Olo Inc

Good afternoon. My name is Sudhanyu, and I will be your conference operator today. At this time, I would like to welcome everyone to the OLO Second 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. I would now like to turn the call over to Brian Denu from ICR. Please go ahead.

Thank you.

Good afternoon, everyone, and welcome to OLO's second 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 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 expectations of our business, our industry, including with respect to technological enhancements, future financial results, including revenue and non-GAAP operating income and other key performance metrics, revenue expectations for our order, pay, and engage suites, total addressable market and growth opportunity, guidance and strategy, benefits from strategic partnerships, restaurant order processing trends, our ability to increase usage of our platform, and upsell. including with respect to our opportunity to expand in our growth in average revenue per unit and the durability of new and existing customer adoption of multiple modules. Forelooking statements are subject to risks and uncertainties that 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 was filed today 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 forelooking 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. Reconciliation to 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 on our website and is included as an exhibit in the form AK 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 OO. With that, let me turn the call over to Noah.

Thank you, Brian. Hi, everyone. Thank you for spending time with us today. Our second quarter results demonstrate the consistent positive momentum we've built over the past few quarters. We generated $55.3 million in total revenue, a 21% increase year over year. as our platform supported increased module adoption within our existing customer base. With that, we increased average revenue per unit, or ARPU, to $716, up 32% year-over-year and 13% sequentially. Net revenue retention was approximately 115% this quarter, and we ended the quarter with approximately 77,000 active locations on the platform. We're proud of our results. and believe our second quarter updates illustrate how Olo will continue to shape the restaurants of the future for our customers. We're at the early stages of a massive market opportunity as the restaurant industry moves towards 100% digital. We're excited about our mission to be the engine of hospitality, helping our customers collect, analyze, and leverage the data they get from on- and off-premise digital orders, payments, and engagements. to create amazing experiences for their guests. We truly believe Ollo is in the best position to drive the industry's digital transformation with our order, pay, and engage product suites. Ollo had another successful quarter with new and existing customers across all three product suites. We're especially thrilled to see increased adoption of our pay and engage modules among enterprise customers. Additionally, emerging enterprise customers continue to show strong adoption of multiple modules. This quarter, we welcome Salad and Go, an enterprise fast casual restaurant chain. Salad and Go launched our order and pay modules with the goal to drive operational efficiencies and advance its mission to make fresh, nutritious food convenient and affordable for all. In pay news, Cold Stone Creamery, an ice cream parlor chain, launched OloPay. This deployment represents the fourth consecutive quarter where an existing enterprise customer deployed OloPay, showing our continued ability to sell our pay suite to large brands, a key driver of ARPU expansion. The Engage suite also saw enterprise customer adoption. California Pizza Kitchen, a casual dining chain, began the launch of our full Engage suite of products, starting with guest data platform, Sentiment, and front of house manager, Host. This is a great example of large brands embracing the value of using guest data and technology to boost growth and customer loyalty. Denny's, a casual dining chain that deployed our marketing automation and guest data platform solutions last quarter, revamped their rewards program with new gamification challenges that encourage specific guest transactions and engagements. Olo is proud to enable this functionality for Denny's, along with partner SparkFly. It's a great example of how brands can leverage the seamless connection between Olo's modules across product suites and vast ecosystem of partners to launch innovative solutions that drive guest lifetime value. And while we're encouraged by the progress we're seeing with the Engage suite, we're still in the early stages of adoption. In addition, Olo continued to see strong multi-module adoption within the emerging enterprise segment. This quarter, several fast-growing brands deployed four or more modules, including Anthony's Coal Fired Pizza and Wings, Maple Street Biscuit Company, and Metro Diner. All of these customers launched with Olo's core order solutions, ordering, dispatch, and rails, along with OloPay. While many emerging enterprise brands choose our white label front end, Serve, Anthony's worked with one of our partners to launch their online ordering with a custom-built front end, a great example of the customization and flexibility Olo offers to brands of all sizes through our open APIs. Anthony's joins over a hundred Olo brands that use custom front ends on top of Olo's ordering API. We believe more emerging brands will continue to launch with or adopt multiple Olo modules, which will boost ARPU over time. Our investments in sales and marketing will continue to enhance this opportunity further. In the second quarter, we released a number of exciting feature updates across our three product suites. Within the order suite, we continue to refine our capacity management capabilities to help restaurants provide more accurate wait times to