Weave Communications Inc

Previous wording

We generate revenue primarily from recurring subscription fees charged to access our platform, which also include recurring hardware fees. These recurring revenues accounted for 92% of our revenue for each of the three months ended March 31, 2024 and 2023, respectively. In addition, we provide recurring payment processing services through Weave Payments and derive revenue from transactions between our customers that utilize Weave Payments and their end consumers.

Current wording

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.

Previous wording

Our ability to attract new customers is dependent upon a number of factors, including the effectiveness of our pricing and products, the sum total of the features and pricing of the alternative point solution patchwork, the effectiveness of our marketing efforts, the effectiveness of our channel partners in selling and marketing our platform, and the growth of the market for a customer experience and payments software platform. Sustaining our growth requires continued adoption of our platform by new customers. We aim to add new customers through a combination of unpaid channels, such as recommendations and word of mouth, and paid channels, such as digital marketing, direct mail, professional events, brand marketing, and our teams of sales representatives. Historically, our go-to-market strategy focused on increasing the number of locations with most of our customers having a single location; however, we now provide multi-office functionality on our platform to allow us to better service organizations with multiple locations. In addition to pursuing continued customer growth among small businesses, we intend to pursue opportunities to expand our customer base among medium-sized businesses with a particular focus on our core specialty healthcare verticals. Our ability to expand among medium-sized businesses will depend upon our ability to successfully sell our platform to multi-location organizations and effectively retain them.

Current wording

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.

Previous wording

Customer retention also impacts our future financial performance given its potential to drive improved gross margin. The initial onboarding costs as well as the cost of hardware, which is depreciated over three years, represent substantial cost of revenue elements during the first few years of a customer’s life. We believe our disaggregated revenue and cost of revenue financial data, particularly our subscription and payment processing gross margin, provide insight into the impact of customer retention on overall gross margin improvement. Our subscription and payment processing gross margin was 77% and 76% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

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.

Previous wording

The increase in cost of revenue was primarily due to a $0.7 million increase in direct costs to support customer usage, particularly with telecommunications connectivity and cloud infrastructure costs, and credit card processing fees. We also experienced a $0.5 million increase in personnel-related costs from our customer support and onboarding functions. Although cost of revenue increased in absolute dollars, it decreased as a percentage of revenue, resulting in overall gross margin improvement. This improvement was driven by successful efforts to reduce third-party costs incurred for specific platform features and overall data usage, as well as a favorable customer mix as a greater portion of our customers had fully depreciated phone hardware. Gross margin improvement was also driven by realized efficiencies within our customer support and onboarding functions.

Current wording

The increase in cost of revenue was primarily due to a $0.5 million increase in direct costs to support customer usage, particularly with telecommunications connectivity and cloud infrastructure costs, and credit card processing fees. We also experienced a $0.3 million increase in personnel-related costs from our customer support and onboarding functions. Although cost of revenue increased in absolute dollars, it decreased as a percentage of revenue, resulting in overall gross margin improvement. This improvement was driven by successful efforts to reduce third-party costs incurred for specific platform features and overall data usage, as well as a favorable customer mix as a greater portion of our customers had fully depreciated phone hardware. Gross margin improvement was also driven by realized efficiencies within our customer support and onboarding functions.

Previous wording

The increase in research and development expenses was due to an increase of $2.0 million in personnel-related expenses, largely from salary adjustments and stock-based compensation, for employees enhancing our platform infrastructure and developing new product offerings.

Current wording

The increase in research and development expenses was due to an increase in personnel-related expenses, largely from salary adjustments and stock-based compensation, for employees enhancing our platform infrastructure and developing new product offerings.

Previous wording

The increase in general and administrative expenses was due to a $1.8 million increase in personnel-related expenses, particularly from additional bonus incentives, salary adjustments, and stock-based compensation.

Current wording

The increase in general and administrative expenses was due to a $1.4 million increase in personnel-related expenses, particularly from additional bonus incentives, salary adjustments, and stock-based compensation. In addition, bad debt expense increased by $0.4 million.

