Vivid Seats Inc. Q3 FY2022 Earnings Call

Good morning, and welcome to Vivid Seats' Third Quarter 2022 Earnings Conference Call. I am 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 the company's third quarter earnings press release filed 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 investor.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 the company's 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.

Good morning, everyone, and thank you for joining us today. I'm excited to discuss our third quarter results and another solid performance from the Vivid Seats team. The momentum we've seen in our business has continued, and we've now set quarterly records for both marketplace GOV and revenues for the last six consecutive quarters. These results are a testament to our powerful technology platform and our team's ability to capture industry strength with agility. We continue to enhance our unique offerings to reinforce our long-term strategy of acquiring and retaining customers through strong product and service differentiation while making targeted investments to foster brand awareness and loyalty. This morning, I want to share an update on the business and our strategic progress before turning it over to Larry to discuss our results and financial guidance in more detail. To begin with, I'd like to remark on our first year as a public company, which is a milestone we just passed this October. It has been an incredible year for Vivid Seats. We reported record quarters, capitalized on strong live event demand with exceptional execution, and furthered our long-standing track record of growth and profitability. Next, I'd like to highlight our recent brand efforts. In September, we launched a new integrated brand campaign highlighting Vivid Seats Rewards and VividPIX. The Real Rewards for Real Fans campaign launched with content across paid, owned, and earned media and was curated for category reach and the targeted recruitment of high-value audiences. This campaign highlights one of the key differentiators of our brand, Vivid Seats Rewards, connecting Vivid Seats with the number 11 and driving awareness of the key perk of the Vivid Seats Rewards program, the free 11th ticket. Most notably, with this campaign, Vivid Seats is the first brand ever to sponsor a bonus 11th play on the iconic ESPN SportsCenter Top 10 series and features homepage takeovers with our brand partners. Our recent brand campaigns contrast with our initial brand push during the fourth quarter of 2021, which focused on increasing mass market brand awareness. While 2021's brand campaign indeed corresponded with a double-digit percentage increase in awareness, we have achieved more significant and sustained increases in awareness with more targeted initiatives through many of our refined efforts and channels. In fact, fans across some of these channels have proven to be two times more likely to be aware of Vivid Seats and two to three times more likely to consider purchasing from Vivid Seats. As we look to drive more awareness with high-value live event fans, we continue to expand our brand partnerships with category-endemic media outlets, such as our recent partnership with Bleacher Report. I'm also excited to announce that we've recently finalized our partnership with the New York Post and are looking forward to launching that over the next few weeks. Lastly, to target younger sports and music fans, we are building on our cultural cachet through influencer marketing and collaborations. At Vivid Seats, we are focused on building customers for life. Our data and ecosystem are at the center of that effort. Our dynamic marketing tech stack ingests multiple data streams, goes well beyond transactional data, and creates a powerful unified customer profile. We are smarter about the customer than ever before, and we surgically prospect the most valuable segments through programmatic channels and triggered communications. Consumer preferences and propensities illuminate the best action to drive lifetime value through continued engagement and purchase activity via Vivid Seats and VividPIX. We are pleased to report that our customer repeat rates are trending higher across event categories, indicating that our brand and loyalty efforts are working. We will retain the optionality to invest in highly targeted brand channels to amplify the initial traction that we are seeing. Ultimately, we expect higher repeat rates to yield significant margin leverage. That said, live events are a low frequency category, and it will take time for new cohorts of loyal customers to make repeat purchases and drive leverage. On the seller side of our marketplace, we continue to attract and retain sellers with our industry-leading technology offerings and excellent customer service. Professional ticket sellers use an ERP to manage their inventory, and