guests and delivery service providers. We officially launched a further enhanced version of order ready AI. OLO's machine learning-based solution that enables brands to provide more accurate quote times. By training and deploying models using historical order data and retaining the models on an ongoing basis, brands will have more accurate ready time predictions instead of manual inputs. This progression of AI's role within our capacity management tool unlocks more optimization service for our customers. We believe this will continue to give OLO and our customers a competitive edge going forward. Next, our pay suite continues to innovate and scale with milestone updates this quarter. OLO officially launched in-store payments via kiosks, marking OLO Pay's expansion into card presence payments, representing a large TAM expansion as 85% of restaurant transactions are still considered non-digital. Digital payment processing on-premise will simplify reconciliation, refunding, and voiding processes for restaurants, bringing together their in-restaurant and off-premise transactions in a single dashboard. It's also exciting as this launch marks Olo's first in-store guest-facing brand exposure. Guests can expect the same simplified experience OloPay offers in non-card-present transactions, including the ability to pay with mobile wallets like Apple Pay. This launch is fulfilling the promise we made when we announced our partnership with Adyen last quarter, and we look forward to continuing our product roadmap with the Adyen team to enable more instances of card-present digital payment processing in late 2023 and beyond. Currently, this technology is live in partnership with ByteKiosk ordering software, and we will look to expand to other kiosk providers soon. Additionally, this launch brings the restaurant of the future vision we discussed on our last earnings call one step closer, as Byte has available today the same facial recognition technology we depicted in our vision of the future. In more pay news, we made borderless product enhancements on top of seeing encouraging early results. This quarter, Ola launched functionality that enables guests to earn and redeem loyalty rewards while enjoying the accelerated passwordless checkout experience provided by borderless loyalty programs are important to our restaurant customers and the ability to link borderless accounts with loyalty profiles is a huge win we believe will help further increase borderless adoption moving forward we also wanted to share results from one of our early borderless adopters din tai fung which demonstrates the power of what borderless can do for restaurants Thanks to the convenient borderless checkout process, we estimate that existing Din Tai Fung guests who signed up with borderless placed 61% more orders throughout the year, or 1.5 more orders per existing guest compared to those who have not signed up for borderless. After borderless was enabled, Din Tai Fung saw guest sign-ins, Bolo Legacy and borderless, before placing an order jump from 31% to 65%. a 109% increase, suggesting that strong guest engagement drives an increase in orders. With the introduction of borderless, 46% more Din Tai Fung guests opted to save their credit cards on file for smoother checkouts in the future. These results demonstrate meaningful increases in frequency and guest data, all while providing guests with a more convenient ordering experience, a true win-win for restaurants and guests. We continue to believe Borderless will be a game changer, and we look forward to expanding its capabilities in the future. Lastly, we have more AI news, this time with product enhancements in the Engage suite. We're thrilled to announce that Olo Engage now leverages generative AI in our marketing product. The email template editor has an AI assistant on standby waiting to assist on title, paragraph, list, and button content blocks. Powered by OpenAI and ChatGPT4, this new AI assistant can be prompted multiple times to get the message just right before applying to a customer's email template. Busy marketers now have more time to focus on sending powerful content to their guests to increase recency, frequency, and ultimately guest lifetime value. You can see a full list of new features at olo.com slash quarterly dash release. and a full case study on Din Tai Fung's experience with borderless on olo.com slash case dash studies. And finally, as I typically do on earnings calls, I'd like to provide an organizational update. This quarter, we made strategic changes to set OLO up to successfully execute the opportunity we see ahead of us. In mid-June, OLO announced a restructuring of our product and engineering teams to better reflect and support our three product suites, order, pay, and engage. With the restructure, we consolidated our product teams around the product suites and centralized our engineering team to enable more efficient resource allocation as priorities shift across the full business. To further unlock that potential, we also announced that Joanna Lambert would join OLO as our chief operating officer, leading our engineering organization and product teams. As previously shared, we believe Jo is uniquely positioned to empower Olo's business and areas of opportunity. She has more than two decades of executive experience as a product and operations leader, including senior executive roles at American Express, PayPal, including a stint overseeing Venmo's business, and most recently at Yahoo, where she led the consumer business. Importantly, her payments experience will be crucial given our plans to prioritize and scale OloPay in the coming years. She started with us on July 5th and we're thrilled to have her on board. Additionally, I'm excited to announce that Sherry Manning will be rounding out our executive team, joining OLO as our chief people officer next week. Sherry brings more than 20 years of experience in the human resources domain, providing strategic leadership