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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 June 30, 2022
or
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-40998
Weave Communications, Inc.
(Exact name of registrant as specified in its charter)

Delaware26-3302902
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer 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 shareWEAVNew 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 filerSmaller 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 July 31, 2022, the registrant had 65,025,878 shares of common stock, par value $0.00001 per share, outstanding.



WEAVE COMMUNICATIONS, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS






Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 6.



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 the section titled “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)
June 30, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$124,328 $135,996 
Accounts receivable2,981 3,059 
Deferred contract acquisition costs, net9,153 8,931 
Prepaid expenses and other current assets4,198 6,461 
Total current assets140,660 154,447 
Non-current assets:
Property and equipment, net11,427 24,502 
Operating lease right-of-use assets46,660  
Finance lease right-of-use assets11,325  
Deferred contract acquisition costs, net, less current portion7,612 7,873 
Other non-current assets1,143 663 
TOTAL ASSETS$218,827 $187,485 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,673 $4,061 
Accrued liabilities14,142 12,250 
Deferred revenue32,287 29,511 
Current portion of operating lease liabilities5,050  
Current portion of finance lease liabilities7,728 8,485 
Total current liabilities 63,880 54,307 
Non-current liabilities:
Deferred rent 4,319 
Operating lease liabilities, less current portion46,780  
Finance lease liabilities, less current portion6,179 6,558 
Long-term debt10,000 10,000 
Total liabilities126,839 75,184 
COMMITMENTS AND CONTINGENCIES (Note 12)
Stockholders' equity:
Preferred stock, $0.00001 par value per share; 10,000,000 shares authorized, zero shares issued and outstanding as of June 30, 2022 and December 31, 2021
  
Common stock, $0.00001 par value per share; 500,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 65,010,719 and 64,324,628 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
  
Additional paid-in capital302,557 294,230 
Accumulated deficit(210,551)(181,898)
Accumulated other comprehensive (loss) income(18)(31)
Total stockholders' equity91,988 112,301 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$218,827 $187,485 
See accompanying notes to these unaudited condensed consolidated financial statements
1


WEAVE COMMUNICATIONS, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)


Three Months Ended June 30, Six Months Ended June 30,
2022202120222021
Revenue$34,930 $28,061 $68,202 $53,729 
Cost of revenue13,749 12,023 27,502 22,825 
Gross profit21,181 16,038 40,700 30,904 
Operating expenses:
Sales and marketing16,747 14,718 32,967 26,454 
Research and development7,428 7,871 14,632 13,707 
General and administrative11,597 7,583 21,201 13,586 
Total operating expenses35,772 30,172 68,800 53,747 
Loss from operations(14,591)(14,134)(28,100)(22,843)
Other income (expense):
Interest expense(332)(293)(625)(573)
Other income (expense)127 8 123 14 
Loss before income taxes(14,796)(14,419)(28,602)(23,402)
Provision for income taxes(19) (51) 
Net loss$(14,815)$(14,419)$(28,653)$(23,402)
Less: cumulative dividends on redeemable convertible preferred stock (557) (1,106)
Net loss attributable to common stockholders$(14,815)$(14,976)$(28,653)$(24,508)
Net loss per share attributable to common stockholders - basic and diluted$(0.23)$(1.12)$(0.44)$(1.93)
Weighted-average common shares outstanding - basic and diluted64,963,045 13,373,712 64,774,428 12,708,522 
See accompanying notes to these unaudited condensed consolidated financial statements
2



WEAVE COMMUNICATIONS, INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2022202120222021
Net loss$(14,815)$(14,419)$(28,653)$(23,402)
Other comprehensive income (loss)
Change in foreign currency translation, net of tax(41)(7)13 (8)
Total comprehensive loss$(14,856)$(14,426)$(28,640)$(23,410)
See accompanying notes to these unaudited condensed consolidated financial statements
3



WEAVE COMMUNICATIONS, INC
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share amounts)
(unaudited)





