Weave Communications, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Weave sells subscription software, communications, and payment-processing services primarily to small and medium-sized healthcare practices.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $41.7 million | $34.9 million | $81.2 million | $68.2 million |
| Gross profit / margin | $28.0 million / 67% | $21.2 million / 61% | $54.6 million / 67% | $40.7 million / 60% |
| Operating loss | $9.8 million | $14.6 million | $18.4 million | $28.1 million |
| Net loss | $9.0 million | $14.8 million | $16.8 million | $28.7 million |
| Net loss per share, diluted | $0.13 | $0.23 | $0.25 | $0.44 |
| Operating cash flow | $1.6 million | $(1.7) million | $3.1 million | $(5.9) million |
| Free cash flow (non-GAAP) | $0.9 million | $(2.4) million | $1.5 million | $(7.5) million |
- Q2 revenue grew 19% year over year; management attributed most of the increase to customer locations added since June 2022. Subscription and payment-processing gross margin was 76%, up from 73%.
- At June 30, cash and cash equivalents were $52.1 million and short-term investments were $58.8 million. Current assets totaled $129.5 million and current liabilities $66.3 million.
- Debt outstanding was $10.0 million, classified as long-term following an amendment that extended the revolving credit facility’s maturity to August 2025. The facility had $40.0 million of available borrowing capacity; the company reported covenant compliance.
- Operating and finance lease liabilities totaled $54.7 million. The accumulated deficit was $248.5 million.
Changes and management commentary
- Revenue increased 19% in both Q2 and the first half. Q2 sales and marketing expense rose 4%, research and development rose 16%, and general and administrative expense rose 2% year over year. Gross-margin improvement reflected lower platform-related costs, support and onboarding efficiencies, and a greater share of customers with fully depreciated phone hardware.
- Dollar-based net retention was 96%, down from 102% a year earlier; gross retention was 92%, versus 94%. These measures underscore the importance of customer retention and expansion alongside new-customer growth.
- Management said existing cash, investments, available credit, and expected operating cash flows should be sufficient for at least 12 months from the financial statements’ issuance. It also cautioned that growth plans may bring future losses and negative operating cash flow.
- No numerical revenue or earnings guidance is provided in the supplied filing text. Management expects sales and marketing expense to increase in dollars but decline as a percentage of revenue in 2023; it expects research and development expense to rise in dollars and remain fairly consistent or decline slightly as a percentage of revenue over time.
- Adjusted EBITDA was a loss of $3.0 million in Q2 and $6.1 million for the first half under a revised definition that now adjusts for interest income and other income or expense. Prior periods were recast; this non-GAAP measure excludes stock-based compensation and has limitations.
- Q2 other income included investment gains and sublease income. The company reported no legal proceedings expected to significantly affect its financial condition, results, or liquidity. Management concluded disclosure controls were effective as of June 30, 2023.
Risks and contingencies
Key disclosed risks include ongoing losses and uncertain path to profitability; customer churn and weaker retention; competition and customer-acquisition costs; macroeconomic pressure on SMB customers; reliance on Stripe for payment processing and Google Cloud Platform for hosting; cybersecurity, service availability, and privacy obligations involving healthcare data; and evolving communications, messaging, and other regulation. Most customer subscriptions are month-to-month, increasing renewal and churn exposure. The credit facility is secured by substantially all company assets and includes financial and liquidity covenants. The filing also describes potential indemnification exposure, including intellectual-property claims, but does not quantify maximum future payments.
Important facts for investors to verify
- Whether retention and customer expansion stabilize, given net retention below 100% and lower gross retention year over year.
- Whether revenue growth can continue while losses narrow, and whether positive operating cash flow is sustained beyond the first half of 2023.
- How much reported margin and cash-flow improvement depends on cost efficiencies, customer mix, deferred revenue, and non-cash stock-based compensation.
- Credit-facility covenant headroom, borrowing availability, interest-rate exposure, and the effect of the August 2025 maturity.
- Potential dilution from equity compensation: 8.8 million RSUs were outstanding at June 30, and stock-based compensation expense was $10.4 million for the first half.