Yahoo Finance Weave Communications, Inc. (NYSE:WEAV) Q4 2023 Earnings Call Transcript
Weave Communications, Inc. (NYSE:WEAV) Q4 2023 Earnings Call Transcript February 21, 2024
Weave Communications, Inc. beats earnings expectations. Reported EPS is $-0.01, expectations were $-0.03. Weave Communications, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Weave Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark McReynolds, Head of Investor Relations. Thank you. Mr. McReynolds, you may begin.
Mark McReynolds: Thank you, Camilla. Good afternoon, and thank you for joining us for our fourth quarter and full-year 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 Weave's 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 Weave's filings with the Securities and Exchange Commission, including our most recent Form 10-K and 10-Q for additional information concerning factors that could cause these results to differ materially from the forward-looking statements.
We will 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-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.getweave.com. And with that, I will turn the call over to Brett.
Brett White: Thank you, Mark, and welcome to everyone joining us this afternoon. I'd like to kick off the call by welcoming David McNeil to our leadership team as Chief Revenue Officer. David brings over 25 years of experience in scaling SaaS businesses, leading sales, customer success, revenue operations and payments team. He spent six years at HubSpot, where he was instrumental in leading sales teams as the company grew from $90 million to nearly $1 billion in annual recurring revenue. He also served as the Chief Commercial Officer at Tebra, a leading automation platform for independently owned healthcare practices, and in leadership positions at Salesforce and Bank of America. We're excited to leverage David's expertise as we continue to execute on the multiyear opportunities that we have in front of us.
Now, I'd like to provide a quick overview of Weave for the benefit of those who are new to our story. Weave provides a vertically tailored software solution to small and medium-sized healthcare practices, offering a seamlessly integrated customer experience and payments platform. We empower practitioners to focus their time on patient care while we streamline communications, engagement, and payments. SMBs make up the vast majority of businesses in the U.S., and we have spent the past 15 years building a platform specific to the unique requirements of the SMB healthcare practitioners. A dentist, optometrist, or veterinarian typically does not employ their own team of IT professionals, so they need software solutions, like Weave, that are easy to set up and use.
Weave unifies the disparate patchwork of point solutions that many of these practitioners presently use, simplifying the process of attracting, engaging, and retaining patients. Now, I'm excited to share some of the highlights from Q4. Weave delivered another strong quarter, capping off a terrific year in which we saw continuous quarterly improvements in revenue growth rate, gross and operating margin, adjusted EBITDA, free cash flow, and customer acquisitions. Revenue for Q4 was $45.7 million, representing 21.2% year-over-year growth. This is the fourth consecutive quarter of an accelerating year-over-year growth rate. We also exceeded the top end of our revenue guidance for the eighth quarter in a row. Our continued acceleration in revenue growth was driven by the addition of new customers at higher average sales prices, increased payments attach rate, and higher net expansion within existing customers.
Notably, we added over 450 more net new customer locations in 2023 than in the previous year. In Q4, we continued to improve the operational efficiency of our business. Gross margin reached 69.7%, 300 basis points higher than Q4 of last year, marking the eighth consecutive quarter of gross margin improvement. Our adjusted EBITDA margin improved by over 700 basis points to a negative 1.7% of revenue, compared to a negative 8.8% of revenue a year ago. Finally, we generated $2.9 million in free cash flow during the quarter, a $6.9 million improvement over the same quarter last year. These outcomes underscore that while our vertically tailored software and payments platform continues to gain traction, the Weave team remains laser-focused on operational excellence.
Before we dive into 2024, I want to take a look back and share some of the key accomplishments in 2023. In our earnings call, last February, I shared our strategic focus areas for 2023, which were built upon a total of over 180 unique projects across the entire business. I'd like to give you a brief recap on how we delivered against them. Accelerating revenue growth was our first focus area in 2023. At the beginning of last year, we discussed the flywheel effect of growth within our business model. The team imparted significant energy to accelerate the rotation of that flywheel. And we saw that effort payoff as our year-over-year revenue growth rates grew each quarter, 18.9% in Q1, 19.3% in Q2, 20.2% in Q3, and 21.2% in Q4. We accomplished this while simultaneously reducing our annual operating loss margin by two-thirds.
