Olo Inc. (OLO) Earnings Call Transcript & Summary

Good afternoon. My name is Han, and I will be the conference operator today. At this time, I would like to welcome everyone to the Olo-Wisely Acquisition Conference Call. [Operator Instructions] I would now like to turn today's call over to Olo's VP of Investor Relations, Ms. Stephanie Daukus. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us today on such short notice. Earlier today, Olo announced our acquisition of Wisely. The details of the transaction can be found in the press release issued earlier today at approximately 4:00 p.m. Eastern Time, and a presentation related to the transaction can also be found on the Investor Relations website at investors.olo.com. Joining me today to discuss the transaction are Noah Glass, Olo's Founder and CEO; and Peter Benevides, Olo's CFO. Let me remind you that the purpose of today's call is to discuss the Wisely acquisition, and we will not be discussing our third quarter earnings results, which are scheduled to be reported in a few weeks. Today's call, the accompanying presentation and 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 such statements are made. We undertake no obligation of updating any forward-looking statements made during this call to reflect events or circumstances after today. These statements are subject to risks, uncertainties and assumptions. A discussion of the risks and uncertainties related to our business is contained in our SEC filings, and our remarks today during the discussion should be considered to incorporate this information by reference. I encourage you to visit our Investor Relations website at investors.olo.com to access our joint press release, the investor presentation we will be using today, our 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.

