Squarespace, Inc. [SQSP] Filings

10-Q 1 sqsp-20230630.htm 10-Q sqsp-20230630

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 June 30, 2023


☐			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 Class A Common Stock, $0.0001 par value per share			Trading Symbol(s) SQSP			Name of each exchange on which registered 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 June 30, 2023, the registrant had 87,723,667 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.

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TABLE OF CONTENTS


			PAGE

PART I.		FINANCIAL INFORMATION	4
	Item 1.	Financial Statements (Unaudited)	4
		Condensed Consolidated Balance Sheets as of June 3 0 , 2023 and December 31, 2022	4
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 3 0 , 2023 and 2022	5
		Condensed Consolidated Statements of Comprehensive Income/(Loss ) for the Three and Six Months Ended June 3 0 , 2023 and 2022	6
		Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three and Six Months Ended June 3 0 , 2023 and 2022	7
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 3 0 , 2023 and 2022	9
		Notes to Unaudited Condensed Consolidated Financial Statements	10
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
	Item 4.	Controls and Procedures	42

PART II.		OTHER INFORMATION	43
	Item 1.	Legal Proceedings	43
	Item 1A.	Risk Factors	43
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
	Item 3.	Defaults upon Senior Securities	66
	Item 4.	Mine Safety Disclosures	66
	Item 5.	Other Information	66
	Item 6.	Exhibits	66

SIGNATURES			67

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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.

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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.

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PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SQUARESPACE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)


	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	274,004	$	197,037
Restricted cash	34,272		35,583
Investment in marketable securities	—		31,757
Accounts receivable, net	9,748		10,748
Due from vendors	3,030		4,442
Prepaid expenses and other current assets	51,305		48,326
Total current assets	372,359		327,893
Property and equipment, net	53,874		51,633
Operating lease right-of-use assets	82,247		86,824
Goodwill	210,438		210,438
Intangible assets, net	35,118		42,808
Other assets	12,376		10,921
Total assets	$	766,412	$	730,517
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	4,782	$	12,987
Accrued liabilities	83,222		64,360
Deferred revenue	308,662		269,689
Funds payable to customers	36,713		38,845
Debt, current portion	40,758		40,758
Operating lease liabilities, current portion	12,104		11,514
Total current liabilities	486,241		438,153
Deferred income taxes, non-current portion	912		788
Debt, non-current portion	453,230		473,167
Operating lease liabilities, non-current portion	104,020		110,169
Other liabilities	13,205		11,231
Total liabilities	1,057,608		1,033,508
Commitments and contingencies (see Note 10)
Stockholders’ deficit:
Class A common stock, par value of $0.0001; 1,000,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; 87,723,667 and 87,754,534 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	8		8
Class B common stock, par value of $0.0001; 100,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; 47,844,755 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	5		5
Class C common stock (authorized May 10, 2021), par value of $0.0001; 1,000,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; zero shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	—		—
Additional paid in capital	883,192		875,737
Accumulated other comprehensive loss	(1,487)		(1,665)
Accumulated deficit	(1,172,914)		(1,177,076)
Total stockholders’ deficit	(291,196)		(302,991)
Total liabilities and stockholders’ deficit	$	766,412	$	730,517

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

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SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue	$	247,529	$	212,702	$	484,557	$	420,464
Cost of revenue	43,167		36,993		86,117		73,642
Gross profit	204,362		175,709		398,440		346,822
Operating expenses:
Research and product development	61,412		58,829		119,982		116,157
Marketing and sales	75,373		68,743		177,045		181,649
General and administrative	30,909		39,190		63,249		75,171
Total operating expenses	167,694		166,762		360,276		372,977
Operating income/(loss)	36,668		8,947		38,164		(26,155)
Interest expense	(8,635)		(3,319)		(16,729)		(5,768)
Other income, net	2,038		6,217		1,198		7,728
Income/(loss) before (provision for)/benefit from income taxes	30,071		11,845		22,633		(24,195)
(Provision for)/benefit from income taxes	(26,411)		52,651		(18,471)		(4,169)
Net income/(loss)	$	3,660	$	64,496	$	4,162	$	(28,364)

Net income/(loss) per share attributable to Class A, Class B and Class C common stockholders, basic	$	0.03	$	0.46	$	0.03	$	(0.20)
Net income/(loss) per share attributable to Class A, Class B and Class C common stockholders, dilutive	$	0.03	$	0.45	$	0.03	$	(0.20)
Weighted-average shares used in computing net income/(loss) per share attributable to Class A, Class B and Class C stockholders, basic	135,302,409		140,082,038		135,111,072		139,754,453
Weighted-average shares used in computing net income/(loss) per share attributable to Class A, Class B and Class C stockholders, dilutive	138,771,613		142,133,303		138,013,454		139,754,453

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

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SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(in thousands)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income/(loss)	$	3,660	$	64,496	$	4,162	$	(28,364)
Other comprehensive (loss)/income
Foreign currency translation adjustment	(296)		(2,037)		(38)		(2,838)
Unrealized (loss)/gain on marketable securities, net of income taxes	—		(77)		216		(255)
Total other comprehensive (loss)/income	(296)		(2,114)		178		(3,093)
Total comprehensive income/(loss)	$	3,364	$	62,382	$	4,340	$	(31,457)

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

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SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(in thousands, except share and per share data)

(unaudited)

Three and Six Months Ended June 30, 2023


	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
Balance at December 31, 2022	87,754,534	$	8	47,844,755	$	5	—	$	—	$	875,737	$	(1,665)	$	(1,177,076)	$	(302,991)
Stock-based compensation	—	—		—	—		—	—		22,595		—		—		22,595
Stock option exercises	13,050	—		—	—		—	—		52		—		—		52
Vested RSUs converted to common shares	1,357,462	—		—	—		—	—		—		—		—		—
Taxes paid related to net share settlement of equity awards	(573,862)	—		—	—		—	—		(13,369)		—		—		(13,369)
Repurchase and retirement of Class A common stock	(1,256,170)	—		—	—		—	—		(25,321)		—		—		(25,321)
Excise tax on repurchase of Class A common stock	—	—		—	—		—	—		(277)		—		—		(277)
Net income	—	—		—	—		—	—		—		—		502		502
Total other comprehensive income, net of taxes	—	—		—	—		—	—		—		474		—		474
Balance at March 31, 2023	87,295,014	$	8	47,844,755	$	5	—	$	—	$	859,417	$	(1,191)	$	(1,176,574)	$	(318,335)
Stock-based compensation	—	—		—	—		—	—		30,648		—		—		30,648
Stock option exercises	21,635	—		—	—		—	—		42		—		—		42
Vested RSUs converted to common shares	640,562	—		—	—		—	—		—		—		—		—
Taxes paid related to net share settlement of equity awards	(233,544)	—		—	—		—	—		(6,915)		—		—		(6,915)
Net income	—	—		—	—		—	—		—		—		3,660		3,660
Total other comprehensive loss, net of taxes	—	—		—	—		—	—		—		(296)		—		(296)
Balance at June 30, 2023	87,723,667	$	8	47,844,755	$	5	—	$	—	$	883,192	$	(1,487)	$	(1,172,914)	$	(291,196)

