Weave Communications Inc (WEAV) 2021 Q3 法說會逐字稿

Good day, and welcome to the Weave Communications Third Quarter 2021 Financial Results and Conference Call.

At this time, I would like to turn the conference over to Barry Hutton. Please go ahead.

Good afternoon, and thank you for joining us for the Weave third quarter 2021 earnings call. Joining me on the call today are Roy Banks, Chief Executive Officer; and Alan Taylor, Chief Financial Officer. Full details of our results and additional management commentary are available in our earnings release, which can be found on the Investor Relations website at investors.getweave.com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website.

Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding Weave's future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause the actual results to differ materially from those discussed here. You should not place undue reliance on any forward-looking statements. Factors that could cause actual results to differ from the forward-looking statements can be found in our prospectus dated November 10, 2021, and filed with the SEC on November 12, 2021, which is accessible on the SEC's website at www.sec.gov, and also available on our website at investors.getweave.com, as may be supplemented in subsequent periodic reports we file with the SEC.

Any forward-looking statements made in this conference call, including responses to your questions, are based on current expectations as of today, and we've assumed no obligation to update or revise them whether as a result of new developments or otherwise, except as required by law.

The following discussion contains non-GAAP financial measures. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings release, which is available on the IR section of our website at investors.getweave.com.

Now I turn the call over to Roy, Chief Executive Officer of Weave.

Thank you, Barry. Good afternoon, everyone, and thank you for joining us for our first earnings call as a public company. In Q3, our team delivered strong growth, and I'm very pleased to report that our third quarter revenue grew 42% year-over-year to $30.3 million. In addition to becoming a public company this year, just a mere 26 days ago, we also celebrated our 10-year corporate anniversary which sees us now positioned as a leading publicly traded all-in-one customer communications and engagement software platform for small businesses. Alan will go into further detail on our strong financial performance shortly.

Since this is our first earnings call as a public company, I'd like to provide a brief overview of our business and the core drivers of growth that enable us to deliver a much needed small business commerce, communication and engagement solutions. I will also walk through a few strategic initiatives and our vision for how we plan to execute this with additional proceeds we brought to the balance sheet by going public.

More than 99% of U.S. businesses are small businesses, and they employ more than 61 million people. We estimate that our total current addressable market opportunity is approximately $11.1 billion in the U.S., and we believe the businesses represented by this market have been underserved by existing solutions. Small businesses are the lifeblood of our communities and our economy. It's a group of people we could not be more proud to serve.

For too long, small businesses have had to suffer through a patchwork of point solutions to power their customer communications and interactions. These disparate, complex and expensive tools to manage customer communications, engagement and commerce result in inefficiency in the business and the disjointed experience for their patients, clients and customers.

And delivering a high-quality customer experience matters to small business, take for example, Riverfront Dental in Salem, Oregon. Before switching to our platform in August 2016, Riverfront Dental's sole receptionist would spend an hour a day calling scheduled patients to confirm their appointments. Patients in the office would often need to wait to be served while future patients were being confirmed, reducing the quality of the in-office customer experience. Riverfront Dental now uses our platform to manage scheduling, reviews and payments. By allowing patients to confirm their appointments with a simple text, Riverfront Dental estimates that we've saved their staff over 25 hours a month, enabling them to provide better patient experience.

Our mission is to create a world where small businesses, just like Riverfront Dental, can utilize state-of-the-art technology to transform how they communicate, attract, retain and engage customers, grow their business and realize their dreams. Our platform enables business owners to maximize the value of their customer interactions and minimize the time and effort spent on manual or mundane task. A small business that used to juggle 6 or 7 software solutions to manage their customer interactions can now replace those separate tools with just 1, Weave.

Weave was founded in 2011 out of the desire to help 1 service-based small business, a dental practice, become more efficient through a smarter phone system. Since then, it has become a unique and powerful blend of proprietary integrated phone communication and engagement technology. We've added new features like messaging, marketing tools, digital form, payments, reputation management, analytics and scheduling to cohesively enable additional interactions across the customer journey. We bring together this powerful suite of tools and features into a single unified platform to give both businesses and their customers more convenient, modernized and personalized ways to interact with each other. Businesses no longer have to deal with the headaches of a point solution patchwork and can opt instead for a high-value, low-cost solution that helps businesses attract more customers, engage with them across many channels and keep them coming back. Given the success we've enjoyed in the dental market and other early verticals, we've also selectively expanded into new vertical markets such as: optometry, specialty medical, veterinary and most recently, vertical markets within the large home services industry, such as plumbing and HVAC.

