Weave Communications, Inc.

Please stand by, we're about to begin. Good day and welcome to the WEAVE's fourth quarter 2021 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Barry Hutton. Please go ahead, sir.

Good afternoon and thank you for joining us for the WEAVE communications fourth quarter and 2021 earnings call. Joining me on the call today are Roy Banks, Chief Executive Officer, and Alan Taylor, Chief Financial Officer. Full details of our results and additional management commentary are available in our earnings release, which can be found on the investor relations section of the website at investors.gitweave.com. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate websites. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding WEAVE's future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees and involve risk and uncertainties that may cause the actual results to differ materially from those discussed here. You should not place undue reliance on any forward-looking statements. Factors that could cause actual results to differ from the forward-looking statements can be found on our Form 10-Q filed with the SEC on December 9, 2021, which is accessible on the SEC's website at www.sec.gov and also available on our website at investors.getweave.com. as may be supplemented in subsequent periodic reports we file with the SEC. Any forward-looking statements made in this conference call, including responses to your questions, are based on current expectations as of today, and WEAV assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The following discussion contains non-GAAP financial measures, For reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings press release, which is available in the IR section of our website at investors.getweave.com. Now I will turn the call over to Roy, Chief Executive Officer of Weave.

Good afternoon, everyone, and thank you for joining us today. At Weave, we recognize that small businesses are the backbone of our economy and our communities. Specifically, health care is a significant and essential part of our everyday lives. From the very beginning, we developed an innovative and intelligent phone platform specifically designed to support small businesses in the health care sector so they could modernize and personalize the way they communicate and engage with their patients. Today, that product has evolved into a unified communications platform that enables us to further penetrate our estimated 11.1 billion TAM here in the U.S. Additionally, over the past two years, we further modified our product to help our customers adapt their business practices for a COVID and post-COVID world. We successfully continue to serve small and medium-sized businesses by providing innovative solutions that transform how they communicate, attract, retain, and engage with their customers. As a result, our unified platform solution replaces multiple unrelated and expensive point solutions in a cost-effective way that simultaneously improves the entire customer experience. Given the importance of the healthcare sector, our core customer verticals, dental, optometry, and veterinary, have shown resilience in the face of the pandemic and macroeconomic challenges. We demonstrated success in our ability to support each of these verticals by continuing to refine our solutions to meet their individual needs. Following our recent entrance into the home services vertical, we continue to evaluate and learn about how we need to refine our platform to meet the needs of this exciting new market opportunity. The unique benefits of our platform have enabled us to deliver consistent and strong year-over-year revenue growth despite the challenging market conditions. For the full 2021 year, we earned total revenue of $115.9 million, up 45% over the prior full year. This growth was driven by adding 5,292 net new customer locations to end the year with a total of 23,831. Specifically, in Q4, we earned total revenue of $31.8 million, up 34% year-over-year, which Alan will further discuss later on the call. As I look back on 2021, I am proud of our strong performance and our ability to operate successfully despite the uncertainty of the macroeconomic environment, an evolving pandemic, and the related impacts upon our customers and the Weave business. I am truly grateful for the efforts of our employees, business partners, and customers that contributed to the achievement of a few important milestones that I would like to share now. First, we expanded our leadership team with several executive hires. In particular, we hired a chief revenue officer and a chief marketing officer, both of which are new roles within our company and will help to accelerate our revenue growth and go-to-market execution. We continue to enhance our solutions by executing our integrations playbook with select third-party providers to better serve our audiology and veterinary customers. We executed our vertical domino expansion strategy as we entered the home services vertical, including HVAC and plumbing. We celebrated our 10-year corporate anniversary. And to cap off what was already an exciting and strong year, in November we completed our IPO and began trading on the New York Stock Exchange. As we turn now to 2022, our Weave payment solution has already surpassed the incredible milestone of processing $1 billion of payments volume since its launch in early 2020. We continue to expand this full payment solution with added capabilities such as text-to-pay, wireless terminals, and card-on-file features. Collectively, this payment solution adds yet another way small businesses engage with their customers by collecting payments faster and in more convenient ways. In early February, we announced that we recently won our largest customer engagement in company history, a dental service organization, or DSO, named Dental Care Alliance, that operates more than 370 locations across the