EVENTBRITE, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information set forth under "Selected Financial Data" and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical 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 Annual Report on Form 10-K. Our fiscal year ends
Eventbriteis a global self-service ticketing and experience technology platform that serves event creators and empowers their success. Our mission is to bring the world together through live experiences, and since inception, we have been at the center of the experience economy, helping to transform the way people organize and attend events. The Eventbriteplatform was built as a self-service platform to make it possible for anyone to create and sell tickets to live experiences. We have a creator-aligned business model: we succeed when our creators succeed. We allow hosts of free events to use our platform for free and we charge creators of paid events on a per-ticket basis when an attendee purchases a ticket for an event. Our platform integrates seamlessly with internally-developed and third-party features designed to help our creators sell more tickets and scale their businesses. The global COVID-19 pandemic has tested our mission, our company and event creators in unprecedented ways. In the early days of the pandemic, we adapted quickly to meet creators' urgent shift to online events, and over the past year, we pivoted back to powering in-person events accordingly as restriction eased. During 2021, paid ticket volume for in-person events increased by 53%. We expect continued volatility in these trends considering the continued impact from the COVID-19 pandemic. Significant uncertainty remains regarding the extent and duration of the impact on our business. The full extent to which COVID-19 impacts our business, results of operations and financial condition cannot be predicted at this time. The impact of COVID-19 may persist for an extended period of time or become more pronounced which may result in a reduction in paid ticket volume and an increase in event cancellation losses. In March 2021, we issued $212.75 millionaggregate principal amount of 0.750% convertible senior notes due 2026 (2026 Notes) in a private offering, inclusive of the initial purchaser's exercise in full of its option to purchase additional notes. We used $153.2 millionof the proceeds from this offering to repay in full the outstanding indebtedness under our May 2020credit agreement and $18.5 millionof the net proceeds from this offering to pay the cost of the 2026 Capped Calls transactions. We intend to use the remainder of the net proceeds from this offering for general corporate purposes. In May 2021, we launched Eventbrite Boost which provides tools to event creators to increase their following on social networks, like Instagram and Facebook, create branded emails and marketing materials, track ticket sales, and optimize and automate their advertising. Eventbrite Boost helps creators make informed marketing decisions to grow their businesses. Real-time dashboards deliver personalized recommendations on the best marketing campaigns to run and also provide direct insight into how their campaigns are performing. 43
Key Business Parameters and Non-GAAP Financial Measures
We monitor key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to revenue, net loss, and other results under GAAP, the following table sets forth key business metrics and non-GAAP financial measures we use to evaluate our business. We believe these metrics and measures are useful to facilitate period-to-period comparisons of our business. We believe that the use of Adjusted EBITDA is helpful to our investors as this metric is used by management in assessing the health of our business and our operating performance. This measure, which we refer to as our non-GAAP financial measure, is not prepared in accordance with GAAP and has limitations as an analytical tool, and you should not consider this in isolation or as substitutes for analysis of our results of operations as reported under GAAP. You are encouraged to evaluate the adjustments and the reasons we consider them appropriate. Year Ended December 31, 2021 2020 2019 (in thousands) Non-GAAP and Other Data Paid ticket volume 67,427 47,092 109,428 Adjusted EBITDA
$ 1,005 $ (134,075) $ (5,641)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. Our paid ticket volume for events outside of the United Statesrepresented 35%, 39% and 36% for the years ended December 31, 2021, 2020 and 2019, respectively.
