weav-20240630

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-40998

Weave Communications, Inc.

(Exact name of registrant as specified in its charter)


Delaware			26-3302902
(State or other jurisdiction of 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 share

WEAV

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically 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 filer	☐	Smaller reporting company	☐

Emerging growth company	☑

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

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

As of August 2, 2024, the registrant had 71,813,071 shares of common stock, par value $0.00001 per share, outstanding.

WEAVE COMMUNICATIONS, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2024

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Loss	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	41

Item 5.	Other Information	85

Item 6.	Exhibits	86

	Signatures	87

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; 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)


	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	51,659	$	50,756
Short-term investments	47,383		58,088
Accounts receivable, net	5,528		3,511
Deferred contract costs, net	11,143		10,547
Prepaid expenses and other current assets	5,390		6,876
Total current assets	121,103		129,778

Non-current assets:
Property and equipment, net	9,752		9,922
Operating lease right-of-use assets	39,509		41,318
Finance lease right-of-use assets	10,377		10,351
Deferred contract costs, net, less current portion	9,417		8,622
Other non-current assets	1,041		1,021
TOTAL ASSETS	$	191,199	$	201,012

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	7,568	$	5,171
Accrued liabilities	15,488		18,491
Deferred revenue	40,562		38,850

Current portion of operating lease liabilities	4,042		3,821
Current portion of finance lease liabilities	6,393		6,520

Total current liabilities	74,053		72,853

Non-current liabilities:


Operating lease liabilities, less current portion	41,040		43,080
Finance lease liabilities, less current portion	6,283		6,122

Total liabilities	121,376		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 June 30, 2024 and December 31, 2023	—		—
Common stock, $0.00001 par value per share; 500,000,000 shares authorized as of June 30, 2024 and December 31, 2023; 71,682,267 and 70,116,357 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	—		—
Additional paid-in capital	348,532		341,514
Accumulated deficit	(278,423)		(262,667)
Accumulated other comprehensive income (loss)	(286)		110
Total stockholders' equity	69,823		78,957
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	191,199	$	201,012

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue	$	50,586	$	41,667	$	97,759	$	81,232
Cost of revenue	14,462		13,626		28,648		26,657
Gross profit	36,124		28,041		69,111		54,575

Operating expenses:
Sales and marketing	21,889		17,455		41,519		34,673
Research and development	9,958		8,585		19,603		16,279
General and administrative	13,532		11,834		25,399		21,974
Total operating expenses	45,379		37,874		86,521		72,926
Loss from operations	(9,255)		(9,833)		(17,410)		(18,351)

Other income (expense):
Interest income	432		527		852		963
Interest expense	(399)		(501)		(718)		(973)
Other income (expense), net	721		868		1,586		1,583
Loss before income taxes	(8,501)		(8,939)		(15,690)		(16,778)
Provision for income taxes	(52)		(49)		(66)		(69)
Net loss	$	(8,553)	$	(8,988)	$	(15,756)	$	(16,847)


Net loss per share - basic and diluted	$	(0.12)	$	(0.13)	$	(0.22)	$	(0.25)
Weighted-average common shares outstanding - basic and diluted	71,291,801		66,849,788		70,872,372		66,404,628

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net loss	$	(8,553)	$	(8,988)	$	(15,756)	$	(16,847)
Other comprehensive loss
Change in foreign currency translation, net of tax	(71)		146		(309)		112
Net unrealized loss on investments, net of tax	(25)		(70)		(87)		(52)
Total comprehensive loss	$	(8,649)	$	(8,912)	$	(16,152)	$	(16,787)

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)


		Three Months Ended June 30, 2024
									Accumulated
					Additional				Other		Total
	Common Stock		Paid-in		Accumulated		Comprehensive		Stockholders'
		Shares	Amount		Capital		Deficit		Loss		Equity
BALANCE - March 31, 2024		70,980,371	$	—	$	343,496	$	(269,870)	$	(190)	$	73,436
Issuance of common shares from stock option exercises		32,345	—		66		—		—		66


