Nextdoor (KIND) - 2023 Q2 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section provides an overview of forward-looking statements within the report, highlighting their inherent risks and the company's disclaimer regarding future updates Forward-Looking Statements Overview This section highlights that the Quarterly Report contains forward-looking statements about the company's future expectations, hopes, beliefs, intentions, strategies, operating results, and financial position - Forward-looking statements cover anticipated growth (neighbor growth, engagement, monetization), business scaling, macroeconomic climate impacts (banking turmoil, labor shortages, recession, inflation, interest rates), international expansion, technology investments, profitability, capital access, strategic relationships, NYSE listing, regulatory changes, internal controls, catastrophic events, future financing, and retention of key personnel[9] - The company operates in a competitive and rapidly changing environment, making it impossible to predict all risks or assess the full impact of factors that may cause actual results to differ materially from forward-looking statements[11] - The company expressly disclaims any duty to update forward-looking statements after the filing date, except as required by law[12] Risk Factor Summary This section summarizes the principal risks and uncertainties that could adversely affect the company's business, operations, and financial condition Principal Risks and Uncertainties This section provides a summary of the principal risks and uncertainties that could adversely affect the company's business, operating results, and financial condition - Limited operating history and scaling monetization efforts make it difficult to evaluate current business and future prospects, with no assurance of sustained growth[17] - Adverse global economic conditions (e.g., inflation, rising interest rates, potential recession, banking turmoil) could harm business and financial condition[17] - Substantial reliance on advertising revenue means reductions in advertiser spending would adversely impact the business[17] - High competition poses an ongoing threat to business success[17] - Dependence on maintaining and scaling product offerings and technical infrastructure; significant disruptions could damage reputation and lead to loss of users/engagement[17] - Failure to manage rapid growth effectively could adversely affect business, operating results, and financial condition[17] - Inability to attract or retain neighbors if brand identity and reputation efforts are unsuccessful[17] - Plans for international expansion face increased business, regulatory, and economic risks due to limited operating experience[17] - Need for additional capital in the future may not be available on favorable terms, if at all[17] - Dependence on attracting and retaining talented employees, including senior management; loss of key personnel could hinder business strategy execution[17] - Reliance on third-party software and service providers (e.g., Google Ad Manager, AWS) for ad management, delivery, and platform infrastructure; failures could adversely impact business[17] - Ad-blocking technologies could adversely impact advertising revenue[17] - Security breaches or improper access to data could harm reputation and business[17] - Distribution and marketing depend on third-party publishers and platforms; changes in terms could materially adversely affect business[17] - Market opportunity and key metric estimates could be inaccurate, harming reputation and business[20] - History of net losses and potential for future losses; inability to achieve or sustain profitability would adversely affect financial condition[20] - Potential for greater than anticipated tax liabilities[20] - Share Repurchase Program may not be fully consummated or enhance long-term stockholder value, and could increase stock volatility or diminish cash reserves[20] - Potential liability from content or information published on the platform[20] - Subject to complex and evolving U.S. and foreign laws, regulations, and industry standards, with uncertain interpretations[20] - Risk of expensive and time-consuming legal disputes[20] - Failure to maintain effective internal controls and disclosure controls could have a material adverse effect[20] - Inability to protect intellectual property could diminish brand value and adversely affect business[20] - Third parties may claim platform infringes their intellectual property rights[20] - Use of 'open source' software could lead to litigation or unfavorable licensing terms[20] - Inability to maintain licenses for third-party technology could harm business[20] - Volatility of Class A common stock price[20] - Dual class common stock structure concentrates voting power with management and existing stockholders, limiting influence on important transactions[20] - No intention to pay cash dividends for the foreseeable future[20] Part I - Financial Information This part presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis of financial condition, market risk disclosures, and controls and procedures Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with their accompanying notes, providing a detailed financial overview for the periods ended June 30, 2023 and December 31, 2022 Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (in thousands) | Item | As of June 30, 2023 | As of December 31, 2022 | | :-------------------------------- | :------------------ | :-------------------- | | Assets | | | | Cash and cash equivalents | $74,268 | $55,236 | | Marketable securities | $477,322 | $528,067 | | Accounts receivable, net | $28,383 | $29,770 | | Prepaid expenses and other current assets | $12,090 | $12,185 | | Total current assets | $592,063 | $625,258 | | Restricted cash, non-current | $11,226 | — | | Property and equipment, net | $9,947 | $11,818 | | Operating lease right-of-use assets | $59,246 | $52,555 | | Intangible assets, net | $2,192 | $3,067 | | Goodwill | $1,211 | $1,211 | | Other assets | $8,152 | $5,653 | | Total assets | $684,037 | $699,562 | | Liabilities | | | | Accounts payable | $5,957 | $4,535 | | Operating lease liabilities, current | $5,838 | $7,766 | | Accrued expenses and other current liabilities | $25,281 | $22,362 | | Total current liabilities | $37,076 | $34,663 | | Operating lease liabilities, non-current | $63,616 | $53,831 | | Other liabilities, non-current | $267 | — | | Total liabilities | $100,959 | $88,494 | | Stockholders' Equity | | | | Class A common stock | $17 | $15 | | Class B common stock | $21 | $22 | | Additional paid-in capital | $1,272,676 | $1,231,482 | | Accumulated other comprehensive loss | $(2,262) | $(2,196) | | Accumulated deficit | $(687,374) | $(618,255) | | Total stockholders' equity | $583,078 | $611,068 | | Total liabilities and stockholders' equity | $684,037 | $699,562 | Condensed Consolidated Statements of Operations This section outlines the company's financial performance, including revenue, expenses, and net loss for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Operations (in thousands, except per share data) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $56,889 | $54,541 | $106,660 | $105,541 | | Cost of revenue | $10,438 | $10,187 | $20,351 | $19,242 | | Research and development | $37,117 | $32,699 | $70,099 | $61,659 | | Sales and marketing | $31,386 | $32,627 | $60,595 | $63,688 | | General and administrative | $19,390 | $17,283 | $35,869 | $32,433 | | Total costs and expenses | $98,331 | $92,796 | $186,914 | $177,022 | | Loss from operations | $(41,442) | $(38,255) | $(80,254) | $(71,481) | | Interest income | $6,356 | $2,153 | $11,869 | $2,644 | | Other income (expense), net | $(193) | $(708) | $(309) | $(893) | | Loss before income taxes | $(35,279) | $(36,810) | $(68,694) | $(69,730) | | Provision for income taxes | $124 | $33 | $425 | $61 | | Net loss | $(35,403) | $(36,843) | $(69,119) | $(69,791) | | Net loss per share, basic and diluted | $(0.09) | $(0.10) | $(0.18) | $(0.18) | | Weighted average shares, basic and diluted | 375,896 | 385,127 | 374,469 | 383,512 | Condensed Consolidated Statements of Comprehensive Loss This section details the company's comprehensive loss, including net loss and other comprehensive income/loss items, for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(35,403) | $(36,843) | $(69,119) | $(69,791) | | Foreign currency translation adjustments | $24 | $418 | $43 | $492 | | Change in unrealized loss on available-for-sale marketable securities | $(1,600) | $(1,862) | $(109) | $(3,448) | | Total other comprehensive loss | $(1,576) | $(1,444) | $(66) | $(2,956) | | Comprehensive loss | $(36,979) | $(38,287) | $(69,185) | $(72,747) | Condensed Consolidated Statements of Stockholders' Equity This section presents the changes in the company's stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit, for the six months ended June 30, 2023 Key Changes in Stockholders' Equity (in thousands) - Six Months Ended June 30, 2023 | Item | Class A Common Stock (Shares) | Class A Common Stock (Amount) | Class B Common Stock (Shares) | Class B Common Stock (Amount) | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | | :------------------------------------ | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :------------------------- | :----------------------------------- | :------------------ | :------------------------- | | Balances as of Dec 31, 2022 | 153,693 | $15 | 218,029 | $22 | $1,231,482 | $(2,196) | $(618,255) | $611,068 | | Release of restricted stock units | 4,053 | — | — | — | — | — | — | — | | Conversion from Class B to Class A | 8,835 | $1 | (8,835) | $(1) | — | — | — | — | | Issuance of common stock upon exercise of stock options | 1,281 | — | — | — | $2,563 | — | — | $2,563 | | Issuance of common stock under ESPP | 560 | $1 | — | — | $1,075 | — | — | $1,076 | | Vesting of early exercised stock options | — | — | — | — | $164 | — | — | $164 | | Stock-based compensation | — | — | — | — | $37,392 | — | — | $37,392 | | Other comprehensive loss | — | — | — | — | — | $(66) | — | $(66) | | Net loss | — | — | — | — | — | — | $(69,119) | $(69,119) | | Balances as of June 30, 2023 | 168,422 | $17 | 209,194 | $21 | $1,272,676 | $(2,262) | $(687,374) | $583,078 | Condensed Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (in thousands) | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(26,049) | $(28,121) | | Net cash provided by (used in) investing activities | $52,625 | $(435,600) | | Net cash provided by (used in) financing activities | $3,639 | $(18,397) | | Effect of exchange rate changes on cash and cash equivalents | $43 | $492 | | Net increase (decrease) in cash and cash equivalents | $30,258 | $(481,626) | | Cash, cash equivalents, and restricted cash at beginning of period | $55,236 | $521,812 | | Cash, cash equivalents, and restricted cash at end of period | $85,494 | $40,186 | | Cash and cash equivalents (Balance Sheet) | $74,268 | $40,186 | | Restricted cash, non-current (Balance Sheet) | $11,226 | — | | Total cash, cash equivalents, and restricted cash | $85,494 | $40,186 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes accompanying the condensed consolidated financial statements, offering further insights into accounting policies, specific financial line items, and other relevant disclosures Note 1. Description of Business Nextdoor Holdings, Inc. is headquartered in San Francisco, California, and aims to cultivate a kinder world by being the neighborhood hub for trusted connections and the exchange of helpful information, goods, and services - Nextdoor's purpose is to cultivate a kinder world where everyone has a neighborhood they can rely on, serving as a hub for trusted connections and exchange of information, goods, and services[38] - The company consummated a Reverse Recapitalization on November 5, 2021, with Khosla Ventures Acquisition Co. II, which was subsequently renamed Nextdoor Holdings, Inc[39] Note 2. Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited condensed consolidated financial statements, which adhere to U.S. GAAP and include all wholly-owned subsidiaries - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and include the Company and its wholly-owned subsidiaries[40] - The preparation of financial statements requires management to make estimates and assumptions, which could differ materially from actual results[43] - The Company adopted ASU 2016-13, 'Financial Instruments—Credit Losses (Topic 326)', as of January 1, 2023, which did not have an impact on the condensed consolidated financial statements[47] Note 3. Deferred Revenue Deferred revenue represents payments collected upfront from customers for advertising arrangements before revenue recognition Deferred Revenue (in millions) | Metric | As of June 30, 2023 | As of December 31, 2022 | | :-------------------------------- | :------------------ | :-------------------- | | Deferred Revenue Balance | $7.6 | $6.0 | Revenue Recognized from Deferred Revenue (in millions) | Period | 2023 | 2022 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30, | $2.8 | $2.5 | | Six Months Ended June 30, | $2.8 | $2.8 | Note 4. Cash Equivalents and Marketable Securities This note details the amortized costs, unrealized gains and losses, and estimated fair values of the company's cash equivalents and marketable securities Cash Equivalents and Marketable Securities Fair Value (in thousands) - As of June 30, 2023 | Item | Amortized Cost | Unrealized Gain | Unrealized Loss | Estimated Fair Value | | :---------------------- | :------------- | :-------------- | :-------------- | :------------------- | | Money market funds | $51,608 | — | — | $51,608 | | Certificates of deposit | $35,214 | $2 | $(38) | $35,178 | | Commercial paper | $103,194 | $2 | $(101) | $103,095 | | Corporate bonds | $149,881 | $33 | $(1,095) | $148,819 | | U.S. Treasury securities | $71,234 | — | $(938) | $70,296 | | U.S. Agency bonds | $103,366 | $3 | $(324) | $103,045 | | Asset-backed securities | $16,949 | $1 | $(61) | $16,889 | | Total | $531,446 | $41 | $(2,557) | $528,930 | Cash Equivalents and Marketable Securities Fair Value (in thousands) - As of December 31, 2022 | Item | Amortized Cost | Unrealized Gain | Unrealized Loss | Estimated Fair Value | | :---------------------- | :------------- | :-------------- | :-------------- | :------------------- | | Money market funds | $20,381 | — | — | $20,381 | | Corporate bonds | $6,021 | $3 | — | $6,024 | | Commercial paper | $9,394 | — | $(3) | $9,391 | | Certificates of deposit | $44,732 | $9 | $(191) | $44,550 | | Commercial paper | $100,909 | $27 | $(92) | $100,844 | | Corporate bonds | $280,023 | $11 | $(1,980) | $278,054 | | U.S. Treasury securities | $41,646 | $3 | $(123) | $41,526 | | U.S. Agency bonds | $46,366 | $66 | $(22) | $46,410 | | Asset-backed securities | $16,798 | — | $(115) | $16,683 | | Total | $566,270 | $119 | $(2,526) | $563,863 | Contractual Maturities of Marketable Securities (in thousands) - As of June 30, 