Vivid Seats Inc.: Form 10-Q for the period ended Sep 30, 2023
Filed with the SEC on Nov 7, 2023 and accepted by EDGAR at Nov 7, 2023, 11:23 ET.
Management's discussion and analysis
As filed, 39,469 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
This discussion and analysis is intended to help readers understand our results of operations and financial condition and is provided as an addition to, and should be read together with, our condensed consolidated financial statements and accompanying notes included elsewhere in this Report, as well as our consolidated financial statements and accompanying notes contained in our 2022 Form 10-K. This discussion contains forward-looking statements, which are subject to a number of risks and uncertainties. Important factors that could cause actual results or outcomes to differ materially from those anticipated in the forward-looking statements include, but are not limited to, those set forth in the “Risk Factors” sections of this Report, our 2022 Form 10-K and our other filings with the SEC.
Overview
We are an online ticket marketplace that utilizes our technology platform to connect fans of live events seamlessly with ticket sellers. Our mission is to empower and enable fans to Experience It Live. We believe in the power of shared experiences to connect people with live events delivering some of life’s most exciting moments. We operate a technology platform and marketplace that enables ticket buyers to easily discover and purchase tickets from ticket sellers while enabling ticket sellers to seamlessly manage their operations. We differentiate from competitors by offering an extensive breadth and depth of ticket listings at a competitive value. During the three and nine months ended September 30, 2023, our revenues were $188.1 million and $514.6 million, respectively, and our Marketplace Gross Order Value ("Marketplace GOV") was $998.9 million and $2,808.2 million, respectively. During the three and nine months ended September 30, 2022, our revenues were $156.8 million and $435.3 million, respectively, and our Marketplace GOV was $781.8 million and $2,338.8 million, respectively. Our net income was $16.0 million and $84.6 million for the three and nine months ended September 30, 2023, respectively, and $18.7 million and $45.9 million for the three and nine months ended September 30, 2022, respectively.
Our Business Model
We operate our business in two segments, Marketplace and Resale.
Marketplace
In our Marketplace segment, we act as an intermediary between ticket buyers and sellers. We earn revenue processing ticket sales from our Owned Properties, consisting of our websites and mobile applications, and from our Private Label Offering, which is comprised of numerous distribution partners. Our Marketplace segment also includes our daily fantasy sports offering, where users partake in contests by making picks from a variety of sport and player matchups. Using our online platform, we facilitate customer payments, deposits and withdrawals, coordinate ticket deliveries, and provide customer service to our ticket buyers and sellers and daily fantasy sports users. We do not hold ticket inventory in our Marketplace segment.
We primarily earn revenue from service and delivery fees charged to ticket buyers. We also earn referral fee revenue by offering event ticket insurance to ticket buyers, using a third-party insurance provider. The revenue we earn from our daily fantasy sports offering is the difference between cash entry fees collected and cash amounts paid out to users for winning picks, less customer promotions and incentives in a period.
We incur costs for developing and maintaining our platform, providing back-office and customer support to ticket buyers, sellers and daily fantasy sports users, facilitating payments and deposits, and shipping non-electronic tickets. We also incur substantial marketing costs, primarily related to online advertising.
A key component of our platform is Skybox, a proprietary enterprise resource planning ("ERP") tool used by the majority of our ticket sellers. Skybox is a free-to-use system that helps ticket sellers manage ticket inventories, adjust pricing, and fulfill orders across multiple ticket resale marketplaces. Professional ticket sellers use an ERP to manage their operations, and Skybox is their most widely adopted ERP.
Resale
In our Resale segment, we acquire tickets to resell on secondary ticketing marketplaces, including our own. Our Resale segment also provides internal research and development support for Skybox and our ongoing efforts to deliver industry-leading seller software and tools.
Key Business Metrics and Non-GAAP Financial Measure
We use the following metrics to evaluate our performance, identify trends, formulate financial projections, and make strategic decisions. We believe these metrics provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.
