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

Balance Sheet
Cash Flow
Income Statement
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10-Q 1 ebform10-qxq32019.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 September 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 October 15, 2019 , 57,411,637 shares of Registrant's Class A common stock and 26,991,920 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," "targets," "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; and our ability to successfully defend litigation brought against us; the increased expenses associated with being a public company. 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 as of the date 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 Interim Condensed Consolidated Financial Statements

EVENTBRITE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value data)
(Unaudited)
September 30,
2019
December 31,
2018
Assets
Current assets
Cash and cash equivalents
$
485,197

$
437,892

Funds receivable
44,417

58,697

Accounts receivable, net
4,142

4,069

Creator signing fees, net
9,057

7,324

Creator advances, net
23,841

21,255

Prepaid expenses and other current assets
10,211

16,467

Total current assets
576,865

545,704

Property, plant and equipment, net
46,399

44,219

Goodwill
170,560

170,560

Acquired intangible assets, net
51,808

59,973

Restricted cash
2,218

1,508

Creator signing fees, noncurrent
15,919

9,681

Creator advances, noncurrent
956

1,887

Other assets
2,083

3,352

Total assets
$
866,808

$
836,884

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable, creators
$
367,299

$
272,201

Accounts payable, trade
2,238

1,028

Accrued compensation and benefits
5,564

5,586

Accrued taxes
4,678

8,028

Current portion of term loan
—

5,635

Other accrued liabilities
21,767

15,726

Total current liabilities
401,546

308,204

Build-to-suit lease financing obligation
27,586

28,510

Accrued taxes, noncurrent
14,244

15,691

Term loan
—

67,087

Other liabilities
2,252

2,170

Total liabilities
445,628

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 September 30, 2019 and December 31, 2018
—

—

Common stock, $0.00001 par value; 1,100,000,000 shares authorized, 84,372,101 shares issued and outstanding as of September 30, 2019; 1,100,000,000 shares authorized, 78,546,874 shares issued and 78,358,394 shares outstanding as of December 31, 2018
1

—

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

(488
)
Additional paid-in capital
779,481

718,405

Accumulated deficit
(358,302
)
(302,695
)
Total stockholders’ equity
421,180

415,222

Total liabilities and stockholders’ equity
$
866,808

$
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 September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
Net revenue
$
82,052

$
73,628

$
244,136

$
215,696

Cost of net revenue (1)
33,345

31,477

94,936

89,424

Gross profit
48,707

42,151

149,200

126,272

Operating expenses (1) :
Product development
15,902

12,856

46,461

32,671

Sales, marketing and support
28,552

21,186

75,986

63,415

General and administrative
27,159

21,163

74,337

59,551

Total operating expenses
71,613

55,205

196,784

155,637

Loss from operations
(22,906
)
(13,054
)
(47,584
)
(29,365
)
Interest expense
(1,681
)
(3,300
)
(5,482
)
(9,399
)
Change in fair value of redeemable convertible preferred stock warrant liability
—

(3,520
)
—

(9,591
)
Loss on debt extinguishment
(1,742
)
(17,173
)
(1,742
)
(178
)
Other income (expense), net
(3,700
)
1,414

(1,145
)
(1,880
)
Loss before income taxes
(30,029
)
(35,633
)
(55,953
)
(50,413
)
Income tax provision (benefit)
147

(117
)
(946
)
683

Net loss
$
(30,176
)
$
(35,516
)
$
(55,007
)
$
(51,096
)
Net loss per share, basic and diluted
$
(0.36
)
$
(1.24
)
$
(0.68
)
$
(2.15
)
Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted
83,063

28,736

81,094

23,799

(1) Includes stock-based compensation as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
Cost of net revenue
$
393

$
154

$
962

$
278

Product development
3,322

2,497

7,547

3,845

Sales, marketing and support
1,569

1,151

4,038

2,729

General and administrative
4,652

11,247

14,222

16,305

Total
$
9,936

$
15,049

$
26,769

$
23,157

(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
3,570,467

—

249,207

—

—

—

22,953

—

22,953

Issuance of restricted stock awards
25,418

—

—

—

—

—

—

—

—

Issuance of common stock for settlement of RSUs
114,467

—

—

—

—

—

—

—

—

Issuance of common stock for ESPP Purchase
167,706

—

—

—

—

—

2,234

—

2,234

Shares withheld related to net share settlement
(36,107
)
—

—

—

—

(813
)
—

(813
)
Conversion of common stock from Class B to Class A
32,586,530

—

(32,586,530
)
—

—

—

—

—

—

Vesting of early exercised stock options
—

—

—

—

—

—

184

—

184

Stock-based compensation
—

—

—

—

—

—

17,484

—

17,484

Retirement of treasury stock
—

—

—

—

188,480

488

(488
)
—

—

Cumulative effect adjustment upon adoption of ASU 2014-09
—

—

—

—

—

—

—

(600
)
(600
)
Net loss
—

—

—

—

—

—

—

(24,831
)
(24,831
)
Balance at June 30, 2019
47,931,474

—

34,518,078

—

—

—

759,959

(328,126
)
431,833

Issuance of common stock upon exercise of stock options
1,486,012

—

—

—

—

—

9,859

—

9,859

Issuance of restricted stock awards
369,140

—

—

—

—

—

—

—

—

Issuance of common stock for settlement of RSUs
107,554

—

—

—

—

—

—

—

—

Shares withheld related to net share settlement
(40,157
)
—

—

—

—

—

(704
)
—

(704
)
Conversion of common stock from Class B to Class A
7,399,542

1

(7,399,542
)
—

—

—

(1
)
—

—

Vesting of early exercised stock options
—

—

—

—

—

—

92

—

92

Stock-based compensation
—

—

—

—

—

—

10,276

—

10,276

Net loss
—

—

—

—

—

—

—

(30,176
)
(30,176
)
Balance at September 30, 2019
57,253,565

$
1

27,118,536

$
—

—

$
—

$
779,481

$
(358,302
)
$
421,180



6

EVENTBRITE, INC.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (continued)
(in thousands, except share data)
(Unaudited)
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
—

—

—

—

1,087,555

—

—

—

4,208

—

4,208

Issuance of common stock, acquisitions
—

—

—

—

676,060

—

—

—

7,439

—

7,439

Vesting of early exercised stock options
—

—

—

—

—

—

—

—

183

183

Stock-based compensation
—

—

—

—

—

—

—

—

8,381

—

8,381

Net loss
—

—

—

—

—

—

—

—

—

(15,580
)
(15,580
)
Balance at June 30, 2018
41,628,207

334,018

—

—

22,537,056

—

(188,480
)
(488
)
103,502

(254,197
)
(151,183
)
Conversion of redeemable convertible preferred stock in connection with initial public offering
(41,628,207
)
(334,018
)
—

—

42,188,624

—

—

—

334,018

—

334,018

Issuance of common stock in connection with the initial public offering, net of underwriting discounts and commissions
—

—

11,500,000

—

—

—

—

—

245,985

—

245,985

Costs related to initial public offering
—

—

—

—

—

—

—

—

(5,345
)
—

(5,345
)
Automatic conversion of warrants in connection with initial public offering
—

—

—

—

997,193

—

—

—

21,465

—

21,465

Issuance of common stock for settlement of RSUs
—

—

—

—

802,900

—

—

—

—

—

—

Shares withheld related to net share settlement
—

—

—

—

(391,874
)
—

—

—

(9,013
)
—

(9,013
)
Issuance of common stock upon exercise of stock options
—

—

—

—

552,922

—

—

—

3,302

—

3,302

Issuance of common stock, acquisitions
—

—

—

—

81,158

—

—

—

1,393

—

1,393

Vesting of early exercised stock options
—

—

—

—

—

—

—

—

92

—

92

Stock-based compensation
—

—

—

—

—

—

—

—

15,198

—

15,198

Net loss
—

—

—

—

—

—

—

—

—

(35,516
)
(35,516
)
Balance at September 30, 2018
—

$
—

11,500,000

$
—

66,767,979

$
—

(188,480
)
$
(488
)
$
710,597

$
(289,713
)
$
420,396

(See accompanying Notes to Unaudited Condensed Consolidated Financial Statements)

7

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

Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Cash flows from operating activities
Net loss
$
(30,176
)
$
(35,516
)
$
(55,007
)
$
(51,096
)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
6,237