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 redeemable convertible preferred stock warrant liability, loss on debt extinguishment, direct and indirect acquisitions 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 changes in fair value of term loan embedded derivatives, and income tax provision (benefit). Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. 44
The following table provides a reconciliation of our adjusted EBITDA to the most comparable GAAP measure, net loss, for each of the periods indicated:
Year Ended December 31, 2021 2020 2019 (in thousands) Net loss
$ (139,080) $ (224,718) $ (68,760)Add: Depreciation and amortization 18,716 22,610 24,324 Stock-based compensation 47,523 40,215 37,594 Interest expense 16,267 24,586 2,986 Loss on debt extinguishment 49,977 - 1,742 Direct and indirect acquisition related costs(1) - 190 837 Employer taxes related to employee equity transactions 2,544 1,190 1,555 Other (income) expense, net 3,630 1,932 (5,727) Income tax provision (benefit) 1,428 (80) (192) Adjusted EBITDA $ 1,005 $ (134,075) $ (5,641)(1) Direct and indirect acquisition related costs consist primarily of transaction and transition related fees and expenses incurred within one year of the acquisition 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 noncash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures and (iii) Adjusted EBITDA does not reflect the interest and principal required to service our indebtedness. Our Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate Adjusted EBITDA in the same manner as we calculate the measure, limiting its usefulness as a comparative measure. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including our net loss and other GAAP results. 45
The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. For a discussion and comparison of the years ended
December 31, 2020and 2019, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2020 Annual Report on Form 10-K filed with the SECon March 1, 2021. The following tables set forth our consolidated results of operations data and such data as a percentage of net revenue for the periods presented: Year Ended December 31, 20212020
(in thousands) Consolidated Statements of Operations Net revenue
$ 187,134 $ 106,006 $ 326,801Cost of net revenue 70,294 62,330 129,141 Gross profit 116,840 43,676 197,660 Operating expenses: Product development 66,303 54,551 64,196 Sales, marketing and support 35,916 84,259 102,874 General and administrative 82,399 103,146 100,541 Total operating expenses 184,618 241,956 267,611 Loss from operations (67,778) (198,280) (69,951) Interest expense (16,267) (24,586) (2,986) Loss on debt extinguishment (49,977) - (1,742) Other income (expense), net (3,630) (1,932) 5,727 Loss before income taxes (137,652) (224,798) (68,952) Income tax provision (benefit) 1,428 (80) (192) Net loss $ (139,080) $ (224,718) $ (68,760)46
Table of Contents Year Ended December 31, 2021 2020 2019 Consolidated Statements of Operations, as a percentage of net revenue Net revenue 100 % 100 % 100 % Cost of net revenue 38 59 40 Gross profit 62 41 60 Operating expenses: Product development 35 51 20 Sales, marketing and support 19 79 31 General and administrative 44 97 31 Total operating expenses 98 227 82 Loss from operations (36) (186) (22) Interest expense (9) (23) (1) Loss on debt extinguishment (27) - (1) Other income (expense), net (2) (2) 2 Loss before income taxes (74) (211) (22) Income tax provision (benefit) 1 - - Net loss (73) % (211) % (22) %
Comparison of years ended
We generate revenues primarily from service fees and payment processing fees from the sale of paid tickets on our platform. We also derive a smaller portion of revenues from a series of marketing services and tools that enable creators to market their events and increase reach to attendees. Our fee structure typically consists of a flat 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. 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. Year Ended December 31, Change 2021 2020 $ % (in thousands, except percentages) Net revenue
$ 187,134 $ 106,006 $ 81,12877 % The increase in net revenue during 2021 compared to 2020 was primarily due to increase in our paid ticket volume which increased by 20.3 million or 43% as COVID-19 restrictions eased. Additionally, there was a decrease in refunds reserves of $15.7 millionduring the year ended December 31, 2021. This was attributable to lower cancellations and refund activity compared to a year ago which was significantly higher at the onset of the COVID-19 pandemic. The remainder of the increase in net revenue during 2021 was due to a $5.7 milliondecrease in amortization of creator signing fees.
The net revenue per paid ticket was
Net income cost
Cost of net revenue consists of variable costs related to payment processing fees and fixed costs related to making our platform generally available. Our fixed costs consist primarily of expenses associated with the operation and maintenance of our platform, including website hosting fees and platform infrastructure costs, amortization of capitalized software development costs, on-site operations costs and customer support costs. Cost of net revenue also includes the amortization expense related to our acquired developed technology assets, which may be incurred in future periods related to future acquisitions. 47
Generally, we expect cost of net revenue to fluctuate as a percentage of net revenue in the near- to mid-term primarily driven by the fixed costs absorption relative to total net revenue and our geographical revenue mix. Our payment processing costs for credit and debit card payments are generally lower outside of
the United Statesdue to a number of factors, including lower card network fees and lower cost alternative payment networks. Consequently, if we generate more revenue internationally, we expect that our payment processing costs will decline as a percentage of revenue. As our total net revenue increases or decreases and our fixed costs are unaffected, our cost of net revenue as a percentage of net revenue will similarly fluctuate. Year Ended December 31, Change 2021 2020 $ % (in thousands, except percentages) Cost of net revenue $ 70,294 $ 62,330 $ 7,96413 % Percentage of total net revenue 38 % 59 % Gross margin 62 % 41 % The increase in cost of net revenue during the year ended December 31, 2021compared to 2020 was primarily due to an increase of $15.6 millionin payment processing costs in line with the increased volume and fees earned from payment processing services. This was primarily offset by a $4.9 milliondecrease in customer support costs and field operations costs driven by our change in business strategy to self-service creators, and a $2.4 milliondecrease in depreciation of equipment and amortization of capitalized internal-use software development costs. Our gross margin improved during the year ended December 31, 2021compared to 2020 primarily due to better fixed cost absorption as ticket volume and revenue increased. 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 recurring component of operating expenses. We also include sublease income as a reduction of our operating expenses.
