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Item 7. Management’s Discussion and Analysis

2023-03-07 compared with 2022-03-15 · 202 added, 249 removed, 213 unchanged (68% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Op erations

Our management’s discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K, as well as our audited consolidated financial statements and related notes as disclosed in our registration statement on Form S-4A, filed with the Securities and Exchange Commission on September 23, 2021 (the "Registration Statement").

Our discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties.

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Our mission is to empower and enable fans to Experience It Live.

We believe live events deliver some of life’s most exciting moments.

Our platform provides ticket buyers and sellers with an easy-to-use and trusted marketplace experience that enables fans to purchase tickets to live events and create new memories.

We believe we differentiate from competitors by offering extensive breadth and depth of ticket listings at a competitive value.

We believe in the power of shared experiences to connect people with live events delivering some of life’s most exciting moments.

We operate a technology platform and marketplace that enables ticket buyers to easily discover and purchase tickets from ticket sellers while enabling ticket sellers to seamlessly manage their operations.

We differentiate from competitors by offering an extensive breadth and depth of ticket listings at a competitive value.

During the years ended December 31, 2022, 2021, and 2020, our revenues were $600.3 million, $443.0 million, and $35.1 million, respectively, and Marketplace Gross Order Value ("Marketplace GOV") was $3,184.8 million, $2,399.1 million, and $347.3 million, respectively.

Our net loss was $19.1 million, $774.2 million, and $53.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Our net income was $70.8 million for the year ended December 31, 2022.

Our net loss was $19.1 million and $774.2 million for the years ended December 31, 2021 and 2020, respectively.

Our Business Model

We operate our business in two segments, Marketplace and Resale.

Through our Marketplace segment, we act as an intermediary between ticket buyers and ticket sellers.

We earn revenue processing ticket sales from our Owned Properties, consisting of the Vivid Seats website and mobile applications, and from our Private Label offering, which comprises numerous distribution partners.

Using our online platform, we process customer payments, coordinate ticket deliveries, and provide customer service to ticket buyers.

A key component of our platform is Skybox, a proprietary enterprise resource planning tool used by many of our ticket sellers.

Skybox is a free-to-use system that helps ticket sellers manage ticket inventories, adjust pricing, and fulfill orders across multiple secondary ticket marketplaces.

In our Marketplace segment, we act as an intermediary between ticket buyers and sellers through which we earn revenue from processing ticket sales on our website and mobile applications and sales initiated through our numerous distribution partners.

Our Marketplace segment also includes our daily fantasy sports offering, where users partake in contests by making picks from a variety of sport and player matchups.

Using our online platform, we facilitate customer payments, deposits and withdrawals, coordinate ticket deliveries, and provide customer service to our ticket buyers and sellers and daily fantasy sports users.

We do not hold ticket inventory in our Marketplace segment.

We primarily earn revenue from service and delivery fees charged to ticket buyers.

We also earn referral fee revenue by offering event ticket insurance to ticket buyers, using a third-party insurance provider.

We do not hold ticket inventory in the Marketplace segment.

We incur costs for developing and maintaining our platform, providing back-office and customer support to ticket buyers and ticket sellers, processing payments, and shipping tickets.

The revenue we earn from our daily fantasy sports offering is the difference between cash entry fees collected and cash amounts paid out to users for winning picks, less customer promotions and incentives in a period.

We incur costs for developing and maintaining our platform, providing back-office and customer support to ticket buyers, sellers and daily fantasy sports users, facilitating payments and deposits, and shipping non-electronic tickets.

We also incur substantial marketing costs, primarily related to online advertising.

A key component of our platform is Skybox, a proprietary ERP tool used by the majority of our ticket sellers.

Skybox is a free-to-use system that helps ticket sellers manage ticket inventories, adjust pricing, and fulfill orders across multiple ticket resale marketplaces.

Professional ticket sellers use an ERP to manage their operations and Skybox is their most widely adopted ERP.

In our Resale segment, we acquire tickets to resell on secondary ticketing marketplaces, including our own.

Our Resale segment also provides internal research and development support for Skybox and our ongoing efforts to deliver best in class seller software and tools.

Our Resale segment also provides internal research and development support for Skybox and our ongoing efforts to deliver industry-leading seller software and tools.

Key Business Metrics and Non-GAAP Financial Measures

We use the following metrics to evaluate our performance, identify trends, formulate financial projections, and make strategic decisions.

We believe these metrics provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.

The following table summarizes our key business metrics and non-GAAP financial measure for the periods indicated (in thousands):

We believe that these metrics provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.

The following table summarizes our key business metrics and non-GAAP financial measure (in thousands):

Marketplace GOV (1)

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During the year ended December 31, 2022, our Resale segment experienced 5,205 event cancellations, compared to 6,165 and 20,644 event cancellations during the years ended December 31, 2021 and 2020.

(4) Adjusted EBITDA is not a measure defined under GAAP.

(4) Adjusted EBITDA is not a measure defined under accounting principles generally accepted in the United States of America ("GAAP").

We believe Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for period-to-period comparisons of our business performance.

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Marketplace GOV

Marketplace GOV is a key driver of our Marketplace segment’s revenue.

Marketplace GOV is a key driver of our Marketplace segment revenue.

Marketplace GOV represents the total transactional amount of Marketplace orders in a period, inclusive of fees, exclusive of taxes, and net of event cancellations that occurred during that period.

Marketplace GOV reflects our ability to attract and retain customers, as well as the overall health of the industry.

Our Marketplace GOV is impacted by seasonality, and typically sees increased activity in the fourth quarter when all major sports leagues are in season and we experience increases in order volume for theater and concert events during the holiday season.

Quarterly fluctuations in our Marketplace GOV result from the number of cancellations, the popularity and demand of performers, tours, teams, and events, and the length and team composition of sports playoff series and championship games.

Our Marketplace GOV increased during the year ended December 31, 2021 as a result of higher sales volume and fewer event cancellations following an overall reduction in mitigation measures enacted in response to the COVID-19 pandemic.

Our Marketplace GOV increased during the year ended December 31, 2022 as a result of a higher number of orders processed, driven by the resumption and increasing number of live events and fewer event cancellations.

Total Marketplace Orders

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Total Marketplace orders allow us to monitor order volume and better identify trends within our Marketplace segment.

Total Marketplace orders increased during the year ended December 31, 2021 as a result of higher sales volume and fewer event cancellations following an overall reduction in mitigation measures enacted in response to the COVID-19 pandemic.

Total Marketplace orders increased during the year ended December 31, 2022 as a result of a higher number of orders processed, driven by the resumption and increasing number of live events and fewer event cancellations.

Total Resale Orders

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Adjusted EBITDA is a key measurement used by our management internally to make operating decisions, including those related to analyzing operating expenses, evaluating performance, and performing strategic planning and annual budgeting.

Moreover, we believe Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for period-to-period comparisons of our business performance and highlighting trends in our operating results.

The following is a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, net loss, for the years ended December 31, 2021, 2020, and 2019 (in thousands):

Income tax expense

Interest expense

Moreover, we believe Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations.

It also provides a useful measure for period-to-period comparisons of our business performance and highlights trends in our operating results.

The following is a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, net income (loss) (in thousands):

Net income (loss)

Income tax expense (benefit)

Interest expense –

Depreciation and amortization

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Equity-based compensation (3)

Senior management transition costs (4)

Loss on extinguishment of debt (4)

Litigation, settlements and related costs (5)

Change to annual bonus program (7)

Customer loyalty program stand-up costs (8)

Impairment charges (9)

Loss on asset disposals (10)

Severance related to COVID-19 (6)

Change in value of warrants (12)

Change in fair value of warrants (7)

Change in fair value of contingent consideration (8)

Loss on asset disposals (9)

Impairment charges (10)

Adjusted EBITDA

(1) We have historically incurred sales tax expense in jurisdictions where we expected to remit sales tax payments but were not yet collecting from customers.