country. A 19-location test pilot confirmed that our platform could unify office operations, create communication and engagement efficiencies, and help service more patients in a timely manner. Based on the success of the pilot program, they decided to integrate Weave across their organization. We are now working with this new client to align and schedule the onboarding process of the remaining locations over the next few quarters, creating a healthy pipeline of new locations. As we prepared our 2022 business plan, we recognized and anticipated the ongoing uncertainty of the macroeconomic environment that is beyond our control, including the evolving pandemic and a labor market that has challenged our efforts to retain, hire, and ramp productivity within our sales and customer onboarding organizations. In light of these challenges, we have continued to improve, adapt, and optimize our lead generation, go-to-market and sales strategies to increase our effectiveness reduce customer acquisition costs, and increase ROI. Under the combined leadership of our recently appointed Chief Revenue Officer and Chief Marketing Officer, we are taking actions to enhance our sales and marketing processes to improve alignment across key functions, productivity, and sustainability of our operations. This refocused effort will support ongoing growth despite the changing conditions in the macroeconomic environment. A few aspects of this new and improved program include we will remain focused on maximizing the opportunities within our core verticals of dental, optometry, and veterinary, which have proven to generate significant ROI for us over time and represent markets in which we remain largely underpenetrated. In each of these areas, we will continue to add more functionality to our platform and improve our overall customer experience. We are excited by the opportunity to increase our market share in each of our core markets as our product market fit remains strong and resonates more acutely during the pandemic. Additionally, we will continue our efforts to improve our WEA payments offering and make progress in specialty medical and our new verticals in home services, which are still in their early stages. In 2022, as the impact of the pandemic may become less severe, we expect that our participation level in live marketing events, which pre-COVID provided significant high-quality lead flow, will surpass our 2020 and 2021 levels. To the extent that these events come back, we will selectively invest our resources and once again exploit this historically valuable customer acquisition channels. However, the number of live marketing events in 2022 are still expected to be well below the 2019 pre-pandemic levels. So we are continuing to offset our previous reliance on live sales events by implementing and executing new digital marketing and lead generation tactics. We are also evolving our sales model to optimize lead sources, opportunities, and value per lead. Said another way, our future lead generation efforts will more narrowly target the vertical markets where we have had proven success and incredible product market fit. This will increase productivity, lower our customer acquisition costs, and ultimately help grow our subscription revenue and payment processing volume and revenue. As part of our effort to adapt and optimize our go-to-market strategy, we are transitioning our sales approach into a more efficient motion that better supports our sales cycle, reduces our customer acquisition costs, and allows us to scale for continued and future growth. While we recognize that we have experienced some Salesforce turnover during this transition, early results give us confidence that we will end up in a position to better serve our target customers while we execute a sustainable and cost-efficient go-to-market strategy. Our ability to continually improve our technology platform and other aspects of our customer success is paramount. In the fourth quarter and early first quarter, we have already completed several meaningful platform enhancements, which include Vetter integration. We launched with Vetter in Q4 as a new integration partner that repeats our integrations playbook in the veterinarian vertical. By providing an automated sync, customers will see real-time updates to their daily calendars and patient contact information. This eliminates the need for manual data uploads and provides improved communication solutions to veterinarians. New product updates. We've added mobile functionality that is key for many of our verticals to help users capture and save their future customers' information via the Weave mobile app. Payments product updates. In Q4, we expanded the Weave payments offering by adding the card-on-file feature, making collecting payments a faster experience for business owners and customers. We also launched wireless payment terminals. As I reflect upon where we are today, it's clear that our company and our customers have been impacted by certain macroeconomic challenges, and we've continued to adjust our business operations to sustain improvements in customer service and revenue growth. Collectively, these evolving factors impacted our sales and new location onboarding productivity as we approach 2022 and are reflected in the guidance we provide today. However, I am confident in our competitive position and our ability to significantly grow and increase our market share, particularly in our core vertical markets of dental, optometry, and veterinary. Within that context, the executive team and I have identified and started to implement a series of go-to-market strategies and operational changes that I outlined moments ago. While we are confident in these changes, it will take some time to see the results. As such, we are optimistic that we will see renewed sales and revenue momentum in the back half of 2022. With that, I'll turn the call over to Alan to discuss our financials.

