Vivid Seats - Q2 2023

Transcript

Kate Africk (Head of Investor Relations)

Good morning, and welcome to Vivid Seats' second quarter 2023 earnings conference call. I am 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 Q2 earnings press release, which we released earlier this morning. The press release, as well as supplemental earnings slides, are available on the investor relations page of Vivid Seats website at investors.vividseats.com. During the course of today's call, management may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, including those described in our earnings press release and other filings with the SEC.

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

Stan Chia (CEO)

Good morning, everyone, and thank you for joining us today. I'm excited to share our strong Q2 2023 results with you. On top of excellent growth and profitability, our investments have continued to drive increased consumer affinity, as demonstrated by increasing repeat rates and strong brand sentiment. We have also entered into several accretive and unique strategic partnerships that further differentiate our platform. Just yesterday, we announced our planned expansion into the Asia Pacific region, entering into a definitive agreement to acquire Wavedash, the leading secondary ticketing marketplace in Japan. I'll address each of these exciting developments after walking through highlights from the quarter. I'll turn it to Larry, who will walk through our financials and outlook in more detail.

Building on a stellar Q1, we delivered yet another record quarter in Q2, generating $954 million marketplace GOV, 17% higher year-over-year. We delivered $165 million of revenues and $31 million of Adjusted EBITDA, also higher year-over-year, while we continued to invest to strengthen our product and brand to cultivate loyal users on both sides of our marketplace. With an outstanding performance in the first half, we are raising our 2023 guidance for the second time. After another quarter of record-breaking GOV, it is clear consumers continue to prioritize live event experiences. Demand strength was widespread across categories and performers, but the Taylor Swift Eras Tour, complete with unprecedented demand and fandom, stands out. A number of large tours, such as Aerosmith, were announced outside of the typical window and contributed to additional upside in the quarter.

Beyond the robust demand that we are seeing in 2023, secular trends for live events are strong and should provide tailwinds to the industry for years to come. To capture that strength, our strategic marketing campaigns foster targeted brand awareness of our differentiated fan experience that is underpinned by Vivid Seats Rewards, the only rewards program in our industry. This unique and industry-leading platform offers fans more rewards the more they buy, a win-win for our loyal buyers and for us. For frequent live event enthusiasts, rewards accumulate to compelling value that drive them back to Vivid Seats to complete more purchases for tickets to their favorite live events. The value of our loyalty program is so much more than the free 11th ticket.

We are truly differentiating the live event experience itself with exclusive perks for our users, like surprise upgrades and unique experiences, rewarding fans with even more value. One way we are accomplishing that is through multifaceted partnerships with professional sports teams. Through these partnerships, we craft unique and premium experiences that drive differentiation, while also increasing both targeted brand awareness and brand affinity with high-value audiences. Two exciting updates to this strategy focus on Major League Baseball teams. First, Vivid Seats is now the official ticket marketplace of the Los Angeles Dodgers. As part of this partnership, Dodgers fans now have access to the Vivid Seats Speakeasy and Vivid Seats Elite Seats. These newly branded experiential areas are exclusively available on Vivid Seats and will offer fans premium experiences and perks such as craft cocktails, complimentary food and beverage options, and luxury seating.

We are now the official ticket marketplace of the Colorado Rockies. This partnership will feature naming rights to the Vivid Seats Club level, offering extensive opportunities to prominently display our brand and elevate the consumer experience for hundreds of thousands of fans each year. Selected Vivid Seats Club level fans will also have the once in a lifetime opportunity to throw the first pitch before select games throughout the season. In addition to Major League Baseball teams, we have also expanded our list of National Football League team partners. Joining our existing partnership roster with the Indianapolis Colts, Cleveland Browns, and San Francisco 49ers, we are excited to become the proud partner of the Los Angeles Chargers, enabling fans to access one of the most unique experiences in Southern California sports, the Perch Suites at SoFi Stadium, complete with a private DJ and surprise visits from Chargers legends.

Ultimately, we expect team partnerships such as these to be accretive to repeat rates as fans return to Vivid Seats seeking an elevated experience. Lastly, we are excited to now offer fans additional payment options by partnering with PayPal Pay Later starting in September. We look forward to integrating this new partnership as consumers continue to look for more flexibility and as we continue to focus on ways to make it even easier for them to attend their favorite events. As we have discussed, all of our initiatives, whether through strategic partnerships or marketing channels, are designed to cultivate targeted brand awareness and lasting affinity for our platform. Our results show that this is working. Since our loyalty program refresh just two years ago, more and more repeat buyers are getting to their free eleventh ticket, a key moment in their loyalty journey.

