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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2022
OR
 TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From __________ to __________
Commission File Number: 1-09720

par-20220930_g1.jpg
PAR TECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)
Delaware 16-1434688
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
 
PAR Technology Park, 8383 Seneca Turnpike, New Hartford, New York 13413-4991
(Address of principal executive offices, including zip code)
(315) 738-0600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $0.02 par value PAR New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☑
Accelerated Filer ☐
Non-Accelerated Filer ☐
Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 4, 2022, 27,289,779 shares of the registrant’s common stock, $0.02 par value, were outstanding.



PAR TECHNOLOGY CORPORATION

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
Item
Number
  Page
     
Item 1.
2
     
 
2
     
 
3
     
 
4
     
5
 
7
     
 
9
     
Item 2.
     
Item 3.
     
Item 4.
PART II
OTHER INFORMATION
Item 1.
     
Item 1A.
     
Item 2.
     
Item 6.
     
 
“PARTM,” “Brink POS®,” “Punchh®,” “MENUTM,” “Data Central®,” "PARTM Pay”, “PARTM Payment Services” and other trademarks appearing in this Quarterly Report belong to us. This Quarterly Report may also contain trade names and trademarks of other companies. Our use of such other companies’ trade names or trademarks is not intended to imply any endorsement or sponsorship by these companies of us or our products or services.


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (“Quarterly Report”) contains “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature, but rather are predictive of PAR’s future operations, financial condition, financial results, business strategies and prospects. Forward-looking statements are generally identified by words such as “anticipate,” “believe,” “can”, “could”, “continue,” “expect,” “estimate,” “future”, “goal”, “intend,” “may,” “opportunity,” “plan,” “should,” “target”, “will,” “would,” “will likely result,” and similar expressions. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties, many of which are beyond PAR’s control, which could cause PAR’s actual results to differ materially from those expressed in or implied by forward-looking statements, including statements relating to and PAR’s expectations regarding the effects of COVID-19 on its business, financial condition, and results of operations and the mitigating or otherwise intended impact of PAR’s responses to the same; the timing and expected benefits of acquisitions, divestitures, and capital markets transactions; statements of the plans, strategies and objectives of management for future operations, including PAR’s unified commerce experience and its go-to-market strategy; statements concerning the expected development, demand, performance, market share or competitive performance relating to PAR’s products or services; projections of net revenue, margins, expenses, effective tax rates, net earnings, net earnings per share, cash flows, deferred taxes, or other financial items, or of PAR’s annual recurring revenue, active sites, net loss, net loss per share and other key performance indicators and financial measures; statements concerning potential supply constraints, component shortages, manufacturing disruptions or logistics challenges; statements about PAR’s human capital strategy and engagement; statements regarding current or future macroeconomic trends or geopolitical events and the impact of those trends and events on PAR and its financial performance; statements regarding claims, disputes or other litigation matters; and any statements of assumptions underlying any of the foregoing. Factors, risks, trends, and uncertainties that could cause PAR’s actual results to differ materially from those expressed in or implied by forward-looking statements include the effects of COVID-19 on PAR’s business, financial condition, and results of operations and the timing and actions by PAR, as well as by governments (including COVID-19 lockdowns), businesses, customers and consumers, including store closures (temporary or permanent), decreased or delayed product and service adoptions and installations, delayed payments or payment defaults by customers, and the health and safety of PAR’s employees; PAR’s ability to add and maintain active sites, retain and manage third-party suppliers, secure alternative suppliers, and manage inventory levels, navigate component shortages, manufacturing disruptions and logistics challenges, shipping delays and increased costs; PAR’s ability to successfully attract, hire and retain necessary qualified employees to develop and expand its business; the protection of PAR’s intellectual property; PAR’s ability to increase the number of integration partners, and acquire and/or develop relevant technology offerings for current, new, and potential customers for the build-out of its unified commerce platform; the impact of unfavorable macroeconomic conditions, such as a recession or slowed economic growth, increased interest rates, inflation, and a decline in consumer confidence and discretionary spending, and geopolitical events, including the effects of the Russia-Ukraine war; risks associated with PAR’s international operations; changes in estimates and assumptions PAR makes in connection with the preparation of its financial statements and in building business and operational plans and strategies; disruptions in operations from system security risks, data protection breaches, and cyberattacks; PAR’s agility to execute its business and strategies and to manage its business continuity risks, including disruptions or delays in product assembly and fulfillment and limitations on PAR’s selling and marketing efforts; potential impacts, liabilities and costs from pending or potential investigations, claims and disputes; and other factors, risks, trends and uncertainties that could cause PAR’s actual results to differ materially from those expressed in or implied by forward-looking statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2022, in this Quarterly Report, and in our other filings with the SEC. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities law.

