Olo Inc. Q1 2023 Earnings Call
non-GAAP financial measures.
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 website 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.
May offer incremental metrics. Please be advised this additional detail maybe onetime in nature.
May or may not provide an update in the future on these metrics.
I encourage you to visit our Investor Relations website at investors don't all O dot com to access our earnings release Investor presentation periodic SEC reports.
<unk> replay of today's call or to learn more about O L.
With that let me turn the call over to Noah.
Thank you, Brian Hi, everyone. Thanks for spending time with US today in the first quarter <unk> revenue into average revenue per unit momentum continued we generated $52 2 million in total revenue of 22% increase year over year and increased <unk> $632 up 22% year over year and in <unk>.
11% increase sequentially and we ended the quarter with approximately 76000 active locations on the platform.
We're proud of our results and believe the first quarter updates are indicative of the role. Although we will continue to play in shaping the restaurant of the future for our customers and the strong business opportunity ahead as the industry continues to race towards 100% digital every transaction on and off premise being a digital transaction.
We're energized by our mission to be the engine of hospitality, helping our customers utilize the data harvested from digital orders to provide elevated experiences for their guests.
We believe that OLED is best positioned to drive the industry's digital transformation forward through our innovation and our three product suites order pay and engage.
In the first quarter, although continued to see success with both new logos and existing customers across all three product suites. In particular, we saw strong increased adoption of our pay and engage modules within our enterprise customer base and a continuation of strong multi module adoption within our emerging enterprise segment.
This quarter, we welcomed Shipley doughnuts are quick service donut shop, and coffeehouse chain with over 300 locations chip, we deployed our ordering dispatch rail network and <unk> pay modules Chipotle is focused on ushering in the digital era implementing digital solutions for the first time as a brand creating operational efficiencies.
Fees and new revenue streams through direct delivery.
Additionally, noodles <unk> company, a fast casual restaurant with over 300 locations launched <unk> across both our main ordering and catering digital channels. This deployment represents our largest overpay customer by sales volume to date and the third consecutive quarter, where an existing enterprise customer with over 300 locations.
Deployed overpay further demonstrating our ability to successfully sell our pay suite to enterprise brands, an important avenue for <unk> expansion.
We saw enterprise customers adopt modules from our engage suite this quarter Denny's casual dining chain with over 4500 locations launched both our marketing and guest data platform solutions last quarter Denny's deployment marks our largest engaged suite brands to date showing that the largest enterprise restaurant brands are recognizing the.
<unk> of using guest centric data and technology to drive growth and loyalty, we're optimistic about the momentum with engage suite, which is still in the early innings of adoption.
We continued to see strong deployments within the emerging enterprise segment. This quarter several of our new emerging brands deployed three or more modules from the onset of their older relationship all of which included pay flying.
Flying pie pizzeria, a fast casual chain deployed with six of our products across the order pay and engage suites. We believe the trend of multi module adoption will continue within this segment and helped to further increase <unk> over time, and our strategic investments in our sales and marketing organizations to support the depth of modules and there.
<unk> will only strengthen this opportunity.
Before I provide my typical product updates I want to share an exciting campaign, we launched last quarter. As you may recall I mentioned that we were holding our quarterly release events live at or beyond for customer conference. During the conference. We also debuted in video sharing our vision for the restaurant of the future and how we believe <unk> is best positioned.
To bring it to life.
In the video we share elevated restaurant experiences where in every guest touch points is enhanced by technology, we explored the limitless possibilities for data driven personalization optimization and convenience across different service models from drive thru to delivery full service and beyond.
Futuristic innovations depicted throughout the video like facial recognition for storage payment methods or in store kiosks are even closer than they seem.
And while this is our future vision so much of it is possible today through our <unk> data acquisition features like borderlands on premise digital ordering applications and our guest data platform purpose built for restaurants make possible. A 360 degree view of the guests plus the vast number of integrations made.
Possible by our open ecosystem of 300, plus technology and service partners allow even more innovation at speed.
Our dedication to the industry, we serve along with the scale of our open SaaS platform makes <unk> uniquely positioned to further bring the restaurant of the future of video to life.
Ultimately the restaurant of the future is expecting to leverage new technologies like artificial intelligence and integrations that promote free flowing guest data to enhance hospitality, giving restaurants, the ability to make every guest feel like irregular at enterprise scale.
This is increasingly evident in our most recent product enhancements.
This quarter, we shared a number of exciting feature updates within our ordering suite managing kitchen capacity is improving with OLED upgraded capacity management feature which utilizes AI to optimize order throughput based on preset limits and learned prep times.
