Vivid Seats Inc. Q2 FY2025 Earnings Call

Good morning, and welcome to the Vivid Seats Second Quarter 2025 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 Africk.

Good morning, and welcome to Vivid Seats Second Quarter 2025 Earnings Conference Call. I'm Kate Africk, 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 second quarter earnings press release, which was issued earlier this morning. The press release as well as supplemental earnings slides are available on the Investor Relations page of our website at investors.vividseats.com. During the course of today's call, we may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks and uncertainties described in our earnings press release, our most recent annual report on Form 10-K and our other filings with the SEC. On today's call, we will refer to adjusted EBITDA, which is a non-GAAP financial measure that provides useful information for our investors. A reconciliation of this non-GAAP financial measure to its corresponding GAAP financial measure can be found in our earnings press release and supplemental earnings slides. And now I would like to turn the call over to Stan.

Good morning, everyone, and thank you for joining us today. Today, I'll walk through our second quarter results, provide context on the broader industry environment and detail a strategic cost reduction program that we are executing against. This initiative is designed to rightsize our cost structure, improve operating leverage and better position Vivid Seats to capitalize on long-term growth opportunities. Then I'll turn it over to Larry to share our financial results in more detail. In the second quarter, we delivered $685 million of Marketplace GOV, $144 million of Revenues, and $14 million of Adjusted EBITDA. The industry and competitive landscape continue to present a challenging near-term operating environment, but we nonetheless continue to have conviction in the tailwinds driving live event growth on a long-term basis. Similar to Q1, in Q2, we saw industry growth to start the quarter that gave way to double-digit industry declines across categories in June. While some amount of monthly oscillation is to be expected due to event mix, the degree of monthly volatility has been elevated thus far in 2025, which we attribute to a combination of economic uncertainty and the implementation of the FTC's all-in pricing mandate. The sports category was particularly weak and down double digits in Q2 with underwhelming playoff match-ups, challenging comps and NFL schedule release occurring just 2 days after the all-in pricing rollout. Meanwhile, the concerts category was up low single digits in Q2, but down double digits in June. Recent industry trends, including the switch to all-in pricing, do not change our view that live events remain an attractive long-term opportunity supported by durable supply and demand tailwinds. Despite this long-term confidence, the current operating environment is highly competitive, so we are taking deliberate action designed to enhance efficiency, strengthen our foundation for the future and most importantly, to return to sustainable long-term growth. Today, we announced a cost reduction program targeting $25 million in annualized operating expense savings to be actioned upon by year-end. We are focused on increasing efficiency without compromising the experience we deliver to our fans or sellers. To date, we have realized over $5 million in annualized savings. In line with our focus on operational efficiency, we have chosen to shut down Vivid Picks with savings to come over the next several months as that business winds down. We expect to realize the remaining savings under the program as we finish the year through additional technology and AI-enabled efficiencies as well as targeted reductions in G&A and marketing. These actions are part of a broader commitment to ensure near-term competitive challenges do not threaten long-term value creation. Following the execution of these efficiency efforts, Vivid Seats will operate with greater agility, deliver more impact and drive durable growth. Importantly, we do not believe these cost reductions will impact our ability to innovate across our core strategic initiatives. As we've shared, our industry-leading ERP SkyBox is utilized by over half of professional sellers to run their businesses. This quarter, we rolled out incremental analytical capabilities within SkyBox that were well received, and we are excited about additional SkyBox functionality in our product pipeline. Internationally, I'm pleased to share that we are now live in 4 European countries. Our international business is demonstrating strong growth, albeit from a small base and is exceeding our margin expectations. While our initial target was to break even on a contribution basis while growing international revenues, we have been net contribution positive thus far in 2025. We look forward to further diligent expansion abroad. To conclude, the second quarter was challenging, but we remain confident that better industry conditions will return. We are keenly focused on reigniting sustainable growth through best-in-class efficiency and differentiation on both sides of our marketplace. With that, I will turn it over to Larry for a more detailed financial review of the quarter.

