Olo Inc. (ticker: OLO) has announced robust financial results for the fourth quarter and full year of 2023, with a total revenue of $63 million in Q4 and significant growth in gross merchandise volume, which reached $26 billion. The company added 2,300 net new locations, bringing the total to 80,000 active locations. Olo Pay, the company's payment solution, has seen substantial growth with $30 million generated in 2023, and expectations to double in 2024. With a net income of $8.5 million and operating income of $6.8 million in Q4, the company has demonstrated a strong performance. Additionally, Olo has repurchased 2.8 million shares and plans to balance growth with profitability in the upcoming year.
Key Takeaways
- Olo Inc. recorded $63 million in total revenue for Q4 2023.
- Gross merchandise volume hit $26 billion, with gross payment volume at $1 billion.
- The company added 2,300 net new locations, totaling 80,000.
- Olo Pay saw significant growth, generating $30 million in 2023, with expectations to double in 2024.
- Operating income for Q4 stood at $6.8 million, with a net income of $8.5 million.
- Olo repurchased 2.8 million shares and has $22 million remaining on their authorization.
- The company introduced professional services to optimize the Engage suite and is expanding card-present transactions.
- The partnership with Wingstop (NASDAQ:WING) has been extended to Q2 2026.
- Brands are increasingly migrating to Olo from homegrown solutions, with a high retention rate.
- Investments in growth will focus on sales, marketing, and operational efficiencies.
Company Outlook
- Olo aims to balance growth with profitability in 2024.
- The company plans to invest in products, go-to-market strategies, and data-related initiatives.
- Focus on sales, marketing, and operational efficiencies to drive growth.
- Expansion of card-present transactions and partnerships with point-of-sale providers.
- Professional services introduced to optimize the Engage suite for increased revenue.
Bearish Highlights
- Expect some level of compression on gross margins due to initial investments in card-present transactions.
- Balancing growth with profitability may involve strategic spending that could affect short-term margins.
Bullish Highlights
- Significant growth in Olo Pay with expectations to double revenue from it in 2024.
- High retention rates and network effects strengthen the company's market position.
- The Wingstop partnership and the addition of new brands like Jack in the Box (NASDAQ:JACK) demonstrate confidence in Olo's offerings.
Misses
- No specific misses were discussed in the provided context.
Q&A Highlights
- Noah Glass discussed the trend of brands migrating to Olo and highlighted cost savings versus homegrown solutions.
- Clarke Jeffries inquired about Waffle House's digital adoption with Olo.
- Peter Benevides addressed ARPU growth and net revenue retention sustainability.
- Andrew Harte asked about the growth of traditional software offerings without Olo Pay.
- The call concluded with a focus on delivering growth and profitability in 2024.
Olo Inc. is poised for continued growth in the digital transformation space for restaurant brands. The company's strategy to balance growth and profitability while expanding its payment and digital offerings shows a commitment to innovation and customer satisfaction. With a strong financial performance in Q4 2023 and a clear vision for the future, Olo Inc. is focused on leveraging its platform to drive sales and efficiency for its partners.
InvestingPro Insights
Olo Inc. (ticker: OLO) has navigated the past year with strategic financial moves and a focus on growth, as reflected in their recent financial results. InvestingPro data and tips shed light on the company's current financial health and future outlook.
InvestingPro Data indicates that Olo holds a market capitalization of $935.76 million, with a price-to-book ratio over the last twelve months as of Q3 2023 at 1.4, suggesting that the stock may be reasonably valued in terms of its net assets. The company's revenue growth remains strong at 22.49% over the same period, which aligns with the robust financial performance reported in their latest earnings.
An InvestingPro Tip highlights that Olo's management has been actively repurchasing shares, a move that can signal confidence in the company's value and future prospects. Additionally, the fact that Olo holds more cash than debt on its balance sheet provides a cushion for strategic investments and operational flexibility.
Investors should note that while Olo has not been profitable over the last twelve months, analysts predict the company will turn a profit this year, which could be a pivotal point for the company's financial trajectory. Moreover, the company's strong return over the last month, with a 14.23% price total return, indicates a positive market reaction to its strategic moves and growth potential.
For those interested in a deeper dive into Olo's financials and strategic positioning, there are additional InvestingPro Tips available, providing a comprehensive analysis of the company's performance and future outlook. To access these insights and take advantage of a special offer, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
Full transcript - Olo (OLO) Q4 2023:
Operator: Good afternoon. My name is Ryan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Olo Inc. Fourth Quarter and Full Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Gary Fuges, Senior Vice President of Investor Relations. Please go ahead, sir.
