Good afternoon. My name is Jordan, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to Nextdoor’s Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] You may now begin your conference.

Thank you, Jordan. I’m John T. Williams, Head of Investor Relations. Good afternoon and thank you for joining us to review Nextdoor’s third quarter 2023 financial results. With us, on the call today, are Sarah Friar, Chief Executive Officer; Mike Doyle, Chief Financial Officer; and Matt Anderson, Head of Finance and Strategy. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC’s website and in the Investor Relations section of our website, as well as the risks and other important factors discussed in today’s earnings release. Additionally, non-GAAP financial measures will be discussed on today’s conference call. A reconciliation of these measures to their most directly comparable GAAP financial measures can be found in Q3 2023 Shareholder Letter release today. With that, I’d like to turn the call over to Sarah.

Thank you, John T. We’re thrilled to have you on the team. Q3 was another quarter of progress of Nextdoor as we delivered year-over-year growth in revenue, verified neighbors, weekly active users, and session depth. New neighbors are finding value on the platform, and those coming to Nextdoor are engaging more. In Q3, we added more new organic verified neighbors than in any quarter in our history, bringing our quarter-end count to approximately 85 million neighbors globally. WAU increased by 2.1 million or 6% year-over-year to 40.4 million globally and is up nearly 50% over the last three years. While we saw a slight sequential decline in Q3, we have seen a rebound quarter-to-date. On engagement, we’re pleased to note that we’ve seen strong momentum of session depth increasing approximately 30% year-over-year. But despite our strong progress driving new neighbors to the platform and increasing depth of engagement, it’s impossible to ignore the macro challenges that continue to weigh on the budgets and advertising verticals that are important for Nextdoor. Earlier today, we announced a significant cost reduction plan that includes a reduction in our workforce by approximately 25%. This reduction in force was a tough decision to make, but a needed change in how we operate. Let me share some context. Three years ago when we listed on the NYSE, we were generating differentiated revenue growth of over 50% quarter-after-quarter, well ahead of industry peers. In order to keep up with this growth, we scaled our team. Starting in Q2 of 2022 and continuing into this year, we began to face increasingly challenging macroeconomic headwinds driving reduced advertiser budgets. This has particularly impacted advertisers with high levels of home-related spending, one of the key advertiser categories on Nextdoor. We fought hard to maintain our employee base with the belief…

Thank you, Sarah, for those kind words. It’s been my privilege to be a member of the Nextdoor team since 2018, and I am tremendously proud of what we’ve accomplished. Our business is financially strong, and Nextdoor remains well positioned for the opportunities ahead. I’ve worked closely with Matt since hiring him over four years ago. I have immense respect for Matt as a leader, and I’m confident he’ll be excellent as Nextdoor’s CFO. Matt has a deep understanding of the finance function and has demonstrated the ability to align the company to reach our long-term strategic goals. Before I discuss our results, note that I’ve signed our Q3 10-Q, which was filed earlier today and, as Sarah mentioned, I will be staying to support the team to ensure a smooth transition. Turning back to the business, Q3 revenue of $56 million grew 4% year-over-year despite uneven demand trends that emerged and weighed on revenue as the quarter progressed. We saw several areas of revenue growth in Q3, small and medium-sized businesses or SMBs performed well, an encouraging early indicator that our transition of these customers to the Nextdoor Ad Server is yielding results. And international revenue grew by 79% year-over-year, a sequential acceleration reflecting sustained new logo growth and broader awareness of Nextdoor’s audience and ad platform. Enterprise advertiser demand was mixed in Q3, and while we are encouraged to see solid enterprise and mid-market account growth, average spend per advertiser declined during the period. Regarding specific verticals, we saw resilience in technology and telecom, retail and healthcare, though home services spend has slowed, and we’ve not yet seen a meaningful rebound in financial services and real estate, which are key for Nextdoor. Q3 ARPU of $1.39 declined 2% year-over-year, a sustained ad impression growth was offset by a year-over-year decline in CPMs for our U.S. news feed as direct-sold advertisers who monetize at a relatively higher rate made up a smaller share of the total ad impressions delivered. Q3 adjusted EBITDA loss was $20 million, representing a negative 35% margin. Non-GAAP operating expense growth of 6% year-over-year outpaced revenue growth and drove margins lower versus the year-ago period. The main drivers of expense growth were hiring within select R&D and sales teams, offset in part by more efficient neighbor acquisition spend. Our Q3 operating cash burn of $12 million was again better than the adjusted EBITDA loss, reflecting another quarter of benefit from interest income. We ended the quarter with $540 million in cash, cash equivalents, and marketable securities and no debt. As always, we will continue to evaluate our capital allocation opportunities and judiciously manage our cash position. With that, I’ll turn it over to Matt.

