Olo Inc

Good afternoon. My name is David and I will be your conference operator today. At this time, I would like to welcome everyone to the OLO first quarter 2023 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. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I would now like to turn the call over to Brian Denue from ICR. Please go ahead. Thank you.

Good afternoon, everyone, and welcome to OLO's first quarter 2023 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 discussions and responses to your questions may contain forward-looking statements, which represents 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 expectations of our business, our industry, including with respect to technological advancements, future financial results, including revenue and non-gap operating income and other key performance metrics, total addressable market and growth opportunity, guidance and strategy, benefits from strategic partnerships, restaurant ordering processing trends, ability to increase usage of our platform, and upsell, including with respect to our opportunity to expand in our growth and average revenue per unit and the durability of customer adoption of multiple modules. Forelooking statements are subject to risks and uncertainties and cause actual results to differ materially from those described in our forelooking statements, and such risks are described in our earnings press release and our risk factors included in our SEC filings, including our quarterly report on Form 10-Q that will be filed following this call and our other SEC filings. You should not rely on our forelooking statements as predictions of future events. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today. Also, during this call, we'll present both GAAP and non-GAAP financial measures. Reconciliations and 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 is included as an exhibit in the Form 8-K furnished to the SEC. Finally, in terms of our prepared remarks or in response to your questions, we may offer incremental metrics. 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, investor presentation, 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.

Thank you, Brian. Hi, everyone. Thanks for spending time with us today. In the first quarter, OLO's revenue and average revenue per unit momentum continued. We generated $52.2 million in total revenue, a 22% increase year over year, an increased ARPU to $632, up 22% year over year, and an 11% increase sequentially. And we ended the quarter with approximately 76,000 active locations on the platform. We're proud of our results and believe the first quarter updates are indicative of the role Olo will continue to play in shaping the restaurant of the future for our customers and the strong business opportunity ahead as the industry continues to race towards 100% digital. Every transaction on and off premise being a digital transaction. We're energized by our mission to be the engine of hospitality, helping our customers utilize the data harvested from digital orders to provide elevated experiences for their guests. We believe that Ollo is best positioned to drive the industry's digital transformation forward through our innovation in our three product suites, Order, Pay, and Engage. In the first quarter, Ollo continued to see success with both new logos and existing customers across all three product suites. In particular, we saw strong increased adoption of our Pay and Engage modules within our enterprise customer base. and a continuation of strong multi-module adoption within our emerging enterprise segment. This quarter, we welcomed Shipley Donuts, a quick service donut shop and coffeehouse chain with over 300 locations. Shipley deployed our ordering, dispatch, rails, network, and OLO Pay modules. Shipley is focused on ushering in the digital era, implementing digital solutions for the first time as a brand, creating operational efficiencies and new revenue streams through direct delivery. Additionally, Noodles & Company, a fast casual restaurant with over 300 locations, launched Olopay across both their main ordering and catering digital channels. This deployment represents our largest Olopay customer by sales volume to date and the third consecutive quarter where an existing enterprise customer with over 300 locations deployed Olopay, further demonstrating our ability to successfully sell our pay suite to enterprise brands, an important avenue for ARPU expansion. We saw enterprise customers adopt modules from our Engage Suite this quarter. Denny's, a casual dining chain with over 1,400 locations, launched both our marketing and guest data platform solutions last quarter. Denny's deployment marks our largest Engage Suite brand to date, showing that the largest enterprise restaurant brands are recognizing the importance of using guest-centric data and technology to drive growth and loyalty. We're optimistic about the momentum with the Engage suite, which is still in the early innings of adoption. We continue to see strong deployments within the emerging enterprise segment. This quarter, several of our new emerging brands deployed three or more modules from the onset of their OLO relationship, all of which included pay. Flying Pie Pizzeria, a fast casual chain deployed with six of our products across the order, pay, and Engage suite. We believe the trend of multi-module adoption will continue within this segment and help to further increase ARPU over time. And our strategic investments in our sales and marketing organizations to support the depth of modules and their features will only strengthen this opportunity. Before I provide my typical product updates, I want to share an exciting campaign we launched last quarter. As you may recall, I mentioned that we were holding our quarterly release event live at our Beyond4 customer conference. During the conference, we also debuted a video sharing our vision for the restaurant of the future and how we believe OLO is best positioned to bring it to life. In the video, we share elevated restaurant experiences wherein every guest touchpoint is enhanced by technology. We explore the limitless possibilities for data-driven personalization, optimization, and convenience across different service models, from drive-through to delivery, full service, and