PAR(PAR) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The company presents its unaudited condensed consolidated financial statements and accompanying notes for the period Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets: | | | | Cash and cash equivalents | $89,504 | $188,419 | | Short-term investments | $40,015 | — | | Total current assets | $233,256 | $283,007 | | Goodwill | $485,121 | $457,306 | | Total assets | $864,741 | $888,149 | | Liabilities & Equity: | | | | Total current liabilities | $65,759 | $60,517 | | Long-term debt | $388,680 | $305,845 | | Total liabilities | $481,655 | $383,804 | | Total shareholders' equity | $383,086 | $504,345 | | Total Liabilities and Shareholders' Equity | $864,741 | $888,149 | - Cash and cash equivalents decreased significantly from $188.4 million at December 31, 2021, to $89.5 million at September 30, 2022[9] - Long-term debt increased from $305.8 million to $388.7 million, while total shareholders' equity decreased from $504.3 million to $383.1 million[9] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues, net | $92,767 | $77,860 | $258,145 | $201,277 | | Gross margin | $21,408 | $18,214 | $63,142 | $43,517 | | Operating loss | $(18,443) | $(14,109) | $(47,351) | $(37,105) | | Net loss | $(21,340) | $(31,933) | $(55,838) | $(50,160) | | Net loss per share (basic and diluted) | $(0.79) | $(1.23) | $(2.06) | $(2.05) | | Weighted average shares outstanding | 27,110 | 25,998 | 27,150 | 24,485 | - Total revenues increased by 19.1% for the three months and 28.3% for the nine months ended September 30, 2022, compared to the respective prior periods[11] - Net loss decreased from $(31.9) million to $(21.3) million for the three months ended September 30, 2022, but increased from $(50.2) million to $(55.8) million for the nine-month period[11] Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(21,340) | $(31,933) | $(55,838) | $(50,160) | | Foreign currency translation adjustments | $(851) | $(500) | $(56) | $(109) | | Comprehensive loss | $(22,191) | $(32,042) | $(56,338) | $(50,216) | - Comprehensive loss for the three months ended September 30, 2022, was $(22.2) million, compared to $(32.0) million in the prior year, primarily due to the net loss[13] - For the nine months ended September 30, 2022, comprehensive loss was $(56.3) million, an increase from $(50.2) million in the prior year[13] Condensed Consolidated Statements of Changes in Shareholders' Equity Condensed Consolidated Statements of Changes in Shareholders' Equity (in thousands) | Metric | Dec 31, 2021 | Jan 1, 2022 (Adjusted) | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Total Shareholders' Equity | $504,345 | $424,309 | $383,086 | | Accumulated Deficit | $(122,505) | $(135,885) | $(191,723) | | Additional Paid in Capital | $640,937 | $574,281 | $592,100 | | Common Stock Shares | 28,095 | 28,095 | 28,529 | - Total shareholders' equity decreased from $504.3 million at December 31, 2021, to $383.1 million at September 30, 2022, partly due to the impact of ASU 2020-06 implementation and accumulated net losses[15] - The Company recorded a cumulative effect upon adoption of ASU 2020-06 on January 1, 2022, which included an $80.0 million reduction to total shareholders' equity[15][38] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(33,579) | $(43,619) | | Net cash used in investing activities | $(64,343) | $(381,052) | | Net cash (used in) provided by financing activities | $(1,968) | $444,280 | | Net (decrease) increase in cash and cash equivalents | $(98,915) | $19,607 | | Cash and equivalents at end of period | $89,504 | $200,293 | - Cash used in operating activities decreased from $43.6 million in 2021 to $33.6 million in 2022, primarily due to an increase in net loss and working capital requirements[20][191] - Investing activities used $64.3 million in 2022, significantly less than $381.1 million in 2021, mainly due to lower cash paid for acquisitions ($18.8 million in 2022 vs $374.7 million in 2021)[20][192] - Financing activities