The following table summarizes our key business metrics and non-GAAP financial measure (in thousands):
| Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | |
|---|---|---|---|---|
| Marketplace GOV(1) | $998,933 | $781,834 | $2,808,200 | $2,338,789 |
| Total Marketplace orders(2) | 3,022 | 2,572 | 7,924 | 7,001 |
| Total Resale orders(3) | 110 | 90 | 273 | 225 |
| Adjusted EBITDA(4) | $33,367 | $28,284 | $106,879 | $79,625 |
(1) Marketplace GOV represents the total transactional amount of Marketplace segment orders placed on our platform in a period, inclusive of fees, exclusive of taxes, and net of event cancellations that occurred during that period. Marketplace GOV was negatively impacted by event cancellations in the amount of $10.1 million and $33.9 million during the three and nine months ended September 30, 2023, respectively, and $13.8 million and $63.3 million during the three and nine months ended September 30, 2022, respectively.
(2) Total Marketplace orders represents the volume of Marketplace segment orders placed on our platform in a period, net of event cancellations that occurred during that period. During the three and nine months ended September 30, 2023, our Marketplace segment experienced 28,203 and 78,034 event cancellations, respectively, compared to 42,942 and 170,258 event cancellations during the three and nine months ended September 30, 2022, respectively.
(3) Total Resale orders represents the volume of Resale segment orders in a period, net of event cancellations that occurred during that period. During the three and nine months ended September 30, 2023, our Resale segment experienced 851 and 2,363 event cancellations, respectively, compared to 1,113 and 4,383 event cancellations during the three and nine months ended September 30, 2022, respectively.
(4) Adjusted EBITDA is a non-GAAP financial measure. We believe Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for making period-to-period comparisons of our business performance. Refer to the “Adjusted EBITDA” section below for more information and a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure.
Marketplace GOV
Marketplace GOV is a key driver of our Marketplace segment revenue. Marketplace GOV represents the total transactional amount of Marketplace orders in a period, inclusive of fees, exclusive of taxes, and net of event cancellations that occurred during that period. Marketplace GOV reflects our ability to attract and retain customers, as well as the overall health of the industry.
Our Marketplace GOV is impacted by seasonality, and typically sees increased activity in the fourth quarter when all major sports leagues are in season and we experience increases in order volume for theater events during the holiday season and concert on-sales for the subsequent year. Quarterly fluctuations in our Marketplace GOV result from the number of cancellations, the popularity and demand of performers, tours, teams, and events, and the length and team composition of sports playoff series and championship games.
Total Marketplace Orders
Total Marketplace orders represent the volume of Marketplace segment orders placed on our platform in a period, net of event cancellations that occurred during that period. An order can include one or more tickets and/or parking passes. Total Marketplace orders allow us to monitor order volume and better identify trends within our Marketplace segment.
Total Resale Orders
Total Resale orders represent the volume of Resale segment orders in a period, net of event cancellations that occurred during that period. An order can include one or more tickets and/or parking passes. Total Resale orders allow us to monitor order volume and better identify trends within our Resale segment.
Adjusted EBITDA
We present Adjusted EBITDA, which is a non-GAAP financial measure, because it is a measure frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. Further, we believe this measure is helpful in highlighting trends in our operating results because it excludes the impact of items that are outside the control of management or not reflective of ongoing performance related directly to the operation of our business.
Adjusted EBITDA is a key measure used by our management internally to make operating decisions, including those related to analyzing operating expenses, evaluating performance, and performing strategic planning and annual budgeting. Moreover, we believe Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for making period-to-period comparisons of our business performance and highlighting trends in our operating results.
Adjusted EBITDA is not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. Adjusted EBITDA does not reflect all amounts associated with our operating results as determined in accordance with GAAP and may exclude recurring costs, such as interest expense, equity-based compensation, litigation, settlements and related costs, change in fair value of warrants, change in fair value of derivative assets and foreign currency revaluation (gains)/losses. In addition, other companies may calculate Adjusted EBITDA differently than us, thereby limiting its usefulness as a comparative tool. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from Adjusted EBITDA.
