Write-Up of OLO

Hi everyone,

I have been following this board for about a year and have been investing for about as long. I am a subscribing member to TMF Stock Advisor and Rule Breakers as well as Beth Kindig’s service. I truly appreciate the transparency of Saul and everyone on this board in regards to how each of you manages your portfolios and openly provide your rationale for why you hold each position(or decide to no longer hold). I have learned a lot so far, but still have much more to learn from you all before I can get to the point where I can truly analyze & understand all of the nuances in Earnings Reports and valuations of these companies like so many of you are able to do.

This is my first post on this board and my first ever attempt at a write-up of a company that was just brought to my attention today while listening to TMF Industry Focus podcast. I think this company may potentially meet the stringent criteria of this board for consideration. This company has been around since 2005, is an SaaS company, and is in the process of filing for a $100 million IPO this year. I did this write up on Microsoft Word in a concise bullet point format, where it appeared far more organized, Now I can’t seem to figure out how to fix the formatting on this post. I apologize in advance. Thank you for taking the time to read and I appreciate any feedback you all may have.

Olo (Acronym: Online Ordering); Future Ticker Symbol: OLO

What is it?
Open SaaS platform built to meet the complex needs and interests of the restaurant Industry by enabling digital ordering & delivery while further strengthening & enhancing the restaurants’ direct consumer relationships.

Why is it needed?
Food industry is a $1.6 trillion market.

  • Restaurants accounted for $863 billion of that in 2019
  • Dropped to $659 billion in 2020 as a result of COVID-19
  • Consumer restaurant spending expected to rebound to $1.1 trillion by 2024

Off-premise dining is the main engine of restaurant growth

  • Off-premise dining continued to grow rapidly and accounted for 63% of US restaurant transactions in 2019 and 60% in 2020. Prior to the COVID-19 pandemic, off-premise dining had been expected to contribute 70-80% of total restaurant industry growth within the next 5 years according to the National Restaurant Association.

Restaurants are under significant economic pressure due to increased competition, government imposed COVID-19 restrictions to on-premise dining, increasingly having to share revenue with aggregators (UberEats, DoorDash, etc.)

Consumer behavior is shifting towards on-demand commerce convenience

  • Further accelerated by COVID-19 pandemic

TAM: $7 billion (considers only enterprise US restaurants at this time)

Offers three separate modules:
Ordering:

  • Enables customers to order directly from and pay restaurants via mobile, web, kiosk, car, voice, and other digital channels
  • Create customized ordering channels
  • Manage complex menus – consumer friendly descriptions, high resolution images, ingredient modifier availability, prices on a per-location basis
  • Create, track, and manage promotions and customer loyalty programs
  • Can handle 50+ orders per second

Dispatch:

  • Enables restaurants to offer, manage, and expand direct delivery while optimizing price, timing, and service quality
  • Manage and optimize delivery logistics

Rails:

  • Enables restaurants to control and syndicate menu, pricing, location data, and availability, while directly integrating and optimizing orders from 3rd parties into the restaurants’ point-of-sale (POS) system

Key Benefits of Olo Platform

  • Integrates with over 100 restaurant technology solutions including POS systems, aggregators, DSPs, payment processors, user experience, user interface, providers, and loyalty programs
  • Can be uses as a centralized source of data
  • Scalable technology
  • Streamlines restaurant operations
  • Manages demand across aggregators to allow restaurant to generate more orders through an intuitive, coordinated system
  • Enables restaurants to automatically select the optimal delivery provider for an individual order based on attributes such as: delivery time, order size, cost of delivery, or service level

QoQ Revenue Growth
$10.4 million (Mar 19) ? $12.1 million (Jun 19) ? $14.2 million (Sep 19) ? $14.0 million (Dec 19)
$16.1 million (Mar 20) ? $24.3 million (Jun 20) ? $27.5 million (Sep 20) ? $30.5 million (Dec 20)

QoQ Revenue % Growth
2019
Q2 ? Q3 ? Q4
16.3% ? 17.4% ? (-1.4%)

2020
Q1 ? Q2 ? Q3 ? Q4
15% ? 51% ? 13% ? 11%

YoY Revenue Growth
$31.8 million (2018) ? $50.7 million (2019) ? $98.4 million (2020)

YoY Revenue % Growth
2018 ? 2019 = 59.4% increase
2019 ? 2020 = 94.2% increase

Gross Profit Margins
$21 million (2018) ? $35.1 million (2019) ? S79.8 million (2020)
66% (2018) ? 69% (2019) ? 81% (2020)

Net Revenue Retention Rate = greater than 120%

  • Average initial contract length is 3 years with continuous 1-yr automatic renewal periods
  • 99% of enterprise brands (customer brands with 50+ locations) have continued to use Ordering module each year
  • % Subscription Revenue: 93.2% (2018) ? 80.8% (2019) ? 56.7% (2020)
  • % Transaction Revenue: 6.8% (2018) ? 19.2% (2019) ? 43.3% (2020)

Non-GAAP Operating Income (Loss)
2018 ? 2019 ? 2020
(-$4.6 million) ? (-$0.2 million) ? $21.8 million

Net Income:
2018
(-$11.7 million)

2019
(-$8.4 million)

2020
$3.1 million

Cash: $75.8 million in working capital
Debt: $0

Customer Concentration
400 restaurant brands – representing over 64,000 active locations nationwide
Prominent Enterprise Chains - Five Guys, Wing Stop, Red Lobster, P.F. Chang’s, Red Robin, Denny’s, Bob Evans, Jimmy John’s Subway, Chili’s, Dairy Queen, Cheesecake Factory, and many more

  • 100% franchisee participation
  • Consider Olo to be the leader in this space = First mover advantage???

Leadership
CEO - Noah Glass (since 2005)
Approval Rating – 94/100 (Owler); 93% (Glass Door)
Nation’s Restaurant News ranked him as #1 Most Powerful Restaurant Executive
Business Plan:

  • Upsell customers additional modules; 71% of customers subscribed to all 3 modules in 2020 vs 44% in 2019
  • Enable higher transaction volume
  • Develop new products targeting data analytics and on-premise dining
  • Initial focus is on restaurants, but plan to potentially expand to grocery stores, convenience stores, etc.
  • Expand internationally

Competitors
• Digital ordering solutions providers

  • Tillster, Onosys, NovaDine
    • Restaurant-focused digital POS platforms
  • NCR Corporation, Xenial
    • Aggregators (digital ordering solutions)
  • Grubhub, DoorDash, UberEats
    • Custom Software developed internally for the restaurant
  • Deloitte Touche, Tohmatsu Limited, Accenture, SAP SE, Sitecore, A/S

References:

Olo Website
https://www.olo.com/

S-1 Form
https://www.sec.gov/Archives/edgar/data/1431695/000119312521…

The Motley Fool Industry Focus Podcast – “Tech: Whoa Olo!”
https://www.fool.com/podcasts/industry-focus/

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