Thanks Mike. I really appreciate the kind words from both you and Sarah. And it’s been a pleasure to partner and to learn from you over the last four plus years. And I want to say thank you for all you’ve done for Nextdoor. I’m incredibly excited about the opportunity to step into this role. Now, let’s get into the financial outlook and the cost reduction plan that we announced earlier today. As Sarah noted, our focus is squarely on performance in the year ahead. We are targeting a reduction in current GAAP personnel expenses of up to $60 million annually. These actions, while difficult, increase our focus on efficiency and will accelerate the path to quarterly free cash flow breakeven by the end of 2025. As Sarah said earlier, the Q4 revenue growth acceleration we initially expected has not materialized to date. We now expect Q4 2023 revenue in a range between $50 million and $52 million and 2023 revenue in a range between $213 million and $215 million, which implies flat to slightly higher year-over-year growth for the full year. We expect a Q4 adjusted EBITDA loss in a range between $21 million and $19 million, which excludes the impact of one-time expenses related to our cost reduction plan. This implies a 2023 adjusted EBITDA loss in a range between $81 million and $79 million. One other note, we currently estimate that those one-time severance and related costs associated with our cost reduction plan will be approximately $12 million. Across many measures, Nextdoor's growth and momentum continue. Even in an environment where important advertiser verticals have been pressured organic verified neighbor growth and engagement depth are accelerating. We are making continued progress transitioning to our proprietary ad platform and saw positive early results in Q3. And as we look ahead to 2024, we remain focused on growing WAU and revenue. Thank you for joining our earnings call today. With that, I'll turn it over to the operator for Q&A.

Thank you. [Operator Instructions] Our first question comes from Mark Mahaney of Evercore. Mark, please go ahead.

Hey, thanks. Two questions, please. First, on the negative content, Sarah, has there been a change in that? I know that's always been the challenge for the company, but is there something that's made the generation amplification or whatever of negative content greater in the recent past? And then secondly, at a high level when you talked – going to market with advertisers, leaving aside the verticals that are cyclically soft, what's the biggest pushback you get from advertisers in terms of their unwillingness to aggressively commit to Nextdoor as an advertising platform? Thank you.

All right. Thank you. Mark. So let me start on WAU, and then in particular how we're thinking about getting the right content to the right neighbor at the right time. So you saw with our WAU $40.4 million, grew 6% year-over-year but clearly was down 3% sequentially. This was due to efforts that we put in place to improve the long-term user experience; so really evolving our notification strategy. As there is a cadre of neighbors who come organically to the platform, but often neighbors come because of a notification that we've sent them. In Q3, we wanted to reflect on a reduction in notifications to certain user segments and in addition to also reduce certain high engagement notifications, particularly crime and safety to better align kind of the platform perception and the content and what you call negative content there. And really it's because when we use an algorithm around notifications, crime and safety is clearly an area people tend to click on. But over time, we do get concerned about the perception that, that drives of the platform. So we took a very deliberate step in Q3 to effectively make a change which will reduce negativity, improve the timeliness, proximity and relevance of notifications, and to make sure we sustain our high levels of long-term user retention. As we actually do have a very high degree of retention over a two-year time frame, whether it's verified neighbor to WAU, it's around 50%, but even over a two-year period, we haven't seen any changes but we think we can do better. As we look forward why will WAU grow again? I know you didn't really ask that, but why will we see it grow? Why are we confident in the Q4? Well, number one is definitely just that…

Thank you, Sarah.

Thank you, Mark.

Our next question comes from Eric Sheridan of Goldman Sachs. Eric, please go ahead.

