Earnings Call Transcript - WEAV Q4 2021

Operator, Operator

Good day and welcome to Weave's Fourth Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Weave's Investor Relations representative. Please go ahead.

Investor Relations Representative, Investor Relations

Good afternoon and thank you for joining us for the Weave Communications fourth quarter and 2021 earnings call. Joining me on the call today are Roy Banks, Chief Executive Officer and Alan Taylor, Chief Financial Officer. Full details of our results and additional management commentary are available in our earnings release, which can be found on the Investor Relations section of the website at investors.gateweave.com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including but not limited to statements regarding beliefs, future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause the actual results to differ materially from those discussed here. You should not place undue reliance on any forward-looking statements. Factors that could cause actual results to differ from the forward-looking statements can be found on our Form 10-Q filed with the SEC on December 9, 2021, which is accessible on the SEC's website at www.sec.gov and also available on our website at investors.gateweave.com as may be supplemented in subsequent periodic reports we file with the SEC. Any forward-looking statements made in this conference call including responses to your questions are based on current expectations as of today and Weave assumes no obligation to update or revise them, whether as a result of new developments or otherwise except as required by law. The following discussion contains non-GAAP financial measures. For reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings press release which is available in the IR section of our website at investors.gateweave.com. Now I will turn the call over to Roy Banks, Chief Executive Officer of Weave.

