Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Prospectus.with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (2022 Form 10-K) filed with the United States Securities and Exchange Commission (SEC) on February 28, 2023. In addition to historical condensed consolidated financial information, the following discussion and analysis contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in this Quarterly Report onour 2022 Form 10-Q10-K. References herein to "Eventbrite," the "Company," "we," "us" or "our" refer to Eventbrite, Inc. and in our Prospectus. Our fiscal year ends December 31.its subsidiaries, unless the context requires otherwise.
Table of this opportunity by ensuring we can support the addition of new event categories and countries for ticketing, as well as new revenue-generating solutions beyond ticketing. For example, we evolved our platform to meet the needs of music creators, helping to grow music venues on our platform from less than 100 in 2012 to over 1,000 in 2017, inclusive of acquisitions. Similarly, after making enhancements across our platform, revenue from outside of the United States grew from 18% to 30% from 2012 to 2017. Finally, EPP uses multiple external vendors to provide a single, seamless payments option for creators and attendees, and has expanded to allow the use of multiple local payment methods like Boleto in Brazil and iDeal in the Netherlands. This offering has grown to support approximately 90% of paid tickets in 2017. We believe that our ability to extend into new event categories and countries and add new revenue streams differentiates us from our competitors.Contents Our Attractive Cohort Economics
The revenue we have generated from new creators has increased over time. We evaluate this trend by tracking annual cohorts of new creators. Each creator cohort consists of creators that first paid us a fee in a specific year. The gross ticket fees we have generated for the first year of each creator cohort has more than doubled from 2013 to 2017. Additionally, we have demonstrated a consistent track record of retaining gross ticket fees from creator cohorts over time. For example, we retained 78% of the gross ticket fees from our 2013 creator cohort in 2017.
Key Business Metrics and Non-GAAP Financial Measures
We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions.
Paid Tickets
Our success in serving creators is measured in large part by In addition to revenue, net loss, and other results under generally accepted accounting principles (GAAP), the number of tickets that generate ticket fees. We consider this an important indicator of the underlying health of thefollowing tables set forth key business metrics and non-GAAP financial measures we use to evaluate our business. We referbelieve these metrics and measures are useful to these tickets as paid tickets. The below table sets forth the number of paid tickets for the periods indicated (in thousands):
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Paid Tickets | 23,896 |
| | 18,074 |
| | 70,593 |
| | 48,348 |
|
Retention Rate
When creators experience success on our platform, they continue to organize events with us. We monitor retentionfacilitate period-to-period comparisons of our gross ticket fees to measure our ability to retain creators on our platform. To obtain our retention rate, we determine (i) the gross ticket fees generated by all creators in the year prior to the year of measurement (Prior Year Gross Ticket Fees) and (ii) the gross ticket fees those creators generated in the applicable year of measurement (Measurement Year Gross Ticket Fees). We calculate our retention rate for a measurement year by dividing the Measurement Year Gross Ticket Fees by the Prior Year Gross Ticket Fees. We calculate retention rate on an annual basis only. While we have seen a strong retention rate from creators, this measure may fluctuate from period to period based on the success of creators and the events that they produce.
|
| | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
Retention Rate | 97 | % | | 93 | % |
Non-GAAP Financial Measures
business performance. We believe that the use of Adjusted EBITDA and free cash flow is helpful to our investors as they are metricsthis metric is used by management in assessing the health of our business and our operating performance. These measures, which we refer to as our non-GAAP financial measures, areperformance, making operating decisions, evaluating performance and performing strategic planning and annual budgeting. This measure is not prepared in accordance with GAAP and havehas limitations as an analytical tools,tool, and you should not consider themthis in isolation or as substitutes for analysis of our results of operations as reported under GAAP. You are encouraged to evaluate the adjustments and the reasons we consider them appropriate.
Adjusted EBITDAPaid Ticket Volume
Our success in serving creators is measured in large part by the number of tickets sold on our platform that generate ticket fees, referred to as paid ticket volume. We consider paid ticket volume an important indicator of the underlying health of the business. The table below sets forth the paid ticket volume for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
Paid ticket volume | 22,855 | | | 22,028 | | | 69,342 | | | 61,946 | |
Our paid ticket volume for events outside of the United States represented 40% and 39% of our total paid tickets in the three and nine months ended September 30, 2023, respectively, compared to 40% and 39% in the three and nine months ended September 30, 2022, respectively.
Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes and in evaluating acquisition opportunities.
We calculate Adjusted EBITDA as net loss attributable to common stockholders adjusted to exclude depreciation and amortization, stock-based compensation expense, interest income, interest expense, the change in fair value of our redeemable convertible preferred stock warrant liability, gainloss on debt extinguishment, of promissory note, directemployer taxes related to employee equity transactions, other income (expense), net, and indirect acquisition-related costs, income tax provision (benefit) and other income (expense), which consisted of interest income and foreign exchange rate gains and losses.. Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP.
The following table presents our Adjusted EBITDA for the periods indicated and a reconciliation of our Adjusted EBITDA to the most comparable GAAP measure, net loss, for each of the periods indicated (in thousands):indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
Net loss (1) | $ | (9,935) | | | $ | (21,124) | | | $ | (25,542) | | | $ | (59,397) | |
Add: | | | | | | | |
Depreciation and amortization | 3,226 | | | 3,810 | | | 9,934 | | | 11,059 | |
Stock-based compensation | 14,468 | | | 13,529 | | | 41,161 | | | 40,618 | |
Interest income | (7,569) | | | (1,950) | | | (19,948) | | | (2,407) | |
Interest expense | 2,821 | | | 2,826 | | | 8,359 | | | 8,461 | |
Employer taxes related to employee equity transactions | 273 | | | 167 | | | 832 | | | 734 | |
Other (income) expense, net | 2,357 | | | 7,050 | | | 3,230 | | | 12,225 | |
Income tax provision (benefit) | 762 | | | (80) | | | 1,832 | | | (41) | |
Adjusted EBITDA | $ | 6,403 | | | $ | 4,228 | | | $ | 19,858 | | | $ | 11,252 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net loss | $ | (35,516 | ) | | $ | (11,857 | ) | | $ | (51,096 | ) | | $ | (20,203 | ) |
Add: | | | | | | | |
Depreciation and amortization | 8,830 |
| | 5,090 |
| | 25,612 |
| | 11,051 |
|
Stock-based compensation | 15,049 |
| | 1,946 |
| | 23,157 |
| | 5,707 |
|
Interest expense | 3,300 |
| | 1,674 |
| | 9,399 |
| | 3,632 |
|
Change in fair value of redeemable convertible preferred stock warrant liability | 3,520 |
| | 1,404 |
| | 9,591 |
| | 1,404 |
|
Loss on debt extinguishment | 17,173 |
| | — |
| | 178 |
| | — |
|
Direct and indirect acquisition related costs(1) | 389 |
| | 4,406 |
| | 1,834 |
| | 6,731 |
|
Other income (expense), net | (1,414 | ) | | (1,606 | ) | | 1,880 |
| | (3,510 | ) |
Income tax provision (benefit) | (117 | ) | | (40 | ) | | 683 |
| | (95 | ) |
Adjusted EBITDA | $ | 11,214 |
| | $ | 1,017 |
| | $ | 21,238 |
| | $ | 4,717 |
|
(1) Direct Restructuring related costs are included in Net Loss and indirect acquisition-related costs consist primarilyAdjusted EBITDA. For further information, refer to Note 2 - Restructuring included in Part I, Item 1, "Notes to Unaudited Condensed Consolidated Financial Statements," of transaction and transition related fees and expenses, including legal, accounting, tax and other professional fees as well as personnel-related costs such as severance and retention bonuses for completed, pending and attempted acquisitions.
this Quarterly Report on Form 10-Q.
Some of the limitations of Adjusted EBITDA include (i) Adjusted EBITDA does not properly reflect capital spending that occurs off of the income statement or account for future contractual commitments, (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these
capital expenditures and (iii) Adjusted EBITDA does not reflect the interest and principal required to service our indebtedness. Our Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate Adjusted EBITDA in the same manner as we calculate the measure, limiting its usefulness as a comparative measure. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including our net loss and other GAAP results.
Free Cash Flow
Free cash flow is a key performance measure that our management uses to assess our overall performance. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business, making strategic acquisitions and strengthening our financial position.
We calculate free cash flow as cash flow from operating activities less purchases of property and equipment and capitalized internal-use software development costs, over a trailing twelve-month period. Because quarters are not uniform in terms of cash usage, we believe a trailing twelve-month view provides the best understanding of the underlying trends of the business.
The following table presents a reconciliation of our free cash flow to the most comparable GAAP measure, net cash provided by operating activities, for each of the periods indicated:
|
| | | | | | | |
| Twelve Months Ended September 30, |
| 2018 | | 2017 |
| (in thousands) |
Net cash provided by operating activities | $ | 6,148 |
|
| $ | 42,794 |
|
Purchases of property and equipment and capitalized internal-use software development costs | (12,369 | ) |
| (8,414 | ) |
Free cash flow | $ | (6,221 | ) | | $ | 34,380 |
|
Although we believe free cash flow provides another important lens into the business, free cash flow is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. Free cash flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as cash provided by operating activities. Some of the limitations of free cash flow is that it may not properly reflect capital commitments to creators that need to be paid in the future or future contractual commitments that have not been realized in the current period. Our free cash flow may not be comparable to similarly titled measures of other companies because they may not calculate free cash flow in the same manner as we calculate the measure, limiting its usefulness as a comparative measure.
Components of Results of Operations
The following tables set forth our condensed consolidated results of operations data and such data as a percentage of net revenue for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
Condensed consolidated Statements of Operations | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net revenue | $ | 81,544 | | | $ | 67,472 | | | $ | 238,370 | | | $ | 189,388 | |
Cost of net revenue | 25,867 | | | 23,450 | | | 76,865 | | | 66,465 | |
Gross profit | 55,677 | | | 44,022 | | | 161,505 | | | 122,923 | |
Operating expenses: | | | | | | | |
Product development | 23,041 | | | 22,249 | | | 73,091 | | | 63,308 | |
Sales, marketing and support | 21,063 | | | 14,455 | | | 53,802 | | | 41,866 | |
General and administrative | 23,137 | | | 20,596 | | | 66,681 | | | 58,908 | |
Total operating expenses | 67,241 | | | 57,300 | | | 193,574 | | | 164,082 | |
Loss from operations | (11,564) | | | (13,278) | | | (32,069) | | | (41,159) | |
Interest income | 7,569 | | | 1,950 | | | 19,948 | | | 2,407 | |
Interest expense | (2,821) | | | (2,826) | | | (8,359) | | | (8,461) | |
| | | | | | | |
Other income (expense), net | (2,357) | | | (7,050) | | | (3,230) | | | (12,225) | |
Loss before income taxes | (9,173) | | | (21,204) | | | (23,710) | | | (59,438) | |
Income tax provision (benefit) | 762 | | | (80) | | | 1,832 | | | (41) | |
Net loss | $ | (9,935) | | | $ | (21,124) | | | $ | (25,542) | | | $ | (59,397) | |
| | | | | | | | | | | | | | | | | | | | | | | |
Condensed consolidated Statements of Operations, as a percentage of net revenue | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net revenue | 100 | % | | 100 | % | | 100 | % | | 100 | % |
Cost of net revenue | 32 | % | | 35 | % | | 32 | % | | 35 | % |
Gross profit | 68 | % | | 65 | % | | 68 | % | | 65 | % |
Operating expenses: | | | | | | | |
Product development | 28 | % | | 33 | % | | 31 | % | | 33 | % |
Sales, marketing and support | 26 | % | | 21 | % | | 23 | % | | 22 | % |
General and administrative | 28 | % | | 31 | % | | 28 | % | | 31 | % |
Total operating expenses | 82 | % | | 85 | % | | 82 | % | | 86 | % |
Loss from operations | (14) | % | | (20) | % | | (14) | % | | (21) | % |
Interest income | 9 | % | | 3 | % | | 8 | % | | 1 | % |
Interest expense | (3) | % | | (4) | % | | (4) | % | | (4) | % |
| | | | | | | |
Other income (expense), net | (3) | % | | (10) | % | | (1) | % | | (6) | % |
Loss before income taxes | (11) | % | | (31) | % | | (11) | % | | (30) | % |
Income tax provision (benefit) | 1 | % | | — | % | | 1 | % | | — | % |
Net loss | (12) | % | | (31) | % | | (12) | % | | (30) | % |
Net Revenue
We currently generate substantially all of our net revenue throughrevenues primarily from service fees and payment processing fees from the sale of paid tickets on our platform. Our ticketing fee structure typically consists of a fixedflat fee and a percentage of the price of each ticket sold by a creator. Net revenueRevenue is recognized as tickets are sold. when control of promised goods or services is transferred to the creator, which is when the ticket is sold for service fees and payment processing fees. We also derive a portion of revenues from fees associated with advertising and other marketplace services for creators to publish and promote events. In the second quarter of 2023, we launched new pricing plans and subscription packages, which may include an organizer fee to creators in order to publish an event on the Eventbrite marketplace. Net revenue excludes sales taxes and value addedvalue-added taxes (VAT) and is presented net of estimated customer refunds, chargebacks and amortization of creator signing fees.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| (in thousands except percentages) |
Net revenue | $ | 81,544 | | | $ | 67,472 | | | $ | 14,072 | | | 21 | % | | $ | 238,370 | | | $ | 189,388 | | | $ | 48,982 | | | 26 | % |
We also generate a small portion of ourThe increase in net revenue from complementary solutions, such as day-of-event on-site product and services, web presence development and branding, software solutions to manage event venue administration and marketing services, that we provide to creators. These complementary solutions represented less than five percent of our net revenue in the aggregate in each ofduring the three and nine months ended September 30, 20182023, compared to the three and 2017.nine months ended September 30, 2022, was primarily driven by an increase in service fees and payment processing fees attributed to growth in our paid ticket volume, and related pricing increases implemented since January 2023 to reflect enhanced product features.
We treat netAdditionally, there was a $1.7 million and $3.8 million increase in revenue from advertising services during the three and paid tickets from an acquired business afternine months ended September 30, 2023, respectively, compared to the one-year anniversarythree and nine months ended September 30, 2022. Revenue also increased due to the launch of organizer fees in June 2023, with further expansion to existing Eventbrite creators continuing throughout the completion of such acquisition as being transacted on the Eventbrite platform. For example, the acquisition of Ticketfly closed onthree months ended September 1, 2017, and as such, we considered any net revenue and paid tickets transacted on the Ticketfly platform on or after September 1, 2018 as being net revenue and paid tickets on the Eventbrite platform.30, 2023.
Cost of Net Revenue
Cost of net revenue consists primarily of variable costs related to payment processing fees and fixed costs related to making our platform generally available. Our fixed costs consist primarily of expenses associated with the operation and maintenance of our platform, including website hosting fees and platform infrastructure costs, amortization of capitalized software development costs, onsiteon-site operations costs and allocated customer support costs. Cost of net revenue also includes the amortization expense related to our acquired developed technology assets. We expect to continue to incur amortization expense related to our acquired developed technology assets, through the end of 2018 for prior acquisitions. Wewhich may incur such expensebe incurred in future periods related to future acquisitions in future periods. Weacquisitions.
Generally, we expect cost of net revenue to fluctuate as a percentage of net revenue to fluctuate in the near- to mid-term primarily as a result ofdriven by the fixed costs absorption relative to total net revenue and our geographical revenue mix. Our payment processing costs for credit and debit card payments are generally lower outside of the United States due to a number of factors, including lower card network fees and lower cost alternative payment networks. Consequently, if we growgenerate more rapidlyrevenue internationally, than in the United States, we expect that our overall payment processing costs will decline as a percentage of total revenue. Thus, in the long-term, we expectAs our total net revenue increases or decreases and our fixed costs are unaffected, our cost of net revenue to grow in absolute dollars but decrease as a percentage of revenue.net revenue will similarly fluctuate.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| (in thousands except percentages) |
Cost of net revenue | $ | 25,867 | | | $ | 23,450 | | | $ | 2,417 | | | 10 | % | | $ | 76,865 | | | $ | 66,465 | | | $ | 10,400 | | | 16 | % |
Percentage of total net revenue | 32 | % | | 35 | % | | | | | | 32 | % | | 35 | % | | | | |
Gross margin | 68 | % | | 65 | % | | | | | | 68 | % | | 65 | % | | | | |
The increase in cost of net revenue during the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022, was primarily due to an increase in payment processing costs associated with the increase in ticket sales volume.
Additionally, during the nine months ended September 30, 2023 we incurred $1.7 million in restructuring related costs. This consisted of $1.3 million in severance and other employee termination benefits and $0.4 million in lease abandonment and related costs. For information on the costs associated with the restructuring, see Note 2. "Restructuring" in the notes to the unaudited condensed consolidated financial statements.
Our gross margin improved during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, primarily due to better fixed cost absorption as ticket volume and revenue increased.
Operating Expenses
Operating expenses consist of product development, sales, marketing and support and general and administrative expenses. Direct and indirect personnel costs, including stock-based compensation expense, are the most significant recurring component of operating expenses. We also include sublease income
As our total net revenue increases or decreases and to the extent our operating expenses are not equally affected, our operating expenses as a reductionpercentage of our operating expenses.net revenue will similarly fluctuate.
Product development. development
Product development expenses consist primarily of employee-related costs associated withincluding salaries, bonuses, benefits, and stock-based compensation, and third-party infrastructure expenses incurred in developing our employees in product development and product engineering activities. Weplatform including software subscription costs. Generally, we expect our product development expenses to continue to increase in absolute dollars over time. In the near-term, we anticipate our product development expenses will increase as a percentage of net revenue as we focus our product development efforts on enhancing improving and expanding the capabilities of our platform. We expect that we will continue to invest in building employee and system infrastructure to enhance and supportOur product development of new technologies and to integrate acquired businesses and technologies. Over the long-term, we anticipate that it will decreaseexpenses decreased year-over-year as a percentage of net revenue asrevenue. We expect our revenue grows andto grow at a faster pace compared to product development expenses as we continue to growexpand our development staff in lower cost markets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| (in thousands except percentages) |
Product development | $ | 23,041 | | | $ | 22,249 | | | $ | 792 | | | 4 | % | | $ | 73,091 | | | $ | 63,308 | | | $ | 9,783 | | | 15 | % |
Percentage of total net revenue | 28 | % | | 33 | % | | | | | | 31 | % | | 33 | % | | | | |
The increase in product development expenses during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, was primarily driven by employee compensation related expenses including stock-based compensation.
The increase in product development expenses during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was primarily driven by restructuring related costs of $6.7 million, consisting of $5.4
million in severance and other employee termination benefits and $1.3 million in lease abandonment costs. For information on the costs associated with the restructuring, see Note 2. "Restructuring" in the notes to the unaudited condensed consolidated financial statements. Additionally, there was an increase in employee compensation related expenses, including stock-based compensation.
Sales, marketing and support.support
Sales, marketing and support expenses consist primarily of costs associated with our employees involved in selling and marketing our products and in public relations and communication activities, in addition to marketing programs travel and customer support costs associated with free events on our platform.spend. For our sales teams, this also includes commissions. We also classify certain organizer related expenses, such as refunds of the ticket price paid by us on behalf of a creator as sales, marketing and support expense. Sales, marketing and support expenses are driven by investments to grow and retain creators and attendees on our platform. We expectplatform, and improve the customer experience. Additionally, we classify certain creator-related expenses, such as refunds of the ticket price paid by us on behalf of a creator and reserves for estimated advance payout losses, as sales, marketing and support expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| (in thousands except percentages) |
Sales, marketing and support | $ | 21,063 | | | $ | 14,455 | | | $ | 6,608 | | | 46 | % | | $ | 53,802 | | | $ | 41,866 | | | $ | 11,936 | | | 29 | % |
Percentage of total net revenue | 26 | % | | 21 | % | | | | | | 23 | % | | 22 | % | | | | |
The increase in sales, marketing and support expenses during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, was primarily driven by a $4.6 million increase in absolute dollars over time. In the near-term, we anticipatemarketing spend associated with our consumer marketing campaigns, search engine marketing, and advertising. Additionally, there was a $1.1 million increase in employee compensation related expenses, including stock-based compensation, due to headcount growth.
The increase in sales, marketing and support expenses will fluctuateduring the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was primarily driven by a $7.0 million increase in marketing spend associated with our consumer marketing campaigns, search engine marketing, and advertising. Additionally, there was a $2.4 million in restructuring related costs, consisting of $1.4 million in severance and other employee termination benefits and $1.0 million in lease abandonment and related costs. For information on the costs associated with the restructuring, see Note 2. "Restructuring" in the notes to the unaudited condensed consolidated financial statements. Additionally, there was an increase in employee compensation related expenses, including stock-based compensation. This was offset by a release to our chargebacks and refunds reserve of $3.0 million for the nine months ended September 30, 2023 due to the continued resolution of our advanced payout exposure.