Thank you, Stan. We generated $685 million of Marketplace GOV in Q2, which was down 31% year-over-year. Total Marketplace orders were down approximately 30% year-over-year, while average order size was down 2%. We generated $144 million of Revenues in Q2, which was down 28% year-over-year. Our Q2 Marketplace take rate was 16.7%, down slightly year-over-year. While we expect some degree of continued take rate variability, we anticipate near-term take rate will remain in the 16% range. Q2 2025 Adjusted EBITDA was $14 million, down substantially from the prior year due primarily to lower volume and negative operating leverage. Performance marketing intensity continues unabated and will continue to pressure results. Despite this pressure, we remain focused on creating a path to return to sustainable growth. We will drive additional efficiency through our cost reduction program, and we'll utilize a portion of these savings to offer a leading value proposition to buyers while remaining competitive across relevant marketing channels as we look to stabilize top line in 2026 and beyond. We ended Q2 with $392 million of debt and $153 million of cash with net debt of $239 million. In the quarter, we utilized approximately $9 million in cash to purchase approximately 4 million shares of our Class A common stock at an average price of $2.34. As Stan noted, due to industry volumes were quite soft even relative to typical seasonality. Our quarter end cash balance is driven by volume trends as we exit the quarter, which resulted in continued pressure on cash balances in Q2. We anticipate positive cash flow in Q3 due to a combination of typical seasonality improvements and a belief that the degree of June softness was atypical. Lastly, please note that our planned 1-for-20 reverse stock split, which was announced yesterday, will become effective after market close today. Our second quarter financial statements reflect share count and per share amounts before the reverse stock split, but subsequent periods will be reported on a post-split basis. We believe the reverse stock split will, among other things, enhance the marketability of our common stock. I'll now hand it back to Stan for concluding remarks.

Thanks, Larry. While industry challenges continued in the second quarter, our long-term thesis on live events persists. Our aim is to remain lean, agile and well positioned to capture opportunity as the environment evolves and ultimately return to sustainable long-term growth. And with that, operator, open up the line for questions.

Our first question comes from Dan Kurnos at the Benchmark Company.

A couple for me. Maybe just kind of high-level thoughts on take rate was a little higher in the quarter. I don't know if that was just in anticipation of you guys implementing the cost controls. So I guess, do we think that you guys are looking at the way the market is transpiring right now and going, okay, there's maybe a smaller TAM on GOV, but we can be more profitable and more nimble within that? Or once these cost savings get implemented, I know you talked in the prepared remarks, Dan, about being more competitive in the back half of the year, but there's obviously an intelligent way to do it. So maybe kind of just walk us through threading that needle.

Yes. Dan, thanks for that. I'll take the first part and then certainly, Larry can talk a little bit more about the take rate moves. But yes, I think when you look at certainly the environment and how we are positioning ourselves, we are still continue to be really focused and honing our unit economics and really plan on emerging much leaner and using that as a mechanism to drive sustainable growth really into 2026. Lots of activity now as we continue to optimize our cost structure that we think will allow us to really push that growth as we drive acquisition and to have lots of leverage on that kind of moving again forward with our eyes towards '26 post some of these cost reductions.

Yes. And Dan, on the take rate itself, I would not read into that we actually increased pricing. There's some mix shifts across some of our different relationship types, right? Namely marketplace and the private label. And so if anything, if you think about the two competitive levers, the two primary competitive levers out there with marketing expense and take rate, I think the intent and focus is on sustaining, if not increasing competitiveness across both of those levers this year moving forward.

Got it. And Larry, can you just give us some color on the buckets of the annualized savings plan?

Yes. I consider all the numbers we're discussing regarding savings as fixed expenses. We are not accounting for any variable expenditures. For example, if volume decreases, spending on credit cards and paid search also decreases, but that's not included in these figures. What is included are fixed marketing expenses, such as long-term brand marketing, along with general and administrative costs. Our general and administrative expenses mainly consist of payroll and software costs. Therefore, you can view this as increased efficiency in those two areas. When we look at the targets, most of the savings are anticipated to come from general and administrative expenses.

