Q1 2021 Olo Inc Earnings Call
[music].
Okay.
Good afternoon. My name is Alexander and I will be your conference operator today at this time I would like to welcome everyone to the old low first quarter two Towson in 'twenty, One earnings conference call.
All lines have been placed on mute to prevent any background noise.
The speakers remarks, there will be a question and answer session if.
If you would like to ask the question. During this time simply press the star one on your telephone keypad.
He would like to withdraw your question. Please press the pound key.
I would now like to turn the call over to Mr. Brian Dan You. Please go ahead.
Thank you good afternoon, everyone and welcome to all of its first quarter of 2021 earnings Conference call.
Joining me today are no of glass all of those founder and CEO and Peter <unk> our CFO.
During our call today, some of our discussion and responses to your questions may contain forward looking statements, which represent our beliefs and assumptions only as of the date such statements are made the.
These forward looking statements include but are not limited to the statements regarding our future performance on our market opportunity.
You are expecting the financial results for the second quarter and fiscal year 2021.
Expectations regarding future operating expenses impacts.
The impacts and expected results from changes in our relationship with our large customers.
Of our market opportunity and market trends expectations regarding the impact of the COVID-19 pandemic on our business in the industry.
Predictions on consumer ordering volumes.
Growth of our customer base.
Customer adoption of our products and expectations for capturing market share and our delivery of new products or product features.
We undertake no obligation to update any forward looking statements made during this call to reflect the events or circumstances of the outdoor Tonight.
These statements are subject to risks uncertainties and assumptions should any of these risks or uncertainties materialize or should I need.
Of these assumptions proved to be incorrect actual comprehensive results could differ materially from these forward looking statements.
A discussion of the rest of uncertainties related to our business is contained in our final prospectus filed with the SEC on March.
The <unk> 2021 and our quarterly report on form 10-Q for the three months ended March 31, 2021 that will be filed with the SEC filing on this earnings call.
And our remarks during todays discussion should be considered to incorporate this information by reference.
Also during the call we will present, both GAAP and non-GAAP financial measures reconciliations.
Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued a short while ago.
The earnings release is available on the Investor Relations page of our website and included as exhibit in the form 8-K furnished to the SEC.
Finally at times on our prepared remarks or in response to your questions. We may offer incremental metrics to provide greater insights the dynamics of our business or our quarterly or annual results.
Please be advised that this additional detail maybe onetime in nature, and we may or may not provide an update on the feature on these metrics.
I encourage you to visit our Investor Relations website in the investors that are low dot com to access our earnings release periodic SEC reports a webcast replay of today's call or to learn more about all of them.
With that let me turn the call over to Noah.
Hi, everyone. Thank you for spending this time with us today.
No the glass, the founder and CEO of O low I'm thrilled to be with you on this call and the share my thoughts on our company our opportunity and our Q1 performance.
Given that this is our first earnings call I thought I'd take a moment to introduce you to <unk> and what we do.
<unk> is a leading cloud based on demand commerce platform from Multilocation restaurant brands now of serving over 400 restaurant brands and approximately 69000 individual restaurant locations and enabling them to let consumers order ahead pay ahead and get their food faster for takeout.
Livery and more.
Our mission is to help our restaurant customers thrive by best meeting the needs of the on demand consumer.
I founded all over 15 years ago out of my desire to get a cup of coffee faster by ordering ahead and skipping the line instead of waiting in line at a busy coffee shop.
Since then we've experienced an incredible journey and I wanted to take a few moments to share some of the building blocks of the strategy that took us from an idea in June 2005, two of public company that is today. The restaurant industry is mission critical software platform and with a mission to touch add value to and derive revenue from every restaurant.
Industry transaction.
Importantly, although is a b to b software platform, not a b to C marketplace or aggregator.
As a result, many of you have likely used although without knowing yet when you place the orders at your favorite restaurant brands.
Although as a platform, primarily enabling enterprise restaurant brands to create their direct to consumer applications to enable on demand commerce.
Although it is not a consumer brand rather our interests are aligned with our customers' interests to help them drive direct digital traffic first and foremost.
That takes the form of enabling of ordering ahead, whether that's counter pickup curbside pickup delivery, where these days even tableside delivery.
If you had to describe of restaurant you'd likely described the traditional table service model, arriving at the restaurant and being ceded reviewing of menu, placing the order with the server. After a brief conversation and then sometime later, having a meal delivered to your table and the eating the meal before paying and leaving.
Well that kind of experience is simply no longer representative of the majority of transactions in the restaurant industry and that fact has been true even before the COVID-19 era.
In fact, if you look at 2019 and you gauge the percentage of transactions represented by what the industry calls off premise that is food consumed outside the four walls of the restaurant.
Off premise represented 63% of all restaurant industry transactions in the U S.
In that context, you can understand why it's so valuable for restaurants to enable a more efficient model for ordering and paying for a meal that will be consumed off premise both for the benefit of the consumer and for the operational efficiency of the restaurant.
