Vivid Seats Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 58 Consolidated Balance Sheets 59 Consolidated Statements of Operations 60 Consolidated Statements of Comprehensive Income (Loss) 61 Consolidated Statements of Equity (Deficit) 62 Consolidated Statements of Cash Flows 63 Notes to the Consolidated Financial Statements 64 57 Report of Independent Registered Public Accounting Firm To the shareholders and the Board of Directors of Vivid Seats Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Vivid Seats Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of Matter As discussed in Note 1 to the financial statements, the Company consummated a merger on October 18, 2021, which has been accounted for as a reverse recapitalization. The financial statements of the Company represent a continuation of the financial statements of Hoya Intermediate, LLC. /s/ Deloitte & Touche LLP Chicago, Illinois March 7, 2024 We have served as the Company's auditor since 2021 . 58 VIVID SEATS INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) December 31, December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 125,484 $ 251,542 Restricted cash 6,950 748 Accounts receivable – net 58,481 36,531 Inventory – net 21,018 12,783 Prepaid expenses and other current assets 34,061 29,912 Total current assets 245,994 331,516 Property and equipment – net 10,156 10,431 Right-of-use assets – net 9,826 7,859 Intangible assets – net 241,155 81,976 Goodwill 947,359 715,258 Deferred tax assets 85,564 — Investments 6,993 — Other non-current assets 3,052 4,391 Total assets $ 1,550,099 $ 1,151,431 Liabilities and equity (deficit) Current liabilities: Accounts payable $ 257,514 $ 161,312 Accrued expenses and other current liabilities 191,642 181,970 Deferred revenue 34,674 31,983 Current maturities of long-term debt 3,933 2,750 Total current liabilities 487,763 378,015 Long-term debt – net 264,632 264,898 Long-term lease liabilities 16,215 14,911 TRA liability 165,699 — Other liabilities 29,031 13,445 Total long-term liabilities 475,577 293,254 Commitments and contingencies (Note 18 ) Redeemable noncontrolling interests 481,742 862,860 Shareholders' equity (deficit) Class A common stock, $ 0.0001 par value; 500,000,000 shares authorized, 141,167,311 and 82,410,774 shares issued and outstanding at December 31, 2023 and 2022, respectively 14 8 Class B common stock, $ 0.0001 par value; 250,000,000 shares authorized, 76,225,000 and 118,200,000 shares issued and outstanding at December 31, 2023 and 2022, respectively 8 12 Additional paid-in capital 1,096,430 663,908 Treasury stock, at cost, 7,291,497 and 4,342,477 shares at December 31, 2023 and 2022, respectively ( 52,586 ) ( 32,494 ) Accumulated deficit ( 939,596 ) ( 1,014,132 ) Accumulated other comprehensive income 747 — Total Shareholders' equity (deficit) 105,017 ( 382,698 ) Total liabilities, Redeemable noncontrolling interests, and Shareholders' equity (deficit) $ 1,550,099 $ 1,151,431 The accompanying notes are an integral part of these financial statements. 59 VIVID SEATS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) Years Ended December 31, 2023 2022 2021 Revenues $ 712,879 $ 600,274 $ 443,038 Costs and expenses: Cost of revenues (exclusive of depreciation and amortization shown separately below) 182,184 140,508 90,617 Marketing and selling 274,096 248,375 181,358 General and administrative 159,081 127,619 92,170 Depreciation and amortization 17,178 7,732 2,322 Change in fair value of contingent consideration ( 998 ) ( 2,065 ) — Income from operations 81,338 78,105 76,571 Other (income) expense: Interest expense – net 13,505 12,858 58,179 Loss on extinguishment of debt — 4,285 35,828 Other (income) expense ( 3,109 ) ( 8,227 ) 1,389 Income (loss) before income taxes $ 70,942 $ 69,189 $ ( 18,825 ) Income tax expense (benefit) ( 42,199 ) ( 1,590 ) 304 Net income (loss) 113,141 70,779 ( 19,129 ) Net loss attributable to Hoya Intermediate, LLC shareholders prior to reverse recapitalization — — ( 12,836 ) Net income (loss) attributable to redeemable noncontrolling interests 38,605 42,117 ( 3,010 ) Net income (loss) attributable to Class A Common Stockholders $ 74,536 $ 28,662 $ ( 3,283 ) Income (loss) per Class A Common Stock (1) : Basic $ 0.80 $ 0.36 $ ( 0.04 ) Diluted $ 0.26 $ 0.36 $ ( 0.04 ) Weighted average Class A Common Stock outstanding (1) : Basic 92,678,514 80,257,247 77,498,775 Diluted 198,877,441 198,744,381 77,498,775 (1) There were no shares of Class A Common Stock outstanding prior to October 18, 2021. Therefore, income (loss) per share information has been presented for the period from October 18, 2021 to December 31, 2021. The accompanying notes are an integral part of these financial statements. 