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SaaS Interviews with CEOs, Startups, Founders
NYSE: PAR CEO Savneet Singh Shares How He Great from $200m/yr to $400m/yr
00:20:40
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A
You are listening to Conversations with Nathan Latka where I sit down and interview the top SaaS founders like Eric Wan from Zoom. If you'd like to subscribe, go to gitlatka.com We've published thousands of these interviews.
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B
And if you want to sort through.
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A
Them quickly by revenue or churn cac, valuation or other metrics, the easiest way to do that is to go to getlatka.com and use our filtering tool. It's like a big Excel sheet for all these podcast interviews. Check it out right now@getlad.com.
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B
But this is the market cap late last night. $1.897 billion. What's crazy about this graph? You look, it was at a high back in 2021, but revenue has more than doubled since 2021. So why hasn't valuation also more than doubled? Please help me welcome to the stage Sabneet Singh with PAR Technologies. Thanks for being here, man.
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C
Yeah, yeah.
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B
Third fastest growing. Do you know who the two and one are?
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C
I have no idea.
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B
It's still impressive on this market to get this kind of get these kinds of deals done.
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C
Yeah.
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B
What's your take on why the market is not valuing your revenue growth? Is it just Fed and interest rate?
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C
Oh, I would take the opposite. I think our stocks kicked ass. So if you look at so we're about $2 billion market cap, but most of our life we've been around less than two, less than a billion for a lot of it. In that sort of sub $10 billion software, we're the best performer sans one company over the last one, three, five years. So it's a little bit size dependent.
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B
Right.
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C
You've had the big stocks take away most of the gains that have kind of hit it. So the average, this is a crazy statistic, but the average, the median software company that's public is down 21% over the last six years from 2018 to now. So you've actually had negative returns in software over time. So we feel great because we're up 5x or something since that time. And then on this chart particularly it was crazy. In 2021, our stock was trading at 30 times revenue. We were public, so we were selling shares left and right by buying companies. So I think today we're actually undervalued and we look forward to. I think that's why the stocks are revaling. But anyways, long story short, we were overvalued and I think now we're growing into it. But you know, we get a lot because of the VC world, I think we kind of miss this. But software has actually been a really horrible category to invest in for the last five, six, seven years.
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B
Saab's got a deep history investing in SaaS. He's running his own private equity shop before that's had his own debt shop before this just I would say one of the savviest business guys I've met. We're going to dive into his most recent earnings report. But I want to just very quickly, in about 60 seconds I'm going to talk through the context really quick. So we all have it. 39 year old CEO came in, recruited by the board. Actually the board wanted you to run the recruitment process and then said actually we just want to get you addicted. That's right, yeah, he's now the CEO comes in in 2019. You can see what he's done since in terms of revenue growth. This is hard shit. This is really hard stuff. Especially as a publicly traded company. This guy's taking bold bets. The company has more than doubled and its revenue. And so we'll talk about operations, product and MA strategy over the next 20 minutes. We talked about public markets. This was old par before Saav. Just so you put a visual to what the product is, it's the checkout systems, right? It used to just be sort of a hardware. Now we'll talk more about this. It's way more software now. He comes in in 2018 as CEO and this is what their product mix looks like today. Why don't you talk Maybe just for 30, 60 seconds on product?
- [03:22]
C
Super simple. We sell software to restaurants. If you go into the average restaurant, you'll be shocked how many individual products run that restaurant. It's upwards of 20, 30, 40 sometimes. So we're the point of sale system, we're the loyalty software, the online ordering system in the back office. Not everybody buys all of our products. That's kind of the dream. But we're kind of the. Think of us as the ERP platform to run your restaurant.
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B
Lots of room to expand ACV and wallet share. The product suite. You really doubled down on this at our last conference in Austin. You had just, you were fresh off two of these big deals. So these are two of the big deals you just did earlier this year. Paid 206 million for a company called Task, which is 40 million top line, 6 million EBITDA about a 34x EBITDA multiple, 5x ARR multiple which some people might say, oh my gosh, Saab got a great deal. This is incredible. We'll talk more about that in a second. Second big deal. Very close. Paid another 170 million bucks for this business. 40 million top line, 14 million EBITDA. What's cool about this is you've now had time to sort of sync all these things together around this product map and vision. You're focused on ARR per share again. I'm going to this quickly now. We'll come back and dive deep. I want to get to this though, because when you look at the top line, something special happened. How do you go from burning a bunch to cash, you know, profiting?
