S-1 1 d593770ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on August 23, 2018

Registration No. 333-             

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Eventbrite, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   7370   14-1888467

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

155 5th Street, 7th Floor

San Francisco, California 94103

(415) 692-7779

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Julia D. Hartz

Chief Executive Officer

Eventbrite, Inc.

155 5th Street, 7th Floor

San Francisco, California 94103

(415) 692-7779

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Anthony J. McCusker

An-Yen E. Hu

Goodwin Procter LLP

601 Marshall Street

Redwood City, California 94063

(650) 752-3100

 

Samantha E. Harnett

Julia D. Taylor

Eventbrite, Inc.

155 5th Street, 7th Floor

San Francisco, California 94103

(415) 692-7779

 

Katharine A. Martin

Rezwan D. Pavri

Andrew T. Hill

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, California 94304

(650) 493-9300

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this registration statement becomes effective.

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☒  (Do not check if a smaller reporting company)    Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum

Aggregate
Offering Price(1)(2)

 

Amount of

Registration Fee

Class A Common Stock, $0.00001 par value per share

  $200,000,000   $24,900

 

 

(1)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated            , 2018

 

LOGO                         Shares

 

 

Class A Common Stock

 

 

This is an initial public offering of shares of Class A common stock of Eventbrite, Inc.

Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price per share will be between $             and $            . We intend to apply to list our Class A common stock on The New York Stock Exchange (NYSE) under the symbol “EB.”

Following this offering, we will have two classes of common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes and is convertible at any time into one share of Class A common stock. The holders of our outstanding Class B common stock will hold approximately             % of the voting power of our outstanding capital stock following this offering, with our directors and executive officers and their affiliates holding approximately             %.

We are an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with reduced reporting requirements for this prospectus and may elect to do so in future filings.

 

 

See the section titled “Risk Factors” beginning on page 14 to read about factors you should consider before buying shares of our Class A common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                $            

Underwriting discounts(1)

   $        $    

Proceeds, before expenses, to Eventbrite

   $        $    

 

(1)

See the section titled “Underwriting” for additional information regarding compensation payable to the underwriters.

 

 

To the extent that the underwriters sell more than                    shares of Class A common stock, the underwriters have the option to purchase up to an additional                    shares from us at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on            , 2018.

 

Goldman Sachs & Co. LLC   J.P. Morgan   Allen & Company LLC   RBC Capital Markets
SunTrust Robinson Humphrey                    Stifel

 

Prospectus dated              , 2018.


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LOGO

Eventbrite


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LOGO

Started using Eventbrite NOV 2012 Scaled to 7K TICKETS Current lineup in 2018 3 EVENTS in WASHINGTON D.C. Growing events at a 90% CAGR


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LOGO

NO KINGS COLLECTIVE We love using Eventbrite because it’s so streamlined. People trust it and it’s easy to use. PETER CHANG & BRANDON HILL OWNERS/ARTISTS No Kings Collective is a creative agency located in Washington D.C. Their events specialize in experiential design, installations and murals


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LOGO

203MM Tickets issued in 2017 3MM Events in 2017 700K+ Creators served in 2017 170+ Countries in 2017 51% Net Revenue growth (’16-’17) Eventbrite


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Prospectus

 

     Page  

Prospectus Summary

     1  

Risk Factors

     14  

Special Note Regarding Forward-Looking Statements

     48  

Market and Industry Data

     50  

Use of Proceeds

     51  

Dividend Policy

     52  

Capitalization

     53  

Dilution

     56  

Selected Consolidated Financial Data and Other Data

     59  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     64  

Letter from the Eventbrite Founders

     94  

Business

     107  

Management

     121  

Executive Compensation

     130  

Certain Relationships and Related Party Transactions

     141  

Principal Stockholders

     145  

Description of Capital Stock

     148  

Shares Eligible for Future Sale

     154  

Certain Material U.S. Federal Income Tax Consequences

     157  

Underwriting

     161  

Legal Matters

     169  

Experts

     169  

Additional Information

     169  

Index to Consolidated Financial Statements

     F-1  

 

 

Through and including             , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission (SEC). Neither we nor any of the underwriters have authorized anyone to provide any information or make any representations other than those contained in this prospectus or in any free writing prospectus filed with the SEC. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Class A common stock. Our business, financial condition, results of operations and prospects may have changed since such date.

For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.


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PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Eventbrite,” “the company,” “we,” “us” and “our” in this prospectus refer to Eventbrite, Inc. and its consolidated subsidiaries.

EVENTBRITE, INC.

We founded Eventbrite to bring the world together through live experiences. We believe live experiences are fundamental to fulfilling a human desire to connect. Our company serves event creators—the people who bring others together to share their passions, artistry and causes through live experiences—and we empower their success.

We built a powerful, broad technology platform to enable creators to solve many challenges associated with creating live experiences. Our platform integrates components needed to seamlessly plan, promote and produce live events, thereby allowing creators to reduce friction and costs, increase reach and drive ticket sales. By reducing risk and complexity, we allow creators to focus their energy on producing compelling and successful events.

We succeed when creators succeed. Our business model is simple: we charge creators on a per-ticket basis when an attendee purchases a paid ticket for an event. We grow with creators as they plan, promote and produce more events and grow attendance. In 2017, we helped more than 700,000 creators issue approximately 203 million tickets across approximately three million events in over 170 countries.

We designed our platform for all creators, regardless of the category, country, size, frequency or type of event. We enable events ranging from fundraisers, seminars, wellness activities and music festivals to classes and cultural celebrations all over the world. Anyone can create or discover events on Eventbrite. This allows more creators to produce original and compelling experiences, attracting more attendees to these experiences. As a consequence, we believe we are expanding the global market for live experiences.

Our platform meets the complex needs of creators through a modular and extensible design. It can be accessed from Eventbrite.com, our mobile apps and through other websites. This modularity facilitates rapid product development and allows third-party developers to integrate features and functionality from Eventbrite into their environments. Our platform also allows developers to seamlessly integrate services from third-party partners such as Salesforce, Facebook and Hubspot. Importantly, we have designed our platform to produce consistent and reliable performance, handling both surges in traffic and transaction volume associated with high-demand on-sales and the load associated with supporting millions of events each year. This approach gives creators a platform that can scale to their needs, offering everything from basic registration and ticketing to a fully-featured event management platform.

This platform approach has allowed us to pioneer a powerful business model that drives our go-to-market strategy and allows us to efficiently serve a large number and variety of creators. We believe our business model will enable us to achieve and grow profitability as we increase our scale. We attract creators to our platform through multiple means, including prior experience as attendees, word of mouth from other creators, our prominence in search engine results, the ability to try our platform for free events and our library of content.



 

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More than 95% of creators who used our platform in 2017 signed themselves up for Eventbrite. In 2017, we derived 54% of our net revenue from these creators. We augment this model with a highly-targeted sales team that focuses on acquiring creators with events in specific categories or countries. Substantially all creators who use our platform create and manage events without the need for service or support.

In 2017, our net revenue was $201.6 million, up from $133.5 million in 2016, representing year-over-year net revenue growth of 51.0%. Our net revenue for the six months ended June 30, 2018 was $142.1 million, up from $88.2 million for the six months ended June 30, 2017, representing period-over-period net revenue growth of 61.2%. The growth over these periods was primarily the result of paid ticket growth, fueled in part by recent acquisitions. Our net loss was $40.4 million and $38.5 million in 2016 and 2017, respectively, and $8.3 million and $15.6 million for the six months ended June 30, 2017 and 2018, respectively. Our Adjusted EBITDA was $(17.6) million and $4.2 million in 2016 and 2017, respectively, and $3.7 million and $10.0 million for the six months ended June 30, 2017 and 2018, respectively. In 2017, our net cash provided by operating activities was $29.8 million, and free cash flow was $21.1 million. Our net cash provided by operating activities was $48.8 million for the six months ended June 30, 2018. Our free cash flow, which is computed on a trailing twelve months basis, was $13.2 million for the twelve months ended June 30, 2018.

For more information about Adjusted EBITDA and free cash flow, including the limitations of such measures, and a reconciliation to the most directly comparable measures calculated in accordance with GAAP, see the section titled “Selected Consolidated Financial Data and Other Data—Non-GAAP and Other Data.”

Our Market

The global market for live experiences is large and rapidly increasing in size and diversity. We believe that a significant portion of our market opportunity is represented by categories that were previously not well served by event management technology. The landscape of services to manage the complexities of planning, promoting and producing events is highly fragmented. Creators use a variety of approaches and solutions to achieve these goals. We believe that the breadth of functionality on our platform, combined with its ease of use, has enabled creators to build businesses and introduce new types of live experiences.

Based on market data prepared in conjunction with a third party, we believe that in 2018, our platform will address a current market opportunity in our top 12 markets that is estimated to be 1.1 billion paid tickets generating $3.2 billion in gross ticket fees, along with an additional 1.9 billion free tickets. Fees associated with the sale of tickets on our platform are gross ticket fees, which are the total fees generated from paid ticket sales, before adjustments for refunds, credits and amortization of non-recoupable signing fees.

This reflects our target market: the millions of events that happen all over the world that lie between the two ends of the spectrum of live events. Specifically, we address the broad range of events between those where the venue dictates the ticketing relationship, like professional sports and blockbuster concerts, and those where there are often no formal venue or event management needs, like small, personal gatherings.

Trends in Our Favor

A combination of trends in consumer behavior and technology is increasing the role and importance of live experiences and provides a tailwind for our market opportunity. We call this the “experience economy.”

Consumer Preferences Shifting to Experiences

 

   

According to the U.S. Bureau of Economic Analysis, growth in consumer spending on experiences in the United States has consistently outpaced overall growth in consumer spending for the last few



 

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decades, even during periods of economic recession. In a proprietary report that we commissioned, over 70% of adults surveyed in our top four geographic markets in April 2017 reported they would rather spend money on experiences as compared to material goods.

Rising Importance of Experiential Marketing

 

   

According to a 2017 eMarketer survey, events were rated as one of the most effective marketing channels used by business-to-business marketers to engage with potential customers and nearly 70% of marketing decision makers in the United States planned to increase spending on events in the coming year.

Content Owners Extending Monetization

 

   

Thanks to the rise of digital distribution of content, today, traditional media companies and content owners enjoy a closer relationship with some of their end users. As a result, these media companies and content owners increasingly leverage data with direct marketing capabilities to target these end users with live experiences.

Technology Acting as an Enabler

 

   

Recent advances in mobile, social media, cloud software and other digital technologies act as a catalyst for live experiences. For example, online and mobile ticketing reduces the discovery and transactional friction associated with acquiring tickets while social media serves as a low-cost promotion tool and distribution channel.

Our Value Proposition

Our platform supports a wide range of creators through a simple interface with capabilities that are powerful and reliable and scale with their needs, delivering the following benefits:

Streamlined Creator Experience

 

   

Our platform is designed to be powerful, yet easy to use, and to seamlessly support the entire lifecycle of an event. Creators are able to use our platform without training, support or professional services and, as a result, are able to reduce the time and effort necessary to produce live experiences. Our platform scales with creators. Many creators begin to use our platform for free gatherings and evolve to paid events of various sizes.

Reduced Cost to Manage Events

 

   

Our platform is available for anyone to use for free for free events, and we offer a range of attractively-priced packages to serve a variety of creator needs.

Real-Time Insights

 

   

Platform analytics brings insight to creators about multiple dimensions of an event, allowing them to make real-time decisions that directly impact attendance, revenue, profitability and the attendee experience.

Trusted Attendee Experience

 

   

Attendees are able to register, purchase and access their tickets in a few taps of a smartphone or clicks on their computer. Our digital tickets remove friction associated with traditional box offices and enable streamlined entry through a variety of technological improvements in access control and queueing.



 

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Extended Creator Reach

 

   

Search and browse functionality allows attendees who are in the market for a particular event to easily find it on Eventbrite or through our search engine prominence. Our platform supports social sharing and has deep integrations with distribution partners. Additionally, we offer creators access to a number of paid marketing channels to drive additional sales.

Our Strengths

We believe we have multiple competitive strengths, including:

Our Comprehensive Platform Serves Any Creator

 

   

Our platform combines deep functionality designed to serve sophisticated creators yet is intuitive and easy to use for creators of all types. This platform is modular and extensible, allowing us to build new capabilities quickly and to integrate with best-in-class third-party services.

Our Business Model Has Cost Advantages in Creator Acquisition and Operations

 

   

Creators become aware of Eventbrite through word of mouth, exposure from purchasing tickets as attendees, our search engine prominence, a free offering that drives paid adoption and our relevant professional content. More than 95% of creators who used our platform in 2017 signed themselves up for Eventbrite. Our single global system combined with self-service functionality allows us to reduce cost of operations and optimize service delivery.

Our Commitment to Creators Shapes Our Culture

 

   

Our creator-centric culture drives innovation, high performance and global sensibility. Creators inspire product evolution and help us to attract a mission-driven talent base with similar passion and commitment. This unique environment and focus on people and culture feeds the productivity and engagement of our team, driving long-term success for creators and our business.

Our Growth Strategy

Key elements of our growth strategy include our plans to:

Attract New Creators to Our Platform

 

   

We will continue to broaden the reach of our platform by efficiently attracting new creators. By serving these new creators, we aim to benefit from the variety of high quality events they bring to our platform and enhance our reputation, driving further creator acquisition through word of mouth and referrals.

Add Capabilities to Better Serve Specific Categories

 

   

We will continue to strategically add category-specific capabilities, expanding the breadth and depth of our platform.

Add Capabilities to Better Serve Specific Countries

 

   

As we serve more creators in specific countries, we intend to localize our platform by adding new capabilities, often around local payment methods or supporting local tax systems, in order to further scale in these markets.



 

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Develop New Revenue Streams Based on Complementary Offerings

 

   

We plan to develop new capabilities and solutions to allow us to better serve creators, unlocking additional revenue streams and developing opportunities with attendees directly.

Selectively Acquire Businesses Focused on Serving Creators

 

   

We will continue to selectively acquire businesses to expand our global position and offer new capabilities to existing creators.

Risks Affecting Us

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include:

 

   

Our continued growth depends on our ability to attract new creators and retain existing creators.

 

   

We have a history of losses and we may not be able to generate sufficient revenue to achieve and 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 that could harm our business and our results of operations.

