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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 March 31, 2024
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 every Interactive Data File required to be submitted 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 such files). Yes  ☑  No  ☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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 May 6, 2024, the registrant had 71,123,007 shares of common stock, par value $0.00001 per share, outstanding.



WEAVE COMMUNICATIONS, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024
TABLE OF CONTENTS






Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Risk Factors
Item 5.
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 that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 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 and in our other filings with the Securities and Exchange Commission. 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;
inflation and interest rate trends and impacts;
our ability to expand our customer base and expand sales to existing customers;
our ability to expand into new healthcare 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 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; and
our ability to maintain, protect and enhance our intellectual property.



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.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we do not intend to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations. In this report, unless otherwise specified or the context otherwise requires, “Weave,” the “Company,” “we,” “us,” and “our” refer to Weave Communications, Inc. and its wholly owned subsidiaries Weave Communications Canada, Inc. and Weave Communications India Private Limited.
You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.


PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements.
WEAVE COMMUNICATIONS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)

March 31, 2024December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents$30,609 $50,756 
Short-term investments51,714 58,088 
Accounts receivable, net19,018 3,511 
Deferred contract costs, net10,854 10,547 
Prepaid expenses and other current assets7,527 6,876 
Total current assets119,722 129,778 
Non-current assets:
Property and equipment, net9,520 9,922 
Operating lease right-of-use assets40,495 41,318 
Finance lease right-of-use assets10,402 10,351 
Deferred contract costs, net, less current portion9,110 8,622 
Other non-current assets925 1,021 
TOTAL ASSETS$190,174 $201,012 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,160 $5,171 
Accrued liabilities13,937 18,491 
Deferred revenue39,842 38,850 
Current portion of operating lease liabilities4,004 3,821 
Current portion of finance lease liabilities6,417 6,520 
Total current liabilities 68,360 72,853 
Non-current liabilities:
Operating lease liabilities, less current portion42,069 43,080 
Finance lease liabilities, less current portion6,309 6,122 
Total liabilities116,738 122,055 
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 March 31, 2024 and December 31, 2023
  
Common stock, $0.00001 par value per share; 500,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 70,980,371 and 70,116,357 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
  
Additional paid-in capital343,496 341,514 
Accumulated deficit(269,870)(262,667)
Accumulated other comprehensive income (loss)(190)110 
Total stockholders' equity73,436 78,957 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$190,174 $201,012 
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 March 31,
20242023
Revenue$47,173 $39,565 
Cost of revenue14,186 13,031 
Gross profit32,987 26,534 
Operating expenses:
Sales and marketing19,630 17,218 
Research and development9,645 7,694 
General and administrative11,867 10,140 
Total operating expenses41,142 35,052 
Loss from operations(8,155)(8,518)
Other income (expense):
Interest income420 436 
Interest expense(319)(472)
Other income (expense), net865 715 
Loss before income taxes(7,189)(7,839)
Provision for income taxes(14)(20)
Net loss$(7,203)$(7,859)
Net loss per share - basic and diluted$(0.10)$(0.12)
Weighted-average common shares outstanding - basic and diluted70,452,944 65,954,521 
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 March 31,
20242023
Net loss$(7,203)$(7,859)
Other comprehensive loss
Change in foreign currency translation, net of tax(238)(34)
Net unrealized gain (loss) on investments, net of tax(62)18 
Total comprehensive loss$(7,503)$(7,875)
See accompanying notes to these unaudited condensed consolidated financial statements
3



WEAVE COMMUNICATIONS, INC
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)




Three Months Ended March 31, 2024
Accumulated
AdditionalOtherTotal
Common StockPaid-inAccumulatedComprehensiveStockholders'
SharesAmountCapitalDeficit(Loss) IncomeEquity
BALANCE - December 31, 202370,116,357 $ $341,514 $(262,667)$110 $78,957 
Issuance of common shares from stock option exercises60,548 — 291 — — 291 
Issuance of common shares from the employee stock purchase plan113,959 — 1,020 — — 1,020 
Vesting of restricted stock units1,205,838 — — — — — 
Common stock withheld related to net settlement of equity awards(516,331)— (6,101)— — (6,101)
Stock-based compensation— — 6,772 — — 6,772 
Foreign currency translation adjustments, net of tax— — — — (238)(238)
Net unrealized loss on investments— — — — (62)(62)
Net loss— — — (7,203)— (7,203)
BALANCE - March 31, 202470,980,371 $ $343,496 $(269,870)$(190)$73,436 

Three Months Ended March 31, 2023
Accumulated
AdditionalOtherTotal
Common StockPaid-inAccumulatedComprehensiveStockholders'
SharesAmountCapitalDeficit(Loss) IncomeEquity
BALANCE - December 31, 202265,739,053 $ $314,884 $(231,636)$(29)$83,219 
Issuance of common shares from stock option exercises41,175 — 73 — — 73 
Issuance of common shares from the employee stock purchase plan134,336 — 622 — — 622 
Vesting of restricted stock units586,640 — — — — — 
Common stock withheld related to net settlement of equity awards(163,752)— (753)— — (753)
Stock-based compensation— — 4,513 — — 4,513 
Foreign currency translation adjustments, net of tax— — — — (34)(34)
Net unrealized gain on investments— — — — 18 18 
Net loss— — — (7,859)— (7,859)
BALANCE - March 31, 202366,337,452 $ $319,339 $(239,495)$(45)$79,799 
See accompanying notes to these unaudited condensed consolidated financial statements
4



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



Three Months Ended March 31,
20242023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(7,203)$(7,859)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization3,045 3,045 
Amortization of operating right-of-use assets972 938 
Provision for losses on accounts receivable250 422 
Amortization of deferred contract costs3,292 2,976 
Loss on disposal of assets1 3 
Stock-based compensation6,772 4,513 
Net accretion of discounts on short-term investments(637)(687)
Changes in operating assets and liabilities:
Accounts receivable(15,757)(177)
Deferred contract costs(4,087)(3,212)
Prepaid expenses and other assets(555)534 
Accounts payable(1,017)355 
Accrued liabilities(4,554)1,162 
Operating lease liabilities(977)(900)
Deferred revenue754 428 
Net cash provided by (used in) operating activities(19,701)1,541 
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of short-term investments23,770 13,000 
Purchases of short-term investments(16,821)(17,485)
Purchases of property and equipment(513)(620)
Capitalized internal-use software costs(305)(334)
Net cash provided by (used in) investing activities6,131 (5,439)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on finance leases(1,787)(1,960)
Proceeds from stock option exercises291 73 
Payments for taxes related to net share settlement of equity awards(6,101)(753)
Proceeds from the employee stock purchase plan1,020 622 
Net cash used in financing activities(6,577)(2,018)
NET DECREASE IN CASH AND CASH EQUIVALENTS(20,147)(5,916)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD50,756 61,997 
CASH AND CASH EQUIVALENTS, END OF PERIOD$30,609 $56,081 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest$319 $472 
Cash paid during the period for income taxes$14 $20 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Finance lease liabilities arising from obtaining finance lease right-of-use assets$1,871 $1,928 
Operating lease liabilities arising from obtaining operating lease right-of-use assets$149 $154 
Unrealized loss on short-term investments$(62)$18 






See accompanying notes to these unaudited condensed consolidated financial statements
5



1.Description of the Business
Weave Communications, Inc. and its wholly owned subsidiaries Weave Communications Canada, Inc. and Weave Communications India Private Limited (collectively, “Weave” or the “Company”) sells subscriptions to Weave, its vertically tailored customer experience and payments software platform for small- and medium-sized healthcare businesses. The Weave platform combines customer engagement, payments, and other operational software 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 unaudited condensed 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 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 U.S. GAAP. 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, 2023, filed with the SEC on March 13, 2024.
The accompanying interim condensed consolidated balance sheets, statements of operations, comprehensive loss, statements of stockholders' equity, 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 unaudited 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 unaudited condensed consolidated financial statements and the reported amount of sales and expenses during the reporting period. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates. Significant estimates included in the Company’s financial statements include the valuation allowance against deferred tax assets, allowance for credit losses, recoverability of long-lived assets, fair value of stock-based
6


compensation, amortization period of deferred contract costs, the incremental borrowing rate used in determining the value of right-of-use assets and lease liabilities, and useful lives for depreciable assets.
Concentration of Risks
The functionality of the Company’s software and cloud-based phone system relies heavily on the ability to integrate with customers’ systems of record, including practice or client management systems. Less than five providers make up the majority of practice management systems maintained by dentists, optometrists, and veterinarians in the United States. At this time, the Company does not anticipate loss of integration rights with any of these major providers. To mitigate the risk, the Company has developed a system-agnostic platform that, if needed, does not rely on an integration for functionality.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. At times, the Company’s cash balances held at financial institutions may exceed the amount insured by the Federal Deposit Insurance Corporation. The Company does not anticipate nonperformance by those institutions. The Company believes the financial institutions which hold its investments are financially sound, and accordingly are subject to minimal credit risk.
No customers accounted for more than 10% of accounts receivable or total revenues as of and for the three months ended March 31, 2024. To date, the Company has not experienced material losses related to non-payment by customers.
Revenue Recognition
The Company derives substantially all revenue from subscription services by providing customers access to its platform.
The Company recognizes revenue when control of these services is 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; and
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 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, mobile devices using 'tap-to-pay", or through several card-not-present modalities, including “text-to-pay” functionality. As the Company acts as
7


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.
The Company offers remote installation services as part of the onboarding process, wherein the Company can install pre-configured applications on customer hardware, which allow remote access to Weave’s cloud solution. Customers may also choose to engage directly with one of several preferred third-party providers to perform on-site installation services. 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 condensed consolidated 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 March 31, 2024, approximately $0.7 million of 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 this $0.7 million does not begin until April 2024, this amount is not recorded in deferred revenue as of March 31, 2024. The Company expects to recognize revenue on these remaining performance obligations over the next 4 months.
In addition to providing software and VoIP phone services, the Company provides phone hardware to its customers as part of its subscription offering. 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 the Accounting Standards Codification (“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-month period, the phones are returned to the Company. For each of the the three months ended March 31, 2024 and 2023 the Company recorded $1.1 million in lease revenues associated with phone hardware.
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.
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 March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023 the Company did not have any restricted cash.
Liquidity and Capital Resources
8


