Mar 7, 2019
Operator
Good afternoon. My name is Chris, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Eventbrite, Inc. Fourth Quarter and Full Year 2018 Earnings Conference Call.
[Operator Instructions] Thank you. Stacey Friedman, you may begin the conference.
Stacey Friedman
Thank you, Operator. Good afternoon and welcome to the fourth quarter and full year 2018 Eventbrite earnings call.
Prior to this call, we released our shareholder letter announcing our financial results. It can be found on our website at investor.eventbrite.com.
Before we begin, I would like to remind you that during today's call we will be making forward-looking statements regarding future events and financial performance, including providing net revenue and non-GAAP adjusted EBITDA guidance for the fourth quarter of 2019. We caution that such statements reflect our best judgment as of today March 07, based on factors that are currently known to us and that actual future events or results could differ materially due to several factors, many of which are beyond our control.
For a more detailed discussion of the risks and uncertainties affecting our future results, we refer you to the Section titled Forward-Looking Statements in our shareholder letter and our filings with the SEC. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events except as required by law.
During this call, we will present adjusted EBITDA and free cash flow, both of which are non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP and have limitation at analytical tools and you should not consider them in isolation or as substitute for analysis of our results or operations as reported under GAAP.
Reconciliation to the most directly comparable GAAP financial measures are available in our shareholder letter. We encourage you to read our shareholder letter as they contains important information about GAAP and non-GAAP results.
And now I will turn the call over to Julia Hartz, Co-Founder and Chief Executive Officer. Julia?
Julia Hartz
Thank you, Stacy, and thank you all for joining us. 2018 was a year of heavy lifting and high achievement at Eventbrite.
I am proud of the work that the team did particularly around strengthening the platform to serve our event creators and consumers needs. In 2018, we saw significant progress against our strategy.
In the self sign-on acquisition channel, we took steps in the second half to drive volume growth through country launches and product capability expansion. Our two international acquisitions strengthen our focus on building global development teams, and accelerate our ability to deliver product and platform solutions.
Additionally, we have integrated more than 50 distribution partners that are enabled by our API's underscoring our focus on platform extensibility. And in music, we are migrating our global business on to one single platform.
To this end we made measurable progress on the Ticketfly integration and sunset, the Ticketscript platform. We also launched Eventbrite Music, a solution specifically tailored for independent music venues and promoters.
Each of these deliberate choices is about doing the hard work to grow the business in the right way. For example our strategy is to have affordable pricing that encourages creator adoption and consumer satisfaction rather than use price to drive near term revenue growth.
Our focus remains on building a business that will serve millions of creators a decade from now and our decisions are focused on this goalpost. Nowhere is this more evident than our Ticketfly acquisition.
This is the largest acquisition we've completed to date adding a significant amount to our revenue base. Rather than deciding to operate the Ticketfly platform on its own, we made the decision to integrate Ticketfly onto the Eventbrite platform thus delivering the full power of both to independent music venues and promoters.
This strategy also requires an intensive process where our team focuses on migrating existing customers, as well as building platform enhancements. While this strategy will impact revenues in the short-term as seen in our Q1 guidance, in the long-term we believe building the leading global independent music platform will maximize our revenue and allow for meaningful innovation.
We believe the work we are undertaking this year to bring our North American music business onto a single global platform will pay off for many years to come. In 2019, it's important for us to balance this migration work with our goal of enabling more creators globally to successfully sell more tickets.
To do this in 2019, we will focus on transactional volume growth, product innovation and platform extension. One example of how we are executing against this goal is in our recent investment in global expansion.
So far this year, we launched in two fast growing markets Mexico and Singapore. Investing internationally allows us to better serve creators like the Singapore American School highlighted on the cover of our shareholder letter.
Similar to our own values at Eventbrite, the school encourages students to explore, take risks, innovate, be creative and choose excellence. Since joining Eventbrite in 2017, they have processed more than 6,000 tickets and sold out nearly every show in advance.
Our platform approach will also be key to driving growth this year. We specifically built the Eventbrite platform to be modular and extensible leveraging a next generation cloud native architecture.