we are proud that Skybox is their most widely adopted ERP. Professional sellers continue to migrate to Skybox with over 110 sellers added thus far in 2022. Our first-party SkyBox data offers Vivid Seats a uniquely thorough and real-time picture of the live event industry. We utilize our data advantages to fuel our marketing engines and power our marketplace flywheel. Moving on to the consumer. We continue to see healthy demand across categories, and it's clear that live events are resonating with consumers as they continue to shift wallet share from goods to experiences. In sports, Minor League Baseball has enjoyed a family-friendly resurgence, and our Minor League Baseball gross order value is now eight times 2017 levels. In music, festivals appear more popular than ever. So far, in 2022, Vivid Seats has already helped fans attend nearly 150 more festival events than in 2019. To capitalize on this trend, this year, we launched the Lucky Roller, an interactive Vivid Seats brand experience at popular music festivals like Coachella, BottleRock, Lollapalooza, and Austin City Limits. We continue to see encouraging changes in consumer purchasing patterns. Specifically, MLB disclosed that 2022 regular season baseball attendance was down 6% versus 2019. Meanwhile, Vivid's MLB orders have increased significantly. This data supports more inventory flowing into the secondary ticketing market as consumer preference continues to shift from season ticket packages to more flexible buying. As we look to 2023, we are seeing positive indications of a robust concert calendar. Artists often announce their tours for the following year during the fourth quarter. In the third and fourth quarters to date, we've already had exciting tour announcements from top artists, including Taylor Swift, George Strait, Ed Sheeran, Blink 182, and others. On the product side, in the third quarter, we continued to expand our offerings to engage with and reach new live event fans. We introduced new sports categories within the VividPIX app, including WNBA, Tennis, UFC, and F1. We are currently in the midst of our first NFL and NBA season with an integrated VividPIX product, and we are still early in unlocking its value across our platform. Shortly after the third quarter ended, we reached an exciting milestone; to support the ongoing growth of our business and to attract, retain, and foster talent, we moved our headquarters to the historic Marshall Field building in downtown Chicago. The new headquarters is not just an investment in Chicago's growing tech sector, it is an investment in Vivid Seats' current and future employees, which will support a scaled workforce and hybrid work model with shared and collaborative workspaces. As a business, we are passionate about enabling fans to experience live events, and we are intent on doing the same for our employees with our new office. Turning to the competitive environment, throughout the year, we have continued to see ramping and now unprecedented pressure from competitors eager to regain past position or obtain scale, putting near-term pressure on margins. We remain confident and enthusiastic that our strategy to invest in differentiated products and services such as VividPIX, Skybox, and our award-winning customer service increases customer lifetime value, and where we see unique opportunities to enhance our strategy, we intend to continue making investments that maximize the long-term value of our customer relationships. Our focus remains on driving long-term shareholder value by making both the right short- and long-term investments and strategic decisions. One of those strategic decisions was to become a public company and augment the levers available to us. Beyond increased customer trust and brand awareness inherent to a publicly traded company, we gained an invaluable investor and partner in Todd Boehly, who has continued to provide significant strategic benefits to our business with connections in both music and sports, including Rolling Stone, DraftKings, the Dodgers, the Lakers, and now Chelsea within the English Premier League. Importantly, we also strengthened our balance sheet to a position where cash exceeded gross debt, and we're able to immediately deploy equity capital to expand into an adjacent category, daily fantasy. Being public with a healthy balance sheet continues to provide the flexibility to increase growth and make investments that drive long-term shareholder value. A year later, it's clear that the strength of our business reflects the power of our differentiated model and our unique value proposition. Our ability to capitalize on the strength of the live events category, which is benefiting from both near-term and long-term tailwinds and demonstrating resiliency to recessionary factors continues to drive our success. With that, I will turn it over to Larry.