The Company has incurred losses and, prior to 2023, generated negative cash flows from operations since inception. The Company also generated negative cash flows from operations for the three months ended March 31, 2024. As of March 31, 2024, the Company had an accumulated deficit of $269.9 million. The Company has partially funded its operations through cash flows generated by the sales of its product offerings and, as of March 31, 2024, the Company had 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 $107.5 million. As of March 31, 2024, the Company had no outstanding borrowings under its revolving line of credit and $50.0 million in available borrowings.
The Company believes its existing cash, cash equivalents, short-term investments, borrowing capacity under its 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 March 31, 2024, unaudited condensed consolidated financial statements. As a result of the Company’s growth plans, the Company may experience losses and negative cash flows from operations in the future.
Short-Term Investments
The Company determines the appropriate classification of its investments at the time of purchase. As the Company views these securities as available to support current operations, it accounts for these debt securities as available-for-sale and classifies them as current assets on its consolidated balance sheets. These securities are recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income (loss). The Company periodically evaluates its investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. The Company considers impairments to be other than temporary if they are related to deterioration in credit risk or if it is more likely than not that the Company will sell the securities before the recovery of their cost basis. If the Company does not intend to sell a security and it is not more likely than not that it will be required to sell the security before recovery, the unrealized loss is separated into an amount representing the credit loss, which is recognized in other income (expense), net, and the amount related to all other factors, which is recorded in accumulated other comprehensive income (loss).
Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net in the condensed consolidated statements of operations. Realized gains for the three months ended March 31, 2024 and 2023, were $0.6 million and $0.7 million, respectively.
Advertising Expense
Advertising costs are expensed as incurred. For the three months ended March 31, 2024 and 2023, the Company recorded advertising expense of $2.4 million and $1.9 million, respectively. Advertising costs are included in sales and marketing expenses in the condensed consolidated statements of operations.
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; and
9


