Good afternoon, ladies and gentlemen, and welcome to the FY 2019 Second Quarter Financial Results. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Chris Byrnes, Vice President of Business Development and Financial Relations. You may proceed, sir.

Thank you, Grace, and good afternoon, everyone. I'd also like to welcome you today to the call for PAR's 2019 second quarter financial results review. The complete disclosure of our results can be found in our press release issued today at 4 p.m. Eastern Time 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 details in regards to the call this afternoon. Participants on the call should be aware that we're recording the call this afternoon and it will be available for playback. Also, we are broadcasting the conference call via the worldwide 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 afternoon and in our annual and quarterly filings with the SEC. Joining me on the call today is PAR 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 good afternoon, and thank you for joining us today. While I assumed the permanent CEO role at the end of March this year, I had several overriding goals: to bring greater focus to our cloud software business, dramatically change our culture, allocate our investment dollars effectively and sharply reduce our overall operating cost. To that end, we have doubled our effort to accelerate the growth of the Brink platform and position ourselves effectively as the Restaurant/Retail industry pivot towards cloud solutions for their next-generation technology choice. Our balance sheet has been strengthened, which allows us to take advantage of compelling strategic growth opportunities. We are focusing our investments and building our Brink cloud software business by concentrating on where we are strong and where we can actually service our customers while saying no to business commitments we can't be great at. I'm also reporting today that we've made the necessary decision to divest our SureCheck business in the coming months and concentrate on our most important initiative. Our focus on capital allocation made this a clear decision. We're still confident on the value proposition of SureCheck and the value that offer -- it brings to its customers in market as a whole, but decided that for PAR focus matters more. Following brands review in the second quarter 2019 results, I'll walk you through our businesses and share my thoughts on the operations and strategy of each unit that you'll understand as we deal where we are today and what remains to be done and the opportunity we look to capitalize upon. Now to review our results for the second quarter of 2019. This afternoon, the company reported second quarter revenues of $44.2 million compared to $52.6 million in second quarter last year, a 16% decrease. This decrease was primarily due to the low -- expected lower hardware revenues associated with Tier 1 customers as a result of product revenues, which were down 29.5% year-over-year. Also contributing to decline is a 9.9% reduction in Government contract revenues versus Q2 last year. We reported a GAAP net loss of $1.1 million and a loss per share of $0.07 in the quarter compared to a GAAP net loss of $1.3 million and $0.08 loss per share. On a non-GAAP basis, we reported net loss of $3 million and a loss per share of $0.18 in the quarter. This compares to a non-GAAP net loss of $652,000 or $0.04 per share last year. The non-GAAP adjustments are detailed in our press release. I would now like to turn the call over to Bryan for more detailed reporting on the quarter's financials. Bryan?

Thank you Savneet, and good afternoon, everyone. I would like to take this [Technical Difficulty] second quarter results. The GAAP net loss of $1.1 million for the quarter ended Q2 2019 includes tax benefit of $4 million related to the April 2019 sale of $80 million of 4.5% convertible notes. The current period tax benefit was booked to defer tax asset to properly offset the deferred tax liability created when accounting for the equity component of the bifurcated notes. In regards to revenue for the quarter, product revenues for the quarter was $14.7 million, down $6.2 million, a 29.5% decrease compared to Q2 2018, primarily due to a reduction in major hardware project activity at a Tier 1 core customer compared to the second quarter of 2018. Product revenue related to Brink was $4.2 million, an increase of 65% from $2.6 million for the same period in 2018. Service revenue for the quarter was $13.5 million, down $0.4 million, a 2.9% decrease compared to Q2 2018 primarily due to the decrease of installation services related to core hardware projects, partially offset by the growth of SaaS revenue. Brink service revenue includes SaaS revenue of $3.2 million, an increase of 40% from $2.3 million for the same period in 2018. Contract revenue from our Government operating segment was $16 million, down $1.7 million, a 9.8% decrease compared to Q2 2018. The decrease is primarily driven by a reduction in ISR solutions due to contract funding and ceiling limitations largely attributable to ISR program that is currently undergoing an organizational funding transition. The contract backlog continues to be healthy, noting a total backlog of over $152.5 million as of June 30, 2019, and a trailing 12-month book-to-bill 1.7x. In regards to margin performance for the quarter, product margin for the quarter was…