During the second half of 2021, we began collecting sales tax from customers in all required states.

The sales tax liability presented herein represents the exposure for sales tax prior to the date we began collecting sales tax from customers reduced by abatements received.

During the second half of 2021, we began collecting sales tax from customers in the required jurisdictions.

The sales tax liability presented herein represents the tax liability for sales tax prior to the date we began collecting sales tax from customers reduced by abatements received, inclusive of any penalties and interest assessed by the jurisdictions.

The aforementioned liability was fully paid in 2022.

(2) Transaction costs consist of legal;

tax and other professional fees;

as well as personnel-related costs, which consist of severance and retention bonuses;

personnel-related costs, which consist of retention bonuses;

and integration costs.

Transaction costs recognized in 2021 were related to the Merger Transaction (as defined below), to the extent they were not eligible for capitalization, and the acquisition of Betcha Sports, Inc.

Transaction costs recognized in 2022 were related to the merger transaction with Horizon Acquisition Corporation (the "Merger Transaction"), the acquisition of Betcha Sports, Inc.

("Betcha" rebranded as "Vivid Picks"), refinancing of the remaining June 2017 First Lien Loan with a new $275.0 million term loan (the "February 2022 First Lien Loan") and our offering to the holders of our outstanding public warrants to receive shares of Class A Common Stock in exchange for each outstanding public warrant tendered by the holder.

Transaction costs recognized in 2021 were related to the Merger Transaction, to the extent they were not eligible for capitalization, and the acquisition of Vivid Picks.

Transaction costs recognized in 2020 were related to the acquisition of Fanxchange Ltd.

In 2019, we completed the acquisition of Fanxchange Ltd.

and attempted to pursue an acquisition that was ultimately abandoned.

These acquisition-related costs are not representative of normal, recurring, cash operating expenses.

(3) We incur equity-based compensation expenses for profits interests issued prior to the Merger Transaction and equity granted according to the 2021 Incentive Award Plan ("2021 Plan"), which we do not consider to be indicative of our core operating performance.

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The 2021 Plan became effective on October 18, 2021.

(4) In 2019, we incurred costs associated with the transition to our current senior management team, including our Chief Executive Officer.

These costs include recruiting costs and costs to compensate our Chief Executive Officer for benefits forfeited at his previous employer.

(5) Losses incurred resulted from the retirement of the May 2020 First Lien Loan and fees paid related to the early payment of a portion of the principal of the June 2017 First Lien Loan in October 2021, the retirement of the revolving credit facility in May 2020, and the repayment of the $40.0 million second lien term loan in 2019.

(4) Loss on extinguishment of debt incurred in 2022 resulted from the extinguishment of the June 2017 First Lien Loan in February 2022.

Loss on extinguishment of debt incurred in 2021 and 2020 resulted from the retirement of the May 2020 First Lien Loan, fees paid related to the early payment of a portion of the principal of the June 2017 First Lien Loan in October 2021, and the retirement of the revolving credit facility in May 2020.

(5) These expenses relate to external legal costs and settlement costs, which were unrelated to our core business operations.

(7) We restructured our employee incentive compensation plan during 2019.

(8) During August 2019, we initiated the Vivid Seats Rewards customer loyalty program.

We incurred $3.2 million of initial stand-up costs related to the commencement of the program.

These stand-up costs consist primarily of customer incentives and marketing costs, which are not expected to reoccur.

(6) These charges relate to severance costs resulting from significant reductions in employee headcount due to the effects of the COVID-19 pandemic.

(7) This relates to the revaluation of warrants to purchase common units of Hoya Intermediate ("Intermediate Units") held by Hoya Topco following the Merger Transaction.

(8) This relates to the revaluation of Vivid Picks cash earnouts.

(9) This relates to asset disposals, which are not considered indicative of our core operating performance.

(10) We incurred impairment charges triggered by the effects of the COVID-19 pandemic during the year ended December 31, 2020.

The impairment charges resulted in a reduction in the carrying values of our goodwill, indefinite-lived trademark, definite-lived intangible assets, and other long-lived assets.

(10) We incur losses on asset disposals, which are not considered indicative of our core operating performance.

(11) These charges relate to severance costs resulting from significant reductions in employee headcount due to the effects of the COVID-19 pandemic during the years ended December 31, 2021 and 2020.

(12) These expenses relate to the modification of the terms of the Class A Public Warrants in connection with the Merger Transaction and revaluation of Hoya Intermediate Warrants (defined below) following the Merger Transaction.

Key Factors Affecting Our Performance

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The key factors discussed below impacted our 2022 results or are anticipated to impact our 2023 results.

Growth and retention of customers and sellers

Growth and Retention of Buyers, Sellers and Distribution Partners

Our revenue growth primarily depends on acquiring and retaining customers.

We seek to have ticket buyers and sellers view us as their destination ticketing marketplace when searching for, purchasing and selling event tickets.

We believe we differentiate from competitors by offering extensive breadth and depth of ticket listings at a competitive value, and by providing a reliable and secure experience for ticket buyers.

We acquire new ticket buyers through marketing, partnerships, brand advertisement and word-of-mouth.

Performance marketing channels are

highly competitive, and we must continue to be effective in these acquisition channels.

We seek to retain customers by offering an optimal customer experience, providing additional avenues for engagement and outreach such as customized emails, and providing value to our customers such as with our Vivid Seats Rewards program.

We seek to have ticket buyers and sellers view us as the go-to ticketing marketplace when searching for, purchasing and selling event tickets.

We differentiate from competitors by offering an extensive breadth and depth of ticket listings at a competitive value, and by providing a reliable and secure experience for ticket buyers.

We acquire new ticket buyers through various marketing channels, partnerships, brand advertisement and word-of-mouth.

Performance marketing channels are highly competitive, and we must continue to be effective in these acquisition channels.

We seek to retain buyers by cultivating brand awareness and affinity for our differentiated offering.

We provide an optimal customer experience, additional avenues for engagement and outreach such as through customized emails and Vivid Picks, and most importantly, exceptional value with our Vivid Seats Rewards program.

Likewise, we must preserve our longstanding relationships with ticket sellers to maintain extensive ticket listing options at competitive prices.

We recognize the importance of seller and other distribution relationships in the ticketing ecosystem and offer products and services designed to support the needs of our sellers and distribution partners.

During 2021, we experienced a dramatic increase in new orders processed starting in the second quarter alongside the roll-out of COVID-19 vaccination programs across the United States and supported by our investments in revamped branding and product enhancements to attract new and reattract prior customers.

We also experienced a significant reduction in event cancellations in 2021 as compared to 2020.

Our expenses increased on a similar trajectory over the course of the year as we increased our marketing spend and efforts, hired additional personnel, and had additional outsourced customer service provider costs to capitalize on the increase in live event attendance and handle the increased order demand.

Supply of Concert, Sporting, and Theatre Events

A reduction in the number of live concert, sporting and theater events will have an adverse effect on our revenue and operating income.

Many of the factors affecting the number and availability of live concert, sporting and theater events are beyond our control.

During the year ended December 31, 2021, our Marketplace segment experienced 257,109 event cancellations and our Resale segment experienced 6,165 event cancellations.

