PAR Technology Corp (PAR) 2021 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Fiscal Year 2021 Fourth Quarter Financial Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Chris Byrnes. Please go ahead.

Thank you, Chino, and good afternoon, everyone. I'd also like to welcome you today to the call for PAR's 2021 fourth quarter and year-end financial results review. The complete disclosure of our results can be found in our press release issued this afternoon, 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 that we will use during the call to better communicate the momentum in our Software business.

Unfortunately, we're experiencing a minor technical difficulty that should be resolved in the next few minutes to access the slide deck. The presentation and review slides will be -- have been furnished in the 8-K that we filed this afternoon. Individuals today on the webcast should have access for those just dialing in to the call this afternoon -- I'm sorry, 1 second. 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're recording the call this afternoon 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 also like to remind participants that this conference call includes forward-looking statements that reflect management's expectations based on currently available data. However, actual results are subject to future events and uncertainties, and the information on this conference call related to projections or other forward statements may be relied upon and subject to the safe harbor statement included in our earnings release this afternoon 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, PAR's 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, Chris, and thanks, everyone, for joining us to review PAR's fourth quarter and year-end 2021 results. As always, there's a lot we want to share with all of you today in our prepared remarks, so we'll kick off now. During the fourth quarter, we continued to drive growth in our strategic recurring revenue platform and saw continued margin expansion as we begin to get the benefits of scale. As a company, we delivered a strong fourth quarter with reported total Q4 revenues of $81.6 million, a 39% increase from 1 year ago. The revenue growth is driven across all business lines and specifically around our software recurring revenues, resulting in $88.2 million of total Live ARR at the -- at quarter end and a year-over-year growth rate of 35% when adjusting for the Punchh acquisition. This increase was driven by a 47% growth in ARR coming from Punchh and 30% coming from Brink.

Contracted ARR now totals more than $111 million as of December 31, paving the way for a strong 2022. Equally important as we scale ARR is the dramatic improvement we have been able to drive in gross margin within our subscription services revenue. When new management stepped in a little over 3 years ago, recurring revenue gross margins were well below 45%. At the end of Q4, we're now at 70% and expect this to continue to expand over time. This growth has been driven by an intense effort on ROI focused engineering and improved Brink architecture and economies of scale. Our strong results this quarter were driven by a high level of execution across the business and continued demand for PAR's unified commerce cloud platform.

We've established strong momentum and have continued to build on that throughout 2021. In Q4, we activated 1,075 new Brink sites, a very solid number when considering 2 significant holiday periods in the quarter were very little if any deployments occur. On a net basis after churn, Brink's total store count now totals near 15,830, a 35% increase from 1 year ago. Brink bookings totaled near 1,200 stores in the quarter and saw improved cadence in Q4. Brink continues to report extremely low churn and this quarter was no different as churn was 3.2% annualized.

Now turning to Punchh. We continue to outperform at Punchh and added more than 3,200 sites in the quarter, that now totaled more than 56,000 sites, a 36% increase in the last 12 months. We signed 8 new customer logos in Q4 that added to our impressive contracted store list. Digital loyalty programs are critical to the future of restaurant marketing -- restaurant marketing. Applications like Punchh make it easier for brands to connect with our most loyal customers and increase customer lifetime value where it counts most. The National Restaurant Association suggests that if restaurants are focused on increasing their order flow through phone or tablet, whether it's delivery, online ordering or even your table-side POS, those restaurant businesses will struggle to compete. With the rapid growth of digital ordering during the pandemic, the demand for a leading loyalty app has never been stronger. As the number of channels expands, the need to understand customer LTV expands, thereby pulling more Punchh demand.

Restaurants are moving to understand individual customer lifetime value versus individual stores unit profitability. We're also beginning to see momentum within the C-store segment as the industry seeks more robust loyalty solutions similar to restaurants. PAR Payment Services pipeline grew significantly in the quarter, and we were extremely pleased to recently announce the selection by Smoothie King to use PAR Payments engine in all 1,000-plus stores. We continue to see increased interest broadly across Brink and Punchh -- we continue to see increased interest broadly across the Brink and Punchh customer bases. I'm confident additional upsell and new customer opportunities will excite this year as more and more enterprises are seeking an integrated payment offering from a trusted technology partner with competitive and transparent pricing.

