Weave Communications Inc (WEAV) Q1 2024 Earnings Call Transcript Highlights: Strong Revenue ...

• Revenue: $47.2 million, a 19.2% year-over-year growth.

• Gross Margin: Reached 70.4%, a 280 basis point increase from the previous year.

• Adjusted EBITDA Margin: Improved to -0.8% from -7.9% year-over-year.

• Net Revenue Retention Rate: Increased to 96% from 95% last quarter.

• Free Cash Flow: Decreased by approximately $15 million due to a new billing system implementation.

• Operating Loss: $1.4 million, a 66% improvement year-over-year.

• Net Loss: $400,000 or $0.01 per share, improved from $3.3 million or $0.05 per share last year.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Weave Communications Inc (NYSE:WEAV) reported a strong first quarter with a 19.2% year-over-year revenue growth, reaching $47.2 million, which was $1 million above the high end of the guidance range provided in February.

• Gross margin improved significantly, reaching 70.4%, which is a 280 basis point increase compared to Q1 of the previous year, marking the ninth consecutive quarter of gross margin improvement.

• Adjusted EBITDA margin showed substantial improvement, nearing breakeven at -0.8% of revenue, a significant enhancement from -7.9% a year ago.

• Weave Communications Inc (NYSE:WEAV) successfully launched and is progressing with new and deepened integration partnerships, enhancing product market fit and expanding addressable market.

• Recognition and accolades for customer service and workplace environment, including being named a Top 50 software product for small business for 2024 and receiving a top workplaces USA award.

Negative Points

• Despite overall positive financial performance, Weave Communications Inc (NYSE:WEAV) reported a net loss of $400,000 for the quarter.

• The company experienced a one-time increase in accounts receivable due to the implementation of a new billing system, which temporarily impacted free cash flow.

• Adjusted EBITDA, although improved, still remains in the negative, indicating ongoing challenges in achieving profitability.

• The company faces the challenge of increasing the payment attach rates, which are currently below desired levels, indicating underpenetration in the customer base.

• While Weave Communications Inc (NYSE:WEAV) is expanding its integration with practice management systems, the process is gradual and requires significant effort to deepen existing integrations and develop new ones to enhance product functionality and market fit.

Q & A Highlights

Q: Can you touch on the sales cycles within specialty medical, given the name-brand recognition and holistic platform? A: Brett White, CEO: Specialty medical is fragmented but has a significant need for Weave's solutions. We've built integrations with platform providers in these sub-verticals, leveraging our reputation from dental and optometry. Specialty medical is our fastest-growing vertical, showing strong demand and good product-market fit. We plan to continue hiring, focusing on sales capacity and engineers.

Q: What learnings have you identified from observing the organization, and are there any low-hanging fruits? A: Brett White, CEO: The sales organization is functioning well, with a focus on scaling to $500 million. We're focusing on payments and partnerships, seeing a shift in the practice management landscape towards more collaborative relationships. This shift allows us to build win-win partnerships and expand our market reach.

Q: Can you provide an update on your next-gen app and feedback from multi-location customers? A: Brett White, CEO: The new Weave experience is in open beta, offering a more flexible and functional user interface. It's designed to be more multi-location friendly, allowing management across various locations more efficiently. The platform is accessible via web and app, receiving positive feedback, especially for multi-location operations.

Q: Could you frame the increase in your integrated addressable market compared to a year ago? A: Brett White, CEO: Our integrated addressable market in dental and optometry is around 200,000 locations, with integrations covering over 90% of these. We continually deepen these integrations to enhance product-market fit. In specialty medical, a newer focus area, the potential is about 160,000 locations, with less than one-third currently integrated, presenting significant growth opportunities.

Q: What are the drivers behind the recent improvements in gross margin, and what are the future targets? A: Alan Taylor, CFO: The improvement to a 70.4% gross margin is driven by increased efficiency and a higher proportion of payment revenues. Long-term targets are between 75% and 80%, focusing on cost management and scaling efficiently. Upselling and improved payment revenues will also contribute to margin expansion.

Q: How are you enhancing partnerships, particularly with practice management software providers, to drive forward integration and co-selling? A: Brett White, CEO: We've shifted towards a philosophy of win-win partnerships, hiring specialists to foster these relationships. Our approach is to reassure partners that we complement rather than compete with their core offerings, focusing on integrations that benefit mutual customers. This strategy has led to more collaborative and productive partnerships.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.