As we tackle new vertical markets, we also expand our product set to best serve each vertical, such as adding new features like vaccine reminders for veterinary practices. Our products and services are focused on how small businesses care for their customers. And I mean that as an acronym, communicate, attract, retain and engage. Our product development is aligned with these core pillars. And as we expand our products and services, we intend to focus on each of these pillars along with the specific customer needs in each of our vertical markets.

We have also made significant progress on our strategic priorities. As we approach new markets, we are increasingly aware of and adapting to conditions in our existing markets. In response to the consolidation trend of dental offices by dental service organizations during the pandemic, we have responded to the more complex small business needs like multi-office locations, widening our customer acquisition funnel and positioning us for faster customer growth.

Leveraging our vertical domino growth strategy, we have recently entered into the home services industry and have received positive customer feedback and early signs of success. Results from our first few months in home services have outperformed and even surpassed results for the same time period of any previous verticals we've entered, and we are optimistic home services will become another significant growth vertical market for Weave.

In 2020, we launched our nascent payment processing solution to our customers. In the first 18 months, we have processed more than 700 million in payment volume through our platform, and we believe there is significant potential to increase our payment processing volume within our existing and future customers.

In the third quarter, we announced integrations with both Quickbooks Online and Sycle. These integrations are key to supporting the home services and audiology vertical markets, respectively, demonstrating our ability to grow in both existing and new markets. We plan to continue executing this integration playbook as a key part of our go-to-market and vertical market growth and expansion strategy.

What might be most impressive about Weave is our resilience and our ability to innovate at critical times. COVID threw every business a curve ball regardless of size, location or industry. Before this global pandemic, we used trade shows, events and conferences as significant customer acquisition channels within our go-to-market strategy. As these channels came to a grinding halt, we needed to quickly pivot and adapt to alternative customer acquisition and market growth strategies.

Due to our scrappiness, incredible product market fit and ability to innovate world-class solutions, we shifted our lead generation activities to focus on inbound and outbound channels and found new ways to not only survive but to thrive. Everyone had to adapt to a changing environment, including our small business customers. And with solutions like curbside check-in, contactless payments and digital forms, which we quickly brought to market, we help thousands of small businesses around the country provide essential services exactly when and where they needed them. And as a long-term result, more and more small businesses are recognizing the need for digital transformation in the way they do business and interact with their customers, creating a greater need for a solution like Weave.

As we have continued to grow rapidly, our platform and products have been incredibly sticky for our customers. We had an impressive dollar-based gross revenue retention rate of 93% at September 30, 2021, and a net revenue retention rate of 104%, which we believe demonstrates how effectively our platform addresses and solves our customers, commerce, communication and engagement needs.

As we look ahead, we're excited about what the future has in store for Weave. In particular, we look forward to the launch of new products within our all-in-one commerce communication and engagement platform to increase our penetration into new verticals like those within the home services sector and to increase our land and expand revenue opportunities within our customer base.

Putting it all together, I am confident that we can achieve our long-term growth potential, especially given the opportunity to use the proceeds from our recent IPO to help accelerate growth. We've grown revenue 42% year-over-year. We're leading the charge to deliver enterprise-level technology to small businesses in a unified, modernized and personalized all-in-one platform that helps our customers operate more efficiently, while delivering a higher quality of patient and customer experience.

While continued vertical market expansion is a key part of our growth strategy, we continue to remain committed and excited about the large customer growth opportunity within our existing vertical markets where we are penetrated no more than 10%.

Our ability to accelerate and expand the growth of our payments business revenue is a particularly compelling opportunity, along with our healthy dollar-based net retention rate, increase from the same period last year, we believe payments growth provides an opportunity to continue scaling the business while retaining high-quality customers and deepening their reliance on our all-in-one platform through new capabilities.

I'd like to end by thanking the 900-plus Weave employees in the U.S. and India for their dedication and tireless efforts and to our investors and our customers across the U.S. and Canada for their trust and partnership. We look forward to discussing our progress with you in quarters ahead.

With that, I will turn the call over to Alan to provide more color on our third quarter results.

