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spk01: Greetings and welcome to the OLO 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow for more presentations. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd like to turn the conference over to our host, Kerry Fuge, Senior Vice President of Investor Relations. Thank you. You may begin.
spk00: Thank you, good afternoon, and welcome to OLO's third quarter 2024 financial results conference call. Joining me today are Noah Glass, OLO's founder and CEO, and Peter Benavides, OLO's CFO. During this call, we will make forward-looking statements, including but not limited to statements regarding our expectations of our business, our industry, our operations, and future financial results. These statements reflect our beliefs and assumptions only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For discussion of these material risks and uncertainties, please refer to our Form 10-Q, which was filed today, and our other SEC filings. During today's call, we'll also present GAAP and non-GAAP financial measures, reconciliations, so the most directly comparable GAAP financial measures are available in our earnings release, which is available on our investor relations page on our website. And 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. With that, I'll turn the call over to Noah.
spk02: Thank you, Gary. Hi, everyone. Thank you for spending time with us today. Team Ollo executed well on our top priorities in the third quarter and positioned Ollo to complete a successful 2024. With customers, we continued to win, retain, and expand. In product, we drove further innovation across our three product suites and ecosystem. including a deeper partnership with EasyCater to provide an additional demand channel for our fast-growing Catering Plus module. In OLO Pay, we announced the general availability of card present functionality on QPOS, and we expect to deploy multiple OLO Pay card present pilots with enterprise and emerging enterprise brand customers on Q and NCR Boyics POS before year end. Financially, we hit our 2024 location growth target one quarter ahead of schedule and delivered yet another beat and raise quarter for revenue and non-GAAP operating income. I'll discuss our customer, product, and partnership highlights for the quarter, and Peter will review our Q3 financial performance and updated guidance. We ended the quarter with approximately 85,000 active locations, adding approximately 3,000 new locations since the end of Q2. ARPU for Q3 was $850, an increase of 15% year over year, and net revenue retention was above 120% for the fourth quarter in a row. We're particularly proud of our location's performance. We reached our 5,000 net new location additions target for 2024, one quarter ahead of schedule. the OLO restaurant network has never been stronger. In enterprise, Q3 implementations included the full launch of Dutch Bros on OLO ordering and OLO Pay card not present across its 800 plus locations. We deployed multiple order modules and OLO Pay card not present with bakery cafe brand Paris Baguette, who went from sign in to launch within two quarters. We also deployed with Long John Filters on Rails and Nothing Bunts Cakes on Dispatch, two great examples of how Olo's modular platform can meet brands where they are on their tech journeys and offer expansion opportunities as we deliver value. We also saw momentum with existing enterprise customers eager to realize the power of guest data. Both Another Broken Egg Cafe and P.F. Chang's deployed Olo Engage's guest data platform during the quarter. In Emerging Enterprise, we had a strong quarter of multi-suite deployments, including Papa Geno's and Pizza Inn, who both deployed ordering, dispatch, rails, and Olo Pay card-not presence. We're also pleased to welcome Oakberry, a provider of healthy, organic acai bowls, who is one of multiple Emerging Enterprise Flywheel customers that launched with all three Olo product suites in the quarter. We're also seeing the same momentum with existing emerging enterprise customers regarding OLO Engage, with Kolachi Factory and Thompson Restaurant each deploying multiple modules from the Engage suite. We're landing and expanding with brands through the strength of our open platform, and this was on display at our inaugural partner summit in Chicago. Attendance was at capacity, and the event brought together select members of our 400-plus ecosystem partners alongside some of our most innovative customers. Discussions focused on how we can collaborate to solve the industry's biggest challenges, like proving ROI, creating a seamless guest experience, and moving beyond the limitations of in-house development and data silos. We remain committed to the philosophy that open beats closed and that our open platform approach can accelerate technological advancements in our industry and we delivered further innovation through direct investment in our platform in our october fall release we announced over a dozen product enhancements to help brands increase orders streamline operations and improve the guest experience in borderless we integrated loyalty program sign-in so guests can now enjoy the benefits of both their borderless accounts and their loyalty rewards through one passwordless experience. Borderless continues to scale at a rapid pace with more than 10 million accounts, up 10x from 1 million accounts just one