All right. Thank you for joining us today. My name is Chuck Nabhan. I lead the Payments and Fintech practice at Stephens. We're pleased to host Savneet Singh, who is the CEO of PAR Technology, this morning. For those not familiar, PAR is a provider of IT solutions to the enterprise restaurant space, as well as a provider of IT solutions to the Department of Defense and other government agencies. With that, Savneet, thank you for joining us. As a starting point, so you were named CEO in 2018 to a company that's been around for several decades. It was founded in 1968. Can you talk about how the company has changed since you've joined, and your strategic vision for PAR?
Sure. So I think foundationally, the big change is we, we really transitioned from historically being a hardware and services company to a software business. In 2014, we acquired a small software product called Brink. You know, at the time, it wasn't really a business, it was, it was a product, and the idea was that PAR had this very large installed base of hardware machines at places like McDonald's and other large QSR brands. And the vision was: Could we go sell software to those brands that we had these long-standing hardware relationships with? Fast-forwarding to 2018, I originally joined the board of the company, with, with no intention to run it, but to sort of add a little bit of growth expertise, some software understanding, as...
You know, I think at the time, our total revenues were, I'm guessing, I think around $180 million, but $5 million or $6 million of that was software. But that software business was growing. You know, when I sort of stepped in as CEO, you know, we were still maybe $6 million, $7 million, $8 million of software revenue, but we really needed a drastic overhaul because we were in trouble. You know, we were running out of money. We had a very, very low customer NPS score, very, very low employee happiness, and a bunch of changes.
You know, we kinda took some tough medicine, rebuilt our product over the last couple of years, or stabilized our product over two years, and have rebuilt the company in this vision of, we're not a POS company, we're-- We call it unified commerce. We're sort of the platform to run your restaurant. And it really is as simple as, if you went to a restaurant today, you probably don't appreciate how much software is making that restaurant run. But if you go to a CIO of a restaurant and ask them, you know: Are you spending or more than five, ten times what you thought you'd ever spend on software? The answer would be yes. And then if you ask them, are they happy with that investment?
They'd say, "No." And the foundation of what we're built on, and I think why we've been growing so nicely, is that restaurants aren't software companies, but they've been forced to act like that. And so they have added dozens and dozens of new products to their stores to solve you, the customer's need. They've added mobile apps, they've added online ordering, they've added DoorDash, Uber Eats, supply chain software, drive-through software, QR code payments, all of these things that we've expected, that we expect in the e-commerce experience we now have in a restaurant. But restaurants have done that by adding a bunch... vendor here, vendor here, vendor there, vendor there, and that none of those things connect. And so it's become really, really hard to run a restaurant.
What we do is kind of put that under one roof at PAR and stay open. We give you open APIs to everything you want, and you don't have to use our products. To tell you where we sit today is, we have the largest loyalty software in the restaurant industry. We have Brink, which is the, you know, I think the fastest-growing, well, certainly the fastest-growing enterprise POS product. We've got a back office product and online ordering. And so together, it's this really beautiful, unified solution that has the same data, same menus. It really simplifies the job of running a large enterprise restaurant.
Got it. That's, that's a great starting point. So just from a competitive standpoint, I know many people in the audience may be familiar with Toast, but not as much PAR in the restaurant space. Can you differentiate between the markets where you compete and talk about who you compete with directly?
So we're squarely focused on the enterprise. You won't find us in your local Italian restaurant, but you'll find us in everything from Sweetgreen and CAVA all the way up to Burger King. So we really work in that enterprise and emerging enterprise sector. We're not a good fit if you're a single store, you know, steak restaurant in Nashville. We're not a good fit for you. But if you're an emerging brand that's 30 stores that wants to be 1,000 stores, we're a really good fit for you. Or if you're Burger King and you're 7,000 stores, we're a really good fit for you. And the beauty of that is, part of the reason I decided to stay on as CEO is, you know, in that market, you're not competing against, candidly, Toast and Square.
You're competing against what I call, like, Silicon Valley 1.0. You're competing against Oracle, you know, great company, but not really focused on restaurant technology. We're competing against NCR, you know, it's obviously had some challenges there. We're competing against tons of long-tail companies you've never heard of, that are today mostly owned by payments companies. And so from a product perspective, we feel really good that we can out-innovate the competitors in front of us. And obviously, you know, we continue to grow really, really fast in that space. So, it's... You know, the, the ability for us to expand our moat, I think, has grown over time, versus, I think in other markets, which historically they get more competitive as you see that growth.
For us, it's actually gotten larger because it's just not a market that's trafficked in. You know, I think everyone from Toast to Lightspeed, Square want to move upmarket, but it's just a big jump to go from serving a small local coffee shop into serving Arby's. That is a dramatic set of needs, product changes, culture that, you know, that we've spent our entire careers on.
