Greetings, and welcome to the Weave Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark McReynolds, Head of Investor Relations. Thank you. Mr. McReynolds, you may begin.

Thank you, Camilla. Good afternoon, and thank you for joining us for our fourth quarter and full-year 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 welcome to everyone joining us this afternoon. I'd like to kick off the call by welcoming David McNeil to our leadership team as Chief Revenue Officer. David brings over 25 years of experience in scaling SaaS businesses, leading sales, customer success, revenue operations and payments team. He spent six years at HubSpot, where he was instrumental in leading sales teams as the company grew from $90 million to nearly $1 billion in annual recurring revenue. He also served as the Chief Commercial Officer at Tebra, a leading automation platform for independently owned healthcare practices, and in leadership positions at Salesforce and Bank of America. We're excited to leverage David's expertise as we continue to execute on the multiyear opportunities that we have in front of us. Now, I'd like to provide a quick overview of Weave for the benefit of those who are new to our story. Weave provides a vertically tailored software solution to small and medium-sized healthcare practices, offering a seamlessly integrated customer experience and payments platform. We empower practitioners to focus their time on patient care while we streamline communications, engagement, and payments. SMBs make up the vast majority of businesses in the U.S., and we have spent the past 15 years building a platform specific to the unique requirements of the SMB healthcare practitioners. A dentist, optometrist, or veterinarian typically does not employ their own team of IT professionals, so they need software solutions, like Weave, that are easy to set up and use. Weave unifies the disparate patchwork of point solutions that many of these practitioners presently use, simplifying the process of attracting, engaging, and retaining patients. Now, I'm excited to share some of the highlights from Q4. Weave delivered another strong quarter, capping off a terrific year in which we…

Thanks, Brett, and good afternoon, everyone. We had an excellent quarter, delivering fourth-quarter revenue of $45.7 million, reflecting 21.2% growth year-over-year. This represents $1.7 million, or 4% beat over the midpoint of the range we provided in November. Our net revenue retention rate remained at 95% in Q4. As a reminder, the NRR calculation is a trailing 12-month calculation. On a monthly and quarterly basis, we are already seeing NRR improving, and we expect to see our reported metric improve in 2024, primarily due to positive adoption of payments and software upsell. Our gross revenue retention rate remained at 92% for Q4, among the best-in-class for SMB retention, and logo retention has been consistent for over two years. Moving on to operating results, as a reminder, I will be referring to non-GAAP results unless stated otherwise. Our Q4 results showed significant improvement across the board. Gross margin was 69.7%. This represents a 300 basis point increase year-over-year. Our engineering and operating teams are focused on providing an exceptional customer experience and doing so while remaining efficient and expanding our margins. In Q4, operating expenses were $33.6 million, a $4.2 million increase from last year, compared to an $8 million increase in revenue for the same period. Our operating loss was $1.7 million, an improvement of $2.5 million, or 59% compared to last year, and $800,000 better than the midpoint of the guidance we gave in November. The corresponding operating loss margin of 3.8% is a significant improvement from the operating loss margin of 11.2% last year. Our net loss was $800,000 or $0.01 per share in the fourth quarter based on 69.7 million weighted average shares outstanding. This is compared to a net loss of $3.7 million dollars or $0.06 per share last year. This represents a $2.9 million improvement…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Alex Sklar with Raymond James. Please proceed with your question.

Great, thank you. Brett, a lot of investment into the integrations in multi-office functionality that you kind of alluded to in your prepared remarks, specifically as in regards to the 75,000 locations you added to the integrated platform in the past year, I'm curious if you can just provide some color on tangible results from adding those locations? Are you seeing an increasing mix of customers coming on that have that functionality with the integrated functionality built in? Thanks.

Sure. So, what we -- we obviously track return on investment in all of our integration activities on the dev side and throughout the business. And what we've seen is specialty medical, which is where we are pretty deeply penetrated from an integration perspective in dental optometry that probably our latest and most significant integration there was the Dentrix Ascend platform. I mentioned in my prepared remarks we picked up pretty strong demand, both existing customers and new customers since we've released that integration. So, that's one proof point. But we've been focusing a lot on specialty medical outside of dental optometry that -- and that's actually our fastest growing segment right now. And it actually just passed veterinarian as our number three vertical. So, we're definitely seeing tangible results in our additional integration work that we're doing, both in dental and vet, and especially medical.