year ago. And we believe this new loyalty program integration will further increase borderless adoption and improve the guest experience. When we began this journey, It was because we believed that Borderless could be the true manifestation of a scaled, two-sided network to connect enterprise restaurants and their guests, a unique offering that only Olo could bring to life. We're thrilled to see Borderless and its network effect proving out our thesis and scaling 10x over the past year. We added functionality to Catering Plus to help operators manage complex business accounts within their existing OLO dashboard and give sales managers a comprehensive view of their guest data. And today, we announced a new menu integration with EasyCater to make it easier for brands to manage their third-party marketplace catering demands and scale this increasingly important channel. CateringPlus continues to ramp within our base with new Q3 deployments with brands of all sizes and service models like Bojangles, Cowboy Chicken, and Mendocino Farbs. Catering Plus adoption has been a strong expansion driver, and we believe it sets us up well to sell additional OLO modules like OLO Pay, Dispatch, and Rails to support a brand's catering channel. And most importantly, we've made great progress toward bringing OLO Pay card presence to market. As we shared in our fall release, Brands on QPOS can now use OLO Pay to process card-present transactions and aggregate the associated basket-level data into the OLO Engage GDP. Q is our first generally available direct POS integration for OLO Pay. We're completing our integration work with NCR Voyex, and we have discussions underway with additional providers to further expand our OLO Pay and engage integrations. We've been running the Olopay go-to-market motion in parallel with our technical work, and we're excited to share that we expect to launch five Olopay card present pilots in Q4 with brands on Q and NCR Voyex. We're working with brands across multiple restaurant categories, and the majority of these pilots are with enterprise brands. We see this as a great start And the OloPay pipeline is building with our existing brand customers, as well as with new enterprise brands interested in Olo's full stack payments offering. We have work ahead of us. However, the early signs are encouraging for OloPay's product market fit for off and on-premise transactions. We listened to our brands when they told us they needed a payment solution purpose-built for enterprise restaurants, and we're bringing it to market. We also have news regarding Team OLO. We're excited to welcome Jason Ordway as our new Chief Technology Officer, overseeing OLO's engineering function as part of COO Joe Lambert's leadership team. Jason brings a wealth of technology leadership experience to OLO, particularly in the areas of enterprise scale platforms and the management of remote engineering teams. For the last seven years, Jason was CTO at Slice. a restaurant tech platform used by 20,000 pizzeria locations, where he led a fully distributed team of 225 professionals across nine countries. Jason's a great fit for Olo in terms of cross-functional leadership, experience, and culture. And we're looking forward to him helping Olo deliver even greater innovation to our restaurant brands and their guests. Finally, we shared in today's 8K filing that Chief Revenue Officer Diego Panama will be leaving OLO at the end of the year. Diego joined us in July 2022 and has led all aspects of the customer journey for our brands, including sales, marketing, customer success, and business development and partnerships. He built our sales engineering team to support the increased technical selling required as we added the pay and engaged suites. succeeded in ramping up our emerging enterprise sales motion and streamlined operations to shorten deployment timelines and more efficiently support our customers. As we looked to 2025 and beyond, Diego and I concluded that OLO needs an executive to focus solely on driving bookings. And we've mutually agreed to part ways. Diego will help us execute on our Q4 plan, assist with a smooth transition, and act as an advisor to me. Sales leadership will report to me on an interim basis and will initiate a search for a new sales leader shortly. Additionally, COO Jo Lambert will expand her role to oversee the marketing, customer success, and business development and partnerships functions going forward. We believe this will strengthen the connective tissue between product development and commercialization. We thank Diego for his contributions to OLO and wish him continued success in his career. Q3 was another strong quarter across the board. As we move to the end of the year and begin setting our sights on 2025, I'm energized by Team OLO's ability to serve our customers, drive further product innovation and industry collaboration, and deliver financial results. We are winning with the strength of our open, enterprise-grade platform, while setting the table for future success by enabling data-driven personalization of the guest experience. As other verticals have shown, personalization drives profitable traffic and true customer loyalty. At Ola, we're laser-focused on being the clear leader in guest personalization for enterprise restaurants. I'll now turn the call over to Peter, who will review our third quarter financial highlights and updated guidance. Peter?
