Weave Communications, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Weave sells subscriptions to an integrated communications and engagement platform for small and medium-sized businesses, including software, VoIP phone services, and payments. Financial amounts below are in U.S. dollars; dollar figures are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $30.3 | $21.4 | $84.0 | $56.1 |
| Revenue growth | 42% | — | 50% | — |
| Gross profit | $17.4 | $12.2 | $48.3 | $31.6 |
| Gross margin | 58% | 57% | 58% | 56% |
| Operating loss | $(13.9) | $(10.1) | $(36.8) | $(30.5) |
| Net loss | $(14.2) | $(10.4) | $(37.6) | $(31.0) |
| Adjusted EBITDA (non-GAAP) | $(9.1) | $(5.0) | $(23.6) | $(18.6) |
| Free cash flow (non-GAAP) | $(6.4) | $(2.8) | $(18.0) | $(17.2) |
Q3 net loss attributable to common stockholders was $14.8 million, or $1.03 per share, compared with $10.9 million, or $0.95 per share, in Q3 2020. The nine-month figures were $39.3 million, or $2.97 per share, versus $32.6 million, or $2.91 per share. Subscription and payment-processing gross margin was 73% in Q3, unchanged year over year, and 73% for nine months versus 74%.
Cash, debt, and liquidity
- Cash and cash equivalents were $40.4 million at September 30, down from $55.7 million at December 31, 2020. Nine-month operating cash use was $10.3 million; investing cash use was $7.7 million; financing provided $2.7 million.
- Current assets were $57.7 million and current liabilities $57.6 million. Current deferred revenue was $28.4 million.
- Debt outstanding was $10.0 million under the Silicon Valley Bank revolving credit facility; capital lease obligations totaled $16.1 million. The credit facility was increased to $50 million in August 2021, with borrowing capacity subject to recurring-revenue and customer-retention conditions. The facility is secured by substantially all assets and includes liquidity and adjusted-EBITDA covenants. Weave reported compliance at quarter-end.
- Management said cash, operating receipts, and IPO proceeds were expected to fund operating cash-flow requirements for at least 12 months from issuance of the statements. The company had incurred ongoing losses and negative operating cash flows since inception.
Material changes and operating trends
- Nine-month revenue grew 50%; management attributed 62% of the increase to new customer locations and 38% to existing locations. Q3 growth was 42%, with 86% of the increase attributed to new customers.
- Locations under subscription reached 22,553, up 31% from 17,214 a year earlier. Dollar-based net retention was 104% versus 102%; gross retention was 93% versus 91%.
- Operating expenses rose faster than quarterly revenue: sales and marketing increased 80% to $16.0 million, R&D increased 14% to $6.2 million, and G&A increased 14% to $9.1 million. Higher headcount and advertising contributed to sales and marketing growth.
- For the nine-month period, overall gross margin improved two percentage points, partly reflecting lower costs associated with the prior-year launch of the nationwide installation program. The program was phased out in Q3 and fully discontinued by September 30; customers thereafter used independent contractors for installation.
- Customer acquisition and phone hardware remained loss-making revenue categories: Q3 onboarding gross loss was $2.0 million and hardware gross loss was $1.4 million.
Outlook, risks, and unusual items
- No specific numeric revenue or earnings guidance is provided. Management expects losses and negative operating cash flows may continue in the foreseeable future, while stating that operating cash flows may improve with efficiency and scale. It expects investment in sales and marketing, product development, and public-company operations to continue.
- COVID-19 had not materially reduced revenue or caused material subscription non-renewals through September 30, 2021, according to management. Trade-show cancellations had affected lead generation; the company shifted toward inbound and outbound channels. The filing identifies continuing uncertainty around the pandemic, SMB demand, infrastructure capacity, and hardware supply.
- Disclosure controls and procedures were deemed ineffective at September 30 because of previously identified material weaknesses in accounting personnel capacity and controls for complex accounting, including contract-cost capitalization and stock-option valuation. Remediation was ongoing and expected to require significant resources; no remediation-cost estimate was provided.
- After quarter-end, Weave completed its November 2021 IPO at $24 per share. The company sold 5.0 million shares and reported $107.6 million of net proceeds after underwriting discounts and offering expenses. Its preferred stock converted into common stock upon the IPO. Warrants were also net-exercised in November, with no cash proceeds to the company.
- The filing reports no material legal proceedings as of the financial-statement issuance date. Indemnification exposure is not quantifiable; no related costs had been incurred to date.
Important facts for investors to verify
- Whether revenue growth, retention, and location growth continue, and whether higher acquisition and operating costs translate into improving margins and cash generation.
- How the $107.6 million IPO proceeds affect liquidity and the company’s ability to fund operations, given its continued losses and cash use.
- Remaining availability under the $50 million credit facility, applicable borrowing conditions, covenant headroom, and capital-lease commitments.
- Progress in remediating the material weaknesses and whether controls operate effectively over a sufficient period.
- The economics and customer experience of the post-September installation model and revised phone-hardware leasing terms.