This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good afternoon. My name is Alexander and I will be your conference operator today. At this time, I would like to welcome everyone to the OLO first quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star one on your telephone keypad. If you would like to withdraw your question, please press the pound key. I would now like to turn the call over to Mr. Brian Danube. Please go ahead.
spk01: Thank you. Good afternoon, everyone, and welcome to OLO's first quarter 2021 earnings conference call. Joining me today are Noah Glass, OLO's founder and CEO, and Peter Benavides, OLO's CFO. During our call today, some of our discussion and responses to your questions may contain forward-looking statements, which represent our beliefs and assumptions only as of the date such statements are made. These forward looking statements include, but are not limited to, statements regarding our future performance and our market opportunity, including our expected financial results for the second quarter and fiscal year 2021, expectations regarding future operating expenses, impacts and expected results from changes in our relationship with our large customers, our market opportunity and market trends, expectations regarding the impact of the COVID-19 pandemic on our business and industry, predictions on consumer ordering volumes, the growth of our customer base, customer adoption of our products, and expectations for capturing market share, and our delivery of new products or product features. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after tonight. These statements are subject to risks, uncertainties, and assumptions. Should any of these risks and uncertainties materialize, or should any of these assumptions prove to be incorrect, Actual company results could differ materially from these forward-looking statements. A discussion of the risks and uncertainties related to our business contained in our final prospectus filed with the SEC on March 18, 2021, and our quarterly report on Form 10-Q for the three months ended March 31, 2021, that will be filed with the SEC following this earnings call. And our remarks during today's discussion should be considered to incorporate this information by reference. Also during this call, we will present both GAAP and non-GAAP financial measures. Reconciliation is the most directly comparable GAAP financial measures are available in our earnings release, which we issued a short while ago. This earnings release is available on the investor relations page of our website and included as exhibit in the forum AK furnished to the SEC. Finally, at times when I've prepared remarks or in response to your questions, we may offer incremental metrics to provide greater insights in the dynamics of our business or quarterly or annual results. Please be advised that this additional detail may be one time in nature, and we may or may not provide an update in the future on these metrics. I encourage you to visit our investor relations website at investors.olo.com to access our earnings release, periodic SEC reports, a webcast replay of today's call, or to learn more about OLO. With that, let me turn the call over to Noah.
spk06: Hi, everyone. Thank you for spending this time with us today. I'm Noah Glass, the founder and CEO of Olo. I'm thrilled to be with you on this call and to share my thoughts on our company, our opportunity, and our Q1 performance. Given that this is our first earnings call, I thought I'd take a moment to introduce you to Olo and what we do. Olo is a leading cloud-based on-demand commerce platform for multi-location restaurant brands. now serving over 400 restaurant brands in approximately 69,000 individual restaurant locations, and enabling them to let consumers order ahead, pay ahead, and get their food faster for takeout, delivery, and more. Our mission is to help our restaurant customers thrive by best meeting the needs of the on-demand consumer. I founded Olo over 15 years ago out of my desire to get a cup of coffee faster by ordering ahead and skipping the line instead of waiting in line at a busy coffee shop. Since then, we've experienced an incredible journey, and I want to take a few moments to share some of the building blocks of the strategy that took us from an idea in June 2005 to a public company that is today the restaurant industry's mission-critical software platform and with a mission to touch, add value to, and derive revenue from every restaurant industry transaction. Importantly, Olo is a B2B software platform, not a B2C marketplace or aggregator. As a result, many of you have likely used Ollo without knowing it when you place orders at your favorite restaurant brands. Ollo is a platform primarily enabling enterprise restaurant brands to create their direct-to-consumer applications to enable on-demand commerce. Ollo is not a consumer brand. Rather, our interests are aligned with our customers' interests to help them drive direct digital traffic first and foremost. That takes the form of enabling ordering ahead, whether that's counter pickup, curbside pickup, delivery, or these days, even tableside delivery. If you had to describe a restaurant, you'd likely describe the traditional table service model, arriving at the restaurant and being seated, reviewing a menu, placing an order with a server after a brief conversation, and then sometime later having a meal delivered to your table and eating the meal before paying and leaving. Well, that kind of experience is simply no longer representative of the majority of transactions in the restaurant industry, and that fact has been true even before the COVID-19 era. In fact, if you look at 2019 and you gauge the percentage of transactions represented by what the industry calls off-premise, that is food consumed outside the four walls of the restaurant, off-premise represented 63% of all restaurant industry transactions in the U.S., In that context, you can understand why it's so valuable for restaurants to enable a more efficient model for ordering and paying for a meal that will be consumed off premise, both for the benefit of the consumer and for the operational efficiency of the restaurant. By enabling the consumer to order ahead, pay ahead, and get their food at the restaurant without having to wait for it, the restaurant can both enrich that consumer experience and improve their operational and financial performance at the same time. This is the core capability that OLO enables and is popularized in the restaurant industry over the past 15 plus years of our operating history. The restaurant industry shift to digital