Par Technology Earnings 2021-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

par-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

☐ TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From __________ to __________

Commission File Number: 1-09720

PAR TECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)


Delaware			16-1434688
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

PAR Technology Park, 8383 Seneca Turnpike, New Hartford, New York 13413-4991
(Address of principal executive offices, including zip code)

(315) 738-0600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.02 par value	PAR	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ☐	Accelerated Filer þ	Non-Accelerated Filer ☐
Smaller Reporting Company ☐	Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of May 3, 2021, 25,979,138 shares of the registrant’s common stock, $0.02 par value, were outstanding.

PAR TECHNOLOGY CORPORATION

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PART I

FINANCIAL INFORMATION


Item Number		Page

	Forward-Looking Statements

Item 1.	Financial Statements (unaudited)	2

	Condensed Consolidated Balance Sheets at March 31. 2021 and December 31, 2020 (unaudited)	2

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and March 31, 2020 (unaudited)	3

	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and March 31, 2020 (unaudited))	4

	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2021 and March 31, 2020 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and March 31, 2020 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use Of Proceeds	26

Item 6.	Exhibits	33

Signatures		28

“PAR,” “Brink POS®,” “PixelPoint®,” “PAR EverServ®,” “Restaurant Magic®”, “Data Central®”, and “Punchh®” are trademarks of PAR Technology Corporation. This report may also contain trade names and trademarks of other companies. Our

use of or reference to such other companies' trade names or trademarks is not intended to imply any endorsement or sponsorship by these companies of PAR Technology Corporation or its products or services.

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 (“Quarterly Report”) contains “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature, but rather are predictive of our future operations, financial condition, financial results, business strategies and prospects. Forward-looking statements are generally identified by words such as “anticipate,” “believe,” “belief,” “continue,” “could,” “expect,” “estimate,” “intend,” “may,” “opportunity,” “plan,” “should,” “will,” “would,” “will likely result,” and similar expressions. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ materially from those expressed in or implied by forward-looking statements, including forward-looking statements relating to our expectations regarding the impact of the COVID-19 pandemic on our business, operations, and financial results. While we have taken precautionary measures intended to minimize the impact of COVID-19 to our employees and to our business, there can be no assurances that these actions are sufficient and that additional actions will not be required. Factors that have and may continue to adversely affect, and that could subsequently adversely impact, our business, operations and financial results due to the COVID-19 pandemic include: customer store closures; significant reductions or volatility in demand for our products and services; delayed or canceled store implementations, decreased product adoptions and bookings; reduced or delayed software or hardware deployments and a reprioritization of investments in technology or point-of-sale infrastructure; delayed or payment defaults by customers; our ability to be agile in the execution of our business and strategies and our management of business continuity risks, including increased exposure to potential cybersecurity breaches and attacks, disruptions or delays in product assembly and fulfillment and limitations on our selling and marketing efforts; our ability to successfully attract, hire and retain necessary qualified employees to develop and expand our business; and the possible impairment of goodwill and other intangible assets in the event of a significant decline in our financial performance. The extent to which the COVID-19 pandemic will continue to impact our business, operations, and financial results is uncertain and cannot be predicted, and there can be no assurance that the COVID-19 pandemic will not have a material and adverse effect on our business, operations and financial results during any quarter or year in which we are affected. Other factors, risks, trends and uncertainties that could cause our actual results to differ materially from those expressed in or implied by forward-looking statements are described under Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations”, Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 16, 2021, and in our other filings with the SEC. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities law.

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PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements (unaudited)

PAR TECHNOLOGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


Assets	March 31, 2021		December 31, 2020
Current assets:
Cash and cash equivalents	$	173,122	$	180,686
Accounts receivable – net	38,706		42,980
Inventories – net	25,296		21,638
Other current assets	7,970		3,625
Total current assets	245,094		248,929
Property, plant and equipment – net	13,627		13,856
Goodwill	41,214		41,214
Intangible assets – net	32,652		33,121
Lease right-of-use assets	2,423		2,569
Other assets	3,665		4,060
Total assets	$	338,675	$	343,749
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	676	$	666
Accounts payable	18,886		12,791
Accrued salaries and benefits	10,620		13,190
Accrued expenses	3,930		2,606
Lease liabilities – current portion	1,133		1,200
Customer deposits and deferred service revenue	9,895		9,506
Total current liabilities	45,140		39,959
Lease liabilities – net of current portion	1,410		1,462
Deferred service revenue – noncurrent	2,838		3,082
Long-term debt	106,851		105,844
Other long-term liabilities	4,584		4,997
Total liabilities	160,823		155,344
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.02 par value, 1,000,000 shares authorized	—		—
Common stock, $.02 par value, 58,000,000 shares authorized, 23,103,979 and 22,982,955 shares issued, 21,961,788 and 21,917,357 outstanding at March 31, 2021 and December 31, 2020, respectively	462		459
Additional paid in capital	245,566		243,575
Accumulated deficit	(54,977)		(46,706)
Accumulated other comprehensive loss	(4,238)		(3,936)
Treasury stock, at cost, 1,142,191 shares and 1,065,598 shares at March 31, 2021 and December 31, 2020, respectively	(8,961)		(4,987)
Total shareholders’ equity	177,852		188,405
Total Liabilities and Shareholders’ Equity	$	338,675	$	343,749

