UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 20212023
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)
| | | | | |
| Delaware | 16-1434688 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| |
| PAR Technology Park, 8383 Seneca Turnpike, New Hartford, New York 13413-4991 |
| (Address of principal executive offices, including zip code) |
(315) 738-0600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of Each Classeach class | Trading Symbolsymbol | Name of Each Exchangeeach exchange on Which Registeredwhich registered |
Common Stock, $.02$0.02 par value | PAR | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
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 ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T §232.405(§232.405 of the Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
| | | | | | | | |
Large Accelerated Fileraccelerated filer ☑ | Accelerated Filerfiler ☐ | Non Accelerated FilerNon-accelerated filer ☐ |
| Smaller reporting company ☐ | Emerging growth company ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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. Yes ☑ No
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
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 $1,795,577,453$893,731,264 on June 30, 2021.2023.
There were 26,951,42428,039,525 shares of common stock outstanding as of February 22, 2022.23, 2024.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2022 Annual Meeting2024 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.Report.
PAR TECHNOLOGY CORPORATION
Form 10-K
For the Fiscal Year Ended December 31, 20212023
TABLE OF CONTENTS
“PARTM®,” “Brink POS®,” “Punchh®,” “MENUTM,” “Data Central®,” “Restaurant Magic"PAR® Pay”,” “PAR PhaseTM,” “PixelPoint®” Payment Services” and other trademarks identifying our products and services appearing in this Annual Report belong to us. This Annual Report may also contain trade names and trademarks of other companies. Our use of such other companies’ trade names or trademarks is not intended to imply any endorsement or sponsorship by these companies of us or our products or services.
Unless the context indicates otherwise, references in this Annual Report to "we," "us," "our," the "Company," and "PAR" mean PAR Technology Corporation and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”) contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature, but rather are predictive of PAR’s future operations, financial condition, financial results, business strategies and prospects. Forward-looking statements are generally identified by words such as “anticipate,” “believe,” “can”, “could”, “continue,” “expect,” “estimate,” “future”, “goal”, “intend,” “may,” “opportunity,” “plan,” “should,” "strive," “target”, "vision," “will,” “would,” “will likely result,” and similar expressions. Forward-looking statements are based on management's current expectations and assumptions thatand are subject to risksinherently uncertain. Actual results and uncertainties, many of which are beyond PAR’s control, whichoutcomes 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 regardingregarding: the effectsplans, strategies and objectives of COVID-19 onmanagement for future operations, including PAR’s service and product offerings, its business, financial condition, and results of operationsgo-to-market strategies and the mitigatingexpected development, demand, performance, market share or otherwise intended impactcompetitive performance of PAR’s responsesits products and services; PAR's ability to achieve and sustain profitability; projections of net revenue, margins, expenses, cash flows, or other financial items; PAR's annual recurring revenue, active sites, subscription service margins, net loss, net loss per share and other key performance indicators and non-GAAP financial measures; PAR's expectations about the same;availability and terms of product and component supplies for our hardware; the timing and expected benefits of acquisitions, divestitures, and capital markets transactions; statements of the plans, strategies and objectives of management for future operations, including PAR’s unified commerce cloud platform and its go-to-market strategy; statements concerning the expected development, demand, performance, market share or competitive performance relating to PAR’s products or services; projections of net revenue, margins, expenses, effective tax rates, net earnings, net earnings per share, cash flows, deferred taxes, or other financial items, or of PAR’s annual recurring revenue, active sites, and other key performance indicators and financial metrics; statements concerning potential supply constraints, component shortages, manufacturing disruptions or logistics challenges; statements about PAR’s human capital strategies and engagement; statements regarding current or future macroeconomic trends or geopolitical events and the impact of those trends and events on PAR and its business, financial performance; statements regardingcondition, and results of operations; claims, disputes or other litigation matters; and any statements of 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 effects of COVID-19 on PAR’s business, financial condition, and results of operations and the timing and actions by PAR, as well as by governments, businesses, customers and consumers, including store closures (temporary or permanent), decreased or delayed product and service adoptions and installations, delayed payments or payment defaults by customers, and the health and safety of PAR’s employees; PAR’sinclude: PAR's ability to successfully develop or acquire and transition new products and services and enhance existing products and services to meet evolving customer needs and respond to emerging technological trends, including artificial intelligence; PAR's ability to add and maintain active sites, retain and manage third-party suppliers, secure alternative suppliers, and manage inventory levels, navigate component shortages,manufacturing disruptions or logistics challenges, shipping delays and increased costs; PAR’sPAR's ability to successfully attract, hiredevelop and retain necessary qualified employees to develop and expand its business, as exacerbated by the “Great Resignation” or “Big Quit”;and execute product installations and respond to customer service level needs; the protection of PAR’sPAR's intellectual property; PAR’sPAR's ability to increase the number ofretain and add integration partners, and acquire and/or developits success in acquiring and developing relevant technology offerings for current, new, and potential customers for the build-out of its unified commerce cloud platform; the impact ofservice and product offerings; macroeconomic trends, such as a recession or slowed economic growth, fluctuating interest rates, inflation, and changes in consumer confidence and discretionary spending; geopolitical events, includingsuch as effects of the Russia-Ukraine war, tensions with China and between China and Taiwan, the Israel-Hamas conflict and other hostilities in the Middle East; risks associated with PAR's international operations; the effects of inflation; risks associated with PAR’s international operations;global pandemics, such as COVID-19 or other public health crises; changes in estimates and assumptions PAR makes in connection with the preparation of its financial statements, andor in building its business and operational plans and in executing PAR's strategies; disruptions in operations from system security risks, data protection breaches and cyberattacks; PAR’s agilitycyberattacks, including heightened risks due to the rapid development and adoption of artificial intelligence technologies globally; PAR's ability to maintain proper and effective internal control over financial reporting; PAR's ability to execute its business, operational plans, and strategies and manage its business continuity risks, including disruptions or delays in product assembly and fulfillment and limitations on PAR’s selling and marketing efforts;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 U.S. 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 and does not intend to update or revise these forward-looking statements.statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities law.
PART I
Item 1. BUSINESS
Corporate InformationThe Company
PAR Technology Corporation (NYSE: PAR), through its wholly ownedconsolidated subsidiaries – ParTech, Inc. (“ParTech”) and PAR Government Systems Corporation (“PAR Government”) –, operates in two distinct reporting segments, Restaurant/Retail and Government. Our Restaurant/Retail segment provides software, hardware, and services to the restaurant
and retail industries. Our Government segment provides technical expertise and development of advanced systems and software solutions for the U.S. Department of Defense (“DoD”), the intelligence community and other federal agencies.
2021 Highlights
On April 8, 2021, we acquired Punchh Inc. (“Punchh”), a leader in software as a service (“SaaS”) customer loyalty and engagement solutions, launching our unified commerce cloud platform with Brink POS for front-of-house, Data Central for back-office, PAR Pay and PAR Payment Services for payments, and Punchh for customer loyalty and engagement.
On September 17, 2021, we sold 982,143 shares of common stock to the public at a price of $56.00 per share.
On September 17, 2021, we sold $265.0 million in aggregate principal amount of 1.50% Convertible Senior Notes due 2027.
In September 2021, the U.S. Air Force Research Laboratory Information Directorate awarded our Government segment a $490.4 million ceiling, single award, indefinite-delivery/indefinite-quantity contract (the “IDIQ Contract”) with cost-plus-fixed-fee completion and firm-fixed-price type orders for Counter-small Unmanned Aircraft System (“C-sUAS”) software, hardware, and technical documentation. The value of this contract is dependent on those amounts committed under the contract by government agencies, and as of December 31, 2021, $42.8 million was committed of which $5.8 million was funded, net of amounts relating to work performed to that date. See “Government Segment – Backlog” for additional information on backlog of contracts for our Government segment.
Restaurant/Retail Segment
We are aprovide leading provider ofomnichannel cloud-based software and hardware and servicessolutions to the restaurant and retail industries, withindustries. Our product and service offerings include point-of-sale, customer engagement and loyalty, digital ordering and delivery, operational intelligence technologies, payment processing, hardware, and related technologies, solutions, and services. Our omnichannel solutions are used by more than 500700 restaurant customers currently using our software products and can be found in more than 50,00070,000 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 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. We provide enterprise restaurants, franchisees,love; and other restaurant outletsour strategy to achieve this mission is grounded in the three major restaurant categories, quick service, fast casual,delivering a unified experience across our comprehensive suite of subscription services, hardware, and table service, with operational efficiencies by offering them a fully integrated cloud solution.professional services that simplifies our customers' operations, elevates their customer engagement, and drives their continued success.
OurPAR's vision of unified commerce cloudexperience is a single platform deliversthat provides seamless connections from the restaurants’ backend systems through to their customer-facing channels enabling restaurant enterprises to deliver innovation, differentiated experiences and competitive advantage. It's the setup enterprise restaurants require to support omnichannel journeys and create a fully integrated suiteunified view of moderncustomer interactions, products, and management systems. We continuously strive to enhance and expand our omnichannel solutions to provide full integration of data points that drive guest satisfaction and operational efficiencies for restaurant solutions that 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 leverageenterprises across our open platform to extend the reach and capabilities of their own solutions for the leading brands in our industry.offerings.
Our unified commerce cloud platform delivers four key capabilities to ensure brand success: elevated guest engagement, end-to-end ordering and fulfillment, optimized planning and operations, and sophisticated analytics and insights.
Our unified data platform helps brands improve business performance by collecting insights across transactionsProducts and events. These advanced analytical capabilities span guest behaviors, operational metrics, channel performance and product mix, unlocking unique, real-time, end-to-end actionable insights.Services
Purpose built for restaurants, our unified commerce cloud platform integrates our productsSubscription services
Our subscription services consist of software-as-a-service ("SaaS") solutions, related software support, and those of our integration partners,transaction-based payment processing services, and delivers guest engagement, operations and powerful, comprehensive data and insights to our customers and partners under one portfolio.are grouped into three categories:
Point-of-Sale (“POS”) SoftwareGuest Engagement. Brink POS is an open cloud solution, offering customers the opportunity to integrate with third-party products and in-house systems. In support of our customers’ need to quickly adapt to changing market conditions, we offer the largest integration ecosystem – 250+ partners across various product solution categories including: mobile/online ordering, self-ordering kiosks, kitchen video systems, enterprise reporting, and other solutions relevant to our customers’ businesses, including Punchh, our cloud customer loyalty and engagement solution, and Data Central, our cloud back-office solution. These integration capabilities enable restaurants to increase customer visits and check size, improve operational efficiency, and most importantly, position them to win in an ever changing competitive market. As of December 31, 2021, Brink POS had an installed base of 15,897 restaurants, compared to a Brink POS installed base of 11,722 restaurants as of December 31, 2020.facing solutions:
Loyalty and Engagement. Punchh isPUNCHH, an enterprise-grade customer loyalty and engagement solution for restaurant and convenience store brandsthat enables customers to build direct one-to-one customer relationships anddeliver personalized promotions to their customers to increase customer lifetime value and same-store sales. Punchh provides physical retailers comprehensive,seamlessly integrates with our customers’ existing systems, providing AI-powered tools to deliver customer omnichannel loyalty experiences and campaigns to engage their customers, create real-time 360-degree insights and drive repeat purchases and higher average spend. The Punchh
MENU, an eCommerce platform seamlessly integratesfor global restaurant brands, powering all digital customer touchpoints from mobile, web, kiosk to delivery marketplaces. MENU provides restaurant brands with customers’ existing systems.the tools they need to grow their digital business, manage orders from all channels and for all order types, orchestrate their delivery operations, and fully control their digital experience to retain a direct customer relationship.
Operator Solutions, offering front-of-house operator solutions:
BRINK POS, an open cloud, point-of-sale solution that provides operators with tools to seamlessly integrate with multiple product offerings - including kiosks, kitchen video systems, and enterprise reporting - through PAR's ecosystem of integration partners.
Back-office SaaS Software.
PAR PAYMENT SERVICES, our merchant services business that enables electronic payment and processing services for businesses of all sizes to accept electronic payments online or in-person. Par Pay is the front-end technology that reads payment cards and sends customer information to the merchant acquiring bank for processing. Combined, they offer a comprehensive payment processing solution that allows our customers to accept a variety of payments methods including debit and credit cards, near-field communication ("NFC") contactless, mobile devices, digital wallets and gift cards.
Back Office Data Central,, offering back-of-house operator solutions:
DATA CENTRAL, a cloud-based softwareback-office solution of back-office applications,that leverages business intelligence and automation technologies to decreasemanage labor, food costs, manage labor and improve overall customer service.inventory, and perform enterprise reporting. Data Central provides restaurantscustomers 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,point-of-sale, inventory, supply, payroll and accounting systems to provide actionable insights and a comprehensive view of a restaurant’s operations. Data Central integrates with Brink POS
Our SaaS solutions are extensible and third-party software products,built on open application programming interfaces (“API”) enabling integration by more than 500 integration partners, including leading industry brands, to extend the reach and it is mobile-friendly, providing browser level access to all store level functions.capabilities of our SaaS solutions and those of our integration partners.
Hardware
Our hardware offerings include point-of-sale terminals and tablets, wireless headsets, drive-thru systems, kitchen display systems, payment devices, and other in-store peripherals:
PAR Pay and Payment Services. PAR Payment Services, our merchant services offering, provides restaurants with card payment processing capabilities, which we service and support. PAR Pay, is an EMV payments solution. Both PAR Payment Services and PAR Pay offer restaurants various choices including payment devices, gift card programs, and payment processors.
Wireless Communications, Drive-Thru Systems.Point-of-Sale Hardware. Our POS integrated solutions include a comprehensive offering of wireless headsets for drive-thru order-taking. This product offering provides our customers with another means to deliver their products and serve their customers.
POS Hardware. Our POShardware platforms are designed to reliably operate in harsh environments associated with food service. PAR platformshardware terminals - the PAR InfinityTM,WAVE, EVERSERV 600, and PAR PhaseTM, PAR HelixTMPHASE - and the EverServ® 8000 series - terminals,tablets are durable and highly functioning, scalable, and easily integrated, offering customers competitive performance at a cost-conscious price. Our hardwareopen 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.
Wireless Communications, Drive-Thru Systems.Our open architecture POS platforms are optimized to hostwireless headsets for drive-thru order-taking provide our POS software applications, as well as many third-party POS software applications, and are compatiblecustomers with a variety of peripheral devices. We partner with numerous vendors that offer in-store peripherals, such as cash drawers, card readers, printers, and kitchen video systems, allowing usanother means to deliver a completely integrated solution.
Services. their products and serve their customers. The PAR G5We provide a comprehensive portfolio of services to support our customers’ technology and hardware requirements, including training, installation, technical support and repair services.®
provides 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 service and meet performance targets.
In-Store Peripherals.We partner with numerous vendors that offer complete application trainingin-store peripherals, including kitchen display systems, payment devices, cash drawers, and printers, allowing us to deliver a comprehensive and completely integrated hardware solution.
Professional services
We provide a comprehensive portfolio of support services to our customers’ in-store staffcustomers, including hardware repair, installation and provideimplementation, training, and on-site and technical training to our customers’ information systems personnel. support.
Hardware repair. We provide customers with installation, technical and life-cycle support for our products through support services, licenses and/or subscription agreements. We also offer depot repair, warranty, and overnight–overnight Advanced Exchange–Exchange services from our offices in San Diego, California, Mississauga, Ontario, and our corporate headquarters in New Hartford, New York. In North America, we
Installation and implementation. We offer hardware installation and software implementation services.
Training. We offer complete application training to customers’ in-store staff and provide technical training to our customers’ information systems personnel.
On-site and technical support. We offer on-site support in the continental U.S. through our field tech service network, and 24-hour help desk support from our diagnostic service centers located in New Hartford, New York and Tampa, Florida, and on-site support through our field tech service network, which serves the continental United States. Florida.
Outside of the continental U.S., we similarly supportprovide our products by providing call center, installation, on-site, and/or depot repairprofessional services either directly or through authorized providers.
Sales, MarketingMarkets and DeliveryDistribution
In North America, we market and sell our products through our dedicated sales teams and channel partners. Our international direct sales teams and channel partners market andWe sell our products and services to tier 1enterprise restaurants, franchisees, and other restaurant outlets and to convenience stores and other retail customers, outside of the U.S., as well as to local/regional customers from in-country offices.
Our products are also offered and sold through sales representatives and resellers serving multi-unit operators, the independent restaurant category, and the non-food service markets such as retail and convenience stores,including amusement parks, movie theaters, cruise lines, spas, casinos, and other ticketing and entertainment venues.venues through dedicated internal sales teams and channel partners.
We have developed and nurtured long-termlongstanding relationships with several of the largest brands in the Restaurant/Retail segment, three of which represent a signification portion of our total revenues. We have beenincluding as an approved provider of restaurant technology systemssolutions and related support services to McDonald’sMcDonald's Corporation and theirits franchisees since 1980 and an approved supplier to Yum! Brands Inc. since 1983.1983; these two brands represent 17% of our total revenue.
Competition
Our softwareThe markets for our products and hardware product offerings face competition in theservices are highly competitive and rapidly evolving restaurant and retail markets. Most of our larger customers have several approved suppliers of software and/or hardware similar to one or more of our products. We compete in these markets directly with product offerings from Oracle Corporation, NCR Corporation and others.evolving. We compete on the basis of productfeatures and functionality, user experience, integration capabilities, method of delivery (cloud versus traditional on-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. Our competitive advantages include:Many of our unified commerce cloudlarger customers have several approved suppliers of software and hardware similar to one or more of our products.
While we believe our open integration platform, openomnichannel cloud-based software and hardware solutions, offerings, cloud delivery model based on modern architecture, enterprise grade solutions,with enterprise-grade products and purpose-built hardware, combined with our advanced development capabilities, extensive domain knowledge and expertise, excellent product reliability, a customer-dedicated direct sales force organization,team, and responsive customer service and support. As relevantsupport, are competitive advantages, the rapid and increased adoption of new technologies evolve and customer demands and expectations increase, so do the competitive pressures in the market, with(including artificial intelligence), introduction of new companies entering and existing companies expanding their product and service portfolios. We expect competition inofferings, and aggressive pricing are among some of the restaurantfactors and retail marketsstrategies that can affect our ability to continue to increase, including competition from both cloud and traditional on-premise POS software, customer loyalty and engagement software, back-office software, hardware providers and other business software and solution providers. With many of our product and service offerings,successfully compete. Additionally, 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. 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 have been, and may in the future be, subject to industry-wide shortage and significant pricing fluctuations. 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 has, and can again, result in significant fluctuations in the price of products and components. To mitigate these risks, we have expanded our supplier network and, we have in the past, and may in the future, increase our inventory levels of scarce products and components and adjust our pricing to reflect market conditions.
Research and Development
Continuous productProduct research, innovation, and product development are an integral part of our business. We continuously evaluate customer needs and new technologies to enable us to develop innovative and relevant products in addition to creating enhancements to our unified commerce cloud platform 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 wireless headsets and other devices to advances in internet performance.product enhancements. Research and development expenses were $58.4 million, $48.6 million, and $34.6 million, $19.3 million,for the years ended December 31, 2023, 2022, and $13.4 million, in 2021, 2020, and 2019 respectively.
Manufacturing and Suppliers
We assemble our ES 8000 series platforms internally in the U.S. We source other hardware products and related materials, product assemblies, and components from third parties. We purchase most of the materials,
product sub-assemblies and full assemblies from several suppliers, we do, however, rely on sole sources for certain of our assembly components and hardware products. We periodically review and evaluate potential risks of disruption to our supply chain operations in the event one or more of our suppliers should fail to perform. See “Risk Factors” for a discussion on risks related to our supply chain operations.
Government Segment
PAR’s Government segment provides technical expertise and development of advanced systems and software solutions for the DoD,U.S. Department of Defense ("DoD"), the intelligence community ("IC") and other federal agencies. Additionally, we provide support services for satellite command and control, communication, and ITinformation technology ("IT") systems at several DoD facilities worldwide. The Government segment has three principal contract offerings: Intelligence, Surveillance,intelligence, surveillance, and Reconnaissance (“ISR”)reconnaissance solutions, mission systems operations and maintenance, and licensedcommercial software products for use in analytic and operational environments that leverage geospatial intelligence data.
Intelligence, Surveillance, and Reconnaissance ("ISR")
PAR Government’sPAR's ISR group provides a variety of intelligence analysis,IC support services, systems integration, and situational awareness solutions.solutions, and mission readiness support. Our core competencies reside in mobile geospatial applications; counter, small, unmanned aircraft surveillanceaerial systems or C-sUAS;("C-sUAS"); and data science offerings. Our substantive, in-depth expertise in these domains enables us to provide government customers and industry partners with key technologies that support a variety of applications ranging from strategic enterprise systems to tactical in-the-field dismounted users. Additionally, we provide integration, testing and operational readiness support in line with these competencies. ThePAR's ISR group also provides systems engineering support and software-based solutions to the DoD research and development laboratories, intelligence customers, and operational commands. Our internal expertise ranges from theoretical and experimental studies to development and fielding of operational capabilities. Our teamISR group members are:
•experienced developers and subject-matter experts in the DoD full motion video;
•developers of geospatial and imagery data management, visualization, and exploitation solutions;
•designers and developers of very large-scale data science and multi-media analysis systems;
•leading the development of technologies to train and test artificial intelligence systems;
•designers of mobile, computingtactical situational awareness 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
•developersexperienced in the development of geospatial information system solutions.live, virtual, constructive training for tactical operations.
We are actively engaged in the development of applications that support the needs of mobile teams with real-time, tactical edge (mobile) situational awareness and distributed communications. PAR Government’scommunications needs. PAR's ISR group has a strong legacy in the advanced research, development, and productization of geospatial information assurance technology involving steganography, steganography analysis, digital watermarking, and digital media forensics. These enabling
technologies are used to provide increased protection and security of geospatial data.data and are increasingly applied to the identification of fabricated deep-fake media.
PAR Government’sPAR’s ISR group integrates and tests a broad range of government and industry research and development solutions. Our teamThe group is expanding its scope through the development and implementation of counter, small unmanned aircraft surveillanceC-sUAS systems or UAS, technologies 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, including applications for high performance computing platforms (e.g., Cray exascale computers).
Mission Systems ("MS")
PAR Government’s mission systems (“MS”)PAR's MS group provides a wide range of technical and operational services to sustain mission critical components of the Department of DefenseDoD's Information Network (the “DoDIN”(“DoDIN”). These services include continuous satellite and teleport facility operations and maintenance, engineering and installation services including inside and outside plant services, and maintenance of infrastructure and information systems for very low, frequency, low, frequency, high, frequency,and very high frequencyfrequencies, and ground-based radio transmitter/receiver facilities, including high tower antennas up to 1200 feet. We operate and maintain satellite communications and teleport facilities with ultra-high, frequency, super high, frequency and extremely high frequency satellite communication earth terminals, and support telecommunications architectures such as fixed submarine
broadcast systems and high-frequencyhigh frequency global communications systems. The DoD communications earth stations operated by PAR Government's MS groupGovernment are the primary communications systems 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.
PAR Government’sPAR’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 satellite control center operations and mission planning for DoD Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance or 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 and operations training.
PAR Government’sPAR’s MS group provides comprehensive, dependable, and secure information systems support services to the DoD and other federal agencies. These services include information technology infrastructure library based, tier 0 to 3 service desk operations for thousands of users, network system administration, database administration, information assurance/system security, information security training, and government network management. We also perform maintenance, monitoring, upgrades, planning, testing, and integration and configuration services, to include security systems including intrusion detection systems.
The PAR GovernmentPAR'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 federal agencies. Our system troubleshooting and regulatory experts support the customer mission around the globe. Approximately 60%70% of our 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’s MS groupGovernment has strong and enduring relationships with a diverse set of customers throughout the DoD, intelligence community,IC, and other federal agencies. Our track record of delivering mission critical services to government customers spans decades, and includes contracts continuing 20 years or more, with an average contract duration of three to five years. We work closely with our customers, with many of our mission systemMS group employees co-located at customer sites. Our strong relationships and on-site presence with our customers enables PAR Governmentaides our efforts to develop substantive customer and technical domain knowledge, translate mission understanding into exemplary program execution, and create continued demand for PAR Government’s services.
Products DivisionCommercial Software
PAR Government’s commercial software product business draws on decades of research and development (“R&D”), image processing and geospatial information systems or GIS,("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 thetactical mobile devices and displays carried by infantryman at the very forward edge of a battlespace. Currently we offer two types ofthree software products. The geospatial visualization or GV,("GV") image processing suite is used by the international defense and intelligence community to analyze still and video imagery. A second product line, “Sit(X)®”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 theselect U.S. senior intelligence agencies. Third, we offer GVStreamer software which enables real-time routing of video streams from a single camera source to multiple consumption endpoints and includes video management capabilities. Initiated to support livestreaming of unmanned aerial system (UAS) video to multiple end users (beyond a single control station), this capability also enables fixed video camera system relays and routing with minimized time delay for use in tactical applications. Finally, we are a certified reseller of Samsung mobile devices running their tactical edition (TE) operating system.
MarketingMarkets and Competition
The PAR Government segment obtains contracts through a mix of competitive proposals and technical paper submissions in response to solicitations from government organizations and prime contractors. In addition, we often obtain contracts by submitting unsolicited proposals against publicly identified government requirements which are selected on merit for further development and funding. Although well positioned in our business areas,markets, competition for government contracts is intense. Many of our competitors are large corporations that have substantially greater financial 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 supportdevelopment, and program management teams who have earned a reputation for rapid solutioning of leading edge software solutionsapplications and platforms. We differentiate our ISR offerings based on our demonstrated technical talent withsavvy and key staff, who have high security clearanceclearances and the background and appetite to tackle truly difficult problems.
In our MS contract portfolio, we also compete with many smaller, economically disadvantaged
companies, many of which are designated by the government for preferential, set aside, treatment that target segments of the government contract market. Here 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 DoD customers are migrating to price 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.
We continue to evolve our commercial software offerings through dedicated investments in two main areas. First, we are further developing video streaming and replication technologies to enable unmanned aerial vehicle operators to manage video outputs from multiple video feeds 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.
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-specializedhighly specialized service solutions to the DoD, intelligence community,IC, and other federal agencies. The general uncertainty in U.S. defense total workforce policies (military, civilian, and contract),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 segment.
Backlog
Intellectual Property
The value of existing PAR Government 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 and includes $5.8 million related to the IDIQ Contract. The value of existing PAR Government contracts at December 31, 2020, net of amounts relating to work performed to that date, was approximately $150.5 million, of which $27.8 million was funded. Funded amounts represent those amounts committed under contract by government agencies and prime contractors. Of the December 31, 2021 PAR Government contract backlog of $195.3 million, approximately $87.0 million is expected to be completed in calendar year 2022.
Intellectual Property and Other Rights
A number of the Company's products and components are developed and designed basedWe rely on our existing copyrighted work and/or patents issued or obtained through the acquisition of other businesses. Our other products include software or othervarious intellectual property licensed from third parties. Welaws, confidentiality procedures, and contractual provisions to establish, maintain, and protect our intellectual property rights and other proprietary information through the use of patents, copyrights, trademarks, and trade secret laws.property. We have a number of U.S. and foreign patents filed and issued to protect our discoveries and inventions, registered and common law trademarks thatto protect our brand, associations and symbolize our goodwill, as well as copyrights that relate to software and various distinctive characteristics of our products. We also rely on a combination of confidentiality and assignment-of-invention agreements with our employees and consultants, and enter into confidentiality and licensing agreements with our customers and other third parties with whom we have strategic relationships. We believe our patents, copyrights, trademarks, and trade secrets have value, and we believe our use and reliance on the intellectual property laws of the U.S. and foreign countries, as well as our agreements and licenses
protect and maintain our rights in our intellectual propertyproperty; however, there can be no assurance that our trademarks, copyrights, patents, and other proprietary information. Despiteintellectual property rights will not be challenged, invalidated, or circumvented; that others will not assert intellectual property rights in technologies that are relevant to our efforts unauthorized third parties may attempt to use, copy,business; or otherwise obtain and market or distributethat our intellectual property and/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 violations by us of their intellectual property rights could result in significant costs and materially and adversely harm our other proprietary information; moreover, the rapidly changing technologybusiness, financial conditions, results of operations and cash flows" in the Restaurant/Retail segment and the Government segment makes our future success dependent on the development skills, innovative designs, and technological expertise of our employees and consultants, as well as strategic technology acquisitions, rather than on the protection afforded"Part I, Item 1A. Risk Factors", which is incorporated herein by patent, copyright, trademark, and trade secret laws.reference.
Government Regulation
Our operationsWe are subject to a variety of laws and regulations in the United States and other jurisdictions in which we operate,that involve matters central to the business of our Restaurant/Retail segment, including with respect toprivacy, data protectionsecurity and privacy,personal information, content, data retention and deletion and our Government segment, including the formation, administration and performance of U.S. Government contracts; as well as U.S. and foreign laws and regulations that impact the operations of our business, including employee matters, import and export controls, trade restrictions, anti-corruption and bribery,bribery. A failure, or alleged failure, by us to comply with any of these laws or regulations could have a material adverse effect on our business, financial condition, and employeeresults of operations. For additional information about government regulation and labor relations. Please seelaws applicable to our disclosurebusiness, refer to the risks described under “Risks Related to Our Business and Operations" and "Risks Associated with our Government Segment" in “Risk Factors” for more details regarding laws and regulations governing our business."Part I, Item 1A. Risk Factors".
Human Capital
We prioritize finding, developing and rewarding extraordinary talent. Our employee-first strategy is a priority designed to provide a diverse, inclusive and safe environment where our 1,477 full-time employees and 64 part-time employees across the Company enjoy coming to work each day to support our customers and grow our business. As of December 31, 2023, we had 1,802 full-time employees and 39 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 togethertogether 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 officerChief Executive Officer and chief human resources officerSr. Vice President, Human Resources regularly update the compensation committee of our board of directors on key areas of our human capital strategy, including the following:
Diversity, Equity and Inclusion: Our commitment to DEI is simple: it’s about community belonging and fairness. Likebelonging. We aim to represent the diversity we see in all our customers who bring people together through providing delicious and accessible food, we bringtheir communities. We want to understand and integrate our employees together by providing a work environment that understands and integrates our employees'employee’s unique perspectives and voices. This is essential for cultivatingvoices every day. Our employees should feel a diverse, inclusivesense of belonging and equitable environment for all, and we are committedwant to scale our DEI efforts to reflectbe part of the communities where our employees live and our customers operate. Through evolving our culture, talent and corporate deliverables we aim to set an example that shows the impact of fostering a diverse and equitable environment and how that drives genuine employee experiences and innovation.PAR team.
We madecontinued to make significant investments in our DEI program in 20212023, including appointing a DEI Lead, increasingsetting our first multi-year diversity representation goals, launching our educational “Celebrate You” speaker series, expanding our employee resource group programming such as speaker series events forfootprint, and continuing to gather employee feedback via surveys to better understand the diversity and sense of inclusion of our Women in Technology enterprise resource group, and investing in our policies including expanded parental leave and offering infertility benefits. Our 2022 strategy includes continued investments in DEI through data management and collection, corporate goal setting as well as increased education and inclusion initiatives such as DEI training/workshops and creating a more diverse employee pipeline. Our goal is to have an infrastructure where our diverse employee population thrives.to inform our DEI strategy.
To evaluate and assess the effectiveness of our DEI program, we track the ethnic and gender diversity of our U.S. employee population and gender diversity of our global employee population. Our U.S. employee population consists of 27% ethnically diverse employees and 25% are28% women. Globally, our workforce consists of 26% women. 20% of our U.S. employee population is under the age of 30, with 50% between the ages of 30 and 50 and 30% over the age of 50. Globally, 24% of our employees are under the age of 30, with 50% between the ages of 30 and 50 and 26% over the age of 50.
Employee Engagement and Talent Management/Development: Consistent with our employee-first strategy, we believe that our employees should have the opportunity to have a forum to communicate their feedback, concerns and suggestions. We conduct quarterlysemi-annual employee net promoter surveys and monthly 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 reviews and bi-annual 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 2021,2023, we investedcontinued to invest in buildingour annual talent roadmap for all employees, including expanding our annual 360 feedback experience to all full-time employees and facilitating an updated talent review of director level and above employees with our executive team to better understand the landscape of our talent management systems. Our 2022 plans include a first quarter launch of a robust talentglobally. In 2024 we will continue to invest in training and development platform to dramatically increasetools and resources such as our investment in the core competency developmentcareer framework and PAR leadership academy 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. The importance of keeping our employees safe and healthy has been underscored by the novel coronavirus disease of 2019 (“COVID-19” or “pandemic” or “COVID-19 pandemic” ). Our operating policies are consistent with the guidance provided by the Centers for Disease Control and Prevention to protect our employees and their families and we actively reassess evolving policies and COVID-19 trends which inform our policies and safe practices, including work-at-home policies, PPE requirements, limitation on visitors and our business-essential travel only policy.
Talent Acquisition and Attrition: We are aggressively managing headwinds created byPAR works diligently to attract the “Great Resignation” or “Big Quit” that are being experienced throughoutbest talent from a diverse range of sources to meet the U.S. economy.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 objective offocus on retaining talent is rooted in our employee-first strategy and includes investments in employee engagement, and experience, DEI,
diverse talent sourcing tools, talent management systems, and talent development, which has contributed to our increased speed and volume of hiring to support our growth plans.development. We continue to make appropriate adjustments to ensure competitive compensation, including the implementation of a pay transparency initiative to attractensure equity and retain talent. We also implemented several benefit enhancements, including unlimited paid time off, adoption and infertility benefits, expanded parental leave and healthcare plan improvements. Our overall attrition rate in 2021 was 14%, and our attrition rate for who we consider top talent was 3.9%.fairness.
Available Information
Our website is located athttps://partech.com. Our Annual Reports on Form 10-K, Proxy Statements on Schedule 14A, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to thosesuch reports and statements filed or furnished by us pursuant to Sections 13(a) and 15(d) of the Exchange Act are available, free of charge, on our website at www.partech.com/ Investor Relations https://partech.com/investor-relations/as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SECOur Corporate Governance Guidelines, Board of Directors’ committee charters and Code of Conduct are also maintains a website that contains our reports filed or furnished with the SEC. The addressavailable, free of the SEC website is charge, at https://www.sec.gov.partech.com/investor-relations/. The information posted on or accessible through our website is not incorporated into this Annual Report or in any other report or document we file with the SEC. The SEC also maintains a website athttp://www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including PAR.
Item 1A. RISK FACTORS
Our business is subject to certain risks and uncertainties, including those described below, each of which could materially and adversely affect our business, financial condition, results of operations, cash flows, prospects and the market price of our common stock.
Risks Associated with the COVID-19 Pandemic
The COVID-19 pandemic has had an adverse effect on our business, financial condition and results of operations, and its impact on our business, financial condition, and results of operations remains uncertain.
The COVID-19 pandemic and the actions taken by governmental authorities, businesses, and individuals in response have resulted in weakened economic conditions, supply constraints and shortages, manufacturing disruptions and logistic challenges, and volatility in the financial markets, both in the United States and other countries. The ultimate impact of the COVID-19 pandemic on our business, financial condition, and results of operations is dependent on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and scope of the COVID-19 pandemic, the severity of COVID-19 variants and the actions, especially those taken by governmental authorities, to contain the pandemic or mitigate its impact, and the impact on the businesses of our customers, partners, and suppliers. Among the factors that could adversely affect our business, financial condition, and results of operations, are:
•mandated business closures, or voluntary store closures or reduced services due to lower customer/guest demand or labor shortages;
•decreased product adoptions and bookings by customers or potential customers because of reduced profits or investment capital;
•delayed or canceled store implementations due to limited or no store access;
•customer payment delays or defaults and bankruptcies;
•supply shortages and/or disruptions in product manufacturing and distribution channels, which could severely restrict our access to source materials or component parts when required, expanding the impact of the supply shortage and possibly resulting in longer lead times for delivery, which could negatively impact our ability to satisfactorily and timely complete our customer obligations;
•price increases for materials and component parts and shipping and transportation costs, which has caused, and may continue to result in increased prices of our products and services, which could make us less competitive, result in reduced sales, loss of potential new customers, and cause damage to our reputation and relationships with our current customers; and
•operational challenges due to actions taken by us to support and protect our employees’ health and safety, including limiting employee travel, limiting access to facilities and offices, implementing remote work and flexible work policies, and implementing policies responsive to government vaccine, masking and/or testing mandates. Remote employee work arrangements pose challenges for our employees and our IT systems, and stresses our business continuity plans, introduce operational risk, including cybersecurity and IT systems management risks, and impair our ability to manage our business and execute our strategies. Additionally, our business is dependent on attracting and retaining highly skilled employees, and our ability
to attract and retain such employees may be adversely impacted by limited access to our facilities/offices, our travel restrictions, or our policies responsive to government mandates, which could result in increased competition for skilled talent, and could adversely impact our ability to deliver our products and services to our customers.
Further, the worldwide uncertainty, volatility, and economic disruption created by the COVID-19 pandemic, could exacerbate otherfollowing risk factors that we identify in this Annual Report, any of which could materially adversely impact our business, financial condition, and results of operations.