Roy Banks, Chief Executive Officer

Good afternoon, everyone. And thank you for joining us today. At Weave we recognize that small businesses are the backbone of our economy and our communities. Specifically, healthcare is a significant and essential part of our everyday lives. From the very beginning, we developed an innovative and intelligent phone platform specifically designed to support small businesses in the healthcare sector so they could modernize and personalize the way they communicate and engage with their patients. Today that product has evolved into a unified communications platform that enables us to further penetrate our estimated $11.1 billion TAM here in the U.S. Additionally, over the past two years, we further modified our product to help our customers adapt their business practices for a COVID and post-COVID world. We successfully continue to serve small- and medium-sized businesses by providing innovative solutions that transform how they communicate, attract, retain and engage with their customers. As a result, our unified platform solution replaces multiple unrelated and expensive point solutions in a cost-effective way that simultaneously improves the entire customer experience. Given the importance of the healthcare sector, our core customer verticals—dental, optometry and veterinary—have shown resilience in the face of the pandemic and macroeconomic challenges. We demonstrated success in our ability to support each of these verticals by continuing to refine our solutions to meet their individual needs. Following our recent entry into the home services vertical, we continue to evaluate and learn about how we need to refine our platform to meet the needs of this exciting new market opportunity. The unique benefits of our platform have enabled us to deliver consistent and strong year-over-year revenue growth despite the challenging market conditions. For the full 2021 year we earned total revenue of $115.9 million, up 45% over the prior full year. This growth was driven by adding 5,292 net new customer locations to end the year with a total of 23,831. Specifically in Q4 we earned total revenue of $31.8 million, up 34% year-over-year which Alan will further discuss later on the call. As I look back on 2021, I am proud of our strong performance and our ability to operate successfully despite the uncertainty of the macroeconomic environment, an evolving pandemic and the related impacts upon our customers and the Weave business. I am truly grateful for the efforts of our employees, business partners, and customers that contributed to the achievement of a few important milestones that I would like to share now. First, we expanded our leadership team with several executive hires. In particular, we hired a Chief Revenue Officer and a Chief Marketing Officer, both of which are new roles within our company, and will help to accelerate our revenue growth and go-to-market execution. We continue to enhance our solutions by executing our integrations playbook, with select third party providers to better serve our audiology and veterinary customers. We executed our vertical domino expansion strategy as we entered the home services vertical, including HVAC and plumbing. We celebrated our 10-year corporate anniversary, and to cap off what was already an exciting and strong year in November we completed our IPO and began trading on the New York Stock Exchange. As we turn now to 2022, our Weave payments solution has already surpassed the incredible milestone of processing $1 billion of payments volume since its launch in early 2020. We continue to expand this full payment solution with added capabilities, such as text-to-pay, wireless terminals and card-on-file features. Collectively, this payments solution adds yet another way small businesses engage with their customers by collecting payments faster and in more convenient ways. In early February, we announced that we recently won our largest customer engagement in company history, a Dental Service Organization, or DSO, named Dental Care Alliance that operates more than 370 locations across the country. A 19-location test pilot confirmed that our platform could unify office operations, create communication and engagement efficiencies, and help service more patients in a timely manner. Based on the success of the pilot program, they decided to integrate Weave across their organization. We are now working with this new client to align and schedule the onboarding process of the remaining locations over the next few quarters, creating a healthy pipeline of new locations. As we prepared our 2022 business plan, we recognized and anticipated the ongoing uncertainty of the macroeconomic environment that is beyond our control, including the evolving pandemic, and the labor market that is challenging our efforts to retain, hire and ramp productivity within our sales and customer onboarding organizations. In light of these challenges, we have continued to improve, adapt and optimize our lead