Three Months Ended June 30, 2022
Accumulated
AdditionalOtherTotal
Preferred StockCommon StockPaid-inAccumulatedComprehensiveStockholders'
SharesAmountSharesAmountCapitalDeficit(Loss) IncomeEquity
BALANCE - March 31, 2022 $ 64,889,304 $ $298,214 $(195,736)$23 $102,501 
Issuance of common shares from stock option exercises— — 121,241 — 134 — — 134 
Offering costs— — — — (271)— — (271)
Vesting of restricted stock units— — 174 — — — — — 
Stock-based compensation— — — — 4,480 — — 4,480 
Foreign currency translation adjustments, net of tax— — — — — — (41)(41)
Net loss— — — — — (14,815)— (14,815)
BALANCE - June 30, 2022 $ 65,010,719 $ $302,557 $(210,551)$(18)$91,988 

Three Months Ended June 30, 2021
Accumulated
Redeemable ConvertibleAdditionalOtherTotal
Preferred StockCommon StockPaid-inAccumulatedComprehensiveStockholders'
SharesAmountSharesAmountCapitalDeficit(Loss) IncomeDeficit
BALANCE - March 31, 202143,836,109 $151,938 12,829,591 $ $18,333 $(139,191)$1 $(120,857)
Issuance of common shares from stock option exercises— — 1,225,426 — 1,877 — — 1,877 
Stock-based compensation— — — — 5,269 — — 5,269 
Foreign currency translation adjustments, net of tax— — — — — — (7)(7)
Net loss— $— — $— $— $(14,419)$— $(14,419)
BALANCE - June 30, 202143,836,109 $151,938 14,055,017 $ $25,479 $(153,610)$(6)$(128,137)
See accompanying notes to these unaudited condensed consolidated financial statements
4



WEAVE COMMUNICATIONS, INC
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share amounts)
(unaudited)





Six Months Ended June 30, 2022
Accumulated
AdditionalOtherTotal
Preferred StockCommon StockPaid-inAccumulatedComprehensiveStockholders'
SharesAmountSharesAmountCapitalDeficit(Loss) IncomeEquity
BALANCE - December 31, 2021 $ 64,324,628 $ $294,230 $(181,898)$(31)$112,301 
Issuance of common shares from stock option exercises— — 685,324 — 693 — — 693 
Offering Costs— — — — (271)— — (271)
Vesting of restricted stock units— — 767 — — — — — 
Stock-based compensation— — — — 7,905 — — 7,905 
Foreign currency translation adjustments, net of tax— — — — — — 13 13 
Net loss— — — — — (28,653)— (28,653)
BALANCE - June 30, 2022  $ 65,010,719 $ $302,557 $(210,551)$(18)$91,988 

Six Months Ended June 30, 2021
Accumulated
Redeemable ConvertibleAdditionalOtherTotal
Preferred StockCommon StockPaid-inAccumulatedComprehensiveStockholders'
SharesAmountSharesAmountCapitalDeficit(Loss) IncomeDeficit
BALANCE - December 31, 202043,836,109 $151,938 11,882,286 $ $16,261 $(130,208)$2 $(113,945)
Issuance of common shares from stock option exercises— — 2,172,731 — 2,125 — — 2,125 
Stock-based compensation— — — — 7,093 — — 7,093 
Foreign currency translation adjustments, net of tax— — — — — — (8)(8)
Net loss— — — — — (23,402)— (23,402)
BALANCE - June 30, 202143,836,109 $151,938 14,055,017 $ $25,479 $(153,610)$(6)$(128,137)




See accompanying notes to these unaudited condensed consolidated financial statements
5


WEAVE COMMUNICATIONS, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Six Months Ended June 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(28,653)$(23,402)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization6,693 5,586 
Amortization of operating right-of-use assets1,822  
Provision for losses on accounts receivable299 72 
Amortization of contract acquisition and fulfillment costs5,408 4,388 
Stock-based compensation7,905 7,093 
Changes in operating assets and liabilities:
Accounts receivable(221)(2,507)
Contract acquisition costs(5,294)(6,119)
Prepaid expenses and other assets1,708 259 
Accounts payable592 408 
Accrued liabilities2,021 1,151 
Operating lease liabilities(971) 
Deferred revenue2,789 4,059 
Deferred rent 1,969 
Net cash used in operating activities(5,902)(7,043)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment(921)(3,438)
Capitalized internal-use software costs(678)(1,106)
Net cash used in investing activities(1,599)(4,544)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on finance leases(4,460)(3,740)
Proceeds from stock option exercises693 2,125 
Paid offering costs(400) 
Net cash used in financing activities(4,167)(1,615)
NET DECREASE IN CASH AND CASH EQUIVALENTS(11,668)(13,202)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD135,996 55,698 
CASH AND CASH EQUIVALENTS, END OF PERIOD$124,328 $42,496 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest$625 $573 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases financed with accounts payable$20 $231 
Finance lease liabilities arising from obtaining finance lease right-of-use assets$3,324 $5,152 
Accrued unpaid offering costs271  
See accompanying notes to these unaudited condensed consolidated financial statements
6