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

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SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(in thousands, except share and per share data)

(unaudited)

Three and Six Months Ended June 30, 2022


	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
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	—		—	—		—	—		—		—		—		—
Taxes paid related to net share settlement of equity awards	(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	—		—	—		—	—		—		—		—		—
Taxes paid related to net share settlement of equity awards	(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)

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

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SQUARESPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2023		2022
OPERATING ACTIVITIES:
Net income/(loss)	$	4,162	$	(28,364)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation and amortization	14,477		15,869
Stock-based compensation	51,605		50,957
Deferred income taxes	124		—
Non-cash lease (income)/expense	(989)		638
Other	310		502
Changes in operating assets and liabilities:
Accounts receivable and due from vendors	2,364		(1,701)
Prepaid expenses and other current assets	(1,480)		(3,021)
Accounts payable and accrued liabilities	9,822		9,260
Deferred revenue	38,030		30,294
Funds payable to customers	(2,131)		9,456
Other operating assets and liabilities	408		(207)
Net cash provided by operating activities	116,702		83,683
INVESTING ACTIVITIES:
Proceeds from the sale and maturities of marketable securities	39,664		15,940
Purchases of marketable securities	(7,824)		(17,016)
Purchase of property and equipment	(7,167)		(5,735)
Net cash provided by/(used in) investing activities	24,673		(6,811)
FINANCING ACTIVITIES:
Principal payments on debt	(20,379)		(6,793)
Payments for repurchase and retirement of Class A common stock	(25,321)		(35,202)
Taxes paid related to net share settlement of equity awards	(20,318)		(15,269)
Proceeds from exercise of stock options	134		2,110
Net cash used in financing activities	(65,884)		(55,154)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	165		(600)
Net increase in cash, cash equivalents and restricted cash	75,656		21,118
Cash, cash equivalents, and restricted cash at the beginning of the period	232,620		233,680
Cash, cash equivalents, and restricted cash at the end of the period	$	308,276	$	254,798

Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	274,004	$	215,092
Restricted cash	34,272		39,706
Cash, cash equivalents, and restricted cash at the end of the period	$	308,276	$	254,798

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Cash paid during the year for interest	$	16,360	$	5,247
Cash paid during the year for income taxes	$	22,902	$	5,968

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCE ACTIVITIES
Purchases of property and equipment included in accounts payable and accrued liabilities	$	196	$	1,582
Non-cash leasehold improvements	$	—	$	5,679
Capitalized stock-based compensation	$	1,638	$	259

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

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SQUARESPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

1.Description of Business

Squarespace, Inc. and its subsidiaries (the “Company”) is a leading all-in-one platform for businesses and independent creators to build an online presence, grow their brands and manage their businesses across the internet. The Company offers websites, domains, e-commerce, tools for managing a social media presence, marketing tools, scheduling and hospitality services. The Company is headquartered in New York, NY, with additional offices operating in Chicago, IL, Dublin, Ireland, and Aveiro, Portugal.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the Company’s condensed consolidated financial statements may not be comparable to financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards based on public company effective dates.

The Company will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the Company’s total annual gross revenue is at least $1,235,000, (ii) the last day of the fiscal year following the fifth anniversary of the completion of the Company's direct listing, (iii) the date on which the Company issued more than $1,000,000 in non-convertible debt securities during the prior three-year period, or (iv) the date on which the Company becomes a large accelerated filer.

2.Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The Company’s condensed consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission. The condensed balance sheet data as of December 31, 2022 was derived from the Company's audited financial statements but does not include all disclosures required by U.S. GAAP. Therefore, these unaudited, condensed, consolidated financial statements and accompanying notes should be read in conjunction with the Company's annual consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K filed with the SEC on March 9, 2023. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Management’s estimates are based on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates include but are not limited to (i) the recognition and measurement of loss contingencies; (ii) the inputs used in the valuation of acquired intangible assets; (iii) the inputs used in the quantitative assessment over goodwill impairment (iii) the grant date fair value of stock-based awards; (iv) the recognition, measurement and valuation of current and deferred income taxes; (v) existence of applicable indirect tax nexus in different jurisdictions and associated indirect tax liabilities; and (vi) the incremental borrowing rate for operating lease liabilities. The Company evaluates its assumptions and estimates on an ongoing basis and adjusts prospectively, if necessary.

Concentration of Risks Related to Credit, Interest Rates and Foreign Currencies

The Company is subject to credit risk, interest rate risk on its outstanding indebtedness, market risk on investments and foreign currency risk in connection with the Company’s operations internationally.

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SQUARESPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

The Company maintains the components of its cash and cash equivalents balance in various accounts, which from time to time exceed the federal depository insurance coverage limit. In addition, substantially all cash and cash equivalents are held by three financial institutions. The Company has not experienced any concentration losses related to its cash, cash equivalents and marketable securities to date.

As of June 30, 2023 and December 31, 2022, no single customer accounted for more than 10% of the Company’s accounts receivable. Additionally, no single customer accounted for more than 10% of the Company’s revenue during the three and six months ended June 30, 2023 and 2022.

The Company is also subject to foreign currency risks that arise from normal business operations. Foreign currency risks include the translation of local currency and intercompany balances established in local customer currencies sold through the Company's international subsidiaries.