beyond. Futuristic innovations depicted throughout the video, like facial recognition for stored payment methods or in-store kiosks, are even closer than they seem. And while this is our future vision, so much of it is possible today through OLO. Data acquisition features like borderless, on-premise digital ordering applications, and our guest data platform, purpose-built for restaurants, make possible a 360-degree view of the guest. plus the vast number of integrations made possible by our open ecosystem of 300-plus technology and service partners, allow even more innovation at speed. Our dedication to the industry we serve, along with the scale of our open SaaS platform, makes Olo uniquely positioned to further bring the Restaurant of the Future video to life. Ultimately, the Restaurant of the Future is expected to leverage new technologies like artificial intelligence and integrations that promote free-flowing guest data to enhance hospitality, giving restaurants the ability to make every guest feel like a regular at enterprise scale. This is increasingly evident in our most recent product enhancements. This quarter, we shared a number of exciting feature updates. Within our ordering suite, managing kitchen capacity is improving with Ola's upgraded capacity management feature, which utilizes AI to optimize order throughput based on preset limits and learned prep times. This enhancement is a continuation of the capacity management capabilities we rolled out last year that utilizes integrations with a restaurant's kitchen display system to capture valuable on-premise information to better inform our machine learning models. A leading casual dining brand with over 200 locations relies on this capacity management functionality to act as the brains of their kitchen, successfully managing the high complexity that comes with the size of their menu and increasing digital demand. We view this announcement and capability as highly strategic as it further cements OLO's mission-critical status in our customers' operations, which will serve as a competitive advantage moving forward. Next, we're thrilled to offer OpenCheck and pay-at-table functionality for OLO customers using our on-premise ordering solutions, new capabilities for our order and pay suites made possible via our Omnivore acquisition earlier last year. OpenCheck allows guests to order at the table, adding items multiple times throughout their dining experience while keeping their tab open. When guests finish their meal, all items that both the guest and server added to their check will show up on the guest's mobile device, allowing them to make one final payment to close the check. Alternatively, for guests who still want to order with their server, pay-at-table functionality allows them to have control of the completion of their dining experience. They can scan a QR code and pay at their convenience, and then get up and go. Both of these on-premise enhancements not only help tables turn faster and allow guests to avoid common pain points like waiting for the check, they free up staff to deliver more high-touch interactions and act as another guest data acquisition channel. We believe on-premise ordering represents another ARPU expansion opportunity for OLO, driving higher transaction volumes on our platform. And finally, in more pay news, we announced a strategic partnership with Adyen, the global financial technology platform of choice for leading businesses, to provide Olopay customers with a faster and easier way to consolidate digital and card present payments, apply for capital, and manage cash flow. Olopay currently processes digital payments such as online orders, QR code orders at table, and mobile wallet payments. By joining forces with Adyen, OLO Pay customers will be able to accept and oversee both digital and card present payments from the same OLO platform in which they manage the rest of their digital business. This streamlined payment stack will increase operational efficiency for restaurant businesses by eliminating the need to switch between multiple tools for reconciliation, refunds, fraud prevention, and chargebacks, and by providing a consolidated view of financial activities, payment reporting, and guest data the restaurant of the future is increasingly attainable with a true 360-degree view of each guest, no matter where they order or how they pay. We're excited to launch this functionality in beta later this year, starting with kiosk ordering channels and expanding to all card-present transactions. This represents a significant expansion of the addressable market opportunity for OloPay over time. representing a 6X revenue opportunity capturing non-digital transaction payment processing. It will take time to complete the product integration work and begin scaling card-present transactions, so we don't expect meaningful revenue from it this fiscal year. You can see the full list of new features at olo.com slash quarterly release. Our commitment to enhancements like these and never settling for what's working today are being recognized in a big way. I'm humbled that Olo earned the number one most innovative company honor in the dining category on Fast Company's prestigious annual list of the world's most innovative companies for 2023. I want to thank Team Olo and our customers, particularly our longstanding product advisory council, for their dedication to constant innovation, bringing meaningful change to our customers and the industry as a whole. This collaboration between Team Ollo and the best digital minds in the restaurant industry is the reason I believe our restaurant of the future vision is within reach. In further news driving innovation for our customers, I'm excited to announce that we officially launched Ollo Connect, a select group of our over 300 strong partner network primed to deliver a best in class dining experience powered by the Ollo platform. Built to meet the ever-evolving needs of the industry, OLO Connect empowers our network of 600-plus restaurant brands with the actionable insights needed to identify the best digital solutions to drive efficiency and enable hospitality. Meeting a transparent set of qualifications, which include tenure on our platform, the number of mutual brands and locations currently supported, and proven customer