PAR Technology Corporation Announces 2016 Third Quarter Results From Continuing Operations

PAR Technology Corporation (NYSE:PAR) today announced results from continuing operations for the third quarter ended September 30, 2016.

Summary of Fiscal 2016 Third Quarter and Year-to-Date Financial Results
  • Revenues were reported at $61.5 million in the third quarter of fiscal 2016, compared to $58.1 million in the same period in 2015, a 6.1% increase.
  • GAAP net income in the third quarter of fiscal 2016 was $518,000, or $0.03 per diluted share, compared to a GAAP net income of $1.3 million, or $0.08 earnings per diluted share in the same period in 2015.
  • Non-GAAP net income in the third quarter of fiscal 2016 was $1.6 million, or $0.10 per diluted share, compared to non-GAAP net income of $1.7 million, or $0.11 earnings per diluted share, in the same period in 2015.
  • Revenue decreased to $169.5 million in the first nine months of fiscal 2016, compared to $172.2 million in the same period in 2015.
  • GAAP net income in the first nine months of fiscal 2016 was $633,000 or $0.04 earnings per diluted share, compared to GAAP net income of $2.6 million, or $0.16 earnings per diluted share, in the same period in 2015.
  • Non-GAAP net income in the first nine months of fiscal 2016 was $3.1 million, or $0.20 per diluted share, compared to non-GAAP net income of $4.1 million or $0.26 earnings per diluted share, in the same period in 2015.

A reconciliation and description of non-GAAP financial measures to their comparable GAAP financial measures are included in the tables following this news release.

"Our performance in the quarter was a result of strength across both of PAR's segments evidenced by revenue growth of 5.9% over the third quarter in 2015 and a 17.0% increase sequentially from the previous quarter. We are seeing increased demand from our Restaurant/Retail Tier 1 customers, and also had increased deployments of our Brink cloud platform-as-a-service solution in the recently ended quarter," commented Karen E. Sammon, PAR Technology Corporation President and Chief Executive Officer. "The success of PAR's cloud solutions have favorably impacted our business as reflected by a 75% rise in our SaaS revenues from the third quarter last year. I am also pleased to report that our Government segment had a strong quarter as revenues increased by 4.9% over the prior year third quarter as we continue to add new contract awards and extensions and our backlog in this segment at the end of the quarter is a very healthy $122.4 million."

Sammon continued, "PAR is bringing new technology to market at a rapid pace to address critical customer needs leveraging cloud technology, IoT and machine learning coupled with our passion for customer success. Our value proposition is resonating in the marketplace, positioning our Company as a mission-critical partner for companies looking to succeed in the emerging outcomes-based economy. We are committed to excellence throughout our organization, with our products and for all of our stakeholders. Our innovation supported by our proven track record in the markets we serve is fueling our performance and sets our Company up for future growth."

Other Matters

Disclosed in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016 to be filed with the Securities and Exchange Commission ("SEC") today, the Company discovered and is currently investigating potential improper import/export and/or documentation of sales activities arising out of conduct in the Company's China and Singapore offices. While it has been determined that no amendments need to be made to the Company's prior period consolidated financial statements, material weaknesses in internal controls with respect to oversight of the sales operations in China and Singapore have been identified. The Company has notified the SEC, and is developing and implementing remediation plans and corrective actions to fully address the identified material weaknesses in its internal control over financial reporting. If the SEC or other governmental agencies were to open an investigation, the Company could be exposed to sanctions, including fines, penalties, disgorgement and/or injunctive relief. As a result of the foregoing, the Company's principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2016.

Certain Company information in this release or statements made by its spokespersons from time to time may contain forward-looking statements. Any statements in this document that do not describe historical facts are forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including without limitation, delays in new product introduction, risks in technology development and commercialization, risks in product development and market acceptance of and demand for the Company's products, risks of downturns in economic conditions generally, and in the quick service sector of the restaurant market specifically, risks of intellectual property rights associated with competition and competitive pricing pressures, risks associated with foreign sales and high customer concentration, and other risks detailed in the Company's filings with the Securities and Exchange Commission.

