impact or results of PAR's responses to COVID-19 and the responses of governments (including COVID-19 quarantines and lockdowns), businesses, customers and consumers, including store closures (temporary or permanent), decreased or delayed service and product adoptions and installations, delayed payments or payment defaults by customers, and the health and safety of PAR’s employees; PAR’s ability to add and maintain active sites, retain and manage suppliers, secure alternative suppliers, and manage inventory levels, navigate manufacturing disruptions and logistics challenges, shipping delays and increased costs; PAR’s ability to successfully attract, hire and retain necessary qualified employees to develop and expand its business; 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 offerings for current, new, and potential customers for the build-out of its unified experience service and product offerings; macroeconomic trends, such as a recession or slowed economic growth, increased interest rates, inflation, and a decline in consumer confidence and discretionary spending; geopolitical events, including the effects of the Russia-Ukraine war and escalating tensions between China and Taiwan; risks associated with PAR’s international operations; changes in estimates and assumptions PAR makes in connection with the preparation of its financial statements and in building its business, operational plans and strategies; disruptions in operations from data breaches and cyberattacks; PAR’s agility 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 that could cause PAR’s actual results to differ materially from those expressed in or implied by forward-looking statements contained in this Annual Report, including but not limited to, those described under “Part I, Item 1. Business”, “Part I, Item 1A. Risk Factors,” “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report and in our other filings with the Securities and Exchange Commission (the “SEC”). The forward-looking statements in this Annual Report are made as of the date of this filing and PAR assumes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.
PART I
Item 1. BUSINESS
The Company
PAR Technology Corporation (NYSE: PAR), through its wholly owned subsidiaries – ParTech, Inc. (“ParTech”) and PAR Government Systems Corporation (“PAR Government”), operates in two distinct reporting segments, Restaurant/Retail and Government.
Restaurant/Retail Segment:Segment
Overview.
We derived approximately 74% of our total consolidated revenues from our Restaurant/Retail segment in 2017. PAR continues to be a leading provider of POS solutions to restaurants and retail and, primarily through our Brink POS cloud-based software solution, we continue to expand our restaurant base and type of customers (tier 1, 2 and 3). Our food safety and workforce efficiency solution - SureCheck - has expanded our customer base to include big box retailers, food retail (grocery), and contract food organizations.
We provide ourleading technology platforms to the restaurant and retail industries, with more than 500 customers with management technology solutions that address their desire to offer seamless transactional experiences or product offerings to their customers, while enabling them to gather and use content management and business intelligence to complete transactions or monitor product quality and safety.
Our management technology solutions include our cloud-based and on-premise software applications, hardware platforms, and related installation, technical, and maintenance support services. Our software offerings include front-of-store POS software applications, operations management software applications (known as back-office software), andmore than 70,000 active restaurant locations. We provide enterprise software applications for content management and business intelligence. Our hardware offerings include POS terminals, tablets, kitchen systems utilizing printers and/or video monitors, and food safety monitoring and task management hardware.
Products and Services. The products and services in the Restaurant/Retail segment include:
Cloud-based SaaS offerings and On-Premise Software:
Brink POS (“Brink”) - a cloud-based POS software solution that scales for use by single and multi-unit operators with traditional and/or mobile platforms. Brink is a leading solution for restaurants, particularly in the quick serve/fast casual restaurant categories. A cloud POS platform, Brink eliminates the need for an in-store back-office server and simplifies software version control and organizational updates. Brink provides and integrates into mobile/online ordering, loyalty, kitchen video systems, guest surveys, enterprise reporting, and mobile dashboards. Brink is sold as a cloud software-as-a-Service (“SaaS”).
PixelPoint - an on-premise integrated software solution, that includes a POS software application, a self-service ordering function, back-office management, and an enterprise level loyalty and gift card information sharing application. The PixelPoint solution is primarily sold to independent table service and quick serve restaurants through channel partners.
SureCheck -a mobile automated solution that provides checklist management for Hazard Analysis & Critical Control Points (HACCP), food safety programs, and employee-assigned tasks. The SureCheck platform is comprised of three integrated technologies that are easy to use and quick to deploy: the SureCheck mobile application, a multi-mode wireless temperature-measuring device (“TMD”) with optional remote temperatures sensors, and a cloud-based enterprise configuration and reporting server application.
The Restaurant Market. Our software applications and hardware platforms are designed to be complete and integrated solutions for multi-unit and individual restaurants, franchisees, and enterprise customersother restaurant outlets in the three major restaurant categories:categories - quick service, fast casual, (“FC”), quick serve (“QSR”), and table service (“TSR”). Each- with operational efficiencies through a data-driven network with integration capabilities from point-of-sale to the kitchen, to fulfillment.
Our mission is to enable personalized experiences that connect people to the brands, meals, and moments they love; and, our strategy to achieve this mission is grounded in delivering a unified experience across our comprehensive suite of thesesubscription services, hardware, and professional services that simplifies our customers' operations, elevates their customer engagement, and propels their continued success.
PAR's vision of unified experience is a single platform that provides seamless connections from the restaurants’ backend systems through to their customer-facing channels enabling restaurant categories has distinct operating characteristicsenterprises to deliver innovation, differentiated experiences and servicecompetitive advantage. It's the setup enterprise restaurants require to support omnichannel journeys and create a unified view of customer interactions, products, and management systems. We continuously strive to enhance and expand the unified experience to be able to provide full integration of data points that drive guest satisfaction and operational efficiencies for the restaurant enterprises across our offerings, which currently includes point-of-sale, loyalty, back office, digital ordering, delivery, requirementsand payments processing.
Products and Services
Subscription services
Our subscription services consist of software-as-a-service ("SaaS") solutions, related software support, and transaction-based payment processing services, and are grouped into three categories:
Guest Engagement, offering customer facing solutions:
Punchh, an enterprise-grade customer loyalty and engagement solution that are managed by Brink and PixelPoint. Both Brink and PixelPoint allowenables our customers to configuredeliver personalized promotions to their technologycustomers to increase customer lifetime value and same-store sales. Punchh seamlessly integrates with our customers’ existing systems, providing AI-powered tools to deliver omnichannel loyalty experiences and campaigns to engage their customers, create real-time 360-degree insights and drive repeat purchases and higher average spend.
MENU, an omnichannel digital ordering solution that offers our customers seamless order and pay and delivery solutions. MENU is the most recent addition to PAR's unified experience offering; acquired as part of our acquisition of MENU Technologies A.G. ("MENU") in the third quarter of 2022 (the "MENU Acquisition").
Operator Solutions, offering front-of-house operator solutions:
Brink POS, an open cloud, point-of-sale solution that provides operators with the tools to seamlessly integrate with multiple product offerings - including self-ordering kiosks, kitchen video systems, and enterprise reporting - through PAR's ecosystem of integration partners.
PAR Payment Services, our transaction-based payment processing services, and PAR Pay, a SaaS solution for payment devices, when combined, offer a comprehensive payment processing solution that allows our customers to accept a variety of methods of payment including debit and credit cards, mobile, and gift cards.
Back Office, offering back-of-house operator solutions:
Data Central, a back-office solution that leverages business intelligence and automation technologies to manage labor, food costs, and inventory, as well as perform enterprise reporting. Data Central provides our customers with the necessary tools to achieve peak operational and financial efficiency; it serves as the central hub of restaurant intelligence by collecting information from POS, inventory, supply, payroll and accounting systems to meet their order entry, food preparation, inventory,provide actionable insights and workforce management needs, while capturing real-time transaction data at each location and delivering valuable business intelligence throughout the enterprise.
The Retail Market. The SureCheck solution offers food retail (grocery), contract food, and restaurant customers with a comprehensive digital food safetyview of a restaurant’s operations.
Our SaaS solutions are extensible and task management solutionbuilt on open application programming interfaces (“API”) enabling integration by more than 400 integration partners, including leading industry brands, to manage HACCP, to implement Chef Critical Control Points (CCCP) compliance,extend the reach and to augment facilities maintenance. The SureCheck solution automates the monitoringcapabilities of risk factors while lowering the potential for human error; it records employee food preparation, handling, processesour SaaS solutions and tasks, while providing insight to abnormal checklist conditions,those of our integration partners.
Hardware
Our hardware offerings include point-of-sale terminals and offers an automated alert feature to notify users when tasks are behind schedule or out of compliance. SureCheck offers retail operators a device to effectively capture and monitor data to manage policy compliance and oversight, loss prevention, merchandising,tablets, wireless headsets, drive-thru systems, kitchen display systems, payment devices, and other audit functions.in-store peripherals:
Hardware.
PAR EverServPoint-of-Sale Hardware. Our POS hardware platforms are designed to reliably operate in harsh environments associated with food service. PAR hardware terminals - EverServ platforms600, Phase, and Helix - and tablets are durable and highly functioning, scalable, and easily integrated, - offering customers competitive performance at a cost-conscious price. PAR’s hardwareOur open architecture POS platforms are compatible with popularoptimized to support our SaaS solutions, as well as many third-party operating systems,POS software applications, support a distributed processing environment and are suitable for a broad range of use and functions within the markets served. PAR’s open architecture POS platforms are optimized
Wireless Communications, Drive-Thru Systems. Our wireless headsets for drive-thru order-taking provide our customers with another means to host our POS software applications, as well as many third-party POS applications,deliver their products and are compatible with a varietyserve their customers. The PAR G5® headsets provide clear audio, all-day battery life, and an ergonomic fit. PAR's drive-thru timer systems provide crew and managers near-real-time feedback to improve speed of peripheral devices. service and meet performance targets.
In-Store Peripherals We partner with numerous vendors that offer complementary in-store peripherals, such asincluding kitchen display systems, payment devices, cash drawers, card readers, and printers, to kitchen video systems, allowing us to deliver a comprehensive and completely integrated solution through one vendor.hardware solution.
Our POS hardware platforms are designed to meet customer requirements and exceed customer expectations regardless
EverServ 550 Series - is built with the rugged durability PAR is known for and is a value platform for operators that require fewer features/functions. Its small ergonomic footprint is ideal for installations where space is at a premium. The EverServ 550’s solid design is quiet, offers low power consumption, and minimizes maintenance.
EverServ 8000 Series - is designed and developed based on the latest technology processors from Intel Corporation. The EverServ 8000 boasts a modern design and, while it is one of the smallest footprints available in the market, it is built to operate in harsh environments and endure high customer traffic and transaction activities.Professional services
EverServ tablets - PAR Tablet 8 and PAR Tablet 10 - are the latest in PAR’s series of enterprise-class mobile devices built for our customers. Consistent with our EverServ family, the EverServ tablets are designed to operate
in harsh environments. Attributable to the Everserv tablets’ extended battery life, the rugged design of the EverServ tablets does not impact the level of “up time” enjoyed by customers, but it does extend the EverServ tablets’ life cycle. Our EverServ mobility family of hardware platforms also include a variety of docking and charging stations, the ability to use magnetic credit and debit cards and payment systems, hand and shoulder straps and holsters to support the variety of product applications.
Services.
We provide a completecomprehensive portfolio of support services to support our customers’ technology requirements duringcustomers, including hardware repair, installation and afterimplementation, training, and on-site and technical support.
Hardware repair. We offer depot repair, warranty, and overnight–Advanced Exchange
–services from our offices in San Diego, California, Mississauga, Ontario, and our corporate headquarters in New Hartford, New York.
Installation and implementation. We offer hardware installation and software and/or hardware deployments.implementation services.
Training. We offer complete application training to our customers’ in-store staff and provide technical training to our customers’ information systems personnel.
On-site and technical support. We provide installation, technical and break-fixoffer on-site support forin the continental U.S. through our products through support services, license and/or subscription agreements with our customers.field tech service network. We also offer depot repair and overnight - Advanced Exchange - service. In North America, we offer 24-hour help desk support from our diagnostic service centercenters located in Boulder, Colorado,New Hartford, New York and on- site support through our field tech service network, which services the continental United States. Tampa, Florida.
Outside of the continental U.S., we similarly supportprovide our products by providing call center, installation, on-site, and/professional services either directly or depot repair services to our customers depending upon a customer's geographic location. These services are delivered to our customers directly by us and bythrough authorized third parties.providers.
The restaurant market is fragmented and we support businesses of all sizes, from large corporations and their franchisees to single store operators. We believe our ability to offer comprehensive services including training, installation, maintenance, and technical support to a diverse set of customers differentiates us from our competitors.
Using a suite of software applications, our experienced service organization provides customers with knowledge based diagnostic solutions to resolve customer service issues. Our service providers compile information about potential customer or product trends and opportunities, and provide this information to our remote service technicians, to assist them in diagnosing - in real-time - issues occurring at customer locations, reducing the need for physical on-site service calls. Our customer relationship management system allows our call center personnel to maintain customer profiles, including customer hardware and software details, service history, and database of problem-resolutions, to maximize our service resolution effectiveness and customer satisfaction.
We work closely with our customers to identify and address the latest restaurant or retail technology requirements by creating interfaces to the latest innovations in operational equipment, including Europay, MasterCard and Visa (EMV), digital, and additional solutions located inside and outside of customer premises. PAR provides systems integration expertise to interface specialized components, including but not limited to video monitors, wireless networks, and video surveillance, to meet requirements of its global customers.
Sales, MarketingMarkets and Distribution
In
Our customers are primarily enterprise restaurants, franchisees, and other restaurant outlets in the U.S., we marketquick service, fast casual, and sell our products through our dedicated sales teams, who directly interface with our tier 1 customers (owner and/or operator of 2,000 or more sites), tier 2 customers (owner and/or operator of 101-1,999 sites) and tier 3 customers (owner and/or operator of a 2 - 100 sites). Our international sales teams also market andtable service categories, located in the continental U.S. We sell our products and services to tier 1 customers outside of the U.S., as well as local/regional customers, from in-country offices.through dedicated internal sales teams and channel partners. We also use channel partnersengage sales representatives and resellers to market and sell our hardware products and certain of our subscription services both in the U.S. and internationally.
Our products are also offered and sold through sales representatives, who enlist and support many well-regarded value-added resellers serving multi-unit operators,to the independent restaurant category and the non-foodservicenon-food service markets, such as retail and convenience stores, amusement parks, movie theaters, cruise lines, spas, casinos, and other ticketing and entertainment venues.
PAR has
We have developed and nurtured long-term relationships with several of the largest organizationsbrands in the Restaurant/Retail segment, including McDonald’s Corporation, Yum! Brands, Inc., and the SUBWAY franchiseestwo of Doctor’s Associates Inc. Since 1980, PAR haswhich represent, in total, 22.0% of our total revenues. We have been an approved provider to McDonald’s and its franchisees of restaurant technology systems and related support services. PAR has beenservices to McDonald’s Corporation and their franchisees since 1980 and an approved supplier ofto Yum! Brands, which includes Taco Bell, Kentucky Fried Chicken, and Pizza Hut,Inc. since 1983 and is a major supplier of in-store technology systems to concepts within the Yum! Brands portfolio. Other significant restaurant chains that use PAR POS1983.
Competition
The markets for our products and related services include SUBWAY, Baskin-Robbins unit of Dunkin’ Brands Group, Inc., the Hardee’sare highly competitive and Carl’s Jr. units of CKE Restaurants, Inc., Five Guys, Jack-in-the-Box, and franchisees of these organizations. The SureCheck solution is used by one of the largest tier 1 global retailers.
Competition
POS software and hardware offerings to the restaurant and retail markets is highly competitive. Most of our significant customers have several approved suppliers of software and/or hardware similar to one or more of our products. We compete directly with some product offerings from Oracle Corporation, NCR Corporation, and Panasonic Corporation among others.rapidly evolving. We compete on the basis of productfeatures and functionality, user experience, integration capabilities, method of delivery (cloud-based v.(cloud versus traditional on-premiseson-premise software applications), existing and planned product design, features and functionality, software application and integration capabilities, quality and reliability, product development capabilities, price, and customer service. Most of our larger customers have several approved suppliers of software and hardware similar to one or more of our products.
Our competitive advantages includeinclude: our integratedunified experience product and service offerings, open integration platform, cloud delivery model based on modern architecture, enterprise grade solutions, offerings, including our cloud (SaaS delivery model) and on-premise software, ergonomic purpose-built hardware, advanced development capabilities, extensive domain knowledge and expertise, excellent product reliability, a customer dedicated direct sales force organization, and world classteam, and responsive customer service and support. The food safety and workforce efficiency market is an expanding and evolving market. As relevant technologies evolve and customer demands and expectations increase and mature, so do the competitive pressures
While we believe we compete favorably, we expect competition in the market, withrestaurant and retail markets to continue, including aggressive pricing, increased introductions of new companies enteringproducts and existing companies expanding their productservices, and service portfolios. SureCheck competes for customers on the same basis as our POS solution. As to many of our product and service offerings, wetechnological advancements by competitors. We face competition from companies who have access to significantly moregreater financial and technical resources, thanmore relevant product and service offerings, and larger established customer bases. Furthermore, we possess.expect that our industry will continue to attract new market entrants, including smaller emerging companies that could introduce new product and service offerings. We may also expand into new markets and encounter additional competitors in such markets.
Supply
We have agreements for the supply of hardware products and components, including long-term or volume-based purchase agreements with some suppliers, and we have identified alternative sources in the event one or more of our suppliers are not able to perform or fully perform; however, there can be no assurance that we will be able to timely secure alternative product or components or continue our current supplier agreements on similar terms, or at all.
Many of the products and components used by us are at times subject to industry-wide shortage and significant pricing fluctuations; additionally, we have experienced a shortage in the number of suppliers and those suppliers' availability of certain products and components, for example, certain batteries, chipsets, or hardware devices, which can also result in significant price fluctuations. To mitigate these risks, we do from time to time increase our inventory levels of scarce products and components and adjust our pricing, while maintaining competitive pricing, to properly reflect market conditions.
Research and Development
Continuous product research, innovation, and product development are an integral part of our business. We continuously evaluate customer needs and new and relevant technologies to enable us to develop innovative and relevant products, together within addition to creating enhancements to our unified experience service and product offerings and existing products that improve and/or add to their functionality, performance, operation, and integration capabilities; from leveraging the latest innovations in cloud computing to hand-held wireless devices to advances in internet performance, our professional services unit is available for consultation on a wide variety of topics including network infrastructures, system functionality, operating system platforms, and hardware expandability.capabilities. Research and development expenses were $13.8$48.6 million, in 2017$34.6 million, and $11.6$19.3 million, in 2016. We capitalize certain software costs in accordance with Financial Accounting Standards Board (FASB), Accounting Standards Codification (“ASC”) Topic No. 985for the years ended December 31, 2022, 2021, and in accordance with FASB ASC Topic No. 350. See Note 1 - Summary of Significant Accounting Policies, Identifiable intangible assets - of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report) for further discussion.2020, respectively.
Manufacturing and Suppliers
We assemble our ES 8000 series internally in the U.S., and we source other hardware products and related components from third parties. Although we purchase most of the materials, supplies, product sub-assemblies and full assemblies for our internal assembling from several suppliers, we do rely on sole sources for certain of our assembly components and hardware products. As a result, we periodically review and evaluate potential risks of disruption to our supply chain operations in the event one or more supplier should fail to perform.
Government Segment:Segment
PAR’s Government segment provides a rangetechnical expertise and development of solutionsadvanced systems and servicessoftware solutions for the U.S. Department of Defense (“DoD”("DoD"), the intelligence community ("IC") and other federal agencies. It is focused on twoAdditionally, we provide support services for satellite command and control, communication, and information technology ("IT") systems at several DoD facilities worldwide. The Government segment has three principal offerings - Solutionscontract offerings: intelligence, surveillance, and Servicesreconnaissance solutions, mission systems operations and Mission Support.maintenance, and commercial software products for use in analytic and operational environments that leverage geospatial intelligence data.
Solutions and Services
Intelligence, Surveillance, and Reconnaissance (“ISR”("ISR"). We provide
PAR's ISR group provides a variety of geospatial intelligence analysis, systems integration, and situational awareness solutions forsolutions. Our core competencies reside in mobile geospatial applications; counter, small, unmanned aircraft surveillance systems ("C-sUAS"); and data centerscience offerings. Our substantive, in depthin-depth expertise in these domains enables us to provide our government customers and large systems integratorsindustry partners with key technologies tothat support a variety of applications ranging from strategic enterprise systems to tactical in the fieldin-the-field dismounted users. Additionally, we have developed a number of solutions relative to these advanced technologies and we provide integration, testing and trainingoperational readiness support in line with respect to these solutions.
competencies. PAR's ISR group also provides systems engineering support and software-based solutions to the DoD research and development laboratories, as well asintelligence customers, and operational commands. Our internal expertise ranges from theoretical and experimental studies to development and fielding of operational capabilities. Our employeesISR group members are:
▪
•experienced developers and subject-matter experts in the DoD Full Motion Video (“FMV”);full motion video;
▪•developers of geospatial and imagery data management, visualization, and exploitation solutions;
▪major contributors•designers and developers of very large-scale data science and multi-media analysis systems;
•leading the development of technologies to radar systems from inception to operational capabilities;train and test artificial intelligence systems;
▪developers•designers of mobile computing applications for Android, iOS, and Windows;
•architects and integrators of advanced C-sUAS systems-of-systems;
▪•builders of solutions for privacy, compliance and governance for sensitive customer data; and
•developers of geospatial information system (“GIS”) solutions.
We are actively engaged in the development of mobility applications that support the needs of mobile teams with real-time, situationtactical edge (mobile) situational awareness and distributed communications.communications needs. PAR's ISR group has a strong legacy in the advanced research, development, and productization of geospatial information assurance (“GIA”) technology involving
steganography, stegsteganography analysis, digital watermarking, and imagedigital media forensics. These enabling technologies have beenare used to provide increased protection and security of geospatial data. Intelligence, Surveillance,
PAR’s ISR group integrates and Reconnaissance also provides scientific and technical support to the U.S. Intelligence Community.
Systems Engineering & Evaluation. We integrate and testtests a broad range of government and industry research and development solutions. The Company designs, integratesgroup is expanding through the development and operatesimplementation of C-sUAS systems in support of force protection efforts. Additionally, we design, integrate, and operate antenna data collection solutions for experimentation, demonstration, and test support. We also provide technical engineering and analysis services to intelligence community customers, supporting development and deployment of advanced prototypes and quick reaction systems.systems, including applications for high performance computing platforms (e.g., Cray exascale computers).
Mission SupportSystems ("MS")
Satellite & Telecommunications Support. We provide
PAR's MS group provides a wide range of technical and supportoperational services to sustain mission critical components of the Department of DefenseDoD's Information Network (DoDIN)(“DoDIN”). These services include continuous 24/7/365satellite and teleport facility operations system enhancements and associatedmaintenance, engineering and installation services including inside and outside plant services, and maintenance of infrastructure and information systems for very low, frequency (VLF),low, high, frequency (HF) and very high frequency (VHF)frequencies, and ground-based radio transmitter/receiver facilities. Additionally, the Company operatesfacilities, including high tower antennas up to 1200 feet. We operate and maintains severalmaintain satellite communications and teleport facilities with ultra-high, super high, and extremely high frequency (EHF) and super high frequency (SHF) satellite communication earth terminals, and teleport facilities.support telecommunications architectures such as fixed submarine broadcast systems and high frequency global communications systems. The DoD communications earth stations operated by PAR isGovernment are the primary communications infrastructuresystems utilized by the national command authority and military services to exercise command and control of the nation’s air, land, and naval forces and to provide support to allied coalition forces.
Space & Satellite Control Support.
PAR’s MS group supports globally-deployed operational forces by providing reliable 24/7/365 support services for a variety of satellite communication systems. We provide 24/7/365 satellite telemetry, tracking,control center operations and control services in support ofmission planning for DoD Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR)("C4ISR") operations. We provide satellite ground system support, including operations and maintenance, sustainment, upgrades, communications security management, anomaly response/resolution, process improvement, emergency response and disaster recovery. Our experience also includes mission planning launch and early orbit (L&EO) rehearsals and support, COOP exercises and operations groundtraining.
PAR’s MS group provides comprehensive, dependable, and secure information systems sustainment, and watch and on-console operations for anomaly response, notification, resolution and process improvement for FLTSAT, UHF Follow-On, Polar EHF, and MUOS satellite constellations.
Management technology/Systems Support. We provide management technologysupport services to the DoD and other federal agencies. These services include helpdesk services, systemsinformation technology infrastructure library based, tier 0 to 3 service desk operations for thousands of users, network system administration, networkdatabase administration, information assuranceassurance/system security, information security training, and systems security, database administration, telephone systems management,government network management. We also perform maintenance, monitoring, upgrades, planning, testing, and testbed management,integration and ITIL-based service management.configuration services, to include security systems including intrusion detection systems.
Telecommunication services include satellite and terrestrial communications operations and maintenance services,
PAR's MS group supports critical information systems which operate elements of the DoDIN to support the National Command Authority (President &and Joint Chiefs of Staff), DoD, and other governmentfederal agencies. The Company provides ITOur system troubleshooting and regulatory experts support services ranging from advanced systems management to help desk support-with more than 50%the customer mission around the globe. Approximately 60% of its globalour footprint is outside the continental U.S. with contracts in Europe, Middle East, Africa, Australia, and U.S. commonwealths and territories in the Pacific and Caribbean.
PAR Government has strong and enduring relationships with a diverse set of customers throughout the U.S. DoD, IC, and other federal government, and ouragencies. Our track record of delivering mission critical services to its government customers spans decades, and includes contracts continuing 1520 years or more.more, with an average contract duration of three to five years. We work closely with our customers, with the vast majoritymany of our mission systemMS group employees co- locatedco-located at customer sites. Our strong relationships and on-site presence with our customers enableenables PAR Government to develop substantive customer and technical domain knowledge, and translate mission understanding into exemplary program execution, and create continued demand for PAR’sPAR Government’s services.
Marketing
Commercial Software
PAR Government’s commercial software business draws on decades of research and development (“R&D”), image processing and geospatial information systems ("GIS") experience. Licensable software products focus on serving analysts and operators who seek highly accurate and timely information with both temporal and geospatial context. Product utility spans the modern battlefield from rear echelon analyst cell to the field operations center to the mobile devices and displays carried by infantryman at the very forward edge of a battlespace. Currently we offer two types of software products. The geospatial visualization ("GV") image processing suite is used by the international defense and intelligence community to analyze still and video imagery. A second product line, Situation-X (“Sit-X”), provides cloud-native interconnectivity for mobile platform situational awareness solutions used by government and private organizations to manage rapid response teams or deployed field units. Customers include global geospatial software providers, NATO partners, public safety organizations, and select U.S. intelligence agencies.
Markets and Competition
We obtain
PAR Government obtains contracts primarily through a mix of competitive proposals and technical paper submissions in response to solicitations from government organizations and prime contractors. In addition, PAR sometimes obtainswe obtain contracts by submitting unsolicited proposals.proposals against publicly identified government requirements which are selected on merit for further development and funding. Although we believe we are well positioned in our business areas,markets, competition for government contracts is intense. Many of our competitors are majorlarge corporations or subsidiaries thereof, that are significantly larger and have substantially greater financial resources.resources and broader capabilities in management technology. Within our ISR contract portfolio we compete based on the technical talent and accomplishments of our development staff, approach to software development, and program management teams who have earned a reputation for rapid solutioning of leading edge software solutions. We alsodifferentiate our ISR offerings based on our demonstrated technical savvy and key staff, who have high security clearances and the background and appetite to tackle truly difficult problems.
In our MS contract portfolio, we compete with many smaller, economically disadvantaged companies, many of which are designated by the government for preferential, “set aside”set aside, treatment that target segments of the government contract market. TheHere the principal competitive factors are past performance, the ability to perform the statement of work, price, technological capabilities, management capabilities, and service. Many of our department of defenseDoD customers are migrating to low-price/technically acceptableprice sensitive, best value procurements while leveraging commercial software standards, applications, and solutions. We differentiate our MS offerings based on our strong past performance, having performed exceedingly well for several decades, and competitive pricing strategies.
BacklogWe continue to evolve our commercial software offerings through dedicated investments in two main areas. First, we are developing video streaming and replication technologies to enable unmanned aerial vehicle operators to share video outputs across their entire team in real time. Second, we are developing capabilities for tactical edge mobile device users to search and retrieve available satellite data from the growing commercial space-based remote sensing markets.
The value
Our strategy is to build upon PAR Government segment's sustained performance on existing service contracts, coupled with investments in enhanced business development capabilities. We believe we are well positioned to realize continued renewals of expiring contracts and extensions of existing contracts, and to secure service and solution contracts in expanded areas within the DoD and other federal agencies. We believe our highly relevant technical competencies, intellectual property, and investments in new technologies provide opportunities to offer systems integration, products, and highly specialized service solutions to the DoD, IC, and other federal agencies. The general technology investment areas by agency, procurement cycles, and spending levels for the next several years are factors we monitor as we develop and implement our business strategy for our Government contracts at December 31, 2017, net of amounts relating to work performed to that date, was approximately $111.1 million, of which $38.2 million was funded. The value of existing Government contracts at December 31, 2016, net of amounts relating to work performed to that date, was approximately $126.0 million, of which $36.4 million was funded. Funded amounts represent those amounts committed under contract by Government agencies and prime contractors. The December 31, 2017 Government contract backlog of $111.1 million represents firm, existing contracts. Of this backlog amount, approximately $55.8 million is expected to be completed in calendar year 2018, as funding is committed.segment.
Intellectual Property and Other Rights
We develop a substantial amount ofrely on various intellectual property laws, confidentiality procedures, and contractual provisions to establish, maintain, and protect our products internally as original developments, discoveries and know-how or based on existing copyrighted works and/or patents issued or pending of PAR or third-party licensors.intellectual property. We have a number of U.S. and foreign patents filed and patents pendingissued to protect our discoveries and inventions, registered and common law trademarks as well asto protect our brand, and copyrights that relate to internally developed software and various distinctive characteristics of our products, including certain attributes, functionality,products. We also rely on a combination of confidentiality and brand associationassignment-of-invention agreements with our employees and goodwill. In additionconsultants, and enter into confidentiality and licensing agreements with our customers and other third parties with whom we have strategic
relationships. We believe our use and reliance on intellectual property laws and our agreements and licenses protect and maintain our rights in our intellectual property; however, there can be no assurance that our patents, trademarks, and other intellectual property rights will not be challenged, invalidated, or circumvented; that others will not assert intellectual property rights in technologies that are relevant to our publicly available intellectual property, we possess competitive confidential information and trade secrets. We protectbusiness; or that our intellectual property rights will give us a competitive advantage. For a discussion of risks associated with intellectual property, refer to the Risk Factor—"Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business, financial conditions, results of operations and cash flows" in "Part I, Item 1A. Risk Factors", which is incorporated herein by reference.
Government Regulation
We are subject to a variety of laws and regulations in the United States and other proprietary information by actively pursuing U.S. and foreign patent and trademark protectionjurisdictions that involve matters central to the business of our proprietary product developments, discoveriesRestaurant/Retail segment, including privacy, data security and know-howpersonal information, content, data retention and deletion; relating to the formation, administration and performance of U.S. Government contracts within our brandsGovernment segment; and logos,regulating the operations of our business, including employee matters, import and export controls, trade restrictions, anti-corruption and bribery. A failure, or alleged failure, by entering into license agreementsus to comply with any of these laws or regulations could have a material adverse effect on our business, financial condition, and non-disclosureresults of operations. For additional information about government regulation and confidentiality agreements.laws applicable to our business, refer to the risks described under “Risks Associated with the Regulation of our Business" and "Risks Associated with our Government Segment" in "Part I, Item 1A. Risk Factors".
Employees
Cybersecurity
Our cybersecurity program is designed to protect against unauthorized access to information, and includes encryption, data masking technology, data loss prevention technology, authentication technology, entitlement management, access control, anti-malware software, and transmission of data over private networks. PAR utilizes the Center for Internet Security (CIS) Critical Security Controls as a framework for managing its cybersecurity program. The CIS framework outlines 18 critical control areas relating to organizational security and provides effective methodologies, guidelines and industry standard best practices to develop and manage a comprehensive cybersecurity program. Additionally, we are certified by various international security certifications and standards and have adopted best practices from industry leading frameworks (in addition to the CIS framework) and standard bearers, such as the Payment Card Industry Data Security Standard, the California Consumer Privacy Act, and the General Data Protection Regulation. We also regularly obtain system and organization control (SOC) reports - SOC 1 and SOC 2 - for multiple products.
Our technology systems are regularly reviewed and assessed. Our internal audit team conducts regularly scheduled audits of our IT and business systems; we routinely engage with a reputable, objective, and licensed auditor to comprehensively assess our controls, capabilities, and programs against stringent standards; we monitor our external exposure through a third-party service; and make changes and updates to our systems as we deem necessary.
All PAR employees are mandated to complete annual security awareness training and participate in additional security related training on a regular basis, and the audit committee of our board of directors is provided quarterly reports on PAR’s cybersecurity program.
Human Capital
We prioritize finding, developing and rewarding extraordinary talent. Our employee-first strategy is designed to provide a diverse, inclusive and safe environment where our employees enjoy coming to work each day to support our customers and grow our business. As of December 31, 2017,2022, we employed approximately 1,137had 1,719 full-time employees and 36 part-time employees.
We value speed, ownership, focus and winning together, which we consider to be the foundation for how we operate and make decisions.
Leadership's Role: Our senior management team is responsible for developing and executing our human capital strategy. We seek employees who share a passion for technology and its ability to improve our customers’ businesses. Our mission is to create an environment that reflects our values of speed, ownership, focus and winning together where our employees thrive. Our strategy is to seek to hire the best talent, give them the
responsibility and authority they deserve, and let them make the decisions on how to best execute. We design our employee compensation and benefits programs to be competitive, reinforce our commitment to diversity, equity and inclusion (“DEI”), and consistent with our values, to incentivize and reward outstanding performance. Our Chief Executive Officer and Sr. Vice President, Human Resources regularly update the compensation committee of our board of directors on key areas of our human capital strategy, including approximately 54%the following:
Diversity, Equity and Inclusion: Our commitment to DEI is simple: it’s about community and belonging. We aim to represent the diversity we see in all our customers and their communities. We want to understand and integrate our employee’s unique perspectives and voices every day. Our employees should feel a sense of belonging and want to be part of the PAR team.
We continued to make significant investments in our Restaurant/Retail segment, 39%DEI program in 2022, including the expansion of our DEI team, launching Company wide DEI training, expanding our employee resource group footprint to foster an inclusive workplace that aligns with our values, and launching additional employee surveys to better understand the diversity of our employee population to inform our strategy. We are excited to have launched our first external DEI website and we continue to make investments in our Government segment (27%DEI initiatives in 2023.
To evaluate and assess the effectiveness of which are covered by collective bargaining agreements),our DEI program, we track the ethnic and 7% who are corporate employees. We considergender diversity of our relationshipU.S. employee population and gender diversity of our global employee population. Our U.S. employee population consists of 28% ethnically diverse employees and 27% women. Globally, our workforce consists of 25% women.
Employee Engagement and Talent Management/Development: Consistent with our employee-first strategy, we believe that our employees should have the opportunity to be good.have a forum to communicate their feedback, concerns and suggestions. We conduct semi-annual employee net promoter engagement surveys. Understanding the “pulse” of our employees through engagement surveys is critical to inform our actions with respect to integrating areas of opportunity in our employee engagement, retention and total rewards programs.
Our compensation philosophy aims to attract, retain and incentivize top performers in a highly competitive market for talent, who can deliver competitive financial returns to shareholders through the achievement of short-term and long-term performance targets.To support our meritocratic, pay-for-performance strategy, we execute annual performance and 360 performance reviews with the intent to incentivize and motivate our employees. Talent assessments enable us to identify individuals that are ready for promotion and areas of development across our core competencies. In 2022, we invested in refining our talent management systems and in 2023 are expanding our talent development platform to increase our investment in the core competency development for all of our employees.
Health and Safety: The health and safety of our employees in the workplace is of utmost importance to us. We regularly assess our facilities to ensure compliance with our health and safety guidelines and regulatory requirements.
Talent Acquisition and Attrition: PAR works diligently to attract the best talent from a diverse range of sources to meet the current and future demands of our business. To proactively attract diverse talent, we engage with universities, professional associations, and industry groups, and we leverage PAR’s robust employee value proposition, which includes our location-flexible philosophy, a collaborative global work environment, and a shared sense of purpose. Our focus on retaining talent is rooted in our employee-first strategy and includes investments in employee engagement, diverse talent sourcing tools, talent management systems, and development. We continue to make appropriate adjustments to ensure competitive compensation, including the implementation of a pay transparency initiative to ensure equity and fairness.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our website at www.partech.com “About Us - Investors, SEC Filings”,https://www.partech.com/investor-relations/ as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”)SEC. The SEC also maintains a website that contains our reports filed or furnished with the SEC. The address of the SEC website is https://www.sec.gov. The information posted on or accessible through our website is not incorporated into this Annual Report on Form 10-K.or in any other report or document we file with the SEC.
Our business is subject to certain risks and uncertainties, eachTable of whichContents
Item 1A. RISK FACTORS
The following risk factors could materially and adversely affecthave a material adverse effect on our business, financial condition, results of operations, cash flows and stock price, and could cause our future results to be materially different than we currently anticipate. These risk factors should be read in conjunction with "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes in "Part II, Item 8. Financial Statements and Supplementary Data” of this Annual Report.
Macroeconomic and Geopolitical Risks
Macroeconomic conditions and geopolitical events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Macroeconomic conditions, such as a U.S. or global recession or slowed economic growth, the rise in interest rates, inflation in costs of goods, services, and labor, and a decrease in consumer confidence and discretionary spending, could materially and adversely impact demand for our products and services, our ability to perform our contractual obligations, and successfully execute our operational and growth strategies.
•Cost of products and components. Certain areas of our business have and are expected to continue to experience supply chain challenges, including shortages, shipping delays, and increased costs due to price increases for products and components and in shipping and transportation costs; certain actions taken by us to mitigate the impact of these supply challenges, including increased pricing, could make us less competitive, result in reduced sales, loss of potential new customers, and cause damage to our reputation and relationships with our customers.
•Cost of labor and labor shortages. Our business could be adversely affected by increases in labor costs, including increased wages and costs of benefits, related to inflationary pressures and labor shortages. Increased labor costs could negatively impact our financial condition and results of operations due to direct labor costs, as well as the impact of increased labor costs on our customers’ and, in turn, its influence on our customers’ investment choices, including whether and when to invest in our products and services.
•Changes in consumer confidence. The restaurant/retail industries depend on consumer discretionary spending. Our customers are impacted by consumer confidence, which is influenced, in part, by general economic conditions, and effects consumer discretionary spending. A material decline in consumer confidence could result in consumers choosing to dine out less frequently or reduce the amount they spend on meals while dining out, which could negatively impact our customers’ sales and, in turn, result in reduced, delayed, or cancelled orders (bookings) or a decrease in active sites, revenue, or annual recurring revenue (ARR) from our subscription services, or an increase in customer churn; or reduced, delayed or cancelled hardware sales and installations.
The Russia-Ukraine war, increased tensions between China and Taiwan, and geopolitical tensions generally could lead to additional inflationary pressures and supply chain shortages and disruptions. In addition, unfavorable macroeconomic conditions and geopolitical events could adversely affect our integration partners and other third parties with whom we have relationships, which could adversely impact the growth of our unified experience service and product offerings and the execution of our operational and growth strategies.
The extent, duration, and consequences of the turbulent U.S. and global economic conditions and geopolitical tensions and events are uncertain and could exacerbate other risk factors that we identify in this Annual Report.
The continuing effects of COVID-19 remain highly uncertain and could be significant, and may have a material adverse effect on our business, financial condition, results of operations, and cash flows.
COVID-19 may affect our business, financial condition and results of operations in ways that are not presently known to us or that we do not currently consider significant. The ultimate impact continues to be unknown, and is dependent on factors and on future developments that are highly uncertain and cannot be predicted with confidence, including: the duration, scope and severity of COVID-19 variants and resurgences; actions taken by governments, businesses, customers and consumers in response to COVID-19, including closures, quarantines, and lockdowns; general economic uncertainty in global markets and financial market volatility; and global economic conditions and levels of economic growth. Among the factors or consequences of actions or events that could adversely impact our business, financial condition, results of operations, and cash flows are:
•reduced, delayed, or cancelled orders (bookings) or a decrease in active sites, revenue, or annual recurring revenue (ARR) from our subscription services, or an increase in customer churn;
•reduced, delayed, or cancelled hardware sales and installations;
•customer payment delays or defaults and bankruptcies;
•shortages, shipping delays, and increased costs for key products and components; and
•inherent challenges and risks associated with a remote working environment, including risks to our business continuity and IT systems and challenges to management’s ability to manage our business and execute our strategies.
Further, the worldwide uncertainty, volatility, and economic disruption created by COVID-19 could exacerbate other risk factors that we identify in this Annual Report.
Risks Associated with the Operation of our Business
We may not be able to achieve profitability, which could have a material adverse effect on our financial condition and the trading price of our common stock.stock.
Our yearly results
We have incurred operating losses in each of operations may fluctuate significantly duethe last several years, including for the year ended December 31, 2022. For us to achieve profitability, we must operate our business consistent with our capital allocation strategy, which focuses on the timingallocation of our capital to revenue recognitiongenerating activities, including the development of new products and new features for our ability to accurately forecast sales, including subscription software sales and renewals.
Our revenues and other results of operations have fluctuated from quarter to quarterexisting products, while controlling expenses. We cannot assure that we will be successful in achieving or sustaining profitability in the past and are likely to fluctuatefuture, among other things:
•our investments in the foreseeable future asdevelopment of new products and new features for our Restaurant/Retail segment continues its transformation from a hardwareexisting products, may require more investment than planned or our new products or new features may not achieve the expected commercial success and systems integrator to a software driven solutions provider, including offering and delivering our software as a service – SaaS. As revenues from our cloud offerings increase, we may experience volatility in our reported revenues and operating results due togenerate additional revenue or advance the differences in timing of revenue recognition between our SaaS offerings and our traditional on-premises software and hardware sales. The SaaS delivery model is subscription based; accordingly, SaaS revenues are generally recognized ratably over the life of the subscriptions. In contrast, revenue from our on-premises software and hardware sales is generally recognized in full at the time of delivery. Accordingly, the SaaS delivery model creates certain risks related to the timing of revenue recognition not associated with our traditional on-premises delivery model. A portiongrowth of our quarterly SaaS based revenue results from the recognition of deferred revenue relating to subscription agreements entered into during previous quarters. A decline in new or renewed subscriptions in any periodbusiness; and
•we may not be immediately reflected inable to control expenses at the levels planned due to internal and external factors, such as a recession or slowed economic growth, inflationary pressures, and geopolitical events, many of which are beyond our reportedcontrol.
If we fail to achieve and sustain profitability, our financial results for that period, but may result in a decline in our revenue in future quarters. If anycondition could be materially and adversely impacted and the market price of our assumptions about revenue from our SaaS business model prove incorrect, our actual results may vary materially from those anticipated, estimated or projected.common stock could decline.
Our products might experience coding, configuration, or configurationmanufacturing errors, which could damage our reputation, and deter current and potential customers from purchasing our products and materially and adversely affect our business, financial conditions, results of operations, and cash flows.
Although we testDespite testing by us, our products andor product updates prior to their release and throughout their intended life, our cloud- based and on-premises software and hardware products sometimesmay contain coding, configuration or configurationmanufacturing errors that can negatively impact their functionality, performance, operation, and integration capabilities. Codingcapabilities, and configuration errors can expose us to product liability, performance issues, warranty claims, and harm our reputation.
We are subject to cyber-attacks; we are subject to laws and regulations governing the protection of personally identifiable information, a cyber attack or a failure to comply with applicable privacy or data protection laws could harm our reputation, and have an adverse effect on our business.
We collect, process, transmit, and store (on our operating systems and those of third-party providers) customer transactional data and their customers’ and employees' personally identifiable information or other data. Our operating systems, and those of our third-party providers, could become subject to cyber-attacks, including using computer viruses, credential harvesting, dedicated denial of services attacks, malware, social engineering and other means for obtaining unauthorized access to or disrupting the operation of our systems and those of our third-party providers. Any failure or interruption of our operating systems or those of our third-party providers could result in operational disruptions or misappropriation of information, including interruption of systems availability or denial of access to and misuse of applications or information required by our customers to conduct their business. Any operational disruptions or misappropriation of information could harm our relationship with our customers and could have a material adverse effect on our business, financial condition, and results of operations.
Moreover, personally identifiable information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy, accuracy and security of personally identifiable information and personal data that is collected, processed, stored, maintained and transmitted in or from certain governing jurisdictions. Compliance with these laws and regulations, or changes in these laws and regulations, may be onerous and expensive and may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance. Our failure, and/or the failure by the various third party vendors and service providers with which we do business, to comply with applicable privacy and data protection laws and regulations, or any compromise of security that results in the unauthorized release of personally identifiable information or personal data could damage our reputation, discourage potential customers from using our products and services and/or result in fines and/or proceedings by governmental agencies and/or consumers, any one or all of which could adversely affect our business, financial condition, and results of operations.operations, and cash flows.
If our technical and maintenance support services are not satisfactory to our customers, they may not renew their servicesservice agreements or buy or license products from us in the future, products, which could materially and adversely affect our futurebusiness, results of operations, financial condition, and cash flows.flows.
Our business relies on our customers’ satisfaction with the technical and maintenance support services we provide to support our products.
