Olo Inc

NYSE:OLO

Earnings Call Analysis

Strong Finish with Positive Growth Indicators

Closing the quarter with $63 million in revenue, the company marked a robust 27% year-over-year increase. The platform’s growth can largely be attributed to the successful adoption of their comprehensive product suites, particularly Olo Pay. Moreover, an impressive 38% year-over-year increase in Average Revenue Per User (ARPU) was posted, suggesting successful engagement and upselling strategies. Net new active locations grew by about 2,300 quarter over quarter, ending with about 80,000 active locations. Net revenue retention was quite healthy at approximately 120%, showing that existing customers increased their spending over time.

Solid Operating Performance and Margin Improvements

The company ended the quarter with an 11% operating margin, a significant improvement reflecting diligent cost management and growing revenues. Gross profit also followed an upward trend, posting at $40.8 million up from $37.1 million last year. This growth in gross profits, however, was partially counterbalanced by an increasing mix of Olo Pay revenue. Expenses in various departments (sales and marketing, research and development, general and administrative) remained under control, with some even showing a decline as a percentage of total revenue. All these factors combined to underpin the company’s solid operating performance.

Projected Growth and Performance in 2024

Looking forward, first-quarter 2024 revenue is anticipated to land between $64 million and $64.5 million, with non-GAAP operating income estimated between $5.1 million and $5.5 million. For the full year, revenue is expected to be in the range of $269 million to $272 million, and non-GAAP operating income forecasted to be between $22 million and $24 million. Despite this projected growth, the company anticipates a gross margin dip between 150 to 200 basis points sequentially as Olo Pay becomes a more significant part of the revenue mix, but anticipates margin recovery and growth reacceleration in 2025.

Market Momentum and Strategic Focus

Consistent growth in online ordering and the need for operational efficiency in the restaurant industry continue to shape market trends. The company strategically relies on the scaling of Olo Pay and the expansion of multiple modules within Order and Engage suites to drive revenue. The expectation is that Olo Pay revenue will double in 2024, contributing significantly to ARPU expansion. The company is not banking on material revenue from card-present transactions until 2025, which indicates a focused growth strategy centered around existing and scalable product lines.

Continued Investment and Cost Management

While the company plans to prudently manage costs, investment in growth initiatives remains on the agenda, particularly in sales and marketing, though at moderated levels compared to recent years. The company has already made substantial progress in building out and rebalancing go-to-market teams, optimizing for the three product suites. This prudent approach aims to ensure top-line growth while expanding operating margins. Operational efficiencies are set to continue, particularly in R&D and G&A, positioning for a robust end to 2024 and an even stronger 2025.

Earnings Call Transcript 2023-Q4

[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. [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, executive]

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'll 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 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.

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

[Noah Glass, executive]

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 a balanced growth with increased profitability while investing in product, 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 checkout. This is Waffle House's first brand-wide digital investment, and they chose Olo for our, "exceptional online ordering experience" and, "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 Pay and Google 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 5 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 5 Guys analyze purchase behavior, generate lifetime value prediction and optimize guest acquisition.

Marketing activates this rich data through e-mail and text message journey to re-engage lapsed guests, surveys new customers to create a powerful feedback loop and powers targeted e-mail campaigns to drive sales. 5 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. 2 of our key differentiators for large enterprises are our modularity and open architecture. Brands can buy our full suite 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 are pleased to say we'll be continuing its strategic partnership with Olo by leveraging our AI-powered Voice Ordering integration 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 5 to 99 locations today and aspirations to scale.

We deployed multiple modules with brands like Barberitos, Carrot Express, Small Sliders and Texas de Brazil. Emerging 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 multi-module 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 9 new features as part of our Winter 2023 Release announcement. Olo's COO, Jo Lambert, highlighted 3 of these in the video announcement available at olo.com. After launching Catering+ 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 U.S. 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 Serve, 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 has shown to help brands increase guest account sign-ins, grow expected order frequency and improve 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 U.S. 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, notification 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 presence 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 3 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're leading 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 are more excited than ever about the opportunities for 2024 and beyond.

I'll now turn the call over to Peter. Peter?

[Peter Benevides, executive]

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 3 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 3 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 in 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 in an uncertain macro environment. Our guidance once again assumes a 2-thirds, 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 suite 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 a balanced 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]

[Operator Instructions] Our first question is from Matt Hedberg with RBC.

