PAR Technology Corporation (PAR) Q1 2022 Earnings Call Transcript

PAR Technology Corporation (PAR -1.59%)
Q1 2022 Earnings Call
May 10, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the fiscal year 2022 first quarter financial results conference call. [Operator instructions] And I'd like to hand the conference over to your speaker today, Mr. Chris Byrnes, vice president of business development.

Please go ahead.

Chris Byrnes -- Vice President, Business Development

Thank you, Sarah, and good afternoon, everyone. I'd also like to welcome you today to the call for PAR's 2022 first quarter financial results review. The complete disclosure of our results can be found in our press release issued this afternoon as well as in our related Form 8-K furnished to the SEC. To access the press release and the financial details, please see the investor relations and News section of our website at partech.com.

I also want to be sure all participants today have access to our earnings presentation and business review slide deck that we will use later in the call to better communicate the momentum in our software business. Individuals on the webcast should have access to the deck when they logged on to the call this afternoon. For those just dialing in on the conference call, the presentation can be accessed on the Investor page of our website, and we also included it as an attachment on the 8-K we filed this afternoon. At this time, I'd like to take care of certain details in regards to the call today.

Participants on the call should be aware that we are recording the call, and it will be available for playback. If you ask a question, it will be included in both our live conference and any future use of the recording. I'd also like to remind participants that this conference call includes forward-looking statements that reflect management's expectations based on currently available data. However, actual results are subject to future events and uncertainties.

The information on this conference call related to projections or other forward-looking statements may be relied upon and subject to the safe harbor statement included in our earnings release this afternoon, and in our annual and quarterly filings with the SEC. Joining me on the call today is PAR's CEO and president, Savneet Singh; and Bryan Menar, PAR's chief financial officer. I'd now like to turn the call over to Savneet for the formal remarks portion of the call, which will be followed by general Q&A. Savneet?

Savneet Singh -- Chief Executive Officer and President

Thanks, Chris, and thanks to everyone for joining us to review PAR's first quarter 2022 results. As always, there's a lot we want to share in the prepared remarks, so let's get started. Q1 saw us continue to hit our ARR growth targets of 30% to 40% growth with consistent margin expansion. Every quarter continues to prove out the long-term growth and profitability of our unified commerce initiative.

As a company, we delivered a strong first quarter reported total Q1 revenues of $80.3 million, a 47% increase from one year ago. This revenue growth was driven across all business lines and specifically around our software recurring revenues resulting in $94.4 million of total live ARR at quarter end and a year-over-year growth rate of 172% from Q1 last year. When adjusting for the Punchh acquisition, ARR grew 34% year over year. This acceleration continued to be driven by a 40% growth in ARR coming from Punchh and 35% from Brink.

Contract ARR now totaled more than $116 million as of March 31, paving the way for a strong rest of the year and beyond. Equally important as we scale ARR is the dramatic improvement we've been able to drive the gross margin expansion on our subscription revenues. When new management stepped in a little over a year ago -- three years ago, recurring revenue gross margin was in the low 40s. At the end of Q1 2022, we've now achieved a 72% -- we've now achieved 72%, a significant improvement from just one year ago.

We expect this positive trajectory to continue to expand over time. This growth has been driven by intense ROI focused engineering and by a dramatic improvement in Brink scalability. Our strong results this quarter continued to be driven by a high level of execution across the business and continued demand for PAR's unified commerce cloud. We have established strong momentum, and we have continued to build on that throughout the quarter.

In Q1, we activated 1,244 new Brink sites, a solid start to the year as stores go live. On a net basis, after churn, Brink's active store count now totaled nearly 17,000, a 40% increase from one year ago. Brink's bookings totaled nearly 1,100 stores in the quarter. In more detail, Brink's strong first quarter was headlined by strong activation numbers with higher ARR, the cross-selling of Brink POS payments to new accounts and operational improvements resulting in margin gains.

Brink ARPU increased by $62 in the quarter as new deals and subscription increases are now having favorable impact. We had a 76% increase in gross new store activations from Q1 last year. We continue to see improvement -- impressive low churn rates for Brink approximately 3% annualized and are encouraged by the progress of deals attaching PAR payment services to Brink that validates our unified commerce platform. We continue to be hyper focused on margin expansion by scaling with new customers and also driving operational efficiency.

Brink continues to be the distinguished leader in cloud POS for enterprise QSR and fast casual restaurants. Now turning to Punchh. We continue to outperform at Punchh and added in excess of 1,500 sites in the quarter and now total more than 58,800 active sites, a 29% increase in the last 12 months. We signed 12 -- 10 new customer logos in Q1 that added to our impressive contracted store list, including C-stores and are beginning to build out the grocery pipeline.

