Q2 2023 Weave Communications Inc Earnings Call
[noise], good day, ladies and gentlemen, and welcome to the weave second quarter 22.
123 earnings conference call our host for today's call is Mark MC Reynolds head of Investor Relations. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session I would now like to turn the call over to your host Mister make Reynolds you may begin.
Thank you Morgan good afternoon, and thanks for joining us for our second quarter of 2023 earnings conference call joining.
Joining the call today are bright white C O N <unk>.
Right, we'll open the call with an overview of <unk> performance and Allen will discuss your financial results in more detail. After the prepared remarks, we'll take questions.
Today's discussion contains forward looking statements that represent our beliefs or expectations about future events. All forward looking statements involve risks and uncertainties that could cause actual results typically materially from forward looking statements.
Is your first call cautionary language and the earnings release.
Filings with the Securities and Exchange Commission, including our most recent Form 10-K, and thank you for additional information concerning factors that could cause actual results to differ materially from the court.
Statements.
I'll also discuss financial measures that do not conform with generally accepted accounting principles.
Taken clarity unless otherwise noted all numbers are we talking about today will be <unk> information you'd be calculated differently than similar non-GAAP data per cent by other companies.
A reconciliation between these gap and non-GAAP financial measures is included in our earnings press release, which can be found on our industrial relations website investor's dot <unk> dot com.
With that I'll turn the call over to breath.
Thank you Mark and thank you all for joining us today.
Two two was another strong quarter of continuing momentum for weeks and I'm very pleased with our teams continued strong execution.
Before providing a detailed review of our two two performance.
Wanted to give a brief overview of our platform for listeners who are newer to the we've story.
We provide small and medium size health care businesses with a single vertically tailored customer experience and payment software platform, helping them unify modernize and Personalised every interaction with their patients.
Our customers are experts in their field of care, we've helps them run their businesses more effectively by unifying a patchwork of point solutions into a single platform that helps them attract engage and retain their patients.
Our subscription platform includes texting reminders reviews online scheduling digital forms email marketing insurance verification, physical and soft phones and more.
These payments platform enables offices to offer flexible payment options, including via text email online bill pay terminals and mobile tapped a pain.
S M B's make up the vast majority of businesses in the U S. We have spent almost 15 years building a platform specific to the needs of the S. M B health care practitioners.
We understand the unique challenges they face and have it tailored our platform to address these challenges.
S M B health care businesses are well capitalized well ma'am is and have proven able to withstand that economic uncertainty of the last few years.
Ample dental practices are our largest and most tenured vertical and have among the lowest business failure rates of any S. M b.
S. M. B's typically do not have dedicated technology staff. So they need software solutions that are easy to implement advantage.
They also one of the managers few technology platforms as possible.
When S M B's land on a solution that improves their businesses and kind of stick with it which is validated by our historically high retention rates.
The majority of our customers are in the dental optometry and veterinarian vertical.
They range from single practitioners with one location to multi office businesses with dozens of locations.
We are expanding our integrations to support several additional specialized medical practices, including family and gentlemen practice medical aesthetics plastic surgery to name a few.
We used platform adds even more value to health care S&P's through over 75 integrations with practice management software.
These integrations powered personalized communications and online scheduling an addition to automating appointments and recall reminders.
Moving onto our 222000 twenty-three results we've delivered another strong quarter exceeding the top end of our revenue guidance for the six quarter in a row and posting our second quarter in a row of accelerating year over year revenue breath.
Total revenue for Q2 was $41.7 million, representing 19.3 per cent growth year over year.
As a reminder, Q1 2020 threes revenue growth rate was 18.9 per cent and it was the first quarter that are year over year revenue growth accelerated since 2019.
Ah revenue growth is driven by continued strong demand for our platform and are growing customer base.
And Q2, we also continued to improve the efficiency of our business and make progress on our path to profitability.
Our gross margins for the quarter was 67.9% of 680 basis points from 61.1% in Q2, a year ago and the sequence of an increase of 30 basis points from Q1.
Additionally, we reduced our operating loss to 9.5 per cent of revenue from a loss of 28.9% of the revenue a year ago and the loss of 10.1% in Q1.
These margin improvements were primarily driven by top line growth and continued efficiency improvements.
And Q1 for the first time in the company's history, we became free cash flow positive and Q2 are free cash flow increase to $900000 from 600000 in Q1.
These results reflect that are vertically tailored software and payments platform is continuing to gain traction. We've team is executing within tenths customer focus.