I'm extremely proud of our team, and it is -- this is again a strategic focus area for 2024. Our second 2023 focus area was building a scalable foundation for profitable growth. We are very pleased with the results here, and focusing on efficiency in all areas of our business, with gross and operating margins improving every single quarter throughout the year. Additionally, last February, we committed to exit 2023 with positive free cash flow. Due to the hard work of the team, we generated positive free cash flow every quarter in 2023, ending the year with a positive $6.5 million, a significant improvement over our negative $15.9 million in 2022. Our third 2023 focus area was delivering an experience that turns our customers into champions, which involves both product and customer service.
Our platform was named the leader in G2's grid for patient relationship management, ranked first in 27 different categories in G2's Winter 23 report, and won 61 different badges, including patient scheduling software leader. In 2023, our customer MPS improved significantly throughout the year. We accomplished this through excellent customer service, feature improvements, and increased attention to new integrations, which unlock the full potential of our platform from our customers and prospects. We added over 20 new integrations throughout the year, unlocking approximately 75,000 locations that we can sell our integrated platform into. We will continue to deepen and expand our integrations in 2024, both our core markets and new adjacent markets.
Our product and engineering teams delivered several significant platform improvements in 2023, including enhancements to our payments platform with a deeper partnership with Stripe, a new partnership with Affirm, and the addition of online bill pay, Mobile Tap to Pay, and Scan to Pay functionality. We also launched innovative AI-driven features, including review response assistant, voicemail transcription, and email assistant. Our gross retention rate remained consistent throughout the year, and we experienced higher net expansion within existing customers. This reaffirms our belief that customers prioritize premium solutions that enhance practice productivity and patient satisfaction over cheap alternatives. Our final focus area for 2023 was fostering an effective and engaged team that lives our values.
We shared in previous earnings calls that in 2021 and 2022, employee attrition was a significant headwind to our business, a situation not unique to Weave. We listened to our employees and aligned our resources, compensation, and benefits to address their concerns. Our employee attrition rate decreased by nearly 50% from 2022 to 2023. Average tenure increased, employee MPS improved, and I am pleased to announce that we are named a Great Place to Work for the fifth consecutive year and a Top Workplace USA for the second consecutive year. Increased employee engagement has translated into improved customer satisfaction and overall business performance. As we look forward to 2024, we have aligned our strategic plan behind three focus areas for the year, which I'm very excited about.
Accelerating revenue growth is once again our first focus area, and the key initiatives in 2024 include increasing our penetration into dental, optometry, and veterinary verticals, and continuing to expand into adjacent specialty medical verticals, such as physical therapy, medical aesthetics, plastic surgery, and primary care. We will build new and innovative products that service both single and multi-location segments. We will also continue to enhance our payment solution to better serve our customer base and improve their business operations and financial outcome. In the last month, we added ACH Debit and Payment Plans to our platform. With ACH Debit, patients experience enhanced transaction security and healthcare providers benefit from lower transaction costs.
Payment Plans enables healthcare businesses to easily set up and manage recurring payment schedules, making it convenient for both the business and their patients. Increasing customer value is our second focus area for 2024. Our platform is feature-rich, and our customers are busy. Internal data shows that many of our customers are not using the most valuable features of our platform. This focus area is centered around a guided customer journey that helps customer extract the full value of our platform as quickly as possible. As mentioned earlier, integration with patient management systems strengthen our product market fit and is another key to success in this focus area. For example, in November, we released our integration with Dentrix Ascend platform.
Since the release, we've seen strong demand for this integration from both new and existing customers. Powerful integrations and a seamless and personalized adoption journey will result in increased value for our customers, better customer retention, and more advocacy for our brand. Our third focus area for 2024 is investing in our future, which represent a continued focus on developing Weave talent and operational excellence in our business execution. Fundamentally, this means we are investing in our people and empowering them to elevate our customer experience and deliver results that are best in class. To conclude, I'm incredibly proud of all of our team accomplished in Q4, capping off an excellent year. We accelerated revenue growth. We built a scalable foundation to improve profitability.
We delivered an experience that continues to solve real problems for our customers, and we have an incredible team that is engaged in firing on all cylinders. A big thank you to our customers, our team members, and our shareholders for your support of Weave, we're excited for 2024 and intently focused for your support of Weave. We're excited for 2024 and intently focused on building on the momentum we gained in 2023. With that, I'll turn the call over to Alan to provide more detail on our financial results and review our outlook for 2024. Alan?