Thanks so much for taking the questions. First, Mike thanks for everything. I've enjoyed all the insights over the years, and Matt, congrats on the new role and wishing you success in it. Sarah, if I could just follow up on Mark's question on advertising. I think what we're trying to discern from the call is you clearly have a lot of momentum in SMB and mid-sized advertisers around the ads manager? Is there a way to better discern what that momentum is in terms of a backdrop or tailwind for growth, exiting 2023 and or thinking about what the headwind to revenue growth is from either category underspend versus more normalized trends so we can better understand sort of the recovery rate to sort of think about in 2024? Thank you.

Yes. So, I mean, and clearly we're not happy with our performance right now from an overall revenue perspective. What I was trying to get to is to say we do, though see a lot of room for optimism. Maybe I split our ad base into the three areas, so larger enterprises, more mid-market clients and then the SMB. I'll start on the SMB side because that actually was a real highlight in the quarter. SMB revenue grew about 23% year-over-year. And why that's particularly important is this is the group that is on our proprietary stack today. They moved on to what we call Nextdoor Ad Server, so the server on the back end; they can also self serve on the front end if they choose to through NAM. So they are the group that can actually take the most advantage today of what we're able to do once you're on our platform, which is optimize and better target. On the mid-market side, what we're seeing there is that advertisers are coming. We added more new logos in mid-market than we've done in any other period. However, they are still shifting more towards what we would call managed, because our tech platform still needs to add a lot of the features that they come to expect when they're managed on Nextdoor. So we want to get them into more of a self serve motion. And then finally, on the enterprise side, I think the headwind there really has been advertiser budgets. When I look at what are the verticals that did well for us in the quarter? So we've continued to do well in areas like healthcare, government, professional services, verticals like tech and telco and retail stayed fairly stable. But what we did see with a number of larger advertisers that tend to be in the home services space or in the financial services space as they really retracted their budget. When we talk to them about it, it's a little bit, it's not you it's us sort of conversation, they're generally just pulling that budget back across the Board. So their intention is when they have more budget to come back to next door, but for right now they're just finding it very tight in terms of their ability to spend, and that clearly has ramifications for us, given our scale.

Eric, I'll add one more thing in addition to what Sarah highlighted. And as we think about the ad stack, really one of our core focuses is advertiser performance. And so we talked last quarter about moving SMB customers to our Nextdoor Ad Server, as we mentioned that's an area of significant momentum. And even as we double click into the indicators of momentum into future periods, when we look at things like budget utilization rate as an indicator of advertiser value, as we look at how that shows up in terms of revenue retention for that set of customers, we see some really positive signs, so that is an area where we continue to see momentum. We continue to have conviction, and we're really balancing that against some of the vertical dynamics that Sarah noted.

Thank you.

Thanks Eric.

Our next question comes from Brian Fitzgerald of Wells Fargo. Brian, please go ahead.

Thanks, and again congrats, Matt and Mike. Thank you for all the help we've had over the years. We really appreciate it. Two quick ones from us; when you think about campaigns like the one with Verizon that you ran this quarter, how effective are those in attracting new neighbors to the platform? Do you see equal benefits across neighborhoods at different levels of penetration? And then second question was on the, can you give us an update on the progress with business-to-business initiatives like Weather.com or Axios or BBC? And how's that impacting content generation and consumption?

Yes. Let me take that. I'll lift it up a level because it's really a question about how do we grow new neighbors on the platform? And if you look at our top of funnel efforts, which really became a big focus for us in Q3 because we said in order to grow WAU, we need to go back up to top of funnel because we feel very good about our ratios such as VN [ph] to WAU, about 50%, WAUs to DAUs, also about 50%. So the real growth is going to come from bringing new neighbors in at the top of funnel. We grow that in four ways, invite, brand awareness, content sharing, which is the partnership piece that you just asked about, as well as things like SEO and even just our own content that gets shared out even onto other social channels, and then finally paid and paid is definitely the fourth of four there. So, I'll put it to one side because in this period and in the last couple of periods, well over 90% of our Verified Neighbors are coming unpaid or organically. As I have already touched on invites, that's been in place where we put in the most investment in the quarter and that included really reinvigorating our digital invite strategy. That's where we're able to match someone's location with either an email address or a text message and then invite them to Nextdoor. It's a place we're actually able to use generative AI to create an invitation, but it's even more enticing for them. And that's where we saw that big acceleration 32% growth quarter-over-quarter. Because of our digital invite strategy, as people join the platform, they are more inclined to invite others as well, and so we've really invested into…

Awesome. I appreciate it. Sarah thanks so much.

