PAR Technology Corp (PAR) 2022 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the 2022 second quarter financial results conference call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Chris Byrnes, Vice President of Business Development. Please go ahead.

Thank you, Michelle, and good morning to everyone. I'd like to welcome you today to the call for PAR's 2022 Second Quarter Financial Results Review. The complete disclosure of our results can be found in our press release issued this morning, as well as in our related Form 8-K furnished to the SEC. To access the press release and the financial details, please see the Investor Relations and News section of our website at www.partech.com.

I also want to be sure all participants today have access to our earnings presentation and business review slide deck. Individuals on the webcast should have access to the deck when they logged on to the call this morning. For those just dialing in on the conference call, the presentation can be accessed on the Investor page of the website and also included as an attachment on the 8-K we filed this morning as well.

At this time, I'd like to take care of certain details in regards to the call today. Participants on the call should be aware that we are recording the call this morning, and it will be available for playback. If you ask a question, it will be included in both our live conference and any future use of the recording.

I'd like to remind participants that this conference call includes forward-looking statements that reflect PAR management's expectations based on currently available data. However, actual results are subject to future events and uncertainties. The information on this conference call related to projections or other forward-looking statements may be relied upon and subject to the safe harbor statement included in our earnings release this morning and in our annual and quarterly filings with the SEC. Joining me on the call today is PAR's CEO and President, Savneet Singh; and Bryan Menar, our Chief Financial Officer.

I'd now like to turn the call over to Savneet for the formal remarks portion of the call, which will be followed by general Q&A. Savneet?

Thanks, Christopher, and thanks to everyone for joining us to review PAR's second quarter 2022 results.

During the second quarter, we continued to drive growth in our subscription services revenue and saw a strong gross margin expansion as we continued to realize the benefits of scale and operational efficiency. The business is performing, and the strategy is working.

We continued to measure against near-term expectations while simultaneously making strategic progress against this large opportunity that's in front of us. As a company, we delivered a strong second quarter with reported total Q2 revenues of $85.1 million, a 23.4% increase from 1 year ago.

Our revenue growth was driven across all business lines and specifically around our software recurring revenues resulting in $98.6 million of total live ARR at quarter end and a year-over-year growth rate of 29% from Q2 last year. This acceleration continues to be driven by a 32% growth in ARR coming from Punch and a 31% increase coming from Brink.

Equally important, as we scale is a dramatic improvement, we have been able to drive in gross margin on our subscription services revenue. At the end of Q2 2022, we've now achieved a 73% gross margin, a significant improvement from the 53% we reported at the end of 2020. We expect this positive trajectory to continue to expand over time. This growth has been driven by intense ROI-focused engineering, improved Brink architecture and economies of scale.

Strong results this quarter continue to be driven by a high level of execution across the business and the continued strong demand for PAR's Unified Commerce. We've established strong momentum and have continued to build on that throughout the quarter. In Q2, we activated 962 new Brink sites, and on that basis, at the term, Brink's active store count now totals over 17,700, a 34% increase from 1 year ago.

Brink bookings totaled nearly 950 stores in the quarter. We expect both metrics, activations and bookings to increase in the second half of this year, as inventory concerns are subsiding alongside strong visibility and a ramp-up in go-live dates for new customers. Additionally, we continue to see ARPU expansion in our pipeline, which will help the revenue momentum.

We continue to see impressive low churn rates for Brink, approximately 4% annualized. This low churn rate shows the trust our customers have in their products. It ensures our ability to provide and also capture value for PAR in the long run.

Now turning to Punch. We continue to outperform with Punch and added more than 3,500 sites in the quarter and now total more than 62,300 sites, a 29% increase in the last 12 months. We signed 12 new customer logos in Q2 that added to our impressive contracted (inaudible). Punch further enhances the impressive list of integration partners with the addition of 9 new partners in the quarter.

We also added important product features and enhancements that include campaign management, mobile framework, loyalty platform, office management along with machine learning and AI. Applications like Punch make it easier for brands to connect with their most loyal customers and increase customer lifetime value.

We're also beginning to see momentum within the grocery and C-store segment and hope to announce future customer wins later this year. The growth in these emerging verticals is the validation of the work the team has put in to expand our TAM in the last couple of years.

Park Payment Services had another strong quarter, and we're extremely excited by the pipeline of customers who have engaged with PAR for our integrated payment services. They are attracted to PAR payments for those competitive pricing, transparent costs and full integration with Brink and Punch. PAR payments cuts across all PAR customer types, and we look forward to sharing more data later this year.

Even though still early on in our payments initiative, we've seen notable customer wins during 2022 and believe this revenue stream will be meaningful and accelerated to our future financial performance and gives us strong confidence in hitting our 2022 goals.