shifted from providing $444.3 million in 2021 to using $2.0 million in 2022, reflecting reduced debt and equity issuances[20][193] Notes to Condensed Consolidated Financial Statements NOTE 1: BASIS OF PRESENTATION - The financial statements are prepared in accordance with GAAP for interim reporting and include all necessary adjustments for fair presentation[23] - The Company operates in two segments: Restaurant/Retail (SaaS solutions like Brink POS, Data Central, PAR Pay, Punchh, MENU) and Government (technical expertise and advanced systems for DoD and federal agencies)[25] - The Company adopted ASU No 2020-06 on January 1, 2022, under the modified retrospective method, resulting in an $81.3 million increase to convertible notes and a $66.6 million reduction to additional paid-in capital, eliminating the separation of convertible debt between debt and equity[38] NOTE 2: REVENUE RECOGNITION - Revenue is derived from SaaS, hardware/software sales, activation, support, installations, maintenance, and professional services, recognized either at a point in time or over time[41][42] - Government segment revenue is predominantly service-related and recognized over time, often using costs incurred to measure progress[44] Disaggregated Revenue (in thousands) - 3 Months Ended Sep 30 | Segment/Type | 2022 | 2021 | | :--- | :--- | :--- | | Restaurant/Retail (point in time) | $35,619 | $35,109 | | Restaurant/Retail (over time) | $32,734 | $24,712 | | Government (point in time) | $541 | $55 | | Government (over time) | $23,873 | $17,984 | | Total | $92,767 | $77,860 | Disaggregated Revenue (in thousands) - 9 Months Ended Sep 30 | Segment/Type | 2022 | 2021 | | :--- | :--- | :--- | | Restaurant/Retail (point in time) | $97,937 | $85,709 | | Restaurant/Retail (over time) | $93,433 | $61,820 | | Government (point in time) | $753 | $220 | | Government (over time) | $66,022 | $53,528 | | Total | $258,145 | $201,277 | NOTE 3: ACQUISITIONS - During Q3 2022, ParTech acquired MENU Technologies AG for approximately $18.4 million cash and $6.3 million in common stock, with a contingent earn-out liability of $14.2 million[57][59] - The MENU acquisition resulted in $28.5 million in goodwill and $10.7 million in developed technology[59] - The Punchh Acquisition (April 2021) was finalized in Q1 2022, resulting in $415.1 million in goodwill and $84.6 million in developed technology[65][66] NOTE 4: ACCOUNTS RECEIVABLE, NET Accounts Receivable - Net (in thousands) | Segment | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Government segment | $14,747 | $11,667 | | Restaurant/Retail segment | $40,098 | $38,311 | | Total Accounts receivable - net | $54,845 | $49,978 | - Accounts receivable increased by $4.9 million from December 31, 2021, to September 30, 2022, with both segments contributing to the increase[68] - Current expected credit loss for the Restaurant/Retail segment increased from $1.3 million at December 31, 2021, to $1.8 million at September 30, 2022[68][69] NOTE 5: INVENTORIES Inventories (in thousands) | Component | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Finished goods | $24,729 | $17,528 | | Work in process | $160 | $688 | | Component parts | $13,857 | $14,880 | | Service parts | $961 | $1,982 | | Total Inventories | $39,707 | $35,078 | - Total inventories increased by $4.6 million from December 31, 2021, to September 30, 2022, primarily driven by an increase in finished goods[70] - Excess and obsolescence reserves against inventories increased from $10.8 million to $12.6 million during the same period[71] NOTE 6: IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL - Identifiable intangible assets include acquired developed technology, internally developed software costs, customer relationships, and trade names[79] Identifiable Intangible Assets (in thousands) | Asset Type | Sep 30, 2022 | Dec 31, 2021 | Estimated Useful Life | | :--- | :--- | :--- | :--- | | Acquired developed technology | $119,800 | $109,100 | 3 - 7 years | | Internally developed software costs | $30,033 | $25,735 | 3 years | | Customer relationships | $12,360 | $12,360 | 7 years | | Trademarks, trade names (non-amortizable) | $6,200 | $6,200 | Indefinite | | Total Identifiable Intangible Assets (net) | $116,242 | $118,763 | | - Goodwill increased from $457.3 million at December 31, 2021, to $485.1 million at September 30, 2022, primarily due to the MENU Acquisition ($28.5 million) and Q1 2022 Acquisition ($1.2 million)[81] NOTE 7: DEBT Long-Term Debt (in thousands) | Notes | Sep 30, 2022 (Net Carrying Amount) | Dec 31, 2021 (Net Carrying Amount) | | :--- | :--- | :--- | | 2024 Notes | $13,447 | $11,846 | | 2026 Notes | $117,322 | $98,147 | | 2027 Notes | $257,911 | $195,852 | | Total Long-Term Debt | $388,680 | $305,845 | - The Company's long-term debt increased to $388.7 million at September 30, 2022, from $305.8 million at December 31, 2021, primarily due to the adoption of ASU 2020-06 which reclassified the equity component of convertible notes to debt[82][38] - Interest expense, net, decreased significantly for both the three and nine months ended September 30, 2022, due to the extinguishment of the Owl Rock Term Loan in September 2021 and reduced accretion from ASU 2020-06 adoption[94][163][164] NOTE 8: COMMON STOCK - The Company issued 162,917 shares of common stock as part of the purchase consideration for the MENU Acquisition in July 2022, valued at $6.3 million[99][206] - In September 2021, the Company completed a public offering, issuing 982,143 shares for net proceeds of $52.5 million[97] - In April 2021, the Company issued 2,352,942 shares through a private placement to Act III and TRP, raising approximately $160.0 million to partially fund the Punchh Acquisition[98] NOTE 9: STOCK-BASED COMPENSATION Stock-Based Compensation Expense (in thousands) | Line Item | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Cost of sales - contracts | $32 | $72 | $116 | $256 | | Selling, general and administrative | $3,458 | $3,713 | $10,141 | $9,100 | | Total stock-based compensation expense | $3,490 | $3,785 | $10,257 | $9,356 | - Total stock-based compensation expense for the nine months ended September 30, 2022, was $10.3 million, an increase from $9.4 million in the prior year[101] - As of September 30, 2022, the aggregate unrecognized compensation expense related to unvested equity awards was $21.5 million, expected to be recognized through 2025[101] NOTE 10: NET LOSS PER SHARE - Basic and diluted net loss per share for the nine months ended September 30, 2022, was $(2.06), compared to $(2.05) in the prior year[11] - Potential shares from convertible notes (2024, 2026, 2027) and a warrant were excluded from diluted net loss per share calculations due to their anti-dilutive impact[105][106] - As of September 30, 2022, there were 1,045,000 anti-dilutive stock options and 576,000 anti-dilutive restricted stock units outstanding[104] NOTE 11: COMMITMENTS AND CONTINGENCIES - The Company is involved in legal proceedings in the ordinary course of business, but management believes they are not material or likely to have a material adverse effect[107][204] - A $790 thousand class-wide settlement for a Biometric Information Privacy Act complaint was granted final approval in July 2022, which the Company had accrued and fully funded by June 30, 2022[108] NOTE 12: SEGMENT AND RELATED INFORMATION - The Company operates in two segments: Restaurant/Retail (software, hardware, services for restaurants) and Government (technical expertise and solutions for DoD and federal agencies)[110] Segment Revenues (in thousands) | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Restaurant/Retail | $68,354 | $59,821 | $191,371 | $147,529 | | Government | $24,413 | $18,039 | $66,774 | $53,748 | | Total | $92,767 | $77,860 | $258,145 | $201,277 | Segment Operating (Loss) Income (in thousands) | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Restaurant/Retail | $(8,379) | $(15,642) | $(19,303) | $(40,894) | | Government | $2,529 | $1,960 | $6,390 | $4,555 | | Other | $(12,593) | $(427) | $(34,438) | $(766) | | Total | $(18,443) | $(14,109) | $(47,351) | $(37,105) | - Key customers include Yum! Brands, Inc (10-12% of Restaurant/Retail revenue) and McDonald's Corporation (11-15% of Restaurant/Retail revenue), and the U.S Department of Defense (23-27% of Government revenue)[116] NOTE 13: FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair values of cash, short-term investments, trade receivables, and payables approximate their carrying amounts due to their short-term nature[117] - The estimated fair value of the 2024, 2026, and 2027 Notes at September 30, 2022, was $18.3 million, $118.2 million, and $195.7 million, respectively, classified within Level 2 of the fair value hierarchy[117] - The MENU earn-out contingent liability's fair value was determined to be $14.2 million at September 30, 2022, using Monte Carlo simulation modeling (Level 3 fair value measurement)[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial conditions, operational results, segment performance, and key non-GAAP metrics OVERVIEW - PAR Technology Corporation operates in two distinct segments: Restaurant/Retail and Government[123] - The Restaurant/Retail segment offers unified commerce solutions to over 500 customers and 60,000 active restaurant locations[124] - The Government segment provides advanced systems and software solutions for the DoD and federal agencies, including ISR Solutions, Mission Systems, and Commercial Software[125] RESULTS OF OPERATIONS Consolidated Results Consolidated Results (in thousands, except percentages) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | Total revenues, net | $92,767 | $77,860 | 19.1% | | Product revenue | $31,343 | $30,291 | 3.5% | | Service revenue | $37,010 | $29,530 | 25.3% | | Contract revenue | $24,414 | $18,039 | 35.3% | | Total gross margin | $21,408 | $18,214 | 17.5% | | Operating loss | $(18,443) | $(14,109) | 30.7% | | Net loss | $(21,340) | $(31,933) | (33.2)% | Consolidated Results (in thousands, except percentages) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | Total revenues, net | $258,145 | $201,277 | 28.3% | | Product revenue | $84,820 | $72,786 | 16.5% | | Service revenue | $106,550 | $74,743 | 42.6% | | Contract revenue | $66,775 | $53,748 | 24.2% | | Total gross margin | $63,142 | $43,517 | 45.1% | | Operating loss | $(47,351) | $(37,105) | 27.6% | | Net loss | $(55,838) | $(50,160) | 11.3% | - Total revenues increased by 19.1% for Q3 2022 and 28.3% for the nine months ended September 30, 2022, driven by strong growth across all revenue categories[127][129] - Net loss decreased by 33.2% for Q3 2022 but increased by 11.3% for the nine months ended September 30, 2022, reflecting varying impacts of operating expenses and other income/expenses[127][129] Revenues, Net Revenues, Net (in thousands) | Revenue Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | Product | $31,343 | $30,291 | 3.5% | | Service | $37,010 | $29,530 | 25.3% | | Contract | $24,414 | $18,039 | 35.3% | | Total revenues, net | $92,767 | $77,860 | 19.1% | Revenues, Net (in thousands) | Revenue Type | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | Product | $84,820 | $72,786 | 16.5% | | Service | $106,550 | $74,743 | 42.6% | | Contract | $66,775 | $53,748 | 24.2% | | Total revenues, net | $258,145 | $201,277 | 28.3% | - Service revenues saw the strongest growth, increasing by 25.3% for Q3 2022 and 42.6% for the nine-month period, primarily driven by Punchh and Brink POS SaaS revenues[134][139] - Contract revenues increased by 35.3% for Q3 2022 and 24.2% for the nine-month period, largely due to growth in ISR Solutions and Mission Systems product lines[135][140] Gross Margin Gross Margin (in thousands, except percentages) | Margin Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 2022 % | 2021 % | YoY Change % | | :--- | :--- | :--- | :--- | :--- | :--- | | Product | $5,885 | $7,505 | 18.8% | 24.8% | (21.6)% | | Service | $12,989 | $8,738 | 35.1% | 29.6% | 48.6% | | Contract | $2,534 | $1,971 | 