Nextdoor (US:KIND)2023-11-07 21:07Part I - Financial Information Item 1. Financial Statements (Unaudited) This section presents Nextdoor Holdings, Inc.'s unaudited condensed consolidated financial statements, reporting a net loss of $38.1 million for Q3 2023 and $107.2 million for the first nine months of 2023 Condensed Consolidated Balance Sheets Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $48,444 | $55,236 | | Marketable securities | $491,283 | $528,067 | | Total Assets | $670,100 | $699,562 | | Total Liabilities | $96,919 | $88,494 | | Total Stockholders' Equity | $573,181 | $611,068 | Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD 2023 (in thousands) | YTD 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $56,092 | $53,954 | $162,752 | $159,495 | | Total costs and expenses | $100,468 | $90,346 | $287,382 | $267,368 | | Loss from operations | $(44,376) | $(36,392) | $(124,630) | $(107,873) | | Net loss | $(38,116) | $(34,717) | $(107,235) | $(104,508) | | Net loss per share | $(0.10) | $(0.09) | $(0.28) | $(0.27) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive Loss Summary (in thousands) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD 2023 (in thousands) | YTD 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(38,116) | $(34,717) | $(107,235) | $(104,508) | | Comprehensive loss | $(38,066) | $(35,135) | $(107,251) | $(107,882) | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased from $611.1 million at the end of 2022 to $573.2 million as of September 30, 2023, primarily driven by a net loss of $107.2 million, partially offset by $60.7 million in stock-based compensation31 Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(44,336) | $(40,797) | | Net cash provided by (used in) investing activities | $40,188 | $(325,407) | | Net cash provided by (used in) financing activities | $8,455 | $(65,660) | | Net increase (decrease) in cash | $4,379 | $(431,081) | Notes to Condensed Consolidated Financial Statements - As of September 30, 2023, the company had $22.8 million available for future share repurchases under its Share Repurchase Program, authorized through June 30, 2024, with no shares repurchased during the three and nine months ended September 30, 202368 Stock-Based Compensation Expense (in thousands) | Period | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD 2023 (in thousands) | YTD 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total | $23,343 | $17,270 | $60,735 | $46,957 | Revenue by Geography (in thousands) | Region | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD 2023 (in thousands) | YTD 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | United States | $52,964 | $52,205 | $154,239 | $153,715 | | International | $3,128 | $1,749 | $8,513 | $5,780 | | Total | $56,092 | $53,954 | $162,752 | $159,495 | - Subsequent to the quarter end, on November 7, 2023, the company announced a Cost Reduction Plan impacting approximately 25% of its full-time employees, estimating one-time charges of approximately $12 million in cash expenditures and $0.5 million in stock-based compensation expense, with the majority expected in Q4 20238182 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 financial performance, noting a 4% revenue increase to $56.1 million, 6% WAU growth to 40.4 million, but a 2% ARPU decrease and a widened net loss of $38.1 million Key Business Metrics - Weekly Active Users (WAUs) grew 6% year-over-year, reaching 40.4 million for the three months ended September 30, 2023, up from 38.3 million in the same period of 20228789 - Average Revenue Per Weekly Active User (ARPU) decreased by 2% to $1.39 for the three months ended September 30, 2023, compared to $1.41 in the prior-year period, attributed to WAU growth outpacing revenue growth8794 Results of Operations Revenue Change (in thousands) | Period | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change ($ in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $56,092 | $53,954 | $2,138 | 4% | - Research and development expenses increased by 19% in Q3 2023 compared to Q3 2022, primarily due to a $5.1 million increase in personnel-related costs driven by higher headcount115 - Sales and marketing expenses increased 5% in Q3 2023, driven by a $4.1 million increase in personnel costs, partially offset by a $2.7 million decrease in brand and performance marketing spend as focus shifted to organic user acquisition117 - Interest income increased by 150% to $6.8 million in Q3 2023 from $2.7 million in Q3 2022, primarily driven by higher interest rates121122 Liquidity and Capital Resources - As of September 30, 2023, the company had $539.7 million in cash, cash equivalents, and marketable securities, with an accumulated deficit of $725.5 million, and expects to continue incurring operating losses for the foreseeable future128129 - Net cash used in operating activities was $44.3 million for the nine months ended September 30, 2023, compared to $40.8 million in the same period of 2022133134 - The company has a share repurchase program with $22.8 million remaining available for future repurchases as of September 30, 2023, with no shares repurchased during the quarter132 Non-GAAP Financial Measure Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD 2023 (in thousands) | YTD 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(38,116) | $(34,717) | $(107,235) | $(104,508) | | Adjusted EBITDA | $(19,799) | $(18,366) | $(60,065) | $(58,349) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposures stem from interest rate and foreign currency fluctuations, with management assessing no material impact