60 VIVID SEATS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Years Ended December 31, 2023 2022 2021 Net income (loss) $ 113,141 $ 70,779 $ ( 19,129 ) Other comprehensive income: Foreign currency translation adjustment 1,152 — — Unrealized gain on investments 196 — 822 Comprehensive income (loss) $ 114,489 $ 70,779 $ ( 18,307 ) Comprehensive loss attributable to Hoya Intermediate, LLC shareholders prior to reverse recapitalization — — ( 12,836 ) Net income (loss) attributable to redeemable noncontrolling interests 38,605 42,117 ( 3,010 ) Foreign currency translation adjustment attributable to redeemable noncontrolling interests 511 — — Unrealized gain on investments attributable to redeemable noncontrolling interests 90 — — Comprehensive income (loss) attributable to Class A Common Stockholders $ 75,283 $ 28,662 $ ( 2,461 ) The accompanying notes are an integral part of these financial statements. 61 VIVID SEATS INC. CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) (in thousands, except share/unit data) Redeemable senior preferred units Redeemable preferred units Redeemable noncontrolling Common units Class A Common Shares Class B Common Shares Additional paid-in Treasury Stock Accumulated Accumulated other comprehensive Total shareholders' Units Amount Units Amount interests Units Amount Shares Amount Shares Amount capital Shares Amount deficit income (loss) equity (deficit) Balances at January 1, 2021 100 $ 218,288 100 $ 9,939 $ — 100 $ — — $ — — $ — $ 755,716 — $ — $ ( 1,026,675 ) $ ( 822 ) $ ( 271,781 ) Net loss prior to reverse recapitalization — — — — — — — — — — — — — — ( 12,836 ) — ( 12,836 ) Loss reclassified from accumulated other comprehensive loss to earnings prior to reverse recapitalization — — — — — — — — — — — — — — — 822 822 Deemed contribution from former parent prior to reverse recapitalization — — — — — — — — — — — 3,692 — — — — 3,692 Accretion of senior preferred units prior to reverse recapitalization — 17,738 — — — — — — — — — ( 17,738 ) — — — — ( 17,738 ) Reverse recapitalization, net ( 100 ) ( 236,026 ) ( 100 ) ( 9,939 ) 84,874 ( 100 ) — 76,948,433 8 118,200,000 12 637,341 — — — — 637,361 Net loss after reverse recapitalization — — — — ( 3,010 ) — — — — — — — — — ( 3,283 ) — ( 3,283 ) Deemed contribution from former parent after reverse recapitalization — — — — 438 — — — — — — 293 — — — — 293 Equity-based compensation after reverse recapitalization — — — — — — — — — — — 1,624 — — — — 1,624 Change in fair value of warrants — — — — — — — — — — — 1,269 — — — — 1,269 Issuance of shares related to acquisition — — — — — — — 2,143,438 — — — 21,306 — — — — 21,306 Dividends paid to Class A Common Shareholders — — — — — — — — — — — ( 17,698 ) — — — — ( 17,698 ) Subsequent remeasurement of Redeemable noncontrolling interests — — — — 1,203,714 — — — — — — ( 1,203,714 ) — — — — ( 1,203,714 ) Balances at December 31, 2021 — $ — — $ — $ 1,286,016 — $ — 79,091,871 $ 8 118,200,000 $ 12 $ 182,091 — $ — $ ( 1,042,794 ) $ — $ ( 860,683 ) Net income — — — — 42,117 — — — — — — $ — — — 28,662 — 28,662 Issuance of shares — — — — — — — 591,118 — — — — — — — — — Deemed contribution from former parent — — — — 2,687 — — — — — — 1,824 — — — — 1,824 Equity-based compensation — — — — — — — — — — — 14,621 — — — — 14,621 Repurchases of common stock — — — — — — — — — — — — ( 4,342,477 ) ( 32,494 ) — — ( 32,494 ) Distributions to non-controlling interests — — — — ( 5,245 ) — — — — — — — — — — — — Reclassification of contingent consideration — — — — — — — — — — — 2,657 — — — — 2,657 Subsequent remeasurement of Redeemable noncontrolling interests — — — — ( 462,715 ) — — — — — — 462,715 — — — — 462,715 Increase in common shares outstanding following warrant exchange — — — — — — — 2,727,785 — — — — — — — — — Balances at December 31, 2022 — $ — — $ — $ 862,860 — $ — 82,410,774 $ 8 118,200,000 $ 12 $ 663,908 ( 4,342,477 ) $ ( 32,494 ) $ ( 1,014,132 ) $ — $ ( 382,698 ) Net income — — — — 38,605 — — — — — — — — — 74,536 — 74,536 Issuance of shares — — — — — — — 1,228,279 0 — — — — — — — — Deemed contribution from former parent — — — — 1,898 — — — — — — 1,598 — — — — 1,598 2023 Secondary Offerings of Class A common stock — — — — ( 307,732 ) — — 41,975,000 4 ( 41,975,000 ) ( 4 ) 307,732 — — — — 307,732 Equity-based compensation — — — — — — — — — — — 24,546 — — — — 24,546 Repurchases of common stock — — — — — — — — — — — — ( 2,949,020 ) ( 20,092 ) — — ( 20,092 ) Distributions to non-controlling interests — — — — ( 14,304 ) — — — — — — — — — — — — Other comprehensive income — — — — 601 — — — — — — — — — — 747 747 Establishment of liabilities under TRA, net of tax and other tax impact of 2023 Secondary Offerings (Note 20) — — — — — — — — — — — ( 95,849 ) — — — — ( 95,849 ) Issuance of shares related to acquisition — — — — — — — 15,553,258 2 95,495 95,497 Options Contingent Warrants termination — — — — 1,094 — — — — — — — — — — — — Subsequent remeasurement of Redeemable noncontrolling interests, net of tax impacts — — — — ( 101,280 ) — — — — — — 99,000 — — — — 99,000 Balances at December 31, 2023 — $ — — $ — $ 481,742 — $ — 141,167,311 $ 14 76,225,000 $ 8 $ 1,096,430 ( 7,291,497 ) $ ( 52,586 ) $ ( 939,596 ) $ 747 $ 105,017 The accompanying notes are an integral part of these financial statements. 