Good afternoon, everyone. My name is Hannah Rudolph. I'm a Research Analyst on the tech team here at Piper Sandler. Excited to have Weave join us for another year in Nashville. This year we have Jason Christiansen, CFO. Welcome to Nashville. Thank you for being here.
Thank you for having us.
Let's kick this Q&A session off with one of the biggest questions on the forefront of investors' minds: AI. It's been this overarching debate that AI is both a threat and an opportunity. We're in the camp that the entire software stack is in this race for relevancy and that the actual fears around death and disruption in the SaaS layer may be overblown. To that end, what are two to three things that Weave is doing to gain more relevance in this AI era?
Yeah, great question. I guess to start, I think about what's relevant for our end markets. There's three things that are top of mind for the SMB healthcare. Weave services the SMB healthcare side with communication engagement software. All of these small, we'll call them dental, optometry, vets, specialty medical practices are really targeting three things. They want to grow their practice. They want to get paid faster or more efficiently for the services that they're providing, which that's actually more of a challenge than most people realize. Three, they want to make more money. Knowing that those are three of the most relevant things for them to deal with, the things that Weave is doing to innovate on that front to remain relevant comes through differentiation by integrating AI into the workflows that do that.
Growing the practice typically comes through keeping schedules full, converting phone calls into booked appointments. What that looks like is our AI automation platform through TrueLark. It's an acquisition we did earlier this year. It takes what otherwise would be a missed phone call or a missed revenue opportunity and engages those phone calls into SMS conversations through an agent. The results in the output of a scheduled appointment back into the practice management system. That's the system of record. Once that's done, the other thing to help them grow their revenue is make sure that those appointments show up through appointment confirmation and verification that, again, is handled through an agent rather than the front desk staff who has to perform all those tasks. The second thing of, you know, how do they collect on that better?
This is where digital collection modalities on the payment side become very relevant. In the future, what that, I guess, before I go there, what that looks like for these practices is text-to-pay opportunities. I mean, I think everybody here has probably gotten or maybe still getting paper invoices from their dentist, their optometrist, their vet, something like that. How do you digitalize and bring them into the modern era from a collections perspective in this healthcare space? That's something that Weave does with our payment solution. The next wave of that is how do you bring an agent in to do those collections on behalf of the office? There's no more hated phone call from a front desk receptionist than a collection phone call. How do we actually just take that off their plate and collect once the insurance or claims adjudication process has been completed?
That's a problem that we're focused on solving. The third area from a profitability perspective is as we solve these things, as we take these routine tasks off the front desk so they don't have to do it, that frees up the front desk to do more value-add services, whether that's spending time with the patients when they come in to help increase the ticket size by adding tooth whitening or other high-value procedures. The role of the front desk can evolve. If the work's not there as well, that's up to the practitioner owner if they see that as another mechanism of improving profitability.
Totally makes sense. You know, one bare case we've heard is that AI is going to disrupt and change these workflows. I guess how would you refute that case, for example, for scheduling an appointment at a dental office? Do you see risk from these maybe horizontal AI tools that could come in and say, you know, start to build these workflows instead of Weave? Do you see your differentiation as enough to compete?
Yeah, so I think there's some important differentiation, especially within the healthcare verticals. A couple of things that you really can't afford to screw up, the practices can't afford or won't tolerate, is messing up the schedule. The difference between accepting an appointment that is reserved for a root canal and incidentally booking someone, I'll give you two use cases. One is a hygiene appointment during that same slot, or two, a root canal, but with an insurance that you don't want, can be the difference between making $200 for the dentist in that one-time slot or $1,200. Or in the case of the wrong insurance, or sorry, $20 or $1,200 or $200 for the wrong root canal on the wrong insurance to $1,200. The economics are significantly different. There is a very deterministic outcome where hallucination is just not accepted.
The other thing is those schedules predominantly live within the practice management system. To get all the integration work back in to actually tie those into the system of record, the practice management, there's a pretty significant load and work that's required that most of these horizontal players, like, they don't understand the industry or the players to the depth to actually effectively do that. That's an opportunity from our perspective where we have these integrations. We have these partnerships and we understand the nuances of these workflows.
Got it. As you think about the to leverage AI across the different end markets that you serve, have you seen different things between dental or specialty medical? Has it been a pretty broad willingness to adopt across the board?
