PAR PAR Technology Corp

PAR Technology Corporation (NYSE:PAR) today announced its results for its third quarter ended September 30, 2018.

Summary of Fiscal 2018 Third Quarter and Year-to-Date Financial Results

• Revenues were reported at $46.4 million for the third quarter of 2018, compared to $48.9 million for the same period in 2017, a 5.3% decrease.
• GAAP net loss for the third quarter of 2018 was $16.7 million, or $1.04 loss per diluted share, compared to the GAAP net loss of $1.5 million, or $0.10 loss per diluted share reported for the same period in 2017. GAAP net loss was impacted by a one-time $14.9 million valuation allowance recorded to reduce the carrying value of deferred tax assets recorded to income tax expense for the quarter.1
• Non-GAAP net loss for the third quarter of 2018 was $1.0 million, or $0.06 loss per diluted share, compared to non-GAAP net loss of $0.9 million, or $0.06 loss per diluted share, for the same period in 2017.
• Revenues were reported at $154.6 million for the first nine months of 2018, compared to $177.1 million for the same period in 2017, a 12.7% decrease.
• GAAP net loss for the first nine months of 2018 was $18.0 million, or $1.12 loss per diluted share, compared to the GAAP net income of $1.9 million, or $0.12 earnings per diluted share reported for the same period in 2017. GAAP net loss was impacted by a one-time $14.9 million valuation allowance recorded to reduce the carrying value of deferred tax assets recorded to income tax expense for the first nine months.1
• Non-GAAP net loss for the first nine months of 2018 was $1.1 million, or $0.07 loss per diluted share, compared to non-GAAP net income of $4.0 million, or $0.25 earnings per diluted share, for the same period in 2017.

A reconciliation and description of non-GAAP financial measures to corresponding GAAP financial measures are included in the tables at the end of this press release.

“Our results for the quarter reflect the continued transition of the Company, with declining revenues from our legacy products offset by growth from our new offerings, including a 60% increase in year-over-year subscription revenues. In addition, Brink, our industry leading cloud POS solution, continues to gain traction in the restaurant marketplace, evidenced by the 886 new restaurant bookings in the quarter, an increase of more than 150% from last year’s third quarter,” commented PAR President & CEO, Dr. Donald H. Foley. “In the recently ended quarter we also reported a 17% increase in year-over-year contract revenues in our Government segment. We continue to focus on making important investments in the Company that will support and enhance our future growth.”

1 See the following GAAP to Non-GAAP Reconciliations for further detail on the valuation allowance.

Conference Call.

There will be a conference call at 4:30 p.m. (Eastern) on November 7, 2018, during which the Company’s management will discuss the financial results for the third quarter ended September 30, 2018. To participate in the call, please call 844-419-5412, approximately 10 minutes in advance. No passcode is required to participate in the live call or to listen to the replay version. Individual & Institutional Investors will have the opportunity to listen to the conference call/event over the internet by visiting the Company’s website at www.partech.com/about-us/investors. Alternatively, listeners may access an archived version of the presentation call after 7:30 p.m. on November 7, 2018 through November 14, 2018 by dialing 855-859-2056 and using conference ID 3593778.

About PAR Technology Corporation.

PAR Technology Corporation's stock is traded on the New York Stock Exchange under the symbol “PAR”. PAR’s Restaurant/Retail segment has been a leading provider of restaurant and retail technology for more than 35 years. PAR offers management technology solutions for the full spectrum of restaurant operations, from large chain and independent table service restaurants to international quick service chains. PAR products can be found in retailers, cinemas, cruise lines, stadiums, and food service companies. PAR’s Government segment is a leader in providing computer-based system design, engineering and technical services to the Department of Defense and various federal agencies. For more information visit http://www.partech.com/about-us/investors or connect with us on Facebook and Twitter.

Forward-Looking Statements.