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C
It's crazy. We're now making money, which is crazy. But the chart kind of five or six slides ago of our revenue from 200, 400 was kind of hiding something. When we took over the company, the revenues were about 170, 180, and they were $5 million of software revenue, 165 of hardware and services. Where today will be whatever, 450 of revenue. But 250, 260 will be software. The software has sort of grown, you know, 40, 50x during that period of time. And part of that though was our core product. Our point of sale product was broken. So you all work in software, but we were the first SaaS product in restaurants. But we were shipping product once a year. If you went to a Dairy Queen, there was a decent chance we would take down the store as opposed to actually processing a transaction. And so we had to put in tens of millions of dollars to stabilize and rebuild the product while growing. So we had to do an incredible amount of reinvestment. And now we're getting the benefit of we're public. So we disclose this, but we haven't grown our operating expenses in almost two years yet. We've grown our revenue 25% a year over those periods of time, so well over doubled. And so also the SEC filings are kind of complicated. So we didn't actually lose this much money. We sold the business. And so that's the 77 million there. But generally we've kind of been able to. While we work through this turnaround, we try to burn 2 to 4 million a quarter while keeping the top line relatively high. And now it's obviously inflected nicely to profitability.
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B
Talk about setting strategy and then divesting non core assets. You sold, I think it was your defense.
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C
Yes.
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B
What did that thing even do? How much revenue to represent? Why did you sell it?
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C
So when you're public, you don't have necessarily the beauty of when you're private, you can do whatever the hell you want. And so, you know, when we were, I hate to take a lot of time, but PAR was founded 50 or 60 years ago as a defense contracting company. In 1978, we invented the point of sale terminal, so the device you check out on. And then we went public in 82. And pretty much since that point, we sucked. When we stepped in to run the company in 2018, the market cap of the company, which is the value of the company, was lower than when we went public in 1982. So for 40 years we had no shareholder value creation. If you had just taken all the money apart at the time of the IPO and invested in the S&P 500, you'd be worth $15 billion. And so an incredible story of shareholder value destruction. And so, um, what we kind of realized was that we couldn't keep doing the same thing. And so we had to do a crazy, you know, dramatic shift. And so what I think we learned along the way was that, and I know this is not your question at all, but I think probably helpful for you all is, is that being getting in software sounds like a better business model. But more often than not, it is not big enough to be a scalable public company or to be a venture backed business. And when I took over the business, I wasn't sure if the product we had was like venture backable or public. And so we had this government contracting business that was printing 10 million bucks a year. And so it kind of top line or bottom on the bottom.
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B
What was top on that?
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C
The top was probably 70.
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B
Okay, so what is that? That's like 40% of the total business.
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C
It was huge. Yeah. And for profits it was all of our, we were losing money. Right. So it was 200% of our profits. And so, you know, when we got there, everyone said, well, go sell the government business. Like, why are you, if you're trying to build a software company, why are you trying to hire government business? I was like, we could do that. But then when I disclose to the market that the government business is printing 10 million bucks, they're going to see that our software business is on fire and that our customer NPS is negative 60. Our CSAT was negative 99. We didn't have one customer that was green on our CSM scores. Right. And so it was in many ways to kind of give us time, kindly two years to rebuild our products so that we could then say, all right, now we don't need this government thing to keep us going. So that's why? We kept it for a long time. We sold it and immediately deployed it back into this acquisition. You showed. And so our capital allocation philosophy has sort of been we don't want to sit on your cash as a public company. We want to deploy it, and we've got nowhere to put it. We'll give it back to you.
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B
What did you sell the defense business for?
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C
We sold it in two different. We broke it into business, sold it like 100, 203 million something.
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B
Okay, so that came as cash back to your balance sheet.
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C
That's right. And then we bundled it right back. That's right. One of them acquisitions.
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B
One of them. One of them. Okay, so walk us through this. Is now sort of putting everything together and it gives you a chance to talk about the different kinds of revenue you're doing today.
