weav-20210930

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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, 2021

☐ 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)

Delaware    26-3302902
(State or other jurisdiction of    (I.R.S. Employer
incorporation or organization)    Identification Number)
1331 West Powell Way

Lehi, Utah 84043
(Address of principal executive offices, including zip code)

(866) 439-2826
(Registrant's telephone number, including area code)

__________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading symbol:

Name of each exchange on which registered:

Common stock, par value $0.00001 per share

WEAV

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☐

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of 11/30/2021, the registrant had 64,239,866 shares of common stock, par value $0.00001 per share, outstanding.

WEAVE COMMUNICATIONS, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Loss	3
	Conden sed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION	40

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85

Item 3.	Defaults Upon Senior Securities	86

Item 4.	Mine Safety Disclosures	86

Item 5.	Other Information	86

Item 6.	Exhibits	87

Signatures		88

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations, financial position, market size and opportunity, our business strategy and plans, the factors affecting our performance and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “expect,” “objective,” “plan,” “potential,” “seek,” “grow,” “target,” “if” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Risk Factors included in our prospectus, dated November 10, 2021, filed with the Securities and Exchange Commission, or the SEC in accordance with Rule 424(b) of the Securities Act on November 12, 2021, or the Prospectus, in connection with our initial public offering, or IPO, and the Risk Factors listed under Part II, Item 1A of this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our expectations regarding our results of operations, including gross margin, financial condition and cash flows;

•our expectations regarding the development and expansion of our business;

•anticipated trends, challenges and opportunities in our business and in the markets in which we operate;

•the impact of the COVID-19 pandemic;

•our ability to expand our customer base and expand sales to existing customers;

•our ability to expand into new vertical markets and additional countries;

•the impact of competition in our industry and innovation by our competitors;

•our ability to anticipate and address the evolution of technology and the technological needs of our customers, to roll out upgrades to our existing platform and to develop new and enhanced products to meet the needs of our customers;

•the impact of our corporate culture and our ability to retain and hire necessary employees and staff our operations appropriately;

•our ability to remediate the material weaknesses in our internal control over financial reporting;

•our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

•our ability to maintain, protect and enhance our intellectual property; and

•the increased expenses associated with being a public company.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)


	As of September 30, 2021		As of December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	40,391	$	55,698
Accounts receivable	4,580		2,544
Deferred contract acquisition costs, net	8,729		7,178
Prepaid expenses and other current assets	4,010		2,254
Total current assets	57,710		67,674

Non-current assets:
Property and equipment, net	24,985		18,294
Deferred contract acquisition costs, net, less current portion	7,852		6,208
Other non-current assets	2,327		797
TOTAL ASSETS	$	92,874	$	92,973

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	4,498	$	3,400
Accrued liabilities	16,118		10,286
Deferred revenue	28,425		22,851

Current portion of capital lease obligations	8,573		7,086
Current portion of long-term debt	—		400
Total current liabilities	57,614		44,023

Non-current liabilities:
Deferred rent	3,141		1

Capital lease obligations, less current portion	7,481		7,356
Long-term debt	9,995		3,600
Total liabilities	78,231		54,980

COMMITMENTS AND CONTINGENCIES (Note 12)

Redeemable convertible preferred stock
Redeemable convertible preferred stock, $0.00001 par value per share; 43,836,109 shares authorized, issued and outstanding as of September 30, 2021,and December 31, 2020, respectively; liquidation preference of $160,764 and $159,073 as of September 30, 2021 and December 31, 2020, respectively	151,938		151,938

Stockholders' deficit:
Common stock, $0.00001 par value per share; 71,384,328 and 65,084,328 shares authorized as of September 30, 2021 and December 31, 2020, respectively; 14,759,718 and 11,882,286 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively	—		—
Additional paid-in capital	30,548		16,261
Accumulated deficit	(167,830)		(130,208)
Accumulated other comprehensive (loss) income	(13)		2
Total stockholders' deficit	(137,295)		(113,945)
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT	$	92,874	$	92,973

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue	$	30,302	$	21,388	$	84,031	$	56,123
Cost of revenue	12,868		9,214		35,693		24,503
Gross profit	17,434		12,174		48,338		31,620

Operating expenses:
Sales and marketing	16,021		8,882		42,475		28,699
Research and development	6,195		5,414		19,902		14,354
General and administrative	9,131		8,024		22,717		19,048
Total operating expenses	31,347		22,320		85,094		62,101
Loss from operations	(13,913)		(10,146)		(36,756)		(30,481)