About PAR Technology Corporation

PAR Technology Corporation's stock is traded on the New York Stock Exchange under the symbol PAR. PAR's Hospitality segment has been a leading provider of restaurant and retail technology for more than 35 years. PAR offers technology solutions for the full spectrum of restaurant operations, from large chain and independent table service restaurants to international quick service chains. Products from PAR also can be found in retailers, cinemas, cruise lines, stadiums and food service companies. PAR's Government Business is a leader in providing computer-based system design, engineering and technical services to the Department of Defense and various federal agencies. For more information visit http://www.partech.com or connect with us on Facebook and Twitter.

There will be a conference call at 10:00 a.m. (Eastern) on November 14, 2016, during which the Company's management will discuss the financial results for the third quarter of 2016. To participate in the call, please call (866) 868-9502, approximately 10 minutes in advance. No passcode is required to participate in the live call or to listen to the replay version. Individual & Institutional Investors will have the opportunity to listen to the conference call/event over the internet by visiting PAR's website at www.partech.com. Alternatively, listeners may access an archived version of the presentation call after 1:00 p.m. on November 14, 2016 through November 21, 2016 by dialing (855) 859-2056 and input conference ID 8561827.
     

PAR TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)
 
 
(Unaudited)
September 30, December 31,
Assets 2016 2015
Current assets:
Cash and cash equivalents $ 2,883 $ 8,024
Accounts receivable-net 32,848 29,530
Inventories-net 29,785 21,499
Note receivable 4,406 -
Income taxes receivable 482 -
Deferred income taxes 6,424 6,741
Other current assets   5,188       3,808
Total current assets 82,016 69,602
Property, plant and equipment - net 5,751 5,716
Note receivable - 4,259
Deferred income taxes 11,038 11,038
Goodwill 11,051 11,051
Intangible assets - net 11,298 10,898
Other assets   3,806       3,687
Total Assets $ 124,960     $ 116,251
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 170 $ 2,103
Borrowings on line of credit 4,795 -
Accounts payable 19,269 11,729
Accrued salaries and benefits 5,761 5,727
Accrued expenses 5,056 7,644
Customer deposits and deferred service revenue 11,895 10,819
Income taxes payable - 279
Liabilities of discontinued operations   5       441
Total current liabilities 46,951 38,742
Long-term debt 426 566
Other long-term liabilities   8,802       8,883
Total liabilities   56,179       48,191
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $.02 par value, 1,000,000 shares authorized - -
Common stock, $.02 par value, 29,000,000 shares authorized;
17,485,622 and 17,352,838 shares issued;

15,777,513 and 15,644,729 outstanding at September 30, 2016 and December 31, 2015,respectively
350 347
Capital in excess of par value 46,161 45,753
Retained earnings 31,182 30,574
Accumulated other comprehensive loss (3,076) (2,778)
Treasury stock, at cost, 1,708,109 shares   (5,836)       (5,836)
Total shareholders' equity   68,781       68,060
Total Liabilities and Shareholders' Equity $ 124,960     $ 116,251
 
 

PAR TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)
 

For the three months endedSeptember 30,

For the nine months endedSeptember 30,
2016     2015 2016     2015
Net revenues:
Product $ 25,757 $ 24,408 $ 69,285 $ 70,081
Service 12,620 11,611 36,128 34,687
Contract   23,115   22,041   64,042   67,438
  61,492   58,060   169,455   172,206
Costs of sales:
Product 18,433 17,454 51,012 50,238
Service 8,969 8,491 25,787 25,499
Contract   21,490   20,395   59,002   63,058
  48,892   46,340   135,801   138,795
Gross margin   12,600   11,720   33,654   33,411
Operating expenses:
Selling, general and administrative 8,672 6,808 23,271 20,313
Research and development 2,866 2,744 8,421 7,840
Amortization of identifiable intangible assets   241   248   724   746
11,779 9,800 32,416 28,899
Operating income from continuing operations 821 1,920 1,238 4,512
Other (expense) income, net (38) 128 (318) (58)
Interest (expense)income, net   (12)   (81)   20   (252)