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C
Yep.
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B
Two acquisitions you're building in hardware versus software. Walk us through this.
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C
So now it's a lot simpler. So we have three lines of revenue hardware. So when you go to a restaurant, that device the cashier is pounding on, we still sell that. You know, we try to sell 80 to 100 million of that a year. That's got sort of 20% gross margins. 21, 23 in a good year. This is a shitty year for it. So sorry, bad year for this. And so this will be a bit lower. Subscription services, that's our software line. So if you look, this is the a quarter. So you know, 45 million we did last quarter, times it by 4. You can get the run rate. Then we close an acquisition. So now we're kind of run rating 240, 250. And then professional services, which is everything from install to repair, warranty and other sort of services. The juice is all in the SaaS business. Right. Subscription services. This is our payments and our SaaS business. So that's where we get the multiple. That's where Wall street gets excited about our story, and that's where all the growth is. And so you can see in our public commentary, we literally spend 16 seconds on the rest of the business and everything is on our ARR and gross margins.
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B
When you guys think about really quick, think about your current revenue or maybe last month's MRR multiplied by 12. And then what you spent on total paid sales and marketing, salaries, commissions to sales reps, LinkedIn ads. What percent are you guys spending as a percent of your ARR on sales and marketing? Anyone off the top of your head? Is it like 5%, 25%? Do the math really quick, Ben. What do you. I mean, what do you see, you look at P&LS all day long from SaaS companies. What are they spending? So founder led sales. What he's saying is the founder is leading a lot of the sales. They can get away with spending maybe less than 10% of total revenue on sales and marketing if it's not founder led and they have to go higher for that function. He's seen it get as high as 50%. I feel like you've got some arbitrage here because you got 9.8 million of total sales and marketing.
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C
Yeah, so we're great, we're getting there. So what's really cool about our model is the reason why the investors gave us such a break. Right. We were losing money and growing and our stock kept going up. Is that the economic model? You can kind of see through it. So today at par we spend around 14% of our revenues on sales and marketing. We've which I mean, correct me if.
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B
I'm wrong, that feels like that's world class.
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C
That's world class. Yeah. So, so the average SaaS company is around 25%. This is public, I'm using public info. The average R and D spend is about 25%. We're like at 31% so we're kind of within swing distance. And then GNA, which is your overhead cost is sort of the rest of it. And you know, it's very much to me tied to your price point. So I think people get kind of again you and I talk a lot. SaaS is not SaaS. And so you know, our average customer is spending hundreds of thousands of millions of dollars with us. And so that is a suit carrying briefcase salesperson, not a download, a free demo. And so when you're selling to SMBs, when you're selling to individuals, your sales market cost is just high because it's groundswell, it's deal by deal versus enterprise deals. You know we signed a deal in December of last year that was a $230 million, 10 year deal, $23 million a year that took one salesperson. Right. That's the same sale. And so that's that. You can think of the CACTL TV on.
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B
Is that your largest customer?
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C
Yes. Burger King it will be. You know we just did a deal with a, you know, a big, another big chain, 5 million 1 salesperson. And so you know, enterprise companies have the ability to be world class on that sales and marketing side where you see the real win in margins. And I think your last guest was talking about multi product or two esco is that can you sell multiple products from different buyer Personas from the same bag? What that means is, is your first product selling to a CMO and your next product gonna sell to a cfo. And if you can do that from the same go to market organization, that's when you get sub 15% sales marketing. That is really, really, really hard to do because inevitably your sales team's like, well, I'm the expert on CMOs and I know their budget and I know the CFO. And your product teams are like, well, we should have two product teams. That's when business get really complicated. That's kind of why what we've done really well, which we've been able to penetrate the same customers over and over again.
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B
So just to make this land, because you're very inspirational where you're at 400 million of revenue, to make it maybe actionable for a 5 or $10 million founder in the audience is the is the lesson, hey, if you guys have a sales team and you're trying to sell to a cmo, but also the cto, try and figure out how to get the same sales rep selling to both. Don't resist the urge to split it.