Creator-related expenses, which consist primarily of reserves for estimated prepayment losses and recoverability of upfront payments, were significantly higher at the onset of the COVID-19 pandemic.
As our total net revenue increases or decreases and to the extent our operating expenses are not equally affected, our operating expenses as a percentage of net revenue will similarly fluctuate.
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 the long term. In the near-term, we anticipate our product development expenses will increase as we focus on enhancing and expanding the capabilities of our platform. We also expect to continue investing in building
Eventbrite'sinfrastructure to enhance and support the development of new technologies. Over the long-term, we anticipate that product development expenses will decrease as a percentage of net revenue as we expect our revenue to recover and grow at a faster pace compared to operating expenses and as we continue to expand our development staff in lower cost markets. Year Ended December 31, Change 2021 2020 $ % (in thousands, except percentages) Product development $ 66,303 $ 54,551 $ 11,75222 % Percentage of total net revenue 35 % 51 % The increase in product development costs during 2021 compared to 2020 was primarily driven by employee-related costs including stock-based compensation as we continued to focus our investment on building technology products for our platform. 48
Sales, Marketing and Support.
Sales, marketing and support expenses consist primarily of costs associated with our employees involved in selling and marketing our products and in public relations and communication activities, in addition to marketing programs spend. For our sales teams, this also includes commissions. Sales, marketing and support expenses are driven by investments to grow and retain creators and attendees on our platform. Additionally, we classify certain creator-related expenses, such as refunds of the ticket price paid by us on behalf of a creator and reserves for estimated advance payout losses, as sales, marketing and support expenses. Reserves for estimated advance payout losses were lower in 2021 compared to 2020, as the volume of COVID-related event cancellations and postponements was significantly higher in prior year. Due to the nature of the COVID-19 situation and the limited amount of currently available data, there is a high degree of uncertainty around these reserves and our actual losses could be materially different from our current estimates. We will adjust our recorded reserves in the future to reflect our best estimates of future outcomes. Year Ended December 31, Change 2021 2020 $ % (in thousands, except percentages) Sales, marketing and support
$ 35,916 $ 84,259 $ (48,343)(57) % Percentage of total net revenue 19 % 79 % The decrease in sales, marketing and support expenses during 2021 compared to 2020 was primarily due to a $39.5 milliondecrease in reserves for estimated advance payout losses, which reflected the favorable resolution of advance payouts outstanding with more events being completed on time, lower rate of events being postponed and lower than expected chargeback activity since the start of COVID-19 pandemic. Additionally, employee-related costs decreased by $9.5 milliondue to 40% lower headcount resulting from the reduction in workforce in 2020.
General and administrative.