By enabling the consumer to order ahead pay ahead and get their food at the restaurant without having to wait for it the restaurant can both enrich that consumer experience and improve their operational and financial performance at the same time.
This is the core capability that <unk> enables and has popularized in the restaurant industry over the past 15, plus years of our operating history.
The restaurant industry shift to digital ordering has resulted in a steady and the exponential growth curve of restaurant adoption of digital ordering capabilities and consumer adoption of choosing to order through digital ordering versus the ordering and more traditional methods like in person, we're calling over the phone.
The COVID-19 era of pull digital ordering adoption into the future as many restaurants had limited on premise dining service they.
They have shifted their attention and consumers have shifted their use of restaurants to off premise dining occasions.
This shift in the broader interest in safety through contactless order collection has meant the digital ordering has become even more essential and has indeed become mission critical to old low customers and the restaurant industry as a whole.
Years ago, when I would speak the team although about my long term vision for our company I would reference of milestone moments in which we achieved 51% of the sales of one of our customers.
I said that moment would represent a low becoming the majority order channel for that customer and others would soon follow the dawn of digital ordering primacy.
We're now seeing all of the restaurant customers, who are processing, 100% of their transaction volume through the old platform. This.
This includes takeout orders delivery orders marketplace orders and even table side of orders that are typically initiated when the guest sits at the table and scans of unique QR code to identify the table where of server or runner can deliver the food.
Although the ambition has now grown from digital privacy to digital entirety from 51% digital to 100% digital.
We believe that OLED destiny is to touch every transaction add value to every transaction and derive revenue from every transaction in the restaurant industry.
All of those March IPO was the manifestation of our desire to make a strong statement to our stakeholders.
<unk> is and always will be an independent open software as a service or SaaS platform, providing a stable and extensible foundation for the restaurant industry and ecosystem to build upon for the long term.
Although believes in a level playing field that promotes healthy competition, which is the best for the restaurant industry.
<unk> is committed to serving as a neutral and open platform for the long term.
To that end, we're excited to reaffirm our partnerships with door dash and Uber eats and celebrate over a dozen marketplace partners engaging with all of those exclusive restaurant network through although rails and a similar number of delivery service providers engaging through old low dispatch.
We continue to focus on scaling our open SaaS platform and bringing on the best partners to add to our rich partner ecosystem of over 100 technology partners.
All for the benefit of our restaurant customers.
It bears repeating that our transactional SaaS business model means that more transaction volume processed through Oh low leads to higher revenue for OLED.
Similar to other consumption based models in SaaS.
In December 2020, we celebrated the milestone of achieving all of order number 1 billion on accumulative basis since our founding in June 2005.
It's worth noting that we process more than half of those total orders in other words over 500 million of orders in 2020 alone.
While we believe that the impact of COVID-19 has served as a tailwind for the 2020 transaction volume growth on the <unk> platform remember that the larger digital transformation of the restaurant industry has been playing out of top of the <unk> platform throughout our 15 plus year journey.
More restaurants, more digital ordering capabilities and more consumers adopting this new digital ordering behavior means higher transaction volume year over year and continued 120% plus net revenue retention.
In Q1, we were proud to help lumen brand's parent to Outback Steakhouse and Carrabba's Italian grill re platform from their long standing of homegrown and digital ordering program to OLED.
This is another anchor for our conviction that all of those enterprise grade SaaS platform will be of compelling alternative to the capex and opex of building in house.
All of those enterprise grade open SaaS platform offers lower upfront cost faster time to market lower ongoing cost of ownership built in best practices from a decade of half of experience ongoing innovation, a broader partner ecosystem and benchmarking against 400, plus other customers in.
The short SaaS wins over homegrown software.
As we discussed at length in our S. One and throughout our IPO Roadshow, we're incredibly excited about the opportunity presented by the quick service restaurants, or <unk> drive through industry engaging with on demand commerce. The <unk> segment represents both the largest number of addressable restaurant locations and the largest number.
Of transactions per location, and therefore represents the largest pool of transactions in the restaurant industry.
And an exciting segment for O low given our transactional SaaS business model.
In general <unk> brands have grown over the years through franchising, leading to disparate technology systems across franchisee, operator groups and manifesting in the kind of non homogeneous environments for which although was purpose built.
We further penetrated the U S. Our drive thru segment in Q1 with new deployments at Culver's and Crystal as these brands embraced the on demand commerce as a new way of providing the most convenient experiences for consumers.
We celebrated other notable deployments with NAND does U S growing our relationship with Nando is that began in Canada and an expansion of our relationship with fine dining standard bearer Union square Hospitality group Who's CEO, Danny Meyer is a member of our board of directors.
Our expanded U S. HG relationship includes the deployment of its flagship Union square Cafe, as well as Gramercy Tavern blue smoke and Marta further demonstrating that on demand commerce can play an important role for every restaurant type even fine dining going forward.