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C
Or if it doesn't work, immediately recognize that and figure out a super efficient way to do it. And so candidly for us apart, we went relatively decentralized. So our org designs are really much more like Amazon than they are a clean SaaS business. Because I believe in accountability. And so every product manager or GM has a P and L. It's really objective, it's an intense environment, but it's also a fun place to work. Because, you know, if I look at the average, this is, we don't hire based on age, but the average age of the GMs who run $100 million PNLs at our company is like 30. You know, we've got somebody that's 26 or 27. We've got somebody that's like 35. And so it creates. When you have a decentralized org chart, it gives you creates a lot more opportunity, right? Because you can be like, I'm the GM of a $5 million revenue line. You still feel like that's yours, that's your baby. You own every single decision. And so the point I'm making is if you've got multi product with multi Persona, figure out quickly if you can do out of one bag or two, and if you do two, rebuild your design off that.
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B
We've got about five more minutes left with Saab and Then when we have Nicholas on stage next, which Le Piper, we'll talk more about how they've increased their ACV from 6k to 30k, which might be more versus selling, which is incredible. At $23 million per. Was that per year customer burger?
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C
Yeah.
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B
This is wild. How many of those can you sell in a year? How many Burger Kings are there?
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C
That's our biggest. We generally try to get a few of these sort of plus $5 million plus deals a year. Yep, yep.
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B
I mean, so this is. Is this still actively how you're thinking about product? Roma have any big M and A on the, on the horizon?
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C
We're taking a breather on M and A because we, you know, we've M and A has worked categorically well for us. You know, when we announced these deals, our stock was 39 bucks. Today it's, you know, 50 plus. But more importantly, when we look at M and A, we go in before we close the deal with a financial plan, an organizational design plan like who reports to who, and a cultural plan, which is how we're going to integrate these cultures. And, you know, if you. The rigor I think we do up front allows these deals to work. So I would tell you if you asked people at our leadership team, you know, did this company stuzzle? We bought work. We'd be like, holy crap. Not only did the deal, is the deal a home run, like, it changed us for the better and so we do a ton of work up front now. The challenge is that it creates a lot of change inside. Right? You've got a bigger product or you've got a bigger sales org. You've got different people who now are like, hey, I've got a different opinion. And so I think you need a little time to digest these deals and make them swim on the same song. She so literally yesterday I just announced an updated set of values across our company that incorporates the two new companies we acquired. So they feel engendered as part of the company. But short answer is we are deeply focused on owning the enterprise restaurant. And so we don't want you to go to 50 vendors, we want you to go to five. And we want us to be 80% of that. And so we will continue to sort of look to build or buy. But today it's built.
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B
This acquisition, you guys are seeing on the screen, many founders today doing 10, 20 million bucks of revenue would say, man, I'd love to get a 10x forward looking ARR multiple or a forward looking, you know, 15x4 looking AR or if you're raising around, you'd love to raise at a 20x right? ARR multiple. This guy got a deal done at a 14x EBITDA multiple. So ignore top on bottom line, what is that? What would be the equivalent ar? Yeah, 4.5x ar. I mean, are you a genius negotiator? How did you get this done? Tell us the dirt of how you got leverage on a company like this to sell to you for so cheaply.
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C
Well, I would say this, the founder, after we got the deal done, didn't talk to me for 30 days because he was so pissed. But we're now really good buddies.
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B
That's how you know you got a good deal.
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C
So I'll turn that more to advice for 50 people in the room. If you're building your company to be sold, you should go in assuming that you're going to get the median multiple at best. You don't go in assuming you're at 10 or 20 or 30. And the reason why is I come to this conference and part of the reason I love it is I'll meet people and say, hey, I'm growing 100% a year, I'm worth 10x. And I'm like, well what's your turn? What's your ACV? And I'm like, Nah, you're worth like four. And the reason why, as an acquirer of software companies, those 10, 15x companies are incredibly rare now and they should stay that way because that's the way it's always been when that period of hype is gone. And so you should be building assuming that the long term SaaS index for literally 20 years since SAP and Oracle started disclosing their recurring revenues is always been around five and a half to six times XTM revenue. That is the median of the public companies. And so if you're a $3 million revenue company, you're going to get a lower multiple. If you're a $20 million lender, you might get a higher multiple because the size helps. But that's kind of what you should bank on. And if you're banking on the 10 or 20 or 30, you're really, you're getting crazy because it can happen. But it's tough. And we as a company have spent 15x but our stock was trading at 30x and so it's tough, but I would anchor yourself on the median and work backwards.
