Weave Communications, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Weave sells subscription-based communications and engagement software, including VoIP phone services, payments, and phone hardware, primarily to small and medium-sized businesses. Financial amounts below are in millions of dollars unless noted.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $33.3 | $25.7 |
| Gross profit / gross margin | $19.5 / 59% | $14.9 / 58% |
| Operating loss | $(13.5) | $(8.7) |
| Net loss | $(13.8) | $(9.0) |
| Adjusted EBITDA (non-GAAP) | $(9.1) | $(6.3) |
| Net cash used in operating activities | $(4.2) | $(5.3) |
| Free cash flow (non-GAAP) | $(5.1) | $(7.6) |
- Revenue grew 30% year over year. Recurring revenue represented 95% of revenue, versus 93% a year earlier. Management attributed approximately 92% of the revenue increase to customers acquired after March 31, 2021.
- Subscription and payment-processing gross margin was 72%, compared with 73%. Onboarding and phone hardware remained loss-making gross profit categories.
- At March 31, cash and cash equivalents were $128.9; current assets were $146.2 and current liabilities $59.6. Deferred revenue, a current liability, was $30.2.
- Long-term debt was $10.0, with $40.0 available under the $50.0 revolving credit facility. Finance lease liabilities totaled $14.9. Topic 842 adoption added operating lease liabilities of $52.5; prior-period balance-sheet figures were not restated, so lease-related comparisons are not directly comparable.
- Cash declined $7.1 during the quarter. Operating, investing, and financing activities used $4.2, $0.9, and $2.0, respectively.
Changes versus the prior comparable period
- Revenue increased $7.6, while gross margin improved by 1 percentage point. Operating expenses rose 40% to $33.0, exceeding gross profit and contributing to a larger operating loss.
- Sales and marketing expense rose 38% to $16.2; research and development rose 23% to $7.2; general and administrative expense rose 60% to $9.6. The filing cites higher headcount, trade-show costs, stock-based compensation, public-company insurance, and professional fees.
- Operating cash use improved by $1.1 and free cash flow improved by $2.5 year over year, but both remained negative.
- Dollar-based net retention was 103%, up from 102%; dollar-based gross retention was 94%, up from 92%.
- Basic and diluted loss per share was $(0.21), versus $(0.79). The share counts differ substantially following the November 2021 IPO, and the 2021 numerator included preferred-stock dividends; per-share comparison should be interpreted in that context.
Outlook, risks, contingencies, and unusual items
- No specific quarterly or annual revenue, profit, or cash-flow guidance is provided. Management expects losses and negative operating cash flows may continue as it invests in growth, and says cash, available credit, and expected operating cash flows should cover requirements for at least 12 months from issuance of the financial statements.
- Management expects sales and marketing expense to remain relatively consistent as a percentage of revenue in 2022 and decrease over time; it expects research and development and general and administrative expense to decrease as percentages of revenue over time. These are expectations, not quantified guidance.
- The company has incurred losses since inception and reported an accumulated deficit of $195.7. It was in compliance with its credit-facility covenants at quarter-end; the facility includes minimum liquidity and adjusted EBITDA requirements under specified conditions.
- Disclosure controls and procedures were deemed ineffective due to previously reported material weaknesses in accounting personnel capacity and controls over complex accounting matters, including contract-cost capitalization and stock-option valuation. Remediation is ongoing and expected to require significant resources.
- On January 1, 2022, Weave adopted ASC 842, recognizing operating lease assets and liabilities and reclassifying finance lease assets. This accounting change materially affected balance-sheet presentation.
- Management reported no legal proceedings expected to significantly affect financial condition, results, or liquidity. The company has ordinary-course indemnification obligations whose maximum potential payments are not determinable; no related costs had been incurred to date.
- Key disclosed risks include dependence on SMB customers, customer retention and acquisition, competition, COVID-19 effects, service reliability and cybersecurity, reliance on Google Cloud Platform and Stripe, hardware and network suppliers, communications and data-privacy regulation, and the unresolved internal-control weaknesses.
Important facts for investors to verify
- Whether revenue growth and retention trends continue, and whether the 72% subscription and payment-processing gross margin can improve.
- Whether operating expense growth moderates and the company can narrow losses while funding customer acquisition and product development.
- Cash burn, available borrowing capacity, credit-facility covenant headroom, and upcoming debt and lease payments.
- Progress and testing of the internal-control remediation plan, including whether material weaknesses are fully remediated.
- Potential dilution from equity compensation: 3.32 million RSUs were outstanding at quarter-end, and the board reserved an additional 3.2 million shares for the equity plan during Q1.
- Effects of lease accounting adoption on period-to-period comparisons and the company’s stated liquidity position.