Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $43.5 million, representing a 20.2% year-over-year growth, exceeding the top end of revenue guidance for the seventh consecutive quarter [6][16] - Gross margin improved to 69.3%, a 470-basis-point increase from the previous year [7][18] - Operating loss margin reduced to 4.2%, significantly improved from 18% a year ago [20][21] - Free cash flow was $2.1 million, with a free cash flow margin of 4.8%, compared to negative $4.6 million in Q3 2022 [23] Business Line Data and Key Metrics Changes - Continued strong demand from digital channels and in-person events, with increased capacity in the sales team [7] - The company saw growth in customer base, reaching over 30,000 active locations, indicating strong customer acquisition and retention [12] - The average revenue per location (ARPU) is trending up, particularly with the highest bundle, Weave Elite, being the majority of sales [28] Market Data and Key Metrics Changes - The net revenue retention (NRR) rate was 95% in Q3, with improvements noted in monthly metrics [17] - Gross revenue retention rate remained at 92%, indicating strong customer loyalty [17] Company Strategy and Development Direction - The company is focused on enhancing its vertically tailored software platform to meet the needs of small and medium-sized healthcare businesses [5] - A new partnership with Henry Schein One will enhance integration with their cloud-based practice management software, Dentrix Ascend, targeting multi-location practices [9][38] - The company is committed to balancing growth with a path towards profitability, aiming for a long-term gross margin of 75% [39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the continued demand for their platform and the effectiveness of their sales strategies [32] - The outlook for Q4 2023 anticipates revenue in the range of $43.5 million to $44.5 million, with a non-GAAP operating loss expected between $3 million to $2 million [25] - Management noted that the transition from a third-party digital forms product to an in-house solution is expected to stabilize NRR metrics in the coming year [34] Other Important Information - The company has been recognized as a leader in G2's fall 2023 report, ranking first in 34 categories, reflecting strong customer satisfaction [12] - A personnel change was announced with the Chief Revenue Officer leaving, and the VP of Sales will assume the interim role [14] Q&A Session Summary Question: Initial purchasing patterns for new bundles - Management confirmed that the majority of sales are from the highest bundle, Weave Elite, which has helped maintain ARPU [28] Question: Q4 revenue guidance and macro concerns - Management clarified that the Q4 guidance reflects a consistent methodology and does not indicate any seasonal or macroeconomic concerns [32] Question: Stabilization of NRR post-transition - Management indicated that NRR will stabilize sometime next year as the impact of the transition diminishes [34] Question: Go-to-market strategy for multi-location businesses - A separate sales team is dedicated to multi-location businesses, which have a longer sales cycle, and product enhancements are being rolled out [38] Question: Sales force productivity and ramp-up - Management reported significant improvements in sales force efficiency, with new sales reps ramping up faster than before [41] Question: Market size for Dentrix Ascend integration - The potential market includes around 100,000 locations, with a focus on long-term opportunities as legacy customers transition to cloud solutions [43] Question: Adoption of payment products - Approximately 20% to 25% of new customers are signing up for payment solutions at the point of sale, with efforts to enhance adoption [46]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________ or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-40998 Weave Communications, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Delaware 26-3302902 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITI ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-40998 Weave Communications, Inc. (Exact name of registrant as specified in its charter) FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or (State or oth ...

PART I [Item 1. Business](index=9&type=section&id=Item%201.%20Business) Weave Communications, Inc. offers an all-in-one customer communications and engagement software platform for SMBs, streamlining operations and enhancing customer interactions across various sectors - Weave offers a cloud-based, all-in-one customer communications and engagement software platform for SMBs, integrating telephony, messaging, scheduling, payments, and marketing[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - Key benefits of the platform include ease of use, unified communications, low total cost of ownership, high ROI, industry-specific capabilities, reduced customer churn, and improved customer acquisition[27](index=27&type=chunk)[35](index=35&type=chunk) [Overview](index=9&type=section&id=Overview) Weave provides a cloud-based, all-in-one customer communications and engagement software platform for SMBs to streamline operations and enhance customer interactions - Weave provides an all-in-one customer communications and engagement software platform for SMBs, streamlining operations and enhancing customer interactions[24](index=24&type=chunk)[25](index=25&type=chunk) [Our Platform](index=9&type=section&id=Our%20Platform) Weave's platform unifies telephony, messaging, scheduling, payments, and marketing into a single solution, integrating with existing systems to improve customer interactions and retention - The platform consolidates telephony, messaging, scheduling, payments, employee collaboration, digital forms, insurance verification, customer review management, and marketing into one solution[26](index=26&type=chunk) - Key benefits include ease of use, unified communications, low total cost of ownership, high ROI, and improved ability to attract and retain customers[27](index=27&type=chunk) [Our Products](index=10&type=section&id=Our%20Products) Weave offers a comprehensive product suite covering the entire customer journey, including phone systems, messaging, payments, and marketing tools - Products include a customized phone system with WeavePop, two-way text messaging, Missed Call Text, and Weave Team for internal collaboration[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk) - The platform also features a mobile app, Weave Reviews for online reputation, Email Marketing, Text Connect for website interaction, Weave Payments, Customer Insights, Digital Forms, Online Scheduling, and Insurance Verification[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk) [Our Customers](index=11&type=section&id=Our%20Customers) As of December 31, 2022, Weave served over 27,000 locations and 25,000 customers in specialized healthcare verticals across the U.S. and Canada Customer Base as of December 31, 2022 | Metric | Value | | :----------------------- | :------ | | Locations under subscription | >27,000 | | Customers | >25,000 | | Primary Industries | Dental, Optometry, Veterinary, Medical Specialty Services, Home Services, Physical Therapy, Audiology, Podiatry | [Sales and Marketing](index=11&type=section&id=Sales%20and%20Marketing) Weave employs a multi-channel go-to-market strategy, combining direct inside sales with diverse marketing and business development efforts for customer acquisition and expansion - Marketing generates leads through paid advertising, digital events, sponsorships, direct mail, email campaigns, social media, and organic searches[45](index=45&type=chunk) - Subscriptions are primarily sold by a direct inside sales team, with specialized teams for new customer acquisition and expanding existing customer usage[46](index=46&type=chunk) - A business development team manages technology integration partners, key-opinion leaders, IT-installers, buying groups, affiliates, and distributors for commissioned referrals and channel partnerships[47](index=47&type=chunk) [Customer Success and Support](index=12&type=section&id=Customer%20Success%20and%20Support) Weave offers comprehensive customer support via multiple channels, emphasizing high-quality service and continuous monitoring to promote retention and referrals - Customer support is offered via phone, AI-driven solutions, web-chat, and email, with staff in the U.S. and India[48](index=48&type=chunk) - The company monitors key customer service metrics (phone hold time, ticket response/resolution rates, satisfaction) to ensure high quality and promote retention[49](index=49&type=chunk) [Research and Development](index=12&type=section&id=Research%20and%20Development) Weave's R&D teams develop high-value features and customized solutions for SMB verticals, integrating in-house and open-source technologies, with operations in the U.S. and India - Engineering and product teams focus on developing high-value features and functionality, delivering tools for meaningful customer engagements[50](index=50&type=chunk) - Products are designed for a broad customer base with customized features for specific SMB verticals, integrating open-source technologies with in-house code[50](index=50&type=chunk) - Research and development operations are maintained in both the United States and India[51](index=51&type=chunk) [Our Technology](index=12&type=section&id=Our%20Technology) Weave's cloud-native technology platform, hosted on GCP, provides a scalable microservices architecture and an in-house phone system, secured by industry-standard practices and data encryption [Weave Software Platform](index=12&type=section&id=Weave%20Software%20Platform) Weave's software platform uses microservices in a cloud-native environment for rapid scaling, supporting integrated web, mobile, and desktop client experiences - The platform uses microservices in a highly containerized, cloud-native environment for rapid scaling and leverages cloud service providers' offerings[52](index=52&type=chunk) - It integrates web, mobile, and desktop clients with the phone system to provide a seamless customer experience[52](index=52&type=chunk) [Weave Phone System](index=13&type=section&id=Weave%20Phone%20System) Weave's in-house cloud-based phone system offers advanced business capabilities, leveraging cloud infrastructure for superior voice quality and seamless updates across North America - Weave's in-house developed cloud-based phone system offers advanced business phone capabilities, leveraging cloud infrastructure for redundancy and superior voice quality[53](index=53&type=chunk) - The system provides unlimited local and long-distance voice calling within the U.S. and Canada via SIP Trunking interconnects[54](index=54&type=chunk) [Security](index=13&type=section&id=Security) Weave employs multi-layered security, including a dedicated team and industry-standard policies, to protect systems and data through encryption and continuous monitoring - Weave employs multiple layers of security, including a dedicated security team, to protect systems, data, and customer information[55](index=55&type=chunk)[56](index=56&type=chunk) - Security policies and standards are consistent with ISO 27001, AICPA Trust Service Principles, and NIST Cybersecurity Framework[57](index=57&type=chunk) - Data is encrypted in transit (TLS 1.2+) and at rest (AES-256+) on Google Cloud Platform, with unique encryption keys for customer images, voicemails, and call recordings[58](index=58&type=chunk) [Human Capital](index=13&type=section&id=Human%20Capital) As of December 31, 2022, Weave had 806 employees, with expanded operations in India, offering competitive benefits and fostering a diverse, inclusive culture - As of December 31, 2022, Weave had **806 employees**, with expanded engineering and support presence in India[59](index=59&type=chunk) - The company offers competitive compensation, benefits, parental leave, flexible PTO, and professional development opportunities[60](index=60&type=chunk) - Weave fosters a diverse and inclusive workforce, promoting equitable processes and an inclusive culture guided by the 'Weave Way' values[61](index=61&type=chunk)[63](index=63&type=chunk) [Competition](index=14&type=section&id=Competition) Weave operates in a rapidly evolving, fragmented, and highly competitive market, competing on platform breadth, ease of use, industry-specific capabilities, and customer service against existing point solutions - The market is rapidly evolving, fragmented, and highly competitive, with primary competition often being a combination of existing point solutions[62](index=62&type=chunk) - Key competitive factors include platform breadth, all-in-one solution, ease of deployment, industry-specific capabilities, integration depth, customer insights, cloud architecture, customer service, advanced payments, brand recognition, and pricing[64](index=64&type=chunk)[68](index=68&type=chunk) [Intellectual Property](index=15&type=section&id=Intellectual%20Property) Weave protects its intellectual property through domain names, copyright, trade secrets, trademarks, contractual provisions, and information security, relying on unpatented innovation - Weave protects its intellectual property using domain names, copyright, trade secrets, trademarks, contractual provisions, and information security infrastructure[66](index=66&type=chunk) - The company relies on unpatented trade secrets, confidential know-how, and continuous technological innovation to maintain its competitive position[66](index=66&type=chunk) - Confidentiality and invention assignment agreements are in place with employees, consultants, and contractors to protect proprietary information[66](index=66&type=chunk) [Regulatory](index=15&type=section&id=Regulatory) Weave is subject to extensive regulations as a VoIP provider, including FCC, CRTC, TCPA, CAN-SPAM, CASL, HIPAA, CPRA, and PIPEDA, governing communications and data protection - Weave is regulated by the FCC and CRTC as a VoIP provider, subject to E-911 requirements, phone number porting, customer data protection, and disability access rules[67](index=67&type=chunk) - The company must comply with laws regulating communications, including TCPA, CAN-SPAM, and CASL, and provides features to help subscribers manage compliance[68](index=68&type=chunk) - Weave collects, stores, and processes personal data, including Protected Health Information (PHI), subjecting it to HIPAA, CPRA, US state data breach notification laws, and PIPEDA (Canada)[70](index=70&type=chunk)[71](index=71&type=chunk) [Corporate Information](index=16&type=section&id=Corporate%20Information) Weave Communications, Inc., organized in Delaware in 2008 and renamed in 2015, maintains its principal executive offices in Lehi, Utah - Weave Communications, Inc. was organized in Delaware in September 2008 as Recall Solutions, LLC and converted to its current name in October 2015[74](index=74&type=chunk) - The principal executive offices are located at 1331 W Powell Way, Lehi, Utah 84043[74](index=74&type=chunk) [Available Information](index=16&type=section&id=Available%20Information) Weave provides SEC filings and material information on its Investor Relations website and through press releases, public calls, and social media - Weave's SEC filings (10-K, 10-Q, 8-K) are available on its Investor Relations website: https://investors.getweave.com[75](index=75&type=chunk) - The company uses SEC