PAR Technology Corp.
NYSE:PAR
Amid the enterprise software sell-off, my new write-up is on PAR. While there is no shortage of debate on PAR, another bullish voice would not hurt.
Since the Brink acquisition in 2014, and especially after the appointment of Savneet Singh in late 2018, PAR has been transforming from a hardware supplier and government contractor into an enterprise software company. Initially offering just one product with a potential ARPU of $2k+, PAR now provides a unified commerce cloud platform with a potential ARPU of $10k+. This transformation is evident from the success of Operator Solutions subscription service category (renamed to Operator Cloud last quarter with the addition of Data Central), where stellar attachment rates (i.e., Brink + PAR Payments) are driving ARPU growth rapidly towards its full potential.
Moreover, despite higher ARPU, PAR's offerings are starting to win RFPs more decisively against competitors like NCR Aloha, Oracle Simphony, and Xenial, with recent examples including Burger King and Wendy’s. Notably, while Operator Solutions previously averaged ~1.1k quarterly activations, Burger King alone is expected to account for ~900 installations in the next 8 quarters. Considering the closing of TASK, subsequent international expansion, anticipated major wins like Buffalo Wild Wings (see write-up for Greenhaven Road's hint) and other subsidiaries of RBI and Inspire Brands, along with further cross-selling and accretive acquisitions, PAR's top-line is poised for significant upside surprises.
However, beyond top-line growth, PAR has demonstrated discipline in managing its operating expenses by adhering to a straightforward strategy of keeping them flat. Both SG&A and R&D expenses have remained stable over the past few quarters, with any recent upticks almost entirely attributed to Burger King and Wendy's (see SG&A trend attached). As noted by Adam Wyden of ADW during the Q1 conference call, maintaining stable opex and achieving an incremental adj. subscription gross margin of 70% could lead to EBITDA profitability as early as next quarter, rendering management's Q3 target overly conservative.
Despite these factors, PAR trades more closely to a payment processor than a company like AGYS, which, according to Voss Capital, “has a similar revenue base and does what PAR does but for hotels.” Indeed, while PAR traded pari passu with AGYS until mid-2022, it has since aligned more with the broader market, reflecting an unusually high EV/Sales discount to enterprise software peers. Considering that the Rule of 40 is the primary determinant of this multiple, I derived an implied FY25 multiple of 6.5x based on my most conservative, mostly contractually guaranteed, estimate of 34.6% for a PT of ~$104. Conversely, sell-siders, who have done an exceptionally poor job with PAR, project a mere 19.3% (likely lagged), while the current FY25 sales multiple stands at 3.1x.
Finally, I’ve noted that there is no shortage of debate on PAR. Alongside numerous mentions on Fintwit, below is a list of valuable resources for your reference:
Voss Capital’s “PAR’s Path to $80 Redux” Write-Up: Link
Greenhaven Road's Scott Miller at YAVP: Link
Greenhaven Road’s 4Q23 Investor Letter: Link
Greenhaven Road’s 1Q24 Investor Letter: Link
Choice Equities’s 1Q24 Investor Letter: Link
Savneet Singh at Capital Allocators: Link
Savneet Singh at Think Like an Owner: Link
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Byron Street Research
Hey there, thanks for the great write-up. Quick clarification question, it seems like your target price is based on 6.5x EV / Sales target multiple on group sales forecasted in the future. Wouldn't that be an overstatement of your core thesis (pure-play saas) since your group sales forecast assume government segment which would also imply a sale valuation of 6.5x on government division?