The following is a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, net income (in thousands):
| Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | |
|---|---|---|---|---|
| Net income | $16,018 | $18,747 | $84,616 | $45,945 |
| Income tax expense (benefit) | 2,595 | 118 | (21,605) | 194 |
| Interest expense – net | 2,544 | 2,901 | 8,596 | 9,542 |
| Depreciation and amortization | 3,301 | 2,158 | 8,603 | 5,269 |
| Sales tax liability(1) | — | (118) | — | 2,814 |
| Transaction costs(2) | 2,290 | 538 | 7,234 | 4,285 |
| Equity-based compensation(3) | 7,578 | 5,073 | 20,488 | 13,982 |
| Loss on extinguishment of debt(4) | — | — | — | 4,285 |
| Litigation, settlements and related costs(5) | 26 | 89 | 260 | 1,084 |
| Change in fair value of warrants(6) | (1,664) | (65) | (991) | (6,618) |
| Change in fair value of derivative asset(7) | 83 | — | 83 | — |
| Change in fair value of contingent consideration(8) | 20 | (1,220) | (998) | (1,220) |
| Loss on asset disposals(9) | 34 | 63 | 51 | 63 |
| Foreign currency revaluation losses(10) | 542 | — | 542 | — |
| Adjusted EBITDA | $33,367 | $28,284 | $106,879 | $79,625 |
(1) We have historically incurred sales tax expense in jurisdictions where we expected to remit sales tax payments but were not yet collecting from customers. During the second half of 2021, we began collecting sales tax from customers in the required jurisdictions. The sales tax liability presented herein represents the tax liability for sales tax prior to the date we began collecting sales tax from customers reduced by abatements received, inclusive of any penalties and interest assessed by the jurisdictions. The remaining historic sales tax liability payments were made during the year ended December 31, 2022.
(2) This consists of legal, accounting, tax and other professional fees; personnel-related costs, which consist of retention bonuses; and integration costs. Transaction costs recognized in 2023 were primarily related to the Secondary Offering and our acquisitions and strategic investments. Transaction costs recognized in 2022 were primarily related to our acquisitions and strategic investments, the refinancing of the June 2017 First Lien Loan with the February 2022 First Lien Loan and our exchange offering of shares of our Class A common stock for properly tendered public warrants.
(3) We incur equity-based compensation expenses for profits interests issued prior to the Merger Transaction and equity granted pursuant to the 2021 Plan, which we do not consider to be indicative of our core operating performance.
(4) Losses incurred resulted from the extinguishment of the June 2017 First Lien Loan in February 2022.
(5) This relates to external legal costs, settlement costs and insurance recoveries, which were unrelated to our core business operations.
(6) This relates to the revaluation of warrants to purchase Intermediate Units held by Hoya Topco following the Merger Transaction.
(7) This relates to the revaluation of derivatives recorded at fair value.
(8) This relates to the revaluation of Vivid Picks cash earnouts.
(9) This relates to asset disposals, which are not considered indicative of our core operating performance.
(10) This relates to unrealized foreign currency revaluation losses from the remeasurement of non-operating assets and liabilities denominated in non-functional currencies on the balance sheet date.
Key Factors Affecting our Performance
There have been no material changes from the “Key Factors Affecting Our Performance” discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2022 Form 10-K. Our financial position and results of operations depend to a significant extent on those factors.
Recent Developments
Business Acquisition
On September 8, 2023 (the "Acquisition Date"), we acquired 100% of the outstanding shares of WD Holdings Co., Ltd. ("Wavedash"), an online ticket marketplace headquartered in Tokyo, Japan. The purchase price was JPY 10,946.1 million, or approximately $74.3 million based on the exchange rate in effect on the Acquisition Date, before considering the net effect of cash acquired. We financed the transaction at closing with cash on hand. The acquisition was accounted for as an acquisition of a business in accordance with the acquisition method of accounting.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2023 and 2022
The following table sets forth our results of operations (in thousands, except percentages):
| Three Months Ended September 30, 2023 | 2022 | Change | % Change | Nine Months Ended September 30, 2023 | 2022 | Change | % Change | |
|---|---|---|---|---|---|---|---|---|
