Eventbrite Faces New Accounting Challenges as Coronavirus Clouds Projections of Future Refunds
The coronavirus pandemic is striking a blow to the event-ticketing industry as organizers cancel and postpone concerts and other performances to adhere to lockdown orders and social-distancing protocols.
Some events might not be rescheduled due to logistical or planning difficulties. That uncertainty poses an accounting challenge for San Francisco-based
which reported a 40% decline in net revenue to $49.1 million year-over-year in the first quarter.
The event-ticketing company records ticketing-services and payment-processing fees as revenue when customers purchase a ticket. It deducts from that amount both current refunds and an estimate of future refunds. If future refunds prove to be higher than anticipated, the company reduces revenue further down the line.
The company therefore had to make additional forecasts in order to prepare for forthcoming losses in revenue from the rise in refunds for canceled shows.
“It was easy to figure out what the actual refunded ticket fees were in the quarter,” finance chief Charles “Lanny” Baker said in an interview. “What took more judgment from an accounting and finance perspective was estimating the future rate of refunds.”
Eventbrite provides ticketing services mainly for events in the U.S. Of the events being rescheduled, it’s not clear how many will ultimately take place, due to uncertainty around the duration of the pandemic.
For the first quarter, the company deducted $19.1 million from its net revenue. The figure included about $8 million for refunded fees from the quarter alongside $11 million for provisions for anticipated future refunds, according to a shareholder letter on May 11.
Mr. Baker—who became CFO in September—said he realized the previous level of reserves for refunds was insufficient due to the higher level of refunds and event cancellations.
Historically, reserves have equated to an average of about 3% of the total balance of Eventbrite’s advance payout program, which provides organizers with funds ahead of their events, the company said in its shareholder letter. Eventbrite declined to provide further details on the assumptions used for past refund reserves.
The program’s balance was $293 million as of early May, according to the company’s latest quarterly filing.
To determine an estimate of refunds over the coming months, the company’s finance team looked at all tickets for events that haven’t happened or haven’t been canceled, Mr. Baker said.
Eventbrite also studied how event cancellations caused by recent natural disasters such as hurricanes Maria and Harvey in 2017 resulted in more refunds, albeit over a shorter window than the current pandemic.
The company looked at historical criteria such as date, category, location, venue size, ticket price and purchaser demographics to estimate the reserves that it should put for the period. That refund data figured into the calculation of estimated reserves. “It’s kind of an engine running in reverse,” Mr. Baker said.
To explain its estimates to investors, Eventbrite included a table at the end of its latest financial results that went line by line all the way down the income statement and broke out specific impacts of the pandemic related to the reserves.
“There’s a vast amount of uncertainty as to how much of those previously booked sales will come to fruition and it’s hard to adjust your business model accordingly,” said Brian Mittendorf, an accounting professor at Ohio State University.
Eventbrite last month took several actions to offset the decline in revenue. For example, the company, which Mr. Baker said employed about 1,200 workers before the pandemic, laid off 45% of its workforce and cut executive compensation. The company said it expects annual costs to come down by at least $100 million this year.
Eventbrite recently assigned some of its remaining sales employees to help process refunds, said Mr. Baker.
Write to Mark Maurer at email@example.com
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