New customer growth as an area of strength and our average sales price continued to expand this corner.
And the last couple of earnings calls we've discussed the concept of a boomerang customer one who leaves we for a competitive solution only to come back a short time later after being dissatisfied with the competitive offering.
We are seeing that trend continue encountered over 200 boomerang customers in the first half of 2023.
This trend provides another data point invalidates, the scope and valued delivered by our platform.
The improving sales momentum that we highlighted in the last few earnings calls continued to accelerate into Q2 and.
In response to growing demand, we have continued to invest in our sales team and have increased the number of sales reps by approximately 19% year over year.
Our confidence in our sales team is high and we expect to continue to add sales capacity throughout the remainder of the year.
In person events are one of our most important sources of new business growth in.
Q2 in person event sales increased by over 50% when compared to the prior year.
We attend larger shows and Q2 in the air and they are and are encouraged by the increased demand coming out of these events.
In addition, we continued to ramp our digital demand creation efforts, expanding our reach with new advertising partners and.
Q2 sales from digital domain creation increased by over 40% when compared to the second quarter of last year.
Turning to payments are payments offering enables customers to collect their fees faster with less effort and administrative burden and we are encouraged by the trends that we're seeing in the payments data for.
For example payments volume per location in Q2 was up 12% year over year, which speaks to the strength and resilience of the industries we serve.
Last quarter, we announced a multi year agreement to extend and deepen our partnership with stripes to expand our payments offerings.
We also announced several enhancements to our payments platform, including online bill pay and mobile tapped to pay providing customers with additional options to reduce friction for their patience and the payments process.
Online Bill paying gives our customers the ability to create sand and embed a link for their customers to pay their bills online whenever it's most convenient for them.
Mobile tapped to pay allows patients and clients to make contactless payments by simply tapping their soft smartphone or payment card on the provider's mobile device without the need for dedicated payments processing hardware.
Additionally, we made several enhancements to our customer experience platform during Q too.
Highlight a few that we're really excited about.
And her last earnings call, we discussed our responses system, which helps save time using AI to draft responses to customer reviews with one click.
Leveraging the same technology yesterday, we announce an AI powered email system.
Drafts emails based on basic customer prompts.
Customers have the ability to edit and personalize emails before sending saving time as they manage their email outreach and marketing.
We will continue to develop and deploy AI driven solutions for our customers.
And Q2, we launched soft loans to help small businesses better serve patients when their staff is not in the office now teams can answer calls and communicate with patients without dedicated telecom hardware.
It's all phones also provide business owners with increased flexibility to expand our employee talent pool and facilitate remote office management.
Our customers experience is the Keystone to retention and we've continues to receive positive recognition and validation that our platform delivers best in class results.
Since 2017, we've had been recognized every corner as a leader by G too.
These independent reports are based on customer reviews customer satisfaction and market presence recognizing weeds continuous delivery the best technology tailored to suit our customers unique business needs and address the challenges that they face.
In conclusion, we are very pleased with the strong results and continued momentum into two revenue growth accelerated and our execution inefficiency continues to improve.
We are running a tight unit economics based business and we're getting better at it.
I'd like to thank the we've team for their passion and dedication in serving our customers and thank our customers and shareholders for their continued support.
With that I'll turn it over to Alan to go through our financial results in more detail and then we'll take questions Allen.
Thanks bread and good afternoon, everyone is mentioned, we delivered strong performance in the second quarter on both the top line and the bottom line, we delivered second quarter revenue $41.7 million, reflecting a 19.3% growth year over year. This represents 1.7 million dollar or.
4% over the midpoint of the range, we provided last quarter.
Our net revenue retention rate was 96% in queue to as we've discussed in previous quarters.
Or in our our is negatively impacted by the ongoing effect of the discontinuation of our partnership with our former third party forums provider, we launched our internally developed forms product and obscene positive adoption by our customers.
Excluding the impact of the third party foreign provider and our our remains at 100%.
Gross driven retention rate was 92 per cent in Q2, it remains within a very tight band of historical performance. Among the best in class for S. M B retention and logo retention as being consistent for the last 12 quarters.
Moving on to operating results as a reminder, I'll be referring to non-GAAP results unless otherwise stated.
Q2 results showed significant improvement across the board gross margin was 67.9%. This represents a 680 basis point increase year over year, and a 30 basis point increase sequentially operating expenses were $32.2 million and 800000 dollar increase from last year.
