Olo's (NYSE:OLO) Q1 Sales Top Estimates, Growth Outlook In Line With Expectations

Jabin Bastian /
2022/05/10 4:30 pm EDT

Restaurant software company (NYSE:OLO) announced better-than-expected results in the Q1 FY2022 quarter, with revenue up 18.3% year on year to $42.7 million. The company expects that next quarter's revenue would be around $45.7 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Olo made a GAAP loss of $11.5 million, improving on its loss of $26.4 million, in the same quarter last year.

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Olo (OLO) Q1 FY2022 Highlights:

  • Revenue: $42.7 million vs analyst estimates of $41.6 million (2.63% beat)
  • EPS (non-GAAP): $0.01 vs analyst estimates of $0 ($0.01 beat)
  • Revenue guidance for Q2 2022 is $45.7 million at the midpoint, above analyst estimates of $45.4 million
  • The company reconfirmed revenue guidance for the full year, at $196 million at the midpoint
  • Free cash flow was negative $3.42 million, compared to negative free cash flow of $10.6 million in previous quarter
  • Net Revenue Retention Rate: 107%, down from 120% previous quarter
  • Gross Margin (GAAP): 70%, down from 81% same quarter last year

“In the first quarter, Olo’s revenue and profitability momentum continued, as we took meaningful strides towards enabling digital hospitality. Our platform supported year-over-year growth in transaction volume, and we expanded our product portfolio and use cases, added new and expanded existing relationships, and grew our technology partner ecosystem,” said Noah Glass, Olo’s Founder and CEO.

Founded by Noah Glass, who wanted to get a cup of coffee faster on his way to work, Olo (NYSE:OLO) provides restaurants and food retailers with software to manage food orders and delivery.

Enterprise resource planning (ERP) and customer relationship management (CRM) are two of the largest software categories dominated by the likes of Microsoft, Oracle, and Salesforce.com. Today, the secular trend of mass customization is driving vertical software that customizes ERP and CRM functions for specific industry requirements. Restaurants are a prime example where a set of customized software providers have sprung up in recent years to create unique operating systems that blend tax and accounting software, order management and delivery, along with supply chain management.

Sales Growth

As you can see below, Olo's revenue growth has been very strong over the last year, growing from quarterly revenue of $36.1 million, to $42.7 million.

Olo Total Revenue

This quarter, Olo's quarterly revenue was once again up 18.3% year on year. We can see that revenue increased by $2.79 million in Q1, up on $2.56 million in Q4 2021. While we've no doubt some investors are looking for higher growth, it's good to see that quarterly revenue growth is re-accelerating.

Guidance for the next quarter indicates Olo is expecting revenue to grow 27.4% year on year to $45.7 million, slowing down from the 47.6% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 33.5% over the next twelve months.

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Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

Olo Net Revenue Retention Rate

Olo's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 107% in Q1. That means even if they didn't win any new customers, Olo would have grown its revenue 7% year on year. Despite it going down over the last year this is still a decent retention rate and it shows us that not only Olo's customers stick around but at least some of them get increasing value from its software over time.

Key Takeaways from Olo's Q1 Results

With a market capitalization of $1.51 billion Olo is among smaller companies, but its more than $463.7 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was good to see Olo outperform Wall St’s revenue expectations this quarter. And we were also glad that the revenue guidance for the rest of the year was in line with expectations. On the other hand, it was less good to see the deterioration in revenue retention rate and gross margin deteriorated. Overall, it seems to us that this was a complicated quarter for Olo. The company is flat on the results and currently trades at $8.9 per share.

Olo may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.