Vivid Seats(SEAT) - 2023 Q3 - Quarterly Report

Forward-Looking Statements This section outlines the forward-looking statements contained in the report, emphasizing that they are based on current expectations and are subject to risks and uncertainties Forward-Looking Statements This section outlines the forward-looking statements contained in the report, emphasizing that they are based on current expectations and are subject to risks and uncertainties - Forward-looking statements are based on current expectations and projections, but are not guarantees of future performance and are subject to difficult-to-predict risks, uncertainties, and assumptions[9] - Key topics for forward-looking statements include future financial performance, ability to raise financing, success in retaining key personnel, ability to pay dividends, and factors related to business operations like competition, customer relationships, platform improvement, economic conditions, acquisitions, regulatory compliance, litigation, cybersecurity, and pandemics[10] PART I. FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, deficit, and cash flows, along with detailed notes - Total assets increased by 20.3% to $1,385,076 thousand at September 30, 2023, from $1,151,431 thousand at December 31, 2022, driven by increases in current assets, intangible assets, and goodwill[16] - Net cash provided by operating activities for the nine months ended September 30, 2023, was $114,386 thousand, a substantial increase from $1,389 thousand in the prior year, primarily due to higher net income and changes in operating assets[28][194] - The company acquired Wavedash for approximately $74.3 million and invested $6.0 million in a privately held company during the nine months ended September 30, 2023[34][57] Condensed Consolidated Balance Sheets This section provides a summary of the company's financial position, highlighting changes in total assets, liabilities, and shareholders' deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | Change | % Change | | :-------------------------------- | -----------: | -----------: | -------: | --------: | | Total Assets | $1,385,076 | $1,151,431 | $233,645 | 20.3% | | Total Current Assets | $405,503 | $331,516 | $73,987 | 22.3% | | Goodwill | $759,971 | $715,258 | $44,713 | 6.3% | | Total Liabilities | $864,648 | $671,269 | $193,379 | 28.8% | | Tax Receivable Agreement liability | $98,977 | $0 | $98,977 | N/A | | Shareholders' Deficit | $(120,289) | $(382,698) | $262,409 | 68.6% | Condensed Consolidated Statements of Operations This section presents the company's financial performance, detailing revenues, income from operations, and net income for the periods presented Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Revenues | $188,133 | $156,818 | $514,576 | $435,284 | | Income from operations | $20,119 | $21,701 | $71,242 | $53,348 | | Net income | $16,018 | $18,747 | $84,616 | $45,945 | | Net income attributable to Class A Common Stockholders | $6,677 | $7,663 | $49,571 | $18,577 | | Basic EPS | $0.07 | $0.09 | $0.57 | $0.23 | | Diluted EPS | $0.07 | $0.09 | $0.43 | $0.23 | - Income tax expense for the three months ended September 30, 2023, was $2,595 thousand, a significant increase from $118 thousand in the prior year, contributing to the decrease in net income[19] Condensed Consolidated Statements of Comprehensive Income This section outlines the company's comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------------------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Net income | $16,018 | $18,747 | $84,616 | $45,945 | | Foreign currency translation adjustment | $(374) | $0 | $(374) | $0 | | Comprehensive income, net of taxes | $15,644 | $18,747 | $84,242 | $45,945 | | Comprehensive income attributable to Class A Common Stockholders | $6,511 | $7,663 | $49,405 | $18,577 | Condensed Consolidated Statements of Deficit This section details the changes in shareholders' deficit, including the impact of net income and additional paid-in capital Shareholders' Deficit Evolution (in thousands) | Metric | Balances at Jan 1, 2023 | Balances at Sep 30, 2023 | | :------------------------------------ | -----------------------: | -----------------------: | | Total Shareholders' Deficit | $(382,698) | $(120,289) | | Net income | $84,616 (9 months) | $84,616 (9 months) | | Additional paid-in capital | $663,908 | $884,523 | | Accumulated deficit | $(1,014,132) | $(964,561) | - The establishment of liabilities under the Tax Receivable Agreement, net of tax and other tax impact of Secondary Offering, resulted in a reduction of additional paid-in capital by $46,132 thousand during the nine months ended September 30, 