PAR Technology Corporation (PAR) Earnings Call Transcript & Summary

Welcome to day 2 of Evercore ISI's Eighth Annual Payments and FinTech Innovators Forum. I'm David Togut. I lead the Payments Research Team here at Evercore ISI. Delighted to kick off the morning with the management of PAR Technologies. Joining us in the fireside chat are Savneet Singh, Chief Executive Officer and joining us in the room is Chris Byrnes, SVP of Business Development. Savneet, Chris, thank you so much for being with here today. We really appreciate it.

Thanks for having us.

So since PAR is new to many investors, can you give us some background on your company and how the company has evolved from its origins as a DOD tech contractor to pioneering the first commercial POS? And then to where you are today?

Yes. It's not a linear story. The company has founded 50 or 60 years ago originally doing IT services for the DOD of Air Force Base in upstate New York. We did that for about 10 years. And then our founders invented the first point-of-sale terminal that I think was patented in 1978. In 1980, McDonald's adopted that point-of-sale system. And then the company went public in '82 off the success of McDonald's going sole-sourced to par and really kind of -- it transformed this company from an IT services company to a technology provider to restaurants. The company had great success, I'd say, in the '80s, when many restaurant organizations kind of followed McDonald's in that journey. But then I'd say the next 20, 30 years, we really struggled, and we struggled primarily because we got stuck as a hardware and services provider and not a software provider. And so even though we had built great product software, we sort of got stuck as go buy your software over there and we'll be your hardware and services and system integrator. And so we were a cyclical hardware and services company for most of our life as a public business. In 2014, we acquired a small software product called Brink, which was a cloud POS system focused on enterprise restaurants and the thesis at the time was -- we had these long-standing relationships with big enterprise chains who were using us for hardware services and systems integration, and we could sell them the next generation of software, which was the cloud. When we acquired the product in 2014, we were in about 300 stores. In 2018, I joined the Board of PAR, and we were probably in 5,000 or 6,000 stores. And then 7 or 8 months after I joined the Board, I became the CEO. And a lot of that was, I would say, distressed. We were in a tough spot. Even though our product had grown a lot, we were not run well, we were running out of money. And we had some cultural challenges. We had a lot of legal challenges. And so a new management team jumped in originally trying to see if we could sell the business, but I think during that process, we -- I think, came away with a thesis that software was really eating the restaurant much faster than the restaurant realized it. And you can see back then, and this is before the pandemic, how quickly every part of the workflow of a restaurant was going to be software or be software-enabled. And the thesis we had back then, which is very much what we hold today is that the POS would be the heartbeat of that and everything that you would need to run a restaurant would be some appendage of that POS system because a POS system was, it was your ERP system, your system of record that ran everything. And in the enterprise, we were competing against Oracle, NCR, Global payments, you weren't competing against Square and Toast and amazing sort of Silicon Valley like companies. And so we thought that was interesting pool to fish. And so we jumped in. So we took over the company and started driving it. We've been relatively acquisitive. We sort of bought 1 business a year. And so today, we kind of have a front-to-end solution where we have the largest loyalty program in restaurants. So everybody from Taco Bell down to a 10-store chain we're in, I'd say, almost 50% of the top 100 restaurants in America. We have an online ordering solution that we bundled together with that. And then we have POS payments in back office. And so the idea of be, hey, you can run your organization off of our platform. And it's nice because I think we're playing into the same desires of our customers who have vendor sprawl and are sort of trying to get from 25 vendors down to 5 at some point. And I think we can help them do that.

Great. What does unified commerce mean for restaurants?

So today, every -- almost -- for most of the vast majority of restaurants, every part of their restaurant is a different provider. So their online ordering provider is different than their loyalty provider, which is different than their POS provider, which is different than their payment provider. And so when you can take an order from your loyalty app, it's different than if you take it from your online ordering website or from your DoorDash or from your in-store or our drive-through. And so it makes it very complicated to have reconciliation data integrity because -- do I know that, that customer is Chris, the same Chris is there or there. And those systems don't speak to each other, they don't connect to each other. And so unified commerce is essentially the idea that an order anywhere is an order everywhere. I know that's done, and I know that's done everywhere across my system and so I can connect it and make it actually get real insights. And so not just from a marketing perspective, targeting, but also running the workflow at the back of the restaurant, too. So good examples of this be, you get -- it's a lunch rush and the in-store demand is crazy hot, you've got people outside the door. Well, you should be dynamically changing your Uber Eats and your DoorDash times and delivery times and pushing that out to 90 minutes at 2 hours and so you crush demand over there, so you can service the demand here and vice versa. And you can't do that unless these systems are all talking to each other. And so inevitably, what you do is without those connectivity, your delivery time still say, 30 minutes, your in-store people are getting pissed because all these orders are packing up, getting ready to get picked up. And so that lack of connectivity is creating a bad experience, both off-premise and on-premise.