Attracting and retaining talent

We rely on the ability to attract and retain employees.

Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization.

As a company, we share the dedication to our mission to Experience It Live .

We believe offering employees an engaging and positive work environment contributes to both their success and our success.

We are committed to fostering an environment that is inclusive and welcome to diversity in backgrounds, experiences and thoughts as a means toward achieving employee engagement, empowerment, innovation and good decision-making.

As of December 31, 2021, we had 430 full-time employees which increased over 80% from 236 full-time employees as of December 31, 2020.

We expect our employee count to further increase in 2022.

COVID-19 pandemic

The COVID-19 pandemic has had, and may continue to have, a significant negative impact on our business, operational and financial results.

While we have seen recovery in the demand for live events with an increase in ticket orders, as well as an increasing number of live events held in 2021 as compared to 2020, we could be adversely affected if new variants emerge and if COVID-19 case counts increase.

As of December 31, 2021, most jurisdictions permit full capacity and many events are taking place as planned.

Some events, however, continue to be cancelled, rescheduled, or postponed due to the COVID-19 pandemic.

If economic conditions caused by the pandemic do not continue to recover, including as a result of potential developments with variants of the virus or other market-disrupting events, our financial condition, cash flow and results of operations may be further impacted.

We recognize the

importance of seller and other distribution relationships in the ticketing ecosystem and offer products and services designed to support the needs of our sellers and distribution partners.

Macroenvironment and Resulting Consumer Demand for Live Events

Consumer demand for live events could be impacted by economic conditions affecting disposable consumer income, including unemployment levels, fuel prices, interest rates, changes in tax rates and tax laws that impact individuals and rising inflation, that affect disposable consumer income.

These economic conditions could affect overall demand for live event tickets, ticket prices and/or price sensitivity, which in turn could have a negative impact on our business and financial results.

Ticketing Industry Competition

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We also face competition in the resale of tickets from other professional ticket resellers.

We must continue to innovate and offer our buyers, sellers and partners an attractive value proposition.

Our operational and financial results can be impacted by seasonality, with increased activity in the fourth quarter when all major sports leagues are in season and we experience an increase in order volume for theater and concert events during the holiday season.

In addition to typical seasonality impacts to our business, our quarterly results and quarterly year-over-year growth rates can be impacted by:

Forms of competition can include, but are not limited to, increasing performance marketing spend, increasing brand advertisement spend, pricing changes, exclusive partnerships, and new product offerings and enhancements.

To combat such competitive dynamics, we continue to refine our marketing strategies to attract and retain customers and innovate to offer our customers an attractive value proposition.

Supply of Concert, Sporting and Theater Events

The number of live concert, sporting, and theater events will have a significant effect on our revenue and operating income.

Many of the factors affecting the number of live events are beyond our control.

Attracting and Retaining Talent

We rely on the ability to attract and retain employees.

Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization.

We share the dedication to our mission to Experience It Live .

Offering employees an engaging and positive work environment contributes to both their success and our success.

We are committed to fostering an environment that is inclusive and welcoming to diversity in backgrounds, experiences and thoughts as a means toward achieving employee engagement, empowerment, innovation and good decision-making.

In addition, our quarterly results and quarterly year-over-year growth rates can be impacted by:

sports teams performance, the number of playoff games in a series and teams involved;

the timing of tours of top grossing acts;

tour and game cancellations due to weather, illness or other factors;

tour, game, and other event cancellations due to weather, illness or other factors;

popularity and demand for certain performers and events.

In 2021, the impacts of COVID-19 resulted in unique impacts to our business beyond normal course seasonality.

In particular, we experienced a dramatic increase in new orders processed starting in the second quarter alongside the roll-out of COVID-19 vaccination programs across the United States.

We expect the continued return of live events as COVID-19 restrictions are lifted, subject to potential developments with variants of the virus or other market-disrupting events, to continue to be most impactful in the near term.

Recent Developments

The Business Combination

On October 18, 2021, we consummated the Merger Transaction.

The Merger Transaction was accounted for as a reverse recapitalization, with Hoya Intermediate, a subsidiary of Vivid Seats Inc., treated as the accounting acquirer.

Accordingly, the consolidated financial statements of the combined company represent a continuation of the financial statements of Hoya Intermediate.

In connection with the Merger Transaction, Vivid Seats also entered into a private investment in public equity financing (“PIPE Subscription”).

Pursuant to the PIPE Subscription, Vivid Seats raised an additional $250.2 million.

In addition, Hoya Intermediate paid Eldridge Industries, LLC $11.7 million in cash at the closing of the Merger Transaction for a backstop fee.

Proceeds from the Merger Transaction and the PIPE Subscription were used for debt repayment and capital structure optimization.

We declared and paid a special dividend of $17.7 million, or $0.23 per share, to holders of Class A Common Stock in 2021.

Betcha Acquisition

On December 13, 2021, we acquired 100% of the equity interests of Betcha.

Betcha is a real money daily fantasy sports app with social and gamification features that enhance fans’

connection with their favorite live sports.

The acquisition date fair value of the consideration transferred consisted of approximately $0.8 million in cash and 2,143,438 shares of Class A common stock.

The total consideration includes cash earnouts of $7.5 million as of the acquisition date representing the estimated fair value that we may be obligated to pay if Betcha meets certain earnings objectives following the acquisition.

In addition, the purchase consideration includes future milestone payments of $9.7 million as of the acquisition date representing the estimated fair value that we may be obligated to pay upon the achievement of certain integration objectives.

COVID-19 Has Had a Disproportionately Negative Effect on the Live Entertainment Industry

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

Almost immediately, mitigation measures implemented or recommended by governmental authorities and private organizations restricted attendance at live events throughout North America producing large-scale event cancellations and meaningfully reduced purchases made on our platform.

The resulting decline in revenue and broader economic impact of the pandemic led us to determine that an impairment triggering event existed during the nine months ended September 30, 2020, resulting in an impairment charge of $573.8 million to goodwill, indefinite-lived intangible assets, definite-lived intangible assets, and other long-lived assets.

These factors contributed to a net loss of $774.2 million in 2020.

Beginning in the second quarter of 2021, and continuing through the fourth quarter of 2021, we have seen a recovery in ticket orders as mitigation measures ease.

For the second half of 2021, our annualized order volume exceeded 2019 levels.

While we continued to recognize a net loss in 2021, we realized significant year-over-year increases in revenues and operating income.

Our operating income was $76.6 million for the year ended December 31, 2021.

The COVID-19 pandemic is evolving and the ultimate pace and timing of recovery continues to remain uncertain.

COVID-19 Pandemic

The COVID-19 pandemic has had, and may continue to have, a significant negative impact on our business, operational and financial results.

Beginning in the second quarter of 2021, and continuing throughout 2022, we have seen a recovery in ticket orders as mitigation measures eased.

While we have experienced recovery from the COVID-19 pandemic, given the emergence of new variants and continued infectious cases, uncertainty remains.

If economic conditions caused by the pandemic were to worsen, our financial condition, cash flows, and results of operations may be further materially impacted.

Results of Operations

Discussions of the year ended December 31, 2019 and comparison between the year ended December 31, 2020 and the year ended December 31, 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vivid Seats”

in our Registration Statement.

Discussions of the year ended December 31, 2021 and comparison between the year ended December 31, 2021 and the year ended December 31, 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations ”

in our Annual Report on Form 10-K filed on March 15, 2022.