If we fail to provide technical and maintenance support services that are responsive, satisfy our customers’ expectations, and timely resolve issues that theyour customers encounter with our products and services or if there is a perception that we do not maintain high quality technical and maintenance support, then theyour customers may not purchase or license additional products or services from us in the future.
If we are unable to recruitfuture, negatively affecting our revenues, which would have a material and retain qualified employees,adverse effect on our business, may be harmed.
Much of our future success depends on hiring qualified employees and the continued service of our senior management. Experienced personnel in the management technology industry are in high demand and competition for their talents is intense in the skill-set we require. Moreover, we believe that a critical contributor to our success is our corporate culture and values. We must successfully attract and retain qualified business, technical, product development and other employees that contribute to our business. Our failure to do so, could adversely affect our ability to innovate, to rapidly and effectively change and introduce new products, and to provide timely and effective installation, technical and maintenance support services, and our financial condition and results of operations, may suffer.and cash flows.
The price
For the year ended December 31, 2022, two customers primarily of our common stock may be negatively impacted by factors that are unrelated to our actual operating performance.
A number of factors can impact the trading price of our common stock, many of which are outside our control. Trading in our stock does not generally occur in high volumeshardware and the market for our stock cannot always be characterized as active. Thin trading in our stock may exaggerate fluctuations in the stock’s value, leading to price volatility in excess of that which would occur in a more active trading market. In addition, the stock market in general is subject to fluctuations that affect the share prices and trading volumes of many companies, and these broad market fluctuations could adversely affect the market price of our common stock. Factors that could affect our common stock price in the future include but are not necessarily limited to the following:
actual or anticipated fluctuations in our operating results and financial condition;
the performance and prospects of our major customers;
fluctuations in the trading volume of our common stock;
the concentrated beneficial ownership of our common stock by our founder and director, Dr. John W. Sammon;
actual or anticipated regulatory action against us;
the lack of earnings guidance and securities analysts following us;
investor perception of us and the industries in which we operate;
uncertainty regarding domestic and international political conditions, including tax policies; and
uncertainty regarding the prospects of domestic and foreign economies.
Two customersprofessional services, account for a significant portion of our revenues.revenues in the Restaurant/Retail segment. The loss of one of these customers,customer's purchases of hardware and professional services, or a significant reduction, delay, or
cancellation of purchases of hardware and professional services by one of these customers, wouldcould materially and adversely affect our business, results of operations, and cash flows.
Revenues from our Restaurant/Retail segment constituted 73.7% of our total consolidated revenues for the year ended December 31, 2022. Aggregate sales of primarily hardware and professional services to the two customers and their respective franchisees constituted 22.0% of our consolidated revenues for the year ended December 31, 2022. Significant reductions, delays or cancellations of hardware sales and professional services to one of these customers and its franchisees would reduce our revenue and operating income and could materially and adversely affect our business, results of operations, and cash flows.
There are risks related to our information technology systems, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
In 2022, we began the implementation of new enterprise performance management and equity administration systems and the process of combining our customer relationship management (CRM) and enterprise resource planning (ERP) systems onto single pre-existing CRM and ERP systems, all of which are intended to improve the efficiency and effectiveness of the Company’s operations by streamlining information flow. The implementation processes are complex and time-consuming and are subject to project delays, integration risks, data conversion risks, and risks associated with the efficient and effective adoption of these systems by employees and customers. These risks could result in operational inefficiencies that materially and adversely affect our business, financial condition, results of operations, and cash flows due to:
•unforeseen and unbudgeted costs;
•reduced, delayed, or cancelled orders (bookings) for our subscription services, a decrease in sites actively using our subscription services or a decrease in subscription service revenue or annualized recurring revenue (ARR) from our subscription services, or an increase in customer churn;
•reduced, delayed, or cancelled hardware sales and installations; and
•customer payment delays.
Furthermore, the implementation processes create change management risks that require effective internal controls to mitigate. Our failure to maintain an effective internal control environment could have a material adverse effect on our ability to accurately and timely report our financial results.
Issues with product and component availability or supplier performance may affect our ability to assemble, repair, and deliver our hardware products and perform related services, which could have a material adverse effect on our business, financial condition, and results of operations.
Our hardware business has been operating in a supply-constrained environment for products and components and expects to continue to experience shortages for the foreseeable future. We depend on third-party suppliers to deliver products and components in sufficient quantities, at reasonable prices, and timely so that we can timely deliver and install our hardware products and perform our Advanced Exchange, depot repair and field services. We have long-term or volume-based purchase agreements with some suppliers and we do have alternative sources identified in the event one or more of our suppliers are not able to perform or fully perform; however, we cannot assure that products and components will be available or in needed quantities and quality or at favorable or competitive prices. If we experience a problem (quantity, quality, or pricing) with one or more of our suppliers, and we are not able to cover or adequately cover from other sources, it could lead to a shortage of products and components and extended lead times for the delivery and installation of our hardware products or adversely affect our performance of Advanced Exchange, depot repair and field services, which could negatively impact our ability to satisfactorily and timely meet our contractual and customer obligations. This could result in reduced sales, breach or termination of contracts, and damage to our reputation and relationships with our customers, which could have a negative impact on our business, financial condition, and results of operations.
Revenues
Further, in some instances, we are dependent on sole-source suppliers for certain of our products and components, which may subject us to other significant risks, including higher prices, reduced control over product or component delivery schedules, or inadequate inventory.
Most of our suppliers of products and components are located internationally, including in South Korea, China, and Taiwan, and are susceptible to hostilities in those regions and increased trade barriers and tariffs, which could increase the cost or availability of certain products and components to us that we may not be able to offset. Furthermore, certain of our suppliers could decide to discontinue business with us or limit the allocation of products and components to us, which could result in our inability to fill our supply needs, jeopardizing our ability to fulfill our
contractual obligations, which could in turn, result in a decrease in sales and cash flows, contract penalties or terminations, and damage to customer relationships and our reputation.
While we have been able to obtain cost reductions and avoid unfavorable changes to terms with some of our suppliers, this is not the case with all of our suppliers, and we may not be successful in maintaining favorable terms or securing favorable terms from other suppliers in the future, which could negatively impact gross margins in our hardware sales and Advanced Exchange, depot repair, and field services. To offset increased costs, we have and may in the future increase the prices of our hardware products and installation, repair and field services. These price increases could make us less competitive, result in reduced sales, and loss of potential new customers, and cause damage to our reputation and relationships with our customers, which could have a negative impact on our business, financial condition, and results of operations.
Inventory management is also an area of focus as we balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of products and components inventory shortages and customer requirements. When facing product and component supply-related challenges, we have increased our inventory levels to meet customer expectations. Excess inventory levels have resulted in our having to write down inventory and, while we continue to be strategic in our inventory management planning, we may be required to write down inventory and/or reduce our prices in the future, which in turn could result in lower gross margins, negatively impacting our financial condition, results of operations and ability to achieve and sustain profitability.
Our information technology systems or those of our service providers could be subject to cyberattacks or other security incidents, which could result in operational disruptions, costly governmental investigations or litigation and other adverse consequences that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We experience cyber-attacks and other attempts to gain unauthorized access to our cloud applications and information technology systems on a regular basis, and we anticipate that we will continue to be subject to such attempts as cyber-attacks become increasingly more sophisticated, frequent, and difficult to predict and protect against. Despite our cybersecurity program and controls and other security measures designed and executed to detect and prevent unauthorized access and usage, our cloud applications, our servers and other information technology systems, and the cloud computing platforms on which our cloud applications and data are stored or processed, are vulnerable to cyber-attacks, including computer viruses, distributed denial of services attacks, malware, social engineering, and other means used to obtain unauthorized access by malicious actors, including nation-states and their agents. Such events have caused, and in the future could result in, the disruption of access to or the operation of our cloud applications and information technology systems or the servers, cloud computing platforms and cloud applications of our third-party providers.
Even though prior incidents did not have a material adverse effect on our systems and operations, there can be no assurance that the same will be the case in the future. In particular, the shift to widespread remote working conditions increases the opportunities available to cybersecurity criminals, and, as such, the risk of a cyber-attack potentially occurring is increased. A material failure or disruption of our cloud applications or information technology systems or those of our third-party providers could result in operational disruptions, unauthorized access or misappropriation of information, interruption of systems availability or denial of access to applications or information required by our customers to conduct their businesses, which in turn could result in costly governmental investigations and litigation, breach of contract claims, indemnity obligations, and reputational damage, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
We rely on third-party cloud and network infrastructure providers to deliver our subscription services, and any interruptions or delays in their services could harm our reputation and business.
Our ability to deliver our subscription services in a timely, secure, and reliable manner to our customers depends on the protection of the information we store with these third-party cloud providers, as well as the maintenance of third-party network infrastructures. Any interruptions or delays in these services, including those which may be caused by natural disasters or malicious actors, may result in substantial service disruptions, which could damage our reputation, cause us to lose existing customers, expose us to liability, or otherwise harm our business. We may also incur significant costs for using alternative providers or equipment to deliver our subscription services or taking other actions to mitigate any prolonged service disruptions. Any such alternatives could be more difficult or costly to replace than what we currently license, and integration of alternatives into our information technology system could require significant work and resources and delays.
Security defects and vulnerabilities could result in claims of liability against us, damage our reputation, or otherwise materially harm our business, financial condition, results of operations, and cash flows.
Our subscription services are inherently subject to security defects and vulnerabilities due to new technologies and as a result of new techniques developed by malicious actors. If the manner and timing of how we fix identified security defects and vulnerabilities to our subscription services is wrong or the manner and timing of how our third-party cloud providers or third-party network providers fix defects and vulnerabilities in their systems is wrong, or our customers do not implement or timely implement security updates or version upgrades provided by us or other third-party providers, then the information technology systems of our customers may be left vulnerable to delays or disruptions of access to or the operation of our subscription services or third-party providers’ software and systems. Unchecked security defects or vulnerabilities, whether caused by malicious actors or otherwise, may result in a material failure of our subscription services, substantial service disruptions, unauthorized access or denial of access or misappropriation of information, which in turn could result in breach of contract claims, indemnity obligations, governmental investigations and penalties, or reputational damage, any one of which could have a material and adverse effect on our business, financial condition, results of operations and cash flows.
A portion of our total assets consists of goodwill and identifiable intangible assets, which are
subject to a periodic impairment analysis. A significant impairment determination in any future period could have an adverse effect on our financial condition and results of operations, even without a significant loss of revenue or increase in cash expenses attributable to such period.
Our goodwill was approximately $486.8 million at December 31, 2022 and our intangibles were $111.1 million at December 31, 2022. Identifiable intangible assets are primarily a result of business acquisitions and internally developed capitalized software. We test our goodwill and identifiable intangible assets for impairment annually, or more frequently if an event occurs or circumstances change that would indicate possible impairment. We describe the impairment testing process and results of this testing more thoroughly in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.” Our estimates are subject to uncertainties. If we determine an impairment has occurred at any point in time, we will be required to reduce goodwill or identifiable intangible assets on our balance sheet, which could adversely impact our financial condition and results of operations. Additional information about our impairment testing is contained in "Note 1 – Summary of Significant Accounting Policies" of the notes to consolidated financial statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Annual Report.
If we are unable to attract and retain qualified employees, our business, financial condition, and results of operations may be materially and adversely harmed.
Our ability to successfully execute our operational plans and strategies and achieve our business and/or development objectives depends upon our ability to continue to attract and retain highly skilled employees. Because of the technical nature of our subscription services and the dynamic market in which our Restaurant/Retail segment constituted 74%competes, a failure to attract and 65%retain qualified personnel, particularly sales and marketing employees and subscription services employees, including product developers and engineers, could harm our ability to develop new products and new features, including within our unified experience service and product offerings, and/or delay or prevent us from achieving or sustaining profitability, and could materially harm our business, financial condition, and results of operations. Moreover, many positions in our Government segment require security clearances, which can be difficult and time-consuming to obtain, resulting in increased competition for such uniquely qualified individuals, and could significantly delay or prevent our Government segment from achieving its business and/or development objectives, and could materially harm our Government business.
Assertions by third parties of infringement or other violations by us of their intellectual property rights could result in significant costs and materially and adversely harm our business, financial conditions, results of operations and cash flows.
We believe that our products do not infringe the intellectual property rights of third parties; however, we cannot assure that third parties will not assert infringement or misappropriation claims against us with respect to our current or future products, or that any such assertions will not require us to enter into royalty arrangements or settlement agreements, or result in costly litigation or in our being unable to use certain intellectual property. Infringement assertions from third parties may involve patent holding companies or non-practicing entities or other patent owners who have no relevant product revenue, and therefore our viable and supportable defenses may provide little or no deterrence to these entities or patent owners in bringing intellectual property rights claims against us. Any of these events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Risks Associated with the Growth of our total consolidated revenues for 2017 and 2016, respectively; and, aggregate sales to our two largest customers, which include sales to these two customers’ respective franchisees - McDonald’s Corporation and Yum! Brands, Inc., which consists of the Kentucky Fried Chicken, Taco Bell and Pizza Hut brands – constituted 33% (McDonald’s) and 14% (Yum!) and 25% (McDonald’s) and 11% (Yum!) of total consolidated revenues for 2017 and 2016, respectively. There were no other customers that comprised greater than 10%Business
Acquisitions are an element of our total consolidated revenues during these years. A loss of McDonald’s or Yum! Brands as a customer, or a significant reduction, delay, or cancellation of orders by one of these customers would reduce our revenue and operating income and wouldgrowth strategy, which subjects us to risks commonly associated with acquisition transactions, which could materially and adversely affect our business, financial condition, results of operations, and cash flows.
Acquisitions are part of our growth strategy.We expect to continue to expand our business through acquisitions of complementary companies, products, and technologies. Acquisition transactions are subject to risks including:
•the diversion of our management’s time and focus from operating resultsPAR’s business;
•difficulties in obtaining required regulatory or stakeholder approvals;
•equity or debt financing transactions to finance an acquisition, including potential dilution from the issuance of our capital stock or the incurrence of additional debt or the failure to obtain satisfactory financing terms;
•the failure of our due diligence to identify significant issues associated with or arising out of an acquisition transaction, including issues related to the acquisition target (such as quality of product or technology and financial condition.reporting, accounting practices, and internal controls) or country specific laws and regulations;
•our inability to fully realize the expected financial or strategic benefits of an acquisition transaction including within the timeframe we expected;
•unforeseen costs, cost overruns, or unanticipated investments;
•failure to successfully integrate and further develop the acquired business, product, or technology;
•employee retention costs and expenses, including compensation and benefit costs and retention payments to executive officers and key employees;
•difficulties coordinating and managing geographically separate organizations, and with foreign acquisitions, the need to integrate operations across different cultures and languages and to comply with country specific laws and regulations;
•difficulties entering geographic markets or new market segments in which we have no or limited experience;
•cybersecurity and data security and protection related considerations, controls and exposures;
•inability to retain existing customers and suppliers on terms similar to, or better than, those in place with the acquired business;
•assumed and unknown liabilities; and
•failure to maintain our internal controls and systems.
If we fail to realize expected benefits or synergies from our acquisitions, such as cost-savings and earnings accretion, or if we decrease our liquidity by using a significant portion of our available cash to finance acquisitions, incur additional indebtedness or issue additional equity securities to finance acquisitions or incur or assume unanticipated liabilities, losses or costs associated with our acquisitions, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
We face extensive competition in our markets, and our failure to compete effectively could result in
price reductions and/or decreased demand for our products and services.services, which could materially and adversely affect our ability to achieve and sustain profitability and harm our business, financial condition, and results of operations.
The markets for our POS software, SureChecksubscription services and hardware products are characterized by rapid technological advances, intense competition among existing and emerging competitors, fluid and evolving industry standards, emerging business, distribution and support models,practices, disruptive technology developments, and frequent new product introductions.
While we think our POS software, SureCheckintroductions, and hardware products offer competitive, innovative features and functionality, any one of these factors could create downward pressure on pricing and gross margins and could adversely affect sales to our existing customers, as well as our ability to attract and sell to new customers. Our future success will dependdepends on our ability to anticipate and identify changes in customer needs and/or relevant technologies, quickly respond to customer requirements, and to rapidly and effectively respondintroduce new and improveinnovative products, features, and functions, while maintaining the integrity, quality, and competitiveness of our products, including changes in operating systems, application software and computer and communications hardware, with which our products interoperate or their performance and functionality are otherwise affected.existing products. If we fail to anticipate and/or identify changes in customer needs and/or emerging relevant technological trends,these efforts, our business, financial condition, and results of operations and financial conditions could suffer. Additionally, any delay in the development, marketing, or launch of new products or enhancements to our existing products could result in customer attrition or impedesuffer, and our ability to attract new customers, causing a decline in our revenue, earnings or stock priceachieve and weakening our competitive position.sustain profitability adversely impacted.
Our government contracting businessGovernment segment has been focused on niche offerings reflecting ourits expertise, primarily in the areas of Intelligence, Surveillance and Reconnaissance,ISR, systems engineering &and evaluation, satellite and telecommunications services, and management technology/systems services. Many of our competitors in the Government segment are larger and have substantially greater financial resources and broader capabilities in management technology. WeOur Government segment also competecompetes with smaller companies, many of which are designated by the government for preferential “set aside” treatment, that target particular segments of the government market and may have superior capabilities in a particular segment. These companies may be better positioned to obtain contracts through competitive proposals. Consequently, there are no assurances we will continue to win government contracts as a prime contractor or subcontractor, and our failure to do so would reduce our revenue and operating income and could adversely affect our business, operating results of operations, and financial condition.
The consequence
Risks Associated with our Convertible Senior Notes and Future Indebtedness
We may not have sufficient cash flow from our operating subsidiaries to pay our debt, which may
seriously harm our business.
As of December 31, 2022, we had $398.8 million of aggregate principal amount outstanding under the
4.500% Convertible Senior Notes due 2024 (the “2024 Notes”), 2.875% Convertible Senior Notes due 2026 (the “2026 Notes”), and the 1.50% Convertible Senior Notes due 2027 (the “2027 Notes”, and together with the 2024 Notes and 2026 Notes, the “Senior Notes”). Our ability to make scheduled payments or to refinance the Senior Notes 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, we may be required to adopt one or more alternatives to secure cash flow, such as selling assets or obtaining additional equity capital 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.
Our indebtedness under the Senior Notes, could, among other consequences:
•increase the impact of adverse changes in the U.S. and global markets - generally, and in our industries, on our business, financial condition and results of operations;
•restrict or limit our agility 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.
A conversion of the Senior Notes, or a fundamental change under the Senior Notes, if triggered,
may materially and adversely affect our financial condition and results of operations.
If a fundamental change occurs, holders of the Senior Notes may require us to repurchase all or a portion of their Senior Notes in cash. Furthermore, upon conversion of any Senior Notes, unless we elect to deliver solely shares of our common stock to settle the conversion (excluding cash in lieu of delivering fractional shares of our common stock), we must make cash payments in respect of the Senior Notes. Even if holders do not elect to convert their Senior Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Senior Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. Any of the cash payments described above could be significant, and if we fail to repurchase the Senior Notes when required or deliver the consideration due upon conversion, we will be in default under the indentures governing the Senior Notes. In such an event of default, holders of the Senior Notes with the defaulted indebtedness could elect to declare all principal, together with accrued and unpaid interest, due and payable, which would materially and adversely affect our financial condition and results of operations.
Risks Associated with the Regulation of our Business
Our failure to maintain adequate internal investigationcontrols could have a material adverse effect on our business, financial conditions, and could subjectresults of operations.
We commit significant financial and managerial resources to comply with our internal control over financial reporting requirements, but we have in the past identified and may in the future identify material weaknesses or deficiencies in our internal control over financial reporting that cause us to regulatory scrutiny.
In the third quarter of 2016, our Audit Committee commenced anincur incremental remediation costs to correct and maintain effective internal investigation into conduct at our China and Singapore offices to determine whether certain import/export and sales documentation activities were improper and in violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws, and certain of our policies. We voluntarily notified the SEC and the U.S. Department of Justice, or DOJ, of the internal investigation. If the SEC, DOJ, or other governmental agencies (including foreign governmental agencies) determine that violations of certain laws or regulations occurred, then we could be exposed to a broad range of civil and criminal sanctions, including injunctive relief, disgorgement, fines, penalties, modifications to our business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and
the retention of a monitor to oversee our future compliance. While we are currently unable to predict what actions the SEC, DOJ, or other governmental agencies (including foreign governmental agencies) might take, or what the likely outcome of any such actions might be, or estimate the range of reasonably possible fines or penalties, such actions, fines and/or penalties could be material, resulting in a material adverse effect on our business, prospects, reputation, financial condition, liquidity, results of operations or cash flows. Even if an inquiry or investigation does not result in an adverse determination, our business, prospects, reputation, financial condition, liquidity, results of operations or cash flows could still be adversely impacted.
If we fail to maintain appropriate internal controls, our business, results of operations and financial condition could be adversely affected.
Ascontrols. For example, as most recently disclosed in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017,2022, our management identified material weaknesses in our internal control over financial reporting. While we have remediedremediated these material weaknesses, if we fail to maintain appropriateeffective internal controls, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC could be adversely affected, weaffected. This could lose investor confidencecause our financial reporting to be unreliable and potentially result in the accuracy and completenessa restatement of our financial reports,statements, which would causein turn could lead to a loss of investor confidence and a decline in the trading price of our common stock, to decline, and we may becould subject us to investigation or sanctions by the SEC or DOJ.SEC. Any such consequence or other negative effect could have a material adverse effect on our business, financial condition, and results of operations.
Our international operations subject us to additional risks that can adversely affect our business, financial condition, and results of operations.
For the years ended December 31, 2022, 2021, and financial condition.
We are subject to risks associated with compliance with international laws2020, 5.5%, 7.3%, and regulations which may harm our business
Although only 8% for both 2017 and 20168.5%, respectively, of our total consolidated revenues were derived from sales outside of the U.S., we have operations across the globe, and ourUnited States. Our international operations subject us to a variety of risks and challenges, including:
•compliance by international employees with foreignaccounting practices generally accepted in the United States, including adherence to our accounting policies and internal controls;
•increased financial accounting and reporting burdens and complexities;
•government sanctions that may interfere with our ability to sell into certain countries;
•the burdens and costs of complying with a wide variety of laws and regulations,legal standards governing our foreign operations, including the FCPA,General Data Protection Regulation (“GDPR”) in the European Union, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act of 2010, import and export control laws, tariffs, trade barriers, economic sanctionsother anti-corruption regulations, and other regulatory or contractual limitations on our ability to sell our softwareproducts and hardwareservices in certain foreign markets, and the risks and costs of non-compliance with such laws and regulations, including fines, penalties, criminal sanctions against us, our officers or employees, prohibitions on the conduct of our business, and damage to our reputation;
•import and export license requirements, tariffs, trade agreements, taxes and other trade barriers and trade protection measures;
•increased risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of financial statements and irregularities in financial statements;
•reduced protection of our intellectual property rights in certain countries and practical difficulties and costs of enforcing those rights abroad;
•difficulties in managing international employees and exposure to different employment practices and labor laws;
•compliance with the laws of numerous foreign taxing jurisdictions and overlapping of different tax regimes;
uncertainty around a potential reverse or renegotiation of international trade agreements and partnerships under President Donald J. Trump’s administration;
•sales and customer service challenges associated with operating in different countries;
•difficulties in receiving payments from different geographies, including difficulties associated with currency fluctuations, payment cycles, transfer of funds, or collecting accounts receivable, especially in emerging markets;receivable; and
variations in economic or political conditions between each country or region;
economic uncertainty around the world and adverse effects arising from economic interdependencies across countries and regions; and
•increased management, travel, infrastructure, and legal compliance costs.costs associated with having international operations.
These risks and challenges could result in an increase in our cost of doing business internationally, including shortages and increased costs of products and components, shipping delays, longer payment cycles, increased taxes, and restrictions on the repatriation of funds to the United States. In addition, our business is exposed to health epidemics and pandemics (like the COVID-19 pandemic), war, terrorism, civil insurrection or social unrest, and other significant business interruptions that could lead to disruption, instability and volatility in the global
economy and negatively impact us, and our suppliers, partners, and customers. We have employees in India and Serbia, and third-party consultants in Germany, Philippines, Ukraine, and other locations outside of the U.S. that provide software development and support services. A sustained loss of the software development services provided by international employees and third-party consultants could negatively impact our software development efforts, adversely affect our competitive position, harm our reputation, impede our ability to achieve and maintain profitability, and negatively impact our business, financial condition, and results of operations.
Our failure to comply with data privacy or data protection laws and regulations could subject us to significant penalties and legal liability, harm our reputation or otherwise materially harm our business, financial condition, results of operations, and cash flows.
Global privacy legislation, enforcement, and policy activity are rapidly expanding and creating a complex data privacy and data protection compliance environment and the potential for significant liability in the event of a data breach. We are subject to data privacy and data protection laws and regulations in the United States and abroad, some of which place restrictions on our ability to process personal data across our business. For example,
•the European Union’s General Data Protection Regulation (GDPR) imposes requirements relating to the purpose for the processing of personal data, the information provided to individuals regarding the processing of their personal data, the security, confidentiality, minimization, and retention of personal data, notifications in the event of personal data breaches and the use of third-party processors. The GDPR imposes substantial fines for breaches of data protection requirements, which can be up to four percent of annual worldwide revenues or 20 million Euros, whichever is greater.
•various state data privacy and data protection laws, including the California Consumer Privacy Act (CCPA), as amended by the California Privacy Rights Act (CPRA), the Illinois Biometric Information Privacy Act (BIPA), the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Utah Consumer Privacy Act, Connecticut’s Act Concerning Personal Information Privacy and Online Monitoring, the New York SHIELD Act, and the regulations implementing these laws, establish data privacy rights to their respective residents (including in California, where residents have a private right of action for violations of the CCPA and CPRA) and regulate how we may collect, use, process and store personal data.
These laws and regulations are evolving and the application, interpretation, and enforcement of these laws and regulations are often uncertain; nevertheless, our failure or perceived failure to adequately address data privacy and data protection concerns, or to comply with applicable laws and regulations could damage our reputation, discourage current or potential customers from using our products and services, and result in costly governmental investigations, enforcement actions or litigations, breach of contract claims, indemnity obligations, additional insurance costs, complaints by private individuals, and/or the payment of penalties to consumers or governmental entities, any one or all of which could have a material and adverse effect our business, financial condition, results of operations and cash flows.
Risks Associated with our Government Segment
A portion of our Government segment revenue is derived from U.S. governmentGovernment contracts, which contain provisions unique to public sector customers, including the U.S. government’sGovernment’s right to modify or terminate these contracts at any time.
In 2017 and 2016 we derived 26% and 35%, respectively, of our
For the year ended December 31, 2022, total consolidated revenues of 26% were derived from contracts to provide technical expertise to government organizations and prime contractors. In any given year, the majority of our government contracting activity is associated with the U.S. Department of Defense.DoD. Contracts with the U.S. governmentGovernment typically provide that such contracts are terminable, in whole or in part, at the convenience of the U.S. government.Government. If the U.S. governmentGovernment terminates a contract on this basis, we would be entitled to receive payment for our allowable costs and, in general, a proportionate share of our fee or profit for work actually performed. Most U.S. governmentGovernment contracts are also subject to modification or termination in the event of changes in funding. As such, we may perform work prior to formal authorization, or the contract prices may be adjusted for changes in scope of work. Termination or modification of a substantial number of our U.S. governmentGovernment contracts could have a material adverse effect on our business, financial condition, and results of operations.
We perform work for various U.S. governmentGovernment agencies and departments primarily pursuant to fixed-price, cost-plus fixed fee and time-and-material prime contracts and subcontracts. Approximately 55%The majority of revenues derived from government contracts for the year
ended December 31, 2017, was2022 were based on fixed-price or cost-plus fixed fee contracts, with most of the remaining balance derived from time and material contracts and the balance (approximately 45%a small portion derived from commercialized product licensing.
While fixed-price contracts allow us to benefit from cost savings, they also expose us to the risk of cost overruns. If the initial estimates we use for calculating the contract price are incorrect, we can incur losses on those contracts. In addition, some of our governmental contracts have provisions relating to cost controls, and audit rights and if we fail to meet the terms specified in those contracts, then we may not realize the full benefit of the contracts. Lower earnings caused by cost overruns would have an adverse effect on our financial results.
Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses. Under cost-plus fixed fee contracts, we are reimbursed for allowable costs and paid a fixed fee. If our costs under either of these types of contracts were to exceed the contract ceiling, or are not allowable under the provisions of the contract or applicable regulations, we may not be reimbursed for 100% of our associated costs. Our inability to control our costs under either a time-and-materialstime and materials contract or a cost-plus fixed fee contract could have a material adverse effect on our financial condition and operating results.results of operations. Cost over-runsoverruns also may adversely affect our ability to sustain existing programs and obtain future contract awards.
A portion
Our Government segment could be adversely affected by changes in budgetary priorities of our total assets consists of goodwillthe U.S. Government, failure to approve U.S. Government budgets on a timely basis, or delays in contract awards and identifiableother procurement activities.
Our Government segment depends upon continued U.S. Government expenditures on defense, intelligence, homeland security, and intangible assets, which are subject to a periodic impairment analysis,other programs that we support. Changes in U.S. Government budgetary priorities, a significant impairment determinationdecline in any future periodgovernment expenditures, or a shift of expenditures away from programs that we support could have ana material adverse effect on our financial condition and results of operations.
Additionally, in years when Congress does not complete its budget process before the end of its fiscal year (September 30) with respect to programs we support, government operations are funded through a continuing resolution (“CR”) that temporarily funds federal agencies. Recent CRs have generally provided funding at the levels provided in the previous fiscal year. When the U.S. Government operates under a CR, it may delay funding we expect to receive from customers on work we are already performing and will likely result in new initiatives being delayed or in some cases canceled, which could have a material adverse effect on our financial condition, results of operations, even withoutand liquidity.
Failure to comply with a variety of complex procurement regulations could result in liability for various penalties or sanctions including termination of U.S. Government contracts, disqualification from bidding on future U.S. Government contracts, and suspension or debarment from U.S. Government contracting.
Our Government segment is subject to various laws and regulations relating to the formation, administration, and performance of U.S. Government contracts, which affect how we do business with our customers and increase our performance costs. Among the most significant laws and regulations are:
•the Federal Acquisition Regulation (“FAR”) and agency regulations supplemental to the FAR, which comprehensively regulate the formation, administration, and performance of U.S. Government contracts;
•the Federal Risk and Authorization Management Program ("FedRAMP") is a government-wide program that provides a standardized approach to security assessment, authorization, and continuous monitoring for cloud products and services.
•the Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations;
•the Cost Accounting Standards and Cost Principles, which impose accounting requirements that govern our right to reimbursement under certain cost-based U.S. Government contracts;
•compliance with the FCPA or U.S. export control regulations, which apply when we engage in international work; and
•laws, regulations, and executive orders restricting the use and dissemination of information classified for national security purposes and the export of certain products and technical data.
Failure to comply with these or other laws and regulations could result in contract termination, loss of security clearances, suspension, or debarment from contracting with the U.S. Government, civil and/or criminal fines, and penalties. Any such consequences could have a material adverse effect on our revenue or increasereputation, financial condition, results of operations, and liquidity.
We cannot guarantee that our Government segment's estimated contract backlog will result in cash expenses attributable to such period.actual revenue.
Our goodwill was approximately $11.1 millionbacklog consists of funded backlog, which is based on amounts actually committed by a customer for payment for goods and services, and unfunded backlog, which is based upon contract revenue we have the potential to earn over the remaining life of the contracts. Our backlog may not result in actual revenue in any particular period, or at December 31, 2017all, which could cause our actual results to differ materially and December 31, 2016,adversely from those anticipated. There is a higher degree of risk with respect to unfunded backlog. The actual receipt and timing of any revenue is subject to various contingencies, many of which are beyond our intangibles were $12.1 millioncontrol. The actual receipt of revenue on contracts included in backlog may never occur or may change because a program schedule could change; the program could be canceled; a contract could be reduced, modified, or terminated early; or an option that we had assumed could not be exercised. Further, while many of our U.S. Government contracts require performance over a period of years, Congress often appropriates funds for these contracts for only one year at December 31, 2017a time. Consequently, our contracts typically are only partially funded at any point during their term, and $11.0 million at December 31, 2016. Identifiable intangible assets were, primarilyall or some of the work intended to be performed under the contracts will remain unfunded pending subsequent Congressional appropriations and the obligation of additional funds to the contract by the procuring agency. Our estimates are based on our experience under such contracts and similar contracts. However, there can be no assurances that all, or any, of such estimated contract backlog will be recognized as revenue.
The U.S. Government may revise its procurement or other practices in a manner adverse to our Government segment.
The U.S. Government may revise its procurement practices or adopt new contracting rules and regulations, such as cost accounting standards. It could also adopt new contracting methods relating to General Services Administration contracts, Government-wide Acquisition Contracts, or other multi-award contracts, or adopt new standards for contract awards intended to achieve certain social or other policy objectives. In addition, the U.S. Government may face restrictions from new legislation or regulations, as well as pressure from U.S. Government employees and their unions, on the nature and amount of services the U.S. Government may obtain from private contractors. These changes could impair our ability to obtain new contracts or contracts under which we currently perform when those contracts are up for recompete. Any new contracting methods could be costly or administratively difficult for us to implement, and as a result, of business acquisitions and internally developed capitalized software. We testcould harm our goodwill and identifiable intangible assets for impairment annually, or more frequently if an event occurs or circumstances change that would indicate possible impairment. We describe the impairment testing processfinancial condition and results of this testing more thoroughlyoperations. A realignment of funds with changed U.S. Government priorities, including “insourcing” of previously contracted support services, and the realignment of funds to other non-defense-related programs may reduce the amount of funds available to defense-related and other programs in “Item 7. Management’s Discussionour core service areas.
Our Government segment is subject to reviews, audits, and Analysiscost adjustments by the U.S. Government, which, if unfavorably resolved to us, could adversely affect our profitability, cash flows, or growth prospects.
U.S. Government agencies, including the Defense Contract Audit Agency ("DCAA") and the Defense Contract Management Agency ("DCMA"), routinely audit and investigate government contracts and government contractors’ administrative processes and systems. These agencies review our performance on contracts, pricing practices, cost structure, and compliance with applicable laws, regulations, and standards. They also evaluate the adequacy of Financial Conditioninternal controls over our business systems, including our purchasing, accounting, estimating, earned value management, and Resultsgovernment property systems. Any costs found to be improperly allocated or assigned to contracts will not be reimbursed, and any such costs already reimbursed must be refunded and certain penalties may be imposed. Moreover, if any of Operations - Critical Accounting Policiesthe administrative processes and Estimates.”systems are found not to comply with requirements, we may be subjected to increased government scrutiny and approval that could delay or otherwise adversely affect our ability to compete for or perform contracts or collect our revenue in a timely manner. Therefore, an unfavorable outcome of an audit by the DCAA or another U.S. Government agency could cause actual results to differ materially and adversely from those anticipated. If a government investigation uncovers improper or illegal activities, we determine an impairment has occurred at any pointmay be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeitures of profits, suspension of payments, fines, and suspension or debarment from doing business
with the federal government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Each of these results could have a material adverse effect on our business, financial condition, results of operations, and liquidity.
Risks Associated with Ownership of our Common Stock
We have not paid dividends in time,the past and we do not anticipate paying dividends in the foreseeable future.
We have never paid dividends on our common stock and have no plans to pay dividends on our common stock in the foreseeable future. Any declaration and payment of future dividends to holders of our common stock will be requiredat the sole discretion of our board of directors and will depend on many factors, including our financial condition, results of operations, capital requirements, level of indebtedness, statutory and contractual restrictions applying to reduce goodwillthe payment of dividends and other considerations that our board of directors deems relevant. Until such a time that we pay a dividend, our investors must rely on sales of their PAR common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Future sales of our common stock or identifiable intangible assetsother securities could depress the price of our common stock
and could result in dilution to our existing shareholders.
We have and likely will in the future issue and sell shares of common stock or other securities to raise capital or issue securities for other purposes, including in connection with acquisitions of other businesses or other strategic transactions. Transactions involving newly issued common stock or other securities convertible into our common stock, if converted, could result in dilution, possibly substantial, to our existing shareholders.
The trading price of our common stock has experienced significant price and volume volatility and is expected to continue to experience significant volatility in the foreseeable future. This volatility may impair our ability to finance strategic transactions using our common stock, and could result in losses for our shareholders.
A number of factors can impact the trading price of our common stock, many of which are outside our control. Factors that could affect the price of PAR common stock include but are not necessarily limited to the following:
•uncertainties, volatility, and economic disruption created by macroeconomic and geopolitical events and by the COVID-19 pandemic on our balance sheet. Additional informationbusiness, our customers, the industries in which we operate, and the global economy;
•actual or anticipated fluctuations in our financial condition and results of operations;
•the performance and prospects of major customers;
•our quarterly or annual financial results or those of other companies operating in our industries;
•the lack of earnings guidance;
•investor perception of us and the industries in which we operate;
•the contents of published research reports about us or the industries in which we operate or the failure of securities analysts to cover our impairment testing is containedcommon stock;
•any increased indebtedness we may incur in Note 1 – Summarythe future;
•actions by institutional shareholders;
•operating and stock performance of Significant Accounting Policies -other companies that investors deem comparable to us (and changes in their market valuations) and overall performance of the Notesequity markets;
•announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, or capital commitments; and
•litigation and governmental investigations.
Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, and the federal district courts as the exclusive forum for Securities Act claims, which could limit our shareholders’ ability to Consolidated Financial Statements (Part II, Item 8obtain what some shareholders believe to be a favorable judicial forum for disputes with us or our directors, officers, other employees, or agents.
Our bylaws provide that unless we select or consent in writing to the selection of this Annual Report).
| |
Item 1B.
| Unresolved Staff Comments.
|
We doan alternative forum, all complaints asserting any internal corporate claims, which are claims (including claims brought on PAR’s behalf): (i) that are based upon a violation of a duty (including any fiduciary duty) owed by a current or former director, officer, employee, or shareholder in such capacity; or (ii) as to which the Delaware General Corporation Law (DGCL) confers jurisdiction upon the Court of Chancery, shall, to the fullest extent permitted by law and subject to applicable jurisdictional requirements, be made in the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have, or declines to accept, subject matter jurisdiction, another state court or a federal court located within the State of Delaware). Further, unless we select or consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any unresolved comments fromcomplaint asserting a cause of action arising under the SEC staff.Securities Act. The choice-of-forum provision in our bylaws does not apply to suits brought to enforce any liability or duty created by the Exchange Act, and shareholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring or holding any interest in our common stock shall be deemed to have notice of and to have consented to the forum selection provisions described in our bylaws. These choice-of-forum provisions may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and such persons. It is possible that a court may find these provisions of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, in which case we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially adversely affect our business, financial condition, or results of operations and result in a diversion of the time and resources of our management and board of directors.
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Item 2.Certain provisions of our certificate of incorporation and bylaws and Delaware law may discourage a takeover of our company.
| Properties.
|
Our corporate headquarters iscertificate of incorporation and bylaws contain certain provisions that may discourage, delay, or prevent a change in our management or control over us. For example, our certificate of incorporation and bylaws, collectively:
•authorize the issuance of undesignated preferred stock that could be issued by our board of directors to thwart a takeover attempt;
•provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office;
•permits only the board of directors, or the chairman of the board of directors or the president pursuant to a resolution approved by a majority of the then authorized number of our directors to call special meetings of shareholders;
•prohibit shareholder action by written consent except by unanimous written consent of all shareholders; and
•establish advance notice requirements for nominations of candidates for elections as directors or to bring other business before an annual meeting of our shareholders.
These provisions could discourage potential acquisition proposals and could delay or prevent a change in
control, even though a majority of shareholders may consider such proposal, if effected, desirable. Such provisions could also make it more difficult for third parties to remove and replace the members of our board of directors. Moreover, these provisions may inhibit increases in the market price of our common stock that may result from takeover attempts or speculation.
Item 1B. UNRESOLVED STAFF COMMENTS
None
Item 2. PROPERTIES
Our principal executive offices are located in 200,600 square feet of owned office space at PAR Technology Park, 8383 Seneca Turnpike, New Hartford, New York. We own our corporate headquarters – bothYork, from which we operate out of 180,900 square feet and lease the building and land. We lease all our other properties for varying terms. We believe our existing properties, both owned and leased, are in good condition and are suitable for the conductremaining space to third parties. Our Restaurant/Retail segment also uses this space to assemble certain of our businesshardware products and for research and development, sales, and professional services. The Government segment's principal offices were located in 31,900 square feet of leased office space at 421 Ridge Street, Rome, New York, from which it conducted sales, administrative, and research and development activities. In February 2023, the foreseeable future.
The following table sets forth the location, the operating segment (if applicable) that usesGovernment segment's principal offices moved to 13,324 square feet of leased office space at 160 Brooks Road, Second Floor, from which it conducts sales, administrative, and the use of each of our principal properties,research and each properties’ approximate square footage:
|
| | | |
Location | Operating Segment | Use | Approximate Square Footage |
New Hartford, NY | Restaurant / Retail | Corporate headquarters, assembly, R&D, sales, service, and computing facilities | 180,200¬
|
Boca Raton, FL | Restaurant / Retail | R&D | 11,470 |
Markham, Ontario | Restaurant / Retail | R&D | 11,100 |
Boulder, CO | Restaurant / Retail | Service | 10,700 |
Rome, NY | Government | R&D, sales | 30,800 |
San Diego, CA | Restaurant / Retail | R&D, sales, administration | 9,500 |
¬The square footage in the table above does not include Company owned space leased to third parties.
development activities. In addition to thethese principal properties, identified above, we have leasehold interests in small office spaces located in: Dubai,in Australia, Canada, India, United Arab Emirates; Shanghai, China; Singapore; Staines, United Kingdom;Emirates, England, Switzerland, Serbia, Spain, Brazil, and Sydney, Australia (sales and service).
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Item 3.
| Legal Proceedings.
|
other locations within the U.S. We are not currently operating in a partysubstantially remote work environment and believe our current facilities are adequate for our present needs. If and when our property needs change, we believe the capacity of our current facilities and ability to any material litigation.obtain suitable additional facilities on commercially reasonable terms will satisfy our business requirements.
See Note 10
Item 3. LEGAL PROCEEDINGS
The information set forth in "Note 13 – Contingencies -Commitments and Contingencies" of the Notesnotes to Consolidatedconsolidated financial statements in "Part II, Item 8. Financial Statements (Part II, Item 8and Supplementary Data" of this Annual Report) for information regarding legal proceedings arising in the ordinary courseReport 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 our business, and a discussion about the internal investigation into conduct at our China and Singapore offices, and the civil and criminal sanctions available to the SEC, DOJ, and other governmental agencies (including foreign governmental agencies).operations.
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Item 4: | Mine Safety Disclosures |
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
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Item 5.Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Trading Market
| Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|
Our common stock is listed on the New York Stock Exchange under the symbol “PAR”. According to the records of our transfer agent, as of March 13, 2018,February 27, 2023, there were 364540 holders of record of our common stock. A substantially greaterThe actual number of holders of our common stock is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in "street name" or by beneficial holders, whose shares of common stock of record are heldstreet name by brokers, banks, and other financial institutions.The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported by the New York Stock Exchange:nominees.
|
| | | | | | | |
| | 2017 | | 2016 |
| | High | | Low | | High | | Low |
| First Quarter | $7.34 | | $5.48 | | $6.63 | | $5.04 |
| Second Quarter | 9.19 | | 7.08 | | 6.86 | | 4.35 |
| Third Quarter | 11.09 | | 8.30 | | 5.52 | | 4.83 |
| Fourth Quarter | 11.79 | | 7.31 | | 5.58 | | 4.71 |
We have never declared or paid cash dividends on our common stock. We currently intend to retain any future earnings for use in the operation of our business and do not intend to declare or pay any cash dividends in the foreseeable future. Any determinationdeclaration and payment of future dividends to pay dividends onholders of our common stock will be at the sole discretion of our board of directors subject to applicable laws, and will depend on many factors, including our financial condition, results of operations, capital requirements, general business conditionslevel of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other factorsconsiderations that our board of directors considers relevant, including any restrictive covenants indeems relevant.
Issuer Purchases of Equity Securities
Under our credit facility that restrict the payment of dividends under certain circumstances.
Recipients of restricted stock awards have paid us cash equal to the par value of each share awarded. If the vesting requirements are not satisfied, we repurchase the forfeited shares at par value. In addition,equity incentive plan, employees may elect to have us withhold shares withheld to satisfy minimum statutory federal, state, and local tax withholding obligations arising from the vesting of their restricted stock.awards. When we withhold these shares, we are required to remit to the appropriate taxing authorities the market price of the sharesawards withheld, which could be deemed a purchase of shares by us on the date of withholding. For the three months ended December 31, 2022, there were 24,100 shares withheld.
The table below presents information regarding the Company’s purchases of its equity securities during the periods indicated.
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Withheld | | Average Price Paid Per Share |
| October 1, 2022 - October 31, 2022 | | 41 | | | $ | 27.47 | |
| November 1, 2022 - November 30, 2022 | | 4,753 | | | $ | 24.37 | |
| December 1, 2022 - December 31, 2022 | | 19,306 | | | $ | 24.80 | |
| Total | | 24,100 | | | |
Performance Graph
The performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act.