PAR is all of those things and more. Although still early on -- although still early in our Payments initiative, we have seen notable acceleration in our customer wins during 2021 and believe this revenue stream will be meaningful to our future financial performance. Moreover, it's given our team confidence, excuse me, in our ability to upsell new products. Our product business continues to perform well in a difficult and challenged environment. Product revenues in the quarter continue to strengthen year-over-year and improved sequentially as well. Product sales were reported at $32.2 million in this recently ended quarter, a 48% increase. The capital purchase environment for restaurants is always tricky, and that has been even -- that is even more so during the pandemic and the global supply chain difficulties thrust upon several end markets.

As I mentioned previously, we are not immune to those challenges around the supply chain, and we've experienced some margin impact with the costs associated with the current realities. However, as [with some] margins, we were actually able to expand margins over the year given the strong work of our operations and procurement teams. Regarding the supply chain, specifically, we will continue to diligently manage our partners and vendors through any shortages, price inflation and increase in freight charges. We believe we're uniquely positioned to create a greater diversity of supply sources, while at the same time, technology-enabling operations and management of supply inventory. We anticipate continued volatility in our sourcing channels and expect to closely monitor real-time upstream and downstream visibility across the supply chain to help us predict and plan for adverse events.

Now to briefly report on our Government business. In the quarter, we reported revenues of $18.8 million, a 2% increase when compared to Q4 of last year. With a large new contract we announced in November, we anticipate acceleration in revenues in 2022 as task orders are assigned. As a reminder, the U.S. Air Force Research Lab awarded a single award of $490.4 million IDIQ contract for Counter-small Unmanned Aircraft System work on software, hardware and technical documentation.

The award has a contract term of 6-year ordering period, with an additional 2-year order of performance beyond the original 6. We will recognize revenue as task orders are assigned, but we are seeing an immediate impact on our contract backlog that grew to $195.3 million at the end of Q4, a direct result of the new contract award. In addition to our accelerated revenue growth in 2022, we'll continue to seek out additional contract opportunities where we can leverage our decade-long experience and performance excellence, specifically, in value-added revenue contracts that include direct labor and high-tech contract work within our Intel Solutions business line.

Let me now talk a bit about where we see things going from a business perspective. Looking back on my time at PAR, there's been significant progress in driving operational improvement and an accelerated focus on meaningful growth in innovation. We believe that in order for our business to benefit all of its stakeholders, its employees, its customers, its suppliers, its shareholders and its communities, that business has to win. Winning to us is driving a very profitable business for a very long time. While we are in -- we're in an aggressive investment period given the TAM we serve, we're also constantly focused on driving operating leverage on every expense line of our recurring revenue cost items. This focus has led to a dramatic growth in gross margin and demonstratable efficiency on our sales, marketing and R&D line.

In addition, we continue to solidify the senior leadership team, adding individuals with proven track records of delivering efficiency improvements, cost discipline and growth. We reorganize and integrate our product engineering teams to bring needed focus on our unified commerce platform, while at the same time, better structuring the organization to move quicker to address customer needs. These changes are designed to foster collaboration across the entire product portfolio and establish linkages critical to bringing innovative new ideas to markets quickly and cost effectively, while ensuring we're aligned with the needs of our customers.

As we continue to make these organizational changes, we recognize the need to maintain our focus on bringing operational discipline and accountability to the business, while realizing sustainable long-term revenue growth. As I mentioned earlier, a big part of this focus is on driving profitable growth, specifically on our subscription revenue streams. Our goal is not only ARR -- to grow ARR consistently, but to drive operating leverage within every line of our P&L every single year. A great example of this is within Brink, where in 2021, we grew ARR in excess of 30%, while SG&A stayed almost flat, excluding our acquisition.

Combining this focus with a formulaic revenue model, we expect new customer signings along with upsell and cross-sell opportunities to deliver consistently 30% to 40% year-over-year ARR growth and will help to find PAR as the industry leader. While we've grown ARR almost 8x in 3 years, we're very cognizant that we're still at the very beginning of our transformation as is the industry that we serve. Our goal in building our unified commerce platform is not to create a bundled solution, but to deliver a product back to the customer that puts the power back in their hands. We hope our platform allows our customers to stop focusing on vendor management and instead spend that energy on delivering a unique customer experience.