Thanks, Roy, and thanks, everyone, for joining us today. Before I go through the numbers, I'd like to quickly review a few fundamentals of our financial model. As Roy discussed, we provide small- and medium-sized businesses with the communications and engagement software platform. We generate revenue primarily from customers who contract our software services on a subscription basis. As such, 93% of our Q3 revenue was recurring revenue, providing us with a predictable recurring revenue financial model and our dollar-based net retention and gross revenue retention operating metrics are good indicators of the consistent growth of our annual recurring software business.

The balance of our revenue is generated from payment processing services for which we receive a revenue share from a third-party payment facilitator. Total revenue for the third quarter was $30.3 million, up 42% year-over-year. This primarily reflects the increase in customer locations during the year. In addition, we benefited from upselling existing customers and added revenue from our payments offering. Our dollar-based net revenue retention rate for Q3 was 104%, reflecting our customers' ongoing acceptance and usage of our services.

Our dollar-based gross revenue retention rate for Q3 was 93%, reflecting product market fit and our ability to retain our customers. As we have continued to grow rapidly, our platform and products have been incredibly sticky to our customers, which we believe demonstrates how effectively our platform addresses our customers' needs and represents best-in-class gross revenue retention for a company serving the SMB space.

Before discussing gross margins, expenses and profitability, please note that I will be discussing non-GAAP results going forward. As a reminder, our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results can be found in our earnings press release and its supplemental financial tables.

In the third quarter, gross margin improved to 58% from 57.3% in Q3 of 2020 as our cost of revenue is aligned with the growth of our customer base and we benefited from operating leverage on our growing customer and revenue base. Total operating expenses were $27.5 million, up 56% year-over-year, primarily related to increased sales and marketing investments related to our growth efforts and G&A expenses associated with our preparation for our recent IPO.

Sales and marketing expenses were $15.3 million, a 76% increase year-over-year. Our investment towards growth included additional expenses related to personnel increases and additional digital lead generation efforts.

R&D expense was $5.6 million, a 14% increase year-over-year, driven by increased hiring to support new product efforts which was partially offset by additional capitalized software development costs versus the prior year. G&A expense was $6.6 million, a 63% increase year-over-year reflecting the addition of personnel and other expenses associated with preparation for our recent IPO.

Our adjusted EBITDA in Q3 was negative $9.1 million as compared to negative $5 million in the third quarter a year ago, reflecting the year-over-year increase in operating expense as just discussed. Non-GAAP operating loss was $10 million as compared to a loss of $5.5 million in the third quarter a year ago. Non-GAAP net loss per share was $0.72 in the third quarter based on 14.3 million weighted average shares. This is compared to a loss of $0.50 per share a year ago.

Turning now to the balance sheet and cash flows. We ended the third quarter with $40.4 million in cash and cash equivalents, down from $55.7 million at the end of the year in December. Post quarter end, we added $111.6 million in cash and cash equivalents through our IPO, providing dry powder to address our market opportunity.

The cash flow from operations was a usage of $3.3 million, reflecting the GAAP net loss, which was partially offset by noncash items, including increases in accrued liabilities and deferred revenue. After making investments in property and equipment, our free cash flow was a usage of $6.4 million.

Turning now to our guidance. Given Q3 results and the progress made so far in the fourth quarter, we are providing guidance for our Q4 and full year results. For the fourth quarter, we expect total revenue in the range of $31.5 million to $32.5 million and a non-GAAP operating loss in the range of $11 million negative to $10 million negative. We expect to have a weighted average share count of approximately 42.3 million for Q4.

For the full year fiscal 2021, we expect total revenue in the range of $115.5 million to $116.5 million and a non-GAAP operating loss in the range of negative $36.5 million to negative $35.5 million. We expect to have a weighted average share count of approximately $20.6 million for the full year.

With that, I will turn it back over to Roy for some concluding remarks.

Thank you, Alan. I will conclude by saying how incredibly excited we are about the future of Weave. We have proven that our playbook of adding new customer locations, increasing our payments volume, expanding into new markets and delivering new integrations and products for our all-in-one commerce communications and engagement platform provides us with the game-winning strategy of revenue growth and business expansion.

We are in the midst of a small business communications revolution, and Weave is leading the charge. Small businesses are recognizing our dedication to that mission and rewarding us with tremendous growth. Our product market fit is extraordinary, and our culture of customer obsession has driven our strategy of vertical expansion and business growth.

We'll keep knocking down that $11.1 billion of total addressable market 1 domino at a time as we seek to conquer the small business space.

Operator, we are now ready for questions.

