Q3 2023 Weave Communications Inc Earnings Call
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Greetings and welcome to Wever Communications third quarter 2023 earnings Conference call.
At this time all participants are on a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mark Mcreynolds head of Investor Relations. Thank you you may begin.
Thank you Rob good afternoon, and thank you for joining us for <unk> third quarter 2023 earnings conference call joining the call today are Brett White, CEO and Alan Taylor CFO.
Brett will open the call with an overview of what we used to performance and Alan will discuss our financial results in more detail. After the prepared remarks, we will 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 to differ materially from the forward looking statements.
Please refer to the cautionary language in the earnings release and in weeks filings with the Securities and Exchange Commission, including our most recent Form 10-K Form 10-K, and 10-Q for additional information concerning factors that could cause these results to differ materially from our forward looking statements.
We will also discuss financial measures that do not conform with generally accepted accounting principles for.
For the sake of clarity unless otherwise noted all numbers, we talk about today will be on a non-GAAP basis information, maybe calculated differently than similar non-GAAP data presented by other companies a reconciliation between these non-GAAP.
And GAAP financial measures is included in our earnings press release, which can be found on our Investor relations website at investors Dot Dot com.
And with that I'll turn the call over to Brett.
Thank you Mark and thank you to everyone for joining us on this call today.
Before diving into our Q3 performance I'd like to provide a brief overview of leads for those of you who are new to our story.
We provide small and medium sized health care businesses with a vertically tailored customer experience and payment software platforms, helping practitioners to modernize and personalize every interaction with their patients.
Our customers typically do not have dedicated technology staff. So they need software solutions that are easy to implement and manage.
We've unifies a patchwork of point solutions into a single platform that helps attract engage and retain patients.
F N B's make up the vast majority of businesses in the U S. And we have spent almost 15 years building a platform specific to the needs of SMB health care practitioners.
These businesses are well capitalized well managed and have demonstrated the resilience even through economic challenges of recent years.
Moving onto our Q3 2023 results we've.
We've had an excellent quarter and I'm very pleased with the team's execution delivering another quarter of both year over year and sequential quarterly improvements in revenue growth rate gross and operating margin adjusted EBITDA and free cash flow.
Revenue for Q3 was $43 5 million Rep.
Representing 22% year over year growth.
We exceeded the top end of our revenue guidance for the seventh quarter in a row and.
We posted our third quarter in a row of accelerating year over year revenue growth.
This growth was driven by continued strong demand for our platform and our expanding customer base.
During Q3, we saw increased demand from both digital channels and in person events and we continue to add capacity to our sales team.
In addition to our core verticals of dental Optometry and veterinary we saw increased demands from additional specialty medical providers and continue to expand our platform to support them.
In Q3, we continued to make positive progress in our in the efficiency of our business. Our gross margin improved for the seventh consecutive quarter to 69, 3%, a 470 basis point improvement increase from last year.
Additionally, we cut our operating loss margin from last quarter by more than half to four 2% of rabbit.
Lastly, we produced $2 1 million in free cash flow, bringing us to $3 6 million in free cash flow generated year to date.
These results reflect our that are vertically tailored software and payments platform continues to gain traction in the we've team is executing with intense focus on the needs of the customers in the verticals that we serve.
On the product front the team has been hard at work developing our next generation platform, which features an enhanced user interface to improve workflows overall usability and is optimized for multi location customers.
Customers with more than one location can perform key task for multiple practices from a single screen.
This week, we will open up early access to this improved experience and we're excited to receive customer feedback on this highly requested functionality.
Additionally, this week, we signed an agreement that deepens, our existing partnership with Henry Schein, one a leading provider of software for Dennis with over 100000 customers.
In November we will launch an integration with the dental ascend platform and reshape wants Premier cloud based practice management software with advanced features for group practices and Dsos.
This new integration will open up a more robust set of we've features to <unk> customers.
On the payments front, our offering enables our customers to expedite billing and collect payments with minimal effort and administrative hassle.
Payments are increasingly digital and our aim is to provide customers with multiple options to collect payments as quickly and efficiently as possible.
Our customer experience software platform powers, frictionless, and flexible payment options, which helps create a positive patient experience build trust and encourage repeat business for our customers.
In September we announced a new partnership with a firm.
Integrated directly into our platform our firm allows patients to commit to treatment now and pay over time, making it easier to access and afford the care they need this.
This collaboration not only benefits patients, but also enhances the speed of revenue collection for our practitioners.
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 has been recognized every quarter as the leader in G to.
G Twos fall 2023 report we ranked first in 34 different categories. These independent reports are grounded in authentic reviews customer satisfaction.
Satisfaction metrics and market presence.
This recognition underscores our commitment to deliver technology tailored to suit the unique needs and challenges of our customers.
In Q3, we also crossed a significant milestone growing our customer base to over 30000 active locations. This is a testament to both customer acquisition and retention as customers adopt we've as their preferred customer experience platform.
In our past several earnings calls we've discussed the concept of Boomerang customers' offices that leave leave for a competitive solution only to come back a short time later after being dissatisfied with the competitive offering this.
This trend continued in Q3, and we have had approximately 350 boomerang customers year to date.
