PAR TECHNOLOGY CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes thereto included under "Part II, Item 8. Financial Statements and Supplementary Data" of this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under our "Forward-looking statements" disclosure and "Part I, Item 1A. Risk Factors" above. Overview
We, through our wholly owned subsidiaries -
Our Restaurant/Retail segment provides leading technology platforms to the
restaurant and retail industries, with more than 500 customers and more than
70,000 active restaurant locations. We provide enterprise restaurants,
franchisees, and other restaurant outlets in the three major restaurant
categories - quick service, fast casual, and table service - with operational
efficiencies by offering them a more unified experience through our
comprehensive suite of subscription services, hardware, and integrated
professional services. Our subscription services, which consist of our SaaS
solutions, related software support, and transaction-based payment processing,
are grouped into three categories: Guest Engagement, which includes Punchh for
customer loyalty and engagement and MENU for omnichannel digital ordering and
delivery; Operator Solutions, which includes Brink POS for front-of-house and
PAR Pay and PAR Payment Services for payments; and Back Office, which includes
Data Central. Our solutions are extensible and built on open application
programming interfaces ("API") that retain flexibility and the market
optionality of an open platform. More than 400 partners leverage our open
platform to extend the reach and capabilities of their own solutions for the
leading brands in our industry.
Our Government segment provides technical expertise and development of advanced
systems and software solutions for the DoD , the intelligence community, and
other federal agencies. Additionally, we provide support services for satellite
command and control, communication, and IT mission systems at several DoD
facilities worldwide. The Government segment has three principal contract
offerings: Intelligence, Surveillance, and Reconnaissance solutions ("ISR
Solutions"), mission systems operations and maintenance ("Mission Systems"), and
licensed software products for use in analytic and operational environments that
leverage geospatial intelligence data ("Commercial Software ").
2022 Performance Highlights
•Annual Recurring Revenues ("ARR") grew to
•Active sites expansion •Guest Engagement active sites expanded to 69.9 thousand - a 24.6% increase from the 56.1 thousand reported for the year endedDecember 31, 2021 . •Operator Solutions active sites expanded to 19.5 thousand - a 22.6% increase from the 15.9 thousand reported for the year endedDecember 31, 2021 . •Back Office active sites expanded to 7.0 thousand - an 11.1% increase from the 6.3 thousand reported for the year endedDecember 31, 2021 . •Subscription service gross margin grew to 51.4% for the year endedDecember 31, 2022 - a 13.1% increase from 38.3% for the year endedDecember 31, 2021 . Adjusted subscription service gross margin grew to 73% for the year endedDecember 31, 2022 - a 7% increase from 66% for the year endedDecember 31, 2021 . Refer to "Gross Margin" discussion below for the reconciliation between subscription service gross margin and adjusted subscription service gross margin, a non-GAAP financial measure. Refer to "Key Performance Indicators and Non-GAAP Financial Measures" below for important information on key performance indicators and non-GAAP financial measures, including ARR, active sites, and adjusted subscription service gross margin, used by us to evaluate Restaurant/Retail segment performance. 26 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Results of operations for the years endedDecember 31, 2022 , 2021, and 2020 were as follows: Consolidated Results Year Ended December 31, Percentage of total revenue Increase (decrease) in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020 Net revenues: Hardware$ 114,410 $ 105,014 $ 73,228 32.2 % 37.1 % 34.3 % 8.9 % 43.4 % Subscription service 97,499 62,649 31,370 27.4 % 22.1 % 14.7 % 55.6 % 99.7 % Professional service 50,438 42,688 37,914 14.2 % 15.1 % 17.7 % 18.2 % 12.6 % Contract 93,448 72,525 71,274 26.3 % 25.6 % 33.3 % 28.8 % 1.8 % Total revenues, net$ 355,795 $ 282,876 $ 213,786 100.0 % 100.0 % 100.0 % 25.8 % 32.3 % Gross margin Hardware 22,186 24,173 14,341 6.2 % 8.5 % 6.7 % (8.2) % 68.6 % Subscription service 50,075 23,998 10,458 14.1 % 8.5 % 4.9 % 108.7 % 129.5 % Professional service 9,456 8,113 8,893 2.7 % 2.9 % 4.2 % 16.6 % (8.8) % Contract 7,576 5,837 5,633 2.1 % 2.1 % 2.6 % 29.8 % 3.6 % Total gross margin 89,293 62,121 39,325 25.1 % 22.0 % 18.4 % 43.7 % 58.0 % Operating expenses: Selling, general and administrative 101,219 83,998 46,196 28.4 % 29.7 % 21.6 % 20.5 % 81.8 % Research and development 48,643 34,579 19,252 13.7 % 12.2 % 9.0 % 40.7 % 79.6 % Amortization of identifiable intangible assets 1,863 1,825 1,163 0.5 % 0.6 % 0.5 % 2.1 % 56.9 % Adjustment to contingent consideration liability (4,400) - (3,340) (1.2) % - % (1.6) % N/A (100.0) % Gain on insurance proceeds - (4,400) - - % (1.6) % - % (100.0) % N/A Total operating expenses 147,325 116,002 63,271 41.4 % 41.0 % 29.6 % 27.0 % 83.3 % Operating loss (58,032) (53,881) (23,946) (16.3) % (19.0) % (11.2) % 7.7 % 125.0 % Other (expense) income, net (1,224) (1,279) 808 (0.3) % (0.5) % 0.4 % (4.3) % <(200)% Loss on extinguishment of debt - (11,916) (8,123) - % (4.2) % (3.8) % (100.0) % 46.7 % Interest expense, net (8,811) (18,147) (8,287) (2.5) % (6.4) % (3.9) % (51.4) % 119.0 % Loss before benefit from income taxes (68,067) (85,223) (39,548) (19.1) % (30.1) % (18.5) % (20.1) % 115.5 % (Provision for) benefit from income taxes (1,252) 9,424 2,986 (0.4) % 3.3 % 1.4 % (113.3) % >200 % Net loss$ (69,319) $ (75,799) $ (36,562) (19.5) % (26.8) % (17.1) % (8.5) % 107.3 % Beginning with this Annual Report, we retroactively split our "Service" financial statement line items ("FSLIs") into two FSLIs, "Subscription Service" and "Professional Service" and our "Product" FSLIs were renamed to "Hardware". Refer to "FN1 - Basis of Presentation, Revenue and Cost of Sales Presentation Changes" within "Item 8. Financial Statements and Supplementary Data" for additional information.
