Good day, ladies and gentlemen, and welcome to the PAR Technology Fiscal Year 2016 Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Chris Byrnes, Vice President of Business and Financial Relations. Sir, you may begin.

Thank you, Tamara, and good morning everyone. I'd also like to welcome you today to the call for PAR's second quarter 2016 financial results review. The complete disclosure of our first quarter results can be found in our press release issued today 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. At this time, I'd like to take care of certain issues 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. Also, we are broadcasting the conference call via the World Wide Web so please be advised, 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 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, Karen Sammon; and Matt Trinkaus, PAR's Chief Accounting Officer. I'd now like to turn the call over to Karen Sammon for the formal remarks portion of the call, which will be followed by general Q&A. Karen?

Thanks, Chris. Good morning and thank you for joining us today for our second quarter 2016 conference call. This morning we announced that the company reported first quarter revenues from continuing operations of $52.7 million as compared to $58.9 million in the second quarter last year including revenue from one-time program with one of our international customers and the completion of a Tier-1 deployment that were not planned to be duplicated this year. Additionally, our contract revenue decrease is attributed to specific timing of revenues associated with the company's large Eagle Intel-X contract with the U.S. Army when compared to second quarter 2015. In the quarter we recorded GAAP net income from continuing operations of $100,000 and diluted EPS of $0.01 compared to net income of $1.2 million and $0.08 diluted EPS in the same quarter in 2015. On a non-GAAP basis PAR reported net income from continuing operations of $629,000 and diluted EPS of $0.04 versus $1.7 million and $0.11 per diluted share reported in 2015. I'm going to turn the call over to Matt Trinkaus for further details of our financial performance. After Matt's review I will highlight our second quarter performance and why we feel positive and optimistic about the second half of this year.

Thanks, Karen and good morning everyone. Product revenue in the quarter was $21.4 million, a decrease of $3.8 million and 15.1% compared to the second quarter of 2015. During the quarter the decrease in product revenue was mostly driven by hardware sales so it's sold to our largest global customers in low volume through our network of channel partners. This decrease was offset by hardware pull-through from deployments of Brink POS of approximately $1.5 million. Service revenue was down slightly compared to Q1 2015 generating $11.8 million versus $12.1 million, noting a decrease of 2% or $300,000. This was largely due to installation revenue that correlates with lower global hardware deployments in the quarter. Although all overall service revenue stream was negatively impacted during the quarter from the volatility of the global deployments, the company experienced growth in software sold as a service and other recurring revenue streams noting approximately $700,000 increase compared to Q2 of 2015. In addition, service revenue generated by the company's hardware repair center contracts increased compared to prior year driving a higher volume of contracts. The company's recurring revenue base represents both, software-related service and hardware-support contracts. Of the $11.8 million of service revenue reported in Q2 2016 approximately $8.3 million or 70% is comprised of recurring revenue contracts as compared to $7.6 million or 63% of total service revenue Q2 2015. The company's SaaS revenue, primarily Brink and SureCheck continues to grow increasing 74% over Q2 2015 and 18% on a sequential quarter basis. The volume of hardware support contracts continues to grow with the shift in the type of contracts that drive improved margin performance. Contract revenue from our government business was $19.4 million, a decrease of $2.2 million from the $21.6 million reported in the second quarter of 2015. This is the…

Thanks, Matt. While our results in the quarter were not unexpected, we will not be satisfied until we are delivering predictable growth and profitability to our stakeholders. Changing our business from cyclical hardware revenue streams to a diversified client profile based on software-led solutions and high-tech services continues to be our strategy and there are many indicators that it's working in both of our segments. Changes of significance take time and execution requires precision as we simultaneously operate as is and in our new business model. We are proud of the improvements we've made within the company in the last six quarters, and we see great opportunity for PAR going forward. In PAR's restaurant retail business, we are making progress by diversifying our customer base and expanding our reach through our innovative software solutions portfolio. In this recently ended quarter, we grew our software subscription revenue by 74% led by the increasing demand of our Brink software solutions. Our Brink solution which includes SaaS, hardware, and associated services revenues grew 227% in the second quarter from the same period last year. Brink's monthly recurring revenue grew 95% in Q2 from the prior year second quarter and we deployed nearly 300 new stores in the quarter. Brink's annual recurring revenues grew 86% versus 2015 and our total number of stores operating with Brink software -- now with PAR's Brink software now total 1,600. In the quarter we announced several new customers including MOD Pizza, Graeter's Ice Cream and Bibibop Asian Grill that contributed $456,000 in bookings. Our forecast for the remainder of the year is strong as our backlog includes five guys; Pita Pit, Sonny's Barbecue to name a few, and our bookings reflect nearly 6 million in ARR and side growth of 145%. During Q2 we released latest version Brink…

Thank you. [Operator Instructions] And our first question comes from the line a Sam Bergman with Bayberry. Your line is now open.

