Q2 2024 Olo Inc Earnings Call

Operator: Greetings and welcome to the Olo Incorporated Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Gary Fuges, Senior Vice President of Investor Relations. Thank you. You may begin.

Speaker Change: Greetings and welcome to the Olo Incorporated Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Speaker Change: A brief question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Gary J. Fuges: It is now my pleasure to introduce your host, Gary Fuges, Senior Vice President of Investor Relations.

Gary J. Fuges: Thank you. Good afternoon, and welcome to Olo's second quarter 2024 financial results conference call. Joining me today are Noah Glass, NOAA's founder and CEO, and Peter Benevides, CFO. During this call, we will make forward-looking statements, including but not limited to statements regarding our expectations of our business, our industry, our operations, and future financial results. These statements reflect our beliefs and assumptions only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially.

Speaker Change: Thank you. You may begin.

Speaker Change: Thank you. Good afternoon and welcome to Olo's second quarter 2024 financial results conference call. Joining me today are Noah Glass, NOAA's founder and CEO , and Peter Benevides.

Speaker Change: CFO . During this call, we will make forward-looking statements, including but not limited to statements regarding our expectations of our business, our industry, our operations, and future financial results.

Speaker Change: These statements reflect our beliefs and assumptions only as of today, and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of these material risks and uncertainties, please refer to our Form 10-Q , which is filed today, and our other SEC filings.

Gary J. Fuges: For a discussion of these material risks and uncertainties, please refer to our Form 10-Q, which is filed today, and our other SEC filings. Also, during this call, we'll present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which is available on the investor relations page of our website. Finally, in terms of our prepared remarks, or in response to your questions, we may offer additional metrics. Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update in the future on these metrics. With that, I'll now turn the call over to Noah.

Speaker Change: Also, during this call, we'll present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available on our earnings release, which is available on the Investor Relations page of our website.

Speaker Change: Finally, in terms of our prepared remarks, or in response to your questions, we may offer incremental metrics. Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update in the future on these metrics. With that, I'll now turn the call over to Noah.

Noah Herbert Glass: Thank you, Gary. Hi everyone.

Noah Herbert Glass: Thank you for spending time with us today. Team Olo delivered another strong quarter in Q2. Once again, revenue and non-GAAP operating income exceeded the high end of their respective guidance ranges, and we're raising full year 2024 revenue and profitability guidance in excess of our Q2 outperformance. We added new enterprise and emerging enterprise brands and expanded with existing customers. We also announced our third POS integration partnership for OloPay and Engage with Trey, which brings us closer to supporting full-stack payment processing and enabling brands to use omni-channel guest data to drive profitable traffic, a critical restaurant metric.

Noah: Thank you, Gary. Hi, everyone. Thank you for spending time with us today.

Noah: Team Olo delivered another strong quarter in Q2. Once again, revenue and non-GAAP operating income exceeded the high end of their respective guidance ranges, and we're raising full-year 2024 revenue and profitability guidance in excess of our Q2 outperformance.

Noah: We added new enterprise and emerging enterprise brands and expanded with existing customers.

Noah: We also announced our third POS integration partnership for OloPay and Engage with Tray, which brings us closer to supporting full-stack payment processing and enabling brands to use omni-channel guest data to drive profitable traffic, a critical restaurant metric.

Noah Herbert Glass: I'll review our customer and innovation-related highlights from the quarter, and Peter will discuss our Q2 financial performance and updated guidance. We continue to win new brands and retain and expand with existing customers. We ended the quarter with approximately 82,000 active locations, adding approximately 1,000 new locations sequentially. Second quarter ARPU of $852 increased 19% year over year, and net revenue retention was again in excess of 120%.

Noah: I'll review our customer and innovation-related highlights from the quarter, and Peter will discuss our Q2 financial performance and updated guidance.

Peter: We continued to win new brands and retain and expand with existing customers. We ended the quarter with approximately 82,000 active locations, adding approximately 1,000 net new locations sequentially.

Peter: Second quarter ARPU of $852 increased 19% year over year, and net revenue retention was again in excess of 120%.

Noah Herbert Glass: In Enterprise, we deployed our core order suite with Bonchon, a fast, casual Korean chicken concept, and we launched ordering with Mission Barbecue. I'm excited to share that a number of large brands expanded into pay, including El Pollo Loco, Miller's Alehouse, and Pollo Tropical. And we're very pleased to announce that Culver's expanded into both pay and rails in the quarter.

Peter: In Enterprise, we deployed our core order suite with Banchong, a fast casual Korean chicken concept.

Peter: And we launched ordering with Mission Barbecue.

Speaker Change: I'm excited to share a number of large brands expanded into pay, including El Pollo Loco, Miller's Alehouse, and Pollo Tropical.

Peter: And we're very pleased to announce that Culver's expanded into both pay and rails in the quarter.

Noah Herbert Glass: In Emerging Enterprise, more than a dozen brands deployed Olo products across our order and pace, including pizza and big. We're especially excited to welcome back Ann Pizza, who returned to Olo after leaving to build her own ordering solution, and Pizza reinvigorated their growth strategy with new operating and franchising models and believed that in order to keep up with expansion without cumbersome processes and draining resources, they needed to upgrade their tech stack. With our gross revenue retention exceeding 95%, most brands remain on our platform.

Peter: In emerging enterprise, more than a dozen brands deployed Olo products across our order and pay suites.

Peter: including and pizza and big

Peter: We're especially excited to welcome back Ann Pizza, who returned to Olo after leaving to build their own ordering solution.

Speaker Change: And Pizza reignited their growth strategy with new operating and franchising models and believed that in order to keep up with expansion without cumbersome processes and draining resources, they needed to upgrade their tech stack.

Speaker Change: With our gross revenue retention exceeding 95%, most brands remain on our platform. And the trend we've seen since our IPO is that more brands migrate from in-house tech and to the Olo platform.

Noah Herbert Glass: And the trend we've seen since our IPO is that more brands migrate from in-house tech to the Olo platform. We're proud Ampizza chose to come back to Olo and are excited to help them do more with less while improving their guest experience. We also continue to drive product innovation and partner expansion in our ecosystem, which is foundational to our long-term success. In Q2, we announced 19 major product enhancements in our summer release, including loyalty for Olo borderless accounts. This new feature allows guests to earn and redeem rewards from a brand's existing loyalty program through Borderless, our passwordless guest checkout solution.

Speaker Change: We're proud Ampizza chose to come back to Olo and are excited to help them do more with less while improving their guest experience.

Speaker Change: We also continue to drive product innovation and partner expansion in our ecosystem, which is foundational to our long-term success.

Speaker Change: In Q2, we announced 19 major product enhancements in our summer release, including loyalty for Olo borderless accounts.

Peter: This new feature allows guests to earn and redeem rewards from a brand's existing loyalty program through Borderless, our passwordless guest checkout solution.

Noah Herbert Glass: We see great potential in Borderless, which has grown to now more than 7 million accounts, and we believe it can evolve beyond a seamless high-conversion checkout experience into yet another Olo offering that enriches guest data to help restaurants drive profitable traffic. We also added enhanced order management capabilities for our new Catering Plus solution, which helps brands reward their high-value customers and enable their guests to pay for delivery orders through their personal devices.

Peter: We see great potential in Borderless which has grown to now more than 7 million accounts and we believe it can evolve beyond a seamless high conversion checkout experience into yet another Olo offering that enriches guest data to help restaurants drive profitable traffic.

Peter: We also added enhanced order management capabilities for our new Catering Plus solution that helps brands reward their high-value customers and enable their guests to pay for delivery orders through their personal devices.

Noah Herbert Glass: We're very excited about the success of Catering Plus, which has been a strong performer out of the gate since we launched it less than a year ago. In Q2, we deployed Catering Plus across 14 existing Olo brands, including Doghouse, The Flame Broiler, and Freddy's Frozen Custard and Steak Burger. Catering Plus is winning with Enterprise and emerging enterprise brands and across both full service and limited service concepts.

Peter: We're very excited about the success of Catering Plus, which has been a strong performer out of the gate since we launched it less than a year ago. In Q2, we deployed Catering Plus across 14 existing Olo brands.

Peter: including Doghouse, The Flame Broiler, and Freddy's Frozen Custard and Steakburgers.

Peter: Catering Plus is winning with enterprise and emerging enterprise brands and across both full service and limited service concepts.