62 VIVID SEATS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2023 2022 2021 Cash flows from operating activities Net income (loss) $ 113,141 $ 70,779 $ ( 19,129 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 17,178 7,732 2,322 Amortization of leases 818 2,170 - Amortization of deferred financing costs and interest rate cap 924 1,052 4,472 Equity-based compensation expense 27,614 19,053 6,047 Change in fair value of warrants ( 971 ) ( 8,227 ) 1,389 Change in fair value of derivative asset ( 536 ) — — Change in fair value of contingent consideration ( 998 ) ( 2,065 ) — Loss on extinguishment of debt — 4,285 35,828 Loss on asset disposals 685 369 — Deferred taxes ( 44,859 ) — — Non-cash interest income ( 261 ) — — Interest expense paid-in-kind — — 25,214 Foreign currency revaluation gain ( 2,177 ) — — TRA liability adjustment 574 — — Change in assets and liabilities: Accounts receivable ( 17,129 ) ( 329 ) ( 874 ) Inventory ( 8,184 ) ( 1,010 ) ( 4,311 ) Prepaid expenses and other current assets ( 1,176 ) 42,894 7,623 Accounts payable 53,817 ( 30,779 ) 128,160 Accrued expenses and other current liabilities 1,336 ( 94,415 ) 14,196 Deferred paid-in-kind interest paid on May 2020 First Lien Loan — — ( 44,141 ) Deferred revenue 827 6,844 19,183 Other non-current assets and liabilities 6,697 ( 3,978 ) ( 189 ) Net cash provided by operating activities 147,320 14,375 175,790 Cash flows from investing activities Acquisition of business, net of cash acquired ( 206,865 ) ( 8 ) 301 Investments in convertible promissory note and warrant ( 6,000 ) — — Purchases of property and equipment ( 895 ) ( 3,558 ) ( 1,132 ) Purchases of personal seat licenses ( 542 ) ( 165 ) ( 76 ) Investments in developed technology ( 11,339 ) ( 11,684 ) ( 8,438 ) Net cash used in investing activities ( 225,641 ) ( 15,415 ) ( 9,345 ) Cash flows from financing activities Proceeds from February 2022 First Lien Loan — 275,000 — Payments of February 2022 First Lien Loan ( 2,750 ) ( 2,062 ) — Payments of Shoko Chukin Bank Loan ( 279 ) Distributions to non-controlling interests ( 14,304 ) ( 5,245 ) — Repurchases of common stock ( 20,092 ) ( 32,494 ) — Cash paid for milestone payments ( 6,005 ) ( 1,111 ) — Proceeds from PIPE Financing — — 475,172 Proceeds from the Merger Transaction — — 277,738 Redemption of Redeemable Senior Preferred Units — — ( 236,026 ) Payments of May 2020 First Lien Loan — — ( 260,000 ) Payments of June 2017 First Lien Loan — ( 465,712 ) ( 153,009 ) Prepayment penalty on extinguishment of debt — — ( 27,974 ) Payment of reverse recapitalization costs — — ( 20,175 ) Dividends paid to Class A Common Stock Shareholders — — ( 17,698 ) Payments of deferred financing costs and other debt-related costs — ( 4,856 ) — Net cash (used in) provided by financing activities ( 43,430 ) ( 236,480 ) 38,028 Impact of foreign exchange on cash, cash equivalents, and restricted cash 1,895 — — Net increase (decrease) in cash, cash equivalents, and restricted cash ( 119,856 ) ( 237,520 ) 204,473 Cash, cash equivalents, and restricted cash – beginning of period 252,290 489,810 285,337 Cash, cash equivalents, and restricted cash – end of period $ 132,434 $ 252,290 $ 489,810 Supplemental disclosure of cash flow information: Paid-in-kind interest added to May 2020 First Lien Loan principal $ — $ — $ 28,463 Cash paid for interest $ 19,330 $ 14,794 $ 72,736 Cash paid for income tax $ 4,021 $ — $ — Cash paid for operating lease liabilities $ 1,165 $ 3,113 $ — Equity-based compensation expense related to capitalized development costs $ 428 $ 79 $ — Acquisition non-cash consideration $ 95,497 $ — $ 21,306 Property and equipment acquired through tenant improvement allowance $ — $ 6,472 $ — Right-of-use assets obtained in exchange for lease obligations $ — $ 3,406 $ — Establishment of liabilities under TRA $ 165,202 $ — $ — Establishment of deferred tax assets under the 2023 Secondary Offerings and other equity transactions $ 67,073 $ — $ — The accompanying notes are an integral part of these financial statements. 