EB 10-Q Quarterly Report June 30, 2019 | Alphaminr
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EB 10-Q Quarter ended June 30, 2019

Balance Sheet
Cash Flow
Income Statement
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10-Q 1 ebform10-qxq22019.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-Q
____________________________________________________________________________
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-38658
_______________________________________________________________________________
EVENTBRITE, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________________________
Delaware
14-1888467
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
155 5th Street, 7th Floor
San Francisco, CA 94103
(415) 692-7779
(Address, including zip code and telephone number, including area code, of Registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Class A common stock, $0.00001 par value
EB
The New York Stock Exchange
_________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
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.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
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 pursuant to Section 13(a) of the Exchange Act. ☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of July 15, 2019 , 49,662,496 shares of Registrant's Class A common stock and 33,170,832 shares of Registrant's Class B common stock were outstanding.



EVENTBRITE, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.




SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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," "appears," "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 Quarterly Report on Form 10-Q include, but are not limited to, statements about our future financial performance, including our revenue, costs of revenue and operating expenses; our anticipated growth and growth strategies and our ability to effectively manage that growth; 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 maintain, protect and enhance our intellectual property; our ability to comply with modified or new laws and regulations applying to our business; our ability to successfully defend litigation brought against us; the increased expenses associated with being a public company; and our outstanding debt under our term loan facility. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events.

All forward-looking statements are based on information and estimates available to us at the time of this Quarterly Report on Form 10-Q and are not guarantees of future performance. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.


PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

EVENTBRITE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value data)
(Unaudited)
June 30,
2019
December 31,
2018
Assets
Current assets
Cash and cash equivalents
$
500,454

$
437,892

Funds receivable
46,582

58,697

Accounts receivable, net
4,368

4,069

Creator signing fees, net
8,245

7,324

Creator advances, net
26,182

21,255

Prepaid expenses and other current assets
14,735

16,467

Total current assets
600,566

545,704

Property, plant and equipment, net
46,251

44,219

Goodwill
170,560

170,560

Acquired intangible assets, net
54,490

59,973

Restricted cash
508

1,508

Creator signing fees, noncurrent
12,518

9,681

Creator advances, noncurrent
2,534

1,887

Other assets
3,244

3,352

Total assets
$
890,671

$
836,884

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable, creators
$
322,982

$
272,201

Accounts payable, trade
2,063

1,028

Accrued compensation and benefits
5,278

5,586

Accrued taxes
4,503

8,028

Current portion of term loan
5,650

5,635

Other accrued liabilities
18,519

15,726

Total current liabilities
358,995

308,204

Build-to-suit lease financing obligation
27,916

28,510

Accrued taxes, noncurrent
13,612

15,691

Term loan
55,794

67,087

Other liabilities
2,521

2,170

Total liabilities
458,838

421,662

Commitments and contingencies (Note 12)


Stockholders' equity:
Preferred stock, $0.00001 par value; 100,000,000 shares authorized, no shares issued or outstanding as of June 30, 2019 and December 31, 2018
—

—

Common stock, $0.00001 par value; 1,100,000,000 shares authorized, 82,449,552 shares issued and outstanding as of June 30, 2019; 1,100,000,000 shares authorized, 78,546,874 shares issued and 78,358,394 shares outstanding as of December 31, 2018
—

—

Treasury stock at cost; no shares as of June 30, 2019 and 188,480 shares as of December 31, 2018
—

(488
)
Additional paid-in capital
759,959

718,405

Accumulated deficit
(328,126
)
(302,695
)
Total stockholders’ equity
431,833

415,222

Total liabilities and stockholders’ equity
$
890,671

$
836,884



(See accompanying Notes to Unaudited Condensed Consolidated Financial Statements)

4

EVENTBRITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Net revenue
$
80,758

$
67,542

$
162,084

$
142,068

Cost of net revenue (1)
31,073

29,863

61,591

57,947

Gross profit
49,685

37,679

100,493

84,121

Operating expenses (1) :
Product development
16,295

10,981

30,559

19,815

Sales, marketing and support
25,872

21,513

47,434

42,229

General and administrative
22,051

18,405

47,178

38,388

Total operating expenses
64,218

50,899

125,171

100,432

Loss from operations
(14,533
)
(13,220
)
(24,678
)
(16,311
)
Interest expense
(1,868
)
(3,190
)
(3,801
)
(6,099
)
Change in fair value of redeemable convertible preferred stock warrant liability
—

(4,750
)
—

(6,071
)
Gain on debt extinguishment
—

—

—

16,995

Other income (expense), net
375

(3,013
)
2,555

(3,294
)
Loss before income taxes
(16,026
)
(24,173
)
(25,924
)
(14,780
)
Income tax provision (benefit)
(1,193
)
430

(1,093
)
800

Net loss
$
(14,833
)
$
(24,603
)
$
(24,831
)
$
(15,580
)
Net loss per share, basic and diluted
$
(0.18
)
$
(1.12
)
$
(0.31
)
$
(0.73
)
Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted
81,369

21,886

80,049

21,289

(1) Includes stock-based compensation as follows:
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Cost of net revenue
$
325

$
71

$
569

$
124

Product development
2,187

747

4,225

1,348

Sales, marketing and support
1,246

864

2,469

1,578

General and administrative
4,948

3,566

9,570

5,058

Total
$
8,706

$
5,248

$
16,833

$
8,108

(See accompanying Notes to Unaudited Condensed Consolidated Financial Statements)

5

EVENTBRITE, INC.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
(Unaudited)
Common Stock-Class A
Common Stock-Class B
Treasury Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Total Stockholders' Equity
Shares
Amount
Shares
Amount
Shares
Amount
Balance at December 31, 2018
11,502,993

$
—

66,855,401

$
—

(188,480
)
$
(488
)
$
718,405

$
(302,695
)
$
415,222

Issuance of common stock upon exercise of stock options
1,785,106

—

249,207

—

—

—

12,427

—

12,427

Issuance of restricted stock awards
4,402

—

—

—

—

—

—

—

—

Issuance of common stock for settlement of RSUs
62,263

—

—

—

—

—

—

—

—

Shares withheld related to net share settlement
(24,249
)
—

—

—

—

—

(560
)
—

(560
)
Conversion of common stock from Class B to A
21,095,075

—

(21,095,075
)
—

—

—

—

—

—

Retirement of treasury stock
—

—

—

—

188,480

488

(488
)
—

—

Vesting of early exercised stock options
—

—

—

—

—

—

92

—

92

Stock-based compensation
—

—

—

—

—

—

8,330

—

8,330

Cumulative effect adjustment upon adoption of ASU 2014-09
—

—

—

—

—

—

—

(600
)
(600
)
Net loss
—

—

—

—

—

—

—

(9,998
)
(9,998
)
Balance at March 31, 2019
34,425,590

—

46,009,533

—

—

—

738,206

(313,293
)
424,913

Issuance of common stock upon exercise of stock options
1,785,361

—

—

—

—

—

10,526

—

10,526

Issuance of restricted stock awards
21,016

—

—

—

—

—

—

—

—

Issuance of common stock for settlement of RSUs
52,204

—

—

—

—

—

—

—

—

Issuance of common stock for ESPP Purchase
167,706

—

—

—

—

—

2,234

—

2,234

Shares withheld related to net share settlement
(11,858
)
—

—

—

—

(253
)
—

(253
)
Conversion of common stock from Class B to A
11,491,455

—

(11,491,455
)
—

—

—

—

—

—

Vesting of early exercised stock options
—

—

—

—

—

—

92

—

92

Stock-based compensation
—

—

—

—

—

—

9,154

—

9,154

Net loss
—

—

—

—

—

—

—

(14,833
)
(14,833
)
Balance at June 30, 2019
47,931,474

$
—

34,518,078

$
—

—

$
—

$
759,959

$
(328,126
)
$
431,833



6

Redeemable
Convertible
Preferred Stock
Common Stock-Class A
Common Stock-Class B
Treasury Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Total Stockholders’ Equity (Deficit)
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Balance at December 31, 2017
41,628,207

$
334,018

—

$
—

20,773,441

$
—

(188,480
)
$
(488
)
$
83,291

$
(238,617
)
$
(155,814
)
Issuance of common stock upon exercise of stock options
—

—

—

—

124,258

—

—

—

588

—

588

Vesting of early exercised stock options
—

—

—

—

—

—

—

—

92

—

92

Stock-based compensation
—

—

—

—

—

—

—

—

3,016

—

3,016

Net income
—

—

—

—

—

—

—

—

—

9,023

9,023

Balance at March 31, 2018
41,628,207

334,018

—

—

20,897,699

—

(188,480
)
(488
)
86,987

(229,594
)
(143,095
)
Issuance of common stock upon exercise of stock options
—

—

—

—

963,297

—

—

—

3,620

—

3,620

Issuance of common stock, acquisitions
—

—

—

—

676,060

—

—

—

7,439

—

7,439

Vesting of early exercised stock options
—

—

—

—

—

—

—

—

91

91

Stock-based compensation
—

—

—

—

—

—

—

—

5,365

—

5,365

Net loss
—

—

—

—

—

—

—

—

—

(24,603
)
(24,603
)
Balance at June 30, 2018
41,628,207

$
334,018

—

$
—

22,537,056

$
—

(188,480
)
$
(488
)
$
103,502

$
(254,197
)
$
(151,183
)


(See accompanying Notes to Unaudited Condensed Consolidated Financial Statements)


7

EVENTBRITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
2019
2018
2019
2018
Cash flows from operating activities
Net loss
$
(14,833
)
$
(24,603
)
$
(24,831
)
$
(15,580
)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
6,082

8,580

12,219

16,782

Amortization of creator signing fees
2,522

1,713

4,915

3,077

Accretion of term loan
119

882

223

1,412

Gain on debt extinguishment
—

—

—

(16,995
)
Change in fair value of redeemable convertible preferred stock warrant liability
—

4,750

—

6,071

Stock-based compensation
8,706

5,248

16,833

8,108

Impairment of long-lived assets
1,436

686

1,899

1,064

Provision for bad debt and creator advances
1,800

914

2,380

1,533

Loss on disposal of equipment
36

—

58

1

Deferred income taxes
(571
)
341

(745
)
617

Changes in operating assets and liabilities, net of impact of acquisitions:
Accounts receivable
446

78

(1,061
)
(946
)
Funds receivable
7,813

8,892

12,115

14,778

Creator signing fees, net
(4,630
)
(2,626
)
(9,251
)
(6,277
)
Creator advances, net
(4,393
)
30

(8,513
)
(2,517
)
Prepaid expenses and other current assets
1,033

(2,102
)
1,732

(3,430
)
Other assets
(119
)
(788
)
(2
)
(694
)
Accounts payable, creators
(30,407
)
(42,245
)
50,781

29,946

Accounts payable, trade
671

(597
)
956

411

Accrued compensation and benefits
(1,879
)
(80
)
(308
)
(596
)
Accrued taxes
(2,194
)
746

(3,525
)
2,243

Other accrued liabilities
501

4,741

2,712

9,385

Accrued taxes, non-current
(1,361
)
(1,853
)
(1,334
)
640

Other liabilities
220

(14
)
479

(34
)
Net cash provided by (used in) operating activities
(29,002
)
(37,307
)
57,732

48,999

Cash flows from investing activities
Purchases of property and equipment
(2,281
)
(2,035
)
(3,566
)
(2,688
)
Capitalized internal-use software development costs
(2,166
)
(1,992
)
(4,271
)
(4,331
)
Acquisitions, net of cash acquired
—

13,853

—

13,853

Net cash provided by (used in) investing activities
(4,447
)
9,826

(7,837
)
6,834


8

EVENTBRITE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(Unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
2019
2018
2019
2018
Cash flows from financing activities
Proceeds from issuance of common stock under ESPP
2,234

—

2,234

—

Proceeds from exercise of stock options
10,526

3,620

22,954

4,208

Taxes paid related to net share settlement of equity awards
(531
)
—

(706
)
—

Proceeds from term loans
—

15,000

—

45,000

Principal payments on debt obligations
(11,406
)
(165
)
(11,406
)
(35,455
)
Payment of debt issuance costs
—

—

(457
)
—

Payments on capital lease obligations
(68
)
(30
)
(138
)
(76
)
Payments on lease financing obligations
(217
)
(155
)
(401
)
(279
)
Payments of deferred offering costs
—

(183
)
(413
)
(183
)
Net cash provided by financing activities
538

18,087

11,667

13,215

Net increase (decrease) in cash, cash equivalents and restricted cash
(32,911
)
(9,394
)
61,562

69,048

Cash, cash equivalents and restricted cash
Beginning of period
$
533,873

$
270,663

$
439,400

$
192,221

End of period
$
500,962

$
261,269

$
500,962

$
261,269

Supplemental cash flow data
Interest paid
$
1,866

$
1,686

$
1,876

$
3,622

Income taxes paid, net of refunds
183

100

367

143

Non-cash investing and financing activities
Vesting of early exercised stock options
$
92