2023[26] Condensed Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change | | :---------------------------------------------------- | ----------------------------: | ----------------------------: | -------: | | Net cash provided by operating activities | $114,386 | $1,389 | $112,997 | | Net cash used in investing activities | $(71,032) | $(11,888) | $(59,144) | | Net cash used in financing activities | $(26,696) | $(204,911) | $178,215 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $17,444 | $(215,410) | $232,854 | | Cash, cash equivalents, and restricted cash – end of period | $269,734 | $274,400 | $(4,666) | - The significant increase in cash from operating activities in 2023 was driven by higher net income and net cash inflows from changes in net operating assets, particularly an increase in amounts payable to ticket sellers[194] - Investing activities in 2023 were heavily impacted by the acquisition of Wavedash ($55,935 thousand) and investments in a convertible promissory note and warrant ($6,000 thousand)[28] Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes supporting the condensed consolidated financial statements 1. Background and Basis of Presentation This note describes the company's business operations and the basis for preparing the financial statements - The Company operates an online secondary ticket marketplace for concert, sporting, and theater events in the United States, Canada, and Japan[29] - Business is divided into two segments: Marketplace (online platform connecting buyers and sellers) and Resale (acquires tickets to resell on secondary marketplaces)[29] 2. New Accounting Standards This note details the adoption and impact of new accounting standards on the financial statements - Adopted ASU 2016-13 (Credit Losses) and ASU 2020-04 (Reference Rate Reform) on January 1, 2023[31][32] - The adoption of these new accounting standards had no material impact on the consolidated financial statements[31][32] 3. Business Acquisition This note provides details on the acquisition of Wavedash, including the purchase price and preliminary fair values of acquired assets - Acquired 100% of WD Holdings Co., Ltd. ("Wavedash"), an online ticket marketplace in Tokyo, Japan, on September 8, 2023[33][34] - Purchase price was approximately $74.3 million, financed with cash on hand[34] Wavedash Acquisition - Preliminary Fair Values (in thousands) | Asset/Liability | Amount | | :-------------------------------- | -------: | | Net assets acquired | $74,325 | | Goodwill | $45,351 | | Intangible assets | $31,846 | Identifiable Intangible Assets Acquired (in thousands) | Asset Type | Cost | Estimated Useful Life | | :---------------------- | -------: | :------------------ | | Tradename | $2,173 | Indefinite | | Supplier relationships | $19,963 | 5 years | | Customer relationships | $5,500 | 4 years | | Developed technology | $4,210 | 3 years | | Total | $31,846 | | 4. Revenue Recognition This note explains the company's revenue recognition policies and presents revenue breakdowns by source and event category Marketplace Revenues by Source (in thousands) | Source | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Owned Properties | $122,778 | $106,597 | $329,006 | $288,827 | | Private Label | $31,610 | $23,945 | $101,113 | $82,145 | | Total | $154,388 | $130,542 | $430,119 | $370,972 | Marketplace Revenues by Event Category (in thousands) | Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Concerts | $87,142 | $63,802 | $239,762 | $188,291 | | Sports | $52,169 | $52,812 | $143,118 | $143,012 | | Theater | $14,788 | $13,526 | $45,705 | $37,997 | | Other | $289 | $402 | $1,534 | $1,672 | | Total | $154,388 | $130,542 | $430,119 | $370,972 | Resale Revenues (in thousands) | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Resale Revenues | $33,700 | $26,300 | $84,500 | $64,300 | - Deferred revenue, primarily from the Vivid Seats Rewards loyalty program, was $34.4 million at September 30, 2023, expected to be recognized over the next seven years[41] 5. Segment Reporting This note provides financial information by reportable segment, including contribution margin - Reportable segments are Marketplace (online secondary ticket marketplace intermediary) and Resale (acquires tickets for resale)[44] - Contribution margin is a key performance metric, calculated as revenues less cost of revenues and marketing and selling expenses[44] Segment Contribution Margin (in thousands) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Marketplace | $53,459 | $46,269 | $166,400 | $138,097 | | Resale | $7,206 | $6,609 | $20,368 | $15,021 | | Consolidated | $60,665 | $52,878 | $186,768 | $153,118 | 6. Accounts Receivable - Net This note details