Q3 2023 Olo Inc Earnings Call
Participants
Gary Fuges
Noah Herbert Glass; Founder, CEO & Director; Olo Inc.
Peter J. Benevides; CFO; Olo Inc.
Andrew James Harte; VP & Fintech Analyst; BTIG, LLC, Research Division
Clarke Jeffries
Matthew George Hedberg; Analyst; RBC Capital Markets, Research Division
Stephen Hardy Sheldon; Analyst; William Blair & Company L.L.C., Research Division
Terrell Frederick Tillman; Research Analyst; Truist Securities, Inc., Research Division
Unidentified Analyst
Presentation
Operator
Good afternoon. My name is Irene, and I will be your conference operator today. At this time, I would like to welcome everyone to the Olo Third Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.
I would now like to turn the call over to Gary Fuges, SVP, Investor Relations. Please go ahead.
Gary Fuges
Thank you. Good afternoon, everyone, and welcome to Olo's Third Quarter 2023 Financial Results Conference Call. Joining me today are Noah Glass, Olo's Founder and CEO; and Peter Benevides, Olo's CFO.
During this call, we will make forward-looking statements, including, but not limited to, statements regarding our expectations of our business, our industry and our future financial results. These statements reflect our beliefs and assumptions only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For discussion of these material risks and uncertainties, please refer to our Form 10-Q that was filed today and our other SEC filings.
Also during this call, we'll present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings releases, which are available on the Investor Relations page of our website. 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.
With that, I'll turn the call over to Noah.
Noah Herbert Glass
Thank you, Gary. Hello, everyone. Thank you for spending time with us today. In Q3, we continued to deliver on our 2023 financial and strategic goals. We generated strong quarterly results. We landed and expanded with both enterprise and emerging enterprise brands and drove innovation that helps our customers drive increased sales, operational efficiency, and superior guest experiences. Third quarter financial performance exceeded the high end of our revenue and bottom line guidance ranges, with total revenue increasing 22% year-over-year and non-GAAP operating margin expanding to 10%.
Platform revenue grew 24% year-over-year, driven primarily by the consistent solid performance in our ordering module, the foundational components of the order suite and by rapid growth in Olo Pay. As our guidance for the fourth quarter reflects, we expect to build on our strong Q3 results. More importantly, the team's hard work this year sets us up to execute on our long-term goal to be the platform that enables restaurant brands to harness the power of their guest data.
With the scaled network that includes more than 600 brands, Olo is well positioned to help brands power their digital orders and payments, capture the associated guest data and convert these data into insights that can help brands drive more traffic. We ended the quarter with approximately 78,000 active locations, adding approximately 1,000 net new locations sequentially. Average revenue per unit or ARPU increased 33% year-over-year, and net revenue retention expanded for the fifth consecutive quarter to approximately 119%. The major customer trends in the quarter were consistent with what we've seen throughout this year.
Pay is leading the expansion motion with enterprise brands, and we're winning more new business within the emerging enterprise segments. In Enterprise, we became a strategic partner of FAT Brands, a large portfolio of casual, fast casual, and quick service concepts. We began our journey with FAT Brands with a few brand level relationships for order. Today, we have a parent level partnership with FAT Brands that includes our order and pay suites as well as Borderless, our password-less checkout feature coupled with Pay. As part of this expanded relationship, Fatburger, a net new brand for Olo deployed order and pay in the quarter.
Additionally, Great American Cookies became the first FAT Brand concept to roll out Borderless. It's an exciting evolution of our FAT Brands relationship that offers us expansion opportunities into their entire U.S. portfolio. Dave's Hot Chicken and Potbelly both launched Olo Pay, making Q3 the fifth consecutive quarter where an existing enterprise customer has expanded into our rapid growth payment solution. We're excited to share that Pay recently eclipsed $1 billion in cumulative gross payment volume or GPV. Based on its year-to-date performance, Pay is on track to process more than $1 billion in GPV in calendar year 2023, which would be a 4x increase from calendar year 2022.
