PAR Technology Corp

NYSE:PAR

Earnings Call Transcript 2024-Q3

[Operator]

Good day, everyone, and welcome to PAR Technology Fiscal Year 2024 Third Quarter Financial Results. [Operator Instructions] Please be advised that today's conference is being recorded.

Now I will pass the call over to the Senior Vice President of Investor Relations and Business Development, Christopher Byrnes. Please go ahead.

[Chris Byrnes, executive]

Thank you, Carmen, and good morning, everyone, and thank you for joining us today for PAR Technology's 2024 third quarter financial results call. Earlier this morning, we released our financial results. The earnings release is available on the Investor Relations page of our website at partech.com, where you can also find the Q3 financial presentation, as well as in our related Form 8-K furnished to the SEC.

During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items, along with a reconciliation of non-GAAP measures to the most comparable GAAP measures, can be found in our earnings release.

I'd also like to remind participants that this conference call may include forward-looking statements that reflect management's expectations based on currently available data. However, actual results are subject to future events and uncertainties. The information on this conference call related to projections or other forward-looking statements may be relied upon and subject to the safe harbor statement included in our earnings release this morning and in our annual and quarterly filings with the SEC.

Finally, I'd like to remind everyone that this call is being recorded and it will be made available for replay via a link available on the Investor Relations section of our website.

Joining me on the call today as PAR's CEO and President, Savneet Singh; and Bryan Menar, PAR's Chief Financial Officer.

I'd now like to turn the call over to Savneet for the formal remarks portion of the call, which will be followed by general Q&A. Savneet?

[Savneet Singh, executive]

Thank you, Chris, and thank you all for joining us today.

Our Q3 results made available this morning represent the seventh consecutive quarter in which PAR has delivered greater than 20% organic growth with limited operating expense. This continued sequential growth at scale and demonstrating operating leverage efficiency has enabled PAR to report positive adjusted EBITDA for the quarter, a first since the company began disclosing this metric earlier in management's tenure.

Our performance this quarter reflects the continued validation of our products as best-in-class standalone and even better together. This strategic focus on delivering a unified solution is improving user experience, furthering customer stickiness, and expanding sales opportunities beyond that of a single product. The flywheel we've talked about is working and has generated the financial return we reported today.

Digging into our results, subscription services continues to be the growth engine of our company. Q3 exit ARR totaled more than $248 million, and subscription services revenue for the period grew 91% when compared to Q3 last year. This revenue expansion was driven by 25% organic ARR growth compared to Q3 last year and contributions from our EBITDA accretive 2024 M&A activity, including the company's acquisition of TASK Group, which closed in July. Critically, our M&A activity is expected to continue to accelerate our overall growth trajectory into the future by unlocking new verticals in multi-product attachment.

Operator cloud ARR grew 41% to $93.4 million in Q3 when compared to the same period last year. This growth was driven by multi-product attachment of Data Central and PAR Payments and continued ARPU improvement, which increased 11% from the same period last year. Observed ARPU improvement was driven by price increases in PAR Payment Service attachment.

Our opportunity for new Tier 1 deals continues to be strong, and we believe ourselves to be well positioned to win and grow through both new logo signings and the upsell of Data Central and Payments. Our POS has a robust backlog, and we have high confidence and visibility into consistent growth rates for years to come.

Turning to PAR payments, Q3 was a strong quarter marked by focused pipeline execution and the signing of several new concepts, including Acropolis Greek Taverna, Burgerville, Brooklyn Pickle, and Fat Boy Pizza, all of which are set to go live in the upcoming quarter.

Q3 also marked the company's first full quarter since the launch of Punchh Wallet, a product we've seen gain strong market momentum and resulted in customer wins with Clean Eatz and Burgerville. Additionally, we executed our first payments-funded hardware deal, which helps reduce capital expenditure pressures on merchants. Looking ahead, we're expanding our opportunities with the launch of QR code pay-at-the-table capability in Q4, with customer go-live expected before the end of the year.

Turning towards Data Central. We see strong product pipeline and anticipate the conversion of this pipeline will accelerate. The momentum is real, and we believe Data Central will be a strong growth driver as the PAR POS plus Data Central combination is becoming the go-to operator solution. PAR is uniquely positioned in the enterprise space with both market-leading POS and back-of-house solutions, which is mirrored by our pipeline.

We are excited to continue to see our operator cloud product suite gain traction with our largest customers. A combined POS plus back-of-house deal is worth almost 2x a project with only one product. It has taken time, but our vision of the connected operator suite is proving out, and we're looking to double down on this in the coming months.

Moving to Engagement Cloud, Q3 results have reflected our strongest year-over-year organic growth since 2022, driven by the go-live of Wendy's. Total Engagement Cloud ARR grew by nearly 150% from the same period last year, when including PAR retail and the Plexure division of TASK Group, and now totals $155 million. Year-over-year ARR growth for Engagement Cloud was nearly 17%.