63 VIVID SEATS INC. NOTES to the Consolidated Financial Statements 1. Background, Description of Business and Basis of Presentation Vivid Seats Inc. ("VSI") and its subsidiaries including Hoya Intermediate, LLC ("Hoya Intermediate"), Hoya Midco, LLC, and Vivid Seats LLC (collectively the “Company,” “us,” “we,” and “our”) provide an online ticket marketplace that enables ticket buyers to discover and easily purchase tickets to concert, sporting and theater events in the United States, Canada and Japan. Through our Marketplace segment, we operate an online platform enabling ticket buyers to purchase tickets to live events, while enabling ticket sellers and partners to seamlessly manage their operations. In our Resale segment, we acquire tickets to resell on secondary ticket marketplaces, including our own. Our consolidated financial statements include all of our accounts, including those of our consolidated subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on previously reported totals for assets, liabilities, shareholders' equity (deficit), cash flows or net income (loss). VSI was incorporated in Delaware on March 29, 2021 as a wholly owned subsidiary of Hoya Intermediate for the purpose of completing the transactions (collectively, the “Merger Transaction”) contemplated by the transaction agreement, dated April 21, 2021 (the “Transaction Agreement”), among Horizon Acquisition Corporation, a publicly traded special purpose acquisition company (“Horizon”), Hoya Topco, LLC (“Hoya Topco”), Hoya Intermediate, VSI, and the other parties thereto. The Merger Transaction and PIPE Financing The Merger Transaction, which was consummated on October 18, 2021, was accounted for as a reverse recapitalization, with Hoya Intermediate treated as the accounting acquirer. Accordingly, our consolidated financial statements represent a continuation of Hoya Intermediate's financial statements with the net assets of Hoya Intermediate stated at historical cost. In connection with the Merger Transaction, VSI: • Issued 29,431,260 shares of Class A common stock to former shareholders of Horizon, whereby $ 293.2 million in cash and cash equivalents (after the payment of $ 18.7 million in transaction costs incurred by Horizon) of Horizon became avail able to VSI. We subsequently paid an additional $ 15.5 million in transaction costs incurred by Horizon using such cash and cash equivalents; • Issued 118.2 million shares of Class B common stock and warrants to purchase 6.0 million shares of Class B common stock at an exercise price of $ 0.001 per share, which are only exercisable upon the exercise of a corresponding Hoya Intermediate Warrant (as defined below), to Hoya Topco in exchange for the outstanding units of Hoya Intermediate; • Issued to certain investors, including Horizon Sponsor, LLC (“Horizon Sponsor”), 47,517,173 shares of Class A common stock in exchange for $ 475.2 million in aggregate consideration, pursuant to a private investment in public equity (the “PIPE Financing”); • Used the proceeds from the transactions described above to pay (i) $ 482.4 million towards our outstanding debt, (ii) $ 236.0 million to facilitate the redemption of preferred units of Hoya Intermediate and (iii) $ 54.3 million for tr ansaction fees incurred in connection with the Merger Transaction; • Issued to Horizon Sponsor (i) warrants to purchase 17.0 million shares of Class A common stock at an exercise price of $ 10.00 per share (the “$10 Exercise Warrants”), (ii) warrants to purchase 17.0 million shares of Class A common stock at an exercise of $ 15.00 per share (the “$15 Exercise Warrants” and, together with the $10 Exercise Warrants, the "Exercise Warrants"), (iii) warrants to purchase 64 VIVID SEATS INC. NOTES to the Consolidated Financial Statements 6,519,791 shares of Class A common stock at an exercise price of $ 11.50 per share (the “Private Warrants”) and (iv) 50,000 shares of Class A common stock; and • Issued to former warrant holders of Horizon (including Horizon Sponsor) warrants to purchase 18,132,776 shares of Class A common stock at an exercise price of $ 11.50 per share (the “Public Warrants”). In connection with the Merger Transaction, Hoya Intermediate issued to Hoya Topco warrants to purchase 3.0 million common units of Hoya Intermediate (“Intermediate Units”) at an exercise price of $ 10.00 per unit and warrants to purchase 3.0 million Intermediate Units at an exercise of $ 15.00 per unit (collectively, the “Hoya Intermediate Warrants”). A portion of the Hoya Intermediate Warrants, consisting of warrants to purchase 1,000,000 Intermediate Units at exercise prices of $ 10.00 and $ 15.00 per unit, respectively (the “Option Contingent Warrants”), were issued in tandem with stock options issued by VSI to members of our management team (the “Management Options”). The Option Contingent Warrants only become exercisable by Hoya Topco if a Management Option is forfeited or expires unexercised. Immediately following the Merger Transaction, the legacy unitholders of Hoya Intermediate owned a controlling interest in VSI through their ownership of Class B common stock. The numbers of outstanding warrants, units and shares have changed subsequent to the transactions described above. For additional details regarding the issuance of warrants in connection with the Merger Transaction, as well as amounts outstanding on December 31, 2023, see Note 15, Financial Instruments . 