Why is Olo Pay scaling so rapidly? Pay's performance metrics exceed key industry benchmarks, including authorization, fraud and chargeback rates, which helps decrease friction in the guest experience and increase efficiency and profitability in brand operations. When brands utilize Borderless, which is coupled with Pay today, our research indicates they see higher order frequency from guests with Borderless accounts. Since its launch about 5 quarters ago, Borderless has scaled to more than 1 million total guest accounts created. It's an early milestone in our journey here, and we see an opportunity to make Borderless available to all of our customers. We believe this would be a win for guests and it would help make Olo an even stronger partner to drive traffic for brands, which is more important than ever in our industry.
I want to provide an update regarding our ongoing relationship with Wingstop, who's indicated an intent to transition from the platform when their contract expires at the end of Q1 2024. This customer represents less than 3% of total revenue in approximately 1,800 locations. We do not believe any change in this relationship would be material to our business. Still, we feel it's important to address this today given their announcement last week. As our contracts are typically 3 years in duration, we have a regular cadence of renewal discussions. Most brands continue on with us as reflected in our high gross retention rate that's exceeded 95% since our IPO, and many expand with us as illustrated by our 119% net revenue retention rate this quarter.
While we've seen a few instances of brands opting to build their own technology, we view these as outliers. Far more frequently, we see brands migrate from homegrown tech to Olo. We believe our SaaS platform offers economies of scale, lower total cost of ownership and greater innovation than homegrown tech. We invest over $90 million annually to deliver enterprise-grade reliability and platform-level innovation where every customer benefits from new features and product enhancements. The industry is beginning to validate our strategy of leveraging transaction data to improve operations and personalize the guest experience to drive increased conversion and frequency. We've built a differentiated platform at scale, which we believe puts us in a unique position as data becomes increasingly vital to success in the restaurant industry.
Turning to the emerging enterprise segment, which we define as brands with 5 to 99 locations. We continue to see strong multi-module adoption, including Pay. In Q3, several new emerging enterprise brands deployed 4 or more modules, including Eataly, Gold Star Chili, La Madeleine, Lou Malnati’s, and Margaritaville Restaurants.
Eataly deployed several Olo modules across its North American brick-and-mortar locations in Q3, with each location operating a virtual Eataly Paninoteca as well. Olo is helping Eataly meet its customers where they are, making it more convenient for customers to order from their favorite Eataly spots. In the coming months, each location plans to add another virtual concept, Eataly Cafe. And Engage is also demonstrating product market fit with emerging enterprise.
In Q3, California Fish Grill deployed engages marketing, sentiment, and GDP modules. Our emerging enterprise segment represents brands with the ambition to scale, making Olo the ideal choice to serve their ordering, payments, and engagement needs. Dave's Hot Chicken is not only a new pay customer. They're the epitome of why we're focused on emerging enterprises. Dave started with Olo in 2020 as an order customer, and they were just shy of 80 locations. Since then, they've more than doubled their locations and expanded into additional modules. Today there are a multimodule enterprise brand customer that relies on Olo to fuel their growth. This is our playbook for emerging enterprise, serve their needs today and scale with them as they grow.
As emerging enterprise brands tend to be more greenfield opportunities, our success in this part of the market can help drive both overall location counts and ARPU. An important part of serving our brands is providing continual innovation. And in Q3, we released several updates and new features across our 3 product suites. I'll review the highlights, and I encourage you to watch the latest release video on our website to learn more about how new features are helping brands increase their revenue streams and do more with less.
In our order suite, we launched Catering+, a robust ordering engine that integrates seamlessly with a customer's existing meal time ordering platforms and enables high-value guests to place orders using a line of credit extended by the brand. Catering is a high-value channel, generating about $350 in average order value, and its roaring back post pandemic. In Olo Pay, we added automated dispute response, a feature that automatically responds to certain disputes that have not been addressed by our customers.
Leveraging Olo's internal ordering data, this feature aims to boost chargeback responses and win rates while eliminating the need for manual intervention. It's just another way Olo helps our brands lower their cost of doing business. We also made progress toward our goal of expanding pay into card-present processing. In Q3, we began processing card-present transactions through a second kiosk partner. And in Q4, we expect to have card-present live in all locations of an emerging enterprise fast casual brand. We have plenty of runway in card-not-present to support Pay's continued growth.