(Operator Instructions) We'll now take our first question from Parker Lane of Stifel.

Congrats on the first quarter out of the gates here. Roy, you alluded to some real strength in the home services vertical with that recently being released. Can you just give us a sense of the pace of entry into new markets? You've entered a few new markets since the company was founded. And what's the typical time line for you to reach critical mass in one of those markets as you first entered them?

Yes. Well, thank you for the compliment. And on the quarter, we're very excited about what we were able to achieve. And as it relates to our entry into home services, we -- like I said in my remarks, we saw a pace of acceleration and entry in that market that outpaced what we've seen as we've entered prior vertical markets.

We have a history of entering vertical markets every 2 to 3 years. And what we are seeing in home services is very, very encouraging and exciting for wave. It really shows that the market is responding very well to our platform, our solution. And we think that we found another gold nugget of opportunity here that quickly this market can become a very significant market opportunity for us to participate in.

And as we look at the pace and uptake, I think that's something we'll ask you to continue to watch along with us over the next few quarters. We're very excited about what we're seeing, again, going into the next year with the momentum that we have established as we've gone into that market.

Yes. And on the upside or upside portion of the equation here for upsell for customers of 104% net retention is really solid here. When we think about the typical upsell pads for a customer, what do those look like outside of payments today? And how far along do you think the company is in the expansion side of the go-to-market equation.

Parker, I think the upsell pattern -- payments is always what we will lead with, but we have a forms product. We have an analytics product. We have a web-assist product, and we continue to look at other opportunities to increase the customer functionality across our platform as customers demand different alternatives and different solutions. So I think that we'll -- payments is going to be always the lead. And from there, we'll continue to make our offering much more robust just based on the different verticals and their needs.

We'll now take our next question from Ken Wong of Guggenheim.

And congrats again, guys. Just a quick question on just the linearity in the quarter. Obviously, a lot of macro headlines out there. Just wondering kind of how your business might have kind of moved from month to month over the quarter?

And how much of the headlines have been baked into your 4Q guidance in terms of conservatism?

So Ken, I think that the -- we're seeing the macro environment just like everybody else. And although there's headwinds, we're pretty optimistic that we're confident in our guidance. We're confident in our ability to continue to execute for the balance of this year, certainly, and as we move forward. So we'll continue to watch that.

The great news for us is just the retention rates that we've seen since COVID started have really been very robust, and we don't anticipate that changing. And so that gives us real confidence in the quality of our forecast going forward.

Yes. And I'd like to just say this. Look, the key metrics around our gross revenue retention, our net revenue retention really speak to the strength of our business. And if you look at the key vertical markets that we service, we -- our customers in those markets have a high level of resilience and the ability to adapt and endure many of the macro factors that you're seeing, we're very strong in dental, opto and vet. People go to those types of service-oriented businesses regardless of what type of economic environment we're in. So we're very excited about that.

You look at the strength of our payment processing component of our business. We've demonstrated that we can grow that in the face of some of the headwinds that are happening in the general marketplace. And so we think that we're very well poised to continue to grow and endure the current macroeconomic environment. And I think once that starts to subside and fade, we're going to be able to see other lights of excitement and enthusiasm for how we grow the business.

Got it. And maybe just a quick follow-up for you, Roy. You've got a strong background in payments. And obviously, this quarter, the results look pretty strong. We'd love to get a sense of kind of what the kind of the adoption rate looks like? Any uptick in the maybe the installed base? How does that look for new customers coming into the franchise? Any insights should be fantastic.

Yes. We're not breaking that out right now, but I can tell you that we have a full court press on payments. We -- and as you know, by my background, very excited. It's one of the reasons I'm excited about being here at Weave. Given what we do in terms of managing customer interactions, we are in the pole position in being able to support the exchange of commerce that happens between a small business and their customer. And so with that, we would anticipate and expect with the investment and the focus that we have on payments to see that continue to accelerate and grow, so yes, that's definitely within our purview in terms of how we expect to grow the business going forward.

We'll now take our next question from Mike of Bank of America.

Yes. A couple if I could, please. So maybe discuss the opportunity to increase and improve the go-to-market and accelerate gross additions in the future coming off the IPO and the new capital that you have.