Let's double-click on that a little bit, in terms of your moat and what it takes for, say, an upstart challenger to get into enterprise, and what allows you to compete in that space?
So, you know, in the end, enterprise software is a product business. You can have the best salespeople, you can have the best marketing, but in the end, the product wins. And so, it starts and ends really with the product, in my opinion. In the enterprise space, your product has to sort of really have three, you know, relatively large buckets of functionality. The first is the in-store functionality. When you go to a restaurant and that cashier or that server is typing on that tablet or on that device, that in-store functionality has to be built with a workflow that services that restaurant and the workflow they have today, which obviously has changed dramatically from where it was just five years ago.
You know, there was no Uber Eats and DoorDash and all that stuff, pickup, payments, and so on, so forth. And in that, Brink is really a step, we believe, a step ahead of most of our competitors. And why is that? It's because our product was created really in the shadows of NCR and Oracle, who are the really dominant figures in our industry, to hit all those pain points that they have. We've kind of built that into our product and then have since innovated and learned, listened to our customers, and tried to push that forward. You know, and it was cloud-first, it's allowing you to have all sorts of advantages that the legacy products didn't have. The second part of the functionality is what we call above the store, and this is where a lot of the...
The companies that serve downmarket, the single-store restaurants, struggle to get to where we are, where we are, is that the above-the-store reporting that's needed for you know, a franchise concept like an Arby's, if you will, is dramatically different than the small restaurant. You know, these are large organizations. They may be running on SAP, they may be running, you know, they'll certainly have Braze or Salesforce Marketing Cloud. They'll have you know, their own data warehouse. I mean, there's an incredible amount of reporting that's needed, and that has to be you know, pushed through tons of different products. But also, the reporting and reporting they need to just run their day-to-day is very different.
There's a different level of reporting for the store manager, the franchise manager, the district manager, and that all has to be extensible, plugged into tons of different places. It's a ton of... It's a ton there. The third part of the POS is integrations, which is the integrations that are needed to run a restaurant are robust. So when we integrate into... We want a new concept, you know, one of our great advantages that our POS product, in particular, has almost 300 different integrations of other products. Now, that sounds like a small thing, but, you know, we are probably two or three times the size of our next competitor in list integrations.
So when we go to a large customer and they say, "Oh, we use XYZ local supply chain software company," we're like: Great, we're already integrated into that. Whereas our peers will oftentimes say, "I need nine months to make that integration." And it's generally about that long. It's a very long process to get these integrations done. These are big, robust projects. And so that's what's been cool about Brink, because I think it was sort of the DNA of being cloud-first made Brink very open early on, whereas most of our competitors, historically, have been very closed. It's sort of said, "It's our ecosystem, you've got to use our stuff." But in the enterprise, that really doesn't work well today because they may have, you know, a cool AI tool they wanna use.
And if you can't support that, it's hard to win. So those are some of the modules, and I think what the advantage we have is that, I think because we were the first true cloud solution, because we've captured a lot of market share very quickly, we now can iterate from where we are and kind of expand that moat. And I think those that are coming downmarket, they're still getting that step one, which is, I need that enterprise functionality, and the step two is then I need to get up to Brink.
Got it. So when I think about the growth algorithm for PAR, one side is obviously the new logos, the other side is the cross-sell, up-sell. You talked a lot about unified commerce and the breadth of your product set, but could you talk about how you're pursuing cross-sell, up-sell opportunities within your customer base?
Yeah, I mean, I think it's actually, you know, over time, will be the largest opportunity. So you know, we have these sort of key, you know, three key product areas, you know, our what we call operator side, which is POS and payments, our, you know, guest engagement, which is really front of house, it's loyalty and online ordering, and then back of house. And what we've realized is if we can plant the flag with a customer in their point-of-sale product, we can almost always sell you one additional product and potentially two products, and over time, four products. And so, we just announced our largest win of all time on our call a couple weeks ago or a few weeks ago, a Burger King.
But Burger King bought two products at that time, and so that was kind of an amazing thing because it's like that motion is working where we can go in and staple two products, and hopefully, one day that's three products, and then four products. And so we know that that POS space is a really good system to farm. And the reason why is that POS is like the ERP, it is the heartbeat of the organization, that restaurant. Everything... The source of truth is the POS. And so when you have that much influence on the customer, it's quite a natural extension to say, "Hey, we're now gonna offer you this." I'll give you an example. In a restaurant today, they'll be running a MENU in the store.