As non-digital transactions account for more than 80% of restaurant transactions today, we expect card-present to be an additional growth driver for Pay as brands cycle through their existing multiyear legacy payment processing relationships. And in our Engage suite, we enhanced the sentiment module to help resource constrain marketing teams monitor and engage with guest feedback across rating and review platforms. With an intuitive user interface, more powerful reporting capabilities and new AI tools that help marketing teams personalize and streamline their replies.
Sentiment is stronger than ever in helping brands foster loyalty, win back on happy guests and turn review sites into reliable acquisition channels. Q3 was another solid quarter of financial performance as we executed further on our 2023 priorities. We delivered top line growth and operating leverage while investing in our go-to-market motion and product suites to position us for the long term. Pay is leading the charge on enterprise brand expansion, and we're establishing Olo as a winner for emerging enterprise restaurants with the ambition to scale. As the industry continues to move toward a data-centric approach to driving guest engagement and operational efficiencies, we believe our long-term competitive advantage increases with each quarter.
I'll now turn the call over to Peter, who will review our third quarter financial performance and outlook. Peter?
Peter J. Benevides
Thanks, Noah. Today, I'll review our third quarter results as well as provide guidance for the fourth quarter and the full year 2023. In the third quarter, total revenue was $57.8 million, an increase of 22% year-over-year. Platform revenue in the third quarter was $57.3 million, an increase of 24% year-over-year. We saw growth across all 3 of our product suites, most notably Olo Pay, which is tracking ahead of our expectations. I'll provide more color on this momentarily.
In terms of key metrics, ARPU for the third quarter was approximately $742, representing a 33% increase year-over-year and a 4% increase sequentially. Further growth in ARPU was driven by continued progress in driving the average number of modules adopted by our customer base, including higher ARPU solutions like Olo Pay as well as the year-over-year impact of Subway departure. The sequential improvement in ARPU was ahead of our expectations and reflects stronger-than-expected uptake of Olo Pay. Net revenue retention was approximately 119%, an increase of approximately 400 basis points sequentially.
The ongoing strength in net revenue retention is being driven by ARPU growth as we successfully execute our cross-sell strategy as well as consistent strength in gross retention. And lastly, in terms of active locations, we added approximately 1,000 net new active locations to the platform sequentially, ending the quarter with approximately 78,000 active locations. This is modestly below our target for the quarter and was related to timing of go-lives.
As we have discussed in the past, we can experience longer-than-expected implementation cycles due to customer resource constraints, which can impact the pacing of our new location deployments. We experienced this in Q3 and into Q4 with a large enterprise customer. As a result, excluding the impact of Subway, we now expect to add approximately 4,000 to 5,000 net new locations to our platform in 2023. For the remainder of the financial metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial measures. Gross profit for the third quarter was $38.8 million. This compares to $34.5 million a year ago. The year-over-year increase in gross profit was driven by continued growth in revenue, partially offset by processing costs associated with Olo Pay.
We are making good progress scaling Olo Pay, which we expect will continue to become a larger part of our overall mix. Sales and marketing expense for the third quarter was $9.4 million or 16% of total revenue. This compares to $6.2 million and 13% a year ago. We made significant investments in our go-to-market team over the past year to align to our product suites in cross-sell strategy. We expect sales and marketing expense to decline as a percentage of revenue over time.
Research and development expense for the third quarter was $14.3 million or 25% of total revenue compared to $15.7 million or 33% of total revenue a year ago. We continue to make meaningful R&D investments to support our growth initiatives, but at a more normalized level relative to a year ago when we were releasing Olo Pay, our Borderless capabilities and the Engage suite. General and administrative expense for the third quarter was $9.4 million or 16% of total revenue. This compares to $9.7 million and 20% a year ago.
We expect to continue leveraging G&A expense as we scale the business and identify additional efficiencies in this area. Operating income for the third quarter was $5.7 million compared to $3 million a year ago. Operating margin was approximately 10% in Q3 as we generated operating leverage both sequentially and on a year-over-year basis. Net income in the third quarter was $7.6 million or $0.04 per share based on approximately 176.7 million fully diluted weighted average shares outstanding.