Thank you.

Thank you, Brian. Our next question comes from Youssef Squali of Truist. Youssef, your line is now open. Please go ahead.

Thank you. This is Robert Zeller on for Youssef. A few questions. On the organic user growth, I'm just curious where that occurred as you enter international. And on the 4Q revenue guide, what were some of the things that you expect is play out that didn't materialize? And then, on the session-depth reaching all-time highs, I'm just curious what drove this you know, if it was – I think last quarter, you talked about how you are expanding the vicinity of neighbors that content reaches. And I think you also previously called out notifications as a driver of increasing engagement and user growth. So, I'm just curious with the new strategy of what you're doing around notifications if that might impact engagement of the user growth at all. Thanks.

Sure. Great. Thank you. Lots of great questions there. I'll quickly take their organic user growth. I'll throw it over to Matt to talk about Q4, what did and didn't materialize. And then I can finish out on session depth. So, on the organic user growth, you're right to differentiate between the two, both international and the U.S. grew in the quarter and then the period year-over-year. However, the big push on digital invites has really had an impact more in the U.S. right now. That's good, because it's a market that is most mature in terms of monetization. It's also true that some of the other areas that I was outlining previously, things like our partnership strategy today have been bigger in the U.S., aside from someone like the BBC. So, the U.S. is benefiting most from a lot of the work to felt in Q3 around organic user growth but international clearly remains a focus for us as we get into 2024. Because in terms of a long-term growth strategy, it's incredibly important that we continue to grow countries like the UK, Western Europe, Canada and so on. And I do want to give a shout-out that on the revenue side; international really was the highlight growing 79% year-over-year. So it's a good indication that if we do continue to add more users there and do continue to drive WAU that we can sell that. With that, Matt, can I pass it to you in terms of Q4 guidance?

Yes. I'll touch on that, and also close on your question, Robert, with regard to the session depth dynamics. So, first, with regards to the Q4 revenue guide, it really is a couple of different components. The first and the one we have highlighted already quite clearly is, it starts with the vertical dynamics. And specifically, we started to see – we've seen continued slowdowns in areas like we've highlighted, like financial services, but at the same time areas like home services started to see more pressure relative to prior periods and prior expectations. Now, while we see continued momentum in a number of different verticals, you called out a few of those, things like healthcare in Q4, areas like retail, at the end of the day, that wasn't enough to offset the near-term pressures on our enterprise direct-sold demand. That downstream has effects on our CPM in the period. And so, those supply and demand dynamics meant that a greater share of – in the fourth quarter, specifically the greater share of our ad impression inventory, which is still growing significantly, was ultimately met by slightly lower CPM dynamics. Now, this is on top of broader industry-wide CPM pressures as a number of our peers have highlighted. At the end of the day though, it comes back to one key point, which is, we continue to see very high levels of advertiser retention. And so, that gives us confidence that has expanded new verticals as those new logos as Sarah added continue to ramp on the platform, and there is still a very solid foundation for future growth. Unfortunately, that growth is going to be over a slightly longer time horizon than what we had previously indicated. So that's on the revenue front. And then, with regards to session depth, you also referenced session frequency. That certainly is a core part of our notification strategy. Session depth is really getting into the dynamics, when a neighbor comes and engages on the platform, and so I want also to be highlighting that 30% growth that Sarah mentioned is quite substantial, and it is a continuation of the dynamics that we saw in Q2 and it's something we expect to continue in Q4. And that's really a function of content – more relevant, more personalized content. This is where areas like AI become really important and have played a role in helping us be smarter about understanding how neighbors engage with notifications, how different neighbors interact with different types of notifications. And ultimately, we have a richer picture of how they engage and how to make their time in the app better. So that's really been a core part of our session depth dynamics, and that's an area where we continue to have conviction.

Okay. Great. Thank you both.

Thank you, Youssef. [Operator Instructions] Our next question comes from Brian Nowak of Morgan Stanley. Brian, your line is open. Please go ahead.