Loyal buyers then repeat on our platform are highly accretive to margins, and we are proud to share that our repeat rates reached new highs in Q2. Last quarter, we announced our first free-to-play product available within the Vivid Seats app. The product, now branded as Game Center, is fully live and fans are showing very strong engagement. With Game Center, users play daily challenges, and winners of these contests are rewarded with free tickets to events or ticket credits for future purchases. Since soft launching our product in mid-June, we are proud to already have accumulated over 70,000 unique players in the first 60 days. Game Center is yet another example of the ways in which we are innovating and differentiating our product, all while rewarding fans and increasing engagement between ticket purchases. Our focus is also on continuing to innovate on behalf of our sellers.

Our industry-leading SkyBox ERP continues to onboard new sellers and give them access to best-in-class tools and technology. SkyBox is already the ERP of choice for the majority of professional sellers. We are excited to further differentiate our platform. SkyBox Drive is continuing to ignite excitement as we progress through our beta phase. We are looking to increase the number of beta users as we move towards a full launch later in the year. Next, I'll turn to our planned acquisition of Wavedash. We are excited to grow our TAM by expanding internationally with a market-leading business. Wavedash is the leader in the Japanese secondary ticketing market, with a large and growing customer network supported by robust technology and compliance capabilities.

With approximately $35 million of revenues during its last fiscal year, ended March 31, 2023, and accretive EBITDA margins, the acquisition of Wavedash is both financially and strategically compelling. We expect to close the transaction in Q3, utilizing approximately $61 million of balance sheet cash. We are well equipped with a strong balance sheet and ongoing cash generation that will enable us to seize other accretive and TAM expanding opportunities, both organically and inorganically. As we expand our footprint internationally, we remain grounded in our core principles, which are to drive strong growth, strong profitability, and strong cash flow, while cultivating loyalty in our marketplace and innovating to be on the forefront of what's next. Another recent example of this innovation is the launch of the first live events plugin for OpenAI's ChatGPT, which we announced just last month.

An industry first, this plugin makes event discovery more exciting, easier, and faster. After fans have all their live event questions answered by the chatbot, this generative AI shopping experience then links to our website for ticket purchase. To conclude, Q2 2023 was an exciting quarter for Vivid Seats, with strong financial results stacked with strategic partnerships and investments that further differentiate our marketplace and support continued momentum for our business. With that, I will turn it over to Larry.

Larry Fey (CFO)

Thanks, Dan. Our Q2 2023 marketplace GOV of $954 million increased 17% year-over-year, with total marketplace orders increasing 9% year-over-year and average order size increasing 7%. Our Q2 marketplace GOV reflects a robust event calendar and continued strength in fan demand. We saw particular strength in the concert category, led by Taylor Swift's US Eras Tour, supporting double-digit growth against a record Q2 2022. Our Q2 2023 revenues of $165 million increased 12% year-over-year, driven by marketplace GOV growth. Our Q2 take rate was 14.6%, below historical levels due to an increase in loyalty accruals, coupled with select strategic targeted pricing decisions.

As we go forward, Wavedash brings a lower take rate than Vivid Seats, we therefore expect our take rate to be roughly 15.5%. We generated $31 million of Adjusted EBITDA in the Q2, converting GOV to solid profitability despite a lower than normal take rate. We continue to see attractive marketing returns and are investing in accretive channels such as incremental partnerships and influencer campaigns. Our cash balance of $306 million exceeded our debt principal outstanding by $35 million at quarter end. Our planned acquisition of Wavedash will utilize approximately $61 million of cash and is a clear example of the strategic opportunities we are able to pursue as a result of our strong balance sheet and cash flow profile....

Turning to our updated outlook for 2023, we are raising our guidance to account for strong performance in the first half of the year, while including an estimated four months of contribution from Wavedash. We now anticipate 2023 marketplace GOV in the range of $3.4 billion-$3.6 billion, revenues in the range of $630 million-$650 million, and Adjusted EBITDA in the range of $125 million-$135 million. We expect our 2023 results will be more first half weighted than normal due to significant contribution in the first half from Taylor Swift. It is abnormal for a single tour or event to move the needle for our full year results, but the Eras Tour has proven to be a positive outlier.