They'll be running a menu on their online ordering system. They'll be running a menu on their loyalty program. They'll be running a menu on their DoorDash, their Uber Eats, and all those menus are probably different, have some sort of differences to them. They might even have a different thing in the drive-thru. And then by region, those menus are different, too, because you'll have different taxation, different products, different product availability, so on and so forth. And so you'll have thousands and thousands and thousands of menus across the average chain, and it's, it's an incredible process to sort of record keep and organize all that. Well, the beauty is, if your POS company is the same company as your online ordering company and your loyalty company, it's all the same product.
It's literally the same menu being applied, and so the simplicity that creates for the operator is amazing. And so we can go to them and say, "Hey, you use this, you know, sort of tool to organize your online order, your DoorDash and Uber Eats. Like, why not just use ours? It does the same thing, and it's actually simpler and easier, and it's already bolted on. You have the same reporting tool that you already use. You don't even have two reporting tools. You have, you know, the same X, Y, and Z." It's a very natural place to do that, begin that cross-sell and up-sell motion.
Got it. And, you know, within that, you touched on payments a little bit, and you've had some success attaching payments within your client base. What gives you the right to win in that area, and how should we think about that opportunity?
So, first and foremost, it is still simplicity. Second, I'd say, is cost, and then third, I think, is, like, the future vision of products. But simplicity is a really big deal. If you go to a restaurant today and ask them how much they make on payments, most restaurateurs will tell you, "I'm not actually sure how much I pay for payments, but I know I'm getting ripped off." It's, you know, literally 9 out of 10 responses. And that's because whether it's the POS companies or the local processing company, you know, they have taken advantage of these small businesses, these franchisees for years and years and years. And so our stake has been, "Hey, because we're your POS company-...
And if we're your payment company, you have complete integrity into, like, what are we charging? We have literally every transaction in the POS. We can show you how much we charge for every transaction. And so we go there with a view of trying to make it really simple for them. It's one vendor. You know, the most common problem, the most common call, excuse me, to our help desk, is an issue between the payment device and the POS. It's, you know, there's been years when it's been 40% of the volume into our help desk. Well, if that's the same company, it's a lot easier to solve that problem, because the first thing that happens, you're like: "Oh, it's the payment company's fault. No, no, it's the POS company's fault." And you spend a day and a half figuring that out.
That simplicity is really simple. That gives the operator one phone call if something goes wrong. And so it's that simplicity, I think, is really, really, really important to our customers. The second is price. You know, we're in, you know, tens of thousands of restaurants, and so our buying power is in aggregate more than any one individual restaurant, so we can usually save them some money. And the third, I think, and this is where, you know, product innovation will be exciting, is when you have your POS, your payments, and so on and so forth, that combining all that data into one place, you create a lot of value back to the end customer.
You know, as an example, if we're your loyalty customer, we know everything about your loyalty users. But if we have your payment data, we know everything about your non-loyalty users, and combining that data back to the restaurant is pretty powerful.
Got it. Moving on to Burger King, which you touched on. Obviously, a potentially transformative deal that was announced on October fifth. You haven't given formal guidance around the financial impact, but just if you could comment on what helped you win that account, and any comments you could make on how investors should think about the potential financial impact there.
So, you know, I think, again, we won because of the product. You know, Burger King is an iconic brand, and obviously is owned by RBI, and so incredibly sophisticated operators, really thoughtful about what they wanna do. They were in a unique situation. They had spent a lot of time and money trying to build an in-house product, plus a combination of a bunch of third-party vendors they've known for a long time. You know, I think, you know, if you were to ask them, I think they'd say we won for two reasons. The first was the product. The product really stood on its own. We believe we, you know, we trounced whoever we were competing against in their labs. Lab is like a fake store where they test out your product, integrated into their ecosystem.
And then the second is, I think they really loved the culture of PAR, and they loved that they could text us at any hour of the night, and we'd respond. They loved how fast we operated. You know, we were the last company invited to the RFP, but we were the first company to be up and running in the store, the first company to finish the RFP, the first company for everything. And so I think they love that intensity. You know, PAR is, you know, 55 years old, but, you know, I don't think there's anybody that's 55 years old on the management team. It's, it's an aggressive start-up, kind of, you know, culture.
I think they love that we had people at PAR that were been in the restaurant industry their whole life, and they love people that had just came from private equity to come to PAR. They sort of... It's a very similar culture to what they've built there. So I think that's the other reason that. And they cited that sort of in their. You know, sort of dimensionalizing it, it will, it will. It's by far our largest deal we ever had. You know, it's... I think Burger King is about 7,500 stores. You know, it's two products, so, you know, it's $ tens of millions per year.
And we think it'll grow because I think it's opened up the door for broader penetration within Burger King, as far as more products than Burger King, but also the other brands in RBI, who evaluated us in this process. And so, you know, if we can execute well on what's in front of us, and it's a really short timeframe to execute, you know, we've got to be, you know. In the next couple of years, we've got to do an incredible amount of work to turn all that revenue live. I suspect we'll have a lot more coming out of that.