2023 | Maturity Period | Amortized Cost | Estimated Fair Value | | :-------------------- | :------------- | :------------------- | | Due within one year | $332,433 | $331,509 | | Due after one to three years | $147,405 | $145,813 | | Total | $479,838 | $477,322 | Contractual Maturities of Marketable Securities (in thousands) - As of December 31, 2022 | Maturity Period | Amortized Cost | Estimated Fair Value | | :-------------------- | :------------- | :------------------- | | Due within one year | $473,133 | $471,378 | | Due after one to four years | $57,341 | $56,689 | | Total | $530,474 | $528,067 | Note 5. Fair Value Measurements This note classifies the company's financial assets and liabilities measured at fair value on a recurring basis into Level 1 and Level 2 of the fair value hierarchy, with no Level 3 inputs Fair Value Measurements (in thousands) - As of June 30, 2023 | Item | Level 1 | Level 2 | Total | | :----------------------------------- | :------ | :------ | :------ | | Money market funds | $51,608 | — | $51,608 | | Certificates of deposit | — | $35,178 | $35,178 | | Commercial paper | — | $103,095 | $103,095 | | Corporate bonds | — | $148,819 | $148,819 | | U.S. Treasury securities | — | $70,296 | $70,296 | | U.S. Agency bonds | — | $103,045 | $103,045 | | Asset-backed securities | — | $16,889 | $16,889 | | Total cash equivalents and marketable securities | $51,608 | $477,322 | $528,930 | Fair Value Measurements (in thousands) - As of December 31, 2022 | Item | Level 1 | Level 2 | Total | | :----------------------------------- | :------ | :------ | :------ | | Money market funds | $20,381 | — | $20,381 | | Corporate bonds | — | $6,024 | $6,024 | | Commercial paper | — | $9,391 | $9,391 | | Certificates of deposit | — | $44,550 | $44,550 | | Commercial paper | — | $100,844 | $100,844 | | Corporate bonds | — | $278,054 | $278,054 | | U.S. Treasury securities | — | $41,526 | $41,526 | | U.S. Agency bonds | — | $46,410 | $46,410 | | Asset-backed securities | — | $16,683 | $16,683 | | Total cash equivalents and marketable securities | $20,381 | $543,482 | $563,863 | Note 6. Leases The company has non-cancellable office facility leases, primarily for its San Francisco headquarters, with terms extending to 2032 after an amendment in January 2023 Components of Lease Costs (in thousands) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Operating lease cost | $2,333 | $2,445 | $4,704 | $4,891 | | Short-term lease cost | $415 | $296 | $813 | $570 | | Variable lease cost | $868 | $242 | $1,312 | $414 | | Total | $3,616 | $2,983 | $6,829 | $5,875 | Other Operating Lease Information (in thousands) | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------------------------------- | :----------------------------- | :----------------------------- | | Cash paid for operating leases | $5,097 | $4,948 | | ROU assets obtained for new operating lease liabilities | $9,107 | — | Lease Terms and Discount Rates | Item | As of June 30, 2023 | As of June 30, 2022 | | :-------------------------------- | :------------------ | :------------------ | | Weighted average remaining lease term (years) | 8.8 | 6.8 | | Weighted average discount rate | 7.1% | 4.5% | Future Minimum Lease Payments (in thousands) - As of June 30, 2023 | Period | Amount | | :---------------- | :----- | | Remainder of 2023 | $5,250 | | 2024 | $10,657 | | 2025 | $10,977 | | 2026 | $10,777 | | 2027 | $10,586 | | Thereafter | $44,391 | | Total lease payments | $92,638 | | Less: imputed interest | $(23,184) | | Present value of lease liabilities | $69,454 | | Less: current operating lease liabilities | $(5,838) | | Long-term operating lease liabilities | $63,616 | Note 7. Commitments and Contingencies This note addresses the company's legal matters, indemnification obligations, and a loan agreement with Opportunity Finance Network (OFN) - No material adverse impact on consolidated results of operations, cash flows, or financial position is expected from pending legal matters as of June 30, 2023 and December 31, 2022[60] - The company did not incur material costs for indemnification claims during the three and six months ended June 30, 2023 and 2022, and believes the fair value of these liabilities is not material[60] - During the three and six months ended June 30, 2023, the company made a $2.5 million loan disbursement to Opportunity Finance Network (OFN) as part of a $15.0 million unsecured credit agreement[61] Note 8. Common Stock and Stockholders' Equity This note details the company's common stock subject to repurchase, equity incentive plans (2021 Plan and 2021 ESPP), and the Share Repurchase Program - As of June 30, 2023, less than $0.1 million was recorded for 4,792 unvested shares of common stock subject to repurchase[62] - The 2021 Equity Incentive Plan reserves shares for stock-based awards, with automatic annual increases based on outstanding Class A and Class B common stock[65] - The 2021 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase Class A common stock at a