2. Summary of Significant Accounting Policies Use of Estimates We use estimates and assumptions in the preparation of our consolidated financial statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual financial results could differ significantly from these estimates. The significant estimates underlying our consolidated financial statements include: the accrual for future customer compensation and the related recovery of our future customer compensation asset; breakage rates related to customer credits; usage assumptions for our Vivid Seats Rewards loyalty program; inventory valuation; valuation of equity-based compensation; valuation of certain financial instruments; valuation of acquired intangible assets and goodwill; valuation of earnouts issued in connection with our acquisitions of Betcha Sports, Inc. (“Betcha”, which we rebranded as “Vivid Picks”); useful life of definite-lived intangible assets and other long-lived assets; recoverability of goodwill, indefinite-lived intangible assets, definite-lived intangible assets and long-lived assets; income taxes and valuation allowances. C ash and Cash Equivalents Cash and cash equivalents include all cash balances and highly liquid investments purchased with original maturities of three months or less. Our cash and cash equivalents consist primarily of domestic and foreign bank accounts, interest-bearing deposit accounts and money market accounts managed by third-party financial institutions. Cash and cash equivalents are valued by us based on quoted prices in an active market, which represent a Level 1 measurement within the fair value hierarchy. Cash and cash equivalents held in bank accounts may exceed the Federal Deposit Insurance Corporation insurance limits. To reduce credit risk, we monitor the credit standing of the financial institutions that hold our cash and cash equivalents. However, balances could be impacted in the future if the underlying financial institutions fail. As of December 31, 2023 and 2022, we have not experienced any loss or lack of access to our cash and cash equivalents. 65 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Restricted Cash Restricted cash includes cash and cash equivalents that are restricted through legal contracts or regulations, including funds reserved for Vivid Picks users, and letters of credit required by certain vendors . Foreign Currency Translation Our reporting currency is the U.S. dollar. Assets and liabilities of foreign operations denominated in local currencies are translated at the spot rate in effect at the applicable reporting date. Revenues and expenses of foreign operations are translated at the weighted average rate of exchange during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of Accumulated other comprehensive income (loss) in Shareholders’ equity (deficit). Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in Other (income) expense in the period in which they occur . Business Combinations We account for business combinations using the acquisition method. Under this method, the purchase price of an acquisition is allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our consolidated financial statements. As a result, we may record adjustments to the fair values of assets acquired and liabilities assumed within the measurement period (up to one year from the acquisition date) with the corresponding offset to goodwill. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer and buyer relationships, trade names, acquired developed technology and discount rates. Acquisition-related costs, including advisory, legal, accounting, valuation, and other similar costs, are expensed in the periods in which they are incurred. The results of operations of acquired businesses are included in our consolidated financial statements from the acquisition date. Accounts Receivable and Credit Policies Accounts receivable consist primarily of uncollateralized payment processor obligations due under normal trade terms typically requiring payment within three business days, amounts due from marketplace sellers and distribution partners for canceled events and commissions due from insurance purchased by ticket buyers. Credit risk with respect to accounts receivable from payment processing entities is limited due to the