Par Technology Earnings 2020-09-30

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

par-20200930

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 September 30, 2020

☐ 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	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 November 1, 2020, 21,616,748 shares of the registrant’s common stock, $0.02 par value, were outstanding.

PAR TECHNOLOGY CORPORATION

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION


Item Number		Page

Item 1.	Financial Statements (unaudited)	2

	Condensed Consolidated Balance Sheets at September 30. 2020 and December 31, 2019 (unaudited)	2

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and September 30, 2019 (unaudited)	3

	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and September 30, 2019 (unaudited)	4

	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, 2020 and September 30, 2019 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and September 30, 2019 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use Of Proceeds	31

Item 6.	Exhibits	33

Signatures		34

"PAR," "Brink POS®," "PixelPoint®," "PAR EverServ®," "Restaurant Magic®", and "Data Central®" are trademarks of PAR Technology Corporation. This report may also contain trade names and trademarks of other companies. Our use 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 September 30, 2020 ("Quarterly Report") contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), Section 27A of the Securities Act of 1933, as amended ("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, 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, and are based on 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 the 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; business continuity risks due to our work-from-home arrangements and travel restrictions, 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 execute our business and growth strategies; the impact on our corporate culture and ability to attract, hire and retain necessary qualified employees to develop and expand our business; and the 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 continue to 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 below in this Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report, and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission ("SEC") on March 16, 2020, 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.

PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements (unaudited)

PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and per share amounts)



Assets	September 30, 2020		December 31, 2019
Current assets:
Cash and cash equivalents	$	55,755	$	28,036
Accounts receivable – net	40,106		41,774
Inventories – net	27,113		19,326

Other current assets	3,438		4,427
Total current assets	126,412		93,563
Property, plant and equipment – net	13,810		14,351
Goodwill	41,214		41,386
Intangible assets – net	34,247		32,948
Lease right-of-use assets	2,351		3,017
Other assets	3,767		4,347
Total Assets	$	221,801	$	189,612
Liabilities and Shareholders’ Equity
Current liabilities:

Current portion of long-term debt	$	657	$	630
Accounts payable	16,372		16,385
Accrued salaries and benefits	9,730		7,769
Accrued expenses	2,549		3,176
Lease liabilities - current portion	1,132		2,060
Customer deposits and deferred service revenue	11,067		12,084


Total current liabilities	41,507		42,104
Lease liabilities - net of current portion	1,300		1,021
Deferred service revenue – non current	1,646		3,916
Long-term debt	104,867		62,414
Other long-term liabilities	5,706		7,310
Total liabilities	155,026		116,765
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, $.02 par value, 1,000,000 shares authorized	—		—
Common stock, $.02 par value, 58,000,000 and 29,000,000 shares authorized, 19,315,272 and 18,360,205 shares issued, 18,263,416 and 16,629,177 outstanding at September 30, 2020 and December 31, 2019, respectively	386		367
Additional paid in capital	109,772		94,372
Accumulated deficit	(33,741)		(10,144)
Accumulated other comprehensive loss	(5,059)		(5,368)
Treasury stock, at cost, 1,051,856 shares and 1,731,028 shares at September 30, 2020 and December 31, 2019, respectively	(4,583)		(6,380)
Total shareholders’ equity	66,775		72,847
Total Liabilities and Shareholders’ Equity	$	221,801	$	189,612

See accompanying notes to unaudited interim condensed consolidated financial statements

PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019			2020		2019
Net revenues:
Product	$	20,470	$	15,904		$	51,437	$	46,149
Service	16,877		13,937			50,952		41,514
Contract	17,500		15,539			52,881		46,646
	54,847		45,380			155,270		134,309
Costs of sales:
Product	15,995		12,259			40,882		34,912
Service	11,252		9,482			33,810		29,868
Contract	15,929		14,643			48,781		42,679
	43,176		36,384			123,473		107,459
Gross margin	11,671		8,996			31,797		26,850
Operating expenses:
Selling, general and administrative	10,512		9,539			31,988		27,162
Research and development	4,210		3,448			13,613		9,233
Amortization of identifiable intangible assets	257		—			677		—
Adjustment to contingent consideration liability	(2,310)		—			(2,310)		—
	12,669		12,987			43,968		36,395
Operating loss	(998)		(3,991)			(12,171)		(9,545)
Other expense, net	(486)		(401)			(1,250)		(1,205)
Interest expense, net	(2,235)		(1,588)			(6,318)		(2,978)
Loss on extinguishment of debt	—		—			(8,123)		—
Loss before benefit from income taxes	(3,719)		(5,980)			(27,862)		(13,728)
Benefit from income taxes	8		78			4,265		3,988



