Nextdoor (KIND) - 2023 Q4 - Annual Report

Special Note Regarding Forward-Looking Statements Forward-Looking Statements Overview This section highlights that the Annual Report contains forward-looking statements about Nextdoor's future expectations, hopes, beliefs, intentions, strategies, and financial position, subject to risks and uncertainties detailed in the 'Risk Factors' section, where actual results may differ materially from those anticipated - Forward-looking statements cover anticipated growth (new neighbor growth, engagement, monetization), business scaling, macroeconomic climate impacts (advertising industry, global banking, recession, inflation, interest rates), international expansion, technology investments, profitability, capital access, strategic relationships, stock listing, regulatory changes, internal control effectiveness, and impacts from catastrophic events[9] - Readers are cautioned not to rely on forward-looking statements as predictions of future events, as actual results could differ materially due to competitive and rapidly changing environments, and the company expressly disclaims any duty to update such statements[11][12] Risk Factor Summary Key Business Risks Nextdoor's business faces numerous risks, including a limited operating history and challenges in scaling monetization, vulnerability to adverse global economic conditions, heavy reliance on advertising revenue, intense competition, and dependence on maintaining and scaling its technical infrastructure, with a history of net losses and uncertain sustained profitability - Limited operating history and scaling monetization efforts make future prospects difficult to evaluate, with no assurance of sustained growth[16] - Adverse global economic and financial conditions (e.g., health epidemics, wars, inflation, interest rates) could harm business and financial condition, especially given the majority of revenue is from the U.S[16] - Substantially all revenue comes from advertising; reductions in advertiser spending would adversely impact the business[16] - The business operates in a highly competitive environment, posing an ongoing threat to success[16] - Dependence on maintaining and scaling product offerings and technical infrastructure means significant disruptions could damage reputation and lead to loss of users and engagement[16] - Failure to effectively scale the business, build strong brand identity, or successfully expand international operations could adversely affect financial results[16] - Potential need for additional capital, dependence on attracting and retaining talented employees, and reliance on third-party software/service providers (e.g., Google Ad Manager, AWS) are significant risks[16] - Threats include ad-blocking technologies, security breaches, reliance on third-party distribution platforms (e.g., mobile app stores), and potential liability from content on the platform[16] - The company has a history of net losses and may continue to experience them, making sustained profitability uncertain[19] - Other risks include potential tax liabilities, uncertainty regarding the Share Repurchase Program, complex and evolving U.S. and foreign laws/regulations, legal disputes, and challenges in maintaining effective internal controls[19] PART I Business Overview Nextdoor operates a platform focused on fostering local community connections, enabling neighbors, businesses, and public services to exchange information, goods, and services, generating revenue primarily through advertising solutions, leveraging unique local data and AI/ML to enhance targeting and user experience, while emphasizing a 'kind platform' through community guidelines and moderation, and expanding internationally with technology and human capital investments - Nextdoor's purpose is to cultivate a kinder world where everyone has a neighborhood they can rely on, connecting neighbors, businesses, and public services[21] - As of December 31, 2023, Nextdoor was active in over 325,000 neighborhoods globally and in 1 in 3 U.S. households, with 88 million global Verified Neighbors[21] - The platform offers features like Feed, Discover tab (maps for neighbors, groups, businesses, events), Search, and a local marketplace (For Sale & Free)[23][24] - Nextdoor provides critical, real-time information from trusted officials and leverages a unique local data set (events, safety reports, recommendations, demographics) and AI/ML for improved notifications, interactions, ad delivery, and content moderation[25][26] - Advertising solutions aim to generate value for businesses by enabling targeted reach based on local context, supporting brand awareness, consideration, and sales across various platform