Our engagement product suite continues to prove its market leadership, with Punchh out-front onboarding over 12,000 new locations and 3 major Tier 1 clients in the last 12 months. With this growth, Engagement Cloud site count now stands at an impressive 118,000 sites.

While we are winning and launching major new brands, we continue to invest for the future with new innovation, including Punchh Wallet, which enables seamless earn, redeem, and pay, as well as new C-store functionality with gamification and in-store customer interfaces. This past quarter saw significant new customer growth, with 9 new brands launching on the Punchh platform and 12 upsell deals to existing customers.

In early July, we went live with Wendy's, a deal we first announced in Q1. This go-live represented a record timeline to take a Tier 1 enterprise customer live on Punchh, with over 7,000 Wendy's stores, and reflects the urgency with which our people are empowered to operate. Looking ahead, we expect Punchh to be a strong profit contributor to PAR.

PAR Retail, formerly Stuzo, now operates in over 25,000 convenience stores and fuel stations, and provides a beachhead to cross-sell additional products, including payments and back office. PAR Retail is getting sales momentum and picked up a large Tier 1 customer win in the quarter.

We also extended our relationship with a major oil customer by adding over 400 sites and extending the current contract by 2 years. With more and more consumers utilizing C-store's prepared food and meal delivery options, we are seeing our investment thesis play out in real time. Brick and mortar formats are colliding, and this is playing out even faster than we expected. PAR is uniquely positioned to benefit from both C-store and QSR.

We recently rebranded Menu to PAR Ordering and are seeing momentum and winning deals within the Punchh base, most recently adding 115 Clean Eatz stores. In connection with this rebrand, we also combined go-to-market teams to position PAR Ordering in every Punchh deal and increase our sales capabilities. We've made the necessary investments to build tighter integrations, and the outputs are driving new customer wins.

PAR Ordering is rapidly achieving scale, and as we've crossed over 1 million transactions per month threshold, while achieving 99% order health, a key milestone that demonstrates product strength to prospective customers and the industry.

Moving to hardware, Q3 revenue grew 13% quarter over sequential quarter. We expect hardware to continue to stabilize as our team works to upgrade our legacy base of long-term hardware-only customers and pursue even higher attachment rates with our POS customers.

Stepping back to review our consolidated results. Today's announcement of delivering 25% year-over-year organic ARR growth and positive Q3-adjusted EBITDA of $2.4 million is an important milestone for us, and efficiency metrics continue to impressively scale with our focus on organic growth and EBITDA-accretive M&A. Subscription sales and marketing expense as a percentage of subscription services revenue this quarter was 14%, a 400-basis point sequential improvement from 18% in Q2.

Subscription R&D expense as a percent of subscription services revenue was 26%, a 500-basis point sequential improvement from 31% in Q2. And organic R&D spend again decreased year-over-year as we remain committed to spending in areas where we can prove ROI.

We take pride in today's milestone, but today remains day 1. Crucially, the combined scalability of our products and the continued flex in our operating leverage ensures that our financial metrics will only continue to improve over the years.

Bryan will now review the numbers in more detail. Bryan?

[Bryan Menar, executive]

Thank you, Savneet, and good morning, everyone. Q3 was a successful quarter for PAR. Subscription services continue to fuel top-line growth while we stayed fiscally responsible, managing our operating expenses. As a result, adjusted EBITDA for the quarter was a positive $2.4 million, indicative of an inflection point, driving growth with profitability.

Before moving forward, and as stated in our Q2 earnings call, all 2024 and comparative 2023 results that we will discuss this morning exclude any contributions from PAR Government, as those results, including the gain on the respective sale of PAR Government have been isolated within our discontinued operations results.

Total revenues were $96.8 million for the 3 months ended September 30, 2024, an increase of 41% compared to the same period in 2023, driven by subscription service revenue growth of 91%, partially offset by a decrease in hardware revenue of 12%.

Net loss from operations for the third quarter of 2024 was $20.7 million, or $0.58 loss per share, compared to a net loss from continuing operations of $19.2 million, or $0.70 loss per share reported in the same period in 2023.

Non-GAAP net loss for the third quarter of 2024 was $3.1 million, or $0.09 loss per share, a significant improvement compared to a non-GAAP net loss of $9.7 million, or $0.35 loss per share, for the same period in 2023.

Adjusted EBITDA for the third quarter of 2024 was $2.4 million, compared to an adjusted EBITDA loss of $6.6 million for the same period in 2023.

Now for more details on revenue. Subscription service revenue was reported at $59.9 million, an increase of $28.5 million, or 91% from the $31.4 million reported in the prior year, and now represents 62% of total PAR revenue, excluding PAR Retail and TASK, organic subscription service revenue grew 28% compared to prior year.

