PAR Technology Corporation (PAR) Earnings Call Transcript & Summary

Papa John's is a big deal for us for a couple reasons. One, it's our first pizza chain, so we've never done pizza before. And pizza is a little different than our traditional QSR business in that you've got modifiers, you've got this pizza going through the oven stuff that Domino's pioneered, and it's heavily delivery, heavily third party, heavy promotional base. But there are core product differentiators versus uh quick service and fast casual. It was a big deal for us to move into a new vertical, kind of like an adjacent vertical, and then do it super fast. At the time. I think the core reason we won the deal is that Papa John's um is, from a tech perspective, is run by a really innovative team that came out of Domino's. It was the team that sort of did a lot of the really cool stuff that Domino's is known for. And so they want to be viewed as tech forward. They want to be viewed as cutting edge. And so they wanted a partner and a vendor that matched their values and their goals. And so I think they took a huge leap of faith on us because we've never done what they're looking for them to do so they're literally betting on us to do something we've never done before. But I think they felt it from our culture. They felt it from our roadmap. They saw the results. And then I do think a huge part of it was the success we had at Burger King gave them massive confidence we could scale and handle the volumes and quantity of stores that they have have today. So I think that was a huge, huge part of it.

Yes. So then I have talked about pizza as a new vertical. You talked about how it's.

First major win in that category. Yes, absolutely. I mean, we've had to build a lot of that piece of functionality for Papa John's, but what we've been lucky about is then we were able to go monetize that into other customers. In Q2, we announced we want a business called Pizza Factory. And then we want a third chain, a small chain after that. And so we've been making great progress. And pizza's kind of interesting in that there isn't an enterprise vendor that is serviced it before. So most of these pizza chains have actually custom-built software from a decade or sometimes decades ago go that they've been trying to figure out how to work. And so there's an incredible amount of excitement in the category because no one's ever gone after that category before. And so we think it could be a nice... a place for us to expand. We've got 3 customers on a standing start. And a lot of that functionality we can now use over and over again. And I think that a lot of it, too, is just stuff where I suspect, Pizza's always an innovator. And as far as first to delivery, first to DoorDash, first to Uber Eats, there'll probably be stuff that comes out of that that.

Into the rest of our base over time. Yes. During the Burger King process, there was a period of unlawful upsell where you end up winning additional products. Like, do you see similar opportunities here? And what can make sense over time?

Yes, and we already did. So we sold them on 2 products at the time we won the deal. Again, I think that was because they saw what happened over there and said, okay, why don't we do that now? So that was kind of exciting because we were able to launch with 2 products, not 1, and not have to pause and restart. I think that they saw the value add there. That it also started becoming the norm in Q2, every single deal we did was multi-product, literally every deal. And then the prior 4 quarters or 3 or 4 quarters, it's sort of been 70%, 80% of our deals were multi-product. And so I think we've been able to convince more and more customers to go that way. And I absolutely think it's tied to the success of us that working from these bigger, more complex brands.

Yes. And just remind us where.

You are in the implementation of that. I think you sized it in the past as kind of like mid-teens millions of ARR once it's fully rolled out.

Papa Johns?

Yes. And we have a majorly at 2027 event for us.

Do you think you can get it done in 2027? That's the hope.

Similar question on Burger King. I know that one's farther along. Where are you in the Burger King rollout? You've been running north of 400 stores a month. How should we think about the remaining contribution into next year?

I think we'd be pretty much done by the end of this year. I don't think there'll be a small contribution for next year. Some laggards, but for the most part it'll be done. And so 2027 will be a lot more about upselling the back office product and getting that going in the rest of the rest of the chain. So it's been super successful, ahead of schedule. You know we suspect that no one's ever launched as many sites in a single year so you know.

Yes, that's great. I know there's been a lot of conversation around just the market opportunity of other brands, like the pizza industry, that ran a lot of in-house software and are looking to modernize. We've been talking a lot about potential Tier 1 RFPs out there. What's the level of confidence in PAR Technology's positioning in some of those processes and any updates you can share?

We continue to make progress. We're careful not to give update on stuff that hasn't announced or signed yet, given our customers are this is kind of their private info. But the volume of RFPs has increased pretty significantly the last 12 months in our business. I think we are clearly in a replacement cycle of point of sale at least. And so I think, you know, we should, given our win rates, we should, you know, continue to see hopefully above average growth. Just the quantity of RFPs has increased. The only, I believe the only department at our company that has grown headcount has been sales engineers, which are folks that do demos and architect around that. We're just seeing a lot of RFP volume there, too. So I think we continue to make inroads into these big deals, and as I said, our guidance Our business is, you know, a guidance isn't assuming any of that. So if it happens, it's just a great upside for us to have.

What does the process of pitching and winning such a large customer like that look like relative to your standard sales process?