And we're also excited about the growth of virtual brands brands that don't have their own physical locations and instead used host kitchens or ghost kitchens to produce their food for digital only ordering and a delivery only service model.
These virtual brands demonstrate that OLED. The total addressable market is not bounded by the current number of restaurant locations.
Rather it is tied to total restaurant industry transactions and this number is not fixed but expanding with population growth and greater consumer preference for prepared food off premise consumption and the digital ordering.
This quarter, we launched two additional celebrity powered virtual brands, including Goop kitchen, and Guy Fieri <unk> flavor town kitchen.
These digital only delivery on the virtual brands are inherently 100% digital and therefore speed all of those path to realize our now grander ambition to touch add value to and derive revenue from every restaurant industry transaction.
Finally, I would be remiss, if I did not mentioned team although in our low for good initiatives.
During Q1 of our team continued to work from home due to COVID-19 restrictions on.
Of those workforce was built to support remote working well before COVID-19. So this has been a relatively natural transition for our team.
Although we look forward to being able to gather in person again in the near future I am proud that our team has managed to execute on behalf of all low and our restaurant customers from a fully remote environment.
Also during Q1, we joined pledge, 1% to donate 1% of our time equity and product and launched a low for good are all low for good efforts are focused on advancing racial ethnic and gender diversity equity and inclusion providing relief and support for the restaurant industry.
And it's frontline workers and ending childhood hunger.
Improving our community and our world is in all of those DNA. We're excited to use our new status as a public company for doing even more good for our community and our industry.
While we are incredibly proud to of processed over 500 million of orders in 2020, we're reminded that the restaurant industry processes, approximately 60 billion transactions each year.
On a recent board call one of all of those directors asked me what inning, we were in for the older journey.
Given that we're yet to achieve 1% of restaurant industry transactions. My response was we're just getting out of the dugout.
As I constantly remind team, although we have miles to go before we sleep.
We will continue to invest in our team our customers our community and our partners as we feel that this is in the best long term interest of our share owners and in line with the tenants of all of the board member Danny Meyer's philosophy of enlightened hospitality.
Here at <unk>, we invest in solutions that both increase our opportunity to reach new restaurants, with our on demand commerce platform and help us to generate more value for those customers and more revenue from our platform in the form of additional average revenue per unit or <unk>.
We're thrilled to be of public company and one committed for the long term to the success of our customers and partners by adding value to their businesses generating revenue for our business and delivering returns for our shareowners.
I've never felt more excited more optimistic or more purpose driven than I do today and I'm excited for Peter Benevides, Although CFO to provide a quantitative reflection of the way I feel Peter.
Peter over to you.
Thanks, Noah today I'll review, our first quarter fiscal 2021 results in detail and provide guidance for the second quarter and full year fiscal 2021.
Given this is our first earnings call I'd like to start by briefly reviewing our financial model, we define our business model as a transactional SaaS model as it includes both subscription and transaction based revenue streams that increase as transaction volumes grow.
Our platform allows our restaurant customers the ability to provide great experiences to their consumers and increase revenue.
As our restaurant brands increased revenue, our transactional SaaS model allows us to share in their success.
The subscription element of our transactional SaaS model includes both the fixed fee component as well as the usage based component that increases as transaction volumes grow.
We also charge per transaction fees for certain ordering and delivery enablement products combined subscription and transaction fees charged on a per location basis is defined as <unk> or average revenue per unit.
Our ability to grow revenue is a function of adding more restaurant locations to the platform as well as increasing the revenue we earn on a per location basis or ARPA.
We believe our transactional SaaS model provides the best of both worlds visibility and predictability aided by the subscription component and revenue upside due to transaction volume growth.
With that background, let's take a closer look at our first quarter results.
Total revenue for the first quarter was $36 1 million up of 125% year over year.
Platform revenue in the first quarter was $34 9 million up of 136% year over year, primarily due to an increase in active locations coming onto the platform as well as increased <unk> <unk> driven by higher transaction volume growth and continued multi product adoption. While we are proud of our Q1 <unk>.
So which show the value of that oil provides its restaurant customers. Our first quarter results benefited from COVID-19 in two ways.
First continued strong order volume growth and second a relatively easy compare since Q1 2020 was the last quarter prior to the onset of COVID-19, I wont get into this a bit more on a few moments when I talk through our Q2 and 2021 full year guidance.
In terms of key metrics. We saw continued positive performance for the first quarter across all three key metrics active locations of <unk> and net revenue retention.
Spend a moment discussing each in a bit more detail.
And active location is defined as a unique restaurant locations live on the platform with at least one product module. So for example, if an individual restaurant location subscribes to three modules such as ordering dispatch and rails, we would count that location once as a unique active location.
That said we ended the first quarter with approximately 69000 active locations on the platform.
42% increase year over year in the 7% increase sequentially.
This included some locations that we had originally expected to deploy in the second quarter, which helped to increase platform revenue.