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 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The accompanying interim condensed consolidated balance sheets, statements of operations, comprehensive loss, statements of redeemable convertible preferred stock and stockholders' equity (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 stock-based compensation, amortization period of deferred contract acquisition costs, the incremental borrowing rate used in determining the value of right-of-use assets and lease liabilities, and useful lives for depreciable assets.
Cash and Cash Equivalents
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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 June 30, 2022 and December 31, 2021. As of June 30, 2022 and December 31, 2021 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 June 30, 2022 the Company had an accumulated deficit of $210.6 million. The Company has partially funded its operations through cash flows generated by sales of its product offerings, and as of June 30, 2022 the Company has completed several rounds of equity financing as a private company with total net proceeds approximating $159.0 million. In November 2021, the Company completed its initial public offering, which generated additional net proceeds of $111.6 million. As of June 30, 2022 the Company had outstanding borrowings under its revolving line of credit of $10.0 million and $40.0 million in available borrowings.
The Company believes its existing cash and cash equivalents, amounts available under our revolving line of credit, and cash flows provided by sales of product offerings will be sufficient to meet operating cash flow requirements for at least twelve months from the date of issuance of the June 30, 2022 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 June 30, 2022 and 2021, the Company recorded advertising expense of $1.5 million and $1.8 million, respectively, and $2.9 million and $3.1 million for the six months ended June 30, 2022 and 2021, respectively. Advertising costs are included in sales and marketing expenses in the condensed consolidated statements of operations.
Revenue Recognition
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 generally 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
8


granted continuous access to the services over the contractual period. The Company transfers control of services evenly over the contractual period. Accordingly, the 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.
Previously, as part of the onboarding process, the customer could request the Company install pre-configured applications on hardware which allow remote access to Weave's cloud solution. In addition, the customer could request the Company install phone hardware at the customer’s location. Whereas the Company continues to provide remote installation services, the in-office installation program was phased out during the second half of 2021. Whether performed remotely or in office, the Company considers onboarding/installation a separate performance obligation, and recognizes revenue 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 not subject to contingencies or variability. 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.
The Company elected to apply the practical expedient to not disclose the transaction price allocated to remaining performance obligations for contracts with a contract term of one year or less. As of June 30, 2022 and December 31, 2021, approximately $1.8 million and $2.2 million, respectively, in revenue is expected to be recognized from remaining performance obligations for contracts with original performance obligations that exceed one year. As the right to invoice for these remaining performance obligations does not begin until July 2022, this amount is not recorded in deferred revenue as of June 30, 2022. The Company expects to recognize revenue on these remaining performance obligations over the next 13 months.
In addition to providing VoIP phone and software services, the Company provides phone hardware to its customers as part of the subscription. The Company allows customers to include up to 5 phones without adjustment to the subscription base price. In such arrangements, the Company is deemed the lessor and the arrangement is an operating lease per guidance provided in ASC 842. Title of the phones does not transfer to the customer at any point. If a customer were to cancel at any time, the phones are returned to the Company. For customers subscribed prior to August 2021, the Company allowed customers to include up to 10 phones without adjustment to the subscription base price and title of the phones transfers to the customer after 36 months of subscription have occurred. If a customer were to cancel at any time prior to completion of the 36 months period, the phones are returned to the Company.
As a lessor, future minimum lease payments may vary due to customer agreements being month to month and the fact that subscription payments are allocated based on the fair value of all services provided to the customer. 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.
9