ordering has resulted in a steady and exponential growth curve of restaurant adoption of digital ordering capabilities and consumer adoption of choosing to order through digital ordering versus ordering in more traditional methods like in-person or calling over the phone. The COVID-19 era pulled digital ordering adoption into the future as many restaurants had limited on-premise dining service. They have shifted their attention and consumers have shifted their use of restaurants to off-premise dining occasions. This shift and the broader interest in safety through contactless order collection has meant that digital ordering has become even more essential and has indeed become mission critical to OLO customers and the restaurant industry as a whole. Years ago, when I would speak to Team Olo about my long-term vision for our company, I would reference a milestone moment in which we achieved 51% of the sales of one of our customers. I said that moment would represent Olo becoming the majority order channel for that customer, and others would soon follow, the dawn of digital ordering primacy. We're now seeing Olo restaurant customers who are processing 100% of their transaction volume through the Olo platform. This includes takeout orders, delivery orders, marketplace orders, and even table-side orders that are typically initiated when the guest sits at a table and scans a unique QR code to identify the table where a server or runner can deliver the food. OLO's ambition has now grown from digital primacy to digital entirety, from 51% digital to 100% digital. We believe that OLO's destiny is to touch every transaction, add value to every transaction, and derive revenue from every transaction in the restaurant industry. OLO's March IPO was the manifestation of our desire to make a strong statement to our stakeholders. Olo is and always will be an independent, open software as a service or SaaS platform, providing a stable and extensible foundation for the restaurant industry and ecosystem to build upon for the long term. Olo believes in a level playing field that promotes healthy competition, which is best for the restaurant industry. Olo is committed to serving as a neutral and open platform for the long term. To that end, we're excited to reaffirm our partnerships with DoorDash and Uber Eats and celebrate over a dozen marketplace partners engaging with OLO's exclusive restaurant network through OLO Rails and a similar number of delivery service providers engaging through OLO Dispatch. We continue to focus on scaling our open SaaS platform and bringing on the best partners to add to our rich partner ecosystem of over 100 technology partners. all for the benefit of our restaurant customers. It bears repeating that our transactional SaaS business model means that more transaction volume processed through OLO leads to higher revenue for OLO, similar to other consumption-based models in SaaS. In December 2020, we celebrated the milestone of achieving OLO order number 1 billion on a cumulative basis since our founding in June 2005. It's worth noting that we process more than half of those total orders. In other words, over 500 million orders in 2020 alone. While we believe that the impact of COVID-19 has served as a tailwind for the 2020 transaction volume growth on the OLO platform, remember that the larger digital transformation of the restaurant industry has been playing out atop the OLO platform throughout our 15 plus year journey. More restaurants, more digital ordering capabilities, and more consumers adopting this new digital ordering behavior means higher transaction volume year over year and continued 120% plus net revenue retention. In Q1, we were proud to help Blumenbrands, parent to Outback Steakhouse and Carrabba's Italian Grill, replatform from their longstanding homegrown digital ordering program to Olo. This is another anchor for our conviction that OLO's enterprise-grade SaaS platform will be a compelling alternative to the CapEx and OpEx of building in-house. OLO's enterprise-grade open SaaS platform offers lower upfront costs, faster time to market, lower ongoing cost of ownership, built-in best practices from a decade and a half of experience, ongoing innovation, a broader partner ecosystem, and benchmarking against 400-plus other customers. In short, SaaS wins over homegrown software. As we discussed at length in our S1 and throughout our IPO Roadshow, we're incredibly excited about the opportunity presented by the Quick Service Restaurant, or QSR, drive-through industry engaging with on-demand commerce. The QSR segment represents both the largest number of addressable restaurant locations and the largest number of transactions per location, and therefore represents the largest pool of transactions in the restaurant industry and an exciting segment for OLO, given our transactional SaaS business model. In general, QSR brands have grown over the years through franchising, leading to disparate technology systems across franchisee operator groups and manifesting in the kind of non-homogeneous environments for which OLO was purpose-built. We further penetrated the QSR drive-through segment in Q1 with new deployments at Culver's and Crystal, as these brands embraced on-demand commerce as a new way of providing the most convenient experiences for consumers. We celebrated other notable deployments with Nando's U.S., growing our relationship with Nando's that began in Canada, and an expansion of our relationship with fine dining standard bearer Union Square Hospitality Group, whose CEO, Danny Meyer, is a member of our board of directors. Our expanded USHG relationship includes the deployment of its flagship Union Square Cafe, as well as Gramercy Tavern, Blue Smoke, and Marta. further demonstrating that on-demand commerce can play an important role for every restaurant type, even fine dining, going forward. And we're also excited about the growth of virtual brands, brands that don't have their own physical locations and instead use host kitchens or ghost kitchens to produce their food for digital-only ordering and a delivery-only service model. These virtual brands demonstrate that Ola's total addressable market is not bounded by the current number of restaurant locations. Rather, it is tied to total restaurant industry transactions. And this number is not fixed, but expanding with population growth and greater consumer preference for prepared food, off-premise consumption, and digital ordering. This quarter, we launched two additional celebrity-powered virtual brands, including Goop Kitchen and and Guy Fieri's Flavortown Kitchen. These digital-only, delivery-only