Additionally, average revenue per unit or <unk>, which represents the average quarterly platform revenue, we earn on a per location basis continue to trend well as a reminder, our boutiques into accounts all modules subscribed to by of unique location as well as both subscription and transaction based revenue streams.
That said for the first quarter, we generated an <unk> of approximately $525.
61% increase year over year, and an 11% increase sequentially grew.
Growth in <unk> was the result of continued growth in multi product adoption as well as increased transaction volumes, which help increase both subscription and transaction based revenue streams.
Lastly, net revenue retention, which measures the period over period change in total platform revenue for brands in the current quarter and had at least one line location in the same quarter of year. Prior remained strong for the first quarter. We continued to maintain net revenue retention in excess of 120% a result of kantar.
<unk> to satisfy and retain our customers increased multi product adoption growth and transaction volumes and further expansion of our partnership ecosystem from the remainder of the financial metrics to exclude unless otherwise noted I will be referencing non-GAAP financial measures gross profit for the first quarter was $30 million.
Renting a gross margin of 83%.
This compares to a gross margin of 74% of year ago.
Year over year improvements in gross margin is largely a result of increased leveraging platform revenue streams, where gross margin was 86% on.
This compares to a platform gross margin 78% of year ago.
Sales and marketing expense for the first quarter was $3 4 million or 10% of revenue. This compares to $2 2 million and 14% of year ago.
On a dollar basis increases in sales and marketing spend were driven by our proactive investment in customer acquisition and expanding our sales organization and brand marketing, partially offset by reduced spending on travel and trade conferences as a result of the COVID-19 pandemic.
While we have a highly efficient one to many sales model in which we sell at the enterprise restaurant brand level and secure all locations within that brand to long term exclusive contracts, we anticipate investments in sales and marketing to increase on a dollar basis and as a percentage of revenue in the short term as we continue to invest in our ability to.
Sell new products and increase the visibility of our brand to new and existing customers.
Research and development expense for the first quarter was $11 million or 30% of total revenue. This compares to $7 million and 43% of year ago investing in our platform and developing new platform features and enhancements that will increase the value. We can deliver to our customers is a primary strategic focus for all of them.
We have made incremental investments in recent quarters to maintain strong platform performance and the uptime necessary to help our customers as they manage the sharp increase in their digital order volumes.
We anticipate investments in this area to increase on a dollar basis and as a percentage of revenue in the short term as we continue to invest in innovative solutions to support our customers' rapidly evolving needs.
General and administrative expense for the first quarter was $9 5 million or 26% of total revenue. This compares to $4 3 million and 27% of year ago on a dollar basis. The increase was primarily tied to our efforts to support becoming an operating as a public company.
We expect that our general and administrative expenses will continue to grow on a dollar basis will decline as a percentage of revenue as we continue to scale our operations over time.
Operating income for the first quarter was $6 million compared to a loss of $1 6 million a year ago.
We believe this improvement in profitability illustrates our ability to meet increased demand cost effectively as well as the benefits associated with our high leverage success based pricing model.
We continue to grow and scale of the business. We believe we are of great opportunity to continue to invest in capturing more of our total addressable market, while meeting the needs of our existing customer base.
Net income for the first quarter was $6 million or <unk> <unk> per share based on $185 5 million fully diluted weighted average shares outstanding.
Turning our attention to the balance sheet debt and cash flow statement, our cash cash equivalents in marketable securities balance was $586 6 million as of March 31 2021.
This reflects $485 5 million of net proceeds from our successful initial public offering in March.
Regarding cash flows operating cash flow was $4 2 million compared to $3 7 million a year ago free.
Free cash flow was $4 million compared to $3 6 million a year ago.
Before I turn to guidance I would like to spend a moment discussing the recently announced multi year agreement with door Dash. This new three year agreement reinforces the long term commercial partnership between all of indoor Dash and will enable us to continue to work together on products and features that will unlock value for both companies as well as our shared customer base.
From a financial perspective. This new agreement is in line with our expectations and we are really excited from the path ahead.
I'll wrap up by providing our guidance from the second quarter and full year 2021.
For the second quarter, we expect revenue in the range of $33 9 million to $34 4 million and non-GAAP operating income in the range of $2 3 million to $2 7 million.
For the fiscal year 2021, we expect revenue in the range of $144 million to $141 9 million and non-GAAP operating income in the range of $13 3 million to $14 5 million.
I would like to highlight a few things to keep in mind about our outlook. We are incredibly excited by the underlying trends in our business and the market opportunity ahead of us as Noah mentioned, we are still on the very early stages of the shift to digital ordering and expect to continue to deliver strong revenue growth rates at the same time, we expect the extraordinary.
The growth in order volume that we experienced during COVID-19 will begin to moderate to a more normalized level. While we expect good overall transaction volume growth in 2021, given the number of new locations that we expect to deploy on our platform coupled with expected further increased penetration of dispatch in rail and.
The continued growth in our partnership ecosystem. There is also uncertainty in the near term pertaining to per location transaction volume given some of the evolving dynamics at play Spa.