Deferred Contract Costs
In accordance with ASC-340, the Company capitalizes incremental costs of obtaining and fulfilling a contract, provided the Company expects to recover those costs. The capitalized amounts mainly consist of sales commissions paid to the Company’s direct sales force. Capitalized costs also include:
Commissions to sales management for achieving incremental sales quota.
The associated payroll taxes and fringe benefit costs associated with the payments to the Company’s employees.
One time commissions paid to partners.
One time registration fees assessed by mobile carriers.
These costs are recorded as deferred contract acquisition and fulfillment costs on the consolidated balance sheet. Amortization of deferred contract acquisition costs related to commissions, and the associated taxes and fringe benefit costs, are included in sales and marketing expense. Deferred contract acquisition costs related to one time commissions paid to partners are included in cost of revenue. Deferred contract fulfillment costs related to one time registration fees paid to mobile carriers are included in cost of revenue. These expenses are amortized on a straight-line basis over the average period of consumer benefit, three years. In arriving at this average period of benefit, the Company evaluated both qualitative and quantitative factors which included the anticipated customer life, historical customer life, and the useful life of the Company’s product offerings.
Monthly commensurate revenue share fees paid to partners are expensed as incurred as their estimated period of benefit does not extend beyond 12 months and therefore fall under the practical expedient which allows these costs to be expensed as incurred.
Accounting Pronouncements Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. For all leases with a term greater than twelve months, the new standard also requires lessees to recognize a right-of-use (“ROU”) asset and a corresponding lease liability on their consolidated balance sheets. 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.
On January 1, 2022, the Company adopted Topic 842 using the modified retrospective approach with the effective date as of the date of initial application. Consequently, results for the three and six months ended June 30, 2022 are presented under Topic 842. Prior period amounts were not adjusted and continue to be reported in accordance with previous lease guidance under ASC Topic 840, Leases. The Company elected the package of practical expedients permitted under the transition guidance, which allows an entity to carryforward certain conclusions for leases that commenced prior to the effective date, including the determination of whether an existing contract contains a lease, the classification of the lease, and the accounting for initial direct costs. In addition, the Company elected the practical expedient that allows lessees the option to account for lease and non lease components together as a single component for all classes of underlying assets. The Company performed evaluations of its contracts to ensure compliance with the new guidance of Topic 842. Upon adoption, the Company recognized cumulative operating lease liabilities of $52.8 million offset by a write off in deferred rent of $4.3 million and operating right-of-use assets of $48.5 million. Capital lease obligations of $15.0 million existing as of
10


