Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Olo Third Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent to any background noise. After the speakers’ remarks, there will be a question-and-answer session.

I’ll now turn the call over to Olo’s VP of Investor Relations, Ms. Stephanie Daukus. Please go ahead..

Thank you. Good afternoon, everyone, and welcome to Olo’s Third Quarter 2021 Earnings Conference Call. Joining me today are Noah Glass, Olo’s Founder and CEO; and Peter Benevides, Olo’s CFO.

During our call today, some of our discussion and responses to your questions may contain forward-looking statements, which represent our beliefs and assumptions only as of the date statements are made.

These forward-looking statements include, but are not limited to, statements regarding our expectations of our business, future financial results and guidance and strategy.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements, and such risks are described in our risk factors included in our SEC filings, including our quarterly report on Form 10-Q for the quarter ended September 30, 2021, that will be filed with the SEC following this earnings call.

You should not rely on forward-looking statements as predictions of future events. We undertake no obligation of updating any forward-looking statements made during this call to reflect events or circumstances after today. 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 we issued a short while ago. This earnings release is available on the Investor Relations page of our website and is included as exhibit in the Form 8-K furnished to the SEC.

Finally, in terms of our prepared remarks or in response to questions, we may offer incremental metrics. Please be advised that this additional detail may be onetime in nature, and we may or may not provide an update in the future on these metrics.

I encourage you to visit our Investor Relations website at investors.olo.com to access our earnings release, periodic SEC reports, a webcast replay of today’s call or to learn more about Olo. With that, let me turn the call over to Noah..

Black Girls Code, Clean Air Task Force, Emma’s Torch, Feeding America, FoodCorps, Girls Who Code, Giving Kitchen, the Let’s Empower Employment Initiative and Natural Resources Defense Council.

These grant recipients are organizations that align with our Olo for Good pillars, advancing all aspects of diversity, equity and inclusion, providing relief and support for the restaurant industry and its frontline workers, ending childhood hunger and increasing access to food and protecting natural resources and reducing waste and emissions.

We expect to have an annual grant cycle going forward, and I’m optimistic and enthusiastic about our ability to use Olo as a platform for social impact and positive change for our communities. To summarize, I am extremely proud of our third quarter results and our ability to enable restaurants during this period.

As on-premise transactions increase in the wake of restaurant reopenings and restaurants struggled to staff their dining rooms, Olo will continue to be a force multiplier for restaurants, enabling them to do more with less, allowing technology to step in where possible and supporting restaurants to thrive and benefit from the restaurant industry’s digital transformation.

And now I’d like to turn things over to Peter Benavides, Olo’s CFO, to share more details on Olo’s third quarter performance.

Peter?.

Thanks, Noah. Today, I’ll review our third quarter fiscal 2021 results in detail and provide guidance for the fourth quarter and full year fiscal 2021. Total revenue in the third quarter was $37.4 million, up 36% year-over-year.

Platform revenue in the third quarter was $36.1 million, up 38% year-over-year primarily due to an increase in active locations coming on to the platform and further increases in ARPU due to continued multiproduct adoption, multi-partner adoption and increased transaction volumes.

In terms of key metrics, we ended the quarter with approximately 76,000 active locations on the platform, a 26% increase year-over-year and a 3% increase sequentially. As Noah mentioned, this included deploying a number of new brands such as CKE and Dave’s Hot Chicken amongst others.

ARPU for the third quarter was approximately $484, representing an 8% increase year-over-year and roughly flat quarter-to-quarter. Year-over-year growth in ARPU was the result of further increases in multiproduct and multi-partner adoption and increased transaction volumes.

Specific to transaction volumes, we were pleased with the continued durability of digital orders in the third quarter. Despite seasonality effects we typically see in the third quarter, continued return to in-person dining and transitory labor challenges, digital order improved durable with volumes exceeding expectations.

Lastly, net revenue retention remained strong in excess of 120% for the third quarter as we successfully upsold to existing clients, such as Bojangles and Denny’s, which Noah mentioned earlier.

While we have observed strong upsells throughout this year, we have also experienced new customers subscribing to more than one product from the onset of their relationship with Olo. While this drives higher ARPU, it leaves less room for net revenue retention expansion.

