UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20222023
| | | | | |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-40213
Olo Inc.
(Exact name of registrant as specified in its charter)
| | | | | |
| Delaware | 20-2971562 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
285 Fulton99 Hudson Street
One World Trade Center, 82nd10th Floor
New York, NY 1000710013
(Address of principal executive offices) (Zip Code)
(212) 260-0895
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Class A Common Stock, par value $0.001 per share | OLO | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | ¨x | | Accelerated filer | ¨ |
| Non-accelerated filer | x¨ | | Smaller reporting company | ¨ |
| | | | Emerging growth company | x¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of November 4, 2022, 105,945,207July 28, 2023, 108,370,011 shares of the registrant’s Class A common stock and 57,460,68754,894,345 shares of registrant’s Class B common stock were outstanding.
OLO INC.
TABLE OF CONTENTS
| | | | | | | | |
| | |
| | Page |
| | |
| | |
| | |
| Item 1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Item 2. | | |
| | |
| Item 3. | | |
| | |
| Item 4. | | |
| | |
| | |
| | |
| Item 1. | | |
| | |
| Item 1A. | | |
| | |
| Item 2. | | |
| | |
| Item 3. | | |
| | |
| Item 4. | | |
| | |
| Item 5. | | |
| | |
| Item 6. | | |
| | |
| | |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. All statements other than statements of historical factsfact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy, and plans and objectives of management for future operations, and the amount and timing of any repurchases of our common stock under our share repurchase program, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “if,” “intend,” “likely,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions.
TheseForward-looking statements are not guarantees of future performance and involve risks, uncertainties, and assumptions. Actual results may differ materially from the forward-looking statements we make. Factors that may cause or contribute to such differences include, but are not limited to, statements concerning the following:to:
•our expectations regarding our revenue, expenses, and other operating results, including overall transaction volumes, average revenue per unit, or ARPU, ending active locations and dollar-based net revenue retention, or NRR;
•the durability of the growth we have experienced in the past due to the COVID-19 pandemicending active locations, gross merchandise volume, and the associated government-imposed restrictions on consumer preferences for digital ordering and customer adoption of multi-modules;gross payment volume;
•our ability to acquire new customers and successfully retain existing customers;
•our ability to develop and release new and successful products and services and the success of any new products;services;
•our ability to develop and release successful enhancements, features, and modifications to our existing products and services;
•our ability to increase usage of our platform and upsell and cross sell additional modules;
•our ability to attain or sustain our profitability;
•the effectsdurability of the growth we have experienced in the past due to the COVID-19 pandemic or otherand the associated government-imposed restrictions on guest preferences for digital ordering and customer adoption of multi-modules;
•the effects of any public health crises, macroeconomic conditions such as inflation and fluctuating interest rates, orchanges in discretionary spending, and overall market uncertainty;
•future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;
•the loss or decline in revenue from any of our significant customers and our resulting financial condition;
•our ability to repurchase shares at all or at the times or in the amounts we desire, and the results of our share repurchase program;
•our ability to compete effectively with existing competitors, and new market entrants;entrants, and customers generally developing their own solutions to replace our products
•the costs and success of our sales and marketing efforts, and our ability to promote our brand;
•our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;
•our ability to effectively manage our growth, including any international expansion;
•our ability to realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and risk that the integration of these acquisitions may disrupt our business and management;
•our ability to protect our intellectual property rights and any costs associated therewith;
•the growth rates of the markets in which we compete;
•our expectations regardingability to successfully combine and integrate the period during whichbusinesses that we qualify as an emerging growth company underacquire, and to realize the Jumpstart Our Business Startups Act of 2012,synergies and anticipated strategic, financial, and other benefits from such acquisitions;
•our ability to successfully defend or the JOBS Act;resolve any current or future litigation matters, and to discharge those matters without significant financial penalty or payments, restrictions on our business and operations, or other remedies; and
•other risks and uncertainties, including those listed under the caption “Risk Factors.”
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information.
The outcome
of the events described in these forward-looking statements is subject to risks, assumptions, uncertainties, and other factors described elsewhere in this Quarterly Report on Form 10-Q and those listed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, our subsequent Quarterly Reports on Form 10-Q, and our other filings with the Securities and Exchange Commission.2022. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
Unless the context otherwise indicates, references in this report to the terms “Olo,” “the Company,” “we,” “our,” and “us” refer to Olo Inc.
“Olo” and other trade names and trademarks of ours appearing in this Quarterly Report on Form 10-Q are our property. This Quarterly Report on Form 10-Q contains trade names and trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
OLO INC.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share amounts) | | | As of September 30, 2022 | | As of December 31, 2021 | | As of June 30, 2023 | | As of December 31, 2022 |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 366,399 | | | $ | 514,445 | | Cash and cash equivalents | $ | 318,019 | | | $ | 350,073 | |
| Short-term investments | Short-term investments | 101,956 | | | — | | Short-term investments | 83,738 | | | 98,699 | |
| Accounts receivable, net of allowances of $612 and $657, respectively | 43,108 | | | 42,319 | | |
| Accounts receivable, net of expected credit losses of $1,239 and $612, respectively | | Accounts receivable, net of expected credit losses of $1,239 and $612, respectively | 56,150 | | | 48,128 | |
| Contract assets | Contract assets | 402 | | | 568 | | Contract assets | 455 | | | 336 | |
| Deferred contract costs | Deferred contract costs | 2,729 | | | 2,567 | | Deferred contract costs | 3,552 | | | 2,851 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 6,644 | | | 5,718 | | Prepaid expenses and other current assets | 11,183 | | | 11,687 | |
| Total current assets | Total current assets | 521,238 | | | 565,617 | | Total current assets | 473,097 | | | 511,774 | |
| Property and equipment, net | 10,540 | | | 3,304 | | |
| Intangible assets, net | 22,688 | | | 19,635 | | |
| Property and equipment, net of accumulated depreciation and amortization of $6,648 and $4,328, respectively | | Property and equipment, net of accumulated depreciation and amortization of $6,648 and $4,328, respectively | 18,590 | | | 11,700 | |
| Intangible assets, net of accumulated amortization of $6,284 and $4,304, respectively | | Intangible assets, net of accumulated amortization of $6,284 and $4,304, respectively | 19,718 | | | 21,698 | |
| Goodwill | Goodwill | 207,540 | | | 162,956 | | Goodwill | 207,781 | | | 207,781 | |
| Contract assets, noncurrent | Contract assets, noncurrent | 619 | | | 387 | | Contract assets, noncurrent | 330 | | | 241 | |
| Deferred contract costs, noncurrent | Deferred contract costs, noncurrent | 3,991 | | | 3,616 | | Deferred contract costs, noncurrent | 5,425 | | | 4,171 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 14,568 | | | — | | Operating lease right-of-use assets | 13,819 | | | 15,581 | |
| Long-term investments | Long-term investments | 804 | | | — | | Long-term investments | 29,414 | | | 2,430 | |
| Other assets, noncurrent | Other assets, noncurrent | 452 | | | 361 | | Other assets, noncurrent | 94 | | | 186 | |
| Total assets | Total assets | $ | 782,440 | | | $ | 755,876 | | Total assets | $ | 768,268 | | | $ | 775,562 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Accounts payable | Accounts payable | $ | 1,930 | | | $ | 2,184 | | Accounts payable | $ | 7,733 | | | $ | 2,259 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 46,543 | | | 45,395 | | Accrued expenses and other current liabilities | 64,861 | | | 52,411 | |
| Unearned revenue | Unearned revenue | 2,608 | | | 1,190 | | Unearned revenue | 3,414 | | | 2,527 | |
| Operating lease liabilities, current | Operating lease liabilities, current | 2,666 | | | — | | Operating lease liabilities, current | 2,749 | | | 3,220 | |
| Total current liabilities | Total current liabilities | 53,747 | | | 48,769 | | Total current liabilities | 78,757 | | | 60,417 | |
| Unearned revenue, noncurrent | Unearned revenue, noncurrent | 1,121 | | | 3,014 | | Unearned revenue, noncurrent | 167 | | | 661 | |
| Operating lease liabilities, noncurrent | Operating lease liabilities, noncurrent | 16,328 | | | — | | Operating lease liabilities, noncurrent | 15,427 | | | 16,827 | |
| Other liabilities, noncurrent | Other liabilities, noncurrent | 243 | | | 2,343 | | Other liabilities, noncurrent | 59 | | | 41 | |
| Total liabilities | Total liabilities | 71,439 | | | 54,126 | | Total liabilities | 94,410 | | | 77,946 | |
| Commitments and contingencies (Note 16) | | |
| Commitments and contingencies (Note 10) | | Commitments and contingencies (Note 10) | |
| Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
| Class A common stock, $0.001 par value; 1,700,000,000 shares authorized at September 30, 2022 and December 31, 2021; 105,063,706 and 78,550,530 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively. Class B common stock, $0.001 par value; 185,000,000 shares authorized at September 30, 2022 and December 31, 2021; 58,421,140 and 79,149,659 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 163 | | | 158 | | |
| Preferred stock, $0.001 par value; 20,000,000 shares authorized at September 30, 2022 and December 31, 2021 | — | | | — | | |
| Class A common stock, $0.001 par value; 1,700,000,000 shares authorized at June 30, 2023 and December 31, 2022; 108,136,055 and 105,053,030 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively. Class B common stock, $0.001 par value; 185,000,000 shares authorized at June 30, 2023 and December 31, 2022; 54,894,345 and 57,391,687 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | | Class A common stock, $0.001 par value; 1,700,000,000 shares authorized at June 30, 2023 and December 31, 2022; 108,136,055 and 105,053,030 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively. Class B common stock, $0.001 par value; 185,000,000 shares authorized at June 30, 2023 and December 31, 2022; 54,894,345 and 57,391,687 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | 163 | | | 162 | |
| Preferred stock, $0.001 par value; 20,000,000 shares authorized at June 30, 2023 and December 31, 2022 | | Preferred stock, $0.001 par value; 20,000,000 shares authorized at June 30, 2023 and December 31, 2022 | — | | | — | |
| Additional paid-in capital | Additional paid-in capital | 860,574 | | | 813,166 | | Additional paid-in capital | 862,480 | | | 855,249 | |
| Accumulated deficit | Accumulated deficit | (149,316) | | | (111,574) | | Accumulated deficit | (188,324) | | | (157,542) | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (420) | | | — | | Accumulated other comprehensive loss | (461) | | | (253) | |
| Total stockholders’ equity | Total stockholders’ equity | 711,001 | | | 701,750 | | Total stockholders’ equity | 673,858 | | | 697,616 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 782,440 | | | $ | 755,876 | | Total liabilities and stockholders’ equity | $ | 768,268 | | | $ | 775,562 | |
The accompanying notes are an integral part of these financial statements.
OLO INC.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share amounts)
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
| Platform | Platform | $ | 46,357 | | | $ | 36,084 | | | $ | 132,361 | | | $ | 105,533 | | Platform | $ | 54,603 | | | $ | 44,538 | | | $ | 105,974 | | | $ | 86,004 | |
| Professional services and other | Professional services and other | 909 | | | 1,306 | | | 3,262 | | | 3,876 | | Professional services and other | 648 | | | 1,063 | | | 1,517 | | | 2,353 | |
| Total revenue | Total revenue | 47,266 | | | 37,390 | | | 135,623 | | | 109,409 | | Total revenue | 55,251 | | | 45,601 | | | 107,491 | | | 88,357 | |
| Cost of revenue: | Cost of revenue: | | Cost of revenue: | |
| Platform | 13,920 | | | 6,632 | | | 37,693 | | | 18,419 | | |
| Professional services and other | 1,346 | | | 1,532 | | | 4,543 | | | 3,958 | | |
Platform (1) | | Platform (1) | 19,721 | | | 12,986 | | | 37,334 | | | 24,227 | |
Professional services and other (1) | | Professional services and other (1) | 1,058 | | | 1,453 | | | 2,194 | | | 3,272 | |
| Total cost of revenue | Total cost of revenue | 15,266 | | | 8,164 | | | 42,236 | | | 22,377 | | Total cost of revenue | 20,779 | | | 14,439 | | | 39,528 | | | 27,499 | |
| Gross Profit | Gross Profit | 32,000 | | | 29,226 | | | 93,387 | | | 87,032 | | Gross Profit | 34,472 | | | 31,162 | | | 67,963 | | | 60,858 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
Research and development | Research and development | 19,101 | | | 14,485 | | | 53,159 | | | 42,872 | | Research and development | 18,298 | | | 17,576 | | | 38,771 | | | 34,732 | |
General and administrative | General and administrative | 20,894 | | | 21,270 | | | 56,090 | | | 53,034 | | General and administrative | 18,469 | | | 16,503 | | | 35,679 | | | 33,752 | |
Sales and marketing | Sales and marketing | 7,923 | | | 4,728 | | | 24,890 | | | 12,265 | | Sales and marketing | 12,194 | | | 9,015 | | | 25,075 | | | 17,208 | |
| Restructuring charges (Note 12) | | Restructuring charges (Note 12) | 6,682 | | | — | | | 6,682 | | | — | |
| Total operating expenses | Total operating expenses | 47,918 | | | 40,483 | | | 134,139 | | | 108,171 | | Total operating expenses | 55,643 | | | 43,094 | | | 106,207 | | | 85,692 | |
| Loss from operations | Loss from operations | (15,918) | | | (11,257) | | | (40,752) | | | (21,139) | | Loss from operations | (21,171) | | | (11,932) | | | (38,244) | | | (24,834) | |
| Other income (expenses), net: | | |
| Other income, net: | | Other income, net: | |
| Interest income | Interest income | 1,525 | | | — | | | 2,110 | | | — | | Interest income | 4,155 | | | 533 | | | 7,609 | | | 585 | |
| Interest expense | Interest expense | (70) | | | — | | | (116) | | | — | | Interest expense | (53) | | | (46) | | | (122) | | | (46) | |
| Other (expense) income | (7) | | | (15) | | | 6 | | | (23) | | |
| Change in fair value of warrant liability | — | | | — | | | — | | | (18,930) | | |
| Total other income (expenses), net | 1,448 | | | (15) | | | 2,000 | | | (18,953) | | |
| Other income, net | | Other income, net | — | | | 7 | | | — | | | 13 | |
| Total other income, net | | Total other income, net | 4,102 | | | 494 | | | 7,487 | | | 552 | |
| Loss before income taxes | Loss before income taxes | (14,470) | | | (11,272) | | | (38,752) | | | (40,092) | | Loss before income taxes | (17,069) | | | (11,438) | | | (30,757) | | | (24,282) | |
| Provision (benefit) for income taxes | Provision (benefit) for income taxes | 90 | | | 36 | | | (1,010) | | | 110 | | Provision (benefit) for income taxes | 7 | | | 235 | | | 25 | | | (1,100) | |
| Net loss | Net loss | $ | (14,560) | | | $ | (11,308) | | | $ | (37,742) | | | $ | (40,202) | | Net loss | $ | (17,076) | | | $ | (11,673) | | | $ | (30,782) | | | $ | (23,182) | |
| Accretion of redeemable convertible preferred stock to redemption value | — | | | — | | | — | | | (14) | | |
| | Net loss attributable to Class A and Class B common stockholders | $ | (14,560) | | | $ | (11,308) | | | $ | (37,742) | | | $ | (40,216) | | |
| Net loss per share attributable to Class A and Class B common stockholders: | Net loss per share attributable to Class A and Class B common stockholders: | | | | | | | | Net loss per share attributable to Class A and Class B common stockholders: | | | | | | | |
| Basic | Basic | $ | (0.09) | | | $ | (0.08) | | | $ | (0.23) | | | $ | (0.35) | | Basic | $ | (0.11) | | | $ | (0.07) | | | $ | (0.19) | | | $ | (0.15) | |
| Diluted | Diluted | $ | (0.09) | | | $ | (0.08) | | | $ | (0.23) | | | $ | (0.35) | | Diluted | $ | (0.11) | | | $ | (0.07) | | | $ | (0.19) | | | $ | (0.15) | |
| Weighted-average Class A and Class B common shares outstanding: | Weighted-average Class A and Class B common shares outstanding: | | | | | | | | Weighted-average Class A and Class B common shares outstanding: | | | | | | | |
| Basic | Basic | 162,364,654 | | | 148,452,987 | | | 160,667,412 | | | 113,451,378 | | Basic | 162,324,314 | | | 160,429,125 | | | 162,005,150 | | | 159,813,053 | |
| Diluted | Diluted | 162,364,654 | | | 148,452,987 | | | 160,667,412 | | | 113,451,378 | | Diluted | 162,324,314 | | | 160,429,125 | | | 162,005,150 | | | 159,813,053 | |
(1) The following reclassifications were made to conform the prior year periods presented to the current year presentation:
•For the three months ended June 30, 2022, $0.7 million was reclassified from general and administrative expense as follows: $0.3 million into platform cost of revenue, $0.1 million into sales and marketing expenses, and $0.3 million into research and development expenses.
•For the six months ended June 30, 2022, $1.4 million was reclassified from general and administrative expense as follows: $0.5 million into platform cost of revenue, $0.1 million into professional services and other cost of revenue, $0.2 million into sales and marketing expenses, and $0.7 million into research and development expenses.
Such reclassifications had no effect on previously reported operating loss, net loss, or accumulated deficit. See “Note 2—Significant Accounting Policies” for additional information on the reclassifications.
The accompanying notes are an integral part of these financial statements.
OLO INC.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(in thousands)
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Net loss | Net loss | $ | (14,560) | | | $ | (11,308) | | | $ | (37,742) | | | $ | (40,202) | | Net loss | $ | (17,076) | | | $ | (11,673) | | | $ | (30,782) | | | $ | (23,182) | |
| Other comprehensive loss: | Other comprehensive loss: | | Other comprehensive loss: | |
| Unrealized loss on investments | Unrealized loss on investments | (169) | | | — | | | (420) | | | — | | Unrealized loss on investments | (405) | | | (251) | | | (208) | | | (251) | |
| Total other comprehensive loss | Total other comprehensive loss | (169) | | | — | | | (420) | | | — | | Total other comprehensive loss | (405) | | | (251) | | | (208) | | | (251) | |
| Comprehensive loss | Comprehensive loss | $ | (14,729) | | | $ | (11,308) | | | $ | (38,162) | | | $ | (40,202) | | Comprehensive loss | $ | (17,481) | | | $ | (11,924) | | | $ | (30,990) | | | $ | (23,433) | |
The accompanying notes are an integral part of these financial statements.
OLO INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)
(in thousands, except share data)
| | | | Class A and Class B Common Stock | | Additional
Paid In
Capital | | Accumulated
Deficit | | Accumulated Other Comprehensive Loss | | Total
Stockholders’ Equity | | | Class A and Class B Common Stock | | Additional
Paid In
Capital | | Accumulated
Deficit | | Accumulated Other Comprehensive Loss | | Total
Stockholders’ Equity |
| | | Shares | | Amount | | | | | Amount | | Total
Stockholders’ Equity | |
| Balance as of December 31, 2021 | | 157,700,189 | | | $ | 158 | | | $ | 813,166 | | | $ | (111,574) | | | $ | — | | | $ | 701,750 | | |
| Balance as of December 31, 2022 | | Balance as of December 31, 2022 | | 162,444,717 | | | $ | 162 | | | $ | 855,249 | | | $ | (157,542) | | | $ | (253) | | | $ | 697,616 | |
| Issuance of common stock on exercise of stock options | Issuance of common stock on exercise of stock options | | 1,851,334 | | | 2 | | | 2,305 | | | — | | | — | | | 2,307 | | Issuance of common stock on exercise of stock options | | 1,055,108 | | | 1 | | | 2,364 | | | — | | | — | | | 2,365 | |
| Vesting of restricted stock units | Vesting of restricted stock units | | 136,662 | | | — | | | — | | | — | | | — | | | — | | Vesting of restricted stock units | | 802,576 | | | 1 | | | (1) | | | — | | | — | | | — | |
| Repurchase of common stock | | Repurchase of common stock | | (2,652,372) | | | (2) | | | (20,050) | | | — | | | — | | | (20,052) | |
| Stock-based compensation | Stock-based compensation | | — | | | — | | | 12,457 | | | — | | | — | | | 12,457 | | Stock-based compensation | | — | | | — | | | 15,127 | | | — | | | — | | | 15,127 | |
| Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | — | | | 197 | | | 197 | |
| Net loss | Net loss | | — | | | — | | | — | | | (11,509) | | | — | | | (11,509) | | Net loss | | — | | | — | | | — | | | (13,706) | | | — | | | (13,706) | |
| Balance as of March 31, 2022 | | 159,688,185 | | | $ | 160 | | | $ | 827,928 | | | $ | (123,083) | | | $ | — | | | $ | 705,005 | | |
| Balance as of March 31, 2023 | | Balance as of March 31, 2023 | | 161,650,029 | | | $ | 162 | | | $ | 852,689 | | | $ | (171,248) | | | $ | (56) | | | $ | 681,547 | |
| Issuance of common stock under the Employee Stock Purchase Plan | Issuance of common stock under the Employee Stock Purchase Plan | | 193,267 | | | — | | | 1,764 | | | — | | | — | | | 1,764 | | Issuance of common stock under the Employee Stock Purchase Plan | | 253,973 | | | — | | | 1,463 | | | — | | | — | | | 1,463 | |
| Issuance of common stock on exercise of stock options | Issuance of common stock on exercise of stock options | | 1,118,331 | | | 1 | | | 2,322 | | | — | | | — | | | 2,323 | | Issuance of common stock on exercise of stock options | | 1,528,955 | | | 1 | | | 3,097 | | | — | | | — | | | 3,098 | |
| Vesting of restricted stock units | Vesting of restricted stock units | | 199,738 | | | — | | | — | | | — | | | — | | | — | | Vesting of restricted stock units | | 1,006,863 | | | 1 | | | (1) | | | — | | | — | | | — | |
| Repurchase of common stock | | Repurchase of common stock | | (1,409,420) | | | (1) | | | (10,046) | | | — | | | — | | | (10,047) | |
| Stock-based compensation | Stock-based compensation | | — | | | — | | | 11,750 | | | — | | | — | | | 11,750 | | Stock-based compensation | | — | | | — | | | 15,278 | | | — | | | — | | | 15,278 | |
| Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | — | | | (251) | | | (251) | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (405) | | | (405) | |
| Net loss | Net loss | | — | | | — | | | — | | | (11,673) | | | — | | | (11,673) | | Net loss | | — | | | — | | | — | | | (17,076) | | | — | | | (17,076) | |
| Balance as of June 30, 2022 | | 161,199,521 | | | $ | 161 | | | $ | 843,764 | | | $ | (134,756) | | | $ | (251) | | | $ | 708,918 | | |
| Issuance of common stock in connection with charitable donation | | 172,918 | | | — | | | 1,406 | | | — | | | — | | | 1,406 | | |
| Issuance of common stock on exercise of stock options | | 1,945,436 | | | 2 | | | 3,028 | | | — | | | — | | | 3,030 | | |
| Vesting of restricted stock units | | 166,971 | | | — | | | — | | | — | | | — | | | — | | |
| Stock-based compensation | | — | | | — | | | 12,376 | | | — | | | — | | | 12,376 | | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (169) | | | (169) | | |
| Net loss | | — | | | — | | | — | | | (14,560) | | | — | | | (14,560) | | |
| Balance as of September 30, 2022 | | 163,484,846 | | | $ | 163 | | | $ | 860,574 | | | $ | (149,316) | | | $ | (420) | | | $ | 711,001 | | |
| Balance as of June 30, 2023 | | Balance as of June 30, 2023 | | 163,030,400 | | | $ | 163 | | | $ | 862,480 | | | $ | (188,324) | | | $ | (461) | | | $ | 673,858 | |
|
OLO INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible
Preferred Stock | | | Class A and Class B Common Stock | | Additional
Paid In
Capital | | Accumulated
Deficit | | Total
Stockholders' Equity (Deficit) |
| Shares | | Amount | | | Shares | | Amount | | | |
| Balance as of December 31, 2020 | 58,962,749 | | | $ | 111,737 | | | | 22,320,286 | | | $ | 22 | | | $ | 16,798 | | | $ | (69,301) | | | $ | (52,481) | |
| Initial public offering, net of underwriting discount and deferred offering costs | — | | | — | | | | 20,700,000 | | | 21 | | | 477,805 | | | — | | | 477,826 | |
| Accretion of redeemable convertible preferred stock to redemption value | — | | | 14 | | | | — | | | — | | | (14) | | | — | | | (14) | |
| Issuance of preferred stock on exercise of warrants | 1,681,848 | | | 2 | | | | — | | | — | | | 39,056 | | | — | | | 39,056 | |
| Conversion of redeemable convertible preferred stock to common stock upon initial public offering | (60,644,597) | | | (111,753) | | | | 100,196,780 | | | 100 | | | 111,653 | | | — | | | 111,753 | |
| Issuance of common stock upon settlement of Share Appreciation Rights | — | | | — | | | | 1,642,570 | | | 2 | | | 2,845 | | | — | | | 2,847 | |
| Issuance of common stock in connection with charitable donation | — | | | — | | | | 172,918 | | | — | | | 5,125 | | | — | | | 5,125 | |
| Issuance of common stock on exercise of stock options | — | | | — | | | | 1,965,824 | | | 2 | | | 2,155 | | | — | | | 2,157 | |
| Stock-based compensation | — | | | — | | | | — | | | — | | | 5,426 | | | — | | | 5,426 | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | (26,457) | | | (26,457) | |
| Balance as of March 31, 2021 | — | | | $ | — | | | | 146,998,378 | | | $ | 147 | | | $ | 660,849 | | | $ | (95,758) | | | $ | 565,238 | |
| Reversal of deferred offering costs | — | | | — | | | | — | | | — | | | 1,145 | | | — | | | 1,145 | |
| Issuance of common stock on exercise of stock options | — | | | — | | | | 698,453 | | | 1 | | | 949 | | | — | | | 950 | |
| Stock-based compensation | — | | | — | | | | — | | | — | | | 8,198 | | | — | | | 8,198 | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | (2,437) | | | (2,437) | |
| Balance as of June 30, 2021 | — | | | $ | — | | | | 147,696,831 | | | $ | 148 | | | $ | 671,141 | | | $ | (98,195) | | | $ | 573,094 | |
| Issuance of common stock in connection with charitable donation | — | | | — | | | | 172,918 | | | — | | | 7,982 | | | — | | | 7,982 | |
| Issuance of common stock on exercise of stock options | — | | | — | | | | 2,984,858 | | | 3 | | | 5,370 | | | — | | | 5,373 | |
| Vesting of restricted stock units | — | | | — | | | | 788 | | | — | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | | — | | | — | | | 7,927 | | | — | | | 7,927 | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | (11,308) | | | (11,308) | |
| Balance as of September 30, 2021 | — | | | $ | — | | | | 150,855,395 | | | $ | 151 | | | $ | 692,420 | | | $ | (109,503) | | | $ | 583,068 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Class A and Class B Common Stock | | Additional
Paid In
Capital | | Accumulated
Deficit | | Accumulated Other Comprehensive Loss | | Total
Stockholders' Equity |
| | | | | | Shares | | Amount | | | | |
| Balance as of December 31, 2021 | | | | | | 157,700,189 | | | $ | 158 | | | $ | 813,166 | | | $ | (111,574) | | | $ | — | | | $ | 701,750 | |
| Issuance of common stock on exercise of stock options | | | | | | 1,851,334 | | | 2 | | | 2,305 | | | — | | | — | | | 2,307 | |
| Vesting of restricted stock units | | | | | | 136,662 | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | | | | | | — | | | — | | | 12,457 | | | — | | | — | | | 12,457 | |
| Net loss | | | | | | — | | | — | | | — | | | (11,509) | | | — | | | (11,509) | |
| Balance as of March 31, 2022 | | | | | | 159,688,185 | | | $ | 160 | | | $ | 827,928 | | | $ | (123,083) | | | $ | — | | | $ | 705,005 | |
| Issuance of common stock under the Employee Stock Purchase Plan | | | | | | 193,267 | | | — | | | 1,764 | | | — | | | — | | | 1,764 | |
| Issuance of common stock on exercise of stock options | | | | | | 1,118,331 | | | 1 | | | 2,322 | | | — | | | — | | | 2,323 | |
| Vesting of restricted stock units | | | | | | 199,738 | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | | | | | | — | | | — | | | 11,750 | | | — | | | — | | | 11,750 | |
| Other comprehensive loss | | | | | | — | | | — | | | — | | | — | | | (251) | | | (251) | |
| Net loss | | | | | | — | | | — | | | — | | | (11,673) | | | — | | | (11,673) | |
| Balance as of June 30, 2022 | | | | | | 161,199,521 | | | $ | 161 | | | $ | 843,764 | | | $ | (134,756) | | | $ | (251) | | | $ | 708,918 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
OLO INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| | | | | | | | | | | |
| Nine Months Ended
September 30, 2022 | | Nine Months Ended
September 30, 2021 |
| Operating activities | | | |
| Net loss | $ | (37,742) | | | $ | (40,202) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
| Depreciation and amortization | 4,285 | | | 800 | |
| Stock-based compensation | 35,104 | | | 21,417 | |
| Stock-based compensation in connection with vesting of Stock Appreciation Rights | — | | | 2,847 | |
| Charitable donation of Class A common stock | 1,406 | | | 13,107 | |
| Bad debt expense | 263 | | | 283 | |
| Change in fair value of warrants | — | | | 18,930 | |
| Non-cash lease expense | 1,706 | | | — | |
| Deferred income tax benefit | (1,421) | | | — | |
| Non-cash impairment charges | 2,806 | | | — | |
| Other non-cash loss, net | (560) | | | — | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | (602) | | | 4,966 | |
| Contract assets | (66) | | | (898) | |
| Prepaid expenses and other current assets | (404) | | | (3,256) | |
| Deferred contract costs | (537) | | | (594) | |
| Accounts payable | (452) | | | (3,721) | |
| Accrued expenses and other current liabilities | 927 | | | 10,350 | |
| Operating lease liabilities | (1,893) | | | — | |
| Unearned revenue | (558) | | | 2,354 | |
| Other liabilities, noncurrent | 136 | | | (174) | |
| Net cash provided by operating activities | 2,398 | | | 26,209 | |
| Investing activities | | | |
| Purchases of property and equipment | (454) | | | (324) | |
| Capitalized internal-use software | (6,997) | | | (871) | |
| Acquisitions, net of cash acquired | (49,241) | | | — | |
| Purchases of investments | (114,006) | | | — | |
| Sales and maturities of investments | 11,388 | | | — | |
| Net cash used in investing activities | (159,310) | | | (1,195) | |
| Financing activities | | | |
| Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts | — | | | 485,541 | |
| Cash received for employee payroll tax withholdings | 7,083 | | | 25,696 | |
| Cash paid for employee payroll tax withholdings | (7,012) | | | (18,691) | |
| | | |
| | | |
| Proceeds from exercise of warrants | — | | | 392 | |
| Payment of deferred finance costs | — | | | (135) | |
| Payment of deferred offering costs | (423) | | | (4,118) | |
| Proceeds from exercise of stock options and purchases under employee stock purchase plan | 9,218 | | | 8,287 | |
| | | |
| | | |
| Net cash provided by financing activities | 8,866 | | | 496,972 | |
| Net (decrease) increase in cash and cash equivalents | (148,046) | | | 521,986 | |
| Cash and cash equivalents, beginning of period | 514,445 | | | 75,756 | |
| Cash and cash equivalents, end of period | $ | 366,399 | | | $ | 597,742 | |
| | | |
| | | |
| | | |
| | | |
| | | |
OLO INC.
