PAR Technology Corporation (PAR) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals strategic growth initiatives, strong demand for AI and loyalty programs, and a positive outlook for 2026. Despite a slower first half, the company anticipates mid-teens ARR growth, with significant opportunities in payments and retail. The Q&A highlighted optimism in M&A and market validation of their strategy. While some guidance was deferred, the overall tone was positive, supported by strong pipeline prospects and strategic positioning. Given the company's market cap, this is likely to result in a positive stock price movement in the short term.

Key Financial Performance

Revenue $119 million, up 23% year-over-year, driven by software subscription and hardware revenue growth.

Adjusted EBITDA $5.8 million, an improvement of $3.4 million compared to the same period in 2024. Adjusted EBITDA included $0.8 million of accounting charges for non-period costs. Removing these charges, adjusted EBITDA would have been $6.6 million.

Non-GAAP Operating Expenses (OpEx) 43.4% of total revenue, a 590 basis point improvement from 49.3% in Q3 2024, driven by efficient scaling and operating leverage.

Annual Recurring Revenue (ARR) $298.4 million, up 15% organically and 22% overall year-over-year, reflecting steady execution across both sides of the platform.

Subscription Service Revenue $75 million, up 25% year-over-year, with 16% organic growth. Represents 63% of total revenue.

Hardware Revenue $30 million, up 32% year-over-year, driven by hardware attachment into the software customer base and increased sales volume due to anticipated tariff impacts.

Professional Service Revenue $14.5 million, relatively unchanged from $14.2 million in the prior year.

Gross Margin $49 million, up $6 million or 14% year-over-year, driven by subscription services. Non-GAAP subscription service margin was over 70% for the quarter, excluding a fixed profit contract.

Net Loss from Continuing Operations $18 million, compared to $21 million in the prior year, reflecting a reduction in losses.

Non-GAAP Net Income $2.5 million, an improvement of $5.6 million compared to a non-GAAP net loss of $3.1 million in the prior year.

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Operating Highlights

Launch of Coach AI: Introduced an AI-driven assistant that allows operators to prompt operational questions in natural language and get immediate answers from their data.

AI Chatbot Support: Launched AI chatbot support to help users self-service faster and reduce support ticket volume.

PAR AI Suite: Launched PAR AI, an intelligence layer built natively across the PAR platform, starting with Coach AI for operational intelligence.

PAR Ordering Wins: Achieved six new customer wins, including a 400+ location enterprise chain, showcasing scalability.

International Expansion: Expanded international functionality, including onboarding a Burger King franchisee in Canada with French language support in Quebec.

Engagement Cloud Growth: ARR grew 16% year-over-year, with 70% of new deals being multiproduct, showing increased market penetration.

Operational Efficiency: Non-GAAP OpEx reduced to 44% of revenue, down from 60% 18 months ago, driven by AI utilization and cost management.

Subscription Revenue Growth: Subscription services represented 63% of total revenue, with a 25% increase year-over-year.

AI-Native Strategic Shift: Shifted to an AI-native future with embedded AI intelligence across workflows, enhancing operational efficiency and decision-making.

Tier 1 Opportunities: Focused on large Tier 1 deals and aggressive acquisition strategy to drive sustained growth.

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Risk or Challenges

Supply Chain Costs: Increased supply chain costs due to recently implemented U.S. tariff policies have negatively impacted hardware margins, which decreased from 25.5% to 17.8% year-over-year. Although pricing adjustments are being implemented, this remains a challenge.

Professional Service Margins: Professional service margins decreased from 29.2% to 17.6% year-over-year, driven by reclassification of non-period costs and incentives for SaaS implementations. This could impact profitability if not managed effectively.

Fixed Profit Contract: A fixed profit contract acquired in 2024 has negatively impacted subscription service margins. This contract is up for renegotiation in 2027, but until then, it poses a challenge to margin improvement.

Tariff Impacts: Anticipated tariff impacts have led to customers pulling forward demand, which may create uneven revenue patterns and potential future revenue gaps.

Net Loss: Despite improvements, the company reported a net loss of $18 million for Q3 2025, which could impact investor confidence and financial stability.

Operational Execution Risks: The company is pursuing large Tier 1 opportunities and aggressive acquisition strategies, which carry risks related to execution, integration, and resource allocation.

AI Integration Challenges: While AI-driven innovations like Coach AI are promising, embedding AI into workflows and ensuring adoption across the customer base could pose challenges.

Economic Uncertainty: General economic conditions and uncertainties could impact customer spending and the company's ability to meet growth targets.

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Guidance & Outlook

ARR Growth: ARR hit $298.4 million at the end of Q3, up 15% organically. ARR grew $12 million sequentially in Q3, and this growth is expected to continue in Q4 to meet year-end goals.

Operator Cloud Performance: ARR increased 31% year-over-year, including 14% organic growth. The company is pursuing multiple large Tier 1 opportunities and expects the operational groundwork and product expansion to pay off in 2026 with a record backlog and customer commitments.

TASK Rollout: The rollout of TASK has been pushed to next year to prepare for large RFP work. The company aims to maintain its launch schedule for next year with new customers and begin an aggressive build schedule for a Tier 1 opportunity.

POS Business: The Burger King implementation is on track to meet the 2025 target, creating visibility for 2026. Late-stage and weighted pipeline on PAR POS more than doubles the $20 million in POS contract value not yet rolled out, ensuring robust growth for years to come.

Engagement Cloud: ARR grew 16% year-over-year, including 15% organic growth. The company sees momentum in digital engagement and expects continued growth in multiproduct deals and cross-selling opportunities.

