Weave Communications Inc

Previous wording

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 Annual Report on Form 10-K. 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 above, under “Part I, 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.

Current wording

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. 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 above, under “Part I, 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.

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% and 95% of our revenue for the years ended December 31, 2023 and 2022, 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 92% of our revenue for each of the years ended December 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.

Previous wording

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.

Current wording

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, which is 36 months. 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.

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. As of December 31, 2023, we had more than 28,000 customers in the United States and Canada, spanning organizations across our end markets, and more than 31,000 customer locations under subscription.

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 PMS, 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, trade shows and industry 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. In 2024, we introduced the enhanced Weave platform, which is built on a fully modern tech stack and is web-based, enabling users to multitask, customize the layout and form factor, and take advantage of new features and AI capabilities only available in the new platform. The new enhanced platform also powers Weave Enterprise, a solution designed specifically for organizations with multiple locations. Weave Enterprise allows us to better service these organizations through centralized administration and reporting capabilities, which gives them a control center from which they can monitor and affect multiple locations' operations and software configuration simultaneously. 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 enhanced Weave platform to multi-location organizations and effectively retain them. As of December 31, 2024, we had more than 30,000 customers in the U.S. and Canada, spanning organizations across our end markets, and approximately 35,000 customer locations under subscription.

Previous wording

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.

Current wording

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 improves retention 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 released additional add-on products in recent years, such as Bulk Texting and Forms, 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.

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 74% for the years ended December 31, 2023 and 2022.

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 initial 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 77% for the years ended December 31, 2024 and 2023, respectively.

Previous wording

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.

Current wording

We continue to add new products and functionality to our platform, broadening our use cases and applicability for different customers. In 2024, we introduced our enhanced Weave platform and Weave Enterprise, which together bring an enhanced interface and experience for both single- and multi-location 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. Our ability to add new SMB customers is dependent on the features and functionality we add to our platform, including those enabled by AI, 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.

Previous wording

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.

Current wording

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 evaluating product-market fit and establishing key integration partnerships with the primary systems of record in that vertical. We started in dental and have since successfully expanded to optometry, veterinary and other specialty medical verticals. While we are focused on continued growth within our core specialty healthcare verticals and adjacent healthcare markets, we continue to evaluate additional expansion opportunities.

Previous wording

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.

Current wording

In addition to our financial information that is presented in accordance with the generally accepted accounting principles in the U.S. (“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.

Previous wording

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.

Current wording

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 the addition of new customer locations.

Previous wording

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. As of December 31, 2023 and 2022, approximately 39% and 41% of customer locations elected annual prepayments, respectively. Subscription revenue is recognized ratably over the term of the subscription agreement. Amounts billed in excess of revenue recognized are deferred.

Current wording

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 month-to-month terms, 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. As of December 31, 2024 and 2023, approximately 34% and 39% of customer locations elected annual prepayments, respectively. Subscription revenue is recognized ratably over the term of the subscription agreement. Amounts billed in excess of revenue recognized are reported in deferred revenue on the Company’s consolidated balance sheets.

Previous wording

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.

Current wording

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 and revenue shares to application providers, voice connectivity and messaging fees, and amortization of internal-use software development costs. Indirect costs 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.

Previous wording

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.

Current wording

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 text messaging and phone calls, the quantity and aging of phones provided to customers, changes to fees paid to application providers, adoption of AI-based features, future changes to the cloud infrastructure costs to support AI-based features, 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.

Previous wording

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.

Current wording

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, as well as the cost of traveling to and attending trade shows.

Previous wording

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.

Current wording

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 a percentage of revenue, we anticipate sales and marketing expenses to decrease in 2025 as compared to 2024, and we expect these expenses to continue to decrease as a percentage of revenue over time.

Previous wording

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.

Current wording

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 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.

Previous wording

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 initiated prior to January 1, 2022 is based on our incremental borrowing rate at the time the agreements were initiated. On January 1, 2022, we adopted the new accounting guidance required by ASC 842 and the interest on all finance leases initiated going forward is based on the rate implicit within the lease agreement.