Cash and Cash Equivalents

Cash and cash equivalents are stated at fair value. The Company considers all highly liquid investments purchased with an original maturity date of 90 days or less from the date of original purchase to be cash equivalents. Interest income on cash and cash equivalents was $1,472 and $2,534 for the three and six months ended June 30, 2023, respectively, and $216 and $317 for the three and six months ended June 30, 2022, respectively, and was included in other income, net in the condensed consolidated statements of operations.

Restricted Cash and Payment Processing Transactions

The Company processes certain payments and holds funds for its hospitality services on behalf of its restaurant customers consisting of diner prepayments for restaurant reservations as well as to-go orders. While the Company does not have any contractual obligations to hold such cash as restricted, the diner prepayments and associated sales tax are included in restricted cash in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022.

In addition, the Company recognizes the liability due to restaurant customers in funds payable to customers and the associated sales tax payable in accrued liabilities in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022. Funds are remitted to the restaurant customers based on the stipulated contract terms. In addition to restricted cash held on behalf of restaurant customers, the Company recognizes in-transit receivables from certain third-party vendors which assist in processing and settling payment transactions due to a clearing period before the related cash is received or settled. In-transit receivables are included in due from vendors in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022.

The following table represents the assets and liabilities related to payment processing transactions:


	June 30, 2023		December 31, 2022
Restricted cash	$	34,272	$	35,583
Due from vendors	3,030		4,442
Total payment processing assets	37,302		40,025
Funds payable to customers	(36,713)		(38,845)
Sales tax payable	(589)		(1,180)
Total payment processing liabilities	(37,302)		(40,025)
Total payment processing transactions, net	$	—	$	—

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting Standards Codification (“ASC”) Topic 820,

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SQUARESPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

Fair Value Measurement, describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.

The three-level hierarchy for fair value measurements is defined as follows:

Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level 2 Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; and

Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

See “Note 5. Fair Value of Financial Instruments” for further information.

Leases

The Company adopted ASC Topic 842, Leases ("ASC Topic 842"), as of January 1, 2022. The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement conveys the right to control the use of an identified asset. The Company classifies, measures and recognizes a lease liability on the lease commencement date based on the present value of lease payments over the remaining lease term. As of June 30, 2023, the Company's leases were classified as operating leases. The Company uses an estimated incremental borrowing rate based on information available at the lease commencement date in determining the present value of future payments as the rate implicit in the lease is not generally known. The incremental borrowing rate is based on the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Operating right-of-use assets related to operating lease liabilities equal the amount of the initial measurement of the lease liability adjusted for any initial direct costs, prepaid rent and lease incentives received. Lease terms that are used in determining operating lease liabilities at lease inception may include options to extend or terminate the leases and when it is reasonably certain that the Company will exercise such options. Operating lease expense is recorded on a straight-line basis over the lease term. The straight-line expense is allocated within the condensed consolidated statements of operations based on departmental employee headcount. Variable lease costs are recognized as incurred and allocated within the condensed consolidated statements of operations based on departmental employee headcount. The Company has applied practical expedients for lease agreements with lease and non-lease components, and in such cases, accounts for the components as a single lease component. The Company has also elected not to recognize operating right-of-use assets and operating lease liabilities for any lease with an original lease term of less than one year.

Operating lease right-of-use assets are included in non-current assets on the condensed consolidated balance sheets for the entire lease term. The Company includes the portion of the total lease payments, net of implicit interest, that are due in the next 12 months in current liabilities and the remaining portion in non-current liabilities on the condensed consolidated balance sheets. The difference between straight-line lease expense and the cash paid for leases is included as non-cash lease expense in the adjustments to reconcile net loss to net cash provided by operating activities on the condensed consolidated statements of cash flows.

Operating sublease income is recognized on a straight-line basis over the sublease term and is allocated within the condensed consolidated statements of operations based on departmental employee headcount.

See “Note 11. Leases” for further information on impairment losses on leases recorded during the year ended December 31, 2022.

Net Income/(Loss) Per Share Attributable to Class A, Class B and Class C Common Stockholders

Basic net income/(loss) per share is computed by dividing net income/(loss) attributable to Class A, Class B and Class C common stockholders by the weighted-average number of shares of the Company’s Class A, Class B and Class C common stock outstanding.

Diluted net income/(loss) per share attributable to Class A, Class B and Class C common stockholders is computed by giving effect to all dilutive securities. Diluted net income/(loss) per share attributable to Class A, Class B and Class C common stockholders is computed by dividing the resulting net income/(loss) attributable to Class A, Class B and Class C common stockholders by the weighted-average number of fully diluted Class A, Class B and Class C common shares outstanding. The Company used the if-converted method as though the conversion, exchange or vesting, respectively, had occurred as of the beginning of the period or the original date of issuance, if later. During periods when there is a net loss attributable to Class A, Class B and Class C common stockholders, potentially dilutive Class A, Class B and Class C common stock equivalents are excluded from the calculation of diluted net loss per share attributable to Class A, Class B

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

and Class C common stockholders as their effect is anti-dilutive. If the effect of a conversion of an instrument is neutral to earnings per share, the Company considers the security to be dilutive.

Recently Issued Accounting Pronouncements

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. See “Note 1. Description of Business” for further information on the Company's status as an emerging growth company.

Accounting Pronouncements Recently Adopted

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASC 2021-08"). This standard requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. ASU 2021-08 is effective for fiscal years and interim periods in those years beginning after December 15, 2022 for nonpublic entities with early adoption permitted. The Company adopted this standard as of January 1, 2023, however, as the Company has not completed any acquisitions subsequent to the date of adoption, the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This standard defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. ASU No. 2022-06 is effective upon issuance of this update for all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The Company adopted this standard as of December 31, 2022. The Company replaced LIBOR as the benchmark rate with SOFR as of June 30, 2023. See “Note 8. Debt" for further information. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

3.Revenue

The Company primarily derives revenue from annual and monthly subscriptions. Revenue is also derived from non-subscription services, including fixed percentages or fixed-fees earned on revenue share arrangements with third-parties and on sales made through our customers’ sites.

The Company has disaggregated revenue from contracts with customers by product type, subscription type, revenue recognition pattern, and geography as these categories depict the nature, amount, timing and uncertainty of revenue and how cash flows are affected by economic factors. The Company disaggregates revenue by product type as follows:

Presence

Presence revenue primarily consists of fixed-fee subscriptions to the Company’s plans that offer core platform functionalities, currently branded “Personal” and “Business” plans. Presence revenue also consists of fixed-fee subscriptions related to additional entry points for starting online such as domain managed services and social media stories. Additionally, presence revenue is derived from third-party solutions related to email services and access to third-party content to enhance online presence. For customers in need of a larger scale solution, the Company has an enterprise offering, and revenue is recognized over the life of the contract.

