Weave Communications, Inc. (NYSE:WEAV) Q1 2024 Earnings Call Transcript

Weave Communications, Inc. (NYSE:WEAV) Q1 2024 Earnings Call Transcript May 2, 2024

Weave Communications, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the Weave First Quarter 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark McReynolds, Head of Investor Relations. Thank you, Mark. You may begin.

Mark McReynolds: Thank you, Paul. Good afternoon and welcome to Weave’s first quarter 2024 earnings call. With me on today’s call are Brett White, CEO and Alan Taylor, CFO. During the course of this conference call, we will make forward-looking statements regarding the anticipated performance of our business. These forward-looking statements are based on management’s current views and expectations until certain assumptions made as of today’s date and are subject to various risks and uncertainties described in our SEC filings. Weave disclaims any obligation to update or revise any forward-looking statements. Further, on today’s call, we will also discuss non-GAAP metrics that we believe aid in the understanding of our financial results.

Unless otherwise noted, all numbers that we talk about today will be on a non-GAAP basis. A reconciliation to comparable GAAP metrics can be found in today’s earnings release, which is available on our website and as an exhibit to the Form 8-K furnished with the SEC before this call as well as in the earnings presentation on our Investor Relations website at investors.getweave.com. And with that, I’ll turn the call over to Brett.

Brett White: Thanks, Mark and thank you to everyone for joining us today. I am pleased to report that we had another terrific quarter, providing a strong start to the year. At Weave, our aim is to deliver better healthcare experience, every patient, every practice, every interaction. We specialize in an integrated customer experience and payments platform built specifically for small and medium-sized healthcare practices. We empower practitioners to prioritize patient care while we streamline office operations, handle payments processing, and deliver practice growth for improved patient communication and engagement. SMBs are a cornerstone of the U.S. business landscape. For the past 15 years, we’ve dedicated ourselves to developing a solution finely tuned to the unique requirements of SMB healthcare practitioners.

Unlike larger healthcare institutions, dental clinics, veterinary hospitals, optometry, and medical practices operate without dedicated IT teams, relying instead on a user-friendly software solution like Weave. Our platform streamlines disparate point solutions often utilized by these practitioners, making it easier to attract, engage, and retain patients. I’m excited to share some of the financial highlights from Q1. We’ve started the year with solid top-line performance, significant improvements in gross and operating margin, and adjusted EBITDA. Revenue for Q1 was $47.2 million, representing a 19.2% year-over-year growth and $1 million above the high end of the range we provided in February. This is our ninth consecutive quarter of exceeding the top end of our revenue guidance.

When we went public, our gross margin was approximately 57%, and we set crossing the 70% mark as an important goal and milestone for our business. We are proud to report that in Q1, gross margin reached 70.4%, 280 basis points greater than Q1 last year, marking the ninth consecutive quarter of gross margin improvement. Additionally, our adjusted EBITDA margin is getting very close to break even, improving by over 700 basis points from last year to a negative 0.8% of revenue, compared to a negative 7.9% of revenue 1 year ago. These results underscore the market’s demand for our vertically tailored software and payments platform and our continued efforts to improve efficiency. In our February call, I shared our business focus areas for 2024, and I’d like to highlight some of our progress in the first quarter.

Accelerating revenue growth is a top priority with an emphasis on expanding our presence in dental, optometry, and veterinary verticals and growing in specialty medical markets. We are pleased with the growth that we saw across all of these verticals in Q1 with specialty medical being our fastest growing segment. Partnerships are a vital contributor to growth across our target verticals. Authorized and certified integrations with partner practice management systems and other healthcare systems of record serve to both increase our addressable market and enhance our product market fit by automating and personalizing communications which boost practice growth and efficiency. We aim to become our partner’s top choice for patient engagement and communication, allowing Weave to enrich the patient experience and improve data synchronization.

Our customers count on Weave to run their business operations, and authorized integrations increase the reliability of their experience. We made great progress in both new and deepening integration partnerships, and I’d like to highlight a few. In March, we delivered our initial integration with Athenahealth, a leading provider of cloud-based healthcare software for 160,000 physicians serving over 110 million patients. We also signed an integration partnership with IDEXX, an industry leader that serves as the system of record for over 20% of the veterinary market. Scoping and development has commenced on our integration with two of their brands, ezyVet and Neo, whose veterinary software solutions service more than 8,000 veterinary hospitals.

In addition to developing new integrations, we are successfully pursuing deeper product integrations and go-to-market programs with existing partners. We have renewed and enhanced our partnership with DrChrono, a leading electronic health record provider serving tens of thousands of physicians and over 17 million patients. We are deepening our existing integration and working closely to inform their large customer base of these enhancements. We also deepened our partnership with Patterson Veterinary, maker of NaVetor and IntraVet practice information management systems that service over 3,000 veterinary hospitals. This partnership includes a commercial agreement enabling the Patterson sales team to recommend Weave as a preferred solution for client communication and engagement for animal hospitals and clinics.