filings, press releases, public conference calls, and social media (Twitter, LinkedIn, Instagram, Facebook) to communicate material information[76](index=76&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) Investing in Weave's common stock involves significant risks related to its business model, growth, competition, third-party dependencies, cybersecurity, and regulatory compliance - Weave's rapid growth may not be indicative of future growth, making future prospects difficult to evaluate and increasing business risk[79](index=79&type=chunk)[82](index=82&type=chunk) - The company has a history of net losses (**$49.7 million** in 2022, **$51.7 million** in 2021) and may not achieve or sustain profitability due to increased costs and expenses[93](index=93&type=chunk)[94](index=94&type=chunk) - Significant risks include dependence on attracting and retaining SMB customers, managing growth, intense competition, reliance on third-party integrations (e.g., Dentrix, Stripe, network providers, GCP), cybersecurity threats, and compliance with evolving regulations (FCC, TCPA, HIPAA, CPRA)[83](index=83&type=chunk)[88](index=88&type=chunk)[90](index=90&type=chunk)[110](index=110&type=chunk)[112](index=112&type=chunk)[130](index=130&type=chunk)[133](index=133&type=chunk)[135](index=135&type=chunk)[142](index=142&type=chunk)[185](index=185&type=chunk)[195](index=195&type=chunk)[207](index=207&type=chunk)[214](index=214&type=chunk) [Risks Related to our Business and our Industry](index=18&type=section&id=Risks%20Related%20to%20our%20Business%20and%20our%20Industry) Weave faces business risks from sustaining growth, SMB customer acquisition/retention, third-party dependencies, intense competition, cybersecurity threats, and international expansion complexities - Weave's revenue growth rate is expected to decline, and its ability to forecast future operating results is difficult due to factors like pricing, COVID-19 impact, product expansion, customer retention, and sales personnel productivity[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - The company's success is critical on attracting new customers, retaining existing ones (majority on monthly subscriptions), and increasing platform usage, with customer acquisition costs potentially rising[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) - Weave relies on integrations with third-party practice management systems (e.g., Dentrix) and payment service providers (Stripe), and disruptions or adverse changes in these relationships could significantly impact its platform's value and operations[110](index=110&type=chunk)[133](index=133&type=chunk) - The market is highly competitive and fragmented, with competitors ranging from existing point solutions to larger companies with greater resources, potentially leading to pricing pressures and reduced margins[112](index=112&type=chunk)[116](index=116&type=chunk)[118](index=118&type=chunk) - Cybersecurity breaches, system interruptions, and reliance on Google Cloud Platform (GCP) for infrastructure pose risks of data loss, reputational damage, and service unavailability[130](index=130&type=chunk)[142](index=142&type=chunk)[147](index=147&type=chunk) - International expansion (currently U.S. and Canada, with operations in India) exposes Weave to regulatory, economic, and political risks, potentially leading to lower gross margins for international customers[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) [Risks Related to Governmental Regulation](index=42&type=section&id=Risks%20Related%20to%20Governmental%20Regulation) Weave is subject to extensive governmental regulations as a VoIP provider, including FCC, CRTC, TCPA, CAN-SPAM, CASL, HIPAA, CPRA, and PIPEDA, with non-compliance posing significant risks - As a VoIP provider, Weave is subject to FCC and CRTC regulations, including E-911 requirements, and potential reclassification as a telecommunications service, which could increase regulatory burdens and costs[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) - Efforts to combat robo-calling and caller ID spoofing (STIR/SHAKEN framework) could harm Weave's business if its solutions are not interoperable or if calls are blocked/flagged, making services less desirable[189](index=189&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk) - Weave's messaging services expose it to risks under consumer protection laws like TCPA, CAN-SPAM, and CASL, with potential for fines and litigation if customers misuse the platform for unauthorized or illegal communications[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk)[199](index=199&type=chunk) - The company processes business and personal information, subjecting it to stringent data protection laws (HIPAA, CPRA, PIPEDA), with non-compliance potentially leading to civil liability, fines, and reputational damage[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[214](index=214&type=chunk)[216](index=216&type=chunk) [Risks Related to Intellectual Property](index=50&type=section&id=Risks%20Related%20to%20Intellectual%20Property) Weave's success depends on protecting its intellectual property, facing risks of infringement, costly litigation, and potential issues from open-source or third-party software usage - Failure to protect or enforce intellectual property rights (trademarks, copyrights, trade secrets) could impair Weave's ability to protect its technology and brand, potentially leading to misappropriation by third parties[220](index=220&type=chunk)[221](index=221&type=chunk) - Weave faces risks of intellectual property infringement claims, which could result in costly litigation, diversion of management resources, unfavorable settlements (e.g., license fees), or the need to redesign products[222](index=222&type=chunk)[223](index=223&type=chunk) - The use of open-source and third-party software may impose unanticipated conditions, expose Weave to claims of non-compliance with licenses, or introduce security risks, potentially requiring re-engineering or incurring significant legal expenses[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk) [Risks Related to Tax Matters](index=52&type=section&id=Risks%20Related%20to%20Tax%20Matters) Weave faces tax risks from changing laws, challenges to tax positions, and potential limitations on utilizing net operating loss carryforwards, which could increase liabilities - Weave may incur additional income tax liabilities if tax laws change, authorities challenge its tax positions, or estimates prove incorrect, impacting financial results[229](index=229&type=chunk) - The company could be required to collect additional sales, value-added, or similar indirect taxes in more jurisdictions, increasing customer costs and administrative burdens, and potentially affecting sales[230](index=230&type=chunk)[231](index=231&type=chunk) - Weave's ability to use its federal and state NOL carryforwards (**$179.2 million** and **$127.1 million**, respectively, as of Dec 31, 2022) may be limited by Section 382 of the Internal Revenue Code or other regulatory changes, potentially increasing future tax liabilities[233](index=233&type=chunk)[234](index=234&type=chunk) [Risks Related to Accounting Matters](index=54&type=section&id=Risks%20Related%20to%20Accounting%20Matters) Weave faces accounting risks from maintaining effective internal controls, reliance on management estimates, and potential fluctuations due to changes in financial accounting standards - Failure to maintain effective disclosure controls and internal control over financial reporting could adversely affect financial statement accuracy and investor confidence, potentially leading to SEC investigations or litigation[235](index=235&type=chunk)[236](index=236&type=chunk) - Weave's results of operations could be adversely affected if estimates or judgments related to critical accounting policies (e.g., revenue recognition, stock-based compensation) prove incorrect[237](index=237&type=chunk)[238](index=238&type=chunk) - Changes in financial accounting standards (e.g., ASC 606) or their interpretations may cause unexpected financial reporting fluctuations and affect business operations[240](index=240&type=chunk)[241](index=241&type=chunk) [Risks Related to Ownership of our Common Stock](index=55&type=section&id=Risks%20Related%20to%20Ownership%20of%20our%20Common%20Stock) Weave's common stock faces volatility, dilution risks from future issuances, potential price declines from large sales, and limited investor influence due to concentrated ownership - The market price of Weave's common stock is volatile and can fluctuate significantly due to factors like market performance, financial projections, competition, and regulatory changes[242](index=242&type=chunk)[243](index=243&type=chunk) - Future equity issuances (e.g., under incentive plans, for acquisitions) and sales of substantial amounts of common stock by existing holders could dilute ownership and cause the stock price to decline[245](index=245&type=chunk)[247](index=247&type=chunk)[249](index=249&type=chunk) - Concentrated share ownership (**65.5%** by executive officers, directors, and >5% holders as of Dec 31, 2022) may limit other stockholders' ability to influence corporate matters[250](index=250&type=chunk) - As an 'emerging growth company' and 'smaller reporting company,' Weave benefits from reduced reporting requirements, which might make its common stock less attractive to some investors[251](index=251&type=chunk)[253](index=253&type=chunk) - Weave does not intend to pay dividends in the foreseeable future, meaning investors must rely on stock price appreciation for gains[254](index=254&type=chunk) [General Risks](index=61&type=section&id=General%20Risks) Weave faces general risks from legal proceedings, unfavorable economic conditions, natural disasters, and man-made problems, which could disrupt operations and impact financial performance - Legal proceedings and claims, even if unmeritorious, can be costly, divert management attention, and harm Weave's reputation[266](index=266&type=chunk) - Unfavorable industry or global economic conditions (recession, inflation, geopolitical conflicts, pandemics) could reduce demand from SMB customers, impacting revenue and financial performance[267](index=267&type=chunk) - The business is subject to risks from natural disasters, power disruptions, computer viruses, data security breaches, and terrorism, which could cause operational interruptions and data loss[268](index=268&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk) - Weave's risk management strategies may not be fully effective in mitigating all risks in a rapidly changing industry, potentially leading to uninsured liability or reputational harm[272](index=272&type=chunk) [Item 1B. Unresolved Staff Comments](index=62&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments are applicable to the registrant - No unresolved staff comments are applicable to Weave Communications, Inc[273](index=273&type=chunk) [Item 2. Properties](index=62&type=section&id=Item%202.%20Properties) Weave leases approximately 180,000 square feet for its Utah headquarters and maintains offices in India, with current facilities deemed adequate for expansion - Weave leases approximately **180,000 square feet** for its corporate headquarters in Lehi, Utah, with a lease expiring in 2033[274](index=274&type=chunk) - The company also maintains offices in Noida, India, and plans to lease additional space there to support growth[274](index=274&type=chunk)[275](index=275&type=chunk) [Item 3. Legal Proceedings](index=62&type=section&id=Item%203.%20Legal%20Proceedings) Weave is not currently involved in material legal proceedings, but future claims, including IP infringement, could be costly and divert management resources - Weave is not currently involved in any legal proceedings that would materially adversely impact its business, financial condition, or results of operations[276](index=276&type=chunk) - Future litigation, including intellectual property infringement claims, could be costly, time-consuming, and divert management resources[276](index=276&type=chunk)[277](index=277&type=chunk) [Item 4. Mine Safety Disclosures](index=63&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the company[278](index=278&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=64&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Weave's common stock began trading on the NYSE in November 2021, with 33 holders of record as of March 2023, no dividends paid, and **$107.5 million** net IPO proceeds - Weave's common stock began trading on the NYSE under 'WEAV' on November 11, 2021, after its IPO[281](index=281&type=chunk) - As of March 10, 2023, there were **33 holders of record** for the common stock[282](index=282&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, prioritizing retention of earnings for business growth[283](index=283&type=chunk) IPO Proceeds and Use | Metric | Amount (Millions) | | :-------------------------------- | :---------------- | | Shares Sold in IPO | 5.0 | | Price per Share | $24.00 | | Underwriting Discounts/Commissions | $8.4 | | Offering Expenses | $4.1 | | Net Proceeds to Company | $107.5 | - There were no issuer purchases of equity securities[290](index=290&type=chunk) [Market Information for Common Stock](index=64&type=section&id=Market%20Information%20for%20Common%20Stock) Weave's common stock began trading on the NYSE under 'WEAV' on November 11, 2021, following its initial public offering - Weave's common stock began trading on the NYSE under 'WEAV' on November 11, 2021, with no prior public market[281](index=281&type=chunk) [Holders of Record](index=64&type=section&id=Holders%20of%20Record) As of March 10, 2023, Weave Communications, Inc. had 33 holders of record for its common stock, excluding beneficial holders - As of March 10, 2023, there were **33 holders of record** for Weave's common stock[282](index=282&type=chunk) [Dividend Policy](index=64&type=section&id=Dividend%20Policy) Weave has never paid cash dividends and plans to retain future earnings for business development, with future dividend decisions at board discretion - Weave has never paid cash dividends and does not intend to in the foreseeable future, planning to retain earnings for business development[283](index=283&type=chunk) [Stock Performance Graph](index=64&type=section&id=Stock%20Performance%20Graph) A stock performance graph compares Weave's common stock return from its November 2021 IPO to December 2022 against the S&P 500 and Russell 2000 indices - A stock performance graph compares Weave's common stock return from November 11, 2021, to December 31, 2022, against the S&P 500 and Russell 2000 indices[285](index=285&type=chunk) - The graph assumes a **$100** initial investment and reinvestment of dividends, with a disclaimer that historical data does not forecast future performance[285](index=285&type=chunk)[286](index=286&type=chunk) [Use of Proceeds from Registered Securities](index=65&type=section&id=Use%20of%20Proceeds%20from%20Registered%20Securities) Weave's IPO on November 15, 2021, generated **$107.5 million** in net proceeds from selling 5 million shares at **$24.00**, with no material change in planned use IPO Proceeds and Use | Metric | Amount (Millions) | | :-------------------------------- | :---------------- | | Shares Sold in IPO | 5.0 | | Price per Share | $24.00 | | Underwriting Discounts/Commissions | $8.4 | | Offering Expenses | $4.1 | | Net Proceeds to Company | $107.5 | - No