These characteristics benefit our business in multiple ways. As noted in our letter, our native checkout capability not only powers are distribution partnership, it also enables creators to sell tickets seamlessly on their own websites and apps.
The experience of Golden Gate Restaurant Association, a local San Francisco creator demonstrates the power of native checkout. Eventbrite powers their annual flagship event, Eat Drink SF.
Not only do they rely on our native distribution capabilities but they also use native checkout powered by Eventbrite on their own official website. Combined these Eventbrite capabilities accounted for 43% of their tickets in 2018.
To summarize, our 2018 performance sets the stage for strong momentum in 2018 and beyond. Our vision is to spark human connection by powering the global platform for live experiences.
In 2019, we are focused on the following; scaling the ticketing business, building a leading solution for independent music, and launching in new markets around the world. With that I will turn the call over to our CFO, Randy Befumo to briefly discuss our financial results and outlook before turning to your questions.
Randy?
Randy Befumo
Thank you, Julia. As a reminder the full details of our results are available in our shareholder letter.
I will now briefly touch on the financial highlights for the fourth quarter, as well as our expectations for the first quarter of 2019. Unless otherwise noted all comparisons will be on a year-over-year basis.
Net revenue grew to $76 million in the fourth quarter up 21% reflecting strong growth on the Eventbrite platform specifically self sign-on an international mitigated by migration challenges in the North American music business. Adjusted EBITDA was $7.3 million in the fourth quarter, a $7.8 million improvement over the same period in the prior year.
These results reflect our ability to scale our business without requiring significant cost increases within an incremental adjusted EBITDA margin of 59% in the quarter. It is this powerful leverage that ensures we can continue to aggressively fund growth initiatives while moving toward our goal of GAAP, EBITDA breakeven.
For the first quarter, we expect net revenue in the range of $80 million to $84 million representing 10% year-over-year growth at the midpoint. At the highest level, this number is likely surprising to many of you given our 21% growth in the fourth quarter.
Beneath this number is strong growth in self sign-on in international, we have seen 20% plus ticket volume growth quarter to-date and strong uptakes of our solutions business in the sales unit. I encourage you to think about the components of our business, as well the aggregate revenues when considering both current and future performance.
Our financial scale at close to 300 million of revenues in 2018 allows us to reinvest more in the business to drive growth, spending on product development to fuel innovation, extending our lead over our competitors. This is our long-term strategy.
For the first quarter, we expect adjusted EBITDA to be in the range of $4 million to $8 million representing a 7.3% adjusted EBITDA margin at the midpoint. Of note, this does not include the impact of taxes related to option exercises we anticipate in the fourth quarter when the lockup expires.
We deem this a non-recurring effect and plan to back it out of adjusted EBITDA. We expect our margins in the first quarter to be in line with 2018 because we're focusing on continuing to grow our product development investment while, we are developing against our global platform to create advanced event management capabilities.
Further in the short-term, additional costs related to acquire platforms weight on our margins. In the long-term, we expect to see significant operating leverage in numerous areas including general and administrative expenses offset by continued investment in product development.
Two final notes for those building models. First, this guidance assumes normal seasonal trends.
As a reminder, we have more events on sale then paying out in the first and third quarters and so generate more cash flow. Additionally, we have more events being paid out rather than on sale in the second and fourth quarters which have the opposite effects.
Second, as of the end of the quarter, our fully diluted share count was 78.242 million shares. Because the company is operating in a net loss from a GAAP standpoint fully diluted shares are equal to basic shares.
If we were in a profit position, we would include approximately 16.5 million shares from in the money options and restricted stock units, bringing total shares outstanding to around 95 million. We hope these points are helpful in thinking about our business and our opportunity.
With that, we will open the call to questions. Operator?
Operator
[Operator Instructions] Your first question is from Heath Terry with Goldman Sachs. Your line is open.
Heath Terry
Julia, wondering if you could just give us a bit of an update on the adoption that you're seeing within Eventbrite Music, realize it's still early on and there's a lot of transition there. But just, what kind of - what you're trying to get out of the combination of the platform and what from a product capability that gives you?