surfaces (Feed, Search, For Sale & Free, email)[27][28] - The ad platform primarily uses an auction-based system, selecting ads based on likelihood of desired action and advertiser value, with continuous improvements in ad formats and purchase/delivery methods[29][30] - Nextdoor offers measurement solutions, including a Conversion API, and utilizes its neighborhood graph for effective targeting of high-value audiences (homeowners, parents, recent movers)[32][33] - The company's go-to-market strategy combines a self-service ads platform with a dedicated global sales force for managed campaigns[34] - Nextdoor fosters a 'kind platform' through clear Community Guidelines, real-name/address verification, a Neighbor Pledge, and a combination of human review (nearly 200,000 volunteer moderators) and AI/ML tools (Kindness Reminder, Post Assistant) to promote civility and positive engagement[35][36][37] - Technology investments focus on enhancing user and customer experiences globally, including generative AI for content personalization and kindness, and proprietary ad platform improvements for targeting and measurement[38][39] - Intellectual property protection relies on patents (10 issued in the U.S. as of Dec 31, 2023), trademarks (NEXTDOOR, logos), copyrights, domain names, trade secrets, and contractual agreements[40][42] - As of December 31, 2023, Nextdoor had 594 employees across the U.S. and international locations, guided by core values like 'Earn trust everyday' and 'Invest in community'[44][47] - The company emphasizes Diversity, Equity, Inclusion, and Belonging (DEIB) in talent recruitment, retention, and development, reflected in diverse leadership and active Employee Resource Groups[45][46][47] - Nextdoor competes with social media companies (Meta, Alphabet), home services, classifieds, real estate, recommendations, and search engines, but believes its singular focus on neighborhood networks, user base, local trusted information, and network effects provide a competitive advantage[52][53][54] - The company is subject to complex and evolving U.S. and foreign laws and regulations concerning data privacy, intellectual property, content, advertising, and consumer protection, with new legislation (e.g., DSA, Online Safety Act) potentially increasing compliance burdens and liabilities[55][56][57][58] - Nextdoor Holdings, Inc. was incorporated in Delaware on January 29, 2021, following a business combination with Legacy Nextdoor on November 5, 2021, and is headquartered in San Francisco, California[59][60] Risk Factors This section details the significant risks that could adversely affect Nextdoor's business, operating results, financial condition, and stock price, spanning operational challenges, market competition, technological dependencies, financial uncertainties, legal and regulatory compliance, and factors related to stock ownership - Risks include limited operating history, difficulty scaling monetization, adverse global economic conditions, heavy reliance on advertising revenue, intense competition, and dependence on platform availability and technical infrastructure[67][68][69][70][71][72][73][74][75][76][77][78][79][80][81][82][83][84][85][87][88][89][90][91][92][93][94][95][96][97][98][99][100][101][102][103][104][105][106][107][108] - Technological risks involve dependence on third-party providers (e.g., Google Ad Manager, AWS), ad-blocking technologies, security breaches, and potential errors or vulnerabilities in software and hardware[118][119][120][121][122][123][124][125][126][127][128][129][130][131][132][133][134][135][136][137][138][139][140][141] - Financial risks include significant fluctuations in operating results, potential inaccuracies in key metric estimates, a history of net losses, limitations on net operating loss (NOL) utilization, changes in accounting principles, foreign currency exchange rate fluctuations, and greater than anticipated tax liabilities[142][143][144][145][146][147][148][149][150][151][152][153][154][155][156][157][158][159][160][161] - Legal and regulatory risks encompass liability for platform content, government restrictions on access, complex and evolving laws (e.g., data privacy, content regulation), and potential involvement in expensive and time-consuming legal disputes, including intellectual property claims[162][163][164][165][166][167][168][169][170][171][172][173][174][175][176][177][178][179][180][181][182][183] - Risks related to stock ownership include volatility in Class A common stock price, the dual-class structure concentrating voting power, no intention to pay cash dividends, and potential securities