Q4 2022 Olo Inc Earnings Call
And CEO and Peter <unk> CFO .
During our call today, some of our discussions and responses to your questions may contain forward looking statements, which represent our beliefs and assumptions.
As of the date such statements are made.
These forward looking statements include but are not limited to statements regarding our expectations of our business future financial results, including gross margin operating margin operating income and operating expense leverage.
<unk> addressable market and growth opportunity, including with respect to revenue growth and the allocation of such incremental revenue growth.
<unk> growth and growth in locations.
Guidance and strategy.
Restaurant order processing trends ability to increased usage of our platform, including by adding new locations and upsell, including with respect to our opportunity to expand and our growth in average revenue per unit and the durability of customer adoption of multiple modules.
Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in our forward looking statements and such risks are described in our earnings press release and our risk factors included in our SEC filings, including our annual report on Form 10-K.
That will be filed following this call and our other SEC filings.
You should not rely on our forward looking statements as predictions of future events.
We undertake no obligation to update any forward looking statements made during this call to reflect events or circumstances after today.
Also during this call we will present, both GAAP and non-GAAP financial measures reckon.
Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued a short while ago.
This earnings release is available on the Investor Relations page of our web site and is included as an exhibit in the form 8-K furnished to the SEC.
Finally in terms of our prepared remarks or in response to your questions. We may offer incremental metrics.
Please be advised that this additional detail maybe onetime in nature, and we may or may not provide an update in the future on these metrics.
I encourage you to visit our Investor Relations website at investors <unk> Dot com to access our earnings release Investor presentation periodic SEC reports a.
Webcast replay of today's call or to learn more about <unk>.
With that let me turn the call over to Noah.
Thank you Stephanie hi, everyone. Thank you for spending time with US today in 2022, although increasingly became the platform that restaurant brands rely on us to make their digital priorities for reality with the older platform supporting approximately 87000 restaurants and more than 600 brands connecting them to more than 300.
Technology partners and more than 85 million guests, who transacted over the <unk> platform and processing on average more than 2 million orders per day.
In 2022, we grew annual revenues by 24% expanded <unk> by 8% to just under $2200 per year surpassed.
Surpassed $23 billion and gross merchandise volume for the year and processed more than $250 million and gross payment volume an older pays first year of general availability on the platform.
Although continued our post IPO transformation in 2022.
<unk> had a marquee inaugural year, we broadened our platform's capabilities through the <unk> acquisition, we brought on Chief revenue Officer, Diego, Panama to elevate our world class go to market team.
And we introduced our refreshed mission to serve as the engine of hospitality.
Consistent with this mission, although is committed to helping restaurants use technology to provide personalized guest experiences across all touch points, while improving operational efficiency.
This will enable brands to elevate the guest experience drive incremental and repeatable sales.
And improve profitability.
We believe the future of the restaurant industry is guest centric empowered by digital solutions and that <unk> is best positioned to realize this vision on behalf of our customers and their guests.
Now more than ever restaurants recognize the need to invest in technology as a means to better serve their guests and operate their businesses more effectively our hard work in 2020 to our network of brand partners and guests and our comprehensive product suite, all enable <unk> to meet the needs of our customers.
And we believe we've set the table for great things to come in 2023 and beyond.
In the fourth quarter, although continued to see success with both new and existing customers across all three product suites that enable restaurants to increase the number of digital orders better engage their guests by providing best in class experiences and tap into digital native pay solution tailored towards the needs of restaurant.
Operators.
This quarter, we continued to expand our relationship with existing customers Bravo Brio restaurant group lucrative depo eggs up grill, Lucille smokehouse, barbecue TGI Fridays and virtual dining concepts deployed all OPEC and T. J S. Gourmet deli deployed <unk> as well as our engage solution.
Virtual dining concept the parents of Mr beef Burger and other virtual brand adopted <unk> at all of its brands, which include more than 3000 virtual restaurants operating in more than 2000 restaurant kitchens.
This also included Lenke box kitchen, a family focused virtual brand launched by virtual dining concepts, which adopted our ordering dispatch rails and <unk> pay modules.
As part of the deployment, although also completed a Pos integration project with Chucky cheese.
