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Evenbrite, Inc. (EB) Q1 2019 Earnings Call Transcript

By Motley Fool Transcribing – May 2, 2019 at 10:23AM

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EB earnings call for the period ending March 31, 2019.

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Evenbrite, Inc. (EB 7.68%)
Q1 2019 Earnings Call
May. 01, 2019, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon. My name is Chantelle, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Eventbrite, Inc. first-quarter 2019 earnings conference call.

[Operator instructions] Stacey Finerman, you may begin your conference.

Stacey Finerman -- Head of Investor Relations

Thank you, operator. Good afternoon and welcome to the first-quarter 2019 Eventbrite earnings call. Prior to this call, we released our shareholder letter announcing our financial results. It can be found on our website at

Before we begin, I would like to remind you that during today's call, we will be making forward-looking statements regarding future events and financial performance, including providing net revenue and non-GAAP adjusted EBITDA guidance for the second quarter of 2019. We caution that such statements reflect our best judgment as of today, May 1, based on factors that are currently known to us and that actual future events or results could differ materially due to several factors, many of which are beyond our control. For a more detailed discussion of the risks and uncertainties affecting our future results, we refer you to the section titled Forward-Looking Statements in our shareholder letter and our filings with the SEC. We undertake no obligation to update any forward-looking statements made during the call to reflect the events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law.

During this call, we will present adjusted EBITDA and free cash flow, both of which are non-GAAP financial measures. These 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 a substitute for analysis of our results of operations as reported under GAAP. Reconciliations to the most directly comparable GAAP financial measures are available in our shareholder letter. We encourage you to read our shareholder letter as it contains important information about GAAP and non-GAAP results.

And I will now turn the call over to Julia Hartz, co-founder and chief executive officer. Julia?

Julia Hartz -- Co-Founder and Chief Executive Officer

Thank you, Stacey, and thank you all for joining us. Let's dive right into our top line results. As you can see from our shareholder letter, overall paid ticket growth in the first quarter was 14.5%. Our self sign-on channel was the standout in the period with reported paid ticket growth of more than 23% in the quarter.

While this is stronger than sales, our commitment to growth requires us to drive for better results. We took on a substantial challenge when we acquired Ticketfly and spent time and resources to address the product demand and competitive landscape. This resulted in a complex and consuming integration process. Internally, resources dedicated to Ticketfly has been primarily focused on integrating existing revenues as opposed to delivering net new growth.

As we move to close the chapter on music migration, we are focused on delivering growth for the business. Our self sign-on channel has been and will continue to be a key area of focus for driving growth. We will also continue to support a highly targeted sales effort that ensures we reach the right creators who can be successful on the platform. We will align our sales, marketing and support efforts to reinforce this focus, ensuring that we attract new creators across all channels that can flourish on the platform.

While we recognize we have multiple opportunities beyond ticketing, we appreciate that we will only earn the right to take on those possibilities if we deliver healthy growth for our business on a sustained basis. Lastly, I wanted to update you on a change to our team that supports this focus on growth. As we discussed in our press release, we will begin a public search for a CFO. We are doing this to allow Randy to transition to a new role as our chief strategy officer.

Until a new CFO is hired and onboarded however, Randy's duties will not change, and he will remain focused on being our CFO and delivering a smooth transition. With that, I will turn the call over to Randy to briefly discuss our financial results and outlook before turning to your questions. Randy?

Randy Befumo -- Chief Financial Officer

Thank you, Julia. As a reminder, the full details of our results are available in our shareholder letter. I will now review the financial results for the first quarter, as well as our expectations for the second quarter of 2019. Unless otherwise noted, all comparisons will be on a year-over-year basis.

Net revenue grew to 81 million in the first quarter, up 9%, reflecting strong growth from the self sign-on channel, mitigated by weaker results in the sales channel, specifically, the North American music business. To better understand net revenue growth, it is useful to break it down into different components. Our self sign-on channel made up the majority of our overall revenue growth. In the quarter, we saw volume growth of over 23%.

For sales, mid-teens paid ticket growth for non-music sales was mitigated by only modest growth in the North American music business. Adjusted EBITDA was $5 million in the quarter, down from 9 million in the comparable quarter of 2018, representing a decline in margin from 11.8% to 6.1%. Investment in product development and public company expenses taken on in late 2018 drove this outcome. We will remain focused on working down G&A costs.