Digital loyalty programs are critical to the future of restaurant marketing. Applications like Punchh make easier for brands to connect with their most loyal customers and increase customer lifetime value or account book. As the number of channels grow, they need to understand customer LTV expands thereby pulling more Punchh demand. I want to highlight that Punchh has just crossed an important milestone, showing a strong momentum in leadership in the market.

There are over 200 million loyalty guests on Punchh. Each of these guest relationships is unique to a brand. The number includes duplicate guests. On a dedupe basis, Punchh has now has over 150 million unique guest profiles, that is approximately 58% of adults in the United States, are participating in a loyalty program that is powered by Punchh, clearly showing our market dominance.

PAR payment services pipeline grew significantly in the quarter as well, and we're extremely encouraged by the early performance in new customer interest, although working out the small base ARR associated with payments grew by 163% from Q1 last year. We are now engaged with a steady stream of new customers who sought out PAR for payment services due to our transparent and competitive pricing, along with the integration of with Brink and Punchh. PAR continues to see increased interest in the pipeline broadly across Brink and Punchh customer bases. I am confident additional upsell and new customer opportunities will significantly accelerate this year as more and more enterprises are seeking integrated payments offering from a trusted technology partner with competitive and transparent pricing.

Although still early, our payments initiative, we have seen notable customer wins during 2022 and believe this revenue stream will be meaningful and accelerated to our future financial performance. We expect to dramatically increase CARR in 2022 from payments alone. To update you on data central. We experienced higher-than-normal churn in the quarter due to a onetime unfavorable renewal process.

This churn negatively impacted the number of active stores for Q1, and we are now working hard to reverse this quickly. Also impacting data central is the workflow interruptions to our development team based in the Ukraine and sadly the conflict there. New product development enhancement team initiatives have been impacted by 20% to 30% due to the war, and this is having an impact on data central sales. For the last two-plus years, restaurants have focused tech spend on the front of house with CRM, loyalty, digital and delivery.

Now most restaurants have upgraded the front-of-house tech stack, and they are struggling the operational issues and profit and margins looking out the back door via food and labor challenges. We added three new logos in Q1 with California Pizza Kitchen and their 150-plus sites being the most notable. Data central had significant priorities in January also, focused on labor management, and we have signed deals where we went head-to-head leading labor solutions in one, which shows our labor solutions is a product that we can now sell on its own. Our product and hardware businesses continue to perform well in a difficult and challenging environment.

Product revenues in the quarter continued to strengthen year over year and we reported at $25.1 million in this recently ended quarter, a 35% increase. The capital purchase environment for restaurants is always tricky and this has been even more so with the pandemic and the global supply chain difficulties for us around several end markets. As I mentioned previously, we are not immune to these challenges around the supply chain, and we have experienced some margin impact with the costs associated with the current realities. We continue to monitor the supply environment closely, specifically realities in Asia and, specifically China, in regards to pandemic and the impact of wide shutdowns.

We will continue to diligently manage our partners and vendors through these shortages, price inflation and increases in freight charges. We're constantly seeking out a greater diversity supply sources, while at the same time, technology-enabled operations and management of supply chain inventory. We anticipate continued volatility in our sourcing channels and expect to closely monitor real-time upstream and downstream visibility across the supply chain to help us predict and plan for adverse events. While we don't like to carry excess inventory, we have strategically added inventory over the last year and will continue for PAR this year to ensure roles are not delayed.

Now, to briefly report on our government business. Our government had a solid Q1 financial performance as evidenced by the 20% increase from Q1 last year and reported revenues of $21.4 million. Our government segment performed above plan for both revenue and earnings. Our ISR group had a solid quarter driven by increased demand for our services.

Our government segment also delivered improved performance from our mission systems and product business lines, and I'm confident this segment will continue to outperform for the foreseeable future with a solid contract backlog and future award opportunities. In addition to our excellent revenue, growth in 2022 -- our solid revenue growth in 2022, we will continue to seek out additional contract opportunities where we can leverage our decade-long experience and performance excellence. Let me now talk a bit of where we see things going forward from a business perspective. We continue to work to advance the enterprise restaurant industry vision of autonomous restaurants with a focus on creating a single cloud-based platform that is designed to enable SaaS and tech-enabled restaurant operations.

Unified commerce connects all the guest-facing channels, website, app, in-store, third-party deliveries with one common technology platform that is built on the open web standards. This is an evolution in the industry for multichannel and omnichannel platforms, which still require bands to do the heavy-duty integration, often at their own peril. With the current state of technology achieving a personalized guest experience through unified commerce is no longer a holy grail. In fact, mega brands have created their own custom technology stacks to the proprietary investments to achieve it.

PAR's unified commerce democratizes access to that opportunity for thousands of brands through a SaaS model. This is similar to what Salesforce did to the CRM market almost two decades ago. Brands no longer have to become a system integrator to band aid disparate systems and still end up with a tablet library. They can focus on delivering unparalleled guest experiences and building better employee engagement set.