Specifically as vaccination levels and in person dining continue to increase we anticipate digital order volumes in the second and third quarter to be impacted and then normalize by the end of the year. Additionally, this past quarter the fiscal stimulus pertaining to the recently enacted American jobs Act helped fuel transaction volume growth.
With similar stimulus programs on certain as we move forward, we remain thoughtful as to how we think about water volume growth.
But that said, we will continue to take a prudent approach to forecasting given the uncertainty related to order volume trends due to the COVID-19 pandemic.
To summarize we delivered another exceptional quarter of operational and financial performance. We are delivering on our mission and believe <unk> position at the center of the digital restaurant experience will continue to drive an attractive combination of strong revenue growth and profitability I would now like to turn it over to the operator to begin the Q&A session.
Operator.
Thank you at this time I would like to inform everyone in order to ask the question. Please press the star one on your telephone keypad again debt of his star one to ask the question.
We had the your first question from Chris Merwin with the Goldman Sachs. Your line is open.
Hey, Thanks, so much for taking my question and congrats on the great first quarter here out of the gate.
Just wanted to ask with more restaurant reopening of indoor dining and the like can you talk a bit about what youre seeing with online GMB, maybe asked another way what percentage of your restaurants are in categories with the.
Next the in person dining vs delivery and versus restaurants.
We're 100% of their order volume could could easily be online is trying to get a sense for what that restaurant mix looks like and generally what the trends youre seeing are as it relates to online.
Online ordering G&P. Thanks.
Yes. Thank you Chris Peter here, so look from a trend perspective.
What we've seen this past quarter has largely remained in line with what we've seen in recent quarters in terms of strength and transaction volumes. We obviously started to comp of bit against the initial impact of of COVID-19.
At the end of the quarter. So our expense expectation has been that.
Order volumes would start to see some near term impact from increased of accident vaccinations and pent up demand for in person dining which from our perspective.
<unk> is likely to play out a bit more in Q2 and Q3.
And while early on.
We have started to see some signs of that that in April again in line with with our expectations, but I think from a high level I think we're really excited about the underlying trends of the business.
They continue to be strong I think as evidenced by our Q1 performance and as well as our guide for the next quarter with the.
With a 40% year over year target at the midpoint of the range. So really excited about the trends ahead.
Okay Perfect and then just one quick follow up I just wanted to ask about although pay anything you can share of their about timing around that.
And when you might be targeting general availability or.
Any kind of initial thinking.
It might be in beta, but any sort of customer feedback to date. Thanks.
Hey, Chris Noe here, so on a low PE still very early same as when we spoke about overpay in analyst day, and along the road show.
We're continuing to work with a handful of brands that are in beta now.
I think that's the appropriate way of thinking about 'twenty. One. This is the time when we're going to learn.
During 2022, we're going to work with.
Some additional brands and really try to make sure that we get it right and have some great reference accounts there.
With the expectation that in 2023 will be in a position to step on the gas from a go to market perspective.
Hold 2000, you had one early in the process of of deploying this we're learning a lot of applying our.
A growth mindset to it as we go about overpay, but we think of this is the big opportunity and we want to make sure that we get it right.
Okay, great. Thank you.
We have your next question from Sterling Auty with JP Morgan Your line is open.
Yeah. Thanks, Hi, guys. So wondering in terms of the visibility on the number of locations that you rollout this year, how much control or how much of that is locked in and what I'm wondering is this.
And the individual franchise location, let's say, we have a big rush to.
In store dining can they turn around and say Hey were originally scheduled to go live on although in the first week of September, but we wanted to lay that to 2022.
Yes Sterling. So thank you for the question Peter here. So I guess, let's just talk about Q1 performance for a moment in terms of new location adds and then I'll address the second part of your question on the in person dining in person dining dynamic and how that may impact deployments in the coming.
Quarter. So yes in terms of this past quarter, obviously deployments exceeded our expectations, which I think is in part.
What you're seeing play out in the revenue outperformance and this was in large part of really a function of timing. So on a full year of our full year target basis. It remains unchanged, we've been targeting the low double digit tens of thousands of location adds in 2021, and we're tracking well.
To that level. So while we we don't think what occurred in Q1 as a normalized rate of growth going forward, we're really excited to see the.
The momentum that we built up in Q1 as we as we enter into Q2 in terms of.
Reopening in the impact that could have on deployments, we're not we're not seen Indian any indication of that at this at this time, we're seeing a lot of momentum in brands wanting to have.
Their digital ordering.
The digital ordering systems up and running.
As really a.
An opportunity to increase revenue and address consumer demand given that consumers have come to.
Appreciate and enjoy the benefits associated with with digital ordering so at this point, we're not seeing brands, having to make a binary decision between reopening and deploying digital ordering we're seeing a lot of momentum on that front.
Makes sense. Thank you.
We have your next question from Brad Reback with Stifel. Your line is open.