Vesting of restricted stock units		1,014,237	—		—		—		—		—
Common stock withheld related to net settlement of equity awards		(344,686)	—		(3,321)		—		—		(3,321)
Stock-based compensation		—	—		8,291		—		—		8,291
Foreign currency translation adjustments, net of tax		—	—		—		—		(71)		(71)
Net unrealized loss on investments		—	—		—		—		(25)		(25)
Net loss		—	—		—		(8,553)		—		(8,553)
BALANCE - June 30, 2024		71,682,267	$	—	$	348,532	$	(278,423)	$	(286)	$	69,823


		Three Months Ended June 30, 2023
									Accumulated
			Additional				Other		Total
	Common Stock		Paid-in		Accumulated		Comprehensive		Stockholders'
		Shares	Amount		Capital		Deficit		(Loss) Income		Equity
BALANCE - March 31, 2023		66,337,452	$	—	$	319,339	$	(239,495)	$	(45)	$	79,799
Issuance of common shares from stock option exercises		308,966	—		548		—		—		548


Vesting of restricted stock units		1,046,426	—		—		—		—		—
Common stock withheld related to net settlement of equity awards		(369,761)	—		(1,919)		—		—		(1,919)
Stock-based compensation		—	—		5,876		—		—		5,876
Foreign currency translation adjustments, net of tax		—	—		—		—		146		146
Net unrealized loss on investments		—	—		—		—		(70)		(70)
Net loss		—	—		—		(8,988)		—		(8,988)
BALANCE - June 30, 2023		67,323,083	$	—	$	323,844	$	(248,483)	$	31	$	75,392

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)


		Six Months Ended June 30, 2024
									Accumulated
					Additional				Other		Total
	Common Stock		Paid-in		Accumulated		Comprehensive		Stockholders'
		Shares	Amount		Capital		Deficit		(Loss) Income		Equity
BALANCE - December 31, 2023		70,116,357	$	—	$	341,514	$	(262,667)	$	110	$	78,957
Issuance of common shares from stock option exercises		92,893	—		357		—		—		357
Issuance of common shares from the employee stock purchase plan		113,959	—		1,020		—		—		1,020

Vesting of restricted stock units		2,220,075	—		—		—		—		—
Common stock withheld related to net settlement of equity awards		(861,017)	—		(9,422)		—		—		(9,422)
Stock-based compensation		—	—		15,063		—		—		15,063
Foreign currency translation adjustments, net of tax		—	—		—		—		(309)		(309)
Net unrealized loss on investments		—	—		—		—		(87)		(87)
Net loss		—	—		—		(15,756)		—		(15,756)
BALANCE - June 30, 2024		71,682,267	$	—	$	348,532	$	(278,423)	$	(286)	$	69,823


		Six Months Ended June 30, 2023
									Accumulated
			Additional				Other		Total
	Common Stock		Paid-in		Accumulated		Comprehensive		Stockholders'
		Shares	Amount		Capital		Deficit		(Loss) Income		Equity
BALANCE - December 31, 2022		65,739,053	$	—	$	314,884	$	(231,636)	$	(29)	$	83,219
Issuance of common shares from stock option exercises		350,141	—		621		—		—		621
Issuance of common shares from the employee stock purchase plan		134,336	—		622		—		—		622

Vesting of restricted stock units		1,633,066	—		—		—		—		—
Common stock withheld related to net settlement of equity awards		(533,513)	—		(2,672)		—		—		(2,672)
Stock-based compensation		—	—		10,389		—		—		10,389
Foreign currency translation adjustments, net of tax		—	—		—		—		112		112
Net unrealized loss on investments		—	—		—		—		(52)		(52)
Net loss		—	—		—		(16,847)		—		(16,847)
BALANCE - June 30, 2023		67,323,083	$	—	$	323,844	$	(248,483)	$	31	$	75,392