The performance graph shows the cumulative total shareholder return on our common stock compared to the cumulative total shareholder return on the Russell 2000 index and the Russell 2000 Technology index, a published peer industry group of 204 companies on an annual basis.
The performance graph assumes the investment of $100 on December 31, 2017 2,294 shares were purchased atin our common stock, the Russell 2000 and the Russell 2000 Technology indices. The cumulative total shareholder returns shown below represent the value that such investments would have had on December 31, 2022 (assuming reinvestment of all dividends). Historical stock price performance should not be relied upon as an averageindication of future stock price of $9.37 per share.performance.
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Item 6. | Selected Financial Data.
Item 6. RESERVED
|
Not Required.applicable
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Item 7.
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| 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 Consolidatedaudited consolidated financial statements and the notes thereto included under "Part II, Item 8. Financial Statements and the Notes thereto included under Part II, Item 8Supplementary Data" of this Annual Report. See also, “Forward-Looking Statements” in this 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 our "Forward-looking statements" disclosure and "Part I, Item 1A. Risk Factors" above.
Overview
PAR’s managementWe, through our wholly owned subsidiaries - ParTech, Inc. and PAR Government Systems Corporation - operate in two distinct reporting segments, Restaurant/Retail and Government.
Our Restaurant/Retail segment provides leading technology platforms to the restaurant and retail industries, with more than 500 customers and more than 70,000 active restaurant locations. We provide enterprise restaurants, franchisees, and other restaurant outlets in the three major restaurant categories - quick service, fast casual, and table service - with operational efficiencies by offering them a more unified experience through our comprehensive suite of subscription services, hardware, and integrated professional services. Our subscription services, which consist of our SaaS solutions, related software support, and transaction-based payment processing, are grouped into three categories: Guest Engagement, which includes Punchh for customer loyalty and engagement and MENU for omnichannel digital ordering and delivery; Operator Solutions, which includes Brink POS for front-of-house and PAR Pay and PAR Payment Services for payments; and Back Office, which includes Data Central. Our solutions are extensible and built on open application programming interfaces ("API") that retain flexibility and the market optionality of an open platform. More than 400 partners leverage our open platform to extend the reach and capabilities of their own solutions for the Restaurant/Retail segment features cloud-based and on-premise software applications, hardware platforms, and related installation, technical, and maintenance support services tailored for the needs of restaurants and retailers. leading brands in our industry.
Our Government segment provides technical expertise in contractand development of advanced systems and software solutions for the U.S. Department of Defense and other federal agencies, as well as management technology and communications support services toDoD, the U.S. Department of Defense.
Our products sold in the Restaurant/Retail segment are utilized in a wide range of applications by customers worldwide. We face competition across all categories in the Restaurant/Retail segment in which we compete based on product design, innovative features and functionality, quality and reliability, price, customer service, and delivery capability. Our strategy is to provide complete integrated management technology solutions, supported by industry leading customer service. Our research and development efforts are focused on timely identifying changes in customer needs and/or relevant technologies, to rapidly and effectively develop innovative new products and enhancements to our existing products that meet and exceed customer requirements.
Our strategy is to expand our Restaurant/Retail business by continuing to invest in our existing products - Brink and SureCheck - including the development of enhancements to our existing software applications and hardware platforms and the development of new and innovative cloud based software applications. To support the growth of our products, we continue to expand our direct sales force and third-party channel partners.
Currently, PAR’s primary market is the quick serve restaurant category and hardware sales to tier 1 customers in that category. Consistent with our strategy to expand our product offerings beyond the restaurant/retail markets, we continue to focus on growing and expanding our software offerings, including our cloud software as a service (SaaS) and related hardware and support services. As we implement our strategy, we continuously monitor the trends in the markets within which we currently operate and the markets in which we intend to operate.
The strategy for our PAR Government segment is to build on our sustained outstanding performance of existing service contracts, coupled with investments in enhanced business development capabilities. We believe we are well positioned to realize continued renewals of expiring contracts and extensions of existing contracts, and secure service and solution contracts in expanded areas within the U.S. Department of Defenseintelligence community, and other federal agencies. We believe our highly relevant technical competencies, intellectual property,Additionally, we provide support services for satellite command and investmentscontrol, communication, and IT mission systems at several DoD facilities worldwide. The Government segment has three principal contract offerings: Intelligence, Surveillance, and Reconnaissance solutions ("ISR Solutions"), mission systems operations and maintenance ("Mission Systems"), and licensed software products for use in new technologies provide opportunitiesanalytic and operational environments that leverage geospatial intelligence data ("Commercial Software").
2022 Performance Highlights
•Annual Recurring Revenues ("ARR") grew to offer systems integration, products, and highly-specialized service solutions to the U.S. Department of Defense and other federal agencies. The general uncertainty in U.S. defense total workforce policies (military, civilian, and contract), procurement cycles, and spending levels for the next several years are factors we monitor as we develop and implement our business strategy for the PAR Government segment.
Results of Operations for the Years Ended December 31, 2017 and December 31, 2016
We reported revenues of $232.6$111.4 million for the year ended December 31, 2017, up 1.3%- a 26.4% increase from $229.7$88.2 million reported for the year ended December 31, 2016. Revenues2021.
•Active sites expansion
◦Guest Engagement active sites expanded to 69.9 thousand - a 24.6% increase from ourthe 56.1 thousand reported for the year ended December 31, 2021.
◦Operator Solutions active sites expanded to 19.5 thousand - a 22.6% increase from the 15.9 thousand reported for the year ended December 31, 2021.
◦Back Office active sites expanded to 7.0 thousand - an 11.1% increase from the 6.3 thousand reported for the year ended December 31, 2021.
•Subscription service gross margin grew to 51.4% for the year ended December 31, 2022 - a 13.1% increase from 38.3% for the year ended December 31, 2021. Adjusted subscription service gross margin grew to 73% for the year ended December 31, 2022 - a 7% increase from 66% for the year ended December 31, 2021. Refer to "Gross Margin" discussion below for the reconciliation between subscription service gross margin and adjusted subscription service gross margin, a non-GAAP financial measure.
Refer to "Key Performance Indicators and Non-GAAP Financial Measures" below for important information on key performance indicators and non-GAAP financial measures, including ARR, active sites, and adjusted subscription service gross margin, used by us to evaluate Restaurant/Retail segment performance.
RESULTS OF OPERATIONS
Results of operations for the years ended December 31, 2022, 2021, and 2020 were $171.6as follows:
Consolidated Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Net revenues: | | | | | | | | | | | | | | | |
| Hardware | $ | 114,410 | | | $ | 105,014 | | | $ | 73,228 | | | 32.2 | % | | 37.1 | % | | 34.3 | % | | 8.9 | % | | 43.4 | % |
| Subscription service | 97,499 | | | 62,649 | | | 31,370 | | | 27.4 | % | | 22.1 | % | | 14.7 | % | | 55.6 | % | | 99.7 | % |
| Professional service | 50,438 | | | 42,688 | | | 37,914 | | | 14.2 | % | | 15.1 | % | | 17.7 | % | | 18.2 | % | | 12.6 | % |
| Contract | 93,448 | | | 72,525 | | | 71,274 | | | 26.3 | % | | 25.6 | % | | 33.3 | % | | 28.8 | % | | 1.8 | % |
| Total revenues, net | $ | 355,795 | | | $ | 282,876 | | | $ | 213,786 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 25.8 | % | | 32.3 | % |
| | | | | | | | | | | | | | | |
| Gross margin | | | | | | | | | | | | | | | |
| Hardware | 22,186 | | | 24,173 | | | 14,341 | | | 6.2 | % | | 8.5 | % | | 6.7 | % | | (8.2) | % | | 68.6 | % |
| Subscription service | 50,075 | | | 23,998 | | | 10,458 | | | 14.1 | % | | 8.5 | % | | 4.9 | % | | 108.7 | % | | 129.5 | % |
| Professional service | 9,456 | | | 8,113 | | | 8,893 | | | 2.7 | % | | 2.9 | % | | 4.2 | % | | 16.6 | % | | (8.8) | % |
| Contract | 7,576 | | | 5,837 | | | 5,633 | | | 2.1 | % | | 2.1 | % | | 2.6 | % | | 29.8 | % | | 3.6 | % |
| Total gross margin | 89,293 | | | 62,121 | | | 39,325 | | | 25.1 | % | | 22.0 | % | | 18.4 | % | | 43.7 | % | | 58.0 | % |
| | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | |
| Selling, general and administrative | 101,219 | | | 83,998 | | | 46,196 | | | 28.4 | % | | 29.7 | % | | 21.6 | % | | 20.5 | % | | 81.8 | % |
| Research and development | 48,643 | | | 34,579 | | | 19,252 | | | 13.7 | % | | 12.2 | % | | 9.0 | % | | 40.7 | % | | 79.6 | % |
| Amortization of identifiable intangible assets | 1,863 | | | 1,825 | | | 1,163 | | | 0.5 | % | | 0.6 | % | | 0.5 | % | | 2.1 | % | | 56.9 | % |
| Adjustment to contingent consideration liability | (4,400) | | | — | | | (3,340) | | | (1.2) | % | | — | % | | (1.6) | % | | N/A | | (100.0) | % |
| Gain on insurance proceeds | — | | | (4,400) | | | — | | | — | % | | (1.6) | % | | — | % | | (100.0) | % | | N/A |
| Total operating expenses | 147,325 | | | 116,002 | | | 63,271 | | | 41.4 | % | | 41.0 | % | | 29.6 | % | | 27.0 | % | | 83.3 | % |
| | | | | | | | | | | | | | | |
| Operating loss | (58,032) | | | (53,881) | | | (23,946) | | | (16.3) | % | | (19.0) | % | | (11.2) | % | | 7.7 | % | | 125.0 | % |
| Other (expense) income, net | (1,224) | | | (1,279) | | | 808 | | | (0.3) | % | | (0.5) | % | | 0.4 | % | | (4.3) | % | | <(200)% |
| Loss on extinguishment of debt | — | | | (11,916) | | | (8,123) | | | — | % | | (4.2) | % | | (3.8) | % | | (100.0) | % | | 46.7 | % |
| Interest expense, net | (8,811) | | | (18,147) | | | (8,287) | | | (2.5) | % | | (6.4) | % | | (3.9) | % | | (51.4) | % | | 119.0 | % |
| Loss before benefit from income taxes | (68,067) | | | (85,223) | | | (39,548) | | | (19.1) | % | | (30.1) | % | | (18.5) | % | | (20.1) | % | | 115.5 | % |
| (Provision for) benefit from income taxes | (1,252) | | | 9,424 | | | 2,986 | | | (0.4) | % | | 3.3 | % | | 1.4 | % | | (113.3) | % | | >200 % |
| Net loss | $ | (69,319) | | | $ | (75,799) | | | $ | (36,562) | | | (19.5) | % | | (26.8) | % | | (17.1) | % | | (8.5) | % | | 107.3 | % |
Beginning with this Annual Report, we retroactively split our "Service" financial statement line items ("FSLIs") into two FSLIs, "Subscription Service" and "Professional Service" and our "Product" FSLIs were renamed to "Hardware". Refer to "FN1 - Basis of Presentation, Revenue and Cost of Sales Presentation Changes" within "Item 8. Financial Statements and Supplementary Data" for additional information.
Segment Revenue by Product Line as Percentage of Total Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | | | |
| | | Increase (decrease) |
| In thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Hardware | $ | 114,410 | | | $ | 105,014 | | | $ | 73,228 | | | 32.2 | % | | 37.1 | % | | 34.3 | % | | 8.9 | % | | 43.4 | % |
| Subscription service | 97,499 | | | 62,649 | | | 31,370 | | | 27.4 | % | | 22.1 | % | | 14.7 | % | | 55.6 | % | | 99.7 | % |
| Professional service | 50,438 | | | 42,688 | | | 37,914 | | | 14.2 | % | | 15.1 | % | | 17.7 | % | | 18.2 | % | | 12.6 | % |
| Total Restaurant/Retail | $ | 262,347 | | | $ | 210,351 | | | $ | 142,512 | | | 73.7 | % | | 74.4 | % | | 66.7 | % | | 24.7 | % | | 47.6 | % |
| | | | | | | | | | | | | | | |
| Mission systems | 35,458 | | | 38,311 | | | 37,448 | | | 10.0 | % | | 13.5 | % | | 17.5 | % | | (7.4) | % | | 2.3 | % |
| ISR | 56,141 | | | 33,188 | | | 32,947 | | | 15.8 | % | | 11.7 | % | | 15.4 | % | | 69.2 | % | | 0.7 | % |
| Commercial software | 1,849 | | | 1,026 | | | 879 | | | 0.5 | % | | 0.4 | % | | 0.4 | % | | 80.2 | % | | 16.7 | % |
| Total Government | $ | 93,448 | | | $ | 72,525 | | | $ | 71,274 | | | 26.3 | % | | 25.6 | % | | 33.3 | % | | 28.8 | % | | 1.8 | % |
| | | | | | | | | | | | | | | |
| Total revenue | $ | 355,795 | | | $ | 282,876 | | | $ | 213,786 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 25.8 | % | | 32.3 | % |
Revenues, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of
total revenue | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Revenues, net: | | | | | | | | | | | | | | | |
| Hardware | $ | 114,410 | | | $ | 105,014 | | | $ | 73,228 | | | 32.2 | % | | 37.1 | % | | 34.3 | % | | 8.9 | % | | 43.4 | % |
| Subscription service | 97,499 | | | 62,649 | | | 31,370 | | | 27.4 | % | | 22.1 | % | | 14.7 | % | | 55.6 | % | | 99.7 | % |
| Professional service | 50,438 | | | 42,688 | | | 37,914 | | | 14.2 | % | | 15.1 | % | | 17.7 | % | | 18.2 | % | | 12.6 | % |
| Contract | 93,448 | | | 72,525 | | | 71,274 | | | 26.3 | % | | 25.6 | % | | 33.3 | % | | 28.8 | % | | 1.8 | % |
| Total revenues, net | $ | 355,795 | | | $ | 282,876 | | | $ | 213,786 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 25.8 | % | | 32.3 | % |
For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
Total revenues were $355.8 million for the year ended December 31, 2017, a 14.9%2022, an increase of $72.9 million or 25.8% compared to $149.3 million reported for the year ended December 31, 2016. PAR’s Government segment reported revenues of $61.0$282.9 million for the year ended December 31, 2017, a decrease of 24.0% from $80.3 million reported for the year ended December 31, 2016. We reported a net loss from continuing operations of $3.6 million or $0.23 per diluted share for the year ended December 31, 2017 versus net income of $2.5 million or $0.16 per diluted share for the year ended December 31, 2016. For 2017 and 2016, we reported net income from discontinued operations of $0.2 million or $0.01 per share versus a loss of $0.7 million or $0.05 loss per share, respectively. 2017 results of operations include a one-time adjustment to the value of the Company's deferred tax asset of $4.5 million due to the corporate income tax rate change included in the Tax Cuts and Jobs Act.2021.
Product
Hardware revenues were $115.1$114.4 million for the year ended December 31, 2017,2022, an increase of 14.8% from $100.3$9.4 million recorded in 2016. This increase was primarily driven by higher revenues from our tier 1 customers in the first half of 2017.
Service revenues were $56.5or 8.9% compared to $105.0 million for the year ended December 31, 2017,2021. The increase was substantially driven by increases in hardware revenues from kitchen display systems of $4.9 million, other hardware (mobile, terminals, kiosk, drive-thru, peripherals) of $2.4 million, and payment devices of $2.1 million, all substantially driven by an increase of 15.1% from $49.1 million reported for the year ended December 31, 2016. The increase is attributable to the diversification of our revenue base, with higher recurring revenue from our software contracts; specifically, SaaS, installation services related to productin sales and other revenue streams generated from post contract support (“PCS”) offerings.volume.
Contract
Subscription service revenues were $61.0$97.5 million for the year ended December 31, 2017,2022, an increase of $34.9 million or 55.6% compared to $80.3$62.6 million reported for the year ended December 31, 2016, a decrease of 24.0%. This decrease2021. The increase was substantially driven by lower volume withinincreased subscription service revenues from our PMOGuest Engagement services of $24.6 million and Mission Systems' (MS) contracts, offsetOperator Solutions services of $10.3 million, both substantially driven by an increase in value-addedactive sites with the exception of approximately $8.7 million of the increase attributable to Guest Engagement, which was driven by the year ended December 31, 2021, only including nine months of post-acquisition Punchh revenues compared to the full twelve months of revenue on our Intelligence, Surveillance, and Reconnaissance (ISR), contracts.in the year ended December 31, 2022.
Product marginsProfessional service revenues were $50.4 million for the year ended December 31, 2017, were 25.4%, a decrease from 26.2%2022, an increase of $7.8 million or 18.2% compared to $42.7 million for the year ended December 31, 2016.2021. The decreaseincrease was substantially driven by growth in product margin was primarily due to an unfavorable product mix, as a result of increased peripheralour hardware sales related to projects from tier 1 customers.repair services.
Service margins
Contract revenues were 29.8%$93.4 million for the year ended December 31, 2017,2022, an increase from 27.4% recordedof $20.9 million or 28.8% compared to $72.5 million for the year ended December 31, 2016. This2021. The increase was primarilysubstantially driven by the Government segment's ISR Solutions product line revenues due to a favorable product mix shift to SaaStask orders resulting from Brink's continued growth. the Air Force Research Laboratory Counter-small Unmanned Aircraft System contract awarded in 2021.
Contract margins
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Total revenues were 11.0%$282.9 million for the year ended December 31, 2017,2021, an increase of $69.1 million or 32.3% compared to 8.1%$213.8 million for the year ended December 31, 2016. This increase was primarily driven by product mix shifting from PMO to the Company's value added business lines of ISR and Mission Systems in addition to improved margin rates in both ISR and Mission Systems.2020.
Selling, general and administrative expenses
Hardware revenues were $38.2$105.0 million for the year endingended December 31, 2017,2021, an increase of $31.8 million or 43.4% compared to $73.2 million for the year ended December 31, 2020. The increase was driven by continued growth in hardware refresh purchases by some of our legacy Tier 1 customers (in part from 2020 delayed hardware refresh due to COVID-19) and hardware revenue associated with our rollout of Brink POS to new customers. These hardware refreshes included $15.2 million of growth in terminals, $12.1 million of growth in kitchen display systems and $4.5 million in growth for other hardware (mobile, kiosk, drive-thru).
Subscription service revenues were $62.6 million for the year ended December 31, 2021, an increase of $31.3 million or 99.7% compared to $31.4 million for the year ended December 31, 2016.2020. The increase is primarily attributable to investmentswas substantially driven by increased subscription service revenues from Punchh of $26.3 million, which was driven by the year ended December 31, 2021, including nine months of post-acquisition revenues, and other subscription services (Brink POS and Data Central) of $5.1 million, which was driven by an increase in sales and support services infrastructure to support the growth of Brink and reinforcement of our corporate structure in IT, finance, and corporate management.active sites.
Research and development expenses
Professional service revenues were $13.8$42.7 million for the year ended December 31, 2017,2021, an increase of $4.8 million or 12.6% compared to $11.6 million recorded for the year ended December 31, 2016. This increase was primarily related to increased software development investments for Brink and SureCheck.
During the year ended December 31, 2017, we recorded $1.0 million of amortization expense associated with acquired identifiable intangible assets in connection with our acquisition of Brink Software, Inc. in September 2014. We recorded $1.0 million of amortization expense associated with these assets for the year ended December 31, 2016.
Other income, net, was $0.6$37.9 million for the year ended December 31, 2017 compared to2020. The increase was substantially driven by increases in hardware repair services of $2.5 million and other income, netprofessional services of $1.3$2.3 million.
Contract revenues were $72.5 million for the year ended December 31, 2016.2021, an increase of $1.3 million or 1.8% compared to $71.3 million for the year ended December 31, 2020. The increase was substantially driven by the Government segment's ISR Solutions product line revenues.
Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Gross Margin Percentage | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Gross margin | | | | | | | | | | | | | | | |
| Hardware | $ | 22,186 | | | $ | 24,173 | | | $ | 14,341 | | | 19.4 | % | | 23.0 | % | | 19.6 | % | | (8.2) | % | | 68.6 | % |
| Subscription service | 50,075 | | | 23,998 | | | 10,458 | | | 51.4 | % | | 38.3 | % | | 33.3 | % | | 108.7 | % | | 129.5 | % |
| Professional service | 9,456 | | | 8,113 | | | 8,893 | | | 18.7 | % | | 19.0 | % | | 23.5 | % | | 16.6 | % | | (8.8) | % |
| Contract | 7,576 | | | 5,837 | | | 5,633 | | | 8.1 | % | | 8.0 | % | | 7.9 | % | | 29.8 | % | | 3.6 | % |
| Total gross margin | $ | 89,293 | | | $ | 62,121 | | | $ | 39,325 | | | 25.1 | % | | 22.0 | % | | 18.4 | % | | 43.7 | % | | 58.0 | % |
For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
Total gross margin as a percentage of total revenue for the year ended December 31, 2022, increased to 25.1% as compared to 22.0% for the year ended December 31, 2021.
Hardware margin as a percentage of hardware revenue for the year ended December 31, 2022, decreased to 19.4% as compared to 23.0% for the year ended December 31, 2021. The decrease in margin was substantially driven by excess and obsolescent inventory charges due to managing higher inventory levels to mitigate supply risks.
Subscription service margin as a percentage of subscription service revenue for the year ended December 31, 2022, increased to 51.4% as compared to 38.3% for the year ended December 31, 2021. The increase was substantially driven by a continued focus on efficiency improvements with our hosting and customer support costs. Subscription service margin during the year ended December 31, 2022 included $21.4 million of amortization of acquired and internally developed technology compared to $17.1 million of amortization of acquired and internally developed technology during the year ended December 31, 2021. Excluding the amortization of acquired and internally developed technology, adjusted subscription service gross margin was 73% compared to 66% for the years ended December 31, 2022 and 2021, respectively (refer to "Non-GAAP Financial Measures" below for important information regarding adjusted subscription service gross margin, a non-GAAP financial measure).
Professional service margin as a percentage of professional service revenue for the year ended December 31, 2022, was relatively unchanged at 18.7% as compared to 19.0% for the year ended December 31, 2021.
Contract margin as a percentage of contract revenue for the year ended December 31, 2022, was relatively unchanged at 8.1% compared to 8.0% for the year ended December 31, 2021.
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Total gross margin as a percentage of revenue for the year ended December 31, 2021, increased to 22.0% compared to 18.4% for the year ended December 31, 2020.
Hardware margin as a percentage of hardware revenue for the year ended December 31, 2021, increased to 23.0% compared to 19.6% for the year ended December 31, 2020. The increase in margin was substantially due to favorable product mix and favorable absorption of overhead costs due to a general increase in hardware sales. The favorable impact from absorption was partially offset by higher product and component costs from the inflationary impact of COVID-19 to the overall economy. We implemented hardware price increases at the end of the second quarter of 2021 to mitigate the impact of increased product and component costs.
Subscription service margin as a percentage of subscription service revenue for the year ended December 31, 2021, increased to 38.3% compared to 33.3% for the year ended December 31, 2020. The increase was substantially driven by a favorable product mix and cost improvement initiatives with hosting costs and customer support service. Subscription service margin during the year ended December 31, 2021, included $17.1 million of amortization of acquired and internally developed technology compared to $6.3 million of amortization of acquired and internally developed technology during the year ended December 31, 2020. Excluding the amortization of acquired and internally developed technology, adjusted subscription service gross margin was 66% compared to 53% for the years ended December 31, 2021 and 2020, respectively (refer to "Non-GAAP Financial Measures" below for important information regarding adjusted subscription service gross margin, a non-GAAP financial measure).
Professional service margin as a percentage of professional service revenue for the year ended December 31, 2021, decreased to 19.0% compared to 23.5% for the year ended December 31, 2020. The decrease was substantially driven by a decrease in our hardware repair margins.
Contract margin as a percentage of contract revenue for the year ended December 31, 2021, was relatively unchanged at 8.0% compared to 7.9% for the year ended December 31, 2020.
Selling, General and Administrative Expenses (“SG&A”)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Selling, general and administrative | $ | 101,219 | | | $ | 83,998 | | | $ | 46,196 | | | 28.4 | % | | 29.7 | % | | 21.6 | % | | 20.5 | % | | 81.8 | % |
For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
SG&A expenses were $101.2 million for the year ended December 31, 2022, an increase of $17.2 million or 20.5% compared to $84.0 million for the year ended December 31, 2021. The increase was substantially driven by increases in sales and marketing expense of $6.6 million and internal technology infrastructure costs of $4.1 million, both substantially driven by an increase in purchased services and higher compensation costs associated with additional personnel as we continue to support the growth of our business. The residual increase of $6.1 million was driven by increases of $3.7 million due to the year ended December 31, 2021, only including nine months of post-acquisition Punchh SG&A expenses compared to the full twelve months in the year ended December 31, 2022, and $2.4 million due to the year ended December 31, 2022, including five months of post-acquisition MENU SG&A expenses.
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
SG&A expenses were $84.0 million for the year ended December 31, 2021, an increase of $37.8 million or 81.8% compared to $46.2 million for the year ended December 31, 2020. The increase was substantially driven by $19.3 million of expenses excluding stock-based compensation incurred in the acquisition of Punchh, Inc. ("Punchh") in April 2021 (the "Punchh Acquisition"). Other income/drivers were increases in stock-based compensation of $10.4 million of which $8.7 million was related to the Punchh Acquisition, $4.3 million in corporate expenses, $2.3 million in internal technology infrastructure costs, and $1.5 million for sales and marketing expenses.
Research and Development Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Research and development | $ | 48,643 | | | $ | 34,579 | | | $ | 19,252 | | | 13.7 | % | | 12.2 | % | | 9.0 | % | | 40.7 | % | | 79.6 | % |
For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
R&D expenses were $48.6 million for the year ended December 31, 2022, an increase of $14.1 million or 40.7% compared to $34.6 million for the year ended December 31, 2021. The increase was substantially driven by increases in R&D expense primarily includesrelated to our offerings for Guest Engagement of $8.2 million, hardware of $2.5 million, and Operator Solutions of $2.2 million, all substantially driven by higher compensation costs associated with additional personnel as we continue to improve and diversify our product and service offerings. The residual increase of $1.3 million is driven by an impairment loss for the year ended December 31, 2022, related to the impairment of internally developed software costs not meeting the general release threshold as a result of acquiring go-to-market software in the MENU Acquisition. Of the $8.2 million increase related to Guest Engagement, $3.0 million was driven by the year ended December 31, 2021, only including nine months of post-acquisition Punchh R&D expenses compared to the full twelve months in the year ended December 31, 2022, and $2.3 million was driven by the year ended December 31, 2022, including five months of post-acquisition MENU R&D expenses.
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
R&D expenses were $34.6 million for the year ended December 31, 2021, an increase of $15.3 million or 79.6% compared to $19.3 million for the year ended December 31, 2020. Primary drivers of the increase include $9.1 million for R&D expense related to Punchh, $4.7 million related to additional investments in our existing software product development, and $1.5 million for product management.
Other Operating Expenses: Amortization of Intangible Assets / Contingent Consideration / Insurance Proceeds
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Amortization of identifiable intangible assets | $ | 1,863 | | | $ | 1,825 | | | $ | 1,163 | | | 0.5 | % | | 0.6 | % | | 0.5 | % | | 2.1 | % | | 56.9 | % |
| Adjustment to contingent consideration liability | (4,400) | | | — | | | (3,340) | | | (1.2) | % | | — | % | | (1.6) | % | | N/A | | (100.0) | % |
| Gain on insurance proceeds | $ | — | | | $ | (4,400) | | | $ | — | | | — | % | | (1.6) | % | | — | % | | (100.0) | % | | N/A |
For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
Amortization of identifiable intangible assets was $1.9 million for the year ended December 31, 2022, which remained relatively unchanged as compared to $1.8 million for the year ended December 31, 2021.
Included in operating expenses for the year ended December 31, 2022 was a $4.4 million reduction to the fair value adjustmentsof the contingent consideration liability for certain post-closing revenue focused milestones from the MENU Acquisition. There was no comparable reduction to expense for the year ended December 31, 2021.
Gain on insurance proceeds was $4.4 million for the year ended December 31, 2021, in connection with our settlement of a legacy claim. There was no comparable gain for the year ended December 31, 2022.
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Amortization of identifiable intangible assets was $1.8 million for the year ended December 31, 2021, an increase of$0.7 million or 56.9% compared to $1.2 million for the year ended December 31, 2020. The increase was driven by intangible assets from the Punchh Acquisition.
Included in operating expense for the year ended December 31, 2020 was a $3.3 million reduction to the fair value of the contingent considerations,consideration liability for certain post-closing revenue focused milestones from the acquisition of AccSys, LLC ("Data Central") in December 2019 (the "Data Central Acquisition"). There was no comparable reduction to expense for the year ended December 31, 2021.
Gain on insurance proceeds was $4.4 million for the year ended December 31, 2021, in connection with our settlement of a legacy claim. There was no comparable gain for the year ended December 31, 2020.
Other (Expense) Income, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Other (expense) income, net | $ | (1,224) | | | $ | (1,279) | | | $ | 808 | | | (0.3) | % | | (0.5) | % | | 0.4 | % | | (4.3) | % | | <(200)% |
For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
Other (expense) income, net was ($1.2) million for the year ended December 31, 2022, which remained relatively unchanged as compared to ($1.3) million for the year ended December 31, 2021. Other (expense) income, net substantially includes rental income, net of applicable expenses, foreign currency transactions gains and losses fair value adjustments, fair value fluctuations of our deferred compensation plan and other non-operating income/expense. The primary driver ofincome (expense).
For the decrease in other income is a $0.8 million insurance recovery in the fourth quarter 2016 relatedYear Ended December 31, 2021 Compared to the Company's former chief financial officer’s unauthorized transfers of funds.Year Ended December 31, 2020
Interest
Other (expense) income, (expense), net, represents interest charged on our short-term borrowings and from long-term debt. Interest expense, net was $0.1($1.3) million for the year ended December 31, 2017, as2021, a change of $(2.1) million compared to interest income, net of $0.1$0.8 million for the year ended December 31, 2016. This decrease is primarily associated with the accreted interest2020. Other (expense) income, net substantially includes rental income, net of $0.2 million in 2016 related to the note receivable in connection with the Company's sale of its hotel/spa technology business operatedapplicable expenses, foreign currency transactions gains and losses and other non-operating income/expenses. The change was substantially driven by PAR Springer-Miller Systems, Inc., Springer-Miller International, LLC,sales and Springer-Miller Canada, ULC (collectively, “PSMS”) in November 2015use tax expense and higher interest expense as compared to 2016, which is due to higher outstanding borrowings under the Credit Facility.other miscellaneous expenses.
Interest Expense, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Interest expense, net | $ | (8,811) | | | $ | (18,147) | | | $ | (8,287) | | | (2.5) | % | | (6.4) | % | | (3.9) | % | | (51.4) | % | | 119.0 | % |
For the year endedYear Ended December 31, 2017, our effective income tax rate was an expense of 1,032.8%, mainly due2022 Compared to the one-time deferred tax asset adjustment for the rate change under the Tax Cuts and Jobs Act of 2017, compared to an expense of 31.4% for the year endedYear Ended December 31, 2016. The variances from the federal statutory rate for 2017 were due to the mix of taxable income from the Company’s domestic and foreign jurisdictions, which is consistent with the variance in 2016, and the impact of the adjustment for the rate change under the Tax Cuts and Jobs Act of 2017. Benefits from stock compensation and fair value adjustments on contingent consideration impacted the variance from the federal statutory rate for 2017 as well.2021
Liquidity and Capital Resources
The Company’s primary sources of liquidity have been cash flow from operations and borrowings under its Credit Facility with JP Morgan Chase Bank, N.A. Cash used in operating activities from continuing operationsInterest expense, net was $0.1$8.8 million for the year ended December 31, 2017,2022, a decrease of $9.3 million or 51.4% as compared to cash generated of $11.4$18.1 million for the year ended December 31, 2016.2021. The change in cash activities resulted primarilydecrease was substantially driven by a $6.9 million reduction of accretion resulting from our January 1, 2022 adoption of ASU 2020-06 and a $1.0 million reduction of accretion resulting from the $6.9extinguishment of our $180.0 million term loan ("Owl Rock Term Loan") in September 2021. Prior to adoption of customer depositsASU 2020-06, accounting for the convertible feature of our Senior Notes was presented within equity, resulting in non-cash accretion over the fourth quarter 2016 being appliedlife of the respective Senior Notes of an implied debt discount; this accretion was presented within interest expense. As a result of adoption, the accounting for our Senior Notes is no longer bifurcated between debt and equity (refer to revenue generated"Note 1 - Basis of Presentation" of the notes to consolidated financial statements in 2017."Part II, Item 8. Financial Statements and Supplementary Data" of this Annual Report for additional information).
Cash used in investing activities from continuing operations
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Interest expense, net was $8.9$18.1 million for the year ended December 31, 2017 versus $7.12021, an increase of $9.9 million or 119.0% compared to $8.3 million for the year ended December 31, 2020. This increase was substantially driven by the payment of additional interest with respect to the Owl Rock Term Loan and the 2027 Notes. Interest expense,
net includes $8.7 million of non-cash accretion of debt discount and amortization of issuance costs for the year ended December 31, 2021compared with $4.4 million for the year ended December 31, 2020.
Loss on Extinguishment of Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Loss on extinguishment of debt | $ | — | | | $ | (11,916) | | | $ | (8,123) | | | — | % | | (4.2) | % | | (3.8) | % | | (100.0) | % | | 46.7 | % |
For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
Loss on extinguishment of debt was $11.9 million for the year ended December 31, 2021, related to the repayment of the Owl Rock Term Loan. There was no comparable loss for the year ended December 31, 2022.
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Loss on extinguishment of debt was $11.9 million for the year ended December 31, 2021, related to the repayment of the Owl Rock Term Loan as compared to $8.1 million for the year ended December 31, 2020, related to the partial repurchase of the 2024 Notes.
Taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| (Provision for) benefit from income taxes | $ | (1,252) | | | $ | 9,424 | | | $ | 2,986 | | | (0.4) | % | | 3.3 | % | | 1.4 | % | | (113.3) | % | | >200 % |
For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
The provision for income taxes of $1.3 million for the year ended December 31, 2022was substantially due to foreign jurisdiction tax obligations. The benefit from income taxes of $9.4 million for the year ended December 31, 2021was substantially due to a decrease of the Company’s deferred tax valuation allowance which resulted from the establishment of deferred tax liabilities related to the Punchh Acquisition.
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
The net tax benefit of $9.4 million for the year ended December 31, 2021was substantially due to a decrease of the Company’s deferred tax valuation allowance which resulted from the establishment of deferred tax liabilities related to the Punchh Acquisition. The net tax benefit of $9.4 million for the year ended December 31, 2021 was driven by the $3.3 million deferred tax benefit impact of the 2026 Notes issuance in February 2020.
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 Annual Report as 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 Annual Report, the Company makes reference to annual recurring revenue ("ARR") and active sites, which are both key performance indicators. The Company utilizes 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, related support, and transaction-based fees for payment processing services. We calculate ARR by annualizing the monthly recurring revenue for all active sites as of the last day of each month for the respective reporting period. ARR is an operating measure, does not reflect our revenue determined in accordance with GAAP, and 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 organized in alignment with our three subscription service categories: Guest Engagement (Punchh and MENU), Operator Solutions (Brink POS, PAR Pay, and PAR Payment Services), and Back Office (Data Central).
Annual Recurring Revenue (“ARR”)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Increase (decrease) |
| In thousands | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Guest Engagement* | $ | 58,933 | | | $ | 46,686 | | | $ | — | | | 26.2 | % | | N/A |
| Operator Solutions | 41,614 | | | 32,120 | | | 24,705 | | | 29.6 | % | | 30.0 | % |
| Back Office | 10,896 | | | 9,390 | | | 8,755 | | | 16.0 | % | | 7.3 | % |
| Total | $ | 111,443 | | | $ | 88,196 | | | $ | 33,460 | | | 26.4 | % | | 163.6 | % |
*Guest Engagement ARR includes MENU ARR only in the year ended December 31, 2022
Active Sites
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Increase (decrease) |
| In thousands | 2022 | | 2021 | | 2020 | | 2022 vs 2021 | | 2021 vs 2020 |
| Guest Engagement* | 69.9 | | | 56.1 | | | — | | | 24.6 | % | | N/A |
| Operator Solutions | 19.5 | | | 15.9 | | | 11.7 | | | 22.6 | % | | 35.9 | % |
| Back Office | 7.0 | | | 6.3 | | | 5.9 | | | 11.1 | % | | 6.8 | % |
*Guest Engagement active sites includes MENU active sites only in the year ended December 31, 2022
Non-GAAP Financial Measures
Within this Annual Report, the Company makes reference to adjusted subscription service gross margin, EBITDA, adjusted EBITDA, adjusted net loss, and adjusted diluted net loss per share which are non-GAAP financial measures. Adjusted subscription service gross margin represents subscription service gross margin adjusted to exclude amortization from acquired and internally developed software. EBITDA represents net loss before income taxes, interest expense and depreciation and amortization. Adjusted EBITDA represents EBITDA as adjusted to exclude certain non-cash and non-recurring charges, including stock-based compensation, acquisition expenses, certain pending litigation expenses and other non-recurring charges that may not be indicative of our financial performance. Adjusted net loss/adjusted diluted net loss per share represents net loss and net loss per share excluding amortization of acquired intangible assets, certain non-cash and non-recurring charges, including stock-based compensation, acquisition expense, certain pending litigation expenses and other non-recurring charges that may not be indicative of our financial performance.
The Company is presenting adjusted subscription service gross margin, adjusted EBITDA and adjusted net loss because we believe that these financial measures provide supplemental information that may be useful to investors in evaluating the Company's core business operating results and comparing such results to other similar companies. Management believes that adjusted subscription service gross margin, EBITDA, adjusted EBITDA, adjusted net loss, and adjusted diluted net loss per share, when viewed with the Company's results of operations in accordance with GAAP and the reconciliations to the most directly comparable GAAP measures provided in the tables below (refer to "Gross margin" discussion above for a reconciliation of subscription service gross margin to adjusted subscription service gross margin), provide useful information about operating performance and period-over-period growth, and provide additional information that is useful for evaluating the operating performance of the Company's core business without regard to potential distortions. Management additionally believes that adjusted EBITDA permits investors to gain an understanding of the factors and trends affecting its ongoing cash earnings, from which capital investments are made and debt is serviced.
The Company's results of operations are impacted by certain non-cash and non-recurring charges, including stock-based compensation, acquisition related expenditures, and other non-recurring charges that may not be indicative of the Company’s on-going or long-term financial performance. Management believes that adjusting its net loss and diluted loss per share to remove non-recurring charges provides a useful perspective with respect to the Company's results of operations and provides supplemental information to both management and investors by removing items that are difficult to predict and are often unanticipated.
Adjusted subscription service gross margin, EBITDA, adjusted EBITDA, adjusted net loss, and adjusted diluted net loss per share are not measures of financial performance under GAAP and should not be considered as alternatives to subscription service gross margin or net income (loss) as indicators of operating performance. Additionally, these measures may not be comparable to similarly titled measures disclosed by other companies. The tables below provide reconciliations between net loss and EBITDA, adjusted EBITDA, and adjusted net loss, as well as between diluted net loss per share and adjusted diluted net loss per share.
| | | | | | | | | | | | | | | | | |
| Year Ended
December 31, |
| in thousands | 2022 | | 2021 | | 2020 |
| Reconciliation of Net Loss to EBITDA and Adjusted EBITDA | | | | | |
| Net loss | $ | (69,319) | | | $ | (75,799) | | | $ | (36,562) | |
| Provision for (benefit from) income taxes | 1,252 | | | (9,424) | | | (2,986) | |
| Interest expense | 8,811 | | | 18,147 | | | 8,287 | |
| Depreciation and amortization | 26,095 | | | 21,421 | | | 10,097 | |
| EBITDA | $ | (33,161) | | | $ | (45,655) | | | $ | (21,164) | |
| Stock-based compensation expense (1) | 13,426 | | | 14,615 | | | 4,251 | |
| Regulatory matters (2) | 415 | | | 50 | | | 126 | |
| Contingent consideration (3) | (4,400) | | | — | | | (3,340) | |
| Litigation expense (4) | 525 | | | 790 | | | — | |
| Acquisition costs (5) | 1,300 | | | 3,612 | | | — | |
| Gain on insurance proceeds (6) | — | | | (4,400) | | | — | |
| Severance (7) | 525 | | | — | | | 359 | |
| Loss on extinguishment of debt (8) | — | | | 11,916 | | | 8,123 | |
| Impairment loss (9) | 1,301 | | | — | | | — | |
| Other expense – net (10) | 1,224 | | | 1,279 | | | (808) | |
| Adjusted EBITDA | $ | (18,845) | | | $ | (17,793) | | | $ | (12,453) | |
| | | | | |
| 1 | Adjustments reflect total stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020 of $13.4 million, $14.6 million and $4.3 million respectively. |
| 2 | Adjustment reflects non-recurring expenses related to our efforts to resolve regulatory matters of $0.4 million for the year ended December 31, 2022, and $0.1 million for the each of the years ended December 31, 2021 and 2020. |
| 3 | Adjustments reflect non-cash changes to the fair market value of the contingent consideration liability of $4.4 million related to the MENU Acquisition and $3.3 million related to the Data Central Acquisition as of the years ended December 31, 2022 and 2020, respectively. |
| 4 | Adjustment reflects settlement expenses for legal matters of $0.5 million and $0.8 million for the years ended December 31, 2022 and 2021, respectively. |
| 5 | Adjustment reflects the expenses incurred in the MENU Acquisition of $1.3 million and Punchh Acquisition of $3.6 million for the years ended December 31, 2022 and 2021, respectively. |
| 6 | Adjustment represents the gain on insurance stemming from a legacy claim of $4.4 million for the year ended December 31, 2021. |
| 7 | Adjustment reflects the severance included in gross margin, selling, general and administrative expense and research and development expense of $0.5 million and $0.4 million for the years ended December 31, 2022 and 2020, respectively. |
| 8 | Adjustment reflects loss on extinguishment of debt of $11.9 million related to the repayment of the Owl Rock Term Loan during the year ended December 31, 2021, and $8.1 million related to the repurchase of approximately $66.3 million of the 2024 Notes for the year ended December 31, 2020. |
| 9 | Adjustment reflects impairment loss included in research and development expense of $1.3 million related to the impairment of internally developed software costs not meeting the general release threshold as a result of acquiring go-to-market software in the MENU Acquisition. |
| 10 | Adjustment reflects foreign currency transaction gains and losses, rental income and losses, and other non-recurring expenses recorded in other expense, net in the accompanying statements of operations. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| in thousands | 2022 | | 2021 | | 2020 |
| Reconciliation of Net Loss/Diluted Net Loss per share to Adjusted Net Loss/Adjusted Diluted Loss per Share: | | | | | | | | | | | |
| Net loss / diluted earnings per share | $ | (69,319) | | | $ | (2.55) | | | $ | (75,799) | | | $ | (3.02) | | | $ | (36,562) | | | $ | (1.92) | |
| Provision for (benefit from) income taxes (1) | — | | | — | | | (10,417) | | | (0.42) | | | (3,265) | | | (0.17) | |
| Non-cash interest expense (2) | 1,997 | | | 0.07 | | | 8,727 | | | 0.35 | | | 4,355 | | | 0.23 | |
| Acquired intangible assets amortization (3) | 17,111 | | | 0.63 | | | 13,802 | | | 0.55 | | | 4,558 | | | 0.24 | |
| Stock-based compensation expense (4) | 13,426 | | | 0.49 | | | 14,615 | | | 0.58 | | | 4,251 | | | 0.22 | |
| Regulatory matters (5) | 415 | | | 0.02 | | | 50 | | | — | | | 126 | | | 0.01 | |
| Contingent consideration (6) | (4,400) | | | (0.16) | | | — | | | — | | | (3,340) | | | (0.18) | |
| Litigation expense (7) | 525 | | | 0.02 | | | 790 | | | 0.03 | | | — | | | — | |
| Acquisition costs (8) | 1,300 | | | 0.05 | | | 3,612 | | | 0.14 | | | — | | | — | |
| Gain on insurance proceeds (9) | — | | | — | | | (4,400) | | | (0.18) | | | — | | | — | |
| Severance (10) | 525 | | | 0.02 | | | — | | | — | | | 359 | | | 0.02 | |
| Loss on extinguishment of debt (11) | — | | | — | | | 11,916 | | | 0.47 | | | 8,123 | | | 0.43 | |
| Impairment loss (12) | 1,301 | | | 0.05 | | | — | | | — | | | — | | | — | |
| Other expense – net (13) | 1,224 | | | 0.05 | | | 1,279 | | | 0.05 | | | (808) | | | (0.04) | |
| Adjusted net loss/diluted loss per share | $ | (35,895) | | | $ | (1.32) | | | $ | (35,825) | | | $ | (1.43) | | | $ | (22,203) | | | $ | (1.17) | |
| | | | | | | | | | | |
| Weighted average common shares outstanding | 27,152 | | | | | 25,088 | | | | | 19,014 | | | |
| | | | | |
| 1 | Adjustment reflects a partial release of our deferred tax asset valuation allowance of $10.4 million related to the Punchh Acquisition for the year ended December 31, 2021; and a reduction to the benefit of income taxes of $3.3 million for the year ended December 31, 2020 related to the issuance of the 2026 Notes and partial repurchase of the 2024 Notes. The income tax effect of the below adjustments were not tax-effected due to the valuation allowance on all of our net deferred tax assets. |
| 2 | Adjustment reflects non-cash accretion of interest expense and amortization of issuance costs related to the Senior Notes and the Owl Rock Term Loan of $2.0 million, $8.7 million, and $4.4 million for the years ended December 31, 2022, 2021, and 2020, respectively. |
| 3 | Adjustment reflects amortization expense of acquired developed technology within gross margin of $15.2 million, $12.0 million, and $3.5 million for the years ended December 31, 2022, 2021, and 2020, respectively; and amortization expense of acquired intangible assets of $1.9 million, $1.8 million, and $1.1 million for the years ended December 31, 2022, 2021, and 2020, respectively. |
| 4 | Adjustments reflect total stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020 of $13.4 million, $14.6 million and $4.3 million respectively. |
| 5 | Adjustment reflects non-recurring expenses related to our efforts to resolve a regulatory matters of $0.4 million for the year ended December 31, 2022 and $0.1 million for each of the years ended December 31, 2021 and 2020. |
| 6 | Adjustments reflect non-cash changes to the fair market value of the contingent consideration liability of $4.4 million related to the MENU Acquisition and $3.3 million related to the Data Central Acquisition as of the years ended December 31, 2022 and 2020, respectively. |
| 7 | Adjustment reflects settlement expenses for legal matters of $0.5 million and $0.8 million for the years ended December 31, 2022 and 2021, respectively. |
| 8 | Adjustment reflects the expenses incurred in the MENU Acquisition of $1.3 million and Punchh Acquisition of $3.6 million for the years ended December 31, 2022 and 2021, respectively. |
| 9 | Adjustment represents the gain on insurance stemming from a legacy claim of $4.4 million for the year ended December 31, 2021. |
| 10 | Adjustment reflects the severance included in gross margin, selling, general and administrative expense and research and development expense of $0.5 million and $0.4 million for the years ended December 31, 2022 and 2020, respectively. |
| 11 | Adjustment reflects loss on extinguishment of debt of $11.9 million related to the repayment of the Owl Rock Term Loan during the year ended December 31, 2021, and $8.1 million to the repurchase of approximately $66.3 million of the 2024 Notes for the year ended December 31, 2020. |
| 12 | Adjustment reflects impairment loss included in research and development expense of $1.3 million related to the impairment of internally developed software costs not meeting the general release threshold as a result of acquiring go-to-market software in the MENU Acquisition. |
| 13 | Adjustment reflects foreign currency transaction gains and losses, rental income and losses, and other non-recurring expenses recorded in other expense, net in the accompanying statements of operations. |
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash and cash equivalents and short-term investments. As of December 31, 2022, we had cash and cash equivalents of $70.3 million and short-term investments of $40.3 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 $43.1 million for the year ended December 31, 2022, compared to $53.2 million for the year ended December 31, 2021. Cash used in operating activities for the year ended December 31, 2022, was substantially driven by a net loss from operations, net of non-cash charges and additional net working capital requirements substantially driven by an increase in accounts receivable resulting from revenue growth.