Current wording

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.

Previous wording

See Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.

Current wording

See Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details on stock-based compensation expense.

Previous wording

Revenue increased by $28.4 million, or 20%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. Of the total increase, approximately $19.1 million, or 67%, was attributable to new customer locations acquired during the year ended December 31, 2023, and $9.2 million, or 33%, was attributable to existing customer locations under subscription as of December 31, 2022. Customer locations totaled 31,002 and 27,193 as of December 31, 2023 and 2022, respectively.

Current wording

Revenue increased by $33.8 million, or 20%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. Of the total increase, approximately $20.0 million, or 59%, was attributable to new customer locations acquired during the year ended December 31, 2024, and $13.8 million, or 41%, was attributable to existing customer locations under subscription as of December 31, 2023. Customer locations totaled 34,997 and 31,002 as of December 31, 2024 and 2023, respectively.

Previous wording

The increase in cost of revenue was due primarily to an increase of $0.6 million in personnel-related costs, particularly related to merit increases and new hires, and a $0.5 million increase in direct costs to support customer usage and growth of our customer base, including cloud infrastructure costs and fees paid to application providers.

Current wording

The increase in cost of revenue was due primarily to an increase of $3.2 million in direct costs to support customer usage and growth of our customer base, including cloud infrastructure costs, fees paid to application providers, and connectivity and messaging costs. In addition, there was an increase of $0.9 million in personnel-related costs, particularly related to merit increases and new hires.

Previous wording

Our gross margin improvement is derived from a favorable customer mix as a greater portion of our customers had fully depreciated phone hardware, and from reductions in third-party costs incurred for specific platform features and overall data usage as part of our cost management efforts.

Current wording

Our gross margin improvement is derived from a favorable customer mix as a greater portion of our customers had fully depreciated phone hardware, and from efficiencies with third-party costs incurred for specific platform features and overall data usage as part of our cost management efforts.

Previous wording

The increase in sales and marketing expenses was attributable in part to an increase of $2.1 million in personnel-related expenses, driven largely by salary and commission plan adjustments, and stock-based compensation. We also increased demand generation expenses by $1.9 million, particularly with our direct-mail and digital media efforts. In addition, we incurred $1.4 million in additional event-related costs due to increased in-person trade show attendance.

Current wording

The increase in sales and marketing expenses was attributable in part to an increase of $7.8 million in personnel-related expenses, driven largely by salary and commission plan adjustments and stock-based compensation related to grants for new and existing employees and executives, as well as an increase in average stock price over the period. We also increased demand generation expenses by $4.6 million, particularly with our digital media, partner marketing, and third party advertisement efforts. In addition, we incurred $1.5 million in additional event-related costs due to increased in-person trade show attendance.

Previous wording

The increase in research and development expenses was due to an increase of $3.3 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 of $6.2 million in personnel-related expenses, largely from salary adjustments and stock-based compensation related to grants for the new and existing employees enhancing our platform infrastructure and developing new product offerings.

Previous wording

The increase in general and administrative expenses was primarily due to a $4.7 million increase in personnel-related expenses, particularly from additional bonus incentives, salary adjustments, and stock-based compensation. We also experienced increases of $0.5 million in miscellaneous taxes and fees, $0.4 million in bad debt expense, and $0.3 million in dues and subscription costs. These increases were partially offset by a $1.2 million decrease in our director and officer liability insurance premiums, a $1.0 million decrease in professional fees, and a $0.7 million increase in capitalized internal-use software costs.

Current wording

The increase in general and administrative expenses was primarily due to a $5.6 million increase in personnel-related expenses, particularly from salary adjustments and stock-based compensation related to grants for new and existing employees and executives. We also experienced increases of $0.4 million in professional services fees, $0.7 million in bad debt expense, and $0.6 million in dues and subscription costs. These increases were partially offset by a $0.5 million decrease in our director and officer liability insurance premiums.