Thank you, Stan. I'll begin with a discussion of our third quarter trends and results before turning to our updated outlook for the remainder of 2022. This quarter, we lapped very strong results from the third quarter of 2021 when we set multiple records by capturing exuberant reopening demand. During the third quarter of 2022, the live event demand environment remained healthy, and we are proud to say that Vivid Seats continued to set new records for third quarter marketplace GOV and revenues and once again achieved our highest quarterly total marketplace orders ever. Meanwhile, Vivid Seats remained highly profitable and generated $28 million of adjusted EBITDA while continuing to invest in our differentiated platform. Our third quarter 2022 marketplace GOV of $782 million increased 10% year-over-year, driven by a 9% increase in total marketplace orders, while the average order size of $304 increased slightly. We view 2019 as a better baseline than 2021 for trend line AOS due to pandemic impacts throughout last year. In the first half of 2022, AOS increased 12% relative to the first half of 2019, in line with the 3% to 4% annual CAGR we have seen historically. In the third quarter of 2022, AOS increased 7% versus Q3 2019, with the deceleration primarily driven by strong growth in select lower AOS categories, resulting in some mix shift. Later MLB playoff timing, with the playoffs primarily occurring in Q4 this year, also contributed. We continue to see robust consumer demand this quarter with AOS for our top 50 artists by GOV, up 14% versus Q3 2019 and our AOS for the top 20 artists up 19%. Our third quarter 2022 revenues of $157 million increased 12% year-over-year, and our take rate was 16.7%. Our take rate, which is calculated by dividing our marketplace revenues by our marketplace GOV, was consistent with historical levels when considering the impact of our loyalty program, which is accounted for as a reduction in revenue. Meanwhile, cancellations in the third quarter were roughly flat on a sequential basis and substantially lower year-over-year. We generated $28 million of adjusted EBITDA in the third quarter and an 18% adjusted EBITDA margin. Adjusted EBITDA margins were lower on a sequential and year-over-year basis due to higher marketing expenses as we met increased competition in the performance marketing channel. In tandem, we ramped targeted brand investments to retain users and increase lifetime value. Meanwhile, marketplace gross margins were stable, and G&A expenses, net of EBITDA adjustments, were sequentially steady despite revenue growth. Exceptional margins from the third quarter of 2021 benefited from a lean pandemic-sized cost structure and competitors who were slower to seize upon the reopening. After returning to scale, incurring public company costs and making deliberate brand investments, our third quarter 2022 margin performance should be contemplated within the context of our full year 2022 adjusted EBITDA margin guidance provided last quarter, which was approximately 20%. We closed out the third quarter of 2022 with $274 million of cash on our balance sheet, which slightly exceeded our gross debt balance. Cash from operations has been slightly positive year-to-date, which is less than our normal EBITDA to cash conversion due to several non-recurring items previously discussed, including sales tax payments, pandemic store credit redemptions, and the normalization of seller payables as postponed events finally occurred. We expect our business to return to meaningful cash generation in 2023. As a reminder, we have low levels of interest expense and CapEx. As we grow, working capital is typically a positive contributor to cash flow as we receive payments from our buyers before remitting corresponding payments to ticket sellers. During the third quarter, we deployed approximately $3 million to buy back roughly 400,000 of our shares at a volume-weighted average price of $7.65. As of the end of Q3, approximately $37 million remains under our buyback authorization. We may continue to selectively repurchase shares when that is an attractive use of capital while balancing the need to maintain sufficient trading volume. We view our sizable cash balance as a significant asset that provides us flexibility to make strategic investments in ticketing and adjacent areas as compelling opportunities arise. Turning to our 2022 financial guidance. After raising our marketplace GOV and revenue guidance after both our first and second quarter results, we are raising our guidance again this quarter. The midpoint of our new marketplace GOV and revenue guidance is more than 10% above our initial guidance. Healthy demand that we saw earlier in 2022 has continued, and downside scenarios for COVID variant resurgences or decreased consumer discretionary wallets have not materialized in our business. We now anticipate 2022 marketplace GOV to be in the range of $3.05 billion to $3.2 billion and 2022 revenues to be in the range of $580 million to $595 million, with both metrics more than 30% higher year-over-year at the midpoint. Our 2022 adjusted EBITDA guidance is unchanged at $110 million to $117 million. With less than two months remaining in 2022, our updated guidance range reflects our policy to remain agile within the competitive environment. With continued strong demand supporting an increase in marketplace GOV and revenue guidance, we are maintaining adjusted EBITDA guidance as we continue to invest for the long term. Specifically, where we see opportunities to continue winning customers, we will do so. Unlike competitors with heavy debt loads or subscale reach, we can afford to be both profitable and opportunistic. Our scale, clean balance sheet, and cash generation, as well as our differentiated value proposition to buyers and sellers, give us a right to win in the long term, and we will continue making the necessary investments to ensure long-term success. Our guidance range continues to contemplate potential scenarios for demand. While our record results through the third quarter would imply recession resiliency, live events are nonetheless a consumer discretionary category that may be impacted if consumer wallets are stretched further. Similar to Stan, I'd like to reflect on what our team has accomplished in the last year since becoming a publicly traded company. Vivid Seats scaled rapidly to capture pent-up demand coming out of the pandemic and delivered record results. We accelerated our trajectory through excellent customer service to both buyers and sellers and opportunistically utilized our digital marketing prowess to capture industry strength. We are seeing initial traction on our brand and loyalty investments with higher repeat rates across event categories. We look forward to what we can accomplish as a team during our second year as a public company. Even so, after an exceptional first year, it would be prudent to expect reversion towards our longer-term growth trend line, particularly in the face of an uncertain macro environment. To recap, demand for live events remained healthy and resilient in the third quarter, and Vivid Seats converted industry strength to strong results while remaining highly profitable.