Annual recurring revenue exiting the quarter was $248.1 million, an increase of 93% from last year's Q3, with Engagement Cloud up 149%, and Operator Cloud up 41%, excluding PAR Retail and TASK total organic annual recurring revenue was up 25% year-over-year.

Hardware revenue in the quarter was $22.7 million, a decrease of $3.2 million, or 12% from the $25.8 million reported in the prior year. Sequentially, compared to Q2 this year, hardware was up $2.5 million, or 13%. The continued interest from our legacy hardware customers, as well as the continued high attachment of hardware sales within our expanding software customer base, gives us confidence that hardware business will continue to contribute meaningful revenue and margin.

Professional service revenue was reported at $14.2 million, an increase of $2.7 million, or 23% from the $11.5 million reported in the prior year. We are pleased with our team's ability to continue to grow professional service revenue during a period of hardware revenue contraction. The growth was driven by recurring revenue service contracts. $8.9 million of the professional services revenue in the quarter consisted of recurring revenue, a 23% increase versus prior year.

Now turning to margins. Gross profit was $43 million, an increase of $17.9 million, or 71% from the $25.1 million reported in the prior year. The increase was driven by subscription services with gross profit of $33.1 million, an increase of $17.3 million, or 109% from the $15.9 million reported in the prior year.

Subscription service margin for the quarter was 55.3% compared to 50.6% reported in the third quarter of 2023. The increase in margin is driven by a continued focus on efficiency improvements with our hosting and customer support contracts, as well as accretive margin contributions from recent acquisitions. Excluding the amortization of intangible assets, stock-based compensation, and severance, total non-GAAP subscription services margin for Q3 2024 was 67% compared to 69% for Q3 2023, and sequentially improved from Q2 66%.

Hardware margin for the quarter was 25.5% versus 25.3% in Q3 2023.

Professional service margin for the quarter was 29.2% compared to 23.8% reported in the third quarter of 2023. The increase primarily consists of increases in margins for field operations and installations, substantially driven by improved cost management and reductions in third-party spending.

In regards to operating expenses, GAAP sales and marketing was $10.5 million, an increase of $1 million from the $9.5 million reported for Q3 2023, with the increase being driven by inorganic costs related to our acquisitions, while organic sales and marketing was flat year-over-year.

GAAP G&A was $27.4 million, an increase of $9.8 million from the $17.5 million reported in Q3 2023. The increase was primarily driven by non-GAAP adjustment items for M&A transaction fees and stock-based compensation, as well as post-acquisition costs.

GAAP R&D was $17.8 million, an increase of $3.2 million from the $14.7 million recorded in Q3 2023. The increase was primarily driven by post-acquisition expenses, while organic R&D expenses were flat year-over-year.

Operating expenses, excluding non-GAAP adjustments, was $47.7 million, an increase of $10.3 million, or 28% versus Q3 2023. And excluding inorganic growth, organic operating expenses increased a modest 7%. The organic increase was primarily driven by variable compensation and benefits.

Now to provide information on the company's cash flow and balance sheet position. As of September 30, 2024, we had cash and cash equivalents of $105.8 million and short-term investments of $12.6 million. For the 9 months ended September 30, cash used in operating activities from continuing operations was $2.4 million versus $27.9 million for the prior year. The improvement was driven by a $10 million improvement in net loss, net of non-cash adjustments.

Cash used in investing activities was $178.1 million for the nine months ended September 30 versus $4.8 million for the prior year. Investing activities included $293.6 million of net cash consideration in connection with our recent acquisitions and capital expenditures of $4 million for developed technology costs associated with our software platforms, partially offset by $92.1 million of cash consideration received in connection with the disposition of PAR Government, and $24.9 million of proceeds from net sales of short-term health maturity investments.

Cash provided by financing activities was $279.3 million for the 9 months ended September 30 compared to cash use of $1.8 million for the prior year. Financing activities were substantially driven by private placement of common stock to fund the Stuzo acquisition and a credit facility entered into to fund a TASK acquisition.

I would like to take a moment to reiterate and thank our PAR team on continuing to successfully execute our operating plan while managing the integration of both PAR Retail and TASK in addition to completing the smooth divestiture of PAR Government.

As a result, we have driven significant improvement in key financial metrics with 25% organic ARR growth and 93% total ARR growth, flat to modest growth in organic non-GAAP operating expenses for a seventh consecutive quarter, culminating in Q3 positive adjusted EBITDA of $2.4 million. But to be sure, this is day 1 and not a finish line. We are excited about the opportunity in front of us to continue to deliver outcomes that drive value for all our stakeholders.

I will now like to turn the call back over to Savneet for closing remarks prior to Q&A.

[Savneet Singh, executive]

Thanks, Bryan. We continue to see PAR as uniquely positioned in the food service technology sector with best-in-class software across key operational and engagement pillars. Our ability to guarantee better together experiences across our products while separately enabling a robust integration infrastructure keeps us ahead of single product competitors that only control one part of the better together equation and are dependent on third-party integrations.