Commerce

Commerce revenue primarily consists of fixed-fee subscriptions to the Company’s plans that offer all the features of presence plans as well as additional features that support end to end commerce transactions, currently branded “Basic” and “Advanced” plans. Commerce revenue also includes fixed-fee subscriptions to a number of other tools that support running an online business such as marketing, member areas, scheduling and hospitality tools. Non-subscription revenue is derived from fixed-fees earned on revenue share arrangements with commerce partners as well as fixed transaction fees earned on gross merchandise value ("GMV") processed through Business plan sites and certain hospitality offerings. Commerce revenue also includes payment processing fees received for use of the Company’s hospitality services.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

Revenue by Product Type, Subscription Type and Revenue Recognition Pattern

The following tables summarize revenue by product type, subscription type, and revenue recognition pattern for the periods presented:


	Three Months Ended June 30, 2023						Six Months Ended June 30, 2023
	Presence		Commerce		Total		Presence		Commerce		Total
Subscription revenue
Transferred over time	$	167,335	$	56,807	$	224,142	$	326,915	$	110,863	$	437,778
Transferred at a point in time	3,857		—		3,857		8,001		—		8,001
Non-subscription revenue
Transferred over time	822		832		1,654		1,421		1,727		3,148
Transferred at a point in time	60		17,816		17,876		128		35,502		35,630
Total revenue	$	172,074	$	75,455	$	247,529	$	336,465	$	148,092	$	484,557


	Three Months Ended June 30, 2022						Six Months Ended June 30, 2022
	Presence		Commerce		Total		Presence		Commerce		Total
Subscription revenue
Transferred over time	$	142,603	$	48,867	$	191,470	$	282,379	$	95,922	$	378,301
Transferred at a point in time	3,391		—		3,391		7,049		—		7,049
Non-subscription revenue
Transferred over time	442		905		1,347		840		1,751		2,591
Transferred at a point in time	95		16,399		16,494		208		32,315		32,523
Total revenue	$	146,531	$	66,171	$	212,702	$	290,476	$	129,988	$	420,464

Revenue by Geography

Revenue by geography is based on the customer’s self-reported country identifier or, if not available, the billing address or IP address, and was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
United States	$	177,195	$	152,354	$	346,949	$	299,174
International	70,334		60,348		137,608		121,290
Total revenue	$	247,529	$	212,702	$	484,557	$	420,464

Currently no individual country contributes greater than 10% of total international revenue.

Deferred Revenue

The deferred revenue balance as of June 30, 2023 and December 31, 2022 represents the Company’s aggregate remaining performance obligations that are expected to be recognized as revenue in subsequent periods. Generally, the Company’s contracts are for one year or less and the value for contracts with terms greater than one year is not material. The change in deferred revenue primarily reflects cash payments received during the period for which the performance obligation was not satisfied prior to the end of the period partially offset by $79,714 and $203,843 of revenues recognized during the three and six months ended June 30, 2023, respectively, and $69,507 and $178,129 during the three and six months ended June 30, 2022, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

Capitalized Contract Costs

Assets capitalized related to contract costs consisted of the following:


	June 30, 2023		December 31, 2022
Capitalized referral fees, current	$	7,184	$	6,368
Capitalized referral fees, non-current	9,234		8,168
Capitalized app fees, current	942		971
Sales commissions, current	494		479
Sales commissions, non-current	147		159
Total capitalized contract costs	$	18,001	$	16,145

Amortization of capitalized contract costs was $3,361 and $6,289 for the three and six months ended June 30, 2023, respectively, and $2,607 and $5,236 for the three and six months ended June 30, 2022, respectively, and was included in marketing and sales in the condensed consolidated statements of operations.

There were no impairment charges recognized related to capitalized contract costs for the three and six months ended June 30, 2023 and 2022.

Obligations for Returns, Refunds and Other Similar Obligations

The Company did not have any material change in revenue recognition from a previous period due to refunds, change in transaction price or other consideration variables. As of June 30, 2023 and December 31, 2022, obligations for refunds were $472 and $400, respectively, and were included in accrued liabilities in the condensed consolidated balance sheets.

4.Investment in Marketable Securities

As of June 30, 2023, the Company did not own available-for-sale (“AFS”) marketable securities in the form of corporate bonds and commercial paper, asset backed securities or U.S. treasuries.

The following tables represent the amortized cost, gross unrealized gains and losses and fair market value of the Company’s AFS marketable securities as of December 31, 2022:


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Aggregate Fair Value
Corporate bonds and commercial paper	$	19,849	$	—	$	(74)	$	19,775
Asset backed securities	2,219		1		(12)		2,208
U.S. treasuries	9,905		—		(131)		9,774
Total investment in marketable securities	$	31,973	$	1	$	(217)	$	31,757

The Company's gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2022, aggregated by investment category and the length of time that individual securities have been in a continuous loss position are as follows:


	December 31, 2022
	Less than 12 months				12 months or Greater				Total
	Aggregate Fair Value		Gross Unrealized Losses		Aggregate Fair Value		Gross Unrealized Losses		Aggregate Fair Value		Gross Unrealized Losses
Corporate bonds and commercial paper	$	14,768	$	(25)	$	5,007	$	(49)	$	19,775	$	(74)
Asset backed securities	$	2,208	$	(12)	$	—	$	—	$	2,208	$	(12)
U.S. treasuries	$	3,873	$	(29)	$	5,901	$	(102)	$	9,774	$	(131)
Total investment in marketable securities	$	20,849	$	(66)	$	10,908	$	(151)	$	31,757	$	(217)

The Company did not recognize any unrealized losses related to marketable securities during the three months ended June 30, 2023. The Company recognized unrealized losses of $216 related to its AFS securities during the six months ended June 30, 2023, and $77 and $255 during the three and six months ended June 30, 2022, respectively. The unrealized losses were due to changes in market rates and the Company has determined the losses are temporary in nature. These unrealized losses were classified in accumulated other comprehensive loss in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022.