General and administrative
General and administrative expenses consist of personnel costs, including stock-based compensation, and professional fees for finance, accounting, legal, risk, human resources and other corporate functions. Our general and administrative expenses also include accruals for sales and business taxes, as a percentage of net revenue, but overwell as reserves and impairment charges related to creator upfront payments. Over the long-term, we anticipate that it will decreasegeneral and administrative expenses to decline as a percentage of net revenue as we expect to see continued growthgrow our net revenues and scale our business.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| (in thousands except percentages) |
General and administrative | $ | 23,137 | | | $ | 20,596 | | | $ | 2,541 | | | 12 | % | | $ | 66,681 | | | $ | 58,908 | | | $ | 7,773 | | | 13 | % |
Percentage of total net revenue | 28 | % | | 31 | % | | | | | | 28 | % | | 31 | % | | | | |
The increase in net revenue generated from creators that signed up with us through our efficient customer acquisition channels, such as word of mouth referrals, converting free creators to paid creators and converting attendees into creators. We spend a comparatively small portion of our sales, marketing and support costs on these customer acquisition channels. We believe that, in the long-term, our sales, marketing and support expenses will decrease as a percentage of net revenue as we continue to drive sales through these efficient customer acquisition channels.
General and administrative.General and administrative expenses consist of personnel costs for finance, accounting, legal, risk, human resources and administrative personnel. It also includes professional fees for legal, accounting, finance, human resources and other corporate matters. Our general and administrative expenses currently include two large non-compensation items: (i) amortization of acquired customer relationship and trade names assets and (ii) reserves for sales tax and VAT accrued on behalf of creators. Our general and administrative expenses have increased on an actual dollar basis over time and we expect general and administrative expenses to continue to increase in absolute dollars over time. We do anticipate general and administrative expenses will fluctuate as a percentage of net revenue as we expect to incur additional general and administrative expenses to support our growth as we mature as a publicly-traded company. These increases may be partially offset by reductions in sales tax and VAT accruals as a result of our increased certainty as to the amounts we may owe in certain jurisdictions and our increased clarity into how certain tax regulators interpret tax legislation in the various jurisdictions in which we operate.
Interest Expense
Interest expense relates to our build-to-suit lease financing obligation and outstanding debt.
As a result of our build-to-suit lease accounting, a portion of our cash rent payments related to our San Francisco office are classified as interest expense for GAAP reporting purposes. We reported interest expense of $0.9 million for each ofduring the three months ended September 30, 20182023, compared to the three months ended September 30, 2022, was primarily driven by a $1.7 million increase in employee compensation related expenses, including stock-based compensation.
The increase in general and 2017 and $2.6 million for each ofadministrative expenses during the nine months ended September 30, 20182023, compared to the nine months ended September 30, 2022, was primarily driven by restructuring related costs of $4.3 million, consisting of $2.8 million in severance and 2017other employee termination benefits and $1.5 million in lease abandonment and related costs. For information on the costs associated with the restructuring, see Note 2. "Restructuring" in the notes to build-to-suit accounting.the unaudited condensed consolidated financial statements.
Other outstanding debt has been historicallyAdditional increases were driven primarily by a $2.4 million increase in employee compensation related expenses, including stock-based compensation, and a $1.4 million increase in taxes associated with business growth.
Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents, marketable securities and amounts held on behalf of customers.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| (in thousands except percentages) |
Interest income | $ | 7,569 | | | $ | 1,950 | | | $ | 5,619 | | | 288 | % | | $ | 19,948 | | | $ | 2,407 | | | $ | 17,541 | | | 729 | % |
Percentage of total net revenue | 9 | % | | 3 | % | | | | | | 8 | % | | 1 | % | | | | |
The increase of $5.6 million and $17.5 million during the three and nine months ended September 30, 2023, respectively, compared to acquisitions, either as part of consideration orthe three and nine months ended September 30, 2022, was primarily due to financedue to higher cash consideration for an acquisition. and investment balances and higher interest rates.
Interest Expense
In January 2017,March 2021, we issued $7.5the 2026 Notes, which consisted of $212.75 million in promissoryaggregate principal amount of 0.750% convertible senior notes in connection with the ticketscript acquisition. These promissory notes plus accrued interest were fully repaid in August 2017.due 2026. In September 2017,June 2020, we issued $50.0the 2025 Notes, which consisted of $150.0 million subordinatedaggregate principal amount of 5.000% convertible senior notes in connection with the Ticketfly acquisition. Also, in September 2017, we borrowed $30.0 million under the First WTI Loan Facility. The subordinated convertible notes were repaid in March 2018 at adue 2025.
Interest expense consists primarily of cash interest expense, amortization of debt discount, toand issuance funded in part by an additional draw of $30.0 million against our First WTI Loan Facility. We drew an additional $15.0 million under the Second WTI Loan Facility in May 2018. The amounts borrowed under the WTI Loan Facilities were fully repaid in September 2018 and the underlying agreements were terminated.
Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability
The redeemable convertible preferred stock warrant is classified as a liabilitycosts on our consolidated balance sheet2025 Notes and remeasured to fair value at each balance sheet date with the corresponding charge recorded as a change in fair value of redeemable convertible preferred stock warrant liability on the consolidated statements of operations. In connection with our IPO, all warrants were automatically exercised for no consideration, thus we will not have a redeemable convertible preferred stock warrant liability in future periods subject to fair value adjustment.2026 Notes.
Loss on debt extinguishment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| (in thousands except percentages) |
Interest expense | $ | 2,821 | | | $ | 2,826 | | | $ | (5) | | | — | % | | $ | 8,359 | | | $ | 8,461 | | | $ | (102) | | | (1) | % |
Percentage of total net revenue | 3 | % | | 4 | % | | | | | | 4 | % | | 4 | % | | | | |
Loss on debt extinguishment consists of amounts recorded related to our accountingInterest expense remained relatively consistent for the retirement of our debt obligations.three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income,foreign exchange rate remeasurement gains and losses recorded from consolidating our subsidiaries each period-end and changesperiod-end. The primary driver of our other income (expense), net is fluctuation in fairthe value of the term loan embedded derivatives.U.S. dollar against the local currencies of our foreign subsidiaries.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| (in thousands except percentages) |
Other income (expense), net | $ | (2,357) | | | $ | (7,050) | | | $ | (4,693) | | | (67) | % | | $ | (3,230) | | | $ | (12,225) | | | $ | (8,995) | | | (74) | % |
Percentage of total net revenue | (3) | % | | (10) | % | | | | | | (1) | % | | (6) | % | | | | |
The decrease in other expense during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, was driven by foreign currency rate measurement fluctuations. We recognized lower foreign currency rate measurement losses during the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.
Income Tax Provision (Benefit)
Income tax provision (benefit) consists primarily of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. The differences in the tax provision and benefit for the periods presented and the U.S. federal statutory rate is primarily due to foreign taxes in profitable jurisdictions and the recording of a full valuation allowance on our deferred tax assets in certain jurisdictions including the United States. The computation of the provision for income taxes for interim periods is determined by applying the estimated annual effective tax rate to year-to-date earnings from recurring operations and certain foreign losses which benefit from rates lower thanadjusting for discrete tax items recorded in the U.S. federal statutory rate. We apply the discrete method provided in ASC 740 to calculate our interim tax provision.period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| (in thousands except percentages) |
Income tax provision (benefit) | $ | 762 | | | $ | (80) | | | $ | 842 | | | * | | $ | 1,832 | | | $ | (41) | | | $ | 1,873 | | | * |
Percentage of total net revenue | 1 | % | | — | % | | | | | | 1 | % | | — | % | | | | |
Results of Operations
The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Quarterly Report. The following tables set forth our consolidated results of operations data and such data as a percentage of net revenue for the periods presented:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in thousands) |
Consolidated Statements of Operations | | | | | | | |
Net revenue | $ | 73,628 |
| | $ | 50,749 |
| | $ | 215,696 |
| | $ | 138,902 |
|
Cost of net revenue | 31,477 |
| | 20,993 |
| | 89,424 |
| | 56,295 |
|
Gross profit | 42,151 |
| | 29,756 |
| | 126,272 |
| | 82,607 |
|
Operating expenses: | | | | | | | |
Product development | 12,856 |
| | 9,351 |
| | 32,671 |
| | 20,832 |
|
Sales, marketing and support | 17,428 |
| | 14,351 |
| | 53,051 |
| | 37,522 |
|
General and administrative | 24,921 |
| | 16,479 |
| | 69,915 |
| | 43,025 |
|
Total operating expenses | 55,205 |
| | 40,181 |
| | 155,637 |
| | 101,379 |
|
Loss from operations | (13,054 | ) | | (10,425 | ) | | (29,365 | ) | | (18,772 | ) |
Interest expense | (3,300 | ) | | (1,674 | ) | | (9,399 | ) | | (3,632 | ) |
Change in fair value of redeemable convertible preferred stock warrant liability | (3,520 | ) | | (1,404 | ) | | (9,591 | ) | | (1,404 | ) |
Loss on debt extinguishment | (17,173 | ) | | — |
| | (178 | ) | | — |
|
Other income (expense), net | 1,414 |
| | 1,606 |
| | (1,880 | ) | | 3,510 |
|
Loss before provision for (benefit from) income taxes | (35,633 | ) | | (11,897 | ) | | (50,413 | ) | | (20,298 | ) |
Income tax provision (benefit) | (117 | ) | | (40 | ) | | 683 |
| | (95 | ) |
Net loss | $ | (35,516 | ) | | $ | (11,857 | ) | | $ | (51,096 | ) | | $ | (20,203 | ) |
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Consolidated Statements of Operations, as a percentage of net revenue | | | | | | | |
Net revenue | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of net revenue | 42.8 | % | | 41.4 | % | | 41.5 | % | | 40.5 | % |
Gross profit | 57.2 | % | | 58.6 | % | | 58.5 | % | | 59.5 | % |
Operating expenses: | | | | | | | |
Product development | 17.5 | % | | 18.4 | % | | 15.1 | % | | 15.0 | % |
Sales, marketing and support | 23.7 | % | | 28.3 | % | | 24.6 | % | | 27.0 | % |
General and administrative | 33.8 | % | | 32.5 | % | | 32.4 | % | | 31.0 | % |
Total operating expenses | 75.0 | % | | 79.2 | % | | 72.2 | % | | 73.0 | % |
Loss from operations | (17.7 | )% | | (20.5 | )% | | (13.6 | )% | | (13.5 | )% |
Interest expense | (4.5 | )% | | (3.3 | )% | | (4.4 | )% | | (2.6 | )% |
Change in fair value of redeemable convertible preferred stock warrant liability | (4.8 | )% | | (2.8 | )% | | (4.4 | )% | | (1.0 | )% |
Loss on debt extinguishment | (23.3 | )% | | — | % | | (0.1 | )% | | — | % |
Other income (expense), net | 1.9 | % | | 3.2 | % | | (0.9 | )% | | 2.5 | % |
Loss before provision for (benefit from) income taxes | (48.4 | )% | | (23.4 | )% | | (23.4 | )% | | (14.6 | )% |
Income tax provision (benefit) | (0.2 | )% | | (0.1 | )% | | 0.3 | % | | (0.1 | )% |
Net loss | (48.2 | )% | | (23.3 | )% | | (23.7 | )% | | (14.5 | )% |
Comparison of three months ended September 30, 2018 and 2017
Net revenue
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Net revenue | $ | 73,628 |
| | $ | 50,749 |
| | $ | 22,879 |
| | 45.1 | % |
* Not meaningfulThe increase in net revenue duringprovision for income taxes for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was driven primarily by growth in paid ticket volume, which increased by 32.2% during the three months ended September 30, 2018 compared to the three months ended September 30, 2017, from 18.1 million to 23.9 million. Net revenue from paid ticket growth on the Eventbrite platform increased by $20.4 million, or 46.4%, in the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Revenue growth on the Eventbrite platform was strengthened by the impact of our packages launch in the fourth quarter of 2017 and by our successful migration of clients from acquired platforms. The remainder of our net revenue growth was due to additional paid ticket volume from acquired businesses.
Net revenue per paid ticket increased during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 from $2.81 to $3.08. This was driven by the aforementioned launch of pricing packages in our self sign-on channels, improvements in fees per ticket in our sales channels and the impact of acquired businesses.
Cost of net revenue
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Cost of net revenue | $ | 31,477 |
| | $ | 20,993 |
| | $ | 10,484 |
| | 49.9 | % |
Percentage of total net revenue | 42.8 | % | | 41.4 | % | | | | |
Gross margin | 57.2 | % | | 58.6 | % | | | | |
The increase in cost of net revenue during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was primarily due to an increase in payment processing costs of $4.7 million driven by paid ticket growth on the Eventbrite platform. Additionally, there was an increase in amortization of acquired developed technology of $1.7 million, primarily resulting from the Ticketfly acquisition and less impactful increases in platform operations costs, onsite operations costs and allocated customer support costs. The Ticketfly acquired developed technology is expected to be fully amortized in the fourth quarter of 2018.
Operating expense
Product development
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Product development | $ | 12,856 |
| | $ | 9,351 |
| | $ | 3,505 |
| | 37.5 | % |
Percentage of total net revenue | 17.5 | % | | 18.4 | % | | | | |
Product development expense during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 increased primarily due to increased personnel costs of $3.4 million, including $2.0 million of stock-based compensation, resulting from organic hiring efforts and an increase in headcount as a result of the Ticketfly, Ticketea and Picatic acquisitions.
Sales, marketing and support
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Sales, marketing and support | $ | 17,428 |
| | $ | 14,351 |
| | $ | 3,077 |
| | 21.4 | % |
Percentage of total net revenue | 23.7 | % | | 28.3 | % | | | | |
Sales, marketing and support expenses during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 increased primarily due to personnel-related expenses of $3.7 million, driven by higher headcount. These increases were partially offset by lower direct marketing spend in the three months ended September 30, 2018 compared to the same period in 2017.
General and administrative
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
General and administrative | $ | 24,921 |
| | $ | 16,479 |
| | $ | 8,442 |
| | 51.2 | % |
Percentage of total net revenue | 33.8 | % | | 32.5 | % | | | | |
The increase in general and administrative expenses during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was a result of several factors. Personnel costs increased by $13.1 million, including $10.2 million of stock-based compensation, driven by increased headcount during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Amortization of acquired intangible assets increased $1.6 million primarily stemming from the Ticketfly acquisition.Contractor costs increased $0.8 million primarily for accounting services. These increases were partially offset by a $7.0 million reversal of sales tax reserves due to state settlements in the three months ended September 30, 2018. We also recorded $2.3 million related to insurance proceeds to be received from the Ticketfly cyber incident as a reduction of expense in the three months ended September 30, 2018.
Interest expense
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Interest expense | $ | (3,300 | ) | | $ | (1,674 | ) | | $ | (1,626 | ) | | 97.1 | % |
Percentage of total net revenue | (4.5 | )% | | (3.3 | )% | | | | |
The increase in interest expense during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was driven by higher amounts of interest bearing debt that was outstanding, primarily related to the WTI loan facilities.
Change in fair value of redeemable convertible preferred stock warrant liability
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Change in fair value of redeemable convertible preferred stock warrant liability | $ | (3,520 | ) | | $ | (1,404 | ) | | $ | (2,116 | ) | | 150.7 | % |
Percentage of total net revenue | (4.8 | )% | | (2.8 | )% | | | | |
The change in fair value of our redeemable convertible preferred stock warrant liability during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was due to a higher increase in the underlying fair value of our redeemable convertible preferred stock from June 30, 2018 to September 20, 2018 compared to June 1, 2017 to September 30, 2017. In connection with our IPO, the redeemable convertible preferred stock warrants were automatically converted into shares of Class B common stock.
Loss on debt extinguishment
|
| | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Loss on debt extinguishment | $ | (17,173 | ) | | $ | — |
| | $ | (17,173 | ) | | * |
Percentage of total net revenue | (23.3 | )% | | — | % | | | | |
The loss on debt extinguishment recorded in the three months ended September 30, 2018 was due to the retirement of all outstanding debt under the WTI Loan Facilities. We retired no debt in the three months ended September 30, 2017.
Other income (expense), net
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Other income (expense), net | $ | 1,414 |
| | $ | 1,606 |
| | $ | (192 | ) | | (12.0 | )% |
Percentage of total net revenue | 1.9 | % | | 3.2 | % | | | | |
The decrease in other income (expense), net during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was driven by foreign currency rate measurement fluctuations. We recognized foreign currency rate measurement gains during the three months ended September 30, 2017 as a result of the weakening of the U.S. dollar compared to the currencies with which we operate and process transactions. We recognized foreign currency rate measurement losses during the three months ended September 30, 2018 as a result of the overall strengthening of the U.S. dollar compared to the currencies with which we operate and process transactions. We also recorded a $2.1 million gain related to the change in fair value of the WTI Loan Facilities term loan embedded derivatives in the three months ended September 30, 2018.
Income tax provision (benefit)
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Income tax provision (benefit) | $ | (117 | ) | | $ | (40 | ) | | $ | (77 | ) | | 192.5 | % |
Percentage of total net revenue | (0.2 | )% | | (0.1 | )% | | | | |
The benefit from income taxes increased $0.1 million in the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The increase was primarily attributable to changes in our jurisdictional mix of earnings.
Comparison of nine months ended September 30, 20182023, compared to the three and 2017
Net revenue
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Net revenue | $ | 215,696 |
| | $ | 138,902 |
| | $ | 76,794 |
| | 55.3 | % |
The increase in net revenue during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was driven primarily by growth in paid ticket volume, which increased by 46.0% from 48.3 million to 70.6 million. Net revenue from paid ticket growth on the Eventbrite platform increased by $53.7 million, or 42.2%, during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Net revenue increased an additional $23.1 million from acquired businesses, driven by the Ticketfly acquisition which was completed in September 2017. Net revenue per paid ticket increased from $2.87 in the nine months ended September 30, 2017 to $3.06 in the nine months ended September 30, 2018. This increase was driven by our pricing packages that were launched in the fourth quarter of 2017.
Cost of net revenue
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Cost of net revenue | $ | 89,424 |
| | $ | 56,295 |
| | $ | 33,129 |
| | 58.8 | % |
Percentage of net revenue | 41.5 | % | | 40.5 | % | | | | |
Gross margin | 58.5 | % | | 59.5 | % | | | | |
The increase in cost of net revenue during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was primarily due to an increase in payment processing costs of $17.5 million driven by paid ticket growth on the Eventbrite platform and paid ticket volume from acquired businesses, and increased amortization of acquired developed technology of $6.9 million, resulting from our various acquisitions. We also incurred increases in platform operational costs, onsite operations costs and allocated customer support costs.
Operating expenses
Product development
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Product development | $ | 32,671 |
| | $ | 20,832 |
| | $ | 11,839 |
| | 56.8 | % |
Percentage of net revenue | 15.1 | % | | 15.0 | % | | | | |
Product development expense increased during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily due to increased personnel costs of $11.6 million, including $2.5 million of stock-based compensation, resulting from organic hiring efforts and an increase in headcount as a result of the Ticketfly, Ticketea and Picatic acquisitions.
Sales, marketing and support
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Sales, marketing and support | $ | 53,051 |
| | $ | 37,522 |
| | $ | 15,529 |
| | 41.4 | % |
Percentage of total net revenue | 24.6 | % | | 27.0 | % | | | | |
Sales, marketing and support expenses increased during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, driven by increased personnel-related expenses of $14.5 million, including $1.6 million of stock-based compensation, driven by higher headcount.
General and administrative
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
General and administrative | $ | 69,915 |
| | $ | 43,025 |
| | $ | 26,890 |
| | 62.5 | % |
Percentage of total net revenue | 32.4 | % | | 31.0 | % | | | | |
The increase in general and administrative expenses during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was a result of several factors. Personnel-related costs increased by $21.2 million, including $13.2 million of stock-based compensation. The increase was also attributable to higher amortization of $6.1 million related to acquired intangible assets and increases in business development costs, contractor expenses and software costs. These increases were partially offset by $8.3 million from the reversal of sales tax reserves due to state settlements and a cumulative reserve remeasurement in the nine months ended September 30, 2018.
Interest expense
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Interest expense | $ | (9,399 | ) | | $ | (3,632 | ) | | $ | (5,767 | ) | | 158.8 | % |
Percentage of total net revenue | (4.4 | )% | | (2.6 | )% | | | | |
Interest expense increased during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, entirely driven by interest bearing debt that was outstanding during the periods. Our weighted-average debt outstanding, based on contractual terms, for the nine months ended September 30, 2018 was $72.1 million compared to $8.5 million in the nine months ended September 30, 2017, driving interest expense higher. We first issued debt in the form of a $50.0 million promissory note in September 2017 in connection with the Ticketfly acquisition, and this note was repaid in full in March 2018. We drew $30.0 million under our First WTI Loan Facility in September 2017 and drew an additional $30.0 million under this same facility in March 2018. In May 2018 we drew $15.0 million under our Second WTI Loan Facility. In September 2018, we repaid all of the outstanding debt under the WTI Loan Facilities and terminated all underlying agreements. We also entered into a new debt facility with a syndicate of banks and drew a $75.0 million term loan under that facility.
