Olo Inc. (OLO) Q3 2022 Earnings Call Transcript

Olo Inc. (NYSE:OLO) Q3 2022 Earnings Conference Call November 9, 2022 5:00 PM ET

Company Participants

Stephanie Daukus - Vice President, Investor Relations

Noah Glass - Founder, Chief Executive Officer and Director

Peter Benevides - Chief Financial Officer

Conference Call Participants

Gabriela Borges - Goldman Sachs

Terry Tillman - Truist

Stephen Sheldon - William Blair

Matthew Hedberg - RBC

Clarke Jeffries - Piper Sandler

Operator

Good day and welcome to the Olo Inc. Q3 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator instructions] After today's presentation there will be an opportunity to ask questions. [Operator instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Stephanie Daukus, Vice President of Investor Relations. Please go ahead.

Stephanie Daukus

Thank you. Good afternoon everyone and welcome to Olo's third quarter 2022 earnings conference call. Joining me today are Noah Glass, Olo's Founder and CEO; and Peter Benevides, Olo's CFO.

During our call today, some of our discussion and responses to your questions may contain forward-looking statements, which represent our beliefs and assumptions only as of the date such statements are made. These forward-looking statements include, but are not limited to, statements regarding our expectations of our business, future financial results, total addressable markets and growth opportunity, guidance and strategy, the restaurant ordering processing trend, ability to increase usage of our platform and upsell, including with respect to growth in average revenue per unit and the durability of our customer adoption of multi modules.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements and such risks are described in our earnings press release and our risk factors including in our SEC filings, including our annual report on Form 10-K and quarterly report on Form-10Q. You should not rely on our forward-looking statements as predictions of future events. We undertake no obligations to update any forward-looking statements made during this call to reflect events or circumstances after today.

Also during this call, we will present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued a short while ago. This earnings release is available on the Investor Relations page of our website and is included as an exhibit in the Form 8-K furnished to the SEC.

Finally, in terms of our prepared remarks, or in response to your questions, we may offer incremental metrics. Please be advised that this additional detail may be one time in nature, and we may or may not provide an update in the future on these metrics. I encourage you to visit the Investor Relations page of our website at www.olo.com to access our earnings release, investor presentation, periodic SEC reports, a webcast replay of today's call to learn more about Olo.

With that, let me turn the call over to Noah.

Noah Glass

Thank you, Stephanie. Hi, everyone. Thank you for spending time with us today. We're proud of our third quarter results. We generated $47.3 million in total revenue, a 26% increase year-over-year as our platform supported increased module adoption within our existing customer base, increased transaction volumes and continued growth in new locations.

We increased average revenue per unit for ARPU to $558 up 15% year-over-year and 3% sequentially, and deployed roughly 2,000 new locations to the platform with ending active locations, increasing 11% year-over-year and 2% sequentially to approximately 84,000. The Olo platform is purpose built to help our customers do more with less and create a differentiated and memorable guest experience, and as restaurant executive and operator conversations increasingly focus on sales and margin maintenance due to challenges related to increased inflation, supply chain constraints and labor dynamics, we believe that Ola's platform is best positioned to meet restaurants' needs.

In particular, this quarter's customer deployments, partnership announcements and product enhancements are representative of this belief that technology is instrumental in enabling restaurants to be more operationally efficient while enhancing the guest experience. We're honoured to play this role in the $1 trillion and growing restaurant industry.

Olo's ability to address this massive market opportunity is a function of increasing ARPU through further multimodal adoption and continued growth in transaction volume as well as adding more locations to the platform and we're happy to report continued momentum across all of these key drivers.

Specific to our ability to expand ARPU, we broadened our relationship with Jack in the Box, a top 25 quick service restaurant or QSR brand with more than 2,200 locations. We initially supported Jack in the Box with our dispatch module, enabling direct delivery at scale. More recently, we deployed our ordering module replacing their homegrown solution. We're excited about this expanded partnership as it reflects our ability to expand within our existing customer base even when ordering is not the lead module.

Importantly, this expanded partnership also reflects our ability to support the industry's largest brands and largest segment QSR. Other examples of expanded relationships within brands this quarter include BJ's Restaurants and Brewhouse, as well as Wetzel's Pretzels, adding dispatch and Olo Pay in addition to our ordering rails and network modules. A number of existing brands such as IHOP and Crystal, adding virtual restaurants to their existing ordering dispatch and rails modules and brands such as another Broken Egg Cafe and Capriotti's adopting our guest engagement and/or front of house solutions in addition to their existing ordering, dispatch and/or rails modules.