Other income (expense):
Interest expense	(303)		(274)		(876)		(792)
Other income (expense)	(4)		16		10		238
Net loss	$	(14,220)	$	(10,404)	$	(37,622)	$	(31,035)
Less: cumulative dividends on redeemable convertible preferred stock	(585)		(538)		(1,691)		(1,564)
Net loss attributable to common stockholders	$	(14,805)	$	(10,942)	$	(39,313)	$	(32,599)
Net loss per share attributable to common stockholders - basic and diluted	$	(1.03)	$	(0.95)	$	(2.97)	$	(2.91)
Weighted-average common shares outstanding - basic and diluted	14,317,575		11,521,625		13,250,767		11,214,369

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net loss	$	(14,220)	$	(10,404)	$	(37,622)	$	(31,035)
Other comprehensive income (loss)
Change in foreign currency translation, net of tax	(7)		(15)		(15)		(24)
Total comprehensive loss	$	(14,227)	$	(10,419)	$	(37,637)	$	(31,059)

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(in thousands, except share amounts)

(unaudited)


	Three Months Ended September 30,2021
											Accumulated
	Redeemable Convertible						Additional				Other		Total
	Preferred Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Deficit		(Loss) Income		Deficit
Balance at June 30, 2021	43,836,109	$	151,938	14,070,294	$	—	$	25,479	$	(153,610)	$	(6)	$	(128,137)
Issuance of common shares	—	—		689,424	—		1,115		—		—		1,115


Equity-based compensation	—	—		—	—		3,954		—		—		3,954
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—		(7)		(7)
Net loss	—	—		—	—		—		(14,220)		—		(14,220)
Balance at September 30, 2021	43,836,109	$	151,938	14,759,718	$	—	$	30,548	$	(167,830)	$	(13)	$	(137,295)


	Three Months Ended September 30,2020
											Accumulated
	Redeemable Convertible						Additional				Other		Total
	Preferred Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Deficit		(Loss) Income		Deficit
Balance at June 30, 2020	43,836,109	$	151,938	11,152,794	$	—	$	9,356	$	(110,418)	$	(9)	$	(101,071)

Issuance of common shares	—	—		587,236	—		555		—		—		555


Equity-based compensation	—	—		—	—		4,699		—		—		4,699
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—		(15)		(15)
Net loss	—	—		—	—		—		(10,404)		—		(10,404)
Balance at September 30, 2020	43,836,109	$	151,938	11,740,030	$	—	$	14,610	$	(120,822)	$	(24)	$	(106,236)

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (CONTINUED)

(in thousands, except share amounts)

(unaudited)


	Nine Months Ended September 30,2021
											Accumulated
	Redeemable Convertible						Additional				Other		Total
	Preferred Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Deficit		(Loss) Income		Deficit
Balance at December 31, 2020	43,836,109	$	151,938	11,882,286	$	—	$	16,261	$	(130,208)	$	2	$	(113,945)
Issuance of common shares	—	—		2,877,432	—		3,240		—		—		3,240


Equity-based compensation	—	—		—	—		11,047		—		—		11,047
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—		(15)		(15)
Net loss	—	—		—	—		—		(37,622)		—		(37,622)
Balance at September 30, 2021	43,836,109	$	151,938	14,759,718	$	—	$	30,548	$	(167,830)	$	(13)	$	(137,295)


	Nine Months Ended September 30,2020
											Accumulated
	Redeemable Convertible						Additional				Other		Total
	Preferred Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Deficit		(Loss) Income		Deficit
Balance at December 31, 2019	43,836,109	$	151,938	10,816,231	$	—	$	3,797	$	(89,787)	$	—	$	(85,990)
Issuance of common shares	—	—		923,799	—		732		—		—		732


Equity-based compensation	—	—		—	—		10,081		—		—		10,081
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—		(24)		(24)
Net loss	—	—		—	—		—		(31,035)		—		(31,035)
Balance at September 30, 2020	43,836,109	$	151,938	11,740,030	$	—	$	14,610	$	(120,822)	$	(24)	$	(106,236)

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(37,622)		$	(31,035)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	8,751		—	6,830
Provision for losses on accounts receivable	227			195
Amortization of contract acquisition costs	6,846			4,892


Equity-based compensation	11,047			10,081
Changes in operating assets and liabilities:
Accounts receivable	(2,263)			(1,833)
Contract acquisition costs	(10,041)			(7,055)
Prepaid expenses and other assets	(1,466)			(1,053)
Accounts payable	(335)			(65)
Accrued liabilities	5,832			(930)
Deferred revenue	5,567			5,008
Deferred rent	3,140			(108)
Net cash used in operating activities	(10,317)			(15,073)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment	(5,730)			(1,138)
Capitalized internal-use software costs	(1,929)			(1,027)
Net cash used in investing activities	(7,659)			(2,165)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from advance on line of credit	5,995			—
Paid deferred offering costs	(745)			—
Principal payments on capital lease obligations	(5,821)			(4,224)
Proceeds from stock option exercises	3,240			732