Is this technology differentiated versus your key competitors in restaurants?

We think so. And obviously, I think our win rates in growth would suggest that. I think historically, everybody did one thing really well. They did the POS well, they did this product well. And this idea of sort of putting them together was, I think, about where consolidation bundling were always had negative connotation suggesting that I'm trading off functionality for simplicity. And what we have done, I think, very differently is focused on we need the best product in every category operates. So even though they're -- our goal is to sort of have these products all unified and give you that unified experience, we've -- we'll never sacrifice the quality of the product in that sense. And so if you buy our online ordering product or a loyalty product, they're the best online ordering royalty product in the market. But when you connect them together with other products, you get even more surprise and delight from that experience. And so I think that's what distinct about us, which is there's not another company that has the highest quality loyalty online ordering POS back under one roof, there really isn't anybody that I'm aware of that does anything like that. Most of it is like, "Hey, I do this pretty well, but then I'll bundle a bunch of minus software, and I'll give you this whole thing." And I think that's been challenging for the industry for a long time.

Got it. And does your unified commerce offering have open APIs, so competitors best of breed can kind of connect in?

Absolutely. We're a very open ecosystem in our little category of the world of restaurant technology. I think we're by far most open, objectively measured by the amount of API integrations we have. Our POS products integrated into almost 300 different other products. And these are intense, this isn't just sort of right to my API in 2 weeks up and running, these are 6-, 9-month long integrations. Very, very defined by a partner, potentially the customer. And so our loyalty application, Punchh is also probably in 250, 300 type of integrations around it. And so we're by far the most open system in our category of the world.

Got it. What's your growth strategy?

So we kind of believe we have a flywheel of land and expand with our POS products, Brink, so in -- our Brink and payments products, excuse me. That's working really well. We just announced a day ago or 2 days ago, that product was up 45% year-over-year. So we're growing very quickly by sort of planning our flag with POS and payments. And then from there, we look to upsell, cross-sell loyalty back office. And then the last leg of our flywheel is, as I said, we're pretty acquisitive and then we look to acquire a product that we can then push back into that flywheel into those same customers. But we're really focused on the enterprise. You will not find us generally in a local restaurant. We're very focused on that enterprise category. That's where we have the main expertise. That's where our circle of competence is strong. And so it really is to push hard into that enterprise category, where I think most of our peers are kind of spread across doing everything. We're really highly focused on the enterprise.

A number of payments companies have stated a strategy to move upmarket from smaller restaurants to larger restaurants, certainly Fiserv, who is here yesterday. They're moving upmarket in a few months with a new product called Kitchen Display System, which will be part of Clover. Your ship for payments, he's done that with SkyTab POS. And then obviously, you've got Toast. So how do they fit into the large restaurant ecosystem versus PAR? You work with some of them?

We don't see them -- some of those we never see it all. Toast is, I think, the one that's working hardest to get there. But again, they -- we generally don't see them in the large chains that we spend a lot of our time in. Those are all amazing companies. I would say they all have a different level of product quality, but all serve that down market category well. But it's also a definition of enterprise. I think a lot of those would say enterprise is 5 restaurants and above for us, enterprise is more like 75 restaurants and above. And so what we have done super well is on those emerging chains that want to be the next enterprise. So whether we've been in Sweetgreen since there were just a few stores, MOD Pizza, since they were 2 stores, today they're 600 or 700, Cava Grill. We've done a really great job at sort of those chains and then winning the very large chains like a Burger King and so it's that enterprise domain. And I think the challenge that the names that you mentioned are all working on is a product that's built for a down-market restaurant is really different than what's needed for a large chain. When you're selling software to a single store Italian restaurant, think about that the person who owns that restaurant is probably also the CTO, the CMO, the CFO and maybe the chef, all in one. And so that person is a very simplistic product relative to you're the CTO of Arby's, and you've got an integration to Snowflake into Oracle or SAP, HR software into building software, supply chain software, you've got to integrate into all the CFOs. I mean there's just so many people that interact with that system. So just think how different that -- the system that, that clientele needs. And so you're taking an SMB product and trying to bring it up market. That takes -- that is a tough -- they're really almost completely different products. And so that's why I think it's taking these firms so long to do that. And our core competitors are NCR, Oracle, Global Payments Product, Xenial, and then it would be all of those guys. And so I would say they're -- we look at very -- or paranoid about every competitor, but I'd say those firms are coming, but they're still not firms that we really think about every single day as -- in most of the RFPs we're in.