10.4% | 10.9% | 28.6% | | Total gross margin | $21,408 | $18,214 | 23.1% | 23.4% | 17.5% | Gross Margin (in thousands, except percentages) | Margin Type | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | 2022 % | 2021 % | YoY Change % | | :--- | :--- | :--- | :--- | :--- | :--- | | Product | $15,154 | $16,628 | 17.9% | 22.8% | (8.9)% | | Service | $41,569 | $22,316 | 39.0% | 29.9% | 86.3% | | Contract | $6,419 | $4,573 | 9.6% | 8.5% | 40.4% | | Total gross margin | $63,142 | $43,517 | 24.5% | 21.6% | 45.1% | - Service margin improved significantly to 35.1% for Q3 2022 and 39.0% for the nine-month period, driven by a higher mix of SaaS software and cost improvement initiatives[143][148] - Product margin decreased to 18.8% for Q3 2022 and 17.9% for the nine-month period, primarily due to product mix and higher excess and obsolescent inventory charges[142][147] Selling, General Administrative Expenses Selling, General and Administrative Expenses (in thousands) | Period | 2022 | 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30 | $26,543 | $21,662 | 22.5% | | 9 Months Ended Sep 30 | $75,309 | $59,145 | 27.3% | - SG&A expenses increased by 22.5% for Q3 2022 and 27.3% for the nine-month period, driven by higher sales and marketing, internal technology infrastructure, and corporate management expenses, including MENU-related costs[150][151][152] Research and Development Expenses Research and Development Expenses (in thousands) | Period | 2022 | 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30 | $12,843 | $10,122 | 26.9% | | 9 Months Ended Sep 30 | $33,785 | $24,574 | 37.5% | - R&D expenses increased by 26.9% for Q3 2022 and 37.5% for the nine-month period, reflecting additional investments in software product development, including Punchh-related and MENU-related R&D[154][156] Other Operating Expenses: Amortization of Intangible Assets / Insurance Proceeds Other Operating Expenses (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Amortization of identifiable intangible assets | $465 | $539 | $1,399 | $1,303 | | Gain on insurance proceeds | — | — | — | $(4,400) | - Amortization of identifiable intangible assets remained relatively stable, at $0.5 million for Q3 2022 and $1.4 million for the nine-month period[157][159] - A $4.4 million gain on insurance proceeds was recognized in the nine months ended September 30, 2021, with no comparable gain in 2022[160] Other Expense, Net Other Expense, Net (in thousands) | Period | 2022 | 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30 | $(179) | $(539) | (66.8)% | | 9 Months Ended Sep 30 | $(804) | $(931) | (13.6)% | - Other expense, net, decreased for both the three and nine months ended September 30, 2022, compared to the prior year[161][162] Interest Expense, Net Interest Expense, Net (in thousands) | Period | 2022 | 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30 | $(2,140) | $(5,406) | (60.4)% | | 9 Months Ended Sep 30 | $(7,054) | $(12,503) | (43.6)% | - Interest expense, net, decreased significantly by 60.4% for Q3 2022 and 43.6% for the nine-month period[163][164] - The decrease was driven by the extinguishment of the Owl Rock Term Loan in September 2021 and a reduction of accretion resulting from the January 1, 2022, adoption of ASU 2020-06[163][164] Taxes (Provision for) Benefit from Income Taxes (in thousands) | Period | 2022 | 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30 | $(578) | $37 | (1662.2)% | | 9 Months Ended Sep 30 | $(629) | $12,295 | (105.1)% | - The Company recorded a net tax provision of $0.6 million for both the three and nine months ended September 30, 2022, primarily due to foreign taxes[165][166] - In contrast, the nine months ended September 30, 2021, saw a net tax benefit of $12.3 million, resulting from a partial release of the deferred tax asset valuation allowance related to the Punchh Acquisition[166] Key Performance Indicators and Non-GAAP Financial Measures Annual Recurring Revenue Annual Recurring Revenue (ARR) (in thousands) | Product Grouping | As of