8,830

18,456

25,612

Amortization of creator signing fees
2,826

1,975

7,741

5,052

Accretion of term loan
103

204

326

1,616

Loss on debt extinguishment
1,742

17,173

1,742

178

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

3,520

—

9,591

Change in fair value of term loan embedded derivatives
—

(2,119
)
—

(2,119
)
Stock-based compensation
9,936

15,049

26,769

23,157

Impairment charges
1,056

46

2,955

1,110

Provision for bad debt and creator advances
1,602

274

3,982

1,807

Loss on disposal of equipment
3

—

61

1

Deferred income taxes
(33
)
(170
)
(778
)
447

Changes in operating assets and liabilities, net of impact of acquisitions:
Accounts receivable
(121
)
(1,208
)
(1,182
)
(2,154
)
Funds receivable
2,165

(15,227
)
14,280

(449
)
Creator signing fees, net
(7,254
)
(4,654
)
(16,505
)
(10,931
)
Creator advances, net
1,823

(2,881
)
(6,690
)
(5,398
)
Prepaid expenses and other current assets
4,524

530

6,256

(2,900
)
Other assets
86

460

84

(234
)
Accounts payable, creators
44,317

49,585

95,098

79,531

Accounts payable, trade
112

390

1,068

801

Accrued compensation and benefits
286

676

(22
)
80

Accrued taxes
175

4,534

(3,350
)
6,777

Other accrued liabilities
2,879

(4,905
)
5,591

4,480

Accrued taxes, non-current
665

(12,486
)
(669
)
(11,846
)
Other liabilities
(194
)
(294
)
285

(328
)
Net cash provided by operating activities
42,759

23,786

100,491

72,785

Cash flows from investing activities
Purchases of property and equipment
(1,393
)
(1,545
)
(4,959
)
(4,233
)
Capitalized internal-use software development costs
(2,145
)
(1,603
)
(6,416
)
(5,934
)
Acquisitions, net of cash acquired
—

(2,247
)
—

11,606

Net cash provided by (used in) investing activities
(3,538
)
(5,395
)
(11,375
)
1,439


8

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

Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Cash flows from financing activities
Proceeds from initial public offering, net of underwriters' discounts, commissions and offering costs, net of reimbursements
—

244,133

—

244,133

Proceeds from issuance of common stock under ESPP
—

—

2,234

—

Proceeds from exercise of stock options
9,860

3,302

32,814

7,510

Taxes paid related to net share settlement of equity awards
(127
)
(9,013
)
(833
)
(9,013
)
Proceeds from term loans
—

75,000

—

120,000

Principal payments on debt obligations
(62,188
)
(74,210
)
(73,594
)
(109,665
)
Prepayment penalties on debt extinguishment
—

(7,406
)
—

(7,406
)
Payment of debt issuance costs
—

—

(457
)
—

Payments on capital lease obligations
(76
)
—

(214
)
(76
)
Payments on lease financing obligations
(237
)
(173
)
(638
)
(452
)
Payments of deferred offering costs
—

—

(413
)
(183
)
Net cash provided by (used in) financing activities
(52,768
)
231,633

(41,101
)
244,848

Net increase (decrease) in cash, cash equivalents and restricted cash
(13,547
)
250,024

48,015

319,072

Cash, cash equivalents and restricted cash
Beginning of period
$
500,962

$
261,269

$
439,400

$
192,221

End of period
$
487,415

$
511,293

$
487,415

$
511,293

Supplemental cash flow data
Interest paid
$
756

$
2,163

$
2,632

$
5,785

Income taxes paid, net of refunds
493

198

860

341

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

$
92

$
276

$
275

Purchases of property and equipment, accrued but unpaid
167

—

167

—

Issuance of shares of common stock for acquisitions
—

1,395

—

8,834

Conversion of redeemable convertible preferred stock in connection with initial public offering
—

21,465

—

21,465

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

—

—

4,603

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

3,262

—

3,262

(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 nine months ended September 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 $3.8 million and $10.4 million of expenses for the three and nine months ended September 30, 2018 , respectively, and $0.4 million for the three months ended March 31, 2019 which is included in the nine months ended September 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 nine months ended September 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 these 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, the Company 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 nine months ended September 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 nine months ended September 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. ASU 2016-02 requires reporting entities to apply a modified retrospective transition approach and are permitted to choose to adjust comparative periods or to not adjust comparative periods. For public business entities, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. As the Company expects to become a large accelerated filer as of December 31, 2019 and cease to be an emerging growth company, the Company anticipates it will adopt ASU 2016-02 as of January 1, 2019 in the annual financial statements to be reported in its Annual Report on Form 10-K for the year ended December 31, 2019. The Company expects to adopt ASU 2016-02 using the modified retrospective transition approach and to not adjust comparative periods. The Company is currently evaluating the effect that implementation and adoption of ASU 2016-02 will have on its consolidated financial statements.


12

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 $325.9 million and $217.4 million as of September 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):
September 30, 2019
December 31, 2018
Cash and cash equivalents
$
485,197

$
437,892

Restricted cash
2,218

1,508

Total cash, cash equivalents and restricted cash
$
487,415

$
439,400

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 $41.4 million and $54.8 million as of September 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 use the Company's platform to sell tickets 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.

13

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.
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 September 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

14

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 future cash flows.
There were no transfers of financial assets or liabilities into or out of Level 1, Level 2 or Level 3 during the three or nine months ended September 30, 2019 or during the year ended December 31, 2018 .
4. Acquisitions
In August 2018, the Company acquired Picatic e-Ticket Inc. (Picatic), a Canadian ticketing company. The Company acquired Picatic primarily to bolster its engineering staff and enhance its ticketing solutions. The acquisition of Picatic has been accounted for as a business combination. The acquisition date fair value of the consideration transferred was $2.9 million , which consisted of $1.3 million in cash and 81 thousand shares of the Company’s common stock. Acquisition costs directly related to the Picatic transaction were $0.3 million and are included in general and administrative expenses in the consolidated statements of operations for the nine months ended September 30, 2018 .
The total purchase price of the Picatic 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 Picatic 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.
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 $3.6 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 nine months ended September 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.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the respective acquisition dates (in thousands):
Picatic
Ticketea
Total
Cash and restricted cash
$
160

$
17,852

$
18,012

Funds and accounts receivable
10

1,058

1,068

Creator advances
—

532

532

Prepaid expenses and other current assets
87

94

181

Property and equipment
—

42

42

Other noncurrent assets
—

28

28

Accounts payable, creators
—

(19,671
)
(19,671
)
Other current liabilities
(121
)
(529
)
(650
)
Intangible assets
507

3,094

3,601

Goodwill
2,219

8,937

11,156

Total purchase price
$
2,862

$
11,437

$
14,299


15

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):
Picatic
Estimated
useful life
Ticketea
Estimated
useful life
Customer relationships
$
507

2.5
$
2,475

5.0
Developed technology
—

619

1.0
Total acquired intangible assets
$
507

$
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 balances as of the dates indicated (in thousands):
September 30, 2019
December 31, 2018
Accounts receivable, customers
$
6,774

$
5,651

Allowance for doubtful accounts
(2,632
)
(1,582
)
Accounts receivable, net
$
4,142

$
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 September 30, 2019 , these payments are being amortized over a weighted-average remaining contract life of 3.6 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 September 30,
2019
2018
Balance, beginning of period
$
20,763

$
13,278

Creator signing fees paid
7,254

5,441

Amortization of creator signing fees
(2,826
)
(1,975
)
Write-offs and other adjustments
(215
)
(802
)
Balance, end of period
$
24,976

$
15,942

Nine Months Ended September 30,
2019
2018
Balance, beginning of period
$
17,005

$
10,421

Creator signing fees paid
16,440

11,719

Amortization of creator signing fees
(7,741
)
(5,052
)
Write-offs and other adjustments
(728
)
(1,146
)
Balance, end of period
$
24,976

$
15,942


Creator signing fees are classified as follows on the condensed consolidated balance sheet as of the dates indicated (in thousands):
September 30, 2019
December 31, 2018
Creator signing fees, net
$
9,057

$
7,324

Creator signing fees, noncurrent
15,919

9,681


16

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 September 30,
2019
2018
Balance, beginning of period
$
28,716

$
21,602

Acquired with Ticketea transaction
—

—

Creator advances paid
8,525

6,961

Creator advances recouped
(10,348
)
(3,261
)
Write-offs and other adjustments
(2,096
)
(852
)
Balance, end of period
$
24,797

$
24,450

Nine Months Ended September 30,
2019
2018
Balance, beginning of period
$
23,142

$
20,076

Acquired with Ticketea transaction
—

532

Creator advances paid
27,609

17,208

Creator advances recouped
(21,011
)
(10,998
)
Write-offs and other adjustments
(4,943
)
(2,368
)
Balance, end of period
$
24,797

$
24,450


Creator advances are classified as follows on the condensed consolidated balance sheet as of the dates indicated (in thousands):
September 30, 2019
December 31, 2018
Creator advances, net
$
23,841