Great. Thanks, very much maybe if we could flip sterling's question, a little bit and look at it from this perspective, where restaurants are clearly having a hard time hiring enough people to meet demand.
Are you seeing organizations begin to use a little more aggressively in store to help meet that shortfall. Thanks a lot.
Brad This is Noah. Thanks for the question I think this is something that we've seen over our history is brands thinking about how they can best deploy labor to provide the greatest hospitality to their guests and I think one of the things that's always been true about it although is there.
Isn't a lot of hospitality in the experience of taking somebody is the order and bringing them up for the transaction and those are the things that our platform has always automated.
So what that means of that historically brands have been able to use their labor use those resources to providing a more hospitable experience in the actions like handing the order of over to the consumer and having a conversation with them there.
So we're really excited about that and then we also are seeing it.
As I mentioned in my prepared remarks, the use of QR codes on the table for what we think of as table service to Dato of the consumer scanning of QR code that then tags that order with the table number so the the server or runner can run the order out to them.
And I think that net net these are things that are going to help brands do more with less from a labor standpoint and be efficient, we're not saying that the brand should have less labor than they traditionally had we believe theres going to be a lot of in person dining and sustained high levels of off premise dining continuing.
To grow as we've seen we think that digital and <unk> have a big role to play in both of the big role to play in off premise and of big role to play in on premise and that is why our new ambition is not just about the 63% of transactions in the industry that our off premise, but all 100% of the transactions in the industry.
And we're excited about that new ambition.
That's great thanks very much.
We have your next question from Betsy <unk> with William Blair. Your line is open.
Hey, Noah Peter Congrats nice job there I guess I wanted to touch on a couple of things of that but maybe I'll start off with.
Arpin.
You had a really nice uptick of <unk> and I was just wondering sort of could you give us update of the number of locations using all three modules.
As you think about that <unk> growth, how should we think about going forward between module uptake versus in <unk>.
Client transaction volume I know, you've dampen the input of client transactional on just to be conservative will help us how we think about that through the year.
Yes, so just the.
Thank you for that question move on so in terms of.
Multi product adoption, we need a lot of progress this past quarter in terms of deploying dispatch and rails and that is again and part of in part what's driving the outperformance in Q1 and the increases in our Peru that debt that you've seen low.
King forward there are still brands in the deployment pipeline that will deploy in later quarters across dispatch and rails and that is what is reflected in the numbers that we've shared that said, we also continue to see growth in brands subscribing to one.
Sorry of more than one all of the module from the onset of the relationship which.
Could have an impact on net revenue retention long term because you're starting.
At a higher base, but it's great to see <unk> in that case, starting at a higher point.
In addition to.
The dispatch and rails of cells that have been positive to date. We're also seeing a lot of momentum in all of the network and virtual brands, which no no of covered in his remarks on.
Both of those have been gaining more traction as growth vectors. So the company.
It is exciting to see so.
In short of lot of opportunity for growth ahead across a number of different modules and you'll you'll start to see that play out in <unk> over time.
Yeah No no. That's helpful. I guess I wanted to touch on exactly that the virtual branch of those kitchens right you highlighted in the kitchen and favorite channel.
This year of next year, where these are still kind of novel concept. When you take the question was previously asked about this labor issue with the idea that I'm going to have great hospitality I don't need you to come on and get it because I'm just going to have the kitchen and deliver what I do which is make really good food as the chef what do you think that looks like from the actual ghost kitchen in the marketplace.
Phase three to five years, and then obviously that plays into all of the what do you think that looks like it was a part of your business and three to five years.
Thanks, Bob and I'll I'll take that this is Noah.
Look we're really excited about the trend of these virtual brands. We think that there are great opportunities both for existing restaurants that want to add on to what theyre able to do out of their existing fleet of restaurant kitchens, we see restaurant brands launching additional virtual brand concepts, but.
Cooking out of their existing fleet.
And then for entrepreneurs as you mentioned, we mentioned the the two new celebrity inspired virtual brands with new kitchen, and Guy Fieri as flavor town kitchen in.
In the prepared remarks.
We think theres going to be more of this going forward that this is really democratizing access to launching restaurants, and it's not just launching in a single geography. We have examples in Mr. Beef Burger late in 2020 of the concept that was launched simultaneously in 200 kitchens across the country overnight and that was something.
That used to take decades and decades for restaurant operators restaurants printers to achieve that kind of physical availability. So we're excited about that and of course from the all of the perspective. The fact that as you mentioned these are inherently 100% digital and so it really speeds our path to getting to that ultimate.
<unk> of touching every transaction, adding value to every transaction and driving revenue from every transaction and I think the restaurants and restaurant operators are proving that they can manage these virtual brands in a way that is highly profitable and perhaps more profitable than the commission heavy order of.
Volume that theyre getting through marketplace channels, I think that'll be an interesting trend to see over time is our restaurants doing virtual brands.
