OLO Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Olo Incorporated Second Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Gary Fuges, Senior Vice President of Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Thank you. Good afternoon and welcome to the Olo's Q2 2024 financial results conference call. Joining me today are Noah Glass, Noah's Founder and CEO and Peter Benebidi, 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, our operations and future financial results. These statements reflect our beliefs and assumptions only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially.

Speaker 1

For a discussion of these material risks and uncertainties, please refer to our Form 10 Q, which 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 on our earnings release, which is available on the Investor Relations page of our website. Finally, in terms of our prepared remarks or in response to your questions, we may offer 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.

Speaker 1

With that, I'll now turn the call over to Noah.

Speaker 2

Thank you, Gary. Hi, everyone. Thank you for spending time with us today. Team Olo delivered another strong quarter in Q2. Once again, revenue and non GAAP operating income exceeded the high end of their respective guidance ranges and we're raising full year 2024 revenue and profitability guidance in excess of our Q2 outperformance.

Speaker 2

We added new enterprise and emerging enterprise brands and expanded with existing customers. We also announced our 3rd POS integration partnership for Olopay and Engage with Tre, which brings us closer to supporting full stack payment processing and enabling brands to use omni channel guest data to drive profitable traffic, a critical restaurant metric. I'll review our customer and innovation related highlights from the quarter and Peter will discuss our Q2 financial performance and updated guidance. We continue to win new brands and retain and expand with existing customers. We ended the quarter with approximately 82,000 active locations, adding approximately 1,000 net new locations sequentially.

Speaker 2

2nd quarter ARPU of $8.52 increased 19% year over year and net revenue retention was again in excess of 120%. In enterprise, we deployed our core order suite with bonchang, a fast casual Korean chicken concept and we launched ordering with Mission Barbecue. I'm excited to share a number of large brands expanded into Pay, including El Pollo Loco, Miller's Ale House and Pollo Tropical. And we're very pleased to announce that Culver's expanded into both pay and rails in the quarter. In emerging enterprise, more than a dozen brands deployed Olo products across our order and pay suites, including And Pizza and BIG.

Speaker 2

We're especially excited to welcome back And Pizza, who returned to Olo after leaving to build their own ordering solution. And Pizza reignited their growth strategy with new operating and franchising models and believed in order to keep up with expansion without cumbersome processes and draining resources, they needed to upgrade their tech stack. With our gross revenue retention exceeding 95%, most brands remain on our platform. And the trend we've seen since our IPO is that more brands migrate from in house tech and to the Olo platform. We're proud and Pizza chose to come back to Olo and are excited to help them do more with less, while improving their guest experience.

Speaker 2

We also continue to drive product innovation and partner expansion in our ecosystem, which is foundational to our long term success. In Q2, we announced 19 major product enhancements in our summer release, including loyalty for Ollo Borderless accounts. This new feature allows guests to earn and redeem rewards from a brand's existing loyalty program through Borderless, our passwordless guest checkout solution. We see great potential in Borderless, which has grown to now more than 7,000,000 accounts And we believe it can evolve beyond a seamless high conversion checkout experience into yet another Olo offering that enriches guest data to help restaurants drive profitable traffic. We also added enhanced order management capabilities for our new Catering Plus solution that helps brands reward their high value customers and enable their guests to pay for delivery orders through their personal devices.

Speaker 2

We're very excited about the success of Catering Plus, which has been a strong performer out of the gate since we launched it less than a year ago. In Q2, we deployed catering plus across 14 existing Olo brands, including Dog House, the Flame Broiler and Freddy's Frozen Custard and Steak Burgers. Catering Plus is winning with enterprise and emerging enterprise brands and across both full service and limited service concepts. We'll continue to add features and expect to make Catering Plus an expansion driver as well as a vector for landing new business, including within the top 25. In our ecosystem, Loop AI's integration into the Olo platform is enabling brands to run more efficiently by automating accounting reconciliation with 3rd party marketplaces.

Speaker 2

And Grubber recently announced it will integrate Olow's digital ordering and full stack Olopay into its self ordering kiosks. This is our 3rd Olopay kiosk partnership and we're bullish on the value kiosks bring to enterprise restaurants from streamlining operations to providing exceptional guest experiences. And we continue to expand our POS integrations beyond digital ordering and delivery to include Olopay and the Engage guest data platform or GDP. In May, we announced an Olapay and Engage integration agreement with Trey, a cloud first POS focused primarily on full service concepts. Trade joins NCR, Voyix and Q and we have expanded relationships in the works with additional POS providers.