material change in the planned use of IPO proceeds has occurred since the final prospectus[289](index=289&type=chunk) [Issuer Purchases of Equity Securities](index=65&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) Weave Communications, Inc. did not make any issuer purchases of its equity securities during the reported period - There were no issuer purchases of equity securities[290](index=290&type=chunk) [Item 6. [Reserved]](index=66&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Weave's financial condition and results of operations for 2022 and 2021, detailing revenue, costs, expenses, key metrics, liquidity, and critical accounting estimates - Weave's revenue increased by **23%** to **$142.1 million** in 2022, driven by new and existing customer locations[337](index=337&type=chunk) - The company reported net losses of **$49.7 million** in 2022 and **$51.7 million** in 2021, with an accumulated deficit of **$231.6 million** as of December 31, 2022[93](index=93&type=chunk)[335](index=335&type=chunk) Key Financial Metrics (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :---------------------------------- | :------------------ | :------------------ | :--------- | | Revenue | $142,117 | $115,871 | 23% | | Cost of Revenue | $53,276 | $49,372 | 8% | | Gross Profit | $88,841 | $66,499 | 34% | | Gross Margin | 63% | 57% | 6 ppts | | Sales and Marketing Expenses | $65,378 | $58,244 | 12% | | Research and Development Expenses | $30,714 | $27,009 | 14% | | General and Administrative Expenses | $42,453 | $31,637 | 34% | | Net Loss | $(49,738) | $(51,690) | -4% | | Free Cash Flow | $(15,893) | $(30,182) | -47% | | Adjusted EBITDA | $(25,692) | $(33,271) | -23% | [Overview](index=66&type=section&id=Overview) Weave is a leading all-in-one customer communications and engagement platform for SMBs, expanding its product offerings and vertical reach since 2011 - Weave provides an all-in-one customer communications and engagement software platform for SMBs, unifying and modernizing customer interactions[294](index=294&type=chunk)[295](index=295&type=chunk) - Since 2011, the platform has expanded to include analytics (2019), payments (2019), forms (2021), and buy-now-pay-later (2022), and has grown into new verticals like veterinary and specialized healthcare[296](index=296&type=chunk) [Supplemental Financial Information — Disaggregated Revenue and Cost of Revenue](index=66&type=section&id=Supplemental%20Financial%20Information%20%E2%80%94%20Disaggregated%20Revenue%20and%20Cost%20of%20Revenue) Weave disaggregates revenue and cost of revenue into recurring (**95%** in 2022) and non-recurring categories, with non-recurring services often incurring negative gross profit for customer acquisition - Recurring subscription and payment processing revenues accounted for **95%** of total revenue in 2022 and **94%** in 2021[299](index=299&type=chunk) - Non-recurring onboarding and hardware services historically result in negative gross profit, serving as customer acquisition tools[300](index=300&type=chunk) Disaggregated Revenue and Cost of Revenue (2022 vs. 2021) | Category | 2022 Revenue (in thousands) | 2022 Cost of Revenue (in thousands) | 2022 Gross Margin | 2021 Revenue (in thousands) | 2021 Cost of Revenue (in thousands) | 2021 Gross Margin | | :-------------------------- | :-------------------------- | :-------------------------- | :---------------- | :-------------------------- | :-------------------------- | :---------------- | | Subscription & Payment Processing | $136,592 | $(35,008) | 74% | $108,841 | $(29,452) | 73% | | Onboarding | $1,288 | $(9,612) | (646)% | $3,687 | $(10,942) | (197)% | | Hardware | $4,237 | $(8,656) | (104)% | $3,343 | $(8,978) | (169)% | [Factors Affecting Our Performance](index=68&type=section&id=Factors%20Affecting%20Our%20Performance) Weave's performance is driven by attracting new customers, retaining and expanding within the existing base, adding new products, and strategically expanding into new industry verticals - Performance is driven by attracting new customers through effective pricing, products, marketing, and channel partners, with a focus on multi-location and medium-sized businesses[302](index=302&type=chunk)[303](index=303&type=chunk) - Customer retention and expansion within the existing base depend on satisfaction, platform enhancements, and cross-selling add-on products like Weave Payments[304](index=304&type=chunk) - Adding new products and functionality, both internally developed and through partnerships, is key to winning new SMB customers and broadening use cases[306](index=306&type=chunk)[307](index=307&type=chunk) - Expansion into new industry verticals, leveraging a repeatable playbook and establishing key partnerships, diversifies end-market exposure and creates a flywheel effect[308](index=308&type=chunk) [Attract New Customers](index=68&type=section&id=Attract%20New%20Customers) Customer acquisition depends on effective pricing, products, marketing, and channel partners, with a growing focus on medium-sized and multi-location businesses - Customer acquisition depends on pricing, product effectiveness, marketing, and channel partners, targeting both small and medium-sized businesses, especially in core healthcare verticals[303](index=303&type=chunk) Customer Locations (2022 vs. 2021) | Metric | December 31, 2022 | December 31, 2021 | | :----------------------- | :------------------ | :------------------ | | Number of locations | 27,193 | 23,831 | [Retain and Expand Within Our Customer Base](index=68&type=section&id=Retain%20and%20Expand%20Within%20Our%20Customer%20Base) Retaining and expanding revenue from existing customers is crucial, driven by satisfaction, platform enhancements, cross-selling, and the stickiness of the Weave phone system - Customer retention and revenue expansion are critical, influenced by satisfaction, platform enhancements, and cross-selling add-on products like Weave Payments[304](index=304&type=chunk) - The deployment of the Weave phone system increases customer stickiness and loyalty[304](index=304&type=chunk) Subscription and Payment Processing Gross Margin (2022 vs. 2021) | Metric | 2022 | 2021 | | :---------------------------------- | :--- | :--- | | Subscription and Payment Processing Gross Margin | 74% | 73% | [Add New Products](index=69&type=section&id=Add%20New%20Products) Continuous addition of new products and functionality is vital for broadening use cases, attracting SMB customers, and ensuring future success through innovation and partnerships - Continuous addition of new products and functionality is crucial for broadening use cases and attracting new SMB customers[306](index=306&type=chunk) - The depth of the platform's functionality relies on internally-developed technology and platform partnerships/integrations[306](index=306&type=chunk) - Future success is partially driven by the timely development and delivery of new, innovative products to SMBs[307](index=307&type=chunk) [Expand to New Industry Verticals](index=69&type=section&id=Expand%20to%20New%20Industry%20Verticals) Weave plans to expand into new industry verticals by leveraging its flexible platform, establishing partnerships, and developing vertical-specific functionality to diversify market exposure - Weave plans to expand into new industry verticals using its flexible platform and a repeatable playbook, which includes establishing partnerships and developing vertical-specific functionality[308](index=308&type=chunk) - Successful expansion into adjacent markets diversifies end-market exposure and creates a 'flywheel effect' for growth[308](index=308&type=chunk) [Key Business Metrics](index=69&type=section&id=Key%20Business%20Metrics) Weave evaluates performance using key business metrics including Number of Customer Locations, Dollar-Based Net Retention Rate (NRR), and Dollar-Based Gross Retention Rate (GRR) - Weave evaluates its business using key metrics: Number of Customer Locations, Dollar-Based Net Retention Rate (NRR), and Dollar-Based Gross Retention Rate (GRR)[309](index=309&type=chunk) Key Business Metrics (2022 vs. 2021) | Metric | December 31, 2022 | December 31, 2021 | | :-------------------------- | :------------------ | :------------------ | | Number of locations | 27,193 | 23,831 | | Dollar-based net retention rate | 99% | 103% | | Dollar-based gross retention rate | 94% | 94% | [Number of Customer Locations](index=69&type=section&id=Number%20of%20Customer%20Locations) The Number of Customer Locations metric indicates market penetration, business growth, and future opportunities, counting active customer locations under subscription - The number of customer locations indicates market penetration, business growth, and future opportunities[311](index=311&type=chunk) - Locations are counted as total active customer locations under subscription at month-end, with multi-location organizations counted per subscription[311](index=311&type=chunk) [Dollar-Based Net Retention Rate](index=69&type=section&id=Dollar-Based%20Net%20Retention%20Rate) NRR measures Weave's ability to retain and grow revenue from existing customer locations, reflecting churn, contraction, expansion, and pricing changes - NRR provides insight into Weave's ability to retain and grow revenue from existing customer locations and their potential long-term value[312](index=312&type=chunk) - NRR is calculated by dividing AMR of Base Locations in the Comparison Month by AMR in the Base Month, reflecting churn, contraction, expansion, and pricing changes[312](index=312&type=chunk) Dollar-Based Net Retention Rate (2022 vs. 2021) | Metric | December 31, 2022 | December 31, 2021 | | :-------------------------- | :------------------ | :------------------ | | Dollar-based net retention rate | 99% | 103% | [Dollar-Based Gross Retention Rate](index=70&type=section&id=Dollar-Based%20Gross%20Retention%20Rate) GRR assesses Weave's ability to retain customers by measuring adjusted monthly revenue from a base cohort, reflecting terminations but excluding expansion or contraction - GRR provides insight into Weave's ability to retain customers and evaluate if the platform addresses customer needs[313](index=313&type=chunk) - GRR reflects the effect of customer terminations but excludes changes in revenue due to expansion, contraction, or new customer additions[313](index=313&type=chunk) Dollar-Based Gross Retention Rate (2022 vs. 2021) | Metric | December 31, 2022 | December 31, 2021 | | :-------------------------- | :------------------ | :------------------ | | Dollar-based gross retention rate | 94% | 94% | [Limitations and Reconciliation of Non-GAAP Financial Measures](index=70&type=section&id=Limitations%20and%20Reconciliation%20of%20Non-GAAP%20Financial%20Measures) Weave uses non-GAAP measures like Free Cash Flow and Adjusted EBITDA to supplement GAAP results, acknowledging their limitations and advising investors to review reconciliations - Non-GAAP measures (Free Cash Flow, Free Cash Flow Margin, Adjusted EBITDA) are used to evaluate performance but have limitations, as they may not be comparable to other companies and exclude certain costs[314](index=314&type=chunk) - Adjusted EBITDA excludes non-cash stock-based compensation and does not reflect working capital needs[314](index=314&type=chunk) Non-GAAP Financial Measures (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Free Cash Flow | $(15,893) | $(30,182) | | Free Cash Flow Margin | (11)% | (26)% | | Adjusted EBITDA | $(25,692) | $(33,271) | [Free Cash Flow and Free Cash Flow Margin](index=70&type=section&id=Free%20Cash%20Flow%20and%20Free%20Cash%20Flow%20Margin) Free cash flow, defined as net cash from operations minus capital expenditures, and its margin are useful liquidity indicators, even when negative - Free cash flow is net cash used in operating activities, less purchases of property and equipment and capitalized internal-use software costs[353](index=353&type=chunk) - It serves as a useful liquidity indicator, providing information on cash consumed by operating and investing activities[353](index=353&type=chunk) Free Cash Flow and Margin (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Net cash used in operating activities | $(12,766) | $(20,373) | | Less: Purchase of property and equipment | $(1,895) | $(7,376) | | Less: Capitalized internal-use software | $(1,232) | $(2,433) | | Free cash flow | $(15,893) | $(30,182) | | Free cash flow margin | (11)% | (26)% | [Adjusted EBITDA](index=71&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA, a non-GAAP measure, excludes interest, taxes, depreciation, amortization, and stock-based compensation, providing consistency for financial performance and budgeting - Adjusted EBITDA is defined as earnings before interest expense, income taxes, depreciation (excluding finance lease ROU assets), amortization (of capitalized internal-use software), and stock-based compensation[354](index=354&type=chunk) - It provides consistency and comparability for financial performance and budget preparation, excluding non-cash impacts[354](index=354&type=chunk) Adjusted EBITDA (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Net loss | $(49,738) | $(51,690) | | Interest on outstanding debt | $1,441 | $1,184 | | Tax expense (benefit) | $104 | $60 | | Depreciation | $2,609 | $2,269 | | Amortization | $1,140 | $815 | | Stock-based compensation | $18,752 | $14,091 | | Adjusted EBITDA | $(25,692) | $(33,271) | [Components of Results of Operations](index=71&type=section&id=Components%20of%20Results%20of%20Operations) This section details Weave's revenue, cost of revenue, and operating expenses, with personnel costs being the most significant component across all categories - Revenue is primarily generated from recurring subscription fees for software and phone services (**95%** of total revenue in 2022) and payment processing services[318](index=318&type=chunk)[319](index=319&type=chunk) - Cost of revenue includes data center, cloud infrastructure, payment processing, voice connectivity, messaging fees, and personnel-related expenses for onboarding and customer support[321](index=321&type=chunk) - Operating expenses (sales & marketing, R&D, G&A) are significantly driven by personnel costs, including salaries, benefits, bonuses, and stock-based compensation[323](index=323&type=chunk) [Revenue](index=71&type=section&id=Revenue) Weave's revenue primarily derives from recurring subscription fees for software and phone services, embedded hardware leases, and payment processing, with non-recurring installation fees - Primary revenue sources are recurring subscription fees for software and phone services, and recurring embedded lease revenue on hardware[318](index=318&type=chunk) - Recurring revenue (excluding Weave Payments) accounted for **95%** of total revenue in 2022 and **94%** in 2021[318](index=318&type=chunk) - Payment processing services generate revenue net of transaction fees, recognized when transactions occur[319](index=319&type=chunk) - Non-recurring installation fees for onboarding customers are recognized upon completion of installation[320](index=320&type=chunk) [Cost of Revenue](index=72&type=section&id=Cost%20of%20Revenue) Cost of revenue includes direct platform costs, indirect customer support and onboarding staff expenses, and allocated overhead, expected to increase with customer growth - Cost of revenue includes data center, cloud infrastructure, payment processing, application provider fees, voice connectivity, messaging