during rapid expansion, post IPO development and acquisitions at globally recognized companies and late stage startups. Prior to joining us, Sherry served as Chief People Officer at BigCommerce and previously held leadership roles at IBM, Universal Pegasus, Q2, and Dell. I look forward to seeing the positive ways Joe and Sherry will impact our team and our business. Looking ahead to the rest of the year, we're energized by our performance in the first half and remain focused on helping our customers utilize the digital transformation of the restaurant industry to their benefit. as we bring to life our vision of the restaurants of the future. And with that, I'll hand it over to Peter to discuss more detailed results. Thanks, Noah. Today, I'll review our second quarter results as well as provide guidance for the third quarter in the full year 2023. In the second quarter, total revenue was $55.3 million, an increase of 21% year over year. Platform revenue in the second quarter was $54.6 million, an increase of 23% year-over-year. We saw strong performance across all three of our product suites, most notably Olopay, which is tracking ahead of our expectations. I'll provide more color on this momentarily. In terms of key metrics, ARPU for the second quarter was approximately $716, representing a 32% increase year-over-year and a 13% increase sequentially. Further growth in ARPU was driven by continued progress in driving the average number of modules adopted by our customer base, including higher ARPU solutions like OloPay, as well as the impact of Subway's departure. Net revenue retention was approximately 115%, up 100 basis points sequentially. The ongoing strength in net revenue retention is being driven by ARPU growth as we successfully execute on our cross-sell strategy. And lastly, in terms of active locations, this quarter we added approximately 1,000 net new active locations to the platform, ending the quarter with approximately 77,000 active locations. We continue to target 6,000 net new active locations additions for the full year. For the remainder of the financial metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial measures. Gross profit for the second quarter was $38.2 million. This compares to $33.8 million a year ago. The year-over-year increase in gross profit was driven by continued growth in revenue, including from OLO Pay adoption. As a reminder, OLO Pay's gross margin profile varies from our other businesses, so as OLO Pay scales, we are seeing an expected decrease in gross margin. Sales and marketing expense for the second quarter was $9.7 million, or 18% of total revenue. This compares to $7.3 million and 16% a year ago. We have made significant progress building out our go-to-market team and aligning it with the product suites and cross-sell strategy. We have added much of the capacity we were targeting for 2023 already, so we would expect to see only modest growth in the second half of the year. Research and development expense for the second quarter was $14.5 million, or 26% of total revenue. compared to $14.1 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. General and administrative expense for the second quarter was $9.5 million, or 17% of total revenue. This compares to $10.4 million and 23% a year ago. The year-over-year improvement on both the dollar and percentage basis represents continued optimization of expenses as our organization scales. Operating income for the second quarter was $4.5 million compared to $2 million a year ago. Net income in the second quarter was $6.4 million, or 4 cents per share, based on approximately 177.8 million fully diluted weighted average shares outstanding. Turning our attention to the balance sheet and cash flow statement. Our cash, cash equivalents in short and long-term investments totaled $431.2 million as of June 30th, 2023. Pursuant to the share repurchase program, which we announced in September 2022, in the second quarter, we repurchased 1.4 million shares for a total of approximately $10 million. Since the introduction of our share repurchase program, We have repurchased 6.7 million shares for $50 million. We have $50 million remaining on our authorization. Regarding cash flows, net cash provided by operating activities was $2 million in the quarter as compared to breakeven in the quarter a year ago. Free cash flow was negative $1.9 million compared to negative $3 million a year ago. I'll wrap up by providing our guidance for the third quarter and full year 2023. For the third quarter of 2023, we expect revenue in the range of $56 million and $56.5 million and non-GAAP operating income in the range of $5.1 million and $5.5 million. For the fiscal year 2023, we expect revenue in the range of $220 million and $221 million and non-GAAP operating income in the range of $17 million and $17.8 million. A few things to note as you consider our guidance. We are very pleased with the performance and customer adoption of OLO Pay. We now expect OLO Pay revenue for the full year to be in the low 20 millions range, up from our prior outlook in the mid to high teen millions. The order and engage suites are tracking to our expectations, and their revenue outlook is unchanged. From an expense perspective, the cost reduction actions taken during the second quarter were across each part of the organization, with a more significant impact to R&D. Our updated profitability guidance reflects a combination of flowing a portion of the savings to the bottom line and reinvesting some back into the business to support our strategic priorities. To wrap up, we are pleased with our performance in the first half of the year and our ability to increase both our top and bottom line guidance for the remainder of the year. Our results reflect the success we are having with our expanded product portfolio and the ability to serve a growing portion of a restaurant's orders. With that, I'd now like to turn it over to the operator to begin the Q&A session.

