Weave Communications, Inc. — Q1 2024 Form 10-Q
Business context and reporting period
Weave sells subscriptions to a communications, customer-experience and payments software platform for small- and medium-sized healthcare businesses. This unaudited report covers the three months ended March 31, 2024, compared with the same quarter of 2023. Weave operates as one reportable segment.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $47.2 million | $39.6 million |
| Gross profit / gross margin | $33.0 million / 70% | $26.5 million / 67% |
| Operating loss | $8.2 million | $8.5 million |
| Net loss | $7.2 million | $7.9 million |
| Net loss per share, basic and diluted | $0.10 | $0.12 |
| Adjusted EBITDA (non-GAAP) | $(0.4) million | $(3.1) million |
| Operating cash flow | $(19.7) million | $1.5 million |
| Free cash flow (non-GAAP) | $(20.5) million | $0.6 million |
Revenue grew 19% year over year. Subscription and payment-processing revenue was $45.1 million, onboarding revenue $1.0 million, and embedded phone-hardware lease revenue $1.1 million. Recurring revenue represented 92% of total revenue in both periods. Subscription and payment-processing gross margin was 77%, up from 76%.
At March 31, 2024, cash and cash equivalents were $30.6 million and short-term investments were $51.7 million, totaling $82.3 million. Current liabilities were $68.4 million. Weave had no borrowings under its $50 million revolving credit facility, which matures in August 2025; the full borrowing capacity was available, and the company reported compliance with covenants. Finance lease liabilities totaled $12.7 million and operating lease liabilities $46.1 million.
Changes versus the prior comparable period
- Revenue increased $7.6 million; management attributed approximately $6.6 million of the increase to customers acquired after March 31, 2023, and $1.0 million to existing customers.
- Gross margin rose three percentage points, which management attributed to lower third-party and data-usage costs, a larger share of customers with fully depreciated phone hardware, and support and onboarding efficiencies.
- Operating expenses increased 17% to $41.1 million. Sales and marketing rose 14%, research and development 25%, and general and administrative 17%.
- Net loss narrowed by $0.7 million, and Adjusted EBITDA improved by $2.8 million, although the company remained loss-making.
- Dollar-based net retention was 96%, down from 97%; dollar-based gross retention was 92%, down from 93%.
- Stock-based compensation increased to $6.8 million from $4.5 million. Shares outstanding at quarter-end were 71.0 million, versus 70.1 million at December 31, 2023.
Cash flow, outlook, risks and unusual items
Operating cash use was driven in part by a $15.8 million increase in accounts receivable, a $4.6 million decrease in accrued liabilities, and a $4.1 million increase in deferred contract costs. Management said a new billing system deferred March subscription billings into April, increasing unbilled receivables and reducing Q1 free cash flow by approximately $15 million. Annual bonuses of approximately $7 million were also paid in March 2024, versus the second quarter in prior years. Management stated that free cash flow would have been positive excluding both timing effects.
Management expects cash, cash equivalents, short-term investments, available credit and cash generated from product sales to be sufficient for operating and capital needs for at least 12 months from issuance of the financial statements. The filing provides no specific numeric revenue, earnings or cash-flow guidance. Management expects continued investment in sales and marketing, research and development, and customer support; it anticipates sales and marketing expense to decrease as a percentage of revenue in 2024 and over time. It also notes that growth plans may result in future losses and negative operating cash flows.
Principal risks include retaining and expanding customers, competing effectively, serving small businesses amid economic uncertainty, and executing product and vertical-market expansion. Weave depends on third parties for key integrations, cloud infrastructure, phone hardware, network connectivity and payments processing, including Google Cloud Platform and Stripe. The filing also highlights cybersecurity, privacy and healthcare-data regulation, communications regulation, and potential customer-support or service interruptions. No legal proceeding was reported as expected to significantly affect financial condition, results or liquidity; the maximum potential payments under certain indemnification arrangements are not determinable.
Other notable items include $0.2 million of sublease revenue recorded in other income and $6.1 million of cash paid for employee taxes related to net settlement of equity awards. Weave reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the billing-system transition and April collections resolved the unusually large accounts-receivable increase and restored cash conversion.
- Whether retention metrics stabilize or improve, and whether new-customer growth continues to offset churn and contraction.
- Whether gross-margin gains persist as phone hardware, connectivity, cloud and payment-processing costs evolve.
- How much of reported operating performance depends on stock-based compensation and other non-GAAP adjustments; review the company’s reconciliations and definitions.
- Whether the company continues to meet the credit facility’s liquidity and adjusted EBITDA covenants, including after the March 2024 amendment.
- Potential dilution from outstanding equity awards: 10.2 million potential common shares were excluded from diluted loss-per-share calculations as antidilutive.