fees, and amortization of internal-use software[321](index=321&type=chunk) - Indirect costs include personnel-related expenses for onboarding and customer support staff, and allocated overhead[321](index=321&type=chunk) - Cost of revenue is expected to increase with customer growth but may fluctuate as a percentage of revenue due to regulatory fees, phone hardware, and stock-based compensation[322](index=322&type=chunk) [Operating Expenses](index=72&type=section&id=Operating%20Expenses) Operating expenses, primarily personnel-related costs, include sales and marketing, R&D, and G&A, all expected to increase in absolute dollars - Operating expenses consist of sales and marketing, research and development, and general and administrative expenses[323](index=323&type=chunk) - Personnel costs (salaries, benefits, bonuses, stock-based compensation, sales commissions) are the most significant component of operating expenses[323](index=323&type=chunk)[324](index=324&type=chunk) - Sales and marketing expenses are expected to increase in absolute dollars but decrease as a percentage of revenue over time[325](index=325&type=chunk) - R&D expenses are expected to increase in absolute dollars but remain consistent or slightly decrease as a percentage of revenue[327](index=327&type=chunk) - G&A expenses are expected to increase in absolute dollars but decrease as a percentage of revenue over time, due to public company operating costs[330](index=330&type=chunk) [Interest Expense](index=73&type=section&id=Interest%20Expense) Interest expense primarily arises from floating-rate borrowings and finance lease obligations, with rates based on prime or incremental borrowing rates - Interest expense primarily results from interest payments on borrowings and finance lease obligations[331](index=331&type=chunk) - Borrowing interest is based on a floating rate above prime, while finance lease interest depends on the incremental borrowing rate or implicit lease rate[331](index=331&type=chunk) [Other Income (Expense), Net](index=73&type=section&id=Other%20Income%20%28Expense%29%2C%20Net) Other income primarily consists of interest income earned on Weave's cash, cash equivalents, and short-term investments - Other income primarily consists of interest income earned on cash, cash equivalents, and short-term investments[332](index=332&type=chunk) [Provision for (Benefit from) Income Taxes](index=73&type=section&id=Provision%20for%20%28Benefit%20from%29%20Income%20Taxes) The provision for income taxes primarily relates to foreign and state jurisdictions, with a full valuation allowance on domestic deferred tax assets due to realization uncertainty - Provision for income taxes primarily relates to foreign and state jurisdictions[333](index=333&type=chunk) - A full valuation allowance is maintained for domestic net deferred tax assets due to uncertainty of realization, including net operating loss carryforwards[333](index=333&type=chunk) [Results of Operations (Comparison of the Years Ended December 31, 2022 and December 31, 2021)](index=74&type=section&id=Results%20of%20Operations) Weave's 2022 results show a **23%** revenue increase to **$142.1 million**, improved gross margin to **63%**, and a net loss of **$49.7 million**, a slight improvement from 2021 Consolidated Statements of Operations (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Revenue | $142,117 | $115,871 | | Cost of revenue | $53,276 | $49,372 | | Gross profit | $88,841 | $66,499 | | Sales and marketing | $65,378 | $58,244 | | Research and development | $30,714 | $27,009 | | General and administrative | $42,453 | $31,637 | | Loss from operations | $(49,704) | $(50,391) | | Net loss | $(49,738) | $(51,690) | Stock-Based Compensation Expense (2022 vs. 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Cost of revenue | $723 | $526 | | Sales and marketing | $3,436 | $1,962 | | Research and development | $4,576 | $3,545 | | General and administrative | $10,017 | $8,058 | | Total | $18,752 | $14,091 | [Revenue](index=75&type=section&id=Revenue) Revenue increased by **$26.2 million (23%)** to **$142.1 million** in 2022, driven by new (**57%**) and existing (**43%**) customer locations, which grew to **27,193** Revenue Growth (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change Amount (in thousands) | Change Percentage | | :------- | :------------------ | :------------------ | :--------------------------- | :---------------- | | Revenue | $142,117 | $115,871 | $26,246 | 23% | - **57%** of the revenue increase was from new customer locations, and **43%** from existing customer locations[337](index=337&type=chunk) - Customer locations increased from **23,831** in 2021 to **27,193** in 2022[337](index=337&type=chunk) [Cost of Revenue and Gross Margin](index=75&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Margin) Cost of revenue increased by **$3.9 million (8%)** in 2022, while gross margin improved from **57% to 63%** due to favorable customer mix and cost management Cost of Revenue and Gross Margin (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change Amount (in thousands) | Change Percentage | | :------------- | :------------------ | :------------------ | :--------------------------- | :---------------- | | Cost of revenue | $53,276 | $49,372 | $3,904 | 8% | | Gross margin | 63% | 57% | 6 ppts | | - Increase in cost of revenue was driven by **$3.6 million** in personnel costs and **$1.7 million** in direct customer usage costs, partially offset by a **$2.5 million** decrease from the Installation Program phase-out[338](index=338&type=chunk)[339](index=339&type=chunk) - Gross margin improvement resulted from a favorable customer mix (more fully depreciated phone hardware) and cost management[340](index=340&type=chunk) [Sales and Marketing](index=76&type=section&id=Sales%20and%20Marketing) Sales and marketing expenses increased by **$7.0 million (12%)** in 2022, primarily due to higher personnel-related costs, including compensation adjustments and stock-based compensation Sales and Marketing Expenses (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change Amount (in thousands) | Change Percentage | | :------------------ | :------------------ | :------------------ | :--------------------------- | :---------------- | | Sales and marketing | $65,378 | $58,244 | $7,134 | 12% | - The increase was primarily due to a **$7.0 million** rise in personnel-related expenses, including compensation adjustments, salaries, sales commissions, and stock-based compensation[341](index=341&type=chunk) [Research and Development](index=76&type=section&id=Research%20and%20Development) Research and development expenses increased by **$3.7 million (14%)** in 2022, driven by personnel costs and allocated overhead, despite a decrease in capitalized software costs Research and Development Expenses (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change Amount (in thousands) | Change Percentage | | :-------------------------- | :------------------ | :------------------ | :--------------------------- | :---------------- | | Research and development | $30,714 | $27,009 | $3,705 | 14% | - Increase primarily due to **$2.5 million** in personnel-related costs (stock-based compensation, salary adjustments) and **$0.4 million** in allocated overhead[342](index=342&type=chunk) - Capitalized internal-use software costs decreased by **$0.9 million** in 2022 compared to 2021[342](index=342&type=chunk) [General and Administrative](index=76&type=section&id=General%20and%20Administrative) General and administrative expenses increased by **$10.8 million (34%)** in 2022, primarily due to higher personnel costs, professional fees, and insurance expenses related to public company operations General and Administrative Expenses (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change Amount (in thousands) | Change Percentage | | :-------------------------- | :------------------ | :------------------ | :--------------------------- | :---------------- | | General and administrative | $42,453 | $31,637 | $10,816 | 34% | - Increase driven by **$4.3 million** in personnel-related expenses (**$2.4 million** payroll, **$2.0 million** stock-based compensation)[343](index=343&type=chunk) - Professional fees increased by **$2.3 million** and insurance expense by **$2.3 million** due to public company operations[343](index=343&type=chunk) [Other Income (Expense), Net](index=77&type=section&id=Other%20Income%20%28Expense%29%2C%20Net) Interest expense increased in 2022, while other income, net, significantly rose due to earnings on IPO capital invested in market securities and higher interest rates Other Income (Expense), Net (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change Amount (in thousands) | Change Percentage | | :-------------------------- | :------------------ | :------------------ | :--------------------------- | :---------------- | | Interest expense | $(1,441) | $(1,184) | $(257) | 22% | | Other income (expense), net | $1,511 | $(55) | $1,566 | -2847% | | Total Other income (expense), net | $70 | $(1,239) | $1,309 | -106% | - Interest expense increased due to additional phone hardware finance lease agreements[346](index=346&type=chunk) - Other income increased significantly due to earnings on IPO capital invested in market securities and short-term investments, and rising interest rates[347](index=347&type=chunk) [Provision for Income Taxes](index=77&type=section&id=Provision%20for%20Income%20Taxes) The provision for income taxes increased immaterially in 2022, driven by foreign operations growth, with long-term increases anticipated from international subsidiary expansion Provision for Income Taxes (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change Amount (in thousands) | Change Percentage | | :-------------------------- | :------------------ | :------------------ | :--------------------------- | :---------------- | | Provision for income taxes | $(104) | $(60) | $(44) | 73% | - The increase in income tax provision was immaterial, driven by growth in foreign subsidiary operations and expenses[348](index=348&type=chunk) - Income tax expense is expected to increase long-term with international subsidiary growth[348](index=348&type=chunk) [Non-GAAP Financial Measures (Summary Table)](index=77&type=section&id=Non-GAAP%20Financial%20Measures) Weave uses non-GAAP measures like Free Cash Flow and Adjusted EBITDA to provide additional insights into financial performance and operational trends for management and investors - Weave uses Free Cash Flow, Free Cash Flow Margin, and Adjusted EBITDA as non-GAAP measures to enhance understanding of financial performance and evaluate growth trends[349](index=349&type=chunk)[354](index=354&type=chunk) Non-GAAP Financial Measures (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Net cash used in operating activities | $(12,766) | $(20,373) | | Net cash used in investing activities | $(54,026) | $(9,809) | | Net cash provided by (used in) financing activities | $(7,207) | $110,480 | | Free cash flow | $(15,893) | $(30,182) | | Net cash used in operating activities as a percentage of revenue | (9)% | (18)% | | Free cash flow margin | (11)% | (26)% | | Net loss | $(49,738) | $(51,690) | | Adjusted EBITDA | $(25,692) | $(33,271) | [Liquidity and Capital Resources](index=78&type=section&id=Liquidity%20and%20Capital%20Resources) Weave's liquidity as of December 31, 2022, included **$62.0 million** in cash and **$51.3 million** in short-term investments, deemed sufficient for 12 months, with improved operating cash flow - Weave has financed operations through equity issuances and subscriptions, with an accumulated deficit of **$231.6 million** and negative operating cash flows as of December 31, 2022[355](index=355&type=chunk) Liquidity Sources (as of December 31, 2022) | Metric | Amount (Millions) | | :-------------------------- | :---------------- | | Cash and cash equivalents | $62.0 | | Short-term investments | $51.3 | | Current deferred revenue | $34.1 | | Outstanding borrowings (line of credit) | $10.0 | - The company believes current liquidity is sufficient for at least the next 12 months, with the Silicon Valley Bank closure having an immaterial impact on its cash holdings[357](index=357&type=chunk)[359](index=359&type=chunk)[419](index=419&type=chunk)[420](index=420&type=chunk) Summary of Cash Flows (2022 vs. 2021) | Activity | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Net cash used in operating activities | $(12,766) | $(20,373) | | Net cash used in investing activities | $(54,026) | $(9,809) | | Net cash provided by (used in) financing activities | $(7,207) | $110,480 | [Operating Activities](index=79&type=section&id=Operating%20Activities) Cash used in operating activities decreased to **$12.8 million** in 2022, driven by a net loss adjusted for non-cash charges and changes in operating assets and liabilities Cash Used in Operating Activities (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Net cash used in operating activities | $(12,766) | $(20,373) | | Net loss | $(49,738) | $(51,690) | | Non-cash charges | $46,800 | $36,000 | | Net cash outflows from changes in operating assets/liabilities | $(9,900) | $(4,700) | - Changes in operating assets and liabilities included a **$12.3 million** increase in deferred contract costs and a **$1.0 million** increase in accounts receivable, partially offset by a **$4.6 million** increase in deferred revenue[360](index=360&type=chunk) [Investing Activities](index=79&type=section&id=Investing%20Activities) Cash used in investing activities significantly increased to **$54.0 million** in 2022, primarily due to **$50.9 million** in short-term investment purchases Cash Used in Investing Activities (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Net cash used in investing activities | $(54,026) | $(9,809) | | Purchases of short-term investments | $(50,915) | $0 | | Purchases of property and equipment | $(1,895) | $(7,376) | | Capitalized internal-use software costs | $(1,232) | $(2,433) | - The significant increase in cash used in investing activities in 2022 was primarily due to purchases of short-term investments[361](index=361&type=chunk) [Financing Activities](index=80&type=section&id=Financing%20Activities) Cash used in financing activities was **$7.2 million** in 2022, a shift from **$110.5 million** provided in 2021, primarily due to finance lease payments and IPO costs Cash Flows from Financing Activities (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Net cash provided by (used in) financing activities | $(7,207) | $110,480 | | Principal payments on finance leases | $(8,709) | $(7,860) | | Proceeds from stock option exercises | $1,315 | $4,166 | | Proceeds from IPO, net | $0 | $111,600 | | Paid offering costs | $(671) | $(3,426) | | Proceeds from ESPP | $858 | $0 | - 2022 financing cash outflow was primarily due to finance lease principal payments and IPO offering costs[364](index=364&type=chunk) - 2021 financing cash inflow was primarily driven by **$111.6 million** net proceeds from the initial public offering[365](index=365&type=chunk) [Critical Accounting Estimates](index=80&type=section&id=Critical%20Accounting%20Estimates) Weave's financial statements rely on significant management judgments and estimates for deferred contract costs, stock-based compensation, and income taxes, including valuation allowances - Significant judgments and estimates are required for deferred contract costs, stock-based