Weave Communications Inc (WEAV) 2022 Q3 法說會逐字稿

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And we will aggressively focus on profitable growth and continuing improvement in free cash flow with an emphasis on getting to breakeven.

Now Alan will provide details on our third quarter results and our Q4 outlook.

Thanks, Brett. On behalf of Weave, I want to welcome Brett to the CEO (inaudible). It has been a privilege to work closely with Brett and our Board in mid-2020. The entire Weave team quickly grew to appreciate his capacity and energy when he joined the executive team in April. Now we all look forward to working closely with Brett as he leads the next phase in the company's journey.

Regarding our third quarter financials. In the quarter, our total revenue reached $36.2 million, slightly above the top of our guidance range. The 20% year-over-year increase was almost entirely driven by (inaudible) in 12 months. We also had a small revenue benefit from existing customer expansion as indicated by our net revenue retention rate of 101%. In addition, our gross revenue retention rate remained at 94%, where it has been for the last 4 quarters, which signals health care customers remained stable and avid users of the Weave platform even during

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Shares outstanding. This is compared to a non-GAAP loss of $10.3 million or negative $0.72 per share a year ago. Adjusted EBITDA loss was $5.2 million, a $3.9 million improvement year-over-year. The corresponding EBITDA loss margin of 14.2% is a dramatic improvement compared to the EBITDA loss margin of 30% reported a year ago.

We continue to have a very strong balance sheet and flexible financial position with $118.4 million of cash and equivalents on hand at the end of the quarter. We have more than enough cash and liquidity to fund us through to cash flow breakeven and profitability. In Q3, we had a free cash flow usage of $4.6 million, which was an improvement of $1.8 million compared to the prior period, driven primarily by significant reductions in PP&E investments as we completed the build-out of our new headquarters in early 2021.

Turning now to our guidance. For the past 2 years, we have offered our Digital Forms product in partnership with a third party. We made the decision to offer our customers a more fully integrated Digital Forms product built by Weave, and our full year 2022 revenue guidance provided throughout this year anticipated that the transition from the partner product to an in-house product would occur in 2023. In Q3, we decided to end the forms product partnership earlier than we had planned. This transition negatively impacted net revenue retention and revenue in Q3 and will have a negative impact again in Q4 as it will take time for our new in-house Digital Forms product to replace the partner product revenue.

Ending this partnership allows us to offer a Digital Forms product that is more deeply integrated with our platform, offer significantly higher margins and is a more compelling solution for our customers. But it will have approximately a $1 million impact on Q4 revenue. Although this transition is a headwind to our Q4 forecast, as Brett mentioned previously, we are encouraged by the traction in live events we have seen in Q3. September was our best month for events since the COVID pandemic hit. And while this is an early indication regarding events, it is encouraging.

In addition, we will continue to see noticeable margin improvements over the near and midterm. As Brett and I have discussed here, we have already changed our engagement with certain third parties to achieve the dual benefits of improving our margins, remaining focused on our core competencies and also improving the customer experience.

Given these considerations for the fourth quarter, we expect total revenue in the range of $36 million to $37 million and a non-GAAP operating loss in the range of $7.5 million to $6.5 million. We expect to have a weighted average share count of approximately 65.6 million shares for the fourth quarter.

For the full year, we expect total revenue to be in the range of $140.5 million to $141.5 million, which is $3 million higher than the initial 2022 expectation we provided on our March 2 earnings call, but is a $1 million decrease versus our previous midpoint expectation given on August 3 due to the forms product transition. We expect our full year fiscal 2022 non-GAAP operating loss to be in the range of $34 million to $33 million, which assumes improvement in our operating loss as a percent of revenue. We expect to have a weighted average share count of approximately 65.1 million shares for the full year.

With that, now we will be happy to take your questions. Operator?

(Operator Instructions) And we'll first hear from Parker Lane of Stifel.

This is Matthew Kikkert on for Parker. First off, it seems like you placed a lot of attention on multi-location practices recently. How has the traction been in that opportunity set outside of the Dental Care Alliance that you talked about? And do you have a dedicated go-to-market team for those multi-location practices?

Yes. Thanks for the question. So I'll take the first part. And then Alan, you can follow up. So yes, we have been seeing traction. We've been spending a lot of time working on the product. We've announced some product enhancements today that improve our capabilities to make the product more attractive to multis. We are building that pipeline. That is a longer sales cycle, for sure, than the individual locations. And yes, we do have a dedicated team. It's a small team, and they're building their pipeline now. Alan, anything to add?

Yes. We're developing a new muscle with respect to really having a sales pipeline to monitor and to report on. And that mid-market team continues to flesh out that pipeline. And these kinds of sales, as you can expect, would behave a little bit more like enterprise sales, but reflect a wonderful opportunity for us to go after as we continue to evolve the product and meet those requirements in the multi-app space and service DSOs and their counterparts in the other markets.

Okay. That's great to hear. And then secondly, as part of your revamped go-to-market motion, do you anticipate continued hiring throughout the remainder of the year? And then are you still focused on solely talent in Utah? Or are you expanding to remote salespeople as well?

