Olo Inc. (OLO) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining us. My name is Maya Kilcullen, and I work on the software team here at JPMorgan. And this afternoon, I am joined Olo, CEO, Noah Glass; and CFO, Peter Benevides. If the 2 if you could just take a few minutes to introduce yourself and then for those who aren't familiar or maybe a brief overview of Olo.

Okay. I'll start. First, thanks for having us. I'm Noah Glass. I'm the Founder and CEO of Olo. Next week, I will be celebrating my 17-year anniversary having founded Olo in June of 2005. I will, I guess, introduce the company and then let Peter introduce himself. So Olo is an open SaaS platform for enterprise restaurants. And really, what we enable is for restaurant brands to harness first-party data to unlock digital hospitality. And digital hospitality, when we say that term, it really means utilizing that first-party data to provide guests with a memorable and personalized experience and to really ultimately make every guest at the restaurant feel like a regular. And we do that across 5 different software solutions, digital ordering, delivery, customer engagement, front of house and also payments. We're now operating with 600 restaurant brands in our customer portfolio, and they represent 82,000 individual restaurants across the U.S. and Canada.

Peter Benevides, CFO, I haven't been here for 17 years, but I've been with the company for a little over 7 years, and thank you for having us.

So this is your second conference with us and last year, you had only been a public company for a few months. So can you just give us what has changed about the business in your first year and change as a public company?

Well, a lot has changed. I think it's all really stemming from how restaurants or how our customers are asking us to play a larger role in their business. We're really being pulled into the 4 walls of the restaurant. We had traditionally been a business really focused around takeout and delivery. And now we're hearing our restaurant customers saying, digital is not just about takeout and delivery, digital is about every service model of our business. We want Olo to play a role for on-premise ordering. We want Olo to play a role in the drive-through. And along with that and playing a role with more orders inside the restaurant. We're also hearing restaurant brands say, we want Olo play a role really as our digital backbone and helping us to understand who our customer is, what the customer lifetime value of the guest is, how do we engage that customer better and how do we use that as a North Star to guide our business. And so we have, since going public in March of last year, made 2 really meaningful acquisitions for the company: one, a company named Wisely, which is a customer data platform at its core; and two, a company called Omnivore, which does point of sale and other integrations with technology partners, bringing our partner ecosystem up to over 300 technology partners. And then we've also innovated organically, bringing in the general availability of our payments product called Olo Pay, which we announced on our Q4 earnings call in February is available for general availability and something that we're very excited about is another example of how our restaurant brands are looking for Olo to do more and play a larger role in their enterprise.

So just touching a bit more on the recent acquisition of Omnivore, can you just talk a little bit more about the benefits of the acquisition? And specifically, why is the partner network so important?

Yes. So Omnivore is a company that we've known for many years. There's another company that was doing point-of-sale integration into legacy point-of-sale systems used by enterprise restaurant brands. So from a technology perspective and a talent perspective, we thought it was an incredible team and a great augmentation of our existing technology team that does those point-of-sale integrations into legacy systems. We also saw that they had a rich partner ecosystem that there were over 100 discrete partners that they were working with, that Olo is not yet working with, doing things like labor and scheduling, doing things like inventory management and purchasing, a lot of the things that used to be directly connected into the point-of-sale system itself, but that they were helping to extract into the cloud through their API layer. And we thought this was a great company to add into our ecosystem to expand our partner list and also that it could enable us to do more as we were being pulled into those on-premise transactions. So specifically, a 2-way point-of-sale integration so that a consumer could sit down at a table, scan a QR code, initiate an order and keep an open check where they could later add on to that order and decide when they wanted to close out that check and walk out of the restaurant and be done with the transaction. That sort of table service model for QR code-based ordering was something that we thought was really exciting and that we heard from our restaurant brands, is going to be a meaningful differentiator for them. We thought this could accelerate our path toward really touching 100% of orders, not just those that were off-premise.

So I want to ask just a little bit more about partnerships. But first, I just want to remind the audience that you can submit questions online, and we'll have them pop up here, but also feel free to throw your hand up at any moment, and we have microphones coming around. So can you just talk about the addition of Grubhub to the marketplace partnership and just how that impacts the business?