Risks Associated with the Operation of our Business
We have incurred losses in each of the last several years, and we expect to continue to incur losses for the foreseeable future.
We have incurred operating losses in each of the last several years, including for the year ended December 31, 2021, and we expect to continue to incur losses for the foreseeable future as we continue to invest in our Restaurant/Retail segment by, among other things, making substantial investments to grow the Company through the acquisition of other businesses and enhancing our products and services through research and development. We cannot assure you that we will be successful in achieving or sustaining profitability in the future. If we are unable to generate sufficient revenue to become profitable, investors could lose their investment.
Our results of operations may fluctuate significantly due to the timing of our recognition of SaaS revenues.
We may experience volatility in our reported revenues and operating results due to the differences in timing of revenue recognition between our SaaS offerings and our traditional on-premise software and hardware sales. SaaS revenues are generally recognized ratably over the life of the subscriptions. In contrast, revenue from our on-premise software and hardware sales is generally recognized in full at the time of delivery. Accordingly, the SaaS delivery model creates risks related to the timing of revenue recognition not associated with our traditional on-premise software delivery model and hardware sales. A portion of our SaaS revenue results from the recognition of deferred revenue relating to subscription agreements entered into during prior reporting periods. A decline in new or renewed subscriptions in any period may not be immediately reflected in our reported financial results for that period, but may result in a decline in our revenue in future reporting periods. If any of our assumptions about revenue from our SaaS delivery model prove incorrect, our actual results may vary materially from those anticipated, estimated, or projected.
Our products might experience coding or configuration errors, which could damage our reputation and deter current and potential customers from purchasing our products.
Although we test our products and product updates prior to their release and throughout their intended life, our cloud-based and on-premise software and hardware products sometimes contain coding or configuration errors that can negatively impact their functionality, performance, operation, and integration capabilities. Coding and configuration errors can expose us to product liability, performance issues, warranty claims, and harm to our reputation, which could adversely affect our financial condition and results of operations.
If our technical and maintenance support services are not satisfactory to our customers, they may not renew their services agreements or buy future products, which could materially and adversely affect our financial condition and results of operations.
If we fail to provide technical and maintenance support services that are responsive, satisfy our customers’ expectations, and timely resolve issues that they encounter with our products or if there is a perception that we do not maintain high quality technical and maintenance support, then our customers may not purchase additional products or services from us in the future, negatively affecting our revenues, which would have a material and adverse effect on our business, financial condition, and results of operations.
Three customers account for a significant portion of our revenues in the Restaurant/Retail segment. The loss of one of these customers, or a significant reduction, delay, or cancellation of purchases by one of these customers, would materially and adversely affect our business, financial condition, and results of operations.
Revenues from our Restaurant/Retail segment constituted 74.4% of our total consolidated revenues for the year ended December 31, 2021. Aggregate sales to our three largest customers (which include sales to those three customers’ respective franchisees) constituted consolidated revenues for the year ended December 31, 2021 of 30.0%. Significant reductions, delays, or cancellation of orders by one of these customers, or the loss of one of these customers, would reduce our revenue and operating income and would materially and adversely affect our business, results of operations, and financial condition.
There are risks related to our enterprise resource planning system.
We continue to integrate components onto our enterprise resource planning, or ERP, system which is intended to provide accurate, timely and reliable reports on our financial condition and results operations. Delays in fully integrating our ERP system can result in operational inefficiencies, including management and staff time to manage, coordinate, and execute unintegrated components, increased costs and can impair our ability to provide accurate, timely and reliable reports on our financial condition and operating results, which in turn would negatively impact our competitive position and customer relationships and harm our business.
Issues with product and component availability or supplier performance may affect our ability to manufacture and deliver our products, which could have a negative impact on our business, financial condition and results of operations.
We depend on our suppliers to deliver hardware and related materials, product assemblies, and components in a timely and satisfactory manner and in full compliance with contract terms and applicable laws and regulations. In some instances, we are dependent on sole-source suppliers for certain of our assembly components and hardware products, which may subject us to other significant risks, including higher prices, reduced control over inventory delivery schedules, or inadequate inventory. While we have entered into long-term or volume purchase agreements with some suppliers, have increased safety stock inventory and the use of alternative sources when possible, and have taken other actions to ensure the availability of needed materials, components, and products, we cannot be sure that hardware and related materials, product assemblies or components will be available or in the needed quantities and quality or at favorable or competitive prices. If we experience a material supplier problem it could lead to a shortage of supplies and extended lead times for delivery, which could negatively impact our ability to satisfactorily and timely complete our 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
COVID-19 pandemic-related issues have created trade and shipping disruptions and port congestion, resulting in increased transportation costs for our hardware and related materials, product assemblies, and components. We continue to experience price increases for materials and component parts; 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. To offset increased costs, we have and may in the future increase the prices of our products. These price increases could make us less competitive, result in reduced sales, loss of potential new customers, and cause damage to our reputation and relationships with our current customers, which could have a negative impact on our business, financial condition and results of operations.
Our information technology systems or those of our service providers could be subject to cyber-attacks or other security incidents, which could result in operational disruptions, costly governmental investigations or litigation and other adverse consequences that could have a material and adverse effect on our business, financial condition and results of operations.
We have established practices, policies and procedures intended to protect our systems and information against cyber-attacks. We invest in the development and enhancement of our controls designed to prevent, detect, respond, and mitigate the risk of unauthorized access, misuse, computer viruses, and other events that could have a security impact. We also conduct security awareness trainings on at least an annual basis for our employees to educate them on how to identify and alert management to phishing emails, spoofed, or manipulated electronic
communications, and other critical security threats. We also provide regular security bulletins to our employees, and we have policies and procedures in place designed to prevent cybersecurity attacks or identify threatened attacks. However, there can be no assurance that such measures will ultimately prevent or mitigate the impact of a cyber-attack on our systems or information. Our systems have and could in the future become subject to cyber-attacks, including computer viruses, dedicated denial of services attacks, malware, social engineering, and other means used to obtain unauthorized access to or disrupt the operation of our systems. We also rely on service providers, and we cannot guarantee that our service providers’ systems have not been breached or that they do not contain exploitable defects, bugs, or vulnerabilities that could result in a security incident, or other disruption to, our or our service providers’ systems. Our ability to monitor the security measures that our service providers have implemented is limited, and, in any event, malicious third parties may be able to circumvent those security measures.
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 failure or interruption of our systems or those of our service providers could result in operational disruptions, costly governmental investigations or litigation, unauthorized access, or misappropriation of information, interruption of systems availability or denial of access to and misuse of applications or information required by our customers to conduct their businesses. The occurrence of any such incidents may harm our relationship with our customers and reputation, which could have a material adverse effect on our business, financial condition, and results of operations.
We rely on public cloud providers and a network infrastructure managed by third parties to deliver our cloud software solutions, and any interruptions or delays in their services could harm our business.
We rely on public cloud providers and a network infrastructure managed by third parties to deliver our cloud software solutions. Our ability to deliver our cloud software solutions in a timely and reliable manner to our customers depends on the protection of the information we store with these public cloud providers, as well as the maintenance of the network infrastructure. Any interruptions or delays in the services provided by these public cloud providers or third-party network infrastructure, whether caused by natural disasters or malicious actors, may result in substantial service disruptions, which could damage our reputation with potential and existing customers, cause us to lose existing customers, expose us to liability, or otherwise harm our business. We may also incur significant costs for using alternative equipment to deliver our cloud software solutions 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 the alternatives into our network could require significant work and resources and delays.
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 results of operations, even without a significant loss of revenue or increasefinancial condition, 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 cash expenses attributable to such period.
Our goodwill was approximately $457.3 million at December 31, 2021 and our intangibles were $118.8 million at December 31, 2021. 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 “Itemconjunction with “Part I, Item I, Business,” "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting PoliciesOperations” and Estimates.” Our estimates are subject to uncertainties. If we determine an impairment has occurred at any pointthe Consolidated Financial Statements and related notes in time, we will be required to reduce goodwill or identifiable intangible assets on our balance sheet, which could adversely impact our 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 (Part"Part II, Item 88. Financial Statements and Supplementary Data” of this Annual Report).Report.
If we are unable to recruit and retain qualified employees, our business may be harmed.
Competition for highly skilled employees in our industry is intense. In 2021, the labor market in the U.S. experienced a significant increase in workers leaving their positions, otherwise known as the “Great Resignation” or the “Big Quit,” which has made the market to replace these individuals increasingly competitive and has resulted in
significant wage inflation in response to labor shortages. If we are unable to attract and retain a sufficient number of qualified employees, particularly senior management and technical personnel, we may not be able to keep up with the needs of our customers and our Restaurant/Retail segment and our reputation may be harmed. Moreover, many positions in our Government business require security clearances, which can be difficult and time-consuming to obtain, resulting in increased competition for such uniquely qualified individuals.
We may be subject to claims by third-parties of intellectual property and/or proprietary rights infringement.
Third parties may assert claims that our software, systems or technology infringe, misappropriate, or otherwise violate their intellectual property or other proprietary rights. Third parties may also assert that our sale of certain products require the payment of license fees to them. Such claims may be made by our competitors seeking to obtain a competitive advantage or by other parties, including existing licensors. The risk of claims may increase as the number of software products that we offer, and competitors in our market increase and product technology and discovery overlaps occur. For example, in September 2020, we were notified by one of our business partners of a claim for non-payment of royalties due under an existing license agreement. We do not believe that this claim has any merit, but we allocated resources to resolve this claim. Any such claims, regardless of merit, resulting in litigation could result in substantial expenses, divert the attention of management, cause significant delays in introducing new or enhanced services or technology and materially disrupt the conduct of our business. We cannot assure you that litigation related to our intellectual property rights or the intellectual property rights of others can always be avoided or successfully concluded, and as a result any such litigation could have a material adverse effect on our business, financial condition, and results of operations.
Risks Associated with the Growth of ourRelated to Our Business
Acquisitions are an element of our growth strategy, which subject us to risks commonly associated with acquisitions of other business.
A component of our growth strategy is to continue to expand through acquisitions that we believe add complementary companies, products, and technologies. Accordingly, we may be subject to risks that are commonly associated with the acquisition of other businesses, including:
•the failure to identify or successfully negotiate suitable future acquisitions;
•the failure to obtain financing on satisfactory terms;
•difficulties in obtaining required regulatory or stakeholder approvals;
•the inability to effectively translate our strategies into revenue;
•unforeseen costs or cost estimates that exceed our expectations in connection with integration of the acquired business;
•the failure to retain and assimilate acquired business’ employees;
•difficulties coordinating and managing geographically separate organizations;
•the inability to retain existing customers and suppliers on terms similar to, or better than, those in place with the acquired business;
•the inadequacy of our integration plans;
•difficulties entering geographic markets or new market segments in which we have no or limited experience; and
•failure to maintain our financial and internal controls and systems as we expand our operations.
If we fail to realize anticipated benefits or synergies of the businesses we acquire, such as cost-savings and earnings accretion, or if we decrease our liquidity by using a significant portion of our available cash or borrowing capacity 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 the business acquired, our financial condition and results of operations could be materially and adversely affected.Operations
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 and/or price reductions, 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 softwaresubscription services and hardware products are characterized by rapid technological advances, intense competition among existing and emerging competitors, fluid and evolving industry practices, disruptive technology
developments (including artificial intelligence), and frequent new product introductions.
While we think our software and hardware products offer competitive, innovative features and functionality,introductions; any one of these factors, including that one or more of our competitors may successfully use and deploy products incorporating artificial intelligence, 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 depends on our ability to anticipate and identify changes in customer needs and/or relevant
technologies, quickly respond to customer requirements, and rapidly and effectively introduce new and innovative products, features, and functions.functions, while maintaining the integrity, quality, and competitiveness of our existing products. If we fail in these efforts, our business, financial condition, and results of operations and financial conditions could suffer. Any delay in the development, marketing, or launch of new products or enhancements to our existing products, or failure to meet our customers’ requirements could result in reduced sales, performance penalties, or termination of contracts,suffer, and could damage our reputation and relationships with our customers and impede our ability to attract new customers, causing a decline in our revenue, earnings, or stock priceachieve and weakening our competitive position.sustain profitability could be adversely impacted.
Our Government segment has been focused on niche offerings reflecting its expertise, primarily in the areas of 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. Our Government segment also competes 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.
Risks Associated withOur failure to meet service level commitments or milestones under customer contracts may result in our Convertible Senior Notescustomer contracts being less profitable, and Future Indebtednessexpose us to liability and reputational harm.
Our subscription services agreements typically include service level commitments or milestones. If we fail to meet these contractual commitments, we may be contractually obligated to pay penalties or provide service credits for a portion of the service fees paid by our customers. As such these contractual commitments have, and may in the future, adversely impact our revenues, ARR, and margins earned on our subscription services. Moreover, our failure to meet our commitments could result in customer dissatisfaction, reputational harm, or the loss of customers, and adversely affect our business and results of operations.
We may not have sufficient cash flow fromrely on third-party cloud and network infrastructure providers to deliver our operating subsidiaries to paysubscription services, and any interruptions or delays in their services could harm our debt, which may seriously harm ourreputation and business.
As of December 31, 2021, 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 ordeliver our subscription services in a timely, secure, and reliable manner to refinance the Senior Notesour customers depends on the protection of the information we store with our future performance,third-party cloud providers, as well as the maintenance of third-party network infrastructures. Interruptions or delays in these services, including those 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, wecaused by natural disasters or malicious actors, have, and 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 neededfuture, result in service disruptions, resulting in our failure to meet service level commitments or milestones, exposing us liability, reputational damage, and on acceptable terms will depend on the capital markets and our financial condition at such time.potential loss of customers. We may notalso incur significant costs to use alternative providers or equipment to deliver our subscription services or taking other actions to mitigate any prolonged service disruptions. Any such alternatives could be ablemore difficult or costly to engage in anyreplace than what we currently license, and integration of these activitiesalternatives into our information technology system could require significant work and resources and delays.
Our products might experience coding, configuration, or engage in these activities on desirable terms,manufacturing errors, which could result in a default under the indentures governing the Senior Notes.damage our reputation, deter current and potential customers from purchasing our products and materially and adversely affect our business, financial conditions, results of operations, and cash flows.
Our indebtedness underproducts or product updates may contain coding, configuration or manufacturing errors that can negatively impact their functionality, performance, operation, and integration capabilities, and expose us to product liability, performance issues, warranty claims, and harm to our reputation, which could adversely affect our business, financial condition, results of operations, and cash flows.
Macroeconomic conditions and geopolitical events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Economic instability or regulatory or political conditions, including inflation, recession or slowed economic growth, elevated or fluctuating interest rates, or actual or anticipated military or political conflicts (including the Senior Notes,Russian-Ukraine war, tensions with China and between China and Taiwan, the Israel-Hamas conflict and other hostilities in the Middle East) in the United States and in other countries and regions in which we, our customers, suppliers, and our other third-party providers conduct business, and the impact of such conditions or insecurities, including inflated costs of goods, services, and labor, and muted or decreased consumer confidence and discretionary spending, could among other consequences:materially and adversely impact the cost and demand for our products and services, our ability to perform our contractual obligations, and execute our operational and growth strategies.
•increase the impactCost of adverse changes in the U.S.products and global markets - generally,components. Certain areas of our business could experience supply chain challenges, including shortages, shipping delays, and increased costs due to price increases for products and components and in our industries, onshipping and transportation costs; while the areas of our business financial condition and operating results;most vulnerable to
•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,these factors did not experience significant adverse effects in 2023 and, notwithstanding that we have expanded the countries and regions in which we sell our hardware products and have added suppliers to mitigate risks associated with single-source suppliers, macroeconomic and geopolitical trends and events will continue to pose a risk to our business, including our costs of goods and operating results.
•Cost of labor and labor shortages. Labor costs, including wages and costs of benefits, remain higher than pre-COVID. High labor costs have a direct negative impact on our results of operations and could be required under applicable accounting rulesnegatively influence our customers’ investment choices, including whether and when to reclassify all or a portion ofinvest in our products and services. Additionally, fewer participants in the outstanding principal of the Senior Notes as a current rather than long-term liability,labor market may dampen businesses’ and consumers’ ability and desire to invest and spend, which would result in a material reduction ofcould also negatively influence our net working capital.customers’ investment choices. Any of the cash payments described aboveforgoing events could be significant,adversely impact our business, including our costs of goods 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.operating results.
Risks Associated with•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, which may negatively affect consumer discretionary spending. A material decline in consumer confidence could result in consumers choosing to dine out less frequently or reduce the Regulation ofamount they spend on meals while dining out, which could negatively impact our Businesscustomers’ 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.
A failureThe extent, duration, and actual consequences of 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.
Issues with product and component availability or supplier performance may affect our ability to comply with applicable privacy or data protection lawsassemble, repair, and deliver our hardware products and perform related services, which could harm our reputation and have a material adverse effect on our business, financial condition, and results of operations.operations.
In connectionWe 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 services and products, we may collect, process, transmit, and/or store (on our systems and those of service providers) customer transactional data, as well as their and our customers’ and employees’ personally identifiable information and/or other data and information. Personally identifiable information is subject to legislation and regulations in numerous jurisdictions with regard to privacy and data security, including the California Consumer Privacy Act and the New York SHIELD Act, which provide for fines and potential liability to consumers. Likewise, the European Union’s General Data Protection Regulation, the GDPR, imposes obligations and restrictions on the ability to collect, analyze, and transfer personal data. Moreover, what constitutes personally identifiable information and what other data and/or information is subject to the privacy laws varies by jurisdiction and continues to evolve, and the laws that do reference data privacy continue to be interpreted by the courts and their applicability and reach are therefore uncertain. Ongoing compliance with these laws and regulations and additional efforts to ensure that our policies and procedures are updated to reflect changes in these laws and regulations are expensive and require significant resources. The lack of clarity and regulatory guidance on some issues further increases the cost of compliance. For example, Brexit, which took effect in January 2020, will lead to further legislative changes and reduced clarity as to whether data transfer to the United Kingdom will remain lawful in the long term, which may require us to expend additional resources to ensure that we are compliance with new rules or legislation. Our inability, or perceived inability, to adequately address privacy and data protection concerns, or comply with applicable laws, regulations, policies, or other legal obligations could damage our reputation, discourage current and/or potential customers, from using our products and services, and result in fines, governmental investigations and/or enforcement actions, complaints by private individuals, and/or the payment of penalties to consumers, any one or all of which could have a material and adverse effectnegative impact on our business, financial condition, and results of operations.
We have identified material weaknessesFurther, in some instances, we are dependent on single-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 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 internal control over financial reporting which could, if not remediated, impairinability to fill our supply needs, jeopardizing our ability to report accuratefulfill our contractual obligations, which could in turn, result in a decrease in sales and timely financial informationcash 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 material and adverse effectnegative 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 product and component inventory shortages and customer requirements. In the past, when faced with product and component supply-related challenges, we have, in Part II, Item 9A. Controlssome instances, increased our inventory levels to satisfy anticipated customer requirements, which, in some instances, resulted in increased product and Procedurescomponent costs, increased inventory expenses and lower margins, requiring that we write-down excess inventory. Inventory management is on-going and we may experience similar scenarios in the future, which could negatively impacting our financial condition, results of this Annual Report,operations and ability to achieve and sustain profitability.
If we reported thatare unable to recruit, develop, and retain qualified employees, our Chief Executive Officerbusiness, financial condition, and Chief Financial Officer concluded thatresults of operations may be materially and adversely harmed.
Our ability to successfully execute our internal control overoperational plans and strategies, achieve our business and/or development objectives, or increase the scope or range of our service or product offerings under customer contracts, is dependent on our ability to attract, develop, and retain engineers, security and product architects, sales representatives, technical staff, and other skilled employees. Competition for top talent in the restaurant/retail and technology industries is intense. If we cannot effectively recruit, develop, and retain qualified employees to drive our Restaurant/Retail segment’s operational and strategic goals and develop and convert opportunities our business could suffer. Moreover, many positions in our Government segment require security clearances, which can be difficult and time-consuming to obtain, resulting in increased competition for these 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. Our ability to recruit, develop, and retain necessary qualified employees depends on a number of factors, including compensation and benefits, flexibility regarding virtual and hybrid work arrangements, work location, work environment, and corporate culture.
Acquisitions are an element of our growth strategy, which subjects us to risks commonly associated with acquisition transactions, which could materially and adversely affect our business, financial reporting was not effective ascondition, results of December 31, 2021operations, and cash flows.
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 PAR’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 material weaknessesidentify significant issues associated with or arising out of an acquisition transaction, including issues related to the control activities componentacquisition target (such as quality of product or technology and monitoring activities componentfinancial 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 customers and suppliers of the Internal Control – Integrated Framework (2013) issued byacquired business, and on terms similar to, or better than, those in place with the Committee of Sponsoring Organizations of the Treadway Commission.acquired business;
•assumed and unknown liabilities; and
•failure to maintain our internal controls and systems.
If we fail to correctrealize expected benefits or synergies from our material weaknesses,acquisitions, such as cost-savings and earnings accretion, or if we are unabledecrease our liquidity by using a significant portion of our available cash to establishfinance 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 maintain effective internal controls in the future, our ability to record, process, summarize and report financial information accuratelycash flows could be materially and adversely affected. This could cause our financial reporting to be unreliable and result in a restatement of our financial statements, which in turn could lead to a loss of investor confidence, a decline in the price of our common stock, and
Our international operations subject us to investigationlocal laws and regulatory regimes, geopolitical or sanctions by the SEC. Any such consequenceeconomic changes or events, uncertainties and other negative effectfactors that could have a material and adverse effectharm our business, financial condition and results of operations.
We are subject to risks associated with our international operations, including compliance with international laws, which may harm our business.
Although onlyFor the years ended December 31, 2023, 2022, and 2021, 5.7%, 5.5%, and 7.3%, 8.5%, and 6.4%respectively, of our total consolidated revenues were derived from sales outside of the U.S., in 2021, 2020, and 2019 respectively, we have operations across the globe, and ourUnited States. Our international operations subject us to a variety of risks and challenges, including:
•compliance with foreigna variety of local laws and regulations governing our foreign operations, including anti-corruption laws such as the General Data Protection Regulation (“GDPR”) in the European Union, the U.S. Foreign Corrupt Practices Act (“FCPA”) andof 1977, as amended, the U.K. Bribery Act import and export control laws,other 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;
•compliance by international employees with accounting 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;
•import and export license requirements, tariffs, trade agreements, taxes and other trade barriers and trade protection measures, including tariffs and sanctions (such as the higher tariffs on certain products imported from China enacted by the previous U.S. administration or U.S. sanctions against Russia as a result of the Russia-Ukraine conflict);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 staffinginternational employees and exposure to different employment practices and local labor laws;conditions and regulations, including labor issues faced by suppliers or immigration and labor laws which may adversely impact our access to technical and professional talent;
•compliance with the laws of numerous foreign taxing jurisdictions and overlapping of different tax regimes;
•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; 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, hardware or componentincluding shortages and increased costs of products and components, shipping delays, longer payment cycles, increased taxes, and restrictions on the repatriation of funds to the U.S., any of which could negatively impact our business, financial condition, and results of operations.United States. In addition, our business is exposed to health epidemicspandemics (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. Further, weWe 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.
Natural disasters, pandemics, or other natural or manmade disasters or outbreaks could negatively impact our business and operations.
Our business is susceptible to losses and interruptions caused by flooding, hurricanes, earthquakes, power shortages, telecommunications failures, pandemics and other natural or manmade disasters. The global COVID-19 pandemic, the hurricanes and related floods in south eastern United States, and the wild fires in western United States, and any future natural or manmade disaster or pandemic could have an adverse impact in countries or regions in which we conduct our business or offer and sell our services and products or our customers conduct their businesses and, in turn, decrease the demand for our services or products. Such events could also cause delays or disruptions in access to our subscription services or third-party providers’ software and systems; cause supply chain disruptions, resulting in shortages or delays in shipments of products and components; create health and safety risks to our employees and distract employee productivity; and result in changes in consumer spending choices and customer investment decisions, any one of which could harm our business and results of operations. Moreover, we may be subject to climate-related regulations and reporting requirements and changing market dynamics and stakeholder expectations regarding climate change and any impact our operations have or may have on the environment, all of which may impact our business, financial condition and results of operations.
Risks Related to Cyber Security, Data Privacy, and Intellectual Property
Our cloud applications and 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 we continue to expand the products and services we offer to customers. Despite our cybersecurity program and the technical and organizational security measures we use to detect and prevent unauthorized access and usage, our cloud applications and information technology systems, and the third-party 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, credential-based attacks, supply chain attacks and other attacks which may result in 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 interruption of the operation of our cloud applications and information technology systems, or the cloud computing platforms and cloud applications of our third-party providers.
Even though prior events did not have a material adverse effect on our cloud applications and information technology systems or the cloud computing platforms and cloud applications of our third-party providers/integrators and our operations, there can be no guarantee that the same will be the case in the future. Cyber-attacks have become increasingly more sophisticated, frequent, and difficult to predict and protect against. In particular, the shift to a widespread remote working environment, including additional remote development teams, and the addition of new infrastructures, increases the opportunities available to malicious actors, and, as such, increases the risk of a cyber-attack potentially occurring which may result in the disruption of access to or the interruption of the operation of our cloud applications and information technology systems, or the cloud computing platforms and cloud applications of our third-party providers/integrators. A material failure or disruption in our operations due to such an attack could result in unauthorized access, data loss, 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.
Security defects and vulnerabilities in our cloud applications and information technology systems or those of our service providers, integrators, and customers 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 cloud applications and information technology systems and those of our third-party service providers/integrators and customers are inherently subject to security defects and vulnerabilities due to the release of new technologies and new techniques developed by malicious actors. If the manner and timing of how we fix identified security defects and vulnerabilities to our cloud applications and information technology systems is wrong or the manner and timing of how our third-party service providers/integrators, or third-party network providers fix defects and vulnerabilities in their cloud applications and information technology systems is wrong, or our customers do not implement or timely implement security updates or version upgrades provided by us or our third-party service
providers\integrators, then our and our third-party service providers\integrators cloud applications and information technology systems, and the information technology systems of our customers may be left vulnerable to delays and disruptions to access, which may result in our customer’s being unable to conduct their businesses. Unchecked security defects or vulnerabilities, may result in a material failure of our or our third-party providers\integrators cloud applications and information technology systems, substantial service disruptions, unauthorized access or denial of access, data loss or misappropriation of information, which in turn could result in breach of contract claims, indemnity obligations, governmental investigations and penalties, and reputational damage, which could have a material and adverse effect on our business, financial condition, results of operations and cash flows.
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 incident. 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 GDPR and the United Kingdom’s Data Protection Act 2018 ("UK-GDPR"), impose requirements relating to 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 and the UK GDPR impose 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, which could have a material and adverse effect our business, financial condition, results of operations and cash flows.
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 and services do not infringe the intellectual property rights of third parties; however, we cannot guarantee that third parties will not assert infringement or misappropriation claims against us with respect to our current or future products and services, 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.
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.
We are in the process of implementing new enterprise performance management and equity administration systems and combining our customer relationship management (CRM) and enterprise resource planning (ERP) systems into a single pre-existing CRM and ERP system, all of which are intended to improve the efficiency and effectiveness of our 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 of these new systems may 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.
Risks Associated with our Government Segment
A portion of our Government segment revenue is derived from U.S. Government contracts, which contain provisions unique to public sector customers, including the U.S. Government’s right to modify or terminate these contracts at any time.
TotalFor the year ended December 31, 2023, total consolidated revenues of 26% in 202133% 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. Government typically provide that such contracts are terminable, in whole or in part, at the convenience of the U.S. Government. If the U.S. Government 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. Government 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. Government contracts could have a material adverse effect on our business, financial condition, and results of operations.
We perform work for various U.S. Government agencies and departments primarily pursuant to fixed-price, cost-plus fixed fee and time-and-material prime contracts and subcontracts. The majority of revenuesRevenues derived from government contracts for the year ended December 31, 20212023 were based on fixed-price or timeapproximately 57% cost-plus fixed fee contracts and materialapproximately 34% fixed price contracts, with most of the remaining balance derived from cost-plus fixed feetime and material contracts and 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 theWhere initial estimates we use for calculating the contract price are incorrect, we canmay continue to 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. PAR Government has experienced staff compensation pressures as the individuals offered under these contracts are highly sought after and in short supply.Time and material contracts are bid with rate schedules and escalation that may last up to 5 years and generally do not adjust to current economic conditions until being recompeted.Given the required technical backgrounds of the staff, coupled with significant recent inflationary pressures, we may continue to experience margin risk as we will be required to increase compensation to remain competitive in the markets we serve.
Under cost-plus fixed fee contracts, we are reimbursed for allowable costs and paid a fixed fee. If ourIn some cases, costs under either of these types of contracts were to exceedhave exceeded the contract ceiling, or are not allowable under the provisions of the contract or applicable regulations,regulations.In these cases, we mayhave not bebeen 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 overruns also may adversely affect our ability to sustain existing programs and obtain future contract awards.
Our Government segment could be adversely affected by changes in budgetary priorities of the U.S. Government, failure to approve U.S. Government budgets on a timely basis, or delays in contract awards and other procurement activities.
Our Government segment depends upon continued U.S. Government expenditures on defense, intelligence, homeland security, and other programs that we support. Changes in U.S. Government budgetary priorities, a significant decline in government expenditures, or a shift of expenditures away from programs that we support could have a material adverse effect on our financial condition and results of operations.
Additionally, in years when Congress does not complete ourits budget process before the end of ourits 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, and 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 reputation, financial condition, results of operations, and liquidity.
PAR Government’s Sit-X commercial product offering is undergoing the FedRAMP certification process. This complex process, if not successfully completed in a timely fashion, may continue to reduce marketability and overall profitability of this product line.
We cannot guarantee that our Government segment's estimated contract backlog will result in actual revenue.
Our backlog 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 all, which could cause our actual results to differ materially and 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 control. 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 a time. Consequently, our contracts typically are only partially funded at any point during their term, and all 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 GSAGeneral Services Administration contracts, GovernmentwideGovernment-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 continue to impair our ability to obtain new contracts or retain existing 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, could harm our financial condition and results of operations. 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 our core service areas.
Our Government segment is subject to reviews, audits, and cost 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 or DCAA,("DCAA") and the Defense Contract Management Agency or DCMA,("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 internal controls over our business systems, including our purchasing, accounting, estimating, earned value management, and government 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 the administrative processes and 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 may 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.
Financial Related Risks
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.
We have incurred operating losses in each of the last several years, including for the year ended December 31, 2023. For us to achieve profitability, we must operate our business consistent with our capital allocation strategy, which focuses on the allocation of our capital to revenue generating activities, while controlling expenses. We cannot assure that we will be successful in achieving or sustaining profitability in the future, among other things:
•our investments in new products and new features for our existing products, may require more investment than planned or our new products or new features may not achieve the expected commercial success and generate additional revenue or advance the growth of our business;
•we may not realize the anticipated revenue contributions or operational synergies of our acquired businesses or achieve our targeted growth rates or improve our market share; and
•we may not be able 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 control.
If we fail to achieve and sustain profitability, our financial condition could be materially and adversely impacted and the market price of our common stock could decline.
For the year ended December 31, 2023, two customers account for a significant portion of our revenues in the Restaurant/Retail segment. The loss of one of these customers’ 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, could materially and adversely affect our business, results of operations, and cash flows.
Revenues from our Restaurant/Retail segment constituted 67% of our total consolidated revenues for the year ended December 31, 2023. Aggregate sales of primarily hardware and professional services to the two customers and their respective franchisees constituted 17% of our consolidated revenues for the year ended December 31, 2023. 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.
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, 2023, we had $385.0 million of aggregate principal amount outstanding under our 2.875% Convertible Senior Notes due 2026 (the “2026 Notes”) and 1.50% Convertible Senior Notes due 2027 (the “2027 Notes”, and together with the 2026 Notes, the “Senior Notes”). 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 capital; any sale of assets or transaction to raise capital could be on terms that may be onerous or highly dilutive. Our ability to raise funds through debt or equity issuances and otherwise access the credit and capital markets at the times and in the amounts needed and on acceptable terms will depend on our financial condition and the condition of the capital markets at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default under the indentures governing the Senior Notes.
Our indebtedness under the Senior Notes, could, among other things, restrict or limit our ability to plan and react to changes in our business and our industries; place us at a disadvantage compared to our competitors who have less debt; and limit our ability to borrow additional amounts to fund acquisitions, for working capital, and for other general corporate purposes.
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.
We make estimates and assumptions in connection with the preparation of our financial statements, and any changes to those estimates and assumptions could adversely affect our results of operations, cash flows and financial condition.
In connection with the preparation of our financial statements, we use certain estimates and assumptions based on historical experience and other factors. Our most critical accounting estimates are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates”. For example, we make significant estimates and assumptions when accounting for revenue recognition, stock-based compensation, the recognition and measurement of assets acquired and liabilities assumed in business combinations at fair value, the carrying amount of property, plant and equipment including right-to-use assets and liabilities, identifiable intangible assets and goodwill, valuation allowances for receivables, valuation of excess and obsolete inventories, and measurement of contingent consideration at fair value. These estimates and assumptions are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could adversely affect our results of operations, cash flows and financial condition.
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 $489.7 million at December 31, 2023 and our intangibles were $94.9 million at December 31, 2023. 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.
Ineffective internal controls could have a material adverse effect on our business, financial conditions, and results of operations.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, failure or interruption of information technology systems, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, 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. This could cause our financial reporting to be unreliable and potentially result in a restatement of our financial statements, which in turn could lead to a loss of investor confidence and a decline in the trading price of our common stock, and could subject us to investigation or sanctions by the SEC. Any such consequence or other negative effect could have a material adverse effect on our business, financial condition, and results of operations.
Risks Associated withRelated to the Ownership of our Common Stock
We have not paid dividends in the past and we do not anticipate paying dividends in the foreseeable future.
We have never paid cash dividends on our common stock and we do not anticipate paying any cash dividends.
We currently do not planhave no plans to declare dividends on shares of our common stock in the foreseeable future and plan to, instead, retain any earnings to finance our operations and growth. Because we have never paid cash dividends and do not anticipate paying any cashpay dividends on our common stock in the foreseeable future. Any declaration and payment of future the only opportunitydividends to achieve a return on an investor’s investment in our company will be if the market priceholders of our common stock appreciates andwill be at the investor sells its shares at a profit. There is no guarantee that the pricesole 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 the 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 that will prevail inafter price appreciation, which may never occur, as the market will ever exceed the price that an investor pays.only way to realize any future gains on their investment.
Future sales of our common stock or other securities could depress the price of our common stock and could result in dilution to our existing security holders.shareholders.
We mayhave and likely will in the future issue and sell additional shares of common stock or other securities in the future to raise capital or issue securities for othera variety of 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 security holders.shareholders. Dilution may have a negative impact on the price of our common stock if investors react unfavorably to a transaction or if the dilution causes a significant decrease in our earnings per share.
Our evaluation or completion of strategic alternatives may negatively impact our business and stock price.
We have disclosed that our board of directors and management periodically evaluate strategic alternatives to maximize value for our shareholders, including strategic acquisitions, sales of non-strategic assets or businesses (including, for example, a sale of PAR Government Systems Corporation and/or one or more of its subsidiaries), and other transactions. We cannot provide assurance that any transaction will be completed; whether we decide to pursue a transaction will depend on numerous factors, some of which are beyond our control. Such factors include the interest of potential acquisition targets or acquirers, sources of financing and terms, market conditions, and industry trends. Even if a transaction is completed, there can be no assurance that the transaction will be successful or have a positive effect on shareholder value. In addition, our financial results and operations could be adversely affected, including the diversion of management’s attention from our operations and the execution of other strategies. We have and will continue to incur substantial expenses associated with identifying and evaluating potential strategic alternatives, including legal, accounting, and financial advisor fees. Furthermore, the public announcement of a strategic transaction may negatively impact our operating results if we are not able to realize the anticipated benefits of the transaction. We do not intend to disclose developments or provide updates with respect to potential strategic transactions unless and until disclosure is appropriate or required. Accordingly, speculation regarding potential strategic transactions could cause our stock price to significantly fluctuate.
The trading price of our common stock may be negatively impacted by factors that are unrelatedexperience price and volume volatility, which could impair our ability to finance strategic transactions using our actual operating performancecommon stock and could result in losses for our shareholders.
The stock market in general is subject to fluctuations that affectA number of factors can impact 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 include:including:
•the impact of uncertainties, volatility, and economic disruption created by macroeconomic conditions and geopolitical events, including, inflation, recession, interest rate fluctuations, actual or anticipated military or political conflicts (including the COVID-19 pandemicRussian-Ukraine war, tensions with China and between China and Taiwan, the Israel-Hamas conflict and other hostilities in the Middle East) and global pandemics (such as COVID-19) or other public health crises, on our business, our customers, the restaurant/retail industries generally, and the global economy;industries in which we operate;
•actual or anticipated fluctuations in our financial condition and results of operations;operations (including, shortfalls or changes in expectations about, our revenue, margins, earnings, Annualized Recurring Revenue (“ARR”), sales of our product and service offerings or other key performance metrics;
•the performance and prospects of our major customers;
•our quarterly or annual financial results or those of other companies operating in the restaurant/retailour industries;
•the lack of earnings guidance;
•investor perception of us and the industries in which we operate;
•uncertainty regarding domestic and international civil, political and economic conditions, including war and terrorism; and
•uncertainty regarding the prospectscontents of domestic and foreign economies.