See accompanying notes to unaudited interim condensed consolidated financial statements

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PAR TECHNOLOGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Net revenues:
Product	$	18,556	$	18,634
Service	18,028		18,775
Contract	17,883		17,323
	54,467		54,732
Costs of sales:
Product	14,885		14,905
Service	12,695		12,646
Contract	16,687		16,134
	44,267		43,685
Gross margin	10,200		11,047
Operating expenses:
Selling, general and administrative	14,537		11,646
Research and development	5,809		4,865
Amortization of identifiable intangible assets	275		210
Gain on insurance proceeds	(4,400)		—

	16,221		16,721
Operating loss	(6,021)		(5,674)
Other expense – net	(51)		(406)
Loss on extinguishment of debt	—		(8,123)
Interest expense – net	(2,160)		(1,972)
Loss before provision for income taxes	(8,232)		(16,175)
(Provision for) benefit from income taxes	(39)		5,265
Net loss	$	(8,271)	$	(10,910)
Net loss per share (basic and diluted)	$	(0.38)	$	(0.61)
Weighted average shares outstanding (basic and outstanding)	21,929		17,941

See accompanying notes to unaudited interim condensed consolidated financial statements

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PAR TECHNOLOGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Net loss	$	(8,271)	$	(10,910)
Other comprehensive income loss, net of applicable tax:
Foreign currency translation adjustments	(302)		201
Comprehensive loss	$	(8,573)	$	(10,709)

See accompanying notes to unaudited interim condensed consolidated financial statements

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PAR TECHNOLOGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)


	Common Stock			Additional Paid in Capital		Accumulated deficit		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders’ Equity
	Shares	Amount								Shares	Amount
Balances at December 31, 2020	22,983	$	459	$	243,575	$	(46,706)	$	(3,936)	1,066	$	(4,987)	$	188,405
Issuance of common stock upon the exercise of stock options	34	1		408		—		—		—	—		409
Net issuance of restricted stock	87	2		263		—		—		—	—		265
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock	—	—		—		—		—		76	(3,974)		(3,974)
Stock-based compensation	—	—		1,320		—		—		—	—		1,320
Foreign currency translation adjustments	—	—		—		—		(302)		—	—		(302)
Net loss	—	—		—		(8,271)		—		—	—		(8,271)
Balances at March 31, 2021	23,104	$	462	$	245,566	$	(54,977)	$	(4,238)	1,142	$	(8,961)	$	177,852


	Common Stock			Additional Paid in Capital		Accumulated deficit		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders’ Equity
	Shares	Amount								Shares	Amount
Balances at December 31, 2019	18,360	$	367	$	94,372	$	(10,144)	$	(5,368)	1,731	$	(6,380)	$	72,847
Issuance of common stock upon the exercise of stock options	2	—		30		—		—			—		30
Net issuance of restricted stock awards	21	—		—		—		—			—		—
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock	—	—		—		—		—		38	(524)		(524)
Issuance of restricted stock for acquisition	908	19		—		—		—		—	—		19
Equity component of redeemed 2024 convertible notes (net of deferred taxes of $1.8 million)				(7,988)						(722)	2,435		(5,553)
Equity component of issued 2026 convertible notes (net of deferred taxes of $6.2 million and issuance costs of $0.9 million)	—	—		19,097		—		—		—	—		19,097
Stock-based compensation	—	—		1,089		—		—		—	—		1,089
Foreign currency translation adjustments	—	—		—		—		201		—	—		201
Net loss	—	—		—		(10,910)		—		—	—		(10,910)
Balances at March 31, 2020	19,291	$	386	$	106,600	$	(21,054)	$	(5,167)	1,047	$	(4,469)	$	76,296

See accompanying notes to unaudited interim condensed consolidated financial statements

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PAR TECHNOLOGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(8,271)	$	(10,910)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation, amortization and accretion	3,990		3,142
Current expected credit losses	18		244
Provision for obsolete inventory	210		1,188
Stock-based compensation	1,320		1,089
Loss on debt extinguishment	—		8,123