litigation[208][209][210][211][212][213][214][215][216][217][218][219][220][221][222][223][224] Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments[225] Cybersecurity Nextdoor employs a comprehensive, cross-functional cybersecurity strategy based on industry standards to manage risks, preserve data confidentiality, security, and availability, with the Board of Directors, through the Audit & Risk Committee, overseeing cybersecurity risks with guidance from the Chief Information Security Officer (CISO) - Nextdoor's cybersecurity strategy involves enterprise risk management, vulnerability management, vendor risk management, privacy risk management, security monitoring, and incident response[226] - In 2023, no cybersecurity threats materially affected or were reasonably likely to materially affect the business strategy, results of operations, or financial condition[227] - The Board of Directors oversees cybersecurity risks via periodic updates from the CISO to the Audit & Risk Committee[228][229] - The CISO has over 20 years of experience in technology and cybersecurity, holding multiple security certifications[230] Properties Nextdoor's headquarters are in San Francisco, California, and it maintains leased offices in various U.S. and international locations, believing its current facilities are adequate and suitable additional space will be available if needed - Headquarters are in San Francisco, California, with approximately 115,770 square feet[231] - As of December 31, 2023, offices are maintained in the United States, Canada, the United Kingdom, the Netherlands, Ireland, France, and Australia, all of which are leased[44][231] Legal Proceedings Nextdoor is not currently a party to any legal proceedings that would individually or collectively have a material adverse effect on its business or financial results - No material adverse legal proceedings or claims are currently pending against the company[232] Mine Safety Disclosures This item is not applicable to Nextdoor Holdings, Inc - Not applicable[233] PART II Market for Common Equity, Stockholder Matters, and Equity Purchases Nextdoor's Class A common stock trades on the NYSE under 'KIND', while Class B common stock is not publicly traded, with the company having a dual-class structure, no intention to pay cash dividends, and an active share repurchase program that was recently increased and extended - Class A common stock began trading on the New York Stock Exchange (NYSE) under the symbol 'KIND' on November 8, 2021, while Class B common stock is not listed or traded[236] - As of February 23, 2024, there were 72 stockholders of record for Class A common stock and 318 for Class B common stock[237] - The company has never declared or paid cash dividends and does not expect to in the foreseeable future, intending to retain earnings for business development and the Share Repurchase Program[238][213] - On May 31, 2022, a Share Repurchase Program of up to $100.0 million for Class A common stock was authorized, expiring June 30, 2024, with $22.8 million remaining available as of December 31, 2023[244] - On February 21, 2024, the Board approved an increase of $150.0 million to the Share Repurchase Program and extended the expiration date to March 31, 2026[244][465][466] - The company's initial public offering in March 2021 generated $416.3 million gross proceeds, and a private placement added $11.3 million, with $416.3 million initially deposited into a trust account after redemptions and transaction costs[241][242][243] [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Nextdoor's financial performance for 2023 showed a 3% increase in revenue to $218.3 million, but net loss increased to $147.8 million, primarily due to higher operating expenses including restructuring charges, as the company implemented a cost reduction plan, reducing headcount by 25%, and continues to invest in user engagement, monetization, and international expansion, maintaining strong liquidity with $531.1 million in cash and marketable securities - Nextdoor's purpose is to cultivate a kinder world where everyone has a neighborhood they can rely on, serving 88 million global Verified Neighbors across 325,000+ neighborhoods as of Q4 2023[250] Key Business Metrics (Q4 2023 vs. Q4 2022) | Metric | Q4 2023 | Q4 2022 | Change (%) | | :----- | :------ | :------ | :--------- | | WAUs (millions) | 41.8 | 40.0 | 5% | | ARPU ($) | $1.33 | $1.33 | 0% | Financial Results (Year Ended December 31, 2023 vs. 2022) | Metric | 2023 (in millions) | 2022 (in millions) | Change (%) | | :----- | :----------------- | :----------------- | :--------- | | Revenue | $218.3 | $212.8 | 3% | | Total Costs & Expenses | $390.6 | $357.0 | 9% | | Net Loss | $(147.8) | $(137.9) | 7% | | Adjusted EBITDA Loss | $(74.1) | $(75.5) | -2% | | Cash, Cash