In closing, I and the PAR team wanted to send our support to our team members based in Ukraine into their broader community. Our primary concern is their safety and their family's safety, and we are monitoring the situation closely and in contact with them to offer assistance. I'd also like to thank all of PAR's employees for their dedication and effort over the past quarter. We've gotten a few key items wrong and a few wrong -- a few key items, right, excuse me, and a few wrong, but our continued focus on winning together has allowed us to move quickly when we veered off course and focus on our future. It's not been easy, but it's worked because we've done it together.

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

Thank you, Savneet, and good afternoon, everyone. Total revenues were $81.6 million for the 3 months ended December 31, 2021, an increase of 39.4% compared to the 3 months ended December 31, 2020. Net loss for the fourth quarter of 2021 was $25.6 million or $0.95 loss per share compared to a net loss of $13 million or $0.60 loss per share reported in the same period in 2020. Adjusted net loss for the fourth quarter of 2021 was $9.8 million or $0.36 loss per share compared to an adjusted net loss of $11.7 million or $0.54 loss per share for the same period in 2020. Product revenue for the quarter was $32.2 million, an increase of $10.4 million or 48% from the $21.8 million reported in the prior year.

The strong growth was primarily driven by hardware refresh investments by our domestic Tier 1 accounts. Service revenue was reported at $30.6 million, an increase of $12.3 million or 67% from the $18.3 million reported in the prior year. The increase was primarily driven by revenues from Punchh of $9.4 million, which included SaaS and related recurring services of $9.2 million and other services of $0.2 million. Total SaaS and related recurring services reported in Q4 2021 was $19.2 million compared to $8.3 million in Q4 2020. The company continues to expand our total recurring revenue base, which includes both software-related services and hardware support contracts.

Of the $30.6 million of service revenue reported in Q4 2021, $25.6 million is comprised of recurring revenue contracts as compared to $14.7 million in Q4 2020. Contract revenue from our Government business was $18.7 million, an increase of $0.4 million or 2% from the $18.4 million reported in the fourth quarter of 2020. The increase in contract revenues was driven by a $0.4 million increase in our product services product line. We expect the $490 million IDIQ contract announced in Q4 2021 will help drive significant contract revenue growth in 2022. Contract backlog continues to be significant, noting a total backlog of $195.3 million as of December 31, 2021, compared to $150.5 million backlog as of December 31, 2020.

Now turning to margins. Product margin for the quarter was 23.4% versus 17.4% in Q4 2020. The increase in margin was primarily due to favorable product mix and favorable absorption of overhead costs due to the increased hardware revenue. We continue to monitor our pricing to properly reflect changes in the cost structure. Service margin for the quarter was 32% compared to 12% reported in the fourth quarter of 2020. The increase in margins was driven by non-recurring charges taken in the fourth quarter of 2020. Service margin during the 3 months ended December 31, 2021, included $5.2 million of amortization of identifiable intangible assets compared to $1.6 million during the 3 months ended December 31, 2020. Excluding the amortization of intangible assets, service margin for the 3 months ended December 31, 2021, was 48.6% compared to 20.8% for the 3 months ended December 31, 2020.

This growth in margin was driven by our expanding software margins as Savneet commented earlier. Government contract margins were 6.7% as compared to 8.3% for the fourth quarter 2020. The decrease was due to billing rate adjustments within our ISR business line in the fourth quarter of 2021. We expect contract margins to be more consistent with historical trended margins going forward in 2022. GAAP SG&A was $24.9 million, an increase of $10.6 million from the $14.2 million reported in Q4 2020. The increase was primarily driven by $10.3 million in total Punchh operational expenses, of which $3.9 million is stock-based compensation. It's worth noting that almost the entire growth in SG&A came from an acquisition of Punchh, and as Savneet mentioned, our intense focus on the profitable growth allowed us to expand Brink revenue year-over-year with minimal incremental investment in SG&A.

Net R&D was $10 million, an increase of $4.4 million from the $5.6 million recorded in Q4 2020. The increase is primarily driven by $3.1 million for Punchh and $1.3 million related to additional investments in our other existing products. Net interest expense was $5.6 million compared to $2 million recorded in Q4 2020. The increase is driven by noncash interest charges related to the 2027 convertible notes. Net interest expense for the quarter includes $3.7 million of non-cash accretion of debt discount and amortization of issuance costs, that's compared to $1.1 million for the same period last year.