Condensed Consolidated Statements of Cash Flows(Unaudited)
(in thousands)
| | | | Six Months Ended
June 30, |
| | | 2023 | | 2022 |
| Operating activities | | Operating activities | | | |
| Net loss | | Net loss | $ | (30,782) | | | $ | (23,182) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| Depreciation and amortization | | Depreciation and amortization | 4,462 | | | 2,624 | |
| Stock-based compensation | | Stock-based compensation | 28,828 | | | 23,185 | |
| | Provision for expected credit losses | | Provision for expected credit losses | 1,079 | | | 276 | |
| Non-cash lease expense | | Non-cash lease expense | 1,436 | | | 1,125 | |
| Deferred income tax benefit | | Deferred income tax benefit | — | | | (1,421) | |
| Loss on disposal of assets | | Loss on disposal of assets | 38 | | | — | |
| Non-cash impairment charges | | Non-cash impairment charges | — | | | 475 | |
| Other non-cash operating activities, net | | Other non-cash operating activities, net | (1,553) | | | (174) | |
| Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
| Accounts receivable | | Accounts receivable | (9,101) | | | 911 | |
| Contract assets | | Contract assets | (207) | | | (99) | |
| Prepaid expenses and other current assets | | Prepaid expenses and other current assets | 620 | | | (2,016) | |
| Deferred contract costs | | Deferred contract costs | (1,954) | | | (462) | |
| Accounts payable | | Accounts payable | 5,476 | | | (286) | |
| Accrued expenses and other current liabilities | | Accrued expenses and other current liabilities | 12,069 | | | (1,103) | |
| Operating lease liabilities | | Operating lease liabilities | (1,557) | | | (1,248) | |
| Unearned revenue | | Unearned revenue | 393 | | | 561 | |
| Other liabilities, noncurrent | | Other liabilities, noncurrent | 19 | | | (36) | |
| Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 9,266 | | | (870) | |
| Investing activities | | Investing activities | |
| Purchases of property and equipment | | Purchases of property and equipment | — | | | (409) | |
| Capitalized internal-use software | | Capitalized internal-use software | (7,279) | | | (5,125) | |
| Acquisitions, net of cash acquired | | Acquisitions, net of cash acquired | — | | | (49,308) | |
| Purchases of investments | | Purchases of investments | (72,941) | | | (82,394) | |
| Sales and maturities of investments | | Sales and maturities of investments | 62,262 | | | 4,306 | |
| Net cash used in investing activities | | Net cash used in investing activities | (17,958) | | | (132,930) | |
| Financing activities | | Financing activities | |
| Cash received for employee payroll tax withholdings | | Cash received for employee payroll tax withholdings | 3,039 | | | 3,033 | |
| Cash paid for employee payroll tax withholdings | | Cash paid for employee payroll tax withholdings | (3,105) | | | (2,866) | |
| | Payment of deferred offering costs | | Payment of deferred offering costs | — | | | (420) | |
| Proceeds from exercise of stock options and purchases under employee stock purchase plan | | Proceeds from exercise of stock options and purchases under employee stock purchase plan | 6,803 | | | 6,278 | |
| Repurchase of common stock | | Repurchase of common stock | (30,099) | | | — | |
| | Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (23,362) | | | 6,025 | |
| Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | (32,054) | | | (127,775) | |
| Cash and cash equivalents, beginning of period | | Cash and cash equivalents, beginning of period | 350,073 | | | 514,445 | |
| Cash and cash equivalents, end of period | | Cash and cash equivalents, end of period | $ | 318,019 | | | $ | 386,670 | |
| | Nine Months Ended
September 30, 2022 | | Nine Months Ended
September 30, 2021 | | | | |
| Supplemental disclosure of non-cash investing and financing activities | Supplemental disclosure of non-cash investing and financing activities | | | | Supplemental disclosure of non-cash investing and financing activities | |
| | Accrued offering costs | $ | — | | | $ | 339 | | |
| Vesting of early exercised stock options | Vesting of early exercised stock options | $ | 174 | | | $ | 174 | | Vesting of early exercised stock options | $ | 97 | | | $ | 116 | |
| Accretion of redeemable convertible preferred stock to redemption value | $ | — | | | $ | 14 | | |
| | Purchase of property and equipment on account | $ | — | | | $ | 34 | | |
| Employee receivables for options exercised | | Employee receivables for options exercised | $ | 26 | | | $ | — | |
| Purchase of property and equipment | | Purchase of property and equipment | $ | — | | | $ | 3 | |
| Capitalization of stock-based compensation for internal-use software | Capitalization of stock-based compensation for internal-use software | $ | 1,856 | | | $ | 173 | | Capitalization of stock-based compensation for internal-use software | $ | 2,129 | | | $ | 1,418 | |
The accompanying notes are an integral part of these financial statements.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1.Business
Olo Inc. was formed on June 1, 2005 in Delaware and is headquartered in New York City. On January 14, 2020, our Board of Directors and stockholders approved our name change from Mobo Systems, Inc. to Olo Inc. Unless the context otherwise indicates or requires, references to “we,” “us,” “our,” and “the Company” shall refer to Olo Inc.
We are an open SaaS platform for restaurants powering the industry’s digital transformation.restaurants. Our platform powers restaurant brands’ on-demand digital commerce operations, enabling digital ordering, delivery, front-of-house management, and payments, while further strengthening and enhancing restaurants’ direct consumerguest relationships. We provide restaurants with a business-to-business-to-consumer,business-to-business-to-guest, enterprise-grade, open SaaS platform to manage their complex digital businesses and enable fast and more personalized experiences for their guests. Our platform and application programming interfaces seamlessly integrate with a wide range of solutions, unifying disparate technologies across the restaurant ecosystem. Restaurant brands rely on us to increase their digital omni-channel sales, maximize profitability, establish and maintain direct guest relationships, and collect, protect, and leverage valuable customerguest data.
Emerging Growth Company Status
We currently qualify as an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.
We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. As a result, our financial statements may not be comparable to financial statements of issuers that are required to comply with the effective dates for new or revised accounting standards based on public company effective dates.
However, as of the last business day of our second fiscal quarter of 2022, the market value of our Class A common stock that was held by non-affiliates exceeded $700 million, and as a result, we will no longer qualify as an emerging growth company as of the end of the current fiscal year ending December 31, 2022, and we will be subject to certain requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company, including the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002, which require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. In addition, we will no longer be able to take advantage of the extended transition period as of the end of the current fiscal year ending December 31, 2022, and we will be required to adopt new or revised accounting standards when they are applicable to public companies that are not emerging growth companies.
Initial Public Offering
On March 19, 2021, we completed our IPO in which we issued and sold 20,700,000 shares of our Class A common stock at the public offering price of $25.00 per share. We received net proceeds of approximately $485.5 million after deducting underwriting discounts and commissions. Upon completion of the IPO, $6.6 million of deferred offering costs, which consisted primarily of accounting, legal, and other fees related to our IPO, were reclassified into stockholders’ deficit as a reduction of the IPO proceeds.
Prior to the IPO, warrants to purchase 1,682,847 shares of our outstanding redeemable convertible preferred stock warrants were exercised and converted into redeemable convertible preferred stock. Upon completion of the IPO, all shares of our outstanding redeemable convertible preferred stock, inclusive of the shares issued pursuant to these warrant exercises, converted into 100,196,780 shares of Class B common stock. Additionally, upon completion of the IPO, stock appreciation rights (“SARs”) granted to employees vested and settled, resulting in the issuance of 1,642,570 shares of Class B common stock.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
2.Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. The December 31, 20212022 condensed consolidated balance sheet was derived from the audited financial statements as of that date, but may not include all disclosures including certain footnotes required by U.S. GAAP on an annual reporting basis.
These unaudited condensed consolidated financial statements have been prepared on a basis consistent with our annual financial statements and, in the opinion of management, reflect all adjustments, which include all normal recurring adjustments necessary to fairly state our financial position as of SeptemberJune 30, 2022,2023, our results of operations and comprehensive loss for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 and our cash flows for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The results of operations for the three and ninesix months ended SeptemberJune 30, 20222023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 20222023 or for any other future annual or interim period.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K filed with the SEC on February 25, 2022.24, 2023. All intercompany balances and transactions have been eliminated in consolidation.
Certain prior period amounts haveEffective January 1, 2023, we began allocating certain employee-related costs to platform cost of revenues, sales and marketing, and research and development expenses. Previously, such costs had been reclassified to conform to the current period presentation.presented within general and administrative expenses on our condensed consolidated statement of operations. These costs are allocated based on each department’s proportionate share of total employee headcount. We determined that these changes would better reflect industry practice and provide more meaningful information as well as increased transparency of our operations.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.
We regularly assess these estimates, including but not limited to, stock-based compensation including the determination of the fair value of our stock-based awards, realization of deferred tax assets, estimated life of our long-lived assets, purchase price allocations for business combinations, valuation of the acquired intangibles purchased in a business combination, valuation of goodwill, estimated standalone selling price of our performance obligations, and estimated consideration for implementation services and transactional revenue in certain arrangements. We base these estimates on
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates and such differences could be material to our financial position and results of operations.
Significant Accounting Policies
Our significant accounting policies are outlined in Note 2, “Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021.2022. During the ninesix months ended SeptemberJune 30, 2022,2023, there were no material changes to our criticalsignificant accounting policies from those described in our Annual Report on Form 10-K for the year ended December 31, 2021, except as described below.2022.
Concentrations of Business and Credit Risk
We are exposed to concentrations of credit risk primarily through our cash and short- and long-term investments held by financial institutions. We primarily deposit our cash with two financial institutions and the amount on deposit exceedshas exceeded federally insured limits.limits at various times. We reduce our credithave not experienced any losses in such accounts and believe we are not exposed to any significant risk by placingin cash, as we place our cash and investments with major financial institutions with high credit ratings. For the three months ended June 30, 2023 and 2022, one customer accounted for 12% of our revenue. For the six months ended June 30, 2023 and 2022, one customer accounted for 12% and 13% of our revenue, respectively.
Credit Facility
On June 10, 2022, we entered into the Second Amended and Restated Loan and Security Agreement with Pacific Western Bank related to a revolving credit and term loan facility (the “Second Amended and Restated LSA”).
The Second Amended and Restated LSA includes a financial covenant requiring compliance with certain minimum revenue amounts. In addition, the Second Amended and Restated LSA contains representations and warranties generally consistent with the Amended and Restated Loan and Security Agreement, dated February 11, 2020, as amended (the “Prior LSA”), as well as certain non-financial covenants, including, but not limited to, limitations on our ability to incur additional indebtedness or liens, pay dividends, or make certain investments. We were in compliance with these covenants as of June 30, 2023.
As of June 30, 2023, we had $43.6 million of commitments available under the Second Amended and Restated LSA, after consideration of $25.0 million in our letter of credit to DoorDash and $1.4 million in our letter of credit on the lease of our former headquarters at One World Trade Center. As of SeptemberJune 30, 20222023, we had no outstanding borrowings under the line of credit, and December 31, 2021, no customer had a balance over 10%amounts have been drawn against any of our accountsletters of credit.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements, changes in accounting pronouncements, or recently adopted accounting guidance during the six months ended June 30, 2023 that are of significance or potential significance to us.
3.Revenue Recognition
The following table disaggregates revenue by type (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 |
| Platform | | Professional
Services and
Other | | Total |
| Timing of revenue recognition | | | | | |
| Transferred over time | $ | 24,892 | | | $ | 648 | | | $ | 25,540 | |
| Transferred at a point in time | 29,711 | | | — | | | 29,711 | |
| Total revenue | $ | 54,603 | | | $ | 648 | | | $ | 55,251 | |
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
receivable. For the three months ended September 30, 2022 and 2021, one customer accounted for 12% and 16% of our revenue, respectively. For the nine months ended September 30, 2022 and 2021, one customer accounted for 12% and 19% of our revenue, respectively. | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| Platform | | Professional
Services and
Other | | Total |
| Timing of revenue recognition | | | | | |
| Transferred over time | $ | 22,990 | | | $ | 1,063 | | | $ | 24,053 | |
| Transferred at a point in time | 21,548 | | | — | | | 21,548 | |
| Total revenue | $ | 44,538 | | | $ | 1,063 | | | $ | 45,601 | |
Investments | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2023 |
| Platform | | Professional
Services and
Other | | Total |
| Timing of revenue recognition | | | | | |
| Transferred over time | $ | 49,360 | | | $ | 1,517 | | | $ | 50,877 | |
| Transferred at a point in time | 56,614 | | | — | | | 56,614 | |
| Total revenue | $ | 105,974 | | | $ | 1,517 | | | $ | 107,491 | |
Management determines the appropriate classification of investments at the time of purchase based upon management’s intent with regard to such investments. Our investments are classified as available-for-sale at the time of purchase, and we reevaluate such classification as of each balance sheet date. We consider all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents. Investments with remaining contractual maturities of one year or less from the balance sheet date, which are not considered cash equivalents, are classified as short-term investments, and those with remaining contractual maturities greater than one year from the balance sheet date are classified as long-term investments. All investments are recorded at their estimated fair value, and any unrealized gains and losses, net of taxes, are recorded in accumulated other comprehensive loss, which is reflected as a separate component of stockholders’ equity in the condensed consolidated balance sheets. Realized gains and losses on sales and maturities of investments are determined based on the specific identification method and are recognized in the condensed consolidated statements of operations.
We perform periodic evaluations to determine whether any declines in the fair value of investments below cost are other-than-temporary. The evaluation consists of qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as our ability and intent to hold the investments until a forecasted recovery occurs. The impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that the underlying securities will be sold prior to a full recovery of their cost basis. Other-than-temporary fair value impairments, if any, are determined based on the specific identification method and are reported in other (expense) income, net in the condensed consolidated statements of operations.
Accounts Receivable, Net
Accounts receivable, net are stated at net realizable value and include unbilled receivables. Unbilled receivables arise primarily from transactional services provided in advance of billing. Accounts receivable are net of an allowance for credit losses, are not collateralized, and do not bear interest. Payment terms vary by contract type but are generally due within 30 days. The accounts receivable balance at September 30, 2022 and December 31, 2021 included unbilled receivables of $0.6 million and $4.1 million, respectively.
We assess the collectability of outstanding accounts receivable on an ongoing basis and maintain an allowance for credit losses for accounts receivable deemed uncollectible. Upon adoption of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, we analyzed our accounts receivable portfolio for significant risks, historical activity, and an estimate of future collectability to determine the amount that will ultimately be collected. This estimate is analyzed annually and adjusted as necessary or upon certain triggering events. Identified risks pertaining to our accounts receivable include the delinquency level, customer type, and current economic environment. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers.
The following summarizes our allowance for doubtful accounts activity (in thousands):
| | | | | | | | | | | |
| September 30, |
| 2022 | | 2021 |
| Beginning balance | $ | 657 | | | $ | 631 | |
| Bad debt expense | 263 | | | 283 | |
| Writeoffs | (308) | | | (257) | |
| Ending balance | $ | 612 | | | $ | 657 | |
Business Combinations
We account for acquisitions using the acquisition method of accounting and determine whether a transaction constitutes a business and is treated as a business combination or if the transaction does not constitute a business and is treated as an asset acquisition. The acquisition method of accounting requires, among other things, allocation of the fair value of
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date. The results of businesses acquired in a business combination are included in our condensed consolidated financial statements from the date of acquisition.
Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including estimates of future revenue and adjusted earnings before interest and taxes and discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ materially from estimates. Our estimates associated with the accounting for business combinations may change as additional information becomes available regarding the assets acquired and liabilities assumed. Any change in facts and circumstances that existed as of the acquisition date and impacts our estimates is recorded to goodwill if identified within the measurement period. Subsequent to the measurement period or our final determination of fair value of assets and liabilities, whichever is earlier, the adjustments will affect our earnings.
Transaction related expenses incurred in a business combination are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred.
Goodwill and Intangible Assets
Goodwill represents the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest, if any, over the fair value of identifiable assets acquired and liabilities assumed in a business combination. We have no intangible assets, other than goodwill, with indefinite useful lives.
Intangible assets other than goodwill are comprised of acquired developed technology, customer relationships, and trademarks. At initial recognition, intangible assets acquired in a business combination or asset acquisition are recognized at their fair value as of the date of acquisition. Following initial recognition, intangible assets are carried at acquisition date fair value less accumulated amortization and impairment losses, if any, and are amortized on a straight-line basis over the estimated useful life of the asset.
We review goodwill for impairment annually on October 1st (beginning day of the fourth quarter) of each fiscal year or whenever events or changes in circumstances indicate that an impairment may exist. In the first nine months of 2022, there were no events or changes in circumstances that would have required an interim impairment test. In conducting our annual impairment test, we review qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative assessment and the fair value of the reporting unit is determined by analyzing the expected present value of future cash flows. If the carrying value of the reporting unit continues to exceed its fair value, the fair value of the reporting unit’s goodwill is calculated and an impairment loss equal to the excess is recorded.
We assess the impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Leases
Prior to the adoption of Accounting Standards Codification (“ASC”) 842, Leases, on January 1, 2022
We categorized leases at their inception as either operating or capital. In the ordinary course of business, we enter into non-cancelable operating leases for office space. We recognized lease costs on a straight-line basis and treated lease incentives as a reduction of rent expense over the term of the agreement. The difference between cash rent payments and rent expense was recorded as a deferred rent liability, with the amount expected to be amortized within the next twelve months classified as a current liability. We subleased a portion of our office space and recognize rental income on a straight-line basis as an offset to rent expense within general and administrative costs. The difference between cash rent payments received and rental income was recorded within prepaid expenses and other current assets.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Subsequent to the adoption of ASC 842 on January 1, 2022
We determine if an arrangement is a lease or contains a lease at inception. Our lease agreements are generally for office facilities, and the determination of whether such agreements contain leases generally does not require significant estimates or judgments. Our leases may also contain non-lease components such as payments of maintenance, utilities, and taxes, which we have elected to account for separately, as these amounts are readily determinable. At the commencement date of a lease, we recognize a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. The lease liability is measured at the present value of the minimum rental payments discounted using our incremental borrowing rate (“IBR”) over the lease term (or, if readily determinable, the rate implicit in the lease). The right-of-use asset is measured at cost, which includes the initial measurement of the lease liability and initial direct costs incurred and excludes lease incentives. We subleased a portion of our office space and recognize rental income on a straight-line basis as an offset to other leases costs, net within general and administrative expenses.
The lease term used to measure right-of-use lease assets and lease liabilities may include renewal options which are deemed reasonably certain to be exercised. Operating lease costs are recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred. Our leases do not contain any material residual value guarantees or material restrictive covenants.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) (“ASC 842”), which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Additional disclosures are required to allow financial statement users to assess the amount, timing, and uncertainty of cash flows arising from leasing activities. A modified retrospective transition approach is required for leases existing at the time of adoption.
We adopted and began applying the standard on January 1, 2022 using the modified retrospective approach and applied it to all existing leases as of the adoption date. We will continue to present prior period amounts under ASC 840, Leases. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which does not require us to reassess whether contracts that existed or expired prior to the adoption date contained an embedded lease, reassess historical lease classification, or evaluate initial direct costs for leases that were in effect at the adoption date. We did not elect the hindsight practical expedient related to determining the lease term.
As a result of implementing this guidance, we recognized $20.6 million in operating lease right-of-use assets as of January 1, 2022, and derecognized $2.4 million of previously recognized deferred rent. We also recorded $2.5 million in current operating lease liabilities and $18.1 million in operating lease liabilities, net of current portion in our condensed consolidated balance sheet as of January 1, 2022. The adoption of ASC 842 did not result in a cumulative-effect adjustment on retained earnings. See “Note 11—Leases” for additional details.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires an entity to utilize the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model results in more timely recognition of credit losses. This guidance also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. We adopted this standard as of January 1, 2022. The adoption did not have a material impact on our condensed consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to recognize and measure contract assets and contract liabilities in accordance with ASC Topic 606, Revenue from Contracts with Customers. Under prior guidance, an acquirer generally recognized assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 results in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We early adopted ASU No 2021-08 as of January 1, 2022 on a
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
prospective basis and the adoption impact of the new standard was not material to our condensed consolidated financial statements. The standard did not impact our contract assets or liabilities prior to the adoption date.
3.Revenue Recognition
The following table disaggregates revenue by type (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| Platform | | Professional
Services and
Other | | Total |
| Timing of revenue recognition | | | | | |
| Transferred over time | $ | 23,919 | | | $ | 909 | | | $ | 24,828 | |
| Transferred at a point in time | 22,438 | | | — | | | 22,438 | |
| Total revenue | $ | 46,357 | | | $ | 909 | | | $ | 47,266 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Platform | | Professional
Services and
Other | | Total |
| Timing of revenue recognition | | | | | |
| Transferred over time | $ | 17,046 | | | $ | 1,306 | | | $ | 18,352 | |
| Transferred at a point in time | 19,038 | | | — | | | 19,038 | |
| Total revenue | $ | 36,084 | | | $ | 1,306 | | | $ | 37,390 | |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Platform | | Professional
Services and
Other | | Total |
| Timing of revenue recognition | | | | | |
| Transferred over time | $ | 67,710 | | | $ | 3,262 | | | $ | 70,972 | |
| Transferred at a point in time | 64,651 | | | — | | | 64,651 | |
| Total revenue | $ | 132,361 | | | $ | 3,262 | | | $ | 135,623 | |
| | | Nine Months Ended September 30, 2021 | | Six Months Ended June 30, 2022 |
| | Platform | | Professional
Services and
Other | | Total | | Platform | | Professional
Services and
Other | | Total |
| Timing of revenue recognition | Timing of revenue recognition | | | | | | Timing of revenue recognition | | | | | |
| Transferred over time | Transferred over time | $ | 47,902 | | | $ | 3,876 | | | $ | 51,778 | | Transferred over time | $ | 43,791 | | | $ | 2,353 | | | $ | 46,144 | |
| Transferred at a point in time | Transferred at a point in time | 57,631 | | | — | | | 57,631 | | Transferred at a point in time | 42,213 | | | — | | | 42,213 | |
| Total revenue | Total revenue | $ | 105,533 | | | $ | 3,876 | | | $ | 109,409 | | Total revenue | $ | 86,004 | | | $ | 2,353 | | | $ | 88,357 | |
Contract Balances
Contract Assets
Professional services revenue is generally recognized ratably over the implementation period, beginning on the commencement date of each contract. Platform revenue is recognized as the services are delivered. Under ASC Topic 606, we record a contract asset when revenue recognized on a contract exceeds the billings. Our standard billing terms are monthly; however, the billings may not be consistent with the pattern of recognition, based on when services are performed. Contract assets were $1.0$0.8 million and $0.6 million as of each of SeptemberJune 30, 20222023 and December 31, 2021.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
2022, respectively.Unearned Revenue
Unearned revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services and is recognized as revenue when transfer of control to customers has occurred. During the ninesix months ended SeptemberJune 30, 2022,2023, we recognized $1.2 million of revenue related to contracts that were included in unearned revenue at December 31, 2021. During the nine months ended September 30, 2021, we recognized $0.4 million of revenue related to contracts that were included in unearned revenue at December 31, 2020.2022.
As of SeptemberJune 30, 2022,2023, our remaining performance obligations were approximately $40.8$32.4 million, approximately 45%50% of which we expect to recognize as revenue over the next twelve months, and substantially all of the remaining revenue will be recognized thereafter over the next 24 to 48 months. These amounts only include contracts subject to a guaranteed fixed amount or the guaranteed minimum under variable contracts. Unrecognized revenues under contracts disclosed above do not include: (1) contracts with an original expected term of one year or less; (2) contracts for which variable consideration is determined based on the customer’s subsequent sale or usage; and (3) agreements for which our right to invoice corresponds with the value provided to the customer.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Deferred Contract Costs
We capitalize the incremental costs of obtaining a revenue contract, including sales commissions for new and renewal revenue contracts, certain related incentives, and associated payroll tax and fringe benefit costs. Capitalized amounts are recoverable through future revenue streams under customer contracts.