 

   

Acquisitions, investments or significant commercial arrangements could result in operating and financial difficulties.

 

   

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 may pay up front creator signing fees and creator advances to certain creators when entering into exclusive ticketing or services agreements and if these arrangements do not perform as we expect, our business, results of operations and financial condition may be harmed.

 

   

Our results vary from quarter-to-quarter 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.

 

   

Data loss or security breaches could harm our business, reputation, brand and results of operations.

 

   

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.

 

   

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.

 

   

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.

 

   

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.



 

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If we are unable to adequately address these and other risks we face, our business, results of operations, financial condition and prospects may be harmed.

Channels for Disclosure of Information

Following the completion of this offering, we intend to announce material information to the public through filings with the SEC, the investor relations page on our website (eventbrite.com), press releases, public conference calls and public webcasts.

Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website. Information contained on or accessible through our website is not incorporated by reference into this prospectus, and inclusion of our website address in this prospectus is an inactive textual reference only. You should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.

Corporate Information

Mollyguard Corporation was incorporated in 2003. We launched operations as part of Mollyguard Corporation in 2006, and in 2009, we changed our name to Eventbrite, Inc. In October 2009, we reincorporated as a Delaware corporation. Our principal executive offices are located at 155 5th Street, 7th Floor, San Francisco, California 94103, and our telephone number is (415) 692-7779.

“Eventbrite” is our registered trademark in the United States and Argentina, Brazil, Chile, China, Canada, European Union, Hong Kong, India, Israel, Japan, South Korea, Mexico, Australia, New Zealand, Russia, Singapore, Switzerland and Turkey. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.

Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. These reduced reporting requirements include:

 

   

an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;

 

   

an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

reduced disclosure about our executive compensation arrangements;

 

   

an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements; and

 

   

extended transition periods for complying with new or revised accounting standards.

We may take advantage of these provisions until we are no longer an emerging growth company. We would cease to be an “emerging growth company” upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have, in any three-



 

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year period, issued more than $1.0 billion in non-convertible debt securities and (iv) the last day of the fiscal year ending after the fifth anniversary of this offering. We may choose to take advantage of some but not all of these reduced reporting burdens. We have taken advantage of certain reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. 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.

For certain risks related to our status as an emerging growth company, see the section titled “Risk Factors—Risks Related to Our Business—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.”



 

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THE OFFERING

 

Class A common stock offered by us                     shares

Class A common stock to be outstanding after this offering

                    shares

Class B common stock to be outstanding after this offering

                    shares

Total Class A common stock and Class B common stock
to be outstanding after this offering

  

 

                 shares (or                  shares if the underwriters’ option to purchase additional shares in this offering is exercised in full).

Option to purchase additional shares of Class A
common stock from us

  

 

We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional                  shares from us.

Use of proceeds    The principal purposes of this offering are to increase our capitalization, increase our financial flexibility, create a public market for our Class A common stock and enable access to the public equity markets for our stockholders and us. We estimate that the net proceeds from the sale of shares of our Class A common stock that we are selling in this offering will be approximately $            million (or approximately $            million if the underwriters’ option to purchase additional shares in this offering is exercised in full), based upon an assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
   We currently intend to use the net proceeds of this offering (i) to repay our outstanding indebtedness, including prepayment penalties, under our term loan facilities, which are described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Term Loans,” and (ii) for working capital and other general corporate purposes. We may use some of the net proceeds to satisfy tax withholding obligations related to the vesting and settlement of restricted stock units (RSUs). We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets. We have not entered into any agreements or


 

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   commitments with respect to any material acquisitions or investments at this time. See the section titled “Use of Proceeds” for additional information.
Voting rights    Shares of our Class A common stock are entitled to one vote per share.
   Shares of our Class B common stock are entitled to ten votes per share.
   Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our amended and restated certificate of incorporation. The holders of our outstanding Class B common stock will hold approximately     % of the voting power of our outstanding capital stock following the completion of this offering and will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction. See the sections titled “Principal Stockholders” and “Description of Capital Stock” for additional information.
Concentration of ownership    Upon completion of this offering, our executive officers and directors, and their affiliates, will beneficially own, in the aggregate, approximately     % of our outstanding shares of common stock representing approximately     % of the voting power.
Risk factors    See the section titled “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.
Proposed NYSE trading symbol    “EB”

The number of shares of Class A and Class B common stock that will be outstanding after this offering is based on no shares of our Class A common stock and 65,073,532 shares of our Class B common stock outstanding as of June 30, 2018, and excludes:

 

   

18,442,924 shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock that were outstanding as of June 30, 2018 with a weighted-average exercise price of $6.17 per share;

 

   

4,878,897 shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock that were granted after June 30, 2018 with an exercise price of $13.72 per share;

 

   

the net issuance of                  shares of our Class B common stock issuable pursuant to the vesting and settlement of 802,900 RSUs subject to performance conditions outstanding as of June 30, 2018, based upon an assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus;



 

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230,000 shares of our Class B common stock issuable under RSUs that were outstanding as of June 30, 2018 and subject to performance and service conditions;

 

   

81,161 shares of our Class B common stock issued after June 30, 2018 in connection with a business acquisition; and

 

   

                 shares of our Class A common stock reserved for future issuance under our stock-based compensation plans to be adopted in connection with this offering, consisting of:

 

   

                 shares of our Class A common stock reserved for future issuance under our 2018 Equity Incentive Plan (2018 Plan); and

 

   

                 shares of our Class A common stock reserved for future issuance under our 2018 Employee Stock Purchase Plan (ESPP).

Our 2018 Plan and ESPP each provides for annual automatic increases in the number of shares reserved thereunder.

Except as otherwise indicated, all information in this prospectus assumes:

 

   

the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;

 

   

the automatic conversion of 41,628,207 shares of our redeemable convertible preferred stock outstanding as of June 30, 2018 into the same number of shares of our common stock, the conversion of which will occur immediately prior to the completion of this offering;

 

   

the automatic exercise of outstanding warrants to purchase 933,269 shares of our redeemable convertible preferred stock outstanding as of June 30, 2018 into the same number of shares of our common stock, which will occur immediately prior to the completion of this offering;

 

   

the reclassification of our outstanding common stock into an equivalent number of shares of our Class B common stock, which will occur immediately prior to the completion of this offering; and

 

   

no exercise by the underwriters of their option to purchase up to an additional            shares of Class A common stock from us in this offering.



 

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SUMMARY CONSOLIDATED FINANCIAL DATA AND OTHER DATA

The following tables summarize our consolidated financial data and other data. We derived the summary consolidated statements of operations data for the years ended December 31, 2016 and 2017 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the consolidated statements of operations data for the six months ended June 30, 2017 and 2018 and the summary consolidated balance sheet data as of June 30, 2018 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future and the results for the six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year or any other period. The following summary consolidated financial data and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2016     2017     2017     2018  
    

(in thousands, except percentages and per share data)

 

Consolidated Statements of Operations

        

Net revenue

   $ 133,499     $ 201,597     $ 88,153     $ 142,068  

Cost of net revenue(1)

     55,689       81,667       35,302       57,947  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     77,810       119,930       52,851       84,121  

Operating expenses:

        

Product development(1)

     22,723       30,608       11,481       19,815  

Sales, marketing and support(1)

     48,391       55,170       23,171       35,623  

General and administrative(1)

     41,749       67,559       26,546       44,994  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     112,863       153,337       61,198       100,432  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (35,053     (33,407     (8,347     (16,311

Interest expense

     (3,513     (6,462     (1,958     (5,562

Change in fair value of redeemable convertible preferred stock warrant liability

     —         (2,200     —         (6,071

Gain on extinguishment of promissory note

     —         —         —         16,340  

Other income (expense), net

     (1,695     3,509       1,904       (3,176
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

     (40,261     (38,560     (8,401     (14,780

Income tax provision (benefit)

     131       (13     (55     800  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (40,392   $ (38,547   $ (8,346   $ (15,580
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted(2)

   $ (2.48 )   $ (1.98   $ (0.44   $ (0.73
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted(2)

     16,291     19,500       18,961       21,289  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted(2)

     $                     $    
    

 

 

     

 

 

 

Pro forma weighted-average shares outstanding used to compute pro forma net loss per share attributable to common stockholders, basic and
diluted(2)

        
    

 

 

     

 

 

 


 

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     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2016     2017     2017      2018  
    

(in thousands, except percentages and per share data)

 

Supplemental pro forma net loss per share attributable to common stockholders, basic and diluted(2)

     $        $    
    

 

 

      

 

 

 

Supplemental pro forma weighted-average shares outstanding used to compute supplemental pro forma net loss per share attributable to common stockholders, basic and
diluted(2)

         
    

 

 

      

 

 

 

Non-GAAP and Other Data

         

Paid tickets(3)

     44,572       71,046       30,274        46,697  

Retention rate(4)

     93     97     N/A        N/A  

Adjusted EBITDA(5)

   $ (17,591   $ 4,206     $ 3,700      $ 10,024  

Free cash flow (for the trailing twelve months)(6)

   $ (5,681   $ 21,143     $ 8,552      $ 13,162  

 

(1)

Amounts include stock-based compensation expense as follows:

 

     Year Ended
December 31,
     Six Months
Ended June 30,
 
     2016      2017      2017      2018  
    

(in thousands)

 

Cost of net revenue

   $ 134      $ 200      $ 65      $ 124  

Product development

     2,020        2,411        836        1,348  

Sales, marketing and support

     1,767        2,364        774        1,578  

General and administrative

     4,610        5,883        2,086        5,058  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 8,531      $ 10,858      $ 3,761      $ 8,108  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

Please refer to Note 14 to our consolidated financial statements for an explanation of the method used to compute the historical, pro forma and supplemental pro forma net loss per share attributable to common stockholders and the number of shares used in the computation of the per share amounts.

(3)

We define paid tickets as the number of tickets that generate ticket fees for us.

(4)

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 same creators generated in the 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. Fees associated with the sale of tickets on our platform are gross ticket fees, which are the total fees generated from paid ticket sales, before adjustments for refunds, credits and amortization of non-recoupable signing fees. We calculate retention rate on an annual basis only.

(5)

Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. See the section titled “—Non-GAAP Financial Measures—Adjusted EBITDA” for information regarding Adjusted EBITDA, including the limitations of such measure, and a reconciliation of Adjusted EBITDA to net income (loss).

(6)

Free cash flow is a financial measure that is not calculated in accordance with GAAP. See the section titled “—Non-GAAP Financial Measures—Free Cash Flow” for information regarding free cash flow, including the limitations of such measure, and a reconciliation of free cash flow to net cash provided by operating activities.



 

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See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” for further information on our key metrics.

 

     As of June 30, 2018  
     Actual     Pro
Forma(1)
     Pro Forma
As
Adjusted(2)(3)
 
Consolidated Balance Sheet Data    (in thousands)  

Cash

   $ 258,720     $ 258,720     

Working capital

     34,113       

Total assets

     637,645       637,645     

Total debt

     66,360       66,360     

Redeemable convertible preferred stock warrant liability

     17,945       —       

Redeemable convertible preferred stock

     334,018       —       

Total stockholders’ equity (deficit)

     (151,183     

 

(1)

The pro forma column in the consolidated balance sheet data as of June 30, 2018 reflects the (i) the filing and effectiveness of our amended and restated certificate of incorporation, (ii) the automatic conversion of 41,628,207 shares of our redeemable convertible preferred stock into the same number of shares of our common stock, (iii) the automatic exercise of outstanding warrants to purchase 933,269 shares of our redeemable convertible preferred stock into the same number of shares of our common stock, (iv) the net issuance of              shares of common stock issuable pursuant to the vesting and settlement of 802,900 RSUs subject to performance conditions outstanding as of June 30, 2018, based upon an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, (v) the increase in other accrued liabilities and an equivalent decrease in additional paid-in capital of $             million in connection with tax withholding obligations related to such RSUs, based upon an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and (vi) the reclassification of our outstanding common stock as Class B common stock, all of which will occur immediately prior to the completion of this offering, as if such events had occurred on June 30, 2018.

(2)

The pro forma as adjusted column in the consolidated balance sheet data as of June 30, 2018 gives effect to (i) the pro forma adjustments set forth above, (ii) the sale and issuance by us of    shares of our Class A common stock in this offering, based on an assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the repayment of our outstanding indebtedness, including prepayment penalties, under our term loan facilities.

(3)

Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the cash; working capital; total assets and total stockholders’ equity by $            million, assuming that the number of shares of our Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of 1.0 million shares of our Class A common stock offered by us would increase or decrease, as applicable, the cash; working capital; total assets; and total stockholders’ equity by $            million, assuming an initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions payable by us.



 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before making a decision to invest in our Class A common stock. The risks and uncertainties described below 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 trading price of our Class A common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

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 to a number of factors outlined in this section, including:

 

   

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 we are unable to effectively manage these risks as they occur, creators may seek other solutions and we may not be able to retain them or acquire additional creators to offset any such departures, which would adversely affect our business and results of operations. Furthermore, the loss of creators and our inability to replace them with new creators and events of comparable quality and standing would harm our business 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 million in 2016 and 2017, respectively. We incurred net losses of $8.3 million and $15.6 million in the six months ended June 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 $88.2 million and $142.1 million during the six months ended June 30, 2017 and 2018, respectively, representing a 61.2% growth rate. We expect that our revenue growth rate will decline 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 not

 

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result in increased revenue or growth 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 that 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 six months ended June 30, 2017 and 2018, we derived 29.9% and 26.5%, 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:

 

   

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.

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 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

 

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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:

 

   

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

 

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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

 

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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 advances to certain creators when entering into exclusive ticketing or services agreements and if these arrangements do not perform as we expect, our business, results of operations and financial condition may be harmed.