Yeah. Great. You acquired a business called Menu in Europe last year, and have been investing in that business while repositioning the customer base. Could you give us an update on that integration?
You know, it's probably the highest, ironically, it's the smallest deal we've ever done, but probably the highest risk deal we've ever done. It was a money-losing, online ordering company in a time when, you know, obviously, we didn't want to be money-losing. You know, Menu in Q3 was the bulk of our entire loss. But it's, I think it's already paying us back in spades. Burger King was Menu's first big customer in the United States, and so, you know, our first deal is, you know, the, whatever, the third largest restaurant company in America. You know, so it's gonna. I think it'll go down as, as hopefully a home run deal.
But what's more important about it is that it's pushing this vision through, which is we had this idea of unified commerce saying: Hey, you know, we want to unify your ordering. Like, you shouldn't have 20 different menus. You shouldn't have, you know, all your data going up into whatever reporting software or data lake or warehouse you're using and having it not match up. The amount-- You know, I always joke with some of, like, the large restaurant operators, I'm like: "Oh, it's great you're using Snowflake or whatever." It's like: Do you get anything out of it? Because I know our data doesn't match our online ordering company's data or match your loyalty company data. So, like, how much time are you spending making sure, like, which order is which, and tying that stuff together? That's a real pain.
I think the hole we had was, we didn't have what we call off-premise orders. We knew everything that happened in the store, which is still the vast majority of transactions, but we didn't know the mobile orders. We didn't know the orders that are happening, online ordering. And so, you know, tying that into the POS has given us a real advantage, and I think the Burger King one really shows that, because now the same engine that's operating their in-store is also operating their third-party delivery. That's the module that we want at Burger King. And so we'll power their DoorDash, their Uber Eats, whatever the, you know, their Grubhub, whatever the third parties they use for ordering, we're now, you know, that engine underneath that. And so, it's great.
And then on the call, we announced that, you know, we've won Scooter's, which is an incredibly fast-growing 600, I think, chain, that's, you know, aims to be bigger than Starbucks. You know, we've started to win a lot, and it's very exciting. I think the key for Menu is not, you know, can we win deals? It's now about, can we roll this product out? Because we only brought it to the United States, like, in March or something, and so it's way ahead of pace as it relates to customer signings.
Got it. That's great. So getting away from restaurants a bit, PAR operates a government business, which had a very strong Q3 . Can you give us an update on that business and your strategic intentions for it?
Yeah, I think, you know, it's always been a non-core asset. It's never been the business. You know, I spend 89% of my time on the Earnings Calls and IR meetings talking about the restaurant business, 'cause that's the majority of our EV. I think we put in our Q2 MD&A that, you know, we're looking at strategic alternatives for that business. I think we've always said that we had won an enormous contract about a year and a half ago, and we always said, once we printed a full year of that new contract, we'd probably look to divest the business to get credit for this, you know, transformational deal that we won.
And so, you know, we're at that point, and I think moving in that direction.
Got it. So as the revenue mix shift moves more towards subscription, obviously, that's the key driver of operating leverage there. But can you talk about PAR's path to profitability, the key drivers, and how investors should think about the medium to long-term financial profile of the overall business?
Yeah, and I think we're making—we've made, you know, really tremendous progress. So, you know, it's relatively simplistic. We've held operating expenses flat for about four quarters, and we've done that while still growing the software revenues 20 to 30% a year. And obviously, the software revenues we just reported last quarter, you know, year to date, are 67% gross margins, which are actually muted. They'll—we used to be in the 70s, but our product acquisition of Menu, which for a long time was negative gross margin, is dragging that down. But that, again, as that revenue turns on from Burger King. And, you know, so for us, it's being, you know, incredibly disciplined and holding operating expenses flat while we continue to grow.
Now we've got four quarters of demonstrating that we can, we can, you know, grow. And if you even go back two years, adjusting for acquisitions, we've barely grown operating expenses over the last 2.5 years, but our revenues have doubled. So we've got really good control on that OpEx. And even within that, and I talked about this a lot on the call, what I think is interesting is, while we've held OpEx tight, we've made tremendous investments. So in holding OpEx tight, you know, we still made, you know, a $multi-million-dollar investment in a new CRM system. We made, you know, $multi-million-dollar investment into Burger King ramp up, and then, you know, $multi-million dollars of investment into Menu, but our operating expenses didn't grow.
So we were taking, reallocating capital from our existing products, which have gotten super efficient, and putting into these growth initiatives or these big strategic initiatives. So we've been able to, while holding this OpEx flat, actually still allocate capital in a way that we think was high return. The drivers, you know, going forward for now are gonna be very similar. We're gonna... You know, Burger King, obviously, and, and other deals are gonna allow us to compound revenue growth for, I think, a decent amount of time, you know, at rates where are now or higher. And then on the operating expense side, I think you'll see us be really disciplined there as we've been in the past. And then, as I talked about on the call, we see gross margins continuing to grow over time.