Net cash provided by (used in) financing activities	2,669			(3,492)

NET DECREASE IN CASH AND CASH EQUIVALENTS	(15,307)			(20,730)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	55,698			80,225
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	40,391		$	59,495

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	876		$	792
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Equipment purchases financed with accounts payable	334			15
Equipment purchases financed with capital leases	7,433			7,433
Accrued unpaid deferred offering costs	1,075			—

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Description of the Business

Weave Communications, Inc. (the “Company”) sells subscriptions for its integrated communications platform, which combines software communication and analysis tools with voice over internet protocol (“VoIP”) phone services. The Company was incorporated in the state of Delaware in October 2015 and its corporate headquarters are located in Lehi, UT.

2.Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of Weave Communications, Inc. and its wholly owned subsidiaries Weave Communications Canada, Inc. and Weave Communications India Private Limited (collectively “Weave” or the “Company”). Intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Prospectus.

The accompanying interim condensed consolidated balance sheets, statements of operations, comprehensive loss, statements of redeemable convertible preferred stock and stockholders' deficit, statements of cash flows and accompanying notes are unaudited. These unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial condition, its operations and cash flows for the periods presented. The historical results are not necessarily indicative of future results, and the results of operations are not necessarily indicative of the results to be expected for the full year or any other period.

Segments

The Company operates as one operating and reportable segment. The Company’s chief operating decision maker (“CODM”) evaluates reporting operations and financial information on a consolidated basis for the purposes of making operating decisions, assessing financial performance and allocating resources.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of sales and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates included in the Company’s financial statements include the valuation allowance against deferred tax assets, recoverability of long-lived assets, fair value of issued warrants, fair value of equity-based compensation, amortization period of deferred contract acquisition costs, and useful lives for depreciable assets.

Cash and Cash Equivalents

Cash consists of deposits in financial institutions. Cash equivalents consist of highly liquid investments in money market securities with an original maturity of 90 days or less. The fair value of cash equivalents approximated their carrying value as of September 30, 2021 and December 31, 2020. As of September 30, 2021 and December 31, 2020 the Company did not have any restricted cash.

Liquidity and Capital Resources

The Company has incurred losses and generated negative cash flows from operations since inception. As of September 30, 2021 the Company had an accumulated deficit of $167.8 million. The Company has partially funded its operations through cash flows generated by sales of its product offerings, and as of September 31, 2021 the Company has completed several rounds of equity financing with total net proceeds approximating $159.0 million. As of September 30, 2021 the Company had outstanding borrowings under its revolving line of credit of $10.0 million.

The Company believes its existing cash and cash equivalents and cash flows provided by sales of product offerings and proceeds from the initial public offering (Note 14) will be sufficient to meet operating cash flow requirements for at least twelve months from the date of issuance of the September 30, 2021 condensed consolidated financial statements. As a result of the Company’s growth plans, the Company expects that losses and negative cash flows from operations may continue in the foreseeable future.

Advertising Expense

Advertising costs are expensed as incurred. For the three months ended September 30, 2021 and 2020, the Company recorded advertising expense of $1.9 million and $0.6 million, respectively. For the nine months ended September 30, 2021 and 2020 the Company recorded advertising expense of $5.1 million and $1.5 million, respectively. Advertising costs are included in sales and marketing expenses in the condensed consolidated statements of operations.

Income Taxes

The Company records a provision for income taxes for the anticipated tax of its reported results of operations using the asset and liability method. Under this method, deferred income taxes are recognized by applying the enacted tax rates expected to be in effect in future years to the differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating losses and tax credit carryforwards. The measurement of deferred tax assets is reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized.

The Company does not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. A tax benefit is recognized only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. For such positions, the largest benefit that has a greater than 50% likelihood of being realized upon settlement is recognized in the condensed consolidated financial statements. Where applicable, interest and penalties are recognized in income tax expense.

Net loss per share

Net loss per share attributable to common stockholders is calculated using the two-class method required for companies with participating securities. All series of the Company's redeemable convertible preferred stock are considered participating securities as they participate on a pari passu basis in any dividends declared to holders of the Company's common stock. Net loss is adjusted for the effect of any cumulative dividends on the Company's redeemable convertible preferred stock prior to allocating undistributed earnings to common stockholders and holders of participating securities. Undistributed earnings are allocated to participating securities to the extent that each participating security may share in the earnings as if all of the earnings for the period had been distributed. In periods in which the Company reports a net loss, no amounts are allocated to participating securities as holders of the Company's redeemable convertible preferred stock do not have a contractual obligation to share in losses.