$
91

$
184

$
183

Purchases of property and equipment, accrued but unpaid
338

8

338

8

Issuance of shares of common stock for acquisitions
—

7,439

—

7,439

Issuance of redeemable convertible preferred stock warrants in connection with loan facilities and term loan
—

1,890

—

4,603

Deferred offering costs included in accounts payable, trade and other accrued liabilities
—

1,071

—

1,128

(See accompanying Notes to Unaudited Condensed Consolidated Financial Statements)


9

EVENTBRITE, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
1. Organization
Description of Business
Eventbrite, Inc. (Eventbrite or the Company) has built a powerful, broad technology platform to enable creators to solve many challenges associated with creating live experiences. The Company’s 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.
Initial Public Offering
In September 2018, the Company completed its initial public offering (IPO) in which the Company issued and sold 11,500,000 shares of Class A common stock at a public offering price of $23.00 per share, which included 1,500,000 shares sold pursuant to the exercise by the underwriters' option to purchase additional shares. The Company received aggregate net proceeds of $246.0 million from the IPO, net of underwriter discounts and commissions, before deducting additional offering costs of $5.5 million , net of reimbursements.
Immediately prior to the closing of the IPO, (i) all shares of common stock then outstanding were reclassified as Class B common stock, (ii) 41,628,207 shares of redeemable convertible preferred stock outstanding converted into 42,188,624 shares of Class B common stock (including additional shares issued upon conversion of our Series G redeemable convertible preferred stock based on the IPO price of $23.00 per share) and (iii) warrants to purchase 933,269 shares of our Series G redeemable convertible preferred stock automatically exercised into 997,193 shares of Class B common stock.
2. Significant Accounting Policies
Basis of Presentation
The accompanying interim condensed consolidated financial statements of the Company are unaudited. The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and the applicable rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date.
The accompanying interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal and recurring nature considered necessary to state fairly the Company's consolidated financial position, results of operations and cash flows for the interim periods. All intercompany transactions and balances have been eliminated. The interim results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any other future annual or interim period.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk" and the Consolidated Financial Statements and notes thereto included in Items 7, 7A and 8, respectively, in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K).

10

Prior Period Reclassification
Beginning in the first quarter of 2019, the Company classified the amortization of acquired customer relationship intangible assets and certain other costs as sales, marketing and support expenses. Previously, these expenses were classified as general and administrative expenses. The Company has reclassified $3.4 million and $6.6 million of expenses for the three and six months ended June 30, 2018 , respectively, and $0.4 million for the three months ended March 31, 2019 which is included in the six months ended June 30, 2019, to make the presentation consistent with the current period. There was no change to total operating expenses, loss from operations, loss before provision for income taxes or net loss for the three or six months ended June 30, 2018 or the three months ended March 31, 2019 as a result of these reclassifications.
Use of Estimates
In order to conform with U.S. GAAP, the Company is required to make certain estimates, judgments and assumptions when preparing its condensed consolidated financial statements. These estimates, judgments and assumptions affect the reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods. These estimates include, but are not limited to, the recoverability of creator signing fees and creator advances, the capitalization and estimated useful life of internal-use software, certain assumptions used in the valuation of equity awards, assumptions used in determining the fair value of the redeemable convertible preferred stock warrant liability and term loan derivative asset, assumptions used in determining the fair value of business combinations, the allowance for doubtful accounts, indirect tax reserves and contra revenue amounts related to fraudulent events, customer disputed transactions and refunds. The Company evaluates these estimates on an ongoing basis. Actual results could differ from those estimates and such differences could be material to the Company’s consolidated financial statements.
Comprehensive Loss
For all periods presented, comprehensive loss equaled net loss. Therefore, the condensed consolidated statements of comprehensive loss have been omitted from the interim unaudited condensed consolidated financial statements.
Emerging Growth Company Status
As an emerging growth company (EGC), the Jump-start Our Business Start-ups Act (JOBS Act) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. As a result, the Company's financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. Based on the market value of our Class A common stock held by non-affiliates as of June 30, 2019, we will become a large accelerated filer as of December 31, 2019 and cease to be an emerging growth company, and, therefore, will no longer be able to take advantage of this extended transition period.
Recently Adopted Accounting Pronouncements
The Company adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business beginning January 1, 2019. This standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The adoption of this standard has had no material impact on the Company's interim condensed consolidated financial statements.
In May 2014, and in subsequent updates, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40) (ASC Topic 606), which supersedes nearly all existing revenue recognition guidance. ASC Topic 606 establishes a five-step revenue recognition process in which an entity will recognize revenue when or as it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC Topic 606 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. ASC Topic 606 was effective for and adopted by the Company beginning January 1, 2019. The Company applied the modified retrospective approach to contracts which were not completed as of the adoption date.

11

The adoption of ASC Topic 606 primarily had the following impact on the Company's financial statements:
▪
Beginning January 1, 2019, the Company recognizes revenue allocated to its customer service and account management performance obligations over time as the Company has a stand-ready obligation to provide these services to certain customers. The Company recorded a cumulative-effect adjustment to opening accumulated deficit as of January 1, 2019 of $0.6 million and a corresponding increase to contract liabilities, included within other accrued liabilities on the interim condensed consolidated balance sheet.
▪
The adoption of ASC Topic 606 had no material impact to the Company's net revenues recorded in the three or six months ended June 30, 2019 .
▪
The accounting treatment of incremental costs of obtaining contracts under ASC Topic 606 had no material impact to the Company's interim unaudited condensed consolidated financial statements.
▪
The adoption of ASC Topic 606 had no impact to the Company's total net cash provided by or used in operating, investing or financing activities within the Company's interim condensed consolidated statement of cash flows for the three or six months ended June 30, 2019 .
Refer to Revenue Recognition below for additional discussion of the Company's revenue recognition policies under ASC Topic 606.
Recently Issued Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350) : Simplifying the Test for Goodwill Impairment , which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This standard is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. This standard will apply to the Company’s reporting requirements in performing goodwill impairment testing, however, the Company does not anticipate the adoption of this standard will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02) which requires lessees to put most leases on their balance sheets but recognize expenses on their income statement and eliminates the real estate-specific provisions for all entities. The guidance is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect that implementation of this standard will have on its consolidated financial statements upon adoption.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents includes bank deposits held by financial institutions. Cash and cash equivalents balances include the face value of tickets sold on behalf of creators and their share of service charges, which amounts are to be remitted to the creators. Such balances were $279.5 million and $217.4 million as of June 30, 2019 and December 31, 2018 , respectively. Although creator cash is legally unrestricted, the Company does not utilize creator cash for its own financing or investing activities as the amounts are payable to creators on a regular basis. These amounts due to creators are included in accounts payable, creators on the condensed consolidated balance sheets.
The Company has issued letters of credit under lease agreements and other agreements, which have been collateralized with cash. This cash is classified as noncurrent restricted cash on the condensed consolidated balance sheets. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (in thousands):
June 30, 2019
December 31, 2018
Cash and cash equivalents
$
500,454

$
437,892

Restricted cash
508

1,508

Total cash, cash equivalents and restricted cash
$
500,962

$
439,400


12

Funds Receivable
Funds receivable represents cash-in-transit from third-party payment processors that is received by the Company within approximately five business days from the date of the underlying ticketing transaction. The funds receivable balances include the face value of tickets sold on behalf of creators and their share of service charges, which amounts are to be remitted to the creators. Such amounts were $43.5 million and $54.8 million as of June 30, 2019 and December 31, 2018 , respectively.
Revenue Recognition
The Company determines revenue recognition through the following steps:
i.    Identification of the contract, or contracts, with a customer
ii.     Identification of the performance obligations in the contract
iii.    Determination of the transaction price
iv.     Allocation of the transaction price to the performance obligations in the contract
v.     Recognition of revenue when, or as, the Company satisfies a performance obligation
The Company derives its revenues primarily from service fees and payment processing fees charged at the time a ticket for an event is sold. The Company also derives revenues from providing certain creators with account management services and customer support. The Company's customers are event creators who are selling tickets for events using the Company's platform. Tickets are sold by creators to attendees. Revenue is recognized when or as control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company allocates the transaction price by estimating a standalone selling price for each performance obligation using an expected cost plus a margin approach. For service fees and payment processing fees, revenue is recognized when the ticket is sold. For account management services and customer support, revenue is recognized over the period from the date of the sale of the ticket to the date of the event.
The event creator has the choice of whether to use Eventbrite Payment Processing (EPP) or to use a third-party payment processor, referred to as Facilitated Payment Processing (FPP). Under the EPP option, the Company 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 Company is also responsible for remitting these amounts collected, less the Company's fees, to the event creator. 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, the Company invoices the creator for all of the Company's fees.
The Company evaluates whether it is appropriate to recognize revenue on a gross or net basis based upon its evaluation of whether the Company obtains control of the specified goods or services by considering if it is primarily responsible for fulfillment of the promise, has inventory risk, and has the latitude in establishing pricing and selecting suppliers, among other factors. The Company determined the event creator is the party responsible for fulfilling the promise to the attendee, as the creator is responsible for providing the event for which a ticket is sold, determines the price of the ticket and is responsible for providing a refund if the event is canceled. The Company's service provides a platform for the creator and event attendee to transact and the Company's performance obligation is to facilitate and process that transaction and issue the ticket. The amount that the Company earns for its services is fixed. For the payment processing service, the Company determined that it is the principal in providing the service as the Company is responsible for fulfilling the promise to process the payment and has discretion and latitude in establishing the price of its service. Based on management's assessment, the Company records revenue on a net basis related to its ticketing service and on a gross basis related to its payment processing service. As a result, costs incurred for processing the transactions are included in cost of net revenues in the condensed consolidated statements of operations.
Revenue is presented net of indirect taxes, value-added taxes, creator royalties and reserves for customer refunds, payment chargebacks and estimated uncollectible amounts. 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, the Company may, at its discretion, provide attendee refunds. Revenue is also presented net of the amortization of creator signing fees. The benefit the Company receives by securing exclusive ticketing and payment processing rights with certain creators from creator signing fees is inseparable from the customer relationship with the creator and accordingly these fees are recorded as a reduction of revenue.
Significant Accounting Policies
Other than as discussed above with respect to the Company's adoption of ASC Topic 606, there have been no material changes to the Company's significant accounting policies as described in the Company's 2018 Form 10-K.

13

3. Fair Value Measurement
The Company measures its financial assets and liabilities at fair value at each reporting date using a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Other inputs that are directly or indirectly observable in the marketplace.
Level 3 – Unobservable inputs that are supported by little or no market activity.
The Company’s funds receivable, accounts receivable, accounts payable, other current liabilities and debt approximate their fair value. All of these financial assets and liabilities are Level 1, except for debt, which is Level 2. There are no other Level 1 or Level 2 assets or liabilities recorded at June 30, 2019 and December 31, 2018 .
The Company measures the redeemable convertible preferred stock warrant liability (as discussed in Note 11) and term loan derivative asset (as discussed in Note 10) at fair value on a recurring basis and determined these are Level 3 financial assets and liabilities, respectively, in the fair value hierarchy.
The fair value of the redeemable convertible preferred stock warrants was estimated using a hybrid between a probability-weighted expected return method (PWERM) and option pricing model (OPM), estimating the probability weighted value across multiple scenarios, while using an OPM to estimate the allocation of value within one or more of these scenarios. Under a PWERM, the value of the Company’s various equity securities was estimated based upon an analysis of future values for the Company assuming various future outcomes, including two IPO scenarios and two scenarios contemplating the continued operation of the Company as a privately held enterprise. Guideline public company multiples were used to value the Company under the IPO scenarios. The discounted cash flow method was used to value the Company under the staying private scenarios. Share value for each class of security was based upon the probability-weighted present value of expected future investment returns, considering each of these possible future outcomes, as well as the rights of each share class.
The significant unobservable inputs into the valuation model used to estimate the fair value of the redeemable convertible preferred stock warrants include the timing of potential events (primarily the IPO) and their probability of occurring, the selection of guideline public company multiples, a discount for the lack of marketability of the preferred and common stock, the projected future cash flows, and the discount rate used to calculate the present-value of the estimated equity value allocated to each share class. Generally, changes in the fair value of the underlying redeemable convertible preferred stock would result in a directionally similar impact to the fair value of the redeemable convertible preferred stock warrant liability.
The significant unobservable inputs into the valuation model used to estimate the fair value of the term loan derivative asset include the timing of potential events (primarily the IPO), probability of exercise and the discount rate used to calculate the present value of discounted cash flows.
There were no transfers of financial assets or liabilities into or out of Level 1, Level 2 or Level 3 for the three and six months ended June 30, 2019 or the year ended December 31, 2018 .
4. Acquisitions
In April 2018, the Company acquired Ticketea S.L. (Ticketea), a leading Spanish ticketing provider. The Company acquired Ticketea in order to enhance its 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 $11.4 million , which consisted of $3.9 million in cash and 0.7 million shares of the Company’s 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 condensed consolidated statement of operations for the six months ended June 30, 2018 .
The total purchase price of the Ticketea acquisition was allocated to the assets acquired and liabilities assumed based on their fair value as of the acquisition date. The excess of the purchase price over the net assets acquired was recorded as goodwill. The goodwill recorded in connection with the Ticketea acquisition is not deductible for tax purposes and is attributable to the assembled workforce and synergies from the future growth and strategic advantages in the ticketing industry.