To update on Data Central, we experienced a solid bounce back in Q2 and saw net new activations at more than 350 stores as we went live with California Pizza Kitchen and signed a sizable franchisee of a notable Tier 1 chain. I'm encouraged about the opportunity that Data Central has ahead of it because it's a proven solution that solves the biggest challenges the restaurant industry faces today, labor and food management.

For the last 2-plus years, restaurants have focused tax spends on the front of house with CRM, loyalty, digital and delivery. Now that most reference have upgraded the funds of house (inaudible), they're struggling with operational issues and profit leaking out the back door via food and labor challenges.

We've added to our sales steps to take advantage of this opportunity and importantly, we have improved the scheduling features of the product and expect to accelerate sales in the marketplace around labor solutions. As we continue to strive to report meaningful metrics to our fast-growing subscription services revenue, we'll now report 12-month contracted ARR, which is live sites plus sites signed with the expectation of going live in the next 12 months with much of that contracted ARR going live in just the next 6 months. This number should give investors a more accurate view of our future revenues and is the number I personally track internally.

Today, 12-month car stands now at $115 million, paving the way for a strong rest of the year and beyond. Our product and hardware revenue continues to perform well in a difficult and challenged environment. Product revenue in the quarter continued to strengthen year-over-year, and we reported $28.4 million in this recently ended quarter, a 19% increase from 1 year ago.

The capital purchase environment for restaurants is always tricky, and this has been even more this pandemic with the inflation pressures and the global supply chain difficulties. As I mentioned previously, we're not immune to these challenges around the supply chain, and we experienced some margin impact with costs associated with the current situation. We continue to monitor the supply chain environment closely and the reality is occurring in Asia, specifically China, in regards to the pandemic and the impact of specific shutdowns.

Now to briefly report on the government business. PAR Government has delivered a strong year-over-year performance for the second quarter. PAR Government is up 17.4% in revenue over the same period last year and has outpaced its Q2 '21 profitability by 48%.

Enhanced focus on contract financial performance is resulting in bottom line acceleration. Our Government segment performed above plan for both revenue and earnings. Our ISR business had a solid quarter driven by increased demand for recurring -- excuse me, for services resulting in a 28% and year-over-year revenue growth and improved contract margins. Our Government segment also delivered improved performance for Mission Systems and product business lines, and I'm confident this segment will continue to outperform for the foreseeable future with a solid contract backlog and future award opportunities.

Now to our acquisition. As most of you hopefully saw this morning, we announced that we acquired MENU Technologies, a fast-growing omnichannel ordering solution. The MENU acquisition has a robust e-commerce solution, including online ordering, kiosk, menu management, delivery management dispatch and much more.

MENU now allows PAR to consolidate the restaurant's off-premise and on-premise orders into one unified tech stack. This is an important deal for our company. Although small in size, we believe MENU is the best kept secret in restaurant technology. We worked incredibly hard to win the MENU team over as we think MENU brings a level of product sophistication we have not seen elsewhere.

Our logic and buying the business is simple. First, MENU provides PAR a best-of-breed solution for off-premise ordering. Our customers have been asking us for an alternative view and we feel we just acquired the modern version of today's incumbents, a product that gives restaurants complete configurations, end-to-end commerce and a very special customer-focused culture.

This acquisition should help significantly expand PAR's ARPU and potential and provide years of potential upsell. In enterprise software product wins, and we think we have acquired the most innovative solution in the market. MENU already has corporate contracts in several of the largest restaurant brands in the industry, extending PAR's leadership in the restaurant tech in the upper echelons of Tier 1.

Second, the MENU acquisition marks PAR's expansion into international markets. MENU is already offering solutions to enterprise restaurants in 25 countries located in Europe, North and South America and now allows PAR to leverage its brand and reputation to not only MENU with other portfolio products internationally.

Third and most important, MENU accelerates PAR's plans and unify the restaurants. Beginning immediately, PAR will initiate an effort to unify MENU within PAR's unified commerce solution so that brands no longer need to maintain 2 different systems for on-off premise ordering. One cloud-based system will manage all transactions, become a true system of record and allow for extensibility. As innovation accelerates a number of ordering channels, a unified system allows that channel expansion to function seamlessly while ensuring uninterrupted operations.

Other benefits of adding MENU to PAR include a more seamless experience that puts the customer at the center of every transaction regardless of the channel they used to order and pay. The acquisition centralizes key functions like MENU management for all systems to a shared model across both commerce and loyalty solutions. It also natively connects the kitchen management system across channels to better manage customer experience as well as manage demand into the kitchen. The combination will also provide a material reduction in cost for brands who may be managing multiple systems to offer an integrated customer ordering across channels, while also accelerating innovation for brands as new possibilities are unlocked by unified commerce.