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed using the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method unless their effect is anti-dilutive.

Revenue Recognition - ASC 606

The Company derives substantially all revenue from subscription services by providing customers access to its platform.

The Company adopted the provisions of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, (referred to collectively as "ASC 606") effective January 1, 2019 using the modified retrospective method. Following the adoption of ASC 606, the Company recognizes revenue when control of these services are transferred to customers in an amount that reflects consideration to which the Company expects to be entitled in exchange for those services, net of tax. Revenue recognition is determined from the following steps:

•Identification of a contract with a customer;

•Identification of the performance obligations in the contract;

•Determination of the transaction price;

•Allocation of the transaction price to the performance obligations within the contract;

•Recognition of revenue when, or as, performance obligations are satisfied.

The Company recognizes revenue as follows:

Subscriptions revenue (software and phone service) is generated from fees that provide customers access to one or more of the Company’s software applications and related services. These arrangements have contractual terms of month to month. Arrangements with customers do not provide the customer with the right to take possession of the Company’s software at any time. Instead, customers are granted continuous access to the services over the contractual period. The Company transfers control of services evenly over the contractual period. Accordingly, the fixed consideration related to subscriptions is recognized over time on a straight-line basis over the contract term beginning on the date the Company’s service is made available to the customer.

The Company also provides payment processing/collection services and receives a revenue share from a third-party payment facilitator on transactions between Weave customers that utilize the Weave payments platform, and their end consumers. These payment transactions are generally for services rendered at customers’ business location via credit card terminals or through “text-to-pay” functionality. As the Company acts as an agent in these arrangements, revenue from payments services is recorded net of transaction processing fees and revenue is recognized as the performance obligation is performed each time transactions are processed.

As part of the onboarding process, the customer may request that the Company install pre-configured applications on hardware which allow remote access to Weave's cloud solution. In addition, the customer may request that the Company install phone hardware at the customer’s location. The Company considers installation a separate performance obligation, and revenue is recognized at the time the installation services are complete.

With the exception of payments services and installation revenue, customers are billed in advance and they may elect to be billed on a monthly or annual basis. The Company records contract liabilities to deferred revenue when cash payments are received, or billings are due in advance of revenue recognition from services. Deferred revenue is recognized as revenue when, or as, the performance obligations are satisfied. Software and phone service revenue is recognized net of discounts in the statements of operations. The Company does not consider discounts variable consideration as they are stated on each agreement and each agreement is month to month. The Company collects sales and communications taxes from its customers. In the statement of operations, amounts collected from taxes are excluded from the reported revenue amounts.

In addition to providing VoIP phone and software services, the Company provides phone hardware to its customers as part of the subscription. Title of the phones does not transfer to the customer until 36 months of subscription have occurred. If a customer were to cancel at any time prior to completion of the 36-month period, the phones are returned to the Company. The Company allows customers to include up to 10 phones without adjustment to the subscription base price. Effective for new sales beginning August 2021, the Company modified sales terms so that title to the phones is no longer given to the customer free of charge at the end of the 36-month period; instead, the phones remain an asset of the Company, as the phones are leased to the customer. The Company allows customers to include up to 5 phones without adjustment to the subscription base price. Such arrangements are deemed to be an embedded lease per guidance provided in ASC 840-10, Accounting for Leases, as the arrangement entails conveying the right to use Company equipment. The Company becomes the lessor in these agreements and has assessed the fair value of all elements provided to customers in order to allocate a portion of the subscription price to the lease element of the sales arrangement. For the three months ended September 30, 2021 and 2020, the Company recorded $0.9 million and $0.7 million, respectively, in lease revenues associated with the phone hardware. For the nine months ended September 30, 2021 and 2020, the Company recorded $2.4 million and $1.9 million, respectively, in lease revenues associated with the phone hardware.

As a lessor, future minimum lease payments to be received are variable due to customer agreements being month to month and the fact that they are allocated based on the fair value of all services provided to the customer. Maturities of each agreement are also variable as customer agreements are month to month. With phones being deployed to customers for their useful life, residual value does not accrue to the benefit of the Company. Phones that are returned are refurbished and placed into service.

Deferred Offering Costs

Deferred offering costs of $1.8 million have been recorded as other non-current assets on the unaudited condensed consolidated balance sheet as of September 30, 2021 and consist of costs incurred in connection with the sale of our common stock in our initial public offering, or IPO, including certain legal, accounting, printing, and other IPO related costs. Upon the completion of our IPO in November 2021 (see Note 14), deferred offering costs are recorded in stockholders’ deficit as a reduction from the proceeds of the offering. There were no deferred offering costs as of December 31, 2020.

