Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, all references in this prospectus to “Olo,” the “company,” “we,” “our,” “us” or similar terms refer to Olo Inc.Overview
Olo provides a leading cloud-based, on-demand commerce platform for multi-location restaurant brands.
Our platform powers restaurant brands’ on-demand commerce operations, enabling digital ordering and delivery, while further strengthening and enhancing the restaurants’ direct consumer relationships. Consumers today expect more on-demand convenience and personalization from restaurants, particularly through digital channels, but many restaurants lack the in-house infrastructure and expertise to satisfy this increasing demand in a cost-effective manner. Olo provides restaurants with a business-to-business-to-consumer, enterprise-grade, open SaaS platform to manage their complex digital businesses and enable fast and more personalized experiences for their customers. Our platform and application programming interfaces, or APIs, seamlessly integrate with a wide range of solutions, unifying disparate technologies across the restaurant ecosystem. Restaurant brands rely on Olo to increase their digital and in-store sales, maximize profitability, establish and maintain direct consumer relationships, and collect, protect, and leverage valuable consumer data. As a result, we nearly doubled the gross merchandise value, or GMV, which we define as the gross value of orders processed through our platform, in each of the last five years and reached nearly $14.6 billion in GMV during the year ended December 31, 2020. Our well-established platform has led many of the major publicly traded and top 50 fastest growing private restaurant brands, measured by overall sales, in the United States to work with us and has been a factor in our high gross brand retention rate. Further, industry-recognized outlets, including Restaurant Business Online, QSR Magazine, and AP News, have also deemed Olo the leading food ordering platform for the restaurant industry.
The $1.6 trillion food industry is one of the largest consumer markets in the United States. According to the National Restaurant Association, restaurants accounted for $863 billion of that spend in 2019, surpassing grocery in aggregate consumer spending, before dropping to $659 billion in 2020 as a result of COVID-19. However, consumer spending on restaurants is expected to rebound to $1.1 trillion by 2024 according to analysis by The Freedonia Group. Growing consumer demand for convenience has made off-premise consumption, which includes take-out, drive-thru, and delivery orders, the single largest contributor to restaurant industry growth. Even before the onset of the COVID-19 pandemic, off-premise consumption accounted for 60% of restaurant orders in 2020, and was expected to contribute 70% to 80% of total restaurant industry growth in the next five years, according to the National Restaurant Association. Meanwhile, delivery continues to grow as a percentage of sales. The average portion of total sales from third-party delivery in the 12 months ending August 2019 was 6.5%. Even prior to the COVID-19 pandemic, that was expected to increase to 10% in 2020. As consumers have become accustomed to the immediate convenience of on-demand commerce, they are demanding the same digital experience from restaurants, placing significant pressure on restaurants to deploy solutions. This demand has only accelerated since the onset of COVID-19, as on-demand commerce has become a necessity for the majority of restaurants.
Restaurants are an incredibly complex segment of the retail industry, making their shift to on-demand commerce especially challenging. The four walls of the restaurant uniquely serve as both the factory and showroom floor: restaurant operators must manage the intricacies of food production and customer service simultaneously while providing the high-quality, consistency, and hospitality that engenders consumer loyalty and trust. Furthermore, restaurants serve food that is perishable, has near infinite configurations, and must be made to order for just-in-time consumption under strict regulatory standards for health and safety. Most restaurant brands, which we define as a specific restaurant brand or restaurant chain, do not have the expertise or the resources to develop their own solutions to manage on-demand commerce and are more acutely challenged because their in-store technology is comprised of a fragmented set of legacy solutions, many of which were developed before the internet. At the same time, delivery service providers, or DSPs, and ordering aggregators have catalyzed digital demand, but pose new challenges for restaurant brands through lower long-term profitability, increased complexity, disintermediation of the restaurant’s direct relationship with the consumer and, increasingly, directly competitive food offerings. Additionally, restaurants face increasing economic pressure with an intensely competitive landscape, which has only been exacerbated by the COVID-19 pandemic. Due to its unique complexities and challenges, the restaurant industry has historically been one of the lowest penetrated on-demand commerce segments of the retail industry, with digital sales accounting for less than 10% of sales, according to a report published by Cowen Equity Research in 2019.