This integration allows Chuck E cheese to make Lenke box available in more than 450 locations more efficiently leverage its operations as well as increase revenue per square foot.
And for those of US with young children, Yes. The virtual concept is a tie in with Lenke box, our Youtube channel with millions of subscribers focused on entertaining children.
TGI Friday's, a casual dining restaurant with more than 300 locations in the U S continues to invest in its digital presence.
Since launching <unk> TGI Fridays has seen positive growth in authorization rates by more than 5% and our data suggests an overall drop in fraud rates of more than 1%.
In 2023, TGI Fridays is focused on bolstering its tech stack, improving its customer and launching a new loyalty structure to enhance its current guest experience with OLED driving ordering and payments across these properties.
All of these customers have added <unk> to their existing solution and this quarter. We also welcomed captain d's, a fast casual seafood restaurants with more than 550 locations cap.
Captain D's deployed our ordering dispatch rail network and <unk> pay module. This deployment represents our largest overpay customer to date by locations and continued success in multi module deployment to new customers. It also reflects our ability to deploy it within highly franchised enterprise <unk>.
<unk>.
<unk> continues to perform across all key metrics fraud prevention and authorization rates are higher than we initially expected and higher than traditional methods.
From an adoption perspective, although pay has been broadly deployed across both enterprise and emerging enterprise across new and existing customers and across service models from names in casual dining quick service to virtual brands.
And as our fastest of 14 module is to get to $1 million of monthly recurring revenue, although pay is becoming ubiquitous and we're very excited about the products future.
This quarter, we also welcomed new customers, such as Kroger and tender shack more on Kroger in a moment.
Tender Shack Blum brands virtual brand with more than 800 locations launched our rail solution this quarter <unk>.
Previously tender shack integrated directly with only one of the top three marketplaces.
By adopting our rail solution the virtual brand can now integrate with all major marketplaces and easily synchronize menus pricing location data and item availability in order to streamline operations through a single integration.
As I typically provide an update on product enhancements on this call I am excited to announce that we've expanded borderlands identity availability to all <unk> customers, including those with custom ordering websites and apps, enabling more brands access to increase revenue potential and actionable guest data.
<unk> capabilities simplify the checkout process for guests by eliminating the need to create or remember a password or manually enter credit card information at every purchase in.
In addition to helping restaurants meaningfully increase basket conversion guest retention and visit frequency odorless enhances the guest experience and the Anonymised this transaction by linking them to guest profiles.
Enhanced QR code ordering furthering our on premise dining offerings.
And integrated geolocation partner notification, which automate a rival notification for brands utilizing our expo interface, eliminating the need for multiple tablets and ensuring food is prepared and hand, it off efficiently and on time, resulting in fresh food forget.
While we typically broadcast our product release events. This quarter, we've decided to present these enhancements lives at beyond for our annual customer conference, which will be held in Napa, California next week for.
For those not in attendance you can view demos and further details of our winter product release events at <unk> Dot Com Slash quarterly dash release.
Hello is constantly innovating and enhancing our platform ensuring all restaurant locations are always able to use the latest technology to their advantage, we continually release updates to products and enable new use cases that didn't exist before and our customers look forward to our quarterly product update where.
We demonstrate these improvements as well as the extensibility of the <unk> platform.
In prior quarters, I've discussed, how we leverage our ordering module to enable virtual brands for restaurants.
And more recently, our products have moved into new verticals, such as convenience stores in.
In the fourth quarter, we were able to develop a new product use case with Expo our tablet based software solution. That's part of the ordering module focused on enhancing the preparation and handoff workflow. This time for the grocery industry.
Kroger deployed approximately 600 locations, bringing sushi and floral delivery to guests nationwide.
This is just one example of how the company is deploying its accelerating with digital strategy to position Kroger for long term sustainable growth.
For <unk>, enabling guests to purchase prepared foods and flowers for multi unit grocery stores represents an emerging vertical expanding OLED total addressable location count by almost 30000 locations representing more than $37 billion in annual foodservice sales.
Before I speak about our corporate strategy and our outlook for 2023, I'd like to recognize team although.