We may pay one-time, up front non-recoupable or recoupable signing fees to certain creators in order to incentivize them to organize certain events on our platform or obtain exclusive rights to ticket their events. These payments are common practice in certain segments of the ticketing industry and are typically made to a creator upon entering into a multi-year exclusive ticketing or service 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. A creator who receives a non-recoupable fee, which we refer to as creator signing fees, net, keeps the entire signing fee, so long as the creator complies with the terms of the creator’s contract with us, including performance of an event. If a creator does not comply with the terms 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 $13.3 million as of June 30, 2018. For recoupable fees, which we refer to as creator advances, net, we are entitled to recoup the entire signing fee by withholding all or a portion of the ticket sales sold by the creator to whom the recoupable signing fee was previously paid. Creator advances, net, were $7.6 million, $20.1 million and $21.6 million as of December 31, 2016 and 2017 and June 30, 2018, respectively. We pay these signing fees 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

 

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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, our return on these signing fees will not be realized and our business and results of operations will be harmed.

Our results vary from quarter-to-quarter 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 outside of our control and difficult to predict. It is difficult for us to forecast the level or source of our revenue accurately. Because our results 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:

 

   

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 impact our ability to execute on our strategy, which in turn could harm our results of operations. For example, we experience more cash flow generally in the first and third quarters of a fiscal year.

 

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Data loss or security breaches could harm our business, reputation, brand 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 those of our third-party service providers or partners. Despite the implementation of security measures, our internal computer systems and those of our third-party service providers and partners are vulnerable to damage from computer viruses, hacking and other means of unauthorized access, denial of service and other attacks, natural disasters, terrorism, war 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 addition 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 six months ended June 30, 2018, we recorded a liability of $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 may experience reputational harm 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 upgrades 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 storage 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 we or our providers and partners process or maintain, could harm our business, results of operations and financial condition.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently 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

 

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security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such measures or our third-party service providers 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:

 

   

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. 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 other 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

 

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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.

 

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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.

 

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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 authorities in the United States and other countries have identified e-commerce platforms as a means to calculate, collect 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. Imposition of an information reporting or tax collection requirement could decrease creator or attendee activity on our platform, which would harm our business. New legislation could require us or creators to incur substantial costs in order to comply, including costs associated with tax calculation, collection and remittance and audit 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 jurisdictions 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 condition may be adversely affected.

We believe that maintaining and enhancing 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 on a number of factors that we control and some factors outside of our control.

The promotion 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, all of which would adversely affect our business, results of operations and financial condition. Additionally, we must continue to make substantial efforts and investments to be associated with events that are positively viewed by other creators 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.

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

 

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perceived as such. For example, in the past, creators have tried to use our platform for events related to illegal activity and extreme activist groups. These events may cause negative publicity and harm our reputation and brand. Some creators may not have, or are perceived not to have, legal and ethical business practices. Although we maintain procedures and policies, both automated and by human review, to prevent the usage of our platform for such purposes and to prevent such practices, our procedures and policies may not effectively reduce or eliminate the use of our platform by such creators. In addition, certain creators or attendees may not agree with our decision to restrict certain creators or events from using our platform. If our platform is associated with illegal or offensive activity or creators and attendees 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

 

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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.

 

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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;

 

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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

 

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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 $2.7 million for the six months ended June 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

 

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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 609 on June 30, 2017 to 1,016 on June 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. 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:

 

   

our ability to provide an easy solution for attendees to buy tickets or register for an event;

 

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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 June 30, 2018, we had a total of 111 employees located in Argentina, of which 75 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.

 

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The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts included in this prospectus, including those we have generated ourselves or commissioned others to estimate on our behalf, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Even if the market in which we compete meets the size estimates and growth forecasted in this prospectus, our business could fail to grow for a variety of reasons, which would adversely affect our results of operations. For more information regarding the estimates of market opportunity and the forecasts of market growth included in this prospectus, see the section titled “Market and Industry Data.”

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

 

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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.

 

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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

 

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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.

 

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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.

 

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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, 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 operations may be affected by the outcome 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.

 

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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:

 

   

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

 

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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 if we undergo an ownership change in connection with or after this offering, our ability to utilize NOLs could be further limited by Section 382 of the Code. 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.

We have entered into a $60.0 million credit facility in June 2017 and a $15.0 million credit facility in May 2018, both with Western Technology Investments (WTI). These facilities are collateralized by substantially all of our assets and intellectual property rights. As of June 30, 2018, we had $74.2 million of principal indebtedness outstanding under the WTI credit facilities. These facilities contain customary events of default. $29.7 million of borrowings under the first WTI credit facility will become due in February 2022 and the remaining $29.7 million will become due in September 2022. $14.8 million of borrowing under the second WTI facility will become due in November 2022. Any required repayment of our existing indebtedness as a result of an event of default would reduce our cash on hand such that we would not have those funds available for use in our business, which could have a material adverse effect on our business, operating results and financial condition.

 

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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:

 

   

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.

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 will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (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. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. We are also 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

 

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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, and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, there has been no public market for shares of our Class A common stock. The initial public offering price of our Class A common stock will be determined through negotiation among the underwriters and us and may vary from the market price of our Class A common stock following this offering. 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:

 

   

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;

 

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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, which is the stock we are offering in this offering, has one vote per share. Following this offering, our directors, executive officers and their affiliates will hold in the aggregate         % 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

 

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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.

An active trading market for our Class A common stock may never develop or be sustained.

We intend to apply to list our Class A common stock on the NYSE, under the symbol “EB.” However, there has been no prior public trading market for our Class A common stock. We cannot assure you that an active trading market for our Class A common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood that an active trading market for our Class A common stock will develop or be maintained, the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired, or the prices that you may obtain for your shares.

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:

 

   

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.

We could be an emerging growth company for up to five years following the completion of this offering. Our status as an emerging growth company will end as soon as any of the following takes place:

 

   

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 this offering.

We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on the exemptions afforded 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,

 

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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 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. Securities and industry analysts do not currently, and may never, publish research on our company. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, 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. Based on the total number of outstanding shares of our common stock as of June 30, 2018, upon completion of this offering, we will have outstanding a total of            shares of Class A common stock and            shares of Class B common stock. This assumes no exercise of outstanding options and gives effect to the conversion of all of our outstanding shares of preferred stock into shares of Class B common stock and the issuance of            shares of Class A common stock on the completion of this offering.

Substantially all of our securities outstanding prior to the completion of this offering are currently restricted from resale as a result of lock-up and market standoff agreements. See the section titled “Shares Eligible for Future Sale” for additional information. These securities will become available to be sold 180 days after the date of the final prospectus relating to the offering. 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 June 30, 2018, we had 18,442,924 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 will be 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.

Following this offering, the holders of 41,628,207 shares of our Class B common stock will 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

 

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as a result of registration rights or otherwise, could cause the market price of our Class A common stock to decline or be volatile.

Purchasers in this offering will immediately experience substantial dilution in net tangible book value.

The initial public offering price of our Class A common stock is substantially higher than the pro forma net tangible book value per share of our common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our Class A common stock in this offering, you will experience immediate dilution of $             per share, the difference between the price per share you pay for our Class A common stock and the pro forma net tangible book value per share as of June 30, 2018, after giving effect to the issuance of shares of our Class A common stock in this offering. See the section titled “Dilution” below.

Our management will have broad discretion in the use of proceeds from this offering and our use may not produce a positive rate of return.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our stock and thereby enable access to the public equity markets by our employees and stockholders, obtain additional capital and strengthen our position in the ticketing and event solution market. We cannot specify with certainty our plans for the use of the net proceeds we receive from this offering. However, we currently intend to use the net proceeds we receive from this offering (i) to repay a portion of our outstanding indebtedness under our term loan facilities, which, as of June 30, 2018, had an outstanding balance of $74.2 million and (ii) for working capital and other general corporate purposes. Our management will have broad discretion over the specific use of the net proceeds we receive in this offering and might not be able to obtain a significant return, if any, on investment of these net proceeds. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this offering effectively, our business, results of operations and financial condition could be harmed.

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 will be 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

 

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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 this prospectus and 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, which will become effective upon the completion of this offering, will include provisions that:

 

   

provide that our board of directors will be classified into three classes of directors with staggered three-year terms;

 

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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. See the section titled “Description of Capital Stock” for additional information.

Our amended and restated bylaws will 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 will provide that a state or federal court located within the State of Delaware will be the exclusive forum for:

 

   

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.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws, which are statements that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our future financial performance, including our revenue, costs of revenue and operating expenses;

 

   

our ability to achieve and grow profitability;

 

   

the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs;

 

   

our ability to maintain the security and availability of our platform;

 

   

our predictions about industry and market trends;

 

   

our ability to attract and retain creators;

 

   

our ability to successfully expand internationally;

 

   

our ability to effectively manage our growth and future expenses;

 

   

our estimated total addressable market;

 

   

our ability to maintain, protect and enhance our intellectual property;

 

   

our ability to comply with modified or new laws and regulations applying to our business;

 

   

the attraction and retention of qualified employees and key personnel;

 

   

our ability to successfully defend litigation brought against us;

 

   

the increased expenses associated with being a public company; and

 

   

our use of the net proceeds from this offering.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions

 

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or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

 

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MARKET AND INDUSTRY DATA

This prospectus contains statistical data, estimates and forecasts that are based on various sources, including independent industry publications or other publicly available information, as well as other information based on our internal sources. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors,” that could cause results to differ materially from those expressed in these publications and reports. The content of the below sources, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein.

Certain information in the text of this prospectus is contained in independent industry publications and publicly-available reports. The source of these independent industry publications is provided below:

 

   

U.S. Bureau of Economic Analysis database accessed on April 27, 2018.

 

   

Crowd DNA poll results, taken April 11-16, 2017.

 

   

eMarketer, “B2B Event Marketing 2017: How the Event Stack Bridges Offline and Online,” dated July 2017.

 

   

U.S. Census database accessed on June 12, 2018.

 

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares of our Class A common stock that we are selling in this offering will be approximately $            million, based upon an assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares of our Class A common stock from us is exercised in full, we estimate that our net proceeds would be approximately $            million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the net proceeds that we receive from this offering by approximately $            million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of 1.0 million in the number of shares of our Class A common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $            million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

The principal purposes of this offering are to increase our capitalization, increase our financial flexibility, create a public market for our Class A common stock and enable access to the public equity markets for our stockholders and us. We currently intend to use the net proceeds of this offering (i) to repay our outstanding indebtedness under our term loan facilities, which are described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Term Loans,” which, had we completed this offering and repaid the term loans on June 30, 2018, the amount of such repayment would equal $83.1 million including prepayment penalties and (ii) for working capital and other general corporate purposes. We may use some of the net proceeds to satisfy tax withholding obligations related to the vesting and settlement of RSUs. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets. We have not entered into any agreements or commitments with respect to any material acquisitions or investments at this time.

We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering or the amounts we actually spend on the uses set forth above. Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds that we receive in this offering in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government. Our management will have broad discretion in the application of the net proceeds from this offering and investors will be relying on the judgment of our management regarding the application of the proceeds.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. In addition, the terms of our credit facilities place certain limitations on the amount of cash dividends we can pay prior to a qualifying public offering of our securities, even if no amounts are currently outstanding.

 

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CAPITALIZATION

The following table sets forth cash, as well as our capitalization, as of June 30, 2018 as follows:

 

   

on an actual basis;

 

   

on a pro forma basis, giving effect to (i) the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering, (ii) the automatic conversion of 41,628,207 shares of our redeemable convertible preferred stock into the same number of shares of our common stock, (iii) the automatic exercise of outstanding warrants to purchase 933,269 shares of our redeemable convertible preferred stock into the same number of shares of our common stock, (iv) the net issuance of                      shares of our common stock issuable pursuant to the vesting and settlement of 802,900 RSUs subject to performance conditions outstanding as of June 30, 2018, based upon an assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, (v) the increase in other accrued liabilities and an equivalent decrease in additional paid-in capital of $            million in connection with tax withholding obligations related to such RSUs, based upon an assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus and (vi) the reclassification of our outstanding common stock as Class B common stock, all of which will occur immediately prior to the completion of this offering; and

 

   

on a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments set forth above, (ii) the sale and issuance by us of                  shares of our Class A common stock in this offering, based on an assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the repayment of our outstanding indebtedness under our term loan facilities, which is described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Term Loans” which, had we completed this offering and repaid the term loans on June 30, 2018, the amount of such repayment would equal $83.1 million, including prepayment penalties.

 

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The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other final terms of this offering. You should read this table together with our financial statements and related notes, and the sections titled “Selected Consolidated Financial Data and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are included elsewhere in this prospectus.

 

     As of June 30, 2018  
     Actual     Pro
Forma
    Pro Forma as
Adjusted(1)
 
     (in thousands, except share and per share data)  

Cash

   $ 258,720     $ 258,720     $    
  

 

 

   

 

 

   

 

 

 

Total debt

   $ 66,360     $ 66,360     $                    

Redeemable convertible preferred stock warrant liability

     17,945       —      

Redeemable convertible preferred stock, $0.00001 par value; 42,561,476 shares authorized, 41,628,207 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma or pro forma as adjusted

     334,018       —      

Stockholders’ equity (deficit):

      

Preferred stock, $0.00001 par value; no shares authorized or issued and outstanding, actual;             shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

     —         —         —    

Common stock, $0.00001 par value; 97,167,059 shares authorized and 22,512,056 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     —         —         —    

Class A common stock, $0.00001 par value; no shares authorized or issued and outstanding, actual;             shares authorized, no shares issued and outstanding, pro forma;             shares authorized,             shares issued and outstanding, pro forma as adjusted

     —         —      

Class B common stock, $0.00001 par value; no shares authorized or issued and outstanding, actual;             shares authorized,             shares issued and outstanding, pro forma and pro forma as adjusted

     —         1    

Treasury stock at cost, 188,480 shares

     (488     (488  

Additional paid-in capital

     103,502      

Accumulated deficit

     (254,197    
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (151,183    
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 267,140     $       $    
  

 

 

   

 

 

   

 

 

 

 

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the pro forma as adjusted cash; additional paid-in capital total stockholders’ equity and total capitalization by $             million, assuming that the number of shares of our Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of 1.0 million shares of our Class A common stock offered by us would increase or decrease, as applicable, the cash; additional paid-in capital; and total stockholders’ equity and total capitalization by $             million, assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions payable by us.

If the underwriters’ option to purchase additional shares of our Class A common stock from us were exercised in full, pro forma as adjusted cash, additional paid-in capital, total stockholders’ equity (deficit), total

 

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capitalization and shares of Class A common stock issued and outstanding as of December 31, 2017 would be $             million, $             million, $             million, $             million and     shares, respectively.