That said, we anticipate strong gross retention, continued product development and increased transaction volumes factors supporting strong net revenue retention over the long term. For the remainder of the financial metrics disclosed unless otherwise noted, I will be referencing non-GAAP financial measures.

Gross profit for the third quarter was $30.2 million, representing a gross margin of 81% compared to a gross margin of 83% a year ago. Platform gross margin for the third quarter was 84%. This compares to platform gross margin of 87% a year ago.

As expected, the year-over-year decrease in gross margin was driven by an increase in headcount and associated compensation costs to support the rapid growth in transaction volumes and active locations added to the platform. Sales and marketing expense for the third quarter was $4.2 million or 11% of total revenue.

This compares to $1.9 million and 7% a year ago. As expected, on a dollar basis, increases in sales and marketing spend were driven by continued expansion of our sales, marketing and business development teams in an effort to continue to add more locations to the platform, increase upsell and retention efforts and expand our partnership ecosystem.

Research and development expense for the third quarter was $11.9 million or 32% of total revenue. This compares to $7.5 million and 27% a year ago reflecting our continued commitment to investing in innovative solutions to support the rapidly evolving needs of our customers.

General and administrative expense for the third quarter was $9 million or 24% of total revenue. This compares to $4.8 million and 17% a year ago. As expected, on a dollar basis, increases were primarily tied to increased costs and headcount associated with operating as a public company.

Operating income for the third quarter was $5.1 million compared to $8.8 million a year ago. Net income in the third quarter was $5 million or $0.03 per share based on approximately 185.1 million fully diluted weighted average shares outstanding. Turning our attention to the balance sheet and cash flow statement.

Our cash, cash equivalents and marketable securities balance was $597.7 million as of September 30, 2021. This total does not reflect the $77 million of cash paid in conjunction with the acquisition of Wisely which closed on November 4. Regarding cash flows, operating cash flow was $10.7 million compared to $4.1 million a year ago.

Free cash flow was $10.2 million compared to $3.5 million a year ago. I’ll wrap up by providing our guidance for the fourth quarter and full year 2021. For the fourth quarter, we expect revenue in the range of $38.8 million to $39.3 million and non-GAAP operating income in the range of $2.8 million to $3.2 million.

For the fiscal year 2021, we expect revenue in the range of $148.2 million to $148.7 million and non-GAAP operating income in the range of $19.8 million to $20.2 million. I would like to highlight a few things to keep in mind about our outlook.

We closed our acquisition of Wisely on November 4, and therefore, have included contributions of $1 million of revenue and $800,000 of non-GAAP operating loss in our guidance numbers for the quarter. Secondly, we remain prudent in our approach to forecasting given evolving industry dynamics.

Specifically, anticipated factors such as the residual impacts from COVID-19 and seasonality effects and transitory impacts due to the continued industry labor challenges.

That said, the underlying fundamentals of the business, a strong sales and deployment pipeline, durability of digital ordering, growth in the partnership ecosystem and continued product innovation has us extremely excited for the path ahead.

To summarize, we’re extremely proud of our financial performance this quarter, which we believe reflects our continued ability to execute on our vision and the opportunity ahead, and we’re even more excited about our position, the market opportunity ahead of us and the impact we can have in helping our restaurants thrive while navigating the industry’s evolving landscape.

With that said, I’ll turn things back over to the operator to begin Q&A.

Operator?.

[Operator Instructions] Our first question comes from Brad Reback from Stifel. Please take your questions..

Great. Thanks very much. Maybe for Peter, starting off, ARPU flattened quarter-over-quarter versus being down last quarter.

Should we take this as sort of a point of stability, especially with Wisely being added and the opportunity for growth to reaccelerate there?.

Hey, Brad, thanks for the question. Yes, I think that’s a great takeaway. We were really pleased with ARPU performance this past quarter. It was in line with our expectations.

In fact, it exceeded our expectations, I think, due to the durability the digital ordering that we covered during our prepared remarks, and that obviously contributed to the outperformance on the quarter.

So as we look ahead, we see more stability in growth in ARPU as a result of durability of digital ordering as well as the Wisely suite of products that we have now to sell into our existing customer base..

That’s great. And then I’m not sure if for you, Peter or Noah. But as we think about the last six quarters, it’s been a bit of a wild ride.