If securities analysts do not publishpublished research or reports about our business, or if they issue unfavorable commentary or negative recommendations with respect to our common stock, the price of our common stock, and consequently the market price for the Notes, could decline.
The trading market for our common stock is influenced by the research and reports that equity research and other securities analysts publish about us our business, and the industries in which we operate. We do not have control over these analysts. Analysts could issue negative recommendations with respect to our common stock or publish other unfavorable commentary or cease publishing reports about our common stock, our business, or the industries in which we operate. If oneoperate or morethe failure of thesesecurities analysts cease coverage of us,to cover our common stock;
•any increased indebtedness we could lose visibilitymay incur in the market. As a resultfuture;
•actions by institutional shareholders;
•operating and stock performance of oneother companies that investors deem comparable to us (and changes in their market valuations) and overall performance of the equity markets;
•announcements by us or moreour competitors of these factors,significant contracts, acquisitions, dispositions, strategic relationships, or capital commitments; and
•litigation and governmental investigations.
In addition, the market for technology stocks or the stock market in general may experience uneven investor confidence, which may cause the trading price offor our common stock couldto decline rapidly andfor reasons unrelated to our common stock trading volume could be adversely affected.operating performance.
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 stockholders,shareholders, and the federal district courts as the exclusive forum for Securities Act claims, which could discourage lawsuits againstlimit our shareholders’ ability to obtain what some shareholders believe to be a favorable judicial forum for disputes with us andor our directors, and officers,. other employees, or agents.
Our bylaws provide that unless we select or consent in writing to the selection of an 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 Court of Chanceryfederal district courts of the State of Delaware willUnited States shall be the sole and exclusive forum for:
•for the resolution of any derivative action or proceeding brought on our behalf;
•any actioncomplaint asserting a claimcause of breach of a fiduciary duty owed by any ofaction arising under the Securities Act. The choice-of-forum provision in our directors, officers, employees, or agents to us or our stockholders;
•any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law (the ‘‘DGCL’’) or our certificate of incorporation or bylaws; or
•any action asserting a claim governed by the internal affairs doctrine.
This exclusive forum provisionbylaws does not apply to suits brought to enforce aany liability or duty or liability created by the Exchange Act. It could apply, however, to a suit that falls within one or more of the categories set forth in the exclusive forum provision and that also asserts claims under the Securities Act, inasmuch as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. There is uncertainty as to whether a court would enforce this provision with respect to claims under the Securities Act, and our stockholdersshareholders 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.
Certain provisions of our certificate of incorporation and bylaws and Delaware law may discourage a takeover of our company.
Our certificate 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 stockholders;shareholders;
•prohibit stockholdershareholder action by written consent except by unanimous written consent of all stockholders;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 stockholders.shareholders.
These provisions could discourage potential acquisition proposals and could delay or prevent a change in control, even though a majority of stockholdersshareholders 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
NoneNone.
Item 1C. CYBERSECURITY
Governance
Our board of directors oversees our risk management programs, strategies and processes. The board of directors also assigns certain oversight responsibilities to its committees and has assigned the audit committee to oversee our guidelines, policies and practices regarding risk assessment and risk management as they relate to cybersecurity.
Our cybersecurity team is led by our Senior Director of Cybersecurity who has over 15 years of direct cybersecurity experience that includes incident response, security operations and management. This team is responsible for implementing and maintaining corporate and platform-wide cybersecurity, data protection, and third-party risk practices in coordination with our security steering committee, whose members include, our Senior Director of Cybersecurity, professionals working in cybersecurity and product and technology security and representatives from finance, internal audit, compliance and legal. The security steering committee meets quarterly to review our risk profile, threat detection, and remediation strategies, as well as our overall cybersecurity posture and health.
Our audit committee, typically in joint session with the full board of directors, meets quarterly with our Senior Director of Cybersecurity and receives reports regarding our systems and data security. These cybersecurity reports to the audit committee include various information, such as updates on the cybersecurity threat landscape, risk assessments, mitigation plans, notable incidents, the status of projects to strengthen our information security systems, engagement of third parties (e.g., consultants and auditors) and third-party tools, and our employee-training programs.
Risk Management and Strategy
We implement enterprise-wide information security policies and security awareness training to promote compliance and enhance security awareness and vigilance among our workforce. This training is distributed to all employees and includes interactive training on the acceptable use of technology, secure software development practices and phishing simulations.
We use various internal organizational cybersecurity and privacy safeguards, controls and procedures for the discovery, identification, classification, assessment, and management of cybersecurity incidents and material risks associated with our corporate business systems, our product and service offerings, and third-party supplier relationships. Incident response plans and procedures are in place for the detection and response to cybersecurity incidents and events that may adversely affect the confidentiality, integrity or availability of our corporate business systems, our product and service offerings and third-party supplier dependencies. Our incident response plan includes a materiality assessment framework used for escalation protocols, navigation of materiality assessment determinations and procedures for post determination actions. Our incident response team includes our Senior Director of Cybersecurity, representatives from legal and delegates from our product engineering teams and corporate information technology teams. The incident response team will engage third-party incident management experts, including outside legal counsel, as necessary. Our Senior Director of Cybersecurity will provide updates to the internal audit team and our senior management team regarding any such incident until it has been addressed.
Our cybersecurity team implements various security processes, standard operating procedures and tools that aid in the prevention, detection, investigation, response and remediation of vulnerabilities and risks. These include, but are not limited to, endpoint and cloud threat detection and response systems, network application and API security services, cloud security posture management solutions, enterprise data loss prevention ("DLP") and governance services, cloud-native security scanners and source code analysis tooling. The cybersecurity team is responsible for the continuous monitoring, reporting and response to threats and vulnerabilities discovered through the deployment and operation of these tools. If any deficiencies relating to our internal controls over financial reporting are discovered, the Senior Director of Cybersecurity is required to report them to our internal audit team.
As part of our risk management process, our cybersecurity team conducts routine vulnerability and application security assessments, penetration testing, security and compliance audits, and ongoing risk assessments. We also engage third-party independent auditors to attest to the implementation and operational effectiveness of security controls implemented within our product and service environments in scope for Payment Card Industry Data Security Standard ("PCI DSS") and American Institute of Certified Public Accountants ("AICPA") System and Organization Controls ("SOC") as well as financial systems in scope for Sarbanes-Oxley information technology general controls. Additionally, our internal audit team conducts regularly scheduled audits of our IT and business systems. The results of these reviews are reported to senior management and the audit committee as part of the quarterly reporting process discussed above.
Item 2. PROPERTIES
Our corporate headquarters isprincipal executive offices are located in 208,700 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, and 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 the foreseeable future.
research and development, sales, and professional services. The following table sets forth the location, the reporting segment (if applicable) that usesGovernment segment's principal offices are located in 13,324 square feet of leased office space at 160 Brooks Road, Second Floor, Rome, New York from which it conducts sales, administrative, and the use of each of our principal properties,research and each properties’ approximate square footage:
| | | | | | | | | | | |
Location | Reporting Segment | Use | Approximate
Square Footage |
New Hartford, NY | Restaurant/Retail | Corporate headquarters, assembly, R&D, sales, service (including call-center), and computing facilities | 180,900* |
Rome, NY | Government | PAR Government offices, sales, administration, and R&D | 31,900 |
*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:in Australia, Canada, Dubai, India, United Arab Emirates, England, Switzerland, Serbia, Spain, and other locations within the U.S. We are currently operating in a substantially 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 obtain suitable additional facilities on commercially reasonable terms will satisfy our business requirements.
Item 3. LEGAL PROCEEDINGS
The information set forth in Note"Note 13 – Commitments and ContingenciesContingencies" of the notes to consolidated financial statements (Partin "Part II, Item 88. Financial Statements and Supplementary Data" of this Annual Report)Report is incorporated herein by reference. We do not believe that we have any pending litigation that would have a material adverse effect on our financial condition or results of operations.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERSHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Trading Market
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 February 22, 2022,23, 2024, there were 370267 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.nominees.
Dividend Policy
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 the terms of any future financings and 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 considersdeems relevant.
Issuer Purchases of Equity Securities
Recipients ofUnder our equity awardsincentive 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 awards. When we withhold these shares, we are required to remit to the appropriate taxing authorities the market price of the awards withheld, which could be deemed a purchase of shares by us on the date of withholding. For the yearthree months ended December 31, 2021, 110,7502023, there were no shares were withheld.
The table below presents information regarding the Company’s purchases of its equity securities for the time periods presented.
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Withheld | | Average Price Paid Per Share |
| October 1, 2021 - October 31, 2021 | | — | | | $ | — | |
| November 1, 2021 - November 30, 2021 | | 5,497 | | | $ | 52.37 | |
| December 1, 2021 - December 31, 2021 | | 12,178 | | | $ | 52.77 | |
| Total | | 17,675 | | | |
Performance Graph
Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the priceThe performance of our common stock shall not be deemed “filed” with the SEC or “soliciting material” under the Exchange Act and shall not be incorporated by reference into any such filings.
The graph below reflectsshows the cumulative stockholdertotal shareholder return on our common stock compared to the cumulative total shareholder return ofon the Russell 2000 index and the Russell 2000 Technology index, a published peer industry group of 175190 companies on an annual basis.
The performance graph reflectsassumes the investment of $100 on December 31, 20162018 in our common stock, the Russell 2000 and the Russell 2000 Technology indices. The cumulative total cumulative dollarshareholder returns shown below represent the value that such investments would have had on December 31, 2021.2023 (assuming reinvestment of all dividends). Historical stock price performance should not be relied upon as an indication of future stock price performance.
Item 6. RESERVED
Item 6. RESERVED
Not applicable.
Item 7. MANAGEMENTSMANAGEMENT'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 audited consolidated financial statements and the notes thereto included under Part"Part II, Item 88. Financial Statements and Supplementary Data" of 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 “Risk Factors” in Part"Forward-Looking Statements" and "Part I, Item 1A1A. Risk Factors" above.
OverviewThe following section generally discusses year-over-year comparisons between 2023 and 2022. Discussions related to year-over-year comparisons between 2022 and 2021 are included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2022, filed with the SEC on March 21, 2023.
We, 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 is a leading provider of software, hardware, and services to the restaurant and retail industries, with more than 500 customers currently using our software products and more than 50,000 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, offering them a fully integrated cloud solution by combining our Brink POS cloud software for front-of-house, our Data Central back-office cloud solution, our PAR Pay and PAR Payment Services for payment solutions, and our Punchh customer loyalty and engagement solution onto a unified commerce cloud platform. Our unified commerce cloud platform delivers an integrated suite of modern solutions that are extensible and built on open APIs that retain flexibility and the market optionality of an open platform.
Our Government segment provides technical expertise and development of 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 Government segment is focused on three principal offerings, ISR solutions and mission systems operations and maintenance, with additional revenue from a small number of licensed software products for use in analytic and operational environments that leverage geospatial intelligence data. 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, intelligence community, 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 our Government segment.
COVID-19 Update
The COVID-19 pandemic continues to have widespread, rapidly evolving and unpredictable impacts on global economies, inflation, supply chains, work force participation and wages, and has created significant volatility and disruption in financial markets. Our focus remains on promoting employee health and safety, serving our customers and ensuring business continuity. We have taken actions by continuing our work from home policy, permitting only critical business travel, maintaining safety stock inventory and, when possible sourcing materials and components from multiple suppliers, and regularly monitor pricing of our services and products. We continue to actively monitor the situation and will continue to adapt our business operations as necessary.
Further discussion of the potential impacts of the COVID-19 pandemic on our business can be found in the section titled "Risk Factors" included in Part I, Item 1A of this Annual Report.
Business2023 Performance Highlights and Recent Developments
•Punchh Acquisition: On April 8, 2021, we acquired Punchh, Inc. (the “Punchh Acquisition”Annual Recurring Revenues ("ARR") grew to $136.9 million - a 22.8% increase from $111.4 million reported for approximately $507.7 million (“Purchase Consideration”). We financed a portion of the Purchase Consideration through a combination of equity and debt, which included proceeds from the sale of $160.0 million of our common stock and a $180.0 million term loan (the “Owl Rock Term Loan”) under 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”). With the extension of Punchh®, a SaaS customer loyalty and engagement solution, we launched our unified commerce cloud platform.
•2021 Public Offering of Common Stock:On September 17, 2021, we sold 982,143 shares of common stock to the public at a price of $56.00 per share and recorded net proceeds of $52.5 million.year ended December 31, 2022.
•1.50% Convertible Senior Notes Due 2027:Active sites expansion
◦ On September 17, 2021, we sold $265.0 million ofOperator Solutions active sites expanded to 23.3 thousand - a 19.5% increase from the 2027 Notes,19.5 thousand reported for the year ended December 31, 2022.
◦Back Office active sites expanded to 7.7 thousand - an 10.0% increase from the 7.0 thousand reported for the year ended December 31, 2022.
Refer to "Key Performance Indicators and recorded net proceeds of approximately $256.8 million.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.
•Use of Proceeds from the 2027 Notes and Sale of Common Stock: We used the net proceeds from our September 2021 sale of 2027 Notes and common stock to repay in full and terminate the Owl Rock Term Loan. We intend to use the balance of the net proceeds for general corporate purposes, including continued investment in the growth of our businesses, through the acquisition or investment in complementary businesses or assets, and for other working capital purposes.
•
The IDIQ Contract, the largest single contract award in PAR Government's History:
In September 2021, the U.S. Air Force Research Laboratory Information Directorate awarded our Government segment a $490.4 million ceiling, single award, IDIQ contract with cost-plus-fixed-fee completion and firm-fixed-price type orders for Counter-small Unmanned Aircraft System software, hardware, and technical documentation. The value of this contract is dependent on those amounts committed under the contract by government agencies, and as of December 31, 2021, $42.8 million was committed of which $5.8 million was funded, net of amounts relating to work performed to that date.
RESULTS OF OPERATIONS
Results of operations for the years ended December 31, 2021, 2020,2023, 2022, and 20192021 were as follows:
Consolidated Results
| | Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| Year Ended
December 31, | | | Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 | in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Net revenues: | Net revenues: | | | | | | | | | | | | | | | |
| Product | $ | 105,014 | | | $ | 73,228 | | | $ | 66,329 | | | 37.2 | % | | 34.3 | % | | 35.5 | % | | 43.4 | % | | 10.4 | % |
| Service | 105,337 | | | 69,284 | | | 56,978 | | | 37.2 | % | | 32.4 | % | | 30.4 | % | | 52.0 | % | | 21.6 | % |
| Hardware | |
| Hardware | |
| Hardware | | $ | 103,391 | | | $ | 114,410 | | | $ | 105,014 | | | 24.9 | % | | 32.2 | % | | 37.1 | % | | (9.6) | % | | 8.9 | % |
| Subscription service | | Subscription service | 122,597 | | | 97,499 | | | 62,649 | | | 29.5 | % | | 27.4 | % | | 22.1 | % | | 25.7 | % | | 55.6 | % |
| Professional service | | Professional service | 50,726 | | | 50,438 | | | 42,688 | | | 12.2 | % | | 14.2 | % | | 15.1 | % | | 0.6 | % | | 18.2 | % |
| Contract | Contract | 72,525 | | | 71,274 | | | 63,925 | | | 25.6 | % | | 33.3 | % | | 34.1 | % | | 1.8 | % | | 11.5 | % | Contract | 139,109 | | | 93,448 | | 93,448 | | | 72,525 | | 72,525 | | | 33.5 | | 33.5 | % | | 26.3 | % | | 25.6 | % | | 48.9 | % | | 28.8 | % |
| Total revenues, net | Total revenues, net | $ | 282,876 | | | $ | 213,786 | | | $ | 187,232 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 32.3 | % | | 14.2 | % | Total revenues, net | $ | 415,823 | | | $ | | $ | 355,795 | | | $ | | $ | 282,876 | | | 100.0 | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 16.9 | % | | 25.8 | % |
| | Gross margin | Gross margin | |
| Product | 24,173 | | | 14,341 | | | 15,140 | | | 8.5 | % | | 6.7 | % | | 8.1 | % | | 68.6 | % | | (5.3) | % |
| Service | 32,111 | | | 19,351 | | | 16,589 | | | 11.4 | % | | 9.1 | % | | 8.9 | % | | 65.9 | % | | 16.6 | % |
| Gross margin | |
| Gross margin | |
| Hardware | |
| Hardware | |
| Hardware | | 23,072 | | | 22,186 | | | 24,173 | | | 5.5 | % | | 6.2 | % | | 8.5 | % | | 4.0 | % | | (8.2) | % |
| Subscription service | | Subscription service | 58,862 | | | 50,075 | | | 23,998 | | | 14.2 | % | | 14.1 | % | | 8.5 | % | | 17.5 | % | | 108.7 | % |
| Professional service | | Professional service | 7,512 | | | 9,456 | | | 8,113 | | | 1.8 | % | | 2.7 | % | | 2.9 | % | | (20.6) | % | | 16.6 | % |
| Contract | Contract | 5,837 | | | 5,633 | | | 5,682 | | | 2.1 | % | | 2.6 | % | | 3.0 | % | | 3.6 | % | | (0.9) | % | Contract | 8,864 | | | 7,576 | | 7,576 | | | 5,837 | | 5,837 | | | 2.1 | | 2.1 | % | | 2.1 | % | | 2.1 | % | | 17.0 | % | | 29.8 | % |
| Total gross margin | Total gross margin | 62,121 | | | 39,325 | | | 37,411 | | | 22.0 | % | | 18.4 | % | | 20.0 | % | | 58.0 | % | | 5.1 | % | Total gross margin | 98,310 | | | 89,293 | | 89,293 | | | 62,121 | | 62,121 | | | 23.6 | | 23.6 | % | | 25.1 | % | | 22.0 | % | | 10.1 | % | | 43.7 | % |
| | Operating expenses: | Operating expenses: | |
| Selling, general and administrative | 83,998 | | | 46,196 | | | 38,068 | | | 29.7 | % | | 21.6 | % | | 20.3 | % | | 81.8 | % | | 21.4 | % |
| Operating expenses: | |
| Operating expenses: | |
| Sales and marketing | |
| Sales and marketing | |
| Sales and marketing | | 38,513 | | | 34,900 | | | 24,166 | | | 9.3 | % | | 9.8 | % | | 8.5 | % | | 10.4 | % | | 44.4 | % |
| General and administrative | | General and administrative | 68,992 | | | 66,319 | | | 59,832 | | | 16.6 | % | | 18.6 | % | | 21.2 | % | | 4.0 | % | | 10.8 | % |
| Research and development | Research and development | 34,579 | | | 19,252 | | | 13,372 | | | 12.2 | % | | 9.0 | % | | 7.1 | % | | 79.6 | % | | 44.0 | % | Research and development | 58,356 | | | 48,643 | | 48,643 | | | 34,579 | | 34,579 | | | 14.0 | | 14.0 | % | | 13.7 | % | | 12.2 | % | | 20.0 | % | | 40.7 | % |
| Amortization of identifiable intangible assets | Amortization of identifiable intangible assets | 1,825 | | | 1,163 | | | 156 | | | 0.6 | % | | 0.5 | % | | 0.1 | % | | 56.9 | % | | >200 % | Amortization of identifiable intangible assets | 1,858 | | | 1,863 | | 1,863 | | | 1,825 | | 1,825 | | | 0.4 | | 0.4 | % | | 0.5 | % | | 0.6 | % | | (0.3) | % | | 2.1 | % |
| Adjustment to contingent consideration liability | Adjustment to contingent consideration liability | — | | | (3,340) | | | — | | | — | % | | (1.6) | % | | — | % | | (100.0) | % | | N/A | Adjustment to contingent consideration liability | (9,200) | | | (4,400) | | (4,400) | | | — | | — | | | (2.2) | | (2.2) | % | | (1.2) | % | | — | % | | 109.1 | % | | N/A |
| Gain on insurance proceeds | Gain on insurance proceeds | (4,400) | | | — | | | — | | | (1.5) | % | | — | % | | — | % | | N/A | | N/A | Gain on insurance proceeds | (500) | | | — | | — | | | (4,400) | | (4,400) | | | (0.1) | | (0.1) | % | | — | % | | (1.6) | % | | N/A | | (100.0) | % |
| Total operating expenses | Total operating expenses | 116,002 | | | 63,271 | | | 51,596 | | | 41.0 | % | | 29.6 | % | | 27.6 | % | | 83.3 | % | | 22.6 | % | Total operating expenses | 158,019 | | | 147,325 | | 147,325 | | | 116,002 | | 116,002 | | | 38.0 | | 38.0 | % | | 41.4 | % | | 41.0 | % | | 7.3 | % | | 27.0 | % |
| | Operating loss | Operating loss | (53,881) | | | (23,946) | | | (14,185) | | | (19.0) | % | | (11.2) | % | | (7.6) | % | | 125.0 | % | | 68.8 | % |
| Other (expense) income, net | (1,279) | | | 808 | | | (449) | | | (0.5) | % | | 0.4 | % | | (0.2) | % | | <(200)% | | <(200)% |
| Operating loss | |
| Operating loss | | (59,709) | | | (58,032) | | | (53,881) | | | (14.4) | % | | (16.3) | % | | (19.0) | % | | 2.9 | % | | 7.7 | % |
| Other expense, net | | Other expense, net | (489) | | | (1,224) | | | (1,279) | | | (0.1) | % | | (0.3) | % | | (0.5) | % | | (60.0) | % | | (4.3) | % |
| Loss on extinguishment of debt | Loss on extinguishment of debt | (11,916) | | | (8,123) | | | — | | | (4.2) | % | | (3.8) | % | | — | % | | 46.7 | % | | N/A | Loss on extinguishment of debt | (635) | | | — | | — | | | (11,916) | | (11,916) | | | (0.2) | | (0.2) | % | | — | % | | (4.2) | % | | N/A | | (100.0) | % |
| Interest expense, net | Interest expense, net | (18,147) | | | (8,287) | | | (4,571) | | | (6.4) | % | | (3.9) | % | | (2.4) | % | | 119.0 | % | | 81.3 | % | Interest expense, net | (6,931) | | | (8,811) | | (8,811) | | | (18,147) | | (18,147) | | | (1.7) | | (1.7) | % | | (2.5) | % | | (6.4) | % | | (21.3) | % | | (51.4) | % |
| Loss before benefit from income taxes | (85,223) | | | (39,548) | | | (19,205) | | | (30.1) | % | | (18.5) | % | | (10.3) | % | | 115.5 | % | | 105.9 | % |
| Benefit from income taxes | 9,424 | | | 2,986 | | | 3,634 | | | 3.3 | % | | 1.4 | % | | 1.9 | % | | >200 % | | (17.8) | % |
| Loss before (provision for) benefit from income taxes | | Loss before (provision for) benefit from income taxes | (67,764) | | | (68,067) | | | (85,223) | | | (16.3) | % | | (19.1) | % | | (30.1) | % | | (0.4) | % | | (20.1) | % |
| (Provision for) benefit from income taxes | | (Provision for) benefit from income taxes | (1,988) | | | (1,252) | | | 9,424 | | | (0.5) | % | | (0.4) | % | | 3.3 | % | | 58.8 | % | | (113.3) | % |
| Net loss | Net loss | $ | (75,799) | | | $ | (36,562) | | | $ | (15,571) | | | (26.8) | % | | (17.1) | % | | (8.3) | % | | 107.3 | % | | 134.8 | % | Net loss | $ | (69,752) | | | $ | | $ | (69,319) | | | $ | | $ | (75,799) | | | (16.8) | | (16.8) | % | | (19.5) | % | | (26.8) | % | | 0.6 | % | | (8.5) | % |
Revenues, NetBeginning with this Annual Report, we retroactively split our "Selling, general and administrative" financial statement line item ("FSLI") into two FSLIs, "Sales and marketing" and "General and administrative". Refer to "Note 1 - Summary of Significant Accounting Policies" within "Item 8. Financial Statements and Supplementary Data" for additional information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of
total revenue | | Increase (decrease) |
| in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Revenues, net: | | | | | | | | | | | | | | | |
| Product | $ | 105,014 | | | $ | 73,228 | | | $ | 66,329 | | | 37.2 | % | | 34.3 | % | | 35.5 | % | | 43.4 | % | | 10.4 | % |
| Service | 105,337 | | | 69,284 | | | 56,978 | | | 37.2 | % | | 32.4 | % | | 30.4 | % | | 52.0 | % | | 21.6 | % |
| Contract | 72,525 | | | 71,274 | | | 63,925 | | | 25.6 | % | | 33.3 | % | | 34.1 | % | | 1.8 | % | | 11.5 | % |
| Total revenues, net | $ | 282,876 | | | $ | 213,786 | | | $ | 187,232 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 32.3 | % | | 14.2 | % |
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Total product, service and contract revenues were $282.9 million for the year ended December 31, 2021, an increase of 69.1 million or 32.3% compared to $213.8 million for the year ended December 31, 2020.
Product revenues were $105.0 million for the year ended December 31, 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) and Pixel Software licenses.
Service revenues were $105.3 million for the year ended December 31, 2021, an increase of $36.0 million or 52.0% compared to $69.3 million for the year ended December 31, 2020. The increase was primarily driven by revenues from Punchh operations of $27.2 million an increase of $7.2 million for other software and services revenue and $1.7 million for hardware repair services.
Contract revenues were $72.5 million for the year ended December 31, 2021, an increase of $1.2 million or 1.8% compared to $71.3 million for the year ended December 31, 2020. The increase was driven by the Government segment's ISR solutions product line revenues.
For the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Total revenues were $213.8 million for the year ended December 31, 2020, an increase of $26.6 million or 14.2% compared $187.2 million for the year ended December 31, 2019.
Product revenues were $73.2 million for the year ended December 31, 2020, an increase of $6.9 million or 10.4% compared to $66.3 million for the year ended December 31, 2019. This increase was driven by the acquisition of the assets of 3M Company's Drive-Thru Communications Systems business (the “Drive-Thru Acquisition”) with revenues of $14.6 million. Brink POS related hardware revenue saw an increase of $4.8 million. Partially offsetting these revenue gains were declines in other hardware revenue of $10.5 million, driven by the COVID-19 pandemic. Other decreases included PixelPoint license sales reduction of $1.3 million and SureCheck, our food safety and workforce product solution we sold in 2019 (“SureCheck”), product revenue decrease of $0.7 million as the divestiture of that product line closed during the fourth quarter of 2019.
Service revenues were $69.3 million for the year ended December 31, 2020, an increase of $12.3 million or 21.6% compared to $57.0 million for the year ended December 31, 2019. The increase was primarily due to an increase in revenue of $8.1 million related to the acquisition of AccSys, LLC (“Restaurant Magic”) in December 2019 (the “Restaurant Magic Acquisition”), and $8.7 million of service revenues of which $4.1 million was attributable to Brink POS. Partially offsetting these gains were declines of $2.7 million in SureCheck, product revenue as that product line was divested in fourth quarter 2019 and $1.8 million decline of Drive-Thru product and service revenue.
Contract revenues were $71.3 million for the year ended December 31, 2020, an increase of $7.4 million or 11.5% compared to $63.9 million for the year ended December 31, 2019. The increase was driven by a $7.9 million or a 26.8% increase in the Government segment's ISR solutions product line revenues.
Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Gross Margin Percentage | | Increase (decrease) |
| in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Gross margin | | | | | | | | | | | | | | | |
| Product | $ | 24,173 | | | $ | 14,341 | | | $ | 15,140 | | | 23.0 | % | | 19.6 | % | | 22.8 | % | | 68.6 | % | | (5.3) | % |
| Service | 32,111 | | | 19,351 | | | 16,589 | | | 30.5 | % | | 27.9 | % | | 29.1 | % | | 65.9 | % | | 16.6 | % |
| Contract | 5,837 | | | 5,633 | | | 5,682 | | | 8.0 | % | | 7.9 | % | | 8.9 | % | | 3.6 | % | | (0.9) | % |
| Total gross margin | $ | 62,121 | | | $ | 39,325 | | | $ | 37,411 | | | 22.0 | % | | 18.4 | % | | 20.0 | % | | 58.0 | % | | 5.1 | % |
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 was 22.0% as compared to 18.4% for the year ended December 31, 2020.
Product margin for the year ended December 31, 2021 increased to 23.0% as compared to 19.6% for the year ended December 31, 2020. The increase in margin was primarily due to favorable product mix and favorable
absorption of overhead costs due to a general increase in product sales. The favorable impact from absorption was partially offset by higher material 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 material costs.
Service margin for the year ended December 31, 2021 increased to 30.5% as compared to 27.9% for the year ended December 31, 2020. The increase was driven by a higher mix of SaaS software from the Punchh Acquisition and cost improvement initiatives with hosting costs and customer support service. Service margin during the year ended 2021 included $11.8 million of amortization of acquired developed technology compared to $3.3 million of amortization of acquired developed technology during the year ended December 31, 2020. Excluding the amortization of acquired developed technology, service margin was 41.7% compared to 32.7% year-over-year for the years ended December 31, 2021 and 2020, respectively.
Contract margin for the year ended December 31, 2021 was relatively unchanged at 8.0%, compared to 7.9% for the year ended December 31, 2020.
For the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Total gross margin as a percentage of revenue for the year ended December 31, 2020 was 18.4% compared to 20.0% for the year ended December 31, 2019.
Product margin for the year ended December 31, 2020 decreased to 19.6% from 22.8% for the year ended December 31, 2019. The product margin decrease was caused by increased freight costs as we accelerated the purchase of inventory early in the COVID-19 pandemic and a $0.9 million disposal of inventory related to the Drive-Thru Acquisition.
Service margin for the year ended December 31, 2020 decreased to 27.9%, from 29.1% for the year ended December 31, 2019. The decrease in service margin was primarily driven by our increased investments in customer service, $0.4 million disposal of service inventory related to the acquisition of assets in the Drive-Thru Acquisition, partially offset by a favorable shift in sales mix that resulted from the Restaurant Magic Acquisition, the Drive-Thru Acquisition and our divestiture of SureCheck. Service margin during the year ended December 31, 2020 included $3.3 million of amortization of acquired developed technology compared to $1.0 million of amortization of acquired developed technology during the year ended December 31, 2019. Excluding the amortization of acquired developed technology, Service margin was 32.7% compared to 30.9% for the year ended December 31, 2020 versus the year ended December 31, 2019.
Contract margin for the year ended December 31, 2020 decreased to 7.9%, from 8.9% for the year ended December 31, 2019, primarily due to increased product services startup costs.
Selling, General and Administrative Expenses (“SG&A”)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Selling, general and administrative | $ | 83,998 | | | $ | 46,196 | | | $ | 38,068 | | | 29.7 | % | | 21.6 | % | | 20.3 | % | | 81.8 | % | | 21.4 | % |
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, compared to $46.2 million, an increase of 37.8 million or 81.8% for the year ended December 31, 2020. The increase was primarily driven by $19.3 million of expenses excluding stock-based compensation incurred in the Punchh Acquisition. Other 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.
Segment Revenue by Product Line as Percentage of Total Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | | | |
| | | Increase (decrease) |
| In thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Hardware | $ | 103,391 | | | $ | 114,410 | | | $ | 105,014 | | | 24.9 | % | | 32.2 | % | | 37.1 | % | | (9.6) | % | | 8.9 | % |
| Subscription service | 122,597 | | | 97,499 | | | 62,649 | | | 29.5 | % | | 27.4 | % | | 22.1 | % | | 25.7 | % | | 55.6 | % |
| Professional service | 50,726 | | | 50,438 | | | 42,688 | | | 12.2 | % | | 14.2 | % | | 15.1 | % | | 0.6 | % | | 18.2 | % |
| Total Restaurant/Retail | $ | 276,714 | | | $ | 262,347 | | | $ | 210,351 | | | 66.5 | % | | 73.7 | % | | 74.4 | % | | 5.5 | % | | 24.7 | % |
| | | | | | | | | | | | | | | |
| Mission systems | 35,583 | | | 35,458 | | | 38,311 | | | 8.6 | % | | 10.0 | % | | 13.5 | % | | 0.4 | % | | (7.4) | % |
| ISR | 102,153 | | | 56,141 | | | 33,188 | | | 24.6 | % | | 15.8 | % | | 11.7 | % | | 82.0 | % | | 69.2 | % |
| Commercial software | 1,373 | | | 1,849 | | | 1,026 | | | 0.3 | % | | 0.5 | % | | 0.4 | % | | (25.7) | % | | 80.2 | % |
| Total Government | $ | 139,109 | | | $ | 93,448 | | | $ | 72,525 | | | 33.5 | % | | 26.3 | % | | 25.6 | % | | 48.9 | % | | 28.8 | % |
| | | | | | | | | | | | | | | |
| Total revenue | $ | 415,823 | | | $ | 355,795 | | | $ | 282,876 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 16.9 | % | | 25.8 | % |
Revenues, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of
total revenue | | Increase (decrease) |
| in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Revenues, net: | | | | | | | | | | | | | | | |
| Hardware | $ | 103,391 | | | $ | 114,410 | | | $ | 105,014 | | | 24.9 | % | | 32.2 | % | | 37.1 | % | | (9.6) | % | | 8.9 | % |
| Subscription service | 122,597 | | | 97,499 | | | 62,649 | | | 29.5 | % | | 27.4 | % | | 22.1 | % | | 25.7 | % | | 55.6 | % |
| Professional service | 50,726 | | | 50,438 | | | 42,688 | | | 12.2 | % | | 14.2 | % | | 15.1 | % | | 0.6 | % | | 18.2 | % |
| Contract | 139,109 | | | 93,448 | | | 72,525 | | | 33.5 | % | | 26.3 | % | | 25.6 | % | | 48.9 | % | | 28.8 | % |
| Total revenues, net | $ | 415,823 | | | $ | 355,795 | | | $ | 282,876 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 16.9 | % | | 25.8 | % |
For the Year Ended December 31, 20202023 Compared to the Year Ended December 31, 20192022
SG&A expensesTotal revenues were $46.2$415.8 million for the year ended December 31, 2020,2023, an increase of $60.0 million or 16.9% compared to $38.1$355.8 million and increase of $8.1 million or 21.4% for the year ended December 31, 2019.2022.
Hardware revenues were $103.4 million for the year ended December 31, 2023, a decrease of $11.0 million or 9.6% compared to $114.4 million for the year ended December 31, 2022. The decrease was substantially driven by decreases in hardware revenues from terminals of $6.7 million and kitchen display systems of $5.3 million, both substantially driven by a decrease in sales volume.
Subscription service revenues were $122.6 million for the year ended December 31, 2023, an increase of $25.1 million or 25.7% compared to $97.5 million for the year ended December 31, 2022. The increase was primarilysubstantially driven by $3.9increased subscription service revenues from our Operator Solutions services of $13.5 million driven by a 19.5% increase in active sites and a 14.5% increase in average revenue per site. The residual increase was substantially driven by increased subscription service revenues from our Guest Engagement services of $10.0 million driven by a 1.3% increase in active sites and a 6.7% increase in average revenue per site.
Professional service revenues were $50.7 million for the year ended December 31, 2023, which remained relatively unchanged compared to $50.4 million for the year ended December 31, 2022.
Contract revenues were $139.1 million for the year ended December 31, 2023, an increase of $45.7 million or 48.9% compared to $93.4 million for the year ended December 31, 2022. The increase was substantially driven by Government segment's Intelligence, Surveillance, and Reconnaissance solutions ("ISR Solutions") product line revenues due to continued Counter small Unmanned Aircraft System tasks orders.
Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Gross Margin Percentage | | Increase (decrease) |
| in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Gross margin | | | | | | | | | | | | | | | |
| Hardware | $ | 23,072 | | | $ | 22,186 | | | $ | 24,173 | | | 22.3 | % | | 19.4 | % | | 23.0 | % | | 4.0 | % | | (8.2) | % |
| Subscription service | 58,862 | | | 50,075 | | | 23,998 | | | 48.0 | % | | 51.4 | % | | 38.3 | % | | 17.5 | % | | 108.7 | % |
| Professional service | 7,512 | | | 9,456 | | | 8,113 | | | 14.8 | % | | 18.7 | % | | 19.0 | % | | (20.6) | % | | 16.6 | % |
| Contract | 8,864 | | | 7,576 | | | 5,837 | | | 6.4 | % | | 8.1 | % | | 8.0 | % | | 17.0 | % | | 29.8 | % |
| Total gross margin | $ | 98,310 | | | $ | 89,293 | | | $ | 62,121 | | | 23.6 | % | | 25.1 | % | | 22.0 | % | | 10.1 | % | | 43.7 | % |
For the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
Total gross margin as a percentage of total revenue for the year ended December 31, 2023, decreased to 23.6% as compared to 25.1% for the year ended December 31, 2022.
Hardware margin as a percentage of hardware revenue for the year ended December 31, 2023, increased to 22.3% as compared to 19.4% for the year ended December 31, 2022. The increase in margin was substantially driven by improved inventory management resulting in lower excess and obsolescent inventory charges during the year ended December 31, 2023.
