Eventbrite(EB) - 2019 Q1 - Quarterly Report

PART I Item 1. Unaudited Interim Condensed Consolidated Financial Statements Eventbrite's unaudited interim condensed consolidated financial statements for Q1 2019 and 2018 are presented, detailing balance sheets, operations, equity, cash flows, and accounting notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :-------------------------------- | :------------- | :------------------ | | Total Assets | $931,005 | $836,884 | | Cash and cash equivalents | $533,363 | $437,892 | | Accounts payable, creators | $353,389 | $272,201 | | Total Liabilities | $506,092 | $421,662 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :------------------------------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net revenue | $81,326 | $74,526 | | Gross profit | $50,808 | $46,442 | | Total operating expenses | $60,953 | $49,533 | | Loss from operations | $(10,145) | $(3,091) | | Net income (loss) | $(9,998) | $9,023 | | Net loss per share attributable to common stockholders, basic and diluted | $(0.13) | $— | Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) Stockholders' Equity (Deficit) Highlights (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :-------------------------------- | :------------- | :------------------ | | Total Stockholders' Equity | $424,913 | $415,222 | | Stock-based compensation (Q1) | $8,330 | $3,016 | | Net loss (Q1) | $(9,998) | $9,023 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $86,734 | $86,306 | | Net cash used in investing activities | $(3,390) | $(2,992) | | Net cash provided by (used in) financing activities | $11,129 | $(4,872) | | Net increase in cash, cash equivalents and restricted cash | $94,473 | $78,442 | Notes to Unaudited Interim Condensed Consolidated Financial Statements - Eventbrite's platform enables creators to plan, promote, and produce live events, reducing friction and costs, increasing reach, and driving ticket sales[33] - The company completed its Initial Public Offering (IPO) in September 2018, issuing 11,500,000 shares of Class A common stock at $23.00 per share, generating $246.0 million in net proceeds[34] - Adopted ASU 2017-01 (Business Combinations) and ASC Topic 606 (Revenue from Contracts with Customers) effective January 1, 2019, with no material impact on net revenues for Q1 2019[41][42][44] - Cash and cash equivalents include $302.6 million (Mar 31, 2019) and $217.4 million (Dec 31, 2018) of creator cash, which is legally unrestricted but not utilized for company financing or investing activities[49] - Revenue is primarily derived from service fees and payment processing fees charged at the time of ticket sale, and is recognized on a net basis for ticketing and a gross basis for payment processing[53] Key Financial Balances (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :-------------------------------- | :------------- | :------------------ | | Accounts receivable, net | $5,174 | $4,069 | | Creator signing fees, net | $8,068 | $7,324 | | Creator advances, net | $24,124 | $21,255 | | Property, plant and equipment, net | $45,024 | $44,219 | | Acquired intangible assets, net | $57,174 | $59,973 | | Term loan outstanding principal | $73,594 | $73,584 | | Indirect tax reserves | $17,600 | $19,200 | - A class action complaint was filed on April 15, 2019, alleging misrepresentations in the IPO registration statement and Q3 2018 earnings; the company believes it is without merit and intends to vigorously defend the action[91] Stock-based Compensation and Net Loss Per Share | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :------------------------------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Stock-based compensation expense (Q1) | $8,127k | $2,860k | | Net loss per share attributable to common stockholders, basic and diluted | $(0.13) | $— | | Weighted-average shares outstanding | 78,670k | 20,711k | Net Revenue by Geography (in thousands) | Geography | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :---------- | :-------------------------------- | :-------------------------------- | | United States | $59,780 | $55,815 | | International | $21,546 | $18,711 | | Total | $81,326 | $74,526 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Eventbrite's financial condition and operational results, detailing its business model, performance drivers, Q1 2019 vs Q1 2018 analysis, non-GAAP measures, and contractual obligations Our Business - Eventbrite's technology platform enables creators to plan, promote, and produce live events, reducing friction and costs, increasing reach, and driving ticket sales[119] - In 2018, the company helped over 790,000 creators issue approximately 265 million tickets across 3.8 million events in over 170 countries[120] - Revenue is primarily derived from service fees and payment processing fees charged on a per-ticket basis for paid ticket sales[121] Our Business Model - The company efficiently acquires creators, with over 98% of 2018 creators self-signing up and contributing 56% of net revenue[122] - Eventbrite provides high-quality solutions at a cost advantage through a cloud-based architecture, reducing operating and support costs[123] Creator Retention Rate | Year | Retention Rate | | :--- | :------------- | | 2018 | 100% | | 2017 | 97% | | 2016 | 93% | - International revenue grew from 18% to 30% between 2012 and 2017, and Eventbrite Payment Processing (EPP) supported approximately 90% of paid tickets in 2018[126] Key Factors Affecting Our Performance - Attracting new creators and retaining existing ones is critical for revenue growth, requiring ongoing investment in brand, marketing, and platform development[129] - Continuous enhancement and expansion of the