Put into other words, our products are winning on a standalone basis, but we continue to see a growing desire in the market for vendor consolidation. We believe the environment is ripe for continued M&A activity and PAR has shown itself uniquely capable of consolidating in the enterprise space while driving higher growth and profitability.

We are delivering an impressive better together platform and are smartly investing to continue that track record, balancing our need for both growth and profitability. We look forward to sharing more about our longer-term vision and strategy at our Investor Day on November 25.

Thank you to all PAR employees for your dedication and effort over the past quarter. Across the organization, our people have stepped up to ensure we deliver the outcomes our customers demand while embracing the hard work necessary to build a company capable of delivering long-term shareholder value. And as I said earlier, we're still at day 1. Chris?

[Chris Byrnes, executive]

Carmen, that concludes our formal remarks this morning. Can we now open the call to Q&A?

[Operator]

One moment for our first question. And it's from the line of Mayank Tandon with Needham.

[Mayank Tandon, analyst]

Congrats on the quarter. Savneet, I wanted to just focus on the large deal activity. I think when we came into 2024, you'd called out record RFP activity, and I believe there were 7 large deals. I think you logged 1 or 2, if I'm keeping count correctly. I just wanted to get sort of a status update on the other ones. Do you think you could still land a few more? What's the status on that? And if you were able to do it, could that potentially help accelerate the organic ARR growth? I know you've said mid-20s. Is that something that's conceivable if you were to win some of these larger opportunities in the pipeline?

[Savneet Singh, executive]

I think we have a good shot of closing more before the end of the year. As far as accelerating our growth, it's hard to say. It depends on the rollout of these deals. It certainly won't hurt so, I think our plan is built without even needing these mega deals. But if they come, they certainly would accelerate us. But it's hard to sequence the timing of a signing and a rollout.

[Mayank Tandon, analyst]

Understood. Maybe I'll switch over to the M&A. So good to hear that the progress on the acquisitions of Stuzo and TASK has been good. Could you give us a little bit more color in terms of what's surprised you positively and even negatively? And maybe it would be helpful to get any sort of data points on your ability to cross-sale into these accounts and win new logos. I know it's early, but any additional color beyond what you said in your prepared remarks would be helpful.

[Savneet Singh, executive]

Sure. On the PAR Retail side, formerly Stuzo, it's been a fantastic experience. We've seen really great receptivity by the end market for PAR's involvement. I think at the same time, we've been able to add some go-to-market heft to the area. And most importantly, I think we're really excited about the product delivery we can push into that market. And sso it's been fantastic. I think culturally, it's been a tremendous hit. And I'm -- we're just crazy excited. As we mentioned, we signed our next large customer in the quarter. And we think there's a lot more to come

And importantly, when we made this acquisition, it was a bit contrarian. The idea of C-stores becoming food service businesses was still really not a thing. And if you look today, it's not become a narrative, it's become consensus in that convenience stores are growing their food service businesses double digits across the industry. And for them to continue to compete with restaurants, they need tooling like we provide. And so I think we'll have the same playbook in this vertical as we did in restaurants. Obviously, it's great because we can leverage what we've done in restaurants in that market. I think we feel really good, really excited. And it's a nice long-term place for us to be.

On the TASK Group side, we are so early. We're a few months into it, but I think what we're looking at very quickly is the platform is special. It's one of those products when you demo. Jobs aren't dropping, but the enterprise version of that. And we've seen really strong interest, not just in restaurants, but in these adjacent verticals. We call them shoulder markets like sporting stadiums, hotels, casinos. And I'm not saying we're going to go into that, but it certainly gives us the vision of doing more than what we do today. And then I think, importantly, as we've talked about, giving us that international arm that we've never had before is wildly important as our big United States customers are almost all growing more internationally than domestically. So we're really excited for that as well.

[Mayank Tandon, analyst]

That's helpful. Congrats again.

[Operator]

One moment for our next question. That is from the line of Samad Samana with Jefferies.

[Samad Samana, analyst]

Maybe we'll start first with, Savneet, on the rollout of Burger King and Wendy's, I know they're adopting different products, but maybe what have you observed or learned from now that you're implementing at these larger customers what the organization and the product is capable of? Is there anything that you've seen that maybe you could do better that they're asking for as you're rolling it out or something that's gone particularly well? And how does that maybe inform you as you think about targeting additional large customers?

[Savneet Singh, executive]

That's a great question, Samad. So on the Wendy's side, that's an enterprise rollout of Punchh. And I think, our major learning is doing these at scale and getting it out. As we mentioned, it was our fastest large rollout ever. And honestly, I think it just gave us confidence that why can't we do that again? And so from a business perspective, I think what it's shown is that we can operate in these large enterprises.