Accounting Pronouncements Adopted

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Non-Employee Share-Based Payment Accounting, which expands the scope of Topic 718, to include share-based payments issued to non-employees for goods or services. The new standard supersedes Subtopic 505-50. The Company adopted this guidance as of January 1, 2020 with no material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard requires the Company to capitalize implementation costs and amortize the expense over the remaining contract life. The Company adopted this guidance as of January 1, 2021 with no material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740 and clarifies certain aspects of the current guidance to promote consistency among reporting entities. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The standard is effective for annual periods beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2022. The Company early adopted the standard for the fiscal year ended December 31, 2020. The standard removes the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and other comprehensive income, as a result the Company was not required to apply the incremental approach for

intraperiod tax allocation during the year ended December 31, 2020. The adoption of ASU 2019-12 was not material to the consolidated financial statements.

Accounting Pronouncements Pending Adoption

As an “emerging growth company,” the Jumpstart Our Business Startups Act, or the JOBS Act, allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which updates the requirements related to financial reporting for leasing arrangements, including requiring lessees to recognize an operating lease with a term greater than one year on their consolidated balance sheets as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. Upon adoption, lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements or they may record the amount in the year in which the ASU is adopted. The accounting applied by a lessor is largely unchanged from that applied under previous Topic 840. For example, the vast majority of operating leases should remain classified as operating leases, and lessors should continue to recognize lease income for those leases on a generally straight-line basis over the lease term. In June of 2020 the FASB issued ASU 2020-05 which extended the adoption of Topic 842 for one year. As a result, the Company expects to adopt the standard as of January 1, 2022 and is currently evaluating lease agreements to quantify the expected impact of adoption on the financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, and includes the Company's accounts receivable, certain financial instruments and contract assets. ASU 2016-13 results in more timely recognition of credit losses. For non-public companies, adoption is required for fiscal years beginning after December 15, 2022, including interim periods within fiscal years beginning after December 15, 2022. As a result, the Company expects to adopt the standard as of January 1, 2023 and is currently evaluating the expected impact of adoption on the financial statements.

3.Revenue

The Company accounts for revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts With Customers for all periods presented. See Note 2 for a description of the Company’s revenue recognition accounting policy.

Contract Balances

The Company recognized revenue that was included in the corresponding deferred revenue balance at the beginning of the period of $13.0 million and $9.1 million for the three months ended September 30, 2021 and 2020, and $36.1 million and $24.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Costs to Obtain a Contract

As discussed in Note 2, the Company capitalizes incremental costs of obtaining a contract. Amortization expense related to these costs were $2.5 million and $1.8 million for the three month period ending September 30, 2021 and 2020 and $6.8 million and $4.9 million for the nine month period ending September 30, 2021 and 2020, respectively.

Disaggregation of Revenues

Revenue has been disaggregated into recurring and non-recurring categories to identify revenue and costs of revenue that are one-time in nature from those that are term-based and renewable.

The table below outlines revenue for our recurring subscription (software and phone services) and payment processing services, as well as for our onboarding services, and phone hardware (in thousands) for the three and nine months ended September 30, 2021 and September 30, 2020:


	Three Months Ended September 30,
	2021		2020
Subscription and payment processing	$	28,377	$	19,687
Onboarding	1,016		1,012
Hardware (embedded lease)	909		689
Total revenue	$	30,302	$	21,388


	Nine Months Ended September 30,
	2021		2020
Subscription and payment processing	$	78,509	$	52,154
Onboarding	3,088		2,118
Hardware (embedded lease)	2,434		1,851
Total revenue	$	84,031	$	56,123

4.Fair Value Measurements

Financial instruments recorded at fair value in the financial statements are categorized as follows:

•Level 1: Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

•Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3: Unobservable inputs reflecting management's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The following table summarizes the assets measured at fair value on a recurring basis by level within the fair value hierarchy for the periods presented (in thousands):


	September 30, 2021		December 31, 2020
Level 1
Money market fund	$	24,385	$	53,701
Level 2	—		—
Level 3	—		—
Total	$	24,385	$	53,701

For the periods ended September 30, 2021 and December 31, 2020 the fair value of debt was $10.6 million and $4.4 million, respectively (Level 2). The carrying amounts of certain financial instruments, including accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short-term maturities and are excluded from the fair value tables above.