Turning our attention to the balance sheet and cash flow statement. Our cash, cash equivalents in short and long-term investments totaled $397.6 million as of September 30, 2023. Pursuant to the share repurchase program, which we announced in September 2022, in the third quarter, we repurchased 2 million shares for a total of approximately $13 million net of commissions. Since the introduction of our share repurchase program, we have repurchased 8.8 million shares for $63 million. We have approximately $37 million remaining on our authorization.
Regarding cash flows, net cash used in operating activities was $21.6 million in the quarter as compared to net cash provided by operating activities of $3.3 million in the quarter a year ago. Free cash flow was negative $24.4 million compared to positive $1.4 million a year ago. The cash outflow impact for the quarter was primarily due to higher day's sales outstanding for the period due in part to a change in billing timing. We expect the day's sales outstanding dynamic to reverse in the coming quarter, while the billing timing impacts to be one time in nature.
I'll wrap up by providing our guidance for the fourth quarter and full year 2023. For the fourth quarter of 2023, we expect revenue in the range of $58.5 million and $59 million; and non-GAAP operating income in the range of $6.2 million and $6.6 million. For the fiscal year 2023, we expect revenue in the range of $223.8 million and $224.3 million and non-GAAP operating income in the range of $17.6 million and $18 million.
A few things to note as you consider our guidance. Olo Pay continues to be an impressive source of strength with customer adoption exceeding our expectations. As Noah mentioned, we are on track to exceed $1 billion in GPV in 2023. As a result, we are now increasing our Olo Pay revenue outlook for the full year to be in the mid-$20 million range. This compares to our most recent outlook in the low $20 million and our expectation at the beginning of the year from mid to high-teen million. The Order and Engage suites are tracking to our expectations, and their revenue outlooks are unchanged.
To wrap up, we delivered strong third quarter results on both the top and bottom line. Our strategic focus to expand our value proposition beyond digital ordering is working, increasing the value we deliver to customers in providing Olo a robust expansion opportunity. We are early in this process and believe we are well positioned to continue delivering an attractive combination of top and bottom line growth going forward.
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) The first question we have is from Stephen Sheldon of William Blair.
Stephen Hardy Sheldon
First on the Wingstop loss, it sounds like they're moving to an in-house solution that they're rolling out in early 2024. Do you have visibility into other customers that are making tech investments like that? And what gives you the confidence that the general enterprise trends will be more towards outsourcing their tech stacks versus insourcing?
Noah Herbert Glass
Stephen, hello, this is Noah. Thank you for the question. To answer the first part, we don't have visibility into any other customers that are contemplating a similar plan. With regard to Wingstop's intended plan, look, we think this is the right strategy, but the wrong tactics. The right strategy in that every brand should be focused on getting to 100% digital, collecting and using data to increase conversion and frequency to drive traffic. But we think it's the wrong tactics in building a homegrown software. That's very expensive. Wingstop has communicated that they had spent $50 million already, and that's just a down payment on a homegrown software platform.
Olo spends $90 million annually to maintain our platform and to innovate to meet the needs of our customers and their guests. Holding aside that ongoing expense, if you think about 600 brands each paying $50 million to kind of brands that are on our platform today, that would be $30 billion. If you think about Olo revenue, that's under $300 million. So it's a 100:1 ratio. That is a case study in the economies of scale of a SaaS platform. That's not a belief, that's not even a judgment, that's just math. No matter what the scale is, SaaS is a more efficient way of going about this than homegrown. And that's why we don't take any enterprise brand out of our addressable market, and we won't be satisfied until 100% of them are Olo customers.
If you look at the trend since our IPO, the trend has been brands migrating from homegrown solutions over to Olo, and there have been 10 of those, more than 10 since the IPO. We mentioned in the prepared remarks, 95% gross retention rate since our IPO and a 119% net revenue retention this quarter, and that's really representative of restaurant brands validating that Olo is mission-critical and leaning into doing more with Olo as they become digital-first businesses.