We also continue to record interest expense related to our build-to-suit lease accounting for our office lease in San Francisco, California, but those amounts are consistent in the periods presented.
Change in fair value of redeemable convertible preferred stock warrant liability
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Change in fair value of redeemable convertible preferred stock warrant liability | $ | (9,591 | ) | | $ | (1,404 | ) | | $ | (8,187 | ) | | * |
Percentage of total net revenue | (4.4 | )% | | (1.0 | )% | | | | |
The increase in fair value of our redeemable convertible preferred stock warrant liability during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was due to an increase in the underlying fair value of our redeemable convertible preferred stock between December 31, 2017 and September 20, 2018, compared to the period from June 30, 2017 to September 30, 2017. These warrants were first issued on June 30, 2017 and in connection with our IPO, the redeemable convertible preferred stock warrants were automatically converted into shares of Class B common stock.
Loss on debt extinguishment
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Loss on debt extinguishment | $ | (178 | ) | | $ | — |
| | $ | (178 | ) | | * |
Percentage of total net revenue | (0.1 | )% | | — | % | | | | |
The net loss on debt extinguishment recorded in the nine months ended September 30, 2018 was due to a loss of $17.2 million related to the extinguishment of all outstanding debt under our WTI Loan Facilities in September 2018 offset by a gain of $17.0 million related to the retirement of our outstanding promissory note in March 2018, originally issued in connection with the Ticketfly acquisition.
Other income (expense), net
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Other income (expense), net | $ | (1,880 | ) | | $ | 3,510 |
| | $ | (5,390 | ) | | (153.6 | )% |
Percentage of total net revenue | (0.9 | )% | | 2.5 | % | | | | |
The decrease in other income (expense), net during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was driven by foreign currency rate measurement fluctuations. We recognized foreign currency rate measurement losses during the nine months ended September 30, 2018 as a result of an overall strengthening U.S. dollar compared to the currencies with which we operate and process transactions. We recognized foreign currency rate measurement gains during the nine months ended September 30, 2017 as a result of an overall weakening U.S. dollar compared to the currencies with which we operate and process transactions. We also recorded a $2.1 million gain related to the change in fair value of the WTI Loan Facilities term loan embedded derivatives in the nine months ended September 30, 2018.
Income tax provision (benefit)
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2018 | | 2017 | | $ | | % |
| (in thousands, except percentages) |
Income tax provision (benefit) | $ | 683 |
| | $ | (95 | ) | | $ | 778 |
| | * |
Percentage of total net revenue | 0.3 | % | | (0.1 | )% | | | | |
* not meaningful
The provision for income taxes increased $0.8 million in the nine months ended September 30, 2018 compared to the same period of the prior year. The increase2022, was primarily attributable to tax amortization on indefinite-lived intangible assets acquiredour year over year business growth and changes in the third quarter of 2017.taxable earnings mix.
Liquidity and Capital Resources
As of September 30, 2018,2023, we had cash and cash equivalents of $509.7$567.6 million, short-term investments of $152.4 million and funds receivable of $52.3$32.8 million. Our cash includesand cash equivalents include bank deposits, U.S. Treasury bills, and money market funds held by financial institutionsinstitutions. Our short-term investment portfolio, which consists of U.S. Treasury bills, is designed to preserve principal and is held for working capital purposes.provide liquidity. Our funds receivable represents cash-in-transit from credit card processors that is received to our bank accounts within five business days of the underlying ticket transaction. As of September 30, 2023, approximately 20% of our cash was held outside of the United States. We do not expect to incur significant taxes related to these amounts. The cash was held primarily to fund our foreign operations and on behalf of, and to be remitted to, creators. Collectively, our cash and funds receivablecash equivalents balances represent a mix of cash that belongs to us and cash that is due to the creator. creators.
The amounts due to creators, which was $327.2were $373.8 million as of September 30, 2018,2023, are captioned on our condensed consolidated balance sheets as accounts payable, creators.
These ticketing proceeds are legally unrestricted, and beginning in the fourth quarter of 2022 we invested a portion of creator cash in U.S. Treasury bills. For qualified creators, we pass ticket sales proceeds to the creator prior to the event, subject to certain limitations. Internally, we refer to these payments as advance payouts. When we provide advance payouts, we assume risk that the event may be canceled, fraudulent or materially not as described, resulting in significant chargebacks and refund requests. The terms of our standard merchant agreement obligate creators to repay us for ticket sales advanced under such circumstances. If the creator is insolvent, has spent the proceeds of the ticket sales for event-related costs, has canceled the event, or has engaged in fraudulent activity, we may not be able to recover our advance payout losses from these events. Such unrecoverable amounts could equal up to the value of the ticket sales or amounts settled to the creator prior to the event that has been postponed or canceled or is otherwise disputed. We also make paymentsrecord estimates for losses related to chargebacks and refunds based on various factors, including the amounts paid and outstanding to creators in conjunction with the advance payout program, macroeconomic conditions, and actual chargeback and refund activity trends. Due to provide the creator with short-term liquiditynature of macroeconomic events, including but not limited to shifts in advanceconsumer behavior, inflation, increased labor costs, and rising interest rates, there is a high degree of ticket sales. These are classified as creator advances, net, onuncertainty around these reserves and our consolidated balance sheets. Creator advances are recovered by us as tickets are sold byactual losses could be materially different from our current estimates. We will adjust our recorded reserves in the respective creator,future to reflect our best estimates of future outcomes, and are expected to be recovered within 12 monthswe may pay in cash a portion of, all of, or a greater amount than the payment date. We maintain an allowance for estimated creator advances that are not recoverable and nets this against the balance shown in assets. Creator advances, net was $24.5$10.0 million and $20.1 millionprovision recorded as of September 30, 2018 and December 31, 2017, respectively.2023.
In June 2020, we issued the 2025 Notes, and in March 2021, we issued the 2026 Notes. The 2025 Notes mature on December 1, 2025 and the 2026 Notes mature on September 2018, upon the completion15, 2026. Under certain circumstances, holders may surrender their notes of our IPO, we received aggregate proceeds of $246.0 million, net of underwriter discounts and commissions, before deducting offering costs of $5.3 million, net of reimbursements.
Since our inception, anda series for conversion prior to our IPO, we financed our operations and capital expenditures primarily through the issuanceapplicable maturity date. Upon conversion, the notes may be settled in cash, shares of unregistered redeemable convertible preferred stock andClass A common stock, or a combination of cash flows generated by operations and issuancesshares of debt.
In September 2018, we entered into the New Credit Facilities. The New Term Loans were fully funded in September 2018 and we received cash proceeds of $73.6 million, net of arrangement fees of $1.1 million and upfront fees of $0.3 million. We have made no draw on the revolving credit line as of September 30, 2018.
The New Term Loans amortizes at a rate of 7.5% per annum for the first two years of the New Credit Facilities, 10.0% per annum for the third and fourth years and the first three quarters of the fifth year of the New Credit Facilities, with the balance due at maturity. The New Term Loans and the New Revolving Credit Facility are each expected to mature on the fifth anniversary of the effectiveness of the New Credit Facilities. The New Revolving Credit Facility has a commitment fee, which currently accrues at 0.40% on the daily unused amount of the aggregate revolving commitments of the lenders.
Borrowings under the New Credit Facilities bear interest at a rate equal to an applicable margin between 2.25% and 2.75% in the case of eurocurrency loans or between 1.25% and 1.75% in the case of base rate loans, in each case determined on a quarterly basis based on our consolidated total leverage ratio, plus,Class A common stock, at our option, either a base rate or a eurocurrency rate calculated in a customary manner.
The New Credit Facilities contain customary conditions to borrowing, events of default, and covenants. Financial covenants include maintaining a (i) maximum total leverage ratio; (ii) minimum consolidated interest coverage ratio; and (iii) minimum liquidity ratio. These financial covenants will first be tested for the three months ending December 31, 2018.election.
We believe that our existing cash, together with cash generated from operations, and amounts available under our New Revolving Credit Facility, will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We may seek to raise additional funds at any time through debt, equity and equity-linked arrangements.
As of September 30, 2018, approximately 38.3% of our cash was held outside of the United States, which was held primarily on behalf of, and to be remitted to, creators and to fund our foreign operations. We do not expect to incur significant taxes related to these amounts.
Cash Flows
Our cash flow activities were as follows for the periods presented (in thousands):presented:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| (in thousands) |
Net cash provided by (used in): | | | |
Operating activities | $ | 101,800 | | | $ | 72,467 | |
Investing activities | (68,516) | | | (4,684) | |
Financing activities | (3,990) | | | (1,585) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (925) | | | (25,196) | |
Net increase in cash, cash equivalents and restricted cash | $ | 28,369 | | | $ | 41,002 | |
| | | |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2018 | | 2017 | | 2018 | | 2017 | |
Net cash provided by (used in): | | | | | | | | |
Operating activities | $ | 23,786 |
| | $ | 42,192 |
| | $ | 72,624 |
| | $ | 96,294 |
| |
Investing activities | (5,395 | ) | | (129,932 | ) | | 1,593 |
| | (138,492 | ) | |
Financing activities | 231,633 |
| | 158,379 |
| | 244,855 |
| | 158,233 |
| |
Net increase (decrease) in cash and restricted cash | $ | 250,024 |
| | $ | 70,639 |
| | $ | 319,072 |
| | $ | 116,035 |
| |
Comparison of three months endedNine Months Ended September 30, 20182023 and 20172022
Cash Flows from Operating Activities
The net cash provided by operating activities of $23.8$101.8 million for the threenine months ended September 30, 20182023 was primarily due primarily to aour net loss of $35.5$25.5 million, with adjustmentsadjusted for depreciation and amortizationnon-cash charges of $8.8$62.2 million primarily driven by stock-based compensation expense and changes in our operating assets and liabilities that provided $65.1 million in cash, primarily driven by timing of $15.0 million, amortization of creator signing fees of $2.0 million, change in fair value of redeemable convertible preferred stock warrant liability of $3.5 million, change in fair value of term loan embedded derivatives of $2.1 million and a loss on debt extinguishment of $17.2 million. Additionally, there was an increase in accounts payable to creators of $49.6 million due to increases in paid tickets, partially offset by an increase in funds receivable of $15.2 million, an increase in creator signing fees net of $4.7 million, an increase in creator advances, net of $2.9 million, a decrease in accrued taxes of $8.0 million and a decrease in other accrued liabilities of $4.9 million.receivable.
The net cash provided by operating activities of $42.2 million for the three months ended September 30, 2017 was due primarily to a net loss of $11.9 million with adjustments for depreciation and amortization of $5.1 million, stock-based compensation expense of $1.9 million, amortization of creator signing fees of $1.1 million and a change in fair value of redeemable convertible preferred stock warrant liability of $1.4 million. Additionally, there was an increase in accounts payable to creators of $59.7 million due to increases in paid tickets, an increase in other accrued liabilities of $3.5 million, an increase in accrued taxes of $2.1 million, partially offset by an increase in funds receivable of $13.8 million, an increase in creator signing fees net of $3.2 million and an increase in prepaid expenses and other current assets of $1.0 million.
Cash Flows from Investing Activities
The net cash used in investing activities of $5.4 million for the three months ended September 30, 2018 was due to net cash paid for acquisitions of $2.2 million, capitalized software development costs of $1.6 million and purchases of property and equipment of $1.5 million.
The net cash used in investing activities of $129.9 million for the three months ended September 30, 2017 was due to $127.8 million net cash paid for the acquisition of Ticketfly, capitalized software development costs of $1.4 million and $0.7 million paid for purchases of property and equipment.
Cash Flows from Financing Activities
The net cash provided by financing activities of $231.6 million during the three months ended September 30, 2018 was due primarily to $244.1 million in aggregate proceeds from the completion of our IPO, net of underwriters' discounts and offering costs, $75.0 million in proceeds from term loans and $3.3 million in proceeds from exercise of stock options. These inflows were offset by $74.2 million in principal payments on our debt obligations, $7.4 million in prepayment penalties resulting from the extinguishment of our WTI Loan Facilities and $9.0 million in taxes paid related to the net share settlement of equity awards.
The net cash provided by financing activities totaled $158.4 million during the three months ended September 30, 2017 and was driven by $133.1 million received related to the issuance of our Series G redeemable convertible preferred stock, net of issuance costs, $30.0 million in proceeds from drawing funds under our First WTI Loan Facility, $2.3 million excess tax benefit from stock-based compensation awards, $0.4 million cash proceeds from stock option exercises, partially offset by principal payments on debt obligations of $7.2 million.
Comparison of nine months ended September 30, 2018 and 2017
Cash Flows from Operating Activities
The net cash provided by operating activities of $72.6$72.5 million for the nine months ended September 30, 20182022, was primarily due primarily to aour net loss of $51.1$59.4 million, with adjustmentsadjusted for depreciation and amortizationnon-cash charges of $25.6$78.9 million primarily driven by stock-based compensation expense of $23.2and changes to our operating assets and liabilities that provided $53.0 million amortizationin cash, primarily driven by timing of creator signing fees of $5.1 million, change in fair value of redeemable convertible preferred stock warrant liability of $9.6 million and a change in fair value of term loan embedded derivatives of $2.1 million. Additionally, there was an increase in accounts payable to creators of $79.5 million due to increasescreators.
Cash Flows from Investing Activities
Net cash used in paid tickets, an increase in other accrued liabilities of $4.5 million, partially offset by a decrease in accrued taxes of $5.1 million, an increase in creator signing fees, net of $10.9 million and an increase in creator advances, net of $5.2 million. The increases in creator signing fees, net, and creator advances, net, are due to increases in our sales contracting with creators.
The net cash provided by operatinginvesting activities of $96.3$68.5 million for the nine months ended September 30, 2017 was due2023 primarily toconsisted of $273.7 million in purchases of short-term investments, offset by a net loss of $20.2$211.0 million with adjustments for depreciation and amortization of $11.1 million, stock-based compensation expense of $5.7 million and amortization of creator signing fees of $2.9 million. Additionally, there was an increase in accounts payable to creatorsmaturity of $103.4 million due to increasesshort-term investments.
Net cash used in paid tickets, an increase in accrued taxes of $7.3 million, partially offset by an increase in funds receivable of $6.7 million, increases in creator signing fees, net of $6.0 million and creator advances, net of $3.0 million. The increases in creator signing fees, net, and creator advances, net, are due to increases in our sales contracting with creators.
Cash Flows from Investing Activities
The net cash provided by investing activities of $1.6$4.7 million for the nine months ended September 30, 2018 was due to net cash provided from acquisitions2022 primarily consisted of $11.8$2.3 million driven by net cash acquired from Ticketea of $14.1 million, partially offset byin capitalized software development costs of $5.9and a $1.1 million and purchases of property and equipment of $4.3 million.
The net cash used in investing activities of $138.5 million forholdback consideration associated with the nine months ended September 30, 2017 was due to $132.0 million net cash paid for the acquisitions of ticketscript and Ticketfly, capitalized software development costs of $4.7 million and $1.8 million paid for purchases of property and equipment.ToneDen acquisition.
Cash Flows from Financing Activities
The netNet cash provided byused in financing activities of $244.9 million during the nine months ended September 30, 2018 was due primarily to $243.9 million in aggregate proceeds from the completion of our IPO, net of underwriters' discounts and offering costs, $120.0 million in proceeds from term loans and $7.5 million in proceeds from exercise of stock options. These inflows were offset by $109.7 million in principal payments on our debt obligations, $7.4 million in prepayment penalties resulting from the extinguishment of our WTI Loan Facilities and $9.0 million in taxes paid related to the net share settlement of equity awards.
The net cash provided by financing activities totaled $158.2$4.0 million during the nine months ended September 30, 2017 and2023 was driven by $133.1primarily due to $5.5 million receivedin taxes paid related to the issuancenet share settlement of our Series G redeemable convertible preferred stock, net of issuance costs, $30.0equity awards, offset by $0.9 million in proceeds from drawing fundsthe exercise of stock options and $0.6 million in proceeds from issuance of Class A common stock under our First WTI Loan Facility, $2.3Employee Stock Purchase Plan.
Net cash used in financing activities of $1.6 million excess tax benefit from stock-based compensation awards, $1.1 million cash proceeds from stock option exercises, partially offset by principal payments on debt obligations of $7.8 million.
Concentrations of Credit Risk
As of September 30, 2018 and December 31, 2017, there were no customers that represented 10% or more of our accounts receivable balance. There were no customers that individually exceeded 10% of our net revenue during the three or nine month periodsmonths ended September 30, 20182022 was primarily due to $5.3 million in taxes paid related to net share settlement of equity awards, offset by $3.0 million in proceeds from the exercise of stock options.
Effect of exchange rate changes on cash, cash equivalents and 2017.restricted cash
The effect of exchange rate changes on cash, cash equivalents, and restricted cash on our consolidated statements of cash flows relates to certain of our assets, primarily cash balances held on behalf of creators that are denominated in currencies other than the functional currency. These cash assets held for creators are directly offset by a corresponding liability to creators. During the nine months ended September 30, 2023 and September 30, 2022 we recorded a $0.9 million and $25.2 million decrease in cash, cash equivalents, and restricted cash, respectively, primarily due to the strengthening of the U.S. dollar. The impact of the effect of exchange rate changes are primarily attributed to creator cash balances, which can serve as a natural hedge for the effect of exchange rates on accounts payable, creators presented within operating activities.
Contractual Obligations and Commitments
Our principal commitments consist of debt, capital commitments to creators, rental paymentsobligations under our build-to-suit lease,the 2025 Notes and 2026 Notes (including principal and coupon interest), operating leases purchase commitments and capital leases. The following table summarizes our commitments to settle contractual obligations as of September 30, 2018 (in thousands):
|
| | | | | | | | | | | | | | | |
| Payments due by Period |
| Total | | Less than 1 year | | Between 1-3 years | | Between 3-5 years |
Term loan | $ | 75,000 |
| | $ | 5,625 |
|
| $ | 13,125 |
|
| $ | 56,250 |
|
Future creator signing fees and creator advances | 16,376 |
| | 11,177 |
|
| 5,106 |
|
| 93 |
|
Build-to-suit lease obligation | 14,692 |
| | 5,563 |
|
| 9,129 |
|
| — |
|
Operating leases | 10,395 |
| | 2,527 |
|
| 4,520 |
|
| 3,348 |
|
Sublease income | (10,174 | ) | | (4,003 | ) |
| (4,003 | ) |
| (2,168 | ) |
Purchase commitments | 8,750 |
| | 3,875 |
|
| 4,875 |
|
| — |
|
Total | $ | 115,039 |
| | $ | 24,764 |
| | $ | 32,752 |
| | $ | 57,523 |
|
Term Loans
In September 2018, we fully repaid the WTI Loan Facilities and extinguished the existing debt for a total cash payment of $81.6 million. As of September 30, 2018, there are no amounts outstanding under the WTI Loan Facilities and all underlying agreements have been terminated.
In September 2018, we entered into the New Credit Facilities. The New Term Loans were fully funded in September 2018 and we received cash proceeds of $73.6 million, net of arrangement fees of $1.1 million and upfront fees of $0.3 million. We have made no draw on the revolving credit line as of September 30, 2018.
The New Term Loans amortizes at a rate of 7.5% per annum for the first two years of the New Credit Facilities, 10.0% per annum for the third and fourth years and the first three quarters of the fifth year of the New Credit Facilities, with the balance due at maturity. The New Term Loans and the New Revolving Credit Facility are each expected to mature on the fifth anniversary of the effectiveness of the New Credit Facilities.
Lease Commitments
We have entered into various non-cancelable leases for certain offices with contractual lease periods expiring between 2018 and 2023.
In 2014, we undertook a series of structural improvements to the floors that we occupied in our corporate headquarters in San Francisco. As a result of the requirement to fund construction costs and due to certain structural improvements that were made by us, we were considered the deemed owner of the leased floors for accounting purposes. Due to the presence of a standby letter of credit as a security deposit, we were deemed to have continuing involvement after the construction period. As such, we accounted for this arrangement as owned real estate. Legally, we do not own the floors that we have leased in the building, the property owner owns the floors. However, accounting rules require that we record an imputed financing obligation for our obligation to the legal ownersoffice space, as well as an asset for the fair value of the leased floors. Under these accounting rules, our monthly rental payments are allocated to (1) interest expense, (2) ground rent expense and (3) a reduction of the principal of the imputed financing obligation. We recorded interest expense related to this financing obligation of $0.9 million for each of the three months ended September 30, 2018 and 2017 and $2.6 million for each of the nine months ended September 30, 2018 and 2017. The lease financing obligation was $28.8 million and $29.5 million as of September 30, 2018 and December 31, 2017, respectively, and the net book value of the asset as of those dates was $28.4 million and $29.2 million, respectively.non-cancellable purchase commitments. See Note 917, "Commitments and Contingencies" to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details.