5.Property and Equipment

Property and equipment consisted of the following for the periods presented (in thousands):


	September 30, 2021		December 31, 2020
Office equipment	$	4,687	$	3,835
Office furniture	4,593		2,940
Leasehold improvements	2,074		652
Fixed assets not placed in service	671		1,339
Capitalized internal-use software	3,127		1,100
Phone hardware	27,497		23,101
Payment terminals	1,321		430
Property and equipment, gross	43,970		33,397
Less accumulated depreciation and amortization	(18,985)		(15,103)
Property and equipment, net	$	24,985	$	18,294

Depreciation and amortization expense was $3.2 million and $8.8 million for the three and nine months ended September 30, 2021, respectively, and $2.4 million and $6.8 million for the three and nine months ended September 30, 2020, respectively. Of this expense, $2.3 million and $6.7 million for the three and nine months ended September 30, 2021, respectively, and $1.9 million and $5.3 million for the three and nine months ended September 30, 2020, respectively, was related to phone hardware and data center equipment which has been included in cost of revenue in the statements of operations for the three months ended September 30, 2021 and September 30, 2020, respectively. Capitalized internal-use software amortization expense was $0.2 million and $0.4 million for the three and nine months ended September 30, 2021, respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2020, respectively, which has been included in the cost of revenue in the statements of operations. Capitalized implementation amortization expense was $0.1 million and $0.1 million for the three and nine months ended September 30, 2021, respectively, which has been included in operating expense in the statements of operations.

6.Accrued Liabilities

Accrued liabilities consisted of the following for the periods presented (in thousands):


	September 30, 2021		December 31, 2020
Payroll-related accruals	$	13,266	$	7,566
Sales and telecom taxes	1,578		1,056
Third-party commissions	605		553
Interest payable	—		19


Other	669		1,092

Total	$	16,118	$	10,286

7.Income Taxes

The Company computes its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period. For the three months ended September 30, 2021 and 2020 the Company reported no provision for income taxes, which resulted in an effective tax rate of zero percent. For the nine months ended September 30, 2021 and 2020 the Company reported no provision for income taxes, which resulted in an effective tax rate of zero percent. The provision for income taxes varied from the tax computed at the U.S. federal statutory income tax rate of 21% for the periods presented primarily due to changes in the Company’s valuation allowance, state taxes, and, the tax effects of stock-based compensation.

The Company is subject to income tax in the U.S. as well as other tax jurisdictions in which the Company operates. The Company’s U.S. operations have resulted in losses, and as such, the Company maintains a valuation allowance against all U.S. deferred tax assets. While the Company believes its

current valuation allowance is appropriate, the Company assesses the need for an adjustment to the valuation allowance on a quarterly basis. The assessment is based on all available positive and negative evidence including past results of operations, forecasted earnings, tax planning strategies, and all sources of future taxable income. In the event the Company determines that it will be able to realize all or part of its net deferred tax assets in the future, all or part of the valuation allowance will be released in the period in which the Company makes such determination. The release of all or part of the valuation allowance against deferred tax assets may cause greater volatility in the effective tax rate in the periods in which it is released.

8.Long-Term Debt

Throughout 2020, the Company held a $4.0 million note payable and a revolving line of credit with Silicon Valley Bank. The note required interest only payments through September 2021, followed by 36 principal payments of $0.1 million plus interest (maturity in February 2024). The revolving line of credit had a maximum borrowing capacity of $10.0 million.

In August of 2021, the Company amended the agreement with Silicon Valley Bank to increase the revolving line of credit from $10.0 million to $50.0 million. The total borrowing capacity is subject to reduction should the Company fail to meet certain expectations for recurring revenue and customer retention. Amounts outstanding on the line will accrue interest at the greater of prime rate plus 0.25% and 3.5%. As part of the agreement, the $4.0 million note payable was converted to a deemed advance on the line of credit and was deemed a debt modification. In connection with this transaction, the Company drew down an additional $6.0 million from the line of credit resulting in a total outstanding balance of $10.0 million. The Company is required to pay an annual fee of $0.1 million beginning on the effective date of the agreement, and continuing on the anniversary of the effective date as well as a quarterly unused line fee of 0.15% per annum of the available borrowing amount should the outstanding principal balance drop below $10.0 million (calculated based on the number of days and based on the average available borrowing amount). The line of credit is collateralized by substantially all of our assets. Under the terms of this amendment, the loan and security agreement requires that, at any time, if total unrestricted cash and cash equivalents held at Silicon Valley Bank is less than $100.0 million, the Company must at all times thereafter maintain a consolidated minimum $20.0 million in liquidity, meaning unencumbered cash plus available borrowing on the line of credit, and that the Company meet specified minimum levels of EBITDA, as adjusted for equity-based compensation and changes in our deferred revenue. The Company was in compliance with all debt covenants as of the periods ended September 30, 2021 and December 31, 2020. The balance on the line of credit is due on August 4, 2023.