Our next question comes from Ralph Schackart at William Blair.

Just in terms of kind of looking back at the quarter, I think you called out consumer spending, obviously, as well as competitive pressures. Any way you could split that out and give a sense maybe which one was having a bigger impact during the quarter? I know it's difficult, but just any color there. And then I have a follow-up.

Yes, Ralph, it's hard to be precise, but the best proxy, I think, that we have, recognizing that Vegas isn't directly analogous to all of our markets, you do get, I think, the cleanest read on underlying trends with the transient nature of Vegas. And we saw kind of throughout the first half, consistent year-over-year declines, I think in the mid- to high single digits in terms of some combination of visitors, hotel occupancy, price points. I think there was a fair amount of chatter recently on the either June or July data coming out showing Vegas was down double digits. So I think the headline is certainly the competitive intensity, but the consumer softness is probably a couple of hundred basis points of underlying headwind.

And just in terms of Europe, it sounds like obviously off a small base, as you noted, but it's exceeding your margin expectations. I know you have a lot going on right now. But just as you sort of get through this period of transition, does that sort of reshape your thoughts on your rollout plan or the number of countries? Maybe kind of speak to what you're thinking about that market as the calendar turns into 2026? Would it allow you to potentially accelerate that growth? Any perspective would be great.

Rob, yes, I think we've been pretty pleased by what we've seen internationally, as we've talked about, probably ahead of schedule in terms of number of countries that we're in and ahead of schedule in terms of what we're seeing from a contribution margin perspective. So I think as we continue to see that dynamic, I think we are excited and continue to be thoughtful, but willing to accelerate investment as we see that as certainly TAM accretive and margin accretive in the future. And we'll continue to, I think, look to make investments to grow that part of our business.

Our next question comes from Cameron Mansson-Perrone at Morgan Stanley.

I wanted to ask about Google's earnings call this quarter, where you mentioned a shift in search activity towards AI. I'm curious about your thoughts on how this change might affect your SEO and performance marketing channels, as well as its broader implications for the secondary ticketing industry. Additionally, I have a housekeeping question for Larry regarding the $25 million savings opportunity. Is this amount considered in-period savings, or is it based on an annualized exit rate at the end of 2025? Some clarification on that would be appreciated.

Cameron, I'll take the first part and then turn it over to Larry on the savings. But Yes. Look, I mean, certainly, I think I'd start by framing as we look at how consumer discovery continues to evolve, I mean, it's clear, and we're certainly an example of how much consumer discovery flows through the Google funnel, which today, I think, has a lot of opportunity for cost and spend-based funneling of traffic. I think certainly, as AI overviews are coming through, I think you see, I think, expected behavior there where I think you're getting a lot of perhaps relevancy over spend that's showing up. And certainly, as we think about that adaptation of how consumers discover AI overviews as it pertains to search and other evolving and emerging channels. We continue to look at that and really position our platform to be discoverable and ready to take advantage of those channels. So lots of stuff, I think, changing in that world. I think certainly on the Google front, we're paying close attention and deeply in partnership with them as some of that search experience evolves.

And on the cost reduction question, the number we put forward, think of that as a full year annualized figure that we will expect to have fully actioned by the end of this calendar year. And so incremental to 2026 results in full. But as you look at the back half of '25, I'd say they are in flight, and they will layer in over the coming months. And so not a particularly significant immediate benefit, but it will scale quickly as we fully action the identified savings.

Our next question comes from Ryan Sigdahl at Craig-Hallum.

This is Matthew Raab on for Ryan. On industry volume, Larry, you gave a little color on the cadence of the quarter, gave a little insight into June. Can you maybe talk a little bit more about the all-in pricing change and how that's changed the market from a consumer perspective? And then I don't know if I caught it, did the June softness continue into Q3?