Now to provide information on the company's cash flow and balance sheet position. For the 12 months ended December 31, 2021, cash used in operating activities was $53.2 million versus $20.2 million for the prior year. Cash used for the 12 months ended December 31, 2021, was primarily driven by an increase in pretax net loss, net of non-cash charges and additional net working capital requirements, primarily because of an increase in inventory and an increase in both other assets and other current assets as a result of the Punchh acquisition. Cash used in investing activities was $383 million for the 12 months ended December 31, 2021, versus $9 million for the 12 months ended December 31, 2020. Investing activities during the 12 months ended December 31, 2021, included $374.7 million of cash consideration in connection with the Punchh acquisition.

Capitalized software for the 12 months ended December 31, 2021, was $6.9 million, was associated with the investments for various hospitality software platform versus $7.9 million for the 12 months ended December 31, 2020. Cash provided by financing activities was $443.6 million for the 12 months ended December 31, 2021, versus $180.7 million for the prior year. On April 8, 2021, we received net proceeds of $155.7 million for the private placement of our common stock in addition to the net proceeds of $170.7 million from the term loan. On September 17, 2021, we received net proceeds of $256.8 million from our offering of the 2027 and $52.5 million from our equity offering.

We used approximately $183.6 million of those proceeds to repay the term loan in full. The refinancing allowed us to save over $5 million in annual cash interest. During the 12 months ended December 31, 2020, we received net proceeds of $49.5 million from our offering of the 2026 notes, which reflects our use of the $663 million to repurchase a majority of the 2024 notes, and we received net proceeds about $131.4 million for our public stock offering in the fourth quarter of 2020. Inventory increased from December 31, 2020 by $13.5 million.

We strategically increased our inventory on hand to mitigate supply chain shortages and delays, while ensuring we can service our enterprise customers' demand for installations, which resulted in a historically high hardware revenue year. This proved to be a smart investment as we were one of the few companies to successfully fulfill customer demand while operating in the supply chain challenged environment. Accounts receivable increased $1.8 million compared to December 31, 2020, due to increased sales volume and Punchh acquisition offset by a reduction in days sales outstanding. Days sales outstanding improved within restaurants and retail from 74 days at December 31, 2020, to 58 days at December 31, 2021. Days sales outstanding increased within government from 51 days at December 31, 2020, to 55 days at December 31, 2021.

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

(Operator Instructions) First question comes from the line of Mayank Tandon from Needham.

Congrats on the quarter. Savneet, I wanted to see if you could maybe provide some thoughts on the trajectory in 2022, maybe sort of reconcile the ARR numbers that you shared with us? And even though you're not giving formal guidance, how we should think about the growth between the various segments, and I was thinking more in terms of hardware, software and services on the restaurant and retail side?

Sure. So on the subscription services side of what we do, which is Brink, Data Central, and Punchh, we expect to grow 30% to 40% a year this year and every year going forward, and there's lots of opportunities for that to go beyond it, but that's sort of where we can certainly expect to be. And we expect that to be in that range for Brink, Punchh, Data Central will be slower, given that we're coming off of, but in total, we expect it to be 30% to 40% growth on the subscription services side.

On the product side, which is the hardware business, last year was a refresh year. So we won't -- I don't think we'll have a massive growth year or an up-year on the hardware side, but that's expected given last year was a refresh year. And then on the remaining set of services, we'll have growth and sort of single-digit type growth on the remaining services. But the key point, I think is that the SaaS business continues to grow nicely, 30% to 40% and margins expanding as we talked about in the call.

So just to sort of surmise based on your comments, is it fair to say that the total restaurant business can probably grow at least at a healthy low double-digit pace? Maybe I'm understating it, but I just want to get some sort of sense of like what we should be modeling as we look into the rest of the year?

Yes, of course. And again, I -- we don't look at so much as a restaurant segment as is what is our recurring revenue base growing versus the hardware side of it, given that we think that they're very different businesses, but if you were to combine the 2, absolutely.

Got it. And then just as a quick follow-up. In terms of investments, the focus on your side in 2022, could you talk about what are the priorities for you? And then maybe a time line on the EBITDA profitability, when do you expect to hit breakeven or better still have profits on the EBITDA line?