Noah Herbert Glass: We'll continue to add features and expect to make CateringPlus an expansion driver as well as a vector for landing new business, including within the top 25. In our ecosystem, Loop.ai's integration into the Olo platform is enabling brands to run more efficiently by automating accounting reconciliation with third-party marketplaces, and Grubber recently announced it will integrate Olo's digital ordering and full-stack OloPay into its self-ordering kiosk This is our third Olopay kiosk partnership, and we're bullish on the value kiosks bring to enterprise restaurants, from streamlining operations to providing an exceptional guest experience.

Peter: We'll continue to add features and expect to make CateringPlus an expansion driver as well as a vector for landing new business, including within the top 25.

Peter: In our ecosystem, Loop.ai's integration into the Olo platform is enabling brands to run more efficiently by automating accounting reconciliation with third-party marketplaces.

Peter: And Grubber recently announced it will integrate Olo's digital ordering and full-stack OloPay into its self-ordering kiosks.

Speaker Change: This is our third Olope kiosk partnership, and we're bullish on the value kiosks bring to enterprise restaurants, from streamlining operations to providing exceptional guest experiences.

Noah Herbert Glass: And we continue to expand our POS integrations beyond digital ordering and delivery to include OloPay and the Engage Guest Data Platform, or GDBP. In May, we announced an OloPay and Engage integration agreement with Trey, the cloud-first POS focused primarily on full-service concepts. Trey Joines, NCR Voyix, and Q.

Peter: And we continue to expand our POS integrations beyond digital ordering and delivery to include OloPay and the Engage Guest Data Platform, or GDP.

Peter: In May, we announced an OLAPE and ENGAGE integration agreement with TRE. The cloud-first POS focused primarily on full-service concepts.

Noah Herbert Glass: And we have expanded relationships in the works with additional POS providers. These expanded POS partnerships move us closer to processing card-present transactions, which can help us drive meaningful scale in our Olopay business and help reaccelerate our gross profit growth. For example, we mentioned on our last call that Honeygro, a core order customer, was our first brand to expand into full-stack payment processing with OloPay, running nearly all on-premise transactions through OloPay-enabled kiosks. By powering both digital ordering and all payment transactions, we estimate that Olo's gross profit per Honeygro location was more than six times higher than Olo's gross profit per average location over the last three

Peter: Trey joins NCR Voix and Q and we have expanded relationships in the works with additional POS providers.

Peter: These expanded POS partnerships move us closer to processing card-present transactions, which can help us drive meaningful scale in our OloPay business and help re-accelerate our gross profit growth.

Peter: For example, we mentioned on our last call that Honeygro, a core order customer, was our first brand to expand into full-stack payment processing with OloPay, running nearly all on-premise transactions through OloPay-enabled kiosks.

Peter: By powering both digital ordering and all payment transactions, we estimate that Olo's gross profit per Honeygro location was more than six times higher than Olo's gross profit per average location over the last three quarters.

Noah Herbert Glass: This is an encouraging early data point about where we can take our Olopay business. We believe we can drive similar results within our base over time as OLAPI's card-present functionality becomes broadly available through kiosk and POS partners, and as brands revisit their payment vendor relationships. The strategic rationale for a brand to replace their incumbent payment processor with OloPay is OloPay's differentiated ability to leverage transaction data to drive profitable traffic. We believe brands can significantly benefit from consolidating their on and off-premise transactions into one guest data platform that ties digital ordering and full-stack payment transaction data into one guest profile and provides a comprehensive view of each guest, given the industry's historical reliance on discounting to improve traffic. We believe our approach offers a compelling and differentiated value proposition, and this is what Olo is best positioned to do.

Peter: This is an encouraging early data point about where we can take our Olopay business.

Peter: We believe we can drive similar results within our base over time as Olapay's card-present functionality becomes broadly available through kiosk and POS partners, and as brands revisit their payment-vendor relationships.

Speaker Change: The strategic rationale for a brand to replace their incumbent payment processor with OloPay is OloPay's differentiated ability to leverage transaction data to drive profitable traffic.

Speaker Change: We believe brands can significantly benefit from consolidating their on- and off-premise transactions into one guest data platform that ties digital ordering and full-stack payment transaction data into one guest profile and provides a comprehensive view of each guest.

Peter: Given the industry's historical reliance on discounting to improve traffic, we believe our approach offers a compelling and differentiated value proposition.

Noah Herbert Glass: Our guest-centric solution and data platform capabilities, combined with the scale of our 700 brand, 82,000-strong network, give us the ability to empower brands to convert transactions into profitable traffic and increase. And with the platform-level data capabilities of Borderless, we see a future where a brand can deliver even more personalized experiences for every guest, regardless of whether they have visited that brand before with enriched Olo level data. We're already helping brands succeed with data.

Speaker Change: This is what Olo is best positioned to do, as our guest-centric solutions and data platform capabilities, combined with the scale of our 700-brand, 82,000-location-strong network, is what we're trying to do. Thank you.

Speaker Change: give us the ability to empower brands to convert transactions into profitable traffic and increase sales.

Speaker Change: And with the platform-level data capabilities of Borderless, we see a future where a brand can deliver even more personalized experiences for every guest, regardless of whether they've visited that brand before, with enriched, Olo-level data.

Noah Herbert Glass: Consider Five Guys, one of our first order enterprise brands, who recently began deploying the engaged GDP and marketing module. In just over six months, Olo's GDP ingested millions of orders, created 4.5 million guest profiles, and automatically identified cohorts of Five Guys' most loyal and highest lifetime value guests. From there, our marketing module helps five guys create hyper-targeted marketing communications and measure their impact on sales. [inaudible] $2 million of incremental revenue attributable to the email campaign, a 1% increase in Shake Sales, and a large base of new guest profiles that 5 Guys can use for future campaigns.

Speaker Change: We're already helping brands succeed with data. Consider Five Guys, one of our first-order enterprise brands who recently began deploying the Engage GDP and Marketing modules.

Speaker Change: In just over six months, Olo's GDP ingested millions of orders, created 4.5 million guest profiles, and automatically identified cohorts of Five Guys' most loyal and highest lifetime value guests.

Speaker Change: From there, our marketing module helps five guys create hyper-targeted marketing communications.

Speaker Change: and measure their impact on sales.

Speaker Change: The results.

Speaker Change: $2 million of incremental revenue attributable to the email campaigns.

Speaker Change: A 1% increase in shake sales and a large base of new guest profiles that Five Guys can use for future campaigns.

Noah Herbert Glass: With the addition of card present transactions to our guest data, we believe we can turbocharge a brand's ability to better know its guests and engage with them in ways that have guests come back to the brand again and again without an over-reliance on discounts and value. We're just getting started, and we believe no one else in the industry has the network scale, guest-centered offerings, and data capabilities to help brands succeed like Ola. We're excited about the progress to date in 2024, and Team Olo is focused on building on this momentum.

Speaker Change: With the addition of card present transactions to our guest data, we believe we can turbocharge a brand's ability to better know its guests and engage with them in ways that have guests come back to the brand again and again without an over-reliance on discounts and value menus.

Speaker Change: We're just getting started, and we believe no one else in the industry has the network scale, guest-centered offerings, and data capabilities to help brands succeed like Olo.

Speaker Change: We're excited about the progress to date in 2024 and Team Olo is focused on building on this momentum. We're landing and expanding with brands, delivering more value through product innovation and valuable partnerships, and moving closer to unlocking even more value from greater guest data.

Noah Herbert Glass: We're landing and expanding with brands, delivering more value through product innovation and a valuable partner, and moving closer to unlocking even more value from greater guest data. I'll now turn the call over to Peter to review our Q2 results and updated guide.

Speaker Change: I'll now turn the call over to Peter to review our Q2 results and updated guidance.

Peter J. Benevides: Thanks, Noah. Today, I'll review our second quarter results, as well as provide guidance for the third quarter and the full year 2024. In the second quarter, total revenue was $70.5 million, an increase of 28% year over year. Platform revenue in the second quarter was $69.6 million, an increase of 27% year-over-year. Revenue from all three suites, Order, Pay, and Engage, performed better than our expectations.

Speaker Change: Peter

Peter: Thanks, Noah. Today, I'll review our second quarter results as well as provide guidance for the third quarter and the full year 2024.

Peter: In the second quarter, total revenue was $70.5 million, an increase of 28% year-over-year. Platform revenue in the second quarter was $69.6 million, an increase of 27% year-over-year.

Peter: Revenue from all three suites, Order, Pay, and Engage, performed better than our expectations.

Peter J. Benevides: Revenue also benefited from some non-recurring revenue associated with a new customer contract and stronger than expected wing stock performance in their last quarter on our core order suite. Excluding these factors, revenue would have been above the high end of our Q2 Revenue Guidance Range. Active locations were 82,000, up approximately 1,000 sequentially. We continue to expect location count to ramp throughout the year and to add approximately 5,000 net new locations this year.

