NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements (“financial statements”) of PAR Technology Corporation and its consolidated subsidiaries (collectively, the “Company”, “PAR”, “we”, “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions to Form 10-Q and Regulation S-X pertaining to interim financial statements as promulgated by the SEC. In the opinion of management, the Company's financial statements include all normal and recurring adjustments necessary in order to make the financial statements not misleading and to provide a fair presentation of the Company's financial results for the interim period included in this Quarterly Report. Interim results are not necessarily indicative of results for the full year or any future periods. The information included in this Quarterly Report should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”).
The preparation of the financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include revenue recognition, stock-based compensation, the recognition and measurement of assets acquired and liabilities assumed in business combinations at fair value, the carrying amount of property, plant and equipment including right-to-use assets and liabilities, identifiable intangible assets and goodwill, the measurement of liabilities and equity recognized for outstanding convertible notes, current expected credit losses for receivables, and net realizable value for inventories. Actual results could differ from these estimates. The Company's estimates and assumptions are subject to uncertainties, including those associated with market conditions, risks and trends and the ongoing COVID-19 pandemic.
The Company operates in two distinct reporting segments, Restaurant/Retail and Government. The Company’s chief operating decision maker is the Company’s Chief Executive Officer. The Restaurant/Retail segment provides enterprise restaurants, franchisees, and other restaurant outlets in the three major restaurant categories, quick service, fast casual, and table service, with operational efficiencies, offering them an integrated suite of SaaS solutions that includes Brink POS for front-of-house, Data Central for back-office, PAR Pay and PAR Payment Services for payments, and Punchh for customer loyalty and engagement. The Government segment provides technical expertise and development of advanced systems and software solutions for the U.S. Department of Defense (“DoD”) and other federal agencies, as well as satellite command and control, communication, and IT mission systems at several DoD facilities worldwide. The financial statements also include corporate operations, which are comprised of enterprise-wide functional departments.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less, to be cash equivalents, including money market funds. Cash held on behalf of customers represents an asset arising from our payment processing services that is restricted for the purpose of satisfying obligations to remit funds to various merchants.
The Company maintained bank balances that, at times, exceeded the federally insured limit during the six months ended June 30, 2022. The Company has not experienced losses relating to these deposits and management does not believe that the Company is exposed to any significant credit risk with respect to these amounts.
Cash and cash equivalents consist of the following:
| | | | | | | | | | | |
| (in thousands) | June 30, 2022 | | December 31, 2021 |
| Cash and cash equivalents | | | |
| Cash | $ | 76,752 | | | $ | 69,249 | |
| Money market funds | 71,817 | | | 119,170 | |
| Cash held on behalf of customers | 2,031 | | | — | |
| Total cash and cash equivalents | $ | 150,600 | | | $ | 188,419 | |
Gain on Insurance Proceeds
During the first quarter of 2021, the Company received $4.4 million of insurance proceeds in connection with the settlement of a legacy claim. No insurance proceeds were received during the six months ended June 30, 2022.
Other Current Liabilities
Other current liabilities represent obligations arising from our payment processing services to remit funds to various merchants.
Other Long-Term Liabilities
Other liabilities represent amounts owed to employees that participate in the Company’s deferred compensation plan and the long-term portion of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) deferred payroll taxes. Amounts owed to employees participating in the deferred compensation plan was $2.0 million and $2.4 million at June 30, 2022 and December 31, 2021, respectively.
Under the CARES Act employers can defer payment of the employer portion of social security taxes through the end of 2020: 50% of the deferred amount was due December 31, 2021 and the remaining 50% is due December 31, 2022. As allowed under the CARES Act, the Company deferred payment of the employer portion of social security taxes through the end of 2020. As of December 31, 2020, the Company deferred a total of $2.8 million and in connection with the Punchh Acquisition, described in Note 3 below, an additional $1.0 million of deferred payroll taxes were recognized. The Company paid $1.9 million in December 2021 and the remaining balance is to be paid by December 2022. Deferred payroll taxes were $1.9 million at June 30, 2022 and December 31, 2021 and were included within accrued salaries and benefits on the condensed consolidated balance sheets.
Related Party Transactions
Act III Management LLC (“Act III Management”), a service company to the restaurant, hospitality, and
entertainment industries, provides software development and restaurant technology consulting services to the
Company pursuant to a master development agreement. Keith Pascal, a director of the Company, is an employee of
Act III Management and serves as its vice president and secretary. Mr. Pascal does not have an ownership interest in Act III Management. As of June 30, 2022, the Company had no accounts payable owed to Act III Management and in the three and six months ended June 30, 2022, the Company paid Act III Management $0.3 million and $0.5 million, respectively, and in the three and six months ended June 30, 2021, the Company paid Act III Management $0.3 million and $0.3 million, respectively, for services performed under the master development agreement.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The new guidance is intended to simplify the accounting for certain convertible instruments with characteristics of both liability and equity. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. As a result, after the adoption of this guidance, an entity’s convertible debt instrument will be wholly accounted for as debt. The guidance also expands disclosure requirements for convertible instruments and simplifies diluted earnings-per-share calculations by requiring the use of the if-converted method. The guidance was effective for fiscal years beginning after December 15, 2021 and
could be adopted on either a fully retrospective or modified retrospective basis. The Company adopted the new standard as of January 1, 2022 under the modified retrospective method and recorded a cumulative effect upon adoption of a $81.3 million increase to convertible notes, $66.6 million reduction to other paid in capital, $13.4 million reduction to accumulated deficit, and a $1.3 million reduction to deferred tax liability to reflect the reversal of the separation of the convertible debt between debt and equity. Prior year presentation of debt was not impacted. The adoption of this standard also decreased the amount of non-cash interest expense to be recognized in future periods as a result of eliminating the discount associated with the equity component. There was no impact to the Company’s condensed consolidated statements of cash flows as the result of the adoption of ASU No. 2020-06.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which is intended to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company early adopted the new standard as of January 1, 2022, with no impact to the Company's condensed consolidated financial statements at adoption. Future impact of adoption is dependent on the Company's activity as an acquiring entity in transactions subject to Topic 805.
With the exception of the standards discussed above, there were no other recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2022 that are of significance or potential significance to the Company.