Net loss	$	(3,711)	$	(5,902)		$	(23,597)	$	(9,740)
Basic Earnings per Share:
Net loss	$	(0.20)	$	(0.36)		$	(1.30)	$	(0.61)
Diluted Earnings per Share:
Net loss	$	(0.20)	$	(0.36)		$	(1.30)	$	(0.61)
Weighted average shares outstanding:
Basic	18,250		16,300			18,145		16,086
Diluted	18,250		16,300			18,145		16,086

See accompanying notes to unaudited interim condensed consolidated financial statements

PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net loss	$	(3,711)	$	(5,902)	$	(23,597)	$	(9,740)
Other comprehensive (loss) income, net of applicable tax:
Foreign currency translation adjustments	(50)		(357)		309		(236)
Comprehensive loss	$	(3,761)	$	(6,259)	$	(23,288)	$	(9,976)

See accompanying notes to unaudited interim condensed consolidated financial statements

PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited, in thousands)


	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
Net loss	—	—		—		(10,910)		—		—	—		(10,910)
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
Balances at March 31, 2020	19,291	$	386	$	106,600	$	(21,054)	$	(5,167)	1,047	$	(4,469)	$	76,296
Net loss	—	—		—		(8,976)		—		—	—		(8,976)
Issuance of common stock upon the exercise of stock options	4	—		12		—		—		—	—		12
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock	—	—		(195)		—		—		3	192		(3)
Stock-based compensation	—	—		1,123		—		—		—	—		1,123
Foreign currency translation adjustments	—	—		—		—		158		—	—		158
Balances at June 30, 2020	19,295	$	386	$	107,540	$	(30,030)	$	(5,009)	1,050	$	(4,277)	$	68,610
Net loss	—	—		—		(3,711)		—		—	—		(3,711)
Issuance of common stock upon the exercise of stock options	20	—		394		—		—		—	—		394
Net issuance of restricted awards	—	—		833		—		—		—	—		833
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock	—	—		—		—		—		2	(306)		(306)
Stock-based compensation	—	—		1,005		—		—		—	—		1,005
Foreign currency translation adjustments	—	—		—		—		(50)		—	—		(50)
Balances at September 30, 2020	19,315	$	386	$	109,772	$	(33,741)	$	(5,059)	1,052	$	(4,583)	$	66,775

See accompanying notes to unaudited interim condensed consolidated financial statements

PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited, in thousands)


	Common Stock			Additional paid in capital		Retained Earnings (accumulated deficit)		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders’ Equity
	Shares	Amount								Shares	Amount
Balances at December 31, 2018	17,878	$	357	$	50,251	$	5,427	$	(4,253)	1,708	$	(5,836)	$	45,946

Net loss	—	—		—		(2,729)		—		—	—		(2,729)
Issuance of common stock upon the exercise of stock options	78	—		30		—		—		—	—		30
Stock-based compensation	—	—		248		—		—		—	—		248
Foreign currency translation adjustments	—	—		—		—		(10)		—	—		(10)
Balances at March 31, 2019	17,956	$	357	$	50,529	$	2,698	$	(4,263)	1,708	$	(5,836)	$	43,485
Net loss	—	—		—		(1,109)		—		—	—		(1,109)
Issuance of common stock upon the exercise of stock options	79	3		210		—		—		—	—		213
Stock-based compensation	—	—		602		—		—		—	—		602
Foreign currency translation adjustments	—	—		—		—		131		—	—		131
Convertible notes conversion discount (net of deferred taxes of $4.1 million and issuance costs of $1.1 million)	—	—		12,465		—		—		—	—		12,465
Balances at June 30, 2019	18,035	$	360	$	63,806	$	1,589	$	(4,132)	1,708	$	(5,836)	$	55,787
Net loss	—	—		—		(5,902)		—		—	—		(5,902)
Issuance of common stock upon the exercise of stock options	18	2		38		—		—		—	—		40
Stock-based compensation	—	—		988		—		—		—	—		988
Foreign currency translation adjustments	—	—		—		—		(357)		—	—		(357)
Balances at September 30, 2019	18,053	$	362	$	64,832	$	(4,313)	$	(4,489)	1,708	$	(5,836)	$	50,556

See accompanying notes to unaudited interim condensed consolidated financial statements

PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(23,597)	$	(9,740)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and accretion	10,152		4,993
Current expected credit losses	912		693
Provision for obsolete inventory	2,158		1,240
Stock-based compensation	3,217		1,838
Loss on debt extinguishment	8,123		—
Adjustment to contingent consideration liability	(2,310)		—
Deferred income tax	(4,372)		(4,065)
Changes in operating assets and liabilities:
Accounts receivable	756		(3,318)
Inventories	(9,945)		1,466
Other current assets	989		(1,934)
Other assets	597		158
Accounts payable	(655)		(3,715)
Accrued salaries and benefits	2,794		1,479
Accrued expenses	(627)		2,936
Customer deposits and deferred service revenue	(3,287)		1,107
Other long-term liabilities	706		(2,758)
Net cash used in operating activities	(14,389)		(9,620)
Cash flows from investing activities:
Acquisitions, net of cash acquired	—		(7,000)
Settlement of working capital for acquisitions	191		—
Capital expenditures	(692)		(2,352)
Capitalization of software costs	(6,369)		(2,283)
Net cash used in investing activities	(6,870)		(11,635)
Cash flows from financing activities:
Payments of long-term debt	(471)		—
Payment of contingent consideration	—		(2,550)
Payments of bank borrowings	—		(17,459)
Proceeds from bank borrowings	—		9,640
Payments for the extinguishment of notes payable	(66,250)		—
Proceeds from notes payable, net of issuance costs	115,786		75,039
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock	(829)		—
Proceeds from exercise of stock options	436		283
Net cash provided by financing activities	48,672		64,953
Effect of exchange rate changes on cash and cash equivalents	306		(236)
Net increase in cash and cash equivalents	27,719		43,462
Cash and cash equivalents at beginning of period	28,036		3,485
Cash and equivalents at end of period	$	55,755	$	46,947

See accompanying notes to unaudited interim condensed consolidated financial statements

PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended September 30,
	2020	2019
Supplemental disclosures of cash flow information:
Cash paid for interest	1,339	153
Income taxes, net of refunds	184	125
Capital expenditures recorded in accounts payable	295	—
Capitalized software recorded in accounts payable	347	—

See accompanying notes to unaudited interim condensed consolidated financial statements

PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements ("financial statements") of PAR Technology Corporation and its consolidated subsidiaries (collectively, the “Company”, “PAR”, "we", "us" or "our Company") have been prepared in accordance with U.S. generally accepted accounting principles (“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 our 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, 2019, filed with the SEC on March 16, 2020 ("2019 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 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 reporting segment provides point-of-sale (POS) software and hardware, back-office software, and integrated technical solutions to the restaurant and retail industries. The Government reporting 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.

Additionally, the Company has reclassified certain costs and expenses in the condensed consolidated statement of operations for the three and nine months ended September 30, 2019, amounting to $0.2 million and $0.7 million, respectively, from amortization of intangible assets to cost of service to conform to current period presentation. These reclassifications had no effect on previously reported total costs and operating expenses or net losses.

Use of Estimates

Preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our estimates are subject to uncertainties associated with the ongoing COVID-19 pandemic; the extent to which the COVID-19 pandemic will continue to 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.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date, based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The Company adopted ASU 2016-13 effective January 1, 2020, and the application of the standard had no material impact on the Company's financial statements for the three and nine months ended September 30, 2020.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which requires entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company adopted ASU 2017-04 effective January 1, 2020, and the application of the standard had no material impact on the Company's financial statements for the three and nine months ended September 30, 2020.

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the fair value measurement disclosures with the primary focus to improve effectiveness of disclosures in the notes to the financial statements that is most important to the users. ASU 2018-13 modifies the required disclosures related to the valuation techniques and inputs used, uncertainty in measurement, and changes in measurements applied. The Company adopted ASU 2018-13 effective January 1, 2020, and the application of the standard had no material impact on the Company's financial statements for the three and nine months ended September 30, 2020.

In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other (Topic 350) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 provides guidance on the measurement of costs for internal-use software during the design, development, and implementation stages for customers in a cloud hosting arrangement. ASU 2018-15 also requires the capitalized costs associated with the design, development and implementation of cloud hosted arrangements to be amortized over the term of the hosting arrangement. The Company adopted ASU 2018-15 effective January 1, 2020, and the application of the standard had no material impact on the Company's financial statements for the three and nine months ended September 30, 2020.

Recently Issued Accounting Pronouncements Not Yet Adopted

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. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact of this standard on its financial statements.

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 new standards discussed above, there were no other recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended September 30, 2020 that are of significance or potential significance to the Company, as compared to the recent accounting pronouncements described in the 2019 Annual Report.

Note 2 - Revenue Recognition

Our 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") 606: "Revenue from Contracts with Customers" requires us 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 non-distinct performance obligations, until the combined performance obligations are determined to be distinct and the combined performance obligation is then recognized as revenue over time or at a point in time depending on when control is transferred.

We evaluated the potential performance obligations within our Restaurant/Retail reporting segment and evaluated whether each performance obligation met the ASC 606 criteria to be considered distinct performance obligations. Revenue in the Restaurant/Retail reporting 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 reporting segment relating to SaaS, our hardware Advanced Exchange, 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. Our support services are stand-ready obligations that are provided over the life of the contract, generally 12 months. We offer installation services to our customers for hardware and software for which we primarily hire third-party contractors to install the equipment on our behalf. We pay third-party contractors installation service fees at mutually agreed rates. When third-party installers are used, we determine whether the nature of our performance obligations is to provide the specified goods or services ourselves (principal) or to arrange for a third-party to provide the goods or services (agent). In direct customer arrangements, we have discretion over our pricing; we are primarily responsible for providing a good or service; and we have inventory risk before the good or service is transferred to the customer. As a result, we have concluded that we are the principal in the arrangement and record installation revenue on a gross basis.