Segment Revenue by Product Line as Percentage of Total Revenue
Year Ended
December 31, Percentage of total revenue Increase (decrease)
In thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020
Hardware $ 114,410 $ 105,014 $ 73,228 32.2 % 37.1 % 34.3 % 8.9 % 43.4 %
Subscription service 97,499 62,649 31,370 27.4 % 22.1 % 14.7 % 55.6 % 99.7 %
Professional service 50,438 42,688 37,914 14.2 % 15.1 % 17.7 % 18.2 % 12.6 %
Total Restaurant /Retail $ 262,347 $ 210,351 $ 142,512 73.7 % 74.4 % 66.7 % 24.7 % 47.6 %
Mission systems 35,458 38,311 37,448 10.0 % 13.5 % 17.5 % (7.4) % 2.3 %
ISR 56,141 33,188 32,947 15.8 % 11.7 % 15.4 % 69.2 % 0.7 %
Commercial software 1,849 1,026 879 0.5 % 0.4 % 0.4 % 80.2 % 16.7 %
Total Government $ 93,448 $ 72,525 $ 71,274 26.3 % 25.6 % 33.3 % 28.8 % 1.8 %
Total revenue $ 355,795 $ 282,876 $ 213,786 100.0 % 100.0 % 100.0 % 25.8 % 32.3 %
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Revenues, Net
Year Ended Percentage of
December 31, total revenue Increase (decrease)
in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020 Revenues, net: Hardware$ 114,410 $ 105,014 $ 73,228 32.2 % 37.1 % 34.3 % 8.9 % 43.4 % Subscription service 97,499 62,649 31,370 27.4 % 22.1 % 14.7 % 55.6 % 99.7 % Professional service 50,438 42,688 37,914 14.2 % 15.1 % 17.7 % 18.2 % 12.6 % Contract 93,448 72,525 71,274 26.3 % 25.6 % 33.3 % 28.8 % 1.8 % Total revenues, net$ 355,795 $ 282,876 $ 213,786 100.0 % 100.0 % 100.0 % 25.8 % 32.3 %
For the Year Ended
Total revenues were
Hardware revenues were$114.4 million for the year endedDecember 31, 2022 , an increase of$9.4 million or 8.9% compared to$105.0 million for the year endedDecember 31, 2021 . The increase was substantially driven by increases in hardware revenues from kitchen display systems of$4.9 million , other hardware (mobile, terminals, kiosk, drive-thru, peripherals) of$2.4 million , and payment devices of$2.1 million , all substantially driven by an increase in sales volume. Subscription service revenues were$97.5 million for the year endedDecember 31, 2022 , an increase of$34.9 million or 55.6% compared to$62.6 million for the year endedDecember 31, 2021 . The increase was substantially driven by increased subscription service revenues from our Guest Engagement services of$24.6 million and Operator Solutions services of$10.3 million , both substantially driven by an increase in active sites with the exception of approximately$8.7 million of the increase attributable to Guest Engagement, which was driven by the year endedDecember 31, 2021 , only including nine months of post-acquisition Punchh revenues compared to the full twelve months of revenue in the year endedDecember 31, 2022 . Professional service revenues were$50.4 million for the year endedDecember 31, 2022 , an increase of$7.8 million or 18.2% compared to$42.7 million for the year endedDecember 31, 2021 . The increase was substantially driven by growth in our hardware repair services. Contract revenues were$93.4 million for the year endedDecember 31, 2022 , an increase of$20.9 million or 28.8% compared to$72.5 million for the year endedDecember 31, 2021 . The increase was substantially driven by the Government segment's ISR Solutions product line revenues due to task orders resulting from the Air Force Research Laboratory Counter-small Unmanned Aircraft System contract awarded in 2021.
For the Year Ended
Total revenues were
Hardware revenues were$105.0 million for the year endedDecember 31, 2021 , an increase of$31.8 million or 43.4% compared to$73.2 million for the year endedDecember 31, 2020 . The increase was driven by continued growth in hardware refresh purchases by some of our legacy Tier 1 customers (in part from 2020 delayed hardware refresh due to COVID-19) and hardware revenue associated with our rollout of Brink POS to new customers. These hardware refreshes included$15.2 million of growth in terminals,$12.1 million of growth in kitchen display systems and$4.5 million in growth for other hardware (mobile, kiosk, drive-thru). 28 -------------------------------------------------------------------------------- Table of Contents Subscription service revenues were$62.6 million for the year endedDecember 31, 2021 , an increase of$31.3 million or 99.7% compared to$31.4 million for the year endedDecember 31, 2020 . The increase was substantially driven by increased subscription service revenues from Punchh of$26.3 million , which was driven by the year endedDecember 31, 2021 , including nine months of post-acquisition revenues, and other subscription services (Brink POS and Data Central) of$5.1 million , which was driven by an increase in active sites. Professional service revenues were$42.7 million for the year endedDecember 31, 2021 , an increase of$4.8 million or 12.6% compared to$37.9 million for the year endedDecember 31, 2020 . The increase was substantially driven by increases in hardware repair services of$2.5 million and other professional services of$2.3 million . Contract revenues were$72.5 million for the year endedDecember 31, 2021 , an increase of$1.3 million or 1.8% compared to$71.3 million for the year endedDecember 31, 2020 . The increase was substantially driven by the Government segment's ISR Solutions product line revenues. Gross Margin Year Ended December 31, Gross Margin Percentage Increase (decrease) in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020 Gross margin Hardware$ 22,186 $ 24,173 $ 14,341 19.4 % 23.0 % 19.6 % (8.2) % 68.6 % Subscription service 50,075 23,998 10,458 51.4 % 38.3 % 33.3 % 108.7 % 129.5 % Professional service 9,456 8,113 8,893 18.7 % 19.0 % 23.5 % 16.6 % (8.8) % Contract 7,576 5,837 5,633 8.1 % 8.0 % 7.9 % 29.8 % 3.6 % Total gross margin$ 89,293 $ 62,121 $ 39,325 25.1 % 22.0 % 18.4 % 43.7 % 58.0 %
For the Year Ended
Total gross margin as a percentage of total revenue for the year ended
Hardware margin as a percentage of hardware revenue for the year endedDecember 31, 2022 , decreased to 19.4% as compared to 23.0% for the year endedDecember 31, 2021 . The decrease in margin was substantially driven by excess and obsolescent inventory charges due to managing higher inventory levels to mitigate supply risks. Subscription service margin as a percentage of subscription service revenue for the year endedDecember 31, 2022 , increased to 51.4% as compared to 38.3% for the year endedDecember 31, 2021 . The increase was substantially driven by a continued focus on efficiency improvements with our hosting and customer support costs. Subscription service margin during the year endedDecember 31, 2022 included$21.4 million of amortization of acquired and internally developed technology compared to$17.1 million of amortization of acquired and internally developed technology during the year endedDecember 31, 2021 . Excluding the amortization of acquired and internally developed technology, adjusted subscription service gross margin was 73% compared to 66% for the years endedDecember 31, 2022 and 2021, respectively (refer to "Non-GAAP Financial Measures" below for important information regarding adjusted subscription service gross margin, a non-GAAP financial measure). Professional service margin as a percentage of professional service revenue for the year endedDecember 31, 2022 , was relatively unchanged at 18.7% as compared to 19.0% for the year endedDecember 31, 2021 .