Sep 30, 2022 | As of Sep 30, 2021 | YoY Increase % | | :--- | :--- | :--- | :--- | | Guest Engagement | $57,506 | $43,950 | 30.8% | | Operator Solutions | $38,879 | $29,479 | 31.9% | | Back Office | $10,238 | $9,114 | 12.3% | | Total | $106,623 | $82,543 | 29.2% | - Total ARR increased by 29.2% to $106.6 million as of September 30, 2022, compared to the prior year[169] - Guest Engagement and Operator Solutions segments showed strong ARR growth of 30.8% and 31.9%, respectively[169] Active Sites Active Sites (in thousands) | Product Grouping | As of Sep 30, 2022 | As of Sep 30, 2021 | YoY Increase % | | :--- | :--- | :--- | :--- | | Guest Engagement | 67.1 | 52.9 | 26.8% | | Operator Solutions | 18.6 | 14.9 | 24.5% | | Back Office | 6.7 | 6.2 | 7.9% | - Guest Engagement active sites increased by 26.8% to 67.1 thousand, and Operator Solutions active sites increased by 24.5% to 18.6 thousand as of September 30, 2022[170] Segment Revenue by Product Line as Percentage of Total Revenue Segment Revenue by Product Line (in thousands) - 3 Months Ended Sep 30 | Product Line | 2022 | 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | Hardware | $30,796 | $29,669 | 3.8% | | Software | $22,438 | $17,168 | 30.7% | | Services (Restaurant/Retail) | $15,119 | $12,984 | 16.4% | | ISR (Government) | $14,710 | $9,619 | 52.9% | Segment Revenue by Product Line (in thousands) - 9 Months Ended Sep 30 | Product Line | 2022 | 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | Hardware | $83,219 | $70,858 | 17.4% | | Software | $62,414 | $40,145 | 55.5% | | Services (Restaurant/Retail) | $45,737 | $36,526 | 25.2% | | ISR (Government) | $38,746 | $28,450 | 36.2% | - Software revenue in the Restaurant/Retail segment grew significantly by 30.7% for Q3 2022 and 55.5% for the nine-month period[171][172] - ISR solutions in the Government segment showed strong growth, increasing by 52.9% for Q3 2022 and 36.2% for the nine-month period[171][172] Recurring and Non-Recurring Revenue as Percentage of Total Revenue Recurring and Non-Recurring Revenue (in thousands) - 3 Months Ended Sep 30 | Revenue Type | 2022 | 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | Recurring revenue | $33,804 | $24,974 | 35.4% | | Non-recurring revenue | $34,549 | $34,847 | (0.9)% | | Total Restaurant/Retail | $68,353 | $59,821 | 14.3% | | Total Government | $24,414 | $18,039 | 35.3% | | Total revenue | $92,767 | $77,860 | 19.1% | Recurring and Non-Recurring Revenue (in thousands) - 9 Months Ended Sep 30 | Revenue Type | 2022 | 2021 | YoY Change % | | :--- | :--- | :--- | :--- | | Recurring revenue | $93,974 | $62,939 | 49.3% | | Non-recurring revenue | $97,396 | $84,590 | 15.1% | | Total Restaurant/Retail | $191,370 | $147,529 | 29.7% | | Total Government | $66,775 | $53,748 | 24.2% | | Total revenue | $258,145 | $201,277 | 28.3% | - Recurring revenue in the Restaurant/Retail segment increased by 35.4% for Q3 2022 and 49.3% for the nine-month period, indicating a shift towards more predictable revenue streams[173] - Recurring revenue includes SaaS, hardware/software maintenance, and payment processing revenue[174] About Non-GAAP Financial Measures - The Company uses non-GAAP measures like EBITDA, adjusted EBITDA, adjusted net loss, and adjusted diluted net loss per share to provide a more meaningful comparison of core business operating results[175][176] Reconciliation of Adjusted EBITDA (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(21,340) | $(31,933) | $(55,838) | $(50,160) | | EBITDA | $(12,181) | $(20,365) | $(28,562) | $(34,883) | | Adjusted EBITDA | $(7,963) | $(3,987) | $(16,001) | $(12,904) | Reconciliation of Adjusted Net Loss/Diluted Loss Per Share (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss/diluted loss per share | $(21,340) / $(0.79) | $(31,933) / $(1.23) | $(55,838) / $(2.06) | $(50,160) / $(2.05) | | Adjusted net loss/adjusted diluted loss per share | $(11,906) / $(0.44) | $(9,320) / $(0.36) | $(28,852) / $(1.06) | $(26,038) / $(1.06) | LIQUIDITY AND CAPITAL RESOURCES - Primary