Operator? Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handsets before pressing the start keys. One moment, please, while we poll for questions. The first question comes from the line of Terry Tillman with Truist Securities. Please go ahead.

Yeah, thank you. Hey, Noah and Peter. It's great to see some of this multi-product traction and kind of the platform monetization playing out. One question I have for you, Noah, just to start it off. You know, it's great to see the expansion sales and monetization of the broader products. But I'm curious, as we look at like top of the funnel and bringing in net new customers, whether it's enterprise brands or emerging enterprise brands, could you give us a sense on kind of how that sales activity and pipeline is and how that differed versus 90 days prior in terms of potentially new logos coming into the fold over the next couple quarters? And then I had to follow up for Peter.

Sure, Terry, thank you for the question. I'd say I'd characterize it as a healthy pipeline across enterprise and emerging enterprise. I wouldn't characterize it as dissimilar from the way that it was 90 days ago. I think, you know, while we talked about 1,000 net new locations this quarter, there's a little bit of rounding and we're still, you know, forecasting the 6,000 total ads for the year. And, you know, we're excited about enterprise and emerging enterprise and really the ARPU growth as the largest opportunity. And you saw that again this quarter, the ARPU growth, we experienced the net revenue retention of 115% that we experienced. And we think that's a really healthy sign that we're mission critical for our customers. They're looking to Olo as their digital consigliere and they want to do more with us as they go further on their digital transformation journey.

Yep. Got it. Thanks, Noah. And I guess, Peter, thanks for the color on a low pay. And it sounds like it's definitely ahead of expectations. What I'm curious about is that low 20 million kind of revenue level expectation. Does that include potentially another step up from card present? And the second part is, you know, how do we think about like gross margins when you start to get kind of more of a full attach rate of a low pay into the installed base? Thank you.

Yeah, thanks, Terry. So in terms of card present contribution, so we don't have any revenue forecasted this year related to card present. We talked a bit about last quarter during our product announcements as well as our prepared remarks. We're just getting started on that front initially via partnership with Byte in which we are powering kiosk card present payments. We'll use the balance of this year to learn and iterate, and then hopefully 2024 is where you'll start to see the impact of those efforts in terms of revenue contribution. From a margin perspective, what we have shared is, you know, over time, a goal of achieving 20% gross margin on payments on a blended basis. Admittedly, we're not there yet. It's still very early. There's, you know, scale in which will allow us to get closer to that to that target margin and the card present is also an important component of of how we get there but again very very early days on that you know on that on that path but we definitely see a path to get there over time thank you all good luck in the second half thank you thank you next question comes from the line of stephen sheldon with

Hey, thanks, and nice results here. First, on the margin side, it seems like the updated guidance assumes close to 10% adjusted operating margins in the second half, so really good to see the trends there. I think we've been assuming more like mid-single digits before, so curious how much of that is due to the workforce reduction and the savings that you're letting flow through there versus just stronger top line growth with some of the success cross-selling that you talked about with what I assume would be pretty high incremental margins, just what was driving the margin improvement in the second half?