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(15,756)	$	(16,847)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	5,957		5,998
Amortization of operating right-of-use assets	1,958		1,905
Provision for losses on accounts receivable	843		654
Amortization of deferred contract costs	6,652		6,023

Loss on disposal of assets	1		11
Stock-based compensation	15,063		10,389
Net accretion of discounts on short-term investments	(1,174)		(1,344)
Changes in operating assets and liabilities:
Accounts receivable	(2,860)		(641)
Deferred contract costs	(8,043)		(6,740)
Prepaid expenses and other assets	1,466		1,443
Accounts payable	2,436		471
Accrued liabilities	(3,003)		845
Operating lease liabilities	(1,968)		(1,841)
Deferred revenue	1,403		2,819

Net cash provided by operating activities	2,975		3,145


CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of short-term investments	32,274		29,000
Purchases of short-term investments	(20,482)		(35,152)

Purchases of property and equipment	(1,254)		(838)
Capitalized internal-use software costs	(1,023)		(791)
Net cash provided by (used in) investing activities	9,515		(7,781)

CASH FLOWS FROM FINANCING ACTIVITIES

Principal payments on finance leases	(3,542)		(3,807)
Proceeds from stock option exercises	357		621
Payments for taxes related to net share settlement of equity awards	(9,422)		(2,672)




Proceeds from the employee stock purchase plan	1,020		622
Net cash used in financing activities	(11,587)		(5,236)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	903		(9,872)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	50,756		61,997
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	51,659	$	52,125




SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	718	$	973
Cash paid during the period for income taxes	$	66	$	69
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Equipment purchases financed with accounts payable	$	45	$	3
Finance lease liabilities arising from obtaining finance lease right-of-use assets	$	3,576	$	3,639
Operating lease liabilities arising from obtaining operating lease right-of-use assets	$	149	$	154

Unrealized loss on short-term investments	$	(87)	$	(52)

See accompanying notes to these unaudited condensed consolidated financial statements

WEAVE COMMUNICATIONS, INC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Description of the Business

Weave Communications, Inc. 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 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 has not experienced any losses on its deposits of cash.

No customers accounted for more than 10% of accounts receivable or total revenues as of and for the three and six months ended June 30, 2024 and 2023 and as of December 31, 2023. 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

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.

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 three months ended June 30, 2024 and 2023 the Company recorded $1.1 million in lease revenues associated with phone hardware. For the six months ended June 30, 2024 and 2023, the Company recorded $2.3 million and $2.2 million, respectively, in lease revenues associated with the 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 June 30, 2024 and December 31, 2023. As of June 30, 2024 and December 31, 2023 the Company did not have any restricted cash.

Liquidity and Capital Resources

The Company has incurred losses and, prior to 2023, generated negative cash flows from operations since inception. As of June 30, 2024, the Company had an accumulated deficit of $278.4 million. The Company has partially funded its operations through cash flows generated by the sales of its product

offerings and, as of June 30, 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 June 30, 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 June 30, 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 June 30, 2024 and 2023, were $0.5 million and $0.7 million, respectively. Realized gains for the six months ended June 30, 2024 and 2023 were $1.2 million and $1.3 million, respectively.

Advertising Expense

Advertising costs are expensed as incurred. For the three months ended June 30, 2024 and 2023, the Company recorded advertising expense of $3.1 million and $2.0 million, respectively, and $5.5 million and $3.9 million for the six months ended June 30, 2024 and 2023, 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

•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

The Company recognized revenue that was included in the corresponding deferred revenue balance at the beginning of the period of $20.0 million and $17.3 million for the three months ended June 30, 2024 and 2023, respectively, and $30.0 million and $26.3 million for the six months ended June 30, 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 $3.4 million and $3.0 million for the three months ended June 30, 2024 and 2023, respectively, and $6.7 million and $6.0 million for the six months ended June 30, 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 six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Subscription and payment processing	$	48,513	$	39,696	$	93,605	$	77,388
Onboarding	943		867		1,903		1,651
Hardware (embedded lease)	1,130		1,104		2,251		2,193
Total revenue	$	50,586	$	41,667	$	97,759	$	81,232