And that's great context. And maybe I'll kind of follow up on that -- your answer to that last point. As specialty medical passes into that number three vertical, what's the right way to think about the linearity of location growth that occurred in 2023? As you formally stood up specialty medical, did you see your location count on a growth basis increase as the year progressed? And then with that, as we think about the 2024 outlook, what was the right way to think about what you're embedding into the outlook from location standpoint? Thanks.

Sure. So, linearity, I think on location count, so I mentioned in my prepared remarks that customer acquisition improved each and every quarter. So, each quarter was a little bit better than the other one, and that came from a mix of what I'll call our four verticals now, dental, optometry, vet, and specialty medical, with specialty medical being the higher growth one. I'm thinking that dental was still the major contributor. Yes, I got a nod from Alan there. And then how we're thinking about unit growth in 2024, I think we just continue to plan to add both, on an increasing basis, gross and net new customers throughout the year. And I think you can probably just maybe back into it from the revenue guide.

Okay, great. Thank you very much.

Thank you.

Our next question comes from the line of Brent Bracelin with Piper Sandler. Please proceed with your question.

Thank you. Good afternoon, great to [indiscernible] the quarter here, fast, solid execution. Brett, I wanted to double-click into the new hire. Obviously David brings a lot of scaling expertise. What do you have him focused on and what are his priorities as you think about the opportunity in 2024?

Yes, thanks, Brett. It's a great question. So, when I was interviewing CRO candidates, pretty much every single one of them asked me, "What's broken? What do I need to fix?" And the answer is, is nothing. Sales function is executing really well, it's very well managed. So, that gives us the opportunity to leverage David's talent in really helping us get our business from where we are now, $170 million to $500 million. He's seen growth and scale, HubSpot from $90 million to $1 billion; he's had senior roles at Salesforce. And so, his role really is focusing on scale. Some of the scale opportunities we have right now are we're on a multi-year journey with a multi-location business segment. We have a payments business that I think we can do a better job at, and we frankly haven't had a dedicated leader in payments. So, that's one of the top priorities. And then, also being the revenue partner on strategic partnerships. We're just starting to scratch the surface on growing the partner side of our business. I think through maybe the mid last year, we were definitely an inside sales organization. And I think partnerships are going to be an important part of our future over the next several years. So, David partnering with our Chief Strategy Officer and our strategic partners group is hopefully where he'll spend his time, but really just being a been-there-done-that person helping us scale.

Absolutely helpful color there. And then one quick follow-up on specialty medical, a little surprised that actually is growing fast enough to overtake veterinarian. What's driving the momentum there? Is it just a much larger TAM? And it's now just starting to overtake that? Is it some partnerships that have sparked some interest? Just curious what's driving the outsized success here in specialty medical here this quarter? Thanks.

Sure, I'd say it's a few things. So, TAM, for sure. Our inbound has always been pretty meaningful for specialty medical, and that inbound demand has been growing. So, when we layer on integrations into specialty medical, we can actually now offer the full functionality of Weave into some of these adjacent verticals where we've been seeing inbound demand but haven't really been able to satisfy that demand with a fully integrated product. So, it's a combination of TAM, growing number of integrations, and product market fit around that, and then just the increasing inbound demand that we're seeing from that segment.

Helpful color. Thank you.

Thank you.

Thank you. Our next question comes from the line of Mike Funk with Bank of America. Please proceed with your question.

Excellent. Hi, this is Matt on for Mike Funk. Appreciate the question. So, sounds like you're going to be facing some tougher comps on the payment side, starting in 1Q. But can you help us understand the shape of expected revenue growth in '24? And then can you breakdown a little further the components driving the fiscal '24 guidance between location, ASP growth, retention-expansion, et cetera, and where you see the highest potential for upside? Thanks.

Sure.