The following table summarizes the activity of current and non-current deferred contract costs (in thousands):
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| Beginning balance | $ | 6,183 | | | $ | 5,176 | |
| Capitalization of deferred contract costs | 3,084 | | | 2,607 | |
| Amortization of deferred contract costs | (2,547) | | | (2,013) | |
| Ending balance | $ | 6,720 | | | $ | 5,770 | |
| | | | | |
| Balance at December 31, 2022 | $ | 7,022 | |
| Capitalization of deferred contract costs | 4,249 | |
| Amortization of deferred contract costs | (2,294) | |
| Balance at June 30, 2023 | $ | 8,977 | |
4.Fair Value Measurement
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 inputs: Based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 inputs: Based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 inputs: Based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities, and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following tables present the costs, net unrealized losses, and fair value by major security type for our investments as of SeptemberJune 30, 20222023 and December 31, 20212022 (in thousands):
| | | As of September 30, 2022 | | As of June 30, 2023 |
| | Cost | | Net Unrealized Losses | | Fair Value | | Cash and cash equivalents | | Short-term investments | | Long-term investments | | Cost | | Net Unrealized Losses | | Fair Value | | Cash and Cash equivalents | | Short-term Investments | | Long-term Investments |
| Cash | Cash | $ | 224,315 | | | $ | — | | | $ | 224,315 | | | $ | 224,315 | | | $ | — | | | $ | — | | Cash | $ | 136,382 | | | $ | — | | | $ | 136,382 | | | $ | 136,382 | | | $ | — | | | $ | — | |
| Level 1: | Level 1: | | | | | | | | | | | | Level 1: | | | | | | | | | | | |
| Money market funds | Money market funds | 140,977 | | | — | | | 140,977 | | | 140,977 | | | — | | | — | | Money market funds | 181,123 | | | — | | | 181,123 | | | 181,123 | | | — | | | — | |
| Commercial paper | Commercial paper | 20,617 | | | (73) | | | 20,544 | | | 905 | | | 19,639 | | | — | | Commercial paper | 18,401 | | | (17) | | | 18,384 | | | — | | | 18,384 | | | — | |
| Subtotal | Subtotal | 161,594 | | | (73) | | | 161,521 | | | 141,882 | | | 19,639 | | | — | | Subtotal | 199,524 | | | (17) | | | 199,507 | | | 181,123 | | | 18,384 | | | — | |
| Level 2: | Level 2: | | | | | | | | | | | | Level 2: | | | | | | | | | | | |
| Certificates of deposit | Certificates of deposit | 32,857 | | | (124) | | | 32,733 | | | — | | | 32,733 | | | — | | Certificates of deposit | 25,850 | | | (29) | | | 25,821 | | | 514 | | | 25,307 | | | — | |
| U.S. Government and agency securities | U.S. Government and agency securities | 27,392 | | | (86) | | | 27,306 | | | — | | | 27,306 | | | — | | U.S. Government and agency securities | 50,842 | | | (309) | | | 50,533 | | | — | | | 26,603 | | | 23,930 | |
| Corporate bonds | Corporate bonds | 23,421 | | | (137) | | | 23,284 | | | 202 | | | 22,278 | | | 804 | | Corporate bonds | 19,034 | | | (106) | | | 18,928 | | | — | | | 13,444 | | | 5,484 | |
| Subtotal | Subtotal | 83,670 | | | (347) | | | 83,323 | | | 202 | | | 82,317 | | | 804 | | Subtotal | 95,726 | | | (444) | | | 95,282 | | | 514 | | | 65,354 | | | 29,414 | |
| Level 3: | Level 3: | — | | | — | | | — | | | — | | | — | | | — | | Level 3: | — | | | — | | | — | | | — | | | — | | | — | |
| Total | Total | $ | 469,579 | | | $ | (420) | | | $ | 469,159 | | | $ | 366,399 | | | $ | 101,956 | | | $ | 804 | | Total | $ | 431,632 | | | $ | (461) | | | $ | 431,171 | | | $ | 318,019 | | | $ | 83,738 | | | $ | 29,414 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| Cost | | Net Unrealized Losses | | Fair Value | | Cash and cash equivalents | | Short-term investments | | Long-term investments |
| Cash | $ | 219,344 | | | $ | — | | | $ | 219,344 | | | $ | 219,344 | | | $ | — | | | $ | — | |
| Level 1: | | | | | | | | | | | |
| Money market funds | 295,101 | | | — | | | 295,101 | | | 295,101 | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 514,445 | | | $ | — | | | $ | 514,445 | | | $ | 514,445 | | | $ | — | | | $ | — | |
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
| Cost | | Net Unrealized Losses | | Fair Value | | Cash and Cash equivalents | | Short-term Investments | | Long-term Investments |
| Cash | $ | 200,808 | | | $ | — | | | $ | 200,808 | | | $ | 200,808 | | | $ | — | | | $ | — | |
| Level 1: | | | | | | | | | | | |
| Money market funds | 142,168 | | | — | | | 142,168 | | | 142,168 | | | — | | | — | |
| Commercial paper | 21,920 | | | (39) | | | 21,881 | | | — | | | 21,881 | | | — | |
| Subtotal | 164,088 | | | (39) | | | 164,049 | | | 142,168 | | | 21,881 | | | — | |
| Level 2: | | | | | | | | | | | |
| Certificates of deposit | 35,081 | | | (97) | | | 34,984 | | | 6,351 | | | 28,633 | | | — | |
| U.S. Government and agency securities | 30,408 | | | (42) | | | 30,366 | | | — | | | 29,431 | | | 935 | |
| Corporate bonds | 21,070 | | | (75) | | | 20,995 | | | 746 | | | 18,754 | | | 1,495 | |
| Subtotal | 86,559 | | | (214) | | | 86,345 | | | 7,097 | | | 76,818 | | | 2,430 | |
| Level 3: | — | | | — | | | — | | | — | | | — | | | — | |
| Total | $ | 451,455 | | | $ | (253) | | | $ | 451,202 | | | $ | 350,073 | | | $ | 98,699 | | | $ | 2,430 | |
Our assets measured at fair value on a nonrecurring basis include long-lived assets and finite-lived intangibles, which are considered to be Level 3 inputs. DuringNo material impairment charges were recorded during the ninesix months ended SeptemberJune 30, 2023. For the six months ended June 30, 2022 we determined thatrecorded a non-cash impairment charge of $0.5 million related to the estimated fair value of a portion of our capitalized internal-use software that was non-recoverable, and we recorded a non-cash impairment charge of $0.5 million, as more fully described in “Note 5—Property and Equipment.” In addition, during the three months ended September 30, 2022, we entered into a sublease of our corporate headquarters, and in connection with this, we recorded a non-cash impairment charge of $2.3 million related to our right-of-use asset and furniture and fixtures within the leased space. See “Note 11—Leases” for additional information on the new sublease agreement.non-recoverable.
Accounts receivable, accounts payable, and accrued expenses are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
5.Property and Equipment
Property and equipment consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Estimated Useful Life
(in Years) | | As of September 30, 2022 | | As of December 31, 2021 |
| Computer and office equipment | 3 - 5 | | $ | 2,186 | | | $ | 1,800 | |
| Capitalized internal-use software | 3 | | 11,770 | | | 3,392 | |
| Furniture and fixtures | 10 | | 132 | | | 386 | |
| Leasehold improvements | Shorter of estimated useful life or remaining term of lease | | 364 | | | 374 | |
| Total property and equipment | | | 14,452 | | | 5,952 | |
| Less: accumulated depreciation and amortization of internal-use software | | | (3,912) | | | (2,648) | |
| Total property and equipment, net | | | $ | 10,540 | | | $ | 3,304 | |
Depreciation and amortization expense from property and equipment was approximately $0.7 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively. Depreciation and amortization expense from property and equipment was approximately $1.5 million and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively.
We recorded a non-cash impairment charge of $0.5 million for the nine months ended September 30, 2022 related to a portion of our internal-use software that was abandoned. This amount was recorded in research and development expenses within the condensed consolidated statement of operations. In addition, we recorded a non-cash impairment charge of $0.1 millionfor the three and nine months ended September 30, 2022 in connection with the sublease of our corporate headquarters, as we determined a group of assets in the leased space was no longer recoverable. This amount was recorded in general and administrative expenses within the condensed consolidated statement of operations. See “Note 11—Leases” for additional information on the new sublease agreement.
6.Acquisitions
Omnivore Acquisition
On February 20, 2022, we signed a definitive agreement to acquire Omnivore Technologies, Inc. (“Omnivore”), a restaurant technology provider that connects restaurants’ Point of Sale systems with technologies that improve efficiency and increase profitability. We closed the acquisition on March 4, 2022 for total consideration of approximately $49.3 million in cash, net of cash acquired and a post-closing working capital adjustment.
The operating results of Omnivore have been included in our condensed consolidated statement of operations since the acquisition date. Actual results of operations from the date of acquisition through SeptemberJune 30, 20222023 and supplemental pro forma revenue and results of operations have not been presented because the effects were not material to the condensed consolidated financial statements.
Purchase Price Allocation
The acquisition was accounted for underWe have finalized the acquisition method in accordance with ASC 805, Business Combinations. We recognized and measured the identifiablevaluation of assets acquired and liabilities assumed at their estimated fair values onfor the dateacquisition of acquisition.Omnivore as of March 31, 2023.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Purchase Price Allocation
The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed of Omnivore as of March 4, 2022 (in thousands): | | | | | |
| Initial Fair Value EstimateFinal Purchase Price Allocation |
| Accounts receivable | $ | 451 | |
| Other current assets | 148 | |
| Operating lease right-of-use asset | 236 | |
| Property and equipment | 24 | |
| Other assets, noncurrent | 9 | |
| Customer relationships | 1,290 | |
| Developed technology | 4,410 | |
| Trademark | 150 | |
| Goodwill | 44,67844,919 | |
| Accounts payable | (198) | |
| Accrued expenses and other current liabilities | (101) | |
| Unearned revenue | (83)(226) | |
| Operating lease liability, current | (81) | |
| Operating lease liability, noncurrent | (177) | |
| Deferred tax liability, net | (1,421)(1,519) | |
| Total purchase price, net of cash acquired and post-closing working capital adjustment | $ | 49,335 | |
Customer relationships were measured at fair value using the multiple-period excess earnings method under the income approach. Significant inputs used to measure the fair value include an estimate of projected revenue and costs associated with existing customers, and a discount rate of 11.0%.
Developed technology was measured at fair value using the relief-from-royalty method of the income approach. Significant inputs used to measure the fair value include an estimate of projected revenue from existing technology, a pre-tax royalty rate of 20.0% and a discount rate of 11.0%.
Trademark was measured at fair value using the relief-from-royalty method under the income approach. Significant inputs used to measure the fair value include an estimate of projected revenue from the trademark, a pre-tax royalty rate of 1.0% and a discount rate of 11.0%.
The preliminary purchase price allocation resulted in the recognition of $44.7 million of goodwill. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including an experienced workforce that will help accelerate product development and go to market strategy, as well as expected future synergies generated by integrating Omnivore’s products with those in our existing platform. Accordingly, Omnivore will be reported along with our historical solutions under the same operating segment. None of the goodwill is expected to be deductible for tax purposes.
We recorded $1.20.4 million in transaction-related expenses for the six months ended June 30, 2023 primarily related to professional fees and sales taxes associated with the acquisition of Omnivore and the acquisition of Wisely, Inc in November 2021. We recorded $1.5 million in transaction relatedtransaction-related expenses, primarily related to transaction relatedtransaction-related compensation, advisory, legal, valuation, and other professional fees, for the ninesix months ended SeptemberJune 30, 2022. The transaction related expenses are recorded within the condensed consolidated statements of operations as follows (in thousands):
| | | | | |
Operating expenses: | |
Sales and marketing | $ | 79 | |
General and administrative | 1,155 | |
Total transaction costs | $ | 1,234 | |
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
We expect to finalize the purchase price allocation after management has further analyzed and assessed a number of the factors used in establishing the fair values of assets acquired and liabilities assumed as of the acquisition date, including, but not limited to, the working capital acquired.
Wisely Acquisition
On October 21, 2021, we signed a definitive agreement to acquire all of the outstanding shares of Wisely Inc. (“Wisely”), a customer intelligence and engagement platform for restaurants. We believe Wisely’s Guest Engagement and Front-of-House solutions complement our existing solution suite and enhance our value to our customers. We closed the acquisition on November 4, 2021 for total consideration of approximately $177.8 million, consisting of $75.2 million in cash (net of cash acquired), $96.6 million of Class A common stock, and $5.9 million of substituted stock options granted in connection with the acquisition. The fair values of the Class A common stock and substituted stock options were based on a price per Class A common share of $27.93, which is equal to the closing price of our Class A common stock on the date of the transaction. As a result of the equity consideration component, we issued approximately 3.5 million shares of our Class A common stock and granted approximately 0.2 million fully vested stock options at the acquisition date. The fair value of the substituted options granted was based upon the estimated value of vested stock options held by Wisely employees immediately prior to the acquisition.
We recorded $0.2 million in transaction related expenses, primarily related to legal and insurance fees, for the nine months ended September 30, 2022 in general and administrative expenses within the condensed consolidated statement of operations.
During the nine months ended September 30, 2022, we decreased goodwill by $0.1 million as a result of finalizing our working capital acquired. We expect to finalize the purchase price allocation after management has further analyzed and assessed a number of the factors used in establishing the fair values of assets acquired and liabilities assumed as of the acquisition date.
7.Goodwill and Intangible Assets
The following table summarizes the changes in the carrying amount of goodwill (in thousands):
| | | | | |
| |
Balance at December 31, 2021 | $ | 162,956 | |
Adjustment to Wisely acquisition | (94) | |
Acquisition of Omnivore | 44,678 | |
Balance at September 30, 2022 | $ | 207,540 | |
The gross book value and accumulated amortization of intangible assets, net, as of September 30, 2022 were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted-average Remaining Useful Life (in years) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| Developed technology | 5.2 | | $ | 14,595 | | | $ | (1,985) | | | $ | 12,610 | |
| Customer relationships | 7.2 | | 10,921 | | | (1,197) | | | 9,724 | |
| Trademark | 2.1 | | 486 | | | (132) | | | 354 | |
| Balance at September 30, 2022 | | | $ | 26,002 | | | $ | (3,314) | | | $ | 22,688 | |
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Amortization expense associated with intangible assets was $1.0 million and $2.8 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2022, estimated amortization related to the identifiable acquisition-related intangible assets expected to be recognized in future periods was as follows (in thousands):
| | | | | | | | |
| 2022 (remaining) | | $ | 950 | |
| 2023 | | 3,967 | |
| 2024 | | 3,949 | |
| 2025 | | 3,813 | |
| 2026 | | 3,804 | |
| Thereafter | | 6,205 | |
| Total | | $ | 22,688 | |
No goodwill or intangible asset impairment losses were recognized during the nine months ended September 30, 2022. See “Note 6—Acquisitions” for additional information on the acquisitions of Omnivore and Wisely.
8.Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
| | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| Prepaid software licensing fees | $ | 2,466 | | | $ | 1,888 | |
| Prepaid insurance | 504 | | | 1,298 | |
| Other | 3,674 | | | 2,532 | |
| Total prepaid expenses and other current assets | $ | 6,644 | | | $ | 5,718 | |
9.6.Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| Accrued delivery service partner fees | $ | 35,111 | | | $ | 35,441 | |
| Accrued compensation and benefits | 6,036 | | | 4,189 | |
| Professional and consulting fees | 709 | | | 1,806 | |
| Accrued taxes | 1,261 | | | 1,538 | |
| Other | 3,426 | | | 2,421 | |
| Total accrued expenses and other current liabilities | $ | 46,543 | | | $ | 45,395 | |
10.Line of Credit
On June 10, 2022, we entered into the Second Amended and Restated Loan and Security Agreement with Pacific Western Bank related to a revolving credit and term loan facility (the “Second Amended and Restated LSA”).
The Second Amended and Restated LSA amended and restated the Amended and Restated Loan and Security Agreement, dated February 11, 2020, as amended (the “Prior LSA”) to, among other things, increase our available aggregate borrowing limit to $70.0 million and to provide the ability to request Pacific Western Bank to enter into commitments to increase the credit extensions available to us under the Second Amended and Restated LSA to up to $125.0 million (the “Accordion Facility”).
Borrowings under the Second Amended and Restated LSA accrue interest at a variable annual rate equal to (i) in the case of Formula Advances (as defined in the Second Amended and Restated LSA), the greater of the variable rate of interest,
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
per annum, most recently announced by Pacific Western Bank (the “Prime Rate”) or 3.25% or (ii) in the case of Term Loans (as defined in the Second Amended and Restated LSA), the greater of the Prime Rate plus 0.25% or 3.50%. The Second Amended and Restated LSA provides for a success fee payable upon an acquisition of Olo or termination of the Second Amended and Restated LSA (a “Success Fee Trigger”), in an amount equal to: (i) $800,000, if the Success Fee Trigger occurs prior to June 10, 2023; (ii) $600,000, if the Success Fee Trigger occurs on or after June 10, 2023 and prior to June 10, 2024; (iii) $400,000, if the Success Fee Trigger occurs on or after June 10, 2024 and prior to June 10, 2025; (iv) $200,000, if the Success Fee Trigger occurs on or after June 10, 2025 and prior to June 10, 2026; and (v) $0, if the Success Fee Trigger occurs on or after June 10, 2026. We are also required to pay a fee of 1.0% of the difference between (i) the highest outstanding principal balance during the term of the Second Amended and Restated LSA and (ii) $3.5 million if a Liquidity Event (as defined in the Second Amended and Restated LSA) occurs during the term and or within 24 months after the termination of the Second Amended and Restated LSA. Our obligations under the Second Amended and Restated LSA are secured by substantially all of our assets, including certain securities owned by us in any subsidiary.
The Second Amended and Restated LSA includes a financial covenant requiring compliance with certain minimum revenue amounts. In addition, the Second Amended and Restated LSA contains representations and warranties generally consistent with the Prior LSA, as well as certain non-financial covenants, including, but not limited to, limitations on our ability to incur additional indebtedness or liens, pay dividends, or make certain investments. We were in compliance with these covenants as of September 30, 2022.
The Second Amended and Restated LSA also contains events of default that include, among other things, non-payment defaults, covenant defaults, insolvency defaults, cross-defaults to other indebtedness and material obligations, judgment defaults, inaccuracy of representations and warranties, and a material adverse change. Any default that is not cured or waived could result in Pacific Western Bank exercising its rights and remedies under the Second Amended and Restated LSA, including, but not limited to, the acceleration of the obligations under the Second Amended and Restated LSA and related documentation, and would permit Pacific Western Bank to exercise remedies with respect to all of the collateral that secured such obligations.
Pacific Western Bank has the right to terminate its obligation to make further advances to us immediately and without notice upon the occurrence and during the continuance of an event of default. Upon our request, Pacific Western Bank will provide us a payoff letter providing for, among other things, repayment of our obligations then outstanding, including the success fee, and for termination of Pacific Western Bank’s obligations to make additional credit extensions and termination of the liens under the Second Amended and Restated LSA.
As of September 30, 2022, we had $43.6 million of commitments available under the Second Amended and Restated LSA, after consideration of $25.0 million in our letter of credit to DoorDash and $1.4 million in our letter of credit on the lease of our headquarters. As of September 30, 2022, we had no outstanding borrowings under the line of credit, and no amounts have been drawn against any of our letters of credit.
Interest expense related to the Second Amended and Restated LSA was immaterial for the nine months ended September 30, 2022. No interest expense was recognized related to the Prior LSA for the nine months ended September 30, 2021. Deferred financing costs related to the Second Amended and Restated LSA were capitalized and are included within other current and non-current assets as of September 30, 2022.
11.Leases
We have a non-cancelable operating lease for our corporate headquarters in New York City (“Headquarters Lease”), which expires in May 2030, and a non-cancelable operating lease for our former office (“Former Headquarters”), which expires in September 2023. As a result of the acquisition of Omnivore, we have a non-cancelable operating lease in Clearwater, Florida (“Omnivore Lease”), which expires in January 2025. Our lease terms under the Omnivore Lease include periods under options to extend or terminate the lease. Currently, there are no operating leases where we believe it is reasonably certain that we will exercise any option to extend the initial term.
In August 2022, we entered into a new sublease agreement for the remaining term of the Headquarters Lease. In accordance with ASC Topic 360, we evaluated the associated assets for impairment, which included the right-of-use asset and furniture and fixtures for the office space. We compared the expected future undiscounted cash flows attributable to the associated assets to the carrying value and determined that they were impaired. Based on this evaluation, we determined that a
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
portion of the right-of-use asset was no longer recoverable and recorded a right-of-use asset impairment charge of $2.2 million. We also determined that furniture and fixtures related to the space were no longer recoverable, and recorded an asset impairment charge for the carrying value of the assets of $0.1 million. We also recorded broker commission fees of $0.9 million in connection with the subleasing of our headquarters. These impairment charges and commission expenses were recorded in general and administrative expenses in the condensed consolidated statement of operations.
We also sublease a portion of our Former Headquarters, which we ceased using in connection with the signing of the Headquarters Lease. The sublease of our Former Headquarters expires in March 2023.
As disclosed in “Note 2—Significant Accounting Policies,” we adopted ASC 842 on January 1, 2022. We have elected the “package of practical expedients,” which permits us not to reassess under ASC 842 our prior conclusions on expired or existing leases about lease identification, lease classification, and initial direct costs. Payments of maintenance, utilities, and taxes are expensed as incurred and excluded from right-of-use assets and lease liabilities, and were immaterial for the three and nine months ended September 30, 2022. Furthermore, we elected to not capitalize leases with a term of 12 months or less and recognize the lease expense for such leases on a straight-line basis over the lease term.
The IBR is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. We determined our IBR by obtaining interest rates from various external financing sources and made certain adjustments to reflect the terms of the lease and type of the asset leased.
The elements of lease expense were as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2022 |
| Operating lease costs | $ | 843 | | | $ | 2,513 | |
| Other lease income | (87) | | | (261) | |
| Total lease costs | $ | 756 | | | $ | 2,252 | |
Rent expense, excluding sublease income, under ASC 840, Leases, was $0.8 million and $2.5 million for the three and nine months ended September 30, 2021, respectively. Rental income was $0.1 million and $0.3 million for the three and nine months ended September 30, 2021, respectively.
Cash paid for amounts included in the initial measurement of lease liabilities were $2.7 million for the nine months ended September 30, 2022.
As of September 30, 2022, the total remaining operating lease payments included in the measurement of lease liabilities were as follows (in thousands):
| | | | | | | | |
| 2022 (remaining) | | $ | 907 | |
| 2023 | | 3,444 | |
| 2024 | | 2,877 | |
| 2025 | | 2,893 | |
| 2026 | | 2,960 | |
| Thereafter | | 10,114 | |
| Total future minimum lease payments | | 23,195 | |
| Less: imputed interest | | (4,201) | |
| Total | | $ | 18,994 | |
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The weighted average remaining lease term and discount rate for the operating leases were as follows: | | | | | | | | | | | |
| As of June 30, 2023 | | As of December 31, 2022 |
| Accrued delivery service partner fees | $ | 45,093 | | | $ | 40,846 | |
Accrued compensation and benefits (1) | 10,138 | | | 6,986 | |
| Professional and consulting fees | 3,388 | | | 1,262 | |
| Accrued taxes | 1,124 | | | 674 | |
| Other | 5,118 | | | 2,643 | |
| Total accrued expenses and other current liabilities | $ | 64,861 | | | $ | 52,411 | |
| | | | | |
| As of September 30,
2022 |
Weighted average remaining lease term (years) | 7.35 |
Weighted average discount rate | 5.40% |
As(1) Restructuring liabilities of December 31, 2021, our future minimum payments under non-cancelable leases$4.0 million are recorded within accrued compensation and benefits. See “Note 12—Restructuring Charges” for operating facilities as determined prior to the adoption of ASC 842 were as follows (in thousands):
| | | | | | | | |
| 2022 | | $ | 3,559 | |
| 2023 | | 3,352 | |
| 2024 | | 2,780 | |
| 2025 | | 2,885 | |
| 2026 | | 2,960 | |
| Thereafter | | 10,113 | |
| Total | | $ | 25,649 | |
12.7.Stockholders’ Equity
Changes in Capital Structure
On March 5, 2021, our Board of Directors and stockholders approved an amended and restated certificate of incorporation effecting a 17-for-1 forward stock split of our issued and outstanding shares of common stock and Series A, A-1, B, C, D, and E preferred stock. Additionally, all outstanding equity instruments, including our time-based stock options, performance-based SARs, and preferred stock warrants, were adjusted to reflect the 17-for-1 forward stock split. The stock split was effected on March 5, 2021. The par value of the Class B common stock and redeemable convertible preferred stock was not adjusted as a result of the stock split. All issued and outstanding Class B common stock, redeemable convertible preferred stock, warrants to purchase shares of redeemable convertible preferred stock, and stock options, as well as the per share amounts, included in the accompanying financial statements have been adjusted to reflect this stock split for all periods presented.
On March 5, 2021, our Board of Directors and stockholders approved and we implemented a dual class common stock structure where all existing shares of common stock converted to Class B common stock and we authorized a new class of common stock, Class A common stock. The authorized share capital for Class A common stock is 1,700,000,000 and the authorized share capital for Class B common stock is 185,000,000. The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to ten votes per share. The Class A and Class B common stock have the same rights and privileges and rank equally, share ratably, and are identical in all respects and for all matters except for voting, conversion, and transfer rights. The Class B common stock converts to Class A common stock at any time at the option of the holder. References in the accompanying financial statements have been adjusted to reflect the dual class common stock structure and the changes in the number of authorized shares of common stock. We also authorized a total of 20,000,000 shares of undesignated preferred stock, par value $0.001 per share. Effective March 5, 2021, 124,012,926 outstanding shares of common stock were converted into an equivalent number of shares of our Class B common stock. Class A common stock and Class B common stock reserved for future issuance consisted of the following:
| | | | | | | | | | | |
| As of September 30,
2022 | | As of December 31,
2021 |
| Shares available for grant under employee stock purchase plan | 5,145,300 | | | 3,760,115 | |
| Shares available for grant under stock option plan | 22,597,825 | | | 18,994,572 | |
| Restricted stock units | 4,710,098 | | | 1,082,980 | |
| Options issued and outstanding under stock option plan | 31,960,236 | | | 36,716,816 | |
| Total common stock reserved for future issuance | 64,413,459 | | | 60,554,483 | |
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Repurchases of Common Stock
On September 7, 2022, our Board of Directors authorized a program to repurchase up to $100 million of our Class A common stock (the “Stock Buyback Program”). Under the Stock Buyback Program, shares of common stock may be repurchased from time to time on a discretionary basis through open market repurchases, privately negotiated transactions, block purchases, or other means, and will be structured to occur in compliance with applicable securities laws. In addition, open market repurchases of common stock could be made pursuant to trading plans established pursuant to Rule 10b5-1 under the
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Securities Exchange Act of 1934, as amended, which would permit common stock to be repurchased at a time that we might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions. The Stock Buyback Program does not obligate us to acquire any specific number of shares.
The timing and actual number of shares repurchased if any, will beis determined by a committee established by the Board of Directors and dependdepends on a variety of factors, including the Class A common stock price, trading volume, market conditions, our cash flow and liquidity profile, the capital needs of the business, and other considerations. We expect to fund repurchasesRepurchases are funded with existing cash on hand. The Stock Buyback Program has no expiration date and may be modified, suspended or terminated at any time by the Board of Directors at its discretion. As of September 30, 2022, we have not repurchased any shares under
The following table summarizes the Stock Buyback Program.
Charitable Contributions
In March 2021, our Board of Directors approved the issuance of 1,729,189 sharesshare repurchase activity of our Class A common stock to an independent donor-advised fund sponsor, Tides Foundation, in conjunction with our Olo for Good initiative. We donated 172,918 shares of our Class A common stock tounder the Olo for Good Fund at Tides Foundation and recognized $1.4 million as a non-cash general and administrative expense in our condensed consolidated statement of operationsStock Buyback Program for the threeperiods presented (in thousands, except share and nine months ended September 30, 2022.per share amounts):
We donated 172,918 | | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share (1) | | Value of Shares Repurchased (1) | | Remaining Amount Authorized |
| Balance as of January 1, 2023 | | | | | | | $ | 80,000 | |
| Repurchases of common stock for the three months ended: | | | | | | | |
| March 31, 2023 | 2,652,372 | | | $ | 7.54 | | | $ | 20,000 | | | (20,000) | |
| June 30, 2023 | 1,409,420 | | | $ | 7.11 | | | $ | 10,018 | | | (10,018) | |
| Total | 4,061,792 | | | $ | 7.39 | | | $ | 30,018 | | | $ | 49,982 | |
(1) Average price paid per share and 345,836value of shares of our Class A common stock to the Olo for Good Fund at Tides Foundation and recognized $8.0 million and $13.1 million as a non-cash general and administrative expense in our condensed consolidated statement of operations for the three and nine months ended September 30, 2021, respectively.