Comparison of the Years Ended December 31, 2022 and 2021

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Depreciation and amortization

Impairment charges

Income (loss) from operations

Other expenses:

Change in fair value of contingent consideration

Income from operations

Other (income) expense:

Interest expense –

Loss on extinguishment of debt

Other expenses

Loss before income taxes

Income tax expense

Other (income) expense

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Net loss attributable to Hoya Intermediate, LLC shareholders prior to reverse recapitalization

Net loss attributable to redeemable noncontrolling interests

Net loss attributable to Class A Common Stockholders

Net income (loss) attributable to redeemable noncontrolling interests

Net income (loss) attributable to Class A Common Stockholders

The following table presents revenues by segment (in thousands, except percentages):

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Total revenues increased $157.2 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase, which occurred in both our Marketplace and Resale segments, resulted from an increase in new orders processed resulting from the resumption of live events and a reduction in event cancellations due to the COVID-19 pandemic.

The pandemic and resulting mitigation measures had a significant adverse effect on order volume and event cancellations during 2020.

By the third quarter of 2021, most local governments had lifted large scale restrictions on live events.

For the second half of 2021, our annualized order volume exceeded 2019 levels.

The increase, which occurred in both our Marketplace and Resale segments, resulted from an increase in new orders processed resulting from the resumption and increasing number of live events and fewer event cancellations.

The pandemic and resulting mitigation measures had a significant adverse effect on order volume and event cancellations during the year ended December 31, 2021.

In the second quarter of 2021, most local governments began to lift large scale restrictions on live events such that there was a significant increase in live events held for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The following table presents revenues in our Marketplace segment by event category (in thousands, except percentages):

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Marketplace revenues increased $121.4 million during the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase in Marketplace revenues resulted primarily from an overall increase in new orders processed on our Marketplace platform combined with fewer event cancellation charges.

The increase in Marketplace revenues for the year ended December 31, 2022 resulted primarily from an overall increase in new orders processed, driven by the resumption and increasing number of live events, and fewer event cancellations compared to the year ended December 31, 2021.

The increase in Marketplace revenues was primarily driven by the concert category and resulted from an increase in new orders processed, driven by the resumption and overall increasing number of events, rescheduling of postponed events and reduced event cancellations.

Total Marketplace orders increased 2.5 million, or 38%, during the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase in orders resulted from the increase in events held after restrictions on fan attendance due to the COVID-19 pandemic were reduced or lifted.

These increases occurred across all event categories with the greatest increase in sports.

Cancellation charges, which are recognized as a reduction to revenues, were $27.8 million for the year ended December 31, 2022, compared to $34.5 million for the year ended December 31, 2021.

Due to the mass cancellations of live events during the initial phases of the pandemic in 2020, cancellation charges were higher in 2020 compared to 2021.

For the year ended December 31, 2021 and 2020, we recognized an increase in revenue of $5.1 million and a decrease of $15.3 million, respectively, due to the impact of cancellation charges for cancelled events where the performance obligations were satisfied in prior periods.

Cancellation charges for the year ended December 31, 2022 were lower than the year ended December 31, 2021 due to lower event cancellations in all event categories and higher recorded breakage on customer credits, partially offset by higher customer refunds that increase as order volume increases.

Marketplace revenues by business model consisted of the following (in thousands, except percentages):

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Total Marketplace revenues

The increases in revenue from both Owned Properties and Private Label during the year ended December 31, 2021 resulted primarily from the increase in order volume resulting from the loosening of restrictions on live events and fewer event cancellations than the year ended December 31, 2020.

The increases in revenue from both Owned Properties and Private Label during the year ended December 31, 2022 compared to the year ended December 31, 2021 resulted from an increase in new orders processed, particularly in the concert category, and fewer event cancellations.

Within the Marketplace segment, we also earn referral fee revenue by offering event ticket insurance to ticket buyers, using a third-party insurance provider.

Our referral fee revenue was $33.4 million and $33.5 million during the years ended December 31, 2022 and 2021, respectively.

Referral fees were flat compared to 2021 as insurance attachment rate to orders declined.

Revenue for our Resale segment increased $35.8 million, or 67%, during the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase resulted primarily from higher order volume.

The increase resulted primarily from higher order volume in the concert category.

Total Resale orders increased 0.1 million, or 57%, during the year ended December 31, 2022 compared to the year ended December 31, 2021.

Cancellation charges, classified as a reduction of revenue, negatively impacted Resale revenue by $2.8 million and $6.7 million for the years ended December 31, 2021 and 2020, respectively.

Cancellation charges, classified as a reduction of revenue,

negatively impacted Resale revenue by less than $0.1 million and $2.8 million for the years ended December 31, 2022 and 2021, respectively.

Cost of Revenues (exclusive of Depreciation and Amortization)

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Total cost of revenues increased $49.9 million, or 55%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase to total cost of revenues resulted from higher order volume in both our Marketplace and Resale segments.

The increase to total cost of revenues resulted primarily from higher order volume in both our Marketplace and Resale segments and a higher proportion of revenue from our Resale segment.

Marketplace cost of revenues increased $21.4 million, or 41%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase in cost of revenues is consistent with the increase in total Marketplace orders, which increased by 5.6 million orders, or 523%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase in cost of revenues is fairly consistent with the increase in total Marketplace orders, which increased by 2.5 million orders, or 38%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Resale cost of revenues increased $28.5 million, or 73%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase resulted from an increase in total Resale orders of 0.1 million orders, or 57%, during the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase in Resale cost of revenues is not consistent with the increase in Resale revenues due to higher ticket prices and margins in 2021 compared to 2020.

The increase in Resale cost of revenues is not consistent with the increase in Resale revenues for the year ended December 31, 2022 compared to the year ended December 31, 2021.

This was driven by strong post-COVID recovery demand in 2021 that resulted in abnormally high margins.

Cancellation charges resulted in a reduction to Resale cost of revenues of $0.5 million and $1.4 million for the years ended December 31, 2022 and 2021, respectively.

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Marketing and selling expenses, which are entirely attributable to our Marketplace segment, increased $67.0 million, or 37%, during the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase in expenses primarily resulted from greater spending on online advertising during the second half of 2021.

Our spending on online advertising increased by $126.2 million, or 369%, during the year ended December 31, 2021 compared to 2020.

As restrictions on the attendance of live events were reduced or lifted, we increased our spending on marketing to capitalize on the increase in live event attendance.

In addition, starting in the fourth quarter of 2021, we increased our marketing efforts in additional offline channels including broadcast TV and radio as part of our brand awareness efforts.

The increase in expenses primarily resulted from greater spending on online advertising.

Our spending on online advertising increased by $64.5 million, or 40%, during the year ended December 31, 2022 compared to the year ended December 31, 2021 as we scaled to capture an increase in live event demand and experienced increased competition in performance marketing channels.

The increase in our offline advertising expense was driven by our revamped brand awareness marketing efforts, which began with a large campaign in the fourth quarter of 2021.

General and Administrative

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Total general and administrative expenses increased $35.4 million, or 38%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Other general and administrative expenses increased $13.2 million, or 61%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase was primarily due to a $9.5 million increase in consulting and professional service fees related to the Merger Transaction, a $3.8 million increase in legal fees, and a $0.5 million increase in legal settlement expenses.

Additionally, there was a $3.5 million increase in other general and administrative expenses, primarily related to an increase in licensed software costs and rent expenses.

This was offset by a $4.1 million decrease in other expenses, primarily related to a decrease in charitable contributions as a result of the reduction in event cancellations in 2021 compared to 2020.

Personnel expenses increased $9.9 million, or 26%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase was due to higher employee headcount and an increase in costs for our outsourced customer service provider primarily due to the increase in order volume.