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 June 30, 2024 (in thousands):


	Level 1		Level 2		Level 3		Total
Cash equivalents
Money market funds	$	40,253	$	—	$	—	$	40,253

Short-term investments
US government and agency securities	33,461		—				33,461
Commercial paper	—		13,922		—		13,922
Total	$	73,714	$	13,922	$	—	$	87,636

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 1		Level 2		Level 3		Total
Cash equivalents
Money market funds	$	35,375	$	—	$	—	$	35,375
Commercial paper	—		—		—		—
Short-term investments
US government and agency securities	25,083		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 June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Short-term investments
US government and agency securities	$	33,492	$	1	$	(32)	$	33,461
Commercial paper	13,936		—		(14)		13,922
Total	$	47,428	$	1	$	(46)	$	47,383



	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Short-term investments
US government and agency securities	$	36,568	$	48	$	(7)	$	36,609
Commercial paper	21,477		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 June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash	$	11,406	$	—	$	—	$	11,406
Cash equivalents
Money market funds	40,253		—		—		40,253

Total	$	51,659	$	—	$	—	$	51,659



	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash	$	15,381	$	—	$	—	$	15,381
Cash equivalents
Money market funds	35,375		—		—		35,375

Total	$	50,756	$	—	$	—	$	50,756

As of June 30, 2024, the weighted-average remaining contractual maturities of available-for-sale securities was approximately four months.

No available-for-sale securities held as of June 30, 2024 have been in a continuous unrealized loss position for more than twelve months. As of June 30, 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 short-term investments are due within one year from the balance sheet date.

For the three and six months ended June 30, 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 June 30, 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):


	June 30, 2024		December 31, 2023
Office equipment	$	6,277	$	5,830
Office furniture	6,482		6,416
Leasehold improvements	2,759		2,731
Fixed assets not placed in service	—		25
Capitalized internal-use software	7,851		6,827

Payment terminals	2,809		2,354
Property and equipment, gross	26,178		24,183
Less accumulated depreciation and amortization	(16,426)		(14,261)
Property and equipment, net	$	9,752	$	9,922

Depreciation and amortization expense on property and equipment (excluding amortization on operating ROU assets) was $2.9 million and $3.0 million for the three months ended June 30, 2024 and 2023, respectively, and $6.0 million and $6.0 million for the six months ended June 30, 2024 and 2023, respectively. Of this expense, $1.7 million and $1.8 million for the three months ended June 30, 2024 and 2023, respectively, and $3.5 million and $3.7 million for the six months ended June 30, 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. Of the remaining depreciation and amortization expense, $0.5 million was included in cost of revenue in the statements of operations for each of the three months ended June 30, 2024 and 2023, and $1.1 million and $1.0 million was included in cost of revenue on the statements of operations for the six months ended June 30, 2024 and 2023, respectively. $0.6 million was recorded in operating expenses on the statements of operations for each of the three months ended June 30, 2024 and 2023, and $1.3 million was recorded in operating expenses on the statements of operations for each of the six months ended June 30, 2024 and 2023, respectively.