Peter: Revenue also benefited from some non-recurring revenue associated with a new customer contract and stronger-than-expected wingstock performance in their last quarter on our core order suite.

Peter: Excluding these factors, revenue would have been above the high end of our Q2 Revenue Guidance Range.

Peter: Active locations were 82,000.

Peter: up approximately 1,000 sequentially.

Peter J. Benevides: We have a line of sight to this target based on business already booked and in the process of being deployed, such as Dutch Bros, which is scheduled to launch the majority of its locations in the second half of the year.

Peter: We have line of sight to this target based on business already booked and in process of being deployed, such as Dutch Bros, which is scheduled to launch the majority of its locations in the second half of the year.

Peter J. Benevides: Our blue for the second quarter was approximately $852, up 19% year-over-year and 4% sequentially. The year-over-year increase in ARPU was driven by increased order volumes and modules per location, in particular OLOPE. Please note that in the second quarter, we have now lapped the ARPU benefit from the roll-off of Subway's location count. Net of Subway, year-over-year ARPU growth has been in the high teens over the last three quarters. And net revenue retention was above 120%, the third consecutive quarter where NRR was at or above 120%.

Peter: Our proof for the second quarter was approximately $852, up 19% year-over-year and 4% sequentially.

Peter: For the remainder of the Q2 financial metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial measures.

Peter J. Benevides: For the remainder of the Q2 Financial Metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial metrics. Gross profit for the second quarter was $44.3 million, up 16% year-over-year. Gross margin for the second quarter was approximately 62.8%, up 40 basis points sequentially. Gross profit and gross margin performance reflect the impact of this quarter's revenue outperformance, in part driven by the aforementioned one-time item. Excluding these one-time items, Q2 gross margin would have declined approximately 50 basis points sequentially.

Peter: Gross margin for the second quarter was approximately 62.8%, up 40 basis points sequentially.

Speaker Change: Gross profit and gross margin performance reflect the impact of this quarter's revenue outperformance, in part driven by the aforementioned one-time items.

Speaker Change: Excluding these one-time items, Q2 gross margin would have declined approximately 50 basis points sequentially.

Peter J. Benevides: Furthermore, we continue to be disciplined with operating expenses. In Q2, all three operating expense line items improved year-over-year on a percentage of revenue basis. Sales and marketing expense for the second quarter was $11.4 million, or 16% of total revenue. This compares to $9.7 million and 18% a year ago. Research and development expense for the second quarter was $13.7 million, or 19% of total revenue. This compares to $14.5 million, or 26% of total revenue a year ago.

Speaker Change: Furthermore, we continue to be disciplined with operating expenses. In Q2, all three operating expense line items improved year-over-year on a percentage-of-revenue basis.

Speaker Change: Research and development expense for the second quarter was $13.7 million, or 19% of total revenue.

Speaker Change: This compares to $14.5 million, or 26% of total revenue a year ago.

Peter J. Benevides: The general and administrative expense for the second quarter was $11.6 million, or 16% of total revenue. This compares to $9.5 million and 17% a year ago. As a reminder, the quarterly pacing of operating expenses was slightly different in the first half of 2024 compared to prior years. As we stated in our last call, this year's annual compensation increases began hitting in Q2. Historically, annual comp increases began in Q1.

Speaker Change: General and administrative expense for the second quarter was $11.6 million or 16% of total revenue. This compares to $9.5 million and 17% a year ago.

Speaker Change: As a reminder, the quarterly pacing of operating expenses was slightly different in the first half of 2024 versus prior years.

Speaker Change: As we stated in our last call, this year's annual compensation increases began hitting in Q2. Historically, annual comp increases began in Q1.

Peter J. Benevides: Operating income for the second quarter was $7.6 million, up from $4.5 million a year ago. Operating margin was approximately 11% in Q2, an increase of approximately 260 basis points year over year. This strong performance reflects a combination of continued expense discipline and revenue outperformance, as well as the benefit of the non-recurring revenue items I referenced earlier. Net income in the second quarter was $9.2 million, or $0.05 per share, based on approximately 170.5 million fully diluted weighted average shares outstanding.

Speaker Change: Operating income for the second quarter was $7.6 million, up from $4.5 million a year ago.

Speaker Change: Operating margin was approximately 11% in Q2, an increase of approximately 260 basis points year-over-year.

Speaker Change: This strong performance reflects a combination of continued expense discipline and revenue outperformance, as well as the benefit of the nonrecurring revenue items I referenced earlier.

Speaker Change: Net income in the second quarter was $9.2 million, or 5 cents per share, based on approximately 170.5 million fully diluted weighted average shares outstanding.

Peter J. Benevides: Turning our attention to the balance sheet and cash flow statement, our cash, Cash Equivalents, and Short and Long-Term Investments totaled approximately $387 million as of June 30th, 2024. In the second quarter, we repurchased 1.4 million shares for a total of approximately $6.9 million. These Q2 share repurchases completed the $100 million share repurchase program we announced in September 2022. Net cash provided by operating activities was $18.1 million in the quarter compared to $2 million in the quarter a year ago. Free cash flow was $14.2 million compared to negative $1.9 million a year ago.

Speaker Change: Turning our attention to the Balance Sheet and Cash Flow Statement.

Speaker Change: Our cash, cash equivalents, and short- and long-term investments.

Speaker Change: totaled approximately $387 million as of June 30, 2024. In the second quarter, we repurchased 1.4 million shares for a total of approximately $6.9 million.

Speaker Change: Q2 share repurchases completed the $100 million share repurchase program we announced in September 2022.

Speaker Change: Net cash provided by operating activities was $18.1 million in the quarter, compared to $2 million in the quarter a year ago.

Speaker Change: Free cash flow was $14.2 million compared to negative $1.9 million a year ago.

Peter J. Benevides: Q2 cash flow metrics primarily reflect operating income performance and working capital timing. I'll wrap up by providing our guidance for the third quarter and full year 2024. For the third quarter of 2024, we expect revenue in the range of $70.8 million and $71.3 million and non-GAAP operating income in the range of $6 million and $6.4 million. For the fiscal year 2024, we are again raising revenue and non-GAAP operating income guidance. We now expect revenue in the range of $279.5 million and $280.5 million, and non-GAAP operating income in the range of $25.6 million and $26.4 million.

Speaker Change: Q2 cash flow metrics primarily reflect operating income performance and working capital timing.

Speaker Change: I'll wrap up by providing our guidance for the third quarter in full year 2024.

Speaker Change: For the third quarter of 2024, we expect revenue in the range of $70.8 million and $71.3 million, and non-GAAP operating income in the range of $6 million and $6.4 million.

Speaker Change: For the fiscal year 2024, we are again raising revenue and non-GAAP operating income guidance.

Speaker Change: We now expect revenue in the range of $279.5 million and $280.5 million, and non-GAAP operating income in the range of $25.6 million and $26.4 million.

Peter J. Benevides: A few things to keep in mind as you consider our updated outlook for the year. We continue to expect trends in the restaurant industry to be similar to what we saw in 2023. Consistent growth in digital ordering, a continued need to improve efficiency to offset rising costs, and macro uncertainty.

Speaker Change: A few things to keep in mind as you consider our updated outlook for the year.

Speaker Change: We continue to expect trends in the restaurant industry to be similar to what we saw in 2023. Consistent growth in digital ordering, a continued need to improve efficiency to offset rising costs, and macro uncertainty.

Peter J. Benevides: Revenue guidance continues to assume a two-thirds, one-third split between incremental revenue from existing projects currently in deployment and new projects signed and deployed in the year, which will be driven primarily by ARPU expansion as OloPay scales, and we have further success selling multiple modules in our order and engage suite. Revenue guidance also reflects the change in the wingstop relationship. Starting in Q3, Wingstop shifts from using our ordering, dispatch, and rails modules to using our voice AI capabilities.

Speaker Change: Revenue guidance continues to assume a two-thirds, one-third split between incremental revenue from existing projects currently in deployment

Speaker Change: and new projects signed and deployed in-year, which will be driven primarily by ARPU expansion as Olo pays scales and we have further success selling multiple modules in our order and engage suites.

Speaker Change: Revenue guidance also reflects the change in the Wingstop relationship. Starting in Q3, Wingstop shifts from using our ordering, dispatch, and rails modules to using our voice AI capabilities.