You know, our year to date, we're at 67%. You know, our long-term target is mid-70s. About a year ago, we were at 71, so again, that's not a far reach. I think what the other interesting part is, you know, we spend about $1 of sales and marketing for every $1 of ARR we bring in. And that's an incredible equation, given that our churn rate is around 4%. And so, you know, we keep that customer for, say, 20 years, and so that $1 of ARR lasts for 20 years. And if we assume that ARR has a 70% gross margin, and again, I think that's conservative, you know, you're spending a dollar to get $0.70 that hopefully lasts you 20 plus years.
And what that number really underestimates, though, is, as you said, we've been pretty good at, like, attaching new products to that $0.70, and so I think that $0.70 grows over time. But I think what's really neat is that in the last, you know, 2 plus years, that $0.70 has come with almost no additional operating expenses, and so that's really dropping to the bottom line. And so, like, the point I'm making is, as we launch bigger customers like Burger King and others, you know, most of that should continue to drop down. And, you know, for us, the opportunity is, hey, we can turn the company incredibly profitable in a quarter.
But given how much opportunity we have in the TAM right now, how much we're winning, you know, it's that fine balance that we're trying to strike, which is, you know, an interesting place to be in.
Is there an upfront investment required for Burger King and other bigger accounts?
Generally, yes, it varies tremendously, though. So the upfront investment is not. It's only for hardware. So when a restaurant company decides to upgrade to our software, they generally, you know, I'd say 70% of the time, are also upgrading their hardware. And so that franchisee will spend, you know, in the very low instances, $5,000, but sometimes up to $25,000, depending on what they choose to upgrade. We do have chains that say, "Hey, just run on our existing hardware," in which case you're, like, sticking a USB drive into an old place, and it's a 2-hour upgrade, and you don't really have a ton of upgrade. You know, there might be some implementation costs. So there's generally some upgrade. Now, it doesn't...
To be candid, it used to matter a lot more, like, particularly when I first came into the job. But today, like, in the recent deal we won, most of these chains are mandating a switch, and so you kind of have to move at some point. And what's neat is, not all, but a lot of chains will incentivize you, the franchisee, to move faster up that curve and say, "Hey, be one of the first franchisees that goes," and a lot of times, the lever is offsetting some of that upfront cost.
[Inaudible] Is the compensation for that $10 million upfront?
That's all software I'm talking about.
All software?
Yeah.
Gotcha. And then, just using that as an example, for other accounts in the future, the time between when you win the account and when that starts to come on is measured in months?
Months, yeah. So in this particular, you know, Burger King, we'll we start the rollout in, you know, end of March. April 1st is, like, the rollout. So it's a very fast rollout. You know, we'll, we'll start even now. You know, from a price point, you know, there's 7,500 stores. You know, if you look at sort of the price point we've been signing, you know, it's $3,000 plus per store, so it's, you know, there, there's, and, and, and a lot of it progresses. So you'll we will turn that, that deal on very quickly. Generally, it's about 3 to 6 months from when you sign to when you go live on our POS products. On our loyalty product, which is our other big revenue line, it's six months.
So it's never for 3 months, but it's never a year. Or it can be a year for some, you know, you're doing a big launch or something, but it's just 6 months is kind of the firm commitment both sides have.
... I wanna double-click on that, the incentive you touched on, and just get a better understanding of what's driving corporate to incentivize franchisees to get on the same platform. I know we hear a lot about data and loyalty and, and, and the benefits of, of having all franchisees on the, on the same platform. But is, is that really what's driving it, or is there anything else you could speak to in terms of-
Yeah, it's—I mean, so just imagine you're running a restaurant, it's got 1,000 stores, and you've got 20 different POS companies, and you, that store, say, "Hey, we're gonna launch a new mobile app, and that mobile app's gonna be amazing. It's gonna be better than McDonald's." Well, you've got to then integrate that mobile app into 20 different point-of-sale companies. Like, just imagine how painful that is, because all of a sudden, instead of having one integration that covers all your stores, you've got 20. Then imagine you need an update, or one of those point-of-sale companies decides to do an update and doesn't tell you, and that... So X% of your stores go down, or they don't have the opportunity. And so it's really limiting your future plans. It's—and it's far more costly, too.