Through September 30, 2022, we have donated a total of 518,754 shares of our Class A common stock. We expect to donate 1/10th of the total remaining approved shares into the fund annually.excludes broker commission fees.
13.8.Stock-Based Compensation
Equity Incentive Plans
On March 5, 2021, our Board of Directors adopted ourThe 2021 Equity Incentive Plan (“2021 Plan”). Prior to that date, we had established our 2015 Equity Incentive Plan (“2015 Plan”) and 2005 Equity Incentive Plan (“2005 Plan” and collectively with the 2021 Plan and 2015 Plan, the “Plans”). The 2021 Plan serves as the successor to the 2015 Plan and 2005 Plan and provides for the issuance of incentive and nonqualified stock options, SARs, restricted stock, and restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), and other awards, to employees, directors, consultants, and advisors.
Stock options under Pursuant to the Plans may be granted with contractual terms of up to ten years (or five years if granted to a greater than 10.0% stockholder) and at prices no less than 100.0%evergreen provisions of the estimated fair value of the shares on the date of grant as determined by our Board of Directors; provided, however, that the exercise price of an incentive stock option and nonqualified stock option granted to a greater than 10.0% stockholder shall not be less than 110.0% of the estimated fair value of the shares on the date of grant. Awards granted under the Plans generally vest over four years.
Certain stock options have an early exercise feature. Shares purchased pursuant to the early exercise of stock options are subject to repurchase until those shares vest; therefore, cash received in exchange for unvested shares exercised is recorded as a liability on the accompanying condensed balance sheets, and is reclassified to Class B common stock and additional paid-in capital as the shares vest. There were 56,508 and 120,088 early exercised shares outstanding as of September 30, 2022 and December 31, 2021 respectively. As of September 30, 2022, there was a liability in the amount of $0.2 million recorded in accrued expenses and other current liabilities in our balance sheet because vesting is within the next 12 months.
On March 13, 2021, our Board of Directors adopted a non-employee director compensation policy that became effective upon our IPO. The policy provides for annual cash retainers for non-employee directors and an additional cash retainer for those non-employee directors that serve as chairpersons or members of our audit, compensation, nominating and corporate governance, and other committees. Additionally, directors will have the option to receive their annual retainer
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
amounts in cash or equity. Each new non-employee director appointed toPlan, the Board of Directors afterapproved an automatic increase of 8,124,002 additional shares of Class A common stock reserved and available for issuance under the IPO date will be granted an initial RSU award with a value2021 Plan effective as of $0.3 million subject to vesting over a three-year period.January 1, 2023.
As of SeptemberJune 30, 20222023 and December 31, 20212022 the maximum number of shares authorized for issuance to participants under the Plans was 29,445,39239,770,032 and 20,615,612,30,263,529, respectively. As of SeptemberJune 30, 20222023 and December 31, 2021,2022, the number of shares available for issuance to participants under the Plans was 22,597,82525,766,065 and 18,994,572,23,358,039, respectively.
DuringStarting in 2023, we began awarding PSUs in addition to the nine months ended September 30, 2022RSUs at fixed dollar amounts. The target number of shares underlying the RSU and 2021, no SARsPSU awards were granted to employees. The SARs outstanding asdetermined based on the higher of (a) the time of the IPO were equity-classified and were measured at30-trading day average price preceding the grant date fair value. The SARs were vested and settled upon completionor (b) the floor price as determined by the Compensation Committee of the IPO and 1,642,570 sharesBoard of Class B common stock were issued in connection with this event. Compensation expense of $2.8 million was recognizedDirectors for the nine months ended September 30, 2021.
Restricted Stock Unitscalendar year.
The following summarizesamount of PSUs issued will depend on the activity forachievement of financial metrics relative to the unvested RSUs duringapproved performance targets. Depending on the nine months ended September 30, 2022:actual financial metrics achieved relative to the target financial metrics, the number of PSUs issued could range from 0% to 120% of the target amount.
| | | | | | | | | | | |
| Shares | | Weighted-
Average
Grant Date Fair Value |
| Unvested at December 31, 2021 | 1,082,980 | | | $ | 27.70 | |
| Granted | 4,699,191 | | | 15.48 | |
| Vested | (503,371) | | | 20.40 | |
| Forfeited and canceled | (568,702) | | | 19.80 | |
| Unvested at September 30, 2022 | 4,710,098 | | | $ | 17.24 | |
The total fair value of RSUs vested during the nine months ended September 30, 2022 was $5.1 million. Future stock-based compensation for unvested RSUs awarded as of September 30, 2022 was approximately $73.6 million and is expected to be recognized over a weighted-average period of 3.26 years.
Stock Options
The following summarizes our stock option activity for the nine months ended September 30, 2022 (in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of
options
outstanding | | Weighted-
average
exercise
price | | Weighted-
average
remaining
contractual
term
(In years) | | Aggregate
intrinsic
value |
| As of December 31, 2021 | 36,716,816 | | | $ | 3.55 | | | 5.76 | | $ | 633,730 | |
| Granted | 1,100,118 | | | 14.72 | | | | | |
| Exercised | (4,915,101) | | | 1.56 | | | | | |
| Forfeited | (941,597) | | | 6.77 | | | | | |
| Vested and expected to vest as of September 30, 2022 | 31,960,236 | | | $ | 4.15 | | | 5.32 | | $ | 144,435 | |
| Exercisable as of September 30, 2022 | 24,706,582 | | | $ | 2.73 | | | 4.47 | | $ | 134,287 | |
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the weighted-average grant dateactivity for the unvested RSUs and PSUs during the six months ended June 30, 2023:
| | | | | | | | | | | |
| Shares | | Weighted-
Average
Grant Date Fair Value |
| Unvested at December 31, 2022 | 4,559,917 | | | $ | 15.57 | |
| Granted | 9,349,431 | | | 6.96 | |
| Vested | (1,809,439) | | | 10.65 | |
| Forfeited and canceled | (2,155,124) | | | 11.46 | |
| Unvested at June 30, 2023 | 9,944,785 | | | $ | 9.26 | |
The total fair value of options granted, intrinsic value of options exercised, and fair value of optionsRSUs vested forduring the three and ninesix months ended SeptemberJune 30, 2022 and 2021 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Weighted-average grant date fair value of options granted | $ | 4.45 | | | N/A | | $ | 4.87 | | | $ | 10.70 | |
| Intrinsic value of options exercised | $ | 18,074 | | | $ | 97,370 | | | $ | 59,212 | | | $ | 169,450 | |
| Total fair value of options vested | $ | 6,027 | | | $ | 10,709 | | | $ | 20,604 | | | $ | 29,355 | |
2023 was $13.5 million. Future stock-based compensation for unvested employee options grantedRSUs and outstandingPSUs awarded as of SeptemberJune 30, 20222023 was $49.7approximately $86.1 million and is expected to be recognized over a weighted-average period of 2.073.22 years.
Valuation Assumptions
We estimated the fair value of stock options granted using the Black-Scholes option pricing model with the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Expected term (in years) | 6.00 | | N/A | | 5.24 - 6.00 | | 5.48 - 6.07 |
| Volatility | 36% | | N/A | | 32% - 36% | | 52% - 65% |
| Risk-free interest rate | 2.87% | | N/A | | 1.62% - 2.87% | | 0.50% - 1.06% |
| Dividend yield | 0% | | N/A | | 0% | | 0% |
| Fair value of underlying common stock | $11.07 | | N/A | | $11.07 - $15.75 | | $16.78 - $30.02 |
We elected to use the midpoint practical expedient to calculate the expected term.
2021 Employee Stock Purchase Plan
On March 5, 2021, our Board of Directors and stockholders adopted ourThe employee stock purchase plan (“2021 ESPP”). The ESPP became effective immediately prior to the IPO. The ESPP authorized the issuance of 3,900,000 shares of our Class A common stock pursuant to purchase rights granted to our employees or to employees of any of our designated affiliates. The number of shares of our Class A common stock reserved for issuance will automatically increase on January 1 of each calendar year, commencing on January 1, 2022 through January 1, 2031, by the lesser of (1) 1.0% of the total number of shares of our Class A common stock outstanding on December 31 of the preceding calendar year, or (2) 11,700,000 Class A common shares; provided, that prior to the date of any such increase, our Board of Directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). Employees may contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of our Class A common stock under the ESPP. Our Class A common stock will be purchased for the accounts of employees participating in the ESPP at a price per Class A common share equal to the lower of (a) 85% of the fair market value of our Class A common stock on the first trading date of an offering, or (b) 85% of the fair market value of our Class A common stock on the date of purchase. The current offering period began in June 20222023 and ends in December 2022.2023. Pursuant to the evergreen provisions of the 2021 ESPP, the Board of Directors approved an automatic increase of 1,050,883 additional shares of Class A common stock reserved and available for issuance under the 2021 ESPP effective as of January 1, 2023. As of June 30, 2023, a total of 5,785,854 shares are available for issuance to employees under the 2021 ESPP. For the ninesix months ended SeptemberJune 30, 2023 and 2022, we recorded approximately $1.2$0.7 million and $0.9 million of compensation expense associated with our ESPP.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
2021 ESPP, respectively.Stock-Based Compensation Expense
The classification of stock-based compensation expense, which includes expense for stock options, RSUs, SARs,PSUs, and ESPP charges, by line item within the condensed consolidated statements of operations was as follows (in thousands):
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Cost of revenue - platform | Cost of revenue - platform | $ | 1,367 | | | $ | 762 | | | $ | 4,269 | | | $ | 1,942 | | Cost of revenue - platform | $ | 1,673 | | | $ | 1,432 | | | $ | 3,498 | | | $ | 2,902 | |
| Cost of revenue - professional services and other | Cost of revenue - professional services and other | 167 | | | 116 | | | 565 | | | 362 | | Cost of revenue - professional services and other | 172 | | | 188 | | | 363 | | | 398 | |
| Research and development | Research and development | 3,571 | | | 2,570 | | | 10,382 | | | 8,522 | | Research and development | 3,555 | | | 3,413 | | | 8,102 | | | 6,811 | |
| General and administrative | General and administrative | 5,442 | | | 3,907 | | | 15,567 | | | 12,002 | | General and administrative | 5,600 | | | 5,087 | | | 10,587 | | | 10,125 | |
| Sales and marketing | Sales and marketing | 1,372 | | | 512 | | | 4,321 | | | 1,436 | | Sales and marketing | 2,056 | | | 1,357 | | | 4,550 | | | 2,949 | |
| Restructuring charges | | Restructuring charges | 1,728 | | | — | | | 1,728 | | | — | |
| Total stock-based compensation expense | Total stock-based compensation expense | $ | 11,919 | | | $ | 7,867 | | | $ | 35,104 | | | $ | 24,264 | | Total stock-based compensation expense | $ | 14,784 | | | $ | 11,477 | | | $ | 28,828 | | | $ | 23,185 | |
14.Warrants
Redeemable Convertible Preferred Stock Warrants
Prior toIncluded in the IPO, warrants to purchase 1,682,847 sharesthree and six months ended June 30, 2023 is $1.7 million of our outstanding redeemable convertible preferred stock were exercised and converted into redeemable convertible preferred stock. Upon completion of the IPO, all shares of our outstanding redeemable convertible preferred stock, inclusive of the shares issued pursuant to these warrant exercises, converted into 100,196,780 shares of Class B common stock. The redeemable convertible preferred stock warrant liability was reclassified to additional paid-in capitalstock-based compensation expense incurred in connection with the IPO. For the nine months ended September 30, 2021, we recorded a fair value adjustmentreduction of approximately $18.9 million using the intrinsic value of each warrant on the date of the conversion immediately prior to the IPO, as the warrants were significantly in-the-money and the Black-Scholes inputs have a de minimis impact on their value.our workforce (“Restructuring Plan”). See “Note 12—Restructuring Charges” for more details.
15.9.Income Taxes
We hadrecorded a provision for income taxes resulting in an effective tax rate benefit of 2.61% and expense of (0.27)(0.08)% for the ninesix months ended SeptemberJune 30, 2022 and 2021, respectively.2023. We recorded a benefit for income taxes resulting in an effective tax rate of 4.53% for the six months ended June 30, 2022. The effective tax rate benefit for the ninesix months ended SeptemberJune 30, 20222023 is driven primarily by the release of a portion of our valuation allowance for deferred tax assets following the recording of a deferred income tax liability as part of our accounting for the acquisition of Omnivore and adjustments to the full valuation allowance on our deferred tax assets partially offset by state taxes.and adjustments for share-based compensation. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
We evaluated the available evidence supporting the realization of our deferred tax assets, including the amount and timing of future taxable income, and have determined that it is more likely than not that our net deferred tax assets will not be realized. Due to uncertainties surrounding the realization of the deferred tax assets, we maintain a full valuation allowance against substantially all of our net deferred tax assets. When we determine that we will be able to realize some portion or all of our deferred tax assets, an adjustment to our valuation allowance on our deferred tax assets would have the effect of increasing net income in the period such determination is made.
We applied ASC 740, Income Taxes, and determined that we do not have any uncertain positions that would result in a tax reserve for each of the ninesix months ended SeptemberJune 30, 20222023 and 2021.2022. Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. We are subject to U.S. federal tax authority and state tax authority examinations.
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
16.10.Commitments and Contingencies
Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible, and the loss or range of loss can be estimated, we will disclose the possible loss in the notes to our financial statements. Accounting for contingencies requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Legal costs incurred in connection with loss contingencies are expensed as incurred.
On September 26, 2022, a putative securities class action lawsuit was filed in the United States District Court for the Southern District of New York asserting claims under the federal securities laws against us and certain of our executive officers,officers. On December 21, 2022, the Court appointed a lead plaintiff and lead counsel on behalf of the putative class, following which the case was captioned Pompano Beach Police and Firefighters Retirement SystemSteamship Trade Association of Baltimore - International Longshoremen’s Association Pension Fund v. Olo Inc., et. et al. (Case 1:22-cv-08228)No.1:22-cv-08228-JSR). On January 13, 2023, lead plaintiff filed an amended complaint asserting claims on behalf of a putative class composed of all persons who purchased or otherwise acquired our securities between August 10, 2021 and August 11, 2022 (the “Amended Complaint”). The lawsuitAmended Complaint asserts claimsa claim against all defendants for alleged violations of Section 10(b) of the Exchange Act and Rule 10b5 promulgated thereunder and a claim under Sections 10(b) andSection 20(a) of the Securities Exchange Act of 1934against Mr. Glass and Mr. Benevides as alleged controlling persons. The Amended Complaint alleges that Olodefendants made materially false and misleading statements regardingconcerning our business relationship with the numberrestaurant brand Subway and our publicly disclosed “active locations” counts, and that these alleged false and misleading statements caused losses and damages for members of active locations.the putative class. The lawsuitAmended Complaint seeks unspecified damages, interest, costs and attorneys’ fees, and other unspecified relief that the Court deems appropriate. On February 3, 2023, we filed a motion to dismiss the Amended Complaint. On April 10, 2023, the Court issued a summary order denying our motion to dismiss. On July 25, 2023, however, the Court issued its full written opinion on our motion to dismiss, which dismissed the allegations in the Amended Complaint concerning our business relationship with the restaurant brand Subway. On July 26, 2023, the Court granted lead plaintiff leave to file a second amended complaint by August 9, 2023. We believe the case is without merit and are vigorously defending this matter. WeHowever, we are unable to predict the outcome, or the reasonably possible loss or range of loss, if any, related to this matter.
On May 4, 2023, Cashondra Floyd, an alleged Olo stockholder, derivatively and on behalf of us as a nominal defendant, filed a complaint in the U.S. District Court for the Southern District of New York against certain of our directors and officers (the “Derivative Defendants”), captioned Floyd v. Glass, et al. (Case No. 1:23-cv-03770). On May 25, 2023, the plaintiff voluntary dismissed her complaint and refiled in the Court of the Chancery of the State of Delaware (C.A. No. 2023-0560) (the “Floyd Derivative Complaint”). The Floyd Derivative Complaint alleges that, between at least August 10, 2021 and August 11, 2022, the Derivative Defendants caused, or failed to prevent, our alleged issuance of materially false and misleading statements concerning our business relationship with the restaurant brand Subway and our publicly disclosed “active locations” counts. The Floyd Derivative Complaint asserts claims for breaches of fiduciary duty, aiding and abetting breach of fiduciary duty, and waste of corporate assets. The Floyd Derivative Complaint seeks a judgment declaring that the plaintiff may bring the action on behalf of us in a derivative capacity; awarding us damages for the Derivative Defendants’ alleged breaches of fiduciary duty, and waste of corporate assets; requiring us to reform and improve our corporate governance and internal procedures; ordering the Derivative Defendants to pay restitution to the Company; awarding the plaintiff her costs, fees, and expenses, including attorney’s fees; and granting such other relief that the Court determines to be appropriate. On June 1, 2023,
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
the Court granted the parties’ stipulation to stay the Floyd Derivative Complaint. We believe the case is without merit and are vigorously defending this matter. However, we are unable to predict the outcome, or the reasonably possible loss or range of loss, if any, related to this matter.
We are a party to various lawsuits and claims in the ordinary course of business, including the matter described above. Future litigation may be necessary to defend ourselves or our customers by determining the scope, enforceability, and validity of third-party proprietary rights or to establish our proprietary rights. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.factors
Leases
During March 2023, we abandoned our office lease located at 26 Broadway, New York NY, resulting in a reduction of $0.3 million to operating lease right-of-use assets and operating lease liabilities, respectively. On April 18, 2023, we entered into an agreement with our landlord that provided for an early termination of our office lease located at 26 Broadway, New York, New York.
Sublease income was $0.6 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively. Sublease income was $1.3 million and $0.2 million for the six months ended June 30, 2023 and 2022, respectively.
17.11.Net Loss per Share Attributable to Common Stockholders
A reconciliation of net loss available to common stockholders and the number of shares in the calculation of basic net loss per share is as follows (in thousands, except share and per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | | | | | | | |
| Net loss | $ | (14,560) | | | $ | (11,308) | | | $ | (37,742) | | | $ | (40,202) | |
| Less: accretion of redeemable convertible preferred stock to redemption value | — | | | — | | | — | | | (14) | |
| | | | | | | |
| Net loss attributable to Class A and Class B common stockholders—basic and diluted | $ | (14,560) | | | $ | (11,308) | | | $ | (37,742) | | | $ | (40,216) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Denominator: | | | | | | | |
| Weighted-average Class A and Class B common shares outstanding—basic and diluted | 162,364,654 | | | 148,452,987 | | | 160,667,412 | | | 113,451,378 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net loss per share attributable to Class A and Class B common stockholders––basic and diluted | $ | (0.09) | | | $ | (0.08) | | | $ | (0.23) | | | $ | (0.35) | |
| | | | | | | |
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Numerator: | | | | | | | |
| Net loss attributable to Class A and Class B common stockholders | $ | (17,076) | | | $ | (11,673) | | | $ | (30,782) | | | $ | (23,182) | |
| Denominator: | | | | | | | |
| Weighted-average Class A and Class B common shares outstanding—basic and diluted | 162,324,314 | | | 160,429,125 | | | 162,005,150 | | | 159,813,053 | |
| Net loss per share attributable to Class A and Class B common stockholders––basic and diluted | $ | (0.11) | | | $ | (0.07) | | | $ | (0.19) | | | $ | (0.15) | |
The following participating securitiespotential common shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis): | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Outstanding stock options | Outstanding stock options | 31,960,236 | | | 39,815,982 | | | 31,960,236 | | | 39,815,982 | | Outstanding stock options | 25,796,702 | | | 34,100,749 | | | 25,796,702 | | | 34,100,749 | |
| Outstanding restricted stock units | 4,710,098 | | | 155,422 | | | 4,710,098 | | | 155,422 | | |
| Outstanding restricted and performance-based stock units | | Outstanding restricted and performance-based stock units | 9,944,785 | | | 3,943,566 | | | 9,944,785 | | | 3,943,566 | |
| Outstanding shares estimated to be purchased under ESPP | Outstanding shares estimated to be purchased under ESPP | 125,128 | | | 143,815 | | | 125,128 | | | 143,815 | | Outstanding shares estimated to be purchased under ESPP | 191,968 | | | 134,318 | | | 191,968 | | | 134,318 | |
| Total | Total | 36,795,462 | | | 40,115,219 | | | 36,795,462 | | | 40,115,219 | | Total | 35,933,455 | | | 38,178,633 | | | 35,933,455 | | | 38,178,633 | |
OLO INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
12.Restructuring Charges
On June 14, 2023, we completed the Restructuring Plan and had a reduction of our workforce by approximately 11% to reorganize our business to better focus our investments on customer needs and to support long-term growth objectives.
We incurred charges of $6.7 million in connection with the Restructuring Plan for the three and six months ended June 30, 2023, consisting of the following: $4.4 million related to severance expense and payroll taxes, $1.7 million related to stock-based compensation expense due to the acceleration of equity awards, and $0.6 million related to other employee benefits. These expenses are recorded within the restructuring charges line item in the condensed consolidated statement of operations.
The following table summarizes the restructuring liabilities, which are recorded in accrued expenses and other current liabilities on the condensed consolidated balance sheets, as of June 30, 2023 (in thousands):
| | | | | |
| Balance at January 1, 2023 | $ | — | |
| Charges | 6,682 | |
| Payments | (2,726) | |
| Balance at June 30, 2023 | $ | 3,956 | |
We expect to make the remainder of payments associated with these restructuring costs in the third quarter of 2023. The actions associated with the Restructuring Plan were fully completed during the three months ended June 30, 2023 and we do not expect to incur any material additional charges under this plan.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. The discussion contains forward-looking statements, including, but not limited to, statements with respect to our transaction volumes, our net revenue retention rate, and new and existing customer adoption of multi-modules, that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed elsewhere in this Quarterly Report on Form 10-Q, particularly in the section entitled “Special Note Regarding Forward-Looking Statements,” and our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the Securities and Exchange Commission, or SEC, on February 25, 202224, 2023, and our other filings with the SEC.
Overview
We are Olo, a leading open SaaS platform for restaurants.
Our platform powers restaurant brands’ on-demand digital commerce operations, enabling digital ordering, delivery, front-of-house or FOH, management, and payments, while further strengthening and enhancing restaurants’ direct consumerguest relationships. ConsumersGuests 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. We provide restaurants with a business-to-business-to-consumer,business-to-business-to-guest, enterprise-grade, open SaaS platform to manage their complex digital businesses and enable fast and more personalized experiences for their guests. 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 us to increase their digital omni-channel sales, maximize profitability, establish and maintain direct consumerguest relationships, and collect, protect, and leverage valuable consumerguest data.
As a result of our ability to meet restaurant brands’ growing needs, gross merchandise value,volume, or GMV, which we define as the gross value of orders processed through our platform, has increased on an annual basis, reaching more than $20$23 billion in GMV during the year ended December 31, 2021. We believe that2022, and gross payment volume, or GPV, which we define as the gross volume of payments processed through our Olo Pay module, has reached $250 million during the year ended December 31, 2022. Management uses GMV is an important metricand GPV to provide management with an indication ofassess demand for our products. We also believe these metrics provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business. 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 dollar-based net revenue retention.retention approximating 115% for the three months ending June 30, 2023. See the section titled “Key Factors Affecting Our Performance” belowentitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part I, Item 2 of this Quarterly Report on Form 10-Q for additional information on how we calculate dollar-based net revenue retention. Further, industry-recognized outlets, including Restaurant Business Online, QSR Magazine, and APNation’s Restaurant News, have also deemed Olo a leading food ordering platform for the restaurant industry.
We built Olo with the goal of being the leading SaaS platform for the restaurant industry by aligning the solutions we have developed with the needs of our customers. OurFor over 15 years, we have developed our platform initially focused onin collaboration with many of the leading restaurant brands in the United States. We believe our Order Managementplatform is the only independent open SaaS platform for restaurants to enable hospitality with modern solutions athat allow brands to:
•Order. A suite of fully-integrated, white-label,solutions powering restaurant brands’ on-demand commerce operations, enabling digital commerceordering, delivery, and channel management solutions,through the Ordering, Dispatch, Rails, Switchboard, Network, Virtual Brands, Kiosk, Catering, and Sync modules.
•Pay. A fully-integrated, frictionless payment platform, enabling guestsrestaurants to ordergrow and pay directly from restaurants via mobile, web, kiosk, voice,protect their digital business through an improved guest payment experience, offering advanced fraud prevention designed to improve authorization rates for valid transactions, and other digital channels,increase basket conversion through our Ordering, Network, Switchboard, Kiosk, and Virtual Brands modules. We then expanded our platform by launching our Delivery Enablement solutions, including Dispatch, our delivery enablement module, and Rails, our aggregator and channel managementOlo Pay module. In 2021, we acquired Wisely Inc, or Wisely. This acquisition added our Guest Engagement solutions (formerly known as Customer Engagement) and our FOH solutions to our product offerings. Our Guest Engagement solutions encompass a
•Engage. A suite of restaurant-centric marketing and sentiment solutions that enable restaurants to collect, analyze, and act on guest data to deepen relationships, boost revenue, and increaseoptimizing Guest Lifetime Value, or LTV, (formerly known as Customer Lifetime Value). Our Guest Engagement solutions includeby strengthening and enhancing the Marketing Automation, Sentiment, andrestaurants’ direct guest relationships through the Guest Data Platform, or GDP, (formerly known as Customer Data Platform)Marketing, Sentiment, and Host modules. Our FOH solutions enable restaurants to streamline queue orders from multiple sales channels, optimize seat utilization in the dining room, and increase flow-through of reservation and waitlist parties through the Host module.
The key milestones in our corporate history are the following:
•2005: Olo Founder and CEO Noah Glass accepted $0.5 million in Series A funding to start Mobo.
•2010: We began rebranding as “Olo” and shifted our focus to enterprise customers.
•2013: We surpassed $50 million in GMV and expanded our executive leadership team.
•2014: We surpassed $100 million in GMV, and restaurateur Danny Meyer joined our Board of Directors.
•2015: We launched Dispatch, our first significant product extension.
•2016: We surpassed $500 million in GMV.
•2017: We launched Rails and surpassed $1 billion in GMV.
•2018: We surpassed $2 billion in GMV.
•2019: We surpassed $5 billion in GMV.
•2020: We reached nearly $14.6 billion in GMV.
•2021: We completed our IPO, executed our first acquisition, and surpassed $20 billion in GMV.
•2022: We announced commercial availability of Olo Pay.Pay, and surpassed $23 billion in GMV and $250 million in GPV.
Leading restaurant brands trust Olo’s enterprise-grade platform for its capabilities, reliability, security, scalability, and interoperability. Our platform currently handles, on average, more than 2 million orders per day. In 2021,day, and more than 85 million guests have transacted on our platform.platform over the last year. We continually invest in architectural improvements so that our system can scale in tandem with our continued growth. Additionally, both internal and external security experts frequently test our system for vulnerabilities. To our knowledge, weWe have never experienced a material breach of customer or consumerguest data. Our open SaaS platform integrates with over 300 restaurant technology solutions including point-of-sale, or POS, systems, aggregators, delivery service providers, or DSPs, ordering service providers, or OSPs, payment processors, user experience or UX,and user interface or UI, providers, and loyalty programs, on-premise ordering providers, kitchen display systems, or KDS, labor management providers, inventory management providers, and reservation and customer relationship management, or CRM, giving our customers significant control over the configuration and features of their distinct digital offering.
