Weave Communications, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone Q4 report; the filing does not provide a clear Q4-only financial summary. Financial comparisons below are FY2022 versus FY2021.
Business context
Weave provides a cloud-based communications and customer-engagement platform for small and medium-sized businesses, primarily in the United States and Canada. Its services include phone, messaging, scheduling, payments, digital forms, insurance verification, reviews and marketing tools. At year-end, it reported 27,193 subscribed locations; no individual customer represented more than 5% of revenue.
Financial and operating performance
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Revenue | $142.1 million | $115.9 million | Up 23%; approximately $15.0 million from new locations and $11.2 million from existing locations |
| Gross profit / gross margin | $88.8 million / 63% | $66.5 million / 57% | Margin improved 6 percentage points |
| Operating expenses | $138.5 million | $116.9 million | Up 19%; general and administrative expense rose 34% |
| Operating loss | $(49.7) million | $(50.4) million | Loss narrowed modestly |
| Net loss | $(49.7) million | $(51.7) million | Loss narrowed; FY2022 diluted loss per share was $(0.76) |
| Adjusted EBITDA (non-GAAP) | $(25.7) million | $(33.3) million | Loss narrowed; excludes stock-based compensation and other specified items |
| Cash used in operations | $(12.8) million | $(20.4) million | Cash outflow decreased |
| Free cash flow (non-GAAP) | $(15.9) million | $(30.2) million | Free cash flow margin improved to (11)% from (26)% |
| Cash, cash equivalents and short-term investments | $113.3 million | $136.0 million cash and equivalents; no short-term investments reported | FY2022 included $51.3 million in short-term investments |
| Borrowings | $10.0 million | $10.0 million | SVB line balance; classified as current at FY2022 year-end and due August 4, 2023 |
Recurring subscription and payment-processing revenue was $136.6 million, with a 74% gross margin versus 73% in FY2021. Recurring subscription and hardware revenue, excluding Weave Payments, represented 95% of total revenue, compared with 94% in FY2021. Customer-location growth continued, but dollar-based net retention declined to 99% from 103%; dollar-based gross retention remained 94%.
Finance lease liabilities were $13.0 million at year-end, and operating lease liabilities were $50.6 million. The company reported $34.1 million of deferred revenue. Operating cash flow remained negative despite improvement; investing cash outflow was $54.0 million, mainly reflecting $50.9 million of short-term investment purchases.
Material changes versus FY2021
- Revenue grew 23%, while gross margin increased from 57% to 63%, aided by customer mix, fully depreciated phone hardware and cost-management efforts.
- Operating expenses increased by $21.7 million. General and administrative costs rose with public-company professional fees, insurance and personnel costs; sales and marketing and research and development expenses also increased.
- Net loss narrowed by $2.0 million, and operating cash use improved by $7.6 million. The company nevertheless remained unprofitable, with an accumulated deficit of $231.6 million.
- Net retention fell by 4 percentage points to 99%, while gross retention was unchanged at 94%.
- The company adopted lease accounting standard ASC 842 on January 1, 2022, recognizing operating lease right-of-use assets and liabilities; prior-period balances were not adjusted.
Outlook, risks and unusual items
- Outlook: The filing gives no specific numerical revenue, earnings or cash-flow guidance. Management expected operating cash flows to improve with efficiency and scale, and believed available cash, investments and expected cash flows would cover working-capital and capital needs for at least 12 months from the financial-statement issuance date. Management expected sales and marketing expense to rise in absolute dollars but decline as a percentage of revenue in 2023; R&D was expected to rise in dollars and remain fairly steady or decline slightly as a share of revenue. G&A was expected to rise in dollars but decline as a share of revenue.
- SVB: SVB was closed on March 10, 2023, after year-end. As of March 15, deposits at the successor bridge bank were less than 1% of cash, equivalents and short-term investments. The bridge bank said it would honor existing credit facilities; Weave said it was evaluating its credit line and might refinance or obtain a new facility.
- Debt and liquidity: The $10.0 million line is secured by substantially all assets and includes liquidity and adjusted EBITDA covenants. Weave reported covenant compliance at December 31, 2022. A covenant breach could permit acceleration, and the filing notes that future financing may be needed.
- Key risks: Continued losses and negative free cash flow; customer churn and weaker SMB spending amid inflation, higher interest rates or recession; competition and pricing pressure; reliance on GCP, Stripe and other integration, network and hardware providers; cybersecurity, service availability and data-protection exposure; and communications, VoIP and healthcare privacy regulation.
- Management and controls: Brett White replaced Roy Banks as CEO during 2022, alongside other leadership changes. Management said previously identified material weaknesses in financial reporting controls were remediated as of year-end and concluded controls were effective. The auditor did not provide an internal-control attestation because Weave qualified for the emerging-growth-company exemption.
- Other items: FY2022 stock-based compensation was $18.8 million. Weave repriced 1.16 million eligible options to $7 per share, expecting approximately $1.1 million of incremental compensation expense over the remaining vesting period. The company reported no legal proceeding expected to have a material adverse effect.
Important facts for investors to verify
- Whether revenue growth, retention and payments adoption can support improving margins and a path to profitability.
- How the 99% net retention rate and 94% gross retention rate trend, and whether customer-location growth translates into durable recurring revenue.
- Cash consumption, the mix and liquidity of short-term investments, and the availability and terms of the credit facility after the SVB disruption.
- Progress against management’s expense and cash-flow expectations, including the effect of stock-based compensation and public-company costs.
- Whether remediation of prior control weaknesses remains effective, and how material third-party, cybersecurity, regulatory and customer-concentration risks develop.