Subscription service margin as a percentage of subscription service revenue for the year ended December 31, 2023, decreased to 48.0% as compared to 51.4% for the year ended December 31, 2022. The decrease was substantially driven by absorbing the initial growth of MENU and PAR Payment Services, which are both early stage products. Subscription service margin for the year ended December 31, 2023, included $22.2 million of expenses relatedamortization of acquired and internally developed technology compared to $21.4 million of amortization of acquired and internally developed technology for the year ended December 31, 2022. Excluding the amortization of acquired and internally developed technology, adjusted subscription service gross margin was 66.1% compared to 73.3% for the years ended December 31, 2023 and 2022, 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, 2023, decreased to 14.8% as compared to 18.7% for the year ended December 31, 2022. The decrease was substantially driven by decreases in margins for implementation services and hardware service repair, partially offset by an increase in margin on our installation services.
Contract margin as a percentage of contract revenue for the year ended December 31, 2023, decreased to 6.4% compared to 8.1% for the year ended December 31, 2022. The decrease in contract margin was substantially driven by the Air Force Research Laboratory Counter-small Unmanned Aircraft System contract within the Government segment's ISR Solutions product line having a lower contracted margin than historical contracts.
Sales and Marketing Expenses ("S&M")
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Sales and marketing | $ | 38,513 | | | $ | 34,900 | | | $ | 24,166 | | | 9.3 | % | | 9.8 | % | | 8.5 | % | | 10.4 | % | | 44.4 | % |
For the Year Ended December 31, 2023 Compared to the Restaurant Magic Acquisition and Drive-Thru Acquisition,Year Ended December 31, 2022
S&M expenses were $38.5 million for the year ended December 31, 2023, an increase of $3.6 million or 10.4% compared to $34.9 million for the year ended December 31, 2022. The increase was substantially driven by a $2.5$1.9 million increase in stock-basedsales and incentivemarketing efforts for MENU driven by the year ended December 31, 2022 only
having approximately five months of post-acquisition MENU S&M expenses. The residual increase was 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.
General and Administrative Expenses ("G&A")
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| General and administrative | $ | 68,992 | | | $ | 66,319 | | | $ | 59,832 | | | 16.6 | % | | 18.6 | % | | 21.2 | % | | 4.0 | % | | 10.8 | % |
For the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
G&A expenses were $69.0 million for the year ended December 31, 2023, an increase of $2.7 million or 4.0% compared to $66.3 million for the year ended December 31, 2022. The increase was substantially driven by a $1.9$4.3 million increase in internal technology infrastructure costs.costs substantially driven by an increase in purchased services as we continue to support the growth of our business, partially offset by a $1.3 million decrease in employee benefit expenses.
Research and Development Expenses
| | Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| Year Ended
December 31, | | | Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 | in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Research and development | Research and development | $ | 34,579 | | | $ | 19,252 | | | $ | 13,372 | | | 12.2 | % | | 9.0 | % | | 7.1 | % | | 79.6 | % | | 44.0 | % | Research and development | $ | 58,356 | | | $ | | $ | 48,643 | | | $ | | $ | 34,579 | | | 14.0 | | 14.0 | % | | 13.7 | % | | 12.2 | % | | 20.0 | % | | 40.7 | % |
For the Year Ended December 31, 20212023 Compared to the Year Ended December 31, 20202022
R&D expenses were $34.6$58.4 million for the year ended December 31, 2021,2023, an increase of $9.7 million or 20.0% compared to $19.3$48.6 million for the year ended December 31, 2020,2022. The increase was substantially driven by an increase of $15.3 million or 79.6%. Primary drivers of the increase include $9.1 million forin R&D expense related to Punchh, $4.7our offerings for Guest Engagement of $9.4 million, relatedof which $6.2 million was driven by higher compensation costs associated with additional personnel as we continue to additional investments inimprove and diversify our existing software product development, and $1.5service offerings. The residual increase of $3.2 million for product management.
For the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
R&D expenses were $19.3 million forwas driven by the year ended December 31, 2020, compared to $13.4 million for the year ended December 31, 2019 an increase2022 only including approximately five months of 5.9 million or 44.0%. The increase was driven by a $4.3 million increase in Brink POS relatedpost-acquisition MENU R&D $1.9 million for Data Central software development investment, $1.1 million for hardware development and investment, partially offset by our divestiture of SureCheck in the fourth quarter of 2019.expenses.
Other Operating Expenses: Amortization of Intangible Assets / Contingent Consideration / Insurance Proceeds
| | Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| Year Ended
December 31, | | | Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 | in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Amortization of identifiable intangible assets | Amortization of identifiable intangible assets | $ | 1,825 | | | $ | 1,163 | | | $ | 156 | | | 0.6 | % | | 0.5 | % | | 0.1 | % | | 56.9 | % | | >200 % | Amortization of identifiable intangible assets | $ | 1,858 | | | $ | | $ | 1,863 | | | $ | | $ | 1,825 | | | 0.4 | | 0.4 | % | | 0.5 | % | | 0.6 | % | | (0.3) | % | | 2.1 | % |
| Adjustment to contingent consideration liability | Adjustment to contingent consideration liability | — | | | (3,340) | | | — | | | — | % | | (1.6) | % | | — | % | | (100.0) | % | | N/A | Adjustment to contingent consideration liability | (9,200) | | | (4,400) | | (4,400) | | | — | | — | | | (2.2) | | (2.2) | % | | (1.2) | % | | — | % | | 109.1 | % | | N/A |
| Gain on insurance proceeds | Gain on insurance proceeds | $ | (4,400) | | | $ | — | | | $ | — | | | (1.6) | % | | — | % | | — | % | | N/A | | N/A | Gain on insurance proceeds | $ | (500) | | | $ | | $ | — | | | $ | | $ | (4,400) | | | (0.1) | | (0.1) | % | | — | % | | (1.6) | % | | N/A | | (100.0) | % |
For the Year Ended December 31, 20212023 Compared to the Year Ended December 31, 20202022
During the year ended December 31, 2021, we recorded $1.8 millionAmortization of amortization expense associated with otheridentifiable intangible assets compared to $1.2was $1.9 million of amortization expense recorded during the year ended December 31, 2020. The increase was driven by intangible assets from the Punchh Acquisition.
Also included in operating expense for the year ended December 31, 20212023, which remained relatively unchanged as compared to $1.9 million for the year ended December 31, 2022.
Included in operating expenses for the year ended December 31, 2023 was a $9.2 million reduction to the fair value of the contingent consideration liability for certain post-closing revenue focused milestones from the acquisition of MENU Technologies A.G. (the "MENU Acquisition") compared to a $4.4 million gainreduction for the year
ended December 31, 2022.
Gain on insurance proceeds receivedwas $0.5 million for the year ended December 31, 2023, in connection with our settlement of a legacy claim. There was no comparable reduction to expensegain for the year ended December 31, 2020.2022.
Also included in operating expense for the year ended December 31, 2020 was a $3.3 million reduction to the fair value of certain post-closing revenue focused milestones from the Restaurant Magic Acquisition. There was no comparable reduction to expense for the year ended December 31, 2021.Other Expense, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Other expense, net | $ | (489) | | | $ | (1,224) | | | $ | (1,279) | | | (0.1) | % | | (0.3) | % | | (0.5) | % | | (60.0) | % | | (4.3) | % |
For the Year Ended December 31, 20202023 Compared to the Year Ended December 31, 2019
During the year ended December 31, 2020, we recorded $1.2 million of amortization expense associated with identifiable non-developed technology intangible assets acquired in the Drive-Thru Acquisition, Restaurant Magic Acquisition and our acquisition of Brink Software Inc. in 2014 (the “Brink Acquisition”) compared to $0.2 million of amortization expense recorded during the year ended December 31, 2019 in connection to the same acquisitions.
During the year ended December 31, 2020, we recorded a $3.3 million reversal of the contingent liability in connection with the Restaurant Magic Acquisition.2022
Other (Expense) Income, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Other (expense) income, net | $ | (1,279) | | | $ | 808 | | | $ | (449) | | | (0.5) | % | | 0.4 | % | | (0.2) | % | | <(200)% | | <(200)% |
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Other (expense) income,expense, net was ($1.3)$0.5 million for the year ended December 31, 2021,2023, an increase of $0.7 million as compared to $0.8$1.2 million for the year ended December 31, 2020.2022. Other (expense) income,expense, net primarilysubstantially includes rental income, net of applicable expenses, foreign currency transactions gains and losses and other non-operating income (expense). The change year-over-year is primarilywas substantially driven by sales and use tax expense and other miscellaneous expenses.
For the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019Loss on Extinguishment of Debt
Other income (expense), net, was $0.8 million for the year ended December 31, 2020, as compared to ($0.4) million for the year ended December 31, 2019. Other income (expense), net primarily includes rental income, net of applicable expenses, foreign currency transactions gains and losses and other non-operating income/expenses. The change year-over-year is primarily driven by foreign exchange movements.
Interest Expense, Net
| | Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| Year Ended
December 31, | | | Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 | in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Interest expense, net | $ | (18,147) | | | $ | (8,287) | | | $ | (4,571) | | | (6.4) | % | | (3.9) | % | | (2.4) | % | | 119.0 | % | | 81.3 | % |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | $ | (635) | | | $ | — | | | $ | (11,916) | | | (0.2) | % | | — | % | | (4.2) | % | | N/A | | (100.0) | % |
For the Year Ended December 31, 20212023 Compared to the Year Ended December 31, 20202022
Interest expense, netLoss on extinguishment of debt was $18.1$0.6 million for the year ended December 31, 2021, as compared2023, related to $8.3 millionthe induced conversion of the 4.500% Convertible Senior Notes due 2024 (the "2024 Notes"). There was no comparable loss for the year ended December 31, 2020. This increase was primarily driven by the payment of additional interest with respect to the Owl Rock Term Loan and the 2027 Notes. 2022.
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, 2021 compared with $4.4 million for the year ended December 31, 2020.Expense, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Interest expense, net | $ | (6,931) | | | $ | (8,811) | | | $ | (18,147) | | | (1.7) | % | | (2.5) | % | | (6.4) | % | | (21.3) | % | | (51.4) | % |
For the Year Ended December 31, 20202023 Compared to the Year Ended December 31, 20192022
Interest expense, net was $8.3$6.9 million for the year ended December 31, 2020,2023, a decrease of $1.9 million or 21.3% as compared to $4.6$8.8 million for the year ended December 31, 2019. This increase2022. The change was primarilysubstantially driven by interest related to ana $1.7 million increase in convertible debt as a result ofinterest revenue from our short-term investments during the issuance of the 2026 Notes net of the partial repurchase of the 2024 Notes in the first quarter of 2020. Interest expense, net includes $4.4 million of non-cash accretion of debt discount and amortization of issuance costs for 2020, compared to $2.5 million for 2019.year ended December 31, 2023.
Taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| (Provision for) benefit from income taxes | $ | (1,988) | | | $ | (1,252) | | | $ | 9,424 | | | (0.5) | % | | (0.4) | % | | 3.3 | % | | 58.8 | % | | (113.3) | % |
Loss on Extinguishment of Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Loss on extinguishment of debt | $ | (11,916) | | | $ | (8,123) | | | $ | — | | | (4.2) | % | | (3.8) | % | | — | % | | 46.7 | % | | N/A |
For the Year Ended December 31, 20212023 Compared to the Year Ended December 31, 20202022
Loss on extinguishmentThe provision for income taxes of debt was $11.9$2.0 million for the year ended December 31, 2021, related2023was substantially due to the repaymentforeign jurisdiction tax obligations. The provision income taxes of the Owl Rock Term Loan as compared to the loss on extinguishment of debt of $8.1 million related to the repurchase of the 2024 Notes for the year ended December 31, 2020.
For the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Loss on the extinguishment of debt was $8.1$1.3 million for the year ended December 31, 2020 related to the partial refinance of our 2024 Notes.2022
Taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | Increase (decrease) |
| in thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Benefit from income taxes | $ | 9,424 | | | $ | 2,986 | | | $ | 3,634 | | | 3.3 | % | | 1.4 | % | | 1.9 | % | | >200 % | | (17.8) | % |
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, 2021 was primarilysubstantially due to a reduction of the Company’s deferredforeign jurisdiction tax valuation allowance which resulted from the establishment of deferred tax liabilities related to the Punchh Acquisition. The net tax benefit of $3.0 million for the year ended December 31, 2020 was driven by the $3.3 million deferred tax benefit impact of the 2026 Notes issuance in February 2020.obligations.
Key Performance Indicators and Non-GAAP Financial Measures:
We monitor certain operating datakey performance indicators and non-GAAP financial measures in the evaluation and management of our business; certain key operating dataperformance indicators and non-GAAP financial measures are provided in this Annual Report asbecause we believe they are useful in facilitating period-to-period comparisons of our business performance. Operating dataKey performance indicators and non-GAAP financial measures do not reflect and should be viewed independently of our financial performance determined in accordance with GAAP. Operating dataKey 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.
Annual Recurring Revenue (“ARR”)Key Performance Indicators
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Increase (decrease) |
| In thousands | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Brink POS* | $ | 32,120 | | | $ | 24,705 | | | $ | 19,220 | | | 30.0 | % | | 28.5 | % |
| Data Central | 9,390 | | | 8,755 | | | — | | | 7.3 | % | | N/A |
| Punchh | 46,686 | | | — | | | — | | | N/A | | N/A |
| Total | $ | 88,196 | | | $ | 33,460 | | | $ | 19,220 | | | 163.6 | % | | 74.1 | % |
* Brink POS includes Par Payment ServicesWithin this Annual Report, the Company makes reference to annual recurring revenue, or 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 software as a service (“SaaS”)our subscription services, which includes subscription fees for our SaaS solutions, related support, and related revenue of our software products.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 also includes recurring payment processing servicesis an operating measure, it does not reflect our revenue netdetermined in accordance with GAAP, and ARR should be viewed independently of, expenses. We chargeand not combined with or substituted for, our revenue and other financial information determined in accordance with GAAP. Further, ARR is not a per-transaction fee each time a customer payment is processed electronically.
Active Sites
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Increase (decrease) |
| In thousands | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Brink POS* | 15,897 | | | 11,722 | | | 9,537 | | | 35.6 | % | | 22.9 | % |
| Data Central | 6,320 | | | 5,892 | | | — | | | 7.3 | % | | N/A |
| Punchh | 56,096 | | | — | | | — | | | N/A | | N/A |
* Brink POS includes Par Payment Servicesforecast 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 SaaS softwaresubscription services as of the last day of the respective reporting period.
Segment Revenue by Product Line as Percentage of TotalOur 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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | | | |
| | | Increase (decrease) |
| In thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Hardware | $ | 102,066 | | | $ | 72,029 | | | $ | 63,811 | | | 36.1 | % | | 33.7 | % | | 34.1 | % | | 41.7 | % | | 12.9 | % |
| Software | 57,854 | | | 26,384 | | | 16,820 | | | 20.5 | % | | 12.3 | % | | 9.0 | % | | 119.3 | % | | 56.9 | % |
| Services | 50,431 | | | 44,099 | | | 42,676 | | | 17.8 | % | | 20.6 | % | | 22.8 | % | | 14.4 | % | | 3.3 | % |
| Total Restaurant/Retail | $ | 210,351 | | | $ | 142,512 | | | $ | 123,307 | | | 74.4 | % | | 66.7 | % | | 65.9 | % | | 47.6 | % | | 15.6 | % |
| | | | | | | | | | | | | | | |
| ISR | 38,311 | | | 37,448 | | | 29,541 | | | 13.5 | % | | 17.5 | % | | 15.8 | % | | 2.3 | % | | 26.8 | % |
| Mission systems | 33,188 | | | 32,947 | | | 33,513 | | | 11.7 | % | | 15.4 | % | | 17.9 | % | | 0.7 | % | | (1.7) | % |
| Product services | 1,026 | | | 879 | | | 871 | | | 0.4 | % | | 0.4 | % | | 0.5 | % | | 16.7 | % | | 0.9 | % |
| Total Government | $ | 72,525 | | | $ | 71,274 | | | $ | 63,925 | | | 25.6 | % | | 33.3 | % | | 34.1 | % | | 1.8 | % | | 11.5 | % |
| | | | | | | | | | | | | | | |
| Total revenue | $ | 282,876 | | | $ | 213,786 | | | $ | 187,232 | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 32.3 | % | | 14.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Increase (decrease) |
| In thousands | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Guest Engagement* | $ | 63,784 | | | $ | 58,933 | | | $ | 46,686 | | | 8.2 | % | | 26.2 | % |
| Operator Solutions | 60,159 | | | 41,614 | | | 32,120 | | | 44.6 | % | | 29.6 | % |
| Back Office | 12,960 | | | 10,896 | | | 9,390 | | | 18.9 | % | | 16.0 | % |
| Total | $ | 136,903 | | | $ | 111,443 | | | $ | 88,196 | | | 22.8 | % | | 26.4 | % |
The above table*Guest Engagement ARR includes 2021 Punchh revenues of $23.9 million for software and $3.3 million for services within the Restaurant/Retail segment.
Recurring and Non-Recurring Revenue as Percentage of Total Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Percentage of total revenue | | | | |
| | | Increase (decrease) |
| In thousands | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 vs 2020 | | 2020 vs 2019 |
| Recurring revenue | $ | 88,937 | | | $ | 54,911 | | | $ | 42,809 | | | 31.4 | % | | 25.7 | % | | 22.9 | % | | 62.0 | % | | 28.3 | % |
| Non-recurring revenue | 121,414 | | | 87,601 | | | 80,498 | | | 42.9 | % | | 41.0 | % | | 43.0 | % | | 38.6 | % | | 8.8 | % |
| Total Restaurant/Retail | $ | 210,351 | | | $ | 142,512 | | | $ | 123,307 | | | 74.4 | % | | 66.7 | % | | 65.9 | % | | 47.6 | % | | 15.6 | % |
| | | | | | | | | | | | | | | |
| Total Government | $ | 72,525 | | | $ | 71,274 | | | $ | 63,925 | | | 25.6 | % | | 33.3 | % | | 34.1 | % | | 1.8 | % | | 11.5 | % |
| | | | | | | | | | | | | | | |
| Total revenue | $ | 282,876 | | | $ | 213,786 | | | $ | 187,232 | | | 100 | % | | 100 | % | | 100 | % | | 32.3 | % | | 14.2 | % |
The above table includes 2021 Punchh revenues of $26.3 million for recurring revenue and $0.9 million of non-recurring revenue within the Restaurant/Retail segment.
Recurring revenue represents all revenue from contracts where there is a predictable revenue pattern occurringMENU ARR only in regular intervals with a relatively high degree of probability. This includes SaaS, hardware and software maintenance, and payment processing revenue and excludes the results from Punchh for the years ended December 31, 20202023 and 2019, respectively.2022.
Adjusted EBITDA and Adjusted Net Loss/Adjusted Diluted Net Loss Per ShareActive Sites
We use | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Increase (decrease) |
| In thousands | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
| Guest Engagement* | 70.8 | | | 69.9 | | | 56.1 | | | 1.3 | % | | 24.6 | % |
| Operator Solutions | 23.3 | | | 19.5 | | | 15.9 | | | 19.5 | % | | 22.6 | % |
| Back Office | 7.7 | | | 7.0 | | | 6.3 | | | 10.0 | % | | 11.1 | % |
*Guest Engagement active sites includes MENU active sites only in the non-GAAP measures:years ended December 31, 2023 and 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 net of tax because we believe they provide useful informationwhich are non-GAAP financial measures. Adjusted subscription service gross margin represents subscription service gross margin adjusted to investors as an indicator of the strengthexclude amortization from acquired and performance of our ongoing business operations and relative comparisons to prior periods.
As used in this Annual Report,internally developed software. EBITDA represents net loss before income taxes, interest expense and depreciation and amortization;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; andperformance. Adjusted net loss/loss and adjusted diluted net loss per share represents net of tax represents the exclusion ofloss 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.
EBITDA,The Company is presenting adjusted subscription service gross margin, adjusted EBITDA, adjusted net loss, net of tax, and adjusted diluted net loss per share 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 taxoperations 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 also believes that adjusted EBITDA provides investors with insight into factors and trends that could affect the Company's 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 net 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 or liquidity under GAAP and should not be considered as alternatives to subscription service gross margin or net income (loss) or cash flow from operating activities as indicators of operating performance or liquidity. Also,performance. Additionally, these measures may not be comparable to similarly titled captions ofmeasures 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 of tax.loss per share and adjusted diluted net loss per share.
| | | | | | | | | | | | | | | | | |
| Year Ended
December 31, |
| 2021 | | 2020 | | 2019 |
| Reconciliation of EBITDA and adjusted EBITDA: | | | | | |
| Net loss | $ | (75,799) | | | $ | (36,562) | | | $ | (15,571) | |
| Benefit from income taxes | (9,424) | | | (2,986) | | | (3,634) | |
| Interest expense | 18,147 | | | 8,287 | | | 4,571 | |
| Depreciation and amortization | 21,421 | | | 10,097 | | | 4,726 | |
| EBITDA | $ | (45,655) | | | $ | (21,164) | | | $ | (9,908) | |
| Stock-based compensation expense (1) | 14,615 | | | 4,251 | | | 2,706 | |
| Regulatory matter (2) | 50 | | | 126 | | | 554 | |
| Contingent Consideration (3) | — | | | (3,340) | | | — | |
| Litigation expense (4) | 790 | | | — | | | — | |
| Acquisition costs (5) | 3,612 | | | — | | | 600 | |
| Gain on insurance proceeds (6) | (4,400) | | | — | | | — | |
| Severance (7) | — | | | 359 | | | 497 | |
| Loss on extinguishment of debt (8) | 11,916 | | | 8,123 | | | — | |
| SureCheck (9) | — | | | — | | | 1,284 | |
| Other expense – net (10) | 1,279 | | | (808) | | | 449 | |
| Adjusted EBITDA | $ | (17,793) | | | $ | (12,453) | | | $ | (3,818) | |
| | | | | | | | | | | | | | | | | |
| Year Ended
December 31, |
| in thousands | 2023 | | 2022 | | 2021 |
| Reconciliation of Net Loss to EBITDA and Adjusted EBITDA | | | | | |
| Net loss | $ | (69,752) | | | $ | (69,319) | | | $ | (75,799) | |
| Provision for (benefit from) income taxes | 1,988 | | | 1,252 | | | (9,424) | |
| Interest expense | 6,931 | | | 8,811 | | | 18,147 | |
| Depreciation and amortization | 27,481 | | | 26,095 | | | 21,421 | |
| EBITDA | $ | (33,352) | | | $ | (33,161) | | | $ | (45,655) | |
| Stock-based compensation expense (1) | 14,427 | | | 13,426 | | | 14,615 | |
| Regulatory matters (2) | — | | | 415 | | | 50 | |
| Contingent consideration (3) | (9,200) | | | (4,400) | | | — | |
| Litigation expense (4) | (808) | | | 525 | | | 790 | |
| Transaction costs (5) | 2,273 | | | 1,300 | | | 3,612 | |
| Gain on insurance proceeds (6) | (500) | | | — | | | (4,400) | |
| Severance (7) | 253 | | | 525 | | | — | |
| Loss on extinguishment of debt (8) | 635 | | | — | | | 11,916 | |
| Impairment loss (9) | — | | | 1,301 | | | — | |
| Other expense – net (10) | 489 | | | 1,224 | | | 1,279 | |
| Adjusted EBITDA | $ | (25,783) | | | $ | (18,845) | | | $ | (17,793) | |
| | | | | |
| 1 | Adjustments reflect total stock-based compensation expense within selling, general and administrative expenses and cost of contracts for the years ended December 31, 2023, 2022 and 2021 2020 and 2019 of $14.6$14.4 million, $4.3$13.4 million and $2.7$14.6 million, respectively. |
| 2 | Adjustment reflects thenon-recurring expenses related to our efforts to resolve a regulatory mattermatters of $0.4 million and other non-recurring charges of $0.1 million for both the years ended December 31, 2022 and 2021, and 2020, and $0.6 million for the year ended December 31, 2019.respectively. |
| 3 | Adjustment reflects the changeAdjustments reflect non-cash reductions to the fair market value of the contingent consideration liability of $9.2 million and $4.4 million related to the Restaurant Magic Acquisition.MENU Acquisition as of the years ended December 31, 2023 and 2022, respectively. |
| 4 | Adjustment reflects expenses accruedthe release of a loss contingency for a legal matter of $0.8 million for the year ended December 31, 2021 |
5 | Adjustment reflects the2023 and settlement expenses incurred in the acquisitionfor legal matters of Punchh of $3.6$0.5 million and Restaurant Magic of $0.6$0.8 million for the years ended December 31, 2022 and 2021, respectively. |
| 5 | Adjustment reflects non-recurring professional fees incurred in transaction due diligence of $2.3 million for the year ended December 31, 2023, and 2019,acquisition 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 $0.5 million and $4.4 million for the yearyears ended December 31, 2021.2023 and 2021, respectively. |
| 7 | Adjustment reflects the severance included in gross margin, selling, general and administrative expense and research and development expense of $0.4$0.3 million and $0.5 million for the years ended December 31, 20202023 and December 31, 2019,2022, respectively. |
| 8 | Adjustment reflects loss on extinguishment of debt of $0.6 million related to the induced conversion of the 2024 Notes during the year ended December 31, 2023, and $11.9 million related to the settlementrepayment of debt forthe 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, 2020.2021. |
| 9 | Adjustment reflects the non-cash expensesimpairment loss included in research and development expense related to the saleimpairment of SureCheck forinternally developed software costs not meeting the year ended December 31, 2019.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, |
| 2021 | | 2020 | | 2019 |
| Reconciliation of adjusted net loss/diluted loss per share: | | | | | | | | | | | |
| Net loss / diluted earnings per share | $ | (75,799) | | | $ | (3.02) | | | $ | (36,562) | | | $ | (1.92) | | | $ | (15,571) | | | $ | (0.96) | |
| Benefit from income taxes (1) | (10,417) | | | (0.42) | | | (3,265) | | | (0.17) | | | (4,065) | | | (0.25) | |
| Non-cash interest expense (2) | 8,727 | | | 0.35 | | | 4,355 | | | 0.23 | | | 2,528 | | | 0.16 | |
| Acquired intangible assets amortization (3) | 13,802 | | | 0.55 | | | 4,558 | | | 0.24 | | | 1,280 | | | 0.08 | |
| Stock-based compensation expense (4) | 14,615 | | | 0.58 | | | 4,251 | | | 0.22 | | | 2,706 | | | 0.17 | |
| Regulatory matter (5) | 50 | | | — | | | 126 | | | 0.01 | | | 554 | | | 0.03 | |
| Contingent Consideration (6) | — | | | — | | | (3,340) | | | (0.18) | | | — | | | — | |
| Pending litigation expense (7) | 790 | | | 0.03 | | | — | | | — | | | — | | | — | |
| Acquisition costs (8) | 3,612 | | | 0.14 | | | — | | | — | | | 600 | | | 0.04 | |
| Gain on insurance proceeds (9) | (4,400) | | | (0.18) | | | — | | | — | | | — | | | — | |
| Severance (10) | — | | | — | | | 359 | | | 0.02 | | | 497 | | | 0.03 | |
| Loss on extinguishment of debt (11) | 11,916 | | | 0.47 | | | 8,123 | | | 0.43 | | | — | | | — | |
| SureCheck (12) | — | | | — | | | — | | | — | | | 1,284 | | | 0.08 | |
| Other expense – net (13) | 1,279 | | | 0.05 | | | (808) | | | (0.04) | | | 449 | | | 0.03 | |
| Adjusted net loss/diluted loss per share | $ | (35,825) | | | $ | (1.43) | | | $ | (22,203) | | | $ | (1.17) | | | $ | (9,738) | | | $ | (0.60) | |
| | | | | | | | | | | |
| Weighted average common shares outstanding | 25,088 | | | | | 19,014 | | | | | 16,223 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| in thousands | 2023 | | 2022 | | 2021 |
| Reconciliation of Net Loss/Diluted Net Loss per share to Adjusted Net Loss/Adjusted Diluted Loss per Share: | | | | | | | | | | | |
| Net loss / diluted earnings per share | $ | (69,752) | | | $ | (2.53) | | | $ | (69,319) | | | $ | (2.55) | | | $ | (75,799) | | | $ | (3.02) | |
| Provision for (benefit from) income taxes (1) | — | | | — | | | — | | | — | | | (10,417) | | | (0.42) | |
| Non-cash interest expense (2) | 2,093 | | | 0.08 | | | 1,997 | | | 0.07 | | | 8,727 | | | 0.35 | |
| Acquired intangible assets amortization (3) | 18,074 | | | 0.66 | | | 17,111 | | | 0.63 | | | 13,802 | | | 0.55 | |
| Stock-based compensation expense (4) | 14,427 | | | 0.52 | | | 13,426 | | | 0.49 | | | 14,615 | | | 0.58 | |
| Regulatory matters (5) | — | | | — | | | 415 | | | 0.02 | | | 50 | | | — | |
| Contingent consideration (6) | (9,200) | | | (0.33) | | | (4,400) | | | (0.16) | | | — | | | — | |
| Litigation expense (7) | (808) | | | (0.03) | | | 525 | | | 0.02 | | | 790 | | | 0.03 | |
| Transaction costs (8) | 2,273 | | | 0.08 | | | 1,300 | | | 0.05 | | | 3,612 | | | 0.14 | |
| Gain on insurance proceeds (9) | (500) | | | (0.02) | | | — | | | — | | | (4,400) | | | (0.18) | |
| Severance (10) | 253 | | | 0.01 | | | 525 | | | 0.02 | | | — | | | — | |
| Loss on extinguishment of debt (11) | 635 | | | 0.02 | | | — | | | — | | | 11,916 | | | 0.47 | |
| Impairment loss (12) | — | | | — | | | 1,301 | | | 0.05 | | | — | | | — | |
| Other expense – net (13) | 489 | | | 0.02 | | | 1,224 | | | 0.05 | | | 1,279 | | | 0.05 | |
| Adjusted net loss/diluted loss per share | $ | (42,016) | | | $ | (1.52) | | | $ | (35,895) | | | $ | (1.32) | | | $ | (35,825) | | | $ | (1.43) | |
| | | | | | | | | | | |
| Weighted average common shares outstanding | 27,552 | | | | | 27,152 | | | | | 25,088 | | | |
| | | | | |
| 1 | Adjustment reflects a partial release of our deferred tax asset valuation allowance of $10.4 million related to the Punchh Acquisition; and a reduction to the benefit of income taxes of $3.3 millionAcquisition for the year ended December 31, 2020 related to the issuance of the 2.875% Convertible Senior Notes due 2026 and partial repurchase of the 4.500% Convertible Senior Notes due 2024.2021. 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 2024 Notes, Senior Notes, and the Owl Rock Term Loan of $8.7$2.1 million, $4.4$2.0 million, and $2.5$8.7 million for the years ended December 31, 2021, 2020,2023, 2022, and 2019,2021, respectively. |
| 3 | Adjustment reflects amortization expense of acquired developed technology within gross margincost of $12.0sales of $16.2 million, $3.5$15.2 million, and $1.1$12.0 million for the years ended December 31, 2021, 2020,2023, 2022, and 2019,2021, respectively; and amortization expense of acquired intangible assets of $1.8$1.9 million, $1.1$1.9 million, and $0.2$1.8 million for the years ended December 31, 2021, 2020,2023, 2022, and 2019,2021, respectively. |
| 4 | Adjustments reflect total stock-based compensation expense within selling, general and administrative expenses and cost of contracts for the years ended December 31, 2023, 2022 and 2021 2020 and 2019 of $14.6$14.4 million, $4.3$13.4 million and $2.7$14.6 million respectively. |
| 5 | Adjustment reflects thenon-recurring expenses related to our efforts to resolve a regulatory mattermatters of $0.4 million and other non-recurring charges of $0.1 million for both the years ended December 31, 2022 and 2021, and 2020, and $0.6 million for the year ended December 31, 2019.respectively. |
| 6 | Adjustment reflects the changeAdjustments reflect non-cash reductions to the fair market value of the contingent consideration liability of $9.2 million and $4.4 million related to the Restaurant Magic Acquisition.MENU Acquisition for the years ended December 31, 2023 and 2022, respectively. |
| 7 | Adjustment reflects expenses accruedthe release of a loss contingency for a legal matter of $0.8 million for the year ended December 31, 2021 |
8 | Adjustment reflects the2023 and settlement expenses incurred in the acquisitionfor legal matters of Punchh of $3.6$0.5 million and Restaurant Magic of $0.6$0.8 million for the years ended December 31, 2022 and 2021, respectively. |
| 8 | Adjustment reflects non-recurring professional fees incurred in transaction due diligence of $2.3 million for the year ended December 31, 2023 and 2019,acquisition 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 $0.5 million and $4.4 million for the yearyears ended December 31, 2021.2023 and 2021, respectively. |
| 10 | Adjustment reflects the severance included in gross margin, selling, general and administrative expense and research and development expense of $0.4$0.3 million and $0.5 million for the years ended December 31, 20202023 and December 31, 2019,2022, respectively. |
| 11 | Adjustment reflects loss on extinguishment of debt of $0.6 million related to the induced conversion of the 2024 Notes during the year ended December 31, 2023, and $11.9 million related to the settlementrepayment of debt forthe 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, 2020.2021. |
| 12 | Adjustment reflects the non-cash expensesimpairment loss included in research and development expense related to the saleimpairment of internally developed software costs not meeting the SureCheck forgeneral release threshold as a result of acquiring go-to-market software in the year ended December 31, 2019.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
In 2021, ourOur primary sourcesources of liquidity wasare cash provided by financing activities. and cash equivalents and short-term investments. As of December 31, 2023, we had cash and cash equivalents of $37.4 million and short-term investments of $37.2 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 $53.2$17.1 million for the year ended December 31, 2021,2023, compared to $20.2$43.1 million for the year ended December 31, 2020. The increase in cash2022. Cash used in operating activities for the year ended December 31, 2023, was substantially driven by an increase in pre-taxa net loss from operations of $69.8 million, net of non-cash charges and additionalof $32.5 million, partially off-set by a reduction in net working capital requirements primarily becausesubstantially driven by a decrease in inventory of an increase in$16.0 million, due to improved inventory management, and an increase in both other assetsaccounts payable of $6.3 million resulting from a growth in expenses and other current assets as a resulttiming of the Punchh Acquisition.payments.
Cash used in investing activities was $383.0$7.8 million for the year ended December 31, 2021, and $374.72023, compared to $66.7 million for the year ended December 31, 2022. Cash used in investing activities for the year ended December 31, 2023, included $1.9 million of cash consideration, in connection with the Punchh Acquisition (netnet of cash acquired), $6.9acquired, for the rights to ongoing payment facilitator referral commissions from a privately held restaurant technology company (the "Q4 2023 Acquisition") and capital expenditures of $5.5 million in capitalization offor internal use software and $5.3 million for developed technology costs associated with our Restaurant/Retail segment software platforms, and $1.4partially off-set by $5.0 million in capital expenditures. of proceeds from net sales of short-term held-to-maturity securities.
Cash used in investingfinancing activities was $9.0$1.6 million for the year ended December 31, 2020 driven by $7.9 million in capitalization of developed technology costs associated with our Restaurant/Retail segment software platforms and $1.3 million in capital expenditures.
Cash2023, compared to cash provided by financing activities was $443.6of $2.6 million for the year ended December 31, 2021. On April 8, 2021, we received net proceeds of $155.7 million from the private placement of common stock to PAR Act III, LLC and certain funds and accounts advised by T. Rowe Price Associates, Inc.,2022. Cash used in addition to net proceeds of $170.7 million from the Owl Rock Term Loan. On September 17, 2021, we received net proceeds of $256.8 million from the sale of 2027 Notes and $52.5 million from the sale of common stock. We used $183.6 million of the proceeds to repay the Owl Rock Term Loan in full. Cash provided by financing activities was $180.7 million for the year ended December 31, 2020, primarily consisting of $131.4 million of net proceeds from the sale of common2023, was substantially driven by stock on October 5, 2020 and net proceeds of $49.5 million from the sale of $120.0 million of 2026 Notes offset by the repurchase of a majority of the 2024 Notes.based compensation related transactions. We do not have any off-balance sheet arrangements or obligations.
We expect our currentavailable cash and cash equivalents will be sufficient to meet our operating needs for at least the next 12 months. Over the next 12 months our total contractual obligations are $35.9 million, consisting of purchase commitments are $50.8 million including $28.1 million for normal operations (purchase of inventory, software licensing, and use of external labor), $11.6 million forlabor, and third-party cloud services, debtservices) of $27.1 million, interest payments of $8.7$7.4 million related to the Senior Notes, and facility leases of $2.4$1.4 million. We expect to fund such commitments with cash provided by operating activities and our sources of liquidity.
We expect ourOur non-current contractual obligations are $414.2 million, consisting of purchase commitments for normal operations (purchase of inventory, software licensing, use of external labor, and third-party cloud services) of $10.5 million, interest payments of $15.7 million and principal payments of $385.0 million related to include the normal operational expenses indicated above as well as the paymentsSenior Notes, and facility leases of $3.0 million. Refer to service our Senior Notes. See “Note 89 – Debt” of the notes to consolidated financial statements (Partin "Part II, Item 88. Financial Statements and Supplementary Data" of this Report)Annual Report for details.