You recently had a big win with Burger King. Can you walk through why they selected PAR? And who did you displace or beat?

Sure. So in the end, we can have the best marketing, but we're a product business. And I think most enterprise software is like this, but your product wins. It's not like you can overcome a product challenge when you're selling into enterprise because you can't just say, "Oh, I don't have this, and then you're like, well, I can't remember from my store anymore." So you have to have the product. And so when we win, it is a product that carries the day. And our product is just more modern, more elegant, easier to use and scalable. And I think as I mentioned, a lot of what's happened with restaurants is all of a sudden, you went from, "hey, my POS just runs what's in my store." And then all of a sudden you're like, well, now I need to take orders from DoorDash and Uber Eats, then I need my own loyalty application, then I need my own ordering system. And then I need this, I need to pay-at-the-table. And so all of a sudden, you went from having 5 or 6 things plug in the POS to 20 and that made it really hard because your system had to be so extensible, so scalable. Our API, we're not even an enormous company by any means, our API gets somewhere between 700 million and 1 billion pings a month. And that's a ton of distributed computing across the entire country. And so the product really needs to win. And so in that lab, we tend to do better than our peers that are in there, it's a core product functionality and then we win on service. We're an intense organization. I'd say most of our customers used to say, "Hey, you guys are very different from the rest." It is a much more service-led culture, one of great intensity. We're the people that will show up at the office saying "Hey, is everything okay, even when we're not called." And so I think we win because of service and particularly Burger King really called that out when they announced, which is it was a culture part that we love to do. We could text a CEO, or connect the help desk, and both people will call us back. We just -- in that process, Burger King for a long time was running a product called Xenial, which is online Global, then they spent quite a bit of time and I think, tens and millions of dollars trying to build their own product, thinking that will be better. And then they sort of decided to move to PAR. And so -- but given how large that organization is, every single vendor was in that process.

Great. Just coming back for a minute to growth strategy, do you have a growth algorithm around revenue growth, margin?

Yes. We generally guide that we expect to grow 20% to 30%, and we've been doing that for many years now. The -- we're -- we just reported yesterday or 2 days ago, we grew 23% last year on our software and services business. We think we can do the same thing and maybe more in '24. So I think we'll be one of the few companies who has a potential to accelerate revenue growth. A lot of that being dictated by how we pace out the rollout of Burger King. And again, it's all led by this idea of land and expand with POS, then cross-sell, upsell. And the beauty of our business is our gross retention is extremely high. It's some of the highest in not just our category, but all of software. It's sort of 95%, 96% gross retention. And so I often say the quality of software business is starting with gross retention. What is the actual end market, how sticky is that end market? You can have an amazing product, but if you're at a high churn end market, it doesn't really matter how great your product is. For us, we're in a really low churn market. And so that allows us to be relatively efficient on the growth algorithm because we know we'll have 95%, 96% of the base every year. So anyways, genuinely we sort of think we feel comfortable through price and logo growth that we're going to stay within that 20% to 30% range.

Great. How would you gauge consumer spending trends at restaurants year-to-date? And what's your outlook around consumer spending at restaurants kind of incorporated into your guidance?

So I'll go backwards. So consumer spend has actually never had any indicator of our business. So -- and I think there's a strong reason for that, which is we're selling into the most durable restaurant organizations and that exist. These are QSR, fast casual restaurants. It is extremely rare for McDonald's to go -- location to go out of business, extremely rare. Some of our customers measure the length of their franchisees in decades. So it's like, are you 1.5? Are you a 2.5? It's not even years. I mean these are really, really durable business that go from family to family. And so again, they're so sticky. And in times of economic uncertainty, they tend to do better because they're more cost-effective foods. And so I've been the CEO for 5.5 years, and I tracked them very, very closely. Never when I see the up or down, do I see it have a really major impact on our customers' buying assistance, yes. And I suspect that's because even when we had this period of inflation, it was our customers that benefited because you stopped going to the expensive table service restaurant or out back and you went to McDonald's whatever. We sort of took share there. From what we see, I would say the first 2 months of the year were strong. I mean it was surprising. I think we all came in with like, oh, there's a rate cut coming because of all that, but we don't see any of that. And I think if you look at our own business, we've been talking about this on our call and some of the IR work we've done, but we've never had such a large pipeline. Within 5.5 years, we've never had more demand than we have now. And so I think both within the indicators I see of our own business. And I don't know -- by the way, I don't know if that's a contraindicated or anything else because technology is great and saving you money. But I don't -- I see no slowdown in the demand for our products, but also, I think, just looking at the numbers of our customers, it looks very strong. And that's going from -- every from us weekly and all the way up to some of the larger chains we work with.