One-time registration fees assessed by mobile carriers.
These costs are recorded as deferred contract costs, net on the consolidated balance sheet. Amortization of deferred contract costs related to commissions and the associated taxes and fringe benefit costs are included in sales and marketing expense. Deferred contract 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 twelve months and, therefore, fall under the practical expedient which allows these costs to be expensed as incurred.
Accounting Pronouncements Adopted
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. The Company adopted Topic 326 as of January 1, 2023, which did not materially impact the unaudited condensed consolidated financial statements.
Accounting Pronouncements Pending Adoption
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 will be effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024 and should be adopted retrospectively. The Company is currently evaluating the impact of ASU 2023-07 on its related disclosures.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which requires the disclosure of specific categories in the rate reconciliation and greater disaggregation for income taxes paid. ASU 2023-09 will be effective for annual periods beginning after December 15, 2024 and should be adopted prospectively with the option to be adopted retrospectively. The Company is currently evaluating the impact of ASU 2023-09 on its related disclosures.
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.
3.Revenue
The Company accounts for revenue in accordance with 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
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The Company recognized revenue that was included in the corresponding deferred revenue balance at the beginning of the period of $19.3 million and $16.7 million for the three months ended March 31, 2024 and 2023, respectively.
Deferred Contract Costs
As discussed in Note 2, the Company capitalizes incremental costs of obtaining and fulfilling a contract. Amortization expense related to these costs was $3.3 million and $3.0 million for the three months ended March 31, 2024 and 2023, 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 three months ended March 31, 2024 and 2023:
Three Months Ended March 31,
20242023
Subscription and payment processing$45,092 $37,692 
Onboarding960 784 
Hardware (embedded lease)1,121 1,089 
Total revenue$47,173 $39,565 
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 as of March 31, 2024 (in thousands):
Level 1Level 2Level 3Total
Cash equivalents
Money market funds$19,300 $ $ $19,300 
Short-term investments
US government and agency securities36,620 1,002 37,622 
Commercial paper 14,092  14,092 
Total$55,920 $15,094 $ $71,014 
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The following table summarizes the assets measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31, 2023 (in thousands):
Level 1Level 2Level 3Total
Cash equivalents
Money market funds$35,375 $ $ $35,375 
Commercial paper    
Short-term investments
US government and agency securities25,083 11,526  36,609 
Commercial paper 21,479  21,479 
Total$60,458 $33,005 $ $93,463 
The following tables summarize the Company's short-term investments on the consolidated balance sheets as of March 31, 2024 and December 31, 2023 (in thousands):
March 31, 2024
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Short-term investments
US government and agency securities$37,640 $8 $(26)$37,622 
Commercial paper14,094 5 (7)14,092 
Total$51,734 $13 $(33)$51,714 
December 31, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Short-term investments
US government and agency securities$36,568 $48 $(7)$36,609 
Commercial paper21,477 11 (9)21,479 
Total$58,045 $59 $(16)$58,088 
The following tables summarize the Company’s cash and cash equivalents on the consolidated balance sheets as of March 31, 2024 and December 31, 2023 (in thousands):
March 31, 2024
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash$11,309 $— $— $11,309 
Cash equivalents
Money market funds 19,300 — — 19,300 
Total$30,609 $— $— $30,609 
December 31, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash$15,381 $— $— $15,381 
Cash equivalents
Money market funds 35,375 — — 35,375 
Commercial paper — —  
Total$50,756 $— $— $50,756 
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As of March 31, 2024, the weighted-average remaining contractual maturities of available-for-sale securities was approximately six months.
No available-for-sale securities held as of March 31, 2024 have been in a continuous unrealized loss position for more than twelve months. As of March 31, 2024, unrealized losses on available-for-sale securities are not attributed to credit risk and are considered temporary. The Company believes it is more likely than not that investments in an unrealized loss position will be held until maturity or the cost basis of the investment will be recovered. The Company believes it has no other-than-temporary impairments on its securities as it does not intend to sell these securities and does not believe it is more likely than not that it will be required to sell these securities before the recovery of their amortized cost basis. To date, the Company has not recorded any impairment charges on securities related to other-than-temporary declines in fair value. The Company’s cash equivalents and short-term investments are due within one year from the balance sheet date.
For the three months ended March 31, 2024 and 2023, both unrealized holding gains and losses were immaterial and the resulting net unrealized holding gain/loss was included in accumulated other comprehensive income.
As of March 31, 2024 and December 31, 2023, there was no outstanding debt. 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):
March 31, 2024December 31, 2023
Office equipment$6,065 $5,830 
Office furniture6,416 6,416 
Leasehold improvements2,759 2,731 
Fixed assets not placed in service 25 
Capitalized internal-use software7,132 6,827 
Payment terminals2,410 2,354 
Property and equipment, gross24,782 24,183 
Less accumulated depreciation and amortization(15,262)(14,261)
Property and equipment, net$9,520 $9,922 
Depreciation and amortization expense on property and equipment (excluding amortization on operating ROU assets) was $3.0 million for each of the three months ended March 31, 2024 and 2023. Of this expense, $1.8 million and $1.9 million for the three months ended March 31, 2024 and 2023, respectively, was related to phone hardware finance ROU assets (see also Note 7) and data center equipment and has been included in cost of revenue in the condensed consolidated statements of operations. Capitalized internal-use software amortization expense was $0.3 million for each of the three months ended March 31, 2024 and 2023, respectively, which has been included in the cost of revenue in the statements of operations. Capitalized implementation amortization expense was $0.1 million and zero for the three months ended March 31, 2024 and 2023, respectively, and has been included in operating expense in the condensed consolidated statements of operations.
6.Accrued Liabilities
Accrued liabilities consisted of the following for the periods presented (in thousands):
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March 31, 2024December 31, 2023
Payroll-related accruals$7,562 $12,567 
Sales and telecom taxes3,035 2,953 
Employee stock purchase plan liability414 862 
Third-party commissions407 398 
Other2,519 1,711 
Total$13,937 $18,491 
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.
Components of lease expense and other information for the periods presented are summarized as follows (in thousands, except terms and rates):
Three Months Ended March 31,
20242023
Lease expense
Finance lease expense:
Amortization of right-of-use assets$1,820 $1,939 
Interest on lease liabilities318 273 
Operating lease expense1,423 1,423 
Short-term lease expense8 6 
Total lease expense$3,569 $3,641 
Supplemental cash flow information
Finance leases:
Operating cash outflow from finance leases$318 $273 
Financing cash outflow from finance leases$1,787 $1,960 
Finance lease liabilities arising from obtaining finance lease right-of-use assets$1,871 $1,928 
Operating leases:
Operating cash outflow from operating leases$1,431 $1,385 
Operating lease liabilities arising from obtaining operating lease right-of-use assets$149 $154 
Other information as of March 31, 2024
Finance leases:
Weighted-average remaining lease term (years)1.9
Weighted-average discount rate10.7 %
Operating leases:
Weighted-average remaining lease term (years)8.8
Weighted-average discount rate3.9 %
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 December 2024 to January
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2033. Though the Company is considering renewal options on its leases nearing expiration, the Company has not recognized any renewal options as part of the current lease term as it is not reasonably certain that it will exercise its option as of March 31, 2024. The rates implicit in the Company’s operating leases are not readily determinable. Thus, the Company uses its incremental borrowing rate to discount lease payments to present value. 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 non-lease 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 for each of the three months ended March 31, 2024 and 2023 and is reported gross of sublease income received.
Future maturities of remaining lease payments included in the measurement of operating lease liabilities as of March 31, 2024 are as follows (in thousands):
Years ending December 31,
Remaining 2024$4,290 
20255,701 
20265,843 
20275,989 
20286,139 
Thereafter26,695 
Total54,657 
Less: imputed interest(8,584)
Present value of operating lease obligations$46,073 
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 each of the three months ended March 31, 2024 and 2023, the Company recorded lease revenues associated with phone hardware of $1.1 million.
In April 2023, the Company entered into a Sublease Agreement for the fourth floor of the office space currently occupied by the Company in Lehi, Utah. During the three months ended March 31, 2024, the Company recorded sublease revenues associated with this agreement of $0.2 million. These revenues are included in other income (expense) on the condensed consolidated statement of operations.
Finance leases
The Company is the lessee in all of its finance lease arrangements. The Company finances its purchases of phone hardware through lease agreements classified as finance leases. As of March 31, 2024 the Company had 99 executed and active lease agreements, respectively, for phone hardware. These agreements require monthly payments ranging from approximately $55 to $22,632 and have maturity dates ranging from April 2024 to March 2027. As of March 31, 2024, the gross value of phone hardware acquired under these finance leases approximated $21.2 million. Amortization expense on finance-leased phone hardware was $1.8 million and $1.9 million for the three months ended March 31, 2024 and 2023, respectively, which is included in the depreciation expense referenced in Note 5.
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Future minimum lease payments for the Company’s finance leases as of March 31, 2024 were as follows (in thousands):
Years ending December 31,
Remaining 2024$5,914 
20255,234 
20262,799 
2027360 
2028 
Thereafter 
Total14,307 
Less: amounts representing interest(1,581)
Present value of finance lease obligations$12,726 
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 provision for income taxes of $14.1 thousand and $19.9 thousand for the March 31, 2024 and 2023, respectively, which resulted in an effective tax rate of (0.2)% and (0.3)%, for the three months ended March 31, 2024 and 2023, 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
In August 2021, the Company established a revolving line of credit with Silicon Valley Bank allowing for total borrowing capacity up to $50.0 million, subject to reduction should the Company fail to meet certain metrics for recurring revenue and customer retention (the “August 2021 Agreement”). The line of credit, as amended, matures in August 2025. Amounts outstanding on the line will accrue interest at the greater of prime rate plus 0.25% and 3.50%. The Company is required to pay an annual fee of $0.1 million beginning on the effective date of the August 2021 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. The August 2021 Agreement, as amended in March 2024, includes financial covenants requiring that, at any time, if total unrestricted cash and cash equivalents held at Silicon Valley Bank plus short-term investments managed by 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 and short-term investments plus available borrowing on the line of credit, and the Company must meet specified minimum levels of EBITDA, as adjusted for stock-based