This was partially offset by government payroll subsidies for U.S.

and Canadian employers.

Non-income tax expenses increased $3.0 million, or 42%, of which $2.2 million was related to sales tax expense, and the remainder related to non-income based taxes.

This increase primarily resulted from higher order volume.

The increase was primarily due to a higher personnel expenses attributable to higher employee headcount, an increase in costs for our outsourced customer service provider and an increase in stock compensation expense from awards granted pursuant to the 2021 Plan, which became effective on October 18, 2021.

This increase was partially offset by a decrease in non-income tax expense as we began collecting sales tax from customers in the required jurisdictions in the second half of 2021.

The majority of the non-income tax expense in the prior periods represents the exposure for sales tax prior to the date we began collecting sales tax from customers, reduced by abatements received, and inclusive of any penalties and interest assessed by the jurisdictions.

Depreciation and Amortization

Depreciation and amortization expenses decreased $45.9 million, or 95%, during the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the impairment of our definite-lived intangible assets and other long-lived assets and equipment during the year ended December 31, 2020.

Impairment Charges

During the second quarter of 2020, we incurred impairment charges of $573.8 million.

These impairment charges were triggered by the effects of the COVID-19 pandemic.

Due to the effects of the pandemic, we experienced a substantial reduction of revenue during the first half of 2020, which continued through the remainder of the year and into the first half of 2021.

We have not incurred any impairment charges during the year ended December 31, 2021.

Other Expenses

The following table presents other expenses (in thousands, except percentages):

Other expenses

Interest expense - net

Loss on extinguishment of debt

Other expenses

Total other expenses

Depreciation and amortization expenses increased $5.4 million, or 233%, during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily as a result of an increase in development activities related to our platform and the intangibles acquired as part of the Vivid Picks acquisition.

Change in fair value of contingent consideration

Change in fair value of contingent consideration was $2.1 million during the year ended December 31, 2022 due to the fair value remeasurement of cash earnouts.

Other (Income) Expense

Interest expense –

Interest expense increased $0.7 million, or 1%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Although we paid off the May 2020 First Lien Loan and made a partial payment of the outstanding principal on the June 2017 First Lien Loan on October 18, 2021, interest expense was similar to the prior year due to the timing of when we entered into the May 2020 First Lien Loan and made the debt repayments in 2021.

In addition, the interest rate cap and interest rate swaps matured during the years ended December 31, 2021 and 2020, respectively.

Interest expense decreased $45.3 million, or 78%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

We paid off the May 2020 First Lien Loan and made a partial payment of the outstanding principal on the June 2017 First Lien Loan in the fourth quarter of 2021.

In addition, we further reduced our outstanding debt balance and effective interest rate on February 3, 2022 when we refinanced the June 2017 First Lien Loan with the February 2022 First Lien Loan.

Loss on extinguishment of debt

Loss on extinguishment of debt increased $35.1 million during the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase was due to our full repayment of the May 2020 First Lien Loan and a partial repayment of the outstanding principal on the June 2017 First Lien Loan.

The loss includes $28.0 million for a prepayment penalty and $6.1 million for the amortization of the remaining balance of the original issuance discount and issuance costs related to the repayment of the May 2020 First Lien Loan in full, as well as $1.7 million for the amortization of the balance of the original issuance discount and issuance costs related to the partial repayment of the outstanding principal on the June 2017 First Lien Loan.

Other expenses

Other expenses were $1.4 million during the year ended December 31, 2021 primarily due to our modification of the terms of Class A Public Warrants in connection with the Merger Transaction.

There were no other expenses for the year ended December 31, 2020.

Loss on extinguishment of debt decreased $31.5 million during the year ended December 31, 2022 compared to the year ended December 31, 2021.

For the year ended December 31, 2022, loss on extinguishment of debt was due to the refinancing of the June 2017 First Lien Loan with the February 2022 First Lien Loan in the first quarter of 2022.

For the year ended December 31, 2021, loss on extinguishment of debt was due to our full repayment of the May 2020 First Lien Loan and a partial repayment of the outstanding principal on the June 2017 First Lien Loan.

The loss includes $28.0 million for a prepayment penalty, $6.1 million for the amortization of the remaining balance of the original issuance discount and issuance costs related to the repayment of the May 2020 First Lien Loan in full and $1.7 million for the amortization of the balance of the original issuance discount and issuance costs related to the partial repayment of the outstanding principal on the June 2017 First Lien Loan.

Other (income) expense

Other (income) expense decreased $9.6 million during the year ended December 31, 2022 compared to the year ended December 31, 2021.

For the year ended December 31, 2022, other (income) expense was related to the fair value remeasurement of the Hoya Intermediate Warrants.

For the year ended December 31, 2021, other (income) expense was primarily related to our modification of the terms of Public Warrants in connection with the Merger Transaction.

Liquidity and Capital Resources

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As noted in the “Liquidity and Capital Resources—Loan Agreements”

section below, we repaid the May 2020 First Lien Loan in connection with, and using the proceeds from, the Merger Transaction and the PIPE Subscription.

section below, we repaid the May 2020 First Lien Loan in connection with, and using the proceeds from, the Merger Transaction and the PIPE Financing.

Our existing cash and cash equivalents are sufficient to fund our liquidity needs for the next 12 months.

As of December 31, 2022, we had $251.5 million of cash and cash equivalents.

Cash and cash equivalents consist of interest-bearing deposit accounts, money market accounts managed by financial institutions, and highly liquid investments with maturities of three months or less.

For the year ended December 31, 2021, we have generated positive cash flows from our operating activities.

Subsequent to December 31, 2021, we repaid $190.7 million of outstanding June 2017 First Lien Loan and added a new revolving credit facility in an aggregate principal amount of $100.0 million.

Cash and cash equivalents consist of interest-bearing deposit accounts and money market accounts managed by financial institutions.

For the year ended December 31, 2022, we generated positive cash flows from our operating activities.

Loan Agreements

In response to the COVID-19 pandemic, we borrowed $50.0 million under the Revolving Facility in March 2020.

We then entered into the May 2020 First Lien Loan, which resulted in $251.5 million in net cash proceeds.

We used the net cash proceeds from the May 2020 First Lien Loan to immediately repay the $50.0 million in outstanding borrowings under the Revolving Facility and to fund our operations.

The Revolving Facility was terminated in full simultaneously with the repayment in May 2020.

In response to the COVID-19 pandemic, we entered into the May 2020 First Lien Loan, which resulted in $251.5 million in net cash proceeds.

The May 2020 First Lien Loan, which is pari passu with the June 2017 First Lien Loan, carries a variable interest rate of LIBOR plus an applicable margin of 9.50%, or a base rate plus an applicable margin of 8.50%.

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Additional interest was capitalized into the principal in the first nine months of 2021, resulting in an outstanding principal of $304.1 million as of September 30, 2021.

On October 18, 2021, we repaid this loan in full in connection with, and using the proceeds from, the Merger Transaction and the PIPE Subscription and incurred a $28.0 million prepayment penalty.

We have an outstanding loan balance of $465.7 million under the June 2017 First Lien Loan as of December 31, 2021, which matures on June 30, 2024.

Under the June 2017 First Lien Loan, we make quarterly principal payments of $1.6 million, reduced by certain prepayments.

Principal payments amounted to $4.8 million and $5.9 million during the years ended December 31, 2021 and 2020, respectively.

The effective interest rate on the June 2017 First Lien Loan, which fluctuates based on market interest rates, was 4.5% per annum as of December 31, 2021 and 2020.