To achieve our goals, we continue to solidify our senior management team and recently added an experienced chief marketing officer and SVP of human resources. Both of these individuals have proven track records and these new contributors are designed to foster collaboration across our company and to establish linkages to critical -- linkages critical to bring in innovative new products to market quickly and cost effectively while ensuring we are aligned with the needs of our customers and employees. I also want to redirect my message from last quarter's call. We will seek to continue to deliver 30% to 40% year-over-year ARR growth driven by new customer signings along with upsell and cross-sell opportunities that will deliver the strong operational performance for our company.

In summary, we are pleased with our results in the first quarter of 2022, and we believe we're executing well in what continues to be a challenging and dynamic environment. Our revenue growth is strong, and we expect our margins to continue to improve in subscription services specifically. We have a strong balance sheet and solid cash position to execute our strategic plan. Most importantly, we believe our unified commerce cloud distinguishes us from the competition and it positions us well for long-term growth.

As I mentioned on the last quarter's call, a fairly large portion of our data central team is based in Ukraine and it's an important location for us. Despite the ongoing work, I want to report that our entire Ukrainian-based team has remained productive with high morale. I admire the current dedication and the single mind of focus that they put into their work without being asked to do so. For our part, we are providing and will continue to provide support to our data central team and their families.

This is the behavior that is central to the culture and integrity of our company. As always, I would like to thank all of our employees for their dedication and efforts over the past quarter. Across the organization, people have stepped up to ensure we meet our customers' needs, while at the same time, embracing the changes necessary to create a platform for long sustainable success of PAR. With that, I'd like to hand it off to Bryan, who will review our financial performance in greater detail.

Bryan Menar -- Chief Financial Officer

Thank you, Savneet, and good afternoon, everyone. Total revenues were $80.3 million for the three months ended March 31, 2022, an increase of 47.4% compared to the three months ended March 31, 2021. Net loss for the first quarter of 2022 was $15.7 million or $0.58 loss per share compared to a net loss of $8.3 million or a $0.38 loss per share reported for the same period in 2021. Adjusted net loss for the first quarter of 2022 was $7.1 million or $0.26 loss per share compared to an adjusted net loss of $7.6 million or $0.34 loss per share for the same period in 2021.

Product revenue in the quarter was $25.1 million, an increase of $6.5 million or 35% from the $18.6 million reported in the prior year. The strong growth was primarily driven by hardware refresh investments by our domestic Tier 1 accounts. Service revenue was reported at $33.8 million, an increase of $15.8 million or 87% from the $18 million reported in the prior year. The increase was primarily driven by revenues of Punchh of $11.2 million, which included SaaS and related recurring services of $10.8 million and other services of $0.4 million.

Total subscription services revenue reported in Q1 2022 was $21.7 million compared to $8.4 million in Q1 2021. The annual run rate of subscription services exiting the quarter was $94.4 million. The company continues to expand our total recurring revenue base, which includes both software-related services and hardware support contracts. Of the $33.8 million of service revenue reported in Q1 2022, $29.2 million is comprised of recurring revenue contracts as compared to $15.2 million in Q1 2021.

Contract revenue from our government business was $21.4 million, an increase of $3.5 million or 20% from the $17.9 million reported in the first quarter of 2021. The increase in contract revenue was driven by a $2.7 million increase in our ISR solutions product line. Contract backlog continues to be significant, noting a total backlog of $195.7 million as of March 31, 2022, compared to $140.1 million backlog as of March 31, 2021. Now, turning to margins.

Product margin for the quarter was 20.2% versus 19.8% in Q1 2021. This margin growth was driven by our price increases effected in 2021 partially offset by unfavorable product mix. We continue to monitor our pricing to properly reflect changes in the cost structure. Service margin for the quarter was 41.4% compared to 29.6% reported in the first quarter of 2021.

The increase in margin was driven by higher mix of SaaS software and continued cost improvements with our hosting costs and support services, which has enabled to bring scalability. Service margin during the 30 months ended March 31, 2022 included $5.2 million of amortization of identifiable intangible assets compared to $2.1 million during the three months ended March 31, 2021. Excluding the amortization of intangible assets, service margin for the three months ended March 31, 2022 was 56.8% compared to 41.1% for the three months ended March 31, 2021. government contract margins were 7.3% as compared to 6.7% for the first quarter of 2021.

The increase was driven by our mission systems product line. In regards to operating expenses, GAAP SG&A was $22.4 million, an increase of $7.9 million from the $14.5 million reported in Q1 2021. The increase was primarily driven by $6.6 million in total Punchh operational expenses, of which $1.4 million is stock-based compensation. Other drivers include increases of $0.8 million in corporate expenses, of which $0.4 million is stock-based compensation.

