Eventbrite Inc (EB) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Eventbrite, Inc. Third Quarter 2020 Earnings Conference Call.

(Operator Instructions)

Please be advised that today's conference is being recorded.

(Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Ronald Clark, Vice President, Investor Relations. Thank you. Please go ahead, sir.

Good afternoon, and welcome to Eventbrite's Third Quarter 2020 Earnings Call. Prior to this call, we've released our shareholder letter announcing our financial results. It can be found on our website, investor.eventbrite.com.

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. We caution that such statements reflect our best judgment as of today, November 6, 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 events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law.

During the 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 generally accepted accounting principles and have limitations and analytical tools. 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 with that I'll now turn the call over to Julia Hartz, Co-Founder and Chief Executive Officer.

Thanks, Ron. Hi, everyone, and thank you for joining us on the call today.

I look forward to giving you a business update with our CFO, Lanny Baker. It's safe to say 2020 has been a harrowing year for the live events industry, and no one knows this better than our event creators.

They have overcome great financial hardship while navigating constantly evolving restrictions and new safety protocols, all while continuing to bring people together at a time when we need it more than ever.

Our third quarter results, which include revenue growth of 161% from the second quarter of this year, demonstrate the resilience and creativity of our customers in adapting to this challenging environment.

We've worked closely with our customers so that they can more easily comply with COVID-related mandates. And as a result, we have seen consistent improvement since the end of March.

Eventbrite creators hosted an impressive 1.3 million events on the platform in the third quarter. To put that into context that represents 112% of the number of events hosted on the platform in the third quarter of last year.

Creators are hosting smaller, more frequent and socially dispensed in-person gathering as well as compelling online events to meet consumer demand. Total ticket volume reached more than $60 million in the third quarter, representing a nearly 50% increase from the second quarter.

This activity on the platform has helped drive the initial stage of recovery for our business. Paid ticket volumes grew in each month of the third quarter and nearly double from the second quarter.

Pay tickets to in-person events more than tripled from Q2 to Q3, while pay tickets to virtual events remained strong, up nearly 30x from last year.

We believe these trends not only illustrate creator's ingenuity, but also their confidence in our platform's ability to deliver for them when it matters most.

To give you a sense of how our platform is serving creators in this critical time for their businesses, I want to share 2 stories with you.

I'll start with Kate Levenstein, who founded in Bootstrap Canon Ball production. She has been a frequent Eventbrite creator for over 6 years, hosting nearly 100 events on our platform in 2019 alone. She leads the small team of foodies who have amassed a strong following for the unique experiences that they bring to life in iconic venues across the country.

When social distancing restrictions halted plans in 2020 for their new hard seltzer tasting festival called Seltzerland, Kate relied on her founding pillar to always see opportunities and not roadblocks. While walking a local golf course with her husband during March, she had the inspired idea to pivot the format from stadiums to golf courses because their beautiful, large open spaces, their underutilized, and the layout lends itself to a socially distanced experience.

To bring the event to life safely, Kate and her team had to carefully manage the flow of attendees. To do that, they use Eventbrite to create time entry tickets, which allows them to pace out the arrival times of their gap.

Eventbrite's creator focused solutions have enabled their team to host 6 successful events this year with over 6,000 tickets sold. Kate recently told us, even though we're in this difficult period of time, I think we're all very creative people. That's why we're event organizer. We're resilient, we're quick on our feet, and we make it happen. We couldn't agree more with Kate.

The next story demonstrates how new customers are using the versatility and ease of use of our platform to pivot their business model. Naples in the suburbs of Wheaton, Illinois cause Lezo, for the majority of its tickets to walk up visitors and did not have an online ticketing solution in place before the pandemic.

After being closed to public visitors for 3 months due to COVID restrictions, Cammy Romaco, who is causing Zoos Education and Guest Experience manager needed a solution fast.

She turned to Eventbrite because she could easily set up a destination for her customers to purchase advanced tickets and allow for proper capacity management and social distancing.

Using Eventbrite enables to Zoos to make their visitors (inaudible) . Additionally, they are expanding their programming to include virtual events to schools who cannot come visit in person for now.