Absolutely. So from an investment perspective, for us, it's pretty clear, if you look at the P&L, it's obviously an R&D shop that's building product and shipping product. I'd expect in 2022, that investment in R&D to be coupled with strategic M&A, which we've talked about in the past and expect to do this year, and that's where I think you'll see the investment. From a breakeven perspective, we expect to hit it next year. And as I said, we have all the levers to turn it on very quickly, but the goal is to continue to invest and grow while getting there. And given the quantum of cash we have on our balance sheet, we're in a really comfortable position to continue that investment. But as I mentioned, as managers, we are all targeted to grow ARR, while growing efficiency on every line of the P&L. And so we expect that to happen this year, which very comfortably takes us to where we want to be in 2023.

Savneet, to be clear, are you referring to EBITDA profitability for all of 2023 or would that be sort of an exit target?

Before the exit of 2023, so it wouldn't be it by the end, it wouldn't be for the full year, but within 2023.

Next one on the queue is Stephen Sheldon from William Blair.

Just first here, congrats on the Smoothie King payments win. It seems like a big win for you guys. You talked about some in the prepared remarks, but how are conversations going there with other potential enterprise clients to potentially adopt our PayFac solutions? And does this win potentially give you more ammo to go after that opportunity, I guess, is kind of a reference point for other customers? And then just stepping back, what are you targeting, I guess, if you think about the payment side as you think about the next, call it, 2 to 3 years?

So on your first question, absolutely. I think when we've talked in the past, we never thought we'd be in the market for the enterprise accounts is something this large, and we feel really good about the economics there. And so it's certainly given us the confidence that we can sell our solution not just to smaller concepts, but many of the large concepts that we work with and will push us more aggressively. But it's also given us a lot of confidence to push even more down-market, where margins are better for us in payments. So we feel really, really good about the payments business. And again, we've always been cautious here. But given that win, it certainly made a lot of people wonder why they did it, and obviously, we were super competitive, but the solutions -- but the entire solution was very attractive to them, and I think it will be for many other customers. So as our customers roll off their existing contracts, we expect to be in the mix for their business and continue.

From how do we look over the next 2, 3 years, we want it to be a very, very large portion of our revenue. It's still small, and as revenue rolls out, you'll get to see the velocity of installs, which is much faster than a point-of-sale install, if you will. But we expect it to be a meaningful contributor to revenue 2 to 3 years from now. And this year, we'll see -- it will be the core driver of Brink growth this year. So in addition to Brink growing from a site base, this will drive tremendous growth.

And one of the most interesting things about payments in my mind is that it actually helps all parts of the business, because it allows you flexibility in winning a deal by offsetting potential CapEx cost for hardware, which accelerates deployments, maybe pulls RFPs forward. And so it has a lot of -- there's a lot of parts of payments that make it very attractive. But in the short run, we expect it to grow considerably in the next couple of years and then become a very large portion of revenue in 2023, 2024 going forward. Now I don't think we will be in a situation where it's 80% of revenue like it is in some of our down-market comps, but there's no reason it can in time be very meaningful relative to our point-of-sale software revenues.

Got it. Yes, good to hear. And that's really helpful color. Maybe shifting, I guess, curious where we're at in terms of seeing restaurant owners and operators maybe shifting focus from predominantly front-of-house solutions over the last few years to maybe looking once again at adding Data Central for back-of -- kind of back-of-house solutions, ARR growth for Data Central has been a lot lower than Brink or Punchh. But curious how you're thinking about Data Central in 2022 and 2023, given what you're seeing and maybe the current pipeline there?

It's early. We've got some good wins in the first 2 months of the year, and we've got a great new leader who's been driving a lot of change there very early on. I think what's exciting about back office is, back office of the restaurant has not been nearly as innovative as the front-of-house, and obviously, the pandemic made that even more glaring. And so I would expect us not only to grow organically here, but also look at some inorganic opportunities as we think there's a lot of room for growth here. It's too early to say if it will be a great year or an okay year. But we are seeing that increased focus. And with revenue growth returning in Q4 and some of the wins that we've had, it should be a good year. But it's a little bit too early to say, it will be a blowout year. We'll see after we print Q1 in April, we'll have a good view of where we are.

Great. And then just one more quick one. I think you may have given contracted ARR for the first time this quarter. I think you've given it for Punchh before, but it seems like given the step-up, maybe what -- is that for all 3 of the SaaS businesses combined? Is that how we should think about the $111 million of contracted ARR?

