Greetings and welcome to Weave Communications Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mark McReynolds, Head of Investor Relations. Thank you. You may begin.

Thank you, Rob. Good afternoon and thank you for joining us for Weave’s third 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 Weave’s performance and Alan will discuss our financial results in more detail. After the prepared remarks, we will 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 the forward-looking statements. Please refer to the cautionary language in the earnings release and in Weave’s 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 these results to differ materially from the forward-looking statements. We will 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 maybe calculated differently than similar non-GAAP data presented by other companies. A reconciliation between these non-GAAP and GAAP financial measures is included in our earnings press release, which can be found on our Investor Relations website at investors.getweave.com. And with that, I will turn the call over to Brett.

Thank you, Mark and thank you to everyone for joining us on this call today. Before diving into our Q3 performance, I’d like to provide a brief overview of Weave for those of you who are new to our story. Weave provides small and medium-sized healthcare businesses with a vertically tailored customer experience and payment software platforms, helping practitioners to modernize and personalize every interaction with their patients. Our customers typically do not have dedicated technology staff, so they need software solutions that are easy to implement and manage. Weave unifies a patchwork of point solutions into a single platform that helps attract, engage and retain patients. SMBs make up the vast majority of businesses in the U.S. and we have spent almost 15 years building a platform specific to the needs of SMB healthcare practitioners. These businesses are well-capitalized, well-managed and have demonstrated their resilience, even through economic challenges of recent years. Moving on to our Q3 2023 results. Weave had an excellent quarter, and I am very pleased with the team’s execution, delivering another quarter of both year-over-year and sequential quarterly improvements in revenue growth rate, gross and operating margin, adjusted EBITDA and free cash flow. Revenue for Q3 was $43.5 million, representing 20.2% year-over-year growth. We exceeded the top end of our revenue guidance for the seventh quarter in a row, and we vested our third quarter in a row of accelerating year-over-year revenue growth. This growth was driven by continued strong demand for our platform and our expanding customer base. During Q3, we saw increased demand from both digital channels and in-person events, and we continue to add capacity to our sales team. In addition to our core vertical of dental, optometry and veterinary, we saw increased demands from additional specialty medical providers and continue to…

Thanks, Brett, and good afternoon, everyone. As Brett mentioned, we delivered strong performance in the third quarter on both the top and bottom line. We delivered third quarter revenue of $43.5 million, reflecting 20.2% growth year-over-year. This represents a $1.3 million or a 3% beat over the midpoint of the range we provided last quarter. Our net revenue retention rate was 95% in Q3. As a reminder, the NRR calculation is based on the last 12 months of data and therefore, is burdened by the impact of the previously discussed transition from a third-party digital forms product to an in-house developed digital forms product. When we look at NRR on a monthly basis, both September and Q3 were the highest of the year primarily due to positive adoption of payments and software up-sell. Gross revenue retention rate remained at 92% for Q3, among the best-in-class for SMB retention, and logo retention has been consistent for over 2 years. Moving on to operating results. As a reminder, I’ll be referring to non-GAAP results, unless otherwise stated. Our Q3 results showed significant improvement across the board. Gross margin was 69.3%. This represents a 470 basis point increase year-over-year and a 140 basis point increase sequentially. As we approach the second anniversary of our IPO, we wanted to highlight the progress that we have made since our first earnings call. Gross margins have improved by over 1,000 basis points. The improvement is due to higher average revenue per location and leveraging our cost structure. Here are some examples of the leverage. We reduced hardware costs by over 300 basis points as a percentage of revenue in the past 2 years, connectivity and cloud infrastructure costs by over 200 basis points and cost of service by over 450 basis points. We have engineering and…

Thank you. [Operator Instructions] Our first question comes from Alex Sklar with Raymond James. Please proceed with your question.

Thank you. Brett, starting with you. On some of the newer bundle changes, I think you’ve got a higher tiered bundle now in market north of $700 a month. Can you just talk about what you’re seeing from customers in terms of initial purchasing patterns between your three bundled peers? Are you still landing with your largest bundle in kind of – of the three, despite it being a larger dollar total? Thanks.

Hey, Alex, this is Alan. I’ll take that one. We are landing there. The bulk of the sales that we do – the majority of the sales we do are on that highest bundle, which is called Weave Elite. And so we’re pleased with that. That’s helped us to maintain our ARPU, our average revenue per location. And we’re seeing that trending up at the highest level we’ve had in Q3.

