10-Q: Olo Inc. Reports Third Quarter 2024 Results, Revenue Growth Driven by Olo Pay Adoption

Olo Inc. saw a 24.3% increase in total revenue year-over-year in the third quarter of 2024, driven by platform growth and Olo Pay adoption.

Summary

• Olo Inc. reported a net loss of $3.6 million for the third quarter of 2024, compared to a net loss of $11.8 million in the same period last year.
• Total revenue for the quarter reached $71.9 million, a 24.3% increase from $57.8 million in the third quarter of 2023.
• Platform revenue grew by 24% to $71 million, primarily due to increased adoption of Olo Pay and higher transaction volumes.
• The company's average revenue per unit increased to $850, up from $742 in the same quarter of the previous year.
• Active locations increased to 85,000 as of September 30, 2024, compared to 78,000 a year prior.
• Gross profit for the quarter was $39 million, with a gross margin of 54.3%, down from 59.8% in the third quarter of 2023.
• Operating expenses decreased to $47.5 million from $50.9 million year-over-year, with a significant reduction in general and administrative expenses.
• The company incurred $2.4 million in restructuring charges related to a workforce reduction.
• Olo's dollar-based net revenue retention exceeded 120% for the quarter.
• For the nine months ended September 30, 2024, Olo reported a net loss of $0.3 million, compared to a net loss of $42.5 million for the same period in 2023.
• Total revenue for the nine months ended September 30, 2024 was $208.9 million, a 26.4% increase from $165.3 million in the same period of 2023.

Sentiment

Score: 7

Explanation: The document shows positive revenue growth and improved profitability, but there are some concerns about gross margin and restructuring costs. The overall sentiment is positive, but with some caution.

Positives

• Olo's platform revenue saw significant growth, driven by increased adoption of Olo Pay and higher transaction volumes.
• The company's average revenue per unit increased, indicating successful upselling and cross-selling efforts.
• Olo's dollar-based net revenue retention exceeded 120%, demonstrating strong customer loyalty and expansion.
• The company completed a stock buyback program, returning capital to shareholders.
• Operating expenses decreased year-over-year, primarily due to lower general and administrative costs.

Negatives

• Gross margin decreased to 54.3% in Q3 2024 from 59.8% in Q3 2023, due to higher transaction processing costs and increased amortization of capitalized internal-use software.
• The company incurred $2.4 million in restructuring charges related to a workforce reduction.
• Olo reported a net loss of $3.6 million for the third quarter of 2024, although this is an improvement from the $11.8 million loss in the same period last year.

Risks

• The company faces risks related to cybersecurity and data breaches, which could compromise customer and guest information.
• Olo is subject to regulatory requirements and the rules of payment card networks, which could lead to fines and penalties.
• The company relies on a limited number of third-party payment processors, and any issues with these processors could disrupt operations.
• Olo's ability to maintain its corporate culture and attract and retain qualified personnel is critical to its success.
• The company's stock buyback programs may not enhance long-term stockholder value and could reduce available cash.

Future Outlook

Olo intends to continue investing in expanding the functionality of its platform, broadening its capabilities, and growing its ecosystem of third-party partners. The company also plans to explore opportunities in new markets and verticals.

Management Comments

• Management uses GMV and GPV metrics to assess demand for our products.
• Management believes that net revenue retention is an important metric to our investors, demonstrating our ability to retain our customers and expand their use of our modules over time.
• Management believes that, in the near term, average revenue per unit and net revenue retention will be greater drivers of growth than total active locations.

Industry Context

The restaurant industry is undergoing a significant digital transformation, with on-demand digital commerce becoming increasingly important. Olo's platform is designed to meet the complex needs of restaurants and align with the interests of the industry, positioning it to benefit from this trend.

Comparison to Industry Standards

• Olo's revenue growth of 24.3% in Q3 2024 is strong compared to the overall restaurant technology sector, which is experiencing a shift towards digital solutions.
• The company's net revenue retention of over 120% indicates a high level of customer satisfaction and loyalty, which is a key indicator of success in the SaaS industry.
• While Olo's gross margin decreased to 54.3%, this is not uncommon for companies investing heavily in growth and new product development, such as Olo Pay.
• Compared to competitors like Toast and Square, Olo focuses on enterprise-level restaurant brands, which allows for higher average revenue per unit and greater expansion opportunities within existing customer bases.
• Olo's active location count of 85,000 is a significant number, demonstrating its reach and scale in the restaurant industry.

Corporate Governance

Legal Proceedings

• The company settled a class action lawsuit, recording an expense of $9.0 million in 2023 and $10.6 million in insurance recoveries in 2024.
• Olo is involved in several derivative lawsuits, the outcomes of which are uncertain.

Stakeholder Impact

• Shareholders will benefit from the stock buyback program and the company's improved financial performance.
• Employees may be affected by the workforce reduction and restructuring efforts.
• Customers will benefit from the continued investment in the platform and new product development.
• Suppliers and partners may see increased business opportunities as Olo expands its ecosystem.

Next Steps

• Olo plans to continue investing in expanding the functionality of its platform and broadening its capabilities.
• The company intends to grow its ecosystem of third-party partners to better support its customers.
• Olo will continue to evaluate strategic acquisitions and investments to drive product and market expansion.

Key Dates

Keywords

Olo Pay, SaaS, restaurant technology, digital ordering, platform revenue, transaction volume, active locations, net revenue retention, stock buyback, restructuring