technical platform are necessary to meet evolving creator needs and maintain competitiveness[130] - Investments in complementary solutions (e.g., web presence, promoted listings) were $5.1 million in Q1 2019 and $4.4 million in Q1 2018, generating less than five percent of net revenue[132] - International expansion is a significant growth opportunity, with paid tickets outside the U.S. increasing from 30.8% in Q1 2018 to 35.0% in Q1 2019, and international net revenue at 26.5% in Q1 2019[134] Key Business Metrics Paid Tickets (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------- | :-------------------------------- | :-------------------------------- | | Paid Tickets | 27,026 | 23,598 | Non-GAAP Financial Measures - Adjusted EBITDA and free cash flow are key non-GAAP performance measures used by management to assess business health and operating performance[140] Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(9,998) | $9,023 | | Adjusted EBITDA | $4,979 | $8,794 | Free Cash Flow Reconciliation (in thousands, trailing twelve-month) | Metric | Twelve Months Ended March 31, 2019 | Twelve Months Ended March 31, 2018 | | :-------------------------------------------------------------------- | :--------------------------------- | :--------------------------------- | | Net cash provided by operating activities | $7,476 | $38,977 | | Purchases of property and equipment and capitalized internal-use software development costs | $(12,934) | $(9,703) | | Free cash flow | $(5,458) | $29,274 | Components of Results of Operations - Net revenue is primarily from service fees and payment processing fees, recognized when tickets are sold or over the event period for account management services[151] - Cost of net revenue includes payment processing fees, platform operations, software amortization, and acquired developed technology amortization, expected to decrease as a percentage of net revenue long-term due to international growth[154] - Product development expenses are expected to increase in absolute dollars and near-term as a percentage of net revenue due to platform enhancements and integration of acquired businesses[157] - Sales, marketing and support expenses are expected to increase in absolute dollars but decrease as a percentage of net revenue long-term due to efficient customer acquisition channels[158] - General and administrative expenses are expected to increase in absolute dollars due to growth and public company maturity, but may fluctuate as a percentage of net revenue[159] - A $17.0 million gain on debt extinguishment was recorded in Q1 2018 from the repayment of promissory notes related to the Ticketfly acquisition; no debt was retired in Q1 2019[181] Results of Operations - Comparison of Three Months Ended March 31, 2019 and 2018 Net Revenue Performance (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net revenue | $81,326 | $74,526 | $6,800 | 9.1% | | Paid ticket volume | 27.0 million | 23.6 million | 3.4 million | 14.5% | | Net revenue per paid ticket | $3.01 | $3.16 | $(0.15) | (4.7%) | Operating Expense Performance (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Cost of net revenue | $30,518 | $28,084 | $2,434 | 8.7% | | Product development | $14,264 | $8,834 | $5,430 | 61.5% | | Sales, marketing and support | $21,170 | $20,472 | $698 | 3.4% | | General and administrative | $25,519 | $20,227 | $5,292 | 26.2% | | Interest expense | $(1,933) | $(2,909) | $976 | (33.6%) | | Change in fair value of redeemable convertible preferred stock warrant liability | $— | $(1,321) | $1,321 | * | | Gain on debt extinguishment | $— | $16,995 | $(16,995) | * | | Other income (expense), net | $2,180 | $(281) | $2,461 | * | | Income tax provision | $100 | $370 | $(270) | (73.0%) | - Product development expense increased primarily due to a $4.5 million increase in personnel costs, including $1.3 million in stock-based compensation, from organic hiring and acquisitions[174] - General and administrative expenses increased due to a $5.9 million rise in personnel costs (including $3.1 million stock-based compensation) and insurance, partially offset by a $3.0 million decrease from sales tax reserve adjustments[177] - Other income (expense), net, increased due to foreign currency rate measurement gains resulting from the weakening of the U.S. dollar[182] Liquidity and Capital Resources Liquidity and Capital Resources (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :-------------------------------- | :------------- | :------------------ | | Cash and cash equivalents | $533,400 | $437,900 | | Funds receivable | $54,400 | $58,700 | | Accounts payable, creators | $353,400 | $272,200 | | Creator advances, net | $24,100 | $21,300 | | Creator advances, noncurrent | $2,600 | $1,900 | - The company received $246.0 million in net proceeds from its IPO in September 2018[187] - A senior secured credit facility was entered into in September 2018, consisting of $75.0 million in New Term Loans (fully funded, $73.6 million cash proceeds) and a $75.0 million New Revolving Credit Facility (no draw as of March 31, 2019)[188][189] - Management believes existing cash, cash from operations, and the New Revolving Credit Facility will be sufficient to meet anticipated cash needs for at least the next 12 months[192] - Approximately 41.8% of cash was held outside the United States as of March 31, 2019, primarily for creators and foreign operations, with no expectation of significant taxes on these amounts[193] Cash Flows - Comparison of Three Months Ended March 31, 2019 and 2018 Cash Flow Activities (in thousands) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $86,734 | $86,306 | | Net cash used in investing activities | $(3,390) | $(2,992) | | Net