6.Accrued Liabilities

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


	June 30, 2024		December 31, 2023
Payroll-related accruals	$	9,284	$	12,567
Sales and telecom taxes	2,069		2,953
Employee stock purchase plan liability	1,023		862
Third-party commissions	384		398

Other	2,728		1,711
Total	$	15,488	$	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 June 30,					Six Months Ended June 30,
	2024			2023		2024		2023
Lease expense
Finance lease expense:
Amortization of right-of-use assets	$	1,730		$	1,809	$	3,550	$	3,748
Interest on lease liabilities	330			288		648		561
Operating lease expense	1,423			1,423		2,845		2,845
Short-term lease expense	11			5		20		11
Total lease expense	$	3,494		$	3,525	$	7,063	$	7,165

Supplemental cash flow information
Finance leases:
Operating cash outflow from finance leases	$	330		$	288	$	648	$	561
Financing cash outflow from finance leases	$	1,755		$	1,847	$	3,542	$	3,807
Finance lease liabilities arising from obtaining finance lease right-of-use assets	$	1,705		$	1,711	$	3,576	$	3,639
Operating leases:
Operating cash outflow from operating leases	$	1,430		$	1,396	$	2,861	$	2,781
Operating lease liabilities arising from obtaining operating lease right-of-use assets	$	—		$	—	$	149	$	154

Other information as of June 30, 2024
Finance leases:
Weighted-average remaining lease term (years)	1.9
Weighted-average discount rate	11.0		%
Operating leases:
Weighted-average remaining lease term (years)	8.6
Weighted-average discount rate	3.9		%

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 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 June 30, 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 June 30, 2024 and 2023, and $2.8 million for each of the six months ended June 30, 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 June 30, 2024 are as follows (in thousands):


Years ending December 31,
Remaining 2024	$	2,860
2025	5,701
2026	5,843
2027	5,989
2028	6,139
Thereafter	26,695
Total	53,227
Less: imputed interest	(8,145)
Present value of operating lease obligations	$	45,082

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 June 30, 2024 and 2023, the Company recorded lease revenues associated with phone hardware of $1.1 million. For the six months ended June 30, 2024 and 2023, the Company recorded lease revenues associated with phone hardware of $2.3 million and $2.2 million, respectively.

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 each of the three months ended June 30, 2024 and 2023, the Company recorded sublease revenues associated with this agreement of $0.2 million. During each of the six months ended June 30, 2024 and 2023, the Company recorded sublease revenues of $0.4 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 June 30, 2024 the Company had 96 executed and active lease agreements, respectively, for phone hardware. These agreements require monthly payments ranging from approximately $55 to $34,647 and have maturity dates ranging from July 2024 to June 2027. As of June 30, 2024, the gross value of phone hardware acquired under these finance leases approximated $20.7 million. Amortization expense on finance-leased phone hardware was $1.7 million and $1.8 million for the three months ended June 30, 2024 and 2023, respectively, and $3.5 million and $3.7 million, respectively, for the six months ended June 30, 2024 and 2023, which is included in the depreciation expense referenced in Note 5.

Future minimum lease payments for the Company’s finance leases as of June 30, 2024 were as follows (in thousands):


Years ending December 31,
Remaining 2024	$	4,160
2025	5,902
2026	3,385
2027	828
2028	—
Thereafter	—
Total	14,275
Less: amounts representing interest	(1,599)
Present value of finance lease obligations	$	12,676

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 $52.0 thousand and $49.4 thousand for the three months ended June 30, 2024 and 2023, respectively, which resulted in an effective tax rate of (0.6)% for each of the three months ended June 30, 2024 and 2023. The Company reported provision for income taxes of $66.1 thousand and $69.3 thousand for the six months ended June 30, 2024 and 2023, respectively, which resulted in an effective tax rate of (0.4)% for each of the six months ended June 30, 2024 and 2023. 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. 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. 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 compensation and changes in its deferred revenue. The Company was in compliance with all debt covenants for the three and six months ended June 30, 2024 and the year ended December 31, 2023. As of June 30, 2024, the total outstanding balance on the line of credit was zero.