Cash used in investing activities was $66.7 million for the year ended December 31, 2022, compared to $383.0 million for the year ended December 31, 2021. Cash used in investing activities for the year ended December 31, 2016. In 2017,2022, included $18.8 million of cash consideration, net of cash acquired, for the MENU Acquisition and acquisition of substantially all the assets and liabilities of a privately held restaurant technology company (the "Q1 2022 Acquisition"), $40.3 million for purchases of short-term held-to-maturity securities, and capital expenditures of $5.1$6.4 million were primarily for PAR’s new ERP system and capital improvements made to our owned and leased properties. Capitalized software was $3.8 million and wasdeveloped technology costs associated with investments inour Restaurant/Retail software platforms.
Cash provided byused in financing activities from continuing operations was $6.1$2.6 million for the year ended December 31, 2017 versus2022, compared to cash usedprovided by financing activities of $2.2$443.6 million for the year ended December 31, 2016. In 2017, the Company received proceeds from stock activity of
$1.5 million and $3.8 million related to the final installment of the 2015 sale of its hotel/spa technology business and borrowed a net of $0.8 million. In 2016, the Company paid the third installment associated with its purchase of Brink Software, Inc. of $2.0 million.
On November 29, 2016, the Company, together with certain of its U.S. subsidiaries entered into a three-year credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”). The Credit Agreement provides for revolving loans2021. Cash used in an aggregate principal amount of up to $15.0 million, with availability thereunder equal to the lesser of (i) $15.0 million and (ii) a borrowing base (equal to the sum of 80% eligible accounts, 50% eligible raw materials inventory and 35% eligible finished goods inventory, with no more than 50% of total eligible inventory included in the borrowing base), less the aggregate principal amount outstanding (the “Credit Facility”). Interest accrues on outstanding principal balances at an applicable rate per annum determined, as of the end of each fiscal quarter, by reference to the CBFR Spread or the Eurodollar Spread based on the Company’s consolidated indebtedness ratio as at the determination date. The Credit Agreement contains customary affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to incur additional indebtedness, incur or permit to exist liens on assets, make investments, loans, advances, guarantees and acquisitions, consolidate or merge, pay dividends and make distributions, and financial covenants, requiring that the Company’s consolidated indebtedness ratio not exceed 3.0 to 1.0 and, a fixed charge coverage ratio of not less than 1.25 to 1.0 for each fiscal quarter. In August 2017, we entered into an Omnibus Amendment Number 1 to Loan Documents with JPMorgan Chase to provide the Company with more flexibility in its use of its assets and a waiver of any default relating to the location of certain collateral. In March 2018, JPMorgan Chase granted the Company a Waiver of an event of default under the Credit Agreement due to its failure to meet the required fixed charge coverage ratiofinancing activities for the fiscal quarteryear ended December 31, 2017.2022, was substantially driven by stock based compensation related transactions and principal payments on long-term debt. We do not have any off-balance sheet arrangements or obligations.
On December 31, 2017, the applicable rate under the Credit Facility was 3.25% plus the CBFR Spread or LIBOR plus the Eurodollar Spread based on the Company’s consolidated indebtedness ratio. There was $0.95 million outstanding and up to $14.05 million available under the Credit Agreement as of December 31, 2017.
In addition to the Credit Facility, the Company has a mortgage loan, collateralized by certain real estate, with a balance of $0.4 million and $0.6 million as of December 31, 2017 and 2016, respectively. This loan matures on November 1, 2019. Interest is fixed at 4.00% through maturity. The annual loan payment, including interest through November 1, 2019, is $0.2 million.
In connection with the Company's acquisition of Brink Software, Inc. in September 2014, the Company has recorded contingent consideration that may be payable to the former owners of Brink Software, Inc. based on future performance metrics. As of December 31, 2017, the fair value of the contingent consideration included within the Company's consolidated balance sheets is $3.0 million.
We expect our operatingavailable cash flows and available capacity under our Credit Facilitycash 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 $39.2 million, consisting of purchase commitments for normal operations (purchase of inventory, software licensing, use of external labor, and third-party cloud services) of $29.6 million, interest payments of $8.0 million and facility leases of $1.6 million. We expect to fund such commitments with cash provided by operating activities and our sources of liquidity.
We expect our non-current contractual obligations to include purchase commitments for normal operational expenses as well as payments to service our Senior Notes. Refer to “Note 8 – Debt” of the notes to consolidated financial statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Annual Report for details. From time to time, we may seek to raise additional capital through equity, equity-linked, and debt financing arrangements. We cannot provide assurance that any additional financing will be available to us on acceptable terms or at all.
Our actual cash needs will depend on many factors, including our rate of revenue growth, including growth of our SaaSsubscription service revenues, the timing and extent of spending to support our product development efforts, the timing of introductions of new products and enhancements to existing products, market acceptance of our products, and potential finesthe factors described above in this "Part II, Item 7. Management's Discussion and penalties that, while currently inestimable, could be material (see Item 1A – “Risk Factors” for further discussion about the potential adverse effectAnalysis of such finesFinancial Condition and penalties on our business). If we are required or otherwise elect to seek additional funding, we cannot be certain that such additional funding will be available on termsResults of Operations” and conditions acceptable to us, if at all. elsewhere in this Annual Report.
Our future principal payments under the mortgage loan and operating leases are as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | Less Than 1 Year | | 1-3 Years | | 3 - 5 Years | | More than 5 Years |
| Debt obligations | $ | 380 |
| | $ | 195 |
| | $ | 185 |
| | $ | — |
| | $ | — |
|
| Operating leases | 14,690 |
| | 2,936 |
| | 4,943 |
| | 4,124 |
| | 2,687 |
|
| Total | 15,070 |
| — |
| 3,131 |
| — |
| 5,128 |
| — |
| 4,124 |
| — |
| 2,687 |
|
Critical Accounting Policies and Estimates
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are based on the application of U.S.accounting principles generally accepted accounting principles (“GAAP”).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. Primary areas where financial information isSignificant items subject to the use ofsuch estimates assumptions and the
application of judgmentassumptions include revenue recognition, accounts receivable, inventories, accounting forstock-based compensation, the recognition and measurement of assets acquired and liabilities assumed in business combinations contingent consideration, goodwillat fair value, the carrying amount of property, plant and equipment including right-to-use assets and liabilities, identifiable intangible assets and taxes.goodwill, the measurement of liabilities and equity recognized for outstanding convertible notes, valuation allowances for receivables, 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 "Item 1A. Risk Factors" of this Annual Report for additional information.
Revenue Recognition Policy
Restaurant/Retail
The Company's revenue in the Restaurant/Retail segment is derived from three types of revenue: hardware sales, subscription services, and professional services. ASC Topic 606: Revenue from Contracts
Our with Customers requires the Company to distinguish and measure performance obligations under customer contracts. Contract consideration is allocated to all performance obligations within the arrangement or contract. Performance obligations that are determined not to be distinct are combined with other performance obligations until the combined unit is determined to be distinct and that combined unit is then recognized as revenue over time or at a point in time depending on when control is transferred. The Company evaluated the potential performance obligations within its Restaurant/Retail segment’s revenues consistsegment and evaluated whether each performance obligation met the ASC Topic 606 criteria to be considered a distinct performance obligation.
Amounts invoiced in excess of sales of our POS systems. We derive revenue recognized represent deferred revenue. Contracts typically require payment within 30 to 90 days from the following sources: (1)shipping date or installation date, depending on the Company's terms with the customer. The primary method used to estimate a stand-alone selling price, is the price that the Company charges for the particular good or service sold by the Company separately under similar circumstances to similar customers. The Company determines stand-alone selling prices for hardware sales, (2) software license agreements, including perpetual licenses and SaaS, (3)subscription services based on the price at which the Company sells the particular good or service separately in similar circumstances and to similar customers. The Company determines stand-alone selling prices for professional services (4) hosting services and (5) post-contract customer support (“PCS”).by using an expected cost plus margin.
Subject to the multiple element arrangements discussion below, we recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is reasonably assured. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report.
Hardware
Hardware revenue consists of hardware product sales and is recognized as a point in time revenue. Revenue recognition on hardware sales occurs upon installation atthese items are recognized when the customer site (or when shipped for systems that are not installed by us) when persuasive evidenceobtains control of an arrangement exists, the price is fixed or determinable, and collectability is reasonably assured.
Software
Revenue recognition on software salesasset in accordance with the terms of sale. This generally occurs upon delivery, upon installation, or upon delivery to a third-party carrier for onward delivery to customer. We accept returns for hardware sales and recognize them at the customer, when persuasive evidencetime of an arrangement exists, the price is fixed or determinable, and collectability is reasonably assured. For software sales soldsale as a perpetual license, typicallyreduction to revenue based on historical experience.
Subscription Service
Our subscription services consist of revenue from our PixelSaaS solutions, related software offering, where we are the solesupport, and transaction-based payment processing services.
SaaS solutions
SaaS solution revenues consist of subscription fees from customers for access to our SaaS solutions and third party that has the proprietary knowledge to install the software, revenue is recognized upon installation and when the system is ready to go live.
Service
Service revenue consists of installation and training services, field and depot repair, subscription software products, associated software maintenance, and software related hosting services. Installation and training service revenue are based upon standard hourly/daily rates as well as contracted prices with the customer, and revenue is recognized as the services are performed. Support maintenance and field and depot repair are provided to customers either on a time and materials basis or under a maintenance contract. Services provided on a time and materials basis are recognized as the services are performed. Service revenues from maintenance contracts are recorded as deferred revenue when billed to and collected from the customerSaaS solutions and are recognized ratably over the underlying contract period. Software soldperiod, commencing when the subscription service is made available to the customer, as the customer simultaneously receives and consumes the benefits of the Company’s performance obligations. Our contracts with customers are generally for a serviceperiod ranging from 12 to 36 months. We determined we are the principal in transferring these services to the customer and recognize revenue on a gross basis. We control the services being provided to our customer, are responsible for fulfillment of the promise in our contract with the customer, and have discretion in setting the price with our Brinkcustomer.
Software support
Software support revenues includes fees from customers from the sales of varying levels of basic support services which are “stand-ready obligations” satisfied over time on the basis that the customer consumes and SureCheck software offerings,receives a benefit from having access to the Company's support resources, when and as needed, throughout the contract term, which is recorded as deferred revenue when billed and collected andgenerally 12 months. For this reason, the basic support services are recognized ratably over the contract term.term since the Company satisfies its obligation to stand ready by performing these services each day.
Transaction-based payment processing
Transaction-based payment processing revenues includes transaction-based payment processing services for customers which are charged a transaction fee for payment processing. This transaction fee is generally calculated as a percentage of the total transaction amount processed plus a fixed per transaction fee. We satisfy our payment processing performance obligations and recognize the transaction fees as revenue net of refunds and reversals initiated by the restaurant upon authorization by the issuing bank and submission for processing. We allocate all variable fees earned from transaction-based revenue to this performance obligation on the basis that is is consistent with the ASC 606 allocation objectives.
Our transaction-based payment processing contracts are primarily layered rate contracts. In layered rate contracts, we pass through the costs of interchange and card assessment and network fees to our customers, which are recorded as a reduction to revenue, and we incur processing fees, which are recorded as cost of sales. For layered rate contracts, we have concluded we are generally the principal in the performance obligation to process payments because we control the payment processing services before the customer receives them, perform authorization and fraud check procedures prior to submitting transactions for processing in the payment network, have sole discretion over which third-party acquiring payment processors we will use and are ultimately responsible to the customers for amounts owed if those acquiring payment processors do not fulfill their obligations. We generally have full discretion in setting processing prices charged to the customers. Additionally, we are obligated to comply with certain payment card network operating rules and contractual obligations under the terms of out registration as a payment facilitator and as a master merchant under our third-party acquiring payment processor agreements which make us liable for the costs of processing the transactions for our customers and chargebacks and other financial losses if such amounts cannot be recovered from the restaurant. However, specifically as it relates to the costs of interchange and card assessment and network fees, we have concluded we are the agent because we do not control pricing for these services and the costs are passed through to our customers.
Professional Service
Professional service revenue consists of revenues from hardware support, installations, implementations, and other professional services.
Hardware support
Hardware support revenues consists of fees from customers from the Company's Advanced Exchange overnight hardware replacement program, on-site support and extended warranty repair service programs and are all “stand-ready obligations” satisfied over time on the basis that the customer consumes and receives a benefit from having access to the Company's support resources, when and as needed, throughout the contract term, which is generally 12 months. For this reason, the support services are recognized ratably over the contract term since the Company satisfies its obligation to stand ready by performing these services each day.
Installations
Installation revenue is recognized point in time. Installation revenue is recognized when installation is complete and the customer obtains control of the related asset. The Company frequently enters into multiple-element arrangements with ouroffers installation services to its customers includingfor hardware and software professional consulting services and maintenance support services. For arrangements involving multiple deliverables, when deliverables include software and non-software products and services, we evaluate and separate each deliverablefor which the Company primarily hires third-party contractors to determine whether it represents a separate unit of accountinginstall the equipment on the Company's behalf. The Company pays third-party contractors an installation service fee based on an hourly rate agreed to by the following criteria: (a)Company and contractor. When third-party installers are used, the delivered itemCompany determines whether the nature of its performance obligations is to provide the specified goods or services itself (principal) or to arrange for a third-party to provide the goods or services (agent). In the Company's customer arrangements, the Company is primarily responsible for providing a good or service, has valueinventory risk before the good or service is transferred to the customer, onand has discretion in establishing prices; as a stand-alone basis; and (b) ifresult, the contract includes a general right of return relative toCompany has concluded that it is the delivered item, delivery or performance of the undelivered items is considered probable and substantially in the control of PAR.
Multiple Element Arrangements
Multiple element arrangements that include hardware, service, and software offerings are separated based upon the stand-alone price for each individual hardware, service, or software soldprincipal in the arrangement irrespectiveand records installation revenue on a gross basis.
Implementations
Implementation revenue includes set-up and activation fees from customers to implement our SaaS solutions. We have concluded that this service does not represent a stand-alone performance obligation and is instead tied to the performance obligation to provide the subscription service. As such, we defer and amortize related revenues and costs over the life of the combination of products and services which are included in a particular arrangement. As such, overall consideration is allocated to each unit of accounting based on the unit’s relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to each deliverable: (i) vendor-specific objective evidence of selling price (VSOE), (ii) third-party evidence of selling price (TPE), and (iii) best estimate of selling price (BESP). VSOE generally exists onlycontract, commencing when the Company sellssubscription service is made available to the deliverable separatelycustomer.
Other professional services
Other professional service revenue includes hardware repairs and maintenance not covered under hardware support, business process mapping, training, and other ad hoc professional services sold separately. Other professional service revenue is recognized point in time upon the price actually charged bycompletion of the Companyservice.
Government
PAR’s Government segment provides technical expertise and development of advanced systems and software solutions for the U.S. Department of Defense, the intelligence community and other federal agencies. Additionally, we provide support services for satellite command and control, communication, and information technology systems at several DoD facilities worldwide. The Government segment has three principal contract offerings: intelligence, surveillance, and reconnaissance solutions, mission systems operations and maintenance, and commercial software products for use in analytic and operational environments that deliverable. leverage geospatial intelligence data.
The Company uses BESPCompany's revenue in the Government segment is recognized over time as control is generally transferred continuously to allocate revenue when we are unable to establish VSOE or TPEits customers, with the exception of selling price. BESP is primarily used for elements such ascertain commercial software products that are not consistently priced within a narrow range. The Company determines BESP for a deliverable by considering
multiple factors including product and customer class, geography, average discount, and management’s historical pricing practices. Amounts allocated to the delivered hardware and software elements are recognized at thetransferred point in time of sale provided the other conditions for revenue recognition have been met. Amounts allocated to the undelivered maintenance and other services elements are recognized as the services are provided or on a straight-line basis over the service period. In certain instances, customer acceptance is required prior to the passage of title and risk of loss of the delivered products. In such cases, revenue is not recognized until the customer acceptance is obtained. Delivery and acceptance generally occur in the same reporting period.
Software elements, generally software PCS, and professional services revenue are recognized in accordance with authoritative guidance on software revenue recognition. For the software and software-related elements of such transactions, revenue is allocated based on the relative fair value of each element, and fair value is determined by vendor specific objective evidence, where available. If VSOE is not available for all elements, we use the residual method to separate the elements as long as we have VSOE for the undelivered elements. If we cannot objectively determine the fair value of any undelivered element included in such multiple-element arrangements, we defer the revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements.
Government Contracts
The Company’s contract revenueswhen control transfers. Revenue generated by the Government segment result primarily from contract services performed foris predominantly related to services; provided, however, revenue is also generated through the U.S.sale of materials, software, hardware, and maintenance. For the Government under a variety of cost-plussegment cost plus fixed fee time-and-material,contract portfolio, revenue is recognized over time using costs incurred to date to measure progress toward satisfying the Company's performance obligations. Incurred cost represents work performed, which corresponds with, and fixed-price contracts. Revenuethereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and general and administrative expenses. Profit is recognized on cost-plusthe fixed fee contracts is recognized based on allowable costs for labor hours delivered, as well as other allowable costs plus the applicable fee. Revenue on time and material contracts is recognized by multiplying the number of direct labor hours delivered in the performanceportion of the contract byas costs are incurred and invoiced. Long-term fixed price contracts involve the use of judgment to estimate the total contract revenue and costs. For long-term fixed price contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete the contract, billing rates and adding other direct costs as incurred. Revenue from fixed-price contracts is recognized as labor hours are delivered which approximates the straight-line basis ofrecognize that profit over the life of the contract. The Company’s obligation under these contracts is to provide labor hours to conduct research or to staff facilities with no other deliverables or performance obligations. Anticipated losses on all contracts are recorded in full when identified. Unbilled accounts receivable is stated in the Company’s consolidated financial statements at their estimated realizable value. Contract costs, including indirect expenses, are subject to audit and adjustment through negotiations between the Company and U.S. Government representatives.
Accounts Receivable-Allowance for Doubtful Accounts
Allowances for doubtful accountsestimates are based on estimatesvarious assumptions to project the outcome of probable losses relatedfuture events. These assumptions include: labor productivity and availability; the complexity of the work to accounts receivable balances. The establishmentbe performed; and the performance of allowances requiressubcontractors. Revenue and profit in future periods of contract performance are recognized using the useaforesaid assumptions, and adjusting the estimate of judgment and assumptions regarding probable losses on receivable balances. We continuously monitor collections and payments from ourcosts to complete a contract. Once the services provided are determined to be distinct or not distinct, the Company evaluates how to allocate the transaction price. Generally, the Government segment does not sell the same good or service to similar customers and maintain a provision for estimated credit losses based on our historical experience and any specific customer collection issues that we have identified. Thus, if the financial condition of our customers werecontract performance obligations are unique to deteriorate, our actual losses may exceed our estimates, and additional allowanceseach government solicitation. The performance obligations are typically not distinct. In cases where there are distinct performance obligations, the transaction price would be required.allocated to each performance obligation on a ratable basis based upon the stand-alone selling price of each performance obligation. Cost plus margin is used for the cost plus fixed fee contract portfolios as well as the fixed price and time and materials contracts portfolios to determine the stand-alone selling price.
In the Government segment, when determining revenue recognition, the Company analyzes whether its performance obligations under Government contracts are satisfied over a period of time or at a point in time. In general, the Company's performance obligations are satisfied over a period of time; however, there may be circumstances where the latter or both scenarios could apply to a contract.
The Company usually expects payment within 30 to 90 days from the date of service, depending on its terms with the customer.
Inventories
Our inventory
Inventory is valued at the lower of cost orand net realizable value, with cost determined using the first-in, first-out (“FIFO”)weighted average cost method. We use certain estimates and judgments andthat consider several factors, including product demand, changes in customer requirements and changes in technology to provide for excess and obsolescence reserves to properly value inventory.
Capitalized Software Development Costs
We capitalize certain costs related to the development of computerour platform and other software used in our Restaurant/Retail segment. Software development costs incurred prior to establishing technological feasibility are charged to operations and included in research and development costs. The technological feasibility of a computer software product is established when we have completed all planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements. Software development costs incurred after establishing feasibility (as defined within ASC 985-20applications for software cost related to sold as a perpetual license) are capitalized and amortized on a product-by-product basis when the product is available for general release to customers. Annual amortization, charged to cost of sales when the product is available for general release to customers, is computed using the greater of (a) the straight-line method over the remaining estimated economic life of the product, which is generally three to seven years or (b) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product. Software development is also capitalizedinternal use in accordance with ASC Topic 350-40 “Intangibles, Intangibles - Goodwill and Other - Internal - Use Software”. We begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. We stop capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant testing. These costs are amortized on a straight-line basis over the expected benefit period, whichestimated useful life of the related asset, generally ranges fromestimated to be three to sevenfive years. Long-lived assetsWe also capitalize costs related to specific upgrades and enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are tested for impairment when events or conditions indicate thatexpensed as incurred and recorded within research and development expenses in our consolidated statements of operations.
We exercise judgment in determining the carryingpoint at which various projects may be capitalized, in assessing the ongoing value of an asset may not be fully recoverable fromthe capitalized costs and in determining the estimated useful lives over which the costs are amortized. To the extent that we change the manner in which we develop and test new features and functionalities related to our platform, assess the ongoing value of capitalized assets or determine the estimated useful lives over
which the costs are amortized, the amount of internal-use software development costs we capitalize and amortize could change in future cash flows.periods
Accounting for Business Combinations
We account for acquired businesses using the acquisition method of accounting,in accordance with ASC Topic 805, Business Combinations, which requires that acquired assets and assumed liabilities be recorded at their respective fair values on the date of acquisition. The fair value of the consideration paid is assigned to the underlying net assets of the acquired business based on their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded to goodwill. Intangible assets are amortized over the expected life of the asset. Fair value determinations and useful life estimates are based on, among other factors, estimates of expected future cash flows from revenues of the intangible assets acquired, estimates of appropriate discount rates used to present value expected future cash flows, estimated useful lives of the intangible assets acquired and other factors. Although we believe the assumptions and estimates we haveit has made have been reasonable and appropriate, they are based, in part, on historical experience, information obtained from the management of the acquired companies and future expectations. For these and other reasons, actual results may vary significantly from estimated results.
Contingent Consideration
We determineGoodwill
Goodwill represents the acquisition date fair value of contingent consideration using a discounted cash flow method, with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC Topic 820, Fair Value Measurement. The significant inputs in the Level 3 measurement not supported by market activity include our probability assessments of expected future cash flows related to our acquisition of Brink Software Inc. in 2014, during the contingent consideration period, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the termsexcess of the definitive agreement. The liabilities for the contingent consideration is established at the time of the acquisition and will be evaluated on a quarterly basis based on additional information as it becomes available. Any change in the fair value adjustment is recorded in the earnings of the period in which the evaluation is made. During 2017, we recorded a $1.0 million adjustment to decreasepurchase price over the fair value of the Company's contingent consideration related to its acquisition of Brink Software Inc., versus a $1.1 million adjustment to decrease the fair value during 2016. These adjustments are reflected within other expense on the consolidated statement of operations. Changes in the fair value of the contingent consideration obligations may result from changes in probability assumptions with respect to the likelihood of achieving the various contingent payment obligations. Significant increases or decreases in the inputs noted above in isolation would resultnet tangible and intangible assets acquired in a significantly lower or higher fair value measurement.
business combination. It is not deductible for income tax purposes. Goodwill
We test goodwill is not amortized, but is tested for impairment on an annual basis on the first day of the fourth quarter,at least annually or more oftenfrequently if events or changes in circumstances indicate therethat the asset may be impairment. We operate in twoimpaired. Our impairment tests are based on reportable operating segments which areand the identified reporting units within those operating segments used in the test offor goodwill for impairment - Restaurant/Retail and Government. Goodwill is tested atimpairment. If the reporting unit level. Goodwill is assigned to a specific reporting unit at the date the goodwill is initially recorded. Once goodwill has been assigned to a specific reporting unit, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support thecarrying value of the goodwill.
Goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value including goodwill. If the fair value of aeither reporting unit exceeds its carryingfair value, applicable goodwillan impairment charge is considered not to be impaired. Ifrecognized for the excess of the carrying value exceeds fair value, there is an indication of impairment, at which time a second step would be performed to measure the amount of impairment. The second step involves calculating an implied fair value of goodwill for each reporting unit for whichover its fair value.
Fair values of the first step indicated an impairment.
We utilize different methodologies in performingreporting units are estimated using a weighted methodology considering the goodwill impairment test for each reporting unit. Foroutput from both the Restaurant/Retailincome and Government reporting units, these methodologies include anmarket approaches. The income approach namely a discounted cash flow method, and multiple market approaches andincorporates the guideline public company method and quoted price method. The valuation methodologies and weightings used in the current year are generally consistent with those used in our past annual impairment tests.
The discounted cash flow method derives a value by determining the present valueuse of a projected levelDCF analysis. A number of income stream, including a terminal value. This method involves the present value of a series of estimated future cash flows at the valuation date bysignificant assumptions and estimates are involved in the application of athe DCF model to forecast operating cash flows, including revenue growth, operating income margin and discount rate that a prudent investor would require before making an investment in our equity. We consider this method to be most reflective of a market participant’s view of fair value given the current market conditions, as it is based on our forecasted results and, therefore, established this method's weighting at 80% of the fair value calculation.
Keyrate. These assumptions within our discounted cash flow model include projected financial operating results, a long-term growth rate of 3% and, depending onvary between the reporting unit, discount rates ranging from 14.5% to 27.0%. As stated above, because the discounted cash flow method derives value from the present value of a projected level of income stream, a modification to our projected
operating results, including changes to the long-term growth rate, could impact the fair value. The present value of the cash flows is determined using a discount rate based on the capital structure and capital costs of comparable public companies, as well as company-specific risk premium, as identified by us. A change to the discount rate could impact the fair value determination.
units. The market approach is a generally-accepted way of determining a value indication of a business, business ownership interest, security or intangible asset by using one or more methods that compare the reporting unit to similar businesses, business ownership interests, securities or intangible assets that have been sold. There are two methodologies considered under the market approach: the public company method and the quoted price method.
The public company method and quoted price method of valuation are based on the premise that pricing multiples of publicly traded companies can be used as a tool to be applied in valuing closely held companies. The mechanics of the two methods requireincorporates the use of the stockquoted price in conjunction with other factors to create a pricing multipleand public company methods utilizing public market data for our company and comparable companies for each of our two reporting segments.
We conducted our annual goodwill impairment test during the fourth quarter of 2022 and determined that can be used, with certain adjustments, to apply against the reporting unit’s similar factor to determine an estimate of value for the subject company. We consider these methods appropriate because they provide an indication of fair value supported by current market conditions. We established our weighting at 10% of the fair value calculation for each of the public company method and quoted price method for bothreporting units significantly exceeded its respective carrying value. As such, goodwill was not impaired. No goodwill impairment charge was recorded in any of the periods presented in the accompanying consolidated financial statements.
Restaurants/Retail:
We performed a quantitative assessment to test our Restaurant/Retail and Government, reporting units.
unit impairment as of October 1, 2022. The most critical assumption underlyingexcess of the market methods we use are the comparable companies selected. Each market approach described above estimates revenue and earnings multiples based on the comparable companies selected. As such, a change in the comparable companies could have an impact on the fair value determination.
The amount of goodwill carried by the Restaurant/Retail and Government reporting units is $10.3 million and $0.7 million, respectively. The estimated fair value over the carrying value (expressed as a percentage of the Restaurant/Retail reporting unit is substantiallycarrying value) was in excess of its carrying value of $665 million by approximately 21% as a result of the Step 1 analysis performed to assess if the fair value of the reporting units is lower than their carrying value. The estimated fair value of the Government reporting unit is substantially in excess of its carrying value as a result of the Step 1 analysis performed. There were no goodwill impairment charges recorded for the Restaurant/Retail reporting unit or the Government reporting unit for the years ended December 31, 2017 or December 31, 2016.September 30, 2022.
Restaurants / Retail:
In deriving our fair value estimates, we utilizeduse key assumptions built on the current product portfolio mix adjusted to reflect continued revenue increases from Brink and SureCheck. These assumptions, specifically those included within the discounted cash flow estimate, include revenue growth rate, gross margin, operating expenses, working capital requirements, and depreciation and amortization expense.our subscription services.
We utilizeuse total annual revenue growth rates for the reporting unit ranging between 3%12.7% and 32%.17.4% for the years 2023 through 2030. The high-end growth rate reflects our projected revenues from anticipated increases in installationsactive sites of Brinkour subscription services at new and SureCheck at newexisting customer locations. These software platformssubscription services are expected to expand our capabilities into new markets. We believe these estimates are reasonable given the size of the overall market, which we will enter, combined with the projected market share we expect to achieve. Overall, the projected revenue growth rates ultimately trend to an estimated long term growth rate of 3%3.0%.
We utilizeuse gross margin estimates that are reflective of expected increased recurring SaaSsubscription service revenue from software sold as a service that is expected to exceed historical gross margins. Estimates of operating expenses, working capital requirements and depreciation and amortization expense utilizedused for the Restaurant/Retail reporting unit are generally consistent with actual historical amounts, adjusted to reflect itsour continued investment and projected revenue growth
from our core technology platforms. We believe utilization of actual historical results adjusted to reflect our continued investment in our products is an appropriate basis supporting the fair value of the Restaurant/Retail reporting unit.
Finally, we utilizeuse a discount rate of approximately 27.0%14.0% for the Restaurant/Retail reporting unit. This estimate was derived through a combination of current risk-free interest rate data, financial data from companies that PAR considers to be itsour competitors and was based on volatility between our historical financial projections and actual results achieved.
The current economic conditions and the continued volatility in the U.S. and in many other countries in which we operate could contribute to decreased consumer confidence and continued economic uncertainty which may adversely impact our operating performance. Although we have seen an improvement in the markets which we serve,it serves, continued volatility in these markets could have an impact on purchases of our products, which could result in a reduction ofin sales, operating income and cash flows. Such reductions could have a material adverse impact on the underlying estimates used in deriving the fair value of our reporting units used to support our annual goodwill impairment test or could result in a triggering event requiring a fair value re-measurement,
particularly if we are unable to achieve the estimates of revenue growth indicated in the preceding paragraphs. These conditions may result in an impairment charge in future periods.
Government:
The estimated fair value of the Government segment is substantially in excess of its carrying value. Consistent with prior year methodology, in deriving our fair value estimates, we have utilized key assumptions built on the current core business. These assumptions, specifically those included within the discounted cash flow estimate, are comprised of the revenue growth rate, gross margin, operating expenses, working capital requirements, and depreciation and amortization expense.
We have reconciled the aggregate estimated fair value of the reporting units to theour market capitalization of the consolidated Company, including a reasonable control premium noting no goodwill impairment as ofwas recorded during the years ended December 31, 20172022 or December 31, 2016 was recorded.2021.
Deferred Taxes
We have $13.8 million of deferred tax assets that are reviewed quarterly for recoverability and valued accordingly. These deferred tax assets are evaluated by using estimates of future taxable income and the impact of tax planning strategies. Valuations related to tax accruals and deferred tax assets can be impacted by changes to tax codes, changes in statutory tax rates and our estimates of future taxable income levels.
NewRecent Accounting Pronouncements Not Yet Adopted
See Note
Refer to “Note 1 – Summary of Significant Accounting Principles -Policies” of the Notesnotes to Consolidatedconsolidated financial statements in "Part II, Item 8. Financial Statements (Part II, Item 8and Supplementary Data" of this Report)Annual Report for details.
Off-Balance Sheet Arrangements
Item 7A. 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 and Asia. These primary currencies are the Great British Pound, the Euro, the Swiss Franc, the Serbian Dinar, and 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 December 31, 2022, the impact of foreign currency exchange rate changes on our revenues and net income (loss) were not material. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy.
Interest Rate Risk
As of December 31, 2022, we had $13.8 million, $120.0 million, and $265.0 million in aggregate principal amount outstanding on the 2024 Notes, the 2026 Notes, and the 2027 Notes, respectively.
We do notcarry the Senior Notes at face value less amortized debt issuance costs on the on the consolidated balance sheets. Since the Senior Notes bear interest at fixed rates, we have any off-balance sheet arrangements.no financial statement risk associated with changes in interest rates. However, the fair value of the Senior Notes changes when the market price of our common stock fluctuates or interest rates change.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | | | | |
Item 7A.
| Quantitative and Qualitative Disclosures about Market Risk. |
Not required.
| |
Item 8.
| Financial Statements and Supplementary Data.
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
TheTo the shareholders and the Board of Directors and Shareholders
of PAR Technology Corporation
New Hartford, New York
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of PAR Technology Corporation (the “Company”) and subsidiaries (the "Company") as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss),loss, changes in shareholders’shareholders' equity, and cash flows, for each of the three years thenin the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial“financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries atas of December 31, 20172022 and 2016,2021 and the results of theirits operations and theirits cash flows for the each of the three years thenin the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 16, 20181, 2023, expressed an unqualified opinion thereon.on the Company's internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s consolidatedCompany's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Acquisition — MENU Technologies AG —Contingent Consideration — Refer to Notes 2 and 15 to the consolidated financial statements
Critical Audit Matter Description
The Company completed the acquisition of MENU Technologies AG for $38.9 million on July 25, 2022, which included contingent consideration related to a potential earn-out provision. The Company accounted for the acquisition as a business combination in accordance with ASC 805, Business Combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their preliminary determined respective fair values, including preliminary fair value of contingent consideration for the earn-out liability of $14.2 million. As of December 31, 2022, the Company determined the fair value of the MENU earn-out to be $9.8 million.
Management estimated the fair value of the contingent consideration associated with the MENU earn-out using a Monte Carlo simulation of a discounted cash flow model.
The Company determined the acquisition date fair value of contingent consideration associated with the MENU Acquisition using Monte-Carlo simulation valuation techniques. Furthermore, the significant inputs used in establishing the fair value include revenue volatility, EBITDA volatility, discount rate, and projected year of payments. These are unobservable and reflect the Company's own judgements about the assumptions market participants would use in pricing the liability.
Therefore, the valuation of the contingent consideration for the MENU Technologies AG acquisition is considered complex and requires significant management judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the revenue volatility, EBITDA volatility, discount rate, and projected year of payments used by management to estimate the acquisition-date and as of December 31, 2022 fair value of the contingent consideration included the following, among others:
•We tested the effectiveness of controls over the valuation of the contingent consideration, including management’s controls over revenue volatility, EBITDA volatility, discount rate, and projected year of payments
•We assessed the reasonableness of management's future revenues and earnings projections by considering whether the projections were consistent with evidence obtained in other areas of the audit and by comparing the projections to (1) the acquired company's historical results, (2) historical growth rates of the Company, and (3) actual performance subsequent to the acquisition
•With the assistance of our fair value specialists, we evaluated the reasonableness of (1) the valuation methodology and (2) the valuation assumptions, such as the revenue volatility, EBITDA volatility, discount rate, and projected year of payments by
◦Testing the source information underlying the determination of the revenue and EBITDA volatilities and discount rates and testing the mathematical accuracy of the calculations
/s/ BDO USA,Deloitte & Touche LLP
We have served as the Company's auditor since 2012.