| Revenues | $188,133 | $156,818 | $31,315 | 20% | $514,576 | $435,284 | $79,292 | 18% |
| Costs and expenses: | ||||||||
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 50,462 | 37,617 | 12,845 | 34% | 130,838 | 102,203 | 28,635 | 28% |
| Marketing and selling | 77,006 | 66,323 | 10,683 | 16% | 196,970 | 179,963 | 17,007 | 9% |
| General and administrative | 37,225 | 30,239 | 6,986 | 23% | 107,921 | 95,721 | 12,200 | 13% |
| Depreciation and amortization | 3,301 | 2,158 | 1,143 | 53% | 8,603 | 5,269 | 3,334 | 63% |
| Change in fair value of contingent consideration | 20 | (1,220) | 1,240 | 102% | (998) | (1,220) | 222 | 18% |
| Income from operations | 20,119 | 21,701 | (1,582) | (7)% | 71,242 | 53,348 | 17,894 | 34% |
| Other (income) expense: | ||||||||
| Interest expense – net | 2,544 | 2,901 | (357) | (12)% | 8,596 | 9,542 | (946) | (10)% |
| Loss on extinguishment of debt | — | — | — | —% | — | 4,285 | (4,285) | (100)% |
| Other (income) expense | (1,038) | (65) | (973) | (1,497)% | (365) | (6,618) | 6,253 | 94% |
| Income before income taxes | 18,613 | 18,865 | (252) | (1)% | 63,011 | 46,139 | 16,872 | 37% |
| Income tax expense (benefit) | 2,595 | 118 | 2,477 | 2,099% | (21,605) | 194 | (21,799) | (11,237)% |
| Net income | 16,018 | 18,747 | (2,729) | (15)% | 84,616 | 45,945 | 38,671 | 84% |
| Net income attributable to redeemable noncontrolling interests | 9,341 | 11,084 | (1,743) | (16)% | 35,045 | 27,368 | 7,677 | 28% |
| Net income attributable to Class A Common Stockholders | $6,677 | $7,663 | $(986) | (13)% | $49,571 | $18,577 | $30,994 | 167% |
Revenues
The following table presents revenues by segment (in thousands, except percentages):
| Revenues: | Three Months Ended September 30, 2023 | 2022 | Change | % Change | Nine Months Ended September 30, 2023 | 2022 | Change | % Change |
|---|---|---|---|---|---|---|---|---|
| Marketplace | $154,388 | $130,542 | $23,846 | 18% | $430,119 | $370,972 | $59,147 | 16% |
| Resale | 33,745 | 26,276 | 7,469 | 28% | 84,457 | 64,312 | 20,145 | 31% |
| Total revenues | $188,133 | $156,818 | $31,315 | 20% | $514,576 | $435,284 | $79,292 | 18% |
Total revenues increased $31.3 million, or 20%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and increased $79.3 million, or 18%, during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase, which occurred in both our Marketplace and Resale segments, resulted primarily from an increase in new orders processed and an increase in average order size, which is calculated by dividing Marketplace GOV by Total Marketplace Orders.
Marketplace
The following table presents Marketplace revenues by event category (in thousands, except percentages):
| Revenues: | Three Months Ended September 30, 2023 | 2022 | Change | % Change | Nine Months Ended September 30, 2023 | 2022 | Change | % Change |
|---|---|---|---|---|---|---|---|---|
| Concerts | $87,142 | $63,802 | $23,340 | 37% | $239,762 | $188,291 | $51,471 | 27% |
| Sports | 52,169 | 52,812 | (643) | (1)% | 143,118 | 143,012 | 106 | 0% |
| Theater | 14,788 | 13,526 | 1,262 | 9% | 45,705 | 37,997 | 7,708 | 20% |
| Other | 289 | 402 | (113) | (28)% | 1,534 | 1,672 | (138) | (8)% |
| Total Marketplace revenues | $154,388 | $130,542 | $23,846 | 18% | $430,119 | $370,972 | $59,147 | 16% |
Marketplace revenues increased $23.8 million, or 18%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and increased $59.1 million, or 16%, during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase resulted primarily from an increase in new orders processed and an increase in average order size, especially in our concerts event category.
Total Marketplace orders increased 449,784, or 17%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and increased 922,788, or 13%, during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
Cancellation charges, which are typically recognized as a reduction of revenues, represented a $1.0 million increase to revenue for the three months ended September 30, 2023 compared to a $3.0 million reduction for the three months ended September 30, 2022, and a $7.6 million reduction to revenue for the nine months ended September 30, 2023 compared to a $24.0 million reduction for the nine months ended September 30, 2022. Cancellation charges for the three months ended September 30, 2023 were lower than the three months ended September 30, 2022 due to higher store credit breakage. Cancellation charges for the nine months ended September 30, 2023 were lower than the nine months ended September 30, 2022 due to higher store credit breakage and negative impacts in early 2022 from abnormally high cancellations.
