UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

FORM 10-Q

_________________________________

[Mark One]

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number: 001-40393

SQUARESPACE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	20-0375811 (I.R.S. Employer Identification No.)
225 Varick Street, 12th Floor New York, New York (Address of Principal Executive Offices)	10014 (Zip Code)

Registrant’s Telephone Number, Including Area Code: (646) 580-3456

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share	SQSP	New York Stock Exchange

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging Growth Company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 30, 2022, the registrant had 88,984,890 shares of Class A Common Stock, 47,844,755 shares of Class B Common Stock, and no shares of Class C Common Stock, each with a par value of $0.0001 per share, outstanding.

TABLE OF CONTENTS

			PAGE
PART I.		FINANCIAL INFORMATION	4
	Item 1.	Financial Statements (Unaudited)	4
		Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	4
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021	5
		Condensed Consolidated Statements of Comprehensive Income/(Loss) for the Three and Nine Months Ended September 30, 2022 and 2021	6
		Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2022 and 2021	7
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	9
		Notes to Unaudited Condensed Consolidated Financial Statements	10
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
	Item 4.	Controls and Procedures	45
PART II.		OTHER INFORMATION	47
	Item 1.	Legal Proceedings	47
	Item 1A.	Risk Factors	47
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
	Item 3.	Defaults Upon Senior Securities	71
	Item 4.	Mine Safety Disclosures	71
	Item 5.	Other Information	71
	Item 6.	Exhibits	71
SIGNATURES			72

1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that reflect our current views with respect to, among other things, future events and our future business, financial condition and results of operations. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or phrases or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not statements of historical fact, and are based on current expectations, estimates and projections about our industry as well as certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, which you should consider and read carefully, including but not limited to:

•     our ability to attract and retain customers and expand our customers’ use of our platform;

•our ability to anticipate market needs and develop new solutions to meet those needs;

•our ability to improve and enhance the functionality, performance, reliability, design, security and scalability of our existing solutions;

•our ability to compete successfully in our industry against current and future competitors;

•the impact of the COVID-19 pandemic on how we, our providers, and consumers operate and its impact on the global economy, and the duration and extent to which the pandemic will affect our business, future results of operations, and financial condition;

•our ability to manage growth and maintain demand for our solutions;

•our ability to protect and promote our brand;

•our ability to generate new customers through our marketing and selling activities;

•our ability to successfully identify, manage and integrate any existing and potential acquisitions;

•our ability to hire, integrate and retain highly skilled personnel;

•our ability to adapt to and comply with existing and emerging regulatory developments, technological changes and cybersecurity needs;

•our compliance with privacy and data protection laws and regulations as well as contractual privacy and data protection obligations;

•our ability to establish and maintain intellectual property rights;

•our ability to manage expansion into international markets;

•the expected timing, amount, and effect of our share repurchases; and

•     the other risks and uncertainties described under “Risk Factors.”

This list of factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q, and our future levels of activity and performance, may not occur and actual results could differ materially and adversely from those described or implied in the forward-looking statements. As a result, you should not regard any of these forward-looking statements as a representation or warranty by us or any other person or place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

In addition, statements that contain “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that this information provides a reasonable basis for these statements, this information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

2

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits to the Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by the cautionary statements contained in this section and elsewhere in this Quarterly Report on Form 10-Q.

