Vivid Seats Inc. Q3 FY2025 Earnings Call

Good morning, and welcome to the Vivid Seats Third 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' Third Quarter 2025 Earnings Conference Call. I am Kate Africk, Head of Investor Relations at Vivid Seats. This morning, we issued our third quarter financial results. 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, our subsequent quarterly reports on Form 10-Q 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 investors. A reconciliation of this non-GAAP financial measure to its corresponding GAAP measure can be found in our earnings press release and supplemental earnings slides. This morning, we also announced a leadership transition that is effective today. Lawrence Fey, who has served as Chief Financial Officer since 2020, will succeed Stan Chia as Chief Executive Officer. Additionally, Ted Pickus, who has served as Chief Accounting Officer since 2022, has been appointed as Interim Chief Financial Officer until a successor is identified. Accordingly, Larry and Ted are joining me today on the call. With Larry's extensive history with Vivid Seats dating back to 2017, the Vivid Seats Board believes he is uniquely qualified to navigate the evolving industry environment and steer the company back to growth. Larry will share more detail on his vision for Vivid Seats' next chapter today. And now I would like to turn the call over to Larry.

Good morning, everyone, and thank you for joining us today. First, I would like to discuss the leadership transition and express my gratitude to Stan for his leadership and service over the last 7 years. His accomplishments include successfully leading Vivid Seats through a global pandemic, bringing Vivid Seats to the public markets and launching key innovations such as the Vivid Seats Reward program, which provides a foundation on which we will continue to build as we deliver a unique and leading value proposition to our customers. I recognize the responsibility of this role and will look to take decisive action to reverse recent trends and build a resilient business well positioned for long-term success. The core pillars of our strategy start with the foundational advantages that have been in place at Vivid Seats for years and build from there. There is much work to be done, but the foundation to return to profitable growth is in place, and our path forward is clear. Vivid Seats has long been known for its leading tech capabilities, unique data and focus on efficiency. In recent years, as paid search has become more competitive and customer acquisition economics have become strained, Vivid Seats has increasingly invested in its app with a focus on building a loyal and recurring customer base. We are now increasing our focus and investment in delivering a leading value proposition to our customers. Alongside our loyalty program with rewards redeemable in the app, late in the third quarter, we launched our lowest price guarantee also in the app. We believe the combination of our lowest price guarantee and our loyalty program represents the most compelling value proposition in the industry, and we are already seeing positive responses from our customers. With our enhanced value proposition, we expect to see a growing number of app users and resulting transactions. Our app users return more often, convert at a higher rate and touch performance marketing channels less. Over time, as our volume increasingly moves into the app, our performance will be increasingly insulated from the heightened competitiveness we have seen in performance marketing channels in recent years. Further, we believe that information transparency will only increase as AI proliferates and impacts the way consumers interact with brands across the Internet. It will take time to build comprehensive awareness of our enhanced app value proposition, but we are confident we will disproportionately benefit as AI reshapes consumer discovery and decision-making as we match consumer demand with the most compelling value in the industry. One of our initial efforts to build awareness of our app value proposition is our recently renewed partnership with ESPN. With ESPN, we have launched a national marketing campaign on Disney streaming, which is reaching more than 127 million global subscribers across over 700 live sports events monthly. We are excited to see how fans respond to our new offering as awareness continues to build. We believe our investments in delivering a leading value proposition will drive order volume but reduce our take rates. Funding these investments in a sustainable manner will require a commitment to operating the most efficient platform in ticketing. We will focus on operating as a lean and agile organization enabled by powerful technology and unique data. We announced the cost reduction program last quarter, and we are now more than doubling our fixed cost reduction target from $25 million to $60 million. We have made substantial progress towards our updated target with savings spanning fixed marketing, G&A and stock-based compensation. Both these savings and our considerable reinvestment in our app value proposition are reflected in our initial 2026 guidance. Continuing with our theme of driving efficiency through clear focus, we executed our corporate simplification agreement, which included the termination of our tax receivable agreement and the collapse of our dual-class share structure early in the fourth quarter. The corporate simplification will yield substantial immediate and ongoing savings. As part of the termination, we issued approximately 400,000 Class A shares to the former TRA parties. In return, we will avoid $6 million of cash TRA payments otherwise due in Q1 2026, while capturing up to $180 million of lifetime tax savings, subject to generating sufficient profitability. In addition, by simplifying our structure, we expect to save approximately $1 million per year from reduced financial reporting and compliance costs while also removing tax inefficiencies in our structure. At current levels of profitability, we anticipate our annual cash income taxes to be approximately $3 million. The savings between our cost reduction program and corporate simplification will create a more focused and agile organization, one that can invest strategically for growth while maintaining discipline and profitability. Next, I'll address trends in our third quarter results, which we believe validate our path forward and underpin our initial 2026 outlook, which Ted will provide. While private label remains under pressure, we are encouraged to see stabilization and early signs of momentum across our owned properties. Against the flat sequential industry backdrop, Vivid Seats and Vegas.com delivered sequential GOV growth, while the Vivid Seats app delivered double-digit sequential growth and returned to year-over-year GOV growth. This is a direct result of our ongoing investment in product development and our enhanced value proposition. As we look to the fourth quarter and into 2026, there are no quick fixes, but our priorities are clear. We are committed to improving our financial performance by leveraging Vivid Seats foundational advantages, including leading technology, unique data, best-in-class efficiency and continued investment into a unique and differentiated value proposition. Now I'll turn it to Ted to discuss the quarter and financial outlook in more detail. As we mentioned earlier, Ted, our Chief Accounting Officer, will take on the role of Interim Chief Financial Officer. Ted has been at Vivid Seats leading our accounting function for more than a decade. I have full confidence in Ted, and I'm glad to have him step into the interim CFO role as we manage our leadership transition.