The Company’s long-term debt consisted of the following (in thousands):


	September 30, 2021		December 31, 2020
Note payable, current	$	—	$	400
Note payable, noncurrent	—		3,600

Line of credit	9,995		—
Total	$	9,995	$	4,000

9.Redeemable Convertible Preferred Stock

The following table summarizes the Company’s redeemable convertible preferred stock as of December 31, 2020 and through September 30, 2021:


		Shares Issued	Issuance Price		Carrying Amount
	Authorized	and Outstanding	Per Share
Series AA	4,766,263	4,766,263	$	0.21	$	999,962
Series A-1	1,253,739	1,253,739	0.46		579,980
Series A-2	432,323	432,323	0.58		250,012
Series A	3,070,449	3,070,449	1.68		5,152,213
Series B	9,412,354	9,412,354	1.69		15,480,110
Series B-1	13,191,371	13,191,371	1.69		22,008,322
Series C	7,012,806	7,012,806	5.35		37,467,749
Series D	4,696,804	4,696,804	14.90		69,999,758
	43,836,109	43,836,109			$	151,938,106

Liquidation preference for redeemable convertible preferred stock was as follows (in thousands):


	September 30, 2021		December 31, 2020
Series AA	$	1,000	$	1,000
Series A-1	580		580
Series A-2	250		250
Series A	5,150		5,150
Series B	15,900		15,900
Series B-1	30,384		28,693
Series C	37,500		37,500
Series D	70,000		70,000
	$	160,764	$	159,073

Significant rights and preferences of the above redeemable convertible preferred stock are defined by our certificate of incorporation. There have been no material changes in the rights and preferences of the above redeemable convertible preferred stock, as disclosed in the Prospectus.

10.Stockholders’ Deficit

Equity-Based Compensation Expense

Equity-based compensation expense, consisting of service-based expense related to the equity incentive plan and expense from secondary sales of commons shares, was classified as follows in the accompanying condensed consolidated statements of operations for each of the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenue	$	139	$	76	$	418	$	220
Sales and marketing	693		153		1,504		471
Research and development	575		496		2,991		1,163
General and administrative	2,547		3,974		6,134		8,227
Total	$	3,954	$	4,699	$	11,047	$	10,081

Equity Incentive Plan

During 2016, the Company adopted an equity incentive plan (herein referred to as the “EIP”) under which common stock options could be issued for employee awards. The number of common stock options authorized for employee awards was 18,713,504 and 11,679,353 as of the period ending September 30, 2021 and September 30, 2020, respectively. The Company began issuing stock options

under this plan in 2016. Most options have a four-year vesting schedule with a one-year cliff and are classified as incentive stock options (ISOs). Some options have been granted in lieu of bonuses and have expedited two- or three-year vesting schedules. All awards vest based on service conditions.

Options with accelerated vesting clauses, should there be a change in Company control, were 2,328,528 and 213,332 as of September 30, 2021 and September 30, 2020, respectively.

Equity-based compensation expense related to the equity incentive plan was as follows for each of the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenue	$	139	$	76	$	279	$	220
Sales and marketing	693		111		965		320
Research and development	575		141		1,394		419
General and administrative	2,547		1,846		5,008		2,407
Total	$	3,954	$	2,174	$	7,646	$	3,366

Unrecognized equity-based compensation expense as of the periods ending September 30, 2021 and September 30, 2020 was $38.6 million and $7.5 million, respectively. Equity-based compensation expense is recognized on a straight-line basis over the remaining weighted-average vesting periods. As of the periods ending September 30, 2021 and September 30, 2020 the weighted-average vesting periods approximated 3.14 and 2.59 years, respectively.

The aggregate intrinsic value of options exercised is outlined in the table below. The intrinsic value represents the excess of the estimated fair value of the Company's common stock on the date of exercise over the exercise price of each option.

Stock option activity was as follows for the nine months ended September 30, 2021:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2020	9,868,915	$	3.62	8.13	$	101,070
Exercisable as of December 31, 2020	4,401,361	$	1.10	6.78	$	56,117

Granted	—	$	—
Exercised	(965,430)	$	1.31
Forfeited and expired	(86,219)	$	2.71
Outstanding as of March 31, 2021	8,817,266	$	3.90	8.05	$	99,871
Exercisable as of March 31, 2021	3,888,696	$	1.21	6.82	$	54,628

Granted	249,067	$	9.03
Exercised	(1,222,578)	$	0.69
Forfeited and expired	(221,312)	$	2.18
Outstanding as of June 30, 2021	7,622,443	$	4.61	8.16	$	108,961
Exercisable as of June 30, 2021	2,998,911	$	1.46	6.82	$	52,187

Granted	2,190,442	$	16.41
Exercised	(689,424)	$	1.61
Forfeited and expired	(610,163)	$	3.33
Outstanding as of September 30, 2021	8,513,298	$	7.98	8.28	$	103,297
Exercisable as of September 30, 2021	2,590,738	$	1.53	6.06	$	48,141