Previous wording

The increase in sales and marketing expenses was primarily attributable to a $1.3 million increase in personnel-related expenses, including increases in stock-based compensation, and commission/bonus incentives. We also increased demand generation expenses of $0.6 million driven by our direct-mail and digital media efforts and incurred $0.3 million in additional event-related costs due to increased in-person trade show attendance.

Current wording

The increase in sales and marketing expenses was primarily attributable to a $3.5 million increase in personnel-related expenses, including increases in stock-based compensation, and commission/bonus incentives. In addition, demand generation expenses increased by $1.9 million driven by our digital media efforts and partnerships. We also incurred $0.8 million in additional event-related costs due to increased in-person attendance at trade shows, as well as an increase of $0.4 million in related dues and subscription costs.

Previous wording

We define free cash flow as net cash provided by (used in) operating activities, less purchases of property and equipment, and capitalized internal-use software costs, and free cash flow margin as free cash flow as a percentage of revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide useful information to management and investors, even if negative, as they provide information about the amount of cash consumed by our combined operating and investing activities. For example, as free cash flow has in the past been negative, we have needed to access cash reserves or other sources of capital for these investments. Comparability of our free cash flow between the three months ended March 31, 2024 and the three months ended March 31, 2023 was affected by the implementation of a new billing system that necessitated deferring March 2024 subscription billings into April 2024. This resulted in an increase in unbilled accounts receivable as of March 31, 2024, and a corresponding decrease in free cash flow for the three months then ended, of approximately $15.0 million. Comparability was also affected by the timing of 2023 annual bonus payouts, which were paid out in March 2024 and amounted to approximately $7.0 million. In prior years, annual bonuses were paid out in the second quarter. Excluding the impact of both the delay in billing and the timing difference of the bonus pay out, free cash flow would have been positive for the three months ended March 31, 2024.

Current wording

We define free cash flow as net cash provided by (used in) operating activities, less purchases of property and equipment and capitalized internal-use software costs, and free cash flow margin as free cash flow as a percentage of revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide useful information to management and investors, even if negative, as they provide information about the amount of cash consumed by our combined operating and investing activities. For example, as free cash flow has in the past been negative, we have needed to access cash reserves or other sources of capital for these investments. Comparability of our free cash flow between the three months ended June 30, 2024 and the three months ended June 30, 2023 was affected by the implementation of a new billing system that necessitated deferring March 2024 subscription billings. This resulted in an increase in accounts receivable as of March 31, 2024, and a corresponding decrease in free cash flow for the three months then ended, of approximately $15.0 million. The increase in free cash flow for the three months ended June 30, 2024 is largely due to the collection on [a][the substantial] majority of those deferred billings.

Previous wording

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under U.S. GAAP. There are a number of limitations related to the use of non-GAAP financial measures versus comparable financial measures determined under U.S. GAAP. For example, the non-GAAP financial information presented above may be determined or calculated differently by other companies and may not be directly comparable to that of other companies. In addition, free cash flow does not reflect our future contractual commitments and the total increase or decrease of our cash balance for a given period. Further, Adjusted EBITDA excludes some costs, namely, non-cash stock-based compensation expense. Therefore, Adjusted EBITDA does not reflect the non-cash impact of stock-based compensation expense or working capital needs that will continue for the foreseeable future. All of these limitations could reduce the usefulness of these non-GAAP financial measures as analytical tools. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures and to not rely on any single financial measure to evaluate our business.