Yes. I would say the situation regarding all-in pricing is still developing. We have observed this in several states like Maryland, California, and Tennessee before the national rollout. Initially, there was a decline in conversion rates in those states that lasted a couple of months before normalizing. This aligns with our findings from various tests, indicating that conversion rates tend to be higher when lower upfront prices are used with fees displayed at checkout rather than an all-in price. While we have data from those states, we now have more states to consider, and it's unclear if the recovery seen in the earlier states will occur at the national level. Overall, the trends appear to be tracking, but we are currently working through a digestion period. As we move closer to next year's calendar, we will see if the flow-through and Cascade function properly within the system or if another adjustment period is needed as the industry recalibrates.

And then on just the June softness, did that continue into Q3?

Yes. So I think we noted on Q1 month-to-month volatility, noted again in Q2 month-to-month volatility. I'd say volatility continues. So we've actually seen July revert to being up year-over-year. July is a softer period. So all of the caveats that I would put on an already volatile year where that volatility continues, but we are seeing July return to positive.

Our next question comes from Andrew Marok at Raymond James.

On the cost savings again, you mentioned shutting down Vivid Picks, but are there any other of those kind of emerging areas or investment initiatives that might come under review in the cost reduction program? Or is that kind of mostly aimed like you said, at the core of the legacy business and the OpEx involved in that? And then I have a follow-up.

Andrew, yes, I think we are continuing to, I think, put our lens on all areas, I think that can be really streamlined and enable us to be as lean and nimble, I think, as possible as we look to really drive investment into growth. So I think our portfolio of investments, I think, is completely under review. But certainly, our focus is on, I think, our large G&A base, which I think we believe we can significantly streamline by the end of the year.

Appreciate it. And then maybe a quick one on 2Q. So I heard that the poor playoff matchups were one of the reasons that sports came in a bit below in the quarter. Is there any way to quantify the contribution of a poor playoff slate versus a good one or just kind of the range of outcomes that we should be thinking about in like a typical playoff season?

Yes. I would describe the challenges we faced in sports as a combination of various issues that resulted in a headwind. Last year, the Copa América generated significant soccer volume. This year, while we did have the FIFA World Cup, its impact was much smaller compared to the Copa. Additionally, we experienced challenges in women's basketball, particularly as Caitlin Clark and the Fever were peaking last year. There was also some softness in match-ups. If I were to estimate, the difference in viewership between an NBA finals featuring two small market teams and one with the Lakers and Celtics could represent around 1% of gross operating volume for the quarter. It's a small fraction when considering the full year. There is a lot of variability in events; none of them will solely determine our performance, but when they combine, it’s important to highlight them.

Our next question comes from Curtis Nagle at Bank of America.

Just a quick one for me. On the $25 million in expense reductions, could you just go through, I guess, the balance of flow-through versus reinvestment? And where would those reinvested dollars primarily go?

Yes. I think some level of reserve judgment on exactly what the ratios will be based on what we see in the competitive landscape. But I think we've touched on the two major, call it, competitive levers in the P&L are the value proposition you're offering customers on the top line and then the marketing expense on the cost side. I will reiterate our view that the incremental yield on marketing spend in this current environment is difficult to put it politely. And so you can imagine reinvestment focusing on the other lever with exact form and channel to be fully resolved as we continue to evaluate exactly where we want to go and how. But if you think about base pricing, loyalty, promos, that portfolio of offers, I think, is where you would most likely reinvest it. And really, if you think about a, call it, LTV to CAC paradigm focused on enhancing LTV in a world where CAC is under severe pressure.

Our next question comes from Maria Ripps at Canaccord.

Sort of understanding competitive intensity on the marketing side, are there any alternative sort of customer acquisition channels that you may be exploring where competition is more manageable?

