Summary
Weave Communications reported third-quarter FY2023 revenue of $43.5 million, up 20.2% from the prior-year quarter. Gross profit rose 29.0% to $29.9 million. Gross margin was 68.7%, up 4.7 percentage points from the prior-year quarter. The company crossed a milestone by growing its customer base to over 30,000 locations. Dollar-based net retention rate was 95% as of September 30, 2023, while dollar-based gross retention rate was 92%. A year earlier, net retention was 101% and gross retention was 94%. Both retention metrics declined from the year-ago period.
The bottom line improved. Operating loss was $8.0 million, up 32.3% from the prior-year quarter. Operating margin was -18.4%, up 14.3 percentage points. Net loss was $7.1 million, up 39.5% from the prior-year quarter. Diluted EPS was -$0.10, up $0.08 from the prior-year quarter. For the first nine months of FY2023, revenue rose 19.5% to $124.8 million. Gross profit rose 32.2% to $84.5 million. Operating loss was $26.4 million, up 34.0% from the prior-year period. Net loss was $24.0 million, up 40.7% from the prior-year period. Diluted EPS was -$0.36, up $0.26 from the prior-year period. Year-to-date gross margin was 67.7%, up 6.5 percentage points, and operating margin was -21.1%, up 17.1 percentage points.
Cash generation was a clear positive. Operating cash flow was $3.3 million, up $7.4 million from the prior-year quarter. Free cash flow was positive $2.1 million, up from negative free cash flow of $4.6 million last year. For the first nine months, operating cash flow was $6.5 million, up $16.4 million from the prior-year period. Free cash flow was $3.6 million, compared with negative $12.1 million in the year-ago period. Capital expenditures were $0.68 million in the quarter, up 150.0%, and $1.5 million year to date, up 27.0%. Deferred revenue was $37.7 million, up 15.2% from the prior-year quarter. The company also reported non-GAAP loss from operations of $1.8 million, compared with a non-GAAP loss from operations of $6.5 million in the prior-year quarter.
Management updated guidance for the fourth quarter and full year 2023. For the fourth quarter, total revenue is expected between $43.5 million and $44.5 million, with a non-GAAP loss from operations of $(3.0) million to $(2.0) million and a weighted average share count of 69.6 million. For the full year, total revenue is expected between $168.3 million and $169.3 million, with a non-GAAP loss from operations of $(12.8) million to $(11.8) million and a weighted average share count of 67.7 million. The guidance excludes stock-based compensation and is forward-looking.
Operational highlights included a new partnership with Affirm to offer flexible payment options and the launch of Scan to Pay, which lets patients complete transactions with a QR code. Weave ranked first in 34 categories in G2's Fall 2023 Report and won 60 badges. Risks remain. The company cited a challenging macro environment and risks related to attracting new customers, retaining existing customers, competition, and regulatory fees on texting and phone calls. Stock-based compensation expense also affects GAAP results. Weave maintains a full valuation allowance against its net deferred tax assets.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $43.5M | $41.7M | +4.5% | $36.2M | +20.2% |
| Gross profit | $29.9M | $28.0M | +6.8% | $23.2M | +29.0% |
| Gross margin | 68.8% | 67.3% | +1.5 pp | 64.0% | +4.7 pp |
| Research & development | $8.6M | $8.6M | +0.5% | $7.9M | +9.3% |
| Sales & marketing | $17.8M | $17.5M | +2.0% | $16.3M | +9.3% |
| General & administrative | $11.5M | $11.8M | -2.6% | $10.9M | +6.0% |
| Total operating expenses | $38.0M | $37.9M | +0.2% | $35.1M | +8.2% |
| Operating income (loss) | -$8.0M | -$9.8M | +18.4% | -$11.9M | +32.3% |
| Operating margin | -18.4% | -23.6% | +5.2 pp | -32.7% | +14.3 pp |
| Net income (loss) | -$7.1M | -$9.0M | +20.5% | -$11.8M | +39.5% |
| Net margin | -16.4% | -21.6% | +5.2 pp | -32.6% | +16.2 pp |
| Diluted EPS | -$0.10 | -$0.13 | +$0.03 | -$0.18 | +$0.08 |
| Net retention rate | 95.0% | 96.0% | -1.0 pp | 101.0% | -6.0 pp |
Risks
Dollar-based net retention rate was 95% at September 30, 2023 compared with 101% at September 30, 2022, and gross retention rate was 92% compared with 94%. Many customers are on monthly subscriptions and can terminate on short notice, so any further decline in renewals or expansion could hurt revenue.