That's correct. So -- that's exactly right. So that's revenues truly under contract. So that's not hopes and dreams, but signed deals across all the businesses, which makes us very excited about. You can underwrite a very decent growth rate even if we didn't grow that at all year-over-year.

Next one on the line is Samad Samana from Jefferies.

Great. Maybe one, just as a follow-up on the guidance. I want to appreciate kind of putting some guardrails there. But Savneet, does that include -- I know you said that it's around your contracted revenue, but does that include payments contribution or would payments be incremental to that 30% to 40% ARR?

Payments stay within there and payments will be the lever for us to get to the high end of that or surpass that. We very, as you've heard, very conservatively project out our payments revenues because we were new to it. But with the win of Smoothie King, that will certainly be the driver of that contracted ARR number growing month-over-month.

Okay. Okay. That's helpful, because you answered what was going to be my follow-up, which is like what is really the delta between the 30% to 40% in the range. And I know that we're still in a relatively unpredictable world, but it sounds like the 30%, you have a fairly comfortable clean line of sight to on just the software part of it. And if we layer in payments, that could really -- that maybe a stronger demand environment could turbocharge it to the high end of the range? And is that a fair representation of what you said?

Yes. That would be a very simple way to look at it, and I think that's the right way to look at it.

Okay. Okay. And then just -- I appreciate you speaking of additional disclosures, the additional margin color as well in the investor presentation. Bryan, I was wondering, is there any type of seasonality that we should be aware of on how those software gross margins will move around from quarter-to-quarter or how should we think about maybe the trajectory of that? I know there's 2019 versus 2020 is different because of the timing of customers going live in the revenue mix. But just if I'm base-lining off of that 4Q 70%, how should I think about that going forward?

Yes, there's no seasonality in the actual margin throughout the year. What we experienced during last year was we saw significant improvement in our margins, especially on our Brink business and how we were able to manage out the cost per site in there. And so we exit this year pretty strong, and so you'll see that increase throughout. But we're expecting to continue to see improvement in that, especially as we have product mix shift more on to -- on the SaaS growth within the subscription services and some continued improvement on the actual cost themselves, but no seasonality.

Great. And then just last question for me. When I think about the core subscription ARPU, how are you seeing ARPU for stand-alone deals for PAR, for Brink versus Punchh. And maybe what are you seeing on a consolidated basis when you're doing a multi-product type of deal, how does that compare to maybe the historical ARPU?

Great question. So on the Brink side, we did raise prices leaving 2021 up double-digits. I don't want to disclose it for a [set of reasons]. We didn't raise prices double-digits on the Brink side, so new deals are being quoted higher. And importantly, we've also sort of been able to bring in deals across all products now. And generally, we don't -- we're not in the business of bundling for a discount. What we'll do is package the deal for accelerated deployment. But if it's the customer buying up through product or a traditional multi-year deployment, the ARPU grows really nicely, and we've got a couple of great examples of that.

We're in the business of selling for value, not selling for cost, and we think that continue. So across the product lines, Brink has the most significant price increase followed by Punchh and then Data Central. So we are raising prices. And even though we don't focus on this a lot, I mentioned this on the call, but even in this crazy supply chain environment, we expanded margins pretty considerably on the hardware side. And a lot of that was cost management, but it was also through price increases.

(Operator Instructions) Next one on the queue is George Sutton from Craig-Hallum.

We're coming up on a year since you acquired Punchh. And one of the areas of enthusiasm when you did that was they sell at a headquarter level versus the more regional and franchise level that you typically sell at for point-of-sale. I'm curious if you can kind of give us a sense of how that combination has started to work to your cross-selling favor? And could you also just let us know what in general do you see as the sales cycle for both sides of the business relative to now this 1 year of ownership?

Yes, sure. So first, to your question of selling at the corporate level versus the franchisee level, it's an amazing experience for us to sort of win a deal and be rolled out in 6 months and never have to make a call. It's a profitable business model, and that's why we like it so much, and think there's a lot to do with it. Brink is -- still win the corporate deal and then convert the franchisees. Where you'll see that change, George, is when we finished the release of our unified platform, which will be a new product in and of itself, that comes as one. And so until that happens, it will still be like that.