compensation, and income taxes[366](index=366&type=chunk)[367](index=367&type=chunk) - Deferred contract costs (e.g., sales commissions) are amortized over an estimated three-year benefit period, based on technology life cycle and customer relationship period[368](index=368&type=chunk) - Stock-based compensation fair values are estimated using the Black-Scholes model for options and ESPP, and closing market price for RSUs, with subjective assumptions[369](index=369&type=chunk)[372](index=372&type=chunk) - Income tax estimates involve recognizing deferred tax assets/liabilities and a valuation allowance, with a full allowance on domestic deferred tax assets due to cumulative losses[373](index=373&type=chunk) [Contractual Obligations and Commitments](index=81&type=section&id=Contractual%20Obligations%20and%20Commitments) Weave's principal commitments include obligations under the Silicon Valley Bank Credit Facility, operating and finance leases, and non-cancellable purchase commitments - Principal commitments include obligations under the Silicon Valley Bank Credit Facility, operating leases for office space, finance leases for phone equipment, and non-cancellable purchase commitments[374](index=374&type=chunk) [Indemnifications](index=81&type=section&id=Indemnifications) Weave indemnifies partners, customers, directors, and officers against liabilities like IP infringement and data compromise, with no significant historical costs incurred - Weave indemnifies partners, resellers, and customers against liabilities from data compromise (especially PHI) and intellectual property infringement[375](index=375&type=chunk) - Directors and officers are also indemnified against liabilities arising from their service, excluding willful misconduct[501](index=501&type=chunk) - No significant costs or accrued liabilities related to indemnification obligations have been incurred historically or as of December 31, 2022[375](index=375&type=chunk)[500](index=500&type=chunk)[501](index=501&type=chunk) [Silicon Valley Bank Credit Facility](index=81&type=section&id=Silicon%20Valley%20Bank%20Credit%20Facility) Weave has a **$50.0 million** revolving line of credit with SVB, with **$10.0 million** outstanding as of December 31, 2022, and expects it to be honored despite SVB's closure - Weave has a **$50.0 million** revolving line of credit with SVB, with **$10.0 million** outstanding as of December 31, 2022[377](index=377&type=chunk)[503](index=503&type=chunk)[504](index=504&type=chunk) - The agreement includes financial covenants requiring minimum liquidity and specified EBITDA levels if unrestricted cash at SVB falls below **$100.0 million**[378](index=378&type=chunk)[503](index=503&type=chunk) - Weave was in compliance with all debt covenants as of December 31, 2022[378](index=378&type=chunk)[503](index=503&type=chunk) - Following SVB's closure, the company's cash at SVB was immaterial, and the credit facility is expected to be honored by Silicon Valley Bridge Bank, N.A[378](index=378&type=chunk)[534](index=534&type=chunk)[535](index=535&type=chunk) [Off-Balance Sheet Arrangements](index=82&type=section&id=Off-Balance%20Sheet%20Arrangements) Weave Communications, Inc. had no off-balance sheet financing arrangements or relationships with unconsolidated entities during the reported periods - Weave did not have any off-balance sheet financing arrangements or relationships with unconsolidated entities during the reported periods[379](index=379&type=chunk) [Recently Adopted Accounting Pronouncements](index=82&type=section&id=Recently%20Adopted%20Accounting%20Pronouncements) Weave adopted Topic 842, Leases, on January 1, 2022, recognizing ROU assets and lease liabilities on the balance sheet using the modified retrospective method - Weave adopted Topic 842, Leases, on January 1, 2022, using the modified retrospective method[461](index=461&type=chunk) - The adoption resulted in the recognition of cumulative operating lease liabilities of **$52.8 million** and operating ROU assets of **$48.5 million**[461](index=461&type=chunk) - Capital lease obligations of **$15.0 million** and related assets of **$12.4 million** were rec

Washington, D.C. 20549 ______________ FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Commission File Number: 001-40998 Weave Communications, Inc. (Exact name of registrant as specified in its charter) (State or ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2022 reached $36.2 million, representing a year-over-year growth of 20% [10][33] - Non-GAAP gross profit improved by 33% year-over-year, with a gross margin increase of 660 basis points to 64.6% from 58% [11][36] - Non-GAAP operating loss decreased by 34% to $6.5 million, with an operating loss margin improvement from negative 32.8% to negative 18% [11][40] - Adjusted EBITDA loss improved by $3.9 million year-over-year, with an EBITDA loss margin of 14.2% compared to 30% a year ago [41] Business Line Data and Key Metrics Changes - Subscription and payments revenue increased by $6.6 million with only a $2.4 million increase in operating expenses [12][38] - Net revenue retention rate was 101%, while gross revenue retention rate remained stable at 94% [34] Market Data and Key Metrics Changes - The company noted a recovery in in-person industry events, which are expected to contribute positively to sales [15][61] - The transition to a new sales model has led to improved sales performance, including reduced sales team attrition and lower customer acquisition costs [16][17] Company Strategy and Development Direction - The company is focused on enhancing customer experience, building a scalable foundation for profitable growth, and improving operational efficiencies [9][28] - There is a commitment to technology enhancements to address the needs of small and medium healthcare businesses, including new features like Online Scheduling and Phone Reporting Analytics [18][20] - The company is transitioning to an in-house Digital Forms product, which is expected to improve margins despite a temporary revenue impact [44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing a resilient customer base and positive indicators in sales performance [28][29] - The company anticipates continued margin improvements and is focused on achieving cash flow breakeven and profitability [41][49] Other Important Information - The company was recognized as a certified Great Place to Work for the fourth consecutive year, highlighting its strong culture and employee engagement [26] - A virtual user conference was hosted to enhance customer engagement and showcase platform enhancements [24] Q&A Session Summary Question: How has traction been in multi-location practices? - Management confirmed positive traction and the establishment of a dedicated go-to-market team for multi-location practices [51][53] Question: Will there be continued hiring throughout the year? - Management indicated a focus on improving sales productivity and hiring where talent is available, not limited to Utah [54][55] Question: How should revenue growth be sequenced in the coming quarters? - Management noted that while the transition to in-house forms may impact top-line revenue temporarily, margin improvements are expected [58] Question: What is the trend in customer churn? - Customer churn remained within normal ranges, with a gross revenue retention rate of 94% [69] Question: What are the observations regarding customer responses in the macro environment? - Management noted that sales cycles have elongated slightly, but customer retention and pricing remain stable [71][72]

PART I [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Weave Communications, Inc.'s unaudited condensed consolidated financial statements and comprehensive notes for the interim period [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets show a significant increase in total assets from $187.5 million at December 31, 2021, to $218.8 million at June 30, 2022, primarily driven by the recognition of operating lease right-of-use assets | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Total current assets | $140,660 | $154,447 | | Total non-current assets | $76,867 | $33,038 | | **TOTAL ASSETS** | **$218,827** | **$187,485** | | Total current liabilities | $63,880 | $54,307 | | Total non-current liabilities | $62,959 | $20,877 | | **Total liabilities** | **$126,839** | **$75,184** | | Total stockholders' equity | $91,988 | $112,301 | | **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY** | **$218,827** | **$187,485** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported increased revenue for both the three and six months ended June 30, 2022, compared to the prior year, but also experienced higher net losses | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $34,930 | $28,061 | $68,202 | $53,729 | | Cost of revenue | $13,749 | $12,023 | $27,502 | $22,825 | | Gross profit | $21,181 | $16,038 | $40,700 | $30,904 | | Total operating expenses | $35,772 | $30,172 | $68,800 | $53,747 | | Loss from operations | $(14,591) | $(14,134) | $(28,100) | $(22,843) | | Net loss | $(14,815) | $(14,419) | $(28,653) | $(23,402) | | Net loss per share (basic and diluted) | $(0.23) | $(1.12) | $(0.44) | $(1.93) | [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) The company reported a total comprehensive loss of $14.86 million for the three months ended June 30, 2022, and $28.64 million for the six months ended June 30, 2022, slightly higher than the net loss due to foreign currency translation adjustments | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(14,815) | $(14,419) | $(28,653) | $(23,402) | | Change in foreign currency translation, net of tax | $(41) | $(7) | $13 | $(8) | | Total comprehensive loss | $(14,856) | $(14,426) | $(28,640) | $(23,410) | [Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)) Stockholders' equity decreased from $112.3 million at December 31, 2021, to $92.0 million at June 30, 2022, primarily due to the net loss incurred during the period, partially offset by stock-based compensation and proceeds from stock option exercises | Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Additional paid-in capital | $302,557 | $294,230 | | Accumulated deficit | $(210,551) | $(181,898) | | Total stockholders' equity | $91,988 | $112,301 | - Common shares outstanding increased from **64,324,628** at December 31, 2021, to **65,010,719** at June 30, 2022, mainly due to stock option exercises[14](index=14&type=chunk)[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company experienced a net decrease in cash and cash equivalents for the six months ended June 30, 2022, primarily driven by cash used in operating and financing activities, partially offset by lower cash used in investing activities compared to the prior year | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(5,902) | $(7,043) | | Net cash used in investing activities | $(1,599) | $(4,544) | | Net cash used in financing activities | $(4,167) | $(1,615) | | Net decrease in cash and cash equivalents | $(11,668) | $(13,202) | | Cash and cash equivalents, end of period | $124,328 | $42,496 | [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the company's accounting policies, revenue recognition, fair value measurements, and other key financial statement components [1. Description of the Business](index=12&type=section&id=1.%20Description%20of%20the%20Business) Weave Communications, Inc. provides an integrated communications platform combining software communication and analysis tools with VoIP phone services, primarily through subscriptions - Weave Communications, Inc. sells subscriptions for its integrated communications platform, which combines software communication and analysis tools with Voice over Internet Protocol (VoIP) phone services[26](index=26&type=chunk) [2. Basis of Presentation and Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) The financial statements are unaudited and prepared in accordance with U.S. GAAP for interim reporting, with the company operating as a single segment and adopting ASU No. 2016-02, Leases (Topic 842), on January 1, 2022 - The company adopted Topic 842 (Leases) on January 1, 2022, using a modified retrospective approach, resulting in the recognition of **$52.8 million** in operating lease liabilities and **$48.5 million** in operating right-of-use assets[50](index=50&type=chunk) - As of June 30, 2022, the company had an accumulated deficit of **$210.6 million** and has historically generated negative cash flows from operations[33](index=33&type=chunk) - The company expects to adopt ASU 2016-13 (Credit Losses) on January 1, 2023, and is currently evaluating its impact[53](index=53&type=chunk) [3. Revenue](index=16&type=section&id=3.%20Revenue) Revenue is primarily derived from recurring subscription services and payment processing, with non-recurring revenue from onboarding and phone hardware leases | Revenue Category (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Subscription and payment processing | $33,538 | $26,233 | $65,488 | $50,132 | | Onboarding | $319 | $1,034 | $581 | $2,072 | | Phone hardware lease | $1,073 | $794 | $2,133 | $1,525 | | **Total revenue** | **$34,930** | **$28,061** | **$68,202** | **$53,729** | - Amortization expense for capitalized contract acquisition and fulfillment costs was **$2.8 million** and **$5.4 million** for the three and six months ended June 30, 2022, respectively[56](index=56&type=chunk) [4. Fair Value Measurements](index=17&type=section&id=4.%20Fair%20Value%20Measurements) The company's financial instruments measured at fair value on a recurring basis primarily consist of money market funds, categorized as Level 1, totaling $101.1 million as of June 30, 2022 | Fair Value Category | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------ | :--------------------------- | :------------------------------- | | Level 1 (Money market fund) | $101,099 | $118,962 | | Level 2 | — | — | | Level 3 | — | — | | **Total** | **$101,099** | **$118,962** | - The fair value of debt was **$10.5 million** as of June 30, 2022 (Level 2)[59](index=59&type=chunk) [5. Property and Equipment](index=17&type=section&id=5.%20Property%20and%20Equipment) Net property and equipment decreased significantly from $24.5 million at December 31, 2021, to $11.4 million at June 30, 2022, primarily due to the reclassification of phone hardware to finance right-of-use assets upon adoption of ASC 842 | Property and Equipment (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Office equipment | $4,946 | $4,729 | | Office furniture | $5,810 | $5,588 | | Leasehold improvements | $2,615 | $2,496 | | Capitalized internal-use software | $4,274 | $3,533 | | Phone hardware | — | $26,034 | | Payment terminals | $1,985 | $1,581 | | **Property and equipment, net** | **$11,427** | **$24,502** | - Depreciation and amortization expense on property and equipment (excluding operating ROU assets) was **$3.4 million** and **$6.8 million** for the three and six months ended June 30, 2022, respectively[61](index=61&type=chunk) [6. Accrued Liabilities](index=18&type=section&id=6.%20Accrued%20Liabilities) Accrued liabilities increased to $14.1 million at June 30, 2022, from $12.3 million at December 31, 2021, mainly due to higher payroll-related accruals and employee stock purchase plan liability | Accrued Liabilities (in thousands) | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :------------ | :---------------- | | Payroll-related accruals | $9,314 | $8,434 | | Sales and telecom taxes | $1,801 | $1,508 | | Employee stock purchase plan liability | $1,121 | $256 | | Third-party commissions | $442 | $440 | | Other | $1,464 | $1,612 | | **Total** | **$14,142** | **$12,250** | [7. Leases](index=18&type=section&id=7.