Weave Communications, Inc.

Good day, ladies and gentlemen, and welcome to the WEAVE Second Quarter 2023 Earnings Conference Call. Our host for today's call is Mark McReynolds, Head of Investor Relations. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host, Mr. McReynolds. You may begin.

Thank you, Morgan. Good afternoon, and thanks for joining us for our second quarter 2023 earnings conference call. Joining the call today are Brett White, CEO, and Alan Taylor, CFO. Brett will open the call with an overview of WEAP's performance, and Alan will discuss our financial results in more detail. After the prepared remarks, we'll take questions. Today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from forward-looking statements. Please refer to the cautionary language in the earnings release and in these filings with the Securities and Exchange Commission, including our most recent Form 10-K and 10-Q, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. We'll also discuss financial measures that do not conform with generally accepted accounting principles. For the sake of clarity, unless otherwise noted, all numbers we talk about today will be on a non-GAAP basis. Information may be calculated differently than similar non-GAAP data presented by other companies. A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release, which can be found on our investor relations website at investors.gateway.com. And with that, I'll turn the call over to Brent.

Thank you, Mark, and thank you all for joining us today. Q2 was another strong quarter of continuing momentum for Weave, and I am very pleased with our team's continued strong execution. Before providing a detailed review of our Q2 performance, I wanted to give a brief overview of our platform for listeners who are newer to the Weave story. Weave provides small and medium-sized healthcare businesses with a single vertically tailored customer experience and payment software platform. helping them unify, modernize, and personalize every interaction with their patients. Our customers are experts in their field of care. We've helped them run their businesses more effectively by unifying a patchwork of point solutions into a single platform that helps them attract, engage, and retain their patients. Our subscription platform includes texting, reminders, reviews, online scheduling, digital forms, email marketing, insurance verification, physical and soft phones, and more. Weave's payments platform enables offices to offer flexible payment options, including via text, email, online bill pay, terminals, and mobile tap-to-pay. SMBs make up the vast majority of businesses in the U.S. We have spent almost 15 years building a platform specific to the needs of the SMB healthcare practitioners. We understand the unique challenges they face and have tailored our platform to address these challenges. SMB healthcare businesses are well capitalized, well managed, and have proven able to withstand the economic uncertainty of the last few years. For example, dental practices are our largest and most tenured vertical and have among the lowest business failure rates of any SMB. SMBs typically do not have dedicated technology staff. so they need software solutions that are easy to implement and manage. They also want to manage as few technology platforms as possible. When SMBs land on a solution that improves their businesses, they tend to stick with it, which is validated by our historically high retention rates. The majority of our customers are in the dental, optometry, and veterinarian verticals. They range from single practitioners with one location to multi-office businesses with dozens of locations. We are expanding our integrations to support several additional specialized medical practices, including family and general practice, medical aesthetics, plastic surgery, to name a few. Weave's platform adds even more value to healthcare SMBs through over 75 integrations with practice management software. These integrations power personalized communications and online scheduling, in addition to automating appointments and recall reminders. Moving on to our Q2 2023 results, we've delivered another strong quarter, exceeding the top end of our revenue guidance for the sixth quarter in a row and posting our second quarter in a row of accelerating year-over-year revenue growth. Total revenue for Q2 was $41.7 million, representing 19.3% growth year-over-year. As a reminder, Q1 2023's revenue growth rate was 18.9%, and it was the first quarter that our year-over-year revenue growth accelerated since 2019. Our revenue growth is driven by continued strong demand for our platform and our growing customer base. In Q2, we also continued to improve the efficiency of our business and make progress on our path to profitability. Our gross margin for the quarter was 67.9%, up 680 basis points from 61.1% in Q2 a year ago, and a sequential increase of 30 basis points from Q1. Additionally, we reduced our operating loss to 9.5% of revenue from a loss of 28.9% of revenue a year ago and a loss of 10.1% in Q1. These margin improvements were primarily driven by top-line growth and continued efficiency improvements. In Q1, for the first time in the company's history, we became free cash flow positive. In Q2, our free cash flow increased to $900,000 from $600,000 in Q1. These results reflect that our vertically tailored software and payments platform is continuing to gain traction as the Weave team is executing with intense customer focus. New customer growth is an area of strength, and our average sales price continued to expand this quarter. In the last couple of earnings calls, we've discussed the concept of a boomerang customer. one who leaves Weave for a competitive solution only to come back a short time later after being dissatisfied with the competitive offering. We are seeing that trend continue and counted over 200 Boomerang customers in the first half of 2023. This trend provides another data point and validates the scope and value delivered by our platform. The improving sales momentum that we highlighted in the last few earnings calls continued to accelerate into Q2. In response to growing demand, we have continued to invest in our sales team and have increased the number of sales reps by approximately 19% year over year. Our confidence in our sales team is high, and we expect to continue to add sales capacity throughout the remainder of the year. In-person events are one of our most important sources of new business growth. In Q2, in-person event sales increased by over 50% when compared to the prior year. We attend larger shows in Q2, and are encouraged by the increased demand coming out of these events. In addition, we continue to ramp our digital demand creation efforts, expanding our reach with new advertising partners. In Q2, sales from digital demand creation increased by over 40% when compared to the second quarter of last year. Turning to payments. Our payments offering enables customers to collect their fees faster with less effort and administrative burden, and we are encouraged by the trends that we are seeing in the payments data. For example, payments volume per location in Q2 was up 12% year over year, which speaks to the strength and resilience of the industries we serve. Last quarter, we announced a multi-year agreement to extend and deepen our partnership with Stripe to expand our payments offerings. We also announced several enhancements to our payments platform, including online bill pay and mobile tap to pay, providing customers with additional options to reduce friction for their patients in the payments process. Online bill pay gives our customers the ability to create, send, and embed a link for their customers to pay their bills online whenever it's most convenient for them. Mobile tap-to-pay allows patients and clients to make contactless payments by simply tapping their smartphone or payment card on the provider's mobile device without the need for dedicated payments processing hardware. Additionally, we made several enhancements to our customer experience platform during Q2. I'll highlight a few that we're really excited about. In our last earnings call, we discussed our response assistance which helps save time using AI to draft responses to customer reviews with one click. Leveraging the same technology, yesterday we announced an AI-powered email assistant that drafts emails based on basic customer prompts. Customers have the ability to edit and personalize emails before sending, saving time as they manage their email outreach and marketing. We will continue to develop and deploy AI-driven solutions for our customers. In Q2, we launched soft phones to help small businesses better serve patients when their staff is not in the office. Now teams can answer calls and communicate with patients without dedicated telecom hardware. Soft phones also provide business owners with increased flexibility to expand their employee talent pool and facilitate remote office management. Our customers' experience is the keystone to retention. And Weave continues to receive positive recognition and validation that our platform delivers best-in-class results. Since 2017, Weave has been recognized every quarter as a leader by G2. These independent reports are based on customer reviews, customer satisfaction, and market presence, recognizing Weave's continuous delivery, the best technology tailored to suit our customers' unique business needs, and address the challenges that they face. In conclusion, we are very pleased with the strong results and continued momentum in Q2. Revenue growth accelerated and our execution and efficiency continues to improve. We are running a tight unit economics-based business and we are getting better at it. I'd like to thank the Weave team for their passion and dedication in serving our customers and thank our customers and shareholders for their continued support. With that, I'll turn it over to Alan to go through our financial results in more detail And then we'll take questions.