PAR Investor Day Key Takeaways
Incremental insights on a core Bristlemoon investment
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PAR Investor Day
PAR Technology Corporation (NYSE: PAR) today held an Investor Day. PAR is a top five position in the Bristlemoon Global Fund, and we wanted to highlight some key insights from the company’s presentation. Rather than rehash the PAR investment thesis, which we detailed in our deep dive, we wanted to focus on incremental learnings from the Investor Day.
Sales and marketing ROIC
Below is an illustrative example the company gave regarding the ROIC from sales and marketing spend to add incremental annual recurring revenue (ARR).
Source: PAR Investor Day 2024
Here are some of the key inputs and assumptions (which we would note are very conservative):
Over the last twelve months, PAR spent $30.9 million on sales & marketing (S&M) for their software business.
This led to an incremental $31.9 million of ARR. So in short, for each dollar of S&M spend, PAR is roughly bringing in an additional dollar of ARR.
This analysis is before acquisitions, and includes zero upsell of additional PAR products, no price increases, and no gross margin improvement (all of which are already happening, and we believe will continue to occur). In other words, the assumptions are likely extremely conservative and underbake the true ROIC from PAR’s S&M spend.
The analysis assumes that the $1 of ARR will churn at 5% per year, leaving $0.63 of ARR by year 10.
This rudimentary analysis only assumes that the cash flow stream lasts for 10 years (it will likely last for far longer, with PAR boasting multi-decade relationships with some of its customers).
The analysis assumes a flat 67% gross margin. This is what PAR achieved last quarter, but notably doesn’t assume any further improvement over the next decade, despite the company likely being able to hit 75% software gross margins over time as these businesses continue to scale.
PAR then assumes that for every dollar of new revenue, they have to add $0.20 of new costs (G&A and R&D) to support that revenue. This is also very conservative because historically PAR has not needed to add this level of opex to support new revenue.
So tying together this analysis, the IRR on that S&M spend to acquire a new customer is 43%. Expressed another way, for money that PAR spends on sales & marketing today, there is a roughly two year payback period on that spend. This is a very quick payback!
Another gem from the above analysis is that it allows us to calculate the potential incremental margins on new ARR dollars. Based on the data presented by the company – which the company has made clear is illustrative and not based on actual results – it implies 47% incremental margins on new ARR dollars.
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