Stephen Hardy Sheldon
Maybe switching gears, you guys typically have good visibility into consumer behavior, especially on the digital ordering side. So curious what you've been seeing in recent months related to consumer spending at restaurants. Anything notable to call out on propensity to spend, willingness to pay for the convenience of delivery, basket size, et cetera. We've been hearing a lot of conflicting data points on how trends are holding up. So just curious what you're seeing with any visibility you have?
Noah Herbert Glass
Yes. I think that is in line with what we've heard that restaurant guests are spending less, that the average order size is shrinking, that they're seeking value. And part of that is in response to menu price inflation and part of that is in response to inflation and elevated costs in the form of elevated commodity costs, wage rates, et cetera. I think the key thing is that as restaurants raise prices, there's a trade-off in traffic. It's just normal price and supply and demand dynamics at play there. And so our responsibility as the old platform is how do we help restaurant brands to drive traffic.
And driving traffic, it's really all about meeting the needs of a restaurant's guests, improving conversion and then improving frequency. And that's where the Engage suite and a guest data platform that can really help a restaurant brand, focus on its most valuable guests and get them to order more frequently has an outsized impact on traffic and enables the restaurants to do more with less in terms of labor and the cost of labor. So helping the restaurant become more efficient while improving the guest experience and making the guest journey more personalized is really the common thread across all of our solutions, and that's more important than ever in an industry that needs to drive traffic.
Stephen Hardy Sheldon
And then just one last one, I guess, just as we head into 2024. How are you guys thinking about the balance of pushing for top line growth versus letting profit ramp more? I know you're not giving guidance yet, but just hope you can provide some high-level thoughts there.
Peter J. Benevides
Yes. So I think that -- this is Peter here. As you think about planning around 2024, we think we're in a pretty good position to balance both attractive growth and profitability. And I think the -- we've been proving that out as we move throughout the year in terms of stabilizing in some quarters, reaccelerating growth at the same time, expanding bottom line operating margins. We did that this quarter with a slight reacceleration of growth as well as a slight expansion in operating margins. And we think that we can, as we look ahead to 2024, provide something similar in the form of continued strength in both top line growth as well as operating margin expansion.
Operator
The next question we have is from Matt Hedberg of RBC Capital Markets.
Matthew George Hedberg
Noah, just one more for you on Wingstop. Just in terms of thinking about the cadence next year, how should we think about the timing of those locations and thus the revenue rolling off next year?
Noah Herbert Glass
Hello, Matt, it's hard for us to say. We don't have the specifics of that. What we are communicating is that the current contract ends at the end of March. So we don't have good visibility beyond that. It's our practice to have ongoing contract conversations with the brand towards the end of the contract. And that's what we can have visibility on at this point.
I'll let Peter comment, if you can give more specifics around location and revenue impact as we see it.
Peter J. Benevides
Yes. So just to pile on there, Matt. So as Noah mentioned, the current contract ends at the end of Q1. At this point, unclear in terms of what that means for the balance of 2024, the final 3 quarters. But what we have shared in terms of relative scale, sub-3% from a revenue standpoint and about 1,800 locations. So the more -- as we get more information on what that means for 2024, we'll obviously share with the group of where we stand today, that's what we know.
Matthew George Hedberg
And then I guess for either of you. What really stood to me, obviously, the raise for the full year was significantly more than the Q3 beat. And I think in your prepared remarks, you talked about sort of the guidance illustrating confidence in the business. I wonder if you could maybe be a little bit more prescriptive on what exactly is driving that fairly significant rates into Q4? Is it Pay? Is it just general ordering trends? Just maybe a little bit more help on kind of the construct of the raise.
Noah Herbert Glass
Yes. So I can take that one, Matt. It is Pay. So what we tried to get across in the prepared remarks is that when we look across the 3 suites, order engage, continue to pace as planned. And a lot of the growth, I should say, the outperformance is being driven by pay. And as we look ahead to the fourth quarter, the beat this quarter being predominantly driven by Pay and kind of fast forward in that -- forward for the fourth quarter, we have pretty good conviction and that continuing on through the balance of the year. So that's really what's driving the incremental rate for the fourth quarter.