I certainly hope you're as excited as I am about this addition to PAR and our unified commerce offering. We diligently thought out the correct partner we needed to acquire. We literally evaluate every player in the space and are confident that MENU accelerates our path to becoming the world's largest restaurant technology company.

I also want to reiterate that we are just getting started as we seek out other transactions of best-in-class companies that we can add to our unified commerce offering. Each time we allocate your capital, it's for a purpose to drive long-term shareholder value. I'm incredibly humbled about the work that's happening at PAR. We believe our vision of unified commerce gives us the opportunity to become a once-in-a-generation company. With our unit economics and technology advantages, we believe we'll win and provide unified commerce to key vertical markets.

Looking ahead, we have sufficient cash to execute on our strategy. We're prioritizing and making excellent progress on integrating past acquisitions and ensuring that appropriate controls are in place while simultaneously make notable progress on our internally developed projects as well. We feel confident in hitting our 30% to 40% growth target for the year. And while the macro environment could be challenged, we see real reasons to be optimistic at PAR.

As always, I would like to thank all of our employees for their dedication and effort over the past quarter. Across the organization, people have stepped up to ensure we meet the needs of our customers, while at the same time, embracing the changes necessary to create a company for long-term sustainable success. They continue to act as owners of our company.

With that, I'd like to hand it off to Bryan, who will review our financial performance in greater detail.

Thank you, Tony, and good morning, everyone. Total revenues were $85.1 million for the 3 months ended June 30, 2022, an increase of 23.4% compared to the 3 months ended June 30, 2021, with growth coming from both restaurant retail and government segments. Net loss for the second quarter of 2022 was $18.8 million or $0.70 loss per share compared to a net loss of $10 million or $0.39 loss per share reported for the same period in 2021. Adjusted net loss for the second quarter of 2022 was $9.8 million or $0.36 loss per share compared to an adjusted net loss of $9.2 million or $0.36 loss per share for the same period in 2021.

Product revenue in the quarter was $28.4 million, an increase of $4.5 million or 18.6% from the $23.9 million reported in the prior year. We continue to see strong hardware sales, both with our Tier 1 legacy customers and across our Brink customer base. Service revenue was reported at $35.8 million, an increase of $8.6 million or 31.6% from the $27.2 million reported in the prior year, driven by institution services revenue from our Punch and Brink offerings.

Total subscription services revenue reported in Q2 2022 was $23.4 million compared to $16.5 million in Q2 2021. The annual recurring revenue rate of subscription services exiting the quarter was $98.6 million, an increase of 29% compared to Q2 2021, driven by 31% growth in Brink and 32% growth in Punch.

Our recurring revenue base, which includes both software-related services and hardware support contracts continues to expand. Of the $35.8 million of service revenue reported in Q2 2022, $31 million was comprised of recurring revenue contracts as compared to $23 million in Q2 2021. Contract revenue from our Government business was $20.9 million, an increase of $3.1 million or 17.4% from the $17.8 million reported in the second quarter of 2021.

The increase in contract revenue was driven by a $2.4 million or 27% increase in our ISR solutions product line. Contract backlog continues to be significant, noting a total backlog of $184.5 million as of June 30, 2020, compared to $141.2 million backlog as of June 30, 2021.

Now turning to margins. Product margin for the quarter was 14.7% versus 22.8% in Q2 2021. The decreased margin was primarily driven by a $1.5 million charge for excess and obsolete inventory. Product margins, excluding the excess and obsolete charge was 20% for Q2 2022. We are keenly focused on product delivery in a supply-challenged market, but we continue to improve processes to efficiently balance customer demand and more modest inventory levels. We continue to also monitor our pricing to properly reflect changes in the dynamic and cost environment.

Service margin for the quarter was 40.9%, compared to 30.3% reported in the second quarter of 2021. The substantial margin improvement over multiple periods continues to be driven by improvements in hosting and support services costs and a higher mix of SaaS software.

Service margin during the 3 months ended June 30, 2022, included $5.4 million of amortization of identifiable intangible assets compared to $5 million during the 3 months ended June 30, 2021. Excluding the amortization of intangible assets, total service margin for the 3 months ended June 30, 2022, was 55.6%, an increase from 49.2% for the 3 months ended June 30, 2021.

Government contract margins were 11.1% as compared to 7.9% for the second quarter of 2021. The increase was driven by higher-margin mission systems contracts and lower corporate expenses across all product lines.

In regards to operating expenses, SG&A was $26.4 million, an increase of $3.5 million from the $22.9 million reported in Q2 2021. The increase was primarily driven by a $1.9 million in sales and marketing expenses, $1 million in internal technology infrastructure costs and $0.6 million increase in corporate management expense.