Yes. At the time of the IPO, we talked about our partnerships with various restaurant delivery marketplaces and we have a product called Rails, which enables restaurant brands to syndicate out their menu content and pricing content out to those third-party marketplaces and then take orders from those marketplaces, all in the same stream of orders, all on their point-of-sale or on a single tablet. And we did not have Grubhub on the platform at that point. So we had DoorDash, we had Uber Eats. We had over a dozen different regional and local restaurant delivery marketplaces, but we never had the Grubhub marketplace. We're able to add Grubhub last year. I think it's really just an exciting thing for us to be able to make good on the promise of a single API for all of the different ordering channels, direct and indirect to co-mingle orders in 1 single stream, simplifying things for operators and fundamentally enabling restaurants to really fish where all the fish are biting across every meaningful demand channel in the ecosystem.

And touching on DoorDash. So I believe at the time of the IPO, about 20% of revenue came from DoorDash. Can you just touch on the contribution from that partner as well as anything you can comment on Grubhub?

Yes, happy to. So since the IPO, even predating the IPO. Our focus is always around what can we do to add more value to our customers and increasing the number of marketplaces that are on the Olo platform as well as increasing the number of delivery service providers within our dispatch network are ways in which we can increase the value that we provide to our customers. And the reason for that is every time we add an incremental marketplace or add an incremental delivery service provider that helps to drive transaction volumes, which helps to drive value to our customers. A byproduct of that is we're therefore able to more diversify our revenue stream across our partners. So if you look at how that has trended since the IPO, I think today, DoorDash is somewhere in the mid- to low teens as a percent which is, again, indicative of the success that we're having in diversifying the number of partners that we have on our platform and the value that we're providing to our customers.

Great. And so just backing up a little bit more broadly, when Olo signs on a large enterprise, are all of the franchises also obligated to come on to the platform? And what does that process look like?

Yes, they are. I think this is something that's really differentiated about our go-to-market model is that we sell into restaurant brands. We're never selling into individual restaurants or individual operator groups or franchisees. We're always selling into the brand. Because this is guest-facing technology. It has to be uniform across the brand. Consumers think about brands as a uniform entity. So they want to be consistent everywhere. So we sell into one brand decision maker and then were adopted by all of the restaurant locations within that brand, the corporate-owned locations, the franchise locations, the mix of the 2, however, they're set up in their organizational structure. And then brands are always going live really all at the same time to create that consistent experience everywhere. So yes, we are deployed in all locations. And another note is that as brands are adding new locations, expanding their ecosystem of restaurants and growing their footprint Olo is going into those locations as well without any additional sales and marketing spend. I think that's one of the reasons why we have such an efficient go-to-market and if you look at sales and marketing as a percentage of revenue, Olo is always top of the class.

I can imagine it varies significantly depending on the size of the brand, but what is typically the time line for -- between the sale to full go live?

Yes. So in terms of deployment timing, it really depends not necessarily by size, but really the brand's willingness to move at the pace in which Olo can move. We have examples of brands that are north of 2,000 locations for a brand that have been deployed in under 90 days and then we have examples where maybe it's 50 locations per brand, where it's taken a bit longer. So one of the benefits of having done this for so long and having created a library of POS integrations and payment integrations as we've seen it all, which means that we can move as quick as a brand wants to move, and that's generally how -- sort of how it plays out.

Great. So talking a little bit on competition. Can you just give an overview of the competitive landscape? Who do you see as your main competitor?

Yes. I think that this is maybe broadly misunderstood by people who think that we might compete against some of our partners. We do not compete against the delivery marketplaces. We really don't compete meaningfully against point-of-sale systems. I'd say who we most compete with are restaurant brands choosing to build in-house, and importantly, maintain in-house. And I think that is oftentimes missed as well that maintaining a homegrown solution is oftentimes a really expensive proposition. You have brands that have hundreds of engineers on staff paying multiple tens of millions of dollars to fund that team just to keep up maintenance performance, reliability, security with their own platform. We're of the belief that SaaS beats homegrown software, and we think we've really proven that out over the years. Just since our IPO in March of last year, we've had Carl's Jr., Hardee's, Outback Steakhouse, Carrabba's, Fleming's, Potbelly and others migrate off of homegrown platforms and onto the Olo platform, in part because of the cost savings of working with an enterprise-grade SaaS platform versus supporting in-house. And I think more importantly, because of the platform level innovations that we've been able to bring to market now operating with a network of 82,000 restaurant locations. There are just fundamentally things that we can build that no individual restaurant brand could build themselves. So when we think about what we built with Dispatch and creating nationwide delivery as a service at scale, or Rails where you can connect into any marketplace and demand channel or now what we're doing with Olo Pay, we think those are great examples of platform level innovation, 2-sided networks that we can create operating at the scale that we're operating at where no direct competitor and no homegrown solution can match that same set of capabilities.