This quarter again highlighted how our core business continues to scale with minimal incremental SG&A expense. In fact, in Q1, our revenues grew at the rates highlighted, yet with only approximately $1 million of true incremental spend. Net R&D was $10.8 million, an increase of $5 million from the $5.8 million recorded in Q1 2021. The increase was primarily driven by $3.4 million for Punchh and $1.6 million related to additional investments in our other existing products.

Net interest expense was $2.5 million compared to $2.2 million recorded in Q1 2021. The increase is driven by an increase in debt with the issuance of the 2027 notes in September 2021 partially offset by the reduction of accretion resulting from our January 1, 2022 adoption of a recent accounting pronouncement. Prior to our adoption, we accounted for our convertible notes by bifurcating between debt and equity, which resulted in noncash accretion of debt discount with an interest expense over the life of the respective notes. Upon the adoption, all notes are now accounted for as 100% debt.

Please see Note 7 and debt footnote in our Q1 10-Q filing for additional information. Now to provide information on the company's cash flow and balance sheet position. For the three months ended March 31, 2022, cash used in operating activities was $21.2 million versus $3.4 million for the prior year. Cash used for the three months ended March 31, 2022 was primarily driven by additional net working capital requirements due to a $5 million increase in accounts receivable related to our government segment, a $5 million increase in inventory and the payout of our annual cash bonus.

These increases will be temporary as we expect accounts receivable and inventory to revert back closer to December 31, 2021 levels during Q2. In regards to inventory, the balance as of March 31, 2022 was $40.9 million, and we had a planned target for the company to exit this year at $30 million while managing supply chain needs for our customers. Our increase in inventory has been a strategic investment over the last 18 months to ensure product delivery in a supply challenged market, but we are also confident that we can support customer demand while managing inventory down to more modest levels. Cash used in investing activities was $3.1 million for the three months ended March 31, 2022 versus $1.7 million for the three months ended March 31, 2021.

Investing activities during the three months ended March 31, 2022 included $1.2 million of cash consideration in connection with the small tech tuck acquisition to complement our drive-thru offering. Capitalized software for the three months ended March 31, 2022 was $1.6 million and was associated with the investments for various hospitality software offerings versus $1.5 million for the three months ended March 31, 2021. Cash used in financing activities was $1.4 million for the three months ended March 31, 2022 versus $2.1 million for the prior year. Finance activities for both periods was driven by stock-based compensation-related transactions.

Days sales outstanding increased within restaurants and retail from 58 days at December 31, 2021 to 59 days at March 31, 2022. Days sales outstanding increased within government from 55 days at December 31, 2021 to 62 days at March 31, 2022. At this time, I would like to recognize the importance of continuing to provide clear financial performance data and metrics as we execute to our strategy and the transformation of PAR. As such, in the future reporting, we will disaggregate the services reporting line between subscription services and professional services.

Breaking out these distinct revenue streams will give a more accurate and transparent portrayal of the increased velocity and momentum of our software subscription services initiatives. This concludes my formal remarks, and we'll now move to Q&A.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Mayank Tandon with Needham. Your line is open.

Kyle Peterson -- Needham and Company -- Analyst

Yeah. Good afternoon, guys. This is actually Kyle Peterson on for Mayank. Appreciate you guys taking our questions.

Just wanted to touch on client conversations, particularly in this kind of higher inflation environment. I know kind of everyone is dealing with it differently. It seems like at least a lot of restaurants and don't really have been able to push on some prices through higher menu costs and such, are you guys being -- are you guys able to kind of push similar pricing increases through, especially given some of the supply concerns on the hardware side?

Savneet Singh -- Chief Executive Officer and President

Yeah. I mean we've been able to -- so I think there's two questions there. So from client conversations, it's probably consistent what you've been hearing, which is restaurants have been able to pass on without a major impact to their bottom line yet. And so we've seen them been able to do that without a ton of traffic in fact.

On our business, we've been pretty good at passing on the -- particularly the hardware inflation to our customers. So if you look at our hardware margins, they've been expanding the last two quarters, which is a combination of the product mix, but passing on the price increases to our customers. So, so far, we've been able to withstand it. Part of that is that we may be invested in inventory, part of that is to be able to pass on prices.

But I think we sort of feel like now we've kind of figured it out up until this point, and we'll see how things move going forward.

Kyle Peterson -- Needham and Company -- Analyst

Got it. That's helpful. And then I guess just a quick follow-up on the 1Q strength, particularly on the hardware side, was there any pull forward with some of the planned hardware investments from some of your clients into the first quarter or is some of that strength and momentum due to that pricing that you were kind of just touching on? Just want to see if you had any more color on the really strong hardware growth.