Contract margin as a percentage of contract revenue for the year ended
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For the Year Ended December 31, 2021 Compared to the Year Ended December 31,
2020 Total gross margin as a percentage of revenue for the year ended
Hardware margin as a percentage of hardware revenue for the year endedDecember 31, 2021 , increased to 23.0% compared to 19.6% for the year endedDecember 31, 2020 . The increase in margin was substantially due to favorable product mix and favorable absorption of overhead costs due to a general increase in hardware sales. The favorable impact from absorption was partially offset by higher product and component costs from the inflationary impact of COVID-19 to the overall economy. We implemented hardware price increases at the end of the second quarter of 2021 to mitigate the impact of increased product and component costs. Subscription service margin as a percentage of subscription service revenue for the year endedDecember 31, 2021 , increased to 38.3% compared to 33.3% for the year endedDecember 31, 2020 . The increase was substantially driven by a favorable product mix and cost improvement initiatives with hosting costs and customer support service. Subscription service margin during the year endedDecember 31, 2021 , included$17.1 million of amortization of acquired and internally developed technology compared to$6.3 million of amortization of acquired and internally developed technology during the year endedDecember 31, 2020 . Excluding the amortization of acquired and internally developed technology, adjusted subscription service gross margin was 66% compared to 53% for the years endedDecember 31, 2021 and 2020, respectively (refer to "Non-GAAP Financial Measures" below for important information regarding adjusted subscription service gross margin, a non-GAAP financial measure). Professional service margin as a percentage of professional service revenue for the year endedDecember 31, 2021 , decreased to 19.0% compared to 23.5% for the year endedDecember 31, 2020 . The decrease was substantially driven by a decrease in our hardware repair margins.
Contract margin as a percentage of contract revenue for the year ended
Selling, General and Administrative Expenses ("SG&A")
Year Ended
December 31, Percentage of total revenue Increase (decrease)
in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020
Selling, general and
administrative $ 101,219 $ 83,998 $ 46,196 28.4 % 29.7 % 21.6 % 20.5 % 81.8 %
For the Year Ended
SG&A expenses were$101.2 million for the year endedDecember 31, 2022 , an increase of$17.2 million or 20.5% compared to$84.0 million for the year endedDecember 31, 2021 . The increase was substantially driven by increases in sales and marketing expense of$6.6 million and internal technology infrastructure costs of$4.1 million , both substantially driven by an increase in purchased services and higher compensation costs associated with additional personnel as we continue to support the growth of our business. The residual increase of$6.1 million was driven by increases of$3.7 million due to the year endedDecember 31, 2021 , only including nine months of post-acquisition Punchh SG&A expenses compared to the full twelve months in the year endedDecember 31, 2022 , and$2.4 million due to the year endedDecember 31, 2022 , including five months of post-acquisition MENU SG&A expenses.
For the Year Ended
SG&A expenses were$84.0 million for the year endedDecember 31, 2021 , an increase of$37.8 million or 81.8% compared to$46.2 million for the year endedDecember 31, 2020 . The increase was substantially driven by$19.3 million of expenses excluding stock-based compensation incurred in the acquisition ofPunchh, Inc. ("Punchh") inApril 2021 (the "Punchh Acquisition"). Other drivers were increases in stock-based compensation of$10.4 million of which$8.7 million was related to the Punchh Acquisition,$4.3 million in corporate expenses,$2.3 million in internal technology infrastructure costs, and$1.5 million for sales and marketing expenses. 30
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Research and Development Expenses
Year Ended
December 31, Percentage of total revenue Increase (decrease)
in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020
Research and development $ 48,643 $ 34,579 $ 19,252 13.7 % 12.2 % 9.0 % 40.7 % 79.6 %
For the Year Ended
R&D expenses were$48.6 million for the year endedDecember 31, 2022 , an increase of$14.1 million or 40.7% compared to$34.6 million for the year endedDecember 31, 2021 . The increase was substantially driven by increases in R&D expense related to our offerings for Guest Engagement of$8.2 million , hardware of$2.5 million , and Operator Solutions of$2.2 million , all substantially driven by higher compensation costs associated with additional personnel as we continue to improve and diversify our product and service offerings. The residual increase of$1.3 million is driven by an impairment loss for the year endedDecember 31, 2022 , related to the impairment of internally developed software costs not meeting the general release threshold as a result of acquiring go-to-market software in the MENU Acquisition. Of the$8.2 million increase related to Guest Engagement,$3.0 million was driven by the year endedDecember 31, 2021 , only including nine months of post-acquisition Punchh R&D expenses compared to the full twelve months in the year endedDecember 31, 2022 , and$2.3 million was driven by the year endedDecember 31, 2022 , including five months of post-acquisition MENU R&D expenses.