Cammy now has a tool to be able to market more effectively in the future than she knows and understands their customers better. This is a great example of how Eventbrite is not only giving customers control to navigate COVID requirements but is enabling them to manage their entire program of events to build their community and help the businesses thrive.

So why are we excited about the future? We believe that the ways in which the live events industry is changing will continue to play to our strength. Eventbrite was created for smaller events and independent entrepreneurial creators, and we're seeing them meet the recovery of live events.

In fact, we attracted 130,000 new creators to the platform since the end of March. You don't have to call anyone to use Eventbrite. You don't need to sign a contract, don't even need to be technically advanced to use the platform's full feature set. Eventbrite is a self-service intuitive product that helps creators begin promoting and selling tickets to their events within a minute. It gives them the control they need to quickly adapt to the dynamic environment. While we expect the recovery of in-person events will take time, we believe that our platform is uniquely positioned to serve the needs of the independent creators, help them grow their businesses and meet the recovery of the live experience economy.

Before I turn it over to Lanny, I want to take a moment to thank our team for their dedication and the excellent work they've done to help position Eventbrite for long-term success.

Britelings have risen to the challenge of the environment on behalf of our creators and our shareholders. I look forward to working with our team in the coming years to deliver for our customers, our investors and each other.

And with that, I'll turn it over to Lanny.

Thank you, Julia. Revenue for the third quarter of 2020 was $21.9 million. A significant improvement from revenue of $8.4 million reported for the second quarter. Adjusted EBITDA was $4 million for the third quarter, which includes $13.4 million in accounting benefits related to COVID-19.

Excluding those items, which are detailed in our shareholder letter, adjusted EBITDA would have been a loss of $9.4 million for the third quarter. Also, a sizable improvement from a comparable adjusted EBITDA loss of $26 million in the second quarter.

Through a combination of improving revenue, greater operating leverage in our refocused business model and reduced operating expenses, we lowered our adjusted EBITDA loss rate to $3 million to $4 million per month during the third quarter. Looking forward, we expect to become profitable with considerably lower revenue than would have been the case before are refocusing on self-service and the significant expense reductions we've made.

Paid tickets were $9.2 million in the third quarter of 2020, down 66% from a year ago due to COVID and up 96% from the second quarter. The quarter-on-quarter improvement in paid ticket volume was built on a roughly 40% increase in creators who hosted paid events, a 10% increase in paid events per creator and a 20%-plus increase in tickets per paid event.

Those trends reflect a healthy balance of creator supply growth, attendee demand strength and our own ability to bring the 2 together to help Eventbrite creators succeed even amidst this very challenging time.

Turning back to the financials. I want to briefly mention a couple of special items that impacted the quarter's results. The intention here is to help investors more fully understand the underlying business dynamics of the quarter and the year.

Included in our third quarter revenue is a $2.5 million benefit from the settlement of a contract termination agreement. That benefit was offset by a $2.5 million increase to reserves for future refunds related to COVID-19. The reserve adjustment was prompted by creator refunds running at a slightly higher-than-expected rate during the quarter. And it was recorded as a reduction to revenue in the third quarter.

Similarly, cost of revenue for the quarter includes a $900,000 benefit from refunded payment processing fees, also associated with ticket refund activity in the quarter. Finally, we made another downward adjustment to the reserve for estimated advanced payout losses during the third quarter.

A $15 million reserve adjustment was recognized within sales, marketing and support expenses. With those adjustments held aside and focusing on the underlying expense trends exclusive of those items, product and development expenses were down 29% year-to-year. Sales, marketing and support costs were down 65% year-to-year. General and administrative expenses were down 30% and total operating expenses were down 44% or $30 million year-to-year for the quarter.

All of which reflects the work we've done to redesign our operating model and substantially reduced costs during this exceptional time. These are structural changes and not temporary moves, which should increase our operating leverage for the future.

Stepping away from the income statement, I want to highlight the ongoing resolution of our advanced payout balance, which stood at $220 million on November 4, down from $253 million at the end of June and $354 million in early March 2020. As a reminder, advanced payouts reflects creators' proceeds generated from ticket sales that we've advanced to creators ahead of events occurring.