$
21,255

Creator advances, noncurrent
956

1,887

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

$
33,277

Capitalized internal-use software development costs
42,608

35,201

Furniture and fixtures
3,765

3,557

Computers and computer equipment
14,744

11,676

Leasehold improvements
6,546

5,084

100,940

88,795

Less: Accumulated depreciation and amortization
(54,541
)
(44,576
)
Property, plant and equipment, net
$
46,399

$
44,219


17

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
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Depreciation expense
$
1,591

$
1,316

$
4,827

$
3,610

Capitalized internal-use software development costs
2,485

1,751

7,407

6,442

Stock-based compensation costs included in capitalized internal-use software development costs
339

148

990

427

Amortization of capitalized internal-use software development costs
1,965

1,603

5,464

4,650

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

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

$
19,018

$
78

0.4
Customer relationships
74,484

22,754

51,730

5.5
Tradenames
1,600

1,600

—


Acquired intangible assets, net
$
95,180

$
43,372

$
51,808


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

The Company recorded amortization expense related to acquired intangible assets as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Cost of net revenue
$
66

$
3,003

$
390

$
8,824

Sales, marketing and support
2,616

2,621

7,775

7,594

General and administrative
—

274

—

850

Total amortization of acquired intangible assets
$
2,682

$
5,898

$
8,165

$
17,268


18

As of September 30, 2019 , the total expected future amortization expense for acquired intangible assets is as follows (in thousands):
The remainder of 2019
$
2,660

2020
10,443

2021
10,197

2022
8,202

2023
7,709

Thereafter
12,597

Acquired intangible assets, net
$
51,808

10. Term Loans and Promissory Note
The Company entered into a loan and security agreement with, and issued warrants to purchase shares of Series G 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. In May 2018, the Company entered into a second loan and security agreement with WTI which provided up to $15.0 million of term debt (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 WTI Loan Facilities were collateralized by substantially all of the Company's assets and intellectual property rights.
The key terms and details of the Company's term loan borrowings under the WTI Loan Facilities is as follows:
Borrowing Date
Loan Facility
Loan Amount
(in thousands)
Maturity Date
Contractual Interest Rate
Effective Interest Rate
September 2017
First WTI Facility
$
30,000

February 2022
11.5
%
15.9
%
March 2018
First WTI Facility
$
30,000

September 2022
11.8
%
14.8
%
May 2018
Second WTI Facility
$
15,000

November 2022
12.0
%
14.7
%
For all borrowings, 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 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 within 15 days of the qualified public offering, the Company would be required to repay the outstanding principal 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 March 2018 loan would be subject to the same contingent prepayment feature that is included in the Second WTI Loan Facility. The Company determined that the contingent prepayment features under the WTI Loan Facilities were embedded derivatives, requiring bifurcation and separate accounting. The Company recorded a $2.1 million gain in the three months ended September 30, 2018 related to the change in fair value of the term loan embedded derivative asset, which is included within other income (expense), net on the condensed consolidated statements of operations.
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. The Company recorded a loss on debt extinguishment related to the WTI Loan Facilities of $17.2 million during the three months ended September 30, 2018, and as of that date 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 .

19

The New Term Loans were scheduled to 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 Credit Facilities had maturity dates on the fifth anniversary of the effective date. The New Revolving Credit Facility had a commitment fee which accrued at 0.40% on the daily unused amount of the aggregate revolving commitments of the lenders.
All outstanding amounts under the New Credit Facilities bore interest, at the Company's option, 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 was 5.08% as of September 30, 2019 .
In September 2019, the Company elected to prepay the outstanding principal balance of the New Term Loans in their entirety and terminated the New Credit Facilities. The Company paid $63.0 million , which consisted of $62.2 million of debt principal and $0.8 million of accrued interest and fees. The Company recorded a loss on debt extinguishment related to the termination of the New Credit Facilities of $1.7 million during the three months ended September 30, 2019 related to the write-off of unamortized debt issuance costs.
As of September 30, 2019, the Company has no outstanding debt.
Term loans consisted of the following as of December 31, 2018 (in thousands):
December 31, 2018
Outstanding principal balance
$
73,594

Less: Unamortized discount and debt issuance costs
(872
)
Total term loan, net
$
72,722

Current portion of term loans
$
5,635

Term loans
67,087

Promissory Note
In September 2017, in connection with the acquisition of Ticketfly, LLC (Ticketfly), the Company issued a $50.0 million convertible promissory note as part of the purchase consideration (Promissory Note). 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, and, when coupled with the loss on debt extinguishment related to the WTI Loan Facilities, recorded a net loss on debt extinguishment of $0.2 million in the condensed consolidated statements of operations for the nine months ended September 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 $3.5 million and $9.6 million during the three and nine months ended September 30, 2018 , respectively. There was no activity

20

during the three or nine months ended September 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 $0.9 million for the three months ended September 30, 2019 and 2018 , respectively, and $3.0 million and $2.5 million for the nine months ended September 30, 2019 and 2018 , respectively. The Company also recognized sublease income of $1.0 million for each of the three months ended September 30, 2019 and 2018 , and $2.9 million and $2.5 million for the nine months ended September 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.
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 September 30, 2019 and 2018 and $0.7 million for each of the nine months ended September 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 September 30, 2019 and 2018 , respectively, and $2.5 million and $2.6 million for the nine months ended September 30, 2019 and 2018 , respectively.
As of September 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
$
73

$
1,415

$
1,000

$
(1,031
)
$
1,457

2020
250

5,772

3,899

(4,205
)
5,716

2021
134

1,943

3,447

(1,238
)
4,286

2022
100

—

3,106

—

3,206

2023
—

—

2,771

—

2,771

Thereafter
—

—

4,321

—

4,321

Total minimum lease payments
557

9,130

18,544

(6,474
)
21,757

Less: Amount representing interest and taxes
—

(5,060
)
—

—

(5,060
)
Total
$
557

$
4,070

$
18,544

$
(6,474
)
$
16,697

Letters of Credit
The Company has issued letters of credit under lease and other banking 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. Restricted cash was $2.2 million and $1.5 million as of September 30, 2019 and December 31, 2018 , respectively.

21

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 September 30, 2019 (in thousands):
The remainder of 2019
$
6,559

2020
18,490

2021
9,880

2022
3,866

2023
3,055

Thereafter
—

Total
$
41,850

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.
Beginning on April 15, 2019, purported stockholders of our company filed two putative securities class action complaints in the United States District Court for the Northern District of California, and three putative securities class action complaints in the Superior Court of California for the County of San Mateo (the Complaints), against the Company, certain of our executives and directors, and our underwriters for the IPO. Some of these actions also name as defendants venture capital firms that were investors in the Company as of the IPO. 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 of 1933 and challenged public statements made after the IPO in violation of the Securities Exchange Act of 1934. 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.
On July 16, 2019, the Company filed two complaints in the United States District Court for the Northern District of California against (1) MF Live, Inc. (MFL) and (2) MFL's principal Fabien Loranger (Loranger) and related entities (collectively, the Roxodus Lawsuits). The Roxodus Lawsuits arose out of MFL's cancellation of the Roxodus music festival in Ontario, Canada and subsequent refusal to issue refunds to ticket buyers. The Company provided ticketing and payment processing services for the event, and pursuant to a written contract with MFL, was authorized to issue refunds totaling $4.0 million to ticket buyers who purchased tickets on the Company's platform. Accordingly, the Roxodus Lawsuits assert claims against the defendants for breach of contract, breach of the implied covenant of good faith and fair dealing, and actual and constructive fraudulent transfers. The Company is investigating whether grounds exist to assert additional claims.
The Roxodus Lawsuits are in their early stages and the Company cannot predict the likelihood of success of either.
MFL has filed for bankruptcy in Canada, calling into question whether and to what extent it could satisfy a judgment. The Company intends to monitor and participate in the bankruptcy process pursuant to its rights under Canadian law, and the Company's investigation of the assets held by and/or on behalf of MFL, Loranger and the other defendants is ongoing.
The Company currently has no other material pending litigation.
The Company is currently under audit in certain 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 $15.4 million and $19.2 million as of September 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 $1.4 million and $1.2 million as of September 30, 2019 and December 31, 2018, respectively.

22

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 nine months ended September 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 nine months ended September 30, 2019, the Company recorded zero 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 September 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.
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 September 30, 2019, we have 6,683,648 shares of Class A common stock reserved for the issuance of awards under the 2018 Plan.

