Q3 2021 Olo Inc Earnings Call
Existing brand locations without incremental sales and marketing costs and upsell new offerings to the brand itself rather than each individual location further drives our upsell success and related <unk> growth.
And I'm excited to provide two examples of the sales motion Bojangles' and Denny's.
Bojangles', a leading <unk> brand previously deployed the Oulu rails module and recently launched the low ordering module with a custom website and app.
<unk> adoption of multiple modules represents our ability to best meet the needs of the on demand consumer.
Longtime partner Denny's top family brand previously implemented all three of OLED core modules ordering dispatch and rails as tools to help unlock off premise sales and improve the customer experience through direct channels.
This quarter than he has expanded its adoption of OLED solutions by adding the <unk> network module network allows restaurant brands to take orders from non marketplace digital channels, such as Google food ordering which enables restaurants to fulfill orders directly through Google search results and maps hedges.
Network further enabled digital ordering for restaurants and drives additional transactional revenues for OLED.
This quarter. We also continued our success with virtual and delivery only concepts, enabling virtual dining concepts NASCAR refuel brands to quickly deploy their delivery only dining experience to their large group of followers Nash.
NASCAR refuel allows fans of the auto racing spectator sport to have the opportunity to enjoy the most iconic NASCAR dishes anytime of the year at home.
Although this partnership with NASCAR refuel and other virtual dining concepts brands, such as Mr. Beef Burger and <unk> kick slice gives restaurants, a complete and quickly deployable technology solution in order to maximize restaurant profits.
We believe that our open SaaS platform provides restaurant brands with a flexible technology stack by aligning our solutions with the needs of the restaurants, giving each restaurant brand the power to curate their optimal technology stack from our portfolio of solutions in conjunction with solutions from all those open ecosystem of over 100.
Technology partners.
As an example roll them up Tuckey chose a fast casual brands announced in September that it would add five new technology vendors to offer products and services to roll them up tuckey dose rapidly growing franchise base.
These partnerships, which included although bolster the fast growing brands digital presence <unk> believes that partnering with these vendors was important as the restaurant industry relies heavily on technology in order to provide the best quality of services and experiences for its customers and we couldnt agree.
Mark.
Restaurants are having to adapt to new and complex challenges and are using technology as a solution.
Although it's fully customizable technology stack and opened SaaS platform keeps restaurants, well equipped not only best serve their customers, but also to flexibly respond to industry trends, whether transitory such as labor shortages or permanent such as the on demand consumer.
We continue to invest to help our brands transitioned to digital as well as deal with transitory labor challenges.
Tools that address this are the <unk> switchboard module and the <unk> Expo module.
Switchboard is a solution that helps restaurant brands to manage phone ordering switchboard allow us call center agents to place orders through OLED dashboard, the switchboard interface seamlessly routes orders to the necessary locations to begin preparation.
Orders placed through switchboard arrive at the store the same way any order placed through other modules will be sent down to the store for pickup or delivery.
Switchboard call center functionality alleviates, SaaS shortages, while allowing restaurants to continue to take orders by phone.
Expo is a tablet based software solution to enhance the front of house workflow of store location using all those Pos integrated platform.
Expo reduces pain points associated with managing digital programs, allowing interoperability between front of house and back of house teams and consolidating orders regardless of how orders are placed and how they are handed off.
This allows restaurants to better address labor challenges as well as supply chain challenges almost 10000 restaurant locations already utilize expo.
Enabling these restaurants to utilize <unk> as a force multiplier and flexibly address temporary industry challenges.
These examples demonstrate our platform's ability to increase functionality improve store operations and ultimately address myriad business issues within the restaurant <unk>.
Just as our sophisticated on demand commerce platform enables brands to choose from a broad set of capabilities are open partner ecosystem of over 100 best of breed restaurant technology partners allows brands to fully customize their technology stack, whether directly through our platform or together with our partners.
<unk> is committed to operating as an open ecosystem with the freedom of technology choice for restaurants to better serve them and enable brands to better manage their enterprise.
We've created a two sided network consisting of 76000 restaurant locations and a partner ecosystem of over 100 restaurant technology partners. This creates a flywheel and which adding a new restaurant to our restaurant network benefits all of our partners and adding a new technology partner to our partner network.