Deferred income tax	—		(5,386)
Changes in operating assets and liabilities:
Accounts receivable	4,267		(1,289)
Inventories	(3,850)		(5,201)
Other current assets	(4,343)		(2,764)
Other assets	421		85
Accounts payable	5,658		218
Accrued salaries and benefits	(3,916)		(1,646)
Accrued expenses	1,332		(283)
Customer deposits and deferred service revenue	143		(1,733)
Other long-term liabilities	(413)		—
Net cash used in operating activities	(3,434)		(15,123)
Cash flows from investing activities:

Capital expenditures	(152)		(188)
Capitalization of software costs	(1,517)		(1,852)
Net cash used in investing activities	(1,669)		(2,040)
Cash flows from financing activities:
Payments of long-term debt	(163)		(154)



Payments for the extinguishment of notes payable	—		(66,250)
Proceeds from notes payable, net of issuance costs	—		115,916
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock	(2,362)		(153)
Proceeds from exercise of stock options	409		30
Net cash (used in) provided by financing activities	(2,116)		49,389
Effect of exchange rate changes on cash and cash equivalents	(345)		(173)
Net (decrease) increase in operating activities	(7,564)		32,053
Cash and cash equivalents at beginning of period	180,686		28,036
Cash and equivalents at end of period	$	173,122	$	60,089

Supplemental non-cash investing and financing flow information:
Cash paid for interest	$	19	$	953
Income taxes, net of refunds	5		—
Capitalized software recorded in accounts payable	317		—
Capital expenditures in accounts payable	122		—

See accompanying notes to unaudited interim condensed consolidated financial statement

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PAR TECHNOLOGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (“financial statement”) of PAR Technology Corporation through its consolidated subsidiaries (collectively, the “Company”, “PAR”, “we”, “us” or “our Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions to Form 10-Q and Regulation S-X pertaining to interim financial statements as promulgated by the Securities and Exchange Commission (“SEC”). In the opinion of management, the Company's financial statements include all normal and recurring adjustments necessary in order to make the financial statements not misleading and to provide a fair presentation of the Company's financial results for the interim period included in this Quarterly Report on Form 10-Q (this “Quarterly Report”). Interim results are not necessarily indicative of results for the full year or any future periods. The information included in this Quarterly Report should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 16, 2021 (“2020 Annual Report”).

The preparation of the financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include revenue recognition, stock-based compensation, the recognition and measurement of assets acquired and liabilities assumed in business combinations at fair value, the carrying amount of property, plant and equipment including right-to-use assets and liabilities, identifiable intangible assets and goodwill, the measurement of liabilities and equity recognized for outstanding convertible notes, valuation allowances for receivables, inventories, and measurement of contingent consideration at fair value. Actual results could differ from those estimates. The Company's estimates are subject to uncertainties associated with the ongoing COVID-19 pandemic; the extent to which the COVID-19 pandemic will impact these estimates is uncertain and cannot be predicted, and there can be no assurance that the COVID-19 pandemic will not have a material and adverse effect on these estimates.

The Company operates in two distinct reporting segments, Restaurant/Retail and Government. The Company’s chief operating decision maker is the Company’s Chief Executive Officer. The Restaurant/Retail segment provides point-of-sale (“POS”) software and hardware, back-office software, and integrated technical solutions to the restaurant and retail industries. The Government segment provides intelligence, surveillance, and reconnaissance solutions and mission systems support to the United States Department of Defense and other Federal agencies. In addition, the financial statements include corporate operations, which are comprised of enterprise-wide functional departments.

Cash and Cash Equivalents

The Company considers all highly liquid investments, purchased with a remaining maturity of three months or less, to be cash

equivalents including money market funds.

The Company maintained bank balances that, at times, exceeded the federally insured limit during the three months ended March 31, 2021. The Company has not experienced losses relating to these deposits and management does not believe that

the Company is exposed to any significant credit risk with respect to these amounts.

Cash and cash equivalents consist of the following (in thousands):


	March 31, 2021		December 31, 2020
Cash and cash equivalents
Cash	$	63,580	$	59,700
Money market funds	109,542		120,986
Total cash and cash equivalents	$	173,122	$	180,686

Gain on Insurance Proceeds

During the three months ended March 31, 2021, the Company received $4.4 million of insurance proceeds in connection with the settlement of a legacy claim.

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Other Long-Term liabilities

Other long-term liabilities represent amounts owed to employees that participate in the Company’s deferred compensation

plan, and the long-term portion of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) deferred payroll taxes. The amount owed to employees participating in the deferred compensation plan was $2.8 million at March 31, 2021 and December 31, 2020.

Under the CARES Act employers can defer payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As permitted under the CARES Act, the Company deferred payment of the employer portion of social security taxes through the end of 2020. As of March 31, 2021 and December 31, 2020, the Company deferred a total of $2.8 million of payroll taxes during 2020, to be paid equally in the fourth quarters of 2021 and 2022. The current portion of the deferred payroll taxes was $1.4 million at March 31, 2021 and December 31, 2020 and was included within accrued salaries and benefits and $1.4 million in other long-term liabilities on the consolidated balance sheet.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various requirements related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2016-13 effective January 1, 2021, and the application of the standard had no material impact on the Company's financial statements for the three months ended March 31, 2021.

Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which is intended to reduce the number of accounting models for convertible debt instruments and convertible preferred stock, and amend guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently assessing the impact of this standard on its financial statements.

With the exception of the standards discussed above, there were no other recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2021 that are of significance or potential significance to the Company.

Note 2 — Revenue Recognition

The Company's revenue is derived from software as a service (“SaaS”), hardware and software sales, software activation, hardware support, installations, maintenance and professional services. Accounting Standards Codification (“ASC”) Topic 606: Revenue from Contracts with Customers requires the Company to distinguish and measure performance obligations under customer contracts. Contract consideration is allocated to all performance obligations within the arrangement or contract. Performance obligations that are determined not to be distinct are combined with other performance obligations until the combined unit is determined to be distinct and that combined unit is then recognized as revenue over time or at a point in time depending on when control is transferred.

The Company evaluated the potential performance obligations within its Restaurant/Retail segment and evaluated whether each performance obligation met the ASC Topic 606 criteria to be considered distinct performance obligations. Revenue in the Restaurant/Retail segment is recognized at a point in time for software, hardware and installations. Revenue on these items are recognized when the customer obtains control of the asset. This generally occurs upon delivery and acceptance by the customer or upon installation or delivery to a third party carrier for onward delivery to customer. Additionally, revenue in the Restaurant/Retail segment relating to SaaS, Advanced Exchange hardware service programs, on-site support and other services is recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance obligations. The Company’s support services are stand-ready obligations that are provided over the life of the contract, generally 12 months. The Company offers installation services to its customers for hardware and software for which the Company primarily hires third-party contractors to install the equipment on the Company's behalf. The Company pays third party contractors an installation service fee based on an hourly rate agreed to by the Company and contractor. When third party installers are used, the Company determines whether the nature of its performance obligations is to provide the specified goods or services itself (principal) or to arrange for a third-party to provide the goods or services (agent). In the Company's customer

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arrangements, the Company is primarily responsible for providing a good or service; and the Company has inventory risk before the good or service is transferred to the customer, and the Company has discretion in establishing prices. As a result, the Company concluded that it is the principal in the arrangement and records installation revenue on a gross basis.

The support services associated with hardware and software sales are a “stand-ready obligation” satisfied over time on the basis that the customer consumes and receives a benefit from having access to the Company's support resources, when and as needed, throughout the contract term. For this reason, the support services are recognized ratably over the term since the Company satisfies its obligation to stand ready by performing these services each day. Contracts typically require payment within 30 to 90 days from the shipping date or installation date, depending on the Company's terms with the customer. The primary method used to estimate a stand-alone selling price, is the price that the Company charges for the particular good or service sold by the Company separately under similar circumstances to similar customers. The Company determines stand-alone selling prices as follows: hardware, software and software activation (one-time fee at the initial offering of software or SaaS) performance obligations are recognized at a stand-alone selling price based on the price at which the Company sells the particular good or service separately in similar circumstances and to similar customers. The stand-alone selling price for all other performance obligations, including: pass-through hardware, such as terminals, printers, or card readers; hardware support (referred to as Advanced Exchange), installation, maintenance, software upgrades, and professional services (project management) is recognized by using an expected cost plus margin.

The Company's revenue in the Government segment is recognized over time as control is generally transferred continuously to its customers. Revenue generated by the Government segment is predominantly related to services; provided, however, revenue is also generated through the sale of materials, software, hardware, and maintenance. For the Government segment cost plus fixed fee contract portfolio, revenue is recognized over time using costs incurred to date to measure progress toward satisfying the Company's performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and general and administrative expenses. Profit is recognized on the fixed fee portion of the contract as costs are incurred and invoiced. Long-term fixed price contracts and programs involve the use of judgment to estimate the total contract revenue and costs. For long-term fixed price contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract, and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include: labor productivity and availability; the complexity of the work to be performed; and the performance of subcontractors. Revenue and profit in future periods of contract performance are recognized using the aforesaid assumptions, and adjusting the estimate of costs to complete a contract. Once the services provided are determined to be distinct or not distinct, the Company evaluates how to allocate the transaction price. Generally, the Government segment does not sell the same good or service to similar customers and the contract performance obligations are unique to each government solicitation. The performance obligations are typically not distinct. In cases where there are distinct performance obligations, the transaction price would be allocated to each performance obligation on a ratable basis based upon the stand-alone selling price of each performance obligation. Cost plus margin is used for the cost plus fixed fee contract portfolios as well as the fixed price and time and materials contracts portfolios to determine the stand-alone selling price.