generation, go-to-market and sales strategies to increase our effectiveness, reduce customer acquisition costs, and increase ROI. Under the combined leadership of our recently appointed Chief Revenue Officer and Chief Marketing Officer, we are taking actions to enhance our sales and marketing processes to improve alignment across key functions, productivity and sustainability of our operations. This refocus effort will support ongoing growth despite the changing conditions in the macroeconomic environment. A few aspects of this new and improved program include: we will remain focused on maximizing the opportunities within our core verticals of dental, optometry and veterinary which are proven to generate significant ROI for us over time and represent markets in which we remain largely underpenetrated. In each of these areas, we will continue to add more functionality to our platform and improve our overall customer experience. We are excited by the opportunity to increase our market share in each of our core markets as our product market fit remains strong and resonates more acutely during the pandemic. Additionally, we will continue our efforts to improve Weave's payments offering and make progress in specialty medical and our new verticals in home services, which are still in their early stages. In 2022, as the impact of the pandemic may become less severe, we expect that our participation level in live marketing events, which pre-COVID provided significant high-quality lead flow, will surpass our 2020 and 2021 levels. To the extent that these events come back, we will selectively invest our resources and once again exploit this historically valuable customer acquisition channel. However, the number of live marketing events in 2022 are still expected to be well below the 2019 pre-pandemic levels. So we are continuing to offset our previous reliance on live sales events by implementing and executing new digital marketing and lead generation tactics. We are also evolving our sales model to optimize lead sources, opportunities and value per lead. Set another way, our future lead generation efforts will more narrowly target the local markets where we have had proven success and incredible product market fit. This will increase productivity, lower our customer acquisition costs, and ultimately help grow our subscription revenue and payment processing volume and revenue. As part of our effort to adapt and optimize our go-to-market strategy, we are transitioning our sales approach into a more efficient motion that better supports our sales cycle, reduces our customer acquisition costs, and allows us to scale for continued future growth. While we recognize that we have experienced some salesforce turnover during this transition, early results give us confidence that we will end up in a position to better serve our target customers while we execute a sustainable and cost-efficient go-to-market strategy. Our ability to continually improve our technology platform and other aspects of our customer success is paramount. In the fourth quarter and early first quarter we have already completed several meaningful platform enhancements, which include better integrations. We launched a new integration partner in Q4 as part of our integrations playbook in the veterinarian vertical. By providing an automated sync, customers will see real-time updates to their daily calendar and patient contact information. This eliminates the need for manual data uploads and provides improved communication solutions to veterinarians. New product updates: we've added mobile functionality that is key for many of our verticals to help users capture and save prospective customer information via the Weave mobile app. Payments product updates: in Q4 we expanded the Weave payments offering by adding the card-on-file feature making collecting payments a faster experience for business owners and customers. We also launched wireless payment terminals. As I reflect upon where we are today it's clear that our company and our customers have been impacted by certain macroeconomic challenges, and we continue to adjust our business operations to sustain improvements in customer service and revenue growth. Collectively, these evolving factors impacted our sales and new location onboarding productivity as we approached 2022 and are reflected in the guidance we provide today. However, I am confident in our competitive position and our ability to significantly grow and increase our market share, particularly in our core vertical markets of dental, optometry and veterinary. Within that context, the executive team and I have identified and started to implement a series of go-to-market strategies and operational changes that I outlined moments ago. While we are confident in these changes, it will take some time to see the results. As such, we are optimistic that we will see renewed sales and revenue momentum in the back half of 2022. With that, I'll turn the call over to Alan to discuss our financials. Alan?

