Weave munications(WEAV) - 2022 Q2 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) This section presents Weave Communications, Inc.'s unaudited condensed consolidated financial statements and comprehensive notes for the interim period Condensed Consolidated Balance Sheets 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 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 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) 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][22] Condensed Consolidated Statements of Cash Flows 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 These notes detail the company's accounting policies, revenue recognition, fair value measurements, and other key financial statement components 1. Description of the Business 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] 2. Basis of Presentation and Summary of Significant Accounting Policies 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] - 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] - The company expects to adopt ASU 2016-13 (Credit Losses) on January 1, 2023, and is currently evaluating its impact[53] 3. Revenue 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] 4. Fair Value Measurements 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] 5. Property and Equipment 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] 6. Accrued Liabilities 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 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] 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 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] 9. Long-Term Debt 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][78] - The company was in compliance with all debt covenants as of June 30, 2022, which include maintaining minimum liquidity and specified EBITDA levels[79] 10. Stockholders' Equity 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] - 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] 11. Related Party Transactions 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] 12. Commitments and Contingencies 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] - 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] 13. Net Loss Per Share 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, revenue drivers, and liquidity, including non-GAAP measures 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][102] - 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] Supplemental Financial Information — Disaggregated Revenue and Cost of Revenue 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] - Onboarding and hardware services are used as customer acquisition tools, often resulting in negative gross profit due to competitive pricing and associated costs[106] Factors Affecting Our Performance 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] - 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] - 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][115] Business Update Regarding COVID-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] - The pandemic did not have a negative material impact on revenue or non-renewals of subscriptions in 2020, 2021, or H1 2022[116] - 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] Key Business Metrics 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] - GRR measures the ability to retain customers by focusing on revenue reductions from terminations, excluding revenue expansion or new customer additions[123] Non-GAAP Financial Measures 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] - Adjusted EBITDA excludes interest expense, taxes, depreciation (excluding phone hardware), amortization (capitalized internal-use software), and stock-based compensation expense[127][131][132] Components of Results of Operations 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] - 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] - 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][144][147] Results of Operations 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] - 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][170] Liquidity and Capital Resources 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][33] | 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] - 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] Critical Accounting Policies and Estimates 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][391] - The company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2022, which updates financial reporting requirements for leasing arrangements[190] Emerging Growth Company Status 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][405] - 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][405] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - 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] - The remediation plan involves hiring additional finance and accounting personnel, engaging external consultants, and providing ongoing training[199] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors This section details significant risks to the company's business, including profitability, growth management, competition, and regulatory compliance Risk Factors Summary 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] - 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][207] Risks Related to our Business and our Industry 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] - 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][215] - 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][272] - Breaches of applications, networks, or systems (including GCP) could compromise data, damage reputation, and expose the company to liability, requiring significant security investments[267][269][270] Risks Related to Governmental Regulation 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][329][331] - 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][335] - 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][350][351][358] - 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][339] Risks Related to Intellectual Property 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][366] - 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] - 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][372] Risks Related to Tax Matters 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] - 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] - 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] Risks Related to Accounting Matters 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][382] - 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][385][386] - Incorrect estimates or judgments in critical accounting policies (e.g., revenue recognition, stock-based compensation) could adversely affect results of operations[391] Risks Related to Ownership of our Common Stock 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][397] - Future equity issuances under incentive plans or for acquisitions could dilute existing stockholders' ownership[399] - 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] - The company does not intend to pay dividends for the foreseeable future, requiring investors to rely on stock price appreciation for returns[406] General Risks 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] - 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] - 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][421][422] Item 6. Exhibits 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] 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]