Our existing customer base presents a sizable opportunity to expand ARPU by providing additional solutions to improve our customers operations and delight guests. As brands on average utilize 2.7 modules out of 12 modules on a per location of modules on a per location basis at the end of 2021.

At the same time on-premise solutions unlock additional ARPU expansion opportunities. Momentum in this area continues with more than 50 brands in over 1,000 locations, processing on-premise digital orders through Olo. We believe this is the beginning of a larger trend whereby restaurants will process 100% of their orders digitally through the Olo platform.

Furthermore, when restaurants pair on-premise solutions with Olo Pay, they're able to realize the incremental value of utilizing one single digital platform driving a better experience for their guests and staff as we've already seen a brand like Nandos with their adoption of QR code ordering and Olo Pay. We believe if restaurants utilize Olo Pay and the Olo platform to process 100% of their orders, that ARPU has the potential to increase by 25X.

Another exciting trend that continued this quarter relates to enterprise brands replacing legacy technology partners and implementing Olo solutions. This quarter we welcome Smashburger a rapidly growing fast casual concept with more than 200 locations. Ruby Tuesday, a casual dining concept with more than 200 locations and Zaxby's a fast casual concept with more than 900 locations to the platform.

All three enterprise brands selected Olo to replace their legacy technology providers through the adoption of our ordering, dispatch and Rails modules. The implementation of Olo as their consolidated digital commerce solution allows each brand to provide a highly customized and personalized digital program to their guests while increasing operational efficiencies.

Over the last two years, we've proven through many instances that investing in an enterprise grade SaaS platform is a compelling alternative to building in house. That means a fundamentally superior platform, lower costs, faster time to market, tapping into platform best practices, leveraging a large partner and customer ecosystem and harnessing platform level innovation. Names such as Papa Murphy's, Pot Belly, and now Jack in the Box, Ruby Tuesday and Smashburger and Zacksby's further affirm our long held conviction that SaaS is a better alternative to homegrown solutions.

We've also continued to successfully deploy our solutions within the emerging enterprise segment. This quarter we welcome names such as Grimaldi's and Jr. Rob and Bar [ph] to the platform as they adopted the full stack of Olo solutions, which include order management, delivery enablement, guest engagement, front of house and Olo Pay.

Throughout the year, we've seen an increasing number of emerging enterprise new logos adopt multiple modules from the onset of our relationship, inclusive of Olo Pay. We believe this trend will continue and further drive ARPU. Also this quarter, we deployed our ordering, dispatch and rails modules at convenience stores or C-stores. Two examples include Maverick, Adventures for Stop and Intermountain West Operator with nearly 400 stores across 12 states and second and East Coast operator with more than 200 locations.

With Olo Solutions, guests of these C-stores are now able to order fresh food for pickup or through delivery. As I've mentioned in the past, C-stores are an exciting emerging vertical for Olo given their 55,000 location opportunity representing C-stores with fresh food programs.

We also continue to grow our partner network this quarter, which enables our customers to leverage our platform to tap into best-in-class applications and services that are fully integrated into Olo. Our open platform provides restaurants with access to more than 300 technology providers, significantly more integrations than many other platforms. This quarter, we added technology partners in both autonomous and piloted delivery as well as voice, artificial intelligence or AI. We're excited to offer these cutting edge technologies to our customers.

More specifically, Olo dispatch network now offers autonomous and piloted delivery robots through partnerships with certified delivery providers, Cocoa Delivery, Refraction AI, and Serve Robotics. Last mile delivery is oftentimes the most complicated and costly aspect of the delivery experience, on average accounting for 40% of the total cost of delivery. Through these partnerships, we enable brands such as Modern Market and Nukes Eatery to empower automated last mile delivery in specific markets, lowering transportation costs through automation while decreasing pollution.

We've also introduced partnerships with Voice AI ordering solution providers; Converse Now, Sync 3 and Valiant AI. These partners provide premier ordering automation technology, facilitating the seamless placement of guest orders at the drive through and enhancing the guest experience through shorter drive through lines. For operators, these partners increase average ticket size and alleviate labor shortages by allowing staff resources to focus on food prep, order fulfillment and guest services.