Alan. Thanks, Roy. I extend my welcome to everyone that is joining us today as well. As Roy discussed, we achieved multiple milestones during 2021 as we expanded our presence in our key vertical markets, dental, optometry, and veterinary. We also continued to improve our platform solution and attracted several new and talented executive leaders to our team. For the year, we increased our total revenue by 45% to reach $115.9 million. This tremendous growth was driven by two factors. First, by our growth in new customer locations, and second, by increasing revenues from existing customer locations. To that end, our ability to expand adoption of platform features by existing customers is reflected in our dollar-based net revenue retention rate of 103%, up slightly from 2020, despite the ongoing macro environment challenge. The year ended with much to be excited about, in particular our strong gross revenue retention rates, the signing of Dental Care Alliance, our largest multi-location customer in company history, and a strong balance sheet coming off our IPO. The latter point gives us much confidence in the financial flexibility as we remain focused on our longer-term path to profitability moving forward. During the quarter, we began seeing renewed uncertainty in the macro environment caused by the rise in impact of the Omicron variant that hit the United States in December, inflationary pressures and geopolitical tensions. We believe these macro factors, combined with the challenges of the current labor market, both internally and among our customers, slowed our sales and onboarding efforts during the quarter. We are seeing these trends continue into 2022 creating challenges for ourselves and onboarding organizations. As a result of this slowing, we ended our fourth quarter with financial results slightly below the midpoint of our prior guidance ranges, and we are taking a cautious approach to our future outlook. As Roy mentioned, heading into 2022, we are renewing our focus on core vertical markets of dental, optometry, and veterinarian. where we have excellent product market fit and significant growth opportunities to increase our penetration within those markets. This focus, combined with our continued customer loyalty and retention, have driven five straight quarters of gross revenue retention improvement. Our net revenue retention rate has also improved slightly year over year, giving us confidence in our ability to grow revenues in 2022. In Q4, we earned revenue of $31.8 million up 34% year-over-year. Consistent with our SAP business model, 95% of our Q4 revenue was recurring revenue. This growth rate reflects a 5,292 year-over-year net increase in customer locations to 23,831 locations, along with strong dollar-based net revenue retention and gross revenue retention rates of 103% and 94%, respectively. The remaining part of our revenue is generated primarily from payment processing services for which we receive a revenue share from a third-party payment processing partner. Before discussing the rest of our financial performance, please note that I will be discussing non-GAAP results going forward. As a reminder, our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results, can be found in our earnings press release and its supplemental financial tables. Also, note that our customer location information will only be provided with annual and Q4 results and will not be provided in future interim financial statements or earnings releases. In the fourth quarter, our growth margin declined modestly to 57.4% from 58.4% in the year-ago period as we ramped our support organization during a tough hiring environment. We decided to pull hiring forward in the support organization to enable favorable ongoing customer satisfaction levels that drive our brand recognition, as well as our gross retention and net revenue retention rates over time. Total operating expenses were $28.9 million, up 35% year over year. This growth was in line with the higher revenue levels achieved in the quarter. Sales and marketing expense were $15.3 million, a 46% increase over the prior year as we reignited our go-to-market actions following the pandemic reduced levels in 2020. R&D expense was $6.6 million, a 24% increase year-over-year, driven by the increased headcounts to support our R&D efforts to improve our platform solutions. Operationally, we made approximately half of the recent R&D hires in geographic regions that enable us to scale our development efforts more rapidly and efficiently. We believe this staffing model enables us to continue our platform enhancement actions while remaining efficient with our expenses. G&A expense was $7 million, a 25% year-over-year increase, as our cost structure changed as public company. granting headcount and operational systems and support in preparation for our IPO as anticipated. Our adjusted EBITDA in Q4 was a negative $9.7 million as compared to negative $7 million a year ago as we rapidly grew our revenues and saw near-term decline in adjusted EBITDA margin by two percentage points. Given these revenue and expense results, our non-debt operating loss was $10.7 million as compared to a loss of $7.6 million a year ago. Non-GAAP net loss was $11 million, or 26 cents per share in the fourth quarter, based on 42.6 million weighted average shares. This is compared to a loss of 67 cents per share a year ago. Turning now to the balance sheet and cash flows, We ended the fourth quarter with $136 million in cash and cash equivalents, up from $55.7 million at 2020 year end. The increase is driven by the $111.6 million in cash and cash equivalents raised through our November IPO, providing dry powder to address our market opportunity. The influx of cash was partially offset by the cash flow from operations usage of $10.4 million in the fourth quarter, reflecting the higher gap, net loss, and increases in accrued liabilities and prepaid expenses. After making investments in property and equipment, our free cash flow was a usage of $12.2 million. Turning now to our guidance. As we conducted our business planning for 2022, we factored in the macroeconomic uncertainties I noted above, and the challenges we saw at the end of the fourth quarter. Specifically, we recognized sales headwinds that picked up through Q4 as Omicron impacted our marketplace and have lingered into Q1, along with macroeconomic conditions I addressed previously. These factors are expected to impact our revenue growth rate in the first half of 2022. However, as Roy discussed, under the leadership of our new CRO and CMO, we have already taken a number of proactive steps to reinvigorate our go-to-market actions. While we are confident that we have initiated the right strategies to successfully navigate these uncertain market conditions, we also anticipate that revenue growth will slightly lag these actions, and we don't expect to see a reacceleration of growth until the second half of the year. As we work to reaccelerate top line growth, we will maintain a balance between managing our costs and investing for the future. Additionally, we believe our balance sheet puts us in a great position to execute on our roadmap towards profitability. Considering all these factors, we are providing the following guidance for our Q1 and full year 2022 results. For the first quarter, we expect total revenue in the range of 31.0 to 32.0 million dollars, and a non-GAAP operating loss in the range of negative 12.0 to negative 11.0 million dollars. We expect to have a weighted average share count of approximately 64.7 million for the first quarter. For the full year fiscal 2022, we expect total revenue in the range of 136.0 to $140.0 million, and a non-GAAP operating loss in the range of negative 40.0 to negative $36.0 million. We expect to have a weighted average share count of approximately 66 million for the full year. With that, we'll turn it back to the operator, and we'll be happy now to take your questions.

Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one if you'd like to ask a question. And we'll take our first question from Ken Wong with Guggenheim Securities. Please go ahead.

Hi, this is Nancy on for Ken. Thanks for taking the question. Just on payments, I know you don't break it out specifically, but if you could talk more about the payment momentum you're seeing versus internal expectations, that would be great. And then second question, if on the conservatism in the guide, is there any particular vertical that you are baking in more conservatism into?

Thank you. Yeah, well, first of all, if I could just just wish the people of Ukraine peace, very disturbing to see what's going on over there. So Just wanted to get that out and let you know that Weave is very much concerned about that and have an employee here that's directly affected by that. So thank you for letting me say that. We are very excited about our payments solution. During the quarter, we recently hired a new payment sales leader who comes out of the payment industry. This individual was responsible for selling integrated payments, payment processing, merchant acquiring, payment gateway services, and really brings with him a tremendous work product or body of work that is really going to benefit us here as we look to increase the adoption and increase the processing volume of payments. As you know, last quarter we surpassed the $1 billion payment volume processing mark, which really is a significant milestone for the company and for that product. And so we're very excited about how that product is performing. And with the number of initiatives that we've launched over the past quarter, we're excited to see that growth continue going into 2022.

Regarding your second question, Nancy, the We do not see any one of the verticals impacted more directly than the others. It's been kind of across the board with respect to the cautious outlook there.

Got it. That's helpful. Thank you.

You bet. Thank you. Thank you. We'll take our next question from Matt Stotler with William Blair.

Hi, everyone. Hey, Alan. Thanks for taking the questions. Maybe just, you know... One to start from the macro perspective, obviously, you know, a lot of disruption, you know, in kind of December, January timeframe from Omicron, you know, especially with, you know, some of the stuff we're seeing with inflation is particularly negative for small businesses. But just wanted to dive into, you know, what you're seeing in terms of customer behavior and what the feedback is from customers. Is this, you know, more companies going out of business? Is this customers, you know, less willing to buy? And specifically looking at this and how it compares to your experience early on in the pandemic, we're still able to grow pretty substantially, even looking at a sequential basis. What's different over the past several months that didn't happen in 2020?