virtual brands are inherently 100% digital and therefore speed Olo's path to realize our now grander ambition to touch, add value to, and derive revenue from every restaurant industry transaction. Finally, I would be remiss if I did not mention Team Olo and our Olo for Good initiative. During Q1, our team continued to work from home due to COVID-19 restrictions. OLO's workforce was built to support remote working well before COVID-19, so this has been a relatively natural transition for our team. Although we look forward to being able to gather in person again in the near future, I'm proud that our team has managed to execute on behalf of OLO and our restaurant customers from a fully remote environment. Also during Q1, we joined Pledge 1% to donate 1% of our time, equity, and product, and launched OLO for Good. Our OLO for Good efforts are focused on advancing racial, ethnic, and gender diversity, equity, and inclusion, providing relief and support for the restaurant industry and its frontline workers, and ending childhood hunger. Improving our community and our world is in OLO's DNA. We're excited to use our new status as a public company for doing even more good for our community and our industry. While we're incredibly proud to have processed over 500 million orders in 2020, we're reminded that the restaurant industry processes approximately 60 billion transactions each year. On a recent board call, one of OLO's directors asked me what inning we were in for the OLO journey. Given that we're yet to achieve 1% of restaurant industry transactions, my response was, we're just getting out of the dugout. As I constantly remind Team Olo, we have miles to go before we sleep. We'll continue to invest in our team, our customers, our community, and our partners as we feel that this is in the best long-term interest of our share owners and in line with the tenets of OLO board member Danny Meyer's philosophy of enlightened hospitality. Here at OLO, we invest in solutions that both increase our opportunity to reach new restaurants with our on-demand commerce platform and and help us to generate more value for those customers and more revenue from our platform in the form of additional average revenue per unit, or ARPU. We're thrilled to be a public company and one committed for the long term to the success of our customers and partners by adding value to their businesses, generating revenue for our business, and delivering returns for our shareholders. I've never felt more excited, more optimistic, or more purpose-driven than I do today. And I'm excited for Peter Benavides, OLO's CFO, to provide a quantitative reflection of the way I feel. Peter, over to you.
spk05: Thanks, Noah. Today, I'll review our first quarter fiscal 2021 results in detail and provide guidance for the second quarter and full year fiscal 2021. Given this is our first earnings call, I'd like to start by briefly reviewing our financial model. We define our business model as a transactional SaaS model, as it includes both subscription and transaction-based revenue streams that increase as transaction volumes grow. Our platform allows our restaurant customers the ability to provide great experiences to their consumers and increase revenue. As our restaurant brands increase revenue, our transactional SaaS model allows us to share in their success. The subscription element of our transactional SaaS model includes both a fixed fee component as well as a usage-based component that increases as transaction volumes grow. We also charge per-transaction fees for certain ordering and delivery enablement products. Combined, subscription and transaction fees charged on a per-location basis is defined as ARPU, or average revenue per unit. Our ability to grow revenue is a function of adding more restaurant locations to the platform as well as increasing the revenue we earn on a per-location basis, or ARPU. We believe our transactional SaaS model provides the best of both worlds. visibility and predictability aided by the subscription component, and revenue upside due to transaction volume growth. With that background, let's take a closer look at our first quarter results. Total revenue for the first quarter was $36.1 million, up 125% year-over-year. Platform revenue in the first quarter was $34.9 million, up 136% year-over-year. primarily due to an increase in active locations coming onto the platform, as well as increased ARPU, driven by higher transaction volume growth and continued multi-product adoption. While we are proud of our Q1 results, which show the value that OLO provides its restaurant customers, our first quarter results benefited from COVID-19 in two ways. First, continued strong order volume growth, And second, a relatively easy compare since Q1 2020 was the last quarter prior to the onset of COVID-19. I will get into this a bit more in a few moments when I talk through our Q2 and 2021 full-year guidance. In terms of key metrics, we saw continued positive performance for the first quarter across all three key metrics, active locations, ARPU, and net revenue retention. Let's spend a moment discussing each in a bit more detail. An active location is defined as a unique restaurant location live on the platform with at least one product module. So, for example, if an individual restaurant location subscribes to three modules, such as ordering, dispatch, and rails, we would count that location once as a unique active location. That said, we ended the first quarter with approximately 69,000 active locations on the platform, a 42% increase year over year, and a 7% increase sequentially. This included some locations that we had originally expected to deploy in the second quarter, which helped to increase platform revenue. Additionally, average revenue per unit, or ARPU, which represents the average quarterly platform revenue we earn on a per-location basis, continued to trend well. As a reminder, ARPU takes into account all modules subscribed to by a unique location, as well as both subscription and transaction-based revenue streams. That said, for the first quarter, we generated an ARPU of approximately $525, a 61% increase year-over-year, and an 11% increase sequentially. Growth in ARPU was the result of continued growth in multi-product adoption, as well as increased transaction volumes, which helped increase both subscription and transaction-based revenue streams. Lastly, net revenue retention, which measures the period-over-period change in total platform revenue for brands in the current quarter that had at least one live location in the same quarter a year prior, remains strong. For the first quarter, we continue