Current wording

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under U.S. GAAP. There are a number of limitations related to the use of non-GAAP financial measures versus comparable financial measures determined under U.S. GAAP. For example, the non-GAAP financial information presented above may be determined or calculated differently by other companies and may not be directly comparable to that of other companies. In addition, free cash flow does not reflect our future contractual commitments and the total increase or decrease of our cash balance for a given period. Further, Adjusted EBITDA excludes some costs, namely, non-cash stock-based compensation expense. Therefore, Adjusted EBITDA does not reflect the non-cash impact of stock-based compensation expense or working capital needs that will continue for the foreseeable future. All of these limitations could reduce the usefulness of these non-

Previous wording

Since inception, we have financed our operations primarily through cash generated from the sale of subscriptions to our platform, and the net proceeds received from issuances of our equity securities. We have generated losses from our operations as reflected in our accumulated deficit of $269.9 million as of March 31, 2024 and, prior to 2023, have generated negative cash flows from operations. We also generated negative cash flows from operations for the three months ended March 31, 2024. Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support customer usage and growth in our customer base, and increased research and development expenses to support the growth of our business and related infrastructure. We expect our operating cash flows to further improve as we increase our operational efficiency and experience economies of scale.

Current wording

Since inception, we have financed our operations primarily through cash generated from the sale of subscriptions to our platform, and the net proceeds received from issuances of our equity securities. We have generated losses from our operations as reflected in our accumulated deficit of $278.4 million as of June 30, 2024 and, prior to 2023, have generated negative cash flows from operations. Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support customer usage and growth in our customer base, and increased research and development expenses to support the growth of our business and related infrastructure. We expect our operating cash flows to further improve as we increase our operational efficiency and experience economies of scale.

Previous wording

As of March 31, 2024, our principal sources of liquidity were cash held as deposits in financial institutions and cash equivalents consisting of highly liquid investments in money market securities of $30.6 million, as well as $51.7 million in other short-term investments comprised primarily of treasury and commercial paper instruments.

Current wording

As of June 30, 2024, our principal sources of liquidity were cash held as deposits in financial institutions and cash equivalents consisting of highly liquid investments in money market securities of $51.7 million, as well as $47.4 million in other short-term investments comprised primarily of treasury and commercial paper instruments.

Previous wording

A substantial source of our cash inflow from operating activities is our deferred revenue, which is included on our consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recorded as revenue over the subscription term. We had $39.8 million of deferred revenue recorded as a current liability as of March 31, 2024. This deferred revenue will be recognized as revenue when all of the revenue recognition criteria are met.

Current wording

A substantial source of our cash inflow from operating activities is our deferred revenue, which is included on our consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recorded as revenue over the subscription term. We had $40.6 million of deferred revenue recorded as a current liability as of June 30, 2024. This deferred revenue will be recognized as revenue when all of the revenue recognition criteria are met.

Previous wording

For the three months ended March 31, 2024, cash used in operating activities was $19.7 million, primarily due to a net loss of $7.2 million, adjusted for non-cash charges of $13.7 million and net cash outflows of $26.2 million from changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a $15.8 million increase in accounts receivable, a $4.6 million decrease in accrued liabilities, and a $4.1 million increase in deferred contract costs, comprising mainly sales commissions earned on bookings. These amounts were partially offset by a $0.8 million increase to deferred revenue due to our prepay arrangements with our customers.

Current wording

For the six months ended June 30, 2024, cash provided by operating activities was $3.0 million, primarily due to a net loss of $15.8 million, adjusted for non-cash charges of $29.3 million and net cash outflows of $10.6 million from changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were an $8.0 million increase in deferred contract costs, comprising mainly sales commissions earned on bookings, a $3.0 million decrease in accrued liabilities, a $2.9 million increase in accounts receivable and a $2.0 million decrease in operating lease liabilities. These amounts were partially offset by a $2.4 million increase in accounts payable, a $1.5 million decrease to prepaid expenses and other assets, and a $1.4 million increase to deferred revenue due to our prepay arrangements with our customers.

Previous wording

For the three months ended March 31, 2023 cash provided by operating activities was $1.5 million, primarily due to a net loss of $7.9 million, adjusted for non-cash charges of $11.2 million, and net cash outflows of $1.8 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a $3.2 million increase in deferred contract costs and a $0.9 million decrease in operating lease liabilities. These amounts were partially offset by a $1.2 million increase to accrued liabilities, largely from employee compensation accruals, $0.5 million decrease to prepaid expenses and other assets, a $0.4 million increase in accounts payable, and a $0.4 million increase to deferred revenue comprising mainly sales commissions earned on bookings.