Gary Fuges: Thank you. Good afternoon, everyone, and welcome to Olo's fourth quarter and full year 2023 financial results conference call. Joining me today are Noah Glass, Olo's Founder and CEO; and Peter Benevides, Olo's CFO. During this call, we will make forward-looking statements, including, but not limited to, statements regarding our expectations of our business, our industry and future financial results. These statements reflect our beliefs and assumptions only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of these material risks and uncertainties, please refer to our Form 10-K that was filed today and our other SEC filings. Also during this call, we'll present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings releases, which is available on the Investor Relations page of our website. Finally, in terms of our prepared remarks or in response to your questions, we may offer incremental metrics. Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update in the future on these metrics. With that, I'll turn the call over to Noah.
Noah Glass: Thank you, Gary. Hi everyone. Thank you for spending time with us today. In 2023, Olo was again instrumental in helping enterprise restaurants succeed at scale. Our platform facilitated more than $26 billion in gross merchandise volume across approximately 80,000 locations and approximately 700 brands. We processed more than $1 billion in gross payment volume through Olo Pay, a nearly 4x increase from 2022. Since our last earnings call, we've continued to scale. We had another record number of orders on Super Bowl Sunday, including record sales days across more than 40 brands. And since our last call, we've doubled the number of accounts on Borderless, Olo's passwordless checkout feature, to more than 2 million opt-in guests. As a result of Team Olo's great work, we also delivered continued growth and profitability in 2023, increasing revenue by 23% year-over-year and expanding non-GAAP operating margins by close to 300 basis points. And we ended the year strong. Fourth quarter revenue and non-GAAP operating income, again exceeding the high end of their respective guidance ranges. In Q4, we increased revenue 27% year-over-year, expanded non-GAAP operating margin to 11%, and deployed with marquee enterprise brands. In 2024, we expect to balance growth with increased profitability while investing in products, go-to-market and data-related initiatives that we believe will help even more brands accelerate their future. We believe no one is better positioned to help the restaurant brands leverage the power of digital commerce and data to drive guest lifetime value and operational efficiencies. We ended the quarter with approximately 80,000 active locations, adding approximately 2,300 net new locations sequentially. Fourth quarter ARPU increased 38% year-over-year and net revenue retention expanded for the sixth consecutive quarter to 120%. In December, we announced that Waffle House deployed order for pickup, pay for card-not-present transactions, and Borderless to power all guest logins and checkouts. This is Waffle House's first brand-wide digital investment, and they chose Olo for our "exceptional online ordering experience" and the "strategic and financial value of Olo's reliable platform". We're excited to be part of the Waffle House success story, and we believe we can expand further with this iconic brand as we deliver value. Q4 was the sixth consecutive quarter, where an existing enterprise customer expanded into our payment suite, as a large casual dining company launched Olo Pay across all of their concepts. This brand was looking to support digital wallets like Apple (NASDAQ:AAPL) Pay and Google (NASDAQ:GOOGL) Pay, reduce fraud and increase authorization rates, and streamline their chargeback management. We believe Olo Pay addresses all of those needs. We're also excited to share that Five Guys has expanded its Olo relationship into the Engage suite's Guest Data Platform and Marketing modules. The GDP aggregates data from guest digital touch points to help Five Guys analyze purchase behavior, generate lifetime value predictions, and optimize guest acquisition. Marketing activates this rich data through email and text message journeys to reengage lapsed guests, surveys new customers to create a powerful feedback loop, and powers targeted email campaigns to drive sales. Five Guys joined us in 2009 as our first enterprise brand and we're now helping them leverage their data to inform business decisions and drive guest lifetime value. Two of our key differentiators for large enterprises are our modularity and open architecture. Brands can buy our full suites or utilize specific modules to supplement existing technology, and they can work with our 300-plus partner integrations. A great example of this is Wingstop, who we're pleased to say will be continuing its strategic partnership with Olo by leveraging our AI-powered voice ordering integrations to digitize their phone orders. It's a great validation of our flexibility in working with the largest brands, especially those who share our vision of digitizing every transaction and using guest data to drive a more personalized guest experience. Peter will share more about how our evolving Wingstop relationship impacts our financials. It was also another successful quarter with emerging enterprise brands, which we define as brands with five to 99 locations today and aspirations to scale. We deployed multiple modules with brands like Barberitos, Carrot Express, Smalls Sliders, and Texas de Brazil. Merging enterprise has become a meaningful contributor to location count since we doubled down on our go-to-market strategy for this brand category about 18 months ago. Today, approximately 14,000 of our total active locations are from emerging enterprise brands, and we have room to grow. Wins here drive ARPU through multimodule adoption at the start of the relationship, and they can