Yes. So obviously, we're very excited about the IPO. And obviously, the Treasury that we've raised from that we're obviously going to be very careful and responsible stewards in the way that we manage those resources. We are looking at obvious ways to -- we never stop. We're always looking at ways to expand our go-to-market. And we have a lot of tools available to us, a lot of avenues that we have available to us to do that, investing in more digital marketing. We're obviously -- we've been impacted a little bit by the halt in events and trade shows and conferences. As it relates to the pandemic, we obviously don't have a crystal ball and don't know when those are going to recover.

But we are poised to see when those recover, that we will be the beneficiaries of those -- of that recovery because we do have an expertise in that. So we will continue to, in the meantime, invest in our sales efficiencies, our ability to grow through digital marketing avenues, and have a pretty strong game plan to execute on those initiatives.

And one more, if I could, please. Any kind of commentary or color on the recent move to equipment leasing versus a subsidy model? That would be appreciated.

Yes. The equipment leasing that we do is around our phones. Our go-to-market strategy includes the provision of Voice over IP phones to the clients that we sign up to our platform. That just is an easy way for them to grasp and really implement that Voice over IP and that digital platform in their office, which is so valuable. And so the equipment leasing that we have there is really just those phones where we provide those and then advertise them over 3 years. And that, I think, will still be a healthy component of our go-to-market strategy as we go forward.

The demand for some of those phones in some verticals is a little lighter than in others, but it will still remain an important part of our go-to-market kind of cadence.

(Operator Instructions) We'll now move on to our next question from Matt of William Blair.

I guess maybe the first one, I mean, you've talked about this multi-office functionality that you're building out and is kind of creating new opportunities, essentially or adding more value to certain opportunities in the market. I would let just kind of dig into some of the critical pieces of functionality there, how differentiated those are thoughts on what's left to build out for those types of customers. And then ultimately, how does that functionality essentially expand your serviceable addressable market today?

Well, as you know, or may not know, we have been -- started out really focusing on single locations. And as the market has continued to shift, specifically in dental, as we've seen roll-ups of dental offices through dental service organizations. The need has evolved. So now they need a platform or a tool that can manage their customer communications and engagement in a way that allows them to have a parent-child relationship so that you can have, if you would, an overlord looking over and administering all administrating all of the sub-locations in a dental service organization.

And so the complexity around that is being able to give at a single level, all of the hierarchical view and capabilities to manage multiple locations to see all of the activity, the throughput and to manage all of those communications through a single platform experience, and that's really what we do really well is we unify not only all of these point solutions, but now we're also helping to unify or bring together all of these multi-locations into a single enterprise-level experience.

And so it's a really important piece of functionality. It's very complex. It's not easy to do. And that -- but that's what we do. We solve difficult -- we thought we make the complex look easy. And so we are in the throes of really building out that capability. And I think right now, at this point, it's incremental progress that we have remaining, not monumental. We've taken the big steps in being able to solve that problem.

Got it. Got it. That's helpful. And then maybe just one on the net revenue retention. Obviously, the ability to upsell things like payments is a very interesting part of the story. So another uptick in the quarter, obviously, not something you guys would guide to, but would love maybe just a little help thinking through where this could go, if there's any natural ceiling that you guys think of in terms of this metric? And ultimately how you think that might play out directionally going forward?

So we do think that there's going to be a natural evolution and growth there as we continue to expand in payments. First of all, the payments profile across our verticals does vary somewhat. Dental is more insurance, whereas veterinarian is almost all customer pay, so we look at those dynamics. And then we will have the additional upsell products that we've got there's bundling strategies as well as just other solutions that we will be adding that will continue to take that up and to the right.

So on a net revenue retention basis, we expect that to grow. It's not going to grow tremendously rapidly, but it will grow nicely and consistently over the next few quarters.

And our land and expand strategy is very -- something that we have a strong belief in. We know that our customers will pay for value. That's why we see the reception in the marketplace that we receive.

And so we're not only displacing existing or incumbent solutions. But we're also enhancing our customers, their operations and the way that they take care of their customers. And so as long as we continue to build strong products and services that add value, create efficiencies and create the outcomes that we allege that we can do on our products, we can see that there's plenty of upside room and potential for us to continue to build and strengthen our net revenue retention.

We'll now take our next question from Tyler from Citi.

I wanted to just get your sense on if you look at your customers today and maybe the new customers that you've brought on to the Weave platform over the last 12 months. What's kind of the mix by some of your newer verticals today?

And as you look over the next 12 months, what are kind of the newer verticals where you expect to see the biggest increase in terms of new customers?

