Q3 2019 Earnings Call
Good afternoon my name is.
I will be a conference operator.
At this time I would like to welcome everyone to be at this.
Right.
Third quarter 2019 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
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Like turn call over to Kristen Johnson Senior corporate Counsel you may begin your conference.
Thank you operator, good afternoon, and welcome to the third quarter 29 piece is that right earnings call.
Prior to the Carlo we released our shareholder letter announcing our financial results.
It can be found on our website at <unk> dot event right dotcom.
Before we begin I'd like to remind you that during today's call, we will be making forward looking statements regarding future events and financial performance.
Leading providing our net revenue.
non-GAAP adjusted EBITDA outlook for the fourth quarter and full year of 20 right here.
We caution that such statements reflect our best judgment as of today November seven based on factors that are currently known <unk> and the 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 and our shareholder letter and our filings with the FCC.
We undertake no obligation to update any forward looking statements made during the call to reflect events or circumstances after today or to reflect new information, where 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 gap and have limitations as analytical tools and you should not consider them in isolation or a substitute for analysis of our results of operations as reported under GAAP.
Reconciliations to the most directly comparable GAAP financial measures are available in our shareholder letter.
We encourage you to read our shareholder letter as it contains important information about GAAP and non-GAAP results.
I will now turn call over to Julian Clarke co founder and Chief Executive Officer Trulia.
Thank you Kristen and welcome to our third quarter 2019 earnings Conference call.
I'm pleased to be joined on this call today by Lanny Baker, our recently appointed CFO .
I look forward to working closely with land and the rest of the executive team as we position about bright to take advantage of the large growth opportunity before us.
In September we completed our first year as a public company well we've had some learning experiences. We also made great strides in evolving our platform to serve our expanding creator base.
Since our IPO, we welcomed over 300001st time event bright creators and powered over 5 million events for more than 1 million total creators.
Over the last 12 months, we've added keep functionality to our platform grown our global roster of creators and increased our consumer engagement.
The third quarter was marked by several highlights we continued to make progress against our key strategic growth initiatives of increasing transactional volume and advancing our products and platform.
We generated better than expected financial results, which were driven by another quarter of 20% plus growth in our self sign on channel.
And we are executing a realignment plan to operate more efficiently and better support long term sustainable growth.
Our commitment to building a platform that enables the bank creators to run their business as efficiently as at the core of our company culture and strategy.
And our shareholder letter we featured the NASA jet propulsion lab, which uses a bump right to support their flagship event, where they invite the public to experience their latest developed technology and learn about Nasa's space program.
This year within 20 minutes of releasing their tickets to the public explore JPL issued over 36000 ticket.
But beyond relying on about bright to handle this heavy ticket demand. They also leverage our on site checking tools, which gave their employees easy access to scanning tickets from mobile devices at the event, that's making the attendee experience much easier.
Turning to our financial result, we're pleased with the continued strong performance of ourselves sign on channel, which had 23% growth and paid ticket volume.
Total company revenue of $82 million for the quarter grew 11% and was better than we expected for the period.
We continue to experience strong growth in our international markets led by the UK, Canada, Australia and Brazil.
Events outside the U.S. accounted for 37% of total paid tickets and 28% of net revenue in the quarter versus 35% and 24% respectively in the prior year.
Our adjusted <unk> adjusted EBITDA loss was in line with our expectation for the quarter and included $3.8 million and expenses related to resource realignment.
Additionally, we've made headway in strengthening our platform for high value creators, who operate that news promote shows and host frequent event.
Our platforms enhanced reserve seating functionality offers are robust and important solution for many of our music client.
We also launched a new ticket pricing tool that Leverages machine learning and real time data driven insights, which enable creators to price their tickets more intelligently and maximize their ticket sales.
With nearly wrapped up the migration of ticketfly customers to that freight music as planned we continued to be focused on earning the royalty interest of these new customers.
Our strong cash generation in the quarter enabled us to repay the debt associated with the Ticketfly acquisition, reducing further interest expense and putting us in a debt free position.
In summary, we made good progress on executing our plan during the first nine months of the year, we remain optimistic about or growth prospects and believe we have a terrific opportunity to build on our leadership position in the ticketing and events Midmarket.
We appreciate the dedication and hard work of our employees around the globe and the support of our shareholders. During our first year as a public company.
With that I'll now turn the call over Delaney.
Thanks, Julien, it's a privilege to participate in today's call and I'm excited to be part of this team.
Leave it up right has established itself as a global leader in the live events market and I see tremendous potential to expand the company's cousins and its value in the years ahead.
The strikes and simplicity of our business enablement platform brings in thousands of new about creators each month and our large unhealthy self sign on business speaks to both the demand for what we do as well as the appeal of up rights ever evolving solution.
We covered the third quarter financial results in detail in our shareholder letter. So I'll just provide some quick housekeeping items, and then turn to discuss the outlook for the fourth quarter and full year.