Panda Express a top 25 brand with more than 2,400 locations leverages voice AI technology partners to transform the drive-through, leading to an enhanced digital experience while paving the path to 100% digital. We believe unique solutions like Voice AI ordering will enable Olo to expand further into the QSR segment as well as increase our penetration of digital orders in the space.

Notably, the conversion of drive through to digital doesn't require consumer behavior change. Operators make the decision to enable digital in drive through converting all orders from analog to digital through Voice AI. This represents an exciting leap in the digital transformation of the drive through service model that represents the plurality of restaurant industry transactions over four times larger than delivery.

We also continue to implement product enhancements to better serve our customers, many of which we showcased in our quarterly public release event held last month in particular, at the end of October, we announced commercial availability of borderless, all those passwordless and platform levels sign on offering.

With borderless, guests can save and access their on file payment information along with contact information and delivery addresses across all participating restaurant brands securely speeding through checkout by eliminating the need for guests to create an account, remember a password or manually enter payment details at every purchase.

Borderless strives to help restaurants meaningfully increase basket conversion, retention and visit frequency, driving increased revenue and profitability. Borderless also aims to enable brands to capture valuable guest data on more orders that were previously anonymous, adding new guests and order data to their guest data platform in the industry's race to de-anonymize every order and uncover guest lifetime value.

As our latest platform level innovation, we believe borderless is the next step to improving the on-demand commerce experience, empowering brands to capture valuable guest data while delivering superior hospitality through added convenience and we're excited by the opportunity for borderless functionality to transform the sign-on and checkout experience for guests unlocking additional revenue opportunities for restaurants and Olo. Additionally, this past quarter we introduced new capacity management capabilities across our order management solutions.

As off premise volumes increase dramatically during the pandemic and as labor challenges persist, it's imperative the operators effectively manage kitchen order flow in order to ensure smooth operations in the kitchen accurate order handoff for delivery service providers and properly set guest expectations. This became a key problem for our customers that we believe Olo is best positioned to solve through our acquisition of Omnivore earlier this year, and by integrating with Kitchen Display systems or KDS data, our platform can now capture crucial on premise information.

Now, restaurants are able to provide more accurate quote times to guests and delivery service provider partners for when orders will be ready for handoff noodles and company. A fast casual brand with more than 400 locations is one customer enrolled to pilot this feature by providing more accurate quote information. Olo enables brands to be as productive as possible and as profitable as possible, all while elevating the guest experience. This is a win-win win scenario for our partners, our customers, and their guests, as well as a win for Olo.

As our platform becomes an essential integrated layer in our customers everyday operations. These product features play an important part in improving the guest experience and empowering restaurant teams to provide hospital restaurant teams to provide hospitality through optimized operations and personalization. I'm proud of the tools we provide our restaurant customers and the continuous hard work the Olo team does in order to help our customers do more with less, and I'm honored that the industry recognizes our hard work. Recently, we earned vendor of the year awards by fast casual brands, cousin subs, as well as Noodles and Company.

Over the last two years, we've dramatically expanded our core value proposition. Olos platform now provides a modular end to end restaurant technology offering that encompasses all guest touchpoints on premise, off premise guest engagement and payments.

We're laser focused on providing and delivering these solutions to enterprise and emerging enterprise brands, and we're working to ensure that we're aligned from a go-to-market perspective to fully capitalize on our broader opportunity. As we think about our future potential, we continue to believe that our poo expansion will be the most meaningful driver of growth and the best measure of our success.

We expect product adoption to increase across brands as we become an essential layer that aligns customers with Olo's vision of enabling hospitality at scale and empowering restaurants to operate as one business. And finally, as I typically do on earnings calls, I'd like to provide a corporate update.

We recently debuted our updated corporate [e-mail], which showcases the platform's modular end to end restaurant technology offering that encompasses all guest touchpoints. We also published a refreshed page for our partner program Olo Connect, which includes a tiered partner directory of our expansive technology partners. Additionally, we published our first environmental social and governance or ESG site. This site takes a big step towards our ESG disclosure efforts by publishing our environmental and social initiatives and aspirations.

We believe the future of hospitality is sustainable. We hold ourselves accountable to managing the impacts that our material topics impose on our company stakeholders and planet. Our ongoing ESG strategy development will harness opportunities to enrich our social impacts and lessen our environmental impacts while centering on strong corporate governance and ethics to close, I'm excited about our future.