Yeah, so great question. So part of it is, you know, the extent of the impact of Omicron on our customers. Part of the challenge that we had in Q4 was to the onboarding and throughput as we sell new customers, being able to get them onboarded. Well, it's very difficult to do that when you have customers that have employees that are sick that we cannot coordinate and schedule installations with. So that was something that took us a little bit by surprise. And just as you look at some of the consumer hesitancy around making significant capital expenditure purchases, that obviously affected us. And then as we look at our own resources internally, we also experienced some challenges from the Omicron, and just generally speaking, the pandemic affecting our ability to staff and keep up with the opportunities that we've had.

Matt, I would just add, early on in the pandemic, I do think that overall we were successful as a country in kind of flattening the curve, as they referred to it, so it didn't have that kind of acute impact. Omicron kind of hit in late December, and we had, although it wasn't as severe, thankfully, We did have onboarding people out, we had sales people out, and we had offices unavailable to be onboarded. And all of those things impacted our ability to get customers active on our platform.

Got it. Okay, that's helpful. And then a follow-up on the go-to-market actions that you're taking. So it would be really helpful to kind of dive into what some of these specific inefficiencies have been that you've identified and You know, what's changing, you know, and then as you look to, you know, I guess what the impact is on the guidance versus maybe what you would have expected previously for 2022. I'd love to understand that as well and how you get confidence in the new guidance.

Yeah, happy to address that. So, as you know, and I'll let Alan speak to the impact on guidance. But as you know, we recently hired a CMO and we hired a CRO recently. And those are new positions to the company that we've never had. So we've never really had that type of executive leadership with that type of experience to really help us better understand and develop and mature our sales organization. So based upon their experience and their expertise, they were able to identify some go-to-market changes that we needed to make to make us, quite frankly, to help us scale much more quickly and to really help increase our growth. And so we took the opportunity to really pull the trigger on that, and we've made some significant changes that I think that we believe will be very positive for the company specifically. We've identified ways to simplify our sales motion so that we can better align it with our customer sales cycle. Here at Weave, we have a very short customer sales cycle, and the previous model that we had really supports a longer sales cycle. We've created a more dynamic and scalable go-to-market program that allows us to make pivots and adjustments as we see opportunities become available. We've reduced probably one of the more significant changes that we've made is we've reduced our dependence on a position called the sales development rep. We had what we called the SDR account executive model, and we found that because of many of the challenges that we had around retaining SDRs, We were not able to really advance and really grow the way that we felt like we could, nor was it really supporting our sales motion in the right way. So we've made some changes there to really transition to what we call a full cycle AE, where we now have the hunter and the farmer in one position that better fits our sales model. And so we're seeing some very early on positive results and success with that. We're very optimistic about this change and the impact it will have on our business. And then we've made some changes around the way that we compensate. We've developed a long-tail residual commission program that really ties the sales rep to their employment here within the company while paying them a very healthy compensation stream. And so very excited to see some of those changes, and we look to see and report on that in the future.

And so, Matt, with respect to the guidance there, the items that Roy just mentioned there The challenges along in the current labor market are really accentuated here along in the Silicon Slopes area. We're fighting for talent. That's always been an issue. The change in the CRO and CMO, as new people come in, there's some of the old guard in sales that will move on. So we're in the process of bringing those people up to speed, making sure that they're ramped and capable. And so we've just adjusted our models to reflect the ramp period. and how we see them coming up to speed as we get back. We think that the upside is worth this change. And as Roy mentioned, the FDR turnover made us want to make this change even more rapidly than we planned.

And I'll add one more thing to that. We're also excited about the ability to reduce our customer acquisition costs through the elimination of that position and look to make sure that that's something that we continue to monitor closely.

Got it. Thanks again. It's helpful.

Thank you. We'll take our next question from Parker Lane with Stifel.