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compensation and changes in its deferred revenue. The Company was in compliance with all debt covenants for the three months ended March 31, 2024 and the year ended December 31, 2023. As of March 31, 2024, the total outstanding balance on the line of credit was zero. In March 2024, the Company amended the revolving line of credit agreement with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (“SVB”), which amended certain terms of the August 2021 Agreement, including but not limited to, setting EBITDA financial covenants of the Company for the 2024 fiscal year.
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 March 31,
20242023
Cost of revenue$239 $213 
Sales and marketing1,151 964 
Research and development1,898 930 
General and administrative3,484 2,406 
Total$6,772 $4,513 
Equity Incentive Plan
In November 2021, in connection with the initial public offering (“IPO”), the Company adopted the 2021 Equity Incentive Plan (the “2021 EIP” or “EIP”) under which the Company could issue stock options or restricted stock units (“RSUs”) as awards. In addition to shares remaining available for issuance under a prior plan and shares subject to awards under the prior plan that may return to EIP , the Company reserved 9.0 million 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 of directors of the Company (the “Board”), subject to a maximum amount. In the first quarter of 2024 and 2023, the Board reserved an additional 3.5 million and 3.3 million common shares, respectively, for future issuance under the 2021 EIP.
In March 2023, the Company adopted the 2022 Inducement Equity Incentive Plan and reserved an additional 7.0 million shares of common stock for future issuance.
Stock-based compensation expense related to the EIP was $6.6 million and $4.4 million for the three months ended March 31, 2024 and 2023, respectively.
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 333,998 and 1,843,763 as of March 31, 2024 and 2023, respectively.
Unrecognized stock-based compensation expense related to outstanding stock options as of March 31, 2024 and 2023 was $2.6 million and $7.5 million, respectively. Stock-based compensation expense is recognized on a straight-line basis over the remaining weighted-average vesting periods. As of March 31, 2024 and 2023 the weighted-average vesting periods approximated 1.02 years and 1.30 years, respectively.
Stock option activity was as follows:
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Number of OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual Life (years)Aggregate Intrinsic Value
(in thousands)
Outstanding as of December 31, 20231,840,735 $4.32 5.96$13,165 
Exercisable as of December 31, 20231,480,536 $3.82 5.62$11,320 
Granted $ 
Exercised(60,548)$4.80 
Forfeited and expired(2,075)$5.81 
Outstanding as of March 31, 20241,778,112 $4.30 5.71$12,768 
Exercisable as of March 31, 20241,495,817 $3.89 5.44$11,348 
The aggregate intrinsic value of options exercised was $0.5 million for the three months ended March 31, 2024. 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 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 yields 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. A total of 30,210 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. A total of 39,575 RSUs issued to non-employee directors have a three-year vesting schedule, with 33% vesting one year from the grant date and the remaining 67% vesting annually over the remaining two years. A total of 146,136 RSUs issued to non-employee directors have a one-year vesting schedule, with 100% vesting on the earlier of one year from the grant date or the annual meeting of stockholders. The remaining RSUs that have been issued have a 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 March 31, 2024, there was $56.0 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.3 years.
RSU activity was as follows:
Number of SharesWeighted Average Grant Date Fair Value
Outstanding as of December 31, 20237,504,848 $5.98 
Granted2,068,200 $11.64 
Vested(1,205,838)$5.28 
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Canceled(81,064)$6.78 
Outstanding as of March 31, 20248,286,146 $7.48 
The total fair value of RSUs that vested during the three months ended March 31, 2024 was $6.4 million. A portion of these RSUs were net-settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. During the three months ended March 31, 2024, the Company withheld 516,331 shares, which was based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to taxing authorities was $6.1 million for the three months ended March 31, 2024 and $0.8 million for the three months ended March 31, 2023.
Employee Stock Purchase Plan
In October 2021, the Company adopted the Employee Stock Purchase Plan (“ESPP”) in which eligible employees may contribute up to 50% of their base compensation to purchase shares of common stock at a price equal to 85% of the lower of (1) the fair market value of a share of the Company’s common stock at the beginning of the offering period and (2) the fair market value of a share of the Company’s common stock on the purchase date. No participant may purchase more than 2,500 shares during any offering period. As of March 31, 2024 and December 31, 2023, 3,301,800 and 2,600,637 shares were reserved for issuance, and 571,552 and 457,593 shares, respectively, of common stock had been issued under the ESPP. The number of shares available for issuance under the ESPP may be increased on the first day of each fiscal year by an amount to be determined by the Board. In the first quarter of 2024, the Board reserved an additional 0.7 million common shares for issuance under the ESPP.
The 2021 ESPP provides for six-month offering periods beginning February 16 and August 16 of each year, and the last day of each offering period is the purchase date for that period.
During each of the three months ended March 31, 2024 and 2023, the Company recognized $0.2 million of stock-based compensation expense related to the ESPP. As of March 31, 2024 and December 31, 2023, $0.4 million and $0.9 million in accrued ESPP employee payroll contributions are included within accrued liabilities on the consolidated balance sheets, respectively. As of March 31, 2024, total unrecognized compensation costs related to the ESPP was $0.3 million, which will be amortized over the remaining offering period through August 15, 2024.
11.Related Party Transactions
There were no related-party transactions during the three months ended March 31, 2024 and 2023.
12.Commitments and Contingencies
Legal Matters
As of March 31, 2024, 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
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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.
The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual. No liability associated with such indemnifications has been recorded as of March 31, 2024.
13. Net Loss Per Share
The following tables present the calculation of basic and diluted net loss per share for the three and three months ended March 31, 2024 and 2023 (in thousands, except share and per share amounts):
Three Months Ended March 31,
20242023
Numerator:
Net loss$(7,203)$(7,859)
Denominator:
Weighted-average common shares outstanding - basic and diluted70,452,944 65,954,521 
Net loss per share
Net loss per share, basic and diluted$(0.10)$(0.12)
The following outstanding potential common shares were excluded from the computation of diluted net loss per share as of the end of the periods presented because their inclusion would have been antidilutive:
March 31, 2024March 31, 2023
Options to purchase common stock1,778,112 3,913,926 
Number of shares issuable from ESPP130,113 192,551 
Restricted stock units8,286,146 7,457,059 
Total10,194,371 11,563,536 
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. “Risk Factors,” and elsewhere herein. Therefore, our actual results could differ materially from those discussed in the forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
In this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, “Weave,” the “Company,” “we,” “us,” and “our” refer to Weave Communications, Inc. and its consolidated subsidiaries.
Overview
Weave provides small- and medium-sized healthcare businesses (“SMBs”) with a single, vertically-tailored customer experience and payments software platform, helping them unify, modernize, and personalize every interaction with their patients and clients. Our customers are experts in their fields of care. Weave helps them run their practice more effectively by unifying a patchwork of point solutions into a single platform that helps them attract, engage, and retain their patients. Our platform includes messaging, reviews, payments, online scheduling, appointment reminders, digital forms, email marketing, insurance verification, physical and softphones, and more. Weave enables SMBs to offer flexible payment options including payment via text, email, online bill pay, terminals, and mobile tap-to-pay. Weave empowers healthcare practitioners and their office staff to focus on patient care and minimize time and effort spent on manual and mundane operational tasks.
The majority of our customers are dental, optometry, veterinary and other medical specialty practices, and through investment in our product development and integrations we are expanding our platform services to support several additional specialized medical verticals.
Supplemental Financial Information — Disaggregated Revenue and Cost of Revenue
To supplement our discussion of our consolidated results of operations, we have separated our revenue and cost of revenue into recurring and non-recurring categories to disaggregate revenue and costs of revenue that are one-time in nature from those that are term-based and renewable.
We generate revenue primarily from recurring subscription fees charged to access our platform, which also include recurring hardware fees. These recurring revenues accounted for 92% of our revenue for each of the three months ended March 31, 2024 and 2023, respectively. In addition, we provide recurring payment processing services through Weave Payments and derive revenue from transactions between our customers that utilize Weave Payments and their end consumers.
We also derive revenue associated with non-recurring installation fees for onboarding customers and from embedded leases on phone hardware. We utilize our onboarding services and phone hardware as customer acquisition tools and price them competitively to lower the barriers to entry for new customers adopting our platform. As a result, the variable cost associated with providing phone hardware and onboarding assistance has historically exceeded the related revenue, resulting in negative gross profit for each. The revenue and related costs associated with onboarding new customers are typically non-recurring and are primarily associated with the initial setup of a customer’s software and phone system. Revenue on phone hardware provided to our customers, deemed embedded lease revenue, is recognized over the related subscription period. The associated costs, which primarily represent depreciation expense on phones financed under finance lease arrangements, are incurred over the useful
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lives of the phone hardware. We consider the net costs of onboarding and hardware, in addition to our sales and marketing activities, to be core elements of our customer acquisition approach.
The table below sets forth the revenue and associated cost of revenue for our recurring subscription and payment processing services, as well as for our onboarding services and phone hardware:
Three Months Ended March 31,
20242023
(dollars in thousands)
Subscription and payment processing:
Revenue$45,092 $37,692 
Cost of revenue(10,536)(8,978)
Gross profit$34,556 $28,714 
Gross margin77 %76 %
Onboarding:
Revenue$960 $784 
Cost of revenue(1,832)(2,125)
Gross profit$(872)$(1,341)
Gross margin(91)%(171)%
Hardware:
Revenue$1,121 $1,089 
Cost of revenue(1)
(1,818)(1,928)
Gross profit(1)
$(697)$(839)
Gross margin(62)%(77)%
______________
(1)    Cost of revenue related to hardware represents depreciation of phone hardware over a 3-year useful life.