Thanks, Bryan. To begin, we see strong market indications that our long-term strategy is gaining momentum and that the hard work across the company is paying off. PAR is getting stronger and more focused on developing and delivering the Cloud technology solutions that restaurants large and small will require for the years to come. As we said in our last two calls, the first two quarters of this year have been centered on correcting our focus and raising capital to go after the opportunity in front of us. We are investing at initiating products and services, with emphasis on expanding our current revenue base, adding new revenue stream and building out our customer base. Our strategy after restructuring earlier this year and our capital raise in April has been to drive profitability in our core hardware basis and expand our Brink team to grow and deliver better service to our Brink clients. After our capital raise, we issued -- initiated a large and now continuous recruitment effort. Our first batch of new hires recently started, and we expect many more to join in the coming months. These new team members once trained, integrated, will help us react faster to existing customer requirements and more quickly add new customers waiting for our products. Adding talent and newer leadership will be the key to our future success. In the second quarter, we activated 764 new Brink restaurant sites, and as of June 30 had 526 stores in our open order and yet to be deployed backlog. We now have approximately -- 1,800 active life sites to Brink. These new signings increased our staff revenues by 40% in the quarter versus Q2 2018 and the other second quarter earnings realized recurring is now total over $16.4 million. We continue to see higher ASPs…

[Operator Instructions] Your first question comes from the line of Samad Samana [ph] from Jefferies. Your line is now open.

This is Anubhav [Indiscernible] Samad. Thanks for taking our questions. First off, thank you for providing some of the metrics related to Brinks, like you provide in ending sites and Brink's revenue. Usually in the press release, you give out some more metrics like ARR booking; I guess 3 more ARR bookings in ASP. Could you provide us some of these metrics, if possible? Thanks.

Sure. The quarter ended -- the quarter end June 30, ARR was a little over $16.4 million, and the ARPU for new customer’s signs was also around $200 similar to last quarter.

Okay. And we have like the bookings number, how many new sites you booked?

Bryan, you have that in front of you?

It was 760.

Okay. That's great. Thank you so much. Then just to follow up on this is -- in the past, you've talked about how you've been investing in the technology for Brink and as a result of that, you kind of pull back on, I guess, the wider accelerating the pace of bookings. So just wanted to check on this, where are -- how far along are you in this process? When do you think you, I guess, would you maybe accelerate the pace of bookings from this point on?

Sure. Great question. So it's starting now. We expect Q3, but particularly Q4 to really be the acceleration we've been talking about. We raised the money in April, and as I mentioned, we just brought in our first asset buyers. And so we expect that will take a few month have a lot of impact. We've made a lot of changes in advance of that where we'll see some of the impact in Q3 and -- I'm sorry, Q4 we see a -- we believe there will be a greater acceleration that will continue well into 2020.

Okay. And if I may, one more here. On the -- you talked -- it seems like maybe, if I got this right, you seem to be focusing a little bit more on the tier 4 customers, seems like. And it's a fairly competitive space. How do you guys feel like your position, like what's the, I guess, broadly your strategy going after that space?

So today we don't service it well, we service it primarily through our channel partners. So a lot of what we're doing is giving our channel partners the weapons they need to be successful in that market. And it includes potentially later versions of our product, more streamlined operations. Over time, we've seen a number of interesting acquisitions and partnerships that will help us grow out that business. But today, it's providing and making it a focus for our business where historically it hasn't been.

Okay. And just one last one, and then I'll go back in the queue. But on the hardware, seems like that was the reason for, I guess, your numbers coming a little bit lower than what you're looking for. How would you -- like how should we think about the outlook specific to hardware for the 50Q, 4Q or for the rest of the year? So can you help us out with modeling, I guess, the product and service lines?