For the Year Ended
R&D expenses were$34.6 million for the year endedDecember 31, 2021 , an increase of$15.3 million or 79.6% compared to$19.3 million for the year endedDecember 31, 2020 . Primary drivers of the increase include$9.1 million for R&D expense related to Punchh,$4.7 million related to additional investments in our existing software product development, and$1.5 million for product management.
Other Operating Expenses: Amortization of Intangible Assets / Contingent Consideration / Insurance Proceeds
Year Ended
December 31, Percentage of total revenue Increase (decrease)
in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020
Amortization of identifiable
intangible assets $ 1,863 $ 1,825 $ 1,163 0.5 % 0.6 % 0.5 % 2.1 % 56.9 %
Adjustment to contingent
consideration liability (4,400) - (3,340) (1.2) % - % (1.6) % N/A (100.0) %
Gain on insurance proceeds $ - $ (4,400) $ - - % (1.6) % - % (100.0) % N/A
For the Year Ended
Amortization of identifiable intangible assets was$1.9 million for the year endedDecember 31, 2022 , which remained relatively unchanged as compared to$1.8 million for the year endedDecember 31, 2021 . Included in operating expenses for the year endedDecember 31, 2022 was a$4.4 million reduction to the fair value of the contingent consideration liability for certain post-closing revenue focused milestones from the MENU Acquisition. There was no comparable reduction to expense for the year endedDecember 31, 2021 .
Gain on insurance proceeds was
For the Year Ended
Amortization of identifiable intangible assets was$1.8 million for the year endedDecember 31, 2021 , an increase of$0.7 million or 56.9% compared to$1.2 million for the year endedDecember 31, 2020 . The increase was driven by intangible assets from the Punchh Acquisition. 31
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Included in operating expense for the year endedDecember 31, 2020 was a$3.3 million reduction to the fair value of the contingent consideration liability for certain post-closing revenue focused milestones from the acquisition ofAccSys, LLC ("Data Central") inDecember 2019 (the "Data Central Acquisition"). There was no comparable reduction to expense for the year endedDecember 31, 2021 .
Gain on insurance proceeds was
Other (Expense) Income, Net
Year Ended
December 31, Percentage of total revenue Increase (decrease)
in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020
Other (expense) income, net $ (1,224) $ (1,279) $ 808 (0.3) % (0.5) % 0.4 % (4.3) % <(200)%
For the Year Ended
Other (expense) income, net was($1.2) million for the year endedDecember 31, 2022 , which remained relatively unchanged as compared to($1.3) million for the year endedDecember 31, 2021 . Other (expense) income, net substantially includes rental income, net of applicable expenses, foreign currency transactions gains and losses and other non-operating income (expense).
For the Year Ended
Other (expense) income, net was($1.3) million for the year endedDecember 31, 2021 , a change of$(2.1) million compared to$0.8 million for the year endedDecember 31, 2020 . Other (expense) income, net substantially includes rental income, net of applicable expenses, foreign currency transactions gains and losses and other non-operating income/expenses. The change was substantially driven by sales and use tax expense and other miscellaneous expenses.
Interest Expense, Net
Year Ended
December 31, Percentage of total revenue Increase (decrease)
in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020
Interest expense, net $ (8,811) $ (18,147) $ (8,287) (2.5) % (6.4) % (3.9) % (51.4) % 119.0 %
For the Year Ended
Interest expense, net was$8.8 million for the year endedDecember 31, 2022 , a decrease of$9.3 million or 51.4% as compared to$18.1 million for the year endedDecember 31, 2021 . The decrease was substantially driven by a$6.9 million reduction of accretion resulting from ourJanuary 1, 2022 adoption of ASU 2020-06 and a$1.0 million reduction of accretion resulting from the extinguishment of our$180.0 million term loan ("Owl Rock Term Loan") inSeptember 2021 . Prior to adoption of ASU 2020-06, accounting for the convertible feature of our Senior Notes was presented within equity, resulting in non-cash accretion over the life of the respective Senior Notes of an implied debt discount; this accretion was presented within interest expense. As a result of adoption, the accounting for our Senior Notes is no longer bifurcated between debt and equity (refer to "Note 1 - Basis of Presentation" of the notes to consolidated financial statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Annual Report for additional information).
For the Year Ended
Interest expense, net was$18.1 million for the year endedDecember 31, 2021 , an increase of$9.9 million or 119.0% compared to$8.3 million for the year endedDecember 31, 2020 . This increase was substantially driven by the payment of additional interest with respect to the Owl Rock Term Loan and the 2027 Notes. Interest expense, 32 -------------------------------------------------------------------------------- Table of Contents net includes$8.7 million of non-cash accretion of debt discount and amortization of issuance costs for the year endedDecember 31, 2021 compared with$4.4 million for the year endedDecember 31, 2020 .
Loss on Extinguishment of Debt
Year Ended
December 31, Percentage of total revenue Increase (decrease)
in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020
Loss on extinguishment of debt $ - $ (11,916) $ (8,123) - % (4.2) % (3.8) % (100.0) % 46.7 %
For the Year Ended
Loss on extinguishment of debt was
For the Year Ended
Loss on extinguishment of debt was$11.9 million for the year endedDecember 31, 2021 , related to the repayment of the Owl Rock Term Loan as compared to$8.1 million for the year endedDecember 31, 2020 , related to the partial repurchase of the 2024 Notes. Taxes Year Ended December 31, Percentage of total revenue Increase (decrease) in thousands 2022 2021 2020 2022 2021 2020 2022 vs 2021 2021 vs 2020 (Provision for) benefit from income taxes$ (1,252) $ 9,424 $ 2,986 (0.4) % 3.3 % 1.4 % (113.3) % >200 %
For the Year Ended
The provision for income taxes of$1.3 million for the year endedDecember 31, 2022 was substantially due to foreign jurisdiction tax obligations. The benefit from income taxes of$9.4 million for the year endedDecember 31, 2021 was substantially due to a decrease of the Company's deferred tax valuation allowance which resulted from the establishment of deferred tax liabilities related to the Punchh Acquisition.