As we look forward, what should we think of as the durable growth rate of the business?.

Yes, I can take that one, Brad. This is Peter again. Yes. As we look ahead, we see a lot of opportunity for growth and a lot of different levers to pull to get there.

I think in the most simplest form continuing to add more active locations to the platform we shared over previous quarters the momentum that we’ve started to gain in terms of the QSR segment, again that is the segment of the industry that really excites us from a location standpoint as well as the amount of transactions that are processed within that segment of the restaurant industry, which obviously bodes well for our transactional SaaS model.

In terms of ARPU, a lot of levers to pull there in terms of future multiproduct adoption, multi-partner adoption and growth in transaction volumes. To date for this past quarter, according to NPD, digital transactions accounted for about 16% of overall industry transactions.

So a lot of opportunity for growth ahead in digital ordering, and we’re excited about that path forward..

Great. Thanks very much. Congratulations..

Our next question comes from Brent Bracelin from Piper Sandler. Please state your question..

This is Clarke Jeffries on for Brent. First question is, I think discussions of supply chain issues have really permeated to areas of the economy far beyond I think most have anticipated. And I appreciate the color on the product behavior changes that restaurants are making to respond to labor shortages.

I was wondering if you could just level set for us what you’re expecting in terms of seasonal volumes for the fourth quarter? And if there’s any kind of concern on inventory? Or if they feel more insulated at this point?.

Yes, I can take that. This is Peter here. So in terms of order volumes, what we’re seeing throughout the first few weeks of the quarter is really aligned with what we shared in our prepared remarks, which is continued durability in digital ordering.

The one thing I would call out is which is typical November and December launches just the seasonality impact given the holiday period. So as we think about Q4 digital ordering trends, those are all factors that have been reflected in the guidance that we shared.

On your last point there in terms of some of the supply chain issues, I don’t necessarily see that as a dynamic playing out or impacting our business today, but certainly something we’re keeping an eye on..

Got it. And then a follow-up question. Sales and marketing growth continues to expand here, accelerating year-over-year. I appreciate the commentary in your prepared remarks.

But could you just remind us where is the fastest growing incremental spend today? And what are the top go-to-market initiatives as we enter 2022?.

Yes. So some other to what we shared, I think, in previous quarters in terms of how we’re thinking about scaling the sales and marketing organization. I think our focus continues to be on building out the team to address larger portions of the enterprise segment of the market.

We’ve had a lot of success to date in what we define as the emerging enterprise segment of the market. So continuing to broaden the team there to drive more success in that segment.

And then as you think about all the different ARPU-enhancing levers that we have, Virtual brands, Dispatch, Rails and now the Wisely suite of products, there’s a lot of opportunity to continue to expand within our customer base.

So again, growing the team to make sure that we have the right balance between team size and opportunity, that’s really how we’re thinking about investments in sales and marketing in the near term..

I appreciate it. Thank you..

Our next question comes from Matt Hedberg from RBC Capital. Please state your question..

Great. Thanks a lot for questions guys. Noah, You've had a lot of success this year. I think you've added about 12,000 locations to the first nine months of the year. And it looks like, what's implied in your Q4 guidances is a strong pipeline as well.

I guess I'm wondering, can you – as you sit here today, can you talk about sort of the quality of the new business pipeline versus maybe were a year ago? Obviously, you’ve had a lot of success selling remotely too over the past really two years.

Do you think that your pipeline could actually see maybe the incremental benefit from the sales people maybe started to travel a bit more?.

Yes, I can actually take that one, Matt, in terms of sort of location trends.

I think I would start answering that question by saying from a high level, I don’t think we’ve ever been more excited about our sales and deployment pipeline really on two fronts in terms of new location adds as well as the various upsell opportunities that have continued to emerge.

And I think now with the addition of the Wisely suite of products, obviously, a lot of excitement there as well. So I don’t think the return to in-person selling is necessarily determinant of incremental sales activity beyond our current estimate.

The team has done a wonderful job selling remotely, deploying remotely and frankly, building great relationships with our new and existing customers. So don’t anticipate a material change as sort of in-person sales process reignites. The team has done a great job to date..

That's great. And then I guess it’s for either of you. I don't think we heard, [indiscernible] prepared remarks, you mentioned that Olo obtained this quarter. I know we've been talking about it a little bit in the last couple of quarters and before you guys went public.