<unk> compared to a 6.7 million dollar increase in revenue for the same period.
Had a sequential increase in operating expenses of $1.1 million with a large portion of that increase blood flowing through G&A. The sequential increase in G name was primarily related to seasonal professional fees associated with our proxy statement and audits and increase headcount related expenses.
Are operating loss was $4 million, an improvement of 6.2 million or 61% compared to last year and at the high end of the guidance that we gave in may.
Corresponding operating loss margin of 9.5% is a significant improvements in the operating loss margin of 28.9% last year and also a 60 basis point improvement sequentially.
Net loss was 3.1 million or five cents per share in the first quarter based on 66.8 million weighted average shares outstanding this.
This is compared to a net loss of 10.3 million or 16 cents per share last year. This.
This represents a 7.2 million dollar ring improvement due to revenue acceleration and operating efficiencies coupled with a 1.1 million dollar increase in interest income related to our treasury activities.
Adjusted EBITDA loss was $3 million, a 6.1 million dollar improvement year over year adjusted EBITDA loss margin of 7.3% is a significant improvement compared to the 26.2% less margin reported a year ago, and a 60 basis point improvement sequentially.
Turning to the balance sheet and cash flow. We ended the second quarter with $110.9 million in cash and short term investments as you may recall, we ended last quarter with $112.6 million, which means we used $1.7 million of cash and Q2.
We spent $1.9 million in cash to pay taxes on our issues testing in the quarter using the net settlement method, thereby reducing dilution operating cash flow in the second quarter was $1.6 million at 3.3 million dollar improvement year over year that is inclusive of 20.
22 annual bonus payout can Q too.
We mentioned in the last call that free cash flow will flex fluctuate from period period in 2023, and we forecast being slightly negative in queue to do to our annual bonus payout. However, do do seasonally hires collections of customers with annual upfront payments and Q2, we ended with causative free cash flow of $900000.
This compares to negative free cash flow of $2.4 million in the second quarter of 2022, we continue to reiterate our plan to achieve positive pre cash flow as we exit the year.
Turning to our outlook for the third quarter and full year 2023 for the third quarter of 2023, we expect total revenue in the range of $41.7 million to $42.7 million and non-GAAP operating loss in the range of $4.5 million to 3.5.
Million dollars for the full year 2023, we expect total revenue to be in the range of $164.7 million to $166.7 million. We expect our full year 2023, non-GAAP operating loss to be in the range of $16.9 million to 14 point <unk>.
$9 million, which assumes continued progress on our path towards profitability.
We expect to have a weighted average share count of approximately 67.6 million shares for the full year to.
To summarize we've delivered strong second quarter results or performance demonstrates the growing demand for our platform and we remain very excited about the opportunity opportunity ahead and will continue to invest responsibly to maximize our longterm value.
Now Britain I will take your questions.
Thank you if you have a question at this time. Please press Star then the number one on your telephone keypad.
Once again to ask a question at this time. Please press Star then the number one on your telephone keypad.
We will pause for a moment to compile the key when a roster.
Your first question comes from Alex Glor with Raymond James Your line is open.
Great. Thank you a breath I've got a two part question on the on the failed to you to start off your first on the 19 per cent growth that you mentioned is that a direct quote of caring rep figure that across all the sales and marketing positions.
And then the second part I just wanted to ask you you you've talked about higher asking you that you're seeing with new customers I know your flag that last customers last quarter as well is there anything change in terms of what's your including in that Premier offering that's driving the higher Aspie girl. Thanks.
Sure. Thanks for the question Alex So the 19% increase is straight quota carrying sales reps. So no overhead no sales reps anything like that and no management and the higher S. P's. So we've been adding quite a bit of product ended the bundles and really that's the name.
The loss to sell more of the higher end bundles on a on a kind of an initial sale basis. So that's really what's driving me S. P.
Okay, great. Thanks for that and then Alan just one on the on the implied kind of fourth quarter growth outlook. It looks like it's kind of flattish with third quarter and I. Just wanted to ask if there was anything one time either may be tied to that that last quarter of forms transition or seasonal that might be driving out or is that just kind of.
A normal conservatism. Thanks.
Yeah, Alex. Thanks, we we just continue to able to provide guidance that we feel high conviction around and that's so it's kind of a normal course.
Alright, great. Thank you both for the color.
Thank you.
Your next question comes from Mark Chapeau of loop capital markets. Your line is open.
Hi, Thank you for taking my questions much job on the quarter.