Sure, thanks, Matt. First of all, with respect to the shape of the revenue growth, I think you're going to see some consistency with what you've seen in 2023 in terms of that revenue growth. There's the partner team and their efforts on both the integrations front as well as other avenues of partnerships that we're looking into is probably the biggest source of upside for the year. And so, we're looking at that. I think that the -- you mentioned payments, but there the bigger actually piece of the difficult compare in Q1 has to do with the onboarding revenues that we recognized. If you look at the information in the disaggregated revenues, you'll see that that was 150% growth year-over-year in those onboarding revenues. We're now at a healthy spot. And while we'll see growth consistent with the growth in onboarded customers, it's just not going to be at the same rate as the rest of them. So, again, shape, fairly consistent. Upside is going to be around partnerships. And the comps are just normal course of business where we'll continue to see those benefits. They just won't be as big in Q1 as they were last year.

Super helpful. Thank you.

You got it. Thanks, Matt.

Our next question comes from the line of Parker Lane with Stifel. Please proceed with your question.

Hi, guys. Thanks for taking the question, and congrats on the quarter, and the continued acceleration here, lots of new payments capabilities being launched in the second-half of the last year. Curious if you could give us an idea of the impact that you expect that to have on adoption and attach rate to payments? And just the overall expectation around payments growth when you look out over the next few years?

Sure. So, I'll start with an answer. So, I think I continue to believe that we have a really significant opportunity in payments. And it's really, the key to that is getting Weave's payments functionality integrated into the workflow of the office. And the way we do that is we add more of these terrific features, functionality, just make it a much more compelling offering. And then the -- and in training the offices on the functionality and helping them make the move. And it's really -- they don't really care which platform they process on, they just want it to work really well. So, as we develop more of this functionality and then integrated it better into their office workflow is where we'll see continued adoption. So, we're currently less than 10% of revenue is payments, and because if we were more you would see it in our financials. But it's growing as a percentage of revenue; it's growing faster than subscription revenue, even though subscription revenue has accelerated. And we expect it to continue to do that. The other thing we're working, as I mentioned, one of the activities that David McNeil is going to overtake is payments is going to report directly him. And one of his top priorities is recruiting a dedicated general manager of payments for us who just walks the floor every day; figuring out how do we get more integrated into the workflow, get greater adoption, greater usage. And then I think that those are kind of a couple key pieces necessary for our success. And I really think we can grow payments, both in total but also as a percentage of our revenue pretty meaningfully over the next several years.

Got it, very helpful. And then, you also called out a pretty material improvement in employee attrition rates from '22 to '23. Wonder if you can go into a little bit more detail on what measures you undertook to actually achieve that outcome, and how that's translating into productivity gains across different areas of business?

Sure. So, I'll give my opinion, and Alan, you can give your opinion because you've been here a lot longer than I have. A few years ago, when I joined, it was -- I think we lacked real clarity on what it is we were trying to accomplish as a business, what were our priorities, what we were going to work on, what we were not going to work on, and then also really pushing down ownership of business operations. So, starting last year, we brought the whole company together in a kickoff. We were very explicit in what our priorities are. We announced our four focus areas for last year, and then we built projects across those focus areas that every single employee who was part of that project work knew what they were working on, why they were working on it, and what the expected outcome was and how it impacted the company. And then, we also started increasing accountability and ownership by a number of different tools. One of them we call Vital Signs, it's every Tuesday morning, the leadership of the company gets together and spends 30 to 45 minutes going through all of the results of the business for the previous week, and it really, really created synergistic understanding and behaviors where all the functions were working together to kind of generate the desired outcomes, and it was measured every single week. So, people could see success where functions were having challenges, teammates jumped in to help them, and it's really -- it's actually, frankly, been magical to watch. So, I'll pass it up to Alan.

Yes, all of those things that Brett mentioned are absolutely key to what we've been doing since its inception. The founders of Weave said, "Hey, people are the real heart of why we can grow and make this a great business." When Brett came in, his mantra as he introduced himself was be kind to people and be tough on the business, and that serves us very well. We want to be aggressive, but we love being around people. We love working together. We want a collaborative environment, and so we've done that. And then, obviously just the macroeconomic environment, Weave has been growing in 2023, adding personnel as we've gone through the year, and that's been somewhat unique, not only nationwide, but here along the Wasatch front where we're located, and that always is a benefit with respect to the employee environment that you can create. So, that's what I would add to that question.