Yeah. Hi, guys. Thanks for taking the question. I'm hoping to reconcile some of the commentary you made on the macro and the impact on your end markets with the improvement in gross retention, the very strong net retention again. Should we anticipate that takes a step back here in the front half of the year, given all the commentary provided on what your end markets are seeing? Or is this primarily a new sales and onboarding issue? The changes you're putting in place will help improve that. And maybe we see a little bit less net new sales here to start the year.

Yeah, thanks, Parker. It's the latter. We shouldn't see any decline. Our retention rates were really, you know, five consecutive quarters of improvement on the gross revenue retention rate. We see that staying the same. It really has been around the sales and the onboarding where Omicron hit us, some of the staffing hit us. We're addressing both of those problems, and we anticipate getting our stride back.

Yeah, and I'll also say that as part of the changes that we've made, we've also made some changes operationally that will help and assist in pre-preparing those customers that we've signed for onboarding through a customer launch group. So I think that will also help, if nothing else, increase our ability to throughput more customers as we add them.

Understood. And then looking at those verticals outside of the core three you mentioned, call it physical therapy, chiropractic, med-cosmetic, any of those areas, It's not necessarily a wholesale de-emphasis of these markets going forward. It's difficult to hire people right now. We're going to double down on the places we're having success, the places we have critical mass and a brand, and that you could potentially start to increase investment outside of those areas when the environment improves.

Yeah, that's exactly right. Yeah, you know, we have several emerging markets, and obviously we announced home services last year, and we continue to be very bullish about that market. But quite frankly, entering and when we announce a new market, that does not mean that we ignore the existing markets that we're in. And based on the demand and based on what we're seeing from our product market fit, we continue to be very excited about the existing core markets that have really responded well to our offering. So we're just making sure that we're taking care. We're under 10% penetrated in each one of those markets, and we want to continue to expand our footprint in those markets and deliver the value that Weave does for that customer segment. So yeah, we're going to continue to do that while we cultivate new and emerging markets. And those new emerging markets can take several years. I mean, if you look at the years that it has taken for us to really nurture and cultivate dental, opto, vet, and even orthodontia, you know, there's a little bit of a long tail there. There's a lot to learn, but we've been able to really vet those particular markets very well, and we've built specific product market fit that meets the needs of those markets in a way and in a manner that's very unique.

Appreciate the feedback, Roy.

You're welcome. Thank you.

Thank you. We'll take our next question from Brent Braceland with Piper Sandler.

Hi, this is Clark Jeffries on for Brent. First question, you know, I think it might be helpful if you could give us a sense on what the planned sales and marketing capacity growth is for 2022, maybe relative to revenue growth and And if possible, maybe some context of how that was growing in 2021 and maybe where you ended the year considering the turnover in the sales and marketing force.

Good question, Brent. As we brought on our new CMO and particularly as our CRO and CMO have kind of established their plans, we invested still in marketing. I would describe our 2022 investment in marketing as much more targeted and with the CMO that really gets the digital side of things. And so there's going to be spend on the digital side. We will be returning to events as we discussed. We still see some, you know, events are about 50% participation now as opposed to pre-pandemic. Hopefully those will come back, but we know the ones that we can target successfully and get a good ROI out of our investment in those events. So we'll continue to increase that investment both on the sales and marketing side, but I do think that given the targeted approach that we've got, which is a little more laser-focused than it was in 2021, that we'll see a better yield from those efforts.

Great. And this is a follow-up question just to clarify that. you know how recent was the cro appointment uh was that during q4 or just during 2021 i wanted to clarify that and then when you when you're considering the ramp time for aes in 2022 what's the time frame that you're considering at this point yeah so our we hired um matt hyde our uh chief revenue officer back i believe it was in q2 of last year and um and so uh

And then our CMO we hired just in January. So that's the timing there. And then it takes about six to nine months to ramp up an AE. And we have a very substantial platform and just making sure that we train them not only on the platform but on the various industries that they will be selling into. very important that we provide them with the proper training and experience that they need to garner to be effective. And one other thing I wanted to mention was, you know, one of the things that we're really focused on when it comes to how we're becoming more laser focused in the way that we market and target customers, it's really speaking in the language of our customers and really cloaking ourselves in the identity of our customers. We're doing more to make sure that we We really understand and empathize with our customers in ways that none of our competitors understand and also in ways that they can better appreciate the value of our platform and the technology that we provide them.

