Nextdoor Holdings, Inc. Form 8-K Summary
Business context and reporting period
On November 5, 2021, Khosla Ventures Acquisition Co. II (KVSB) completed its business combination with Nextdoor, Inc. KVSB was renamed Nextdoor Holdings, Inc., and Nextdoor became its wholly owned subsidiary. The transaction was accounted for as a reverse recapitalization, with Nextdoor treated as the accounting acquirer. The filing was signed on November 12, 2021.
Nextdoor operates a neighborhood-based social network and generates substantially all revenue from advertising, including cost-per-impression, cost-per-click, local sponsorships, and local deals. As of September 30, 2021, the platform operated in more than 285,000 neighborhoods across 11 countries.
Financial performance and key metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $52.7 million, up 66% | $132.9 million, up 60% |
| Loss from operations | $19.1 million | $65.5 million |
| Net loss | $19.4 million | $66.0 million |
| Adjusted EBITDA | $(7.7) million | $(35.8) million |
| Net loss margin | (37%) | (50%) |
| Weekly active users | 32.8 million | Not separately provided for the nine-month period |
| Average revenue per weekly active user | Not separately provided | $4.44 |
Revenue growth reflected increased advertiser demand, a larger sales team, higher user engagement, and improved monetization. For the nine-month period, impressions delivered increased 26% and price per delivered impression increased 15%, while weekly active users increased 12%.
Total costs and expenses were $71.8 million for the third quarter and $198.4 million for the first nine months, compared with $51.3 million and $144.4 million, respectively, in the prior-year periods. The nine-month expense increases included research and development of 38%, sales and marketing of 32%, and general and administrative expense of 55%.
Stock-based compensation was $10.6 million in the third quarter and $27.0 million for the first nine months, compared with $6.2 million and $16.2 million, respectively, in the prior-year periods. Adjusted EBITDA is a non-GAAP measure and excludes stock-based compensation, among other items.
Cash flow, debt, and liquidity
- Cash used in operating activities was $33.3 million for the nine months ended September 30, 2021, compared with $35.3 million in the prior-year period.
- Cash provided by investing activities was $4.7 million, principally reflecting marketable-security maturities and sales, partially offset by purchases of securities and $8.1 million of property and equipment.
- Cash provided by financing activities was $9.9 million, including $12.8 million of net proceeds from stock-option exercises, partially offset by $3.0 million of deferred transaction costs.
- Cash, cash equivalents, and marketable securities totaled $106.6 million at September 30, 2021, including $66.3 million of cash and cash equivalents and $40.2 million of marketable securities.
- The company reported no debt outstanding and an accumulated deficit of $451.0 million.
- Management stated that existing liquidity was sufficient to meet working-capital and capital-expenditure needs for at least the next 12 months, but noted that additional equity or debt financing may be required in the future.
Contractual obligations totaled $139.0 million at September 30, 2021, consisting primarily of $83.5 million of operating lease commitments and $55.5 million of non-cancellable purchase commitments, including a $57.0 million third-party hosting commitment entered into in May 2021. The filing states that there were no off-balance-sheet arrangements.
Material changes and transaction effects
- The PIPE investment closed concurrently with the business combination, issuing 27.0 million Class A shares at $10.00 per share for $270.0 million of gross proceeds.
- Approximately 1.2 million KVSB Class A shares were redeemed for approximately $12.2 million, or about $10.00 per share.
- Immediately after closing, the company had 78.95 million Class A shares, 304.00 million Class B shares, 59.62 million options, and 2.69 million restricted stock units outstanding.
- The company adopted a dual-class structure: Class A shares carry one vote per share, while Class B shares carry ten votes per share. Class B shares generally convert into Class A shares upon specified transfers or no later than ten years after closing.
- Former KVSB stockholders held approximately 13.8% of outstanding common stock and 1.7% of voting power immediately after closing.
- The Class A common stock began trading on the New York Stock Exchange under the symbol KIND on November 8, 2021.
- Most former Nextdoor equity holders were subject to 180-day lock-up restrictions, while specified sponsor shares were subject to one-year restrictions, subject to customary exceptions.
- The company dismissed BDO USA, LLP and engaged Ernst & Young LLP as its independent registered public accounting firm. The filing also describes a prior dismissal of Marcum LLP and a material weakness at KVSB related to accounting for certain private-placement and offering items.
Outlook, commentary, risks, and unusual items
Management expects continued investment in research and development, advertising products, sales personnel, user acquisition, international expansion, and public-company infrastructure. The company expects operating losses and operating cash outflows to continue for the foreseeable future. Advertising revenue is seasonal and typically strongest in the fourth quarter.
Management identified international expansion and monetization, sales-force growth, self-service advertising tools, user engagement, and improved advertising yield as important growth opportunities. International ARPU is expected to remain below U.S. ARPU, and international expansion may adversely affect near-term results.
- The company may need additional capital and may be unable to obtain financing on favorable terms.
- Profitability has not been achieved, and management cautioned that the company may not achieve or maintain profitability.
- Growth and monetization depend on attracting and retaining users, advertiser demand, pricing, engagement, competition, and effective measurement of advertising performance.
- Apple’s September 2021 email-client changes reduced the company’s ability to directly measure some monetizable email engagement, requiring estimates in the WAU calculation.
- Risks include COVID-19 effects, cybersecurity, intellectual-property protection, international operations, general economic conditions, strategic relationships, and the ability to realize the benefits of the business combination.
- The dual-class structure concentrates voting control with former Nextdoor stockholders and may reduce the influence of Class A stockholders.
- The 2021 Equity Incentive Plan and Employee Stock Purchase Plan create additional potential dilution, including annual automatic share increases subject to board discretion and plan limits.
Investor verification checklist
- Verify the final post-closing capitalization, including options, RSUs, lock-up shares, and the potential dilution from the equity incentive and employee stock purchase plans.
- Review the unaudited pro forma financial information in Exhibit 99.3 to assess the combined company’s post-transaction capital structure and liquidity.
- Reconcile PIPE proceeds, share redemptions, transaction costs, and cash balances to the closing balance sheet.
- Assess the sustainability of revenue growth and ARPU expansion relative to user growth and advertising pricing.
- Monitor operating cash burn, the $139.0 million of contractual commitments, and management’s stated need for possible future financing.
- Evaluate the effect of stock-based compensation on GAAP losses and the limitations of Adjusted EBITDA.
- Review the auditor transition and the previously reported KVSB material weakness in internal control over financial reporting.
- Consider the governance and voting implications of the ten-votes-per-share Class B structure and related registration rights covering 229.7 million shares.