Sure. So we sort of expected Q2 2019 to be it's first year for hardware given the cyclical nature. Our -- 2017, we had our large refresh in McDonald's, and so we're getting towards the end of the trough there, but we don't -- that's not going to change in 2019. So our focus has been right size that operation to get profitable. So we're very proud that we were able to turn it profitable this quarter on such a low number relative to our past. I wouldn't expect a major upswing in that business up until later next year.

Sounds good. Thanks so much for taking our questions.

Your next question comes from the line of William Gibson from Roth Capital Partners. Your line is now open.

Thank you. Regarding SureCheck, didn't -- wasn't quite sure what you said. I mean you got it up for sale. Do you have buyers lined up? Or what's your confidence level there?

We are in advanced stages, and we are confident we will actually that divestiture, which is why we have it now held for sale.

Okay. And there's been a lot of consolidation in the food delivery industry. Is that impacting your business at all?

It is. It is actually driving to -- it has impact in a number of ways. The first is, it accelerates the need to move to a modern point of sale system, which we see happening all over the place. The second way it impact us is, we are spending time getting directly integrated into some of these delivery businesses in order to create additional revenue stream as either a referral partner or a reseller. The third is, we integrate with, call it, middleware softwares that help manage third-party delivery and are making and have made partnership deals with those software products, where we will take a piece of their on-going revenue going forward. So but actually we've signed a deal with a business that will bring in their Uber Eats and Postmates and Door Dash and so on and so forth for installing it and doing a direct integration to Brink and managing that for you, we'll take a piece of that revenue going forward. So it's a very positive movement for our business.

Now that sounds good. And then merchant payments, sounds eminent. Is that -- should we see it in the third quarter?

You'll see it at the very tail end of the third quarter or early Q4. We built out a team for that now. We feel excited about the opportunities and we've identified our first set of customers that we'll go live on. It will be a smaller start. You'll see the change in revenue throughout Q4, but it will be exciting thing to watch in 2020 now that we built up the team and the product.

Thanks, Savneet.

Your next question comes from the line of Ishfaque Faruk from Sidoti. Your line is now open.

Hi, good afternoon guys. A couple of questions for me. Savneet, you briefly touched on the new you're viewing the TAM as larger than the 300,000 number that you guys targeted previously. You also mentioned international markets. Could you give a little bit more color than what you already said on those?

Sure. We think our TAM is larger on 2 levels. One is on the ARPU suggestion which was, historically; we've been limited to selling a point of sale software product in merchant services, an example of what else you can sell. But we've also viewed it as historically, a point of sale provider can only provide you a point-of-sale system. Now we look our relationship with our customers and our customers told us they look at us a lot more. So our ability to acquiring investor partner with other products in the restaurant ecosystem expands, call it, the price per store. As it relates to units or quantity of stores, I think we feel very confident that the original TAM we suggested, which was 300,000 stores, far underestimates the potential opportunity. As an example, that TAM includes today quick service and fast casual, but a chunk of our Brink base is already well outside of quick service and fast casual. And so we are preparing ourselves to go deep into the table service business and other segments of that business. And as relates to international, there are another 6 million or 7 million restaurants outside United States that we think are part of the potential opportunity feed, and we are going to really starting to employ, start working aggressively with international as a Brink product is taken out there. A lot of this has been driven by our existing customers moving international and being frustrated they are unable to use Brink out there and are stuck with lighter use systems. So a lot of it is being driven at the customer level.

Okay. And in terms of your table service. Table service is a very big and fragmented market. Are you comfortable with table service to your market primarily?

We are for two reasons. One, we have been selling table service for Brink into some table services since 2009. But it was not prioritized. This is a lot more about prioritizing updating the existing product, which has hundreds and hundreds of customers on it today. The second reason I am excited by it is as large restaurants come to us, many of them are table service and often tell us, I want Brink and I'll wait for you to have table service before I upgrade my point of sale system. So it's again driven by the customer.

Okay. Great. And then my last question on the Government contracts. You guys found around like $32 million or so per store contract ended in Q2. It seems like government numbers were light. Is it because bookings? Or is it because of the [Indiscernible]?