Moore and accepting orders through restaurant delivery marketplaces less do both of those trends rise at the same time, we're excited about all of that adding to the digital ordering market and all of those opportunity.
Super So were really helpful. Thank you guys I appreciate you taking the time.
Thank you.
We have your next question from Terry Tillman with tourists. Your line is open.
Yes, thanks for taking my questions and congrats on the initial quarter as the public company.
I guess, maybe the first question is.
As we get through we got through 'twenty.
I assume some of these large <unk> brands and just large brands in general across the food industry. Just GAAP I was something that hadn't place you mentioned bloom and brands of it sounds like a great re platforming, what I'd love to hear of know is kind of what youre seeing.
Over the last quarter of two in terms of the propensity to say Hey, we got through the pandemic not in great shape, but now let's go do it real re platforming. So what does the pipeline like for these larger kind of re platforming opportunities.
Hi, Jerry it's of Great question, and it's something that we're excited about I mean, when we think about the different segments of the industry. It's not the same story in each segments. There are <unk> opportunities that are largely greenfield opportunities and then there are these other opportunities typically in casual dining or fast casual that.
Our re platforming opportunities we are of great track record of taking brands that have built in house, whether that's <unk>.
Brinker with Chile as of the <unk> or if we look at Papa Murphy's both of which we talked about at length during our road show or this new.
Example of Blue and brands with Outback and Carrabba's, and we think that long term SaaS wins and that Theres a great opportunity for brands that have built in house to see okay. There is some some capital in the initial capex, but it's really the opex that ongoing cost of doing this in house that I could save.
Money on and have better innovation better benchmarking against other brands of broader partner ecosystem by moving too immature enterprise grade SaaS provider and we believe that's the role that we're playing and also of that.
There are parts and pieces of what we do that can add value to a brand that maybe isn't ready to re platform their entire stack over the O low but might say I could use although to add direct channel delivery with the dispatch platform or I could use although to take orders from marketplaces through the rail platform.
And we can begin to develop our relationship with those brands through components of our full product stack and then ultimately prove ourselves and win the full stack over time. So we're excited about the opportunity with those kind of re platforming kind of brands and we think that this is a moment where it is.
And proven debt on demand commerce as mission critical that's not okay. Just to have a program for on demand Commerce you need the best program for on demand Commerce, and we believe that's what we have set up OLED <unk>.
That's great to hear on I guess, Peter just a follow up question.
Any thoughts or anything that you'd call out in terms of timing of cash.
Cash payments between two June 14, I'm, just trying to think about free cash flow I know that sometimes of the DSP is can have some volatility on the <unk>.
On peanuts around those.
The cash payments, which is how do we think about free cash flow either in <unk> or the rest of the year. Thank you.
Yeah, Thanks, Terry so.
Obviously, we're not we're not guiding to free cash flow, but what I can say is this past quarter you saw of relatively tight coupling between non-GAAP op income in free cash flow and that is in part because of the cash conversion cycle associated with our dispatch platform.
Was tightly coupled to our to our AR collections, which is good to see.
As we mentioned before there will be periods in which the timing in which we collect from our our brands relative to when we pay our DSP.
Can can fluctuate quarter to quarter, but typically on a full year basis, you'll see that the the two numbers non-GAAP op income and free cash flow.
Our are tend to be in line.
Thanks and congrats.
We have your next question from Matt Hedberg with RBC capital markets. Your line is open.
Hey, guys. Thanks for taking my questions.
No I had a question on the international opportunity I know it seems like it's maybe a little ways out here, but do you have a lot of <unk>.
Brands that have the international locations and I guess I'm sort of curious what what might make you move faster to address and really help a lot of your kind of your global brands really.
Kind of embark on a global digital transformation I guess, what's the alternative if youre not helping them today.
Matt Thanks for the question.
On.
We believe that the domestic opportunity is just a massive opportunity we've taken the baby step of expanding from the U S into Canada and you see an example of this quarter of how that served us well starting a relationship with the multinational brands.
In NAND does in Canada, and then helping them as well in the United States.
So we do think that what we're doing is setting the table four of those larger international opportunities over time, but when we think about where our focus lies it's really in serving the enterprise restaurants in the U S and Canada markets. Because we think there is just a great opportunity for us there and it is the fastest path.
For us to become a billion dollar revenue company.
And the fastest and most efficient path for us to do so so I believe that we're developing of the relationship with those large multinational restaurant brands most of which are domus idled here in the U S and we're proving out how vital it is to their success is of mission critical platform so that.
When they are ready and we're ready to expand into international markets, where the platform of choice for them to do so.
I guess to answer your question directly in order for us to kind of change our mind on this to say, let's go Chase international growth over.
Expanding as we have been in the domestic opportunity.
Take something giving us the conviction that that was a better path for us to scale the business and serve our customers. We haven't seen that yet we believe that the best area for us to remain focused is enterprise grade restaurants, or the enterprise segment of the industry in the U S and Canada and enriching the offerings for.
That cohort.