In May 2018, we entered into a ten year lease for office space in Cork, Ireland. Monthly rent payments are due beginning in January 2019 and will total approximately $0.4 million per year and are included in the table above. The lease expires in 2028.information.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements and did not have any such arrangements during 2017 or during the nine months endedas of September 30, 2018.2023.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon ourunaudited condensed consolidated financial statements which have beenare prepared in accordance with U.S. GAAP. GAAPThe preparation of these unaudited condensed consolidated financial statements requires us to make certain estimates and judgmentsassumptions that affect the reported amounts reported in our consolidated financial statementsof assets, liabilities, revenue and expenses, and related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Wecircumstances, and we evaluate our estimates and assumptions on an ongoing basisbasis. We are not aware of any specific event or circumstance that would require an update to our estimates or assumptions or a revision of the carrying value of assets or liabilities as of the date of filing of this Quarterly Report on Form 10-Q. These estimates and ourassumptions may change in the future, however, as new events occur and additional information is obtained. Our actual results could differ from these estimates.
Our significant accounting policies are discussed in the "Notes to Consolidated Financial Statements, Note 2 "Significant Accounting Policies" in the 2022 Form 10-K. There have been no materialsignificant changes to our critical accountingthese policies and significant judgments as compared to the critical accounting policies and estimates disclosed in the Prospectus.
Recent Accounting Pronouncements
See Note 2 tothat have had a material impact on our unaudited condensed consolidated financial statements “Significant Accounting Policies” for more information.and related notes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
Interest expenseWe are exposed to market risk for changes in interest rates related primarily to balances of our outstanding debt asfinancial instruments including cash and cash equivalents and short-term investments. As of September 30, 20182023, we had cash and cash equivalents of $567.6 million and short-term investments of $152.4 million, which consisted primarily of money market funds and U.S. Treasury bills. The primary objective of our investment approach is related to fixed rate debtpreserve capital principal and provide liquidity. Our primary exposure to market risk is interest expense related toincome sensitivity, which is affected by changes in the build-to-suit lease and is not sensitive to movementsgeneral level of interest rates in interest rates.the United States. A 10% increase or decreasechange in the level of market interest rates would not have a material effect on our business, financial conditions or results of operations. In addition, our 2025 Notes and 2026 Notes (collectively referred to as "Notes") are subject to fixed annual interest expense.charges. These Notes therefore are not exposed to financial or economic risk associated with changes in interest rates. However, the fair value of these Notes may fluctuate when interest rates change or can be affected when the market price of our Class A common stock fluctuates. We carry the convertible senior notes at face value less unamortized issuance cost on our balance sheet, and we present the fair value for required disclosure purposes only.
Foreign Currency Risk
Many of our event organizerscreators live or operate outside the United States, and therefore, we have significant ticket sales denominated in foreign currencies, most notably the British Pound, Euro, Canadian Dollar and Australian Dollar, Brazilian RealDollar. Our international revenue, as well as costs and Argentinian Peso. Ifexpenses denominated in foreign currencies, expose us to the risk of fluctuations in foreign currency exchange rates remain at current levels,against the U.S. dollar. Accordingly, we are subject to foreign currency translation could continue to negatively affect net revenue growth for events that are not listed in U.S. dollars and could also reduce the demand for U.S. dollar denominated events from attendees outside of the United States. Because therisk, which may adversely impact our financial results. The functional currency of our foreigninternational subsidiaries is the U.S. dollar,dollar. Movements in foreign exchange rates are recorded in other income (expense), net in our consolidated statements of operations. We have experienced and will continue to experience fluctuations duein foreign exchange gains and losses related to changes in currencyexchange rates. If our foreign-currency denominated assets, liabilities, revenues, or expenses increase, our results of operations may be more significantly impacted by fluctuations in the exchange rates cause us to recognize transaction gains and lossesof the currencies in our statement of operations.which we do business. A 10% increase or decrease in currentindividual currency exchange rates would not have a material impact on our consolidated results of operations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of ourthe principal executive officer and principal financial officer, has evaluatedconducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, (asas defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, of 1934, as amended (the Exchange Act)), as of the end of the period covered by this Quarterly Report on Form 10-Q. report.
Based on suchthat evaluation, our principal executive officer and principal financial officer have concluded that, as of such date,September 30, 2023, our disclosure controls and procedures were effective at ato provide reasonable assurance level.that the information required for disclosure in reports filed or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to Company management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Remediation of Previously Reported Material Weakness
As disclosed in our Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2022, we previously identified a material weakness in our internal control over financial reporting, related to the lack of an effectively designed control activity over the presentation of unrealized foreign currency transaction gains and losses and effects of exchange rate changes on cash, cash equivalents and restricted cash within the consolidated statements of cash flows. The material weakness resulted in a restatement of the Company’s previously filed consolidated financial statements as of and for each of the quarterly periods ended June 30, 2022 and September 30, 2022 and a revision to the consolidated financial statements as of and for the year ended December 31, 2021, including the quarterly periods therein, as of and for the year ended December 31, 2020 and for the quarterly period ended March 31, 2022. The error had no effect on the consolidated statements of operations or consolidated balance sheet in the aforementioned periods.
Due to the actions taken by the Company to enhance existing controls and procedures, management has concluded that this material weakness has been remediated as of September 30, 2023. The remediation steps to address the material weakness and to improve our internal control over financial reporting included enhanced review procedures of our consolidated statements of cash flows to ensure changes in our business, including foreign currency gains and losses due to increased volatility in foreign exchange rates, are appropriately presented in the statement of cash flows. We concluded that the enhanced control and procedures implemented directly address the risk of misstatement due to changes in our business environment.
Changes in Internal Control Over Financial Reporting
There wasOther than the remediation actions described above, there have been no changechanges in our internal control over financial reporting, (asas defined in Rules 13a-15(d)13a-15(f) and 15d-15(d)15d-15(f) under the Exchange Act)Act, that occurred during the period covered by this Quarterly Report on Form 10-Q that hasquarter ended September 30, 2023 which have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Disclosure Controls and Procedures
Our management, including our principal executive officerIn designing and principal financial officer, do not expect that ourevaluating the disclosure controls and procedures or ourand internal control over financial reporting, will prevent all errorsmanagement recognizes that any controls and all fraud. A control system,procedures, no matter how well designed and operated, can provide only reasonable not absolute, assurance thatof achieving the objectives of thedesired control system are met. Further,objectives. In addition, the design of adisclosure controls and procedures and internal control systemover financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls must be consideredand procedures relative to their costs. Because
Table of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a partySee Note 17, "Commitments and Contingencies" to any material legal proceedings. From time to time we may be subject to legal proceedings and claims arisingour unaudited condensed consolidated financial statements included elsewhere in the ordinary course of business.this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
A description ofThere have been no material changes from the risks and uncertainties associated with our business isrisk factors set forth below.in Part I, Item 1A, of our 2022 Form 10-K, except for the following risk factors which supplement the risk factors previously disclosed and should be considered in conjunction with the risk factors set forth in the 2022 Form 10-K. You should carefully consider the risks and uncertainties described below,in the 2022 Form 10-K, together with all of the other information in the Annual Report and this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes.notes, and other documents that we file with the U.S. Securities and Exchange Commission. The risks and uncertainties described belowin the 2022 10-K and this Quarterly Report on Form 10-Q may not be the only ones we face. If any of the risks actually occur, our business, results of operations, financial condition and prospects could be harmed. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.
Risks Related to Our BusinessWe are incorporating generative artificial intelligence, or AI, into some of our products. This technology is new and Industrydeveloping and may present operational and reputational risks.
Our continued growth depends on our ability to attract new creators and retain existing creators.
Our success depends on our ability to attract new creators and retain existing creators. We may fail to attract new creators and retain existing creators due tohave incorporated a number of factors outlinedthird-party generative AI features into our products. This technology, which is a new and emerging technology that is in this section, including: |
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| • | | our ability to maintain and continually enhance our platform and provide services that are valuable and helpful to creators, including helping them to attract and retain attendees; |
| • | | competitive factors, including the actions of new and existing competitors in our industry, such as competitors buying exclusive ticketing rights or entering into or expanding within the market in which we operate; |
| • | | our ability to convince creators to migrate to our platform from their current practices, which include online ticketing platforms, venue box offices and do-it-yourself spreadsheets and forms; |
| • | | changes in our relationships with third parties, including our partners, developers and payment processors, that make our platform less effective for creators; |
| • | | the quality and availability of key payment and payout methods; |
| • | | our ability to manage fraud risk that negatively impacts creators; and |
| • | | our ability to adapt to changes in market practices or economic incentives for creators, including larger or more frequent signing fees. |
If weits early stages of commercial use, presents a number of risks inherent in its use. AI algorithms are unable to effectively manage these risksbased on machine learning and predictive analytics, which can create accuracy issues, unintended biases and discriminatory outcomes. We have implemented measures, such as in-product disclosures, which inform creators when content is created for them by generative AI and that they occur, creators may seekare responsible for the accuracy and editorial review of their content. There is a risk that third-party generative AI algorithms could produce inaccurate or misleading content or other solutions and we may not be able to retain themdiscriminatory or acquire additional creators to offset any such departures, which would adversely affect our business andunexpected results of operations. Furthermore, the loss of creators and our inability to replace them with new creators and events of comparable quality and standing wouldor behaviors (e.g., AI hallucinatory behavior that can generate irrelevant, nonsensical or factually incorrect results) that could harm our reputation, business or customers. In addition, the use of AI involves significant technical complexity and results of operations.
We have a history of losses and we may not be able to generate sufficient revenue to achieve and maintain profitability.
We incurred net losses of $40.4 million and $38.5 millionrequires specialized expertise. Any disruption or failure in 2016 and 2017, respectively. We incurred net losses of $20.2 million and $51.1 million in the nine months ended September 30, 2017 and 2018, respectively. In 2016 and 2017, our net revenue was $133.5 million and $201.6 million, respectively, representing a 51.0% growth rate. Our net revenue was $138.9 million and $215.7 million during the nine months ended September 30, 2017 and 2018, respectively, representing a 55.3% growth rate. We expect that our revenue growth rate will declineAI systems or fluctuate in the future as a result of a variety of factors, including a reduction in revenue contributed from acquisitions in a particular period. You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. We also expect our costs to increase in future periods as we continue to expend substantial financial resources on technology infrastructure product and services development and enhancement, international expansion and localization efforts, business development and acquisitions, sales and marketing and general administration, including legal and accounting expenses. These investments may notcould result in increased revenuedelays or growtherrors in our business. If we are unable to maintain adequate revenue growth and to manage our expenses effectively, we may incur significant losses in the future and may not be able to achieve and maintain profitability. As a result, we may continue to generate losses and we cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will be able to maintain profitability.
Further expansion into markets outside of the United States is important to the growth of our business, and if we do not manage the risks of international expansion effectively, our business and results of operations, will be harmed. Furthermore, our expansion into jurisdictions where we have limited operating experience may subject us to increased business and economic risks thatwhich could harm our business and our results of operations.
In 2016 and 2017, we derived 27.0% and 30.0%, respectively, of our net revenue from outside of the United States. During the nine months ended September 30, 2017 and 2018, we derived 30.9% and 27.3%, respectively, of our net revenue from outside of the United States. Outside the U.S. we currently have 12 offices, including offices in the United Kingdom, Ireland, Spain, Belgium, Germany, the Netherlands, Australia, Argentina and Brazil. We have large engineering and business development teams in Argentina and Spain. Our international operations and results are subject to a number of risks, including: |
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| • | | currency exchange restrictions or costs and exchange rate fluctuations and the risks and costs inherent in hedging such exposures; |
| • | | new and modified laws and regulations regarding data privacy, data protection and information security; |
| • | | exposure to local economic or political instability, threatened or actual acts of terrorism and violence and changes in the rights of individuals to assemble; |
| • | | compliance with U.S. and non-U.S. regulations, laws and requirements relating to anti-corruption, antitrust or competition, economic sanctions, data content and privacy, consumer protection, employment and labor laws, health and safety and advertising and promotions; |
| • | | compliance with additional U.S. laws applicable to U.S. companies operating internationally and interpretations of U.S. and international tax laws; |
| • | | weaker enforcement of our contractual and intellectual property rights; |
| • | | preferences by local populations for local providers; |
| • | | laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses; and |
| • | | slower adoption of the Internet as a ticketing, advertising and commerce medium, which could limit our ability to migrate international operations to our existing systems. |
financial results.We plan to continue to expand our international operations as part of our growth strategy. Despite our experience operating internationally, future expansion efforts into new countries may not be successful. Our international expansion has placed, and our expected future international growth will continue to place, a significant strain on our management, customer service, product development, sales and marketing, administrative, financial and other resources. We cannot be certain that the investment and additional resources required in expanding our international operations will be successful pay recoupable advances, non-recoupable payments and/or produce desired levels of revenue or profitability in a timely manner, or at all. Furthermore, certain international markets in which we operate have lower margins than more mature markets, which could have a negative impact on our margins as our revenue from these markets grows over time.
We may choose in certain instances to localize our platform to the unique circumstances of such countries and markets in order to achieve market acceptance, which can be complex, difficult and costly and divert management and personnel resources. Our failure to adapt our practices, platform, systems, processes and contracts effectively to the creator and attendee preferences or customs of each country into which we expand could slow our growth. If we are unable to manage our international growth successfully, our results of operations could be harmed.
Acquisitions, investments or significant commercial arrangements could result in operating and financial difficulties.
We have acquired or entered into commercial arrangements with a number of businesses in the past. For example, since 2015 we have acquired seven companies, including ticketscript and Ticketfly in 2017 and Ticketea and Picatic in 2018. Our future growth may depend, in part, on future acquisitions, investments or significant commercial arrangements, any of which could be material to our results of operations and financial condition. Financial and operational risks related to acquisitions, investments and significant commercial arrangements that may have an impact on our business include: |
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| • | | use of cash resources and incurrence of debt and contingent liabilities in funding acquisitions may limit other potential uses of our cash, including for retirement of outstanding indebtedness, stock repurchases and dividend payments; |
| • | | difficulties and expenses in assimilating the operations, products, data, technology, privacy, data protection systems and information security systems, information systems or personnel of the acquired company; |
| • | | failure of the acquired company to achieve anticipated benefits, revenue, earnings or cash flows or our failure to retain key employees from an acquired company; |
| • | | the assumption of known and unknown risks, debt and liabilities of the acquired company, deficiencies in systems or internal controls, impairment of goodwill or other intangible assets and costs associated with litigation or other claims arising in connection with the acquired company; |
| • | | failure to properly and timely integrate acquired companies and their operations, reducing our ability to achieve, among other things, anticipated returns on our acquisitions through cost savings and other synergies; |
| • | | adverse market reaction to acquisitions; |
| • | | failure to consummate such transactions; and |
| • | | other expected and unexpected risks with pursuing acquisitions, including litigation or regulatory exposure, unfavorable accounting treatment, increases in taxes due, a loss of anticipated tax benefits, costs or delays to obtain governmental approvals, diversion of management’s attention or other resources from our existing business and other adverse effects on our business, results of operations or financial condition. |
When we acquire companies or other businesses, we face the risk that creators of the acquired companies or businesses may not migrate to our platform or may choose to decrease their level of usage of our platform post migration. We have previously experienced customer loss in the process of integrating and migrating acquired companies for a variety of reasons. The pace and success rate of migration may be influenced by many factors, including the pace and quality of product development, our ability to operationally support the migrating creators and our adoption of business practices outside of our platform that matter to the creator.
Moreover, we rely heavily on the representations and warranties and related indemnities provided to us by our acquired targets and their equity holders, including as they relate to creation, ownership and rights in intellectual property, compliance with laws, contractual requirements and the ability of the acquisition target to continue exploiting material intellectual property rights and technology after the acquisition. If any such representations are inaccurate or such warranties are breached, or if we are unable to fully exercise our indemnification rights, we may incur additional liabilities, disruptions to the operations of our business and diversion of our management’s attention.
Our failure to address these risks or other problems encountered in connection with past or future acquisitions, investments and significant commercial arrangements could cause us to fail to realize the anticipated benefits of such transactions, incur unanticipated liabilities and harm our business, results of operations and financial condition.
If we do not continue to maintain and improve our platform or develop successful new solutions and enhancements or improve existing ones, our business will suffer.
Our ability to attract and retain creators depends in large part on our ability to provide a user-friendly and effective platform, develop and improve our platform and introduce compelling new solutions and enhancements. Our industry is characterized by rapidly changing technology, new service and product introductions and changing demands of creators. We spend substantial time and resources understanding creators’ needs and responding to them. Building new solutions is costly and complex, and the timetable for commercial release is difficult to predict and may vary from our historical experience. In addition, after development, creators may not be satisfied with our enhancements or perceive that the enhancements do not adequately respond to their needs. The success of any new solution or enhancement to our platform depends on several factors, including timely completion and delivery, competitive pricing, adequate quality testing, integration with our platform, creator awareness and overall market acceptance and adoption. If we do not continue to maintain and improve our platform or develop successful new solutions and enhancements or improve existing ones, our business will suffer.
Our payments system depends on third-party providers and is subject to risks that may harm our business.
We rely on third-party providers to support our payments system. Approximately 90% of revenue on our platform is associated with payments processed through our internal payment processing capabilities, called Eventbrite Payment Processing (EPP). EPP uses a combination of multiple external vendors to provide a single, seamless payments option for creators and attendees. Beyond EPP, the remainder of creators’ paid ticket sales are processed through linked, creator-owned, third-party accounts, including PayPal and Authorize.net, which we call Facilitated Payment Processing (FPP).
We partner with third-party vendors to support EPP. For example, in September 2017, we announced a partnership with Square where Square would become our primary online payment processing partner for EPP in the United States, Canada, Australia, the United Kingdom as well as any new territories Square enters into over time. Square will also become our exclusive payment processing partner for all of our point-of-sale solutions in those same territories. We may supplement Square in these markets by working with other payment providers if there are local payment methods that Square does not support. We estimate that the first online transaction will be processed through EPP using Square in 2019. Our agreement with Square has an initial term of five years and automatically renews for additional one-year periods thereafter. Under the agreement, we will pay Square a percentage of each transaction processed using Square’s services plus Square’s third-party costs to process and settle such transactions. Either we or Square may terminate the partnership arrangement at any time for cause, or, after an initial no termination period of two years if terminated by Square or four years if terminated by us, for any or no reason with six months’ prior written notice to the other party. We also partner with other payment processors for EPP in the United States, Canada, Australia and the United Kingdom, as well as in other jurisdictions.
As a complex, multi-vendor system with proprietary technology added, EPP relies on banks and third-party payment processors to process transactions and access various payment card networks to allow creators to manage payments in an easy and efficient manner. We also rely on our providers to process transactions as a payment facilitator of a payment network. Any of our payment providers and vendors that do not operate well with our platform could adversely affect our payments systems and our business. We have multiple integrations in place at one time allowing for back up processing on EPP if a single provider is unable or unwilling to process any given transaction, payment method or currency. However, if any or some of these providers do not perform adequately, determine certain types of transactions as prohibitive for any reason or fail to identify fraud, if these providers’ technology does not interoperate well with our platform, or if our relationships with these providers were to terminate unexpectedly, creators may find our platform more difficult to use and the ability of creators using our platform to sell tickets could be adversely affected, which could cause creators to use our platform less and harm our business.
We must also continually integrate various payment methods used both within the United States and internationally into EPP. To enhance our acceptance in certain international markets we have in the past adopted, and may in the future adopt, locally-preferred payment methods and integrate such payment methods into EPP, which may increase our costs and also require us to understand and protect against unique fraud and other risks associated with these payment methods. For example, in Brazil we localized our platform to allow the use of Boleto as a payment method, and we invested capital and management attention to achieve this. If we are not able to integrate new payment methods into EPP effectively, our business may be harmed.
Our payment processing partners require us to comply with payment card network operating rules, which are set and interpreted by the payment card networks. The payment card networks could adopt new operating rules or interpret or re-interpret existing rules in ways that might prohibit us from providing certain services to some creators, be costly to implement or difficult to follow. We have agreed to reimburse our payment processors for fines they are assessed by payment card networks if we or creators using our platform violate these rules, such as our processing of various types of transactions that may be interpreted as a violation of certain payment card network operating rules.
In addition, payment card networks and payment processing partners could increase the fees they charge us for their services or for an attendee using one of their cards, which would increase our operating costs and reduce our margins. If we are unable to negotiate favorable economic terms with these partners, our business and results of operations may be harmed.
We may pay up front creator signing fees and creator advancesadvance payouts to certain creators when entering into exclusive ticketing or services agreements and ifcreators. If these arrangements do not perform as we expect or the scheduled events are cancelled, our business, results of operations and financial condition may be harmed.
We may pay one-time, up frontrecoupable advances and/or non-recoupable payments to certain creators when entering into exclusive ticketing or services agreements or when we are otherwise contractually obligated to do so. We also make advance payouts to certain creators. We pay recoupable advances (also referred to as creator advances) and non-recoupable payments (also referred to as creator signing feesfees) to certain creators in order to incentivize them to organize certain events on our platform or obtain exclusive rights to ticket their events. TheseNon-recoupable payments and recoupable advances (together, upfront payments) involve provision of Eventbrite’s own capital from our operating accounts. In contrast, advanced payouts involve an advance payment to creators of attendees’ funds from our trust accounts prior to the completion of the events to which such attendees purchased tickets.