The APL announce is netted out from creator payables as well as from cash and cash equivalents on our balance sheet.

Historically, about 50% of ticket sale proceeds were advanced to creators before their events, and the other half was held by us and released to creators after their events occurred.

As the pandemic very suddenly impacted the live events business in March, we faced an unprecedented environment for advanced payouts. In the event that ticket buyers were to seek refunds on mass and creators might have been unable or unwilling to refund their attendees, Eventbrite as the merchant of record could have been exposed to significant charge backs and liable for funding the associated ticket refunds.

Although losses associated with advanced payouts have historically averaged only 2% or 3% of the amounts advanced. It was difficult to determine what would happen with so many events facing postponement or cancellation. Now with 8 months of data and experience, we have a better picture of what to expect, and we're again reducing the reserve we established earlier this year to account for estimated future APO losses.

A combination of creator's concern for attendees, consumers support for creators and the impact of Eventbrite's own actions are helping the pre-COVID APO balance resolve in an orderly and encouraging way. Creators who have received APO from Eventbrite have refunded more than $144 million to consumers since March, and where refunds have not yet been issued many creators have communicated about rescheduling and postponement, leaving most consumers to hold on to their tickets. Meanwhile, Eventbrite made it easier for creators to issue refunds and offer credits for future events.

We've also enabled consumers to donate the value of tickets toward other causes. As a result, the volume of credit card chargebacks on tickets sold prior to COVID has been relatively small to date.

Since March, we've seen just over $4 million of charge backs against the original $354 million advanced payout balance. More recently, we've been able to recover from creators a portion of the charge backs that we had funded. Net-net, Eventbrite losses to date are $2 million, below a 1% loss rate on the original APO balance.

Looking forward, we anticipate until additional APO refunds and chargebacks in coming quarters, and we see many APO events that are being reimagined and rescheduled to occur in 2021.

We also believe it's likely there will be some pre-COVID APO amounts that ultimately go unclaimed, effectively becoming breakage. We'll continue to share details around the APO balance going forward.

However, we also believe that our realized charge back losses, which have been small and predictable thus far, may be more relevant and indicative in evaluating Eventbrite's likely APO exposure.

One other factor to consider is that we have begun piloting a new APO program for a subset of our creators. This new program has far more limited availability and more restrictive terms.

Since we started the pilot during the third quarter, we've extended slightly less than $8 million in advanced payouts against total transacted ticket proceeds of $320 million in that period, a $2.5 million advanced payout rate compared to an advanced ratio of approximately 50% under the prior program.

This recalibration reflects purposeful changes in how we intend to manage the APO program in the future as well as the lower appetite for APO among smaller, self-service, frequent creators who are our primary target customers.

Looking ahead to the fourth quarter of 2020 and the first month of 2021, we anticipate that the pandemic will continue to pressure the near-term outlook for live events.

As a result, we expect Eventbrite's paid ticket volume and revenue to remain well below year earlier levels. In places such as the U.K. and parts of Europe, where we saw very strong recoveries in our business during the summer, we've seen momentum receive as stricter limits on gatherings have been reimposed recently. In that environment, we'll remain vigilant on costs, and we now expect cash operating costs, excluding processing fees to be between $30 million and $32 million in the fourth quarter, which is $2 million to $3 million lower than we have previously indicated.

Putting it all together, we remain confident in the positive long-term outlook for live events. We are inspired by the resilient ingenuity and growth orientation that we see displayed by creators in our market every day.

We like them, have been working hard to help the world gather safely during these extraordinary times, and we're excited about the ways in which we are focusing and strengthening Eventbrite in advance of the full recovery that is to come.

With that, let's open the line for questions. Please, operator.

(Operator Instructions)

Your first question comes from the line of Mark Mahaney from RBC Capital.

This is Shweta for Mark. Lanny, could you help us understand how you're thinking about the overall recovery in the industry. So there are a lot of uncertainties. And we're all hoping for a vaccine here soon. But how are you thinking about the speed of the recovery once the vaccine is out at scale? Do you think that Eventbrite is right back to the pre-COVID levels? How are you thinking about the pace of that?