Appreciate the call. Thank you. Thank you.

Thank you. We'll hear next from Michael Funk with Bank of America.

Yeah, thank you for the questions tonight. A couple if I could. I think I understand the guide for 2022 primarily revolves around maybe lower gross additions than previously expected. You mentioned the Salesforce turnover. But, you know, in your earlier comments, you threw out a few things, Omicron, inflation, geopolitical. On the inflation comment specifically, is that impacting customers either migrating down to lower price plans or your expectations for a slower ramp in pricing in 2022 or adoption incremental functionality? Is that part of the guide here as well, or is it purely just based on the lower growth additions in 2022?

It's primarily the latter there. I think that the customer, everyone's being hit by the inflation. There's no question about that. We're responding and we'll work those into kind of the normal annual price increases that we cycle through our customer base. But I do think that those aren't resulting in churn. We haven't seen a lot of churn based on customers leaving based on price or anything like that. So I think it's the latter just in terms of the growth. That obviously, the inflation is a challenge for everybody. So we're keeping a close eye on that. and we'll respond as we need to through the balance of the year.

Okay. And then just back to the envelope there, if I assume that net additions are roughly flattish each quarter in 2022 with flattish pricing and the same hardware and onboarding revenue, that kind of gets me to the midpoint of your guidance range. Is that the right math around that?

Yes, it is.

Okay. And then one more if I could, please. I didn't hear it earlier, but Did you quantify the sales and marketing turnover or the productivity metrics to help us think about how that potentially ramps as you bring new employees on and they get to that six- to nine-month period when they get to full productivity?

We didn't quantify it and won't be quantifying it other than it has definitely been a challenge. We're, I think, right in line with others along the Silicon Slopes area and across the country.

And given the fact that we've made some changes in that area, we don't have enough history there to really kind of even suggest what that might look like. But that's obviously something that we'll continue to watch and monitor.

Understood. Thank you very much. Thank you. Thank you.

Thank you. We'll hear next from Tyler Radke with Citi.

Hi, this is Boyoung Kim on for Tyler Radke. Thank you so much for taking my question. So I know you pointed to solar sales and onboarding efforts related to challenges in the labor market, but are you at all, and if so, like to what extent are you seeing any impact from like pull forward and demand within the communications sphere that we have seen from a lot of the other UCAS and, you know, CPAS vendors? And then I had a follow-up. Thanks.

I don't think that we're necessarily seeing any of that, to be honest with you. I mean, I think, you know, we're – I don't know that we can cite a particular statistic or a metric that would indicate that we're seeing anything related to that having an impact on our business.

Got it. And then I also wanted to ask about that large – a customer one that you had through the dental service organization. Um, I understand that the initial conversation was tied to like the core communications module, but you know, have you at all discussed the potential to add the payments module in the near term or where's the appetite for that from that network of customers?

It's always a possibility. There's nothing contractual at this point with those customers, but I think that the payments offering is compelling enough that it may be of interest in the future. We definitely want to make sure that people are understanding that option for us, and we see other multi-office opportunities in our mid-market team where we will factor that in and make sure that we're giving it the billing and the exposure that will land some of those customers on payments as well.

And as it relates to our payment offering, we can offer that both at the point of sale and on an upsell basis into our existing customer base. So oftentimes it just depends on what's the right sales motion to introduce payments. And so we always have the option of going back into our customer base and selling our upselling payments.

Great. Thank you very much. And congratulations on that customer win.

Thank you. Very exciting.

Thank you. We'll take our next question from Brian Peterson with Raymond James.

Hi. Thanks for taking the question. This is John on for Brian. First question on lead generation sources. Can you quantify the historic pipeline contribution from live events and conferences? And while I know you said that there's a lower amount of conferences this year, we have seen some in-person conferences return. How has the pipeline contribution changed? uh, stand, uh, present.