Alan Taylor, Chief Financial Officer

Thanks, Roy. I extend my welcome to everyone that is joining us today as well. As Roy discussed, we achieved multiple milestones during 2021 as we expanded our presence in our key vertical markets, dental, optometry and veterinary. We also continued to improve our platform solution and attracted several new and talented executive leaders to our team. For the year we increased our total revenue by 45% to reach $115.9 million. This tremendous growth was driven by two factors: first, by our growth in new customer locations, and second by increasing revenues from existing customer locations. To that end, our ability to expand adoption of platform features by existing customers is reflected in our dollar-based net revenue retention rate of 130%, up slightly from 2020 despite the ongoing macro environment challenge. The year ended with much to be excited about, in particular, our strong gross revenue retention rates, the signing of Dental Care Alliance, our largest multi-location customer in company history, and a strong balance sheet coming off our IPO. The latter point gives us much confidence in the financial flexibility as we remain focused on our longer-term path to profitability moving forward. During the quarter, we began seeing renewed uncertainty in the macro environment caused by the rise and impact of the Omicron variant that hit the United States in December, inflationary pressures and geopolitical tensions. We believe these macro factors combined with the challenges of the current labor market, both internally and among our customers, slowed our sales and onboarding efforts during the quarter. We are seeing these trends continue into 2022 creating challenges for ourselves and onboarding organizations. As a result of this slowing, we ended our fourth quarter with financial results slightly below the midpoint of our prior guidance ranges. And we are taking a cautious approach to our future outlook. As Roy mentioned, heading into 2022 we are renewing our focus on core vertical markets of dental, optometry and veterinary where we have excellent product market fit and significant growth opportunities to increase our penetration within those markets. This focus combined with our continued customer loyalty and retention, have driven five straight quarters of gross revenue retention improvement. Our net revenue retention rate has also increased slightly year-over-year giving us confidence in our ability to grow revenues in 2022. In Q4, we earned revenue of $31.8 million, up 34% year-over-year. Consistent with our SaaS business model, 95% of our Q4 revenue was recurring revenue. This growth rate reflects a 5,292 year-over-year net increase in customer locations to 23,831 locations, along with strong dollar-based net revenue retention and gross revenue retention rates of 130% and 103% respectively. The remaining part of our revenue is generated primarily from payment processing services for which we receive a revenue share from a third party payment processing partner. Before discussing the rest of our financial performance, please note that I will be discussing non-GAAP results going forward. As a reminder, our GAAP financial results along with the reconciliation between GAAP and non-GAAP results can be found in our earnings press release and its supplemental financial tables. Also note that our customer location information will only be provided with annual and Q4 results. We will not be providing it in future interim financial statements or earnings releases. In the fourth quarter, our gross margin declined modestly to 57.4% from 58.4% in the year-ago period, as we ramped our support organization during a tough hiring environment. We decided to pull hiring forward in the support organization to enable favorable ongoing customer satisfaction levels that drive our brand recognition as well as our growth, retention and net revenue retention rates over time. Total operating expenses were $28.9 million, up 35% year-over-year. This growth was in line with the higher revenue levels achieved in the quarter. Our marketing expense was $15.3 million, a 46% increase over the prior year as we reignited our go-to-market actions following the pandemic reduced levels in 2020. R&D expense was $6.6 million, a 24% increase year-over-year driven by the increased headcount to support our R&D efforts to improve our platform solution. Operationally, we made approximately half of the recent R&D hires in geographic regions that enable us to scale our development efforts more rapidly and efficiently. We believe this staffing model enables us to continue our platform enhancement actions while remaining efficient with our expenses. G&A expense was $7 million, a 25% year-over-year increase, as our cost structure changed as a public company ramping headcount and operational systems and support in preparation for our IPO as anticipated. Our adjusted EBITDA in Q4 was negative $9.7 million as compared to negative $7 million a year ago, as we rapidly grew our revenues and saw some near-term decline in adjusted EBITDA margin by two percentage points. Given these revenue and expense results, our non-GAAP operating loss was $10.7 million as compared to a loss of $7.6 million a year ago. Non-GAAP net loss was $11 million, or $0.26 per share in the fourth quarter, based on 42.6 million weighted average shares. This is compared to a loss of $0.67 per share a year ago. Turning out of the balance sheet and cash flows: we ended the fourth quarter with $136 million in cash and cash equivalents up from $55.7 million at 2020 year end. The increase is driven by the $111.6 million in cash and cash equivalents raised through our November IPO, providing dry powder to address our market opportunity. The influx of cash was partially offset by cash flow from operations usage of $10.4 million in the fourth quarter, reflecting the higher GAAP net loss and increases in accrued liabilities and prepaid expenses. After making investments in property and equipment, our free cash flow was a usage of $12.2 million. Turning now to our guidance: as we conducted our business planning for 2022, we factored in the macroeconomic uncertainties I noted above, and the challenges we saw at the end of the fourth quarter. Specifically, we recognized sales headwinds that picked up through Q4 as Omicron impacted our marketplace and it lingered into Q1 along with macroeconomic conditions I addressed previously. These factors are expected to impact our revenue growth rate in the first half of 2022. However, as we discussed under the leadership of our new CRO and CMO, we have already taken a number of proactive steps to reinvigorate our go-to-market actions and we are confident that we have initiated the right strategies to successfully navigate these uncertain market conditions. We also anticipate that revenue growth will slightly lag these actions, and we don't expect to see a rate acceleration of growth until the second half of the year. As we work to re-accelerate top-line growth, we will maintain a balance between managing our costs and investing for the future. Additionally, we believe our balance sheet puts us in a great position to execute on our roadmap towards profitability. Considering all these factors, we are providing the following guidance for our Q1 and full year 2022 results. For the first quarter we expect total revenue in the range of $31.0 million to $32.0 million and a non-GAAP operating loss in the range of negative $12.0 million to negative $11.0 million. We expect to have a weighted average share count of approximately 64.7 million for the first quarter. For the full year fiscal 2022 we expect total revenue in the range of $136.0 million to $140.0 million, and a non-GAAP operating loss in the range of negative $40.0 million to negative $36.0 million. We expect to have a weighted average share count of approximately 66.0 million for the full year. With that, we'll turn it back to the operator and we'll be happy now to take your questions.