Next, I will discuss guidance for the second quarter. We expect net revenue in the range of 74 to $78 million, representing 13% year-over-year growth at the midpoint. Keep in mind, in the second quarter of 2018, we had a negative impact from the data security incident on the Ticketfly platform. If we were to add this back, net revenue growth for the second quarter would be 3% at the midpoint.

Factors that play in the second quarter include lower sales activity in North American music sales, estimated migration loss and currency impact. While we do not give guidance for the full year, the historical trend would be for Q3 and Q4 to look similar to Q1 and Q2 adjusting for currency. We also anticipate that this historical pattern will be impacted by migration loss as we sunset the Ticketfly platform in the second half. For the first quarter, we expect adjusted EBITDA to be in the range of negative 4 million to breakeven or zero.

The business continues to have multiple promising drivers of growth now and in the future. And to fuel this growth, we need to invest. Both product development as well as sales, marketing and support should increase from current levels as these levers are the ones that will drive future growth. Lastly, I will note that reflecting on Julia's comments about my transition, my full-time focus will remain on the CFO role until we found, closed and onboarded my successor.

Beyond that, this month is my sixth year anniversary at Eventbrite, and I look forward to working with Julia and the team to continue to drive Eventbrite's growth for many years to come. Three final notes for those building models. First, the guidance assumes normal seasonal trends we have previously discussed where we generate cash in the first and third quarters and work down cash in the second and fourth quarters. Second, I want to highlight certain cost reclassifications we made in the quarter for comparative purposes.

Beginning this quarter, we classified 2.9 million in amortization of acquired customer relationship intangibles and certain other costs as sales, marketing and support expenses rather than G&A. There was no change to total operating expenses for either the current period or the prior period based on this reclassification. We believe this placement better reflects the underlying nature of the costs. Third, as of the end of the quarter, our fully diluted share count was 78.7 million shares.

Because the company is operating at a net loss from a GAAP standpoint, fully diluted shares are equal to basic shares. If we were in a profit position, we would include approximately 15.1 million additional shares from in the money options and RSUs, bringing the total shares outstanding to around 93.8 million. With that, we will open the call to questions. Operator?

Questions & Answers:


[Operator instructions] Your first question comes from Heath Terry with Goldman Sachs. Your line is open.

Heath Terry -- Goldman Sachs -- Analyst

Great. Thank you. I guess, Julia, as you guys kind of look at the course of things, over the course of the quarter, you were pretty late in giving guidance just given the timing of the call on May -- on March 7. Wondering how much of what we saw on the shortfall in the quarter was something that changed materially in the last three weeks of the quarter.

And then to what extent did that carryforward or is carrying forward into Q2? I know you said you don't give full-year guidance, but just obviously, trying to get a sense of the trajectory of things. And then, as we -- as you think sort of strategically about the sunsetting of the Ticketfly business, how has this process sort of impacted the way you're thinking about music as a category longer term and sort of what the incremental cost, and then cost associated with that category compared to and operating the kind of business that Ticketfly has in that category compared to what you've been used to in your core and the rest of your business? And then Randy, I guess just last quarter, it sounded like there was maybe a little bit more competitive activity that you were seeing in the category from some competitors that maybe hadn't been as active in the past or as aggressive in the past in cutting tracks and trying to strike deals. And so just curious sort of where that landed this quarter and how you would gauge the impact of competition in the quarter and your expectations for that going forward.

Julia Hartz -- Co-Founder and Chief Executive Officer

Thanks, Heath. I'll let Randy answer the first question on guidance, and then I'll answer your questions on music and competition. Randy?

Randy Befumo -- Chief Financial Officer

Yes, Heath. So on the guidance front, you are correct in that we gave guidance relatively late with the benefit of the February and January close. We didn't see anything materially change from there other than year-over-year currency movements and similar kind of small items related to the close process.

Julia Hartz -- Co-Founder and Chief Executive Officer

And on Ticketfly, you're right that we're planning to sunset the Ticketfly platform in the second half of this year on schedule. And our focus around migrating customers has been on helping them with changing their operations to be on the Eventbrite platform versus Ticketfly, as well as building product capabilities to meet their needs. What's interesting about the capabilities that we're building is that it makes the platform stronger overall for all high-frequency creators. So we do think there is value that goes beyond music as a category in the work that we're doing.