Speaker 2

These expanded POS partnerships move us closer to processing card present transactions, which can help us drive meaningful scale in our Olopay business and help reaccelerate our gross profit growth. For example, we mentioned on our last call that Honeygrow, a core order customer was our 1st brand to expand into full stack payment processing with Olopay, running nearly all on premise transactions through Olopay enabled kiosks. By powering both digital ordering and all payment transactions, we estimate that Olo's gross profit per Honeygrow location was more than 6x higher than Olo's gross profit per average location over the last three quarters. This is an encouraging early data point about where we can take our Olopay business. We believe we can drive similar results within our base over time as Olapay's card present functionality becomes broadly available through kiosk and POS partners and as brands revisit their payment vendor relationships.

Speaker 2

The strategic rationale for a brand to replace their incumbent payment processor with Olapay is Olapay's differentiated ability to leverage transaction data to drive profitable traffic. We believe brands can significantly benefit from consolidating their on and off premise transactions into one guest data platform that ties digital ordering and full stack payment transaction data into one guest profile and provides a comprehensive view of each guest. Given the industry's historical reliance on discounting to improve traffic, we believe our approach offers a compelling and differentiated value proposition. This is what Olo is best positioned to do as our guest centric solution and data platform capabilities combined with the scale of our 700 brand, 82,000 location strong network give us the ability to empower brands to convert transactions into profitable traffic and increase sales. And with the platform level data capabilities of Borderless, we see a future where our brand can deliver even more personalized experiences for every guest, regardless of whether they visited that brand before with enriched, holo level data.

Speaker 2

We are already helping brands succeed with data. Consider 5 Guys, one of our first order enterprise brands who recently began deploying the engaged GDP and marketing modules. In just over 6 months, Olo's GDP ingested millions of orders, created 4,500,000 guest profiles and automatically identified cohorts of 5 Guys' most loyal and highest lifetime value guests. From there, our marketing module helped 5 Guys create hyper targeted marketing communications and measure their impact on sales. The results, dollars 2,000,000 of incremental revenue attributable to the email campaigns, a 1% increase in shake sales and a large base of new guest profiles that 5 Guys can use for future campaigns.

Speaker 2

With the addition of card present transactions to our guest data, we believe we can turbocharge a brand's ability to better know its guests and engage with them in ways that have guests come back to the brand again and again without an over reliance on discounts and value menus. We're just getting started and we believe no one else in the industry has the network scale, guest centric offerings and data capabilities to help brands succeed like Olo. We're excited about the progress to date in 2024 and team Olo is focused on building on this momentum. We're landing and expanding with brands, delivering more value through product innovation and valuable partnerships and moving closer to unlocking even more value from greater guest data. I'll now turn the call over to Peter to review our Q2 results and updated guidance.

Speaker 2

Peter?

Speaker 3

Thanks, Noah. Today, I'll review our Q2 results as well as provide guidance for the Q3 and the full year 2024. In the Q2, total revenue was $70,500,000 an increase of 28% year over year. Platform revenue in the Q2 was $69,600,000 an increase of 27% year over year. Revenue from all 3 suites order, pay and engage performed better than our expectations.

Speaker 3

Revenue also benefited from some non recurring revenue associated with a new customer contract and stronger than expected Wingstop performance in their last quarter on our core order suite. Excluding these factors, revenue would have been above the high end of our Q2 revenue guidance range. Active locations were 82,000 up approximately 1,000 sequentially. We continue to expect location count to ramp throughout the year and to add approximately 5,000 net new locations this year. We have line of sight to this target based on business already booked and in process of being deployed, such as Dutch Bros, which is scheduled to launch the majority of its locations in the second half of the year.

Speaker 3

ARPU for the Q2 was approximately $8.52 up 19% year over year and 4% sequentially. The year over year increase in ARPU was driven by increased order volumes and modules per location, in particular, Olopay. Please note that in the Q2, we have now lapped the ARPU benefit from the roll off of Subway's location count. Net of Subway year over year ARPU growth has been in the high teens over the last three quarters. And net revenue retention was above 120%, the 3rd consecutive quarter where NRR was at or above 120%.