You mentioned point-of-sale vendors not really being competition. I would have expected that to be of an area that, that point-of-sale lenders want to expand into. Is there any color you can give as to why that's not really the case? Or if it is the case, why you don't see it as a threat to the business?

Yes. I'd say that most of the enterprise restaurant brands that we work with have a fragmented point-of-sale environment. So they have some stores that are on one point-of-sale vendor, they have other stores that are on another point-of-sale vendor, and that comes back to the fact that point of sale itself is not a guest-facing restaurant technology. And so oftentimes, the brand gives the discretion to the operators about which point of sale system they select and use. So typically, Olo will play the role of that common interface that sits on top of whatever point-of-sale system is being used in the store, and there might be 2 or 3 different points of sales being used across the franchisee base and yet we are able to provide that consistent consumer experience. I think that is really where or kind of specialization in providing a guest-facing digital ordering experience helped us to gain scale. And then over time, as we've continued to gain scale and use that scale advantage as the hard side of a two-sided network, it's enabled us to launch these additional platform-level innovations, Dispatch, Rails, now Olo Pay, that really no point-of-sale provider has the scale to launch on their own.

That makes sense. You just brought up Olo Pay again, and I want to talk a little bit more about that. Noah, can you give an overview? I know you touched on it earlier, but can you just give a bit of an overview of the new solution? And then, Peter, can you talk about what we can expect to see from the financial side, both in the near term and then also more in the medium term?

Yes. So Olo Pay is an integrated payment offering stitched into the Olo commerce platform. By analogy, I would think of it if you've used Shop Pay on the Shopify platform, it's a very similar setup. It's enabling consumers to store credit cards on file, use Apple Pay, use Google Pay and have a one-click checkout experience for a digital order to remove all of the friction from that payment experience. And that correlates with a much higher basket conversion rate, and that's a good thing for consumers and it's a good thing for operators. In addition, there are fraud prevention tools built into Olo Pay, a combination of our partnership in building Olo Pay with Stripe and the Stripe Radar product, which has a breadth of the entire Stripe network. And Olo's own proprietary Olo Shield product, which looks across all of the orders that are happening on our platform as another fraud mitigation tool. A great chargeback contestation tool built into the Olo dashboard, fundamentally leading to a better operator experience, a higher basket conversion rate, fewer fraudulent transactions, better charge-back resolution. And so we think that's a win-win, a good thing for guests and a good thing for operators. In addition, what we announced on our Q4 earnings call in February, is that we're doing something even bigger with Olo Pay. We're doing something called borderless Olo Pay. And with borderless Olo Pay, the consumer is able to store their payment credentials at the Olo platform level, not just at the individual brand level. And that means that across the entire Olo ecosystem, they can have that one click checkout experience where they can store those details about payments or other personal details, delivery address, car make, model, color and have a much more efficient experience of checking out, and it can enable the brands to then harness that first-party data about the customer, which is so important in such a new currency in this space by making checkout a better experience for all. And I think again, from a platform-level innovation two-sided network perspective, having 82,000 restaurants on one side and 85 million consumers on the other side, we think we can create a really powerful 2-sided network for payments that's a win for consumers and restaurants alike.

Yes. And from a financial opportunity standpoint, the opportunity is massive. What we've disclosed as part of our quarterly earnings presentation materials is a ForEx revenue per order opportunity as compared to what we charge for in the core platform today. And when you apply that against the $20 billion of GMV that we processed over the platform this past year, it's a massive opportunity. That said, we haven't reflected any of this in our numbers for this year, given that we just announced the commercial availability back in February, and it's still probably maybe a quarter early in terms of seeing how that transpires into both bookings and revenue. But I think the overarching opportunity is massive.