Our actual cash needs will depend on many factors, including our rate of revenue and ARR growth, the timing and rateextent of revenue growth, includingspending to support our product development and corporate development efforts, the growthtiming of SaaS revenues,introductions of new products and enhancements to existing products, market acceptance of our products, and the timingfactors described above in this Part II, Item 7. "Management's Discussion and necessary capital requirements to financeAnalysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report and our development efforts, planned introduction of new and enhanced products and services, or acquisitions of complementary businesses, technologies, products, or services.other filings with the SEC.
From time to time, we may seek to raise additional capital through equity, equity-linked, and debt financing arrangements. In addition, our board of directors and management regularly evaluate our business, strategy, and financial plans and prospects. As part of this evaluation, the board of directors and management periodically consider strategic alternatives to maximize value for our shareholders, including strategic transactions such as an acquisition, or a sale or spin-off of non-strategic company assets or businesses, including a sale of PAR Government Systems Corporation and/or one or more of its subsidiaries. We cannot provide assurance that any additional financing or strategic alternatives will be available to us on acceptable terms or at all.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are based on the application of accounting principles generally accepted in the United States of America. GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. Valuations based on estimates are reviewed for reasonableness and adequacy on a consistent basis. Significant items subject to 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 outstanding convertible notes, valuation allowances for receivables, valuation of excess and obsolete inventories, and measurement of contingent consideration at fair value. Actual results could differ from these estimates. Our estimates are subject to uncertainties, including those associated with market conditions, risks and trendstrends. Refer to "Item 1A. Risk Factors" of this Annual Report for additional information. Refer to "Note 1 - Summary of Significant Accounting Policies" for additional information regarding our accounting policies and the ongoing COVID-19 pandemic.
Convertible Senior Notes
In accounting for the issuance of our Notes, we separated each series of Notes into liability (debt) and equity components of the instrument. The carrying amount of the debt component was calculatedother disclosures required by estimating the fair value of similar liabilities 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 debt component from the principal amount. The difference between the principal amount of each series of our Notes and its respective fair value of the debt component are amortized to interest expense over its respective term using the effective interest method. The equity component, net of issuance costs and deferred tax effects, of each series of our Notes is presented within additional paid-in-capital, and will not be remeasured as long as it continues to meet the requirements for equity classification. These assumptions involve inherent uncertainties and management judgment. In accounting for the issuance costs related to our Notes, the allocation of issuance costs incurred between the debt and equity components was based on their relative values.GAAP.
Revenue Recognition Policy
Restaurant/Retail
OurThe Company's revenue in the Restaurant/Retail segment is derived from SaaS,three types of revenue: hardware and software sales, software activation, hardware support, installations, maintenancesubscription services, and professional services. Accounting Standards Codification (“ASC”)ASC Topic 606,: Revenue from Contracts with Customers requires usthe 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.
We The Company evaluated the potential performance obligations within ourits Restaurant/Retail segment and evaluated whether each performance obligation met the ASC Topic 606 criteria to be considered a distinct performance obligations. Revenue in the Restaurant/Retail segment is recognized at a point in time for licensed software, hardware and installations. Revenue on these items are recognized when the customer obtains control of the asset. This generally occurs upon delivery and acceptance by the customer or upon installation or delivery to a third-party carrier for onward delivery to customer. Additionally, revenue in the Restaurant/Retail segment relating to SaaS, Advanced Exchange programs, on-site support and other services is recognized over time as the customer simultaneously receives and consumes the benefits of our performance obligations. Our support services are stand-ready obligations that are provided over the life of the contract, generally 12 months. We offer installation services to our customers for hardware and software for which we primarily hire third-party contractors to install the equipment on our behalf. We pay the third-party contractors an installation service fee based on an hourly rate as agreed upon between us and contractor. When third-party installers are used, we determine whether the nature of our performance obligations is to provide the specified goods or services ourselves (principal) or to arrange for the third-party to provide the goods or services (agent). In our customer arrangements, we are primarily responsible for providing a good or service, we have inventory risk before the good or service is transferred to the customer, and we have discretion in establishing prices. As a result, we have concluded we are the principal in the arrangement and record installation revenue on a gross basis.obligation.
The support services associated with hardware and software sales are a “stand-ready obligation” satisfied over time on the basis that customer consumes and receives a benefit from having access to our support resources, when and as needed, throughout the contract term. For this reason, the support services areAmounts invoiced in excess of revenue recognized ratably over the term since we satisfy our obligation to stand ready by performing these services each day.
Our contractsrepresent deferred revenue. Contracts typically require payment within 30 to 90 days from the shipping date or installation date, depending on ourthe Company's terms with the customer. The primary method used to estimate a stand-alone selling price, is the price that we chargethe Company charges for thatthe particular good or service when we sell itsold by the Company separately under similar circumstances to similar customers. We determineThe Company determines stand-alone selling price as follows: Hardware, software,prices for hardware and software activation (one-time fee at the initial offering of software or SaaS) performance obligations are recognized at a stand-alone selling pricesubscription services based on the price at which we sellthe Company sells the particular good or service separately in similar circumstances and to similar customers. The Company determines stand-alone selling priceprices for all other performance obligations, including pass-through hardware (such as terminals, printers, or card readers), hardware support (referred to as Advanced Exchange), installation, maintenance, software upgrades, and professional services (project management) is recognized 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 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 include 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 include 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 it 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 our 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 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 our customers.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 ourthe 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, we estimatethe Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete the contract, and recognizerecognizes 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, we evaluatethe 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, we analyzethe Company analyzes whether ourits performance obligations under Government contracts are satisfied over a period of time or at a point in time. In general, our
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, 2023 or December 31, 2022 contained a significant financing component.
Inventories
Inventory isThe Company’s inventories are valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. We useThe 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.
Capitalized Software Development Costs
We capitalize certain costs related to the development of our platform and other software applications for internal use in accordance with ASC Topic 350-40, 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 estimated useful life of the related asset, generally estimated to be three to five years. We 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 expensed as incurred and recorded within research and development expenses in our consolidated statements of operations.
We exercise 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 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 periodsperiods.
Accounting for Business Combinations
We account for acquired businesses using 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 it 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.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. It is not deductible for income tax purposes. Goodwill is not amortized, but is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. Our impairment tests are based on reportable operating segments and the identified reporting units within those operating segments used in the test for goodwill impairment. If the carrying value of either reporting unit exceeds its fair value, an impairment charge is recognized for the excess of the carrying value of the reporting unit over its fair value.
Fair values of the reporting units are estimated using a weighted methodology considering the output from both the income and market approaches. The income approach incorporates the use of a DCF analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash
flows, including revenue growth, operating income margin and discount rate. These assumptions vary between the
reporting units. The market approach incorporates the use of the quoted price and 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 2021 and determined that the fair value for each of the reporting units significantly exceeded its respective carrying value. As such, goodwill was not impaired. No 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 reporting unit impairment as of October 1, 2021.2023. The excess of the estimated fair value over the carrying value (expressed as a percentage of carrying value) was in excess of its carrying value of $622$655 million by approximately 175%37% as of September 30, 2021.October 1, 2023.
In deriving our fair value estimates, we use key assumptions built on the current product portfolio mix adjusted to reflect continued revenue increases from our software products.subscription services.
We use total annual revenue growth rates for the reporting unit ranging between 3.0%8% and 56.3%.18% for the years 2024 through 2033. The high-end growth rate reflects our projected revenues from anticipated increases in installationsactive sites of our software platformssubscription services at new and existing 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, 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 3.0%3%.
We use gross margin estimates that are reflective of expected increased recurring SaaSsubscription service revenue from that is expected to exceed historical gross margins. Estimates of operating expenses, working capital requirements and depreciation and amortization expense used for the Restaurant/Retail reporting unit are generally consistent with actual historical amounts, adjusted to reflect our 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 use a discount rate of approximately 13.5%13% 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 our 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 it serves, continued volatility in these markets could have an impact on purchases of our products, which could result in a reduction in 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.
We reconciled the aggregate estimated fair value of the reporting units to our market capitalization noting no goodwill impairment as ofwas recorded during the years ended December 31, 20212023 or December 31, 2020 was recorded.
Deferred Taxes
Deferred tax assets are reviewed quarterly for recoverability and valued accordingly. The deferred tax assets are subject to a full valuation allowance. 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.
Recent Accounting Pronouncements Not Yet Adopted
SeeRefer to “Note 1 – Summary of Significant Accounting Policies” of the notes to consolidated financial statements (Partin "Part II, Item 88. Financial Statements and Supplementary Data" of this Report)Annual Report for details.
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, Asia, and Asia.Australia. These primary currencies are the Great British Pound, the Euro, the Swiss Franc, the Serbian Dinar, the Australian dollar, the Singapore dollar, the Canadian dollar, the Indian Rupee and the Chinese Renminbi. Accordingly, changes in exchange rates may negatively affect our revenue and net income (loss) as expressed in U.S. dollars. We also have foreign currency risk related to foreign currency transactions and monetary assets and liabilities, including intercompany balances denominated in currencies that are not the functional currency. We have experienced and will continue to experience fluctuations in our net income (loss) as a result of gains (losses) on these foreign currency transactions and the remeasurement of monetary assets and liabilities. As of December 31, 2021,2023, the impact of foreign currency exchange rate changes on our revenues and net income (loss) havewas not been material. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy.
Interest Rate Risk
As of December 31, 2021,2023, we had $398.8$120.0 million, and $265.0 million in aggregate principal amount of Senioroutstanding on the 2026 Notes outstanding.and the 2027 Notes, respectively.
We carry the Senior Notes at face value less amortized discountdebt issuance costs on the on the consolidated balance sheets. Since the Senior Notes bear interest at fixed rates, we have 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of PAR Technology Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PAR Technology Corporation and subsidiaries (the "Company") as of December 31, 20212023 and 2020,2022, the related consolidated statements of operations, comprehensive loss, changes in shareholders' equity, and cash flows, for each of the twothree years in the period ended December 31, 2021,2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20212023 and 20202022 and the results of its operations and its cash flows for the each of the twothree years in the period ended December 31, 2021,2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2022,February 27, 2024, expressed an adverseunqualified opinion on the Company's internal control over financial reporting because of material weaknesses.reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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 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 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis 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) relaterelates 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 matters 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 mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.
Debt— Convertible Senior Notes due 2027—Acquisition — MENU Technologies AG —Contingent Consideration — Refer to Note 8Notes 2 and 15 to the consolidated financial statements
Critical Audit Matter Description
On September 17, 2021,The Company completed the Company sold $265.0M aggregate principle amountacquisition of 1.50% Convertible Senior Notes due 2027 (the “2027 Notes”). In accountingMENU Technologies AG for $38.9 million on July 25, 2022, which included contingent consideration related to a potential earn-out provision. The purchase price was allocated to the issuance of the 2027 Notes, management allocated the total proceeds into liabilityassets acquired and equity components. The carrying amount of the liability component was calculated by estimatingliabilities assumed based on their preliminary determined respective fair values, including the fair value of similar notes that do not have associated convertible features. The carrying amountcontingent consideration for the earn-out liability of $14.2 million. As of December 31, 2023, the equity component, representing the conversion option, wasCompany determined by deducting the fair value of the liability component fromMENU earn-out to be $0.6M.
The Company determined the principal amountacquisition date fair value of contingent consideration associated with the 2027 Notes. TheMENU Acquisition using Monte-Carlo simulation valuation modeltechniques. Furthermore, the significant inputs used in determiningestablishing the fair value include revenue 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 liability componentcontingent consideration for the 2027 Notes includes inputs, such as the implied debt yield within the nonconvertible borrowing rate.MENU Technologies AG acquisition is considered complex and requires significant management judgment.
Given the inherent complexity and significant judgments made by management in determining the implied debt yield within the nonconvertible borrowing rate, the related audit effort required a higher degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the implied debt yield input to the nonconvertible borrowing rate included the following, among others:
•Testing the source information underlying the determination of the nonconvertible borrowing rate.
•With the assistance of our fair value specialists, we developed independent estimates of the implied debt yield input to the nonconvertible borrowingrevenue volatility, discount rate, and compared our estimatesprojected year of payments used by management to the Company’s estimates.
Acquisition — Punchh, Inc. — Developed Technology Intangible Asset — Refer to Notes 1 and 2 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of Punchh, Inc. for $507.7 million on April 8, 2021. 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 respective fair values, including the developed technology intangible asset of $84.6 million. Management estimatedestimate the fair value of the developed technology intangible asset using the multi-period excess earnings method, which is predicated upon the calculationcontingent consideration as of the net present value of after-tax net cash flows attributable to the intangible asset. The fair value determination of the developed technology intangible asset required management to make significant estimates and assumptions related to the valuation method, forecasts of future EBITDA margin, and the selection of the discount rate.
Given the fair value determination of the developed technology intangible asset requires management to use judgment in the selection of the valuation method, as well as make significant estimates and assumptions related to the forecasts of future EBITDA margin, and the selection of the discount rate, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation method, forecasts of future EBITDA margin and the selection of the discount rate for the developed technology intangible assetsDecember 31, 2023 included the following, among others:
•We comparedtested the effectiveness of controls over the valuation of the contingent consideration, including management’s controls over revenue volatility, discount rate, and projected year of payments.
•We evaluated management's ability to accurately forecast future revenues through independent analysis including a comparison of actual results to management's historical forecasts.
•We evaluated the reasonableness of management’s revenue forecasts of future EBITDA marginby comparing forecasts to historical performance of the acquired business, to historical performancerevenues and future projected performance of other guideline companiesforecasted information included within the same industry, and to historical performance and future projected performance of overall industry trends.Company press releases.
•With the assistance of our fair value specialists, we evaluated the reasonableness of (1) the (1) valuation methodology and (2) the valuation assumptions, such as the revenue volatility, discount rate, and projected year of payments by:
◦Testing the source information underlying the determination of the revenue and discount raterates and testing the mathematical accuracy of the calculation.
◦Developingcalculations; and developing a range of independent estimates and comparing those to the discount ratethose selected by management.
◦Agreeing of the projected year of payments to underlying source documentation
/s/ Deloitte & Touche LLP
Rochester, New York
March 1, 2022February 27, 2024
We have served as the Company’sCompany's auditor since 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
PAR Technology Corporation
New Hartford, New York
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”) of PAR Technology Corporation (the “Company”) and subsidiaries. In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows for period ended December 31, 2019 of the Company and subsidiaries, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 4 to the consolidated financial statements, effective on January 1, 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“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.
/s/ BDO USA, LLP
We served as the Company's auditor from 2012 to 2020.
New York, New York
March 16, 2020
PAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| | | | | | | | | | | | |
| | December 31, |
| Assets | | 2021 | | 2020 |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 188,419 | | | $ | 180,686 | |
| Accounts receivable, net | | 49,978 | | | 42,980 | |
| Inventories, net | | 35,078 | | | 21,638 | |
| Other current assets | | 9,532 | | | 3,625 | |
| Total current assets | | 283,007 | | | 248,929 | |
| Property, plant and equipment, net | | 13,709 | | | 13,856 | |
| Goodwill | | 457,306 | | | 41,214 | |
| Intangible assets, net | | 118,763 | | | 33,121 | |
| Lease right-of-use assets | | 4,348 | | | 2,569 | |
| Other assets | | 11,016 | | | 4,060 | |
| Total assets | | $ | 888,149 | | | $ | 343,749 | |
| Liabilities and Stockholders’ Equity | | | | |
| Current liabilities: | | | | |
| Current portion of long-term debt | | $ | 705 | | | $ | 666 | |
| Accounts payable | | 20,845 | | | 12,791 | |
| Accrued salaries and benefits | | 17,265 | | | 13,190 | |
| Accrued expenses | | 5,042 | | | 2,606 | |
| Lease liabilities – current portion | | 2,266 | | | 1,200 | |
| Customer deposits and deferred service revenue | | 14,394 | | | 9,506 | |
| Total current liabilities | | 60,517 | | | 39,959 | |
| Lease liabilities, net of current portion | | 2,440 | | | 1,462 | |
| Long-term debt | | 305,845 | | | 105,844 | |
| Deferred service revenue – noncurrent | | 7,597 | | | 3,082 | |
| Other long-term liabilities | | 7,405 | | | 4,997 | |
| Total liabilities | | 383,804 | | | 155,344 | |
| Commitments and contingencies (Note 13) | | 0 | | 0 |
| Stockholders’ equity: | | | | |
| Preferred stock, $.02 par value, 1,000,000 shares authorized, none outstanding | | — | | | — | |
| Common stock, $.02 par value, 58,000,000 shares authorized; 28,094,333 and 22,982,955 shares issued, 26,924,397 and 21,917,357 outstanding at December 31, 2021 and December 31, 2020, respectively | | 562 | | | 459 | |
| Additional paid in capital | | 640,937 | | | 243,575 | |
| Accumulated deficit | | (122,505) | | | (46,706) | |
| Accumulated other comprehensive loss | | (3,704) | | | (3,936) | |
| Treasury stock, at cost, 1,181,449 and 1,065,598 shares at December 31, 2021 and December 31, 2020, respectively | | (10,945) | | | (4,987) | |
| Total stockholders’ equity | | 504,345 | | | 188,405 | |
| Total Liabilities and Stockholders’ Equity | | $ | 888,149 | | | $ | 343,749 | |
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenues, net: | | | | | |
| Product | $ | 105,014 | | | $ | 73,228 | | | $ | 66,329 | |
| Service | 105,337 | | | 69,284 | | | 56,978 | |
| Contract | 72,525 | | | 71,274 | | | 63,925 | |
| Total revenues, net | 282,876 | | | 213,786 | | | 187,232 | |
| Costs of sales: | | | | | |
| Product | 80,841 | | | 58,887 | | | 51,189 | |
| Service | 73,226 | | | 49,933 | | | 40,389 | |
| Contract | 66,688 | | | 65,641 | | | 58,243 | |
| Total cost of sales | 220,755 | | | 174,461 | | | 149,821 | |
| Gross margin | 62,121 | | | 39,325 | | | 37,411 | |
| Operating expenses: | | | | | |
| Selling, general and administrative | 83,998 | | | 46,196 | | | 38,068 | |
| Research and development | 34,579 | | | 19,252 | | | 13,372 | |
| Amortization of identifiable intangible assets | 1,825 | | | 1,163 | | | 156 | |
| Adjustment to contingent consideration liability | — | | | (3,340) | | | — | |
| Gain on insurance proceeds | (4,400) | | | — | | | — | |
| Total operating expenses | 116,002 | | | 63,271 | | | 51,596 | |
| Operating loss | (53,881) | | | (23,946) | | | (14,185) | |
| Other (expense) income, net | (1,279) | | | 808 | | | (449) | |
| Loss on extinguishment of debt | (11,916) | | | (8,123) | | | — | |
| Interest expense, net | (18,147) | | | (8,287) | | | (4,571) | |
| Loss before benefit from income taxes | (85,223) | | | (39,548) | | | (19,205) | |
| Benefit from income taxes | 9,424 | | | 2,986 | | | 3,634 | |
| Net loss | $ | (75,799) | | | $ | (36,562) | | | $ | (15,571) | |
| Net loss per share (basic and diluted) | $ | (3.02) | | | $ | (1.92) | | | $ | (0.96) | |
| Weighted average shares outstanding (basic and diluted) | 25,088 | | | 19,014 | | | 16,223 | |
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net loss | $ | (75,799) | | | $ | (36,562) | | | $ | (15,571) | |
| Other comprehensive loss, net of applicable tax: | | | | | |
| Foreign currency translation adjustments | 232 | | | 1,432 | | | (1,115) | |
| Comprehensive loss | $ | (75,567) | | | $ | (35,130) | | | $ | (16,686) | |
| | | | | | | | | | | | |
| | December 31, |
| Assets | | 2023 | | 2022 |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 37,369 | | | $ | 70,328 | |
| Cash held on behalf of customers | | 10,170 | | | 7,205 | |
| Short-term investments | | 37,194 | | | 40,290 | |
| Accounts receivable – net | | 63,382 | | | 59,960 | |
| Inventories | | 23,594 | | | 37,594 | |
| Other current assets | | 8,890 | | | 8,572 | |
| Total current assets | | 180,599 | | | 223,949 | |
| Property, plant and equipment – net | | 15,755 | | | 12,961 | |
| Goodwill | | 489,654 | | | 486,762 | |
| Intangible assets – net | | 94,852 | | | 111,097 | |
| Lease right-of-use assets | | 4,083 | | | 4,061 | |
| Other assets | | 17,663 | | | 16,028 | |
| Total Assets | | $ | 802,606 | | | $ | 854,858 | |
| | | | |
| Liabilities and Shareholders’ Equity | | | | |
| Current liabilities: | | | | |
| | | | |
| Accounts payable | | $ | 29,808 | | | $ | 23,283 | |
| Accrued salaries and benefits | | 19,141 | | | 18,936 | |
| Accrued expenses | | 10,443 | | | 6,531 | |
| Customers payable | | 10,170 | | | 7,205 | |
| Lease liabilities – current portion | | 1,366 | | | 1,307 | |
| Customer deposits and deferred service revenue | | 9,304 | | | 10,562 | |
| Total current liabilities | | 80,232 | | | 67,824 | |
| Lease liabilities – net of current portion | | 2,819 | | | 2,868 | |
| Long-term debt | | 377,647 | | | 389,192 | |
| Deferred service revenue – noncurrent | | 4,204 | | | 5,125 | |
| Other long-term liabilities | | 4,639 | | | 14,655 | |
| Total liabilities | | 469,541 | | | 479,664 | |
| Shareholders’ equity: | | | | |
| Preferred stock, $.02 par value, 1,000,000 shares authorized, none outstanding | | — | | | — | |
| Common stock, $.02 par value, 58,000,000 shares authorized; 29,386,234 and 28,589,567 shares issued, 28,029,915 and 27,319,045 outstanding at December 31, 2023 and December 31, 2022, respectively | | 584 | | | 570 | |
| Additional paid in capital | | 625,154 | | | 595,286 | |
| Accumulated deficit | | (274,956) | | | (205,204) | |
| Accumulated other comprehensive loss | | (939) | | | (1,365) | |
| Treasury stock, at cost, 1,356,319 and 1,270,522 shares at December 31, 2023 and December 31, 2022, respectively | | (16,778) | | | (14,093) | |
| Total shareholders’ equity | | 333,065 | | | 375,194 | |
| Total Liabilities and Shareholders’ Equity | | $ | 802,606 | | | $ | 854,858 | |
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Revenues, net: | | | | | |
| Hardware | $ | 103,391 | | | $ | 114,410 | | | $ | 105,014 | |
| Subscription service | 122,597 | | | 97,499 | | | 62,649 | |
| Professional service | 50,726 | | | 50,438 | | | 42,688 | |
| Contract | 139,109 | | | 93,448 | | | 72,525 | |
| Total revenues, net | 415,823 | | | 355,795 | | | 282,876 | |
| Costs of sales: | | | | | |
| Hardware | 80,319 | | | 92,224 | | | 80,841 | |
| Subscription service | 63,735 | | | 47,424 | | | 38,651 | |
| Professional service | 43,214 | | | 40,982 | | | 34,575 | |
| Contract | 130,245 | | | 85,872 | | | 66,688 | |
| Total cost of sales | 317,513 | | | 266,502 | | | 220,755 | |
| Gross margin | 98,310 | | | 89,293 | | | 62,121 | |
| Operating expenses: | | | | | |
| Sales and marketing | 38,513 | | | 34,900 | | | 24,166 | |
| General and administrative | 68,992 | | | 66,319 | | | 59,832 | |
| Research and development | 58,356 | | | 48,643 | | | 34,579 | |
| Amortization of identifiable intangible assets | 1,858 | | | 1,863 | | | 1,825 | |
| Adjustment to contingent consideration liability | (9,200) | | | (4,400) | | | — | |
| Gain on insurance proceeds | (500) | | | — | | | (4,400) | |
| Total operating expenses | 158,019 | | | 147,325 | | | 116,002 | |
| Operating loss | (59,709) | | | (58,032) | | | (53,881) | |
| Other expense, net | (489) | | | (1,224) | | | (1,279) | |
| Loss on extinguishment of debt | (635) | | | — | | | (11,916) | |
| Interest expense, net | (6,931) | | | (8,811) | | | (18,147) | |
| Loss before (provision for) benefit from income taxes | (67,764) | | | (68,067) | | | (85,223) | |
| (Provision for) benefit from income taxes | (1,988) | | | (1,252) | | | 9,424 | |
| Net loss | $ | (69,752) | | | $ | (69,319) | | | $ | (75,799) | |
| Net loss per share (basic and diluted) | $ | (2.53) | | | $ | (2.55) | | | $ | (3.02) | |
| Weighted average shares outstanding (basic and diluted) | 27,552 | | | 27,152 | | | 25,088 | |
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net loss | $ | (69,752) | | | $ | (69,319) | | | $ | (75,799) | |
| Other comprehensive loss, net of applicable tax: | | | | | |
| Foreign currency translation adjustments | 426 | | | 2,339 | | | 232 | |
| Comprehensive loss | $ | (69,326) | | | $ | (66,980) | | | $ | (75,567) | |
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’SHAREHOLDERS’ EQUITY
(in thousands)
| | (in thousands) | Common Stock | | Capital in
Excess of
Par Value | | (Accumulated Deficit) Retained
Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total
Stockholders’
Equity |
| Shares | | Amount | | Shares | | Amount | |
| Balances at January 1, 2019 | 17,879 | | | $ | 357 | | | $ | 50,251 | | | $ | 5,427 | | | $ | (4,253) | | | (1,708) | | | $ | (5,836) | | | $ | 45,946 | |
| Issuance of common stock upon the exercise of stock options | 256 | | | 5 | | | 1,428 | | | — | | | — | | | — | | | — | | | 1,433 | |
| Net issuance of restricted stock awards | 225 | | | 5 | | | (5) | | | — | | | — | | | — | | | — | | | — | |
| Treasury stock acquired from employees upon exercise of stock options | — | | | — | | | — | | | — | | | — | | | (23) | | | (544) | | | (544) | |
| Stock-based compensation | — | | | — | | | 2,706 | | | — | | | — | | | — | | | — | | | 2,706 | |
| Acquisition consideration | — | | | — | | | 27,527 | | | — | | | — | | | — | | | — | | | 27,527 | |
| Equity component of issued 2024 convertible notes (net of deferred taxes of $4.1 million) | — | | | — | | | 12,465 | | | — | | | — | | | — | | | — | | | 12,465 | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | (1,115) | | | — | | | — | | | (1,115) | |
| Net loss | — | | | — | | | — | | | (15,571) | | | — | | | — | | | — | | | (15,571) | |
| 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 | 47 | | | 1 | | | 674 | | | — | | | — | | | — | | | — | | | 675 | |
| Net issuance of restricted stock awards | 29 | | | 1 | | | 834 | | | — | | | — | | | — | | | — | | | 835 | |
| Net issuance of restricted stock units | 23 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of restricted stock for acquisition | 908 | | | 18 | | | — | | | — | | | — | | | — | | | — | | | 18 | |
| Stock-based compensation | — | | | — | | | 4,251 | | | — | | | — | | | — | | | — | | | 4,251 | |
| 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) | — | | | — | | | (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) | — | | | — | | | 19,060 | | | — | | | — | | | — | | | — | | | 19,060 | |
| Proceeds from public share offering, net of issuance costs of $6.0 million) | 3,616 | | | 72 | | | 131,335 | | | — | | | — | | | — | | | — | | | 131,407 | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | 1,432 | | | — | | | — | | | 1,432 | |
| Net loss | — | | | — | | | — | | | (36,562) | | | — | | | — | | | — | | | (36,562) | |
| Common Stock | | | Common Stock | | Capital in
Excess of
Par Value | | (Accumulated Deficit) Retained
Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total
Shareholders’
Equity |
| | Balances at December 31, 2020 | |
| | Balances at December 31, 2020 | |
| | 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 | Issuance of common stock upon the exercise of stock options | 105 | | | 2 | | | 1,154 | | | — | | | — | | | — | | | — | | | 1,156 | |
| 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 | Net issuance of restricted stock awards | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 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 | Foreign currency translation adjustments | — | | | — | | | — | | | — | | | 232 | | | — | | | — | | | 232 | |
| 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") | |
| Balances at January 1, 2022 | |
| Issuance of common stock upon the exercise of stock options | |
| Net issuance of restricted stock awards and restricted stock units | |
| Issuance of common stock for acquisition | |
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | |
| Stock-based compensation | |
| Foreign currency translation adjustments | |
| Net loss | |
| Balances at December 31, 2022 | |
| Issuance of common stock upon the exercise of stock options | |
| Net issuance of restricted stock awards and restricted stock units | |
| Issuance of common stock for conversion of 2024 Notes | |
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | |
| Stock-based compensation | |
| Foreign currency translation adjustments | |
| Net loss | |
| Balances at December 31, 2023 | |
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | | | Cash flows from operating activities: | | | | | |
| Net loss | Net loss | $ | (75,799) | | | $ | (36,562) | | | $ | (15,571) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 21,421 | | | 10,097 | | | 4,726 | |
| Debt-related accretion in interest expense | 8,725 | | | 4,355 | | | 2,529 | |
| Depreciation and amortization | |
| Depreciation and amortization | |
| Accretion of debt in interest expense | |
| Accretion of discount on held to maturity investments in interest expense, net | |
| Current expected credit losses | Current expected credit losses | 1,290 | | | 540 | | | 830 | |
| Provision for obsolete inventory | Provision for obsolete inventory | 103 | | | 2,256 | | | 597 | |
| Stock-based compensation | Stock-based compensation | 14,615 | | | 4,251 | | | 2,706 | |
| Impairment loss | |
| Loss on debt extinguishment | Loss on debt extinguishment | 11,916 | | | 8,123 | | | — | |
| Adjustment to contingent consideration liability | Adjustment to contingent consideration liability | — | | | (3,340) | | | — | |
| Deferred income tax | Deferred income tax | (10,417) | | | (3,229) | | | (4,002) | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | |
| Accounts receivable | |
| Accounts receivable | |
| Accounts receivable | Accounts receivable | 1,832 | | | (1,532) | | | (15,640) | |
| Inventories | Inventories | (13,547) | | | (4,476) | | | 1,864 | |
| Other current assets | Other current assets | (3,995) | | | 809 | | | (1,004) | |
| Other assets | Other assets | (4,001) | | | 326 | | | 436 | |
| Accounts payable | Accounts payable | 4,911 | | | (4,176) | | | 3,741 | |
| Accrued salaries and benefits | Accrued salaries and benefits | (270) | | | 5,327 | | | 1,829 | |
| Accrued expenses | Accrued expenses | (6,096) | | | (594) | | | 2,412 | |
| Customer deposits and deferred service revenue | Customer deposits and deferred service revenue | (1,710) | | | (3,445) | | | 1,243 | |
| Customers payable | |
| Other long-term liabilities | Other long-term liabilities | (2,134) | | | 1,027 | | | (2,825) | |
| Net cash used in operating activities | Net cash used in operating activities | (53,156) | | | (20,243) | | | (16,129) | |
| Cash flows from investing activities: | Cash flows from investing activities: | |
| Cash paid for acquisition, net of cash acquired | Cash paid for acquisition, net of cash acquired | (374,705) | | | — | | | (19,835) | |
| Settlement of working capital for acquisition | — | | | 191 | | | — | |
| Cash paid for acquisition, net of cash acquired | |
| Cash paid for acquisition, net of cash acquired | |
| | Capital expenditures | |
| Capital expenditures | |
| Capital expenditures | Capital expenditures | (1,435) | | | (1,299) | | | (2,462) | |
| Capitalization of software costs | Capitalization of software costs | (6,852) | | | (7,932) | | | (4,068) | |
| Proceeds from sale of product line | — | | | — | | | 2,482 | |
| Proceeds from sale of held to maturity investments | |
| Purchases of held to maturity investments | |
| Net cash used in investing activities | Net cash used in investing activities | (382,992) | | | (9,040) | | | (23,883) | |
| Cash flows from financing activities: | Cash flows from financing activities: | |
| Principal payments of long-term debt | |
| Principal payments of long-term debt | |
| Principal payments of long-term debt | Principal payments of long-term debt | (4,174) | | | (629) | | | — | |
| Payments for the extinguishment of notes payable | Payments for the extinguishment of notes payable | (183,618) | | | (66,250) | | | — | |
| Proceeds from common stock issuance | Proceeds from common stock issuance | 215,000 | | | 131,407 | | | — | |
| Payments for common stock issuance costs | Payments for common stock issuance costs | (6,828) | | | — | | | — | |
| Proceeds from debt issuance, net of original issue discount | Proceeds from debt issuance, net of original issue discount | 441,385 | | | 115,786 | | | 75,039 | |
| Payments for debt issuance costs | Payments for debt issuance costs | (13,998) | | | — | | | — | |
| Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | Treasury stock acquired from employees upon vesting or forfeiture of restricted stock | (5,315) | | | (297) | | | (544) | |
| Proceeds from exercise of stock options | Proceeds from exercise of stock options | 1,156 | | | 675 | | | 1,433 | |
| Payments of bank borrowing | — | | | — | | | (17,459) | |
| Proceeds from bank borrowing | — | | | — | | | 9,640 | |
| Payment of contingent consideration | — | | | — | | | (2,550) | |
| Net cash provided by financing activities | 443,608 | | | 180,692 | | | 65,559 | |
| | Net cash (used in) provided by financing activities | |
| | Net cash (used in) provided by financing activities | |
| | Net cash (used in) provided by financing activities | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | 273 | | | 1,241 | | | (996) | |
| Net increase in cash and cash equivalents | 7,733 | | | 152,650 | | | 24,551 | |
| Cash and cash equivalents at beginning of period | 180,686 | | | 28,036 | | | 3,485 | |
| Cash and cash equivalents at end of period | $ | 188,419 | | | $ | 180,686 | | | $ | 28,036 | |
| Net (decrease) increase in cash, cash equivalents, and cash held on behalf of customers | |
| Cash, cash equivalents, and cash held on behalf of customers at beginning of period | |
| Cash, cash equivalents, and cash held on behalf of customers at end of period | |
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Supplemental disclosures of cash flow information: | | | | | |
| Cash paid during the period for: | | | | | |
| Interest | $ | 8,383 | | | $ | 4,018 | | | $ | 1,293 | |
| Income taxes, net of refunds | — | | | 205 | | | (321) | |
| | | | | |
| Bonus accrual to be paid in common shares | — | | | 620 | | | 833 | |
| Capitalized software recorded in accounts payable | 48 | | | 316 | | | — | |
| Capital expenditures in accounts payable | 26 | | | 228 | | | — | |
| Tax withholding in accrued salaries and benefits related to treasury stock acquired from employees | 643 | | | — | | | — | |
| Common stock issued for Punchh Acquisition | 110,219 | | | — | | | — | |
| | | | | |
| | | | | |
| Notes payable for AccSys | — | | | — | | | 2,000 | |
| Common stock to be issued for AccSys | — | | | — | | | 27,527 | |
| Contingent consideration for AccSys | — | | | — | | | 3,340 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Reconciliation of cash, cash equivalents, and cash held on behalf of customers | | | | | |
| Cash and cash equivalents | $ | 37,369 | | | $ | 70,328 | | | $ | 188,419 | |
| Cash held on behalf of customers | 10,170 | | | 7,205 | | | — | |
| Total cash, cash equivalents, and cash held on behalf of customers | $ | 47,539 | | | $ | 77,533 | | | $ | 188,419 | |
| | | | | |
| Supplemental disclosures of cash flow information: | | | | | |
| Cash paid during the period for: | | | | | |
| | | | | |
| Income taxes | $ | 3,223 | | | $ | 1,285 | | | $ | — | |
| | | | | |
| Capitalized software recorded in accounts payable | 38 | | | 27 | | | 48 | |
| Capital expenditures in accounts payable | 139 | | | 75 | | | 26 | |
| 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 (the “Company” or “PAR,” “we,” or “us”), through its consolidated subsidiaries, operates in 2two segments - the Restaurant/Retail segment and the Government segment. The Restaurant/Retail segment provides leading omnichannel cloud-based software and hardware solutions to the restaurant and retail industries. Our product and service offerings include point-of-sale, customer engagement and loyalty, digital ordering and delivery, operational intelligence technologies, payment processing, hardware, and related technologies, solutions, and services. 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 offering themthrough a fully integrated cloud solution by combiningdata-driven network with integration capabilities from point-of-sale to the kitchen, to fulfillment. Our subscription services 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 cloud software for front-of-house Data Central back-office cloud solution,and PAR Pay and PAR Payment Services for payments,payments; and Punchh loyalty and engagement solution on a unified commerce cloud platform. TheBack Office, which includes Data Central. PAR's Government segment provides technical expertise and development of advanced systems and software solutions for the DoDU.S. Department of Defense ("DoD"), the intelligence community and other federal agencies, as well asagencies. Additionally, we provide support services for satellite command and control, communication, and IT missioninformation technology systems at several DoD facilities worldwide. The Government segment has three principal contract offerings: intelligence, surveillance, and reconnaissance solutions ("ISR"), mission systems operations and maintenance ("Mission Systems"), and commercial software products for use in analytic and operational environments that leverage geospatial intelligence data ("Commercial Software"). The accompanying consolidated financial statements include the Company's accounts and those of its consolidated wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
COVID-19 continued to create significant uncertainty and worldwide economic disruption in 2021. The Company’s business continued to experience delays in customer orders and sales, restrictions on its employees ability to travel or work, increased costs for hardware, components and materials, and disruptions in its supply chain. The extent to which COVID-19 impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including, among others, the duration and scope of the COVID-19 pandemic, the severity of COVID-19 variants and the actions, especially those taken by governmental authorities, to contain the pandemic or mitigate its impact and the impact on the businesses of our customers, partners, and suppliers. As pandemic-related events continue to evolve, additional impacts may arise that the Company is not aware of currently. Any prolonged material disruption of the Company’s business or the businesses of the Company's customers, partners, or suppliers could materially impact the Company's financial position, results of operations or cash flows.