Lastly, we signed a product integration and commercial partnership with Prompt EMR, a leading electronic medical record provider for outpatient therapy clinics, serving over 8,000 physical, occupational, and speech therapists. Our customers experience is the keystone to retention, and Weave has consistently been awarded accolades affirming our platform’s industry-leading performance. Weave was once again recognized by G2 in their spring 2024 report, reflecting our unwavering dedication to customer service. We have also been named a top 50 software product for small business for 2024 and is the leader in the G2 Grid for Patient Relationship Management. Moreover, we are honored to be recognized for our dedication to building an excellent workplace environment for our employees.

For the third consecutive year, Weave received a Top Workplaces USA award. Weave has also been named to the 2024 Shatter List by the Women Tech Council. This important recognition acknowledges our commitment to our people and our future. In closing, I’m immensely proud of what we have accomplished in Q1, making a strong start to the year. We continue to grow our top-line and hit a significant milestone by crossing the 70% gross margin mark. This success is a testament to our dedication to providing innovative solutions that effectively address our customer’s needs. I’d like to extend a big thank you to our customers, partners, team members, and shareholders for their continued support of Weave. With that, I’ll turn the call over to Alan to provide more detailed financial results and review our outlook.

Alan?

Alan Taylor: Thanks, Brett, and good afternoon, everyone. Before providing my financial update, I’d like to address the Q1 fluctuation in free cash flow. We successfully implemented a new billing system in Q1 that necessitated deferring March subscription billings into April. This resulted in a one-time increase in our accounts receivable balance as of the end of March and a corresponding decrease in free cash flow of approximately $15 million. Since the vast majority of our billings are done via credit card, cash is received within a few days of billing and our accounts receivable balance will be back to normal levels in Q2. There will be an associated positive impact on Q2 free cash flow of approximately $15 million. Also, as I mentioned last quarter, we paid out our 2023 annual employee bonuses in Q1 of this year, which amounted to approximately $7 million.

In prior years, annual bonuses were paid out in Q2. Excluding the impact of both the delay in billing and the timing difference of the bonus payout, free cash flow would have been positive for Q1. Moving on to the financial update, we had a great quarter delivering first quarter revenue of $47.2 million, reflecting a 19.2% growth year-over-year. This represents a $1.5 million or 3% beat over the midpoint of the range we provided in February. As we called out in our last earnings call, in 2023, our revenue growth rate benefited from an increase of onboarding revenues. Those revenues grew by 150% last year, and a new agreement with Stripe early last year also increased our payments take rate. Both the improvement in onboarding revenue and the improvement in our take rate for payments remain in place for 2024, but we do not expect to see the same growth rate in these components of our revenue as we did last year, given that we lapped the import pact of both improvements in Q1.

Our net revenue retention rate increased from 95% last quarter to 96% in Q1. The improvement in Q1 NRR was primarily due to positive adoption of payments and software upsells. As I shared in our February call, we anticipate further NRR improvement in 2024. Our gross revenue retention rate remained at 92% for Q1, among the best in class for SMB retention, and logo retention has been consistent for over 2 years. Transitioning to operating results, as a reminder, I will be referring to non-GAAP results unless stated otherwise. Our Q1 results showed significant improvement across the board. Gross margin was 70.4%. This represents a 280 basis point increase year-over-year. Payments continues to be the fastest growing component of our revenue, and the average selling price for our subscription product has increased over the last few quarters due to the uptake of our higher-end product bundles.

In addition, our engineering and operating teams are dedicated to delivering an outstanding customer experience while also prioritizing efficiency and expanding our margins. In Q1, operating expenses were $34.6 million, a $3.9 million increase from last year compared to a $7.6 million increase in revenue for the same period. Our operating loss was $1.4 million, an improvement of $2.6 million, or 66%, compared to last year, and $600,000 better than the midpoint of the guidance that we gave in February. The corresponding operating loss margin of 2.9% is a significant improvement from the operating loss margin of 10.1% last year. Our net loss was $400,000 or $0.01 per share in the first quarter based on 70.5 million weighted average shares outstanding.

This is compared to a net loss of $3.3 million or $0.05 per share last year. This represents a $2.9 million improvement due to revenue acceleration and operating efficiencies. Adjusted EBITDA loss was $400,000, a $2.8 million improvement year-over-year. Adjusted EBITDA loss margin of 0.8% is a significant improvement compared to the 7.9% loss margin reported a year ago. Turning now to our outlook for the second quarter and full year 2024. For the second quarter of 2024, we expect total revenue to be in the range of $48.2 million to $49.2 million and non-GAAP operating loss to be in the range of $2.5 million to $1.5 million. For the full year 2024, we are raising our full year outlook and expect total revenue to be in the range of $197 million to $200 million.

We expect the range for our full year 2024 non-GAAP operating loss to be from $6 million to $2 million. We expect to have a weighted average share count of approximately 71.7 million shares for the full year. To summarize, Weave delivered solid results in Q1. Our performance demonstrates strong demand for our platform, and we remain excited about the opportunity ahead, and we will continue to drive our business to maximize that long-term value. Operator, if you’d go ahead and turn it over for questions now, we’d appreciate it.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Jacob Staffel with Goldman Sachs. Please proceed with your question.