Factors Affecting Our Performance
Our historical financial performance has been, and we expect our financial performance in the future to be, driven by our ability to attract new customers, retain and expand within our customer base, add new products, and expand into new industry verticals.
Attract New Customers
Our ability to attract new customers is dependent upon a number of factors, including the effectiveness of our pricing and products, the sum total of the features and pricing of the alternative point solution patchwork, the effectiveness of our marketing efforts, the effectiveness of our channel partners in selling and marketing our platform, and the growth of the market for a customer experience and payments software platform. Sustaining our growth requires continued adoption of our platform by new customers. We aim to add new customers through a combination of unpaid channels, such as recommendations and word of mouth, and paid channels, such as digital marketing, direct mail, professional events, brand marketing, and our teams of sales representatives. Historically, our go-to-market strategy focused on increasing the number of locations with most of our customers having a single location; however, we now provide multi-office functionality on our platform to allow us to better service organizations with multiple locations. In addition to pursuing continued customer growth among small businesses, we intend to pursue opportunities to expand our customer base among medium-sized businesses with a particular focus on our core specialty healthcare verticals. Our ability to expand among medium-sized businesses will depend upon our ability to successfully sell our platform to multi-location organizations and effectively retain them.
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Retain and Expand Within Our Customer Base
Our ability to retain and increase revenue within our existing customer base is dependent upon a number of factors, including customer satisfaction with our platform and support, the sum total of the features and pricing of the alternative point solution patchwork, our ability to effectively enhance our platform by developing new applications and features and addressing additional use cases, and our ability to leverage and scale our core sales efforts and marketing capabilities to increase our penetration into our core specialty healthcare verticals. The deployment of the Weave phone system as part of the platform at each of our customers increases stickiness and customer loyalty. Historically, our subscriptions have provided our new customers with immediate access to the majority of our products and functionality. However, we have added additional add-on products in recent years, such as Weave Payments, which we are increasingly successful at cross-selling to our customer base. We intend to continue to invest in enhancing awareness of our platform, creating additional use cases, and developing more products, features and functionality.
Customer retention also impacts our future financial performance given its potential to drive improved gross margin. The initial onboarding costs as well as the cost of hardware, which is depreciated over three years, represent substantial cost of revenue elements during the first few years of a customer’s life. We believe our disaggregated revenue and cost of revenue financial data, particularly our subscription and payment processing gross margin, provide insight into the impact of customer retention on overall gross margin improvement. Our subscription and payment processing gross margin was 77% and 76% for the three months ended March 31, 2024 and 2023, respectively.
Add New Products
We continue to add new products and functionality to our platform, broadening our use cases and applicability for different customers. Our ability to cohesively deliver a deep product suite with as little friction as possible to customers is a key determinant of winning new customers. In short, our ability to add new SMB customers is dependent on the features and functionality we add to our platform for small businesses, particularly in our core specialty healthcare verticals. The depth of our platform’s functionality is dependent upon both our internally-developed technology and our platform partnerships and integrations. We expect our future success in winning new clients to be partially driven by our ability to continue to develop and deliver new, innovative products to SMBs in a timely manner.
Expand to New Industry Verticals
We believe we have built a flexible platform that encompasses the majority of the functionality needed for customer experience and engagement across industry verticals, and we have developed a repeatable playbook for assessing new industry verticals. Entering a new industry vertical includes establishing key partnerships as well as identifying, evaluating, developing, and launching a platform solution with vertical-specific functionality that is integrated with the primary systems of record in that vertical. We started in dental and have since successfully expanded to optometry and veterinary, among other areas. While we are focused on continued growth within our core specialty healthcare verticals and adjacent healthcare markets, we continue to evaluate additional expansion opportunities.
Key Business Metrics
In addition to our financial information that is presented in accordance with the generally accepted accounting principles in the United States (“U.S. GAAP”), we review several operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
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March 31,
20242023
Dollar-based net retention rate96 %97 %
Dollar-based gross retention rate92 %93 %
Dollar-Based Net Retention Rate
We believe our dollar-based net retention rate (“NRR”) provides insight into our ability to retain and grow revenue from our customer locations, as well as their potential long-term value to us. For retention rate calculations, we use adjusted monthly revenue (“AMR”), which is calculated for each location as the sum of (i) the subscription component of revenue for each month and (ii) the average of the trailing-three-month recurring payments revenue. Since payments revenue represents the revenue we recognize on payment processing volume, which is reported net of transaction processing fees, we believe the three-month average appropriately adjusts for short-term fluctuations in transaction volume. To calculate our NRR, we first identify the cohort of locations, or the Base Locations, that were active in a particular month, or the Base Month. We then divide AMR for the Base Locations in the same month of the subsequent year, or the Comparison Month, by AMR in the Base Month to derive a monthly NRR. AMR in the Comparison Month includes the impact of any churn, revenue contraction, revenue expansion, and pricing changes, and by definition does not include any new customer locations under subscription added between the Base Month and Comparison Month. We derive our annual NRR as of any date by taking a weighted average of the monthly net retention rates over the trailing twelve months prior to such date.
Dollar-Based Gross Retention Rate
We believe our dollar-based gross retention rate (“GRR”) provides insight into our ability to retain our customers, allowing us to evaluate whether the platform is addressing customer needs. To calculate our GRR, we first identify the Base Locations that were under subscription in the Base Month. We then calculate the effect of reductions in revenue from customer location terminations by measuring the amount of AMR in the Base Month for Base Locations still under subscription twelve months subsequent to the Base Month, or Remaining AMR. We then divide Remaining AMR for the Base Locations by AMR in the Base Month for the Base Locations to derive a monthly gross retention rate. We calculate GRR as of any date by taking a weighted average of the monthly gross retention rates over the trailing twelve months prior to such date. GRR reflects the effect of customer locations that terminate their subscriptions, but does not reflect changes in revenue due to revenue expansion, revenue contraction, or addition of new customer locations.
Components of Results of Operations
Revenue
We generate revenue primarily from recurring subscription fees charged to access our software and phone services platform, and recurring embedded lease revenue on hardware provided to customers. The majority of these subscription arrangements have contractual terms of month-to-month, with a small minority portion having contractual terms of 1-3 years. Subscription and hardware fees are prepaid and customers may elect to be billed monthly or annually, with the majority of our revenue coming from those that elect to be billed monthly. To incentivize annual payments, we may offer pricing concessions that apply ratably over the twelve-month subscription plan. Approximately 40% of customer locations elected annual prepayments as of March 31, 2024 and 2023. Subscription revenue is recognized ratably over the term of the subscription agreement. Amounts billed in excess of revenue recognized are deferred.
In addition, we provide payment processing services and receive a revenue share from a third-party payment facilitator on transactions between our customers that utilize our payments platform and their end consumers. These payment transactions are generally for services rendered at customers’ business location via credit card terminals or through several card-not-present modalities, including “Text-to-Pay”
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functionality. As we act as an agent in these arrangements, revenue from payments services is recorded net of transaction processing fees and is recognized when the payment transactions occur.
We also collect non-recurring installation fees for onboarding customers, the revenue for which is recognized upon completion of the installation. Our customers may directly engage with third-party independent contractors to configure hardware, install the software and assist with upgrades, for which we do not derive any revenue.
Cost of Revenue
Cost of revenue consists of costs related to providing our platform to customers and costs to support our customers. Direct costs associated with providing our platform include data center and cloud infrastructure costs, payment processing costs, amortization of finance lease right-of-use assets on phone hardware provided to customers, fees to application providers, voice connectivity and messaging fees, and amortization of internal-use software development costs. Indirect costs included in costs of revenue include personnel-related expenses, such as salaries, benefits, bonuses and stock-based compensation expense, of our onboarding and customer support staff. Cost of revenue also includes an allocation of overhead costs for facilities and shared IT-related expenses, including depreciation expense.
As we acquire new customers and existing customers increase their use of our cloud-based platform, we expect that the dollar amount of our cost of revenue will continue to increase. However, our cost of revenue has been and will continue to be affected by a number of factors including increased regulatory fees on texting and phone calls, the quantity and aging of phones provided to customers, our stock-based compensation expense, and the timing of the amortization of internal-use software development costs, which could cause it to fluctuate as a percentage of revenue in future periods.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and sales commissions. Operating expenses also include allocated overhead costs for facilities and shared IT-related expenses, including depreciation expense.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses associated with our sales and marketing staff, including salaries, benefits, sales commissions, bonuses and stock-based compensation. Sales commissions paid on new subscriptions to our software, phone, and payments services are deferred and amortized over the expected period of benefit, which is determined to be three years. In addition to personnel-related expenses, marketing expenses consist of lead-generating and other advertising activities in which we bring industry experts together with local practitioners in cities across the U.S. to help them grow their businesses and discuss various industry-based topics, as well as the cost of traveling to and attending trade shows.
We expect that our sales and marketing expenses will increase and continue to be our largest operating expense for the foreseeable future as we grow our business. As and to the extent in-person events and conferences continue to return to pre-pandemic levels of activity, we expect that our sales and marketing expenses will continue to increase compared to 2023. As a percentage of revenue, we anticipate sales and marketing expenses to decrease in 2024 as compared to 2023, and we expect these expenses to continue to decrease as a percentage of revenue over time.
Research and Development
Research and development expenses include software development costs that are not eligible for capitalization and support our efforts to ensure the reliability, availability and scalability of our solutions.
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Our platform is software-driven, and its research and development teams employ software engineers in the continuous testing, certification and support of our platform and products. Accordingly, the majority of our research and development expenses result from employee-related costs, including salaries, benefits, bonuses, stock-based compensation and costs associated with technology tools used by our engineers.