Understood. Thanks, guys. Congrats again.

Our next question comes from the line of Jacob Staffel with Goldman Sachs. Please proceed with your question.

Hey, guys. Thanks for the question, and good to see another strong quarter. A lot of good questions ahead of me, so I just want to wrap up maybe a couple more admin things here, but in 4Q, 1Q, 2Q, and 3Q, you all noted boomerang customers, and unless I missed it on the call, I don't think it was noted. So, first question would just be around how many boomerang customers did y'all see this quarter, or any color you can give around that would be great.

Sure. I'll take a crack at that. So, the reason we introduced the concept of boomerang customer was really in response to a competitive question. We got a competitive question, and we said, "Well, let's actually dive in there and understand what's happening." So we introduced the comment -- the concept, and we talked about it, I think you're right, for four quarters in a row, and this quarter was basically the similar results that we've seen all year, maybe a little bit more, but we really kind of said, "Well, let's just stop talking about it," because we've proven our point. The trend is the same, and it's really not a key metric that we focus on internally in the business. It was good to watch. We do keep an eye on it, but it's not a key metric, so we're just not going to report it anymore, mostly because it's just a continuing, pretty consistent trend.

Got you. Okay. That makes perfect sense. And then, the other question I had was around the assumptions that were baked in into guidance. If I look at the progression of growth in 2023 initial guidance was for 11%, and y'all ended growing 2023 at 20%. So, can you just talk about the guidance assumptions that you're making for initial guidance and where there might be upside or continued pressure that we should be aware of as we progress throughout fiscal '24?

Sure. So, let me start by just talking philosophy. The business is doing well. You saw in Q4, the business continued to do well. Demand continues to grow. We continue to execute well. So, that's, I'd say, probably the most important point to take away. The sales team is performing very well. We saw good customer volume growth. So, if you look at, like, year-over-year, almost average volume per customer, that grew in '23. So, the customer's businesses are doing well. But we are very focused on providing guidance that we have high confidence that we can deliver on. And our philosophy has not changed. It worked for us in '22. It worked for us in '23. We kind of beat it eight quarters in a row. So, we're sticking with that guidance philosophy in '24. And I can let Alan fill in any details if you'd like.

Jacob, I think Brett nailed it. No change in the philosophy. We are going to continue to just have high conviction about what we present to the street and continue on the march forward.

Perfect. Thank you so much guys. I really appreciate it.

Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.

Yes, thanks for taking the question. So, on the specialty medical vertical, can you just talk about some of the integrations that you're working on, kind of other product-specific capabilities that you think could be an unlock for that vertical? And then I guess, is there any further, yes, I think you have motions around things like plastic surgery, medical spas, physical therapy. Is there any kind of other further segmentation that you're planning within specialty medical? Thank you.

Sure. So, I'll start. I think there's maybe 20 sub-verticals in specialty medical. Yes. And so, I called out four of them, physical therapy, medical aesthetics, med spa, general practice. And those are the ones that I'd say we're primarily focused on building product-market fit around those. As far as the work that was done, and also plastic, sorry. The work that's done is really on two fronts. Well, really three fronts. Building the integrations, so integrating to their practice management or EMR software and integrating them into Weave, that's number one. Number two, deepening existing integrations, so there are different levels of integration that you could write and the more integrated you get, the more valuable the product is, so deepening existing integrations. The third piece is really developing very crisp go-to-market and brand recognition, a lot of these newer or especially medical sub-verticals that are new to us, we don't have great brand recognition. And so, building that brand recognition in a very focused way is important to us. And I think driving a lot of success. So, that's why we kind of take the 20 plus, break it down to three or four that we're really going to focus on now and then just go through and knock them off.

So, I'll just add one, a couple of things to that. Number one, we are developing these relationships with these integration partners and the practice management, EHRS, PM providers, going in the front door. We're developing those relationships. We want to have deep and we're not doing the backdoor stuff like some of the competitors do. The second thing that I would add is just with the leadership of the group that's heading that up under our chief strategy officer, we now have a much more disciplined approach to the way that we're going after this. We've got a roadmap, we've got objectives, we've got, we know the targets. We can't speak publicly about all of those, but as we continue to delve in there, I see great things ahead with respect to the opportunities to both deepen and create those new interactions and integrations that will open up the TAM for us.