The Olo platform provides restaurants with mission critical tools that drive value, allowing brands to do more with less while elevating the guests experience. We believe that olos platform is best positioned to meet restaurants needs and drive growth. We're focused on executing to create positive outcomes for our customers, partners and shareholders.

And with that, I'll hand it over to Peter to discuss more detailed results. Peter?

Peter Benevides

Thanks, Noah. Today I'll review our third quarter results in detail as well as provide guidance for the remainder of the year. In the third quarter, total revenue was $47.3 million in increase of 26% year over year platform revenue in the third quarter was $46.4 million, an increase of 28% year over year. In terms of key metrics, ARPU for the third quarter was approximately $558, representing a 15% increase year over year and a 3% increase sequentially.

Continued growth in ARPU was driven by further expansion within our existing customer base, including continued adoption of all pay year over year. The impact from subway locations transitioning from the platform positively impacted ARPU by approximately $25.

As a reminder, Subway is a single module customer with significantly lower ARPU than the average, so as locations transition from the platform, this will have a positive impact on arpu. As Noah mentioned earlier, we expect ARPU to continue to expand and be a meaningful driver of growth as we further increase multi-product adoption and transaction volumes on the platform.

We believe we have a 25 x opportunity to expand ARPU from its current levels. In the early momentum we are seeing with Olo pay and guest engagement adoption as well as on premise ordering trends gives us conviction in being able to significantly expand ARPU over time. In terms of active locations, we ended the quarter with approximately 84,000 active locations on the platform and 11% increase year over year in a 2% increase sequentially. This number was in line with expectations as subway locations held constant over the quarter, and as we continue to actively work to alleviate elongated deployment timelines, which we discussed last quarter.

And lastly, net revenue retention was approximately 107% up a hundred basis points sequentially for the remainder of the financial metrics disclosed unless otherwise noted. I'll be referencing non-gap financial measures. Gross profit for the third quarter was $34.7 million. This compares to 30.2 million a year ago. The year over year increase in gross profit was driven by continued growth in revenue, partially offset by incremental costs associated with our wisely and omnivore acquisitions.

Increased compensation costs to support new locations coming onto the platform and to a lesser extent, processing costs associated with Olo pay sales and marketing expense for the third quarter with $6.1 million or 13% of total revenue. This compares to $4.2 million and 11% a year ago. Over the past year, we have significantly increased our product portfolio and in the near term plan to continue to invest in our go to market team to fully capitalize on the growth opportunities we have with the new and existing customers.

Research and development expense for the third quarter was $15.4 million or 33% of total revenue compared to 11.9 million or 32% of total revenue a year ago. General and administrative expense for the third quarter was $10.3 million or 22% of total revenue. This compared to 9 million in 24% a year ago. The year over year percentage decline was due to continued optimization of expenses within g and a as initial cost to support OLA as a public company continue to scale.

Operating income for the third quarter was $3 million compared to 5.1 million a year ago. Net income in the third quarter was $4.3 million or 2 cents per share based on approximately 181.9 million fully diluted weighted average shares outstanding. Turning our attention to the balance sheet and cash flow statement, our cash equivalence in short and long-term investments totaled 469.2 million as of September 30th, 2022. This quarter, there were no impacts from the 100 million stock buyback program we announced in September as we did not initiate share repurchase activity before the quarter ended.

Regarding cash flows, net cash provided by operating activities was 3.3 million in the quarter as compared to 10.7 million a year ago. Free cash flow was 1.4 million compared to 10.2 million a year ago. I'll wrap up by providing our guidance for the fourth quarter in full year 2022.

For the fourth quarter, we expect revenue in the range of $48.2 million in 48.7 million in non-AP operating income in the range of $2.6 million in $3 million for the fiscal year 2022, we expect revenue in the range of $183.8 million and $184.3 million and non-GAAP operating income in the range of $9.3 million and $9.7 million. In terms of guidance, our outlook for the fourth quarter and the full year is consistent with the assumptions we discussed last quarter. Elongated sales cycles and deployment timelines have continued and while we have a robust pipeline in our actively working to speed up deployment, we anticipate these dynamics to continue in the near term.

Secondly, we remain committed to driving profitable growth inclusive of this past quarter's Operating income outperformance. We are targeting slightly higher profitability in the second half of 2022 as compared to last quarter's guidance.