In determining when to recognize revenue, the Company analyzes whether its performance obligations in its Government contracts are satisfied over a period of time or at a point in time. In general, the Company's performance obligations are satisfied over a period of time. However, there may be circumstances where the latter or both scenarios could apply to a contract.

The Company does not include backlog as revenue as it may not result in actual revenue in any particular period, or at all. The Company usually expects payment within 30 to 90 days from satisfaction of a performance obligation. None of the Company's contracts as of March 31, 2021 or March 31, 2020 contained a significant financing component.

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Performance Obligations Outstanding

The Company's performance obligations outstanding represent the transaction price of firm, non-cancellable orders, with expected delivery dates to customers after March 31, 2021 and March 31, 2020, respectively, for work that has not yet been performed. The activity of outstanding performance obligations as it relates to customer deposits and deferred service revenue is as follows:


(in thousands)	2021		2020
Beginning balance - January 1	$	11,082	$	12,486
Recognition of deferred revenue	(2,603)		(4,034)
Deferral of revenue	2,597		4,026
Ending balance - March 31	$	11,076	$	12,478

The above table excludes customer deposits of $1.6 million and $1.8 million for the three months ended March 31, 2021 and 2020, respectively. The majority of the deferred revenue balances above relate to professional services, maintenance agreements, and software licenses. These are recognized straight-line over the life of the contract, with the majority of the balance being recognized within the next twelve months.

In the Restaurant/Retail segment most performance obligations relate to service and support contracts, approximately 78% of which the Company expects to fulfill within one year. The Company expects to fulfill 100% of support and service contracts within 60 months. At March 31, 2021 and December 31, 2020, transaction prices allocated to future performance obligations were $11.1 million and $11.1 million, respectively.

During the three months ended March 31, 2021 and March 31, 2020, the Company recognized revenue of $2.6 million and $4.0 million, respectively, which are included in contract liabilities at the beginning of each such period.

The value of existing contracts in the Government segment at March 31, 2021, net of amounts relating to work performed to that date, was approximately $140.1 million, of which $30.2 million was funded, and at December 31, 2020, net of amounts relating to work performed to that date, was approximately $150.5 million, of which $27.8 million was funded. The value of existing contracts, net of amounts relating to work performed at March 31, 2021 are expected to be recognized as revenue over time as follows (in thousands):


Next 12 Months	$	56,238
Months 13-24	47,328
Months 25-36	24,434
Thereafter	12,066
TOTAL	$	140,066

Disaggregated Revenue

The Company disaggregates revenue from contracts with customers by major product line for each of its reporting segments because the Company believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Disaggregation of revenue is as follows (in thousands):


	Three months ended March 31, 2021
	Restaurant/Retail Point in Time		Restaurant/Retail Over Time		Government Over Time
Hardware	$	17,835	$	—	$	—
Software	243		7,633		—
Service	3,412		7,461		—
Mission Systems	—		—		9,547
ISR Solutions	—		—		8,131
Product	—		—		205
TOTAL	$	21,490	$	15,094	$	17,883

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	Three months ended March 31, 2020
	Restaurant/Retail Point in Time		Restaurant/Retail Over Time		Government Over Time
Hardware	$	18,137	$	—	$	—
Software	562		6,382		—
Service	4,942		7,386		—
Mission Systems	—		—		8,448
ISR Solutions	—		—		8,772
Product	—		—		103
TOTAL	$	23,641	$	13,768	$	17,323

The Company has reclassified the prior year information in the above table to conform to the current year presentation.

Practical Expedients and Exemptions

The Company generally expenses sales commissions when incurred because the amortization period would be less than one year or the total amount of commissions is immaterial. Commissions are recorded in selling, general and administrative expenses. The Company elected to exclude from the transaction price measurement, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (for example, sales, use, value added, and some excise taxes).

Note 3 — Accounts Receivable, Net

The Company’s net accounts receivables consists of (in thousands):


	March 31, 2021		December 31, 2020
Government segment:
Billed	$	10,700	$	11,225
Advanced billings	(159)		(948)
	10,541		10,277

Restaurant/Retail segment:	28,165		32,703
Accounts receivable - net	$	38,706	$	42,980

At March 31, 2021 and December 31, 2020, the Company had current, expected credit loss of $1.3 million and $1.4 million, respectively, against accounts receivable for the Restaurant/Retail segment. Changes in the current, expected credit loss were as follows:


(in thousands)	2021		2020
Beginning Balance - January 1	$	1,416	$	1,849
(Reductions) provisions	(18)		380
Write-offs	(129)		(156)
Recoveries	(15)		—
Ending Balance - March 31	$	1,254	$	2,073

Receivables recorded as of March 31, 2021 and December 31, 2020 all represent unconditional rights to payments from customers.