Although earned best customer data platform from digit day in recognition of our platform's ability to deliver personalized marketing messages better guest experiences across channels in restaurants, and digital and better understand guest preferences I.
I believe this demonstrates that our strategic investments in guest data are already paying off.
As we look ahead to the new year I'm energized to build on our strong foundation, we have a robust product portfolio were further empowering our go to market organization, we remain profitable on a non-GAAP basis and are growing revenue at a strong rate.
As I mentioned earlier, we believe that the future of the restaurant industry is guest centric it is.
For restaurants to build better relationships with their guests in order to increase guest lifetime value retain existing guests attract new guests to more easily and drive revenue and profit.
And part of the reason <unk> is well positioned is that everything we do is tied back to our knowledge of the guest.
Co product of the secular shift from analog to digital is the <unk> of transactional data, enabling the older platforms tie every transaction back to a guest profile.
This enables more personalized experiences going forward and gives the brand a fresh understanding of guest lifetime value the new Northstar metric for running our restaurants.
This guest Centricity is what <unk> is uniquely positioned to do and what traditional players are unable to view and have not done as a result.
Although his more than a commerce platform.
<unk> is a data platform a two sided network and conduit between 87000 restaurants and 85 million guests.
And this year, we will continue to be laser focused on our mission and key investments in order to drive long term growth and value to restaurant brands and shareholders alike.
These investments will be directed towards payments on premise experiences guest engagement and continuing to empower our go to market organization.
Historically the older platform has predominantly focused on pickup and delivery categories represent roughly 29% and 8% of overall restaurant transactions respectively.
Over the past year, we've moved into drive thru and on premise categories that represent roughly 38% and 24% of overall restaurant transactions, respectively more than doubling our serviceable footprint.
Currently nearly 100% of drive thru and on premise transactions, our analog and as <unk> moves into both on and off premise is a focus we have a great opportunity for OLED to unlock a path to digitize, 100% of transactions as restaurant book to better serve guests and do more with less.
In order to capitalize on this opportunity we expect to make additional investments in payments and on premise experiences, which will enable us to drive operational efficiencies for our customers increased guest satisfaction as well as enable <unk> to capture more transactions and drive revenue growth.
And as an extension of this we expect to invest in our engagement solutions to enable hospitality that makes every guests feel like a regular.
We will also invest in capacity and yield management to create a more integrated technology experience for our customers.
I spoke about this briefly on the prior call to remind you expanding these offerings vertically throughout the restaurant value chain will capture and leverage crucial data from both on and off premise transactions, increasing the efficiency of the kitchen and improving the guest experience.
This allows <unk> to be the brains of the restaurant operation the orchestration layer of production, which further solidifies the mission criticality of the older platform in short our platform will provide a fully integrated technology experience with capacity and yield management capabilities that will enable restaurants to use.
One vendor for all of their needs focused on enabling the restaurant kitchen to become as productive as possible and as profitable as possible.
And as we build out these capabilities, we expect to further invest in and empower our sales and marketing organization, while maintaining sales efficiency.
All of these investments will propel <unk> into the great opportunity ahead.
One in which we're uniquely positioned to increase restaurant's digital penetration from 15% to 100%.
Leading restaurant brands know that digital capabilities will give them the ability to do more with less intimately know and better serve their guests and operate as one unified business.
I'm more confident than ever that we're on the right path and I'll be delighted to share our successes along the way.
And with that I'll hand, it over to Peter to discuss more detailed results Peter.
Thanks, Noah today, I'll review, our fourth quarter results as well as provide guidance for the first quarter and the full year 2023.
In the fourth quarter total revenue was $49 8 million, an increase of 25% year over year.
Platform revenue in the fourth quarter was $48 9 million, an increase of 26% year over year.
And <unk> continues to exceed our expectations contributing just over $3 million in revenue for the quarter and surpassing $6 million in total revenue for the year.
In terms of key metrics, our <unk> for the fourth quarter was approximately $571.
Representing a 13% increase year over year, and a 2% increase sequentially.
<unk> growth in <unk> was driven by further expansion within our existing customer base, including continued adoption of our engage and pay suite.
In terms of active locations, we ended the quarter with approximately 87000 active locations on the platform.