This enhancement is a continuation of the capacity management capabilities, we rolled out last year that utilizes integrations with a restaurant's kitchen display system to capture valuable on premise information to better inform our machine learning models.
A leading casual dining brand with over 200 locations relies on this capacity management functionality to act as the brains of their kitchen successfully managing the high complexity that comes with the size of their menu and increasing digital demand.
We view this announcements and capability is highly strategic as it further cements all those mission critical status in our customers' operations, which will serve as a competitive advantage moving forward.
Next we are thrilled to offer open check and pay at table functionality for <unk> customers using our on premise ordering solutions new capabilities for our order and pay suites made possible by our omnivore acquisition earlier last year.
Open check allows guests to order at the table, adding items multiple times throughout the dining experience, while keeping their tab open when guests finished their meal all items that both the guest and server added to their check will show up on the guests' mobile device, allowing them to make one final payments to close the check.
Alternatively for guests, who still want to order with their server pay at table functionality allows them to have control of the completion of the dining experience. They can scan a QR code and pay at their convenience and then get up and go.
Both of these on premise enhancements not only help tables turned faster and allow guests to avoid common pain points like waiting for the check they free up staff to deliver more high touch interactions and act as another guest data acquisition channel.
We believe on premise ordering represents another <unk> expansion opportunity for <unk> driving higher transaction volumes on our platform.
And finally in more pain news, we announced a strategic partnership with AD yet the global financial technology platform of choice for leading businesses to provide <unk> customers with a faster and easier way to consolidated digital and card present payments apply for capital and manage cash flow.
Although pay currently processes digital payments such as online orders QR code orders at a table and mobile wallet payments by joining forces with Amgen overpay customers will be able to accept and oversee both digital and card present payments from the same OLED platform in which they manage the rest of their digital business.
This streamlined payment stack will increase operational efficiency for restaurant businesses by eliminating the need to switch between multiple tools for reconciliation refunds fraud prevention and charge backs and by providing a consolidated view of financial activities payment reporting and guest data the restaurant of the future is.
Increasingly attainable with a true 360 degree view of each guests no matter, where they order or how they pay.
We're excited to launch this functionality in beta later this year, starting with kiosk ordering channels and expanding to all card present transactions.
This represents a significant expansion of the addressable market opportunity for <unk> over time, representing a six X revenue opportunity capturing non digital transaction payment processing.
It will take time to complete the product integration work and begin scaling card present transactions. So we don't expect meaningful revenue from it this fiscal year.
You can see the full list of new features at <unk> Dot Com slash quarterly release.
Our commitment to enhancements like these and never settling for what's working today are being recognized in a big way I am humbled that <unk> earned the number one most innovative company honor and the dining category on fast company's prestigious annual list of the world's most innovative companies for 2023 I want to.
Thank team, although and our customers, particularly our longstanding product advisory council for their dedication to constant innovation, bringing meaningful change to our customers and the industry as a whole.
This collaboration between teams and the best digital mines in the restaurant industry is the reason I believe our restaurant of the future vision is within reach.
In further news driving innovation for our customers I am excited to announce that we officially launched <unk> connect a select group of our over 300 strong partner network Prime to deliver a best in class dining experience powered by the <unk> platform.
Built to meet the ever evolving needs of the industry Oulu connect empowers our network of 600, plus restaurant brands with the actionable insights needed to identify the best digital solutions to drive efficiency and enable hospitality.
Meeting a transparent set of qualifications, which include tenure on our platform. The number of mutual brands and locations currently supported and proven customer satisfaction, although connect partners gain valuable benefits rewarded on a tiered structure based on the strength of their credentials.
And finally as I typically do on earnings calls I'd like to provide an update on our ESG efforts.
As part of fulfilling our pledge, 1% commitment to dedicate 1% of <unk> time product in equity two initiatives to foster sustainable contributions to the communities in which we live work and serve we established Olaf for good in 2021.
Since its founding although for goods annual Grand cycle has awarded $8 2 million to 16 different nonprofit organizations through its donor advised fund partner Tides Foundation.
Although recommended six nonprofits for the 2023 annual grant cycle and we're proud to announce the tides Foundation subsequently donated a total of $1 $25 million in grants to six organizations.
Grant recipients are nonprofits focused on diversity equity and inclusion ending childhood hunger and increasing access to food supporting the restaurant industry as frontline workers, protecting natural resources, and reducing waste and emissions.
These are all causes deeply rooted in our values in the industry, we serve and we continue to be fervent about using <unk> as a platform for social impact and positive change you can learn more about the recipients and our ESG efforts by visiting <unk> Dot com slashed ESG.