As we've exhibited all throughout OLAS history, we are a financially disciplined organization and plan to continue to maintain this operating principle going forward. And lastly, in the fourth quarter, we entered into a sublease for our headquarters at One World Trade Center. As we continue to embrace a hybrid work environment, we plan to reinvest some related savings into an exciting and more fitting New York based headquarters, as well as initiate other remote employee engagement activities.

To summarize, we continue to deliver an attractive combination of strong revenue growth and profitability as we take meaningful strides towards becoming the engine of hospitality. We believe we have a long runway for growth through cross-selling, our robust and comprehensive product suite, expanding the use cases of the platform and continuing to add locations to the platform.

With that, I'd now like to turn it over to the operator to begin the Q&A session. Operator?

Question-and-Answer Session

Operator

[Operator instructions] Our first question comes from Gabriela Borges with Goldman Sachs. Please go ahead.

Gabriela Borges

Hi, good afternoon. Thanks for taking the question. Maybe a start, I'd love to get an update on some of the catalyst points or trigger points for relationships like Jack in the Box where you're seeing really nice product module expansion. No other issues that you talked about, the supply chain, the labor shortages, they've persisted for a handful of quarters now, so we'd love to get an update. What are you seeing in terms of commonalities of trigger points that are leading to expansion within the Olo platform?

Noah Glass

Well, Gabriela, thank you for the question and welcome to the group. I'd say, with Jack in the Box and maybe extrapolating beyond Jack in the Box specifically, we've seen great engagement from these large restaurant brands in the enterprise segment from QSR brands specifically, and it's really about how they want to engage with guests. I think the digital transformation of the industry is something that is permeating every segment of the industry. So it has become a guest expectation and it's operator table stakes.

It's about, as you heard from our prepared marks, better productivity, better profitability, and up-leveling the guest experience. So we see a lot of these brands, Jack in the Box amongst them saying, we had a homegrown solution, but we see that there are benefits in engaging with a SaaS platform like Olo and not so much a buy versus build, but more of a buy and build to buy into the platform and then to build on top of it in the case of Jack in the Box with a third party agency doing some of the aesthetic on top of the Olo engine.

So I think that's sort of a natural progression. In the past, we have landed with a single module in some of these relationships, proven ourselves out, shown the benefits of platform level innovation and all that Olo can do and then introduce brands to the other modules. There are 12 in total now, and so going from dispatch into dispatch and also ordering is a very natural progression and growth of the relationship, and we're excited to have the ability to land with one module and then expand into a larger suite of capabilities for all restaurant brands.

Gabriela Borges

That's helpful. And as a follow up for Peter, I wanted to pick up on your comments on profitability and balancing the investments that you're making in the opportunity that lies ahead. When do you think we might see a more pronounced inflection in profitability in the model as we think about internal planning assumptions for 2023 and beyond?

Peter Benevides

Yeah, thank you for the question, Gabriela. So in terms of profitability trends, I think at, at this point, what we've shared is that we remain committed to maintaining profitability while delivering strong growth. And we believe we can do that because one, just the, the core DNA of Olo and the discipline we have in terms of financial management, I think we've, we've shown that over our history burning less than $6 million in total investment to reach a $100 million of arr.

That discipline coupled with our highly efficient go to market in support motion enables us to drive profitability and, and growth at the same time. As we look ahead for 2023 and beyond, we believe that we can continue to, to do that in, in terms of driving profitable growth and attractive growth for the long term.

Gabriela Borges

And, so just to put a final point on that, do you think 2023 will be a year of margin expansion?

Peter Benevides

Yeah, I think, look, I think there's, there's a lot that's happening in real time as it relates to both the top line and the bottom line. What I will say is that, where we stand today, we are highly focused on making sure that we are allocating capital to the parts of the business that we believe will drive the greatest long term value for our shareholders and long term growth and in doing that, maintaining profitability.

Operator

My next question comes from Terry Tillman with Truist. Please go ahead.

Terry Tillman

Hey, good afternoon, Noah, Peter, and Stephanie first, I guess on Zach speed they're all throughout Atlanta, so that's nice to see. I'll be sure to find out how those that experiences firsthand. May, maybe the first question for you Noah is just, when we talk to investors in the past, it's like, how big is this ta? Is there a low ceiling, high ceiling, etcetera, because it's just online ordering.