With continued industry strength and encouraging results from our marketing efforts, we are leaning into select additional brand investments that we believe can drive compelling long-term returns. This includes our recently announced strategic partnerships, along with an increasing use of influencers to share our differentiated value proposition to high-value customers. We believe these channels will drive incremental customers while supporting repeat rates. Accordingly, additional marketing investment is reflected in our Adjusted EBITDA guidance. We originally anticipated a digestion year for the industry with flat GOV and Adjusted EBITDA in 2023. This view has proven overly conservative as widespread strength in live event supply and demand has continued, such that we now expect double-digit growth in GOV and Adjusted EBITDA once again. To wrap, it was another strong quarter and an excellent first half. We are excited to integrate WaveDash and complement our differentiated, growing, and highly profitable business.

Back to you, Stan.

Stan Chia (CEO)

Thanks, Larry. I'm proud of the strong results that our team continues to deliver. Our team's innovation and efforts to build valuable and differentiated products have continued to drive long-term stickiness on both sides of our marketplace, with higher buyer repeat rates and continuing seller SkyBox adoption. Our disciplined execution has driven robust growth, profitability, and cash flow, enabling us to pursue accretive opportunities such as Wavedash and ultimately drive long-term shareholder returns. With that, operator, let's open it up for questions.

Operator (participant)

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask participants to limit their questions to two questions per participant. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ralph Schackart with William Blair. Your line is now open.

Ralph Schackart (Equity Research Analyst)

Good morning. Thanks for taking the question. First question, just on WaveDash. Maybe provide some perspective, you could please, on the overall TAM opportunity, maybe what attracted you to the Japanese market, and this, is this sort of, you know, your first international expansion opportunity that, you know, may broaden out going forward?

Stan Chia (CEO)

Hey, good morning, Ralph. Thanks for the question. Yeah, look, yeah, I think we've always been looking at the landscape for favorable opportunities, you know, for expansion and TAM growth. As, as we've been looking, I think the appeal and, and the strength of the asset in Wavedash was really favorable against what we were assessing. Being able to enter a market with an industry leader, both profitable, as well as strong in terms of, of share there, I think was an excellent way for us to look to begin some of our international efforts, where we can learn where the backdrop is favorable. So I think as, as we continue to look, you know, I think our strong balance sheet is gonna allow us to be aggressive when we find opportunities such as Wavedash in the future.

Ralph Schackart (Equity Research Analyst)

Great. Thanks, Stan. Maybe just a follow-up. Maybe can you just speak to the competitive environment, you know, how that trended during the quarter and sort of Vivid Seats' positioning within the sort of competitive dynamic? Thank you.

Stan Chia (CEO)

Sure. Look, I think we've continued to see, you know, stable but, but strong competitive pressure. Really what we're focused on is the innovation that we drive in the platform, whether that's through our loyalty program, which continues to yield results and really high repeat rates. Whether that's in our engagement platforms, the combination of Vivid Picks, as well as now Game Center, driving over 70,000 new users in the first 60 days. You know, we think we've got a lot of great innovation driving long-term value in the platform. I think really what you're gonna see us do is continue to focus on that.

As we announced, you know, I think during this call also, we've got a lot of great experiential partnerships that we've launched with the Chargers, with the Dodgers, with the Rockies, that we believe are, are real differentiators in both the short and long term.

Ralph Schackart (Equity Research Analyst)

Great. Thanks, Stan.

Operator (participant)

One moment for our next question. Our next question comes from the line of Curt Nagle, Bank of America. Your line is now open.

Curt Nagle (Managing Director and Senior Equity Research Analyst)

Good morning. Thanks for taking the question. Yeah, I guess the first one, maybe an obvious one, you know, why not raise the back half of the year a little bit more, right? I mean, two very, very strong quarters, you know, we've got, you know, four months of Wavedash in there now. I know you guys are typically conservatives, but at least as far as I can see, it doesn't look like there's any letup in demand. Live Nation sounded like they're more positive on the outlook for the next couple of years. Aside from just, like, basic conservatism, you know, what, what, what's going into the outlook and, and, you know, why not be, yeah, why not raise a little bit more?

Larry Fey (CFO)

Yeah. Hey, Hey, Curt. I think we've tried to reflect what we believe is continued healthy outlook for the balance of the year. Certainly, as we move forward through the quarters, we have increasing visibility on, on the balance of the year, particularly the concert calendar, until that all resets as we shift into the next year and, and wait for the Q4 on sales. I'd say in particular, I think what drove some unique waiting this year was the Taylor Swift tour. Yeah, I think we would generally say no single event, no single performer will have a demonstrable or meaningful impact on our aggregate results. I don't think that would be a true statement this year. I think you can just feel the phenomenon that it was, right?