Thank you, Stephanie, and thank you, everyone, for joining us. Today, we announced the acquisition of Wisely, a leading customer intelligence and engagement platform for restaurants. We're extremely excited about our acquisition of Wisely and believe it will create significant value for our restaurant brands and shareholders. Wisely's customer engagement platform, operations intelligence and data capabilities complement Olo's on-demand commerce platform that services more than 400 brands and 74,000 locations. Together, Olo plus Wisely will create a differentiated and wide breadth of product offerings that will accelerate our restaurant brands' digital transformation, deepening brands' relationships with customers and accelerate Olo's ability to reach digital entirety, touching, adding value to and deriving revenue from every restaurant transaction. Before I briefly explain Wisely's products, I want to remind you that we built Olo with the goal of being the leading open SaaS platform for the restaurant industry by aligning our solutions with the needs of restaurants. Our platform powers restaurant brands' on-demand commerce, enabling digital ordering, delivery and channel management while further strengthening and enhancing the restaurant's direct customer relationships. Now more than ever, direct-to-customer relationships are vital for restaurants. Brands must own digital relationships with their customers. They must attract and retain loyal customers. Understanding and owning the customer relationship is essential to restaurants as it allows them to better analyze interactions, customize offerings, maximize customer lifetime value and drive margin expansion and incremental sales over the long term. Wisely fulfills this mission-critical need. Through their platform of solutions, Wisely empowers restaurants to personalize the customer experience, which helps maximize customer lifetime value. As an overview, Wisely's leading software solutions include Marketing Automation, an all-in-one CRM, which makes it easy to aggregate and act on data, including e-mail and SMS campaign targeting; Host, an on-premise table management, waitlist and reservation solution; Sentiment, a guest sentiment tracker with aggregated and annotated guest reviews and feedback; and the first-ever customer data platform, CDP, purpose-built for restaurants, a solution that enables restaurant brands to integrate historically siloed guest data and extend that data into every part of their business. Since partnering with Wisely over 5 years ago, Olo has seen clear synergies between the 2 platforms and cultural alignment in putting restaurants first. Olo and Wisely both succeed when restaurants succeed, and there are clear areas of opportunity to provide enhanced capabilities to better serve our restaurant brands. Wisely's CRM and automated marketing solutions are focused on increasing customer engagement and maximizing customer lifetime value. These solutions will allow Olo to better serve restaurants' data-driven marketing needs. Combining Olo Expo and Wisely Host, we can create a robust solution that will act as a unified front-of-house experience, further enabling on-premise solutions and digital entirety. Wisely CDP collects historically siloed data from dozens of sources to create a single view of a customer and allows brands to extend that data through their business. Flexibility in collecting, analyzing and acting on insights powers tactical execution across operations and marketing, informs business decisions and ultimately fuels growth. As an example, as guests interact with restaurant brands across channels, both on and off-premise, Wisely CDP creates a unified guest profile. In turn, restaurants are provided with optionality to push data within the business. This could allow culinary to make many decisions based on which items drive repeats, marketing to personalize omnichannel campaigns and drive down costs based on better digital targeting or even inform real estate site selection based on where a brand's best customers live, work and play. Olo plus Wisely significantly expands the value proposition of our platform, providing an end-to-end solution that will provide restaurant brands greater insight into and a deeper relationship with their guests. This critical understanding enhances overall service, driving customer acquisition, conversion, retention and frequency and ultimately driving increased customer lifetime value. Customer lifetime value is the profit generated from each individual customer from first visit through last. Industry-leading brands are making this North Star metric integral to their business as the greater the lifetime value of customers, the more transactions and revenue brands will generate from their customers. To be clear, Olo plus Wisely harnesses customer data to better serve the customer and better manage the restaurant enterprise, and we're excited to be able to offer these solutions to all of our restaurant brands. Olo plus Wisely will broaden our platform to include Wisely's suite of customer intelligence products, giving each unique restaurant brand the power to curate their optimal technology stack from an expanded portfolio of solutions in conjunction with solutions from Olo's open ecosystem of over 100 technology partners. Olo remains committed to operating as an open ecosystem with the freedom of technology choice for restaurants to better serve them and enable brands to better manage their enterprise. As I stated earlier, Olo succeeds when our restaurant brands succeed by enabling restaurant brands to curate their optimal technology stack, whether directly through our platform or together with our partners. Olo has created an ecosystem which represents a 2-sided network comprising 74,000 restaurant locations and a partner ecosystem of over 100 restaurant technology partners. This 2-sided network creates a flywheel in which adding a new restaurant to our restaurant network benefits all Olo partners and adding a new technology partner to our partner network benefits all Olo restaurants. Similarly, adding new products allows Olo to capitalize on viable new opportunities, providing new avenues for growth and allowing Olo to continue to deliver unique high-value outcomes to both our restaurants and stockholders. Wisely's differentiated portfolio creates an opportunity to introduce new offerings to and drive incremental value for Olo's 400 brands and 74,000 restaurant locations. CRM expands Olo's reach to better serve brands' marketing teams and their needs, unlocking the restaurant marketing budget for the first time for Olo. Wisely's current on-premise capabilities further enable Olo's ability to power on-premise solutions to brands and accelerates our vision of digital entirety, touching, adding value to and deriving revenue from every restaurant transaction. Wisely CDP also offers significant upside to accelerate Olo's data strategy and monetize our platform's vast customer base. And unifying data systems allows brands to win the battle for digital dollars faster in the broader restaurant industry shift. All of these incremental opportunities expand our total addressable market and have the potential to increase ARPU in a meaningful way. I'm confident in our ability to realize Olo plus Wisely financial benefits given our historical success and demonstrable ability to grow within our restaurant base through the development of products that our restaurants value. This is a direct result of our highly efficient go-to-market strategy that enables us to deploy our modules across all new and existing brand locations without any additional sales and marketing costs and upsell new offerings to the brand itself rather than each individual location. Finally, I'd be remiss if I didn't mention Wisely's team, which has a strong combination of product and engineering, data, customer success, sales and marketing and restaurant-specific experience. The team has built a highly capable and talented organization as the company has scale. The Olo plus Wisely teams are incredibly aligned, sharing common principles in our values and our vision. Our shared culture of empowering restaurant brands and putting a premium on continued innovation and humility was of utmost consideration. I've long believed that Wisely is one of the strongest customer engagement platforms in our industry. I've heard it time and time again from our mutual customers. Together, we can have a much larger impact and help our restaurants and the overall industry thrive and better serve customers at the same time. With that, I'll turn the call over to Peter to discuss the terms of the transaction.