As Joe noted revenue grew 11% year to year in the third quarter $282 million. It was led by the self sign on channel gross profit grew 16% year to year to $49 million and gross margins rose by two points year to year.
Operating expenses as reported grew 30% year to year to 72 million into corridor.
However, there were a number of unusual items in the quarter and in the comparison to last year.
Adjusting for these items that all describing a moment ongoing operating expenses were down roughly 1% year to year end equaled 78% revenue in the third quarter of 2019 versus an adjusted 88% of revenue in the third quarter a year ago.
The referenced adjustments include first we paid out 4 million in consumer refunds in July 2019 related to the rocks to this music festival that was canceled by its creator.
This expense was recorded within sales and marketing.
We are pursuing an aggressive legal strategy to recoup our costs and have recently received a preliminary injunction in our favor.
Second we incurred 3.8 million in expenses directly related to our realignment initiatives during the third quarter of 2019.
This was recorded within general and administrative.
These costs and another two to 3 million that we expect to incur in the fourth quarter include consulting sovereign and reorganization costs related to centralizing operations in Europe shifting more of our resources into our best cost locations and reducing spending in administrative functions, we plan to reinvest.
Most of the efficiencies associated with these changes to propel long term growth.
Finally in a year ago corridor, we recorded 9.3 million and nonrecurring expense benefits related to the reversal of sales tax accruals and insurance recoveries.
These items were recorded on the G.N. a line in the third quarter of 28 team.
We sure. These details in order to help investors better understand not only our reported results, but also the underlying trends in expenses and profitability within our business.
Turning to our business outlook for the fourth quarter and full year.
This is out what provided today anticipates fourth quarter revenue of $75 million to $79 million and full year 2019 revenue of 319, the $323 million.
The outlook for the fourth quarter and full year revenue includes measured expectations for the growth of music sales in the near term.
Although we have substantially completed the migration of all ticket board customers and we saw an improvement in music revenue growth in the third quarter of two throughout 2019, we're cautious about the outlook for certain newly migrated creators or product marketing sales and service organizations or all aligned on the priority burning these creators oil.
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Turning to adjusted EBITDA, the business outlook anticipates negative 4 million to breakeven and adjusted EBITDA for the fourth quarter.
A negative 5 million to negative 1 million for the full year of 2019.
We anticipate two to 3 million in expenses in the fourth quarter related to severance and realignment.
And these expenses are included in the adjusted EBITDA outlook.
Summing up we had a strong third quarter, and we're well positioned going into 2020.
Or so so channel continues to grow strongly based on the organic appeal of our platform.
We passed a major milestone in the music migration and are focusing on projecting our strength in the mid market in the U.S. and beyond.
Our balance sheet remains strong with 186 million in available liquidity and no debt.
We are enthusiastic about the opportunity ahead, and we're now ready to take your questions.
[laughter].
To ask a question. Please press star one on your telephone keypad.
Our first question comes from the line of why in fine be from William Blair.
I guess just to start last quarter or something like and Q2 churn was less than expected, but but that was likely to show up in Q3, just wonder if you could talk about how that played out and then as we look forward into Q4, how should we think about churn out.
<unk> deal was that that would be the biggest impact in Q4, and then how does that play out between 23.
Sure Ryan I assume you're talking about a customer retention and the music category, which is kinda been the primary area of focus and assuming that that's that's a drastic about or retention during the during the third quarter and throughout this year as we migrated has been roughly in line with our expectations as we as we described.
Because we look into the fourth quarter, we have a cautious outlook about retention in the in the very near term.
There's a large number of.
Tickets like customers that have been migrated over to the event by platform just in the last couple of months Oh, we're hard at work and earning those creators loyalty as they establish themselves on this new platform. It's a big change for many of these creators to switch from one platform to another we've done very well with prior transitions and migrations, but we're calling that out as a as a.
Something to be cautious about in the fourth quarter.
But then as you kind of get through the fourth quarter do you see potential more losses coming in 2020 or is that coming and the the ticket fight track at that point.
Right and I can jump in here you know when we look forward, we're focusing on the total music landscape in the Midmarket and that includes the global opportunity that we had so not only are we deeply committed to helping these customers that have transitioned onto the platform really find their footing.
Reap the benefit of the event bright platform scale and functionality.
We're also looking toward how we can use the work that we've done to create this migration success and expand our market into other growth markets, where we already exist and we're already in front of music customers.
I guess just to follow up there Julia.
In terms of that the I mean, clearly you've got a lot of functionality here. This year any feedback from customers that maybe electrical there and the transition process that that maybe would be tempted to come back not that you have some that functionality and then second.
As you add all this functionality, especially on the high event creation side are you starting to see the event platform show up in other and categories that maybe you didn't expect just love to your color there.
Right. So when we we.
He did a feedback loop with these customers that has been incredibly for informative for us as Weve added capability and strengthened our features that meet the needs of these frequent event creator so I think.