Our open SaaS platform is purpose-built to meet these complex needs and align with the interests of the restaurant industry. For over 10 years, we have developed our platform in collaboration with many of the leading restaurant brands in the United States. We believe our platform is the only independent open SaaS platform for restaurants to provide seamless digital ordering and efficient delivery enablement, offering centralized management of a restaurant’s entire digital business. Our platform includes the following core modules:
Leading restaurant brands trust Olo’s enterprise-grade platform for its capabilities, reliability, security, scalability, and interoperability. Our platform currently handles, on average, nearly 2 million orders per day. We continually invest in architectural improvements so our system can scale in tandem with our continued growth. Additionally, both internal and external security experts frequently test our system for vulnerabilities. We have never experienced a material breach of customer or consumer data. Our open SaaS platform integrates with over 100 restaurant technology solutions including POS systems, aggregators, DSPs, payment processors, user experience, or UX, and user interface, or UI, providers, and loyalty programs, giving our customers significant control over the configuration and features of their distinct digital offering.
We are the exclusive direct digital ordering provider for our leading brands across all service models of the restaurant industry, including quick service, fast casual, casual, family, and snack food. Our customers include major publicly traded and the fastest growing private restaurant brands such as Chili’s, Wingstop, Shake Shack, Five Guys, and sweetgreen. As of December 31, 2020, we had approximately 400 brand customers representing over 64,000 active locations using our platform. We consider each specific restaurant brand to be a customer, even if owned by a parent organization that owns multiple restaurant brands, and define an active location as a specific restaurant location that has deployed one or more of our modules. Our average initial contract length is generally three years with continuous one-year automatic renewal periods, providing visibility into our future financial performance. Our enterprise brands, meaning those brands having 50 or more locations, are also highly loyal. Over the last five years, on average nearly 99% of our enterprise brand customers, which accounted for 91% of our total active locations as of December 31, 2020, have continued using our Ordering module each year. Our customers’ digital same-store sales has increased, on average, by 44% for the month ended December 31, 2019 when compared to the month ended December 31, 2018. This trend has further accelerated over the past year, with digital same-store sales up 156% for the month ended December 31, 2020 when compared to the month ended December 31, 2019.
We have a highly efficient go-to-market model as a result of our industry thought leadership, partnership approach with our restaurant customers, and experienced enterprise sales, customer success, and deployment teams. Unlike other enterprise software businesses, where the sales team works to add a single location or division and expand to others, we enter into relationships at the brand’s corporate level and secure exclusivity across all company-owned and franchise locations. This enables us to deploy our modules across all new and existing brand locations without any additional sales and marketing costs, and upsell new offerings to the brand itself, rather than each individual location. As of December 31, 2019 and 2020, 44% and 71% of our customers used all three of our modules, respectively.
We refer to our business model as a transactional SaaS model as it includes both subscription and transaction-based revenue streams, and we designed it to align with our customers’ success. Our model allows our customers to forego the cost of building, maintaining, and securing their own digital ordering and delivery platforms and to retain direct relationships with their consumers while maximizing profitability. Our hybrid-pricing model provides us with a predictable revenue stream and enables us to further grow our revenue as our customers increase their digital order volume. We generate subscription revenue from our Ordering module and transaction revenue from our Rails and Dispatch modules. We charge our customers a fixed monthly subscription fee per restaurant location for access to our Ordering module. In addition, a growing portion of our customers purchase an allotment of monthly orders for a fixed monthly fee and pay us an additional fee for each excess order, which we also consider to be subscription revenue. Our transaction revenue includes revenue generated from our Rails and Dispatch modules. Customers who subscribe to our Rails and Dispatch modules pay a fee on a per transaction basis. In most cases, we also charge aggregators, channel partners, and other service providers in our ecosystem on a per transaction basis for access to our Rails and Dispatch modules. We also derive transactional revenue from other products, including Network, which allows brands to take orders from non-marketplace digital channels (e.g., Google Food Ordering, which enables restaurants to fulfill orders directly through Google search results and Maps pages). These products generate fees predominantly through revenue sharing agreements with partners. For the years ended December 31, 2018, 2019, and 2020, 93.2%, 80.8%, and 56.7% of our platform revenue was subscription revenue, respectively, and 6.8%, 19.2%, and 43.3% was transaction revenue, respectively.