We expect that our research and development expenses will increase as our business grows, particularly as we incur additional costs related to continued investments in our platform and products. However, we expect that our research and development expenses will remain fairly consistent or slightly decrease as a percentage of our revenue over time. In addition, research and development expenses that qualify as internal-use software development costs are capitalized and the amount capitalized may fluctuate significantly from period to period.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses for our finance, legal, human resources, facilities and administrative personnel, including salaries, benefits, bonuses and stock-based compensation. General and administrative expenses also include external legal, accounting, and other professional services fees, software and subscription services dedicated for use by our general and administrative functions, insurance and other corporate expenses.
We expect that our general and administrative expenses, including expenses for insurance, investor relations and fees for professional services, will increase in absolute dollars as our business grows but will decrease as a percentage of our revenue over time.
Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents, and short-term investments.
Interest Expense    
Interest expense results primarily from interest payments on our borrowings and interest on finance lease obligations. Interest on borrowings is based on a floating per annum rate at specified percentages above the prime rate. Interest on finance leases is based on the rate implicit within the lease agreement.
Other Income (Expense), Net
Other income (expense), net primarily consists of gains and losses on short-term investments, foreign currency transactions, and sublease income.
Provision for (Benefit from) Income Taxes
Provision for income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. Because of the uncertainty of the realization of the deferred tax assets, we have a full valuation allowance for domestic net deferred tax assets, including net operating loss carryforwards.
Results of Operations
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The following table sets forth our condensed consolidated statements of operations data for the periods indicated:
Three Months Ended March 31,
20242023
(in thousands)
Revenue$47,173 $39,565 
Cost of revenue (1)
14,186 13,031 
Gross profit32,987 26,534 
Operating expenses:
Sales and marketing (1)
19,630 17,218 
Research and development (1)
9,645 7,694 
General and administrative (1)
11,867 10,140 
Total operating expenses41,142 35,052 
Loss from operations(8,155)(8,518)
Other income (expense):
Interest income420 436 
Interest expense(319)(472)
Other income (expense), net865 715 
Loss before income taxes(7,189)(7,839)
Provision for income taxes(14)(20)
Net loss$(7,203)$(7,859)
______________
(1)Includes stock-based compensation expense as follows:
Three Months Ended March 31,
20242023
(in thousands)
Cost of revenue$239 $213 
Sales and marketing1,151 964 
Research and development1,898 930 
General and administrative3,484 2,406 
Total stock-based compensation$6,772 $4,513 
See Note 10 of the unaudited condensed consolidated financial statements for further details on stock-based compensation expense.
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The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:
Three Months Ended March 31,
20242023
(percentage of total revenue)
Revenue100 %100 %
Cost of revenue30 33 
Gross profit70 67 
Operating expenses:
Sales and marketing42 44 
Research and development20 19 
General and administrative25 26 
Total operating expenses87 89 
Loss from operations(17)(22)
Other income (expense):
Interest income
Interest expense(1)(1)
Other income (expense), net
Loss before income taxes(15)(20)
Provision for income taxes— — 
Net loss(15)%(20)%
Comparison of the Three Months Ended March 31, 2024 and 2023
Revenue
Three Months Ended March 31,Change
20242023AmountPercentage
(dollars in thousands)
Revenue$47,173 $39,565 $7,608 19 %
Revenue increased by $7.6 million or 19% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Of the total increase, approximately $6.6 million, or 87%, was attributable to new customers acquired subsequent to March 31, 2023, and $1.0 million, or 13%, was attributable to existing customers under subscription as of March 31, 2023.
Cost of Revenue and Gross Margin
Three Months Ended March 31,Change
20242023AmountPercentage
(dollars in thousands)
Cost of revenue$14,186 $13,031 $1,155 %
Gross margin70 %67 %
The increase in cost of revenue was primarily due to a $0.7 million increase in direct costs to support customer usage, particularly with telecommunications connectivity and cloud infrastructure costs, and
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credit card processing fees. We also experienced a $0.5 million increase in personnel-related costs from our customer support and onboarding functions. Although cost of revenue increased in absolute dollars, it decreased as a percentage of revenue, resulting in overall gross margin improvement. This improvement was driven by successful efforts to reduce third-party costs incurred for specific platform features and overall data usage, as well as a favorable customer mix as a greater portion of our customers had fully depreciated phone hardware. Gross margin improvement was also driven by realized efficiencies within our customer support and onboarding functions.
Sales and Marketing
Three Months Ended March 31,Change
20242023AmountPercentage
(dollars in thousands)
Sales and marketing$19,630 $17,218 $2,412 14 %
The increase in sales and marketing expenses was primarily attributable to a $1.3 million increase in personnel-related expenses, including increases in stock-based compensation, and commission/bonus incentives. We also increased demand generation expenses of $0.6 million driven by our direct-mail and digital media efforts and incurred $0.3 million in additional event-related costs due to increased in-person trade show attendance.
Research and Development
Three Months Ended March 31,Change
20242023AmountPercentage
(dollars in thousands)
Research and development$9,645 $7,694 $1,951 25 %
The increase in research and development expenses was due to an increase of $2.0 million in personnel-related expenses, largely from salary adjustments and stock-based compensation, for employees enhancing our platform infrastructure and developing new product offerings.
General and Administrative
Three Months Ended March 31,Change
20242023AmountPercentage
(dollars in thousands)
General and administrative$11,867 $10,140 $1,727 17 %
The increase in general and administrative expenses was due to a $1.8 million increase in personnel-related expenses, particularly from additional bonus incentives, salary adjustments, and stock-based compensation.
Other Income (Expense), Net
Three Months Ended March 31,Change
20242023AmountPercentage
(dollars in thousands)
Interest income$420 $436 
Interest expense(319)(472)
Other income (expense), net865 715 
Total other income (expense), net$966 $679 $287 42 %
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The decrease in interest expense was due to paying down the line of credit in November 2023.
The increase in interest income and other income was due to additional earnings generated on market securities and other short-term investments and, to a lesser extent, a rise in average interest rates over the period.
Provision for Income Taxes
Three Months Ended March 31,Change
20242023AmountPercentage
(dollars in thousands)
Provision for income taxes$(14)$(20)$(30)%
Provision for income taxes decreased by an immaterial amount due to increases in foreign operational expenses, and the resulting decrease in taxable income in our foreign jurisdictions. We expect income tax expense to increase in conjunction with growth in our international subsidiaries in the long term.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared in conformity with U.S. GAAP, we use free cash flow, free cash flow margin and Adjusted EBITDA, which are non-GAAP financial measures, to enhance the understanding of our U.S. GAAP financial measures, evaluate growth trends, establish budgets, and assess operating performance. These non-GAAP financial measures should not be considered by the reader as substitutes for, or superior to, the financial statements and financial information prepared in accordance with U.S. GAAP. See below for a description of these non-GAAP financial measures, reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures and their limitations as an analytical tool.
Three Months Ended March 31,
20242023
(dollars in thousands)
Net cash provided by (used in) operating activities$(19,701)$1,541 
Net cash provided by (used in) investing activities6,131 (5,439)
Net cash used in financing activities(6,577)(2,018)
Free cash flow(20,519)587 
Net cash provided by (used in) operating activities as a percentage of revenue(42)%%
Free cash flow margin(43)%%
Net loss(7,203)(7,859)
Adjusted EBITDA$(358)$(3,114)
Free Cash Flow and Free Cash Flow Margin
We define free cash flow as net cash provided by (used in) operating activities, less purchases of property and equipment, and capitalized internal-use software costs, and free cash flow margin as free cash flow as a percentage of revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide useful information to management and investors, even if negative, as they provide information about the amount of cash consumed by our combined operating and investing activities. For example, as free cash flow has in the past been negative, we have needed to access cash reserves or other sources of capital for these investments. Comparability of our free cash flow between the three months ended March 31, 2024 and the three months ended March 31, 2023 was affected by the implementation of a new billing system that necessitated deferring March 2024 subscription billings into April 2024. This resulted in an increase in unbilled accounts receivable as of March 31, 2024, and a corresponding decrease in free cash flow for the three months then ended, of
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approximately $15.0 million. Comparability was also affected by the timing of 2023 annual bonus payouts, which were paid out in March 2024 and amounted to approximately $7.0 million. In prior years, annual bonuses were paid out in the second quarter. Excluding the impact of both the delay in billing and the timing difference of the bonus pay out, free cash flow would have been positive for the three months ended March 31, 2024.
Adjusted EBITDA
We define EBITDA as earnings before interest expense, interest income, other income/expense, provision for income taxes, depreciation, and amortization. Our depreciation adjustment has included depreciation on operating fixed assets and has not included amortization of finance lease right-of-use assets on phone hardware provided to our customers. Our amortization adjustment has included the amortization of capitalized internal-use software costs. We further adjust EBITDA to exclude stock-based compensation expense, a non-cash item. We believe that Adjusted EBITDA provides management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. Additionally, management uses Adjusted EBITDA to measure our financial and operational performance and prepare our budgets.
Limitations and Reconciliation of Non-GAAP Financial Measures
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under U.S. GAAP. There are a number of limitations related to the use of non-GAAP financial measures versus comparable financial measures determined under U.S. GAAP. For example, the non-GAAP financial information presented above may be determined or calculated differently by other companies and may not be directly comparable to that of other companies. In addition, free cash flow does not reflect our future contractual commitments and the total increase or decrease of our cash balance for a given period. Further, Adjusted EBITDA excludes some costs, namely, non-cash stock-based compensation expense. Therefore, Adjusted EBITDA does not reflect the non-cash impact of stock-based compensation expense or working capital needs that will continue for the foreseeable future. All of these limitations could reduce the usefulness of these non-GAAP financial measures as analytical tools. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures and to not rely on any single financial measure to evaluate our business.
Free Cash Flow and Free Cash Flow Margin U.S. GAAP Reconciliation
Three Months Ended March 31,
20242023
(dollars in thousands)
Revenue$47,173 $39,565 
Net cash provided by (used in) operating activities$(19,701)$1,541 
Less: Purchase of property and equipment(513)(620)
Less: Capitalized internal-use software(305)(334)
Free cash flow$(20,519)$587 
Net cash provided by (used in) investing activities
$6,131 $(5,439)
Net cash used in financing activities$(6,577)$(2,018)
Net cash provided by (used in) operating activities as a percentage of revenue(42)%%
Free cash flow margin(43)%%
Adjusted EBITDA U.S. GAAP Reconciliation
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Three Months Ended March 31,
20242023
Net loss$(7,203)$(7,859)
Interest expense319 472 
Provision for income taxes14 20 
Interest income(420)(436)
Other income/expense, net
(865)(715)
Depreciation(1)
609 592 
Amortization(2)
416 299 
Stock-based compensation6,772 4,513 
Adjusted EBITDA$(358)$(3,114)
______________
(1)    Does not include amortization of finance lease right-of-use assets on phone hardware provided to our customers.
(2)    Represents amortization of capitalized internal-use software costs.