December 31, 2021 were renamed finance lease liabilities, and the related $12.4 million in assets that were reported within property and equipment, net, as of December 31, 2021 were reclassified as finance right-of-use assets as of the adoption date.
Accounting Pronouncements Pending Adoption
As an “emerging growth company,” the Jumpstart Our Business Startups Act (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 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 $15.8 million and $12.0 million for the three months ended June 30, 2022 and 2021, respectively, and $23.9 million and $19.7 million for the six months ended June 30, 2022 and 2021, respectively.
Capitalized Contract Costs
As discussed in Note 2, the Company capitalizes incremental costs of obtaining and fulfilling a contract. Amortization expense related to these costs were $2.8 million and $2.3 million for the three months ended June 30, 2022 and 2021, respectively, and $5.4 million and $4.4 million for the six months ended June 30, 2022 and 2021, 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 six months ended June 30, 2022 and 2021:
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Three Months Ended June 30, Six Months Ended June 30,
2022202120222021
Subscription and payment processing$33,538 $26,233 $65,488 $50,132 
Onboarding319 1,034 581 2,072 
Phone hardware lease1,073 794 2,133 1,525 
Total revenue$34,930 $28,061 $68,202 $53,729 
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):
June 30, 2022December 31, 2021
Level 1
Money market fund$101,099 $118,962 
Level 2  
Level 3  
Total$101,099 $118,962 
As of June 30, 2022 and December 31, 2021 the fair value of debt was $10.5 million and $10.6 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):
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June 30, 2022December 31, 2021
Office equipment$4,946 $4,729 
Office furniture5,810 5,588 
Leasehold improvements2,615 2,496 
Fixed assets not placed in service 118 
Capitalized internal-use software4,274 3,533 
Phone hardware 26,034 
Payment terminals1,985 1,581 
Property and equipment, gross19,630 44,079 
Less accumulated depreciation and amortization(8,203)(19,577)
Property and equipment, net$11,427 $24,502 
Depreciation and amortization expense on property and equipment (excluding amortization on operating ROU assets) was $3.4 million and $3.0 million for the three months ended June 30, 2022 and 2021, respectively, and $6.8 million and $5.6 million for the six months ended June 30, 2022 and 2021, respectively. Of this expense, $2.4 million and $2.3 million for the three months ended June 30, 2022 and 2021, respectively, and $4.8 million and $4.3 million for the six months ended June 30, 2022 and 2021, respectively, was related to phone hardware finance ROU assets (see also footnote 7) and data center equipment which has been included in cost of revenue in the statements of operations. Note that these finance ROU assets were reported as “phone hardware” prior to January 1, 2022. Capitalized internal-use software amortization expense was $0.3 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively, and $0.6 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively, which has been included in the cost of revenue in the statements of operations. Capitalized implementation amortization expense was zero for the three months ended June 30, 2022 and 2021, and $0.1 million and zero for the six months ended June 30, 2022 and 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):
June 30, 2022December 31, 2021
Payroll-related accruals$9,314 $8,434 
Sales and telecom taxes1,801 1,508 
Employee stock purchase plan liability1,121 256 
Third-party commissions442 440 
Other1,464 1,612 
Total$14,142 $12,250 
7.Leases
The Company has lease arrangements, both as a lessor and a lessee, and makes assumptions and judgments when assessing contracts for lease components, determining lease classifications and calculating right-of-use asset and lease liability values. These assumptions and judgements may include the useful lives and fair values of the leased assets, the implicit rate underlying the Company’s leases, the Company’s incremental borrowing rate or the Company’s intent to exercise or not exercise options available in lease contracts.
Lease expense and other information consisted of the following for the three and six months ended June 30, 2022 (in thousands, except terms and rates):
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Three Months
Ended
June 30,2022
Six Months
Ended
June 30,2022
Lease expense
Finance lease expense:
Amortization of right-of-use assets$2,186 $4,419 
Interest on lease liabilities227 431 
Operating lease expense1,417 2,834 
Short-term lease expense9 18 
Total lease expense$3,839 $7,702 
Other information
Finance leases:
Operating cash outflow from finance leases$227 $431 
Financing cash outflow from finance leases$2,284 $4,460 
Finance lease liabilities arising from obtaining finance lease right-of-use assets$1,297 $3,324 
Operating leases:
Operating cash outflow from operating leases$1,142 $1,983 
Other information as of June 30, 2022
Finance leases:
Weighted-average remaining lease term (years)1.7
Weighted-average discount rate lease term6.9 %
Operating leases:
Weighted-average remaining lease term (years)10.6
Weighted-average discount rate lease term3.9 %
Operating leases
The Company as the Lessee
The Company leases office space for its headquarters and advertising space under non-cancelable operating lease agreements. These leases have expirations ranging from November 2022 to January 2033. The Company has not recognized any renewal options as part of the lease term as it they are not reasonably certain of exercise as of June 30, 2022. The rates implicit in the Company’s operating leases are not readily determinable thus the Company uses its incremental borrowing rate to calculate the present value of the lease liabilities. The incremental borrowing rate is the rate incurred to borrow on a collateralized basis, and is based on the Company’s secured line of credit, which may be adjusted for the specific terms and collateral of the lease. The operating lease agreements do not contain any residual value guarantees or other restrictions or covenants that would cause the Company to incur additional significant financial obligations. These office space lease agreements contain non-lease components, which represent charges for common area maintenance, taxes and utilities. The Company has elected the practical expedient on not separating lease components from nonlease components.
The Company has other leases for office space with terms less than twelve months from contract inception and no options to purchase the underlying asset. These agreements are accounted for as short-term leases in accordance with ASC 842-20-25-2.
Total rent expense for office space leases was $1.4 million and $1.4 million for the three months ended June 30, 2022 and 2021, respectively, and $2.8 million and $2.5 million for the six months ended June 30, 2022 and 2021, respectively. Note that rent expense amounts for periods prior to 2022 are reported under ASC 840.
Future maturities of remaining lease payments included in the measurement of operating lease as of June 30, 2022 are as follows (in thousands):
14