Starting with the Boomerang customers I was wondering if you could just talk a little bit more about maybe if there's one two or three drivers in particular that are kind of the result of our customers coming back to your platform.
Sure So uhm.
If we start at you know why did they leave they often get a pitch from a competitor whether it be another.
Could communications and engagement solution provider or even their their practice management software provided that says Oh, well, we could do what we does for for a lot less money that sounds attractive a go and onboard onto that platform and just find it's it's functionally deficient it doesn't actually deliver the.
Value that they need and so that that may come they come straight back. So that's kind of the the lifecycle there.
I appreciate that and then you know over.
Over the last year or so you know the company has done a lot of work on the product development front with respect to making are quite far more attractive for multi locations.
And I was wondering if that the new products that you talked about the airpower email system I'm Gonna Softball's, we're part of that initiative or <unk>.
Where those initiatives.
Pretty much for all customers.
So uhm you're right. Thanks for for recognizing all the work we've done on multi that's been a really big part of our roadmap and you're gonna see over the second half of the year. So I'm pretty significant product releases that really enables our our core products to work effectively.
[noise] across Multilocation offices, Multilocation organization. So you know I I I I kind of want to say that you know the best is that you have to come on the multi product.
But in fact, it's it's already started rubbing up uhm. This quarter was our best quarter for landing Multilocation deals I think ever and it was a pretty meaningfully from Q1. So you know even set the releases that we've done so far in the multi side are starting to get traction and uhm, but.
We've got a lot more to come there that's very very exciting the product and engineering organization is really firing on all cylinders and it's very very focused on delivering what the customers want bolt on a single location on Multilocation and to answer the other part of your question a unable to the cell phones that's available for every.
<unk>. It's included in the bundles and that's available for single and multi location.
Great. Thanks, that's all for me.
Your next question comes from Tyler Radke with Citigroup. Your line is open.
Hi, This is carlee <unk>. Thanks for taking the question congrats on the corner.
I wanted to ask a little bit about the guidance race E raised by a bit more than you beat which is driven by uptake in you know <unk> new offerings.
Talk about the selling <unk> or better Python does it already in the second half. Thanks.
Yeah. Thanks Kelly.
He is driven by the better uptake is driven by what we see in our bookings right.
It's driven by what we see coming into the to the rest of the year with respect to you know September is the biggest events month of the year for US all of those things play into our optimism regarding the balance of the year.
Got it thank you and maybe one more on that the main customers.
Are they growing their contracts when they return alright, those 200 customers that you've seen in one H how it serves as police trained it whenever I can.
I'm, sorry, I can't answer that question I don't actually know you know, we're just thrilled when they when they come back, but I I I I can't answer that I don't know the answer.
Thank you.
Your next question comes from Michael Funk with Bank of America. Your line is open.
Hi, This is Matt Bullock on for like funk, Thanks for taking the questions.
I was hoping you might be able to break down some of the the main contributors by vertical to the to the growth acceleration in the past two quarters and then how we might expect that the trend over the next 12 to 18 months.
<unk>.
Sure. So you know our core business.
Sales and install base is still distributed along I wouldn't say are three top articles, but we called the dental optometry vet dental is by far the largest and and that's been pretty consistent with our sales in bookings one area, where we're starting to see an uptick is spur.
<unk> medical so I mentioned three of them in my prepared remarks, but one of the areas that we're we're increasing our our go to market activities were we've got.
On our development roadmap additional integrations outside of those three vertical so I think that over time over the next you know, Florida or say two to four quarters, we'll see start seeing uhm grader bookings in and specialty medical.
And I'm certainly we're seeing them interest inbound organic interest from from those additional vertical. There's you know, there's like 25, additional verticals and especially medical and actually the Tan is bigger than our current dove town. So long answer to this quarter.
It was pretty consistent with our installed base, but I expect that to pick up and specialty medical over the next two to four quarters.
Excellent really helpful. And then just one quick follow up it's been great to see the progress on gross margin can you break down from the puts it takes and you know what we can expect longer term in terms of you know mature gross margin.
Yeah. Thanks, Terry So we as we get into.
The direct costs of delivery for our customers. We've got an engineering team that has a very concentrated focus on.
What it costs to deliver as well as be efficient across our communication bandwidth charges.
And the Google Cloud, where we host most of our our operations and then we also have a people team who are just.
Yeah extraordinary and responding to our customers, but also working to be as efficient as they can so those.