But as I said on the last question, what's helping us is when we are able to sell the value of the solution combined upfront and there's a lot of value just in having all the products day 1, we're able to then pull in RFPs that before would be out a year and saying, hey, if we do this now, here are the benefits of the solution that you can get. So it's been sold that way. So that's how it's handled today. But I think what we're excited about is when we come out with our unified platform, the ability to leverage the Punchh model as the model as opposed to the current point-of-sale model, which is a much longer roll-out period.

Got you. Secondly, I'm happy to tell you if you haven't heard, we are leaving the pandemic era and moving towards an endemic era. And that means we're going back to restaurants and sitting at tables, and you had been ready to really launch your table service offering a couple of years back. Can you just give us an update on that part of the opportunity?

Yes. And hold on that question, we [ultimately say not later] in the year, but we're looking at some creative solutions to help solve table service challenges. So things like QR code ordering, things like QR code payments to make our solution more robust in that market. We do agree with you. We think it's a great opportunity. And I think one of the things that we're also very cognizant of is, as the economy potentially heads towards a recession or an economic slowdown, our existing base is the best place to be, that QSR market tends to take share during challenged times and invest in more technology, and so we feel pretty good on both ends of sector. But we are coming out of our table service market in a very clear way which we'll talk about a little later in the year.

Next one on the line is Adam Wyden from ADW Capital.

A couple of questions. Kind of building on what Samad said, when I first invested in this company, previous management had made some real [GAAP fees] as it relates to pricing, now I won't call out any specific Tier 1 chain that paid $50 a month. But can you talk a little bit about how you're rectifying kind of previous management's GAAP fees as it relates to pricing? What the cadence of kind of bringing those guys up to market is?

And I guess another thing is people have criticized PAR a little bit that you haven't gotten up into the super Tier 1s. Can you talk a little bit about how you kind of focus on these kind of 500 to 1,000 unit chains that have basically not ripping out other old point-of-sales, actually value technology or willing to pay the right price and aren't going to [rake over the coals]. I mean in that -- that the super Tier 1s are kind of the bottom end of the funnel. Can you talk about kind of the pricing strategy on existing kind of how you think about going after kind of growing size change and pricing those and kind of the cadence of all that?

Sure. And I think I got it all. You're cutting a little bit in and out, but I think I got it all. So first, on the pricing side, it's a great question, and I should add to Samad's comment about premiums being levered. Pricing is also a big lever for us this year. In 2021, we suffered from the low-priced deals that we're committed to years ago and rolling those deals out. And so while we had good activations, the ARPU was lower because we're rolling out old deals. This year, as I mentioned, we put through some significant price increases on new customers to make up for the new environment that we're in.

But in addition, every single deal is now done through a very formal CPQ process, and we feel very, very good about our ability to raise price. The most important part of raising pricing in any business is, is the customer getting value. And with Brink candidly being stable and working, and as you can see from our -- the dramatic growth in Brink margins, product is working great now. And as a result, we're able to go back to customers, demonstrate the value, demonstrate the quality of the product, and we are not having challenges raising price.

In Q4, we raised -- we began our first enterprise -- raised on existing customers, and we had no push-back. And we had no push-back because we have a great product that has been underpriced. And we expect to continue to do that this year across the product, Brink product line. And we'll apply that as well to the Punchh product, which in and out itself is have the same sort of entrepreneurial hustle type deals that we'll address. Does that answer your question?

Yes. I mean basically, what you're saying is that you will start getting -- as you demonstrate the value that you're creating for folks, I mean, it was hard to raise prices on guys when the Net Promoter Score was down, but you've invested a lot of money in technical bed and making sure the product is working. And so look, when NCR is charging [$6,000 to $8,000] for their cloud point-of-sale, there's a lot of distance between what our average ARPU for Brink is and kind of what other people are charging, but it's an iterative process. And...

Adam, I realize I skipped your second question, which was the Tier 1s versus Tier 2s. And one of the things that payments has opened up for us is this Tier 2 market is extremely juicy for us. It's a market we win really well in, and you not only get to sell Brink, Punchh and Data Central, but you sell a very healthy payments product, which actually accelerates point-of-sale because you can then offset hardware CapEx with payments. And so we are very, very excited to be much more aggressive in that market, and these are really healthy customers that are growing. But we do -- we are in processes with large Tier 1 accounts and expect to win there too. So it's not like we're avoiding those markets at all. But we feel really, really good about that sort of, call it, a few 100 stores up to 5,000 where there's a lot more activity from an RFP perspective, we feel very, very good about that space.