Operator, Operator

Thank you. We will now take our first question from Ken Wong with Guggenheim Securities. Please go ahead.

Nancy, Analyst (Guggenheim Securities)

Hi, this is Nancy on for Ken. Thanks for taking the question. Just on payments: I know you don't break it out specifically, but if you could talk more about the payments momentum you're seeing versus internal expectations, that would be great. And then second question, on the conservatism in the guide, is there any particular vertical that you are taking more conservative assumptions into?

Roy Banks, Chief Executive Officer

Yes. Well, first of all, if I could just wish the people of Ukraine peace—very disturbing to see what's going on over there. So just wanted to say that and let you know Weave is very much concerned about that and we have an employee who is directly affected. We are very excited about our payments solution. During the quarter, we recently hired a new payments sales leader who comes out of the payments industry. This individual was responsible for selling integrated payments, payment processing, merchant acquiring and payment gateway services, and really brings with him a tremendous body of work that is really going to benefit us here as we look to increase the adoption and increase the processing volume of payments. As you know, last quarter, we surpassed the $1 billion payment volume processing mark, which really is a significant milestone for the company and for that product. We're very excited about how that product is performing, and with the number of initiatives that we've launched over the past quarter we're excited to see that growth continue going into 2022.

Alan Taylor, Chief Financial Officer

Regarding your second question, Nancy, we do not see any one vertical impacted more directly than the others. It's been kind of across the board with respect to the cautious outlook.

Nancy, Analyst (Guggenheim Securities)

Got it. That's helpful. Thank you.

Operator, Operator

We'll take our next question from Matt Stotler with William Blair. Please go ahead.

Matt Stotler, Analyst (William Blair)

Hi, Roy. Hi, Alan. Thanks for taking the questions. Maybe I want to start from the macro perspective. Obviously a lot of disruption in the December-January timeframe from Omicron, especially with that sort of stuff paired with inflation that's particularly negative for small businesses. I just wanted to dive into what you're seeing in terms of customer behavior and what the feedback is from customers. Is this more companies going out of business, is this customers less willing to buy? Specifically looking at this, and how it compares to your experience early on in the pandemic when you were still able to grow pretty substantially—even looking on a sequential basis—what's different over the past several months that didn't happen in 2020?

Roy Banks, Chief Executive Officer

So great question. Part of it is the extent of the impact of Omicron on our customers. Part of the challenge that we had in Q4 was the onboarding throughput as we sell new customers and being able to get them onboarded. It's very difficult to do that when you have customers whose employees are sick and we cannot coordinate and schedule installations with them. So that was something that took us a little bit by surprise. And just as you look at some of the consumer hesitancy around making significant capital expenditure purchases, that obviously affected us. And then as we look at our own resources internally we also experienced some challenges from Omicron and more generally the pandemic affecting our ability to staff and keep up with the opportunities that we've had.

Alan Taylor, Chief Financial Officer

Matt, I would just add that early on in the pandemic I do think that overall, we were successful as a country in kind of flattening the curve, so it didn't have that kind of acute impact. Omicron hit in late December, and we had it all at once. It wasn't as severe thankfully, but we did have onboarding people out, we had sales people out and officers weren't available to be onboarded. All of those things impacted our ability to get customers active on our platform.

Matt Stotler, Analyst (William Blair)

Got it. Okay, that's helpful. And then a follow up on the go-to-market actions that you're taking. It would be really helpful to kind of dive into what some of these specific inefficiencies have been that you've identified? What's changing and then as you look to what the impact is on the guidance versus what you would have previously expected for 2022, how confident are you in the new guidance?

Roy Banks, Chief Executive Officer

Happy to address that. So as you know, we recently hired a CMO and we hired a CRO, and those are new positions to the company that we've never had. We've never really had that type of executive leadership with that type of experience to really help us better understand and develop and mature our sales organization. Based upon their experience and expertise, they were able to identify some go-to-market changes that we needed to make to help us scale more quickly and increase our growth. We took the opportunity to really pull the trigger on that. We've made some significant changes that we believe will be very positive for the company. Specifically, we've identified ways to simplify our sales motion so that we can better align it with our customer sales cycle. We have a very short customer sales cycle and the previous model we had really supported a longer tail sales cycle. We've created a more dynamic and scalable go-to-market program that allows us to make pivots and adjustments as we see opportunities. One of the more significant changes we've made is reducing our dependence on the sales development rep (SDR) position. We had an SDR/account executive model and found that because of challenges retaining SDRs, we were not able to advance and grow as we felt we could, nor was it really supporting our sales motion in the right way. So we've transitioned to a full-cycle account executive model where the hunter and the farmer are in one role that better fits our sales model. We are seeing some early positive results and are very optimistic about the impact. We've also made changes to compensation, developing a long-tail residual commission program that ties the sales rep to their accounts while paying them a healthy compensation stream. We're excited to see the impact and will report on progress over time.

Alan Taylor, Chief Financial Officer

Matt, with respect to the guidance items Roy just mentioned, challenges in the current labor market are really accentuated here in the Silicon Slopes area. We're fighting for talent, that's always been an issue. With the change in the CRO and CMO as new people come in, some of the old guard in sales may move on. So we're in the process of bringing new hires up to speed and making sure that they're ramped and capable. We've adjusted our models to reflect that ramp period and how we see them coming up to speed as we get back. We think the upside is worth this change. SDR turnover made us want to make this change even more rapidly than planned.

