Weave Communications, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. Weave sells a subscription customer-experience, payments and VoIP platform, primarily to small and medium-sized healthcare practices. This unaudited report covers the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Amounts below are in millions of dollars unless noted.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $43.5 | $36.2 | $124.8 | $104.4 |
| Gross profit / margin | $29.9 / 69% | $23.2 / 64% | $84.5 / 68% | $63.9 / 61% |
| Operating loss | $(8.0) | $(11.9) | $(26.4) | $(40.0) |
| Net loss | $(7.1) | $(11.8) | $(24.0) | $(40.5) |
| Net loss per share | $(0.10) | $(0.18) | $(0.36) | $(0.62) |
| Operating cash flow | $3.3 | $(4.0) | $6.5 | $(9.9) |
| Company-defined free cash flow | $2.1 | $(4.6) | $3.6 | $(12.1) |
| Adjusted EBITDA (non-GAAP) | $(0.9) | $(5.6) | $(7.1) | $(23.9) |
Revenue and margins. Revenue grew 20% in Q3 and 19% for the nine-month period. Management attributed about 91% of Q3 growth and 78% of nine-month growth to customers acquired after the comparable 2022 date. Recurring revenue represented 92% of revenue in both 2023 periods, versus 95% in 2022. Subscription and payment-processing gross margin improved to 77% in Q3 and 76% year to date, from 76% and 74%, respectively. Management cited lower third-party and usage costs, customer mix with more fully depreciated phones, and onboarding and support efficiencies.
Expenses and cash. Nine-month operating expenses increased 7% to $110.9 million; stock-based compensation rose to $16.6 million from $13.2 million. Cash from operations improved to positive $6.5 million, while the company-defined free-cash-flow measure improved to positive $3.6 million. Cash and cash equivalents were $63.3 million and short-term investments were $55.1 million at September 30, 2023.
Liquidity, debt and balance sheet
Total assets were $210.8 million and stockholders’ equity was $80.9 million at September 30, 2023. The company had $10.0 million outstanding on its revolving credit facility, with $40.0 million of stated borrowing capacity available. The facility is secured by substantially all company assets, matures in August 2025, bears a floating rate, and includes liquidity and adjusted EBITDA covenants. Weave reported covenant compliance. Finance lease liabilities totaled $12.8 million; operating lease liabilities totaled $47.8 million. Management believes cash, investments, available facility capacity and operating cash flows will meet requirements for at least 12 months from issuance of the statements.
Outlook, commentary and risks
- No specific quarterly or annual revenue, earnings or cash-flow guidance is provided in the filing. Management expects continued investment in growth; it anticipates sales and marketing expense to rise in absolute dollars but decline as a percentage of revenue in 2023, with R&D and G&A also expected to increase in dollars over time.
- Retention indicators weakened: dollar-based net retention was 95%, versus 101% a year earlier; gross retention was 92%, versus 94%. The filing emphasizes reliance on customer acquisition, retention and increased adoption of add-on products.
- Weave has a $255.6 million accumulated deficit and remains loss-making. Management cautions that growth plans may lead to future losses or negative operating cash flows. The company’s U.S. deferred tax assets remain subject to a full valuation allowance.
- Key disclosed risks include macroeconomic pressure on SMB customers, competition, customer churn and acquisition costs, dependence on third parties including Stripe and Google Cloud Platform, cybersecurity and privacy obligations involving health information, telecommunications and messaging regulation, and the credit facility’s covenants. The filing reports no legal proceedings expected to significantly affect financial condition, results or liquidity.
- Other notable items: net investment gains contributed to other income; Q3 included $0.2 million of sublease revenue. The filing says investment unrealized losses were temporary and not attributed to credit risk. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether customer acquisition can offset the decline in net and gross retention, and whether Weave Payments adoption and usage expand within the installed base.
- Whether improved gross margins and positive operating cash flow persist, considering ongoing net losses, stock-based compensation and deferred contract-cost investment.
- Facility availability, floating-rate expense, covenant headroom and the effect of the August 2025 maturity and secured borrowing terms.
- Whether reliance on Stripe, Google Cloud, communications networks and key integrations creates material service, cost, security or compliance exposure.
- Potential dilution: shares outstanding increased to 69.3 million at quarter-end; 11.1 million potential common shares were excluded from diluted loss-per-share calculations as antidilutive.