Rochester, New York NY
March 16, 20181, 2023
PAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| | | | December 31, | | | December 31, |
| Assets | 2017 | | 2016 | Assets | | 2022 | | 2021 |
| Current assets: | | | | Current assets: | | | | |
| Cash and cash equivalents | $ | 6,600 |
| | $ | 9,055 |
| Cash and cash equivalents | | $ | 70,328 | | | $ | 188,419 | |
| Accounts receivable-net | 30,077 |
| | 30,705 |
| |
| Inventories-net | 21,746 |
| | 26,237 |
| |
| Note receivable | — |
| | 3,510 |
| |
| Income taxes receivable | — |
| | 261 |
| |
| Deferred income taxes | — |
| | 7,767 |
| |
| Cash held on behalf of customers | | Cash held on behalf of customers | | 7,205 | | | — | |
| Short-term investments | | Short-term investments | | 40,290 | | | — | |
| Accounts receivable, net | | Accounts receivable, net | | 59,960 | | | 49,978 | |
| Inventories, net | | Inventories, net | | 37,594 | | | 35,078 | |
| Other current assets | 4,209 |
| | 4,027 |
| Other current assets | | 8,572 | | | 9,532 | |
| Assets of discontinued operations | — |
| | 462 |
| |
| Total current assets | 62,632 |
| | 82,024 |
| Total current assets | | 223,949 | | | 283,007 | |
| Property, plant and equipment - net | 10,755 |
| | 7,035 |
| |
| Deferred income taxes | 13,809 |
| | 9,650 |
| |
| Property, plant and equipment, net | | Property, plant and equipment, net | | 12,961 | | | 13,709 | |
| Goodwill | 11,051 |
| | 11,051 |
| Goodwill | | 486,762 | | | 457,306 | |
| Intangible assets - net | 12,070 |
| | 10,966 |
| |
| Intangible assets, net | | Intangible assets, net | | 111,097 | | | 118,763 | |
| Lease right-of-use assets | | Lease right-of-use assets | | 4,061 | | | 4,348 | |
| Other assets | 4,307 |
| | 3,785 |
| Other assets | | 16,028 | | | 11,016 | |
| Total Assets | $ | 114,624 |
| | $ | 124,511 |
| |
| Total assets | | Total assets | | $ | 854,858 | | | $ | 888,149 | |
| | Liabilities and Shareholders’ Equity | |
| | |
| Liabilities and Shareholders’ Equity | | | | |
| Current liabilities: | |
| | |
| Current liabilities: | | | | |
| Current portion of long-term debt | $ | 195 |
| | $ | 187 |
| Current portion of long-term debt | | $ | — | | | $ | 705 | |
| Borrowings on line of credit | 950 |
| | — |
| |
| Accounts payable | 14,332 |
| | 16,687 |
| Accounts payable | | 23,283 | | | 20,845 | |
| Accrued salaries and benefits | 6,275 |
| | 5,470 |
| Accrued salaries and benefits | | 18,936 | | | 17,265 | |
| Accrued expenses | 3,926 |
| | 4,682 |
| Accrued expenses | | 6,531 | | | 5,042 | |
| Customers payable | | Customers payable | | 7,205 | | | — | |
| Lease liabilities – current portion | | Lease liabilities – current portion | | 1,307 | | | 2,266 | |
| Customer deposits and deferred service revenue | 12,909 |
| | 19,814 |
| Customer deposits and deferred service revenue | | 10,562 | | | 14,394 | |
| Total current liabilities | 38,587 |
| | 46,840 |
| Total current liabilities | | 67,824 | | | 60,517 | |
| Lease liabilities, net of current portion | | Lease liabilities, net of current portion | | 2,868 | | | 2,440 | |
| Long-term debt | 185 |
| | 379 |
| Long-term debt | | 389,192 | | | 305,845 | |
| Deferred service revenue – noncurrent | | Deferred service revenue – noncurrent | | 5,125 | | | 7,597 | |
| Other long-term liabilities | 6,866 |
| | 7,712 |
| Other long-term liabilities | | 14,655 | | | 7,405 | |
| Total liabilities | 45,638 |
| | 54,931 |
| Total liabilities | | 479,664 | | | 383,804 | |
| Shareholders’ Equity: | |
| | |
| |
| Preferred stock, $.02 par value, 1,000,000 shares authorized | — |
| | — |
| |
| Common stock, $.02 par value, 29,000,000 shares authorized; 17,677,161 and 17,479,454 shares issued; 15,969,052 and 15,771,345 outstanding at December 31, 2017 and December 31, 2016, respectively | 354 |
| | 350 |
| |
| Capital in excess of par value | 48,349 |
| | 46,203 |
| |
| Retained earnings | 29,549 |
| | 32,357 |
| |
| Shareholders’ equity: | | Shareholders’ equity: | | | |
| Preferred stock, $.02 par value, 1,000,000 shares authorized, none outstanding | | Preferred stock, $.02 par value, 1,000,000 shares authorized, none outstanding | | — | | | — | |
| Common stock, $.02 par value, 58,000,000 shares authorized; 28,589,567 and 28,094,333 shares issued, 27,319,045 and 26,924,397 outstanding at December 31, 2022 and December 31, 2021, respectively | | Common stock, $.02 par value, 58,000,000 shares authorized; 28,589,567 and 28,094,333 shares issued, 27,319,045 and 26,924,397 outstanding at December 31, 2022 and December 31, 2021, respectively | | 570 | | | 562 | |
| Additional paid in capital | | Additional paid in capital | | 595,286 | | | 640,937 | |
| Accumulated deficit | | Accumulated deficit | | (205,204) | | | (122,505) | |
| Accumulated other comprehensive loss | (3,430 | ) | | (3,494 | ) | Accumulated other comprehensive loss | | (1,365) | | | (3,704) | |
| Treasury stock, at cost, 1,708,109 shares | (5,836 | ) | | (5,836 | ) | |
| Treasury stock, at cost, 1,270,522 and 1,181,449 shares at December 31, 2022 and December 31, 2021, respectively | | Treasury stock, at cost, 1,270,522 and 1,181,449 shares at December 31, 2022 and December 31, 2021, respectively | | (14,093) | | | (10,945) | |
| Total shareholders’ equity | 68,986 |
| | 69,580 |
| Total shareholders’ equity | | 375,194 | | | 504,345 | |
| Total Liabilities and Shareholders’ Equity | $ | 114,624 |
| | $ | 124,511 |
| Total Liabilities and Shareholders’ Equity | | $ | 854,858 | | | $ | 888,149 | |
See accompanying Notesnotes to Consolidated Financial Statementsconsolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
| | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 |
| Net revenues: | | | |
| Product | $ | 115,126 |
| | $ | 100,271 |
|
| Service | 56,467 |
| | 49,070 |
|
| Contract | 61,012 |
| | 80,312 |
|
| Total net revenues | 232,605 |
| | 229,653 |
|
| Costs of sales: | | | |
| Product | 85,850 |
| | 73,976 |
|
| Service | 39,626 |
| | 35,647 |
|
| Contract | 54,299 |
| | 73,830 |
|
| Total costs of sales | 179,775 |
| | 183,453 |
|
| Gross margin | 52,830 |
| | 46,200 |
|
| Operating expenses: | | | |
| Selling, general and administrative | 38,171 |
| | 31,440 |
|
| Research and development | 13,814 |
| | 11,581 |
|
| Amortization of identifiable intangible assets | 966 |
| | 966 |
|
| Total operating expenses | 52,951 |
| | 43,987 |
|
| | | | |
| Operating (loss) income from continuing operations | (121 | ) | | 2,213 |
|
| Other income, net | 629 |
| | 1,316 |
|
| Interest (expense) income, net | (121 | ) | | 121 |
|
| Income from continuing operations before provision for income taxes | 387 |
| | 3,650 |
|
| Provision for income taxes | (3,997 | ) | | (1,147 | ) |
| (Loss) income from continuing operations | (3,610 | ) | | 2,503 |
|
| Discontinued operations | | | |
| Income (loss) on discontinued operations (net of tax) | 224 |
| | (720 | ) |
| Net (loss) income | $ | (3,386 | ) | | $ | 1,783 |
|
| Basic Earnings per Share: | | | |
| (Loss) income from continuing operations | (0.23 | ) | | 0.16 |
|
| Income (loss) from discontinued operations | 0.01 |
| | (0.05 | ) |
| Net (loss) income | $ | (0.22 | ) | | $ | 0.11 |
|
| Diluted Earnings per Share: | | | |
| (Loss) income from continuing operations | (0.23 | ) | | 0.16 |
|
| Income (loss) from discontinued operations | 0.01 |
| | (0.05 | ) |
| Net (loss) income | $ | (0.22 | ) | | $ | 0.11 |
|
| Weighted average shares outstanding | | | |
| Basic | 15,949 |
| | 15,675 |
|
| Diluted | 15,949 |
| | 15,738 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Revenues, net: | | | | | |
| Hardware | $ | 114,410 | | | $ | 105,014 | | | $ | 73,228 | |
| Subscription service | 97,499 | | | 62,649 | | | 31,370 | |
| Professional service | 50,438 | | | 42,688 | | | 37,914 | |
| Contract | 93,448 | | | 72,525 | | | 71,274 | |
| Total revenues, net | 355,795 | | | 282,876 | | | 213,786 | |
| Costs of sales: | | | | | |
| Hardware | 92,224 | | | 80,841 | | | 58,887 | |
| Subscription service | 47,424 | | | 38,651 | | | 20,912 | |
| Professional service | 40,982 | | | 34,575 | | | 29,021 | |
| Contract | 85,872 | | | 66,688 | | | 65,641 | |
| Total cost of sales | 266,502 | | | 220,755 | | | 174,461 | |
| Gross margin | 89,293 | | | 62,121 | | | 39,325 | |
| Operating expenses: | | | | | |
| Selling, general and administrative | 101,219 | | | 83,998 | | | 46,196 | |
| Research and development | 48,643 | | | 34,579 | | | 19,252 | |
| Amortization of identifiable intangible assets | 1,863 | | | 1,825 | | | 1,163 | |
| Adjustment to contingent consideration liability | (4,400) | | | — | | | (3,340) | |
| Gain on insurance proceeds | — | | | (4,400) | | | — | |
| Total operating expenses | 147,325 | | | 116,002 | | | 63,271 | |
| Operating loss | (58,032) | | | (53,881) | | | (23,946) | |
| Other (expense) income, net | (1,224) | | | (1,279) | | | 808 | |
| Loss on extinguishment of debt | — | | | (11,916) | | | (8,123) | |
| Interest expense, net | (8,811) | | | (18,147) | | | (8,287) | |
| Loss before benefit from income taxes | (68,067) | | | (85,223) | | | (39,548) | |
| (Provision for) benefit from income taxes | (1,252) | | | 9,424 | | | 2,986 | |
| Net loss | $ | (69,319) | | | $ | (75,799) | | | $ | (36,562) | |
| Net loss per share (basic and diluted) | $ | (2.55) | | | $ | (3.02) | | | $ | (1.92) | |
| Weighted average shares outstanding (basic and diluted) | 27,152 | | | 25,088 | | | 19,014 | |
See accompanying Notesnotes to Consolidated Financial Statementsconsolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(in thousands)
|
| | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 |
| | | | |
| Net (loss) income | $ | (3,386 | ) | | $ | 1,783 |
|
| Other comprehensive income (loss) net of applicable tax: | | | |
| Foreign currency translation adjustments | 64 |
| | (716 | ) |
| Comprehensive (loss) income | $ | (3,322 | ) | | $ | 1,067 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net loss | $ | (69,319) | | | $ | (75,799) | | | $ | (36,562) | |
| Other comprehensive income (loss), net of applicable tax: | | | | | |
| Foreign currency translation adjustments | 2,339 | | | 232 | | | 1,432 | |
| Comprehensive loss | $ | (66,980) | | | $ | (75,567) | | | $ | (35,130) | |
See accompanying Notesnotes to Consolidated Financial Statementsconsolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands)
| | | (in thousands) | Common Stock | Capital in excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Shareholders’ Equity | (in thousands) | Common Stock | | Capital in
Excess of
Par Value | | (Accumulated Deficit) Retained
Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total
Shareholders’
Equity |
| Shares | Amount | Shares | Amount | Shares | | Amount | | Shares | | Amount | |
| | | | | | |
| Balances at December 31, 2015 | 17,352 |
| $ | 347 |
| $ | 45,753 |
| $ | 30,574 |
| $ | (2,778 | ) | (1,708 | ) | $ | (5,836 | ) | $ | 68,060 |
| |
| | | | | | |
| Net income | | | 1,783 |
| | | | 1,783 |
| |
| | Balances at December 31, 2019 | | Balances at December 31, 2019 | 18,360 | | | $ | 367 | | | $ | 94,372 | | | $ | (10,144) | | | $ | (5,368) | | | (1,731) | | | $ | (6,380) | | | $ | 72,847 | |
| Issuance of common stock upon the exercise of stock options | 5 |
| 1 |
| 26 |
| | | | 27 |
| Issuance of common stock upon the exercise of stock options | 47 | | | 1 | | | 674 | | | — | | | — | | | — | | | — | | | 675 | |
| Net issuance of restricted stock awards | 122 |
| 2 |
| | | | 2 |
| Net issuance of restricted stock awards | 29 | | | 1 | | | 834 | | | — | | | — | | | — | | | — | | | 835 | |
| Equity based compensation |
|
|
|
| 469 |
| | | | 469 |
| |
| Stock options and awards tax benefits | | | (45 | ) | | | | (45 | ) | |
| Net issuance of restricted stock units | | Net issuance of restricted stock units | 23 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of restricted stock for acquisition | | Issuance of restricted stock for acquisition | 908 | | | 18 | | | — | | | — | | | — | | | — | | | — | | | 18 | |
| Stock-based compensation | | Stock-based compensation | — | | | — | | | 4,251 | | | — | | | — | | | — | | | — | | | 4,251 | |
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | | Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | — | | | — | | | (143) | | | — | | | — | | | (57) | | | (1,043) | | | (1,186) | |
| Equity component of redeemed 2024 convertible notes (net of deferred taxes of $3.0 million) | | Equity component of redeemed 2024 convertible notes (net of deferred taxes of $3.0 million) | — | | | — | | | (6,808) | | | — | | | — | | | 722 | | | 2,436 | | | (4,372) | |
| Equity component of issued 2026 convertible notes (net of deferred taxes of $6.2 million and issuance costs of $0.9 million) | | Equity component of issued 2026 convertible notes (net of deferred taxes of $6.2 million and issuance costs of $0.9 million) | — | | | — | | | 19,060 | | | — | | | — | | | — | | | — | | | 19,060 | |
| Proceeds from public share offering, net of issuance costs of $6.0 million) | | Proceeds from public share offering, net of issuance costs of $6.0 million) | 3,616 | | | 72 | | | 131,335 | | | — | | | — | | | — | | | — | | | 131,407 | |
| Foreign currency translation adjustments | | | (716 | ) | | | (716 | ) | Foreign currency translation adjustments | — | | | — | | | — | | | — | | | 1,432 | | | — | | | — | | | 1,432 | |
| Balances at December 31, 2016 | 17,479 |
| $ | 350 |
| $ | 46,203 |
| $ | 32,357 |
| $ | (3,494 | ) | (1,708 | ) | $ | (5,836 | ) | $ | 69,580 |
| |
| | | | | | |
| Adoption of accounting standard |
|
|
|
|
|
| 578 |
|
|
|
|
|
|
| 578 |
| |
| Net loss |
|
|
|
|
|
| (3,386 | ) |
|
|
|
|
|
| (3,386 | ) | Net loss | — | | | — | | | — | | | (36,562) | | | — | | | — | | | — | | | (36,562) | |
| Balances at December 31, 2020 | | Balances at December 31, 2020 | 22,983 | | | $ | 459 | | | $ | 243,575 | | | $ | (46,706) | | | $ | (3,936) | | | (1,066) | | | $ | (4,987) | | | $ | 188,405 | |
| Issuance of common stock upon the exercise of stock options | 271 |
| 5 |
| 1,495 |
|
|
|
|
|
|
|
|
| 1,500 |
| Issuance of common stock upon the exercise of stock options | 105 | | | 2 | | | 1,154 | | | — | | | — | | | — | | | — | | | 1,156 | |
| Repurchase of common stock | (54 | ) | (1 | ) | | | | (1 | ) | |
| Issuance of common stock, net of issuance costs of $6.8 million | | Issuance of common stock, net of issuance costs of $6.8 million | 3,335 | | | 67 | | | 208,105 | | | — | | | — | | | — | | | — | | | 208,172 | |
| Net issuance of restricted stock awards | (19 | ) | — |
|
|
|
|
|
|
|
|
|
|
| — |
| Net issuance of restricted stock awards | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Equity based compensation |
|
|
|
| 651 |
|
|
|
|
|
|
|
|
| 651 |
| |
| Net issuance of restricted stock units | | Net issuance of restricted stock units | 176 | | | 4 | | | 368 | | | — | | | — | | | — | | | — | | | 372 | |
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | | Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | — | | | — | | | — | | | — | | | — | | | (115) | | | (5,958) | | | (5,958) | |
| Stock-based compensation | | Stock-based compensation | — | | | — | | | 14,615 | | | — | | | — | | | — | | | — | | | 14,615 | |
| Issuance of common stock for acquisition | | Issuance of common stock for acquisition | 1,493 | | | 30 | | | 110,189 | | | — | | | — | | | — | | | — | | | 110,219 | |
| Equity component of issuance of 2027 convertible notes, net of deferred taxes of $0.7 million and issuance costs of $2.1 million | | Equity component of issuance of 2027 convertible notes, net of deferred taxes of $0.7 million and issuance costs of $2.1 million | — | | | — | | | 62,931 | | | — | | | — | | | — | | | — | | | 62,931 | |
| Foreign currency translation adjustments |
|
|
|
|
|
|
|
| 64 |
|
|
|
|
| 64 |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | 232 | | | — | | | — | | | 232 | |
| Balances at December 31, 2017 | 17,677 |
| $ | 354 |
| $ | 48,349 |
| $ | 29,549 |
| $ | (3,430 | ) | (1,708 | ) | $ | (5,836 | ) | $ | 68,986 |
| |
| Net loss | | Net loss | — | | | — | | | — | | | (75,799) | | | — | | | — | | | — | | | (75,799) | |
| Balances at December 31, 2021 | | Balances at December 31, 2021 | 28,094 | | | $ | 562 | | | $ | 640,937 | | | $ | (122,505) | | | $ | (3,704) | | | (1,181) | | | $ | (10,945) | | | $ | 504,345 | |
| Impact of ASU 2020-06 implementation (refer to "Note 1 - Summary of Significant Accounting Policies") | | Impact of ASU 2020-06 implementation (refer to "Note 1 - Summary of Significant Accounting Policies") | — | | | — | | | (66,656) | | | (13,380) | | | — | | | — | | | — | | | (80,036) | |
| Balances at January 1, 2022 | | Balances at January 1, 2022 | 28,094 | | | $ | 562 | | | $ | 574,281 | | | $ | (135,885) | | | $ | (3,704) | | | (1,181) | | | $ | (10,945) | | | $ | 424,309 | |
| Issuance of common stock upon the exercise of stock options | | Issuance of common stock upon the exercise of stock options | 133 | | | 3 | | | 1,283 | | | — | | | — | | | — | | | — | | | 1,286 | |
| Net issuance of restricted stock awards and restricted stock units | | Net issuance of restricted stock awards and restricted stock units | 200 | | | 2 | | | (1) | | | — | | | — | | | — | | | — | | | 1 | |
| Issuance of common stock for acquisition | | Issuance of common stock for acquisition | 163 | | | 3 | | | 6,297 | | | — | | | — | | | — | | | — | | | 6,300 | |
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | | Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | — | | | — | | | — | | | — | | | — | | | (90) | | | (3,148) | | | (3,148) | |
| Stock-based compensation | | Stock-based compensation | — | | | — | | | 13,426 | | | — | | | — | | | — | | | — | | | 13,426 | |
| Foreign currency translation adjustments | | Foreign currency translation adjustments | — | | | — | | | — | | | — | | | 2,339 | | | — | | | — | | | 2,339 | |
| Net loss | | Net loss | — | | | — | | | — | | | (69,319) | | | — | | | — | | | — | | | (69,319) | |
| Balances at December 31, 2022 | | Balances at December 31, 2022 | 28,590 | | | $ | 570 | | | $ | 595,286 | | | $ | (205,204) | | | $ | (1,365) | | | (1,271) | | | $ | (14,093) | | | $ | 375,194 | |
See accompanying Notesnotes to Consolidated Financial Statementsconsolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 |
| Cash flows from operating activities: | | | |
| Net (loss) income | $ | (3,386 | ) | | $ | 1,783 |
|
| (Income) loss from discontinued operations | (224 | ) | | 720 |
|
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |
| | |
|
| Insurance recovery of investment | — |
| | (771 | ) |
| Depreciation, amortization, and accretion | 4,033 |
| | 4,624 |
|
| Provision for bad debts | 303 |
| | 401 |
|
| Provision for obsolete inventory | 1,543 |
| | 1,249 |
|
| Equity based compensation | 651 |
| | 469 |
|
| Change in fair value of contingent consideration | (1,000 | ) | | (1,130 | ) |
| Deferred income tax | 4,159 |
| | 708 |
|
| Changes in operating assets and liabilities, net of acquisitions: | |
| | |
|
| Accounts receivable | 325 |
| | (1,576 | ) |
| Inventories | 2,948 |
| | (5,987 | ) |
| Income tax receivable/(payable) | 261 |
| | (540 | ) |
| Other current assets | (182 | ) | | (248 | ) |
| Other assets | (522 | ) | | (194 | ) |
| Accounts payable | (2,355 | ) | | 4,958 |
|
| Accrued expenses | 49 |
| | (2,023 | ) |
| Customer deposits and deferred service revenue | (6,905 | ) | | 8,995 |
|
| Other long-term liabilities | 154 |
| | (41 | ) |
| Deferred tax equity based compensation | — |
| | (45 | ) |
| Net cash (used in) provided by operating activities-continuing operations | (148 | ) | | 11,352 |
|
| Net cash provided by (used in) operating activities-discontinued operations | 462 |
| | (356 | ) |
| Net cash provided by operating activities | 314 |
| | 10,996 |
|
| Cash flows from investing activities: | |
| | |
|
| Capital expenditures | (5,071 | ) | | (3,433 | ) |
| Capitalization of software costs | (3,786 | ) | | (2,685 | ) |
| Working capital adjustment paid | — |
| | (977 | ) |
| Net cash used in investing activities | (8,857 | ) | | (7,095 | ) |
| Cash flows from financing activities: | |
| | |
|
| Payments of long-term debt | (187 | ) | | (181 | ) |
| Payments of other borrowings | (22,200 | ) | | (214,980 | ) |
| Proceeds from other borrowings | 23,150 |
| | 214,980 |
|
| Payments for deferred acquisition obligations | — |
| | (2,000 | ) |
| Proceeds from note receivable | 3,794 |
| | — |
|
| Proceeds from stock awards | 1,500 |
| | 27 |
|
| Net cash provided by (used in) financing activities | 6,057 |
| | (2,154 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 31 |
| | (716 | ) |
| Net (decrease) increase in cash and cash equivalents | (2,455 | ) | | 1,031 |
|
| Cash and cash equivalents at beginning of period | 9,055 |
| | 8,024 |
|
| Cash and cash equivalents at end of period | 6,600 |
| | 9,055 |
|
|
| | | | | | | |
| | | | |
| Supplemental disclosures of cash flow information: | |
| | |
|
| Cash paid during the period for: | |
| | |
|
| Interest | $ | 152 |
| | $ | 94 |
|
| Income taxes, net of refunds | $ | 20 |
| | $ | 714 |
|
| | | | |
| Supplemental disclosures of non-cash information: | |
| | |
|
| Adoption of accounting standard on deferred taxes | $ | 578 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cash flows from operating activities: | | | | | |
| Net loss | $ | (69,319) | | | $ | (75,799) | | | $ | (36,562) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
| Depreciation and amortization | 26,095 | | | 21,421 | | | 10,097 | |
| Accretion of debt in interest expense | 1,997 | | | 8,725 | | | 4,355 | |
| Current expected credit losses | 1,204 | | | 1,290 | | | 540 | |
| Provision for obsolete inventory | 69 | | | 103 | | | 2,256 | |
| Stock-based compensation | 13,426 | | | 14,615 | | | 4,251 | |
| Impairment loss | 1,301 | | | — | | | — | |
| Loss on debt extinguishment | — | | | 11,916 | | | 8,123 | |
| Adjustment to contingent consideration liability | (4,400) | | | — | | | (3,340) | |
| Deferred income tax | (373) | | | (10,417) | | | (3,229) | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable | (11,240) | | | 1,832 | | | (1,532) | |
| Inventories | (2,777) | | | (13,547) | | | (4,476) | |
| Other current assets | 949 | | | (3,995) | | | 809 | |
| Other assets | (5,052) | | | (4,001) | | | 326 | |
| Accounts payable | 2,191 | | | 4,911 | | | (4,176) | |
| Accrued salaries and benefits | 1,361 | | | (270) | | | 5,327 | |
| Accrued expenses | 1,012 | | | (6,096) | | | (594) | |
| Customer deposits and deferred service revenue | (5,851) | | | (1,710) | | | (3,445) | |
| Customers payable | 7,205 | | | — | | | — | |
| Other long-term liabilities | (868) | | | (2,134) | | | 1,027 | |
| Net cash used in operating activities | (43,070) | | | (53,156) | | | (20,243) | |
| Cash flows from investing activities: | | | | | |
| Cash paid for acquisition, net of cash acquired | (18,797) | | | (374,705) | | | — | |
| Settlement of working capital for acquisition | — | | | — | | | 191 | |
| Capital expenditures | (1,178) | | | (1,435) | | | (1,299) | |
| Capitalization of software costs | (6,445) | | | (6,852) | | | (7,932) | |
| | | | | |
| Purchase of held to maturity investments | (40,290) | | | — | | | — | |
| Net cash used in investing activities | (66,710) | | | (382,992) | | | (9,040) | |
| Cash flows from financing activities: | | | | | |
| Principal payments of long-term debt | (705) | | | (4,174) | | | (629) | |
| Payments for the extinguishment of notes payable | — | | | (183,618) | | | (66,250) | |
| Proceeds from common stock issuance | — | | | 215,000 | | | 131,407 | |
| Payments for common stock issuance costs | — | | | (6,828) | | | — | |
| Proceeds from debt issuance, net of original issue discount | — | | | 441,385 | | | 115,786 | |
| Payments for debt issuance costs | — | | | (13,998) | | | — | |
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | (3,148) | | | (5,315) | | | (297) | |
| Proceeds from exercise of stock options | 1,286 | | | 1,156 | | | 675 | |
| | | | | |
| | | | | |
| | | | | |
| Net cash (used in) provided by financing activities | (2,567) | | | 443,608 | | | 180,692 | |
| Effect of exchange rate changes on cash and cash equivalents | 1,461 | | | 273 | | | 1,241 | |
| Net (decrease) increase in cash, cash equivalents, and cash held on behalf of customers | (110,886) | | | 7,733 | | | 152,650 | |
| Cash, cash equivalents, and cash held on behalf of customers at beginning of period | 188,419 | | | 180,686 | | | 28,036 | |
| Cash, cash equivalents, and cash held on behalf of customers at end of period | $ | 77,533 | | | $ | 188,419 | | | $ | 180,686 | |
See accompanying Notesnotes to Consolidated Financial Statementsconsolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Reconciliation of cash, cash equivalents, and cash held on behalf of customers | | | | | |
| Cash and cash equivalents | $ | 70,328 | | | $ | 188,419 | | | $ | 180,686 | |
| Cash held on behalf of customers | 7,205 | | | — | | | — | |
| Total cash, cash equivalents, and cash held on behalf of customers | $ | 77,533 | | | $ | 188,419 | | | $ | 180,686 | |
| | | | | |
| Supplemental disclosures of cash flow information: | | | | | |
| Cash paid during the period for: | | | | | |
| Interest | $ | 22 | | | $ | 8,383 | | | $ | 4,018 | |
| Income taxes | 1,285 | | | — | | | 205 | |
| Bonus accrual to be paid in common shares | — | | | — | | | 620 | |
| Capitalized software recorded in accounts payable | 27 | | | 48 | | | 316 | |
| Capital expenditures in accounts payable | 75 | | | 26 | | | 228 | |
| Tax withholding in accrued salaries and benefits related to treasury stock acquired from employees | — | | | 643 | | | — | |
| Common stock issued for acquisition | 6,300 | | | 110,219 | | | — | |
| | | | | |
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
Nature of Businessbusiness
PAR Technology Corporation together with(the “Company” or “PAR,” “we,” or “us”), through its consolidated subsidiaries, provides management technology solutions, including software, hardware, and related services, integral tooperates in two segments - the point-of-sale (“POS”) infrastructure and task management, information gathering, assimilation and communications services. We deliver our management technology solutions through two operating segments – our Restaurant/Retail segment and ourthe Government segment. In addition,The Restaurant/Retail segment provides leading technology platforms to the consolidated financial statements include Corporaterestaurant and Eliminations,retail industries. We provide enterprise restaurants, franchisees, and other restaurant outlets in the three major restaurant categories - quick service, fast casual, and table service - with operational efficiencies by offering them a comprehensive suite of subscription services, hardware, and professional services. Our subscription services are grouped into three categories: Guest Engagement, which is comprisedincludes Punchh for customer loyalty and engagement and MENU for omnichannel digital ordering and delivery; Operator Solutions, which includes Brink POS for front-of-house and PAR Pay and PAR Payment Services for payments; and Back Office, which includes Data Central. The Government segment provides technical expertise and development of enterprise-wide functional departments.
Basis of consolidation
advanced systems and software solutions for the DoD and other federal agencies, as well as satellite command and control, communication, and IT mission systems at several DoD facilities worldwide. The accompanying consolidated financial statements include the Company's accounts and those of PAR Technology Corporation and its subsidiaries (ParTech, Inc., ParTech (Shanghai) Company Ltd., PAR Springer-Miller Systems, Inc., Springer-Miller Canada, ULC, PAR Canada ULC, Brink Software, Inc., PAR Government Systems Corporation and Rome Research Corporation), collectively referred to as the “Company”.consolidated wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
During fiscal year 2015, the
Basis of presentation and use of estimates
The Company entered into an asset purchase agreement to sell substantially all of the assets ofprepares its Hotel/Spa technology business operated under PAR Springer-Miller Systems, Inc. (“PSMS”). The transaction closed on November 4, 2015. Accordingly, the results of operations of PSMS have been classified as discontinued operationsconsolidated financial statements and related notes in accordance with Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements – Discontinued Operations. See Note 2 – Divestiture and Discontinued Operations -accounting principles generally accepted in the NotesUnited States of America. The preparation of the consolidated financial statements requires management of the Company to Consolidated Financial Statementsmake a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such 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, the measurement of liabilities and equity recognized for further discussion.outstanding convertible notes, credit losses for receivables, valuation of excess and obsolete inventories, and measurement of contingent consideration at fair value. Actual results could differ from those estimates.
Business combinations
The Company accounts for business combinations pursuant to ASC Topic 805, Business Combinations, which requires that assets acquired and liabilities assumed be recorded at their respective fair values on the date of acquisition. The fair value of the consideration paid is assigned to the underlying net assets of the acquired business based on their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is allocated to goodwill (the “Acquisition Method”).goodwill. The purchase price allocation process requires the Company to make significant assumptions and estimates in determining the purchase price and the fair value of assets acquired and liabilities assumed at the acquisition date. The Company’s assumptions and estimates are subject to refinement and, as a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period, any subsequent fair value adjustments are recorded toin the Company’s consolidated statements of operations. The Company’s consolidated financial statements and results of operations reflect an acquired business after the completion of the acquisition.
Contingent consideration
The Company determinesdetermined the acquisition date fair value of contingent consideration associated with the Data Central Acquisition and MENU Acquisition using a discounted cash flow method,Monte-Carlo simulation valuation techniques, with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC Topic 820, Fair Value Measurement.Measurement. This valuation technique is also used to determine current fair value of any contingent consideration. The simulation uses probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring. Significant increases or decreases to these inputs in isolation would result in a significantly higher or lower liability with a higher liability capped by the Level 3 measurement not supported by market activity includedcontractual maximum of the Company’s probability assessments of expected future cash flows relatedcontingent post-closing revenue focused milestones obligation. Ultimately, the liability will be equivalent to the Company’samount 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 is reflected as cash used in financing activities in the Company's consolidated statements of Brink Software Inc. during the contingent consideration period, appropriately discounted considering the uncertainties associated with the obligation, and calculatedcash flows. Any amount paid in accordance with the termsexcess of the definitive agreement. liability on the acquisition date is reflected as cash used in operating activities.
The liabilitiesData Central Acquisition resulted in a liability for the contingent consideration arerecorded in the amount of $3.3 million during 2019. The liability for the contingent consideration was established at the time of the acquisition and will beis evaluated on a quarterly basis based on additional information as it becomes available. Anyavailable; any change in the fair value adjustment is recorded in the earnings of that period. During 2017, we2020, the Company recorded a $1.0$3.3 million adjustment to decrease the fair value of ourthe contingent consideration related to the Data Central Acquisition to zero as of December 31, 2020. No additional adjustments were made by the Company during 2021.
The MENU Acquisition resulted in an initial liability for the contingent consideration recorded in the amount of $14.2 million during the third quarter of 2022. The liability for the contingent consideration was established at the time of the acquisition and is evaluated quarterly based on additional information as it becomes available; any change in the fair value adjustment is recorded in the earnings of Brink Software Inc., versusthat period. During the fourth quarter of 2022, the Company recorded a $1.1$4.4 million adjustment to decrease the fair value during 2016. This reduction in expense is reflected within other income on the statements of operations. Changes in the fair value of the contingent consideration obligations may result from changes in probability assumptions with respectliability related to the likelihoodMENU Acquisition to $9.8 million as of achieving the various contingent payment obligations. Significant increases or decreasesDecember 31, 2022.
Revenue and Cost of Sales Presentation Changes
Beginning with this Annual Report, we have retroactively split our "Service" financial statement line items ("FSLIs"), presented in the inputs noted aboveconsolidated statements of operations under "Revenues, net" and "Cost of sales", into two FSLIs, "Subscription Service" and "Professional Service", to provide clearer insight into these operationally and economically different revenue streams in isolation would resultlight of recent acquisitions. This split did not change historical revenue or cost of sales previously reported. We also renamed our "Product" FSLI, presented in a significantly lower or higher fair value measurement.the consolidated statements of operations under "Revenue, net" and "Cost of sales", to "Hardware", to better describe this revenue stream.
Revenue recognition policy
Restaurant/Retail Contracts
Our Restaurant/Retail segment’s revenues consist of sales of the Company’s standard POS systemRefer to the Restaurant/Retail segment. We derive revenue from the following sources: (1) hardware sales, (2) software license agreements, including perpetual licenses and software as a service, (3) professional services, (4) hosting services and (5) post-contract customer support (“PCS”).
We recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is probable. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report.
Hardware
“Note 3 – Revenue recognition on hardware sales occurs upon installation at the customer site (or when shipped for systems that are not installed by the Company) when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectability is reasonably assured.
Software
Revenue recognition on software sales generally occurs upon delivery to the customer, when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectability is reasonably assured. For software sales sold as a perpetual license, typically our Pixel software offering, where the Company is the sole party that has the proprietary knowledge to install the software, revenue is recognized upon installation and when the system is ready to go live.
Service
Service revenue consists of installation and training services, field and depot repair, subscription software products, associated software maintenance, and software related hosted services. Installation and training service revenue are based upon standard hourly/daily rates as well as contracted prices with the customer, and revenue is recognized as the services are performed. Support maintenance and field and depot repair are provided to customers either on a time and materials basis or under a maintenance contract. Services provided on a time and materials basis are recognized as the services are performed. Service revenues from maintenance contracts are recorded as deferred revenue when billed to and collected from the customer and are recognized ratably over the underlying contract period. Software sold as a service with our Brink and SureCheck software offerings, is recorded as deferred revenue when billed and collected and recognized ratably over the contract term.
The Company frequently enters into multiple-element arrangements with our customers including hardware, software, professional consulting services and maintenance support services. For arrangements involving multiple deliverables, when deliverables include software and non-software products and services, we evaluate and separate each deliverable to determine whether it represents a separate unit of accounting based on the following criteria: (a) the delivered item has value to the customer on a stand-alone basis; and (b) if the contract includes a general right of return relative to the delivered item, delivery or performance of the undelivered items is considered probable and substantially in the control of PAR.
Multiple element arrangements which include hardware, service, and software offerings are separated based upon the stand-alone price for each individual hardware, service, or software sold in the arrangement irrespective of the combination of products and services which are included in a particular arrangement. As such, overall consideration is allocated to each unit of accounting based on the unit’s relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to each deliverable: (i) vendor-specific objective evidence of selling price (VSOE), (ii) third-party evidence of selling price (TPE), and (iii) best estimate of selling price (BESP). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. The Company uses BESP to allocate revenue when we are unable to establish VSOE or TPE of selling price. BESP is primarily used for elements such as products that are not consistently priced within a narrow range. The Company determines BESP for a deliverable by considering multiple factors including product and customer class, geography, average discount, and management’s historical pricing practices. Amounts allocated to the delivered hardware and software elements are recognized at the time of sale provided the other conditionsRecognition” for revenue recognition have been met. Amounts allocated to the undelivered maintenancepolicy and other services elements are recognized as the services are provided or on a straight-line basis over the service period. In certain instances, customer acceptance is required prior to the passage of title and risk of loss of the delivered products. In such cases, revenue is not recognized until the customer acceptance is obtained. Delivery and acceptance generally occur in the same reporting period.disclosures.
Software elements, generally software PCS, and professional services revenue are recognized in accordance with authoritative guidance on software revenue recognition. For the software and software-related elements of such transactions, revenue is allocated based on the relative fair value of each element, and fair value is determined by vendor specific objective evidence, where available. If VSOE is not available for all elements, we will use the residual method to separate the elements as long as we have VSOE for the undelivered elements. If we cannot objectively determine the fair value of any undelivered element included in such multiple-element arrangements, we defer the revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements.
Government Contracts
The Company’s contract revenues generated by the Government segment result primarily from contract services performed for the U.S. Government under a variety of cost-plus fixed fee, time-and-material, and fixed-price contracts. Revenue on cost-plus fixed fee contracts is recognized based on allowable costs for labor hours delivered, as well as other allowable costs plus the applicable fee. Revenue on time and material contracts is recognized by multiplying the number of direct labor hours delivered in the performance of the contract by the contract billing rates and adding other direct costs as incurred. Revenue from fixed-price contracts is recognized as labor hours are delivered which approximates the straight-line basis of the life of the contract. The Company’s obligation under these contracts is to provide labor hours to conduct research or to staff facilities with no other deliverables or performance obligations. Anticipated losses on all contracts are recorded in full when identified. Unbilled accounts receivable is stated in the Company’s consolidated financial statements at their estimated realizable value. Contract costs, including indirect expenses, are subject to audit and adjustment through negotiations between the Company and U.S. Government representatives.
Warranty provisions
Warranty provisions for producthardware warranties are recorded in the period in which the Company becomes obligated to honor the related right,warranty, which generally is the period in which the related producthardware revenue is recognized. The Company accrues warranty reserves based upon historical factors such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts. When a sale is consummated, a warranty reserve is recorded based upon the estimated cost to provide the service over the warranty period.period which can range from 12 to 36 months and cost of replacement parts.
Activity related to warranty claims are as follows:
| | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| (in thousands) | | | | |
| Beginning balance | | $ | 762 | | | $ | 994 | |
| Adjustments to reserve | | 184 | | | (10) | |
| Warranty claims settled | | (224) | | | (222) | |
| | | | |
| Ending balance | | $ | 722 | | | $ | 762 | |
Cash, cash equivalents, and cash equivalentsheld on behalf of customers
The Company considers all highly liquid investments, purchased with a remaining maturity of three months or less, to be cash equivalents.equivalents, including money market funds. Cash held on behalf of customers represents an asset arising from our payment processing services that is restricted for the purpose of satisfying obligations to remit funds to various merchants.
The Company maintained bank balances that, at times, exceeded the federally insured limit during the years ended December 31, 2022 and 2021. 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.
Cash, cash equivalents, and cash held on behalf of customers consist of the following:
| | | | | | | | | | | |
| (in thousands) | December 31, 2022 | | December 31, 2021 |
| Cash and cash equivalents | | | |
| Cash | $ | 18,856 | | | $ | 69,249 | |
| Money market funds | 51,472 | | | 119,170 | |
| Cash held on behalf of customers | 7,205 | | | 0 | |
| Total cash, cash equivalents, and cash held on behalf of customers | $ | 77,533 | | | $ | 188,419 | |
Short-Term Investments
Short-term investments include held-to-maturity investment securities consisting of investment-grade interest bearing instruments, primarily treasury bills and notes, which are stated at amortized cost. The Company does not intend to sell these investment securities and the contractual maturities are not greater than 12 months. The Company did not record any material gains or losses on these securities during the year ended December 31, 2022 . The estimated fair value of these securities approximated their carrying value as of December 31, 2022.
The carrying value of investment securities consist of the following:
| | | | | | | | | | | |
| (in thousands) | December 31, 2022 | | December 31, 2021 |
| Short-term investments | | | |
| Treasury Bills & Notes | $ | 40,290 | | | $ | — | |
| Total Short-term Investments | $ | 40,290 | | | $ | — | |
Accounts receivable – Allowance for doubtful accountscurrent expected credit losses
Allowances for doubtful accounts are based on estimates of probable losses related to accounts receivable balances. The establishment of allowances requires the use of judgment and assumptions regarding probable losses on receivable balances.
The Company continuously monitors collections and payments from our customers and maintainmaintains a provision for accounts receivables that it does not expect to collect. In accordance with ASC Topic 326 Financial Instruments - Credit Losses, the Company accrues its estimated losses from uncollectible accounts receivable to the provision based upon recent historical experience, the length of time the receivable has been outstanding, other specific information as it becomes available, and reasonable and supportable forecasts not already reflected in the historical loss information. Provisions for current expected credit losses based on our historical experience and any specific customer collection issues that we have identified. Thus, ifare charged to current operating expenses. Actual losses are charged against the financial condition of our customers were to deteriorate, our actual losses may exceed our estimates, and additional allowances would be required.provision when incurred.
Inventories
The Company’s inventories are valued at the lower of cost orand net realizable value, with cost determined using the first-in, first-out (“FIFO”)weighted average cost method. The Company uses certain estimates and judgments and considers several factors including producthardware demand, changes in customer requirements and changes in technology to provide for excess and obsolescence reserves to properly value inventory.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to twenty-fiveforty years. Expenditures for maintenance and repairs are expensed as incurred.
Other assets
Other assets primarily consistconsists of cash surrender value of life insurance related to the Company’s Deferred Compensation Plandeferred compensation plan eligible to certain employees. The funded balance is reviewed on an annual basis. The balance of the life insurance policy was $3.2 million and $3.7 million at December 31, 2022 and December 31, 2021, respectively.
Income taxes
The Company and its subsidiaries file a consolidated U.S. federal income tax return. State tax returns are filed on a combined or separate basis depending on the applicable laws in the jurisdictions where the tax returns are filed. The Company also files foreign tax returns on a separate company basis in the countries in which it operates. The provision for income taxes is based upon pretax earningsloss with deferred income taxes provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The Company records a valuation allowance when necessary to reduce deferred tax assets to their net realizable amounts. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Other long-term liabilities
Other long-term liabilities represent amounts owed to employees that participate in the Company’s Deferred Compensation Plandeferred compensation plan, the Company's repayment obligations associated with deferred payroll taxes under the Coronavirus Aid, Relief, and the estimated fair value of theEconomic Security Act (“CARES Act”), and contingent consideration payable relatedrecognized in conjunction with the MENU Acquisition (refer to the Brink Software Inc. acquisition. The amount of the amounts"Note 2 - Acquisitions" for additional information).
Amounts owed to employees participating in the Deferred Compensation Plan at December 31, 2017 was $3.9deferred compensation plan were $1.7 million compared to $3.8and $2.4 million at December 31, 2016. During 2017, we recorded a $1.02022, and December 31, 2021, respectively.
Under the CARES Act employers were permitted to defer payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. The Company deferred payment of $3.8 million adjustment to decreaseof employer portion of social security taxes through the fair valueend of our contingent consideration related to the acquisition of Brink Software Inc. compared to an adjustment to decrease the fair value of $1.12020. The Company paid $1.9 million in 2016. At December 31, 2017, the amount remaining2021 and $1.9 million in other long-term liabilities related to contingent consideration is $3.0 million compared to $4.0December 2022. Deferred payroll taxes were zero and $1.9 million at December 31, 2016. This is reflected2022, and December 31, 2021, respectively, and were included within other incomeaccrued salaries and benefits and on the statementsconsolidated balance sheet.
Foreign currency
The assets and liabilities for the Company’s international operations are translated into U.S. dollars using year-end exchange rates. Income statement items are translated at average exchange rates prevailing during the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity under the heading Accumulated Other Comprehensive Income (Loss).Loss. Exchange gains and losses on intercompany balances of permanently invested long-term loans are also recorded as a translation adjustment and are included in Accumulated Other Comprehensive Income (Loss).Loss. Foreign currency transaction gains and losses are recorded in other income, net in the accompanying statements of operations.
Other income (expense), net
The components ofCompany's foreign currency transaction gains and losses and rental income and losses are recorded in other income, (expense) from continuing operations fornet in the years ending December 31 are as follows:accompanying statements of operations.
|
| | | | | | | |
| | Year ended December 31 (in thousands) |
| | 2017 | | 2016 |
| | | | |
| Foreign currency loss | $ | 39 |
| | $ | (24 | ) |
| Rental (loss) income-net | (683 | ) | | (662 | ) |
| Insurance recovery / investment write off | — |
| | 771 |
|
| Fair value adjustment contingent consideration | 1,000 |
| | 1,130 |
|
| Other | 273 |
| | 101 |
|
| Other income | $ | 629 |
| | $ | 1,316 |
|
In 2017, we recorded a $1.0 million adjustment to decrease the fair value of the Company's contingent consideration related to the acquisition of Brink Software Inc. Also, during 2017, the Company incurred a net loss on rental contracts of approximately $0.7 million.
During 2016, we recorded a $1.1 million adjustment to decrease the fair value of the Company's contingent consideration related to the acquisition of Brink Software Inc. In addition, we recorded an insurance recovery of $0.8 million in 2016 relating to the unauthorized transfers of the Company's funds by its former chief financial officer. Also, during 2016, the Company incurred a net loss on rental contracts of approximately $0.7 million.
Identifiable intangible assets
The Company’sCompany's identifiable intangible assets represent intangible assets acquired fromin the 2014acquisition of Brink Software, Inc. in 2014, the acquisition of 3M Company's Drive-Thru Communications Systems in 2019, the Data Central Acquisition, the Punchh Acquisition, the MENU Acquisition, and internally developed software development costs.
The Company capitalizes certain costs related to the development of computerits platform and other software used in its Restaurant/Retail segment. Software development costs incurred prior to establishing technological feasibility are charged to operations and included in research and development costs. The technological feasibility of a computer software product is established when the Company has completed all planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements. Software development costs incurred after establishing feasibility (as defined within ASC 985-20applications for software cost related to sold as a perpetual license) are capitalized and amortized on a product-by-product basis when the product is available for general release to customers. Software development is also capitalizedinternal use in accordance with ASC Topic 350-40, “Intangibles Intangibles - Goodwill and Other - Internal - Use Software”. The Company begins to capitalize its costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. The Company stops capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant testing. These costs are amortized on a straight-line basis over the expected benefit period, whichestimated useful life of the related asset, generally ranges from estimated to be three to seven years. Long-livedThe Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within research and development expenses in the Company's consolidated statements of operations.
The Company exercises judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized. To the extent that the Company can change the manner in which new features and functionalities are developed and tested related to its platform, assessing the ongoing value of capitalized assets or determining the estimated useful lives over which the costs are amortized, the amount of internal-use software development costs the Company capitalizes and amortizes could change in future periods.
Included in identifiable intangible assets are testedapproximately $2.1 million and $3.4 million of costs related to software products that have not satisfied the general release threshold as of December 31, 2022 and December 31, 2021, respectively. These software products will be ready for impairment when events or conditions indicate thattheir intended use within the carrying value of an asset may not be fully recoverable from future cash flows.next 12 months. Software costs capitalized within continuing operationsplaced into service during the periodsyears ended 2017December 31, 2022 and 20162021 were $3.8$6.5 million and $2.7$9.3 million, respectively.
Annual amortization charged to cost of sales when a product is available for general release to customers, is computed using the greater of (a) the straight-line method over the remaining estimated economic life of the product, generally three to seven years or (b) the ratio that current gross revenuesyears.
Amortization expense for a product bear to the totalacquired developed technology and internally developed software was broken out as follows:
| | | | | | | | | | | | | | | | | |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Amortization of acquired developed technology | $ | 15,307 | | | $ | 11,978 | | | $ | 3,457 | |
| Amortization of internally developed software | 6,737 | | | 5,411 | | | 3,269 | |
The components of identifiable intangible assets excluding discontinued operations, are:
|
| | | | | | | | |
| | December 31, (in thousands) | |
| | 2017 | | 2016 | Estimated Useful Life |
| Acquired and internally developed software costs | $ | 19,670 |
| | $ | 15,884 |
| 3 - 7 years |
| Customer relationships | 160 |
| | 160 |
| 7 years |
| Non-compete agreements | 30 |
| | 30 |
| 1 year |
| | 19,860 |
| | 16,074 |
| |
| Less accumulated amortization | (8,190 | ) | | (5,508 | ) | |
| | $ | 11,670 |
| | $ | 10,566 |
| |
| Trademarks, trade names (non-amortizable) | 400 |
| | 400 |
| N/A |
| | $ | 12,070 |
| | $ | 10,966 |
| |
| | | | | | | | | | | | | | | | | |
| December 31, | | |
| (in thousands) | 2022 | | 2021 | Estimated Useful Life | Weighted-Average Amortization Period |
| Acquired developed technology | $ | 119,800 | | | $ | 109,100 | | 3 - 7 years | 4.75 years |
| Internally developed software costs | 32,274 | | | 25,735 | | 3 years | 2.50 years |
| Customer relationships | 12,360 | | | 12,360 | | 7 years | 4.33 years |
| Trade names | 1,410 | | | 1,410 | | 2 - 5 years | 2.00 years |
| Non-competition agreements | 30 | | | 30 | | 1 year | 1.00 year |
| 165,874 | | | 148,635 | | | |
| Impact of currency translation on intangible assets | 304 | | | — | | | |
| Less: accumulated amortization | (63,386) | | | (39,479) | | | |
| $ | 102,792 | | | $ | 109,156 | | | |
| Internally developed software costs not meeting general release threshold | 2,105 | | | 3,407 | | | |
| Trademarks, trade names (non-amortizable) | 6,200 | | | 6,200 | | Indefinite | |
| $ | 111,097 | | | $ | 118,763 | | | |
The expected future amortization of these intangible assets, assuming straight-line amortization of capitalized software development costs and acquisition related intangibles, excluding software costs not meeting the general release threshold, is as follows (in thousands):
|
| | | |
| 2018 | $ | 2,773 |
|
| 2019 | 2,300 |
|
| 2020 | 1,800 |
|
| 2021 | 1,534 |
|
| 2022 | 507 |
|
| Thereafter | 2,756 |
|
| Total | $ | 11,670 |
|
| | | | | |
| 2023 | $ | 23,368 | |
| 2024 | 21,323 | |
| 2025 | 19,550 | |
| 2026 | 17,737 | |
| 2027 | 14,730 | |
| Thereafter | 6,084 | |
| Total | $ | 102,792 | |
The Company has elected to test for impairment oftested its indefinite lived intangible assets for impairment during the fourth quarter of its fiscal year.the years ended December 31, 2022 and December 31, 2021. To value the indefinite lived intangible assets, the Company utilizes the relief from royalty method to estimate the fair values of the trademarks and trade names. There was nozero impairment charge recorded as ofto indefinite lived intangible assets in the years ended December 31, 2017.2022 and 2021.
