Weave Communications, Inc. (WEAV) is a rapidly growing software company that provides an all-in-one customer experience and payments platform tailored for small- and medium-sized healthcare businesses. With a mission to enhance healthcare experiences for both patients and providers, Weave has emerged as a leader in the fragmented and evolving telehealth space.
Company Background
Founded in 2015 and headquartered in Lehi, Utah, Weave has swiftly become a trusted partner for dental, optometry, veterinary, and specialty medical practices across the United States. The company was incorporated in the state of Delaware in October 2015 with the goal of providing a single, vertically-tailored customer experience and payments software platform for small and medium-sized healthcare businesses. Initially focusing on dental, optometry, and veterinary practices, Weave built crucial integrations with leading practice management systems in these verticals, which was instrumental in driving early adoption of its platform.
As the company grew, it expanded its reach into additional specialty medical verticals, including family practice, MedSpa, plastic surgery, and physical therapy. This expansion required Weave to develop new integrations with practice management systems used in these industries, a strategic move that significantly increased its addressable market. Throughout its history, Weave has faced and overcome various challenges, including initial skepticism from some practice management system providers who initially viewed Weave as a competitor. The company successfully shifted this perception by demonstrating how its platform could complement and enhance the functionality of existing practice management systems. Additionally, Weave has had to navigate evolving industry regulations, such as requirements around emergency calling services and patient data privacy, ensuring its platform remained compliant while continuing to innovate.
Financials
Weave's unique value proposition has resonated strongly with its target market. In the third quarter of 2024, the company reported revenue of $52.4 million, representing over 20% year-over-year growth. This robust top-line performance was accompanied by significant improvements in profitability, with Weave achieving its first-ever quarter of positive non-GAAP operating income, totaling $1.4 million. The company's gross margin also expanded by over 300 basis points year-over-year to 72.5%, underscoring the scalability and efficiency of its business model.
For the first nine months of 2024, Weave's subscription and payment processing revenue, which constitutes about 92% of total revenue, reached $143.98 million, marking a 20% increase from the same period in 2023. The remaining 8% of revenue came from onboarding fees ($2.75 million) and hardware lease revenue ($3.42 million). The company's gross margin improved from 68% in the first nine months of 2023 to 71% in the same period of 2024, driven by operational efficiencies.
Looking at the most recent fiscal year (2023), Weave reported revenue of $170.47 million, with a net loss of $31.03 million. Operating cash flow (OCF) was $10.22 million, and free cash flow (FCF) was $6.53 million. In the most recent quarter (Q3 2024), the company achieved a net income of $2.1 million, with OCF of $4.5 million and FCF of $3.54 million.
Growth Drivers
One of Weave's key growth drivers has been its focus on deepening integrations with leading practice management systems (PMS) used by its customers. The company has steadily expanded its addressable market by forging partnerships with PMS providers such as Dentrix, Ascend, Eaglesoft, and more recently, eClinicalWorks and athenahealth. These integrations enable Weave's platform to seamlessly connect with the systems of record used by healthcare practices, driving greater adoption and stickiness among its customer base.
In addition to its strong PMS integrations, Weave has also made significant strides in enhancing its product offerings. The company recently launched its "New Weave" platform, which represents a major leap forward in terms of user experience, functionality, and artificial intelligence-powered capabilities. The revamped platform includes features such as an intuitive user interface, centralized multi-location management tools, and an AI-driven "Weave Assistant" that automates various administrative tasks.
Weave's focus on innovation extends beyond its core platform, as evidenced by the introduction of its Weave Payments offering. This integrated payments solution allows healthcare practices to streamline their billing and collections processes, offering patients flexible payment options and improving revenue cycle management. The strong adoption of Weave Payments, which is growing faster than the overall business, has been a key contributor to the company's improving gross margins.
Strategic Wins
The company's success has not gone unnoticed. Weave was recently selected by Affordable Care, the largest dental support organization in the United States, to serve as the platform of record for patient engagement and payments across its network of supported dental practices. This prestigious win underscores Weave's ability to serve the needs of multi-location healthcare enterprises, positioning the company for continued growth in the burgeoning dental service organization (DSO) market.
Outlook and Guidance
Looking ahead, Weave has provided a positive outlook for the full year 2024, guiding for total revenue in the range of $202.7 million to $203.7 million and the generation of positive non-GAAP operating income. This guidance reflects the company's confidence in its ability to sustain its momentum and capitalize on the significant market opportunity in the healthcare technology space.
For the fourth quarter of 2024, Weave expects total revenue in the range of $52.6 million to $53.6 million and non-GAAP operating income between $0.9 million and $1.9 million. The company anticipates a weighted average share count of approximately 71.6 million shares for the full year 2024.
It's worth noting that Weave's Q3 2024 performance exceeded previous guidance, with revenue coming in $1.2 million above the midpoint of the guidance range provided in July, and non-GAAP operating income beating the midpoint of the guidance range by $2.1 million.
Liquidity
Despite the challenging macroeconomic environment, Weave has demonstrated its resilience and ability to execute. The company's strong customer retention, with a gross revenue retention rate of 92%, underscores the stickiness of its platform and the mission-critical nature of its offerings for healthcare providers.
As of September 30, 2024, Weave reported $98.2 million in cash and short-term investments. The company maintains a healthy liquidity position with a debt-to-equity ratio of 0.15, a current ratio of 1.59, and a quick ratio of 1.59. Additionally, Weave has access to a $50 million revolving credit facility with Silicon Valley Bank, which was fully available as of the end of Q3 2024. The company remains in compliance with all debt covenants, further solidifying its financial stability.
Risks and Challenges
Weave's growth story is not without its risks, however. The company operates in a highly competitive landscape, with established players and emerging competitors vying for market share. Additionally, Weave's reliance on third-party integrations and partnerships introduces potential vulnerabilities, as disruptions or changes in these relationships could impact the company's operations.
Conclusion
Nevertheless, Weave's track record of innovation, its growing customer base, and the continued expansion of its product portfolio position the company well to navigate the evolving healthcare technology market. The company's strong performance in its specialty medical vertical, which is growing at over twice the rate of overall revenue growth, demonstrates the success of its expansion strategy. The launch of the new Weave platform, complete with enhanced functionality, a modern user interface, and AI-powered features, has been well-received by customers and should contribute to future growth.
As Weave continues to execute on its strategic priorities and capitalize on the increasing adoption of telehealth solutions, investors may find the company's long-term growth prospects compelling. With improving financial performance, a strong liquidity position, and clear progress on key initiatives such as platform development and vertical expansion, Weave Communications appears well-positioned to maintain its growth trajectory in the dynamic healthcare technology sector.