In 2021, in addition to the required quarterly principal payments, we paid $148.2 million of the outstanding loan balance in

connection with, and using the proceeds from, the Merger Transaction and the PIPE Subscription.

We made no payments under the June 2017 First Lien Loan during 2020, aside from the required quarterly principal payments.

Upon closing of the Merger Transaction and receipt of cash proceeds under the PIPE Subscription on October 18, 2021, we significantly reduced loan amounts outstanding.

As of December 31, 2021, we are only party to one credit facility, the June 2017 First Lien Loan.

On February 3, 2022, we repaid $190.7 million of outstanding June 2017 First Lien Loan.

We entered into an amendment which refinances the remaining existing term loan with a new $275.0 million term loan with a maturity date of February 3, 2029, adds a new revolving credit facility in an aggregate principal amount of $100.0 million with a maturity date of February 3, 2027, replaces the LIBOR based floating interest rate with a term SOFR based floating interest rate and revises the springing financial covenant to require compliance with a first lien net leverage ratio.

On October 18, 2021, we repaid this loan in full in connection with, and using the proceeds from, the Merger Transaction and the PIPE Financing and incurred a $28.0 million prepayment penalty.

We had an outstanding loan balance of $465.7 million under the June 2017 First Lien Loan as of December 31, 2021.

In the first quarter of 2022, we repaid $190.7 million of the outstanding June 2017 First Lien Loan.

On February 3, 2022, we entered into an amendment which refinanced the remaining June 2017 First Lien Loan with a new $275.0 million February 2022 First Lien Loan with a maturity date of February 3, 2029, added a new revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of $100.0 million with a maturity date of February 3, 2027, replaced the LIBOR based floating interest rate with a term secured overnight financing rate ("SOFR") based floating interest rate and revised the springing financial covenant to require compliance with a first lien net leverage ratio when revolver borrowings exceed certain levels.

The February 2022 First Lien Loan requires quarterly amortization payments of $0.7 million.

The Revolving Facility does not require periodic payments.

All obligations under the February 2022 First Lien Loan are secured, subject to permitted liens and other exceptions, by first-priority perfected security interests in substantially all of our assets.

The February 2022 First Lien Loan carries an interest rate of SOFR plus 3.25%.

The SOFR rate for the February 2022 First Lien Loan is subject to a 0.5% floor.

As of December 31, 2022, we are only party to one credit facility, the February 2022 First Lien Loan.

At December 31, 2022, we had no outstanding borrowings under our Revolving Facility.

Share Repurchase Program

On May 25, 2022, our board of directors authorized a share repurchase program of our Class A Common Stock of up to $40.0 million ("Repurchase Program").

The Repurchase Program was announced on May 26, 2022 and will be effective until March 31, 2023.

We may repurchase shares from time to time in open market transactions, through privately negotiated transactions or otherwise in accordance with applicable federal securities laws.

The amount and timing of repurchases will depend upon market conditions and other factors including price.

The Repurchase Program does not obligate us to acquire any particular amount of stock, and it may be terminated, modified, or suspended at any time at our discretion.

The Repurchase Program commenced on July 5, 2022 upon the completion of the Exchange of our Public Warrants.

As of December 31, 2022, we have repurchased 4.3 million shares of our Class A Common Stock for $32.5 million under the Repurchase Program.

The share repurchases are accounted for as Treasury stock in our Consolidated Balance Sheets.

Distributions to non-controlling interests

Per the Hoya Intermediate LLC agreement, Hoya Intermediate is required to make pro-rata tax distributions to its members, of which $5.2 million was distributed to non-controlling interests in the year ended December 31, 2022.

Tax Receivable Agreement

In connection with the Merger Transaction as described in Note 1 to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, Vivid Seats Inc.

entered into a Tax Receivable Agreement with the existing Hoya Intermediate shareholders that will provide for payment to Hoya Intermediate shareholders of 85% of the amount of the tax savings, if any, that we realize (or, under certain circumstances, is deemed to realize) as a result of, or attributable to, (i) increases in the tax basis of assets owned directly or indirectly by Hoya Intermediate or its subsidiaries from, among other things, any redemptions or exchanges of Hoya Intermediate common units (ii) existing tax basis (including depreciation and amortization deductions arising from such tax basis) in long-lived assets owned directly or indirectly by Hoya Intermediate and its subsidiaries, and (iii) certain other tax benefits (including deductions in respect of imputed interest) related to Hoya Intermediate making payments under the Tax Receivable Agreement.

In connection with the Merger Transaction, we entered into a Tax Receivable Agreement with the existing Hoya Intermediate shareholders that will provide for payment to Hoya Intermediate shareholders of 85% of the amount of the tax savings, if any, that we realize (or, under certain circumstances, is deemed to realize) as a result of, or attributable to, (i) increases in the tax basis of assets owned directly or indirectly by Hoya Intermediate or its subsidiaries from, among other things, any redemptions or exchanges of Intermediate Units (ii) existing tax basis (including depreciation and amortization deductions arising from such tax basis) in long-lived assets owned directly or indirectly by Hoya Intermediate and its subsidiaries, and (iii) certain other tax benefits (including deductions in respect of imputed interest) related to Hoya Intermediate making payments under the Tax Receivable Agreement.

The following table summarizes our cash flows for the periods indicated (in thousands):

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Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net increase (decrease) in cash, cash equivalents, and restricted cash

Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $14.4 million for the year ended December 31, 2022 due to $70.8 million in net income, non-cash charges of $24.4 million, and net cash outflows from a $80.8 million change in net operating liabilities.

The net cash outflows from the change in our net operating liabilities were primarily due to a $94.4 million decrease in accrued expenses and other current liabilities and a $30.8 million decrease in accounts payable, partially offset by a $42.9 million decrease in prepaid expenses and other current assets.

The decreases resulted primarily from sales tax liability settlements, the redemption of customer credits issued during the COVID-19 pandemic, and a decrease in amounts payable to ticket sellers as events postponed during the COVID-19 pandemic finally occurred.

Net cash provided by operating activities was $175.8 million for the year ended December 31, 2021 due to $19.1 million in net loss, non-cash charges of $75.3 million, and net cash inflows from a $119.7 million change in net operating assets.

The net cash inflows from the change in our net operating assets were primarily due to a $128.2 million increase in accounts payable, $19.2 million increase in deferred revenue, and a $14.2 million increase in accrued expenses and other current liabilities, partially offset by a $7.6 million decrease in prepaid expenses and other current assets and a $4.3 million increase in inventory.

Each of these resulted from higher order volume and lower event cancellations in 2021.

The net cash inflows from the change in our net operating assets were primarily due to a $128.2

million increase in accounts payable, $19.2 million increase in deferred revenue, and a $14.2 million increase in accrued expenses and other current liabilities, partially offset by a $44.1 million decrease related to deferred paid-in-kind interest paid on May 2020 First Lien Loan, $7.6 million decrease in prepaid expenses and other current assets and a $4.3 million increase in inventory.

Excluding the decrease related to deferred paid-in-kind interest, each of these resulted from higher order volume and lower event cancellations in 2021.

We identified an immaterial error and revised the deferred interest payment of $44.1 million from an outflow in cash flows from financing activities to an outflow in cash flows from operating activities in the Consolidated Statement of Cash Flows for the year ended December 31, 2021.

This is outlined within Note 1, Background, Description of Business and Basis of Presentation .

Net cash used in operating activities was $33.9 million for the year ended December 31, 2020 due to $774.2 million in net loss, non-cash charges of $646.8 million, and net cash outflows from a $93.5 million change in net operating assets.