And so it's making us a lot more creative about how we structure our deals with these large Tier 1 brands and not giving them the cookie cutter process we've had for the last decade or so. So I think it's kind of it's not changed how we operate, but certainly given us confidence in thinking about how we structure future enterprise deals.

On the POS side with Burger King, we're still relatively early. I think the major exciting takeaway is, I think, our experience there has fully convinced us and I think we'll have this in our numbers over time that "just doing POS is not the end game." And so I think what we're going to see more and more in these large rollouts is saying, hey, I know I said I wanted to upgrade my POS but why don't we do POS in back office and XYZ after that all at once. And so it's created some really healthy conversations with us, with them, but also I think future brands are saying let's not sequence it, let's do it together. And that's sort of the comments I had in the script about the combination of Brink and Data Central as one, is kind of my major takeaway there. There's obviously tons of learnings around the logistics and coordination of such a huge rollout, but those are all things I think you'd expect us to learn.

[Samad Samana, analyst]

And I don't want to front run the Analyst Day too much, since it's only in a couple of weeks and I suspect you'll go through some of these strategic views there. But you've obviously demonstrated the ability to get to EBITDA positive for the core business, but you're also talking about a very robust pipeline, good demand, M&A. Is there any thought on maybe hitting the gas on hiring or investment side that you've shown in the market that you can be profitable? I'm just curious how you think about that philosophically?

[Savneet Singh, executive]

Yes, I think we're going to have to continue to invest because the opportunity is there. We wouldn't invest, so we didn't get opportunities there. As an example, as I mentioned, we brought down R&D expense again and that obviously can't continue forever. And so we'll certainly need to continue invest as we deliver on this revenue growth. As I observed, there's very few software companies of our size that are still growing in the mid-20s and we really do feel we're at day 1 of this very, very large opportunity and so you'll see us continuing to invest and candidly when that opportunity is not there, you'll see us stop and you'll see the cash flow spigot accelerate tremendously. So we are trying to balance the trade off and we think this quarter was really important to show you that we could still grow in the 20s while delivering nice EBITDA. And our mandate for our team, we're in the middle of budgeting right now is we need both. This isn't a trade-off, we need growth and we need profitability. And so we push ourselves to get there, but we certainly will need to continue invest because as we've suggested and you said, there's a lot of pipeline and we don't want to be penny wise, pound foolish just to deliver an optical number. We want to build something that's there for the very long run.

[Operator]

Our next question comes from the line of Will Nance with Goldman Sachs.

[William Nance, analyst]

Nice results today. Savneet, I wanted to follow-up on some of the earlier commentary you had on Data Central. I thought it sounded fairly upbeat. And I think you mentioned in your response to one of the prior questions, being more aggressive about trying to attach its POS deals and sell more of a unified experience. And so just kind of wondering how are you guys -- how has the go-to market changed? What's led to the success that you've seen in driving more attractive Data Central to these deals? And you mentioned doubling down on the strategy I think in the prepared remarks. What are you kind of have in mind from that perspective over the next year or so?

[Savneet Singh, executive]

Yes, and you definitely read that through well. So we are really excited what we're seeing at Data Central.

To your question of what's driving it, it's 2 things. One is product. Brink being able to access Data Central reporting within the Brink platform is a really big unlock. Cutting 2 reporting systems to one gives our customers a huge advantage. It provides them a lot of confidence in the data, not having to go from one system to validate the next system. I think that connectivity of the platform is really powerful.

And then the second part of it is that allowed us to then consolidate into one sales and marketing team. And by going to market as 2 -- as 1 excuse me versus 2, we were able to prove that out. The other part of it, I'd say, is now we have demonstratable customer success showing the beauty of having both products at once. And so the reason why I think we're excited is that we've proven it to ourselves, we've proven it to our customers, and in our pipeline, it's quite remarkable how many deals we've been able to go into and say, hey, I know you're focused on point of sale, we'll absolutely deliver the best in class solution, but if you add Data Central it will be better together and here's our track record of proving that. And we've been really encouraged how many customers -- and potential customers, excuse me, have resonated with that and said, okay, I think that makes sense.

[William Nance, analyst]

That's great to hear. I appreciate that. And then just maybe more of like kind of a modeling or expectation-setting question, so the 25% organic ARR growth, super impressive this quarter. As we think about looking out over the next couple of quarters, folding in some of the recent acquisitions into the base, I know those are growing a little slower. Is low 20s still sort of the right range to be thinking about absent acceleration and sort of large deal activity that you referenced in an earlier question?

[Savneet Singh, executive]

Yes, I think we've sort of said for the last few years, our goal is to grow greater than 20%. And when we buy a business, we want -- we sort of create a plan to get there.