23

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 September 30, 2019 , there were 17,228,921 options issued and outstanding and 11,568,019 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
1,790,074

$17.71
Exercised
(5,305,686
)
$6.22
$16,269
Cancelled
(1,268,064
)
$11.14
Balance as of September 30, 2019
17,228,921

$9.13
6.6
$148,017
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 September 30, 2019
10,327,683

$6.83
5.4
$112,524
Vested and expected to vest as of September 30, 2019
16,586,599

$8.99
6.6
$144,852

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 September 30, 2019 , 2,150,377 shares of Class A common stock were available for future issuance under the ESPP.
The Company recorded $0.3 million and $0.8 million of stock-based compensation expense related to the ESPP during the three and nine months ended September 30, 2019 , respectively. No expense was recorded in connection with the ESPP during the three or nine months ended September 30, 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 its 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.

24

At September 30, 2019 and December 31, 2018 , outstanding common stock included 30,564 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 $0.3 million and $0.4 million as of September 30, 2019 and December 31, 2018 , respectively, 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
September 30,
Nine Months Ended
September 30,
2019
2018
2019

2018
Expected dividend yield
—
—
—
—
Expected volatility
48.8-49.1%
46.7-47.1%
48.8-49.7%
46.7-52.9%
Risk-free interest rate
1.32-1.36%
2.83-2.92%
1.32-2.58%
2.25-2.92%
Expected term (years)
5.04-6.08
6.02-6.08
5.04-6.08
6.02-6.08
The weighted-average per share fair value of stock options granted was $ 8.21 and $ 9.03 for the three months ended September 30, 2019 and 2018, respectively, and $8.61 and $ 8.14 for the nine months ended September 30, 2019 and 2018, respectively.
As of September 30, 2019 and December 31, 2018 , the total unrecognized stock-based compensation related to unvested options outstanding was $44.2 million and $51.3 million , respectively, to be recognized over a weighted-average period of 2.53 years and 2.73 years , respectively.
Restricted Stock Units
Restricted stock unit activity under the Plans was as follows for the nine months ended September 30, 2019 :

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

$
24.71

Awarded
3,132,232

20.82

Released
(247,537
)
21.10

Cancelled
(359,632
)
26.37

Balance as of September 30, 2019
3,195,669

$
20.99

Vested and expected to vest as of September 30, 2019
2,607,595

$
21.04

The Company recognized $4.6 million and $10.7 million of stock-based compensation expense related to RSUs during the three and nine months ended September 30, 2019 , respectively, and as of that date, the total unrecognized stock-based compensation related to RSUs outstanding was $53.5 million , which is expected to be recognized over a weighted-average period of 3.50 years .
The Company completed its IPO in September 2018 and satisfied the performance condition for all then outstanding RSU awards. The Company recognized $6.9 million of stock-based compensation expense, based on the grant date fair value of a single performance-based award, which is included in general and administrative expenses for the three and nine months ended September 30, 2018. The Company recognized a total of $7.1 million of stock-based compensation expense related to RSUs during each of the three and nine months ended September 30, 2018.

25

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 nine months ended September 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
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Net loss
$
(30,176
)
$
(35,516
)
$
(55,007
)
$
(51,096
)
Weighted-average shares used in computing net loss per share, basic and diluted
83,063

28,736

81,094

23,799

Net loss per share, basic and diluted
$
(0.36
)
$
(1.24
)
$
(0.68
)
$
(2.15
)
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):
September 30,
2019
2018
Options to purchase common stock
17,229

22,191

Restricted stock and restricted stock units
3,564

230

Early exercised options
31

67

Total
20,824

22,488

15. Income Taxes
The Company recorded an income tax provision of $0.1 million for the three months ended September 30, 2019 and income tax benefit of $0.9 million for the nine months ended September 30, 2019, compared to an income tax benefit of $0.1 million for the three months ended September 30, 2018 and an income tax provision of $0.7 million for the nine months ended September 30, 2018. The increase in the provision for income taxes during the three months ended September 30, 2019 was primarily attributable to the change in our year over year taxable earnings mix. The increase in the benefit from income taxes during the nine months ended September 30, 2019 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.
The differences in the tax provision for the periods presented and the United States federal statutory rate is primarily due to the recording of a full valuation allowance on our deferred tax assets and tax deductions for stock-based compensation.
The Company applies the discrete method provided in ASC 740 to calculate its interim tax provision.

26

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 September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
United States
$
59,364

$
53,726

$
177,834

$
156,776

International
22,688

19,902

66,302

58,920

Total net revenue
$
82,052

$
73,628

$
244,136

$
215,696


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.

During the nine months ended September 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 nine months ended September 30, 2018.

27

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 ticket volume 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 Ticket Volume
Our success in serving creators is measured in large part by the number of tickets sold on our platform that generate ticket fees, referred to as paid ticket volume. We consider paid ticket volume an important indicator of the underlying health of the business. We have previously referred to this metric as 'paid tickets' and we calculate and report paid ticket volume in the same manner as we calculated and reported paid tickets. The below table sets forth the paid ticket volume for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
(in thousands)
Paid ticket volume
26,897

23,896

80,461

70,593

Our paid ticket volume for events outside of the United States represented 36.7% and 35.3% of our total paid ticket volume in the three months ended September 30, 2019 and 2018, respectively, and 36.0% and 32.8% of our total paid ticket volume in the nine months ended September 30, 2019 and 2018, respectively.

28

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, loss 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, foreign exchange rate gains and losses and the change in fair value of the term loan embedded derivative asset, 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 September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
(in thousands)
Net loss
$
(30,176
)
$
(35,516
)
$
(55,007
)
$
(51,096
)
Depreciation and amortization
6,237

8,830

18,456

25,612

Stock-based compensation
9,936

15,049

26,769

23,157

Interest expense
1,681

3,300

5,482

9,399

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

3,520

—

9,591

Loss on debt extinguishment
1,742

17,173

1,742

178

Direct and indirect acquisition related costs (1)
34

389

837

1,834

Employer taxes related to employee equity transactions
182

—

893

—

Other (income) expense, net
3,700

(1,414
)
1,145

1,880

Income tax provision (benefit)
147

(117
)
(946
)
683

Adjusted EBITDA
$
(6,517
)
$
11,214

$
(629
)
$
21,238


(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.

29

Free Cash Flow
Free cash flow is a key performance measure that our management uses to assess our overall performance. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business, making strategic acquisitions and strengthening our financial position.
We calculate free cash flow as cash flow from operating activities less purchases of property and equipment and capitalized internal-use software development costs, over a trailing twelve-month period. Because quarters are not uniform in terms of cash usage, we believe a trailing twelve-month view provides the best understanding of the underlying trends of the business.
The following table presents a reconciliation of our free cash flow to the most comparable U.S. GAAP measure, net cash provided by operating activities, for each of the periods indicated:
Twelve Months Ended
September 30,
2019
2018
(in thousands)
Net cash provided by operating activities
$
34,868

$
6,148

Purchases of property and equipment and capitalized internal-use software development costs
(13,858
)
(12,369
)
Free cash flow
$
21,010

$
(6,221
)

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 nine months ended September 30, 2019 and 2018.

30

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.
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 sublease income as a reduction of our operating expenses.
In the fourth quarter of 2019, we expect to incur additional operating expenses related to our resource realignment and reinvestment in order to improve operating efficiency and support our long-term growth strategy.

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. 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 for each of the three months ended September 30, 2019 and 2018 , and $7.8 million and $7.6 million for the nine months ended September 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.

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.

31

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 September 30, 2019 and 2018, respectively and $2.5 million and $2.6 million during the nine months ended September 30, 2019 and 2018 , respectively, related to build-to-suit accounting.
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 in September 2019 we fully repaid the outstanding principal balance of the New Term Loans, which was $62.2 million, as well as $0.8 million of accrued interest and fees, and terminated the Credit Agreement. As of September 30, 2019, we have no outstanding debt.
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 September 30, 2019.
Loss on debt extinguishment
Loss 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.