Yeah. So I'd say, you know, the majority of that is being driven by the, you know, the cost actions we had taken in late June and a continuation of you know, ongoing expense management as we move throughout the balance of the year. With performance being in the back half of the year, outperformance being in large part driven by OLO pay, given the relative margin profile of pay, less of that is dropping to the bottom line and therefore contributing to the, you know, incremental operating income guide. It's more driven by the ongoing expense management.

Got it. That's helpful. And then as a follow-up, I think you said the Engage suite is tracking your expectations this year. I'm curious how you're thinking about the potential ramp in monetization of the broader Engage suite over the next few years, given conversations your team is having. And I would also be curious how much interest you're seeing specifically for the guest data platform side, because I think you could see a lot of demand there over the next few years, but it sounds like it's still very early in the monetization. So any detail on the Engage demand trends you're seeing? Steven, this is Noah. I'll jump in there and invite Peter to add on if he wishes.

I think we are long-term very bullish on Engage and what restaurant brands are now able to do with all of the data that the digital transformation manifests. And I think we're not alone in that sentiment. Restaurants see that opportunity, see sophisticated tools like guest data platform as a way of harnessing that data about their guests, of course, with the guest's permission, and then being able to really personalize their experiences, personalize their communications, and enhance the overall guest experience. I think this is a paradigm shift beyond simple earn and burn loyalty programs that had been in vogue. I think there's a lot more to do on the marketing front, on the engagement front, than just that. I think one of the things that we're excited about, slightly tangential to your question, but we talked about the borderless capability being able to interface with loyalty programs. And I think that understanding that we're helping brands to bridge from a loyalty-based engagement suite to something more sophisticated like a guest data platform and marketing automation with AI tools built into it, sentiment analysis, etc., is really how we're educating our customers and cross-selling into marketing departments. And so from that perspective, we're very bullish and we believe that there's a great opportunity in its very early days for the Engage suite in total.

Got it. So if you see incremental wins there, as you think about the next few years, does it kind of seem like it would be a full suite of products versus buying one or two kind of modules within the Engage suite? Would it be more of a big bundle that you would think customers would be purchasing?

Well, it's interesting. Even just in this quarter, we highlighted an example of each of those things. We highlighted California Pizza Kitchen and that bundled approach to taking all of the Engage capabilities, starting with the host, table management platform, and marketing automation and sentiment. And then we have other examples like Denny's, which are great examples of the land and expand motion that we're seeing within the Engage suite, expanding now into guest data platform and marketing automation with that capability of challenges, which was a great innovation that Denny's brought to life in partnership with our partner, SparkFly. but really showing the power of an open platform with open AIs and a great partner network to allow brands to really choose their own adventure when it comes to how they want to engage with their guests. So I don't know that I would characterize it as one or the other. I think the answer is all of the above. Some brands will want to dip a toe in the pool with one module or two of the four in total. Others will want to go all in and have all of the engaged modules working from day one. And we're excited to see that level of excitement from the enterprise and emerging enterprise customer base.

Great to hear. Thank you. Thank you.

Thank you. Next question comes from the line of Gabriela Boris with Goldman Sachs. Please go ahead.

Hi, team. Yes, thanks for taking our questions. This is Maxon for Gabriela. A couple from us. One question on macro. Can you give us more color on the general business environment and more specifically restaurants willing to invest? And how have trends in sales and implementation cycles trended this year for OLO?