Just let me add one more comment here. Just the difference between a front door integration and a backdoor integration is pretty important. A front door integration is where we have an agreement with the software provider, the practice manager software provider, and our integration is supported. They approve of it. We only do things that we're supposed to do and are allowed to do, and then they actually support us in that integration. They support their customers. A backdoor is kind of an unauthorized integration where a vendor would go in and attempt to connect to the software without agreement with the company, sometimes referred to as a hostile integration, and our focus is on front door.

That's helpful. Thanks for all the comments. So, just the last question I had, a couple follow-ups as we think about the outlook, so on the new customer front, encouraging to hear and see the pickup in new ads of locations. This year, do you think that that further accelerates next year now that you're really leading into these TAMs that just frankly have a lot higher locations? And then secondly, Alan, appreciate the detail on NRR, would it be fair to say that you're expecting higher NRR in 2024 versus 2023? Thanks.

So, Tyler, yes. On the second question, as we get into the second-half, given what we're already seeing, we can say with confidence that we're going to see that in the second-half of the year, just given that 12-month trailing metric that the NRR is currently on. And the new customers is -- I think, the new customers will follow the same pattern that we've seen with the exception that we're, I do think that the partnership opportunities are going to accelerate.

Thank you.

Thank you. Our next question comes from the line of Mark Schappel with Loop Capital Markets. Please proceed with your question.

Hi, thank you for taking my call and, or my question, excuse me, and nice job on the quarter here. Brett, starting with you, on prior earnings calls, you noted that the product development group was working on building your next-gen platform. I was just wondering if you'd just give us a sense of when that will be released this year and just maybe some of the benefits financially you may expect to derive from it in the coming year.

Sure, you bet. So, really, there's two desired outcomes from our next-gen platform. If you're familiar with our product, current product, it's basically an app that sits on the desktop. It kind of looks like an iPhone, and right now we put all of our functionality into that app. So, the first outcome that's desired by the next-generation platform is to move the current functionality from the legacy app into a more dynamic app. So, an app where you can grab the corners and make them larger or smaller and move them around, and that's easier for the customer and it's easier for us because we can move more functionality into the app. We're no longer constrained by real estate. And also, the other piece of that is to move that functionality to the web. So, you can either work in the app, kind of like a slack, or you can pull up the web version of it. And getting the functionality the same from the legacy app to the new app to the web, just as it kind of occurs over time, the majority of the way there, we're fully done on some functionality and we're the majority of the way done on some of the remaining functionality. So, definitely should happen this year, hopefully around midyear. So, that's the first outcome. And then, the second outcome is adding multi-functionality. So, functionality that makes the product much more usable and useful to multi-location offices. So, for example, being able to manage multiple email inboxes at once, doing multiple texting activities. So, basically, you can pick a pick list and either pick from one office or all 10 offices or three of the seven offices, whatever you want to do. So, it's really around those two outcomes that they're working on. We currently opened it up to early access late last year. I think we've got over a thousand customers on it, using it, testing it, playing with it. And so, I would say we're in a very good place there. The responses and the feedback that we've gotten has been quite good. We're not selling it quite yet, but we are showing it to select multi-location customers. And I think this will continue to improve, embed the legacy functionality into the new platform over -- throughout 2024.

Thank you. And then, building on an earlier question, I was wondering if you'd just give us maybe a little bit of an update on your hiring plans for the year, particularly on the go-to market side.

Right. So, we added sales capacity in 2023. We clicked it up a few notches in Q3 and Q4, so we could make sure that we've got the sales capacity we need kind of every quarter, but certainly throughout 2024. I expect that everything goes the way we hope and plan it will, that we'll continue to add sales capacity throughout 2024. And then, I think we've got some additional hiring planned in product and engineering. Anything else you want to add, Alan?

No, I think those are the key elements. We will grow across the board, and obviously we will gauge that growth on continued execution and making sure that the metric's supported.

Great, thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to CEO Brett White for closing comments.

Okay. Well, thank you again for your continued support, and thank you to the entire Weave team for delivering another terrific quarter, and we'll talk to you in our next call.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.