For the Year Ended
The net tax benefit of$9.4 million for the year endedDecember 31, 2021 was substantially due to a decrease of the Company's deferred tax valuation allowance which resulted from the establishment of deferred tax liabilities related to the Punchh Acquisition. The net tax benefit of$9.4 million for the year endedDecember 31, 2021 was driven by the$3.3 million deferred tax benefit impact of the 2026 Notes issuance inFebruary 2020 .
Key Performance Indicators and Non-GAAP Financial Measures:
We monitor certain key performance indicators and non-GAAP financial measures in
the evaluation and management of our business; certain key performance
indicators and non-GAAP financial measures are provided in this Annual Report as
we believe they are useful in facilitating period-to-period comparisons of our
business performance. Key performance indicators and non-GAAP financial measures
do not reflect and should be viewed independently of our financial performance
determined in accordance with GAAP. Key performance indicators and non-GAAP
financial measures are not forecasts or indicators of future or expected results
and should not have undue reliance placed upon them by investors.
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Key Performance Indicators
Within this Annual Report, the Company makes reference to annual recurring
revenue ("ARR") and active sites, which are both key performance indicators. The
Company utilizes ARR and active sites as key performance indicators of the scale
of our subscription services for both new and existing customers.
ARR is the annualized revenue from our subscription services, which includes
subscription fees for our SaaS solutions, related support, and transaction-based
fees for payment processing services. We calculate ARR by annualizing the
monthly recurring revenue for all active sites as of the last day of each month
for the respective reporting period. ARR is an operating measure, does not
reflect our revenue determined in accordance with GAAP, and should be viewed
independently of, and not combined with or substituted for, our revenue and
other financial information determined in accordance with GAAP. Further, ARR is
not a forecast of future revenue and investors should not place undue reliance
on ARR as an indicator of our future or expected results.
Active sites represent locations active on our subscription services as of the last day of the respective reporting period.
Our key performance indicators ARR and active sites are organized in alignment with our three subscription service categories: Guest Engagement (Punchh and MENU), Operator Solutions (Brink POS, PAR Pay, and PAR Payment Services), and Back Office (Data Central).
Annual Recurring Revenue ("ARR")
Year Ended December 31, Increase (decrease)
In thousands 2022 2021 2020 2022 vs 2021 2021 vs 2020
Guest Engagement* $ 58,933 $ 46,686 $ - 26.2 % N/A
Operator Solutions 41,614 32,120 24,705 29.6 % 30.0 %
Back Office 10,896 9,390 8,755 16.0 % 7.3 %
Total $ 111,443 $ 88,196 $ 33,460 26.4 % 163.6 %
*Guest Engagement ARR includes MENU ARR only in the year ended December 31, 2022
Active Sites
Year Ended December 31, Increase (decrease)
In thousands 2022 2021 2020 2022 vs 2021 2021 vs 2020
Guest Engagement* 69.9 56.1 - 24.6 % N/A
Operator Solutions 19.5 15.9 11.7 22.6 % 35.9 %
Back Office 7.0 6.3 5.9 11.1 % 6.8 %
*Guest Engagement active sites includes MENU active sites only in the year ended
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Non-GAAP Financial Measures
Within this Annual Report, the Company makes reference to adjusted subscription
service gross margin, EBITDA, adjusted EBITDA, adjusted net loss, and adjusted
diluted net loss per share which are non-GAAP financial measures. Adjusted
subscription service gross margin represents subscription service gross margin
adjusted to exclude amortization from acquired and internally developed
software. EBITDA represents net loss before income taxes, interest expense and
depreciation and amortization. Adjusted EBITDA represents EBITDA as adjusted to
exclude certain non-cash and non-recurring charges, including stock-based
compensation, acquisition expenses, certain pending litigation expenses and
other non-recurring charges that may not be indicative of our financial
performance. Adjusted net loss/adjusted diluted net loss per share represents
net loss and net loss per share excluding amortization of acquired intangible
assets, certain non-cash and non-recurring charges, including stock-based
compensation, acquisition expense, certain pending litigation expenses and other
non-recurring charges that may not be indicative of our financial performance.
The Company is presenting adjusted subscription service gross margin, adjusted
EBITDA and adjusted net loss because we believe that these financial measures
provide supplemental information that may be useful to investors in evaluating
the Company's core business operating results and comparing such results to
other similar companies. Management believes that adjusted subscription service
gross margin, EBITDA, adjusted EBITDA, adjusted net loss, and adjusted diluted
net loss per share, when viewed with the Company's results of operations in
accordance with GAAP and the reconciliations to the most directly comparable
GAAP measures provided in the tables below (refer to "Gross margin" discussion
above for a reconciliation of subscription service gross margin to adjusted
subscription service gross margin), provide useful information about operating
performance and period-over-period growth, and provide additional information
that is useful for evaluating the operating performance of the Company's core
business without regard to potential distortions. Management additionally
believes that adjusted EBITDA permits investors to gain an understanding of the
factors and trends affecting its ongoing cash earnings, from which capital
investments are made and debt is serviced.
The Company's results of operations are impacted by certain non-cash and
non-recurring charges, including stock-based compensation, acquisition related
expenditures, and other non-recurring charges that may not be indicative of the
Company's on-going or long-term financial performance. Management believes that
adjusting its net loss and diluted loss per share to remove non-recurring
charges provides a useful perspective with respect to the Company's results of
operations and provides supplemental information to both management and
investors by removing items that are difficult to predict and are often
unanticipated.