help drive incremental growth by adding modules and locations over time. To scale successfully, emerging enterprise brands need a secure, reliable, and scalable platform with flexibility to integrate across multiple vendors. And that's exactly why Olo is winning here. An essential part of our ability to win with brands is our relentless focus on innovation. And in January, we announced nine new features as part of our Winter 2023 release announcement. Olo COO, Jo Lambert, highlighted three of these in the video announcement available at olo.com. After launching Catering Plus in Q3, we followed up in Q4 with new functionality that allows brands to recognize and authenticate the tax-exempt status of a guest. This makes it easier than ever for restaurants to serve the 1.7 million tax-exempt organizations in the US. We also launched split check capabilities as part of our Pay at Table solution, so that guests simply scan a QR code on the receipt, select how to divide the check and pay through each guest's personal device. Brands with Engage integrated into Pay at Table can also trigger post-transaction surveys to collect in the moment, guest experience, feedback. And still, the biggest story in our Winter release was expanding Borderless availability. Previously available only to Olo Pay customers, Borderless is now accessible to all Olo customers who use our Olo's white-labeled ordering interface as part of the order suite. More Olo restaurant brands will be able to provide a passwordless and convenient sign-in and seamless checkout experience, which is shown to help brands increase guest account sign-ins, grow expected order frequency and improved checkout conversion rates by up to 7.5%. This is a great first step in giving brands the ability to simplify the guest checkout process and capture more data to help them run their operations more efficiently and increase guest lifetime value. As we look forward, we believe we're still early on in the industry's journey in fully leveraging the promise of digital. NPD data shows that digital accounted for 16% of US restaurant orders, up 1 point from 2022. There's still a ton of opportunity in front of us to help the restaurant industry transact more through digital channels, to make themselves more productive and to capture more data that they can utilize to help every guest feel like a regular. In 2024, we'll continue to invest to help accelerate brands along their digital journey. In Order, we'll invest in tooling to make Olo and our customers more efficient in how they use the platform and we'll add functionality to our catering module to help brands manage order approvals, notifications, and accounts receivable. In Pay, we'll continue our work to launch full card-present functionality in the second half of this year. We see great potential in selling card-present into our existing base, starting with the brands that have already adopted our card-not-present offering. And in Engage, we'll continue to add enterprise-grade functionality our customers are asking for, like more powerful analytics and GDP integrations, so they can leverage their data to drive more traffic and frequency. Within our platform, we'll work to extend Borderless access into our entire installed base and further leverage our scale to power data-driven solutions for guests and brands. We can drive new customers into our marketing funnel through industry reports, power new features like smart upsells and dynamic pricing, and provide actionable insights like order-ready AI for guests and benchmarking solutions for brands. In go-to-market, 2024 is about driving sales across all three suites and our brand categories. We'll continue to educate the top 25 on how our modular platform can enhance what they have already built or drive cost savings and platform-level innovation by cutting over to Olo. In enterprise, we'll lead with expansion within our impressive installed base. And in emerging enterprise, we'll stay focused on fast-growing concepts that drive location counts and ARPU. We had a great year and the Olo team never lost focus on delivering for our brands. I'm proud of what we accomplished in 2023 and we're more excited than ever about the opportunities for 2024 and beyond. I'll now turn the call over to Peter. Peter?
Peter Benevides: Thanks, Noah. Today, I'll review our fourth quarter results, as well as provide guidance for the first quarter and the full year 2024. In the fourth quarter, total revenue was $63 million, an increase of 27% year-over-year. Platform revenue in the fourth quarter was $61.9 million, an increase of 27% year-over-year. We saw growth across all three product suites, most notably Olo Pay, which is tracking ahead of our expectations. I'll provide more color on this momentarily. In terms of key metrics, ARPU for the fourth quarter was approximately $787, representing a 38% increase year-over-year and a 6% increase sequentially. Further growth in ARPU was driven by continued progress in driving the average number of modules adopted by our customer base, including higher ARPU solutions like Olo Pay. Net revenue retention was approximately 120%, an increase of approximately 100 basis points sequentially. And lastly, we added approximately 2,300 net new active locations to the platform sequentially, ending the quarter with approximately 80,000 active locations. This reflects approximately 5,500 location additions for the year net of Subway, which was above the revised range we provided last quarter. This strong result was driven primarily by Waffle House deploying at the majority of their locations in the quarter. For the remainder of the Q4 financial metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial measures. Gross profit for the fourth quarter was $40.8 million, this compares to $37.1 million a year ago. The year-over-year growth in gross profit was driven by continued revenue growth, partially offset by the increasing revenue