Weave munications(WEAV) - 2022 Q4 - Annual Report

PART I Item 1. Business 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][25][26] - 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][35] 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][25] Our Platform 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] - Key benefits include ease of use, unified communications, low total cost of ownership, high ROI, and improved ability to attract and retain customers[27] Our Products 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][31][32][33] - 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][35][36][37][38][39][40][41][42] Our Customers 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 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] - Subscriptions are primarily sold by a direct inside sales team, with specialized teams for new customer acquisition and expanding existing customer usage[46] - 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] Customer Success and Support 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] - The company monitors key customer service metrics (phone hold time, ticket response/resolution rates, satisfaction) to ensure high quality and promote retention[49] Research and Development 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] - Products are designed for a broad customer base with customized features for specific SMB verticals, integrating open-source technologies with in-house code[50] - Research and development operations are maintained in both the United States and India[51] Our Technology 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 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] - It integrates web, mobile, and desktop clients with the phone system to provide a seamless customer experience[52] Weave Phone System 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] - The system provides unlimited local and long-distance voice calling within the U.S. and Canada via SIP Trunking interconnects[54] 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][56] - Security policies and standards are consistent with ISO 27001, AICPA Trust Service Principles, and NIST Cybersecurity Framework[57] - 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] Human Capital 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] - The company offers competitive compensation, benefits, parental leave, flexible PTO, and professional development opportunities[60] - Weave fosters a diverse and inclusive workforce, promoting equitable processes and an inclusive culture guided by the 'Weave Way' values[61][63] 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] - 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][68] Intellectual Property 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] - The company relies on unpatented trade secrets, confidential know-how, and continuous technological innovation to maintain its competitive position[66] - Confidentiality and invention assignment agreements are in place with employees, consultants, and contractors to protect proprietary information[66] 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] - The company must comply with laws regulating communications, including TCPA, CAN-SPAM, and CASL, and provides features to help subscribers manage compliance[68] - 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][71] Corporate Information 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] - The principal executive offices are located at 1331 W Powell Way, Lehi, Utah 84043[74] Available Information 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] Item 1A. Risk Factors 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][82] - 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][94] - 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][88][90][110][112][130][133][135][142][185][195][207][214] Risks Related to our Business and our Industry 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][81][82] - 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][84][85] - 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][133] - 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][116][118] - Cybersecurity breaches, system interruptions, and reliance on Google Cloud Platform (GCP) for infrastructure pose risks of data loss, reputational damage, and service unavailability[130][142][147] - 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][168][169][170] Risks Related to Governmental Regulation 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][186][187][188] - 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][191][192] - 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][194][195][196][199] - 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][208][209][214][216] Risks Related to Intellectual Property 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][221] - 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][223] - 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][226][227][228] Risks Related to Tax Matters 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] - 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][231] - 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][234] Risks Related to Accounting Matters 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][236] - 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][238] - Changes in financial accounting standards (e.g., ASC 606) or their interpretations may cause unexpected financial reporting fluctuations and affect business operations[240][241] Risks Related to Ownership of our Common Stock 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][243] - 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][247][249] - 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] - 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][253] - Weave does not intend to pay dividends in the foreseeable future, meaning investors must rely on stock price appreciation for gains[254] General Risks 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] - Unfavorable industry or global economic conditions (recession, inflation, geopolitical conflicts, pandemics) could reduce demand from SMB customers, impacting revenue and financial performance[267] - 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][270][271] - 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] Item 1B. Unresolved Staff Comments No unresolved staff comments are applicable to the registrant - No unresolved staff comments are applicable to Weave Communications, Inc[273] Item 2. Properties 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] - The company also maintains offices in Noida, India, and plans to lease additional space there to support growth[274][275] Item 3. Legal Proceedings 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] - Future litigation, including intellectual property infringement claims, could be costly, time-consuming, and divert management resources[276][277] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the company[278] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - As of March 10, 2023, there were 33 holders of record for the common stock[282] - 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] 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] Market Information for Common Stock 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] Holders of Record 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] Dividend Policy 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] Stock Performance Graph 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] - The graph assumes a $100 initial investment and reinvestment of dividends, with a disclaimer that historical data does not forecast future performance[285][286] Use of Proceeds from Registered Securities 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] Issuer Purchases of Equity Securities 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] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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][335] 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 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][295] - 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] Supplemental Financial Information — Disaggregated Revenue and Cost of Revenue 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] - Non-recurring onboarding and hardware services historically result in negative gross profit, serving as customer acquisition tools[300] 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 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][303] - Customer