The pro forma column in the table above is based on no shares of Class A and            shares of Class B common stock outstanding as of June 30, 2018, and excludes:

 

   

18,442,924 shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock that were outstanding as of June 30, 2018 with a weighted-average exercise price of $6.17 per share;

 

   

4,878,897 shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock that were granted after June 30, 2018 with an exercise price of $13.72 per share;

 

   

230,000 shares of our Class B common stock issuable under RSUs that were outstanding as of June 30, 2018 and are subject to service and performance conditions;

 

   

81,161 shares of our Class B common stock issued after June 30, 2018 in connection with a business acquisition; and

 

   

             shares of our Class A common stock reserved for future issuance under our stock-based compensation plans to be adopted in connection with this offering, consisting of:

 

   

     shares of our Class A common stock reserved for future issuance under the 2018 Plan; and

 

   

     shares of our Class A common stock reserved for future issuance under the ESPP.

Our 2018 Plan and ESPP each provides for annual automatic increases in the number of shares reserved thereunder.

 

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DILUTION

If you invest in our Class A common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of Class A common stock immediately after completion of this offering. Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our historical net tangible book value (deficit) as of June 30, 2018 was $             million, or $             per share. Our pro forma net tangible book value (deficit) as of June 30, 2018 was $             million, or $             per share, based on the total number of shares of our common stock outstanding as of June 30, 2018, after giving effect to (i) the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, (ii) the automatic conversion of 41,628,207 shares of our redeemable convertible preferred stock into the same number of shares of our common stock, (iii) the automatic exercise of outstanding warrants to purchase 933,269 shares of our redeemable convertible preferred stock into the same number of shares of our common stock, (iv) the net issuance of              shares of our common stock issuable pursuant to the vesting and settlement of 802,900 RSUs subject to performance conditions outstanding as of June 30, 2018, based upon an assumed initial public offering price of $         per share, which is the midpoint of the estimate offering price range set forth on the cover page of this prospectus, (v) the increase in other accrued liabilities and an equivalent decrease in additional paid-in-capital of $             million in connection with tax withholding obligations related to such RSUs, based upon an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and (vi) the reclassification of our outstanding common stock as Class B common stock, all of which will occur immediately prior to the completion of this offering.

After giving effect to the sale by us of              shares of our Class A common stock in this offering at the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the proceeds from this offering as described under the section titled “Use of Proceeds” our pro forma as adjusted net tangible book value as of June 30, 2018 would have been $             million, or $             per share. This represents an immediate increase in pro forma net tangible book value of $             per share to our existing stockholders and immediate dilution of $             per share to investors purchasing shares of our Class A common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $  

Pro forma net tangible book value (deficit) per share as of June 30, 2018

   $             

Increase in pro forma net tangible book value (deficit) per share attributable to new investors in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after this offering

     
     

 

 

 

Dilution per share to new investors in this offering

      $            
     

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $            , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $            , assuming that the number of shares of our Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. In addition, to the extent any outstanding options to purchase Class B common stock are exercised, new investors would experience further dilution. If the underwriters exercise their option to purchase additional shares of

 

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our Class A common stock from us in full, the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering would be $             per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $             per share.

The following table presents, on a pro forma as adjusted basis as of June 30, 2018, after giving effect to the conversion and reclassification of all outstanding shares of redeemable convertible preferred stock into Class B common stock immediately prior to the completion of this offering, the differences between the existing stockholders and the new investors purchasing shares of our Class A common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common stock and redeemable convertible preferred stock, cash received from the exercise of stock options, and the average price per share paid or to be paid to us at an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average
Price per
Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

          $                      $              

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Totals

        100     $        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all stockholders by approximately $             million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. In addition, to the extent any outstanding options to purchase Class B common stock are exercised, new investors will experience further dilution.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares of Class A common stock. If the underwriters exercise their option to purchase additional shares of Class A common stock in full from us, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the completion of this offering.

The number of shares of Class A and Class B common stock that will be outstanding after this offering is based on no shares of our Class A common stock and             shares of our Class B common stock outstanding as of June 30, 2018, and excludes:

 

   

18,442,924 shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock that were outstanding as of June 30, 2018 with a weighted-average exercise price of $6.17 per share;

 

   

4,878,897 shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock that were granted after June 30, 2018 with an exercise price of $13.72 per share;

 

   

230,000 shares of our Class B common stock issuable under RSUs that were outstanding as of June 30, 2018 and are subject to service and performance conditions;

 

   

81,161 shares of our Class B common stock issued after June 30, 2018 in connection with a business acquisition; and

 

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     shares of our Class A common stock reserved for future issuance under our stock-based compensation plans to be adopted in connection with this offering, consisting of:

 

   

     shares of our Class A common stock reserved for future issuance under the 2018 Plan; and

 

   

     shares of our Class A common stock reserved for future issuance under the ESPP.

Our 2018 Plan and ESPP each provides for annual automatic increases in the number of shares reserved thereunder.

 

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SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER DATA

The following selected consolidated statements of operations data for the years ended December 31, 2016 and 2017 and the consolidated balance sheet data as of December 31, 2016 and 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the six months ended June 30, 2017 and 2018 and the consolidated balance sheet data as of June 30, 2018 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future and the results for the six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year or any other period. You should read the following selected consolidated financial data and other data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

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     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2016     2017     2017     2018  
     (in thousands, except percentages and
per share data)
 

Consolidated Statements of Operations

        

Net revenue

   $ 133,499     $ 201,597     $ 88,153     $ 142,068  

Cost of net revenue(1)

     55,689       81,667       35,302       57,947  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     77,810       119,930       52,851       84,121  

Operating expenses(1):

        

Product development

     22,723       30,608       11,481       19,815  

Sales, marketing and support

     48,391       55,170       23,171       35,623  

General and administrative

     41,749       67,559       26,546       44,994  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     112,863       153,337       61,198       100,432  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (35,053     (33,407     (8,347     (16,311

Interest expense

     (3,513     (6,462     (1,958     (5,562

Change in fair value of redeemable convertible preferred stock warrant liability

     —         (2,200     —         (6,071

Gain on extinguishment of promissory note

     —         —         —         16,340  

Other income (expense), net

     (1,695     3,509       1,904       (3,176
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

     (40,261     (38,560     (8,401     (14,780

Income tax provision (benefit)

     131       (13     (55     800  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (40,392   $ (38,547   $ (8,346   $ (15,580
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted(2)

   $ (2.48 )   $ (1.98 )   $ (0.44   $ (0.73
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted(2)

     16,291     19,500     18,961       21,289  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted(2)

     $         $    
    

 

 

     

 

 

 

Pro forma weighted-average shares outstanding used to compute pro forma net loss per share attributable to common stockholders, basic and diluted(2)

        
    

 

 

     

 

 

 

Supplemental pro forma net loss per share attributable to common stockholders, basic and diluted(2)

     $       $    
    

 

 

     

 

 

 

Supplemental pro forma weighted-average shares outstanding used to compute supplemental pro forma net loss per share attributable to common stockholders, basic and
diluted(2)

        
    

 

 

     

 

 

 

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2016     2017     2017      2018  
     (in thousands, except percentages)  

Non-GAAP and Other Data

         

Paid tickets(3)

     44,572       71,046       30,274        46,697  

Retention rate(4)

     93     97     N/A        N/A  

Adjusted EBITDA(5)

   $ (17,591   $ 4,206     $ 3,700      $ 10,024  

Free cash flow (for the trailing twelve months)(6)

   $ (5,681   $ 21,143     $ 8,552      $ 13,162  

 

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(1)

Amounts include stock-based compensation expense as follows:

 

     Year Ended
December 31,
       Six Months Ended
June 30,
 
     2016        2017        2017        2018  
     (in thousands)  

Cost of net revenue

   $ 134        $ 200        $ 65        $ 124  

Product development

     2,020          2,411          836          1,348  

Sales, marketing and support

     1,767          2,364          774          1,578  

General and administrative

     4,610          5,883          2,086          5,058  
  

 

 

      

 

 

      

 

 

      

 

 

 

Total stock-based compensation

   $ 8,531        $ 10,858        $ 3,761        $ 8,108  
  

 

 

      

 

 

      

 

 

      

 

 

 

 

(2)

Please refer to Note 14 to our consolidated financial statements for an explanation of the method used to compute the historical, pro forma and supplemental pro forma net loss per share attributable to common stockholders and the number of shares used in the computation of the per share amounts.

(3)

We define paid tickets as the number of tickets that generate ticket fees for us.

(4)

To obtain our retention rate, we calculate the gross ticket fees generated by all creators in the year prior to the year of measurement (Prior Year Gross Ticket Fees). We then calculate the gross ticket fees those creators generated in the applicable year of measurement (Measurement Year Gross Ticket Fees). Finally, to calculate our retention rate for a measurement year we divide the Measurement Year Gross Ticket Fees by the Prior Year Gross Ticket Fees. Fees associated with the sale of tickets on our platform are gross ticket fees, which are the total fees generated from paid ticket sales, before adjustments for refunds, credits and amortization of non-recoupable signing fees. We calculate retention rate on an annual basis only.

(5)

Adjusted EBITDA is a financial measure that is not calculated in accordance with U.S. GAAP. See the section titled “—Non-GAAP Financial Measures—Adjusted EBITDA” for information regarding Adjusted EBITDA, including the limitations of such measure, and a reconciliation of Adjusted EBITDA to net income (loss).

(6)

Free cash flow is a financial measure that is not calculated in accordance with U.S. GAAP. See the section titled “—Non-GAAP Financial Measures—Free Cash Flow” for information regarding free cash flow, including the limitations of such measure, and a reconciliation of free cash flow to net cash provided by operating activities.

 

     As of December 31,     As of June 30,  
     2016     2017     2018  
     (in thousands)  

Consolidated Balance Sheet Data

      

Cash

   $ 139,538     $ 188,986     $ 258,720  

Working capital

     34,438       32,301       34,113  

Total assets

     245,337       571,924       637,645  

Total debt

     —         77,751       66,360  

Redeemable convertible preferred stock warrant liability

     —         7,271       17,945  

Redeemable convertible preferred stock

     200,082       334,018       334,018  

Total stockholders’ deficit

     (149,084     (155,814     (151,183

See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Key Business Metrics” for further information on our key metrics.

Non-GAAP Financial Measures

We believe that the use of Adjusted EBITDA and free cash flow is helpful to our investors as they are metrics 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, are not prepared in accordance with GAAP and have limitations as analytical tools, and you should not consider them 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 EBITDA

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

 

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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 expense, the change in fair value of redeemable convertible preferred stock warrant liability, gains on extinguishment of promissory note, direct 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 a reconciliation of Adjusted EBITDA from net loss for each of 2016, 2017 and the six months ended June 30, 2017 and 2018:

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2016     2017     2017     2018  
    

(in thousands)

 

Net loss

   $ (40,392   $ (38,547   $ (8,346   $ (15,580

Add:

        

Depreciation and amortization

     7,639       19,418       5,961       16,782  

Stock-based compensation

     8,531       10,858       3,761       8,108  

Interest expense

     3,513       6,462       1,958       5,562  

Change in fair value of redeemable convertible preferred stock warrant liability

     —         2,200       —         6,071  

Gain on extinguishment of promissory note

     —         —         —         (16,340

Direct and indirect acquisition-related costs(1)

     1,292       7,337       2,325       1,445  

Income tax provision (benefit)

     131       (13     (55     800  

Other income (expense), net

     1,695       (3,509     (1,904     3,176  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (17,591   $ 4,206     $ 3,700     $ 10,024  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Direct and indirect acquisition-related costs consist primarily 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.

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.

 

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We calculate free cash flow as net cash flow from operating activities less purchases of property and equipment and capitalized internal-use software development costs, over a trailing twelve-month period. Since 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 free cash flow, which is computed on a trailing twelve months basis, from net cash provided by operating activities for each of 2016, 2017 and for the twelve months ended June 30, 2017 and 2018:

 

     Year Ended
December 31,
    Twelve Months Ended
June 30,
 
     2016     2017     2017     2018  
    

(in thousands)

 

Net cash provided by operating activities

   $ 2,785     $ 29,821     $ 17,268     $ 24,554  

Less:

        

Purchases of property and equipment and capitalized internal-use software development costs

     (8,466     (8,678     (8,716     (11,392
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ (5,681   $ 21,143     $ 8,552     $ 13,162  
  

 

 

   

 

 

   

 

 

   

 

 

 

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.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

You should read the following discussion and analysis in conjunction with the information set forth under “Selected Consolidated Financial Data and Other Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements, including, without limitation, our expectation of our future performance, liquidity and capital resources; our plans, estimates, beliefs and expectations; and other non-historical statements in this discussion, are forward looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risk and uncertainties described under “Risk Factors” and elsewhere in this prospectus. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Our Business

We built a powerful, broad technology platform to enable creators to solve the challenges associated with creating live experiences. Our platform integrates components needed to seamlessly plan, promote and produce live events, thereby allowing creators to reduce friction and costs, increase reach and drive ticket sales. By reducing risk and complexity, we allow creators to focus their energy on producing compelling and successful events.

We charge creators on a per-ticket basis when an attendee purchases a paid ticket for an event. We grow with creators as their attendance grows and as they plan, promote and produce more events. In 2017, we helped more than 700,000 creators issue approximately 203 million tickets across three million events in over 170 countries.

We derive substantially all of our revenue from fees associated with the sale of tickets on our platform, inclusive of payment processing. Our fee structure typically consists of a fixed fee and a percentage of the price of each ticket sold by a creator. Fees associated with the sale of tickets on our platform are gross ticket fees, which we define as the total fees generated from paid ticket sales, before adjustments for refunds, credits and amortization of non-recoupable signing fees.