3

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SQUARESPACE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	200,480	$	203,247
Restricted cash	40,831		30,433
Investment in marketable securities	27,748		31,456
Accounts receivable, net	10,014		7,969
Due from vendors	2,928		1,828
Prepaid expenses and other current assets	46,766		67,099
Total current assets	328,767		342,032
Property and equipment, net	52,379		52,839
Operating lease right-of-use assets	88,893		—
Goodwill	435,601		435,601
Intangible assets, net	46,778		60,138
Other assets	10,396		8,939
Total assets	$	962,814	$	899,549
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	10,637	$	26,533
Accrued liabilities	68,797		60,861
Deferred revenue	261,192		233,999
Funds payable to customers	43,074		30,137
Debt, current portion	32,627		13,586
Deferred rent and lease incentives, current portion	—		2,095
Operating lease liabilities, current portion	11,170		—
Total current liabilities	427,497		367,211
Debt, non-current portion	484,475		513,047
Deferred rent and lease incentives, non-current portion	—		32,348
Operating lease liabilities, non-current portion	112,595		—
Other liabilities	356		422
Total liabilities	1,024,923		913,028
Commitments and contingencies (see Note 11)
Redeemable convertible preferred stock, par value of $0.0001; zero shares authorized as of September 30, 2022 and December 31, 2021, respectively; zero shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	—		—
Preferred stock, par value of $0.0001; 100,000,000 authorized as of September 30, 2022 and December 31, 2021, respectively; zero shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	—		—
Stockholders’ deficit:
Class A common stock, par value of $0.0001; 1,000,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; 88,984,890 and 90,826,625 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	9		9
Class B common stock, par value of $0.0001; 100,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; 47,844,755 and 48,344,755 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	5		5
Class C common stock (authorized March 15, 2021), par value of $0.0001; zero shares authorized as of September 30, 2022 and December 31, 2021, respectively; zero shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	—		—
Class C common stock (authorized May 10, 2021), par value of $0.0001; 1,000,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; zero shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	—		—
Additional paid in capital	886,602		911,570
Accumulated other comprehensive loss	(5,611)		(208)
Accumulated deficit	(943,114)		(924,855)
Total stockholders’ deficit	(62,109)		(13,479)
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit	$	962,814	$	899,549

The accompanying notes are an integral part of these financial statements.

4

SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	217,696	$	200,962	$	638,160	$	576,618
Cost of revenue	38,907		32,868		112,549		92,777
Gross profit	178,789		168,094		525,611		483,841
Operating expenses:
Research and product development	54,312		48,769		170,469		139,692
Marketing and sales	74,248		80,249		255,897		249,005
General and administrative	38,507		32,091		113,678		336,337
Total operating expenses	167,067		161,109		540,044		725,034
Operating income/(loss)	11,722		6,985		(14,433)		(241,193)
Interest expense	(5,209)		(2,491)		(10,977)		(8,578)
Other income, net	6,869		2,101		14,597		4,493
Income/(loss) before (provision for)/benefit from income taxes	13,382		6,595		(10,813)		(245,278)
(Provision for)/benefit from income taxes	(3,277)		(3,756)		(7,446)		12,439
Net income/(loss)	$	10,105	$	2,839	$	(18,259)	$	(232,839)
Less: accretion of redeemable convertible preferred stock to redemption value	$	—	$	—	$	—	$	(969)
Net income/(loss) attributable to Class A, Class B and Class C common stockholders, basic and dilutive	$	10,105	$	2,839	$	(18,259)	$	(233,808)
Net income/(loss) per share attributable to Class A, Class B, and Class C common stockholders, basic	$	0.07	$	0.02	$	(0.13)	$	(2.90)
Net income/(loss) per share attributable to Class A, Class B, and Class C common stockholders, dilutive	$	0.07	$	0.02	$	(0.13)	$	(2.90)
Weighted-average shares used in computing net income/(loss) per share attributable to Class A, Class B, and Class C stockholders, basic	137,832,634		138,625,579		139,106,807		80,746,637
Weighted-average shares used in computing net income/(loss) per share attributable to Class A, Class B, and Class C stockholders, dilutive	139,667,719		143,251,717		139,106,807		80,746,637

The accompanying notes are an integral part of these financial statements.

5

SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income/(loss)	$	10,105	$	2,839	$	(18,259)	$	(232,839)
Other comprehensive loss:
Foreign currency translation adjustment	(2,275)		(861)		(5,113)		(1,355)
Unrealized loss on marketable securities, net of income taxes	(35)		(35)		(290)		(126)
Total other comprehensive loss	(2,310)		(896)		(5,403)		(1,481)
Total comprehensive income/(loss)	$	7,795	$	1,943	$	(23,662)	$	(234,320)

The accompanying notes are an integral part of these financial statements.