consolidation of those receivables with large financial institutions and the frequency with which the receivables turn over. Accounts receivable balances are stated net of allowance for credit losses and bad debt expense is presented as a reduction of Revenues in the Consolidated Statements of Operations. Inventory Inventory consists primarily of tickets to live events purchased by our Resale segment. All inventory is valued at the lower of cost or net realizable value, determined by the specific identification method. A provision is recorded to adjust inventory to its estimated realizable value when inventory is determined to be in excess of anticipated demand. During the years ended December 31, 2023, 2022 and 2021, we incurred inventory write-downs of $ 4.7 million , $ 5.0 million , and $ 2.1 million , respectively, which are presented in Cost of revenues in the Consolidated Statements of Operations. 66 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Property and Equipment Property and equipment are stated at cost, net of depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives: Asset Class Estimated Useful Life Computer Equipment 5 years Purchased Software 3 years Furniture and Fixtures 7 years Leasehold improvements are amortized over the shorter of the term of the lease or the improvements’ estimated useful lives. Leases We determine if an arrangement is or contains a lease at inception and classify each lease as operating or financing. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets and rent expense for these short-term leases is recognized in General and administrative expenses in the Consolidated Statements of Operations on a straight-line basis over the lease term. We have applied the practical expedient which allows us to not separate lease and non-lease components for all leases. Recoverability of Long-Lived Assets We review our long-lived assets (property and equipment – net and personal seat licenses – net) for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. The fair value of our long-lived assets is determined using both the market and income approaches, utilizing Level 3 inputs. If circumstances require a long-lived asset or asset group to be held and used be tested for possible impairment, we first compare the undiscounted cash flows expected to be generated by that long-lived asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent the carrying amount exceeds its fair value. No impairment triggering events to our long-lived assets were identified during the years ended December 31, 2023, 2022 and 2021 . Goodwill and Intangible Assets Goodwill represents the excess purchase price over the fair value of the net assets acquired. Intangible assets other than goodwill primarily consists of customer and supplier relationships, acquired developed technology, capitalized development costs, and trademarks. We evaluate goodwill and our indefinite-lived intangible assets for impairment annually on October 31 or more frequently if events or changes in circumstances indicate the carrying value may not be recoverable. We have the option to assess goodwill and our indefinite-lived intangible assets for impairment by first performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit or the indefinite-lived intangible assets is less than its carrying value. If it is determined that the reporting unit’s or the indefinite-lived intangible assets' fair value is more-likely-than-not less than its carrying value, or if we do not elect the option to perform an initial qualitative assessment, we perform a quantitative assessment of the reporting unit’s or the indefinite-lived intangible assets' fair value. If the fair value of the reporting unit or the indefinite-lived intangible assets is in excess of its carrying value, the related goodwill or the indefinite-lived intangible assets are not impaired. If the fair value of the reporting unit is less than the carrying value, we recognize an impairment equal to the difference between the carrying value of the reporting unit and its fair value, not to exceed the carrying value of 67 VIVID SEATS INC. NOTES to the Consolidated Financial Statements goodwill. If the fair value of the indefinite-lived intangible assets is less than the carrying value, we recognize an impairment equal to the difference. No impairment triggering events to our goodwill and indefinite-lived intangible assets were identified during the years ended December 31, 2023, 2022 and 2021. We review our definite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. If circumstances require a definite-lived intangible asset or its asset group to be held and used be tested for possible impairment, we first compare the undiscounted cash flows expected