Previous wording

The increase in interest income is due to interest generated on our money market securities. The increase in other income (expense), net is largely due to realized gains on our short-term investments and, to a lesser extent, a rise in average interest rates over the period contributed to increases both interest and other income. In addition, Other income (expense), net for 2023 includes income from our office space sublease arrangement.

Current wording

The decrease in interest income is due to a decrease in interest generated on our money market securities as a result of a lower average daily balance maintained in the account and lower average interest rates over the period. The decrease in other income (expense), net is largely due to realized losses on our short-term investments and, to a lesser extent, a decrease in average interest rates over the period which contributed to the decrease in other income. In addition, Other income (expense), net for 2024 includes income from our office space sublease arrangement.

Previous wording

Provision for income taxes increased by an immaterial amount due to increases in operations and other expenses in our foreign jurisdictions. We expect income tax expense to increase in conjunction with growth in our international subsidiaries in the long term.

Current wording

Income tax expenses decreased by an immaterial amount due to one-time tax adjustments in our foreign jurisdictions. We expect income tax expense to increase in conjunction with growth in our international subsidiaries in the long term.

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.

Current wording

We define free cash flow as net cash provided by 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.

Previous wording

We define EBITDA as earnings before interest expense, interest income, other income/expense, provision for income taxes, depreciation, and amortization. Our depreciation adjustment has included depreciation on operating fixed assets and has not included amortization of finance lease right-of-use assets on phone hardware provided to our customers. Our amortization adjustment has included the amortization of capitalized internal-use software costs. We further adjust EBITDA to exclude stock-based compensation expense, a non-cash item. We believe that Adjusted EBITDA provides management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. Additionally, management uses Adjusted EBITDA to measure our financial and operational performance and prepare our budgets.

Current wording

We define EBITDA as earnings before interest expense, interest income, other income/expense, provision for income taxes, depreciation, and amortization. Our depreciation adjustment includes depreciation on operating fixed assets and we do not adjust for amortization of finance lease right-of-use assets on phone hardware provided to our customers. Our amortization adjustment includes the amortization of capitalized costs from both internal-use software development and cloud computing arrangements. We further adjust EBITDA to exclude stock-based compensation expense, a non-cash item. We believe that Adjusted EBITDA provides management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. Additionally, management uses Adjusted EBITDA to measure our financial and operational performance and prepare our budgets.

Previous wording

(2) Represents amortization of capitalized internal-use software costs.

Current wording

(2) Represents amortization of capitalized internal-use software and cloud computing costs.

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 $262.7 million as of December 31, 2023 and, prior to 2023, have generated negative cash flows from operating activities. 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 $291.0 million as of December 31, 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 December 31, 2023, 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 $50.8 million, as well as $58.1 million in other short-term investments comprised primarily of treasury and commercial paper instruments.

Current wording

As of December 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 $51.6 million, as well as $47.5 million in other short-term investments comprised primarily of treasury and commercial paper instruments.

Previous wording

A substantial source of 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 $38.9 million of deferred revenue recorded as a current liability as of December 31, 2023. 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 $40.0 million of deferred revenue recorded as a current liability as of December 31, 2024. This deferred revenue will be recognized as revenue when all of the revenue recognition criteria are met.

Previous wording

We assess our liquidity primarily through our cash on hand as well as the projected timing of billings under contract with our paying customers and related collection cycles. We believe our current cash, cash equivalents, short-term investments, and amounts available under our senior secured credit facility will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

Current wording

We assess our liquidity primarily through our cash on hand as well as the projected timing of billings under contract with our paying customers and related collection cycles. We believe our current cash, cash equivalents, short-term investments, and amounts available under our senior secured credit facility will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

Previous wording

For the year ended December 31, 2022, cash used in operating activities was $12.8 million, primarily consisting of our net loss of $49.7 million adjusted for non-cash charges of $46.8 million, and net cash outflows of $9.9 million provided by changes in our operating assets and liabilities. The drivers of the changes in operating assets and liabilities were a $12.3 million increase in deferred contract costs, comprised primarily of sales commissions earned on new sales, a $2.5 million decrease in operating lease liabilities from payments made, an increase in prepaid expenses and other assets of $0.1 million, an increase to accounts receivable of $1.0 million, and an increase of $0.3 million to accounts payable. These amounts were partially offset by a $4.6 million increase in deferred revenue due to our prepay arrangements with our customers, and a $1.8 million increase in accrued liabilities.