to maintain net revenue retention in excess of 120%, a result of continuing to satisfy and retain our customers, increase multi-product adoption, growth in transaction volumes, and further expansion of our partnership ecosystem. For the remainder of the financial metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial measures. Gross profit for the first quarter was $30 million, representing a gross margin of 83%. This compares to a gross margin of 74% a year ago. Year-over-year improvements in gross margin is largely a result of increased leverage in platform revenue streams, where gross margin was 86%. This compares to a platform gross margin of 78% a year ago. Sales and marketing expense for the first quarter was 3.4 million or 10% of revenue. This compares to 2.2 million and 14% a year ago. On a dollar basis, increases in sales and marketing spend were driven by our proactive investment in customer acquisition, and expanding our sales organization and brand marketing partially offset by reduced spending on travel and trade conferences as a result of the COVID-19 pandemic. While we have a highly efficient one-to-many sales model in which we sell at the enterprise restaurant brand level and secure all locations within that brand to long-term exclusive contracts, We anticipate investments in sales and marketing to increase on a dollar basis and as a percent of revenue in the short term as we continue to invest in our ability to sell new products and increase the visibility of our brand to new and existing customers. Research and development expense for the first quarter was $11 million, or 30% of total revenue. This compares to $7 million and 43% a year ago. Investing in our platform in developing new platform features and enhancements that will increase the value we can deliver to our customers is a primary strategic focus for OLO. We have made incremental investments in recent quarters to maintain strong platform performance and the uptime necessary to help our customers as they manage the sharp increase in their digital order volumes. We anticipate investments in this area to increase on a dollar basis and as a percent of revenue in the short term as we continue to invest in innovative solutions to support our customers' rapidly evolving needs. General and administrative expense for the first quarter was $9.5 million, or 26% of total revenue. This compares to $4.3 million and 27% a year ago. On a dollar basis, the increase was primarily tied to our efforts to support becoming and operating as a public company. We expect that our general and administrative expenses will continue to grow on a dollar basis while decline as a percentage of revenue as we continue to scale our operations over time. Operating income for the first quarter was $6 million compared to a loss of $1.6 million a year ago. We believe this improvement in profitability illustrates our ability to meet increased demand costs effectively, as well as the benefits associated with our high-leverage success-based pricing model. As we continue to grow and scale the business, we believe we have a great opportunity to continue to invest in capturing more of our total addressable market while meeting the needs of our existing customer base. Net income for the first quarter was $6 million, or $0.03 per share, based on 185.5 million fully diluted weighted average shares outstanding. Turning our attention to the balance sheet and cash flow statement, our cash, cash equivalents, and marketable securities balance was $586.6 million as of March 31, 2021. This reflects $485.5 million of net proceeds from our successful initial public offering in March. Regarding cash flows, operating cash flow was 4.2 million compared to 3.7 million a year ago. Free cash flow was 4 million compared to 3.6 million a year ago. Before I turn to guidance, I would like to spend a moment discussing the recently announced multi-year agreement with DoorDash. This new three-year agreement reinforces the long-term commercial partnership between OLO and DoorDash and will enable us to continue to work together on products and features that will unlock value for both companies, as well as our shared customer base. From a financial perspective, this new agreement is in line with our expectations, and we are really excited for the path ahead. I'll wrap up by providing our guidance for the second quarter and full year 2021. For the second quarter, we expect revenue in the range of $33.9 million to $34.4 million and non-GAAP operating income in the range of $2.3 million to $2.7 million. For the fiscal year 2021, we expect revenue in the range of $140.4 million to $141.9 million and non-GAAP operating income in the range of $13.3 million to $14.5 million. I would like to highlight a few things to keep in mind about our outlook. We are incredibly excited by the underlying trends in our business and the market opportunity ahead of us. As Noah mentioned, we are still in the very early stages of the shift to digital ordering and expect to continue to deliver strong revenue growth rates. At the same time, we expect the extraordinary growth in order volume that we experienced during COVID-19 will begin to moderate to a more normalized level. While we expect good overall transaction volume growth in 2021, Given the number of new locations that we expect to deploy on our platform, coupled with expected further increased penetration of dispatch and rails and anticipated continued growth in our partnership ecosystem, there is also uncertainty in the near term pertaining to per-location transaction volumes, given some of the evolving dynamics at play. Specifically, as vaccination levels and in-person dining continue to increase, We anticipate digital order volumes in the second and third quarter to be impacted and then normalized by the end of the year. Additionally, this past quarter, the fiscal stimulus pertaining to the recently enacted American Jobs Act helped fuel transaction volume growth. With similar stimulus programs uncertain as we move forward, we remain thoughtful as to how we think about order volume growth. With that said, we will continue to take a prudent approach to forecasting given the uncertainty related to order volume trends due to the COVID-19 pandemic. To summarize, we delivered another exceptional quarter of operational and financial performance. We are delivering on our mission and believe OLO's position at the center of the digital restaurant experience will continue to drive an attractive combination of strong revenue growth and profitability. I'd now like to turn it over to the operator to begin the Q&A session. Operator?