It's pretty broad. However, there are pockets where you'll see some difference. If we zoom out and we say AI, they're all testing, but they're all testing in very different ways. From the medical side, a lot of them are doing it more from a clinical perspective than from a patient engagement and interaction perspective. If you think about charting and X-ray analytics, they're all becoming familiar with AI just in different use cases and applications. A lot of these practices on the medical side don't really have the communication engagement stack like Weave has in the first place. Even just the migration to Weave, that's a newer market that we've entered into. Even just the communication engagement for GetAI, that's a net positive to where that industry has been on the SMB healthcare side. First is just getting adoption of that entire approach to patient experience.
They're certainly open to it, but I'll say they're further behind the curve on that side. On the dental side, what you'll see, dental and optometry is that's really being led by dental service organizations or medical service organizations. Those are the PE roll-up groups where they'll buy a large number of these locations. They're more on the bleeding edge and they're testing and trying to figure out what their AI strategies are, who are the platforms that they want to build their platforms around or their tech stacks around. While the general single location, single practitioner side maybe hasn't gone to the adoption, they're all thinking about it and waiting to see where the larger players play. You do see different dynamics across the verticals.
Makes sense. Have you quantified the opportunity that AI brings to the platform or can bring to your customers? I guess we'll just start there.
Yeah, I'll say we've got an initial, we've quantified at least our initial position, which is really around the scheduling side of the equation. There's a lot more workflows, a lot of work that can be done, workflows that can be handed off to AI. If we start with just the simple use cases that are part of TrueLark, which is the business that we acquired and how they're handling that scheduling side. In the U.S. alone, we're looking at about a $3 billion TAM expansion to what we look at and how we measure it. Now that's based on that use case, which is, you know, roughly $200 to $300 per location on top of what they would pay for Weave. Over time, I think there's an opportunity for that to expand as you think about additional workflows that become relevant.
I wouldn't say we've sized the entire AI opportunity, but we started with at least that narrow focus case.
Got it. Zooming out a little bit more, when we talk to investors about Weave, I think there's some concern that you're getting close to penetration in dental, which doesn't seem to be the case, but that's your most mature vertical. People naturally worry that there's not that much room to run. Can you expand on that and how much opportunity you have inside of dental and then outside of dental?
Yeah, so we're between 10% and 15% penetrated in our more mature verticals like dental and optometry. There's still a lot of room to run. Some of where that opportunity lies is in the mid-market side. This is the DSO side of the market is one part of that. Last summer is when we launched our real mid-market multi-location product and solution. We built out a mid-market team to really go after that opportunity. Prior to that, we were really selling these large groups a single location-based solution. Some of them would still buy, but that was not a very great experience. That is one vector of growth within the more established markets that Weave is still fairly new to, is what I'll say.
The other parts I think about the differentiation that AI brings and the ability to not just the vendor consolidation that they're all focused on, but how do we now bring this new wave of AI and not just produce a solution that can help the office do their job, but can actually do some of those jobs for the office? That's where I think there's additional opportunity for us to expand our market share just through continued differentiation in our established markets.
Got it. You touched on TrueLark a little bit earlier about the AI capabilities it's bringing to your platform. I guess how are you thinking about capital allocation from here, willingness to do more tech tuck-ins, anything you're specifically looking for on that front?
Yeah, so our current position, we have about a little over $75 million in cash and short-term investments. We're free cash flow positive, so we live on our own lunch money. We don't need to consume cash as just part of the day-to-day operations of our business, even with TrueLark as we're making investments there. With the capital allocation, we remain open and opportunistic where there are synergistic capabilities that will accelerate or bring forward our roadmap and where there's strong overlap in terms of our customer base and their needs from a capabilities perspective, where today we may not offer those capabilities. We routinely have customers who go down their P&L, sort their vendors top to bottom, most expensive, and it's like, can you do this? Can you do this? Can you do this? There are a number of solutions that today we don't really do.
Where it would make sense and where we believe there's a strong opportunity that may span across more than just one vertical, those are things that we'll continue to assess. We'll continue to be prudent about it. Acquisition isn't our strategy. Beyond that, it really just comes down to internally what are the build-buy-partner frameworks for us to continue to use our capital to bring the capabilities to market to provide that differentiation.
Got it. I guess shifting gears a little to the art of the possible, you know, ARR currently sitting at around $224 million. If you guys are at breakeven, a little bit free cash flow positive, if you guys could double ARR again to $500 million, where do you think operating margins could go and what are the growth drivers to get us to that next leg of growth?