Hey Max, this is Noah. I'll take that. I think we would characterize the past couple of years as being a challenging operating environment for And we've talked about that in earlier calls, COVID and the impact of COVID, Omicron, and then into inflation and commodity price increases. It's been a whole bunch of challenging issues that restaurants have had to overcome, labor included, et cetera. I think there is some light at the end of the tunnel. We feel like things are starting to normalize on a number of those fronts. Certainly, guest demand for restaurants is strong, digital demand. is durable and growing. I think from our perspective, that will take some time to flow through into sales cycle improvements and deployment cycle improvements, but we're hopeful based on what we're seeing in the end market that this is a time when restaurants are seeing the wisdom in enabling more technology solutions with platforms like Olo and enabling themselves to then do more with less. from a R&D budget perspective and from an operator perspective, taking some of those learnings from these challenging times and using them to enhance their business going forward and better delight their guests.

Thanks, Noah. And then another question that I have is I wanted to ask about initiatives in Gen AI, such as drive-through automation. Could you give us an update on those initiatives and then How do you think about competition from some of the larger horizontal software vendors in the space, with one example being Google's partnership with Wendy's?

Sure. Yeah. So in terms of drive-through AI specifically, we've talked about that on a couple of calls now, a number of pilots that larger quick service restaurant drive-through oriented brands are doing with a variety of partners that are providing that interactive voice response IVR or AI kind of ordering capability on top of the OLO API. I would still characterize those as early kind of test beds, not fully deployed broadly throughout the system. And all of them notably have a human operator backing up the AI in case something goes wrong and you have a guest who wants to speak to a human. So I think that's an area of innovation broadly in restaurant technology. It's not something that we're directly doing as OLO, but we are doing through the OLO ecosystem through a variety of partners and a variety of customers who are experimenting. I guess I would characterize our perspective, our philosophy on competition from horizontal technology providers as you know we're big believers that vertical solutions that are custom built for specific vertical their problem statements their use cases are going to ultimately be better than horizontal solutions that are more general and less specific for that vertical i don't think of google as a competitive solution with regard to their their work with wendy's i think about google as part of our partner ecosystem one of those partners that we work with closely on a number of different fronts. I think when it comes to the solutions that we provide across order, pay, and engage, OLO is working very closely with our restaurants, with our product advisory council, specifically to make sure that we're building the solutions that they need specific to their needs and the needs of their guests.

Very helpful.

Thank you. Thank you.

Thank you. Next question comes from the line of Andrew Hart with PTIG. Please go ahead.

Hey, Nolan, Peter. Thanks for the questions, and congrats on the quarter. It's nice to see that Cold Stone OLO Pay win coming through and extending that enterprise momentum. Just two quick ones for me here. First, can you share how conversations for OLO Pay conversions are going in general? What are some of those key considerations from customers and the potential hurdles to switching? And then second, we estimate OLOPE penetrations in the 2% to 3% context today, and oftentimes our conversations with clients are about the path to 10% or 10% plus penetration. How would you frame up that OLOPE penetration opportunity longer term, and how has card present capabilities changed that opportunity, if at all? Thanks.

