• Revenue: USD52.4 million, over 20% year-over-year growth.
• Gross Margin: 72.5%, an improvement of over 300 basis points year-over-year.
• Non-GAAP Operating Income: USD1.4 million, first positive operating income in company history.
• Net Income: USD2.1 million or USD0.03 per share.
• Adjusted EBITDA: USD2.2 million, with a margin of 4%.
• Cash and Short-term Investments: USD98.2 million.
• Free Cash Flow: USD3.5 million in Q3, 70% year-over-year growth.
• Net Revenue Retention Rate: Improved to 98%.
• Operating Expenses as a Percent of Revenue: Improved to 70% from 74% in Q3 2023.
• Sales and Marketing Expenses: USD19.4 million or 37% of revenue.
• Research and Development Expenses: USD8 million or 15% of revenue.
• General and Administrative Expenses: USD9.2 million or 17% of revenue.
• Full Year 2024 Revenue Guidance: USD202.7 million to USD203.7 million.
• Q4 2024 Revenue Guidance: USD52.6 million to USD53.6 million.

• Warning! GuruFocus has detected 8 Warning Signs with HESM.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Weave Communications Inc (NYSE:WEAV) reported a revenue of USD52.4 million for Q3, representing over 20% year-over-year growth.
• The company achieved positive Non-GAAP operating income for the first time in its history, with a USD1.4 million operating income.
• Gross margin improved to 72.5%, marking the 11th consecutive quarter of gross margin improvement.
• The new Weave platform, a significant product launch, strengthens market position with advanced AI features and seamless integration capabilities.
• Weave's partnership with Affordable Care, the largest dental support organization in the U.S., demonstrates successful integration and operational efficiency improvements.

Negative Points

• Despite improvements, the company still faces challenges in increasing its net revenue retention rate, which stands at 98%.
• The transition to the new Weave platform may face resistance from customers comfortable with the legacy system.
• The company is not currently targeting large hospitals, potentially missing out on a significant market segment.
• There is a dependency on building integrations with practice management software to enter new verticals, which could slow expansion.
• Price adjustments, although periodic, may face resistance from customers if not matched with perceived value increases.

Q & A Highlights

Q: When could the new Patterson relationship start to have a bigger impact on the pipeline top of funnel? A: Brett White, CEO, explained that the impact is already being observed. After training Patterson's sales reps and integrating their systems, Weave is seeing higher conversion rates and increased bookings. The momentum is expected to continue.

Q: Can you discuss the momentum in specialty medical and how the new Weave enterprise platform could expand your reach into hospitals? A: Brett White, CEO, noted that specialty medical is fragmented, and success is driven by integration with practice management systems. The new Weave enterprise platform is designed for multi-location practices, not large hospitals, but offers significant opportunities in small and medium-sized practices.

Q: What are the biggest opportunities to increase Net Revenue Retention (NRR)? A: Alan Taylor, CFO, highlighted payments as a key area, with increased take rates and new upsell products like call intelligence and bulk messaging. Brett White added that integrating more with existing customers' systems enhances functionality and retention.

Q: How do you manage price adjustments and extract more value from premium features? A: Alan Taylor, CFO, explained that price adjustments are made quarterly based on customer cohorts and product changes. The focus is on delivering value, especially through payments integration, which helps improve office operations and justifies price increases.

Q: What are the drivers for future margin improvement, and where could terminal gross margins end up? A: Alan Taylor, CFO, mentioned that payments product expansion, amortization of phone components, and operational efficiencies are key drivers. Long-term, Weave aims for gross margins between 75% and 80%.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.