Great. So what's your time line to become profitable on an EBITDA basis and then eventually on an adjusted net income basis? And sort of along with that, how do you balance off investment in new product development versus flexing expenses to achieve higher profits?

So we only have one area that we're making real investments. And so our -- we -- in our last quarter, we burned -- EBITDA was negative $4 million. That amounts to entirely one product line, which is our online ordering product that we acquired about 1.5 years ago. And so our core business is -- we feel very comfortable that the business that we run and have been running for 5 years is highly efficient. I don't think we've had net headcount growth in about 18 months, maybe even longer. And while the business is almost doubled in size or 75% more in size, we haven't grown that OpEx space at all during that period of time. And so it's really just turning that one product. And so for us, if we want to be profitable, we just set the product off, it has almost no revenue, it's a new product. And so that's -- it's very much there, but we feel really great about that product. We just launched our first customer in the United States 2 weeks ago. We launched another one 2 days ago. And so we're seeing momentum. And we think -- so we think the ROI is very high. And so we're wrapped. To us, it's -- profitability is a choice, and I think we're rapidly approaching it. And it's -- I think one of the things that we think a lot about is, the more storage we have our flag planted in, it's almost like an oil well in the sense that how much can you drill because you start with 1 product, then 2 products, then 3 products. And today, we went with 1 product at Burger King, then we went with a second product, an online ordering module. And then it's sort of like, okay, what else, what -- we've got a bunch of products that continue to push into that. And so making sure we capture as much market share now because we have a proven model. And once we're in there, we're going to get the next product and that is very important. So in this long story short, profitability is insight, and we had a lever to turn it on if we want it immediately, but I think we see that, that we feel really comfortable with. Obviously, we've got a lot of cash. We feel super comfortable where the business is trending. And like I said, we have this unique experience where we have more demand today than we've ever had before. And I don't know what's caused it. Is it because of Burger King, everybody else wants to go? Is it because, the restaurants are given up on fighting the -- thinking the technology is going to go away, but it's been great. And so we feel great. And I think this year is a really new year to watch that inflection because we've absorbed a ton of cost to support this Burger King launch. And the revenue starts in April. So that's been a nice -- that will be -- we've had this headwind that turns into a tailwind.

Got you. Okay. Payments are starting to become a significant contributor to revenue. What value propositions do you offer your customers in terms of payments? And when do you expect that to meaningfully contribute?

Yes, it's really starting to take off for us. We processed about $2.1 billion last quarter. Our run rate went last quarter -- it's -- we're just starting. We're not even in 10% of our customers yet. Our pitch is relatively simple. Point one is simplicity. The number one call to our support desk from our customers is an issue with the payments whether it's a payment device, payment processing, and reconciliation. The number one call, the POS help desk. And so it's kind of -- being okay, it's one desk, it makes a lot easier versus, say, I got an issue with payments, "Oh, sorry, that's not the POS company, that's your payment company, let me push you over there." And then payment company says, "Oh, it's actually the POS guy, they push you back, and you go 2 days back and forth. Now when it's one vendor that simply matters a lot to the end customer. And again, you'll hear us over and over again, but simplicity really matters to the restaurant community because these aren't hyper tech companies, and so they really need simplicity. So number one is simplicity, that is the easiest sell of all time because they understand how painful it is for their franchisee operators or their operators that do that. The second is unification of data. When you're a POS company and the payment company are the same, you have one set of data that gives you complete transparency and integrity of, am I getting charged right fee? Am I -- can I figure out who that customer is? I think they love that and then obviously, there's a cost element. We're in far more restaurants than any one in restaurant chain. And so generally, we can master price or beat their price and still make a really, really nice margin. And then third, when somebody upgrades to our POS software, more often than not, they also upgrade their hardware with us. And so we can help them finance their hardware by leveraging the payments. But I'd say one anything else, it's this conceptually this idea of simplicity, one set of data because it's the belief that eventually, will then create new products off of that, that they couldn't have before.

Got it. Can you walk through ARR growth in terms of what the kind of the components of the ARR growth in your model, kind of built from higher pricing, upselling, land and expand and how does that grow algorithm work?