Operator
The next question we have is from Terry Tillman of Truist Securities.
Terrell Frederick Tillman
I hope it's 2, but, look, it maybe 2.5 questions. But the first one is just on card-present. It seems like that's a big opportunity, if not bigger opportunity [TAM wise]. Could that actually start showing up in the model meaningfully in the first half of '24 or second half of '24. And the second part of that first question is, just in general, it's a bit of a hard question, but when do you think gross margins then start to stabilize from just the onslaught of pay. And then I have a follow-up.
Noah Herbert Glass
Yes. So I can take those first questions there, Terry. So in terms of card-present, what we've communicated is that the plan is to continue to develop that offering through the first half of next year and then hopefully be in market at some time in the second half of the year. Now how that -- how quickly that shows up in revenue is TBD. Right now, we're -- what we've communicated is, from a revenue standpoint, it's more of a 2025 thing. But to the extent development time line speed up, we'll obviously update the group on that timing.
And then in terms of gross margin trends, I think what you've seen over the -- really throughout the course of this year is sequentially somewhere in the, call it, 150 to 200 basis point sequential decline in gross margin, which we view that as a positive, right? That's telling us that Olo Pay is scaling really nicely. And that's what we want to see play out over time. It's our thinking that that will likely continue into 2024 as card-not-present continues to scale. And then once card-present starts to come into the fold, that will also help to further grow gross profit dollars and take blended gross margins down. We get some point, we'll start to think are shifting to a gross profit dollar basis as card-present starts to come into the fold because it's at that point that you'll start to see accelerating growth in gross profit as a function of card-present starting to scale.
Terrell Frederick Tillman
And then maybe, Noah, my follow-up question is, on the enterprise side, I don't know if it's an evolution or a change, but it definitely feels like you all are emphasizing the broader platform, in particular, Olo Pay now gaining traction there. So what can you share with us just to get some comfort here in terms of the enterprise market? What inning are we in, in terms of still being a play for digital transformation to replace legacy ordering solutions? Like how much more is there opportunity there? Is there still some brownfield opportunities? Or is it truly more at just attaching Olo Pay and other solutions to the current base?
Noah Herbert Glass
Thanks, Terry. I think that there is still significant long-term location addition opportunity in the enterprise space in that 100-plus unit segment of the market. These are lumpier, of course. These are -- this is a segment that we are successful and it's been our anchor. There are more enterprises to go out there and win. We pointed to Fatburger and the FAT Brands portfolio as an example of a win from this last quarter. There's also the top 25 brands, and we have 4 of those in Dairy Queen, Jack in the Box, Jimmy John's, Panda Today. We talk to these brands frequently. We think about them really as upside to our model, difficult for us to forecast.
I think that where you see the predicted -- predictive sales machine is really in the emerging enterprise segment. And that's, again, 5 to 99 location restaurant brands. That's where we're landing a lot of new brands, a lot of greenfield opportunities. We're landing the brands, the locations, many of which are coming on with multiple products, multiple suites, order and pay with Engage oftentimes. So we think that is a really attractive part of the market.
And just to clarify, this is not SMB, 1 to 4 unit restaurant brands that are going to stay 1 to 4 unit restaurant brands. These are the great enterprises of tomorrow, those brands that have the ambition to scale those brands that want to be like the Sweet Green of tomorrow. So when we think about our long-term strategic plan, it's really about ARPU expansion as the primary growth driver given the broader set of solutions that we now have. We can sell that back into the existing 78,000 restaurant base. We're leading with pay. Obviously, that's outperforming, as Peter has shared.
Specifically, we're following that with Engage still early, early innings there. And then we're expanding into new channels over time. We think on-premise is very exciting for digital to penetrate. We think drive-through is very exciting for digital to penetrate. So overall, very early innings still.
Operator
The next question we have is from Gabriela Borges of Goldman Sachs.
Unidentified Analyst
This is [Max] on for Gabriela. Two questions from us. First is, can we get an update on your Engage product suite? If you had to narrow it down, what functionality within Engage is currently having the most traction in your customers? And if you could share any data points on adoption of Engage, that would be helpful.