Roy Banks, Chief Executive Officer

I'll add one more thing: we're also excited about the ability to reduce our customer acquisition costs through the elimination of that SDR position and we'll monitor that closely.

Operator, Operator

We'll take our next question from Parker Lane with Stifel. Please go ahead.

Parker Lane, Analyst (Stifel)

Yes. Hi, guys, thanks for taking the question. I'm hoping to reconcile some of the commentary made on the macro and the impact on the end markets with the improvement in gross retention and very strong net retention again. Should we anticipate that takes a step back here in the front half of the year given all the commentary provided on what your end markets are seeing, or is this primarily a new sales and onboarding issue and the changes you're putting in place will help improve that and maybe we'll see a little bit less net new sales to start the year?

Alan Taylor, Chief Financial Officer

It's the latter. We shouldn't see any decline in retention; our retention rates improved for five consecutive quarters on gross revenue retention. It really has been around the sales and the onboarding and some of the staffing challenges. We're addressing both of those problems and we anticipate getting our stride back.

Roy Banks, Chief Executive Officer

As part of the changes we've made, we've also made operational changes that will help and assist in pre-preparing those customers we've signed for onboarding through a customer launch group. I think that will also help increase our ability to throughput more customers as we add them.

Parker Lane, Analyst (Stifel)

Understood. And then looking at those verticals outside of the core three mentioned—call it physical therapy, chiropractic, cosmetic—any of those areas being de-emphasized going forward? Or is it more that it's difficult to hire people right now so you're going to double down where you have success and critical mass and potentially increase investment outside of those areas when the environment improves?

Roy Banks, Chief Executive Officer

Yes, that's exactly right. We have several emerging markets, and obviously we announced home services last year. We continue to be very bullish about that market, but announcing a new market does not mean we ignore existing markets. Based on demand and product market fit, we're very excited about our existing core markets that have responded well. We're under 10% penetrated in each of those core markets and we want to continue to expand our footprint and deliver the value Weave provides for those customer segments. We'll continue to cultivate new and emerging markets; those can take several years to mature. If you look at the years it's taken to nurture dental, optometry, vet, and even orthodontia, there's a long tail and a lot to learn, but we've been able to vet those markets well and build specific product market fit that meets their needs in a unique way.

Operator, Operator

We'll take our next question from Brent Bracelin with Piper Sandler. Please go ahead.

Analyst, Analyst (on for Brent Bracelin, Piper Sandler)

Hi, I'm filling in for Brent. First question: I think it would be helpful if you could give us a sense of the planned sales and marketing capacity growth for 2022, maybe relative to revenue growth, and if possible some context on how that was growing in 2021 and where you ended the year considering turnover in the sales and marketing force.

Alan Taylor, Chief Financial Officer

Good question. As our new CMO and particularly our CRO have established plans, we are investing in marketing. I would describe our 2022 investment in marketing as much more targeted, and our CMO will get the digital side of things. There will be spend on the digital side. We will be returning to events as we discussed; we still see some events at about 50% participation now as opposed to pre-pandemic. Hopefully those will come back. We know the events we can target successfully and get good ROI from. So we'll continue to increase that investment on both the sales and marketing side. Given the more laser-focused approach versus 2021, we expect to see a better yield from those efforts.

Analyst, Analyst (on for Brent Bracelin, Piper Sandler)

Great, and a follow up to clarify: how recent was the CRO appointment? Was that during Q4 or during 2021? And when you are considering the ramp time for AEs in 2022, what's the timeframe that you're considering at this point?

Roy Banks, Chief Executive Officer

We hired our Chief Revenue Officer, Matt Hyde, back in Q2 of last year. Our CMO we hired in January. It takes about six to nine months to ramp up an AE and we have a substantial platform, so we need to train them not only on the platform but on the various industries they'll be selling into. It's important to provide proper training and experience. One of the things we're focused on is becoming more laser-focused in how we market and target customers—speaking in the language of our customers and empathizing with them in ways that our competitors don't. That helps customers better appreciate the value of our platform.