Great. I think I saw a hand over here if we can grab a mic.

Noah, just building on the competition side. I wonder if you can give a bit more commentary on what the kind of your market share? Like how do you define the market? What is your market share today? But more importantly, how do you think about that market in the way it looks kind of, say, 3 years out or 5 years out? Because on the one hand, it's getting more and more complicated to do what you do at Olo. On the other hand, I think restaurant brands understand better than ever that this data that they're capturing or that you're capturing is critical. So there's a battle to do it internally because they want to capture the data. So where is your share? Where is the market going? And then how do you balance kind of the restaurant need against you doing it for them?

Yes. I think I'll jump in on that last point and maybe quibble with it a bit. There's no difference in the data that the restaurant has access to, whether they're doing it through Olo or doing it in-house. They're getting that first-party data about the guests. I would argue, in fact, they're getting more guests first-party data, if they're doing it through the platform and have access to things like Olo Pay in borderless format. I do think when we imagine sort of the market opportunity in the near term, and this is perhaps a way of answering our market share, we think that we have a 100x near-term opportunity in U.S. enterprise restaurants. So the way that, that breaks down is there is a 4x opportunity in scaling the number of restaurant locations that Olo is active in. There is a 6.25x opportunity in the number of orders that we touch per restaurant location from where it currently is to 100% digital. And then as Peter mentioned, there's a 4x opportunity in the revenue that we generate per order through Olo Pay. So if you think about that, there is a 4x location opportunity. There is a 25x ARPU opportunity. But it means that we're at 1% of the opportunity for U.S. enterprise restaurants. And we think that we are the vertical SaaS leader and typically vertical SaaS leaders have a winner-takes-most kind of opportunity, and that's the opportunity that we're pursuing. I guess one more thing on the large restaurant brands. I really believe that we've demonstrated that we can start a relationship with even the largest restaurant brands out there with a single module and maybe that's a convenient way for them to fortify their internal efforts, prove ourselves out and then expand into a larger deployment. So this is true of brands like TGI Fridays, brands like BJ's Brewhouse, in both cases, we started with our Dispatch platform. They had built a homegrown digital ordering implementation and Dispatch helped them to offer delivery to their guests through their direct channel. And then in both cases, they realized, we're spending a lot to maintain our homegrown platform, why don't we just do ordering with Olo as well and they migrated over to Olo for ordering. I think that is a pattern that we seek to repeat again and again with the largest restaurant brands out there and that there's a lot of logic to it, both from an economic standpoint, a data standpoint and a strategic standpoint.

And just a follow-up [indiscernible], to those restaurants that shut down that development, [ they kind of ] -- I think those people let them go or [indiscernible] completely dependent [ on Olo ]. So what do they [indiscernible] [ shutdown ]?

Okay. I'm paraphrasing here, but the question for those on the live stream was what do restaurants then do with that engineering talent, it seems risky? I think this was a big part. I'll address the risky part first. This is a big part of our desire to become a public story. We wanted restaurants to know Olo had become mission-critical enough for them, for existing customers and certainly for prospects, it had the specter of becoming mission-critical. They needed to know that they could have confidence that we were going to be around for the long term that we were not some start-up company that had all sorts of start-up risk attached to it. So being able to show that we were operating profitably, that we had a strong balance sheet, that we are operating at scale that was critically important. We felt like the IPO was the way to make that statement. Restaurants are not shutting down their engineering teams. What they're doing is they're utilizing their engineering teams to do truly more differentiated work, things that are specific to their brand and maybe a little bit differentiated on the Olo platform. So I think about a company like Sweetgreen, this is an old example but still a good one. They determined that the local sourcing of ingredients was something that their guests really cared about. And so they built, on top of the Olo platform, and they built a front-end experience where you could click on an ingredient at each of the different restaurants, and you can see for that restaurant, for that ingredient, where was that product sourced from? What was the farms name. That's not something that's broadly applicable for all Olo customers, but it was something that was very differentiated and interesting for Sweetgreen. I think that sort of deployment of digital resources is what we're seeing brands do. And it reminds me -- we talk about Olo as a force multiplier for restaurant brands and their digital ambitions. We're also a force multiplier inside of the restaurants, redeploying from a sort of labor mindset of taking orders and swiping credit cards to really delivering on higher hospitality tasks that the staff can do in the restaurant. In both cases, we're not displacing people. We're just shifting around where they're working to really add the most value with their special sauce.