mix of Olo Pay. Sales and marketing expense for the fourth quarter was $9.7 million, or 15% of total revenue. This compares to $7 million, or 14% a year ago. Research and development expense for the fourth quarter was $13.7 million, or 22% of total revenue, compared to $16.1 million, or 32% of total revenue a year ago. General and administrative expense for the fourth quarter was $10.5 million, or 17% of total revenue. This compares to $10.9 million and 22% a year ago. Operating income for the fourth quarter was $6.8 million, compared to $3.1 million a year ago. Operating margin was approximately 11% in Q4, as we generated operating leverage both sequentially and on a year-over-year basis. Net income in the fourth quarter was $8.5 million or $0.05 per share based on approximately 174.4 million fully diluted weighted average shares outstanding. For the full year of 2023, revenue of $228.3 million increased 23% and ARPU of just over $2,700 rose 23%. Olo Pay revenue was approximately $30 million in the year. Brands utilized 3.5 modules per location on average as of December 31, 2023, versus three average modules per location as of year-end 2022. Non-GAAP operating margin in 2023 was 8%, up approximately 270 basis points from 5.3% in 2022. Turning our attention to the balance sheet and cash flow statement. Our cash, cash equivalents and short- and long-term investments totaled approximately $388 million as of December 31, 2023. Pursuant to the share repurchase program, which we announced in September 2022, in the fourth quarter, we repurchased 2.8 million shares for a total of approximately $15 million. Since the introduction of our share repurchase program, we have repurchased 11.5 million shares for $78 million. We have approximately $22 million remaining on our authorization. Net cash provided by operating activities was $5.8 million in the quarter, as compared to roughly breakeven in the quarter a year ago. Free cash flow was $2.7 million compared to negative $1.6 million a year ago. I'll wrap up by providing our guidance for the first quarter and full year 2024. For the first quarter of 2024, we expect revenue in the range of $64 million and $64.5 million and non-GAAP operating income in the range of $5.1 million and $5.5 million. For the fiscal year 2024, we expect revenue in the range of $269 million and $272 million, and non-GAAP operating income in the range of $22 million and $24 million. A few things to keep in mind as you consider our outlook for the year. We continue to take a prudent approach to our outlook for the year. We expect trends in the restaurant industry will remain similar to what we saw throughout 2023, with consistent growth in online ordering, a continued need to improve efficiency and offset rising costs, and an uncertain macro environment. Our guidance once again assumes a two-third, one-third split between incremental revenue from existing projects currently in deployment and new projects signed and deployed in year. Revenue growth will continue to be driven primarily by ARPU expansion as Olo Pay scales, and we have further success selling multiple modules in our Order and Engage suites. We expect Olo Pay revenue to approximately double in 2024 as we add more brands to the offering. Please note, we are not anticipating any material revenue from card-present transactions, which we expect will begin to be a growth driver in 2025. In terms of locations, we expect to add approximately 5,000 net new locations this year. Our 2024 guidance reflects the impact of our updated Wingstop relationship. We now expect the revenue contribution of the existing relationship to extend through the end of Q2 2024. Starting in Q3, Wingstop will begin using our voice ordering module, as Noah mentioned. As a result of this updated relationship, the approximately 1,800 Wingstop locations will remain in our location count metric with ARPU lowered as a single module customer. In terms of gross margin, we would expect 150 basis points to 200 basis points in sequential margin decline throughout the year as Olo Pay continues to become a larger portion of our revenue mix. Based on our current expectations, we would expect 2024 to be the trough in terms of gross profit growth. For operating expenses, we will continue to prudently manage our cost structure, while funding our various growth initiatives. We have made significant progress in building out and rebalancing our go-to-market teams and would expect sales and marketing growth to moderate from recent levels. Note that our annual user conference, Beyond4, will take place in March, which will result in higher marketing expenses of approximately $1 million in Q1. Similarly, we'll begin to generate operating leverage in R&D now that much of the investment in the Engage and Pay suites is behind us. In G&A, we also expect to generate operating leverage. But note that the timing of compensation increases will be a Q2 event in 2024, instead of a Q1 event as they were in 2023. To wrap up, Q4 was a strong finish to a solid year. We expect to balance growth with continued operating leverage in 2024. The strategy is working and we believe we can continue to drive future growth by landing and expanding within our enterprise and emerging enterprise brands. With that, I'd now like to turn it over to the operator to begin the Q&A session. Operator?
Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Matt Hedberg with RBC. Please go ahead.
Matt Swanson: Hi, great. Thank you. This is actually Matt Swanson on for Matt. Congratulations on the quarter, and congratulations on the strong traction we've seen from Olo Pay so far. The gross margin commentary for next year was super helpful, as well as the commentary on being the trough. Could you give us just some basic framework of how we should think about the recovery from the trough? Maybe recovery is not the right word, but how we come out of that and kind of the shape of the curve? Thank you.