PAR Ordering: This quarter marked the biggest win for PAR Ordering, with 6 new customer wins, including a 400-plus location enterprise chain. The company expects this momentum to accelerate growth in 2026.

PAR Retail: The company finalized transitions from Punchh to PAR Retail, which is expected to expand gross margins and increase pricing. The platform demonstrated strong customer results and momentum heading into 2026.

AI Product Strategy: The launch of PAR AI, including Coach AI, is expected to transform restaurant operations. Future AI-driven functionalities, such as marketing intelligence assistants, are planned to enhance operational efficiency and customer engagement.

Revenue Growth: The company is on track to deliver nearly $450 million in revenue for 2025, with approximately two-thirds being recurring SaaS revenue. Growth is supported by a sizable backlog and late-stage Tier 1 pipeline.

Strategic Priorities: The company aims to grow ARR in the mid-teens organically or higher, execute on a unified product roadmap with AI-driven functionality, expand EBITDA, and close large Tier 1 deals to ensure long-term revenue growth.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What changed between Q2 and Q3 that gives you more confidence in achieving at least mid-teens growth outlook?

A:The company gained further visibility as more deals were signed, particularly larger Tier 1 deals. The backlog filled back up, indicating that deals are being signed at a faster rate than they are being rolled out, providing more confidence in future visibility.

Q:Is the company considering resuming M&A activity after digesting previous acquisitions?

A:The company is taking an opportunistic approach to M&A. While multiples have compressed, some assets the company has been tracking have compressed even more, creating accretive opportunities. There is no imminent deal, but the company is carefully evaluating opportunities.

Q:How has recent news about the restaurant industry impacted customer decision-making and deal closures?

A:The first half of the year saw a slowdown in traffic and sales, but activity picked up in the second half of the quarter. RFP activity has increased, and investments in technology are growing despite sales volatility. The company sees more interest in consolidating vendors and in AI tooling, which is benefiting their business.

Q:What is the updated message regarding TASK implementations and RFPs?

A:The company continues with the same plan to roll out TASK business in 2026 while moving from RFP to development on larger opportunities. They are focused on meeting commitments to customers and building for larger opportunities.

Q:What does the company’s outlook for 2026 entail?

A:The company has more visibility due to the backlog of signed deals. They are seeing market validation of their strategy, particularly with multiproduct deals including payments and loyalty. Guidance for 2026 will be provided in the next call.

Q:Why has the company shifted its organic ARR growth target from 20% to mid-teens?

A:The shift is due to a slower first half of the year, making it difficult to achieve 20% growth for the current year. The company is targeting mid-teens growth with opportunities to accelerate in 2026 and 2027, supported by momentum in AI and larger deals.

Q:Is the company seeing increased competition from players like Toast in the enterprise space?

A:The company competes with legacy providers and sees some competition from Toast in the smaller mid-market segment. However, in the large Tier 1 QSR space, competition remains limited to a few incumbents. The company believes its multiproduct strategy strengthens its competitive position.

Q:Has the company won a super Tier 1 customer, and what does moving from RFP to development mean?

A:The company cannot confirm specific details but indicated that moving from RFP to development is a positive sign, though not a guarantee. It suggests progress in the process, but further work is required before any public announcements.

Q:What drove the sequential trends in Operator Cloud ARR, and were there any offsets?

A:The sequential growth was back-end weighted, with significant acceleration in the last month of the quarter and into October. There was no meaningful churn, and Q4 is expected to show a nice uptick.

Q:What is the growth potential for the loyalty segment, and how does it differ between restaurants and convenience stores?

A:Loyalty is becoming a mandate, especially during sales slowdowns. The company sees opportunities to increase ARPU through new products and AI initiatives. While earlier in the cycle for convenience stores, the company expects continued growth in both segments.

Q:How does the company view M&A opportunities given its current stock valuation?

A:The company is focused on accretive M&A opportunities, particularly niche assets that can be acquired using cash or shares with a large margin of safety. They aim to find assets that can accelerate growth without diluting shareholders irresponsibly.

Q:What is the status of PAR Ordering, and what opportunities does it present?

A:PAR Ordering is a small but growing product. The company won a 400-plus store chain, taking business from a market leader. They see opportunities to attach it to loyalty wins, upsell to existing customers, and bundle it with payments.

Q:What drove the upside surprise in hardware revenue, and will margins normalize in Q4?

A:The upside was due to orders pulled in before tariff price increases, which were executed in Q3. Margins are expected to normalize in Q4 as the tariff price increases take effect.

Q:How important is the data generated for customers in the company’s value proposition?

A:Data is hugely valuable and a key part of the Better Together strategy. Customers benefit from real-time access to data, which is organized to provide actionable insights and decision-making support, particularly through AI tools like Coach AI.

Q:Review of Unclear Management Responses

A:Management avoided directly answering questions about winning a super Tier 1 customer and the specifics of moving from RFP to development. They also did not provide detailed guidance for 2026, stating that it would be shared in the next call. Additionally, they were vague about the exact impact of M&A opportunities on growth rates and avoided confirming specifics about the pipeline or potential deals.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call summary highlights strong revenue growth, successful product launches, and strategic partnerships, which are positive indicators. The Q&A section reveals optimism about multiproduct deals and Tier 1 opportunities, although there are concerns about margin declines and rollout delays. Overall, the company's strong financial performance and optimistic guidance, coupled with strategic partnerships and product enhancements, suggest a positive sentiment. Given the market cap of approximately $1.58 billion, the stock price is likely to react positively, within the 2% to 8% range over the next two weeks.

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