1

PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (unaudited)
PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(unaudited)
Assets September 30, 2022 December 31, 2021
Current assets:    
Cash and cash equivalents $ 89,504  $ 188,419 
Short-term investments 40,015  — 
Accounts receivable – net 54,845  49,978 
Inventories 39,707  35,078 
Other current assets 9,185  9,532 
Total current assets 233,256  283,007 
Property, plant and equipment – net 12,836  13,709 
Goodwill 485,121  457,306 
Intangible assets – net 116,242  118,763 
Lease right-of-use assets 2,736  4,348 
Other assets 14,550  11,016 
Total assets $ 864,741  $ 888,149 
Liabilities and Shareholders’ Equity    
Current liabilities:    
Current portion of long-term debt $ 180  $ 705 
Accounts payable 24,601  20,845 
Accrued salaries and benefits 17,848  17,265 
Accrued expenses 5,190  5,042 
Customers payable 3,985  — 
Lease liabilities – current portion 1,262  2,266 
Customer deposits and deferred service revenue 12,693  14,394 
Total current liabilities 65,759  60,517 
Lease liabilities – net of current portion 1,717  2,440 
Deferred service revenue – noncurrent 5,888  7,597 
Long-term debt 388,680  305,845 
Other long-term liabilities 19,611  7,405 
Total liabilities 481,655  383,804 
Shareholders’ equity:    
Preferred stock, $.02 par value, 1,000,000 shares authorized
—  — 
Common stock, $0.02 par value, 58,000,000 shares authorized, 28,529,832 and 28,094,333 shares issued, 27,283,410 and 26,924,397 outstanding at September 30, 2022 and December 31, 2021, respectively
569  562 
Additional paid in capital 592,100  640,937 
Accumulated deficit (191,723) (122,505)
Accumulated other comprehensive loss (4,204) (3,704)
Treasury stock, at cost, 1,246,422 shares and 1,181,449 shares at September 30, 2022 and December 31, 2021, respectively
(13,656) (10,945)
Total shareholders’ equity 383,086  504,345 
Total Liabilities and Shareholders’ Equity $ 864,741  $ 888,149 

See accompanying notes to unaudited interim condensed consolidated financial statements
2

PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2022 2021 2022 2021
Revenues, net:    
Product $ 31,343  $ 30,291  $ 84,820  $ 72,786 
Service 37,010  29,530  106,550  74,743 
Contract 24,414  18,039  66,775  53,748 
Total revenues, net 92,767  77,860  258,145  201,277 
Costs of sales:    
Product 25,458  22,786  69,666  56,158 
Service 24,021  20,792  64,981  52,427 
Contract 21,880  16,068  60,356  49,175 
Total cost of sales 71,359  59,646  195,003  157,760 
Gross margin 21,408  18,214  63,142  43,517 
Operating expenses:    
Selling, general and administrative 26,543  21,662  75,309  59,145 
Research and development 12,843  10,122  33,785  24,574 
Amortization of identifiable intangible assets 465  539  1,399  1,303 
Gain on insurance proceeds —  —  —  (4,400)
Total operating expenses 39,851  32,323  110,493  80,622 
Operating loss (18,443) (14,109) (47,351) (37,105)
Other expense, net (179) (539) (804) (931)
Interest expense, net (2,140) (5,406) (7,054) (12,503)
Loss on extinguishment of debt —  (11,916) —  (11,916)
Loss before provision for income taxes (20,762) (31,970) (55,209) (62,455)
(Provision for) benefit from income taxes (578) 37  (629) 12,295 
Net loss $ (21,340) $ (31,933) $ (55,838) $ (50,160)
Net loss per share (basic and diluted) $ (0.79) $ (1.23) $ (2.06) $ (2.05)
Weighted average shares outstanding (basic and diluted) 27,110 25,998 27,150 24,485

See accompanying notes to unaudited interim condensed consolidated financial statements

3


PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net loss $ (21,340) $ (31,933) $ (55,838) $ (50,160)
Other comprehensive income (loss), net of applicable tax:
Foreign currency translation adjustments (851) (109) (500) (56)
Comprehensive loss $ (22,191) $ (32,042) $ (56,338) $ (50,216)

See accompanying notes to unaudited interim condensed consolidated financial statements
4

PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(unaudited)