In 2017, our net revenue was $201.6 million, up from $133.5 million in 2016, representing year-over-year net revenue growth of 51.0%. Our net revenue for the six months ended June 30, 2018 was $142.1 million, up from $88.2 million for the six months ended June 30, 2017, representing period-over-period net revenue growth of 61.2%. The growth over these periods was primarily the result of paid ticket growth, fueled in part by recent acquisitions. Our net loss was $40.4 million and $38.5 million in 2016 and 2017, respectively, and $8.3 million and $15.6 million for the six months ended June 30, 2017 and 2018, respectively. Our Adjusted EBITDA was $(17.6) million and $4.2 million in 2016 and 2017, respectively, and $3.7 million and $10.0 million for the six months ended June 30, 2017 and 2018, respectively. In 2017, our net cash provided by operating activities was $29.8 million, and free cash flow was $21.1 million. Our net cash provided by operating activities was $48.8 million for the six months ended June 30, 2018. Our free cash flow, which is computed on a trailing twelve months basis, was $13.2 million for the twelve months ended June 30, 2018.

For more information about Adjusted EBITDA and free cash flow, including the limitations of such measures, and a reconciliation to the most directly comparable measures calculated in accordance with GAAP, see the section titled “Selected Consolidated Financial Data and Other Data—Non-GAAP and Other Data.”

Our Business Model

The key elements of our business model are:

Efficiently Acquire Creators

We are highly focused on creating a seamless experience that attracts creators to our platform organically. More than 95% of creators who used our platform in 2017 signed themselves up for Eventbrite. In 2017, we

 

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derived 54% of our net revenue from these creators. We attract creators to our platform through multiple means, including prior experience as attendees, word of mouth from other creators, our prominence in search engine results, the ability to try our platform for free events and our library of content. We augment these channels with a highly-targeted direct sales effort that focuses on acquiring creators with events in specific categories or countries. We leverage this efficient customer acquisition model to attract a wide range of creators to Eventbrite while keeping our sales and marketing costs low. Substantially all creators go on to create and manage events with little service or support.

Provide High-Quality Solutions at a Cost Advantage

We deliver our solutions on a cloud-based architecture that allows us to serve a wide variety of creators on a single global system, thereby reducing our operating and support costs. Our cloud-based platform does not require us to own or operate data centers or proprietary on-premises equipment. Additionally, our highly-automated platform requires limited service and support staff. All of this frees up capital and other resources to dedicate to enhancing our platform and growing our business. Our platform is extensible and modular, allowing us to efficiently improve and expand our services, as well as partner with third parties to deliver the best experience possible for creators.

Drive Powerful Retention

When creators enjoy success on Eventbrite, they continue to use our platform. This happens because we are able to meet their diverse and changing needs through a creator-focused approach. Our platform scales with creators, able to handle their smallest gatherings to their largest and most complex events. As creators’ needs evolve, our platform’s breadth and extensibility allow access to a full suite of solutions, enhanced by third-party integrated offerings. Further, we continually invest to deliver new and enhanced functionality. Our success in serving creators is reflected in our retention rate, which was 93% and 97% in 2016 and 2017, respectively.

Enhance Growth and Monetization

We believe that there are many opportunities within the fragmented event management market to expand both core ticketing and complementary solutions. We designed our business model and technology platform to take advantage 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.

 

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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. Gross ticket fees of each creator cohort in year one are set forth below:

 

 

LOGO

$50 $47 $40 $38 Millions) $31 ( $ $30 $26 Fees Ticket $20 $20 Gross $10 $0 2013 2014 2015 2016 2017

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. Our annual gross ticket fees by creator cohort is set forth below:

 

 

LOGO

$180 $160 $140 Millions) $120 ( $ $100 Fees $80 Ticket $60 Gross $40 $20 $0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Key Factors Affecting Our Performance

We believe that the growth of our business and our future success are dependent upon many factors. While each of these areas presents significant opportunities for us, they also pose important challenges that we must successfully address in order to sustain the growth of our business and improve our results of operations.

Attract New Creators and Retain Existing Creators

Attracting new creators to our platform and retaining existing creators drives our revenue growth. We expect to continue to invest in our brand and marketing to attract more new creators, while simultaneously

 

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developing our platform to delight and retain existing creators. Our ability to attract new creators and retain existing creators is impacted by how our features and functionality develop, our pricing, the creator and attendee experience on our platform, our brand awareness among the professional creator community, our search engine prominence, the quality and audience for our professional content, the continued transition of creators from using our platform for free events to paid events and solutions and the effectiveness of our direct sales efforts. We must continue to attract new creators and retain existing creators to maintain our current business as well as continue to drive growth in the future.

Enhance and Expand Our Technical Platform

We strive to provide a platform that provides creators with a seamless experience both to sign up for and publish live events. We initially started with a core ticketing platform and over time we have added meaningful capabilities to our platform, such as expansion into new categories or countries, packages that better target particular creator types, and new solutions like payment processing, custom-designed websites and proprietary technology for the day of the event. We intend to continue to invest in our platform to develop additional functionality and solutions. If we do not enhance our platform with the functionalities that are desired by creators and if we are not able to provide easy-to-use solutions required by creators in an efficient manner, our ability to attract and retain creators will be harmed.

Invest Capital to Drive Additional Growth Opportunities

We have and will continue to invest in our business, including solutions on our platform separate from generating fees from the sale and processing of tickets, such as web presence, promoted listing and on-site services and equipment. These efforts target both expanding how we serve creators as well as enhancing the benefits of our platform for attendees. We have invested $4.8 million and $10.6 million in 2016 and 2017, respectively, and $3.7 million and $9.0 million for the six months ended June 30, 2017 and 2018, respectively, in these complementary solutions on our platform and have generated less than five percent of our net revenue from such solutions during these periods. While our investments are based on a careful and deliberate planning process, there is no guarantee that we will choose the right investments, or that those investments pay off for us. If we are unable to effectively invest in developing new solutions, our business may be harmed.

Competitive Landscape

We operate in a space that is fragmented with many types of competitors, including traditional offline alternatives, internal systems, category-based competitors who operate in a single geography or region, and smaller platform providers. While we believe we have differentiated our business from these competitors by building a powerful and broad technology platform for creators, we must continue to respond to competitive pressures. Consequently, we will need to continue to invest in this platform to differentiate our business and remain competitive, as well as respond to shifts in industry pricing levels, revenue models or business practices. Further, our industry is evolving and our business may be impacted if we face additional competition from new entrants into the market, such as large advertising or e-commerce providers. If we are not able to compete effectively with these potential competitors, our business, results of operations and financial condition will be harmed.

International Expansion

Our paid tickets for events outside of the United States represented 30.3% and 36.0% of our total paid tickets in 2016 and 2017. Net revenue outside the United States during 2016 and 2017 was 26.9% and 29.6% of our total net revenue. Net revenue outside the United States was 29.9% and 26.5% of our total net revenue for the six months ended June 30, 2017 and 2018, respectively. As we deepen our global penetration, we believe international demand for our platform and solutions will continue to increase. Accordingly, we believe there is significant opportunity to grow our international business. We have invested, and plan to continue to invest, in the adoption of our platform and solutions internationally, including localization of our platform and the addition of critical capabilities to our platform required to serve those local markets. Further, our international business delivers higher gross margins, primarily because of lower payment processing expenses. If we are not able to

 

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effectively address the risk associated with international expansion, such as product-market fit in a given geography, currency fluctuation or unique factors in a specific market, our business and results of operations may be harmed.

In January 2017, we acquired 100% of the outstanding equity of TSTM Group Limited (ticketscript), a Dutch ticketing company with operations throughout Europe. We acquired ticketscript in order to enhance our ticketing solutions. The acquisition date fair value of the consideration transferred was $33.4 million, which consisted of $7.7 million in cash, $7.5 million in promissory notes and 2.7 million shares of our common stock and options to purchase 0.3 million shares of our common stock. These promissory notes were allowed to be prepaid at any time and we repaid the promissory notes in full, including accrued interest, in August 2017.

In September 2017, we acquired 100% of the outstanding equity of Ticketfly, LLC (Ticketfly), a subsidiary of Pandora Media, Inc. We acquired Ticketfly in order to expand our solutions for music-related events. The acquisition date fair value of the consideration transferred was $201.1 million, which consisted of $151.1 million in cash and $50.0 million in the form of convertible promissory notes which were paid and issued, respectively, at the closing of the transaction. We repaid these notes in March 2018.

In April 2018, we acquired Ticketea S.L. (Ticketea), a leading Spanish ticketing provider. We acquired Ticketea in order to enhance our ticketing solutions and expand in the Spanish market. The acquisition of Ticketea has been accounted for as a business combination. The acquisition date fair value of the consideration transferred was $11.2 million, which consisted of $3.6 million in cash and 0.7 million shares of our common stock. Of the 0.7 million shares, 0.1 million shares are being held in escrow for adjustments related to working capital requirements and breaches of representations, warranties and covenants. These escrowed shares will be released approximately 18 months from the acquisition date, net of any adjustments. Acquisition costs related to the Ticketea transaction were $0.5 million and are included in general and administrative expenses in the consolidated statement of operations for the six months ended June 30, 2018.

In August 2018, we acquired Picatic E-Ticket Inc., a Vancouver-based ticketing and event registration platform, for a purchase price of CAD $1.8 million in cash and 0.1 million shares of our common stock, less certain adjustments and holdbacks, including adjustments related to working capital requirements and breaches of representations, warranties and covenants.

For more information regarding our acquisitions of ticketscript, Ticketfly and Ticketea, see Note 3 to our consolidated financial statements, Ticketfly’s audited financial statements and our pro forma consolidated financial statements included elsewhere in this prospectus.

 

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Key Business Metrics

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

 

LOGO

Tickets (Millions) 0 50 100 150 200 250 56 39 17 2013 2014 25 54 79 109 75 34 2015 2016 99 143 2017 71 132 203 44

Our success in serving creators is measured in large part by the number of tickets that generate ticket fees for us. We consider this an important indicator of the underlying health of the business. We refer to these tickets as paid tickets. The below table sets forth the number of paid tickets for the periods indicated:

 

     Year Ended
December 31,
     Six Months
Ended June 30,
 
     2016      2017      2017      2018  
    

(in thousands)

 

Paid Tickets

     44,572        71,046        30,274        46,697  

Retention Rate

When creators experience success on our platform, they continue to organize events with us. We monitor retention 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,
 
            2016                     2017          

Retention Rate

    93     97

Non-GAAP Financial Measures

Adjusted EBITDA

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

 

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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 expense, the change in fair value of our redeemable convertible preferred stock warrant liability, gain on extinguishment of promissory note, direct 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:

 

     Year Ended
December 31,
     Six Months
Ended June 30,
 
             2016                     2017                      2017                      2018          
    

(in thousands)

 

Adjusted EBITDA

   $ (17,591   $ 4,206      $ 3,700      $ 10,024  

For more information about Adjusted EBITDA, including the limitations of such measure, and a reconciliation to our net loss attributable to common stockholders, see the section titled “Selected Consolidated Financial Data and Other Data—Non-GAAP and Other Data.”

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 our free cash flow for the periods indicated:

 

     Year Ended
December 31,
     Twelve Months Ended
June 30,
 
     2016     2017      2017      2018  
    

(in thousands)

 

Free cash flow

   $ (5,681   $ 21,143      $ 8,552      $ 13,162  

For more information about free cash flow, including the limitations of such measure, and a reconciliation to operating cash flow see the section titled “Selected Consolidated Financial Data and Other Data—Non-GAAP and Other Data.”

Components of Results of Operations

Net Revenue

We generate substantially all of our net revenue through the sale of paid tickets on our platform. Our fee structure typically consists of a fixed fee and a percentage of the price of each ticket sold by a creator. Net revenue is recognized as tickets are sold. Net revenue excludes sales taxes and value added taxes (VAT) and is presented net of estimated customer refunds, chargebacks and amortization of creator signing fees.

 

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We also generate a small portion of our 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 of 2016 and 2017 and for the six months ended June 30, 2017 and 2018.

Cost of Net Revenue

Cost of net revenue consists primarily of payment processing fees, expenses associated with the operation and maintenance of our platform, including website hosting fees and platform infrastructure costs, amortization of capitalized software development costs, onsite 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. We may incur such expense related to future acquisitions in future periods. We expect cost of revenue as a percentage of revenue to fluctuate in the near- to mid-term primarily as a result of 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 grow more rapidly internationally than in the United States, we expect that our payment processing costs will decline as a percentage of revenue. Thus, in the long-term, we expect cost of revenue to grow in absolute dollars but decrease as a percentage of revenue.

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 component of operating expenses. We also include sublease income as a reduction of our operating expenses.

Product development. Product development expenses consist primarily of costs associated with our employees in product development and product engineering activities. 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 support development of new technologies and to integrate acquired businesses and technologies. Over the long-term, we anticipate that it will decrease as a percentage of net revenue as our revenue grows and as we continue to grow our development staff in lower cost markets.

Sales, marketing and support. Sales, marketing and support expenses consist primarily of costs associated with our employees involved in selling and marketing our products, public relations and communication activities, marketing programs, travel and customer support costs associated with free events on our platform. 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 expect sales, marketing and support expenses to increase in absolute dollars over time. In the near-term, we anticipate sales, marketing and support expenses will fluctuate as a percentage of net revenue, but over the long-term we anticipate that it will decrease as a percentage of net revenue as we expect to see continued growth 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.

 

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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. We expect general and administrative expenses to increase in absolute dollars over time. In the near-term, we 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 transition to be a publicly-traded company, which may be partially offset by reductions in sales tax and VAT accruals. Additionally, in connection with this offering, we will recognize $6.9 million of stock based compensation expense related to the vesting of certain RSUs subject to performance conditions. Over the long-term we anticipate that general and administrative expenses will decrease as a percentage of net revenue as our revenue grows and as we experience reductions in sales tax and VAT accruals. Although we expect paid ticket volume to continue to increase, we expect our accruals for sales tax and VAT to decrease steadily over time as a result of our increased certainty as to the amounts we may owe in sales tax and VAT 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 $3.5 million for 2016 and 2017 and $1.7 million for each of the six months ended June 30, 2017 and 2018 related to build-to-suit accounting.

Other outstanding debt has been historically related to acquisitions, either as part of consideration or to finance cash consideration for an acquisition. In January 2017, we issued $7.5 million in promissory notes in connection with the ticketscript acquisition. These promissory notes plus accrued interest were fully repaid in August 2017. In September 2017, we issued $50.0 million subordinated convertible notes in connection with the Ticketfly acquisition. Also in September 2017, we drew on our first term loan facility with WTI in the amount of $30.0 million. The subordinated convertible notes were repaid in March 2018 at a discount to issuance, funded in part by an additional draw of $30.0 million against our first term loan facility with WTI. We drew an additional $15.0 million under the second WTI loan facility in May 2018. We had no outstanding debt prior to January 2017.