spk00: thank you at this time i would like to inform everyone in order to ask a question please press the star one on your telephone keypad again that is a star one to ask a question we have your first question from chris mervin with the golden sex your lines open hey thanks so much for taking my question and congrats on the great first quarter here out of the gate um you know i just wanted to ask with more restaurant reopenings with indoor dining and the like
spk02: Can you talk a bit about what you're seeing with online GMV? Maybe ask another way. What percentage of your restaurants are in categories with the high mix of in-person dining versus delivery versus restaurants where 100% of their order volume could easily be online? Just trying to get a sense for what that restaurant mix looks like and generally what the trends you're seeing are as it relates to online ordering GMV. Thanks. Thanks.
spk05: Yeah, thank you, Chris. Peter here. So, look, from a trend perspective, what we've seen this past quarter has largely remained in line with what we've seen in recent quarters in terms of strength and transaction volumes. We obviously started to comp a bit against the initial impact of COVID at the end of the quarter. So our expectation has been that order volumes would start to see some near-term impact from increased vaccinations and pent-up demand for in-person dining, which, from our perspective, is likely to play out a bit more in Q2 and Q3. And while early, we have started to see some signs of that in April, again, in line with our expectations. But I think from a high level, I think we're really excited about the underlying trends of the business. They continue to be strong, I think, as evidenced by our Q1 performance, and as well as our guide for the next quarter with a 40% year-over-year target at the midpoint of the range. So really excited about the trends ahead.
spk02: Okay, perfect. And maybe just one quick follow-up. I just wanted to ask about Old O'Pay and anything you can share there about timing around when you might be targeting general availability or any kind of initial, I think it might be in beta, but any sort of customer feedback to date. Thanks.
spk06: Hey, Chris. Noah here. So on OloPay, still very early, same as when we spoke about OloPay in Analyst Day and along the road show. We're continuing to work with a handful of brands that are in beta. I think that's the appropriate way of thinking about 21. This is the time when we're going to learn. During 2022, we're going to work with some additional brands and really try to make sure that we get it right and have some great reference accounts there with the expectation that in 2023, we'll be in a position to step on the gas from a go-to-market perspective and So, kind of hold two thoughts in your head. One, early in the process of deploying this, we're learning a lot. We're applying our growth mindset to it as we go about OloPay. But we think that this is a big opportunity, and we want to make sure that we get it right.
spk01: Okay, great. Thank you.
spk00: We have your next question from Sterling Odey with J.P. Morgan. Your line is open.
spk04: Yeah, thanks. Hi, guys. So wondering in terms of the visibility on the number of locations that you roll out this year, how much control or how much of that is locked in? And what I'm wondering is this. In an individual franchise location, let's say we have a big rush to in-store dining, can they turn around and say, hey, we were originally scheduled to go live on Olo in the first week of September, but we want to delay that to 2022?
spk05: Yes, Sterling, so thank you for the question. Peter here. So I guess let's just talk about Q1 performance for a moment in terms of new location ads, and then I'll address the second part of your question on the in-person dining dynamic and how that may impact deployments in the coming quarters. You know, in terms of this past quarter, obviously deployments exceeded our expectations, which I think is in part what you're seeing play out in the revenue outperformance. And this was in large part really a function of timing. So on a full-year target basis, it remains unchanged. We've been targeting below double-digit tens of thousands of location ads in 2021, and we're tracking well today. to that level. So while we don't think what occurred in Q1 is a normalized rate of growth going forward, we're really excited to see the momentum that we've built up in Q1 as we enter into Q2. In terms of reopenings and the impact that could have on deployments, we're not seeing any indication of that at this time. We're seeing a lot of momentum in brands wanting to have their digital ordering systems up and running as really a an opportunity to increase revenue and, you know, address consumer demand given that, you know, consumers have come to appreciate and enjoy the benefits associated with digital ordering. So at this point, we're not seeing brands having to make a binary decision between reopening and deploying digital ordering. We're seeing a lot of momentum on that front.
spk04: Makes sense. Thank you.
spk00: We have your next question from Brad Reback with Stifel. Your line is open.
spk04: Great. Thanks very much. Maybe if we can flip Sterling's question a little bit and look at it from this perspective where restaurants are clearly having a hard time hiring enough people to meet demand. Are you seeing organizations begin to use OLO more aggressively in-store to help meet that shortfall? Thanks a lot.