We are the exclusive direct digital ordering provider for ourmany leading brands across all service models of the restaurant industry, including quick service, fast casual, casual dining, family dining, and coffee and snack food. Our contracts typically have initial terms of three years or longer, with continuous one-to-two-year automatic renewal periods, providing visibility into our future financial performance. Our brands tend to be highly loyal.
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 addsell to a single location or division and expand to others, we enter into relationships at the brand’s corporate level and strive to secure exclusivity across all locations. ThisWe consider each specific restaurant brand to be a customer, even if owned by a parent organization that owns multiple restaurant brands. In addition, each restaurant brand may have hundreds or even thousands of individual operators (sometimes referred to as “franchisees”) who own and operate a specific location or locations. It may take time to get all locations deployed, or we may not ultimately deploy all locations due to varying factors. For example, operator locations generally have more latitude in terms of their use of brand-endorsed solutions. Our relationship at the brand’s corporate level, however, enables us to deploymarket 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.
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 consumersguests 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 primarily from our Ordering, Switchboard, Kiosk, Virtual Brands, Kiosk, Catering, Sync, GDP, Marketing, Automation, Sentiment, GDP, and Host modules. 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 primarily includes revenue generated from our Rails, Dispatch, Virtual Brands,Rails, and Olo Pay modules. 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, includingour Network module, which allows brands to take orders from non-aggregator digital channels (e.g., Order with Google, which enables restaurants to fulfill orders directly through Google searchSearch results and Google Maps pages). These products generate and generates fees predominantly through revenue sharing agreements with partners.
Key Factors Affecting Our Performance
Expand Within Our Existing Customer Base
Our large base of enterprise customers and transactional SaaS revenue model represent an opportunity for further revenue expansion from the sale of additional modules, and the addition of new restaurant locations.modules. A key factor to our success in executing our expansion strategy will be our ability to retain our existing and future restaurant customers. Our exclusive, long-term, direct digital ordering contracts with our customers provide us the opportunity to form unique, trusted partnerships with our restaurant brands, further enhancing our ability to satisfy and retain our customers. Our contracts typically have initial terms of three years or longer, with continuous one-to-two-year automatic renewal periods, providing visibility into our future performance.
One indication of our ability to grow within our customer base, through the development of our products that our customers value, is our average revenue per unit, or ARPU.unit. We calculate ARPUour average revenue per unit by dividing the total platform revenue in a given period by the average active locations in that same period. We believe this demonstrates our ability to grow within our customer base through the development of our products that our customers value. Our ability to retain and increase revenue from existing customers will depend on a number of factors, including fluctuations in our customers’ spending levels, our customers’ ability to deploy our modules, fluctuations in the number of transactions processed by our customers on the platform, the average number of active locations, and the ability of our customers to switch to a competitor or develop their own internal platform solutions.
Add New Large Multi-Location and High-Growth Restaurant Brands
We believe there is a substantial opportunitysolutions to continue to growreplace our customer base across the U.S. restaurant industry, adding to our over 600 existing brands across approximately 84,000 active locations as of September 30, 2022, up from approximately 76,000 active locations as of September 30, 2021. We define an “active location” as a unique restaurant location that is utilizing one or more modules in a given quarterly period. We consider each specific restaurant brand to be a customer, even if owned by a parent organization that owns multiple restaurant brands. We intend to continue to drive new customer growth by leveraging our brand and experience within the industry, and expanding our sales and marketing efforts.products. We have also historically pursuedexperienced, and will continue to target the most well-capitalized, fastest-growing restaurant brands in the industry. Our ability to attract new customers will depend on a number of factors, including our ability to innovate, the effectiveness and pricingexperience, certain of our new and existing modules, the growth of digital ordering, and the successcustomers or locations reducing or terminating their usage of our marketing efforts.platform as a result of developing their own solutions that do not utilize any or all of our modules or moving to a competitor.
The following summarizes our ARPUaverage revenue per unit and approximate number of active locations for the three months ended, or as of, each of the dates presented.
| | | Three Months Ended September 30, | | Three Months Ended June 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| Average Revenue Per Unit | Average Revenue Per Unit | $ | 558 | | | $ | 484 | | Average Revenue Per Unit | $ | 716 | | | $ | 544 | |
| Ending Active Locations | Ending Active Locations | 84,000 | | | 76,000 | | Ending Active Locations | 77,000 | | | 82,000 | |
A further indication ofAnother metric used to demonstrate the propensity of our customers to continue to work with and expand their relationship with us over time is our dollar-based net revenue retention, rate, or NRR, which compares our revenue from the same set of active customers in one period to the prior year period. An active customer is a specific restaurant brand that utilizes one or more of our modules in a given quarterly period. We calculate dollar-based NRRnet revenue retention as of a period-end by starting with the revenue, defined as platform revenue, from the cohort of all active customers as of 12 months prior to such period-end, or the prior period revenue. We then calculate the platform revenue from these same customers as of the current period-end, or the current period revenue. Current period revenue includes any expansion and is net of contraction or attrition over the last 12 months, but excludes platform revenue from new customers in the current period. We then divide the total current period revenue by the total prior period revenue to arrive at the point-in-time dollar-based NRR.net revenue retention. We believe that NRRnet 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, proving the stability of our revenue base and the long-term value of our customer relationships.
For the quarter ended SeptemberJune 30, 2022, NRR2023, net revenue retention was approximately 107%, an increase of 100 basis points as compared to the quarter ended June 30, 2022. While we115%. We have maintained an NRR over 120% throughout 2021, 2020, and 2019, we observed a decline in NRR beginning in the first quarter of 2022 and continuing through the third quarter of 2022, as we lapped the last pre-vaccination period of the COVID-19 pandemic, during which time order volumes were elevated, and the final quarter operating under our prior DoorDash agreement. We expect to maintain NRRnet revenue retention in excess of 100% throughout the past several years, and expect to continue this trend in the near term as customers continue to adopt additional product modules such as Olo Pay, FOH,GDP, Marketing, Sentiment, and Guest Engagement solutions.Host.
We believe that, in the near term, average revenue per unit and net revenue retention will be greater drivers of growth than total active locations. This is due to the potential opportunity for further multi-module penetration and continued growth in digital ordering across our existing customer base. Additionally, because multi-module penetration can vary across active locations, fluctuations in active locations may not be a clear indication of performance. An example of this would be when a brand has transitioned from our platform and the associated total revenue or revenue per unit of that brand is not material or less than our average.
Enable Higher Transaction Volume
Transaction revenue will continue to be an important source of our growth. We intend to continue to work with our existing restaurant customers to enable higher transaction volume at their locations whichthat utilize our products. Higher transaction volumes may enable us to generate additional subscription and transaction revenue. As on-demand digital commerce grows to represent a larger share of total food consumption, we expect to significantly benefit from this secular trend as we capture a portion of this increased on-demand digital commerce order volume. Not only does our software create the opportunity to drive more orders for our customers, but we also expect the industry’s secular tailwinds to help increase transaction order volume as more consumersguests order food through digital means, including on- and off-premise. As transaction volume increases, the subscription revenue we receive from certain subscription-based modules may also increase as customers subscribe for higher tier ordering packages to enable more transactions. Additionally, as we continue to expand our product offerings and improve our current software, we also believe that we may be able to increase our share of the transaction revenue that flows through our platform. Specifically, in February 2022, we announced the general availability of our payment solution, Olo Pay, which we believe can significantlycontinue to increase our ability to generate transactional revenues.revenue. Our ability to increase transaction volume is dependent on, among other factors, macroeconomic conditions, as well as the continued shift to digital ordering for food consumption and our ability to capture a meaningful portion of that shift.
Add New Large Multi-Location and High-Growth Restaurant Brands
We believe there is a substantial opportunity to grow our customer base across the U.S. restaurant industry, adding to our over 600 existing brands across approximately 77,000 active locations as of June 30, 2023. We define an “active location” as a unique restaurant location that is utilizing one or more modules in a given quarterly period. Given this definition, active locations in any one quarter may not reflect (i) the future impact of new customer wins as it can take some time for their locations to go live with our platform, or (ii) the customers who have indicated their intent to reduce or terminate their use of our platform in future periods. Of further note, not all of our customer locations may choose to utilize our products, and while we aim to deploy all of customer locations, not all locations may ultimately deploy. We intend to continue to drive new customer growth by leveraging our brand and experience within the industry and expanding our sales and marketing efforts. We have also historically pursued and will continue to target the most well-capitalized, fastest-growing restaurant brands in the industry. Our ability to attract new customers will depend on a number of factors, including our ability to innovate, the effectiveness and pricing of our new and existing modules, the growth of digital ordering, and the success of our marketing efforts.
Investment in Innovation and Growth
We have invested and intend to continue to invest in expanding the functionality of our current platform and broadening our capabilities to address new market opportunities, particularly around payments, data analytics, and on-premise dining. We also intend to continue to invest in enhancing awareness of our brand and developing more modules, features, and functionality that expand our capabilities to facilitate the extension of our platform to new use cases and industry verticals. We believe this strategy will provide new avenues for growth and allow us to continue to deliver differentiated, high-value outcomes to both our customers and stockholders. Specifically, we intend to invest in research and development to expand our existing modules and build new modules, sales and marketing to promote our modules to new and existing customers and in existing and expanded geographies, professional services to ensure the success of our customers’ implementations of our platform, and other operational and administrative functions to support our expected growth and requirements as a public company. For example, as Olo Pay continues to scale and we realize expanded Olo Pay adoption, we may experience increased processing and personnel-related costs. We expect our total operating expenses will increase over time and, in some cases, have short-term negative impacts on our operating margin. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Our future success is dependent, in part, on our ability to successfully develop, market, and sell new and existing modules to new and existing customers.
Grow Our Ecosystem
We plan to expand our current ecosystem of third-party partners to better support our customers. Our platform is highly configurable and deeply embedded into our customers’ disparate existing infrastructures. Our platform seamlessly integrates with technology providers across the restaurant ecosystem, including most POS systems, DSPs, Ordering Service Providers, or OSPs, aggregators, payment processors, loyalty programs, on-premise ordering providers, KDSs,kitchen display systems, labor management providers, inventory management providers, and reservation and CRMcustomer relationship management platforms. We believe that we can leverage these unique partnerships to deliver additional value to our customers. We see opportunity to further broaden our partnership group and build upon the integrations we currently offer. We plan to continue to invest and expand our ecosystem of compatible third-party technology providers to allow us to service a broader
network of restaurant brands. We believe that these technology partnerships make us a critical component for restaurant brands looking to enhance their digital ordering and delivery platforms. We intend to continue to invest in building functionality that further integrates our platform with additional third-party technology providers, which would expand our capabilities and facilitate the extension of our platform to new use cases and industry verticals. Our future success is dependent on our ability to continue to integrate with third-party technology providers in the restaurant ecosystem.
Expand Our Longer-Term Market Opportunity
While we have not made any significant investments in this area to date, we believe there is an opportunity to partner with small- and medium-sized businesses to enable their on-demand digital commerce presence. Additionally, as many of our customers operate internationally, we believe there is a significant opportunity to expand the usage of our platform outside of the United States. We also believe that our platform can be applied to other commerce verticals, beyond the restaurant industry, that are undergoing a similar digital transformation to deliver real-time experiences and on-demand fulfillment to consumers.guests. For example, we currently partner with a number of grocery chains who use our Ordering module to help their consumersguests order ready-to-eat meals and may potentially expand these or other partnerships in the future. We anticipate that our operating expenses will increase as a result of these initiatives.
Components of Results of Operations
Revenue
We generate revenue primarily from platform fees and professional services.
Platform
Platform revenue primarily consists of fees that provide customers access to one or more of our modules and standard customer support. Our contracts typically have initial terms of three years or longer, with continuous one-yearone-to-two-year automatic renewal periods. We generally bill monthly in arrears. A majority of our platform revenue is derived from our Order Management solutions, which consist of our Ordering, Dispatch, Rails, Switchboard, Kiosk, Network, and Virtual Brands, Kiosk, Catering, and Sync modules. We also generate platform revenue from our Delivery Enablement solutions,Olo Pay module, which include our Dispatch and Rails modules,became commercially available during 2022, as well as from Olo Pay. We may also charge third-party aggregatorsour Engage solutions, which consist of our GDP, Marketing, Sentiment, and other service providers in our ecosystem a per-transaction fee for access to our Dispatch and RailsHost modules. Subsequent to the Wisely Acquisition, we also generate revenue from our Guest Engagement and FOH solutions.
Professional Services and Other
Professional services and other revenue primarily consists of fees paid to us by our customers for the implementation of our platform. The majority of our professional service fees are billed on a fixed fee basis upon execution of our agreement. While we generally expect professional services and other revenue to increase primarily as a result of continued deployment of additional active locations, we also expect that this increase will be offset as our deployment teams become more efficient and more familiar with customer systems and shorten deployment periods.
Cost of Revenue
Platform
Platform cost of revenue primarily consists of costs directly related to our platform services, including expenses for customer support and infrastructure personnel, including salaries, taxes, benefits, bonuses, and stock-based compensation, which we refer to as personnel costs, third-party software licenses, hosting, amortization of capitalized internal-use software and intangible assets,developed technology, payment processing, and allocated overhead. We expect platform cost of revenue to increase in absolute dollars in order to support additional customer and transaction volume growth on our platform.
Professional Services and Other
Professional services and other cost of revenue primarily consists of the personnel costs of our deployment team associated with delivering these services and allocated overhead.
Gross Profit
Gross profit, or revenue less cost of revenue, has been, and will continue to be, affected by various factors, including revenue fluctuations, our mix of revenue associated with various modules, the timing and amount of investments in personnel, increased hosting capacity to align with customer growth, and third-party licensing costs.
Operating Expenses
Our operating expenses consist of research and development, general and administrative, and sales and marketing expenses. Personnel costs are the most significant component of operating expenses.
Research and Development
Research and development expenses primarily consist of engineering and product development personnel costs and allocated overhead costs. Research and development costs exclude capitalized internal-use software development costs, as they are capitalized as a component of property and equipment, net and amortized to platform cost of revenue over the term of their estimated useful life. We anticipate investments in this area to increase slightly on an absolute dollar basis, andbut to decrease as a percentage of revenue in the short-term, as we continue to investbalance growth initiatives and investments in innovative solutions to support our customers’ rapidly evolving needs.
General and Administrative
General and administrative expenses primarily consist of personnel costs and contractor fees for finance, legal, human resources, information technology, and other administrative functions. In addition, general and administrative expenses include amortization of intangible assets,trademarks, travel-related expenses, and allocated overhead. We also incur additional general and administrative expenses as a result of operating as a public company. We expect that our general and administrative expenses will continue to grow on an absolute dollar basis while declining as a percentage of revenue as we lap the initial increase in costs associated with operating as a public company and continue to scale our operations over time.
Sales and Marketing
Sales and marketing expenses primarily consist of sales, marketing, and other personnel costs, commissions, general marketing, amortization of intangible assets,customer relationships, promotional activities, and allocated overhead costs. Sales commissions earned by our sales force are deferred and amortized on a straight-line basis over the expected benefit period. We plan to continue to invest in sales and marketing by expanding our go-to-market activities, hiring additional sales representatives, and sponsoring additional marketing events and trade shows. We expect our sales and marketing expenses to increase on an absolute dollar basis and as a percentage of revenue in the short-term as we continue to invest in our ability to sell new products and increase the visibility of our brand to new and existing customers.
Restructuring Charges
Restructuring charges are comprised of severance costs, payroll taxes, and stock-based compensation expense associated with the accelerated vesting of equity awards. These charges were incurred as a result of our completed corporate reorganization in the second quarter of 2023, which entailed a reduction of workforce.
Other Income (Expenses), Net
Other income (expenses), net consists primarily of income earned on our investments and money-market funds in cash and cash equivalents and interest expense related to any outstanding debt.our credit facility.
Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability
The change in the fair value of warrant liability relates to warrants issued to purchase our redeemable convertible preferred stock that are classified as liabilities on the balance sheet. Prior to the IPO, warrants to purchase 1,682,847 shares of our outstanding redeemable convertible preferred stock were exercised and converted into redeemable convertible preferred stock. Upon completion of the IPO, all shares of our outstanding redeemable convertible preferred stock, inclusive of the shares issued pursuant to these warrant exercises, converted into 100,196,780 shares of Class B common stock. As a result, we will no longer have a change in fair value of redeemable convertible preferred stock warrant liability.
(Benefit) Provision for Income Taxes
Provision(Benefit) provision for income taxes primarily relates to U.S. state income taxes where we conduct business.
Results of Operations
The following tables set forth our results of operations for the periods presented.
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) | | (in thousands) |
| Revenue: | Revenue: | | Revenue: | |
| Platform | Platform | $ | 46,357 | | | $ | 36,084 | | | $ | 132,361 | | | $ | 105,533 | | Platform | $ | 54,603 | | | $ | 44,538 | | | $ | 105,974 | | | $ | 86,004 | |
| Professional services and other | Professional services and other | 909 | | | 1,306 | | | 3,262 | | | 3,876 | | Professional services and other | 648 | | | 1,063 | | | 1,517 | | | 2,353 | |
| Total revenue | Total revenue | 47,266 | | | 37,390 | | | 135,623 | | | 109,409 | | Total revenue | 55,251 | | | 45,601 | | | 107,491 | | | 88,357 | |
| Cost of revenue: | Cost of revenue: | | | | | Cost of revenue: | | | | |
Platform (2) | 13,920 | | | 6,632 | | | 37,693 | | | 18,419 | | |
Professional services and other (2) | 1,346 | | | 1,532 | | | 4,543 | | | 3,958 | | |
Platform (1) (2) | | Platform (1) (2) | 19,721 | | | 12,986 | | | 37,334 | | | 24,227 | |
Professional services and other (1) (2) | | Professional services and other (1) (2) | 1,058 | | | 1,453 | | | 2,194 | | | 3,272 | |
| Total cost of revenue | Total cost of revenue | 15,266 | | | 8,164 | | | 42,236 | | | 22,377 | | Total cost of revenue | 20,779 | | | 14,439 | | | 39,528 | | | 27,499 | |
| Gross Profit | Gross Profit | 32,000 | | | 29,226 | | | 93,387 | | | 87,032 | | Gross Profit | 34,472 | | | 31,162 | | | 67,963 | | | 60,858 | |
| Operating expenses: | Operating expenses: | | | | | Operating expenses: | | | | |
Research and development (2) | 19,101 | | | 14,485 | | | 53,159 | | | 42,872 | | |
General and administrative (1) (2) (3) | 20,894 | | | 21,270 | | | 56,090 | | | 53,034 | | |
Sales and marketing (2) | 7,923 | | | 4,728 | | | 24,890 | | | 12,265 | | |
Research and development (1) (2) | | Research and development (1) (2) | 18,298 | | | 17,576 | | | 38,771 | | | 34,732 | |
General and administrative (1) (2) | | General and administrative (1) (2) | 18,469 | | | 16,503 | | | 35,679 | | | 33,752 | |
Sales and marketing (1) (2) | | Sales and marketing (1) (2) | 12,194 | | | 9,015 | | | 25,075 | | | 17,208 | |
Restructuring charges (2) | | Restructuring charges (2) | 6,682 | | | — | | | 6,682 | | | — | |
| Total operating expenses | Total operating expenses | 47,918 | | | 40,483 | | | 134,139 | | | 108,171 | | Total operating expenses | 55,643 | | | 43,094 | | | 106,207 | | | 85,692 | |
| Loss from operations | Loss from operations | (15,918) | | | (11,257) | | | (40,752) | | | (21,139) | | Loss from operations | (21,171) | | | (11,932) | | | (38,244) | | | (24,834) | |
| Other income (expenses), net: | | | | | |
| | Other income, net: | | Other income, net: | | | | |
| Interest income | Interest income | 1,525 | | | — | | | 2,110 | | | — | | Interest income | 4,155 | | | 533 | | | 7,609 | | | 585 | |
| Interest expense | Interest expense | (70) | | | — | | | (116) | | | — | | Interest expense | (53) | | | (46) | | | (122) | | | (46) | |
| Other (expense) income | (7) | | | (15) | | | 6 | | | (23) | | |
| Change in fair value of warrant liability | — | | | — | | | — | | | (18,930) | | |
| Total other income (expenses), net | 1,448 | | | (15) | | | 2,000 | | | (18,953) | | |
| Other income, net | | Other income, net | — | | | 7 | | | — | | | 13 | |
| Total other income, net | | Total other income, net | 4,102 | | | 494 | | | 7,487 | | | 552 | |
| Loss before income taxes | Loss before income taxes | (14,470) | | | (11,272) | | | (38,752) | | | (40,092) | | Loss before income taxes | (17,069) | | | (11,438) | | | (30,757) | | | (24,282) | |
| Provision (benefit) for income taxes | Provision (benefit) for income taxes | 90 | | | 36 | | | (1,010) | | | 110 | | Provision (benefit) for income taxes | 7 | | | 235 | | | 25 | | | (1,100) | |
| Net loss | Net loss | (14,560) | | | (11,308) | | | (37,742) | | | (40,202) | | Net loss | (17,076) | | | (11,673) | | | (30,782) | | | (23,182) | |
| Accretion of redeemable convertible preferred stock to redemption value | — | | | — | | | — | | | (14) | | |
| | Net loss attributable to Class A and Class B common stockholders | $ | (14,560) | | | $ | (11,308) | | | $ | (37,742) | | | $ | (40,216) | | |
(1) Includes charitable donationThe following reclassifications were made to conform the prior year periods presented to the current year presentation:
•For the three months ended June 30, 2022, $0.7 million was reclassified from general and administrative expense as follows: $0.3 million into platform cost of revenue, $0.1 million into sales and marketing expenses, and $0.3 million into research and development expenses.
•For the six months ended June 30, 2022, $1.4 million was reclassified from general and administrative expense as follows: $0.5 million into platform cost of revenue, $0.1 million into professional services and other cost of revenue, $0.2 million into sales and marketing expenses, and $0.7 million into research and development expenses.
Such reclassifications had no effect on previously reported operating loss, net loss, or accumulated deficit. See “Note 2—Significant Accounting Policies” to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for bothadditional information on the three and nine months ended September 30, 2022. Also includes $8.0 million and $13.1 million of charitable donation expense for the three and nine months ended September 30, 2021, respectively.reclassifications.
(2) Includes stock-based compensation expense as follows (in thousands):
| | | Three Months Ended
September 30, | | Nine months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Cost of revenue - platform | Cost of revenue - platform | $ | 1,367 | | | $ | 762 | | | $ | 4,269 | | | $ | 1,942 | | Cost of revenue - platform | $ | 1,673 | | | $ | 1,432 | | | $ | 3,498 | | | $ | 2,902 | |
| Cost of revenue - professional services and other | Cost of revenue - professional services and other | 167 | | | 116 | | | 565 | | | 362 | | Cost of revenue - professional services and other | 172 | | | 188 | | | 363 | | | 398 | |
| Research and development | Research and development | 3,571 | | | 2,570 | | | 10,382 | | | 8,522 | | Research and development | 3,555 | | | 3,413 | | | 8,102 | | | 6,811 | |
| General and administrative | General and administrative | 5,442 | | | 3,907 | | | 15,567 | | | 12,002 | | General and administrative | 5,600 | | | 5,087 | | | 10,587 | | | 10,125 | |
| Sales and marketing | Sales and marketing | 1,372 | | | 512 | | | 4,321 | | | 1,436 | | Sales and marketing | 2,056 | | | 1,357 | | | 4,550 | | | 2,949 | |
| Restructuring charges | | Restructuring charges | 1,728 | | | — | | | 1,728 | | | — | |
| Total stock-based compensation expense | Total stock-based compensation expense | $ | 11,919 | | | $ | 7,867 | | | $ | 35,104 | | | $ | 24,264 | | Total stock-based compensation expense | $ | 14,784 | | | $ | 11,477 | | | $ | 28,828 | | | $ | 23,185 | |
(3) Includes non-cash impairment chargeIncluded in the three and six months ended June 30, 2023 is $1.7 million of $2.3 million related to our right-of-use asset and furniture and fixtures and broker commission fees of $0.9 millionstock-based compensation expense incurred in connection with the subleasingreduction of our headquarters.the workforce (“Restructuring Plan”).
The following table sets forth our statements of operations data expressed as a percentage of total revenue for the periods presented:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
| Platform | Platform | 98.1 | % | | 96.5 | % | | 97.6 | % | | 96.5 | % | Platform | 98.8 | % | | 97.7 | % | | 98.6 | % | | 97.3 | % |
| Professional services and other | Professional services and other | 1.9 | | | 3.5 | | | 2.4 | | | 3.5 | | Professional services and other | 1.2 | | | 2.3 | | | 1.4 | | | 2.7 | |
| Total revenue | Total revenue | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | Total revenue | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | |
| Cost of revenue: | Cost of revenue: | | Cost of revenue: | |
| Platform | Platform | 29.5 | | | 17.7 | | | 27.8 | | | 16.8 | | Platform | 35.7 | | | 28.5 | | | 34.7 | | | 27.4 | |
| Professional services and other | Professional services and other | 2.8 | | | 4.1 | | | 3.3 | | | 3.6 | | Professional services and other | 1.9 | | | 3.2 | | | 2.0 | | | 3.7 | |
| Total cost of revenue | Total cost of revenue | 32.3 | | | 21.8 | | | 31.1 | | | 20.5 | | Total cost of revenue | 37.6 | | | 31.7 | | | 36.8 | | | 31.1 | |
| Gross Profit | Gross Profit | 67.7 | | | 78.2 | | | 68.9 | | | 79.5 | | Gross Profit | 62.4 | | | 68.3 | | | 63.2 | | | 68.9 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
| Research and development | Research and development | 40.4 | | | 38.7 | | | 39.2 | | | 39.2 | | Research and development | 33.1 | | | 38.5 | | | 36.1 | | | 39.3 | |
| General and administrative | General and administrative | 44.2 | | | 56.9 | | | 41.4 | | | 48.5 | | General and administrative | 33.4 | | | 36.2 | | | 33.2 | | | 38.2 | |
| Sales and marketing | Sales and marketing | 16.8 | | | 12.6 | | | 18.4 | | | 11.2 | | Sales and marketing | 22.1 | | | 19.8 | | | 23.3 | | | 19.5 | |
| Restructuring charges | | Restructuring charges | 12.1 | | | 0.0 | | | 6.2 | | | 0.0 | |
| Total operating expenses | Total operating expenses | 101.4 | | | 108.3 | | | 98.9 | | | 98.9 | | Total operating expenses | 100.7 | | | 94.5 | | | 98.8 | | | 97.0 | |
| Loss from operations | Loss from operations | (33.7) | | | (30.1) | | | (30.0) | | | (19.3) | | Loss from operations | (38.3) | | | (26.2) | | | (35.6) | | | (28.1) | |
| Other income (expenses), net: | | |
| Other income, net: | | Other income, net: | |
| Interest income | Interest income | 3.2 | | | 0.0 | | | 1.6 | | | 0.0 | | Interest income | 7.5 | | | 1.2 | | | 7.1 | | | 0.7 | |
| Interest expense | Interest expense | (0.1) | | | 0.0 | | | (0.1) | | | 0.0 | | Interest expense | (0.1) | | | (0.1) | | | (0.1) | | | (0.1) | |
| Other (expense) income | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | | |
| Change in fair value of warrant liability | 0.0 | | | 0.0 | | | 0.0 | | | (17.3) | | |
| Total other income (expenses), net | 3.1 | | | 0.0 | | | 1.5 | | | (17.3) | | |
| Other income, net | | Other income, net | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | |
| Total other income, net | | Total other income, net | 7.4 | | | 1.1 | | | 7.0 | | | 0.6 | |
| Loss before income taxes | Loss before income taxes | (30.6) | | | (30.1) | | | (28.6) | | | (36.6) | | Loss before income taxes | (30.9) | | | (25.1) | | | (28.6) | | | (27.5) | |
| Provision (benefit) for income taxes | Provision (benefit) for income taxes | 0.2 | | | 0.1 | | | (0.7) | | | 0.1 | | Provision (benefit) for income taxes | 0.0 | | | 0.5 | | | 0.0 | | | (1.2) | |
| Net loss | Net loss | (30.8) | | | (30.2) | | | (27.8) | | | (36.7) | | Net loss | (30.9) | % | | (25.6) | % | | (28.6) | % | | (26.2) | % |
| Accretion of redeemable convertible preferred stock to redemption value | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | | |
| | Net loss attributable to Class A and Class B common stockholders | (30.8) | % | | (30.2) | % | | (27.8) | % | | (36.8) | % | |
Comparison of the Three Months Ended SeptemberJune 30, 20222023 and 20212022
Revenue
| | | Three Months Ended
September 30, | | Change | | Three Months Ended
June 30, | | Change |
| | 2022 | | 2021 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
| Revenue: | Revenue: | | Revenue: | |
| Platform | Platform | $ | 46,357 | | | $ | 36,084 | | | $ | 10,273 | | | 28.5 | % | Platform | $ | 54,603 | | | $ | 44,538 | | | $ | 10,065 | | | 22.6 | % |
| Professional services and other | Professional services and other | 909 | | | 1,306 | | | (397) | | | (30.4) | | Professional services and other | 648 | | | 1,063 | | | (415) | | | (39.0) | |
| Total Revenue | Total Revenue | $ | 47,266 | | | $ | 37,390 | | | $ | 9,876 | | | 26.4 | % | Total Revenue | $ | 55,251 | | | $ | 45,601 | | | $ | 9,650 | | | 21.2 | % |
Platform
Total platform revenue increased $10.3$10.1 million, or 28.5%22.6%, to $46.4$54.6 million for the three months ended SeptemberJune 30, 20222023 from $36.1$44.5 million for the three months ended SeptemberJune 30, 2021.2022. This increase was primarily the result of an increaseincreases in new active locations coming onto the platform, an increase in moduleOlo Pay adoption withinand Engage utilization among our existing customer base and higher Order revenue from increased transaction volumes. Active locationsAverage revenue per unit increased to approximately 84,000$716 as of September 30, 2022 from approximately 76,000 as of September 30, 2021, and ARPU increased to approximately $558 for the three months ended SeptemberJune 30, 20222023 from approximately $484$544 for the three months ended SeptemberJune 30, 2021.2022. For the three months ended SeptemberJune 30, 2023 and 2022, 45.6% and 2021, 51.6% and 47.2% of our platform revenue was subscription revenue, respectively, and 48.4%54.4% and 52.8%48.4% was transaction revenue, respectively.Active locations decreased to approximately 77,000 as of June 30, 2023 from approximately 82,000 as of June 30, 2022 as a result of the previously announced transition of Subway off of the platform. We believe that our ability to grow revenue despite the decrease in active locations is attributable to the fact that average revenue per unit is more indicative of our performance than the number of active locations alone.