You mentioned the 6.25x multiplier on the number of orders that you touch. Can you just unpack that a little bit? And what's the path to get to 100% orders?

Yes. Happy to take that. So just for the folks in the room, in terms of the 6.25x, what's meant by that is if you look at on average across the industry today, digital is about 15% of total order volumes. And therefore, in our view, we see a path to 100% digital over time. We have examples today, brands like Shake Shack, Astor Place location, 100% digital. Things like virtual brands are inherently 100% digital. And there are things that brands are doing on-premise to increase the amount of digital transactions, provocation, things like QR code ordering, kiosk ordering, these are all adaptations of the platform and things we do today. So I think it's a combination of further penetration of multi modules to enable the ability to process 100% of transaction digitally and then consumer adoption over time, getting comfortable with things like QR code ordering and kiosk ordering that gives us confidence in that number being able to get to 100% one day.

And I think importantly, this is not just an Olo ambition. Importantly, this is what restaurant brands and restaurant brands CEOs and CFOs are saying, we want to be 100% digital. We believe that that's going to make us as efficient as we can, be it from a labor perspective and provide us more data about our guests to better serve our guests. We're really just answering that call.

That makes sense. I want to just quickly come back to Olo Pay. I know you mentioned it's very new, but is there any color you can give on the impact that Olo Pay can have on the overall margin profile?

Yes. So in terms of the margin profile, I think if Olo Pay can become what we think it can become, I think the margin profile will look a lot like other scaled software providers with embedded payments. There's examples like Shopify and others that are out there. I think one important thing to note is even if you go back through the pandemic in 2020 into 2021, where you saw a rapid increase in digital orders on the platform, and therefore, a rapid increase in ARPU in gross profit that tends to be very accretive from a profitability standpoint. So our focus is on how can we increase ARPU, how can we increase gross profit on a per location basis, and therefore, help to drive operating profit over time. And we think Olo Pay is part of the answer.

Great. Thank you. So looking outside of Olo Pay, I want to talk about some of the other growth opportunities. You've obviously had a lot of success within large enterprises. Can you talk a little bit about the motion on the SMB side?

I -- on the SMB side, we are very focused on enterprise. We are not focused on SMB, and I want to be crystal clear on that. We do differentiate what we refer to as emerging enterprise. An emerging enterprise are the 5-to-99-unit restaurant brands that have the ambition of scale. They want to be the big enterprises of tomorrow. They want to put a system in place today that's going to serve them well across that journey and enable them to scale. But we are not focused on mom-and-pop restaurants, independent restaurants that don't have that ambition of scale. And we do think that when we're looking at U.S. enterprise restaurants and an efficient way for Olo to scale into a 100x revenue opportunity, we shouldn't be shifting our focus off of all of those decisions to focus on the U.S., to focus on enterprise and to be specifically focused on restaurants as the fastest path for us to reach that ambition.

Great. So I think you probably answered to this next question at the end there. But are there opportunities internationally? What is the focus there, if any?

Yes. I think there are certainly opportunities internationally. I think one of the nice things that we experience is that the multinational brands in the restaurant industry tend to be domiciled. I'm generalizing here, but tend to be domiciled in the U.S. And so to the extent that we're forging relationships with those brands in the U.S., it helps to set the table for the larger opportunity outside of the U.S. And I'd say the same thing is true, by the way, of SMB. At the time that we do focus on SMB, we'll have built out a platform and have set the table for that opportunity. It's just not a near-term priority. If we were to look at international markets, we do have partners and restaurant brands that are active in international markets where we could kind of create that 2-sided network effect that's benefited us in the past, and I think that is strategically how we would go about that.

Great. We have a question in the back.

Can you talk about the way that restaurant parents are incentivizing their franchisees to sort of to onboard Olo's platform when the parent is making that decision to use the platform?