Thanks, Larry. In conclusion, Vivid Seats continued to set records this quarter, and I'm proud of what our talented and committed team accomplished. We are well positioned and confident that we have the right people, product, technology, scale, and balance sheet to win in the long term. We look forward to discussing our strategy and outlook for 2023 on our fourth quarter call. And with that, operator, I will open it up for questions. Thank you.

Our first question comes from Maria Ripps with Canaccord Genuity.

Good morning. Congrats on the results here. Can you maybe just talk about what kind of sort of macro backdrop and consumer behavior is embedded in your Q4 outlook? And have you seen any signs of deceleration so far in Q4 from what you sort of saw in Q3? And then I have a quick follow-up.

Yes. I think from a guidance philosophy standpoint, nothing's changed, where we're trying to capture a potential range of scenarios. I think the prospects of a COVID-related meaningful slowdown have certainly diminished now that we've had a number of unaffected quarters in a row. Alongside that, the prospects for potential impact of consumer softening feel like they're increasing despite not having seen it in the numbers to date. As we think about that overlay on Q4, I'd say a couple of things. One, we're now through the MLB season with MLB playoffs having a pretty meaningful impact on our Q4 GOV. There were technically more games because of the shift in format to adding more games in the Wild Card round. But there were many fewer than normal championship series games. So there is a bit of a headwind in the MLB world. And then beyond that, I think November and December are really important months in the concert realm as you track on sales. While there've been a couple of encouraging ones and there are some rumors swirling at this point, I think it's a little too early to call, and that will be a big determiner of where things shake out for the quarter.

Got it. That's very helpful. And can you maybe talk about any early takeaways from the latest brand campaign as well as additional callout on the 11 influencers the company is partnering with to promote the campaign?

Yes, sure. Maria. Look, I think we're really excited. I think when you think about the things that we control and the things that we've invested in, you start with our loyalty program and our brand campaigns. I think we're really pleased to note across the board, we've seen higher repeat rates across every category, which gives us a lot of enthusiasm that what we offer is really resonating with consumers. As you look out through the capabilities that we continue to build on that side, we're seeing significant sustained increases in both retention and repurchase, especially when we hit high-value audiences through some of our more targeted vehicles. We're also looking at, I think as you look through the new partners that we launched, we've talked about the New York Post today, we certainly also in the quarter, launched collaborations with brands like Doritos, Snapchat, and we're in early stages on collegiate NIL deals. So when you look across that spectrum of the programs that we offer with consumers, combined with capabilities that we're investing in on the retention and brand marketing side, we continue to be really enthusiastic about the results that we're seeing.

One moment for our next question. And our next question comes from Stephen Ju with Credit Suisse. The line is open.

So I think the resale came in pretty strong on a nominal dollar basis. So I'm just kind of wondering what's driving that strength? Is it just the general environment? Or are you doing something from a product perspective with Skybox? And I guess it might be a little bit early, but I thought I'd lob in this question anyway. So I just wonder if you could update us on how the change for PEGs going and whether you're starting to see any early signs of synergies...