This trend provides another data point and underscore underscores the scope and value delivered by our platform.
Finally, before I hand, it over to Alan I'd like to take a moment to share our recent personnel change.
Our Chief revenue Officer, Matt Hyde will be leaving we later this month to pursue a new opportunity and we wish him luck with his future endeavors.
During that two and a half year tenure at we he was instrumental in transforming our sales function into a tightly run organization that will enable us to scale for many years to come.
Included in this transformation has been the development of an outstanding sales management team led by our VP of sales J correctly.
Jake will assume the role of interim C. Our ROA immediately effective.
While we conduct a search both internally and externally.
I have complete confidence in Jake and the entire sales organization continuing to produce the solid and improving results that we have experienced over the last several quarters.
In conclusion, we are very pleased with the strong results and sustained momentum in Q3 revenue growth continues to accelerate and our execution and efficiency continues to improve.
Thank you to our customers our team members and our shareholders for your support of <unk>.
We're excited about the path ahead and are intently focused on finishing an excellent year on a strong note.
With that I'll turn it over to Alan to go through the financial results in more detail and then we'll take questions.
Sure.
Thanks, Brett and good afternoon, everyone as Brett mentioned, we delivered strong performance in the third quarter on both the top and bottom line, we delivered third quarter revenue of $43.5 million, reflecting 22% growth year over year. This represents a $1.3 million or a three person.
Scent beads over the midpoint of the range, we provided last quarter.
Our net revenue retention rate was 95% in Q3 as a reminder, the N R. Our calculation is based on the last 12 months of data and therefore is burdened by the impact of the previously discussed transition from a third party digital forms product to an in house developed digital forms product when we look at it and are on a monthly base.
As both September and Q3 were the highest of the year, primarily due to positive adoption of payments and software up so gross revenue retention rate remained at 92% for Q3, among the best in class for SMB retention and logo retention has been consistent for over two years.
Moving on to operating results as a reminder, I'll be referring to non-GAAP results unless otherwise stated.
Our Q3 results showed significant improvement across the board gross margin was 69, 3%. This represents a 470 basis point increase year over year, and a 140 basis point increase sequentially as we approach the second anniversary of our IPO we wanted to.
Highlight the progress that we've made since our first earnings call gross margins have improved by over 1000 basis points. The improvement is due to higher average revenue per location and leverage in our cost structure. Here are some examples of the leverage we reduced hardware cost by over 300 basis points as a person.
<unk> revenue in the past two years connectivity and cloud infrastructure costs by over 200 basis points and cost of service by over 450 basis points, we have engineering and operating teams, who work focused on providing an exceptional customer experience and doing so while remaining efficient and expanding our.
These teams have accomplished this despite the macro inflationary pressures that we've seen across the economy and we're very pleased with the progress. The team has made over the last two years.
In Q3 operating expenses were $32 million, a $2.1 million increase from last year compared to a $7.3 million increase in revenue for the same period, our operating loss was $1.8 million, an improvement of $4 $7 million or 72%.
Paired to last year and $1.7 million better than the high end of the guidance that we gave in August.
The corresponding operating loss margin of 4.2% is a significant improvement from the operating loss margin of 18% last year and also a 530 basis point improvement sequentially looking back two years that is over 2800 basis points of improvement in operating loss margin.
We have seen leverage in each area of the business as sales and marketing has decreased to 38% of revenue from 51% in Q3 of 2021 R&D has decreased to 16% from 19% and G&A has decreased to 19% from 22% all while accelerating our raw.
Revenue growth each quarter of this year.
Our net loss was $1 million or one cents per share in the third quarter based on $68 2 million.
Weighted average shares outstanding this is compared to a net loss of $6 $5 million or 10 cents per share last year. This represents a 5.5 million dollar improvement due to revenue acceleration in operating efficiencies.
Adjusted EBITDA loss was $900000, a $4 7 million dollar improvement year over year adjusted EBITDA loss margin of 2.1% is a significant improvement compared to the 15.5% loss margin reported a year ago, and 520 basis point improvement so.
<unk>.
Turning to the balance sheet and cash flow, we ended the quarter with $118 $4 million in cash and short term investments. We ended last quarter with 110 million point $910 9 million. This increase in cash is primarily related to cash received as a result of stock.
<unk> options being exercised during the quarter.
Operating cash flow in the third quarter was $3.3 million, a 7.4 million dollar improvement year over year free cash flow was $2 $1 million and free cash flow margin was 4.8%. This compares to free cash flow of negative $4.6 million and our free cash flow margin of negative.
At 12, 8% in the third quarter of 2022.
We're pleased with the progress our initial goal was to achieve positive free cash flow by Q4 of this year and we have been positive and free cash flow each quarter year to date and bland planned to have positive free cash flow for the full year of 2023.
Turning to our outlook for the fourth quarter and full year 2023 for the fourth quarter of 'twenty 'twenty. Three we expect total revenue in the range of $43 $5 million to $44.5 million and a non-GAAP operating loss in the range of $3 million to $2 million.
My first question comes from Alex Sklar with Raymond James. Please proceed with your question.
Thank you.