Speaker 3

For the remainder of the Q2 financial metrics disclosed, unless otherwise noted, I will be referencing non GAAP financial measures. Gross profit for the Q2 was $44,300,000 up 16% year over year. Gross margin for the Q2 was approximately 62.8%, up 40 basis points sequentially. Gross profit and gross margin performance reflect the impact of this quarter's revenue outperformance in part driven by the aforementioned one time items. Excluding these one time items, Q2 gross margin would have declined approximately 50 basis points sequentially.

Speaker 3

Furthermore, we continue to be disciplined with operating expenses. In Q2, all three operating expense line items improved year over year on a percentage of revenue basis. Sales and marketing expense for the Q2 was $11,400,000 or 16% of total revenue. This compares to $9,700,000 18% a year ago. Research and development expense for the Q2 was $13,700,000 or 19% of total revenue.

Speaker 3

This compares to $14,500,000 or 26 percent of total revenue a year ago. General and administrative expense for the Q2 was $11,600,000 or 16% of total revenue. This compares to $9,500,000 17% a year ago. As a reminder, the quarterly pacing of operating expenses was slightly different in the first half of twenty twenty four versus prior years. As we stated in our last call, this year's annual compensation increases began hitting in Q2.

Speaker 3

Historically, annual comp increases began in Q1. Operating income for the 2nd quarter was $7,600,000 up from $4,500,000 a year ago. Operating margin was approximately 11% in Q2, an increase of approximately 2 60 basis points year over year. This strong performance reflects a combination of continued expense discipline in revenue outperformance, as well as the benefit of the non recurring revenue items I referenced earlier. Net income in the Q2 was $9,200,000 or $0.05 per share based on approximately 170 point 5,000,000 fully diluted weighted average shares outstanding.

Speaker 3

Turning our attention to the balance sheet and cash flow statement. Our cash, cash equivalents and short and long term investments totaled approximately $387,000,000 as of June 30, 2024. In the Q2, we repurchased 1,400,000 shares for a total of approximately $6,900,000 Q2 share repurchases completed the $100,000,000 share repurchase program we announced in September 2022. Net cash provided by operating activities was $18,100,000 in the quarter compared to $2,000,000 in the quarter a year ago. Free cash flow was $14,200,000 compared to negative $1,900,000 a year ago.

Speaker 3

Q2 cash flow metrics primarily reflect operating income performance and working capital timing. I'll wrap up by providing our guidance for the Q3 and full year 2024. For the Q3 of 2024, we expect revenue in the range of $70,800,000 $71,300,000 and non GAAP operating income in the range of $6,000,000 $6,400,000 For the fiscal year 2024, we are again raising revenue and non GAAP operating income guidance. We now expect revenue in the range of 279,500,000 dollars $280,500,000 and non GAAP operating income in the range of 25,600,000 dollars $26,400,000 A few things to keep in mind as you consider our updated outlook for the year. We continue to expect trends in the restaurant industry to be similar to what we saw in 2023.

Speaker 3

Consistent growth in digital ordering, a continued need to improve efficiency to offset rising costs and macro uncertainty. Revenue guidance continues to assume a 2 thirds, 1 third split between incremental revenue from existing projects currently in deployment and new projects signed and deployed in year, which will be driven primarily by ARPU expansion as Olopay scales and we have further success selling multiple modules in our order and engage suites. Revenue guidance also reflects the change in the Wingstop relationship. Starting in Q3, Wingstop shifts from using our ordering dispatch and rails modules to using our voice AI capabilities. Further, given Olopay's outperformance in the first half and our outlook for the second half of twenty twenty four, we now expect full year 2024 Olopay revenue in the mid-sixty million dollars range.

Speaker 3

We continue to expect the vast majority of 2024 Olopay revenue to be from card not present transactions. Lastly, we expect full year 2024 gross margin to be in the low 60% range. We anticipate second half gross margin will be approximately 200 basis points lower than the first half twenty twenty four gross margin performance, with the majority of this decline occurring from Q2 to Q3. This reflects the timing of the revenue mix shift in the second half of the year due to Olapay's continued momentum as I discussed. We continue to expect full year 2024 will be the trough in gross profit growth.