Any thoughts on where we're sitting there? I know it's still a little bit [indiscernible].

Hey, Matt. This is Noah. So yes, still early on track with what we shared with you earlier. We're encouraged by what we're seeing with the brands, the locations that are live on Olo Pay in our pilot hardened by the excitement from the broader restaurant brand base.

And we have conviction that this is going to be another great contributor to ARPU given our track record with finding product market fit and success in new product module sell through. One update to share, we did hire Tor Opedal as Vice President and General Manager of Payments within the quarter.

And Tor’s previous experience includes MasterCard his most recent posting, and then RBS [ph] before that. Tor has oversight of the development and the delivery of Olo Pay, and also brought accountability to all of those payment products and relationships. So we're excited for him to bring his expertise to Olo and to Olo Pay..

Thanks, Noah. Super helpful..

Our next question comes from Terry Tillman from Truist Securities. Please state your question..

Hey, guys. This is Connor Passarella on for Terry. Thanks for taking my questions and congrats on the quarter.

So to start, as we get back to [indiscernible] and I guess back to work, what are your thoughts on how volumes could trend from existing levels? I'm thinking about things like catering office lunches, et cetera, could that move the needle in any way and maybe help maintain growth….

Yes. So I can take that one. This is Peter. Great question. I think our thoughts around order volume trends, call it, over the next few quarters, hasn’t really changed much from what we thought or anticipated earlier this year.

We always thought that digital orders, as in-person dining increased, as vaccinations increased in Q2 and Q3 that they would be impacted by those developments, and that is – that has been the case. What’s been great, though, is that digital ordering has really exceeded our expectations.

So the durability of digital ordering, I think that is, in large part, why we’ve experienced the revenue outperformance over the past few quarters. As we look ahead, we continue to believe that there is growth ahead for digital ordering.

I think how that plays out in terms of revenue, I think one thing I would keep in mind is that through the first quarter of next year, we are still lapping difficult comps or challenging comps given that if you think back to earlier this year or first quarter of this year, this was pre-vaccination period.

So I think as we kind of navigate through that period, at that point, you’ll start to see more acceleration from a revenue growth standpoint and order volume standpoint..

Okay. Great. Really helpful. And then just as a follow-up. On your partners, so with DoorDash. Could you maybe share how much was driven in the quarter by that partner? And then also, could you maybe share a little bit more on the Uber Eats and Dispatch announcement, maybe the implications of alcohol delivery? Thanks guys..

Yes. I think in terms of the revenue contribution from DoorDash in particular, I think we disclosed that in the Q. So I would probably point your attention there. In terms of some of the more recent announcements last quarter, Grubhub utilizing the Rails platform and more recently, Uber and Waitr utilizing the Dispatch platform, it’s still early.

I think that we are encouraged by the early interest of our customers in terms of enabling those partnerships and getting more locations enabled with Grubhub Rails and getting more locations enabled with Uber and Waitr on the Dispatch side.

I think how that plays out over time, again, is increased transaction volumes by sourcing more demand on the Rails side as well as increasing driver availability on the Dispatch side. So more to come on that topic, but really encouraged with some of the early signs..

Thank you guys..

Our next question comes from Bhavan Suri from William Blair. Please state your question..

Hey, Noah and Peter. Nice job. And thanks for taking my questions. I guess I just wanted to touch a little bit on the idea of urgency.

And I’d like to get some color on sort of how has had it as restaurant concept urgency changed, if at all, to add Ordering or Dispatch or Rails modules as the pandemic wanes? And has that had any impact on bookings?.

Hey Bhavan, this is Noah. So I think what we’re seeing is that the restaurant industry, and we’ve seen this really over Olo’s history as a company, the industry is going through this digital transformation, there was certainly a heightened urgency amidst the challenges of COVID-19 for restaurants to go digital.

We’re seeing other sets of challenges right now causing another sense of urgency, another moment of urgency. And really, that’s driven by labor and the desire to increase productivity at the store level. And we’re seeing this really play out in every segment.

But right now, we still have restaurants operating 6% below pre-pandemic levels in terms of labor with some positive gains in the month of October. But this is leading to restaurants wanting to do more with the labor that they do have and meet the needs of the consumer.