Liquidity and Capital Resources
Since inception, we have financed our operations primarily through cash generated from the sale of subscriptions to our platform, and the net proceeds received from issuances of our equity securities. We have generated losses from our operations as reflected in our accumulated deficit of $269.9 million as of March 31, 2024 and, prior to 2023, have generated negative cash flows from operations. We also generated negative cash flows from operations for the three months ended March 31, 2024. Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support customer usage and growth in our customer base, and increased research and development expenses to support the growth of our business and related infrastructure. We expect our operating cash flows to further improve as we increase our operational efficiency and experience economies of scale.
As of March 31, 2024, our principal sources of liquidity were cash held as deposits in financial institutions and cash equivalents consisting of highly liquid investments in money market securities of $30.6 million, as well as $51.7 million in other short-term investments comprised primarily of treasury and commercial paper instruments.
A substantial source of our cash inflow from operating activities is our deferred revenue, which is included on our consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recorded as revenue over the subscription term. We had $39.8 million of deferred revenue recorded as a current liability as of March 31, 2024. This deferred revenue will be recognized as revenue when all of the revenue recognition criteria are met.
We assess our liquidity primarily through our cash on hand as well as the projected timing of billings under contract with our paying customers and related collection cycles. We believe our current cash, cash equivalents, short-term investments and amounts available under our senior secured credit facility will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.
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The following table shows a summary of our cash flows for the periods presented:
Three Months Ended March 31,
20242023
(dollars in thousands)
Net cash provided by (used in) operating activities$(19,701)$1,541 
Net cash provided by (used in) investing activities6,131 (5,439)
Net cash used in financing activities(6,577)(2,018)
Operating Activities
For the three months ended March 31, 2024, cash used in operating activities was $19.7 million, primarily due to a net loss of $7.2 million, adjusted for non-cash charges of $13.7 million and net cash outflows of $26.2 million from changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a $15.8 million increase in accounts receivable, a $4.6 million decrease in accrued liabilities, and a $4.1 million increase in deferred contract costs, comprising mainly sales commissions earned on bookings. These amounts were partially offset by a $0.8 million increase to deferred revenue due to our prepay arrangements with our customers.
For the three months ended March 31, 2023 cash provided by operating activities was $1.5 million, primarily due to a net loss of $7.9 million, adjusted for non-cash charges of $11.2 million, and net cash outflows of $1.8 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a $3.2 million increase in deferred contract costs and a $0.9 million decrease in operating lease liabilities. These amounts were partially offset by a $1.2 million increase to accrued liabilities, largely from employee compensation accruals, $0.5 million decrease to prepaid expenses and other assets, a $0.4 million increase in accounts payable, and a $0.4 million increase to deferred revenue comprising mainly sales commissions earned on bookings.
Investing Activities
Cash provided by investing activities for the three months ended March 31, 2024 was $6.1 million, primarily due to $23.8 million in short-term investment maturities, partially offset by $16.8 million in purchases of short-term investments. Additional investing cash flow activities included $0.5 million of furniture and equipment additions and $0.3 million in personnel-related costs capitalized as internal-use software development.
Cash used in investing activities for the three months ended March 31, 2023 was $5.4 million, primarily due to $17.5 million in purchases of short-term investments, partially offset by $13.0 million in short-term investment maturities. Additional investing cash flow activities included $0.6 million of furniture and equipment additions and $0.3 million in personnel-related costs capitalized as internal-use software development.
Financing Activities
Cash used in financing activities for the three months ended March 31, 2024 was $6.6 million, primarily due to $6.1 million in employee taxes paid related to the net settlement of restricted stock units, and principal payments on finance lease obligations of $1.8 million. These outflows were partially offset by cash proceeds from employee stock option exercises of $0.3 million, and proceeds of $1.0 million from the employee stock purchase plan.
Cash used in financing activities for the three months ended March 31, 2023 was $2.0 million, primarily due to principal payments on finance lease obligations of $2.0 million and $0.8 million in employee taxes paid related to the net settlement of restricted stock units. These outflows were partially offset by proceeds of $0.6 million from the employee stock purchase plan and cash proceeds from employee stock option exercises of $0.1 million.
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Contractual Obligations and Commitments
During the three months ended March 31, 2024, we acquired $1.9 million of additional right of use assets through new finance lease obligations.
In March 2024, we entered into the Sixth Amendment to the Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (“SVB”), which amended certain terms of the August 2021 Agreement, including but not limited to, setting EBITDA financial covenants of the Company for the 2024 fiscal year. There were no other significant modifications of agreement terms with this amendment.
Other than the new finance lease obligations and the amendment of our credit facility, there have been no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 13, 2024.
Indemnifications
Certain of our agreements with partners, resellers and customers include provisions for indemnification against liabilities should our platform contribute to a data compromise, particularly a compromise of protected health information (“PHI”). We have not incurred any costs as a result of such indemnification obligations historically and have not accrued any liabilities related to such obligations in our consolidated financial statements as of March 31, 2024.
Silicon Valley Bank Credit Facility
In August 2021, we established a revolving line of credit with SVB with total borrowing capacity up to $50.0 million, subject to reduction should we fail to meet certain metrics for recurring revenue and customer retention (the “August 2021 Agreement”). The line of credit, as amended, matures in August 2025. Amounts outstanding on the line will accrue interest at the greater of prime rate plus 0.25% and 3.50%. We are required to pay an annual fee of $0.1 million beginning on the effective date of the August 2021 Agreement, and continuing on the anniversary of the effective date. We are also required to pay 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. The August 2021 Agreement, as amended in March 2024, includes financial covenants requiring that, at any time, if our total unrestricted cash and cash equivalents held at SVB, plus our short-term investments managed by SVB, is less than $100.0 million, we must at all times thereafter maintain a consolidated minimum $20.0 million in liquidity, meaning unencumbered cash and short-term investments plus available borrowing on the line of credit, and that we meet specified minimum levels of EBITDA, as adjusted for stock-based compensation and changes in our deferred revenue. We did not take any advances on the line of credit in the three months ended March 31, 2024. As of March 31, 2024, there was no outstanding balance on the line of credit, the full $50.0 million was available for borrowing, and we were in compliance with all SVB loan covenants.
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with U.S. GAAP. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows may be affected.
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See “Recently Adopted Accounting Pronouncements” below for significant changes to our lease accounting policies and see our significant accounting policies discussed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” in our notes to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Other than the changes to lease accounting policies, there have been no material changes to our critical accounting estimates as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 13, 2024.
Recently Adopted Accounting Pronouncements
On January 1, 2023 we adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which requires more timely measurement and recognition of expected credit losses for financial assets held at amortized cost.
For more information, see the sections titled “Basis of Presentation and Summary of Significant Accounting Policies—Accounting Pronouncements Adopted” and “—Accounting Pronouncements Pending Adoption” in Note 2 to our unaudited condensed consolidated financial statements for more information.
Emerging Growth Company Status
We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” We may take advantage of these exemptions until we are no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.235 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least twelve months and have filed at least one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.
Item 3.  Quantitative and Qualitative Disclosures about Market Risks
As of March 31, 2024, our exposure to market risk has not changed materially since December 31, 2023. For more information on financial market risks related to changes in interest rates and foreign currency rates, reference is made to Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 13, 2024.
Item 4.  Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2024, our disclosure controls and other procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods
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specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of the control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of these controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
Item 1.  Legal Proceedings
From time to time, we have been and will continue to be subject to legal proceedings and claims. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition, or cash flows. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners, and our customers by determining the scope, enforceability, and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
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Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making an investment decision. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also impair our business, financial condition, results of operations and growth prospects.
Risk Factors Summary
Our recent rapid growth may not be indicative of our future growth. Our rapid growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
If we do not attract new customers, retain existing customers, and increase our customers’ use of our platform, our business will suffer.
We may not be able to successfully manage our growth, and if we are not able to grow efficiently, our business, financial condition and results of operations could suffer.
We focus on serving small and medium-sized healthcare businesses (“SMBs”) and are subject to risks associated with serving small businesses.
We have a history of losses and we may not achieve or sustain profitability in the future.
Unfavorable economic conditions and macroeconomic uncertainties have in the past and may continue to adversely impact our business, results of operations and financial performance.
Our quarterly results may fluctuate, and if we fail to meet securities analysts’ and investors’ expectations, then the trading price of our common stock and the value of your investment could decline substantially.
If we are not able to maintain and enhance our brand and increase market awareness of our company, platform and products, then our business, results of operations and financial condition may be adversely affected.
The market for our platform and products is evolving, may decline or experience limited growth and is dependent in part on businesses continuing to adopt our platform and use our products.
We may not be able to continue to expand our share of our existing vertical markets or expand into new healthcare vertical markets, which would inhibit our ability to grow and increase our profitability.
If we are unable to attract new customers in a cost-effective manner, then our business, results of operations and financial condition would be adversely affected.
The market in which we participate is highly competitive, and if we do not compete effectively, our business, results of operations and financial condition would be harmed.
If we do not develop enhancements to our platform and products and introduce new products that achieve market acceptance, our business, results of operations and financial condition could be adversely affected.
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Breaches of our applications, networks or systems, or those of Google Cloud Platform (“GCP”), or our service providers, could degrade our ability to conduct our business, compromise the integrity of our products, platform and data, result in significant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data.
Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results.
Our products and services must comply with industry standards, Federal Communications Commission (“FCC”) regulations, state, local, country-specific and international regulations, and changes may require us to modify existing services, potentially increase our costs or prices we charge customers, and otherwise harm our business.
Risks Related to our Business and our Industry
Our recent rapid growth may not be indicative of our future growth. Our rapid growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
Our revenue was $170.5 million and $142.1 million during the years ended December 31, 2023 and 2022, respectively, and $47.2 million for the three months ended March 31, 2024 compared with $39.6 million for the three months ended March 31 2023. Additionally, we have experienced significant growth and churn in our number of employees (including both full- and part-time employees) over the last few years creating operational challenges, particularly in our customer service and sales organizations. We have also expanded operations outside of the United States including establishing engineering and administrative operations in India in 2021, support operations in India in 2022, and supplemental customer support operations to the Philippines in 2023.
Our revenue and number of customers have increased in recent periods, and we expect our growth rate will fluctuate from time to time. Overall growth of our revenue and number of customers depends on a number of factors, including, but not limited to, our ability to:
price our products and services effectively to attract new customers and increase sales to our existing customers;
manage inflation and interest rate trends and impacts on our business and operations;
expand the functionality and scope of the products we offer on our platform;
maintain the rates at which customers subscribe to, and adopt additional products, such as Weave Payments, to extend their use of our platform and retain our existing customers;
hire new sales personnel to support our growth, and reduce the time for new personnel to achieve desired productivity levels;
provide our customers with high-quality customer support that meets their needs;
introduce our platform and products to new markets, including to markets outside of the United States;
serve SMBs across a wide cross-section of vertical industries, such as those within specialized healthcare and to increase the number of vertical industries we serve;
successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform; and
increase awareness of our brand and successfully compete with other companies.
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We may not successfully accomplish any of these objectives, which makes it difficult for us to forecast our future operating results. If the assumptions that we use to plan our business are incorrect or change in reaction to changes in our market, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. Additionally, due to our recent rapid growth, we have limited experience operating at our current scale and potentially at a larger scale, and as a result, it may be difficult for us to fully evaluate future prospects and risks. Our recent and historical growth should not be considered indicative of our future performance. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties that we use to plan and operate our business are incorrect or change, or if we do not address these risks successfully, our financial condition and operating results could differ materially from our expectations, our growth rates may decline and our business would be adversely impacted.
If we do not attract new customers, retain existing customers, and increase our customers’ use of our platform, our business will suffer.
Our ability to attract new customers, retain existing customers and increase the use of our platform by existing customers is critical to our success. Our future revenue will depend in large part on our success in attracting additional customers to our platform. Our ability to attract additional customers will depend on a number of factors, including the effectiveness of our sales team, the success of our marketing efforts, our levels of investment in expanding our sales and marketing teams, referrals by existing customers, our brand recognition within the markets we address, our efforts to provide satisfactory customer service, the stability and reliability of our platform, our ability to timely onboard new customers or timely expand functionality for our existing customers, the perceived value of our platform and the features and functionality it offers, our ability to leverage and scale our core sales efforts and marketing capabilities to focus on our core specialty healthcare verticals, and the nature and availability of competitive offerings. We may not experience the same levels of success in the future with respect to our customer acquisition strategies as we have experienced in the past, and if the costs associated with acquiring new customers were to materially increase in the future, our expenses may rise significantly.
A majority of our customers pay their subscription on a monthly basis, while a significant number of our customers pay their subscriptions on an annual basis. Our customers have no contractual obligation to renew their subscriptions after their subscription term expires. As a result, even though the number of customers using our platform has grown rapidly in recent periods, there can be no assurance that we will be able to retain these customers. Renewals of subscriptions may decline or fluctuate as a result of a number of factors, including dissatisfaction with our platform or support, the perception that a competitive platform, product or service presents a better or less expensive option or our failure to successfully deploy sales and marketing efforts towards existing customers as they approach the expiration of their subscription term. In addition, we may terminate our relationships with customers for various reasons, such as heightened credit risk, excessive card chargebacks, unacceptable business practices or contract breaches. We have historically experienced customer turnover as a result, in part, of our customers being SMBs, which are categorically more susceptible than larger businesses to general economic conditions, higher levels of churn, consolidation with other businesses and other risks affecting their businesses.
