Vivid Seats Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Vivid Seats operates an online secondary ticket marketplace through its Marketplace segment and resells tickets through its Resale segment. Comparisons are with Q1 2021, when COVID-19 restrictions significantly depressed live-event activity.
Financial performance and liquidity
- Revenue: $130.8 million, up 442% from $24.1 million. Marketplace revenue was $110.5 million (+403%); Resale revenue was $20.3 million (+855%). Management attributed the increase primarily to more events and higher order volume as restrictions eased.
- Activity: Marketplace Gross Order Value was $742.1 million versus $116.5 million. Marketplace orders rose to 2.019 million from 293,000; Resale orders rose to 68,000 from 13,000.
- Profit and margins: Operating income was $13.7 million, versus an operating loss of $3.9 million. Net income was $3.1 million, versus a $20.3 million net loss; income attributable to Class A holders was $1.3 million, or $0.02 per share. Operating margin was approximately 10.5% versus negative 16.3%; net margin was approximately 2.4% versus negative 84.0%. Adjusted EBITDA, a non-GAAP measure, was $21.0 million versus $4.2 million.
- Segment contribution: Marketplace contribution margin was $39.9 million (36.1% of Marketplace revenue), versus $11.3 million (51.6%). Resale contribution margin was $4.5 million (22.2% of Resale revenue), versus $0.9 million (42.2%). The company said Resale margins were lower and cancellations affected comparability.
- Cash flow: Operating cash flow was $23.5 million, compared with $30.8 million. Investing used $3.4 million, mainly for platform development. Financing used $195.6 million, principally for debt repayment and refinancing. Cash and cash equivalents fell to $314.1 million from $489.5 million at year-end.
- Debt and liquidity: The company refinanced its prior first-lien debt with a $275.0 million term loan in February; net debt carrying value was $269.1 million, including $2.75 million current maturities. It also has a $100 million revolving facility with no borrowings at quarter-end. The new term loan matures in 2029, bears interest at SOFR plus 3.25% subject to a 0.5% floor, and had a 3.75% effective rate at March 31. Cash was $314.1 million; current assets were $461.9 million and current liabilities $540.0 million. Management said available cash was sufficient for liquidity needs over the next 12 months.
Material changes and unusual items
- Revenue growth reflected recovery in live events from the pandemic-affected prior-year quarter. Cancellation charges reduced Marketplace revenue by $16.0 million, versus $1.4 million; management cited higher volume, MLB cancellations related to a labor dispute, and concert-tour cancellations.
- Marketing and selling expense increased to $54.2 million from $8.0 million, mainly due to higher online advertising and expanded offline brand marketing. General and administrative expense rose to $29.3 million from $15.9 million, primarily from personnel and outsourced customer-service costs.
- Interest expense declined to $3.9 million from $16.3 million, reflecting prior debt repayments and the refinancing. Q1 2022 also included a $4.3 million debt-extinguishment loss and $2.3 million expense from warrant fair-value remeasurement.
- The company adopted the lease accounting standard effective January 1, 2022, recognizing lease assets and liabilities. A new Chicago headquarters lease runs through 2033; rent is not due until March 2024, and the landlord allowance is approximately $6.5 million.
- Q1 2021 comparative cost-of-revenue and general and administrative figures were revised to correct an immaterial classification error; the correction did not affect net loss, balance sheets, or cash flows.
Outlook, risks, and contingencies
- No specific financial guidance or quantified forecast is provided. Management reported that ticket orders had recovered as restrictions eased, but warned that the pandemic’s course, new variants, and recovery timing remained uncertain.
- Key disclosed risks include event cancellations and discretionary-spending weakness; competition and dependence on buyer, seller, and distribution-partner relationships; cybersecurity and regulatory compliance; and the ability to generate cash or obtain financing. The term loan is floating-rate and secured by substantially all assets; the company reported covenant compliance at quarter-end.
- Sales-tax exposure remained uncertain because of complex rules for secondary ticket sales. The accrued liability was $5.0 million, down from $8.8 million at year-end; management said assessments could differ materially from accrued amounts.
- Accrued customer credits were $119.1 million and accrued future customer compensation was $78.3 million. These estimates depend on cancellations, customer-credit redemption, and related recoveries.
- Litigation includes settled class actions concerning service-fee disclosure and customer compensation. The company recorded related liabilities and said ordinary-course claims were not expected by management to materially affect results, apart from disclosed matters.
- Controls matter: Management concluded disclosure controls were not effective at reasonable assurance levels as of March 31, 2022, due to a material weakness involving segregation of duties, defined finance roles, staffing, and technical accounting and SEC-reporting expertise. Remediation efforts include hiring and implementing additional processes and controls.
Important facts for investors to verify
- Whether live-event demand and order growth persist, and how cancellations affect revenue and customer obligations.
- Whether elevated marketing spending produces durable growth and whether Marketplace and Resale contribution margins recover.
- Cash conversion and working-capital movements, alongside the refinancing’s debt-service costs and floating-rate exposure.
- Potential changes in sales-tax assessments, cancellation-related liabilities, customer-credit estimates, and litigation obligations.
- Progress and effectiveness of remediation of the material weakness in internal control over financial reporting.
- The extent and potential future impact of redeemable noncontrolling interests, which were reported at $1.307 billion at quarter-end.