Common Stock Additional
Paid in
Capital
Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Treasury Stock Total
Shareholders’
Equity
Shares Amount Shares Amount
Balances at December 31, 2021 28,095  $ 562  $ 640,937  $ (122,505) $ (3,704) 1,181  $ (10,945) $ 504,345 
Impact of ASU 2020-06 implementation (see Note 1 - Basis of Presentation) (66,656) (13,380) (80,036)
Balances at January 1, 2022 28,095  $ 562  $ 574,281  $ (135,885) $ (3,704) 1,181  $ (10,945) $ 424,309 
Issuance of common stock upon the exercise of stock options 96  811  —  —  —  —  813 
Net issuance of restricted stock awards and restricted stock units 88  —  —  —  —  — 
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock —  —  —  —  —  45  (2,051) (2,051)
Stock-based compensation —  —  3,536  —  —  —  —  3,536 
Foreign currency translation adjustments —  —  —  —  512  —  —  512 
Net loss —  —  —  (15,650) —  —  —  (15,650)
Balances at March 31, 2022 28,279  $ 565  $ 578,628  $ (151,535) $ (3,192) 1,226  $ (12,996) $ 411,470 
Issuance of common stock upon the exercise of stock options 16  —  205  —  —  —  —  205 
Net issuance of restricted stock awards and restricted stock units 36  —  —  —  —  —  —  — 
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock —  —  —  —  —  12  (397) (397)
Stock-based compensation —  —  3,231  —  —  —  —  3,231 
Foreign currency translation adjustments —  —  —  —  (161) —  —  (161)
Net loss —  —  —  (18,848) —  —  —  (18,848)
Balances at June 30, 2022 28,331  $ 565  $ 582,064  $ (170,383) $ (3,353) 1,238  $ (13,393) $ 395,500 
Issuance of common stock upon the exercise of stock options 17  249  —  —  —  —  250 
Net issuance of restricted stock awards and restricted stock units 18  —  —  —  —  —  —  — 
Issuance of common stock for acquisition 163  6,297  6,300 
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock —  —  —  —  —  (263) (263)
Stock-based compensation —  —  3,490  —  —  —  —  3,490 
Foreign currency translation adjustments —  —  —  —  (851) —  —  (851)
Net loss —  —  —  (21,340) —  —  —  (21,340)
Balances at September 30, 2022 28,529  $ 569  $ 592,100  $ (191,723) $ (4,204) 1,247  $ (13,656) $ 383,086 
`



5


PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
(In thousands)
(unaudited)
Common Stock Additional
Paid in
Capital
Accumulated Deficit Accumulated
Other
Comprehensive
Loss
Treasury Stock Total
Shareholders’
Equity
Shares Amount Shares Amount
Balances at January 1, 2021 22,983  $ 459  $ 243,575  $ (46,706) $ (3,936) 1,066  $ (4,987) $ 188,405 
Issuance of common stock upon the exercise of stock options 34  408  —  —  —  —  409 
Net issuance of restricted stock units 87  263  —  —  —  —  265 
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock —  —  —  —  —  76  (3,974) (3,974)
Stock-based compensation —  —  1,320  —  —  —  —  1,320 
Foreign currency translation adjustments —  —  —  —  (302) —  —  (302)
Net loss —  —  —  (8,271) —  —  —  (8,271)
Balances at March 31, 2021 23,104  $ 462  $ 245,566  $ (54,977) $ (4,238) 1,142  $ (8,961) $ 177,852 
Issuance of common stock upon the exercise of stock options 20  —  209  —  —  —  —  209 
Net issuance of restricted stock units 28  —  —  —  —  — 
Issuance of common stock for acquisition 1,493  30  108,629  —  —  —  —  108,659 
Issuance of common stock, net of issuance costs of $4.3 million
2,353  47  155,640  —  —  —  —  155,687 
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock —  —  —  —  —  (497) (497)
Stock-based compensation —  —  4,251  —  —  —  —  4,251 
Foreign currency translation adjustments —  —  —  —  355  —  —  355 
Net loss —  —  —  (9,956) —  —  —  (9,956)
Balances at June 30, 2021 26,998  $ 540  $ 514,295  $ (64,933) $ (3,883) 1,149  $ (9,458) $ 436,561 
Issuance of common stock upon the exercise of stock options 22  199  —  —  —  —  200 
Equity component of issuance of 2027 convertible notes, net of deferred taxes of $0.6 million and issuance costs of $2.1 million
—  —  63,068  —  —  —  —  63,068 
Issuance of common stock, net of issuance costs of $2.5 million
982  19  52,467  —  —  —  —  52,486 
Net issuance of restricted stock units 15  —  —  —  —  —  —  — 
Issuance of common stock for acquisition —  —  1,081  —  —  —  —  1,081 
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock —  —  —  —  —  12  (458) (458)
Stock-based compensation —  —  3,785  —  —  —  —  3,785 
Foreign currency translation adjustments —  —  —  —  (109) —  —  (109)
Net loss —  —  —  (31,933) —  —  —  (31,933)
Balances at September 30, 2021 28,017  $ 560  $ 634,895  $ (96,866) $ (3,992) 1,161  $ (9,916) $ 524,681 


See accompanying notes to unaudited interim condensed consolidated financial statements
6

PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended September 30
2022 2021
Cash flows from operating activities:
Net loss $ (55,838) $ (50,160)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization 19,625  15,069 
Accretion of debt in interest expense 1,485  5,035 
Current expected credit losses 739  992 
Provision for obsolete inventory 1,773  19 
Stock-based compensation 10,257  9,356 
Loss on debt extinguishment —  11,916 
Deferred income tax —  (12,522)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (5,823) 3,189 
Inventories (6,678) (12,377)
Other current assets 321  (7,575)
Other assets (3,461) (2,774)
Accounts payable 3,580  7,849 
Accrued salaries and benefits 325  (2,605)
Accrued expenses (260) (7,418)
Customer deposits and deferred service revenue (2,924) (1,402)
Customers payable 3,985  — 
Other long-term liabilities (685) (211)
Net cash used in operating activities (33,579) (43,619)
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired (18,797) (374,653)
Capital expenditures (812) (928)
Capitalization of software costs (4,719) (5,471)
Purchase of held to maturity investments (40,015) — 
Net cash used in investing activities (64,343) (381,052)
Cash flows from financing activities:
Principal payments of long-term debt (525) (4,004)
Payments for the extinguishment of notes payable —  (183,618)
Proceeds from common stock issuance —  215,000 
Payments for common stock issuance costs —  (6,827)
Proceeds from debt issuance, net of original issue discount —  441,385 
Payments for debt issuance costs —  (13,998)
Treasury stock acquired from employees upon vesting or forfeiture of restricted stock (2,711) (4,477)
Proceeds from exercise of stock options 1,268  819 
Net cash (used in) provided by financing activities (1,968) 444,280 
Effect of exchange rate changes on cash and cash equivalents 975  (2)
Net (decrease) increase in cash and cash equivalents (98,915) 19,607 
Cash and cash equivalents at beginning of period 188,419  180,686 
Cash and equivalents at end of period $ 89,504  $ 200,293 
See accompanying notes to unaudited interim condensed consolidated financial statements
7

PAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(unaudited)

Nine Months Ended September 30
2022 2021
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 20  $ 6,337 
Income taxes 660  — 
Master development agreement with related party —  813 
Capitalized software recorded in accounts payable 36  — 
Capital expenditures in accounts payable 37  88 
Common stock issued for acquisition 6,300  109,740 
Acquisition contingent consideration recorded in Other long-term liabilities 14,200  — 
Tax withholding in accrued salaries and benefits related to treasury stock acquired from employees —  451 
Acquisition consideration recorded in accounts payable —  121 
Master development agreement expenditures with related party in accounts payable —  163 



See accompanying notes to unaudited interim condensed consolidated financial statements

8

PAR TECHNOLOGY CORPORATION
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 nine months ended September 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.







9

Cash and cash equivalents consist of the following:
(in thousands) September 30, 2022 December 31, 2021
Cash and cash equivalents
Cash $ 16,062  $ 69,249 
Money market funds 69,457  119,170 
Cash held on behalf of customers 3,985  — 
Total cash and cash equivalents $ 89,504  $ 188,419 

Short-Term Investments

Short-term investments include held-to-maturity investment securities consisting of investment-grade interest bearing instruments, primarily treasury bills and notes, which are stated at amortized cost. The Company does not intend to sell these investment securities and the contractual maturities are not greater than 12 months. The Company did not record any material gains or losses on these securities during the three months ended September 30, 2022. The estimated fair value of these securities approximated their carrying value as of September 30, 2022.

The carrying value of investment securities consist of the following:
(in thousands) September 30, 2022 December 31, 2021
Short-term Investments
Treasury Bills & Notes $ 40,015  $ — 
Total Short-term Investments $ 40,015  $ — 

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 nine months ended September 30, 2022.

Customers Payable

Customers payable 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, the Company's repayment obligations associated with deferred payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and contingent consideration recognized in conjunction with the acquisition of MENU Technologies AG (refer to “Note 3 — Acquisitions”, for additional information).

Amounts owed to employees participating in the deferred compensation plan were $1.9 million and $2.4 million at September 30, 2022 and December 31, 2021, respectively.

Under the CARES Act employers were permitted to 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. The Company deferred payment of the employer portion of social security taxes through the end of 2020. 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 September 30, 2022 and December 31, 2021 and are included within accrued salaries and benefits on the condensed consolidated balance sheets.



10


Related Party Transactions

Act III Management LLC (“Act III Management”), a service company to the restaurant, hospitality, and
entertainment industries, may from time to time provide software development and restaurant technology consulting services to the Company pursuant to a master development agreement. Additionally, during the three months ended September 30, 2022, the Company entered into a strategic advisor agreement with Act III Management and Ronald Shaich, pursuant to which, Ronald Shaich, the sole member of Act III Management, serves as a strategic advisor to the Company's Board of Directors. 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 September 30, 2022, and December 31, 2021, the Company had no accounts payable owed to Act III Management, in the three and nine months ended September 30, 2022, the Company paid Act III Management $0.1 million and $0.6 million, respectively, and in the three and nine months ended September 30, 2021, the Company paid Act III Management $0.5 million and $0.8 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 nine months ended September 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.

11

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 the 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 (a 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.