Yes. On the resale side of things, I would say, consistent with the raising of guidance on the top line that we've seen, it has been a pretty healthy overall market and frankly, has come in above our expectations over the course of the year. As a representative seller, our retail there is no exception to that strength. Nothing fundamental shifted in the underlying strategy there. So it's really been a story of ride more than anything. Yes. On the VividPIX side, I think we are excited about what we continue to see there. As we mentioned, we've introduced new categories within the VividPIX app, including WNBA, Tennis, UFC, and F1. We're still early in unlocking value there. But certainly, I think as we look at some of the early-stage fully integrated product and email campaigns and CRM activities, those activities are looking to be some of our highest-performing campaigns. So I think we're early in what we expect to be a very busy quarter on the marketing side, but all in is very positive on our side.

Thank you. Our next question comes from Ralph Schackart with William Blair.

Thanks for taking the question. Stan, just on the brand campaign, I think in the prepared remarks, you talked about a little bit more focus or more targeting on this campaign versus the other. Maybe a couple of specific examples about what's resonating. I'm guessing it's the loyalty program. But any color you could add there? And then I have a follow-up, please.

Yes, sure, Ralph. Yes, I think a lot of what we learned and as you look at some of the creative that we've launched, in particular, I think we're really proud of what we're doing around the 11th ticket, as that fans with high intent and high kind of category awareness really find the rewards program resonates strongly with them. So when you look at the things that we've done to reinforce that, whether it is a iconic ESPN Top 10 Series 11 play or some of the homepage takeovers, we've seen those messages resonate really strongly. We also looked across some of our partners, again, it is ESPN, Rolling Stone, some of those folks, as we look at audiences that they serve and what we're able to do there. We found that those audiences tend to be two times more likely to be aware of Vivid Seats and really from a consideration perspective, two to three times more likely to buy from us. And so as we look at channel diversification and as we look at channels that yield economic benefit while driving our messaging to fans, I think we look at the creative and the channel, and we feel really good about the partners that we have found in that space.

Great. And then just a follow-up, just on the competition that you called out on margins. Just curious, was that broad based? Was it a larger competitor? Was it a smaller road competitor? Just kind of want to get a sense of the competitive nature that you're seeing.

Yes. I think we've seen it's fairly widespread across the competitive side. I think there's certainly a lot of competition now for what looks to be a fairly resilient industry. I think when we look at what we do against everyone else, I think we are really confident in our strategy of unique product differentiation, better service, better rewards, a new product offering in VividPIX. This is our way to continue winning in the long term versus potentially spending or overspending on marketing channels or potentially driving too much take rate pressure.

Our next question comes from Benjamin Black with Deutsche Bank.

This is Ishan on for Ben Black. Thanks for taking the question. So just thinking on the supply side, how is the broker side faring with high inflation and rising rates? Have you seen any kind of softness on the supply side, given high cost of capital?

Yes. Look, I think on the sell side, and I stress again, in our business, I think being a marketplace business, the sellers are managing both their costs and certainly what the dynamics of demand and supply are. We've seen no softness on either side of the market yet. I think as we continue to grow our base on Skybox, which I think we've talked about having over 110 sellers added year-to-date on the platform, we continue to see strength in the sellers being able to grow their businesses as well in the current environment.

Our next question comes from Brad Erickson with RBC Capital Markets. Your line is now open.

I guess first question on the marketing spend, as you can kind of deal with that competitive pressure you mentioned. How sensitive are you in terms of sort of drawing a line on ROI thresholds you're not willing to go beyond versus just being more set on holding market share? Maybe just remind us on sort of what your broad philosophy is around that. And then I have a follow-up.

I would start by saying that historically, we aimed for the first transaction with a new customer to be profitable. However, we recognize there is significant flexibility in that approach when considering the lifetime value of an average new customer. In the current competitive landscape, we are observing various strategies that indicate increased investment and some slight changes to those historical norms. We certainly have the capacity to exceed what I would call our historical benchmarks, and this is something we are continually assessing in light of the competitive environment.

Got it. That's helpful. And then I think just stepping back, you've gotten some benefit here in the market and certainly have gotten some benefit this year from kind of the COVID catch-up on concerts in particular. How should we think about the outlook of concerts into next year relative to some of the year-over-year comps you're facing as well as just from a capacity perspective?