Speaker 3

To wrap up, in the Q2, we delivered another solid quarter of financial performance, positioned ourselves to raise guidance and continue to execute on our strategic priorities. We are uniquely positioned with guest centric solutions that help brands drive profitable traffic through guest data. With that, I'd now like to turn it over to the operator to begin the Q and A session. Operator?

Operator

Thank you. We will now conduct a question and answer Our first question comes from Eric Mounusi with Lake Street. Please proceed.

Speaker 4

Yes, congratulations on the quarter and the upped outlook. Had a question about the one time revenue benefit. I just want to go a layer deeper there. The Wingstop outperformance, was that due to better than expected from the new relationship or maybe a longer tail from the old? And then if you could dive into the one time from the other brands that you saw in Q2?

Speaker 3

Yes, Eric, Peter here. Thanks for the question. So regarding Wing, it was related to them staying on longer than expected and then during that time performance exceeding our expectations. As for the other item that we called out, that related to timing of rev rec for a newly contracted and brand coming online. So the combination of those two items helped the top line and bottom line outperformance.

Speaker 3

But as we mentioned on the call, even excluding those items, we exceeded the top end of our range for both revenue and operating income.

Speaker 4

Yes, I got that. And then one more question here. The ramp for card present, historically, you've talked about that, hey, we're going to roll it out in the back half of 'twenty four. We'll see incremental revenue in 2025. Where are we in that timeline as we stand here in July?

Speaker 4

Can you give us any greater clarity?

Speaker 2

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

Speaker 2

Now Honeygrow is using the Olopay card present for kiosk transactions in restaurant. We have now 3 kiosk Olopay partners. We now will have a third Olopay POS partner for card present transactions. In HoneyGrow's case, they're running all of their transactions through the Olop platform, whether that's digital, off premise or digital on premise through the kiosk and all of those payments are happening through Olo Pay. And what we're seeing there is on a gross profit basis, the average Honeygrow location is 6x the gross profit of the average location on the Olo platform.

Speaker 2

We think that's an early signal, but a really positive one about Olo Pay and its potential to really accelerate gross profit in our business. And we're excited that that timeline that you mentioned is still on track and that we'll start to really see Olopay card presence showing up in revenue and in gross profit in 2025.

Speaker 4

Got it. Thanks for taking my questions.

Operator

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

Speaker 5

Hey, guys. Great quarter. The ARPU growth just continues to kind of exceed our expectations. It was nice to see it 19% up year over year. Can you kind of parse that out for us kind of ex payments, what his ARPU looked like kind of from the order and engage suite?

Speaker 5

And then I guess what's embedded for ARPU expectations in the back half of the year? If we just kind of run out kind of our location estimates and apply the ARPU that we just had, we kind of get to the high end of revenue guidance. So you could just help us understand some of the different moving pieces in ARPU, that'd be great.

Speaker 3

Yes, happy to. So the way we think about ARPU pay versus non pay on the non pay portion, the trends have been similar to that in the non pay revenue growth year on year quarter on quarter. And again, we haven't teased apart on a quarterly basis, the pay versus non pay revenue contribution, but you can kind of get there based on our mid-sixty $1,000,000 pay target for the year. So, that should give you some sense of, again the growth in ARPU being driven by the pay and non pay components. As we think about the balance of the year, we're continuing to ramp the location count with a target of 5,000 net adds for the year.

Speaker 3

We're still on pace to do that. What gives us confidence in that target is that many of those locations are booked locations going through the implementation process, most notably Dutch Bros, which we talked about last quarter has begun their implementation with the bulk of transactions coming in the back half of the year. What that means from an ARPU perspective is continued progress in ARPU growth as we move throughout the year being driven again both by pay and non pay growth. In particular on the non pay growth, I do want to highlight, we talked a little bit about this in the prepared remarks, the momentum that we're seeing in catering plus that does not show up in location count. Where that shows up is in ARPU growth and our commentary around the outperformance of the order suite above and beyond our expectations is in large part being fueled by that momentum in catering plus So as we look across all three suites, we continue to execute really, really well, which is helping to drive both our ARPU performance year on year as well as pacing to that 5,000 net adds for the year.