liquidity sources are cash and cash equivalents ($85.5 million, excluding $4.0 million held for customers) and short-term investments ($40.0 million) as of September 30, 2022[190] - Cash used in operating activities was $33.6 million for the nine months ended September 30, 2022, driven by net loss and increased working capital requirements (inventory and accounts receivable)[191] - Cash used in investing activities was $64.3 million, including $18.8 million for acquisitions and $40.0 million for short-term held-to-maturity securities[192] - The Company expects available cash and cash equivalents to be sufficient for operating needs for at least the next 12 months[194] CRITICAL ACCOUNTING POLICIES AND ESTIMATES - Critical accounting policies and estimates include revenue recognition, stock-based compensation, business combinations, carrying amounts of assets, convertible notes, credit losses, and inventory valuation[196] - These estimates are subject to uncertainties related to market conditions, risks, trends, and the ongoing COVID-19 pandemic[196] - No material changes to critical accounting policies and estimates were reported from the 2021 Annual Report[196] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company discusses its exposure to market risks, specifically foreign currency exchange and interest rate risk - The Company is exposed to foreign currency exchange risk from non-dollar denominated sales and operating expenses, but the impact was not material as of September 30, 2022[197] - Interest rate risk is primarily related to fixed-rate convertible senior notes, meaning there is no financial statement risk from interest rate changes, though fair value can fluctuate[198][199] Item 4. Controls and Procedures The company addresses the effectiveness of its disclosure controls, noting ongoing material weaknesses and remediation efforts - Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to continuing material weaknesses in internal control over financial reporting[200] - Remediation efforts to address identified material weaknesses are ongoing, involving the implementation and documentation of necessary policies, procedures, and internal controls[201] - No additional material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022, beyond those inherited from the Punchh Acquisition[202] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company confirms that no pending litigation is expected to have a material adverse effect on its financial condition - The Company does not believe that any pending litigation would have a material adverse effect on its financial condition or results of operations[204] Item 1A. Risk Factors Risk factors previously disclosed in the 2021 Annual Report and Q2 2022 Form 10-Q remain current - The risk factors described in the 2021 Annual Report and Q2 2022 Form 10-Q remain current in all material respects and could materially and adversely affect the Company's business[205] Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds The company details the issuance of common stock in unregistered sales for the MENU Acquisition and shares withheld for taxes - On July 25, 2022, the Company issued 162,917 shares of common stock, valued at $6.3 million, as part of the purchase consideration for the MENU Acquisition[206] - For the three months ended September 30, 2022, 8,707 shares were withheld from employees to satisfy tax withholding obligations arising from the vesting of restricted stock[207][209] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report, including organizational documents and officer certifications - The exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, certifications from the Principal Executive Officer and Principal Financial Officer, and various Inline XBRL documents[210] Signatures This section contains the official signatures certifying the filing of the report on behalf of the company - The report was duly signed on November 9, 2022, by Bryan A Menar, Chief Financial and Accounting Officer[212]