Basis of presentationPresentation and useUse of estimatesEstimates
The Company prepares its consolidated financial statements and related notes in accordance with accounting principles generally accepted in the United States of America. The preparation of 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 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 outstanding convertible notes, credit lossesvaluation allowances for receivables, valuation of excess and obsolete inventories, and measurement of contingent consideration at fair value. Actual results could differ from thosethese estimates.
Business combinationsCombinations
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 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 determined the acquisition date fair value of contingent consideration associated with the Restaurant Magic Acquisition in December 2019 using 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. This valuation technique is also used to determine current fair value of the 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 contractual maximum of the contingent post-closing revenue focused milestones obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the liability on the acquisition date is reflected as cash used in financing activities in the Company's consolidated statements of cash flows. Any amount paid in excess of the liability on the acquisition date is reflected as cash used in operating activities. The Restaurant Magic Acquisition resulted in a liability for the contingent consideration recorded in the amount of $3.3 million during 2019. 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 that period. During 2020, the Company recorded a $3.3 million adjustment to decrease the fair value of the contingent consideration related to the Restaurant Magic Acquisition to zero as of December 31, 2020. No additional adjustments were made by the Company during 2021.
Revenue recognition policy
See “Note 3 – Revenue Recognition” – for revenue recognition policy and disclosures.
Warranty provisions
Warranty provisions for product warranties are recorded in the period in which the Company becomes obligated to honor the warranty, which generally is the period in which the related product 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 which can range from 12 to 36 months and cost of replacement parts.
Activity related to warranty claims are as follows:
| | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | | | |
| Beginning balance | | $ | 994 | | | $ | 1,490 | |
| Adjustments to reserve | | (10) | | | (300) | |
| Warranty claims settled | | (222) | | | (196) | |
| | | | |
| Ending balance | | $ | 762 | | | $ | 994 | |
Cash and cash equivalentsCash Equivalents and Cash Held 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, 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, 20212023 and 2020.2022. 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 and cash equivalents and cash held on behalf of customers consist of the following (in thousands):following:
| | December 31, 2021 | | December 31, 2020 |
| (in thousands) | | (in thousands) | December 31, 2023 | | December 31, 2022 |
| Cash and cash equivalents | Cash and cash equivalents | | | |
| Cash | Cash | $ | 69,249 | | | $ | 59,700 | |
| Cash | |
| Cash | |
| Money market funds | Money market funds | 119,170 | | | 120,986 | |
| Total cash and cash equivalents | $ | 188,419 | | | $ | 180,686 | |
| Cash held on behalf of customers | |
| Total cash, cash equivalents, and cash held on behalf of customers | |
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, 2023. The estimated fair value of these securities approximated their carrying value as of December 31, 2023.
The carrying value of investment securities consist of the following:
| | | | | | | | | | | |
| (in thousands) | December 31, 2023 | | December 31, 2022 |
| Short-term investments | | | |
| Treasury bills and notes | $ | 37,194 | | | $ | 40,290 | |
| Total Short-term Investments | $ | 37,194 | | | $ | 40,290 | |
Accounts receivableReceivable – current expected credit lossesCurrent Expected Credit Losses
The Company maintains 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 uncollectableuncollectible 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 are charged to current operating expenses. Actual losses are charged against the provision when incurred.
Inventories
The Company’s inventories are valued at the lower of cost and net realizable value, with cost determined using the 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, plantPlant and equipmentEquipment
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 include deferred implementation costs of $8.8 million and $7.4 million and deferred commissions of $2.6 million and $1.2 million at December 31, 2023 and December 31, 2022, respectively. Based on ASC Topic 340, Other Assets and Deferred Costs, we capitalize and amortize incremental costs of obtaining and fulfilling a contract over the period we expect to derive benefits from the contract, which we have determined as the initial term of a contract. We periodically adjust the carrying value of deferred implementation costs and deferred commissions to account for customers ceasing operations or otherwise discontinuing use of our subscription services. Amortization expense for deferred implementation costs is included in "Costs of sales: Professional service" and amortization expense for deferred commissions is included in "Sales and marketing" in the Company's consolidated statements of operations. Amortization of deferred implementation costs were $4.5 million, $2.4 million, and $0.4 million for the years ended December 31, 2023, 2022, and 2021 respectively. Amortization of deferred commissions were $0.9 million, $0.6 million, and $0.2 million for the years ended December 31, 2023, 2022, and 2021 respectively.
Other assets primarily consist ofalso include the cash surrender value of life insurance related to the Company’s deferred compensation plan eligible to certain employees. The funded balance is reviewed on an annual basis. The balance of the life insurance policy was $3.7$3.3 million and $3.2 million at December 31, 20212023 and December 31, 2020,2022, 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 loss 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 liabilities
Other liabilities represent amounts owed to employees that participate in the Company’s deferred compensation plan and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) deferred payroll taxes. Amounts owed to employees participating in the deferred compensation plan at December 31, 2021 were $2.4 million as compared to $2.8 million at December 31, 2020. In response to the COVID-19 pandemic, many governments enacted measures to provide aid and economic stimulus; these measures included the deferring the due dates of tax payments. The CARES Act enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. The CARES Act provides for deferred 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. As allowed under the CARES Act, the Company deferred payment of the employer portion of social security taxes through the end of 2020. As of December 31, 2020, the Company had deferred a total of $2.8 million of payroll taxes during 2020, of which $1.9 million was paid in December 2021 and the remaining balance to be paid in December 2022. Deferred payroll taxes were $1.9 million at December 31, 2021 and were included within accrued salaries and benefits and on the consolidated 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 stockholders’ equity under the heading Accumulated Other Comprehensive 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 Loss. Foreign currency transaction gains and losses are recorded in other income, net in the accompanying statements of operations.
Other income (expense), net
The Company's foreign currency transaction gains and losses and rental income and losses are recorded in other income, net in the accompanying statements of operations.
Identifiable intangible assetsIntangible Assets
The Company's identifiable intangible assets represent intangible assets acquired in the acquisition of Brink Software, IncInc. in September 2014, (“Brink Acquisition”), the acquisition of 3M Company's Drive-Thru Communications Systems in 2019, the Data Central Acquisition, the Restaurant MagicPunchh Acquisition, the PunchhMENU Acquisition, and software development costs.
The Company capitalizes certain costs related to the development of its platform and other software applications for internal use in accordance with ASC Topic 350-40, 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 estimated useful life of the related asset, generally estimated to be three to seven years. The 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 approximately $3.4 million and $6.5 million of costs related to software products that have not satisfied the general release threshold as of December 31, 2021 and December 31, 2020, respectively. These software products will be ready for their intended use within the next 12 months. Software costs placed into service during the years ended December 31, 2021 and 2020 were $9.3 million and $3.8 million, respectively. Annual amortization charged to cost of sales is computed using the straight-line method over the remaining estimated economic life of the product, generally three years.
Goodwill
Amortization expenseGoodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for acquired developed technology and internally developed software was broken out as follows:
| | | | | | | | | | | | | | | | | |
| (in thousands) | 2021 | | 2020 | | 2019 |
| Amortization of acquired developed technology | $ | 11,978 | | | $ | 3,457 | | | $ | 1,061 | |
| Amortization of internally developed software | 5,411 | | | 3,269 | | | 4,470 | |
The componentsCompany conducted its annual goodwill impairment test as of identifiable intangible assets are:October 1, 2023. As a part of this analysis, we evaluated factors including, but not limited to, our market capitalization and stock price performance, macro-economic conditions, market and industry conditions, cost factors, the competitive environment, and the operational stability and overall financial performance of the reporting unit. The assessment indicated that it was more likely than not that the fair value of the reporting units exceeded its respective carrying value. As such, goodwill was not impaired. No impairment charge was recorded in any of the periods presented in the accompanying consolidated financial statements.
| | | | | | | | | | | | | | | | | |
| December 31, | | |
| (in thousands) | 2021 | | 2020 | Estimated Useful Life | Weighted-Average Amortization Period |
| Acquired developed technology | $ | 109,100 | | | $ | 24,500 | | 3 - 7 years | 5.25 years |
| Internally developed software costs | 25,735 | | | 15,670 | | 3 years | 2.90 years |
| Customer relationships | 12,360 | | | 4,860 | | 7 years | 5.00 years |
| Trade names | 1,410 | | | 1,410 | | 2 - 5 years | 3.00 years |
| Non-compete agreements | 30 | | | 30 | | 1 year | 1.00 year |
| 148,635 | | | 46,470 | | | |
| Less accumulated amortization | (39,479) | | | (20,265) | | | |
| $ | 109,156 | | | $ | 26,205 | | | |
| Internally developed software costs not meeting general release threshold | 3,407 | | | 6,516 | | | |
| Trade names (non-amortizable) | 6,200 | | | 400 | | Indefinite | |
| $ | 118,763 | | | $ | 33,121 | | | |
The expectedCompany 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. The Company will recognize impairment of long-lived assets or asset groups if the net book value of such assets exceeds the estimated future amortizationundiscounted cash flows attributable to such assets. If the carrying value of intangiblea 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 assuming straight-line amortizationto 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. In the year ending December 31, 2022, the Restaurant/Retail segment recorded an impairment loss of capitalized software development costs and acquisition related intangibles, excluding$1.3 million on internally developed software costs not meeting the general release threshold as a result of acquiring go-to-market software in the MENU Acquisition; the impairment loss is as follows (in thousands):presented within research and development expense in the consolidated statement of operations. No impairment was recorded in the years ended December 31, 2023 and 2021, respectively.
| | | | | |
| 2022 | $ | 22,247 | |
| 2023 | 20,308 | |
| 2024 | 17,417 | |
| 2025 | 16,343 | |
| 2026 | 16,091 | |
| Thereafter | 16,750 | |
| Total | $ | 109,156 | |
As of December 31, 2023, accrued expenses include the contingent consideration liability recognized in conjunction with the MENU Acquisition (refer to “Contingent Consideration” above for additional information). During the third quarter of 2023, the balance of the contingent consideration liability was reclassified from other long-term liabilities to accrued expenses. The balance of the contingent consideration liability included within accrued expenses was $0.6 million and zero at December 31, 2023, and December 31, 2022, respectively.
Other Long-Term Liabilities
As of December 31, 2022, other long-term liabilities include the contingent consideration liability recognized in conjunction with the MENU Acquisition (refer to “Contingent Consideration” above for additional information). During the third quarter of 2023, the balance of the contingent consideration liability was reclassified from other long-term liabilities to accrued expenses. The balance of the contingent consideration liability included within other long-term liabilities was zero and $9.8 million at December 31, 2023, and December 31, 2022, respectively.
Additionally, other long-term liabilities include amounts owed to employees that participate in the Company’s deferred compensation plan. Amounts owed to employees participating in the deferred compensation plan were $1.4 million and $1.7 million at December 31, 2023, and December 31, 2022, 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 of employer portion of social security taxes through the end of 2020. The Company paid $1.9 million in December 2021 and $1.9 million in December 2022. Deferred payroll taxes were zero at December 31, 2023, and December 31, 2022.
Foreign Currency Translation Adjustments
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 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 Loss.
Warranty Provisions
Warranty provisions for hardware warranties are recorded in the period in which the Company becomes obligated to honor the warranty, which generally is the period in which the related hardware 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 which can range from 12 to 36 months and cost of replacement parts.
Activity related to warranty claims are as follows:
| | | | | | | | | | | | | | |
| | December 31, 2023 | | December 31, 2022 |
| (in thousands) | | | | |
| Beginning balance | | $ | 722 | | | $ | 762 | |
| Adjustments to reserve | | 40 | | | 184 | |
| Warranty claims settled | | (112) | | | (224) | |
| | | | |
| Ending balance | | $ | 650 | | | $ | 722 | |
Related Party Transactions
During the years ended December 31, 2022, and 2021, Act III Management LLC (“Act III Management”), a service company to the restaurant, hospitality, and entertainment industries, provided software development and restaurant technology consulting services to the Company pursuant to a master development agreement. Separately, during the year ended December 31, 2023, Ronald Shaich, the sole member of Act III Management, served as a strategic advisor to the Company's board of directors pursuant to a strategic advisor agreement, which terminated on June 1, 2023. Keith Pascal, a director of the Company, is an employee of Act III Management and serves as its vice president and secretary. Mr. Pascal does not have an ownership interest in Act III Management.
As of December 31, 2023 and 2022, the Company had zero accounts payable owed to Act III Management. During the years ended December 31, 2023, 2022, and 2021 the Company paid Act III Management $0.1 million, $0.6 million, and $1.3 million respectively, in consideration for services performed under the master development agreement.
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 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 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 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 include 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 include 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 it 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 our 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 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 recognizes 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.
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 testedusually expects payment within 30 to 90 days from the date of service, depending on its indefinite lived intangible assets for impairment duringterms with the fourth quartercustomer. None of its fiscal years endedcontracts as of December 31, 2021 and 2020. To value indefinite lived intangible assets, the Company utilizes the relief from royalty method to estimate the fair values of trade names. There was zero impairment to indefinite lived intangible assets in 20212023 or 2020. December 31, 2022 contained a significant financing component.
Amortization expense for identifiable intangible assets was allocated as follows:
Operating Expenses Presentation Changes
| | | | | | | | | | | | | | | | | |
| (in thousands) | 2021 | | 2020 | | 2019 |
| Amortization of identifiable intangible assets recorded in cost of service | $ | 17,389 | | | $ | 6,726 | | | $ | 5,531 | |
| Amortization expense allocated to intangible assets | 1,825 | | | 1,150 | | | 156 | |
Stock-based compensation
Stock-Based Compensation
The Company measures 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-vestedtime and performance-based)performance vesting), in the financial statements as compensation cost over the applicable vesting
periods using a 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 the 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-based compensationstock 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 and awards 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.
Contingent Consideration
The Company determined the acquisition date fair value of contingent consideration associated with the MENU Acquisition using 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. 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 contractual maximum of the contingent post-closing revenue focused milestones obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the liability on the acquisition date is reflected as cash used in financing activities in the Company's consolidated statements of cash flows. Any amount paid in excess of the liability on the acquisition date is reflected as cash used in operating activities.
The MENU Acquisition resulted in an initial liability for the contingent consideration recorded in the amount of $14.2 million during 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 that period. During 2022, the Company recorded a $4.4 million adjustment to decrease the fair value of the contingent consideration liability related to the MENU Acquisition to $9.8 million as of December 31, 2022.
During the second quarter of 2023, the MENU earn-out was amended to remove the EBITDA based threshold and reduce the future software as a service ("SaaS") annual recurring revenue threshold. During 2023, the Company recorded a $9.2 million adjustment to decrease the fair value of the contingent consideration liability related to the MENU Acquisition to $0.6 million as of December 31, 2023.
Gain on Insurance Proceeds
During the years ended December 31, 2023 and 2021 the Company received $0.5 million and $4.4 million of insurance proceeds in connection with the settlement of a legacy claim. No insurance proceeds were received during the year ended December 31, 2022.
Other Expense, net
The Company's foreign currency transaction gains and losses and rental income and losses are recorded in other expense, net in the accompanying statements of operations.
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 loss 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.
Net loss per shareLoss Per Share
Net loss per share is calculated in accordance with ASC Topic 260:260, Earnings per Share, which specifies the computation, presentation and disclosure requirements for earnings per shares (“EPS”). It requires the presentation of basic and diluted EPS. Basic EPS excludes all dilution and is based upon the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that would occur if convertible securities or other contracts to issue common stock were exercised. At December 31, 2021,2023, there were 1,305,881920,403 anti-dilutive stock options outstanding compared to 956,6271,029,417 as of December 31, 20202022 and 383,0001,305,881 as of December 31, 2019.2021. At December 31, 20212023 there were 418,084839,455 anti-dilutive restricted stock units compared to 426,632512,416 and 67,000418,084 as of December 31, 20202022 and December 31, 2019,2021, 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 89 – Debt” for additional information) and the unissued shares from the Company's 2021 Employee Stock Purchase Plan ("ESPP", refer to "Note 11 - Stock Based Compensation" for additional information) were excluded from the diluted net loss per share calculation as of December 31, 2021,2023, December 31, 20202022 and December 31, 2019.2021. Shares resulting from the 2024 Notes conversion was 497,376 (refer to “Note 9 – Debt” for additional information). 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 loss per share computations (in thousands, except per share data):computations:
| | December 31, |
| 2021 | | 2020 | | 2019 |
| December 31, | | | December 31, |
| (in thousands, except per share data) | | (in thousands, except per share data) | 2023 | | 2022 | | 2021 |
| Net loss | Net loss | $ | (75,799) | | | $ | (36,562) | | | $ | (15,571) | |
| | Basic: | Basic: | |
| Basic: | |
| Basic: | |
| Weighted average common shares | |
| Weighted average common shares | |
| Weighted average common shares | Weighted average common shares | 25,088 | | | 19,014 | | | 16,223 | |
| Loss per common share, basic | Loss per common share, basic | $ | (3.02) | | | $ | (1.92) | | | $ | (0.96) | |
| | Diluted: | Diluted: | |
| Diluted: | |
| Diluted: | |
| Weighted average common shares | |
| Weighted average common shares | |
| Weighted average common shares | Weighted average common shares | 25,088 | | | 19,014 | | | 16,223 | |
| Loss per common share, diluted | Loss per common share, diluted | $ | (3.02) | | | $ | (1.92) | | | $ | (0.96) | |
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company's impairment tests are based on the Company's identified reporting units within those operating segments used in the test for goodwill impairment. If the carrying value of either reporting unit exceeds its fair value, an impairment charge is recognized for the excess of the carrying value of the reporting unit over its fair value.
The Company conducted its annual goodwill impairment test during the fourth quarter of 2021 and determined that the fair value for each of the reporting units significantly exceeded its respective carrying value. As such, goodwill was not impaired. No impairment charge was recorded in any of the periods presented in the accompanying consolidated financial statements.
The following table presents the goodwill activities for the periods presented (in thousands):
| | | | | | | | |
December 31, 2019 | | $ | 41,386 | |
Working capital adjustment | | (172) | |
December 31, 2020 | | 41,214 | |
Punchh Acquisition | | 417,559 | |
ASC 805 measurement period adjustment (Note 2) | | (1,467) | |
December 31, 2021 | | $ | 457,306 | |
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. 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. No impairment was recorded in 2021, 2020, or 2019.
Divestiture
Sale of SureCheck
In the second quarter of 2019, ParTech sold substantially all of the assets relating to the SureCheck product line within the Company's Restaurant/Retail segment. The sale did not qualify for treatment as a discontinued operation, and therefore, the SureCheck product line is included in the Company’s operations for the year ended December 31, 2019.
Related Party Transactions
Act III Management LLC (“Act III Management”), a service company to the restaurant, hospitality, and entertainment industries, provides software development and restaurant technology consulting services to the Company pursuant to a master development agreement. Keith Pascal, a director of the Company, is an employee of Act III Management and serves as its vice president. In the year ended December 31, 2021, the Company paid Act III Management $1.3 million in consideration for services performed under the master development agreement; as of December 31, 2021, there were no accounts payable owed by the Company to Act III Management.
Recently Adopted Accounting Pronouncements
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 accounting for income taxes. ASU 2019-12 removes certain exceptions to the general 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 the standard to the Company's September 2021 convertible note offering, the 2027 Notes, resulted in classification to stockholders' 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
In August 2020,December 2023, the FASB issued ASU 2020-06,2023-09, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)Income Taxes (Topic 740): Improvements to Income Tax Disclosures, the new guidancewhich is intended to simplifyenhance the accounting for certain convertible instruments with characteristicstransparency and decision usefulness of both liability and equity. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. As a result, after the adoption of this guidance, an entity’s convertible debt instrument will be wholly accounted for as debt. The guidance also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations by requiring the use of the if-converted method. The guidanceincome tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2021 and can 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 transition method and expects that the adoption will have a material impact on its consolidated financial statements and related disclosures. For example, the Company currently anticipates that the guidance will result in the removal of the equity component related to its Senior Notes of $87.8 million; decrease its interest expense due to the removal of the amortization component of the debt discount related to the equity component.2024. The Company is stillcurrently evaluating the cumulative effectimpact of the change on retained earnings and other components of equitythis update for its opening balance adjustment.future filings.
In October 2021,November 2023, the FASB issued ASU 2021-08,2023-07, Business CombinationsSegment Reporting (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers280): Improvements to Reportable Segment Disclosures, which is intended to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.improve reportable segment disclosure requirements, primarily through enhanced disclosures about segment expenses. ASU 2021-082023-07 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2022, with early adoption permitted.2023 and interim periods within fiscal years beginning after December 15, 2024. The Company expects to adopt ASU 2021-08 inis currently evaluating the first quarterimpact of 2023.this update for future filings.
With the exception of the standards discussed above, there were no other recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 20212023 that are of significance or potential significance to the Company.
Note 2 — Acquisitions
Q4 2023 Acquisition
During the three months ended December 31, 2023, Par Payment Services, LLC acquired the rights to ongoing payment facilitator referral commissions from a privately held restaurant technology company. The transaction was accounted for as an asset acquisition in accordance with ASC Topic 805, Business Combinations, resulting in an increase to the customer relationships component of intangible assets of $2.2 million. The Company determined that the preliminary fair values of ongoing referral commissions acquired relating to the transaction did not materially affect the Company's financial condition. The preliminary fair value determinations were based on management's best estimates and assumptions. Identified preliminary fair values are subject to measurement period adjustments within the permitted measurement period (up to one year from the acquisition date) as the Company finalizes their procedures. The Company considers the results of operations of the acquired rights to be immaterial and therefore has not presented combined pro forma financial information.
MENU Acquisition - 2022
During the third quarter of 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 $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, 2023, the Company determined the fair value of the MENU earn-out to be $0.6 million (refer to "Note 15 - Fair Value of Financial Instruments" for a roll-forward of the earn-out).
The transaction was accounted for as a business 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 fair value determinations were based on management's best estimates and assumptions, and with the assistance of independent valuation and tax consultants.
During the three months ended March 31, 2023, the fair values of assets and liabilities as of July 25, 2022, were finalized with no adjustments from the preliminary purchase price allocation.
The following table presents management's final 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 balance in the escrow account was $3.0 million as of December 31, 2023 and 2022.
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 the 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 StockholderShareholder 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 the 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 910 – Common Stock”, and "Note 16 - Subsequent Events" for additional information about the offering.offering and Warrant.
Additionally, on the Closing Date approximately $6.0 million of the Cash Consideration was deposited into aan 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: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 | 2,2242,109 | |
| Prepaid and other acquired assets | 2,764 | |
| Goodwill | 416,092415,055 | |
| Total assets | $ | 554,973553,821 | |
| Accounts payable and accrued expenses | 15,82715,617 | |
| Deferred revenue | 11,12510,298 | |
| Loan payables | 3,508 | |
| Lease liabilities | 2,787 | |
| Indemnification liabilities | 2,2242,109 | |
| Deferred taxes | 11,794 | |
| Consideration paid | $ | 507,708 | |
Intangible Assets
The Company identified 3three 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. of 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 the 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. Punchh results are monitored by the Company as part of the broader Restaurant/Retail segment and as a result the Company determined it impractical to report net loss for the Punchh Acquisition for the three and nine months ended September 30, 2021. The unaudited pro forma results of operations are not necessarily indicative of the results that would have occurred had the Punchh Acquisition been consummated at January 1, 2020, nor are they necessarily indicative of any future consolidated operating results.
The following table summarizes the Company's unaudited pro forma operating results:results of operations:
| | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| (in thousands) | | 2021 | | 2020 |
| Total revenue | | $ | 291,596 | | | $ | 241,015 | |
| Net loss | | (79,079) | | | (49,370) | |
| | | | | | | | | | |
| | |
| (in thousands) | | Year Ended
December 31, 2021 | | |
| Total revenue | | $ | 291,596 | | | |
| Net loss | | (79,079) | | | |
The unaudited pro forma results presented above are for illustrative purposes only and do not reflect the realization of potentialactual cost savings andor any related integration costs. Certain cost savings may result from the Punchh Acquisition; however, there can be no assurance that these cost savings will be achieved. TheseThe unaudited pro forma results do not purport to be indicative of the results that would have been obtained, or to be a projection of results that may be obtained in the future. These unaudited pro forma results include certain adjustments, primarily due to increases in amortization expense due to the fair value adjustments of intangible assets, the increases to interest expense reflecting the amount borrowed in connection with the Punchh Acquisition, acquisition related costs and the impact of income taxes on the pro forma adjustments. $3.6 million of acquisition costs have been reflected in the 2020 pro forma results.
Restaurant Magic Acquisition - 2019
Effective December 18, 2019, the Company, through ParTech, acquired 100% of the limited liability company interests of AccSys LLC (f/k/a AccSys, Inc., and otherwise known as Restaurant Magic) in base consideration of approximately $42.8 million, of which approximately $12.8 million was paid in cash, which reflects a $0.2 million favorable working capital adjustment recognized in the second quarter of 2020, $27.5 million was paid in restricted shares of Company common stock and $2.0 million was paid by delivery of a subordinated promissory note. The sellers of Restaurant Magic have the opportunity through 2022 to earn additional purchase price consideration subject to the achievement of certain post-closing revenue focused milestones (“Earn-Out”). The
Earn-Out, if any, will be payable 50% in cash or subordinated promissory notes, or a combination of both, at the Company's election, and 50% in restricted shares of Company common stock; the equity component of the Earn-Out is classified as a liability on the Company's balance sheet as the quantity of restricted shares is variable subject to the final value of the Earn-Out. The Earn-Out has no maximum payment. As of December 31, 2019, the value of the Earn-Out based on the Monte Carlo simulation was $3.3 million. During the year ended December 31, 2020, $3.3 million of fair-value adjustments were recorded to earnings to reflect a reduction in the fair value of the Earn-Out to zero; see “Note 15 – Fair Value of Financial Instruments” for additional information. The adjustment was recorded as a component of operating expense for the year ended December 31, 2020, and there were no further adjustments made during the year ended December 31, 2021.
The Company issued $2.0 million of restricted stock units (“RSU”) in connection with its assumption of awards granted by Restaurant Magic to its employees and contractors prior to the closing of the acquisition. The cost of these RSUs are amortized over their vesting period and have been reflected in SG&A as part of stock-based compensation in the consolidated statements of operations.
Drive-Thru Acquisition - 2019
Effective September 30, 2019, the Company, through ParTech, acquired assets of 3M Company's Drive-Thru Communications Systems business, including the XT-1 and G5 headset systems, contracts and intellectual property associated with the business, for a purchase price of $8.4 million (total fair value of assets were $8.4 million including approximately $1.2 million of developed technology, $3.6 million of customer relationships, and $2.4 million of goodwill, net of warranty liability of $1.4 million, resulting in cash paid of $7.0 million).
The fair values assigned to the assets acquired and liabilities assumed in the Drive-Thru Acquisition and the Restaurant Magic Acquisition and presented in the table below were based on management's best estimates and assumptions at the conclusion of the measurement period for each respective transaction:
| | | | | | | | | | | | | | | | | |
| (in thousands) | Purchase Price Allocation |
| Drive-Thru | | Restaurant Magic | | Total |
| Developed technology | $ | 1,200 | | | $ | 16,400 | | | $ | 17,600 | |
| Customer relationships | 3,600 | | | 1,100 | | | 4,700 | |
| Trade name | — | | | 900 | | | 900 | |
| Trademark | 510 | | | — | | | 510 | |
| Tangible assets | — | | | 1,344 | | | 1,344 | |
| Goodwill | 2,390 | | | 27,773 | | | 30,163 | |
| Property, plant, and equipment - net | 712 | | | — | | | 712 | |
| Total assets | 8,412 | | | 47,517 | | | 55,929 | |
| Accounts payable and accrued expenses | — | | | 629 | | | 629 | |
| Warranty liability | 1,412 | | | — | | | 1,412 | |
| Deferred revenue | — | | | 715 | | | 715 | |
| Earn-Out liability | — | | | 3,340 | | | 3,340 | |
| Consideration paid | $ | 7,000 | | | $ | 42,833 | | | $ | 49,833 | |
The estimated fair values of the developed technology, customer relationships, and trade names were all based on the income approach, which estimates fair value based upon the present value of cash flows that the assets are expected to generate. Amortization of identifiable finite-lived intangible assets is computed using the straight-line method over the remaining estimated economic life of the asset. The acquired customer relationships, trade names, and developed technology assets are amortized over their estimated useful lives ranging from two to seven years, respectively.
Pro Forma Financial Information (unaudited)
For the year ended December 31, 2021, the Drive-Thru Acquisition and the Restaurant Magic Acquisition resulted in additional revenues of $18.1 million and $9.4 million, respectively. For the year ended December 31, 2020, the Drive-Thru Acquisition and the Restaurant Magic Acquisition resulted in additional revenues of $18.5 million and $8.4 million, respectively. For the year ended December 31, 2019, the Drive-Thru Acquisition and the Restaurant Magic Acquisition resulted in additional revenues of $3.2 million and $0.3 million, respectively. The Company determined it is impractical to report net loss for the Drive-Thru Acquisition for the year ended December 31, 2019, presentation of pro forma net loss has correspondingly been excluded from the below table of pro forma results of operations and pro forma net income (loss). Presented pro forma results of operations are not necessarily indicative of the results that would have occurred had the businesses acquired in 2019 been consummated at the beginning of the period presented, nor are they necessarily indicative of any future consolidated operating results. The following table summarizes the Company's unaudited pro forma operating results had the Restaurant Magic Acquisition and the Drive-Thru Acquisition each been consummated at January 1, 2019.
| | | | | | | | |
(in thousands) | | Year Ended
December 31, 2019 |
Total revenue | | $ | 208,802 | |
This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies or cost savings or any integration costs related to the Restaurant Magic Acquisition.
Note 3 - Revenue Recognition
Restaurant/Retail
The Company's revenue is derived from SaaS, hardware and software sales, software activation, hardware support, installations, maintenance and professional services. ASC Topic 606:Deferred 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 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 and evaluated whether each performance obligation met the ASC Topic 606 criteria to be considered a distinct performance obligation. Revenue in the Restaurant/Retail segment is recognized at a point in time for licensed software, hardware and installations. Revenue on these items are recognized when the customer obtains control of the asset. This generally occurs upon delivery and acceptance by the customer or upon installation or delivery to a third-party carrier for onward delivery to customer. Additionally, revenue in the Restaurant/Retail segment relating to SaaS, the Company's Advanced Exchange hardware service program, its on-site support and other services is recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance obligations. The Company’s support services are stand-ready obligations that are provided over the life of the contract, generally 12 months. 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 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.
The support services associated with hardware and software sales 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. 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. 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 as follows: hardware, software and software activation performance obligations are recognized at a stand-alone selling price based on the price at which the Company sells the particular good or service separately in similar circumstances and to similar customers. The stand-alone selling price for all other performance obligations, including: pass-through hardware, such as terminals, printers, or card readers; hardware support (referred to as Advanced Exchange), installation, maintenance, licensed software upgrades, and professional services (project management) is recognized by using an expected cost plus margin.
Government
The Company's revenue in the Government segment is recognized over time as control is generally transferred continuously to its customers. 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, 2021 or December 31, 2020 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, 2021, 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 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Current
under one year | | Non-current
over one year | | Current
under one year | | Non-current
over one year |
| Restaurant/Retail | $ | 12,449 | | | $ | 7,597 | | | $ | 8,000 | | | $ | 3,082 | |
| Government | — | | | — | | | — | | | — | |
| Total | $ | 12,449 | | | $ | 7,597 | | | $ | 8,000 | | | $ | 3,082 | |
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. Deferred revenue attributable to each of the Company's reporting segments is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| (in thousands) | Current
under one year | | Non-current
over one year | | Current
under one year | | Non-current
over one year |
| Restaurant/Retail | $ | 7,250 | | | $ | 4,204 | | | $ | 8,459 | | | $ | 5,125 | |
| Government | — | | | — | | | — | | | — | |
| Total | $ | 7,250 | | | $ | 4,204 | | | $ | 8,459 | | | $ | 5,125 | |
Most performance obligations greater than one year relate to service and support contracts, that the Company expects to fulfill within 36 months. The Company expects to fulfill 100% of service and support contracts within 60 months.
The changes in deferred revenue, inclusive of both current and long-term, are as follows:
| | (in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2023 | | 2022 |
| Beginning balance - January 1 | Beginning balance - January 1 | $ | 11,082 | | | $ | 12,486 | |
| Acquired deferred revenue (Note 2) | 11,125 | | | — | |
| Acquired deferred revenue (refer to "Note 2 - Acquisitions") | |
| Recognition of deferred revenue | Recognition of deferred revenue | (19,229) | | | (11,005) | |
| Deferral of revenue | Deferral of revenue | 17,068 | | | 9,601 | |
| | Ending balance - December 31 | Ending balance - December 31 | $ | 20,046 | | | $ | 11,082 | |
The above table excludes customer deposits of $1.9$2.1 million and $1.5$2.1 million as of December 31, 20212023 and 2020,2022, 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 twelve 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, 2021 and December 31, 2020, transaction prices allocated to future performance obligations were $20.0 million and $11.1 million, respectively.
During the years ended December 31, 20212023 and 2020,2022, the Company recognized revenue included in contract liabilities at the beginning of each respective period of $8.0$8.5 million and $11.0$13.8 million.
In the Government segment, the value of existing contracts at December 31, 2023, net of amounts relating to work performed to that date, was approximately $326.0 million, of which $73.2 million was funded. 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. Funded amounts represent committed funds under contract by government agencies and prime contractors. Of the December 31, 2023 contract backlog, contract revenue is expected to be recognized over time as follows:
| | | | | |
| (in thousands) | |
| Next 12 months | $ | 179,568 | |
| Months 13-24 | 105,609 | |
| Months 25-36 | 19,508 | |
| Thereafter | 21,301 | |
| Total | $ | 325,986 | |
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 (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Restaurant/Retail Point in Time | | Restaurant/Retail Over Time | | Government Over Time |
| Hardware | $ | 102,066 | | | $ | — | | | $ | — | |
| Software | 1,131 | | | 56,723 | | | — | |
| Service | 19,983 | | | 30,448 | | | — | |
| Mission systems | — | | | — | | | 38,311 | |
| Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | 33,188 | |
| Product | — | | | — | | | 1,026 | |
| Total | $ | 123,180 | | | $ | 87,171 | | | $ | 72,525 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Restaurant/Retail Point in Time | | Restaurant/Retail Over Time | | Government Over Time |
| Hardware | $ | 72,029 | | | $ | — | | | $ | — | |
| Software | 668 | | | 25,716 | | | — | |
| Service | 16,523 | | | 27,576 | | | — | |
| Mission systems | — | | | — | | | 37,448 | |
| Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | 32,947 | |
| Product | — | | | — | | | 879 | |
| Total | $ | 89,220 | | | $ | 53,292 | | | $ | 71,274 | |
Restaurant/Retail balances in the amount of $142.5 million presented across hardware, software and service was reclassified in the above table to conform with current year presentation. Disaggregated revenue is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| Restaurant/Retail Point in Time | | Restaurant/Retail Over Time | | Government Over Time |
| Hardware | $ | 63,811 | | | $ | — | | | $ | — | |
| Software | 3,143 | | | 13,677 | | | — | |
| Service | 26,903 | | | 15,773 | | | — | |
| Mission systems | — | | | — | | | 29,541 | |
| Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | 33,513 | |
| Product | — | | | — | | | 871 | |
| Total | $ | 93,857 | | | $ | 29,450 | | | $ | 63,925 | |
Restaurant/Retail balances in the amount of $123.3 million presented across hardware, software and service was reclassified in the above table to conform with current year presentation. | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| (in thousands) | Restaurant/Retail Point in Time | | Restaurant/Retail Over Time | | Government Point in Time | | Government Over Time |
| Hardware | $ | 103,391 | | | $ | — | | | $ | — | | | $ | — | |
| Subscription service | — | | | 122,597 | | | — | | | — | |
| Professional service | 21,565 | | | 29,161 | | | — | | | — | |
| Mission systems | — | | | — | | | — | | | 35,583 | |
| Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | — | | | 102,153 | |
| Commercial software | — | | | — | | | 710 | | | 663 | |
| Total | $ | 124,956 | | | $ | 151,758 | | | $ | 710 | | | $ | 138,399 | |
Practical Expedients and Exemptions | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
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). | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
Note 4 — Leases
Effective January 1, 2019, the Company adopted the lease accounting standard, ASC Topic 842, Leases, using the modified retrospective method of applying the new standard at the adoption date. In addition, the Company elected to apply the package of practical expedients permitted under the transition guidance within the standard. This allowed the Company to carry forward historical lease classification. Adoption of the standard resulted in the recording of lease right-of-use assets and corresponding lease liabilities of approximately $4.0 million.