Our business has experienced rapid growth in a highly capital efficient manner. Since inception 15 years ago, we have raised less than $100.0 million of primary investment capital, net of share repurchases, and as of December 31, 2020, we had cash and cash equivalents of $75.8 million with no outstanding debt. During the years ended December 31, 2018, 2019, and 2020, we generated revenue of $31.8 million, $50.7 million, and $98.4 million, respectively, representing year-over-year growth of 59.4% and 94.2%.
During the years ended December 31, 2018, 2019, and 2020, we generated gross profit of $21.0 million, $35.1 million, and $79.8 million, respectively, or 66.0%, 69.3%, and 81.0% as a percentage of revenue, respectively. During the years ended December 31, 2018 and 2019, we incurred net losses of $11.6 million and $8.3 million, respectively, and during the year ended December 31, 2020, we generated net income of $3.1 million. During the years ended December 31, 2018 and 2019, we incurred operating losses of $8.8 million and $5.1 million, respectively and during the year ended December 31, 2020, we generated operating income of $16.1 million. During the years ended December 31, 2018 and 2019, we incurred non-GAAP operating losses of $4.6 million and $0.2 million, respectively, and during the year ended December 31, 2020, we generated non-GAAP operating income of $21.8 million. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on our non-GAAP metrics.
COVID-19 Update
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic, impacting communities in the United States and across the world. Responses to the outbreak continue to develop, as consequences have affected communities and economies across the world. State mandated lockdowns have adversely impacted many restaurants, as public health regulations transformed or even halted daily operations. In order to stay in business, restaurants were forced to more aggressively adopt digital solutions to provide on-demand services, off-premise dining and delivery solutions for consumers, if they were not already. In just the first few weeks of the COVID-19 shutdowns in the United States, 59% of restaurant operators added new curbside pickup offerings and 20% added new online ordering or pre-pay functionalities as a direct response to the coronavirus pandemic, according to a survey by eMarketer. Consumers were receptive to these changes, with 30% of them affirming that they had begun using restaurant delivery and 50% affirming they had begun take out services, mostly due to COVID-19, according to a report by Packaged Facts.
Although we are optimistic that the emphasis on on-demand commerce in the food services industry will be an enduring trend, we do not have certainty on the long-term impact these developments will have on the industry. The degree of the pandemic’s effect on our restaurant partners across the food services industry will depend on many factors, particularly on government regulations and their impact on the financial viability of restaurant operations as well as the duration of the pandemic. We will continue to monitor these developments and their implications on our business. The COVID-19 pandemic could materially adversely impact our business, financial condition, and results of operations. In the absence of updated industry sources giving effect to the market shifts precipitated by COVID-19, we have included in this prospectus select market research that was published prior to the COVID-19 outbreak and without considerations for its potential effects. Refer to “Risk Factors” in this prospectus for additional information regarding the impact of COVID-19 on our business.
During the month of March 2020, in accordance with local, state, and national regulations, we closed our offices in New York, and transitioned our employees to work-from-home and efficiently adapted our operations to a remote working environment. In addition, we were able to operate without terminating or furloughing our employees. As the pandemic continued, we grew our employee base to scale the business in order to meet the increased customer demands we were facing.
We continue to monitor updates and consider regulatory guidance for reopening office locations. We believe that we are well equipped to support full or partial remote work without disruption to our business.
As many restaurants faced on-premise dining restrictions, our customers needed to transition and adapt their businesses quickly. In a recent survey of Olo customers, approximately 70% of respondents offered more off-premise delivery and pick-up options in response to COVID-19. We focused on optimizing the deployment process for our new customers and offered adaptive solutions to help them navigate through this challenging business environment. We reprioritized our strategic roadmap to address the most important solutions for our customers, including enhancements to our curbside pick-up functionality. As curbside pick-up became an even more integral component of restaurant transactions, we further enabled our platform capabilities so restaurants could more efficiently manage these orders, adding quick response, or QR, code functionality, kiosk ordering solutions, and additional ecosystem partners. We engaged with our customers to collaborate on implementing the most relevant short- and long-term solutions. In addition to helping our customer brands react to COVID-19, we recognized the importance of supporting the restaurant industry and front-line workers directly and made donations to the Restaurant Employee Relief Fund.