Yes. It's quite simple, actually. I mean, generally -- when we look at '23, majority of our growth upwards of 80% was new customers. So think of it as new logos. And I'd say maybe 20%, that might be more generous came from upsell, cross-sell and price. So that's better than for a long time, it was 100% new logo and nothing from price. And I think from upsell, we're getting better at that motion of adding price and upsell. And the upsell has been primarily our payments for it. So we've seen really nice movement there. Over time, I think our goal is 50-50, but fortunately, I think we just have a lot of new logo growth. And so that will continue to be the big driver of our revenue right now is that market share. So historically, I'd say, it's been 100% all net new. In '23, I think it's sort of like 80%, maybe mid-80s of net new, but the upsell of payments and our online ordering product are starting to add to that level of price, and ARPU, excuse me. And within that ARPU bucket, I would say it's half price, half modules.

Got it. Okay. Can you walk through your go-to-market strategy in terms of direct sales versus third-party sales?

Yes. The vast majority of what we do is direct sales. We're sold through named accounts. We know every single restaurant chain in America that's in our TAM. And they're generally sold through named accounts. So it's a relative -- it's an efficient -- I think a relatively efficient direct sales model because we can sort of have 3 products now sold by one salesperson versus one product for -- per salesperson. We do have a down market-ish business. I say that in that we have resellers that will resell their product to smaller chains, call it sub-50 or 60 stores. That business is not enormous, it's not a big part of our business, but it's important in that oftentimes there, that's where you discover the next high-growth chain that you want to get partnered up with very quickly. So I'd say down there, there are years, it's been 15% of our sales, but generally, it's sort of like 5%, 6%, 7%, 8% of our sales. It's not a huge portion of what we do, but it's an important one.

Got it. What's the plan for your government business?

We can't talk too much about it, but we've been very direct that it's not a strategic asset in that there's no synergy between that business and the rest of what we do at PAR. And so I expect just like any noncore asset, at some point, it won't be part of PAR. And I think that will be better for the people that work there, but also for the story of PAR. We've put it in K, a couple of days ago that we're constantly looking at strategic alternatives and I think we're moving down that path.

Great. So you acquired Punchh in 2021. How has the business performed relative to your acquisition pro forma?

So it's been -- the Punchh business grew very fast. When we acquired it, it was $30 million of revenue, 20 months later, it was $60 million of revenue. So it beat our internal plan. So I think it's been phenomenal in that respect. The business has slowed now, and I think that's a function of TAM, which is where, like I said, almost in 50% of the top 100 chains already. And so the push there now is to go through -- grow with MENU, our online product that we just started selling. So that growth will help accelerate the Punchh growth because we're using that. And then secondarily, it will come from additional M&A, which is we have the largest loyalty base. There's a lot more we can sell into that base than just one product. And so we're -- I think you'll see us both build and acquire a product to push into that base of loyalty customers. So the deal, it really changed who we were, it changed who -- our standing in our -- again, our little narrow part of the world, we became more interesting. And then obviously, the connection into businesses changed our culture a lot.

Great. You also acquired MENU in 2022. How is the upselling and adoption in MENU going so far?

It just started. So when we acquired the product, it was like almost like an acquihire type of deal where we weren't requiring a customer base, but what we thought was a high-quality product. I think within -- I want to say, 6 months, we realized that -- and that product was focused completely internationally. So no U.S. customers, no U.S. pipeline. I think we realized very quickly, I'd say within a few months or 6 months that while there was interest in the product internationally, that business was not going to be significant nor worth all the effort, but conversely, we're getting all this interest from U.S. customers. And it was almost like a reverse acquirer, which is, again, enterprise kind of unique. And then we realized that there was a real opportunity here in the U.S. And so we -- in 2023, started spending a tremendous amount of money to retool the product to be a U.S.-focused product. And ever since we've done that, I think it's been really exciting to see how much demand we had. We've signed probably a dozen customers, which is a lot in our industry. We won Burger King. We've won a company called Beef 'O' Brady's, we just launched. We've won a 100-store coffee chain. So I think once the product was enabled to sell in the United States, we saw demand really started to spike. And that, I think, is super exciting. And again, creating the M&A play back for us, which is how -- well, when we get a product that's good, we can really grow it. And so of those customers that MENU has every single one of them is an existing PAR customers. Again, showing that if we have a great product, we can push into the base very quickly. So anyways, I think in the end, the results of MENU will be TBD. We'll see how much revenue and cash flow we generate from it. But I think where we sit today, we feel pretty good about it.