NOTE 2: REVENUE RECOGNITION
The Company's revenue is derived from software as a service (“SaaS”), hardware and software sales, software activation, hardware support, installations, maintenance and professional services. Accounting Standards Codification (“ASC”) Topic 606: Revenue from Contracts with Customers requires the Company to distinguish and measure performance obligations under customer contracts. Contract consideration is allocated to all performance obligations within the arrangement or contract. Performance obligations that are determined not to be distinct are combined with other performance obligations until the combined unit is determined to be distinct and that combined unit is then recognized as revenue over time or at a point in time depending on when control is transferred.
The Company evaluated the potential performance obligations within its Restaurant/Retail segment and evaluated whether each performance obligation met the ASC Topic 606 criteria to be considered a distinct performance obligation. Revenue in the Restaurant/Retail segment is recognized at a point in time for licensed software, hardware and installations. Revenue on these items are recognized when the customer obtains control of the asset. This generally occurs upon delivery and acceptance by the customer or upon installation or delivery to a third party carrier for onward delivery to customer. Additionally, revenue in the Restaurant/Retail segment relating to SaaS, the Company's Advanced Exchange hardware service program, its on-site support and other services is recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance obligations. The Company’s support services are stand-ready obligations that are provided over the life of the contract, generally 12 months. The Company offers installation services to its customers for hardware and software for which the Company primarily hires third-party contractors to install the equipment on the Company's behalf. The Company pays third party contractors an installation service fee based on an hourly rate agreed to by the Company and contractor. When third party installers are used, the Company determines whether the nature of its performance obligations is to provide the specified goods or services itself (principal) or to arrange for a third-party to provide the goods or services (agent). In the Company's customer arrangements, the Company is primarily responsible for providing a good or service, has inventory risk before the good or service is transferred to the customer, and discretion in establishing prices; as a result, the Company has concluded that it is the principal in the arrangement and records installation revenue on a gross basis.
The support services associated with hardware and software sales are “stand-ready obligations” satisfied over time on the basis that the customer consumes and receives a benefit from having access to the Company's support resources, when and as needed, throughout the contract term. For this reason, the support services are recognized ratably over the contract term since the Company satisfies its obligation to stand ready by performing these services each day. Contracts typically require payment within 30 to 90 days from the shipping date or installation date, depending on the Company's terms with the customer. The primary method used to estimate a stand-alone selling price, is the price that the Company charges for the particular good or service sold by the Company separately under similar circumstances to similar customers. The Company determines stand-alone
selling prices as follows: hardware, software and software activation (one-time fee at the initial offering of software or SaaS) performance obligations are recognized at a stand-alone selling price based on the price at which the Company sells the particular good or service separately in similar circumstances and to similar customers. The stand-alone selling price for all other performance obligations, including: pass-through hardware, such as terminals, printers, or card readers; hardware support (referred to as Advanced Exchange), installation, maintenance, licensed software upgrades, and professional services (project management) is recognized by using an expected cost plus margin.
The Company's revenue in the Government segment is recognized over time as control is generally transferred continuously to its customers. Revenue generated by the Government segment is predominantly related to services; provided, however, revenue is also generated through the sale of materials, software, hardware, and maintenance. For the Government segment cost plus fixed fee contract portfolio, revenue is recognized over time using costs incurred to date to measure progress toward satisfying the Company's performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and general and administrative expenses. Profit is recognized on the fixed fee portion of the contract as costs are incurred and invoiced. Long-term fixed price contracts involve the use of judgment to estimate the total contract revenue and costs. For long-term fixed price contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete the contract, and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include: labor productivity and availability; the complexity of the work to be performed; and the performance of subcontractors. Revenue and profit in future periods of contract performance are recognized using the aforesaid assumptions, and adjusting the estimate of costs to complete a contract. Once the services provided are determined to be distinct or not distinct, the Company evaluates how to allocate the transaction price. Generally, the Government segment does not sell the same good or service to similar customers and the contract performance obligations are unique to each government solicitation. The performance obligations are typically not distinct. In cases where there are distinct performance obligations, the transaction price would be allocated to each performance obligation on a ratable basis based upon the stand-alone selling price of each performance obligation. Cost plus margin is used for the cost plus fixed fee contract portfolios as well as the fixed price and time and materials contracts portfolios to determine the stand-alone selling price.
In the Government segment, when determining revenue recognition, the Company analyzes whether its performance obligations under Government contracts are satisfied over a period of time or at a point in time. In general, the Company's performance obligations are satisfied over a period of time; however, there may be circumstances where the latter or both scenarios could apply to a contract.
The Company usually expects payment within 30 to 90 days from satisfaction of its performance obligations. None of its contracts as of June 30, 2022 or June 30, 2021 contained a significant financing component.
Performance Obligations Outstanding
The Company's performance obligations outstanding represent the transaction price of firm, non-cancellable orders, with expected delivery dates to customers after June 30, 2022 and 2021, respectively, for work that has not yet been performed. The activity of outstanding performance obligations as it relates to customer deposits and deferred service revenue is as follows:
| | | | | | | | | | | |
| (in thousands) | 2022 | | 2021 |
| Beginning balance - January 1 | $ | 20,046 | | | $ | 11,082 | |
| Acquired deferred revenue (Note 3) | — | | | 11,125 | |
| Recognition of deferred revenue | (19,200) | | | (11,437) | |
| Deferral of revenue | 17,649 | | | 7,321 | |
| Ending balance - June 30 | $ | 18,495 | | | $ | 18,091 | |
The above table excludes customer deposits of $1.6 million and $1.7 million for the six months ended June 30, 2022 and 2021, respectively. The majority of the deferred revenue balances above relate to professional services, maintenance agreements, and software licenses. These balances are recognized on a straight-line basis over the life of the contract, with the majority of the balance being recognized within the next twelve months.
In the Restaurant/Retail segment most performance obligations relate to service and support contracts, approximately 64% of which the Company expects to fulfill within 12 months. The Company expects to fulfill 100% of support and service contracts within 60 months. At June 30, 2022 and December 31, 2021, transaction prices allocated to future performance obligations were $18.5 million and $20.0 million, respectively.
During the three months ended June 30, 2022 and 2021, the Company recognized revenue included in contract liabilities at the beginning of each respective period of $5.0 million and $8.8 million. During the six months ended June 30, 2022 and June 30, 2021, the Company recognized revenue included in contract liabilities at the beginning of each respective period of $9.5 million and $11.4 million.