Starting with you on some of the newer bundled changes I think you've got a higher to your bundle now and market north of $700. A month can you just talk about what you're seeing from customers in terms of initial purchasing patterns between your your three bundled tiers are you still landing with your largest bundle and kind of the the of the three.
Despite it being a larger dollar total thanks.
Yeah, It looks as Alan I'll take that one we are landing there the bulk of the shelves that we do the majority of the shows we do our on that highest bundle, which is called we the elite and so we're pleased with that that's helped us to maintain our <unk> our average revenue per location and.
Where we've seen that training up it to the highest level we've had in Q3.
Okay, that's great to hear and then maybe it will follow up for breath on in terms of overall demand yet another live events I've kind of been a tailwind. This year can you just talk about the kind of success in the maturity of some of the other digital demand Jen motions are there any kpis you can kind of share that relative to take.
This time last year in terms of if that's improved.
Yeah. So we.
Good point, Alex <unk>, you know we've talked a lot about events have those have been picking up they've been picking up for the last several quarters.
We're still not back to pre pandemic levels I don't know if we'll ever get back there, but they have performed well uhm. This year and then on the other demands in front digital demand.
We've seen pretty meaningful improvements there across the board I don't have any metrics that can share with you, but I can share with you that Legion and the performance of those channels you know exceeds our revenue growth rate on a kind of a year over year growth basis. So you know I think events were picking up throughout the year.
<unk> and then you know kind of the digital demand efforts have picked up as well, especially I think in the second and third quarter.
Okay. That's a great color. Thank you both.
Our next question is from Mark Chappelle with Luke Capital markets. Please proceed with your question.
Hi, Thank you for taking my taking my question I'm I'm nice job on a quarter.
Starting with you with respect to the four two revenue guide. It appears that growth is ticking down a few points should we just chalk this up to just standard conservatism or do you see some headwinds you know I'll sort it may cause concern. So maybe you can just kind of roll that into a broader commentary on what you are saying macro wise.
Sure. So you know our our our.
Guide for this Q4 is using the same methodology, we've used for the last seven quarters, which is you know to put up a guide that we have a high level of conviction.
So there's nothing you know seasonal or ominous about our outlook for a Q4, so that'd be the first at answering the second answer is you know we saw again strong strong performance in in queue three our digital demand sales were up pretty meaning.
<unk> year over year as I as I mentioned in my previous answer a S. P's. We're up you know, we we announced our customer passing the 30000 customer threshold, so customer acquisition was up.
So you know pretty good results pretty good results on the demand side in Q3, and then I'm going into Q for you know knock on wood, we hope hope that trend continues we're not.
You know trying to imply anything with our queue for guided all that's the same methodology, we just always use.
Great. Thank you that's helpful and then.
<unk> bring you into the into the mixture you know given that the company is now lap the digital forms transition when should we expect <unk> to stabilize or maybe even turn back up I I realize it's a trailing 12 months Patrick.
Yeah that so mark the the trailing 12 drunk men month metric will mean that into Q4, we'll see some of the same thing just because of that but as we mentioned in Q3 and then the in the recent months, we've with that trend has already begun just to go back up so it'll be some time next year, where we were.
Start seeing that in that 12 months trailing metric.
Great. Thank you that's all for me.
Our next question is from Parker Lane with Stifel. Please proceed with your question.
Yeah, Hi, guys. Thanks for taking my question and congrats on a strong results here Uhm bread, you know multilocation as an area you've talked about is it an intriguing growth driver of this business and I know you discuss some innovation, you're bringing their but curious if you could talk a little bit about go to market there and how that differs from you know the single location or traditional approach that you've had.
Sure. So we have a different team that's totally separate sales team that focuses exclusively on multilocation not surprisingly multilocation is a longer sales cycle and so really that the trick there is to make sure that you've got the product to support that mark.
And then once the product gets there then you know going out and and either developing or further nurturing. The pipeline you know I think we've got as I mentioned their new kind of next gen user experience, where we're rolling that out to select customers. This month.
And we'll be getting feedback there. So you know kind of the first half of the year have been talking about how we've been working on Multilocation product and we expected the second half to start dropping some releases that were meaningful and so that's starting to happen and we're very excited about that uhm. So as these products rule out we get traction we get get good feedback from the customers would make any tweaks we need to.
Then we can really lean into uhm demand Jan and Uhm. The go to market activities on the multi side and also I mentioned that we have just signed an agreement to integrate quite deeply with the the denture concerned platform. That's their that's their on there's the cloud version of their practice management software.
<unk> and it's particularly focused on multilocation. So that's very exciting for us as well. So I think we're kind of steady course and speed on uhm building the product and then developing the pipeline for our Multilocation business.
And I I you know I think we're we're in good place there.
Got it and one for you out and you know you have accelerated three straight quarters now at the same time, you're not far away from breakeven in terms of absolute dollars I know, you're not going to 24, but how should we think about that tastes of you know margin expansion the achievement of breakeven on a sustainable basis is that something.
That we should expect next year.
We will continue to see margin expansion, we've said in the past perfect. It will you know longer term weaves at 75 gross per cent gross margin company. The trajectory that were on you can you can count on that continuing although the rate may slow a little bit just because.