Our contracts typically require payment within 30 to 90 days from the shipping date or installation date. The primary method used to estimate stand-alone selling price, is by referring to the price that we charge for that good or service when we sell it separately under similar circumstances to similar customers. The Company determines stand-alone selling price as follows: hardware, software (on-premises and SaaS) and software activation (which is a one-time fee charged at the initial offering of software) 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, including Advanced Exchange, installation and maintenance; software upgrades; and professional services, including project management, is recognized by using an expected cost plus margin.

Our revenue in the Government reporting segment is generally recognized over time as control of products or services is generally transferred continuously to our customers. While revenue generated by the Government reporting segment is predominantly related to services, we do generate revenue from sales of materials, software, hardware, and maintenance. For the Government reporting segment, cost plus fixed fee contract portfolio revenue is recognized over time using costs incurred as of a determination date to measure progress toward satisfying our performance obligations. Incurred costs represent 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 various techniques to estimate total contract revenue and costs. For long-term fixed price contracts, we estimate the profit, as the difference between the total estimated revenue and expected costs to complete a contract, and recognize it 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; the cost and availability of materials; and the performance of subcontractors. Revenue and profit in future periods of contract performance are recognized using the same assumptions, adjusted for estimated costs to complete a contract. Once the services provided are determined to be distinct or not distinct, we evaluate how to allocate the transaction price. Generally, the Government reporting segment does not sell the same good or service to similar customers and the contract performance obligations are unique to each government contract. The performance obligations are typically not distinct; however, in cases where there are distinct performance obligations, the transaction price is allocated using the relative stand-alone selling price method, which is based upon the standalone selling price of each respective 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, we analyze whether our performance obligations in our Government contracts are satisfied over a period of time or at a point in time. In general, our 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.

We generally anticipate receipt of payment within 30 to 90 days from satisfaction of a performance obligation. None of our contracts as of December 31, 2019 or September 30, 2020 contained a significant financing component.

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 September 30, 2020 and September 30, 2019, respectively, for work that has not yet been performed. The activity of outstanding performance obligations as is relates to customer deposits and deferred service revenue is as follows:


(in thousands)	2020	2019
Beginning balance - January 1	16,000	14,258
Change in deferred revenue	(4,677)	828
Changes in customer deposits	1,390	(115)
Ending balance - September 30	12,713	14,971

In the Restaurant/Retail reporting segment most performance obligations over one year are related to service and support contracts, approximately 87% of which we expect to fulfill within one year and 100% within 60 months. At September 30, 2020 and December 31, 2019, transaction prices allocated to future performance obligations were $9.9 million and $10.9 million, respectively.

During the three months ended September 30, 2020 and September 30, 2019, we recognized revenue of $2.2 million and $2.1 million, respectively, which are included in contract liabilities at the beginning of each such period. During the nine months ended September 30, 2020 and September 30, 2019, we recognized revenue of $9.9 million and $8.6 million, respectively, which are included in contract liabilities at the beginning of the respective period.

The value of existing contracts in the Government reporting segment at September 30, 2020, net of amounts relating to work performed to that date, was approximately $162.5 million, of which $36.0 million was funded, and at December 31, 2019, net of amounts relating to work performed to that date, was approximately $148.7 million, of which $32.8 million was funded. The value of existing contracts, net of amounts relating to work performed at September 30, 2020 are expected to be recognized as revenue over time as follows (in thousands):


Next 12 Months	$	66,666
Months 13-24	43,361
Months 25-36	31,156
Thereafter	21,272
TOTAL	$	162,455

Disaggregated Revenue

The Company disaggregates revenue from customer contracts by major product group for each reporting segment. The Company believes this method best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Disaggregation of revenue for the three and nine months ended September 30, 2020 and September 30, 2019 is as follows:


(in thousands)	Three months ended September 30, 2020
	Restaurant/Retail - Point in Time		Restaurant/Retail - Over Time		Government - Over Time
Restaurant/Retail	$	29,739	$	7,608	$	—

Mission Systems	$	—	$	—	$	8,084
ISR Solutions	$	—	$	—	$	8,943
Product	$	—	$	—	$	473
TOTAL	$	29,739	$	7,608	$

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	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	exhibit3112020q3.htm
EX-31.2	exhibit3122020q3.htm
EX-32.1	exhibit3212020q3.htm
EX-32.2	exhibit3222020q3.htm

PAR 10Q Quarterly Report

Par Technology Earnings 2020-09-30