In the Government segment, the value of existing contracts at June 30, 2022, net of amounts relating to work performed to that date, was approximately $182.7 million, of which $47.0 million was funded, and at December 31, 2021, the value of existing contracts, net of amounts relating to work performed to that date, was approximately $195.3 million, of which $38.6 million was funded. The value of existing contracts in the Government segment, net of amounts relating to work performed at June 30, 2022, is expected to be recognized as revenue over time as follows (in thousands):
| | | | | |
| Next 12 months | $ | 86,964 | |
| Months 13-24 | 55,987 | |
| Months 25-36 | 26,588 | |
| Thereafter | 13,115 | |
| Total | $ | 182,654 | |
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers by major product line for each of its reporting segments because the Company believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Disaggregated revenue is as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| (in thousands) | Restaurant/Retail
point in time | | Restaurant/Retail
over time | | Government
over time |
| Hardware | $ | 27,771 | | | $ | — | | | $ | — | |
| Software | (11) | | | 20,640 | | | — | |
| Service | 5,141 | | | 10,630 | | | — | |
| Mission systems | — | | | — | | | 11,747 | |
Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | 8,883 | |
| Product | — | | | — | | | 292 | |
| Total | $ | 32,901 | | | $ | 31,270 | | | $ | 20,922 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| (in thousands) | Restaurant/Retail
point in time | | Restaurant/Retail
over time | | Government
over time |
| Hardware | $ | 23,355 | | | $ | — | | | $ | — | |
| Software | 294 | | | 14,806 | | | — | |
| Service | 5,462 | | | 7,207 | | | — | |
| Mission systems | — | | | — | | | 9,284 | |
Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | 8,338 | |
| Product | — | | | — | | | 204 | |
| Total | $ | 29,111 | | | $ | 22,013 | | | $ | 17,826 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| (in thousands) | Restaurant/Retail
point in time | | Restaurant/Retail
over time | | Government
over time |
| Hardware | $ | 52,424 | | | $ | — | | | $ | — | |
| Software | 23 | | | 39,953 | | | — | |
| Service | 9,885 | | | 20,732 | | | — | |
| Mission systems | — | | | — | | | 24,037 | |
Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | 17,798 | |
| Product | — | | | — | | | 526 | |
| Total | $ | 62,332 | | | $ | 60,685 | | | $ | 42,361 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| (in thousands) | Restaurant/Retail
point in time | | Restaurant/Retail
over time | | Government
over time |
| Hardware | $ | 41,190 | | | $ | — | | | $ | — | |
| Software | 537 | | | 22,439 | | | — | |
| Service | 8,874 | | | 14,668 | | | — | |
| Mission systems | — | | | — | | | 18,831 | |
Intelligence, surveillance, and reconnaissance solutions | — | | | — | | | 16,469 | |
| Product | — | | | — | | | 409 | |
| Total | $ | 50,601 | | | $ | 37,107 | | | $ | 35,709 | |
Practical Expedients and Exemptions
The Company generally expenses sales commissions when incurred because the amortization period would be less than one year or the total amount of commissions is immaterial. Commissions are recorded in selling, general and administrative expenses. The Company elected to exclude from measurement of the transaction price, all taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (for example, sales, use, value added, and some excise taxes).
NOTE 3: ACQUISITIONS
Q1 2022 Acquisition
During the three months ended March 31, 2022, ParTech, Inc. ("ParTech"), acquired substantially all the assets and liabilities of a privately held restaurant technology company (the "Q1 2022 Acquisition"). The transaction was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations, resulting in an increase to goodwill of $1.2 million. The Company determined that the preliminary fair values of all other assets acquired and liabilities assumed relating to the transaction did not materially affect the Company's financial
condition; this determination included the preliminary valuations of identified intangible assets. The preliminary fair value determinations were based on management's best estimates and assumptions, and through the use of independent valuation and tax consultants. Identified preliminary fair values are subject to measurement period adjustments within the permitted measurement period (up to one year from the acquisition date) as independent consultants finalize their procedures.
Punchh Acquisition
On April 8, 2021, the Company, ParTech, and Sliver Merger Sub, Inc., a wholly owned subsidiary of ParTech (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Punchh Inc. (“Punchh”), and Fortis Advisors LLC, solely in its capacity as the initial Stockholder Representative. Pursuant to the Merger Agreement, on April 8, 2021, Merger Sub merged with and into Punchh (the “Merger”), with Punchh surviving the Merger and becoming a wholly owned subsidiary of the Company (“Punchh Acquisition”).
Allocation of Acquisition Consideration — Punchh Acquisition
The Punchh Acquisition was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations. Accordingly, assets acquired and liabilities assumed in the Punchh Acquisition were accounted for at their final determined respective fair values as of April 8, 2021. The final fair value determinations were based on management's best estimates and assumptions, and through the use of independent valuation and tax consultants.
During the first quarter of 2022, the fair values of assets and liabilities as of April 8, 2021 were finalized to reflect final acquisition valuation analysis procedures. Adjustments to reflect the final determination included a $0.8 million reduction of deferred revenue and $0.3 million of other adjustments, resulting in a reduction to goodwill of $1.1 million during the three months ended March 31, 2022. Indemnification assets and liabilities were reduced by $0.1 million during the three months ended March 31, 2022, with $2.1 million remaining in escrow as of March 31, 2022.
The following table presents management's final purchase price allocation for the Punchh Acquisition:
| | | | | |
| (in thousands) | Purchase price allocation |
| Cash | $ | 22,714 | |
| Accounts receivable | 10,214 | |
| Property and equipment | 592 | |
| Lease right-of-use assets | 2,473 | |
| Developed technology | 84,600 | |
| Customer relationships | 7,500 | |
| Indemnification assets | 2,109 | |
| Trade name | 5,800 | |
| Prepaid and other acquired assets | 2,764 | |
| Goodwill | 415,055 | |
| Total assets | 553,821 | |
| Accounts payable and accrued expenses | 15,617 | |
| Deferred revenue | 10,298 | |
| Loan payables | 3,508 | |
| Lease liabilities | 2,787 | |
| Indemnification liabilities | 2,109 | |
| Deferred taxes | 11,794 | |
| Consideration paid | $ | 507,708 | |
Unaudited Pro Forma Financial Information
For the three months and six months ended June 30, 2021, the Punchh Acquisition resulted in additional revenues of $8.1 million.