Adjusted subscription service gross margin, EBITDA, adjusted EBITDA, adjusted
net loss, and adjusted diluted net loss per share are not measures of financial
performance under GAAP and should not be considered as alternatives to
subscription service gross margin or net income (loss) as indicators of
operating performance. Additionally, these measures may not be comparable to
similarly titled measures disclosed by other companies. The tables below provide
reconciliations between net loss and EBITDA, adjusted EBITDA, and adjusted net
loss, as well as between diluted net loss per share and adjusted diluted net
loss per share.
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Year Ended
December 31,
in thousands 2022 2021 2020Reconciliation of Net Loss to EBITDA and Adjusted EBITDA Net loss
$ (69,319) $ (75,799) $ (36,562) Provision for (benefit from) income taxes 1,252 (9,424) (2,986) Interest expense 8,811 18,147 8,287 Depreciation and amortization 26,095 21,421 10,097 EBITDA$ (33,161) $ (45,655) $ (21,164) Stock-based compensation expense (1) 13,426 14,615 4,251 Regulatory matters (2) 415 50 126 Contingent consideration (3) (4,400) - (3,340) Litigation expense (4) 525 790 - Acquisition costs (5) 1,300 3,612 - Gain on insurance proceeds (6) - (4,400) - Severance (7) 525 - 359 Loss on extinguishment of debt (8) - 11,916 8,123 Impairment loss (9) 1,301 - - Other expense - net (10) 1,224 1,279 (808) Adjusted EBITDA$ (18,845) $ (17,793) $ (12,453)
1 Adjustments reflect total stock-based compensation expense for the years ended December
31, 2022, 2021 and 2020 of
matters of
each of the years ended
consideration liability of
million related to the Data Central Acquisition as of the years ended
and 2020, respectively.
4 Adjustment reflects settlement expenses for legal matters of
million for the years ended
Punchh Acquisition of
respectively.
6 Adjustment represents the gain on insurance stemming from a legacy claim of
million for the year ended
administrative expense and research and development expense of
repayment of the Owl Rock Term Loan during the year ended
million related to the repurchase of approximately
the year ended
meeting the general release threshold as a result of acquiring go-to-market software in
the MENU Acquisition. 10 Adjustment reflects foreign currency transaction gains and losses, rental income and
losses, and other non-recurring expenses recorded in other expense, net in the
accompanying statements of operations.
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Year Ended December 31,
in thousands 2022 2021 2020
Reconciliation of Net Loss/Diluted Net
Loss per share to Adjusted Net
Loss/Adjusted Diluted Loss per Share:
Net loss / diluted earnings per share $ (69,319) $ (2.55)
- - (10,417) (0.42) (3,265) (0.17)
Non-cash interest expense (2) 1,997 0.07 8,727 0.35 4,355 0.23
Acquired intangible assets amortization
(3) 17,111 0.63 13,802 0.55 4,558 0.24
Stock-based compensation expense (4) 13,426 0.49 14,615 0.58 4,251 0.22
Regulatory matters (5) 415 0.02 50 - 126 0.01
Contingent consideration (6) (4,400) (0.16) - - (3,340) (0.18)
Litigation expense (7) 525 0.02 790 0.03 - -
Acquisition costs (8) 1,300 0.05 3,612 0.14 - -
Gain on insurance proceeds (9) - - (4,400) (0.18) - -
Severance (10) 525 0.02 - - 359 0.02
Loss on extinguishment of debt (11) - - 11,916 0.47 8,123 0.43
Impairment loss (12) 1,301 0.05 - - - -
Other expense - net (13) 1,224 0.05 1,279 0.05 (808) (0.04)
Adjusted net loss/diluted loss per share
Weighted average common shares outstanding 27,152 25,088 19,014
1 Adjustment reflects a partial release of our deferred tax asset valuation allowance of
and a reduction to the benefit of income taxes of
the 2024 Notes. The income tax effect of the below adjustments were not tax-effected
due to the valuation allowance on all of our net deferred tax assets. 2 Adjustment reflects non-cash accretion of interest expense and amortization of issuance
costs related to the Senior Notes and the Owl Rock Term Loan of
respectively.
3 Adjustment reflects amortization expense of acquired developed technology within gross
margin of
31, 2022, 2021, and 2020, respectively; and amortization expense of acquired intangible
assets of
2022, 2021, and 2020, respectively. 4 Adjustments reflect total stock-based compensation expense for the years ended December
31, 2022, 2021 and 2020 of
regulatory matters of
consideration liability of
million related to the Data Central Acquisition as of the years ended
and 2020, respectively.
7 Adjustment reflects settlement expenses for legal matters of
million for the years ended
Punchh Acquisition of
respectively.
9 Adjustment represents the gain on insurance stemming from a legacy claim of
million for the year ended
administrative expense and research and development expense of
repayment of the Owl Rock Term Loan during the year ended
million to the repurchase of approximately
ended
meeting the general release threshold as a result of acquiring go-to-market software in
the MENU Acquisition. 13 Adjustment reflects foreign currency transaction gains and losses, rental income and
losses, and other non-recurring expenses recorded in other expense, net in the
accompanying statements of operations.
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LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash and cash equivalents and short-term investments. As ofDecember 31, 2022 , we had cash and cash equivalents of$70.3 million and short-term investments of$40.3 million . Cash and cash equivalents consist of highly liquid investments with maturities of 90 days or less, including money market funds. Short-term investments are held-to-maturity investment securities consisting of investment-grade interest bearing instruments, primarily treasury bills and notes, which are stated at amortized cost. Cash used in operating activities was$43.1 million for the year endedDecember 31, 2022 , compared to$53.2 million for the year endedDecember 31, 2021 . Cash used in operating activities for the year endedDecember 31, 2022 , was substantially driven by a net loss from operations, net of non-cash charges and additional net working capital requirements substantially driven by an increase in accounts receivable resulting from revenue growth. Cash used in investing activities was$66.7 million for the year endedDecember 31, 2022 , compared to$383.0 million for the year endedDecember 31, 2021 . Cash used in investing activities for the year endedDecember 31, 2022 , included$18.8 million of cash consideration, net of cash acquired, for the MENU Acquisition and acquisition of substantially all the assets and liabilities of a privately held restaurant technology company (the "Q1 2022 Acquisition"),$40.3 million for purchases of short-term held-to-maturity securities, and capital expenditures of$6.4 million for developed technology costs associated with our Restaurant/Retail software platforms.