We're now hearing you talk about digital entirety and on premise over a number of quarters. I think you said 50 brands, a thousand locations. So I'm kind of curious, where do you see like revenue now? Where does that stand in terms of on premise dynamic,

Noah Glass

The transactional SaaS model are built? Just back to your TAM comment for a moment and then I'll pass it over to Peter to see if he wants to add on to that. We really think that no matter how you look at it, we are in the very, very early innings of penetrating our TAM. We are well below 2% of the addressable TA that's out there in the segment that we serve. And I think we look at these drivers of growth, ARPU being the biggest one, and of course, moving on premise is part of capturing more transactions.

Olo Pay is another part of making each one of those transactions a higher revenue event for Olo. And we think that that's the, the largest part of the TAM expansion or the revenue expansion into that tam. There's location growth as well. And I'm proud also that, we have in Dairy Queen and in Jimmy John's and in Panda Express and Jack in the Box some great top 25 brands and are showing our expanded opportunity to work with those brands as well and to really add value regardless of the scale of the restaurant enterprise. And then Peter, I'll pass it over to you in case you want to double down on some of the economics of on premise.

Peter Benevides

Yeah. So Terry, just to answer your question on where the on premise transaction volumes will appear within the financials it has the potential to appear both in subscription and transaction. So in terms of subscription by having more orders processed over the platform that will then graduate customers into higher priced subscription packages. So that will help to drive subscription revenue and to the extent that customer is utilizing Olo Pay, that will help to drive transaction revenue because of the associated processing fees with Olo pay.

Terry Tillman

Got it. That's wonderful. Thank you both for the answer there. I guess, Peter, just a follow up in terms of anything you can share at all about how visibility is into 2023 compared to how visibility was going into 22? I know obviously we have the macro, but the way I'd like to kind of add to that big picture question I just asked, which is probably a hard question is, are you seeing the revenue come in as you expected for Olo pay? I think you said up to a couple million now, and I think customer engagement was going to do about $10 million. So maybe you could talk about how they're performing and just any comment about visibility going into '23? Thank you.

Peter Benevides

Yeah, so we've been pleased with the progress across both Olo pay and guest engagement. So specific to Olo Pay, this past quarter we generated just under $2 million of revenue associated with Olo Pay and for the year we're now estimating 5 million of revenue contribution.

So, great momentum there and I think part of the momentum that you're seeing with respect to Olo Pay is, brands and operators prioritizing deployment of products that are a relatively light lift to deploy and also provide very fast time to value. And that is the case with Ola Pay. It's a, it's a light touch deployment and the time to value is immediate. And I think part of that prioritization by brands and operators is due to that continued labor, dynamic labor challenges that we've, we've discussed in, in in, in prior calls in terms of 2023.

So, obviously it's still a little early. There's, there's a lot that's happening in real time. I think where we stand today we are planning as though the sales and deployment dynamics continue into 2023. But that said, I think despite, the macro challenges, I think there's a lot of reasons to remain excited about the go forward.

So I think first off, our sales pipe, first off, our sales pipeline for both new business and upsells remains robust. And we anticipate that's going to continue as br brands continue to look to do more with less and leverage digital to increase sales and improve margins.

Secondly, food away from home and digital ordering in general has remained durable, and that is in part because food is not discretionary, everyone must eat. And you're seeing that across a variety of data points within the industry. And then lastly, I think our enterprise focus in the market share we have within the limited service segment, I think provides some additional resiliency as we head into 2023. So certainly still a lot going on at the moment, but a lot of positives to remain excited about the go forward.

Operator

Our next question comes from Stephen Sheldon with William Blair. Please go ahead.

Stephen Sheldon

First one I'd ask about just the longer sales cycles. I, I know that's happening for a lot of enterprise SaaS companies and you still had plenty of wins this quarter, but what do you think is specifically driving the delay incision making here or a lot of the enterprise restaurant concepts that you're kind of going after? Are they just distracted with a variety of other issues and what do you think it could take for those cycles to, to more or less normalize?

A - Noah Glass

Hey Steve, this is Noah. Thanks for the question. I think, we are being prudent as we look at this quarter and think about the near term. We are sort of staying consistent with what we guided to last quarter. At the same time, I think there is some light at the end of the tunnel. There are some of those dynamics that are causing restaurant brands or that were causing restaurant brands to be a little bit slower to make decisions or to implement those decisions that are normalizing.

So there are things like wholesale food prices that are starting to come in. There are things like the labor environment starting to tick back up, not quite yet at pre pandemic levels, but getting closer to it. And so I, think we're being prudent, we're being financially responsible in the way that we're modeling and the way that we're planning.