Okay. This is my last question. And by the way, to the extent that you win these Tier 1s, and I know you've got super Tier 1s right now. I just hope that we get them at multiples [of care and standard] pricing. Obviously, the value is demonstrable, and if other people can charge [$6 to $8, $10], you clearly can charge it. So like let's just keep that in mind. My second question or last question is when you think about kind of the kind of ecosystem, and I call it kind of more -- the restaurant software modules, I think about Brink is kind of the brain, and then I think about all the little modules underneath that. Brink is a -- is a -- Brink itself is the brain, it's Microsoft Windows, and then all of the programs underneath it are like Microsoft Excel or PowerPoint and you need Windows to run those. But the irony is the pricing power and the ARPU opportunity on the Excel and PowerPoint is very, very high. I mean you see Presto, you see all these things.

And when we kind of play chicken soup with all the different things, we get to an ARPU that is substantially higher than kind of where we are right now, and you guys say [$25], we're getting to numbers closer to [$50,000] when you include payments. Can you talk about -- you talked a little bit about table service, but there's rails, there's online ordering, there's drive-thru, there's kiosks, I mean, there's data, (inaudible) bridge, I mean, we're hearing people [$10,000, $20,000] for that?

I mean can you talk about how you're thinking about the internal development of these modules because it's like the Brink is very hard to get in. It's hard to get in, it's hard to get out, but it's much easier to solve these value-added modules to existing customers. Can you talk about kind of the organic and inorganic initiatives that's going to bridge us the gap between the [$6,000, $7,000, $8,000] that we have now to the $50,000 ?

Absolutely. I mean, I think that's the entire thesis of the company. As I mentioned, we're going to grow ARR very comfortably at 30%, 40% a year, and that's without what I call just the very aggressive upsell month -- upsell motion. And we think there's a ton of innovation to have, a ton of products to sell and before all this innovation happens. So I mentioned a little bit early, but obviously, there's a lot happening, there's ordering rails, that sort of front end, but there's also an immense amount to happen in the back office, the kitchen and sort of the team management parts of the world. And so we will be aggressively inorganically and organically investing to get after that.

And as you said, ironically, as we sell more products, it becomes easier to sell the next product. And so it becomes reflective in nature, and we feel very good about it. And as I said, the most -- while it's been incredibly exciting to see how much payments momentum we've gotten so quickly, particularly in these large customers, it's also shown us how much more we should be upselling across the base because we've been successful in one product.

Next one on the queue is Anja Soderstrom from Sidoti.

Just wondering and curious about the installments, you said it slowed down a little bit in the fourth quarter due to holidays, you had a very strong third quarter, what should we expect from the first quarter and the couple of coming quarters?

It's too early to say, but generally, Q4 is just slower activation quarter because of the holiday period, you don't touch the stores during those periods of time. So you lose 10 days of installs and lots of planning and so on and so forth. We expect to be a good quarter in activations. And the goal this year is to combine strong activations with ARPU growth, as the last caller, I mentioned. And so that combo would get us to that 30%, 40% very, very comfortably. So I expect us to be at -- higher than our current cadence going forward. And -- but combine that now with ARPU growth, which is a big theme for us this year.

Okay. And you mentioned you are continually looking at M&A opportunities. What are you seeing there in terms of opportunities and valuation levels in this market?

It's very dynamic. Obviously, with SaaS selling off and us being part of that, it made the M&A framework a little more challenging, but not nearly impossible, we still feel very good about some of the stuff we're working on. I would say in the last week or 2, we have seen the private market valuations finally start to tick downward in that [growth markets], which is very, very exciting for us. So obviously, we can't talk too much about it, but we've been very open that we've built out a really strong M&A team.

We feel very -- we feel great about the success we had in Punchh. Obviously, you can see it in the numbers, but also from the culture of the team, the cloud that we -- our ability to promote both from Punchh and Brink across PAR. And we feel like we're a great home for a lot of these businesses that are now running without potentially the VC treadmill in inter-economic recession, PAR is a great home for a lot of businesses. And so we hope that this change in many ways is very beneficial for PAR.

(Operator Instructions) And there are no further questions on the queue, sir.

We'd just like to thank everyone for participating on today's call, and then enjoy the rest of the evening. Thank you.

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