32

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 September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
(in thousands)
Consolidated Statements of Operations
Net revenue
$
82,052

$
73,628

$
244,136

$
215,696

Cost of net revenue
33,345

31,477

94,936

89,424

Gross profit
48,707

42,151

149,200

126,272

Operating expenses:
Product development
15,902

12,856

46,461

32,671

Sales, marketing and support
28,552

21,186

75,986

63,415

General and administrative
27,159

21,163

74,337

59,551

Total operating expenses
71,613

55,205

196,784

155,637

Loss from operations
(22,906
)
(13,054
)
(47,584
)
(29,365
)
Interest expense
(1,681
)
(3,300
)
(5,482
)
(9,399
)
Change in fair value of redeemable convertible preferred stock warrant liability
—

(3,520
)
—

(9,591
)
Loss on debt extinguishment
(1,742
)
(17,173
)
(1,742
)
(178
)
Other income (expense), net
(3,700
)
1,414

(1,145
)
(1,880
)
Loss before income taxes
(30,029
)
(35,633
)
(55,953
)
(50,413
)
Income tax provision (benefit)
147

(117
)
(946
)
683

Net loss
$
(30,176
)
$
(35,516
)
$
(55,007
)
$
(51,096
)
Three Months Ended September 30,
Nine Months Ended September 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
40.6

42.8

38.9

41.5

Gross profit
59.4

57.2

61.1

58.5

Operating expenses:
Product development
19.4

17.5

19.0

15.1

Sales, marketing and support
34.8

28.8

31.1

29.4

General and administrative
33.1

28.7

30.4

27.6

Total operating expenses
87.3

75.0

80.5

72.1

Loss from operations
(27.9
)
(17.7
)
(19.5
)
(13.6
)
Interest expense
(2.0
)
(4.5
)
(2.2
)
(4.4
)
Change in fair value of redeemable convertible preferred stock warrant liability
—

(4.8
)
—

(4.4
)
Loss on debt extinguishment
(2.1
)
(23.3
)
(0.7
)
(0.1
)
Other income (expense), net
(4.5
)
1.9

(0.5
)
(0.9
)
Loss before income taxes
(36.5
)
(48.4
)
(22.9
)
(23.4
)
Income tax provision (benefit)
0.1

(0.2
)
(0.4
)
0.3

Net loss
(36.6
)%
(48.2
)%
(22.5
)%
(23.7
)%

33

Comparison of Three Months Ended September 30, 2019 and 2018
Net revenue
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Net revenue
$
82,052

$
73,628

$
8,424

11.4
%
The increase in net revenue during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was driven primarily by growth in paid ticket volume, which increased by 12.6% during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 , from 23.9 million to 26.9 million .
Net revenue per paid ticket was $3.05 during the three months ended September 30, 2019 compared to $3.08 during the three months ended September 30, 2018 .
Cost of net revenue
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Cost of net revenue
$
33,345

$
31,477

$
1,868

5.9
%
Percentage of total net revenue
40.6
%
42.8
%
Gross margin
59.4
%
57.2
%
The increase in cost of net revenue during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was primarily due to an increase in payment processing costs of $2.9 million driven by paid ticket volume growth, as well as increased allocated customer support costs of $0.7 million . These increases were partially offset by decreased amortization of acquired developed technology of $2.9 million , primarily as a result of the Ticketfly acquired developed technology becoming fully amortized in the fourth quarter of 2018.
Operating expense
Product development
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Product development
$
15,902

$
12,856

$
3,046

23.7
%
Percentage of total net revenue
19.4
%
17.5
%
Product development expense increased during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 primarily due to increased personnel costs of $2.9 million , including $0.9 million of stock-based compensation, resulting from organic hiring efforts as we continue to invest in the people driving innovation on our platform.

34

Sales, marketing and support
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Sales, marketing and support
$
28,552

$
21,186

$
7,366

34.8
%
Percentage of total net revenue
34.8
%
28.8
%
Sales, marketing and support expenses increased during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 primarily due to increased creator-related expenses of $4.6 million , of which $4.0 million relates to a single cancelled event for which we issued refunds for the face value of tickets on behalf of the creator. We also incurred increased direct and discretionary marketing expenses of $1.2 million and increased professional services and contractor expenses of $0.9 million in the three months ended September 30, 2019 compared to the three months ended September 30, 2018.
General and administrative
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
General and administrative
$
27,159

$
21,163

$
5,996

28.3
%
Percentage of total net revenue
33.1
%
28.7
%
The increase in general and administrative expenses during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was a result of several factors. During the three months ended September 30, 2018, we recorded two contra-expense items that reduced the expense in that period. First, we recorded a $7.0 million reversal of sales tax reserves due to state settlements. Second, we recorded a contra-expense item in the amount of $2.3 million related to insurance proceeds stemming from the Ticketfly cyber incident.
During the three months ended September 30, 2019, we recorded increased impairment charges of $1.9 million compared to the same period in 2018, related to creator advances and creator signing fees. We also recorded $3.8 million in consulting fees during the three months ended September 30, 2019 as a result of short-term actions designed to improve our operating efficiencies and better support our long-term growth strategy.
Personnel costs decreased by $7.4 million , including $6.6 million of stock-based compensation, during the three months ended September 30, 2019 compared to the same period in 2018. During the three months ended September 30, 2018, we recognized a stock-based compensation charge of $6.9 million as a performance-based vesting criteria for a single equity award was satisfied upon the completion of our IPO.
Interest expense
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Interest expense
$
(1,681
)
$
(3,300
)
$
(1,619
)
(49.1
)%
Percentage of total net revenue
(2.0
)%
(4.5
)%
The decrease in interest expense during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was driven by lower interest rates on our outstanding debt during the three months ended September 30, 2019 . The WTI Loan Facilities which were outstanding in the three months ended September 30, 2018 bore interest at a rate higher than the New Term Loans, which were outstanding during the three months ended September 30, 2019.
In September 2019, we repaid the New Term Loans in full making payments of $62.2 million of principal and $0.8 million of accrued interest and fees, and we terminated the underlying Credit Agreement.
We continue to record interest expense related to our build-to-suit lease accounting for our office lease in San Francisco, California, but that amount is consistent in the periods presented.

35

Change in fair value of redeemable convertible preferred stock warrant liability
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Change in fair value of redeemable convertible preferred stock warrant liability
$
—

$
(3,520
)
$
(3,520
)
(100.0
)%
Percentage of total net revenue
—
%
(4.8
)%
The change in fair value of our redeemable convertible preferred stock warrant liability during the three months ended September 30, 2018 was due to an increase in the underlying fair value of our redeemable convertible preferred stock from July 1, 2018 to September 20, 2018. In connection with our IPO, which occurred on September 20, 2018, 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 September 30, 2019.
Loss on debt extinguishment
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Loss on debt extinguishment
(1,742
)
(17,173
)
15,431

(89.9
)%
Percentage of total net revenue
(2.1
)%
(23.3
)%
In September 2019, we repaid the New Term Loans in full making payments of $62.2 million of principal and $0.8 million of accrued interest and fees, and we terminated the underlying Credit Agreement. We recorded a loss on debt extinguishment of $1.7 million during the three months ended September 30, 2019 related to the write-off of unamortized debt issuance costs.
The loss on debt extinguishment recorded in the three months ended September 30, 2018 was due to a loss of $17.2 million related to the extinguishment of all outstanding debt under our WTI Loan Facilities in September 2018.
Other income (expense), net
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Other income (expense), net
$
(3,700
)
$
1,414

$
(5,114
)
361.7
%
Percentage of total net revenue
(4.5
)%
1.9
%
The decrease in other income (expense), net during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was driven by the magnitude of foreign currency rate measurement losses recorded during those periods. Additionally, we recorded increased interest income of $1.2 million in the three months ended September 30, 2019 compared to the same period in 2018. We also recorded a $2.1 million gain related to the change in fair value of the WTI Loan Facilities term loan embedded derivatives in the three months ended September 30, 2018.

36

Income tax provision (benefit)
Three Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Income tax provision (benefit)
$
147

$
(117
)
$
264

(225.6
)%
Percentage of total net revenue
0.1
%
(0.2
)%

The provision for income taxes increased $0.3 million in the three months ended September 30, 2019 compared to the three months ended September 30, 2018 . The increase was primarily attributable to the change in our year over year taxable earnings mix.
Comparison of Nine Months Ended September 30, 2019 and 2018
Net revenue
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Net revenue
$
244,136

$
215,696

$
28,440

13.2
%
The increase in net revenue during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was driven primarily by growth in paid ticket volume, which increased by 14.0% from 70.6 million to 80.5 million . During the nine months ended September 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 $22.1 million or 10.0% in the nine months ended September 30, 2019 compared to the same period in 2018.
Net revenue per paid ticket was $3.03 in the nine months ended September 30, 2019 compared to $3.06 in the nine months ended September 30, 2018 .
Cost of net revenue
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Cost of net revenue
$
94,936

$
89,424

$
5,512

6.2
%
Percentage of total net revenue
38.9
%
41.5
%
Gross margin
61.1
%
58.5
%
The increase in cost of net revenue during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was primarily due to an increase in payment processing costs of $7.2 million driven by paid ticket volume growth and increases in platform operations and hosting costs of $1.1 million and allocated customer support cost of $2.1 million . These increases were offset by a decrease in the amortization of acquired developed technology of $8.4 million , primarily as a result of the Ticketfly acquired developed technology becoming fully amortized in the fourth quarter of 2018.