10. Stockholders’ Equity

Stock-Based Compensation Expense

Stock-based compensation expense, consisting of service-based expense related to the equity incentive plan, including expense from stock options and restricted stock units, and the employee stock purchase plan, was classified as follows in the accompanying condensed consolidated statements of operations for each of the periods presented (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Cost of revenue	$	244	$	251	$	483	$	464
Sales and marketing	1,696		1,219		2,847		2,183
Research and development	2,178		1,323		4,076		2,253
General and administrative	4,173		3,083		7,657		5,489
Total	$	8,291	$	5,876	$	15,063	$	10,389

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 $8.1 million and $5.7 million for the three months ended June 30, 2024 and 2023, respectively, and $14.6 million and $10.1 million for the six months ended June 30, 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 1,666,097 as of June 30, 2024 and 2023, respectively.

Unrecognized stock-based compensation expense related to outstanding stock options as of June 30, 2024 and 2023 was $1.6 million and $6.4 million, respectively. Stock-based compensation expense is recognized on a straight-line basis over the remaining weighted-average vesting periods. As of June 30, 2024 and 2023 the weighted-average vesting periods approximated 0.84 years and 1.62 years, respectively.

Stock option activity was as follows:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2023	1,840,735	$	4.32	5.96	$	13,165
Exercisable as of December 31, 2023	1,480,536	$	3.82	5.62	$	11,320

Granted	—	$	—
Exercised	(60,548)	$	4.80
Forfeited and expired	(2,075)	$	5.81
Outstanding as of March 31, 2024	1,778,112	$	4.30	5.71	$	12,768
Exercisable as of March 31, 2024	1,495,817	$	3.89	5.44	$	11,348

Granted	—	$	—
Exercised	(32,345)	$	2.05
Forfeited and expired	(1,472)	$	5.01
Outstanding as of June 30, 2024	1,744,295	$	4.34	5.48	$	8,162
Exercisable as of June 30, 2024	1,537,446	$	4.04	5.28	$	7,664

The aggregate intrinsic value of options exercised was $0.3 million and $1.6 million for the three months ended June 30, 2024 and 2023, respectively, and $0.7 million and $1.8 million for the six months ended June 30, 2024 and 2023, respectively. 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 25,440

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 19,788 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 116,298 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 June 30, 2024, there was $50.5 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.1 years.

RSU activity was as follows:


	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2023	7,504,848	$	5.98

Granted	2,068,200	$	11.64
Vested	(1,205,838)	$	5.28
Canceled	(81,064)	$	6.78
Outstanding as of March 31, 2024	8,286,146	$	7.48

Granted	247,798	$	8.84
Vested	(1,014,237)	$	5.82
Canceled	(51,041)	$	6.95
Outstanding as of June 30, 2024	7,468,666	$	7.76

The total fair value of RSUs that vested during the three months ended June 30, 2024 and 2023 was $5.9 million and $5.9 million, respectively. The total fair value of RSUs that vested during the six months ended June 30, 2024 and 2023 was $12.3 million and $9.7 million, respectively. 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 June 30, 2024 and 2023, the Company withheld 344,686 and 369,761 shares, which was based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. During the six months ended June 30, 2024 and 2023 the Company withheld 861,017 and 533,513 shares, respectively. Total payments for the employees’ tax obligations to taxing authorities was $3.3 million and $1.9 million for the three months ended June 30, 2024 and 2023, respectively, and $9.4 million and $2.7 million for the six months ended June 30, 2024 and 2023, respectively.

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 June 30, 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 three months ended June 30, 2024 and 2023, respectively, the Company recognized $0.2 million and $0.1 million of stock-based compensation expense related to the ESPP. During the six months ended June 30, 2024 and 2023, respectively, the Company recognized $0.4 million and $0.3 million of stock-based compensation expense related to the ESPP. As of June 30, 2024 and December 31, 2023, $1.0 million and $0.9 million in accrued ESPP employee payroll contributions are included within accrued liabilities on the consolidated balance sheets, respectively. As of June 30, 2024, total unrecognized compensation costs related to the ESPP was $0.1 million, which will be amortized over the remaining offering period through August 15, 2024.

11.Related Party Transactions

Apart from director compensation, there were no related-party transactions during the three and six months ended June 30, 2024 and 2023.

