PAR Technology (PAR)

Restaurant technology provider PAR Technology (NYSE:PAR) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 48.2% year on year to $103.9 million. Its non-GAAP loss of $0.01 per share was 76.7% above analysts’ consensus estimates.

Company Overview

Originally founded in 1968 as a defense contractor for the U.S. government, PAR Technology (NYSE:PAR) provides cloud-based software, payment processing, and hardware solutions that help restaurants manage everything from point-of-sale to customer loyalty programs.

Companies in this sector, especially if they invest wisely, could see demand tailwinds as the world moves towards more IoT (Internet of Things), automation, and analytics. Enterprises across most industries will balk at taking these journeys solo and will enlist companies with expertise and scale in these areas. However, headwinds could include rising competition from larger technology firms, as digitization lowers barriers to entry in the space. Additionally, companies in the space will likely face evolving regulatory scrutiny over data privacy, particularly for surveillance and security technologies. This could make companies have to continually pivot and invest.

PAR Technology competes with other restaurant technology providers such as Toast (NYSE:TOST), NCR Voyix (NYSE:VYX), Oracle (NYSE:ORCL), and Square (NYSE:SQ), as well as specialized loyalty and ordering platforms like Olo (NYSE:OLO).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years.

With $383.8 million in revenue over the past 12 months, PAR Technology is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, PAR Technology grew its sales at an exceptional 14.2% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. PAR Technology’s annualized revenue growth of 5.6% over the last two years is below its five-year trend, but we still think the results were respectable.

PAR Technology also reports its annual recurring revenue (ARR), or the revenue it expects to generate from its existing customer base in the next 12 months. PAR Technology’s ARR reached $282.1 million in the latest quarter and averaged 53.9% year-on-year growth over the last two years. Because this performance is better than its normal revenue growth, we can see the company generated more revenue from its existing customers than new customers. Holding everything else constant, this is a positive sign as it should lead to lower sales and marketing expenses.

This quarter, PAR Technology achieved a magnificent 48.2% year-on-year revenue growth rate, but its $103.9 million of revenue fell short of Wall Street’s lofty estimates.

Looking ahead, sell-side analysts expect revenue to grow 22.1% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and suggests its newer products and services will spur better top-line performance.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

PAR Technology’s high expenses have contributed to an average operating margin of negative 19.4% over the last five years. Unprofitable business services companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, PAR Technology’s operating margin decreased by 6.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. PAR Technology’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q1, PAR Technology generated a negative 15.2% operating margin. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although PAR Technology’s full-year earnings are still negative, it reduced its losses and improved its EPS by 18.7% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability. We hope to see an inflection point soon.

In Q1, PAR Technology reported EPS at negative $0.01, up from negative $0.36 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast PAR Technology’s full-year EPS of negative $0.33 will reach break even.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

PAR Technology’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 12.9%, meaning it lit $12.91 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that PAR Technology’s margin expanded by 5.2 percentage points during that time. In light of its glaring cash burn, however, this improvement is a bucket of hot water in a cold ocean.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

PAR Technology’s five-year average ROIC was negative 11.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the business services sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, PAR Technology’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

PAR Technology’s $392.3 million of debt exceeds the $92.18 million of cash on its balance sheet. Furthermore, its 36× net-debt-to-EBITDA ratio (based on its EBITDA of $8.39 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. PAR Technology could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope PAR Technology can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We were impressed by how significantly PAR Technology blew past analysts’ EPS expectations this quarter. On the other hand, its revenue and ARR fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock remained flat at $62 immediately after reporting.

Updated: May 22, 2025 at 11:58 PM EDT

Before deciding whether to buy PAR Technology or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

PAR Technology is a pretty good company if you ignore its balance sheet. To begin with, its revenue growth was exceptional over the last five years, and its growth over the next 12 months is expected to accelerate. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its ARR growth has been marvelous. Additionally, PAR Technology’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

PAR Technology’s P/E ratio based on the next 12 months is 251.4x. Certain aspects of its fundamentals are attractive, but we aren’t investing at the moment because its balance sheet makes us uneasy. We think a potential buyer of the stock should wait until the company’s debt falls or its profits increase.

Wall Street analysts have a consensus one-year price target of $87 on the company (compared to the current share price of $66.39).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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