Peter J. Benevides: Further, given OloPay's outperformance in the first half and our outlook for the second half of 2024, we now expect full-year 2024 OloPay revenue in the mid-60 million range. We continue to expect the vast majority of 2024 OloPay revenue to be from card not present transactions. Lastly, we expect full-year 2024 gross margin to be in the low 60% range. We anticipate second half gross margin will be approximately 200 basis points lower than the first half 2024 gross margin performance, with the majority of this decline occurring from Q2 to Q3.

Speaker Change: Further, given Olopay's outperformance in the first half and our outlook for the second half of 2024, we now expect full-year 2024 Olopay revenue in the mid-$60 million range.

Speaker Change: We continue to expect the vast majority of 2024 OloPay revenue to be from card-not-present transactions.

Speaker Change: Lastly, we expect full year 2024 gross margin to be in the low 60% range.

Speaker Change: We anticipate second half gross margin will be approximately 200 basis points lower than the first half 2024 gross margin performance, with the majority of this decline occurring from Q2 to Q3.

Peter J. Benevides: This reflects the timing of the revenue makeshift in the second half of the year due to Olopay's continued momentum, as I discussed. We continue to expect full year 2024 to be the trough and gross profit group. To wrap up, in the second quarter, we delivered another solid quarter of financial performance, positioned ourselves to raise guidance, and continue to execute on our strategic priorities. We are uniquely positioned with guest-centric solutions that help brands drive profitable traffic through guest data. With that, I'd now like to turn it over to the operator to begin the Q&A session. Operator? Thank you.

Speaker Change: This reflects the timing of the revenue mix shift in the second half of the year due to Olopay's continued momentum, as I discussed.

Speaker Change: We continue to expect full year 2024 will be the trough in gross profit growth.

Speaker Change: To wrap up, in the second quarter we delivered another solid quarter of financial performance, positioned ourselves to raise guidance and continue to execute on our strategic priorities.

Speaker Change: We are uniquely positioned with guest-centric solutions that help brands drive profitable traffic through guest data.

Speaker Change: With that, I'd now like to turn it over to the operator to begin the Q&A session. Operator?

Operator: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in a question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment while we post our first question.

Operator: Once again, that's Star 1 to ask a question at this time. One moment while we poll for our first question. Our first question comes from Eric Martinuzzi with Lake Street. Please proceed.

Speaker Change: Our first question comes from Eric Martinuzzi with Lake Street. Please proceed.

Eric Martinuzzi: Yeah, congratulations on the quarter and the upped outlook. I had a question about the one-time revenue benefit.

Eric Martinuzzi: Yeah, congratulations on the quarter and the upped outlook. A question about the one-time revenue benefit, I just want to go a layer deeper there. The wing stop-out performance, was that due to better than expected from the new relationship or maybe a longer tail from the old?

Eric Martinuzzi: I just want to go a layer deeper there. The Wing Stop Out performance, was that due to better than expected from the new relationship, or maybe a longer tail from the old? And then you could dive into the one time from the other brand that you saw in Q2.

Speaker Change: And then if you could dive into the one time from the other brand that you saw in Q2.

Peter J. Benevides: Yeah, Eric, and Peter here. Thanks for the question. So regarding Wing, it was related to them staying on longer than expected and then, during that time, exceeding our expectations. As for the other item that we called out, that related to the timing of RevRec for a newly contracted brand coming online. So the combination of those two items helped the top line and bottom line outperformance. But, as we mentioned on the call, even excluding those items, we exceeded the top end of our range for both revenue and operating income.

Peter: Yeah, Eric, Peter here. Thanks for the question. So regarding wing, it was related to them staying on longer than expected and then during that time performance exceeding our expectations.

Speaker Change: As for the other item that we called out, that related to timing of RevRec for a newly contracted brand coming online.

Speaker Change: So the combination of those two items helped the top line and bottom line outperformance, but as we mentioned on the call, even excluding those items, we exceeded the top end of our range for both revenue and operating income.

Eric Martinuzzi: Yeah, I got that. And then there is one more question here.

Speaker Change: Yeah, I got that.

Speaker Change: And then one more question here. The ramp for card present, historically you've talked about that, hey, we're going to roll it out in the back half of 24, we'll see incremental revenue in 2025. Where are we in that timeline as we stand here in July ? Can you give us any greater clarity?

Eric Martinuzzi: The ramp for card present, historically, you've talked about that. Hey, we're going to roll it out in the back half of 24. We'll see incremental revenue in 2025. Where are we on that timeline as we stand here in July? Can you give us any greater clarity?

Speaker Change: Eric, this is Noah here. Thanks for the question. I'm still on track for that timeline and really excited, as Peter mentioned, with the success of Olope.

Speaker Change: Olopay for card not present, and how that really sets the table and enables us to then build on the momentum of that great install base of brands using Olopay for card not present transactions as we enable card present transactions.

Noah Herbert Glass: Eric, this is Noah here. Thanks for the question. I'm still on track for that timeline and really excited, as Peter mentioned, about the success of OloPay Card Not Present and how that really sets the table and enables us to then build on the momentum of that great installed base of brands using OloPay for card not present transactions as we enable card present transactions. The other thing that I'd say that we mentioned in the prepared remarks about OloPay Card Present is really starting to talk more about the gross profit benefit that And a great example that I hope everyone caught was the HoneyGrow case study.

Speaker Change: The other thing that I'd say that we mentioned in the prepared remarks about Olo Pay, card

Speaker Change: Talk more about the gross profit benefit that we see in Olopay and a great example that I hope everyone caught was the HoneyGrow case study. Now HoneyGrow is using the Olopay card present

Noah Herbert Glass: Now HoneyGrow is using the OloPay card presence for kiosk transactions in restaurants. We now have three kiosk OloPay partners. We now will have a third OloPay POS partner for card present transactions. In Honeygrove's case, they're running all of their transactions through the Olo platform, whether that's digital off-premise or digital on-premise through the kiosk, and all of those payments are happening through OloPay. And what we're seeing there is on a gross profit basis.

Speaker Change: for kiosk transactions in restaurants. We have now three kiosk OloPay partners.

Speaker Change: We now will have a third OloPay POS partner for card-present transactions. In Honeygrove's case, they're running all of their transactions through the Olo platform, whether that's digital off-premise or digital on-premise through the kiosk, and all of those payments are happening through OloPay.

Noah Herbert Glass: The average Honeygro location is 6x the gross profit of the average location on the Olo platform. We think that's an early signal, but a really positive one about OloPay and its potential to really accelerate gross profit in our business. And we're excited that that timeline that you mentioned is still on track and that we'll start to really see the OloPay card presence showing up in revenue and in gross profit in Q2.

Speaker Change: And what we're seeing there is on a gross profit basis.

Speaker Change: The average Honeygrove location is 6X.

Speaker Change: We think that's an early signal, but a really positive one about OloPay and its potential to really accelerate gross profit in our business. And we're excited that that timeline that you mentioned is still on track, and that we'll start to really see growth in the Olo platform.

Speaker Change: Olopay card presence showing up in revenue and in gross profit in 25.

Eric Martinuzzi: Got it. Thanks for taking my question.

Speaker Change: Got it. Thanks for taking my questions.

Operator: Thank you. Our next question comes from Andrew Harte with BTIG. Please proceed.

Speaker Change: Thank you. Our next question comes from Andrew Harte with BTIG. Please proceed.

Andrew James Harte: Hey guys, great quarter. The ARPU growth just continues to kind of exceed our expectations. It was nice to see it 19% up year over year. Can you kind of parse that out for us, kind of X payments? What has ARPU looked like kind of from the order and engage suites? And then I guess what's embedded for ARPU expectations in the back half of the year? If we just kind of run out of our location estimates and apply the ARPU that we just had, we kind of get to the high end of revenue guidance. So if you could just help us understand some of the different moving parts in ARPU, that would be great.

Andrew James Harte: Hey guys, great quarter. Our poo growth just continues to kind of exceed our expectations. It was nice to see it 19% up year over year. Can you kind of parse that out for us, kind of X payments?

Andrew James Harte: What has ARPU looked like, kind of, from the order and engage suite? And then, I guess, what's embedded for ARPU expectations in the back half of the year?

Speaker Change: We kind of run out kind of our location estimates and apply the ARPU that we just had, we kind of get to the high end of revenue guidance, so if you could just help us understand some of the different moving pieces in ARPU, that'd be great.

Peter J. Benevides: Yeah, happy to. So the way I would think about ARPU pay versus non-pay on the non-pay portion, the trends have been similar to that in the non-pay revenue growth year on year, quarter on quarter. And again, we haven't teased apart on a quarterly basis the pay versus non-pay revenue contribution, but you can kind of get there based on our mid-60 million pay target for the year. So that should give you some sense of, again, the growth in ARPU being driven by the pay and non-pay components. As we think about the balance of the year, you know, we're continuing to ramp up the location count with a target of 5,000 net ads for the year. And we're still on pace to do that.