Jacob Staffel: Hi, guys. Thanks so much for the question and it sounds like a really good quarter, so good to see that continued deliverance and outperformance. Just a quick one from me, especially around specialty medical, I think you called out strength there. So can you touch on maybe the sales cycles that you’re seeing within specialty medical specifically, given Weave maybe has a little bit more name brand recognition, a little bit more of a holistic platform, and a little bit more of a tenured sales force? And then to follow-up, can you give any update around hiring, given I believe that you mentioned last quarter intentions to continue hiring this year? So just any color around those would be great? Thank you so much.

Brett White: Sure. Hi, Jacob, I’ll take it. This is Brett. So yes, specialty medical is quite fragmented. And so, our number one vertical is dental. We’re very good there. We’ve been there for a long time. Specialty medical is quite fragmented. But they have a really significant need for the solution that Weave offer. So our approach there has been to build the integrations with the platform – the PMS providers in those sub-verticals, we call them, and then go into those markets with the reputation that we have in our dental, optometry, vet vertical. And the result has been actually terrific. It’s our fastest growing vertical. As I said in our call last time, it moved from number four to number three. There’s a real demand.

Those businesses are – they are doing well in the current economic environment. And we’ve got good product market fit. So we’re able to generate leads. The lead volume grew actually in Q1 versus Q4. We’ve got good demo set and close rates there, and we’ve got good product market fit. So we’re really just rolling out the playbook and taking it very methodically, very programmatically, and it’s working quite well. And then on hiring, yes, we will be hiring throughout the year. We expect to add sales capacity, probably some engineers, and then other parts of the business just as our customer count grows.

Jacob Staffel: Awesome. Thanks so much, guys.

Operator: Thank you. Our next question is from Brent Bracelin with Piper Sandler. Please proceed with your question.

Hannah Rudoff: Hi, guys. This is Hannah on for Brent today. Thanks for taking my question. Just the first one from me. In David’s first full quarter of CRO, are there any learnings he’s identified or any low-hanging fruit he has gathered from observing and being a part of the organization?

Brett White: So I think, we’ve got them on a 30-day, 60-day, 90-day plan, and that’s really progressing as expected. And I think, as I mentioned last quarter, when David was on board, kind of every candidate for that job asked me, okay, what’s broken? What do we need to fix? And the answer is nothing. The sales organization is functioning well. They’re executing really well. And so David’s real job is to how do we get to $500 million to think ahead. He’s very focused on payments. In fact, we’ve just hired a new payments leader who I think starts in the next couple weeks. And then he’s also very focused on partnerships. We’re seeing a pretty interesting swing in our partnership landscape. I’d say 1 year ago or 1.5 year ago, we was definitely of the mind like we’ll just go it alone.

And some of the practice management platforms saw us as competition. And that has changed pretty significantly, and we’re seeing much more interest from practice management vendors to partner with us in a win-win way. So he’s very focused on that and really focused on building out an organization that scales.

Hannah Rudoff: Great. This is very helpful. And then on your next gen app, where are we in the process of early access rollout? And what kind of feedback are you getting from your multi-location customers on that platform?

Brett White: Great question. We’re calling it the new Weave experience, and I think I talked about it last call. We had a closed beta when the number of customers were in the product. Now we’ve gone to an open beta. We’ve opened it up to more customers, and really it has two desired effects. One is our current app, is kind of like the size and shape of an old iPhone and so it’s really limited in the amount of real estate available to put in new features, new functionalities. So point 1 of the new experience is to give a flexible workspace you can increase or decrease the size. Also, we’ve done a lot of work on the UX to make it more functionally rich, and be able to achieve transactions or work steps and fewer steps.

So that’s kind of on the user side. And then on the multi side, really building it out to make it much more multi-location friendly. So you can look at one – for example, one email box or 10 email boxes at once. You can sort, you can message, you can do all sorts of things. You can pick and choose which locations you want to manage. So that’s very useful. On the demo side, we are now demoing it for multi-location opportunities, and we’ve seen a lot of interest there. Also, the other thing I should add is it’s available both in an app and web browser, so kind of like Slack. You can either access it on the web browser or a downloadable app, and we’re seeing a lot of interest on the multi-side. So, we are going to – it’s going to take time to migrate certainly our existing customer base because a lot of them, once they’re working with something they like, they’re not going to move off, no need to.

But really the idea is to deliver this functionality and this new flexible user experience to multi-location opportunities. And the feedback there from existing customers and prospects is quite positive.

Operator: Our next question is from Alex Sklar with Raymond James. Please proceed with your question.

Alex Sklar: Great. Thank you. Maybe just follow-up on kind of those last two – the theme of those last two questions, Brett. In terms of all the product and integration improvements over the last kind of 12 months, you highlighted a lot of those in the prepared remarks, but can you just help frame the magnitude or the size of the increase in terms of your integrated addressable market today relative to 1 year ago?