discount, with 559,707 shares purchased during the three and six months ended June 30, 2023[66] - The Board authorized a $100.0 million Share Repurchase Program expiring June 30, 2024; no shares were repurchased during the three and six months ended June 30, 2023, leaving $22.8 million available[67][69] Stock Option Activity (in thousands, except per share data) - Six Months Ended June 30, 2023 | Item | Number of Options | Weighted Average Exercise Price | | :-------------------------------- | :---------------- | :------------------------------ | | Outstanding at December 31, 2022 | 55,388 | $2.67 | | Options granted | 2,029 | $2.11 | | Options exercised | (1,281) | $2.00 | | Options forfeited or expired | (2,752) | $2.64 | | Outstanding at June 30, 2023 | 53,384 | $2.67 | | Exercisable at June 30, 2023 | 32,371 | $2.13 | | Vested or expected to vest at June 30, 2023 | 53,389 | $2.67 | RSU Activity (in thousands, except per share data) - Six Months Ended June 30, 2023 | Item | Number of Shares | Weighted Average Grant Date Fair Value | | :-------------------------- | :--------------- | :------------------------------------- | | Unvested at December 31, 2022 | 21,986 | $4.25 | | RSUs granted | 18,791 | $2.31 | | RSUs vested | (4,053) | $3.91 | | RSUs forfeited | (2,442) | $4.26 | | Unvested at June 30, 2023 | 34,282 | $3.23 | Note 9. Net Loss Per Share Attributable to Common Stockholders This note provides the computation of basic and diluted net loss per share for Class A and Class B common stockholders Net Loss Per Share Attributable to Common Stockholders (in thousands, except per share data) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss attributable to Class A common stockholders | $(15,141) | $(11,793) | $(29,219) | $(18,425) | | Net loss attributable to Class B common stockholders | $(20,262) | $(25,050) | $(39,900) | $(51,366) | | Weighted average shares used in computing net loss per share (Class A) | 160,763 | 123,271 | 158,299 | 101,248 | | Weighted average shares used in computing net loss per share (Class B) | 215,133 | 261,856 | 216,170 | 282,264 | | Net loss per share (Class A) | $(0.09) | $(0.10) | $(0.18) | $(0.18) | | Net loss per share (Class B) | $(0.09) | $(0.10) | $(0.18) | $(0.18) | Potentially Dilutive Securities Excluded from Diluted Net Loss Per Share (in thousands) | Item | As of June 30, 2023 | As of June 30, 2022 | | :------------------------------------------ | :------------------ | :------------------ | | Outstanding stock options | 53,384 | 55,440 | | Unvested RSUs | 34,282 | 15,620 | | Unvested early exercised stock options subject to repurchase | 5 | 266 | | Unvested restricted stock | — | 1,284 | | Shares issuable pursuant to the ESPP | 2,121 | 4,040 | | Contingently issuable shares | 7 | 7 | | Total | 89,799 | 76,657 | Note 10. Income Taxes The company's income tax provision for interim periods is based on an estimated annual effective tax rate, adjusted for discrete items Income Tax Expense (in millions) | Period | 2023 | 2022 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30, | $0.1 | < $0.1 | | Six Months Ended June 30, | $0.4 | $0.1 | - Income tax expense is primarily related to foreign taxes[79] Note 11. Geographical Information This note disaggregates revenue by customer geography, showing that the majority of the company's revenue and substantially all of its long-lived assets are located in the United States Revenue by Geography (in thousands) | Region | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | United States | $54,460 | $52,648 | $101,275 | $101,509 | | International | $2,429 | $1,893 | $5,385 | $4,032 | | Total | $56,889 | $54,541 | $106,660 | $105,541 | - Substantially all of the Company's long-lived assets are located in the United States[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key business metrics, revenue and expense trends, liquidity, and capital resources Overview Nextdoor's mission is to be the neighborhood hub for trusted connections and information exchange, operating in over 310,000 neighborhoods globally - Nextdoor operates in over 310,000 neighborhoods globally and is in 1 in 3 households in the United States as of June 30, 2023[83] Key Financial and Business Metrics | Metric | Three Months Ended June 30, 2023 | Change YoY | Six Months Ended June 30, 2023 | Change YoY | | :------------------------------------ | :------------------------------- | :--------- | :------------------------------ | :--------- | | Weekly Active Users (WAUs) | 41.6 million | +13% | N/A | N/A | | Average Revenue per WAU (ARPU) | $1.37 | -7% | N/A | N/A | | Revenue | $56.9 million | +4% | $106.7 million | +1% | | Total costs and expenses | $98.3 million | +6% | $186.9 million | +6% | | Net loss | $(35.4) million | -4% | $(69.1) million | -1% | | Adjusted EBITDA loss | $(18.6) million | -7% | $(40.3) million | +1% | | Cash, cash equivalents, and marketable securities | $551.6 million (as of June 30, 2023) | N/A | N/A | N/A | Key Business Metrics The company uses Weekly Active Users (WAUs) and Average Revenue per Weekly Active User (ARPU) to evaluate business performance - Weekly Active Users (WAUs) increased by 13% year-over-year, reaching 41.6 million for the three months ended June 30, 2023[87] - Average Revenue per Weekly Active User (ARPU) decreased by 7% year-over-year to $1.37 for the three months ended June 30, 2023, primarily due to stronger WAU growth relative to revenue growth[92] - U.S. ARPU is higher due to earlier monetization focus, audience size and maturity, and the size of the U.S. advertising market[92] Components of Results of Operations This section defines the components of the company's results of operations - Substantially all revenue is generated from online display advertisements (CPM, CPC, fixed-fee basis), with the majority from the United States[95] - Cost of revenue includes third-party hosting, allocated personnel costs for revenue-generating products, and credit card transaction fees[96][97] - Research and development expenses consist mainly of personnel-related costs, consultants, contractors, third-party software, and allocated overhead[98] - Sales and marketing expenses include personnel costs, commissions, third-party consulting, public relations, brand and performance marketing (user and customer acquisition), and neighbor services[99][100] - General and administrative expenses cover personnel costs for executives, finance, legal, IT, HR, professional services, and allocated overhead[101] - Interest income is earned on cash, cash equivalents, and marketable securities[102] - Other income (expense), net, primarily consists of unrealized gains/losses from non-functional currency re-measurement and foreign currency transaction gains/losses[103] - Provision for income taxes is mainly for foreign and state jurisdictions, with a full valuation allowance on U.S. federal and state deferred tax assets[104] Results of Operations The company's revenue increased by 4% for Q2 2023 and 1% for the six months ended June 30, 2023, driven by improved advertiser demand and user engagement Revenue (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three Months Ended June 30, | $56,889 | $54,541 | $2,348 | 4% | | Six Months Ended June 30, | $106,660 | $105,541 | $1,119 | 1% | - Revenue increase was primarily due to improvements in advertiser demand and increased user engagement (13% increase in Q2 WAUs); ARPU decreased 7% (Q2) and 11% (YTD) due to stronger WAU growth relative to revenue growth[109][110] Cost of Revenue (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three Months Ended June 30, | $10,438 | $10,187 | $251 | 2% | | Six Months Ended June 30, | $20,351 | $19,242 | $1,109 | 6% | - Cost of revenue increased due to higher allocated personnel-related costs (Q2 and YTD) and third-party hosting costs (YTD), partially offset by decreased merchant processing fees (YTD)[111][112] Research and Development Expenses (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three Months Ended June 30, | $37,117 | $32,699 | $4,418 | 14% | | Six Months Ended June 30, | $70,099 | $61,659 | $8,440 | 14% | - R&D expenses increased primarily due to higher personnel-related costs from increased headcount (Q2 and YTD) and increased third-party software costs (YTD)[113][114] Sales and Marketing Expenses (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three Months Ended June 30, | $31,386 | $32,627 | $(1,241) | (4)% | | Six Months Ended June 30, | $60,595 | $63,688 | $(3,093) | (5)% | - Sales and marketing expenses decreased due to a significant reduction in performance marketing costs for user acquisition, partially offset by increased personnel-related costs and marketing for small and mid-sized customers[115][116] General and Administrative Expenses (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three Months Ended June 30, | $19,390 | $17,283 | $2,107 | 12% | | Six Months Ended June 30, | $35,869 | $32,433 | $3,436 | 11% | - G&A expenses increased due to higher personnel-related costs from increased headcount, partially offset by decreased insurance expenses[117][118] Interest Income (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three Months Ended June 30, | $6,356 | $2,153 | $4,203 | 195% | | Six Months Ended June 30, | $11,869 | $2,644 | $9,225 | 349% | - Interest income increased significantly due to higher interest rates[119][120] Other Income (Expense), Net (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three Months Ended June 30, | $(193) | $(708) | $515 | (73)% | | Six Months Ended June 30, | $(309) | $(893) | $584 | (65)% | - Other expense decreased primarily due to the periodic re-measurement of monetary assets and liabilities denominated in non-functional currencies[121][122] Provision for Income Taxes (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three Months Ended June 30, | $124 | $33 | $91 | 276% | | Six Months Ended June 30, | $425 | $61 | $364 | 597% | - Provision for income taxes increased primarily due to foreign income tax expenses[123][124] Liquidity and