14

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the respective acquisition dates (in thousands):
Ticketea
Cash and restricted cash
$
17,852

Funds and accounts receivable
1,058

Creator advances
532

Prepaid expenses and other current assets
94

Property and equipment
42

Other noncurrent assets
28

Accounts payable, creators
(19,671
)
Other current liabilities
(529
)
Intangible assets
3,094

Goodwill
8,937

Total purchase price
$
11,437

The following table sets forth the components of identifiable intangible assets acquired (in thousands) and their estimated useful lives as of the date of acquisition (in years):
Ticketea
Estimated
useful life
Customer relationships
$
2,475

5.0
Developed technology
619

1.0
Total acquired intangible assets
$
3,094

5. Accounts Receivable, Net
Accounts receivable, net is comprised of invoiced amounts to customers who use FPP for payment processing as well as other invoiced amounts. The following table summarizes the Company’s accounts receivable balance (in thousands):
June 30, 2019
December 31, 2018
Accounts receivable, customers
$
6,706

$
5,651

Allowance for doubtful accounts
(2,338
)
(1,582
)
Accounts receivable, net
$
4,368

$
4,069

6. Creator Signing Fees, Net
Creator signing fees are additional incentives paid by the Company to secure exclusive ticketing and payment processing rights with certain creators. Amortization of creator signing fees is recorded as a reduction of revenue in the condensed consolidated statements of operations. As of June 30, 2019 , these payments are being amortized over a weighted-average remaining contract life of 3.4 years on a straight-line basis. Creator signing fees that are expected to be amortized within 12 months of the balance sheet date are classified as creator signing fees, net and the remainder is classified as noncurrent on the condensed consolidated balance sheets. The following table summarizes the activity in creator signing fees for the periods indicated (in thousands):
Three Months Ended June 30,
2019
2018
Balance, beginning of period
$
19,120

$
12,571

Creator signing fees paid
4,630

2,626

Amortization of creator signing fees
(2,522
)
(1,713
)
Write-offs and other adjustments
(465
)
(206
)
Balance, end of period
$
20,763

$
13,278


15

Six Months Ended June 30,
2019
2018
Balance, beginning of period
$
17,005

$
10,421

Creator signing fees paid
9,188

6,279

Amortization of creator signing fees
(4,915
)
(3,077
)
Write-offs and other adjustments
(515
)
(345
)
Balance, end of period
$
20,763

$
13,278


Creator signing fees are classified as follows on the condensed consolidated balance sheet as of the dates indicated (in thousands):
June 30, 2019
December 31, 2018
Creator signing fees, net
$
8,245

$
7,324

Creator signing fees, noncurrent
12,518

9,681

7. Creator Advances, Net
Creator advances provide the creator with funds in advance of the event and are subsequently recovered by withholding amounts due to the Company from the sale of tickets for the event until the creator payment has been fully recovered. Creator advances that are expected to be recovered within 12 months of the balance sheet date are classified as creator advances, net and the remainder is classified as noncurrent on the condensed consolidated balance sheets. The following table summarizes the activity in creator advances for the periods indicated (in thousands):
Three Months Ended June 30,
2019
2018
Balance, beginning of period
$
26,734

$
22,129

Acquired with Ticketea transaction
—

532

Creator advances paid
9,316

3,659

Creator advances recouped
(4,914
)
(3,874
)
Write-offs and other adjustments
(2,420
)
(845
)
Balance, end of period
$
28,716

$
21,601

Six Months Ended June 30,
2019
2018
Balance, beginning of period
$
23,142

$
20,076

Acquired with Ticketea transaction
—

532

Creator advances paid
19,084

10,248

Creator advances recouped
(10,663
)
(7,917
)
Write-offs and other adjustments
(2,847
)
(1,338
)
Balance, end of period
$
28,716

$
21,601


Creator advances are classified as follows on the condensed consolidated balance sheet as of the dates indicated (in thousands):
June 30, 2019
December 31, 2018
Creator advances, net
$
26,182

$
21,255

Creator advances, noncurrent
2,534

1,887


16

8. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following as of the dates indicated (in thousands):
June 30, 2019
December 31, 2018
Building and improvements
$
33,277

$
33,277

Capitalized internal-use software development costs
40,123

35,201

Furniture and fixtures
3,512

3,557

Computers and computer equipment
14,163

11,676

Leasehold improvements
6,161

5,084

97,236

88,795

Less: Accumulated depreciation and amortization
(50,985
)
(44,576
)
Property, plant and equipment, net
$
46,251

$
44,219

The Company recorded the following amounts related to depreciation expense and capitalized internal-use software development costs during the periods indicated (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2019
2018
2019
2018
Depreciation expense
1,599

1,221

3,236

2,363

Capitalized internal-use software development costs
2,614

2,115

4,922

4,562

Stock-based compensation costs included in capitalized internal-use software development costs
448

123

651

279

Amortization of capitalized internal-use software development costs
1,799

1,570

3,499

3,046

9. Goodwill and Acquired Intangible Assets, Net
The carrying value of goodwill was $170.6 million as of June 30, 2019 and December 31, 2018 .
Acquired intangible assets, net consisted of the following as of the dates indicated (in thousands):

June 30, 2019
Cost
Accumulated
Amortization
Net Book
Value
Weighted-
average
remaining
useful life
(years)
Developed technology
$
19,096

$
18,952

$
144

0.7
Customer relationships
74,484

20,138

54,346

5.7
Tradenames
1,600

1,600

—


Acquired intangible assets, net
$
95,180

$
40,690

$
54,490


December 31, 2018
Cost
Accumulated
Amortization
Net Book
Value
Weighted-
average
remaining
useful life
(years)
Developed technology
$
19,096

$
18,628

$
468

0.8
Customer relationships
74,484

14,979

59,505

6.2
Tradenames
1,600

1,600

—

Acquired intangible assets, net
$
95,180

$
35,207

$
59,973



17


The Company recorded amortization expense related to acquired intangible assets as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2019
2018
2019
2018
Cost of net revenue
$
95

$
2,949

$
324

$
5,821

Sales, marketing and support
2,588

2,539

5,159

4,973

General and administrative
—

301

—

577

Total amortization of acquired intangible assets
$
2,683

$
5,789

$
5,483

$
11,371


As of June 30, 2019 , the total expected future amortization expense for acquired intangible assets is as follows (in thousands):
The remainder of 2019
$
5,342

2020
10,443

2021
10,197

2022
8,202

2023
7,709

Thereafter
12,597

Acquired intangible assets, net
$
54,490

10. Term Loans and Promissory Note
The Company entered into a loan and security agreement with, and issued warrants to purchase shares of redeemable convertible preferred stock to Western Technology Investments (WTI) in June 2017 (First WTI Loan Facility), which provided for a secured credit facility of up to $60.0 million of term debt. The First WTI Loan Facility contained customary events of default. In September 2017, the Company borrowed $30.0 million as a term loan under the facility with a maturity date of February 2022 which bore interest at 11.5% annually (effective interest rate of 15.9% ). Monthly payments of interest were due for the first 24 months and equal monthly installments of principal and interest were due for 30 months thereafter. The loan could 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.
In March 2018, the Company borrowed an additional $30.0 million under the First WTI Loan Facility with a maturity date of September 2022, which bore interest at 11.75% annually (effective interest rate of 14.8% ). Monthly payments of interest were due for the first 24 months and equal monthly installments of principal and interest were due for 30 months thereafter.
In May 2018, the Company entered into a second loan and security agreement with WTI (Second WTI Loan Facility, and together with the First WTI Loan Facility, the WTI Loan Facilities) and issued additional warrants to purchase shares of Series G redeemable convertible preferred stock. The secured credit facility provided up to $15.0 million of term debt, which the Company borrowed in full as a term loan under the facility in May 2018. This debt bore interest at 12.0% annually (effective interest rate of 14.7% ) and had a maturity date of November 2022. Monthly payments of interest were due for the first 24 months and equal monthly installments of principal and interest were due for 30 months thereafter. The WTI Loan Facilities were collateralized by substantially all of the Company's assets and intellectual property rights.
The Second WTI Loan Facility included a contingent prepayment feature under which if the Company consummated a qualified public offering within the first 24 months of the term loan and the Company prepaid the term loan in conjunction with the qualified public offering, the Company would be required to prepay the outstanding contractual balance plus accrued interest within 15 days of the consummation of a 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. In connection with the Second WTI Loan Facility, the Company modified the terms of the First WTI Loan Facility so that the $30.0 million borrowed in March 2018 under the First WTI Loan Facility would be subject to the same contingent prepayment feature in the event of a qualified public offering that is included in the Second WTI Loan Facility.

18

The Company determined that these contingent prepayment features under the WTI term loans are embedded derivative assets, requiring bifurcation and separate accounting. The fair value of these term loan derivatives was $2.1 million as of June 30, 2018. The change in fair value of the term loan derivatives was not material to the condensed consolidated statement of operations for the three or six months ended June 30, 2018.
In September 2018, five days after the completion of the IPO, the Company exercised its prepayment option and fully repaid all amounts outstanding under the WTI Loan Facilities. As of December 31, 2018, there were no amounts outstanding under the WTI Loan Facilities and all underlying agreements had been terminated.
In September 2018, the Company entered into a senior secured credit facility with a syndicate of banks consisting of $75.0 million aggregate principal amount of term loans (the New Term Loans) and a $75.0 million revolving credit facility (the New Revolving Credit Facility, and together with the New Term Loans, the New Credit Facilities). The New Term Loans were fully funded in September 2018 and the Company received cash proceeds of $73.6 million , net of arrangement fees of $1.1 million and upfront fees of $0.3 million .
The New Term Loans amortize at a rate of 7.5% per annum for the first two years of the New Credit Facilities, 10.0% per annum for the third and fourth years and the first three quarters of the fifth year of the New Credit Facilities, with the balance due at maturity. The New Term Loans and the New Revolving Credit Facility are each expected to mature on the fifth anniversary of the effectiveness of the New Credit Facilities. The New Revolving Credit Facility has a commitment fee, which currently accrues at 0.40% on the daily unused amount of the aggregate revolving commitments of the lenders.
All outstanding amounts under the New Credit Facilities bear interest, at the Company's options, at (i) a reserve adjusted LIBO Rate plus a margin between 2.25% and 2.75% or (ii) a base rate plus a margin between 1.25% and 1.75% , in each case determined on a quarterly basis based on the Company's consolidated total leverage ratio. The current annual interest rate for the New Term Loans is 4.83% as of June 30, 2019 .
The New Credit Facilities contain customary conditions to borrowing, events of default, and covenants. Financial covenants include maintaining a (i) maximum consolidated total leverage ratio; (ii) minimum consolidated interest coverage ratio; and (iii) minimum liquidity ratio. As of June 30, 2019 , the Company was in compliance with all financial covenants.
In June 2019, the Company elected to make a principal payment of $10.0 million towards the New Term Loans and made total principal payments of $11.4 million during the three and six months ended June 30, 2019.
Term loans consisted of the following at the dates indicated (in thousands):
June 30, 2019
December 31, 2018
Outstanding principal balance
$
62,187

$
73,594

Accrued but unpaid interest
25

—

Less: Unamortized discount and debt issuance costs
(768
)
(872
)
Total term loan, net
$
61,444

$
72,722

Current portion of term loans
$
5,650

$
5,635

Term loans
55,794

67,087

As of June 30, 2019 , the contractual principal payments for the New Term Loans for the next five years are as follows (in thousands):
The remainder of 2019
$
2,812