Good morning, everyone. Couple of questions, one regarding Brink. Can you give us any more color on the types of accounts that you engaged, and there any Tier-1 accounts that you're engaging right now in various sites or is it similar to what's been announced over the last six months in terms of customers?

Thanks for the question Sam. The Brink sites that we're engaged in and from Tier-1 through Tier-3 in terms of our pilot sites and where we're deploying, we have -- we've been increasing the number of organizations that we're working with so we have a lot of new logos, we've increased our backlog and further on our deployments. So to answer your question; I guess we are increasing the number of customers throughout all the Tiers.

Can you talk about any of them?

At this point I really can't talk about names but they are names that you would recognize.

And how far along are you with which -- let's say the largest one in terms of where you think that's going to head out in 2016?

I don't believe that we'll see many sites from our Tier-1 in 2016. We are in a handful of sites right now, they are going through their final evaluations and we're working our way through the stages of completions.

And the McDonald's business that you talked about in the second half, what kind of uptick are we looking at? Can you give us any percentages?

The McDonald's business for the second half -- so we introduced our 8300, they let us let us showcase it at their convention in April. We received a really strong backlog from that convention, we have gone through all the pricing exercises, the field test that they require and we are -- right now we're able to deliver the product. So it's going to be a pretty significant uptick.

Can you talk about some of your other Tier-1 customers and how well they are doing right now and what your expectations are for them for the second half of the year?

Over the course of 2015, we've really -- we wrapped up deployments with KFC Jack in the Box. So they won't -- in the previous year we had drafted a major rollout w Subway. So there is steady business but not big deployments happening with them. So that contributed to the second quarter -- the decline in revenue in the second quarter. So our relationships are strong, we continue to do a lots of project work but we're in the down side of the deployments.

And in terms of going back to Brink, are there any customers like five guys on horizon that you're close to signing or not?

Yes. So there are larger customers that have a large number of stores that are in our pipeline. One is signed and we're going through the -- they are not quite as large as the five guys but we do have a few large ones that have multiple hundreds of stores that -- we're beginning the initial stages of deployment in the second half of the year.

Sounds good.

I just wanted to remind you that Brink is on target, it was even without the Tier-1 in the mix, care any Tier-1 that we landed this year we're going to see the -- we'll see the benefit of it in 2017.

Understood. So let's go to SureCheck for a minute, there has been a lot of buzz on SureCheck. We haven't seen too many -- new customers, I assume the pipeline must be pretty full with SureCheck. Why should we see some announcements that these are going to be implemented and installed in 2016?

That's a great question and you're right, our pipeline is growing, we've added sales people to our team, our product is strong and we're really starting to expand. So it's -- we're seeing the pipeline expand and really couple of different areas. So grocery where they were their initial early adopter, contracts food has experience expressed interest and actually is leading us into new opportunities, a bit in fee-store and then into restaurants. So to answer your question, we have a bunch of pilots going on and we expect that we'll be able to announce some new customer wins, probably later in the year, Q4 timeframe, as we start to get the deployments out.

Can you share feedback on your implementation with target?

That implementation we concluded back in 2015 and that was a while ago.

And in terms of an upgrade like Wegmans, are they doing any type of upgrades like Wegmans has done recently or not?

Currently no. Wegmans is really committed to food safety, like I said it's one of the core values and they are a serious power user of the solution. And we are seeing adoption -- an uptick in the use of SureCheck by some our other grocery customers like Lums [ph] and Festival Food. So they continue to push the solutions through their system.

So last question in terms of SureCheck, do you have any large Tier-1 grocery chains that are looking at the product. Since you have Wegmans to have such a good reference point and of course, Walmart made this reference point, one would think by now you would be very close to signing a Tier-1 grocery customer.

We do. So we do in the U.S., we're in pilot with one right now; we have a meeting in a couple weeks with another. Then in Latin America we also have another grocery chain that is in pilot. So we have been several.

Thank you very much.

Thank you.

Thank you. And our next question comes from the line of Richard Darnley with Longport Partners [ph]. Your line is now open.