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Note 4 — Inventories, Net

Inventories are used in the manufacture and service of Restaurant/Retail products. The components of inventory, net consist of the following:


(in thousands)	March 31, 2021		December 31, 2020
Finished goods	$	14,634	$	12,747
Work in process	8		16
Component parts	6,717		6,105
Service parts	3,937		2,770
	$	25,296	$	21,638

At March 31, 2021 and December 31, 2020, the Company had excess and obsolescence reserves of $12.2 million and $12.0 million, respectively, against inventories.

Note 5 — Identifiable Intangible Assets and Goodwill

The Company's identifiable intangible assets represent intangible assets acquired from acquisitions and software development costs. The Company capitalizes certain costs related to the development of its platform and other software applications for internal use in accordance with ASC Topic 350-40, Intangibles - Goodwill and Other - Internal - Use Software. The Company begins to capitalize its costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. The Company stops capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant testing. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three to five years. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within research and development expenses in the Company's consolidated statements of operations.

The Company exercises judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized. To the extent that the Company can change the manner in which new features and functionalities are developed and tested related to its platform, assessing the ongoing value of capitalized assets or determining the estimated useful lives over which the costs are amortized, the amount of internal-use software development costs the Company capitalizes and amortizes could change in future periods.

Included in identifiable intangible assets are approximately $3.6 million and $6.5 million of costs related to software products that have not satisfied the general release threshold as of March 31, 2021 and December 31, 2020, respectively. These software products are expected to satisfy the general release threshold within the next 12 months. Software costs placed into service during the three months ended March 31, 2021 and March 31, 2020 were $4.8 million and $1.8 million, respectively. Annual amortization charged to cost of sales is computed using the straight-line method over the remaining estimated economic life of the product, generally three to five years. Amortization of capitalized software development costs for the three months ended March 31, 2021 and March 31, 2020 were $2.0 million and $1.6 million, respectively.

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The components of identifiable intangible assets are:


(in thousands)	March 31, 2021		December 31, 2020		Estimated Useful Life
Acquired and internally developed software costs	$	44,979	$	40,170	3 - 5 years
Customer relationships	4,860		4,860		7 years
Trade names	1,410		1,410		2 - 5 years
Non-competition agreements	30		30		1 year
	51,279		46,470
Less accumulated amortization	(22,624)		(20,265)
	28,655		26,205
Internally developed software costs not meeting general release threshold	3,597		6,516
Trademarks, trade names (non-amortizable)	400		400
	$	32,652	$	33,121

The expected future amortization of intangible assets, assuming straight-line amortization of capitalized software development costs and acquisition related intangibles, excluding software costs not meeting the general release threshold, is as follows (in thousands):


2021, remaining	$	6,479
2022	7,321
2023	5,321
2024	3,360
2025	3,105
Thereafter	3,069
Total	$	28,655

The Company operates in two reporting segments, Restaurant/Retail and Government, which are also the Company's identified reporting units for purposes of evaluating goodwill impairment. The Company tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment of goodwill. Goodwill is assigned to a specific reporting unit at the date the goodwill is initially recorded; once assigned, goodwill no longer retains its association with a particular acquisition and all of the activities within the reporting unit, whether acquired organically or from a third-party, are available to support the value of the goodwill. The amount of goodwill carried by the Restaurant/Retail and Government segments remained at $41.2 million for both March 31, 2021 and December 31, 2020, respectively.

Note 6 — Debt

On April 15, 2019, the Company sold $80.0 million in aggregate principal amount of 4.500% Convertible Senior Notes due 2024 (the “2024 Notes”). The 2024 Notes were sold pursuant to an indenture, dated April 15, 2019, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “2024 Indenture”). The 2024 Notes pay interest at a rate equal to 4.500% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2019. Interest accrues on the 2024 Notes from the last date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from April 15, 2019. Unless earlier converted, redeemed or repurchased, the 2024 Notes mature on April 15, 2024.

On February 10, 2020, the Company sold $120.0 million in aggregate principal amount of 2.875% Convertible Senior Notes due 2026 (the “2026 Notes” and, together with the 2024 Notes, the “Notes”). The 2026 Notes were sold pursuant to an indenture, dated February 10, 2020 (the “2026 Indenture” and, together with the 2024 Indenture, the “Indentures”), between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee. The 2026 Notes pay interest at a rate equal to 2.875% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2020. Interest accrues on the 2026 Notes from the last date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from February 10, 2020. Unless earlier converted, redeemed or repurchased, the 2026 Notes mature on April 15, 2026.