2020
6,094

2021
7,500

2022
7,500

2023
38,281

Total
$
62,187



19

Promissory Note
In September 2017, the Company acquired 100% of the outstanding equity of Ticketfly, LLC (Ticketfly), a San Francisco based subsidiary of a publicly-held company. The acquisition of Ticketfly was accounted for as a business combination and 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 Convertible Promissory Notes (Promissory Note), which were paid and issued, respectively, at the closing of the transaction. The Promissory Note had a five year maturity from the date of issuance and bore interest at a rate of 6.5% per annum.
In March 2018, the Company reached an agreement with the seller of Ticketfly to repay the Promissory Note. The face value of $50.0 million was settled in full for $34.7 million which represented $33.0 million of principal and $1.7 million of accrued interest. The Company recognized a gain of $17.0 million resulting from the extinguishment of the Promissory Note in the condensed consolidated statements of operations for the six months ended June 30, 2018 .
11. Redeemable Convertible Preferred Stock Warrants
In connection with the WTI Loan Facilities discussed in Note 10, the Company issued warrants to WTI to purchase shares of Series G redeemable convertible preferred stock. The redeemable convertible preferred stock warrants became exercisable into 411,991 shares of Series G redeemable convertible preferred stock when the First WTI Loan Facility was executed in June 2017. In September 2017, the redeemable convertible preferred stock warrants became exercisable into an additional 205,995 shares of Series G redeemable convertible preferred stock when the Company borrowed $30.0 million under the First WTI Loan Facility. In March 2018, as a result of the Company borrowing the remaining $30.0 million under the First WTI Loan Facility, the Series G redeemable convertible preferred stock warrants became exercisable into an additional 205,995 shares of Series G redeemable convertible preferred stock. In May 2018, the Company issued additional warrants which were exercisable into 109,288 shares of Series G redeemable convertible preferred stock. The exercise price of all of the Series G redeemable convertible preferred stock warrants was $16.3836 per share and the redeemable convertible preferred stock warrants had an expiration date ten years from the date of issuance. In September 2018, in connection with the IPO, the redeemable convertible preferred stock warrants were automatically exercised into shares of Class B common stock and the related liability was reclassified to additional paid-in capital.
The Company recorded an increase in the fair value of the redeemable convertible preferred stock warrant liability of $4.8 million and $6.1 million during the three and six months ended June 30, 2018 , respectively. There was no activity during the three or six months ended June 30, 2019 . Refer to Note 3 for discussion of the significant inputs used to determine the fair value of the redeemable convertible preferred stock warrant liability.
12. Commitments and Contingencies
Operating Leases
The Company leases office space under various noncancelable operating leases that expire at various dates through 2028. Rent expense from operating leases totaled $1.0 million and $0.6 million for the three months ended June 30, 2019 and 2018 , respectively, and $2.1 million and $1.1 million for the six months ended June 30, 2019 and 2018 , respectively. The Company also recognized sublease income of $1.0 million and $0.8 million for the three months ended June 30, 2019 and 2018 , respectively, and $1.9 million and $1.6 million for the six months ended June 30, 2019 and 2018 , respectively.
Build-to-Suit Lease
In December 2013, the Company executed a lease for 97,624 square feet of office space in San Francisco, California. The initial lease term is seven years with an option to renew for an additional three years , and the leased space represents two floors in a seven-floor building. The lease provided for a $6.4 million tenant improvement reimbursement allowance, which the Company utilized in 2014. In order for the facility to meet the Company’s operating specifications, both the landlord and the Company made structural changes as part of the improvement of the building, and as a result, the Company has concluded that it is the deemed partial owner of the building (for accounting purposes only) during the construction period. Accordingly, at lease inception, the Company recorded an asset of $22.3 million , representing its estimate of the fair market value of the leased space, and a corresponding lease financing obligation on the consolidated balance sheets.

20

Upon completion of construction, the Company evaluated the derecognition of the asset and liability as a sale-leaseback transaction. The Company concluded it did not meet the provisions needed for sale-leaseback accounting, and thus the lease is being accounted for as a financing obligation. Lease payments are allocated to (1) a reduction of the principal financing obligation; (2) imputed interest expense; and (3) land lease expense (which is considered an operating lease) representing an imputed cost to lease the underlying land of the facility. In addition, the underlying building asset is being depreciated over the building’s estimated useful life of 30 years . The Company is evaluating the accounting treatment of the build-to-suit lease in connection with the adoption of ASU 2016-02.
Land lease expense was $0.2 million for each of the three months ended June 30, 2019 and 2018 and $0.5 million for each of the six months ended June 30, 2019 and 2018 . Interest expense related to the Company’s build-to-suit lease was $0.8 million and $0.9 million for the three months ended June 30, 2019 and 2018 , respectively, and $1.7 million for each of the six months ended June 30, 2019 and 2018 .
As of June 30, 2019 , the future minimum lease payments and sublease rental payments under noncancelable leases are as follows (in thousands):
Capital Leases
Build-to-Suit
Lease
Operating
Leases
Sublease
Income
Total
The remainder of 2019
144

$
2,829

$
1,955

$
(2,061
)
$
2,867

2020
230

5,772

3,844

(4,205
)
5,641

2021
172

1,943

3,440

(1,239
)
4,316

2022
86

—

3,185

—

3,271

2023
—

—

2,836

—

2,836

Thereafter
—

—

4,392

—

4,392

Total minimum lease payments
632

10,544

19,652

(7,505
)
23,323

Less: Amount representing interest and taxes
—

(5,888
)
—

—

(5,888
)
Total
$
632

$
4,656

$
19,652

$
(7,505
)
$
17,435

Letters of Credit
The Company has issued letters of credit under lease and other agreements, which have been collateralized with cash. This cash is classified as noncurrent restricted cash on the condensed consolidated balance sheets based on the term of the underlying agreements. During the six months ended June 30, 2019, the Company was released from a letter of credit for $1.0 million related to its leased office space in San Francisco, California. This amount was reclassified from restricted cash to cash and cash equivalents on the condensed consolidated balance sheets as of June 30, 2019.
Creator Signing Fees and Creator Advances
Creator signing fees and creator advances represent contractual amounts paid in advance to customers pursuant to event ticketing and payment processing agreements. Certain of the Company’s contracts include terms where future payments to creators are committed to as part of the overall ticketing arrangement. The following table presents, by year, the future creator payments committed to under contract but not yet paid as of June 30, 2019 (in thousands):
The remainder of 2019
$
6,153

2020
12,265

2021
5,024

2022
2,042

2023
1,313

Thereafter
—

Total
$
26,797


21

Litigation and Loss Contingencies
The Company accrues estimates for resolution of legal and other contingencies when losses are probable and estimable. From time to time, the Company may become a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, and threatened claims, breach of contract claims, tax and other matters.
On April 15, 2019, a purported stockholder of the Company filed a class action complaint against the Company, certain officers and members of the Company's board of directors and the underwriters for the Company's IPO (the Initial Complaint). On May 24, 2019 and June 3, 3019, additionally purported stockholders filed similar claims (together with the Initial Complaint, the Complaints). Among other things, the Complaints allege that defendants misrepresented and/or omitted material information in the Company's IPO registration statement in violation of the Securities Act. The Complaints allege that the Company and certain officers misrepresented and/or omitted material information in the Company's earnings release and Form 10-Q for the third quarter of 2018. The Complaints seek compensatory damages, costs and expenses, including attorneys' and expert fees, and other relief.
The Company believes that the Complaints are without merit and the Company intends to vigorously defend the actions. The Company cannot predict the outcome of or estimate the possible loss or range of loss from the Complaints and therefore no amounts have been accrued for the contingency.
The Company currently has no other material pending litigation.
The Company is currently under audit in certain domestic jurisdictions with regard to indirect tax matters. The Company establishes reserves for indirect tax matters when it determines that the likelihood of a loss is probable, and the loss is reasonably estimable. Accordingly, the Company has established a reserve for the potential settlement of issues related to sales and other indirect taxes in the amount of $14.7 million and $19.2 million as of June 30, 2019 and December 31, 2018, respectively. These amounts, which represent management’s best estimates of its potential liability, include potential interest and penalties of $1.3 million and $1.2 million as of June 30, 2019 and December 31, 2018, respectively.
In June 2018, 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, the Company 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, the Company incurred costs related to responding to and remediating the incident and suffered a loss of revenue for the period during which the Ticketfly platform was disabled. During the six months ended June 30, 2018 , the Company recorded an amount of $6.6 million for potential costs associated with this incident, of which $6.3 million was recorded as contra revenue and $0.3 million was recorded as an operating expense. This amount represented the Company’s best estimate of the total amount of creator accommodations to be made as a result of the incident at that time. During the three and six months ended June 30, 2019, the Company recorded $2.7 million and $3.0 million , respectively, as a reduction to general and administrative expenses related to business interruption insurance proceeds to be received as a result of the Ticketfly cyber incident. As of June 30, 2019, the Company's remaining liability balance related to the Ticketfly cyber incident was not material.
The Company does not believe that any ultimate liability resulting from any of these matters will have a material adverse effect on its business, consolidated financial position, results of operations or liquidity. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s financial statements, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.
Indemnifications
In the ordinary course of business, the Company enters into contractual arrangements under which the Company agrees to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from the Company’s online ticketing platform or the Company’s acts or omissions. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has indemnification agreements with its directors and executive officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations vary.

22

13. Stockholders' Equity
Common Stock
2004 and 2010 Stock Option Plans
In 2004, the board of directors and stockholders of the Company authorized and ratified the 2004 Stock Plan (2004 Plan), as amended. The 2004 Plan allows for the issuance of incentive stock options (ISOs), non-statutory stock options (NSOs) and stock purchase rights. The 2004 Plan states the maximum aggregate number of shares that may be subject to options or stock purchase rights and sold under the plan is 6,000,000 shares.
In 2010, the board of directors and stockholders of the Company authorized and ratified the 2010 Stock Plan (2010 Plan), as amended. The 2010 Plan replaced the 2004 Plan as the board of directors determined to cease granting awards under the 2004 Plan. The 2004 Plan will continue to govern outstanding equity awards granted thereunder. The 2010 Plan allows for the issuance of ISOs, NSOs and stock purchase rights. The 2010 Plan states the maximum aggregate number of shares that may be subject to options or stock purchase rights and sold under the plan is 29,963,761 shares.
2018 Stock Option and Incentive Plan
In August 2018, the 2018 Stock Option and Incentive Plan (2018 Plan) was adopted by the board of directors and approved by the stockholders and became effective in connection with the IPO. The 2018 Plan replaces the 2010 Plan as the board of directors has determined not to make additional awards under the 2010 Plan. The 2010 Plan will continue to govern outstanding equity awards granted thereunder. As of June 30, 2019, we have 7,745,819 shares of Class A common stock reserved for the issuance of awards under the 2018 Plan.
The Company has two classes of common stock, Class A and Class B. Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to ten votes per share. The Company’s common stock has no preferences or privileges and is not redeemable. Holders of Class A and Class B common stock are entitled to dividends, if and when declared by the Company’s board of directors. The 2018 Plan allows for the granting of ISOs, NSOs, stock appreciation rights, restricted stock, restricted stock units (RSUs), unrestricted stock awards, dividend equivalent rights and cash-based awards.
As of June 30, 2019 , there were 18,622,464 options issued and outstanding and 12,101,221 shares available for issuance under the 2004 Plan, 2010 Plan and 2018 Plan (collectively, the Plans).
Stock options typically vest over a four -year period from the date of grant. Options awarded under the Plans may be granted at an exercise price per share not less than the fair value at the date of grant and are exercisable up to 10 years .
Stock option activity under the Plans is as follows:
Outstanding
options
Weighted-
average exercise
price
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value
(thousands)
Balance as of December 31, 2018
22,012,597

$7.85
7.1
$439,382
Granted
1,174,160

$17.96
Exercised
(3,819,674
)
$6.01
$23,869
Cancelled
(744,619
)
$12.74
Balance as of June 30, 2019
18,622,464

$8.67
6.7
$140,970
Vested and exercisable as of December 31, 2018
12,462,693

$5.75
5.6
$274,883
Vested and expected to vest as of December 31, 2018
20,926,797