Marketplace revenues by business model consisted of the following (in thousands, except percentages):
| Revenues: | Three Months Ended September 30, 2023 | 2022 | Change | % Change | Nine Months Ended September 30, 2023 | 2022 | Change | % Change |
|---|---|---|---|---|---|---|---|---|
| Owned Properties | $122,778 | $106,597 | $16,181 | 15% | $329,006 | $288,827 | $40,179 | 14% |
| Private Label | 31,610 | 23,945 | 7,665 | 32% | 101,113 | 82,145 | 18,968 | 23% |
| Total Marketplace revenues | $154,388 | $130,542 | $23,846 | 18% | $430,119 | $370,972 | $59,147 | 16% |
The increase in revenue from Owned Properties during the three and nine months ended September 30, 2023 resulted primarily from an increase in new orders processed and an increase in average order size.
Within our Marketplace segment, we also earn referral fee revenue by offering event ticket insurance to ticket buyers, using a third-party insurance provider. Our referral fee revenue was $7.3 million and $21.9 million during the three and nine months ended September 30, 2023, respectively, and $7.6 million and $25.9 million during the three and nine months ended September 30, 2022, respectively. The decrease for both periods was due to declining insurance attachment rates to orders following abnormally high rates during the height of the COVID-19 pandemic and following the resumption of live events in 2021 and 2022.
Resale
Resale revenues increased $7.5 million, or 28%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and increased $20.1 million, or 31%, during the nine months ended September 30, 2023 compared to the nine months ended September 30 2022. The increase resulted primarily from higher order volume.
Total Resale orders increased 20,031, or 22%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and increased 48,276, or 21%, during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Cancellation charges, which are classified as a reduction of revenues, negatively impacted Resale revenue by $0.3 million and $1.0 million for the three and nine months ended September 30, 2023, respectively, compared to less than $0.1 million and $0.6 million for the three and nine months ended September 30, 2022, respectively, due to an increase in the reserve for future cancellations.
Cost of Revenues (exclusive of Depreciation and Amortization)
The following table presents cost of revenues by segment (in thousands, except percentages):
| Cost of revenues: | Three Months Ended September 30, 2023 | 2022 | Change | % Change | Nine Months Ended September 30, 2023 | 2022 | Change | % Change |
|---|---|---|---|---|---|---|---|---|
| Marketplace | $23,923 | $17,950 | $5,973 | 33% | $66,749 | $52,912 | $13,837 | 26% |
| Resale | 26,539 | 19,667 | 6,872 | 35% | 64,089 | 49,291 | 14,798 | 30% |
| Total cost of revenues | $50,462 | $37,617 | $12,845 | 34% | $130,838 | $102,203 | $28,635 | 28% |
Total cost of revenues increased $12.8 million, or 34%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, and increased $28.6 million, or 28%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was primarily driven by higher Marketplace GOV in our Marketplace segment and higher revenue in our Resale segment.
Marketplace
Marketplace cost of revenues increased $6.0 million, or 33%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, and increased $13.8 million, or 26%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was relatively consistent with the increase in Marketplace GOV, which increased by 28% and 20% during the same respective periods.
Resale
Resale cost of revenues increased $6.9 million, or 35%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, which was higher than the 28% increase in Resale revenues over the same period, due to event category mix. Resale cost of revenues increased $14.8 million, or 30%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was relatively consistent with the 31% increase in Resale revenues over the same period.
Marketing and Selling
The following table presents marketing and selling expenses (in thousands, except percentages):
| Marketing and selling: | Three Months Ended September 30, 2023 | 2022 | Change | % Change | Nine Months Ended September 30, 2023 | 2022 | Change | % Change |
|---|---|---|---|---|---|---|---|---|
| Online | $66,226 | $59,774 | $6,452 | 11% | $174,224 | $164,444 | $9,780 | 6% |
| Offline | 10,780 | 6,549 | 4,231 | 65% | 22,746 | 15,519 | 7,227 | 47% |
| Total marketing and selling | $77,006 | $66,323 | $10,683 | 16% | $196,970 | $179,963 | $17,007 | 9% |
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Marketing and selling expenses, which are entirely attributable to our Marketplace segment, increased $10.7 million, or 16%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022, and increased $17.0 million, or 9%, during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase resulted from greater spending on online advertising, attributable to higher Marketplace GOV, and higher spending on offline advertising, attributable to increased brand marketing and partnership efforts to further cultivate brand awareness and affinity.