37

Operating expenses
Product development
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Product development
$
46,461

$
32,671

$
13,790

42.2
%
Percentage of total net revenue
19.0
%
15.1
%
Product development expense increased during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 primarily due to increased personnel costs of $12.1 million , including $3.5 million of stock-based compensation, resulting from organic hiring efforts as we continue to invest in the people driving innovation on our platform.
Sales, marketing and support
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Sales, marketing and support
$
75,986

$
63,415

$
12,571

19.8
%
Percentage of total net revenue
31.1
%
29.4
%
Sales, marketing and support expenses increased during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 primarily due to increased creator-related expenses of $7.5 million , of which $4.0 million relates to a single cancelled event for which we issued refunds for the face value of tickets on behalf of the creator. We also incurred increased direct and discretionary marketing expenses of $2.4 million and increased professional services and contractor expenses of $1.0 million in the nine months ended September 30, 2019 compared to the same period in 2018.
General and administrative
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
General and administrative
$
74,337

$
59,551

$
14,786

24.8
%
Percentage of total net revenue
30.4
%
27.6
%
General and administrative expenses increased during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 as a result of several factors. We recorded $8.3 million of sales tax reserve reversals due to state settlements and a cumulative reserve remeasurement in the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we recorded higher impairment charges of creator upfront payments of $4.1 million compared to the same period of 2018. Personnel-related costs, including stock-based compensation, increased by $2.2 million in the nine months ended September 30, 2019 compared to the same period in 2018.
During the nine months ended September 30, 2019, we recorded $4.4 million in consulting fees as a result of short-term actions designed to improve operating efficiencies and better support our long-term growth strategy.
Interest expense
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Interest expense
$
(5,482
)
$
(9,399
)
$
(3,917
)
(41.7
)%
Percentage of total net revenue
(2.2
)%
(4.4
)%
The decrease in interest expense during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was driven by lower interest rates on our outstanding debt during the nine months ended September 30, 2019 . The WTI Loan Facilities which were outstanding in the nine months ended September 30, 2018 bore interest at a rate higher than the New Term Loans, which were outstanding during the nine months ended September 30, 2019.

38

In September 2019, we repaid the New Term Loans in full making payments of $62.2 million of principal and $0.8 million of accrued interest and fees, and we terminated the underlying Credit Agreement.
We continue to record interest expense related to our build-to-suit lease accounting for our office lease in San Francisco, California, but those amounts are consistent in the periods presented.
Change in fair value of redeemable convertible preferred stock warrant liability
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Change in fair value of redeemable convertible preferred stock warrant liability
$
—

$
(9,591
)
$
(9,591
)
(100.0
)%
Percentage of total net revenue
—
%
(4.4
)%
The change in fair value of our redeemable convertible preferred stock warrant liability during the nine months ended September 30, 2018 was due to an increase in the underlying fair value of our redeemable convertible preferred stock from January 1, 2018 to September 20, 2018. In connection with our IPO, which occurred on September 20, 2018, 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 nine months ended September 30, 2019.
Loss on debt extinguishment
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Loss on debt extinguishment
$
(1,742
)
$
(178
)
$
(1,564
)
878.7
%
Percentage of total net revenue
(0.7
)%
(0.1
)%
In September 2019, we repaid the New Term Loans in full making payments of $62.2 million of principal and $0.8 million of accrued interest and fees, and we terminated the underlying Credit Agreement. We recorded a loss on debt extinguishment of $1.7 million during the nine months ended September 30, 2019 related to the write-off of unamortized debt issuance costs.
The loss on debt extinguishment recorded in the nine months ended September 30, 2018 was due to a loss of $17.2 million related to the extinguishment of all outstanding debt under our WTI Loan Facilities in September 2018 offset by a gain of $17.0 million related to the retirement of our outstanding promissory note in March 2018, originally issued in connection with the Ticketfly acquisition.
Other income (expense), net
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Other income (expense), net
$
(1,145
)
$
(1,880
)
$
735

39.1
%
Percentage of total net revenue
(0.5
)%
(0.9
)%
The decrease in other expense, net during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was driven primarily by increased interest income of $3.6 million , partially offset by a gain of $2.1 million related to the change in fair value of the term loan embedded derivative asset.

39

Income tax provision (benefit)
Nine Months Ended September 30,
Change
2019
2018
$
%
(in thousands, except percentages)
Income tax provision (benefit)
$
(946
)
$
683

$
(1,629
)
(238.5
)%
Percentage of total net revenue
(0.4
)%
0.3
%

The benefit from income taxes increased $1.6 million in the nine months ended September 30, 2019 compared to the nine months ended September 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 September 30, 2019 , we had cash and cash equivalents of $485.2 million and funds receivable of $44.4 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 $367.3 million as of September 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 $23.8 million and $21.3 million as of September 30, 2019 and December 31, 2018 , respectively and creator advances, noncurrent was $1.0 million and $1.9 million as of September 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 .
In September 2019, the Company elected to prepay the outstanding principal balance of the New Term Loans in its entirety and terminate the New Credit Facilities. The Company paid $63.0 million , which consisted of $62.2 million of outstanding principal and $0.8 million of accrued interest and fees. The Company recorded a loss on debt extinguishment of $1.7 million during the three months ended September 30, 2019 related to the write-off of unamortized debt issuance costs.
We believe that our existing cash, together with cash generated from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We may seek to raise additional funds at any time through debt, equity and equity-linked arrangements.
As of September 30, 2019 , approximately 56.6% 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.

40

Cash Flows
Our cash flow activities were as follows for the periods presented (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
Net cash provided by (used in):
Operating activities
$
42,759

$
23,786

$
100,491

$
72,785

Investing activities
(3,538
)
(5,395
)
(11,375
)
1,439

Financing activities
(52,768
)
231,633

(41,101
)
244,848

Net increase (decrease) in cash, cash equivalents and restricted cash
$
(13,547
)
$
250,024

$
48,015

$
319,072

Comparison of Three Months Ended September 30, 2019 and 2018
Cash Flows from Operating Activities
The net cash provided by operating activities of $42.8 million for the three months ended September 30, 2019 was due primarily to a net loss of $30.2 million with adjustments for stock-based compensation expense of $9.9 million , depreciation and amortization of $6.2 million , amortization of creator signing fees of $2.8 million , loss on debt extinguishment of $1.7 million , provision for bad debt and creator advances of $1.6 million and impairment of creator advances and creator signing fees of $1.1 million . Additionally, there was an increase in accounts payable to creators of $44.3 million , an increase in creator signing fees net of $7.3 million , a decrease in prepaid expenses and other current assets of $4.5 million , an increase in other accrued liabilities of $2.9 million , a decrease in funds receivable of $2.2 million and a decrease in creator advances, net of $1.8 million .
The net cash provided by operating activities of $23.8 million for the three months ended September 30, 2018 was due primarily to a net loss of $35.5 million with adjustments for a loss on debt extinguishment of $17.2 million , stock-based compensation expense of $15.0 million , depreciation and amortization of $8.8 million , a change in fair value of redeemable convertible preferred stock warrant liability of $3.5 million , a change in fair value of term loan embedded derivatives of $2.1 million and amortization of creator signing fees of $2.0 million . Additionally, there was an increase in accounts payable to creators of $49.6 million , an increase in funds receivable of $15.2 million , a decrease in accrued taxes of $8.0 million , a decrease in other accrued liabilities of $4.9 million , an increase in creator signing fees net of $4.7 million , an increase in creator advances, net of $2.9 million and an increase in accounts receivable of $1.2 million .
Cash Flows from Investing Activities
The net cash used in investing activities of $3.5 million for the three months ended September 30, 2019 was due to capitalized software development costs of $2.1 million and purchases of property and equipment of $1.4 million .
The net cash used in investing activities of $5.4 million for the three months ended September 30, 2018 was due to $2.2 million net cash used to acquire Picatic, capitalized software development costs of $1.6 million and cash paid for purchases of property and equipment of $1.5 million .
Cash Flows from Financing Activities
The net cash used in financing activities of $52.8 million during the three months ended September 30, 2019 was primarily due to $62.2 million in principal payments on our New Term Loans, partially offset by $9.9 million in proceeds from exercise of stock options.
The net cash provided by financing activities totaled $231.6 million during the three months ended September 30, 2018 and was driven by $244.1 million in proceeds from the completion of our IPO, net of underwriters' discounts and offering costs, $75.0 million in proceeds from drawing funds under our WTI Loan Facility and $3.3 million cash proceeds from stock option exercises. These inflows were offset by $74.2 million in principal payments on our debt obligations, $7.4 million in prepayment penalties resulting from the extinguishment of our WTI Loan Facilities and $9.0 million in taxes paid related to the net share settlement of equity awards.