As we plan ahead for the rest of the year. We're encouraged by the early results and energized to execute against our full year plan. We look forward to OLED continuing role in guiding our customers through the restaurant industry is digital transformation, bringing our vision of the restaurant of the future to life and with that I'll hand, it over to Peter to discuss more detailed.
<unk>.
Thanks, Noah today I'll review, our first quarter results as well as provide guidance for the second quarter and the full year 2023.
In the first quarter total revenue was $52 2 million, an increase of 22% year over year.
Platform revenue in the first quarter was $51 4 million.
An increase of 24% year over year, and <unk> continues to perform well pacing to our expectations set forth at the top of the year.
In terms of key metrics are improved for the first quarter was approximately $632.
Presenting a 22% increase year over year, and an 11% increase sequentially.
Further growth in <unk> was driven by continued progress in driving the average number of products adopted by our customer base, including higher <unk> solutions like all okay.
In terms of active locations, excluding the impact of subway locations transitioning from the platform. We added approximately 500 net new active locations to the platform ending the quarter with approximately 76000 active locations.
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 2022 and are not included in the active location total for the first quarter of this year.
And lastly, net revenue retention was approximately 114% up 600 basis points sequentially driven by continued growth in <unk> due to further sell through of all of those product suite.
For the remainder of the financial metrics disclosed unless otherwise noted I will be referencing non-GAAP financial measures.
Gross profit for the first quarter was 37 2 million. This compares to $32 1 million a year ago.
Year over year increase in gross profit was driven by continued growth in revenue, partially offset by increased compensation cost.
Four new locations coming onto the platform and processing costs associated with oil pay.
Sales and marketing expense for the first quarter was $9 9 million or 19% of total revenue. This compares to $6 2 million and 14% a year ago.
Please note that sales and marketing expenses for the quarter include our annual user conference beyond four which was held in the second quarter in 2022.
We are pleased with the progress we have made in building out and enhancing our go to market efforts. We intentionally made those investments at the beginning of the year and expect to see more moderate growth in sales and marketing through the course of 2023.
Research and development expense for the first quarter was $15 7 million or 30% of total revenue compared to $13 1 million or 31% of total revenue a year ago.
On a dollar basis, we increased investments in R&D in order to unlock future growth opportunities related to overpay borderlands capabilities and on premise ordering.
We expect to drive leverage from R&D over the remainder of 2023.
General and administrative expense for the first quarter was $10 $4 million or 20% of total revenue.
This compares to $11 $1 million and 26% a year ago.
The year over year improvement on both a dollar and percentage basis represents continued optimization of expenses as our organization continues to scale.
Operating income in the first quarter was $1 2 million compared.
Compared to $1 $7 million a year ago.
Net income in the first quarter was $4 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 $438 3 million as of March 31 2023.
Pursuant to the share repurchase program, which we announced in September 2022, and the first quarter, we repurchased two 7 million shares for a total of approximately $20 million net of commissions.
The introduction of our share repurchase program, we have repurchased five 4 million shares for $40 million, we have $60 million remaining on our authorization.
Regarding cash flows net cash used in operating activities was negative $2 1 million in the first quarter as compared to negative $900000 used a year ago.
Free cash flow was positive $3 $9 million compared to negative $3.4 million a year ago.
I'll wrap up by providing our guidance for the second quarter and full year 2023.
For the second quarter of 2023, we expect revenue in the range of $53 million and $53 5 billion.
And non-GAAP operating income in the range of $2 million and $2 4 million.
For the fiscal year 2023, we expect revenue in the range of $215 8 million and $217 3 million and non-GAAP operating income in the range of 12 million and $13 2 million.
We are off to a solid start in 2023 and remain optimistic about the remainder of the year. We think the macro dynamics remain in line with our expectations at the beginning of the year and the success, we're having on our key strategic priorities position us well going forward with that I'd now like to turn it over to the operator to begin the Q&A session.
Operator.
Thank you at this time, we will be conducting a question and answer session.
I'd 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. If any time you wish to remove your question from the queue. Please press star two for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment, please only pull for <unk>.
Questions.
Our first question is from Matthew Hedberg with RBC.
Great guys. Thanks for taking my questions Congrats on the <unk>.
Q1 results.
Well, maybe a high level question for you you guys have been building a data platform for quite some time now and you know when I think when I think of data platform, but I think of generative AI. It feels like Theres a play there I'm curious how do you think about leveraging AI or even generative AI in the future to pop health brands and customers.
Benefits from from all this data.