Yes, certainly. When you look at the Live Nation commentary, it looks like they expect another robust year when you look at the lineup of names that have either already announced tours or are rumored to be announcing tours in the near future. With folks who have already announced here in Q2, moving Taylor Swift beyond set, those are some really large names. I think that there's evidence that not everyone will get out in 2022. I think alongside that, though, you had a dynamic in 2022 where you saw a number of postponed events and perhaps higher utilization of arena and event capacity than you would normally see because you were condensing both a normal slate of new shows and some catch-up from postponed events. So perhaps more Tuesday night, Wednesday night type shows than in a normal year. I think that doubling the details on the dynamic is that coming year, a growth year on an all-in basis, or is there a little bit of pressure on an all-in basis relative to how you think about that post-pandemic. Overall, I think we expect it to be another very healthy year, probably with less year-over-year growth than we saw this year just given how robust the past year was, but no indication of a meaningful decline in the number or quality of shows.

Next question comes from Shweta Kajaria with Evercore ISI. Your line is now open.

Okay. Thank you. Let me try two, please. What could you please provide some color on where you're investing when it comes to product and service? You highlighted that in your prepared remarks. I understood you're also investing in the brand awareness efforts. But if you could give details on product and service investments, that would be great. And then second, also for Stan, how do you define a high-value audience, whether it is through engagement or dollar spend? How should we think about that?

On the product and service side, I think I would almost go down the path of we remain bullish about the two areas in particular that are differentiated. I think we think about our rewards program and continuing to drive increased differentiation through that as a vehicle that we can continue to drive increased purchase patterns and behavior as well as retention with our brand and our site. Kind of in parallel with that, which I think you feel again is a strong differentiator, our Vivid Seats product enables our users continued ways to engage with us beyond ticket transactions. As you look at the offerings that we've built there, as we've mentioned in today's remarks, we continue to enhance the number of categories and games, I think we see the ability there to engage consumers and keep them within our ecosystem where we can then utilize our marketing capabilities as really a strong demonstration of our investment in kind of our product suite, but also our product differentiation. On the service side, our work in winning customer service, we continue to do that. We continue to invest in making sure that across the board, we have the best service there. Beyond that, we also look for experiential service components where we look at activating on-site, whether it's at festivals or at events. We also talked about the Lucky Roller, which we have as a unique activation event with users where they see us in cities with events where they can engage with the brand, win rewards and prizes, which then brings them into our ecosystem, provides them a tremendous experience, and also buttresses our brand investment. Across those two elements, we feel really, really strongly about our investments there. On the high-value audience side, we continue to learn. As we look at the ocean of consumers interested in attending live events, are you an event-goer looking for that once-in-a-lifetime experience, or are you a category-specific user? As we learn more about users, our definition certainly of high-value audiences corresponds to audiences where we believe we can maximize lifetime value. So as we look at the channels, as we've mentioned, we are focused on the marketing side and making sure that as we segment users into the highest LTV consumers that our channels correspondingly target those users, bringing them into our ecosystem.

Our next question comes from Thomas Forte with D.A. Davidson.

Stan, Larry, and Kate, congrats on the quarter. One question and one follow-up. So I wanted to know if you could talk about how inflation impacts your results on the Pro side? Are you seeing a flow through from higher prices? And on the consumer side, are you seeing any kind of demand destruction?

Yes. I think on the pricing side, we continue to have a little bit of a mixing bowl effect of pent-up demand, perhaps having peaked in prior quarters. Alongside that, you have an inflation trend line that's mixing into our AOS, but my overall view is that there's no reason tickets wouldn't behave on a similar path as other consumer expenditures. We are insulated. There will be some noise as oscillation depending on demand and broader supply/demand dynamics. But overall, we feel very well protected should inflation persist on the revenue side. We have not seen it impact demand, right, to the extent that consumers should be getting stretched at this point, which I think is many theses we've seen. We haven't seen it hit our category yet. We have our hypothesis on why, but we certainly haven't seen it hit the numbers yet. Then the last piece of inflation consideration on the cost side, we've generally seen certainly some pressure in the labor world, as we are not as convenient to the dynamic effect as others, but all with the normal balance expectation. Given the nature of our cost structure, we found that inflation has not significantly impacted our costs in aggregate.

Great. And then for my follow-up, I wanted to ask about VividPIX, which you've already got a lot of great questions on VividPIX. So I'm down to, is there an opportunity as it pertains to the World Cup for VividPIX?