$7.69
7.0
$421,047
Vested and exercisable as of June 30, 2019
10,860,362

$6.51
5.3
$105,536
Vested and expected to vest as of June 30, 2019
17,844,757

$8.53
6.6
$137,576


23

2018 Employee Stock Purchase Plan
In August 2018, the board of directors adopted, and stockholders approved, the 2018 Employee Stock Purchase Plan (ESPP). Subject to any plan limitations, the ESPP allows eligible employees to contribute, through payroll deductions, up to 15% of their earnings for the purchase of the Company's Class A common stock at a discounted price per share. Except for the initial offering period, the ESPP provides for separate six-month offering periods. The initial offering period was from September 20, 2018 through May 31, 2019 and the second offering period is from June 1, 2019 through November 30, 2019. Unless otherwise determined by the Company's board of directors, the Company's Class A common stock will be purchased for the accounts of employees participating in the ESPP at a price per share that is the lesser of (1) 85% the fair market value of the Company's Class A common stock on the first trading day of the offering period, which for the initial offering period is the price at which shares of the Company's Class A common stock were first sold to the public, or (2) 85% the fair market value of the Company's Class A common stock on the last trading day of the offering period.
In January 2019, the board of directors approved the reservation of an additional 783,583 shares of Class A common stock for a total of 2,318,083 shares reserved for issuance under the ESPP. On May 31, 2019, 167,706 shares were purchased under the ESPP, and as of June 30, 2019 , 2,150,377 shares of Class A common stock were available for future issuance under the ESPP.
The Company recorded $0.2 million and $0.5 million of stock-based compensation expense related to the ESPP during the three and six months ended June 30, 2019 , respectively. No expense was recorded in connection with the ESPP during the three or six months ended June 30, 2018 as the ESPP was established in September 2018.
Common Stock Subject to Repurchase
The Plans and the Company’s stock option agreement allow for the early exercise of stock options for certain individuals, as determined by the board of directors. Common stock purchased pursuant to an early exercise of stock options is not deemed to be outstanding for accounting purposes until those shares vest. The consideration received for an exercise of an option is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability. Upon termination of service, the Company may, at their discretion, repurchase unvested shares acquired through early exercise of stock options at a price equal to the price per share paid upon the exercise of such options. The Company includes unvested shares subject to repurchase in the number of shares of common stock outstanding.
At June 30, 2019 and December 31, 2018 , outstanding common stock included 42,463 and 55,537 shares, respectively, subject to repurchase related to stock options that have been early exercised and remain unvested. The Company had a liability of $0.4 million as of June 30, 2019 and December 31, 2018 related to early exercises of stock options. The liability is reclassified into stockholders’ equity as the awards vest.
Stock-based Compensation Expense
All stock-based awards to employees and members of the Company’s board of directors are 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). The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model and records stock-based compensation expense for service-based equity awards using the straight-line attribution method.
The following range of assumptions were used to estimate the fair value of stock options granted to employees:
Three Months Ended
June 30,
Six Months Ended
June 30,
2019
2018
2019

2018
Expected dividend yield
—
—
—
—
Expected volatility
49.2-49.4%
52.9%
49.2-49.7%
48.3-52.9%
Risk-free interest rate
1.85-1.95%
2.55%
1.85-2.58%
2.32-2.61%
Expected term (years)
5.13-6.08
6.08
5.13-6.08
6.08
The weighted-average per share fair value of stock options granted was $ 8.02 and $ 6.61 for the three months ended June 30, 2019 and 2018, respectively, and $8.84 and $ 5.88 for the six months ended June 30, 2019 and 2018, respectively.
As of June 30, 2019 and December 31, 2018 , the total unrecognized stock-based compensation related to unvested options outstanding was $46.9 million and $51.3 million , respectively, to be recognized over a weighted-average period of 2.55 years and 2.73 years , respectively.

24

Restricted Stock Units
Restricted stock unit activity under the Plans was as follows for the six months ended June 30, 2019 :

Outstanding RSUs
Weighted-average grant date fair value per share
Balance as of December 31, 2018
670,606

$
24.71

Awarded
2,524,441

21.60

Released
(140,022
)
20.40

Cancelled
(230,136
)
28.93

Balance as of June 30, 2019
2,824,889

$
21.79

Vested and expected to vest as of June 30, 2019
2,277,893

$
21.77

The Company recognized $3.7 million and $6.1 million of stock-based compensation expense related to RSUs during the three and six months ended June 30, 2019, respectively, and as of that date, the total unrecognized stock-based compensation related to RSUs outstanding was $49.1 million , which is expected to be recognized over a weighted-average period of 3.65 years . The Company recognized no expense related to RSUs during the three or six months ended June 30, 2018 as all outstanding RSUs had a performance vesting condition that had not been met.
Sales of the Company’s Stock
In May 2018, employees and former employees of the Company sold an aggregate of 1.3 million shares of the Company’s common stock to entities affiliated with an existing investor at a purchase price of $13.12 per share, for an aggregate purchase price of $17.2 million . The purchase price was in excess of the fair value of such shares. As a result, during the three months ended June 30, 2018 , the Company recorded the excess of the purchase price above fair value of $2.2 million as compensation expense, of which $2.0 million is included within general and administrative expense and $0.2 million is included within sales, marketing and support expense on the condensed consolidated statements of operations.
14. Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period. In periods of net loss, basic net loss per share and diluted net loss per share are equal as including the potentially dilutive securities has an anti-dilutive effect.
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):
Three Months Ended
June 30,
Six Months Ended
June 30,
2019
2018
2019
2018
Net loss
$
(14,833
)
$
(24,603
)
$
(24,831
)
$
(15,580
)
Weighted-average shares used in computing net loss per share, basic and diluted
81,369

21,886

80,049

21,289

Net loss per share, basic and diluted
$
(0.18
)
$
(1.12
)
$
(0.31
)
$
(0.73
)
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share because including them would have had an anti-dilutive effect (in thousands):
June 30,
2019
2018
Redeemable convertible preferred stock (on an if-converted basis)
—

41,628

Options to purchase common stock
18,622

18,483

Redeemable convertible preferred stock warrants
—

933

Restricted stock units
2,784

1,033

Early exercised options
42

79

Total
21,448

62,156


25

15. Income Taxes
The Company recorded an income tax benefit of $1.2 million and $1.1 million for the three and six months ended June 30, 2019, respectively, compared to an income tax provision of $0.4 million and $0.8 million for the three and six months ended June 30, 2018, respectively. The income tax benefit increase in the three and six months ended June 30, 2019 was primarily attributable to changes in our year over year taxable earnings mix and the recognition of tax attributes in our non-U.S. subsidiaries.
The differences in the tax provision 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 net deferred tax assets and certain foreign losses which benefit from rates lower than the U.S. federal statutory rate.
The Company applies the discrete method provided in ASC 740 to calculate its interim tax provision.
16. Geographic Information

The Company operates as a single reportable and operating segment. The following table presents the Company's total net revenue by geography based on the currency of the underlying transaction for the periods indicated (in thousands):

Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
United States
$
58,687

$
47,206

$
118,471

$
104,491

International
22,071

20,336

43,613

37,577

Total net revenue
$
80,758

$
67,542

$
162,084

$
142,068


No individual country included in the International line above represents more than 10% of the total consolidated net revenue for any of the periods presented. Substantially all of the Company's long-lived assets are located in the United States.

In the three months ended June 30, 2018, the Company recorded a $6.3 million contra-revenue charge related to liabilities incurred in connection with the Ticketfly cyber incident. This amount is reflected as a reduction in net revenue in the United States caption shown in the table above for the three and six months ended June 30, 2018.
17. Subsequent Events
In July 2019, a Canadian event creator cancelled an event for which the Company provided ticketing and payment processing services. In July 2019, while not legally obligated, the Company issued refunds for the face value of tickets totaling $4.0 million . This amount will be recorded as an operating expense in the three months ended September 30, 2019 and could be partially offset by any amounts that are determined to be recoverable from the event creator or a third party. The revenue recognized related to this event was not material to the Company’s condensed consolidated statements of operations for the three or six months ended June 30, 2019.
On July 16, 2019, we filed two complaints in the United States District Court for the Northern District of California, entitled Eventbrite, Inc. v. MF Live, Inc., et al., 3:19-CV-04084 (the MF Live Complaint) and Eventbrite, Inc. v. Fab Loranger et al., 3:19-CV-04083 (the Fab Loranger Complaint), related to a cancelled event for which we provided ticketing and payment processing services and for which, while not legally obligated, we issued refunds for the face value of tickets totaling $4.0 million . Among other things, the complaints allege that MF Live, Inc. (MF Live) is in breach of its written contract with us (the Services Agreement) whereby MF Live committed (i) to refund customers in the event their music festival was cancelled and (ii) if MF Live failed to issue refunds, we were authorized to issue refunds on MF Live’s behalf, in which event MF Live would promptly repay us in full. On July 12, 2019, MF Live filed for bankruptcy in the City of Wasaga Beach, in the Province of Ontario.
We cannot predict the outcome of or estimate the possible recovery or range of recovery from the above described matter.



26

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
References herein to "Eventbrite", "the Company", "we", "us" or "our" refer to Eventbrite, Inc. and its subsidiaries, unless the context requires otherwise.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (2018 Form 10-K) filed with the United States Securities and Exchange Commission (SEC) on March 7, 2019. In addition to historical condensed consolidated financial information, the following discussion and analysis contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in this Quarterly Report on Form 10-Q and in our 2018 Form 10-K.
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 2018, we helped more than 790,000 creators issue approximately 265 million tickets across 3.8 million events in over 170 countries.
We derive our revenue primarily 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 creator signing fees. We also derive revenue from providing certain creators with account management services and customer service support, as well as complementary solutions on our platform.
Quarterly Key Business Metrics
We monitor paid tickets on a quarterly basis as a key metric to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. We calculate our retention rate on an annual basis only.
Paid Tickets
Our success in serving creators is measured in large part by the number of tickets that generate ticket fees. 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:
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
(in thousands)
Paid Tickets
26,538

23,099

53,564

46,697

Our paid tickets for events outside of the United States represented 36.4% and 32.3% of our total paid tickets in the three months ended June 30, 2019 and 2018, respectively, and 35.7% and 31.5% of our total paid tickets in the six months ended June 30, 2019 and 2018, respectively.


27

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 U.S. 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 U.S. GAAP. In addition, other companies may not calculate non-GAAP financial measures in the same manner as we calculate them, limiting their usefulness as comparative measures. 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 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 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 debt extinguishment, direct and indirect acquisition-related costs, employer taxes related to employee equity transactions, other income (expense), net, which consisted of interest income and foreign exchange rate gains and losses, and income tax provision (benefit). Adjusted EBITDA should not be considered as an alternative to our net loss or any other measure of financial performance calculated and presented in accordance with U.S. GAAP.
The following table presents a reconciliation of our Adjusted EBITDA to the most comparable GAAP measure, net loss, for each of the periods indicated:
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
(in thousands)
Net loss
$
(14,833
)
$
(24,603
)
$
(24,831
)
$
(15,580
)
Depreciation and amortization
6,082

8,580

12,219

16,782

Stock-based compensation
8,706

5,248

16,833

8,108

Interest expense
1,868

3,190

3,801

6,099

Change in fair value of redeemable convertible preferred stock warrant liability
—

4,750

—

6,071

Gain on debt extinguishment
—

—

—

(16,995
)
Direct and indirect acquisition related costs (1)
130

622

803

1,445

Employer taxes related to employee equity transactions
524

—

711

—

Other (income) expense, net
(375
)
3,013

(2,555
)
3,294

Income tax provision (benefit)
(1,193
)
430

(1,093
)
800

Adjusted EBITDA
$
909

$
1,230

$
5,888

$
10,024


(1) Direct and indirect acquisition-related costs consist primarily of transaction-related fees and expenses incurred within one year of the transaction date, 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. 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 U.S. 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.

28

We calculate free cash flow as cash flow from operating activities less purchases of property and equipment and capitalized internal-use software development costs, over a trailing twelve-month period. Because quarters are not uniform in terms of cash usage, we believe a trailing twelve-month view provides the best understanding of the underlying trends of the business.
The following table presents a reconciliation of our free cash flow to the most comparable U.S. GAAP measure, net cash provided by operating activities, for each of the periods indicated:
Twelve Months Ended
June 30,
2019
2018
(in thousands)
Net cash provided by operating activities
$
15,780

$
24,554

Purchases of property and equipment and capitalized internal-use software development costs
(13,353
)
(11,392
)
Free cash flow
$
2,427

$
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 U.S. 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 U.S. GAAP financial measures, such as net 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.
Components of Results of Operations
Net Revenue
On January 1, 2019, we adopted ASC Topic 606 using the modified retrospective method applied to contracts which were not completed as of the adoption date. Results for reporting periods beginning on or after January 1, 2019 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historical accounting guidance. See Part I, Item 1, Note 2, "Summary of Significant Accounting Policies" included in this Quarterly Report on Form 10-Q for additional details, including a description of our revenue recognition policies under ASC Topic 606. The adoption of ASC Topic 606 did not have a material impact on our results of operations, financial position or cash flows.
We generate revenues primarily from service fees and payment processing fees from the sale of paid tickets on our platform. We also provide certain creators with account management services and customer support. Our fee structure typically consists of a fixed fee and a percentage of the price of each ticket sold by a creator. Revenue is recognized when control of promised goods or services is transferred to the creator, which for service fees and payment processing fees is when the ticket is sold. For account management services and customer support, revenue is recognized over the period from the date of the sale of the ticket to the date of the event. 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.
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 total net revenue in each of the three and six months ended June 30, 2019 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 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.

29

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. Our operating expenses include the investment we make in the development and promotion of complementary solutions that we offer. Our investment in these complementary solutions was $5.5 million and $4.1 million during the three months ended June 30, 2019 and 2018, respectively, and $10.6 million and $9.0 million during the six months ended June 30, 2019 and 2018, respectively. 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 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. We expect that the addition of our Madrid and Vancouver creative hubs in 2018, resulting from the Ticketea and Picatic acquisitions, respectively, will contribute to higher product development expenses in absolute dollars and as a percentage of net revenue in the near-term, but over the long-term, we anticipate that product development expenses 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 creator related expenses as sales, marketing and support expenses. Our sales, marketing and support expenses also includes the amortization of acquired customer relationship intangible assets, which was $2.6 million and $2.5 million for the three months ended June 30, 2019 and 2018, and $5.2 million and $5.0 million for the six months ended June 30, 2019 and 2018, respectively. 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.