And finally, on competition, we -- as you know, our overall total addressable market is highly fragmented. We look at the mid-market as our target market, and it's very large. It's global. It has many different types of event creators.

And Eventbrite uniquely solves the problems that they have on one single platform. While the dynamic in music is more challenging than other categories, we feel very strong about our strategy to serve the small and medium-sized venues that fit within our broader strategy of the mid-market.

Heath Terry -- Goldman Sachs -- Analyst

OK great. Thank you.


The next question comes from Youssef Squali with SunTrust. Your line is open.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Great. Thank you very much. A couple of questions. Can you just elaborate a little bit on the increase in contra revenue items? You mentioned I think they were driven by higher -- more of creators signing fees, which I think had a negative impact on revenue per ticket.

Is that a onetime? Is that something that's with us for the remainder of the year? Just trying to figure out how to look at average revenue per ticket going out. And then maybe can you just provide some color on where are we in that migration process on to Eventbrite from Ticketfly, maybe the percentage of creators on the music side that have migrated. I think in the letter, you talked about accelerating pace of migration. That will be really helpful.

I think, historically, last quarter, I think you talked about a completion of the migration in the June-July time frame. I think now you're talking about the second half. Can you maybe be a little bit more specific?

Randy Befumo -- Chief Financial Officer

Yes. Youssef, thanks for the questions. On amortization, our amortization of signing fees grew faster than revenues as is evident in the 10-Q. As a reminder, we -- whenever we have a signing fee, we basically amortize it over the life of the contract or three years, whichever is shorter.

And that is our accounting, and it's a contra revenue account against revenues. Our belief is that this is an upfront discount we're giving. And therefore, that should be recognized in revenues. This is mostly related to ongoing new business with the addition of customers that are coming up for contract renewals and the migration process are also part of these discussions.

So we are -- we view this as sort of the normal course of it and have seen leverage increase relative to the dollar signing bonus we deploy on a year-over-year basis. But we have a cluster of migration activity that's influencing the overall numbers.

Julia Hartz -- Co-Founder and Chief Executive Officer

And on the migration process, we stayed consistent in saying that we would sunset the platform in the second half of the year and that we expect to migrate many of the customers in the June-July time frame. Our focus is on, again, managing the operational change for music clients as they transfer from the Ticketfly platform to the Eventbrite platform. And that has been accelerated by not only the work of our operations team but most notably, the product capabilities that we've now launched on our platform to meet the needs of these music venues.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

OK. Thanks, Julia. Thanks, Randy.


Your next question comes from Mark Mahaney with RBC Capital Markets. Your line is open.

Mark Mahaney -- RBC Capital Markets -- Analyst

OK. Let me just follow-up on that last one question. I just -- I recall on the quantification of the music migration that there were about 700 venues that were left in that music migration. Can you just talk about where that number is now, if I got that number right? Secondly, could you talk about the non-music verticals and talk about what kind of trends you're seeing there in either, in terms of creators or in terms of ticket growth? Anything that's particular to call out? And then third, Julia, I know Heath asked you about competition.

But I -- can you just try that again? I'm not sure I got that. Do you -- and the specific question I want to ask you -- or the general question I want to ask you is, is there anything here that you interpret as competitive inroads that are causing this reduction in growth and is it clear that there's evidence one way or the other on that you could talk to.

Julia Hartz -- Co-Founder and Chief Executive Officer

Thanks, Mark. On the first question around the number of venues, we aren't disclosing that number. But I can tell you that we've seen an acceleration again in the migration pace in Q1 that is closely linked to the product capabilities that we've now launched on the platform, and we'll continue to see that momentum increase as we get to the second half of the year where we're going to be sunsetting the platform. I also think that we faced the challenges of migration loss more heavily in the second half because of that sunset commitment to the platform.

On the non-music verticals and the trends that we're seeing there. What's interesting about Eventbrite is the breadth of content or events that get published especially through our self sign-on channel. But in total, what we're seeing is a growing global live experience market that is professional in nature. And I think the unique benefit we have by being a horizontal player in many different categories is the unique view into emerging new categories.