And so it's a lot about that digital innovation. You know, 10, 20 years ago, I think most chains would say, like: "Yeah, we'll have 10 POS companies. Just pick the one that's cheapest or works best for you," because everything was in the store, so you didn't have this need for above-the-store stuff. You didn't have loyalty, you didn't have data being centralized. You know, point-of-sale terminals originally were there just so that you wouldn't rip off corporate. You weren't, you know, stealing, you know, your royalty fees. You know, today, they power your digital strategy. So I think it's that, you know, commitment to a digital strategy that is really incentivizing. And then it is the data, which is... It is very hard, you know, these organizations are incredible marketing businesses.
They obviously are great at fulfillment at building, shipping food very quickly, but marketing drives so much of what they do, and it is very hard to do that without unified data.
Got it. And would be remiss if I didn't ask a macro question. Obviously, anyone who follows the restaurant space is aware of the discretionary nature of restaurants and the macro headwinds facing the space. Could you maybe talk about how that impacts your business, as well as the durability of your specific enterprise and market?
So we're super lucky here, and this is not by design, which is we sell primarily to QSR and fast casual, who do really well during times of economic turbulence. You know, there's a trade-down from the steak restaurant to McDonald's or Arby's or Burger King. You know, it's a cheaper place to feed your family. It's a cheaper alternative than going out to dinner. And so, generally, you see a share shift from what we call full service to quick service and fast casual in times of recession or economic instability. So the chains we sell to tend to take share during that period of time, and we just happen to be predominantly in that space. So we're very, very lucky there.
Got it. Okay.
Do you see anything inside the data?
Yeah, I mean, it's so it's. I think there's two or three things that are, like, really obvious. The push up on menu prices has really ended in our base. I mean, maybe that's different. It is not. It is almost gone now, and we even see some prices coming down, but not a lot. And so you do see that, like, you know, restaurants have kind of I think that point of inelasticity turning to elastic demand is, like, there now in pricing. On the cost side, we see the input costs have come down for restaurants.
Labor, not as much, but the food cost, energy cost, all of that stuff has come down, and so the average unit per food sold is actually pretty profitable because you've got—still got the high prices, and that's—that seems like it's, it's there. I don't know how long that will last. From a traffic perspective, you are seeing, you know, things slow down. It's—no doubt that's, that, you're seeing a slowdown across most chains. But it is not, it is not categorical. You know, there are certain chains that clearly have figured something out, that are still growing comps really nicely, and then others are not. I think if we were serving small restaurants, we would have way more interesting data about what's happening in the economy.
Because we're serving, you know, you know, in our loyalty business, because we're serving Taco Bell or because we're serving Arby's or Five Guys, these businesses, you know, have yet to feel the tremendous impacts of a slowdown, also because the price point is still very low.
So I know capital allocation is a big focal point for investors. You have a pretty active history of M&A recently. You have a couple converts outstanding as well, that are maturing over the next couple of years. And obviously, you touched on the potential sale of the government business. So just to put a finer point on that, could you maybe talk about the capital allocation-
Sure
... strategy and how that all plays together?
Yeah, I mean, listen, we believe deeply in capital allocation. It's, you know, we teach it to our managers, our engineering managers. You know, we, you know, you know, if you can't describe your capital allocation policy at PAR, it's hard to be a manager. You know, as I mentioned, one of the things I'm most proud about at PAR is, we've held our OpEx flat while still making, you know, $9 plus million of new investments. And so that has been real capital allocation. That's been going to a product line and saying: "Hey, you've usually had $10 million of OpEx. We're cutting that to $4 million and taking $6 million and putting it into this other thing." And you've got to think like a capital allocator.
And so we've lived that trial by fire and kind of trained our teams on that, and I do a lot of coaching on that. You know, I would say in the last, you know, five years of running PAR, our internal capital allocation, I think, has been focused on Brink, getting Brink right. Brink was falling off a cliff. Can we fix it there? But maybe the best thing we've done is M&A. If you look at the acquisitions we've done, we've both financed them well, but then I think, gotten the juice out of it. You know, our first acquisition was a product called Restaurant Magic. We bought it at a very accretive price, and it kind of helped get us going. Our second acquisition was Punchh. Punchh was—is the largest loyalty product in restaurants.
You know, we bought it, you know, during sort of like the SaaS heyday, where, you know, our stock was trading at, like, 25 times revenue, and, you know, we bought them at, like, 10 or 15. And it-- that product was growing faster than us and the same size as us, and at higher margin. And so, you know, that was a slam dunk because it was accretive to us on every line of our P&L. And then we took that into PAR, and then we made it grow faster because we doubled that business in, like, two years and a little bit. And, you know, obviously, we had great accretive cross-sell there. And then on Menu, you know, Menu was our biggest risk one, as I said, even though it was our smallest deal.