And I think what's exciting is that in every deal we have done, we have been able to accelerate the business, first starting with pipeline and then deals. And so we're just beginning that playbook. I already see it happening on the PAR Retail side and we'll soon we'll see it on the TASK side. So that's our hope and like I said, the market is still really strong. We're not seeing these deals push out, so we're very hopeful.

[Operator]

Our next question comes from the line of Stephen Sheldon with William Blair.

[Stephen Sheldon, analyst]

Really nice work here. First, can you just talk, some about the pipeline with convenience stores? Really nice to hear about another Tier 1 win there. And could it make sense to put even more sales resources towards that opportunity given the growth runway and some of the secular tailwinds you've been seeing?

[Savneet Singh, executive]

We have. The short answer is we have. It's actually I think in our go-to market team the only place that has for next year we're planning to grow the go-to market team there. So we completely agree and are adding. And like I said, I think it's funny when we did this deal, people are a little bit confused and now it's so consensus that the greatest stretch of restaurants in America is convenience stores and the greatest opportunity for convenience stores is restaurants. And so there's this these formats are colliding and we get to be a little bit of an arms supplier.

[Stephen Sheldon, analyst]

And then just on -- now that you've reached positive adjusted EBITDA, can you talk about your expectations to reach positive free cash flow and any rough sense on when you think that could happen?

[Savneet Singh, executive]

Yes, absolutely. What we've been telling people is we expect roughly a quarter lag. It may not be perfectly scientific. As you see this quarter, we were operating cash flow positive, and the main delta would just be the interest expense. And so -- as you know, we took out a note to fund the TASK acquisition, but we don't have lots of traditional, call it, CapEx and so, I think there'll be roughly a quarter-ish lag between the 2.

[Operator]

One moment for our next question. And it's from the line of Eric Martinuzzi with Lake Street Capital Markets.

[Eric Martinuzzi, analyst]

Yes. The good ARR on the organic business says that all is well as far as the current state of affairs. But I was wondering from a macro perspective, are you seeing any change in the top of funnel pipeline, maybe the RFPs that were there and then gone or pulled back, any change up the funnel?

[Savneet Singh, executive]

No, we haven't. We still feel pretty good. So we haven't really seen much change at all from the -- our last quarter as far as demand. Like I said, the only change we see is relatively positive on the Data Central side and that's really the combination of Brink. So it's not like back office is exploding, it's that the attachment to Brink is what's gotten customers excited.

[Eric Martinuzzi, analyst]

Okay. And then you talked about a growth rate in excess of 20%. But just taking that down in another layer between engagement and the operator segments, what's the expectation there? Or is there a difference between the growth rate that you'd be anticipating over the next 2, 3 years?

[Savneet Singh, executive]

Absolutely. I mean, I think historically -- or not historically, the last kind of 12 months, you've seen tremendous growth in the Operator Cloud. That will continue. I think it's both a function of TAM. Operator Cloud is in a 1/3 of the sites roughly of Engagement Cloud and so there's less market in front of it. And so you'll see more growth out of that side of the business. I think the other part of it is we've got more products to sell in that suite versus we can upsell you on back office payments and hopefully more to come. But generally, I think it's just a little bit earlier in its TAM.

[Operator]

Our next question is from the line of George Sutton with Craig-Hallum.

[George Sutton, analyst]

Savneet, you had mentioned and obviously, we all know that the U.S. quick service restaurant brands are growing faster internationally. I'm just curious if you can give us an update now with TASK under your belt a little bit. What kind of an opportunity are you seeing for really driving those U.S. brands into the TASK system?

[Savneet Singh, executive]

We're really early. We started the connectivity, if you will. And it's funny, just the announcement of the closing of this transaction led to a couple of people inbound to us about potential partnership over there. I think what I can say 100% validated is that our customers and not just our customers, other big U.S. brands are looking for a solution internationally. Now we've got approved that we can deliver on that going forward.

[George Sutton, analyst]

And one other thing on the large brand opportunities in the U.S., obviously, with you rolling out, can you talk about your conversations with other brands as you're talking about really scaling up and scaling down that implementation capability? I'm just curious is that -- are you convinced you can take on other large opportunities like that concurrently?

[Savneet Singh, executive]

We are right now. And I think the -- what I know for certain, we can take it down because that's -- you can take down that expense. Ramping it up, we feel like we did a really good job for Burger King and potentially could. But I think given the pipeline we have, we're likely to keep that going just because I think we're going to have more to roll out over time and hopefully this is our continued cadence.

[Operator]

Our next question comes from the line of Charles Nabhan with Stephens.

[Charles Nabhan, analyst]

Congrats on the quarter. Just a quick one on subscription gross margin based on the disclosure on Slide 15. Now if I look back over the past few quarters, sequentially it's been increasing in the mid-single digit range, I think 4 bips this quarter. Just curious if you expect that trajectory to continue.