Speaker Change: Yeah, happy to.

Speaker Change: The way I would think about ARPU pay versus non-pay, on the non-pay portion,

Speaker Change: The trends have been similar to that in the non-pay revenue growth year-on-year, quarter-on-quarter.

Speaker Change: Again, we haven't teased apart on a quarterly basis the pay versus non-pay revenue contribution, but you can kind of get there based on our

Speaker Change: Mid $60 million pay target for the year. That should give you some sense of, again, the growth in our food being driven by the pay and non-pay components.

Speaker Change: As we think about the balance of the year, you know, we're continuing to ramp.

Speaker Change: The location count with a target of 5,000 net ads for the year. We're still on pace to do that.

Peter J. Benevides: What gives us confidence in that target is that many of those locations are booked locations going through the implementation process. Most notably, Dutch Bros, which we talked about last quarter, has begun its implementation with the bulk of transit locations coming in the back half of the year. What that means from an ARPU perspective is continued progress in ARPU growth as we move throughout the year, being driven again both by pay and non-pay growth.

Speaker Change: What gives us confidence in that target is that many of those locations are booked locations going through the implementation process, most notably Dutch Bros, which we talked about last quarter, has begun their implementation with the bulk of transactions coming in the back half of the year.

Speaker Change: What that means from an ARPU perspective is continued progress in ARPU growth as we move throughout the year, being driven again both by pay and non-pay growth.

Peter J. Benevides: In particular on the non-pay growth, I do want to highlight, and we talked a little bit about this in the prepared remarks, the momentum that we're seeing in Catering Plus, but that does not show up in the location count. Where that shows up is in ARPU growth. And our commentary around the outperformance of the order suite above and beyond our expectations is, in large part, being fueled by that momentum in Catering Plus. So as we look across all three suites, we continue to execute really, really well, which is helping to drive both our ARPU performance year on year as well as pacing to that 5,000 net edge for the year.

Speaker Change: In particular on the non-pay growth, I do want to highlight, and we talked a little bit about this in the prepared remarks, the momentum that we're seeing in catering plus.

Speaker Change: That does not show up in location count. Where that shows up is in our food growth. And our commentary around the outperformance of the order suite, above and beyond our expectations, is in large part being fueled by that momentum in Catering Plus.

Speaker Change: So as we look across all three suites, we continue to execute really, really well, which is helping to drive both our ARPU performance year-on-year, as well as pacing to that 5,000 net ads for the year.

Andrew James Harte: Great. And then just a quick follow up on gross margin. I think in prior quarters you talked about there being kind of a 100-150 basis point sequential decline as we go throughout the year. It sounds like when you ship out those one-time items, there's still kind of a decline, but then we'll trough towards the end of the year, but it's a little bit better than a 100-150 basis point sequential decline. Just wanted to get some clarification on how we should trend on that. I guess, considering there are those one-time items in the second quarter.

Speaker Change: Great and then just quick follow-up on gross margin. I think kind of prior quarters you talked about there was going to be kind of a 100 to 150 basis point.

Speaker Change: sequential decline as we go throughout the year. It sounds like when you strip out those one-time items, there's still kind of a decline, but then we'll trough towards the end of the year, but it's a little bit better than 100 to 150 basis point sequential decline. Just wanted to get some clarification on how we should trend on that, I guess, considering there is those one-time items in the second quarter.

Peter J. Benevides: Yeah, so that's a great question. So we tried to unpack that in the prepared remarks. So if you were to exclude the one-time items this quarter, the sequential decline in gross margin would have been around 50 basis points, which is better than the 100 to 150 basis points that we communicated last quarter. The reason for that is, again, all three suites outperforming, but in particular, Order and Engage. And within Order, as I mentioned earlier, Catering Plus, as that continues to perform well, that will help to increase software revenue and help to improve overall gross margins.

Speaker Change: Yeah, so great question. So we tried to unpack that in the prepared remarks. So if you were to exclude the one-time items this quarter, the sequential decline in gross margin would have been around 50 basis points, which is better than

Speaker Change: The reason for that is, again, all three suites outperforming, but in particular, Order and Engage, and within Order, as I mentioned earlier, Catering Plus,

Speaker Change: As that continues to perform well, that will help to increase software dollars and help to improve overall gross margins. The other thing that I did not mention in the ORPU commentary just now, but it's certainly worth mentioning is

Peter J. Benevides: The other thing that I did not mention in the ORPU commentary just now, but it's certainly worth mentioning, is the continued growth in digital ordering and digital transactions, not just on our platform but within the industry as a whole. The latest data point that we've received via NPD is that digital transactions account for about 18% of all industry transactions. And that is at the same time that industry transactions, on an absolute basis, continue to increase.

Speaker Change: The continued growth in digital ordering, digital transactions, not just on our platform, but within the industry as a whole, the latest data point that we've received via NPD is that digital transactions account for about 18%

Speaker Change: of all industry transactions, and that is at the same time that industry transactions, on an absolute basis, continue to increase. So it's not channel shift, it's actual growth within a growing base.

Peter J. Benevides: So it's not channel shift; it's actual growth within a growing base. So for those two reasons, we've been pleased with the durability of digital ordering and how that's translating into improved gross margins this quarter than where we were walking into the quarter. It's for those reasons that gross margin outperformed our expectations.

Speaker Change: So, for those two reasons, we've been pleased with the durability of digital ordering and how that's translating into improved gross margins this quarter than where we were walking into the quarter. It's for those reasons that gross margin had outperformed our expectations.

Noah Herbert Glass: Just to pile on to that for a moment, that 18% data point is now, for the first time, digital transactions making up a larger percentage of overall transactions on a percentage basis, and as Peter said, on an absolute basis, than during the COVID period. So it's a great tailwind for the continued growth of ARPU in the order business, as Peter said, and we're thrilled to see this industry continue to make its digital transformation, and this is a central data point from NPD Cercana that we focus on.

Speaker Change: Just to pile on to that for a moment, that 18% data point is now for the first time, digital transactions making up a larger percentage of overall transactions on a percentage basis, and as Peter said, on an absolute basis.

Speaker Change: than during the COVID period. So it's a great tailwind for the continued growth of ARPU in the order business, as Peter said, and we're thrilled to see this industry continue to make its digital transformation. And this is a central data point from NPD Cercana that we focus on.

Andrew James Harte: Awesome, thanks so much. Great job, and nice quarter again.

Operator: Thank you. Thank you. The next question comes from Terry Tillman with Truist Securities. Please proceed.

Speaker Change: Awesome, thanks so much. Great job and nice to go here again.

Speaker Change: Thank you. Thank you. The next question comes from Terry Tillman with Truist Securities. Please proceed.

Connor Pastor: Great. Hey, good afternoon, Tim, Conor, Pastor, all on for Terry. Appreciate you taking my questions and congratulations on the strong results here. Maybe just as we think about the importance of brands utilizing different pieces of data across channels to build guest profiles. I've talked about Five Guys.

Speaker Change: Great. Hey, good afternoon, team. Connor, Pastor, all on for Terry. Appreciate you taking my questions and congrats on the strong results here.

Speaker Change: Maybe just as we think about the importance of brands utilizing different pieces of technology.

Connor Pastor: It's a good example. They seem to be taking advantage of GDP. Could you just give us a sense as to maybe what inning you would say we're in, with more restaurants being able to leverage their data to take action this way?

Speaker Change: I've talked about five guys, it's a good example, they seem to be taking advantage of the GDP. Could you just give us a sense as to maybe what inning you would say we're in, in more restaurants being able to leverage their data to take action this way?

Noah Herbert Glass: Connor, Noah here. Thanks for the question.

Speaker Change: Thanks for the question. I would say super early innings. We are in the moment in time and we are creating great

Speaker Change: Case studies, reference stories. We talked about five guys this quarter. I believe last quarter we talked about Sonny's Barbecue and First Watch.

Speaker Change: The really encouraging thing is that these case studies and reference stories are really showing meaningful business results in driving profitable traffic.

Noah Herbert Glass: I would say super early innings; we are in the moment in time, and we're creating great case studies, reference stories. We talked about five guys this quarter. In the last quarter, we talked about Sonny's BBQ and First Watch.