What's most differentiated about MENU?

I think the best way to explain it is -- the best way to do is just to compare our products to others -- to our peers. But generally, it's just a far more modern version than the legacy online ordering products that exist today. If you look at most -- the online ordering products that most enterprise restaurants have, it's old. It looks like it's 10 years old. And that may sound like a small thing, but it's -- when you're selling to consumers, that stuff really matters. You really want your brand to transcend from in-store to off-premise, right? So when you go to the website of your favorite restaurant, you wanted to feel like it's the same experience you have when you're in the store, that brand promise that connectivity actually really, really matters. And so when you don't have that, you lose sales, you lose the feeling of like my brand specialty. You notice the brands that do that well. And so what our product does is it's completely configurable, so that the website look and feel, connects the online ordering experience. Generally, what happens in restaurants is you invest, I don't know, millions of dollars, hiring an agency to build a website that's like the best website for your type of restaurant, your type of brand in the world. And then it's like click here and order now and you get to a template of e-commerce website to go buy or smoothie or whatever. Now it's with our products, it's completely the same exact experience from the homepage all the way to the ordering process. And by the way, it's completely integrated to your loyalty product. So it's one the same because it's Punchh and so you have this beautiful connectivity and beautifully integrated to POS because it's Brink. And so it's that kind of wow impact we have when we push it all together to our customers that I think they're enjoying right now. And as I said, the simplest way is to download a couple of customer apps and play around with it. And I think you'll see like, oh, this is a different experience.

Great. Let me just pause to see if there are any questions from the audience. We have a mic. So if you have a question, please just raise your hand, and we'll bring the mic.

So I just wanted to get a sense as to how the churn has been in terms of the clients in the organization? And how has it trended over the past like 1 or 2 years? And have you seen any deceleration or acceleration and to basically where is that happening?

So we've seen almost no change in churn. We reported -- as I said, 2 days ago, our churn on our POS product was -- our annualized churn was like around 4%. So like I said, in software, gross retention at 96% is literally, I think, close to the best in the world. I mean, that's not a factor that we're amazing or anything that's just a sector of this end market is amazing. And that hasn't really changed. We sort of stay in this bucket of like 4% to 6% every year and has not changed since I've been there. The only year we had churn was during the pandemic, where it picked up to the extreme. During the pandemic, it picked up to like 14%. But by the end of that year of 2020, it was back to like 7%, they all came back. So we've never really experienced that at all. I would say more recently, Q4 was our lowest churn ever across our products, mostly if you look at the products holistically. So again, really resilient, really strong. And restaurants have been kind of dynamic right now, which is -- their sales are holding up, but their costs are coming down. So we have a back office products so we can check food costs. You can see in many chains that how much that has changed. I was talking to the CEO of a Fried Chicken organization few days ago. And his cost for its core products is down to 30%. And so -- while he -- and he's kind of got a little bit of a higher ticket price. So he's having some sales -- he's still growing, but the sales growth is decelerating, his margins are exploding. And so because menu prices are very high right now and costs are coming down, I think you'll see earnings of restaurants going to be still very strong.

If you look at that 4% to 6% annual churn you mentioned, what percentage of that is, let's say, out of business or bankruptcy versus competitive losses?

It's almost all -- so in our direct business, which is where we have a sales person on it, it is entirely a store closure. I don't -- I can't remember there's maybe 1 or maybe 1 customer or 2 customers that have churned since I've been the CEO of PAR 5.5 years, like literally and one of them was a bankruptcy, a high profile restaurant chain bankruptcy. So again, not real traditional churn, where they're switching to a peer. Where we have that churn is in the down market where I mentioned we have these resellers. That's where we have the churn. And again, that's smaller chains naturally go in and out of business far more. So we rarely lose to a peer at the enterprise level. I mean, I think I said once or twice in 5.5 years that I can think of maybe there's more of it, it's really, really tiny. So -- and what's funny is at the enterprise level, when you close a store, you're often reopening a store in a different market or down the street, a lease ends and so it's not peer churn.

Got it. We talked earlier about....

There's one more.

Oh, sorry, go ahead.

You also mentioned strategic alternatives in one of the answers. So I just wanted to get a sense as to what's the plan and what's the progress of that? And like where do you see that shaping up over the next couple of years?