That's all the restaurants.
And we continue to strengthen this ecosystem by expanding our partnership network.
This quarter, we expanded relationships with existing technology partners, Uber and a waiter, adding both partners to the low dispatch network.
Dispatch is a delivery as a service solution that allows restaurants to offer and expand delivery for orders generated via their own websites and apps through a network of more than two dozen delivery service providers or DSP.
With the expansion of dispatch of network of Dsp's restaurant brands on OLED network will have an expanded network of delivery partners more competitive pricing differentiated service hours and more driver redundancy increasing driver availability on the dispatch network.
This is imperative for restaurants as it allows them to satisfy growing customer demand for food delivery without the complications of managing their own drivers and open new revenue channels through a direct digital experience.
Finally, I am pleased to share an update in connection with our <unk> for good initiatives, we launched <unk> for good earlier this year and joined the pledge, 1% movement committing to donate 1% of our time equity and product to doing good as part of that we committed to donating 1% of all those shares.
Over 10 years through our independent donor advised fund managed by the Tides Foundation I'm thrilled to share that our reasonably the tides Foundation has granted $4 9 million in total from our donor advised fund to the following nine organizations.
Black Girls code.
Clean Air Task Force Atmos torch.
Feeding America food.
Food core.
Barrels who code.
Given kitchen.
So, let's empower employment initiative and natural resources Defense Council.
These grant recipients are organizations that align with our own low forward goods pillars, advancing all aspects of diversity equity and inclusion providing relief and support for the restaurant industry and frontline workers.
Ending childhood hunger and increasing access to food and protecting natural resources and reducing waste and emissions.
We expect to have an annual grant cycle going forward and I'm optimistic and enthusiastic about our ability to use <unk> as a platform for social impact and positive change for our communities.
Summarize I am extremely proud of our third quarter results and our ability to enable restaurants during this period.
As on premise transactions increase in the wake of restaurant reopening and restaurants struggled to staff their dining rooms, although we will continue to be a force multiplier for restaurants, enabling them to do more with less allowing technology to step in where possible and supporting restaurants to thrive and benefit.
From the restaurant industry's digital transformation.
And now I'd like to turn things over to Peter <unk>, Although CFO to share more details on all of those third quarter performance.
Peter.
Thanks, Noah today I'll review, our third quarter fiscal 2021 results in detail and provide guidance for the fourth quarter and full year fiscal 2021.
Total revenue in the third quarter was $37 4 million up 36% year over year platform revenue in the third quarter was $36 1 million up 38% year over year, primarily due to an increase in active locations coming onto the platform and further increases in <unk> due to continued multi product adoption.
<unk> partner adoption and increased transaction volumes.
In terms of key metrics, we ended the quarter with approximately 76000 active locations on the platform, a 26% increase year over year and a 3% increase sequentially as no. One mentioned this included deploying a number of new brands, such as CK and Daves Hot chicken amongst others.
<unk> for the third quarter with approximately $484, representing an 8% increase year over year and roughly flat quarter to quarter.
Year over year growth in <unk> was the result of further increases in multi product and multi partner adoption and increased transaction volumes spill.
Specific to transaction volumes, we were pleased with the continued durability of digital orders in the third quarter. Despite seasonality effects. We typically see in the third quarter continued return to in person dining and transitory labor challenges digital ordering prove durable with volumes exceeding expectations.
Lastly, net revenue retention remains strong in excess of 120% for the third quarter as we successfully up sold to existing clients such as Bojangles in Denny's, which I mentioned earlier.
We have observed strong upsell throughout this year, we have also experienced new customers subscribing to more than one product from the onset of their relationship with Volvo.
While this drives higher armco it leaves less room for net revenue retention expansion that said, we anticipate strong gross retention continued product development and increased transaction volumes factor supporting strong net revenue retention over the long term.
For the remainder of the financial metrics disclosed unless otherwise noted I will be referencing non-GAAP financial measures.
Gross profit for the third quarter was $30 2 million, representing a gross margin of 81% compared to a gross margin of 83% a year ago Platt.