10% increase year over year, and a 4% increase sequentially.
And lastly, net revenue retention was approximately 108% up 100 basis points sequentially.
For the remainder of the financial metrics disclosed unless otherwise noted I will be referencing non-GAAP financial measures.
Gross profit in the fourth quarter was $37 $3 million.
This compares to $32 $6 million a year ago.
The year over year increase in gross profit was driven by continued growth in revenue.
Partially offset by increased compensation cost to support new locations coming onto the platform and to a lesser extent processing costs associated with all okay.
Sales and marketing expense for the fourth quarter was $6 9 million.
Or 14% of total revenue this compares to $4 6 million and 11% a year ago.
Over the past year, we have invested additional resources in our go to market team to fully capitalize on the growth opportunity from our significantly expanded product portfolio.
Research and development expense for the fourth quarter was $15 8 million or 32% of total revenue compared to $12 8 million or 32% of total revenue a year ago.
On a dollar basis, we increased investments in R&D in order to unlock future growth opportunities related to overpay borderlands capabilities and on premise ordering.
General and administrative expense for the fourth quarter was $11 $5 million or 23% of total revenue.
This compares to $10 million and 25% a year ago the.
The year over year percentage decrease represents continued optimization of expenses as our organization continues to scale.
Operating income in the fourth quarter was $3 1 million compared to $5 $2 million a year ago.
Net income in the fourth quarter was $5 6 million or <unk> <unk> per share based on approximately 180 million fully diluted weighted average shares outstanding.
Turning our attention to the balance sheet and cash flow statement.
Our cash cash equivalents and short and long term investments totaled $451 2 million as of December 31, 2022.
Pursuant to the share repurchase program, which we announced in September 2022 in the fourth quarter, we repurchased two 7 million shares for a total of approximately $21 million.
Regarding cash flows net cash used in operating activities was roughly zero in the quarter as compared to $10 million a year ago.
Free cash flow was negative $1 6 million.
Compared to negative $10 6 million a year ago.
I'll wrap up by providing our guidance for the first quarter and full year 2023.
For the first quarter of 2023, we expect revenue in the range of $55 million and $51 million and.
non-GAAP operating income in the range of 600000 and $1 million.
For the fiscal year 2023, we expect revenue in the range of $213 million and $215 million and non-GAAP operating income in the range of 11 $4 million and $30 million.
When preparing our financial projections for 2023, we took a prudent approach while the restaurant industry has seen some recent improvement cost pressure and labor and digital ordering has remained durable our approach was to balance these favorable trends and desired long term investment against the backdrop of ongoing macroeconomic.
Cannot make uncertainty.
From a revenue perspective, a few things to call out.
First our guidance assumes approximately two thirds of incremental revenue growth will be driven by existing projects. Currently in deployment with one third of incremental revenue growth driven by in your bookings and deployment. This mix has historically had a larger weighting to EMEA bookings and by emphasizing a largest.
Share of revenue contribution from existing projects and deployment. We believe this to be a more cautious approach to planning for the year ahead.
Secondly, given our visibility into projects currently in deployment and a healthy sales pipeline, we expect revenue growth to reaccelerate in the second half of 2023, driven primarily by <unk> expansion.
We ended 2023 with customers on average utilizing three modules per location and therefore have a great runway for growth to expand across our existing 14 product modules.
And lastly, given Ola pace continued momentum we are estimating revenue contribution in the mid to high teen millions for the year.
As it relates to location as a reminder, and in line with what we've discussed in prior quarters, approximately 12500 subway locations transitioned from the platform in late Q4 of 2022 and will no longer be included an active location total in the first quarter of this year.
For the full year 2023, excluding the impact from subway. We are modeling 6000 location adds for the year.
In terms of gross margin, we expect a couple of hundred basis points decline year over year due to older pace growing mix of overall revenue.
This is an expected part of our long term plan and reflects the strong early adoption of <unk> and its strategic role within all those mission critical Commerce platform. We believe <unk> will be a fast growing part of our business for years to come and will be accretive to our revenue growth and profitability.
Moving on to operating expenses. This year, we intend to continue our investments in sales and marketing to align with the rapid expansion of our product portfolio.