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These changes primarily resulted from lower order volume and higher cancellation rates in 2020.

Net cash provided by operating activities was $76.5 million for the year ended December 31, 2019 due to $53.8 million in net loss, non-cash charges of $104.5 million, and net cash outflows from a $25.8 million change in net operating assets.

The net cash outflows from the change in net operating assets were primarily due to a $23.3 million

increase in accrued expenses and other current liabilities resulting from an increase in accrued taxes and other expenses.

Cash Used in Investing Activities

Net cash used in investing activities was $9.3 million for the year ended December 31, 2021 which primarily included $8.4 million in capital spending on development activities related to our platform.

Net cash used in investing activities was $7.6 million for the year ended December 31, 2020, which primarily included $7.3 million in capital spending on development activities related to our platform.

Net cash used in investing activities was $40.2 million for the year ended December 31, 2019, which primarily included $31.1 million in acquisition related costs and $7.9 million in capital spending on development activities related to our platform.

Net cash used in investing activities for the year ended December 31, 2022 was $15.4 million, which was attributable to capital spending on development activities related to our platform and capital expenditures related to our new corporate headquarters in Chicago, which we moved into in late 2022.

Net cash used in investing activities for the years ended December 31, 2021 and 2020 was $9.3 million and $7.6 million, respectively, which was primarily attributable to capital spending on development activities related to our platform.

Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $6.1 million for the year ended December 31, 2021.

Net cash used in financing activities for the year ended December 31, 2022 was $236.5 million and was primarily related to the repayment of the June 2017 First Lien Loan in connection with the refinancing and our Class A Common Stock Repurchase Program.

Net cash provided by financing activities was $38.0 million for the year ended December 31, 2021.

This was due to capital contributions of $752.9 million, offset by $441.0 million in debt payments and debt extinguishment costs, $236.0 million of preferred equity redemptions, $20.1 million of Merger Transaction costs, and $17.7 million of dividends paid.

This is outlined within Note 1, Background, Description of Business and Basis of Presentation .

Net cash provided by financing activities was $245.5 million for the year ended December 31, 2020, which resulted primarily from $260.0 million in proceeds from our May 2020 First Lien Loan.

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We also borrowed $50.0 million under our Revolving Facility, which we subsequently repaid in 2020.

Net cash used in financing activities was $55.5 million for the year ended December 31, 2019.

We paid $40.0 million to extinguish our June 2017 Second Lien Loan.

We made $8.1 million in tax distributions to noncontrolling interest holders and $7.0 million in payments related to our June 2017 First Lien Loan.

Off-Balance Sheet Arrangements

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Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures.

Preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and

expenses, and related disclosures.

On an ongoing basis, we evaluate our estimates and assumptions.

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The assumptions and estimates associated with revenue recognition;

equity-based compensation, warrants and earnouts, and impairment of our goodwill, indefinite-lived intangible assets, definite-lived intangible assets, and long-lived assets have the greatest potential impact on our consolidated financial statements.

equity-based compensation, warrants and earnouts, and impairment of our goodwill, indefinite-lived intangible assets, definite-lived intangible assets, long-lived assets, and valuation allowances have the greatest potential impact on our consolidated financial statements.

Accordingly, these are the policies that are the most critical to aid in fully understanding and evaluating our Consolidated Balance Sheets, results of operations, and cash flows.

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We also recognize revenue for referral fees earned on the purchase of ticket insurance by ticket buyers from third-party insurers.

We recognize revenue from our Marketplace segment when the ticket seller confirms an order with the ticket buyer, at which point the seller is obligated to deliver the

tickets to the ticket buyer in accordance with the original marketplace listing.

We recognize revenue from our Marketplace segment when the ticket seller confirms an order with the ticket buyer, at which point the seller is obligated to deliver the tickets to the ticket buyer in accordance with the original marketplace listing.

Revenue from Marketplace transactions is recognized on a net basis because we act as an agent for these transactions.

Additionally, the revenue we earn from our daily fantasy sports offering is the difference between cash entry fees collected and cash amounts paid out to users for winning picks, less customer promotions and incentives in a period.

We estimate and reserve for future cancellation charges based on historical trends, with the corresponding charge reducing revenue.

This reserve, known as accrued future customer compensation, is classified within Accrued expenses and other current liabilities, with a corresponding asset for expected recoveries from ticket sellers recorded within Prepaid expenses and other current assets on our Consolidated Balance Sheets.

This reserve, known as accrued future customer compensation, is classified within Accrued expenses and other current liabilities, with a corresponding asset for expected recoveries from ticket sellers and distribution partners recorded within Prepaid expenses and other current assets on our Consolidated Balance Sheets.

Specific judgments and assumptions considered when estimating future cancellation charges include historical cancellation charges as a percentage of sales, the average length of time to realize such charges, and the potential exposure based on the volume of recent sales activity.

Following the onset of the COVID-19 pandemic, estimates for future cancellation charges resulting from event cancellations have been determined based on historical event cancellation rates since the start of the pandemic and management’s estimates of future event cancellation trends in the COVID-19 pandemic.

Following the onset of the COVID-19 pandemic, estimates for future cancellation charges resulting from event cancellations have been determined based on historical event cancellation rates during different phases of the recovery and management’s estimates of future event cancellation trends.

Such estimates are inherently uncertain as we are unable to predict the rate at which actual cancellation charges will occur.

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As a result of the COVID-19 pandemic, cancellation charge reserves increased materially in 2020 due to the large volume of cancellations that occurred from the pandemic.

In 2021, reserves reduced due to reductions in estimated future cancellation rates.

Should actual cancellation charges exceed previous estimates by a significant amount in a given period, we may experience negative overall revenue.

In 2021 and 2022, reserves reduced due to reductions in estimated future cancellation rates.

In extreme circumstances, should actual cancellation charges exceed previous estimates by a significant amount, we may experience negative overall revenue.

When an event is cancelled, ticket buyers may receive either a cash refund or credit for future purchases in our marketplace.

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When a credit is redeemed, revenue is recognized for the newly placed order.

Breakage income from customer credits that are not expected to be used is estimated and recognized as revenue in proportion to the pattern of redemption for the customer credits that are used.

We estimate breakage based on historical usage trends for credit issued by us and available data on comparable programs.

Our estimates of breakage are constrained by our limited history of customer credits.

Breakage income from customer credits that are not expected to be used, and are not subject to escheatment, is estimated and recognized as revenue in proportion to the pattern of redemption for the customer credits that are used.

We estimate breakage based on historical usage trends for credits issued by us and available data on comparable programs.

To the extent that actual usage differs from expected usage, that trends in usage rates differ from those used to establish our breakage estimate, or that the volume of credits subject to escheatment changes, revenue may be materially impacted.

In 2022, we increased our estimated breakage rates based on lower credit usage.

Our recorded breakage estimates exclude credits subject to escheatment and are further constrained by our limited history of customer credits and exposure to events beyond our control.

We also offer our customers the opportunity to participate in our loyalty program, Vivid Seats Rewards, through our Marketplace segment, which allows customers to earn and redeem credits on Owned Properties transactions.

We defer revenue associated with these credits, which is recorded as Deferred revenue on our Consolidated Balance Sheets.

The deferred amount is based on expected future usage and is recognized as revenue when the credits are redeemed.

defer revenue associated with these credits, which is recorded as Deferred revenue on our Consolidated Balance Sheets.

The deferred amount is based on expected future usage, including the frequency with which buyers reach the ten stamp threshold for reward credit conversions and the rate of credit redemptions, and is recognized as revenue when the credits are redeemed.