We're balancing our strong desire to grow with our absolute commitment as well to move towards profitability and so we will continue to balance that with a preference for growth and and that's the way that we're looking at 2024.
Understood I appreciate the color. Thanks.
Our next question is from Michael <unk> with Bank of America. Please proceed with your question.
Thank you. Thank you for the questions Tonight. So I appreciate the comment you made an increase to me in person and does all of that.
Awesome that you put a lot of effort into the sales force revamp. So any additional color on sales force productivity you know how the newer salespeople have have ramped up and how that contributing to gross <unk>.
Sure.
So this is Brett mm.
You know we have made really significant progress and this is I think uhm kudos to the sales leadership team and the model that they put in place the time too for sale the time to ramp for sales reps today, I think is about half or maybe a little bit less than half.
Half than it was say a year ago, which is what gave us the confidence to start adding sales capacity starting at the end of last quarter and then throughout this quarter. So uhm in individual efficiency uhm. The sales organization is getting more efficient, but when you.
Add you know new wraps that are not yet ramped you know the aggregate efficiency kind of stays flattish, but they're really executing well and pretty much all of the sales metrics individually based on rap raps has improved pretty much every corner and.
Operator: Greetings and welcome to Weaver Communications, 3rd quarter, 2023, earnings conference call. At this time, all participants are on the list and only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Starsio on your telephone keypad. As a reminder, this conference is being recorded.
Would you add anything there.
No other.
Other than the the.
Model that has been put in place, but a sales team is working the machine is predictable now and so the inputs.
Very easy to make when they're warranted.
Great and then one more one if I could I'd been November integration with with a dangerous cloud version you you mentioned open to new new opportunity for you new market can can you quantify that new market I mean, how how many locations that that might be how large you think that is.
Mark McReynolds: I would now like to turn the conference over to your host, Mark McReynolds, head of investor relations. Thank you. You may begin. Thank you, Rob.
Brett White: Good afternoon and thank you for joining us for Weave 3rd quarter, 2023, earnings conference call.
Well so their entire location based it's around 100000, and you know they they like most practice management software vendors started with on Prime solutions, and then adopted a cloud version and I think you know eventually over time, you know new customers will be onboard it on the.
Brett White: Joining the call today are Brett White, CEO, and Alan Taylor, CFO. Brett will open the call with an overview of Weave's performance and Alan will discuss our financial results in more detail. After the prepared remarks, we'll take questions.
Brett White: Today's discussion contains board looking statements that represent our beliefs or expectations about future events. All board looking statements involve risks and uncertainties that could cause actual results to differ materially from the board looking statements. Please refer to the cautionary language in the earnings release and in Weave's filings with the securities and exchange commission, including our most recent form 10K and 10Q, for additional information concerning factors that could cause these results to differ materially from the board looking statements.
Cloud version, and then Uhm legacy customers would be upgraded the cloud version. So I think the important part is the opportunity for that platform platform longterm versus how many customers. They have today and so that's what we're really excited about our product is incredibly valuable.
And sticky when it's integrated with the practice management software, so being able to provide this integrated solution to the the den tricks to send platform is exciting frankly for for both of us.
Brett White: We'll also discuss financial measures that do not conform with generally accepted accounting principles. For the sake of clarity, unless otherwise noted, all numbers we talk about today will be on a non-gap basis. Information may be calculated differently than similar non-gap data presented by other companies. A reconciliation between these non-gap and gap financial measures is included in our earnings press release, which can be found on our investor relations website at investors.getweave.com.
Understood that I would just add.
Sorry, Michael I would just add that to the some of the near term prospects associated with that <unk> integration are the multi apis ones and so that is an error element that we're excited about.
Under understood that thank you so much of the time.
Brett White: And with that, I'll turn the call over to Brett. Thank you, Mark, and thank you to everyone for joining us on this call today.
As a reminder, if you like to ask a question. Please press star one on your telephone keypad.
Brett White: Before diving into our Q3 performance, I'd like to provide a brief overview of Weave's for those of you who are new to our story. We provide small and medium-sized healthcare businesses with a vertically tailored customer experience and payment software platform, helping practitioners to modernize and personalize every interaction with their patients. Our customers typically do not have dedicated technology staff, so they need software solutions that are easy to implement and manage. We've unified the patchwork of point solutions into a single platform that helps attract and engage and retain patients.
One moment, while we pull up for questions.
Our next question comes from Brian <unk> with Piper Sandler. Please proceed with your question.
Hi, guys. This is Hannah read off on her bank today. Thank you for taking my questions.
Can I assist you to continue the momentum and the business just one for you Brian I guess, how how often are you signing payments and the initial deal and then how are Ya incentivising that adoption of the payment products and earlier and emotion rather than later.
So and I'll take that one on the point of sale I think we're still between about 20, 25% at the point of sale signing up payments customers and we're doing a better job now and really working too.
Brett White: SMBs make up the vast majority of businesses in the U.S., and we have spent almost 15 years building a platform specific to the needs of SMB healthcare practitioners. These businesses are well capitalized, well managed, and have demonstrated their resilience even through economic challenges of recent years.
To penetrate into our existing customer base by giving them more and more on ramps using digital means to to take customer payments.
Alright helpful and <unk> and there was a <unk>.