spk03: Thanks, Noah. Today I'll review our third quarter results as well as provide guidance for the fourth quarter and the full year 2024. In the third quarter, total revenue was $71.9 million, an increase of 24% year over year. platform revenue in the third quarter with $71 million, an increase of 24% year-over-year. OLO Pay had another strong revenue quarter, and we generated year-over-year subscription revenue growth of 10%. Active locations were approximately 85,000, up approximately 3,000 locations sequentially due to the deployment activity Noah mentioned. We've added approximately 5,000 net new locations year to date through September 30th, meeting our full year target for net new locations one quarter ahead of schedule. Based on our location performance year to date and line of sight into Q4, we now expect to add approximately 6,000 net new locations this year. ARPU for the third quarter was approximately $850. up 15% year-over-year and flat sequentially. The year-over-year increase in ARPU was driven by increased order volumes and modules per location, in particular, OLO pay. And net revenue retention was above 120%, the fourth consecutive quarter where NRR was at or above 120%. For the remainder of the Q3 financial metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial measures. Gross profit for the third quarter was $43.6 million, up 12% year-over-year. Gross margin for the third quarter was approximately 60.7%, down about 200 basis points sequentially and in line with the expectations we set on our prior call. Gross profit and gross margin performance reflect the impact of this quarter's revenue outperformance as well as the increasing mix of OLO Pay revenue. We continue to exercise operating expense discipline. In Q3, all three operating expense line items improved year over year on a percentage of revenue basis. Sales and marketing expense for the third quarter was $11 million, or 15% of total revenue. This compares to $9.4 million and 16% a year ago. Research and development expense for the third quarter with $14.3 million or 20% of total revenue. This compares to $14.3 million or 25% of total revenue a year ago. General and administrative expense for the third quarter with $10.1 million or 14% of total revenue. This compares to $9.4 million and 16% a year ago. Operating income for the third quarter was $8.2 million, up from $5.7 million a year ago. Operating margin was approximately 11% in Q3, an increase of approximately 160 basis points year over year. This strong performance reflects a combination of continued expense discipline and revenue outperformance. The workforce reduction we announced on September 20th which I'll speak to when we discuss guidance, was an immaterial contributor to the non-GAAP operating income performance. Net income in the third quarter was $10.4 million, or six cents per share, based on approximately 171.9 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 approximately $392 million as of September 30th, 2024. We did not repurchase any shares in the third quarter due to related shareholder litigation discussed in our SEC filing. This matter was settled in early August. In Q4, we expect to initiate a 10 plan for our $100 million share repurchase program. Net cash provided by operating activities with $6.2 million in the quarter compared to a negative $21.6 million in the quarter a year ago. Free cash flow was $3.2 million compared to negative $24.4 million a year ago. These three cash flow metrics primarily reflect operating income performance and working capital timing. I'll wrap up by providing our guidance for the fourth quarter and full year 2024. For the fourth quarter of 2024, we expect revenue in the range of $72.5 million and $73 million and non-GAAP operating income in the range of $8.7 million and $9 million. For the fiscal year 2024, we are again raising revenue and non-GAAP operating income guidance. We now expect revenue in the range of $281.4 million and $281.9 million, and non-GAAP operating income in the range of $30.2 million and $30.5 million. A few things to keep in mind as you consider our updated outlook for the year. We continue to expect trends in the restaurant industry to be similar to what we saw in 2023. Consistent growth in digital ordering, a continued need to improve efficiency to offset rising costs, and macro uncertainty. We now expect OLO Pay to contribute revenue in the high $60 million range in fiscal year 2024, up from the mid $60 million range we shared on our Q2 call. We continue to expect OLO Pay revenue for the year to be essentially all card not present