Thank you, Noah. Under the terms of the definitive agreement, Olo will acquire Wisely for approximately $187 million subject to customary adjustments. This includes $110 million of Class A common stock and $77 million in cash, which we plan to finance through cash on hand. We anticipate the acquisition to close in the fourth quarter subject to customary closing conditions. Similar to Olo, Wisely earns revenue monthly on a per location basis and grows revenue by adding more locations to the platform and increasing the amount earned on a per location basis through increasing multiproduct adoption. Currently, approximately 95% of Wisely's revenues are subscription-based, with contract terms typically being multiyear in length, which yields both a predictable and stable revenue stream. The transaction will be accretive to Olo's existing revenue growth profile. From a gross margin standpoint, we anticipate minimal impact to Olo's existing profile as Wisely possesses gross margin characteristics to that of similar-stage software companies. And when coupled with Olo's economies of scale, we anticipate a continuation of Olo's strong gross margin profile. Furthermore, the addition of Wisely is expected to have minimal impact on profitability on a consolidated basis, and we expect Olo's strong operating margin profile to generally remain the same. As Noah stated, the complementary nature of Wisely's products creates a natural upsell opportunity within our existing customer base. We believe there is a large opportunity to better meet the needs of the existing 74,000 restaurant locations on the Olo platform by adding Wisely's suite of offerings. As we've historically shown, our long-standing trusted relationships with our restaurant brands has yielded strong upsell performance, which gives us confidence that the addition of Wisely will enable us to increase ARPU in a meaningful way. Additionally, broadening the Olo suite of offerings affords Olo additional entry points into future potential customers, which can help to further land additional restaurant locations and expand with the use of Olo's existing product suite. We estimate the acquisition will expand our total addressable market by approximately $1 billion by applying Wisely's existing suite of products to the approximately 300,000 U.S. enterprise restaurant locations. Lastly, we will provide an update on our outlook for the fourth quarter and full year 2021 during our third quarter call. We will also provide any updates to guidance on our third quarter call. With that, I'll turn things back over to the operator to begin the Q&A.

An exciting opportunity to recognize and accelerate our ability to help restaurant brands embrace digital entirety and better serve their customers. And with that, let's open it up for questions. [Operator Instructions] The first question is from the line of Terry Tillman with Truist Securities.

Yes. Congratulations on this move. It seems interesting. It seems like I don't go a day without either uttering the acronym CDP or somebody is asking me about CDP. So yet another day with me talking about CDP. Maybe the first thing, though, I was curious about, it sounds like there's been pattern recognition. You all worked here with Wisely for a number of years. Is there anything you can share -- I know I'm putting you on the spot. But anything you can share about joint customer success, whereby using their capabilities on the customer engagement side is driving higher transaction sizes, the higher LTV, et cetera? Anything you could share and any specific logos that you could call out? And then I had a follow-up.

Terry, thank you for the question. I love providing another excuse for you to talk about CDP, and I love being put on the spot by you. So thank you for both of those things. I think we're not planning to talk about specific common restaurant brands at this point, but I want to emphasize a couple of the ways in which the 2 companies have worked together as partners. Number one is that Olo is obviously a great source of data feeding the CDP and a lot of the intelligence about customers. And something that I've long thought about our platform is that we have this incredibly valuable data all linked back to a customer profile and yet brands didn't have the tools up until now to really do something with that and pull in other data sources from various silos and have a full 360-degree view of the customer. Now they do and they do because of the Wisely CDP platform, which is really purpose-built for restaurants. It's a vertical SaaS. There are a lot of horizontal SaaS CDP platforms out there. I bet you that those are the ones that you typically are talking about. This is purpose-built for the restaurant industry, vertical SaaS CDP, and that's what makes it so compelling. And we're also excited about the interplay of other elements of the Wisely product suite and Olo ordering. One of those is the Host application, which is the front-of-house tool enabling for a better handoff experience. So the consumer placing the order and then the order being ready for collection, enabling that host to then send a notification out to the customer by text to come in and grab the order is a really powerful closing of the loop that makes for a better overall end-to-end transaction. There are a lot of ways that I can speak to how the platforms have worked together. We'll speak more about restaurant brands and the success that we've had to date. And of course, that's just the start. There's much more of that to come.