Capital Resources The company has historically generated negative cash flows from operations and financed itself through equity sales and the Business Combination - The company has generated negative cash flows from operations since inception and has an accumulated deficit of $687.4 million as of June 30, 2023[125][126] - As of June 30, 2023, the company had $551.6 million in cash, cash equivalents, and marketable securities[127] - The company expects to incur significant R&D, sales & marketing, and G&A expenses and anticipates continued operating losses for the foreseeable future[126] - Future capital may be raised through equity or debt securities, which could dilute existing stockholders or impose restrictive covenants[128] - As of June 30, 2023, $22.8 million remained available for future share repurchases under the Share Repurchase Program, which did not see any repurchases during the three and six months ended June 30, 2023[130] Cash Flows For the six months ended June 30, 2023, net cash used in operating activities was $26.0 million, a decrease from $28.1 million in the prior year, primarily due to non-cash charges and changes in operating assets and liabilities Summary of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(26,049) | $(28,121) | | Net cash provided by (used in) investing activities | $52,625 | $(435,600) | | Net cash provided by (used in) financing activities | $3,639 | $(18,397) | - Operating cash outflow decreased due to non-cash charges (stock-based compensation, depreciation) and net cash inflows from changes in operating assets and liabilities (accrued expenses, operating lease ROU assets, prepaid expenses, accounts receivable, accounts payable), partially offset by lease payments[132][133] - Investing cash flow turned positive, driven by proceeds from maturities ($306.8 million) and sales ($51.6 million) of marketable securities, partially offset by purchases ($303.2 million) and a loan to OFN ($2.5 million)[134][135] - Financing cash flow turned positive due to proceeds from stock option exercises ($2.6 million) and ESPP ($1.1 million), contrasting with prior year's cash use for share repurchases and tax withholdings[136][137] Non-GAAP Financial Measure This section defines Adjusted EBITDA as a non-GAAP financial measure used by management to assess performance and make strategic decisions - Adjusted EBITDA is a non-GAAP measure representing net loss adjusted for depreciation and amortization, stock-based compensation, net interest income, provision for income taxes, and acquisition-related costs[138] - Adjusted EBITDA is used for performance assessment, budget preparation, and strategic decisions, providing a consistent overview of operations[139] Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(35,403) | $(36,843) | $(69,119) | $(69,791) | | Depreciation and amortization | $1,454 | $1,374 | $2,905 | $2,704 | | Stock-based compensation | $21,576 | $17,544 | $37,392 | $29,688 | | Interest income | $(6,356) | $(2,153) | $(11,869) | $(2,644) | | Provision for income taxes | $124 | $33 | $425 | $61 | | Adjusted EBITDA | $(18,605) | $(20,045) | $(40,266) | $(39,982) | Critical Accounting Policies and Estimates The company prepares its financial statements using GAAP, which requires estimates and assumptions - No material changes to critical accounting policies requiring estimates, assumptions, and judgments compared to the Annual Report on Form 10-K for the year ended December 31, 2022[142] Recently Issued Accounting Pronouncements This section refers to Note 2 of the unaudited condensed consolidated financial statements for information regarding recently issued accounting pronouncements - Refer to Note 2 for information regarding recently issued accounting pronouncements[143] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks primarily from fluctuations in interest rates and foreign currency exchange rates - Primary market risk exposures are fluctuations in interest rates and foreign currency exchange rates[144] - A hypothetical 100 basis point change in interest rates would not have a material effect on the fair value of the investment portfolio due to its short-term nature[145] - Operating expenses in foreign currencies (British Pound, Euro, Canadian Dollar, Australian Dollar) expose the company to foreign currency risk, but a 10% change in USD value is not believed to materially affect financial statements for the periods presented[146] Item 4. Controls and Procedures Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, at a reasonable assurance level - Disclosure controls and procedures were effective as of June 30, 2023, at the reasonable assurance level[147] - No changes in internal control over financial reporting occurred during the period that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[148] - Control systems provide only reasonable, not absolute, assurance, and can be subject to errors, mistakes, circumvention, or management override[149] Part II - Other Information This part provides