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SQUARESPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

The Company reviews AFS marketable securities on a recurring basis to evaluate whether or not any securities have experienced an other-than-temporary decline in fair value. Some factors considered in establishing an expected credit loss on AFS marketable securities are the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer, the Company's intent to sell, and whether it is more likely than not the Company will be required to sell the investment before recovery of the investments amortized cost basis. The Company did not have any AFS marketable securities for which an expected credit loss has been recorded as the Company's AFS marketable securities with an amortized cost basis lower than fair value were not considered other-than-temporary declines in fair value. In the instance that the Company has AFS marketable securities at an amortized cost basis lower than fair value, the Company does not intend to sell, nor is it more-likely-than not the Company would be required to sell the AFS marketable security prior to recovery.

The contractual maturities of the investments classified as marketable securities were as follows:


	December 31, 2022
Due within 1 year	$	28,564
Due in 1 year through 5 years	3,193
Total investment in marketable securities	$	31,757

5.Fair Value of Financial Instruments

A summary of the Company’s investments in marketable securities (including, if applicable, those marketable securities classified as cash and cash equivalents) were as follows:


	June 30, 2023
	Level 1		Level 2		Level 3		Total
Cash equivalents
Money market funds	$	126,921	$	—	$	—	$	126,921
Total	$	126,921	$	—	$	—	$	126,921


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Cash equivalents
Money market funds	$	82,584	$	—	$	—	$	82,584
Available-for-sale debt securities
Corporate bonds and commercial paper	—		19,775		—		19,775
Asset backed securities	—		2,208		—		2,208
U.S. treasuries	9,774		—		—		9,774
Total	$	92,358	$	21,983	$	—	$	114,341

The Company’s valuation techniques used to measure the fair value of money market funds and certain AFS marketable securities were derived from quoted prices in active markets for identical assets. The valuation techniques used to measure the fair value of the Company’s other debt securities, all of which have counterparties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. There were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the periods presented.

For certain other financial instruments, including accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate the fair value of such instruments due to the relatively short maturity of these balances. The Company records debt obligations at their approximate fair values as they are based upon rates available to the Company for obligations of similar terms and maturities.

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SQUARESPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

6.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	June 30, 2023		December 31, 2022
Prepaid advertising expenses	$	1,496	$	7,045
Prepaid income taxes	23,585		17,134
Prepaid operational expenses	16,356		14,780

Prepaid referrals, current	7,184		6,368
Other current assets	2,684		2,999
Total prepaid expenses and other current assets	$	51,305	$	48,326

7.Accrued Liabilities

Accrued liabilities consisted of the following:


	June 30, 2023		December 31, 2022
Accrued marketing expenses	$	22,497	$	14,620
Accrued indirect taxes	34,897		33,486
Accrued product expenses	14,361		4,524
Accrued payroll expense	4,100		4,985
Other accrued expenses	7,367		6,745
Total accrued liabilities	$	83,222	$	64,360

8.Debt

Debt outstanding as of June 30, 2023 and December 31, 2022 was as follows:


	June 30, 2023		December 31, 2022
Term Loan	$	495,887	$	516,266
Less: unamortized original issue discount	(1,555)		(1,917)
Less: unamortized deferred financing costs	(344)		(424)
Less: debt, current	(40,758)		(40,758)
Total debt, non-current	$	453,230	$	473,167

Credit Facility

On December 12, 2019 (the “Closing Date”), the Company entered into a credit agreement (the “2019 Credit Agreement”) with certain lending institutions (the “2019 Credit Facility”) which included Initial Term A Loans for $350,000 (“2019 Term Loan”) and Revolving Credit Loans of up to $25,000 (“2019 Revolving Credit Facility”), which included a Letters of Credit sub-facility available up to a total of $15,000 (“2019 Letter of Credit”).

On December 11, 2020, the Company amended the 2019 Credit Agreement (“2020 Credit Agreement”) to increase the total size of the 2019 Term Loan to $550,000 (collectively, the “2020 Term Loan”) with the same lending institutions as the 2019 Credit Facility (collectively, the “Credit Facility”) and extend the maturity date for the 2020 Term Loan and the 2019 Revolving Credit Facility (as extended, the "Revolving Credit Facility") to December 11, 2025 (collectively, the “2020 Modification”).

Borrowings under the Credit Facility were subject to an interest rate equal to LIBOR plus the applicable margin based on our Consolidated Total Debt to Consolidated EBITDA ratio. On June 15, 2023, the Company amended the 2020 Credit Agreement to, among other things, replace LIBOR as the benchmark rate with SOFR, effective June 30, 2023, and establish additional term loan commitments in an aggregate principal amount of $100,000. The loans will fund on the closing date of the Google Domains asset acquisition, which is subject to certain regulatory approvals and customary closing conditions. See “Note 10. Commitments and Contingencies” for further information on the definitive asset purchase agreement with Google LLC (“Google”). The applicable margin was 1.50% and 1.50% as of June 30, 2023 and 2022, respectively. The effective interest rate for the Company’s final LIBOR payment, made on June 22, 2023, was 6.69%. The effective interest rate was 6.70% and 3.19% as of June 30, 2023 and 2022, respectively.

As of June 30, 2023, $7,255 was outstanding under the Revolving Credit Facility in the form of outstanding letters of credit and $17,745 remained available for borrowing by the Company. The letters of credit issued as of June 30, 2023 were related to certain of the Company's operating lease agreements for offices that require security deposits in the form of an irrevocable letter of credit. On September 7, 2022, the letter of credit for the Company's security deposit related to its New

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

York, NY headquarters was reduced by $2,388 due to a scheduled step-down per the lease agreement. The letters of credit issued are subject to a fee equal to the interest rate on the Credit Facility. In addition, the Revolving Credit Facility is subject to an unused commitment fee of 0.20% to 0.25%, depending on the consolidated total debt to consolidated EBITDA ratio as defined by the 2020 Credit Agreement, payable quarterly to the lenders in respect of the unutilized commitments.