6

SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

(in thousands, except share and per share data)

(unaudited)

Three and Nine Months Ended September 30, 2022

	Redeemable Convertible Preferred Stock			Class A Common Stock			Class B Common Stock			Class C Common Stock			Additional Paid in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2021	—	$	—	90,826,625	$	9	48,344,755	$	5	—	$	—	$	911,570	$	(208)	$	(924,855)	$	(13,479)
Stock-based compensation	—	—		—	—		—	—		—	—		24,160		—		—		24,160
Stock option exercises	—	—		343,687	—		—	—		—	—		1,141		—		—		1,141
Vested RSUs converted to common shares	—	—		680,134	—		—	—		—	—		—		—		—		—
Repurchase of Class A common stock for tax withholdings upon vesting of RSUs	—	—		(287,455)	—		—	—		—	—		(7,672)		—		—		(7,672)
Net loss	—	—		—	—		—	—		—	—		—		—		(92,860)		(92,860)
Total other comprehensive loss, net of taxes	—	—		—	—		—	—		—	—		—		(979)		—		(979)
Balance at March 31, 2022	—	$	—	91,562,991	$	9	48,344,755	$	5	—	$	—	$	929,199	$	(1,187)	$	(1,017,715)	$	(89,689)
Stock-based compensation	—	—		—	—		—	—		—	—		27,056		—		—		27,056
Stock option exercises	—	—		269,064	—		—	—		—	—		969		—		—		969
Vested RSUs converted to common shares	—	—		827,149	—		—	—		—	—		—		—		—		—
Repurchase of Class A common stock for tax withholdings upon vesting of RSUs	—	—		(350,156)	—		—	—		—	—		(7,602)		—		—		(7,602)
Repurchase and retirement of Class A common stock	—	—		(1,562,460)	—		—	—		—	—		(35,202)		—		—		(35,202)
Conversion of Class B common stock to Class A common stock	—	—		500,000	—		(500,000)	—		—	—		—		—		—		—
Net income	—	—		—	—		—	—		—	—		—		—		64,496		64,496
Total other comprehensive loss, net of taxes	—	—		—	—		—	—		—	—		—		(2,114)		—		(2,114)
Balance at June 30, 2022	—	$	—	91,246,588	$	9	47,844,755	$	5	—	$	—	$	914,420	$	(3,301)	$	(953,219)	$	(42,086)
Stock-based compensation	—	—		—	—		—	—		—	—		24,572		—		—		24,572
Stock option exercises	—	—		29,797	—		—	—		—	—		48		—		—		48
Vested RSUs converted to common shares	—	—		237,846	—		—	—		—	—		—		—		—		—
Repurchase of Class A common stock for tax withholdings upon vesting of RSUs	—	—		(97,346)	—		—	—		—	—		(2,060)		—		—		(2,060)
Repurchase and retirement of Class A common stock	—	—		(2,431,995)	—		—	—		—	—		(50,378)		—		—		(50,378)
Conversion of Class B common stock to Class A common stock	—	—		—	—		—	—		—	—		—		—		—		—
Net income	—	—		—	—		—	—		—	—		—		—		10,105		10,105
Total other comprehensive loss, net of taxes	—	—		—	—		—	—		—	—		—		(2,310)		—		(2,310)
Balance at September 30, 2022	—	$	—	88,984,890	$	9	47,844,755	$	5	—	$	—	$	886,602	$	(5,611)	$	(943,114)	$	(62,109)

The accompanying notes are an integral part of these financial statements.

7

SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

(in thousands, except share and per share data)

(unaudited)