General and Administrative
The following table presents general and administrative expenses (in thousands, except percentages):
| General and administrative: | Three Months Ended September 30, 2023 | 2022 | Change | % Change | Nine Months Ended September 30, 2023 | 2022 | Change | % Change |
|---|---|---|---|---|---|---|---|---|
| Personnel expenses | $27,740 | $22,251 | $5,489 | 25% | $78,791 | $64,685 | $14,106 | 22% |
| Non-income tax expenses | 472 | 177 | 295 | 167% | 1,426 | 3,859 | (2,433) | (63)% |
| Other | 9,013 | 7,811 | 1,202 | 15% | 27,704 | 27,177 | 527 | 2% |
| Total general and administrative | $37,225 | $30,239 | $6,986 | 23% | $107,921 | $95,721 | $12,200 | 13% |
Total general and administrative expenses increased $7.0 million, or 23%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, and increased $12.2 million, or 13%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was primarily due to higher personnel expenses from higher equity-based compensation expense and from higher employee headcount.
Depreciation and Amortization
Depreciation and amortization expenses increased $1.1 million, or 53%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and increased $3.3 million, or 63%, during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was primarily related to an increase in development activities related to our platform and the intangibles acquired as part of our acquisition of Betcha (which was rebranded as "Vivid Picks").
Change in Fair Value of Contingent Consideration
Change in fair value of contingent consideration was less than $0.1 million and $1.0 million during the three and nine months ended September 30, 2023, respectively, due to the fair value remeasurement of cash earnouts.
Other (Income) Expense
Interest expense – net
Interest expense decreased $0.4 million, or 12%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and decreased $0.9 million, or 10%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to higher interest income.
Loss on extinguishment of debt
Loss on extinguishment of debt was $4.3 million during the nine months ended September 30, 2022 due to the refinancing of the June 2017 First Lien Loan with the February 2022 First Lien Loan. There was no loss on extinguishment of debt for the nine months ended September 30, 2023.
Other (income) expense
Other income increased $1.0 million, or 1,497%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and decreased $6.3 million, or 94%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to the fair value remeasurement of the Hoya Intermediate Warrants and foreign currency revaluation losses due to unrealized losses arising from the remeasurement of non-operating assets and liabilities denominated in non-functional currencies on the balance sheet date.
Income tax expense (benefit)
Income tax expense was $2.6 million during the three months ended September 30, 2023 and income tax benefit was $21.6 million during the nine months ended September 30, 2023 largely due to the impact of noncontrolling interests and the release of our valuation allowance on our U.S. net operating losses, interest limitations, and tax credit carryforwards.
Liquidity and Capital Resources
We have historically financed our operations primarily through cash generated from our operating activities. Our primary short-term requirements for liquidity and capital are to fund general working capital, capital expenditures, and debt service requirements. Our primary long-term liquidity needs are related to debt repayment and potential acquisitions.
Our primary source of funds is cash generated from operations. Our existing cash and cash equivalents are sufficient to fund our liquidity needs for at least the next 12 months. As of September 30, 2023, we had $268.7 million of cash and cash equivalents, which consist of interest-bearing deposit accounts, money market accounts managed by financial institutions, and highly liquid investments with maturities of three months or less. For the nine months ended September 30, 2023, we generated positive cash flows from our operating activities.
Loan agreements
We had an outstanding loan balance of $465.7 million under the June 2017 First Lien Loan as of December 31, 2021. In the first quarter of 2022, we repaid $190.7 million of the outstanding balance of the June 2017 First Lien Loan. On February 3, 2022, we entered into an amendment which refinanced the remaining balance of the June 2017 First Lien Loan with a new $275.0 million February 2022 First Lien Loan with a maturity date of February 3, 2029, and added a new $100.0 million Revolving Facility with a maturity date of February 3, 2027. The terms of the February 2022 First Lien Loan specify a SOFR-based floating interest rate and contain a springing financial covenant that requires compliance with a first lien net leverage ratio when revolver borrowings exceed certain levels. All obligations under the February 2022 First Lien Loan are unconditionally guaranteed by Hoya Intermediate and substantially all of Hoya Intermediate’s existing and future direct and indirect wholly owned domestic subsidiaries. The February 2022 First Lien Loan requires quarterly amortization payments of $0.7 million. The Revolving Facility does not require periodic payments. All obligations under the February 2022 First Lien Loan are secured, subject to permitted liens and other exceptions, by first-priority perfected security interests in substantially all of our assets. The February 2022 First Lien Loan carries an interest rate of SOFR (subject to a 0.5% floor) plus 3.25%.