General and administrative expenses consist of personnel costs, including stock-based compensation, and professional fees for finance, accounting, legal, risk, human resources and other corporate functions. Our general and administrative expenses also include accruals for sales and business taxes, as well as reserves and impairment charges related to creator upfront payments. Over the long-term, we anticipate general and administrative expenses to decline as a percentage of net revenue as we expect to grow our net revenues and scale our business. Year Ended December 31, Change 2021 2020 $ % (in thousands, except percentages)
general and administrative
44 % 97 % The decrease in general and administrative expenses during 2021 compared to 2020 was largely attributable to a
$22.7 milliondecrease in creator upfront reserves which was significantly higher in 2020 as a result of the effects of the COVID-19 pandemic. This was offset by a $3.5 millionincrease in stock-based compensation. Interest Expense Interest expense for the year ended December 31, 2021consisted primarily of cash interest expense and amortization of debt discount and issuance costs on our term loans under the May 2020credit agreement, 2025 Notes and 2026 Notes. The credit agreement entered into in May 2020was terminated on March 11, 2021. In March 2021, we issued the 2026 Notes, which consisted of $212.75 millionaggregate principal amount of 0.750% convertible senior notes due 2026. In June 2020, we issued the 2025 Notes, which consisted of $150.0 millionaggregate principal amount of 5.000% senior notes due 2025. Prior to the adoption of ASU 2020-06, we separated the conversion option of the 2025 Notes from the debt instrument and classified the conversion option in equity. We early adopted ASU 2020-06 on January 1, 2021, which resulted in the elimination of the debt discount created by bifurcating the conversion option in equity. 49
Table of Contents Year Ended December 31, Change 2021 2020 $ % (in thousands, except percentages) Interest expense
$ 16,267 $ 24,586 $ (8,319)(34) % Percentage of total net revenue 9 % 23 % The decrease in interest expense during 2021 compared to 2020 was primarily due to a $11.3 milliondecrease in interest on the term loans as they were repaid in the first quarter of 2021. This was offset by an increase of $2.9 millionin interest on the 2025 Notes and 2026 Notes which were issued in June 2020and March 2021, respectively. During 2021, the 2025 Notes were outstanding for the full year compared to seven months in 2020 resulting in a higher interest expense. This was offset by a decrease in effective interest due to the adoption of ASU 2020-06.
Loss on extinguishment of debt
March 2021, we repaid in full the outstanding indebtedness under our May 2020credit agreement by making payments of $125.0 millionof principal, a $18.2 millionmake-whole premium, $9.0 millionpayment in kind interest and $1.0 millionof accrued interest. Year Ended December 31, Change 2021 2020 $ % (in thousands, except percentages) Loss on debt extinguishment $ 49,977$ - $ 49,977100% Percentage of total net revenue 27 % - % We recorded a loss on debt extinguishment of $50.0 millionduring the year ended December 31, 2021. The loss primarily related to the write-off of unamortized debt discount and issuance costs of $31.8 millionand make-whole premiums of $18.2 million. Unamortized debt discounts primarily related to 2,599,174 shares of Class A common stock issued to the FP EB Aggregator, L.P.for a purchase price of $0.01per share. We accounted for these shares at fair value and recorded $27.4 millionas debt discount at issuance. The remaining unamortized discounts and issuance costs relate to the cash costs incurred during the issuance of the term loan.
Other income (expenses), net
Other income (expense), net consists primarily of interest income and foreign exchange rate remeasurement gains and losses recorded from consolidating our subsidiaries each period-end. The primary driver of our other income (expense), net is fluctuation in the value of the
U.S.dollar against the local currencies of our foreign subsidiaries. Year Ended December 31, Change 2021 2020 $ % (in thousands, except percentages) Other income (expense), net $ (3,630) $ (1,932) $ (1,698)(88) % Percentage of total net revenue (2) % (2) % The increase in other expense during 2021 compared to 2020 was driven by foreign currency rate measurement fluctuations. We recognized foreign currency rate remeasurement losses during the year ended December 31, 2021, as a result of the strengthening of the U.S.dollar compared to the currencies with which we operate and process transactions.