And if you could remind us what specific products are accretive to that margin? I believe in the past you've said that Punchh is accretive, Brink is in line, Payments and Menu are slightly below. But if you could just remind us of that those drivers, that'd be helpful.

[Savneet Singh, executive]

Sure. So everything you said is correct. Essentially what's happening is, Brink is now in line or has gotten close to getting in line and I think over time it even has a potential to be more, but right now it's getting in line. Punchh is accretive, Data Central is very accretive, PAR Ordering and Payments are at the moment below that.

And so what we're balancing is that PAR Ordering and Payments are the fastest growing part of the business at lower -- right now, lower gross margin. So that hurts margin, but the larger products are having more efficiencies come out and so that you're seeing the balance of that. And obviously as we fold in our acquisitions, we'll see the impact on gross margin.

All of our acquisitions this year had been wildly accretive to the operating income side. As we get more disclosures out there, you'll sort of see their impact on the gross margin side. So in general, I think over time, that number will move its way up. Quarter-to-quarter, it's a little bit hard because you're sort of different growth rates at different products at different times.

[Charles Nabhan, analyst]

And if I could follow-up with that, on that topic. If I recall, when you had acquired Stuzo, you had indicated that their average ARPU was a bit higher than that of your existing product, which would indicate that there's potential for uplift from taking the competitor out of the market. It was one -- it might be early, but I was wondering if you're starting to see some of that benefit from the Stuzo acquisition on loyalty ARPU?

[Savneet Singh, executive]

Yes. So not yet, it's too early. But I would say, the benefit is not so much taking a competitor out, but more of converting the Punchh product customers to the Stuzo platform, which is called Open Commerce. And then I think over time coming to market with what we believe is the best solution, and then obviously upsell down the road. So you'll see this nice trend of the Punchh C-store customers hopefully coming over the Open Commerce platform at a higher price and then we think we can convert them to more and more products over time.

[Operator]

[Operator Instructions] Our next question is from Adam Wyden with ADW Capital.

[Adam Wyden, analyst]

Congrats on a great quarter and reaching the milestone of $2.5 million of EBITDA. I think I remember in 2018 sitting in my office with Chris Byrnes and talking about how hardware sales go down, you're going to lose a lot of money. And it's just an entirely different business now today than it was 6 years ago. And so I think as you sort of said over the last few quarters that it's not about hardware, it's not about this stuff, it's about building 80% to 90% gross margin software and letting that sort of tell the story of profitability. So it's great to see that.

I just had a couple of questions. One is on Burger King. It doesn't -- at least from where I'm looking at, it doesn't feel like you really started ramping up Burger King a lot. Can you sort of give us an update on sort of the Burger King rollout and then the -- sort of making inroads in terms of the other brands? I know like on all the expert networks and stuff, the transcript has said the relationship is really strong and they really like you. So maybe sort of expand on sort of where that rollout is and sort of how that relationship is evolving to the extent that it could be clear potential for the other brands as well?

[Savneet Singh, executive]

Sure. So we're really limited in what we can say. It's -- well, we're a vendor to a business and so there's not a ton I can give you specifics around. I would say the relationship is really strong. We are very close to the team both on a personal and a business level. I think we feel like we understand each other well. We have a long way to go here and so, I think the opportunity is great, not just with Brink, but with other products down the road. That's sort of a real excitement I have coming out of this partnership with them. But we can't say a lot without approvals and things like that.

As far as the other brands, we're actively engaged with all of them. There's, I think great respect for what we've delivered already. And I should mention that those other brands have experiences with other products and that is incredibly helpful. And so we are, I think looking forward to leveraging not just the experience we've had at Burger King, but with other products within those brands that help us as well. So I think we've got a good reputation within there. I think we've got now have a hopefully their perspective is PAR delivers. And so I see no reason for us not to eventually do more.

[Adam Wyden, analyst]

And just in terms of like the rollout of Brink, I mean, I know they have a mandate internally to make the franchisees roll it out before some deadline. I mean, is it fair to assume that some of the 20 -- because your -- the way I'm looking at is your growth is like [ 25% ] without a ton of Burger King. So the way I'm looking at is you probably would expect more Burger King in [ '25 ]. Is that sort of a fair assumption?

[Savneet Singh, executive]

We will definitely have a lot more in -- I don't want to say definitely. My expectation is we'll have -- I got a lawyer in the room. [ 25% ] greater than we have in [ '25 and '24 ].

[Adam Wyden, analyst]

Right. Okay. Yes. That's sort of my read through is that you're picking up -- you're sort of sustaining this 25% growth with not a ton of Burger King, which means that it's just like it makes us more optimistic about your ability to sustain the growth rate. And then, you talked about hoping to have some more announcements on other Tier 1s. Are you -- talk to me a little bit about M&A. I mean, obviously, you've done TASK and Stuzo, they've done well. How do you think about being able to sort of add on more modules? I mean, you've sort of Stuzo you've now had, I guess, 8 months of it and it's gone really nicely. TASK is obviously a large public company. It's different. But in terms of what I would call industrial, what we sort of call it bolt on M&A, sort of modules, not platforms. And if we think about TASK, it's sort of an international platform.

