Vivid Seats Inc. (NASDAQ:SEAT) Q1 2023 Earnings Call Transcript May 12, 2023

Operator: Good morning, and welcome to the Vivid Seats’ First Quarter 2023 Earnings Conference Call. Following management’s prepared remarks we will open the call for Q&A. I would now like to turn the call over to Kate Copouls.

Kate Copouls: Good morning, and welcome to Vivid Seats’ First Quarter 2023 Earnings Conference Call. I’m Kate Copouls, Head of Investor Relations at Vivid Seats. Joining me today to discuss Vivid Seats’ results are Stan Chia, Chief Executive Officer; and Larry Fey, Chief Financial Officer. By now, everyone should have access to our first quarter earnings press release, which we released earlier this morning. We have also provided supplemental earnings slides. The press release and earnings slides are available on the Investor Relations page of Vivid Seats’ website at investors.vividseats.com. During the course of this call, management may make forward-looking statements within the meaning of Federal Securities Laws. These forward-looking statements are subject to the risks and uncertainties as described in our earnings press release and other filings with the SEC.

On today’s call, we will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures that provide useful information for our investors. You will find a historical reconciliation of adjusted EBITDA and adjusted EBITDA margin to the corresponding GAAP measure in the earnings press release, supplemental earnings slides, and SEC filings. And now I would like to turn the call over to Stan.

Stan Chia: Good morning, everyone and thank you for joining us today. I’m thrilled to share our exceptional first quarter 2023 results with you. As always, we prioritize initiatives that generate long-term value and stickiness in our marketplace, and I’m excited to report on our progress. Our first quarter financial results speak to our ability to relentlessly drive incremental efficiency and simultaneously invest in competitive product differentiation. To begin with, I’ll walk through our financial and strategic highlights from the quarter before turning it to Larry to take you through our financial results in more detail and to discuss our updated outlook for 2023. We set out strong in 2023 and I’m proud to report we generated $856 million of marketplace GOV, $161 million of revenues, and $42 million of adjusted EBITDA in the first quarter.

We delivered double-digit growth for marketplace GOV and revenues and doubled adjusted EBITDA despite a highly competitive ticketing environment. Thanks to a strong March, we quickly exceeded expectations set during our Q4 call, and we are accordingly raising our 2023 marketplace GOV revenue and adjusted EBITDA guidance. The live event environment in the first quarter 2023 was robust due to a combination of exciting event supply and exuberant fan demand. Consumers continue to crave live experiences in the first quarter, and we believe this trend will continue for many years. Consumers were eager to secure their seats for concert headliners like Drake and Beyoncé, and for sporting events such as the World Baseball Classic and NCAA Women’s Basketball Final 4.

The Women’s Final 4 was the latest data point supporting an exciting trend of outsized growth across women’s sports as a category that we believe will continue for decades to come. While consumers are seeking their favorite live events, our marketing campaigns are focused on ensuring fans are aware of our differentiated experience, underpinned by our unique Vivid Seats Rewards program. Vivid Seats Rewards aligns us with fans by offering more rewards the more they buy. In addition to ticket savings, our loyalty program includes a host of other benefits ranging from surprise upgrades to exclusive game day experiences. Our buyer experience and engagement efforts, starting with our loyalty program, are designed to cultivate brand awareness and lasting affinity for our platform.

Engagement during and between live events is crucial in our relatively low-frequency category, and we are seeing continued improvement as we invest in both marketing and product vehicles to drive engagement. With marketing efforts, whether at an on-site event or through our growing social presence, our buyers are engaging with us more than ever before. In social, we lead the competition with the highest positive sentiment, and we have been rapidly growing our social following. Our social engagement has grown 50 times since we began our initiatives in earnest and nearly doubled quarter-over-quarter in Q1. We continue to innovate and differentiate our product-focused engagement efforts to buyers and are excited to announce our first free-to-play product available directly within the Vivid Seats app, fully powered by Vivid Picks.