Brett White: Moving on to our Q3 2023 results. We've had an excellent quarter, and I'm very pleased with the team's execution, delivering another quarter of both year-over-year and sequential quarterly improvements in revenue growth rate, growth and operating margin, adjusted EBITDA, and free cash flow. Revenue for Q3 was 43.5 million, representing 20.2% year-over-year growth. We exceeded the top end of our revenue guidance for the seventh quarter in a row, and we posted our third quarter in a row of accelerating year-over-year revenue growth.
Sorry go ahead, the ice I was gonna say there was a second part of the question.
And I was just asking about incentivising that adoption sooner rather than later, but it sounds like you're trying to get into the existing notion more than that uhm initial international.
Yeah, there's <unk>, we're approaching it from from both Uhm vectors, one is that new customer land and we've we've experimented where in the actual new customer journey is the most effective way or most effective place.
To to make to close the payments payments.
Payments deal and I think we've got that one figured out and then the next really activity would be turbocharging, the upsell activity and so uhm, that's definitely very much and in the works as well part of our adding capacity to the sales for.
Brett White: This growth was driven by continued strong demand for our platform and our expanding customer base. During Q3, we saw increased demand from both digital channels and in-person events, and we continued to add capacity to our sales team. In addition to our core verticals of dental, optometry and veterinary, we saw increased demands from additional specially medical providers and continued to expand our platform to support them. In Q3, we continued to make positive progress in the efficiency of our business.
<unk> in the third quarter was adding.
Ensuring that we have adequate and appropriate resources for the up so much because I think we've got a lot of opportunity to episode the software as well as as payments.
Okay that makes a lotta sense, you'll get to hear and then just my follow up is that a few weeks ago. I saw you at least an integration with poker by my body.
Brett White: Our growth margin improved for the seventh consecutive quarter to 69.3%, a 470 basis point improvement increase from last year. Additionally, we cut our operating loss margin from last quarter by more than half to 4.2% of revenue. Lastly, we produced 2.1 million and free cash flow bringing us to 3.6 million and free cash flow generated year-to-date. These results reflect that our vertically tailored software payments platform continues to gain traction, and the weave team is executing with intense focus on the needs of the customers in the vertical set we serve.
Wondering if it signals a more concerted effort to expand into that beauty and while my critical.
It's actually <unk>. So Booker is still gotcha, no no a little bit about the business Booker is very strong and med spot. So you know we've talked about our next batch of specialty medical verticals. It's med spa, it's plastic it's general practitioner and.
It's physical therapy. So we actually did two integrations, we we press release on the med spot space.
Brett White: On the product front, the team has been hard at work developing our next generation platform, which features an enhanced user interface to improve workflows overall usability and is optimized for multi-location customers. Customers with more than one location can perform key tasks for multiple practices from a single screen. This week we will open up early access to this improved experience and we are excited to receive customer feedback on this highly requested functionality.
Alright, thank you.
We have reached the end of the question and answer session I'd now like to turn the call back over to Brett White for closing comments.
Yeah. Thank you. Thank you all for joining us today and an additional special thank you to the we've team for just delivering another terrific quarter.
And we look forward to our next call in February so thank you.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Brett White: Additionally, this week we find an agreement that deepens our existing partnership with Henry Shine 1, a leading provider of software for Dennis with over 100,000 customers. In November, we will launch an integration with the Dentrix Ascend platform, Henry Shine 1's premier cloud-based practice management software with advanced features for group practices and DSOs. This new integration will open up a more robust set of weave features to Dentrix Ascend customers. On the payments front, our offering enables our customers to expedite billing and collect payments with minimal effort and administrative hassle.
Brett White: Payments are increasingly digital and our aim is to provide customers with multiple options to collect payments as quickly and efficiently as possible. Our customer experience software platform powers frictionless and flexible payment options which helps create a positive patient experience, build trust, and encourage repeat business for our customers.
Brett White: In September, we announced a new partnership with a firm. Integrated directly into our platform, a firm allows patients to commit to treatment now and pay over time, making it easier to access and afford the care they need. This collaboration not only benefits patients, but also enhances the speed of revenue collection for our practitioners. Our customer's experience is the keystone to retention, and we've continued to receive positive recognition and validation that our platform delivers best in class results.
Brett White: Since 2017, Weave has been recognized every quarter as a leader in G2. In G2's fall 2023 report, Weave ranked first in 34 different categories. These independent reports are grounded in authentic reviews, customer satisfaction metrics, and market presence. This recognition underscores our commitment to deliver technology tailored to suit the unique needs and challenges of our customers.
Brett White: In Q3, we also cross the significant milestone, growing our customer base to over 30,000 active locations. This is a testament to both customer acquisition and retention as customers adopt Weave as their preferred customer experience platform.
Brett White: In our past several earnings calls, we've discussed the concept of boomerang customers. Officers that leave Weave for a competitive solution only to come back a short time later after being dissatisfied with the competitive offering. This trend continued in Q3, and we have had approximately 350 boomerang customers year to date. This trend provides another data point and underscores the scope and value delivered by our platform.