12

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 September 30, 2022 or September 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 September 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) 443  11,125 
Recognition of deferred revenue (28,493) (15,846)
Deferral of revenue 24,837  14,257 
Ending balance - September 30 $ 16,833  $ 20,618 
The above table excludes customer deposits of $1.7 million and $1.7 million for the nine months ended September 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 September 30, 2022 and December 31, 2021, transaction prices allocated to future performance obligations were $16.8 million and $20.0 million, respectively.

During the three months ended September 30, 2022 and 2021, the Company recognized revenue included in contract liabilities at the beginning of each respective period of $3.1 million and $2.4 million. During the nine months ended September 30, 2022 and 2021, the Company recognized revenue included in contract liabilities at the beginning of each respective period of $12.7 million and $7.5 million.

In the Government segment, the value of existing contracts at September 30, 2022, net of amounts relating to work performed to that date, was approximately $344.8 million, of which $94.9 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 September 30, 2022, is expected to be recognized as revenue over time as follows (in thousands):

Next 12 months $ 160,767 
Months 13-24 122,362 
Months 25-36 51,875 
Thereafter 9,746 
Total $ 344,750 





13

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 September 30, 2022
(in thousands) Restaurant/Retail
point in time
Restaurant/Retail
over time
Government point in time Government
over time
Hardware $ 30,796  $ —  $ —  $ — 
Software 22,436  —  — 
Service 4,821  10,298  —  — 
Mission systems —  —  —  8,982 
Intelligence, surveillance, and reconnaissance solutions
—  —  —  14,710 
Commercial software —  —  541  181 
Total $ 35,619  $ 32,734  $ 541  $ 23,873 
Three Months Ended September 30, 2021
(in thousands) Restaurant/Retail
point in time
Restaurant/Retail
over time
Government point in time Government
over time
Hardware $ 29,669  $ —  $ —  $ — 
Software 290  16,878  —  — 
Service 5,150  7,834  —  — 
Mission systems —  —  —  9,619 
Intelligence, surveillance, and reconnaissance solutions
—  —  —  8,237 
Commercial software —  —  55  128 
Total $ 35,109  $ 24,712  $ 55  $ 17,984 
14

Nine Months Ended September 30, 2022
(in thousands) Restaurant/Retail
point in time
Restaurant/Retail
over time
Government point in time Government
over time
Hardware $ 83,219  $ —  $ —  $ — 
Software 25  62,389  —  — 
Service 14,693  31,044  —  — 
Mission systems —  —  —  26,781 
Intelligence, surveillance, and reconnaissance solutions
—  —  —  38,746 
Commercial software —  —  753  495 
Total $ 97,937  $ 93,433  $ 753  $ 66,022 
Nine Months Ended September 30, 2021
(in thousands) Restaurant/Retail
point in time
Restaurant/Retail
over time
Government point in time Government
over time
Hardware $ 70,858  $ —  $ —  $ — 
Software 827  39,318  —  — 
Service 14,024  22,502  —  — 
Mission systems —  —  —  28,450 
Intelligence, surveillance, and reconnaissance solutions
—  —  —  24,706 
Commercial software —  —  220  372 
Total $ 85,709  $ 61,820  $ 220  $ 53,528 
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).

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NOTE 3: ACQUISITIONS

MENU Acquisition

During the three months ended September 30, 2022, ParTech, Inc. ("ParTech") acquired 100% of the stock of MENU Technologies AG ("MENU"), a restaurant technology company offering fully integrated omnichannel ordering solutions to restaurants worldwide (the "MENU Acquisition"), for purchase consideration of approximately $18.4 million paid in cash and $6.3 million paid in shares of Company common stock. 162,917 shares of common stock were issued as purchase consideration, determined using a fair value share price of $38.67. In addition, the sellers have the opportunity to earn additional cash and Company common stock consideration over an earn-out period ending July 31, 2024, primarily based on MENU's future SaaS annual recurring revenues.As of September 30, 2022, the Company determined the fair value of the MENU earn-out to be $14.2 million.

The transaction was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations. Accordingly, assets acquired and liabilities assumed have been accounted for at their preliminarily determined respective fair values as of July 25, 2022, the date of acquisition. The preliminary fair value determinations were based on management's best estimates and assumptions, and with the assistance 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 and net working capital adjustments are agreed upon and settled.

The following table presents management's preliminary purchase price allocation:

(in thousands) Purchase price allocation
Cash $ 843
Accounts receivable 209
Property and equipment 204
Developed technology 10,700
Prepaid and other acquired assets 221
Goodwill 28,495
Total assets 40,672
Accounts payable and accrued expenses 1,300
Deferred revenue 443 
Earn-out liability 14,200 
Consideration paid $ 24,729 

The Company determined the acquisition date fair value of contingent consideration associated with the MENU earn-out using a discounted cash flow method, with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820, Fair Value Measurement; refer to "Note 13: Fair Value of Financial Instruments".