Good morning. I'm new to your company and trying to figure out how -- which revenues go where. You mentioned you did $1.5 million in Brink POS, is that the up 61% quarter-to-quarter and 220% year-to-year number?

Good morning, Richard. Thank you for joining the call. I'm going to let Matt take -- explain this to you. We can also catch up with you offline.

Hey Richard, welcome to the call. The $1.5 million represents really the hardware pull-through. And the customers that we won with the software so they are also buying -- purchasing the PAR hardware. That is included within Karen's remarks of the 227% growth in the Brink solution. So when we talk about the Brink solution, we talk about the software, hardware and services combined, that is included within that number. It is not included within the recurring -- when we talk about the recurring revenue and those and that type of growth of quarter-over-quarter versus last year. So there is a differentiate between the hardware that we look at with Brink and how we look at the full solution and then the recurring revenue as well.

So that's the hardware part, then what was the software part and the service part?

So the software is included within the $700,000 that I noted in my comments. So that's where the -- software and the recurring revenue of the service contracts would be in that number.

So the $700,000 includes the software and the service?

Right.

And can you break that out into software and service?

At this time, no, we can't break that out.

And then you mentioned a goal in a way -- where was it, the $20 million recurring revenue by the end of 2018. Could you -- what was the recurring revenue then in the first half of this year?

So total recurring revenue -- I think total recurring revenue for Q1 of our first half of this year -- for our service revenue was about little over $15 million in total but that includes the hardware contracts what Karen is referring to as just the SaaS software for Brink.

So -- and you're not going to reveal just the software that -- the number that would be comparable that the $20 million target?

Richard, at this point we have not disclosed that information. We are giving different -- we're giving metrics around our growth. So some of the things that I said was that, we ended the second quarter with roughly 1,600 Brink sites, our objective is to grow the number of Brink sites by the end of fiscal year 2018 to 10,000. We have lined a sight to get to that number. Our backlog for Brink is about $6 million of annual recurring revenue. So these are the kind of metrics we're starting to disclose, so we can get to that point to tell you exactly what you're asking. Right now the revenue contribution is smaller, signing up a small base and we're growing, so the things that we can see are positive and as we accelerate our plans to deploy Brink and to bring new customers into the fold. And just to repeat few of your questions, the $20 million of SaaS revenue and recurring revenue relates to the 10,000 sites and it relates to Brink. We also -- so we are also focused on bringing SureCheck to the market and the SaaS revenue associated with SureCheck will be on top of that right.

Right. I see, okay. And then stock comp was down 25% in the six months but up 400% in the second quarter. Does that bounce around normally like that or does this reflect quarter-by-quarter results, I mean just conceptually?

Richard, it's Matt. For the stock comp, the new Board that came on a couple of years ago and we kind of revamped the compensation committee and how we looked at our stock compensation. So last year it did run pretty low based on the new awards, the new agreements that the compensation committee approved and worked on -- that was approved in 2016. So we will see little bit higher run rate in the stock comp this year versus last year.

I see. I probably read the proxy but I forgot. Do you use compensation consultant?

Not at this time. We have in the past but not at this time.

Generally speaking, I think management should know what they should pay without a compensation consultant but that's just me. Okay, thank you.

Thank you.

[Operator Instructions]. And our next question comes from the line of Gary Siperstein with Eliot Rose Wealth Management. Your line is now open.

Good morning. Just a couple of bookkeeping items first, so you pulled on the non-GAAP basis another $300,000 in charges for the ongoing investigation. I thought that mostly wrapped up in Q1 but can you give us some color on that? And are we through those expenses now?

Hey Gary, it's Matt, welcome to the call. Yes, so we should be through the majority of the expenses, it should be very minimal going forward. The $300,000 really related to some additional work that both our lawyers were doing and on the accounting finance side as it relates to remediating the internal control efficiency that we reported at the end of the year. We had incurred extra audit fees and additional consultants that we use to make sure that we're able to remediate those internal controlled efficiencies. But going forward we should see pretty limited action here unless something were to trigger additional legal fees.

Okay. And you still expect to -- through insurance or other means recover -- I guess it was about $700,000 loss from that that season?

Gary, we have filed the appropriate claims and we will be reporting on it as we are notified.

Okay. And is that something you expect before year end or is there no guesstimate on when that can come in?

I really -- we really don't know. But it's clearly something that's important to us as well and so we're continuing to follow the direction from external counsel and internal counsel to make sure that we remediate the situation.