Net R&D was $10.1 million, an increase of $1.5 million from the $8.6 million recorded in Q2 2021 as we increased spending across our software product development organization. Net interest expense was $2.5 million compared to $4.9 million recorded in Q2 2021. The decrease is driven by the refinancing of the (inaudible) loan with the issuance of the 2027 notes in September 2021 and a reduction of accretion resulting from our January 1, 2022 adoption of a recent accounting pronouncement.

Now to provide information on the company's cash flow and balance sheet position. For the 6 months ended June 30, 2022, cash used in operating activities was $31.6 million versus $33.1 million for the prior year. Cash used for the 6 months ended June 30, 2022, was primarily driven by additional net working capital requirements due to $11.6 million increase in accounts receivable related to our Government segment and a $7 million increase in inventory. These increases will be temporary as we expect accounts receivable and inventory to revert back closer to December 31, 2021 levels during the second half of 2022.

Cash used in investing activities was $5 million for the 6 months ended June 30, 2022, versus $381.7 million for the 6 months ended June 30, 2021. The investing activities during the 6 months ended June 30, 2022, included $1.2 million of the cash consideration for the Q1 2022 drive-thru tuck acquisition. Capitalized software for developed technology costs for the 6 months ended June 30, 2022, was $3.2 million versus $3.8 million for the 6 months ended June 30, 2021. Cash used in financing activities was $1.8 million for the 6 months ended June 30, 2022 versus $319.3 million for the prior year.

Financing activities for 2022 was driven by stock-based compensation-related transactions, while 2021 activities included financing related to the Punch acquisition. Days sales outstanding decreased within the restaurant retail segment from 58 days at December 31, 2021, to 47 days at June 30, 2022. Day sales outstanding increased within the Government segment from 55 days at December 31 to 89 days at June 30, 2022. The interim increase is expected to be reduced to normalized levels during the third quarter.

This concludes my formal remarks, and we will now move to Q&A.

(Operator Instructions) Our first question comes from Mayank Tandon with Needham.

Congrats on the quarter. Savneet, you shared a lot of information on the acquisition. But just to clarify, maybe I missed this. How much did you pay for the acquisition? And could you share any financial metrics in terms of the ARR growth and revenue contribution and how that should flow through the balance of 2022 into 2023?

Yes. So in regards to the acquisition costs – and we'll see this also as a subsequent event in our 10-Q filing later on today – the base investment was $25 million, comprised of a mix of both cash and equity. And there is an earnout that linked to that is also primarily driven by ARR growth over the next 24 months.

As far as revenue expectations, it's de minimis now but with a very strong ramp expected over the next 12 months here. What's amazing about MANHU, and I mentioned, we really do think it's the best kept secret in technology. They've signed meaningful contracts with some of the largest restaurant brands internationally and right at that sort of point where they're taking contracted revenue live. So it will be small this year, and we expect to accelerate meaningfully in the out years with pretty decent visibility.

Understood. And then, in terms of the contracted ARR, that's a very helpful metric. But could you just provide any framework in terms of how you're thinking about the back half of the year given all the concerns around the recession or economic slowdown? Have you seen any slowdown in decision making from your customers and prospects? It doesn't sound like it, but would love to get any sort of thought process around your expectations for the back half of the year, especially.

Yes. At the beginning of the year, we sort of guided to 30% to 40% ARR growth, and we still feel really confident about that. And we think the next couple of quarters will actually be faster growth than the last quarter if the world holds up.

Now a lot of that, we feel is being driven by our Brink initiative with payments where we're seeing really strong adoption, and that adoption, we haven't seen an ounce of customer pushback as it relates to the macro environment or anything macro-related. We haven't really seen that change. The pipeline is, in fact, expanding, not contracting, and that gives us some good confidence.

And our other parts of our business, we expect to see a slowdown in hardware revenues in the back half of the year. And while we haven't really seen it yet, that's just an expectation that as rates go up and as the economy slows, franchisees of the large Tier 1 chains who are hardware-only customers will probably go back. So we're getting ready for that. We're not seeing that in an aggressive way yet. We've seen small signs of it here and there. But that's where we would expect to see a slowdown.

Our contract Air that I put out there, I think it's a very good guide. We expect to turn most of that live in the next 6 months, which is why we put that metric out there; it's what I track internally. So that's a good guide for on the ARR side. But to your question, if the economy slows down significantly, we will see that impact in our hardware business.

Our next question comes from Stephen Sheldon with William Blair.

I wanted to also ask about the ARR. And I guess, specifically, it's great to see that contracted ARR number. I think if that all goes live, I think that would imply about 30% ARR growth. But curious what you're also seeing on the pipeline side. Is what you're seeing in the pipeline also giving you some confidence about that 30% to 40% ARR growth number? Just any detail on the pipeline across the different businesses.