In July 2019, an event creator cancelled an event for which the Company provided ticketing and payment processing services. In July 2019, while not legally obligated, the Company issued refunds for the face value of tickets totaling $4.0 million. This amount will be recorded as an operating expense in the three months ended September 30, 2019 and could be partially offset by any amounts that are determined to be recoverable from the event creator or a third party. The revenue recognized related to this event was not material to the Company’s condensed consolidated statements of operations for the three or six months ended June 30, 2019.

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 also include reserves for sales tax and VAT, as well as impairment charges related to creator upfront payments. Our general and administrative expenses have increased on an actual dollar basis over time and we expect general and administrative expenses to continue to increase in absolute dollars over time. However, we do anticipate general and administrative expenses will fluctuate as a percentage of net revenue as we expect to incur additional general and administrative expenses to support our growth as we continue to mature as a publicly-traded company and as we scale our business. These increases may be partially offset by reductions in sales tax and VAT accruals as a result of our increased certainty as to the amounts we may owe in certain jurisdictions and our increased clarity into how certain tax regulators interpret tax legislation in the various jurisdictions in which we operate.
Interest Expense
Interest expense relates to our build-to-suit lease financing obligation and outstanding debt.
As a result of our build-to-suit lease accounting, a portion of our cash rent payments related to our San Francisco office are classified as interest expense for GAAP reporting purposes. We reported interest expense of $0.8 million and $0.9 million during the three months ended June 30, 2019 and 2018, respectively and $1.7 million for each of the six months ended June 30, 2019 and 2018 related to build-to-suit accounting.

30

Our outstanding debt has been historically related to acquisitions, either as part of deal consideration or to help finance cash consideration for an acquisition. In September 2017, we issued $50.0 million subordinated convertible notes in connection with the Ticketfly acquisition, which were repaid in March 2018. In September 2017, we borrowed $30.0 million under the First WTI Loan Facility. 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 WTI Loan Facility. We drew an additional $15.0 million under the Second WTI Loan Facility in May 2018. The amounts borrowed under the WTI Loan Facilities were fully repaid in September 2018 and the underlying agreements were terminated.
In September 2018, we borrowed $75.0 million in New Term Loans under our Credit Agreement and as of June 30, 2019, the outstanding principal balance of the New Term Loans was $62.2 million .
Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability
The redeemable convertible preferred stock warrant was classified as a liability on our condensed 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 condensed consolidated statements of operations. In connection with our IPO, all warrants were automatically exercised for no consideration, and, as such, we do not have any redeemable convertible preferred stock warrant liability at December 31, 2018 or June 30, 2019.
Gain on debt extinguishment
Gain on debt extinguishment consists of amounts recorded related to our accounting for the retirement of our debt obligations.
Other Income (Expense), Net
Other income (expense), net consists of interest income, foreign exchange rate remeasurement gains and losses recorded from consolidating our subsidiaries each period-end.
Income Tax Provision (Benefit)
The income tax provision (benefit) consists primarily of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. The differences in the income tax provision (benefit) for the periods presented and the U.S. federal statutory rate is primarily due to foreign taxes in profitable jurisdictions and the recording of a full valuation allowance on our net deferred tax assets and certain foreign losses which benefit from rates lower than the U.S. statutory rate. We apply the discrete method provided in ASC 740 to calculate our interim tax provision.

31

Results of Operations
The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. The following tables set forth our consolidated results of operations data and such data as a percentage of net revenue for the periods presented:
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
(in thousands)
Consolidated Statements of Operations
Net revenue
$
80,758

$
67,542

$
162,084

$
142,068

Cost of net revenue
31,073

29,863

61,591

57,947

Gross profit
49,685

37,679

100,493

84,121

Operating expenses:
Product development
16,295

10,981

30,559

19,815

Sales, marketing and support
25,872

21,513

47,434

42,229

General and administrative
22,051

18,405

47,178

38,388

Total operating expenses
64,218

50,899

125,171

100,432

Loss from operations
(14,533
)
(13,220
)
(24,678
)
(16,311
)
Interest expense
(1,868
)
(3,190
)
(3,801
)
(6,099
)
Change in fair value of redeemable convertible preferred stock warrant liability
—

(4,750
)
—

(6,071
)
Gain on debt extinguishment
—

—

—

16,995

Other income (expense), net
375

(3,013
)
2,555

(3,294
)
Loss before income taxes
(16,026
)
(24,173
)
(25,924
)
(14,780
)
Income tax provision (benefit)
(1,193
)
430

(1,093
)
800

Net loss
$
(14,833
)
$
(24,603
)
$
(24,831
)
$
(15,580
)
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
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
38.5

44.2

38.0

40.8

Gross profit
61.5

55.8

62.0

59.2

Operating expenses:
Product development
20.2

16.3

18.9

13.9

Sales, marketing and support
32.0

31.9

29.3

29.7

General and administrative
27.3

27.2

29.1

27.0

Total operating expenses
79.5

75.4

77.2

70.7

Loss from operations
(18.0
)
(19.6
)
(15.2
)
(11.5
)
Interest expense
(2.3
)
(4.7
)
(2.3
)
(4.3
)
Change in fair value of redeemable convertible preferred
stock warrant liability
—

(7.0
)
—

(4.3
)
Gain on debt extinguishment
—

—

—

12.0

Other income (expense), net
0.5

(4.5
)
1.6

(2.3
)
Loss before income taxes
(19.8
)
(35.8
)
(16.0
)
(10.4
)
Income tax provision (benefit)
(1.4
)
0.6

(0.7
)
0.6

Net loss
(18.4
)%
(36.4
)%
(15.3
)%
(11.0
)%

32

Comparison of Three Months Ended June 30, 2019 and 2018
Net revenue
Three Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Net revenue
$
80,758

$
67,542

$
13,216

19.6
%
The increase in net revenue during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 was driven primarily by growth in paid ticket volume, which increased by 14.9% during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 , from 23.1 million to 26.5 million . During the three months ended June 30, 2018, we recorded a contra-revenue charge of $6.3 million as a result of the Ticketfly cyber incident. Without this item, our revenue growth would have been $6.9 million or 9.3% in the three months ended June 30, 2019 compared to the same period in 2018.
Net revenue per paid ticket increased during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 from $2.92 to $3.04 .
Cost of net revenue
Three Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Cost of net revenue
$
31,073

$
29,863

$
1,210

4.1
%
Percentage of total net revenue
38.5
%
44.2
%
Gross margin
61.5
%
55.8
%
The increase in cost of net revenue during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 was primarily due to an increase in payment processing costs of $2.0 million driven by paid ticket growth on our platform. In addition, platform operating costs and hosting fees increased $1.0 million and allocated customer support costs increased $0.6 million . These increases were partially offset by decreased amortization of acquired developed technology of $2.8 million , as the Ticketfly acquired developed technology asset became fully amortized in the fourth quarter of 2018.
Operating expense
Product development
Three Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Product development
$
16,295

$
10,981

$
5,314

48.4
%
Percentage of total net revenue
20.2
%
16.3
%
Product development expense increased during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily due to increased personnel costs of $4.8 million , including $1.4 million of stock-based compensation, resulting from organic hiring efforts and an increase in headcount as a result of the Picatic acquisition.
Sales, marketing and support
Three Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Sales, marketing and support
$
25,872

$
21,513

$
4,359

20.3
%
Percentage of total net revenue
32.0
%
31.9
%
Sales, marketing and support expenses increased during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily due to increased creator-related expenses of $2.4 million and increased direct and discretionary marketing expenses of $1.0 million .

33

General and administrative
Three Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
General and administrative
$
22,051

$
18,405

$
3,646

19.8
%
Percentage of total net revenue
27.3
%
27.2
%
The increase in general and administrative expenses during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 was a result of several factors. Personnel costs increased by $3.6 million , including $1.3 million of stock-based compensation, driven by increased headcount during the three months ended June 30, 2019 compared to the three months ended June 30, 2018. We also recorded increased impairment charges of $2.0 million related to creator advances and creator signing fees during the three months ended June 30, 2019 compared to the same period in 2018. These increases were partially offset by a contra-expense item in the amount of $2.7 million related to business interruption insurance proceeds stemming from the Ticketfly cyber incident recorded in the three months ended June 30, 2019.
Interest expense
Three Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Interest expense
$
(1,868
)
$
(3,190
)
$
(1,322
)
(41.4
)%
Percentage of total net revenue
(2.3
)%
(4.7
)%
The decrease in interest expense during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 was driven by lower interest rates on our outstanding debt during the three months ended June 30, 2019 . The WTI Loan Facilities which were outstanding in the three months ended June 30, 2018 bore interest at a rate higher than the New Term Loans, which were outstanding during the three months ended June 30, 2019. Refer to Note 10 included in Part 1. Item 1. and Liquidity and Capital Resources included in this Quarterly Report on Form 10-Q for further information regarding our debt and interest rates.
We also continue to record interest expense related to our build-to-suit lease accounting for our office lease in San Francisco, California, but those amounts are consistent in the periods presented.
Change in fair value of redeemable convertible preferred stock warrant liability
Three Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Change in fair value of redeemable convertible preferred stock warrant liability
$
—

$
(4,750
)
$
(4,750
)
(100.0
)%
Percentage of total net revenue
—
%
(7.0
)%
The change in fair value of our redeemable convertible preferred stock warrant liability during the three months ended June 30, 2018 was due to an increase in the underlying fair value of our redeemable convertible preferred stock from April 1, 2018 to June 30, 2018. In connection with our IPO, the redeemable convertible preferred stock warrants were automatically exercised into shares of Class B common stock following which the warrants ceased to be outstanding. As a result, there was no change in fair value recorded during the three months ended June 30, 2019.

34

Other income (expense), net
Three Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Other income (expense), net
$
375

$
(3,013
)
$
3,388

112.4
%
Percentage of total net revenue
0.5
%
(4.5
)%
The increase in other income (expense), net during the three months ended June 30, 2019 compared to the three months ended June 30, 2018 was driven by foreign currency rate measurement fluctuations. We recognized foreign currency rate measurement gains during the three months ended June 30, 2019 as a result of the weakening of the U.S. dollar compared to the currencies with which we operate and process transactions. We recognized foreign currency rate measurement losses during the three months ended June 30, 2018 as a result of the overall strengthening of the U.S. dollar compared to the currencies with which we operate and process transactions. Additionally, we recorded interest income of $1.3 million in the three months ended June 30, 2019 compared to $0.1 million in the same period in 2018.
Income tax provision (benefit)
Three Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Income tax provision (benefit)
$
(1,193
)
$
430

$
(1,623
)
(377.4
)%
Percentage of total net revenue
(1.4
)%
0.6
%

The benefit from income taxes increased $1.6 million in the three months ended June 30, 2019 compared to the three months ended June 30, 2018 . The increase was primarily attributable to the change in our year over year taxable earnings mix and the recognition of tax attributes in our non-U.S. subsidiaries.
Comparison of Six Months Ended June 30, 2019 and 2018
Net revenue
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Net revenue
$
162,084

$
142,068

$
20,016

14.1
%
The increase in net revenue during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was driven primarily by growth in paid ticket volume, which increased by 14.7% from 46.7 million to 53.6 million . During the six months ended June 30, 2018, we recorded a contra-revenue charge of $6.3 million as a result of the Ticketfly cyber incident. Without this item, our revenue growth would have been $13.7 million or 9.2% in the six months ended June 30, 2019 compared to the same period in 2018.
Net revenue per paid ticket remained consistent at $3.03 in the six months ended June 30, 2019 compared to $3.04 in the six months ended June 30, 2018 .

35

Cost of net revenue
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Cost of net revenue
$
61,591

$
57,947

$
3,644

6.3
%
Percentage of total net revenue
38.0
%
40.8
%
Gross margin
62.0
%
59.2
%
The increase in cost of net revenue during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was primarily due to an increase in payment processing costs of $4.4 million driven by paid ticket growth and smaller increases in platform operations and hosting costs, allocated customer support costs. These increases were offset by a decrease in the amortization of acquired developed technology of $5.5 million , as a result of the Ticketfly acquired developed technology becoming fully amortized in the fourth quarter of 2018.
Operating expenses
Product development
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Product development
$
30,559

$
19,815

$
10,744

54.2
%
Percentage of total net revenue
18.9
%
13.9
%
Product development expense increased during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to increased personnel costs of $9.2 million , including $2.9 million of stock-based compensation, resulting from organic hiring efforts and an increase in headcount as a result of the Ticketea and Picatic acquisitions.
Sales, marketing and support
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Sales, marketing and support
$
47,434

$
42,229

$
5,205

12.3
%
Percentage of total net revenue
29.3
%
29.7
%
Sales, marketing and support expenses increased during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to increased creator-related expenses of $3.3 million and increased direct and discretionary marketing expenses of $1.2 million .