Launching in May, users will be able to play daily challenges with a chance to win free tickets. We’re thrilled to get this product off the ground and offer another compelling engagement opportunity for our buyers within our app experience. On the seller side, SkyBox Drive, our new automated pricing product that leverages our powerful marketplace data, continues to progress and has moved into its beta phase. We are incorporating feedback as we march towards an exciting launch in the latter half of the year. Our leading products are the result of consistent investments focused on driving long-term stickiness on both sides of our marketplace. Our install base of sellers on SkyBox already includes more than 50% of professional sellers. On the buyer side, we continue to grow by adding new buyers and driving accretive repeat order activity.

In tandem with our investments in loyalty and differentiated buyer experience, the portion of repeat orders placed on Vivid Seats increased to 56% in 2022 from 47% in 2018. We know our buyers better than ever before and offer personalized recommendations and campaigns. Even with our repeat rates trending higher across categories, there is still room to grow as we drive repeat behavior among passionate sports and music fans. At the same time, we will continue to attract cohorts of new buyers onto our platform, creating an ever-growing network to nurture for repeat purchases that provide a tailwind for our margins. Our strategic and operating principles are grounded in driving profitable growth. Our approach has always been to execute with disciplined rigor and maniacal testing such that we continue to attract new buyers while increasing repeat rates through a consistent focus on things we can control.

Raising and consuming capital to drive unsustainable volume is a strategy that does not endure. Sustained gains stem from differentiated products, service and value, and that is where we invest and excel. To conclude, we made important strategic progress this quarter and delivered healthy growth, profitability, and cash flow. We continued to strengthen our product and market position, while our strong balance sheet serves as a substantial asset that we are ready to deploy to continue our track record of outpacing industry growth. With that, I will turn it over to Larry.

Lawrence Fey: Thanks, Dan. We kicked off 2023 with an exceptional first quarter and are raising our marketplace GOV, revenues and adjusted EBITDA guidance to account for our results to date. I’ll discuss the first quarter in detail before turning to our updated outlook for 2023. Our first quarter 2023 marketplace GOV of $856 million increased 15% year-over-year, driven by a 13% increase in total marketplace orders and a 2% increase in average order size. Our strong GOV growth reflects a robust live event calendar, particularly in March, coupled with a relatively easy Q1 2022 comp due to the negative impact the Omicron variant had on demand in Q1 of last year. MLB opening day, a marquee event that garners significant GOV, shifted back into the first quarter this year.

We also saw unprecedented demand for the World Baseball Classic and top artist on-sale activity, including Drake and Beyoncé. Our first quarter 2023 revenues of $161 million increased 23% year-over-year, driven by marketplace GOV growth and an improvement in take rate. Our take rate, calculated by dividing marketplace revenues by marketplace GOV was 16.0% in Q1 2023 compared to an unusually low 14.9% in Q1 2022 due to the MLB lockout and several prominent concert tour cancellations. Cancellations represented 1.4% of pre-canceled GOV in Q1 2023, which is down considerably from 4.5% in Q1 2022. This decline in cancellations provided several hundred basis points of year-over-year revenue growth. Our first quarter 2023 adjusted EBITDA of $42 million doubled year-over-year, driven by a combination of top line growth and margin expansion.

Margins benefited from improved marketing efficiency, which we achieved despite continuing intensity in the competitive environment as we continually seek pockets of improvement. First quarter adjusted EBITDA margins also benefited from the cadence of certain brand-related marketing investments, along with tailwinds from changes to our loyalty program. In aggregate, marketing timing and loyalty changes benefited adjusted EBITDA by approximately $8 million in the first quarter. Accordingly, Q1 adjusted EBITDA margins were especially strong and will result in the first quarter likely representing an outsized portion of full-year EBITDA relative to a typical year. Non-recurring benefits aside, we are encouraged by our continued underlying progress towards our long-term EBITDA margin targets as we profitably captured underlying industry growth.