spk06: Brad, this is Noah. Thanks for the question. I think this is something that we've seen over our history is brands thinking about how they can best deploy labor to provide the greatest hospitality to their guests. And I think one of the things that's always been true about Olo is there isn't a lot of hospitality in the experience of taking somebody's order and bringing them up for the transaction. And those are the things that our platform has always automated. So what that means is that historically, brands have been able to use their labor, use those resources to providing a more hospitable experience in actions like handing the order over to the consumer and having a conversation with them there. So we're really excited about that. And then we also are seeing... As I mentioned in my prepared remarks, the use of QR codes on the table for what we think of as table service 2.0 of the consumer scanning a QR code that then tags that order with the table number so that a server or a runner can run the order out to them. And I think that these are things that are going to help brands do more with less from a labor standpoint and be efficient. We're not saying that brands should have less labor than they have traditionally had. We believe there's going to be a lot of in-person dining and sustained high levels of off-premise dining continuing to grow as we've seen. We think that digital and Olo have a big role to play in both, have a big role to play in off-premise and a big role to play in on-premise. And that is why our new ambition is not just about the 63% of transactions in the industry that are off-premise, but all 100% of the transactions in the industry. And we're excited about that new ambition.
spk04: That's great. Thanks very much.
spk00: We have your next question from Beth Vansery with William Blair. Your line's open.
spk04: Hey, Noah. Peter, congrats. Nice job there. I guess I want to touch on a couple things, but maybe I'll start off with ARPU. We had a really nice uptick in ARPU, and I was just wondering, sort of, could you give us an update on the number of locations using all three modules? As you think about that ARPU growth, how should we think about going forward between module uptake versus, you know, in-per-client transaction volume? I know you've dampened the in-per-client transaction volume just to be conservative, but help us how we think about that through the year.
spk05: Yeah, so just thank you for that question, Vivan. So in terms of, you know, multi-product adoption, we made a lot of progress this past quarter in terms of deploying dispatch and rails. And that is, again, in part what's driving the outperformance in Q1 and in the increases in ARPU that you've seen. Looking forward, there are still brands in the deployment pipeline that will deploy in later quarters across dispatch and rails, and that is what is reflected in the numbers that we've shared. That said, we also continue to see growth in brands subscribing to more than one OLO module from the onset of the relationship, which you know, could have an impact on net revenue retention long-term because you're starting, you know, at a higher base, but it's great to see ARPU, in that case, starting at a higher point. In addition to, you know, dispatch and rails upsells that have been, you know, positive to date, we're also seeing a lot of momentum in OLO Network and virtual brands, which Noah covered in his remarks. Both of those have been gaining more traction as growth vectors for the company, which is exciting to see. So, you know, in short, a lot of opportunity for growth ahead across a number of different modules, and you'll start to see that play out in ARPU over time.
spk04: Yeah, no, that's helpful. I guess I wanted to touch on exactly that, the virtual brands, those kitchens, right? You highlighted Good Kitchen and Flavortown. But not this year or next year, where these are still kind of novel concepts. If you take the question I was previously asked about this labor issue, this idea that I'm going to have great hospitality, but I don't need you to come and get it because I'm just going to have a kitchen and deliver what I do, which is make really good food as a chef. What do you think that looks like from the actual ghost kitchen marketplace in, say, three to five years? And then, obviously, that plays into Olo. What do you think that looks like as a part of your business in three to five years?
spk06: Thanks, Bob, and I'll take that. This is Noah. Look, we're really excited about the trend of these virtual brands. We think that they're great opportunities both for existing restaurants that want to add on to what they're able to do out of their existing fleet of restaurant kitchens. We see restaurant brands launching additional virtual brand concepts, but cooking out of their existing fleet. And then for entrepreneurs, as you mentioned, we mentioned the two new celebrity-inspired virtual brands with Goop Kitchen and Guy Fieri's Flavortown Kitchen in the prepared remarks. We think there's going to be more of this going forward, that this is really democratizing access to launching restaurants. And it's not just launching in a single geography. We have examples in Mr. Beast Burger late in 2020 of a concept that was launched simultaneously in 200 kitchens across the country overnight. And that was something that used to take decades and decades for restaurant operators, restaurant entrepreneurs to achieve that kind of physical availability. So we're excited about that. And of course, from the OLO perspective, the fact that, as you mentioned, these are inherently 100% digital. And so it really speeds our path to getting to that ultimate destiny of touching every transaction, adding value to every transaction, and deriving revenue from every transaction. And I think that restaurants and restaurant operators are proving that they can manage these virtual brands in a way that is highly profitable and perhaps more profitable than the commission-heavy order volume that they're getting through marketplace channels. I think that'll be an interesting trend to see over time, is are restaurants doing virtual brands more and accepting orders through restaurant delivery marketplaces less? Do both of those trends rise at the same time? We're excited about all of it adding to the digital ordering market and Ola's opportunity. Super. Super. Really helpful.