Equivalents, & Marketable Securities | $531.1 | $583.3 | -9% | - In Q4 2023, Nextdoor implemented a Cost Reduction Plan, including a 25% reduction in full-time employee headcount, resulting in $11.1 million in restructuring charges[252][253] - Revenue increase was driven by increased advertiser demand and user engagement (9% increase in 2023 WAUs), despite a 6% decrease in full-year ARPU due to stronger WAU growth relative to revenue growth[281] - Operating expenses increased, with Research and Development up 18% ($22.9 million) due to higher personnel costs and third-party software, and General and Administrative up 12% ($8.3 million) also due to personnel costs[283][285] - Sales and Marketing expenses remained flat, with a $14.7 million decrease in performance marketing for user acquisition (shift to organic channels) offset by a $15.3 million increase in personnel-related costs[284] - Interest income significantly increased by 177% ($16.5 million) due to higher interest rates[286] - Cash used in operating activities decreased slightly to $59.3 million in 2023 from $60.5 million in 2022, primarily due to non-cash charges (stock-based compensation, depreciation) and net cash inflows from changes in operating assets and liabilities[295][297] - Cash provided by investing activities was $66.5 million in 2023, a significant shift from $342.4 million used in 2022, driven by proceeds from maturities and sales of marketable securities offsetting new purchases[298][299] - Cash provided by financing activities was $8.9 million in 2023, mainly from stock option exercises and ESPP, compared to $64.3 million used in 2022 due to common stock repurchases[300][301] - Adjusted EBITDA loss decreased by 2% to $74.1 million in 2023, reflecting adjustments for non-cash items like stock-based compensation and restructuring charges[302][304] - Critical accounting policies include revenue recognition (primarily advertising impressions), leases (ROU assets and liabilities), stock-based compensation (Black-Scholes model), and income taxes (deferred taxes, valuation allowance)[307][308][310][311][312] Quantitative and Qualitative Disclosures About Market Risk Nextdoor is exposed to market risks primarily from fluctuations in interest rates and foreign currency exchange rates, with its investment portfolio being short-term, limiting interest rate sensitivity, and while most revenue is USD-denominated, international operating expenses create foreign currency exposure, though currently not hedged - Market risk exposure primarily stems from fluctuations in interest rates and foreign currency exchange rates[314] - As of December 31, 2023, cash and cash equivalents were $60.2 million and marketable securities were $470.9 million, and due to the short-term nature of the investment portfolio, a hypothetical 100 basis point change in interest rates would not materially affect its fair value[315] - The majority of revenue is U.S. Dollar-denominated, limiting foreign currency risk on revenue, however, international operating expenses (e.g., British Pound, Euro, Canadian Dollar, Australian Dollar) are subject to exchange rate fluctuations[316][317] - The company does not currently hedge foreign currency exposure but may do so if it becomes more significant[317] Financial Statements and Supplementary Data This section presents Nextdoor's audited consolidated financial statements for the years ended December 31, 2023, 2022, and 2021, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with independent auditor's reports and detailed notes on significant accounting policies, financial instruments, and other financial disclosures - The consolidated financial statements include the balance sheets, statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders' equity, and cash flows for the periods ended December 31, 2023, 2022, and 2021[323] - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and on the effectiveness of internal control over financial reporting as of December 31, 2023[323][324][334] - A critical audit matter identified was Revenue Recognition, due to complex proprietary systems and high volume of low monetary value transactions, requiring significant audit effort to test completeness and accuracy[327][330] Consolidated Balance Sheet Highlights (as of December 31, in thousands) | Item | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Total Assets | $654,564 | $699,562 | | Total Liabilities | $96,007 | $88,494 | | Total Stockholders' Equity | $558,557 | $611,068 | Consolidated Statements of Operations Highlights (Year Ended December 31, in thousands) | Item | 2023 | 2022 | 2021 | | :------------------------ | :----- | :----- | :----- | | Revenue | $218,309 | $212,765 | $192,197 | | Total Costs and Expenses | $390,593 | $356,969 | $287,003 | | Loss from Operations | $(172,284) | $(144,204) | $(94,806) | | Net Loss | $(147,765) | $(137,916) | $(95,325) | Consolidated Statements of Cash Flows Highlights (Year Ended December 31, in thousands) | Item | 2023 | 2022 | 2021 | | :------------------------------------ | :------- | :------- | :------- | | Net cash used in operating activities | $(59,273) | $(60,503) | $(51,268) | | Net cash provided by (used in) investing activities | $66,490 | $(342,448) | $(149,522) | | Net cash provided by (used in) financing activities | $8,916 | $(64,348) | $637,576 | - Key accounting policies include revenue recognition (primarily advertising impressions), fair value measurements (Level 1 and 2 inputs), and stock-based compensation (Black-Scholes model)[307][310][365][383] - As of December 31, 2023, the company had federal NOL carryforwards of $413.6 million (expiring from 2028) and state NOL carryforwards of $280.8 million (expiring from 2029), with a full valuation allowance recorded against U.S. net deferred tax assets[152][154][458] - The company's 401(k) plan includes a company match, totaling $1.7 million in 2023[454] - Revenue disaggregated by geography shows the United States accounted for $206.5 million in 2023, with International revenue at $11.8 million[462] - A cost reduction plan in Q4 2023 resulted in $11.1 million in restructuring charges, primarily for severance and stock-based compensation, with $1.8 million in remaining liabilities as of December 31, 2023[463][464] - Subsequent events include the February 21, 2024, increase of $150.0 million to the Share Repurchase Program (totaling ~$172.8 million remaining capacity) and extension to March 31, 2026, and the announcement of Nirav Tolia returning as CEO, President, and Chairperson, with Sarah Friar stepping down in Q2 2024[465][466][468] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure[469] Controls and Procedures Nextdoor's management concluded that its disclosure controls and procedures were effective as of December 31, 2023, providing reasonable assurance for financial reporting, and the company also maintained effective internal control over financial reporting, though acknowledging inherent limitations in any control system - Management, with the participation of principal executive and financial officers, concluded that disclosure controls and procedures were effective as of December 31, 2023, at a reasonable assurance level[470] - Management assessed and concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework[471] - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect controls during the period[472] - The company acknowledges that control systems provide only reasonable, not absolute, assurance and have inherent limitations, such as faulty judgments, simple errors, collusion, or management override[473] Other Information There is no other information to report under this item - No other information to report[474] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Nextdoor Holdings, Inc - Not applicable[475] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[477] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[478] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[479] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[480] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[481] PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, financial statement schedules, and exhibits filed as part of the 10-K report, including various agreements, plans, and certifications - Includes financial statements (see Part II, Item 8) and a comprehensive list of exhibits, such as the Agreement and Plan of Merger, Amended and Restated Certificate of Incorporation and Bylaws, equity incentive plans, executive offer letters, and various certifications[484][486][487][488] Form 10-K Summary This item indicates that no Form 10-K summary is provided - No Form 10-K Summary is provided[490] SIGNATURES Signatures and Power of Attorney The Annual Report on Form 10-K is signed by authorized officers and directors of Nextdoor Holdings, Inc., including the Chief Executive Officer, President, and Chairperson of the Board, Sarah Friar, and the Chief Financial Officer and Treasurer, Matt Anderson, as of February 27, 2024, with a power of attorney granted to these officers for filing amendments - The Annual Report was signed on February 27, 2024, by Sarah Friar (CEO, President, and Chairperson) and Matt Anderson (CFO and Treasurer), along with other directors[494][496] - A power of attorney is granted to Sarah Friar and Matt Anderson to sign and file any amendments to the report with the SEC[495]