revenue. We also continue to expect full year 2024 gross margin to be in the low 60% range, and that full year 2024 will be the trough in annual year-over-year gross profit growth. We anticipate Q4 2024 gross margin will be flat compared to Q3 2024. Non-GAAP gross profit and operating income for Q4 and full year 2024 reflect the impact of the workforce reduction we announced on September 20, 2024, where we lowered total headcount by approximately 9%. We consistently review our cost structure, and we took this action to streamline operations prior to our 2025 budget process. We primarily consolidated teams and reduced spans and layers across implementation and customer success, marketing, and sales. This action lowered our total annual cost base by approximately $8 million. We expect about 60% of the cost savings to flow to NGOI with the remainder being reinvested into the business. To wrap up, third quarter financial performance continued to build on our first half momentum, and our updated guidance reflects our increased confidence in the business. We're adding logos and expanding with existing brands to drive the top line, doing the work to accelerate gross profit growth in 2025, and driving greater operating leverage through disciplined expense management. With that, I'd now like to turn the call over to the operator to begin the Q&A session. Operator?
spk01: Thank you. At this time, we'll be conducting a question and answer session. If you'd 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 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from Terry Tillman from Truist Securities. Please go ahead.
spk04: Great. Good afternoon, guys. Connor Passarello on for Terry. Appreciate you taking the question. First one, I just want to start with OloPay. That business looks like it'll more than double, again, with the new guidance here. Lots of opportunities still with CardPresent and the POS Partnerships. Just curious on how we should be, I guess, thinking about the continued growth trajectory of that business as more of these drivers start to play out through the end of this year and into next year.
spk02: Connor, this is Noah. Thank you for the question. Yeah, we're very excited about the progress, the continued progress with OLO Pay. Looking back now over two years, we were about $250 million in our first year in market with OloPay, just CardNot present in gross processing volume, then up to a billion last year, and now projecting 2.5 billion in processing volume this year. And as you heard, going from 30 million in revenue last year up to now the high 60 million range. So very excited about that opportunity, and especially when we compare it to the fact that our brands are processing in GMV about $26 billion through the OLO platform on an annual basis. So on that basis, we're just about 10% or less than 10% from a gross payments volume running through OLO Pay as compared to that gross merchandise value. But especially as we make this jump into card present payments, that's when we see the full GMV of the brands that we work with being addressable to OLO. That takes us, because of the fact that card present and card not present together about six times the size of card not present alone up to about 160 billion dollars of gmv addressable as gross payments volume ultimately for olo pay so from that standpoint the 2.5 billion of gross payment volume on ola pay is quite substantial but very early in the overall opportunity under two percent we're very excited to see that progress with olo pay card present in the form of these five pilots that we announced tonight on two different POS partners, QPOS and NCR Voyex launching in the fourth quarter of this year. We expect a lot of continued momentum heading into 2025, and we're very excited about that OLO Pay opportunity. I'd also say it's an exciting opportunity for OLO, but it's also an opportunity that our customers are very excited about because they see that when OLO Pay is processing the transactions for card presence, It's an opportunity to pull data about those transactions back into the guest data platform to understand what the guest is ordering and to collate that data back to a guest profile. So really understanding every transaction that a guest places, whether it's a digital transaction or a non-digital transaction. That is the holy grail opportunity that OOPEG Card Present represents. In a time in this industry when brands are really looking to understand their guests, to know all of their guests, and to really personalize the guest experience as a way of standing out from their competition.