This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements appear throughout this press release, including express or implied forward-looking statements relating to our expectations regarding anticipated financial performance, customer and product opportunities, and assumptions as to future events. Forward-looking statements are subject to a variety of risks and uncertainties, many of which are beyond the Company’s control that could cause actual results to differ materially from those contemplated in these statements. Risks and uncertainties that could cause the Company's actual results to differ materially include: delays in new product development and/or product introduction; changes in customer base and product, and service demands, including changes in product or service demands by the two customers from whom a significant portion of our revenue is derived; risks associated with the internal investigation into conduct at our China and Singapore offices, including sanctions and fines that may be imposed by the U.S. Department of Justice, the Securities and Exchange Commission (“SEC”), and other governmental authorities; our ability to execute our business plan and continue to fund current operations will require us to obtain waivers or modifications to our credit agreement and/or secure alternative or additional sources of capital, which may be unavailable on acceptable terms, or at all; significant changes in U.S. and international trade policies that restrict imports or increase tariffs on goods imported to the United States from China; and the other risk factors discussed in our most recent Annual Report on Form 10-K and other filings with the SEC. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities law.

About Non-GAAP Financial Measures

The Company reports its financial results in accordance with GAAP. However, non-GAAP adjusted financial measures, as set forth in the reconciliation tables below, are provided because management uses these non-GAAP financial measures in evaluating the results of the Company's continuing operations and believes this information provides investors supplemental insight into underlying business trends and operating results. These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. In addition, these non-GAAP financial measures should be read in conjunction with the Company’s financial statements prepared in accordance with GAAP.

The Company's results of operations are impacted by certain non-recurring charges, including equity based compensation, acquisition related expenditures, expense relating to the internal investigation into conduct in China and Singapore and the SEC subpoena, and other non-recurring charges that may not be indicative of the Company’s financial performance. Management believes that adjusting its operating expenses, operating income (loss), net earnings (loss) and diluted earnings (loss) per share to remove non-recurring charges provides a useful perspective with respect to our operating results and provides supplemental information to both management and investors by removing items that are difficult to predict and are often unanticipated. While the Company believes the adjustments provide a useful comparison, the reconciliations of non-GAAP financial measures to corresponding GAAP measures should be carefully evaluated.

 

PAR TECHNOLOGY CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except share and per share amounts)(Unaudited)

  Assets  

September 30,2018

 

December 31,2017

Current assets: Cash and cash equivalents $ 5,817 $ 6,600 Accounts receivable-net 27,150 30,077 Inventories-net 24,345 21,746 Assets held for sale 901 939 Other current assets 4,486   4,209   Total current assets 62,699 63,571 Property, plant and equipment – net 11,933 9,816 Deferred income taxes — 13,809 Goodwill 11,051 11,051 Intangible assets – net 12,567 12,070 Other assets 4,546   4,307   Total Assets $ 102,796   $ 114,624   Liabilities and Shareholders’ Equity Current liabilities: Current portion of long-term debt $ 204 $ 195 Borrowings of line of credit 6,965 950 Accounts payable 12,879 14,332 Accrued salaries and benefits 6,022 6,275 Accrued expenses 3,782 3,926 Customer deposits and deferred service revenue 10,235 10,241 Other current liabilities 2,600     —   Total current liabilities 42,687 35,919 Long-term debt 31 185 Deferred revenue 4,641 2,668 Other long-term liabilities 3,392   6,866   Total liabilities 50,751   45,638   Commitments and contingencies Shareholders’ Equity: Preferred stock, $.02 par value, 1,000,000 shares authorized — —

Common stock, $.02 par value, 29,000,000 shares authorized; 17,869,430 and17,677,161 shares issued, 16,161,321 and 15,969,052 outstanding at September 30, 2018 andDecember 31, 2017, respectively

357 354 Capital in excess of par value 49,849 48,349 Retained earnings 11,590 29,549 Accumulated other comprehensive loss (3,915 ) (3,430 ) Treasury stock, at cost, 1,708,109 shares (5,836 ) (5,836 ) Total shareholders’ equity 52,045   68,986   Total Liabilities and Shareholders’ Equity $ 102,796   $ 114,624      

PAR TECHNOLOGY CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)(Unaudited)

   

Three Months EndedSeptember 30,

 