Yes, absolutely. I'll go one by one, so you have some color. So the short answer is we think we'll hit that number (inaudible) the economy can turn; it can change, but we feel pretty good about it now. Product by product, the hardware business pipeline is hard because it's a very short window and customers can change quickly. So I think we see orders coming in. We obviously had a good quarter, but we expect that version of the pipeline there to contract in the event the economy slows down.

On the Brink and payment side, we see a strong pipeline of go-lives happening, and we've got pretty good visibility into that for the next 6 months. And we are in the process with a couple of large accounts that will set us up nicely for the following year. But today, pipeline seems as strong as it needs to be for us to hit those goals. I don't think it's a reach for us at those goals, Otherwise, we wouldn't say it, and so we feel pretty decent about the Brink pipeline. But that will be the key for the second half. Can we expand that pipeline so that 2023 is a successful year? 2022, we feel confident is – there's not a lot we can do in 2022 to dramatically impact 2022, but it has a tremendous impact on 23.

On the Punch side, pretty much everything we have contracted or booked to date is all that we have -- is what we'll execute in the second half. So any business that we signed in the second half of the year as it relates to our Punch products will probably go live in 2023. Now that's excluding upsells and cross-sells. So we have really strong visibility into Punch for the remaining 6 months as it relates to LAR and so everything we've signed for the next 6 months will be real CAR for the following year.

So the short answer is Punch, we have very strong visibility from now to the end of the year of where we think revenue will go because that revenue has been booked and is planned to be rolled out in the second half of the year.

Payments is a business that can impact 2022. Immediately, it does not have a long go-live cycle as most of these customers are already on Brink. And that's where we have probably -- not probably, without question our strongest pipeline. Demand for payments is accelerating ahead of our expectations. And as hardware supply chains weaken, it should help us bring payment devices, which is our limiting factor in turning that revenue live at the moment. So payments to the pipeline is very strong, and I'd argue, if the economy weakens that business will get stronger and stronger because it's a net cost savings to our customers. And so that's an easy switch for CFOs and CIOs to make.

And then lastly, on Data Central, the bar is low here. So short answer, we'll see momentum. We've got a great leader there and Marcus Watson, who often says we've got stronger fragile momentum, and I think we'll see -- see that continue to grow. We're in a couple of processes we feel very confident about. And so Data Central, I think the pipeline is very strong.

So in short, I think because our businesses are contracted, they are longer sales cycles, the rest of the year is very much executing on what's been signed this year outside of payments and parts of Brink. So we have very good visibility for this year. And so from here until the end of the year, it's very much going to be what impacts 2023.

Got it. That's incredibly helpful.

Maybe shifting to the MANHU acquisition. That was great to see and clearly a lot to dig into there. But can you give some more background there between their focus on SMB versus enterprise? And then how aggressively do you plan to take this out as an option to your current U.S. enterprise customer base as an alternative to the other online ordering solutions that you cross-partner with?

So PAR is an open solution and will always be supportive of every single restaurant technology company. We sort of look at the company's incumbents to the past, and they become sort of tollkeepers that kind of stifle innovation. We want to be the opposite of that. And so it won't have any impact on any of our partners.

Specific to your question, priority 1, 2 and 3 within that acquisition is taking live the revenue that MANHU has already contracted. MANHU is truly a special set of products. I probably met 100 different digital ordering companies, kiosk companies. And it's far and away the best product we've seen. And when I say that, it's not a singular product. It's an online ordering product. It's a mobile product. It's a loyalty product. It's a kiosk product; it's a dispatch product. It's a real product. It's truly incredible what they built, and it's 100% built for the enterprise.

And that's really where it aligns with what PAR is building. And so we don't -- it's not taking an SMB product and making an enterprise; it's already an enterprise product.

And so our goal with MANHU is to take live the revenue that they've worked very hard on the last few years and helping them take that live. And that is predominantly in international markets, the 25 markets that I spoke about on the call. But of course, we see tremendous opportunity in bringing their products to the United States. We've been sort of pounded on by our customers to find alternatives to what they have today. And so we expect to eventually bring that United States and into our unified solution, and we've got pilots with a couple of our existing customers today. And so we're not waiting on that. But I'd say Priority 1 is taking live the revenue that's already been contracted and Priority 2 will be bringing in the United States and bundling into our unified conversation, which is the real reason we acquired it.

And so, over time, I expect the U.S. to be a huge and probably the biggest market for MANHU, but today, we've got to take a live of the revenue that's been contracted. And again, it is -- it is – I guess, it's just an incredible product that we're really, really excited about.

The next question comes from Samad Samana with Jefferies.