Yes. Well, thank you for the question. Part of our strategy, we have a thing called our Domino Growth strategy, and we are continually expanding our vertical market focus. And we don't -- we're not a broad market solution. We love the idea of tackling the TAM of small business, 1 vertical at a time.

And as we continue to expand and focus on our business on new vertical markets, we fully expect that the mix shift in our customer base would spread across those markets, which doesn't mean that we're losing share in any particular market. It just means that as we grow the pool of customers, the segmentation of the market -- of those customers across verticals should become more diverse than spread.

So to answer your question, we would expect that as a percentage mix of markets, we would see that our customer base starts to divide and mix across those markets. And that's because we're actively focused on selling into those other markets, adapting our product market fit to serve those markets. And so that is by intention, not by accident, it is by design.

That's helpful. And as I think about next year, it seems like some conferences are at least planning to be back in person. We'll see, obviously, a lot to get through. How are you just thinking about the return to in-person conferences? Maybe in dental as well as some of these new verticals is a potential catalyst to reaccelerate kind of the pace in which you're adding new customers.

Yes. Great question. Again, I wish we had a crystal ball. Unfortunately, the notification of when conferences or events are taking place are almost on short notice now. So we don't have the visibility that we once had in terms of a schedule of -- or outlook of the conferences.

So from a forecasting perspective, very difficult, if not almost impossible for us to forecast that. So at this point, out of an abundance of caution, we have not contemplated that as a part of the calculus in our outlook.

However, we do think that optimistically, we'll start to see some of that recovery. You're seeing it. There have been a few trade shows and conferences that we attended this year, not anywhere close to what we've seen in the past. But we're excited about that. The good news is, is that in lieu of that, we have developed new muscles and new marketing muscles and capabilities from a go-to-market perspective that even when they return, it's not like we have to give that up. We will now even have more additive strength and go-to-market capabilities than what we had before.

We'll move on to our next question from Nikolai of Goldman Sachs.

Adding my congratulations for your first quarter as a public company. My first question is, as you look at the usage of the platform between communications and engagement, what trends are you seeing? In other words, if you were to split the feature usage between engagement and communications, how is that split of the platform changed over time? And do you expect engagement to become a bigger portion of the usage as compared to communications?

Yes. Well, let me -- that's an excellent question. I don't think I've ever been asked that, so I appreciate that. When you look at our platform, we have been built on a communication backbone. We started off as a phone system and have evolved to build a SaaS-based engagement stack on top of that communication platform.

And our secret sauce, our go-to-market, what makes us unique, why we're so excited and why the market responds so favorably to what we offer is because it's not a bifurcation between communicate and engage, we deliver a holistic experience where all of those capabilities interact and are highly integrated. So that whether you're communicating through a text message or you're using a fax, it is a single platform experience that allows you all of these modalities of being able to communicate successfully with your customers.

And so the real value of it is if it's not a perception of, "Hey, I want to just use this particular feature." It's using leave as a holistic experience to drive the way that you support your customer journey. And so what we focus on is being able to provide digital communication and engagement experiences that enhance the customer interactions that a small business has with their customers, and being able to do that at the preference of the customer. Because at the end of the day, the customer dictates experience and the small business must satisfy the customer and meet them where they are. And that's what the whole purpose of our platform is meant to do.

And my second question is, as you enter other verticals outside of your core dental vertical, whether it's home services or other medical verticals, are you noticing any major differences in customer behavior? Do you feel like you need to adjust your marketing message, go-to-market? Are you seeing different customer acquisition costs as you're going after as a handful of verticals here?

Yes. Well, first of all, when we profile a new vertical market, we look for specific profile characteristics that we believe are beneficially supported in our platform.

We like appointment-based businesses. We like service-based businesses. We like professional service providers, people who are credentials, people who are educated. We love the idea that customers have recurring relationships with the service providers that they do business with.

So that kind of helps you -- gives you an idea as to the kind of vertical markets that we're focused on. And then when you look at the different profile characteristics. Sometimes that's done -- the service is done in office or can be done in the field.

And because of the nature of the vertical and also the environment the service is provided, there are particular product market-adapt patients that we need to make to our product. And that's why we are very successful because we are able to make those product market fit so that we can fit like a glove to each 1 of those vertical markets. In terms of customer acquisition, we continue to -- our focus is to go -- is to deliver our product through the go-to-market channel that allows us to meet the customer where they are.