Cash used in financing activities was
We expect our available cash and cash equivalents will be sufficient to meet our operating needs for at least the next 12 months. Over the next 12 months our total contractual obligations are$39.2 million , consisting of purchase commitments for normal operations (purchase of inventory, software licensing, use of external labor, and third-party cloud services) of$29.6 million , interest payments of$8.0 million and facility leases of$1.6 million . We expect to fund such commitments with cash provided by operating activities and our sources of liquidity. We expect our non-current contractual obligations to include purchase commitments for normal operational expenses as well as payments to service our Senior Notes. Refer to "Note 8 - Debt" of the notes to consolidated financial statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Annual Report for details. From time to time, we may seek to raise additional capital through equity, equity-linked, and debt financing arrangements. We cannot provide assurance that any additional financing will be available to us on acceptable terms or at all. Our actual cash needs will depend on many factors, including our rate of revenue growth, growth of our subscription service revenues, the timing and extent of spending to support our product development efforts, the timing of introductions of new products and enhancements to existing products, market acceptance of our products, and the factors described above in this "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report. 38
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are based on the application of accounting principles generally accepted inthe United States of America . GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. Valuations based on estimates are reviewed for reasonableness and adequacy on a consistent basis. 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 these estimates. Our estimates are subject to uncertainties, including those associated with market conditions, risks and trends. Refer to "Item 1A. Risk Factors" of this Annual Report for additional information.
Revenue Recognition Policy
Restaurant/Retail
The Company's revenue in the Restaurant/Retail segment is derived from three types of revenue: hardware sales, subscription services, and professional services. 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 a distinct performance obligation. Amounts invoiced in excess of revenue recognized represent deferred revenue. 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 for hardware and subscription services based on the price at which the Company sells the particular good or service separately in similar circumstances and to similar customers. The Company determines stand-alone selling prices for professional services by using an expected cost plus margin.
Hardware
Hardware revenue consists of hardware product sales and is recognized as a point in time revenue. Revenue on these items are recognized when the customer obtains control of the asset in accordance with the terms of sale. This generally occurs upon delivery, upon installation, or upon delivery to a third-party carrier for onward delivery to customer. We accept returns for hardware sales and recognize them at the time of sale as a reduction to revenue based on historical experience.
Subscription Service
Our subscription services consist of revenue from our SaaS solutions, related software support, and transaction-based payment processing services.
39-------------------------------------------------------------------------------- Table of Contents SaaS solutions SaaS solution revenues consist of subscription fees from customers for access to our SaaS solutions and third party SaaS solutions and are recognized ratably over the contract period, commencing when the subscription service is made available to the customer, as the customer simultaneously receives and consumes the benefits of the Company's performance obligations. Our contracts with customers are generally for a period ranging from 12 to 36 months. We determined we are the principal in transferring these services to the customer and recognize revenue on a gross basis. We control the services being provided to our customer, are responsible for fulfillment of the promise in our contract with the customer, and have discretion in setting the price with our customer.
Software support
Software support revenues includes fees from customers from the sales of varying levels of basic support services which are "stand-ready obligations" 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, which is generally 12 months. For this reason, the basic support services are recognized ratably over the contract term since the Company satisfies its obligation to stand ready by performing these services each day.
Transaction-based payment processing
Transaction-based payment processing revenues includes transaction-based payment processing services for customers which are charged a transaction fee for payment processing. This transaction fee is generally calculated as a percentage of the total transaction amount processed plus a fixed per transaction fee. We satisfy our payment processing performance obligations and recognize the transaction fees as revenue net of refunds and reversals initiated by the restaurant upon authorization by the issuing bank and submission for processing. We allocate all variable fees earned from transaction-based revenue to this performance obligation on the basis that is is consistent with the ASC 606 allocation objectives. Our transaction-based payment processing contracts are primarily layered rate contracts. In layered rate contracts, we pass through the costs of interchange and card assessment and network fees to our customers, which are recorded as a reduction to revenue, and we incur processing fees, which are recorded as cost of sales. For layered rate contracts, we have concluded we are generally the principal in the performance obligation to process payments because we control the payment processing services before the customer receives them, perform authorization and fraud check procedures prior to submitting transactions for processing in the payment network, have sole discretion over which third-party acquiring payment processors we will use and are ultimately responsible to the customers for amounts owed if those acquiring payment processors do not fulfill their obligations. We generally have full discretion in setting processing prices charged to the customers. Additionally, we are obligated to comply with certain payment card network operating rules and contractual obligations under the terms of out registration as a payment facilitator and as a master merchant under our third-party acquiring payment processor agreements which make us liable for the costs of processing the transactions for our customers and chargebacks and other financial losses if such amounts cannot be recovered from the restaurant. However, specifically as it relates to the costs of interchange and card assessment and network fees, we have concluded we are the agent because we do not control pricing for these services and the costs are passed through to our customers. Professional Service
Professional service revenue consists of revenues from hardware support, installations, implementations, and other professional services.
Hardware support
Hardware support revenues consists of fees from customers from the Company's
Advanced Exchange overnight hardware replacement program, on-site support and
extended warranty repair service programs and are all "stand-ready obligations"
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, which is generally 12 months. For this
reason, the support services are recognized ratably over the contract term since
the Company satisfies its obligation to stand ready by performing these services
each day.
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Installations
Installation revenue is recognized point in time. Installation revenue is
recognized when installation is complete and the customer obtains control of the
related asset. 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
arrangements, the Company is primarily responsible for providing a good or
service, has inventory risk before the good or service is transferred to the
customer, and has discretion in establishing prices; as a result, the Company
has concluded that it is the principal in the arrangement and records
installation revenue on a gross basis.