Platform gross margin for the third quarter was 84%. This compares to platform gross margin of 87% a year ago.
As expected the year over year decrease in gross margin was driven by an increase in head count and associated compensation cost to support the rapid growth in transaction volumes and active locations added to the platform.
Sales and marketing expense for the third quarter was $4 2 million or 11% of total revenue. This compares to $1 9 million and 7% a year ago.
As expected on a dollar basis increases in sales and marketing spend were driven by continued expansion of our sales marketing and business development teams in an effort to continue to add more locations to the platform increased upsell and retention efforts and expand our partnership ecosystem.
Research and development expense for the third quarter was $11 9 million or 32% of total revenue. This compares to $7 5 million in 2007% a year ago, reflecting our continued commitment to investing in innovative solutions to support the rapidly evolving needs of our customers.
General and administrative expense for the third quarter was $9 million.
For 24% of total revenue.
This compares to $4 8 million and 17% a year ago as.
As expected on a dollar basis increases were primarily tied to increased costs and head count associated with operating as a public company.
Operating income for the third quarter was $5 1 million compared to $8 8 million a year ago.
Net income in the third quarter was $5 million or <unk> <unk> per share based on approximately $185 1 million fully diluted weighted average shares outstanding.
Turning our attention to the balance sheet and cash flow statement, our cash cash equivalents and marketable securities balance was $597 7 million as of September 32021.
This total does not reflect the $77 million of cash paid in conjunction with the acquisition of wisely, which closed on November 4th.
Regarding cash flows operating cash flow was $10 7 million compared to $4 1 million a year ago free cash flow was $10 2 million compared to $3 5 million a year ago.
I'll wrap up by providing our guidance for the fourth quarter and full year 2021.
For the fourth quarter, we expect revenue in the range of $38 8 million to $39 3 million and non-GAAP operating income in the range of $2 8 million to $3 2 million.
For the fiscal year 2021, we expect revenue in the range of $148 2 million to $148 7 million and non-GAAP operating income in the range of $19 8 million to $20 2 million.
I would like to highlight a few things to keep in mind about our outlook.
We closed our acquisition of wisely on November 4th and therefore have included contributions of $1 million of revenue and $800000 of non-GAAP operating loss in our guidance numbers for the quarter.
Secondly, we remain prudent in our approach to forecasting giving evolving industry dynamics.
Specifically anticipated factors such as the residual impacts from Covid, 19, and seasonality effects and transitory impacts due to continued industry labor challenges.
That said the underlying fundamentals of the business a strong sales and deployment pipeline durability of digital ordering growth in the partnership ecosystem and continued product innovation has us extremely excited for the path ahead.
To summarize we are extremely proud of our financial performance this quarter, which we believe reflects our continued ability to execute on our vision and the opportunity ahead, and we're even more excited about our position the market opportunity ahead of us and the impact we can have in helping our restaurants thrive while navigating the industry has evolved.
<unk> landscape.
That said I will turn things back over to the operator to begin Q&A operator.
If you would like to ask a question. Please press star one on your console keypad now every placed into the queue in order to rethink.
As we prepare to ask a question what Comtech. Once again, if you have a question. Please press star one pad now.
Our first question comes from Brad Reback from Stifel. Please state your question.
Great. Thanks very much.
Maybe for Peter starting off <unk> flattened.
Over quarter versus being down last quarter should we take this as sort of a point of stability, especially with likely being added and the opportunity for growth to reaccelerate there.
Hey, Brad Thanks for the question, Yes, I think that.
Thats a great takeaway.
We were really pleased with our improved performance this past quarter.
In line with our expectations, but in fact exceeded our expectations I think Judah.
The durability of digital ordering that we covered during our prepared remarks.
Obviously contributed to the outperformance on the quarter. So as we look ahead.
We see more stability and growth in <unk>.
As a result of durability of digital ordering as well as.
The wisely suite of products that we have now to to.
To sell into our existing customer base.
That's great and then I'm not sure if for you Peter or NOA, but as we think about the last six quarters, it's been a bit of a wild ride as we look forward what should we think of as the durable growth rate of the business.
Yes, I can take that one Brad.
This is Peter again.
Yes, as we look ahead.
