Vivid Seats Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; compared with the same periods in 2022. Vivid Seats operates an online secondary ticket marketplace through Marketplace and Resale segments.
Financial performance and liquidity
- Q3 revenue: $188.1 million, up 20% year over year. Marketplace revenue was $154.4 million (+18%) and Resale revenue $33.7 million (+28%). Marketplace GOV rose 28% to $998.9 million.
- Q3 earnings: Operating income was $20.1 million, down 7%; net income was $16.0 million, down 15%; net income attributable to Class A stockholders was $6.7 million versus $7.7 million. Diluted EPS was $0.07 versus $0.09.
- Q3 margins: Operating margin was approximately 10.7%, compared with 13.8% a year earlier. Segment contribution margin was $60.7 million versus $52.9 million; as a share of revenue, approximately 32.2% versus 33.7%.
- Nine-month results: Revenue increased 18% to $514.6 million; operating income rose 34% to $71.2 million; net income rose 84% to $84.6 million. Class A net income was $49.6 million versus $18.6 million, and diluted EPS was $0.43 versus $0.23. The 2023 result included a $21.6 million income tax benefit, substantially related to releasing part of the U.S. deferred-tax valuation allowance.
- Adjusted EBITDA: $33.4 million for Q3, up from $28.3 million; $106.9 million for nine months, up from $79.6 million. This is a non-GAAP measure and excludes items including equity compensation and certain transaction costs.
- Cash flow: Nine-month operating cash flow was $114.4 million versus $1.4 million. Investing used $71.0 million, primarily for Wavedash, platform development and an investment; financing used $26.7 million, including tax distributions and share repurchases. Cash, cash equivalents and restricted cash increased $17.4 million.
- Liquidity and debt: Cash and cash equivalents were $268.7 million at September 30. Debt was $273.9 million gross, including $270.9 million under the floating-rate first-lien loan and $3.1 million of assumed Wavedash debt; the $100 million revolving facility was undrawn. The first-lien loan’s effective rate was 9.04%. The company reported compliance with debt covenants and stated available cash was sufficient for at least 12 months.
- Balance sheet: Current assets of $405.5 million were below current liabilities of $454.1 million. The balance sheet included a $99.0 million long-term Tax Receivable Agreement liability and $640.7 million of redeemable noncontrolling interests.
Changes, outlook and notable items
- Revenue growth reflected higher order volume and average order size. Concerts were the main Marketplace growth driver; sports Marketplace revenue was broadly flat in Q3. Q3 marketing and selling expense rose 16%, while cost of revenue rose 34%, faster than revenue.
- Management notes that activity is seasonal, typically increasing in Q4 with sports, holiday theater and concert on-sales. The filing provides no specific financial guidance.
- Wavedash, a Tokyo-based ticket marketplace, was acquired on September 8 for approximately $74.3 million before the net effect of acquired cash; it was funded with cash on hand. Purchase accounting remained preliminary. The company also assumed approximately $3.1 million of fixed-rate debt.
- After quarter-end, on November 3, the company closed its acquisition of Vegas.com for approximately $243.8 million, subject to customary adjustments, comprising about $153.6 million cash and 15.6 million Class A shares. The cash portion was funded with cash on hand; this transaction is not reflected in September 30 cash balances.
- Credit-loss allowances increased for receivables from ticket sellers and distribution partners. Management also reported higher reserves for future event cancellations and customer compensation, and noted estimates of credit breakage and cancellation obligations could materially differ from actual outcomes.
- The first-lien loan is floating-rate; management estimated a hypothetical 1% rate change would alter interest expense by $2.1 million based on loan amounts outstanding during the nine-month period. Risks discussed include competition, discretionary spending, event supply and demand, cancellations, regulation, litigation and cybersecurity.
- Disclosure controls were not effective at reasonable assurance levels due to an unresolved material weakness in finance and accounting staffing, segregation of duties and defined roles. Remediation was ongoing and had not yet been deemed complete.
- Legal matters include an Illinois biometric privacy lawsuit for which the company said it could not reasonably estimate a loss range and recorded no reserve. The filing also describes potential sales-tax exposure; management did not consider historical unremitted sales tax loss probable based on its analysis.
Important facts for investors to verify
- How the Vegas.com cash consideration affects post-acquisition liquidity, leverage and share count.
- Whether Marketplace growth and contribution margins hold up as marketing, cost of revenue and cancellation-related estimates change.
- The extent to which nine-month net income and EPS growth depend on the valuation-allowance release, and the effect of noncontrolling interests and potential dilution.
- Progress in remediating the material weakness and whether controls operate effectively over a sufficient testing period.
- Future collection of seller and distribution-partner receivables, cancellation compensation, and obligations under the Tax Receivable Agreement.
- Exposure to higher floating interest rates, covenant requirements and any developments in the BIPA litigation or sales-tax matters.