Speaker Change: That is a painkiller in this industry right now that is in pain and in need of traffic that doesn't require Discounting and value menus and meal deals to understand a guest to be able to reactivate lapsed guests

Speaker Change: and Get Guests to Order More Frequently Without Discounting, as you heard in that Five Guys example, is exactly what the industry needs right now and always. And it's really encouraging as we look at what we mentioned in the emerging enterprise segments.

Noah Herbert Glass: The really encouraging thing is that these case studies and reference stories are really showing meaningful business results in driving profitable traffic. That is a painkiller in this industry right now. That is in pain and in need of traffic that doesn't require discounting and value menus and meal deals. To understand a guest, to be able to reactivate lapsed guests and get guests to order more frequently without discounting, as you heard in that five guys example, is exactly what the industry needs right now and always.

Speaker Change: We had over a dozen brands coming onto the platform with multiple solution suites, order and pay. We had six.

Speaker Change: that were coming on with all three of our solution suites, Order, Pay, and Engage, really what we see as the full Olo flywheel.

Speaker Change: And that's the role we want to play, we want to be that guest-centric tech stack for our restaurant brands.

Speaker Change: That's a bigger vision than we articulated at the time of our IPO, and that's something that our restaurants are getting really excited about. We've captured all this data through digital ordering, linked to the guest.

Noah Herbert Glass: Now we can capture even more data through payments and through other data sources that are connected back to that guest. We can derive insights using machine learning and AI, and we can help brands take action to personalize that guest experience, which is a win for the guest, a win for the brand, and puts us in a really strategic position as that brand's digital conduit and their conduit into their guest book.

Speaker Change: At the ingredient level, now we can capture even more data through payments and through other data sources that are connected back to that guest.

Speaker Change: We can derive insights using machine learning and AI, and we can help brands take action to personalize that guest experience, which is a win for the guest, a win for the brand, and puts us in a really strategic position as that brand's digital contiguary and their conduit into their guestbook.

Connor Pastor: Thanks for that note. It's a great color.

Speaker Change: Thanks for that, Noah. It's a great caller. Maybe just a quick follow-up on the strong cash flow performance this quarter. I think you mentioned some timing impacts that helped drive the app performance. I'm just curious how we should think about cash flow in the back half of the year.

Peter J. Benevides: Yeah, thanks, Connor. So you're right in terms of timing benefits this quarter. So if you actually look at free cash flow through the first half of the year, it's more aligned with our NGUI performance. And I think we've mentioned this in the past, which is quarter to quarter, depending on working capital timing. Free cash flow can vary from from NGUI. But when you look at it over the course of the year, those two things tend to be pretty tightly aligned, which is what happened through the first half of the year.

Connor Pastor: This is a quick follow-up on the strong cash flow performance this quarter. I think you mentioned some timing impacts that helped drive the outperformance. I'm just curious how we should think about cash flow in the back half of the year. Yeah, thanks.

Speaker Change: Thanks, Connor. So you're right in terms of timing benefits this quarter. So if you actually look at free cash flow through the through the first half of the year, it's more aligned with our NGUI performance. And I think we've mentioned this in the past, which is

Speaker Change: Quarter to quarter, depending on working capital timing, the free cash flow can vary from NGOI, but when you look at it over the course of the year, those two things tend to be pretty tightly aligned, which is the case through the first half of the year.

Operator: Thank you. Our next question comes from Stephen Sheldon with William Blair. Please proceed.

Speaker Change: Great, thank you.

Speaker Change: Thank you. Our next question comes from Stephen Sheldon with William Blair. Please proceed.

Stephen Hardy Sheldon: Hey, thanks, I appreciate you taking my questions. First, I just wanted to follow up on one of the last lines of questioning. Sounds like we're still in the early innings for the Engage suite. So what have you seen from an enterprise restaurant sophistication standpoint, in terms of thinking about gathering more guest data and using it to increase monetization? Are they in a better spot from a sophistication standpoint to be able to unlock the value from that guest data?

Stephen Hardy Sheldon: Hey, thanks, appreciate you taking my questions. First, just wanted to follow up on one of the last line of questioning.

Stephen Hardy Sheldon: It sounds like we're still early innings for the Engage suite.

Speaker Change: So, what have you seen from an enterprise restaurant sophistication standpoint?

Speaker Change: in terms of thinking about gathering more guest data, using it to increase monetization. Are they in a better spot from a sophistication standpoint to be able to unlock the value from that guest data? And just generally, are you seeing that become a bigger top of mind focus?

Speaker Change: Across big brands is it just a few that you're seeing that's because just just more color there would be great So it seems like a very large opportunity

Stephen Hardy Sheldon: And just generally, are you seeing that become a bigger top of mind focus? Across big brands, are there just a few that you're seeing that's becoming, just more color there would be great. So it seems like a very large opportunity. Hey, Steven, Noah here.

Speaker Change: Hey, Steven, Noah here. I'll take that. I totally agree on that last point. A very large opportunity, something that is top of mind, front and center for restaurant CEOs, for restaurant boards.

Noah Herbert Glass: I'll take that, I totally agree on that last point. A very large opportunity, something that is top of mind, front and center for restaurant CEOs, for restaurant boards, specifically in this moment in time, when they're thinking about how do I drive traffic when traffic is down, or we've seen that restaurants have taken prices that have had a negative impact on traffic, and so they're looking for ways to drive traffic. And of course, the challenge is, how do you do that profitably so that it's a good thing for the brand, a good thing for the franchisees, and doesn't erode the brand's equity?

Speaker Change: specifically in this moment in time, when they're thinking about how do I drive traffic when traffic is down, or it seems that restaurants have taken price that's had a negative impact on traffic.

Speaker Change: And so they're looking for ways to drive traffic. And of course, the challenge is, how do you do that profitably so that it's a good thing for the brand, a good thing for the franchisees, and doesn't erode the brand's equity? That's really what a focus on guest data and personalization enables brands to do. So I think that.

Noah Herbert Glass: That's really what a focus on guest data and personalization enables brands to do. So I think that need is very real across the industry right now. If you listen to some of the public restaurant earnings calls, Domino's, McDonald's, Starbucks, all are talking about traffic being down and actions that they're taking to drive traffic, typically through discounting, because discounting is the traditional solution that brands take. So being able to drive profitable traffic is really differentiated. I think, in terms of sophistication, brands are swimming in data. There's a lot of it.

Speaker Change: Need is very real across the industry right now. If you listen to some of the public restaurant earnings calls, Domino's, McDonald's, Starbucks, all are talking about

Speaker Change: traffic being down and actions that they're taking to drive traffic,

Speaker Change: The traditional solution that brands take. So being able to drive profitable traffic is really differentiated.

Noah Herbert Glass: The challenge is, how do you collate that data for each guest? And that's really what the guest data platform enables brands to do. Then how do you drive insights? And then how do you take action based on those insights? And that's what the larger engaged suite, marketing automation, sentiment, et cetera, are meant to do. But a big thing that we've seen is that these are new tools, and restaurant brands need help learning how to use these new tools or maybe setting up and optimizing a program.

Speaker Change: I think, you know, in terms of sophistication, brands are swimming in data, there's a lot of it. The challenge is, how do you collate that data to each guest?

Speaker Change: And that's really what the guest data platform enables brands to do.

Speaker Change: Then how do you derive insights? And then how do you take action based on those insights? And that's what the larger Engage suite, marketing automation,

Speaker Change: sentiment, etc. are meant to do. A big thing that we've seen is that these are new tools and restaurant brands need help learning how to use these new tools or maybe setting up and optimizing a program.

Noah Herbert Glass: And that's where I've talked in recent quarters, and I'll reflect again, the professional services component of Olo has been a huge breakthrough in accelerating brands' ability to really take action with that data once they've collated it into the GDP. So, we're excited about that progress. And then, of course, as I said, being able to tell these success stories and translate these solutions that we have into business outcomes that restaurants are hungry for, and then show a playbook for how to go and execute that, and do so in a way that is long-term profitable for the brand and profitable for the franchisees.

Speaker Change: And that's where I've talked in recent quarters, and I'll reflect again. The professional services component of Olo has been a huge unlock in accelerating brands' ability to really take action with that data once they've collated it into the GDP.

Speaker Change: So we're excited about that progress, and then of course, as I said, being able to tell these success stories and translate these solutions that we have into business outcomes that restaurants are hungry for and then show a playbook for how to go and execute that.

Speaker Change: and do so in a way that is long-term profitable for the brand and profitable for the franchisees.

Stephen Hardy Sheldon: Got it. That's really helpful. And then just wanted to make sure, just to follow up, make sure I have my math right. If we stripped out the one-time items, Peter, that you called out, would we be right in thinking that non-GAAP gross profit growth this quarter would have been in kind of the same ballpark as the... 10 to 12% year-over-year growth you've seen in the last few quarters? Just want to make sure I kind of have my math roughly right there. Yeah, it would actually be a little bit higher.