The following table summarizes the Company's unaudited pro forma operating results:
| | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | | Six Months Ended June 30, |
| (in thousands) | | | 2021 | | | | 2021 |
| Total revenue | | | $ | 69,602 | | | | | $ | 132,137 | |
| Net loss | | | $ | (10,355) | | | | | $ | (21,477) | |
The unaudited pro forma results presented above are for illustrative purposes only and do not reflect the realization of actual cost savings or any related integration costs. The unaudited pro forma results do not purport to be indicative of the results that would have been obtained, or to be a projection of results that may be obtained in the future.
NOTE 4: ACCOUNTS RECEIVABLE, NET
The Company’s net accounts receivables consist of:
| | | | | | | | | | | |
| (in thousands) | June 30, 2022 | | December 31, 2021 |
| Government segment: | | | |
| Billed | $ | 23,300 | | | $ | 11,667 | |
| | | |
| | 23,300 | | | 11,667 | |
| | | |
| Restaurant/Retail segment: | 37,373 | | | 38,311 | |
| Accounts receivable - net | $ | 60,673 | | | $ | 49,978 | |
At June 30, 2022 and December 31, 2021, the Company had current expected credit loss of $1.6 million and $1.3 million, respectively, against accounts receivable for the Restaurant/Retail segment.
Changes in the current expected credit loss for the six months ended June 30 were:
| | | | | | | | | | | |
| (in thousands) | 2022 | | 2021 |
| Beginning Balance - January 1 | $ | 1,306 | | | $ | 1,416 | |
| Provisions | 482 | | | 922 | |
| Write-offs | (218) | | | (394) | |
| Recoveries | — | | | (15) | |
| Ending Balance - June 30 | $ | 1,570 | | | $ | 1,929 | |
Accounts receivables recorded as of June 30, 2022 and December 31, 2021 represent unconditional rights to payments from customers.
NOTE 5: INVENTORIES
Inventories are used in the assembly and service of Restaurant/Retail products. The components of inventory, adjusted for reserves, consisted of the following:
| | | | | | | | | | | | | |
| (in thousands) | June 30, 2022 | | December 31, 2021 | | |
| Finished goods | $ | 26,103 | | | $ | 17,528 | | | |
| Work in process | 552 | | | 688 | | | |
| Component parts | 13,608 | | | 14,880 | | | |
| Service parts | 1,779 | | | 1,982 | | | |
| Inventories | $ | 42,042 | | | $ | 35,078 | | | |
At June 30, 2022 and December 31, 2021, the Company had excess and obsolescence reserves of $11.1 million and $10.8 million, respectively, against inventories.
NOTE 6: IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL
The Company's identifiable intangible assets represent intangible assets acquired in acquisitions and software development costs. The Company capitalizes certain costs related to the development of its unified commerce software platform and other software applications for internal use in accordance with ASC Topic 350-40, Intangibles - Goodwill and Other - Internal - Use Software. The Company begins to capitalize its costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. The Company stops capitalizing these project costs when software is substantially complete and ready for its intended use, including the completion of all significant testing. These project costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three to seven years. The Company also capitalizes costs related to specific upgrades and enhancements, when it is probable the expenditure will result in additional functionality, and expense costs are incurred for maintenance and minor upgrades and enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within research and development expenses in the Company's condensed consolidated statements of operations.
The Company exercises judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. To the extent the Company can change the manner in which new features and functionalities are developed and tested related to its software products, by assessing the ongoing value of capitalized assets or determining the estimated useful lives over which the costs are amortized, the amount of internal-use software development costs the Company capitalizes and amortizes could change in future periods.
Included in identifiable intangible assets are approximately $3.8 million and $3.4 million of costs related to software products that did not satisfy the general release threshold as of June 30, 2022 and December 31, 2021, respectively. These software products are expected to be ready for their intended use within the next 12 months. Software costs related to products placed into service during the three months ended June 30, 2022 and 2021 were $1.4 million and $2.7 million, respectively. Software costs related to products placed into service during the six months ended June 30, 2022 and 2021 were $2.9 million and $7.5 million, respectively.
Annual amortization charged to cost of sales related to the Company's software products is computed using the straight-line method over the remaining estimated economic life of the product, which is generally three years.
Amortization of acquired developed technology for the three months ended June 30, 2022 and 2021 was $3.7 million and $3.7 million, respectively. Amortization of acquired developed technology for the six months ended June 30, 2022 and 2021 was $7.3 million and $4.6 million, respectively.
Amortization of internally developed software costs for the three months ended June 30, 2022 and 2021 was $1.7 million and $1.3 million, respectively. Amortization of internally developed software costs for the six months ended June 30, 2022 and 2021 was $3.3 million and $2.4 million, respectively.
The components of identifiable intangible assets are:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | June 30, 2022 | | December 31, 2021 | | | | Estimated
Useful Life | | Weighted-Average Amortization Period |
| Acquired developed technology | $ | 109,100 | | | $ | 109,100 | | | | | 3 - 7 years | | 4.86 years |
| Internally developed software costs | 28,672 | | | 25,735 | | | | | 3 years | | 2.67 years |
| Customer relationships | 12,360 | | | 12,360 | | | | | 7 years | | 5 years |
| Trade names | 1,410 | | | 1,410 | | | | | 2 - 5 years | | 3 years |
| Non-competition agreements | 30 | | | 30 | | | | | 1 year | | 1 year |
| | 151,572 | | | 148,635 | | | | | | | |
| Less accumulated amortization | (51,045) | | | (39,479) | | | | | | | |
| | 100,527 | | | 109,156 | | | | | | | |
| Internally developed software costs not meeting general release threshold | 3,756 | | | 3,407 | | | | | | | |
| Trademarks, trade names (non-amortizable) | 6,200 | | | 6,200 | | | | | Indefinite | | |
| | $ | 110,483 | | | $ | 118,763 | | | | | | | |
The expected future amortization of intangible assets, assuming straight-line amortization of capitalized software development costs and acquisition related intangibles, excluding software development costs not meeting the general release threshold, is as follows:
| | | | | |
| (in thousands) | |
| 2022, remaining | $ | 11,503 | |
| 2023 | 21,111 | |
| 2024 | 18,571 | |
| 2025 | 16,501 | |
| 2026 | 16,091 | |
| Thereafter | 16,750 | |
| Total | $ | 100,527 | |
The Company operates in two reporting segments, Restaurant/Retail and Government, which are the identified reporting units for purposes of evaluating goodwill impairment. The Company tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment of goodwill. Goodwill is assigned to a specific reporting unit at the date the goodwill is initially recorded; once assigned, goodwill no longer retains its association with a particular acquisition and all of the activities within the reporting unit, whether acquired organically or from a third-party, are available to support the value of the goodwill.