%20Leases) The company has both operating and finance lease arrangements, with lease expenses, weighted-average lease terms, and discount rates detailed following the adoption of ASC 842 | Lease Expense (in thousands) | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--------------------------- | :------------------------------- | :----------------------------- | | Finance lease expense | $2,413 | $4,850 | | Operating lease expense | $1,417 | $2,834 | | Short-term lease expense | $9 | $18 | | **Total lease expense** | **$3,839** | **$7,702** | - As of June 30, 2022, the weighted-average remaining lease term for finance leases was **1.7 years** with a **6.9%** discount rate, and for operating leases, it was **10.6 years** with a **3.9%** discount rate[65](index=65&type=chunk) Future Minimum Lease Payments | Future Minimum Lease Payments (in thousands) | Operating Leases (June 30, 2022) | Finance Leases (June 30, 2022) | | :------------------------------------------- | :------------------------------- | :----------------------------- | | Remaining 2022 | $2,559 | $5,020 | | 2023 | $5,404 | $6,007 | | 2024 | $5,539 | $3,295 | | 2025 | $5,677 | $609 | | 2026 | $5,819 | — | | Thereafter | $38,666 | — | | **Total** | **$63,664** | **$14,931** | | Less imputed interest | $(11,834) | $(1,024) | | **Present value of obligations** | **$51,830** | **$13,907** | [8. Income Taxes](index=22&type=section&id=8.%20Income%20Taxes) The company reported income tax expense of $18.6 thousand and $51.1 thousand for the three and six months ended June 30, 2022, respectively, with a full valuation allowance maintained against all U.S. deferred tax assets due to historical losses | Income Tax Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $19 | $0 | $51 | $0 | | Effective tax rate | (0.1255)% | 0% | (0.1785)% | 0% | - The company maintains a full valuation allowance against all U.S. deferred tax assets due to a history of U.S. tax losses[76](index=76&type=chunk) [9. Long-Term Debt](index=22&type=section&id=9.%20Long-Term%20Debt) The company has a $50.0 million revolving line of credit with Silicon Valley Bank, with $10.0 million outstanding as of June 30, 2022, and was in compliance with all financial covenants | Long-Term Debt (in thousands) | June 30, 2022 | December 31, 2021 | | :---------------------------- | :------------ | :---------------- | | Line of credit | $10,000 | $10,000 | | **Total** | **$10,000** | **$10,000** | - The revolving line of credit with Silicon Valley Bank has a maximum borrowing capacity of **$50.0 million**, with **$40.0 million** available as of June 30, 2022[33](index=33&type=chunk)[78](index=78&type=chunk) - The company was in compliance with all debt covenants as of June 30, 2022, which include maintaining minimum liquidity and specified EBITDA levels[79](index=79&type=chunk) [10. Stockholders' Equity](index=23&type=section&id=10.%20Stockholders'%20Equity) Stock-based compensation expense for the three and six months ended June 30, 2022, was $4.48 million and $7.91 million, respectively, under the 2021 Equity Incentive Plan | Stock-Based Compensation (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $176 | $210 | $324 | $279 | | Sales and marketing | $790 | $679 | $1,452 | $811 | | Research and development | $1,078 | $2,020 | $1,630 | $2,416 | | General and administrative | $2,436 | $2,360 | $4,499 | $3,587 | | **Total** | **$4,480** | **$5,269** | **$7,905** | **$7,093** | - Unrecognized stock-based compensation expense for stock options was **$21.2 million** as of June 30, 2022, with a weighted-average vesting period of **2.42 years**[86](index=86&type=chunk) - Unrecognized stock-based compensation expense for RSUs was **$29.4 million** as of June 30, 2022, with a weighted-average period of **2.70 years**[90](index=90&type=chunk) [11. Related Party Transactions](index=25&type=section&id=11.%20Related%20Party%20Transactions) No related-party transactions occurred during the six months ended June 30, 2022, and 2021 - No related-party transactions occurred during the six months ended June 30, 2022, and 2021[93](index=93&type=chunk) [12. Commitments and Contingencies](index=25&type=section&id=12.%20Commitments%20and%20Contingencies) The company is not involved in any legal proceedings anticipated to significantly impact its financial condition and enters into standard indemnification arrangements in the ordinary course of business - The company is not currently a party to any legal proceedings that would have a material adverse effect on its financial condition, results of operations, or liquidity[94](index=94&type=chunk) - The maximum potential amount of future payments under indemnification agreements is not determinable, but the company has not incurred costs related to these agreements to date[95](index=95&type=chunk) [13. Net Loss Per Share](index=25&type=section&id=13.%20Net%20Loss%20Per%20Share) The basic and diluted net loss per share attributable to common stockholders was $(0.23) and $(0.44) for the three and six months ended June 30, 2022, respectively | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders | $(14,815) | $(14,976) | $(28,653) | $(24,508) | | Weighted-average common shares outstanding | 64,963,045 | 13,373,712 | 64,774,428 | 12,708,522 | | Net loss per share, basic and diluted | $(0.23) | $(1.12) | $(0.44) | $(1.93) | - As of June 30, 2022, **11,875,365** potential common shares (options, ESPP shares, RSUs) were excluded from diluted EPS calculation due to their antidilutive effect[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, revenue drivers, and liquidity, including non-GAAP measures [Overview](index=26&type=section&id=Overview) Weave is a leading all-in-one customer communications and engagement software platform for small and medium-sized businesses (SMBs), offering integrated solutions to streamline operations and enhance customer interactions - Weave provides an all-in-one cloud-based software platform for SMBs, integrating communications (phone, email, text), customer engagement (scheduling, reminders, reviews), and payments[100](index=100&type=chunk)[102](index=102&type=chunk) - The company has expanded its product offerings to include analytics (2019), payments (2019), and forms (2021), and has grown beyond dentistry and optometry into other verticals like home services[103](index=103&type=chunk) [Supplemental Financial Information — Disaggregated Revenue and Cost of Revenue](index=27&type=section&id=Supplemental%20Financial%20Information%20%E2%80%94%20Disaggregated%20Revenue%20and%20Cost%20of%20Revenue) The company disaggregates revenue and cost of revenue into recurring (subscription and payment processing) and non-recurring (onboarding and phone hardware lease) categories, with recurring revenues constituting a significant majority | Category (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | **Subscription and payment processing:** | | | | | | Revenue | $33,538 | $26,233 | $65,488 | $50,132 | | Cost of revenue | $(9,009) | $(7,113) | $(17,830) | $(13,529) | | Gross profit | $24,529 | $19,120 | $47,658 | $36,603 | | Gross margin | 73% | 73% | 73% | 73% | | **Onboarding:** | | | | | | Revenue | $319 | $1,034 | $581 | $2,072 | | Cost of revenue | $(2,502) | $(2,673) | $(5,088) | $(4,993) | | Gross profit | $(2,183) | $(1,639) | $(4,507) | $(2,921) | | Gross margin | (684)% | (159)% | (776)% | (141)% | | **Hardware:** | | | | | | Revenue | $1,073 | $794 | $2,133 | $1,525 | | Cost of revenue | $(2,238) | $(2,237) | $(4,584) | $(4,303) | | Gross profit | $(1,165) | $(1,443) | $(2,451) | $(2,778) | | Gross margin | (109)% | (182)% | (115)% | (182)% | - Recurring revenues (subscription and payment processing) accounted for **95%** of total revenue for the three months ended June 30, 2022, and **93%** for the six months ended June 30, 2022[105](index=105&type=chunk) - Onboarding and hardware services are used as customer acquisition tools, often resulting in negative gross profit due to competitive pricing and associated costs[106](index=106&type=chunk) [Factors Affecting Our Performance](index=28&type=section&id=Factors%20Affecting%20Our%20Performance) The company's performance is driven by its ability to attract and retain customers, expand within the customer base, introduce new products, and enter new industry verticals - Key performance drivers include attracting new customers, retaining and expanding within the existing customer base, adding new products, and expanding into new industry verticals[109](index=109&type=chunk) - The dollar-based net retention rate decreased to **102%** at June 30, 2022, from **104%** at June 30, 2021, reflecting an anticipated decline after the initial successful rollout of Weave Payments[112](index=112&type=chunk) - The company aims to expand its customer base among medium-sized businesses and into adjacent markets like home services, leveraging its flexible platform and repeatable playbook for vertical expansion[110](index=110&type=chunk)[115](index=115&type=chunk) [Business Update Regarding COVID-19](index=29&type=section&id=Business%20Update%20Regarding%20COVID-19) The COVID-19 pandemic initially slowed new customer acquisition in early 2020 but improved through 2021, intensifying communications challenges for SMBs, though it did not materially impact revenue or renewals - COVID-19 initially slowed new customer acquisition in H1 2020 but improved through 2021, intensifying communications challenges for SMBs[116](index=116&type=chunk) - The pandemic did not have a negative material impact on revenue or non-renewals of subscriptions in 2020, 2021, or H1 2022[116](index=116&type=chunk) - Lead generation activities faced headwinds due to cancelled/postponed trade shows, but the company shifted focus to inbound/outbound channels, driving growth in customer locations and revenue[117](index=117&type=chunk) [Key Business Metrics](index=30&type=section&id=Key%20Business%20Metrics) The company monitors Dollar-Based Net Retention Rate (NRR) and Dollar-Based Gross Retention Rate (GRR) to assess customer retention and revenue growth from its customer base | Metric | June 30, 2022 | June 30, 2021 | | :-------------------------- | :------------ | :------------ | | Dollar-based net retention rate | 102% | 104% | | Dollar-based gross retention rate | 94% | 92% | - NRR measures the ability to retain and grow revenue from existing customer locations, including churn, contraction, expansion, and pricing changes[121](index=121&type=chunk) - GRR measures the ability to retain customers by focusing on revenue reductions from terminations, excluding revenue expansion or new customer additions[123](index=123&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP financial measures, including Free Cash Flow, Free Cash Flow Margin, and Adjusted EBITDA, to provide additional insights into its liquidity and operating performance | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Free cash flow | $(2,422) | $(3,994) | $(7,501) | $(11,587) | | Free cash flow margin | (7)% | (14)% | (11)% | (22)% | | Adjusted EBITDA | $(9,025) | $(8,313) | $(18,148) | $(14,499) | - Free cash flow is defined as net cash used in operating activities minus purchases of property and equipment and capitalized internal-use software costs[126](index=126&type=chunk) - Adjusted EBITDA excludes interest expense, taxes, depreciation (excluding phone hardware), amortization (capitalized internal-use software), and stock-based compensation expense[127](index=127&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) [Components of Results of Operations](index=33&type=section&id=Components%20of%20Results%20of%20Operations) This section details the composition of revenue, cost of revenue, and operating expenses, with revenue primarily from recurring subscriptions and expectations for operating expenses to decrease as a percentage of revenue over time - Revenue is primarily generated from recurring subscription fees (software and phone services) and embedded lease revenue on hardware, with **41%** of customers electing annual prepayments as of June 30, 2022[133](index=133&type=chunk) - Cost of revenue includes data center/cloud infrastructure, payment processing, amortization of finance lease ROU assets on phone hardware, application provider fees, voice/messaging fees, and internal-use software amortization[137](index=137&type=chunk) - Operating expenses (sales & marketing, R&D, G&A) are expected to increase in absolute dollars but decrease as a percentage of revenue over time, driven by investments in growth and public company costs[142](index=142&type=chunk)[144](index=144&type=chunk)[147](index=147&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) The company experienced significant revenue growth for both the three and six months ended June 30, 2022, driven by new customer acquisition, but higher operating expenses led to increased net losses | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (Amount) | Change (Percentage) | | :-------------------- | :------------------------------- | :------------------------------- | :-------------- | :------------------ | | Revenue | $34,930 | $28,061 | $6,869 | 24% | | Cost of revenue | $13,749 | $12,023 | $1,726 | 14% | | Gross margin | 61% | 57% | 4 pp | | | Sales and marketing | $16,747 | $14,718 | $2,029 | 14% | | Research and development | $7,428 | $7,871 | $(443) | (6)% | | General and administrative | $11,597 | $7,583 | $4,014 | 53% | | Interest expense and other income, net | $205 | $285 | $(80) | (28)% | | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change (Amount) | Change (Percentage) | | :-------------------- | :----------------------------- | :----------------------------- | :-------------- | :------------------ | | Revenue | $68,202 | $53,729 | $14,473 | 27% | | Cost of revenue | $27,502 | $22,825 | $4,677 | 20% | | Gross margin | 60% | 58% | 2 pp | | | Sales and marketing | $32,967 | $26,454 | $6,513 | 25% | | Research and development | $14,632 | $13,707 | $925 | 7% | | General and administrative | $21,201 | $13,586 | $7,615 | 56% | | Interest expense and other income, net | $502 | $559 | $(57) | (10)% | - Revenue increase for the three months ended June 30, 2022, was **94%** attributable to new customers and **6%** to existing customers[155](index=155&type=chunk) - General and administrative expenses increased significantly due to higher legal fees, personnel-related expenses (including upper management hires), dues and subscriptions, and D&O insurance premiums[160](index=160&type=chunk)[170](index=170&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by $124.3 million in cash and cash equivalents as of June 30, 2022, and an available $40.0 million under its revolving line of credit - Principal sources of liquidity are cash and cash equivalents (**$124.3 million** as of June 30, 2022) and available borrowings under the revolving line of credit (**$40.0 million**)[173](index=173&type=chunk)[33](index=33&type=chunk) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(5,902) | $(7,043) | | Net cash used in investing activities | $(1,599) | $(4,544) | | Net cash used in financing activities | $(4,167) | $(1,615) | - Cash used in operating activities for the six months ended June 30, 