A few questions for me. I guess I just wanted to first make sure – so contract ARR in last quarter's presentation was at – it said it was above $116 million. So it's $115 million in 2Q. I'm curious why it was down $1 million quarter-over-quarter. Was there a change in either what you were including in that? Or – just maybe help me understand that. And then I have a couple of follow-up questions.

Sure. Yes. We mentioned on the call, it's definitely not down. What we did was to give you better visibility, we changed the definition of contracted ARR to be just the next 12 months with -- and most of that next 12 months CAR is the next 6 months.

And we think that gives you a lot more visibility. It's the number that I track, which is what's the revenue contract that's going to go live in the next 12 months. And again, most of it will go on in the next 6 months.

Got you. I apologize. I must have missed that part. So okay, that's helpful.

And then I guess just as I think about Punch, it's still growing above the overall ARR growth. But I guess I am curious if I think back to when you guys acquired it, it was growing well north of the mid-40s. This quarter. I know it's a tough comp, but you're talking about growth decelerating into the low 30s. I'm just curious, is it -- what's -- is it just changes that are going on in the sales organization? Are sales cycles getting longer there? Maybe what's driving some of that slowdown in that Punch ARR growth?

Yes. And just one question. When we bought the business, it had grown about 30% year-over-year from the prior year, and then it obviously accelerated a lot with our go-live motion plus the cross-sell upsell.

I think it's just scale, right? We're still adding huge amounts of ARR every quarter and every year. And so as we scale, I think that growth rate will sort of stabilize. And as you've heard me say, we want to maintain that 30% to 40% growth rate. And so now it's continuing to take that product internationally, leveraging the menu acquisition and new product upsell. So we believe we'll continue to grow the Punch business 30% to 40%.

I think when we were growing 45%, that was a moment in time where we had just incredible cross-sell opportunities through the Brink acquisition. But we think it will stabilize around this rate as we do -- we sort of think for all or products we would be in that 30% to 40% range.

And we're seeing good movement now in adjacency markets with grocer and also the convenience especially with that product.

Great. And then maybe just one last one for me. Just any update on maybe what the new Brink ARR trends are in terms of ARPU per site? Are you seeing better pricing? Are you seeing similar pricing to what you've seen maybe over the last 2 or 3 quarters? Just anything that you can see that gives us an idea of maybe what the size and scale of the deals you're landing and the price you're able to retain even as you do that.

Thanks for asking that question because I wish I expand it more.

So the short answer is, we've been taking live a lot of sites that were contracted. This is a sound crazy view in 2016. And that is weighted down the ARPU. The average ARPU of Brink for signed contracts over the last 12 months, has been significantly higher than the contracts signed, obviously, in 2016. And so in the second half, we should benefit from that momentum of the signed deals and allow for us to expand revenue growth within the Brink product line.

So you'll see a reversal starting slowly but will really pick up. And in 2023, we'll have a lot of benefit of taking live the contracts that we've put out there. Brink with prices is up considerably just in the last 12 months. And then, as we've found ways to monetize things like APIs and additional product modules, it will continue to grow. So we'll see a reversal of that trend.

Unfortunately, the revenue that goes live, we put in LAR, is oftentimes older contracts that we -- they're a great sign that we've now taken live revenue that was contracted years ago, and that was stopped because of whether management or product issues. But we've been, unfortunately not getting the benefit of all these sites, and I think that will reverse now.

Our next question comes from Anja Soderstrom with Sidoti.

A lot of good questions asked already. I'm just curious, how did you come about with the MANHU technology acquisition? And how long have you worked on it and why now?

So we've been spending a lot of time on this idea of Unified Commerce.

And Unified Commerce doesn't work unless you can bring together off-premise and on-premise orders. Off-premise and things like online orders, mobile orders, everything that's not in the store, and we haven't obviously had a solution for that. And so we spent, I'd say, 2 years looking for a product – really 1.5 years, but let's call it 2 years, to find a product that will work for us.

The great challenge in that market, though, is that most people focus on the SMB market. And while there are great companies that are growing very quickly, it's incredibly hard to take an SMB product and make it enterprise, particularly in restaurants. And so we really did scour the world trying to find the best product. As I said in my remarks, in the end, you can have the best marketing, the best sales team, the most savvy management team, but product wins, and we need to find the best product. And so we discovered MANHU, I want to say, 9 months, a year ago. And candidly, we didn't believe what we saw. We've never seen a product that – a company that has so much product that was still relatively young in its maturity. And so, we took a long time to convince them to become part of PAR.

And during that time, we developed immense appreciation for not only the product suite but just the obsession they have when we're making customers happy. It's something we can continue to learn from at PAR. And so, while it's a small acquisition, it's one that our entire team has rallied behind, been a huge part of, and you'll see us continue to grow.