When you, when you see the, the videos and the excitement and the passion from the, from her fans, it, it was just an outlier. That tour ends this week, or next week, with her last shows, in the, in the States for this year in, in, L.A. Essentially, we're, we're assuming that with- without Taylor Swift in the numbers, there's a bit of a gap to fill, and that, that balances out. Not to say that, you know, it's not plausible that there's, there's more opportunity, but we wanted to, to make sure that we reflected that there's only one Taylor Swift, and she will not be performing the back half of the year.

Curt Nagle (Managing Director and Senior Equity Research Analyst)

Okay, fair enough. Then just as a quick follow-up, Larry, just take rate, so I understand drivers for this quarter, I think you said kind of a go-forward rate of 15.5%. Would that be a, you know, reasonable rate for Q3 and Q4?

Larry Fey (CFO)

I think that is a good number going forward. You know, my usual caveat, we're not 10 or 20 basis points smart, so you'll see some oscillation, but I think over time, that's a good midpoint that we should revolve around.

Curt Nagle (Managing Director and Senior Equity Research Analyst)

All right, cool. Thanks very much.

Operator (participant)

One moment for our next question. Our next question comes from Cameron Mansson-Perrone with Morgan Stanley. Your line is now open.

Cameron Mansson-Perrone (Equity Research Lead Analyst)

Hey, thanks for taking the questions. One, on the, on the resale business, I'm assuming the, you know, really strong growth year into Q. I'm assuming that is also gonna... The answer to that is also gonna be Taylor Swift, any expectations with regard to the resale business through the back half of the year? Then one on the TRA liability. I think the Q says the payments there are expected to happen in 25. Just any color on, is that gonna be-- Will that flow through as just one lump statement? Will that be multiple payments? Kinda just how to think about modeling that for now. Thanks.

Stan Chia (CEO)

Hey, Cameron, it's Dan. I'll take the first one, then pass it to Larry for the TRA. Yeah, as we've always talked about, re- resale is a, a great R&D center for us. You know, I wouldn't really expect, you know, anything different than, than what we put forth there. You know, where you see the fluctuations in the quarter, I think they represent more fluctuations in the industry, versus anything else. I wouldn't, I wouldn't read anything more than that's just industry strength into what you're seeing in the first half of the year.

Cameron Mansson-Perrone (Equity Research Lead Analyst)

Got it.

Larry Fey (CFO)

Then, then on the, the TRA, at the risk of restating things that already are known, the amounts that we will owe, and that's the amount on our balance sheet, is reflective of amounts that we are not paying in federal income tax. Instead, we are taking those savings, sharing them with our TRA holders, and then we retain 15% of that benefit. An incremental quirk in them is that there is a year delay, and so I would think of the cash outflows as generally being a year after the, the payment obligation is generated. We will have rolling quarterly tax obligations, and then we'll have rolling a year later, the, the money actually going out the door.

Cameron Mansson-Perrone (Equity Research Lead Analyst)

Got it. That's helpful. Thanks, guys.

Operator (participant)

One moment for our next question. Our next question comes from the line of Stephen Ju with Credit Suisse. Your line is now open.

Stephen Ju (Managing Director and Senior Equity Research Analyst)

Okay, great. Thank you. Stan, just a follow-up question on Wavedash. It does look like it has multiple businesses outside tickets. Maybe it's too early to comment on here, but what do you think you will do with the things that are probably a more, a bit more distant from your core ticketing business? You know, secondarily, what can you tell us about the Japanese market environment that's different or the same as the one here in the United States? Thank you.

Stan Chia (CEO)

Hey, Steven, thanks, thanks for the question. Yeah, I think when we, when we looked at the asset, I mean, I, I focused it first on we're obviously excited about our core business and continue to look for ways where we can leverage, you know, what we do well, into a broader landscape, i.e., the international one, and, and certainly where we can learn. I think Wavedash was really exciting. Yes, yes, there are a few other components, I think, of the business there, but, you know, we're, we're really focused on the ticketing side of it. Excited to see, you know, what else, and potentially learn about those other avenues.

I would say, you know, you're gonna see us laser focused on, again, the things that we do well that are core to our business and where we can, potentially leverage things, that we do here over there and, and vice versa, as we, as we learn a little bit more. You know, as it pertains to the Japanese market, is also one, you know, I think that we're excited about, right? I think broadly, live events are booming around the world. I think Japan is no exception to that.

I think what we saw there was a favorable backdrop where we could go in with a market leader, and learn more and potentially use that as, as a, as a launching off point for other markets as, as we continue to develop our knowledge and hone our processes to be, a larger international organization.