For more information, see the subsection titled “—Contractual Obligations and Commitments—Term Loans.”

Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability

The redeemable convertible preferred stock warrant is classified as a liability on our consolidated balance sheet 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. Upon the earlier of exercise of the outstanding warrant or the completion of a liquidation event, including the completion of this offering, the redeemable convertible preferred stock warrant liability will be automatically exercised into common stock, at which time it will no longer be subject to fair value accounting.

Other Income (Expense), Net

Other income (expense), net consists of interest income and foreign exchange rate remeasurement gains and losses recorded from consolidating our subsidiaries each period-end.

 

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Income Tax Provision (Benefit)

The tax benefit for 2017 consists primarily of state income taxes in the United States and tax amortization on indefinite-lived intangibles, offset by a benefit related to certain foreign deferred tax assets. Tax expense for 2016 consisted primarily of foreign income taxes in the jurisdictions in which we conduct business. We have a full valuation allowance for our U.S. deferred tax assets primarily consisting of net operating loss carryforwards, accruals and reserves. We expect to maintain this full valuation allowance for the foreseeable future.

The tax provision for the six months ended June 30, 2018 consists primarily of state income taxes in the United States and tax amortization of indefinite-lived intangible assets, offset by a benefit related to certain foreign deferred tax assets. The tax benefit for the six months ended June 30, 2017 consists primarily of state income taxes in the United States offset by a benefit related to certain foreign deferred tax assets. The differences in the tax provision and benefit for the periods presented and the United States 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 and certain foreign losses which benefit from rates lower than the U.S, federal statutory rate.

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 prospectus. The following tables set forth our consolidated results of operations data and such data as a percentage of net revenue for the periods presented:

 

     Year Ended
December 31,
     Six Months Ended
June 30,
 
     2016      2017      2017      2018  
     (in thousands, except percentages)  

Consolidated Statements of Operations

           

Net revenue

   $ 133,499      $ 201,597      $ 88,153      $ 142,068  

Cost of net revenue

     55,689        81,667        35,302        57,947  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     77,810        119,930        52,851        84,121  

Operating expenses:

           

Product development

     22,723        30,608        11,481        19,815  

Sales, marketing and support

     48,391        55,170        23,171        35,623  

General and administrative

     41,749        67,559        26,546        44,994  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     112,863        153,337        61,198        100,432  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from operations

     (35,053      (33,407      (8,347      (16,311

Interest expense

     (3,513      (6,462      (1,958      (5,562

Change in fair value of redeemable convertible preferred stock warrant liability

     —          (2,200      —          (6,071

Gain on extinguishment of promissory note

     —          —          —          16,340  

Other income (expense), net

     (1,695      3,509        1,904        (3,176
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before provision for (benefit from) income taxes

     (40,261      (38,560      (8,401      (14,780

Income tax provision (benefit)

     131        (13      (55      800  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to common stockholders

   $ (40,392    $ (38,547    $ (8,346    $ (15,580
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2016     2017     2017     2018  

Consolidated Statements of Operations, as a percentage of net revenue

        

Net revenue

           100.0           100.0           100.0           100.0

Cost of net revenue

     41.7       40.5       40.0       40.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     58.3       59.5       60.0       59.2  

Operating expenses:

        

Product development

     17.0       15.2       13.0       13.9  

Sales, marketing and support

     36.2       27.4       26.3       25.1  

General and administrative

     31.4       33.5       30.1       31.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     84.6       76.1       69.4       70.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (26.3     (16.6     (9.5     (11.5

Interest expense

     (2.6     (3.2     (2.2     (3.9

Change in fair value of redeemable convertible preferred stock warrant liability

     —         (1.1     —         (4.3

Gain on extinguishment of promissory note

     —         —         —         11.5  

Other income (expense), net

     (1.3     1.8       2.2       (2.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

     (30.2     (19.1     (9.5     (10.4

Income tax provision (benefit)

     0.1       0.0       (0.0     0.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

     (30.3 )%      (19.1 )%      (9.5 )%      (11.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of six months ended June 30, 2017 and 2018

Net revenue

 

     Six Months Ended
June 30,
     Change  
     2017      2018      $      %  
     (in thousands, except percentages)  

Net revenue

   $ 88,153      $ 142,068      $ 53,915        61.2

The increase in net revenue during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was driven primarily by growth in paid ticket volume, which increased by 54.2% during the six months ended June 30, 2018 compared to the six months ended June 30, 2017, from 30.3 million to 46.7 million. Net revenue from organic paid ticket growth increased by $32.5 million, or 38.9%, in the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The remainder of our paid ticket growth was due to additional paid ticket volume from the Ticketfly acquisition, which occurred in September 2017, and the Ticketea acquisition, which occurred in April 2018.

Our period-over-period revenue growth was partially offset by a contra revenue adjustment of $6.3 million in the six months ended June 30, 2018. 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. Shortly after stabilizing the platform, we approached impacted creators and offered a financial accommodation to address their inconvenience and to encourage them to continue doing business with Eventbrite. As a result, in the six months ended June 30, 2018, we recorded a $6.6 million liability of which $6.3 million was recorded as contra revenue and $0.3 million was recorded as an operating expense. This amount represents our best estimate of the total amount of creator accommodations to be made as a result of the incident. We believe that we suffered revenue

 

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loss during the six months ended June 30, 2018 due to the disablement of the Ticketfly platform. 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 upgrades to our security infrastructure.

Net revenue per paid ticket increased during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 from $2.91 to $3.04. This was driven by our pricing package options which were launched in September 2017.

Cost of net revenue

 

     Six Months Ended
June 30,
    Change  
     2017     2018     $      %  
     (in thousands, except percentages)  

Cost of net revenue

   $ 35,302     $ 57,947     $ 22,645        64.1

Percentage of total net revenue

     40.0     40.8     

Gross margin

     60.0     59.2     

The increase in cost of net revenue during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was primarily due to an increase in payment processing costs of $12.7 million driven by our organic paid ticket growth and paid ticket volume from the Ticketfly and Ticketea acquisitions. Additionally, there was an increase in amortization of acquired developed technology of $5.1 million, primarily resulting from the Ticketfly acquisition.

Operating expense

Product development

 

     Six Months Ended
June 30,
    Change  
     2017     2018     $      %  
     (in thousands, except percentages)  

Product development

   $ 11,481     $ 19,815     $ 8,334        72.6

Percentage of total net revenue

     13.0     13.9     

Product development expense during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 increased primarily due to increased personnel costs of $7.8 million, resulting from organic hiring efforts and an increase in headcount as a result of the Ticketfly and Ticketea acquisitions.

Sales, marketing and support

 

     Six Months Ended
June 30,
    Change  
     2017     2018     $      %  
     (in thousands, except percentages)  

Sales, marketing and support

   $ 23,171     $ 35,623     $ 12,452        53.7

Percentage of total net revenue

     26.3     25.1     

Sales, marketing and support expenses during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 increased primarily due to personnel related expenses of $10.0 million driven by higher headcount.

 

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General and administrative

 

     Six Months Ended
June 30,
    Change  
     2017     2018     $      %  
     (in thousands, except percentages)  

General and administrative

   $ 26,546     $ 44,994     $ 18,448        69.5

Percentage of total net revenue

     30.1     31.7     

The increase in general and administrative expenses during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was a result of several factors. Personnel costs increased by $8.1 million, including $3.0 million of stock-based compensation, driven by increased headcount during the six months ended June 30, 2018 compared to the six months ended June 30, 2017. Amortization of acquired intangible assets increased $4.5 million primarily stemming from the Ticketfly acquisition. Third-party legal, finance, tax and business development costs increased $3.8 million, driven by costs incurred related to the Ticketfly incident, the Ticketea acquisition and our efforts to become a publicly-traded company. As a partial offset to these increases, we recorded $1.3 million related to insurance proceeds to be received from the Ticketfly incident as a reduction in general and administrative expense in the six months ended June 30, 2018. Such proceeds are a partial reimbursement for accommodations to creators which are recorded as contra revenue. We also reversed a portion of a reserve due to the settlement of a tax matter, resulting in a reduction of expense of $2.7 million.

Interest expense

 

     Six Months Ended
June 30,
    Change  
     2017     2018     $      %  
     (in thousands, except percentages)  

Interest expense

   $ (1,958   $ (5,562   $ 3,604        184.1

Percentage of total net revenue

     (2.2 )%      (3.9 )%      

The increase in interest expense during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was driven by higher amounts of interest bearing debt that was outstanding during the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily related to the WTI loan facilities.

Change in fair value of redeemable convertible preferred stock warrant liability

 

     Six Months Ended
June 30,
    Change  
     2017     2018     $      %  
     (in thousands, except percentages)  

Change in fair value of redeemable convertible preferred stock warrant liability

   $ —       $ (6,071   $ 6,071        *  

Percentage of total net revenue

     —       (4.3 )%      

 

*

Not meaningful

The change in fair value of our redeemable convertible preferred stock warrant liability during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was due to an increase in the underlying fair value of our redeemable convertible preferred stock. We first issued redeemable convertible preferred stock warrants on June 30, 2017 in connection with the close of our first WTI loan facility.

 

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Gain on extinguishment of promissory note

 

     Six Months Ended
June 30,
    Change  
     2017     2018     $      %  
     (in thousands, except percentages)  

Gain on extinguishment of promissory note

   $ —       $ 16,340     $ 16,340        *  

Percentage of total net revenue

     —       11.5     

 

*

Not meaningful

The gain on extinguishment of promissory note during the six months ended June 30, 2018 is due to the settlement of the outstanding convertible promissory notes that were issued in connection with the Ticketfly acquisition. In March 2018, we settled $50.0 million of principal for a one-time cash payment to the noteholder of $34.7 million, which included $1.7 million of accrued interest.

Other income (expense), net

 

     Six Months Ended
June 30,
    Change  
     2017     2018     $      %  
     (in thousands, except percentages)  

Other income (expense), net

   $ 1,904     $ (3,176   $ (5,080      *  

Percentage of total net revenue

     2.2     (2.2 )%      

 

*

Not meaningful

The decrease in other income (expense), net during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was driven by foreign currency rate measurement fluctuations. We recognized foreign currency rate measurement gains during the six months ended June 30, 2017 as a result of the weakening of the U.S. dollar. We recognized foreign currency rate measurement losses during the six months ended June 30, 2018 as a result of the overall strengthening of the U.S. dollar compared to the currencies in which we operate and process transactions.

Comparison of years ended December 31, 2016 and 2017

Net Revenue

 

     Year Ended
December 31,
     Change  
     2016      2017      $      %  
     (in thousands, except percentages)  

Net revenue

   $ 133,499      $ 201,597      $ 68,098        51.0

The increase in net revenue during 2017 compared to 2016 was driven primarily by growth in paid ticket volume, which increased by 59.4% during 2017, from 44.6 million to 71.0 million in part due to ticket volume from acquired companies. Net revenue from organic paid ticket growth increased by $40.6 million, or 30.4%, in 2017. Net revenue increased an additional $27.5 million as a result of the Ticketfly and ticketscript acquisitions, both of which were completed in 2017. While net revenue and paid tickets increased year-over-year, net revenue per paid ticket decreased from $3.00 in 2016 to $2.84 in 2017. This decrease was driven by our pricing adjustments made in certain markets, which resulted in additional paid ticket volume, as well as an increase in the proportion of lower price tickets as our fees are partially based on the price of the tickets that creators sell to their events.

 

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Cost of Net Revenue

 

     Year Ended
December 31,
    Change  
     2016     2017     $      %  
     (in thousands, except percentages)  

Cost of net revenue

   $ 55,689     $ 81,667     $ 25,978        46.6

Percentage of net revenue

     41.7     40.5     

Gross margin

     58.3     59.5     

The increase in cost of net revenue during 2017 compared to 2016 was driven by an increase in payment processing costs of $17.0 million driven by our organic paid ticket growth and paid ticket volume from acquired businesses, and increased amortization of acquired developed technology of $4.6 million, resulting from the Ticketfly and ticketscript acquisitions.

Operating Expenses

Product development

 

     Year Ended
December 31,
    Change  
     2016     2017     $      %  
     (in thousands, except percentages)  

Product development

   $ 22,723     $ 30,608     $ 7,885        34.7

Percentage of net revenue

     17.0     15.2     

Product development expense increased during 2017 compared to 2016 primarily due to increased personnel costs of $8.0 million, resulting from organic hiring efforts and an increase in headcount as a result of the ticketscript and Ticketfly acquisitions.

Sales, marketing and support

 

     Year Ended
December 31,
    Change  
     2016     2017     $      %  
     (in thousands, except percentages)  

Sales, marketing and support

   $ 48,391     $ 55,170     $ 6,779        14.0

Percentage of total net revenue

     36.2     27.4     

Sales, marketing and support expenses increased during 2017 compared to 2016, driven by increased personnel related expenses of $7.4 million driven by higher headcount, offset by lower professional services costs, creator related expenses and advertising spend as we leveraged our low-cost customer acquisition channels, such as word of mouth referrals, converting free creators to paid creators and converting attendees into creators.

General and administrative

 

     Year Ended
December 31,
    Change  
     2016     2017     $      %  
     (in thousands, except percentages)  

General and administrative

   $ 41,749     $ 67,559     $ 25,810        61.8

Percentage of total net revenue

     31.4     33.5     

The increase in general and administrative expenses during 2017 compared to 2016 was a result of several factors. Third-party legal, finance, tax and business development costs increased $5.2 million, driven by

 

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acquisitions we completed in 2017 as well as costs incurred as we prepare to become a publicly-traded company. We also incurred direct and indirect acquisition-related expenses of $7.3 million related to the Ticketfly and ticketscript acquisitions. The increase was also attributable to higher depreciation and amortization of $5.7 million, of which $5.0 million related to acquired intangible assets. There was also an increase in accrued sales taxes and VAT of $4.8 million driven by higher paid ticket volume in 2017 compared to 2016.