Current wording

For the year ended December 31, 2024, cash provided by operating activities was $14.1 million, primarily consisting of our net loss of $28.3 million adjusted for non-cash charges of $60.8 million, and net cash outflows of $18.3 million provided by changes in our operating assets and liabilities. The drivers of the changes in operating assets and liabilities were a $15.3 million increase in deferred contract costs, comprised primarily of sales commissions earned on new sales, a $4.0 million decrease in operating lease liabilities from payments made, a decrease to accounts receivable of $2.1 million, and a decrease in accrued liabilities of $0.9 million. These amounts were partially offset by a $3.1 million increase in accounts payable, $0.5 million increase in deferred revenue, and a decrease of $0.4 million to prepaid expenses and other assets.

Previous wording

For the year ended December 31, 2023, cash provided by operating activities was $10.2 million, primarily consisting of our net loss of $31.0 million adjusted for non-cash charges of $49.3 million, and net cash outflows of $8.1 million provided by changes in our operating assets and liabilities. The drivers of the changes in operating assets and liabilities were a $13.3 million increase in deferred contract costs, comprised primarily of sales commissions earned on new sales, a $3.7 million decrease in operating lease liabilities from payments made, an increase to accounts receivable of $1.4 million, and an increase in prepaid expenses and other assets of $0.7 million. These amounts were partially offset by a $4.9 million increase in accrued liabilities, $4.8 million increase in deferred revenue due to our prepay arrangements with our customers, and an increase of $1.3 million to accounts payable.

Current wording

For the year ended December 31, 2023, cash provided by operating activities was $10.2 million, primarily consisting of our net loss of $31.0 million adjusted for non-cash charges of $49.3 million, and net cash outflows of $8.1 million provided by changes in our operating assets and liabilities. The drivers of the changes in operating assets and liabilities were a $13.3 million increase in deferred contract costs, comprised primarily of sales commissions earned on new sales, a $3.7 million decrease in operating lease liabilities, an increase to accounts receivable of $1.4 million, and an increase in prepaid expenses and other assets of $0.7 million. These amounts were partially offset by a $4.9 million increase in accrued liabilities, $4.8 million increase in deferred revenue due to our prepay arrangements with our customers, and an increase of $1.3 million to accounts payable.

Previous wording

Cash used in investing activities for the year ended December 31, 2022 was $54.0 million, primarily due to $50.9 million in purchases of short-term investments. Additionally, we purchased $1.9 million in furniture, equipment and leasehold improvements, and capitalized $1.2 million of personnel-related costs as internal-use software development.

Current wording

Cash provided by investing activities for the year ended December 31, 2024 was $8.9 million, primarily due to $66.4 million of maturities of short-term investments, which were partially offset by $53.8 million in purchases of short-term investments. Additionally, we purchased $2.2 million in furniture, equipment and leasehold improvements, and capitalized $1.6 million of personnel-related costs as internal-use software development.

Previous wording

Cash used in investing activities for the year ended December 31, 2023 was $7.7 million, primarily due to $66.2 million in purchases of short-term investments. Additionally, we purchased $1.7 million in furniture, equipment and leasehold improvements, and capitalized $2.0 million of personnel-related costs as internal-use software development.

Current wording

Cash used in investing activities for the year ended December 31, 2023 was $7.7 million, primarily due to $66.2 million in purchases of short-term investments which were partially offset by $62.2 million of maturities of short-term investments. Additionally, we purchased $1.7 million in furniture, equipment and leasehold improvements, and capitalized $2.0 million of personnel-related costs as internal-use software development.

Previous wording

Cash used in financing activities for the year ended December 31, 2022 was $7.2 million, primarily due to $8.7 million from principal payments made on finance lease obligations. We also paid $0.7 million in offering costs related to our IPO in November 2021. These cash outflows were partially offset by $1.3 million in proceeds received from employee stock option exercises, and proceeds of $0.9 million received from our employee stock purchase plan.

Current wording

Cash used in financing activities for the year ended December 31, 2024 was $22.2 million, due to $18.9 million from payments made for taxes related to the net share settlement of equity awards and $7.1 million from principal payments made on finance lease obligations. These cash outflows were partially offset by $2.0 million received from our employee stock purchase plan and $1.7 million in proceeds received from employee stock option exercises.

Previous wording

In August 2021, we established a revolving line of credit with Silicon Valley Bank (“SVB”) allowing for total borrowing capacity up to $50.0 million. The borrowing capacity is subject to reduction should we fail to meet certain metrics for recurring revenue and customer retention. Amounts outstanding on the line will accrue interest at the greater of prime rate plus 0.25% and 3.5%. In connection with our 2021 agreement with SVB, a previously outstanding $4.0 million note payable was converted to a deemed advance on the line of credit, and we drew down an additional $6.0 million from the line of credit resulting in a total outstanding balance of $10.0 million. We have made no additional draws on the line of credit since the finalization of our agreement with SVB. We are required to pay an annual fee of $0.1 million beginning on the effective date of the agreement, and continuing on the anniversary of the effective date. We are also required to pay a quarterly unused line fee of 0.15% per annum of the available borrowing amount should the outstanding principal balance drop below $10.0 million (calculated based on the number of days and based on the average available borrowing amount). The line of credit is collateralized by substantially all of our assets. This agreement includes financial covenants requiring that, at any time, if our total unrestricted cash and cash equivalents held at SVB, plus our short-term investments managed by SVB, is less than $100.0 million, we must at all times thereafter maintain a consolidated minimum $20.0 million in liquidity, meaning unencumbered cash and short-term investments plus available borrowing on the line of credit, and that we meet specified minimum levels of EBITDA, as adjusted for stock-based compensation and changes in our deferred revenue. In November 2023, the $10.0 million balance with SVB was repaid prior to its maturity. As of December 31, 2023, there was no outstanding balance on the line of credit, the full $50.0 million was available for borrowing, and we were in compliance with all SVB loan covenants.

Current wording

In August 2021, we established a revolving line of credit with SVB with total borrowing capacity up to $50.0 million, subject to reduction should we fail to meet certain metrics for recurring revenue and customer retention (the “August 2021 Agreement”). The line of credit, as amended, matures in August 2025. Amounts outstanding on the line accrue interest at the greater of prime rate plus 0.25% and 3.50%. We are required to pay an annual fee of $0.1 million beginning on the effective date of the August 2021 Agreement, and continuing on the anniversary of the effective date. We are also required to pay a quarterly unused line of credit fee of 0.15% per annum of the available borrowing amount should the outstanding principal balance drop below $10.0 million (calculated based on the number of days and based on the average available borrowing amount). The line of credit is collateralized by substantially all of our assets. The August 2021 Agreement, as amended in March 2024, includes financial covenants requiring that, at any time, if our total unrestricted cash and cash equivalents held at SVB, plus our short-term investments managed by SVB, is less than $100 million, we must at all times thereafter maintain a consolidated minimum $20 million in liquidity, meaning unencumbered cash and short-term investments plus available borrowing on the line of credit, and that we are required to meet specified minimum levels of EBITDA, as adjusted for stock-based compensation and changes in our deferred revenue. As of December 31, 2024, there was no outstanding balance on the line of credit, the maximum borrowing capacity of $50.0 million was available to the Company, and we were in compliance with all SVB loan covenants.

Previous wording

For more information, see the sections titled “Basis of Presentation and Summary of Significant Accounting Policies—Accounting Pronouncements Adopted” and “—Accounting Pronouncements Pending Adoption” in Note 2 of our consolidated financial statements in Part II, Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

Current wording

Pending Adoption” in Note 2 to our consolidated financial statements in Part II, Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.