Sure. I think the best way for us to answer that is to reflect on a couple of experiences that we've seen in markets where the virus has been, unfortunately, momentarily, but it's been fairly contained. Places like New Zealand, Australia, even parts of Europe.

And in those places, when gatherings have been re permitted and consumers have felt comfortable and creators have had just a little bit of time to begin rescheduling events, we've seen event volume and paid ticket volume come back and come back to pre-COVID levels very, very quickly. Now it's typically driven by smaller events. We are not seeing larger events, you got up into the hundreds and hundreds of even thousands of attendees. We haven't seen a sort of open it up environment for a long enough period of time to really see that part of the market too strong. We've seen some events for those sizes. What we see is a very, very quick comeback in online events. When there is a view on both sides of the market, that it's safe together, again, albeit in those smaller numbers that are really the core of our business.

And if I may, when do you think that will be. I mean, if anybody's guess, but internally, if you could share just a rough timeline, would it be first half? Would it be mid-year next year? And that's it for me.

Shweta, I don't -- I don't think we have any better view into that than others do. There's clearly all of us all around the world. We'd love to see it happen. But it's just -- it's hard to pick a date or to project the time for it. What we will do and what we'll continue to do is work closely with our creators, whether they pivot to online events in an environment where in-person events are on the lower of restriction or they gear up for in-person events when that market opens up again. So we're ready. We've reduced our operating expenses; we increased our operating leverage. We're staying very close to our core customers and very focused on them.

Our next question comes from the line of Ryan Sundby from William Blair.

Sure. I guess as you look into the 130,000 new creators you've added since March, which is a pretty substantial number when you look back at how many figures you had last year. Can you just talk or give us some color on who they are? Or Is there a certain type of activity like in June? And is this a group you expect to stay on as later than eventually do come back someday? Or is this just kind of an opportune time to kind of pick the (inaudible).

Thanks for the question, Ryan. I think that the (inaudible) example is a great example of core creator that we're seeing come to the platform during this time, when they needed a solution to help them start managing their inflow of guests and really allowing for there to be a capacity management. So in Illinois, the state's requirement is, you can reopen a venue like Zoo, which is outdoors, but only at 25% capacity. And so when they were faced with that opportunity and really eager to reopen, they looked for platforms that they could easily set up to be able to support that type of new requirement. And Eventbrite was a platform that everyone on the team at Causley had used for events or for buying tickets, so they were very familiar with it.

And so coming on board with super, friction-free for them because they were familiar with the platforms and then the versatility of our platform being able to meet their needs and selling tickets in 50-minute increments and ensuring that they only have 25% capacity at any given time has just allowed them now to continue and really grow their business. So next, they're looking at, no, they turn the Zoo into a Christmas Tree farm, and they do a festival of wipes over the holiday season.

And I'm sort of giving you this tangible example because there are many, many creators like that, who have come to the platform since late March, who are essentially looking to ticket the previously unticketed, right? So we have that cohort of example. We also have people are coming to the platform to host online events because Eventbrite, again, with ubiquity of Eventbrite to live events, whether they're in person or online, we are the obvious choice for creators who are looking for a solution to be able to host an event online, whether it be on Zoom, Vimeo, YouTube, Twitch and sell tickets to those events.

And then the third are really our core, I would say, frequent creators who are looking for a solution to start engaging their community as markets start to reopen, and as they're really starting to build green shoots in the experienced economy because consumers in places like the U.K. or -- like New Zealand and Australia, now they're dying to get out. So we're going to see this nice surge that's driven by consumer demand. And events, where we're leaning into that opportunity and making sure everyone knows about Eventbrite as the obvious solution to you.

Yes. That's super helpful to see that kind of color. And Lanny, just a quick question for you. The new kind of ACO trial program the $8 million, is that added to the $220 million number at the end of November? Or are you kind of keeping those numbers separate for us?

It's in that number, Ryan.

Okay. Got it. And then I'm just trying to understand that -- I mean, the loss rate has been so low to date. And you have looked down the reserve balance, I don't know, like almost half, not quite half.

