Summary
Weave Communications reported FY2023 Q2 revenue of $41.7 million, up 19.3% year over year. Gross profit was $28.0 million, up 32.4%, and gross margin was 67.3%, up 6.7 percentage points. Non-GAAP gross margin was 67.9%. For the first six months of fiscal 2023, revenue was $81.2 million, up 19.1%, gross profit was $54.6 million, up 34.1%, and gross margin was 67.2%, up 7.5 percentage points. The company said the quarterly revenue increase came mostly from new customers acquired after June 30, 2022, with a smaller contribution from existing customers. Cost of revenue edged lower because of reduced cloud, phone hardware, and connectivity costs, plus a favorable mix as more customers had fully depreciated phone hardware. Weave continues to sell mainly to dental, optometry, and veterinary practices and is expanding into additional medical verticals. The quarter showed the company can grow the top line while improving unit economics.
Profitability improved in the quarter. GAAP loss from operations was $9.8 million, a narrower loss than the prior-year quarter. GAAP net loss was $9.0 million, or $0.13 per share. Non-GAAP loss from operations was $4.0 million, and non-GAAP net loss was $3.1 million, or $0.05 per share. Operating margin was negative 23.6%, up 18.2 percentage points from the prior-year quarter. Adjusted EBITDA under the revised definition was negative $3.0 million, compared with negative $9.2 million a year earlier. For the first six months of fiscal 2023, GAAP net loss narrowed to $16.8 million, or $0.25 per share. Operating cash flow was $3.1 million for the six months. Net cash provided by operating activities was $1.6 million in the quarter, up from net cash used in operating activities a year earlier. Free cash flow was $0.9 million, up from negative free cash flow a year earlier. That swing from cash consumption to cash generation matters for a company that has historically leaned on its balance sheet.
Retention and product momentum were mixed. NRR was 96% as of June 30, 2023, while the MD&A table lists 102% at June 30, 2022. GRR was 92%, compared with 94% a year earlier. Approximately 40% of customer locations elected annual prepayments as of June 30, 2023, compared with approximately 41% as of June 30, 2022. Weave launched Softphones and Online Bill Pay during the quarter. The platform ranked first in 20 categories in G2's 2023 Summer Report and won 25 badges. Management said the deployment of the Weave phone system increases stickiness and customer loyalty. Deferred revenue was $36.8 million on June 30, 2023, up 14.1% from the prior-year quarter. Deferred revenue covers billed but unrecognized subscription fees, so its growth offers some visibility into future revenue. The softening retention rates are the item to watch, since they feed the subscription and payment processing gross margin that reached 76% in the quarter.
Guidance covers the next quarter and the full fiscal year. Weave updated its financial guidance for the three months ending September 30, 2023 and for the full year ending December 31, 2023, covering total revenue and non-GAAP loss from operations. For the third quarter, the company guided to a non-GAAP loss from operations of $4.5 million to $3.5 million. For the full year, it guided to a non-GAAP loss from operations of $16.9 million to $14.9 million. The company also guided to a weighted average share count of 68.1 million for the third quarter and 67.6 million for the full year. It did not reconcile the non-GAAP loss from operations guidance to a corresponding GAAP measure, noting that stock-based compensation is difficult to estimate. Management lists risks including transitions in company leadership, the ability to attract and retain customers, customer adoption of the platform, competition, unfavorable macroeconomic conditions, service interruptions, and regulatory fees on texting and phone calls. The company also carries a full valuation allowance against its net deferred tax assets and an accumulated deficit of $248.5 million as of June 30, 2023. Turning improving gross margin and positive cash flow into sustained GAAP profitability is the next test.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $41.7M | $39.6M | +5.3% | $34.9M | +19.3% |
| Gross profit | $28.0M | $26.5M | +5.7% | $21.2M | +32.4% |
| Gross margin | 67.3% | 67.1% | +0.2 pp | 60.6% | +6.7 pp |
| Research & development | $8.6M | $7.7M | +11.6% | $7.4M | +15.6% |
| Sales & marketing | $17.5M | $17.2M | +1.4% | $16.7M | +4.2% |
| General & administrative | $11.8M | $10.1M | +16.7% | $11.6M | +2.0% |
| Total operating expenses | $37.9M | $35.1M | +8.1% | $35.8M | +5.9% |
| Operating income (loss) | -$9.8M | -$8.5M | -15.4% | -$14.6M | +32.6% |
| Operating margin | -23.6% | -21.5% | -2.1 pp | -41.8% | +18.2 pp |
| Net income (loss) | -$9.0M | -$7.9M | -14.4% | -$14.8M | +39.3% |
| Net margin | -21.6% | -19.9% | -1.7 pp | -42.4% | +20.8 pp |
| Diluted EPS | -$0.13 | -$0.12 | -$0.01 | -$0.23 | +$0.10 |
| Net retention rate | 96.0% | 97.0% | -1.0 pp | 102.0% | -6.0 pp |
Risks
Dollar-based net retention rate was 96% as of June 30, 2023 compared with 102% as of June 30, 2022, and dollar-based gross retention rate was 92% compared with 94%, indicating increased churn or contraction risk among SMB customer locations. The filing notes that a majority of customers pay monthly and can terminate on short notice, which could slow revenue growth or cause it to decline.
The filing states that unfavorable economic conditions and macroeconomic uncertainties, including inflation, interest rates and recession risks, have adversely impacted and may continue to adversely impact demand, budgets and sales cycles, particularly among SMBs. It also notes delayed contract signing and subscription renewals.
Revenue is derived from small and medium-sized businesses, with the majority from small businesses in dental, optometry and veterinary practices. The filing states SMBs have higher rates of business failures, limited budgets and greater susceptibility to economic downturns, which could limit growth and profitability.
The market is described as rapidly evolving, fragmented and highly competitive, with competition from point solutions, systems of record such as PMS providers, and larger competitors that can bundle products at lower prices. This could pressure pricing, margins and customer acquisition.
The filing highlights reliance on integrations with practice management systems and accounting software, including a Dentrix contract that provides critical functionality for a significant portion of the customer base through July 2026. If these partners terminate, compete, or change pricing, the value of the platform could decline.
The company relies on single-source suppliers including Yealink for phones, Stripe for Weave Payments and point-of-sale devices, Bandwidth and Telnyx for texting, and GCP for cloud infrastructure through 2027. The filing notes past limited interruptions with Stripe payments and risk of delays or higher costs if these relationships fail.
As a healthcare-focused platform, the company must comply with regulations such as HIPAA and may face liability from breaches of protected health information, including indemnification obligations to partners and customers. Any security incident could result in lost customers, regulatory fines and reputational harm.
In April 2023 the company amended its SVB revolving line of credit, extending maturity to August 2025 and setting EBITDA covenants. As of June 30, 2023, $10.0 million was outstanding, and failure to meet covenants or liquidity requirements could restrict access to capital.
The filing notes significant growth and churn in employees, relatively recent management transitions, and that approximately one-third of customer service and support staff have been employed for less than one year. This could impair customer support quality and execution.
SaaS KPIs
All quarters →Free cash flow
Free cash flow margin
Non-GAAP gross margin
Dollar-Based Gross Retention Rate (GRR)
Dollar-Based Net Retention Rate (NRR)
Summary, forecast, risks and KPIs are extracted from Weave Communications, Inc.'s SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.