Yes. Maria, we're always looking. There are complementary channels to be had, but they are all a fraction of what the paid search and performance channels are today. So if you think about paid social as an example, a lot of time spent on Meta, on Reddit, on TikTok. But the transactional mindset is less. You're scrolling through pictures, you're having a chat versus you go into Google and you say, I want tickets to ACT Events. So we continue to find paid searches today by far, the largest channel. Hence, the comment earlier where if you think about the other lever in retaining customers, driving LTV through retention and repeat approach, I think that's the likely near-term focus that we'll pursue. And then we have the broader questions on the longer-term top of funnel. I think that's a question that spans not only our industry, but many others.

And then can you maybe help us understand some of the dynamics between owned properties versus private label revenue in Q2? I guess what's driving this accelerated pressure within the private label segment?

Yes, Maria, when considering our private label business, it's comprised of many distribution partners, which vary significantly in size. Unfortunately, as you observe the notable decline in private label, one of our largest partners made a change that has led to a considerable decrease in volume from them, contributing to the accelerated decline in that segment of our business.

Our next question comes from Benjamin Black at Deutsche Bank.

Can you maybe talk about the decision to invest internationally instead of supporting the U.S. market with more capital just given the challenges that you're seeing here. So maybe talk a little bit about the rationale there. And maybe on the other side of the Marketplace, how has the competition evolved on the seller side of the equation? Have you seen any impact on your supply at all? How are professional brokers responding to sort of the challenging end market?

Thanks, Ben. Yes, I'll speak to international sellers. Yes, on the international business, I would think of it as an analysis around the incremental contribution that we can realistically get in the near term. And we talked about the J-curve in getting international off the ground. We incurred most of that in 2024. And then I think in 2025, while the top line in absolute figures and as a percentage of our total business remains small, we are now through that contribution margin curve and are positive on contribution margin. There's some incremental G&A. But as we look at the landscape and the ability to generate volume at structurally sound economics from what we've seen to date, the opportunity internationally remains healthy and robust and more consistent with what we would have seen in North America prior to the behavior of the last few years. And so it continues to feel like an attractive pursuit where it's still going to be a much smaller piece of the business for any reasonable time frame in North America, but can still be a positive needle mover with absolute impact on our GOV and profitability.

On the sell side, Ben, I think sellers look for both a combination of distribution channels as well as, I think, technology providers that allow them to efficiently and effectively run and grow their businesses. On the distribution side, I think we remain a significant source of volume from them. And so I think we continue to look at better ways to serve that. And then certainly, on the infrastructure and technology side, our Marketplace continues to build out components on SkyBox that we believe are quite retentive and accretive to sellers. We talked about in the prepared remarks, launching analytics tool sets for them this quarter as well as, I think, enhancing some of the mobile user experiences we have for our sell side continue to be ways that we build and innovate on behalf of the sell side of the marketplace.

Our next question comes from Brad Erickson at RBC Capital Markets.

I guess, first, just as you think about all this competitive intensity happening you keep talking about, I would be curious if you could just maybe break that down for us a bit more, what's actually going on kind of industry-wide now, why is that so persistent? And kind of what levers you think you can pull there to help try and address? And then second, just on the supply environment, maybe just anything you can share in terms of what you're embedding in your thinking for the second half of the year?

Yes. On competitive landscape, I think we've spoken about the meaningful increase in aggressiveness in performance channels. And think of that as it's a Google or a Bing Auction where someone when you type in a search, right, for Toronto Blue Jays tickets, someone is showing up in the first, second, third spot. That's an open auction and the price people are willing to pay will influence who shows up at the top of that search. And there's data out there across industries that most often customers will click on the first link if they're going to click on any link. And so as folks are willing to bid more for that first link, they can really take a meaningful portion of the available surface area. And if they're able to effectively monopolize customer awareness by consistently showing up at the top spot, they will get disproportionate traffic flow and whether their value proposition is the most compelling or not, they'll continue to see that traffic. By our math, that incremental bid is uneconomic. And I think you've seen across several industry players or if you kind of follow the industry chatter, that has proven out that this incremental spend is uneconomic. But different folks have different strategic objectives, and I think some folks are really focused on demonstrating top line growth even if that's destructive to the industry profitability pool. Frankly, coming into 2025, we thought that, that story was an unfortunate, but perhaps constrained the 2024 story. And to our disappointment, it seems to continue unabated. The why and the end game in all of this is less clear because it seems like we're well past the bounds of any reasonable corporate finance framework that you could employ. And then supply for the back half of the year. I think from our side, we had touched on last quarter saying that we think at the industry level, expect flat, maybe down a little bit for the year. We saw Q2 come in roughly flat, albeit volatile, Q3 off to a positive start with relatively easy comps year-over-year, Q4 tougher comps year-over-year. So at this point, not really changing that perspective that flattish is probably the right paradigm from an industry standpoint. But to make a call on, call it, the Q4 on sale calendar and what that will mean for 2026, a bit premature. But for the next 1.5 quarters, the concert calendar is pretty locked. I think we feel fine about it, not too much volatility there.

