The following segment was excerpted from this fund letter.
PAR Technology (NYSE:PAR)
PAR Technology ended 2022 with over $100M in cash on the balance sheet and no significant debt maturities until 2026. The company continues its march toward profitability, which is an important precursor to long-term survival. During the first quarter, PAR reiterated its commitment to hold expenses flat in its software business while continuing to grow revenues. By my estimates, PAR should grow annual recurring revenue (ARR) by +/- 30% for the foreseeable future. This revenue should drop to the bottom line, making the overall company profitable by the end of this year and the software business itself profitable by early next year.
PAR benefits from a low single-digit churn on their core point of sale (POS) offering, which is important for longer-term growth since the bottom of their proverbial bucket is not leaking. Their competitive landscape is also favorable: their primary competitors are legacy systems from NCR (NCR) and Oracle (ORCL), for both of which POS systems are tertiary products. While there will be increasing competition from the likes of Toast (TOST) and Square (SQ), developing and selling products for enterprise restaurants is different, and I believe PAR should be able to continue managing the landscape adeptly.
There are three future sources of growth for PAR that, when paired with the low churn of their existing customers, bode well for future growth. This quarter, PAR announced the signing of a 900-location chicken wing restaurant for their new table service product. Moving into table service restaurants greatly expands their market, and these installations will start rolling out this year. A second leg of growth will come from an online ordering offering from MENU, a company they acquired in 2022. The third leg of growth will be the continued rollout of PAR’s payments product across its installed base. Interestingly, PAR has begun talking about an opportunity with the largest fast-food chains, which historically have built and maintained POS systems in-house. As the need to integrate with multiple delivery services, maintain online ordering, support a robust loyalty program, and feed data into analytics platforms has intensified, the cost/benefit of developing in-house is not as clear cut even for the large players. PAR currently has approximately 20,000 POS locations. There are 12,000+ Burger Kings. Winning a Burger King-size customer would be material and those types of opportunities may very well start to materialize. There are several paths to sustained growth and profitability.
When CEO Savneet Singh took over at PAR, the company had a single POS product with angry customers who were locked in. There has been a multi-year effort to stabilize the core product, make acquisitions, and now develop new products. PAR is committed to making all the disparate technologies required to run a restaurant work together seamlessly under the umbrella of Unified Commerce. They are designing their products such that they work on a standalone basis but are even more valuable to the end-user when used in conjunction with other PAR products, taking advantage of shared data and expanded functionality. For example, PAR’s payment offering is better when paired with POS as it greatly simplifies troubleshooting and reduces costs. Payments also improve the loyalty product as it feeds additional data into the platform. The goal when using PAR products together is for this improved functionality to reduce churn and increase cross-selling. Each step in the product evolution, from stabilization to Unified Commerce, is a step towards greater resiliency and durability of the overall company.
To summarize, PAR has multiple sources of growth with its existing business. The new table service offering, MENU acquisition, burgeoning payments offering, and potential migration of the largest operators to third-party software are just a few of the opportunities ahead. We can argue about the timing of adoption, magnitude of the opportunity, and appropriate multiple, but in my mind, this is a business that has been in the gym training for the last four years and has now begun to quietly kick ass.
|
Disclaimer: This document, which is being provided on a confidential basis, shall not constitute an offer to sell or the solicitation of any offer to buy which may only be made at the time a qualified offeree receives a confidential private placement memorandum (“PPM”), which contains important information (including investment objective, policies, risk factors, fees, tax implications, and relevant qualifications), and only in those jurisdictions where permitted by law. In the case of any inconsistency between the descriptions or terms in this document and the PPM, the PPM shall control. These securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction have been satisfied. This document is not intended for public use or distribution. While all the information prepared in this document is believed to be accurate, MVM Funds LLC (“MVM”), Greenhaven Road Capital Partners Fund GP LLC (“Partners GP”), and Greenhaven Road Special Opportunities GP LLC (“Opportunities GP”) (each a “relevant GP” and together, the “GPs”) make no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors, appearing in the document. An investment in the Fund/Partnership is speculative and involves a high degree of risk. Opportunities for withdrawal/redemption and transferability of interests are restricted, so investors may not have access to capital when it is needed. There is no secondary market for the interests, and none is expected to develop. The portfolio is under the sole investment authority of the general partner/investment manager. A portion of the underlying trades executed may take place on non-U.S. exchanges. Leverage may be employed in the portfolio, which can make investment performance volatile. An investor should not make an investment unless they are prepared to lose all or a substantial portion of their investment. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other investment alternatives and may offset profits. There is no guarantee that the investment objective will be achieved. Moreover, the past performance of the investment team should not be construed as an indicator of future performance. Any projections, market outlooks, or estimates in this document are forward-looking statements and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly affect the returns or performance of the Fund/Partnership. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of the relevant GP. The information in this material is only current as of the date indicated and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of the GPs, which are subject to change and which the GPs do not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the Fund/Partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal, and tax professionals before making any investment. The Fund/Partnership are not registered under the Investment Company Act of 1940, as amended, in reliance on exemption(s) thereunder. Interests in each Fund/Partnership have not been registered under the U.S. Securities Act of 1933, as amended, or the securities laws of any state, and are being offered and sold in reliance on exemptions from the registration requirements of said Act and laws. The references to our largest positions and any positions listed in the Appendix are not based on performance. All of our positions will be available upon a reasonable request. All hyperlinks contained herein are not endorsements and we are not responsible for such links or the content therein. |
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Read the full article here