Bryan Menar -- Chief Financial Officer

Yeah. Kyle, this is Bryan. We've been seeing over the past couple of quarters some really strong hardware sale results that we've had. And some of that is actually -- a lot of it actually is timing of some of our Tier 1 accounts that were kind of delayed out in '20 and the early part of '21 with COVID.

And so, we actually -- we had very good year over year this quarter, actually lower than the past two quarters. But that's what really kind of drove that. And we did not see any kind of pushback from price increases that we implemented in the mid part of last year as an impact on our sales in the past three quarters.

Kyle Peterson -- Needham and Company -- Analyst

Thanks, guys. Nice quarter.

Bryan Menar -- Chief Financial Officer

I'm sorry?

Kyle Peterson -- Needham and Company -- Analyst

I just said, thanks, guys. Nice quarter. That's all for me.

Bryan Menar -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Samad Samana with Jefferies. Your line is open.

Samad Samana -- Jefferies -- Analyst

Hi. Good afternoon. Thanks for taking my questions. Savneet, there was a lot in your prepared remarks.

I'm going to try to unpack it as best as I can. Maybe first, just when I think about the growth for Brink in the quarter, it's clearly continuing to get better than some of the last few quarters you posted. How much of that is a function of better activations versus pipeline conversion that's happening from prior deals versus new deals that are coming into the pipeline that are closing in periods. Let's maybe start there.

Savneet Singh -- Chief Executive Officer and President

Great question. Generally, what you see in this quarter is a reflection of sales work six months to a year ago. So it's really executing on deals we signed and getting them out the door. So the success we've had in the last few quarters is a lot of the work that happened during the pandemic in the prior quarters and us just becoming really, really programmatic about getting activations out the door.

We've had some new leadership kind of run our activations for the last few quarters, and it's just really made a big difference. And we've been able to burn down that backlog from the strong sales you had in the prior year.

Samad Samana -- Jefferies -- Analyst

OK, great. And then just I want to make sure I understood the developer impact. Is that specific to data central itself or is that more broadly on your software portfolio that you're seeing a bit of a headwind? I think it's understandable there's obviously much bigger concerns, and there's a lot of companies that are being impacted by this. But I'm just curious if you could help us understand kind of more specifically what you were calling out.

Savneet Singh -- Chief Executive Officer and President

Yeah. It's just the data central product line, not the other product lines. And I think we've been able to move a lot of the team, but I think our team estimates this is about a 20% to 30% hit on production. So the team is still performing really, really well, better than we all expected.

But there's no doubt that just given the situation, there are limitations on what can get done, but it's just that product line. And we expect that to get better given the relocation that we've been able to push through.

Samad Samana -- Jefferies -- Analyst

OK. Great. And then just maybe on the pricing in the quarter. I know you mentioned that ARPU melted upward.

Is that primarily due to payments attaching more and more or is that just better pricing like-for-like for Brink? Maybe just help us understand what's driving that upward dynamic for ARPU.

Savneet Singh -- Chief Executive Officer and President

Yeah. It's without a question, better pricing. We've been talking a little bit -- last year, we activated a lot of stores. But as you saw, the price point per activated store was lower than average, and that was very much driven by legacy deals.

What you're seeing now is the deals that we signed over the last year that came in at the pricing that we've been telling folks that is better than our legacy deals. And so you should continue to see that happen as we kind of lap some of these legacy deals that have kept pricing down.

Samad Samana -- Jefferies -- Analyst

Got you. That's all for me. Thanks, guys. Appreciate it.

Operator

The next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

Stephen Sheldon -- William Blair -- Analyst

Hey. Thanks for takin my questions, and really strong results here. First, with the three assets that you have, I guess, where are you at in terms of integrating them from a back-end technology perspective, if I -- if you look between Brink, Punchh and data central? Are they fully integrated now or is there a lot more work to do on that front?

Savneet Singh -- Chief Executive Officer and President

So from an organizational perspective, they're all within the same product and technology organization, which is super important because they all report in to the same person, the same head of engineering, same head of product. And so that really creates a sense of unification across what we're doing. We're constantly working on how you make -- if you buy all three products, what you get that someone who doesn't have that. It's that constant and get better and better.

But from a back-end perspective, it is united. And one of the things we're most excited for this year is exactly what you're talking about, where we're coming out with products that -- or features that you could not get if you didn't buy those products altogether. And it's all in the effort to say, hey, there's value if you buy the suite of products as opposed to just one.

Stephen Sheldon -- William Blair -- Analyst

Got it. That's helpful. And then just on Brink, really strong activations there again this quarter, and especially, I think in light of omicron during the quarter, but the bookings did slow a touch. I guess anything to call out there in terms of the bookings slowdown? And how much visibility do you still have in terms of signed concepts where the franchisee locations are not yet showing up in the booking metrics?