Thank you, Larry, and hello, everyone. I am honored to be with you today and to assume this role during a transformational time for the business. Turning to our results. In the third quarter, we delivered $618 million of marketplace GOV, $136 million of revenues, and $5 million of adjusted EBITDA. These results reflect an intense competitive environment that impacted our private label business, which was also impacted by the loss of a large partner. We generated $618 million of marketplace GOV in Q3, which was down 29% year-over-year. Total marketplace orders were also down 29% with average order size flat. Looking at sequential trends compared to Q2 of this year, overall marketplace GOV was down 10% due to private label headwinds, while owned property GOV increased in a flat sequential industry environment. We generated $136 million of revenues in Q3, down 27% year-over-year. Our Q3 marketplace take rate was 17.0%, down from 17.5% in Q3 2024. We expect near-term take rates in the 16% range. Our third quarter adjusted EBITDA was $5 million, down substantially from the prior year due to lower volume, lower take rates, and negative operating leverage. We expect improved operating performance as we enter 2026 with the full benefit of our recent cost reductions. Next, I'll address our 2026 initial outlook. With stabilizing owned property volumes, we expect 2026 marketplace GOV in the range of $2.2 billion to $2.6 billion. At the midpoint, this assumes Marketplace GOV roughly in line with our third quarter run rate. We intend to reinvest cost savings into our enhanced customer value proposition and as such, currently anticipate $30 million to $40 million of 2026 adjusted EBITDA. Our 2026 initial outlook assumes industry volumes are flat year-over-year as the core concert on-sales season, which provides supply visibility for the coming year has yet to occur. We ended Q3 with $391 million of debt, $145 million of cash, and net debt of $246 million. Against a flat industry environment, we saw working capital continue to consume cash, but at a substantially lower level than seen in the first half of the year. I'll now hand it back to Larry for concluding remarks.

Thanks, Ted. Despite challenging year-over-year trends, the third quarter offered signs of stabilization, including sequential growth in owned property GOV, year-over-year growth in app GOV, and substantial cost reduction progress. From here, diligent execution is crucial, but we believe our investment into our app value proposition provides a clear path to return to growth. With that, operator, let's open it up for questions.

Your first question comes from Cameron Mansson-Perrone with Morgan Stanley.

Ted, welcome to the call. My first question is about what gives you confidence in providing guidance for 2026 so early, considering the pressures the business has faced recently. I heard you mention stabilization, but I would appreciate more insight into what has led to this increased visibility compared to the past. Additionally, could you help clarify what is reflected in the high and low ends of the guidance for next year regarding the competitive landscape, expectations, and any other factors that might influence whether we end up on the high or low end?