Provision for income tax (benefit)
Income tax provision 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 tax provision and 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 deferred tax assets in certain jurisdictions including the United States. 50
Table of Contents Year Ended December 31, Change 2021 2020 $ % (in thousands, except percentages) Income tax provision (benefit)
$ 1,428 $ (80) $ 1,5081885 % Percentage of total net revenue 1 % - %
The provision for income taxes increased by
Cash and capital resources
December 31, 2021, we had cash and cash equivalents of $634.4 millionand funds receivable of $18.2 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, cash equivalents and funds receivable balances represent a mix of cash that belongs to us and cash that is due to the creator. The amounts due to creators, which was $285.2 millionas of December 31, 2021, are captioned on our consolidated balance sheets as accounts payable, creators. Although creator cash is legally unrestricted, we do not utilize creator cash for our own financing or investing activities as the amounts are payable to creators on a regular basis. As of December 31, 2021, approximately 26% 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. In March 2021, we completed a private offering of the 2026 Notes and received aggregate net proceeds of $207.0 millionafter deducting the initial purchaser's discounts and commissions and debt issuance costs of $5.7 million. In connection with the offering of the 2026 Notes, we entered into capped call transactions with certain financial institutions. We used $153.2 millionof the proceeds from this offering to repay in full the outstanding indebtedness under our May 2020credit agreement and $18.5 millionof the net proceeds from the offering to pay the cost of the 2026 Capped Calls. We intend to use the remainder of the net proceeds from the offering for general corporate purposes. See Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about the 2026 Notes and 2026 Capped Calls. Under our advance payout program, we pass proceeds from ticket sales to certain creators prior to a subject event, subject to certain limitations. We paused this program in March 2020due to the COVID-19 pandemic. In the second quarter of 2021, we relaunched advance payouts to paid creators who qualify and accept our terms and conditions. As of December 31, 2021, advance payouts outstanding was approximately $319.3 millionincluding $79.5 millionof advance payouts issued since the third quarter of 2020, when we resumed the advance payout program on a limited basis. The terms of our standard merchant agreement obligate creators to repay us for ticket sales advanced under our advance payment program. However, when we provide advance payouts, we assume significant risk that the event may be cancelled, postponed, fraudulent, materially not as described or removed from our platform due to failure to comply with our terms of service or our merchant agreement, which could result in significant chargebacks, refund requests and/or disputes between attendees and creators. We may not be able to recover our losses from these events, and COVID-19 has increased the likelihood that we will not recover these losses. Such unrecoverable amounts could equal up to the value of the ticket sales or amounts settled to the creator prior to the event that has been postponed or cancelled or is otherwise disputed. We record estimates for losses related to chargebacks and refunds of the face value of tickets based on various factors, including the amounts paid and outstanding to creators in conjunction with the advance payout program, the nature of future events, the remaining time to event date, and actual chargeback and refund activity during the current year. Due to the nature of the COVID-19 pandemic and the limited amount of currently available data, there is a high degree of uncertainty around these reserves, and our actual losses could be materially different from our current estimates. We will adjust our recorded reserves in the future to reflect our best estimates of future outcomes, and we may pay in cash a portion of, all of, or a greater amount than the $21.4 millionprovision recorded as of December 31, 2021. We believe that our existing cash, including proceeds from the 2025 Notes and 2026 Notes, 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. 51
Our treasury activities were as follows for the periods presented:
Year Ended December 31, 2021 2020 2019 (in thousands) Net cash provided by (used in): Operating activities
$ 79,081 $ (156,892) $ 29,955Investing activities (2,533) (12,657) (13,598) Financing activities 51,181 255,039 (32,817)
Net increase (decrease) in cash, cash equivalents and restricted cash
For a discussion and comparison of the years ended
December 31, 2020and 2019, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2020 Annual Report on Form 10-K filed with the SECon March 1, 2021.
Comparison of completed exercises
Cash flow from operating activities
The net cash provided by operating activities for the year ended
December 31, 2021was $79.1 million, which primarily resulted from our net loss of $139.1 million, adjusted for noncash charges primarily consisting of $50.0 millionloss on debt extinguishment, $47.5 millionstock-based compensation expense, $18.7 milliondepreciation and amortization, and $4.6 millionnoncash operating lease expense. Additional cash was provided by changes in working capital consisting of a $94.1 millionincrease in accounts payable to creators due to an increase in paid ticket volume and $14.8 millionother accrued liabilities, offset by $18.3 millioncash paid for refunds and chargebacks. The net cash used in operating activities of $156.9 millionfor the year ended December 31, 2020was due primarily to a net loss of $224.7 million, adjusted for noncash charges primarily consisting $61.0 millionprovision for chargebacks and refunds, $40.2 millionstock-based compensation expense, $22.6 milliondepreciation and amortization, $10.2 millionamortization of debt discount and issuance costs, $6.8 millionpayment in kind interest, $17.6 millionprovision for bad debt and creator advances, $12.3 millionimpairment charges relating to creator advances and creator signing fees, and $8.6 millionamortization of creator signing fees. Additionally, cash was used in changes to working capital consisting of a $116.7 milliondecrease in accounts payable to creators, $30.4 millioncash paid for refunds and chargebacks, offset by $44.1 millioncash from funds receivable.
Cash flow from investing activities
The net cash used in investing activities of
$2.5 millionfor the year ended December 31, 2021consisted of $1.5 millioncapitalized internal-use software development costs and $1.0 millionpurchases of property and equipment. The net cash used in investing activities of $12.7 millionfor the year ended December 31, 2020was due to $6.4 millionacquisition of ToneDen in November 2020, $4.6 millioncapitalized software development costs and $1.7 millionpurchases of property and equipment.