Larry Fey (CFO)

Steven, just to add two small things. One, the other businesses, the three of them, sum up to about 10% of the company's revenue, so the vast majority is the, the core ticketing business. So we're very excited about that alignment. The other, you know, difference I might call out between the North American and Japanese market is that sports are just a little bit less popular over there. I think North America, in many ways, is, is the global leader in terms of our passion for sports, the number of professional sports. So you'll see a slightly heavier concert and theater weighting in that market than, than you'll see here.

Stephen Ju (Managing Director and Senior Equity Research Analyst)

Thank you.

Operator (participant)

One moment for our next question. Our next question comes from the line of Maria Ripps with Canaccord. Your line is now open.

Maria Ripps (Managing Director and Senior Research Analyst)

Great. Good morning. Thanks for taking my questions. First, on Wavedash, how should investors interpret this acquisition as it relates to your appetite for further international expansion? What are your thoughts on any potential synergies here? Is it fair to assume that those are likely to be sort of on the back end and expense side, or any color you can share on that?

Stan Chia (CEO)

Yeah. Hey, Maria. You know, I, I think the right thing for, for folks to interpret is certainly we are always going to be on the lookout for ways to expand. As we've looked at Wavedash, you know, I think, again, we found a great opportunity for us to launch internationally with an asset that is accretive and profitable. I think as we look at the broader landscape, anytime we find a favorable backdrop where, you know, I think we can either move in organically or inorganically with strength, I think we're going to do that. I think on the, on the synergies question, you know, I think we're, we're certainly excited to continue to learn more as we move towards closing the deal.

Certainly I think you can expect us to be managing for both where we see front-end and back-end opportunities.

Maria Ripps (Managing Director and Senior Research Analyst)

Got it. That's very helpful. Secondly, many advertisers and brands are increasingly leveraging AI to optimize their marketing mix. Do you think you have any room for further efficiency gains by investing or leveraging in AI tools, kind of on the marketing side? Relatedly, could you maybe just touch on whether you've seen any easing on the competitive pressures on the advertising side?

Stan Chia (CEO)

You know, I'll, I'll start. You know, I think, I think we're at the forefront, you know, certainly of all the AI opportunity that's there. I think embedded in much that we do is already what I would say, a lot of advanced data science and algorithms powering some of our proprietary marketing in particular. I think we're always excited to be on the forefront, whether that's in our partnership with OpenAI and ChatGPT, whether that's in looking at new opportunities to self-develop AI on the marketing side, but I think we're early days there. If we have anything to share, we'll be happy to. We'll continue to look for ways to be really efficient and aggressive on, on the marketing front as well.

Larry Fey (CFO)

Yeah, on competitive environment, I would generally think the, the right word is stable. You know, relative to, to what we may characterize as peak competitive intensity, I think, you know, we reference, you know, perhaps Q3 of last year, a competitor or one or two maybe went particularly outside the normal bounds. I'd say that has come back within more normal ranges. I think this is a stable level amongst particularly the larger players in the space. I think there's still a very open question on if this is a sustainable level for some of the folks that haven't broken the profitability barrier and just continue to reiterate when you're, you know, in your 11 or 12 of operations and haven't quite cracked the code on being profitable, I, I think that's indicative of a, a perhaps unsustainable model.

Maria Ripps (Managing Director and Senior Research Analyst)

Great. Thanks so much for the call.

Operator (participant)

One moment for our next question. Our next question comes from Brad Erickson with RBC. Your line is now open.

Matthew Logan (Director and Technology Research Analyst)

Hey, good morning. This is Logan for Brad. Thanks for taking the question. Last quarter in the full year guide, I think you guys had mentioned you were baking in some sort of a macro slowdown for the full year. Just kind of given what you guys have seen this past quarter, just wanted to see if there was any updates to your thinking there for the full year. Additionally, just given where competitive pressures are on the advertising side, and, you know, to your comment of maybe on sustainable levels, any sort of expectation to those normalizing further in the back half of the year? Thanks.

Larry Fey (CFO)

Yeah, I think on the, the macro point, I think two things have both pushed in the same direction in terms of not projecting as much impact in the balance of the year. One, just being now seven months in and knowing the answer on seven months with, with only five months remaining, I think removes a fair bit of the speculation. The second part, I think would not be controversial to say that the general mood on the macro has improved relative to where it was at the beginning of the year, with more talks about soft landing versus hard landing. We're, we're certainly not intending to play, you know, economists with precision, but I do think our view as for the balance of the year, we feel like the, the outlook is, is pretty stable.