Upfront payments are common practice in certain segments of the ticketing industry and are typically made to a creator upon entering into or renewing a multi-year exclusive ticketing or serviceservices contract with us. The multi-year exclusive arrangements that we entered into between 2013 and 2017 had an average term of 36 months and were typically for exclusive ticketing rights.us, or upon meeting annual contractual requirements. A creator who receiveshas received a non-recoupable fee, which we refer to as creator signing fees, net,payment keeps the entire signing fee,upfront payment, so long as the creator complies with the terms of the creator’s contract with us, including but not limited to performance of an event. If a creator does not comply with the termsevent and achievement of the contract or perform an event, such fees are refundable to us. Creator signing fees, net, including noncurrent balances, were $6.9 million and $10.4 million as of December 31, 2016 and 2017, respectively, and, as of December 31, 2017, these payments are being amortized over a weighted-average remaining life of 3.1 years on a straight line basis. Creator signing fees, net, including noncurrent balances, were $15.9 million as of September 30, 2018.certain ticket sale minimums. For recoupable fees, which we refer to as creator advances net, we are entitled to recoup the entire signing feeadvance by withholding all or a portion of the ticket sales sold by the creator to whom the recoupable signing feeadvance was previously paid. paid until we have fully recouped the advance. A creator is generally obligated to repay all or a portion of the upfront payment to us if such creator does not comply with the terms of the contract or perform an event, although there is no guarantee that we will be able to collect such repayment. When we provide advance payouts, we assume risk that the event may be canceled, fraudulent or materially not as described, resulting in significant chargebacks and refund requests. If the creator is insolvent, has spent the proceeds of the ticket sales for event-related costs, has canceled the event, or has engaged in fraudulent activity, we may not be able to recover our losses from these events.
We are continuing to evaluate our practices on upfront payments, and have started making upfront payments available to qualifying creators who accept our standard or negotiated terms and conditions. We believe that upfront payments are an important financing option for creators, and that failure to make upfront payments available to all creators may put us at a competitive disadvantage to ticketing solutions that offer cash incentives more broadly to newly acquired or renewing creators.
Creator signing fees, net, including noncurrent balances, were $2.3 million and $2.2 million as of September 30, 2023 and September 30, 2022, respectively, and, as of September 30, 2023, these payments were being amortized over a weighted-average remaining life of 2.3 years on a straight-line basis.
Creator advances, net, including noncurrent balances, were $7.6 million, $20.1$1.7 million and $24.5$0.8 million as of December 31, 2016 and 2017September 30, 2023 and September 30, 2018,2022, respectively. We pay these signing feesadvances based on the expectations of future ticket sales on our platform by such creators. We make the decision to make these payments based on our assessment of the past success of the creator, past event data, future events the creator is producing and other financial information. We include commercial and legal protections in our contracts that include signing fees, such as issuing the signing fee only after the creator begins selling tickets on our platform and requiring a third-party to guarantee the obligations and liabilities of the creator receiving such a payment, to mitigate the financial risk of making these payments. However, event performance may vary greatly from year-to-year and from event to event. If our assumptions and expectations with respect to event performance prove wrong or if a counterparty defaults or an event is not successful or is canceled, our return on these signing feesadvances will not be realized and our business, and results of operations willand financial condition could be harmed.
Our results vary from quarter-to-quarterThe pricing and year-to-year. Our results of operations in certain financial quarters or years may not be indicative of, or comparable to, our results of operations in subsequent financial quarters or years.
Our quarterly results of operations have fluctuated significantly in the past due to these factors and a variety of other factors, many of which are outsidecomposition of our control and difficult to predict. It is difficult for us to forecast the level or source of our revenue accurately. Because our resultspricing packages may vary significantly from quarter-to-quarter and year-to-year, our financial results for one quarter or year cannot necessarily be compared to another quarter or year and may not be indicative of our future financial performance in subsequent quarters or years. Period-to-period comparisons of our results of operations may not be meaningful, and you should not rely upon them as an indication of future performance. In addition to other risk factors listed in this “Risk Factors” section, factors that may cause our results of operations to fluctuate include: |
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| • | | creator acquisition and retention; |
| • | | new solution introductions and expansions, or challenges with introduction; |
| • | | acquisition of companies and the success, or lack thereof, of migration of such companies’ creators; |
| • | | changes in pricing or packages; |
| • | | the development and introduction of new products or services by us or our competitors; |
| • | | increases in operating expenses that we may incur to grow and expand our operations and to remain competitive; |
| • | | system failures or breaches of security or privacy; |
| • | | changes in stock-based compensation expenses; |
| • | | adverse litigation judgments, settlements or other litigation-related costs; |
| • | | changes in the legislative or regulatory environment, including with respect to privacy or data protection, or enforcement by government regulators, including fines, orders or consent decrees; |
| • | | fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies; |
| • | | fluctuations in the market values of our portfolio investments and interest rates; |
| • | | changes in our effective tax rate; |
| • | | announcements by competitors or other third parties of significant new products or acquisitions or entrance into certain markets; our ability to make accurate accounting estimates and appropriately recognize revenue for our solutions for which there are no relevant comparable products; |
| • | | changes in accounting standards, policies, guidance, interpretations, or principles; and |
| • | | changes in business or macroeconomic conditions. |
In addition, the seasonality of our business could create cash flow management risks if we do not adequately anticipate and plan for periods of decreased activity, which could negatively impactaffect our ability to executeattract or retain creators.
Our event creators can select from different pricing packages based on our strategy, which in turn could harm our results of operations. For example, we experience more cash flow generally in the firstfeatures required, service level desired and third quarters of a fiscal year.
Data loss or security breaches could harm our business, reputation, brandbudget. We assess the pricing and results of operations.
Security breaches, computer malware and computer hacking attacks have become more prevalent across industries and may occur on our systems or thosecomposition of our third-party service providers or partners. Despitepricing packages based on prior experience, feedback from creators and data insights, and we periodically adjust the implementation of security measures, our internal computer systemspricing and thosecomposition of our third-party service providerspackages. Creators’ price sensitivity may vary by location, and partners are vulnerableas we seek to damage from computer viruses, hackingexpand into different countries, our pricing packages may not enable us to compete effectively in these countries. In June 2023, we introduced a new pricing model which introduces new plans, fee types and other means of unauthorized access, denial of servicesubscription packages for event organizers. Our business will depend, in part, on existing creators selecting and other attacks, natural disasters, terrorism, warrenewing subscription plans with us as well as new creators opting into our subscription packages. Further, creators who opt into our subscription programs have no obligation to renew their subscriptions, and telecommunication and electrical failures. Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. In additionit is difficult to unauthorized access to or acquisition of personal data, confidential information, intellectual property, or other sensitive information, such attacks could include the deployment of harmful malware and ransomware, and may use a variety of methods, including denial-of-service attacks, social engineering and other means, to attain such unauthorized access or acquisition or otherwise affect service reliability and threaten the confidentiality, integrity and availability of information. Furthermore, the prevalent use of mobile devices increases the risk of data security incidents. In addition, misplaced, stolen or compromised mobile devices used at events for ticket scanning, or otherwise, could lead to unauthorized access to the device and data stored on or accessible through such device. We have in the past experienced breaches of our security measures and our platform and systems are at risk for future breaches as a result of third-party action or employee, service provider, partners or contractor error or malfeasance. For example, in June 2018, we publicly announced that a criminal was able to penetrate the Ticketfly website and steal certain consumer data,
including names, email addresses, shipping addresses, billing addresses and phone numbers. For a short time, we disabled the Ticketfly platform to contain the risk of the cyber incident, which disabled ticket sales through Ticketfly during that period. Because of this incident, we have incurred costs related to responding to and remediating this incident and have suffered a loss of revenue for the period during which the Ticketfly platform was disabled. In the nine months ended September 30, 2018, we recorded $6.6 million for potential costs associated with this incident, of which $6.3 million was recorded as a reduction to net revenue and $0.3 million was recorded as an operating expense. We also recorded $2.3 million and $3.6 million related to insurance proceeds to be received from the Ticketfly incident as a reduction in general and administrative expenses in the three and nine months ended September 30, 2018, respectively.accurately predict long-term customer retention. Such proceeds are a partial reimbursement for accommodations to creators which are recorded as contra revenue. As of September 30, 2018, we had a remaining liability balance of $0.7 million related to future accommodation payments and a $2.0 million receivable for insurance proceeds. We may be subject to litigation, experience reputational harm, and have been subject to claims and have suffered customer loss related to this incident. In the future, our financial performance may be impacted further if we face additional costs and expenses from customer compensation and retention incentives, creator loss, regulatory inquiries, litigation and further remediation and upgradeschanges to our security infrastructure. Although we have insurance coverage, our policy may not cover all financial expenses related to this matter.
In addition, our platform involves the storagepricing model and transmission of personal information of users of our platform in our facilities and on our equipment, networks and corporate or third-party systems. Security breaches could expose us to litigation, remediation costs, increased costs for security measures, loss of revenue, damage to our reputation and potential liability. User data and corporate systems and security measures may be breached due to the actions of outside parties, employee error or misconduct, malfeasance, a combination of these or otherwise, and, as a result, an unauthorized party may obtain access to our data or data of creators and attendees. Additionally, outside parties may attempt to fraudulently induce employees, creators or attendees to disclose sensitive information in order to gain access to creator or attendee data. We must continuously examine and modify our security controls and business policies to address the use of new devices and technologies, and the increasing focus by users and regulators on controlling and protecting user data. We may need to expend significant resources to protect against and remedy any potential security breaches and their consequences. Any security breach of our platform or systems, the systems or networks of our third-party service providers or partners, or any unauthorized access to information wepackage composition, or our providersinability to effectively or competitively price our packages and partners process or maintain,solutions, could harm our business, results of operations and financial condition.condition and impact our ability to predict our future performance.
BecauseWe are subject to risks related to our environmental, social and governance activities and disclosures.
Our strategy on environmental, social and governance activities (Impact strategy) focuses on Eventbrite’s mission to bring the techniques usedworld together through live experiences. We have announced a number of initiatives in our Corporate Responsibility Report which provides metrics on a number of environmental and social factors which we monitor (corporate responsibility metrics) and include some references to such Corporate Responsibility Report in our Proxy Statement for our 2023 Annual Meeting of Stockholders. As a result, our business may face heightened scrutiny for the activities related to the corporate responsibility metrics. Our selected corporate responsibility metrics are reviewed by our senior leadership and key internal stakeholders but do not receive independent third-party assurance. Reasonable assurance sought in connection with a financial statement audit is not provided for the corporate responsibility metrics and therefore the review process for the corporate responsibility metrics may not identify all material statements, omissions or any errors made in reporting the corporate responsibility metrics. As a result, we may not be protected from potential liability under the securities laws for our corporate responsibility metrics and related statements. In addition, for some of the corporate responsibility metrics we report, the methodology of computation and/or the scope of our assessed value chain continues to evolve from year to year. As a result, period over period comparisons may not be meaningful.
The implementation of our Impact strategy requires considerable investments. If we do not demonstrate progress against our Impact strategy or if our Impact strategy is not perceived to be adequate or appropriate, our reputation could be harmed. We could also damage our reputation and the value of our brand if we or our vendors fail to act responsibly in the areas in which we report, or we fail to demonstrate that our commitment to our Impact strategy enhances our overall financial performance.
Further, we purchase carbon removal credits, carbon avoidance credits and energy attribute certificates (EACs) to help balance our carbon and energy footprints. If the cost of carbon removal credits, carbon avoidance credits and EACs were to materially increase or we were required to purchase a significant number of additional credits or EACs, our cost to obtain unauthorized access, disable these offsets and/or degrade service,credits could increase materially which could impact our ability to meet our internal environmental objectives or sabotage systems change frequentlyour financial performance. Additionally, we could experience complaints related to our purchase of such offsets as they relate to our statements regarding carbon neutrality which we cannot predict or may be designed to remain dormant until a predetermined or other future event and often are not recognized until launched against a target, we and our third-party service providers and partners may be unable to anticipate these techniques or implement adequate preventative measures. While we have implemented security measures intended to protect our information technology systems and infrastructure,against.
Additionally, there can be no assurance that such measuresour current programs, reporting frameworks, or our third-party service providersprinciples will be in compliance with any new environmental and partners’ information security measures will successfully prevent service interruptions or further security incidents. Although it is difficult to determine what harm may directly result from any specific interruption or breach, any actual or perceived failure to maintain performance, reliability, security and availability of our network infrastructure, or of any third-party networks or systems used or supplied by our third-party service providers or partners, to the satisfaction of creators and attendees may harm our reputation and our ability to retain existing creators and attendees and attract new creators and attendees.
Examples of situations which may lead to unauthorized access of data may include: |
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| • | | employees inadvertently sending financial information of one creator, attendee or employee to another creator, attendee or employee; |
| • | | creators’ failure to properly password protect their leased ticket scanning and site operations devices leaving the data available to anyone using the device; |
| • | | a device stolen from an event and data access, alteration or acquisition occurring prior to our remote wiping of the data; |
| • | | an employee losing their computer or mobile device or otherwise, allowing for access to our email and/or administrative access, including access to guest lists to events; |
| • | | external breaches leading to the circulation of “dark web” lists of user name and password combinations openly vulnerable to attack without immediate detection; |
| • | | a hack of one of our databases; |
| • | | account takeovers; |
| • | | a hack of a third-party service provider or partner’s database; and |
| • | | unauthorized access to our offices or other properties. |
If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose creators and attendees or we could face lawsuits, regulatory investigations or other legal or regulatory proceedings and we could suffer financial exposure due to such events or in connection with regulatory fines, remediation efforts, investigation costs, changes or augmentation of our security measures and the expense of taking additional system protection measures.
The processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing applications of privacy regulations.
We receive, transmit and store a large volume of personally identifiable information and other user data. Numerous federal, state and international laws address privacy, data protection and the collection, storing, sharing, use, disclosure and protection of personally identifiable information and other user data. Numerous states already have, and are looking to expand, data protection legislation requiring companies like ours to consider solutions to meet differing needs and expectations of creators and attendees. For example, in June 2018, California enacted the California Consumer Privacy Act, which takes effect on January 1, 2020, and will broadly define personal information, give California residents expanded privacy rights and protections and provide for civil penalties for violations and a private right of action for data breaches. Outside the United States, personally identifiable information and other user data is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy of information that is collected, processed and transmitted in or from the governing jurisdiction. Foreign data protection, privacy, information security, user protection and othersocial laws and regulations are often more restrictive than those in the United States. In particular, the European Union and its member states traditionally have taken broader views as to types of data that are subject to privacy and data protection laws and regulations, and have imposed greater legal obligations on companies in this regard. For example, in April 2016, European legislative bodies adopted the General Data Protection Regulation (GDPR) which became effective May 25, 2018. The GDPR applies to any company established in the European Union as well as to those outside the European Union if they collect and use personal data in connection with the offering of goods or services to individuals in the European Union or the monitoring of their behavior. The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements and onerous new obligations on services providers. Non-compliance with the GDPR may result in monetary penalties of up to €20 million or 4% of annual worldwide revenue, whichever is higher. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of personal data, such as healthcare data or other sensitive information, could greatly increase our cost of providing our products and services or even prevent us from offering certain services in jurisdictions in which we operate.
We rely on a variety of legal bases to transfer certain personal information outside of the European Economic Area, including the EU-U.S. Privacy Shield Framework, or Privacy Shield, and EU Standard Contractual Clauses (SCCs). Both the Privacy Shield and SCCs are the subject of legal challenges in European courts and may face additional challenges in the future, and the absence of successor legal bases for continued data transfer could require us to create duplicative, and potentially expensive, information technology infrastructure and business operations in Europe or limit our ability to collect and use personal information collected in Europe. In addition, the EU Commission is currently negotiating a new ePrivacy Regulation that would address various matters, including provisions specifically aimed at the use of cookies to identify an individual’s online behavior, and any such ePrivacy Regulation may provide for new compliance obligations and significant penalties. Any of these changes to EU data protection law or its interpretation could disrupt and harm our business.
Further, following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the European Union, the United Kingdom government has initiated a process to leave the EU, which has created uncertainty with regard to the regulation of data protection in the United Kingdom. In particular, although a Data Protection Bill designed to be consistent with the GDPR is pending in the United Kingdom’s legislative process, it is unclear whether the United Kingdom will enact data protection laws or regulations designed to be consistent with the GDPR and how data transfers to and from the United Kingdom will be regulated.
The interpretation and application of many privacy and data protection laws are, and will likely remain, uncertain, and it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or product features. If so, in addition to the possibility of fines, lawsuits and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our products, which could harm our business. In addition to government regulation, privacy advocacy and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. Any inability to adequately address privacy, data protection and data security concerns or comply with applicable privacy, data protection or data security laws, regulations, policies and other obligations could result in additional cost and liability to us, damage our reputation, inhibit sales and harm our business
Our acquisition strategy to date, and going forward, often results in the winding down of the acquired platforms over a period of 12 to 24 months while the existing creators migrate to our platform. The focus often shifts away from these legacy platforms to meeting the needs of migrated creators on our platform. The existence of these legacy platforms within a shifting landscape regarding privacy, data protection and data security may result in regulatory liability or exposure to fines. A significant data incident on a legacy platform may harm our reputation and our brand and may adversely affect the migration of existing creators to our platform. We may also become exposed to potential liabilities and our attention and resources may be diverted as a result of differing privacy regulations pertaining to our applications.
Our failure, and/or the failure by the various third-party service providers and partners with which we do business, to comply with applicable privacy policies or federal, state or similar international laws and regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in the unauthorized release of personally identifiable information or other user data, or the perception that any such failure or compromise has occurred, could damage our reputation, result in a loss of creators or attendees, discourage potential creators and attendees from trying our platform and/or result in fines and/or proceedings by governmental agencies and/or users, any of which could have an adverse effect on our business, results of operations and financial condition. In addition, given the breadth and depth of changes in data protection obligations, ongoing compliance with evolving interpretation of the GDPR and other regulatory requirements requires time and resources and a review of the technology and systems currently in use against the requirements of GDPR and other regulations.
Our industry is highly fragmented. We compete against traditional solutions to event management and may face significant competition from both established and new companies. If we are not able to maintain or improve our competitive position, our business could suffer.
We operate in a market that is highly fragmented. We compete with a variety of competitors to secure new and retain existing creators, including traditional solutions to event management, such as offline, internal or ad hoc solutions, local or specialized market competitors, products offered by large technology companies that may enter the market, or other ticketing competitors such as Live Nation Entertainment subsidiaries Front Gate Tickets, TicketWeb and Universe. If we cannot successfully compete in the future with existing or potential competitors this will cause an adverse effect on our business, results of operations and financial condition.
Some of our current and potential competitors have significantly more financial, technical, marketing and other resources, are able to devote greater resources to the development, promotion, sale and support of their services, have more extensive customer bases and broader customer relationships, have longer operating histories and greater name recognition. We may also compete with potential entrants into the market that currently do not offer the same services but could potentially leverage their networks in the market in which we operate. For instance, large e-commerce companies such as eBay and Amazon have in the past, or currently, operate within the ticketing space. In addition, other large companies with large user-bases that have substantial event-related activity may be successful in adding a product in this space, such as Facebook, Google and Twitter. These competitors may be better able to undertake more extensive marketing campaigns and/or offer their solutions and services at a discount to ours. Furthermore, some of our competitors may customize their products to suit a specific event type, category or customer. We also compete with self-service products that provide creators with alternatives to ticket their events by integrating such self-service products with creators’ existing operations. If we are unable to compete with such alternatives, the demand for our solutions could decline.
If any of our competitors have existing relationships with potential creators or the venues or facilities used by those creators, those creators may be unwilling or unable to use our platform and this may limit our ability to successfully compete in certain markets where such pre-existing relationships are common. For example, some competitors purchase venues or rights to events and/or enter into exclusivity agreements with creators. If creators do not remain independent from our potential competitors, demand for our platform will diminish and our business and results of operations will be harmed.
Our business may be subject to sales tax and other indirect taxes in various jurisdictions. In addition, creators may also be subject to certain taxes.
The application of indirect taxes, such as sales and use tax, amusement tax, value-added tax, goods and services tax, business tax and gross receipt tax, to businesses like ours and to creators and attendees is a complex and evolving issue. Significant judgment is required to evaluate applicable tax obligations and as a result amounts recorded are estimates and are subject to adjustments. In many cases, the ultimate tax determination is uncertain because it is not clear how new and existing statutes might apply to our business or to creators’ businesses.
