Vivid Seats(SEAT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited condensed consolidated financial statements for Vivid Seats Inc. as of June 30, 2023, including balance sheets, statements of operations, and cash flows, are presented with accompanying notes Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and shareholders' deficit as of specific dates - Total assets increased to $1.32 billion as of June 30, 2023, from $1.15 billion at December 31, 2022, driven by increases in cash, receivables, and deferred tax assets[15] - A $99.0 million Tax Receivable Agreement liability was newly recorded in long-term liabilities as of June 30, 2023[15] Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $306,202 | $251,542 | | Total current assets | $427,793 | $331,516 | | Goodwill | $715,258 | $715,258 | | Deferred tax assets | $79,275 | $1,853 | | Total assets | $1,324,684 | $1,151,431 | | Liabilities & Shareholders' Deficit | | | | Accounts payable | $204,217 | $161,312 | | Total current liabilities | $429,075 | $378,015 | | Long-term debt – net | $263,873 | $264,898 | | Tax Receivable Agreement liability | $98,977 | $— | | Total Shareholders' deficit | ($293,333) | ($382,698) | Condensed Consolidated Statements of Operations Details the company's financial performance over specific periods, including revenues, expenses, and net income - For the three months ended June 30, 2023, revenues grew 12% year-over-year to $165.4 million, while net income attributable to Class A Common Stockholders surged 218% to $30.7 million, significantly boosted by a $24.5 million income tax benefit[17][137] - For the six months ended June 30, 2023, revenues increased by 17% year-over-year to $326.4 million, and net income grew 152% to $68.6 million[17][137] Key Operating Results (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $165,380 | $147,694 | $326,443 | $278,466 | | Income from operations | $17,613 | $17,927 | $51,123 | $31,647 | | Net income | $38,326 | $24,060 | $68,598 | $27,198 | | Net income attributable to Class A Common Stockholders | $30,712 | $9,655 | $42,894 | $10,914 | | Diluted EPS (Class A) | $0.20 | $0.12 | $0.35 | $0.14 | Condensed Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods - Net cash provided by operating activities significantly improved to $82.7 million for the first six months of 2023, compared to just $1.4 million in the same period of 2022, driven by higher net income and favorable changes in working capital, particularly accounts payable[26][170] - Net cash used in financing activities was $22.5 million in the first half of 2023, primarily for share repurchases and tax distributions, a sharp decrease from $196.3 million in the prior year period which included a major debt repayment and refinancing[26][173] Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $82,670 | $1,406 | | Net cash used in investing activities | ($5,583) | ($6,931) | | Net cash used in financing activities | ($22,503) | ($196,255) | | Net increase (decrease) in cash | $54,584 | ($201,780) | Notes to Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the condensed consolidated financial statements - The company operates through two reportable segments: Marketplace, which acts as an intermediary, and Resale, which acquires and resells tickets; for Q2 2023, Marketplace revenues were $139.2 million and Resale revenues were $26.2 million[28][36][38] - In connection with a Secondary Offering in Q2 2023, the company recorded a new liability of $99.0 million under its Tax Receivable Agreement, which provides for payments to existing Hoya Intermediate shareholders of 85% of certain tax savings realized by the company[85][90] - The company recorded a $24.5 million income tax benefit in Q2 2023, largely due to the release of a valuation allowance on its U.S. deferred tax assets, as management determined it is now more likely than not that these assets will be realized[86][88] - Subsequent to the quarter's end, the company agreed to acquire WD Holdings Co., Ltd., a Japanese online ticket marketplace, for approximately $77.2 million, with the transaction expected to close in Q3 2023[114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for the three and six months ended June 30, 2023, highlighting revenue growth, key business metrics, and liquidity position Overview and Key Business Metrics Provides an overview of the company's business model and presents key operational metrics driving financial performance - The company operates an online ticket marketplace connecting fans with ticket sellers, with business divided into Marketplace and Resale segments; the