Current wording

For the six months ended June 30, 2023, cash provided by operating activities was $3.1 million, primarily consisting of our net loss of $16.8 million, adjusted for non-cash charges of $23.6 million, and net cash outflows of $3.6 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a $6.7 million increase in deferred contract costs and a $1.8 million decrease in operating lease liabilities. These amounts were partially offset by a $0.8 million increase to accrued liabilities, largely from employee compensation accruals, $1.4 million decrease to prepaid expenses and other assets, a $0.5 million increase in accounts payable, and a $2.8 million increase to deferred revenue comprising mainly sales commissions earned on bookings.

Previous wording

Cash provided by investing activities for the three months ended March 31, 2024 was $6.1 million, primarily due to $23.8 million in short-term investment maturities, partially offset by $16.8 million in purchases of short-term investments. Additional investing cash flow activities included $0.5 million of furniture and equipment additions and $0.3 million in personnel-related costs capitalized as internal-use software development.

Current wording

Cash provided by investing activities for the six months ended June 30, 2024 was $9.5 million, primarily due to $32.3 million in short-term investment maturities, partially offset by $20.5 million in purchases of short-term investments. Additional investing cash flow activities included $1.3 million of furniture and equipment additions and $1.0 million in personnel-related costs capitalized as internal-use software development.

Previous wording

Cash used in investing activities for the three months ended March 31, 2023 was $5.4 million, primarily due to $17.5 million in purchases of short-term investments, partially offset by $13.0 million in short-term investment maturities. Additional investing cash flow activities included $0.6 million of furniture and equipment additions and $0.3 million in personnel-related costs capitalized as internal-use software development.

Current wording

Cash used in investing activities for the six months ended June 30, 2023 was $7.8 million, primarily due to $35.2 million in purchases of short-term investments, partially offset by $29.0 million in short-term investment maturities. Additional investing cash flow activities included $0.8 million of furniture and equipment additions and $0.8 million in personnel-related costs capitalized as internal-use software development.

Previous wording

Cash used in financing activities for the three months ended March 31, 2024 was $6.6 million, primarily due to $6.1 million in employee taxes paid related to the net settlement of restricted stock units, and principal payments on finance lease obligations of $1.8 million. These outflows were partially offset by cash proceeds from employee stock option exercises of $0.3 million, and proceeds of $1.0 million from the employee stock purchase plan.

Current wording

Cash used in financing activities for the six months ended June 30, 2024 was $11.6 million, primarily due to $9.4 million in employee taxes paid related to the net settlement of restricted stock units, and principal payments on finance lease obligations of $3.5 million. These outflows were partially offset by cash proceeds from employee stock option exercises of $0.4 million, and proceeds of $1.0 million from the employee stock purchase plan.

Previous wording

Cash used in financing activities for the three months ended March 31, 2023 was $2.0 million, primarily due to principal payments on finance lease obligations of $2.0 million and $0.8 million in employee taxes paid related to the net settlement of restricted stock units. These outflows were partially offset by proceeds of $0.6 million from the employee stock purchase plan and cash proceeds from employee stock option exercises of $0.1 million.

Current wording

Cash used in financing activities for the six months ended June 30, 2023 was $5.2 million, primarily as a result of principal payments on finance lease obligations of $3.8 million and $2.7 million in employee taxes paid related to the net settlement of restricted stock units. These outflows were partially offset by proceeds of $0.6 million from the employee stock purchase plan and cash proceeds from employee stock option exercises of $0.6 million.

Previous wording

During the three months ended March 31, 2024, we acquired $1.9 million of additional right of use assets through new finance lease obligations.

Current wording

During the six months ended June 30, 2024, we acquired $3.6 million of additional right of use assets through new finance lease obligations.