And what's exciting about it is this wasn't our intent when we went on the journey, but it now gives us an international foothold that will continue to expand. And we'll start by pushing Punch aggressively internationally, but eventually, all of our products. And so we love that it fills the product gap that we needed, which was a sort of off-premise ordering, but it also brings us internationally, which is an area that we want to expand to as well as there isn't a really dominant enterprise player nationally.

And then the sort of final benefit is they've got contracts signed. We're not -- this is not -- when they go to the next large customer, it's not going to be a new experience. They sort of know – they know the RFP process. They know the testing process, security process and everything in between. So I think we'll be very excited about what we discover.

Okay. And you were also benefiting from the stronger dollar, I guess, when you acquired it?

I think so. I mean, it was part stock part cash, so we did benefit some and -- but I think the key to the acquisition for the MANHU team will be their ability to grow the ARR efficiently and hit some of the earnout targets that we put out for them, which will be in our subsequent events filing, which you'll see. And so I think to them, the motivation is to drive that earn-out.

Okay. And how do you see in general the M&A environment now? And what does that mean for your government business potential spin-off?

So I think we are -- this is our second quarter where we printed revenue from our new contract that's driving a lot of the growth that you see. As we continue to see that and the margin expansion, we'll constantly explore the opportunity set that exists for that business. Given the growth, given the margin expansion, it's a business that should get a good multiple in the event that our Board decides to monetize it.

Okay. And then lastly, just in terms of the sort of the uncertain economy, how has the customer sentiment or sort of sales cycle been affected, if at all, by what's going on in the economy now for you?

Today, we're not seeing a tremendous change. As I mentioned on the call, we expect to see it in our hardware business, and I think we'll potentially see it in other parts of our business. But we're not -- it's one of those things where we talk about it with our customers, but we're not seeing that elongation of sales cycles quite yet. But without question, it can and should happen.

And we're -- and if it does happen, I think it will be more of a 2023 issue as 2022 is very much being booked now. So it's something that I think if it happens, we'll be ready for it, and we're taking precautions, slowing down hiring, focusing on price, being more efficient. But today, it's -- I would say we continue to be surprised by the revenue that's going live.

Okay. And actually, one more last one. In terms of a unified solution when you added the MANHU acquisition, is there like sort of -- do you have a hit list of potential customers that you think are going to be more prone to signing on now when you have an even more robust solution?

Of course. I think, first and foremost, as we integrate the MANHU product into PAR, it will make us more attractive of our existing products. Those customers that are in sales cycles for just Brink or just Punch or Data Central should find us more attractive because we can unify their on-premise off-premise to the back office. That is a really attractive proposition.

And so illustratively, if we're in a process, and let's just say Brink is in second place and not first place, this should help us push that over the finish line. And so I think it'll just naturally bring more revenue forward on our existing products.

To the second part of your question, the MANHU product is very well focused on the enterprise customer. It's not a product for the single-store restaurant. It's a product for global international brands that want an alternative to the incumbents that exist today, and it's highly focused on being scalable, completely configurable and really giving control back to the restaurant.

Today, I think if you talk to restaurant companies, they're happy that they have, but they're not blown away, and particularly this ability to be configurable and integrated such that the kitchen is as smart as the online ordering system, and they're speaking the same language; none of that exists today, and MANHU gives them that opportunity now.

(Operator Instructions) The next question comes from Adam Wyden with ADW Capital.

A couple of questions for me. I just wanted to clarify your contracted ARR definition. So that doesn't include -- that doesn't include payments, correct? And you made another comment around Brink that it doesn't include all of Brink. So it's largely Punch, is that right? Like can you – can you kind of clarify what's in there and what's not?

Sure. So the majority of the delta between the LAR live revenue and contract revenue is Punch. A small portion of it is Brink, and that's because we don't put anything in contract of revenue from Brink unless it's a signed order for that store.

So as an example, if we sign a big chain today, none of that goes to contracted revenue until we have visibility into that revenue coming in the next 12 months. And so what we've done is just made it very specific is CAR's revenue that we have visibility into the next 12 months. And so it's predominantly Punch with a portion of Brink and a small portion of payments.

Right. And that wouldn't include potential price increases? It wouldn't include -- I mean, it basically is very light on Brink as it relates to new live activation. -- doesn't include pricing, doesn't include payments in any material amount. Is that not a fair way to describe it?

That's correct. That's correct.

So in a perfect world, there -- if the economy kind of keeps together, we should -- there could be upside to that.

Absolutely. As I said, I track this number very closely internally because I know we'll hit it. And now it's about how do we get above that.