And so of course, there are some differences, but we're very mindful of the costs associated with going after those particular vertical markets. and believe that the vertical markets that we choose have met the test and the demands of what we think are necessary for us to support those markets.

We'll move on to our next question from Brent of Piper Sandler.

I guess a couple here for you, Roy, and then a follow-up for Alan. I wanted to start out with just more of a tactical discussion around payments. As you think about kind of the payment strategy, the cross-sell here, are there things you can do or things you're thinking about relative to sales incentives that could help kind of accelerate cross-sell of payments? Or are there specific features that you need to add that could also help kind of accelerate the adoption? Any sort of tactical views around the payment cross-sell opportunity? And then 1 quick follow-up.

Yes. Yes. So yes, having been a 20-year industry veteran in payments, and I have a lot of thoughts on this. Very excited about the payment opportunity. And there are several things that we can do. Number one, the available gross payment volume that's flowing through our customer base is in the multiple billions. We are barely scratching the surface of what we think is the opportunity for us, and that opportunity expands every month as we add new customer locations to our platform.

So when you think about the opportunity, the addressable opportunity that we have, it's fairly, fairly large. With that, we can attach payments at the point of sale, and we also can attach payments as an upsell. And we have a lot of different marketing motions available to us and tactics that we can employ that will allow us to really provide and promote payments at a time when we think the customer is going to be most receptive to it.

Our first job is to get our platform into the customer location and then really drive through the land and expand strategy that we have, the value of payments. And so as we look at that, we are looking at a multitude of different levels of tactics that we have available to us to attract and really land our payment solution inside of those customer locations. And so -- the other thing I will say on payments very quickly is we expect that, that past 9 to 10 months really building out and hardening and creating a more robust payment platform. We now have a payment platform that has all of these capabilities from card-not-present processing to card-present credit processing, mobile touch to pay, card on file, contactless payments. We can do card swipe, chip and dip, you name it.

So given that, we are now in a position where we can really accelerate our payments growth, and that's really where we're going to focus going forward.

Got it. Helpful color there. It sounds like a lot of features have been added in the last 9 to 10 months. And then just, Roy, just thinking about the 3- to 5-year vision here, as you think about this communications backbone, that's kind of where the core of the business is today, and you're doing well, adding on. What is the 3- to 5-year aspirations? Do you want to kind of build a bigger footprint across front-office applications? Do you have aspirations to build even go in the back office app market? Walk us through just that longer-term 3- to 5-year appetite beyond that communications backbone you have today on where you'd like to go longer term?

One phrase I'd like to use that might help you understand is what Quickbooks became to small business accounting, we will become to small business communication and engagement. And I'll even add 1 more term to small business, commerce, communication and engagement. What we -- if you look 3 to 5 years out, I want to -- I believe Weave is in the best position possible to be the platform that helps all small businesses manage their commerce, communication and engagement needs.

And the way that we do that is we do that through our CARE stack. It is we focus on tools that deepen the level of communication. We build tools that help attract -- help our customers attract new customers, really managing the customer journey. We help them retain customers and help them develop ways and to support ways to engage their customers. So we are trying to create this segment of technology that is so focused on the customer journey in that CARE stack that we want to be the de facto commerce communication and engagement platform for small business.

And when you look at what we have to do over the next 3 to 5 years in each one of those pillars, it's an exciting future and one that I hope people will understand and appreciate and that we're demonstrating with the results that we delivered in Q3 and what we look forward to delivering going forward.

Helpful color. And then just one quick one for Alan here, if I could. I know in the S-1, you dropped in the preliminary revenue ranges for Q3, so not a lot of surprises relative to kind of what you announced today relative to Q3. My question is more around trends in October, November, early December here. How would you frame the pace of new business activity? Have you seen any sort of disruption at all? Is it kind of trending in line with how you kind of expect it to be? Any color on your pace of demand that you've seen so far this quarter would be helpful.

Yes. So Brent, it's in line with what we had anticipated. We knew we'd be facing the same headwinds with cold for almost 2 years now, and so we're becoming accustomed to it. We all want it to go away, no question about that, and we look forward to some of the upside that will bring us when we get there. So yes, we're in line, barring any other economic shocks, I think we're very much in line with the guidance we provided.

I would only add, if you look at 2021, this is our first full operating year in the pandemic environment. And I believe that our results really demonstrated the resiliency of our business and the strength of our business. And so we're obviously hoping that there will be some type of a recession of the pandemic impact on our economy. But I feel like, going forward, we're going to see some additional strength and recovery even in our growth rates because of the fact that we've done so well in a year -- for the past year. And so we remain very bullish and optimistic about what that looks like.