additional information including legal proceedings, detailed risk factors, equity sales, and exhibit listings Item 1. Legal Proceedings The company is not currently a party to any legal proceedings that, if determined adversely, would individually or collectively have a material adverse effect on its business or financial results - The company is not currently a party to any legal proceedings that would have a material adverse effect on its business or financial results[151] Item 1A. Risk Factors This extensive section details various risks that could materially and adversely affect the company's business, operating results, financial condition, and prospects - Risks Related to Business and Industry: Limited operating history, dependence on advertising revenue, intense competition, reliance on technical infrastructure, challenges in managing growth, brand identity and reputation, international expansion, and ability to attract/retain talented employees[154][155][156][157][158][159][160][161][162][163][164][165][166][167][168][169][170][171][172][173][174][175][176][177][178][179][180][181][182][183][184][185][186][187][188][189][190][191][192][193][194][195][196][197][198][199] - Risks Related to Security and Technology: Dependence on third-party software (GAM, AWS), reliance on third parties for neighbor verification, ad-blocking technologies, security breaches, and errors/bugs in technical systems[200][201][202][203][204][205][206][207][208][209][210][211][212][213][214][215][216][217][218][219][220][221] - Risks Related to Financial and Accounting Matters: Fluctuating operating results, potential inaccuracy of market opportunities and key metric estimates, history of net losses, limitations on NOLs, changes in accounting principles, currency exchange rate fluctuations, and greater than anticipated tax liabilities[222][223][224][225][226][227][228][229][230][231][232][233][234][235][236][237][238][239][240] - Risks Related to Legal and Regulatory Matters: Liability from content on the platform, government restrictions on access, complex and evolving U.S. and foreign laws (e.g., DSA, Online Safety Bill, CCPA, GDPR), legal disputes, and exposure to UK political developments (Brexit)[241][242][243][244][245][246][247][248][249][250][251][252][253][254][255][256][257][258][259][260][261][262][263][264][265][266][267][268][269][270] - Risks Related to Intellectual Property: Inability to protect intellectual property, confidentiality agreement limitations, third-party infringement claims, and risks associated with open source software and licensed technology[271][272][273][274][275][276][277][278][279][280][281][282][283][284] - Risks Related to Ownership of Class A Common Stock: Volatile stock price, adverse effects of dual class structure, no intention to pay cash dividends, reliance on analyst research, potential securities litigation, and anti-takeover provisions[285][286][287][288][289][290][291][292][293][294][295][296][297][298][299][300][301][302] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the initial public offering (IPO) and private placement of securities by Khosla Ventures Acquisition Co. II (KVSB) prior to the Business Combination, and the subsequent use of proceeds - KVSB consummated its IPO of 41,634,412 public shares at $10.00 per share, generating $416.3 million gross proceeds[304] - A private placement of 1,132,688 shares at $10.00 per share to the Sponsor generated $11.3 million gross proceeds, issued under Section 4(a)(2) of the Securities Act[305] - After deducting IPO costs and payments to KVSB shareholders, $416.3 million from the trust account was used to fund operations and growth[306] - No shares were repurchased under the $100.0 million Share Repurchase Program during the three and six months ended June 30, 2023, with $22.8 million remaining available[307] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not applicable[308] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - Not applicable[309] Item 5. Other Information There is no other information to report under this item - None[310] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL documents - Includes Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) and 18 U.S.C. Section 1350[312] - Includes Inline XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, Label Linkbase Document, Presentation Linkbase Document, and Cover Page Interactive Date File[312] Signatures This section contains the official signatures for the Quarterly Report on Form 10-Q, confirming its submission by duly authorized officers of Nextdoor Holdings, Inc Report Signatures This section contains the official signatures for the Quarterly Report on Form 10-Q, confirming its submission by duly authorized officers of Nextdoor Holdings, Inc - The Quarterly Report on Form 10-Q is signed by Sarah Friar, Chief Executive Officer, President and Chairperson of the Board of Directors (Principal Executive Officer), and Michael Doyle, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)[317][318]