Yeah, we've talked about our long-term operating margins as being, you know, in that 15% to 20% range. A lot of that comes down to the pace at which we can grow. We believe our opportunity is to be $500 million plus, especially as we're looking at these growth vectors and these new growth areas that we are investing in today. You know, with our customer acquisition costs all coming through the P&L on the front end, a lot of the margin profile says, will we be there at $500 million? That depends on the pace and rate at which we can get there. Where that leverage is going to come from, I think that the growth areas that we're investing in within our business are not just contributors to growth, but also avenues for future leverage.
For those who are newer to the story, the things that we're really focused on that are new growth vectors for our business are around medical. We're less than 1% penetrated in the specialty medical space, and that's a significant opportunity. It's larger than all of our existing core verticals that we've had before: dental, optometry, and vets, larger than that combined. It's quickly growing. It's become our second largest vertical in terms of location count in pretty short order. That's a very exciting, very promising avenue for growth, as well as future leverage. There's mid-market, which I shared a little bit about. The customer acquisition side is far more efficient in a mid-market sales cycle than it is through our traditional hand-to-hand combat sales motion. Through partnerships, we've grown to the size we are without any distribution partnerships. It's all just been organic one-to-one selling.
We signed the number two practice management in dental, Patterson, to be our first distribution partner last year. We're making good progress there. That's something that we continue to work on, diversifying what that distribution base looks like. That, again, is something that can contribute more scale and efficiency over time. Payments is less than 10% of our revenue. It's a fast-growing segment of our revenue, and that's very high margin for us. We recognize it on a net basis. When you think about operating leverage and scale within the model, further progress on that side is something that, again, just contributes to more leverage within the model overall. AI, we already talked about what that does from a TAM perspective and a cross-sell. We have over 35,000 locations that are AI solutions.
It works for every appointment-based business, so every one of those locations is an eligible candidate, especially once we get the integrations done. I think that's something that really lends itself to future scale from an ASP expansion perspective.
Makes sense. Sounds like a lot of growth drivers for you guys. It's just up to you to execute.
Execution and then balancing the investments in each of those areas. Yep.
As I think about getting leverage from AI, what have you guys been doing internally? What has worked? What hasn't worked? Has AI impacted your hiring plans for the year or anything like that?
Yeah, this is something that we have a number of initiatives around to figure out. I'll tell you one thing that doesn't work is just leave it up to the teams to just try to figure out an AI strategy on their own. That doesn't work. What's a more corporate approach to what are the right solution sets and where can we solve it? We've had some success on the customer support side when you think about improved bots and self-service capabilities, leveraging our knowledge base to help customers serve things self-service. That's a good spot. I wouldn't say we're done on that front. Some of the other areas, even just within our own finance organization, finding ways of leveraging AI with helping us with, on the IR side, reviewing analyst reports and synthesizing what's going on and how the different models are comparing.
We're looking at it across the whole company, across the go-to-market, the sales motion. Still got a lot of work to do to make sure we find the right use cases. Something we're optimistic about for the future for sure.
Got it. You're certainly not alone in that, I'm sure. Just last question here, last few minutes. As you think about the future, what is one trend or topic that investors might be talking about next year, this time when you're in Nashville that they're not talking about today? What are you most excited for next year?
Yeah. As it stands today, at least in our markets, this whole AI discussion, I don't think that's going to go away. Most of where that's been focused, though, is around it's all text-based. That's really where the solutions have been established. I think as I look forward, the frontier is more about omnichannel agents that can navigate between voice, can navigate between the chat conversations to where it's one engine that kind of rules them all and can handle all the requests however patients want to engage. Today there's not as much conversation about the omnichannel aspect. I think that that's something that's quickly coming. What am I most excited about for next year, besides the Piper Sandler Conference in Nashville 2026?
I guess the thing that gets me excited is when I talk about, I hear and see some of the customer reaction to what we're doing in providing a unified inbox. What that means for us is in one central place for these SMB practices, the ability to see every interaction with their patient, whether that is a phone call in real time with the sentiment, understanding what the takeaways, the actions were from that, whether that is the human messaging back and forth with that practice, or an AI agent, all in one place in real time, what's going on, and the ability for the front desk to step in and intercept a conversation and pick up where the AI was at without any loss of translation.
That, to me, when I see them excited about the prospect of bringing all that into one place, I mean, that's the future we're innovating to. When I see them light up and get excited about what that means for them and how they manage their offices and the ability to even consolidate what otherwise would be multiple different vendors on this side, that's where I think there's huge differentiation opportunity that we're primed to execute. That's what we're building towards. I'm excited about that.
That's great. It sounds like there's no shortage of opportunity, and your future is very bright.
Yeah.
Thank you, Jason, for being here today.