To the extent that actual usage differs from expected usage, or that recent trends require a change in the estimated usage rate of unexpired credits, our revenue will be impacted by the change.

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We account for Restricted Stock Units ("RSUs"), stock options, and profits interest at fair value as of the grant date.

The restricted stock units vest on a quarterly basis over a four-year period for non-directors and on an annual basis over a five-year period for directors.

The stock options vest on a quarterly basis over a four-year period and expire ten years from the date of the grant.

Both are subject to the recipient’s continued employment through the applicable vesting date.

The fair value of stock options granted to certain employees is estimated on the grant date using the Hull-White model, a lattice model which assumes holders will exercise when they achieve certain return thresholds.

The model requires us to make assumptions and judgments about the variables used in the calculation, including the sub-optimal exercise factor (“SOEF”), the volatility of our common stock, risk-free interest rate, and expected dividends.

We award RSUs to our employees, directors and consultants.

We also award stock options to certain employees.

The awards are subject to the recipient’s continued service through the applicable vesting date.

The grant-date fair value of stock options is estimated using an option pricing model.

The model requires us to make assumptions and judgments about the variables used in the calculation, the volatility of our common stock, risk-free interest rate, and expected dividends.

We estimate the fair value of profits interest using the Black-Scholes option pricing model, which includes assumptions related to volatility, expected term, dividend yield and risk-free interest rate.

Expense related

to grants of equity-based awards is recognized as equity-based compensation in the Consolidated Statements of Operations.

We account for forfeitures of outstanding, but unvested grants, in the period they occur.

Expense related to grants of equity-based awards is recognized as equity-based compensation in the Consolidated Statements of Operations.

The estimated fair value of warrant liabilities is determined by using the Black-Scholes model.

The model requires us to make assumptions and judgments about the variables used in the calculation related to volatility, expected term, dividend yield and risk-free interest rate.

The warrant liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Consolidated Statements of Operations.

Impairment of Goodwill, Indefinite-Lived Intangible Assets, Definite-Lived Intangible Assets, and Other Long-Lived Assets

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We assess definite-lived intangible assets and other long-lived assets (collectively, “long-lived assets”) for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable.

We identified the COVID-19 pandemic as a potential triggering event for impairment of our goodwill, indefinite-lived trademark, and long-lived assets.

For the year ended December 31, 2021, we evaluated the qualitative assessment by reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, including changes in our management.

Our annual assessment resulted in no impairment triggers after qualitative assessment for the year ended December 31, 2021.

During the second quarter of 2020, we identified the COVID-19 pandemic as a triggering event for our long-lived assets, goodwill, indefinite-lived trademark, and definite-lived intangible assets and our quantitative assessment resulted in impairment charges of $573.8 million.

Due to global social distancing efforts to mitigate the spread of the virus, in addition to compliance with restrictions enacted by various governmental entities, most live events during 2020 were either postponed or cancelled.

Beginning in the second quarter of 2021, there was an increase in new orders processed resulting from the resumption of live events and a reduction in event cancellations due to the COVID-19 pandemic.

The pandemic and resulting mitigation measures had a significant adverse effect on order volume and event cancellations during 2020.

Goodwill and Indefinite-lived Intangible Asset (Trademark)

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Depending upon the results of that assessment, the recorded goodwill may be written down, and impairment expense is recorded in the consolidated statements of operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit.

Our goodwill balance is not currently at risk for additional impairment, as the fair value of our Marketplace reporting unit significantly exceeds its carrying value.

For the year ended December 31, 2022, as part of our annual assessment, a qualitative goodwill assessment was performed and we determined it was not more likely than not that the fair value of our reporting unit was less than its carrying value.

In developing fair values for our reporting unit during the second quarter of 2020, we use a discounted cash flow valuation approach, supplemented with a market multiple valuation approach.

Significant estimates used in the discounted cash flow models include (i) risk-adjusted discount rates, (ii) forecasted revenue and operating expenses, (iii) forecasted capital expenditures and working capital needs, and (iv) long-term growth rates.

These estimates are uncertain as actual discount rates, revenue, operating expenses, capital expenditures, working capital needs, and long-term growth rates may be different than those we have forecasted.

These estimates considered the

deterioration in financial performance of our Marketplace reporting unit, as well as the anticipated rate of recovery, and implied risk premiums based on the market prices of our equity and debt as of the assessment date.

We ultimately determined that the carrying value of our Marketplace reporting unit exceeded its estimated fair value, resulting in a goodwill impairment charge of $377.1 million during the year ended December 31, 2020.

Similar to goodwill, our indefinite-lived trademark is not amortized, but reviewed for impairment annually, or earlier whenever events or changes in business circumstances indicate that the carrying value may not be recoverable.

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The qualitative assessment included the history and longevity of our brand, our reputation, market share, and importance of our brand in buying decisions.

In conjunction with the goodwill impairment event triggered by the COVID-19 pandemic, we also assessed our indefinite-lived trademark for impairment during the year ended December 31, 2020, resulting in an impairment charge of $78.7 million.

We estimated the fair value of our indefinite-lived trademark based on forecasted revenues and a reasonable royalty rate using the relief from royalty valuation method.

We utilized a 2% royalty rate, consistent with the rate used in the initial valuation of the trademark.

Each reporting period, we perform an evaluation of the remaining useful life of our indefinite-lived trademark to determine whether events and circumstances continue to support an indefinite life.

We consider the life of our indefinite-lived trademark to be appropriate for the years ended December 31, 2021 and 2020.

We consider the life of our indefinite-lived trademark to be appropriate for the years ended December 31, 2022.

Long-lived assets

We also periodically review the carrying amount of our long-lived assets to determine whether current events or business circumstances indicate that the carrying amounts of an asset or asset group may not be recoverable.

We classify our long-lived assets as a single asset group, which consists primarily of definite-lived intangible assets, property and equipment, and personal seat licenses.

We classify our long-lived assets as a single asset group, which consists primarily of definite-lived intangible assets, property and equipment, right-of-use assets, and personal seat licenses.

Our definite-lived intangible assets consist of developed technology, customer and supplier relationships, and non-compete agreements.

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As such, there were no long-lived asset impairments for the year ended December 31, 2022.

Our long-lived assets were assessed for impairment during the year ended December 31, 2020, which resulted in an impairment charge of $118.0 million.

Significant judgment and estimates were required in assessing impairment of our long-lived assets, including identifying whether events or changes in circumstances require an impairment assessment, and estimating future cash flows and determining appropriate discount rates.

Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

The resulting impairment charge resulted in a complete write-off of our definite-lived intangible assets, property and equipment, and personal seat licenses during the year ended December 31, 2020.

Tax valuation allowance

We recognize deferred tax assets for the expected future benefit from certain net operating losses, tax credits, basis differences from investments in operating partnerships and other similar items.

To the extent we believe these assets, or a portion of these assets, are not more likely than not to be realized, we record a valuation allowance against the deferred tax asset’s value.

In determining the realizability of our deferred tax assets, we consider all available positive and negative evidence, including historical taxable income or loss amounts, projected future taxable income, anticipated reversals of temporary book/tax differences, tax planning strategies and recent results of operations.

This assessment requires us to make judgements that rely heavily on future projections, and assumptions, that are inherently uncertain.

In addition, we must make determinations about the relative weighting of certain positive and negative evidence to arrive at a conclusion regarding the need for a valuation allowance.

To the extent actual results of operations, or actual taxable income or loss, differs materially from our assumptions, we would need to modify the valuation allowance with a corresponding adjustment to net income or net loss.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis