Adam Wyden

Adam Wyden of ADW Capital Management asked a series of detailed questions regarding the self-insurance reserve's impact on EBITDA, the quantification of pre-opening costs, the potential sale of the Bombshells segment, and the current M&A pipeline for nightclubs.

Answer

CFO Bradley Chhay and CEO Eric Langan addressed the questions. Chhay clarified the insurance charge impacts EBITDA but not free cash flow, estimating a $10-12 million annual run-rate under the current method. Langan added that a planned captive insurance company would normalize these costs. Langan estimated pre-opening costs burdened the quarter by $400,000 to $500,000. Regarding Bombshells, he stated a willingness to sell the entire segment for the right price, citing a target of around $85 million. Finally, he discussed the active M&A strategy, which includes divesting some underperforming clubs to fund acquisitions in more profitable markets.

Adam Wyden asked for clarification on the non-cash insurance accrual's impact on EBITDA, a quantification of the negative impact from severe weather in the quarter, and an update on the M&A pipeline and the go-forward strategy for the Bombshells restaurant segment.

Answer

Executive Bradley Chhay clarified the non-cash insurance accrual was $1.3 million for the quarter. Executive Eric Langan estimated that severe weather negatively impacted sales by approximately $5.6 million and EBITDA by about $3 million. Langan also discussed the M&A pipeline, noting recent acquisitions will contribute more significantly in the coming quarter. Regarding Bombshells, he detailed leadership changes, cost-cutting measures, and plans to divest certain real estate assets, with a goal of getting the segment to a stable, breakeven point before deciding on its long-term future.

Adam Wyden of ADW Capital Management questioned RCI's strategy for monetizing non-income-producing real estate, the expected Bombshells segment margins for 2025, long-term same-store sales growth potential, and the outlook for capital expenditures and capital allocation, particularly regarding share buybacks and debt reduction.

Answer

Executive Eric Langan detailed plans to monetize an estimated $20-$25 million in non-income-producing real estate in 2025. He stated the target for the Bombshells segment is 15% operating margins, driven by a focus on returning to same-store sales growth. Langan noted the company's five-year plan assumes a minimum 2% overall comp growth and that 2025 maintenance CapEx is expected to normalize to around $6 million. He affirmed the company is actively buying back shares daily and is focused on reducing its debt-to-EBITDA ratio to below 3x.

Adam Wyden asked about the financial impact of pausing TASK rollouts, specifically if it was affecting gross margins, and questioned PAR's M&A strategy, asking if the company would consider being acquired given its current valuation.

Answer

CEO Savneet Singh confirmed that increased investment in TASK to build out capabilities for Tier 1 deals is impacting costs in both COGS and R&D. On M&A, Singh stated, 'we are for sale every day,' and the board would support a sale if it maximized long-term shareholder value. He also noted that while PAR's multiple makes large M&A more selective, the company still feels good about its pipeline of accretive, capability-driven tuck-in acquisitions.

Adam Wyden of ADW Capital Management LLC sought clarification on the nature of recent Tier 1 wins, the status of the sales pipeline, the company's long-term M&A vision, and the specific FX impact on revenue and EBITDA.

Answer

CEO Savneet Singh explained that of the seven Tier 1s in the pipeline a year ago, six were net new logos, and four have been won. He confirmed the pipeline's dollar value is now larger. His long-term vision is for PAR to dominate the broader foodservice technology space by applying its integrated M&A playbook to adjacent verticals. CFO Bryan Menar quantified the quarterly FX headwind at approximately $1 million to revenue and $700,000 to EBITDA.

Adam Wyden asked about the potential for materially higher incremental gross margins on subscription software. He also questioned the M&A strategy in relation to PAR's stock valuation and cost of capital, and the long-term duration of the company's growth.

Answer

CFO Bryan Menar confirmed that margin improvements would drive higher gross profit. CEO and President Savneet Singh addressed the M&A topic by stating that strong financial performance will ultimately drive the company's valuation. He emphasized that M&A is a core part of their product strategy and that they can still execute accretive deals with a strong pipeline.

Adam Wyden asked for an update on the Burger King rollout and progress with other RBI brands. He also inquired about the company's appetite for bolt-on M&A to acquire new modules, given the current market for smaller private companies.

Answer

CEO Savneet Singh described the Burger King relationship as "really strong" with a long way to go, and confirmed active engagement with other RBI brands. He affirmed that PAR's M&A focus is on bolt-on modules that can be pushed through its distribution pipeline and agreed that the current market contains many "stranded" businesses, making the environment robust for such deals.