Analyst, Analyst (on for Brent Bracelin, Piper Sandler)

Appreciate the color. Thank you.

Operator, Operator

We will hear next from Michael Funk with Bank of America. Please go ahead.

Michael Funk, Analyst (Bank of America)

Yes. Thank you for taking the questions. A couple of if I could. I think I understand the guide for 2022 primarily revolves around lower gross additions than previously expected. You mentioned the sales force turnover. But in your earlier comments you threw out a few things—Omicron, inflation, geopolitical. On the inflation comment specifically, is that impacting customers either migrating down to lower price plans or your expectations for a slower ramp in pricing and adoption of incremental functionality? Is that part of the guide here as well? Or is it purely just based on the lower growth conditions in 2022?

Alan Taylor, Chief Financial Officer

It's primarily the latter. Everyone's been hit by inflation, there's no question about that. We'll respond and work those into the normal annual price increases that we cycle through our customer base. We haven't seen churn driven by price—customers leaving based on price. So the guide is primarily reflecting growth. Inflation is a challenge for everyone and we're keeping a close eye on that and will respond through the balance of the year as needed.

Michael Funk, Analyst (Bank of America)

Okay, and the back-of-the-envelope math: I assume net additions are roughly flattish each quarter in 2022 with flattish pricing and similar hardware and onboarding revenue—that kind of gets me to the midpoint of your guidance range. Is that the right math?

Alan Taylor, Chief Financial Officer

Yes, it is.

Michael Funk, Analyst (Bank of America)

Okay, and then one more if I could please. I didn't hear earlier but did you quantify the sales and marketing turnover for the productivity metrics to help us think about how that potentially ramps as you bring new employees on and they get to that six to nine month period when they get to full productivity?

Alan Taylor, Chief Financial Officer

We didn't quantify it and we won't be quantifying it today. It's definitely been a challenge. We're in line with others here in the Silicon Slopes area and across the country. Given the changes we've made we don't have enough history yet to suggest what the ramp will look like, but we'll continue to watch and monitor it closely.

Roy Banks, Chief Executive Officer

Given the changes we've made we don't have enough history yet to really suggest what that might look like, but that's something we will continue to observe.

Michael Funk, Analyst (Bank of America)

Understood. Thank you very much.

Operator, Operator

We'll hear next from an analyst on behalf of Tyler Radke with Citi. Please go ahead.

Analyst, Analyst (on for Tyler Radke, Citi)

Hi, this is on for Tyler. Thank you so much for taking my question. So I know you pointed to slower sales and onboarding efforts related to the challenging labor market, but are you at all—and if so, to what extent—seeing any impact from pull-forward demand in the communications sphere that we've seen from a lot of other UCaaS and CPaaS vendors? And then I had a follow-up. Thanks.

Roy Banks, Chief Executive Officer

I don't think we're necessarily seeing that. I don't know that we can cite a particular metric that indicates we're seeing any impact from that on our business.

Analyst, Analyst (on for Tyler Radke, Citi)

Got it. And then I also wanted to ask about that large customer, the DSO. I understand that the initial conversation was tied to the core communications module, but have you discussed the potential to add the payments module in the near term? Where's the appetite for that from that network of customers?

Alan Taylor, Chief Financial Officer

It's always a possibility. There is nothing contractual at this point with those customers for payments, but I think the payments offering is compelling enough that it may be of interest in the future. We definitely want to make sure people understand that option and we see other multi-office opportunities in our mid-market team where we will factor payments in and give it the exposure that will land some of those customers on payments as well.

Roy Banks, Chief Executive Officer

As it relates to our payments offering, we can offer that both at the point of sale and on an upsell basis into our existing customer base. Oftentimes it just depends on the right sales motion to introduce payments. We always have the option of going back into our customer base and upselling payments.

Analyst, Analyst (on for Tyler Radke, Citi)

Great, thank you very much and congratulations on that customer.

Operator, Operator

We'll take our next question from Raymond James. Please go ahead.