A significant portion of the Company's operating lease portfolio includes office space, research and development facilities, IT equipment, and automobiles. The majority of the Company's leases have remaining lease terms of one to fournine years. Substantially all lease expense is presented within SG&Ageneral and administrative expense in the consolidated statements of operations.operations and is as follows:
The number and corresponding value of operating leases increased in 2021 due to the Punchh Acquisition. | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2023 | | 2022 | | 2021 |
| Total lease expense | $ | 2,002 | | | $ | 2,415 | | | $ | 2,350 | |
| | | | | | | | | | | | | | | | | |
| (in thousands) | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Total lease expense | $ | 2,350 | | | $ | 1,358 | | | $ | 1,632 | |
Supplemental cash flow information related to leases is as follows:
| | December 31, |
| December 31, | | | December 31, |
| (in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2023 | | 2022 |
| Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from leases | Operating cash flows from leases | $ | 2,322 | | | $ | 1,334 | |
| Operating cash flows from leases | |
| Operating cash flows from leases | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 3,250 | | | $ | 801 | |
Supplemental balance sheet information related to leases is as follows:
| | | | | | | | | | | |
| December 31, |
| (in thousands) | 2021 | | 2020 |
| Operating leases | | | |
| Total lease right-of-use assets | $ | 4,348 | | | $ | 2,569 | |
| | | |
| Lease liabilities - current portion | $ | 2,266 | | | $ | 1,200 | |
| Lease liabilities - net of current portion | 2,440 | | | 1,462 | |
| Total lease liabilities | $ | 4,706 | | | $ | 2,662 | |
| Weighted-average remaining lease term | | | |
| Operating leases | 2.7 years | | 2.6 years |
| Weighted-average discount rate | | | |
| Operating leases | 4.0 | % | | 4.0 | % |
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Weighted-average remaining lease term | 4.1 years | | 4.5 years |
| | | |
| Weighted-average discount rate | 4.0 | % | | 4.0 | % |
The following table summarizes future lease payments for operating leases at December 31, 2021:2023:
| | (in thousands) | (in thousands) | Operating leases | (in thousands) | Operating leases |
| 2022 | $ | 2,386 | |
| 2023 | 1,361 | |
| 2024 | 2024 | 630 | |
| 2025 | 2025 | 566 | |
| 2026 | 2026 | 120 | |
| 2027 | |
| 2028 | |
| Thereafter | Thereafter | — | |
| Total lease payments | Total lease payments | 5,063 | |
| Less: portion representing imputed interest | Less: portion representing imputed interest | (357) | |
| Total | Total | $ | 4,706 | |
Note 5 — Accounts Receivable, Net
The Company's net accounts receivables consist of:
| | | | | | | | | | | |
| (in thousands) | 2021 | | 2020 |
| Government segment: | | | |
| Billed | $ | 11,667 | | | $ | 11,225 | |
| Advanced billings | — | | | (948) | |
| 11,667 | | | 10,277 | |
| Restaurant/Retail segment: | | | |
| Accounts receivable - net | 38,311 | | | 32,703 | |
| $ | 49,978 | | | $ | 42,980 | |
| | | | | | | | | | | |
| (in thousands) | 2023 | | 2022 |
| Government segment | $ | 20,703 | | | $ | 17,320 | |
| Restaurant/Retail segment | 42,679 | | | 42,640 | |
| Accounts receivable, net | $ | 63,382 | | | $ | 59,960 | |
At December 31, 20212023 and 2020,2022, the Company had current expected credit loss of $1.3$1.9 million and $1.4$2.1 million, respectively, against accounts receivable for the Restaurant/Retail segment. The following table presents changes in the current expected credit loss during the years ended December 31:
| | (in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2023 | | 2022 |
| Beginning balance - January 1 | Beginning balance - January 1 | $ | 1,416 | | | $ | 1,849 | |
| Provisions | Provisions | 1,290 | | | 540 | |
| Write-offs | Write-offs | (1,386) | | | (969) | |
| Recoveries | (14) | | | (4) | |
| | Ending balance - December 31 | Ending balance - December 31 | $ | 1,306 | | | $ | 1,416 | |
| Ending balance - December 31 | |
| Ending balance - December 31 | |
Receivables recorded as of December 31, 20212023 and 20202022 all represent unconditional rights to payments from customers.
Note 6 — Inventories, Net
Inventories are used in the manufacture and service of Restaurant/Retail hardware products. The components of inventory, net consist of the following:
| | December 31, |
| December 31, | | | December 31, |
| (in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2023 | | 2022 |
| Finished goods | Finished goods | $ | 17,528 | | | $ | 12,747 | |
| Work in process | Work in process | 688 | | | 16 | |
| Component parts | Component parts | 14,880 | | | 6,105 | |
| Service parts | Service parts | 1,982 | | | 2,770 | |
| $ | 35,078 | | | $ | 21,638 | |
| Inventories, net | |
At December 31, 20212023 and 2020,2022, the Company had excess and obsolescence reserves of $10.8$9.0 million and $12.0$10.9 million, respectively, against inventories.
Note 7 — Property, Plant and Equipment, Net
The components of property, plant and equipment, net, are:
| | December 31, |
| December 31, | | | December 31, |
| (in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2023 | | 2022 |
| Land | Land | $ | 199 | | | $ | 199 | |
| Building and improvements | Building and improvements | 7,822 | | | 7,805 | |
| Rental property | Rental property | 2,749 | | | 2,749 | |
| Software | Software | 12,100 | | | 12,099 | |
| Furniture and equipment | Furniture and equipment | 12,816 | | | 10,198 | |
| Construction in process | Construction in process | 170 | | | 670 | |
| 35,856 | | | 33,720 | |
| 43,360 | |
| Less accumulated depreciation | Less accumulated depreciation | (22,147) | | | (19,864) | |
| $ | 13,709 | | | $ | 13,856 | |
| $ | |
The estimated useful lives of buildings and improvements and rental property are 15 to 40 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 was $2.9 million, $3.3 million, and $2.3 million, for the years ended December 31, 2023, 2022, and $2.0 million for 2021, and 2020, respectively.
The Company leases a portion of its headquarters facility to various tenants. Net rent received from these leases totaled $0.2 million, $0.2 million, and $0.3 million for 2021, 2020, and 2019 respectively, and is recorded in other income (expense) – net.
Note 8 — Identifiable Intangible Assets and Goodwill
Included in identifiable intangible assets are approximately $2.9 million and $2.1 million of costs related to software products that have not satisfied the general release threshold as of December 31, 2023 and December 31, 2022, respectively. These software products will be ready for their intended use within the next 12 months. Software costs placed into service during the years ended December 31, 2023 and 2022 were $4.6 million and $6.5 million, respectively. Annual amortization charged to cost of sales is computed using the straight-line method over the remaining estimated economic life of the product, generally three years.
The components of identifiable intangible assets are:
| | | | | | | | | | | | | | | | | |
| December 31, | | |
| (in thousands) | 2023 | | 2022 | Estimated Useful Life | Weighted-Average Amortization Period |
| Acquired developed technology | $ | 119,800 | | | $ | 119,800 | | 3 - 7 years | 4.40 years |
| Internally developed software costs | 36,876 | | | 32,274 | | 3 years | 1.95 years |
| Customer relationships | 14,510 | | | 12,360 | | 7 years | 4.60 years |
| Trade names | 1,410 | | | 1,410 | | 2 - 5 years | 1.00 year |
| Non-competition agreements | 30 | | | 30 | | 1 year | 1.00 year |
| 172,626 | | | 165,874 | | | |
| Impact of currency translation on intangible assets | 1,399 | | | 304 | | | |
| Less: accumulated amortization | (88,259) | | | (63,386) | | | |
| $ | 85,766 | | | $ | 102,792 | | | |
| Internally developed software costs not meeting general release threshold | 2,886 | | | 2,105 | | | |
| Trademarks, trade names (non-amortizable) | 6,200 | | | 6,200 | | Indefinite | |
| $ | 94,852 | | | $ | 111,097 | | | |
The expected future amortization of 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):
| | | | | |
| 2024 | $ | 23,065 | |
| 2025 | 21,477 | |
| 2026 | 18,857 | |
| 2027 | 15,193 | |
| 2028 | 7,174 | |
| Thereafter | — | |
| Total | $ | 85,766 | |
To value indefinite lived intangible assets, the Company utilizes the relief from royalty method to estimate the fair values of trade names. There was zero impairment to indefinite lived intangible assets in the years ended December 31, 2023, 2022 and 2021, respectively.
Amortization expense for identifiable intangible assets was allocated as follows:
| | | | | | | | | | | | | | | | | |
| (in thousands) | 2023 | | 2022 | | 2021 |
| Amortization of acquired developed technology | $ | 16,281 | | | $ | 15,307 | | | $ | 11,978 | |
| Amortization of internally developed software | 6,548 | | | 6,737 | | | 5,411 | |
| Amortization of identifiable intangible assets recorded in cost of sales | $ | 22,829 | | | $ | 22,044 | | | $ | 17,389 | |
| Amortization expense recorded in operating expense | 1,858 | | | 1,863 | | | 1,825 | |
| Impact of currency translation on intangible assets | (909) | | | (304) | | | — | |
The following table presents the goodwill activities for the periods presented:
| | | | | | | | |
| (in thousands) | | |
| Beginning 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 | |
| Balance - December 31, 2022 | | 486,762 | |
| | |
| | |
| | |
| Foreign currency translation | | 2,892 | |
| Ending balance - December 31, 2023 | | $ | 489,654 | |
Refer to "Note 2 - Acquisitions" for additional information on goodwill recognized in acquisitions
Note 9 — Debt
The following table summarizes information about the net carrying amounts of long-term debt as of December 31, 2021:2023:
| | (in thousands) | (in thousands) | 2024 Notes | | 2026 Notes | | 2027 Notes | | Total |
| (in thousands) | |
| (in thousands) | | | | 2026 Notes | | 2027 Notes | | Total |
| Principal amount of notes outstanding | Principal amount of notes outstanding | $ | 13,750 | | | $ | 120,000 | | | $ | 265,000 | | | $ | 398,750 | |
| Unamortized discount and unamortized debt issuance cost | (1,904) | | | (21,853) | | | (69,148) | | | (92,905) | |
| Unamortized debt issuance cost | |
| Total notes payable | Total notes payable | $ | 11,846 | | | $ | 98,147 | | | $ | 195,852 | | | $ | 305,845 | |
The following table summarizes information about the net carrying amounts of long-term debt as of December 31, 2020:2022:
| | (in thousands) | (in thousands) | 2024 Notes | | 2026 Notes | | Total | (in thousands) | 2024 Notes | | 2026 Notes | | 2027 Notes | | Total |
| Principal amount of notes outstanding | Principal amount of notes outstanding | $ | 13,750 | | | $ | 120,000 | | | $ | 133,750 | |
| Unamortized discount and unamortized debt issuance cost | (2,619) | | | (25,986) | | | (28,605) | |
| Unamortized debt issuance cost | |
| | Total notes payable | Total notes payable | $ | 11,131 | | | $ | 94,014 | | | $ | 105,145 | |
| Total notes payable | |
| Total notes payable | |
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 aggregate 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, 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 paypaid 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 accruesaccrued 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 were to mature on April 15, 2024.
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, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “2026 Indenture”). 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.
The Company used approximately $66.3 million (excluding cash payments relating to accrued interest and fractional shares) from its 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 the 2024 Notes. The consideration transferred was allocated 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.
The carryingOn September 17, 2021, the Company sold $265.0 million in aggregate principal amount of 1.500% Convertible Senior Notes due 2027. The 2027 Notes were issued pursuant to an indenture, dated September 17, 2021, between the liability componentCompany and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “2027 Indenture” and, together with the 2024 Indenture and the 2026 Indenture, the “Indentures”). 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 10 – 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 used the remaining net proceeds from the offering for general corporate purposes, including continued investment in the growth of the Senior Notes was calculated by estimatingCompany’s businesses and for other working capital needs. The Company also used a portion of the fair valuenet proceeds to acquire or invest in other assets complementary to the Company’s businesses or for repurchases of similar notes that do not have associated convertible features. The carryingthe Company’s other indebtedness.
Pursuant to a privately negotiated agreement dated October 6, 2023, the Company acquired $13.75 million aggregate principal amount of its outstanding 2024 Notes. This acquisition was made in exchange for 497,376 shares of common stock of the equity component, representingCompany (the "Exchange Transaction"). In connection with the conversion option,closing of the Exchange Transaction, all of the Company's outstanding 2024 Notes issued under the 2024 Indenture were canceled and the 2024 Indenture was determined by deductingdischarged on October 15, 2023. The Exchange Transaction resulted in an inducement loss on settlement of convertible notes of $0.6 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 the fair value of the liability component from the fair value amount of the Senior Notes. The valuation model used in determiningoriginal conversion terms and the fair value of the liability component forinduced conversion terms at the Senior Notes includes inputs, such as the implied debt yield within the nonconvertible borrowing rate. The implied estimated effective ratetime of the liability component of the 2024 Notes, 2026 Notes, and 2027 Notes was 10.2%, 7.3%, and 6.5% respectively.settlement.
The Senior Notes are senior, unsecured obligations of the Company. The 2024 Notes, the 2026 Notes, and the 2027Senior 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. The 2026 Indenture and 2027 Indenture contain covenants that, among other things, restrict the Company’s ability to merge, consolidate or sell, or otherwise dispose of, substantially all of its assets and customary Events of Default (as defined in the Indentures).
Prior to the Company's adoption of ASU 2020-06 on January 1, 2022, the carrying amount of the liability component of the 2024 Notes and Senior Notes was calculated by estimating the fair value of similar notes that did 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 2024 Notes and Senior Notes. The valuation model used in determining the fair value of the liability component for the 2024 Notes and 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.
InPrior 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 as 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 2024 Notes and Senior Notes amounted to $4.9 million, $4.2 million, and $8.3 million for the 2024 Notes, 2026 Notes, and 2027 Notes, respectively. These 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, restrictPrior to the Company’s ability to merge, consolidate or sell, or otherwise disposeCompany's adoption of substantially all of its assets and customary Events of Default (as defined inASU 2020-06 on January 1, 2022, the Indentures).
The Company recorded an income tax liability of $15.6 million during 2021 associated with the portion of the 2027 Notes that was classified within stockholders'shareholders' equity. GAAP requires the offset of the deferred tax liability to be classified within stockholders'shareholders' equity, consistent with the equity portion of the 2027 Notes. 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 $14.9 million, that was also classified within stockholders'shareholders' equity pursuant to the adoption of ASU 2019-122019-12.
Prior to the Company's adoption of ASU 2020-06 on January 1, 2021.
In2022, 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 stockholders'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.
Credit Facility
In connection with, and to partially fund the Cash Consideration for the Punchh Acquisition, on April 8, 2021, the Company entered into the Owl Rock Credit Agreement. The Owl Rock Credit Agreement providesprovided for a term loan in the initial aggregate principal amount of $180.0 million, the “Owl Rock Term Loan”. Issuance costs, which included a 2% Original Issue Discount, amounted to $9.3 million with net proceeds amounting to $170.7 million.
The Company used net proceeds from its offering of the 2027 Notes and its concurrent common stock offering (refer to “Note 910 – 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) reacquisition price, including prepayment premium, and (ii) the sum of the carrying value of the debt component and any unamortized debt issuance costs at the time of settlement.
The following table summarizes interest expense recognized on the 2024 Notes and Senior Notes:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2023 | | 2022 | | 2021 |
| Contractual interest expense | Contractual interest expense | $ | 9,420 | | | $ | 4,026 | |
| Amortization of debt issuance costs and discount | 8,726 | | | 4,355 | |
| Accretion of debt in interest expense | |
| Total interest expense | Total interest expense | $ | 18,146 | | | $ | 8,381 | |
In connection withThe cash paid for interest was $8.0 million for the Restaurant Magic Acquisition 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 amount of $60.6 thousand payable beginning January 15, 2020 through maturity on December 15, 2022. As ofyear ended December 31, 2021, the outstanding balance of the subordinated promissory note was $0.7 million.
The following table summarizes the future principal payments for the subordinated promissory note and Senior Notes as of December 31, 20202023 (in thousands):
| | 2022 | $ | 705 | |
| 2023 | — | |
| 2024 | 2024 | 13,750 | |
| 2025 | 2025 | — | |
| 2026 | 2026 | 120,000 | |
| 2027 | |
| 2028 | |
| Thereafter | Thereafter | 265,000 | |
| Total | Total | $ | 399,455 | |
Note 910 — Common Stock
The Company issued 497,376 shares of its common stock as part of the Exchange Transaction related to the conversion of the 2024 Notes. Refer to "Note 9 - Debt" for additional information about the Exchange Transaction.
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 89 – Debt” and "Note 16 - Subsequent Events" 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 1011 — 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 the fair value of the awards on the date of grant.
The Company recorded stock-based compensation expense to the following line itemsof $14.4 million, $13.4 million, and $14.6 million in the consolidated statements of operations for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| (in thousands) | 2021 | | 2020 | | 2019 |
| Cost of sales - contracts | $ | 340 | | | $ | 367 | | | $ | 234 | |
| Selling, general and administrative | 14,275 | | | 3,884 | | | 2,472 | |
| Total stock-based compensation expense | $ | 14,615 | | | $ | 4,251 | | | $ | 2,706 | |
As a result of forfeitures of non-vested stock awards prior to the completion of the requisite service period or failure to meet requisite performance targets, the Company recorded benefitsa reduction of stock-based compensation expense for the years ended December 31, 2023, 2022, and 2021 2020, and 2019 of $0.5$0.6 million, $0.2$1.0 million, and $0.1$0.5 million respectively.
The Company has 2.7 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”). The 2015 Plan provides for the grant of several different forms of stock-based awards including:
•Stock options granted under the 2015 Plan, which enable the recipient to purchase shares of the Company's common stock which 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 has authority to administer the 2015 Plan and determine the material terms of optionoptions and other awards under the 2015 Plan.
•Restricted Stock Awards (“RSA”) and Restricted Stock Units (“RSU”) can have service-based and/or performance-based vesting. Grants of RSAs and RSUs with service-based vesting are subject to vesting periods ranging from one to three years. Grants of RSAs and RSUs with performance-based vesting are subject to a vesting period of one to four years and 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 accordance with ASC Topic 718, Stock Compensation. Other terms and conditions applicable to any RSA or RSU award will be determined by the Compensation Committee and set forth in the agreement relating to that award.
Stock Options
The below tables presentspresent information with respect to stock options:
| | | | | | | | | | | | | | | | | |
| (in thousands, except for exercise price) | Number of Shares | | Weighted
Average
Exercise Price | | Aggregate
Intrinsic Value |
| Outstanding at Outstanding at December 31, 2020 | 957 | | | $ | 14.29 | | | |
| Options granted | 564 | | | 7.88 | | | |
| Options exercised | (104) | | | 11.01 | | | |
| Options forfeited | (111) | | | 11.94 | | | |
| Outstanding at Outstanding at December 31, 2021 | 1,306 | | | $ | 11.95 | | | $ | 54,443 | |
| Vested and expected to vest at December 31, 2021 | 1,295 | | | $ | 11.95 | | | $ | 53,990 | |
| Total shares exercisable at December 31, 2021 | 799 | | | $ | 11.72 | | | $ | 33,486 | |
| Shares remaining available for future grant | 449 | | | | | |
| | | | | | | | | | | | | | | | | |
| (in thousands, except for exercise price) | Number of Shares | | Weighted
Average
Exercise Price | | Aggregate
Intrinsic Value |
| Outstanding at January 1, 2023 | 1,029 | | | $ | 12.82 | | | |
| Options exercised | (97) | | | 10.73 | | | |
| Options canceled/forfeited | (12) | | | 13.40 | | | |
| Outstanding at December 31, 2023 | 920 | | | $ | 13.04 | | | $ | 28,053 | |
| Vested and expected to vest at December 31, 2023 | 920 | | | $ | 13.04 | | | $ | 28,046 | |
| Total shares exercisable at December 31, 2023 | 898 | | | $ | 13.12 | | | $ | 27,299 | |
| Shares remaining available for future grant | — | | | | | |
| | | | | | | | | | | | | | | | | |
| (in thousands, except for grant date fair value) | 2021 | | 2020 | | 2019 |
| Option expense recorded, in thousands, for the year ended December 31, | $ | 9,585 | | | $ | 1,386 | | | $ | 456 | |
| Weighted average grant date fair value | $ | 60.48 | | | $ | 13.82 | | | $ | 24.87 | |
| Total intrinsic value of stock options exercised, in thousands, for the year ended December 31, | $ | 6,000 | | | $ | 1,900 | | | $ | 5,400 | |
| Cash received for options exercised | $ | 1,156 | | | $ | 675 | | | $ | 1,433 | |
| | | | | | | | | | | | | | | | | |
| (in thousands, except for grant date fair value) | 2023 | | 2022 | | 2021 |
| Option expense recorded, in thousands, for the year ended December 31, | $ | 2,814 | | | $ | 5,664 | | | $ | 9,585 | |
| Weighted average grant date fair value | $ | — | | | $ | — | | | $ | 60.48 | |
| Total intrinsic value of stock options exercised, in thousands, for the year ended December 31, | $ | 2,700 | | | $ | 4,000 | | | $ | 6,000 | |
| Cash received for options exercised | $ | 1,069 | | | $ | 1,286 | | | $ | 1,156 | |
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 31:31, 2021:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Expected option life | 3.1 years | | 4.4 years | | 3.0 years |
| Weighted average risk-free interest rate | 0.4 | % | | 0.4 | % | | 2.0 | % |
| Weighted average expected volatility | 56.5 | % | | 47.6 | % | | 35.0 | % |
| Expected dividend yield | None | | None | | None |
| | | | | | | | | |
| | | | | 2021 |
| Expected option life | | | | | 3.1 years |
| Weighted average risk-free interest rate | | | | | 0.4 | % |
| Weighted average expected volatility | | | | | 56.5 | % |
| Expected dividend yield | | | | | None |
For the years ended December 31, 2021, 2020,2023, 2022, and 20192021 the expected option life was based on the Company’s historical experience with similar type options. Expected volatility is based on historic 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 December 31, 20212023 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| Range of exercise prices | | Number outstanding (in thousands) | | Weighted average remaining life | | Weighted average exercise price |
| $0.73 - $35.17 | | 1,306 | | | 7.68 years | | $ | 11.95 | |
| | | | | | | | | | | | | | | | |
| Range of exercise prices | | Number outstanding (in thousands) | | Weighted average remaining life | | |
| $0.73 - $35.26 | | 920 | | | 5.95 years | | |
Restricted Stock Awards
Current year activity with respect to the Company’s non-vested RSAs is as follows:
| | | | | | | | | | | |
| Non-vested RSAs | Shares (in thousands) | | Weighted average grant-date fair value |
| Balance at January 1, 2021 | 61 | | $ | 25.62 | |
| Granted | 2 | | 22.30 | |
| Vested | (34) | | | 21.29 |
| Forfeited | (2) | | | 24.87 |
| Balance at December 31, 2021 | 27 | | 25.42 |
The below table presents information with respect to RSA:
| | | | | | | | | | | | | | | | | |
| (in thousands) | 2021 | | 2020 | | 2019 |
| Service-based RSA | $ | 62 | | | $ | 210 | | | $ | 213 | |
| Performance-based RSA | 776 | | | 786 | | | 2,012 | |
| Total stock-based compensation related to RSA | $ | 838 | | | $ | 996 | | | $ | 2,225 | |
For the periods ended 2021, 2020, and 2019 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 2021, the Company determined the achievement of performance based awards to be probable for both segments. In 2020, the Company recorded $0.1 million in compensation expense associated with performance based RSAs, as the performance based awards were achieved for the Government segment, but not for the Restaurant/Retail segment. For the year ended December 31, 2019, performance based awards were achieved for both the Government and Restaurant/Retail segments.
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) | 2021 | | 2020 | | 2019 |
| Weighted average grant date fair value of RSAs granted during the year | $ | 22.30 | | | $ | 30.96 | | | $ | 24.77 | |
| Number of shares released during the year in accordance with the terms of the RSA agreements | 34 | | | 112 | | | 13 | |
| Number of RSA shares canceled during the year | 2 | | | 5 | | | 53 | |
| Number of above RSA shares canceled which were performance-based | 1 | | | 4 | | | 38 | |
Restricted Stock Units
Current year activity with respect to the Company’s non-vested RSUs is as follows:
| | | | | | | | | | | |
| Non-vested RSUs | Shares (in thousands) | | Weighted Average grant- date fair value |
| Balance at January 1, 2021 | 427 | | | $ | 15.46 | |
| Granted | 203 | | | 66.42 | |
| Vested | (176) | | | 18.71 | |
| Forfeited | (36) | | | 72.33 | |
| Balance at December 31, 2021 | 418 | | | $ | 34.08 | |
| | | | | | | | | | | |
| (in thousands, except weighted average fair value) | Shares | | Weighted Average grant- date fair value |
| Balance at January 1, 2023 | 512 | | | $ | 35.96 | |
| Granted | 625 | | | 35.74 | |
| Vested | (210) | | | 34.10 | |
| Canceled/forfeited | (88) | | | 38.17 | |
| Balance at December 31, 2023 | 839 | | | $ | 35.83 | |
The below table presents information with respect to RSUs:
| | (in thousands) | (in thousands) | 2021 | | 2020 | | 2019 | (in thousands) | 2023 | | 2022 | | 2021 |
| Service-based RSU | Service-based RSU | $ | 3,353 | | | $ | 1,587 | | | $ | 25 | |
| Performance-based RSU | Performance-based RSU | 839 | | | 282 | | | — | |
| Total stock-based compensation related to RSU | $ | 4,192 | | | $ | 1,869 | | | $ | 25 | |
| Total stock-based compensation expense related to RSUs | |
In 2023, the Company determined 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 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.
At December 31, 2021,2023, 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 $26.6$21.1 million, which is expected to be recognized as compensation expense in fiscal years 20222024 to 2025.2026.
Employee Stock Purchase Plan
In June 2021, the Company's shareholders approved the 2021 Employee Stock Purchase Plan ("ESPP"), through which eligible employees may purchase shares of the Company's common stock at a discount through accumulated payroll deductions. The ESPP became effective on November 1, 2021. Participation in the ESPP by eligible employees of the Company and participating subsidiaries began on December 1, 2023. A total of 330,000 shares of Company common stock are available for purchase under the ESPP, subject to adjustment as provided for in the ESPP. As of December 31, 2023, no shares of common stock were purchased.
Note 12 — Income Taxes
The provision for (benefit from) income taxes consists of:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2023 | | 2022 | | 2021 |
| Current income tax: | | | | | |
| Federal | $ | — | | | $ | — | | | $ | — | |
| State | 642 | | | 784 | | | 408 | |
| Foreign | 1,149 | | | 840 | | | 585 | |
| 1,791 | | | 1,624 | | | 993 | |
| Deferred income tax: | | | | | |
| Federal | 59 | | | (221) | | | (9,001) | |
| State | 138 | | | (151) | | | (1,416) | |
| 197 | | | (372) | | | (10,417) | |
| Provision for (benefit from) income taxes | $ | 1,988 | | | $ | 1,252 | | | $ | (9,424) | |
Note 11 — Income Taxes
The benefit from for income taxes consists of:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2021 | | 2020 | | 2019 |
| Current income tax: | | | | | |
| Federal | $ | — | | | $ | — | | | $ | — | |
| State | 408 | | | 179 | | | 182 | |
| Foreign | 585 | | | (4) | | | 186 | |
| 993 | | | 175 | | | 368 | |
| Deferred income tax: | | | | | |
| Federal | (9,001) | | | (3,265) | | | (3,418) | |
| State | (1,416) | | | 104 | | | (584) | |
| (10,417) | | | (3,161) | | | (4,002) | |
| Benefit from income taxes | $ | (9,424) | | | $ | (2,986) | | | $ | (3,634) | |
The components of net loss before income taxes for fiscal years 2021, 2020, and 2019 consisted of the following:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| United States | $ | (85,391) | | | $ | (39,390) | | | $ | (19,092) | |
| International | 168 | | | (158) | | | (113) | |
| Total net loss before income taxes | $ | (85,223) | | | $ | (39,548) | | | $ | (19,205) | |
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| United States | $ | (53,965) | | | $ | (63,068) | | | $ | (85,391) | |
| International | (13,799) | | | (4,999) | | | 168 | |
| Total net loss before income taxes | $ | (67,764) | | | $ | (68,067) | | | $ | (85,223) | |
Deferred tax (liabilities) assets are comprised of the following at: | | December 31, | |
| December 31, | |
| December 31, | |
| 2023 | |
| Deferred tax liabilities: | |
| Deferred tax liabilities: | |
| Deferred tax liabilities: | |
| | | December 31, |
| Operating lease assets | |
| | 2021 | | 2020 | |
| Deferred tax liabilities: | | | | |
| Subordinated debt | $ | (19,998) | | | $ | (6,482) | | |
| Indefinite lived intangibles | — | | | (168) | | |
| | Operating lease assets | |
| | Operating lease assets | Operating lease assets | (1,067) | | | (1,208) | | |
| Software development costs | Software development costs | (2,978) | | | (2,814) | | |
| Software development costs | |
| Software development costs | |
| Intangible assets | Intangible assets | (21,839) | | | (281) | | |
| Intangible assets | |
| Intangible assets | |
| 481(a) adjustment | |
| 481(a) adjustment | |
| 481(a) adjustment | |
| Depreciation on property, plant and equipment | Depreciation on property, plant and equipment | (1,490) | | | (931) | | |
| Depreciation on property, plant and equipment | |
| Depreciation on property, plant and equipment | |
| Gross deferred tax liabilities | |
| Gross deferred tax liabilities | |
| Gross deferred tax liabilities | Gross deferred tax liabilities | (47,372) | | | (11,884) | | |
| | Deferred tax assets: | Deferred tax assets: | | |
| | Deferred tax assets: | |
| | Deferred tax assets: | |
| Allowances for bad debts and inventory | Allowances for bad debts and inventory | 3,038 | | | 3,392 | | |
| Allowances for bad debts and inventory | |
| Allowances for bad debts and inventory | |
| Capitalized inventory costs | |
| Capitalized inventory costs | |
| Capitalized inventory costs | Capitalized inventory costs | 223 | | | 185 | | |
| | Employee benefit accruals | Employee benefit accruals | 5,692 | | | 2,783 | | |
| | Employee benefit accruals | |
| | Employee benefit accruals | |
| Interest expense limitation under section 163 (j) | |
| Interest expense limitation under section 163 (j) | |
| Interest expense limitation under section 163 (j) | Interest expense limitation under section 163 (j) | 4,812 | | | 2,798 | | |
| Operating lease liabilities | Operating lease liabilities | 1,155 | | | 1,208 | | |
| Operating lease liabilities | |
| Operating lease liabilities | |
| Federal net operating loss carryforward | |
| Federal net operating loss carryforward | |
| Federal net operating loss carryforward | Federal net operating loss carryforward | 42,792 | | | 15,719 | | |
| State net operating loss carryforward | State net operating loss carryforward | 10,353 | | | 3,569 | | |
| State net operating loss carryforward | |
| State net operating loss carryforward | |
| Foreign net operating loss carryforward | |
| Foreign net operating loss carryforward | |
| Foreign net operating loss carryforward | |
| Federal and state tax credit carryforwards | Federal and state tax credit carryforwards | 11,901 | | | 7,549 | | |
| | Federal and state tax credit carryforwards | |
| Federal and state tax credit carryforwards | |
| R&D capitalization | |
| R&D capitalization | |
| R&D capitalization | |
| Other | Other | 2,246 | | | 944 | | |
| Other | |
| Other | |
| Gross deferred tax assets | |
| Gross deferred tax assets | |
| Gross deferred tax assets | Gross deferred tax assets | 82,212 | | | 38,147 | | |
| | Less valuation allowance | Less valuation allowance | (37,157) | | | (26,431) | | |
| | Less valuation allowance | |
| | Less valuation allowance | |
| | Non-current net deferred tax liabilities | Non-current net deferred tax liabilities | $ | (2,317) | | | $ | (168) | | |
| | Non-current net deferred tax liabilities | |
| | Non-current net deferred tax liabilities | |
The non-current net deferred tax liabilities are included within other long-term liabilities on the Company's consolidated balance sheets. The Company has Federal tax credit carryforwards of $10.4$13.3 million that expire in various tax years from 2028 to 2041.2043. The Company has a Federal operating loss carryforward of $36.2$12.6 million expiring from 2029 through 2037 and a Federal operating loss carryforward of $167.5$170.1 million with an unlimited carryforward period. The Company also has state tax credits of $1.7 million and net operating loss carryforwards that vary by jurisdiction, ranging from $0 to $46.1$49.2 million, and expire in various tax years through 2041. 2043. The Company has foreign net operating loss carryforwards of $37.2 million expiring through 2029. The Company has a federal interest limitation carryforward of $26.4 million with an indefinite carryforward period.
In assessing theevaluating our ability to realizerecover our 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 theavailable positive and negative evidence, including scheduled reversalreversals of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.and results of recent operations. A valuation allowance is required to the extent it is more likely
than not that the future benefit associated with certain Federal, state, and stateforeign deferred tax assets including tax loss carryforwards will not be realizedrealized.
As a result of this analysis and based onDecember 31, 2023, management believes that it is more likely than not that the current year’s taxable income, and utilization of the Company's netbenefit from its deferred tax assets management determined an increase inwill not be realized except for the valuation allowance in the current year to be appropriate.
estimated amount of future tax associated with indefinite lived intangible assets. In calculating the valuation allowance, the Company was notonly 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 finite-lived deferred tax assets; however, the Company is permitted to use its existing deferred tax liabilities related to its indefinite-lived intangible assets as a source of taxable income to support the realization of its existing indefinite-lived deferred tax assets.
As a result of this analysis, management determined an increase in the valuation allowance in the current year to be appropriate.
No provision is made for certain taxes applicable to the undistributed earnings of the Company's foreign subsidiaries as it is the intention of management to fully utilize those earnings in the operations of foreign subsidiaries.
The Tax Cuts and Jobs Act created a new requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income ("GILTI"), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. The company elected to treat the tax effect of GILTI as a current-period expense when incurred.
In the current year, the income tax provision includes an increase in deferred tax assets and corresponding increase in valuation allowance of $10.8 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 $3.3 million from foreign net operating loss carryforwards related to the MENU Acquisition.
In 2022, the income tax provision included 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, 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
and 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 provision 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 liability in connection with the retirement of a portion of the 2024 Notes issued in 2019. The reversal of that deferred tax liability eliminated future taxable income for the utilization of existing deferred tax assets of the Company, resulting in a $3.0 million increase to the Company’s valuation allowance.
In 2019, 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 issuance of the 2024 Notes. The establishment of that deferred tax liability created "future taxable income" for the utilization of existing deferred tax assets of the Company, resulting in the $4.1 million reduction of the Company’s valuation allowance.
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 December 31, 2021,2023, the Company had no reserve for uncertain tax positions and the Company believes the Company has adequately provided for its tax-related liabilities. The Company is no longer subject to federal income tax audits for years before 2018.2019.
The following table reconciles the Company's effective tax rate from the U.S. federal statutory tax rate of 21% for each of 2021, 2020, and 2019::
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Federal statutory tax rate | Federal statutory tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % | Federal statutory tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State taxes, net of federal benefit | State taxes, net of federal benefit | 1.3 | | | 2.8 | | | (4.5) | |
| Contingent consideration revaluation | |
| Nondeductible expenses | Nondeductible expenses | (0.8) | | | (0.2) | | | (0.3) | |
| Tax credits (including R&D) | Tax credits (including R&D) | 1.7 | | | 4.5 | | | 4.0 | |
| Foreign income tax rate differential | Foreign income tax rate differential | (0.5) | | | — | | | — | |
| Expired tax credit | — | | | — | | | (1.3) | |
| Deferred tax adjustment | — | | | 0.6 | | | (4.8) | |
| | Stock based compensation | Stock based compensation | (0.7) | | | 0.4 | | | 1.9 | |
| Redemption of notes | — | | | (2.9) | | | — | |
| | Stock based compensation | |
| | Stock based compensation | |
| | Valuation allowance | |
| Valuation allowance | |
| Valuation allowance | Valuation allowance | (10.7) | | | (19.6) | | | 3.2 | |
| | Other | Other | (0.3) | | | 1.0 | | | (0.3) | |
| 11.0 | % | | 7.6 | % | | 18.9 | % |
| Other | |
| Other | |
| (2.9) | | | (2.9) | % | | (1.9) | % | | 11.0 | % |
The effective income tax rate was 11.0%(2.9)%, 7.6%(1.9)% and 18.9%11.0% during the years ended December 31, 2021,2023, December 31, 2020,2022, and December 31, 20192021 respectively. The decrease in 2023 compared to the statutory tax rate of 21.0% was primarily due to the increase in valuation allowance and the foreign income tax rate differential. The decrease in 2022 compared to the statutory tax rate of 21.0% was primarily due to the increase in valuation allowance and the foreign income tax rate differential. The decrease in 2021 compared to the statutory tax 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. The decrease in 2019 compared to the statutory tax rate of 21.0% was primarily due to deferred tax adjustments related to state taxes, offset by changes in the valuation allowance and excess tax benefits resulting from the exercise of non-qualified stock options.