Interest Expense

 

     Year Ended
December 31,
    Change  
     2016     2017     $      %  
     (in thousands, except percentages)  

Interest expense

   $ (3,513   $ (6,462   $ 2,949        83.9

Percentage of total net revenue

     (2.6 )%      (3.2 )%      

Interest expense increased during 2017 compared to 2016, entirely driven by interest bearing debt that was outstanding during 2017, related to promissory notes issued in connection with acquisitions and term-debt draw under our credit facilities. We did not have any outstanding debt prior to 2017. The interest expense recorded in 2016 is entirely related to our build-to-suit lease accounting for our office lease in San Francisco, California.

Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability

 

     Year Ended
December 31,
    Change  
     2016     2017     $      %  
     (in thousands, except percentages)  

Change in fair value of redeemable convertible preferred stock warrant liability

   $ —       $ (2,200   $ 2,200        *  

Percentage of total net revenue

     —       (1.1 )%      

 

*

Not meaningful

The change in fair value of our redeemable convertible preferred stock warrant liability in 2017 was due to an increase in the underlying fair value of our redeemable convertible preferred stock. We did not have any redeemable convertible preferred stock warrants outstanding in 2016.

Other Income (Expense), net

 

     Year Ended
December 31,
    Change  
     2016     2017     $      %  
     (in thousands, except percentages)  

Other income (expense), net

   $ (1,695   $ 3,509     $ 5,204        *  

Percentage of total net revenue

     (1.3 )%      1.8     

 

*

Not meaningful

The increase in other income (expense), net during 2017 compared to 2016 was driven by foreign currency rate measurement fluctuations. We recognized foreign currency rate measurement losses during 2016 as a result of an overall strengthening U.S. dollar. We recognized foreign currency rate measurement gains during 2017 as a result of an overall weakening U.S. dollar compared to the currencies in which we operate and process transactions.

 

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Quarterly Results of Operations

The following tables set forth selected unaudited quarterly statements of operations data for each of the eight quarters in the period ended June 30, 2018. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of the results we may achieve in any future period.

 

    Three Months Ended  
    September 30,
2016
    December 31,
2016
    March 31,
2017
    June 30,
2017
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
 
    (in thousands)  

Consolidated Statements of Operations

               

Net revenue

  $ 32,176     $ 33,905     $ 43,351     $ 44,802     $ 50,749     $ 62,695     $ 74,526     $ 67,542  

Cost of net revenue(1)

    13,352       13,880       17,157       18,145       20,993       25,372       28,084       29,863  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    18,824       20,025       26,194       26,657       29,756       37,323       46,442       37,679  

Operating expenses(1):

               

Product development

    5,767       6,187       5,458       6,023       9,351       9,776       8,834       10,981  

Sales, marketing and support

    12,153       11,655       11,039       12,132       14,351       17,648       17,538       18,085  

General and administrative

    9,987       13,356       13,112       13,434       16,479       24,534       23,161       21,833  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    27,907       31,198       29,609       31,589       40,181       51,958       49,533       50,899  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (9,083     (11,173     (3,415     (4,932     (10,425     (14,635     (3,091     (13,220

Interest expense

    (839     (876     (965     (993     (1,674     (2,830     (2,372     (3,190

Change in fair value of redeemable convertible preferred stock warrant liability

    —         —         —         —         (1,404     (796     (1,321     (4,750

Gain on extinguishment of promissory note

    —         —         —         —         —         —         16,340       —    

Other income (expense), net

    (718     (1,394     641       1,263       1,606       (1     (163     (3,013
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

    (10,640     (13,443     (3,739     (4,662     (11,897     (18,262     9,393       (24,173

Income tax provision (benefit)

    91       12       (18     (37     (40     82       370       430  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (10,731   $ (13,455   $ (3,721   $ (4,625   $ (11,857   $ (18,344   $ 9,023     $ (24,603
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Amounts include stock-based compensation expense as follows:

 

    Three Months Ended  
    September 30,
2016
    December 31,
2016
    March 31,
2017
    June 30,
2017
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
 
    (in thousands)  

Cost of net revenue

  $ 36     $ 34     $ 32     $ 33     $ 35     $ 100     $ 53     $ 71  

Product development

    499       582       402       433       463       1,113       601       747  

Sales, marketing and support

    443       415       310       463       406       1,184       714       864  

General and administrative

    1,250       1,515       1,061       1,027       1,042       2,754       1,492       3,566  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation

  $ 2,228     $ 2,546     $ 1,805     $ 1,956     $ 1,946     $ 5,151     $ 2,860     $ 5,248  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Three Months Ended  
    September 30,
2016
    December 31,
2016
    March 31,
2017
    June 30,
2017
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
 

Consolidated Statements of Operations, as a percentage of net revenue

               

Net revenue

    100.0     100.0     100.0     100.0     100.0     100.0     100.0     100.0

Cost of net revenue

    41.5       40.9       39.6       40.5       41.4       40.5       37.7       44.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    58.5       59.1       60.4       59.5       58.6       59.5       62.3       55.8  

Operating expenses:

               

Product development

    17.9       18.2       12.6       13.4       18.4       15.6       11.9       16.3  

Sales, marketing and support

    37.8       34.4       25.5       27.1       28.3       28.1       23.5       26.8  

General and administrative

    31.0       39.4       30.2       30.0       32.5       39.1       31.1       32.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    86.7       92.0       68.3       70.5       79.2       82.8       66.5       75.4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (28.2     (32.9     (7.9     (11.0     (20.6     (23.3     (4.2     (19.6

Interest expense

    (2.7     (2.6     (2.2     (2.2     (3.3     (4.6     (3.2     (4.7

Change in fair value of redeemable convertible preferred stock warrant liability

    —         —         —         —         (2.8     (1.3     (1.7     (7.0

Gain on extinguishment of promissory note

    —         —         —         —         —         —         21.9       —    

Other income (expense), net

    (2.2     (4.2     1.5       2.8       3.2       (0.0     (0.2     (4.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

    (33.1     (39.7     (8.6     (10.4     (23.5     (29.2     12.6       (35.8

Income tax provision (benefit)

    0.3       0.0       (0.0     (0.1     (0.1     0.1       0.5       0.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (33.4 )%      (39.7 )%      (8.6 )%      (10.3 )%      (23.4 )%      (29.3 )%      12.1     (36.4 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents our paid ticket volume for each of the periods indicated:

 

    Three Months Ended  
    September 30,
2016
    December 31,
2016
    March 31,
2017
    June 30,
2017
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
 
         

(in thousands)

             

Paid Tickets

    11,095       12,110       14,669       15,605       18,074       22,698       23,598       23,099  

 

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The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:

 

    Three Months Ended  
    September 30,
2016
    December 31,
2016
    March 31,
2017
    June 30,
2017
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
 
    (in thousands)  

Net income (loss)

  $ (10,731   $ (13,455   $ (3,721   $ (4,625   $ (11,857   $ (18,344   $ 9,023     $ (24,603

Add:

               

Depreciation and amortization

    1,892       2,047       2,775       3,186       5,090       8,367       8,202       8,580  

Stock-based compensation

    2,228       2,546       1,805       1,956       1,946       5,151       2,860       5,248  

Interest expense

    839       876       965       993       1,674       2,830       2,372       3,190  

Change in fair value of redeemable convertible preferred stock warrant liability

    —         —         —         —         1,404       796       1,321       4,750  

Gain on extinguishment of promissory note

    —         —         —         —         —         —         (16,340     —    

Direct and indirect acquisition related costs

    180       1,057       1,097       1,228       4,406       606       823       622  

Other income (expense), net

    718       1,394       (641     (1,263     (1,606     1       163       3,013  

Income tax provision (benefit)

    91       12       (18     (37     (40     82       370       430  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(1)

  $ (4,783   $ (5,523   $ 2,262     $ 1,438     $ 1,017     $ (511   $ 8,794     $ 1,230  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. See the section titled “—Non-GAAP Financial Measures—Adjusted EBITDA” for information regarding Adjusted EBITDA, including the limitations of such measure, and a reconciliation of Adjusted EBITDA to net income (loss).

The following table presents a reconciliation of free cash flow, which is computed on a trailing twelve months basis, from net cash provided by operating activities for each of the periods indicated:

 

    Twelve Months Ended  
    September 30,
2016
    December 31,
2016
    March 31,
2017
    June 30,
2017
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
 
    (in thousands)  

Net cash provided by operating activities

  $ 7,405     $ 2,785     $ 20,754     $ 17,268     $ 42,794     $ 29,821     $ 38,977     $ 24,554  

Less:

               

Purchases of property and equipment and capitalized internal-use software development costs

    (7,833     (8,466     (8,790     (8,716     (8,414     (8,678     (9,703     (11,392
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

  $ (428   $ (5,681   $ 11,964     $ 8,552     $ 34,380     $ 21,143     $ 29,274     $ 13,162  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Quarterly Trends

Net revenue

Our quarterly revenue increased for all periods presented, except the second quarter of 2018, primarily due to increases in paid ticket volume, both organically and through our acquisitions. Historically, we have experienced a higher increase in sequential organic net revenue growth in the first quarter of a year compared to the sequential organic net revenue growth in other quarters of that year. We acquired ticketscript in the first quarter of 2017 and Ticketfly in the third quarter of 2017, which had a positive impact on our net revenue growth in each of those quarters. The decrease in quarterly net revenue in the second quarter of 2018 was a result of the contra revenue amount of $6.3 million which we recognized related to the Ticketfly incident.

Cost of net revenue

Our quarterly cost of net revenue increased for all periods presented primarily due to increases in payment processing costs resulting from our paid ticket volume growth.

Operating expenses

Our operating expenses increased for all periods presented, except for the first quarters of 2017 and 2018, primarily due to increases in compensation and benefits driven by increases in headcount. In the fourth quarter of 2016, we recognized higher compensation expense related to sign-on bonuses paid to certain executives as well as higher impairment charges related to creator signing fees and creator advances. This was the primary driver of the decrease in operating expenses from the fourth quarter of 2016 to the first quarter of 2017. In the fourth quarter of 2017, we recognized higher stock-based compensation expense across all operating expense categories as a result of the immediate vesting of certain awards granted to employees hired as a result of the Ticketfly acquisition, which was the primary driver of the decrease in operating expenses from the fourth quarter of 2017 to the first quarter of 2018.

Liquidity and Capital Resources

As of June 30, 2018, we had cash of $258.7 million and funds receivable of $37.1 million. Our cash includes bank deposits held by financial institutions and is held for working capital purposes. Our funds receivable represents cash-in-transit from credit card processors that is received to our bank accounts within five days of the underlying ticket transaction. Collectively, our cash and funds receivable balances represent a mix of cash that belongs to us and cash that is due to the creator. The amounts due to creators is shown as accounts payable, creators on our consolidated balance sheets, which was $277.6 million as of June 30, 2018.

We also make payments to creators to provide the creator with short-term liquidity in advance of ticket sales. These are classified as creator advances, net, on our consolidated balance sheets. Creator advances are recovered by us as tickets are sold by the respective creator, and are expected to be recovered within 12 months of 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 $7.6 million and $20.1 million as of December 31, 2016 and 2017, respectively, and $21.6 million as of June 30, 2018.

As of June 30, 2018, approximately 62.8% 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.

We believe that our existing cash, together with cash generated from operations 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.

 

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Sources of Liquidity

Since our inception, we have financed our operations and capital expenditures primarily through non-registered sales of redeemable convertible preferred stock and common stock, cash flows generated by operations and issuances of debt. Through June 30, 2018, we have raised a total of $334.0 million from the sale of redeemable convertible preferred stock, net of costs associated with such financings.

Consolidated Statements of Cash Flows Data

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2016     2017     2017     2018  
     (in thousands)  

Net cash provided by (used in):

        

Operating activities

   $ 2,785     $ 29,821     $ 54,102     $ 48,835  

Investing activities

     (10,159     (140,652     (8,560     6,991  

Financing activities

     2,325       159,514       (146     13,222  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and restricted cash

   $ (5,049   $ 48,683     $ 45,396     $ 69,048  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Operating Activities

The net cash provided by operating activities of $48.8 million for the six months ended June 30, 2018 was due primarily to net loss of $15.6 million with adjustments for depreciation and amortization of $16.8 million, stock-based compensation expense of $8.1 million, amortization of creator signing fees of $3.1 million, change in fair value of redeemable convertible preferred stock warrant liability of $6.1 million, an increase of accounts payable to creators of $29.9 million due to increases in paid tickets, an increase in other accrued liabilities of $8.7 million, decreases in funds receivable of $14.8 million, partially offset by a gain on extinguishment of promissory note of $16.3 million, an increase in creator signing fees, net of $4.4 million and an increase in creator advances, net of $4.2 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 operating activities of $54.1 million for the six months ended June 30, 2017 was due primarily to net loss of $8.3 million with adjustments for depreciation and amortization of $6.0 million, stock-based compensation expense of $3.8 million, amortization of creator signing fees of $1.8 million, an increase of accounts payable to creators of $43.7 million due to increases in paid tickets, an increase in accrued taxes of $5.2 million, a decrease in funds receivable of $7.1 million, partially offset by increases in creator signing fees, net of $2.8 million and creator advances, net of $2.3 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 operating activities of $29.8 million in 2017 was due primarily to net loss of $38.5 million with adjustments for depreciation and amortization of $19.4 million, stock-based compensation expense of $10.9 million, amortization of creator signing fees of $4.3 million, an increase of accounts payable to creators of $52.8 million due to increases in paid tickets, an increase in accrued taxes of $10.7 million, partially offset by increases in funds receivable of $18.1 million, increase in creator signing fees, net of $8.6 million and an increase in creator advances, net of $5.8 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 operating activities of $2.8 million in 2016 was due primarily to net loss of $40.4 million with adjustments for depreciation and amortization of $7.6 million, stock-based compensation expense of $8.5 million, amortization of creator signing fees of $2.7 million, impairment charges of $1.8 million, an increase in accounts payable to creators of $37.1 million due to increases in paid tickets, an increase in other accrued liabilities of $3.9 million, an increase in accrued taxes of $3.7 million. These increases were partially

 

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offset by an increase in funds receivable of $9.9 million, increase in creator signing fees, net of $6.0 million and an increase in creator advances, net of $4.6 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 $7.0 million for the six months ended June 30, 2018 was due to $14.1 million net cash provided through our acquisition of Ticketea in April 2018, partially offset by capitalized software development costs of $4.3 million and purchases of property and equipment of $2.7 million.