The estimated fair value of acquired developed technology was determined based on an income approach which estimated the fair value based upon the present value of cash flows the asset is expected to generate. The acquired developed technology asset is being amortized on a straight-line basis over its estimated useful life of seven years,

Consideration paid in cash on the date of acquisition included $3.0 million deposited into an escrow account administered by a third party, to be held for up to 18-months following the date of acquisition, to fund potential post-closing adjustments and obligations.

The Company incurred expenses related to its acquisition of MENU of approximately $1.1 million.

The Company has not presented combined pro forma financial information of the Company and MENU because the results of operations of the acquired business are considered immaterial.




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Q1 2022 Acquisition

During the three months ended March 31, 2022, 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. The Company considers the results of operations of the acquired business to be immaterial and therefore has not presented combined pro forma financial information.

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.

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 

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Unaudited Pro Forma Financial Information

For the nine months ended September 30, 2021, the Punchh Acquisition resulted in additional revenues of $17.8 million.
The following table summarizes the Company's unaudited pro forma operating results:

Nine Months Ended September 30,
(in thousands) 2021
Total revenue $ 209,997 
Net loss $ (53,440)

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. $3.5 million of acquisition costs have been reflected in the 2021 unaudited pro forma results.

NOTE 4: ACCOUNTS RECEIVABLE, NET

The Company’s net accounts receivables consist of:
(in thousands) September 30, 2022 December 31, 2021
Government segment: $ 14,747  $ 11,667 
Restaurant/Retail segment: 40,098  38,311 
Accounts receivable - net $ 54,845  $ 49,978 

At September 30, 2022 and December 31, 2021, the Company had current expected credit loss of $1.8 million and $1.3 million, respectively, against accounts receivable for the Restaurant/Retail segment.

Changes in the current expected credit loss for the nine months ended September 30 were:

(in thousands) 2022 2021
Beginning Balance - January 1 $ 1,306  $ 1,416 
Provisions 739  992 
Write-offs (263) (692)
Recoveries —  (15)
Ending Balance - September 30 $ 1,782  $ 1,701 

Accounts receivables recorded as of September 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) September 30, 2022 December 31, 2021
Finished goods $ 24,729  $ 17,528 
Work in process 160  688 
Component parts 13,857  14,880 
Service parts 961  1,982 
Inventories $ 39,707  $ 35,078 

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At September 30, 2022 and December 31, 2021, the Company had excess and obsolescence reserves of $12.6 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 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 $3.9 million and $3.4 million of costs related to software products that did not satisfy the general release threshold as of September 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 September 30, 2022 and 2021 were $1.4 million and $1.6 million, respectively. Software costs related to products placed into service during the nine months ended September 30, 2022 and 2021 were $4.3 million and $9.1 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 September 30, 2022 and 2021 was $4.2 million and $3.7 million, respectively. Amortization of acquired developed technology for the nine months ended September 30, 2022 and 2021 was $11.5 million and $8.3 million, respectively.

Amortization of internally developed software costs for the three months ended September 30, 2022 and 2021 was $1.7 million and $1.3 million, respectively. Amortization of internally developed software costs for the nine months ended September 30, 2022 and 2021 was $5.1 million and $3.8 million, respectively.

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The components of identifiable intangible assets are:
(in thousands) September 30, 2022 December 31, 2021 Estimated
Useful Life
Weighted-Average Amortization Period
Acquired developed technology $ 119,800  $ 109,100 
3 - 7 years
5.17 years
Internally developed software costs 30,033  25,735  3 years 2.42 years
Customer relationships 12,360  12,360  7 years 4.61 years
Trade names 1,410  1,410 
2 - 5 years
2.5 years
Non-competition agreements 30  30  1 year 1 year
  163,633  148,635   
Less: accumulated amortization and currency translation (57,494) (39,479)  
  106,139  109,156   
Internally developed software costs not meeting general release threshold 3,903  3,407 
Trademarks, trade names (non-amortizable) 6,200  6,200  Indefinite
  $ 116,242  $ 118,763 
Balances include foreign currency translation adjustments.

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 $ 6,204 
2023 22,933 
2024 20,610 
2025 18,229 
2026 17,576 
Thereafter 20,587 
Total $ 106,139 

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 
MENU Acquisition 28,495 
ASC 805 measurement period adjustment (1,085)
Foreign currency translation (807)
Ending balance - September 30, 2022 $ 485,121 
Refer to “Note 3 — Acquisitions”, for additional information on goodwill from the 2022 Acquisitions.
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NOTE 7: DEBT

The following table summarizes information about the net carrying amounts of long-term debt as of September 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 (303) (2,678) (7,089) (10,070)
Total long-term portion of notes payable $ 13,447  $ 117,322  $ 257,911  $ 388,680 

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
21

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.