Speaker Change: Got it. That's really helpful.

Speaker Change: And then just wanted to make sure, just to follow up and make sure I have my math right, if we stripped out the one-time items, Peter, that you called out, would we be right in thinking that non-GAAP gross profit growth this quarter would have been in kind of the same ballpark as the...

Speaker Change: 10 to 12% year-over-year growth you've seen the last few quarters. Just want to make sure I kind of have my math roughly right there.

Peter J. Benevides: Yeah, it would actually have been a little bit higher; it's just north of 13% year-on-year growth, excluding the one-time items that we mentioned there, which is great. That's the second quarter in a row where we've had an increase, a sequential increase, in gross profit growth.

Peter: Yeah, it would have actually been a little bit higher. It's just north of 13% year-on-year growth, excluding the one-time items that we mentioned there, which is great. That's the second quarter in a row where we've had an increase, a sequential increase in gross profit growth.

Operator: Thank you. Our next question comes from Gabriela Forges with Goldman Sachs. Please proceed.

Speaker Change: Got it. Very helpful.

Speaker Change: Thank you. Our next question comes from Gabriela Forges with Goldman Sachs. Please proceed.

Max Gamperl: Hi. Thanks for taking our questions. This is Max Gamperl on behalf of Gabriella.

Speaker Change: Hi, thanks for taking our questions. This is Max Gamperl on for Gabriela. A couple questions from us.

Max Gamperl: Noah, you touched on this in your prepared remarks, but could you comment on any updated observations as it relates to customers?

Speaker Change: considering building out their homegrown solutions versus further investing in the Olo platform, and how do these considerations change between your enterprise and emerging enterprise customers?

Max Gamperl: A couple of questions from us. Noah, you touched on this in your prepared remarks, but could you comment on any updated observations as it relates to customers considering building out their homegrown solutions versus further investing in the Olo platform? And how do these considerations change between your enterprise and emerging enterprise customers?

Speaker Change: I thank you for the question. I think you know similar commentary that you've heard from me in in other quarters

Speaker Change: The larger trend that we see is brands moving from homegrown solutions.

Speaker Change: on to the Olo platform. We have...

Speaker Change: a dozen examples of that since our IPO. We have yet another example this quarter in and pizza coming back to Olo after going on to a homegrown platform and seeing the light of why the Olo platform really meets their needs going forward.

Noah Herbert Glass: Thank you for the question. I think, you know, similar commentary that you've heard from me in other quarters, the larger trend that we see is brands moving from homegrown solutions onto the Olo platform. We have had a dozen examples of that since our IPO. We have yet another example this quarter in Ann's Pizza coming back to Olo after going on to a homegrown platform and seeing the light of why the Olo platform really meets their needs going forward.

Speaker Change: I think one of the big things that's shown up recently is brands really valuing

Speaker Change: Not just our innovation and platform level innovation, which is something I talk about a lot, but some of the basics of our reliability at scale, and also, most recently, our security at scale.

Noah Herbert Glass: I think one of the big things that have shown up recently is brands really valuing not just our innovation and platform level innovation, which is something I talk about a lot, but some of the basics of our reliability at scale and also, most recently, our security at scale. So, like many other players in the software space, we, too, were impacted a bit by the CrowdStrike incident the other week, but it's something that had a minimal impact on our business and on our customers' business because our incident response team moved really quickly and resolved this issue, and our downtime was very limited.

Speaker Change: So, like many other players in the software space, we too were impacted a bit by the CrowdStrike incident the other week.

Speaker Change: But it's something that had minimal impact on our business and on our customers' business because our incident response team moved really quickly and resolved this issue, and our downtime was very limited.

Speaker Change: under 1% of transactions for the day were impacted. When you compare that to homegrown solutions, several of which were off for many hours, sometimes many days.

Noah Herbert Glass: And yet another reason why with a scaled SaaS platform like Olo, Whether you're an emerging enterprise, or an enterprise brand, or a top 25 brand, for that matter, you don't have to worry about reliability at scale, you don't have to worry about security, because it's being baked into what you're getting from that SaaS platform. So I'm really proud of how our team performed during that event, and it really underscores yet another value proposition of a scaled SaaS platform and why that's a superior, cost-effective way to run one digital platform versus building and maintaining a homegrown platform, which is a very expensive and very high-risk proposition.

Speaker Change: And it's yet another reason why, with a scaled SaaS platform like Olo,

Speaker Change: Whether you're an emerging enterprise, or an enterprise brand, or a top 25 brand for that matter, you don't have to worry about reliability at scale, you don't have to worry about security, because it's being baked into what you're getting from that SaaS platform.

Speaker Change: So, I'm really proud of how our team performed during that event, and it really underscores yet another value proposition of a scaled SaaS platform and why that's a superior, cost-effective way.

Speaker Change: to run one digital platform versus building and maintaining a homegrown platform, which is a very expensive and very high risk proposition.

Max Gamperl: Yeah, that's helpful. Noah, thank you. And Peter, could you help us understand one more time the key drivers to re-accelerate gross profit growth in 2025? What is assumed about the Olo pay card present adoption? And what are some other factors that could drive further re-acceleration as we head into 2025?

Noah: Yeah, that's helpful. Noah, thank you. And Peter, could you help us understand one more time the key drivers to reaccelerate gross profit growth in 2025? What is assumed in Olo pay card present adoption? And what are some other factors that could drive further reacceleration as we head into 2025? Thank you.

Peter J. Benevides: Yeah, just on that, I think one point of clarification is around existing gross profit or gross margin for the card not present business. So today that is a Gross profit, accretive, gross margin, accretive products, so I just want to clarify that, as part of my commentary. Now, in terms of thinking about 2025 and like, what are the levers that we can pull to help reaccelerate gross profit growth throughout 2025, card present is an important piece of that.

Max Gamperl: Thank you. Yeah, just on

Peter: Yeah, just on that, I think one point of clarification is around existing gross profit or gross margin for the card not present business. So today, that is a

Speaker Change: Gross profit, accretive, gross margin, accretive products, so I just want to clarify that.

Speaker Change: As part of my commentary, now in terms of thinking about 2025 and like, you know, what are the levers that

Speaker Change: We can pull...

Speaker Change: to help re-accelerate gross profit growth throughout 2025.

Peter J. Benevides: As we mentioned on the call, the Honeygro example is emblematic of the opportunity. And if we get that right, what it can mean for gross profit dollars and gross profit growth. That, coupled with continued progress within the order and engage suites, order is a combination of new business wins and upsells of existing products like catering plus, which are high-margin software dollar products that will help to reaccelerate gross profit growth.

Speaker Change: Card present is an important piece of that. As we mentioned on the call, the Honeygro example, I think, is emblematic of the opportunity. And if we get that right, what that can mean for gross profit dollars and gross profit growth.

Speaker Change: That, coupled with continued progress within the Order and Engage suites, Order is a combination of new business wins and upsells of existing products like Catering Plus.

Speaker Change: which are high margin software dollar products that will help to

Peter J. Benevides: And then, of course, once you are using the order suite, and you are using our payment capabilities, and you are deriving a ton of guest data as a result of that, that becomes a great segue into the engage suite, where we have a host of solutions that customers can subscribe to, all of which will help to fuel gross profit growth. So, we have a number of different levers that we can pull, and whether it's the Honeygro example, or 5 guys expanding into the suite, it's really replicating those use cases or examples that give us confidence in our ability to expand gross profit growth by 25%.

Speaker Change: re-accelerate gross profit growth.

Speaker Change: And then, of course, once you are using the Order Suite and you are using our payment capabilities and you are deriving a ton of guest data as a result of that, that becomes a great segue into the Engage Suite.

Speaker Change: where, yeah, we have a host of solutions that customers can subscribe to, all of which will help to fuel gross profit growth.

Speaker Change: So we have a number of different levers that we can pull, and whether it's the HoneyGrow example or Five Guys expanding into the Engage suite, it's really replicating those use cases or examples that give us confidence in our ability to expand gross profit growth in 25.

Operator: Thank you. The next question comes from Matthew Hedberg with RBC Capital. Please proceed.

Speaker Change: Got it, thank you.

Speaker Change: Thank you. The next question comes from Matthew Hedberg with RBC Capital. Please proceed.

Simran: Hey guys, this is Simran on for Matt Hedberg. Thanks for taking a question. Congratulations on the quarter.