2022, was **$5.9 million**, primarily due to net loss offset by non-cash charges and changes in operating assets/liabilities[176](index=176&type=chunk) - Cash used in financing activities for the six months ended June 30, 2022, was **$4.2 million**, mainly from principal payments on finance leases (**$4.5 million**) and IPO-related costs (**$0.4 million**), partially offset by stock option exercises (**$0.7 million**)[181](index=181&type=chunk) [Critical Accounting Policies and Estimates](index=43&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The preparation of financial statements requires significant estimates and assumptions, particularly for revenue recognition and stock-based compensation, with the company adopting ASU 2016-02 (Leases) on January 1, 2022 - Significant estimates are made for revenue recognition and stock-based compensation, including the fair value of common stock[188](index=188&type=chunk)[391](index=391&type=chunk) - The company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2022, which updates financial reporting requirements for leasing arrangements[190](index=190&type=chunk) [Emerging Growth Company Status](index=43&type=section&id=Emerging%20Growth%20Company%20Status) As an 'emerging growth company' under the JOBS Act, Weave has elected to use the extended transition period for complying with new or revised accounting standards - Weave is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised accounting standards[192](index=192&type=chunk)[405](index=405&type=chunk) - This election means the company's financial statements may not be comparable to those of other public companies that comply with public company effective dates[192](index=192&type=chunk)[405](index=405&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's exposure to market risk, including interest rates and foreign currency rates, has not materially changed since December 31, 2021 - The company's market risk exposure, including interest rates and foreign currency rates, has not materially changed since December 31, 2021[194](index=194&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of June 30, 2022, due to previously reported material weaknesses in internal control over financial reporting - Disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses in internal control over financial reporting[195](index=195&type=chunk) - Material weaknesses include an insufficient complement of personnel with appropriate internal controls and accounting knowledge, and ineffective controls related to timely identification, assessment, and recognition of complex transactions (e.g., contract capitalization, stock option valuation)[197](index=197&type=chunk) - The remediation plan involves hiring additional finance and accounting personnel, engaging external consultants, and providing ongoing training[199](index=199&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings that would have a material adverse effect on its business, results of operations, financial condition, or cash flows - The company is not involved in any legal proceedings that are anticipated to significantly impact its financial condition, results of operations, or liquidity[203](index=203&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks to the company's business, including profitability, growth management, competition, and regulatory compliance [Risk Factors Summary](index=46&type=section&id=Risk%20Factors%20Summary) Key risks include historical losses, growth management challenges, customer acquisition, competition, and internal control weaknesses - Key risks include a history of losses, challenges in managing rapid growth, dependence on attracting and retaining customers, intense competition, and the impact of the COVID-19 pandemic[206](index=206&type=chunk) - Other significant risks involve maintaining and enhancing the brand, evolving market for the platform, developing new products, cybersecurity breaches, and identified material weaknesses in internal control over financial reporting[206](index=206&type=chunk)[207](index=207&type=chunk) [Risks Related to our Business and our Industry](index=47&type=section&id=Risks%20Related%20to%20our%20Business%20and%20our%20Industry) Risks include the ongoing impact of COVID-19 on SMBs and sales activities, the challenge of sustaining rapid growth, the critical need to attract and retain customers, and the inherent risks of serving SMBs - The COVID-19 pandemic continues to adversely impact SMBs, leading to slowdowns in new customer acquisition and challenges in sales and installation activities[209](index=209&type=chunk) - The company's rapid growth may not be indicative of future growth, and sustaining it requires effective pricing, product expansion, customer retention, and successful market penetration[214](index=214&type=chunk)[215](index=215&type=chunk) - Reliance on single-source suppliers for critical hardware (Yealink phones) and payment processing (Stripe) poses risks of supply disruption, price increases, and service interruptions[265](index=265&type=chunk)[272](index=272&type=chunk) - Breaches of applications, networks, or systems (including GCP) could compromise data, damage reputation, and expose the company to liability, requiring significant security investments[267](index=267&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk) [Risks Related to Governmental Regulation](index=66&type=section&id=Risks%20Related%20to%20Governmental%20Regulation) The company is subject to extensive and evolving regulations for VoIP services, commercial emails, and SMS text messages, which can increase costs, limit service offerings, and expose it to liabilities - As a VoIP provider, the company is subject to FCC regulations and state/local requirements, with potential for increased common carrier regulation and compliance costs[328](index=328&type=chunk)[329](index=329&type=chunk)[331](index=331&type=chunk) - Compliance with STIR/SHAKEN caller ID authentication framework is required, and failure to authenticate calls could lead to calls being blocked or flagged, making services less desirable[332](index=332&type=chunk)[335](index=335&type=chunk) - The company processes business and personal information, subjecting it to HIPAA, CCPA, CPRA, and other Data Protection Laws, with non-compliance risking civil liability, fines, and reputational damage[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk)[358](index=358&type=chunk) - Misuse of the platform by customers for spam, phishing, or illegal activities could damage the company's reputation and expose it to litigation and regulatory enforcement under laws like TCPA and CAN-SPAM Act[337](index=337&type=chunk)[339](index=339&type=chunk) [Risks Related to Intellectual Property](index=79&type=section&id=Risks%20Related%20to%20Intellectual%20Property) The company's success relies on protecting its intellectual property (IP) through trademarks, copyrights, and trade secrets, with risks of infringement claims and challenges from open-source software use - Failure to protect or enforce intellectual property rights could impair the company's ability to protect its technology and brand, leading to misappropriation by third parties[364](index=364&type=chunk)[366](index=366&type=chunk) - The company faces risks of intellectual property infringement claims from competitors or other entities, which could result in costly litigation, unfavorable settlements, or the need to redesign products[367](index=367&type=chunk) - Use of open-source and third-party software may impose unanticipated conditions or restrictions, expose the company to claims of non-compliance with licenses, and present security risks[370](index=370&type=chunk)[372](index=372&type=chunk) [Risks Related to Tax Matters](index=82&type=section&id=Risks%20Related%20to%20Tax%20Matters) The company faces risks from potential additional income tax liabilities due to changes in tax laws or challenges from tax authorities, and its ability to use Net Operating Losses (NOLs) may be limited - The company may incur additional income tax liabilities if tax laws change, are clarified to its detriment, or if tax authorities successfully challenge its tax positions[374](index=374&type=chunk) - There is a risk of being required to collect additional sales, value-added, or similar taxes in more jurisdictions, which could increase customer costs and adversely affect results of operations[375](index=375&type=chunk) - The ability to use NOL carryforwards (**$169.1 million** federal, **$113.1 million** state as of Dec 31, 2021) may be limited by Section 382 of the Code or similar state provisions due to ownership changes[379](index=379&type=chunk) [Risks Related to Accounting Matters](index=83&type=section&id=Risks%20Related%20to%20Accounting%20Matters) The company has identified material weaknesses in internal control over financial reporting, primarily due to insufficient accounting personnel and ineffective controls over complex transactions, with ongoing remediation efforts - Material weaknesses in internal control over financial reporting persist, stemming from insufficient accounting personnel and ineffective controls over complex transactions[381](index=381&type=chunk)[382](index=382&type=chunk) - Remediation efforts are ongoing, involving hiring, external consultants, and training, but are time-consuming and costly, with no guarantee of full remediation or prevention of future weaknesses[383](index=383&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk) - Incorrect estimates or judgments in critical accounting policies (e.g., revenue recognition, stock-based compensation) could adversely affect results of operations[391](index=391&type=chunk) [Risks Related to Ownership of our Common Stock](index=86&type=section&id=Risks%20Related%20to%20Ownership%20of%20our%20Common%20Stock) The company's stock price may be volatile, future equity issuances could dilute existing stockholders, and concentrated ownership may limit other stockholders' influence - The market price of common stock is subject to significant volatility due to factors like overall market performance, company projections, competition, and regulatory changes[396](index=396&type=chunk)[397](index=397&type=chunk) - Future equity issuances under incentive plans or for acquisitions could dilute existing stockholders' ownership[399](index=399&type=chunk) - Concentrated ownership (**69.4%** by executive officers, directors, and principal stockholders as of June 30, 2022) limits other stockholders' ability to influence corporate matters[403](index=403&type=chunk) - The company does not intend to pay dividends for the foreseeable future, requiring investors to rely on stock price appreciation for returns[406](index=406&type=chunk) [General Risks](index=92&type=section&id=General%20Risks) General risks include costly legal proceedings, adverse impacts from unfavorable industry or global economic conditions, and business interruptions from natural disasters, pandemics, or man-made problems - Legal proceedings, even if unmeritorious, can be costly, time-consuming, and harm the company's reputation[417](index=417&type=chunk) - Unfavorable conditions in the industry or global economy, such as economic inflation or geopolitical conflicts, could reduce demand for products and adversely affect financial results[418](index=418&type=chunk) - The business is exposed to risks from natural disasters, pandemics (like COVID-19), power disruptions, computer viruses, and terrorism, which could interrupt operations and lead to data loss[419](index=419&type=chunk)[421](index=421&type=chunk)[422](index=422&type=chunk) [Item 6. Exhibits](index=94&type=section&id=Item%206.%20Exhibits) This section lists the documents filed as exhibits to the Quarterly Report on Form 10-Q, including separation and employment agreements, CEO/CFO certifications, and XBRL financial statements - Exhibits include Separation Agreement, Employment Agreement, CEO/CFO Certifications, and financial statements formatted in Inline XBRL[426](index=426&type=chunk) [Signatures](index=95&type=section&id=Signatures) The report is duly signed on behalf of Weave Communications, Inc. by its Chief Executive Officer, Roy Banks, and Chief Financial Officer, Alan Taylor, as of August 12, 2022 - The report was signed by Roy Banks, Chief Executive Officer, and Alan Taylor, Chief Financial Officer, on August 12, 2022[432](index=432&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Q1 2022 unaudited financials report 30% revenue growth to $33.3 million, a widened net loss of $13.8 million, and total assets of $226.2 million [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $226.2 million by March 31, 2022, primarily due to ASC 842 adoption, while cash and cash equivalents decreased to $128.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $128,900 | $135,996 | | Total current assets | $146,187 | $154,447 | | Total assets | $226,200 | $187,485 | | Total current liabilities | $59,604 | $54,307 | | Total liabilities | $123,699 | $75,184 | | Total stockholders' equity | $102,501 | $112,301 | - The significant increase in non-current assets and liabilities is primarily due to the adoption of lease accounting standard ASC 842 on January 1, 2022, resulting in the recognition of operating lease right-of-use assets and corresponding liabilities[13](index=13&type=chunk)[46](index=46&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2022 revenue grew 30% to $33.3 million, but net loss widened to $13.8 million due to a 40% increase in operating expenses Statement of Operations Summary (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Revenue | $33,272 | $25,668 | | Gross Profit | $19,519 | $14,866 | | Total Operating Expenses | $33,028 | $23,575 | | Loss from Operations | $(13,509) | $(8,709) | | Net Loss | $(13,838) | $(8,983) | | Net Loss per Share | $(0.21) | $(0.79) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2022 saw net cash used in operating activities improve to $4.2 million, with overall cash and cash equivalents decreasing by $7.1 million Cash Flow Summary (in thousands) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,171) | $(5,272) | | Net cash used in investing activities | $(908) | $(2,321) | | Net cash used in financing activities | $(2,017) | $(1,569) | | **Net decrease in cash** | **$(7,096)** | **$(9,162)** | [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, ASC 842 adoption, disaggregated revenue, a $50 million credit line, and $3.4 million in stock-based compensation - The company adopted lease accounting standard ASC 842 on January 1, 2022, using the modified retrospective approach, resulting in the recognition of cumulative operating lease liabilities of **$52.8 million** and operating right-of-use assets of **$48.5 million**[46](index=46&type=chunk) Disaggregated Revenue (in thousands) | Revenue Source | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Subscription and payment processing | $31,950 | $23,899 | | Onboarding | $262 | $1,038 | | Phone hardware lease | $1,060 | $731 | | **Total revenue** | **$33,272** | **$25,668** | - The company has a **$50 million** revolving line of credit with Silicon Valley Bank, with **$10 million** outstanding as of March 31, 2022, subject to financial covenants if unrestricted cash falls below **$100 million**[71](index=71&type=chunk)[72](index=72&type=chunk) - Total stock-based compensation expense was **$3.4 million** for Q1 2022, up from **$1.8 million** in Q1 2021, with **$21.6 