Yes, that was related to our government division, which is sort of a noncore asset that we've talked about selling for some time. And so that business we wrote in our K that we're constantly looking for strategic alternatives of how we look to divest that or monetize that going forward. As far as PAR, and I say this all the time, we're public, we're for sale every day. And our job is to drive shareholder value, and we take that really serious. And so today, I would say from a strategic perspective, we're super focused on the M&A front. We -- if you listened to our call, we talked a lot about that desire to leverage our position in the industry today. It's unique in the sense that restaurant technology if you just Google restaurant technology, you'd be shocked in all the market maps of how many start-ups sell to restaurants. It's truly mind blowing for not the most gigantic industry. And most of those companies are failing because they do -- they sell 1 little product to a restaurant thinking that 1 million restaurants will buy their product, and you wake up and you're like, "Oh, crap, I'm only in 20,000 restaurants and I have a big prep in front of me, how the hell do I make any money and they're up for sale." And so we're in this unique position, we're in a world where the platform is winning, not the point solution. And so these point solutions never sale. And I think it behooves us to take those serious because these businesses are cash flowing. It just happened to be too small to go public or to be the cap table underwater. And so there's getting really unique opportunities for us to be acquisitive. And so I think from a strategic perspective, we're very focused on that M&A side.

You were talking about that the service culture is definitely kind of a differentiating factor for you, but you also said that as your business is growing that you're not growing your workforce, are you kind of worried that, that as you grow and the fact that services is such a key part of your growth that you really don't have the capacity to continue that service compared to....

Yes, definitely. I think about -- I get nervous over time, do we lose that edge? We measure it constantly. And I think we've done it through efficiency. Obviously, stuff like chatbots and automated responses in the self-service wiki have brought down the call volume. But another way to think about service that I'd appreciate later is the quality of your product can differentiate your service. What I mean by that is point-of-sale software is a -- it is a brutal product. I mean that is -- it is -- there is -- there are almost no restaurant chains say, "I love my point-of-sale software. It just doesn't exist." And the reason why is if your point of software goes down for 5 minutes, you never forget. It's like if your pacemaker ever went down and you depend on one, like you never forget. And even if it went down for half a second over a 30-year period, you hate those guys for the rest of your life because that one experience. And that how it is in POS. If we go down for 10 minutes, your entire restaurant is just down, your online orders, your loyalty, you can't even open the cash store, like if you had a cash, I mean, it is so mission-critical. And so -- what I always tell people is like the quality of our service will be dictated by our product, which is our product works amazingly well. It's more intuitive. You get less calls, you'll get less asks. And so that combination of super high-quality product lowers call volume, lowers the service time. And then where I sort of demand that service culture is on the executive side, which is if somebody e-mails you, you respond quickly. And so the way I think we balance that is I always tell CEO of a restaurant, I say, just text me at any time, text any of our executives, and see, push us, like don't just take our word for it, like call our help desk, and see how well they treat you. And so I think it's a combination of training, technology, but also quality products that's helped our service get better and better. But yes, I worry about it all time. I mean, I think about it all times because I don't want to lose that edge. But it's very cultural because, again, because of that dynamic of the customer doesn't always appreciate how much work you do. There's a little bit of adversarial dynamic that we work really hard to say, "Hey listen, the reason why you may have that angry customer is like we just cost them a ton of money or their kids' college depends on that. And we kind of change our teams and say, hey, it's a very sensitive thing." Now the beauty is if you do a good job, they really appreciate it because they're like, "I know how different this when I use PAR versus what I had in the past, and I saw the ROI and I saw how well you did that." Really amazing example for something like 40 years or 35 years, PAR-survived as a hardware-only company in a world that outsourced literally every hardware product in the world to Asia are survived. And the reason why is that you would -- and we were something, I don't remember it, Chris, but like 25%, 35% of McDonald's stores still use PAR hardware, something like that. 40%, it's a crazy number. We don't sell any software there. And the reason why is if you told the McDonald's franchisee that uses PAR, "Hey, we're going to swap out PAR for some other company, they will say, I'll pay 10% more. They will say, because I know when I need them, there will be someone at my door the next day taking care of me." And so it is cultural in a sense that we survive by having great service that it's hard to rip that out of us too.

So earlier, you underscored that you're hyper-focused on M&A, and we talked a little bit about Punchh and MENU, like what areas are you looking at for M&A? Are there opportunities with some of these point solutions that are down and out where you can integrate them in your core platform?