And then Randy, as we think about that 10% number in Q1, I know you give a little bit of a breakdown but to the extent that there's a better way to look at sort of the core growth within Eventbrite, whether it's just the eventbrite.com revenues or another way that you could frame that? That would be helpful.
Julia Hartz
So, in terms of Eventbrite Music, as you know, we launched our independent music and promoter solution in the fourth quarter of last year. And anecdotally what we're seeing in both the existing Eventbrite Music customers, as well as the migrated Ticketfly music customers is a very strong growth.
So we're happy about what we're seeing in terms of those who have adopted the solution, and the qualitative feedback is strong. The benefit of the feedback loop as we're continuing to make product enhancements to fit the needs of the music clients that are still on the legacy Ticketfly platform is beneficial to us.
We expect that we'll be completed with that product enhancement work in the second quarter of this year. And that really puts us into the second-half of 2019 as we think about completing our integration work, as well as sun setting to Ticketfly platform.
So I'd say there's two tracks as you astutely pointed out, which is, the overall growth of Eventbrite Music, thanks to this new solution and we're very happy with the results we're seeing there. And then on the migration side, we're taking a very methodical approach.
So, as we've begun to understand these music client needs better, we understand that they have high volume businesses that are impacted by seasonal trends and there are certain moments in the year that is more convenient for them to be able to migrate to the Eventbrite platform, and we're being mindful about that. We're working with them hand-in-hand to make sure that their migration is successful, and they don't skip a beat in growing their business.
Randy Befumo
To your question, how to dimensionalize or think about the 10% revenue growth in the first quarter, I'm going to - I guess emphasize part of the prepared remarks and try to give some context around that. So, as you know as you look at our business, we have this wonderful channel where customers sign themselves up.
At the time of the offering it was 54%, it's been growing faster than sales channel and so it's grown since then. That quarter-to-date we're seeing along with international 20% plus volume growth.
And so for us because we're not capturing material price in Q1, volume growth is consistent with revenue growth, which is why we included the supplemental one-time disclosure. You can imagine then the rest of the business North American music which we've been talking about in sales is growing below that rate.
North American music, the story really there and our learning in the migration process is that if you're timing your activities to align with the creators, it requires some patience. And if you have a team that you're asking to focus on those creators first and foremost, there's growth consequences, they just aren't spending as much time growing the business.
And so what we're seeing right now in North American music is relatively modest growth because the team is focused on doing the right thing by the creators on the platform. We believe that as we exit this period, we will see much better growth rates and have already had inclinations of what this will be like because we are winning customers who were never on a Eventbrite Ticketfly start with and that growth rate is very promising.
In addition, as Julia mentioned, this is a product that we can take globally and many of the capabilities we're building for venues extend well beyond music venues into a variety of other areas. Lastly, our North American sales business by reduction you could imagine is somewhere between the two and that's where if you take all of that together, you come up with the 10% at the midpoint.
Operator
Your next question is from Mark Mahaney with RBC Capital Markets. Your line is open.
Shweta Khajuria
This is Shweta for Mark. You called out three things for growth.
One is volume, second is product, and third is platform extension. Can you talk a little bit more about - you touched upon international markets in your prepared remarks.
Can you talk a little bit more about that? So my question is, how much have you deployed in EPP?
You call that out in your letter in terms of your international market and is that your primary strategy for international markets or is it more than just payments in EPP expansion? And second is on platform extension, what did you mean by that?
Julia Hartz
So, in terms of our international markets, we have primarily taken the strategy of deploying EPP to these new - or to these emerging markets rather. When we look at our global business, we've consistently sold tickets in over 170 countries year-over-year consistently.
And so, for instance, in Singapore, since inception we've powered over 90,000 events and almost 5 million tickets. So, what that does for us when we localize, it gives us the benefit of the customer data to understand where the platform is being used organically, as well as consumer preferred payment methods that we may not currently offer on our platform.
So through our payment service or as you call that EPP, we're able to localize for consumer preferred payment methods. One example of that is in our Mexico launch, we're introducing the capability for consumers to pay in cash for their event tickets at OXXO convenient stores.
And that's fully enabled by our platform. So, that should give you an idea of how we're thinking about localizing payments, which is really the next step for us.