Cash flow was also strong in the first quarter. We generated $65 million in cash from operations and expect 2023 EBITDA to cash flow conversion to approach historical levels. Our cash balance of $303 million exceeded our debt principal outstanding by $31 million at quarter-end. Our cash balance also reflects $8 million of share repurchases completed during Q1 as we fully utilized the remainder of our $40 million repurchase authorization during the quarter. Turning to our updated outlook, we are raising our guidance for each of marketplace GOV, revenues, and adjusted EBITDA to account for a tremendous start to 2023. We now anticipate 2023 marketplace GOV in the range of $3.15 billion to $3.40 billion; revenues in the range of $605 million to $630 million, and adjusted EBITDA in the range of $115 million to $130 million.

Our updated outlook contemplates continued intensity across the competitive landscape coupled with awareness of a potentially weakening macroeconomic environment, although we have yet to see any weakening in demand for live events. Our 2023 outlook also reflects more challenging comps in Q2 and Q3 as we lap the periods that benefited from the occurrence of previously postponed concerts. We have multiple paths to accelerate our trajectory and build long-term value. We see a vibrant long-term growth outlook for live events, and we are very well-positioned with our sizable cash balance, ongoing cash generation, loyal user base of buyers and sellers and superior product and data. We have the balance sheet and internal capabilities to seize upon synergistic opportunities in ticketing or adjacent TAM-enhancing areas that leverage our technology platform and ecosystem of buyers, sellers and partners.

We also continue to evaluate all available opportunities to optimize our capital structure to drive long-term shareholder returns. To wrap, it was an exceptional quarter for growth, profitability and cash flow. The live event industry continues to see robust demand, and our team is delivering consistent outperformance, which serves as a testament to our ability to win in the long-term. Back to you, Stan.

Stan Chia: Thanks, Larry. It was a truly exciting quarter and start to 2023. I’m proud of what our team delivered and excited about what we can accomplish as the live event ticketing environment evolves and we continue to drive long-term value at Vivid Seats. In addition to our exceptional financial results, I would like to highlight that we recently published our inaugural Environmental, Social and Governance update. Our 2023 ESG fact sheet outlines key initiatives, including our commitment to environmental sustainability, our dedication to diversity, our investments in our communities, and our responsibility to safety and security. We are committed to ethical decision-making across the organization, and we are proud of our combined majority diverse leadership team and Board.

We also recently celebrated World Wish Day with our partner, Make-A-Wish, who we have been working with to grant life-changing wishes, sending children and their families to events like the NCAA College Football Championship, The Daytona 500 and the NCAA College Basketball Final 4. As a newly public company, we look forward to continuing to make positive contributions to our communities while also delivering strong financial results. With that, operator, let’s open it up for questions.

Q&A Session

Operator: [Operator Instructions]. Our first question will come from the line of Jason Bazinet from Citi. Your line is open.

Operator: One moment for your next question. Our next question will come from the line of Ralph Schackart from William Blair. Your line is open.

Operator: One moment for your next question. Our next question comes from the line of Maria Ripps from Canaccord. Your line is open.

Operator: One moment for your next question. Our next question will come from the line of Benjamin Black from Deutsche Bank. Your line is open.

Operator: Thank you. One moment for your next question. Our next question comes from the line of Stephen Ju from Credit Suisse. Your line is open.

Operator: One moment for your next question. Our next question is from line of Logan Reich from RBC Capital Markets. Your line is open.

Operator: One moment for your next question. Our next question comes from the line of Thomas Forte from D.A. Davidson. Your line is open.

Operator: One moment for your next question. And our next question comes from the line of Shweta Khajuria from Evercore ISI. Your line is open.

Operator: One moment for your next question. Our next question will come from the line of Matt Farrell from Piper Sandler. Your line is open.

Operator: One moment for your next question. Our next question will come from the line of Andrew Marok from Raymond James. Your line is open.

Operator: Thank you. One moment for your next question. And our last question comes from the line of Dan Kurnos from The Benchmark Company. Your line is open.

Operator: Thank you. And that ends our Q&A session for today. And with that, this concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone have a great day.