Tom, yes, I think it's a great question. I think a lot of our current activities are focused on domestic games and products. So I think we haven't necessarily looked there, but we're happy to evaluate it as an opportunity.

Our next question comes from Andrew Marok with Raymond James. Your line is open.

Can you just remind us about the quarterly seasonality of the business? Just maybe asking the guidance question in a different way. I think in the past, you've talked about Q4 being seasonally strong with three of the four big sports in season, Christmas events, etc. But the guidance kind of calls for revenue to be down quarter-over-quarter at the midpoint. I guess just talk a little bit more about the conservatism being baked in along that axis? Or has the thinking changed on seasonality?

Yes, the structure remains unchanged. I believe Q4 has consistent factors that generally lead to stronger performance compared to the first three quarters, primarily due to all the sports being in season and ongoing concert sales. The schedule for concert announcements seems to align with previous years, so it’s more about the impact rather than the occurrence. As we reflect on this year, two points stand out. First, there’s a unique aspect to this year's performance and the year-over-year trends, especially considering last year’s disruptions and shifts in competition. Looking ahead, we’ve noticed a pattern where potential demand risks we anticipated have not materialized in recent quarters. We’ve also maintained our buyback strategy this year, influenced by the ongoing effects of the COVID experience. If favorable conditions persist, that could lead us towards the more optimistic outcomes. However, we remain cautious due to the shorter MLB playoffs compared to usual. Specifically, events like a championship series resulting in a sweep can significantly reduce the number of games, creating headwinds. We’re still in the early stages, and the largest concert announcements can greatly affect outcomes. As we enter November, there are reasons for optimism, but we lack control over these events, so we’re staying cautious in our outlook.

Understood. Very helpful. And then just kind of a semi-related follow-up. As you're looking to build in those scenarios around the potential range of outcomes, are you baking in any difference in macro resilience between sports and non-sports? Is there still the dynamic where concerts are still kind of a novel experience? Or are you kind of viewing them both similarly at this point?

Yes. I think broadly similar, right? If you think of, I think, Stan, you talked about the sentiment around sports. You saw that play out if you look at the World Series, where you had Philadelphia, who hasn't had a World Series or playoff front in over a decade, the excitement was really elevated. You can contrast that with the Astros, where they've been contenders in the championship series and World Series, and while there was still strong interest, it wasn't as pronounced as you saw in Philly. There's always excitement around teams or fans that want to get out and do want that opportunity. For example, I'll pick on Chicago; it's probably another 106 years before the Cubs make it back. So you need to strike while you can. When we look at results, sports were the first area to be open. To the extent there was some reopening pent-up demand or excitement, we're now in our second full season across all of the sports category. So we think we're settled back into a normal cadence. Whereas concerts, in many ways, this year was the first normal year. Festivals still had a pretty easy environment with the COVID protocols and whatnot. So it feels like sports are a little ahead of concerts in settling into that normal long-term trend. However, by this time next year, I think everything will be pretty well aligned.

And our next question comes from Matthew Farrell with Piper Sandler.

Thanks for the strong execution. Maybe just one for me. When you take a step back, a lot has changed across the industry and for Vivid as well over the last couple of years, I guess, with the kind of economic headwinds that seem to be appearing as we enter 2023. Why is Vivid in a better position than ever to weather the storm and potentially excel in an uncertain environment?

Yes, I'm happy to discuss that. First, our model has consistently improved. We are a scaled, growing marketplace. Looking at our profit and loss statement, we are positive in contribution margin, free cash flow, and EBITDA. This positions us well to invest as needed, especially since many competitors do not share this advantage. Additionally, our strong balance sheet allows us to maintain both the resources and cost structure necessary to continue investing in the business. Our product and service differentiation, including VividPIX for customer engagement, a unique rewards program, and industry-leading customer service, further strengthen our position. We are optimistic that our solid financial fundamentals, product capabilities, and service differentiation will keep us ahead in the competition and enable us to attract customers even in challenging times.

At this time, this concludes our conference call. You may now disconnect. Everyone, have a wonderful day, and thank you for participating.