Okay. That’s great to hear. And then maybe as a follow-up. Brett, in terms of overall demand gen, I know the live events have kind of been a tailwind this year. Can you just talk about kind of the success in the maturity of some of the other digital demand gen motions? Are there any KPIs you can kind of share that – relative to kind of this time last year in terms of if that’s improved?

Yes. So we – good point, Alex. We’ve talked a lot about events. Have those have been picking up? They have been picking up for the last several quarters. We’re still not back to pre-pandemic levels. I don’t know if we will ever get back there, but they have performed well this year. And then on the other demand gen front. Digital demand, we’ve seen pretty meaningful improvements there across the board. I don’t have any metrics I can share with you, but I can share with you that lead gen and the performance of those channels exceeds our revenue growth rate on a kind of a year-over-year growth basis. So I think events were picking up throughout the year, and then kind of the digital demand efforts have picked up as well, especially, I think, in the second and third quarter.

Okay, that’s great color. Thank you, both.

Our next question is from Mark Schappel with Loop Capital Markets. Please proceed with your question.

Hi, thank you for taking my question. Nice job on the quarter. Brett, starting with you. With respect to the 4Q revenue guide, it appears that growth is ticking down a few points. Should we just chalk this up to just standard conservatism? Or do you see some headwinds out there that may cause concerns? And maybe you could just kind of roll that into a broader commentary on what you’re seeing macro-wise.

Sure. So our guide for this Q4 is using the same methodology we’ve used for the last seven quarters, which is to put up a guide that we have a high level of conviction in. So there is nothing seasonal or ominous about our outlook for Q4. So that would be the first answer. And the second answer is we saw, again, strong performance in Q3. Our digital demand sales were up pretty meaningfully year-over-year. As I mentioned in my previous answer, ASPs were up. We announced our customer passing the 30,000 customer threshold. So customer acquisition was up. So pretty good results. Pretty good results on the demand side in Q3. And then going into Q4, knock on wood, we hope that trend continues. We’re not trying to imply anything with our Q4 guide at all. That’s the same methodology we just always use.

Great, thank you. That’s helpful. And then, Alan, bringing you into the mix here. Given that the company has now lapped the digital forms transition, when should we expect NRR to stabilize or maybe even turn back up? I realized it’s a trailing 12-month metric.

Yes. So Mark, the trailing 12-month metric will mean that, into Q4, we will see some of the same thing just because of that. But as we mentioned in Q3 and in the recent months, with that trend has already begun just to go back up. So it will be sometime next year where we will really start seeing that in that 12-month trailing metric.

Great. Thank you, that’s all for me.

Our next question is from Parker Lane with Stifel. Please proceed with your question.

Hi, guys. Thanks for taking the questions. And congrats on the strong results here. Brett, multi-location is an area you’ve talked about as an intriguing growth driver of this business. And I know you’ve discussed some innovation you’re bringing there. But curious if you can talk a little bit about go-to-market there and how that differs from the single location or traditional approach that you’ve had?

Sure. So, we have a different team, a totally separate sales team that focuses exclusively on multi-location. Not surprisingly, multi-location is a longer sales cycle. And so really, the trick there is to make sure that you have got the product to support that market. And then once the product gets there, then going out and either developing or further nurturing the pipeline. And I think we have got, as I mentioned, our new kind of next-gen user experience, we are rolling that out to select customers this month, and we will be getting feedback there. So, kind of the first half of the year, I have been talking about how we have been working on multi-location products, and we expect that the second half to start dropping some releases that were meaningful. And so that’s starting to happen. And we are very excited about that. So, as these products roll out, we get traction, we get good feedback from the customers. We make any tweaks we need to, then we can really lean into demand gen and the go-to-market activities on the multi side. And also, I mentioned that we had just signed an agreement to integrate quite deeply with the Dentrix Ascend platform. That’s their cloud version of their practice management software, and it’s particularly focused on multi-location. So, that’s very exciting for us as well. So, I think we are kind of steady course and speed on building the product and then developing the pipeline for our multi-location business. And I think we are in a good place there.

Got it. And one for you, Alan. You have accelerated three straight quarters now. At the same time, you are not far away from breakeven in terms of absolute dollars. I know you are not guiding to ‘24, but how should we think about that pace of margin expansion, the achievements of breakeven on a sustainable basis? Is that something that we should expect next year?