Nine Months EndedSeptember 30,

2018   2017   2018   2017 Net revenues:   Product $ 15,451 $ 20,706 $ 62,658 $ 90,594 Service 13,475 13,317 40,615 42,694 Contract 17,436   14,915   51,321   43,776   46,362 48,938 154,594 177,064 Costs of sales: Product 12,065 15,861 46,844 67,822 Service 10,248 10,241 30,000 31,113 Contract 15,511   13,608   46,005   39,264   37,824   39,710   122,849   138,199   Gross margin 8,538 9,228 31,745 38,865 Operating expenses: Selling, general and administrative 7,967 9,054 25,587 27,581 Research and development 2,992 2,529 9,082 8,161 Amortization of identifiable intangible assets 241   241   724   724   11,200   11,824   35,393   36,466   Operating (loss) income from continuing operations (2,662 ) (2,596 ) (3,648 ) 2,399 Other income (expense), net 455 (70 ) 120 (264 ) Interest expense, net (142 ) (39 ) (261 ) (84 ) (Loss) income from continuing operations before (provision for) benefit from income taxes (2,349 ) (2,705 ) (3,789 ) 2,051 (Provision for) / benefit from income taxes (14,355 ) 1,188   (14,170 ) (327 ) (Loss) income from continuing operations (16,704 ) (1,517 ) (17,959 ) 1,724 Discontinued operations Income from discontinued operations (net of tax) —   —   —   183   Net (loss) income $ (16,704 ) $ (1,517 ) $ (17,959 ) $ 1,907   Basic (Loss) Earnings per Share: (Loss) income from continuing operations (1.04 ) (0.10 ) (1.12 ) 0.11 Income from discontinued operations —   —   —   0.01   Net (loss) income $ (1.04 ) $ (0.10 ) $ (1.12 ) $ 0.12   Diluted (Loss) Earnings per Share: (Loss) income from continuing operations (1.04 ) (0.10 ) (1.12 ) 0.11 Income from discontinued operations —   —   —   0.01   Net (loss) income per share $ (1.04 ) $ (0.10 ) $ (1.12 ) $ 0.12   Weighted average shares outstanding Basic 16,071   15,976   16,033   15,949   Diluted 16,071   15,976   16,033   16,260      

PAR TECHNOLOGY CORPORATIONRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL RESULTS(in thousands, except per share data)(Unaudited)

   

For the three months ended September 30,2018

 

For the three months ended September 30,2017

Reportedbasis(GAAP)

  Adjustments  

Comparablebasis(Non-GAAP)

   

Reportedbasis(GAAP)

  Adjustments  

Comparablebasis(Non-GAAP)

Net revenues $ 46,362 $ —   $ 46,362   $ 48,938 $ —   $ 48,938 Costs of sales 37,824   —     37,824     39,710 —     39,710 Gross margin 8,538 — 8,538 9,228 — 9,228 Operating Expenses: Selling, general and administrative 7,967 785 7,182 9,054 768 8,286 Research and development 2,992 — 2,992 2,529 — 2,529 Acquisition amortization 241   241     —       241 241     —   Total operating expenses 11,200 1,026 10,174 11,824 1,009 10,815 Operating (loss) income from continuing operations (2,662 ) 1,026 (1,636 ) (2,596 ) 1,009 (1,587 ) Other income (expense), net 455 — 455 (70 ) — (70 ) Interest expense, net (142 ) —     (142 )     (39 ) —     (39 ) (Loss) income from continuing operations before (provision for) / benefit from income taxes (2,349 ) 1,026 (1,323 ) (2,705 ) 1,009 (1,696 ) (Provision for) / benefit from income taxes (14,355 ) 14,648     293       1,188   (373 )   815   Net loss (16,704 ) (1,030 )     (1,517 ) (881 ) Loss per diluted share $ (1.04 ) $ (0.06 )     $ (0.10 ) $ (0.06 )  

During the third quarter of 2018, the Company recorded $305,000 of selling, general and administrative expenses related to the Company’s internal investigation into conduct at its China and Singapore offices and the SEC subpoena. Additionally, $323,000 of equity based compensation charges were recorded during the third quarter of 2018. There were $157,000 of severance expenses recorded in the third quarter. The Company recognized amortization of acquired intangible assets of $241,000 related to the Company’s 2014 acquisition of Brink Software, Inc. ("Brink") and recorded a one-time $14,894,000 valuation allowance to reduce the carrying value of its deferred tax assets. FASB ASC 740-10-30-21 indicates that the main negative factor in determining whether to establish a valuation allowance is the incurrence of cumulative losses in the most recent three years. Such objective evidence (or factor) limits the ability to consider other subjective factors, such as projections for future growth. The Company has incurred losses for two of the past three years and is in a loss position for the nine months ended September 30, 2018. A significant factor of the losses has been the Company’s strategic investment in operating expenses to fund the growth of the Brink business line. The increase in investments has outpaced operating performance of the Company’s other lines of business. The Company plans to continue to fund the Brink business line growth in the foreseeable future. Based on its evaluation of its deferred tax assets at September 30, 2018, the Company established a full valuation allowance for the carrying value of its deferred tax assets. The valuation allowance can be reversed if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as our projections of future growth. The valuation allowance was offset by $0.3 million or 24% representing the tax impact of non-GAAP adjustments.