In connection with our acquisition of Wavedash, we assumed long-term debt from Shoko Chukin Bank Loan of JPY 458.3 million (approximately $3.1 million), which has a maturity date of June 24, 2026, subject to a fixed interest rate of 1.27% per annum.
As of September 30, 2023, we have the February 2022 First Lien Loan and Shoko Chukin Bank Loan outstanding. At September 30, 2023, we had no outstanding borrowings under our Revolving Facility.
Share Repurchase Program
On May 25, 2022, our Board authorized the Repurchase Program. The Repurchase Program was announced on May 26, 2022 and its authorization was fully utilized during 2022 and the three months ended March 31, 2023. Cumulatively under the Repurchase Program, we repurchased 5.3 million shares of our Class A common stock for $40.0 million and paid $0.1 million in commissions. The share repurchases are accounted for as Treasury stock in the Condensed Consolidated Balance Sheets. We made no share repurchases during the three months ended September 30, 2023.
Distributions to non-controlling interests
Per its Limited Liability Company Agreement, Hoya Intermediate is required to make pro-rata tax distributions to its members, of which zero and $11.0 million was distributed to non-controlling interests in the three and nine months ended September 30, 2023, respectively.
Tax Receivable Agreement
In connection with the Merger Transaction, we entered into a Tax Receivable Agreement with the existing Hoya Intermediate shareholders that provides for our payment to such shareholders of 85% of the amount of the tax savings, if any, that we realize (or, under certain circumstances, are deemed to realize) as a result of, or attributable to, (i) increases in the tax basis of assets owned directly or indirectly by Hoya Intermediate or its subsidiaries from, among other things, any redemptions or exchanges of Intermediate Units, (ii) existing tax basis (including depreciation and amortization deductions arising from such tax basis) in long-lived assets owned directly or indirectly by Hoya Intermediate and its subsidiaries, and (iii) certain other tax benefits (including deductions in respect of imputed interest) related to us making payments under the Tax Receivable Agreement.
In conjunction with the Secondary Offering in the second quarter of 2023, Hoya Topco exchanged Intermediate Units, and as a result, we recorded a liability of $99.0 million and a deferred tax asset of $52.8 million related to the Secondary Offering as well as the projected payments under the Tax Receivable Agreement, with a corresponding reduction to additional paid-in capital of $46.1 million. Tax Receivable Agreement-related liabilities are classified as current or long-term based on the expected date of payment. As of September 30, 2023, there are no amounts due within 12 months and, therefore, the entire liability is included in Tax Receivable Agreement liability within long-term liabilities in the Condensed Consolidated Balance Sheets.
Cash Flows
The following table summarizes our cash flows (in thousands):
| Nine Months Ended September 30, 2023 | 2022 | |
|---|---|---|
| Net cash provided by operating activities | $114,386 | $1,389 |
| Net cash used in investing activities | (71,032) | (11,888) |
| Net cash used in financing activities | (26,696) | (204,911) |
| Impact of foreign exchange on cash, cash equivalents, and restricted cash | 786 | — |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $17,444 | $(215,410) |
Cash Provided by Operating Activities
Net cash provided by operating activities was $114.4 million for the nine months ended September 30, 2023 due to $84.6 million in net income, non-cash charges of $6.1 million, and net cash inflows from a $23.6 million change in net operating assets. The net cash inflows from the change in our net operating assets were primarily due to an increase in amounts payable to ticket sellers due to higher volume of orders.
Net cash provided by operating activities was $1.4 million for the nine months ended September 30, 2022 due to $45.9 million in net income, non-cash charges of $18.2 million, and net cash outflows from a $62.7 million change in net operating assets. The net cash outflows from the change in our net operating liabilities were primarily due to decreases in accrued expenses and other current liabilities and accounts payable. The decreases resulted primarily from sales tax liability settlements, the redemption of customer credits issued during the COVID-19 pandemic, and a decrease in amounts payable to ticket sellers as events postponed during the COVID-19 pandemic finally occurred.
Cash Used in Investing Activities
Net cash used in investing activities was $71.0 million for the nine months ended September 30, 2023, which was primarily related to our acquisition of Wavedash, capital spending on development activities related to our platform and our investment in a privately held company.