It's a question of timing. So the backlog is quite significant over $115 million. So we have an incredibly exciting backlog as part of the timing and funding gaps, which is why it technically pushed outward, but from the health of the business, we feel very confident where we are today.

All right. Thank you.

Your next question comes from the line of Adam Wyden from ADW Capital. Your line is now open.

Hey Savneet, congrats on getting a lot of stuff done. I have kind of more of a qualitative question and I'll have some more specifics. So you've been there since December, I guess, in the full time role since March. You got an incredible amount of fixing, rearchitecting the stack, headcount reduction incorporate, restructuring hardware, removing the SKUs. Obviously, you guys are profitable there on a lot less sales, so obviously you've done a lot of work there. You're starting to hire these engineers, got a lot of capital at attractive terms, and I know you talked a lot about growth accelerating reaccelerating, although growth is actually pretty good this year, even in kind of a slower time. You've said that growth rate accelerating in 2020. I think a lot of us on the call are kind of interested in hearing how you think about the longer term opportunity out 5, 6, 7 years. We're seeing your peers charge $5,000 or $6,000 for an enterprise grade cloud like Aloha, that they hate, and doesn't even include merchant services. We see SMB customers clipping close to $10,000 on an $800,000 AUV restaurant, including merchant services. I think, I guess I'm curious how you envision ARPU and UNIX trending over time? I'm talking about 5, 6, 7 years. I mean I know some of the product functionality you're going to buy, some of it you're going to build, but I guess my question is, how do you see kind of the ARPU opportunity? And some of it's going to be joint venture, some of it's going to be buy, some of its going to be build, some of it's going to be payments, but I mean is this a business that out 5 or 6 years, you could be clipping $8,000, $10,000 a year? And on 50,000, 60,000, 70,000, 80,000 units, I mean how do you think about it?

Yes. Actually, I think the numbers you suggested are very, very doable inside of 6 years. So a little bit similar to the last question. Where we are today is we've just sold point of sale software. And I'd argue we've made -- because we were early in our life cycle, we were underpriced. We didn't focus on the right product offering in the right product market fit. And so we very much limited the ARPU. Starting in sort of early January, February when we started, we made a commitment to say, how do we expand that? So what do we do? First, we focus on customers where we can actually service what they were doing and charge them a fair price, so they felt that they were getting what they wanted. Second, we started making partnership deals, which we're just starting the first set of revenue on where we are selling -- or reselling our referring partner software to integrate into the Brink ecosystem. That's a very powerful point because that's the first time we pulled revenue outside of point of sale and then that's led to a number of interesting M&A conversations. The third lever is merchant services where we continue to get excited about our opportunity there. Obviously, the numbers you talked about are very real in the tier 4 category. A lot of our base is above that so we'll be making some stratification we'll make on those customers. And the last bucket is on the TAM outside our core which is the acquisitive part of it. So we expect in 5, 6 years our ability to get to those numbers you charged -- you suggested are very real through a combination of focusing the customers we can service right, adding on our referral partners, adding…

Great. So I mean, I guess kind of in the short to intermediate term, I mean we've been hearing that some of your bigger chains -- obviously, a restaurant that is doing 800,000 AUV, probably pays less on SaaS and pays more on payments because it's a smaller restaurant. And a restaurant that is doing 2 million can probably pay more on SaaS and less on payments. So you kind of have that natural hedge in that you can get more ARPU on payments on the small restaurant, but get more ARPU on SaaS. Can you talk a little bit more about kind of the intermediate term step up because I mean you guys are dramatically underpricing the product relative to your peers as it is today? I mean, how do you think about kind of that -- the cadence of that? Just a little bit more specific.

Yes. Yes. I think as a set of results -- you've seen in first couple of quarters, we've been able to really drive up fair pricing very, very quickly. I think I wouldn't agree with the comment that we're dramatically undercharging because we are in these RPs together and we have a good idea where our customers are coming out. But a lot of what you are referring to, Adam, I think is -- Brink was a scrappy startup, we took whatever deal came our way. So much of this is learning from our mistakes and focusing on where we can drive fair price by actually getting the price that customer wants. So in the shorter range, it is because hopefully our ARPU trend in the right direction. There will be blips here and there as we roll on contracts we signed last year. But that -- there absolutely is a focus as the numbers have shown in the first two quarters. New customers are coming on in a much higher than ASP than we have historically done. And then that will grow with these new partnerships that we've talking about and then also payments.

