Vivid Seats Inc. annual report, FY2023

Vivid Seats Inc. — FY2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023. Vivid Seats operates an online live-event ticket marketplace, with Marketplace and Resale segments. Its Marketplace business generally acts as an intermediary; Resale acquires tickets for resale.

Financial performance and liquidity

• Marketplace GOV was $3.92 billion, up 23%; Marketplace orders rose 19% to 10.898 million. Resale orders increased 21% to 380,000.
• Operating margin was approximately 11.4% of revenue. Net income included a $42.2 million income tax benefit, principally from valuation-allowance releases; the filing cautions that this materially affected reported earnings. Basic EPS was $0.80 and diluted EPS was $0.26, with dilution largely reflecting assumed conversion of noncontrolling interests.
• Cost of revenue rose 30%, faster than revenue. Marketing and selling expense increased 10%, slower than Marketplace revenue; management cited initial benefits from repeat orders. General and administrative expense rose 25%, including higher personnel, equity compensation and acquisition-related costs.
• Cash and cash equivalents were $125.5 million at year-end, down from $251.5 million. Gross debt was $273.1 million; the $100 million revolving facility had no borrowings. The principal term loan is floating-rate, with a 9.05% effective rate at year-end and maturity in February 2029. Management stated available cash and expected operating resources would meet liquidity needs for the next 12 months and the foreseeable future.
• Current assets were $246.0 million versus current liabilities of $487.8 million. Operating cash flow benefited from higher accounts payable to ticket sellers as order volume increased.

Material changes and notable items

• Revenue growth reflected higher order volume and average order size, fewer cancellations, and the acquisitions of Wavedash (September 2023) and Vegas.com (November 2023). The acquisitions used cash and, for Vegas.com, approximately 15.6 million Class A shares; purchase-price allocations remained preliminary.
• Investing cash outflow was $225.6 million, primarily for the acquisitions. Financing cash outflow was $43.4 million, primarily for share repurchases and distributions to noncontrolling interests.
• FY2023 net income in the 10-K was revised upward by $6.1 million from the March 5, 2024 earnings release because of an income tax benefit adjustment. The 10-K supersedes the release.
• The 2023 secondary offerings were sales by Hoya Topco; Vivid Seats received no offering proceeds. The company repurchased 2.0 million shares from underwriters for $12.5 million. After year-end, the Board authorized a separate share-repurchase program of up to $100 million.
• A $165.7 million Tax Receivable Agreement liability was recorded following exchanges associated with the 2023 offerings. The company generally owes former owners 85% of qualifying tax savings; management estimated approximately $165.8 million of payments, primarily over 15 years, if projected tax benefits are realized.

Outlook, risks and contingencies

• The filing provides no quantified FY2024 revenue or earnings guidance. Management said economic conditions did not adversely affect overall live-event demand in 2023, but warned that weaker discretionary spending could affect future demand.
• Key exposures include event supply and cancellations, seasonality, competition, paid-search and marketing costs, consumer spending, regulatory changes to ticket resale and fantasy sports, privacy and cybersecurity, and reliance on third-party payment processing. Nearly all revenue is associated with payments processed through one provider.
• The company reported a continuing material weakness in internal control over financial reporting involving segregation of duties, clearly defined finance and accounting roles, and technical accounting and SEC-reporting staffing. Management is implementing remediation; controls were not considered effective as of December 31, 2023. The auditor gave an unqualified opinion on the financial statements but did not opine on internal-control effectiveness.
• Goodwill was $947.4 million, approximately 61% of total assets. The company reported no goodwill or intangible-asset impairment for 2023; impairment remains a risk if expected cash flows or business conditions weaken.
• The company recorded $3.2 million for uncollected local admissions taxes and disclosed an Illinois biometric-privacy lawsuit for which it could not estimate a potential loss. Other disclosed legal matters were not considered material by management. No off-balance-sheet arrangements were reported.

Investor verification checklist

• Assess how much of earnings growth is repeatable versus the $42.2 million tax benefit; reconcile GAAP net income with Adjusted EBITDA and diluted EPS.
• Review acquisition performance, integration, preliminary purchase accounting and the cash, share issuance, and amortization impacts of Vegas.com and Wavedash.
• Track operating cash conversion, especially changes in accounts payable and other working-capital balances, alongside cash, debt and the floating-rate interest burden.
• Monitor the material-weakness remediation and integration of acquired companies into financial controls.
• Evaluate the TRA’s future cash requirements, cancellation and customer-credit estimates, and potential regulatory or legal developments.