Peter Benevides: Yeah, it's a great question, Matt. Thank you. So the way to think about it, just based on the commentary around net active locations, 5,000 targeted for the full year ramping throughout, coupled with the commentary on gross margin trends throughout the quarters, would then reflect sort of a trough in the back half of '24, which then sets us up for a reacceleration in 2025. And the reason for that reacceleration is the combination of card-present coming to market, which we're pretty hopeful on the progress and the success we'll have there, coupled with continued penetration of both Order and Engage, both of those being high margin, high gross profit dollar product modules. So, it's really the combination of those two things kind of starting to play out in the back half of '24 into '25, that gives us conviction in this year being the trough from a gross profit growth perspective.
Matt Swanson: And then, if I could just ask one more, maybe more high-level question on the customer data platform? Could you just talk us through a little bit on how that product is resonating, but kind of specifically segmenting your customers by sizes from enterprise to emerging enterprise and below that? And just, is it a good fit for kind of all three cohorts, or just kind of what you're seeing from customer conversations?
Noah Glass: Matt, great question. This is Noah here. So, we're thrilled about being able to announce the Five Guys partnership with Olo Engage, which is the larger suite that contains in it our customer data platform, which we call a guest data platform. What Five Guys is adopting and has now implemented is the guest data platform and also marketing, two components of the Engage suite. They're not alone. We've also had wins in enterprise that we've announced, and we've announced the win with CPK, California Pizza Kitchen, in the enterprise segment recently as well. I think these are really exciting proof points for us and for our customer base to see brands adopting the marketing stack and being able to use all of the data that they can see from the Order platform, from the Pay platform, to ultimately personalize the guest experience and how we communicate with guests and how we personalize the guest ordering experience. This is, I think, a really key part of the Olo story, and I think the Engage platform is really resonating broadly. And one thing that I wanted to mention connected to the success we're seeing with Engage is Olo providing professional services to brands to get set up with the Engage suite, to make sure it's operational, to make sure it's then optimized, and to play the role of either maintaining the Engage suite or training the restaurant brand in how to use the Engage suite. This is a new leg of the stool in our go-to-market motion. We have sales engineers, solutions architects. Now, we have professional services as a function at Olo. We look at other SaaS peers and see that that is a healthy chunk of their revenue. It's quite small, relatively speaking for Olo today. But as our Chief Revenue Officer Diego Panama likes to say, every dollar of professional services revenue leads to a multiple of software revenue. And we're excited to see that playing a role in CPK, playing a role in Five Guys, and enabling our restaurant brands to embrace, engage, speed up their time to value with the guest data platform, and all the other components of the Engage suite to really personalize the experience for guests and ultimately make every guest feel like a regular.
Matt Swanson: Thank you.
Noah Glass: Thank you.
Operator: Thank you. Our next question is from Stephen Sheldon with William Blair. Please go ahead.
Stephen Sheldon: Hey. Thank you, and nice results here. First, just wanted to make sure I caught the right numbers on Olo Pay. Did you say that Olo Pay was about $30 million in revenue for 2023 and then expecting that roughly double in 2024? Just wanted to make sure I got that right.
Peter Benevides: Yeah, that's right.
Stephen Sheldon: Okay. Perfect. And then, as we think about the adoption of card-present activity within Olo Pay, when do you think that could start to move the needle for the business after you start rolling it out or making it generally available in the second half of the year? Just based upon the conversations you're having with customers, are you seeing a lot of interest for you to come in and support that card-present activity? And then, can you also remind us of the gross margin implications as that ramps?
Noah Glass: Stephen, this is Noah. I'm going to start on that one and then hand it over to Peter for the second part. Just a reminder that, Olo Pay card-present is something that we actually began the journey in 2023 initially with kiosk transactions, and we had our first kiosk provider with an Olo Pay sled to take payment card-present. Earlier in 2023, we added a second kiosk provider. We've now added a third kiosk provider. That's already really proving out the ARPU potential of Olo Pay card-present. Again, I'll let Peter speak to that. The lion's share of card-present transactions are done on the point of sale with payment typically connected to the point of sale, and that is the motion that we're engaged in now and planning to have in market in the second half of 2024. We have, as you know, over 30 point-of-sale partnerships, really all of the point-of-sale providers that serve the enterprise market, and we have those partnerships as an open platform primarily for Olo to play the role of order injection. And now we're adding on to that with payment processing. And these point-of-sale providers typically have a lot of different payment processors that they work with as well. The really great thing about Olo pressing into this space is that customer advocacy, that we're having customers saying, I've seen the results now of Olo Pay card-not-present for the digital transactions. I've seen the benefit of mobile wallets. I've seen the benefit of passwordless login with the Borderless capability. I've seen better results in authorization rates, fighting fraud, chargebacks, et cetera. And now I want that same capability for in-restaurant transactions. And I want to unify my view of that guest for digital and non-digital transactions, so I can see all transactions through Olo Pay. And part of the secret sauce is that, unlike other payment processors, Olo is able to then pull that data of those card-present transactions inclusive of the items and the customizations of each dish back into the guest data platform, connected into that guest profile. And so, the data imperative is so strong for our brands to really collect all data from opt-in guests and be able to serve them better, personalize their experience, increase conversion, increase frequency spend, and, ultimately, lifetime value. That's why we're having such great customer advocacy and why we're excited about expanding our relationship with the point-of-sale providers to be a payment option for Olo Pay card-present in the back half of '24.