the composition of accounts receivable and the allowance for credit losses Accounts Receivable - Net (in millions) | Category | Sep 30, 2023 | Dec 31, 2022 | Change | | :---------------------------------------------------- | -----------: | -----------: | -------: | | Accounts receivable – net | $64.8 | $36.5 | $28.3 | | Uncollateralized payment processor obligations | $42.2 | $18.9 | $23.3 | | Amounts due from marketplace ticket sellers | $7.8 | $1.0 | $6.8 | | Allowance for credit losses (marketplace sellers) | $4.0 | $0.1 | $3.9 | | Amounts due from distribution partners | $12.1 | $11.7 | $0.4 | | Allowance for credit losses (distribution partners) | $5.0 | $3.6 | $1.4 | - The allowance for credit losses for marketplace ticket sellers increased significantly from $0.1 million to $4.0 million, reflecting greater risk due to certain sellers generating balances in excess of existing payables[49] 7. Prepaid Expenses and Other Current Assets This note outlines the components of prepaid expenses and other current assets Prepaid Expenses and Other Current Assets (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | Change | | :-------------------------------- | -----------: | -----------: | -------: | | Total prepaid expenses and other current assets | $49,407 | $29,912 | $19,495 | | Recovery of future customer compensation | $42,421 | $23,311 | $19,110 | - The increase in recovery of future customer compensation is due to a higher reserve for future cancellations, driven by increased sales volume for future events[52] 8. Goodwill and Intangible Assets This note provides information on changes in goodwill and intangible assets, including amortization expense Goodwill and Intangible Assets Changes (in thousands) | Category | Jan 1, 2023 | Wavedash Acquisition | Sep 30, 2023 | | :-------------------- | -----------: | -------------------: | -----------: | | Goodwill | $715,258 | $45,351 | $759,971 | | Definite-lived Intangible Assets | $17,310 | $29,673 | $47,064 | | Trademark | $64,666 | $2,173 | $66,809 | - Amortization expense on definite-lived intangible assets increased by 50% for the nine months ended September 30, 2023, to $7.5 million, compared to $5.0 million in the prior year[56] 9. Investments This note describes the company's investments, including a convertible promissory note and warrant - Invested $6.0 million in a privately held company in July 2023 via a convertible promissory note and a warrant[57] - The convertible promissory note is classified as an available-for-sale security and recorded at fair value, with an amortized cost of $2.5 million at September 30, 2023[58] - The warrant is accounted for as a derivative instrument at fair value, with changes recognized in Other (income) expense[59] 10. Fair Value Measurements This note details the fair value measurements of financial instruments, categorized by input levels Fair Value Measurements (in thousands) | Instrument | Level | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :---- | -----------: | -----------: | | Money market funds | 1 | $190,054 | $203,285 | | Investments: Note | 3 | $2,536 | $0 | | Investments: Warrant | 3 | $3,506 | $0 | | Total | | $196,096 | $203,285 | - The fair value of the Note is determined using the income approach, and the Warrant using the Black-Scholes model, both relying on Level 3 unobservable inputs such as expected terms, implied yield, estimated volatility, and risk-free rate[62][63] 11. Accrued Expenses and Other Current Liabilities This note presents the breakdown of accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | Change | | :-------------------------------- | -----------: | -----------: | -------: | | Total accrued expenses and other current liabilities | $197,247 | $181,970 | $15,277 | | Accrued marketing expense | $44,709 | $26,873 | $17,836 | | Accrued customer credits | $63,754 | $88,167 | $(24,413) | | Accrued future customer compensation | $46,263 | $30,181 | $16,082 | | Accrued contingencies | $0 | $5,898 | $(5,898) | - Accrued customer credits decreased by $24.4 million, while revenue from breakage increased significantly to $18.4 million for the nine months ended September 30, 2023, compared to $5.0 million in the prior year[66] - Accrued contingencies decreased primarily due to $6.0 million in milestone payments to Betcha Sports, Inc. (Vivid Picks)[68] 12. Debt This note provides details on the company's outstanding debt, including terms and compliance with covenants Outstanding Debt (in thousands) | Debt Type | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | -----------: | -----------: | | February 2022 First Lien Loan | $270,875 | $272,938 | | Shoko Chukin Bank Loan | $3,068 | $0 | | Total