First, we have the organic adoption of the platform, then we localize our payment methods. And for us, really in this stage for Mexico and Singapore, we're also localizing our content on the local TLV.
So, we're creating that experience where our creators can learn more about Eventbrite in their local language, and consumers are being marketed to as well in a localized format.
Randy Befumo
Shweta, on the platform extension front, what we mean is that as highlighted in the shareholder letters, capabilities like our native purchase flow were essentially we allow third-parties to use the payment processing technology we have built in a variety of ways, we believe has a positive impact of growth, in this case because of the introduction of incremental demand. Not all of our platform capabilities drive incremental demand but what our modular extensible architecture allows us to do is take something we've already built and put it into new different context without having to rebuild it.
And even more importantly, allowing third-parties to use the same underlying technology to solve their challenges which we believe ultimately helps Eventbrite as an ecosystem, grow even larger. Hopefully that helps you on the platform extension front.
Operator
Your next question is from Youssef Squali with SunTrust. Your line is open.
Youssef Squali
Couple of questions. Going back to the Q1 guide, Randy, I was just wondering if you can just help us understand the speed with which the integration and migration of Ticketfly has been going relative to your own expectations and how that has played maybe a role in maybe slowing the growth rate assuming that's going to reaccelerate after Q2?
And then G&A saw a big step up in spend in Q4. I was just wondering what the drivers there were and how do you see that trending throughout 2019?
Randy Befumo
On the first front, how has Ticketfly impacted our growth rates and what have we seen relative to our expectation? As Julia mentioned in the prepared remarks it’s the largest acquisition we've done to-date and what we've learned along the way is that serving creators in this migration context takes time.
It takes a deliberate approach because your odds of maintaining the creator and their trust are heightened if you are migrating along a timeline to make sense for their business. And so, we certainly relative to where we were talking over the summer of last year have taken longer than we planned, but we believe we’re doing the right thing by both the creator and in service to the long-term business.
Certainly, we could run it as a side platform not capture any synergies and have better growth optics, but we believe that would fragment our development capability and dramatically reduce the rate of innovation of Eventbrite which we believe is the most critical strategic considerations for our business. As it relates to G&A while in some ways there was a step up - at least as I look at it in the fourth quarter G&A actually was down 2.7% year-over-year, and fell almost 700 basis points year-over-year to 31.4% of revenues.
As again we’ve talked about in the past there's a lot that’s going on in G&A a big part of that is our resolution of sales tax and the appropriate way for us to collect it with the various state and local authorities. As you'll see from the 10-Q when you get to dig into it, we've made a lot of progress on that front and we believe that that progress will manifest in part in G&A scaling in the next year or two.
Does that that address your questions
Youssef Squali
Yes, it does, And then maybe just very quick, the insurance recovery I think you guys had recorded a 3.1 million where was that recorded was that recording revenue?
Randy Befumo
The contra expense in G&A though it's basically a negative expense in G&A is the way we've learned insurance recoveries work from a GAAP accounting standpoint. Keep in mind that gain is basically offsetting the contra revenue we had in the second quarter of last year.
Operator
Your next question is from Doug Anmuth with JPMorgan. Your line is open.
Unidentified Analyst
This is [indiscernible] thanks for taking the questions. A follow up on your dual key priorities in 2019, I think you gave good example of what you did in 2018.
But could you talk a little bit more about the areas where you see opportunities and are most excited about in 2019. And then on your localization strategy Singapore and Mexico why now and what made these markets unique to get a localized platform and could help us understand what characteristic you look for in the markets where you'll launch localized platforms?
Julia Hartz
Absolutely, thank you for the questions. So when we look forward to 2019, I personally and particularly excited about our market expansion and I’ll talk more about the unique opportunities we look for in our market expansion in a minute.
I’m also excited to continue to lean into the durable growth that our self sign-on creates. I think that Eventbrite is uniquely positioned to serve the needs of many different creators on one platform.