36

General and administrative
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
General and administrative
$
47,178

$
38,388

$
8,790

22.9
%
Percentage of total net revenue
29.1
%
27.0
%
General and administrative expenses increased during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 as a result of several factors. Personnel-related costs increased by $9.6 million , including $4.5 million of stock-based compensation. The increase was also attributable to higher impairment charges of creator upfront payments of $2.2 million in the six months ended June 30, 2019 compared to the same period in 2018, as well as several smaller increases in insurance costs, contractor expenses, rent and utilities expenses which are required to support the growth of our company. These increases were offset by a decrease of $2.3 million from the release and remeasurement of sales tax reserves in the six months ended June 30, 2019 compared to the corresponding period in 2018. We also recorded $3.0 million as a contra-expense in the six months ended June 30, 2019 related to insurance proceeds from the Ticketfly cyber incident and related business interruption.
Interest expense
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Interest expense
$
(3,801
)
$
(6,099
)
$
(2,298
)
(37.7
)%
Percentage of total net revenue
(2.3
)%
(4.3
)%
The decrease in interest expense during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was driven by lower interest rates on our outstanding debt during the six months ended June 30, 2019 . The WTI Loan Facilities which were outstanding in the six months ended June 30, 2018 bore interest at a rate higher than the New Term Loans, which were outstanding during the six months ended June 30, 2019. Refer to Note 10 included in Part 1. Item 1. and Liquidity and Capital Resources included in this Quarterly Report on Form 10-Q for further information regarding our debt and interest rates.
We also continue to record interest expense related to our build-to-suit lease accounting for our office lease in San Francisco, California, but those amounts are consistent in the periods presented.
Change in fair value of redeemable convertible preferred stock warrant liability
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Change in fair value of redeemable convertible preferred stock warrant liability
$
—

$
(6,071
)
$
(6,071
)
(100.0
)%
Percentage of total net revenue
—
%
(4.3
)%
The change in fair value of our redeemable convertible preferred stock warrant liability during the six months ended June 30, 2018 was due to an increase in the underlying fair value of our redeemable convertible preferred stock from January 1, 2018 to June 30, 2018. In connection with our IPO, the redeemable convertible preferred stock warrants were automatically exercised into shares of Class B common stock following which the warrants ceased to be outstanding. As a result, there was no change in fair value recorded during the six months ended June 30, 2019.

37

Gain on debt extinguishment
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Gain on debt extinguishment
$
—

$
16,995

$
(16,995
)
(100.0
)%
Percentage of total net revenue
—
%
12.0
%
The gain on debt extinguishment recorded in the six months ended June 30, 2018 was due to the retirement of promissory notes that were issued in connection with the Ticketfly acquisition. An agreement was reached with the holder of the notes to retire them in full for $34.7 million , resulting in a gain on debt extinguishment of $17.0 million . While we did make $11.4 million in principal payments against our New Term Loans, we did not retire any debt in the six months ended June 30, 2019.
Other income (expense), net
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Other income (expense), net
$
2,555

$
(3,294
)
$
5,849

177.6
%
Percentage of total net revenue
1.6
%
(2.3
)%
The increase in other income (expense), net during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was driven primarily by foreign currency rate measurement fluctuations and interest income. We recorded $2.6 million of interest income in the six months ended June 30, 2019 and the effect of foreign currency rates was not material in the period. In the six months ended June 30, 2018, we recognized foreign currency rate remeasurement losses as a result of an overall strengthening U.S. dollar compared to the currencies with which we operate and process transactions. We recognized minimal interest income in the six months ended June 30, 2018.
Income tax provision (benefit)
Six Months Ended June 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Income tax provision (benefit)
$
(1,093
)
$
800

$
(1,893
)
(236.6
)%
Percentage of total net revenue
(0.7
)%
0.6
%

The benefit from income taxes increased $1.9 million in the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase was primarily attributable to the change in our year over year taxable earnings mix and the recognition of tax attributes in our non-U.S. subsidiaries.
Liquidity and Capital Resources
As of June 30, 2019 , we had cash and cash equivalents of $500.5 million and funds receivable of $46.6 million . Our cash and cash equivalents includes bank deposits and money market funds 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 business days of the underlying ticket transaction. Collectively, our cash and cash equivalents and funds receivable balances represent a mix of cash that belongs to us and cash that is due to the creator. The amount due to creators, which was $323.0 million as of June 30, 2019 , is captioned on our condensed consolidated balance sheets as accounts payable, creators.
We also make payments to creators to provide the creator with short-term liquidity in advance of ticket sales. These amounts are recovered by us as tickets are sold by the respective creator, and are typically expected to be recovered within 12 months of the payment date. Amounts expected to be recovered within 12 months of the balance sheet date are classified as creator advances, net, and any remaining amounts are classified as creator advances, noncurrent. We maintain an allowance for estimated creator advances that are not recoverable and present the creator advances balance net on our condensed consolidated balance sheets. Creator advances, net was $26.2 million and $21.3 million as of June 30, 2019 and December 31, 2018 ,

38

respectively and creator advances, noncurrent was $2.5 million and $1.9 million as of June 30, 2019 and December 31, 2018 , respectively.
Since our inception, and prior to our IPO, we financed our operations and capital expenditures primarily through the issuance of unregistered redeemable convertible preferred stock and common stock, cash flows generated by operations and issuances of debt.
In September 2018, upon the completion of our IPO, we received aggregate proceeds of $246.0 million , net of underwriter discounts and commissions, before deducting offering costs of $5.5 million , net of reimbursements.
Also in September 2018, we entered into a senior secured credit facility with a syndicate of banks consisting of $75.0 million aggregate principal amount of term loans (the New Term Loans) and a $75.0 million revolving credit facility (the New Revolving Credit Facility, and together with the New Term Loans, the New Credit Facilities).The New Term Loans were fully funded in September 2018 and we received cash proceeds of $73.6 million, net of arrangement fees of $1.1 million and upfront fees of $0.3 million. We made principal payments of $11.4 million during the three and six months ended June 30, 2019, respectively, related to our New Term Loans and as of June 30, 2019, the balance of Term Loans on the condensed consolidated balance sheet is $61.4 million .
The New Term Loans amortize at a rate of 7.5% per annum for the first two years of the New Credit Facilities, 10.0% per annum for the third and fourth years and the first three quarters of the fifth year of the New Credit Facilities, with the balance due at maturity. The New Term Loans and the New Revolving Credit Facility are each expected to mature on the fifth anniversary of the effectiveness of the New Credit Facilities. The New Revolving Credit Facility has a commitment fee, which currently accrues at 0.40% on the daily unused amount of the aggregate revolving commitments of the lenders. We have made no draw on the revolving credit line as of June 30, 2019 .
Borrowings under the New Credit Facilities bear interest at a rate equal to an applicable margin between 2.25% and 2.75% in the case of eurocurrency loans or between 1.25% and 1.75% in the case of base rate loans, in each case determined on a quarterly basis based on our consolidated total leverage ratio, plus, at our option, either a base rate or a eurocurrency rate calculated in a customary manner.
The New Credit Facilities contain customary conditions to borrowing, events of default, and covenants. Financial covenants include maintaining a (i) maximum total leverage ratio; (ii) minimum consolidated interest coverage ratio; and (iii) minimum liquidity ratio. We were in compliance with all financial covenants as of June 30, 2019 .
We believe that our existing cash, together with cash generated from operations and amounts available under our New Revolving Credit Facility, will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We may seek to raise additional funds at any time through debt, equity and equity-linked arrangements.
As of June 30, 2019 , approximately 50.8% 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.
Cash Flows
Our cash flow activities were as follows for the periods presented (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Net cash provided by (used in):
Operating activities
$
(29,002
)
$
(37,307
)
$
57,732

$
48,999

Investing activities
(4,447
)
9,826

(7,837
)
6,834

Financing activities
538

18,087

11,667

13,215

Net increase (decrease) in cash, cash equivalents and restricted cash
$
(32,911
)
$
(9,394
)
$
61,562

$
69,048


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Comparison of Three Months Ended June 30, 2019 and 2018
Cash Flows from Operating Activities
The net cash used in operating activities of $29.0 million for the three months ended June 30, 2019 was due primarily to a net loss of $14.8 million with adjustments for depreciation and amortization of $6.1 million , stock-based compensation expense of $8.7 million , amortization of creator signing fees of $2.5 million , impairment of creator advances and creator signing fees of $1.4 million and provision for bad debt and creator advances of $1.8 million . Additionally, there was a decrease in accounts payable to creators of $30.4 million , an increase in creator signing fees net of $4.6 million , an increase in creator advances, net of $4.4 million , a decrease in accrued taxes of $3.6 million and a decrease in accrued compensation and benefits of $1.9 million . These items were partially offset by a decrease in funds receivable of $7.8 million .
The net cash used in operating activities of $37.3 million for the three months ended June 30, 2018 was due primarily to a net loss of $24.6 million with adjustments for depreciation and amortization of $8.6 million , stock-based compensation expense of $5.2 million , amortization of creator signing fees of $1.7 million and a change in fair value of redeemable convertible preferred stock warrant liability of $4.8 million . Additionally, there was a decrease in accounts payable to creators of $42.2 million , a decrease in accrued taxes of $1.1 million , an increase in creator signing fees net of $2.6 million and an increase in prepaid expenses and other current assets of $2.1 million . These items were partially offset by a decrease in funds receivable of $8.9 million and an increase in other accrued liabilities of $4.7 million .
Cash Flows from Investing Activities
The net cash used in investing activities of $4.4 million for the three months ended June 30, 2019 was due to capitalized software development costs of $2.2 million and purchases of property and equipment of $2.3 million .
The net cash provided by investing activities of $9.8 million for the three months ended June 30, 2018 was due to $13.9 million net cash provided through our acquisition of Ticketea in April 2018, partially offset by capitalized software development costs of $2.0 million and $2.0 million paid for purchases of property and equipment.
Cash Flows from Financing Activities
The net cash provided by financing activities of $0.5 million during the three months ended June 30, 2019 was primarily due to $10.5 million in proceeds from exercise of stock options and $2.2 million in aggregate proceeds from the purchase of common stock under the ESPP. These inflows were offset by $11.4 million in principal payments on our New Term Loans.
The net cash provided by financing activities totaled $18.1 million during the three months ended June 30, 2018 and was driven by $15.0 million in proceeds from drawing funds under our WTI Loan Facility and $3.6 million cash proceeds from stock option exercises.
Comparison of Six Months Ended June 30, 2019 and 2018
Cash Flows from Operating Activities
The net cash provided by operating activities of $57.7 million for the six months ended June 30, 2019 was due primarily to a net loss of $24.8 million with adjustments for depreciation and amortization of $12.2 million , stock-based compensation expense of $16.8 million , amortization of creator signing fees of $4.9 million , impairment of creator advances and creator signing fees of $1.9 million and provision for bad debt and creator advances of $2.4 million . Additionally, there was an increase in accounts payable to creators of $50.8 million , an increase in other accrued liabilities of $2.7 million and a decrease in funds receivable of $12.1 million . These items were partially offset by a decrease in accrued taxes of $4.9 million , an increase in creator signing fees, net of $9.3 million and an increase in creator advances, net of $8.5 million . The increases in creator signing fees and creator advances are due to increases in our sales contracting with creators.
The net cash provided by operating activities of $49.0 million for the six months ended June 30, 2018 was due primarily to a 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 , gain on debt extinguishment of $17.0 million and a change in fair value of redeemable convertible preferred stock warrant liability of $6.1 million . Additionally, there was an increase in accounts payable to creators of $29.9 million , an increase in accrued taxes of $2.9 million , an increase in other accrued liabilities of $9.4 million and a decrease in funds receivable of $14.8 million . These items were partially offset by an increase in prepaid expenses and other current assets of $3.4 million and increases in creator signing fees, net of $6.3 million and creator advances, net of $2.5 million . The increases in creator signing fees and creator advances are due to increases in our sales contracting with creators.