Okay. And then it was also some expensing non-GAAP in the quarter on the ERP system, is that mostly done and it will be capitalized expenses going forward. How do you look at that math?

Yes, going forward for the rest of this year the majority will be capitalized, there will be very minimal expenses coming through on the ERP project and then later into 2017 we might see some uptick in that again but nothing significant.

Okay. And then on the balance sheet, so there is about $5.5 million in cash -- you might have that $700,000 receivable on the insurance. And then I saw you move from long-term to short-term that now receivable to current assets; is that expected within 12 months or is that sort of expected to come in before year end?

So that's based on the APA that was sign with Jonas, our consolations. That is to be received in June of 2017.

Okay, about a year from now. The entire $4 million?

Right. And just to be clear, we do not have a receivable for the insurance claim because that -- we can't make a probable cause yet for that.

Okay, super. And one more bookkeeping question and then I'll ask some business questions. Karen, can you give us a little color on the CFO search.

Yes, the CFO search continues. We have we have enlisted -- retained their retain search and so we have some candidates that we're interviewing and I hope to have a CFO onboard shortly.

Super. And then on business line. So I'm just going over the quarter in the first half; so for the quarter it seems like -- and all the things we're pretty excited about future-wise on growth was nice and the only thing that hurt us is legacy hardware. So we sort of don't look at the legacy hardware as a growth business but outside of the difficult comps in the quarter which you had called out in the last conference call, so it was no surprise based on your earlier answers to questions with McDonald getting approved, you're seeing some uptick on planned shipments for the back half of the year. But even if that just doesn't hurt us anymore, if it's just flat with all other parts of the business, SureCheck and Brink growing and government growing and contributing -- and I think for the first half, government, even though sales have been awfully dead [ph], it's still increased its contribution to bottom line. It looks like the most important things for our future is going in the right direction. Is that how you look at things?

That is how I view it, Gary. So you really articulated it well. I think as I've discussed in the past, we are focused on the SaaS component of our business and with the government, the higher margin Intel Systems business, so that's our area of investment and focus while our core business, as we call it, the hardware business continues to be the engine to help us drive this change into this new business model and it's doing well too. So the adoption of the hardware is really exciting to us and it's going to be -- it's going to provide us with a good opportunity in the second half of the year. And sometimes you know, as we're looking at diversification we're pulling out these metrics for you to show you how we're growing, it gets obscured by the success of our hardware business. So we have to balance it out, and that's why I want to be -- start to call out some of the trends that we're seeing, so you can see where our investments are starting to work.

Super, okay. You mentioned -- I don't know if I heard you correctly, on SureCheck you said there were -- were there six new customers in the quarter or -- I know you used the number six, I don't know if it was new customers or roll outs or prospects from trials. Can you just explain -- tell me what you said again?

I said that there were six new customer that are in one stage or another but within at least in pilot. So six new names -- so outside we talk about Walmart and Wegmans all the time and I just wanted to highlight the fact that there are six that have moved to the funnel, that are in the stage of at least in pilot, and some are further down into the pipeline.

Okay. And usually what's been your experience on pilots? How many of them are turned into actual deployments and contracts and orders, is that half, is that one-third?

So far all of them. So I mean we're starting from a small base again and SureCheck, our big first customer was Walmart but all the pilots that we have entered into have turned into business so far now and that continued in the future as we have more and more pilots, maybe not, competition is coming. So that trend may not continue in the future but right now just to answer your question, factually they've all turned into business.

Okay. So far 100% success rate. And competition is coming but might not actually be a positive because it's such an embryonic industry, maybe that gives its legitimacy and [indiscernible] with competition but if it widens the aperture, that could be good for us.

I agree with you, I've said often that a market without competition might not be a market. So where we are as an early stages of a developing market with -- with an early stage solution, we're further ahead than any of our competition but there is competition and so we're starting to see people come in which again gets more interest because of FSFA, there is more interest because of issues that are happening within the U.S. market and in international markets. So we're starting to see the more demand. So we're expecting that as the market matures, we're in a good position.

Okay. And moving that thought over to Brink, so where do you see yourselves versus competition on Brink. Are you six months ahead of them? And what are the positives of our product versus the competitors?