Yes. I mean it's assumed that when the brand is signing on, they're signing on, on behalf of all of the restaurant franchisees underneath. So it is oftentimes a separate authorized operator agreement, but every store is coming on to the platform. There's no additional incentive headed in to have them do that.

Great. Also if you just want to speak about -- a few minutes left, if there are any other questions too from the audience, yes.

I had a question on the payments attach rate. So understanding that you guys are focused on enterprise and emerging enterprise. I would assume that a lot of your customers have preestablished payment processing relationships. So kind of what's the sales pitch and how do you get that flip to happen?

Yes, it's a great question. So to be clear, the restaurant brands don't need to rip and replace their existing credit card processor. So if you have a credit card processor who does card swipe transactions in restaurant, you can keep them and still use Olo Pay. Olo Pay is meant to give the digital ordering experience, that uniformity of using one payment checkout experience across all of the digital ordering transactions. So it's swapping in what today is Olo acting as a gateway into oftentimes a fragmented in-restaurant credit card payment platform to instead it being done through the Olo Pay merchant account. So because of that, it means that it's a relatively light lift. We're selling in the same way that we do with our ordering platform into the brand on behalf of all franchisees not sending hardware or making store visits. We're doing this purely in the digital ordering realm, where everything is shifting from existing legacy credit card processor through a gateway into Olo Pay as processor.

So as we're starting or have seen already a large return to in-person dining, can you just talk about the near-term impact of that return to in-person? And then what is some of the time line that you see -- to start to see tailwinds from more adoption of QR ordering and kiosk ordering?

Yes. So in terms of digital ordering, I think the term that we've used is durable. We've been pleased with the durability of digital ordering. And the reason for that is these aren't trends that have emerged as a result of COVID, these were trends since day 1, have been happening, which is the growth in digital ordering, the growth in same-store sales digitally. So I think today, we've been -- last quarter, I think, the MPD stats were around 16% of transactions were digital, this is Q4 of last year. Q1 of this year, it's around 15% digital. So a slight decline, 1%, but maintaining its durability. In terms of how or timing around how we think the 15% will trend over time, I think you're starting to see some really great signs in things like QR code ordering and other forms in which consumers are ordering digitally, start to emerge. So for the first time, I think this past quarter, we actually saw 1% of digital transactions were on-premise. This is something that I know that doesn't sound like a lot, but for years had been 0. So you're starting to see some inclination of the consumer adoption of digital on-premise, and we're pretty confident that, that's just going to continue to grow over time.

And so what do you see as the durable growth rate for the business?

So I think what we've communicated is we feel pretty confident in being able to deliver high growth we define as 30% year-on-year growth. Noah articulated earlier, the 100x opportunity in front of us. And when we look at all those different avenues, more locations, more transactions per location and more revenue per transaction, there's just a lot of levers that we can pull in order to maintain that growth rate.

Great. Last call for any questions from the audience.

Can I make one point while we wait for a question. I just -- I think it's really, really important if you leave here with one thing that we separate the idea of digital and delivery. I think people conflate those things all the time. And I think some of the -- what happens when there's a return to in-restaurant dining questions are maybe part of that. For even the highest part of COVID, delivery was the minority of digital transactions, takeout was the majority of digital transactions. That's always been true on the Olo platform. And it's true of the way that consumers use restaurants. Consumers use restaurants as a surrogate for the home kitchen. That is what restaurants are for. The majority of restaurant transactions are for taking the food from the restaurant and consuming it somewhere else, and that has always been where Olo's core business is. Now we're seeing it going into the restaurant as well. But I think this is an important point to make. And I think also understanding that consumers, even during a recession, if we had a recession, and we've seen this in 2008, '09, they have to eat 3 times a day or more. They don't magically start cooking, consumers go to restaurants, they get food at restaurants, and they trade down from the high-end restaurants to the lower-cost restaurants. And that is something that has been a tailwind for our business in past recessions as it's been a benefit to our restaurant customers, picking up order volume. Now we have restaurants that represent -- or overall, the restaurant industry is at an all-time high of $0.54 of the food dollar relative to grocery as the other $0.46. It's a good indication that, that restaurant as a surrogate for the home kitchen is alive and well and will continue.

I think that is a great point to end on. So Noah, Peter, thank you so much, and thank you, everyone, for joining.