satisfaction, OLO Connect partners gain valuable benefits rewarded on a tiered structure based on the strength of their credentials. And finally, as I typically do on earnings calls, I'd like to provide an update on our ESG efforts. As part of fulfilling our pledge 1% commitment to dedicate 1% of OLO's time, product, and equity to initiatives to foster sustainable contributions to the communities in which we live, work, and serve, we established OLO for Good in 2021. Since its founding, OLO for Good's annual grant cycle has awarded $8.2 million to 16 different nonprofit organizations through its donor-advised fund partner, Tides Foundation. OLO recommended six nonprofits for the 2023 annual grant cycle, and we're proud to announce that Tides Foundation subsequently donated a total of $1.25 million in grants to six organizations. Grant recipients are nonprofits focused on diversity, equity, and inclusion, ending childhood hunger and increasing access to food, supporting the restaurant industry's frontline workers, protecting natural resources, and reducing waste and emissions. These are all causes deeply rooted in our values and the industry we serve, and we continue to be fervent about using OLO as a platform for social impact and positive change. You can learn more about the recipients and our ESG efforts by visiting OLO.com slash ESG. As we plan ahead for the rest of the year, we're encouraged by the early results and energized to execute against our full year plan. We look forward to Ola's continuing role in guiding our customers through the restaurant industry's digital transformation, bringing our vision of the restaurant of the future to life. And with that, I'll hand it over to Peter to discuss more detailed results. Thanks, Noah. Today, I'll review our first quarter results as well as provide guidance for the second quarter in the full year 2023. In the first quarter, total revenue was $52.2 million, an increase of 22% year-over-year. Platform revenue in the first quarter was $51.4 million, an increase of 24% year-over-year. And OLO Pay continues to perform well, pacing to our expectations set forth at the top of the year. In terms of key metrics, ARPU for the first quarter was approximately $632, representing a 22% increase year-over-year and an 11% increase sequentially. Further growth in ARPU was driven by continued progress in driving the average number of products adopted by our customer base, including higher ARPU solutions like Olopay. In terms of active locations, excluding the impact of subway locations transitioning from the platform, we added approximately 1,500 net new active locations to the platform, ending the quarter with approximately 76,000 active locations. As a reminder, and in line with what we've discussed in prior quarters, approximately 12,500 subway locations transitioned from the platform in late Q4 2022 and are not included in the active location total for the first quarter of this year. And lastly, net revenue retention was approximately 114%, up 600 basis points sequentially, driven by continued growth in ARPU, due to further sell-through of OLO's product suite. 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 $37.2 million. This compares to $32.1 million a year ago. The year-over-year increase in gross profit was driven by continued growth in revenue, partially offset by increased compensation costs to support new locations coming onto the platform and processing costs associated with Olopay. Sales and marketing expense for the first quarter was $9.9 million, or 19% of total revenue. This compares to $6.2 million and 14% a year ago. Please note that sales and marketing expenses for the quarter include our annual user conference, Beyond Four, which was held in the second quarter in 2022. We are pleased with the progress we have made in building out and enhancing our go-to-market efforts. We intentionally made those investments at the beginning of the year and expect to see more moderate growth in sales and marketing through the course of 2023. Research and development expense for the first quarter was $15.7 million, or 30% of total revenue, compared to $13.1 million, or 31% of total revenue, a year ago. On a dollar basis, we increased investments in R&D in order to unlock future growth opportunities related to OLO Pay, borderless capabilities, and on-premise ordering. We expect to drive leverage from R&D over the remainder of 2023. General and administrative expense for the first quarter was $10.4 million, or 20% of total revenue. This compares to $11.1 million and 26% a year ago. The year-over-year improvement on both a dollar and percentage basis represents continued optimization of expenses as our organization continues to scale. Operating income in the first quarter was $1.2 million, compared to $1.7 million a year ago. Net income in the first quarter was $4.6 million, or three cents per share, based on approximately 180 million fully diluted weighted average shares outstanding. Turning our attention to the balance sheet and cash flow statement, our cash, cash equivalents, and short and long-term investments totaled $438.3 million as of March 31st, 2023. Pursuant to the share repurchase program, which we announced in September 2022, in the first quarter we repurchased 2.7 million shares for a total of approximately $20 million net of commission. Since the introduction of our share repurchase program, we have repurchased 5.4 million shares for $40 million. We have $60 million remaining on our authorization. I'll wrap up by providing our guidance for the second quarter and full year 2023. For the second quarter of 2023, we expect revenue in the range of $53 million and $53.5 million. and non-GAAP operating income in the range of $2 million and $2.4 million. For the fiscal year 2023, we expect revenue in the range of $215.8 million and $217.3 million, and non-GAAP operating income in the range of $12 million and $13.2 million. We are off to a solid start in 2023 and remain optimistic about the remainder of the year. We think the macro dynamics remain in line with our expectations at the beginning of the year and the success we are having on our key strategic priorities position as well going forward. With that, I now would like to turn it over to the operator to begin the Q&A session. Operator?