41

Comparison of Nine Months Ended September 30, 2019 and 2018
Cash Flows from Operating Activities
The net cash provided by operating activities of $100.5 million for the nine months ended September 30, 2019 was due primarily to a net loss of $55.0 million with adjustments for stock-based compensation expense of $26.8 million , depreciation and amortization of $18.5 million , amortization of creator signing fees of $7.7 million , provision for bad debt and creator advances of $4.0 million , impairment of creator advances and creator signing fees of $3.0 million and a net loss on debt extinguishment of $1.7 million . Additionally, there was an increase in accounts payable to creators of $95.1 million , an increase in creator signing fees, net of $16.5 million , a decrease in funds receivable of $14.3 million , an increase in creator advances, net of $6.7 million , a decrease in prepaid expenses and other current assets of $6.3 million , an increase in other accrued liabilities of $5.6 million , a decrease in accrued taxes of $4.0 million , an increase in accounts receivable of $1.2 million and an increase in accounts payable, trade of $1.1 million .
The net cash provided by operating activities of $72.8 million for the nine months ended September 30, 2018 was due primarily to a net loss of $51.1 million with adjustments for depreciation and amortization of $25.6 million , stock-based compensation expense of $23.2 million , a change in fair value of redeemable convertible preferred stock warrant liabilities of $9.6 million , amortization of creator signing fees of $5.1 million , a change in fair value of term loan embedded derivatives of $2.1 million , impairment of creator advances and creator signing fees of $1.1 million , accretion of term loan costs of $1.6 million and provision for bad debt and creator advances of $1.8 million . Additionally, there was an increase in accounts payable to creators of $79.5 million , increases in creator signing fees, net of $10.9 million and creator advances, net of $5.4 million , a decrease in accrued taxes of $5.1 million , an increase in other accrued liabilities of $4.5 million , an increase in prepaid expenses and other current assets of $2.9 million and an increase in accounts receivable of $2.2 million .
Cash Flows from Investing Activities
The net cash used in investing activities of $11.4 million for the nine months ended September 30, 2019 was due to capitalized software development costs of $6.4 million and purchases of property and equipment of $5.0 million .
The net cash provided by investing activities of $1.4 million for the nine months ended September 30, 2018 was due to $11.6 million net cash provided from the Ticketea acquisition in April 2018 and Picatic acquisition in August 2018, partially offset by capitalized software development costs of $5.9 million and $4.2 million paid for purchases of property and equipment.
Cash Flows from Financing Activities
The net cash used in financing activities of $41.1 million during the nine months ended September 30, 2019 was primarily due to $73.6 million in principal payments on our New Term Loans, partially offset by $32.8 million in proceeds from exercise of stock options and $2.2 million in proceeds from issuance of common stock under the ESPP.
The net cash provided by financing activities of $244.8 million during the nine months ended September 30, 2018 was due primarily to $244.1 million in aggregate proceeds from the completion of our IPO, net of underwriters' discounts and offering costs, $120.0 million in proceeds from drawing funds under our WTI Loan Facility and $7.5 million in cash proceeds from exercise of stock options, partially offset by principal payments on debt obligations of $109.7 million , $9.0 million in taxes paid related to the net share settlement of equity awards and $7.4 million in prepayment penalties resulting from the extinguishment of our WTI Loan Facilities.
Concentrations of Credit Risk
As of September 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 nine months ended September 30, 2019 and 2018.

42

Contractual Obligations and Commitments
In September 2019, the Company elected to prepay the outstanding principal balance of the New Term Loan in its entirety and terminate the New Credit Facilities. The Company paid $63.0 million , which consisted of $62.2 million of debt principal and $0.8 million of accrued interest and fees. As of September 30, 2019, the Company has no outstanding debt.
Our principal commitments consist of 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 September 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
Future creator signing fees and creator advances
$
41,850

$
20,427

$
17,402

$
4,021

$
—

Build-to-suit lease obligation
4,070

2,492

1,578

—

—

Operating leases
18,544

3,948

6,764

4,963

2,869

Sublease income
(6,474
)
(4,174
)
(2,300
)
—

—

Capital Leases
557

289

268

—

—

Purchase commitments
4,875

3,875

1,000

—

—

Total
$
63,422

$
26,857

$
24,712

$
8,984

$
2,869

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 2028. 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 the three months ended September 30, 2019 and 2018, respectively, and $ 2.5 million and $2.6 million for the nine months ended September 30, 2019 and 2018, respectively. The lease financing obligation was $27.6 million and $28.5 million as of September 30, 2019 and December 31, 2018 , respectively, and the net book value of the asset as of those dates was $27.3 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 nine months ended September 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

43

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.

44

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
Interest expense related to our outstanding debt as of September 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 creators 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.

45

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Beginning on April 15, 2019, purported stockholders of our company filed two putative securities class action complaints in the United States District Court for the Northern District of California, and three putative securities class action complaints in the Superior Court of California for the County of San Mateo, against the Company, certain of our executives and directors, and our underwriters for the IPO. Some of these actions also name as defendants venture capital firms that were investors in the Company as of the IPO.
On August 22, 2019, the federal court consolidated the two pending actions and appointed lead plaintiffs and lead counsel. The consolidated federal case is entitled In re Eventbrite, Inc. Securities Litigation , 5:19-cv-02019-EJD (the Federal Action). On October 11, 2019, the lead plaintiffs in the Federal Action filed their amended consolidated complaint. The amended complaint generally alleges that the Company misrepresented and/or omitted material information in our IPO offering documents, in violation of the Securities Act of 1933. The amended complaint also challenges public statements made after the IPO in violation of the Securities Exchange Act of 1934. The amended complaint seeks unspecified monetary damages and other relief on behalf of investors who purchased our common stock issued pursuant and/or traceable to the IPO offering documents, or between September 20, 2018 and May 1, 2019, inclusive. The hearing on the defendants' motion to dismiss is set for March 26, 2020.
On June 24, 2019, the state court consolidated two state actions pending at that time. The consolidated state case is entitled In re Eventbrite, Inc. Securities Litigation , Lead Case No, 19-CIV-02798 (the State Action). On July 24, 2019, the two plaintiffs in the State Action filed a consolidated complaint. The consolidated complaint generally alleges that the Company misrepresented and/or omitted material information in our IPO offering documents, in violation of the Securities Act of 1933. The amended complaint seeks unspecified monetary damages and other relief on behalf of investors who purchased our common stock issued pursuant and/or traceable to the IPO offering documents. On August 23, 2019, defendants filed demurrers to the consolidated complaint. A third state-court action was filed on August 23, 2019. On September 11, 2019, that complaint was consolidated into the operative complaint filed on July 24, 2019, and the court ordered that the arguments in defendants’ pending demurrers would apply to that newly filed complaint. At the hearing on defendants’ demurrers on November 1, 2019, the court sustained the demurrer with leave to amend. The deadline for an amended complaint is January 10, 2020.
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.
On July 16, 2019, the Company 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 and Eventbrite, Inc. v. Fab Loranger et al., 3:19-CV-04083 (collectively, the Roxodus Lawsuits). The Roxodus Lawsuits arise out of MF Live’s (MFL) cancellation of the Roxodus music festival in Ontario, Canada and subsequent refusal to issue refunds to ticket buyers.  The Company provided ticketing and payment processing services for the event, and pursuant to a written contract with MFL, was authorized to issue refunds totaling $4.0 million to ticket buyers bought under the Company’s platform. Accordingly, the Roxodus Lawsuits assert claims against the defendants for breach of contract, breach of the implied covenant of good faith and fair dealing, and actual and constructive fraudulent transfers.  The Company is investigating whether grounds exist to assert additional claims.
The Roxodus Lawsuits are in their early stages and the Company cannot predict the likelihood of success of either.
MFL has filed for bankruptcy in Canada, calling into question whether and to what extent it could satisfy a judgment.  The Company intends to monitor and participate in the bankruptcy process pursuant to its rights under Canadian law, and the Company’s investigation of the assets held by and/or on behalf of MFL, Loranger, and the other defendants is ongoing.
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.