Taylor Swift "Eras" tour was noted as a significant driver of higher Marketplace GOV in the first half of 2023[118][119][127] Key Business Metrics (in thousands) | Metric | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Marketplace GOV | $953,739 | $814,817 | $1,809,267 | $1,556,955 | | Total Marketplace orders | 2,627 | 2,410 | 4,902 | 4,429 | | Total Resale orders | 76 | 67 | 163 | 135 | | Adjusted EBITDA | $31,077 | $30,329 | $73,512 | $51,341 | Results of Operations Analyzes the company's revenues, costs, and expenses, detailing the drivers behind changes in financial performance - Total revenues for Q2 2023 increased 12% YoY to $165.4 million, driven by a 7% increase in Marketplace revenue and a 48% increase in Resale revenue, attributed to higher order volume and average order size[138] - Marketplace revenue growth was led by Concerts (up 18% YoY) and Theater (up 31% YoY) categories in Q2 2023, while Sports revenue saw a 12% decline[140] - Cost of revenues increased 31% YoY in Q2 2023, outpacing revenue growth, primarily due to higher Marketplace GOV and increased Resale segment activity[148] - Marketing and selling expenses rose 10% YoY in Q2 2023, driven by greater spending on both online advertising and offline brand awareness campaigns[152] - General and administrative expenses increased 6% YoY in Q2 2023, mainly due to higher personnel expenses from increased employee headcount[153] Liquidity and Capital Resources Assesses the company's ability to meet its short-term and long-term financial obligations and fund its operations - The company's primary source of liquidity is cash from operations; as of June 30, 2023, the company held $306.2 million in cash and cash equivalents, considered sufficient to fund needs for the next 12 months[161][162] - The company's debt consists of the February 2022 First Lien Loan, with a balance of $271.6 million as of June 30, 2023, bearing a floating interest rate based on SOFR plus 3.25%; there were no outstanding borrowings under the $100.0 million Revolving Facility[54][163][164] - The $40.0 million share repurchase program was fully utilized during 2022 and Q1 2023, with no share repurchases made in Q2 2023[165] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk associated with its floating-rate long-term debt; the company does not currently hedge this exposure - The company's floating-rate debt exposes it to interest rate fluctuations; a hypothetical 1% change in interest rates would alter the annual interest expense by approximately $2.8 million ($1.4 million for six months) based on the outstanding debt as of June 30, 2023[178] Item 4. Controls and Procedures Management concluded that as of June 30, 2023, the company's disclosure controls and procedures were not effective due to a previously identified material weakness in internal control over financial reporting - A material weakness in internal control over financial reporting, first identified as of December 31, 2022, continues to exist as of June 30, 2023[184] - Remediation activities are underway, including hiring additional qualified personnel and implementing new controls and processes, but require more time to be fully implemented and tested for effectiveness[185] PART II. OTHER INFORMATION Presents additional required disclosures including legal proceedings, risk factors, and other miscellaneous information Item 1. Legal Proceedings The company is involved in various legal actions arising in the ordinary course of business, including settled class action lawsuits and an ongoing lawsuit regarding the Illinois Biometric Information Privacy Act - A settlement for a class action lawsuit related to COVID-19 cancellations received final court approval in January 2023, establishing a settlement pool of up to $2.5 million to be funded in 2023[76][188] - The company is defending a lawsuit related to an alleged violation of the Illinois Biometric Information Privacy Act, but is currently unable to reasonably estimate a possible loss[77][188] Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Form 10-K for the fiscal year ended December 31, 2022 - Investors are directed to the Risk Factors section of the 2022 Form 10-K, as no material changes have occurred since its filing[190] Other Part II Items Covers remaining disclosures including unregistered sales of equity securities, defaults on senior securities, and trading arrangements, concluding with a list of exhibits - No unregistered sales of equity securities or use of proceeds were reported for the period[192] - No directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2023[194]