Alan Taylor: Thanks, Brett, and good afternoon, everyone. We had an excellent quarter, delivering fourth-quarter revenue of $45.7 million, reflecting 21.2% growth year-over-year. This represents $1.7 million, or 4% beat over the midpoint of the range we provided in November. Our net revenue retention rate remained at 95% in Q4. As a reminder, the NRR calculation is a trailing 12-month calculation. On a monthly and quarterly basis, we are already seeing NRR improving, and we expect to see our reported metric improve in 2024, primarily due to positive adoption of payments and software upsell. Our gross revenue retention rate remained at 92% for Q4, 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 will be referring to non-GAAP results unless stated otherwise. Our Q4 results showed significant improvement across the board. Gross margin was 69.7%. This represents a 300 basis point increase year-over-year. Our engineering and operating teams are focused on providing an exceptional customer experience and doing so while remaining efficient and expanding our margins. In Q4, operating expenses were $33.6 million, a $4.2 million increase from last year, compared to an $8 million increase in revenue for the same period. Our operating loss was $1.7 million, an improvement of $2.5 million, or 59% compared to last year, and $800,000 better than the midpoint of the guidance we gave in November. The corresponding operating loss margin of 3.8% is a significant improvement from the operating loss margin of 11.2% last year.
Our net loss was $800,000 or $0.01 per share in the fourth quarter based on 69.7 million weighted average shares outstanding. This is compared to a net loss of $3.7 million dollars or $0.06 per share last year. This represents a $2.9 million improvement due to revenue acceleration and operating efficiencies. Adjusted EBITDA loss was $800,000, a $2.5 million improvement year-over-year. Adjusted EBITDA loss margin of 1.7% is a significant improvement compared to the 8.8% loss in margin reported a year ago. Turning to the balance sheet and cash flow, we ended the year with $108.8 million in cash and short-term investments. In Q4, we paid down $10 million on our line of credit, which remains open, but with no outstanding balance. Net cash was essentially unchanged quarter-over-quarter.
We generated $3.7 million in cash from operations, a $6.6 million improvement year-over-year. Free cash flow was $2.9 million, and free cash flow margin was 6.4%. This compares to free cash flow of negative $3.8 million, and a free cash flow margin of negative 10% in the fourth quarter of 2022. We are pleased with our progress. Our initial goal was to achieve positive free cash flow by Q4 of 2023, and we overachieved and produced positive free cash flow each quarter and for the full-year 2023. We expect free cash flow to be positive again for the full-year 2024, but as we are paying out our annual 2023 employee bonuses in Q1, we expect that free cash flow will be negative in Q1 of 2024. Before reviewing our guidance, I'll provide a brief recap of the full-year results.
In 2023, total revenue grew by 19.9% to $170.5 million, and our gross margin improved to 68.7%, up from 63% last year. Our operating margin improved to negative 6.8%, a significant improvement over the negative 21.8% in 2022. We made substantial progress on free cash flow, ending the year having generated $6.5 million, up from negative $15.9 million last year. We're pleased with this progress, and we would like to thank all of our team members at Weave, our customers, and partners for their contributions through the year. Turning now to our outlook for the first quarter and full-year 2024, for the first quarter of 2024, we expect total revenue in the range of $45.2 million to $46.2 million, and non-GAAP operating loss in the range of $2.5 million to $1.5 million.
I would like to provide a little more color regarding our Q1 revenue guide. Leading into last year, and throughout 2023, we implemented a more disciplined approach to collecting onboarding revenues for new customers. These are the implementation fees we collect from customers as we bring them on to our platform. We increased these non-recurring onboarding revenues by 150% last year. In Q1 of last year, we also signed a multiyear agreement to extend and deepen our partnership with Stripe for payment processing. That agreement increased our take rate on payments volume, and increased our payments revenue. Both the improvement in nonrecurring onboarding revenue and the improvement in our take rate for payments remain in place this year, but we do not expect to see the same growth rate in these components of our revenue as last year.
And we will lap the impact of both improvements in Q1 of 2024. As such, we expect to see a modest decrease in our year-over-year growth rate in Q1 versus our Q4 year-over-year growth due to lapping the initial impact that each of these initiatives had last year. Our growth rate in payments is still significantly higher than our total revenue growth rate, and we continue to see strong demand for our subscription products, which had improving growth rates throughout 2023. For the full-year 2024, we expect total revenue to be in the range of $194 million to $198 million. We expect the range for our full-year 2024 non-GAAP operating loss to be from $6 million to $2 million. We expect to have a weighted average share count of approximately 71.7 million shares for the full-year.
To summarize, we delivered strong results every quarter in 2022 -- 2023, our performance demonstrates strong demand for our platform. We remain excited about the opportunity ahead. And we will continue to drive our business to maximize long-term value. And with that, we'll take your questions.
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