Goodwill carried by the Restaurant/Retail and Government segments is as follows:
| | | | | |
| (in thousands) | |
| Beginning balance - December 31, 2021 | $ | 457,306 | |
| Q1 2022 Acquisition | 1,212 | |
| ASC 805 measurement period adjustment | (1,085) | |
| Ending balance - June 30, 2022 | $ | 457,433 | |
| Refer to “Note 3 — Acquisitions”, for additional information on goodwill from the Q1 2022 Acquisition. |
NOTE 7: DEBT
The following table summarizes information about the net carrying amounts of long-term debt as of June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | 2024 Notes | | 2026 Notes | | 2027 Notes | | Total |
| Principal amount of notes outstanding | $ | 13,750 | | | $ | 120,000 | | | $ | 265,000 | | | $ | 398,750 | |
| Unamortized debt issuance cost | (348) | | | (2,842) | | | (7,384) | | | (10,574) | |
| | | | | | | |
| Total long-term portion of notes payable | $ | 13,402 | | | $ | 117,158 | | | $ | 257,616 | | | $ | 388,176 | |
The following table summarizes information about the net carrying amounts of long-term debt as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | 2024 Notes | | 2026 Notes | | 2027 Notes | | Total |
| Principal amount of notes outstanding | $ | 13,750 | | | $ | 120,000 | | | $ | 265,000 | | | $ | 398,750 | |
| Unamortized debt issuance cost | (334) | | | (2,440) | | | (5,984) | | | (8,758) | |
| Unamortized discount | (1,570) | | | (19,413) | | | (63,164) | | | (84,147) | |
| Total long-term portion of notes payable | $ | 11,846 | | | $ | 98,147 | | | $ | 195,852 | | | $ | 305,845 | |
Refer to "Recently Adopted Accounting Pronouncements" within "Note 1 - Basis of Presentation" for additional information relating to impact to discount resulting from the Company's adoption of ASU 2020-06.
Convertible Senior Notes
On September 17, 2021, the Company sold $265.0 million in aggregate principal amount of 1.500% Convertible Senior Notes due 2027 (the “2027 Notes”). The 2027 Notes were issued pursuant to an indenture, dated September 17, 2021, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “2027 Indenture”). The 2027 Notes bear interest at a rate of 1.500% per year, which is payable semiannually in arrears on April 15 and October 15 of each year, beginning April 15, 2022. Interest accrues on the 2027 Notes from the last date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from September 17, 2021. Unless earlier converted, redeemed or repurchased, the 2027 Notes mature on October 15, 2027. The Company used net proceeds from the sale, in conjunction with net proceeds from the September 2021 sale of common stock (Refer to “Note 8 — Common Stock” for additional information), to repay in full the principal amount of $180.0 million outstanding as of September 17, 2021 (the “Owl Rock Term Loan”) under the credit agreement entered into on April 8, 2021 by the Company and certain of its U.S. subsidiaries, as guarantors, with the lenders party thereto and Owl Rock First Lien Master Fund, L.P. as administrative agent and collateral agent (the “Owl Rock Credit Agreement”). The Company intends to use the remaining net proceeds from the sale for general corporate purposes, including continued investment in the growth of the Company’s businesses and for other working capital needs. The Company may also use a portion of the net proceeds to acquire or invest in other assets complementary to the Company’s businesses or for repurchases of the Company’s other indebtedness.
On February 10, 2020, the Company sold $120.0 million in aggregate principal amount of 2.875% Convertible Senior Notes due 2026 (the “2026 Notes”). The 2026 Notes were issued pursuant to an indenture, dated February 10, 2020 (the “2026 Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee. The 2026 Notes pay interest at a rate equal to 2.875% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2020. Interest accrues on the 2026 Notes from the last date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from February 10, 2020. Unless earlier converted, redeemed or repurchased, the 2026 Notes mature on April 15, 2026.
On April 15, 2019, the Company sold $80.0 million in aggregate principal amount of 4.500% Convertible Senior Notes due 2024 (the “2024 Notes” and, together with the 2026 Notes and the 2027 Notes, the “Notes”). The 2024 Notes were issued pursuant to an indenture, dated April 15, 2019, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “2024 Indenture” and, together with the 2026 Indenture and the 2027 Indenture, the “Indentures”). The 2024 Notes pay interest at a rate equal to 4.500% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2019. Interest accrues on the 2024 Notes from the last date to which interest has been paid or duly provided for or, if no interest has been
paid or duly provided for, from April 15, 2019. Unless earlier converted, redeemed or repurchased, the 2024 Notes mature on April 15, 2024.
The Company used approximately $66.3 million (excluding cash payments relating to accrued interest and fractional shares) from its sale of the 2026 Notes and issued 722,423 shares of common stock at $32.43 per share out of treasury stock with an average cost basis of $3.37 per share to repurchase approximately $66.3 million in aggregate principal amount of the 2024 Notes through individually negotiated transactions. Of the total price paid for the 2024 Notes, $59.0 million was allocated to the 2024 Notes settlement, $30.8 million was allocated to equity, and $1.0 million was used to pay off accrued interest on the 2024 Notes. The consideration transferred was allocated to the liability and equity components of the 2024 Notes using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt instrument immediately prior to settlement.
Prior to the Company's adoption of ASU 2020-06 on January 1, 2022, the carrying amount of the liability component of the Notes was calculated by estimating the fair value of similar notes that do not have associated convertible features. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the fair value amount of the Notes. The valuation model used in determining the fair value of the liability component for the Notes includes inputs, such as the implied debt yield within the nonconvertible borrowing rate. The implied estimated effective rate of the liability component of the 2024 Notes, 2026 Notes, and 2027 Notes was 10.2%, 7.3%, and 6.5% respectively.
The Notes are senior, unsecured obligations of the Company. The 2024 Notes, the 2026 Notes, and the 2027 Notes are convertible, in whole or in part, at the option of the holder, upon the occurrence of specified events or certain fundamental changes set forth in the Indentures prior to the close of business on the business day immediately preceding October 15, 2023, October 15, 2025, and April 15, 2027, respectively; and, thereafter, at any time until the close of business on the second business day immediately preceding maturity. The 2024 Notes are convertible into Company common stock at an initial conversion rate of 35.0217 shares per $1,000 principal amount, the 2026 Notes are convertible into Company common stock at an initial conversion rate of 23.2722 shares per $1,000 principal amount, and the 2027 Notes are convertible into Company common stock at an initial conversion rate of 12.9870 shares per $1,000 principal amount. Upon conversion, the Company may elect to settle by paying or delivering either solely cash, shares of Company common stock or a combination of cash and shares of Company common stock.
