Vivid Seats Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparisons are to the corresponding 2021 periods. Vivid Seats operates an online secondary ticket marketplace (Marketplace) and also buys and resells tickets (Resale). Amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $156.8 | $139.5 | $435.3 | $279.2 |
| Operating income | $21.7 | $15.5 | $53.3 | $31.0 |
| Net income (loss) | $18.7 | $(1.8) | $45.9 | $(19.5) |
| Adjusted EBITDA (non-GAAP) | $28.3 | $42.0 | $79.6 | $82.3 |
| Cash from operating activities | — | $1.4 | $215.3 |
- Q3 operating margin was approximately 13.8%, versus 11.1% a year earlier; nine-month operating margin was approximately 12.3%, versus 11.1%. Consolidated net income includes earnings attributable to redeemable noncontrolling interests: $11.1 million for Q3 and $27.4 million year to date. Income attributable to Class A stockholders was $7.7 million and $18.6 million, respectively; diluted EPS was $0.09 and $0.23.
- Marketplace GOV was $781.8 million in Q3 and $2.34 billion year to date, up 10% and 54%, respectively. Marketplace revenue grew 8% in Q3 and 50% year to date; Resale revenue grew 38% and 101%.
- At September 30, cash and cash equivalents were $273.9 million, down from $489.5 million at year-end 2021. Debt was $273.6 million gross ($268.2 million net of issuance costs, including $2.8 million current). The $100 million revolving facility had no borrowings. Working capital was a deficit of approximately $41.2 million.
- Nine-month investing cash outflow was $11.9 million, primarily for platform development. Financing cash outflow was $204.9 million, principally reflecting debt repayment and refinancing.
Changes, outlook, and notable items
- Results benefited from the continuing recovery in live events and higher order volumes compared with 2021, when pandemic restrictions and cancellations weighed on activity. Management reported ongoing uncertainty from COVID-19 and noted that Marketplace activity is seasonal, typically increasing in the fourth quarter.
- Adjusted EBITDA declined 33% in Q3 and 3% year to date despite revenue growth. Marketing and selling expense rose 32% in Q3 and 72% year to date, largely due to higher online and offline advertising. Management attributed the nine-month operating cash-flow decline mainly to working-capital outflows, including reduced seller payables, customer-credit redemptions, and sales-tax settlements.
- In February 2022, the company refinanced its prior first-lien debt with a $275 million term loan maturing in 2029 and established a $100 million revolver maturing in 2027. The term loan bears interest at SOFR plus 3.25% (0.5% floor); effective interest was 6.68% at quarter-end. The company reported compliance with debt covenants. It stated existing cash was sufficient for liquidity needs for the next 12 months.
- No numerical financial guidance is provided in the filing. Management identified risks including event cancellations and discretionary spending, competition, customer and seller relationships, cybersecurity, regulation, litigation, and the ability to generate cash or obtain capital. Floating-rate debt exposes the company to interest-rate changes.
- Customer cancellation-related estimates remain significant: accrued customer credits were $103.8 million and accrued future customer compensation was $31.3 million at quarter-end. The company reduced its estimated future cancellation rate, lowering related accrued compensation by $42.6 million and the related recovery asset by $34.2 million. Actual cancellations or customer claims differing from estimates could materially affect results.
- The company reported that disclosure controls and procedures were not effective at September 30, 2022 because of a material weakness involving finance and accounting staffing, technical expertise, role clarity, and segregation of duties. Remediation efforts were underway. Historical sales-tax discussions with jurisdictions were finalized; the remaining historic liability payment was made in October 2022. The company also recorded a $4.3 million debt-extinguishment loss year to date and a $6.6 million noncash warrant fair-value gain.
Important facts for investors to verify
- Whether order growth, event supply, cancellation rates, and marketing returns sustain revenue and contribution-margin performance.
- Whether working-capital movements normalize and operating cash flow converts reported earnings into cash.
- Current debt costs and covenant headroom under the floating-rate term loan, as well as available revolver capacity.
- Progress and effectiveness of remediation of the disclosed material weakness in internal controls.
- Changes in customer-credit and cancellation liabilities, litigation exposure, and the tax receivable agreement, which may require payment of 85% of specified realized or deemed tax savings.
- Effects of redeemable noncontrolling interests, potential dilution from equity awards and warrants, and the remaining authorization under the $40 million share-repurchase program.