Net cash used in investing activities was $11.9 million for the nine months ended September 30, 2022, which was primarily related to capital spending on development activities related to our platform.
Cash Used in Financing Activities
Net cash used in financing activities was $26.7 million for the nine months ended September 30, 2023, which was primarily related tax distributions to non-controlling interest and our Repurchase Program.
Net cash used in financing activities was $204.9 million for the nine months ended September 30, 2022, which was due to the repayment of the June 2017 First Lien Loan in connection with the refinancing.
Critical Accounting Policies and Estimates
Accounting policies and estimates are considered critical when they require management to make subjective and complex judgments, estimates and assumptions about matters that have a material impact on the presentation of our financial statements and accompanying notes. For a description of our critical accounting policies and estimates, refer to the “Critical Accounting Policies and Estimates” section of our 2022 Form 10-K. During the nine months ended September 30, 2023, there were no material changes to our critical accounting policies from those discussed in our 2022 Form 10-K.
Recent Accounting Pronouncements
Refer to Note 2, New Accounting Standards, in the notes to our unaudited condensed consolidated financial statements included elsewhere in this Report for a description of recently adopted accounting pronouncements and issued accounting pronouncements not yet adopted.
Market risk
As filed, 1,041 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Market risk is the potential loss from adverse changes in interest rates, foreign exchange rates, and market prices. Our primary market risk is interest rate risk associated with our long-term debt. We manage our exposure to this risk through established policies and procedures. Our objective is to mitigate potential income statement, cash flow, and market exposures from changes in interest rates.
Interest Rate Risk
Our market risk is affected by changes in interest rates. We maintain floating-rate debt that bears interest based on market rates plus an applicable spread. Because our interest rate is tied to market rates, we will be susceptible to fluctuations in interest rates if we do not hedge the interest rate exposure arising from our floating-rate borrowings. A hypothetical 1% change in interest rates, assuming rates are above our interest rate floor, would change our interest expense by $2.1 million based on amounts outstanding under the February 2022 First Lien Loan during the nine months ended September 30, 2023.
Controls and procedures
As filed, 3,728 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Limitations on Effectiveness of Disclosure Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective at reasonable assurance levels as of September 30, 2023 due to the reasons described below.
Material Weakness
In connection with the audit of our consolidated financial statements as of December 31, 2022, we identified a material weakness in our internal control over financial reporting related to the implementation of segregation of duties as part of our control activities, the establishment of clearly defined roles within our finance and accounting functions and the number of personnel in our finance and accounting functions with an appropriate level of technical accounting and SEC reporting experience, which in the aggregate, constitute a material weakness.
Remediation Activities
As part of our plan to remediate the material weakness described above, we are performing a full review of our internal control procedures. We have implemented, and plan to continue to implement, new controls and processes. We have hired, and plan to continue to hire, additional qualified personnel and establish more robust processes to support our internal control over financial reporting, including clearly defined roles and responsibilities and appropriate segregation of duties. During the three months ended September 30, 2023, we continued to make progress in our remediation of the material weakness. While progress has been made to enhance our internal control, additional time is required to complete implementation and to assess and ensure the sustainability of these controls. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Risk factors
As filed, 568 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in the “Risk Factors” section of our 2022 Form 10-K. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this Report. There have been no material changes from the risk factors disclosed in our 2022 Form 10-K.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2023-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2023-07-01 to 2023-09-30 | $154.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months2023-01-01 to 2023-09-30 | $430.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Net income | 3 months2023-07-01 to 2023-09-30 | $6.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months2023-01-01 to 2023-09-30 | $61.7m | us-gaap:ProfitLoss |
| Operating cash flow | 9 months2023-01-01 to 2023-09-30 | $114.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2023-01-01 to 2023-09-30 | $785.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | At period end2023-09-30 | $268.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2023-09-30 | $405.5m | us-gaap:AssetsCurrent |
| Total assets | At period end2023-09-30 | $1.39bn | us-gaap:Assets |
| Current liabilities | At period end2023-09-30 | $454.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | At period end2023-09-30 | $265.9m | us-gaap:LongTermDebt |
| Shareholders' equity | At period end2023-09-30 | −$120.3m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0000950170-23-059732. Last ingested by Listed: Oct 24, 2026, 15:16 ET. Listed shows no prices and gives no investment advice.