spk04: Thank you, guys. Appreciate you taking the time.
spk00: Thank you. We have your next question from Terry Tillman with Tourist. Your line is open.
spk04: Yeah, thanks for taking my questions, and congrats on this initial quarter as a public company. I guess maybe the first question is – As we get through, we got through 20, I assume some of these large QSR brands and just large brands in general across the food industry just got by with something they had in place. You mentioned Bloomin' Brands, which sounds like a great replatforming. What I'd love to hear and know is kind of what you're seeing over the last quarter or two in terms of propensity to say, hey, we got through the pandemic, not in great shape, but now let's go do a real replatforming. So what is the pipeline like for these larger kind of replatforming opportunities?
spk06: Hi, Terry. It's a great question and something that we're excited about. I mean, when we think about the different segments of the industry, it's not the same story in each segment. There are QSR opportunities that are largely greenfields opportunities, and then there are these other opportunities typically in casual dining or in fast casual that are replatforming opportunities. We have a great track record of taking brands that have built in-house, whether that's Brinker with Chili's and Maggiano's, or if we look at Papa Murphy's, both of which we talked about at length during our roadshow, or this new example of Bloomin' Brands with Outback and Carrabba's. And we think that long-term SaaS wins and that there's a great opportunity for brands that have built in-house to see, okay, there is some sunk capital in the initial CapEx, but it's really the OpEx, that ongoing cost of doing this in-house, that I could save money on and have better innovation, better benchmarking against other brands, a broader partner ecosystem by moving to a mature enterprise-grade SaaS provider. And we believe that's the role that we're playing, and also that there are parts and pieces of what we do that can add value to a brand that maybe isn't ready to replatform their entire stack over to OLO, but might say, you know, I could use OLO to add direct channel delivery with the dispatch platform, or I could use OLO to take orders from marketplaces through the Rails platform, And we can begin to develop our relationship with those brands through components of our full product stack and then ultimately prove ourselves and win the full stack over time. So we're excited about the opportunity with those kind of replatforming kind of brands. And we think that, you know, this is a moment where it's been proven that on-demand commerce is mission critical. That's not okay just to have a program for on-demand commerce. You need the best program for on-demand commerce. And we believe that's what we've set up OLO 2B.
spk04: That's great to hear. And I guess, Peter, just a follow-up question. Any thoughts or anything that you'd call out in terms of timing of cash payments between 2Q and 4Q? I'm just trying to think about free cash flow. I know that sometimes the DSPs can have some volatility and lumpiness around those cash payments, but just how do we think about free cash flow either in 2Q or the rest of the year? Thank you.
spk05: Yeah, thanks, Terry. So, you know, obviously, we're not guiding to free cash flow. But what I can say is, you know, this past quarter, you saw a relatively tight coupling between non-GAAP op income and free cash flow. And that is in part because of the cash conversion cycle associated with our dispatch platform was tightly coupled to our AR collections, which is good to see. As we mentioned before, there will be periods in which the timing in which we collect from our brands relative to when we pay our DSBs um can uh can fluctuate quarter to quarter but typically on a full year basis you'll see that the two numbers non-gap op income and free cash flow uh are are tend to be in line thank you for us we have your next question from matt hedberg with rbc capital markets your lines open oh hey guys thanks for taking my questions um
spk04: No, I had a question on international opportunity. I know it seems like it's maybe a little ways out here, but you have a lot of big brands that have international locations. And I guess I'm sort of curious, what might make you move faster to address and really help a lot of your global brands really embark on a global digital transformation? I guess, what's the alternative if you're not helping them today?
spk06: Matt, thanks for the question. We believe that the domestic opportunity is just a massive opportunity. We've taken the baby step of expanding from the U.S. into Canada, and you see an example this quarter of how that served us well, starting a relationship with a multinational brand in Nando's in Canada and then helping them as well in the United States. So we do think that what we're doing is setting the table for those larger international opportunities over time. But when we think about where our focus lies, it's really in serving the enterprise restaurants in the U.S. and Canada markets, because we think there's just a great opportunity for us there, and it is the fastest path for us to become a billion-dollar revenue company worldwide. in the fastest and most efficient path for us to do so. So I believe that we're developing the relationship with those large multinational restaurant brands, most of which are domiciled here in the U.S., and we're proving out how vital OLO is to their success as a mission-critical platform so that when they're ready and we're ready to expand into international markets, we're the platform of choice for them to do so. I guess to answer your question directly, in order for us to change our mind on this to say, let's go chase international growth over expanding as we have been in a domestic opportunity, I mean, it would take something giving us the conviction that that was a better path for us to scale the business and serve our customers. We haven't seen that yet. We believe that the best area for us to remain focused is enterprise-grade restaurants or the enterprise segment of the industry in the U.S. and Canada and enriching the offerings for that cohort.