spk04: Great. Thanks. Thanks, Noah. That's really helpful. Maybe as a follow-up, on the go-to-market motion with Diego departing, I guess, what are you looking for in terms of the next CRO that gets appointed to that role? Maybe what would you want to see from a go-to-market organization as you look towards the next phase of growth?
spk02: Chris Wackerholtz, yeah it's a great question I mean i'm excited for in the interim period myself getting closer to the go to market organization, something that i've been. Chris Wackerholtz, involved with from the very beginning of although, as you'd imagine, but especially co selling into larger opportunities and going deeper with existing partners. Chris Wackerholtz, I think, as we initiate this search what we're really looking for is. a greater focus on bookings and a sales leader who is a proven executive with industry experience, with relationships in this industry. And important that they're based in New York City and have a tight partnership with our New York City-based team, Peter, our CFO, Joe, our COO, and me. And we're excited about that focus and also for those non-sales activities to then be part of Joe Lambert's organization as our COO and really having innovation and commercialization at OLO living together. I think that's a very healthy combination and we're looking forward to that change as well. I should also say we're very excited about our sales leaders at the SVP level, Katie Cofer, Katie Lang, one layer down. I'm very excited to get closer to them and be working with them as they lead our sales team. um in the in the uh foreseeable future and especially as I'm working closely with them in this interim period before we brought on a new sales leader thanks Noah your next question from Steve Sheldon from William Blair please go ahead hi team you have Pat McAleon this afternoon my first question so
spk05: When you completed the September RIF, which included some heads in your go-to-market function, you noted plans to focus more on ARPU expansion and the existing client base. In this quarter, you added the most locations in a quarter since 2022, and ARPU was roughly flat sequentially. So I wanted to ask if you feel that initiative will take time to materialize, or if you've kind of remained focused more so on winning new business rather than account expansion and just what you're seeing in terms of underlying momentum for upsell and cross-sell?
spk03: Yes, I could take that one. You have Peter here, Pat. So, I mean, we're trying to accomplish both, right? So we want to grow both ARPU as well as add more locations to the platform over time. The ARPU dynamic this quarter was driven by two factors. One, this was the first quarter where You felt the full impact of Wingstop transitioning from three product modules down to one. And you had a subset of locations that did come on this quarter were single module locations. I think Noah called one out in the prepared remarks in Long John Silvers, which when only utilizing one product module, you inherently have a lower ARPU. So through the combination of those two things, that's why you saw the decel and growth from an ARPU perspective. That said, we've shared historically the number of product modules per location that average around three to three and a half product modules per location. We have now upwards of 16 product modules to sell within the install base. So just the sheer magnitude of the ability to expand from where we are today up to that 16 product modules per location just has such an outside impact on our ability to grow ARPU relative to our ability to grow location count, which is why we've shared and continues to be the case that ARPU will be a larger driver of growth in the near term than locations will be. That doesn't mean to say that we're taking our eye off the ball as it relates to locations. We still want to do a great job there as well. which this quarter in particular was emblematic of that.
spk05: Okay. That helps. Thanks, Peter. And it sounds like after the step down in gross margins this quarter, you're expecting this to be a pretty good baseline heading into year end. But my question is, how should we frame any further potential pressure on margins from the continued scaling of OLO Pay heading into 2025 and 26?
spk03: Yeah, so the sequential change in gross margin Q3 to Q4, what we messaged earlier on the prepared remarks, that's being driven by continued growth of OLO Pay revenue mix being offset by um continued cost optimization in particular the portion of um the costs pulled out of the business as part of the recent reduction in force that being an offsetting factor to that continued revenue mix shift in terms of how margins trend longer term I think that's going to largely depend on how quickly we ramp into the olo pay opportunity in particular card presence. We haven't shared a perspective on that. That's something I think we'll share as we set guidance for 2025. But in many ways, if that were to happen faster, I think that would be a good thing because what that then means is we're ramping quickly into that pay opportunity and gross profit growth is re-accelerating, which is really what we're focused on. And continue to believe that for 2025 on a full year basis,
spk06: uh gross profit growth will re-accelerate as compared to 2024. okay that's helpful thank you peter appreciate the color the next question is from bruce goldfarb from league street capital please go ahead hey greg peter congrats on the results congratulations thanks for taking my call my questions um what's been the the trend in what's been the trend for like first emerging enterprise versus enterprise with regard to the pipeline?