So we will, although the good news there is that the attrition is slowing. But more than anything, we're going to be focused on the improvement in sales productivity. We see many more ramped sales head count, obviously, as we've gone through the year, which is positive for us. And that sales productivity is really going to be the focus of what we do there.

As far as locations, we're going to be focused on hiring where the talent is. There is a lot of sales talent in Utah. But certainly, we won't limit ourselves if we can find great talent in other locations.

(Operator Instructions) Next, we'll hear from Michael Funk of Bank of America.

You mentioned a few times about the flywheel effect for revenue growth and of the sales -- sorry, the productivity has increased. You also mentioned the negative effect from forms. So how should we think about the sales cycle first as productivity does ramp and then the sequencing of revenue growth the next couple of quarters as that productivity improves and you bring those forums back in-house?

The forms, we are -- we already had the forms product in place. We were growing and developing that product as we were still working with the partner. As I mentioned, it became necessary for us to do that a little more quickly given the developments in the third quarter. So we've done that. We were in a very low-margin situation with the prior forms.

So even though the rev top line implications are a little more significant, the bottom line, actually, the margin improvement in our in-house forms is going to be very good for us from a margin perspective. It will take us a little while to replace the top line revenue. We anticipate that taking no longer than 6 months, but it won't take us long at all to replace the bottom line impact.

And then on kind of just overall revenue trajectory, so we've given you Q4. We're in the process of finalizing our annual operating plan for 2023. We'll finalize that, get it through the Board for approval, and then we'll be sharing our outlook for next year in our next earnings call.

Got it. And then one more, if I could. Appreciate the commentary you also gave on industry conferences and in person. Maybe even just kind of qualitatively or comparison-wise, where are we now with gross additions as those events ramp up and productivity increases as well relative to where you were, say, a year ago or even 24 months ago?

So I would respond. It's very encouraging to have had our best month in September that we've had since the pandemic hit. The events and seeing people come back, it's not at pre-pandemic attendance levels. But even so, it becomes a productive way for us to both sell deals at the show as well as come back with an armful of leads that can be worked from the home office.

The one other thing that we believe these events do is they have a halo effect of marketing that those that attend these events see the energy around the Weave booth. They're able to view the Weave product. And that presents an opportunity for them to become exposed and enthusiastic or at least positive about the Weave products so that when they're called or contacted later, we have a higher probability of success.

(Operator Instructions) Alex Sklar of Raymond James has our next question.

This is [Jonathan] on for Alex. It will just be one from us. Alan, I know we don't get the location count any longer. But can you talk about how subscription revenue per location has trended? You have a lot of new product developments, including Review Analytics and Online Scheduling. So just kind of curious if these are contributing to increasing price points or more of a future growth opportunity there.

So thank you for the question. We've been very stable and trending slightly up on MRR. We do have products in the queue that, obviously, we are enthusiastic about improving that. But so far, we've seen stable annual contract values or monthly revenue amounts for our customers. So that's a positive sign of growth despite the economic conditions we're facing.

Mark Schappel of Loop Capital has our next question.

Alan, starting with you, I was wondering if you could just talk about what you saw with respect to customer churn in the quarter. Was it within the normal range?

It was. We track that obviously very closely. You can see from our gross revenue retention rate, they remained at 94%. That's a positive result. So we're not -- from a customer's churn standpoint, we're not seeing anything out of the ordinary. It's been consistent through the course of this year. And so we're very pleased about that.

The other thing that I would add is -- let me just add one thing. When -- often, when folks think about SMB, they think about a churn-y customer base. Our customer base is incredibly resilient. These are individuals who basically dedicated their lives to their craft. They've gone to school. They built businesses. They don't really have another option to go do something else. So business turnover, business churn is very low. And I can tell you for an SMB company, our churn, our gross retention is very, very good, and our churn is very low.

Great. And then Brett, I was wondering if you could just give us a few more details on what you're seeing with respect to customer responses like in the macro environment. I think last quarter, it was noted that maybe some sales cycles were starting to extend a little bit. What are you seeing this quarter?

Yes. So happy to share what we're seeing. It's actually pretty interesting. So we're seeing -- so historically, maybe the office administrator would make the purchase decision. And now maybe the doctor is getting involved, getting maybe involved. Maybe if there's a couple of doctors in the practice, they're both getting involved. So like we mentioned in our last earnings call, sales cycles appear to have elongated a bit, but not -- it's not dramatic.

The other thing we're seeing, as Alan mentioned, is pretty steady gross retention. I think all customers, SMB business owners, are all looking to ensure that they're getting value for their spend. And the Weave product is holding up quite well against that review. And so that's one of the things we're just super focused on is making sure that our customers are happy. They're getting value for our product and that we're continuing to release new features and new functionality to deliver even more product -- more value in the products that they have. So the other interesting thing is on the new sales, the price point is holding up very, very well. And so that's another encouraging sign.

(Operator Instructions) It appears there are no further questions at this time. Also, that does conclude today's conference. You may now disconnect.