Peter Benevides: Yeah. And just to pile on there in terms of the adoption curve, Stephen, so what we've heard from customers through the card-not-present conversations is that there's a cohort of existing card-not-present customers that are waiting for card-present to arrive. They've shared with us their intent to use that platform as it becomes available because they want that kind of single view of the guest, the single view of all the payment transactions, and see a lot of value what Noah just laid out there. And then, there's folks that aren't on card-not-present today because we don't have card-present. So, we think that's another way or another opportunity rather, as card-present becomes available, helps to unlock incremental relationships for those that are waiting for the product to arrive. And I think we have a really good jumping off point in terms of -- from a from a lead gen perspective. We shared, in our prepared remarks that this past year, we processed over $1 billion of GPV for the card-not-present use case. And if you tie that back to the 16% digital that Noah shared in his prepared remarks, that means just within the installed base that are using card-not-present today, there's more than 6x opportunity for card-present just within that installed base. So, call it, over $6 billion of existing customers using Olo Pay's payment processing that would be immediately addressable as card-present is available. So, those are the things that get us really excited about that opportunity. And there's work to do, but, again, we hope to be in market, call it, back half of '24 with revenue contribution in '25. And then, sorry, lastly, I know you mentioned, gross margins. So, from a gross margin perspective, that would be accretive to the overall Olo Pay and overall platform margin profile given that margins tend to be a bit higher for a card-present transaction versus a card-not-present transaction. And then, of course, with incremental scale comes better pricing, so that would also help on the card-not-present side as well.
Stephen Sheldon: Great. Appreciate all the color.
Operator: Thank you. Our next question is from the line of Eric Martinuzzi with Lake Street Capital Markets. Please go ahead.
Eric Martinuzzi: Yeah. Curious to learn a little bit more about the evolution of the Wingstop relationship. It was relatively, what, November timeframe when it looked like the relationship was going to term out in Q1 of 2024. I'm curious to know, is this -- the use of the module that they've talked about here, is this, potentially, they're using it from Olo while they design their own, or is the expectation that this is going to be an ongoing relationship rather than one that might have a built-in sunset?
Noah Glass: Eric, this is Noah here. I'll address that. So, I think the way that things have evolved since we last spoke to the group in November -- and by the way, Eric, welcome to the group. The way things have evolved is the continuation of the relationship that currently exists, as we mentioned, for an additional quarter and then moving to powering voice AI through the Olo platform and our ordering API and our partner network. We have several partners. You can look them up in our partner directory on olo.com that provide voice ordering AI capabilities. If you think about Wingstop, this is a brand that is already very digitally mature. 67% of their transactions or thereabouts are digital already coming through the digital ordering platform. The remainder, the other 33% are a mix of in-restaurant transactions and phone order transactions. So, the opportunity that they have identified and that we're working together on, again, with our partner ecosystem, is to help to digitize those phone order transactions and accelerate Wingstop's desire to get to 100% digital. We think that's a great example of a brand utilizing Olo's modularity, with that shared strategy of wanting to get to 100% digital to accelerate their path there. What we've mentioned, what we know today, it's a two-year relationship for that component, and that extends until the end of Q2 of 2026.
Eric Martinuzzi: Okay. That's helpful. And then, you talked about the 2024 -- basis for the 2024 forecast involving some level of an uncertain macro. Is that something that you're hearing directly from customers? Or is that just Olo management looking at the broader economic headlines?
Noah Glass: I think it's pretty consistent with what we've seen in prior quarters. I mean, this is an industry that has been under pressure from commodity prices, from labor, from other input costs. It's also an industry that has seen kind of the raising of prices coming at the expense of traffic in recent quarters. And so, a big focus for us is how do we illustrate our ability to help brands do more with less become more efficient and more profitable while maintaining and actually upgrading hospitality. And, also, how do we help them drive traffic mainly with the Engage suite by utilizing the data that we're able to collect and personalizing transactions and improving conversion and frequency to drive traffic without having to resort to discounting. So that's a big focus. I think it's one of the things that we're hearing every conversation. How do we become more profitable? How do we become more efficient? And how do we identify our best guests and think about what we can do to get them to order one more time per quarter because that has an outsized impact? With the Pareto principle that we've observed where the top 20% of guests tend to represent 60% of overall transactions. And so, identifying them and focusing communications with those guests and then, of course, going and finding more like them is top of mind for every brand that we speak with.