Yes. And I think the only other one thing, Brad, kind of circling back as you think about the broad industry dynamics, certainly very aligned sort of with what we look to position ourselves to be able to do is we certainly got a lot of marketing pressure. And I think the structural changes that we are certainly embarking on will better position us to be aggressive on that front as things return to, I think, a period of growth for us. But certainly, when you look at the industry profit pool, it's not just the CAC dynamic from a marketing perspective that's under pressure. There's certainly take rate pressure as well that exists. I think as we continue to see broadly, I think, what we believe to be financially irrational moves on that front. And so as we look at, again, positioning ourselves for the future, I think our goal is to be able to compete, whether it's on marketing or the take rate pressures that we're seeing with a lot of nimbleness and agility that we believe we can get as we lean out our cost structure.

Our last question comes from Tom Forte at Maxim Group LLC.

So first, Stan, Larry, best of luck navigating a challenging environment. One question and one follow-up. On Shuttering Vivid Picks, why Shutter Vivid Picks, it wasn't driving engagement as expected, competitive set, relative margin versus remainder of the business, regulatory environment? Just additional thoughts there would be appreciated.

Tom, I believe it's a combination of several factors. We had high hopes and saw promising early indications of potential engagement with the product. However, as we focused on our core business, it became clear that this area was distracting us from our main objectives. We wanted a flexible cost structure that would allow us to operate effectively, and this aspect fell outside that scope. Additionally, there are increasing regulatory challenges in that space that are quite different from our core operations. Ultimately, we determined that it was more of a distraction than a benefit to the business, which led us to decide to shut it down.

Just really quick. We tried our best to crack the code and we just weren't able to do it at scale. And so we sort of became stuck as a subscale provider with unit economics that just didn't create a pathway to becoming something other than a subscale provider, gave it a multiyear effort, tried a bunch of different approaches and once it became evident that we weren't able to unlock a more sustainable unit economic profile, decided to call it.

So for my follow-up, can you give your current thoughts on Adjusted EBITDA cash conversion for the remainder of the year? And then to the extent you're able to provide your thoughts on your cash flow expectations for 2025 and 2026?

Yes. I believe we are still focusing on generating cash, primarily influenced by two factors: the outcome of our EBITDA and our ability to achieve sequential growth in GOV. Year-over-year trends are likely to face challenges for the upcoming quarters. However, if we can attain sequential improvement, it will positively reflect on our balance sheet. We anticipate being cash flow positive in Q3, as there is seasonal strength in Q3 compared to Q2, especially when comparing September to June, which impacts our end-of-quarter cash balance. In our resale business, we typically invest in inventory in the first half and sell it in the second half, which provides some supportive factors. Looking ahead to next year, our main goals are to return to growth and to generate sustainable positive cash flow. These objectives are closely interconnected, particularly considering our current EBITDA levels relative to our interest expenses and capital expenditures. Without positive working capital contributions, achieving significant cash generation will be challenging in this economic climate. Therefore, regaining top line growth is crucial as we move toward 2026.

This concludes the question-and-answer session. Thank you for your participation in today's conference. You may now disconnect.