I mean, could we do a couple of -- I mean, obviously, it's all cost of capital dependent and obviously, what they want to pay relative to what you're trading at and whatnot. But I mean, do you think that you could do 1 or 2 bolt-ons next year to add product functionality? Because at least from our perspective, we're seeing a lot of businesses in the private markets that are sort of stranded that have pretty nice products, but sort of don't have the distribution that you do. I mean, we spoke to a company just yesterday that's doing AI products, and I don't know how big it is, but it's probably in the single digits of ARR, but like they have no distribution. I mean, these are the types of companies that you would be able to plug into your platform and cross-sell.

So I'm curious now with sort of private equity leverage and the IPO market sort of slow, like you really don't have a ton of competition to buy these assets. I mean, how do you think about like sort of returning to that market to do some of these deals at some point and valuations and growth? I'm just curious, like is that still possible or front of house?

[Savneet Singh, executive]

So the M&A focus is definitely more on the modules, the tuck ins, the bolt ons than it is on a platform. So we are really focused on that because I think we've now proven to ourselves that when we've got one, we can push it through the distribution pipeline with limited to no cost. So that is definitely the focus and I would completely agree with your comment on businesses being stranded.

[Chris Byrnes, executive]

Adam, we got others in the queue, okay, last one.

[Adam Wyden, analyst]

No, I'm good. No, no I just wanted to say -- I would only just say that like, look, to the extent that you guys can get your Tier 1 customers to be your advocates and allow you to announce it, I mean, look, having happy customers and letting them know that you're giving them great value, I mean, look, I know historically these customers have had a hard time letting you press release and what have you.

I mean, Hooters has done a phenomenal job and Jeff Kaplan, if he's on the call, we appreciate all the [ missionarying ] he's doing for PAR. But to the extent that you can get your customers to speak on your behalf, I mean, that is the best sales engine that you can have. And to the extent that you let your customers, A, be an advocate for you publicly, but also just with the press releases, I think it will help give everybody a sense that we -- our original thesis of this company is that there's no one else really penetrating Tier 1. It's playing out almost perfectly. And so we see you guys as a 1 on 1 competitive asset with no competition.

And so I think to the extent that others can see that and you can let other people speak on your behalf and put out these press release on the customers, I think that would help accelerate your cause. But no, this is great and congratulations.

[Operator]

[Operator Instructions] One moment for our next question. It comes from the line of Anja Soderstrom with Sidoti.

[Anja Soderstrom, analyst]

Congratulations on the nice performance here. Most of my questions have been addressed already, but can you just speak a little bit about the M&A environment and if you see any changes there?

[Savneet Singh, executive]

I think that it's a little bit what we just talked about, which is I think our focus on the M&A environment is on these bolt on, tuck ins, modules that we can push through our platform once fully integrated into one of our products.

From the environment perspective, it's very robust. It seems like there's more companies for sale than there are historically. Definitely some larger transactions have happened, but we haven't seen is a lot of the smaller and medium sized transactions come through yet and I think that's next.

[Operator]

And our last question, one moment please, comes from the line of Mark Palmer with The Benchmark Company.

[Mark Palmer, analyst]

Yes. Very nice job in the quarter. My question is about TASK Group and the potential of that platform. The initial thinking with regard to the acquisition of TASK was that it would enable PAR to follow its existing customers in the U.S. internationally, especially because there's more growth there. But are there any other benefits for TASK that you foresee, especially, in terms of landing new customers beyond the ones that you're able to accompany in their international forays?

[Savneet Singh, executive]

Certainly. I think we are -- I hate anecdotal stuff, but we talked to a brand this week that we've never had a robust conversation with prior to who thinks of the TASK product as very unique, very special in international markets and hopefully we can bring that forward to U.S. relationship over time. So absolutely, I think, the TASK Group is delivered for customers that we don't have relationships to. And as I mentioned a little bit earlier, it's also delivered in markets that we're not in, things like stadiums and stuff that we'll take a look at as well.

[Operator]

And this concludes our Q&A session for today. I will turn the call back to Christopher Byrnes for closing comments.

[Chris Byrnes, executive]

Thank you, Carmen, and thank you to everyone for joining us this morning. We look forward to updating you further in the coming weeks.

In closing, we look forward to seeing everyone at our upcoming Investor Day on November 25 at the New York Stock Exchange. As space is limited for those intending to attend in-person, please register via email at [e-mail]. We kick off at 1:00 p.m. that day, and we will also be webcasting our presentation with an accessible link on the Investor page of our website. Have a great weekend, everybody.

[Operator]

And thank you all for participating in today's conference, and you may now disconnect.