40

Cash Flows from Investing Activities
The net cash used in investing activities of $7.8 million for the six months ended June 30, 2019 was due to capitalized software development costs of $4.3 million and purchases of property and equipment of $3.6 million .
The net cash provided by investing activities of $6.8 million for the six months ended June 30, 2018 was due to $13.9 million net cash provided from the Ticketea acquisition in April 2018, partially offset by capitalized software development costs of $4.3 million and $2.7 million paid for purchases of property and equipment.
Cash Flows from Financing Activities
The net cash provided by financing activities of $11.7 million during the six months ended June 30, 2019 was primarily due to $23.0 million in proceeds from exercise of stock options and $2.2 million in proceeds from issuance of common stock under the ESPP. These inflows were offset by $11.4 million in principal payments on our New Term Loans and several other smaller items.
The net cash provided by financing activities of $13.2 million during the six months ended June 30, 2018 was driven by $45.0 million in proceeds from drawing funds under our WTI Loan Facility and $4.2 million in cash proceeds from exercise of stock options, partially offset by principal payments on debt obligations of $35.5 million .
Concentrations of Credit Risk
As of June 30, 2019 and December 31, 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 the three or six month periods ended June 30, 2019 and 2018.
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 June 30, 2019 (in thousands):
Payments due by Period
Total
Less than
1 year
Between
1-3 years
Between
3-5 years
More than 5 years
Term loan
$
62,187

$
5,625

$
14,531

$
42,031

—

Future creator signing fees and creator advances
26,797

12,286

12,178

2,333

—

Build-to-suit lease obligation
10,544

5,687

4,857

—

—

Operating leases
19,652

3,905

6,983

5,476

3,288

Sublease income
(7,505
)
(4,143
)
(3,362
)
—

—

Capital Leases
632

289

343

—

—

Purchase commitments
5,750

3,750

2,000

—

—

Total
$
118,057

$
27,399

$
37,530

$
49,840

$
3,288

Term Loans
In September 2018, we entered into the New Credit Facilities. The New Term Loans were fully funded in September 2018 and we received cash proceeds of $73.6 million, net of arrangement fees of $1.1 million and upfront fees of $0.3 million. In June 2019, we elected to make a principal payment of $10.0 million toward our New Term Loans and we made total principal payments of $11.4 million in the three and six months ended June 30, 2019.
The New Term Loans amortize at a rate of 7.5% per annum for the first two years of the New Credit Facilities, 10.0% per annum for the third and fourth years and the first three quarters of the fifth year of the New Credit Facilities, with the balance due at maturity. The New Term Loans and the New Revolving Credit Facility are each expected to mature on the fifth anniversary of the effectiveness of the New Credit Facilities. We have made no draw on the revolving credit line as of June 30, 2019.


41

Future Creator Signing Fees and Creator Advances
Creator signing fees and creator advances represent contractual amounts paid in advance to customers pursuant to event ticketing and payment processing agreements. Certain of our contracts include terms where future payments to creators are committed to as part of the overall ticketing arrangement.
Lease Commitments
We have entered into various non-cancelable leases for certain offices with contractual lease periods expiring between 2019 and 2029. 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 $0.8 million and $0.9 million for each of the three months ended June 30, 2019 and 2018 and $ 1.7 million for each of the six months ended June 30, 2019 and 2018. The lease financing obligation was $27.9 million and $28.5 million as of June 30, 2019 and December 31, 2018 , respectively, and the net book value of the asset as of those dates was $27.5 million and $28.1 million , respectively. See Note 12 to our unaudited condensed consolidated financial statements for additional details.
Purchase Commitments
Purchase commitments represent future minimum contractual amounts due under a non-cancelable agreement related to Amazon Web Services cloud computing services.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements and did not have any such arrangements during 2018 or during the six months ended June 30, 2019 .
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. U.S. GAAP requires us to make certain estimates and judgments that affect the amounts reported in our condensed 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.
Other than the adoption of ASC Topic 606, there have been no material changes to our critical accounting policies and significant judgments as compared to the critical accounting policies and estimates disclosed in the 2018 Form 10-K.
Recent Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies" in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

42

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
Interest expense related to our outstanding debt as of June 30, 2019 is related to fixed rate debt and interest expense related to the build-to-suit lease and is not sensitive to movements in interest rates. A 10% increase or decrease in interest rates would not have a material effect on our interest expense.
Foreign Currency Risk
Many of our event organizers live or operate outside the United States, and therefore we have significant ticket sales denominated in foreign currencies, most notably the British Pound, Euro, Canadian Dollar, Australian Dollar, Brazilian Real and Argentinian Peso. Currency exchange rates could negatively affect net revenue growth for events that are not listed in U.S. dollars and could also reduce the demand for U.S. dollar denominated events from attendees outside of the United States. Because the functional currency of our foreign subsidiaries is the U.S. dollar, fluctuations due to changes in currency exchange rates cause us to recognize transaction gains and losses in our statement of operations. A 10% increase or decrease in current exchange rates would not have a material impact on our consolidated results of operations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Disclosure Controls and Procedures
Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

43

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 15, 2019, a purported stockholder of our company filed a putative class action complaint in the United States District Court for the Northern District of California, entitled Gomes v. Eventbrite, Inc., et al., 5:19-cv-02019-EJD (the Gomes Complaint) against Eventbrite, Inc., certain of our officers (the Officer Defendants), certain current and former members of our board of directors (the Director Defendants), and the underwriters for our IPO. Among other things, the Gomes Complaint alleges that defendants misrepresented and/or omitted material information in our IPO registration statement in violation of the Securities Act. The Gomes Complaint also alleges that Eventbrite, Inc. and the Officer Defendants misrepresented and/or omitted material information in our earnings release and Form 10-Q for the third quarter of 2018, rendering statements therein allegedly false and misleading and in violation of the Exchange Act and related regulations. In addition, the Gomes Complaint alleges that the Officer Defendants and Director Defendants acted as controlling persons within the meaning and in violation of Section 15 of the Securities Act, and that the Officer Defendants acted as controlling persons within the meaning and in violation of Section 20(a) of the Exchange Act, to allegedly influence and control the dissemination of the IPO registration statement and subsequent statements, respectively. The Gomes Complaint seeks compensatory damages, costs and expenses, including attorneys' and expert fees, and such other relief as the court may deem just and proper. On June 14, 2019, three purported stockholders of our company filed a motion to be appointed as lead plaintiff. On June 17, 2019 another purported stockholder of our company filed a competing motion for appointment as lead plaintiff, but subsequently withdrew the motion. Accordingly, there is one motion for lead plaintiff currently pending before the court. Following appointment of lead plaintiff, we expect that the lead plaintiff will file a consolidated amended complaint.
On May 24, 2019, a purported stockholder of our company filed a putative class action complaint in the Superior Court of California for the County of San Mateo, entitled Long v. Eventbrite, Inc., et al., 19-CIV-02798 (the Long Complaint), against Eventbrite, Inc., the Officer Defendants, the Director Defendants, Sequoia Capital, and the underwriters for our IPO. Among other things, the Long Complaint alleges that defendants misrepresented and/or omitted material information in our IPO registration statement in violation of the Securities Act. On June 3, 2019, another purported stockholder of our company filed a substantially similar putative class action complaint in the Superior Court of California for the County of San Mateo, entitled Clemons v. Eventbrite, Inc., et al., 19-CIV-02911 (the Clemons Complaint) against Eventbrite, Inc., the Officer Defendants, the Director Defendants, Sequoia Capital, Tiger Global Management, and the underwriters for our IPO. On June 24, 2019, the court consolidated the Long and Clemons actions, entitled In re Eventbrite, Inc. Securities Litigation, Lead Case No, 19-CIV-02798. The consolidated complaint is due on or before July 24, 2019. On July 12, 2019, Eventbrite, the Officer Defendants, the Director Defendants, and Sequoia filed a motion to stay the proceedings pending resolution of the Gomes action. The hearing on this motion is set for August 8, 2019.
We believe that these actions are without merit and intend to vigorously defend them. We cannot predict the outcome of or estimate the possible loss or range of loss from the above described matters.
In addition to the litigation discussed above, from time to time, we may be subject to legal actions and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties. Future litigation may be necessary to defend ourselves or our creators. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors
You should carefully consider the risks described in Part I, Item 1A, Risk Factors in the 2018 Form 10-K. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any such risks materialize, our business, financial condition and results of operations could be materially harmed and the trading price of our Class A common stock could decline. Other than the risk factors set forth below, there have been no material changes to the risk factors described in the 2018 Form 10-K.

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.

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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, and in July 2019, four people were killed at a community festival in Gilory, California, which was ticketed by us. Terrorism and security incidents, military actions in foreign locations and periodic elevated terrorism alerts have increased public concerns regarding air travel, military actions and national or local catastrophic incidents. These concerns have led to numerous challenging operating factors at live events, including additional logistics for event safety and increased costs of security. These challenges may impact the creator and attendee experience, lead to fewer events by creators and as a result may harm our results of operations.
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.
Our business may be subject to chargebacks and other losses for various reasons, including due to fraud, unsuccessful or cancelled events. These chargebacks and other losses may harm our results of operations and business.
We have experienced, and may in the future experience, claims from attendees that creators have not performed their obligations or that events did not match their descriptions. These claims could arise from creator fraud or misuse, an unintentional failure of the event or from fraudulent claims by an attendee. We have experienced fraudulent activity on our platform in the past, including fake events in which a person sells tickets to an event but does not intend to hold an event or fulfill the ticket, email spam being sent through our platform, a third party taking over the account of a creator to receive payments owed to such creator or orders placed with fraudulent or stolen credit card data and other erroneous transmissions. Although we have measures in place to detect and reduce the occurrence of fraudulent activity on our platform, those measures may not always be effective. These measures must be continually improved and may not be effective against evolving methods of fraud or in connection with new platform offerings. If we cannot adequately control the risk of fraudulent activity on our platform, it could harm our business, results of operations and financial condition.
We also may experience chargebacks and losses as a result of advance payment of ticket fees to creators. Under our standard terms for creators using EPP, Eventbrite passes the creator’s share of ticket sales to the creator within five business days after the successful completion of the creator’s event. However, we face growing pressure from creators to advance some or most of their event funds prior to completion of their events because creators need these funds to pay for event related costs such as the venue, marketing, talent and vendors. For qualified creators who apply for such advance payments, we pass proceeds from ticket sales to the creators prior to the event as we receive the ticket proceeds, subject to certain limitations. We refer to these payments as advance payouts. In 2018, approximately 15.3% 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. For example, in July 2019, an event creator cancelled an event for which we provided ticketing and payment processing services. While not legally obligated, we issued refunds to ticket holders for the face value of tickets totaling $4.0 million. We have filed complaints against the creator and its investors for, among other things, breach of the creator’s written contract with us. We cannot predict the outcome of or estimate the possible recovery or range of recovery from these matters, and we may not be able to recover our losses related to the refunds we made to consumers.
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.

45

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 $6.1 million and $3.6 million for the years ended December 31, 2018 and 2017, respectively. 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.

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. For example, on April 15, 2019, a purported stockholder of our company filed a putative class action against Eventbrite, Inc., certain of our current and former officers, and the underwriters for our IPO, on behalf of a putative class of persons who purchased or acquired Eventbrite securities traceable to our IPO and/or who purchased or acquired Eventbrite securities between September 20, 2018 and March 7, 2019. Such action alleges violations of Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act based on alleged material misrepresentations and/or omissions in our IPO registration statement and subsequent statements. The action seeks to recover unspecified damages, and costs and expenses, including attorneys' and expert fees. Regardless of whether or not there is merit to the claims underlying this class action, any similar future litigation, or any other legal proceedings to which we are subject, and regardless of whether or not we are found as a result of such proceedings to have violated any applicable laws, such proceedings can be expensive to defend or respond to, could result in substantial costs and diversion of management's attention and resources, which could harm our business, and potentially could cause substantial and irreparable harm to our public reputation. Moreover, 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. Further, our liability insurance coverage may not be sufficient to satisfy, or may not cover, any expenses or liabilities that may arise. 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.

Sales of substantial amounts of our Class A common stock in the public markets, 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. As of June 30, 2019, we had 47,931,474 shares of Class A common stock outstanding and 34,518,078 shares of Class B common stock outstanding.
Sales of our common stock may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our common stock.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
There were no sales of unregistered equity securities during the three months ended June 30, 2019 .
Use of Proceeds from Initial Public Offering of Class A Common Stock
On September 19, 2018, our registration statement on Form S-1 (File No. 333-226978) was declared effective by the SEC for our IPO of Class A common stock. There has been no material change in the planned use of proceeds from our IPO from that described in the final prospectus filed pursuant to Rule 424(b) under the Securities Act and other periodic reports previously filed with the SEC.


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Item 6. Exhibits
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.

Exhibit Index
Exhibit
Number
Description of Exhibits
Incorporated by Reference from Form
Incorporated by Reference from Exhibit Number
Date Filed
S-1/A
3.2
August 28, 2018
S-1/A
3.4
August 28, 2018
S-1/A
4.1
September 7, 2018
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
101.INS
XBRL Instance Document
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema Document
Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
Filed herewith
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
Filed herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
Filed herewith
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith

* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Eventbrite, Inc.
By:
/s/ Julia Hartz
August 7, 2019
Julia Hartz
Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Randy Befumo
August 7, 2019
Randy Befumo
Chief Financial Officer
(Principal Financial Officer)
By:
/s/ Shane Crehan
August 7, 2019
Shane Crehan
Chief Accounting Officer
(Principal Accounting Officer)



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