Eric Martinuzzi: Understand. Thanks for taking my questions.
Noah Glass: Of course.
Operator: Thank you. Our next question is from the line of Gabriela Borges with Goldman Sachs. Please go ahead.
Unidentified Analyst: Hi, thanks. This is Max on for Gabriela. Wanted to ask you, based on your roadmap combos with large customers, how are you thinking about the risk of any other large customers churning over the next, say, three years? And what are some of the levers you can pull to mitigate this risk?
Noah Glass: Max, this is Noah. Thanks for the question. I think we've talked about this with regard to Wingstop, but worth mentioning again, we see the trend really being brands migrating from homegrown solutions onto the Olo platform and our ability to land with brands who are in that top 25. Great example of this is Jack in the Box with a single module and then expand the relationship so that they ultimately cut off of a homegrown solution and on to Olo. That's something that we've seen happen over 10 times since our IPO in March of 2021. It was a big reason for our wanting to become a public company to show that you can build, on top of Olo, as an open and independent platform that has conviction for the long term, that has a strong balance sheet. I tried to break down some of the math last quarter about the upfront cost of building versus using a platform like Olo. And with sparing you the details, it was a 100-to-1 ratio of the cost of building in-house versus using the Olo platform, a great illustration of the economies of scale of a SaaS platform versus homegrown software. I think the other argument is the network effect that Olo has created with now 80,000 brands -- sorry, 80,000 locations across 700 brands and 300 integrated technology partners on the other side of the network and also the platform level innovation and things like Dispatch, in Olo Pay, in Borderless that we're able to bring to market for all of our restaurant customers. That's why I think you see those numbers of brands converting from homegrown onto Olo as the trends. Of course, there are notable outliers to that trend. And it's also why you see our gross revenue retention rate of over 95% since our IPO and net revenue retention of 120% this quarter. It's because brands want to lean into their relationship with Olo as kind of the nucleus of their digital stack and do more with us over time and do more with our partner ecosystem over time. So, no visibility into other brands that are considering this kind of move away from the Olo stack and into homegrown, much more of it coming the other direction of brands leading into Olo and the Olo relationship to help accelerate their digital future.
Unidentified Analyst: Understood. Thank you. And appreciate the color on balancing growth versus profitability. How are you thinking about investing in growth from here? Could you expand a little bit on the go-to-market and data initiatives that you had mentioned? And maybe you could also give some detail on the potential further operational efficiencies in the business?
Peter Benevides: Yes. So, I can take that one. So, when you think about the past, call it, two years of investment, in particular in OpEx, we've invested pretty aggressively across all lines, really, sales and marketing, R&D, and G&A. And it I think now we've reached a point where a lot of that investment, specific to R&D and G&A, is now behind us, and you're starting to see -- you saw it as we progressed through last year and what we plan to do going through 2024 is continue to expand, leverage within R&D and G&A. In terms of sales and marketing, the plan is to continue to invest in sales and marketing, but at levels that are less than what we've done in recent periods. And, again, if you think back to the priorities in 2023 from a go-to-market perspective, it was really rightsizing the team given the opportunity and wanted to create more focus and specialization within the group in the form of sales engineers and solution consultants to better support the three-product suite structure, Order, Pay, and Engage. So, that's the plan going forward. So, what we're doing again is balancing growth in in OpEx against the commentary around gross margin trends, such that we're able to both grow the top-line while at the same time expanding op margins.
Unidentified Analyst: Great. Thank you very much.
Noah Glass: Just to add in on the go-to-market priorities, which I think was part of the question. As we look at these different brand categories, top 25, enterprise, and emerging enterprise, go-to-market priorities are different for those different brand segments. So, top 25, it's really about what I just talked about, the modular set of capabilities that we have to offer, the platform level innovation that we have to offer, the opportunity to cut off of homegrown and on to Olo, and the cost savings that can occur as a result. For enterprise, it's really about that cross-sell of Olo Pay and Engage into our stronghold of those enterprise customers. I'd say, as we think about that part of the business, specifically, it's really about stacking S curves of going from Order to Pay and all of the data from Order and Pay then leading to a great setup, really setting the table for filling in both Olo Pay, card-present, and Engage as great opportunities for us to accelerate the relationship with those enterprise brands. And the emerging enterprise segment, as you heard, we're up to 14,000 locations across great emerging enterprise brands. The great enterprises of tomorrow, the ones that we are going after, who are going to represent great ARPU out of the gates and also great location growth going forward as they're accelerating into those great enterprises of tomorrow. So, that's kind of how we think about go-to-market priorities for the year ahead.