Yes, Cameron, yes, I think you've heard us say in the past that we prefer to give guidance on our Q4 call once the Q4 on-sale calendar has run its course as you'll have more industry visibility. And so the important caveat in the guidance we put forward is it presumes a flat year-over-year industry outlook. And I think to your question on what would govern the low end versus the high end, I would start with if the industry under-indexes to flat, that would push you towards the low end. If it over-indexes or grows, that would push you towards the higher end. We certainly saw the Live Nation commentary, which if you interpolate what they said, it feels like they're pointing towards another positive growth year in North America. So hopefully, there is some conservatism built in. We'll learn more over the coming months on exactly where the industry settles out, but we wanted to distill it down to a target. That probably goes without saying, if competition or competitive intensity reaches new highs, that will pressure. And if they abate, that will be a release valve relative to the range we put forward. But we've assumed essentially a broad continuation of the competitive intensity we've seen in the second half of 2025.

Next question comes from the line of Dan Kurnos with Benchmark Company.

Larry, can you provide more insight into the leadership transition? Stan has extensive digital experience, so I'm curious about the timing of this decision. While I believe you are well-qualified to lead the company, it would be helpful to understand your thought process. Additionally, you mentioned discovery with OpenAI. As many are integrating their apps for discoverability, what are your thoughts on that given the potential implications for demand generation? How willing are you to enhance visibility through that channel and other methods to showcase the value proposition?

Yes, thanks, Dan. I'd start with the thanks to Stan, of course, we're sincere 7 years was a great run. I think it was just reaching a time for a shift and preparing the business for the efficiency push that we're embarking on in the near term. To the second question, I think you touched on a theme that is spot on. Yes, we're pushing on the app. And I almost think of the customer universe as two buckets, right? There's the new customer acquisition and there's a competitive dynamic around that. And then there's the folks who have already done their research and made informed decisions around which marketplaces they buy from or which marketplaces they consider, and that generally occurs in the app. Where I think there could be a really interesting blurring of those lines or fusion of the two as we move forward. If one of the fundamental tenets of AI is increasing information synthesis, increasing information transparency as we increasingly place the best value proposition out into the ether. We then, of course, have an obligation to make sure that value proposition is digestible by these new AI platforms that are looking for all of the best information to synthesize and distill for customers. But you better have something that's compelling. If they do their job and put forward the best value proposition, you better be front of the line. And so that's where we're going with the app. I think in the near term, while we wait for the commerce portion of the AI disruption to fully arrive, we're going to continue focusing on retaining our customers in the app ecosystem. And then we think there's opportunity coming on that customer acquisition as the technology format evolves.

Next question comes from the line of Maria Ripps with Canaccord Genuity.

Larry and Ted, congrats on the transition. Can you maybe share a little bit more color on the competitive backdrop right now? Are you seeing any early signs that maybe some of the competitors in the space are starting to focus more on profitability?

Yes, thanks, Maria. We've talked in the past a bit about ebbs and flows, and it can be a little dangerous to extrapolate short-term behavior and assume it continues indefinitely. But I would say, broadly aligning with, call it, changes in corporate status, we have seen a shift in competitive posture. It was a fairly methodical increase in share that we saw from StubHub over the last couple of years. It come in waves, but it kind of went one direction. And we've actually seen that reverse and roll over in September and October, where they're now down year-over-year on share. And I think that is directly tied to what we perceive as a shift in marketing aggressiveness. The magnitude, obviously, it was enough to reverse that trend, but it wasn't like a reversion to 2022 or 2023 levels. And we, of course, know that they reserve the right to change their mind and posture as we embark into 2026, but a notable change over the last, call it, 6 weeks to 8 weeks.

Got it. That's very helpful. And then any early thoughts you can share sort of on quality of concert lineup in 2026?