Brett White: Finally, before I hand it over to Alan, I'd like to take a moment to share a recent personal change. Our chief revenue officer, Matt Hyde, will be leaving Weave later this month to pursue a new opportunity, and we wish him luck with his future endeavors. During Matt's two and a half year tenure at Weave, he was instrumental in transforming our sales function into a tightly run organization that will enable us to scale for many years to come.
Brett White: Included in this transformation has been the development of an outstanding sales management team led by our VP of Sales, Jake Karetha. Jake will assume the role of interim CRO immediately effective while we conduct a search both internally and externally. I have complete confidence in Jake and the entire sales organization continuing to produce the solid and improving results that we have experienced over the last several quarters.
Brett White: In conclusion, we are very pleased with the strong results and sustained momentum in Q3. Revenue growth continues to accelerate, and our execution and efficiency continues to improve. Thank you to our customers, our team members, and our shareholders for your supportive Weave.
Brett White: We're excited about the path ahead, and are intently focused on finishing an excellent year on the strong note.
Brett White: With that, I'll turn it over to Alan to go through the financial results in more detail, and then we'll take questions.
Alan Taylor: Thanks, Brett, and good afternoon, everyone. As Brett mentioned, we delivered strong performance in the third quarter on both the top and bottom line. We delivered third quarter revenue of $43.5 million, reflecting 20.2% growth year over year. This represents a $1.3 million or a 3% beat over the midpoint of the range we provided last quarter. Our net revenue retention rate was 95% in Q3. As a reminder, the NRR calculation is based on the last 12 months of data, and therefore is burdened by the impact of the previously discussed transition from a third-party digital forms product to an in-house developed digital forms product.
Alan Taylor: When we look at NRR on a monthly basis, both September and Q3 were the highest of the year, primarily due to positive adoption of payments and software apps. Gross Revenue Retention Rate remained at 92% for Q3 among the best in class for SMB retention and logo retention has been consistent for over two years.
Alan Taylor: Moving on to operating results, as a reminder, I'll be referring to non-gap results unless otherwise stated. Our Q3 results showed significant improvement across the board. Gross Margin was 69.3%. This represents a 470 basis point increase year-over-year and a 140 basis point increase sequentially.
Alan Taylor: As we approach the second anniversary of our IPO, we wanted to highlight the progress that we have made since our first earnings call. Gross margins have improved by over 1,000 basis points. The improvement is due to higher average revenue per location and leverage in our cost structure. Here are some examples of the leverage. We reduced hardware costs by over 300 basis points as a percentage of revenue in the past two years.
Alan Taylor: Connectivity and cloud infrastructure costs by over 200 basis points and costs of service by over 450 basis points. We have engineering and operating teams who are focused on providing an exceptional customer experience and doing so while remaining efficient and expanding our margins. These teams have accomplished this despite the macro inflationary pressures that we have seen across the economy, and we're very pleased with the progress the team has made over the last two years.
Alan Taylor: In Q3, operating expenses worth $32 million, a $2.1 million increase from last year compared to a $7.3 million increase in revenue for the same period. Our operating loss was $1.8 million and improvement of $4.7 million or 72% compared to last year and $1.7 million better than the high end of the guidance that we gave in August. The corresponding operating loss margin of 4.2% is a significant improvement from the operating loss margin of 18% last year and also a 530 basis point improvement sequentially.
Alan Taylor: Looking back two years, that is over 2,800 basis points of improvement in operating loss margin. We have seen leverage in each area of the business as sales and marketing has decreased to 38% of revenue from 51% in Q3 of 2021. R&D is decreased to 16% from 19% and GNA has decreased to 19% from 22% all while accelerating our revenue growth each quarter of this year. Our net loss was $1 million or $1cent per share in the third quarter based on 68.2 million weighted average shares outstanding.
Alan Taylor: This is compared to a net loss of $6.5 million or 10 cents per share last year. This represents a $5.5 million improvement due to revenue acceleration and operating efficiencies. Adjusted EBITDA loss was $900,000, a $4.7 million improvement year over year. Adjusted EBITDA loss margin of 2.1% is a significant improvement compared to the 15.5% loss margin reported a year ago and a 520 basis point improvement sequentially.
Alan Taylor: Assembly. Turning to the balance sheet and cash flow, we ended the quarter with $118.4 million in cash and short-term investments. We ended last quarter with $110.9 million. This increase in cash is primarily related to cash received as a result of stock options being exercised during the quarter. Operating cash flow in the third quarter was $3.3 million, a $7.4 million improvement year over year. Free cash flow was $2.1 million and free cash flow margin was 4.8%.
Alan Taylor: This compares to free cash flow of negative $4.6 million and a free cash flow margin of negative 12.8% in the third quarter of 2022. We're pleased with the progress. Our initial goal was to achieve positive free cash flow by Q4 of this year and we have been positive in free cash flow each quarter year to date and plan to have a free cash flow for the full year of 2023.
Alan Taylor: Turning to the full year of 2023, we expect total revenue in the range of $43.5 million to $44.5 million and a non-gap operating loss in the range of $3 million to $2 million. For the full year 2023, we expect total revenue to be in the range of $168.3 million to $169.3 million. We expect our full year 2023 non-gap operating loss to be in the range of $12.8 million to $11.8 million. We expect to have a weighted average share count of approximately $67.7 million shares for the full year.