million** of unrecognized expense related to RSUs as of March 31, 2022[74](index=74&type=chunk)[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2022 performance, highlighting 30% revenue growth, improved retention rates, increased net loss, and strong liquidity - Weave's business model focuses on an all-in-one customer communication and engagement software platform for small and medium-sized businesses (SMBs), expanding into new verticals like home services[92](index=92&type=chunk)[95](index=95&type=chunk) Key Business Metrics | Metric | March 31, 2022 | March 31, 2021 | | :--- | :--- | :--- | | Dollar-based net retention rate | 103% | 102% | | Dollar-based gross retention rate | 94% | 92% | Non-GAAP Financial Measures (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Free cash flow | $(5,079) | $(7,593) | | Free cash flow margin | (15)% | (30)% | | Adjusted EBITDA | $(9,123) | $(6,335) | [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q1 2022 revenue grew 30% to $33.3 million, primarily from new customers, while operating expenses increased 40% due to higher personnel and public company costs - Revenue grew by **$7.6 million (30%)** year-over-year, with approximately **$7.0 million (92%)** of the increase attributable to new customers acquired after March 31, 2021[145](index=145&type=chunk)[146](index=146&type=chunk) - Sales and marketing expenses increased by **38%** to **$16.2 million**, primarily due to a **$3.4 million** increase in personnel-related expenses from higher headcount[148](index=148&type=chunk) - General and administrative expenses saw the largest percentage increase (**60%**) to **$9.6 million**, driven by higher personnel costs, a **$0.8 million** increase in liability insurance, and a **$0.7 million** increase in professional fees following the IPO[150](index=150&type=chunk)[151](index=151&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $128.9 million in cash, financed by equity and subscriptions, and expects sufficient funds for the next 12 months - The company had an accumulated deficit of **$195.7 million** and cash and cash equivalents of **$128.9 million** as of March 31, 2022[154](index=154&type=chunk)[155](index=155&type=chunk) - Net cash used in operating activities for Q1 2022 was **$4.2 million**, an improvement from **$5.3 million** in Q1 2021, primarily driven by the net loss of **$13.8 million** offset by non-cash charges and working capital changes[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk exposure, including interest rate and foreign currency risks, remains materially unchanged since December 31, 2021 - There have been no material changes in the company's exposure to market risk, including interest rate and foreign currency risks, since the end of the previous fiscal year[177](index=177&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective as of March 31, 2022, due to ongoing material weaknesses in internal financial reporting, with a remediation plan in progress - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to ongoing material weaknesses in internal control over financial reporting[179](index=179&type=chunk) - The material weaknesses include not maintaining an effective control environment with sufficient accounting personnel and not maintaining effective controls for complex transactions like capitalization of contract costs and stock option valuation[181](index=181&type=chunk) - A remediation plan is in progress, which involves hiring more finance and accounting staff, using external consultants for complex accounting matters, and providing ongoing training[182](index=182&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) No material legal proceedings are currently anticipated to adversely affect the company's business or financial condition - As of the report date, Weave is not involved in any legal proceedings anticipated to have a significant impact on its financial condition or operations[187](index=187&type=chunk) [Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) Key risks include historical losses, SMB customer reliance, COVID-19 impact, competition, system security, third-party dependencies, and regulatory compliance - The company has a history of net losses, including **$13.8 million** for Q1 2022, and may not achieve or sustain profitability in the future as it continues to invest in growth[211](index=211&type=chunk) - The business is subject to risks associated with serving Small and Medium-sized Businesses (SMBs), which have higher failure rates and are more susceptible to economic downturns[208](index=208&type=chunk) - The ongoing COVID-19 pandemic could continue to adversely impact the business by causing a slowdown in new customer acquisition, reduced customer demand, and delayed sales cycles[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) - Material weaknesses in internal control over financial reporting have been identified and are being remediated, with failure to maintain effective controls potentially resulting in material misstatements of financial statements[357](index=357&type=chunk)[358](index=358&type=chunk) - The company is subject to extensive government regulation, including FCC rules for VoIP services, TCPA for messaging, and data privacy laws like HIPAA, which expose it to compliance costs and potential liability[306](index=306&type=chunk)[315](index=315&type=chunk)[327](index=327&type=chunk) [Exhibits](index=89&type=section&id=Item%206.%20Exhibits) The exhibits section lists filed documents, including employment agreements, compensation policies, and CEO/CFO certifications - The exhibits filed with the report include management compensation plans, employment agreements, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act[401](index=401&type=chunk)

Financial Data and Key Metrics Changes - Total revenue in Q1 2022 grew 30% year-over-year to reach $33.3 million, exceeding guidance [8][25][26] - Non-GAAP gross margin improved to 59.1% from 57.4% in Q4 2021 [25][30] - Non-GAAP operating loss was $10.1 million, better than projected, with an operating margin of negative 30.3% [9][32] - Non-GAAP net loss was $10.4 million, or $0.16 per share, compared to a loss of $7.2 million or $0.59 per share a year ago [34] Business Line Data and Key Metrics Changes - The payments solution contributed to a net revenue retention rate of 103%, up from 102% in Q1 2021 [26][27] - Gross revenue retention rate remained strong at 94%, consistent with previous quarters [27] - The company saw increased adoption of its payments offerings, with 20% to 25% adoption at the point of sale for new locations [78] Market Data and Key Metrics Changes - The company continues to focus on core verticals: dental, optometry, and veterinary, where penetration is less than 10% [10][43] - The IT channel partner program expanded to over 250 partners, enhancing customer acquisition opportunities [14][70] Company Strategy and Development Direction - The company is focused on deepening penetration in core specialty healthcare verticals to capitalize on growth opportunities [11][43] - Changes in go-to-market strategies aim to improve sales efficiency and productivity, with a focus on digital marketing [12][40] - The company is optimistic about the future, with plans to enhance its operational capabilities and expand its leadership team [22][24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of in-person events but remains cautious about returning to pre-pandemic levels [52] - The company is addressing labor market challenges by enhancing its employer brand and expanding its talent acquisition efforts, including opening an office in India [56][63] - Management expects to see benefits from recent changes in sales and marketing strategies in the second half of the year [41] Other Important Information - The company raised its full-year revenue guidance to $139 million to $142 million, reflecting a $2.5 million increase compared to previous expectations [37] - The company reported a free cash flow usage of $5.1 million, an improvement of $2.5 million compared to the prior year [35] Q&A Session Summary Question: Update on sales and marketing organization changes - Management is encouraged by early progress and expects benefits to materialize in the second half of the year [40][41] Question: Vertical expansion strategy - The focus remains on core verticals with less than 10% penetration, while still servicing home services customers [43] Question: Customer account updates - Customer count is disclosed annually, but growth continues [48] Question: Pricing increases acceptance - Price increases have been well accepted with no significant churn [49] Question: Recovery of in-person events - Cautious optimism about the return of live events, with a commitment to digital marketing efforts [52][53] Question: Hiring and talent retention environment - Labor market challenges persist, but the company is recognized as an employer of choice [56] Question: Attracting new talent - Changes in the go-to-market strategy and competitive wages have improved talent acquisition [61][63] Question: Dental service organization initiatives - Onboarding schedules are in line with customer needs, with expectations to onboard most locations by year-end [65] Question: Payments adoption tracking - Payments adoption is increasing, with efforts to drive awareness and upsell opportunities [78] Question: Vet integrations and lead generation - Both proactive and reactive strategies are being employed to leverage integrations for customer acquisition [80]

Financial Performance - Revenue for the year ended December 31, 2021, was $115.9 million, up from $79.9 million in 2020 and $45.7 million in 2019, indicating significant growth[85]. - The company incurred net losses of $51.7 million, $40.4 million, and $32.1 million in 2021, 2020, and 2019, respectively, with an accumulated deficit of $181.9 million as of December 31, 2021[99]. - The company expects its revenue growth rate to decline over time, which may hinder its ability to achieve and sustain profitability[100]. - Revenue from Weave Payments is dependent on customer usage, and failure to increase this usage could adversely affect financial performance[164]. - The revenue from Weave Payments varies based on payment volume and economic conditions, making it difficult to predict future revenue accurately[165]. Customer Acquisition and Retention - Customer locations under subscription increased to 23,831 as of December 31, 2021, compared to 18,539 in 2020 and 13,084 in 2019[85]. - The company experienced a slowdown in new customer acquisition beginning in the first half of 2020 due to the COVID-19 pandemic, particularly affecting small and medium-sized businesses (SMBs)[80]. - A majority of customers pay subscriptions on a monthly basis, with an increasing percentage opting for annual payments, but there is no contractual obligation for renewals[90]. - The company aims to increase adoption of additional products by existing customers, which is critical for revenue growth[92]. - Customer service and support are critical for onboarding and retaining customers, and any failure in this area could harm business relationships[131][133]. Market Expansion and Competition - The company has expanded operations internationally, launching sales operations in Canada in 2020 and establishing engineering and administrative operations in India in 2021[85]. - The company is targeting medium-sized businesses for sales of subscriptions, which may incur higher costs and longer sales cycles[98]. - The company aims to expand into new vertical markets, such as home services, which requires additional investments in marketing and product development[112][113]. - The market is highly competitive with low barriers to entry, and the company faces competition from existing point solutions and larger competitors with greater resources[121][126]. - Key competitive factors include platform breadth, ease of use, industry-specific capabilities, and pricing, which are critical for maintaining market position[123]. Operational Challenges - The company faces challenges in managing rapid growth, including high employee turnover, particularly in customer service and sales[85]. - The company anticipates increased marketing expenditures as it seeks to attract new customers, which may not result in immediate revenue recognition[118]. - The company has transitioned to a new installation model relying on third-party independent contractors, which may impact customer satisfaction and sales if not managed properly[167]. - The company faces intense competition for skilled employees, which may impact its ability to manage business effectively and develop its platform[182]. Regulatory and Compliance Risks - The company is subject to various regulatory requirements, including compliance with FCC regulations, which may increase costs and affect business operations[195]. - The company must comply with the STIR/SHAKEN caller ID authentication framework by June 30, 2022, to avoid regulatory enforcement actions[199]. - The company is subject to various data protection laws, including HIPAA, which mandates strict privacy and security standards for handling protected health information (PHI)[216]. - Non-compliance with HIPAA could result in civil penalties and substantial compliance costs for the company[217]. - The company faces potential liabilities due to unauthorized use of its platform for illegal activities, which could damage its reputation and lead to litigation[205]. Financial and Capital Structure - As of December 31, 2021, the company had $10.0 million outstanding under its loan and security agreement with Silicon Valley Bank[194]. - The loan agreement requires the company to maintain a consolidated minimum liquidity of $20 million if total unrestricted cash falls below $100 million[194]. - The company may require additional capital for growth, which might not be available on favorable terms, potentially affecting its ability to respond to business opportunities[275]. - The company has never declared or paid cash dividends and does not intend to do so in the foreseeable future, focusing instead on retaining earnings for business development[274]. Internal Controls and Governance - The company identified material weaknesses in internal control over financial reporting, which could lead to material misstatements in financial statements[244]. - Remediation efforts for identified material weaknesses include hiring additional finance personnel and engaging external consultants for complex accounting matters[247]. - The effectiveness of internal controls will be assessed as of December 31, 2022, with ongoing evaluations required thereafter[251]. - The company has limited experience managing a public company, which may divert attention from day-to-day operations[190]. Technology and Cybersecurity - Cybersecurity threats are increasing, and breaches could compromise business operations and customer trust, necessitating ongoing investments in security[140][141]. - The company relies on third-party hardware and software, making it vulnerable to supply chain constraints and potential disruptions[138]. - Integration with third-party applications is crucial, and any disruption in interoperability could negatively impact the company's platform and services[136]. - The company heavily relies on Google Cloud Platform (GCP) for its operations, and any disruption could materially affect business and financial results[154].