cash provided by (used in) financing activities | $11,129 | $(4,872) | | Net increase in cash, cash equivalents and restricted cash | $94,473 | $78,442 | - Net cash provided by operating activities in Q1 2019 was primarily due to a net loss of $10.0 million, adjusted for non-cash items and an $81.2 million increase in accounts payable to creators[197] - Net cash used in investing activities in Q1 2019 was $3.4 million, mainly for capitalized internal-use software development costs ($2.1 million) and property and equipment purchases ($1.3 million)[198] - Net cash provided by financing activities in Q1 2019 was $11.1 million, primarily from $12.4 million in proceeds from stock option exercises, partially offset by debt issuance and IPO offering costs[199] Contractual Obligations and Commitments Contractual Obligations as of March 31, 2019 (in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :----------------------------------------- | :------ | :--------------- | :-------- | :-------- | :---------------- | | Term loans | $73,594 | $7,031 | $15,000 | $51,563 | $— | | Future creator signing fees and advances | $14,987 | $9,017 | $5,787 | $183 | $— | | Build-to-suit lease obligation | $11,945 | $5,645 | $6,300 | $— | $— | | Operating leases | $20,477 | $3,835 | $7,134 | $5,802 | $3,706 | | Sublease income | $8,526 | $4,113 | $4,413 | $— | $— | | Capital Leases | $593 | $254 | $339 | $— | $— | | Purchase commitments | $6,625 | $3,625 | $3,000 | $— | $— | | Total | $136,747 | $33,520 | $41,973 | $57,548 | $3,706 | Critical Accounting Policies and Estimates - No material changes to critical accounting policies and estimates were made, other than the adoption of ASC Topic 606[212] Item 3. Quantitative and Qualitative Disclosures About Market Risk Eventbrite's exposure to market risks, including interest rate sensitivity and foreign currency risk, is assessed, concluding that a 10% fluctuation would not materially impact operations - Interest expense on outstanding debt and the build-to-suit lease is not sensitive to interest rate movements; a 10% increase or decrease would not materially affect interest expense[215] - Despite significant ticket sales denominated in foreign currencies (e.g., GBP, EUR, CAD, AUD, BRL, ARS), a 10% fluctuation in exchange rates would not have a material impact on consolidated results of operations[216] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures as of March 31, 2019, concluding they were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of March 31, 2019[217] - No material changes in internal control over financial reporting occurred during the period covered by this report[218] - Management acknowledges the inherent limitations of control systems, which provide reasonable, not absolute, assurance against errors and fraud[219] PART II Item 1. Legal Proceedings This section details a class action complaint filed on April 15, 2019, alleging misrepresentations in Eventbrite's IPO registration statement and Q3 2018 earnings, which the company intends to vigorously defend - A class action complaint (Gomes v. Eventbrite, Inc., et al.) was filed on April 15, 2019, alleging violations of the Securities Act and Exchange Act due to material misrepresentations in the IPO registration statement and Q3 2018 earnings[222] - The company believes the complaint is without merit and intends to vigorously defend the action, but cannot predict the outcome or estimate the possible loss[222] - Litigation, regardless of merit, can be expensive, divert management resources, and potentially cause substantial harm to business, results of operations, and public reputation[225] Item 1A. Risk Factors This section highlights new or updated risks, including potential negative impacts of unfavorable legal outcomes and the risk of stock price decline due to substantial sales of Class A common stock - Unfavorable outcomes in legal proceedings, such as the recently filed class action, may harm the business and results of operations due to defense costs, diversion of management, and potential monetary damages[225] - Sales of substantial amounts of Class A common stock in the public markets, particularly by insiders, or the perception of such sales, could cause the market price of the stock to decline[226] - As of March 31, 2019, there were 34,425,590 shares of Class A common stock and 46,009,533 shares of Class B common stock outstanding[226] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities occurred during Q1 2019 and no material change in the planned use of IPO proceeds - No unregistered sales of equity securities occurred during the three months ended March 31, 2019[227] - There has been no material change in the planned use of proceeds from the September 2018 Initial Public Offering[228] Item 6. Exhibits This section lists all exhibits filed or incorporated by reference as part of this Quarterly Report on Form 10-Q, including corporate governance documents, executive agreements, and certifications - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, Form of Class A Common Stock Certificate, Executive Severance and Change in Control Agreement, and certifications from the CEO, CFO, and Chief Accounting Officer[231] - XBRL Instance Document and Taxonomy Extension documents are also filed as part of the report[231] Signatures This section contains the official signatures of Eventbrite, Inc.'s principal executive, financial, and accounting officers, certifying the due authorization and filing of this Quarterly Report on Form 10-Q - The report is signed by Julia Hartz (Chief Executive Officer), Randy Befumo (Chief Financial Officer), and Shane Crehan (Chief Accounting Officer) on May 1, 2019[234][235][239]