Unidentified Analyst: Understood. Thank you.
Operator: Thank you. Our next question is from Clarke Jeffries with Piper Sandler. Please go ahead.
Clarke Jeffries: Hello, Peter and Noah. Thank you for taking the question. I was wondering if you could share maybe a little bit of information about Waffle House. What they were using prior to you for online ordering? What percent of digital, if you can share that, were they as a business? And for card-not-present payments, what solution were they using? Was that tied to their point-of-sale system, or was it bespoke? And then I have one follow-up.
Noah Glass: Great. Hey, Clarke. This is Noah. So, with Waffle House, this is a legendary, iconic brand that really hadn't been doing anything with regard to digital ordering or digital payment as a result of that. And so, this is the first investment – brand-wide investment in digital that Waffle House has made. We're honored to be their partner in in working with them on Order and on Pay, and we think there's additional potential to do more together over time. One thing that's really exciting to me about Waffle House is also their use of Borderless. The only way to sign up and sign in and check out at Waffle House is through the Borderless passwordless login and checkout. And it's an awesome experience, and I think really shows the way for other brands and how you can really meet the evolved guest needs for an accelerated checkout experience that doesn't involve remembering a password and yields a better guest experience and more data for the brand at the same time.
Clarke Jeffries: Perfect. And then, Peter, it's interesting to see that ARPU growth accelerate to this high [indiscernible] and sort of validated by 100 net retention. How are you thinking about the sustain ability of net retention? Any way to share some thoughts around what you think net retention could be over the medium term, as we get through this cycle of several quarters of acceleration and here at the 120% mark? Thank you.
Peter Benevides: Yeah. So, we found a lot of great progress in net revenue retention over the past. I want to say, four or five quarters now, we've been steadily increasing in line with ARPU growth. I think ARPU, for the most part, is a pretty good proxy for how net revenue retention will trend over time. And just in terms of the guide and sort of, like, mapping back the guide to what that then means from an ARPU perspective, it works out to call it a high-teen growth on a full year basis. That's sort of the target for ARPU on a full year basis. So, I think that's one way to think about, like, the progression of NRR over time. But apart from that we haven't really shared specifics on how we think the 120% will trend over time.
Clarke Jeffries: That's perfect. Thank you, Peter.
Operator: Thank you. Our next question is from the line of Andrew Harte with BTIG. Please go ahead.
Andrew Harte: Hey, thanks for the question, and nice quarter. On the Olo Pay side, I guess, what are the expectations for the more traditional software offerings thinking of Order and Engage? Kind of when we strip out the Olo Pay contribution in '24 and '23, it seems like it's kind of high single-digits growth for traditional software offerings. So just any color there would be helpful. Thanks.
Peter Benevides: Yeah. I could take that one, Andrew. So, that's correct if you think about the full year performance less the Pay portion of the business. That said, when we set out for 2023 in terms of what the targets were for the year, both for Order and Engage, those were in line with what we had set out to achieve in 2023. So, we feel good about that. I'd say, when you think about the sales performance from a booking standpoint in '23 and then how that plays out in '24 from a revenue standpoint, we saw a lot of success with Pay adoption from a booking standpoint. And from a go-to-market perspective, we ran to that opportunity. We had a lot of success in bookings, which obviously is now showing its results in revenue. When we look ahead to 2024, we want to make sure that we're taking a more balanced approach to how we're thinking about bookings performance and making sure that we're having continued success with Order and Engage. And in many ways, as Noah mentioned earlier, I think the success in Pay actually sets us up really well for more success in Engage because now we have both the order and the payment transaction being processed over the platform. And brands are now looking for ways to house that data, analyze that data, and act upon that data, and that's where Engage comes in. So, I think we're set up actually really well going into 2024 to have more success in sort of the pure software offerings of Engage.
Andrew Harte: That's all for me. Thanks, guys.
Noah Glass: Thank you.
Operator: Thank you. As there are no further questions, I would now hand the conference over to Noah Glass for his closing comments.
Noah Glass: Okay. Thank you for joining us today. We finished 2023 on a strong note, and we're focused on delivering a balance of growth and increased profitability in 2024. With our scale, reliability, and modularity, Olo is uniquely positioned to enable restaurant brands to drive traffic and frequency that result in more sales and greater operating efficiency. I'd like to thank Team Olo for their continued focus on delivering for our customers. I look forward to accomplishing our goals for the year ahead. Have a great evening.
Operator: Thank you. The conference of Olo Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.
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