But I think that, what is abundantly clear as, as we look at all those business, we think about the current macro as something that is kind of a, a temporary crosswind. And I think, we've seen moments in time like this in our history, 2008, 2009, I would contrast that with the digital transformation of this $1 trillion restaurant industry that is a mighty and persistent tailwind that's been at our back for 17 years and will be at our back for many, many years to come, especially as restaurant brands are looking to lean into digital transformation for the very reasons that Peter just mentioned, getting more productive, getting more profitable, and at the same time, upleveling the guest experience.

Stephen Sheldon

Got it. That's really helpful. And then as a follow up, just as we model active locations for the fourth quarter can you just help us frame the moving pieces on, on locations, especially with Subway continuing to roll off. I think you'd talked before about that being progressive in the fourth quarter and potentially in the early 2023. Is that still the right expectation for those remaining locations, just given the visibility you have right now?

A - Noah Glass

Yeah, that's right. So consistent with, with what we shared last quarter, we are targeting 2000 net new locations in the fourth quarter specific to Subway. The way in which we count an active location for Rails is a location having had at least one order in the period. So even as locations remaining locations begin to off board this quarter into early Q1 of next year they'll show up in the active location count, having generated at least one order in the period. So we'll be, we'll just make sure to be very clear on, on how that is evolving throughout the quarter and in in, into early next year.

Operator

[Operator instructions] Next question comes from Matthew Hedberg with RBC. Please go ahead.

Matthew Hedberg

Great, thanks guys. Following up on the question on sales cycles Noah I know last quarter you talked about a little bit different implementation headwinds, tailwinds between corporate owned and franchisee owned restaurants. I'm wondering if there's anything that that changed in the dynamic of those two restaurant styles, I guess, and then maybe as a follow up, Diego's been on now for a few months as CRO. I guess from that perspective is, are, are there things that you guys are doing specific that that could counter, that could cut through macros and, and maybe it's something he's implemented thus far?

A - Noah Glass

Hey, Matt, thanks for the two questions. I would say, nothing pronounced as a difference between corporate owned brands. Those are pretty rare. Those, those brands that have all corporate locations, most of the industry, whether we're talking about enterprise or emerging enterprise, are a smattering of corporate stores, but primarily franchisee locations.

And last quarter we mentioned some of the efforts that we were taking, making things easier on the restaurant brands to do the implementation themselves, do the deployment themselves, also using third parties to do deployments as an augmentation for the restaurant brand. And then although taking on more of the work, and I think, when I talk about these deployments that we're celebrating this quarter, take one, take Jack in the box of rolling out to 2,200 locations that is deploying to 2,200 locations in a highly franchised environment.

I think it's showing how those efforts that we're making are helping to get brands that have been sold and are showing up in bookings, actually deployed and live on the platform for their operators benefit and for the guest benefit, and obviously for OLAS benefit when I think about Diego and some of the things that he's focused on in the role of chief revenue officer, it really aligns with our commentary around the growth drivers of the business.

So we are very focused on ARPU as a huge driver of growth, and that is about selling additional modules into existing restaurant customers who are asking us to play a larger role because we're a mission critical platform and we've become something of a digital transformation area to these brands.

So they're asking us to do more with them, and we now have a lot more to offer because of our great product r and d and the MNA activities that have added new modules into our, our platform. So we're focused on that. We're focused on selling in OLA pay, selling in guest engagement and of course we're still focused, very focused on landing additional restaurant brands from the enterprise segment and the emerging enterprise segments. I'd say, we are right sizing our investments to go after all of those opportunities and believe that we have, so much room to grow and a huge tam to grow into under Diego's leadership.

Operator

Our next question comes from Brent Bracelin with Piper Sandler. Please go ahead.

Clarke Jeffries

Hi, this is Clarke Jeffries on for Brent. First question is around our pro-growth, 3% sequential growth and our PR certainly looks healthy. Just wondering maybe Peter, what, what kind of ARPU growth do you think you can achieve either based off of the Olo pay rollout or multiple software roll module rollout. You think it could be at sustainable at these kinds of levels for sequential ARPU growth?

And then, maybe second on that, reaching a point where they're now 12 modules to sell from a philosophy perspective, from a growing efficient, efficiently perspective, do you think you might change to preference more overall ARR or total contract value added at a lower gross edition level as in more multimodal lands and that growth additions could take a backseat to the growth model over the next 12 months to 18 months?