Alan Taylor: Let me wrap up by saying that we remain very excited about where we is heading. Our focus is on giving our customers the best possible experience while delivering top-line momentum and positive progress towards profitability.
Operator: And with that, we'll open the call for questions. Thank you. At this time, we'll be conducting a question and answer session. If you like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you like to remove yourself from the queue. We ask that you please limit to one question and one follow-up. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Alex Sklaugh: Our first question comes from Alex Sklaugh with Raymond James. Please proceed with your question. Thank you.
Alan Taylor: Brett, I'm starting with you. On some of the newer bundle changes, I think you've got a higher tiered bundle now in market north of $700 a month. Can you just talk about what you're seeing from customers in terms of initial purchasing patterns between your three bundled tiers? Are you still landing with your largest bundle in kind of the three, despite it being a larger dollar total? Thanks.
Alan Taylor: Alex is Alan. I'll take that one. We are landing there. The bulk of the cells that we do, the majority of the cells we do, are on that highest bundle, which is called Weave Elite. And so we're pleased with that. That's helped us to maintain our our pool, our average revenue per location. And we're, we've seen that trending up, but to the highest level we've had in Q3.
Brett White: Okay, that's great to hear. And then maybe the follow up Brad's end. In terms of overall demand, and I know the live events have kind of been a tailwind this year. Can you just talk about kind of the success and the maturity of some of the other digital demand, and motions? Are there any KPIs you can kind of share that relative to kind of this time last year in terms of if that's improved?
Brett White: Yeah, so we've good point Alex. We've talked a lot about events have those have been picking up. They've been picking up for the last several quarters. We're still not back to pre pandemic levels. I don't know if we'll ever get back there, but they have performed well this year. And then on the other demand in front, digital demand. And we've seen pretty meaningful improvements there across the board. I don't have any metrics I can share with you, but I can share with you that lead gen and the performance of those channels, you know exceeds our revenue growth rate on a kind of a year over your growth basis. So, you know, I think events were picking up throughout the year and then, you know, kind of the digital demand efforts have picked up as well, especially I think in the second and third quarter.
Alex Sklaugh: Okay, that's great color.
Alex Sklaugh: Thank you both.
Mark Chappelle: Our next question is from Mark Chappelle with loop capital markets. Please proceed with your question. Hi, thank you for taking my taking my question and nice job on a quarter, but starting with you with respect to the 4Q revenue guide, you know, it appears that growth is taking down a few points. Should we just chalk this up to just standard conservatism or do you see some headwinds, you know, out there that may cause concerns? And maybe you could just kind of roll that into a broader commentary on what you're seeing macro wise.
Brett White: Sure. So, you know, our guide for this Q4 is using the same methodology we've used for the last seven quarters, which is, you know, to put up a guide that we have a high level of conviction in. So, there's nothing, you know, seasonal or ominous about our outlook for a Q4. So, that would be the first answer. And the second answer is, you know, we saw, again, strong, strong performance in Q3.
Brett White: Our digital demand sales were up pretty meaningfully year over year, as I mentioned in my previous answer, ASPs were up. You know, we announced our customer passing the 30,000 customer threshold, so customer acquisition was up. So, you know, pretty good demand results, pretty good results on the demand side in Q3. And then going into Q4, you know, we're knock on wood. We hope that trend continues. We're not, you know, trying to imply anything with our Q4 guide at all. That's the same methodology we just always.
Alan Taylor: Great, thank you, that's helpful.
Mark Chappelle: And then Alan bringing you into the mix here, given that the company has now lapped the digital forms transition, when should we expect NRR to stabilize or maybe even turn back up? I realize it's a trailing 12 month metric. Yeah, so Mark, the trailing 12 month metric will mean that in the Q4 we'll see some of the same thing just because of that. But as we mentioned in Q3 and in the in the recent months we've with that trend has already begun just to go back up. So it'll be sometime next year where we really start seeing that in that 12 month trailing metric.
Parker Lane: Great, thank you, that's all for me.
Parker Lane: Our next question is from Parker Lane with Steve. Please proceed with your question. Yeah, hi guys, thanks for taking the question and congrats on the strong results here. Brett, you know, multi location is an area you've talked about as an intriguing growth driver of this business, and I know you've discussed some innovation you're bringing there, but curious if you can talk a little bit about go to market there and how that differs from the single location or traditional approach that you've had.
Parker Lane: Sure, so we have a different team, a totally separate sales team that focuses exclusively on multi location, not surprisingly, multi location is a longer sales cycle, and so really that the trick there is to make sure that you've got the product to support that market, and then once the product gets there, then you know, going out and either developing or further nurturing the pipeline, you know, I think we've got as I mentioned our new kind of next gen user experience, we're rolling that out to select customers this month, and we'll be getting feedback there. So you know, kind of the first half of the year I've been talking about how we've been working on multi location product, and we expected the second half to start dropping some releases that were meaningful, and so that's starting to happen, and we're very excited about that.
Parker Lane: So as these products roll out, we get traction, we get good feedback from the customers, we make any tweaks, we need to then we can really lean into demand gen, and the good market activities on the multi side, and also I mentioned that we had just signed an agreement to integrate quite deeply with the venture consent platform. That's their cloud version of their practice management software, and it's particularly focused on multi location, so that's very exciting for us as well.