John, Analyst (Raymond James, on for Brian Peterson)

Hi, thanks for taking the question. This is John on for Brian. First question on lead generation sources: can you quantify the historic pipeline contribution from live events and conferences? While I know you said there's a lower amount of conferences this year and we've seen some in-person conferences return, how does the current pipeline contribution stand?

Alan Taylor, Chief Financial Officer

Historically we got almost a third of our leads and deals through conferences pre-pandemic. Obviously, those went largely away until recently. Last fall attendance was somewhere between 25% and 30% of pre-pandemic levels, and now we're at about 50% in the most recent ones. So we will see lead flow return. It's still worth attending some of those larger conferences where the economics make sense. Whether conferences return to pre-pandemic levels is a function of a number of things. One thing our sales team has observed is that many professionals used to attend conferences in part to earn continuing education credits. Now those credits are often available remotely or online, so whether conferences will get back to full strength is yet to be determined. We do know the ones that will be attended at viable levels and we still see an opportunity to achieve good customer acquisition cost from those shows.

John, Analyst (Raymond James, on for Brian Peterson)

Perfect, thanks for the color. Then factoring in your 2022 outlook, how should we think about the cadence of gross margin progression as we move through 2022 given hardware and implementation puts and takes?

Alan Taylor, Chief Financial Officer

Hardware and implementations are key elements that will ultimately result in positive margin expansion as we go forward. Onboarding customers is an expensive proposition. We expect margin expansion, moving from the high 50s toward the low 60s in the back half of the year.

John, Analyst (Raymond James, on for Brian Peterson)

Thank you very much.

Operator, Operator

We'll take our next question from Mark Schappel with Benchmark. Please go ahead.

Mark Schappel, Analyst (Benchmark)

Thank you for taking my question. Given the change in leadership and the sales strategy in your payments business, is it fair to assume that you're not seeing the adoption trends in your payments business that you initially hoped to?

Alan Taylor, Chief Financial Officer

We were still very much in the early stages last year when we were trying to build product-market fit for payments. Now that we have the features and functionality that give us a robust payments offering, it was the right time to bring on a payments sales leader to really accelerate adoption. Keep in mind we processed $1 billion in payments volume without having a dedicated payments leader over that product. Now with a new leader and a more robust product, we see a great opportunity for payments to be a breakout product for us. We're excited about what we'll see going forward.

Mark Schappel, Analyst (Benchmark)

That's helpful. And then one additional question: in your prepared remarks you noted turnover in the sales force was higher than anticipated. Could you comment a bit further on this? Are you seeing sales reps go to competitors or to other industries? Any additional color would be helpful.

Alan Taylor, Chief Financial Officer

Part of it is our location in Utah, the Silicon Slopes, where there's a very competitive environment for talent. We have seen churn for that reason. Also, as a result of the new sales model we implemented, some folks prefer the previous system and may self-select out. That's really what has been driving some of the churn we've seen. This is a talent-rich environment and competition for talent is fierce. We continue to recruit because selling Weave is a great experience and we have strong product-market fit. We've created some incentives for retention that we believe are keeping our top-tier sales people and we're starting to ramp up for more scale and more effective selling as we extract more value per lead.

Mark Schappel, Analyst (Benchmark)

Great, thank you.

Roy Banks, Chief Executive Officer

You're welcome.

Operator, Operator

We have no additional questions in the queue. I'd like to turn the call back over to Roy for any additional or closing remarks.

Roy Banks, Chief Executive Officer

Awesome. Well, I would like to thank everyone for being on the call today. I really appreciate your interest in Weave. We hope this call gives you confidence that we have a clear plan and path to re-accelerating growth in the company as we make much-needed and exciting changes within the business while we navigate and overcome some of the challenges that we've highlighted on this call. We remain very optimistic about the prospects for the company, especially as we look forward to the second half of the year for the impact of many of the changes we've implemented. We would like to thank all of you for your time today and appreciate your ongoing support and enthusiasm for our company. Thank you very much and have a wonderful rest of the day.

Operator, Operator

Thank you. That does conclude today's conference. We do thank you all for your participation. You may now disconnect.