Yes. I’d say, continue to be looking to Live Nation for the prospective views on what's coming. I heard pretty positive commentary when I read the release, I think they touched on what clearly looks like positive North American growth, a skew towards larger venues. Thus far in the year, you get into these year-over-year comparisons where timing just varies slightly year-over-year. But we're in the midst of this year, Morgan Wallen just announced that I think will be one of the top tours of the year. We've seen several others. So at this point, I would say, other than week-to-week variance, it looks like the Live Nation commentary is flowing through in what we're seeing.

Next question comes from the line of Ryan Sigdahl with Craig-Hallum.

In response to the FTC lawsuit, Ticketmaster shutting down TradeDesk for concerts. They're also limiting Ticketmaster accounts even further as it appears as they take more action on pricing. Curious your perspective on this. Does this present an opportunity for Vivid to take share on the POS side? But at the same time, I guess the negative would be how much contraction and negative do you see from a supply standpoint in the secondary ticketing?

Thank you, Ryan. You've made a good point that any disruption to TradeDesk can serve as an opportunity for us. We believe SkyBox will be ready to assist customers who may not have access to the full suite of tools they need for their business, which could enhance our market position. As you mentioned, if there is additional pressure, our view is that the primary driver of this industry is a well-functioning financial market. Artists and teams are looking to manage and transfer risk ahead of their shows, and a healthy secondary market supports this process and benefits everyone involved. We remain committed to enforcing the rules established by artists and primary ticketing platforms. If there are bad actors, their actions may need to change, though the impact of that remains uncertain. We will all see whether this leads to a reduction in the secondary market or results in new smaller sellers emerging to fill any gaps, keeping the overall market opportunity steady. We will monitor the situation closely, but we do see a positive opportunity with TradeDesk, along with potential challenges, although the impact of changes to Ticketmaster's policies may be less significant.

Then just the other hot topic kind of from an industry standpoint, direct issuance. Vivid has a smaller DI type offering with college basketball crown. But curious what you think about the ambitions of some of your peers in the space on this model specifically? And then kind of to your point on rules of the game, I guess, contractually, et cetera, I guess, just your thoughts on direct issuance and the viability of doing that in an accelerated way going forward? And what that potentially means from a secondary marketplace standpoint if that further limits the supply of brokers' play?

Yes. I think obviously, strategies are subject to change. And so just reacting to the way we have seen the direct issuance opportunity defined to date, maybe they change us. But to date, it's been primarily focused as we understand it, on unsold inventory. And so you can imagine regular season baseball games, less popular theater shows where you have well past the event going on sale substantial available inventory available from the primary. And if that gets piped directly into a secondary marketplace, that would represent incremental supply. I think the threshold question for the robustness of that opportunity would start with, is this a supply or demand-constrained industry? And does the fact that you took an event that already had a decent amount of supply and made more available, will that stimulate incremental demand? Or will it cannibalize the eyeballs that you were already getting on the site and to sell more, you still need to get additional eyeballs and spend the marketing dollars to bring them in. I think our viewpoint has been that generally, this is a demand-constrained exercise, not supply constrained in all but the most rarefied air, right? Like you could see Taylor Swift tickets really selling out, but most events, including World Series, Super Bowl, right? There are tickets available all the way up until the event starts even for the highest profile events. So I'd say we're a bit more muted on our belief of the impact that could have. But we certainly have heard that the ambitions are big, and so we'll keep a close eye.

Next question comes from the line of Ralph Schackart with William Blair.

Larry, I just kind of want to circle back on sort of driving more awareness to the app and sort of the efforts there. I know you talked about having ESPN as a partner to do that, which is obviously a great partner to have there. But maybe you could just sort of provide a little bit more color how you drive more direct traffic here and build more awareness? And would you be contemplating potentially like a marketing campaign or other efforts to grow more awareness to go direct to the app?

Yes, Ralph, we're focusing on our brand marketing efforts through ESPN, particularly during Q4, which is a peak time for sports. In this industry, broad brand marketing has often been difficult to demonstrate a compelling return on investment, so we won't be shifting back to that approach. Instead, we'll concentrate on more targeted performance-based metrics. One of our strengths is that we've been a leading marketplace for a long time, allowing us to sell many tickets and build a strong existing user base and CRM database. Our efforts are aimed at enhancing personalization and improving our messaging. By delivering a message that offers a significantly improved value proposition, we hope to boost engagement with our current users. Additionally, as we acquire new users through the web, we want to ensure they're aware of the benefits we offer, encourage them to return to the app, and make sure this targeted audience understands our offerings. These are the two main areas we'll focus on in the near future.