Cash flow from financing activities
The net cash provided by financing activities of
$51.2 millionduring the year ended December 31, 2021was primarily due to $207.0 millionproceeds from issuing the 2026 Notes, net of issuance costs, and $18.5 millionproceeds from the exercise of stock options, offset by $143.2 millionrepayment of term loans including prepayment premium, $18.5 millionpurchase of the 2026 Capped Calls in connection with the issuance of the 2026 Notes and $13.7 milliontaxes paid related to net share settlement of equity awards. The net cash used in financing activities of $255.0 millionduring the year ended December 31, 2020was primarily due to $256.1 millionproceeds from issuing the Initial Term Loans and 2025 Notes, net of issuance costs, and $19.3 millionproceeds from the exercise of stock options, partially offset by $15.6 millionpurchase of convertible notes capped calls in connection with the issuance of the 2025 Notes and $5.5 millionin taxes paid related to the net share settlement of equity awards. 52
Credit risk concentrations
December 31, 2021, one customer accounted for 11% of net accounts receivables. As of December 31, 2020there 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 years ended December 31, 2021and 2020.
Contractual obligations and commitments
Our principal commitments consist of obligations under the 2025 Notes and 2026 Notes (including principal and coupon interest), operating leases for office space, as well as non-cancellable purchase commitments. Refer to Note 11, "Commitments and Contingent Liabilities", of the Notes to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K for more details, including a table of our contractual obligations.
Significant Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States of America(GAAP). Use of Estimates In order to conform with GAAP, we are required to make certain estimates, judgments and assumptions when preparing our 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, chargebacks and refunds due to cancelled or postponed events, certain assumptions used in the valuation of equity awards, assumptions used in determining the fair value of business combinations, the allowance for credit losses, and indirect tax reserves. Due to the ongoing COVID-19 pandemic, there is uncertainty and significant disruption in the global economy and financial markets. We have had to make significant estimates in our consolidated financial statements, specifically related to chargebacks and refunds reserves due to cancelled or postponed events. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates and such differences could be material to our consolidated financial statements.
Chargeback and Refund Reserve
Critical estimates. The terms of our standard merchant agreement obligate creators to reimburse attendees who are entitled to refunds. We record estimates for refunds and chargebacks of our fees as contra-revenue. When we provide advance payouts, we assume risk that the event may be cancelled, fraudulent, or materially not as described, resulting in significant chargebacks and refund requests. If the creator is insolvent or has spent the proceeds of the ticket sales for event-related costs, we may not be able to recover our losses from these events, and such unrecoverable amounts could equal the value of the transaction or transactions settled to the creator prior to the event that is disputed, plus any associated chargeback fees not assumed by the creator. We record reserves for estimated advance payout losses as an operating expense classified within sales, marketing and support. Assumptions and judgment. Reserves are recorded based on our assessment of various factors, including the amounts paid and outstanding to creators in conjunction with the advance payout program, the nature of future events, the remaining time to event date, macro-economic conditions and current events, and actual chargeback and refund activity during the current year. Impact if actual results differ from assumptions. The chargebacks and refunds reserve was
$21.4 millionand $33.2 millionwhich primarily includes reserve balances for estimated advance payout losses of $18.5 millionand $29.5 millionas of December 31, 2021and 2020, respectively. The decrease in the reserve balance during the year ended December 31, 2021was the result of lower estimated losses from the advance payout program and estimated future refunds of fees, which were previously higher at the onset of the COVID-19 pandemic. Due to the nature of the COVID-19 situation, the limited data on losses attributed to COVID-19 impact across other industries, a high degree of uncertainty around the assumptions noted above including the outcome of events that are currently postponed or rescheduled and the remaining advance payouts balance, it is possible that the reserve will not be sufficient and our actual losses could be materially different from our current estimates. We will adjust our reserves in the future to reflect our best estimates of future outcomes. We cannot predict the outcome of or estimate the possible recovery or range of recovery from these matters. 53
Recovery of creator signing fees and creator advances
Critical estimates. We offer incentives such as creator signing fees and creator advances, which are intended to increase ticket sales and revenue. Creator signing fees are incentives that we offer and pay in order to secure exclusive ticketing and payment processing rights with certain creators. Creator advances are incentives that we offer, which provide the creator with funds in advance of the event. These are subsequently recovered by withholding amounts due to us from the sale of tickets for the event until the creator payment has been fully recovered. We record a reserve for creator signing fees and creator advances taking into consideration the recoverability of outstanding balances and changing facts and circumstances for each reporting period. Creator signing fees and creator advances are presented net of reserves on the consolidated balance sheets and were
$3.4 millionand $0.9 millionrespectively, as of December 31, 2021. Assumptions and judgment. Reserves are recorded based on management's assessment of various factors, including a creator's payment history, the rate and timing of recovery for outstanding advances, recent ticket sales activity, the frequency and size of historical and planned future events, and macro-economic conditions and current events that may impact a creator's ability to generate future ticket sales. As of December 31, 2021, reserves relating to creator signing fees and creator advances were $8.7 millionand $13.5 million, respectively. Impact if actual results differ from assumptions. Creator signing fees and creator advances are presented net of reserves on the consolidated balance sheets. In the event our reserve estimates differ from actuals, such amounts are not expected to have a material effect on our financial condition, results of operations or cash flows.