When I talk about the competition for Brink I look at it in terms of our traditional competition and the new competition; the traditional competition really dominated the market and we are grabbing market share from some of that traditional competition, via Low Hass and the Mike Gross [ph] of the world. And they are not going away but we're able to grab market share because there is a demand for hosted cloud-based solutions and we have a very strong platform. In terms of our new competition -- there is competition, there is a lot of cloud-based solutions but in order to -- the cost of entry to this market is pretty significant, not pretty, it's significant. And so PAR has the infrastructure and the capability to not only design and develop but also to sell and deliver and support customers within this market segment. So we're taking our infrastructure, we're giving our sales team Brink and cloud solution, so we can go and address the demands of the market in terms of cloud solutions, mobile, digital, business intelligence and information to drive the business and make that good decisions.

Okay. And talking about the cadence on Brink. So you mentioned, we have 1,600 installations now. You mentioned you did 300 additional ones in the quarter. So -- and then with the 10,000 goal for the end of calendar 2018. So what you're looking to basically finish this year at, like 2,500 and then you jump to 5,000 in 2017 and 10,000 in 2018? Can you give us some color on your hope for cadence? And then secondly, what makes you think you can do that? I mean, what do you see in your pipeline and your opportunities out there that makes you think you can go from 2,500 to 5,000 and from 5,000 to 10,000 units?

So the answer for your first question is, around -- we're at 1,600 now, we expect to be between 2,500 and 3,000 at the end of this year, ramping upto 10,000 at the end of fiscal year 2018. When I look at the number of stores and the opportunity, greater than 90% is more than $10 million in annually recurring revenue just under 3,000 sites. When I look at the total opportunities, a conservative look at our opportunities, not every single thing is in here, it's -- there is roughly 20,000 sites. So we're already going to end the year -- so we expect to end the year around 2,500. We're building a pipeline that right now at this point has roughly 20,000 sites so we have a line of sight to get us to our goals and objectives, it's a matter of selling what we have -- developing and staying ahead of the competition, selling what we have to customers and then upselling to our existing customers, deploying and supporting, and doing that methodically and professionally.

So the 20,000 stores, that's sort of what you're seeing now? I mean there is obviously materially more than 20,000 stores out there. So that's sort of…

Those are our customers that are engaged today.

Okay, that you are engaged with today. So if you're engaged with 20,000, you're hoping for at least a 50% win rate to get to the 10,000 in the next June?

No, we're continuing to build the pipeline. So we can't expect to win 50%. So we need to get to three or four times and so we're just heading in that direction and building the pipeline so we can secure those 10,000 sites.

Okay, but today with the goal of 2,500 by year end, you actually have some touches with companies representing 20,000 stores?

The answer is yes. And so we're optimistic that we can get to 2,500 and probably exceed it.

Yes, 20,000 is remarkable. So right now we're -- you hope to 10% or so, 10% to 12% will get you to 2,500. And then if you get to 10,000 and $20 million in revenue at 2018 with 80% to 90% margins, so even using 80% if you hit your goal that's $16 million in gross margin. So that's about a lot of share and that doesn't take into account the profitability of the hardware business, SureCheck, and government. Am I crazy or is that pretty much on target?

When we get to our 10,000 sites, you're heading down the right direction and that's our objective.

And lastly, so the first half of this year non-GAAP, you've done $0.10 versus $0.15 last year and you're optimistic on the second half. I think previously there was -- you guys had an aspiration to beat what you did last year and I think you did $0.39 non-GAAP last year. So that would equate to about a $0.30 back half. Can you refresh me on what we did in the back half last year? And then is that achievable?

I'll let Matt take the question, he's got the numbers right in front of him.

Yes, I do think it is achievable. Restaurant this year did have a tough start of the year. Last year it had a strong Q2 and Q3 with a soft Q4. We are expecting this year a big uptick in Q3 and Q4 to exceed what we did last year. From a business unit perspective government should be consistent with year-over-year, so I do think our financials will be pretty consistent with last year's performance if not better by the end of the year.

And Matt, what did we do in Q3 last year and Q4?

I don't have that at the top of my head here.

Okay. But if we did $0.15 non-GAAP in the first half so that would be $0.24 in the back half. So to beat it we'd have to do at least $0.30 in the back half. And we're saying that's doable. So that would -- if we do $0.40 so we're at a pretty low PE and that would be obviously higher quality earnings as the recurring revenue model and the higher margin software starts to become a bigger, bigger piece of the pie.

Yes, that's exactly where we're going with this Gary.

Okay, it sounds good. Thanks for taking my questions.

No problem.

Thank you. And I am showing no further questions at this time. I would like to turn the conference back over to Ms. Karen Sammon for any final remarks.

I just want to thank everybody for your time today. We look forward to communicating our progress in our third quarter call. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.