So John, the historical rate was about it. We got on almost a third of our, our, uh, of our leads and deals through conferences pre pandemic. Obviously those went largely away until recently. And then the pandemic, uh, impact on those conferences has been such that, uh, you know, last fall we, it was somewhere between 25 and 30% attendance. versus pre-pandemic levels, and now we're at about 50% in the most recent ones. And so, you know, we're going to see the lead flow. The lead flow definitely makes it still worth attending some of those larger conferences. Whether those conferences really return to pre-pandemic levels is going to be a factor of a number of things. One of the things that we are aware of from our sales team I was talking with one of our sales reps who's saying, you know, these conferences pre-pandemic were often attended by the professionals who wanted to earn continuing education credits, and they would use these conferences as an avenue to do that. Now, with the pandemic, those same CE credits are coming through largely remote and online and Zoom channels. you know, instruction. And so whether these conferences will ever get back to completely full strength is yet to be determined. But we do know the ones that will be attended at a level that will make it viable for us to be there. And we still see an opportunity to have a good customer acquisition cost associated with our efforts on shows.

Perfect. Thanks. The color was helpful there. And then factoring in your 2022 outlook here, how should we think about the cadence of gross margin progression as we move through 2022, given some of the puts and takes with hardware and implementation? Thank you very much.

You're welcome. Yeah, the hardware and implementations are the key elements of what will ultimately result in positive margin expansion as we go forward. Onboarding customers is an expensive proposition and providing them phones is as well. So we'll see some margin expansion going kind of from the 58 range to the 60 range in the back half of the year.

Thank you very much. You're welcome.

Thank you. We'll take our next question from Mark Schapel with Pitchmark.

Hi, thank you for taking my question. One question for you, given the change in leadership and the sales strategy in your payments business, is it fair to assume that you're not seeing the adoption trends in your payment business that you initially hoped to?

You know, we were still very much in the early stages last year when we were still trying to build the product market fit for payments. And so it was, you know, Now that we have all the feature and functionality that we believe really gives us a robust payment offering, it was quite frankly time to bring on a payment sales leader that could really put that product on steroids and really increase the adoption for it. So think about this. We processed a billion dollars in payments volume without having a real payments leader over that product. So now with the opportunity that we have with a new payments leader and a robust product, we just felt it's a great opportunity for us to really have payments be a breakout product for us. So we're excited about what we're going to see.

That's helpful. Thank you. And then one additional question. In your prepared remarks, I believe you noted turnover in the sales force was higher than anticipated. I was wondering if you could just comment a little bit further on this. Are you seeing sales reps go to competitors? Are they going outside the industry? Maybe just provide a little bit more color on that.

Yeah, so part of it is, you know, here in Utah, Silicon Slopes, as it's affectionately known, we're seeing a real fervent environment for talent, for the competition of talent. And so, you know, I don't know what it's like in other areas of the country, but that's what it is here. And because of that, we have seen some churn there. We are also, as a result of the new sales model that we've put into place, Quite frankly, you know, there's some folks that are not as excited or as enthusiastic about those changes and are more familiar with the different system. And so some of those are self-selecting as well. And so that's really kind of what has been, you know, driving some of that churn that we've seen. Fortunately, this is a talent-rich environment that we are in. While the competition for talent is fierce, we continue to recruit because You know, selling Weave is a great experience, and we have a great product market fit. So we're navigating those challenges. We've created some incentives for retention that I think are keeping some of our real top-tier salespeople and are really starting to ramp up for more scale and more effective selling as we extract more value per lead, and we continue to drive results in that particular part of our organization.

Great, thank you.

You're welcome.

Thank you. Once again, that's Star 1 if you'd like to ask a question. With no additional questions in the queue, I'd like to turn the conference back over to Roy for any additional or closing remarks.

Awesome. Well, I would like to thank everyone for being on the call today. Really appreciate your interest in Weave. We hope this call gives you confidence that we have a clear plan and path to reaccelerating growth in the company. as we make much needed and exciting changes within the business as we navigate and overcome some of the challenges that we've highlighted on this call. We remain very optimistic about the prospects for the company, and especially as we look forward to the second half of the year, as we look for the impact of many of the changes that we've implemented. And we would like to thank all of you for your time today and appreciate your ongoing support and enthusiasm for our company. We really appreciate it. Thank you very much and have a wonderful rest of the day.

Thank you. And that does conclude today's conference. We do thank you all for your participation. You may now disconnect.