The filing states that inflation, interest rates, recession risks, and macroeconomic uncertainty have in the past and may continue to adversely impact the business. Because the vast majority of customers are SMBs, reduced budgets or delayed sales cycles could lower demand and slow revenue growth.
Revenue is derived from SMBs, with the majority from small businesses, which have higher rates of business failures and limited budgets. Increasing inflation and interest rates have particularly impacted many SMBs, making Weave more susceptible to economic downturns.
The market is highly competitive and fragmented, with primary competition coming from existing point solutions and larger competitors with greater resources and lower list prices. Competitive pricing pressure could reduce margins or cause customers to replace limited-functionality deployments.
Weave has incurred net losses since inception, including a net loss of $24.0 million for the nine months ended September 30, 2023 and an accumulated deficit of $255.6 million as of September 30, 2023. The filing states it is not yet profitable and may not achieve or sustain profitability.
Weave outsources a substantial majority of cloud infrastructure to Google Cloud Platform, and the agreement is for a 60-month term through 2027 with no renewal right thereafter. The filing states Weave cannot easily switch GCP operations to another cloud provider, and any disruption could materially affect operations.
Weave relies on Stripe as the single supplier for Weave Payments, and past limited interruptions temporarily prevented some customers from collecting payments. It also relies on single-source suppliers such as Yealink for phones and Bandwidth and Telnyx for texting, with no long-term supply agreements for sole source hardware suppliers.
Breaches of Weave's applications, networks, or systems, or those of GCP or service providers, could compromise protected health information and customer data. The filing also notes indemnification provisions for data compromises, particularly compromises of PHI.
Rapid growth and expansion, including engineering and administrative operations in India and support operations in India and the Philippines, create operational challenges. The filing states revenue growth rate will decline in the future and that management has limited experience operating at the current scale.
Dental PMS product Dentrix provides critical functionality for a significant portion of the customer base under a contract through July 2026. If integration partners amend, terminate, or fail to perform, or prioritize competing offerings, the value of Weave's platform could decline.
Products and services must comply with FCC regulations, state, local, country-specific and international regulations, and stringent rules such as HIPAA. Changes may require modifying services, increase costs, or increase prices charged to customers.
The filing states Weave has experienced significant growth and churn in employees, creating operational challenges, and approximately one-third of customer service and support staff has been employed for less than one year. If it cannot retain and train staff, customer support and growth could suffer.
Onboarding and hardware are used as customer acquisition tools and have historically generated negative gross profit, with onboarding gross margin of negative 203% and hardware gross margin of negative 54% for the three months ended September 30, 2023. These costs may not be offset if retention or expansion declines.
The SVB credit facility matures in August 2025, had $10.0 million outstanding as of September 30, 2023, and contains EBITDA and liquidity covenants if total unrestricted cash and short-term investments at SVB fall below $100.0 million. Interest expense increased due to higher average interest rates over the period.
Weave relies on network service providers and internet service providers with limited long-term commitments, and fees may change daily or weekly. The filing states it has experienced higher fees associated with text messaging in recent periods, and service interruptions could cause poor call quality or customer loss.
Weave intends to expand its customer base among medium-sized and multi-location businesses, which may incur higher costs and longer sales and installation cycles. These customers may demand more features, integration, customization, and service-level agreements, introducing additional risk.
SaaS KPIs
All quarters →Free cash flow
Free cash flow margin
Adjusted EBITDA
Non-GAAP gross margin
Summary, forecast, risks and KPIs are extracted from Weave Communications, Inc.'s SEC filings for Q3 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.