Matt. Thanks, so much for the kind words and for the question I think AI has a very large role to play in this industry and for all those business and customers going forward I really think about it across all of our products module suites I think about it in order and then pay and in engage and.
There are use cases that we are currently utilizing for all three so we step through those for a moment any ordering platform. One of the missions that we have articulated is to keep the restaurants and the kitchen as productive as possible and as profitable as possible I mentioned in the prepared remarks, how were used.
Capacity management, AI and machine learning to do just that to really hone in on the proper quote times and understand true capacity in the kitchen at any given moment you could also think about some of the things that are maybe more obvious like voice ordering through interactive voice response I've mentioned.
Couple of quarters back running pilots with a variety of partners that are in our partner ecosystem that are doing that kind of voice ordering through our API utilizing interactive voice response.
Within <unk>, we're seeing this as one of the main drivers AI is one of the main drivers of the superior results for <unk> versus legacy processors does things like authorization rates being at 98%, which is 5% to 20% above industry standard or fraud being reduced by 85%.
That's really because of the utilization of AI through our partnership with Greg.
And then the engage platform.
We're seeing AI as the opportunity to harness that guest data and use it for personalization of the ordering experience and also of marketing messages I guess received I guess broadly philosophically when I think about AI I think it favors incumbents and it's something that is going to.
Help serve our customers our mission given the scale that we're operating at 76000 restaurant locations across 600 brands $85 million restaurant guests.
And then.
Transaction counts, that's over $2 million on a daily basis and historically in the 1 billion all of that is a great data footprint for us to really yield great results utilizing AI.
That's great and maybe just.
Follow up the announcement for noodles, taking pace it's fantastic.
I'm curious I know you've had you've had some nice wins over the past couple of quarters can you talk about the pipeline for PE deals how do you feel about it today and how do you think about the conversion level. In these large deals are certainly great to see come through.
Yes. Thank you we were very pleased with the noodles deployment as I mentioned in the prepared remarks. This is the third quarter in a row, we've had an enterprise brand with over 300 locations adopting overpay.
We're excited about the pipeline, especially when we can showcase results like what I just articulated in terms of authorization rate improvements and fraud reduction and have these calling card deals. It gives more credibility as reference accounts for other enterprise brands coming on board and of course emerging enterprise, perhaps coming onboard so.
A very rich pipeline I just note. It is true that you have restaurants, typically reevaluating payments about every four or five years and so I would think about that as you have understand how many at bats, we have over what timeframe for selling overpay into the existing <unk>.
Customer base that it will probably take five years ish for us to have an app that with every single account that's in the although customer base, but we think there's a lot that is out there for us and it's a huge opportunity, particularly as it scales beyond just card not present trans.
Actions and we're now able to scale a page you also satisfy card present transactions that represent a six X.
Growth in the addressable transaction pool, and gross payments volume for OLED.
Great color. Thanks Bill.
Thank you.
Our next question is from Stephen Sheldon with William Blair.
Okay.
Right.
Gentlemen, thank you for taking my questions.
Wisely represents four of the 14 modules, although offers and I was wondering if you could touch on the traction between those different wildly modules. Just curious if some of those modules are seeing stronger adoption than others and what those would be.
Yeah.
Yes, I can take that one so in terms of the engage suite there are.
A number of modules within the suite that.
Encapsulate the products available within the engage suites. So there is the GDP or marketing automation product post our reservation and waitlist management solution as well as sentiment I would say in terms of penetration marketing automation tends to be the highest.
With a fast follow within host and sentiment and GDP, having been relatively new to the market is still in the process of scaling but in terms of stack rate. That's how the individuals mod individual module stack rank.
That's helpful context, Peter Thank you and then it sounds like there were several multi module deployments this quarter and up selling the existing customer base has been going quite well and I was just wondering if you could talk about what is driving that positive dynamic.
Well I think we've noted for a couple of quarters now that in emerging enterprise Theres, a great opportunity for customers to come on to <unk> with multiple modules.
The onset of the relationship and certainly we've seen that again this quarter.
With the enterprise market with a lot of the existing customers.
A great appetite to do more with <unk> now that we offer more capabilities and it's not just in ordering but it's also in payment and it's also an engagement.
And I think I've made this point before but I'll emphasize it again, we play this mission critical role in the digital transformation for our customers and they look at although as a bit of their their sherpa for the climb of digital transformation. So we can meet them, where they are and continue.
Helping them to add more capabilities and drive more digital transactions and I think that goodwill and the interest in.
Leaning into the relationship with <unk> and getting more digital to achieve their ambitions of getting to 100% digital is really at the root of our success in growing <unk> through multi module adoption.