Got it yes, no that makes a lot of the success of candidates certainly.
Notable and I think it's of great at least I think when we think about going beyond Canada I think there's certainly an opportunity there and then I guess secondarily when we talked to your customers I think one of the things that you guys. Do best is just take pain points out of the whole digital experience and I know you're handling a lot and you've got a lot of growth initiatives, but one of the things.
We kind of kept hearing was this whole loyalty system, right, which you integrate with well with all of them.
A number of the loyalty players, but I guess the question is how do you think about that as maybe a longer term opportunity or just taking more of the friction out of the system that you are already helping to improve.
Yes, I think that there are a lot of great capabilities that are beyond the scope of what we offer today, but represented by a thriving partner ecosystem that we enjoy at O low and we do to your point have a lot of great loyalty providers.
RM providers, who help restaurants to really understand for the first time.
Using the data that's generated through although and other technologies, who their customer is and how they can best develop a direct relationship with that consumer.
It's not something that we offer directly it is something that we're excited to have a thriving network of partners, helping to do under the heading of how do you help restaurant brands really meet the needs of that on demand consumer.
And I think about.
Something that I remember from back in 2014, when when Danny Meyer joined our board and became an investor and he was talking reflecting upon the open table platform and initial feelings about the open table platform and coming to understand the beyond just taking reservations open table was really a CR.
The <unk> platform that enabled greater levels of hospitality in the fine dining segment and he made a comment then that I view, what <unk> is doing in the segment of the industry. We were really exclusively playing and then in fast casual as enabling of hospitality at fast food or fast casual speed and scale.
I think that's a great thing for our customers to do as they seek to build out their direct relationship with consumers and build out a thriving direct ordering channel.
And we're thrilled to have a great partner ecosystem integrated tightly into OLED to help them to do that.
Thanks, Neil of congrats again on the results of the success.
Thank you.
We have your next question from Brent <unk> with Piper Sandler Your line is open.
I guess, thank you Hey, Noah I was hoping you could.
Address the customer engagement in light of several states reopening here in broader vaccinations, how has the dialogue changed with prospects and restaurant brands at least in April and May. So far are there different triggers way of brand would engage with low dose.
Yeah.
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Let's see Brent you broke up a little bit for me there, but I think I got the gist of your question and of course welcome you to to ask a follow up if I if I Miss the target here, but I mean, what we've seen is that there is strong interest in digital.
Ordering and delivery capabilities that restaurant brands in every segment and in every service model of the industry have come to see this as mission critical for meeting the needs of the on demand consumer and as I mentioned in the prepared remarks. This was certainly pulled into the future through the year. We've just lived through but it was also something.
That was growing and growing the consumer need for that on demand experience at restaurants long before COVID-19 and we are thrilled about what our restaurants have been able to do in meeting the needs of the on demand consumer before COVID-19 hit and throughout the COVID-19 period.
So we think this is really something that has woken up a lot of the digital laggards that were out there in the industry and maybe the at the latest operating segments of the U S. R. <unk>.
Brands that are out there that have now realized the drive thru, which used to be the fastest and most convenient way of serving the guest is no longer the pinnacle of convenience now I must have the ability for on demand of ordering of the food is ready when they arrive or even better delivered to them but.
But we think other restaurants have just come to you experience. The services that <unk> provides an on demand commerce in general as the mission critical platform. The mission critical system for their overall operation.
Yes.
Helpful. And then I guess, Peter just as you think about kind of the revenue guide here. It does imply a slight sequential decline I assume most of that is transactional but love to get any sort of color on what youre seeing on the transactional side.
In April and May so far and then.
Is it right to assume mobile of bulk closer of the client transactional or.
The any reason why subscription revenue.
Sequentially. Thanks.
Okay.
Yes, thanks, Brent so.
Couple of things to keep in mind when thinking through the guidance. So.
The <unk> U.
You came in well ahead of our expectations.
I think specifically in terms of more active locations came onto the platform in Q1 than expected as well as higher upsell deployments than anticipated. So that both benefits Q1, but then leaves less incremental revenue coming on line than originally expected to then offset any potential headwinds in near term.
Near term order volumes.
We also benefited to some extent from the positive impact of stimulus payments had on consumer spending that's the dynamic that largely played out in Q1 and not carrying over into into Q2, and we've always the expected against some near term impact on transaction volumes due to the reopening starting this quarter.
And although it is early we have begun to see some signs of that but I think it's important to note that again, the the underlying trends of the business in terms of sales and deployment pipeline continue to be strong and I think thats evidenced by a 40% guide at the midpoint that we're really excited.
Yeah.
That's helpful. Thank you.
I'm showing no further questions at this time I would like to turn the conference back to Mr. NOLA glass for any closing remarks.
Thank you well. Thank you all for your time and for the thoughtful conversation today, we plan to keep executing on our mission far into the future. We're excited to continue the process of getting to know you all and building our long term relationship as all of those opportunity grows.
So until next time thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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