long-term debt, net | $265,875 | $264,898 | - The February 2022 First Lien Loan has a maturity date of February 3, 2029, a SOFR-based floating interest rate (9.04% at Sep 30, 2023), and requires quarterly amortization payments of $0.7 million[73] - The Shoko Chukin Bank Loan, assumed with the Wavedash acquisition, has a fixed interest rate of 1.27% per annum and matures on June 24, 2026[78] - The company was in compliance with all debt covenants related to the February 2022 First Lien Loan as of September 30, 2023[76] 13. Financial Instruments This note describes various financial instruments, including warrants and share repurchase programs - Various warrants (Public, Private, Exercise, Mirror, Hoya Intermediate) were issued in connection with the Merger Transaction, with different exercise prices and terms[79][80][81][82][84] - Hoya Intermediate Warrants are classified as a liability due to cash redemption options and their fair value decreased by $1.0 million for the nine months ended September 30, 2023[86][87] - The $40.0 million share repurchase program for Class A common stock was fully utilized by March 31, 2023, repurchasing 5.3 million shares[89] - A secondary offering of 18.4 million Class A common shares was completed in Q2 2023, but the company did not receive any proceeds from the sale by the Selling Stockholder[91] 14. Commitments and Contingencies This note outlines the company's legal commitments and contingencies, including class action lawsuits and tax obligations - Settled a class action lawsuit in Canada regarding undisclosed service fees, resulting in a $0.9 million liability for expected claim submissions and credit redemptions[93] - Settled class action lawsuits related to COVID-19 cancellations, with $4.5 million disbursed in 2022 for one and $3.3 million paid in August 2023 for another[94] - Facing a lawsuit alleging violation of the Illinois Biometric Information Privacy Act, but unable to reasonably estimate a possible loss[95] - Continuously monitors state regulations for sales tax collection obligations, particularly for marketplace facilitators and ticket sales, and does not believe risk of loss is probable on historical revenue activities where tax has not been remitted[97] 15. Related-Party Transactions This note details transactions with related parties, including marketing expenses and the Tax Receivable Agreement - Incurred marketing and selling expenses with Viral Nation ($0.1 million for 3 and 9 months ended Sep 30, 2023) and Rolling Stone ($0.2 million for 3 months, $0.7 million for 9 months ended Sep 30, 2023), where a Board member has significant ownership[99][100] - Incurred marketing and selling expenses of $1.1 million for the three and nine months ended September 30, 2023, with the Los Angeles Dodgers, where a Board member is a minority owner[103] - A Tax Receivable Agreement (TRA) obligates the company to pay 85% of certain tax savings to Hoya Intermediate shareholders[104] - In Q2 2023, a $99.0 million liability was recorded under the TRA, and a $52.8 million deferred tax asset, due to Hoya Topco exchanging Intermediate Units in a secondary offering, with payments expected to begin in 2024[105] 16. Income Taxes This note provides information on income tax expense, deferred tax assets, and the Tax Receivable Agreement liability Income Tax Expense (Benefit) (in millions) | Period | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Income tax expense (benefit) | $2.6 | $(21.6) | $0.1 | $0.2 | - A $31.3 million valuation allowance on U.S. deferred tax assets was released in Q2 2023, driven by achieving three years of cumulative pretax income in the U.S. federal tax jurisdiction[108] - A Tax Receivable Agreement liability of $99.0 million and a deferred tax asset of $52.8 million were established in Q2 2023, with payments expected to begin in 2024[111] 17. Equity-Based Compensation This note details the company's equity-based compensation plans, including grants and expense recognition - Granted 2.6 million RSUs and 4.5 million stock options in 2023 to employees, directors, and consultants, with most vesting over three years[114][115][116][119][120] Equity-Based Compensation Expense (in thousands) | Category | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2022 | | :-------------------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | RSUs | $3,900 | $10,500 | $2,300 | $6,000 | | Stock options | $2,800 | $7,300 | $1,700 | $4,600 | | Profit interests | $1,000 | $3,000 | $1,100 | $3,400 | | Total | $7,700 | $20,800 | $5,100 | $14,000 | - Unrecognized compensation expense for unvested RSUs is $35.8 million and for unvested stock options is $25.4 million, both expected to