Prior to the Company's adoption of ASU 2020-06 on January 1, 2022, in accordance with ASC Topic 470-20 Debt with Conversion and Other Options — Beneficial Conversion Features, the initial measurement of the 2024 Notes at fair value on issuance resulted in a liability of $62.4 million and an implied value of the convertible feature recognized as additional paid in capital of $17.6 million; the initial measurement of the 2026 Notes at fair value on issuance resulted in a liability of $93.8 million and an implied value of the convertible feature recognized as additional paid in capital of $26.2 million; and, the initial measurement of the 2027 Notes at fair value on issuance resulted in a liability of $199.2 million and an implied value of the convertible feature recognized as additional paid in capital of $65.8 million. Issuance costs for the Notes amounted to $4.9 million, $4.2 million, and $8.3 million for the 2024 Notes, 2026 Notes, and 2027 Notes, respectively. These costs were allocated to debt and equity components on a ratable basis. For the 2024 Notes, this amounted to $3.8 million and $1.1 million to the debt and equity components, respectively. For the 2026 Notes, this amounted to $3.3 million and $0.9 million to the debt and equity components, respectively. For the 2027 Notes, this amounted to $6.2 million and $2.1 million to the debt and equity components, respectively. Refer to 'Recently Adopted Accounting Pronouncements' in Note 1 for a summary of the Company's January 1, 2022 adoption of ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).
The Indentures contain covenants that, among other things, restrict the Company’s ability to merge, consolidate or sell, or otherwise dispose of, substantially all of its assets and customary Events of Default (as defined in the Indentures).
Prior to the Company's adoption of ASU 2020-06 on January 1, 2022, the Company recorded an income tax liability of $15.6 million in 2021 associated with the portion of the 2027 Notes that was classified within shareholders' equity. GAAP requires the offset of the deferred tax liability to be classified within shareholders' equity, consistent with the equity portion of the 2027 Notes. The creation of the deferred tax liability produced evidence of recoverability of the Company's net deferred tax assets, which resulted in the release of a valuation allowance, totaling $14.9 million, that was also classified within shareholders' equity pursuant to ASU 2019-12.
Credit Facility
In connection with, and to partially fund the approximately $397.5 million in cash paid to former Punchh equity holders (the "Cash Consideration") for the Punchh Acquisition, on April 8, 2021, the Company entered into the Owl Rock Credit Agreement. Issuance costs, which included a 2% Original Issue Discount, amounted to $9.3 million with net proceeds amounting to $170.7 million.
The Company used net proceeds from the sale of the 2027 Notes and its concurrent sale of common stock (refer to “Note 8 — Common Stock” for additional information about the sale) to repay in full the Owl Rock Term Loan, including $1.8 million accrued interest and $3.6 million prepayment premium, on September 17, 2021. Following its repayment, the Owl Rock Credit Agreement was terminated.
The following tables summarize interest expense recognized on the Notes and on the Credit Facility:
| | | | | | | | | | | |
| (in thousands) | Three Months
Ended June 30, |
| 2022 | | 2021 |
| Contractual interest expense | $ | 2,011 | | | $ | 3,196 | |
| Amortization of debt issuance costs | 495 | | | 1,737 | |
| | | |
| Total interest expense | $ | 2,506 | | | 4,933 | |
| | | |
| | | | | | | | | | | |
| (in thousands) | Six Months
Ended June 30, |
| 2022 | | 2021 |
| Contractual interest expense | $ | 4,014 | | | $ | 4,213 | |
| Amortization of debt issuance costs | 981 | | | 2,917 | |
| | | |
| Total interest expense | $ | 4,995 | | | 7,130 | |
| | | |
In connection with the acquisition of AccSys, LLC in December 2019, the Company entered into a $2.0 million subordinated promissory note. The note bears interest at 5.75% per annum, with monthly payments of principal and interest in the amount of $60.6 thousand payable beginning January 15, 2020 through maturity on December 15, 2022. As of June 30, 2022, the outstanding balance of the subordinated promissory note was $0.4 million, which was recorded in the current portion of long-term debt.
The following table summarizes the future principal payments as of June 30, 2022:
| | | | | |
| (in thousands) | |
| 2022, remaining | $ | 358 | |
| 2023 | — | |
| 2024 | 13,750 | |
| 2025 | — | |
| 2026 | 120,000 | |
| Thereafter | 265,000 | |
| Total | $ | 399,108 | |
NOTE 8: COMMON STOCK
On September 17, 2021, the Company completed a public offering of its common stock in which the Company issued and sold 982,143 shares of common stock at a public offering price of $56.00 per share. The Company received net proceeds of $52.5 million, after deducting underwriting discounts, commissions and other offering expenses.
In connection with, and to partially fund the Cash Consideration of the Punchh Acquisition, on April 8, 2021, the Company entered into securities purchase agreements (the "Purchase Agreements") with each of PAR Act III, LLC ("Act III") and T. Rowe Price Associates, Inc., acting as investment adviser (such funds and accounts being
collectively referred to herein as "TRP") to raise approximately $160.0 million through a private placement of the Company's common stock. Pursuant to the Purchase Agreements, the Company issued and sold (i) 73,530 shares of its common stock to Act III for a gross purchase price of approximately $5.0 million ($68.00 per share), and (ii) 2,279,412 shares of common stock to TRP for a gross purchase price of approximately $155.0 million ($68.00 per share) for an aggregate of 2,352,942 shares. The Company incurred $4.3 million of issuance costs in connection with the sale of its common stock.
The Company also issued 1,493,130 of its common stock as part of the consideration paid to former Punchh equity holders in connection with the Punchh Acquisition. Refer to “Note 3 — Acquisitions” for additional information about the Punchh Acquisition.
NOTE 9: STOCK-BASED COMPENSATION
The Company applies the fair value recognition provisions of ASC Topic 718: Stock Compensation. Stock-based compensation expense, net of forfeitures of $0.2 million and $0.1 million for the three months ended June 30, 2022 and 2021, respectively, and $0.8 million and $0.1 million for the six months ended June 30, 2022 and 2021, respectively, was recorded in the following line items in the condensed consolidated statements of operations.