And so when we look at our community of creators of almost 800,000 and selling tickets to almost 4 million events, I think the Eventbrite self sign-on capability and our self-service platform will continue to compound in strength over the years to come. And finally, I'm also excited in 2019 for us to continue to bring to the music market a unique platform to meet the independent music venue and promoter needs.
We are I believe the largest independent music platform and we’ll continue to grow in strength as we turn our attention from North America growth also to our global markets. And then finally, I would say that we have an opportunity to bring to event creators in every category non-ticketing solutions that help them grow their businesses faster.
And you'll see in our 10-K that we’re making a considerable investment of almost $18 million in the last year towards these solutions. And as we continue to ideate and validate and finally bring these solutions to the market that will continue to help us compound not only the value that we give our creators, but also our revenue growth.
On Singapore and Mexico in particular, these are two new markets that we've launched recently with plans to continue to expand into more markets. When we look at the data that we have captured on our platform again by serving these countries in a non-localized manner organically over the last several years, we’re able to understand the patterns of that organic adoption as it relates to specific categories as well as creators.
When we go in and we gather deep creator data from qualitative feedback, we’re also able to understand the capability needs of those creators. So we look at the viability to meet those needs successfully, as well as the viability of localizing payment message for consumers and we also take into account of course GDP and population growth.
Both in Singapore and Mexico are quite different in those respects by population both have really strong secular life experience growth that we believe in the mid market specifically presents a unique opportunity for Eventbrite. So when we look across the matrix of how we rank our next market expansion opportunities, those are some of the factors that we take into consideration.
And I think we also benefit from the data that we've collected from past usage of our platform in those countries.
Operator
Your next question is from Scott Devitt with Stifel. Your line is open.
Scott Devitt
Two questions, the first one is I don’t want to ask something that’s already been answered. But just following up on localization, you generate 30% of revenue from international and I was wondering if you could just talk more broadly about how many of the international markets that you're serving are localized and how to think about localization as a factor in terms of driving growth when you transition a market to localize.
And then secondly, Eventbrite is licensing software to some other ticketing platform, I think recently announced a deal with Goldstar and I'm just wondering how big of an initiative the licensing is for the company? Thank you.
Julia Hartz
So the follow up question on localization prior to our two new market launches we had offered 18 markets localized solutions and payments and content. And so this is measureable growth upon those existing markets and again we’ll continue to look to expand to new markets this year and beyond.
For us this is the next step in localization and look that growth will compound over time. It will take a couple of quarters to see the ramp in terms of net revenue growth.
And we will look for signals in which we can continue to strengthen our go-to-market approach. As a brief refresher, especially our self sign-on channel which is what we we’re really optimizing in these new market launches today grows by largely word-of-mouth [SEO] and our unique content that we create and house that drives creator awareness.
So we expect to see those tactics produce measurable results for us and are fairly low hanging fruit in terms of effort to result.
Randy Befumo
On the Goldstar front just to be clear Goldstar is a wonderful platform that helps creators drive incremental demand, serving roughly 5,000 creators in the United States. Jim and Robert are the cofounders who built a platform that helps those creators find both full price and discount incremental demand for their events.
Many of those creators are midmarket creators who sometimes are in need of a new ticketing solution. And what our deal is struck on in this dimension is really to create a way if they find a creator who they think would be well served and successful on Eventbrite for us to be able to bring that creator on new Eventbrite to benefit from the deeper and more connected integration Eventbrite has with Goldstar than many of their other alternatives in the market.
We also work with Goldstar and distribution and some other front so it's a multifaceted relationship, and I look forward to growing with them for many years to come. We aren't licensing software to them directly however, and generally have not taken a licensing approach to software.
We have a platform that allows others to build on what we've built and are certainly thinking about different ways to benefit from that platform over time. For instance in Argentina, we have a large customer called Autoentrada that has been using Eventbrite to handle online sales while they use their legacy system to handle off-line sales in retail and at the box office.
We see many encumbered systems not necessarily as competitors, but potential partners who can benefit from different components of Eventbrite and look forward to updating you and this effort as time goes on.
Operator
And there no further questions at this time. I would now like to turn the call back over to Julia Hartz for closing remarks.
Julia Hartz
Thank you all for your participation in today’s call.
Operator
Thank you.