You know years Youre, a comparison of these music customers to highly frequent creators is quite astute and cracked when we look at what we're developing for Ticketfly customers are folks who came from Ticketfly and the work we've been doing in the music category. It absolutely transfers to other categories and two international markets. We are.
Absolutely believe that will be winning back customers over time, but that will take time and we're focused right now on engendering that trust and loyalty that is so important with these venue customers and helping them grow their businesses. So that they see the benefit of the event bright platform and.
From there and we'll take steps to continue to expand.
Okay, great ill jump back in the queue. Thanks.
To ask a question. Please press star one on your telephone keypad.
Your next question comes from the line of Youssef Squali, what's Suntrust.
Hi. This is named Mitchell on for you said, Thank you for taking my question, just maybe turning back to.
The migration.
Are you able to quantify for us the approximate annual revenues ticket flies larger customers. The ones that you referenced that then the letter.
And is there anything specific that's driving the related caution in your outlook since it doesn't seem like you've seen much turned to date.
No. There's nothing specific you know I think that it is prudent having as I described we've we've brought these customers through a transformation transition in a really important operating system for their business and ER and where we're trying to be express our caution about the retention those customers in the.
Our near term in terms of quantifying that percentage or the vast majority of the migration of ticket fly customers happened well before the third quarter up 2019. So it's relatively small cut number of customers, who we're talking about that that were migrated <unk> in the last part of this.
For this year.
[noise] small number of customers, but revenue wise.
They weigh more though now.
So that's that's accurate there were larger customers who migrated later.
Okay.
But you're not being not quantifying.
The annual run rate up those customers are.
That's correct.
Okay.
And then maybe turning to to cellphone continues to be really strong.
Help us understand specifically, what's going on with international and so fun on a 30% pay ticket. It can you give us a sense of how big International is as a percentage of cell site on even if it's.
Directionally as to the whole or any any color there would be really helpful.
Sure. So sell sign on is our core business and that says you know would be if I'm right platform mission is to really drive enablement through the cell sign on channel Oh, we solved as you mentioned strong growth in international pay tickets through self sign on a 30% and really that is.
A nod toward where you know our our product works to meet the needs of many different types of creators across the horizontal platform. Our focus is on penetrating these markets.
With sustainable growth methods and delivering the value of helping a bank creators efficiently set up there then helping them sell more tickets and then expanding the revenue opportunity that they have for these events and I think what we're seeing in the growth numbers is the greenfield opportunity that we have outside.
Did the U.S.
Particularly in our in our stronger growth markets that we mentioned, where there really isn't a lot of formidable competition and the event bright brand is starting to really permeate those markets as we focus on delivering a great product.
And in terms of in terms of quantifying it as we.
As I said and you can see some exhibits in the shareholder letter the self signed on is roughly half of our paid ticket volume in our overseas markets. We have some markets, where it's larger than that some markets, where it's about that percentage. So it's a little bit larger in the international business, but it's not appreciably different.
Okay. Thank you.
Your next question comes from the line of why in [laughter] signed <unk> with William Blair again.
I don't know Julie or linear I'm, not sure, who who did some it's too, but any kind of implications or or thoughts on once the relationship with square and kind of how that it's going to move forward and if if if their side you know.
How your process is going to go I guess after that that's great. Thanks.
Sure. Thank you square is and has been a great partner to us and we'll look for opportunities to integrate the square solutions for into our platform for our creators benefit and you know that day I guess positive news our front is that we partner with many different payment processing.
Platforms and have done so for.
A very long time, and so we have many options and that the benefit of that righty to offer to our customers and that's really important to us as we continue to glut Ted scale globally and meet the needs of different creators in different markets.
That's good here thanks.
Thanks.
Your next question comes from the line of Youssef Squali from Suntrust.
Hi. This is made on for use of again, maybe just one more on on add ons can you maybe speak to the the uptake of the product this past quarter and how investors should be thinking about a contribution to the top line.
Year to year three years that'd be helpful. Thank you.
Thanks, So add ons is the ability for any of that create or to sell something beyond a ticket on their event Mustang. So you can imagine parking merchandise upselling opportunities and this is really important to our van creators because it helps them capture more revenue from an event and so we.
Seen some really nice adoption from this feature and are both channels and sell sign on and sales and while we're not reporting the specific numbers. Yet you know what we see is a clear indication that when we add these adjacent functionalities to that ticketing product. It really helps open up not only.
The more revenue like greater efficiency for event creators because they don't have to use another solution or integrated solution to be able to sell more hi, merchandise or or experiences around the ticket and so oh, yeah, we'll be watching it closely and continue to high.
Refine that with our then creators feedback, but so far so good.
Thanks.
[laughter], we have no further questions at this time I will night I would like to turn the call over to Julio Hearts for closing remarks.
Great I wanted to thank everyone for their participation on the call today and your interest in event right and I also want to thank our employees again for their hard work and commitment.
Great day.
Thank you.
[laughter].