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Cost of sales - contracts | $ | 36 | | | $ | 116 | | | $ | 85 | | | $ | 184 | |
| Selling, general and administrative | 3,195 | | | 4,135 | | | 6,682 | | | 5,387 | |
| Total stock-based compensation expense | $ | 3,231 | | | $ | 4,251 | | | $ | 6,767 | | | $ | 5,571 | |
At June 30, 2022, the aggregate unrecognized compensation expense related to unvested equity awards was $25.3 million, which is expected to be recognized as compensation expense in fiscal years 2022 through 2025.
A summary of stock option activity for the six months ended June 30, 2022 is below:
| | | | | | | | | | | |
| (in thousands, except for weighted average exercise price) | Options outstanding | | Weighted
average
exercise price |
| Outstanding at January 1, 2022 | 1,306 | | | $ | 11.95 | |
| | | |
| Exercised | (112) | | | 7.74 | |
| Canceled/forfeited | (126) | | | 10.48 | |
| Outstanding at June 30, 2022 | 1,068 | | | $ | 12.89 | |
A summary of unvested restricted stock awards activity for the six months ended June 30, 2022 is below:
| | | | | | | | | | | |
| (in thousands, except for weighted average award value) | Restricted Stock Awards | | Weighted
average
award value |
| Outstanding at January 1, 2022 | 27 | | | $ | 25.42 | |
| | | |
| Vested | (27) | | | 25.42 | |
| | | |
| Outstanding at June 30, 2022 | — | | | |
A summary of unvested restricted stock units activity for the six months ended June 30, 2022 is below:
| | | | | | | | | | | |
| (in thousands, except for weighted average award value) | Restricted Stock
Unit Awards | | Weighted
average
award value |
| Outstanding at January 1, 2022 | 418 | | | $ | 34.08 | |
| Granted | 359 | | | 38.04 | |
| Vested | (107) | | | 31.67 | |
| Canceled/forfeited | (79) | | | 48.23 | |
| Outstanding at June 30, 2022 | 591 | | | $ | 34.92 | |
NOTE 10: NET LOSS PER SHARE
Net loss per share is calculated in accordance with ASC Topic 260: Earnings per Share, which specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”). It requires the presentation of basic and diluted EPS. Basic EPS excludes all dilution and is based upon the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that would occur if convertible securities or other contracts to issue common stock were exercised. At June 30, 2022, there were 1,068,000 anti-dilutive stock options outstanding compared to 1,403,000 as of June 30, 2021. At June 30, 2022 there were 591,000 anti-dilutive restricted stock units compared to 457,000 as of June 30, 2021.
The potential effects of the 2024 Notes, 2026 Notes, and 2027 Notes conversion features were excluded from the diluted net loss per share as of June 30, 2022 and 2021. Potential shares from 2024 Notes, 2026 Notes, and 2027 Notes conversion features at respective maximum conversion rates of 46.4037 per share, 30.8356 per share, and 17.8571 per share are approximately 638,051, 3,700,272, and 4,732,132 respectively. Refer to “Note 7 — Debt” for additional information about the Notes.
In connection with the Punchh Acquisition as discussed in “Note 3 — Acquisitions” and “Note 8 — Common Stock,” the Company issued Act III a five-year warrant to purchase 500,000 shares of common stock with an exercise price of $76.50 per share; in connection with the Company's 2021 public offering of its common stock, an additional 3,975 shares of common stock are available for purchase under the warrant and the warrant exercise price is $75.90 per share. The warrant was excluded from the diluted net loss per share as of June 30, 2022 due to its anti-dilutive impact.
NOTE 11: COMMITMENTS AND CONTINGENCIES
From time to time, the Company is party to legal proceedings arising in the ordinary course of business. Additionally, U.S. Government contract costs are subject to periodic audit and adjustment. Based on information currently available, and based on its evaluation of such information, the Company believes the legal proceedings in which it is currently involved are not material or are not likely to result in a material adverse effect on the Company’s business, financial condition or results of operations, or cannot currently be estimated.
On July 20, 2022, the Federal District Court of the Northern District of Illinois granted final approval of the class-wide settlement of the complaint filed by Kandice Neals on behalf of herself and others similarly situated against ParTech, alleging that ParTech violated the Illinois Biometric Information Privacy Act in the alleged collection, use, and storage of her and others' biometric data derived from fingerprint scans taken for authentication purposes on point-of-sale systems. As of June 30, 2022, based on the court's preliminary approval, the Company had funded a preliminary settlement in the amount of $790 thousand, pending the court's final approval of the settlement. The Company had accrued for this liability in December 2021. The final approved class-wide settlement amount was unchanged from the preliminary settlement amount funded by the Company.
NOTE 12: SEGMENT AND RELATED INFORMATION
The Company is organized in two segments, Restaurant/Retail and Government. Management views the Restaurant/Retail and Government segments separately in operating its business, as the products and services are different for each segment.
The Restaurant/Retail segment is a provider of software, hardware and services to the restaurant and retail industries. The Restaurant/Retail segment provides multi-unit and individual restaurants, franchisees, and enterprise customers in the three major restaurant categories (fast casual, quick serve, and table service) with
operational efficiencies, offering them an integrated suite of SaaS solutions that includes Brink POS for front-of-house, Data Central for back-office, PAR Pay and PAR Payment Services for payments, and Punchh for customer loyalty and engagement. This segment also offers customer support, including field service, installation, depot repair, and 24-hour telephone support. The Government segment provides technical expertise and development of advanced systems and software solutions for the DoD, the intelligence community and other federal agencies. This segment also provides support services for satellite command and control, communication, and IT systems at several DoD facilities worldwide.
Information noted as “Other” primarily relates to the Company’s corporate operations.