Man, the big ones are just, they're very, it's just impossible to sort of like say the one is like this or not. You know, some firms run a super strict RFP process where they bring in Accenture, Deloitte, or something like that and say, you know, blind RFP response, don't talk to us, just work with a consultant. Other folks will, you know, sort of date you for, or 2 and then sort of say okay let's do a quick abbreviated thing other times you know Honestly, with Burger King and Papa John's, you know, we were the last to the party, but we'd won those very quickly because I think they'd kind of gone deep on other vendors and just were like, this is not going to work, and then we came in and solve all their problems very quickly. So unfortunately it's not there, but again, there's a very small group of people that are in that very, very super, super large brands, whereas our traditional process is, You know, you're obviously have account coverage across every restaurant chain in America, but, you know, by the time you get that RFP, it's like, you know, start to finish relatively, you know, smooth.

So just zooming out, I mean, there's a lot of, I think there's been a lot of focus on, particularly early in the year, that AI may make companies manage more of their own software in-house. And so it's interesting you're saying that you're seeing a lot more RFPs coming to market, people looking to move to out-of-house vendors. So what is the market like right now for some of these big opportunities? Are you seeing an acceleration in people looking to do kind of refreshes of their tech stack? And then how do you think AI plays into those decisions?

I'll say that the, you know, 99% of restaurant chains do not have their own tech stack now. So it's not so much a move to external, it's always been external. There are a couple, you know, McDonald's, um, There's a handful that have done stuff themselves, but everyone else has bought. And so I just think it's a continuation of that bought. And I think even more so, what we're seeing is some of these firms that have built their own now look at AI as a way for them to get off their own. Where I think a lot of them are like, man, we're going to be stuck on our own clunky homegrown thing with AI or something. It's like, OK, now we can actually get off the thing we built that's clunky as resources. And so I'm not seeing any customer come to us and say, I want to go build a point of sale system. I don't think that's going to happen. And you know, if you think about it, if I'm I'm a, almost all large restaurant brands are franchised. If I'm that franchisor, I'm not sure I wanna build like the payment engine, the transaction engine, the point of sale system to my franchisee, it's just going to be a massive point of friction for saving how much, point of sale you're paying $200 a month, it's like, is the ROI really worth the headache? Of giving your franchisees another thing to complain to you about. And so I'm not sure there's an ROI there, given that. And I've always said this, but to me, it's like the equivalent of us saying, I want to go build my own CRM system, because I don't want to use whatever Gong or Salesforce.com or whatever we've developed. Why would I ever want to distract our team to build the best CRM? the CRM system. You'd only do that if you felt there was a massive competitive advantage. And I don't think that exists. And, you know, or if you can build the best product for your store today, I doubt that lasts because these technology changes, integrations change, all of a sudden AI comes and you're like, I gotta rebuild it. I just don't think you want to be in that business. So the main driver of the movement, of this aggressive sort of growth in our fees, I think is really just down to the same exact stuff, which is, holy crap, our customers are more digital, we gotta meet them where they are, we gotta manage our operations more dynamically, because all of a sudden, I gotta deliver, I gotta have Uber Eats, I gotta have pick up, I gotta be available on all these channels all these times, I gotta manage labor. I'm doing it from the exact same four walls that I did 20 years ago. The only way to solve that is with technology.

Okay, let's maybe pivot to talk about the competitive landscape. I mean, you sit behind, or I guess between, a lot of legacy enterprise vendors, Oracle, Micros, NCR, Global Payments.

Yes.

There's also a lot of SMB players who are trying to move up market. What's kind of stayed the same? What's changed over time on the competitive landscape?

The biggest players in the enterprise are NCR, Oracle, and Global. That hasn't changed. I think they still have the most market share. Most of the customers we get are from those 3 or some other legacy provider. And I think that will continue for a long time. I don't think uh this is a priority business for any of them and for the 1 that is a priority business, I think they just have too heavy of a product to fix to really be competitive. So I just think it's just it's hard even if they wanted to change, you're talking about products that are 15, 20 years old, millions of lines of code, that's really hard to do it. And even if you want to do it, it's like the innovator's dilemma. How do you tell your customers that, tell your employees that? I think it's tough. You know, from the, you know, competitors from sort of outside the enterprise, there's always been SMB people that wanted to come up market. It's never really worked successfully. I think it's really hard to take an SMB product and make it enterprise. I don't know if there's a good example. I don't know if I've ever seen that. You know, there's, There is Intuit and there is SAP. There is an SMB product and usually an enterprise product. And I think it's really hard to make that the same product. And so you've got to almost completely change your stripes to go to that market. Specifically, we have incredible respect for Toast. I love those guys. I love those products. But I think the enterprise is still not – I just don't think there's enough TAM and opportunity to make it worth their time. And so at some point, I suspect economic rationalization comes in and it's like, what are we doing here? I think there's a few startups here and there, but honestly, not a ton has changed since we probably lost it last year.