Amortization expense for identifiable intangible assets was allocated as follows:
| | | | | | | | | | | | | | | | | |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Amortization of identifiable intangible assets recorded in cost of sales | $ | 22,044 | | | $ | 17,389 | | | $ | 6,726 | |
| Amortization expense recorded in operating expense | 1,863 | | | 1,825 | | | 1,150 | |
| Impact of currency translation on intangible assets | (304) | | | — | | | — | |
Stock-based compensation
The Company recognizesmeasures and records compensation expense for all stock-based compensation to employees, including awards of employee stock options, restricted stock awards and restricted stock units (both time and performance vesting), in the financial statements as compensation cost over the applicable vesting periods using an accelerateda straight-line expense recognition method, based on their fair value on the date of grant. The fair value of stock-based awards is determined by using the Black-Scholes option valuation model for option awards and closing price on the date of grant for restricted stock awards and restricted stock units. The Black-Scholes valuation model
incorporates assumptions as to the fair value of stock price, volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. In valuing stock options, significant judgment is required in determining the expected volatility of the Company's common stock and the expected life that individuals will hold their stock options prior to exercising. Expected volatility is based on the historical and implied volatility of the Company's common stock. The expected life of stock options is derived from the historical actual term of stock option grants and an estimate of future exercises during the remaining contractual period of the stock option. While volatility and estimated life are assumptions that do not bear the risk of change subsequent to the grant date of stock options, these assumptions may be difficult to measure, as they represent future expectations based on historical experience. Further, expected volatility and the expected life of stock options may change in the future, which could substantially change the grant-date fair value of future awards and, ultimately, the expense the Company records. The Company elects to account for forfeitures based on recognition in the reporting period incurred. Compensation expense for awards with performance conditions is reassessed each reporting period and recognized based upon the probability that the performance targets will be achieved.
The Company expenses stock-based compensation for stock options, restricted stock awards, restricted stock units and performance awards over the requisite service period. For awards with only a service condition, the Company expenses stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with both performance and service conditions, the Company expenses the stock-based compensation on a straight-line basis over the requisite service period for each separately vesting portion of the award, taking into account the probability that the Company will satisfy the performance condition.
Net loss per share
Basic
Net loss per share is calculated in accordance with ASC Topic 260: Earnings per Share, which specifies the computation, presentation and disclosure requirements for earnings per share are computedshares (“EPS”). It requires the presentation of basic and diluted EPS. Basic EPS excludes all dilution and is based onupon the weighted average number of shares of common sharesstock outstanding during the period. Diluted earningsEPS reflects the potential dilution that would occur if convertible securities or other contracts to issue common stock were exercised. At December 31, 2022, there were 1,029,417 anti-dilutive stock options outstanding compared to 1,305,881 as of December 31, 2021 and 956,627 as of December 31, 2020. At December 31, 2022 there were 512,416 anti-dilutive restricted stock units compared to 418,084 and 426,632 as of December 31, 2021 and December 31, 2020, respectively. Due to their anti-dilutive nature, the potential effects of the 2024 Notes, 2026 Notes, and the 2027 Notes conversion features (refer to “Note 8 – Debt” for additional information) were excluded from the diluted net loss per share reflect the dilutive impactcalculation as of outstanding stock optionsDecember 31, 2022, December 31, 2021 and restricted stock awards.December 31, 2020. Potential shares resulting from 2024 Notes, 2026 Notes, and 2027 Notes conversion features at respective maximum conversion rates of 46.4037 per share 30.8356 per share, and 17.8571 per share are approximately 638,051, 3,700,272 and 4,732,132, respectively.
The following is a reconciliation of the weighted average shares outstanding for the basic and diluted earningsloss per share computations (in thousands, except share and per share data):computations:
| | | | | | | | | | | | | | | | | |
| December 31, |
| (in thousands, except per share data) | 2022 | | 2021 | | 2020 |
| Net loss | $ | (69,319) | | | $ | (75,799) | | | $ | (36,562) | |
| | | | | |
| Basic: | | | | | |
| Weighted average common shares | 27,152 | | | 25,088 | | | 19,014 | |
| Loss per common share, basic | $ | (2.55) | | | $ | (3.02) | | | $ | (1.92) | |
| | | | | |
| Diluted: | | | | | |
| Weighted average common shares | 27,152 | | | 25,088 | | | 19,014 | |
| Loss per common share, diluted | $ | (2.55) | | | $ | (3.02) | | | $ | (1.92) | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| (Loss) income from continuing operations | $ | (3,610 | ) | | $ | 2,503 |
|
| | | | |
| Basic: | | | |
| Weighted average shares outstanding at beginning of year | 15,675 |
| | 15,645 |
|
| Weighted average shares issued during the year, net | 274 |
| | 30 |
|
| Weighted average common shares, basic | 15,949 |
| | 15,675 |
|
| (Loss) income from continuing operations per common share, basic | $ | (0.23 | ) | | $ | 0.16 |
|
| | | | |
| Diluted: | | | |
| Weighted average common shares, basic | 15,949 |
| | 15,675 |
|
| Dilutive impact of stock options and restricted stock awards | — |
| | 63 |
|
| Weighted average common shares, diluted | 15,949 |
| | 15,738 |
|
| (Loss) income from continuing operations per common share, diluted | $ | (0.23 | ) | | $ | 0.16 |
|
At 2017 and 2016 there were 265,000 and 38,000 incremental shares, respectively, from
Goodwill represents the assumed exercise of stock options that were excluded from the computation of diluted earnings per share becauseexcess of the anti-dilutive effect on earnings per share. There were no restricted stock awards excluded frompurchase price over the computation of diluted earnings per share for eachfair value of the fiscal years ended 2017net tangible and 2016.
intangible assets acquired in a business combination. Goodwill
The Company tests goodwill is not amortized, but is tested for impairment on an annual basis, which is on the first day of the fourth quarter,at least annually or more oftenfrequently if events or changes in circumstances indicate therethat the asset may be impairment.impaired. The Company operates in two reportableCompany's
impairment tests are based on the Company's identified reporting units within those operating segments which are the reporting units used in the test for goodwill impairment - Restaurant/Retail and Government. Goodwill impairment testing is performed atimpairment. If the sub-segment level (referred to as a reporting unit). The two reporting units utilized by the Company are: Restaurant/Retail and Government. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to a reporting unit, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support thecarrying value of the goodwill. Goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value including goodwill. If the fair value of aneither reporting unit exceeds its carryingfair value, applicable goodwillan impairment charge is considered not to be impaired. Ifrecognized for the excess of the carrying value exceeds fair value, there is an indication of impairment, at which time a second step would be performed to measure the amount of impairment. The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated an impairment. We utilize different methodologies in performing theover its fair value.
The Company conducted its annual goodwill impairment test for each reporting unit. For bothduring the Restaurant/Retailfourth quarter of 2022 and Government reporting units, these methodologies include an income approach, namely a discounted cash flow method, and multiple market approaches and the guideline public company method and quoted price method. The valuation methodologies and weightings used in the current year are generally consistent with those used in our past annual impairment tests.
The discounted cash flow method derives a value by determining the present value of a projected level of income stream, including a terminal value. This method involves the present value of a series of estimated future cash flows at the valuation date by the application of a discount rate, one which a prudent investor would require before making an investment in our equity. We consider this method to be most reflective of a market participant’s view of fair value given the current market conditions, as it is based on our forecasted results and, therefore, established this method's weighting at 80% ofdetermined that the fair value calculation. Key assumptions within our discounted cash flow model include projected financial operating results, a long-term growth ratefor each of 3% and, depending on the reporting unit, discount rates ranging from 14.5% to 27.0%.units significantly exceeded its respective carrying value. As stated above, because the discounted cash flow method derives value from the present value of a projected level of income stream, a modification to our projected operating results, including changes to the long-term growth rate, could impact the fair value. The present valuesuch, goodwill was not impaired. No impairment charge was recorded in any of the cash flows is determined using a discount rate based onperiods presented in the capital structure and capital costs of comparable public companies, as well as company-specific risk premium, as identified by us. A change to the discount rate could impact the fair value determination.accompanying consolidated financial statements.
The market approach is a generally-accepted way of determining a value indication of a business, business ownership interest, security or intangible asset by using one or more methods that comparefollowing table presents the reporting unit to similar businesses, business ownership interests, securities or intangible assets that have been sold. There are two methodologies considered under the market approach: the public company method and the quoted price method. The public company method and quoted price method of valuation are based on the premise that pricing multiples of publicly traded companies can be used as a tool to be applied in valuing closely held companies. The mechanics of the methods require the use of the stock price in conjunction with other factors to create a pricing multiple that can be used, with certain adjustments, to apply against the reporting unit’s similar factor to determine an estimate of valuegoodwill activities for the subject company. We consider these methods appropriate because they provide an indication of fair value supported by current market conditions. We established our weighting at 10% of the fair value calculationperiods presented:
| | | | | | | | |
| (in thousands) | | |
| Beginning balance - December 31, 2020 | | $ | 41,214 | |
| Punchh Acquisition | | 417,559 | |
| ASC 805 measurement period adjustment | | (1,467) | |
| Balance - December 31, 2021 | | 457,306 | |
| Q1 2022 Acquisition | | 1,212 | |
| MENU Acquisition | | 28,495 | |
| Punchh Acquisition ASC 805 measurement period adjustment | | (1,085) | |
| | |
| Foreign currency translation | | 834 | |
| Ending balance - December 31, 2022 | | $ | 486,762 | |
Refer to "Note 2 - Acquisitions" for the public company method and quoted price method for both the Restaurant/Retail and Government reporting units. The most critical assumption underlying the market approaches we use are the comparable companies selected. Each market approach described above estimates revenue and earnings multiples basedadditional information on the comparable companies selected. As such, a changegoodwill recognized in the comparable companies could have an impact on the fair value determination.acquisitions
The amount of goodwill within continuing operations was $11.1 million at December 31, 2017 and December 31, 2016. There was no impairment of goodwill for the years ending December 31, 2017 or December 31, 2016.
Impairment of long-lived assets
The Company evaluates the accounting and reporting for the impairment of long-lived assets in accordance with the reporting requirements of ASC Topic 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.Assets. The Company will recognize impairment of long-lived assets or asset groups if the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets. If the carrying value of a long-lived asset or asset group is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset or asset group for assets to be held and used, or the amount by which the carrying value exceeds the fair market value less cost to sell for assets to be sold. There was no impairment charge in 2017. During 2016,In the Companyyear ending December 31, 2022, the Restaurant/Retail segment recorded an impairment chargeloss of $0.5$1.3 million to accelerate one of itson internally developed software modules.
Use of estimates
The preparation ofcosts not meeting the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such 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, identifiable intangible assets and goodwill, valuation allowances for receivables, inventories and deferred income tax assets, and measurement of contingent consideration at fair value. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02 impacting the accounting for leases intending to increase transparency and comparability of organizations by requiring balance sheet presentation of leased assets and increased financial statement disclosure of leasing arrangements. The revised standard will require entities to recognize a liability for its lease obligations and a corresponding asset representing the right to use the underlying asset over the lease term. Lease obligations are to be measured at the present value of lease payments and accounted for using the effective interest method. The accounting for the leased asset will differ slightly depending on whether the agreement is deemed to be a financing or operating lease. For finance leases, the leased asset is depreciated on a straight-line basis and recorded separately from the interest expense in the income statement resulting in higher
expense in the earlier part of the lease term. For operating leases, the depreciation and interest expense components are combined, recognized evenly over the term of the lease, and presented as a reduction to operating income. The ASU requires that assets and liabilities be presented or disclosed separately and classified appropriately as current and noncurrent. The ASU further requires additional disclosure of certain qualitative and quantitative information related to lease agreements. The new standard is effective for the Company beginning in the first quarter 2019 and early adoption is permitted, although unlikely at this time. We are currently evaluating the impact of these amendments on our financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, codified as ASC Topic 606. The FASB issued amendments to ASC Topic 606 during 2016. The guidance will require additional disclosures regarding the nature, amount, timing and uncertainty of revenue and related cash flows arising from contracts with customers. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017 and allows for either full retrospective adoption or modified retrospective adoption.
We performed an evaluation of the new standard and assessed the impact of adoption on our consolidated financial statements. We reviewed significant open contracts with customers for each revenue stream. While we continue to perform our assessment, based on the contracts reviewed to date we do not expect a material impact on the Company’s consolidated financial statements because: i) product sales and software sales revenue will be recognized when control of the goods is transferred to the customer, which is consistent with the Company’s current revenue recognition at the date of delivery; ii) Fixed Price, Cost Plus Fixed Fee and Time and Materials contracts with the Government are recognized the same under current standards and the new standard; and iii) SaaS revenue recognition will continue to be accounted for ratably upon adoption of the new standard. We continue to analyze commissions that we pay, which may need to be recorded as a contract liability under the new standard. In addition, the Company is in the process of quantifying the adjustment for certain performance obligations that under the current standard are recognized upon delivery and under the new standard are expected to be recognized over time. We will finalize our assessment prior to filing our Form 10-Q for the quarter ending March 31, 2018. The Company has also assessed its control frameworkgeneral release threshold as a result of adoptingacquiring go-to-market software in the new standardMENU Acquisition; the impairment loss is presented within research and notes minimal changes to its systems and other controls processes.
The new standard permits two adoption methods under ASU 2014-09. The guidance may be adopted through either retrospective application to all periods presenteddevelopment expense in the consolidated financial statements (full retrospective) or throughstatement of operations. No impairment was recorded in the years ended December 31, 2021 and 2020.
Related Party Transactions
During the years ended December 31, 2022, 2021, and 2020, Act III Management LLC (“Act III Management”), a cumulative effect adjustment to retained earnings at the effective date (modified retrospective). The Company adopted the new standard effective January 1, 2018 using the modified retrospective transition method. Under that method, we will apply the rules to all contracts existing as of January 1, 2018. The cumulative effect will be recordedservice company to the opening balance of retained earnings beginning with our quarterly report on Form 10-Q for the quarter ending March 31, 2018.
The disclosures in our notesrestaurant, hospitality, and entertainment industries, provided software development and restaurant technology consulting services to the consolidated financial statements relatedCompany pursuant to revenue recognition will be expandeda master development agreement; and, Act III Management may provide such services to the Company in the future. Additionally, during the year ended December 31, 2022, the Company entered into a strategic advisor agreement with Act III Management, pursuant to which, Ronald Shaich, the sole member of Act III Management, serves as a strategic advisor to the Company's Board of Directors. 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.
As of December 31, 2022 and 2021, the Company had zero accounts payable owed to Act III Management. During the years ended December 31, 2022 and 2021, the Company paid Act III Management $0.6 million and $1.3 million, respectively, in consideration for services performed under the new standard, specifically around the quantitative and qualitative information about performance obligations, changes in contract assets and liabilities, and disaggregationmaster development agreement.
In August 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-15, "Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU 2016-15 is not expected to have a material impact on the Company's Consolidated Financial Statements
In January 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will be effective for us on January 1, 2020, with earlier adoption permitted and is not expected to have a material impact on the Company's Consolidated Financial Statements
In May 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification
accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award's fair value, (ii) the award's vesting conditions and (iii) the award's classification as an equity or liability instrument. ASU 2017-09 will be effective for us on January 1, 2018 and is not expected to have a material impact on the Company's Consolidated Financial Statements
Recently Adopted Accounting Pronouncements
In March 2016,August 2020, the Financial Accounting Standards Board (FASB)FASB issued ASU 2016-09No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The new guidance is intended to simplify several aspects of the accounting for employee share-based payment transactions standard, includingcertain convertible instruments with characteristics of both liability and equity. The guidance removes certain accounting models which separate the classificationembedded conversion features from the host contract for convertible instruments. As a result, after the adoption of excess tax benefitsthis guidance, an entity’s convertible debt instrument will be wholly accounted for as debt. The guidance also expands disclosure requirements for convertible instruments and deficiencies andsimplifies diluted earnings-per-share calculations by requiring the accounting for employee forfeitures.use of the if-converted method. The guidance was effective for the Company beginning in the first quarter of 2017 at which time we adopted. The updates to the accounting standard included the following:
Excess tax benefits and deficiencies will no longer be recognized as a change in additional paid-in-capital in the equity section of the balance sheet, instead they are to be recognized in the income statement as a tax expense or benefit. In the statement of cash flows, excess tax benefits and deficiencies will no longer be classified as a financing activity, instead they will be classified as an operating activity. The Company recognized a $578,000 adjustment to Retained Earnings for excess tax benefits not previously recognized. This adjustment is included in the statements of changes in shareholders' equity.
Entities will have the option to continue to reduce share-based compensation expense during the vesting period of outstanding awards for estimated future employee forfeitures or they may elect to recognize the impact of forfeitures as they actually occur. The Company will continue to reduce the share-based compensation expense during the vesting period of outstanding awards for estimated future forfeitures.
The ASU also provides new guidance to other areas of the standard including minimum statutory tax withholding rules and the calculation of diluted common shares outstanding.
In November 2015, the FASB issued new guidance related to the balance sheet classification of deferred taxes. This standard requires an entity to classify all deferred tax assets, along with any valuation allowance, as noncurrent on the balance sheet. As a result, each jurisdiction will have one net noncurrent deferred tax asset or liability. The new standard is effective for the Company for fiscal years beginning after December 15, 2016.2021 and could be adopted on either a fully retrospective or modified retrospective basis. The Company adopted the new standard as of January 1, 2022 under the modified retrospective method and recorded a cumulative effect upon adoption of a $81.3 million increase to convertible notes, $66.6 million reduction to other paid in capital, $13.4 million reduction to accumulated deficit, and a $1.3 million reduction to deferred tax liability to reflect the reversal of the separation of the convertible debt between debt and equity. Prior year presentation of debt was not impacted. The adoption of this standard also decreased the amount of non-cash interest expense to be recognized in future periods as a result of eliminating the quarter ended March 31, 2017, which is applied prospectively.discount associated with the equity component. There was no impact to the Company’s condensed consolidated statements of cash flows as the result of the adoption of ASU No. 2020-06.
In July 2015,October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which is intended to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company early adopted the new guidancestandard as of January 1, 2022, with no impact to the Company's condensed consolidated financial statements at adoption. Future impact of adoption is dependent on the Company's activity as an acquiring entity in transactions subject to Topic 805.
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, ASU 2019-12 which is intended to simplify various requirements related to the measurement of inventory. This standard changes the inventory valuation method from the lower of cost or marketaccounting for income taxes. ASU 2019-12 removes certain exceptions to the lowergeneral principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 effective January 1, 2021. In the year ended December 31, 2021, application of costthe standard to the Company's September 2021 convertible note offering, the 2027 Notes, resulted in classification to shareholders' equity of a $14.9 million partial release of the Company's deferred tax asset valuation adjustment. Refer to “Note 8 – Debt” for additional information.
Accounting Pronouncements Not Yet Adopted
With the exception of the standards discussed above, there were no other recent accounting pronouncements or net realizable value for inventory valued underchanges in accounting pronouncements during the first-in, first-outyear ended December 31, 2022 that are of significance or average cost methods. The new standard was effective forpotential significance to the Company beginning in the quarter ended March 31, 2017, and requires prospective adoption. The adoption did not have a material impact on the Company’s consolidated financial statements.Company.
Note 2 — DivestitureAcquisitions
MENU Acquisition - 2022
During the three months ended September 30, 2022, ParTech, Inc. ("ParTech") acquired 100% of the stock of MENU Technologies AG, a restaurant technology company offering fully integrated omnichannel ordering solutions to restaurants worldwide, for purchase consideration of approximately $18.4 million paid in cash and Discontinued Operations
On November 4, 2015,$6.3 million paid in shares of Company common stock. 162,917 shares of common stock were issued as purchase consideration, determined using a fair value share price of $38.67. In addition, the sellers have the opportunity to earn additional cash and Company common stock consideration over an earn-out period ending July 31, 2024, primarily based on MENU's future SaaS annual recurring revenues. The fair value of the earn-out was determined to be $14.2 million at the time of acquisition. As of December 31, 2022, the Company sold substantially alldetermined the fair value of the assetsMENU earn-out to be $9.8 million (refer to "Note 15 - Fair Value of its hotel/spa technologyFinancial Instruments" for a roll-forward of the earn-out).
The transaction was accounted for as a business operated by PAR Springer-Miller Systems, Inc., Springer-Miller International, LLC, and Springer-Miller Canada, ULC (collectively, “PSMS”) pursuant to an asset purchase agreement (the “PSMS APA”) dated on even date therewith among PSMS and Gary Jonas Computing Ltd., SMS Software Holdings LLC, and Jonas Computing (UK) Ltd. (the “Purchasers”)combination in accordance with ASC Topic 805, Business Combinations. Accordingly, assets acquired and liabilities assumed have been accounted for at their preliminarily determined respective fair values as of July 25, 2022, the date of acquisition. The preliminary fair value determinations were based on management's best estimates and assumptions, and with the assistance of independent valuation and tax consultants. Identified preliminary fair values are subject to measurement period adjustments within the permitted measurement period (up to one year from the acquisition date) as independent consultants finalize their procedures and net working capital adjustments are agreed upon and settled.
The following table presents management's preliminary purchase price allocation:
| | | | | |
| (in thousands) | Purchase price allocation |
| Cash | $ | 843 |
| Accounts receivable | 209 |
| Property and equipment | 204 |
| Developed technology | 10,700 |
| Prepaid and other acquired assets | 221 |
| Goodwill | 28,495 |
| Total assets | 40,672 |
| Accounts payable and accrued expenses | 1,300 |
| Deferred revenue | 443 | |
| Earn-out liability | 14,200 | |
| Consideration paid | $ | 24,729 | |
The Company determined the acquisition date fair value of contingent consideration associated with the MENU earn-out using a Monte Carlo simulation of a discounted cash flow model, with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820, Fair Value Measurement; refer to "Note 15 - Fair Value of Financial Instruments".
The estimated fair value of acquired developed technology was 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 acquired developed technology asset is being amortized on a straight-line basis over its estimated useful life of seven years.
Consideration paid in cash on the date of acquisition included $3.0 million deposited into an escrow account administered by a third party, to be held for up to 18-months following the date of acquisition, to fund potential post-closing adjustments and obligations.
The Company incurred acquisition expenses related to its acquisition of MENU of approximately $1.1 million.
The Company has not presented combined pro forma financial information of the Company and MENU because the results of operations of PSMSthe acquired business are considered immaterial.
Q1 2022 Acquisition
During the three months ended March 31, 2022, ParTech acquired substantially all the assets and liabilities of a privately held restaurant technology company. The transaction was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations, resulting in an increase to goodwill of $1.2 million. The Company determined that the preliminary fair values of all other assets acquired and liabilities assumed relating to the transaction did not materially affect the Company's financial condition; this determination included the preliminary valuations of identified intangible assets. The preliminary fair value determinations were based on management's best estimates and assumptions, and through the use of independent valuation and tax consultants. Identified preliminary fair values are subject to measurement period adjustments within the permitted measurement period (up to one year from the acquisition date) as independent consultants finalize their procedures. The Company considers the results of operations of the acquired business to be immaterial and therefore has not presented combined pro forma financial information.
During the fourth quarter of 2022, the fair values of assets and liabilities as of the acquisition date were finalized to reflect final acquisition valuation analysis procedures, resulting in no adjustments from the preliminary fair value determinations.
Punchh Acquisition - 2021
On April 8, 2021 (the “Closing Date”), the Company, ParTech, Inc., and Sliver Merger Sub, Inc., a wholly owned subsidiary of ParTech, Inc. (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Punchh Inc. (“Punchh”), and Fortis Advisors LLC, solely in its capacity as the initial Shareholder Representative. Pursuant to the Merger Agreement, on April 8, 2021, Merger Sub merged with and into Punchh (the “Merger”), with Punchh surviving the Merger and becoming a wholly owned subsidiary of the Company. Punchh is a leader in SaaS-based customer loyalty and engagement solutions.
In connection with the Merger, the Company paid former Punchh equity holders approximately $507.7 million (including holders of vested options and warrants) consisting of approximately (i) $397.5 million in cash (the “Cash Consideration”), and (ii) 1,493,130 shares of the Company's common stock for 100% of the equity interests in Punchh; Cash Consideration continues to be subject to adjustments for pending settlement of the indemnification escrow fund one year from the acquisition date. Consideration of common shares issued was determined using an average share price of $68.00, representing consideration paid of $101.5 million. An additional 112,204 shares of the Company's common stock are reserved for options granted as replacement awards for fully vested unexercised option awards assumed in connection with the Merger. The fair value of fully vested option awards was determined using a Black-Scholes model to be $8.7 million as of acquisition date. As a result, the total fair value of common shares issued and reserved of 1,594,202 (“Equity Consideration”) was determined to be $110.2 million. Further, the Company incurred acquisition related expenses of approximately $3.6 million.
In connection with, and to partially fund the Cash Consideration for, the Merger, on April 8, 2021, the Company, together with certain of its U.S. Subsidiaries, as guarantors, entered into a credit agreement with the lenders party thereto, and Owl Rock First Lien Master Fund, L.P., as administrative agent and collateral agent (the “Owl Rock Credit Agreement”), that provided for a term loan in an initial aggregate principal amount of $180.0 million (the “Owl Rock Term Loan”); and (ii) securities purchase agreements (the “Purchase Agreements”) with each of PAR Act III, LLC (“Act III”), and certain funds and accounts advised by T. Rowe Price Associates, Inc., acting as investment adviser (such funds and accounts being collectively referred to herein as “TRP”), to raise approximately $160.0 million through a private placement of the Company's common stock. The Company also issued to Act III a warrant to purchase 500,000 shares of common stock with an exercise price of $76.50 and a five year exercise period (the “Warrant”). In connection with the Company's September 2021 public offering of its common stock, as a result of anti-dilution provisions of the Warrant, an additional 3,975 shares of common stock are available for purchase under the Warrant, at an exercise price of $75.90 per share. Refer to “Note 9 – Common Stock” for additional information about the offering.
Additionally, on the Closing Date approximately $6.0 million of the Cash Consideration was deposited into a indemnification escrow fund, to be held for up to 18 months following the Closing Date, to fund (i) potential payment obligations of Punchh equity holders with respect to post-closing adjustments to the Cash and Equity Consideration and (ii) potential post-closing indemnification obligations of Punchh equity holders, in each case in accordance with the terms of the Merger Agreement. During the year ended December 31, 2021, $3.8 million was distributed from the escrow accounts, of which, $3.5 million was received by the Company from the settlement of post-closing obligations of the Punchh equity holders resulting in a reduction of the Cash Consideration paid for the acquisition,
and $0.3 million was released to former Punchh shareholders. As of December 31, 2021, the Company recorded remaining indemnification assets and liabilities of approximately $2.2 million to other assets and other long-term liabilities, respectively, to account for amounts deposited into the third-party escrow fund that will be settled one year from the acquisition date.
Allocation of Acquisition Consideration
The Punchh Acquisition was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations. Accordingly, assets acquired and liabilities assumed in the Punchh Acquisition were accounted for at their preliminarily determined respective fair values as of April 8, 2021. The preliminary fair value determinations were based on management's best estimates and assumptions, and through the use of independent valuation and tax consultants. Identified preliminary fair values were subject to measurement period adjustments within the permitted measurement period (up to one year from the acquisition date) as management finalized its procedures and net working capital adjustments were settled. The measurement period for the Punchh Acquisition remained open as of December 31, 2021 pending settlement of the third-party escrow fund one year from the acquisition date; management has otherwise completed its valuation procedures and settled net working capital adjustments.
During the year ended December 31, 2021, the preliminary fair values of assets and liabilities as of April 8, 2021 were adjusted to reflect the ongoing acquisition valuation analysis procedures and agreed upon net working capital adjustments. These adjustments included a $3.5 million reduction of Cash Consideration paid due to the release from escrow accounts. Additionally, the fair value of Equity Consideration increased $1.6 million as a result of the finalization of the number of fully vested options granted as replacement awards for fully vested unexercised awards assumed in connection with the Merger. Further, the fair value of developed technology was reduced by $3.6 million to reflect changes in the underlying fair value assumptions. The related change to amortization expense was not material to the results for the year. The reduction to developed technology, along with identified increases to Punchh acquisition related tax deductible temporary differences, resulted in a $3.1 million reduction to the preliminary net deferred tax liability recorded in purchase accounting. These adjustments resulted in a combined reduction to goodwill of $1.5 million during the year ended December 31, 2021.
During the first quarter of 2022, the fair values of assets and liabilities as of April 8, 2021 were finalized to reflect final acquisition valuation analysis procedures. These adjustments included a $0.8 million reduction of deferred revenue and $0.3 million of other adjustments, resulting in a reduction to goodwill of $1.1 million. Indemnification assets and liabilities were reduced by $0.1 million, with $2.1 million remaining in escrow.
The following table presents management's final purchase price allocation for the Punchh Acquisition:
| | | | | |
| (in thousands) | Purchase price allocation |
| Cash | $ | 22,714 | |
| Accounts receivable | 10,214 | |
| Property and equipment | 592 | |
| Lease right-of-use assets | 2,473 | |
| Developed technology | 84,600 | |
| Customer relationships | 7,500 | |
| Trade name | 5,800 | |
| Indemnification assets | 2,109 | |
| Prepaid and other acquired assets | 2,764 | |
| Goodwill | 415,055 | |
| Total assets | $ | 553,821 | |
| Accounts payable and accrued expenses | 15,617 | |
| Deferred revenue | 10,298 | |
| Loan payables | 3,508 | |
| Lease liabilities | 2,787 | |
| Indemnification liabilities | 2,109 | |
| Deferred taxes | 11,794 | |
| Consideration paid | $ | 507,708 | |
Intangible Assets
The Company identified three acquired intangible assets in the Punchh Acquisition: developed technology; customer relationships; and, the Punchh trade name. The 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 11.0% in determining the Punchh developed technology intangible fair value. The Company applied a 5.0% estimated annual attrition rate and discount rate of 11.0% in determining the Punchh customer relationships intangible fair value. The fair value of the Punchh trade name 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 11.0% in determining the Punchh trade name intangible fair value. The estimated useful life of these identifiable intangible assets was preliminarily determined to be indefinite for the Punchh trade name and seven years for both the developed technology and customer relationships intangible assets.
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. It is not deductible for income tax purposes.
Deferred Revenue
Deferred revenue acquired in the Punchh Acquisition was fair valued to determined allocation of consideration transferred to assume the liability. The preliminary fair value was determined utilizing the “bottom-up” approach, which is a form of the income approach that measures liability as the direct, incremental costs to fulfill the legal obligation, plus a reasonable profit margin for the services being delivered.
Loans Payable
Loan liabilities assumed in the Punchh Acquisition were primarily comprised of Punchh's $3.3 million CARES Act Paycheck Protection Program loan. The Company extinguished all assumed loan payables, including the assumed CARES Act loan, through repayment of the loans on the Closing Date.
Right-of-Use Lease Assets and Lease Liabilities
The Company assumed real property leases in the Punchh Acquisition related to office space in California, Texas and India and have accounted for these leases as Operating Leases in accordance with ASC Topic 842, Leases. The assumed leases have lease terms that run through 2021 to 2026. Valuation specialists were utilized by the Company to appraise the assumed leases against competitive market rates to determine the fair value of the lease liabilities assumed, which identified a $0.3 million unfavorable lease liability that the Company recognized as part of the lease right-of-use asset. The income approach was applied to value the identified unfavorable lease liability.
Deferred Taxes
The Company determined the deferred tax position to be recorded at the time of the Punchh Acquisition in accordance with ASC Topic 740, Income Taxes, resulting in recognition of deferred tax liabilities for future reversing of taxable temporary differences primarily for intangible assets and deferred tax assets primarily relating to net operating losses as of the Closing Date. A valuation allowance was also recorded against certain recognized deferred tax assets based on an evaluation of the realizability of the identified assets. These recognized deferred tax assets, liabilities and valuation allowance resulted in a preliminary net deferred tax liability of $11.8 million relating to the Punchh Acquisition.
The net deferred tax liability relating to the Punchh 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 in the year ended December 31, 2021, resulting in a net tax benefit of $10.4 million for the period.
Pro Forma Financial Information - unaudited
For the year ended December 31, 2021, the Punchh Acquisition resulted in additional revenues of $27.7 million.
The following table summarizes the Company's unaudited pro forma results of operations:
| | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| (in thousands) | | 2021 | | 2020 |
| Total revenue | | $ | 291,596 | | | $ | 241,015 | |
| Net loss | | (79,079) | | | (49,370) | |
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 classifiedobtained, or to be a projection of results that may be obtained in the future. $3.6 million of acquisition related costs have been reflected in the 2020 pro forma results.
Note 3 - Revenue Recognition
Restaurant/Retail
The Company's revenue in the Restaurant/Retail segment is derived from three types of revenue: hardware sales, subscription services, and professional services. ASC Topic 606: Revenue from Contracts with Customers requires the Company to distinguish and measure performance obligations under customer contracts. Contract consideration is allocated to all performance obligations within the arrangement or contract. Performance obligations that are determined not to be distinct are combined with other performance obligations until the combined unit is determined to be distinct and that combined unit is then recognized as discontinuedrevenue over time or at a point in time depending on when control is transferred. The Company evaluated the potential performance obligations within its Restaurant/Retail segment and evaluated whether each performance obligation met the ASC Topic 606 criteria to be considered a distinct performance obligation.
Amounts invoiced in excess of revenue recognized represent deferred revenue. Contracts typically require payment within 30 to 90 days from the shipping date or installation date, depending on the Company's terms with the customer. The primary method used to estimate a stand-alone selling price, is the price that the Company charges for the particular good or service sold by the Company separately under similar circumstances to similar customers. The Company determines stand-alone selling prices for hardware and subscription services based on the price at which the Company sells the particular good or service separately in similar circumstances and to similar customers. The Company determines stand-alone selling prices for professional services by using an expected cost plus margin.
Hardware
Hardware revenue consists of hardware product sales and is recognized as a point in time revenue. Revenue on these items are recognized when the customer obtains control of the asset in accordance with the terms of sale. This generally occurs upon delivery, upon installation, or upon delivery to a third-party carrier for onward delivery to customer. We accept returns for hardware sales and recognize them at the time of sale as a reduction to revenue based on historical experience.
Subscription Service
Our subscription services consist of revenue from our SaaS solutions, related software support, and transaction-based payment processing services.
SaaS solutions
SaaS solution revenues consist of subscription fees from customers for access to our SaaS solutions and third party SaaS solutions and are recognized ratably over the contract period, commencing when the subscription service is made available to the customer, as the customer simultaneously receives and consumes the benefits of the Company’s performance obligations. Our contracts with customers are generally for a period ranging from 12 to 36 months. We determined we are the principal in transferring these services to the customer and recognize revenue on a gross basis. We control the services being provided to our customer, are responsible for fulfillment of the promise in our contract with the customer, and have discretion in setting the price with our customer.
Software support
Software support revenues includes fees from customers from the sales of varying levels of basic support services which are “stand-ready obligations” satisfied over time on the basis that the customer consumes and receives a benefit from having access to the Company's support resources, when and as needed, throughout the contract term, which is generally 12 months. For this reason, the basic support services are recognized ratably over the contract term since the Company satisfies its obligation to stand ready by performing these services each day.
Transaction-based payment processing
Transaction-based payment processing revenues includes transaction-based payment processing services for customers which are charged a transaction fee for payment processing. This transaction fee is generally calculated as a percentage of the total transaction amount processed plus a fixed per transaction fee. We satisfy our payment processing performance obligations and recognize the transaction fees as revenue net of refunds and reversals initiated by the restaurant upon authorization by the issuing bank and submission for processing. We allocate all variable fees earned from transaction-based revenue to this performance obligation on the basis that is is consistent with the ASC 606 allocation objectives.
Our transaction-based payment processing contracts are primarily layered rate contracts. In layered rate contracts, we pass through the costs of interchange and card assessment and network fees to our customers, which are recorded as a reduction to revenue, and we incur processing fees, which are recorded as cost of sales. For layered rate contracts, we have concluded we are generally the principal in the performance obligation to process payments because we control the payment processing services before the customer receives them, perform authorization and fraud check procedures prior to submitting transactions for processing in the payment network, have sole discretion over which third-party acquiring payment processors we will use and are ultimately responsible to the customers for amounts owed if those acquiring payment processors do not fulfill their obligations. We generally have full discretion in setting processing prices charged to the customers. Additionally, we are obligated to comply with certain payment card network operating rules and contractual obligations under the terms of out registration as a payment facilitator and as a master merchant under our third-party acquiring payment processor agreements which make us liable for the costs of processing the transactions for our customers and chargebacks and other financial losses if such amounts cannot be recovered from the restaurant. However, specifically as it relates to the costs of interchange and card assessment and network fees, we have concluded we are the agent because we do not control pricing for these services and the costs are passed through to our customers.
Professional Service
Professional service revenue consists of revenues from hardware support, installations, implementations, and other professional services.
Hardware support
Hardware support revenues consists of fees from customers from the Company's Advanced Exchange overnight hardware replacement program, on-site support and extended warranty repair service programs and are all “stand-ready obligations” satisfied over time on the basis that the customer consumes and receives a benefit from having access to the Company's support resources, when and as needed, throughout the contract term, which is generally 12 months. For this reason, the support services are recognized ratably over the contract term since the Company satisfies its obligation to stand ready by performing these services each day.
Installations
Installation revenue is recognized point in time. Installation revenue is recognized when installation is complete and the customer obtains control of the related asset. The Company offers installation services to its customers for hardware and software for which the Company primarily hires third-party contractors to install the equipment on the Company's behalf. The Company pays third-party contractors an installation service fee based on an hourly rate agreed to by the Company and contractor. When third-party installers are used, the Company determines whether the nature of its performance obligations is to provide the specified goods or services itself (principal) or to arrange for a third-party to provide the goods or services (agent). In the Company's customer arrangements, the Company is primarily responsible for providing a good or service, has inventory risk before the good or service is transferred to the customer, and has discretion in establishing prices; as a result, the Company has concluded that it is the principal in the arrangement and records installation revenue on a gross basis.
Implementations
Implementation revenue includes set-up and activation fees from customers to implement our SaaS solutions. We have concluded that this service does not represent a stand-alone performance obligation and is instead tied to the performance obligation to provide the subscription service. As such, we defer and amortize related revenues and costs over the life of the contract, commencing when the subscription service is made available to the customer.
Other professional services
Other professional service revenue includes hardware repairs and maintenance not covered under hardware support, business process mapping, training, and other ad hoc professional services sold separately. Other professional service revenue is recognized point in time upon the completion of the service.
Government
PAR’s Government segment provides technical expertise and development of advanced systems and software solutions for the U.S. Department of Defense, the intelligence community and other federal agencies. Additionally, we provide support services for satellite command and control, communication, and information technology systems at several DoD facilities worldwide. The Government segment has three principal contract offerings: intelligence, surveillance, and reconnaissance solutions, mission systems operations and maintenance, and commercial software products for use in analytic and operational environments that leverage geospatial intelligence data.
The Company's revenue in the Government segment is recognized over time as control is generally transferred continuously to its customers, with the exception of certain commercial software products that are transferred point in time when control transfers. Revenue generated by the Government segment is predominantly related to services; provided, however, revenue is also generated through the sale of materials, software, hardware, and maintenance. For the Government segment cost plus fixed fee contract portfolio, revenue is recognized over time using costs incurred to date to measure progress toward satisfying the Company's performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and general and administrative expenses. Profit is recognized on the fixed fee portion of the contract as costs are incurred and invoiced. Long-term fixed price contracts involve the use of judgment to estimate the total contract revenue and costs. For long-term fixed price contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete the contract, and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include: labor productivity and availability; the complexity of the work to be performed; and the performance of subcontractors. Revenue and profit in future periods of contract performance are recognized using the aforesaid assumptions, and adjusting the estimate of costs to complete a contract. Once the services provided are determined to be distinct or not distinct, the Company evaluates how to allocate the transaction price. Generally, the Government segment does not sell the same good or service to similar customers and the contract performance obligations are unique to each government solicitation. The performance obligations are typically not distinct. In cases where there are distinct performance obligations, the transaction price would be allocated to each performance obligation on a ratable basis based upon the stand-alone selling price of each performance obligation. Cost plus margin is used for the cost plus fixed fee contract portfolios as well as the fixed price and time and materials contracts portfolios to determine the stand-alone selling price.
In the Government segment, when determining revenue recognition, the Company analyzes whether its performance obligations under Government contracts are satisfied over a period of time or at a point in time. In general, the Company's performance obligations are satisfied over a period of time; however, there may be circumstances where the latter or both scenarios could apply to a contract.
The Company usually expects payment within 30 to 90 days from the date of service, depending on its terms with the customer. None of its contracts as of December 31, 2022 or December 31, 2021 contained a significant financing component.
Performance Obligations Outstanding
The Company's performance obligations outstanding represent the transaction price of firm, non-cancellable orders, with expected delivery dates to customers subsequent to December 31, 2022, for which work has not yet been performed. The aggregate uncompleted performance obligations attributable to each of the Company's reporting segments is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| (in thousands) | Current
under one year | | Non-current
over one year | | Current
under one year | | Non-current
over one year |
| Restaurant/Retail | $ | 8,459 | | | $ | 5,125 | | | $ | 12,449 | | | $ | 7,597 | |
| Government | — | | | — | | | — | | | — | |
| Total | $ | 8,459 | | | $ | 5,125 | | | $ | 12,449 | | | $ | 7,597 | |
Most performance obligations greater than one year relate to service and support contracts, that the Company expects to fulfill within 36 months. Commissions related to service and support contracts are not significant.
Remaining Performance Obligations
Deferred revenue is recorded when cash payments are received or due in advance of revenue recognition from software licenses, professional services, and maintenance agreements. The timing of revenue recognition may differ from when customers are invoiced. The changes in deferred revenue, inclusive of both current and long-term, are as follows:
| | | | | | | | | | | |
| (in thousands) | 2022 | | 2021 |
| Beginning balance - January 1 | $ | 20,046 | | | $ | 11,082 | |
| Acquired deferred revenue (refer to "Note 2 - Acquisitions") | 443 | | | 11,125 | |
| Recognition of deferred revenue | (37,690) | | | (19,229) | |
| Deferral of revenue | 30,785 | | | 17,068 | |
| Ending balance - December 31 | $ | 13,584 | | | $ | 20,046 | |
The above table excludes customer deposits of $2.1 million and $1.9 million as of December 31, 2022 and 2021, respectively. The majority of the deferred revenue balances above relate to professional services, maintenance agreements, and software licenses. These are recognized straight-line over the life of the contract, with the majority of the balance being recognized within the next 12 months.
In the Restaurant/Retail segment most remaining performance obligations relate to service and support contracts, approximately 62% of which the Company expects to fulfill within one year. The Company expects to fulfill 100% of support and service contracts within 60 months. At December 31, 2022 and 2021, transaction prices allocated to future performance obligations were $13.6 million and $20.0 million, respectively.
During the years ended December 31, 2022 and 2021, the Company recognized revenue included in contract liabilities at the beginning of each respective period of $13.8 million and $8.0 million.
In the Government segment, the value of existing contracts at December 31, 2022, net of amounts relating to work performed to that date, was approximately $333.9 million, of which $86.5 million was funded. The value of existing contracts at December 31, 2021, net of amounts relating to work performed to that date, was approximately $195.3 million, of which $38.6 million was funded. Funded amounts represent committed funds under contract by government agencies and prime contractors. Of the December 31, 2022 contract backlog, contract revenue is expected to be recognized over time as follows:
| | | | | |
| (in thousands) | |
| Next 12 months | $ | 77,832 | |
| Months 13-24 | 81,824 | |
| Months 25-36 | 157,459 | |
| Thereafter | 16,824 | |
| Total | $ | 333,939 | |
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers by major product line for each of its reporting segments because the Company believes it best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Disaggregated revenue is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| (in thousands) | Restaurant/Retail Point in Time | | Restaurant/Retail Over Time | | Government Point in Time | | Government Over Time |
| Hardware | $ | 114,410 | | | $ | — | | | $ | — | | | $ | — | |
| Subscription service | — | | | 97,499 | | | — | | | — | |
| Professional service | 20,937 | | | 29,501 | | | — | | | — | |
| Mission systems | — | | | — | | | — | | | 35,458 | |
| Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | — | | | 56,141 | |
| Commercial software | — | | | — | | | 1,132 | | | 717 | |
| Total | $ | 135,347 | | | $ | 127,000 | | | $ | 1,132 | | | $ | 92,316 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| (in thousands) | Restaurant/Retail Point in Time | | Restaurant/Retail Over Time | | Government Point in Time | | Government Over Time |
| Hardware | $ | 105,014 | | | $ | — | | | $ | — | | | $ | — | |
| Subscription service | — | | | 62,649 | | | — | | | — | |
| Professional service | 18,166 | | | 24,522 | | | — | | | — | |
| Mission systems | — | | | — | | | — | | | 38,311 | |
| Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | — | | | 33,188 | |
| Commercial software | — | | | — | | | 505 | | | 521 | |
| Total | $ | 123,180 | | | $ | 87,171 | | | $ | 505 | | | $ | 72,020 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| (in thousands) | Restaurant/Retail Point in Time | | Restaurant/Retail Over Time | | Government Point in Time | | Government Over Time |
| Hardware | $ | 73,228 | | | $ | — | | | $ | — | | | $ | — | |
| Subscription service | — | | | 31,370 | | | — | | | — | |
| Professional service | 15,992 | | | 21,922 | | | — | | | — | |
| Mission systems | — | | | — | | | — | | | 37,448 | |
| Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | — | | | 32,947 | |
| Commercial software | — | | | — | | | 686 | | | 193 | |
| Total | $ | 89,220 | | | $ | 53,292 | | | $ | 686 | | | $ | 70,588 | |
For the years ended December 31, 2021 and 2020, the hardware category was revised to conform with our current period presentation which, for the Restaurant/Retail segment, now aligns with the financial statement line item presentation in our consolidated statements of operations.