Information as to the Company’s segments is set forth in the tables below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Revenues: | | | | | | | |
| Restaurant/Retail | $ | 64,171 | | | $ | 51,124 | | | $ | 123,017 | | | $ | 87,708 | |
| Government | 20,922 | | | 17,826 | | | 42,361 | | | 35,709 | |
| Total | $ | 85,093 | | | $ | 68,950 | | | $ | 165,378 | | | $ | 123,417 | |
| | | | | | | |
| | | | | | | |
| Operating (loss) income: | | | | | | | |
| Restaurant/Retail | $ | (5,743) | | | $ | (15,968) | | | $ | (10,924) | | | $ | (25,252) | |
| Government | 2,314 | | | 1,405 | | | 3,861 | | | 2,595 | |
| Other | (12,670) | | | (2,412) | | | (21,845) | | | (339) | |
| Total | (16,099) | | | (16,975) | | | (28,908) | | | (22,996) | |
| Other expense, net | (257) | | | (341) | | | (625) | | | (392) | |
| Interest expense, net | (2,451) | | | (4,937) | | | (4,914) | | | (7,097) | |
| | | | | | | |
| Loss before provision for income taxes | $ | (18,807) | | | $ | (22,253) | | | $ | (34,447) | | | $ | (30,485) | |
| | | | | | | |
| | | | | | | |
| Depreciation, amortization and accretion: | | | | | | | |
| Restaurant/Retail | $ | 5,947 | | | $ | 5,527 | | | $ | 11,857 | | | $ | 7,956 | |
| Government | 119 | | | 197 | | | 228 | | | 233 | |
| Other | 885 | | | 2,073 | | | 1,753 | | | 3,598 | |
| Total | $ | 6,951 | | | $ | 7,797 | | | $ | 13,838 | | | $ | 11,787 | |
| | | | | | | |
| | | | | | | |
| Capital expenditures including software costs: | | | | | | | |
| Restaurant/Retail | $ | 1,727 | | | $ | 2,965 | | | $ | 3,286 | | | $ | 3,697 | |
| Government | 13 | | | 302 | | | 57 | | | 453 | |
| Other | 262 | | | 231 | | | 594 | | | 288 | |
| Total | $ | 2,002 | | | $ | 3,498 | | | $ | 3,937 | | | $ | 4,438 | |
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| Revenues by country: | | | | | | | |
| United States | $ | 79,258 | | | $ | 64,127 | | | $ | 154,851 | | | $ | 114,730 | |
| International | 5,835 | | | 4,823 | | | 10,527 | | | 8,687 | |
| Total | $ | 85,093 | | | $ | 68,950 | | | $ | 165,378 | | | $ | 123,417 | |
The following table represents assets by reporting segment.
| | | | | | | | | | | |
| (in thousands) | June 30, 2022 | | December 31, 2021 |
| Restaurant/Retail | $ | 678,555 | | | $ | 674,032 | |
| Government | 25,151 | | | 14,831 | |
| Other | 155,407 | | | 199,286 | |
| Total | $ | 859,113 | | | $ | 888,149 | |
The following table represents identifiable long-lived tangible assets by country based on the location of the assets.
| | | | | | | | | | | |
| (in thousands) | June 30, 2022 | | December 31, 2021 |
| United States | $ | 848,667 | | | $ | 871,184 | |
| Other Countries | 10,446 | | | 16,965 | |
| Total | $ | 859,113 | | | $ | 888,149 | |
The following table represents goodwill by reporting segment.
| | | | | | | | | | | |
| (in thousands) | June 30, 2022 | | December 31, 2021 |
| Restaurant/Retail | $ | 456,697 | | | $ | 456,570 | |
| Government | 736 | | | 736 | |
| Total | $ | 457,433 | | | $ | 457,306 | |
Customers comprising 10% or more of the Company’s total revenues by reporting segment are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Restaurant/Retail reporting segment: | | | | | | | |
| | | | | | | |
| Yum! Brands, Inc. | 10 | % | | 11 | % | | 10 | % | | 11 | % |
| McDonald’s Corporation | 14 | % | | 8 | % | | 12 | % | | 8 | % |
| Government reporting segment: | | | | | | | |
| U.S. Department of Defense | 25 | % | | 26 | % | | 26 | % | | 29 | % |
| All Others | 51 | % | | 55 | % | | 52 | % | | 52 | % |
| 100 | % | | 100 | % | | 100 | % | | 100 | % |
No other customer within All Others represented 10% or more of the Company’s total revenue for the three and six months ended June 30, 2022 or 2021.
NOTE 13: FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments have been recorded at fair value using available market information and valuation techniques. The fair value hierarchy is based upon three levels of input, which are:
Level 1 — quoted prices in active markets for identical assets or liabilities (observable)
Level 2 — inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable market data for essentially the full term of the asset or liability (observable)
Level 3 — unobservable inputs that are supported by little or no market activity, but are significant to determining the fair value of the asset or liability (unobservable)
The Company’s financial instruments primarily consist of cash and cash equivalents, trade receivables, trade payables, debt instruments and deferred compensation assets and liabilities. The carrying amounts of cash and cash equivalents, trade receivables and trade payables as of June 30, 2022 and December 31, 2021 were considered representative of their fair values because of their short-term nature. The estimated fair value of the 2024 Notes, 2026 Notes, and 2027 Notes at June 30, 2022 was $21.5 million, $139.1 million, and $210.5 million respectively. The valuation techniques used to determine the fair value of the 2024 Notes, 2026 Notes, and the 2027 Notes are classified within Level 2 of the fair value hierarchy.
The deferred compensation assets and liabilities primarily relate to the Company’s deferred compensation plan, which allows for pre-tax salary deferrals for certain key employees. Changes in the fair value of the deferred compensation liabilities are derived using quoted prices in active markets of the asset selections made by plan participants. The deferred compensation liabilities are classified within Level 2, the fair value classification as defined under FASB ASC Topic 820: Fair Value Measurements, because their inputs are derived principally from observable market data by correlation to the hypothetical investments. The Company holds insurance investments to partially offset the Company’s liabilities under its deferred compensation plan, which are recorded at fair value each period using the cash surrender value of the insurance investments.
The amounts owed to employees participating in the deferred compensation plan at June 30, 2022 was $2.0 million compared to $2.4 million at December 31, 2021 and are included in other long-term liabilities on the condensed consolidated balance sheets.
Note 14 — Subsequent Event
Following the quarter ended June 30, 2022, the Company acquired MENU Technologies AG ("MENU"), a restaurant technology company offering fully integrated omnichannel ordering solutions to restaurants worldwide, for a purchase price of $25.0 million, $18.7 million paid in cash and $6.3 million paid in shares of Company common stock, with the ability to earn additional cash and Company common stock consideration over a 24-month period based primarily on MENU's future SaaS annual recurring revenues. In addition to assets acquired and liabilities assumed, the Company expects to allocate a portion of the purchase price to identifiable intangible assets such as developed technology and customer relationships. The Company expects to determine the preliminary purchase price allocation prior to the end of the third quarter of 2022.