Next question comes from the line of Steven McDermott with Bank of America.

Just 2 quick ones. Firstly, for 2026, what World Cup assumptions are kind of built into that outlook?

Yes, we essentially have not assumed a meaningful impact from World Cup. I think that is primarily due to 2 things. One, there's not a lot of precedent that we can rely on, right? The U.S. World Cup in an era with online secondary ticketing has 0 precedent data points. When we look at the last 2 World Cups, they are in markets that we basically don't operate in, in Russia and Qatar. And so trying to strike a cautious tone given a lack of conviction beyond that. The second observation I think it's fairly well documented, but we've seen FIFA be, let's say, quite aggressive in seeking to monetize, optimize their monetization of the event. I think it's safe to assume there will be incremental volume. We will benefit from it. But between those 2 factors, we've opted to essentially disregard it as we've contemplated our outlook for next year, and it would purely represent upside.

Got it. I appreciate that insight. My second question is whether it would be accurate to say that StubHub reduced its marketing expenditure somewhat. Did the exit rate for Q3 improve compared to the previous year?

Yes. I think it would be fair to say that over the course of Q3, we saw a shift in their behavior and a corresponding shift in volumes across marketplaces. Yes, that happened closer to the end of Q3 than the beginning.

Next question comes from the line of Brad Erickson with RBC Capital Markets.

I just want to follow up on that last point, Larry. When you talk about the stabilization commentary on the owned property business, you mentioned that competitive intensity has eased several times. Is that the main factor? Are there any other factors you would highlight, whether within your control or due to other market influences?

Yes. The competitive landscape matters, but I would say that our value proposition push is equally, if not more important, especially in the short term. As we increase the volume in our app, we create a more protected ecosystem. Users who trust our app are more likely to choose us, regardless of other competitors bidding for top placements. Having a better offer means that outside competition doesn't affect us as much. We aim to reduce our exposure to competitive responses, which is a long-term strategy. Changes don’t result in an immediate shift in volume, but we have noticed market increases in app usage. Each month, as we bring in new customers who understand our value proposition, they become more committed. Over time, this will lead to significant growth.

Got it. And then I appreciate the '26 guide and all you gave the EBITDA numbers. Any color you can give maybe on cash conversion relative to that EBITDA guide?

Yes. So I appreciate that question. Yes, I think if we look at our cash obligations moving forward, you have roughly $20 million of net interest expense. We'll have a bit less than $20 million of ex-cap software. And then we mentioned in this release that pro forma for the TRA transaction, we'll have about $3 million of cash taxes, primarily from international operations. So you sum those up before you consider working capital, you have a roughly $40 million set of cash obligations. As we've kind of talked about quite a bit the last few quarters, when we're growing, working capital is a source when we're shrinking, it's a use of cash. And so I think at the epicenter of will cash balance grow next year is do you believe that we can sequentially grow GOV. I think it's reasonable to assume that take Q1 as we lap the private label losses that we saw in Q3, continue to lap those. The overall year-over-year GOV numbers will continue to be down. But if the sequential help because the balance sheet kind of remark to market every quarter is stable and growing, you can see working capital reverse course. And so the base case plan is at the midpoint or better of our guidance, we would expect to be cash generative next year.

Next question comes from the line of Ben Black with Deutsche Bank.

This is Kunal for Ben. Quick one on the outlook, and you just talked about the cash flow consequences that we could see. One thing with regard to the assumption that underlie that. So are you assuming that the competitive intensity remains at the September, October levels in 2026? Or are you assuming that maybe things go back to what we had seen earlier in this year, and that is what determines the market share that you expect in '26? And then the second one would be with regard to the traffic that you are getting and the traffic that you have on your app. What is different from other providers that makes your value proposition so unique that people will not go anywhere else to shop?