We see a lot of opportunity for growth in a lot of different levers to pull to get there I think in the most simplest form.
Continuing to add more active locations to the platform we've shared over previous quarters the momentum.
We've.
Started to gain in terms of the <unk> segment again that is a segment of the industry that really excites us from a location standpoint, as well as the amount of transactions that are processed.
Within that segment of the restaurant industry, which obviously bodes well for our transactional SaaS model in terms of <unk>.
A lot of levers to pull there in terms of future multi product adoption multi partner adoption and growth in transaction volumes.
Date, or this past quarter. According to NPD digital transactions accounted for about 16% of overall industry transaction. So.
A lot of opportunity for growth ahead in digital ordering.
And we're excited about that path forward.
Great. Thanks, very much congratulations.
Our next question comes from Brent Breslin from Piper Sandler. Please state your question.
Hi, This is Clarke Jeffries on for Brent first question, I think discussions and supplier supply chain issues have really permitted to areas of the economy. I think both are anticipated and I. Appreciate the color on the product behavior changes that restaurants are makings responded labor shortages I was wondering if you could just.
Level set for us what youre expecting in terms of seasonal volume for the fourth quarter and if theres any kind of concern on inventory.
Or if they feel more insulated at this point.
Yes, I can take that it's Peter here. So in terms of order volumes, what we're seeing.
Throughout the first few weeks of the quarter is really aligned with what we shared in our prepared remarks, which is continued durability and digital ordering the one thing I would call out is which is which is typical for November and December months is just the seasonality impact given.
Given the holiday.
The holiday period, so as we think about Q4 give you ordering trends.
Those are all factors that have.
Been reflected in the guidance that we shared on your last point there in terms of.
Some of the supply chain issues don't necessarily see that as a as a dynamic playing out or impacting our business today, but certainly something we're keeping an eye on.
Got it and then follow up question.
And marketing growth continue to expand her accelerating year over year I. Appreciate the commentary there fair remarks, but can you just remind us where is the fastest growing incremental spend today in and what are the top go to market initiatives as we enter 2002.
Yes so.
Similar to what we shared I think in previous quarters in terms of how we're thinking about scaling the sales and marketing organization I think our focus continues to be on building out the team to address larger portions of the enterprise segment of the market. We've had a lot of success to date and what we define as the emerging enterprise segment of the market.
So continuing to broaden the team there too.
Drive more success in that in that segment and then as you think about all the different <unk> enhancing levers that we have virtual brands dispatch rails and now the wisely suite of products. There's a lot of opportunity to continue to expand within our customer base. So again growing the team to make sure that we have the right <unk>.
Balance between team size and opportunity.
That's really how we're thinking about investments in sales and marketing in the near term.
I appreciate the color.
Our next question comes from Matt Hedberg from RBC capital. Please state your question.
Great. Thanks, a lot for the questions guys.
You've had a lot of success. This year I think you've added about 12000 locations through the first nine months of the year and it looks like.
Implied in your Q4 guidance as a strong platform as well.
I guess I'm wondering can you as you sit here today can you talk about.
Sort of the quality of the new business pipeline versus maybe were a year ago, obviously that a lot of success selling remotely to over the past two years.
The pipeline could actually see maybe incremental benefit from from the salespeople maybe started to travel a bit more.
Yes, I can actually take that one Matt in terms of.
Sort of.
Location trends.
I think I would start answering that question by saying from a high level I don't think we've ever been more excited about our sales and deployment pipeline really on two fronts.
In terms of new location adds as well as the various upsell opportunities that.
Have continued to to emerge and I think now with the addition of the wisely suite of products.
Obviously, a lot of excitement there as well so I don't think the.
The return to in person selling.
As necessarily.
Determinant of.
Incremental sales activity beyond our current estimate the team has done a wonderful job.
Selling remotely deploying remotely and frankly building.
Great relationships with our with our new and existing customers. So don't anticipate.
A material change as the.
Sort of in person sales.
Process reignite.
<unk> has done a great job to date.
That's great and then I guess.
EW.
I don't think we heard.
Following the prepared remarks mentioned of auto pay this quarter I know, we've been talking about a little bit the last couple of quarters.