18 months ago, we had roughly a third of the product modules we have today.
And we are rebalancing the size and skill set of our sales and marketing organization in order to effectively seize the opportunity ahead.
While further investment in sales and marketing as needed we plan to retain our strong sales efficiency.
Additionally, as a reminder, our annual user conference beyond four will occur in Q1, this year, which will result in higher marketing expenses of approximately $1 5 million in the first quarter.
In terms of research and development, we anticipate increased leverage as the year progresses and on a full year basis in.
In terms of general and administrative expense.
We anticipate increased leverage on a full year basis as we continue to scale the business.
All said, we expect our combined revenue and expense target to yield a modest improvement in operating margin for the year.
Philosophically, we have always been focused on balanced growth and efficient investment in the business. We believe that has served the business well over time and it is how we are approaching 2023, our investment plan. This year. It takes into account the rising cost of capital and the macro environment, which is reflected in.
The opex leverage we expect to gain in 2023.
With that I'd now like to turn it over to the operator to begin the Q&A session operator.
Thank you and at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll.
Four questions.
Our first question comes from the line of Gabriela Borges with Goldman Sachs. Please proceed with your question.
Hey, good afternoon. Thank you.
Peter.
Finally, our macro economy.
Slide four.
Costing on the <unk> I E.
Are you seeing signs of a slowdown in that.
I'm kind of the personal lines.
Deal closure of the deal delays.
One I understand.
I'm quite growth and 1% to 20 <unk> relative to the quarter that you just reported.
Yes, I can take that this is Peter thanks for the question so.
One of the things we talked about in the second half of last year was a dynamic in which both sales cycles and deployment cycles were elongated and part of the reason for that.
Was that.
Some of the some of the things that the industry was working through in the form of.
Sure.
Labor constraints, and increasing commodity cost et cetera that really cause them too.
Turn their focus to <unk>.
Dealing with those with those pressing issues, we have seen some improvement within the industry with respect to those dynamics so unemployment.
Proving commodity costs, improving et cetera.
But when we thought about our plan for the year ahead, we wanted to put forth a plan that we felt was.
More prudent despite maybe some of the positive signs we're seeing in the end market.
So for.
For both <unk> and active location counts for next year that was the lens from which we.
Built the plan and what Youre seeing in the first quarter is really the outcome of some of the elongated.
Appointment in sales cycles that we talked about late last year and then in the back half of the year, what Youre seeing is a reacceleration of growth as the things that we did book begin to deploy it.
Okay that makes sense.
With me on the guidance.
Some margin volatility.
Comments on balancing growth and profitability, so with the forecast that you're giving for revenue.
If you take a framework, we're looking at combined revenue growth and profitability of some kind of 140 <unk>.
It looks like the combined.
Our growth and profitability as many background and Netherlands based on your revenue forecast for this year.
I would have expected just getting more margin what's pressuring the.
And then just a little more detail how did you think about leverage given all the comments you just made on forecast for revenue.
Yeah.
Yeah. So I think we've done a good job in terms of expanding margins.
The bottom line given the commentary that we shared from a gross margin perspective, so as all of pay becomes a larger portion of the revenue mix that will have an impact on gross margins and what we've done.
This year is to balance that dynamic.
By increasing leverage in R&D and G&A.
And having some offset in sales and marketing knowing that that's an area that we want to invest in given the expansion of the product portfolio and the opportunity ahead. So I think we've done a pretty good job in terms of being able to expand.
Operating margins despite.
Margins declining in the near term.
I'll ask one more if I may.
Tough question.
<unk> become more AI automation and some of.
The ways that customers interact and put their products would love to get an update there.
Yeah.
Okay.
Well thanks for the question Gabriel.
I think that there is clearly a larger digital transformation that is happening in the industry and what we've been witnessing for 17 five years now and part of that certainly in recent months has been a focus around automation and AI specifically.
I think our perspective is all of this digital transformation inclusive of artificial intelligence within restaurants is a great thing if it can make the operator experience better it can make the operation more profitable.
And at the same time it can up level. The guest experience. It can make the guest feel greater hospitality not less hospitality and so thats, how we sort of think about areas, where we can apply automation and digitization in our business how can we do things like <unk>.