The Company used approximately $66.3 million (excluding cash payments relating to accrued interest and fractional shares) from its sale of the 2026 Notes and issued 722,423 shares of common stock at $32.43 per share out of treasury stock with an average cost basis of $3.37 per share to repurchase approximately $66.3 million in aggregate principal amount of the 2024

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Notes through individually negotiated transactions. Of the total price paid for the 2024 Notes, $59.0 million was allocated to the 2024 Notes settlement, $30.8 million was allocated to the equity component, and $1.0 million was used to pay off accrued interest on the 2024 Notes. The consideration transferred was allocated to the liability and equity components of the 2024 Notes using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt instrument immediately prior to settlement. The transaction resulted in a loss on settlement of convertible notes of $8.1 million, which is recorded as a Loss on extinguishment of debt in the Company’s unaudited condensed consolidated statements of operations. The loss represents the difference between (i) the fair value of the liability component and (ii) the sum of the carrying value of the debt component and any unamortized debt issuance costs at the time of settlement.

The carrying amount of the liability component was calculated by estimating the fair value of similar notes that do not have associated convertible features. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the fair value amount of the Notes. The valuation model used in determining the fair value of the liability component for the Notes includes inputs, such as the implied debt yield within the nonconvertible borrowing rate. The implied estimated effective rate of the liability component of the 2024 Notes and 2026 Notes was 10.2% and 7.3%, respectively.

The Notes are senior, unsecured obligations of the Company. The 2024 Notes and the 2026 Notes are convertible, in whole or in part, at the option of the holder, upon the occurrence of specified events or certain fundamental changes set forth in the Indentures prior to the close of business on the business day immediately preceding October 15, 2023 and October 15, 2025, respectively; and, thereafter, at any time until the close of business on the second business day immediately preceding maturity. The 2024 Notes are convertible into Company common stock at an initial conversion rate of 35.0217 shares per $1,000 principal amount and the 2026 Notes are convertible into Company common stock at an initial conversion rate of 23.2722 shares per $1,000 principal amount. Upon conversion, the Company may elect to settle by paying or delivering either solely cash, shares of Company common stock or a combination of cash and shares of Company common stock.

In accordance with ASC Topic 470-20 Debt with Conversion and Other Options — Beneficial Conversion Features, the initial measurement of the 2024 Notes at fair value resulted in a liability of $62.4 million and as such, the calculated discount resulted in an implied value of the convertible feature recognized in Additional Paid in Capital of $17.6 million; and the initial measurement of the 2026 Notes at fair value resulted in a liability of $93.8 million and as such, the calculated discount resulted in an implied value of the convertible feature recognized in Additional Paid in Capital of $26.2 million. Issuance costs for the Notes amounted to $4.9 million and $4.2 million for the 2024 Notes and 2026 Notes, respectively. These costs were allocated to debt and equity components on a ratable basis. For the 2024 Notes this amounted to $3.8 million and $1.1 million to the debt and equity components, respectively. For the 2026 Notes this amounted to $3.3 million and $0.9 million to the debt and equity components, respectively.

The Indentures contain covenants that, among other things, restrict the Company’s ability to merge, consolidate or sell, or otherwise dispose of, substantially all of its assets and customary Events of Default (as defined in the Indentures).

As a result of the changes to the equity components of the Notes, the Company recognized a deferred income tax benefit of $5.4 million during the three months ended March 31, 2020.

The following table summarizes information about the net carrying amounts of the Notes as of March 31, 2021:


(in thousands)	2024 Notes		2026 Notes
Principal amount of notes outstanding	$	13,750	$	120,000
Unamortized discount (including unamortized debt issuance cost)	(2,447)		(24,984)
Total long-term portion of notes payable	$	11,303	$	95,016

The following table summarizes interest expense recognized on the Notes:


(in thousands)	Three months ended March 31,
	2021		2020
Contractual interest expense	$	(1,017)	$	(1,014)
Amortization of debt issuance costs and discount	(1,174)		(958)
Total interest expense	$	(2,191)	$	(1,972)

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The following table summarizes the future principal payments for the Notes as of March 31, 2021 (in thousands):


2021, remaining	$	—
2022	—
2023	—
2024	13,750
2025	—
Thereafter	120,000
Total	$	133,750

In connection with the acquisition of AccSys, LLC in December 2019, the Company entered into a $2.0 million subordinated promissory note. The note bears interest at 5.75% per annum, with monthly payments of principal and interest in the amount of $60,625 payable beginning January 15, 2020 through maturity on December 15, 2022. As of March 31, 2021, the outstanding balance of the subordinated promissory note was $1.2 million of which $0.7 million was in the current portion of long-term debt. The Company's future minimum principal payments are $0.5 million and $0.7 million for the remainder of 2021 and 2022, respectively.