spk04: Got it. Yeah, I know that makes a lot of – the success in Canada is certainly – notable. And I think it's a great, at least, you know, I think when we think about going beyond Canada, I think there's certainly an opportunity there. And then I guess secondarily, you know, when we talk to your customers, you know, I think one of the things that you guys do best is just take pain points out of the whole digital experience. And I know you're handling a lot, and you've got a lot of growth initiatives. But one of the things that we kind of kept hearing was, You know, this whole loyalty system, right, which you integrate with well with a number of the loyalty players. But I guess, you know, the question is, how do you think about that as maybe a longer term opportunity or just just taking more of the friction out of a system that you're already helping to improve?
spk06: Yeah, I think that there are a lot of great capabilities that are beyond the scope of what we offer today, but represented by a thriving partner ecosystem that we enjoy at Olo. And we do, to your point, have a lot of great loyalty providers, CRM providers who help restaurants to really understand for the first time using the data that's generated through OLO and other technologies, who their customer is and how they can best develop a direct relationship with that consumer. It's not something that we offer directly. It is something that we're excited to have a thriving network of partners helping to do under the heading of how do you help restaurant brands really meet the needs of that on-demand consumer. And I think about... something that I remember from back in 2014 when Danny Meyer joined our board and became an investor, and he was talking and reflecting upon the OpenTable platform and initial feelings about the OpenTable platform and coming to understand that beyond just taking reservations, OpenTable was really a CRM platform that enabled greater levels of hospitality in the fine dining segment and And he made a comment then that, you know, I view what Olo is doing in the segment of the industry we were really exclusively playing in then in fast casual as enabling hospitality at fast food or fast casual speed and scale. And I think that's a great thing for our customers to do as they seek to build out their direct relationship with consumers and build out a thriving direct ordering channel. And we're thrilled to have a great partner ecosystem integrated tightly into OLO to help them to do that.
spk04: Thanks, Noah. Congrats again on the results and the success.
spk00: Thank you. We have your next question from Brent Braslin with Piper Sandler. Your line is open.
spk03: Yes, thank you. Hey, Noah, I was hoping you could address the customer engagement in light of several states reopening here and broader vaccinations. How's the dialogue changing with prospects in restaurant brands, at least in April and May so far? Are there different triggers why a brand would engage with them? I think I
spk06: Let's see, Brent, you broke up a little bit for me there, but I think I got the gist of your question, and I, of course, welcome you to ask a follow-up if I missed the target here. But, I mean, what we've seen is that, you know, there is strong interest in digital ordering and delivery capabilities that restaurant brands have in every segment and in every service model of the industry have come to see this as mission critical for meeting the needs of the on-demand consumer. And as I mentioned in the prepared remarks, this was certainly pulled into the future through the year we've just lived through, but it was also something that was growing and growing the consumer need for that on-demand experience at restaurants. long before COVID, and we are thrilled about what our restaurants have been able to do in meeting the needs of the on-demand consumer before COVID hit and throughout the COVID period. So we think this is really something that has woken up a lot of the digital laggards that were out there in the industry and maybe the late adopting segments of the QSR brands that are out there that have now realized the drive-through, which used to be the fastest and most convenient way of serving the guest, is no longer the pinnacle of convenience. Now I must have the ability for on-demand ordering so the food is ready when they arrive or even better delivered to them. But we think other restaurants have just come to experience the services that OLO provides, and on-demand commerce in general as the mission-critical platform, the mission-critical system for their overall operation.
spk03: Helpful. Then I guess, Peter, just as you think about kind of the revenue guide here, it does imply a slight sequential decline. I assume most of that's transactional, but would love to get any sort of color of what you're seeing on the transactional side, volumes in April and May so far, and then Is it right to assume the bulk cost of the client would be transactional or be any reason why subscription revenue is consequentially? Thanks.
spk05: Yeah, thanks, Brent. So a couple of things to keep in mind when thinking through the guidance. OneQ came in well ahead of our expectations. I think specifically in terms of more active locations came onto the platform in Q1 than expected, as well as higher upsell deployments than anticipated. So that both benefits Q1 but then leaves less incremental revenue coming online than originally expected to then offset any potential headwinds in near-term order volumes. We also benefited to some extent from the positive impact stimulus payments had on consumer spending. That's a dynamic that largely played out in in q1 and not carrying over into into q2 and we've always expected again some near-term impact on transaction volumes due to the reopening starting this quarter and although it is early um we have begun to see uh some signs of that but i think it's important to note that you know again that the underlying trends of the business uh in terms of sales and deployment pipeline continue to be strong and uh i think that's evidenced by a 40 guide at the midpoint that you know we're really excited about that's helpful thank you i'm showing no further questions at this time i would like to turn the conference back to mr nova glass for any closing remarks
spk06: Thank you. Well, thank you all for your time and for the thoughtful conversation today. We plan to keep executing on our mission far into the future. We're excited to continue the process of getting to know you all and building our long-term relationship as OLO's opportunity grows. So until next time, thank you.
spk00: Ladies and gentlemen, this concludes
Disclaimer