Great. And then maybe putting Peter on the spot, we're going to have to wait in anticipation for kind of the update after this deal closes. But in the meantime, anything at all that you can share on size and scale and how the Wisely business performed through a really volatile period of 2020 and even this year because of the pandemic?

Yes. So I can obviously answer that. Thank you, Terry, for that question. I think in terms of size and scale, so we're currently estimating on a full year revenue basis mid-single digit millions for 2021, growing to about $10 million of revenue in 2022. In terms of their contribution to Olo this year from a revenue perspective, we'll talk a little bit more about that as part of our Q3 earnings call and establishing guidance for Q4 just given the timing of when the deal is expected to close. In terms of how the business performed through COVID, they've actually done a wonderful job. They continue to grow the business at a very aggressive growth rate from a revenue standpoint to nearly double the size of the team over that time period. So they've done a really nice job of navigating what's been 18 months in support of the restaurant industry and really coming out on top.

Matt Hedberg with RBC Capital.

Great. Congrats from me as well. Peter, you noted -- I think you said multiyear contracts based off, I think you said, number of locations and products. Just to be clear, is this -- is there a transactional component to Wisely? Or -- I just want to make sure that I understand sort of how rev rec works with them.

Yes, of course. So they charge on a subscription-based plan monthly per location. And how they increase subscription fees is through multiproduct adoption. So the adoption of Marketing Automation, Host and other products within the suite helps to drive ARPU over time.

Okay. So it sounds like to me like what you're saying, though, is there's not really a transactional aspect to this volume-based if that's correct.

That's correct. Yes, that's correct. Apart from the incremental value that they can drive through better targeting and marketing, therefore, driving greater transaction volumes coupled with Olo's transactional SaaS model, that's where things can get interesting.

Got it. Okay. That makes sense. And then, Noah, I, too, like to focus on CDP. I'm wondering, could -- another aspect of your platform that I think would be interesting, and I've asked you before, is loyalty. Could Wisely also help open the door towards developing additional customer loyalty functions within the Olo platform as well?

Well, Matt, thanks for the question. I remember, I think it was our Q1 earnings call that you asked a little bit about our plans in data, and I'm happy to have an answer for you on that with the news of this acquisition and what it will enable for us. Loyalty on the sort of earn-and-burn side is not something that Wisely currently does. However, it is an open platform, much like Olo is, and there are common partners of both Olo and Wisely that are subscribing to the Wisely CDP as a source of that full customer profile, where they can then run an earn-and-burn loyalty program. It's not something that we've contemplated either as Olo or as Wisely and Olo together. But I think what loyalty is ultimately aiming to do, making customers longer-term customers, higher customer lifetime value customers, is directly in line with the core of what Wisely is doing and will enable Olo to do as a combined entity.

Got it. That's super exciting. I think, yes, the more that you guys could do with data, I think it certainly benefits the entire ecosystem. So congrats again, and look forward to chatting with you guys again in a couple of weeks.

The next question is from the line of Brad Reback with Stifel.

Great. From a high level, obviously, you guys have 400 customers. It seems like Wisely is a bit smaller than that. What's so special here that you guys couldn't go fish yourself?

Brad, this is Noah. I'll take that. It was a little hard to hear you, but I think I got the gist of the question. So I think to play it back, sort of why buy instead of build this set of capabilities. I think that's constantly a question that we ask ourselves in evaluating innovations that will be valuable for restaurants. We have traditionally always made the decision to build and not to buy. In this case, we saw a platform in Wisely that we thought was one of the best platforms out there, and it was for all of the building that they had done, all the product market fit that they had found since launching the company in 2012. And we made the calculation that this was a much more compelling acquisition opportunity for us to make our first acquisition, and we're very proud of this being our first acquisition. We think it sets a very high bar of quality and to really take a leap into the future of what we would be able to build on our own. When you look at the complexity of the product suite, the 4 products that I highlighted, Marketing Automation, CRM Sentiment, Host and the CDP, all of these are compelling. We're really excited about CDP, and I can tell that you all are from the questions we received so far. But Wisely has built these to perfection. We're really excited about having those capabilities as part of our bag of tricks to go and bring to market with our one-to-many go-to-market of selling into the brand and having all of the stores participate and with those 400 brand relationships. So I think this accelerates the efforts that we knew we were going to do at some point, whether built-in house or by partnering and acquiring the cream of the field. I think that's what we've done.