Income from continuing operations before provision forincome taxes
771 1,967 940 4,202
Provision for income taxes   (253)   (670)   (306)   (1,470)
Income from continuing operations 518 1,297 634 2,732
Discontinued operations
Loss on discontinued operations (net of tax)   -   (2,786)   (26)   (4,505)
Net income (loss) $ 518 $ (1,489) $ 608 $ (1,773)
Basic Earnings per Share:
Income from continuing operations 0.03 0.08 0.04 0.18
Loss from discontinued operations   (0.00)   (0.18)   (0.00)   (0.29)
Net income (loss) $ 0.03 $ (0.10) $ 0.04 $ (0.11)
Diluted Earnings per Share:
Income from continuing operations 0.03 0.08 0.04 0.17
Loss from discontinued operations   (0.00)   (0.18)   (0.00)   (0.29)
Net income (loss) $ 0.03 $ (0.10) $ 0.04 $ (0.11)
Weighted average shares outstanding
Basic   15,770   15,589   15,670   15,549
Diluted   15,822   15,659   15,730   15,650
 
 
PAR TECHNOLOGY CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL RESULTS
(in thousands, except per share data)
(Unaudited)
                     
For the three months ended September 30, 2016 For the three months ended September 30, 2015

Reported basis(GAAP)
  Adjustments

Comparablebasis (Non-GAAP)

Reported basis(GAAP)
  Adjustments

Comparablebasis (Non-GAAP)
 
Net revenues $ 61,492 - 61,492 $ 58,060 - 58,060
Costs of sales   48,892     -     48,892     46,340     -     46,340  
Gross Margin 12,600 - 12,600 11,720 - 11,720
 
Operating Expenses

Selling, general andadministrative
8,672 1,421 7,251 6,808 414 6,394
Research and development 2,866 - 2,866 2,744 2,744

Amortization of identifiableintangible assets
  241     241     -     248     248     -  
Total operating expenses 11,779 1,662 10,117 9,800 662 9,138

Operating income from continuingoperations
821 1,662 2,483 1,920 662 2,582
Other (expense) income, net (38 ) - (38 ) 128 - 128
Interest (expense) income , net   (12 )   26     14     (81 )   26     (55 )

Income from continuing operationsbefore provision for income taxes
771 1,688 2,459 1,967 688 2,655
Provision for income taxes   (253 )   (625 )   (878 )   (670 )   (255 )   (925 )

Income from continuing operations
$ 518   $ 1,063   $ 1,581   $ 1,297   $ 433   $ 1,730  

Loss from discontinued operations,(net of tax)
$ -   $ -   $ (2,786 ) $ (2,786 )
Net income $ 518   $ 1,581   $ (1,489 ) $ (1,056 )

Income per diluted share fromcontinuing operations
$ 0.03   $ 0.10   $ 0.08   $ 0.11  

Loss per diluted share fromdiscontinuing operations
$ -   $ -   $ (0.18 ) $ (0.18 )
Income per diluted share $ 0.03   $ 0.10   $ (0.10 ) $ (0.07 )
 

The Company reports its financial results in accordance with GAAP, which refers to financial information presented in accordance with generally accepted accounting principles in the United States. However, non-GAAP adjusted financial measures, as defined in the reconciliation table above, are provided herein because management uses such measures in evaluating the results of the continuing operations of the Company and believes this information provides investors supplemental insight into underlying business trends and performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.

PAR's results of operations are impacted by certain items which include severance charges from restructuring business operations, equity based compensation, acquisition related expenditures, and other one-time charges that may not be indicative of the Company's business trends. Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these certain items provides an useful perspective with respect to our results and provides meaningful supplemental information to both management and investors that removes these items which are difficult to predict and are often unanticipated, and which, as a result are difficult to include in analyst's financial models and our investors' expectations with any degree of specificity. PAR believes the adjusted totals facilitate comparison on a year-over-year basis.

PAR's results of operations are further impacted by costs from its multi-year ERP system implementation. Management believes that further adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove the impact of the ERP expenses provides a useful perspective with respect to underlying business trends and results and provides meaningful supplemental information to both management and investors that is indicative of the performance of the Company's underlying operations and facilitates comparison on a year-over-year basis.

The Company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes. These financial measures should not be used as a substitute in assessing the company's results of operations for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. As a result, in the tables that follow, each period presented is adjusted to remove the certain items noted above. Each period has been further adjusted to remove expenses related to the ERP system implementation.