In our guidance, we're not forecasting a quick or sudden degradation in the macro. I think we'll evaluate as we prepare our 2024 outlook and continue to keep an eye on how market sentiment evolves. With the current sentiment, I think we would continue to have some degree of awareness that there is still concern around possible future slowdown, but that concern does appear to be softening. On the competitive question, yeah, I would not, I don't have a reason to believe there's gonna be a meaningful shift in the back half relative to what we've been seeing in Q1 and Q2. Not to say it won't happen, right? We certainly see competitors pivot and adjust behavior for reasons that we wouldn't be able to precisely explain.

But no obvious shift that we've seen subsequent to the quarter end, and no obvious reason why we'd expect it to happen in the near future.

Matthew Logan (Director and Technology Research Analyst)

Great. Thanks.

Operator (participant)

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

Thomas Forte (Senior Research Analyst)

Great. Stan, Larry, congrats on the quarter. Just one question for me. With Wavedash representing your first international foray, can you talk about the international total addressable market and compare and contrast the growth rate for the secondary market inside and outside the U.S.?

Larry Fey (CFO)

Yeah, I think, in aggregate, we would estimate that the total international ticketing market roughly approximates the North American ticketing market, maybe a little bit smaller in aggregate. Obviously, you need to then, you know, decompose into individual countries that'll have each of their own, you know, cultural considerations. So I, I don't think it's, you know, quite as simple as entering the US, and you now double your addressable market. It'll be a bit more piecemeal. Overall, I, I would think that we view the growth rates as similar, perhaps a slightly positive bent, as you, you contemplate that international has a slightly heavier concert and theater SKU. I think Japan is somewhat reflective of a number of countries where the North American weighting on sports is just going to be heavier than others.

As we pointed to, I think, stronger growth in concerts and sports, that can be a slight tailwind for overall international opportunity.

Thomas Forte (Senior Research Analyst)

Thanks, Larry.

Operator (participant)

One moment for our next question. Our next question comes from the line of Matt Farrell of Piper Sandler. Your line is now open.

Matt Farrell (VP and Senior Research Analyst)

Thanks, guys. My first one is just on the impact of the student loan repayments coming back up in Q4. I guess, how are you thinking about that as an impact of the guide? And maybe just thinking a little bit beyond just this year, as, you know, those repayments coming back up, do you see that as maybe a headwind of consumers willing to spend broadly on live events in 2024?

Stan Chia (CEO)

Hey, Matt, I think, you know, I think what we've continued to see is just resiliency and, and the strength of, of consumer demand here against the, you know, especially against the, the macroeconomic backdrop. I think, you know, we'll, we'll continue to see how that trends and factor that in accordingly, but we certainly haven't seen anything there that would cause us to think about that any differently.

Matt Farrell (VP and Senior Research Analyst)

Then maybe for my second question, how has Vivid Picks, Picks been performing over the last couple of months, and how should we be thinking about engagement trends as we head into, you know, the football season, which tends to be, you know, a heavier DFS time of year? Thanks.

Stan Chia (CEO)

Yeah, sure. I think we're, we're, we're excited about that as a platform, right? I think as we continue month-over-month, we continue to see user growth on Vivid Picks. We continue to see, you know, high double digit daily for our active users, entries per month. We continue to see that engagement there. I think equally as exciting, we take that engine and we move that into our Game Center platform. Now, ubiquitously across our app ecosystem, we have methods with which to engage consumers, and we continue to see growing engagement and growing user acquisition through those channels and remain really bullish on, on their long-term value to the business.

Operator (participant)

One moment for our next question. Our next question comes from the line of Andrew Marok from Raymond James. Your line is now open.

Andrew Marok (VP of Equity Research)

Thanks for taking my questions. Given that the thought was for a digestion year in 2023 originally, and that ended up proving conservative, does that expectation move out to 2024, or does that take the prospect for digestion maybe off the table or reduce its impact a little bit, obviously, being cognizant that you're not formally guiding for 2024 at this point?

Larry Fey (CFO)

Thanks, Andrew. As you noted, I think with the benefit of hindsight, the digestion premise and, and the concern around pent-up demand or revenge spending proved overly conservative, much to our pleasant surprise. As we look forward to next year, I think we have no reason to, to believe that our general long-term growth trajectory for the industry wouldn't hold, with perhaps the exception this year of, you know, the aforementioned Taylor Swift benefit this year, which, fortunately, we're happy to report will have some recurring benefit next year since she announced some shows, but certainly a smaller footprint than she had this year.