The 2020 Credit Agreement contains certain customary affirmative covenants and events of default. The negative covenants in the Credit Facility include, among other items, limitations on the ability, subject to negotiated exceptions, to incur additional indebtedness or issue additional preferred stock of the Company, to create or issue certain liens on certain assets, to enter into agreements related to mergers and acquisitions, including the sale of certain assets or disposition of assets, or declare, make or pay dividends and distributions. The 2020 Credit Agreement contains certain negative covenants for an indebtedness to consolidated EBITDA ratio, as defined by the 2020 Credit Agreement, and commencing with December 31, 2020 and all fiscal quarters thereafter through maturity. As a result of the 2020 Modification, commencing with the fiscal quarter ended December 31, 2020, the Company is required to maintain an indebtedness to consolidated EBITDA ratio of not more than 4.50, tested as of the last day of each fiscal quarter, with a step-down to 4.25 for the fiscal quarters ending March 31, 2022 and June 30, 2022, a further step-down to 4.00 for the fiscal quarters ending September 30, 2022 and December 31, 2022 and a final step-down to 3.75 for the fiscal quarter ending March 31, 2023 and each fiscal quarter thereafter (the “Financial Covenant”), subject to customary equity cure rights. The Financial Covenant is subject to a 0.50 step-up in the event of a material permitted acquisition, which the Company can elect to implement up to two times during the life of the facility. The Company did not elect to implement this step-up as a result of the acquisition of Tock. If the Company is not in compliance with the covenants under the 2020 Credit Agreement or the Company otherwise experiences an event of default, the lenders would be entitled to take various actions, including acceleration of amounts due under the 2020 Credit Agreement. As of June 30, 2023, the Company was in compliance with all applicable covenants, including the Financial Covenant.

Consolidated EBITDA is defined in the 2020 Credit Agreement as net income/(loss) adjusted to exclude interest expense, other income/(loss), net, benefit from/(provision for) income taxes, depreciation and amortization, and stock-based compensation expense. In addition, consolidated EBITDA also allows for other adjustments such as the exclusion of transaction costs, changes in deferred revenue, and other costs that may be considered non-recurring.

Scheduled Principal Payments

The scheduled principal payments required under the terms of the 2020 Credit Facility are as follows:


Year Ending December 31,	Amount
Remainder of 2023	$	20,379
2024	40,758
2025	434,750
Total	$	495,887

9.Income Taxes

For interim periods, the Company generally uses the estimated annual effective tax rate method under which the Company determines its (provision for)/benefit from income taxes based on the current estimate of its annual effective tax rate plus the tax effect of discrete items occurring during the period. The estimated annual effective tax rate is based on forecasted annual results which may fluctuate due to significant changes in the forecasted or actual results and any other transaction that results in differing tax treatment.

For the three and six months ended June 30, 2022, the Company departed from the estimated annual effective tax rate method and computed its benefit from/(provision for) income taxes using the discrete effective tax rate method (the "discrete method"), as allowed under ASC Topic 740, Income Taxes - Interim Reporting. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis.

For the three months ended June 30, 2023 and 2022, the Company recorded an income tax expense of $26,411 and an income tax benefit of $52,651, respectively, which resulted in an effective tax rate of (87.8)% and 444.5%, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded an income tax expense of $18,471 and $4,169, respectively, which resulted in an effective tax rate of (81.6)% and 17.2%, respectively.

The Company’s effective income tax rate for the three and six months ended June 30, 2023 differed from the statutory rate of 21% primarily due to the change in the valuation allowance for deferred tax assets related primarily to the capitalization of research and development expenditures, nondeductible executive compensation, unrecognized tax benefits,

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

state and local income taxes, and global intangible low-taxes income, partially offset by research and development tax credits, deduction from foreign-derived intangible income, and the effect of foreign operations.

The Company’s effective income tax rate for the three and six months ended June 30, 2022 differed from the statutory rate of 21% primarily due to the change in the valuation allowance for deferred tax assets related primarily to the capitalization of research and development expenditures, nondeductible executive compensation, global intangible low-taxes income, unrecognized tax benefits, and the effect from foreign operations, partially offset by research and development tax credits, windfall on stock-based compensation, and deduction from foreign derived intangible income.

The (provision for)/benefit from income taxes for the three and six months ended June 30, 2023 and 2022 also reflects a provision of the Tax Cuts and Jobs Act of 2017 becoming effective as of January 1, 2022 that requires companies to capitalize and amortize research and development expenditures rather than deduct the costs as incurred.

As of June 30, 2023, the Company had unrecognized tax benefits of $12,928, of which $12,771 would affect the effective tax rate if recognized. Of the $12,928 of the unrecognized tax benefits as of June 30, 2023, $12,771 was recorded to other liabilities and the remaining balance was recorded as a reduction in the gross deferred tax assets, offset by a corresponding reduction in the valuation allowance. As of June 30, 2022, the Company had unrecognized tax benefits of $9,665, all of which would not affect the effective tax rate if recognized due to the Company's full valuation against all federal, state and foreign deferred tax assets that the Company believes will not be realizable on a more-likely-than-not basis. The increase was primarily due to tax positions taken during the current and prior periods. The Company is unable to reasonably estimate the timing of long-term payments or the amount by which the liability will increase or decrease. The Company believes that its unrecognized tax benefits as of June 30, 2023 will decrease by approximately $1,161 within the next twelve months due to expiring statutes of limitation. The Company’s policy is to classify accrued interest and penalties related to unrecognized tax benefits in the (provision for)/benefit from income taxes in the condensed consolidated statements of operations. As of June 30, 2023, accrued interest and penalties were $497 and there were no accrued interest and penalties as of June 30, 2022.

The Company’s corporate federal income tax returns for the years ended December 31, 2012 through December 31, 2022 remain subject to examination by the Internal Revenue Service. The Company’s corporate income tax returns for the years ended December 31, 2017 through December 31, 2022 remain subject to examination by taxing authorities in various U.S. states and Ireland. In addition, in the U.S., any net operating losses or credits that were generated in prior years but utilized in open years may also be subject to examination.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the "Inflation Reduction Act") into law. The Inflation Reduction Act contains certain tax measures, including a corporate alternative minimum tax of 15% on some large corporations and a nondeductible 1% excise tax on the net value of certain share repurchases made after December 31, 2022 by covered corporations. The Company recorded $277 related to the excise tax on share repurchases in additional paid in capital in the condensed consolidated balance sheet as of June 30, 2023.

On December 15, 2022, the Ireland Finance Act 2022 was signed into Irish law. With the enactment of the Ireland Finance Act 2022, qualifying Ireland-related research and development tax credits do not depend on the generation of future taxable income. As a result, the Company determined these credits to be a credit to research and development expenses in the form of a government grant as analogized under International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance. During the three and six months ended June 30, 2023, the Company recognized Ireland-related research and development tax credits of $338 and $614, respectively, as a reduction to research and product development in the condensed consolidated statements of operations.