You know, it was losing a bunch of money, but we knew it was the best product in the market. We really had great confidence in that. And then I think, you know, a year after acquiring it, we won, obviously, won Burger King, but a lot more after that. But more importantly, it's sort of that competitive positioning of, "Hey, now we can, like, be far more than a POS company," has proven out. So when we look at M&A today, you know, we're like all software companies, hyper-focused on stuff that's accretive to the Rule of 40. So we're looking for assets that are generally profitable, that are not very dilutive to our growth or enhance our growth, and then we are looking for something we can add value.
Like, hey, if we just- we're not a private equity company, we don't have the ability to say, "Hey, go do that," but can we do something? Can we cut the sales marketing team, or can we juice the revenue because we feel confident we can do that? And so we're very good about that. And, and more often than not, because our sector of restaurant technology, you know, has been hit so hard, whether it's, you know, Olo, Toast, Squ-- I mean, Square, everyone has had a tough year. The multiples are very attractive because, you know, we've kind of held in, and so we are able to generally use our stock, and buy stuff very accretive. And as I said, they're, they're also accretive to our P&L, and so that's the kind of stuff that we're looking at.
So I'm super excited for that, and we'll push on that. And then we've got really good converts. I mean, our, our, you know, our big converts in 2027, we've got four years, and it's, you know, priced at 1.875%, I think. And so it's... You know, we could refi that today, and every bank in the world wants us to refi, but it's at 1.875%, and so that cost of funding is really attractive to us, and so I don't want to rush to do that quite yet. And we've got plenty of liquidity. You know, we only burned $2.6 million last quarter, and that entire burn, like as I mentioned, was one product.
So if we need to, we shut that product, but we, you know, I think that's working really well. And then, you know, the sale of the government business will add a meaningful amount of cash to our balance sheet as well. So we feel really good from a liquidity perspective, but, you know, from an M&A perspective, I think what we're seeing today is we can buy complementary products that are accretive to us on the bottom and top line, or, or, and, do it at multiples that are, you know, very attractive to us today.
Got it. Does anybody in the crowd have any questions?
Well, I just had a question on, are you seeing, you know, deals where you're winning with sort of some of your newer solutions, whether it's online ordering or others, instead of being led by the POS?
I think it's the package. So we won Burger King because we were packaged. So if we didn't have-- we hadn't acquired that online ordering product Menu, I think we would have won, but it made it a very easy choice for them because we had both products under one roof. So it's the package that wins, it's not one or the other. That happens on the loyalty side, too. You know, a lot of the Punchh wins, which we'll be announcing in the next, you know, quarter or two here, were packaged with Menu. Because online ordering and loyalty really are, you know, they're very similar experiences. You know, you want your loyalty app and your loyalty engine to be very similar to your online ordering.
So it's the—it's them being packaged together that helps you win. So I, and I don't think it's one of them bringing us into a new set of customers. I think that will happen in time internationally, where Menu has, you know, a lot of good wins international. But right now, it's them together is what actually gives you that advantage to the customer's mind.
What would be the challenges if the industry, the bigger, let's say, Olo or Lightspeed, that said, "Hey, let's get together and really scale." Where are the challenges that we wouldn't necessarily understand to making that work? Or does it just become Toast deciding when they want to roll everybody out?
I don't worry about the former. Like, I think that, you know, Olo is an amazing company, you know, really dominates online ordering, but, you know, I think there's not a company they fit better than PAR, to be honest. Like, I think there's a really great synergistic base between our bases, our product, customer base, Square enterprise, enterprise. The, you know, it's like everything fits really nicely.
Yeah.
I think them going with, you know, I don't know, one of the companies you mentioned, very hard to get that right because the DNAs are very different, the cultures are different. You know, just look at the sales and marketing spend as a percentage of revenue, and it's completely different in the upmarket versus downmarket. You know, that's the largest expense line for a downmarket player versus for us, it's the smallest, and for them, it's probably the smallest, too. For all of us, it's probably the smallest, too. So I think that's just... I worry about that less. You know, Toast coming upm arket, I think, you know, they're such an incredible business. I mean, you know, I, I'm in this industry because I knew the Toast guy. I thought they were an incredible product.
I think it hasn't really happened in a big way or any way really yet. I think when I survey our sales teams and say, "Are you seeing them?" They say, "Yeah, we see them, but they're not the one that we, like, are worried about losing to yet." And so when that happens, then I'll be like: "Okay, well, then something's there." But I think that they have all the resources in the world to do it. But it's not there yet. And I think in the end, the POS product still has to be the product that you lead with. So, you know, if Toast went and bought Olo or something like that, it wouldn't be good for PAR, but I'm not sure, like... It doesn't make Toast still an enterprise product.