Before you guys went public and any thoughts on where we're sitting there.
The district curious how the status update there.
Hey, Matt This is Noah so yes still still early on track with what we shared with you earlier, we're encouraged by what we're seeing with the brands and the locations that are alive on overpaid in our pilot.
Hardened by the excitement from the broader restaurant brand base and we have conviction that this is going to be another great contributor to <unk>, given our track record with finding product market fit and success in new product module sell through.
One update to share we did hire tore open at all.
As vice President and general manager of payments within the quarter and towards previous experience includes Mastercard is.
His most recent posting an arby's before that.
Has the oversight of the developments and the delivery of OLED PE, but also broader accountability to all of those those payment products and relationships. So we're excited for him to bring his expertise to <unk> and table okay.
Thanks that was super helpful.
Our next question comes from Terry Tillman from <unk> Securities. Please state your question.
Hey, guys. This is <unk> on for Terry Thanks for taking my questions and congrats on the quarter. So to start as we can get back to normality and gets back to work what are your thoughts on how volumes could trend from existing levels I'm talking about things catering office lunches et cetera could that move the needle in any way to maybe help maintain growth metallic.
Yes, so I can take that one this is Peter.
Yes, Great question I think R. R.
Fox around quarter volume trends call. It over the next few quarters Hasnt really changed much from what we thought.
Or anticipated.
Earlier this year, we oes.
Thought that digital orders.
As in person dining increased as vaccinations increased in Q2 and Q3 that.
They would be impacted by.
By those developments and that is that has been the case.
What's been great though is that.
Digital ordering has.
Really exceeded our expectations of the durability of digital ordering and I think that is in large part.
Why.
We've experienced the revenue outperformance over the past few quarters.
As we look ahead.
We continue to believe that.
There is growth ahead for digital ordering I think how that plays out in terms of revenue I think one thing I would keep in mind is that.
Through the first quarter of next year, we are still.
Lapping difficult comps are challenging comps.
Given that if you think back to earlier this year. The first quarter of this year. This was pre vaccination peer.
Periods. So I think as we kind of navigate through that period at that point, you'll start to see more acceleration from a from a revenue growth standpoint in order volume standpoint.
Okay, Great really helpful. And then just as a follow up on your partners. So with door Dash could you maybe share how much was driven in the quarter by that partner and then also could you maybe share a little bit more on the Uber eats and dispatch announcement, maybe the implications of alcohol delivery. Thanks guys.
Yes, I think in terms of the revenue contribution from <unk>.
Jordache in particular, I think we disclosed that in the Q. So I would probably point your attention there in terms of.
Some of the more recent.
Announcements last quarter Grubhub utilizing the <unk> platform.
And more recently Uber and waiter utilizing the dispatch platform.
Still early I think that we are encouraged by.
The early interest of our customers in terms of enabling those partnerships and getting more locations enabled with grubhub rails and getting more locations enabled with Uber and wait around the dispatch side I think how that plays out over time again as increased transaction volumes by sourcing more.
<unk> on the rail side as well as increasing driver availability on the dispatch side. So.
So more to come on that on that topic, but really encouraged with with some of the early signs.
Thank you guys.
Our next question comes from Bhavan Suri from William Blair. Please state your question.
We did a nice job and thanks for taking my question I guess I just wanted to touch a little bit on the idea of urgency and I'd love to get some color on sort of how has hazard as restaurant concept, obviously changed if at all to add ordering of dispatch of rails modules as the pandemic lanes and so has that had any impact on bookings.
Hey, Bill this is Noah so I think what we're seeing is that the restaurant industry and we've seen that's really over all those history of the company. The industry is going through this digital transformation to the extent.
There was certainly.
A heightened urgency amidst the challenges of COVID-19 for restaurants to go digital we're seeing other sets of challenges right now, causing another sense of urgency another moment of birds and really that's driven by labor and the desire to increase productivity at the store level.
And we're seeing this.
It really play out in every segment, but right now we still have restaurants operating 6% below pre pandemic levels in terms of labor with some positive gains in the month of October.
But this is leading to restaurants wanting to do more with the labor that they do have and meet the needs of the consumer and that's where OLED solution whether it's.