Noah Herbert Glass
Max, Noah here. So on Engage, I think the hero products without a doubt is the guest data platform. What is in horizontal software referred to as customer data platform. We -- as I've mentioned in the past, call it, the guest data platform because that's how restaurants think about their customers as guests. That is the way that restaurants are able to really have a database that they're focused on growing, they're focused on adding transactions to tie back to their guests and resulting to guest lifetime value. It's also what then drives the other capabilities of the Engage suite marketing automation, which we've just embedded artificial intelligence assistance into to script messages to get the right message to the right guest at the right time and upgraded sentiments tool also that involves artificial intelligence and pulling in third-party review sites and surveys and additional touch points all hubbing into the guest data platform.
But the goal of this is, again, to understand every guest and then to really target those guests who are the highest lifetime value guests. There's a Pareto principle where the top 20% of guests tend to drive 60% of the overall traffic at a restaurant. So increasing their traffic, increasing their order frequency has an outsized impact on the business. And that's really an evolution for restaurants to be able to focus more than just on loyalty or e-mail marketing programs, but to think about capturing all of the guests that they see into their guest database and having a way to make every guest feel like a regular through a platform like the Engage platform.
Unidentified Analyst
And how does the competitive environment change as you move down market? How are you approaching this market differently or the same versus what you're doing in the large enterprise segment?
Noah Herbert Glass
Well, interpreting that question as holistic in terms of the order pay and Engage suite because typically, that is how we're going to market with emerging enterprise. I'd say a lot of our focus in the past year has been scaling our go-to-market effort and having more demand generation and assigning the emerging enterprise accounts out there in the market to an expanded go-to-market team, having solutions architects, having sales engineers so that we can sell to a brand for a larger digital platform than just purely a digital ordering offering that the enterprise brands on the platform know us for. Emerging brands now are coming on with order and pay, typically, and many of them are also coming on with Engage.
So telling that larger story to emerging enterprise brands that we're a digital platform that they can get started with now and grow and scale with over time. is critically important to the way that we go to market and tell the Olo story to that emerging market segment.
Operator
The next question we have is from Andrew Harte of BTIG.
Andrew James Harte
Hello, Noah, Peter. You talked about that enterprise customer that split into the fourth quarter. Is there any color you can share on what type of customer that looks like in terms of locations or ARPU, anything along those sides? And I guess, more generally, what does this new location pipeline look like? How would you characterize it today?
Noah Herbert Glass
Yes. So in terms of size of organization, it's sort of call it in the high 100s, low 1,000 range in terms of size, in terms of dynamics as to why it's pushing. Again, I think what we shared on the call is that kind of constraints at the brand's perspective, in this case, there's a rollout that is being coupled with the POS rollout. So as POS installs are happening, they're also deploying the Olo platform. So that is being staged in that manner.
In terms of what this means for 2024, where we are today, we feel pretty good in terms of having similar net location adds next year as to what we're pacing to this year, even net of the Wingstop update. So to know it's earlier point, plenty of market to go get out there, and the team has really fired up to go and deliver on that, and we feel really good entering 2024.
Andrew James Harte
And then just a follow-up. At $1 billion of GMV this year. I guess if you -- the entire platform is doing $23 billion, it's a little under 5% penetrated on Olo Pay. Kind of where do you see that cadence going towards in 2024 and beyond?
Peter J. Benevides
Yes. I actually think about it a little bit differently, which is if you think about the $23 billion of GMV that we quoted last year being processed over the platform, and you assume that, call it, 15% of transactions industry-wide are digital. That means as card-present comes to market we actually have a, call it, 6x opportunity just within the installed base, which takes that $23 billion somewhere north of $150 billion in terms of just GMV within the existing installed base once we have a 360 payment solution available.
So by comparing the $1 billion, which we're really proud of, it's a great milestone as compared to, call it, the $150 billion of GMV just within the existing installed base. We are less than 1% penetrated against that opportunity. And of course, as we add more locations to the platform, that will build upon that $150 billion plus the GMV. So it's still really, really early in the overall adoption curve and opportunity for Olo Pay, making great progress along the way, but still really early and a huge opportunity for us to continue to grow GPV and in turn, grow revenue and operating profit.