It'll be a, a net reduction, and just given the, the size of that tour, I think that, that'll be a, you know, perhaps, slight headwind relative to otherwise what feels like a, a really strong secular trend. You know, consistent with past practice, we look to Live Nation commentary, as I think they have the best insight on that forward calendar, and we continue to hear steady, consistent, bullish commentary that this is a secular and not transient trend.

Andrew Marok (VP of Equity Research)

Got it. Taylor helped you shake it off. Understood. Kind of for a, for a follow-up, with the Japanese expansion, you know, not to be too, you know, what have you done for me lately, looking into other specific markets lately, would you highlight some that are maybe better opportunities for the secondary side of ticketing and some that are maybe a little bit more constrained? I'm thinking of countries or, or sports leagues like the Premier League, where secondary ticketing isn't really that big of a thing for them.

Stan Chia (CEO)

Hey, Andrew, it's Dan. Look, I think when we look at international, I think literally the world is our oyster here, and so I think we, we, we have the opportunity to, I think, look for, you know, versus, I think, giving you specific markets, I think, you know, the criteria that we're gonna look for are markets where certainly there's a favorable regulatory environment, where there is a favorable kind of supply and demand opportunity, and then I think where there's a favorable opportunity for us to move in either organically and inorganically, right? I think as, as we continue to look at the world, we will look for things that meet our criteria.

You know, as, as, as those criteria, are evaluated and assessed, again, I think we'll have the balance sheet and certainly the, the platform to be able to do things both inorganically, and organically when those opportunities arise.

Andrew Marok (VP of Equity Research)

Thank you very much. I appreciate the color.

Operator (participant)

One moment for our next question. Our next question comes from the line of Dan Kurnos of Benchmark Company. Your line is now open.

Dan Kurnos (Managing Director of Internet and Media Equity Research)

Great. Thanks. Good morning. Nice quarter, guys, obviously. Maybe, Dan, just going back to the marketing mix question. I mean, our checks kind of suggest that most of the take rate pressure is coming from the sports side, not concert. You've announced, obviously, more strategic partnerships with sports teams. I think the overall marketing spend was maybe a little bit less than we anticipated in the quarter. Can you just kind of talk about your desire to continue to differentiate or maybe spend on more, you know, take rate or promotional activity rather than kind of pure brand spend or even performance-based spend, you know, in, in the marketplace, given what's going on with the competitive environment?

Stan Chia (CEO)

Yeah, sure. Hey, Dan. Yeah, I think we're, we're excited to have found, I think, great opportunities on the partnership front. You know, I think I'll, I'll, I'll frame for maybe, maybe reference. You know, I think we've, we've always looked at perhaps just raw brand spend as being a difficult thing to, to measure and drive value on. I think we've always looked at how do we drive targeting towards high-value audiences, as well as investments that will yield, I think, differentiated experiences for our consumers. Both in our digital mix, as you look at what we do there, I think we continue to be intelligently, programmatically buying towards high-value audiences.

Then on the partnership side, you know, I think especially the ones that we've announced today, when you look at whether it's the Dodgers with the Vivid Seats Speakeasy, custom drinks, food and drinks acquired, or our special section, you know, with the Chargers, which will go in, you know, this football season, where we've got unique areas with a DJ playing, where, again, that's fully branded and fully accessible only on Vivid Seats. You know, I think those are areas where we look at the opportunity to invest as really differentiating on the platform, one that we think has long-term viability and staying power, and that's really what's guiding our hands on our investments towards the marketing frontier.

Dan Kurnos (Managing Director of Internet and Media Equity Research)

... and how do you think about kind of the economics of those deals? Do you pick up any fan to fan in that, in those deals?

Stan Chia (CEO)

Sorry, Dan, didn't hear the last part of your question.

Dan Kurnos (Managing Director of Internet and Media Equity Research)

I was just curious if you were able to penetrate any of the fan-to-fan market with any of those deals?

Stan Chia (CEO)

I got it. Yeah, I think on the, on the horizon, you know, I think as with everything, you know, I think we only look at deals that we believe have long-term value to us over the, the, over the, the period of, of, of a customer's life cycle. When we look at some of those partnership investments, certainly I think the horizon is going to be longer than, you know, when we look at more of the immediate customer acquisition, performance marketing elements. Certainly, we don't have an infinite horizon, and we're quite judicious in terms of how we assess goodness. When we look at the fan-to-fan side, I think we're certainly excited about the prospects of potentially broadening that component of, of our business as we look at partnership with teams that will certainly drive that.