Professional Services and Other
Total professional services and other revenue decreased $0.4 million, or 30.4%39.0%, to $0.9$0.6 million for the three months ended SeptemberJune 30, 20222023 from $1.3$1.1 million for the three months ended SeptemberJune 30, 2021, primarily due to2022. This decrease was driven by a combination of macroeconomic factors such as labor shortages, affecting ourwhich have delayed certain deployments due to their impact on restaurant customers at both the operator and brand levels, elongating the sales cycle and delaying the start of deployments. While we generally expectas well as efficiencies in our deployment process resulting in shorter deployment periods, which in turn drive lower deployment fees. Additionally, our efforts to upsell additional platform solutions to existing customers who have already been deployed on our platform drive platform revenue growth, rather than growth in professional services and other revenue to increase primarily as a result of continued deployment of additional active locations, we also expect this increase to be offset as our deployment teams become more efficient and shorten deployment periods.revenue.
Cost of Revenue, Gross Profit, and Gross Margin
| | | Three Months Ended
September 30, | | Change | | Three Months Ended
June 30, | | Change |
| | 2022 | | 2021 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
| Cost of revenues: | Cost of revenues: | | Cost of revenues: | |
| Platform | Platform | $ | 13,920 | | | $ | 6,632 | | | $ | 7,288 | | | 109.9 | % | Platform | $ | 19,721 | | | $ | 12,986 | | | $ | 6,735 | | | 51.9 | % |
| Professional services and other | Professional services and other | 1,346 | | | 1,532 | | | (186) | | | (12.1) | | Professional services and other | 1,058 | | | 1,453 | | | (395) | | | (27.2) | |
| Total cost of revenue | Total cost of revenue | $ | 15,266 | | | $ | 8,164 | | | $ | 7,102 | | | 87.0 | % | Total cost of revenue | $ | 20,779 | | | $ | 14,439 | | | $ | 6,340 | | | 43.9 | % |
| Percentage of revenue: | Percentage of revenue: | | | | | Percentage of revenue: | | | | |
| Platform | Platform | 29.5 | % | | 17.7 | % | | Platform | 35.7 | % | | 28.5 | % | |
| Professional services and other | Professional services and other | 2.8 | | | 4.1 | | | Professional services and other | 1.9 | | | 3.2 | | |
| Total cost of revenue | Total cost of revenue | 32.3 | % | | 21.8 | % | | Total cost of revenue | 37.6 | % | | 31.7 | % | |
| Gross Profit | Gross Profit | $ | 32,000 | | | $ | 29,226 | | | $ | 2,774 | | | 9.5 | % | Gross Profit | $ | 34,472 | | | $ | 31,162 | | | $ | 3,310 | | | 10.6 | % |
| Gross Margin | Gross Margin | 67.7 | % | | 78.2 | % | | Gross Margin | 62.4 | % | | 68.3 | % | |
Platform
Total platform cost of revenue increased $7.3$6.7 million, or 109.9%51.9%, to $13.9$19.7 million for the three months ended SeptemberJune 30, 20222023 from $6.6$13.0 million for the three months ended SeptemberJune 30, 2021.2022. This increase was primarily the result of higher compensation costs associated with additional personnel to support our revenue growth as well as higher hosting costs due to increased transaction volume and the addition of features and modules. Also contributing to the increase were the near-processing
term impacts due to our recent acquisitions of Wisely in late 2021 and Omnivore, Inc. in the first quarter of 2022, the intangible amortization costs related to these acquisitions, and the processingpersonnel-related compensation costs associated with the increased adoption of Olo Pay. Also contributing to the increase were the costs from amortization of capitalized internal-use software and additional amortization of developed technology related to the acquisition of Omnivore Technologies, Inc., or Omnivore.
Professional Services and Other
Total professional services and other cost of revenue decreased $0.2$0.4 million, or 12.1%27.2%, to $1.3$1.1 million for the three months ended SeptemberJune 30, 20222023 from $1.5 million for the three months ended SeptemberJune 30, 2021.2022. This decrease was primarily the result of reduced compensation costs due to decreased headcount and efficiencies in the deployment process, combined with a decreasereduction in third party consulting costs, partially offset by increased compensation costs to support the previously-mentioned growth in new active locations.costs.
Gross Profit
Gross margin decreasedprofit increased $3.3 million to 67.7%$34.5 million for the three months ended SeptemberJune 30, 20222023, from 78.2%$31.2 million for the three months ended SeptemberJune 30, 2021.2022. Gross margin decreased to 62.4% for the three months ended June 30, 2023 from 68.3% for the three months ended June 30, 2022. The increase in gross profit was due to increased module adoption among our customer base. The decrease in gross profit margin as a percentage of revenue was driven by higher platformprocessing and professional servicespersonnel-related compensation costs associated with the increased adoption of Olo Pay, higher platform and other compensation costs to support growth in transactions, the increase in new active locations coming onto the platform, and the additioncosts from amortization of features and modules, as well as by the near-term impacts due to our recent Wisely and Omnivore acquisitions, and the processing costs associated with Olo Pay.capitalized internal-use software.
Operating Expenses
Research and Development
| | | Three Months Ended
September 30, | | Change | | Three Months Ended
June 30, | | Change |
| | 2022 | | 2021 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
| Research and development | Research and development | $ | 19,101 | | | $ | 14,485 | | | $ | 4,616 | | | 31.9 | % | Research and development | $ | 18,298 | | | $ | 17,576 | | | $ | 722 | | | 4.1 | % |
| Percentage of total revenue | Percentage of total revenue | 40.4 | % | | 38.7 | % | | Percentage of total revenue | 33.1 | % | | 38.5 | % | |
Research and development expense increased $4.6$0.7 million, or 31.9%4.1%, to $19.1$18.3 million for the three months ended SeptemberJune 30, 20222023 from $14.5$17.6 million for the three months ended SeptemberJune 30, 2021.2022. This increase was primarily the result of higher compensation costs associated with additional personnel and an increase in the use of software tools, partially offset by an increase in capitalized internal-use software costs as we make further investments in our platform development and continued product innovation. As a percentage of total revenue, research and development expenses decreased to 33.1% for the three months ended June 30, 2023 from 38.5% for the three months ended June 30, 2022.
General and Administrative | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2023 | | 2022 | | $ | | % |
| (in thousands, except percentages) |
| General and administrative | $ | 18,469 | | | $ | 16,503 | | | $ | 1,966 | | | 11.9 | % |
| Percentage of total revenue | 33.4 | % | | 36.2 | % | | | | |
General and administrative expense increased $2.0 million, or 11.9%, to $18.5 million for the three months ended June 30, 2023 from $16.5 million for the three months ended June 30, 2022. This increase was primarily a result of an increase in certain litigation-related expenses, partially offset by a decrease in compensation costs resulting from a reduction in headcount. As a percentage of total revenue, general and administrative expenses decreased to 33.4% for the three months ended June 30, 2023 from 36.2% for the three months ended June 30, 2022.
Sales and Marketing | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2023 | | 2022 | | $ | | % |
| (in thousands, except percentages) |
| Sales and marketing | $ | 12,194 | | | $ | 9,015 | | | $ | 3,179 | | | 35.3 | % |
| Percentage of total revenue | 22.1 | % | | 19.8 | % | | | | |
Sales and marketing expense increased $3.2 million, or 35.3%, to $12.2 million for the three months ended June 30, 2023 from $9.0 million for the three months ended June 30, 2022. This increase was primarily the result of additional compensation costs, including commission costs, due to an increase in sales headcount. As a percentage of total revenue, sales and marketing expense increased to 22.1% for the three months ended June 30, 2023 from 19.8% for the three months ended June 30, 2022.
Restructuring Charges | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2023 | | 2022 | | $ | | % |
| (in thousands, except percentages) |
| Restructuring charges | $ | 6,682 | | | $ | — | | | $ | 6,682 | | | Not meaningful |
| Percentage of total revenue | 12.1 | % | | — | % | | | | |
Restructuring charges were $6.7 million for the three months ended June 30, 2023 and are comprised of severance costs, payroll taxes, and stock-based compensation expense associated with the accelerated vesting of equity awards. These charges were incurred as a result of our completed corporate reorganization in the second quarter of 2023, which entailed a reduction of workforce.
Other Income, net
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2023 | | 2022 | | $ | | % |
| (in thousands, except percentages) |
| Other income, net: | | | | | | | |
| Interest income | $ | 4,155 | | | $ | 533 | | | $ | 3,622 | | | 679.5 | % |
| Percentage of total revenue | 7.5 | % | | 1.2 | % | | | | |
| Interest expense | $ | (53) | | | $ | (46) | | | $ | (7) | | | 15.2 | % |
| Percentage of total revenue | (0.1) | % | | (0.1) | % | | | | |
| Other income, net | $ | — | | | $ | 7 | | | $ | (7) | | | (100.0) | % |
| Percentage of total revenue | — | % | | — | % | | | | |
| Total other income, net | $ | 4,102 | | | $ | 494 | | | $ | 3,608 | | | 730.4 | % |
| Percentage of total revenue | 7.4 | % | | 1.1 | % | | | | |
Other income for the three months ended June 30, 2023 was primarily driven by income earned on our investments and money-market funds.
Provision for Income Taxes | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2023 | | 2022 | | $ | | % |
| (in thousands, except percentages) |
| Provision for income taxes | $ | 7 | | | $ | 235 | | | $ | (228) | | | (97.0) | % |
| Percentage of total revenue | — | % | | 0.5 | % | | | | |
Provision for income taxes for the three months ended June 30, 2023 primarily consists of state income taxes. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized.
Comparison of the Six Months Ended June 30, 2023 and 2022
Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2023 | | 2022 | | $ | | % |
| (in thousands, except percentages) |
| Revenue: | | | | | | | |
| Platform | $ | 105,974 | | | $ | 86,004 | | | $ | 19,970 | | | 23.2 | % |
| Professional services and other | 1,517 | | | 2,353 | | | (836) | | | (35.5) | |
| Total Revenue | $ | 107,491 | | | $ | 88,357 | | | $ | 19,134 | | | 21.7 | % |
Platform
Total platform revenue increased $20.0 million, or 23.2%, to $106.0 million for the six months ended June 30, 2023 from $86.0 million for the six months ended June 30, 2022. This increase was primarily the result of increases in Olo Pay adoption and Engage utilization among our existing customer base and higher Order revenue from increased transaction volumes. Average revenue per unit increased to approximately $1,296 for the six months ended June 30, 2023 from approximately $1,072 for the six months ended June 30, 2022. For the six months ended June 30, 2023 and 2022, 46.6% and 50.9% of our platform revenue was subscription revenue, respectively, and 53.4% and 49.1% was transaction revenue, respectively. Active locations decreased to approximately 77,000 as of June 30, 2023 from approximately 82,000 as of June 30, 2022 as a result of the previously announced transition of Subway off of the platform. We believe that our ability to grow revenue despite the decrease in active locations is attributable to the fact that average revenue per unit is more indicative of our performance than the number of active locations alone.
Professional Services and Other
Total professional services and other revenue decreased $0.8 million, or 35.5%, to $1.5 million for the six months ended June 30, 2023 from $2.4 million for the six months ended June 30, 2022, due to a combination of macroeconomic factors such as labor shortages, which have delayed certain deployments due to their impact on restaurant customers at both the operator and brand levels, as well as efficiencies in our deployment process resulting in shorter deployment periods, which in turn drive lower deployment fees. Additionally, our efforts to upsell additional platform solutions to existing customers who have already been deployed on our platform drive platform revenue growth, rather than growth in professional services and other revenue.
Cost of Revenue, Gross Profit, and Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2023 | | 2022 | | $ | | % |
| (in thousands, except percentages) |
| Cost of revenues: | | | | | | | |
| Platform | $ | 37,334 | | | $ | 24,227 | | | $ | 13,107 | | | 54.1 | % |
| Professional services and other | 2,194 | | | 3,272 | | | (1,078) | | | (32.9) | |
| Total cost of revenue | $ | 39,528 | | | $ | 27,499 | | | $ | 12,029 | | | 43.7 | % |
| Percentage of revenue: | | | | | | | |
| Platform | 34.7 | % | | 27.4 | % | | | | |
| Professional services and other | 2.0 | | | 3.7 | | | | | |
| Total cost of revenue | 36.8 | % | | 31.1 | % | | | | |
| Gross Profit | $ | 67,963 | | | $ | 60,858 | | | $ | 7,105 | | | 11.7 | % |
| Gross Margin | 63.2 | % | | 68.9 | % | | | | |
Platform
Total platform cost of revenue increased $13.1 million, or 54.1%, to $37.3 million for the six months ended June 30, 2023 from $24.2 million for the six months ended June 30, 2022. This increase was primarily the result of higher processing and personnel-related compensation costs associated with the increased adoption of Olo Pay. Also contributing to the increase were the costs from amortization of capitalized internal-use software and additional amortization of developed technology related to the Omnivore acquisition.
Professional Services and Other
Total professional services and other cost of revenue decreased $1.1 million, or 32.9%, to $2.2 million for the six months ended June 30, 2023 from $3.3 million for the six months ended June 30, 2022. This decrease was primarily the result of reduced compensation costs due to decreased headcount and efficiencies in the deployment process, combined with a reduction in third party consulting costs.
Gross Profit
Gross profit increased $7.1 million to $68.0 million for the six months ended June 30, 2023, from $60.9 million for the six months ended June 30, 2022. Gross margin decreased 5.9% to 63.2% for the six months ended June 30, 2023 from 68.9% for the six months ended June 30, 2022. The increase in gross profit was due to increased module adoption among our customer base. The decrease in gross margin as a percentage of revenue was driven by higher processing and personnel-related compensation costs associated with the increased adoption of Olo Pay, higher platform and other compensation costs to support growth in transactions, and costs from amortization of capitalized internal-use software.
Operating Expenses
Research and Development
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2023 | | 2022 | | $ | | % |
| (in thousands, except percentages) |
| Research and development | $ | 38,771 | | | $ | 34,732 | | | $ | 4,039 | | | 11.6 | % |
| Percentage of total revenue | 36.1 | % | | 39.3 | % | | | | |
Research and development expense increased $4.0 million, or 11.6%, to $38.8 million for the six months ended June 30, 2023 from $34.7 million for the six months ended June 30, 2022. This increase was primarily the result of higher compensation costs associated with additional personnel and an increase in the use of software tools to support further investments in our platform development and continued product innovation. As a percentage of total revenue, research and development expenses increaseddecreased to 40.4%36.1% for the threesix months ended SeptemberJune 30, 20222023 from 38.7%39.3% for the threesix months ended SeptemberJune 30, 2021.2022.
General and Administrative | | | Three Months Ended
September 30, | | Change | | Six Months Ended
June 30, | | Change |
| | 2022 | | 2021 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
| General and administrative | General and administrative | $ | 20,894 | | | $ | 21,270 | | | $ | (376) | | | (1.8) | % | General and administrative | $ | 35,679 | | | $ | 33,752 | | | $ | 1,927 | | | 5.7 | % |
| Percentage of total revenue | Percentage of total revenue | 44.2 | % | | 56.9 | % | | Percentage of total revenue | 33.2 | % | | 38.2 | % | |
General and administrative expense decreased $0.4increased $1.9 million, or 1.8%5.7%, to $20.9$35.7 million for the threesix months ended SeptemberJune 30, 20222023 from $21.3$33.8 million for the threesix months ended SeptemberJune 30, 2021.2022. This decreaseincrease was primarily a result of the reduction of $6.6 million related to the donation of shares of our Class A common stock to an independent donor-advised fund sponsor, Tides Foundation,increase in certain litigation-related expenses, partially offset by: (i)by a decrease compensation costs and an impairment expense associated with the sublease of our corporate headquarters; and (ii) severance costs, including those related to the departure of our Chief Customer Officer.resulting from a reduction in headcount. As a percentage of total revenue, general and administrative expenses decreased to 44.2%33.2% for the threesix months ended SeptemberJune 30, 20222023 from 56.9%38.2% for the threesix months ended SeptemberJune 30, 2021.
Sales and Marketing | | | Three Months Ended
September 30, | | Change | | Six Months Ended
June 30, | | Change |
| | 2022 | | 2021 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
| Sales and marketing | Sales and marketing | $ | 7,923 | | | $ | 4,728 | | | $ | 3,195 | | | 67.6 | % | Sales and marketing | $ | 25,075 | | | $ | 17,208 | | | $ | 7,867 | | | 45.7 | % |
| Percentage of total revenue | Percentage of total revenue | 16.8 | % | | 12.6 | % | | Percentage of total revenue | 23.3 | % | | 19.5 | % | |
Sales and marketing expense increased $3.2$7.9 million, or 67.6%45.7%, to $7.9$25.1 million for the threesix months ended SeptemberJune 30, 20222023 from $4.7$17.2 million for the threesix months ended SeptemberJune 30, 2021.2022. This increase was primarily the result of additional compensation costs, inclusive ofincluding commission costs, due to increasesan increase in headcount, and intangible amortization costs related to our recent acquisitions. This increase was partially offset by decreased professional and consulting fees for the three months ended September 30, 2022.sales headcount. As a percentage of total revenue, sales and marketing expense increased to 16.8%23.3% for the threesix months ended SeptemberJune 30, 20222023 from 12.6%19.5% for the threesix months ended SeptemberJune 30, 2021.2022.
Restructuring Charges | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2023 | | 2022 | | $ | | % |
| (in thousands, except percentages) |
| Restructuring charges | $ | 6,682 | | | $ | — | | | $ | 6,682 | | | Not meaningful |
| Percentage of total revenue | 6.2 | % | | — | % | | | | |
Restructuring charges were $6.7 million for the six months ended June 30, 2023 and are comprised of severance costs, payroll taxes, and stock-based compensation expense associated with the accelerated vesting of equity awards. These charges were incurred as a result of our completed corporate reorganization in the second quarter of 2023, which entailed a reduction of workforce.
Other Income, (Expenses), net
| | | Three Months Ended
September 30, | | Change | | Six Months Ended
June 30, | | Change |
| | 2022 | | 2021 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
| Other income (expenses), net: | | |
| Other income, net: | | Other income, net: | |
| Interest income | Interest income | $ | 1,525 | | | $ | — | | | $ | 1,525 | | | — | | Interest income | $ | 7,609 | | | $ | 585 | | | $ | 7,024 | | | 1,200.7 | % |
| Percentage of total revenue | Percentage of total revenue | 3.2 | % | | — | % | | Percentage of total revenue | 7.1 | % | | 1.2 | % | |
| Interest expense | Interest expense | $ | (70) | | | $ | — | | | $ | (70) | | | — | | Interest expense | $ | (122) | | | $ | (46) | | | $ | (76) | | | 165.2 | % |
| Percentage of total revenue | Percentage of total revenue | (0.1) | % | | — | % | | Percentage of total revenue | (0.1) | % | | — | | |
| Other (expense) income | $ | (7) | | | $ | (15) | | | $ | 8 | | | (53.3) | % | |
| Other income, net | | Other income, net | $ | — | | | $ | 13 | | | $ | (13) | | | (100.0) | % |
| Percentage of total revenue | Percentage of total revenue | — | % | | — | % | | Percentage of total revenue | — | | | 0.0 | % | |
| Total other income (expenses), net | $ | 1,448 | | | $ | (15) | | | $ | 1,463 | | | (9,753.3) | % | |
| Total other income, net | | Total other income, net | $ | 7,487 | | | $ | 552 | | | $ | 6,935 | | | 1,256.3 | % |
| Percentage of total revenue | Percentage of total revenue | 3.1 | % | | — | % | | Percentage of total revenue | 7.0 | % | | 0.6 | % | |
Other income for the threesix months ended SeptemberJune 30, 20222023 was primarily driven by income earned on our investments and money-market funds.
Provision (Benefit) for Income Taxes | | | Three Months Ended
September 30, | | Change | | Six Months Ended
June 30, | | Change |
| | 2022 | | 2021 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| | (in thousands, except percentages) | | (in thousands, except percentages) |
| Provision for income taxes | $ | 90 | | | $ | 36 | | | $ | 54 | | | 150.0 | % | |
| Provision (benefit) for income taxes | | Provision (benefit) for income taxes | $ | 25 | | | $ | (1,100) | | | $ | 1,125 | | | (102.3) | % |
| Percentage of total revenue | Percentage of total revenue | 0.2 | % | | 0.1 | % | | Percentage of total revenue | — | % | | (1.2) | % | |
Provision for income taxes for the threesix months ended SeptemberJune 30, 20222023 primarily consists of state income taxes. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized.
Comparison of the Nine Months Ended September 30, 2022 and 2021
Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands, except percentages) |
| Revenue: | | | | | | | |
| Platform | $ | 132,361 | | | $ | 105,533 | | | $ | 26,828 | | | 25.4 | % |
| Professional services and other | 3,262 | | | 3,876 | | | (614) | | | (15.8) | |
| Total Revenue | $ | 135,623 | | | $ | 109,409 | | | $ | 26,214 | | | 24.0 | % |
Platform
Total platform revenue increased $26.8 million, or 25.4%, to $132.4 million for the nine months ended September 30, 2022 from $105.5 million for the nine months ended September 30, 2021. This increase was primarily the result of an increase in new active locations coming onto the platform, an increase in module adoption within our existing customer base, and increased transaction volumes. Active locations increased to approximately 84,000 as of September 30, 2022 from approximately 76,000 as of September 30, 2021, and ARPU increased to approximately $1,622 for the nine months ended September 30, 2022 from approximately $1,509 for the nine months ended September 30, 2021. For the nine months ended September 30, 2022 and 2021, 51.2% and 45.4% of our platform revenue was subscription revenue, respectively, and 48.8% and 54.6% was transaction revenue, respectively.
Professional Services and Other
Total professional services and other revenue decreased $0.6 million, or 15.8%, to $3.3 million for the nine months ended September 30, 2022 from $3.9 million for the nine months ended September 30, 2021, primarily due to labor shortages affecting our restaurant customers at both the operator and brand levels, elongating the sales cycle and delaying the start of deployments. While we generally expect professional services and other to increase primarily as a result of continued deployment of additional active locations, we also expect this increase to be offset as our deployment teams become more efficient and shorten deployment periods.
Cost of Revenue, Gross Profit, and Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands, except percentages) |
| Cost of revenues: | | | | | | | |
| Platform | $ | 37,693 | | | $ | 18,419 | | | $ | 19,274 | | | 104.6 | % |
| Professional services and other | 4,543 | | | 3,958 | | | 585 | | | 14.8 | |
| Total cost of revenue | $ | 42,236 | | | $ | 22,377 | | | $ | 19,859 | | | 88.7 | % |
| Percentage of revenue: | | | | | | | |
| Platform | 27.8 | % | | 16.8 | % | | | | |
| Professional services and other | 3.3 | | | 3.6 | | | | | |
| Total cost of revenue | 31.1 | % | | 20.5 | % | | | | |
| Gross Profit | $ | 93,387 | | | $ | 87,032 | | | $ | 6,355 | | | 7.3 | % |
| Gross Margin | 68.9 | % | | 79.5 | % | | | | |
Platform
Total platform cost of revenue increased $19.3 million, or 104.6%, to $37.7 million for the nine months ended September 30, 2022 from $18.4 million for the nine months ended September 30, 2021. This increase was primarily the result of higher compensation costs associated with additional personnel to support the revenue growth mentioned previously as well as higher hosting costs due to increased transaction volume and the addition of features and modules. Also contributing to the
increase were the near-term impacts due to our recent Wisely and Omnivore acquisitions, the intangible amortization costs related to these acquisitions, and the processing costs associated with Olo Pay.
Professional Services and Other
Total professional services and other cost of revenue increased $0.6 million, or 14.8%, to $4.5 million for the nine months ended September 30, 2022 from $4.0 million for the nine months ended September 30, 2021. This increase was primarily the result of increased compensation costs to support the previously-mentioned growth in new active locations, partially offset by a decrease in third party consulting costs.
Gross Profit
Gross margin decreased to 68.9% for the nine months ended September 30, 2022 from 79.5% for the nine months ended September 30, 2021. The decrease in gross profit margin was driven by higher platform and professional services and other compensation costs to support growth in transactions, the increase in new active locations coming onto the platform, and the addition of features and modules, as well as by the near-term impacts due to our recent Wisely and Omnivore acquisitions and the processing costs associated with Olo Pay.
Operating Expenses
Research and Development
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands, except percentages) |
| Research and development | $ | 53,159 | | | $ | 42,872 | | | $ | 10,287 | | | 24.0 | % |
| Percentage of total revenue | 39.2 | % | | 39.2 | % | | | | |
Research and development expense increased $10.3 million, or 24.0%, to $53.2 million for the nine months ended September 30, 2022 from $42.9 million for the nine months ended September 30, 2021. This increase was primarily the result of higher compensation costs associated with additional personnel and an increase in the use of software tools to support further investments in our platform development and continued product innovation. As a percentage of total revenue, research and development expenses remained steady at 39.2% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
General and Administrative | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands, except percentages) |
| General and administrative | $ | 56,090 | | | $ | 53,034 | | | $ | 3,056 | | | 5.8 | % |
| Percentage of total revenue | 41.4 | % | | 48.5 | % | | | | |
General and administrative expense increased $3.1 million, or 5.8%, to $56.1 million for the nine months ended September 30, 2022 from $53.0 million for the nine months ended September 30, 2021. This increase was primarily a result of higher compensation costs due to increased headcount to support the growth and stage of the organization, severance costs, including those related to the departure of our Chief Customer Officer, costs and an impairment expense associated with the sublease of our corporate headquarters, and increased insurance costs and professional fees incurred as a result of us being a public company. These increases were partially offset by the reduction of $11.7 million related to the donation of shares of our Class A common stock to an independent donor-advised fund sponsor, Tides Foundation, and the absence in the nine months ended September 30, 2022 of IPO related bonus awards and vesting and settlement of stock appreciation rights, or SARs, as a result of the IPO. As a percentage of total revenue, general and administrative expenses decreased to 41.4% for the nine months ended September 30, 2022 from 48.5% for the nine months ended September 30, 2021.