Years ending December 31,
Remaining 2022$2,559 
20235,404 
20245,539 
20255,677 
20265,819 
Thereafter38,666 
Total63,664 
Less imputed interest(11,834)
Present value of operating lease obligations$51,830 
As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the following table summarizes the future minimum lease payments related to operating leases as of December 31, 2021 under ASC 840 (in thousands):
Years ending December 31,
2022$4,407 
20235,404 
20245,539 
20255,677 
20265,819 
Thereafter38,666 
Total$65,512 
The Company as the Lessor
As discussed in the Revenue Recognition accounting policy, the Company provides varying quantities of phone hardware to customers without adjustments to the base subscription price. The Company is deemed a lessor in these arrangements. For the three months ended June 30, 2022 and June 30, 2021, the Company recorded lease revenues associated with phone hardware of $1.1 million and $0.8 million, respectively, and $2.1 million and $1.5 million for the six months ended June 30, 2022 and 2021, respectively.
Finance leases
The Company is the lessee in all of its finance lease arrangements. In June 2016, the Company began financing its purchases of phone hardware through lease agreements classified as finance leases. As of June 30, 2022 the Company had 95 executed and active lease agreements, respectively, for phone hardware. These agreements require monthly payments ranging from approximately $130 to $21,975 and have maturity dates ranging from July 2022 to May 2025. As of June 30, 2022, the gross value of phone hardware acquired under these capital leases approximated $26 million. Amortization expense on finance-leased phone hardware was $2.2 million and $2.2 million for the three months ended June 30, 2022 and 2021, respectively, and $4.4 million and $4.1 million for the six months ended June 30, 2022 and 2021, respectively, which is included in the depreciation expense referenced in Note 5.
Future minimum lease payments for the Company’s finance leases as of June 30, 2022 were as follows (in thousands):
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Years ending December 31,
Remaining 2022$5,020 
20236,007 
20243,295 
2025609 
2026 
Thereafter 
Total14,931 
Less amounts representing interest(1,024)
Present value of finance lease obligations$13,907 
8.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. The Company reported income tax expense of $18.6 thousand and zero for the three months ended June 30, 2022 and 2021, respectively, and $51.1 thousand and zero for the six months ended June 30, 2022 and 2021, respectively, which resulted in an effective tax rate of (0.1255)%, zero percent, (0.1785)%, and zero percent, respectively. 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 and foreign 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.
9.Long-Term Debt
Prior to August of 2021, 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
16