be recognized over approximately two years[122][123] 18. Earnings Per Share This note presents the calculation of basic and diluted earnings per share for Class A common stock Net Income Per Class A Common Stock | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------------------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Net income attributable to Class A Common Stockholders—basic | $6,677 | $7,663 | $49,571 | $18,577 | | Basic EPS | $0.07 | $0.09 | $0.57 | $0.23 | | Diluted EPS | $0.07 | $0.09 | $0.43 | $0.23 | | Weighted average Class A common stock outstanding—basic | 96,407,327 | 81,996,447 | 86,403,617 | 80,145,329 | | Weighted average Class A common stock outstanding—diluted | 96,862,899 | 82,023,463 | 196,307,731 | 198,709,769 | - The dilution in diluted net income per share for the nine months ended September 30, 2023, is primarily attributed to the assumed conversion of noncontrolling interests to Class A common stock, which has a disproportionate effect on net income due to the valuation allowance release benefiting Vivid Seats Inc[132] - Potentially dilutive securities excluded from diluted EPS computation include RSUs, stock options, Public Warrants, Private Warrants, Exercise Warrants, Hoya Intermediate Warrants, and Noncontrolling Interests, if their effect would be anti-dilutive[133] 19. Subsequent Events This note discloses significant events occurring after the reporting period, including the acquisition of Vegas.com - On November 3, 2023, acquired 100% ownership of VDC Holdco, LLC (Vegas.com, LLC), a Las Vegas entertainment marketplace[134] - Purchase price was approximately $243.8 million, comprising $153.6 million in cash and approximately 15.6 million shares of Class A common stock[134] - The cash portion of the acquisition was financed with cash on hand[134] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of Vivid Seats' financial condition and results of operations for the three and nine months ended September 30, 2023 - For the nine months ended September 30, 2023, revenues increased by 18% to $514.6 million, and Marketplace Gross Order Value (GOV) increased by 20% to $2,808.2 million[138][145] - Adjusted EBITDA for the nine months ended September 30, 2023, was $106.9 million, representing a 34% increase year-over-year[145] - Net cash provided by operating activities significantly improved to $114.4 million for the nine months ended September 30, 2023, compared to $1.4 million in the prior year[193] Overview This section introduces Vivid Seats' business model as an online ticket marketplace and highlights key financial and operational metrics - Vivid Seats is an online ticket marketplace connecting fans with ticket sellers for live events, differentiating itself with extensive breadth and depth of ticket listings at competitive value[138] Key Financial and Operational Metrics (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Revenues | $188.1 | $156.8 | $514.6 | $435.3 | | Marketplace GOV | $998.9 | $781.8 | $2,808.2 | $2,338.8 | | Net income | $16.0 | $18.7 | $84.6 | $45.9 | Our Business Model This section describes the company's Marketplace and Resale segments, including revenue generation and the Skybox ERP tool - Marketplace segment acts as an intermediary, earning revenue from service/delivery fees and referral fees (event ticket insurance), and includes a daily fantasy sports offering[140][141] - Resale segment acquires tickets for resale and provides internal R&D support for Skybox, a widely adopted ERP tool for professional ticket sellers[143][144] - Skybox is a free-to-use proprietary ERP tool that helps ticket sellers manage inventory, adjust pricing, and fulfill orders across multiple resale marketplaces[143] Key Business Metrics and Non-GAAP Financial Measure This section defines and presents key business metrics and the non-GAAP financial measure, Adjusted EBITDA Key Business Metrics (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Marketplace GOV | $998,933 | $781,834 | $2,808,200 | $2,338,789 | | Total Marketplace orders | 3,022 | 2,572 | 7,924 | 7,001 | | Total Resale orders | 110 | 90 | 273 | 225 | | Adjusted EBITDA | $33,367 | $28,284 | $106,879 | $79,625 | - Marketplace GOV was negatively impacted by event cancellations of $10.1 million and $33.9 million for the three and nine months ended September 30, 2023, respectively[148] - Adjusted EBITDA is a non-GAAP measure used by management to evaluate performance and trends, excluding items like income tax, interest, depreciation, equity-based compensation, and changes in fair value of warrants/derivatives[152][154] Key Factors Affecting our Performance This section refers to the company's 2022 Form 10-K for a