Hey, Andrew, this is Noah. I'll take the first part, and I'll let Peter speak to the second part. I'd say really good conversations with brands about a better payment experience and a better payment experience for both the guests and for their operators. That is what led to really the initial idea for OloPay, the charter for OloPay, if you will, and is truly what we're seeing in market. We've talked in the past about things like higher authorization rates and how we've been able to accomplish that through Our partnership with Stripe and our partnership with Adyen and doing sophisticated fraud scoring helps with authentication. It also helps dramatically reduce fraud that has borne out in reality. We're hearing that from our customers. We're also in innovations like borderless, doing away with passwords and enabling a native digital pleasant experience for a guest to be signed in, to have all the benefits of being signed in. And then on the other side, enabling the brand to capture that data about the guest. I think all of those things are part of why OloPay is being seen as a new breath of fresh air in payments by our restaurant customers. Now, some of them are able to deploy payments system-wide and able to do that in one self-group. Others have payments that over time have been decisions made by different operator groups And so it will take some time for us to get the at-bats with all of our customers. We're also here, and we have heard, we would like to have a single payment platform for card not present, which Olopay started out being able to do, and also for card present. And now we're thrilled to be able to offer card present and be able to meet that need of having card not present and card present in one management platform for Olopay. So we're very bullish. Our customers are very excited. Prospects are excited. And we're mostly excited this quarter about that first set of orders that we have now done, card presence, and opening up what is a 6X increase in the total addressable market for OloPay given the breakdown of digital orders versus non-digital orders and our ability to now take payments for those non-digital orders as well. Yeah, just to pick up on that. So, when we think about the, I know, Andrew, you mentioned there 10% as sort of the goal. I mean, we certainly have our sights set higher in terms of future penetration rates. And the reason for that is, you know, some of the things that we wanted to prove out during the first, you know, year or so in market with Olope is that, one, this is a solution for all restaurant sizes, which is something we have proven over time, selling into the enterprise segment, selling into the emerging enterprise segment. The second thing we want to prove out is that our go-to-market motions, we can be successful in both through the new business channel wins as well as upsell, that the OLO Pay adoption rate would be positive. And in both of those cases, that has been the case. And that OLO Pay, thirdly, is a solution for all segments. So as we look across QSR, fast casual, casual dining, et cetera, we have customers utilizing OLO Pay across all of those different segments. So, again, those proof points that we wanted to prove out through the first year or so in market, we've done so. Now, in terms of the penetration rate that you mentioned there, you're not far off. And what we get excited about is – When you think about the unlock from a TAM perspective card present presents to the company and having that initial card not present adoption rate, that becomes a great lead gen engine for those card present conversations when we're ready to have them, which is why, again, when we think about the future penetration rates, you know, 10% or more for that matter seems very reasonable. Thanks, and congrats again.

Thanks.

Thank you. Before we take the next question, a reminder to all the participants that you may press star and 1 to ask a question. Next question comes from the line of Clark Jeffries with Piper Sandler. Please go ahead.

Hello. Thank you for taking the question. You know, I wanted to ask a question about the philosophy David Casimir- Investment appetite versus expense management, I think you know even prior to. David Casimir- The cost measures that you took in late June, you were operating with profitability and and had you know over 400 million of cash available so. David Casimir- I wanted to ask you in the way of sort of what are the categories that you're you're most interested in increasing the investment in. David Casimir- Are there places in the business, where you expect to see headcount growth through the year or. Is it still in this time period where you're looking for some stabilization in some of those trends you mentioned, Noah, that are still stabilizing? Just love to get a sense of investment appetite at this point and where you feel positioned for the rest of the year. And then I have a follow-up.

Yeah, so I can take that one, Clark. As I mentioned in my prepared remarks, when you Work your way down the P&L. We've done a fair amount of investment in sales and marketing, certainly through the first half of the year, as we've ramped up the team to address a larger portion of the emerging enterprise segment, as well as building out those focus areas on the order, pay, and engage suite so that we can have the specialization needed for those conversations to be successful from a sales perspective. So a lot of that investment has been made through the first half of the year. and we expect more modest expense progression as we move throughout the balance of the year. In terms of R&D, many of the investments that we wanted to make, in particular for OLO Pay and for borderless and card presence processing, we've done a lot of investment to date on that front. There's still a little bit more to to go there and therefore similar to sales and marketing, we expect more modest progression in R&D as we move throughout the year. And then in terms of G&A, you know, I've talked about this in prior quarters in terms of having to, you know, level up the team, grow the team so that we could properly support the business as a public company. A lot of that is now built into the cost structure and we expect to see more leverage in G&A as we move throughout the year.

Perfect. Thank you. And then, you know, I wanted to just maybe take a finer slice at OLOPE, and specifically it performing higher than your expectations in that guide for the low 20s. You know, is there a way to parse out what is really driving it um so far you know outpacing your expectations has it been the size of merchants that have you've seen in terms of uh that have been onboarding has it been just a higher number of logo counts in the emerging enterprise any kind of clarification there and then you know just as a housekeeping item as we think about the platform and card present um how should we think about the gmv that the platform is touching Will there be situations where you're powering card present but not ordering? Just, you know, how should we think about the composition if you start to go into those sort of card present transactions? Thank you.