Let me start with the value proposition of our app, which I believe is very compelling. We've discussed our loyalty program for several years and are focused on building awareness of it. Users who engage with this program tend to purchase significantly more compared to the average user. Even prior to our recent enhancements, we had a strong value proposition. Recently, we've emphasized lower everyday pricing, and we are continuously innovating the types of incentives we can offer as customers progress through their journey with us. We aim to create an experience where customers see our pricing as the best in the industry, independent of any incentives or loyalty considerations. This experience also includes excellent customer service, a seamless checkout process, and thoughtful recommendations along with incentives as they engage with our loyalty program, which enhances their pricing advantage. This creates a compelling long-term experience. While others can also offer various elements of this, it ultimately comes down to economic considerations. For instance, if companies are spending heavily on advertising, it may limit their ability to offer competitive pricing. We believe we can maintain the most efficient operations, which allows us to sustainably provide a top-tier value proposition, and competitors will need to adapt accordingly. Regarding the competitive landscape, it’s challenging to be precise. We’ve noticed an increase in competitive intensity over the last two years, and we want to keep that in mind. There has been a change, so I would describe the current environment as being between what we experienced in September and October and the worst conditions we observed in late Q1 and early Q2. While there is some reversion from the previous trends, it hasn't returned to the most extreme levels we previously faced.

Next question comes from the line of Thomas Forte with Maxim Group.

So first off, congratulations, Larry and Ted, on the new opportunities and best wishes to Stan for his future endeavors. One question, one follow-up. So Larry, are you seeing any changes in consumer behavior when it comes to the secondary ticket market? For example, when you have a game 7 and a playoff series, are they still willing to pay premium prices for the experience as they have in the past?

Yes, Tom, I would say, as a broad aggregate statement, continues to feel like live events are a central piece of what consumers want to spend their money on. We had a tough World Series comp, right? You can't really get better than the Yankees and Dodgers. And so I think World Series volumes and average order size were down relative to that. But when we look at the World Series relative to every year post-COVID other than the Yankees and Dodgers, this was the second best year. And so I think healthy, robust demand, we're seeing that across a lot of high-profile events. I think we alluded to this last quarter. To the extent we have seen softness, it's more been on the lower end of the market. And I think we actually see that manifest in Vegas more than in our core business. The call it, weekday lower AOS shows have been feeling, I think, some of this much talked about consumer softness.

Excellent. And then I might be a little early in this one. But can you talk about your capital allocation priorities, including reinvesting in the business, international expansion, strategic M&A, and buybacks?

Yes. I think for now, it's reasonable to assume that we won't be looking to complete acquisitive M&A that would be, call it, adjacencies. I think we've long believed that there could be a compelling consolidation in the space. And so we would be eager participants in that. But TAM expansion, I think we've got to batten the hatches and focus on the core business. Given the performance on both EBITDA and cash flow this year, I think we'll display a lot of prudence on any cash leaving the system, including share repurchases in the near term. I think we think that there's a very compelling value at these prices, but step one is batten the hatches and ensure that we have all of the capital we need to continue investing in all the initiatives that we see really compelling ROIs against such as international. And so we'll keep doing the defend the core. And then once we have a little more of a proven track record of stabilization, return to growth, return to cash, we can open up the aperture a bit.

Next question comes from the line of Andrew Marok with Raymond James.

Maybe on the international part there, I guess, what signals are you seeing in kind of that what you call the core international business that give you the impetus to continue investing there as opposed to maybe rationalizing some incremental cost savings out of that business?

Yes, Andrew, I'd like to begin by saying that we've been pleasantly surprised by how quickly we've been able to make our international business profitable in terms of contribution margin. We're already there today. To provide some context, Viagogo holds a significant market position in Europe. Consequently, in areas where we have fully competitive supply, particularly when the NFL comes to Europe or U.S. artists embark on global tours, we see immediate competitive supply from U.S. sellers. When we compete for traffic and attention in these areas with that competitive supply and pricing, we've experienced great success. Our next challenge is to expand our presence in various countries, especially focusing on local events where we can establish that competitive supply and pricing. From what we've observed, once we have that supply in place, the ability to market profitably will follow swiftly. It does require a lot of effort to reach this point, and that’s the journey we are currently undertaking.

There are no further questions at this time. That concludes today's call. Thank you all for joining. You may now disconnect.