The next question is from Brent Bracelin with Piper Sandler.

Noah, exciting to see kind of a big bold move here in building up the application suite. My question for you as you think about the enterprise brands out there, the current suite of these applications across Marketing and Sentiment, Host and CDP, does it fit well? I see that PF Chang's was an Olo customer, also a Wisely customer. Just trying to get a better framework of what that cross-sell potential could be. What are those enterprise brands using today across these 5 different application suites and trying to assess the likelihood of cross-sell over time?

Yes. Thanks for the question. I think we have -- despite not being prepared at this point to talk about some of those reference stories of restaurant brands that use both platforms and what they've been able to realize, we do have great conviction in the fact that enterprise restaurant brands are going to see great value, that we're at a moment where CDP and them have really product market for this industry. We're in that phase of digital transformation where brands glimpse digital entirety and realize that it's a huge unlock for them. And I think important in understanding this is, maybe have buried in some of the prepared remarks, understanding customer lifetime value isn't just valuable for being able to better market to consumers. Understanding customer lifetime value impacts every facet of the restaurant enterprise. And that's true of enterprise restaurant brands, especially when they think about, what is the menu mix going to be? What are those products that are driving high customer lifetime value? When they think about staffing, who are my best staff members? And when -- who should I put on the best shifts driven by customer lifetime value and how it connects back? When they think about site selection and they think about where are we going to put our next location as we expand our number of locations, customer lifetime value and understanding that as a North Star metric helps to drive all of these decisions within the restaurant enterprise. And that kind of intelligence is exactly what restaurants who are enlightened and glimpsing the future that is data rich and data informed are running towards. So we feel high conviction in our restaurant customers' excitement for these kinds of capabilities.

Very cool. I guess we'll leave the tough questions for Peter here. Shifting gears a little bit. Peter, 400 customers today. Any sense of what the Wisely overlap is today? Is it 10% overlap, 50% overlap? Any general sense of what the Wisely customer overlap would be across your current 400 customers?

It's immaterial, Brent. I think the big takeaway here is a lot of upside when you think about the 75,000 -- 74,000 restaurant locations on the platform today. Our history of success first with dispatch, subsequently with rails in being able to sell effectively and efficiently into that captive audience, we see a lot of opportunity ahead, bringing the Wisely suite of products into the broader Olo platform to help drive ARPU and revenue.

Got it. So we'll take that immaterial as less than 10% overlap. And then as we think about the uplift here, just looking at their pricing, it looks like they're getting, for the full suite, north of $500 a location. That would be about a 25% cross-sell uplift per location. Is that the right way to think about the potential here as you think about the 74,000 existing locations of $500? Or is that unlikely to get the full bundle initially and you're going to have to earn the business over time across all 5 of the applications?

Yes. Look, as listed, ARPU ranges anywhere from $200 to the $500 that you had mentioned there per month per location. It really depends on the size of the organization and the number of products utilized. So we'll see how that evolves over time. But again, we look at this as a great opportunity to expand ARPU within that 74,000 restaurant location.

The next question is from Stephen Sheldon with William Blair.

Congrats on the deal. And actually, I just have one. If you think about Olo's enterprise customer base, how much bigger of a -- I guess, broader guest engagement solutions become for them over the last few years? Our work has kind of indicated that this might be one of the fastest-growing subsectors of the restaurant tech ecosystem over the next few years. So would love your take on that. And then how much are you seeing customers trying to do this internally versus relying on the third-party providers like Wisely?