The net cash used in investing activities of $8.6 million for the six months ended June 30, 2017 was due to capitalized software development costs of $3.3 million, $4.2 million paid for our acquisition of ticketscript, net of cash acquired in January 2017 and $1.1 million paid for purchases of property and equipment.

The net cash used in investing activities of $140.7 million in 2017 was due to cash paid for our acquisitions of Ticketfly and ticketscript, net of cash acquired of $132.0 million, capitalized software development costs of $6.1 million and purchases of property and equipment of $2.5 million.

The net cash used in investing activities of $10.2 million in 2016 was due to capitalized software development costs of $5.5 million, $3.0 million for purchases of property and equipment and $1.7 million cash used for our acquisitions of Queue Ticketing, LLC and Nvite Inc., net of cash acquired.

Cash Flows from Financing Activities

The net cash provided by financing activities of $13.2 million during the six months ended June 30, 2018 was due primarily to proceeds from our WTI term loans of $45.0 million and $4.2 million in proceeds from exercise of stock options, partially offset by $35.5 million in principal payments on our debt obligations, primarily repayment of the Ticketfly promissory note.

The net cash used in financing activities totaled $0.1 million during the six months ended June 30, 2017 and was driven by $0.7 million in stock option exercise proceeds offset by $0.6 million in principal payments on our debt obligations.

The net cash provided by financing activities of $159.5 million in 2017 was due to $133.9 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 term loan, $2.3 million excess tax benefit from stock-based compensation awards, $1.8 million cash proceeds from stock option exercises, partially offset by principal payments on debt obligations of $7.8 million.

The net cash provided by financing activities of $2.3 million in 2016 was due primarily to cash proceeds received in connection with the exercise of stock options of $2.9 million offset by $0.4 million in cash payments for capital lease obligations and $0.2 million for principal payments related to our build-to-suit lease obligation.

Concentrations of Credit Risk

As of December 31, 2016 and 2017 and June 30, 2018, 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 2016 and 2017, or for the six months ended June 30, 2017 and 2018.

 

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Contractual obligations and commitments

Our principal commitments consist of debt, capital commitments to creators, rental payments under our build-to-suit lease, operating leases, purchase commitments and capital leases. The following table summarizes our commitments to settle contractual obligations as of December 31, 2017:

 

     Payments due by Period  
     Total     Less than
1 year
    Between
1-3 years
    Between
3-5 years
    More than
5 years
 
     (in thousands)  

Term loans, including interest

   $ 39,997     $ 3,450     $ 20,565     $ 15,982     $ —    

Promissory note, including interest

     66,582       3,320       6,650       56,612       —    

Future creator signing fees and creator advances

     33,020       18,254       11,616       3,150       —    

Build-to-suit lease obligation

     18,759       5,440       11,376       1,943       —    

Operating leases

     6,146       1,561       2,956       1,629       —    

Sublease income

     (13,604     (3,881     (8,308     (1,415     —    

Purchase commitments

     12,500       5,000       7,500       —         —    

Capital leases

     25       25       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 163,425     $ 33,169     $ 52,355     $ 77,901     $       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Term Loans

We entered into a loan and security agreement with WTI in June 2017, which provided for a secured credit facility of up to $60.0 million of term debt. In September 2017, we borrowed $30.0 million as a term loan under the facility which bears interest at 11.5% annually and has a maturity date of February 2022. In March 2018, we borrowed the remaining $30.0 million under the facility which bears interest at 11.75% annually and has a maturity date of September 2022.

In May 2018, we entered into a second loan and security agreement with WTI, which provided for a secured credit facility of up to $15.0 million of term debt. At that time, we borrowed $15.0 million as a term loan under the facility which bears interest at 12.0% annually and has a maturity date of November 2022. Monthly payments of interest are due for the first 24 months and equal monthly installments of principal and interest are due for 30 months thereafter. By the end of the equal monthly installments of principal and interest, the principal under the loan will be fully repaid. The loan may be prepaid at any time for an amount equal to the outstanding balance plus accrued interest, plus an amount equal to all scheduled but unpaid payments of interest that would have accrued and been payable through the maturity date. If we consummate a qualified public offering within the first 24 months of the term loan and we prepay the term loan in conjunction with the qualified public offering, we are required to prepay the outstanding contractual balance plus accrued interest within fifteen days of the consummation of the qualified public offering plus an additional amount equal to 50% of all interest that would have been incurred through the end of first 24 months of the loan. If we consummate a qualified public offering within 30 months following the first 24 months of the loan and we prepay the term loan in conjunction with the qualified public offering, we are required to prepay the outstanding contractual balance plus accrued interest within fifteen days of the consummation of the qualified public offering plus an additional amount equal to 50% of all interest that would have been incurred through the end of the 30 months following the first 24 months of the loan.

In May 2018, we modified the terms of our first loan and security agreement so that the $30 million borrowed in March 2018 under our first loan and security agreement is subject to the same contingent prepayment feature in the event of a qualified public offering that is included in our second loan and security agreement with WTI.

Our loan and security agreements with WTI contain customary conditions to borrowing, events of default and covenants, including covenants that restrict our ability to incur indebtedness, grant liens, make certain

 

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distributions to our equity holders prior to a qualifying public offering of our securities, make investments or engage in transactions with our affiliates. Our loan and security agreements with WTI do not contain financial maintenance covenants. We were in compliance with all covenants under the our loan and security agreements as of June 30, 2018.

Promissory Note

In September 2017, we acquired 100% of the outstanding equity of Ticketfly, LLC for $201.1 million, which consisted of $151.1 million in cash and a $50.0 million Convertible Promissory Note (Promissory Note). The Promissory Note is due five years from the issuance date and bears interest at a rate of 6.5% per annum, payable quarterly in cash or in-kind for the first year at the discretion of Eventbrite, and in cash thereafter. In March 2018, we reached an agreement with the seller of Ticketfly to retire the Promissory Note. The face value of $50 million was settled in full for $34.7 million which represented $33.0 million of principal and $1.7 million of accrued interest.

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 owners 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 $3.5 million during each of 2016 and 2017 and $1.7 million for each of the six months ended June 30, 2017 and 2018. The lease financing obligation was $30.3 million and $29.5 million as of December 31, 2016 and 2017, respectively, and the net book value of the asset as of those dates was $30.3 million and $29.2 million, respectively. As of June 30, 2018, the lease financing obligation was $29.0 million and the net book value of the asset was $28.7 million. See Note 9 to our consolidated financial statements 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. The lease expires in 2028.

Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements and did not have any such arrangements during 2016, 2017 or for the six months ended June 30, 2018.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires us to make certain estimates and judgements that affect the amounts reported in our consolidated financial statements related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis and our actual results could differ from these estimates.

 

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Revenue Recognition

Our net revenue is derived from our service fees and payment processing fees and is recognized as tickets for an event are sold and processed since we believe that is when all the following conditions are met:

 

   

There is persuasive evidence of an arrangement;

 

   

The service has been provided to the customer;

 

   

The collection of the fees is reasonably assured; and

 

   

The amount of fees to be paid is fixed or determinable.

Net revenue is presented net of sales taxes, value added taxes and reserves for customer refunds and payment chargebacks. Estimates for customer refunds and credits are based on our historical experience for such transactions and are monitored by us on an ongoing basis. If an event is cancelled by a creator, then any obligations to provide refunds to event attendees are the responsibility of that creator. If a creator is unwilling or unable to fulfill their refund obligations, we may, at our discretion, provide attendee refunds and would reverse the net revenue recognized from our fees for this event (any refund would be recognized as a sales, marketing and support expense). Net revenue is also presented net of amortization of creator signing fees. The benefit we receive by securing exclusive ticketing and payment processing rights with certain creators from these signing fees is inseparable from the customer relationship with the creator, and accordingly these payments are recorded as a reduction of revenue.

Our customers are event creators who are selling tickets for events using our platform. The customer has the choice of whether to use EPP or to use a third-party payment processor, referred to as FPP. Under the EPP option, Eventbrite is the merchant of record and is responsible for processing the transaction and collecting the face value of the ticket and all associated fees at the time the ticket is sold. The fee structure for EPP consists of a service fee as well as payment processing fees. The service fee consists of a fixed dollar amount and a fixed percentage of the ticket price. The payment processing fee is an additional fixed percentage that is charged per transaction. This payment processing fee is only applicable for customers who use EPP. Approximately 90% of revenue generated on our platform is generated by customers who choose to use EPP for their payment processing. Eventbrite is also responsible for remitting these amounts collected, less the Eventbrite fees, to the event creators after the event has taken place. Under the FPP option, Eventbrite is not responsible for processing the transaction or collecting the face value of the ticket and associated fees. In this case, we charge only a service fee and we invoice the customer for all Eventbrite fees as tickets are sold. Under both EPP and FPP options, revenue is recognized related to our fees only and not for the face value of the ticket sold or for other amounts collected on behalf of the creator.

Effective January 1, 2019, we will be required to adopt Accounting Standard Codification Topic 606, Revenue from Contracts with Customers (ASC 606). We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

Business Combinations, Goodwill and Intangible Assets

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. Such valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

 

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Goodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assets acquired, net of liabilities assumed. Goodwill is not amortized but is evaluated for impairment annually on the first day of the fourth quarter, or more frequently if events or changes in circumstances indicate the goodwill may be impaired.

Events or changes in circumstances which could trigger an impairment review include significant changes in the manner of our use of the acquired assets or the strategy for the our overall business, significant negative industry or economic trends, significant underperformance relative to historical or projected future results of operations, a significant adverse change in the business climate, an adverse action or assessment by a regulator, unanticipated competition or a loss of key personnel.

We have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform the first of a two-step impairment test.

The first step involves comparing the estimated fair value of the reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then a second step is required that compares the carrying amount of the goodwill with its implied fair value. The estimate of implied fair value of goodwill may require valuations of certain internally-generated and unrecognized intangible and tangible net assets. If the carrying amount of goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.

Acquired intangible assets, net consists of identifiable intangible assets, consisting of developed technology, customer relationships and trade names resulting from our acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated economic lives following the pattern in which the economic benefits of the assets will be consumed, straight-line. Acquired intangible assets are presented net of accumulated amortization in the consolidated balance sheet.

Creator Signing Fees and Creator Advances

Creator signing fees represent contractual amounts paid to creators pursuant to event ticketing and payment processing agreements. Creator signing fees are additional incentives paid by us to secure exclusive ticketing and payment processing rights with certain creators. 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. Amortization of creator signing fees is recorded as a reduction of revenue in the consolidated statements of operations. Creator signing fees are presented net of reserves and allowances for potentially unrecoverable amounts on the consolidated balance sheets.

Creator advances represent contractual amounts paid to creators pursuant to event ticketing and payment processing agreements. Creator advances provide the creator with funds in advance of the event and are subsequently recovered by withholding amounts due to us from the sale of tickets for the event until the creator payment has been fully recovered. Creator advances are presented net of reserves and allowances for potentially unrecoverable amounts on the consolidated balance sheets.

Income Taxes

We report income taxes in accordance with ASC 740, Income Taxes, which requires us to use the asset and liability method, requiring the recognition of deferred tax assets and liabilities for the expected future tax

 

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consequences of events that have been recognized in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

We recognize tax benefits from uncertain tax positions if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe we have adequately provided for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We adjust these allowances when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our consolidated financial statements.

On December 22, 2017, the Tax Act was passed into law. The Tax Act provides broad and significant changes to the U.S. tax code and how the U.S. imposes income tax on multinational corporations. The Tax Act requires complex computations that were not previously provided for under U.S. tax law. These computations require significant judgments to be made regarding the interpretation of the provisions within the Tax Act along with preparation and analysis of information not previously required. In conjunction with the Tax Act, the SEC issued Staff Accounting Bulletin (SAB) 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, that allows for us to record provisional amounts until a final assessment can be made within a period not to exceed one year from the date of enactment.

We are required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S. deferred tax assets and liabilities as well as the corresponding valuation allowance against our net U.S. deferred tax assets. In accordance with SAB 118, we recorded a $21.9 million reduction to deferred tax assets and related valuation allowance in connection with the re-measurement of certain deferred tax assets and liabilities, resulting in no impact to our statement of operations. We estimate that no current tax expense should be recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings, a provisional estimate at December 31, 2017.

Stock-Based Compensation

Stock-based compensation expense to employees is measured based on the grant-date fair value of the awards and recognized in the consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (the vesting period of the award). We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We measure the fair value of RSUs based on the fair value of the underlying shares on the date of grant. Compensation expense is recognized over the vesting period of the applicable award using the straight-line attribution method.

Compensation expense for non-employee stock options is recorded as the options vest. Options subject to vesting are required to be periodically revalued over their service period, which is the same as the vesting period.

The Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of our underlying common stock, the expected term of stock options, the expected volatility of the price of our common stock, risk-free interest rates and the expected dividend yield of our common stock. The assumptions used in our option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

These assumptions are estimated as follows:

 

   

Fair Value of Common Stock. Because our common stock is not publicly traded, we must estimate the fair value of common stock, as discussed in the section “Common Stock Valuation” below.

 

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Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon bonds with an equivalent remaining term of the stock options for each stock option group.

 

   

Expected Term. We determine the expected term based on the average period the stock options are expected to remain outstanding generally calculated as the midpoint of the stock options vesting term and contractual expiration period, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

 

   

Expected Volatility. We determine the price volatility factor based on the historical volatility of publicly-traded industry peers. To determine our peer group of companies, we consider public companies in the technology industry and select those that are similar to us in size, stage of life cycle and financial leverage. We do not rely on implied volatilities of traded options in our industry peers’ common stock because the volume of activity is relatively low. We intend to continue to consistently apply this methodology using the same or similar public companies until

 

   

Expected Dividend Yield. We have not paid and do not anticipate paying any cash dividends in the foreseeable future and, therefore, use an expected dividend yield of zero.

The following table summarizes the assumptions, other than fair value of our common stock, relating to our stock options granted during each of the periods indicated:

 

     Year Ended December 31,      Six Months Ended June 30,  
     2016      2017      2017      2018  

Expected dividend yield

     —          —          —          —    

Expected volatility

     57.6% - 62.8%