Rail's, helping them avoid having to look at a series of tablets, whether its dispatch outsourcing delivery switch for the outsourcing phone ordering or just in general self service ordering on the App on our web site QR code in restaurants kiosks and restaurants. All of these are ways in which we are serving.
As a force multiplier for our restaurants and certainly the desire to increase productivity is heightened at this moment and something that restaurants are always looking to do to best meet the needs of the customer and do so in the most profitable manner possible.
Yes.
I'll make a ton of sense of the labor shortage really cheap driver I guess, especially concerning remind briefly.
You saw Bento box acquired by Pfizer.
I guess hasnt been any change in competitive environment.
Has there been any indication that ecommerce players focus more downmarket, whether it's China et cetera to try to move up market. So just some color on what youre seeing out there from a competitive perspective, especially given some of the acquisitions. Thanks.
Yes, I wouldn't characterize any of the activity that we've seen as competitive activity. There certainly there's certainly a lot of activity with regard to restaurant technology and deals and the restaurant technology space, primarily that activity has been in there.
The SMB segment I would characterize Bento box is really focused on the SMB space.
You mentioned Ciao now we historically have had a great respect for <unk> and vice versa, and not a lot of overlap we're focused on the enterprise space in the emerging enterprise space, which we define against the $5 to 100 unit restaurant brands that have that ambition of scale that would be the next great enterprises of tomorrow.
Churn out others really focus on the smaller SMB players that don't fit that category.
So we haven't seen any change in the competitive dynamic and say what is true.
Or more like.
The first scalar and the enterprise space getting up to the milestone of 500 restaurant brands now exclusively on the older platform 76000 restaurant locations and building up the partner ecosystem on the other side to have this two sided network that we love so much.
This is something that is self reinforcing and helps us to scale, even faster and as we look at new segments. We mentioned some of the ads and <unk> brands that segment is one that we've talked about as the largest fall locations the largest by number of transactions that we have.
Now have bojangles', Carl's junior Checkers, Culver's dairy Queen Jack in the box Crystal Panda Express subway Whataburger, and others were starting to really prove ourselves.
As the best partner for the <unk> segment to come online and go digital and that is a big segment of growth for us and one that is enterprising really by definition.
Gotcha Gotcha, thanks for the color and thanks for the kind of very appreciate it nice job guys. Thank you.
Thanks.
Our next question comes from Sterling Auty from Jpmorgan. Please state your question.
Hi, This is lets just on for Sterling.
Thanks for taking my question.
Can you give me fellows on like they go onto.
The store dining is that pushing out the implementation volumes and how do you see that playing out in next quarter.
We continue to integrate.
Yes, so specific too.
Some of the trends we're seeing.
With regard to in person dining I think you're aware, that's really impacting the business.
Albeit to a lesser extent than we had initially anticipated is within digital ordering.
And.
While while that has continued to evolve throughout the year.
We have.
A variety of products and capabilities to also meet that need.
No I had touched on earlier the ability to power table side ordering such that consumers can.
Dine in transact at the table via QR code ordering and have the <unk>.
No.
Run out to the to the table kiosk ordering these are all applications of yolo platform to accommodate.
The return to in person dining so.
In terms of how that trend is impacting implementations. We're not we're not seeing that really like I said, where we are where we're seeing that more of a dynamic is just an overall digital ordering trends.
Okay.
And then.
On the platform revenue like.
And somehow the subscription transaction revenue makes us newsy during 2015.
But <unk> just been down the number for that.
Okay.
Yes, I believe this quarter specific to platform revenue.
Subscription revenue accounted for about 47% of the mix with transaction accounting for about 53%, which I believe is consistent with what we achieved in the second quarter.
Thanks.
Douglas.
Yep.
At that probably have no further questions I will turn it back over to Noah.
Okay, well. Thank you all for joining US again today as I Hope you can hear from the content of our prepared remarks or responses to your questions are general tone, we've never been more excited about our position or more or opportunity than we are today I want to say thank you to team although in for another great quarter, we have miles to go.
So before we sleep.
Until next time.
This concludes today's conference call. Thank you for attending.
The House has ended this call goodbye.