One or more states, localities, the federal government or other countries may seek to impose additional reporting, record-keeping or indirect tax collection obligations on businesses like ours that facilitate online commerce. For example, taxing authoritiespromulgated in the United States and other countries have identified e-commerce platforms as a means to calculate, collectelsewhere, and remit indirect taxes for transactions taking place over the Internet, and are considering related legislation. Certain jurisdictions have enacted laws which became effective in 2018 or will become effective later requiring marketplaces to report user activity or collect and remit taxes on certain items sold on the marketplace. Impositioncosts of an information reporting or tax collection requirement could decrease creator or attendee activity onchanging any of our platform, which would harm our business. New legislation could require us or creators to incur substantial costs in ordercurrent practices to comply including costs associated with tax calculation, collectionany new legal and remittance and auditregulatory requirements which could make using our platform less attractive and could adversely affect our business and results of operations.
We face sales and use tax and value-added tax audits in certain states and international jurisdictions and it is possible that we could face additional sales and use tax and value-added tax audits in the future in additional jurisdictionsUnited States and that our liability for these taxes could exceed our reserves as state or international tax authorities could assert that we are obligated to collect additional amounts as taxes from creators and remit those taxes to those authorities. We could also be subject to audits and assessments with respect to states and international jurisdictions for which we have not accrued tax liabilities. A successful assertion that we should be collecting additional sales or other taxes on our services in jurisdictions where we have not historically done so and do not accrue for sales or other taxes could result in substantial tax liabilities for past sales, discourage creators from using our platform or otherwise harm our business and results of operations. Although we have reserved for potential payments of possible past tax liabilities in our financial statements as disclosed in Note 9 of the Notes to Consolidated Financial Statements, if these liabilities exceed such reserves, our financial condition will be harmed.
The reputation and brand of our platform is important to our success, and if we are not able to maintain and enhance our brand, our results of operations and financial conditionelsewhere may be adversely affected.
We believe that maintainingsubstantial. Furthermore, industry and enhancingmarket practices may further develop to become even more robust than what is required under any new laws and regulations, and we may have to expend significant efforts and resources to keep up with market trends and stay competitive among our reputation and brand as a differentiated and category-defining ticketing company serving creators and attendees is critical to our relationship with our existing creators and to our ability to attract new creators and attendees. The successful promotion of our brand attributes will depend onpeers. For example, California has recently passed a number of factorsbills that we controlmay require us to report on certain information related to carbon neutrality claims and some factors outsideuse of carbon removal credits and carbon avoidance credits, our direct and indirect greenhouse gas emissions and climate-related financial risks. These and other changes in stakeholder expectations may also lead to increased costs and scrutiny that could heighten all of the risks identified in this risk factor.
Any harm to our reputation resulting from setting these corporate responsibility metrics or our failure or perceived failure to meet such corporate responsibility metrics could impact employee engagement and retention, the willingness of our control.
The promotioncreators and consumers and our partners and vendors to do business with us, or investors’ willingness to purchase or hold shares of our brand requires us to make substantial expenditures and management investment, which will increase as our market becomes more competitive and as we seek to expand our platform. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand and successfully differentiate our platform from competitive products and services, our business may not grow, we may not be able to compete effectively and we could lose creators or fail to attract potential creators, allClass A common stock, any of which wouldcould adversely affect our business, results of operations and financial condition.
Our marketing efforts to help grow our business may not be effective.
Maintaining and promoting awareness of our marketplace and services is important to our ability to attract and retain creators and consumers. One of the key parts of our strategy is to build a consumer brand that brings consumers to Eventbrite and create more habitual consumers by positioning ourselves as the destination to help people disrupt their old routine and make life more eventful. We continue to iterate on and invest in our marketing strategy, which may not succeed for a variety of reasons, including our inability to execute and implement our plans.
We have used performance marketing products offered by search engines and social media platforms to distribute paid advertisements that drive traffic to our platform. However, much of our traffic comes through direct or unpaid channels, which include brand marketing and search engine optimization (SEO). Prominently displaying listings in response to key search terms is a critical factor for attracting creators and consumers to our platform. The success of live events and our brand presence have led to increased costs for relevant keywords, including our brand name, due to competitive bidding. We plan to prioritize product-led growth and brand marketing to attract more consumers organically. However, we may not be successful at our efforts to drive cost-effective traffic growth. If we are not able to effectively increase our traffic growth without increases in spend on performance marketing, we may need to increase our performance marketing spend in the future, including in response to increased spend on performance marketing from our competitors, and our business, results of operations, and financial condition could be materially adversely affected.
Additionally, we have started to diversify our investment in brand and performance advertising through various channels, including search engine optimization, search engine marketing, affiliate marketing, display marketing, as well as social media, email marketing and digital video advertising. If we do not produce effective content or purchase effective placement for that content, it could fail to deliver a return on our investment, and damage our brand and/or business. Further, we also engage with celebrities and influencers and partner with aligned brands as part of our marketing efforts, and our perceived affiliation with these individuals and brands could cause us brand or reputational damage in the event they undertake actions inconsistent with our brand and values.
We obtain a significant number of visits via search engines such as Google. Search engines frequently change the algorithms that determine the ranking and display of results of a user’s search, alter analytics or search engine optimization data available to us or make other changes to the way results are displayed, which can negatively affect the placement of links to our platform and reduce the number of visits or otherwise negatively impact our marketing efforts. See the risk factor titled “Changes in Internet search engine algorithms and dynamics, our search engine visibility and rankings, search engine disintermediation, changes in marketplace rules or changes in privacy and consumer data access could have a negative impact on traffic for our sites or functionality of our product and ultimately, our business and results of operations” in our 2022 Form 10-K for additional information.
We also obtain a significant number of visits from social media platforms such as Facebook and Instagram. Search engines, social networks, and other third parties typically require compliance with their policies and procedures, which may be subject to change or new interpretation with limited ability to negotiate, which could negatively impact our marketing capabilities (including marketing services for creators), marketing spend, and revenue. The growing use of online ad-blocking software and technological changes to browsers and mobile operating systems that, for example, limit access to usage information for platforms like Eventbrite, impact the effectiveness of, or our visibility and insights into, our marketing efforts. As a result, we may fail to bring more consumers, or fail to increase frequency of visits to our platform. In addition, ongoing legal and regulatory changes in the data privacy sphere in U.S. states and countries throughout the world – and the
interpretation of these laws by major search, social, and operating system providers – may impact the scope and effectiveness of marketing and advertising services generally, including those used on our platforms.
We also obtain a significant number of visits through email marketing. If we are unable to successfully deliver emails to our creators and consumers, if our email subscription tools do not function correctly, or if our creators and consumers do not open our emails, whether by choice, because those emails are marked as low priority or spam, or for other reasons, our business could be adversely affected. As search and social networking, as well as related regulatory regimes, evolve, we must continue to make substantialevolve our marketing tactics and technology accordingly and, if we are unable to do so, our business, results of operations and financial condition could be harmed.
Some providers of consumer devices, mobile or desktop operating systems and web browsers have implemented, or have announced plans to implement, ways to block tracking technologies which, if widely adopted, could also result in online tracking methods becoming significantly less effective. Similarly, our vendors, particularly those providing advertising and analytics products and services have, and may continue to, modify their products and services based on legal and technical changes relating to privacy in ways that could reduce the efficiency of our marketing efforts and investmentsour access to data about use of our platforms. Any reduction in our ability to make effective use of such technologies could harm our ability to personalize the experience of consumers, increase our costs, and limit our ability to attract and retain creators and consumers on cost-effective terms. As a result, our business and results of operations could be associatedadversely affected.
Enforcement of our community guidelines and platform integrity policies may negatively impact our brand, reputation, and/or our financial performance.
We bring together a diverse and vibrant community of millions of people to create and discover live experiences that fuel their passions. The integrity of our marketplace is of primary importance to our business. We maintain policies that outline expectations for users while they engage with our services, whether as creators, consumers, or third-parties. For example, we prohibit a range of content on our platform, including (but not limited to): sexually explicit content; illegal content or illegal activities; hateful, dangerous or violent content or events; content that contains, endorses, or perpetuates potentially harmful misinformation; and events that are positively viewed by other creatorssell, distribute or transfer weapons and attendees.
However, there are also factors outside of our control, which could undermine our reputation and harm our brand. Negative perception of our platform may harm our business, including as a result of complaints or negative publicity about us or creators; events being fraudulent or unsuccessful, either as a result of lack of attendance or attendee experience not meeting expectations; responsiveness to issues or complaints and timing of refunds and/or chargebacks; actual or perceived disruptions or defects in our platform; security incidents; or lack of awareness of our policies or changes to our policies that creators, attendees or others perceive as overly restrictive, unclear or inconsistent with our values.firearms.
Furthermore, creators use our platform for events that represent a variety of views, activities and interests, some of which many other creators or attendees do not agree with or find offensive, or are illegal or are perceived as such. For example, in the past, creators have triedused or attempted to use our platform for events related to illegal activity and extreme activistextremist groups. These events may cause negative publicity and harm our reputation and brand.brand and our financial performance may be impacted. Some creators may not have, or are perceived not to have, legal and ethical business practices. Although we maintain procedures
We seek to enforce these community guidelines and platform integrity policies both automatedin order to uphold the safety and by human review, to
prevent the usageintegrity of our platform for such purposes and to prevent such practices, our procedures and policies may not effectively reduce or eliminatemarketplace, engender trust in the use of our platform by such creators. services, and encourage positive connections among members of our communities. We strive to enforce these policies in a consistent and principled manner that is transparent and explicable to stakeholders. However, even with a principled and objective approach, policy enforcement is a combination of human and technological review. As a result, there could be errors, policy enforcement could be subject to different, inconsistent, or conflicting regional consensus or regulatory standards in different jurisdictions, or it could be perceived to be arbitrary, unclear, or inconsistent. Shortcomings and errors in our ability to enforce our policies across our marketplace could lead to negative public perception, distrust from our creators and consumers, or lack of confidence in the use of our services, and could negatively impact our reputation and our brand and our financial performance may be impacted.
In addition, certain creators or attendeesconsumers may not agree with our decision to restrict certain creators or events from using our platform, the removal of certain events or the promotion of certain events on our platform. If our platform is associated with illegal or offensive activity or creators and attendeesconsumers disagree with our decision to restrict certain creators or events, from using our platform, our reputation and brand may be harmed, and our ability to attract and retain creators will be adversely impacted.
If we are unable to maintain a reputable platform that provides valuable solutions and desirable events, then our ability to attract and retain creators and attendees could be impaired and our reputation, brand and business could be harmed.
Our platform might be used for illegal or improper purposes, all of which could expose us to additional liability and harm our business.
Our platform remains susceptible to potentially illegal or improper uses by creators or attendees. Illegal or improper uses of our platform may include money laundering, terrorist financing, drug trafficking, illegal online gaming, other online scams, illegal sexually-oriented services, phishing and identity theft, prohibited sales of pharmaceuticals, fraudulent sale of goods or services, posting of unauthorized intellectual property, unauthorized uses of credit and debit cards or bank accounts and similar misconduct. Creators may also encourage, promote, facilitate or instruct others to engage in illegal activities. Despite measures we have taken to detect and lessen the risk of this kind of conduct, we cannot guarantee that these measures will stop all illegal or improper uses of our platform. Our business could be harmed if creators use our system for illegal or improper purposes, which may expose us to liability. At the same time, if the measures we have taken to guard against these activities are too restrictive and inadvertently screen proper transactions, or if we are unable to apply and communicate these measures fairly and transparently, or we are perceived to have failed to do so, this could diminish the experience of creators and attendees, which could harm our business.
Factors adversely affecting the live event market could impact our results of operations.
We help creators organize, promote and sell tickets and registrations to a broad range of events. Our business is directly affected by the success of such events and our revenue is impacted by the number of events, type of events and ticket prices of events produced by creators. Adverse trends in one or more event industries could adversely affect our business. A decline in attendance at or reduction in the number of events may have an adverse effect on our revenue and operating income.
During periods of economic slowdown and recession, consumers have historically reduced their discretionary spending. The impact of economic slowdowns on our business is difficult to predict, but they may result in reductions in ticket and registration sales and our ability to generate revenue. Our business depends on discretionary consumer and corporate spending. Many factors related to discretionary consumer and corporate spending, including employment, fuel prices, interest and tax rates and inflation can adversely impact our results of operations.
In addition, the occurrence and threat of extraordinary events, such as terrorist attacks, mass-casualty incidents, public health concerns, natural disasters or similar events, or loss or restriction of individuals’ rights to
assemble may deter creators from producing large events and substantially decrease the attendance at live events. For example, in January 2017, five people were killed at a music festival in Mexico ticketed by us. Terrorism and security incidents in the past, military actions in foreign locations and periodic elevated terrorism alerts have increased public concerns regarding air travel, military actions and additional national or local catastrophic incidents and raised numerous challenging operating factors, including additional logistics for event safety and increased costs of security, which may detract from the creator and attendee experience and may harm our results of operations and those of creators.
Furthermore, adverse weather and climate conditions could impact the success of an event and disrupt our operations in any of our offices or the operations of creators, third-party providers, vendors or partners. If an event is cancelled due to weather, attendees expect a refund, which harms our results of operations and those of creators.
Accordingly, any adverse condition could lead to unsatisfied attendees that require refunds or chargebacks or increase the complexity and costs for creators and us, which will have a negative effect on our business, results of operations and financial condition.
Any significant system interruption or delays could damage our reputation, result in a potential loss of creators and adversely impact our business.
Our ability to attract and retain creators depends on the reliable performance of our technology, including our websites, applications and information and related systems. System interruptions, slow-downs and a lack of integration and redundancy in our information systems and infrastructure may adversely affect our ability to operate our technology, handle sales for high-demand events, process and fulfill transactions, respond to creator and attendee inquiries and generally maintain cost-efficient operations.
We also rely on affiliate and third-party computer systems, broadband and other communications systems and service providers in connection with the provision of services generally, as well as to facilitate, process and fulfill transactions. Any interruptions, outages or delays in our systems and infrastructures, our businesses, our affiliates and/or third-party systems we use, or deterioration in the performance of these systems and infrastructures, could impair our ability to provide services, fulfill orders and/or process transactions. We have experienced, and may in the future experience, occasional system interruptions caused by outages by our partners that made some or all systems or data unavailable or prevented us from efficiently providing services or fulfilling orders.
We outsource our cloud infrastructure to Amazon Web Services (AWS), which hosts our platform, and therefore we are vulnerable to service interruptions at AWS, which could impact the ability of creators and attendees to access our platform at any time, without interruption or degradation of performance. Our customer agreement with AWS will remain in effect until terminated by AWS or us. AWS may terminate the agreement by providing 30 days prior written notice and may, in some cases, terminate the agreement immediately for cause upon notice. In the event that our AWS service agreements are terminated, or there is a lapse of service, interruption of Internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platform as well as delays and additional expense in arranging new facilities and services. For example, we previously experienced interruptions in performance of our platform because of a hardware error that AWS experienced. We may also incur significant costs for using an alternative cloud infrastructure provider or taking other actions in preparation for, or in reaction to, events that damage the AWS services we use.
In addition, fire, flood, power loss, telecommunications failure, hurricanes, tornadoes, earthquakes, acts of war or terrorism, natural disasters and similar events or disruptions may damage or interrupt computer, broadband or other communications systems and infrastructures at any time. Any of these events could cause system interruptions, outages, delays and loss of critical data, and could prevent us from providing services, fulfilling orders and/or processing transactions. While we have backup systems for certain aspects of our operations, disaster recovery planning by its nature cannot be sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption.
In some instances, we may not be able to identify the cause or causes of these performance problems within a period of time acceptable to creators. It may become increasingly difficult to maintain and improve our platform performance, especially during peak usage times, as the features of our platform become more complex and the usage of our platform increases. Any of the above circumstances or events may harm our reputation, cause creators to stop using our platform, impair our ability to increase revenue, impair our ability to grow our business, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our business, results of operations and financial condition.
Our platform and solutions are accessed by a large number of creators and attendees often at the same time. As we continue to expand the number of creators and attendees and solutions available to creators and attendees, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. Furthermore, capacity constraints could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks. In addition, the failure of AWS cloud infrastructure or other third-party Internet service providers to meet our capacity requirements could result in interruptions or delays in access to our platform or impede our ability to scale our operations. The occurrence of any of these events could have an adverse effect on our business, results of operations and financial condition.
Creators rely on third-party platforms, such as Facebook and Spotify, to connect with and attract attendees and we depend on our platform of partners and developers to create applications that will integrate with our platform.
Our platform interoperates with other third-party distributors, such as Facebook and Spotify. Attendees are able to access our platform and purchase tickets through these third-party services. Creators are able to publicize their events and sell tickets on these third-party sites. The interoperability of our platform with these other sites allows creators to reach more attendees and makes our platform more appealing to creators. These third-party partners may terminate their relationship with us, limit certain integration functionality, change their treatment of our services or restrict access to their platform by creators at any time. For
example, in the past, Facebook removed a feature of its service that allowed creators to include multiple hosts on a single event seamlessly across platforms, which negatively impacted certain music creators’ use of the Facebook integration with our platform. If any such third-party services becomes incompatible with our platform or the use of our platform and solutions on such third-party platforms are restricted in the future, our business will be harmed.
In addition, to the extent that Google, Facebook or other leading large technology companies that have a significant presence in our key markets, disintermediate ticketing or event management providers, whether by offering their own comprehensive event-focused or shopping capabilities, or by referring leads to suppliers, other favored partners or themselves directly, there could be an adverse impact on our business, results of operations and financial condition.
We also depend on our platform of integrated product partners connecting through our API to create applications that will integrate with our platform, such as Salesforce, HubSpot and MailChimp, and to allow them to integrate with our solutions. This presents certain risks to our business, including: |
| | | |
| • | | our inability to provide any assurance that these third-party applications and products meet the same quality and security standards that we apply to our own development efforts, and to the extent that they contain bugs or defects, they may create disruptions in the use of our platform by creators or negatively affect our brand; |
| • | | our lack of support for software applications developed by our partner platform, which could cause creators and attendees to be left without support and consequently could cease using our services if these developers do not provide adequate support for their applications; |
| • | | our inability to assure that our partners will be able to successfully integrate with our products or that our partners will continue to do so; |
| • | | our inability to confirm if our partners comply with all applicable laws and regulations; and |
| • | | the risk that these partners and developers may not possess the appropriate intellectual property rights to develop and share their applications. |
Many of these risks are not within our control to prevent, and our brand may be damaged if these applications do not perform to the satisfaction of creators and attendees and that dissatisfaction is attributed to us.
Changes in Internet search engine algorithms and dynamics, or search engine disintermediation, or changes in marketplace rules could have a negative impact on traffic for our sites and ultimately, our business and results of operations.
We rely heavily on Internet search engines, such as Google, to generate traffic to our website, principally through free or organic search. Search engines frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our websites can be negatively affected. In addition, a search engine could, for competitive or other purposes, alter its search algorithms or results causing our websites to place lower in organic search query results. If a major search engine changes its algorithms in a manner that negatively affects the search engine ranking of our websites or those of our partners, our business and financial performance would be adversely affected. Furthermore, our failure to successfully manage our search engine optimization could result in a substantial decrease in traffic to our websites, as well as increased costs if we were to replace free traffic with paid traffic.
We also rely on application marketplaces, such as Apple’s App Store and Google’s Play, to drive downloads of our applications. In the future, Apple, Google or other marketplace operators may make changes to their marketplaces that make access to our products more difficult. For example, our applications may receive unfavorable treatment compared to the promotion and placement of competing applications, such as the order in which they appear within marketplaces. Similarly, if problems arise in our relationships with providers of application marketplaces, traffic to our site and our user growth could be harmed.
Our business may be subject to chargebacks and other losses for various reasons, including due to fraud, unsuccessful or cancelled events. These chargebacks and other losses may harm our results of operations and business.
We have experienced, and may in the future experience, claims from attendees that creators have not performed their obligations or that events did not match their descriptions. These claims could arise from creator fraud or misuse, an unintentional failure of the event or from fraudulent claims by an attendee. We have experienced fraudulent activity on our platform in the past, including fake events in which a person sells tickets to an event but does not intend to hold an event or fulfill the ticket, email spam being sent through our platform, a third party taking over the account of a creator to receive payments owed to such creator or orders placed with fraudulent or stolen credit card data and other erroneous transmissions. Although we have measures in place to detect and reduce the occurrence of fraudulent activity on our platform, those measures may not always be effective. These measures must be continually improved and may not be effective against evolving methods
of fraud or in connection with new platform offerings. If we cannot adequately control the risk of fraudulent activity on our platform, it could harm our business, results of operations and financial condition.