Yes. So we historically have always looked at product M&A. We haven't really looked at acquiring competitors and I can't explain why, but you're generally looking for products that we can sell into our base. Our belief in M&A is that if we add a product, it has to in some way, improve the experience of our customers. So it can't just be -- we're not a private equity fund, and so we're not going to go buy a grocery chain software and assume we're going to create some synergy there. It has to sort of help our existing base of customers. And if it starts there, then we sort of go, okay, look, can we run it better? Can we run it more efficiently? Can we create a product on top of it and charge more money? And so we start sort of thinking what products can we sell into our base because again, what we've realized is every company in the world wants to sell more products to the customer they have. What's unique about our market is our customers actually want that because they don't want another vendor. They want to consolidate to a platform. And so when we go acquire a product and we're like, "Hey, great news, we now have a payment gateway software. They're like, great. I want you in there because it removes one vendor for me, I get one bill, I can do X, Y and Z." And so we're kind of selling into a community that wants that from us as well. And so we really think about where can we sell? Where can we build the product -- or sorry, sell the product that we can -- that actually adds value to our existing suite of products with our customers, who feel like they got something better. That's primarily where we focus. And then the other part is where we have real holes. So today, we have holes in areas that we wish we didn't. We have -- we sell to food service chains, right? And restaurants, there's restaurants in hotels, restaurants in stadiums, there's restaurants in convenient stores, convenient stores have huge restaurant chains now. And so we have limitations there, we're like, "Oh, man, we're growing really fast in X, Y, Z vertical. We need more help there." And so we find a product extension and say, "Okay, it will get us up there.". We've a very limited international presence today. But if you listen to our earnings call, most of the fast growing restaurant chains, they're all talking about international expansion. Well, we'll get up in there. And so we'll look at stuff like that. But generally, it's like a product hole that we look to fill and say, "Hey, how we can we make our products better." And then where we haven't done something, but we get asked a lot and think about is do we ever buy a competitor, do we ever try to capture market share that way. And the reason we haven't done that is those are much messier deals. When you sort of put together 2 companies to do the exact same thing, there's obviously the internal culture clash of who runs what and what product wins, but also it's confusing for the customer. That customer usually probably chose that product and not yours at some point and now you're going to say, "Hey, great news, you can switch back to the product, you decided to skip on." And so I'd say, I would love to do those because the economics of those deals are pretty exciting. The amount of sales and marketing, G&A, you can look out at or selling the same product to the same customer is meaningful. But you need to have a large enough margin of safety on the entry multiple to assume that you create more churn and it's messy. So we haven't done that quite yet.

Any other questions from investors for Savneet?

I had a quick question. I read a lot about the dynamic of smaller restaurants and why Clover and Toast and competitors try to sell into smaller restaurants. And one of the aspects of that dynamic I found interesting was they're oftentimes closing. And because restaurants are closing and the new restaurants are opening in their place, it presents a new opportunity for those companies to sell into those restaurants. It's more at bats, if you will. Obviously, you talked about the defensibility of your business. McDonald's doesn't often close a restaurant. But can you talk about the challenge of generating opportunity for new wins, given how often are those companies renegotiating their contracts, et cetera?

Yes. It's a great question. And again, it highlights how differentiate the markets are. When you have a high-churn market, there's more sales opportunities. When you have a low churn market, it's less sales opportunities, you got to win the ones you get into. So generally, in POS, you're -- you go through cycles of every 5 to 10 years, you're looking at potentially upgrading your POS. But they come in waves. And so what's happening now is a wave in the sense that the cloud is like change the way people run a restaurant. And so if you don't have a cloud product, it doesn't really matter if you're 2 years into your deal or 10 years into your deal, you're sort of like I kind of need to make this change now. The second part that I think is really creating this change is that even if you have a cloud or cloud-like solution, you're realizing that, "Oh, my God, I now have a loyalty product, an online ordering product, I got a reporting work, I got like QR code, AI, all the stuff counted into an old product that is not updating that's breaking all the time." And so I'd say, normally, the short answer is most of these products are like 7- to 10-year life cycles. So that's why they're so great from a business perspective. But there's a secular trend that's forcing that churn to be much higher right now on the legacy guys. And I think they're all kind of suffering from that. And it's the same dynamic happening down market, it's just that a new restaurant generally is not going to open on a legacy product, right? They're going to go straight to Square, Toast or Lightspeed or Clover whoever it may be. And so you're totally right. But I think what's happened now is this just a secular trend of like, "Hey, if I'm not in the cloud, if I'm not a modern product, how am I going to catch up to Panera, Chipotle or Starbucks, whoever, maybe."

Great. Well, Savneet, thanks so much for being with us here today. We greatly appreciate it. Thanks to you as well, Chris, and enjoy the day ahead.