Right. So I've got 2 questions. The first one is more qualitative. So if you think about the journey – and I've been on the journey a long time now – you started getting momentum, and then COVID hit, and you had your first kind of like 1,500 Brink live units activation, whatever you want to call it and then roll with the (inaudible) basket.

And I think everybody woke up, and because of the nature of getting into the stores, it made it very hard to activate Brink, even though everyone knew that they needed kind of off-premise digital. Then now, you have the supply chain and the inflation. I mean, do you think people are kind of up to this and saying it's almost kind of like a perfect storm in terms of like the necessity? I mean, at what point do you think the customers say kind of like, yes, I get it, it's inflationary, but like – and costs are up, but like we're going to bite the bullet and make some investments to reduce that.

I mean I get it, payment is easy because it reduces the cost day one. But I mean, for all intents and purposes, a lot of the stuff that you're doing does reduce cost day one, you just need -- they just need to see it in a model and a workforce. I mean, do you think people kind of look at the last 2 years and say, you know what, like I can't control revenues, but I can spend a little bit of money upfront and get a big return? I mean it's kind of -- because it's like -- this is like these are the ideal conditions for your business.

I think you're right. As long as sort is, we've become very good at sort of selling the ROI of our solution. One of our leaders, I think, has done a tremendous job in showing to the customers, here's what happens when you install Brink. Here's what happens when you install Brink with another module of PAR. And that ROI is definable. It's real math, and it's not sort of fluffy stuff; it's actual data that we have.

And I think that's exactly how we sell. And so, I think the last year and the next couple of years are very strong environments for us to continue to see this growth that we see now. So I don't think we're at a point where enterprises don't get that value today. It's just about convincing them to go faster. It's not a market where we're losing tons of business to competitors and keeping up with the business where when the customer goes, we go, and we feel we've got a strong probability of winning that deal. And so it's just about building that momentum, and this environment could potentially help accelerate that with these customers pushing over the edge.

Good. And then my last question is around M&A. I'm not sure if you called out what the ARR contribution is for MANHU or what you expect it to do. But obviously, we're in this kind of log jam where private companies are, in general, or at least historically, traded at higher multiples of ARR relative to the public comps. You've seen Vista and Thoma Bravo; you saw Avalara last week. Companies are out there buying.

I mean just to use Avalara as an example, I think they paid 11x ARR or 12x or something when you do fully diluted and options blah blah blah, and that business was probably later in its maturity and had probably a lower similar growth rate to kind of Brink and all the rest. And so I look at PAR today, and I think it's -- obviously, it's definitely material undervalue to that.

But the question is, when you look at private equity; they are taking advantage of what I would call the $30 million, $40 million of kind of costs of being public, not just the New York Stock Exchange listing costs, not just the controller, CEO, CFO, blah blah blah, but also just kind of the systems in place. And we've kind of benchmarked it, and for a company of the scale, we think it could be $20 million, $30 million, $80 million of kind of duplicative costs. And there are obviously some public company players like Agilisys, like Olo, like TRANZACT technologies. There are companies out there that might not have the same valuations as the private markets where you could effectively do a transformational deal like Punch in the public markets and kind of get that scale and duplicative cost and kind of synergy value.

I mean, how do you think about kind of going after companies like that? Or, in the absence of private market deals that make sense, kind of doing something in the public markets where you can kind of take advantage of the dislocation there?

I think that the macro of your comment is very true, which is if I look at our acquisition when the numbers get printed 18 months from now (inaudible) 2022, I think it will be a home run deal for PAR. And I take great pride, and I think that the Punch acquisition not only beat expectations but was incredibly accretive to PAR shareholders. I suspect this deal will be as well.

And so we start from there. The business has -- the model has to work -- and today's environment provides opportunity. If we had tried to acquire MANHU a year ago, and by the way we did, it would have been a very different price and be very, very hard to work. And so we feel that we can be the aggressor today. We've staffed up a really high-quality M&A now that's uncovering rock after rock.

As I said, MANHU was the best-kept secret. It's a business that I don't know if many people realize that was out there. And so we want to use this environment to be aggressive. And if there's a larger asset out there that we can make work and put our playbook to work in that organization in that place of being drive gross margins so that we can reinvest in products, well – but it's -- these are oftentimes opportunistic approaches where you've got to find the right asset that serves the same end market that wants to sell. And obviously, if it doesn't want to sell, well, we're very hard to convince them to sell, but that can take some time.

But the short answer is this acquisition, while small, is completely illustrative of the point you're saying, which is there is no way we could have made the math work a year ago, but we can today, and I expect we'll continue to do that for the rest of the year and next year.

I am not showing any other questions at this time.

I would now like to turn the conference back to Savneet Singh for closing remarks.

Thanks, everybody, for joining, and we look forward to updating you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.