In addition to attracting new customers and retaining existing customers, we seek to expand usage of our platform by broadening adoption by our customers of the various products available on our platform. We have experienced difficulties with, and cannot be certain that we will be successful in, increasing adoption of additional products by our existing customers. Our ability to increase adoption of our products by our customers will depend on a number of factors, including our customers’ satisfaction with our platform, competition, pricing and our ability to demonstrate the value proposition of our products. Our costs associated with renewals and generating sales of additional products to existing customers are substantially lower than our costs associated with entering into subscriptions with new customers. Accordingly, our business model relies to a significant extent on our ability to renew subscriptions and sell additional products to existing customers, and, if we are unable to retain revenue from existing customers
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or to increase revenue from existing customers, our operating results could be adversely impacted even if such lost revenue were offset by an increase in revenue from new customers.
Our ability to attract new customers and retain existing customers depends in part on our ability to timely onboard new customers or timely expand functionality for our existing customers. Our platform often requires integration and customization that can result in longer onboarding and ramping process times. New customers onboarding onto our platform or existing customers increasing functionality within our platform may require specific customizations that can delay lead times and may require onboarding efforts that take up to several months. Our onboarding and ramp times may be further delayed due to unanticipated complications with phone number porting or integrations with existing or new customers’ systems, which could delay or prevent adoption of our platform for extended periods of time and may cause us to expend more resources than originally anticipated. These delays could limit our ability to attract and retain customers and may adversely affect our revenue and profits.
We may not be able to successfully manage our growth, and if we are not able to grow efficiently, our business, financial condition and results of operations could suffer.
We have significantly expanded our business and operations, and our business strategy contemplates that we will significantly expand our business and operations in the future. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Sustaining our growth will place significant demands on our management as well as on our administrative, operational, and financial resources, particularly while we continue to navigate relatively recent transitions in management and challenging macroeconomic conditions. If we are unable to manage our growth effectively, our revenue and profits could be adversely affected.
To manage our growth, we must continue to improve our operational, financial, and management information systems and expand, motivate, retain and manage our workforce. These improvements will require significant investments in, among other things, sales and marketing, customer support, technology infrastructure, regulatory compliance and risk management and general and administrative functions. These investments may not result in increased revenue growth in our business. If we are unable to increase our revenue at a rate sufficient to offset the expected increase in our costs, or if we encounter difficulties in managing a growing number of customers, our business, financial position and operating results will be harmed, and we may not be able to achieve or maintain profitability over the long term. Risks that we face in undertaking future expansion include:
effectively recruiting, integrating, training, and motivating a large number of new employees, including our customer services representatives, direct sales force, and engineering resources, while retaining existing employees and reducing the rate of employee turnover, maintaining the beneficial aspects of our corporate culture, and effectively executing our business plan;
successfully improving and expanding the capabilities of our platform and introducing new products and services;
controlling expenses and investments in anticipation of expanded operations; and
managing the expansion of operations in the United States and potentially in additional countries in the future, which will place additional demands on our resources and operations.
We focus on serving SMBs and are subject to risks associated with serving small businesses.
Our revenue is derived from SMBs, and the majority of our revenue is derived from small businesses. While we believe our core healthcare verticals in dental, optometry, veterinary services, and other medical specialty services have been more resilient than other types of small business, SMBs often have higher rates of business failures and limited budgets. Further, SMBs are fragmented in terms of size, geography, sophistication and nature of business and, consequently, are more challenging to serve at scale and in a cost-effective manner. Many of these SMBs are in the early stages of their development and there is no
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guarantee that their businesses will succeed. In addition, SMBs may be affected by economic uncertainty or downturns to a greater extent than enterprises and typically have more limited financial resources, including capital borrowing capacity, than enterprises. For example, inflation and interest rate trends have adversely impacted economies and financial markets globally, which particularly impacted many SMBs. SMBs are also typically restricted by factors other than price in their technology-related decisions. These factors may make us more susceptible to economic downturns and may limit our ability to grow our business and become profitable. If we are not able to effectively address the risks associated with serving SMBs, our revenue, results of operations and financial condition could be adversely impacted.
We face risks in targeting medium-sized businesses for sales of our subscriptions and, if we do not manage these efforts effectively, our business and results of operations could suffer.
A majority of our current customer base consists of small businesses. In addition to pursuing continued customer growth among small businesses, we intend to pursue opportunities to expand our customer base among medium-sized businesses in various healthcare industries. As we target a portion of our sales efforts at larger and multi-location businesses, we may incur higher costs and longer sales and installation cycles, and we may be less effective at predicting when we will complete these sales. In these market segments, the decision to purchase our subscriptions may require the approval of more technical personnel and management levels within a potential customer’s organization and, therefore, sales to larger and multi-location businesses may require us to invest more time educating potential customers about the benefits of our subscriptions. In addition, our customers may be acquired by or may consolidate into larger and multi-location businesses that may demand more features, integration services and customization, and may require more highly skilled sales and support personnel. These new businesses may also demand service-level agreements or other contractual terms that may introduce additional risk. Further, our investment in marketing our subscriptions to these potential customers may not be successful, which could adversely affect our results of operations and our overall ability to grow our customer base.
We have a history of losses and we may not achieve or sustain profitability in the future.
We have incurred net losses in each year since our inception, including net losses of $31.0 million and $49.7 million in 2023 and 2022, respectively, and a net loss of $7.2 million for the three months ended March 31, 2024. We had an accumulated deficit of $269.9 million as of March 31, 2024. While we have experienced significant revenue growth in recent periods, we are not yet profitable and our revenue growth rate may decline in future periods and you should not rely on the revenue growth of any given prior period as an indication of our future performance. Additionally, we are not certain whether we will be able to sustain or increase our revenue or whether or when we will attain sufficient revenue to achieve or maintain profitability in the future. We have experienced and expect to continue to experience increased costs and expenses in future periods, which could negatively affect our future results of operations if our revenue does not increase by amounts sufficient to offset such costs and expenses. We expect to continue to expend substantial financial and other resources on, among other things:
sales and marketing, including the continued expansion of our direct sales organization and marketing programs and expanding our programs directed at increasing our brand awareness among current and new customers;
increased labor and compensation expenses;
investments in our customer support teams;
improvements in regulatory compliance and risk management, including security and data protection;
investments in our engineering team and the development of new products, features and functionality and enhancements to our platform, including developing the features and functionality required by new vertical markets that we choose to address in the future;
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expansion of our operations and technology infrastructure;
international expansion; and
general administration, including legal, accounting and other expenses related to being a public company.
These investments may not result in increased revenue or growth of our business. We also expect that our revenue growth rate will decline over time. Accordingly, we may not be able to generate sufficient revenue to offset our expected cost increases and achieve and sustain profitability. If we fail to achieve and sustain profitability, then our business, results of operations and financial condition would be adversely affected.
Unfavorable economic conditions and macroeconomic uncertainties have in the past and may continue to adversely impact our business, results of operations and financial performance.
Global economic and business activities continue to face widespread macroeconomic uncertainties, including supply chain disruptions, inflation, as well as recession risks, which may continue for an extended period, and which could result in decreased spending by our existing and prospective customers and business partners, reduced demand for our platform due to reduced budgets or for other reasons, and longer or delayed sales cycles, all of which could have an adverse impact on our business operations and financial condition.
Furthermore, our revenue growth and potential profitability depend on demand for our platform. Historically, during economic downturns, there have been reductions in spending on IT and infrastructure as well as pressure for financial concessions. The adverse impact of economic downturns may be particularly acute among SMBs, which comprise the vast majority of our customer base. If current economic conditions persist or deteriorate further, our current and prospective customers may elect to decrease their budgets, which would limit our ability to grow our business and adversely affect our operating results.
We may also experience adverse impacts from delayed sales and implementation cycles, including customers and prospective customers delaying contract signing or subscription renewals. In addition, a majority of our customers are on monthly subscription arrangements with us and could terminate their subscriptions on short notice. If potential customers determine not to enter into subscriptions or defer subscribing to our platform, or if customers terminate or fail to renew their subscriptions, fail to pay us or reduce their spending with us, our revenue may grow more slowly or decline, we may be unable to collect amounts due and we may incur costs in enforcing our contract terms. If unfavorable economic conditions and macroeconomic uncertainty persist, then we could experience adverse impacts to our business, results of operations and overall financial performance in future periods.
Our quarterly results may fluctuate, and if we fail to meet securities analysts’ and investors’ expectations, then the trading price of our common stock and the value of your investment could decline substantially.
Our results of operations, including the levels of our revenue, cost of revenue, gross margin and operating expenses, have fluctuated from quarter to quarter in the past and may continue to vary significantly in the future. These fluctuations are a result of a variety of factors, many of which are outside of our control, and may be difficult to predict and may or may not fully reflect the underlying performance of our business. If our quarterly results of operations or forward-looking quarterly and annual financial guidance fall below the expectations of investors or securities analysts, then the trading price of common stock could decline substantially. Some of the important factors that may cause our results of operations to fluctuate from quarter to quarter include:
inflation and interest rate trends and impacts on our customers and the U.S. economy in general;
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our ability to retain and increase revenue from existing customers and attract new customers;
our ability to introduce new products and enhance existing products;
our success in penetrating new vertical markets;
competition and the actions of our competitors, including pricing changes and the introduction of new products, services and geographies;
changes in laws, industry standards, regulations or regulatory enforcement in the United States or internationally;
changes in network service provider fees that we pay in connection with the delivery of communications on our platform;
changes in payment processing network and partner fees;
increases in fees from integration partners, such as providers of practice management systems or accounting software;
changes in cloud infrastructure fees that we pay in connection with the operation of our platform;
changes in our pricing as a result of our optimization efforts or otherwise;
the rate of expansion and productivity of our sales force;
change in the mix of our product offerings that our customers use;
the amount and timing of operating costs and capital expenditures related to the operations and expansion of our business, including investments in research and development of new features and functionality for our platform, products and services, our international expansion and additional systems and processes;
costs associated with defending and resolving intellectual property infringement and other claims;
significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our products on our platform;
expenses in connection with mergers, acquisitions or other strategic transactions and the follow-on costs of integration;
the timing of customer payments and any difficulty in collecting accounts receivable from customers;
general economic conditions that may adversely affect a prospective customer’s ability or willingness to adopt our products, delay a prospective customer’s adoption decision, reduce the revenue that we generate from subscriptions to our platform and use of our products or affect customer retention;
sales tax and other tax determinations by authorities in the jurisdictions in which we conduct business;
the impact of new accounting pronouncements; and
fluctuations in stock-based compensation expense.
The occurrence of one or more of the foregoing and other factors may cause our results of operations to vary significantly. As such, we believe that quarter-to-quarter comparisons of our results of operations may not be meaningful and should not be relied upon as an indication of future performance. In addition,
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a significant percentage of our operating expenses is fixed in nature and is based on forecasted revenue trends. Accordingly, in the event of a revenue shortfall, we may not be able to mitigate the negative impact on our loss and margins in the short term. If we fail to meet or exceed the expectations of investors or securities analysts, then the trading price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.
If we are not able to maintain and enhance our brand and increase market awareness of our company, platform and products, then our business, results of operations and financial condition may be adversely affected.
We believe that maintaining and enhancing our brand identity and increasing market awareness of our company, platform and products are critical to achieving widespread acceptance of our platform, to strengthen our relationships with our existing customers and to our ability to attract new customers. The successful promotion of our brand will depend largely on our continued marketing efforts, our ability to continue to offer high quality products and support and our ability to successfully differentiate our platform and products from competing offerings. Our brand promotion activities may not be successful or yield increased revenue.
As we seek to expand our customer base by targeting additional healthcare vertical markets in the future, we will need to establish brand awareness in new markets in which we have not historically had a presence. Although we have invested in promoting our brand generally, we may not have significant brand awareness in these new healthcare vertical markets, and will need to make additional investments to expand awareness of our brand in the new healthcare vertical markets we seek to address. In addition, as and to the extent we seek to expand our reach internationally, we will need to invest in establishing awareness of our brand in new international markets.
From time to time, our customers have complained about our platform and products, such as complaints about our pricing and customer support. If we do not handle customer complaints effectively, then our brand and reputation may suffer, our customers may lose confidence in us and they may reduce or cease their use of our products. In addition, many of our customers post and discuss on social media about internet-based products and services, including our platform and products. Our success depends, in part, on our ability to generate positive customer feedback and minimize negative feedback on social media channels where existing and potential customers seek and share information. If actions we take or changes we make to our platform or products upset these customers, then their online commentary could negatively affect our brand, reputation and customer trust. Complaints or negative publicity about us, our platform or products could adversely impact our ability to attract and retain customers, our business, results of operations and financial condition.
The promotion of our brand requires us to make substantial expenditures, and we anticipate that these expenditures will increase as our market becomes more competitive and as we expand into new markets. To the extent these activities increase revenue, this revenue may not be enough to offset the increased expenses we incur. In addition, attendance at trade shows and similar industry events, which had been a significant source of our customer pipeline in periods prior to the start of the pandemic, have not rebounded to pre-pandemic levels and may never return to these levels. We have typically relied on trade shows, industry events and other in-person meetings to facilitate customer sign-ups and generate leads for potential customers, and we cannot pre