Equity-based compensation expense is measured at the grant date based on the estimated fair value of the award. The fair value of the awards is fixed at grant date and amortized over the remaining service period. The Company uses the Black-Scholes model to estimate the value of its stock options issued under the EIP. As the Company is not publicly traded, the common stock fair values used in the models are based on the most recent 409(a) valuation as of the option grant date. Management reviews option grants determines whether further valuation adjustments are appropriate based on recent company performance and/or changes in market conditions. The volatility assumed in the estimate was based on publicly traded companies in the same industry and considers the expected term calculated by the Company. The expected term of the options was derived from a simplified method which estimates the term based on an averaging of the vesting period and contractual term of the option grant. The risk-free rate utilized was the average of the five- and seven-year U.S. Treasury yield as the estimated expected term for options approximates 6 years. The Company has no plans to declare dividends in the foreseeable future.

Secondary Sales of Common Stock

Certain of the Company’s investors have acquired outstanding common stock from employees and certain sales of common stock by employees to new investors were facilitated by the Company. For these transactions, and where shares have been acquired at a price in excess of the estimated fair value of the Company’s common stock, the Company has recorded equity-based compensation expense of the difference between the price paid by the investors and the estimated fair value as of the date of the transactions. Equity-based compensation for these transactions has been recorded as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenue	$	—	$	—	$	139	$	—
Sales and marketing	—		42		539		151
Research and development	—		355		1,597		744
General and administrative	—		2,128		1,126		5,820
Total	$	—	$	2,525	$	3,401	$	6,715

Repurchase of Common Shares

No share repurchases took place during the nine months ended September 30, 2021 or September 30, 2020.

Issuances of Warrants

All warrants discussed in this section were evaluated by the Company under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and were determined to be recognized under the provisions of this guidance as equity transactions.

In September 2014, the Company issued 45,000 common share warrants, with a $0.20 strike price, to a financial institution in connection with the note payable discussed in Note 8. Using the Black‑Scholes model, the Company estimated the fair value of the warrants to be $9,178 at issuance, which was recorded in equity in 2014. These warrants expire on the earlier of (1) October 13, 2025, or (2) three years after the Company’s Initial Public Offering. Should the fair value of the underlying common shares exceed the strike price at either expiration dates, the warrants will automatically be exercised via cashless net settlement. As of September 30, 2021, these warrants had not yet been exercised.

In connection with the note payable issued in September 2016, the Company issued 62,000 common share warrants, with a $0.6825 strike price, to the same financial institution. These warrants have substantially the same terms as the other warrants discussed above. Using the Black‑Scholes model, the Company estimated the fair value of the warrants to be $22,192 at issuance, which was recorded in equity in 2016. These warrants expire on March 14, 2026. Should the fair value of the underlying common shares exceed the strike price at the expiration date, the warrants will automatically be exercised via cashless net settlement. As of September 30, 2021, these warrants had not yet been exercised.

The following inputs were used in the Black‑Scholes valuation for both sets of warrants:


Risk free interest rate	1.97	%
Contractual term	10 years
Expected volatility	40.00	%
Dividend yield	0.00	%

The Company refinanced its notes payable in January of 2019 and again in April 2020 (see Note 8). The refinances had no impact on the warrants issued with the notes payable and no additional warrants were issued as part of the refinances.

11.Related Party Transactions

There were no related-party transactions during the nine months ended September 30, 2021 or September 30, 2020.

12.Commitments and Contingencies

Operating Leases

In April 2018, the Company relocated its headquarters to a new building in Lehi, Utah (Ashton Blvd) and entered into a new operating lease agreement. The new lease contained an escalation clause for the lease payments in future years, for which lease expense was recognized on a straight-line basis. The initial term of this lease was from April 2018 to March 2026. However, in November 2019, the Company signed a new office space lease agreement (Powell Way) which commenced in January 2021. Contemporaneously with the rent commencement date on the Powell Way building, the real estate company, along with the developer, agreed to take over the lease payments on the existing building (Ashton Blvd), relieving Weave of the liability. Straight-line expense recognition from the Powell Way building resulted in a deferred rent liability of $3.1 million as of September 30, 2021.

Total rent expense for office space lease was approximately $1.4 million and $3.9 million for the three months and nine months ended September 30, 2021, respectively, and $0.6 million and $1.7 million for the three and nine months ended September 30, 2020, respectively, these amounts are included in the operating expenses in the statements of operations above.

Aggregate future minimum rental payments applicable to the above non-cancellable operating leases as of September 30, 2021 are as follows (in thousands):


Years ending December 31,
Remaining 2021	$	203
2022	4,407
2023