We also may experience chargebacks and losses as a result of advance payment of ticket fees to creators. Under our standard terms for creators using EPP, Eventbrite passes the creator’s share of ticket sales to the creator within five business days after the successful completion of the creator’s event. However, we face growing pressure from creators to advance some or most of their event funds prior to completion of their events because creators need these funds to pay for event related costs such as the venue, marketing, talent and vendors. For qualified creators who apply for such advance payments, we pass proceeds from ticket sales to the creators prior to the event as we receive the ticket proceeds, subject to certain limitations. We refer to these payments as advance payouts. In 2017, approximately 13% of creators received advance payouts. When we advance funds, we assume some risk that the event may be cancelled, fraudulent, materially not as described or removed from our platform due to its failure to comply with our terms of service or merchant agreement or the event has significant chargebacks, refund requests and/or disputes. The terms of our standard merchant agreement obligates creators to repay us for ticket sales advanced under such circumstances. However, we may not be able to recover our losses from these events and such unrecoverable amounts could equal up to the value of the transaction or transactions passed to the creator prior to the event that is disputed. This amount could be many multiples of the fees we collect from such transaction. In the case of failure of an entire event or series of events, the volume of transactions charged back or disputed could have an adverse impact on our financial position. We have established processes and risk mitigation measures around these advance payouts. However, these advance payments pose a challenging financial risk, and our standard fraud and risk controls may be ineffective in addressing this risk. Furthermore, we must also strike a balance between these protective measures and the needs of creators for access to ticket sales through a convenient and easy process, which many of our competitors provide. If these measures do not succeed, or if we fail to strike the right balance between protective measures and creator needs, our business and results of operations may be harmed.
The total write-off from all lost advance payouts and other chargebacks was $3.6 million for the year ended December 31, 2017 and $4.2 million for the nine months ended September 30, 2018. Our failure to manage the risk of advance payouts to creators and to mitigate chargebacks and disputes due to fraud of a creator or otherwise or to recover the resulting losses from creators could have an adverse effect on our business, results of operations and financial condition.
We rely on the experience and expertise of our founders, senior management team, key technical employees and other highly skilled personnel and the failure to retain, motivate or integrate any of these individual could have an adverse effect on our business, results of operations and financial condition.
Our success depends upon the continued service of our founders and senior management team and key technical employees, as well as our ability to continue to attract and retain additional highly qualified personnel. Our future success depends on our continuing ability to identify, hire, develop, motivate, retain and integrate highly skilled personnel for all areas of our organization. Each of our founders, executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any of our founders or any other member of our senior management team or key personnel might significantly delay or prevent the achievement of our business objectives and could harm our business and our relationships. Competition in our industry for qualified employees is intense. In addition, our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees. Furthermore, several members of our management team were hired recently. If we are not able to integrate these new team members or if they do not perform adequately, our business may be harmed.
We face significant competition for personnel, particularly in the San Francisco Bay Area where our headquarters is located. To attract top talent, we have had to offer, and believe we will need to continue to offer, competitive compensation and benefits packages. We may also need to increase our employee compensation levels in response to competition. We may not be able to hire new employees quickly enough to meet our needs. If we fail to effectively manage our hiring needs or successfully integrate new hires, including our recently hired management team members, our efficiency, ability to meet forecasts and our employee morale, productivity and retention could suffer, which may harm our business.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, which could harm our business.
We believe that our corporate culture has been an important contributor to our success, which we believe fosters innovation, teamwork and passion for creators. Most of our employees have been with us for fewer than two years as a result of our rapid growth. As we continue to grow, we must effectively integrate, develop and motivate a growing number of new employees. As a result, we may find it difficult to maintain our corporate culture, which could limit our ability to innovate and
operate effectively. Any failure to preserve our culture could also negatively affect our ability to retain and recruit personnel, maintain our performance or execute on our business strategy.
If we fail to manage our growth effectively, our business, financial condition and results of operations could be harmed.
We have experienced, and may continue to experience, rapid growth and organizational change, such as additional controls and procedures and new functional groups within our company, through organic growth or as the result of integrating acquired companies. For example, the number of Eventbrite employees has increased from 830 on September 30, 2017 to 1,067 on September 30, 2018 and we expect to add more employees in the future. This growth and these changes have placed, and may continue to place, significant demands on our management, operational and financial resources. Our organizational structure is becoming more complex as we build the proper level of operational, financial and management controls and develop our reporting systems and procedures. We will require significant expenditures and the allocation of valuable management resources to grow and change in these areas and integrate acquired companies. If we fail to manage our anticipated growth and changes and integrate acquired companies in a manner that preserves rapid innovation, attention to creator satisfaction and overall culture, the quality of our platform and our reputation may suffer, which could negatively affect our ability to retain and attract creators and impact our business, results of operations and financial condition.
Our rapid growth makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to grow at or near historical rates.
We have grown rapidly over the last several years, and as a result, our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations, our growth rates may slow and our business would suffer.
Our pricing package options were recently launched and may affect our ability to attract or retain creators.
In the past, we have adjusted our prices either for individual creators in connection with long-term agreements or for new markets. In September 2017, we launched new pricing package options for creators based on the features required, service level desired and budget and we periodically adjusted the price of our packages. While we determined these prices and packages based on prior experience and feedback from creators, our assessments may not be accurate and we could be underpricing or overpricing our services, which may require us to continue to adjust our pricing packages. Furthermore, creators’ price sensitivity may vary by location, and as we expand into different countries, our pricing packages may not enable us to compete effectively in these countries. In addition, if our platform or services change, then we may need to, or choose to, revise our pricing. Such changes to our pricing model or our ability to efficiently price our packages and solution could harm our business, results of operations and financial condition and impact our ability to predict our future performance.
If we cannot attract and retain attendees, our business will be harmed.
In order to continue to support creators, we need to continue to provide a compelling platform for creators to attract and retain attendees. Several factors may impact an attendee’s experience with our platform, including: |
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| • | | our ability to provide an easy solution for attendees to buy tickets or register for an event; |
| • | | outages or delays in our platform and other services, including delays in getting into events; |
| • | | compatibility with other third-party services, such as Facebook and Spotify, and our ability to connect with other applications through our API; |
| • | | fraudulent or unsuccessful events that may result in a bad experience for attendees; |
| • | | breaches and other security incidents that could compromise the data of attendees; and |
| • | | quality of our customer service and our ability to respond to complaints and other issues in a timely and effective manner. |
If attendees become dissatisfied with their experiences on our platform or at an event, they make request refunds, provide negative reviews of our platform or decide not to attend future events on our platform, all of which would harm our business and reputation.
A significant number of our employees are located in Argentina and any favorable or unfavorable developments in Argentina could have an impact on our results of operations.
A significant number of our employees, including engineering and sales and marketing employees, are located in Argentina, and therefore, a portion of our operating expenses are denominated in Argentine pesos. As of September 30, 2018, we had a total of 124 employees located in Argentina, of which 99 are engineers. If the peso strengthens against the U.S. dollar, it could have a negative impact on our results of operations as it would increase our operating expenses. Our business activities in Argentina also subject us to risks associated with changes in and interpretations of Argentine law, including laws related to employment, the protection and ownership of intellectual property and U.S. ownership of Argentine operations. Furthermore, if we had to scale down or close our Argentine operations, there would be significant time and cost required to relocate those operations elsewhere, which could have an adverse impact on our overall cost structure.
The Argentine government has historically exercised significant influence over the country’s economy. Additionally, the country’s legal and regulatory frameworks have at times suffered radical changes, due to significant political influence and uncertainties. In the past, government policies in Argentina included expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws and policies affecting foreign trade and investment. Such policies could destabilize the country and adversely affect our business and operating expenses.
In addition, Argentina has experienced labor unrest over wages and benefits paid to workers. In the past, the Argentine government has passed laws, regulations, and decrees requiring companies in the private sector to maintain minimum wage levels and provide specified benefits to employees and may do so again in the future. Employers have also experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Any disruptions, labor unrest, or increased personnel-related expenses in Argentina could have an adverse effect on our business and operating expenses.
Our metrics and estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may seriously harm and negatively affect our reputation and our business.
We regularly review metrics to evaluate growth trends, measure our performance, and make strategic decisions. These metrics are calculated using internal company data and have not been validated by an independent third party. Errors or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies. Furthermore, if we discover material inaccuracies in our metrics, we may not be able to accurately assess the health of our business and our reputation and our business may be harmed.
Creator and attendee growth and retention depend upon effective interoperation with operating systems, networks, devices, web browsers and standards that we do not control.
We make our platform available across a variety of operating systems and web browsers. We are dependent on the interoperability of our platform with popular devices, mobile operating systems and web browsers that we do not control, such as Android, iOS, Chrome and Firefox. Any changes, bugs or technical issues in such systems, devices or web browsers that degrade the functionality of our platform, make it difficult for creators or attendees to access or use our platform, impose fees related to our platform or give preferential treatment to competitive products or services could adversely affect usage of our platform. In the event that it is difficult for creators or attendees to access and use our platform, our business and results of operations could be harmed.
Our failure to successfully address the evolving market for transactions on mobile devices and to build mobile products could harm our business.
A significant and growing portion of creators and attendees access our platform through mobile devices. The number of people who access the Internet and purchase goods and services through mobile devices, including smartphones and handheld tablets or computers, has increased significantly in the past few years and is expected to continue to increase. If we are not able to provide creators and attendees with the experience and solutions they want on mobile devices, our business may be harmed.
While we have created mobile applications and versions of much of our web content, if these mobile applications and versions are not well received by creators and attendees, our business may suffer. In addition, we face different fraud risks and regulatory risks from transactions sent from mobile devices than we do from personal computers. If we are unable to effectively anticipate and manage these risks, our business and results of operations may be harmed.
Our software is highly complex and may contain undetected errors.
The software underlying our platform is highly complex and may contain undetected errors or vulnerabilities, some of which may only be discovered after the code has been used in a production environment to deliver products and services. Any real or perceived errors, failures, bugs or other vulnerabilities discovered in our code could result in negative publicity and damage to our reputation, loss of creators and attendees, loss of or delay in market acceptance of our platform, loss of competitive position, loss of revenue or liability for damages, overpayments and/or underpayments, any of which could harm the confidence of creators and attendees on our platform, our business, results of operations and financial condition. In such an event, we may be required or may choose to expend additional resources in order to help correct the problem. Since creators use our platform for processes that are critical to their businesses, errors, failures or bugs in our code could result in creators seeking significant compensation from us for any losses they suffer and/or ceasing conducting business with us altogether. There can be no assurance that provisions typically included in our agreements with creators that attempt to limit our exposure to claims would be enforceable or adequate or would otherwise protect us from liabilities or damages with respect to any particular claim. Even if unsuccessful, a claim brought against us by any creators would likely be time-consuming and costly to defend and could seriously damage our reputation and brand.
We rely on software and services licensed from other parties. Defects in or the loss of software or services from third parties could increase our costs and adversely affect the quality of our service.
Components of our platform include various types of software and services licensed from unaffiliated third parties. Our business would be disrupted if any of the software or services we license from others or functional equivalents thereof were either no longer available to us or no longer offered on commercially reasonable terms. In either case, we would be required to either redesign our platform to function with software or services available from other parties or develop these components ourselves, which would result in increased costs and could result in delays in the release of new solutions and services on our platform. Furthermore, we might be forced to limit the features available in our platform due to changes by our third-party software and service providers. In addition, if we fail to maintain or renegotiate any of these software or service licenses, we could face significant delays and diversion of resources in attempting to license and integrate functional equivalents.
If we fail to adequately protect our intellectual property rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights.
Our success is dependent, in part, upon protecting our intellectual property rights. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our intellectual property rights in our platform. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. While we take precautions, it may still be possible for unauthorized third parties to copy our technology and use our proprietary information to create solutions and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our technology may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our technology and proprietary information may increase.
We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to, and use and distribution of, our platform and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our platform or solutions.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our platform or solutions, impair the functionality of our platform or solutions, delay introductions of enhancements to our platform, result in our substituting inferior or more costly technologies into our platform or solutions, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new features in our platform or solutions, and we cannot assure you that we could license that technology on commercially
reasonable terms or at all. Our inability to license such technology on commercially reasonable terms could adversely affect our ability to compete.
We use open source software in our platform, which could subject us to litigation or other actions.
We use open source software in our platform and may use more open source software in the future. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our platform. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their solutions. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have an adverse effect on our business, results of operations or financial condition or require us to devote additional research and development resources to change our platform. In addition, if we were to combine our proprietary software with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software. If we inappropriately use open source software, we may be required to re-engineer our platform, discontinue the sale of our platform or take other remedial actions. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software.
Our business is subject to various import and export regulations. Our failure to comply with those laws and regulations could harm our business.
Economic and trade sanctions programs that are administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) prohibit or restrict transactions to or from, and dealings with specified countries, their governments, and in certain circumstances, with individuals and entities that are specially designated nationals of those countries, and other sanctioned persons, including narcotics traffickers and terrorists or terrorist organizations. As federal, state and foreign legislative regulatory scrutiny and enforcement actions in these areas increase, we expect our costs to comply with these requirements will increase, perhaps substantially. Failure to comply with any of these requirements could result in the limitation, suspension or termination of our platform, imposition of significant civil and criminal penalties, including fines, and/or the seizure and/or forfeiture of our assets. While we have policies and procedures for compliance with these economic sanctions regulations, given the technical limitations in developing measures that will prevent access to Internet-based services from particular geographies or by particular individuals, and additional factors, such as the ability of users to place on our platform false or deliberately misleading information, we believe that we may have provided services in connection with events that were located in a country subject to an embargo by the United States that may not have been in compliance with the economic sanctions regulations administered by OFAC. We have previously identified and expect we will continue to identify customer accounts for our platform and services that may originate from or are intended to benefit, persons in countries that are subject to U.S. embargoes including events in or relating to Cuba, Iran, North Korea, Syria and the Crimea region of Ukraine.
On June 11, 2018, we submitted to OFAC an initial voluntary self-disclosure, and on July 17, 2018, a final report regarding the discovery of potentially unauthorized uses of our services by persons and in countries subject to U.S. economic sanctions. We will continue to work to remediate gaps in our compliance policies and procedures, potentially in ways that may be time-consuming or result in the delay or loss of sales opportunities or impose other costs. Additionally, we cannot guarantee these measures will be fully effective in deterring unlawful activity on our platform. OFAC may conduct its own investigation of these events to determine whether to assess fines and penalties. We cannot predict when OFAC will complete its review and determine whether any violations occurred or levy penalties, including potential penalties against us for facilitating unlawful activity. Each instance in which we provide services through our platform may constitute a separate violation of these laws.
Further, our products incorporate encryption technology. These encryption products may be exported from the United States only with the required export authorizations, including by a license, a license exception or other appropriate government authorizations. Such products may also be subject to certain regulatory reporting requirements. Various countries also regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our customers’ ability to import our services into those countries. Governmental regulation of encryption technology and of exports and imports of encryption products, or our failure to obtain required approval for our products and services, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the provision of our products and services, including with respect to new products and services, may delay the introduction of our products and services in various markets or, in some cases, prevent the provision of our products and services to some countries altogether.
Our business is subject to a wide range of laws and regulations. Our failure to comply with those laws and regulations could harm our business.
We are subject to a number of U.S. federal and state and foreign laws and regulations that involve matters central to our business. For example, our platform is subject to an increasingly strict set of legal and regulatory requirements intended to help detect and prevent money laundering, terrorist financing, fraud and other illicit activity. The interpretation of those requirements by judges, regulatory bodies and enforcement agencies is changing, often quickly and with little notice. Changes in laws and regulations could impose more stringent requirements on us to detect and prevent illegal and improper activity by creators, which can increase our operating costs and reduce our margins. For example, to date, platforms like ours are immune from liability resulting from the improper or illegal actions facilitated by the platform, but initiated by its users, under Section 230 of the Communications Decency Act (CDA). If the CDA is amended in a manner that reduces protections for our platform, we will need to increase our content moderation operations, which may harm our results of operations.
In addition, the ticketing business is subject to many laws and regulations, both foreign and domestic. These laws and regulations vary from jurisdiction to jurisdiction and may sometimes conflict. Outside of ticketing regulations, creators are often subject to regulations of their own, such as permitting and crowd control requirements. Regulatory agencies or courts may claim or hold that we are responsible for ensuring that creators comply with these laws and regulations, which could greatly increase our compliance costs, expose us to litigation, subject us to fines and penalties and otherwise harm our business.
Failure to comply with economic sanctions and anti-bribery, anti-corruption and similar laws associated with our activities outside of the United States could subject us to penalties and other adverse consequences.
We are subject to the United States Foreign Corrupt Practices Act of 1977, as amended (FCPA), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the United Kingdom Bribery Act 2010 (Bribery Act), and other anti-corruption and anti-bribery laws in various jurisdictions, both domestic and abroad, where we conduct activities or have users. Our sales team sells use of our platform abroad, and we face significant risks if we fail to comply with the FCPA and other anti-corruption laws that prohibit companies and their agents and third-party business parties and intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person, or securing any advantage. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. We may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, service providers and agents, even if we do not authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot ensure that all of our employees, users and agents, as well as those contractors to which we outsource certain of our business operations, will not take actions in violation of our policies or agreements and applicable law, for which we may be ultimately held responsible.
Further, as noted above, we believe it may have been used for events located in countries subject to an embargo by the United States in potential violation of the economic sanctions regulations and has filed an initial voluntary self-disclosure with OFAC. We are conducting an internal review and will then submit a final voluntary self-disclosure to OFAC. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and economic sanctions laws could result in various actions, including whistleblower complaints, adverse media coverage, investigations and actions by federal or state attorneys general or foreign regulators, loss of export privileges, severe criminal or civil fines and penalties or other sanctions, forfeiture of significant assets, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, results of operations and prospects. Responding to any enforcement action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. Civil penalties for violations of the economic sanctions regulations may include monetary penalties of up to approximately $295,000 or twice the value of the transaction, whichever is greater, per violation as well as criminal penalties for knowing and willful violations. A filing of a voluntary self-disclosure mitigates any potential civil penalties. At this time, we cannot determine if OFAC would impose any penalties against us or individuals for the potential violations and if any such penalties would be material to us.
Failure to comply with applicable anti-money laundering laws and regulations could harm our business and result of operations.
Due to the risk of our platform being used for illegal or illicit activity, any perceived or actual breach of compliance by us with respect to anti-money laundering (AML) laws, rules, and regulations, including the Bank Secrecy Act, USA Patriot Act and Title 18 U.S.C. Sections 1956-57 and 1960, could have a significant impact on our reputation and could cause us to lose existing creators and attendees, prevent us from obtaining new creators, require us to expend significant funds to remedy civil
and criminal problems caused by violations and to avert further violations and expose us to legal risk and potential liability that could have a material effect on our business. Several of these laws require certain companies to adopt an AML compliance program, including those companies that are characterized as a money services business or money transmitter. Moreover, many states have their own AML legal regulatory regimes and interpretations and applications of those legal principles are complex and varied. If the federal government or any state government took the position that we were a money services business or money transmitter, they could require us to register as such and obtain a money transmitter license.
While we maintain that we are not a money services business or money transmitter, we have voluntarily elected to adopt an AML compliance program to mitigate the risk of our platform being used for illegal or illicit activity and to help detect and prevent fraud. Our AML compliance program is designed to foster trust in our platform and services connecting event creators and event attendees and also may mitigate our legal exposure should any federal or state regulator challenge our determination that we are not a money services business or money transmitter. Should a federal or state regulator make a determination that we have operated as an unlicensed money services business or money transmitter, we could be subject to civil and criminal fines, penalties, costs, legal fees, reputational damage or other negative consequences, all of which may have an adverse effect on our business, finances, and operations.
Failure to comply with laws and regulations related to payments could harm our business and results of operations.
The laws and regulations related to payments are complex and vary across different jurisdictions in the United States and globally. Furthermore, changes in laws, rules and regulations have occurred and may occur in the future, which may impact our business practices. As a result, we are required to spend significant time and effort to comply with those laws and regulations and to ensure that creators and attendees are complying with those laws and regulations. Any failure or claim of our failure to comply or any failure by our third-party service providers and partners to comply with such laws and regulations or other requirements, including the Payment Card Industry Data Security Standard (PCI-DSS), could divert substantial resources, result in liabilities or force us to stop offering EPP, which will harm our business and results of operations.
For example, if we are deemed to be a money transmitter as defined by applicable regulation, we could be subject to certain laws, rules and regulations enforced by multiple authorities and governing bodies in the United States and numerous state and local agencies who may define money transmitter differently. For example, certain states may have a more expansive view of money transmitter. Additionally, outside of the United States, we could be subject to additional laws, rules and regulations related to the provision of payments and financial services, and as we expand into new jurisdictions, the foreign regulations and regulators governing our business that we are subject to will expand as well. If we are found to be a money transmitter under any applicable regulation and we are not in compliance with such regulations, we may be subject to fines or other penalties in one or more jurisdictions levied by federal or state or local regulators, including state Attorneys General, as well as those levied by foreign regulators. In addition to fines, penalties for failing to comply with applicable rules and regulations could include criminal and civil proceedings, forfeiture of significant assets, or other enforcement actions. We could also be required to make changes to our business practices or compliance programs as a result of regulatory scrutiny.
Additionally, if we experience substantial losses related to payment card transactions or in the event of noncompliance with the PCI-DSS, we may choose to, or be required to, cease accepting certain payment cards for payment. If we were unable to accept payment cards through EPP, creators would be required to use third-party payment options, which would reduce the simplicity and ease-of-use of our platform.