Implementations
Implementation revenue includes set-up and activation fees from customers to implement our SaaS solutions. We have concluded that this service does not represent a stand-alone performance obligation and is instead tied to the performance obligation to provide the subscription service. As such, we defer and amortize related revenues and costs over the life of the contract, commencing when the subscription service is made available to the customer.
Other professional services
Other professional service revenue includes hardware repairs and maintenance not covered under hardware support, business process mapping, training, and other ad hoc professional services sold separately. Other professional service revenue is recognized point in time upon the completion of the service.
Government
PAR's Government segment provides technical expertise and development of
advanced systems and software solutions for the
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The Company's revenue in the Government segment is recognized over time as
control is generally transferred continuously to its customers, with the
exception of certain commercial software products that are transferred point in
time when control transfers. 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
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 the 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 the Government segment, when determining revenue recognition, the Company
analyzes whether its performance obligations under 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 usually expects payment within 30 to 90 days from the date of service, depending on its terms with the customer.
Inventories
Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. We use certain estimates and judgments that consider several factors, including product demand, changes in customer requirements and changes in technology to provide for excess and obsolescence reserves to properly value inventory.
Capitalized Software Development Costs
We capitalize certain costs related to the development of our platform and other software applications for internal use in accordance with ASC Topic 350-40, Intangibles -Goodwill and Other - Internal -Use Software . We begin to capitalize our 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. We stop 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. We also capitalize 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 our consolidated statements of operations. We exercise 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 we change the manner in which we develop and test new features and functionalities related to our platform, assess the ongoing value of capitalized assets or determine the estimated useful lives over 42 -------------------------------------------------------------------------------- Table of Contents which the costs are amortized, the amount of internal-use software development costs we capitalize and amortize could change in future periods
Accounting for Business Combinations
We account for acquired businesses using in accordance with ASC Topic 805, Business Combinations, which requires that acquired assets and assumed liabilities be recorded at their respective fair values on the date of acquisition. The fair value of the consideration paid is assigned to the underlying net assets of the acquired business based on their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded to goodwill. Intangible assets are amortized over the expected life of the asset. Fair value determinations and useful life estimates are based on, among other factors, estimates of expected future cash flows from revenues of the intangible assets acquired, estimates of appropriate discount rates used to present value expected future cash flows, estimated useful lives of the intangible assets acquired and other factors. Although we believe the assumptions and estimates it has made have been reasonable and appropriate, they are based, in part, on historical experience, information obtained from the management of the acquired companies and future expectations. For these and other reasons, actual results may vary significantly from estimated results.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. It is not deductible for income tax purposes.Goodwill is not amortized, but is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. Our impairment tests are based on reportable operating segments and the identified reporting units within those operating segments used in the test for goodwill impairment. If the carrying value of either reporting unit exceeds its fair value, an impairment charge is recognized for the excess of the carrying value of the reporting unit over its fair value. Fair values of the reporting units are estimated using a weighted methodology considering the output from both the income and market approaches. The income approach incorporates the use of a DCF analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including revenue growth, operating income margin and discount rate. These assumptions vary between the reporting units. The market approach incorporates the use of the quoted price and public company methods utilizing public market data for our company and comparable companies for each of our two reporting segments. We conducted our annual goodwill impairment test during the fourth quarter of 2022 and determined that the fair value for each of the reporting units significantly exceeded its respective carrying value. As such, goodwill was not impaired. No goodwill impairment charge was recorded in any of the periods presented in the accompanying consolidated financial statements.
Restaurants/Retail:
We performed a quantitative assessment to test our Restaurant/Retail reporting unit impairment as ofOctober 1, 2022 . The excess of the estimated fair value over the carrying value (expressed as a percentage of carrying value) was in excess of its carrying value of$665 million by approximately 21% as ofSeptember 30, 2022 .
In deriving our fair value estimates, we use key assumptions built on the current product portfolio mix adjusted to reflect continued revenue increases from our subscription services.
We use total annual revenue growth rates for the reporting unit ranging between 12.7% and 17.4% for the years 2023 through 2030. The growth rate reflects our projected revenues from anticipated increases in active sites of our subscription services at new and existing customer locations. These subscription services are expected to expand our capabilities into new markets. We believe these estimates are reasonable given the size of the overall market, combined with the projected market share we expect to achieve. Overall, the projected revenue growth rates ultimately trend to an estimated long term growth rate of 3.0%.
We use gross margin estimates that are reflective of expected increased recurring subscription service revenue from that is expected to exceed historical gross margins. Estimates of operating expenses, working capital requirements and depreciation and amortization expense used for the Restaurant/Retail reporting unit are generally consistent with actual historical amounts, adjusted to reflect our continued investment and projected revenue growth
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from our core technology platforms. We believe utilization of actual historical
results adjusted to reflect our continued investment in our products is an
appropriate basis supporting the fair value of the Restaurant/Retail reporting
unit.
Finally, we use a discount rate of approximately 14.0% for the Restaurant/Retail
reporting unit. This estimate was derived through a combination of current
risk-free interest rate data, financial data from companies that PAR considers
to be our competitors and was based on volatility between our historical
financial projections and actual results achieved.
The current economic conditions and the continued volatility in the U.S. and in
many other countries in which we operate could contribute to decreased consumer
confidence and continued economic uncertainty which may adversely impact our
operating performance. Although we have seen an improvement in the markets it
serves, continued volatility in these markets could have an impact on purchases
of our products, which could result in a reduction in sales, operating income
and cash flows. Such reductions could have a material adverse impact on the
underlying estimates used in deriving the fair value of our reporting units used
to support our annual goodwill impairment test or could result in a triggering
event requiring a fair value re-measurement, particularly if we are unable to
achieve the estimates of revenue growth indicated in the preceding paragraphs.
These conditions may result in an impairment charge in future periods.
We reconciled the aggregate estimated fair value of the reporting units to our
market capitalization noting no goodwill impairment was recorded during the
years ended
Recent Accounting Pronouncements Not Yet Adopted
Refer to "Note 1 - Summary of Significant Accounting Policies" of the notes to consolidated financial statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Annual Report for details.
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