Yes. Does having more people at least looking at the space, does that change any of the dynamics in competitive situations?

Not really. You know, it's funny. It's been almost exactly 4 years since GPT-2.0 came out. We have not seen 1 new company in an RFP since that time. So whether it's loyalty online ordering, point of sale, really not 1. And so we have not seen like tremendous change on pricing or pricing. Sales cycle, it's it's only thing that changes is the quantity of RFP has increased.

Got it.

One thing I wanted to talk about, payments was something the company has been investing in, I think more so for the table service part of the business, but probably applicable across the business. Any updates on where that product stands and how you're thinking about roadmap?

CHRISTOPHER COLEMAN- Yes. Still less than 10% of our net revenues, but, you know, it's growing. Uh, you know, when we sell to the enterprise, it's tough to always have payments because they've got their own deals with Fiserv or whoever to, and, but where I'm super excited about payments actually is leveraging payments in a CDP system like we've talked about. So, how do I take that, get you on our payment rails, then I can take that data, put it into our CDP, and give you incredibly high fidelity information about Will and Lance so that I can target the hell out of you and make you a loyal customer. And so a lot of times I think about how do we not sell it as payments, but sell it as a robust CDP system. And that's where I think we'll do more and more with with these larger brands. And they look at it as, I'm not getting a payments product. I'm getting something else out of it. I think we see pure payments growth is actually in online ordering. So 1 of the exciting parts of our business is we've kind of built an online ordering product that's going after our base customers. This year, 2026, it's got a 50% win rate. And that's nuts for us. Every quarter, we're winning 5 or 6 logos. About half of those come from the big legacy provider. And every single 1 of those deals has payments associated to it. And so that will be a nice driver because card-not-present transactions are very lucrative. And I think because it's the assumption, all those deals are like, you know, they go hand-in-hand. Hand-in-hand the ARPU is very very high so I think we'll continue to have good stable growth and payments but I think the online side is actually we're going to have the opportunity to do more than in the in-store can we build out the CDP idea you know, we'll see where that is in the year from now.

Got it makes sense maybe a.

A couple more financial oriented questions. You've roughly doubled EBITDA year over year. We talked about you raised the guide. How are you thinking about margin expansion and the trajectory towards a kind of Rule of 40 model?

Yes, I mean, I think we've said, you know, our goal was to go to kind of double EBITDA, double it again. And so, you know, last year we did [ 24, 25 ]. This year we guided, you know, I guess now we're guiding above that. So, you know, we'll hopefully do that again this year. And then, you know, we think there's a potential path to do it again next year. A lot of that is coming from the stuff we talked about, continued growth and then holding OpEx and taking out OpEx. We're obviously ahead of our expectations on EBITDA. Um and I think a lot of that is some of this AI work just became more uh more lucrative to us than than we expected, faster than we expected. Um And so, you know, to me, I don't think it takes a gigantic leap of faith to see how we can get to a really robust EBITDA number there. And then I think it's just about growth and getting us closer and closer to that Rule of 40.

The other one I had was just on capital allocation. You've got a buyback authorization. You've done a lot of M&A historically. You've done work on the capital structure to turn that out. How are you thinking about capital return, M&A, versus reinvesting in the business?

I think we do not need to use cash on the balance sheet to reinvest in the business. The business is self-sustaining and operating leverage is growing. So we're going to be sending out more cash than we need. And today, I mean, I think capital allocation is a dynamic question, it's not static. And so I think today, I would suspect the best use of our best return on our capital is our own shares. But that can change if a great unique acquisition comes up. Like Bridg, I would do Bridg instead of buy back our shares, because we think Bridg will unlock a lot more over time. So I think it's just where you are at the time and what generates the highest return. But we still don't want to be sitting on it, because I think our shares would provide a really substantial return. So we'd probably look to do something there.

Got it. OK. All right, just in the last minute or 2 here, how are you thinking about big picture, what is next for the company, specifically for PAR Technology of the next 12 to 18 months?

For us, it's pretty simple. We want to drive the profitability we talked about and deliver that return to our shareholders and become a cash flow story. And then we want to prove the power of Intelligence story. We've got to prove that AI is a growth accelerator for us. I think that if we can do that, I think we'll have a multiple re-rating that hopefully will reward the patients of what's going on now. But it's pretty simple. We've got to drive super high ROI on our AI spend, and then we've got to deliver on the cash flow numbers.

All right. Well, Savneet, thanks for joining us. Today.

Thanks Will. Really enjoyed the conversation. This live transcript is auto-generated without human intervention or review. This live transcript is auto-generated without human intervention or review.