Note 7 — Common Stock

On October 5, 2020, the Company completed an underwritten public offering (the “Secondary Offering”) of 3,350,000 shares of common stock at a price to the public of $38.00 per share, resulting in $121.8 million of proceeds, net of underwriting discounts and commissions and offering expenses payable by the Company. In connection with the Secondary Offering, the Company granted Jeffries LLC, the underwriter of the offering, a 30 day option to purchase up to an additional 502,500 shares of common stock at the same public offering price, less underwriting discounts and commissions. On November 3, 2020, Jeffries, LLC partially exercised its option and purchased 266,022 shares of common stock, resulting in an additional $9.6 million of proceeds, net of underwriting discounts and commissions and offering expenses payable by the Company.

Note 8 — Stock Based Compensation

Price	23.60	EPS	-1
Shares	16	P/E	-40
MCap	386	P/FCF	-40
Net Debt	13	EBIT	-10
TEV	399	TEV/EBIT	-42
TTM 2019-09-30, in MM, except price, ratios

10-Q	2021-03-31	Filed 2021-05-10
10-K	2020-12-31	Filed 2021-03-16
10-Q	2020-09-30	Filed 2020-11-06
10-Q	2020-06-30	Filed 2020-08-07
10-Q	2020-03-31	Filed 2020-05-11
10-K	2019-12-31	Filed 2020-03-16
10-Q	2019-09-30	Filed 2019-11-08
10-Q	2019-06-30	Filed 2019-08-07
10-Q	2019-03-31	Filed 2019-05-07
10-K	2018-12-31	Filed 2019-03-18
10-Q	2018-09-30	Filed 2018-11-09
10-Q	2018-06-30	Filed 2018-08-09
10-Q	2018-03-31	Filed 2018-05-10
10-Q	2017-09-30	Filed 2017-11-13
10-Q	2017-06-30	Filed 2017-08-14
10-Q	2017-03-31	Filed 2017-05-15
10-K	2016-12-31	Filed 2017-04-17
10-Q	2016-09-30	Filed 2016-11-14
10-Q	2016-06-30	Filed 2016-08-08
10-Q	2016-03-31	Filed 2016-05-11
10-K	2015-12-31	Filed 2016-03-30
10-Q	2015-09-30	Filed 2015-11-16
10-Q	2015-06-30	Filed 2015-08-14
10-Q	2015-03-31	Filed 2015-05-08
10-K	2014-12-31	Filed 2015-03-31
10-Q	2014-09-30	Filed 2014-11-14
10-Q	2014-06-30	Filed 2014-08-08
10-Q	2014-03-31	Filed 2014-05-07
10-K	2013-12-31	Filed 2014-03-14
10-Q	2013-09-30	Filed 2013-11-08
10-Q	2013-06-30	Filed 2013-08-08
10-Q	2013-03-31	Filed 2013-05-09
10-K	2012-12-31	Filed 2013-03-14
10-Q	2012-09-30	Filed 2012-11-13
10-Q	2012-06-30	Filed 2012-08-14
10-Q	2012-03-31	Filed 2012-05-15
10-K	2011-12-31	Filed 2012-04-04
10-Q	2011-09-30	Filed 2011-11-10
10-Q	2011-06-30	Filed 2011-08-22
10-Q	2011-03-31	Filed 2011-05-16
10-K	2010-12-31	Filed 2011-03-16
10-Q	2010-09-30	Filed 2010-11-10
10-Q	2010-06-30	Filed 2010-08-09
10-Q	2010-03-31	Filed 2010-05-10
10-K	2009-12-31	Filed 2010-03-16

8-K	2020-11-06
8-K	2020-09-30
8-K	2020-09-30
8-K	2020-08-07
8-K	2020-07-06
8-K	2020-06-04
8-K	2020-05-07
8-K	2020-03-29
8-K	2020-03-19
8-K	2020-03-12
8-K	2020-03-06
8-K	2020-02-27
8-K	2020-02-10
8-K	2020-02-05
8-K	2020-02-04
8-K	2019-12-18
8-K	2019-11-07
8-K	2019-09-30
8-K	2019-09-04
8-K	2019-08-06
8-K	2019-06-13
8-K	2019-05-06
8-K	2019-04-15
8-K	2019-04-09
8-K	2019-03-22
8-K	2019-03-14
8-K	2019-03-11
8-K	2019-03-04
8-K	2019-01-14
8-K	2018-12-06
8-K	2018-11-07
8-K	2018-08-08
8-K	2018-06-13
8-K	2018-06-05
8-K	2018-05-09
8-K	2018-04-12
8-K	2018-03-15
8-K	2018-03-08
8-K	2018-01-25

EX-31.1	exhibit3112021q1.htm
EX-31.2	exhibit3122021q1.htm
EX-32.1	exhibit3212021q1.htm
EX-32.2	exhibit3222021q1.htm

PAR 10Q Quarterly Report

Par Technology Earnings 2021-03-31