Practical Expedients and Exemptions
The Company generally expenses sales commissions when incurred because the amortization period would be less than one year or the total amount of commissions are immaterial. Commissions are recorded in SG&A expenses. The Company elected to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (for example, sales, use, value added, and some excise taxes).
Note 4 — Leases
A significant portion of the Company's operating lease portfolio includes office space, research and development facilities, IT equipment, and automobiles. The Company's leases have remaining lease terms of one to nine years. Substantially all lease expense is presented within SG&A in the consolidated statements of operations and consolidated statements of cash flows in accordance with Accounting Standards Codification (“ASC”) ASC 205-20 (Presentation of Financial Statements – Discontinued Operations). Additionally, the assets and associated liabilities have been classified as discontinued operations in the consolidated balance sheets. Total consideration to be received from the sale is $16.6 million in cash (the “Base Purchase Price”), with $12.1 million received at the time of closing, and $4.5 million payable eighteen months after the closing (the "Holdback Amount"). On May 5, 2017, the Company received payment of $4.2 million of the Holdback Amount, the unpaid balance reflecting a negative purchase price adjustment based on the net tanigble asset calculation provided under the PSMS APA.
In addition to the Base Purchase Price, contingent consideration of up to $1.5 million (the "Earn-Out") could be received by the Company based on achievement of certain agreed-upon revenue and earnings targets for calendar years 2016, 2017 and 2018 (up to $500,000 per calendar year), subject to setoff for PSMS and ParTech, Inc indemnification obligations thereunder and unresolved claims. As of 2017, the Company has not received any Earn-Out payment and has not recorded any amount associated with this contingent consideration for years 2017 and 2018 as the Company does not believe achievement of the related targets is probable.
Summarized financial information for the Company’s discontinued operations is as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | |
| (in thousands) | Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Total lease expense | $ | 2,415 | | | $ | 2,350 | | | $ | 1,358 | |
|
| | | | | | | |
| | December 31, (in thousands) |
| | 2017 | | 2016 |
| Assets | | | |
| Other current assets | $ | — |
| | $ | 462 |
|
| Assets of discontinued operations | $ | — |
| | $ | 462 |
|
| | | | |
Summarized financialSupplemental cash flow information for the Company’s discontinued operationsrelated to leases is as follows (in thousands):follows:
| | | | | | | | | | | |
| December 31, |
| (in thousands) | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from leases | $ | 2,293 | | | $ | 2,322 | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 1,597 | | | $ | 3,250 | |
Supplemental balance sheet information related to leases is as follows:
| | | | | | | | | | | |
| December 31, |
| (in thousands) | 2022 | | 2021 |
| Operating leases | | | |
| Total lease right-of-use assets | $ | 4,061 | | | $ | 4,348 | |
| | | |
| Lease liabilities - current portion | $ | 1,307 | | | $ | 2,266 | |
| Lease liabilities - net of current portion | 2,868 | | | 2,440 | |
| Total lease liabilities | $ | 4,175 | | | $ | 4,706 | |
| | | |
| Weighted-average remaining lease term | 4.5 years | | 2.7 years |
| | | |
| Weighted-average discount rate | 4.0 | % | | 4.0 | % |
|
| | | | | | | |
| | December 31, (in thousands) |
| | 2017 | | 2016 |
| | | | |
| Income (loss) from discontinued operations before income taxes | $ | 284 |
| | $ | (1,131 | ) |
| (Provision for) benefit from income taxes | (60 | ) | | 411 |
|
| Income (loss) from discontinued operations, net of taxes | $ | 224 |
| | $ | (720 | ) |
| | | | | |
| (in thousands) | Operating leases |
| 2023 | $ | 1,542 | |
| 2024 | 864 | |
| 2025 | 741 | |
| 2026 | 301 | |
| 2027 | 180 | |
| Thereafter | 727 | |
| Total lease payments | 4,355 | |
| Less: portion representing imputed interest | (180) | |
| Total | $ | 4,175 | |
Note 35 — Accounts Receivable, netNet
The Company’sCompany's net accounts receivable consists of, excluding discontinued operations:receivables consist of:
|
| | | | | | | |
| | December 31, (in thousands) |
| | 2017 | | 2016 |
| Government segment: | | | |
| Billed | $ | 9,028 |
| | $ | 6,779 |
|
| Advanced billings | (1,977 | ) | | (1,599 | ) |
| | 7,051 |
| | 5,180 |
|
| Restaurant/Retail segment: | | | |
| Accounts receivable - net | 23,026 |
| | 25,525 |
|
| | $ | 30,077 |
| | $ | 30,705 |
|
| | | | | | | | | | | |
| (in thousands) | 2022 | | 2021 |
| Government segment | $ | 17,320 | | | $ | 11,667 | |
| Restaurant/Retail segment | 42,640 | | | 38,311 | |
| Accounts receivable - net | $ | 59,960 | | | $ | 49,978 | |
At 2017December 31, 2022 and 2016,2021, the Company had recorded allowances for doubtful accountscurrent, expected credit loss of $0.9$2.1 million and $0.9$1.3 million, respectively, against Restaurant/Retail segment accounts receivable. Write-offs of accounts receivable during fiscal years 2017 and 2016 were $0.5 million and $0.4 million, respectively.for the Restaurant/Retail segment. The increase in bad debt expense which is recordedfollowing table presents changes in the consolidated statementscurrent expected credit loss during the years ended December 31:
| | | | | | | | | | | |
| (in thousands) | 2022 | | 2021 |
| Beginning balance - January 1 | $ | 1,306 | | | $ | 1,416 | |
| Provisions | 1,204 | | | 1,290 | |
| Write-offs | (376) | | | (1,386) | |
| Recoveries | — | | | (14) | |
| Ending balance - December 31 | $ | 2,134 | | | $ | 1,306 | |
Receivables recorded as of operations was $0.3 millionDecember 31, 2022 and $0.4 million in 2017 and 2016, respectively.2021 all represent unconditional rights to payments from customers.
Note 46 — Inventories, netNet
Inventories are used in the manufacture and service of Restaurant/Retail hardware products. The components of inventory, net consist of the following, excluding discontinued operations:following:
| | | | | | | | December 31, |
| | December 31, (in thousands) | |
| | 2017 | | 2016 | |
| Finished Goods | $ | 9,535 |
| | $ | 9,423 |
| |
| (in thousands) | | (in thousands) | 2022 | | 2021 |
| Finished goods | | Finished goods | $ | 21,998 | | | $ | 17,528 | |
| Work in process | 766 |
| | 443 |
| Work in process | 383 | | | 688 | |
| Component parts | 5,480 |
| | 10,386 |
| Component parts | 13,749 | | | 14,880 | |
| Service parts | 5,965 |
| | 5,985 |
| Service parts | 1,464 | | | 1,982 | |
| | $ | 21,746 |
| | $ | 26,237 |
| | $ | 37,594 | | | $ | 35,078 | |
At December 31, 20172022 and 2016,2021, the Company had recorded inventoryexcess and obsolescence reserves of $10.0$10.9 million and $9.2$10.8 million, , respectively, against Restaurant/Retail inventories, which relate primarily to service parts.inventories.
Note 57 — Property, Plant and Equipment, net Net
The components of property, plant and equipment, net, excluding discontinued operations, are:
| | | | | | | | | | | |
| December 31, |
| (in thousands) | 2022 | | 2021 |
| Land | $ | 199 | | | $ | 199 | |
| Building and improvements | 8,176 | | | 7,822 | |
| Rental property | 2,749 | | | 2,749 | |
| Software | 12,393 | | | 12,100 | |
| Furniture and equipment | 13,902 | | | 12,816 | |
| Construction in process | 181 | | | 170 | |
| 37,600 | | | 35,856 | |
| Less accumulated depreciation | (24,639) | | | (22,147) | |
| $ | 12,961 | | | $ | 13,709 | |
|
| | | | | | | |
| | December 31, (in thousands) |
| | 2017 | | 2016 |
| Land | $ | 253 |
| | $ | 253 |
|
| Building and improvements | 6,205 |
| | 5,816 |
|
| Rental property | 5,650 |
| | 5,345 |
|
| Furniture and equipment | 18,196 |
| | 13,890 |
|
| | 30,304 |
| | 25,304 |
|
| Less accumulated depreciation | (19,549 | ) | | (18,269 | ) |
| | $ | 10,755 |
| | $ | 7,035 |
|
The estimated useful lives of buildings and improvements and rental property are twenty15 to twenty-five40 years. The estimated useful lives of furniture and equipment range from three to eight years. The estimated useful life on software is three to five years. Depreciation expense from continuing operations was $1.3$3.3 million, $2.3 million, and $2.1$2.0 million, for 2017the years ended December 31, 2022, 2021, and 2016,2020, respectively.
The Company leases a portion of its headquarters facility to various tenants. Net rent received from these leases totaled $0.3$0.2 million, and $0.3 million for 2017 and 2016, respectively. Future minimum rent payments due to the Company under these lease arrangements are approximately $0.2 million, and $0.1$0.2 million for the years ended December 31, 2022, 2021, and 2020 respectively, and is recorded in other income (expense) – net.
Note 8 — Debt
The following table summarizes information about the net carrying amounts of long-term debt as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | 2024 Notes | | 2026 Notes | | 2027 Notes | | Total |
| Principal amount of notes outstanding | $ | 13,750 | | | $ | 120,000 | | | $ | 265,000 | | | $ | 398,750 | |
| Unamortized debt issuance cost | (257) | | | (2,511) | | | (6,790) | | | (9,558) | |
| Total notes payable | $ | 13,493 | | | $ | 117,489 | | | $ | 258,210 | | | $ | 389,192 | |
The following table summarizes information about the net carrying amounts of long-term debt as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | 2024 Notes | | 2026 Notes | | 2027 Notes | | Total |
| Principal amount of notes outstanding | $ | 13,750 | | | $ | 120,000 | | | $ | 265,000 | | | $ | 398,750 | |
| Unamortized debt issuance cost | (334) | | | (2,440) | | | (5,984) | | | (8,758) | |
| Unamortized discount | (1,570) | | | (19,413) | | | (63,164) | | | (84,147) | |
| Total notes payable | $ | 11,846 | | | $ | 98,147 | | | $ | 195,852 | | | $ | 305,845 | |
Refer to "Recently Adopted Accounting Pronouncements" within "Note 1 - Summary of Significant Accounting Polices" for additional information relating to impact to discount resulting from the Company's adoption of ASU 2020-06.
Convertible Senior Notes
On September 17, 2021, the Company sold $265.0 million in 2018aggregate principal amount of 1.500% Convertible Senior Notes due 2027. The 2027 Notes were issued pursuant to an indenture, dated September 17, 2021 (the “2027 Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee. The 2027 Notes bear interest at a rate of 1.500% per year, which is payable semiannually in arrears on April 15 and October 15 of each year, beginning April 15, 2022. Interest accrues on the 2027 Notes from the last date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from September 17, 2021. Unless earlier converted, redeemed or repurchased, the 2027 Notes mature on October 15, 2027. The Company used net proceeds from the offering, in conjunction with net proceeds from the September 2021 common stock offering (Refer to “Note 9 – Common Stock”), to repay in full the Owl Rock Term Loan, which had a principal amount of $180.0 million outstanding as of September 17, 2021. The Company intends to use the remaining net proceeds from the offering for general corporate purposes, including continued investment in the growth of the Company’s businesses and for other working capital needs. The Company may also use a portion of the net proceeds to acquire or invest in other assets complementary to the Company’s businesses or for repurchases of the Company’s other indebtedness.
On February 10, 2020, the Company sold $120.0 million in aggregate principal amount of 2.875% Convertible Senior Notes due 2026. The 2026 Notes were issued pursuant to an indenture, dated February 10, 2020 (the “2026 Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee. The 2026 Notes pay interest at a rate equal to 2.875% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2020. Interest accrues on the 2026 Notes from the last date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from February 10, 2020. Unless earlier converted, redeemed or repurchased, the 2026 Notes mature on April 15, 2026.
On April 15, 2019, respectively.the Company sold $80.0 million in aggregate principal amount of 4.500% Convertible Senior Notes due 2024. The 2024 Notes were issued pursuant to an indenture, dated April 15, 2019, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “2024 Indenture” and, together with the 2026 Indenture and the 2027 Indenture, the “Indentures”). The 2024 Notes pay interest at a rate equal to 4.500% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2019. Interest accrues on the 2024 Notes from the last date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from April 15, 2019. Unless earlier converted, redeemed or repurchased, the 2024 Notes mature on April 15, 2024.
The Company leases office space under various operating leases. Rental expenseused approximately $66.3 million (excluding cash payments relating to accrued interest and fractional shares) from continuing operationsits sale of the 2026 Notes and issued 772,423 shares of common stock at $32.43 per share out of treasury stock with an average cost basis of $3.37 per share to repurchase approximately $66.3 million in aggregate principal amount of the 2024 Notes through individually negotiated transactions. Of the total price paid for the 2024 Notes, $59.0 million was allocated to the 2024 Notes settlement, $30.8 million was allocated to equity, and $1.0 million was used to pay off accrued interest on operating leasesthe 2024 Notes. The consideration transferred was approximately $3.0allocated to the liability and equity components of the 2024 Notes using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt instrument immediately prior to settlement. The transaction resulted in a loss on settlement of convertible notes of $8.1 million, which is recorded as a loss on extinguishment of debt in the
Company’s consolidated statements of operations. The loss represents the difference between (i) the fair value of the liability component and (ii) the sum of the carrying value of the debt component and any unamortized debt issuance costs at the time of settlement.
Prior to the Company's adoption of ASU 2020-06 on January 1, 2022, the carrying amount of the liability component of the Senior Notes was calculated by estimating the fair value of similar notes that do not have associated convertible features. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the fair value amount of the Senior Notes. The valuation model used in determining the fair value of the liability component for the Senior Notes includes inputs, such as the implied debt yield within the nonconvertible borrowing rate. The implied estimated effective rate of the liability component of the 2024 Notes, 2026 Notes, and 2027 Notes was 10.2%, 7.3%, and 6.5% respectively.
The Senior Notes are senior, unsecured obligations of the Company. The 2024 Notes, the 2026 Notes, and the 2027 Notes are convertible, in whole or in part, at the option of the holder, upon the occurrence of specified events or certain fundamental changes set forth in the Indentures prior to the close of business on the business day immediately preceding October 15, 2023, October 15, 2025, and April 15, 2027, respectively; and, thereafter, at any time until the close of business on the second business day immediately preceding maturity. The 2024 Notes are convertible into Company common stock at an initial conversion rate of 35.0217 shares per $1,000 principal amount, the 2026 Notes are convertible into Company common stock at an initial conversion rate of 23.2722 shares per $1,000 principal amount, and the 2027 Notes are convertible into Company common stock at an initial conversion rate of 12.9870 shares per $1,000 principal amount. Upon conversion, the Company may elect to settle by paying or delivering either solely cash, shares of Company common stock or a combination of cash and shares of Company common stock.
Prior to the Company's adoption of ASU 2020-06 on January 1, 2022, in accordance with ASC Topic 470-20, Debt with Conversion and Other Options — Beneficial Conversion Features, the initial measurement of the 2024 Notes at fair value resulted in a liability of $62.4 million and $1.6as such, the calculated discount resulted in an implied value of the convertible feature recognized in additional paid in capital of $17.6 million; the initial measurement of the 2026 Notes at fair value resulted in a liability of $93.8 million and as such, the calculated discount resulted in an implied value of the convertible feature recognized in additional paid in capital of $26.2 million; and the initial measurement of the 2027 Notes at fair value resulted in a liability of $199.2 million and as such, the calculated discount resulted in an implied value of the convertible feature recognized in additional paid in capital of $65.8 million. Issuance costs for the Senior Notes amounted to $4.9 million, $4.2 million, and $8.3 million for 2017the 2024 Notes, 2026 Notes, and 2016,2027 Notes, respectively. Future minimum lease payments underThese costs were allocated to debt and equity components on a ratable basis. For the 2024 Notes this amounted to $3.8 million and $1.1 million to the debt and equity components, respectively. For the 2026 Notes this amounted to $3.3 million and $0.9 million to the debt and equity components, respectively. For the 2027 Notes this amounted to $6.2 million and $2.1 million to the debt and equity components, respectively.
The Indentures contain covenants that, among other things, restrict the Company’s ability to merge, consolidate or sell, or otherwise dispose of, substantially all non-cancelable operating leases are (in thousands):of its assets and customary Events of Default (as defined in the Indentures).
|
| | | |
| 2018 | 2,936 |
|
| 2019 | 2,726 |
|
| 2020 | 2,217 |
|
| 2021 | 2,062 |
|
| 2022 | 2,062 |
|
| Thereafter | 2,687 |
|
| | $ | 14,690 |
|
In connection with the sale of the 2026 Notes, the Company recorded an income tax benefit of $4.4 million during 2020 as a result of the creation of a deferred tax liability associated with the portion of the 2026 Notes that was classified within shareholders' equity. The creation of the deferred tax liability produced evidence of recoverability of the Company's net deferred tax assets which resulted in the release of a valuation allowance, totaling $4.4 million, reflected as an income tax benefit in 2020.
Note 6 — DebtCredit Facility
On November 29, 2016, we, together
In connection with, certain of our U.S. subsidiariesand to partially fund the Cash Consideration for the Punchh Acquisition, on April 8, 2021, the Company entered into a three-year credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”).the Owl Rock Credit Agreement. The Owl Rock Credit Agreement provides for revolving loansa term
loan in anthe initial aggregate principal amount of up$180.0 million, the “Owl Rock Term Loan”. Issuance costs, which included a 2% Original Issue Discount, amounted to $15.0$9.3 million with availability thereunder equalnet proceeds amounting to $170.7 million.
The Company used net proceeds from its offering of the lesser2027 Notes and its concurrent common stock offering (refer to “Note 9 – Common Stock”) to repay in full the Owl Rock Term Loan, including $1.8 million accrued interest and $3.6 million prepayment premium, on September 17, 2021. Following its repayment, the Owl Rock Credit Agreement was terminated. The transaction resulted in a loss on settlement of notes of $11.9 million, which is recorded as a loss on extinguishment of debt in the Company’s consolidated statements of operations. The loss represents the difference between (i) $15.0 millionreacquisition price, including prepayment premium, and (ii) a borrowing base (equal to the sum of 80% eligible accounts, 50% eligible raw materials inventorythe carrying value of the debt component and 35% eligible finished goods inventory,any unamortized debt issuance costs at the time of settlement.
The following table summarizes interest expense recognized on the Senior Notes:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Contractual interest expense | $ | 8,036 | | | $ | 9,420 | | | $ | 4,026 | |
| Accretion of debt in interest expense | 1,997 | | | 8,726 | | | 4,355 | |
| Total interest expense | $ | 10,033 | | | $ | 18,146 | | | $ | 8,381 | |
In connection with no more than 50%the acquisition of total eligible inventory includedAccSys LLC in December 2019, the Company entered into a $2.0 million subordinated promissory note which bears interest at 5.75% per annum, with monthly payments of principal and interest in the borrowing base), less the aggregate principal amount outstanding (the “Credit Facility”). Interest accruesof $60.6 thousand payable beginning January 15, 2020 through maturity on outstanding principal balances at an applicable rate per annum determined, asDecember 15, 2022. As of the end of each fiscal quarter, by reference to the CBFR Spread or the Eurodollar Spread based on the Company’s consolidated indebtedness ratio as at the determination date. The Credit Agreement contains
customary affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to incur additional indebtedness, incur or permit to exist liens on assets, make investments, loans, advances, guarantees and acquisitions, consolidate or merge, pay dividends and make distributions, and financial covenants, requiring that the Company’s consolidated indebtedness ratio not exceed 3.0 to 1.0 and, a fixed charge coverage ratio of not less than 1.25 to 1.0 for each fiscal quarter. In August 2017, we entered into an Omnibus Amendment Number 1 to Loan Documents with JPMorgan Chase to provide the Company with more flexibility in its use of its assets and a waiver of any default relating to the location of certain collateral. In March 2018, JPMorgan Chase granted the Company a Waiver of an event of default under the Credit Agreement due to its failure to meet the required fixed charge coverage ratio for the fiscal quarter ended December 31, 2017.
There2022, there was a $950,000no outstanding balance on the line of credit at December 31, 2017 compared to no outstanding amountsubordinated promissory note.
The following table summarizes the future principal payments for the subordinated promissory note and Senior Notes as of December 31, 2016.
In addition to the Credit Facility, the Company has a mortgage loan, collateralized by certain real estate, with a balance of $0.4 million and $0.6 million as of December 31, 2017 and 2016, respectively. This loan matures on November 1, 2019. The Company’s interest rate is fixed at 4.00% through the maturity date of the loan. The annual mortgage payment including interest through November 1, 2019 totals $0.2 million.
The Company’s future principal payments under the mortgage loan are as follows2020 (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| | Total | | Less Than 1 Year | | 1-3 Years | | 3 - 5 Years | | More than 5 Years |
| Debt obligations | $ | 380 |
| | $ | 195 |
| | $ | 185 |
| | $ | — |
| | $ | — |
|
| | | | | |
| 2023 | $ | — | |
| 2024 | 13,750 | |
| 2025 | — | |
| 2026 | 120,000 | |
| 2027 | 265,000 | |
| Thereafter | — | |
| Total | $ | 398,750 | |
Note 79 — Common Stock Based
The Company issued 162,917 shares of its common stock as part of the purchase consideration paid to former MENU equity holders in connection with the MENU Acquisition. Refer to "Note 2 - Acquisitions" for additional information about the MENU Acquisition.
On September 17, 2021, the Company completed a public offering of its common stock in which the Company issued and sold 982,143 shares of common stock at a price of $56.00 per share. The Company received net proceeds of $52.5 million, after deducting underwriting discounts, commissions and other offering expenses.
In connection with, and to partially fund the Cash Consideration of the Punchh Acquisition, on April 8, 2021, the Company entered into Purchase Agreements with Act III and TRP to raise approximately $160.0 million through a private placement of the Company's common stock. Pursuant to the Purchase Agreements, the Company issued and sold (i) 73,530 shares of its common stock to Act III for a gross purchase price of approximately $5.0 million ($68.00 per share), and (ii) 2,279,412 shares of common stock to TRP for a gross purchase price of approximately $155.0 million ($68.00 per share) for an aggregate of 2,352,942 shares. The Company incurred $4.3 million of issuance costs in connection with the sale of its common stock. The Company also issued to Act III a fully-vested Warrant to purchase 500,000 shares of common stock with an exercise price of $76.50 per share and a five year exercise period. In connection with the Company's September 2021 public offering of its common stock, as a result of anti-dilution provisions within the Warrant, an additional 3,975 shares of the Company's common stock are
available for purchase under the Warrant, at an exercise price of $75.90 per share. The Warrant is accounted for as an equity instrument pursuant to ASC Topic 815, Derivatives and Hedging, due to the Warrant contractually permitting only settlement in non-redeemable common shares upon exercise. Refer to “Note 8 – Debt” for additional information about the Warrant.
Issuance date fair value of the Warrant was determined to be $14.3 million based on using the Black-Scholes model with the following assumptions:
| | | | | |
| Expected term | 5.0 years |
| Risk free interest rate | 0.85 | % |
| Expected volatility | 53.78 | % |
| Expected dividend yield | None |
| Fair value (per warrant) | $ | 28.65 | |
The Company also issued 1,493,130 of its common stock as part of the Equity Consideration of the Punchh Acquisition. Refer to “Note 2 – Acquisition” for additional information about the Punchh Acquisition.
On October 5, 2020, the Company completed a public offering of its common stock in which the Company issued and sold 3,616,022 shares of common stock at a price of $38.00 per share. The Company received net proceeds of $131.4 million after deducting underwriting discounts, commissions, and other offering expenses.
Note 10 — Stock-Based Compensation
The Company recognizes all stock-based compensation to employees and directors, including awards of stock options and restricted stock units or restricted stock awards, in the financial statements as compensation cost over the applicable vesting periods based on theirthe fair value of the awards on the date of grant. Total
The Company recorded stock-based compensation expense included in selling, general and administrative expense in 2017 and 2016 was $0.7of $13.4 million, $14.6 million, and $0.5$4.3 million respectively. The amount recordedin the consolidated statements of operations for the years ended December 31, 20172022, 2021, and 2016 was recorded net of benefits of $21,000 and $0.3 million, as the2020, respectively.
As a result of forfeitures of unvestednon-vested stock awards prior to the completion of the requisite service period or failure ofto meet requisite performance targets, the Company to meet certain performance measures. The amountrecorded benefits for the years ended December 31, 2022, 2021, and 2020 of total stock based compensation includes $0.4$1.0 million, $0.5 million, and $0.2 million in 2017 and 2016, respectively, relating to restricted stock awards. No compensation expense has been capitalized during 2017 and 2016.respectively.
The Company has reserved 1.02.7 million shares of common stock reserved for stock-based awards under its Amended and Restated PAR Technology Corporation 2015 Equity Incentive Plan (“(the “2015 Plan”). Stock options under this Plan may be incentive stock options or nonqualified stock options. The Plan also provides for restricted stock awards, including performance based awards. Stock options are nontransferable other than upon death. Option grants generally vest over a one to three year period after the grant and typically expire ten years after the date of the grant. The2015 Plan provides for the grant of several different forms of stock-based compensation, including stockawards including:
•Stock optionsgranted under the 2015 Plan, which enable the recipient to purchase shares of PARthe Company's common stock.stock may be incentive stock options or non-qualified stock options. Generally, stock options are nontransferable other than upon death. Stock options generally vest over a one to four year period and expire ten years after the date of the grant. The Compensation Committee ofhas authority to administer the Board of Directors (Compensation Committee) has discretion to2015 Plan and determine the material terms and conditions of option and other awards under the Plan, provided that (i) the exercise price must be no less than the fair market value2015 Plan.
•Restricted Stock Awards (“RSA”) and Restricted Stock Units (“RSU”) can have service-based and/or performance-based vesting. Grants of PAR common stock (defined as the closing price) on the dateRSAs and RSUs with service-based vesting are subject to vesting periods ranging from one to three years. Grants of grant, (ii) the term must be no longer than tenRSAs and RSUs with performance-based vesting are subject to a vesting period of one to four years and (iii)performance targets as defined by the Compensation Committee. The Company assesses the likelihood of achievement throughout the performance period and recognizes compensation expense associated with its performance awards based on this assessment in no event shall the normal vesting schedule provide for vesting in less than one year.accordance with ASC Topic 718, Stock Compensation. Other terms and conditions of anapplicable to any RSA or RSU award of stock options will be determined by the Compensation Committee asand set forth in the agreement relating to that award. The Compensation Committee has authority to administer the Plan.
Prior to the Plan, the Company reserved 1.0 million shares under its 2005 Equity Incentive Plan (the “2005 Plan”).
Stock options available for grant under the 2005 Plan were incentive stock options or nonqualified stock options. The 2005 Plan also provided for restricted stock awards, including both time and performance vesting awards. Stock options granted under the 2005 Plan are nontransferable other than upon death, generally vest over a one to three year period after grant and typically expire ten years from grant. No new grants of stock options or restricted stock awards under the 2005 Plan were made in 2017 or 2016.Options
The below tabletables presents information with respect to stock options under the Plan and the 2005 Plan:
| | | | | | | | | | | | | | | | | |
| (in thousands, except for exercise price) | Number of Shares | | Weighted
Average
Exercise Price | | Aggregate
Intrinsic Value |
| Outstanding at Outstanding at January 1, 2022 | 1,306 | | | $ | 11.95 | | | |
| Options exercised | (135) | | | 9.98 | | | |
| Options canceled/forfeited | (142) | | | 10.75 | | | |
| Outstanding at Outstanding at December 31, 2022 | 1,029 | | | $ | 12.82 | | | $ | 13,645 | |
| Vested and expected to vest at December 31, 2022 | 1,028 | | | $ | 12.82 | | | $ | 13,622 | |
| Total shares exercisable at December 31, 2022 | 937 | | | $ | 12.87 | | | $ | 12,321 | |
| Shares remaining available for future grant | 2,169 | | | | | |
|
| | | | | | | | | | |
| | No. of Shares (in thousands) | | Weighted Average Exercise Price | | Aggregate Intrinsic Value (in thousands) |
| Outstanding at December 31, 2016 | 949 |
| | $ | 5.22 |
| | $ | 264 |
|
| Options granted | 149 |
| | 8.82 |
| | |
| Options exercised | (271 | ) | | 9.06 |
| | |
| Forfeited and canceled | (31 | ) | | 5.64 |
| | |
| Expired | (35 | ) | | 5.17 |
| | |
| Outstanding at December 31, 2017 | 761 |
| | $ | 5.80 |
| | $ | 2,748 |
|
| Vested and expected to vest at December 31, 2017 | 272 |
| | $ | 7.30 |
| | $ | 558 |
|
| Total shares exercisable as of December 31, 2017 | 41 |
| | $ | 5.46 |
| | $ | 159 |
|
| Shares remaining available for grant | 687 |
| | |
| | |
|
| | | | | | | | | | | | | | | | | |
| (in thousands, except for grant date fair value) | 2022 | | 2021 | | 2020 |
| Option expense recorded, in thousands, for the year ended December 31, | $ | 5,664 | | | $ | 9,585 | | | $ | 1,386 | |
| Weighted average grant date fair value | $ | — | | | $ | 60.48 | | | $ | 13.82 | |
| Total intrinsic value of stock options exercised, in thousands, for the year ended December 31, | $ | 4,000 | | | $ | 6,000 | | | $ | 1,900 | |
| Cash received for options exercised | $ | 1,286 | | | $ | 1,156 | | | $ | 675 | |
The weighted average grant date fair value of stock options granted during the years 2017 and 2016 was $3.26 and $1.81, respectively. The total intrinsic value of stock options exercised during the year ended December 31, 2017 was $1,043,000. The total intrinsic value of stock options exercised during the year ended December 31, 2016 was $5,800. New shares of the Company’s common stock are issued as a result of stock option exercises in 2017 and for options exercised in 2016.
The fair value of options at the date of the grant was estimated using the Black-Scholes model with the following assumptions for the respective period ending December 31:
| | | | 2017 | 2016 | | | 2021 | | 2020 |
| Expected option life | 3.7 years |
| 5.7 years |
| Expected option life | | 3.1 years | | 4.4 years |
| Weighted average risk-free interest rate | 2.2 | % | 1.3 | % | Weighted average risk-free interest rate | | 0.4 | % | | 0.4 | % |
| Weighted average expected volatility | 36 | % | 33 | % | Weighted average expected volatility | | 56.5 | % | | 47.6 | % |
| Expected dividend yield | 0 | % | 0 | % | Expected dividend yield | | None | | None |
For the years ended 2017December 31, 2022, 2021, and 2016,2020 the expected option life was based on the Company’s historical experience with similar type options. Expected volatility is based on historicalhistoric volatility levels of the Company’s common stock over the preceding period of time consistent with the expected life. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life. Stock options outstanding at 2017December 31, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| Range of exercise prices | | Number outstanding (in thousands) | | Weighted average remaining life | | Weighted average exercise price |
| $0.73 - $35.26 | | 1,029 | | | 6.92 years | | $ | 12.82 | |
Restricted Stock Awards
Current year activity with respect to the Company’s non-vested RSAs is as follows:
| | | | | | | | | | | |
| (in thousands, except weighted average fair value) | Shares | | Weighted average grant-date fair value |
| Balance at January 1, 2022 | 27 | | $ | 25.42 | |
| Vested | (27) | | | 25.42 |
| Balance at December 31, 2022 | 0 | | |
|
| | | | | | | | | |
Range of Exercise Prices | | Number Outstanding (in thousands) | | Weighted Average Remaining Life | | Weighted Average Exercise Price |
| | | | | | | |
| $7.15 - $11.01 | | 761 |
| | 7.41 years | | $ | 5.80 |
|
| | | | | | | | | | | | | | | | | |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Service-based RSA | $ | 2 | | | $ | 62 | | | $ | 210 | |
| Performance-based RSA | 147 | | | 776 | | | 786 | |
| Total stock-based compensation expense related to RSAs | $ | 149 | | | $ | 838 | | | $ | 996 | |
For the years ended December 31, 2022, 2021, and 2020, the Company recognized compensation expense related to performance awards based on its estimate of the probability of achievement in accordance with ASC Topic 718. In 2022, the only outstanding performance awards were in the Restaurant/Retail segment and the Company determined the achievement of performance based awards to be probable. In 2021, the Company determined the achievement of performance based awards to be probable for both segments. In 2020, the performance based awards were achieved for the Government segment, but not for the Restaurant/Retail segment.
The fair value of RSAs is based on the closing price of the Company’s common stock on the date of grant. The below table presents information with respect to RSAs:
| | | | | | | | | | | | | | | | | |
| (in thousands, except weighted average grant date fair value) | 2022 | | 2021 | | 2020 |
| Weighted average grant date fair value of RSAs granted during the year | $ | — | | | $ | 22.30 | | | $ | 30.96 | |
| Number of shares released during the year in accordance with the terms of the RSA agreements | 27 | | | 34 | | | 112 | |
| Number of RSA shares canceled during the year | — | | | 2 | | | 5 | |
| Number of above RSA shares canceled which were performance-based | — | | | 1 | | | 4 | |
Restricted Stock Units
Current year activity with respect to the Company’s non-vested RSUs is as follows:
| | | | | | | | | | | |
| (in thousands, except weighted average fair value) | Shares | | Weighted Average grant- date fair value |
| Balance at January 1, 2022 | 418 | | | $ | 34.08 | |
| Granted | 379 | | | 37.90 | |
| Vested | (168) | | | 28.41 | |
| Canceled/forfeited | (117) | | | 45.79 | |
| Balance at December 31, 2022 | 512 | | | $ | 35.96 | |
The below table presents information with respect to RSUs:
| | | | | | | | | | | | | | | | | |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Service-based RSU | $ | 6,775 | | | $ | 3,353 | | | $ | 1,587 | |
| Performance-based RSU | 836 | | | 839 | | | 282 | |
| Total stock-based compensation expense related to RSUs | $ | 7,611 | | | $ | 4,192 | | | $ | 1,869 | |
At 2017,December 31, 2022, the aggregate unrecognized compensation cost of unvested equity awards, as determined using a Black-Scholes option valuation model for option awards and the closing stock price on the date of grant for RSAs and RSUs was $1.0$17.3 million, (net of estimated forfeitures) which is expected to be recognized as compensation expense in fiscal years 2018 through 2020. The Company has not paid cash dividends on its common stock, and the Company presently intends2023 to continue to retain earnings for reinvestment in growth opportunities. Accordingly, it is anticipated no cash dividends will be paid in the foreseeable future.
Current year activity with respect to the Company’s non-vested restricted stock awards is as follows:
2025.
|
| | | | | | |
| Non-vested restricted stock awards (in thousands) | Shares | | Weighted Average grant- date fair value |
| Balance at January 1, 2017 | 163 |
| | $ | 5.22 |
|
| Granted | 92 |
| | 8.61 |
|
| Vested | (75 | ) | | 8.42 |
|
| Forfeited and canceled | (22 | ) | | 8.34 |
|
| Balance at December 31, 2017 | 158 |
| | $ | 6.49 |
|
The Plan also provides for the issuanceDuring 2017 and 2016, the Company issued 92,000 and 168,000 restricted stock awards, respectively, at a per share price of $0.02. For the periods ended 2017 and 2016, the Company recognized compensation expense related to the performance awards based on its estimate of the probability of achievement in accordance with ASC Topic 718.
The fair value of restricted stock awards is based on the average price of the Company’s common stock on the date of grant. The weighted average grant date fair value of restricted stock awards granted during the years 2017 and 2016 was $8.61 and $5.23, respectively. In accordance with the terms of the restricted stock award agreements, the Company released 75,000 and 85,000 shares during 2017 and 2016, respectively. During 2017, there were approximately 22,000 shares of restricted stock canceled, 12,000 of which were performance based restricted shares. During 2016, there were 46,000 shares of restricted stock canceled, of which 45,000 were performance based restricted shares.
Note 811 — Income Taxes
The provisionbenefit from for income taxes from continuing operations consists of:
| | | | | | | | Year Ended December 31, |
| | Year ended December 31, (in thousands) | |
| | 2017 | | 2016 | |
| (in thousands) | | (in thousands) | 2022 | | 2021 | | 2020 |
| Current income tax: | | | | Current income tax: | | | | | |
| Federal | $ | — |
| | $ | 61 |
| Federal | $ | — | | | $ | — | | | $ | — | |
| State | 122 |
| | 167 |
| State | 784 | | | 408 | | | 179 | |
| Foreign | 227 |
| | 211 |
| Foreign | 840 | | | 585 | | | (4) | |
| | 349 |
| | 439 |
| | 1,624 | | | 993 | | | 175 | |
| Deferred income tax: | | | | Deferred income tax: | | | | | |
| Federal | 4,029 |
| | 768 |
| Federal | (221) | | | (9,001) | | | (3,265) | |
| State | (381 | ) | | (60 | ) | State | (151) | | | (1,416) | | | 104 | |
| | 3,648 |
| | 708 |
| | (372) | | | (10,417) | | | (3,161) | |
| Provision for income taxes | $ | 3,997 |
| | $ | 1,147 |
| |
| Provision for (benefit from) income taxes | | Provision for (benefit from) income taxes | $ | 1,252 | | | $ | (9,424) | | | $ | (2,986) | |
The deferred tax expense related to discontinued operations was $0.1 million in fiscal year 2017 and a benefitcomponents of $0.4 million recorded in fiscal year 2016. net loss before income taxes consisted of the following:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| United States | $ | (63,068) | | | $ | (85,391) | | | $ | (39,390) | |
| International | (4,999) | | | 168 | | | (158) | |
| Total net loss before income taxes | $ | (68,067) | | | $ | (85,223) | | | $ | (39,548) | |
Deferred tax liabilities (assets)(liabilities) assets are comprised of the following at:
|
| | | | | | | |
| | December 31, (in thousands) |
| | 2017 | | 2016 |
| Deferred tax liabilities: | | | |
| Software development costs | $ | 2,119 |
| | $ | 2,223 |
|
| Acquired intangible assets | 913 |
| | 1,731 |
|
| Gross deferred tax liabilities | 3,032 |
| | 3,954 |
|
| | | | |
| Allowances for bad debts and inventory | (2,958 | ) | | (4,505 | ) |
| Capitalized inventory costs | (109 | ) | | (104 | ) |
| Intangible assets | (672 | ) | | (1,388 | ) |
| Employee benefit accruals | (1,282 | ) | | (2,089 | ) |
| Federal net operating loss carryforward | (4,941 | ) | | (5,820 | ) |
| State net operating loss carryforward | (1,540 | ) | | (1,085 | ) |
| Tax credit carryforwards | (6,064 | ) | | (6,888 | ) |
| Foreign currency | (33 | ) | | (33 | ) |
| Other | (895 | ) | | (1,333 | ) |
| Gross deferred tax assets | (18,494 | ) | | (23,245 | ) |
| | | | |
| Less valuation allowance | 1,653 |
| | 1,874 |
|
| | | | |
| Net deferred tax assets | $ | (13,809 | ) | | $ | (17,417 | ) |
| | | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 | | |
| Deferred tax liabilities: | | | | | |
| Subordinated debt | $ | — | | | $ | (19,998) | | | |
| Indefinite lived intangibles | — | | | — | | | |
| Operating lease assets | (344) | | | (1,067) | | | |
| Software development costs | (1,534) | | | (2,978) | | | |
| Intangible assets | (19,803) | | | (21,839) | | | |
| Depreciation on property, plant and equipment | (1,428) | | | (1,490) | | | |
| Gross deferred tax liabilities | (23,109) | | | (47,372) | | | |
| | | | | |
| Deferred tax assets: | | | | | |
| Allowances for bad debts and inventory | 3,213 | | | 3,038 | | | |
| Capitalized inventory costs | 300 | | | 223 | | | |
| | | | | |
| Employee benefit accruals | 4,628 | | | 5,692 | | | |
| Interest expense limitation under section 163 (j) | 6,089 | | | 4,812 | | | |
| Operating lease liabilities | 373 | | | 1,155 | | | |
| Federal net operating loss carryforward | 40,212 | | | 42,792 | | | |
| State net operating loss carryforward | 8,866 | | | 10,353 | | | |
| Foreign net operating loss carryforward | 2,008 | | | — | | | |
| Federal and state tax credit carryforwards | 13,364 | | | 11,901 | | | |
| R&D capitalization | 11,297 | | | — | | | |
| Other | 3,963 | | | 2,246 | | | |
| Gross deferred tax assets | 94,313 | | | 82,212 | | | |
| | | | | |
| Less valuation allowance | (71,837) | | | (37,157) | | | |
| | | | | |
| Non-current net deferred tax liabilities | $ | (633) | | | $ | (2,317) | | | |
The Company has Federal tax credit carryforwards of $5.7$11.8 million that expire in various tax years from 20182028 to 2036.2042. The Company has a Federal operating loss carryforward of $5.0$21.4 million that expires in various tax yearsexpiring from 2029 through 2034. None of the2037 and a Federal operating loss carryforward will result in a benefit within additional paid in capital when realized.of $170.1 million with an unlimited carryforward period. The Company also has state tax credit carryforwardscredits of $0.3$1.7 million and state net operating loss carryforwards of $1.5that vary by jurisdiction, ranging from $0 to $47.3 million, thatand expire in various tax years through 2034.2042. The Company has foreign net operating loss carryforwards of $16.9 million expiring from 2023 through 2029. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result of this analysis and based on the current year’s taxable income, and utilization of certain carryforwards management determined an increase in the valuation allowance in the current year to be appropriate. A valuation allowance is still required to the extent it is more likely than not that the future benefit associated with thecertain Federal, state, and foreign tax credit carryforwards and certain state tax loss carryforwards will not be realized.
As a result of this analysis, management determined an increase in the valuation allowance in the current year to be appropriate.
In calculating the valuation allowance, the Company was only permitted to use its existing deferred tax liabilities related to its indefinite-lived intangible assets (i.e. “naked credit deferred tax liabilities”) as a source of taxable income to support the realization of its existing indefinite-lived deferred tax assets.
In the current year, the income tax provision includes a reduction in deferred tax liabilities and corresponding increase in valuation allowance of $20.0 million related to subordinated debt as a result of the
adoption of ASU No. 2020-06 (refer to "Recently Adopted Accounting Pronouncements" within "Note 1 — Summary of Significant Accounting Policies" for additional information), an increase in deferred tax assets and corresponding increase in valuation allowance of $11.3 million related to the capitalization of R&D expenses for tax purposes, and an increase in deferred tax assets and corresponding increase in valuation allowance of $2.0 million from foreign net operating loss carryforwards related to the MENU Acquisition.
In 2021, the income tax provision included a reduction of the Company’s valuation allowance due to the establishment of a deferred tax liability in connection with the Punchh Acquisition. The establishment of that deferred tax liability created “future taxable income”, partially utilizing existing deferred tax assets of the Company recordedand resulting in a $10.4 million reduction of the Company’s valuation allowance. The Punchh Acquisition resulted in a change in ownership for Punchh as defined by IRC Section 382; the Company determined the identified change in ownership should not limit the Company's ability to utilize Punchh net operating loss and credit carryforwards.
In 2020, the income tax expense associatedprovision included a reduction of the Company’s valuation allowance due to the establishment of a deferred tax liability in connection with the issuance of the 2026 Notes convertible debt. The establishment of that deferred tax liability created “future taxable income”, partially utilizing existing deferred tax assets of the Company and resulting in a $6.2 million reduction of the Company’s valuation allowance. In addition, the income tax provision included an increase of the Company’s valuation allowance due to the reversal of a deferred tax asset valuation allowanceliability in connection with the retirement of $25,000a portion of the 2024 Notes issued in 2019. The reversal of that deferred tax liability eliminated future taxable income for 2017.
Includedthe utilization of existing deferred tax assets of the Company, resulting in the Company's consolidated statement of operations is a one-time adjustment$3.0 million increase to the value of the deferred tax asset of $4.5 million related to the decrease in the corporate tax rate included in the Tax Cuts and Jobs Act of 2017. On December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Tax Act. While we are able to make reasonable estimates of the impact of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the I.R.S., and actions we may take. We are continuing to gather additional information to determine the final impact.Company’s valuation allowance.
The Tax Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result all previously unremitted earnings for which no U.S. deferred liability has been accrued is now subject to U.S. tax. As a result, the Company
recorded a one-time reduction of the deferred tax asset of $0.4 million related to the one-time mandatory tax of previously deferred foreign earnings which is payable over an 8-year period.
The Company records the benefits relating to uncertain tax positions only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. At 2017,December 31, 2022, the Company’sCompany had no reserve for uncertain tax positions is not material and we believe we havethe Company believes the Company has adequately provided for its tax-related liabilities. The Company is no longer subject to United States federal income tax examinationsaudits for years before 2013. 2018.