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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 September 30,
2022 2021
Contractual interest expense $ 2,011  $ 3,284 
Amortization of debt issuance costs 504  2,118 
Total interest expense $ 2,515  $ 5,402 

(in thousands) Nine Months
Ended September 30,
2022 2021
Contractual interest expense $ 6,025  $ 7,497 
Amortization of debt issuance costs 1,485  5,035 
Total interest expense $ 7,510  $ 12,532 

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 September 30, 2022, the outstanding balance of the subordinated promissory note was $0.2 million, which was recorded in the current portion of long-term debt.

The following table summarizes the future principal payments as of September 30, 2022:
(in thousands)
2022, remaining $ 180 
2023 — 
2024 13,750 
2025 — 
2026 120,000 
Thereafter 265,000 
Total $ 398,930 





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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 issued 1,493,130 shares 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.

The Company issued 162,917 shares of its common stock as part of the purchase consideration paid to former MENU equity holders in connection with the MENU Acquisition. Refer to "Note 3 - Acquisitions" for additional information about the MENU 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 $0.1 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $0.9 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively, was recorded in the following line items in the condensed consolidated statements of operations.

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Cost of sales - contracts $ 32  $ 72  $ 116  $ 256 
Selling, general and administrative 3,458  3,713  10,141  9,100 
Total stock-based compensation expense $ 3,490  $ 3,785  $ 10,257  $ 9,356 
At September 30, 2022, the aggregate unrecognized compensation expense related to unvested equity awards was $21.5 million, which is expected to be recognized as compensation expense in fiscal years 2022 through 2025.


A summary of stock option activity for the nine months ended September 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 (129) 8.39 
Canceled/forfeited (132) 10.65 
Outstanding at September 30, 2022 1,045  $ 12.87 

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A summary of unvested restricted stock awards activity for the nine months ended September 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 September 30, 2022 — 

A summary of unvested restricted stock units activity for the nine months ended September 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 371  38.12 
Vested (124) 30.15 
Canceled/forfeited (89) 48.00 
Outstanding at September 30, 2022 576  $ 35.25 
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 September 30, 2022, there were 1,045,000 anti-dilutive stock options outstanding compared to 1,364,000 as of September 30, 2021. At September 30, 2022 there were 576,000 anti-dilutive restricted stock units compared to 468,000 as of September 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 September 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 September 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.

25

On July 20, 2022, the Federal District Court of the Northern District of Illinois granted final approval of a $790 thousand 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. The Company had accrued for this liability in December 2021 and fully funded the settlement as of June 30, 2022.
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, Punchh for customer loyalty and engagement and MENU for integrated omnichannel ordering solutions. 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:

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Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Revenues:
Restaurant/Retail $ 68,354  $ 59,821  $ 191,371  $ 147,529 
Government 24,413  18,039  66,774  53,748 
Total $ 92,767  $ 77,860  $ 258,145  $ 201,277 
Operating (loss) income:
Restaurant/Retail $ (8,379) $ (15,642) $ (19,303) $ (40,894)
Government 2,529  1,960  6,390  4,555 
Other (12,593) (427) (34,438) (766)
Total (18,443) (14,109) (47,351) (37,105)
Other expense, net (179) (539) (804) (931)
Interest expense, net (2,140) (5,406) (7,054) (12,503)
Loss on extinguishment of debt —  (11,916) —  (11,916)
Loss before provision for income taxes $ (20,762) $ (31,970) $ (55,209) $ (62,455)
Depreciation, amortization and accretion:
Restaurant/Retail $ 6,255  $ 5,833  $ 18,113  $ 13,789 
Government 112  30  340  263 
Other 904  2,453  2,657  6,051 
Total $ 7,271  $ 8,316  $ 21,110  $ 20,103 
Capital expenditures including software costs:
Restaurant/Retail $ 1,439  $ 1,645  $ 4,686  $ 5,342 
Government 33  139  89  592 
Other 161  177  756  465 
Total $ 1,633  $ 1,961  $ 5,531  $ 6,399 


Revenues by country:
United States $ 88,555  $ 71,595  $ 243,406  $ 186,325 
International 4,212  6,265  14,739  14,952 
Total $ 92,767  $ 77,860  $ 258,145  $ 201,277 

The following table represents assets by reporting segment.

(in thousands) September 30, 2022 December 31, 2021
Restaurant/Retail $ 718,643  $ 674,032 
Government 17,630  14,831 
Other 128,468  199,286 
Total $ 864,741  $ 888,149 

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The following table represents identifiable long-lived tangible assets by country based on the location of the assets.

(in thousands) September 30, 2022 December 31, 2021
United States $ 818,733  $ 871,184 
Other Countries 46,008  16,965 
Total $ 864,741  $ 888,149 

The following table represents goodwill by reporting segment.