Steve, this is Noah. I'll take that. I think we agree. This is clearly an area that has captured the attention and the imagination of restaurant executives. It's deeply strategic. And I think one of the wake-up calls and the reason why you're seeing this as the hottest sector in restaurant right now is that we've had this competition, not restaurants against restaurants but restaurants against restaurant delivery marketplaces, for who is -- where the consumer places the order, the, direct channel sales from the restaurant side or the indirect channel sales from the marketplace side. And I've long said that the restaurant delivery marketplaces, they are kind of digital advertising natives and restaurants are not. Restaurants in the marketing department are typically much more traditional in their marketing. They're large enough. They're using TV. They're using print. They're using radio. They're using 4-walls marketing inside of the restaurant. But they're really not using the same set of tools and having the same efficiency that these new competitors in the form of restaurant delivery marketplaces are using. And so this represents restaurants now having those tools and gaining those skill sets and bringing people into the marketing department who know how to use those tools. And again, it's not just about the advertising to consumers. It is also about informing the entire enterprise. This is a deeply strategic element of the restaurant technology stack. And I have in the past said that Olo... [Technical Difficulty]

One moment please while we reconnect the speaker.

Hi, everyone. I think Peter and I are still here and Noah just got disconnected, but he's trying to reconnect. If we want, Stephen, do you want to ask Peter a question while we wait for Noah to connect?

Sure. And I think that was the main question I had. But just, I guess, for Peter, as you think about the cross-selling ability and selling Wisely to your existing customers, I guess, what do you need to do on the go-to-market side to drive that? And how quickly could that happen?

Yes. Thanks, Stephen. So in terms of what we need to do to enable that motion, the answer is not much. It is a similar set of constituents at the brands that we sell to today. So the relationships that we have in place, many of those are the same buyers of the Wisely technology platform. So really not much in terms of enabling that in the short term. And when you think about some of the things that make the Olo go-to-market motion so efficient, the fact that all locations within that brand adopt the platform, it's a similar case with the Wisely platform because data must be shared across all locations within a brand in order for that brand to have a holistic understanding of what is going on across the platform and what are customers using, how are they engaging with the brand. So very similar go-to-market motion, very similar adoption across all of the locations within the brand. So we feel really good about being able to hit the ground running with the Wisely platform.

Good to hear.

This is Noah. Sorry about that.

Stephen, we do have Noah back on the call. If you had any additional questions for him, you may ask.

I think I got -- I think my questions were answered. Thank you.

The next question is from Sterling Auty with JPMorgan.

So you mentioned that the company was a partner for 5 years. When you look at 2021, were you actually generating any revenue at Olo from that partnership already?

This is Peter. No, not directly. I think indirectly through the application of Wisely across some shared brands would obviously some -- would result in increased transaction volumes, help to drive increase in transaction revenue streams but not a direct invoicing, if you will, or revenue stream from the Wisely team.

Got it. And I understand the attractiveness of CDP and hoping that, that will be successful. But looking at the solutions that they've got ranging from operational intelligence all the way through to that CDP, what within their current customer base are they best known for or most widely used for?

Sterling, this is Noah. I think that the CRM and Marketing Automation is really the core of the platform. That's what I've heard Mike from Wisely, the cofounder and CEO, describe as the real platform. And then on top of that, they have the various applications of Sentiment and they have the Host application doing waitlist and reservations and order handoff. That is the core CRM. And then from that, moving into CDP and really being that single source of truth for the customer and bringing together all of the various data silos of customer data on behalf of the restaurant brand.

No, that makes sense because it looks like part of their user conference here in summer '21, they really kind of launched that CDP. So I would figure that it's a little bit early. I'm also kind of curious, how many employees will come over as part of the transaction? And will senior leadership be joining Olo going forward?

Yes. So the -- this is Peter here. So we're happy to welcome the entire Wisely team. They have approximately 70 full-time employees. About half of those have been added over the course of this past year. And obviously, welcoming the entire team means we're also welcoming the executive leadership team. So we're really happy to have them join the company.

[Operator Instructions] There are no additional questions running at this time. I will now pass the call back over to Noah Glass for additional remarks.

All right. Well, thanks to all of you for participating or listening today. Look forward to speaking with you again on our third quarter earnings call in a couple of weeks. Until then, be safe.

That concludes our conference call. Thank you for your participation, and enjoy the rest of your day.