Nextdoor Holdings, Inc. — 2021 Q3 filing summary
Filing identity: The supplied 10-Q is filed by Khosla Ventures Acquisition Co. II (KVSB), a SPAC proposing to merge with Nextdoor, Inc.; it is not an operating-company 10-Q reporting Nextdoor’s business results. The quarter ended September 30, 2021. Financial statements are unaudited.
Business context and reporting period
KVSB was formed to complete a business combination and reported no operating activity or revenue. Its reported activity through September 30, 2021 related to its formation, March 2021 IPO, and proposed transaction with Nextdoor. KVSB signed the merger agreement on July 6, 2021; an October 1 amendment added a non-waivable Class A stockholder approval condition for the proposed charter. Closing was expected November 5, 2021.
Financial position and results
- Revenue: No operating revenue. The filing states KVSB would not expect operating revenue before a business combination.
- Third-quarter result: Net income of $4.0 million, despite a $2.25 million operating loss. The result chiefly reflected a $6.25 million gain from the change in fair value of Class K founder-share derivative liabilities; trust-account investment income was $4,313.
- Inception through September 30: Net loss of $12.93 million, comprising a $2.65 million operating loss and $36.54 million in financing expense on a derivative-classified instrument, partly offset by a $26.25 million gain on derivative remeasurement and $10,640 of trust-account investment income.
- Cash flow: $1.77 million used in operating activities and $416.34 million used to fund the trust account; financing activities provided $418.69 million. Ending cash outside the trust was $572,360.
- Assets and liquidity: Total assets were $417.89 million, including $416.35 million of marketable securities in the trust account. Working capital was deficient by $619,445. Trust funds were principally reserved for the business combination or share redemptions, so they were not freely available for general expenses.
- Debt and obligations: No long-term debt and no borrowings under working-capital loans. Current liabilities totaled $1.85 million; deferred underwriting fees payable were $14.57 million. The underwriters’ deferred fee would be waived if KVSB failed to complete a business combination, subject to the underwriting agreement.
- Margins: Not meaningful because KVSB had no operating revenue.
Changes, outlook, and risks
- The SPAC’s principal development was its proposed Nextdoor merger, alongside a $270 million PIPE subscription commitment disclosed for closing with the transaction and a forward-purchase agreement allowing up to $10 million, subject to its terms.
- Management cited the limited cash available outside the trust, working-capital deficit, and mandatory liquidation deadline as raising substantial doubt about KVSB’s ability to continue as a going concern for approximately one year from filing. Management said additional financing was uncertain; potential sponsor-related working-capital loans were not committed.
- KVSB had to complete a business combination within 24 months of its IPO closing, or within 27 months if specified agreement milestones were met by March 23, 2023, unless stockholders extended the period. Failure to complete a transaction would trigger liquidation and redemption provisions.
- Management identified material weaknesses in internal controls over financial reporting involving the accounting for redeemable Class A shares and Class K founder shares. It reported that disclosure controls were ineffective and described remediation efforts, with no assurance they would succeed.
- The filing disclosed an immaterial prior-period EPS calculation error in the June 2021 10-Q and corrected per-share loss figures for that period and inception-to-date. The Class K derivative liability was valued using a Level 3 Monte Carlo model, making results sensitive to unobservable assumptions.
- Management said COVID-19 could adversely affect the company’s financial position, operations, or target search, but the potential impact was not readily determinable. It reported no material changes to the previously disclosed risk factors, no legal proceedings, and no material interest-rate exposure from the short-maturity trust investments.
Important facts for investors to verify
- Whether the merger closed as expected, and the final transaction terms and post-merger capitalization.
- Whether the PIPE investment funded and how much trust cash remained after shareholder redemptions, fees, and transaction expenses.
- Whether the proposed charter received the required separate Class A approval and all other closing conditions were satisfied.
- Whether KVSB remediated the material weaknesses and whether any further accounting corrections were required.
- How the Class K founder-share derivative valuation and potential founder-share conversion affect reported results and dilution.