And that’s where Olo’s solution, whether it’s Rails helping them avoid having to look at a series of tablets, whether it’s Dispatch outsourcing delivery, Switchboard to outsourcing phone ordering or just in general, self-service ordering on the app, on the website, QR code, in-restaurant, kiosk in restaurant, all of these are ways in which we are serving as a force multiplier for our restaurants.

And certainly, the desire to increase productivity is heightened at this moment and something that restaurants are always looking to do to best meet the needs of the customer and do so in the most profitable manner possible..

Yes. That makes a ton of sense. And the labor shortage is a really interesting driver. I guess, let’s touch on competitive briefly. You saw BentoBox acquired by Fiserv.

I guess, has there been any change in competitive environment? Has there been any indication the e-commerce players focus more down market, whether it’s ChowNow, et cetera, to try to move up market? So just some color on what you’re seeing out there from a competitive perspective, especially given some of the acquisitions. Thanks..

Yes. I wouldn’t characterize any of the activity that we’ve seen as competitive activity. There’s certainly a lot of activity with regard to restaurant technology and deals in the restaurant technology space. Primarily that activity has been in the SMB segment. I would characterize BentoBox as really focused on the SMB space. You mentioned ChowNow.

We historically have had a great respect for ChowNow and vice versa and not a lot of overlap. We are focused on the enterprise space in the emerging enterprise space, which we define again as the five to 100 unit restaurant brands that have that ambition of scale to be the next great enterprises of tomorrow.

ChowNow and others really focus on the smaller SMB players that benefit that category. So we haven’t seen any change in the competitive dynamic.

I can say what is true that people are more like the first scaler in the enterprise space, getting up to the milestone of 500 restaurant brands now exclusively on the Olo platform, 76,000 restaurant locations and building up the partner ecosystem on the other side to have this two-sided network that we love so much.

This is something that is self-reinforcing and helps us to scale even faster.

And as we look at new segments, we mentioned some of the ads in QSR brands, that segment is one that we’ve talked about as the largest by locations, the largest by number of transactions, and we now have Bojangles, Carl’s Jr., Checkers, Culver’s, Dairy Queen, Jack in the Box, Crystal, Panda Express, Subway, Whataburger and others, we’re starting to really prove ourselves as the best partner for the QSR segment to come online and go digital.

And that is a great segment of growth for us and one that is enterprising really by definition..

Got you. Got you. Thanks for the color and thanks for the candor. Really appreciate it. Nice job guys. Thank you..

Thanks..

Our next question comes from Sterling Auty from JPMorgan. Please state your questions..

Hi, this is Rachit on for Sterling. Thanks for taking my questions.

Guys, can you give me colors on like return to the store dining? Is that pushing out the implementation volumes? And how do you see that playing out in next quarter and early 2022?.

Yes. So specific to some of the trends we’re seeing in regard to in-person dining, I think where that’s really impacting the business, albeit to a lesser extent than we had initially anticipated, is within digital ordering.

And while that has continued to evolve throughout the year, we have a variety of products and capabilities to also meet that need. Noah had touched on earlier the ability to power tableside ordering such that consumers can dine and transact at the table via QR code ordering and have the meal run out to the table, kiosk ordering.

These are all applications of the Olo platform to accommodate the return to in-person dining. So in terms of how that trend is impacting implementations, we’re not seeing that. Really, like I said, where we’re seeing that more of a dynamic is just an overall digital ordering trends..

Okay. Thanks.

And then on the platform revenue, like can you give a sense on how the subscription transaction revenue mix is? Usually it trends around 50%, but like can you just pin down the number for that as well if we can?.

Yes. I believe this quarter specific to platform revenue, subscription revenue accounted for about 47% of the mix with transaction accounting for about 53%, which I believe is consistent with what we achieved in the second quarter..

Thanks. Thanks for that progress..

Yes..

At this time, we have no further questions. I’ll turn it back over to Noah..

Okay. Well, thank you all for joining us again today. As I hope you can hear from the contents of our prepared remarks, our responses to your questions and our general tone, we’ve never been more excited about our position or more – or our opportunity than we are today. So I want to say thank you to team Olo and for another great quarter.

We have miles to go before we sleep. Until next time, be safe..

This concludes today’s conference call. Thank you for attending..