The provision for income taxes differedfollowing table reconciles the Company's effective tax rate from the provision computed by applying the FederalU.S. federal statutory tax rate to income (loss) from continuing operations before taxes due to the following:of 21%:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Federal statutory tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State taxes, net of federal benefit | (0.7) | | | 1.3 | | | 2.8 | |
| Contingent consideration revaluation | 1.4 | | | — | | | — | |
| Nondeductible expenses | (0.5) | | | (0.8) | | | (0.2) | |
| Tax credits (including R&D) | 1.5 | | | 1.7 | | | 4.5 | |
| Foreign income tax rate differential | (2.6) | | | (0.5) | | | — | |
| Expired tax credit | — | | | — | | | — | |
| Deferred tax adjustment | — | | | — | | | 0.6 | |
| Stock based compensation | (1.4) | | | (0.7) | | | 0.4 | |
| Redemption of notes | — | | | — | | | (2.9) | |
| Valuation allowance | (20.5) | | | (10.7) | | | (19.6) | |
| | | | | |
| Other | (0.1) | | | (0.3) | | | 1.0 | |
| (1.9) | % | | 11.0 | % | | 7.6 | % |
|
| | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 |
| Federal statutory tax rate | 34.0 | % | | 34.0 | % |
| State taxes | (0.9 | ) | | 1.4 |
|
| Non deductible expenses | 19.4 |
| | 2.7 |
|
| Tax credits | (90.6 | ) | | (6.7 | ) |
| Stock based compensation | (69.6 | ) | | — |
|
| Foreign income tax rate differential | (14.0 | ) | | (2.1 | ) |
| Repatriation Tax | 110.5 |
|
| — |
|
| Impact of Tax Cuts and Jobs Act enactment | 1,241.0 |
|
| — |
|
| Valuation allowance | — |
| | 0.1 |
|
| Tax return and audit adjustments | (107.3 | ) |
| — |
|
| Contingent purchase revaluation | (88.0 | ) |
| — |
|
| Other | (1.7 | ) | | 2.0 |
|
| | 1,032.8 | % | | 31.4 | % |
The effective income tax rate was 1,032.8%(1.9)%, 11.0% and 31.4%7.6% during the years ended December 31, 20172022, December 31, 2021, and December 31, 2016,2020 respectively. The effectivedecrease in 2022 compared to the statutory tax rate of 21.0% was primarily due to the increase in any reporting period can also be affected positively or negatively by adjustments that are required to be reported invaluation allowance and the specific quarter of resolution.
The effective tax rate for the year ended December 31, 2017 was significantly impacted by recording the impact of the Tax Cuts and Jobs Act (the “Tax Act”) of 2017. Impacts on the Company's effective tax rate from the Tax Act include a $4.5 million or 1,241.0% increase for the federalforeign income tax rate change from 34%differential. The decrease in 2021 compared to 21% as well as a $0.4 million or 110.5% increase for the one-time repatriationstatutory tax on accumulated foreign earnings.rate of 21.0% was primarily due to the valuation allowance and nondeductible acquisition expenses, which were partially offset by tax credits. The decrease in 2020 compared to the statutory tax rate of 21.0% was primarily due to the valuation allowance, and only partially offset by tax credits.
Note 912 — Employee Benefit Plans
The Company has a deferred profit-sharing retirement plan that covers substantially all employees. The Company’s annual contribution to the plan is discretionary. The Company did not make a contribution in 20172022, 2021, or 2016.2020. The plan also contains a 401(k) provision that allows employees to contribute a percentage of their salary up to the statutory limitation. These contributions arewere matched by the Company at the rate of 10% by50.0% of employee's contributions up to 6.0% of employee's base salary during the Company.years ended December 31, 2022, 2021, and 2020. The Company’s matching contributions under the 401(k) component were $0.3$1.3 million, $1.1 million, and $0.3$0.9 million in 20172022, 2021, and 2016,2020, respectively.
The Company also maintains an incentive-compensation plan. Participants in the plan are key employees as determined by the Board of Directors and executive management. Compensation under the plan is based on the achievement of predetermined financial performance goals of the Company and its subsidiaries. Awards under the plan are payable in cash. Awards under the plan totaled $0.5 million and $0.5 million, in 2017 and 2016, respectively.
The Company also sponsors a deferred compensation plan for a select group of highly compensated employees. Participants may make elective deferrals of their salary to the plan in excess of tax code limitations that apply to the Company’s qualified plan. The Company invests the participants’ deferred amounts to fund these obligations. The corresponding asset and liability are recorded within other assets and other liabilities, respectively, on the Company's consolidated balance sheets. The Company also has the sole discretion to
make employer contributions to the plan on behalf of the participants, though we did not make anyparticipants. No employer contributions were made in 2017 or 2016.2022, 2021, and 2020.
Note 1013 — Commitments and Contingencies
We are subject
From time to time, the Company is party to legal proceedings which arisearising in the ordinary course of business. Additionally, U.S. Government contract costs are subject to periodic audit and adjustment. In the fourth quarterBased on information currently available, and based on its evaluation of 2016,such information, the Company voluntarily notifiedbelieves the SEC and the U.S. Department of Justice ("DOJ") that our Audit Committee was overseeing an internal investigation by outside counsel into certain import/export and sales documentation activities at our China and Singapore officeslegal proceedings in which it is currently involved are not material or are not likely to determine whether such activities were improper andresult in violation of the U.S. Foreign Corrupt Practices Act ("FCPA") and other applicable laws and certain company policies. On May 1, 2017, the Company received a subpoena from the SEC for documents relating to the Company's investigation. During the year ended December 31, 2017, we recorded $2.9 million of expenses relating to the investigation, including expenses of outside legal counsel and forensic accountants compared to $1.3 million in 2016. We are currently unable to predict what actions the SEC, the DOJ, or other governmental agencies (including foreign governmental agencies) might take, or what the likely outcome of any such actions might be, or estimate the range of reasonably possible fines or penalties, which may be material. The SEC, DOJ, and other governmental authorities have a broad range of civil and criminal sanctions, and the imposition of sanctions, fines or remedial measures could have a material adverse effect on the Company’s business, prospects, reputation, financial condition liquidity,or results of operations, or cash flows.cannot currently be estimated.
Note 1114 — Segment and Related Information
The Company is organized in two segments: Restaurant/Retail and Government. Management views the Restaurant/Retail and Government segments separately in operating its business, as the products and services are different for each segment. The Company’s chief operating decision maker is the Company’s Chief Executive Officer. The hotel/spa reporting unit was sold as of November 4, 2015, and is classified as discontinued operations (see Note 2 – Divestiture and Discontinued Operations - of the Notes to Consolidated Financial Statements).
The
Our Restaurant/Retail segment offers integrated solutions toprovides leading technology platforms for the restaurant and retail industry consistingindustries. The Restaurant/Retail segment provides enterprise restaurants, franchisees, and other restaurant outlets in the three major restaurant categories - quick service, fast casual, and table service - with operational efficiencies by offering them a more unified experience through our comprehensive suite of restaurants,-grocery stores-and specialty retail outlets. These offerings include industry leadingsubscription services, hardware, and professional services.
Our Government segment provides technical expertise and development of advanced systems and software applications utilizedsolutions for the DoD, the intelligence community, and other federal agencies. Additionally, the Government segment provides support services for satellite command and control, communication, and IT mission systems at the point-of-sale, back of store and corporate office and includes the acquisition of Brink Software, Inc. This segment also offers customer support including field service, installation, and twenty-four-hour telephone support and depot repair. With our SureCheck solution, we continue to expand our business into retail, big box retailers, grocery stores, and contract food management organizations.several DoD facilities worldwide. The Government segment performs complex technical studies, analysis,has three principal contract offerings: ISR Solutions, Mission Systems, and experiments, develops innovative solutions, and provides on-site engineering in support of advanced defense, security, and aerospace systems. This segment also provides expert on-site services for operating and maintaining U.S. Government-owned communication assets.Commercial Software.
Information noted as “Other” primarily relates to the Company’s corporate home office operations.
Information as to the Company’s segments is set forth below. Amounts below exclude discontinued operations.below:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Revenues: | | | | | |
| Restaurant/Retail | $ | 262,347 | | | $ | 210,351 | | | $ | 142,512 | |
| Government | 93,448 | | | 72,525 | | | 71,274 | |
| Total | $ | 355,795 | | | $ | 282,876 | | | $ | 213,786 | |
| | | | | |
| Operating (loss) income : | | | | | |
| Restaurant/Retail | $ | (53,516) | | | $ | (58,262) | | | $ | (28,089) | |
| Government | 7,527 | | | 5,801 | | | 5,644 | |
| Other | (12,043) | | | (1,420) | | | (1,501) | |
| (58,032) | | | (53,881) | | | (23,946) | |
| Other income (expense) – net | (1,224) | | | (1,279) | | | 808 | |
| Loss on extinguishment of debt | — | | | (11,916) | | | (8,123) | |
| Interest expense – net | (8,811) | | | (18,147) | | | (8,287) | |
| Loss before provision for income taxes | $ | (68,067) | | | $ | (85,223) | | | $ | (39,548) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Depreciation, amortization and accretion: | | | | | |
| Restaurant/Retail | $ | 24,056 | | | $ | 19,656 | | | $ | 8,158 | |
| Government | 452 | | | 380 | | | 590 | |
| Other | 3,584 | | | 10,110 | | | 5,704 | |
| Total | $ | 28,092 | | | $ | 30,146 | | | $ | 14,452 | |
| | | | | |
| Capital expenditures including software costs: | | | | | |
| Restaurant/Retail | $ | 6,530 | | | $ | 6,848 | | | $ | 7,245 | |
| Government | 227 | | | 711 | | | 1,239 | |
| Other | 968 | | | 728 | | | 747 | |
| Total | $ | 7,725 | | | $ | 8,287 | | | $ | 9,231 | |
| | | | | | | | | | | | | | | | | |
| Revenues by country: | | | | | |
| United States | $ | 336,201 | | | $ | 262,164 | | | $ | 195,660 | |
| International | 19,594 | | | 20,712 | | | 18,126 | |
| Total | $ | 355,795 | | | $ | 282,876 | | | $ | 213,786 | |
| | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2022 | | 2021 | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total assets: | | | | | |
| Restaurant/Retail | $ | 722,958 | | | $ | 674,032 | | | |
| Government | 21,443 | | | 14,831 | | | |
| Other | 110,457 | | | 199,286 | | | |
| Total | $ | 854,858 | | | $ | 888,149 | | | |
| | | | | |
| Goodwill: | | | | | |
| Restaurant/Retail | $ | 486,026 | | | $ | 456,570 | | | |
| Government | 736 | | | 736 | | | |
| Total | $ | 486,762 | | | $ | 457,306 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | |
| | Year ended December 31, (in thousands) |
| | 2017 | | 2016 |
| Revenues: | | | |
| Restaurant/Retail | $ | 171,593 |
| | $ | 149,341 |
|
| Government | 61,012 |
| | 80,312 |
|
| Total | $ | 232,605 |
| | $ | 229,653 |
|
| | | | |
| Operating (loss) income : | | | |
| Restaurant/Retail | $ | (2,761 | ) | | $ | 825 |
|
| Government | 6,523 |
| | 6,160 |
|
| Other | (3,883 | ) | | (4,772 | ) |
| | (121 | ) | | 2,213 |
|
| Other income, net | 629 |
| | 1,316 |
|
| Interest (expense) income | (121 | ) | | 121 |
|
| Income from continuing operations before provision for income taxes | $ | 387 |
| | $ | 3,650 |
|
| | | | |
| Identifiable assets: | | | |
| Restaurant/Retail | $ | 74,257 |
| | $ | 87,672 |
|
| Government | 8,714 |
| | 6,504 |
|
| Other | 31,653 |
| | 29,873 |
|
| Total | $ | 114,624 |
| | $ | 124,049 |
|
| | | | |
| Goodwill: | | | |
| Restaurant/Retail | $ | 10,315 |
| | $ | 10,315 |
|
| Government | 736 |
| | 736 |
|
| Total | $ | 11,051 |
| | $ | 11,051 |
|
| | | | |
| Depreciation, amortization and accretion: | | | |
| Restaurant/Retail | $ | 3,469 |
| | $ | 3,479 |
|
| Government | 21 |
| | 38 |
|
| Other | 543 |
| | 1,107 |
|
| Total | $ | 4,033 |
| | $ | 4,624 |
|
| | | | |
| Capital expenditures including software costs: | | | |
| Restaurant/Retail | $ | 3,994 |
| | $ | 3,285 |
|
| Government | 7 |
| | 41 |
|
| Other | 4,856 |
| | 2,792 |
|
| Total | $ | 8,857 |
| | $ | 6,118 |
|
The following table presents revenues
Assets by country based on the location of the use of the product or services. Amounts below exclude discontinued operations.asset were:
| | | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 | | |
| United States | $ | 809,437 | | | $ | 871,184 | | | |
| International | 45,421 | | | 16,965 | | | |
| Total | $ | 854,858 | | | $ | 888,149 | | | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| United States | $ | 213,693 |
| | $ | 210,821 |
|
| Other Countries | 18,912 |
| | 18,832 |
|
| Total | $ | 232,605 |
| | $ | 229,653 |
|
The following table presents assets by country based on the location of the asset. Amounts below exclude discontinued operations.
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| United States | $ | 99,284 |
| | $ | 110,369 |
|
| Other Countries | 15,340 |
| | 13,680 |
|
| Total | $ | 114,624 |
| | $ | 124,049 |
|
Customers comprising 10% or more of the Company’s total revenues excluding discontinued operations, are summarized as follows:
| | | | | | | December 31, |
| | December 31, | | 2022 | | 2021 | | 2020 |
| | 2017 | | 2016 | |
Restaurant and Retail segment: | | | | |
| Restaurant/Retail segment: | | Restaurant/Retail segment: | | | | | |
| Dairy Queen | | Dairy Queen | 7 | % | | 7 | % | | 13 | % |
| Yum! Brands, Inc. | | Yum! Brands, Inc. | 10 | % | | 11 | % | | 11 | % |
| McDonald’s Corporation | 33 | % | | 25 | % | McDonald’s Corporation | 12 | % | | 12 | % | | 7 | % |
| Yum! Brands, Inc. | 14 | % | | 11 | % | |
Government segment: | | | | |
| Government segment: | | Government segment: | |
| U.S. Department of Defense | 26 | % | | 35 | % | U.S. Department of Defense | 26 | % | | 26 | % | | 33 | % |
| All Others | 27 | % | | 29 | % | All Others | 44 | % | | 44 | % | | 36 | % |
| | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
No other customer within All Others“All Others” represented more than 10% of the Company’s total revenue for the years ended 20172022, 2021, and 2016.2020.
Note 1215 — 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 primarily of cash and cash equivalents, trade receivables, trade payables,cash held on behalf of customers, short-term investments, debt instruments and deferred compensation assets and liabilities. ForThe carrying amounts of cash and cash equivalents, trade receivablescash held on behalf of customers, and trade payables, the carrying amounts of these financial instrumentsshort-term investments as of 2017,December 31, 2022 and 2016December 31, 2021 were considered representative of their fair values.values because of their short term nature. The debt instruments are recorded at principal amount net unamortized debt issuance cost and discount (refer to "Note 8 - Debt" for additional information). The estimated fair value of the Company’s long-term debt2024 Notes, 2026 Notes, and line2027 Notes at December 31, 2022 was $17.4 million, $112.8 million, and $191.0 million, respectively. As of credit at 2017December 31, 2021 the fair value of the 2024 Notes, 2026 Notes, and 20162027 Notes was based on variable$27.2 million, $175.5 million, and fixed interest rates at 2017$267.5 million, respectively. The valuation techniques used to determine the fair values of 2024 Notes, 2026 Notes, and 2016, respectively, for new issues with similar remaining maturities and approximates2027 Notes are classified within Level 2 of the respective carrying values at 2017 and 2016.fair value hierarchy as they are derived from broker quotations.
The 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 (see Note 9 – Employees Benefit Plans - of the Notes to Consolidated Financial Statements).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 the
participants. The deferred compensation liabilities are classified within Level 2, the fair value classification as defined under U.S. GAAP,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 theits deferred compensation plan, which are recorded at fair value each period using the cash surrender value of the insurance investments.
The Company has obligations,amounts owed to be paid in cash, to the former owners of Brink Software, based on the achievement of certain conditions as definedemployees participating in the definitive agreement (see Note 1 – Summary of Significant Accounting Policies - sub-footnote Contingent Consideration - of the Notesdeferred compensation plan at December 31, 2022 was $1.7 million compared to Consolidated Financial Statements).
The fair value of this contingent consideration payable,$2.4 million at December 31, 2021 and is included in other long-term liabilities on the consolidated balance sheets, was estimated usingsheets.
The Company uses Monte Carlo simulation modeling of a discounted cash flow method,model to determine the fair value of the earn-out liability associated with significantthe MENU Acquisition. Significant inputs thatused 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, fair value measurements and disclosures. The significant inputs in820. Ultimately, the Level 3 measurement not supported by market activity included the Company’s probability assessments of expected future cash flows relatedliability will be equivalent to the Company’s acquisition of Brink duringamount paid, and the contingent consideration period, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the definitive agreement. The liabilities for the contingent consideration were established at the time of the acquisition and are evaluated on a quarterly basis based on additional information as it becomes available. Any change indifference between the fair value adjustment isestimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the earningsliability on the acquisition date will be reflected as cash used in financing activities in the Company's consolidated statements of that period. Changescash flows. Any amount paid in excess of the liability on the acquisition date will be reflected as cash used in operating activities. The Company determined the fair value of the MENU earn-out contingent consideration obligations may result from changes in probability assumptions with respectliability to the likelihood of achieving the various contingent payment obligations. Significant increases or decreases in the inputs noted above in isolation would result in a significantly lower or higher fair value measurement.be $9.8 million at December 31, 2022.
The following table presents a summarythe changes in the estimated fair values of changesthe Company’s liabilities for contingent consideration measured using significant unobservable inputs (Level 3) for fiscal year 2022:
| | | | | |
| (in thousands) | |
| Balance at December 31, 2021 | $ | — | |
| New contingent consideration | 14,200 | |
| Change in fair value of contingent consideration | (4,400) | |
| |
| Balance at December 31, 2022 | $ | 9,800 | |
The change in fair value of contingent consideration was recorded within "Adjustment to contingent consideration liability" in the consolidated statement of operations.
The following tables provides quantitative information associated with the fair value measurement of the Company’s Level 3 liabilities that are measured at fair value onfor contingent consideration:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | | | | | |
| Contingency Type | | Maximum Payout (1) (undiscounted) (in thousands) | | Fair Value | | Valuation Technique | | Unobservable Inputs | | Weighted Average or Range |
| Revenue and EBITDA based payments | | $ | 33,900 | | | $ | 9,800 | | | Monte Carlo | | Revenue volatility | | 25.0 | % |
| | | | | | | | Gross profit volatility | | 40.0 | % |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | Discount rate | | 13.5 | % |
| | | | | | | | Projected year of payments | | 2024 |
(1) Maximum payout as determined by Monte Carlo valuation simulation; the disclosed contingency is not subject to a recurring basis (in thousands):contractual maximum payout.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
| | | |
| | Level 3 Inputs |
| | Liabilities |
| Balance at December 31, 2016 | $ | 4,000 |
|
| New level 3 liability | — |
|
| Change in fair value of contingent consideration liability | (1,000 | ) |
| Transfers into or out of Level 3 | — |
|
| Balance at December 31, 2017 | $ | 3,000 |
|
Note 13 — Related Party Transactions
The Company leases its corporate wellness facility to related parties at a current rate of $9,775 per month. The Company receives complimentary memberships to this facility which are provided to local employees. During 2017 and 2016, the Company recognized rental income of $117,300 for the lease of the facility in each year. Ongoing expenses relating to the facility amounted to $25,000 and $83,000 during 2017 and 2016, respectively. The rent receivable at December 31, 2017 and 2016 was $59,000 and $29,000, respectively. The amount of the rent receivable was collected in full subsequent to each respective year end.
In October 2016, we entered into a statement of work ("SOW") with Xpanxion LLC for software development services. In 2017 and 2016, we incurred approximately $1.0 million and $0.2 million of fees, respectively, to Xpanxion under the SOW. In 2017 and 2016, we made payments of $1.2 million and zero, respectively, to Xpanxion under the SOW. Until his retirement on June 30, 2017, Paul Eurek, a former director of the Company, was President of Xpanxion LLC.
| |
Item 9.
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|
None.
Item 9A.Controls and Procedures CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and ProceduresProcedures.
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 Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of December 31, 2017.2022. Based on that evaluation, and having concluded that the material weaknesses in our internal control over financial reporting initially reported in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016 and in our subsequent periodic reports filed through our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017 (the “2017 3Q-Quarter 10-Q"), have been remediated (as described below), our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017.2022.
Remediation of Material WeaknessesWeaknesses.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As most recently disclosed in our 2017 3Q-QuarterQuarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022, our management concluded that our disclosure controls and procedures were not effective as of September 30, 2017 because of material weaknesses identified in our internal control over financial reporting. Specifically, management determined that our failure: to maintain a culture that encourages and supports our employees to promptly report information to management; to maintain sufficient monitoring activities and procedures to ensure compliant and consistent global practices and timely detection of deviations to allow for timely corrective action; and to maintain adequate policies and procedures, and to provide our employees with proper training of applicable laws and regulations and compliance with the same, resulted in our reported material weaknesses in our internal control over financial reporting. reporting attributable to deficiencies first identified in our control activities and monitoring activities as of December 31, 2020.
To remediate thesethe identified material weaknesses, we adoptedemployed an experienced internal audit director and implemented employeeother experienced professionals, increased training of our internal professionals and other employees, implemented a cloud-based internal audit platform tool, adopted certain new Codecontrols, and enhanced our existing control designs and policies, including those over non-routine complex transactions and those that involve the use of Conduct and Compliance Handbook, retained an external chief compliance officer and an internal deputy compliance officer, identified and trained regional compliance officers - to stand-up the compliance function, streamlined our whistleblower hotline process, and retained and are using a third-party on-line due diligence system.third parties. These forgoing initiatives, together with others, have resulted in significant improvements in our internal control framework, particularly in our control activities and monitoring activities. As relevant control activities have been designed, implemented, and operated for a sufficient period of time to address the committed and visible actions ofpreviously disclosed material weaknesses, management, including our Chief Executive Officer and other members of senior management concerning complianceChief Financial Officer, has improved the tone at the top and underscores that honesty, integrity, ethics, and compliance are our core committed values. We have tested our policies and processes of internal control over financial reporting and, based on the test results, management concluded the material weaknesses have been remedied.
We caution that any controls and procedures, no matter how well designed and operated, can provide only reasonable assuranceremedied as of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Controls Over Financial Reporting.
In evaluating whether there were changes in our internal control over financial reporting, we have determined that, other than the changes described above under “Remediation of Material Weaknesses”, there were no changes in internal control over financial reporting during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.2022.
Management’s Annual Report on Internal Control Overover Financial ReportingReporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP.. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessedevaluated the effectiveness of our internal control over financial reporting as of December 31, 20172022 based on the framework and criteria established in Internal Control -— Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment,its evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 20172022.
The MENU Acquisition closed on July 25, 2022. Accordingly, due to provide reasonable assurance regarding the reliabilitytiming of the acquisition, as permitted by SEC guidance, management’s assessment of the Company’s internal control over financial reporting as of December 31, 2022 excludes MENU. MENU’s financial statements constituted 4.9% of total assets and 0.2% of total revenues of the preparation of consolidated financial statementsstatement amounts as of and for externalthe year ended December 31, 2022. Our management is currently in the process of evaluating MENU’s controls and procedures and integrating MENU into our system of internal control over financial reporting. As a result, management was unable, without incurring unreasonable effort or expense, to conduct an assessment of internal control over financial reporting purposes in accordance with U.S. GAAP. We reviewedfor the results of management’s assessment with the Audit Committee of our Board of Directors.acquired business.
Our independent registered public accounting firm, BDO USA, LLP, independently assessed theThe effectiveness of our internal control over financial reporting as of December 31, 2017,2022 has been audited by Deloitte & Touche LLP, our independent registered public accounting firm, as stated in its report below.
Changes in Internal Control over Financial Reporting.
In its evaluation of changes in our internal control over financial reporting, other than described above under “Remediation of Material Weaknesses”, our management, with the firm’s attestation report, which appears onparticipation of our Chief Executive Officer and Chief Financial Officer, did not identify changes that occurred in our internal control over financial reporting during the following page.quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
TheREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors and Shareholders
of PAR Technology Corporation
New Hartford, New York
Opinion on Internal Control over Financial Reporting
We have audited PAR Technology Corporation’s (the “Company’s”)the internal control over financial reporting of PAR Technology Corporation and subsidiaries (the “Company”) as of December 31, 2017,2022, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”)(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on the COSO criteria.criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the consolidated balance sheetsfinancial statements as of and for the year ended December 31, 2022, of the Company and subsidiaries as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the years then ended, and the related notes and our report dated March 16, 20181, 2023, expressed an unqualified opinion thereon.on those financial statements.
As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at MENU Technologies AG, which was acquired on July 25, 2022, and whose financial statements constituted 4.9% of total assets and 0.2% of total revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2022. Accordingly, our audit did not include the internal control over financial reporting at MENU Technologies AG.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Annual Report on Internal Control overOver Financial Reporting”.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also includedrisk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA,Deloitte & Touche LLP
Rochester, New York NY
March 16, 20181, 2023
Item 9B. Other InformationOTHER INFORMATION
(i) WaiverItem 5.02(c) Appointment of Event of Default.Certain Officers.
On March 14, 2018, JPMorgan Chase Bank, N.A. grantedFebruary 27, 2023, the Company promoted Michael A. Steenberge, age 36, to Chief Accounting Officer of the Company effective March 1, 2023, and in such capacity, he shall serve as the Company’s Principal Accounting Officer. Mr. Steenberge will report to Bryan A. Menar, the Company's Chief Financial Officer and Principal Financial Officer. Prior to his promotion, Mr. Steenberge served as the Company’s Corporate Controller since May 2020. Prior to joining the Company, Mr. Steenberge served as a Waivertechnical controller with Corning Incorporated from April 2019 to May 2020, and prior to that as a senior manager with PricewaterhouseCoopers LLP. Mr. Steenberge is a certified public accountant and holds a B.S. in Business Administration from The State University of its failureNew York at Buffalo.
In connection with his promotion, Mr. Steenberge will receive an annual base salary of $275,000, and a one-time grant of time-vesting restricted stock units (RSUs) representing a total grant date value of $200,000; subject to meetMr. Steenberge’s continued service with the required fixed charge coverage ratio forCompany through and including the applicable vesting date, the RSUs will vest annually, in equal installments of 1/3rd each, beginning on that date, that is one-year from the first day of the last month of the fiscal quarter ended December 31, 2017, which failure constitutes an event of default underin with the Credit Agreement. The preceding descriptionRSUs are granted (the “RSU Initial Vesting Date”), and thereafter on the first- and second-year anniversary of the WaiverRSU Initial Vesting Date. Mr. Steenberge is eligible to participate in the Company’s short-term incentive (STI) cash bonus plan and long-term incentive (LTI) plan in effect from time to time. Mr. Steenberge’s STI bonus target for 2023 is 30% of his earned base salary in 2023; payout of his STI bonus (if any) is subject to the achievement of performance targets established by the compensation committee of the Company’s board of directors and qualifiedhis continued employment at the time 2023 STI bonuses are paid. Mr. Steenberge’s 2023 LTI Award will be time-vesting RSUs representing a total grant date value of $100,000 and, subject to Mr. Steenberge’s continued service with the Company through and including the applicable vesting date, the RSUs will vest annually, in its entirety by referenceequal installments of 1/3rd each, beginning on the RSU Initial Vesting Date, and thereafter on the first- and second-year anniversary of the RSU Initial Vesting Date. Mr. Steenberge’s RSUs will be granted under the Amended and Restated PAR Technology Corporation 2015 Equity Incentive Plan and subject to the Waiver, which is attached as Exhibit 10.24terms and conditions of the Company’s LTI program and time-vesting restricted stock unit award agreement currently in effect. Mr. Steenberge remains eligible to this Annual Report and is incorporated herein by reference.
(ii) Offer Letter; Amendment.
On March 14, 2018, PAR amendedparticipate in the Offer Letter, dated April 12, 2017,employee benefit plans that the Company maintains for the benefit of its Chief Executive Officeremployees, which includes health, long-term disability, and President, Dr. Donald H. Foley, to modify the vesting schedule of shares of restricted stock granted to Dr. Foley as payment of 25% oflife insurance, and 401(k), and his 2017 short-term incentive bonus to vest 100% on April 11, 2018, as opposed to one year from date of grant. The preceding description of the amendmentcompensation is subject to change from time to time as determined by the compensation committee of the Company’s board of directors.
There were no arrangements or understandings between Mr. Steenberge and qualified in its entirety by referenceany other person pursuant to which Mr. Steenberge was selected as Chief Accounting Officer or Principal Accounting Officer of the Offer Letter; Amendment, whichCompany. Additionally, there is attached as Exhibit 10.27no family relationship between Mr. Steenberge and any other person that would require disclosure under Item 401(d) of Regulation S-K. Mr. Steenberge is not a party to this Annual Report and is incorporated herein by reference.any transactions that would require disclosure under Item 404(a) of Regulation S-K.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
| |
Item 10.Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
| Directors, Executive Officers and Corporate Governance.
|
The information required by this item will be included in our definitive proxy statement with respect tofor our 20182023 Annual Meeting of Stockholders to be filed with the SECShareholders and is incorporated herein by reference as it appears under the headings, “Proposal 1: Election of Directors”,Directors,” “Directors, and Executive” “Executive Officers”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Corporate Governance –- Code of Conduct”Conduct,” and “Corporate Governance –- Committees –- Audit Committee”.Committee.”
| |
Item 11.
Item 11. EXECUTIVE COMPENSATION
| Executive Compensation.
|
The information required by this item will be included in our definitive proxy statement with respect tofor our 20182023 Annual Meeting of Stockholders to be filed with the SECShareholders and is incorporated herein by reference as it appears under the headings, “Director Compensation” and “Executive Compensation”.“Overview of Executive Compensation.”
| |
Item 12.Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
The information required by this item will be included in our definitive proxy statement with respect tofor our 20182023 Annual Meeting of Stockholders to be filed with the SECShareholders and is incorporated herein by reference as it appears under the headings, “Executive Compensation – Equity“Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management”.Management.”
| |
Item 13.Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
| Certain Relationships and Related Transactions, and Director Independence.
|
The information required by this item will be included in our definitive proxy statement with respect tofor our 20182023 Annual Meeting of Stockholders to be filed with the SECShareholders and is incorporated herein by reference as it appears under the headings, “Transactions with Related Persons” and “Corporate Governance – Director Independence”.Independence.”
| |
Item 14.Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
| Principal Accounting Fees and Services.
|
The information required by this item will be included in our definitive proxy statement with respect tofor our 20182023 Annual Meeting of Stockholders to be filed with the SECShareholders and is incorporated herein by reference as it appears under the heading, “Principal Accounting Fees and Services”.Services.”
PART IV
| |
Item 15.Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| Exhibits and Financial Statement Schedules |
(a) 1. Financial Statements:
PAR's Consolidatedconsolidated financial statements and notes thereto are included in "Part II, Item 8. Financial Statements and Notes thereto, together with the report of BDO USA, LLP, are included in Part II, Item 8Supplementary Data" of this Annual Report.
(a) 2. Financial Statement Schedules
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Annual Report.
(a) 3. Exhibits
| | | | | | | | | | | | | | |
| | Incorporated by reference into this Annual
Report on Form 10-K |
Exhibit Number | Exhibit Description | Form (File No.) | Exhibit | Date Filed/Furnished |
| 2.1 | | Form 8-K (File No. 001-09720) | 2.1 | 4/8/2021 |
| | | | |
| 2.2 | Interest Purchase Agreement, dated November 7, 2019, by and among the Drew D. Peloubet Family Trust DTD 6/29/09, Steven A. Roberts, Gary Saling, PJCDSG, Inc., ParTech, Inc., PAR Technology Corporation and Drew D. Peloubet | Form 8-K (File No. 001-09720) | 2.1 | 11/17/2019 |
| | | | |
| 3.1 | | Form 10-Q (File No. 001-09720) | 3.1 | 11/9/2022 |
| | | | |
| 3.2 | | Form 8-K (File No.001-09720) | 3.1 | 9/26/2022 |
| | | | |
| 4.1 | | Form S-2 (File No. 333-04077) | 4 | 5/20/1996 |
| | | | |
| 4.2 | | Form 8-K (File No. 001-09720) | 4.1 | 4/15/2019 |
| | | | |
| 4.3 | | Form 8-K (File No. 001-09720)
| 4.1 | 2/10/2020 |
| | | | |
| 4.4 | | Form 8-K (File No. 001-09720) | 4.1 | 9/17/2021 |
| | | | |
| 4.5 | | Form 8-K (File No. 001-09720) | 4.2 | 9/17/2021 |
| | | | |
| 4.6 | | | | Filed herewith |
| | | | |
| 10.1 †† | | Form S-8 (File No. 333-208063) | 4.2 | 42324 |
| | | | |
| 10.2 †† | | Form S-8 (File No. 333-208063) | 4.3 | 42324 |
| | | | |
| 10.3 †† | | Form S-8 (File No. 333-208063) | 4.4 | 11/16/2015 |
| | | | |
| 10.4 †† | | Form 10-K (File No. 001-09720) | 10.22 | 4/17/2017 |
|
| | | | |
| | | Incorporated by reference into this Annual Report on Form 10-K |
Exhibit Number | Exhibit Description | Form (File No.) | Exhibit | Date Filed/Furnished |
| | | | | |
| 2(i) *** | | Form 10-Q (File No. 001-09720) | 10.3 | 11/14/2014 |
| | | | | |
2(ii) | Asset Purchase Agreement, dated as of November 4, 2015, among Gary Jonas Computing Ltd., SMS Software Holdings LLC, Jonas Computing (UK) Ltd., PAR Springer-Miller Systems, Inc., Springer-Miller International, LLC, Springer- Miller Canada, ULC, Partech, Inc., and Constellation Software, Inc. | Form 10-K (File No. (001-09720) | 10.26 | 3/30/2016 |
| | | | | |
| 3(i) | | Form 8-K (File No. 001-09720) | 3(i) | 5/29/2014 |
| | | | | |
3(ii) | | Form 8-K (001-09720) | 3(ii) | 5/29/2014 |
| | | | | |
| 4 | | Form S-2 (File No. 333-04077) | 4 | 5/20/1996 |
| | | | | |
| 10.1 †† | | Form S-8 (File No. 333-137647) | 4.2 | 9/28/2006
|
| | | | | | | | | | | | | | |
| | Incorporated by reference into this Annual
Report on Form 10-K |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed |
10.5 ††
| | Form 10-K (File No. 001-09720) | 10.16 | 3/16/2018 |
| | | | |
10.6 ††
| | Form 10-K (File No. 001-09720) | 10.17 | 3/16/2018 |
| | | | |
| 10.7 | | Form 8-K (File No. 001-09720) | 10.1 | 4/15/2019 |
| | | | |
10.8 ††
| | Form S-8 (File No. 333-232589) | 99.1 | 7/9/2019 |
| | | | |
| 10.9 †† | | Form 10-Q (File No. 001-09720) | 10.2 | 8/7/2019 |
| | | | |
| 10.10 †† | | Form 10-Q (File No. 001-09720) | 10.3 | 8/7/2019 |
| | | | |
| 10.11 †† | | Form 10-Q (File No. 001-09720) | 10.4 | 8/7/2019 |
| | | | |
| 10.12 | | Form 8-K (File No. 001-09720) | 10.1 | 2/10/2020 |
| | | | |
| 10.13 †† | | Form 10-K (File No. 001-09720) | 10.15 | 3/16/2020 |
| | | | |
| 10.14 †† | | Form 10-K (File No. 001-09720) | 10.20 | 3/16/2020 |
| | | | |
| 10.15†† | | Form S-8 (File No. 333-239230) | 99.1 | 6/17/2020 |
| | | | |
| 10.16 | | Form 8-K (File
No. 001-09720) | 1.1 | 10/1/2020 |
| | | | |
| 10.17 †† | | Form 10-K (File No. 001-09720) | 10.24 | 3/16/2021 |
| | | | |
| 10.18 | | Form 8-K (File
No. 001-09720) | 10.1 | 4/8/2021 |
| | | | |
|
| | | | |
| | | Incorporated by reference into this Annual Report on Form 10-K |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed |
| | | | | |
| 10.2 †† | | Form S-8 (File No. 333-187246) | 4.1 | 3/14/2013 |
| | | | | |
| 10.3 †† | | Form 10-Q (File No. 001-09720) | 10.1 | 8/8/2013 |
| | | | | |
| 10.4 †† | | Form 10-K (File No. 001-09720)
| 10.17 | 3/14/2014 |
| | | | | |
| 10.5 †† | | Form 10-K (File No. 001-09720) | 10.21 | 3/31/2015 |
| | | | | |
| 10.6 †† | | Form 10-K (File No. 001-09720) | 10.23 | 3/31/2015 |
| | | | | |
| 10.7 *** | | Form 10-Q (File No. 001-09720) | 10.1 | 11/14/2014 |
| | | | | |
| 10.8 | Pledge and Security Agreement entered into as of September 9, 2014, among PAR Technology Corporation, Ausable Solutions Inc., PAR Government Systems Corporation, PAR Springer-Miller Systems, Inc., Rome Research Corporation, Springer-Miller International, LLC, ParTech, Inc., and JPMorgan Chase Bank, N.A. | Form 10-Q (File No. 001-09720) | 10.2 | 11/14/2014 |
| | | | | | | | | | | | | | |
| | Incorporated by reference into this Annual
Report on Form 10-K |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed |
| 10.19 | | Form 8-K (File
No. 001-09720) | 10.2 | 4/8/2021 |
| | | | |
| 10.20 | | Form 8-K (File
No. 001-09720) | 10.3 | 4/8/2021 |
| | | | |
| 10.21 | | Form 8-K (File
No. 001-09720) | 10.4 | 4/8/2021 |
| | | | |
| 10.22 | | Form 8-K (File
No. 001-09720) | 10.5 | 4/8/2021 |
| | | | |
| 10.23 | | Form 8-K (File
No. 001-09720) | 10.6 | 4/8/2021 |
| | | | |
| 10.24 | | Form 8-K (File
No. 001-09720) | 10.7 | 4/8/2021 |
| | | | |
| 10.25 | | Form 8-K (File
No. 001-09720) | 1.1 | 9/17/2021 |
| | | | |
| 10.26 | | Form 8-K (File
No. 001-09720) | 1.2 | 9/17/2021 |
| | | | |
| 10.27 †† | | Form 10-K (File No. 001-09720) | 10.32 | 3/1/2022 |
| | | | |
| 10.28 †† | | Form 10-K (File No. 001-09720) | 10.33 | 3/1/2022 |
| | | | |
| 10.29 †† | | Form 10-Q (File No. 001-09720) | 10.1 | 5/10/2022 |
| | | | |
| 21 | | | | Filed herewith |
| | | | |
| 23 | | | | Filed herewith |
| | | | |
| 31.1 | | | | Filed herewith
|
| | | | |
| 31.2 | | | | Filed herewith
|
| | | | |
| 32.1 | | | | Furnished herewith
|
| | | | |
|
| | | | |
| | �� | Incorporated by reference into this Annual Report on Form 10-K |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed |
| | | | | |
| 10.9 *** | Second Amendment to Credit Agreement and Other Loan Documents, dated as of March 19, 2015, among PAR Technology Corporation, Ausable Solutions Inc., PAR Government Systems Corporation, PAR Springer-Miller Systems, Inc., Rome Research Corporation, Springer-Miller International, LLC, ParTech, Inc., Brink Software, Inc, and JPMorgan Chase Bank, N.A. | Form 10-K (File No. 001-09720) | 10.24 | 3/31/2015 |
| | | | | |
| 10.10 | | Form 10-K (File No. 001-09720) | 10.29 | 3/30/2016 |
| | | | | |
| 10.11 | | Form 10-Q (File No. 001-09720) | 10.1 | 8/8/2016 |
| | | | | |
| 10.12 | | Form 10-Q (File No. 001-09720) | 10.1 | 11/14/2016 |
| | | | | |
| 10.13 †† | | Form S-8 (File No. 333-208063) | 4.2 | 11/16/2015 |
| | | | | |
| 10.14 †† | | Form S-8 (File No. 333-208063) | 4.3 | 11/16/2015 |
|
| | | | |
| | | Incorporated by reference into this Annual Report on Form 10-K |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed |
| | | | | |
| 10.15 †† | | Registration Statement on Form S-8 (File No. 333-208063) | 4.4 | 11/16/2015 |
| | | | | |
| 10.16 †† | | | | Filed herewith |
| | | | | |
| 10.17 †† | | | | Filed herewith |
| | | | | |
| 10.18†† | | Form 10-Q (File No. 001-09720) | 10.3 | 5/9/2013 |
| | | | | |
| 10.19 †† | | Form 10-K (File No. 001-09720) | 10.27 | 3/30/2016 |
| | | | | |
| 10.20 †† | | | | Filed herewith |
| | | | | |
| 10.21†† | | Form 10-K (File No. 001-09720) | 10.28 | 3/30/2016 |
| | | | | |
| 10.22 | | Form 10-K (File No. 001-09720) | 10.21 | 4/17/2017 |
| | | | | |
| 10.23 | | Form 10-Q (File No. 001-09720) | 10.4 | 8/14/2017 |
| | | | | |
| 10.24 | Waiver dated March 14, 2018 among PAR Technology Corporation, ParTec, Inc., Ausable Solutions, Inc., PAR Government Systems Corporation, Rome Research Corporation, Brink Software, Inc. and JPMorgan Chase Bank, N.A. | | | Filed herewith |
| | | | | |
| 10.25 †† | | Form 10-K (File No. 001-09720) | 10.22 | 4/17/2017 |
| | | | | |
|
| | | | |
| | | Incorporated by reference into this Annual Report on Form 10-K |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed |
| 10.26 †† | | Form 10-Q (File No. 001-09720) | 10.1 | 8/14/2017 |
| | | | | |
| 10.27 | | | | Filed herewith |
| | | | | |
| 10.28 | | Form 10-Q (File No. 001-09720) | 10.2 | 8/14/2017 |
| | | | | |
| 10.29 | | Form 10-Q (File No. 001-09720) | 10.3 | 8/14/2017 |
| | | | | |
| 10.30 †† | | | | Filed herewith |
| | | | | |
| 21 | | | | Filed herewith |
| | | | | |
| 23(ii) | | | | Filed herewith |
| | | | | |
| | | | Filed herewith |
| | | | | |
| | | | Filed herewith |
|
| | | | | | | | | | | | | |
| | Incorporated by reference into this Annual
Report on Form 10-K
|
Exhibit Number |
Exhibit Description
| Form (File No.) | Exhibit | Date Filed |
| | | | |
| 32.2 | | | | Furnished herewith
|
| | | | |
| 101.CAL | | | | Furnished herewith |
| | | | |
101.INS | XBRL Instance Document | | | Filed herewith |
| | | | |
101.SCH | XBRL Taxonomy Extension Schema Document | | | Filed herewith |
| | | | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | | Filed herewith |
| | | | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | | Filed herewith |
| | | | |
101.LAB101.INS | XBRL Instance Document | | | Filed herewith |
| | | | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | | Filed herewith |
| | | | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | | Filed herewith |
| | | | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | | | Filed herewith |
| | | | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | Filed herewith |
†† Indicates management contract or compensatory plan or arrangement.
*** Portions of this Exhibit were omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Securities and Exchange Commission.
Item 16. FormFORM 10-K Summary.SUMMARY
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 |
| |
| March 1, 2023 | PAR TECHNOLOGY CORPORATION/s/ Savneet Singh |
| Savneet Singh |
March 16, 2018 | /s/ Donald H. Foley |
| Donald H. Foley |
| Chief Executive Officer & President |
| (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | |
| Signatures | | Title | Date |
| | | |
Signatures | | Title | Date |
| | | |
/s/ Donald H. FoleySavneet Singh | | Chief Executive Officer, President & Director | |
Donald H. FoleySavneet Singh | | (Principal Executive Officer) | March 16, 20181, 2023 |
| | | |
| /s/ Bryan A. Menar | | Chief Financial and Accounting Officer | |
| Bryan A. Menar | | (Principal Financial Officer) | March 16, 20181, 2023 |
| | | |
| /s/ Michael A. Steenberge | | Chief Accounting Officer | |
| Michael A. Steenberge | | (Principal Accounting Officer) | March 1, 2023 |
| | | |
| /s/ Cynthia A. Russo | | | |
| Cynthia A. Russo | | Director | March 16, 20181, 2023 |
| | | |
/s/ DougDouglas G. Rauch | | | |
DougDouglas G. Rauch
| | Director | March 16, 20181, 2023 |
| | | |
/s/ Keith Pascal | | | |
| Keith Pascal | | Director | March 1, 2023 |
| | | |
| /s/ Narinder Singh | | | |
| Narinder Singh | | Director | March 1, 2023 |
| | | |
| /s/ James C. Stoffel
| | | |
James C. Stoffel
| | Director | March 16, 2018 |
| | | |
/s/ John W. Sammon | | | |
John W. Sammon | | Director | March 16, 20181, 2023 |