Sales and Marketing | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands, except percentages) |
| Sales and marketing | $ | 24,890 | | | $ | 12,265 | | | $ | 12,625 | | | 102.9 | % |
| Percentage of total revenue | 18.4 | % | | 11.2 | % | | | | |
Sales and marketing expense increased $12.6 million, or 102.9%, to $24.9 million for the nine months ended September 30, 2022 from $12.3 million for the nine months ended September 30, 2021. This increase was primarily the result of additional compensation costs, inclusive of commission costs, due to increases in headcount, as well as costs associated with our in-person user conference, Beyond4, which we held in the second quarter of 2022 for the first time in two years, and intangible amortization costs related to our recent acquisitions. This increase was partially offset by decreased professional and consulting fees for the nine months ended September 30, 2021. As a percentage of total revenue, sales and marketing expense increased to 18.4% for the nine months ended September 30, 2022 from 11.2% for the nine months ended September 30, 2021.
Other Income (Expenses), net
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands, except percentages) |
| Other income (expenses), net: | | | | | | | |
| Interest income | $ | 2,110 | | | $ | — | | | $ | 2,110 | | | — | |
| Percentage of total revenue | 1.6 | % | | — | % | | | | |
| Interest expense | $ | (116) | | | $ | — | | | $ | (116) | | | — | |
| Percentage of total revenue | (0.1) | % | | — | % | | | | |
| Other (expense) income | $ | 6 | | | $ | (23) | | | $ | 29 | | | (126.1) | % |
| Percentage of total revenue | — | % | | — | % | | | | |
| Change in fair value of warrant liability | $ | — | | | $ | (18,930) | | | $ | 18,930 | | | (100.0) | % |
| Percentage of total revenue | — | % | | (17.3) | % | | | | |
| Total other income (expenses), net | $ | 2,000 | | | $ | (18,953) | | | $ | 20,953 | | | (110.6) | % |
| Percentage of total revenue | 1.5 | % | | (17.3) | % | | | | |
Other income for the nine months ended September 30, 2022 was primarily driven by income earned on our investments and money-market funds.
The increase of $18.9 million in the fair value of warrant liability for the nine months ended September 30, 2021 was directly related to an increase in the value of our stock underlying the warrants during the first quarter of 2021. Prior to our IPO, all outstanding warrants were exercised to purchase shares of our outstanding redeemable convertible preferred stock and converted into redeemable convertible preferred stock. Upon completion of the IPO, all shares of our outstanding redeemable convertible preferred stock, inclusive of the shares issued pursuant to these warrant exercises, converted into shares of Class B common stock.
(Benefit) Provision for Income Taxes | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands, except percentages) |
| (Benefit) provision for income taxes | $ | (1,010) | | | $ | 110 | | | $ | (1,120) | | | (1018.2) | % |
| Percentage of total revenue | (0.7) | % | | 0.1 | % | | | | |
The income tax benefit for the nine months ended September 30, 2022 was driven primarily by the release of a portion of our valuation allowance for deferred tax assets following the recording of a deferred income tax liability as part of our accounting for the acquisition of Omnivore and adjustments to the full valuation allowance on our deferred tax assets, partially
offset by state taxes. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized.
Liquidity and Capital Resources
General
As of SeptemberJune 30, 2022,2023, our principal sources of liquidity were cash and cash equivalents and short-term and long-term investments in marketable securities totaling $469.2$431.2 million, which was held for working capital purposes and to fund repurchases of our Class A common stock (as described more fully below), as well as the available balance of our revolving line of credit, described further below.
We financehave financed our operations primarily through payments received from customers and sales of our equity securities.
On March 19, 2021, we completed our IPO, in which we issued and sold 20,700,000 shares of our Class A common stock at the public offering price of $25.00 per share. We received net proceeds of approximately $485.5 million after deducting underwriting discounts and commissions.
On September 7, 2022, the Board of Directors authorized a program to repurchase up to $100 million of our Class A common stock.stock, or the Stock Buyback Program. Under the Stock Buyback Program, shares of our Class A common stock may be repurchased from time to time on a discretionary basis through open market repurchases, privately negotiated transactions, block purchases or other means, and will be structured to occur in compliance with applicable securities laws. The timing and actual number of shares repurchased if any, will beare determined by a committee established by the Board of Directors, depending on a variety of factors, including the Class A common stock price, trading volume, market conditions, our cash flow and liquidity profile, the capital needs of the business, and other considerations. We expect to fund repurchases with existing cash on hand. The Stock Buyback Program has no expiration date and may be modified, suspended, or terminated at any time by the Board of Directors at its discretion. AsDuring the six months ended June 30, 2023, we repurchased shares of September 30, 2022, we have not repurchased any sharesour Class A common stock for approximately $30.1 million under the Stock Buyback Program.
We believe our existing cash and cash equivalents, marketable securities, and amounts available under our outstanding credit facility will be sufficient to support our working capital and capital expenditure requirements for at least the next twelve months.months and thereafter for the foreseeable future. Our future capital requirements will depend on many factors, including, but not limited to, our obligation to repay any balance under our credit facility if we were to borrow against the facility in the future, our platform revenue growth rate, receivable and payable cycles, and the timing and extent of investments in research and development, sales and marketing, and general and administrative expenses.
Credit Facility
On As of June 10, 2022,30, 2023, we entered intohad $43.6 million of commitments available under the Second Amended and Restated Loan and Security Agreement with Pacific Western Bank related to a revolving credit and term loan facility, or the Second Amended and Restated LSA.
The Second Amended and Restated LSA amended and restated the Amended and Restated Loan and Security Agreement, dated February 11, 2020, as amended, or the Prior LSA, to, among other things, increase our available aggregate borrowing limit to $70.0 million and to provide the ability to request Pacific Western Bank to enter into commitments to increase the credit extensions available to us under the Second Amended and Restated LSA to up to $125.0 million, or the Accordion Facility.
Borrowings under the Second Amended and Restated LSA accrue interest at a variable annual rate equal to (i) in the case of Formula Advances (as defined in the Second Amended and Restated LSA), the greater of the variable rate of interest, per annum, most recently announced by Pacific Western Bank, or the Prime Rate. or 3.25% or (ii) in the case of Term Loans (as defined in the Second Amended and Restated LSA), the greater of the Prime Rate plus 0.25% or 3.50%. The Second Amended and Restated LSA provides for a success fee payable upon an acquisition of Olo or termination of the Second Amended and Restated LSA, or a Success Fee Trigger, in an amount equal to: (i) $800,000, if the Success Fee Trigger occurs prior to June 10, 2023; (ii) $600,000, if the Success Fee Trigger occurs on or after June 10, 2023 and prior to June 10, 2024; (iii) $400,000, if the Success Fee Trigger occurs on or after June 10, 2024 and prior to June 10, 2025; (iv) $200,000, if the Success Fee Trigger occurs on or after June 10, 2025 and prior to June 10, 2026; and (v) $0, if the Success Fee Trigger occurs on or after June 10, 2026. We are also required to pay a fee of 1.0% of the difference between (i) the highest outstanding principal balance during the term of the Second Amended and Restated LSA and (ii) $3.5 million if a Liquidity Event (as defined in the Second Amended and Restated LSA) occurs during the term and or within 24 months after the termination of the Second Amended and
Restated LSA. Our obligations under the Second Amended and Restated LSA are secured by substantially all of our assets, including certain securities owned by us in any subsidiary.
The Second Amended and Restated LSA includes a financial covenant requiring compliance with certain minimum revenue amounts. In addition, the Second Amended and Restated LSA contains representations and warranties generally consistent with the Prior LSA, as well as certain non-financial covenants, including, but not limited to, limitations on our ability to incur additional indebtedness or liens, pay dividends, or make certain investments. We were in compliance with these covenants as of September 30, 2022.
The Second Amended and Restated LSA also contains events of default that include, among other things, non-payment defaults, covenant defaults, insolvency defaults, cross-defaults to other indebtedness and material obligations, judgment defaults, inaccuracy of representations and warranties, and a material adverse change. Any default that is not cured or waived could result in Pacific Western Bank exercising its rights and remedies under the Second Amended and Restated LSA, including, but not limited to, the acceleration of the obligations under the Second Amended and Restated LSA and related documentation, and would permit Pacific Western Bank to exercise remedies with respect to all of the collateral that secured such obligations.
Pacific Western Bank has the right to terminate its obligation to make further advances to us immediately and without notice upon the occurrence and during the continuance of an event of default. Upon our request, Pacific Western Bank will provide us a payoff letter providing for, among other things, repayment of our obligations then outstanding, including the success fee, and for termination of Pacific Western Bank’s obligations to make additional credit extensions and termination of the liens under the Second Amended and Restated LSA.
As of September 30, 2022, we had $43.6 million of commitments available under the Second Amended and Restated LSA, after consideration of $25.0 million in our letter of credit to DoorDash and $1.4 million in our letter of credit on the lease of our headquarters.former headquarters at One World Trade Center. As of SeptemberJune 30, 2022,2023, we had no outstanding borrowings under the line of credit, and no amounts have been drawn against any of our letters of credit.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| 2022 | | 2021 |
| (in thousands) |
| Net cash provided by operating activities | $ | 2,398 | | | $ | 26,209 | |
| Net cash used in investing activities | $ | (159,310) | | | $ | (1,195) | |
| Net cash provided by financing activities | $ | 8,866 | | | $ | 496,972 | |
| | | | | | | | | | | |
| Six Months Ended
June 30, |
| 2023 | | 2022 |
| (in thousands) |
| Net cash provided by (used in) operating activities | $ | 9,266 | | | $ | (870) | |
| Net cash used in investing activities | $ | (17,958) | | | $ | (132,930) | |
| Net cash (used in) provided by financing activities | $ | (23,362) | | | $ | 6,025 | |
Operating Activities
For the ninesix months ended SeptemberJune 30, 2022,2023, net cash provided by operating activities was $2.4$9.3 million, primarily due to net loss of $37.7$30.8 million adjusted for non-cash charges of $43.6$34.3 million partially offset byand a net decreaseincrease attributable to our operating assets and liabilities of $3.4$5.8 million. The non-cash adjustments primarily relate to stock-based compensation charges of $35.1$28.8 million and depreciation and amortization expense of $4.3$4.5 million. The net increase attributable to our operating assets and liabilities was primarily driven by an increase in accrued expenses and other current liabilities of $12.1 million related primarily to higher fees owed to delivery service providers and vendors, additional accrued compensation in connection with the Restructuring
Plan, and professional and consulting fees, as well as an increase in accounts payable of $5.5 million. These increases were partially offset by an increase in accounts receivable of $9.1 million and an increase in deferred contract costs of $2.0 million primarily due to growth of our revenue.
For the six months ended June 30, 2022, net cash used in operating activities was $0.9 million, primarily due to a net loss of $23.2 million adjusted for non-cash impairment charges of $2.8$26.1 million and a chargenet decrease attributable our operating assets and liabilities of $3.8 million. The non-cash adjustments primarily related to a charitable donor-advised fundstock-based compensation charges of $1.4$23.2 million and depreciation and amortization expense of $2.6 million. The net decrease attributable to our operating assets and liabilities was primarily driven by a decrease in operating lease liabilities of $1.9 million due to payments on our leases, a decrease in unearned revenue of $0.6 million due to the timing of payment from customers and revenue recognition, increases in contract assets and deferred contract costs of $0.6 million primarily due to growth of our revenue, and an increase in prepaid expenses of $0.4$2.0 million, primarily attributable to increased prepayments for software licensing fees.
For the nine months ended September 30, 2021, net cash provided by operating activities was $26.2 million, primarily due to a net loss of $40.2 million adjusted for non-cash charges of $57.4 million and a net increase in our operating assets and liabilities of $9.0 million. The non-cash adjustments primarily related to stock-based charges of $24.3 million, inclusive of vesting of SARs of $2.8 million, as well as the change in the fair value of redeemable convertible preferred stock warrants of $18.9 million and a charge related to a charitable donor-advised fund of $13.1 million. The net increase in operating assets and liabilities was primarily driven by a net increase in accrued expenses and accounts payable of $6.6 million related primarily to
higher fees, owed to delivery service providers and vendors as well as employee compensation accruals, inclusive of payables related to our 2021 Employee Stock Purchase Plan, and a decrease in accounts receivableoperating lease liabilities of $5.0$1.2 million due to improved collections. This increase was offset by an increase in prepaid expenses of $3.3 million primarily due to insurance payments and increases in contract assets and deferred contract costs of $1.5 million primarily due to the growth ofon our revenue.leases.
Investing Activities
Cash used in investing activities was $159.3$18.0 million during the ninesix months ended SeptemberJune 30, 2022,2023, primarily due to $102.6$10.7 million of net purchases of investments $49.2and $7.3 million for the development of capitalized internal-use software to support further product development.
Cash used in investing activities was $132.9 million during the six months ended June 30, 2022, primarily due to $78.1 million of net cash paid for investments, $49.3 million to acquire Omnivore and $7.5$5.5 million for the development of capitalized internal-use software and purchases of computer and office equipment to support further product development and to expand our employee base to support our operations.
Cash used in investing activities was $1.2 million during the nine months ended September 30, 2021, primarily due to the development of internal-use software and purchases of computer and office equipment to support further product development and to expand our employee base to support our operations.development.
Financing Activities
Cash used by financing activities was $23.4 million during the six months ended June 30, 2023, primarily driven by $30.1 million of stock repurchases under the Stock Buyback Program, partially offset by $6.8 million of net proceeds from the exercise of stock options.
Cash provided by financing activities was $8.9$6.0 million during the ninesix months ended SeptemberJune 30, 2022, primarily driven by net proceeds from the exercise of stock options and purchases under our employee stock purchase plan.
Material Cash provided by financing activities was $497.0 millionRequirements
There were no material changes in our material cash requirements during the ninesix months ended SeptemberJune 30, 2021, reflecting $485.5 million of net proceeds2023 from the issuance of Class A common stockobligations and commitments disclosed in our IPO (net of underwriters’ discountsAnnual Report on Form 10-K filed with the SEC on February 24, 2023. See “Note 11—Leases” and commissions), $8.3 million of net proceeds from the exercise of stock options, $7.0 million of net proceeds received from employee tax withholdings as a result“Note 16—Commitments and Contingencies” of the exerciseNotes to Consolidated Financial Statements included in Part II, Item 8 of stock options, and $0.4 million of net proceeds from the exercise of warrants. Increases were partially offset by payment of deferred offering costs of $4.1 million during the nine months ended September 30, 2021.our Annual Report on Form 10-K for additional information regarding our material cash requirements.
Certain Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles generally accepted accounting principles in the United States, or GAAP. To supplement our financial statements, we provide investors with non-GAAP operating income and free cash flow, each of which is a non-GAAP financial measure, and certain key performance indicators, including GMV, GPV, net revenue retention, average revenue per unit, and active locations.
locations, NRR, and ARPU.
We useManagement uses these non-GAAP financial measures and key performance indicators, in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including in the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. These measures provide consistency and comparability with past financial performance as measured by such non-GAAP figures, facilitate period-to-period comparisons of core operating results, and assist shareholders in better evaluating us by presenting period-over-period operating results without the effect of certain charges or benefits that may not be consistent or comparable across periods.periods or compared to other registrants’ similarly named non-GAAP financial measures and key performance indicators.
We adjust our GAAP financial measures for the following items to calculate non-GAAP operating income:income and non-GAAP operating margin: stock-based compensation expense (non-cash expense calculated by companies using a variety of valuation methodologies and subjective assumptions) and related payroll tax expense, equity expense related to charitable contributions (non-cash expense)certain litigation-related expenses (which consist of legal and other professional fees associated with litigation-related matters which are not indicative of Olo’s core operations and are not part of our normal course of business), intangible andloss on disposal of assets, non-cash capitalized internal-use software impairment, capitalized internal-use software and intangible amortization (non-cash expense), other non-cashrestructuring charges, certain severance costs, including those related to the departure of our Chief Customer Officer, costs and impairment charges associated with the sublease of our corporate headquarters, and transaction costs (typically incurred within one year of the related acquisition.acquisition). Management believes that it is useful to exclude certain non-cash charges and non-core operational charges from our non-GAAP operating incomefinancial measures because: (1) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations;operations and we believe does not relate to ongoing operational performance; and (2) such expenses can vary significantly between periods. Effective as of the first quarter fiscal 2022, payroll tax expenses related to equity compensation awards were added to our calculation of non-GAAP operating income. We have historically excluded stock-based compensation expense from non-GAAP operating income, and management believes that excluding the related payroll tax expense is important and consistent, as such payroll tax expenses are directly impacted by unpredictable fluctuations in our stock price. Prior period amounts have been revised to conform with the current year presentation.
Free cash flow represents net cash provided by operating activities, reduced by purchases of property and equipment and capitalization of internal-use software. Free cash flow is a measure used by management to understand and evaluate our liquidity and to generate future operating plans. Free cash flow excludes items that we do not consider to be indicative of our liquidity. The reduction of capital expendituresliquidity and facilitates comparisons of our liquidity on a period-to-period basis. We believeManagement believes providing free cash flow provides useful information to investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business from the perspective of our management and Board of Directors.
Our use of non-GAAP financial measures and key performance indicators has limitations as an analytical tool, and these measures should not be considered in isolation or as a substitute for analysis of financial results as reported under GAAP. Because our non-GAAP financial measures and key performance indicators are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies.
Reconciliation of Non-GAAP Operating Income to GAAP Operating (Loss) Income
The following table presents a reconciliation of GAAP operating loss to non-GAAP operating income to GAAP operating (loss) income, the most directly comparable GAAP measure, for the following periods:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | | (in thousands, except percentages) | | (in thousands, except percentages) |
| Operating income (loss) reconciliation: | Operating income (loss) reconciliation: | | Operating income (loss) reconciliation: | |
| Operating loss, GAAP | Operating loss, GAAP | $ | (15,918) | | | $ | (11,257) | | | $ | (40,752) | | | $ | (21,139) | | Operating loss, GAAP | $ | (21,171) | | | $ | (11,932) | | | $ | (38,244) | | | $ | (24,834) | |
Plus: Stock-based compensation expense and related payroll tax expense (1) | Plus: Stock-based compensation expense and related payroll tax expense (1) | 12,106 | | | 7,867 | | | 35,824 | | | 24,885 | | Plus: Stock-based compensation expense and related payroll tax expense (1) | 13,495 | | | 11,640 | | | 27,992 | | | 23,718 | |
| Plus: Charitable donation of Class A common stock | 1,406 | | | 7,982 | | | 1,406 | | | 13,107 | | |
| Plus: Costs and impairment charge associated with sublease of corporate headquarters | 3,272 | | | — | | | 3,272 | | | — | | |
| Plus: Non-cash capitalized software impairment | — | | | — | | | 475 | | | — | | |
| Plus: Amortization | 1,513 | | | 138 | | | 3,838 | | | 413 | | |
| Plus: Severance costs | 623 | | | — | | | 1,178 | | | — | | |
| Plus: Certain litigation-related expenses | | Plus: Certain litigation-related expenses | 2,975 | | | — | | | 3,859 | | | — | |
| Plus: Loss on disposal of assets | | Plus: Loss on disposal of assets | — | | | — | | | 38 | | | — | |
| Plus: Non-cash capitalized internal-use software impairment | | Plus: Non-cash capitalized internal-use software impairment | — | | | — | | | — | | | 475 | |
| Plus: Capitalized internal-use software and intangible amortization | | Plus: Capitalized internal-use software and intangible amortization | 2,207 | | | 1,365 | | | 4,239 | | | 2,325 | |
| Plus: Restructuring charges | | Plus: Restructuring charges | 6,682 | | | — | | | 6,682 | | | — | |
| Plus: Certain severance costs | | Plus: Certain severance costs | — | | | 555 | | | 830 | | | 555 | |
| Plus: Transaction costs | Plus: Transaction costs | (19) | | | 343 | | | 1,467 | | | 343 | | Plus: Transaction costs | 322 | | | 351 | | | 358 | | | 1,486 | |
| Operating income, non-GAAP | Operating income, non-GAAP | $ | 2,983 | | | $ | 5,073 | | | $ | 6,708 | | | $ | 17,609 | | Operating income, non-GAAP | $ | 4,510 | | | $ | 1,979 | | | $ | 5,754 | | | $ | 3,725 | |
| Percentage of revenue: | Percentage of revenue: | | | | | | | | Percentage of revenue: | | | | | | | |
| Operating margin, GAAP | Operating margin, GAAP | (34) | % | | (30) | % | | (30) | % | | (19) | % | Operating margin, GAAP | (38) | % | | (26) | % | | (36) | % | | (28) | % |
| Operating margin, non-GAAP | Operating margin, non-GAAP | 6 | % | | 14 | % | | 5 | % | | 16 | % | Operating margin, non-GAAP | 8 | % | | 4 | % | | 5 | % | | 4 | % |
(1) For 2022, payroll tax expenses related to equity compensation awards were added to our calculation36
Reconciliation of non-GAAP operating income. We have historically excluded stock-based compensation expense from non-GAAP operating income, and management believes that excluding the related payroll tax expense is important and consistent, as such payroll tax expenses are directly impacted by unpredictable fluctuations in our stock price. Prior period amounts have been revised to conform with the current year presentation.
Non-GAAP Free Cash Flow to Net Cash Provided (Used) by Operating Activities
The following table presents a reconciliation of free cash flow to net cash provided by (used in) operating activities, the most directly comparable GAAP measure, for each of the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
| Net cash provided by operating activities | $ | 3,268 | | | $ | 10,738 | | | $ | 2,398 | | | $ | 26,209 | |
| Purchase of property and equipment | (45) | | | (53) | | | (454) | | | (324) | |
| Capitalization of internal-use software | (1,872) | | | (482) | | | (6,997) | | | (871) | |
| Non-GAAP free cash flow | $ | 1,351 | | | $ | 10,203 | | | $ | (5,053) | | | $ | 25,014 | |
ContractualObligations and Commitments
There were no material changes in our contractual obligation and commitments during the nine months ended September 30, 2022 from the contractual obligations and commitments disclosed in our Annual Report on Form 10-K filed with the SEC on February 25, 2022. See “Note 11—Leases” and “Note 16—Commitments and Contingencies” of the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding contractual obligations and commitments. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
| Net cash provided by (used in) operating activities | $ | 2,019 | | | $ | 19 | | | $ | 9,266 | | | $ | (870) | |
| Purchase of property and equipment | — | | | (333) | | | — | | | (409) | |
| Capitalized internal-use software | (3,897) | | | (2,663) | | | (7,279) | | | (5,125) | |
| Non-GAAP free cash flow | $ | (1,878) | | | $ | (2,977) | | | $ | 1,987 | | | $ | (6,404) | |
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenue, expenses, and related disclosures. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates.
There have been no material changes to our critical accounting policies and estimates during the ninesix months ended SeptemberJune 30, 2022,2023, as compared to those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K filed with the SEC on February 25, 2022.24, 2023.
Recent Accounting Pronouncements
See “Note 2—Significant Accounting Policies” to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for all recently issued standards impacting our condensed consolidated financial statements.
JOBS Act Accounting Election
We currently qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b), or Section 404, of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and stockholder advisory votes on golden parachute compensation.37
The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to “opt-in” to this extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis. As a result, our financial statements may not be comparable to financial statements of issuers that are required to comply with the effective dates for new or revised accounting standards based on public company effective dates.
However, as of the last business day of our second fiscal quarter of 2022, the market value of our Class A common stock that was held by non-affiliates exceeded $700 million, and as a result, we will no longer qualify as an emerging growth company as of the end of the current fiscal year ending December 31, 2022, and we will be subject to certain requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company, including the provisions of Section 404, which require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. In addition, we will no longer be able to take advantage of the extended transition period as of the end of the current fiscal year ending December 31, 2022, and we will be required to adopt new or revised accounting standards when they are applicable to public companies that are not emerging growth companies.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily
a result of exposure to potential changes in interest rates. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Interest Rate Risk
Our primary market risk exposure is changing interest rates in connection with our investments and the Second Amended and Restated LSALoan and Security Agreement with Pacific Western Bank. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors, and other factors beyond our control.
As of SeptemberJune 30, 2022,2023, advances under the formula revolving line of the Second Amended and Restated LSALoan and Security Agreement bear interest equal to the greater of (A) the Prime Rate then in effect; or (B) 3.25%. As of September 30, 2022, advances under the term loans bear interest equal to the greater of (A) 0.25% above the Prime Rate then in effect; or (B) 3.50%. As of SeptemberJune 30, 2022,2023, we had no outstanding debt under our credit facility.
Our interest-earning instruments also carry a degree of interest rate risk. Our cash and cash equivalents have a relatively short maturity, and are therefore relatively insensitive to interest rate changes. As of SeptemberJune 30, 2022,2023, we had cash and cash equivalents of $366.4$318.0 million. We invest in money market funds, U.S. and municipal government agency securities, corporate bonds and notes, certificates of deposit, and commercial paper. Our current investment policy seeks first to preserve principal, second to provide liquidity for our operating and capital needs, and third to maximize yield without putting our principal at risk. As of SeptemberJune 30, 2022,2023, we invested $141.0$181.1 million in money market funds and $102.8$113.2 million in other securities, of which $102.0$83.7 million was classified as short-term. Because the majority of our investment portfolio is short-term in nature, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect our results of operations or cash flows to be materially affected by a sudden change in market interest rates.
Foreign Currency Exchange Risks
Our revenue and costs are generally denominated in U.S. dollars and are not subject to foreign currency exchange risk. However, to the extent we commence generating revenue outside of the United States that is denominated in currencies other than the U.S. dollar, our results of operations could be impacted by changes in exchange rates. A hypothetical 10% strengthening or weakening in the value of the U.S. dollar relative to the foreign currencies in which our revenues and expenses are denominated would not result in a material impact to our consolidated financial statements.
Inflation Risk
Inflation has remained at historically high levels in the U.S. and overseas, resulting in rising transportation, wages, and other costs. The primary inflation factors affecting our business are increased cost of labor and overhead costs. However, we do not believe that inflation has had a material effect on our business, results of operations, or financial condition. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, results of operations, and financial condition.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of SeptemberJune 30, 2022.2023.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of SeptemberJune 30, 20222023 due to the material weakness in our internal control over financial reporting described below. In lightbelow under “Management’s Report on Internal Control Over Financial Reporting.”
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rule 13a-15(f) of this fact, ourthe Exchange Act. Our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstandingconducted an evaluation of the material weakness ineffectiveness of our internal control over financial reporting as of December 31, 2022 based on the condensed consolidatedcriteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result, our management has concluded that our internal control over financial statements forreporting was not effective at December 31, 2022, due to the periods covered by and includedmaterial weakness in this Quarterly Report on Form 10-Q fairly present, in all material respects, ourinternal control over financial position, results of operations, and cash flows for the periods presented in conformity with GAAP.
Previously Reported Material Weakness
We previously identified a material weakness in our internal control over financial reporting related to the lack of properly designedsufficient qualified personnel who possessed an appropriate level of technical expertise and we did not design and maintain effective controls aroundover complex technical accounting matters within our financial statement close process. We have concluded that thismatters. This material weakness arose because,was previously reported in the Registration Statement on Form S-1 in connection with the initial public offering and reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and was updated, as a previously private company, we did not have the necessary, business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirementsas of a public company.