Savneet Singh -- Chief Executive Officer and President

Good question. It's -- bookings are -- we've historically said we want to do at least 1,000 bookings a quarter and there will be volatility from quarter to quarter because it's sort of you signed the corporate and then you are signing up to individual franchisees, which is a bit of a sale to a small business. And that process generally becomes heavy at the quarter end, and so you don't have a ton of visibility always. We feel very good about completely exceeding our target for the year there.

And like I said, it won't be consistent quarter to quarter, but we kind of want to clear that 1,000 every quarter at least.

Stephen Sheldon -- William Blair -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of George Sutton with Craig-Hallum. Your line is open.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Thank you. Savneet, I wanted to go a little bit more into the whole concept of the unified sale. And you talked about closing several large brands who chose multiple solutions, and you separately talked about what you get if you buy all three products. Can you just give us a little bit better picture as to what that means to the buyer of those multiple products?

Savneet Singh -- Chief Executive Officer and President

Yeah. Absolutely. And it's a core part of what we're looking to deliver. But I can try to unpack that a bit.

So the simplest way that I think software stores installed as -- is very much a bundle, hey, you get this and you get a price discount. And we're very much against that because the idea that -- the foundation of all of this is if you put it together, you actually are able to have a holistic picture of your store of your business. And that is impossible today. So I'll give you one example.

Today, when you're running a restaurant, you've got your in-store transactions, which are people coming in your store, people going to your drive-thru and potentially people coming in and using some sort of QR code pickup. But you also have your online orders coming from your digital ordering partner, your loyalty orders hopefully coming in through Punchh, your Uber Eats orders or DoorDash orders. And so one of the advantages of having unified commerce across PAR is that you can get the data across every single order, and it allows you then to do something that we call omni spotting, omni throttling, where you can throttle orders to make sure that you can fulfill the orders that are coming in. So as an example, you may want to shut off your third-party delivery options like a DoorDash because you're concerned that you can't handle that within the kitchen.

Or conversely, you may want to turn on that channel because you've got capacity in the kitchen. And you can only figure that out if you know what's happening from every single point of order within the restaurant, and you also know what's happening in the kitchen and with your labor. And so that's an example of some value that we can provide that we can't really do without being unified. I'll give you a second one, which sounds very silly.

We once surveyed our largest customers and asked them for their biggest technological needs. Number one and number two on everyone's list, which is going to shock you, was that they wanted a better integration between their online ordering system and their POS and between their loyalty system and their online ordering system. And the idea here is that the integration is actually very hard to get right. And when you build them natively together, you don't have to worry about integration.

And so if one product is updates, and that's -- you don't have to worry about that update cascading, causing problems for all the products that that's integrated into. And so that ease-of-use at complicity is really, really powerful to our end customers.

George Sutton -- Craig-Hallum Capital Group -- Analyst

That is a fabulous set of details. I appreciate that. One other question. You gave a number that was very encouraging.

You have 150 million unique profiles. I did a little quick Google search. There's 322 million people in the country, so that's about half. Help me understand the value you get when you bring that number of unique profiles to your potential customer.

Savneet Singh -- Chief Executive Officer and President

So I was highlighting more in terms of the breadth of how wide Punchh distribute it, but there's certainly opportunity there as we think over time. We're not focused on that yet. But I think without question, just the immense amount of data we have is hard to ignore.

George Sutton -- Craig-Hallum Capital Group -- Analyst

OK, thank you.

Operator

Your next question comes from the line of Anja Soderstrom with Sidoti. Your line is open.

Anja Soderstrom -- Sidoti and Company -- Analyst

Hi. Yeah, thank you for taking my questions. And congratulations on the great quarter again. Just had a follow-up on that data you said you're collecting from those unique profiles.

Would you be owning that data or does that belong to your customers?

Savneet Singh -- Chief Executive Officer and President

So it's customer by customer dependent. Unfortunately, it's not consistent across everybody. And we would never do anything without our customers' approval. But one of the things that it obviously gives us is a ton of anonymized data to share back to our customers and provide value on how is their offers, campaigns, promotions, loyalty program working versus a comp or how it should be going.

So it really helps them run their business better. And maybe down the road, there's an opportunity to do something else there but that's still a little bit out there.

Anja Soderstrom -- Sidoti and Company -- Analyst

OK, thank you. And then I have some follow-up on the data center. I understand you have some challenges there with the development team in Ukraine. But you also had that seeing a little bit of slowdown during COVID, but then you saw a pickup in the demand there.

What do you see in terms of the demand for data central?

Savneet Singh -- Chief Executive Officer and President

We think it will turn in the second half of this year. We've got a great new leader in there who's been driving really wonderful change. We see a pipeline, which we hadn't seen candidly in the last couple of years. And we started to win some real logos.