retention and expansion within the existing base depend on satisfaction, platform enhancements, and cross-selling add-on products like Weave Payments[304] - Adding new products and functionality, both internally developed and through partnerships, is key to winning new SMB customers and broadening use cases[306][307] - Expansion into new industry verticals, leveraging a repeatable playbook and establishing key partnerships, diversifies end-market exposure and creates a flywheel effect[308] Attract New Customers 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] 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 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] - The deployment of the Weave phone system increases customer stickiness and loyalty[304] Subscription and Payment Processing Gross Margin (2022 vs. 2021) | Metric | 2022 | 2021 | | :---------------------------------- | :--- | :--- | | Subscription and Payment Processing Gross Margin | 74% | 73% | Add New Products 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] - The depth of the platform's functionality relies on internally-developed technology and platform partnerships/integrations[306] - Future success is partially driven by the timely development and delivery of new, innovative products to SMBs[307] Expand to New Industry Verticals 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] - Successful expansion into adjacent markets diversifies end-market exposure and creates a 'flywheel effect' for growth[308] Key Business Metrics 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] 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 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] - Locations are counted as total active customer locations under subscription at month-end, with multi-location organizations counted per subscription[311] Dollar-Based Net Retention Rate 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] - 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] 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 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] - GRR reflects the effect of customer terminations but excludes changes in revenue due to expansion, contraction, or new customer additions[313] 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 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] - Adjusted EBITDA excludes non-cash stock-based compensation and does not reflect working capital needs[314] 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 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] - It serves as a useful liquidity indicator, providing information on cash consumed by operating and investing activities[353] 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 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] - It provides consistency and comparability for financial performance and budget preparation, excluding non-cash impacts[354] 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 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][319] - Cost of revenue includes data center, cloud infrastructure, payment processing, voice connectivity, messaging fees, and personnel-related expenses for onboarding and customer support[321] - Operating expenses (sales & marketing, R&D, G&A) are significantly driven by personnel costs, including salaries, benefits, bonuses, and stock-based compensation[323] 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] - Recurring revenue (excluding Weave Payments) accounted for 95% of total revenue in 2022 and 94% in 2021[318] - Payment processing services generate revenue net of transaction fees, recognized when transactions occur[319] - Non-recurring installation fees for onboarding customers are recognized upon completion of installation[320] Cost of Revenue 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] - Indirect costs include personnel-related expenses for onboarding and customer support staff, and allocated overhead[321] - 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] Operating Expenses 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] - Personnel costs (salaries, benefits, bonuses, stock-based compensation, sales commissions) are the most significant component of operating expenses[323][324] - Sales and marketing expenses are expected to increase in absolute dollars but decrease as a percentage of revenue over time[325] - R&D expenses are expected to increase in absolute dollars but remain consistent or slightly decrease as a percentage of revenue[327] - 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] Interest Expense 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] - 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] Other Income (Expense), Net 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] Provision for (Benefit from) Income Taxes 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] - A full valuation allowance is maintained for domestic net deferred tax assets due to uncertainty of realization, including net operating loss carryforwards[333] Results of Operations (Comparison of the Years Ended December 31, 2022 and December 31, 2021) 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 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] - Customer locations increased from 23,831 in 2021 to 27,193 in 2022[337] Cost of Revenue and Gross Margin 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][339] - Gross margin improvement resulted from a favorable customer mix (more fully depreciated phone hardware) and cost management[340] Sales and Marketing 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] Research and Development 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] - Capitalized internal-use software costs decreased by $0.9 million in 2022 compared to 2021[342] General and Administrative 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] - Professional fees increased by $2.3 million and insurance expense by $2.3 million due to public company operations[343] Other Income (Expense), Net 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] - Other income increased significantly due to earnings on IPO capital invested in market securities and short-term investments, and rising interest rates[347] Provision for Income Taxes 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] - Income tax expense is expected to increase long-term with international subsidiary growth[348] Non-GAAP Financial Measures (Summary Table) 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][354] 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 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] 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][359][419][420] 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 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] Investing Activities 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] Financing Activities 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] - 2021 financing cash inflow was primarily driven by $111.6 million net proceeds from the initial public offering[365] Critical Accounting Estimates 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][367] - 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] - 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][372] - 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] Contractual Obligations and Commitments 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] 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] - Directors and officers are also indemnified against liabilities arising from their service, excluding willful misconduct[501] - No significant costs or accrued liabilities related to indemnification obligations have been incurred historically or as of December 31, 2022[375][500][501] Silicon Valley Bank Credit Facility 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][503][504] - The agreement includes financial covenants requiring minimum liquidity and specified EBITDA levels if unrestricted cash at SVB falls below $100.0 million[378][503] - Weave was in compliance with all debt covenants as of December 31, 2022[378][503] - 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][534][535] Off-Balance Sheet Arrangements 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] Recently Adopted Accounting Pronouncements 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] - The adoption resulted in the recognition of cumulative operating lease liabilities of $52.8 million and operating ROU assets of $48.5 million[461] - Capital lease obligations of $15.0 million and related assets of $12.4 million were rec