Accordingly, we have determined that these control deficiencies constituted a material weakness in our internal control over financial reporting.December 31, 2022. A material weakness is a deficiency or combination of deficiencies in our internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis. These deficienciesThis material weakness could result in additional misstatements to our condensedconsolidated financial statements that would be material and would not be prevented or detected on a timely basis.
On March 4, 2022, we completed our acquisition of Omnivore (see “Note 5—Acquisitions” of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q). As the acquisition occurred during 2022, management excluded the acquisition from its assessment of internal control over financial reporting. As of the fiscal year ended December 31, 2022, the acquisition constituted 0.1% of our total assets (excluding goodwill and intangibles) and 2.8% of our total revenue.
Remediation Plans
WeStarting in 2021 and continuing through 2023, we have been implementing and will continueactively engaged in the implementation of remediation efforts to implement measures to remediateaddress the identified material weakness. Specifically, we have:Specific remedial actions undertaken by management included, without limitation:
•initiated the process of implementing a new revenue recognition system which will significantly reduce the number of manual controls currently required to recognize revenue;
•engagedEngaged external resources to assist with remediation efforts and internal control execution, as well as to provide additional training to existing personnel; andpersonnel.
•hiredHired additional internal resources with appropriate knowledge and technical expertise to effectively operate financial close and reporting processes and internal controls.controls over complex technical accounting matters.
We intend
•Enhanced the design of our existing controls over complex technical accounting matters
The above controls need to continue to take steps to remediate the material weakness described above and further evolve our accounting processes and internal resources. We will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectivelyoperate for a sufficient period of time.
While we believetime so that these efforts will improvemanagement can conclude that our internal control over financial reporting,controls are operating effectively. As such, the implementation of our remediation is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.
We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing senior management review as well as audit committee oversight. Wematerial weakness will not be able to conclude whether the steps weconsidered remediated until management has concluded through additional testing that these controls are taking will fully remediate the material weakness in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate additional remediation time.effective.
Changes in Internal Control over Financial Reporting
We are taking actions to remediate the material weakness relating to our internal control over financial reporting, as described above. Except as otherwise described herein, there were no changes in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15 (d) and 15d-15 (d) of the Exchange Act that occurred during the period
covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
A description of our legal proceedings is included in and incorporated by reference to “Note 16—10—Commitments and Contingencies” of the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors.
Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the section titledour consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes,Operations,” as well as in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 25, 202224, 2023 and our other filings with the SEC, before making any investment decision with respect to our securities. The risks and uncertainties described below and in our other filings with the SEC, including our Annual Report on Form 10-K filed with the SEC on February 25, 2022,24, 2023, may not be the only ones we face. If any of the risks actually occur, our business could be materially and adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.
The following description includes risk factors associated with our business previously disclosed in Part I, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed with the SEC on May 9, 2023 under the heading “Risk Factors” and new risk factors and material changes to risk factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, filed with the SEC on February 25, 2022, and our other Reports on Form 10-Q24, 2023 under the heading “Risk Factors.”Factors”.
Commercial Risks
Our sales cycles can be long and unpredictable, and our sales efforts require considerable investment of time and expense. If our sales cycle continues to lengthen, we invest substantial resources pursuing unsuccessful sales opportunities, or our customers do not timely onboard and deploy our modules, our operating results and growth would be harmed.
We have historically incurred significant costs and experienced long sales cycles when selling to customers. In the restaurant market segment, the decision to adopt our modules may require the approval of multiple technical and business decision makers, including security, compliance, operations, finance and treasury, marketing, and IT. In addition, before committing to deploy our modules at scale, restaurant customers often require extensive education about our modules and significant support time with our employees or pilot programs, engage in protracted pricing negotiations, and seek to secure development resources.
Additionally, sales cycles for restaurant customers in general, and larger restaurant in particular, are inherently complex and unpredictable. These complex and resource intensive sales efforts could place additional strain on our development and engineering resources. Our standard contracts state that we will be the exclusive provider of digital ordering services to the restaurant brand, and the restaurant brand must use best efforts to ensure their operators also use Olo exclusively. We strive for exclusivity across all locations, but because operators are not required to use Olo, we have in the past had and may in the future have some locations of a restaurant brand choose not to use our platform. Further, even after our restaurant brands contract to use our platform, individual locations may require extensive integration or deployment resources from us before they become active locations, which have at times extended to multiple quarterly periods following the execution of an agreement with us.
Because we generally only generate transaction revenue after our platform is deployed, if we are unable to deploy our platform with our customers in a timely manner, our results of operations and financial condition may be harmed. For example, our sales cycle extended in 2022 and 2023 to be longer than we had experienced historically, and may continue to be extended, due to our restaurant customers’ budgetary constraints and shifting priorities in response to labor and staffing challenges at both the operator and brand level. If we are unsuccessful in closing sales after expending significant funds and management resources, or we experience delays in the deployment of our platform to customers or incur greater than anticipated costs, our business, financial condition, and results of operations have in the past and may in the future be adversely affected.
Our business depends on customers increasing their use of our platform, and any loss of customers or decline in their use of our platform could materially and adversely affect our business, results of operations, and financial condition.
Our ability to grow and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing customers, to have them increase their deployment and use of our platform and modules, and to increase or maintain transaction volume on our platform. Although our customers generally have multi-year contracts with us, they generally have the right to elect not to renew by providing at least 90 days’ written notice prior to the expiration date of the contract. In addition, if our customers do not increase their use of our platform or adopt and deploy additional modules, or if they reduce the number of locations using our platform, then our revenue may decline and our results of operations may be harmed. Customers in the past have not renewed, and in the future may not renew, their contracts with us or reduce their use of our platform for any number of reasons, including if they are not satisfied with our platform or modules, the value proposition of our platform or our ability to meet their needs and expectations, security or platform reliability issues, or if they decide to directly integrate with one or more of our partners, build their own solution internally or if they decide to temporarily or permanently close their restaurants in a location. For example, Subway and other customers have not renewed their contracts with us or reduced their use of our platform.
Additionally, guests may change their purchasing habits or reduce their orders from our current customers, which could harm their business and reduce their use of our platform. We cannot accurately predict our customers’ usage levels and the loss of customers or reductions in the number of locations that use our platform or their usage levels of our modules may each have a negative impact on our business, results of operations, and financial condition and may cause our expansion rate to decline. If a significant number of customers cease using, or reduce their usage of our platform, then we may be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain or increase revenue from our customers. Such additional sales and marketing expenditures could adversely affect our business, results of operations, and financial condition.
Our business is highly competitive. We may not be able to compete successfully against current and future competitors.
We face competition in various aspects of our business and we expect such competition to intensify in the future, as existing and new competitors, including some of our current ecosystem partners, introduce new solutions or enhance existing solutions that are directly competitive with our modules. Our platform combines functionality from numerous product categories, and we may compete against providers in each of these categories including white-label digital ordering solution providers, restaurant-focused POS platforms, aggregators that provide direct digital ordering solutions, and custom software providers. Our potential new or existing competitors may be able to develop solutions that are better received by customers or may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, regulations or customer requirements. Some ordering aggregators sell solutions that are competitive with our core platform and they may become more aggressive in their sales tactics, including by bundling competitive solutions with their delivery or aggregator products. If competitors, many of which are much better capitalized than we are, are successful in providing our customers with a more attractive solution or pricing, our business and results of operation may be harmed. In addition, as we expand into new markets, such as the emerging enterprise segment, we will continue to encounter varying competitive dynamics in such markets.
Competition may intensify as current or future competitors enter into business combinations or alliances or raise additional capital, or as established companies in other market segments or geographic markets expand into our market segments or geographic markets. For instance, current or future competitors could use strong or dominant positions in one or more markets to gain a competitive advantage against us in areas where we operate, including by integrating additional or competing platforms or features into solutions they control, such as additional payment, rewards, or delivery platforms or features. In addition, certain customers may choose to partner with our competitors in a specific geographic market, or choose to engage exclusively with our competitors. Further, our current ecosystem partners could add features to their solutions, including POS functionality, limit or terminate the availability of their products on our platform, or directly compete with our solutions by expanding their product offerings. Current and future competitors may also choose to offer a different pricing model or to undercut prices in an effort to increase their market share. If we cannot compete successfully against current and future competitors, our business, results of operations, and financial condition could be negatively impacted.
Financial Risks
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, financial condition, and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past led and may in the future lead to market-wide liquidity problems. On March 10, March 12, and May 1, 2023, the Federal Deposit Insurance Corporation, or the FDIC, took control and was appointed receiver of Silicon Valley Bank, or SVB, Signature Bank, and First Republic Bank, respectively, after each bank was unable to continue its operations, which led to market instability. We cannot predict the impact that the high market volatility and instability of the banking sector more broadly could have on economic activity and our business in particular. The failure of other banks and financial institutions and measures taken, or not taken, by governments, businesses, and other organizations in response to these events could adversely impact our and our customers’ business, financial condition, and results of operations.
If the financial institutions with which we do business enter receivership or become insolvent in the future, there is no guarantee that the Department of the Treasury, the Federal Reserve, and the FDIC will intercede to provide us and other depositors with access to balances in excess of the $250,000 FDIC insurance limit, that we would be able to (i) access our existing cash, cash equivalents, and investments, (ii) maintain any required letters of credit or other credit support arrangements, or (iii) adequately fund our business for a prolonged period of time or at all, any of which could have a material adverse effect on our current or projected business operations and results of operations and financial condition. In addition, if any parties with which we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to continue to fund their business and perform their obligations to us could be adversely affected, which, in turn, could have a material adverse effect on our business, financial condition, and results of operations.
Legal, Regulatory, Compliance, and Reputational Risks
Payment transactions processed on our platform and through the Olo Pay module may subject us to regulatory requirements and the rules of payment card networks, and other risks that could be costly and difficult to comply with or that could harm our business.
TheWe began commercially offering Olo Pay in the first quarter of 2022 and card-present transactions in the third quarter of 2023. In connection with this offering, the payment card networks require us to comply with payment card network operating rules, including special operating rules that apply to us as a “payment service provider” that provides payment processing-related services to merchants and payment processors. The payment card networks set these network rules and have discretion to interpret them and change them. Wethem, including in ways that may limit our ability to offer Olo Pay card-present payment services. Through our offering of Olo Pay, we are also required by our payment processors to comply with payment card network operating rules and, in certain instances, we have agreed to reimburse our payment processorsprocessor partners for any fines they are assessed by payment card networks as a result of any rule violations by us or our customers. Any changes to or interpretations of the network rules that are inconsistent with the way we and the payment processors and merchants currently operate may require us to make changes to our business that could be costly or difficult to implement. If we fail to make such changes or otherwise resolve the issue with the payment card networks, the networksthey could fine us, cancel or suspend our registration as a payment service provider or prohibit us from processing payment cards on their networks, which could have an adverse effect on our business, financial condition, and operating results. In addition, violations of the network rules or any failure to maintain good standing with the payment card networks as a payment service provider could impact our ability to facilitate payment card transactions on our platform, increase our costs or otherwise harm our business. If we were unable to facilitate payment card transactions on our platform or were limited in our ability to do so, our business would be materially and adversely affected.
We released a beta version of our Payment solution, Olo Pay, to select restaurant brands in October 2020. We began commercially offering Olo Pay in the first quarter of 2022. We also released a new feature, Borderless, to a limited number of customers in July 2022, which is now commercially available, to allow guests to securely speed through an accelerated checkout process across brands within the Olo Pay network.
If we fail to comply with the rules and regulations adopted by the payment card networks, we wouldcould also be in breach of our contractual obligations to our payment processors, financial institutions, customers, or partners. Such failure to comply may subject us to fines, penalties, damages, higher transaction fees, and civil liability, and could eventually prevent us from processing or accepting payment cards or could lead to a loss of payment processor partners, even if there is no compromise of customer or consumer information.partners. In the event that we are found to be in violation of any of these legal or regulatory requirements, our business, financial condition, and results of operations could be harmed.
We currently substantially rely on a limited number of third-party payment processors to facilitate payments made by guests and payments made to customers through the Olo Pay module. While we are seeking to develop payment processing relationships with other payment processors, we expect to continue to rely on a limited number of payment processors for the foreseeable future. In the event that any of our third-party payment processors fail to maintain adequate levels of support, experience interrupted operations, do not provide high quality service, increase the fees they charge us, discontinue their lines of business, terminate their contractual arrangements with us, or cease or reduce operations, we may suffer additional costs and be required to pursue new third-party relationships, which could materially disrupt our operations and our ability to provide our products and services, and could divert management’s time and resources. In addition, such incidents could result in periods of time during which our platform cannot function properly, and therefore cannot collect payments from customers and their guests, which could adversely affect our relationships with our customers and our business, reputation, brand, financial condition, and results of operations.
We believe the licensing requirements of the Financial Crimes Enforcement Network and state agencies that regulate banks, money service businesses, money transmitters, and other providers of electronic commerce services do not apply to us. One or more governmental agencies may conclude that, under its statutes or regulations, we are engaged in activity requiring licensing or registration. In that event, we may be subject to monetary penalties and adverse publicity and may be required to cease doing business with residents of those states until we obtain the requisite license or registration.
Our delivery service providers and other partnersWe may be subject to pricing, licensing, and data regulations, which may impact our business.
Our delivery service providers, or DSPs, and other partners’ revenue is dependent on the pricing models they use to calculate earnings. In particular, the DSPs’ pricing models have been, and will likely continue to be, challenged, banned, limitedartificial intelligence in emergencies, and capped in certain jurisdictions. An increasing number of municipalities have proposed delivery network fee caps with respect to DSPs’ delivery offerings. For example, in 2022, New York City began requiring DSPs to obtain a license in order to do business within the city; instituted a percentage cap on service, transaction, and other fees that DSPs may charge food service establishments; and began allowing food delivery workers to unilaterally cap the distances they are required to travel for delivery. Additional regulation of the DSPs, including with regard to licensing, sharing of end user data, and classifying workers as employees or independent contractors, could increase their operating costs and adversely affect their business, which may in turn adversely affect our business. For instance, DSPs could be required to treat their workers as employees if the Department of Labor October 2022 proposed rule goes into effect. The proposed rule revises the standard for determining when a worker is an employee or an independent contractor under the Fair Labor Standards Act. Furthermore, our partners may be forced to change their pricing models, or otherwise limit or abandon their business operations altogether, in jurisdictions where laws or regulations significantly impact their business, which could ultimately harm our revenue.
Industry Risks
Unfavorable conditions in our industry or the global economy, or reductions in digital ordering transaction volume or technology spending, could adversely impact the health of our customers and limit our ability to grow our business, and negativelychallenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.
Our results of operationsWe have in the past and may in the future vary based on the impact of changesincorporate machine learning and artificial intelligence, or AI, solutions into our platform, offerings, services and features, and these applications have become and may continue to become increasingly important in our industryoperations over time. For example, OrderReady AI is our machine-learning-based solution that is built to enable brands to provide more accurate quote times. Our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations. Additionally, if the global economy on uscontent, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, our customersbusiness, financial condition, and potential customers. In recent months, we have observed increased economic uncertaintyresults of operations may be adversely affected. The use of AI applications has resulted in, the United States and abroad. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, decreases in restaurant and digital ordering spending, inflationary pressures, rising interest rates, lower consumer confidence or uneven or lower spending, volatile equity capital markets, the impact of a housing crisis and other conditions in the residential real estate and mortgage markets, gasoline prices, energy and other utility costs, inclement weather, health care costs, access to credit, disposable consumer income, availability of continued federal economic stimulus and other governmental efforts, financial and credit market fluctuations, international trade relations, political turmoil, natural catastrophes, epidemics, warfare, including the ongoing war in Ukraine, and terrorist attacks on the United States, Canada, or elsewhere, have caused, andmay in the future may cause, a reductionresult in, customer locations and digital ordering transaction volumes, a decrease in business investments, including spending on technology, or business interruptions, and negatively affectcybersecurity incidents that implicate the growthpersonal data of our business, revenue, and earnings.
More specifically, we are heavily reliant on the restaurant, food, and delivery industries, and any downturn or shift in those industries could significantly impact our results. In poor or uncertain economic conditions, restaurant guest traffic could be adversely impacted if guests choose to dine out or order less frequently or reduce the amount they spend on meals. In addition, inflation and the rising costsend users of food and labor have caused some businesses in the restaurant food and delivery industries to raise their prices which could cause a decline in guest traffic. Further, to the extent there is a sustained general economic downturn and our solutions are perceived by restaurant customers and potential restaurant customers as costly, or too difficult to deploy or migratesuch applications. Any such cybersecurity incidents related to our revenue may be disproportionately affected by delays or reductions in on-demand digital commerce spending. Competitors may respond to market conditions by lowering prices and attempting to lure awayuse of AI applications could adversely affect our customers. Additionally, reports, whether true or not, of foodborne illnesses and injuries caused by food tampering have severely injured the reputations of participants in the food business and the restaurant industry generally, and could continue to do so in the future, and those reports could harm our businessreputation and results of operations. The potential for acts of terrorism on the United States’ food supplyAI also existspresents emerging ethical issues and if such an event occurs, it could harm our business and resultsuse of operations.
In addition, we contract directly with our DSPs to provide delivery services to our restaurant customers through our Dispatch module and then invoice our restaurant customers for the cost associated with DSP services. As a result,AI becomes controversial, we may be requiredexperience brand or reputational harm, competitive harm, or legal liability. The rapid evolution of AI, including potential government regulation of AI, has in the past and will in the future require significant resources to make paymentsdevelop, test and maintain our platform, offerings, services, and features to DSPs priorhelp us implement AI ethically in order to receiving payment from our restaurant customers for DSP transactions, which could reduce the amount of cash and cash equivalents we have available for the period between payment to the DSPs and receipt of payment from the restaurant customer. In addition, if any of our restaurant customers were to go out of business,minimize unintended, harmful impact.
become insolvent, or otherwise be unable to pay for DSP transactions, we would be responsible for making payments to the DSPs that our customers otherwise would have made, which could adversely affect our business. Furthermore, our DSPs and other vendors, suppliers, or partners may raise prices due to inflation, rising costs, or changing regulations. If this occurs, we may not be able to pass on these increased costs to our restaurant customers. This may materially and adversely affect our business, including our competitive position, market share, revenues, and earnings.
Lastly, the increased pace of consolidation in the restaurant industry, the loss of partners that may have gone out of business or may have merged with other of our partners, or if any of our customers are acquired by another company that does not use our solutions, may result in reduced overall spending on our platform. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within the restaurant industry. If the economic conditions of the general economy or markets in which we operate worsen, our business, results of operations, and financial condition could be materially and adversely affected.
Risks Related to Ownership of Our Class A Common Stock
We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price and the value of your investment could decline.
Our quarterly operating results, including our revenues, operating margin, profitability, cash flow, number of locations, and transaction volumes have in the past and may in the future vary significantly and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect the underlying performance of our business. Fluctuations in our quarterly results and related impacts to any earnings guidance we may issue from time to time, including any modification or withdrawal thereof, may negatively impact the value of our securities. Additional factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:
•fluctuations in demand for or pricing of our platform, or any of our modules, including any governmental regulations that restrict the amount we can charge;
•fluctuations in usage of our platform, or any of our modules, including due to the potential lack of durability of the growth we previously experienced due to the impact of COVID-19 and the associated measures to contain the spread of COVID-19 on consumer preferences for digital ordering and customer adoption of multi-modules as COVID-19 associated restrictions continue to abate;
•our ability to attract new customers;
•our ability to retain our existing customers;
•our ability to retain and increase revenue, locations, and transaction volumes from existing customers;
•fluctuations in the amount of revenue from our existing customers, the number of existing customers, and the number of locations that we serve for our existing customers;
•delays in our customers’ adoption of new products, including Olo Pay;
•the timing of our customer purchases and deployments;
•the amount of time it takes for our customers to be onboarded to our platform and modules;
•customer expansion rates and the pricing and quantity of subscriptions renewed and transactions processed through our platform;
•competition and the actions of our competitors, including pricing changes and the introduction of new products, services, and geographies;
•reductions in pricing or customer locations, including as a result of negotiations with our larger customers;
•changes in the size and complexity of our customer relationships;
•actions by our customers related to implementation of internal or competitive products and tools that may displace their need for our services;
•changes in spending by our existing or prospective customers;
•pricing our platform subscriptions effectively so that we are able to attract and retain customers without compromising our profitability;
•customer renewal rates and the amounts for which agreements are renewed;
•timing and amount of our investments to expand the capacity of our third-party cloud infrastructure providers;
•the investment in and success of new modules relative to our existing infrastructure and platform;
•fluctuations or delays in purchasing decisions in anticipation of new modules or enhancements by us or our competitors;
•changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions;
•our ability to control costs, including our operating expenses;
•the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including sales commissions;
•the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments, and other non-cash charges;
•the amount and timing of costs associated with recruiting, training and integrating new employees, and retaining and motivating existing employees;
•the effects of acquisitions and their integration;
•the inability to execute on our Stock Buyback Program as planned, including failure to meet internal or external expectations around the timing or price of share repurchases, and any reductions or discontinuations of repurchases thereunder;
•general economic conditions, both domestically and internationally, as well as economic conditions (including rising inflation and interest rates) specifically affecting industries in which our customers participate;
•health epidemics or pandemics, such as the COVID-19 pandemic;
•the impact of new accounting pronouncements;
•changes in regulatory or legal environments that may cause us to incur, among other elements, expenses associated with compliance;
•changes in the competitive dynamics of our market, including consolidation among competitors or customers; and
•significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our modules and platform capabilities or third-party applications or point of sale or management systems with which our platform integrates.
Any of these and other factors, or the cumulative effect of some of these factors, may cause our results of operations to vary significantly. If our results of operations or key performance indicators fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock could decline substantially, and we could face costly lawsuits, including securities class action suits, such as the class action lawsuit filed on September 26, 2022. A description of our legal proceedings can be found in “Note 16—Commitments and Contingencies” of the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Our stock price may be volatile, and the value of our Class A common stock may decline.
The market price of our Class A common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including:
•price and volume fluctuations in the overall stock market from time to time, including fluctuations due to general economic uncertainty or negative market sentiment, rising inflation, and interest rates;
•actual or anticipated fluctuations in our financial condition or results of operations;
•variance in our financial performance from expectations of securities analysts;
•changes in the pricing and adoption rates of our modules;
•changes in our projected operating and financial results;
•changes in laws or regulations applicable to our platform and modules;
•investor sentiment and the public’s reaction to announcements by us or our competitors of significant business developments, acquisitions, or new offerings;
•the trading volume of our Class A common stock;
•future sales of our Class A common stock by us or our stockholders;
•our involvement in litigation;
•significant data breaches, disruptions to or other incidents involving our software;
•changes in senior management or key personnel;
•changes in the anticipated future size and growth rate of our markets; and
•general economic conditions and slow or negative growth of our markets.
Broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions, may also negatively impact the market price of our Class A common stock. In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of our Class A common stock, regardless of our actual operating performance.
In the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. Securities litigation against us, such as the class action lawsuit filed on September 26, 2022, could result in substantial costs, divert our management’s attention and resources from our business, and, if the claims are successful, our business could be harmed. This risk could materially adversely affect our business, results of operations, and financial condition. A description of our legal proceedings can be found in “Note 16—Commitments and Contingencies” of the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
The occurrence of one or more of the foregoing and other factors may cause our results of operations to vary significantly. In addition, a significant percentage of our operating expenses is fixed in nature and is based on forecasted revenue and trends. Accordingly, in the event of a revenue shortfall, we may not be able to mitigate the negative impact on our income (loss) and margins in the short term. If we fail to meet or exceed the expectations of investors or securities analysts, then the trading price of our Class A common stock could fall substantially.
We may not realize the anticipated long-term stockholder value of our Stock Buyback Program, and any failure to repurchase our Class A common stock after we have announced our intention to do so may negatively impact our stock price. Share repurchases could also increase the volatility of our stock price and diminish our cash reserves.
On September 7, 2022, our Board of Directors authorized the Stock Buyback Program, under which we may repurchase up to $100 million of our Class A common stock. Such repurchases may be made from time to time on a discretionary basis through open market repurchases, privately negotiated transactions, block purchases, or other means, and will be structured to occur in compliance with applicable securities laws. Our repurchase program does not have an expiration date and does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. Further, the program may be modified, suspended or terminated at any time by the Board of Directors at its discretion.
Any failure to repurchase our Class A common stock after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our stock price.
The existence of the Stock Buyback Program could cause our stock price to trade higher than it otherwise would. Although the program is intended to enhance long-term stockholder value, there is no assurance it will do so because the market price of our Class A common stock may decline below the levels at which we repurchased shares and short-term stock price fluctuations could reduce the effectiveness of the program.
Repurchasing our Class A common stock will reduce the amount of cash we have available to fund working capital, capital expenditures, strategic acquisitions, or business opportunities, and other general corporate purposes, and we may fail to realize the anticipated long-term stockholder value of the Stock Buyback Program. Furthermore, the timing and amount of any repurchases, if any, will be subject to liquidity, market and economic conditions, compliance with applicable legal requirements such as Delaware surplus and solvency tests, and other relevant factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
None.
Use of Proceeds from our IPO
On March 16, 2021, our registration statement on Form S-1 (File No. 333-253314) was declared effective by the SEC for our IPO. There has been no material change in the planned use of proceeds from our IPO from those disclosed in our final prospectus dated March 16, 2021 and filed with the SEC pursuant to Rule 424(b) under the Securities Act.
Share RepurchasesIssuer Purchases of Equity Securities
We did not repurchase any sharesThe following table provides information with respect to repurchases of our Class A common stock induring the third quarterperiods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Program (in thousands)(2) |
| April 1 - 30, 2023 | 306,060 | | | $ | 7.81 | | | 306,060 | | | $ | 57,611 | |
| May 1 - 31, 2023 | 550,167 | | | 6.91 | | | 550,167 | | | 53,809 | |
| June 1 - 30, 2023 | 553,193 | | | 6.92 | | | 553,193 | | | 49,982 | |
| Total | 1,409,420 | | | 7.11 | | | 1,409,420 | | | 49,982 | |
(1) Average price paid per share excludes broker commission fees.
(2) On September 7, 2022, we announced a program to repurchase up to $100 million of 2022. As of September 30, 2022, there was $100.0 million remaining under the open-endedour Class A common stock. The Stock Buyback Program authorizedhas no expiration date and may be modified, suspended or terminated at any time by theour Board of Directors on September 7, 2022.at its discretion. The $50.0 million in the table above represents the amount available to repurchase shares under the Stock Buyback Program as of June 30, 2023. The Stock Buyback Program does not obligate us to acquire any specific number of shares. Under the Stock Buyback Program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.Rule 10b5-1 Trading Plans
Item 6. Exhibits.
The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein.
EXHIBIT INDEX
| | | | | | | | | | | | | | |
| Exhibit Number | | Description | | Filing Date |
| | | | March 22, 2021 |
| | | | |
| | | | March 22, 2021 |
| | | | |
| | | | March 8, 2021 |
| | | | |
| | | | Filed herewith |
| | | | |
| | | | Filed herewith |
| | | | |
| | | | Filed herewith |
| | | | |
| | | | Filed herewith |
| | | | |
| | | | Filed herewith |
| | | | |
| | | | Filed herewith |
| | | | |
| | | | Furnished herewith |
| | | | |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | Filed herewith |
| | | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed herewith |
| | | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith |
| | | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith |
| | | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith |
| | | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith |
| | | | |
| 104 | | Cover Page with Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | | |
_____________________________
| | | | | | | | |
| * | The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. | |
| + | Indicates management contract or compensatory plan. | |
| # | Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because the registrant has determined they are not material and is the type of information that the registrant treats as private or confidential. | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | Olo Inc. |
| | |
November 9, 2022August 1, 2023 | | _____________________/s/ Noah H. Glass_____________________ Noah H. Glass Chief Executive Officer (Principal Executive Officer) |
| | |
November 9, 2022August 1, 2023 | | _____________________/s/ Peter Benevides__________________ Peter Benevides Chief Financial Officer (Principal Accounting and Financial Officer) |