We're talking about CPK. There are couple of other good logos after that. So we think we feel pretty good about the opportunity for that business going forward.

Anja Soderstrom -- Sidoti and Company -- Analyst

And this year, so that tailwind in that business helped by the inflationary environment maybe?

Savneet Singh -- Chief Executive Officer and President

Absolutely. One of the things I mentioned was that we recently broke out a module on the labor side, and we've been able to sell that as an individual product. And I think that highlights the challenges of labor that you're talking about. And so we've seen that.

We've been able to kind of create a little bit of a monetization effort focused just on solving that one labor challenge that we see today.

Anja Soderstrom -- Sidoti and Company -- Analyst

OK, thank you. And just one last question about the M&A market. What do you see there? And are you actively looking? And sort of what's the environment like?

Savneet Singh -- Chief Executive Officer and President

Yeah. We're always very active in that environment given how well the Punchh acquisition has gone and how much it's pulled PAR forward. The M&A market is, I'd say, listen, depending where our stock price is, our cost of capital is very expensive. But what we're seeing for the first time is that the market is also turning rational as it relates to private businesses that we spend most of our time with.

I don't think that anyone is kind of holding out anymore for 2021 prices, if you will. So it is -- we expect to be active. We think we'll be successful in that endeavor because I think the market has also come around the belief that the public market is the anchoring for future private market exits.

Anja Soderstrom -- Sidoti and Company -- Analyst

OK, thank you. That was all for me.

Operator

[Operator instructions] Your next question comes from the line of Adam Wyden with ADW Capital. Your line is open.

Adam Wyden -- ADW Capital -- Analyst

Hey. Thanks, guys. I've got a few questions here. So just make sure the operator doesn't cut me off.

But the first question is there's been a lot of talk about inflation. And I think software is -- in technology, in general, has been rather deflationary. And you guys talk about bodies to bits. I think it might be helpful for you guys -- and by the way, a lot of technology companies, they were beneficiaries of COVID and they brought forward demand.

I think our growth was somewhat stalled during COVID. I think it might be helpful for you to talk about the ability to accelerate adoption as a function of bodies to bits, lowering cost, lowering labor, lowering food. I mean do you think that, that's a reality, has something changed? Or I mean, is this an opportunity for you guys to really accelerate revenue growth even in a softer economic environment or an inflationary environment?

Savneet Singh -- Chief Executive Officer and President

Yeah, without question. I think our customers are feeling the pressure of inflation across the board, whether it's labor or food. And they are looking for more technology, not less. The data center example is a good one where we were able to pull on a labor module.

I don't know if we could have done that before this environment because I don't know if there was an appetite. Today, it's probably the No. 1 issue our customers face. So I think technology is deflationary, and we expect that trend to be very helpful for us.

And I think particularly for QSR restaurants that are actually enabled to put in all this technology for them, they can actually provision this much faster than that market.

Adam Wyden -- ADW Capital -- Analyst

OK. And my second of three questions is, as it relates to engineering, fishing engineers, we've done some kind of work on engineering and engineering efficiency. And it seems to me that we've been -- and I think you might have mentioned on one of your calls or fireside chats that you are overstaffed from an engineering perspective, and that was based on the tail end of solving technical debt. We haven't done -- with the exception of payments, which isn't really technology, we haven't really rolled out a new module.

Can you talk about reallocating those engineering resources to kind of roll out new modules and how that affects ARPU and kind of the ARR trends over the next couple of years.

Savneet Singh -- Chief Executive Officer and President

Sure. So I think without question, if you look at our engineering spend, it's too weighted toward technical debt and the sort of the backward-looking stuff, not the forward-looking stuff. But that's also what's led to the ability to build out this platform and vision that we've talked about. And so it's been very, very worthwhile.

Said differently, without those changes, we couldn't have acquired Punchh, we could not have maintained the revenue growth, and we couldn't have grown the gross margins as high as we've gotten them in just a very short period of time. I think that as we continue to get better with our technical debt, particularly on the Brink product, we should be able to switch those percentages around to where more of that spend is going to new product development as opposed to the historical work of Brink in the past. And particularly in this year, we've talked about new product leases coming, and that's only possible because we now have the ability to take on a new product, where historically, we haven't. And we are very -- becoming very, very specific about this with our own engineering leadership where we know on every product how much money is going to technical debt, how much is going to infrastructure, how much is going to new product development, how much is going to enhancements that we can manage it in a way where we can be dynamic about that spend and also be transparent.

Adam Wyden -- ADW Capital -- Analyst

Got it. OK, this is my third question. It revolves around capital allocation. So look, it's not lost on us that software companies and technology companies kind of, broadly speaking, have been somewhat kind of, call it, attacked or gone down interest rate fears.