That's excellent thank you, both and a nice quarter.
Thank you.
Our next question is from Gabriela Borges with Goldman Sachs.
Hi, good afternoon. Thank you.
Kickoff.
<unk>.
Around macro dynamics from Macquarie and one being in line with expectations.
I'm, hoping you can share a little bit more about the model.
More holistically how are you.
Killing about how this all about.
But I'm not sure about some technology, yeah any color on them.
I'm, sorry got demand environment, given all the market is awesome.
Thank you.
Yeah. So.
What's interesting is if you look at the end market restaurants.
And you look at what they've reported over the past quarter.
A lot of resiliency and growth frankly within their within their business and that.
That's encouraging.
And that is helping to support.
The positive signs, we're seeing both from a sales and deployment perspective.
That said as we look ahead throughout the balance of the year, we want to remain prudent in terms of how we think about that.
Potential for upside in the model just given that.
We're early in the year and while things are encouraging.
Theres still quite a bit of time to kind of move throughout the year.
But I would say broadly again from what we are.
Seeing in the market.
And what we're learning in conversations with our customers.
Sort of a lot of encouraging sign and a lot of resiliency in the end market.
Alright, thank you.
Hum.
Multiple top wonderful.
Staying with cross sell.
Yes that and Mark can.
Can you share a little bit on priority.
How do you engage multiple senior bonds.
Across much of the IP organization, but also good.
Essentially the marketing organizational hierarchy in the organization.
Secondly, cross sell across more than one.
Thank you.
Gabriel This is Noah. Thanks for the question I think it's really part and parcel with being strategic sellers and selling into the enterprise means that even for that initial onset of the relationship we have to meet with multiple stakeholders across multiple departments within the restaurant enterprise.
Within the restaurant headquarters the brand headquarters and so we're often known maybe not with the primary relationship owner, but we're known by multiple departments, who are all playing a role in implementing <unk> in whatever form that it takes whatever module.
<unk> with.
From there we are.
Speaking with our champions our sponsors about getting too.
The other members of their executive team typically when it's a new suite that we're selling in if it's payments speaking to the finance of the treasury team and.
Engage speaking to the marketing department.
That becomes an easy reference point, because they know although as this mission critical platform that is their digital transformation partner.
And I think it's something that our sales team is getting incredibly.
Yes.
Adept at and it's part of that discipline that Diego, Panama, Our Chief revenue Officer has brought into the company along with his senior team and being able to really go deep in those accounts grow ARPA, who become more mission critical in the process, but do that by touching multiple executives multiple.
Apartments multiple budgets within the same restaurant brands.
Don't know us and trust us.
Thanks.
Thank you.
And as a reminder to ask a question. Please press star one hour.
Our next question is from Mark <unk> with Stifel.
Okay, great. Thanks.
Mark background for Brad Rebeck, just had a quick question on <unk> connect.
That can help on on net new versus expansion I kind of break those two out and then also how.
That can kind of relieve any of the deployment cycle issues you guys have talked about with.
I guess lack of resources in terms of the restaurants being able to focus on deployment.
Okay.
Yes, we are very excited to announce the <unk>.
<unk> connect program, which is really the evolution of what has been a very rich ecosystem of integrated technology partners as I mentioned in the prepared remarks.
<unk> connect is really about tearing partners a selected group of those partners based on things like their tenure on the platform and their scale in shared brands and shared location count.
And customer satisfaction and so it's an objective way.
Showing other customers who are represent prospects for those organic partners just how much other customers value the services that they provide.
Although certainly can't do everything under the Sun with regard to restaurant technology, we rely upon and love our partner ecosystem to augment our platform and clearly this is an opportunity for us to play an even larger role at the epicenter of digital transformation for our.
Customers.
And to do so in a more.
<unk> the way through this although connect program. So the response has been really positive from the OTA partner network. It's been really positive from our customer base getting these additional sources of credibility and understanding tenure and scale and customer satisfaction through although connect.
And it's still early days, we're excited to grow that program and I want to really commend our partnerships team for the work that they did a really thoughtful way, putting this program together and where the benefits not just our partners and although but truly benefits our customers at the same time.
Great.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Noah glass for closing remarks.
Okay, well. Thank you again for joining US today, we are honored to be in mission critical platform for the restaurant industry and to serve as the fatality, helping restaurants drive sales do more with less and make every guest feel like a regular I want to say thank you to team for your hard work and execution.
We have miles to go before we sleep.
This concludes today's conference.
Thank you for your participation you may disconnect your lines at this time.
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