Speaker 5

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

Speaker 3

Yes. So great question. So we tried to unpack that in the prepared remarks. So if you were to exclude the one time items this quarter, the sequential decline in gross margin would have been around 50 basis points, which is better than the 100 basis points to 150 basis points that we communicated last quarter. The reason for that is again all 3 suites outperforming, but in particular Order and Engage and within Order as I mentioned earlier Catering Plus as that continues to perform well that will help to increase software dollars and help to improve overall gross margins.

Speaker 3

The other thing that I did not mention in the ARPU commentary just now, but it's certainly worth mentioning is the continued growth in digital ordering or digital transactions not just on our platform, but within the industry as a whole. The latest data point that we've received via NPD is that digital transactions account for about 18% of all industry transactions and that is at the same time that industry transactions on an absolute basis continue to increase. So it's not channel shift, it's actual growth within a growing base. So for those two reasons, we've been pleased with the durability of digital ordering and how that's translating into improved gross margins this quarter than where we were walking into the quarter. It's for those reasons that gross margin had outperformed our expectations.

Speaker 2

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

Speaker 5

Awesome. Thanks so much. Great job and nice quarter again.

Speaker 2

Thank you.

Operator

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

Speaker 2

Great. Hey, good afternoon, Tim. Connor Pasell on for Terry. I appreciate you taking my questions and congrats on the strong results here. Maybe just as we think about the importance of brands utilizing different pieces of data across channels to build guest profiles.

Speaker 2

I've talked about 5 guys, it's a good example, they seem to be taking advantage of the GDP. Could you just give us a sense as to maybe what inning you would say we're in and more restaurants being able to leverage their data to take action this way? Connor, Noah here. Thanks for the question. I would say super early innings.

Speaker 2

We are in the moment in time and we are creating great case studies, reference stories. We talked about 5 Guys this quarter. I believe last quarter we talked about Sunny's Barbecue and First Watch. The really encouraging thing is that these case studies and reference stories are really showing meaningful business results in driving profitable traffic. That is a pain killer in this industry right now, that is in pain and in need of traffic that doesn't require discounting and value menus and meal deals to understand the guests to be able to reactivate lapsed guests and get guests to order more frequently without discounting as you heard in that 5 Guys example is exactly what the industry needs right now and always.

Speaker 2

And it's really encouraging as we look at what we mentioned in the emerging enterprise segments, we had over a dozen brands coming on to the platform with multiple solution suites, Order and Pay. We had 6 that were coming on with all 3 of our solution suites order, pay and engage really what we see as the full Ollo flywheel. And that's the role we want to play. We want to be that guest centric tech stack for our restaurant brands. That's a bigger vision than we articulated at the time of our IPO and that's something that our restaurants are getting really excited about.

Speaker 2

We've captured all this data through digital ordering linked to the guest at the ingredient level. Now we can capture even more data through payments and through other data sources that are connected back to that guest. We can derive insights using machine learning and AI and we can help brands take action to personalize that guest experience, which is a win for the guest, a win for the brand and puts us in a really strategic position as that brand digital consigliere and their conduit into their guest book. Thanks for that. No, it's great color.

Speaker 2

Maybe just a quick follow-up on the strong cash flow performance this quarter. I think you mentioned some timing impact to help drive the outperformance. Just curious as how we should think about cash flow in the back half of the year?

Speaker 3

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

Speaker 3

Your free cash flow can vary from NGI, but when you look at it over the course of the year, those two things tend to be pretty tightly aligned, which is the case through the first half of the year.

Speaker 2

Great. Thank you.

Operator

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

Speaker 2

Hey, thanks. Appreciate you taking my questions. First, just wanted to follow-up on one of the last line of questioning. It sounds like we're still early innings for the Engage suite. So what have you seen from an enterprise restaurant sophistication standpoint in terms of thinking about gathering more guest data, using it to increase monetization?

Speaker 2

Are they in a better spot from a sophistication standpoint to be able to unlock the value from that guest data? And just generally, are you seeing that become a bigger top of mind focus across big brands? Is it just a few that you're seeing that's just more color there would be great because it seems like a very large opportunity. Hey, Stephen. Noah here.

Speaker 2

I'll take that. I totally agree on that last point. A very large opportunity, something that is top of mind, front and center for restaurant CEOs, for restaurant boards, specifically in this moment in time when they're thinking about how do I drive traffic when traffic is down. What we've seen is that restaurants have taken price that's had a negative impact on traffic. And so they're looking for ways to drive traffic.