Noah Herbert Glass
Andrew, if I could add on to that. I think one of the things that we're really excited about when it comes to the card-present opportunity for those on-premise transactions is, again, back to harvesting guest data and doing something that other card-present payment processors can't do because they're not connected into the point of sale to pull ingredient level data back into a guest data platform in the way that Olo is set up to do. That's some of the secret sauce of Olo Pay card-not-present, addressing those off-premise transactions primarily that we address today.
Restaurant brands love that. We're fantastic at the basics of authorization rate, fraud prevention and charge back, et cetera. But also having that connection back to the data platform and being able to harvest that guest data so that you can tie every transaction, whether it's off-premise or on back to that same guest account is really the secret sauce and why we think Olo Pay is so compelling for card-not-present and card-present transactions and why the card-not-present success that we've had is a great calling card and launch pad for us to go and get that card-present business as well, which, as Peter noted, is 6x the opportunity of card-not-present by itself.
Peter J. Benevides
Thank you. Operator, we have time for one more question, please.
Operator
The last question we have is from Clarke Jeffries of Piper Sandler.
Clarke Jeffries
Hello, Noah and Peter. First question ism good to see the retention rates continue to improve sequentially. I wanted to ask, we've had these crosscurrents about data points on check sizes and trends in the industry. Wondering if we can take the proxy of improving retention rates as a proxy of improving digital ordering growth. And I know Pay is in there. So I wanted to ask, are you seeing digital ordering growth hold stable or improve from quarter-to-quarter. What does that look like kind of under the covers compared to maybe what might be happening in spending volumes overall?
Peter J. Benevides
Yes. So I can take that one. I'd say that the sequential growth in NRR is predominantly being driven by multi-module adoption in particular Pay. And then to a lesser extent, what I would say is the durability or stability in digital ordering. Typically, Q3 is a slightly higher quarter for ordering as compared to Q2, just as you kind of migrate into the more -- into the colder months. So we tend to see slightly higher order volumes in the third quarter as compared to the second quarter, which was the case. But as I think about that in contrast to multi-module adoption and pay adoption, that really is the big driver and the continued progress we're seeing in NRR.
Clarke Jeffries
All right. Peter, very helpful. And then the second thing is just reflecting on Pay as strategy, and it seems like a lot of the commentary around emerging enterprise. It seems like you might be entering a phase where you could see emerging enterprises have off-premise and on-premise payment processing that could put them at a much higher multiplier than say, a large QSR that might be only taking rails or ordering. And so the question is really, when you think about the locations of the brands being added, do you have some emerging enterprises that have eclipsed some of your large QSRs just in terms of those module adoptions. And when we think about the business going forward, are you reshaping how the revenue is composed based off of those factors?
Peter J. Benevides
It's a great question, Clarke. And I would say internally, something that we have been thinking through as a management team as well. And what I mean by that is when -- as we have solutions for both card-not-present and card-present processing, it somewhat changes the way we think about ACV or ARR on a brand level basis. It may give more emphasis to an emerging enterprise brand, for example, that does really high volumes and has really high GMV collectively at the brand more so than their enterprise counterparts that may have more locations, but in aggregate, does less GMV.
So I'd say it's certainly something that we're thinking about, certainly as card-present starts to enter the market. Just that shift in mindset to say it's really about GMV and going after the largest pools of GMV, not necessarily -- which may not necessarily correlate to the brands with the highest location count.
Operator
There are no further questions at this time. I would like to turn the floor back over to Noah Glass for his closing comments.
Noah Herbert Glass
Okay. Well, thank you again for joining us today. We're honored to be a mission-critical platform for the restaurant industry and to serve as the engine of hospitality, helping restaurants drive sales, do more with less and make every guest feel like a regular. Thank you, Team Olo, for your hard work and execution in Q3. We have miles to go before we sleep.
Operator
That concludes today's conference. Thank you for joining us. You may now disconnect your lines.