[Matthew Swanson, analyst]

Great. 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?

[Peter Benevides, executive]

Yes, it's a great question, Matt. 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 2 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.

[Matthew Swanson, analyst]

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 3 cohorts or just kind of what you're seeing from customer conversations?

[Noah Glass, executive]

Matt, great question. This is Noah here. So we're thrilled about being able to announce the 5 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 5 Guys is adopting and has now implemented the Guest Data platform and also marketing 2 components of the Engage suite. They're not alone. We've also had wins in Emerging Enterprise that we've announced, and we've announced that 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 5 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.

[Operator]

Our next question is from Stephen Sheldon with William Blair.

[Stephen Sheldon, analyst]

And nice results here. First, I 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 to roughly double in 2024? Just wanted to make sure I got that right.

[Peter Benevides, executive]

Yes, that's right.

[Stephen Sheldon, analyst]

Okay. Perfect. And then as we think about -- when you 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 bulling 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, executive]

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 with in 2023 initially with kiosk transactions. And we had our first kiosk provider with an Olo Pay slated 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 have seen the benefit of passwordless log-in with the Borderless capability. I have seen better results in authorization rates, fighting fraud, charge-backs, 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, executive]

Yes. 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 and 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, it 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 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 a 6 -- 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 the 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.

[Operator]

Our next question is from the line of Eric Martinuzzi with Lake Street Capital Markets.

[Eric Martinuzzi, analyst]

Yes, curious to learn a little bit more about the evolution of the Wingstop relationship. It was relatively what -- November time frame when it looked like the relationship was going to term-out in Q1 of 2024. I'm curious 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, executive]

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. And 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 a 100% digital to accelerate their path there. What we've mentioned what we know today, it's a 2-year relationship for that component, and that extends until the end of Q2 of 2026.

[Eric Martinuzzi, analyst]

Okay. That's helpful. And then on the -- you talked about the 2024 -- the 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 allow management looking at the broader economic headlines?

[Noah Glass, executive]

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 a commodity price -- 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 -- and so that's a big focus.

I think it's one of the things that we're hearing in every customer 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.

[Operator]

Our next question is from the line of Gabriela Borges with Goldman Sachs.

[Unknown Analyst]

This is Max, on for Gabriela. I wanted to ask you, based on your road map combos with large customers, how are you thinking about the risk of any other large customers churning over the next, say, 3 years? And what are some of the levers you can pull to mitigate this risk?

[Noah Glass, executive]

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 they ultimately cut off of a homegrown solution and on to Olo. That's something that we've seen happen over 10x 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 the details, it was a 100:1 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 and -- 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 and 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 on to Olo as the trends. Of course, there are notable outliers to that trend.

And it's also why you see our gross revenue retention of -- sorry, our gross retention rate of over 95% since our IPO and net revenue retention of 120% this quarter. It's because brands want to lean into the 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 those coming the other direction of brands leading into Olo and the Olo relationship to help accelerate their digital future.

[Unknown Analyst]

Understood. And appreciate the color on balancing growth versus profitability? And 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, executive]

Yes. So I can take that one. So when you think about the past, call it, 2 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 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 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 3 product suite structure, Order, Pay and Engage. So that's the plan going forward. So what we're doing again is balancing growth 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.

[Noah Glass, executive]

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 the 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. And 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 presence and Engage as great opportunities for us to accelerate the relationship with those enterprise brands.

And in the Emerging Enterprise segment, as you heard, we're up to 14,000 locations across great Emerging Enterprise brands. These are 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.

[Operator]

Our next question is from Clarke Jeffries with Piper Sandler.

[Clarke Jeffries, analyst]

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, executive]

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 working with them on Order and on Pay. And we think there is additional potential to do more together overtime. 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 effortless log-in 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, analyst]

Perfect. And then Peter, it is happy to see the ARPU growth accelerate to this high-teens level invested and sort of validated by [Technical Difficulty] net retention. How are you thinking about the sustainability 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 out of the 120% mark?

[Peter Benevides, executive]

Yes. So we've had a lot of great progress in net revenue retention over the past want to say, 4, 5 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 as 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.

[Operator]

Our next question is from the line of Andrew Harte with BTIG.

[Andrew Harte, analyst]

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.

[Peter Benevides, executive]

Yes, 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 -- 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.

[Operator]

As there are no further questions, I would now hand the conference over to Noah Glass for his closing comments.

[Noah Glass, executive]

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.