Our reported results of operations may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC,impacted and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. For example, in May 2014, the FASB issued Accounting Standards Update (ASU), No. 2014-09, Revenue from Contracts with Customers (Topic 606), which superseded nearly all existing revenue recognition guidance.
We face potential liability, expenses for legal claims and harm to our business based on the nature of the events business.
We face potential liability and expenses for legal claims relating to the events business, including potential claims related to event injuries allegedly caused by us, creators, service providers, partners or unrelated third parties. For example, third parties could assert legal claims against us in connection with personal injuries related to occurrences at an event, including deaths. Even if our personnel are not involved in these occurrences, we may face legal claims and still incur substantial expenses to resolve such claims. Further, Eventbrite may provide guidance or onsite personnel for event safety. In such instances, if an injury occurs at an event, we may face legal claims or additional liability for providing such services.
Unfavorable outcomes in legal proceedings may harm our business and results of operations.
Our results of operationsfinancial performance may be affected by the outcomeimpacted.
Table of pending and future litigation, claims, investigations, legal and administrative cases and proceedings, whether civil or criminal, or lawsuits by governmental agencies or private parties. If the results of these legal proceedings are unfavorable to us or if we are unable to successfully defend against third-party lawsuits, we may be required to pay monetary damages or may be subject to fines, penalties, injunctions or other censure that could have an adverse effect on our business, results of operations and financial condition. Even if we adequately address the issues raised by an investigation or proceeding or successfully defend a third-party lawsuit or counterclaim, we may have to devote significant financial and management resources to address these issues, which could harm our business, results of operations and financial condition. Our results of operations may be adversely affected if we are subject to a protracted infringement claim or a claim that results in a significant damage award.
There is considerable patent and other intellectual property development activity in our industry. Our success depends on our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities, including non-practicing entities and individuals, may own or claim to own intellectual property rights relating to our industry and may challenge the validity or scope of our intellectual property rights. From time to time, third parties, including our competitors and non-practicing entities, have claimed and may in the future claim that our products or technologies may infringe their intellectual property rights and may assert patent, copyright, trade secret and other claims based on intellectual property rights against us and our customers, suppliers and channel partners. For example, in February 2013, a non-practicing entity named Eventbrite as a defendant in a multi-defendant patent infringement claim. A claim may also be made relating to technology or intellectual property rights that we acquire or license from third parties. If we were subject to a claim of infringement, regardless of the merit of the claim or our defenses, the claim could: |
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| • | | require costly litigation to resolve and the payment of substantial damages; |
| • | | require significant management time; |
| • | | cause us to enter into unfavorable royalty or license agreements; |
| • | | require us to discontinue the sale of products and solutions through our platform; |
| • | | require us to indemnify creators or third-party service providers or partners; and/or |
| • | | require us to expend additional development resources to redesign our platform. |
If currency exchange rates fluctuate substantially in the future, our results of operations, which are reported in U.S. dollars, could be adversely affected.
Our international operations expose us to the effects of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses at our international locations in the local currency, and accept payment in currencies other than the U.S. dollar. Since we conduct business in currencies other than U.S. dollars but report our results of operations in U.S. dollars, we face exposure to fluctuations in currency exchange rates, which could have a negative impact on our results of operations.
Our international operations subject us to potential adverse tax consequences and additional taxes.
We generally conduct our international operations through wholly owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Because of these international operations, we may be subject to adverse tax changes or interpretation, increased taxes due to increased international expansion, and tax charges due to complex intercompany agreements.
We may be subject to income taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have an adverse effect on our liquidity and results of operations. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or assert that benefits of tax treaties are not available to us, any of which could have a negative impact on us or our results of operations. As we earn an increasing portion of our revenue, and accumulate a greater portion of our cash flow, in foreign jurisdictions, we could face a higher effective tax rate and incremental cash tax payments.
Additionally, our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates and reduced cash flows and may harm our results of operations and financial condition. We believe that our financial statements reflect adequate reserves to cover such a contingency, but there can be no assurances in that regard.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
As of December 31, 2017, we had net operating loss carryforwards (NOLs) for federal and California income tax purposes of approximately $135.9 million and $46.0 million, respectively, which may be available to offset tax income in the future. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (Code), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. We have undergone ownership changes in the past, which have resulted in minor limitations on our ability to utilize our NOLs, and future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. The existing NOLs of some of our subsidiaries may be subject to limitations arising from ownership changes prior to, or in connection with, their acquisition by us. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities, including for state tax purposes. For these reasons, we may not be able to utilize some portion of our NOLs, none of which are currently reflected on our balance sheet, even if we attain profitability.
The Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and significantly reforms the Code. The Tax Act, among other things, includes changes to U.S. federal tax rates and the rules governing net operating loss carryforwards. For NOLs arising in tax years beginning after December 31, 2017, the Tax Act limits a taxpayer’s ability to utilize NOL carryforwards to 80% of taxable income (as calculated before taking the NOL carryforwards into account). In addition, NOLs arising in tax years ending after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018 will not be subject to the taxable income limitation, and NOLs generated in tax years ending before January 1, 2018 will continue to have a two-year carryback and twenty-year carryforward period. As we maintain a full valuation allowance against our U.S. NOLs, these changes will not impact our balance sheet as of December 31, 2017. However, in future years, at the time a deferred tax asset is recognized related to our NOLs, the changes in the carryforward/carryback periods as well as the new limitation on use of NOLs may significantly impact our valuation allowance assessments for NOLs generated after December 31, 2017.
We have incurred indebtedness, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, to protect and enforce our intellectual property and to meet other needs.
In September 2018, we entered into a credit agreement (Credit Agreement) with the lenders party thereto and JPMorgan Chase Bank, N.A., as the administrative agent (in such capacity, Administrative Agent). The Credit Agreement provides for (i) the New Term Loans in the aggregate principal amount of $75.0 million and (ii) the New Revolving Credit Facility in aggregate principal amount of $75.0 million. The New Revolving Credit Facility includes a $10.0 million subfacility for the issuance of letters of credit. The full amount of the New Term Loans was drawn on September 27, 2018 (Closing Date). As of September 30, 2018, we had $75.0 million of principal indebtedness outstanding under the Credit Agreement. The New Term Loans and the New Revolving Credit Facility will each mature on the fifth anniversary of the Closing Date. The Credit Facilities are guaranteed by the our existing and future direct and indirect wholly owned material domestic subsidiaries (Guarantors). Obligations under the New Credit Facilities are secured by first priority security interests in substantially all of the our and each of the Guarantor’s current and future assets, including a pledge of the capital stock of subsidiaries held by us or the Guarantors
(which pledge, in the case of any foreign subsidiary, is limited to 65% of the voting capital stock and 100% of the non-voting stock of such foreign subsidiary).
The Credit Agreement contains, and any additional debt financing we may incur would likely contain, covenants requiring us to maintain or adhere to certain covenants that restrict our operations, which include limitations on our ability to, among other things: incur additional indebtedness; create liens on property; engage in mergers, consolidations and other fundamental changes; dispose of assets; make investments, loans or advances; make certain acquisitions; engage in certain transactions with affiliates; declare or pay dividends on, or repurchase, our stock; and change our lines of business or fiscal year.
Complying with these covenants could adversely affect our ability to respond to changes in our business and manage our operations. In addition, these covenants could affect our ability to invest capital in new businesses and fund capital expenditures for existing businesses. Our ability to comply with these covenants and other provisions in our Credit Agreement and any future credit facilities or debt instruments may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events beyond our control. A failure by us to comply with the restrictive covenants and any financial ratios contained in our Credit Agreement and any future credit facilities or debt instruments could result in an event of default. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding to be due and payable and exercise other remedies as set forth in our Credit Agreement and any future credit facilities or debt instruments. In addition, if we are in default, we may be unable to borrow additional amounts under any such facilities to the extent that they would otherwise beavailable and our ability to obtain future financing may also be impacted negatively. If the indebtedness under our Credit Agreement and any future credit facilities or debt instruments were to be accelerated, it would have a material adverse effect on our future financial condition.
Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and adversely affect our results of operations.
We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock and Class B common stock. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions, or agree to other restrictive covenants. If we need additional capital and cannot raise it on acceptable terms, if at all, we may not be able to, among other things: |
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| • | | develop and enhance our platform and solutions; |
| • | | continue to expand our technology development, sales and marketing organizations; |
| • | | hire, train and retain employees; |
| • | | respond to competitive pressures or unanticipated working capital requirements; or |
| • | | pursue acquisition opportunities. |
In addition, access to our existing lines of credit under the Credit Agreement are subject to certain financial and other covenants. Our inability to do any of the foregoing could reduce our ability to compete successfully and could have an adverse effect on our business.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the listing standards of the New York Stock Exchange (NYSE). We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. We are continuing to improve our internal control over financial reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business, including increased complexity resulting from our international expansion. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business and results of operations and could cause a decline in the price of our Class A common stock.
Risks Related to Ownership of Our Class A Common Stock
We have a limited operating history in an evolving industry which makes it difficult to evaluate our current business future prospects and increases the risk of your investment.
We launched operations in 2006. This limited history in an evolving industry makes it difficult to effectively assess or forecast our future prospects. You should consider our business and prospects in light of the risks and difficulties we encounter or may encounter. These risks and difficulties include our ability to cost-effectively acquire new creators and engage and retain existing creators, maintain the quality of our technology infrastructure that can efficiently and reliably handle ticket sales and event management services globally and the deployment of new features and solutions and successfully compete with other companies that are currently in, or may enter, the ticketing and event solution space. Additional risks include our ability to effectively manage growth, responsibly use the data that creators and attendees share with us, process, store, protect and use personal data in compliance with governmental regulation, contractual obligations and other legal obligations related to privacy and security and avoid interruptions or disruptions in our service or slower than expected load times for our platform. Other risks posed by our limited operating history include the ability to hire, integrate and retain world class talent at all levels of the company, continue to expand our business in markets outside the United States, and defend ourselves against litigation, regulatory, intellectual property, privacy or other claims. If we fail to address the risks and difficulties that we face, including those associated with the challenges listed above, our business and our results of operations will be adversely affected.
The market price of our Class A common stock may be volatile and may decline regardless of our operating performance.
Prior to our initial public offering, there was no public market for shares of our Class A common stock. The market prices of the securities of other newly public companies have historically been highly volatile. The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including, but not limited to:Contents
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| • | | overall performance of the equity markets and/or publicly-listed technology companies; |
| • | | actual or anticipated fluctuations in our net revenue or other operating metrics; |
| • | | changes in the financial projections we provide to the public or our failure to meet these projections; |
| • | | failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet the estimates or the expectations of investors; |
| • | | the economy as a whole and market conditions in our industry; |
| • | | rumors and market speculation involving us or other companies in our industry; |
| • | | announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; |
| • | | new laws or regulations or new interpretations of existing laws or regulations applicable to our business; |
| • | | lawsuits threatened or filed against us; |
| • | | recruitment or departure of key personnel; |
| • | | other events or factors, including those resulting from war, incidents of terrorism or responses to these events; and |
| • | | the expiration of contractual lock-up or market standoff agreements. |
In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many technology companies’ stock prices. Often, their stock prices have fluctuated in ways unrelated or disproportionate to the companies’ operating performance. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and harm our business.
Moreover, because of these fluctuations, comparing our results of operations on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our net revenue or results of operations fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our Class A common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated net revenue or earnings forecasts that we may provide.
The dual class structure of our common stock has the effect of concentrating voting control with our directors, executive officers and their affiliates and that may depress the trading price of our Class A common stock.
Our Class B common stock has ten votes per share and our Class A common stock has one vote per share. As of September 30, 2018, our directors, executive officers and stockholders holding more than 5% of our outstanding shares, and their affiliates, beneficially own in the aggregate 70.4% of the voting power of our capital stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.
In addition, in July 2017, Standard & Poor’s announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Affected indices include the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Under the announced policies, our dual class capital structure would make us ineligible for inclusion in any of these indices, and as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track these indices will not be investing in our
stock. These policies are new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly-traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included.
We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.
We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including: |
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| • | | not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes Oxley Act; |
| • | | reduced disclosure obligations regarding executive compensation in our periodic reports and annual report on Form 10-K; and |
| • | | exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
Our status as an emerging growth company will end as soon as any of the following takes place: |
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| • | | the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; |
| • | | the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; |
| • | | the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or |
| • | | the last day of the fiscal year ending after the fifth anniversary of the completion of our initial public offering. |
We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on the exemptions afforded to emerging growth companies. If some investors find our Class A common stock less attractive because we reply on any of these exemptions, there may be a less active trading market for our Class A common stock and the market price of our Class A common stock may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have 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 we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
If securities or industry analysts do not publish or cease publishing research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common stock and trading volume could decline.
The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If industry analysts do not publish or cease publishing research on our company, the trading price for our Class A common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us on a regular basis, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.
Sales of substantial amounts of our Class A common stock in the public markets, such as when our lock-up restrictions are released, or the perception that sales might occur, could cause the market price of our Class A common stock to decline.
Sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our directors, executive officers and principal stockholders, or the perception that these sales might occur, could cause the market price of our Class A common stock to decline. Substantially all of our securities that were outstanding prior to the completion of our initial public offering are currently restricted from resale as a result of lock-up and market standoff agreements. These securities will become available to be sold 180 days after the date of the Prospectus. Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC may, in their discretion, permit our security holders to sell shares prior to the expiration of the restrictive provisions contained in the lock-up agreements. Sales of a substantial number of such shares upon expiration of the lock-up and market standoff agreements, the perception that such sales may occur or early release of these agreements could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you
deem appropriate. Shares held by directors, executive officers and other affiliates will also be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended (Securities Act), and various vesting agreements.
In addition, as of September 30, 2018, we had 22,190,858 options outstanding that, if fully exercised, would result in the issuance of shares of Class B common stock. All of the shares of Class B common stock issuable upon the exercise of stock options and the shares reserved for future issuance under our equity incentive plans are registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance, subject to existing lock-up or market standoff agreements, volume limitations under Rule 144 for our executive officers and directors and applicable vesting requirements.
As of September 30, 2018, the holders of 66,109,314 shares of our Class B common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file for us or other stockholders. Any registration statement we file to register additional shares, whether as a result of registration rights or otherwise, could cause the market price of our Class A common stock to decline or be volatile.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors and consultants under our stock incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.
As a public company, we are subject to the reporting requirements of the Exchange Act, the listing standards of the NYSE and other applicable securities rules and regulations. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources. For example, the Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, which could harm our business, results of operations and financial condition. Although we have already hired additional employees to assist us in complying with these requirements, we may need to hire more employees in the future or engage outside consultants, which will increase our operating expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantial resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
As a result of disclosure of information in filings required of a public company, our business and financial condition will become more visible, which may result in an increased risk of threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business, results of operations and financial condition.
The individuals who now constitute our senior management team have limited experience managing a publicly-traded company and limited experience complying with the increasingly complex laws pertaining to public companies. Our senior management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations.
We do not intend to pay dividends on our Class A common stock and, consequently, the ability of Class A common stockholders to achieve a return on investment will depend on appreciation in the price of our Class A common stock.
We have never declared or paid any dividends on our capital stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. As a result, Class A common stockholders may only receive a return on your investment in our Class A common stock if the market price of our Class A common stock increases.
Provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current board of directors and limit the market price of our Class A common stock.
Provisions that will be in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: |
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| • | | provide that our board of directors will be classified into three classes of directors with staggered three-year terms; |
| • | | permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships; |
| • | | require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws; |
| • | | authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; |
| • | | provide that only the Chairperson of our board of directors, our Chief Executive Officer, or a majority of our board of directors will be authorized to call a special meeting of stockholders; |
| • | | provide for a dual class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets; |
| • | | prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; |
| • | | provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and |
| • | | advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. |
Moreover, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.
Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated bylaws provide that a state or federal court located within the State of Delaware will be the exclusive forum for: |
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| • | | any derivative action or proceeding brought on our behalf; |
| • | | any action asserting a breach of fiduciary duty; |
| • | | any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; or |
| • | | any action asserting a claim against us that is governed by the internal affairs doctrine. |
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision which will be contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
Unregistered Sales of Equity Securities
Option and Common Stock Issuances
From July 1, 2018 through September 18, 2018, we granted to our employees, consultants and other service providers options to purchase an aggregateThere were no sales of 4,878,897 shares of common stock under our 2010 Stock Option Plan (the 2010 Plan) at an exercise price of $13.72 per share.
From July 1, 2018 through September 18, 2018, we issued and sold to our employees, consultants and other service providers an aggregate of 535,997 shares of common stock uponunregistered equity securities during the exercise of options under our 2010 Plan at exercise prices ranging from $0.30 to $13.72 per share, for a weighted-average exercise price of $5.93 per share.
From July 1, 2018 throughthree months ended September 30, 2018, we issued 81,1582023.
Issuer Purchases of Equity Securities
There were no issuer purchases of equity securities during the three months ended September 30, 2023.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
Director and Officer 10b5-1 Trading Plans (10b5-1 Plans)
The following table describes the written trading arrangements under Rule 10b5-1 that were adopted, terminated or modified by our directors or officers during the three months ended September 30, 2023. These plans are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)(1).
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Name and Title | | Action | | Date of Action | | Expiration Date of the 10b5-1 Plan | | Maximum Aggregate Number of Securities to be Sold under the 10b5-1 Plan |
Vivek Sagi Chief Technology Officer | | Adoption | | August 10, 2023 | | August 9, 2024 | | 232,644 1 |
Charles C Baker Chief Financial Officer | | Adoption | | September 15, 2023 | | December 31, 2024 | | 100,000 |
1 Represents shares subject to outstanding equity awards held by Mr. Sagi. The actual number of our common stock in business acquisition transactions.
We believe these transactions were exempt from registrationshares that may be sold under the Securities Act in reliance upon Section 4(a)(2)10b5-1 Plan will be net of the Securities Act,number of shares withheld to satisfy tax withholding obligations arising from the settlement of such awards and is not yet determinable.
There were no "non-Rule 10b5-1 trading arrangements," as defined in item 408(c) of Regulation D promulgated thereunderS-K, adopted, terminated or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about Eventbrite.
Use of Proceedsfrom Initial Public Offering of Class A Common Stock
In September 2018, we closed our IPO, in which we sold 11,500,000 shares of our Class A common stock at a price to the public of $23.00 per share, including shares sold in connection with the exercise of the underwriters’ option to purchase additional shares. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-226978), which was declared effective by the SEC on September 19, 2018. We raised $246.0 million in net proceeds after deducting underwriters’ discounts and commissions of $18.5 million and offering expenses of approximately $5.3 million. There has been no material change in the planned use of proceeds from our IPO as described in our Prospectus. The managing underwriters of our IPO were Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Allen & Company LLC. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors pursuant to our director compensation policy. Pending the uses described, we have invested or intend to invest the net proceeds in short-term interest-bearing investment-grade securities, certificates of deposit or government securities, pursuant to the investment policy approvedmodified by our boarddirectors or officers during the three months ended September 30, 2023.
Item 6. Exhibits
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.
Exhibit Index
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Description of Exhibits | | Incorporated by Reference |
Exhibit Number | | | Form | | Exhibit Number | | Date Filed |
| | | | | | | | |
| | | | S-1/A | | 3.2 | | August 28, 2018 |
| | | | 8-K | | 3.1 | | December 21, 2022 |
| | | | S-1/A | | 4.1 | | September 7, 2018 |
| | | | | | | | Filed herewith |
| | | | | | | | Filed herewith |
| | | | | | | | Filed herewith |
101.INS | | Inline XBRL Instance Document | | | | | | Filed herewith |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | Filed herewith |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | Filed herewith |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | Filed herewith |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | Filed herewith |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | Filed herewith |
104 | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) | | | | | | Filed herewith |
|
| | | | | | | | |
Exhibit Number | | Description of Exhibits | | Incorporated by Reference from Form | | Incorporated by Reference from Exhibit Number | | Date Filed |
| | | | S-1/A | | 3.2 | | August 28, 2018 |
| | | | S-1/A | | 3.4 | | August 28, 2018 |
| | | | S-1/A | | 4.1 | | September 7, 2018 |
| | | | 8-K | | 10.1 | | October 1, 2018 |
| | | | Filed herewith | | | | |
| | | | Filed herewith | | | | |
| | | | Furnished herewith | | | | |
101.INS | | XBRL Instance Document | | Filed herewith | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed herewith | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith | | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith | | | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith | | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith | | | | |
# Indicates compensatory plan *The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | | | |
| | Eventbrite, Inc. |
| | | |
November 1, 2023 | By: | By: | /s/ Julia Hartz |
November 14, 2018 | | | Julia Hartz |
| | | Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
November 1, 2023 | By: | By: | /s/ Randy BefumoCharles Baker |
November 14, 2018 | | | Randy BefumoCharles Baker |
| | | Chief Financial Officer |
| | (Principal Financial Officer) |
| | |
November 1, 2023 | By: | /s/ Xiaojing Fan |
| | Xiaojing Fan |
| | Chief Accounting Officer |
| | (Principal Accounting and Financial Officer) |