10.Commitments and Contingencies

Indirect Taxes

The Company is subject to indirect taxation in some, but not all, of the various U.S. states and foreign jurisdictions in which it conducts business. Therefore, the Company has an obligation to charge, collect and remit Value Added Tax (“VAT”) or Goods and Services Tax (“GST”) in connection with certain foreign sales transactions and sales and use tax in connection with eligible sales to subscribers in certain U.S. states. On June 21, 2018, the U.S. Supreme Court overturned the physical presence nexus standard and held that states can require remote sellers to collect sales and use tax. In addition, U.S. states and foreign jurisdictions have and continue to enact laws which expand tax collection and remittance obligations that could apply to a platform like the Company's. As a result of these rulings, recently enacted laws, and the scope of the Company’s operations, taxing authorities continue to provide regulations that increase the complexity and risks to comply with such laws and could result in substantial liabilities, prospectively as well as retrospectively. Based on the information available, the Company continues to evaluate and assess the jurisdictions in which indirect tax nexus exists and believes that the indirect tax liabilities are adequate and reasonable. However, due to the complexity and uncertainty around the application of these rules by taxing authorities, results may vary materially from the Company’s expectations. The

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SQUARESPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

Company had an indirect tax liability of $34,897 and $33,486 as of June 30, 2023 and December 31, 2022, respectively, which is included in accrued liabilities in the condensed consolidated balance sheets.

Purchase Obligations – Cloud-Computing Services and Software-as-a-Service

As of June 30, 2023, the Company had outstanding non-cancelable purchase obligations with a term of 12 months or longer, mainly related to third-party cloud-computing as well as software-as-a-service services, as follows:


Year Ending December 31,	Amount
Remainder of 2023	$	7,122
2024	15,500
2025	18,000
Total	$	40,622

Definitive Asset Purchase Agreement – Google Domains

On June 15, 2023, the Company entered into a definitive agreement with Google to acquire, among other things, all customer domain name registrations for which Google is the registrar or reseller for $180,000. In connection with the definitive agreement, the Company entered into an amendment to the 2020 Credit Agreement, dated June 15, 2023. The amendment, among other things, established additional term loan commitments in an aggregate principal amount of $100,000. The loans will fund on the closing date of the acquisition, which is subject to certain regulatory approvals and customary closing conditions.

Certain Risks and Concentrations

The Company’s revenues were principally generated from SaaS customers establishing their online presence. The market is highly competitive and rapidly changing. Significant changes in this industry, technological advances or changes in customer buying behavior could adversely affect the Company’s future operating results.

Other

The Company is subject to litigation and other claims that arise in the ordinary course of business. While the ultimate result of outstanding legal matters cannot presently be determined, the Company does not expect that the ultimate disposition will have a material adverse effect on its results of operations or financial condition. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. Based on the Company’s current knowledge, the final outcome of any particular legal matter will not have a material adverse effect on the Company’s financial condition.

11.Leases

The Company has operating leases for its office space with lease terms through 2034. Certain lease agreements include options to extend and/or terminate the lease. The Company's lease agreements do not contain terms and conditions of material restrictions, covenants, or residual value guarantees. Variable lease costs are comprised primarily of the Company's proportionate share of operating expenses and property taxes.

On March 10, 2022, the Company entered into an agreement to sublease a portion of one of its office spaces in Chicago, IL through the existing termination date of May 30, 2023. The Company recorded sublease income related to the Chicago, IL office space sublease of $61 and $152 during the three and six months ended June 30, 2023, respectively, and $125 during the three and six months ended June 30, 2022.

On March 31, 2022, the Company reassessed the useful life of its operating lease right-of-use asset related to its leased office space in Los Angeles, CA due to ceasing the use of the office space with no expected future benefit. As a result, the Company recorded an additional $258 of operating lease expense in the condensed consolidated statement of operations during the six months ended June 30, 2022.

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SQUARESPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

The components of operating lease expense, net recognized in the condensed consolidated statements of operations were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating lease costs
Operating lease costs	$	3,417	$	3,571	$	6,872	$	7,424
Variable lease costs	850		523		1,614		869
Short-term lease costs	67		32		142		48
Operating lease income
Sublease income	$	129	$	215	$	311	$	310
Total operating lease expense, net	$	4,205	$	3,911	$	8,317	$	8,031

Supplemental disclosure of cash and non-cash operating activities related to operating leases were as follows:


	Six Months Ended June 30,
	2023		2022
Cash paid for amounts included in the measurement of operating lease liabilities, net of cash received for lease incentives	$	7,861	$	6,756

As of June 30, 2023, the weighted-average lease term and discount rate related to operating leases were as follows:


	June 30, 2023
Weighted-average remaining lease term (in years)	7.80
Weighted-average discount rate use in measuring operating lease liabilities	3.76	%

As of June 30, 2023, maturities of operating lease liabilities were as follows:


Year Ending December 31,	Amount
Remainder of 2023	$	7,992
2024	16,491
2025	16,878
2026	17,602
2027	17,065
Thereafter	58,465
Total operating lease payments	134,493
Less: imputed interest	(18,369)
Total operating lease liabilities	$	116,124

12.Stockholders’ Deficit

Class A Common Stock

Each holder of shares of Class A common stock shall be entitled to one vote for each share held. As of June 30, 2023, the number of authorized shares of Class A common stock, par value $0.0001 per share, by the Company was 1,000,000,000.

On May 10, 2022, the board of directors authorized a general share repurchase program of the Company’s Class A common stock of up to $200,000, with no fixed expiration (the "Stock Repurchase Plan"). These Class A common stock repurchases may occur in the open market, through privately negotiated transactions, through block purchases, other purchase techniques including the establishment of one or more plans under Rule 10b5-1 of the Securities Exchange Act of 1934 or by any combination of such methods. The timing and actual amount of shares repurchased will depend on a variety of different factors and may be modified, suspended or terminated at any time at the discretion of the board of directors.

During the three months ended June 30, 2023, the Company did not repurchase shares under the Stock Repurchase Plan. During the six months ended June 30, 2023, the Company repurchased 1,256,170 shares and paid cash of $25,321, including commissions of $25, under the Stock Repurchase Plan through open market purchases at a weighted-average price per share of $22.04.