A - Noah Glass

Yeah, so in terms of the ARPU sequential growth trend, I think, if you go back in time, I think the growth has been from a trendline perspective lumpy at times. And part of that is because of how products are deployed as well as the number of products that are subscribed to from the onset of the relationship.

So depending on, even if a customer subscribes to say three products at the onset of the relationship, they may roll out one at one time and then the second and third at a subsequent time, which would make the trend line a bit smoother versus some customers deploying all three modules right from the onset, the way I would think about the long term kind of growth rate or growth potential who is really through that 25 x opportunity lens.

And that is really by driving more transactions on the platform as well as increasing via, as well as increasing the adoption of all pay. So looking at the RPU from where it stands today on a quarterly basis, having a 25 x opportunity to expand that number over time. And then if I'm, in terms of your second question, if I'm understanding that right I think the question is around the ability to expand ARPU over time.

If more and more customers are landing with more products from the onset of the relationship. I would say we're, we've seen more of that in the emerging segment of the, of the of the business, which we noted on the call where oftentimes that segment of the market is coming to us and that they're wanting us to solve a number of pain points from the onset of the relationship.

So they're typically taking order management, delivery enablement, and now more, more recently Olo pay. I think that obviously presents some challenges to further expand ARPU when you're taking everything up front, but I think we would obviously en enjoy that problem and being able to have a higher ARPU from the onset of the relationship.

Clarke Jeffries

Makes sense. And I think I had a, a follow up related to it seems like a lot of the enterprise land, you noted this quarter were relationships that took more of the modules up front instead of just ordering. But no, I wanted to ask about how do you view the industry changing around own proprietary versus legacy replacement?

Maybe you can help us frame the sort of portion of engagements where you're going in and replacing proprietary versus a legacy solution. It seems like the Jack and the Box deal was very much based off of your competency in integrating with the proprietary. So I'd love to just get your thoughts on how that's evolved over the history of the company and where you sit today.

A - Noah Glass

Well, Clark, thank you. I think that's, that's used me up for an important point, which is that the trend has certainly been that brands are migrating from homegrown to Olo. And if I just think about the time really over the last 18 months since our IPO, there are 10 sizable brands that have made that transition. Carl's Junior, Cara's Italian Grill, Hardy's, Jack in the Box, Outback Pot Belly, Ruby Tuesday, Smashburger, TG Fridays, and now Zach BS.

And I think this is exactly what we were hoping to see by becoming a public story, by branding the strength of Ola's business, the strength of Ola's balance sheet, hearing our philosophical commitment to being an independent and open platform, and then seeing some of the platform level innovation that we've been able to bring to life. First in dispatch that en rails most recently in borderless, I want to come back to that in a moment.

These are things that brands can't build themselves. They are things that you can build once you've built a two-sided network of many brands on one side and many partners on the other. If I think about borderless as the extreme example of this point, this is a two-sided network that we've created that connects the 84,000 restaurants on our platform. And for those of you who don't know the industry super well, 84,000 restaurants is very large.

Take every McDonald's in the United States, it is six times every McDonald's in the United States, the number of locations, and it connects those to 85 million restaurant guests that order through Olo. That's more than the entire population of Germany. Olo is then serving as the conduit between those restaurants and those restaurant guests and creating a win-win, a better experience for those restaurant operators.

And for those restaurant guests who no longer have to create an account, remember a password re-enter payment details, they have a better, faster experience and it leads to those restaurant brands getting more of that guest data into their guest data platform, which is really the holy grail. This is what restaurants are looking for, ways in which they can get guest data into their guest data platform, de-anonymize transactions and tie every transaction back to a guest account so they can unlock and uncover the guest lifetime value.

And I think that's something that Olo is uniquely able to do and really where the industry is headed. And so I think when you compare that to just the tactical building of functionality for on-demand commerce it just, there's no comparison to what we're able to build as a platform serving the industry as a whole.

Operator

[Operator instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Noah Glass for any closing remarks.

Noah Glass

Okay. Well thank you all for joining us again today. We are honored to be a mission critical platform for the restaurant industry and to serve as the engine of hospitality, helping restaurants to drive sales, do more with less, and make every guest feel like a regular. Thank you team Olo for your hard work and execution. We have miles to go before we sleep.

Operator

The conference is now concluded. Thank you for attending's presentation. You may now disconnect.