Yield management and capacity management in the kitchen to make the kitchen more productive and to better set expectations of when orders will be ready based on AI and machine learning.
That the guest is coming in and getting their food fresh and ready or is that a delivery driver is coming in and getting the food fresh and ready.
The idea of using that automation, but not sort of throwing the baby out with the bathwater and losing some of the warmth and hospitality that guests love about restaurants, I think put together, we see the opportunity for all of this digital transformation to drive greater hospitality not less.
I appreciate the detail.
Okay.
Our next question comes from the line of Clarke Jeffries with Piper Sandler. Please proceed with your question.
Hi, Thank you for taking the question first.
On the grocery store opportunity I Wonder if you could give us a little more detail on how that opportunity may be different in terms of sales cycles I would imagine much more unified customers.
Rather than disparate franchise customers.
What opportunities do you see actively being available today in terms of how they are providing digital ordering.
And then what could be the future for maybe.
Maybe working with grocery delivery partners say like an <unk> or other kind of marketplace vendors in that space.
But thanks for the question I think this is an exciting new vertical for us it's something just reflecting back on the very early days, although we always thought restaurants are the first vertical well theyre not the only vertical for what is fundamentally an on demand commerce platform.
So obviously, we've taken what we built initially for restaurants, we've expanded that in past quarters into the C store space to the extent that you have convenience stores operating fresh food programs. As a reminder, they are about 55000 of those around the country.
Now, we're seeing expansion into the grocery space again with fresh food programs with food that is prepared to order, but also importantly, with flowers with our floral department I think that's a good.
Representation of another product category that shares some of the same characteristics as prepared food. It's aldi perishable made to order just in time and that's really what our platform was designed to do unlike some other traditional e-commerce platforms.
So with regard to sales cycles I think your commentary is right. These are usually larger grocers more consolidation in the grocery industry, we see opportunity when we're getting pulled into <unk>.
Providing our platform to augment foodservice programs and other opportunities like this floral opportunities that we saw in total we see 30000 locations within grocery that are addressable for <unk> and if we look at.
The technomic data and see how much prepared food spend there is about 30000 locations, that's something around $37 billion of prepared foods spend so that's a great opportunity for us as well.
We will always be restaurant focused and restaurant first but if we see opportunities to expand our platform into these other adjacent categories.
That makes a lot of sense, if we can serve as the engine of hospitality for them at the same time.
That's wonderful.
Question about delivery service provider partners of course, we would love to work with as many delivery service provider partners in the <unk> sense of delivery service providers and also marketplaces that want to use the OLED to access those grocery brands and thats part and parcel with although being in <unk>.
<unk> platform and expanding a large 300 plus member.
Integrated technology partner network.
Perfect really appreciate the color just a follow up.
On a low pay certainly encouraging to hear.
Strengths there it seems to be.
Performing above your expectations I think.
Ubiquitous was even throw it around is there a way you can help us think about.
How that is progressing in terms of attach rate on new customers.
Or if youre seeing a predominant amount of the traction within the existing base and just maybe help us frame what are the holdouts.
In terms of what are the friction as to not adopting <unk> to their customers that you have approached and maybe did not adopt so far.
Well, we've really been thrilled with what has been broad adoption as I mentioned, it's not just emerging enterprise. It's also enterprise customers. It's brands like Captain D's, and Freddie is and TGI Fridays that are adopting overpay.
It's not just existing customers, but also new customers and of course to also not <unk>.
Contained within one segment of the industry, we have casual dining brand. We have quick service restaurant brands, we have virtual brands that are adopting overpay.
That's why we think about this as something that can be ubiquitous. There are some restaurant brands that have long term contracts that are in place with existing legacy payment processors.
Im really excited about OLED <unk> in all of these things that you are able to share about how others are getting value from it I can't move off of this contract until X date.
That's part of how payments works for many many others, we have seen an excitement to move over to overpay.
And use that as a way of making a lower friction.
<unk> experience and also have all the other benefits for the operator of.
Lower cost of ownership higher authorization rates lower fraud rates et cetera that Olaf has really proven out.