Those are the things that are driving those are these efficiencies we will continue to see them not necessarily at the rate year over year that we've seen them. This past year, but on a long term basis, we think they're getting into the 75% margin range is very doable you know over the longterm.
N N I'll add uhm really helpful.
<unk> you know payments is I'm still relatively small part of our business has been growing it's growing much faster than our software business and payments is is very since we book at net it's very very high margin. So as that business grows it will have an outsized impact on our around gross margins.
Excellent. Thanks.
Your next question comes from Jacob Stifle with Goldman Sachs. Your line is open.
And the question good quarter and good to see the stock performance since since the last quarter. One thing I wanted to ask on is when it comes to the dynamic between new and existing customers can you talk about.
How about spending are you seeing more more new customers land are you seeing existing customers expand more like where where they're puts and takes in that dynamic.
Sure. So I think it really talking about the revenue contribution.
Things, yeah, so uhm, new customers, we had a strong new customer quarter.
This is definitely a highlight for the quarter and that is the primary contributor to to revenue growth well I'll say primary contributor to to subscription revenue growth you know, we we land pretty heavy in other words, we we sell.
You know you can see in the growth of the a S. P. Wheatley sell a large portion of our product offering at the initial sale, which is great, but it also limits our ability to to upsell and grow grow in our our but the majority of the increase in in software gross.
From your customers.
The.
The installed base the existing customers most of that growth comes from payments and so as they get on board the platform they adopt payments and that grows and then also is there business grows.
We we you know we sharing that sharing that success on growth from from existing customer said those would be the two big pieces.
Awesome. Thank you so much that was really helpful color and then another question would be kind.
Kind of piggybacking off of what you sat around how.
There's maybe a limited ability to upsell and grow in our does the introduction of of maybe these new centric products give that potential too.
To increase selling prices and if so when do you think we will see that at the top line.
Yeah. So definitely uhm, we're you know we're going through our 2024 planning right now and one of our major initiatives is product adoption and so we want to be sure that we're delivering to our customers products that they really value.
And and we have a constant drumbeat of those products rolling out the.
The next say six quarters. So that's a major focus of ours and the next piece of that equation is to figure out how to you know attach value to it and the pricing models, whether it be in bundles or all the cards are upgrades and and we'll work through that but the real important piece is.
To make sure that we've got a good constant steady stream products that our customers value and then we can figure out the <unk> the right monetization methodology over time, but you know for now the AI products that we've delivered the cell phones. Those are those are included in the bundles and you know that may change, but I'm really weird.
Just focused on delivering a ton of value.
Awesome. Thank you so much guys Great Court, Oregon.
Once again to ask a question. Please press star one on your telephone keypad that star and the number one on your telephone keypad.
Our next question comes from Brent Breslin with Piper Sandler Your line is open.
Hi, guys. This is Hannah read off on her branch today, thanks for taking my questions.
Just first off I know you said payment is a small part of the business, but could you talk about where you are in terms of penetration payments into the base and how quickly you think customers could adopt online bill pay and tapped away.
Yeah. So I can about all I can give you. There is no. We know payments revenue is less than 10 per cent because we don't we don't report it separately.
The the I'll tell you that the attaches is more than that but it's we still have a lot of room to go and attaching payments to to our installed customer base.
Okay makes sense and then <unk> I would say I would say we're signet yeah. Let me just say I I'd say, we're significantly underpenetrated in our install base.
Alright makes sense.
When did cellphones adoption have any impact on the gross margin of taking the quarter.
Not really not at this point this is a cell phones adoption as a convenience factor for many of our customers where they just do not have to take any artwork.
And they can operate as though they're working out of the office from wherever they are.
Oh that makes sense and then last question for me just how how is rep productivity trendy alrighty entire sales force.
It's it's continuing to improve you know we didn't want to start adding reps until we've got that engine running really efficiently and and I think we're we're there now we're adding grabbing reps now and we plan to add more reps throughout the end of the year.
Efficiency is is definitely improving the marketing engine is is doing really well we're in a we're adding more spend to our marketing channels that are prozac proving to be more effective and that just you know kind of has a knock on effect to uhm producing higher VAT.
Leeds, which improved clothes rates, which makes sales reps more effective.
And and sales reps get more effective they tend to stick around longer and it's you know it's kind of a <unk> I wonder.
Wonderful phenomenon that happens.
Great. Thank you very much.
At this time there are no further questions that does conclude today's we've earnings release. Thank you everyone for attending and have a wonderful rest of your day.
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