Speaker 2

And of course, the challenge is how do you do that profitably so that it's a good thing for the brand, a good thing for the franchisees and doesn't erode the brand's equity. That's really what a focus on guest data and personalization enables brands to do. So I think that need is very real across the industry right now. If you listen to some of the public restaurant earnings calls, Domino's, McDonald's, Starbucks, all are talking about traffic being down and actions that they're taking to drive traffic, typically through discounting, because discounting is the traditional solution that brands take. So being able to drive profitable traffic is really differentiated.

Speaker 2

I think in terms of sophistication, brands are swimming in data. There's a lot of it. The challenge is how do you collate that data to each guest? And that's really what the guest data platform enables brands to do. Then how do you drive insights and then how do you take action based on those insights.

Speaker 2

And that's what the larger Engage suite, marketing automation, sentiment, etcetera are meant to do. A big thing that we've seen is that these are new tools and restaurant brands need help learning how to use these new tools or maybe setting up and optimizing a program. And that's where I've talked in recent quarters and I'll reflect again, the professional services component of Olo has been a huge unlock in accelerating brands' ability to really take action with that data once they've cobated it into the GDP. So we're excited about that progress. And then of course, as I said, being able to tell these success stories and translate these solutions that we have into business outcomes that restaurants are hungry for and then show a playbook for how to go and execute that and do so in a way that is long term profitable for the brand and profitable for the franchisees.

Speaker 2

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

Speaker 4

Yes. It would have actually been

Speaker 3

a little bit higher. It's just north of 13% year on year growth excluding the one time items that we mentioned there, which is great. That's the Q2 in a row where we've had an increase sequential increase in gross profit growth.

Speaker 2

Got it. Very helpful.

Operator

Thank you. Our next question comes from Gabriela Borges with Goldman Sachs. Please proceed.

Speaker 6

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

Speaker 2

Thank you for the question. I think similar commentary that you've heard from me in other quarters, the larger trend that we see is brands moving from homegrown solutions onto the Olo platform. We have a dozen examples of that since our IPO. We have yet another example this quarter in AND Pizza coming back to Olo after going on to a homegrown platform and seeing the light of why the Olo platform really meets their needs going forward. I think one of the big things that's shown up recently is brands really valuing not just our innovation and platform level innovation, which is something I talk about a lot, but some of the basics of our reliability at scale and also most recently our security at scale.

Speaker 2

So like many other players in the software space, we too were impacted a bit by the CrowdStrike incidents the other week. But it's something that had minimal impact on our business and on our customers' business because our incident response team moved really quickly and resolved this issue and our downtime was very limited, under 1% of transactions for the day were impacted. When you compare that to homegrown solutions, several of which were off for many hours, sometimes many days. And yet another reason why with a scaled SaaS platform like Olo, whether you're emerging enterprise or an enterprise brand or a top 25 brand for that matter, you don't have to worry about reliability at scale. You don't have to worry about security because being baked into what you're getting from that SaaS platform.

Speaker 2

So I'm really proud of how our team performed during that event and it really underscores building and maintaining a homegrown platform, which is a building and maintaining a homegrown platform, which is a very expensive and very high risk proposition.

Speaker 6

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

Speaker 6

Thank you.

Speaker 3

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

Speaker 3

Card present is an important piece of that. As we mentioned on the call, the Honeygrow example, I think is emblematic of the opportunity. And if we get that right, what that can mean for gross profit dollars and gross profit growth. That coupled with continued progress within the Order and Engage Suites, Order is a combination of new business wins and upsells of existing products like Catering Plus, which are high margin software dollar products that will help to reaccelerate gross profit growth. And then of course once you are using the order suite and you are using our payment capabilities and you are deriving a ton of guest data as a result of that, that becomes a great segue into the Engage suite, where we have a host of solutions that customers can subscribe to all of which will help to fuel gross profit growth.

Speaker 3

So we have a number of different levers that we can pull and whether it's the Honeygrow example or 5 Guys expanding into the Engage suite, it's really replicating those use cases or examples that give us confidence in our ability to expand gross profit growth in 2025.

Speaker 6

Got it. Thank you.