Really appreciate it thanks very much.
Thank you.
Our next.
Question comes from the line of Terry Tillman with <unk> Securities. Please proceed with your question.
Oh perfect. Thanks, guys saw Conoco Shaw on for Terry I. Appreciate you taking my questions just wanted to start first.
So you touched on one of the areas of opportunity being the potential for voice AI to displace drive thru I think last quarter, you talked about some important partnerships there.
And if youre seeing any evidence of that so far maybe if you can remind us on the opportunity for for drive through or from a dollar perspective any color there would be helpful.
Sure Yeah going back to last quarter, we spoke about three partners that were in the drive through voice.
Artificial intelligence space doing.
It's really a replacement of the old fashion rolling up to the speaker box and speaking to somebody who is inside on a headset.
Instead of replacing that with a voice AI.
So converse now as one of the.
I think since.
<unk> three is one of the and then the Valeant AI was another.
And I think there is a broad interest from drive thru operators, largely <unk> brands drive through operators to think about how they can use digital in the drive thru just by the numbers drive through the largest segment gained share during COVID-19 and has held on to that share. It now is.
The plurality of all restaurant transactions, representing 38% of total industry transactions. So drive through by itself is as large by transaction count as both takeout and delivery combined so we think that's an excellent opportunity for us to engage with our partners for the ordering.
And I'll remind the group that we also have been working a drive through for some time now with a drive through as a handoff unbowed in other words, our guests, placing an order through the app through the website and saying I want to collect this order, but I don't want to get out of my car I want to be able to drive up to the window pick up my order and beyond by way of some restaurant.
Brands have the ability to do that through a second.
Window, which is typically called a flight III window, others do it in a traditional drive through land, but that's another way in which digital and drive through are coming together.
Got it that's really helpful. I appreciate that just a quick follow up on the border list rollout. So so far what have you seen from border listen the ability to drive demand and kind of what data are you seeing around customer success in terms of maybe repeat orders or anything.
Was there I appreciate it.
Yes, I would say that the biggest thing that we have highlighted and I'll Oh.
Again highlight on this call is the impact that border list, which to remind the group is around a password less log in that's instead single factor authentication.
I guess it doesn't have to remember password just use their phone to authenticate themselves. The biggest impact is the number of transactions that are authenticated, where a guest is logged into an account and not placing that transaction anonymously.
So we talk about the <unk> <unk> of transactional data and board with is fantastic at doing that we've gone from where traditional log in.
You wind up with only 30% of guests that are saving a card on file and creating an account and known by the brand to over double that when youre using the border with authentication and checkout.
But that's a win for the guests that removes a lot of friction from that but it's not just about accessing payment details. It's also about getting into an account where they have order history say they.
They might have delivery address, let's say et cetera.
When for the operator, and the brand because now that order is getting tied back to the guest account and that enriches the profile of that guest and ultimately it helps the brand understand guests lifetime value.
We believe is fast becoming the true north metric for operating a restaurant.
And what we're bringing to life with innovations like borderlands.
I appreciate the color. Thank you.
Thank you.
Our next question comes from the line of Stephen Sheldon with William Blair. Please proceed with your question.
Hi, guys. This is Pat and Ashley on for Stephen today.
So encouraging update with progress this quarter.
And you mentioned some sizable throughput in that segment and I just wanted to ask is there.
Is there a realistic opportunity for payment processing with just some are with all of those 30000 grocery stores and then also with the 55000 C stores and if so have you have you seen any traction with those customers I guess more so on the <unk> side for payments yet.
I think it's super early and we're not.
Beating our chests and saying we are full steam ahead into these additional segments. We think these are.
Exciting opportunities for us to pursue and learn from that sort of how I would read where we are now Kroger I think in the grocery segment and those that we've talked about in the convenient store segment I think a great calling card deals they are not representative of.
Although pay.
Lands, where we're processing the transaction through overpay, it's I think too soon for us to comment there but.
We do believe that <unk> pay is something that is broadly desirable as we've talked about the different restaurant segments that have been excited about <unk> I think the same can be said about why it would be appealing to C store and grocery customers.
And we do think that.