Hi this is Chole on for Brian. Thank you so much for taking our question. I guess, first, just could you please speak a bit more to the changes and updates you're making in the Nextdoor Ads Manager? It sounds like there's a lot of positive traction momentum there, particularly for SMB advertisers. But as you think into next year, what areas and sort of what's the roadmap going forward for that to drive revenue and hopefully contribute to results. And then, second, on generative AI, also just curious for a little bit more color on how you're thinking about expanding the ways that AI can both improve the user experience and the advertiser experience on the platform, sort of above and beyond some of the current tools and offerings. Thank you.

Great. Thank you, Chole. Appreciate the questions. Let me start taking the first one on overall the ad tech stack. So, front-end and back-end, you talk to Nextdoor Ads Manager. That's the actual interface that's where people create an ad and really our work there is all about reducing advertiser efforts. So, today, where we've gotten to an advertiser of any size can now self-serve on NAM. In addition, we continue to build out other features and functionality with larger advertisers and their agency partners. So that includes releasing things like user roles and permissions, creative duplication, pixel tooling, audience exclusions, ad credit tooling, multi-edit functionality in NAM. So, you can kind of see the list is long, it gets very, very specific to ads. But we are making progress every single period to make better and better for businesses of all sizes. On the back-end, Nextdoor Ad Server, as we've mentioned, we're now delivering 100% of all U.S. SMB demand, and we're seeing faster loading times, better distribution of ad impressions. So, overall, that's driving better retention of those SMB customers, that's also driving better revenue, up 23% year-over-year in the quarter. And then, of course, those are places where we do also want to use more ML or AI to make sure that the right ad content is getting in front of the right user, which of course then will drive engagement. Beyond our ad platform, it is also worth noting that we do continue to build out first and third-party app integrations. So, for example, in the first-party side for measurement, we now see that the majority of our CPA-focused customers have adopted our own pixel. Scripts is a great example of a customer who has used our pixel to better understand neighbor activity to optimize for…

Thank you. We have no further questions in the line-up. So I'd like to turn the call back to Sarah Friar for any closing thoughts.

Great. Thank you so much, operator. Thank you all for dialing in today. We always appreciate your support and your interest in Nextdoor. When I look at what the quarter brought positively, we felt good seeing year-over-year growth across our key metrics. WAU up 6%, revenue up 4% and, in a tough environment, seeing a record number of new verified neighbors come to Nextdoor. We do feel like we have a lot of levers at all stages of our user funnel to keep driving growth. So, whether it's top of funnel, where as I said, we added our highest number ever of organic users to the platform, if it is mid-funnel where we continue to see folks engage, VN to WAU ratios remain in the 50% range, or if it's bottom of funnel, so session-depth as Matt talked about, up 30% year-over-year. We did see strength in areas such as international ad agency partnerships and with the push from Neighborhood Faves, we now have $4.3 million claimed business pages, a really fertile ground for upselling advertising. We do expect verticals like finserv, real estate, home services to approve overtime; we know we performed really well for them. So we view that as an area of pent-up demand, but unfortunately are just not seeing it at the moment. AI is really important for Nextdoor. We own the local knowledge graph with label data with a really high-intent audience of real people and neighborhoods everywhere. It's a very unique asset for us. As we look forward, we are laser-focused on growing WAU and revenue. So that means we have to continue delivering value for neighbors and organizations, really highlighting the importance of local. Second, we need to keep investing in our platform initiatives to keep growing that engagement, and that's where AI comes to play too. And then finally, we need to keep iterating on our monetization capabilities for advertisers of all sizes. So, building out the Nextdoor Ads platform to make sure that those advertisers get better outcomes, but that we also reduce advertiser efforts to be on Nextdoor. Right now, we're very focused on near-term performance. But we don't want to be shy to continue to invest in long-term opportunities of this very unique global hyper-local neighborhood network. What are we going to do in order to drive that in 2024? We're going to make sure that we add more verified neighbors in 2024 than we did in 2023 and with our expense reduction plan accelerate our past margin improvement and cash flow generation. So with that, thank you so much. I will also be on the follow-up Analyst Call to go a little deeper, and appreciate your time this afternoon.

This concludes today's call. Thank you for joining. You may now disconnect your lines.