Operator

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

Speaker 7

Hey, guys. This is Simran on for Matt Hedberg. Thanks for taking our question. Congrats on the quarter. I just wanted to double click a little bit more on ARPU.

Speaker 7

You talked a bit about how ARPU expansion is going to be the primary driver for revenue growth going forward compared to location adds. Can you just talk a little bit more about the most exciting aspects of ARPU expansion in your mind? And how did it perform this quarter relative to your internal expectations?

Speaker 3

Yes. So maybe beginning with that last part first. So ARPU this quarter exceeded our expectations in part driven by the outperformance across all three product suites as well as the continued durability in digital watering that I mentioned earlier. So when I look back to how we were thinking about Q2 and the full year, this time last quarter, we actually outperformed our ARPU assumption this quarter for those reasons. I think that for each of the suites, each of the within each of the suites there is there are exciting things happening that all lead to a great opportunity to expand ARPU from where we are today.

Speaker 3

And what's interesting is if you go back a number of quarters ago when we introduced this concept of 100x opportunity, part of that math was the ability to expand ARPU 25 times from where we are today. And part of that is being driven by pay adoption, part of that is being driven by monetizing all transactions that are being processed over the platform and you're starting to see the proof points toward that goal via examples like Honeygrow. So I think as we continue to upsell across all three product suites in

Speaker 6

Great. Thank you.

Speaker 7

Great. Thank you. That's great color. And just one more follow-up. When we think more broadly across the different service models across the dine in, takeout, drive through delivery, can you talk a little bit about customer preferences, how they've changed and how they've evolved?

Speaker 7

And if you're seeing any additional secular tailwinds that could accelerate market share gains?

Speaker 2

Yes. This is Noah. I'll take that. So I think, one of the things that we've noticed is just the drive thru resonance to guests and how guests are using the drive thru as the largest portion of transactions across the industry. It's 36% of total transactions, the plurality of all transactions.

Speaker 2

Drive Thru is largely non digital as we've noted. I mean, it's still done in the way that a guest is pulling up to a speaker box, placing the order. That is starting to change in a number of ways. It's starting to change in guests ordering ahead and then having a faster pickup at the drive thru in sort of a fly through manner where they're not gated by the guests who are waiting to place an order, but they're just swinging in to pick up the order and also in kiosks and voice AI in place of that speaker box. Both of those things represent great opportunities for further digital penetration in the industry.

Speaker 2

We're highly involved in all of that activity. It's awesome to see brands like Dutch Bros, who are really built on the drive thru channel leading the way and showing what excellence looks like in digital drive thru. The other thing is delivery really remains resonance. Delivery is now according to that same SIRCONA data that we mentioned earlier 9% of total industry traffic. So it's the smallest portion, but it's highly digital.

Speaker 2

It's about 80% of that 9% that is digital for delivery. And then we're seeing a lot of pickup still. So pickup 29% of transactions and it is the largest component of that digital mix of transactions is pickup transactions. That's really where Olo came into market initially and is helping brands to digitize those takeout transactions. And we are starting to see more digitization of the on premise experience.

Speaker 2

We talked about kiosks. That's a great example of that really resonant with the industry right now and also with industry guests, restaurant guests, and on premise ordering through QR code. So in every one of those venues, we're seeing digital advance and we're thrilled to be playing a role in every one of those venues and helping brands to think about how digital can both provide a better guest experience and also help them do more with less, become more efficient operationally, while at the same time helping them to gather that guest data and really better know their guests to better personalize the guest experience as a great co product of the digital transformation of the industry.

Speaker 7

Great. Thanks, guys.

Operator

Thank you.

Speaker 2

Thank

Operator

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

Speaker 2

Okay. Well, thank you for joining us today. Q2 was another strong quarter of financial and operational performance. We continue to land new customers and expand within our base of 700 plus brands, including through our new catering plus module and drive innovation with 19 new product enhancements and increased ecosystem partnerships. In parallel, we took additional steps toward launching our full stack payment solution with a 3rd Olopay kiosk integration and a 3rd Olopay POS integration.

Speaker 2

And we're seeing green shoots of how our long term strategy can help brands drive profitable traffic with guest data. We have miles to go before we sleep and we're energized by the journey. Have a great evening.

Operator

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

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Earnings Conference Call
OLO Q2 2024
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