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B
Can you talk to us more as we wrap up here? A little bit more on why you choose to pull this specific graph out in your public Calls.
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C
Yeah, I think for all of you to think about this way too, which is ARR is not a tool for fundraising. ARR is a tool because it's a future proxy of cash flow. The reason why ARR became a metric in software is, is that in hyper growth for software investors back in the day didn't understand that when you signed a deal that revenue was going to be there for two years, five years, 10 years, 20 years. And so you created this metric of ARR. But the reason why it's important is that investors will say, okay, under every dollar of ARR there is $0.10, $0.15, $0.20 of future free cash flow. And that's actually what they're underwriting. They're underwriting your revenue, they're underwriting your future free cash flow. And so when we were a money losing company for a long time, I wanted a way to go to the market, say, well, how can I tell you, I know we're going to be crazy profitable and I'm going to explain that to you, but are we more efficient or less efficient? And so what we disclosed was we said for every share of PAR you own underneath that dollar, that, that one share that you own is way more recurring revenue than when you had before, which means way more future free cash flow. And so as you guys grow your businesses over time, you should be thinking about if I've your number of shares on the bottom and your ARR on top and that should be growing incredibly quickly. So not like 10%, that should be.
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B
Growing just to be clear, because I know most private companies are like okay, crap, I don't even know how many outstanding shares do I have? Like log into Carta, go look at that old Google Drive folder that you forgot what you named. It's gonna take you 30 minutes to search the right terms to look it up. But you have somewhere where you have an outstanding number of shares. Take that number, divide it into your ARR and that's how you can.
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C
The way to think about it is if, let's pretend you're growing 100% a year and then you raise a growth round for $25 million, you sell a third of your company. Now your share count is a third bigger. But if your growth rate goes from 100 to 110%, you actually didn't create value. And so I oftentimes look at that when we're acquiring companies of hey, did you actually need that money or was that money just like a press release? And so it's a really interesting way to kind of look back and say, hey, did like, did it make sense? Can you actually put that money to create more value?
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B
So guys, I would say a genius dealmaker, One of the youngest publicly traded SaaS CEOs back in 2018, at 39 years old, has since more than doubled the base.
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C
34.
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B
Was it 34?
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C
39 now. Yeah.
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B
Oh my God. My God makes me old now. I feel like I haven't accomplished anything. All right, SaaS Open is growing. We're going to have 20,000 people.
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C
By the way, super shout out for Nathan. One of the biggest mistakes, if any of you met me or if I've been in the room trying to buy your company or invest in your company, the single greatest mistake that founders make is tam. They overestimate how big their opportunity is and then they go raise super diluted venture capital money. And so I am a wild champion of the services that his business offers because it can, it sets the market in the way that it should be run. And so I'm a big fan.
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B
Well, on the note of being open and transparent, I will tell you guys, part of us lending money is we have to put in our own capital. So I didn't want to give up control, I didn't want to give up equity.
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C
I haven't asked.
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B
Are you comfortable sharing these numbers?
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C
Yes.
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B
So how much did you put in in the Series A?
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C
I don't remember. You don't remember?
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B
That's a good problem. That means you're not thinking about me. It's wonderful. It was 8 million on a 90 pre, right? And that 8 million we basically still all have in the bank because we have a team of 12 people doing north of 10 million, say north of $10 million of revenue. But you allowed us to do that. We've stayed disciplined. We'll keep staying disciplined. We only care about AR per employee because we want to be here as a lender in 10 years managing a billion. 20, 30 billion. So thank you for that. But anyways, back to SAF. 34 year old in 2018, third fastest growing publicly traded company today on a percent basis. Has transitioned the business from heavy hardware to heavy SaaS. Catch them in the hallway if you can. It's going to be a fast paced, fun conversation. Also is deploying hundreds of millions in M and A, bringing it all together and again doing this in the very hard spotlight of being a publicly traded CEO. Please help me give it up for Savneet Singh.
- [20:34]
C
Thanks, Nathan.
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B
Thanks, Ben.
- [20:35]
C
Appreciate you.