Some trends that we see in live experiences today that are exciting me is the new way that brands are using experiences to connect with their consumers. One example is Macy's Story launch last month in 36 stores and using the Eventbrite platform as the basis of their event ticketing. A second emerging category that you may find interesting is podcast recordings turning into live events. So essentially, people are buying tickets to go view live podcasts, and that's a new form of consuming media through live experiences.

These are two different examples of new emerging trends that we can see on our platform that allow us to align better our marketing efforts and our sales acquisition efforts. Finally, on the competition front, I'll try it again. So outside of music, our competitive landscape has been unchanged since we IPO-ed. It's consistently off-line methods, so event creators coming online with their events for the first time.

It's small ticketing companies that are very fragmented where we have great leverage given our scale and our technology. And finally, it's coupled together internal solutions that are subpar to the Eventbrite platform and all that it offers. In the music space, we see more challenging competitive dynamics play out, especially in the upper end of the venue market, in the medium to large-sized venues. However, our focus is and will remain on small to medium-sized venues that map to the mid-market of other categories in our space.

So again, to get really crisp, we focus on everything under arenas and large venues and above purely social events like birthday parties, etc.

Mark Mahaney -- RBC Capital Markets -- Analyst

Got it. Thanks, Julia.

Julia Hartz -- Co-Founder and Chief Executive Officer

Thanks Mark.


Your next question comes from the line of Doug Anmuth with JP Morgan. Your line is open.

Doug Anmuth -- J.P. Morgan -- Analyst

First, Randy, I was hoping you could clarify, just want to make sure on the gaps between the 21% self-sign GTF growth down to 14.5% paid tickets growth and the 9% revenue growth. Between GTFs and paid tickets, is that all kind of music and Ticketfly related? And then between paid tickets and revenue, is that essentially the amortization and FX? Or are there any other factors we should be thinking of there? And did you give a total growth number for gross ticket fees? And then separately, can you just give us an update on Square partnership and if that's still on track to launch in the back half of the year?

Randy Befumo -- Chief Financial Officer

Yes. Doug, so let me take the first question. So at the highest level, we generate paid ticket growth in the quarter. It was 14 and a half percent.

You adjust from that paid ticket growth by changes in gross ticket fees or you can think of it as revenue per ticket. So all else equal, we look to drive for volume on the platform. When we see positive elasticity of demand, we'll lean in. We believe that there are many more low-priced tickets in the world than high-priced tickets.

And so in general, we've seen a little bit of pressure there over time for some time, absent the introduction of packages last year. When you drop from gross ticket fees to net revenues, the major drivers there are the contra revenue categories which include signing fees. But there's a few other things where effectively we are losing revenue between GTF and the revenue line. Refunds are probably the biggest line item in that.

And so that's sort of how you walk it down. In general, if you're looking at the sort of question of like how do you -- and sorry, one last thought. A big part of that GTF change is currency pressure. And so in a period where you have heightened currency pressure, you'll see elevated changes in GTF per ticket.

In a period where you have lower currency pressure, not so much. The first quarter was higher than average for us historically, and it's part of that equation. Does that answer your question?

Doug Anmuth -- J.P. Morgan -- Analyst

That does. That's helpful. And was there any total GTF growth or no?

Randy Befumo -- Chief Financial Officer

We aren't disclosing that. It's an intermediary metric that creates more confusion than help at times. But we do find it to be helpful as a directional indicator of the underlying revenue growth of the various components of the ticketing business.

Julia Hartz -- Co-Founder and Chief Executive Officer

On the Square partnership, we are still looking to launch in the second half of the year.

Doug Anmuth -- J.P. Morgan -- Analyst

Thank you both.


There are no further questions at this time. I would now like to turn the call over to Julia Hartz for closing remarks.

Julia Hartz -- Co-Founder and Chief Executive Officer

Thank you, all, for joining us today.


[Operator signoff]

Duration: 26 minutes

Call participants:

Stacey Finerman -- Head of Investor Relations

Julia Hartz -- Co-Founder and Chief Executive Officer

Randy Befumo -- Chief Financial Officer

Heath Terry -- Goldman Sachs -- Analyst

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Mark Mahaney -- RBC Capital Markets -- Analyst

Doug Anmuth -- J.P. Morgan -- Analyst

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Motley Fool Transcribing has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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