Parker Lane: So I think we're kind of steady course in speed on building the product, and then developing the pipeline for our multi location business, and I think we're in good place there. Got in one for you, Alan, you've accelerated three straight quarters now at the same time, you're not far away from break even in terms of absolute dollars. I know you're not getting to 24, but how should we think about that pace of margin expansion, the achievement of break even on a sustainable basis, is that something that we should expect next year?
Parker Lane: We will continue to see margin expansion. We said in the past, Parker, that will longer term, we've just 75% growth margin company, the trajectory that we're on, you can count on that continuing although the rate may slow a little bit just because we're balancing our strong desire to grow with our absolute commitment as well to move towards profitability, and so we'll continue to balance that with a preference for growth, and that's the way that we're looking at 2024. I understood. Appreciate the color here. Thanks.
Michael Funk: Our next question is from Michael Funk with Bank of America. Please proceed with your question. Thanks. Thanks for the questions tonight. So appreciate the comment you made on increased demand person and visual events. Also know you put a lot of effort into the sales force revamp. So any additional color on sales force productivity? The, you know, how the newer sales people have ramped up and how that's contributing to grow citizens?
Brett White: Sure. So this is Brett. You know, we have made really significant progress. And this is I think kudos to the sales leadership team and the model that they put in place. The time to first sale, the time to ramp for sales reps today. I think it's about half or maybe a little bit less than half than it was say a year ago, which is what gave us the confidence to start adding sales capacity.
Brett White: And the starting at the end of last quarter and then throughout this quarter. So in individual efficiency, the sales organization is getting more efficient. But when you add, you know, a new reps that are not yet ramped, you know, the aggregate efficiency kind of stays flatish, but they're really executing well. And pretty much all of the sales metrics individually based on ramp reps has improved pretty much every quarter. Alan, would you add anything there? No, other than the model that has been put in place for the sales team is working. The machine is predictable now. And so the inputs are very easy to make when they're warranted.
Brett White: Great. And then one more. The November integration with with the metrics cloud version, you mentioned opens a new. A new opportunity for you new market. Can you quantify that new market? I mean, how many locations that that might be? How large you think that is? Well, so their entire location based is around 100,000. And, you know, they, they like most practice management software vendors started with on-prem solutions and then adopted a cloud version.
Brett White: And I think, you know, eventually over time, you know, new customers will be onboarded on the cloud version. And then legacy customers would be upgraded to cloud version. And so I think the important part is the opportunity for that platform platform long term versus how many that customers they have today. And so that's what we're really excited about. Our product is incredibly valuable and sticky when it's integrated with the practice management software. So being able to provide this integrated solution to the metrics to send platform is exciting, frankly, for for both of us.
Operator: Understood. Thank you. I would just add that some of the near term prospects associated with the metrics that send integration are the multi-op, on your telephone keypad. One moment while we pull up for questions.
Hannah Rudoff: Our next question comes for Brent today. Thank you for taking my questions. Nice to see the continued momentum in the business, just one for you, Brett. I guess how often are you signing payments in the initial deals, and then how are you incentivizing that adoption of the payments products in earlier in the motion rather than later? So, Hannah, I'll take that one on the, at the point of sale, I think we're still between about 20 and 25 percent.
Hannah Rudoff: At the point of sale, signing up payments customers, and we're doing a better job now and really working to penetrate into our existing customer base by giving them more and more on-ramps using digital means to take customer payments. All right, helpful. Sorry, go ahead, I was going to say there was a second part of the question. I was just asking about incentivizing that adoption sooner rather than later, but it sounds like you're trying to build it into the existing motion more than the initial land motion.
Hannah Rudoff: Yeah, we're approaching it from from both vectors, you know, one is that new customer land, and we've we've experimented where in the actual new customer journey is the most effective way or most effective place to make to close a payments deal, and I think we've got that one figured out, and then the next really activity would be turbocharging the upsell activity, and so that's definitely very much in the works as well. Part of our adding capacity to the sales force in the third quarter was adding, you know, ensuring that we had adequate and appropriate resources for the upsell motion, because I think we've got a lot of opportunity to upsell the software. As well as as payments.
Brett White: Okay, so that makes a lot of sense and good to hear, and then just my follow-up is that a few weeks ago, I saw you released an integration with Booker by MindBody, and I was wondering if this signals a more concerted effort to expand into that beauty and wellness vertical. It's actually MedSpot, so Booker is no little bit about the business. Booker is very strong in MedSpot, so, you know, we've talked about our next batch of specialty medical verticals. It's MedSpot, it's Plastic, it's General Practitioner, and it's Physical Therapy, so we actually did two integrations.
Hannah Rudoff: We pressed release on the MedSpot space. Okay, thank you.
Brett White: We have reached the end of the question and answer session. I'd now like to turn the call back over to Brett White for closing comments. Yeah, thank you. Thank you all for joining us today, and an additional special thank you to the Weave team for just delivering another terrific quarter.
Brett White: And we look forward to our next call in February, so thank you.
Operator: Thank you.