12.Commitments and Contingencies

Legal Matters

As of June 30, 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 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 June 30, 2024.

13. Net Loss Per Share

The following tables present the calculation of basic and diluted net loss per share for the three and six months ended June 30, 2024 and 2023 (in thousands, except share and per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Numerator:
Net loss	$	(8,553)	$	(8,988)	$	(15,756)	$	(16,847)


Denominator:
Weighted-average common shares outstanding - basic and diluted	71,291,801		66,849,788		70,872,372		66,404,628
Net loss per share
Net loss per share, basic and diluted	$	(0.12)	$	(0.13)	$	(0.22)	$	(0.25)

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:


	June 30, 2024	June 30, 2023
Options to purchase common stock	1,744,295	3,383,654


Number of shares issuable from ESPP	171,605	190,263
Restricted stock units	7,468,666	8,814,078
Total	9,384,566	12,387,995

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 91% and 92% of our revenue for the three months ended June 30, 2024 and 2023, respectively, and 92% for each of the six months ended June 30, 2024 and 2023. 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 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 June 30,						Six Months Ended June 30,
	2024			2023			2024			2023

	(dollars in thousands)
Subscription and payment processing:
Revenue	$	48,513		$	39,696		$	93,605		$	77,388
Cost of revenue	(10,696)			(9,509)			(21,232)			(18,487)
Gross profit	$	37,817		$	30,187		$	72,373		$	58,901
Gross margin	78		%	76		%	77		%	76		%

Onboarding:
Revenue	$	943		$	867		$	1,903		$	1,651
Cost of revenue	(2,032)			(2,268)			(3,864)			(4,393)
Gross profit	$	(1,089)		$	(1,401)		$	(1,961)		$	(2,742)
Gross margin	(115)		%	(162)		%	(103)		%	(166)		%

Hardware:
Revenue	$	1,130		$	1,104		$	2,251		$	2,193
Cost of revenue(1)	(1,734)			(1,849)			(3,552)			(3,777)
Gross profit(1)	$	(604)		$	(745)		$	(1,301)		$	(1,584)
Gross margin	(53)		%	(67)		%	(58)		%	(72)		%

______________

(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, our ability to integrate our platform with practice management systems, which strengthens our product market fit and increases the value our platform provides to customers, 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.

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 78% and 76% for the three months ended June 30, 2024 and 2023, respectively, and 77% and 76% for the six months ended June 30, 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.


	June 30,
	2024		2023
Dollar-based net retention rate	97	%	96	%
Dollar-based gross retention rate	92	%	92	%

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 June 30, 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”

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.

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

The following table sets forth our condensed consolidated statements of operations data for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023

	(in thousands)
Revenue	$	50,586	$	41,667	$	97,759	$	81,232
Cost of revenue (1)	14,462		13,626		28,648		26,657
Gross profit	36,124		28,041		69,111		54,575

Operating expenses:
Sales and marketing (1)	21,889		17,455		41,519		34,673
Research and development (1)	9,958		8,585		19,603		16,279
General and administrative (1)	13,532		11,834		25,399		21,974
Total operating expenses	45,379		37,874		86,521		72,926
Loss from operations	(9,255)		(9,833)		(17,410)		(18,351)

Other income (expense):
Interest income	432		527		852		963
Interest expense	(399)		(501)		(718)		(973)
Other income (expense), net	721		868		1,586		1,583
Loss before income taxes	(8,501)		(8,939)		(15,690)		(16,778)
Provision for income taxes	(52)		(49)		(66)		(69)
Net loss	$	(8,553)	$	(8,988)	$	(15,756)	$	(16,847)

______________

(1)Includes stock-based compensation expense as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023

	(in thousands)
Cost of revenue	$	244	$	251	$	483	$	464
Sales and marketing	1,696		1,219		2,847		2,183
Research and development	2,178		1,323		4,076		2,253
General and administrative