Right. Got it. Okay. Moving on, outside of payments, what do you think the next biggest opportunity is to sell into your restaurants? I mean we saw Toast just buy Payroll, Lightspeed bought a CRM product in a very multiple of revenue, 1 to 2 to 3x using stock. Can you talk a little bit more about M&A? What are the verticals that you think are most attractive and most eminent? And maybe this can help solve the ARPU question. I mean we just saw tangentially back of the house inventory thing, charging $1,500 a year. I mean that could -- that would double your ARPU like instantaneously, and create cross-selling and all the rest. Can you talk a little bit about the M&A, the cross-selling opportunity and how you think about that?

Sure. And I won't list what we think is most exciting just because of the competitive dynamics of the industry. But what I'd say in two ways. One is, in a good way our customer base is different than most of the other companies that are being equipped with today. Given how many of our customers are larger restaurant chains, and so we are prioritizing products that serve that customer base first, because that's our bread and butter. You're a larger or a fast growing chain, that's where we can really service you well. So and to those -- you should think of those products as one's that are vital to that business, that operation function. So it could be some of the things you mentioned but it could also be kitchen, supply chain, back office, there's plenty of stuff that we are looking at. And so we are really assessing what kind of product we can bring to the market that we are really great at today, as opposed to going where everyone else is, which is again a little bit of a different market for where we play in. Part of it is balanced by where we can acquire something at a fair price. There are many verticals we want to be in today but we are not going to pay exorbitant multiples for them today, but we will -- so we may not always get the ones we want but we will get the product that we need. The way we prioritize is, essentially saying, here's the five or six place we want to play in, begin conversations with every target in that space and then risk/reward where we think we can get a fair price and execute, while not being too cute around trying to understand where multiples are today.

Great. Well, if your multiples higher, it gives you some flexibility in terms of what you can buy, what you can't by. So hopefully, your multiple increases. Can you talk about the pilot program at Panda that you guys posted? We have been seeing some stuff on LinkedIn. We've been talking to restaurant folks and hearing people talk around on Dunkin' Donuts. I mean we haven't heard a lot in terms of new chain announcements. I mean Dairy Queen is the biggest secret in the world. I mean, I think I see it all over LinkedIn and yet the company still hasn't announced it. And can you talk about Panda, CKE, what's going on with Dairy Queen, Dunkin' Donuts? I mean, I feel like there is a lot going on in the company and we're not hearing a lot about it. I am just kind of curious if you can comment a little bit.

Unfortunately, I can't comment on specific customers or customers who haven't announced or acknowledged that they are customers. So what I can say is there is a lot of activity happening. I mentioned this on the call, but it's hard to say how much excitement we have as an organization around the changes that have been happening. Literally people jumping out of their chairs because there's just a lot of potential opportunities out there. We will announce customers when we get the right to announce them. A lot of it is making sure that customer is comfortable with what we want to say and how we want to to say together. And so we'll announce customers when we get sort of the right and in agreement that we want to announce -- that they do want to be announced. And we'll start putting them out there. But qualitatively I can tell you the pipeline is extremely strong, and we feel really excited about the opportunity to continue to sign new logos going into 2020. But unfortunately I can't really comment on prospective customers today.

You made a comment -- moving on. You made a comment at the annual meeting about how some of the JVs could equal the ARPU contribution from some of the JVs could equal the amount of SaaS that the restaurant is coming through. I mean are you -- is that something you're still believing? I mean some of these things will be a revenue share, like I think the one you were talking about with Checkmate, but I mean there is a transactional element to it. I mean, obviously, as you integrate with some of these online restaurant things. Directly, there could be a transactional element. I mean, can you talk a little bit about kind of what the ARPU opportunity with JVs are? Is it really true that the JVs could be as much as the ARPU you're generating from the stores as it is today?