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 stock-based compensation and changes in our deferred revenue. The Company was in compliance with all debt covenants as of and for the periods ended June 30, 2022 and December 31, 2021. 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):
June 30, 2022December 31, 2021
Line of credit10,000 10,000 
Total$10,000 $10,000 
10.Stockholders’ Equity
Stock-Based Compensation Expense
Stock-based compensation expense, consisting of service-based expense related to the equity incentive plan, including expense from stock options and restricted stock units, and the employee stock purchase plan was classified as follows in the accompanying condensed consolidated statements of operations for each of the periods presented (in thousands):
Three Months Ended June 30Six Months Ended June 30,
2022202120222021
Cost of revenue$176 $210 $324 $279 
Sales and marketing790 679 1,452 811 
Research and development1,078 2,020 1,630 2,416 
General and administrative2,436 2,360 4,499 3,587 
Total$4,480 $5,269 $7,905 $7,093 
For the three and six months ended June 30, 2022, there were no secondary stock transactions that resulted in stock-based compensation expense. For the three and six months ended June 30, 2021 there was $3.4 million and $3.4 million, respectively, of stock-based compensation expense related to stock secondary transactions.
Equity Incentive Plan
During 2016, the Company adopted the 2015 Equity Incentive Plan (the “2015 EIP”) under which common stock options could be issued for employee awards and the Company began issuing stock options under this plan in 2016.
In November 2021 in connection with the initial public offering (“IPO”), the Company adopted the 2021 Equity Incentive Plan (the “2021 EIP” and, together with the 2015 EIP, the “EIP”) under which the Company could issue stock options or restricted stock units (“RSUs”) as awards. Upon adoption of the 2021 EIP, the 2015 EIP plan was terminated. All options issued and outstanding or available for issuance under the 2015 EIP were absorbed into the 2021 EIP. Along with the absorbed 2015 EIP options, the Company reserved an additional 9,000,000 shares of common stock for future issuance under the 2021 EIP, with scheduled annual increases to the reserve for amounts to be determined by the Board, subject to a maximum amount. In the first quarter of 2022, the board reserved an additional 3.2 million common shares for future issuance under the 2021 EIP.
Stock-based compensation expense related to the EIP was $4.4 million and $1.9 million for the three months ended June 30, 2022 and 2021.
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Stock options
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 3,149,649 and 2,628,528 as of June 30, 2022 and 2021, respectively.
Unrecognized stock-based compensation expense as of June 30, 2022 and 2021 was $21.2 million and $24.9 million, respectively. Stock-based compensation expense is recognized on a straight-line basis over the remaining weighted-average vesting periods. As of June 30, 2022 and 2021 the weighted-average vesting periods approximated 2.42 years and 3.24 years , respectively.
Stock option activity was as follows:
Number of OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual Life (years)Aggregate Intrinsic Value
(in thousands)
Outstanding as of December 31, 20217,574,136 $8.60 8.35$52,257 
Exercisable as of December 31, 20212,719,252 $3.44 7.03$31,929 
Granted  
Exercised(564,083)$1.65 
Forfeited and expired(380,947)$12.07 
Outstanding as of March 31, 20226,629,106 $8.99 7.81$8,815 
Exercisable as of March 31, 20222,665,039 $5.45 6.30$6,975 
Granted $ 
Exercised(121,241)$1.55 
Forfeited and expired(649,298)$14.15 
Outstanding as of June 30, 20225,858,567 $8.58 6.86$2,402 
Exercisable as of June 30, 20222,959,753 $6.35 5.45$2,281 
The aggregate intrinsic value of options exercised was $0.4 million for the three months ended June 30, 2022. 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-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. Prior to the Company’s IPO, the common stock fair values used in the models were based on the most recent 409(a) valuation as of the option grant date. Management reviews option grants and 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.
Restricted Stock Units
RSUs granted under the Plan vest and settle upon the satisfaction of a service-based condition. The service based condition for these awards is generally satisfied over three or four years. 171,075 RSUs have a four-year vesting schedule with 25% cliff vesting one year from grant date and the remaining 75% vesting monthly over the remaining three years. The remaining RSUs that have been issued have a
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three-year vesting schedule with 33% vesting one year from grant date and the remaining 67% vesting quarterly over the remaining two years.
As of June 30, 2022, there was $29.4 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.70 years.
Restricted Stock Unit activity was as follows:
Number of SharesWeighted Average Grant Date Fair Value
Outstanding as of December 31, 2021171,075 $18.50 
Granted3,183,398 6.24
Vested(593)9.08
Canceled(33,911)16.02
Outstanding as of March 31, 20223,319,969 $6.77 
Granted2,420,126 $5.48 
Vested(174)$5.13 
Canceled(440,535)$7.29 
Outstanding as of June 30, 20225,299,386 $6.11 
Repurchase of Common Shares
No share repurchases took place during the six months ended June 30, 2022 and 2021.
11.Related Party Transactions
There were no related-party transactions during the six months ended June 30, 2022 and 2021.
12.Commitments and Contingencies
Legal Matters
As of June 30, 2022 and through the issuance date of these condensed consolidated financial statements, the Company is not involved in any legal proceedings the outcomes of which are anticipated to significantly impact the Company’s financial condition, results of operations, or liquidity.
Indemnification
The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claims brought by any third-party against such indemnified party with respect to licensed technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
13. Net Loss Per Share
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The following tables present the calculation of basic and diluted net loss per share (in thousands, except share and per share amounts):
Three Months Ended June 30, Six Months Ended June 30,
2022202120222021
Numerator:
Net loss$(14,815)$(14,419)$(28,653)$(23,402)
Less: cumulative dividends on redeemable convertible preferred stock (557) (1,106)
Net loss attributable to common stock holders - basic and diluted$(14,815)$(14,976)$(28,653)$(24,508)
Denominator:
Weighted-average common shares outstanding - basic and diluted64,963,045 13,373,712