(in thousands) September 30, 2022 December 31, 2021
Restaurant/Retail $ 484,385  $ 456,570 
Government 736  736 
Total $ 485,121  $ 457,306 

Customers comprising 10% or more of the Company’s total revenues by reporting segment are summarized as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Restaurant/Retail reporting segment:
Yum! Brands, Inc. 10  % 11  % 10  % 12  %
McDonald’s Corporation 15  % 12  % 12  % 11  %
Government reporting segment:
U.S. Department of Defense 26  % 23  % 26  % 27  %
All Others 49  % 54  % 52  % 50  %
100  % 100  % 100  % 100  %

No other customer within All Others represented 10% or more of the Company’s total revenue for the three and nine months ended September 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, short-term investments, trade receivables, trade payables, debt instruments and deferred compensation assets and liabilities. The carrying amounts of cash and cash equivalents, short-term investments, trade receivables and trade payables as of September 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 September 30, 2022 was $18.3 million, $118.2 million, and $195.7 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
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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 September 30, 2022 was $1.9 million compared to $2.4 million at December 31, 2021 and are included in other long-term liabilities on the condensed consolidated balance sheets.

The Company uses Monte Carlo simulation modeling to determine the fair value of the earn-out liability associated with the acquisition of MENU. Significant inputs used in the simulation are not observable in the market and thus the liability represents a Level 3 fair value measurement as defined in ASC 820. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the liability on the acquisition date will be reflected as cash used in financing activities in the Company's consolidated statements of cash flows. Any amount paid in excess of the liability on the acquisition date will be reflected as cash used in operating activities. The Company determined the fair value of the MENU earn-out contingent liability to be $14.2 million at September 30, 2022.


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto included under Part I, Item 1 "Financial Statements (unaudited)" of this Quarterly Report and our audited consolidated financial statements and the notes thereto included under Part II, Item 8 "Financial Statements and Supplementary Data" of the 2021 Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors we describe in our filings with the SEC, including in this Quarterly Report.

OVERVIEW

We, through our wholly owned subsidiaries - ParTech and PAR Government Systems Corporation - operate in two distinct reporting segments, Restaurant/Retail and Government.

Our Restaurant/Retail segment is a leading provider of software, hardware, and services to the restaurant and retail industries, with more than 500 customers currently using our software products and more than 60,000 active restaurant locations. We provide enterprise restaurants, franchisees, and other restaurant outlets in the three major restaurant categories - quick service, fast casual, and table service - with operational efficiencies by offering them a suite of unified commerce solutions across three product groupings: Guest Engagement, which includes Punchh for customer loyalty and engagement and MENU for omnichannel digital ordering and delivery, Operator Solutions, which includes Brink POS for front-of-house and PAR Pay and PAR Payment Services for payments, and Back Office, which includes Data Central. Our solutions are extensible and built on open application programming interfaces ("API") that retain flexibility and the market optionality of an open platform. More than 400 partners leverage our open platform to extend the reach and capabilities of their own solutions for the leading brands in our industry.

Our Government segment provides technical expertise and development of advanced systems and software solutions for the DoD, the intelligence community, and other federal agencies. Additionally, we provide support services for satellite command and control, communication, and IT mission systems at several DoD facilities worldwide. The Government segment has three principal offerings: Intelligence, Surveillance, and Reconnaissance solutions ("ISR Solutions"), mission systems operations and maintenance ("Mission Systems"), and licensed software products for use in analytic and operational environments that leverage geospatial intelligence data ("Commercial Software").

In the U.S., the Inflation Reduction Act ("Act") was signed into law on August 16, 2022. We do not currently expect the Act to have a material impact on our Consolidated Financial Statements.
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RESULTS OF OPERATIONS

Consolidated Results:
Three Months Ended September 30, Percentage of total revenue Increase (decrease)
in thousands 2022 2021 2022 2021 2022 vs 2021
Revenues, net:
Product $ 31,343  $ 30,291  33.8  % 38.9  % 3.5  %
Service 37,010  29,530  39.9  % 37.9  % 25.3  %
Contract 24,414  18,039  26.3  % 23.2  % 35.3  %
Total revenues, net $ 92,767  $ 77,860  100.0  % 100.0  % 19.1  %
Gross margin
Product $ 5,885  $ 7,505  6.3  % 9.6  % (21.6) %
Service 12,989  8,738  14.0  % 11.2  % 48.6  %
Contract 2,534  1,971  2.7  % 2.5  % 28.6  %
Total gross margin $ 21,408  $ 18,214  23.1  % 23.4  % 17.5  %
Operating expenses
Selling, general and administrative $ 26,543  $ 21,662  28.6  % 27.8  % 22.5  %
Research and development 12,843  10,122  13.8  % 13.0  % 26.9  %
Amortization of identifiable intangible assets 465  539  0.5  % 0.7  % (13.7) %
Total operating expenses $ 39,851  $ 32,323  43.0  % 41.5  % 23.3  %
Loss from operations $ (18,443) $ (14,109) (19.9) % (18.1)