discussion of key factors affecting performance - No material changes from the "Key Factors Affecting Our Performance" discussed in the 2022 Form 10-K[159] Recent Developments This section highlights recent significant events, specifically the acquisition of Wavedash - Acquired 100% of Wavedash, a Japanese online ticket marketplace, on September 8, 2023, for approximately $74.3 million using cash on hand[160] Results of Operations This section provides a detailed analysis of the company's revenues and expenses for the reporting periods Revenues This section analyzes revenue trends by segment and event category, highlighting growth drivers Total Revenues by Segment (in thousands) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change (YoY) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change (YoY) | | :-------------- | ----------------------------: | ----------------------------: | --------------: | ----------------------------: | ----------------------------: | --------------: | | Marketplace | $154,388 | $130,542 | 18% | $430,119 | $370,972 | 16% | | Resale | $33,745 | $26,276 | 28% | $84,457 | $64,312 | 31% | | Total | $188,133 | $156,818 | 20% | $514,576 | $435,284 | 18% | - Marketplace revenues increased primarily due to higher new orders and average order size, especially in the concerts category (37% increase for 3 months, 27% for 9 months)[164] - Resale revenues increased by 28% and 31% for the three and nine months, respectively, primarily due to higher order volume[169] - Cancellation charges had a lower negative impact on revenue in 2023 compared to 2022, with a $1.0 million increase to revenue for the three months ended September 30, 2023, versus a $3.0 million reduction in the prior year, mainly due to higher store credit breakage[166] Cost of Revenues (exclusive of Depreciation and Amortization) This section details the cost of revenues by segment and explains changes in these costs Cost of Revenues by Segment (in thousands) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change (YoY) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change (YoY) | | :-------------- | ----------------------------: | ----------------------------: | --------------: | ----------------------------: | ----------------------------: | --------------: | | Marketplace | $23,923 | $17,950 | 33% | $66,749 | $52,912 | 26% | | Resale | $26,539 | $19,667 | 35% | $64,089 | $49,291 | 30% | | Total | $50,462 | $37,617 | 34% | $130,838 | $102,203 | 28% | - Resale cost of revenues increased by 35% for the three months ended September 30, 2023, which was higher than the 28% increase in Resale revenues, attributed to event category mix[173] Marketing and Selling This section analyzes marketing and selling expenses, identifying key drivers of changes Marketing and Selling Expenses (in thousands) | Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change (YoY) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change (YoY) | | :------- | ----------------------------: | ----------------------------: | --------------: | ----------------------------: | ----------------------------: | --------------: | | Online | $66,226 | $59,774 | 11% | $174,224 | $164,444 | 6% | | Offline | $10,780 | $6,549 | 65% | $22,746 | $15,519 | 47% | | Total | $77,006 | $66,323 | 16% | $196,970 | $179,963 | 9% | - The increase in marketing and selling expenses was driven by greater spending on online advertising (due to higher Marketplace GOV) and higher spending on offline advertising (for brand marketing and partnerships)[175] General and Administrative This section details general and administrative expenses, explaining the factors contributing to their changes General and Administrative Expenses (in thousands) | Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change (YoY) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change (YoY) | | :-------------------- | ----------------------------: | ----------------------------: | --------------: | ----------------------------: | ----------------------------: | --------------: | | Personnel expenses | $27,740 | $22,251 | 25% | $78,791 | $64,685 | 22% | | Non-income tax expenses | $472 | $177 | 167% | $1,426 | $3,859 | (63)% | | Other | $9,013 | $7,811 | 15% | $27,704 | $27,177 | 2% | | Total | $37,225 | $30,239 | 23% | $107,921 | $95,721 | 13% | - The increase in general and administrative expenses was primarily due to higher personnel expenses, driven by increased equity-based compensation and employee headcount[176] Depreciation and Amortization This section analyzes depreciation and amortization expenses, linking them to development activities and acquisitions Depreciation and Amortization Expenses (in