Simran: I just wanted to double-click a little bit more on ARPU. You've talked a bit about how ARPU expansion is going to be the primary driver for revenue growth going forward compared to location ads. Can you just talk a little bit more about the most exciting aspects of ARPU expansion in your mind and how it performed this quarter relative to your internal expectations?

Simranan: Hey guys, this is Simranan from Matt Hedberg. Thanks for taking our question. Congrats on the quarter. I just wanted to double-click a little bit more on ARPU. You've talked a bit about how ARPU expansion is going to be the primary driver for revenue growth going forward compared to location ads.

Speaker Change: Can you just talk a little bit more about the most exciting aspects of ARPA expansion in your mind, and how did it perform this quarter relative to your internal expectations?

Peter J. Benevides: Yeah, so maybe beginning with that last part first. ARPU this quarter exceeded our expectations, in part driven by the outperformance across all three product suites, as well as the continued durability and digital ordering that I mentioned earlier. So when I look back to how we were thinking about U2 for the full year, you know, this time last quarter, we actually outperformed our ARPU assumption this quarter for those reasons. I think that... For each of the suites, each of the, within each of the suites, there are exciting things happening that all lead to a great opportunity to expand ARPU from where we are today.

Speaker Change: Yeah, so maybe beginning with that last part first. So ARPU this quarter exceeded our expectations.

Speaker Change: And, you know, in part driven by the outperformance across all three product suites, as well as

Speaker Change: So when I look back to how we were thinking about Q2 and the full year, you know, this time last quarter, we actually outperformed our ARPU assumption this quarter.

Speaker Change: for those reasons.

Speaker Change: I think that

Speaker Change: For each of the suites, each of the, you know, within each of the suites there is, there are exciting things happening.

Speaker Change: That all lead to a great opportunity to expand ARPU from where we are today. And what's interesting is if you go back a number of quarters ago when we introduced this concept of

Peter J. Benevides: And what's interesting is, if you go back a number of quarters ago, when we introduced this concept of the 100x opportunity, part of that math was the ability to expand ARPU, you know, 25 times from where we are today. And part of that is being driven by pay adoption. Part of that is being driven by monetizing all transactions that are being processed over the platform, and you're starting to see the proof points toward that goal via examples like Honeygro.

Speaker Change: 100x opportunity. Part of that math was the ability to expand ARPU

Speaker Change: 25 times from where we are today. And part of that is being driven by pay adoption. Part of that is being driven by

Speaker Change: monetizing all transactions that are being processed over the platform and you're starting to see the proof points toward that goal via examples like Honeygro. So I think as we continue to upsell across all three product suites in particular pay that's going to

Peter J. Benevides: So I think as we continue to upsell across all three product suites, in particular pay, that's going to, in turn, help to re-accelerate or grow our food growth, which would then help to further grow gross profit growth.

Speaker Change: In turn, help to re-accelerate or grow our food growth, which would then help to further grow gross profit growth.

Simran: Great, thank you. That's a great color.

Speaker Change: Great, thank you. That's great, Collar. And just one more follow-up. When we think more broadly across the different service models, across dine-in, take-out, drive-thru, delivery, can you talk a little bit about customer preferences, how they've changed, and how they've evolved, and if you're seeing any additional secular tailwinds that could accelerate market share gains?

Noah Herbert Glass: And just one more follow-up. When we think more broadly across the different service models across Dine-In, Take-Out, Drive-Thru, and Delivery, can you talk a little bit about customer preferences, how they've changed and how they've evolved? And if you're seeing any additional secular tailwinds that could accelerate market share gain? Yeah, this is Noah. I'll take that.

Noah Herbert Glass: Yeah, this is Noah. I'll take that. So one of the things that we've noticed is just the drive-through resonance with guests and how guests are using the drive-through as the largest portion of transactions across the industry. It accounts for 36% of total transactions, the plurality of all transactions. Drive-thru is largely non-digital, as we've noted. I mean, it's still done in the way that a guest is pulling up to a speaker box and placing the order.

Speaker Change: Yeah, this is Noah. I'll take that. So I think one of the things that we've noticed is just the drive-through resonance to guests and how guests are using the drive-through as the largest

Noah: A portion of transactions across the industry, it's 36% of total transactions, the plurality of all transactions.

Noah: Drive-thru is largely non-digital, as we've noted, and it's still done in the way that a guest is pulling up to a speaker box, placing the order.

Noah Herbert Glass: That is starting to change in a number of ways. It's starting to change with guests ordering ahead and then having a faster pickup at the drive-thru in sort of a fly-through manner where they're not gated by the guests who are waiting to place an order, but they're just swinging in to pick up the order. And also in kiosks and voice AI in place of that speaker box. Both of those things represent great opportunities for further digital penetration in the industry. We're highly involved in all of that activity.

Speaker Change: That is starting to change in a number of ways, starting to change in guests ordering ahead and then having a faster pickup at the drive-thru.

Speaker Change: in sort of a fly-through manner where they're not gated by the guests who are waiting to place an order, but they're just swinging in to pick up the order. And also in kiosks and voice AI in place of that speaker box.

Speaker Change: Both of those things represent great opportunities for further digital penetration in the industry. We're highly involved in all of that activity. It's awesome to see brands like Dutch Bros who are really built on the drive-thru channel leading the way and showing what excellence looks like in digital drive-thru.

Noah Herbert Glass: It's awesome to see brands like Dutch Bros, who are really built on the drive-thru channel, leading the way and showing what excellence looks like in digital drive-thru. The other thing is that delivery really remains responsive. Delivery is now, according to that same Circona data that we mentioned earlier, 9% of total industry traffic. So it's the smallest portion, but it's highly digital. It's about 80% of that 9% that is digital for delivery, and then we're seeing a lot of pickup still. So they pickup 29% of transactions.

Speaker Change: The other thing is delivery really remains resonant. Delivery is now...

Speaker Change: According to that same SIRCANA data that we mentioned earlier, 9% of total industry traffic. So it's the smallest portion, but it's highly digital.

Speaker Change: It's about 80% of that 9% that is digital for delivery.

Noah Herbert Glass: And the largest component of that digital mix of transactions is pickup transactions. That's really where Olo came into the market initially, and it's helping brands to digitize those takeout transactions. And we are starting to see more digitization of the on-premise experience. We talked about kiosks. That's a great example of that, really in tune with the industry right now and also with industry guests, restaurant guests, and on-premise ordering through QR codes. So in every one of those venues, we're seeing digital progress.

Speaker Change: And then we're seeing a lot of pickup still, so pickup 29% of transactions.

Speaker Change: And it is the largest component of that digital mix of transactions is pickup transactions. That's really where Olo came into market initially and is helping brands to digitize those takeout transactions.

Speaker Change: And we are starting to see more digitization of the on-premise experience. We talked about kiosks, that's a great example of that, really resonant with the industry right now and also with industry guests, restaurant guests.

Speaker Change: and on-premise ordering through QR code. So in every one of those venues, we're seeing digital advance and we're thrilled to be playing a role in every one of those venues and helping brands to think about how digital can both provide a better guest experience.

Noah Herbert Glass: And we're thrilled to be playing a role in every one of those venues and helping brands to think about how digital can both provide a better guest and also help them do more with less, become more efficient operationally, while at the same time helping them to gather that guest data and really better know their guests to better personalize the guest experience as a great by-product of the digital transformation of the

Noah Herbert Glass: and also help them do more with less, become more efficient operationally, while at the same time helping them to gather that guest data and really better know their guests, to better personalize the guest experience as a great co-product of the digital transformation of the industry.

Noah Herbert Glass: Thank you. There are no further questions in queue at this time. I would like to turn and call back over to Mr. Noah Glass for closing comments.

Speaker Change: Great, thanks guys.

Speaker Change: Thank you. There are no further questions in queue at this time. I would like to turn the call back over to Mr. Noah Glass for closing comments.

Noah Herbert Glass: Okay, well, thank you for joining us today. Q2 was another strong quarter of financial and operational performance. We continue to land new customers and expand within our base of 700 plus brands, including through our new Catering Plus module and drive innovation with 19 new product enhancements and increased ecosystem partnerships. In parallel, we took additional steps toward launching our full-stack payment solution with a third Olopay kiosk integration and a third Olopay POS integration. And we're seeing green shoots of how our long-term strategy can help brands drive profitable traffic with guest data. We have miles to go before we sleep, and we're energized by the dream.

Speaker Change: Okay, well thank you for joining us today. Q2 was another strong quarter of financial and operational performance. We continue to land new customers and expand within our base of 700 plus brands.

Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

Speaker Change: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.