We'll now take our next question from Brian of Raymond James.

Congrats on the strong results, nice quarter out of the [shoe] here. So first one for me, just on home services, that's a market where there's almost a lot of sub verticals within the vertical. So I'm just curious to get your thoughts on how do you go to market to address those? Do you feel like maybe there's 1 or 2 that are better suited for the platform today? And are there certain products that you develop like forms for dental that can really kind of catalyze the growth in some of those markets?

Yes. Home Services is probably better titled as an industry and then it has a number of subvertical markets, right? So yes. So -- and so when we do say home services, we do have an affinity for the HVAC and the electrical or electrician and plumber markets specifically, those are the markets that we think are probably the more attractive to us right now because, again, they more closely approximate the type of customer relationships that we think our platform really supports and nurtures between a small business and the their customers. So -- and yes, so -- and we do think that because of those traits, those characteristics, it's not a big leap for us to go into those vertical markets.

It's something that's a natural extension of where Weave is. One thing that we've shared is the reason that we chose to go into those markets is sometimes you have to listen to what the market is dictating to you and telling you. We recognize that many of our inbound leads were coming from these particular vertical markets. And so just being very focused on listening and keeping our ear to the market, we listened to the demand that was being called upon us and realize that a lot of leads that we were getting on a monthly basis were coming from these markets. And so it doesn't take -- you don't have to be a rocket scientist to figure out that that's a market that you need to go after. So -- and the way that we go after that is we have a playbook here that's proven very successful the way that we've gone after other markets. We have an amazing sales operation. We have a tremendous marketing team. And we use a combination of our sales and marketing team to really find the go-to-market pathways that make it possible for us to identify prospects and to begin the sales process so that we can really attack those vertical markets in an aggressive way.

And maybe just a follow-up. You mentioned the Quickbooks integration. I'm curious, as you enter new verticals like this, do the integrations kind of come coincident with or before? And how long does it take to really get that integration effort fully optimized to where you're kind of working with all the key constituents like you have at dental?

Yes, exactly. Yes, that's one of the things that we do when we prospect a vertical market is we like to understand the systems of record that are within those markets that we can integrate to, we are not competitive to those systems of records. What we like to do is we believe that we are additive to them. We make them more valuable because we're providing and leveraging the integration that we have with them to enhance the meaning and the value that they provide in those customers.

And so when we were prospecting, as an example, home services, we found out that Quickbooks was a very important integration to the home services market. And therefore, consummating an integration with Quickbooks was an essential part of our go-to-market playbook for a new market. And so -- and you're right, we do. We boast a very large integration library for all of the vertical markets that we focus on, and we'll continue to rely upon that as part of our go-to-market strategy as we continue to not only serve our existing markets but also as we expand into new markets.

We'll now take our last question from Mark of Loop Capital.

Congratulations on your first quarter as a public company. Roy, a question for you. With respect to the pricing environment, could you just give us an idea of whether pricing increasing excuse me, pricing increases are being considered in the upcoming year here?

We are obviously watching that very closely. There have been like every other company that we know of. There's all kinds of inflationary and environmental factors that are affecting the pricing. And so yes, that's something that we're watching very closely. And we're definitely looking at strategies internally that we believe can justify our value to the customers that we provide our platform to and making sure that we are priced effectively and efficiently that allow us to continue to offer the tremendous service and value that we provide, but also making sure that we're offsetting some of the price increases that we are seeing as a vendor of technology.

Okay. Great. And then, Alan, a question for you. If I recall correctly, about 40% of your customers prepay the annual rate upfront. And I was wondering if that percentage held in the quarter in Q3?

Yes. We make sure that it becomes an important part of our cash efficiency as an organization. And so we watch that carefully and it yields a lot of other benefits beyond just cash there customers that have better just overall churn, retention and satisfaction metrics. It's kind of -- they're interesting that they just come with that annual payment upfront. So yes, it did, and we'll keep that going.

There's no further question at this time, handing the conference back over to you.

I'd like to thank everyone for participating in our first earnings call. It's an experience that I will remember. We really appreciate the engagement. Thank you for taking an interest in Weave and we encourage all of you to continue to watch and closely track and monitor us. We're excited about the future of Weave and look forward to talking to you next quarter. Thank you.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.