thousands) | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change (YoY) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change (YoY) | | :----- | ----------------------------: | ----------------------------: | --------------: | ----------------------------: | ----------------------------: | --------------: | | Expense | $3,301 | $2,158 | 53% | $8,603 | $5,269 | 63% | - The increase in depreciation and amortization was primarily related to increased development activities for the platform and intangibles acquired from the Betcha (Vivid Picks) acquisition[177] Change in Fair Value of Contingent Consideration This section explains the changes in the fair value of contingent consideration, primarily related to earnouts Change in Fair Value of Contingent Consideration (in thousands) | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Change | $20 | $(1,220) | $(998) | $(1,220) | - The change in fair value is due to the remeasurement of Vivid Picks cash earnouts[158] Other (Income) Expense This section details other income and expenses, including interest and fair value remeasurements Other (Income) Expense Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change (YoY) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change (YoY) | | :-------------------------- | ----------------------------: | ----------------------------: | --------------: | ----------------------------: | ----------------------------: | --------------: | | Interest expense – net | $2,544 | $2,901 | (12)% | $8,596 | $9,542 | (10)% | | Loss on extinguishment of debt | $0 | $0 | 0% | $0 | $4,285 | (100)% | | Other income (expense) | $(1,038) | $(65) | (1,497)% | $(365) | $(6,618) | 94% | - The decrease in net interest expense was due to higher interest income[179] - The significant change in other income/expense for the nine months was primarily due to the fair value remeasurement of Hoya Intermediate Warrants and foreign currency revaluation losses[181][182] Income tax expense (benefit) This section analyzes income tax expense or benefit, explaining the factors influencing tax outcomes Income Tax Expense (Benefit) (in thousands) | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----- | ----------------------------: | ----------------------------: | ----------------------------: | ----------------------------: | | Expense (benefit) | $2,595 | $118 | $(21,605) | $194 | - The $21.6 million income tax benefit for the nine months ended September 30, 2023, was primarily due to the release of a valuation allowance on U.S. net operating losses, interest limitations, and tax credit carryforwards, and the impact of noncontrolling interests[183] Liquidity and Capital Resources This section discusses the company's liquidity position, capital resources, and cash flow activities - Primary liquidity source is cash from operations, with $268.7 million in cash and cash equivalents as of September 30, 2023[185] - Existing cash and cash equivalents are deemed sufficient to fund liquidity needs for at least the next 12 months[185] Loan agreements This section details the company's outstanding loan agreements, including terms and interest rates - Outstanding debt includes the $275.0 million February 2022 First Lien Loan (SOFR + 3.25%, 9.04% effective rate at Sep 30, 2023) and the $3.1 million Shoko Chukin Bank Loan (1.27% fixed rate)[186][187] - The company had no outstanding borrowings under its $100.0 million Revolving Facility as of September 30, 2023[187] Share Repurchase Program This section provides an update on the company's share repurchase program - The $40.0 million share repurchase program was fully utilized by March 31, 2023, repurchasing 5.3 million shares of Class A common stock[188] - No share repurchases were made during the three months ended September 30, 2023[188] Distributions to non-controlling interests This section reports on distributions made to non-controlling interests Distributions to Non-Controlling Interests (in millions) | Period | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :----- | ----------------------------: | ----------------------------: | | Distributions | $0 | $11.0 | Tax Receivable Agreement This section explains the Tax Receivable Agreement and its financial impact - The Tax Receivable Agreement (TRA) obligates the company to pay Hoya Intermediate shareholders 85% of certain tax savings[191] - A $99.0 million TRA liability and a $52.8 million deferred tax asset were recorded in Q2 2023 due to a secondary offering, with payments expected to commence in 2024[192] Cash Flows This section provides a detailed summary and analysis of cash flows from operating, investing, and financing activities Summary of Cash Flows (in thousands) | Category | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change | | :---------------------------------------------------- | ----------------------------: | ----------------------------: | -------: | | Net cash provided by operating activities | $114,386 | $1,389 | $112,997 | | Net cash used in investing activities | $(71,032) | $(11,888) | $(59,144) | | Net cash used in financing activities | $(26,696) | $(204,911) | $178,215 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $17,444 | $(215,410) | $232,854 | - Operating cash flow significantly improved due to higher net income and net cash inflows from changes in net operating assets, particularly an increase in amounts payable to ticket sellers[194] - Investing cash flow was primarily impacted by the Wavedash acquisition and investments in a privately held company[196] - Financing cash flow decreased substantially due to the absence of large debt repayments that occurred in the prior year[198] Critical Accounting Policies and Estimates This section states that there have been no material changes to the company's critical accounting policies and estimates - No material changes to critical accounting policies and estimates during the nine months ended September 30, 2023[199] Recent Accounting Pronouncements This section refers to Note 2 for details on recently adopted and issued accounting pronouncements - Refer to Note 2, New Accounting Standards, for details on recently adopted and issued accounting pronouncements[200] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily focusing on interest rate risk associated with its floating-rate debt - The company's primary market risk is interest rate risk associated with its floating-rate debt, specifically the February 2022 First Lien Loan[202][203] - A hypothetical 1% increase in interest rates (above the floor) would increase interest expense by $2.1 million based on outstanding amounts for the nine months ended September 30, 2023[203] Item 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures, noting a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective at reasonable assurance levels as of September 30, 2023[208] - Identified a material weakness in internal control over financial reporting due to inadequate segregation of duties, undefined roles in finance/accounting, and insufficient personnel with technical accounting and SEC reporting experience[209] - Remediation efforts include a full review of internal control procedures, implementation of new controls, hiring additional qualified personnel, and establishing robust processes with clearly defined roles and segregation of duties[210] PART II. OTHER INFORMATION This part contains other information not included in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section refers to Note 14, Commitments and Contingencies, for detailed information regarding the company's legal proceedings - Legal proceedings information is detailed in Note 14, Commitments and Contingencies[213] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's 2022 Form 10-K - No material changes to the risk factors disclosed in the 2022 Form 10-K[215] - Readers should consider the risk factors as they could materially adversely affect the business, financial condition, liquidity, results of operations, and capital position[215] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities There were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities to report for the period - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities to report[216] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[218] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[221] Item 5. Other Information This section reports that no directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2023 - No directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2023[223] Item 6. Exhibits This section lists all exhibits filed with the report, including transaction agreements, certificates of incorporation, warrant agreements, certifications of principal officers, and Inline XBRL documents - The exhibits include various legal and corporate documents such as transaction agreements, certificates of incorporation, warrant agreements, and certifications of principal executive and financial officers[225][226] Signatures This section contains the signatures of the principal executive and financial officers, certifying the report Signatures The report is duly signed on behalf of Vivid Seats Inc. by Stanley Chia, Chief Executive Officer, and Lawrence Fey, Chief Financial Officer, on November 7, 2023 - The report was signed by Stanley Chia (CEO) and Lawrence Fey (CFO) on November 7, 2023[230]