Note 12 — 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 2021, 2020, or 2019. 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 were matched by the Company at the rate of 10.0% of employee's contribution From January 1, 2019 through June 30, 2019. These contributions were matched by the Company at the rate of 50.0% of employee's contributions from July 1, 2019 through December 31, 2021, up to 6.0% of employee's base salary. The Company’s matching contributions under the 401(k) component were $1.1 million, $0.9 million, and $0.8 million in 2021, 2020, and 2019 respectively.
The Company 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 Company has the sole discretion to make employer contributions to the plan on behalf of the participants. No employer contributions were made in 2021, 2020 or 2019.
Note 13 — Commitments and Contingencies
From time to time, the Company is party to legal proceedings arising in the ordinary course of business. Additionally, U.S. Government contract costs are subject to periodic audit and adjustment. Based on information currently available, and based on its evaluation of such information, the Company believes the legal proceedings in which it is currently involved are not material or are not likely to result in a material adverse effect on the Company’s business, financial condition or results of operations, or cannot currently be estimated.
On March 21, 2019, Kandice Neals on behalf of herself and others similarly situated (the “Neals Class”) filed a complaint against PAR Technology Corporation in the Circuit Court of Cook County, Illinois County Department, Chancery Division. The complaint asserted that PAR Technology Corporation violated the Illinois Biometric Information Privacy Act in the alleged collection, use, and storage of her and others' biometric data derived from fingerprint scans taken for authentication purposes on point-of-sale systems. On January 15, 2020, the Neals Class filed an amended complaint against ParTech, Inc. with the Federal District Court of the Northern District of Illinois. The Company’s accrued liability for this matter as of December 31, 2021 was $790 thousand.
Note 14 — Segment and Related Information
The Company is organized in 2two 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.
TheBeginning with the Quarterly Report for the second quarter of 2023, we retroactively combined operating
results noted as "Other" with operating results from our Restaurant/Retail segment is a provider of software, hardwarebecause this better reflects the
manner in which management reviews and services to the restaurant and retail industries. The Restaurant/Retail segment provides multi-unit and individual restaurants, franchisees, and enterprise customers in the three major restaurant categories (fast casual, quick serve, and table service), with operational efficiencies, offering them a fully integrated cloud solution with its Brink POS cloud software for front-of-house, Data Central back-office cloud solution, PAR Pay and PAR Payment Services for payment solutions, and Punchh loyalty and engagement solution, all which are combined on our unified commerce cloud platform. This segment also offers customer support, including field service, installation, depot repair, and 24-hour telephone support. The Government segment provides technical expertise and development of advanced systems and software solutions for the DoD, the intelligence community and other federal agencies. This segment also provides support services for satellite command and control, communication, and IT systems at several DoD facilities worldwide.assesses performance.
Information noted as “Other” primarily relates to the Company’s corporate, home office operations.
Information as to the Company’s segments is set forth in the tables below:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (in thousands) | (in thousands) | 2021 | | 2020 | | 2019 | (in thousands) | 2023 | | 2022 | | 2021 |
| Revenues: | Revenues: | | | | | |
| Restaurant/Retail | |
| Restaurant/Retail | |
| Restaurant/Retail | Restaurant/Retail | $ | 210,351 | | | $ | 142,512 | | | $ | 123,307 | |
| Government | Government | 72,525 | | | 71,274 | | | 63,925 | |
| Total | Total | $ | 282,876 | | | $ | 213,786 | | | $ | 187,232 | |
| | Operating (loss) income : | |
| Operating (loss) income: | |
| Operating (loss) income: | |
| Operating (loss) income: | |
| Restaurant/Retail | |
| Restaurant/Retail | |
| Restaurant/Retail | Restaurant/Retail | $ | (58,262) | | | $ | (28,089) | | | $ | (18,481) | |
| Government | Government | 5,801 | | | 5,644 | | | 5,463 | |
| Other | (1,420) | | | (1,501) | | | (1,167) | |
| | (53,881) | | | (23,946) | | | (14,185) | |
| Other income (expense) – net | (1,279) | | | 808 | | | (449) | |
| Total | |
| Total | |
| Total | |
| Other expense, net | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | (11,916) | | | (8,123) | | | — | |
| Interest expense – net | (18,147) | | | (8,287) | | | (4,571) | |
| Loss before provision for income taxes | $ | (85,223) | | | $ | (39,548) | | | $ | (19,205) | |
| Interest expense, net | |
| Loss before provision for (benefit from) income taxes | |
| | | Depreciation, amortization and accretion: | Depreciation, amortization and accretion: | |
| | Depreciation, amortization and accretion: | |
| | Depreciation, amortization and accretion: | |
| Restaurant/Retail | |
| Restaurant/Retail | |
| Restaurant/Retail | Restaurant/Retail | $ | 19,656 | | | $ | 8,158 | | | $ | 3,858 | |
| Government | Government | 380 | | | 590 | | | 67 | |
| Other | 10,110 | | | 5,704 | | | 3,330 | |
| | Total | |
| Total | |
| Total | Total | $ | 30,146 | | | $ | 14,452 | | | $ | 7,255 | |
| | Capital expenditures including software costs: | Capital expenditures including software costs: | |
| Capital expenditures including software costs: | |
| Capital expenditures including software costs: | |
| Restaurant/Retail | |
| Restaurant/Retail | |
| Restaurant/Retail | Restaurant/Retail | $ | 6,848 | | | $ | 7,245 | | | $ | 4,394 | |
| Government | Government | 711 | | | 1,239 | | | 258 | |
| Other | 728 | | | 747 | | | 1,878 | |
| | Total | Total | $ | 8,287 | | | $ | 9,231 | | | $ | 6,530 | |
| Total | |
| Total | |
| | | | | | | | | | | | | | | | | |
| Revenues by country: | | | | | |
| United States | $ | 392,224 | | | $ | 336,201 | | | $ | 262,164 | |
| International | 23,599 | | | 19,594 | | | 20,712 | |
| Total | $ | 415,823 | | | $ | 355,795 | | | $ | 282,876 | |
| | Year Ended December 31, |
| Year Ended December 31, | |
| Year Ended December 31, | |
| Year Ended December 31, | |
| (in thousands) | (in thousands) | 2021 | | 2020 | |
| | Total assets: | Total assets: | | | | |
| | Total assets: | |
| | Total assets: | |
| Restaurant/Retail | |
| Restaurant/Retail | |
| Restaurant/Retail | Restaurant/Retail | $ | 674,032 | | | $ | 140,606 | | |
| Government | Government | 14,831 | | | 13,150 | | |
| Government | |
| Government | |
| Other | Other | 199,286 | | | 189,993 | | |
| Other | |
| Other | |
| Total | |
| Total | |
| Total | Total | $ | 888,149 | | | $ | 343,749 | | |
| | Goodwill: | Goodwill: | | |
| | Goodwill: | |
| | Goodwill: | |
| Restaurant/Retail | |
| Restaurant/Retail | |
| Restaurant/Retail | Restaurant/Retail | $ | 456,570 | | | $ | 40,478 | | |
| Government | Government | 736 | | | 736 | | |
| Government | |
| Government | |
| Total | |
| Total | |
| Total | Total | $ | 457,306 | | | $ | 41,214 | | |
|
Revenues by country based on the location of the use of the product or services were:
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 | | 2019 |
| United States | $ | 262,164 | | | $ | 195,660 | | | $ | 175,180 | |
| International | 20,712 | | | 18,126 | | | 12,052 | |
| Total | $ | 282,876 | | | $ | 213,786 | | | $ | 187,232 | |
Assets by country based on the location of the asset were:
| | December 31, |
| 2021 | | 2020 | |
| December 31, | |
| December 31, | |
| December 31, | |
| 2023 | |
| United States | |
| United States | |
| United States | United States | $ | 871,184 | | | $ | 322,065 | | |
| International | International | 16,965 | | | 21,684 | | |
| International | |
| International | |
| Total | Total | $ | 888,149 | | | $ | 343,749 | | |
| Total | |
| Total | |
Customers comprising 10% or more of the Company’s total revenues are summarized as follows:
| | December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Restaurant/Retail segment: | |
| | December 31, |
| Yum! Brands, Inc. | |
| | 2021 | | 2020 | | 2019 |
| Restaurant/Retail segment: | | | | | |
| Dairy Queen | 7 | % | | 13 | % | | 9 | % |
| Yum! Brands, Inc. | |
| | Yum! Brands, Inc. | Yum! Brands, Inc. | 11 | % | | 11 | % | | 16 | % | 9 | % | | 10 | % | | 11 | % |
| McDonald’s Corporation | McDonald’s Corporation | 12 | % | | 7 | % | | 10 | % | McDonald’s Corporation | 8 | % | | 12 | % | | 12 | % |
| Government segment: | Government segment: | |
| U.S. Department of Defense | U.S. Department of Defense | 26 | % | | 33 | % | | 34 | % |
| U.S. Department of Defense | |
| U.S. Department of Defense | | 33 | % | | 26 | % | | 26 | % |
| All Others | All Others | 44 | % | | 36 | % | | 31 | % | All Others | 50 | % | | 52 | % | | 51 | % |
| 100 | % | | 100 | % | | 100 | % |
| 100 | | | 100 | % | | 100 | % | | 100 | % |
No other customer within “All Others” represented more than 10% of the Company’s total revenue for the years ended 2021, 2020,2023, 2022, and 2019.2021.
Note 15 — Fair Value of Financial Instruments
The Company’s financial instruments have been recorded at fair value using available market information and valuation techniques. The fair value hierarchy is based upon three levels of input, which are:
Level 1 − quoted prices in active markets for identical assets or liabilities (observable)
Level 2 − inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable market data for essentially the full term of the asset or liability (observable)
Level 3 − unobservable inputs that are supported by little or no market activity, but are significant to determining the fair value of the asset or liability (unobservable)
The Company’s financial instruments primarily consist of cash and cash equivalents, trade receivables, trade payables,cash held on behalf of customers, short-term investments, debt instruments and deferred compensation assets and liabilities. The carrying amounts of cash and cash equivalents, trade receivablescash held on behalf of customers, and trade payablesshort-term investments as of December 31, 20212023 and December 31, 20202022 were considered representative of their fair 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 9 - Debt" for additional information). The estimated fair value of the 2026 Notes and 2027 Notes at December 31, 2023 was $145.6 million and $236.1 million, respectively. As of December 31, 2022 the fair value of the 2024 Notes, 2026 Notes, and 2027 Notes at December 31, 2021 was $27.2$17.4 million, $175.5$112.8 million, and $267.5 million, respectively. As of December 31, 2020 the fair value of the 2024 Notes and the 2026 Notes was $30.6 million and $195.4$191.0 million, respectively. The valuation techniques used to determine the fair values of 2024 Notes, 2026 Notes, and 2027 Notes are classified within Level 2 of the fair value hierarchy.
hierarchy as they are derived from broker quotations.
The deferredDeferred compensation assets and liabilities primarily relate to the Company’s deferred compensation plan, which allows for pre-tax salary deferrals for certain key employees. Changes in the fair value of the deferred compensation liabilities are derived using quoted prices in active markets of the asset selections made by theplan participants. The deferredDeferred compensation liabilities are classified withinin Level 2, the fair value classification as defined under FASB ASC Topic 820:820, Fair Value Measurements,, because their inputs are derived principally from observable market data by correlation to the hypothetical investments. The Company holds insurance investments to partially offset the Company’s liabilities under its deferred compensation plan, which are recorded at fair value each period using the cash surrender value of the insurance investments.
The amountscash surrender value of the life insurance policy was $3.3 million and $3.2 million at December 31, 2023 and December 31, 2022, respectively, and is included in other assets on the consolidated balance sheets. Amounts owed to employees participating in the deferred compensation plan at December 31, 20212023 was $2.4$1.4 million compared to $2.8$1.7 million at December 31, 20202022 and is included in other long-term liabilities on the consolidated balance sheets.
The Company useduses Monte Carlo simulation modeling of a Monte-Carlo simulationdiscounted cash flow model to determine the fair value of the Earn-Outearn-out liability associated with the Restaurant MagicMENU Acquisition. ThisSignificant inputs used in the simulation used probability distribution for each significant input to produce hundreds or thousands of possible outcomesare not observable in the market and thus the results are analyzed to determine probabilities of different outcomes occurring,liability represents a Level 3 fair value measurement as such it is classified as Level 3. Significant increases or decreases to these inputsdefined in isolation could result in a significantly higher or lower liability.ASC 820. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the liability on the acquisition date iswill be reflected as cash used in financing activities in the Company's consolidated statements of cash flows. Any amount paid in excess of the liability on the acquisition date iswill be reflected as cash used in operating activities. The Restaurant Magic Acquisition resulted in a liability forCompany determined the contingent consideration being recorded in the amount of $3.3 million during 2019. The liability for the contingent consideration was established at the timefair value of the acquisition and is evaluated quarterly based on additional information as it becomes available. As a result, an adjustment of $3.3 million has been recorded during 2020 to reduce theMENU earn-out contingent liability to zero as ofbe $0.6 million at December 31, 2020. The fair value adjustment is recorded in the earnings as a component of operating expense in the consolidated financial statements. No additional adjustments were made by the Company during 2021. The contingent consideration expires on December 31, 2022.2023.
The following table presents the changes in the estimated fair values of the Company’s liabilities for contingent consideration measured using significant unobservable inputs (Level 3) for fiscal years 2021 and 2020 (in thousands):year 2023:
| | | | | |
Balance at (in thousands) | |
December 31, 20192021 | $ | 3,340— | |
| New contingent consideration | —14,200 | |
| Change in fair value of contingent consideration | (3,340)(4,400) | |
Settlement of contingent consideration | — | |
Balance at December 31, 20202022 | $9,800 | | — |
| New contingent consideration | — |
| Change in fair value of contingent consideration | — (9,200) | |
| Settlement of contingent consideration | — |
Balance at December 31, 20212023 | $ | —600 | |
The following tables providesprovide quantitative information associated with the fair value measurement of the Company’s liabilities for contingent consideration:
| | | December 31, 2023 | |
| Contingency Type | |
| Contingency Type | |
| Contingency Type | | | Maximum Payout (1) (undiscounted) (in thousands) | | Fair Value | | Valuation Technique | | Unobservable Inputs | | Weighted Average or Range |
| Revenue based payments | | Revenue based payments | | $ | 5,600 | | | $ | 600 | | | Monte Carlo | | Revenue volatility | | 25.0 | % |
| | | December 31, 2021 | |
| Contingency Type | | Maximum Payout (undiscounted) (in thousands) | | Fair Value | | Valuation Technique | | Unobservable Inputs | | Weighted Average or Range |
| Revenue-based payments | | $ | 1,965 | | | $ | — | | | Monte Carlo | | Revenue volatility | | 25.0 | % |
| | | Discount rate | | 14.0 | % |
| | | Projected year of payment | | 2022 |
| | | | | | | | Discount rate | |
| | | | | | | | | Discount rate | |
| | | | | | | | | Discount rate | | | 11.5 | % |
| | | | | | | | Projected year of payments | | | | | | | | | | Projected year of payments | | 2024 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | | | | | |
| Contingency Type | | Maximum Payout (undiscounted) (in thousands) | | Fair Value | | Valuation Technique | | Unobservable Inputs | | Weighted Average or Range |
| Revenue-based payments | | $ | 1,965 | | | $ | — | | | Monte Carlo | | Revenue volatility | | 25.0 | % |
| | | | | | | | Discount rate | | 14.0 | % |
| | | | | | | | Projected years of payment | | 2021-2022 |
(1) Maximum payout as determined by Monte Carlo valuation simulation; the disclosed contingency is not subject to a contractual maximum payout.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 contractual maximum payout.
Note 16 — Subsequent Events
On January 2, 2024 the Company entered into a consulting agreement with PAR Act III, LLC ("PAR Act III") pursuant to which PAR Act III will provide the Company with strategic consulting, merger and acquisition technology due diligence, and other professional and expert services that may be requested from time to time by the Company’s Chief Executive Officer. In consideration for the services provided under the consulting agreement, the Company amended its common stock purchase warrant issued to PAR Act III on April 8, 2021 to extend the termination date of the warrant to April 8, 2028, subject to the consulting agreement remaining in effect through April 8, 2026. The warrant provides PAR Act III the right to purchase 500,000 shares of Company common stock at an exercise price of $76.50 per share and 3,975 shares of Company common stock at an exercise price of $75.90 per share.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and ProceduresProcedures.
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer, (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in RulesRule 13a-15(e) and Rule 15d-15(e) ofunder the Exchange Act) as of December 31, 2021.2023. Based on that evaluation, our CEOChief Executive Officer and CFOChief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2021 due to material weaknesses in our internal control over financial reporting, which are described below in “Management’s Annual Report on Internal Control over Financial Reporting”.2023.
Management’s Annual Report on Internal Control over Financial ReportingReporting.
Our management, including our CEOChief Executive Officer and CFO, conducted an evaluationChief 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). Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 20212023 based on the framework and criteria established in the Internal Control –— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
We acquired Punchh Inc.Commission. Based on April 8, 2021. Accordingly, due to the timing and complexity of the acquisition, as permitted by SEC guidance, management’s assessment of the Company’s internal control over financial reporting as of December 31, 2021 excludes Punchh. Punchh's total assets constituted 3.6% and its total revenues constituted 9.8% ofevaluation, our consolidated financial condition and results of operations as of the year ended December 31, 2021. Our management is currently in the process of evaluating Punchh’s controls and procedures and integrating Punchh into our system of internal control over financial reporting.
As a result of management’s evaluation of the effectiveness of our internal control over financial reporting, our CEO and CFO concluded that as of December 31, 2021, the Company had material weaknesses related to two components of the COSO framework - control activities and monitoring activities, and, as a result, our internal control over financial reporting was not effective as of December 31, 2021. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As of December 31, 2021, management identified the following material weaknesses in two components of internal control over financial reporting as defined by COSO.
Control activities: Management identified deficiencies in the principles associated with the control activities component of the COSO framework. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) developing control activities that contribute to the mitigation of risks to the achievement of objectives to acceptable levels and (ii) deploying control activities through internal control policies that establish what is expected and procedures that put policies into action.
Monitoring activities: Management identified deficiencies in the principles associated with the monitoring component of the COSO framework. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to (i) selecting, developing, and performing ongoing evaluation to ascertain whether the components of internal controls are present and functioning, and (ii) evaluating and communicating internal control deficiencies in a timely manner to those parties responsible for taking corrective action.
The following factors contributed to the identified material weaknesses in the Company’s control and monitoring activities:
•The Punchh Acquisition and capital markets transactions during the second and third quarters of 2021 were non-recurring transactions that led to deficient control activities and delayed testing of certain newly implemented or redesigned controls.
•The Company’s redesign of certain controls in 2021 did not include all of the design elements of control activities to address the risks of material misstatement, including the timeliness of the performance of the controls, as well as the completeness and accuracy of the controls over the information used in those controls.
•Certain control activities involving information obtained from a third-party specialist to the Company and reviewed by management resulted in errors; these errors were subsequently corrected by management without impact to Company’s financial statements.
•Delays in control testing negatively impacted the timing of identifying deficiencies, limiting management’s ability to provide appropriate oversight, monitoring and enforcement of corrective actions.2023.
The effectiveness of our internal control over financial reporting as of December 31, 20212023 has been audited by Deloitte & Touche LLP, anour independent registered public accounting firm, as stated in theirits report included in this Annual Report. This report contains an adverse opinion on the effectiveness of our internal control over financial reporting.
Remediation Efforts to Address the Material Weaknesses
While the Company has improved its organizational capabilities, the material weaknesses identified in the prior year remain unremediated as of December 31, 2021 and the Company’s remediation efforts will continue to take place in 2022.
In response to the material weaknesses in our internal control over financial reporting identified as of December 31, 2020, our management, with the oversight of the audit committee of our Board of Directors, has dedicated resources and efforts to improve our internal controls over financial reporting and has taken action to remediate such material weaknesses. While certain remedial actions were completed, we continue to actively plan for and implement additional control procedures as described below.
The Company continues to strengthen its internal control over financial reporting and has made progress updating the design and implementation of its internal control over financial reporting to remediate the identified material weaknesses. Remediation activities include the following:
•In the quarter ended December 31, 2021, the Company hired an Internal Audit Director, with experience in managing the internal control over financial reporting process for public companies and plans to hire additional internal audit resources.
•The Company will continue to evaluate the assignment of responsibilities, internal and external, associated with the performance of control activities and consider hiring additional resources or providing additional training to existing resources.
•The Company will continue to educate control owners and enhance policies to ensure that all design elements of control activities are addressed in the performance of control activities.
•The Company plans to implement a cloud-based internal audit platform tool in 2022 for purposes of streamlining the internal tracking of the Company’s internal control over financial reporting efforts, including real-time tracking of remediation efforts. This platform will also serve as the repository for the evidence necessary to demonstrate that control activities are operating as designed.
•The Company will enhance the design of its controls over non-routine, complex transactions, and control activities that involve the use of third parties.
•The Company will continue the process of implementing or enhancing control activities, including automating manual processes, which is expected to help increase the efficiency of processing transactions and produce accurate and timely information.
In addition, under the direction of the audit committee of the Board of Directors, management will continue to review and make necessary changes to the overall design of the Company’s internal control environment, as well as to refine policies and procedures to improve the overall effectiveness of internal control over financial reporting of the Company.
As we continue our evaluation and assess the effectiveness of our internal control over financial reporting, management may modify the actions described above or identify and take additional measures to address control
deficiencies. While we believe we are making progress toward achieving the effectiveness of our internal control over financial reporting and disclosure controls, until our remediation efforts, including any additional measures management identifies as necessary, are complete and operate for a sufficient period of time, the material weaknesses described above will continue to exist and management will not be able to conclude that they are remediated.
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and management must apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial ReportingReporting.
Except as noted above, there were noIn its evaluation of changes in our internal control over financial reporting, identifiedour management, with the participation of our Chief Executive Officer and Chief Financial Officer, did not identify changes that occurred in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Actour internal control over financial reporting during the quarter ended December 31, 20212023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of PAR Technology Corporation:Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of PAR Technology Corporation’sCorporation and subsidiaries (the “Company”) as of December 31, 2021,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021,2023, of the Company and our report dated March 1, 2022,February 27, 2024, expressed an unqualified opinion 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 Punchh, Inc. and subsidiaries, which was acquired on April 8, 2021, and whose financial statements constitute, in aggregate, 3.6% of total assets and 9.8% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2021. Accordingly, our audit did not include the internal control over financial reporting at Punchh, Inc. and subsidiaries.
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 Management’s Annual Report on Internal Control Over Financial 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 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, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, 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.
Material Weaknesses
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 the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment: deficiencies in the principles associated with the control activities component of the COSO framework, which, either individually or in the aggregate, constitute a material weakness relating to: (i) developing control activities that contribute to the mitigation of risks to the achievement of objectives to acceptable levels and (ii) deploying control activities through internal control policies that establish what is expected and procedures that put policies into action. In addition, deficiencies in the principles associated with the monitoring component of the COSO framework, which, either individually or in the aggregate, constitute a material weakness relating to: (iii) selecting, developing, and performing ongoing evaluation to ascertain whether the components of internal controls are present and functioning, and (iv) evaluating and communicating internal control deficiencies in a timely manner to those parties responsible for taking corrective action. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2021, of the Company, and this report does not affect our report on such financial statements.
/s/ Deloitte & Touche LLP
Rochester, New York
March 1, 2022February 27, 2024
Item 9B. OTHER INFORMATION
On December 7, 2023, Bryan Menar, our Chief Financial Officer, entered into a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. The plan provides for the sale of up to 10,915 shares that will vest during the duration of the plan pursuant to certain equity awards granted to Mr. Menar. Mr. Menar's plan will expire on November 29, 2024, subject to early termination for certain specified events set forth in the plan.
None of the Company’s other directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as defined in Item 408 of Regulation S-K, during the three months ended December 31, 2023.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.applicable.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be included in our definitive proxy statement for our 20222024 Annual Meeting of StockholdersShareholders and is incorporated herein by reference as it appears under the headings, “Proposal 1: Election of Directors,” “Directors,” “Executive Officers” “Corporate Governance - Code of Conduct,” and “Corporate Governance - Committees - Audit Committee.”
Item 11. EXECUTIVE COMPENSATION
The information required by this item will be included in our definitive proxy statement for our 20222024 Annual Meeting of StockholdersShareholders and is incorporated herein by reference as it appears under the headings, “Director Compensation” and “Overview of Executive“Executive Compensation.”
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERSHAREHOLDER MATTERS
The information required by this item will be included in our definitive proxy statement for our 20222024 Annual Meeting of StockholdersShareholders and is incorporated herein by reference as it appears under the headings, “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management.”
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be included in our definitive proxy statement for our 20222024 Annual Meeting of StockholdersShareholders and is incorporated herein by reference as it appears under the headings, “Transactions with Related Persons” and “Corporate Governance – Director Independence.”
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included in our definitive proxy statement for our 20222024 Annual Meeting of StockholdersShareholders and is incorporated herein by reference as it appears under the heading, “Principal Accounting Fees and Services.”
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements:
PAR's consolidated financial statements and notes thereto are included in Part"Part II, Item 88. Financial Statements and Supplementary 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 |
| | | | |
| 2.2 *** | | Form 10-Q (File No. 001-09720) | 10.3 | 11/14/2014 |
| | | | |
| 3.1 | | Form 10-K (File No. 001-09720) | 3.1 | 3/16/2021 |
| | | | |
| 3.2 | | Form 10-Q (File No.001-09720) | 3 | 5/11/2020 |
| | | | |
| 4.1 | | Form S-2 (File No. 333-04077) | 4 | 5/20/1996 |
| | | | |
| 4.2 | | Form 8-K (File No. 001-09720)
| 4.1 | 2/10/2020 |
| | | | |
| 4.3 | | Form 8-K (File No. 001-09720) | 4.1 | 9/17/2021 |
| | | | |
| 4.4 | | Form 8-K (File No. 001-09720) | 4.2 | 9/17/2021 |
| | | | |
| 4.5 | | Form 8-K (File No. 001-09720) | 4.1 | 4/15/2019 |
| | | | |
| 4.6 | | | | Filed herewith |
| | | | |
10.1 ††
| | Form S-8 (File No. 333-187246) | 4.1 | 3/14/2013 |
| | | | |
| 10.2 †† | | Form 10-Q (File No. 001-09720) | 10.1 | 8/8/2013 |
| | | | |
| 10.3 †† | | Form 10-K (File No. 001-09720) | 10.17 | 3/14/2014 |
| | | | |
| 10.4 †† | | Form 10-K (File No. 001-09720) | 10.21 | 3/31/2015 |
| | | | | | | | | | | | | | | | | |
| | 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 | 2/14/2024 | |
| | | | | |
| 4.1 | | Form S-2 (File No. 333-04077) | 4 | 5/20/1996 | |
| | | | | |
| 4.2 | | Form 8-K (File No. 001-09720)
| 4.1 | 2/10/2020 | |
| | | | | |
| 4.3 | | Form 8-K (File No. 001-09720) | 4.1 | 9/17/2021 | |
| | | | | |
| 4.4 | | 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 | 11/16/2015 | |
| | | | | |
| 10.2 †† | | Form S-8 (File No. 333-208063) | 4.3 | 11/16/2015 | |
| | | | | |
| 10.3 †† | | Form S-8 (File No. 333-208063) | 4.4 | 11/16/2015 | |
| | | | | |
10.4 ††
| | Form 10-K (File No. 001-09720) | 10.16 | 3/16/2018 | |
| | | | | |
| 10.5 †† | | Form 10-K (File No. 001-09720) | 10.17 | 3/16/2018 | |
| | | | | |
| | | | | | | | | | | | | | |
| | 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) | 10.23 | 3/31/2015 |
| | | | |
| 10.6 †† | | Form S-8 (File No. 333-208063) | 4.2 | 11/16/2015 |
| | | | |
| 10.7 †† | | Form S-8 (File No. 333-208063) | 4.3 | 11/16/2015 |
| | | | |
10.8 ††
| | Form S-8 (File No. 333-208063) | 4.4 | 11/16/2015 |
| | | | |
| 10.9 †† | | Form 10-K (File No. 001-09720) | 10.22 | 4/17/2017 |
| | | | |
10.10 ††
| | Form 10-K (File No. 001-09720) | 10.16 | 3/16/2018 |
| | | | |
10.11 ††
| | Form 10-K (File No. 001-09720) | 10.17 | 3/16/2018 |
| | | | |
| 10.12 | | Form 8-K (File No. 001-09720) | 10.1 | 4/15/2019 |
| | | | |
10.13 ††
| | Form S-8 (File No. 333-232589) | 99.1 | 7/9/2019 |
| | | | |
| 10.14 †† | | Form 10-Q (File No. 001-09720) | 10.2 | 8/7/2019 |
| | | | |
| 10.15 †† | | Form 10-Q (File No. 001-09720) | 10.3 | 8/7/2019 |
| | | | |
| 10.16 †† | | Form 10-Q (File No. 001-09720) | 10.4 | 8/7/2019 |
| | | | |
| 10.17 | | Form 8-K (File No. 001-09720) | 10.1 | 2/10/2020 |
| | | | |
| 10.18 †† | | Form 10-K (File No. 001-09720) | 10.15 | 3/16/2020 |
| | | | |
| 10.19 †† | | Form 10-K (File No. 001-09720) | 10.20 | 3/16/2020 |
| | | | |
| | | | | | | | | | | | | | |
| | Incorporated by reference into this Annual
Report on Form 10-K |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed |
| 10.20†† | | Form S-8 (File No. 333-239230) | 99.1 | 6/17/2020 |
| | | | |
| 10.21 | | Form 8-K (File
No. 001-09720) | 1.1 | 10/1/2020 |
| | | | |
| 10.22†† | | Form 10-K (File No. 001-09720) | 10.24 | 3/16/2021 |
| | | | |
| 10.23 | | Form 8-K (File
No. 001-09720) | 10.1 | 4/8/2021 |
| | | | |
| 10.24 | | Form 8-K (File
No. 001-09720) | 10.2 | 4/8/2021 |
| | | | |
| 10.25 | | Form 8-K (File
No. 001-09720) | 10.3 | 4/8/2021 |
| | | | |
| 10.26 | | Form 8-K (File
No. 001-09720) | 10.4 | 4/8/2021 |
| | | | |
| 10.27 | | Form 8-K (File
No. 001-09720) | 10.5 | 4/8/2021 |
| | | | |
| 10.28 | | Form 8-K (File
No. 001-09720) | 10.6 | 4/8/2021 |
| | | | |
| 10.29 | | Form 8-K (File
No. 001-09720) | 10.7 | 4/8/2021 |
| | | | |
| 10.30 | | Form 8-K (File
No. 001-09720) | 1.1 | 9/17/2021 |
| | | | |
| 10.31 | | Form 8-K (File
No. 001-09720) | 1.2 | 9/17/2021 |
| | | | |
| 10.32†† | | | | Filed herewith |
| | | | |
| 10.33†† | | | | Filed herewith |
| | | | |
| 10.34†† | | | | Filed herewith |
| | | | |
| | | | | | | | | | | | | | | | | |
| | Incorporated by reference into this Annual
Report on Form 10-K | |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed | |
10.6 ††
| | Form S-8 (File No. 333-232589) | 99.1 | 7/9/2019 | |
| | | | | |
| 10.7 †† | | Form 10-Q (File No. 001-09720) | 10.2 | 8/7/2019 | |
| | | | | |
| 10.8 †† | | Form 10-Q (File No. 001-09720) | 10.3 | 8/7/2019 | |
| | | | | |
| 10.9 †† | | Form 10-Q (File No. 001-09720) | 10.4 | 8/7/2019 | |
| | | | | |
| 10.10 †† | | Form 10-K (File No. 001-09720) | 10.15 | 3/16/2020 | |
| | | | | |
| 10.11 †† | | | | Filed herewith | |
| | | | | |
| 10.12 †† | | Form 10-K (File No. 001-09720) | 10.22 | 4/17/2017 | |
| | | | | |
| 10.13 †† | | Form 10-K (File No. 001-09720) | 10.20 | 3/16/2020 | |
| | | | | |
| 10.14 †† | | Form S-8 (File No. 333-239230) | 99.1 | 6/17/2020 | |
| | | | | |
| 10.15 †† | | Form 10-K (File No. 001-09720) | 10.24 | 3/16/2021 | |
| | | | | |
| 10.16 | | Form 8-K (File
No. 001-09720) | 10.2 | 4/8/2021 | |
| | | | | |
| 10.17 | | Form 8-K (File
No. 001-09720) | 10.3 | 4/8/2021 | |
| | | | | |
| 10.18 | | Form 8-K (File
No. 001-09720) | 10.4 | 4/8/2021 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | Incorporated by reference into this Annual
Report on Form 10-K | |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed | |
| 10.19 | | Form 8-K (File
No. 001-09720) | 10.5 | 4/8/2021 | |
| | | | | |
| 10.20 | | Form 8-K (File
No. 001-09720) | 10.6 | 4/8/2021 | |
| | | | | |
| 10.21 | | Form 8-K (File
No. 001-09720) | 10.7 | 4/8/2021 | |
| | | | | |
| 10.22 †† | | Form 10-K (File No. 001-09720) | 10.32 | 3/1/2022 | |
| | | | | |
| 10.23 †† | | Form 10-K (File No. 001-09720) | 10.33 | 3/1/2022 | |
| | | | | |
| 10.24 †† | | Form 10-Q (File No. 001-09720) | 10.1 | 5/10/2022 | |
| | | | | |
| 10.25 †† | | Form 10-Q (File No. 001-09720) | 10.1 | 5/10/2023 | |
| | | | | |
| 10.26 | | Form 8-K (File
No. 001-09720) | 99.1 | 1/4/2024 | |
| | | | | |
| 10.27 | | Form 8-K (File
No. 001-09720) | 99.2 | 1/4/2024 | |
| | | | | |
| 21 | | | | Filed herewith | |
| | | | | |
| 23.1 | | | | Filed herewith | |
| | | | | |
| 31.1 | | | | Filed herewith | |
| | | | | |
| 31.2 | | | | Filed herewith | |
| | | | | |
| 32.1 | | | | Furnished herewith | |
| | | | | |
| 32.2 | | | | Furnished herewith | |
| | | | | |
| 97 | | | | Filed herewith | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | Incorporated by reference into this Annual
Report on Form 10-K | |
Exhibit Number |
Exhibit Description | Form (File No.) | Exhibit | Date Filed |
| 21 | | | Filed herewith |
| | | | |
23.1 | | | | Filed herewith |
| | | | |
23.2 | | | | Filed herewith |
| | | | |
31.1 | | | | Filed herewith
|
| | | | |
31.2 | | | | Filed herewith
|
| | | | |
32.1 | | | | Furnished herewith
|
| | | | |
32.2 | | | | Furnished herewith
|
| | | | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | | Filed herewith | |
| | | | | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | | Filed herewith | |
| | | | | |
| 101.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 grant of confidential treatment. The omitted portions have been separately filed with the Securities and Exchange Commission.
Item 16. FORM 10-K SUMMARY
NoneNone.
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, 2022February 27, 2024 | /s/ Savneet Singh |
| Savneet Singh |
| 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 |
| | | |
| /s/ Savneet Singh | | Chief Executive Officer, President & Director | |
| Savneet Singh | | (Principal Executive Officer) | March 1, 2022February 27, 2024 |
| | | |
| /s/ Bryan A. Menar | | Chief Financial and Accounting Officer | |
| Bryan A. Menar | | (Principal Financial Officer) | February 27, 2024 |
| | | |
| /s/ Michael A. Steenberge | | Chief Accounting Officer and | |
| Michael A. Steenberge | | (Principal Accounting Officer) | March 1, 2022February 27, 2024 |
| | | |
| /s/ Cynthia A. Russo | | | |
| Cynthia A. Russo | | Director | March 1, 2022February 27, 2024 |
| | | |
| /s/ Douglas G. Rauch | | | |
| Douglas G. Rauch | | Director | March 1, 2022February 27, 2024 |
| | | |
/s/ Keith Pascal | | | |
Keith Pascal | | Director | March 1, 2022 |
| | | |
/s/ Narinder Singh | | | |
Narinder Singh | | Director | March 1, 2022 |
| | | |
| /s/ James C. Stoffel | | | |
| James C. Stoffel | | Director | March 1, 2022February 27, 2024 |
| | | |
| /s/ Keith Pascal | | | |
| Keith Pascal | | Director | February 27, 2024 |
| | | |
| /s/ Linda M. Crawford | | | |
| Linda M. Crawford | | Director | February 27, 2024 |
| | | |
| /s/ Narinder Singh | | | |
| Narinder Singh | | Director | February 27, 2024 |