I think to, to the extent how, how much they drive it is what we'll assess through the, through the course of this period. I think we're certainly excited about the prospects and the ability of growing that in partnership with the teams that we're working with.

Dan Kurnos (Managing Director of Internet and Media Equity Research)

Got it. Super helpful. Just quick for Larry, just sort of housekeeping on the guide. I mean, the check suggests that it's been more order volume than price, although price has been super healthy. Just on the thoughts on the back half of the year, you know, You've talked about digestion a lot, not really occurring, but I mean, should we see kind of similar orders, slightly outpacing price, but both of them above what you would think of as more normalized levels?

Larry Fey (CFO)

Yeah, I think, if you look at this quarter, orders up about 9%, AOS up about 7%. Strength across both, as you noted. I think if you look historically at our AOS trajectory, our, you know, 3% - 4% annualized CAGR really does play out with that always present caveat that it's tough to be precise in a given quarter. So on the margin, I would guide to, you know, 7% higher than our normal 3% - 4%, so perhaps a little bit less in price in the back half. That, I think, helps foot a little bit on the aggregate numbers. We continue to see health, right?

I think the-- if, if you saw price meaningfully moving in either direction from that long-term CAGR, it would, would tell you something about a supply and demand mismatch. Instead, we're seeing it very consistent, which I think indicates that there's, there's pretty solid alignment between the amount of supply and demand out there. We feel good that they'll continue to move directionally in lockstep, barring some sort of change to the environment.

Dan Kurnos (Managing Director of Internet and Media Equity Research)

They keep raising primary prices, Larry, and secondary is still at double that, and it consistently stays there. I think that fits with what you're saying. Thanks for the color, guys. Really appreciate it.

Operator (participant)

One moment for our next question. Our next question comes from the line of Jason Bazinet with Citi. Your line is now open.

Jason Bazinet (Managing Director and Senior Equity Analyst)

I just had a quick question on the loyalty program. Maybe this is a question for Larry. What counsel would you give the investment community in terms of, you know, metrics that they should focus on or analyze to assess the traction that you guys are getting on the loyalty program?

Larry Fey (CFO)

Yeah, certainly on an annual basis, I think the most helpful, albeit on an annual cadence, will be that continued hopeful shift towards repeat orders. We talked about the improvements from high 40s to 56% of orders coming from repeat customers. I think we expect that number to continue to move up over time. And I think that will the magnitude of that increase will be reflective of the traction we're getting with folks coming into our ecosystem and staying in our ecosystem. Yeah, if you were to take a slightly longer time horizon, you know, ultimately, we think that shift is what drives the operating leverage and the long-term return on the brand marketing and loyalty investments that we've made. When you start to get more precise than that. Oh, sorry, go ahead.

Jason Bazinet (Managing Director and Senior Equity Analyst)

Yeah. No, no, go ahead.

Larry Fey (CFO)

Sorry. As we start thinking about being more precise, there, there are other metrics that we look at internally. I, I'd say none of them are perfect, right? Because it's very difficult to understand with precision, did a person repeat because of our loyalty or because of our improved engagement from Vivid Seats or because of the better experience from the partnerships or the better awareness from our high-value audience targeting? We'll, we'll never really know, so it tends to be an aggregate impact. We, we are generally looking to substantiate the ROI from the loyalty program on repeat rate alone, and any other benefit would be gravy, and we feel like we're trending well in that regard.

Jason Bazinet (Managing Director and Senior Equity Analyst)

Is the right metric then that the sales and marketing expenses as a % of revenue should come down, even if your take rate comes down in parallel? Is that, is that the right way to think about it?

Larry Fey (CFO)

Yeah, I think that's, that's exactly right. Over the, the intermediate term, you know, if I, if I step back and compare kind of the, the pre-pandemic to post-pandemic profile of Vivid Seats, the, the big investments we made are adding the loyalty program and then some brand investment alongside that. I think we said we believe those are, you know, call it four, five, six-year investments to get to full ROI. We're now a year and a half, two years into that cycle. I think we're seeing all of the right trends to believe we're gonna get to the positive ROI you'd want to deliver, but we're not fully there yet, and I think the, the place you will ultimately see that is in marketing efficiency.

Jason Bazinet (Managing Director and Senior Equity Analyst)

Okay. Thank you.

Operator (participant)

I'm showing no further questions at this time. Thank you all for your participation in today's conference. This does conclude the program. You may now disconnect.