from hypothetical 100 basis point or 10% changes respectively - The company's investment portfolio is subject to interest rate risk, but due to its short-term nature, a hypothetical 100 basis point change in interest rates is not expected to have a material effect on its fair value147 - While operating expenses are subject to foreign currency fluctuations, the majority of revenue is denominated in U.S. Dollars, and a 10% change in the U.S. Dollar's relative value is not believed to have materially affected its financial statements148 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023149 - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls150 Part II - Other Information Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial results - The company is not presently a party to any legal proceedings that would individually or in aggregate have a material adverse effect on its business or financial results155 Item 1A. Risk Factors This section details risks including advertising revenue dependence, intense competition, user growth challenges, security breaches, third-party reliance, historical net losses, evolving regulations, and stock ownership risks Risks Related to Business and Industry - The company has a limited operating history at its current scale and is still in the early stages of monetization, making future prospects difficult to evaluate158159 - Substantially all revenue is generated from advertising; a reduction in advertiser spending due to macroeconomic conditions, competition, or changes in platform effectiveness could adversely impact financial results161 - The business is highly competitive, facing threats from large companies like Meta and Alphabet, which have broader product offerings and greater resources172 - In November 2023, the company initiated a restructuring plan to reduce its workforce by approximately 25% to manage costs and improve efficiency in response to changing economic conditions186 Risks Related to Security and Technology - The company is dependent on third-party software and service providers, including Google Ad Manager (GAM) for ad delivery and Amazon Web Services (AWS) for platform hosting, where any failure or interruption could significantly disrupt business207208 - Security breaches, hacking, and phishing attacks pose a significant risk, potentially leading to improper disclosure of user data, harm to the company's reputation, and legal or regulatory action215 - Distribution and access to the platform depend on third-party mobile app stores, and changes in their policies, such as Apple's App Tracking Transparency framework, could limit the ability to target and measure advertising effectively224 Risks Related to Financial and Accounting Matters - The company has a history of net losses, including $107.2 million for the first nine months of 2023, and an accumulated deficit of $725.5 million as of September 30, 2023, with future profitability not assured238 - Operating results may fluctuate significantly due to factors like advertiser spending, macroeconomic conditions, and seasonality, making future performance difficult to predict230 - The company's key metrics, such as WAUs, are calculated using internal data and are subject to inaccuracies, particularly due to changes like Apple's email privacy features which require estimations236 Risks Related to Legal and Regulatory Matters - The company may be held liable for content published by users on its platform, facing claims of defamation, intellectual property infringement, or other damages, despite protections like the CDA and DMCA249250 - The business is subject to complex and evolving U.S. and foreign laws regarding data privacy and security, such as the GDPR in Europe and the CCPA/CPRA in California, which could increase compliance costs and potential liability253257259 - New regulations like the EU's Digital Services Act (DSA) and the UK's Online Safety Act will impose new obligations for content moderation, potentially increasing liability and compliance costs256 Risks Related to Ownership of Class A Common Stock - The stock price has been and may continue to be volatile due to a variety of factors including operating results, competitor actions, and market conditions296 - The dual-class stock structure concentrates voting power with holders of Class B common stock (10 votes per share), limiting the influence of Class A stockholders on corporate matters299 - The company does not intend to pay cash dividends for the foreseeable future, planning to retain earnings for business development and its share repurchase program301 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section confirms no unregistered equity sales, details IPO proceeds use, and notes no share repurchases during the quarter, with $22.8 million remaining for future repurchases - The company did not repurchase any shares of its Class A common stock during the three and nine months ended September 30, 2023318 - As of September 30, 2023, $22.8 million remained available for future repurchases under the authorized Share Repurchase Program, which expires on June 30, 2024318 Item 3. Defaults Upon Senior Securities This section is not applicable to the company's current financial structure or reporting requirements - Not applicable319 Item 4. Mine Safety Disclosures This section is not applicable to the company's operations or industry - Not applicable319 Item 5. Other Information This section contains no additional material information to report - None320 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including officer certifications and XBRL data files