We expect, at certain stores, us to make more revenues from our partnership than we do from our SaaS product. Now that's not every store, but there's a selection of our stores where there are as an example extremely high delivery users and we can have a deal where we can make a per-transaction fee on delivery. So there are opportunities for specific store where that outcome can happen. In general, it's just illustrative that last quarter our partnership revenue was close to zero. That will not happen in Q3 and obviously will start in Q4 and much the next year. So it's more illustrative that this will be a real revenue stream for us going forward. And provide a really nice pipeline of potential M&A.

Can get a little bit about the opportunity outside of restaurants? I mean I know Lightspeed does a lot of stuff with coffee shop, at retail, at table service. Do you think -- do you envision -- I mean, obviously you talk about table service. Do you think there's an opportunity in the retail or coffee shops? I mean what this kind of the expanded TAM? Or is that kind of included in your 1 million units in North America?

The TAM I gave you, the 1 million in North America and another 6 million or 7 million abroad is only restaurants. We are not focused on anything but restaurant today. We want to nail it, we want to dominate it and I think getting into a new vertical is distracting. In five years or 10 years, we can absolutely talk about it but right now we've just got to do a really good job with what we do today and not get distracted by some of those markets that do call us to come in there.

You mentioned something about kind of a Brink Light or Brink SMB and I know you kind of talked about this. Is that -- I mean can you talk a little bit about that? I mean, I know Toast and your peers have kind of -- the way they sell the product is they sell it to low AUV restaurants or customers and they effectively say, okay we will charge you less for SaaS, but we will charge you kind of a market rate for merchant services. So those guys end up making 80 to 100 basis points. You send them the hardware, and it's kind of like in a box solution, they plug in their cat 6 cable, they learn how to play around with it on YouTube. I mean, can you talk a little bit about selling what I would call like an all-in-1 Brink Light SMB solution. I mean that to me is kind of the easiest way you can get $8000 to $10,000 ARPU. And obviously, it sounds like you're going to work with your channel partners to sell that. Would you sell that directly also? Kind of like through SEO and Instagram and buying it online on your website like your peers or is you only going to do it through the channel? And do you have a sense of timing on that because to me that seems like a really low hanging fruit kind of easy way to drive ARPU and ARR quickly.

So I think the better way is, when we came into the company, I think what was surprising was we never spoke about Tier 4, Tier 3 and 4 even though I think around 20% of our business today comes today from our channel partners. And so our commitment is to do a better job there. We have not prioritized their needs. We have not prioritized the service part of that business and we're aggressively going to do that. And part of that, we'll be over time creating a lighter version of Brink that services that market. It is not an immediate thing and it's not as low-hanging fruit as you think it is because it's hyper competitive, we've not been in that market before. But we know there's a lot of business there from just what we have today and we will be offering merchant services in that business in just a couple of months.

Got it. Got it. And just in summary, I mean, you still think, I mean, this year as far as I can tell was supposed to be kind of the slower year. But I mean even before Q4, you're still annualizing it, I don't know, 40%, 45% unit growth without kind of ARPU expansion. I mean you expect that to materially increase into 2020. I mean this is a 45% unit year and you still think that 2020 will be kind of back to historical trend on Brink, is that more or less how you are couching it?

Yes, I mean I think it to be a faster growing year. A lot of this year was to clean up and there is no better way for it. We have to get our stuff organized and now we need to hire, and we just first batch of new hires, just started and we’ve got a lot more on the common. So as they get in there, the speed, our ability to execute on all these scenarios will happen. We will get better at it. And that's not to mention that, we’ve just become a more efficient organization and that cultural change that is hard to see from the outside is really what's driving a lot of the success internally. And so, I think our [Indiscernible] is off the chart excited about what’s in front of us. The pipeline of customers as we mentioned is really really strong and we do feel confident that some of these acquisitions will be carved over us.

Good. Well, thank you, that’s it from me.

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Savneet Singh. Sir, you may proceed.

Thanks everyone for joining. We look forward to keep you updated as we go.

Ladies and gentlemen, this will conclude today's conference. Thank you for your participation and have a wonderful day. You may now disconnect.