Three and Nine Months Ended September 30, 2021

	Redeemable Convertible Preferred Stock			Class A Common Stock			Class B Common Stock			Class C Common Stock			Additional Paid in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2020	104,446,332	$	131,390	8,903,770	$	1	14,368,532	$	1	—	$	—	$	9,043	$	2,455	$	(675,706)	$	(664,206)
Stock-based compensation	—	—		—	—		—	—		—	—		9,873		—		—		9,873
Stock option exercises	—	—		—	—		900,476	—		—	—		707		—		—		707
Vested RSUs converted to common shares	—	—		525,920	—		—	—		—	—		—		—		—		—
Repurchase of Class A common stock for tax withholdings upon vesting of RSUs	—	—		(270,089)	—		—	—		—	—		(13,416)		—		—		(13,416)
Issuance of Class C common stock, net of issuance costs	—	—		—	—		—	—		4,452,023	—		304,409		—		—		304,409
Issuance of Class C common stock for acquisition	—	—		—	—		—	—		2,750,330	1		188,178		—		—		188,179
Accretion of redeemable convertible preferred stock	—	969		—	—		—	—		—	—		(969)		—		—		(969)
Net loss	—	—		—	—		—	—		—	—		—		—		(1,146)		(1,146)
Total other comprehensive loss, net of taxes	—	—		—	—		—	—		—	—		—		(1,327)		—		(1,327)
Balance at March 31, 2021	104,446,332	$	132,359	9,159,601	$	1	15,269,008	$	1	7,202,353	$	1	$	497,825	$	1,128	$	(676,852)	$	(177,896)
Stock-based compensation	—	—		—	—		—	—		—	—		250,534		—		—		250,534
Stock option exercises	—	—		1,201,066	—		874,695	—		—	—		2,962		—		—		2,962
Vested RSUs converted to common shares	—	—		588,786	—		—	—		—	—		—		—		—		—
Repurchase of Class A common stock for tax withholdings upon vesting of RSUs	—	—		(247,120)	—		—	—		—	—		(12,319)		—		—		(12,319)
Conversion of convertible preferred stock to Class A and Class B common stock in connection with the direct listing	(104,446,332)	(132,359)		54,862,435	6		49,583,897	5		—	—		132,348		—		—		132,359
Conversion of Class B common stock to Class A common stock in connection with the direct listing	—	—		17,382,845	1		(17,382,845)	(1)		—	—		—		—		—		—
Conversion of Class C common stock to Class A common stock in connection with the direct listing	—	—		7,202,353	1		—	—		(7,202,353)	(1)		—		—		—		—
Net loss	—	—		—	—		—	—		—	—		—		—		(234,532)		(234,532)
Total other comprehensive income, net of taxes	—	—		—	—		—	—		—	—		—		742		—		742
Balance at June 30, 2021	—	$	—	90,149,966	$	9	48,344,755	$	5	—	$	—	$	871,350	$	1,870	$	(911,384)	$	(38,150)
Stock based compensation	—	—		—	—		—	—		—	—		23,932		—		—		23,932
Stock option exercises	—	—		194,360	—		—	—		—	—		527		—		—		527
Vested RSUs converted to common shares	—	—		240,360	—		—	—		—	—		—		—		—		—
Repurchase of Class A common stock for tax withholdings upon vesting of RSUs	—	—		(95,248)	—		—	—		—	—		(4,142)		—		—		(4,142)
Net income	—	—		—	—		—	—		—	—		—		—		2,839		2,839
Total other comprehensive loss, net of taxes	—	—		—	—		—	—		—	—		—		(896)		—		(896)
Balance at September 30, 2021	—	$	—	90,489,438	$	9	48,344,755	$	5	—	$	—	$	891,667	$	974	$	(908,545)	$	(15,890)

The accompanying notes are an integral part of these financial statements.

8

SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2022		2021
OPERATING ACTIVITIES:
Net loss	$	(18,259)	$	(232,839)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	23,773		23,906
Stock-based compensation	75,051		284,099
Deferred income taxes	—		(13,755)
Non-cash lease expense	2,258		—
Other	700		871
Changes in operating assets and liabilities:
Accounts receivable and due from vendors	(3,099)		(35)
Prepaid expenses and other current assets	(11,514)		(18,930)
Accounts payable and accrued liabilities	6,034		7,937
Deferred revenue	38,035		34,954
Funds payable to customers	12,936		13,261
Other operating assets and liabilities	(798)		8,698
Net cash provided by operating activities	125,117		108,167
INVESTING ACTIVITIES:
Proceeds from the sale and maturities of marketable securities	22,740		25,605
Purchases of marketable securities	(19,444)		(20,385)
Purchase of property and equipment	(8,852)		(6,744)
Cash paid for acquisitions, net of acquired cash	—		(202,170)
Net cash used in investing activities	(5,556)		(203,694)
FINANCING ACTIVITIES:
Principal payments on debt	(10,189)		(10,189)
Payments for repurchase and retirement of Class A common stock	(85,580)		—
Taxes paid related to net share settlement of equity awards	(17,334)		(29,877)
Proceeds from exercise of stock options	2,158		4,196
Proceeds from issuance of Class C (authorized on March 15, 2021) common stock, net of issuance costs	—		304,409
Dividends paid	—		(367)
Net cash (used in)/provided by financing activities	(110,945)		268,172
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(985)		(159)
Net increase in cash, cash equivalents, and restricted cash	7,631		172,486
Cash, cash equivalents, and restricted cash at the beginning of the period	233,680		57,891
Cash, cash equivalents, and restricted cash at the end of the period	$	241,311	$	230,377
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	200,480	$	200,180
Restricted cash	40,831		30,197
Cash, cash equivalents, and restricted cash at the end of the period	$	241,311	$	230,377
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Cash paid during the year for interest	$