We will continue to see margin expansion. We have said in the past, Parker, that will – longer term, Weave is a 75% gross margin company. The trajectory that we are on, you can count on that continuing, although the rate may slow a little bit just because we are balancing our strong desire to grow with our absolute commitment as well to move towards profitability. And so we will continue to balance that with a preference for growth, and that’s the way that we are looking at 2024.

Understood. Appreciate the color there. Thanks.

Our next question is from Michael Funk with Bank of America. Please proceed with your question.

Hi. Thanks for the questions. So, I appreciate the comments you made on increased demand from in-person and digital events. I also know you put a lot of effort into the sales force revamp. So, any additional color on sales force productivity? How the newer salespeople have ramped up and how that’s contributing to gross additions?

Sure. So, this is Brett. We have made really significant progress. And this is, I think – kudos to the sales leadership team and the model that they have put in place. The time to – for sale, the time to ramp for sales reps today, I think is about half or maybe a little bit less than half than it was, say, a year ago, which is what gave us the confidence to start adding sales capacity starting at the end of last quarter and then throughout this quarter. So, in individual efficiency, the sales organization is getting more efficient. But when you add new reps that are not yet ramped, the aggregate efficiency kind of stays flattish. But they are really executing well. And pretty much all of the sales metrics individually, based on ramp reps, has improved pretty much every quarter. Alan, would you add anything there?

No. Other than the model that has been put in place by the sales team is working, the machine is predictable now, and so the inputs are very easy to make when they are warranted.

Great. And then one more, if I could. The November integration with the Dentrix cloud version, you mentioned opens a new opportunity for you, new market. Can you quantify that new market? I mean how many locations that might be? How large you think that is?

Well, so their entire location-base is around 100,000. And they, like most practice management software vendors, started with on-prem solutions and then adopted a cloud version. And I think eventually, over time, new customers will be onboarded on the cloud version, and then legacy customers would be upgraded to the cloud conversion. So, I think the important part is the opportunity for that platform long-term versus how many customers they have today. And so that’s what we are really excited about. Our product is incredibly valuable and sticky when it’s integrated with the practice management software. So, being able to provide this integrated solution to the Dentrix Ascend platform is exciting, frankly, for both of us.

Understood. Thank you.

I would just add. Sorry, Michael. I would just add that the – some of the near-term prospects associated with that Dentrix Ascend integration are the multi-office ones. And so that is an element that we are excited about.

Understood. Thank you so much for the time.

[Operator Instructions] Our next question comes from Brent Bracelin with Piper Sandler. Please proceed with your question.

Hi guys. This is Hannah Rudoff on for Brent today. Thank you for taking my question. Nice to see the continued momentum in the business. Just one for you, Brett, I guess how often are you signing payments in the initial deals? And then how are you incentivizing that adoption of the payment products earlier in the motion rather than later?

So Hannah, I will take that one. At the point of sale, I think we are still between about 20% and 25% at the point of sale signing up payments customers. And we are doing a better job now and really working to penetrate into our existing customer base by giving them more and more on-ramps using digital means to take customer payments.

Alright. Helpful. And then a few…

And there was – sorry, go ahead. I was going to say that was the second part of the question?

I was just asking about incentive looking at adoption sooner rather than later, but it sounds like you are trying to build it into the existing motion more than the initial land motion?

Yes. There is – we are approaching it from both vectors. One is that new customer land. And we have experimented where in the actual new customer journey is the most effective way or most effective place to make – to close a payments deal. And I think we have got that one figured out. And then the next really activity would be turbo-charging the up-sell activity. And so that’s definitely very much in the works as well. Part of our adding capacity to the sales force in the third quarter was adding – ensuring that we had adequate and appropriate resources for the up-sell motion because I think we have got a lot of opportunity to up-sell the software as well as payments.

Okay. That makes a lot of sense and good to hear. And then just my follow-up is that, a few weeks ago, I saw you released an integration with Booker by Mindbody. And I was wondering if this signals a more concerted effort to expand into the beauty and wellness vertical?

It’s actually Med Spa. So, Booker is – know a little bit about the business. Booker is very strong in Med Spa. So, we have talked about our next batch of specialty medical verticals. It’s Med Spa. It’s plastic. It’s general practitioner. And it’s physical therapy. So, we actually did two integrations we press released on the Med Spa space.

Thank you.

We have reached the end of the question-and-answer session. I would now like to turn the call back over to Brett White for closing comments.

Yes. Thank you. Thank you all for joining us today and an additional special thank you to the Weave team for just delivering another terrific quarter. And we look forward to our next call in February. So, thank you.

This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.