During the three and six months ended June 30, 2022, the Company repurchased 1,562,460 shares for a total cash consideration of $35,202, including commissions of $34, under the Stock Repurchase Plan through open market purchases at a weighted-average price per share of $20.73.

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SQUARESPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

As of June 30, 2023, approximately $54,486 remained available for stock repurchase pursuant to the Stock Repurchase Plan.

Class B Common Stock

Each holder of shares of Class B common stock shall be entitled to ten votes for each share held.

Each outstanding share of the Company's Class B common stock is convertible into one share of Class A common stock at any time. As of June 30, 2023, the number of authorized shares of Class B common stock, par value $0.0001 per share, by the Company was 100,000,000.

Class C Common Stock

As of June 30, 2023, the number of authorized shares of Class C common stock, par value $0.0001 per share, by the Company was 1,000,000,000. The board of directors has the authority, without stockholder approval except as required by the NYSE, to issue shares of the Company's Class C common stock. The Company's Class C common stock is not convertible into shares of Class A common stock or Class B common stock and has no voting rights. As of June 30, 2023, the Company has not issued any shares of its Class C common stock.

Dividends

The Company shall not declare or pay dividends on Class A common stock, Class B common stock or Class C common stock unless the same dividend or distribution with the same record date and payment dated shall be declared or paid on all shares of Class A, Class B and Class C common stock.

During the three and six months ended June 30, 2023 and 2022, the Company did not declare any dividends.

13.Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss activity for the three and six months ended June 30, 2023 and 2022 was as follows:


	Foreign Currency Translation Adjustments		Net Unrealized (Losses)/Gains on Marketable Securities		Total Accumulated Other Comprehensive (Loss)/Income
Balance at December 31, 2022	$	(1,449)	$	(216)	$	(1,665)
Other comprehensive income before reclassifications	258		216		474
Other comprehensive income	258		216		474
Balance at March 31, 2023	$	(1,191)	$	—	$	(1,191)
Other comprehensive loss before reclassifications	$	(296)	$	—	$	(296)
Other comprehensive loss	(296)		—		(296)
Balance at June 30, 2023	$	(1,487)	$	—	$	(1,487)


	Foreign Currency Translation Adjustments		Net Unrealized Losses on Marketable Securities		Total Accumulated Other Comprehensive Loss
Balance at December 31, 2021	$	(170)	$	(38)	$	(208)
Other comprehensive loss before reclassifications	(801)		(178)		(979)
Other comprehensive loss	(801)		(178)		(979)
Balance at March 31, 2022	$	(971)	$	(216)	$	(1,187)
Other comprehensive loss before reclassifications	$	(2,037)	$	(77)	$	(2,114)
Other comprehensive loss	(2,037)		(77)		(2,114)
Balance at June 30, 2022	$	(3,008)	$	(293)	$	(3,301)

Amounts reclassified out of accumulated other comprehensive loss, net of taxes, during the three and six months ended June 30, 2023 and 2022 were not material.

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SQUARESPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

14.Stock-based Compensation

Stock Options

Squarespace, Inc. Amended and Restated 2008 Equity Incentive Plan

In January 2008, the Company established and approved the Squarespace, Inc. 2008 Equity Incentive Plan which was ratified in 2010 and was subsequently amended and restated in March 2016 (“the 2008 Plan”). Under the 2008 Plan, which covers certain employees and consultants, the Company granted shares of its Class B common stock in the form of stock options. After November 17, 2017, there were no additional grants from the 2008 Plan.

Stock options in common stock exercised were 21,635 and 34,685 during the three and six months ended June 30, 2023, respectively, and 269,064 and 612,751 during the three and six months ended June 30, 2022, respectively. Cash consideration for stock options exercised was $42 and $134 during the three and six months ended June 30, 2023, respectively, and $969 and $2,110 during the three and six months ended June 30, 2022, respectively.

Restricted Stock Units (RSUs) and Performance Stock Units (PSUs)

Squarespace, Inc. 2017 Equity Incentive Plan

On November 17, 2017, the Company’s board of directors approved the Squarespace, Inc. 2017 Equity Incentive Plan (“the 2017 Plan”). Under the 2017 Plan, the Company may grant shares of its Class A common stock in the form of RSUs, PSUs, stock options, stock appreciation rights and other stock awards. RSUs generally vest over four years and are measured based on the fair market value of the underlying Class A common stock on the date of grant, as determined by the Company’s board of directors. There were 147,635 and 606,832 shares that vested under the 2017 Plan of which 64,376 and 256,587 shares were reacquired in order to satisfy employee tax obligations during the three and six months ended June 30, 2023, respectively, and 733,488 and 1,413,622 shares that vested under the 2017 Plan of which 324,080 and 611,535 shares were reacquired in order to satisfy employee tax obligations during the three and six months ended June 30, 2022, respectively. After April 15, 2021, no additional grants were issued from the 2017 Plan.

Squarespace, Inc. 2021 Equity Incentive Plan

On March 25, 2021, the Company’s board of directors adopted the Squarespace, Inc. 2021 Equity Incentive Plan (“the 2021 Plan”) which was approved by the stockholders on May 3, 2021 and went into effect on May 9, 2021. Under the 2021 Plan, the Company may grant shares of its Class A common stock in the form of RSUs, PSUs, stock options, stock appreciation rights and other stock awards.

The Company granted 367,809 and 5,304,008 shares of Class A common stock in the form of RSUs under the 2021 Plan during the three and six months ended June 30, 2023, respectively, and 673,715 and 5,192,191 shares of Class A common stock in the form of RSUs under the 2021 Plan during the three and six months ended June 30, 2022, respectively. RSUs are subject to continuous service and generally vest over four years and are measured based on the closing price of the Company's Class A common stock as reported on the date of grant. During the three and six months ended June 30, 2023, there were 492,927 and

Squarespace, Inc. [SQSP] Filings
10-Q	[2023-08-08]
10-Q	[2023-05-09]
10-K	[2023-03-09]
10-Q	[2022-11-08]
10-Q	[2022-07-28]
10-Q	[2022-05-12]
10-K	[2022-03-07]
10-Q	[2021-11-08]
10-Q	[2021-08-09]
S-1	[2021-04-16]