Look, this is a little bit like deja vu because I think I remember having a similar conversation with you in May of 2020. And I think March and on that quarter, you said, well, I don't -- COVID, it's unchartered territory. I don't have a ton of visibility. And I think now having gone through COVID and everyone realized they need software, I kind of do the same math, and I'm going to do it for everybody.

So just hang in there with me for a second. But there's 27 million shares outstanding. It's an $800 million market cap. The government business effectively signed a contract to double.

So it was worth 100, maybe 200 today. Hardware and maintenance has grown precipitously as a function of Brink. You've got the headset division, you can do this tuck-in, drive-through blah, blah, blah. You've got, call it, $400 million of noncore asset value against $200 million of debt.

So you got $200 million in noncore value on an $800 million cap, it's whatever, $600 million and $120 million of contracted ARR, plus or minus, not including a lot of other things that don't go into it. So you're trading at five times revenue. You've got a huge cash balance. What is the opportunity -- we didn't really get that moment in time during COVID to really put our cash to work.

I mean what is the opportunity to use that cash to repurchase shares? I think M&A seems to be hard. I mean look, obviously, if you can get some guidance, sell used business or two or three times revenue, great. But I mean, the way you create lasting shareholder value and you quote the outsiders, is giving it to people in the backside when they're giving it to you. And we never really got our stock to a price where we can put it to work.

And now we have an opportunity to kind of catch everybody upside. I mean what are you prepared to do, whether it be selling government, doing a share buyback? I mean, us being long-term shareholders, is there an opportunity to kind of play offense? And how do you kind of think about all that?

Savneet Singh -- Chief Executive Officer and President

Yeah. Listen, I think -- first of all, I think we've been pretty good allocated. We sold shares at the top when we financed the Punchh acquisition, and then we showed there as literally six weeks before the creative software, so also I think...

Adam Wyden -- ADW Capital -- Analyst

No, no, no. You've allocated capital intelligently, but you've never really gotten the cost of capital that other people thought.

Savneet Singh -- Chief Executive Officer and President

Sure. So I think to your point, we want to drive shareholder value. As an organization, we just had our first ever global leadership offsite and was the top focus of the company. And the vast majority was on it, driving shareholder return and how do we build the ROI.

And of course, if we think an investment in our shares is a higher return than an acquisition, we will pull that lever. We have plenty of cash. Our margins are expanding. There's not a reason we wouldn't do that.

I think as it relates to M&A, to me, it's all about -- is it accretive? And there are deals that are not accretive in year 1 that are very accretive in year 2, 3. And conversely, there are deals that are accretive in year 1 that could be destructive in year 2 and 3. And so you always got to kind of balance that. I think as the last caller talked about, we are seeing deals that we think are very accretive to PAR.

And now it's about deciding if we want to pull that trigger. But we're very committed to driving value, whether it's through a share repurchase or through an acquisition or continued investment in our existing products. But we feel very good from a cash decision, which gives us that flexibility to make that decision.

Adam Wyden -- ADW Capital -- Analyst

And the government business, I mean, now with -- now seeing that government backlog ramp up. And obviously, in light of what's going on, owning a government asset that is somewhat economically kind of invincible. I mean what is the opportunity? I mean, getting that cash from government today is more valuable for M&A and buybacks than it might have been 12 months ago. I mean now you've got the revenues coming in, you've got the backlog.

I mean, can we finally pull a record on that?

Savneet Singh -- Chief Executive Officer and President

I'll say, you know I can't talk too much about that. But I think it's also the time where our margins continue to expand outside of the government business, so the company would also be well. But I, unfortunately, can't talk too much about it. But as I've been saying, now that we've demonstrated the growth of that large contract we won, I suspect we'll be able to get to the multiple and the price that we want.

Adam Wyden -- ADW Capital -- Analyst

Yeah. Good. But look, keep up the good work. It's been a roller coaster, but I'd love to see you guys find ways to play offense and magnify the shareholder return over time.

Savneet Singh -- Chief Executive Officer and President

Thank you.

Adam Wyden -- ADW Capital -- Analyst

Thank you.

Operator

I am showing no further question at this time. I would now like to turn the conference back to Mr. Savneet Singh.

Savneet Singh -- Chief Executive Officer and President

Thanks, everyone. We look forward to updating you on our progress next quarter.

Operator

[Operator signoff]

Duration: 49 minutes

Call participants:

Chris Byrnes -- Vice President, Business Development

Savneet Singh -- Chief Executive Officer and President

Bryan Menar -- Chief Financial Officer

Kyle Peterson -- Needham and Company -- Analyst

Samad Samana -- Jefferies -- Analyst

Stephen Sheldon -- William Blair -- Analyst

George Sutton -- Craig-Hallum Capital Group -- Analyst

Anja Soderstrom -- Sidoti and Company -- Analyst

Adam Wyden -- ADW Capital -- Analyst

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