As a component of a larger guest centric centricity.
Guest centric approach that that holds a lot of appeal to really any merchant to understand that guest and to be able to unlock hospitality in the shift over to digital and overpay as a big part of that so.
I'd say early but we do think that thats, an opportunity for us going forward.
Got it okay. That's helpful and just framing the opportunity there. So on the second one is you mentioned that customers are now using three modules on average which is offered.
$2 seven last year, I believe and I just wanted to ask if.
Are there any modules that you identified this year or are worth calling out as particular drivers of that upsell and.
In particular, how traction has been with those newer wisely modules.
Yes, I can take that one so in terms of.
<unk>.
What is driving the increase in module adoption.
It is the combination of the engagement suite and the pay suite and then to a lesser extent.
Things within the core commerce platform, whether that's virtual brands dispatch rails et cetera.
In terms of the engagement suite, we've been really pleased with the traction we've made thus far we've hit our revenue goals for 2022.
And as we look ahead for 2023 continue to look at that part of the business as overall growth accretive.
So far so good and.
And we'll keep pushing on the <unk> suite, so far so good.
Awesome, Thank you guys and nice quarter.
Thanks.
Our next question comes from the line of Douglas <unk> with Jpmorgan. Please proceed with your question.
Hey, Thanks for taking my question, maybe one for Peter I wanted to dive a bit into stock based comp. So how are you sort of balancing our long term management of that while looking towards the actual GAAP profitability. Thank you.
Yeah. So great question so.
From a high level.
Stock based comp as a percent of revenue, we anticipate that coming down in 2023 as compared to 2022.
I would say.
One thing to keep in mind as you still have.
Share issuances around the time of the IPO, where the valuation with with higher than it is today running its way through the model. So that will take some time to normalize before what you see in stock based comp is more reflective of recent valuation.
Equity grants.
That said the way that we approach equity compensation is really through a holistic lens and making sure that the total offer for our employees inclusive of comp base bonus equity et cetera remains as competitive as possible while at the same time.
Making sure that we have the right incentives in place that align with.
The incentive of our shareholders.
So that's a little bit about trends in the near term and how we think about things philosophically.
Great. That's all for me thank you.
And as a reminder, if you have any questions you May press star one to join the question and answer queue.
And our next question comes from the line of Brad Reback with Stifel. Please proceed with your question.
Great. Thanks very much.
Peter maybe we can dig into the fiscal 'twenty three guide a little bit.
<unk> X out the <unk> contribution for 'twenty, three and 'twenty two.
Looks like you're guiding to high single digit core sub revenue growth. So I'm, just trying to figure out what's going on there.
Yes that math is directionally right.
What youre seeing.
For the 23 guide is.
A more cautious approach to the year in light of some of the dynamics, we talked about in the second half of the year playing out into 2023.
And the thing.
Thank the point out specific to sales and deployment cycles is you have the initial sale, which then there can be a quarter or two and which that's that bookings converts to revenue.
Our revenue so whatever bookings impact we had in the second half of last year plays out into the first half of this year, so really thats what youre seeing.
And the implied in the guide for 'twenty three.
That's great and then one other on <unk> pay as you sort of approach this $15 million to $20 million run rate in 'twenty three is that enough scale to be gross profit profitable, let's not talk about the margin.
Can you generate incremental gross profit dollars at that level.
We can we can so.
We can and from an operating margin perspective long term.
As I mentioned before what really gets us excited about <unk>.
<unk> is the ability to be both.
Revenue and profit accretive and the reason for that is.
Being able to maintain.
Our sales efficiency and increased leverage in R&D and G&A to the extent, we can increase our food driven by overpay.
Our belief is a lot of that will drop to the bottom line and be very helpful. From a profit dollar perspective.
That's great thanks very much.
And we have reached the end of we have reached the end of the question and answer session. I will now turn the call back over to Noah glass for closing remarks.
Okay, well. Thank you operator, and thank you all of you for joining US again today, we're honored to be mission critical platform for the restaurant industry and to serve as the engine of hospitality, helping restaurants drive sales do more with less and make every guest feel like a regular thank you team for your hard.
Work and execution, we have miles to go before we sleep.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
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