You know, that's still the product that is, like, the 90% of what you do. I'll give you an example. When we, when we took over PAR, I don't think we had one happy customer. Like, our customer NPS was, like, literally negative 60. I don't even know if you can go lower than that. I mean, it was really, really bad, okay? I have all these stories I can tell you about how all I was screamed at, at every single customer, just everybody was pissed, right? Guess how many customers we lost in those two years? 0. Okay, literally 0. When you have a negative 60... It's not like there's no alternatives. They could've gone to Toast, they could've gone to Oracle, they could've gone to NCR.
The point I'm making is that Olo can't have -60 for two years and lose and keep it. The POS is, like, so sticky. It's so important to your operations. So unless it's a big POS company that's has a better POS product than PAR, if they bought Olo or they bought, you know, one of our, you know, loyalty competitor, then I'd be worried about it, but because Brink is still, I think, far and away the best product, I'm less concerned.
Okay. Um-[Inaudible]
... in 2024. Just curious how those are going, if you're able to name those, and kind of what the ARPU is for table service versus the traditional QSR?
So, yeah, we accept the rollout in Q1, so we'll see, you know, hopefully some impact in Q1, Q2, Q3. We haven't put out the press release yet, but you can back into it because they bought one of our other products, so we did put out a press release for it, so you can kind of back into what the brand is. The general on table service, it's a wide range because we charge on a per terminal basis. So there are some table service chains that will have a few amount of terminals, and there are some that will have multiples of what we sell.
So for us, the table service deals we've done, you know, it's varied from being, you know, 30% more expensive than our average new customer signing, all the way up to 100% more, and sometimes even more than that. So it's a really wide range. But almost always, when we sell them table service, we usually get payments and back office. So it's a really big impact to ARR because we can get usually three products at the same time. And by the way, that's where, you know, I always let people ask me, I say: Where's Toast gonna come in? I always thought it'd be the table service side, just because they have such amazing products down-market. But now that we're winning there, it's...
You know, I think that's again gonna help us keep building them out. But that... Anyways, table service is very creative. Another thing I should mention is that, you know, in our numbers, one of the things our numbers kinda hide, in addition to this idea that even though OpEx is flat, we're making such tremendous investments, is that our ARPU is growing considerably. You know, I think Brink ARPU was up 20% year-over-year. You know, Punchh ARPU was up a lot. You know, we are really able to command the best pricing in the market, which I think, again, is reflective of why the product is better. You know, we are continue to be able to push the level around pricing.
But it takes time because you've got to work through the entire base of 20-something customers, 20,000 customers. So customers the last two years have come in at a mean, a far different price than our average today.
When you talked about... On the call, you talked about tidal wave of Tier One opportunities. Is that all QSR, or do you include table service in there as well, or is-
I was focusing on QSR there. QSR. because those are the biggest, you know, the big, big of North America, at least. Yeah. And so, you know, it just sort of seems, you know, I don't know if it was Burger King or something else, but these big brands that have been reticent to make the move are now in that, beginning that process. So that's what we're really excited about, which is... If you had asked me again six months ago, I've always thought, you know, like, it's probably a few years from now, five years from now, we'll start to see, like, them nibble. And now we're seeing that happen now, which is really exciting. I suspect it's more about this digital thing is kind of here, and, you know, we've worked a bunch of stuff to be mobile or have loyalty.
But, and we forget, I mean, McDonald's, who's in such a sophisticated organization, they launched their loyalty program in 2021. Like, it's still a relatively new thing for the restaurant, and they have hundreds and hundreds of hundreds... They have a data science team, you know. Restaurant companies don't have data science team. I mean, they're so they have so much more resources than everybody else, and they just did that in 2021. So just imagine the, you know, company that's a fifth the size without the resources. Like, there's a lot of catch-up for everybody. So I think that's also what's pushing it forward.
All right. One other question I have is on the go-to-market. Obviously, Toast is... Keep talking about Toast is notorious for their feet on the street, direct approach, whereas some of your other peers go with third party, a mix of third party versus direct. Can you talk about your go-to-market?
Because we're enterprise, it's very different. So, we've got, you know, an enterprise sales team that is going after, you know, a very defined set of logos. And, you know, our sales cycle is probably about a year. And they are... You know, generally, I would think, you know, the major distinction would be, there's nobody on our sales team look like an enterprise software team, not too dissimilar than other companies presenting today that you're talking to today. Versus when you're selling to small restaurants, you can hire people out of college to just dial for dollars. We would never be able to get away with that.
The other big part about our sales motion that is, I think, really different than the down market is, it's heavily, you know, sales engineering, solution engineering. You're really going in, again, product led, and it sounds like: "Let's show you the demo right away." And that's, you know, once you get in the demo, is when you've kinda grabbed the customer.
Got it. Let's think about it for time. Savneet, I wanna thank you for joining us today. I really appreciate your time, and thanks to everybody in the audience. Hope everyone has a productive conference. Thank you.