spk02: Thanks for the question. This is Noah here. So I think a really good quarter, as you heard on both fronts, some great enterprise wins in Dutch Bros, That's a very exciting one that we talked about a bit in the last quarter. Paris Baguette, as Peter mentioned, Long John Silver's, and Nothing Bunch Cakes coming on in the enterprise segment. And then the emerging enterprise segment, a great set of wins this quarter as a Boston native. I'm particularly excited about Papa Gino's coming onto the platform, Pizza Inn, Oakberry, and more. I think what's interesting to look at is kind of how we're landing in those different segments. In the emerging enterprise segment, we have noted for a couple of quarters now the tendency for brands to land with all three of our product suites. We call those flywheel customers where they're using order, they're using pay, and they're using engage. They're really getting up the digital maturity curve quickly. It's a little bit different in enterprise and also in top 25 when we tend to land with more typically a single module or a single suite for an engagement and then build that over time and continue to sell additional modules. As Peter noted, we're now up to 16 different modules across those three suites or suite 16 of modules. And it gives us a lot of opportunity to continue to sell additional capabilities into brands once we've proven out all those capabilities as a partner for their digital maturity.
spk06: Great, thank you. In terms of technology, are there certain areas that you'd like to, you know, is M&A focused on? I'm sorry, I missed that. Could you repeat that last part? Yeah, are there certain areas of technology you guys would like to acquire, either developing or, you know, through M&A? Yeah.
spk02: I think we feel pretty good when we look at our product roadmap and the things that we're planning over the coming year and really three years on that time horizon about what we've planned to build from an R&D standpoint. Very excited about Jason Ordway joining OLO as our CTO and leading our engineering team and accelerating those innovation efforts. And we also have a great partner ecosystem of over 400 ecosystem partners who are integrated into OLO and enable us to really experiment with additional capabilities beyond what we do ourselves. And that's historically been a really interesting opportunity for us to watch what brands are using and deriving value from and to learn from that and lean into those partnerships. I think that's really how we think about R&D and innovation at OLO and how we can sometimes accelerate R&D through potential M&A of those partners that we work with closely and where we see our common customers experiencing a lot of value.
spk06: And then my last question, when you announced the 9% RIF in September, you said you were going to reinvest $6 million in growth. Are there certain areas where you're hiring or you're running marketing campaigns?
spk03: Justin Fields , City of Boulder, yeah just to clarify that, so the reduction in force that we announced in September removed about $8 million of cost to annualize of that we are. Justin Fields , City of Boulder, dropping 60% of that to the bottom line so about $4.8 million of that will be savings going forward. with the remainder of the 3.2 being reinvested into the business. And that's really broadly across various areas of OPEX and a bit within cost of revenue as well, but for the most part, throughout various areas of OPEX.
spk06: Great. Thanks for that clarification. Great. Those are my questions. Congrats on the results.
spk01: Thank you. This concludes the question and answer session. I'd like to turn the floor back over to Noah Glass for any closing comments.
spk02: Okay. Well, thank you for joining us tonight. While we're pleased with our Q3 and year-to-date performance in 2024, we're by no means satisfied. We remain laser focused on doing more to help brands convert their transaction data into personalized guest experiences and profitable traffic. We're committed to achieving this objective as an open platform that serves as a force multiplier for hospitality and through operating discipline that drives profitable growth. Have a great evening.
spk01: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
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