During the third quarter of 2017, the Company recorded charges within selling, general and administrative of $705,000 related to the Company’s internal investigation into conduct at its China and Singapore offices and the SEC subpoena. In addition, $63,000 of equity based compensation charges were recorded during the third quarter of 2017. The Company recognized amortization of acquired intangible assets of $241,000 related to the Company’s acquisition of Brink. The benefit from income tax was decreased by 37%, or $373,000, to reflect the tax impact from non-GAAP adjustments.

 

PAR TECHNOLOGY CORPORATIONRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL RESULTS(in thousands, except per share data)(Unaudited)

   

For the nine months ended September 30,2018

 

For the nine months ended September 30,2017

Reportedbasis(GAAP)

  Adjustments  

Comparablebasis(Non-GAAP)

   

Reportedbasis(GAAP)

  Adjustments  

Comparablebasis(Non-GAAP)

Net revenues $ 154,594 $ —   $ 154,594   $ 177,064 $ —   $ 177,064 Costs of sales 122,849 —     122,849     138,199 —     138,199 Gross margin 31,745 — 31,745 38,865 — 38,865 Operating Expenses: Selling, general and administrative 25,587 1,904 23,683 27,581 2,594 24,987 Research and development 9,082 — 9,082 8,161 — 8,161 Acquisition amortization 724   724     —       724 724     —   Total operating expenses 35,393 2,628 32,765 36,466 3,318 33,148 Operating (loss) income from continuing operations (3,648 ) 2,628 (1,020 ) 2,399 3,318 5,717 Other income (expense), net 120 — 120 (264 ) — (264 ) Interest expense, net (261 ) —     (261 )     (84 ) —     (84 ) (Loss) income from continuing operations before (provision for) / benefit from income taxes (3,789 ) 2,628 (1,161 ) 2,051 3,318 5,369 (Provision for) / benefit from income taxes (14,170 ) 14,264     94       (327 ) (1,228 )   (1,555 ) (Loss) income from continuing operations (17,959 ) 16,892     (1,067 )     1,724   2,090     3,814   Income from discontinued operations, (net of tax) —   —   —       183   —   183   Net (loss) income (17,959 ) (1,067 )     1,907   3,997   (Loss) income per diluted share from continuing operations (1.12 ) (0.07 )     0.11   0.24   Income per diluted share from discontinued operations 0.00 0.00     0.01   0.01   (Loss) income per diluted share $ (1.12 ) $ (0.07 )     $ 0.12   $ 0.25    

During the nine months ended September 30, 2018, the Company recorded $916,000 of selling, general and administrative expenses related to the Company’s internal investigation into conduct at its China and Singapore offices and the SEC subpoena. Additionally, $754,000 of equity based compensation charges were recorded during the first nine months of 2018. There were $234,000 of severance expenses recorded in the first nine months of 2018. The Company recognized amortization of acquired intangible assets of $724,000 related to the Company’s 2014 acquisition of Brink and recorded a one-time $14,894,000 valuation allowance to reduce the carrying value of its deferred tax assets pursuant to FASB ASC 740-10-30-21. The valuation allowance was offset by $0.6 million or 24% representing the tax impact of non-GAAP adjustments.

During the nine months ended September 30, 2017, the Company recorded charges within selling, general and administrative of $2,272,000 related to the Company’s internal investigation into conduct at its China and Singapore offices and the SEC subpoena, and $21,000 of legacy charges related to the Company’s former chief financial officer’s unauthorized transfers of Company funds. In addition, $301,000 of equity based compensation charges were recorded during the nine months ended September 30, 2017. The Company recognized amortization of acquired intangible assets of $724,000 related to the Company’s acquisition of Brink. The benefit from income tax was increased by 37%, or $1,228,000, to reflect the tax impact from non-GAAP adjustments.

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For PAR Technology CorporationChristopher R. Byrnes, 315-738-0600 ext. 6226cbyrnes@partech.comwww.partech.com