Our revenue for the quarters ended March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020 increased by 55.2%, 100.2%, 94.2%, and 117.6%, respectively, compared to 2019. While many restaurants have been struggling during this period, we have been uniquely positioned to expand our footprint and help support the restaurant industry when it was most in need. While we expect on-premise dining to return over time, we believe that off-premise offerings will continue to be an essential part of a restaurant’s operations.
Industry Background
There are a number of important industry trends driving our market opportunity.
of the market as they are able to leverage their scale to more effectively deploy on-demand commerce solutions than many small and medium business, or SMB, restaurants. We expect consumers will continue to demand digital solutions from restaurants that offer more convenience and personalization, helping to drive sales and expand the industry.
as it allows them to better analyze interactions, customize offerings, and maximize the long-term value of their consumers. However, restaurants risk losing direct consumer relationships if they are heavily reliant on aggregators, which generally do not provide visibility into who is ordering or enable a restaurant to articulate its unique brand value. According to a recent survey by the National Restaurant Association, 64% of adults prefer to order directly through the restaurant for delivery, compared to only 18% who prefer to order through a third-party service for delivery. In fact, over 70% of Olo customers in a recent survey indicated that their primary reason to own their own branded digital storefront was to own a direct relationship with their guests. The majority of respondents have 50% or less of their online orders coming through an aggregator compared to their own channel, and they expect their mix of aggregator order volumes to decrease in the future relative to their own channel. Additionally, aggregators typically limit a restaurant’s ability to collect and use data about consumers and orders transacted through the aggregator. Consumers also value this direct and personal connectivity with restaurant brands, and we believe consumers would rather interact directly with a brand than through an intermediary.
Complexities of the Current Ecosystem
The key complexities that hinder restaurants’ digital transformation progress include:
POS and Technology Integration
Food and Menu Management
Order Channels
Operations and Logistics
Building a Digital Brand and Owning the Consumer Relationship
Our Platform
We provide the leading on-demand commerce platform designed for multi-location restaurant brands. Our customers use our software to create unique direct-to-consumer digital ordering experiences, manage orders across channels, and enable delivery across their restaurant locations. We have an open SaaS platform that seamlessly integrates with technology solutions throughout the restaurant ecosystem, including most POS systems, aggregators, DSPs, payment processors, UI and UX providers, and loyalty programs. We provide restaurants with a centralized system to manage their digital business and ensure consumers receive better, faster, and more personalized service while increasing restaurant order volume and improving yield at lower cost.
We engineered our platform to handle the most complex issues for the leading restaurant brands, but with the simplicity and ease-of-use required within an individual restaurant. We developed our infrastructure with application programming interfaces, or APIs, which facilitate interactions across and integrate with multiple software programs and components of the restaurant ecosystem. We enable more streamlined data collection and facilitate analytical decision-making, so restaurants can better understand and adapt to unique consumer preferences. We are constantly innovating and enhancing our platform, with our continuously deployed, multi-tenant architecture ensuring all restaurant locations are always using the latest technology.
Our platform includes the following core modules:
Ordering
Dispatch
Rails
Our Position in the Restaurant Industry
Restaurants rely on our enterprise-grade open SaaS platform to power their critically important digital ordering and fulfillment offerings. Our focus on developing solutions has aligned with restaurant brands’ interests, and our history of deploying our platform to approximately 400 restaurant brands through exclusive direct digital ordering relationships has allowed us to build what we believe is one of the largest technology ecosystems in the restaurant industry. We integrate with over 100 technology partners and believe that this positions us to be the only party able to unify and enhance the utility of disparate technologies across the industry, including POS systems, aggregators, DSPs, payment processors, UI and UX providers, and loyalty programs.
We believe that our approach to building this two-sided network, comprised of restaurants and technology partners, has given us a valuable position that is deeply embedded within the restaurant industry. We intend to expand our influence and position as we onboard new customer brands, integrate with additional modern or legacy software systems and technology providers, improve our platform’s functionality, develop new modules, continue to provide industry-leading security, and as our restaurant customers increasingly process orders through digital channels.