Critical estimates. We account for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values.
Goodwillrepresents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assets acquired, net of liabilities assumed. Such valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible assets, net consists of identifiable intangible assets such as developed technology, customer relationships, and trade names resulting from our acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated economic lives following the pattern in which the economic benefits of the assets will be consumed, which is straight-line. Acquired intangible assets are presented net of accumulated amortization in the consolidated balance sheets. Goodwillis not amortized but we evaluate goodwill impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate the goodwill may be impaired. We evaluate the recoverability of our acquired intangible assets for potential impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to the fair value. Assumptions and judgment. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology and trade names from a market participant perspective, useful lives and discount rates. Significant judgment and estimates are required in assessing impairment of long-lived assets, and goodwill including identifying whether events or changes in circumstances require an impairment assessment, estimating future cash flows, and determining appropriate discount rates. There was no impairment loss recorded on goodwill and acquired intangible assets for the years ended December 31, 2021and 2020. Impact if actual results differ from assumptions. As a result of the goodwill impairment assessment, management concluded goodwill was not impaired as of December 31, 2021and does not believe that its reporting unit is at risk of failing the impairment test since the fair value of the reporting unit substantially exceeded the carrying value. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Actual future operating results and the remaining economic lives of our intangible assets could differ from the estimates used in assessing the recoverability of these assets. These differences could result in impairment charges, which could have a material adverse impact on our results of operations. 54
Stock-based compensation expense
Critical estimates. We estimate the fair value of stock options granted using the Black-Scholes option pricing model. Determining the grant-date fair value of options using the Black-Scholes option-pricing model requires management to make assumptions and judgments. These estimates involve inherent uncertainties and, if different assumptions had been used, stock-based compensation expense could have been materially different from the amounts recorded. As we do not have sufficient historical stock price information to meet the expected life of the stock option grants, we use a blended volatility that includes our common stock trading history and supplements the remaining historical information with the trading history from the common stock of a set of comparable publicly-traded companies. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our stock price becomes available. The expected term of stock options granted has been determined using the simplified method, which uses the midpoint between the vesting date and the contractual term.
Compensation expense is recognized over the vesting period of the applicable award on a straight-line basis. We estimate lapses to calculate stock-based compensation expense.
Assumptions and judgment. Refer to Note 12, "Stockholders' Equity", of our Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for the range of assumptions used to estimate the fair value of stock options granted to employees. Impact if actual results differ from assumptions. Although we believe that our estimates and judgments are reasonable, actual results may differ from these estimates which could have a material adverse effect on our financial results.
Indirect tax reserves
Eventbriteis subject to indirect taxes such as sales and use, value-added tax, and goods and services tax in the U.S.and certain foreign jurisdictions. The evaluation of our indirect tax reserves involves significant judgment in the interpretation and application of GAAP and complex domestic and international tax laws. Assumptions and judgment. Reserves are adjusted considering changing facts and circumstances, such as the closing of a tax examination or the refinement of an estimate. We recognize losses from such reserves if it is estimable and probable that our position would not be sustainable upon examination by the taxing authorities. Impact if actual results differ from assumptions. Although management believes our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our reserves. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences could have a material impact on our consolidated financial statements.
Recent accounting pronouncements
See Note 2, “Significant Accounting Policies,” in our Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information.
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