Yeah, so in terms of year-to-date outperformance on the pay front, I would say that that is being driven by greater upsells on the location standpoint than originally anticipated. So the adoption rate I'd say broadly across all segments has been greater than what we originally anticipated and therefore for a full year revenue outpacing our original estimates. In terms of the card present opportunity and what that unlocks, one of the data points we disclosed last year was the total amount of GMV that we had processed over the calendar year 2022, which was north of $20 billion of GMV. And if you assume that the digital penetration rate or digital transactions account for 15% of industry transactions, and then you map that back to the $20 billion GMV, that means that we have over $100 billion of GMV just within the existing install base that would be addressable once we have a card presence offering. And that's what gets us really excited in the fact, again, that we've had a lot of progress on the pay front with card not present adoption. That becomes a great lead gen engine for those card present conversations. So, again, early, that's more of a 2024 dynamic, but certainly something we're excited about.

Thank you much, Peter. Take care.

Thank you. Next question comes from the line of Matt Hedberg with RBC. Please go ahead.

Oh, hey, guys. Thanks for taking my question. I guess for either of you, I think in the past, maybe, Noah, you've mentioned that oftentimes restaurants go through maybe a four- to five-year payment re-evaluation process, which I guess makes sense structurally. But I guess I'm wondering, with all the innovations that you guys are adding to the platform, do you think there's an opportunity to perhaps accelerate

that reevaluation process and perhaps get people to to look at you guys before they they might uh normally do so and if so is there anything that you're doing in particular that could drive that hey matt um this is noah yeah so i think you know i have talked about a cycle uh during which restaurant brands tend to reevaluate payment processing relationships and again sort of back to one of my earlier responses it's not the whole brand every time. Sometimes there are different operator groups within the brand that are often in different processors. It has not been kind of like with point of sale fragmentation that we've talked about many times. There's fragmentation with payment processors. So in that respect, there might be a component of a brand that is eligible to get up and running with Olope, an operator group, not the full brand. that we can start to prove out those results ahead of the full brand being ready to deploy OLAFE. There are other examples, and I think we're already showing this with coming to market initially with card not present before having the full card not present and card present capability available where we can kind of wedge in with the card not present transactions that are the digital transactions running across the OLA ordering platform And then to Peter's point on the last response, make the case at the right time for, you know, there's an even better opportunity if we go beyond the digital transactions, the card not present transactions, and with OlaPay address the card present transactions as well and have a unified payment platform. So we think that, you know, getting those proof points with our restaurant customers early and showing them and proving the results that we're seeing with others within their four walls is very powerful and can lead to great success down the line.

That's great to hear. And then, um, you know, when we think about OLO growth, we think about location ads and ARPU expansion, obviously a bit more of the focus has been on ARPU expansion. Um, but on this call, it certainly feels like beyond just enterprise success, you're seeing emerging enterprise customers with success there. When you think about that land and expand motion, can you talk about how you're driving sales pipeline and really converting that pipe across both those different segments? Because it feels like it could be a little different velocity with more of the emerging enterprise customers.

Yeah, so I'll try to take that one, Matt. So I think in terms of kind of the initial conversations regarding emerging enterprise. I mean, as we noted on the call, what we're finding is within that particular segment, a higher adoption of multiple modules from the onset of the relationship. In particular, we've seen a lot of success there with pay. And that's great because that helps to, you know, it creates that higher starting point from an ARPU perspective obviously helps with stickiness, et cetera, within that segment. And again, going back to our card present commentary allows us to then leverage those card not present relationships to one day upsell card present as well. And in terms of like the actual pipeline development, I mean, there's different tactics that we use for enterprise versus emerging enterprise. I'd say a lot of focus right now within the enterprise is with the upsells of Pay and Engage, just given the captive audience and the near-term opportunity to expand within those existing relationships. So, depending on how we think about those two segments, it's a slightly different go-to-market approach.

Thanks, guys. Well done on the question. Thanks, Matt.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Noah Glass for closing comments.

Okay. Well, thank you again for joining us today. We are honored to be a mission-critical platform for the restaurant industry and to serve as the engine of hospitality, helping restaurants drive sales, do more with less, and make every guest feel like a regular. Thank you, Team Olo, for your hard work and execution. We have miles to go before we sleep.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.