I mean what is it that you need to see to take that reserve balance down more? Or are you expecting a higher loss rate at some point in the future? I'm just trying to understand kind of how those 2 things resolve themselves?

Yes, that's a fair question. Recall, it's only been 6 months that since we put the reserve up and we've been tracking the data. We have a lot more today to go on than we did before. And cumulatively, we've bought the original reserve now down pretty significantly. The trends look encouraging. The data continues to look promising and we'll go through a period, I think, in the early part of 2021 when there'll be kind of another reckoning of the events that have been rescheduled to the first half of 2021, deals look like they're going to happen. There'll be another round of communication from creators to consumers about potentially those events are going to happen or they may be postponed or rescheduled. And as we get through that, I think that's sort of the next big window of opportunity for us to gain one more round of insight into it. But I do think, as we said that our eyes, to some degree, have shifted from watching the APO balance to watching the chargebacks and the consumer interaction. And where there have been chargebacks, our ability to recoup those funds from the creators subsequently.

We've obviously been watching both all along, but in terms of emphasis and understanding, it's sort of the chargeback rate that's becoming kind of a more, I guess, relevant or indicative gauge of what's happening with that balance.

(Operator Instructions)

Your next question comes from the line of Doug Anmuth from JPMorgan.

This is Dae on for Doug. First one for Julia, could you share your view on the role of events beyond COVID-19? Just looking at that you had before, like how much of that do you think will potentially shift still online?

Then it's given the choice, which format with creators are up in these (inaudible)? So I like to get your views on that based on your experience over the past few months? And then as a follow-up. Could just talk about the competitive dynamic in the ticketing platform landscape in general, right? How and more specifically about your competitiveness in online events space?

Yes. Yes. Well, let me talk about the online experience that we've seen in those markets I described earlier where there had been a reopening. And in those markets, we saw, as people were able to gather live in smaller events in-person, we saw the emphasis in the market shift pretty dramatically back toward in-person events.

Interestingly, though, the volume and percentage of events and paid tickets and free tickets that remain in that environment for online events was structurally several times higher than it had been pre-COVID.

And so I guess to put some numbers around it, we saw in some months earlier this year, 60% of our ticket volume before virtual events rather than in-person events. When in-person events have recovered, then people have moved up their computer screens back into the real world, we've seen that mix shift back, but we're still talking about 10%, 20%, 30% of ticket volume being for virtual events, whereas pre-COVID that number might have been 2% or 3% or 4%.

So I think there's been a structural sort of opening of a business opportunity and habit around online events. They're new creators in the marketplace doing retailers and others doing online events that were not necessarily in the event marketplace in the past. So -- and then to me the second part, I think you had a question about the competitive dynamic?

Talk about the competitive environment right now? And then specific about your competitiveness in the online industry?

Try to take that one. So I think that when we look at the online event base, in particular, it's important to understand the context, focus and then competitive differentiation in our product. And context is that we have a very attractive business in a large addressable market and online events have been a COVID-related phenomenon we certainly see it on our platform. So it's natural that others would like to participate, and we've seen increased competition because of that.

However, we're focused on the small to mid-market, frequent event creator who produces both live shows and events in-person and online. And again, I can't overemphasize how fast and fragmented that market is. This is a market that we have both created and played in for over 14 years.

So virtual events have really been a nice short shock absorber for our business as our customers' businesses during COVID because it gives them the opportunity to stay connected to community, it also allows them to expand their audience on Eventbrite, since we have such a wide breadth of consumers globally on the platform, we're looking for these new ways to connect with one another. And then finally, the differentiation, it's simple. We live and breathe events.

We are not an add-on product line. We're not a sort of virtually focused promoter and venue owner. We're the -- we're horizontal technology layer that empowers anybody to use our service and our technology to sell tickets to events, promote events and really drive engagement with consumers based on the analytics that we provide.

So we think in total, there will be many competitors in this space, given the newness of it, and we see it as a validation of our business.

In terms of in-person events company competition, I think that's really -- that market is starting to contract in our favor. I think Eventbrite is positioned given the movements we've made to fortify our business model, our strategy and our operating expenses, we're positioned to be the leader in this market.

Ladies and gentlemen, there are no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.