46

We may further expand into markets outside of the United States and if we do not manage the risks of international expansion effectively, our business and results of operations could be harmed. Furthermore, our expansion into jurisdictions where we have limited operating experience may subject us to increased business and economic risks that could harm our business and our results of operations.
In 2018, 2017 and 2016, we derived 27.4%, 30.0% and 27.0%, respectively, of our net revenue from outside of the United States. Outside the U.S. we currently have 12 offices, including offices in the United Kingdom, Ireland, Spain, Belgium, Germany, the Netherlands, Australia, Argentina and Brazil. We have large engineering and business development teams in Argentina and Spain. Our international operations and results are subject to a number of risks, including:
•
currency exchange restrictions or costs and exchange rate fluctuations and the risks and costs inherent in hedging such exposures;
•
new and modified laws and regulations regarding data privacy, data protection and information security;
•
exposure to local economic or political instability, threatened or actual acts of terrorism and violence and changes in the rights of individuals to assemble;
•
compliance with U.S. and non-U.S. regulations, laws and requirements relating to anti-corruption, antitrust or competition, economic sanctions, data content and privacy, consumer protection, employment and labor laws, health and safety and advertising and promotions;
•
compliance with additional U.S. laws applicable to U.S. companies operating internationally and interpretations of U.S. and international tax laws;
•
weaker enforcement of our contractual and intellectual property rights;
•
preferences by local populations for local providers;
•
laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses; and
•
slower adoption of the Internet as a ticketing, advertising and commerce medium, which could limit our ability to migrate international operations to our existing systems.
Despite our experience operating internationally, future expansion efforts into new countries may not be successful. Our international expansion has placed, and any future international growth may increasingly place, a significant strain on our management, customer service, product development, sales and marketing, administrative, financial and other resources. We cannot be certain that the investment and additional resources required in expanding our international operations will be successful or produce desired levels of revenue or profitability in a timely manner, or at all. Furthermore, certain international markets in which we operate have lower margins than more mature markets, which could have a negative impact on our margins as our revenue from these markets grows over time.
We may choose in certain instances to localize our platform to the unique circumstances of such countries and markets in order to achieve market acceptance, which can be complex, difficult and costly and divert management and personnel resources. Our failure to adapt our practices, platform, systems, processes and contracts effectively to the creator and attendee preferences or customs of each country into which we expand could slow our growth. If we are unable to manage our international growth successfully, our results of operations could be harmed.

Our payments system depends on third-party providers and is subject to risks that may harm our business.
We rely on third-party providers to support our payments system. Approximately 90% of revenue on our platform is associated with payments processed through our internal payment processing capabilities, called Eventbrite Payment Processing (EPP). EPP uses a combination of multiple external vendors to provide a single, seamless payments option for creators and attendees. Beyond EPP, the remainder of creators’ paid ticket sales are processed through linked, creator-owned, third-party accounts, including PayPal and Authorize.net, which we call Facilitated Payment Processing (FPP).
We partner with third-party vendors to support EPP. For example, in September 2017, we announced a partnership with Square where Square would become our primary online payment processing partner for EPP in the United States, Canada, Australia, the United Kingdom as well as any new territories Square enters into over-time. Square was also intended to become our exclusive payment processing partner for all of our point-of-sale solutions in those same territories. However, we recently decided to reevaluate the scope of our partnership with Square. Our costs for payment processing may have increased using Square due to higher direct costs of development and implementation and fee structure. We plan to continue working with our other third-party vendors who support EPP, and we do not intend to find another partner to replace Square in the near-term. Our costs for payment processing may increase with a new partner due to higher direct costs of development and implementation and fee structure.
As a complex, multi-vendor system with proprietary technology added, EPP relies on banks and third-party payment processors to process transactions and access various payment card networks to allow creators to manage payments in an easy

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and efficient manner. We also rely on our providers to process transactions as a payment facilitator of a payment network. Any of our payment providers and vendors that do not operate well with our platform could adversely affect our payments systems and our business. We have multiple integrations in place at one time allowing for back up processing on EPP if a single provider is unable or unwilling to process any given transaction, payment method or currency. However, if any or some of these providers do not perform adequately, determine certain types of transactions as prohibitive for any reason or fail to identify fraud, if these providers’ technology does not interoperate well with our platform, or if our relationships with these providers were to terminate unexpectedly, creators may find our platform more difficult to use and the ability of creators using our platform to sell tickets could be adversely affected, which could cause creators to use our platform less and harm our business.
We must also continually integrate various payment methods used both within the United States and internationally into EPP. To enhance our acceptance in certain international markets we have in the past adopted, and may in the future adopt, locally-preferred payment methods and integrate such payment methods into EPP, which may increase our costs and also require us to understand and protect against unique fraud and other risks associated with these payment methods. For example, in Brazil we localized our platform to allow the use of Boleto as a payment method, and we invested capital and management attention to achieve this. If we are not able to integrate new payment methods into EPP effectively, our business may be harmed.
Our payment processing partners require us to comply with payment card network operating rules, which are set and interpreted by the payment card networks. The payment card networks could adopt new operating rules or interpret or re-interpret existing rules in ways that might prohibit us from providing certain services to some creators, be costly to implement or difficult to follow. We have agreed to reimburse our payment processors for fines they are assessed by payment card networks if we or creators using our platform violate these rules, such as our processing of various types of transactions that may be interpreted as a violation of certain payment card network operating rules.
In addition, payment card networks and payment processing partners could increase the fees they charge us for their services or for an attendee using one of their cards, which would increase our operating costs and reduce our margins. If we are unable to negotiate favorable economic terms with these partners, our business and results of operations may be harmed.
Factors adversely affecting the live event market could impact our results of operations.
We help creators organize, promote and sell tickets and registrations to a broad range of events. Our business is directly affected by the success of such events and our revenue is impacted by the number of events, type of events and ticket prices of events produced by creators. Adverse trends in one or more event industries could adversely affect our business. A decline in attendance at or reduction in the number of events may have an adverse effect on our revenue and operating income.
During periods of economic slowdown and recession, consumers have historically reduced their discretionary spending. The impact of economic slowdowns on our business is difficult to predict, but they may result in reductions in ticket and registration sales and our ability to generate revenue. Our business depends on discretionary consumer and corporate spending. Many factors related to discretionary consumer and corporate spending, including employment, fuel prices, interest and tax rates and inflation can adversely impact our results of operations.
In addition, the occurrence and threat of extraordinary events, such as terrorist attacks, mass-casualty incidents, public health concerns, natural disasters or similar events, or loss or restriction of individuals’ rights to assemble may deter creators from producing large events and substantially decrease the attendance at live events. For example, in January 2017, five people were killed at a music festival in Mexico ticketed by us, and in July 2019, four people were killed at a community festival in Gilroy, 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

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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. 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, beginning on April 15, 2019, purported stockholders of our company filed putative securities class action against Eventbrite, certain of our executives and directors, and our underwriters for the 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 May 1, 2019, inclusive. These actions allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 based on alleged material misrepresentations and/or omissions in our IPO offering documents and subsequent statements. The actions seek unspecified monetary damages and other relief. 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, financial condition and reputation. 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-

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party lawsuit or counterclaim, we may have to devote significant financial and management resources to address these issues, which could harm our business, results of operations and financial condition.

Our business could be adversely affected by changes in laws or regulations relating to privacy, data protection or the protection or transfer of personal data, or any actual or perceived failure by us to comply with such laws and regulations.
Our business will be subject to the California Consumer Privacy Act (CCPA) when it goes into effect January 1, 2020. Once effective, the CCPA will give California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. The CCPA and other changes in laws or regulations relating to privacy, data protection and information security, particularly any new or modified laws or regulations that require enhanced protection of certain types of data or new obligations with regard to data retention, transfer or disclosure, could greatly increase the cost of providing our solutions, require significant changes to our operations or even prevent us from providing certain solutions in certain jurisdictions. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.

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 September 30, 2019, we had 57,253,565 shares of Class A common stock outstanding and 27,118,536 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
In connection with an asset purchase agreement entered into on July 9, 2019, we issued 369,140 shares of our Class A common stock to the three sellers of the assets included in the asset purchase agreement. The shares issued in connection with the asset purchase agreement are restricted and subject to certain forfeiture conditions.
The issuance of shares of the Company’s Class A common in connection with the acquisition is in reliance on the private offering exemption of Section 4(a)(2) of the Securities Act based on the following factors: (i) the number of offerees or purchasers, as applicable, (ii) the absence of general solicitation, (iii) representations obtained from the stockholders of the acquired company with respect to their status as accredited investors, (iv) the provision of appropriate disclosure, and (v) the placement of restrictive legends on the book entry entitlements reflecting the securities coupled with investment representations obtained from the stockholders of the acquired company being issued Class A common stock of Eventbrite.

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
8-K
10.1
August 8, 2019
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.
November 7, 2019
By:
/s/ Julia Hartz
Julia Hartz
Chief Executive Officer
(Principal Executive Officer)
November 7, 2019
By:
/s/ Charles Baker
Charles Baker
Chief Financial Officer
(Principal Financial Officer)
November 7, 2019
By:
/s/ Shane Crehan
Shane Crehan
Chief Accounting Officer
(Principal Accounting Officer)



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