During the third quarter of 2016, the Company recorded charges within selling, general and administrative of $406,000 of investigation costs related to certain unauthorized transfers of Company funds that were made in contravention of the Company's policies and procedures, $36,000 related to the initial phase of the planned implementation of a new enterprise resource system, $789,000 write off relating to the Company's previous human capital management system that is being replaced in connection with the ERP system implementation and equity based compensation charges of $190,000. Lastly, related to the acquisition of Brink, the Company recognized amortization of acquired intangible assets of $241,000 and accreted interest of $26,000. During the third quarter of 2015, the Company recorded severance and other related charges of $200,000 and equity based compensation charges of $214,000, included in selling, general and administrative. The Company also recognized amortization of acquired intangible assets of $248,000 and accreted interest of $26,000 related to the acquisition of Brink. The aforementioned charges, along with an associated adjustment to the Company's provision for income taxes have been excluded in the Company's non-GAAP measures because they are considered non-recurring in nature and/or are quantitatively and qualitatively different from the Company's core operations during any particular period.
       
PAR TECHNOLOGY CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL RESULTS
(in thousands, except per share data)
(Unaudited)
               
For the nine months ended September 30, 2016 For the nine months ended September 30, 2015

Reported basis(GAAP)
  Adjustments

Comparable basis(Non-GAAP)
 

Reported basis(GAAP)
  Adjustments

Comparablebasis (Non-GAAP)
 
Net revenues $ 169,455 - $ 169,455 $ 172,206 - $ 172,206
Costs of sales   135,801     -     135,801     138,795     151     138,644  
Gross Margin 33,654 - 33,654 33,411 151 33,562
 
Operating Expenses

Selling, general andadministrative
23,271 3,170 20,101 20,313 1,120 19,193
Research and development 8,421 - 8,421 7,840 13 7,827
Acquisition amortization   724     724     -     746     746     -  
Total operating expenses 32,416 3,894 28,522 28,899 1,879 27,020

Operating income from continuingoperations
1,238 3,894 5,132 4,512 2,030 6,542
Other (expense) income, net (318 ) - (318 ) (58 ) - (58 )
Interest income (expense), net   20     78     98     (252 )   77     (175 )

Income from continuing operationsbefore provision for income taxes
940 3,972 4,912 4,202 2,107 6,309
Provision for income taxes   (306 )   (1,470 )   (1,776 )   (1,470 )   (780 )   (2,250 )
Income from continuing operations $ 634   $ 2,502   $ 3,136   $ 2,732   $ 1,327   $ 4,059  

Loss from discontinued operations,(net of tax)
$ (26 ) $ (26 ) $ (4,505 ) $ (4,505 )
Net income (loss) $ 608   $ 3,110   $ (1,773 ) $ (446 )

Income per diluted share fromcontinuing operations
$ 0.04   $ 0.20   $ 0.17   $ 0.26  

Loss per diluted share fromdiscontinuing operations
$ (0.00 ) $ (0.00 ) $ (0.29 ) $ (0.29 )
Income (loss) per diluted share $ 0.04   $ 0.20   $ (0.11 ) $ (0.03 )
 

During the nine months ended September 30, 2016, the Company recorded charges within selling, general and administrative of $1,476,000 of investigation costs related to certain unauthorized transfers of Company funds that were made in contravention of the Company's policies and procedures, $508,000 related to the initial phase of the planned implementation of a new enterprise resource system, $789,000 write off relating to the Company's previous human capital management system that is being replaced in connection with the ERP system implementation and equity based compensation charges of $397,000. Lastly, related to the acquisition of Brink, the Company recognized amortization of acquired intangible assets of $724,000 and accreted interest of $78,000. During the nine months ended September 30, 2015, the Company recorded severance and other related charges of $797,000, of which $151,000 is included in cost of sales, $13,000 is included in research and development and $633,000 is included in selling, general and administrative. Also included within selling, general and administrative is equity based compensation charges of $487,000. Lastly, related to the acquisition of Brink, the Company recognized amortization of acquired intangible assets of $746,000 and accreted interest of $77,000. The aforementioned charges, along with an associated adjustment to the Company's provision for income taxes have been excluded in the Company's non-GAAP measures because they are considered non-recurring in nature and/or are quantitatively and qualitatively different from the Company's core operations during any particular period.

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