to be generated by that definite-lived intangible asset or asset group to its carrying amount. If the carrying amount of the definite-lived intangible asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. The fair value of our definite-lived intangible assets or asset group is determined using both the market and income approaches, utilizing Level 3 inputs. No impairment triggering events to our definite-lived intangible assets were identified during the years ended December 31, 2023, 2022 and 2021. Definite-lived intangible assets are amortized on a straight-line basis over their estimated period of benefit, over the following estimated useful lives: Asset Class Estimated Useful Life Supplier relationships 4 - 5 years Customer relationships 2 - 5 years Acquired developed technology 3 - 5 years Capitalized development costs 3 years Capitalized Development Cost s and Cloud Computing Arrangements Implementation Costs We incur costs related to internal-use software and website development. Costs incurred in both the preliminary project and post-implementation stages of development are expensed as incurred. Qualifying development costs, including those incurred for upgrades and enhancements that result in additional functionality to existing software, are capitalized. Capitalized development costs are classified as Intangible assets – net on the Consolidated Balance Sheets and amortized using the straight-line method over the three-year useful life of the applicable software. The amortization is presented in Depreciation and amortization expense in the Consolidated Statements of Operations. We capitalize qualifying implementation costs incurred under cloud computing arrangements (“CCAs”). Costs incurred during the application development stage related to the implementation of CCAs are capitalized and included in Prepaid expenses and other current assets or Other non-current assets in the Consolidated Balance Sheets based on the terms of the associated CCA. Amortization of capitalized implementation costs is recognized on a straight-line basis over the terms of the associated CCA when it is ready for its intended use and is included in General and administrative expense in the Consolidated Statements of Operations. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. During the years ended December 31, 2023, 2022 and 2021, capitalized implementation costs were less than $ 0.1 million. Accrued Customer Credits We may issue credits to customers for cancelled events or travel services that can be applied to future purchases on our marketplace. The amount recognized in Accrued expenses and other current liabilities in the Consolidated Balance Sheets represents the balance of credits issued to these customers. 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. These estimates could be impacted by changes in credit usage rates, or in the determination of which credits are subject to escheatment, the effects of which could be material to our consolidated financial statements. When customer credits are used to make a purchase, revenue is recognized for the new transaction. 68 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Accrued Future Customer Compensation Provisions for accrued future customer compensation are included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets and represent compensation to be paid to customers for event cancellations or other service issues related to previously recorded sales transactions. The expected recoveries of these obligations are included in Prepaid expenses and other current assets. These provisions, which are based on historic experience, revenue volumes for future events, and management's estimate of the likelihood of future event cancellations, are recognized as a component of Revenue. This estimated accrual could be impacted by future activity differing from our estimates, the effects of which could be material to our consolidated financial statements. Income Taxes Hoya Intermediate is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Hoya Intermediate's taxable income and losses were passed through to and included in the taxable income of its members, including VSI, for periods following the Merger Transaction. Accordingly, amounts related to income taxes were zero for us prior to the Merger Transaction, and therefore, are not representative of future amounts expected to be incurred by us. Following the Merger Transaction, our legal parent entity is VSI. We are subject to income taxes at the U.S. federal, state, and local levels for income tax purposes, including with respect to our allocable share of any taxable income of Hoya Intermediate. Income taxes are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences on differences between the carrying amounts of assets and liabilities and their respective tax basis, using tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is “more-likely-than not” that some portion or all of the deferred tax assets will not be realized. The realization of the deferred tax assets is dependent on the amount of our future taxable income. We recognize interest and penalties related to underpayment of income taxes in Income tax expense on the Consolidated Statements of Operations. To date, the interest or penalties incurred related to income taxes have not been material. Tax Receivable Agreement In connection with the Merger Transaction, we entered into a Tax Receivable Agreement (the "TRA") with the existing Hoya Intermediate shareholders that provides for our payment to such shareholders of 85 % of the amount of the tax savings, if any, that we realize (or, under certain circumstances, are 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 us making payments under the TRA. Debt Term debt is carried at the outstanding principal balance, less debt issuance costs and any unamortized discount or premium. Deferred borrowing costs and discounts are amortized to interest expense over the terms of the respective borrowings using the effective interest method. Upon the repayment of our term debt, we reflected prepayment penalties and the write-off of any unamortized borrowing costs and discounts as loss on extinguishment of debt on the Consolidated Statements of Operations. 69 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Fair Value of Financial Instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of our financial instruments is disclosed based on the fair value hierarchy using the following three categories: Level 1 —Measurements that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 —Measurements that include other inputs that are directly or indirectly observable in the marketplace. Level 3 —Measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. These fair value measurements require significant judgment. Our assets and liabilities measured at fair value on a recurring basis are presented in Note 11, Investments , Note 13, Debt, and Note 15, Financial Instruments . Our non-financial assets, such as goodwill, intangible assets and long-lived assets, which are measured at fair value on a nonrecurring basis, utilizing Level 3 inputs, are presented in Note 9, Goodwill and Intangible Assets . Other financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximates their fair value because of the short-term nature of these instruments. We did not have any transfers of financial instruments between valuation levels during the years ended December 31, 2023 and 2022. Warrants In connection with the Merger Transaction, we issued several types of warrants. We separately evaluate the terms for each of these outstanding warrants in accordance with Accounting Standards Codification ("ASC") 480, Distinguishing Liabilities from Equity, and ASC 815-40, Derivatives and Hedging: Contracts in an Entity’s Own Equity, to determine the appropriate classification and accounting treatment. The Public Warrants, the Private Warrants and the Exercise Warrants meet the criteria to be classified as equity instruments. Because the Hoya Intermediate Warrants are exercisable for Intermediate Units, which allow for a potential cash redemption at the discretion of the unitholder, they are classified as a liability in Other liabilities on the Consolidated Balance Sheets. The warrant liability is subject to a fair value remeasurement each period with an offsetting adjustment reflected in Other expenses on the Consolidated Statements of Operations. Redeemable Noncontrolling Interests VSI holds a 63.7 % in terest in Hoya Intermediate, with the remainder held by Hoya Topco. Hoya Topco’s interest in Hoya Intermediate represents a redeemable noncontrolling interest. At its discretion, Hoya Topco has the right to exchange its Intermediate Units for shares of Class A common stock on a one-to-one basis or for cash proceeds of equal value at the time of redemption. See Note 16, Redeemable Noncontrolling Interests , for additional detail on Hoya Topco's right to exchange its Intermediate Units. As the redeemable noncontrolling interests are redeemable upon the occurrence of an event that is not solely within our control, we classify them as temporary equity. Our redeemable noncontrolling interests were initially measured at Hoya Topco’s share in the net assets of Hoya Intermediate upon consummation of the Merger Transaction. Subsequent remeasurements of our redeemable noncontrolling interests are recorded as a deemed dividend each reporting period, which reduces retained earnings, if any, or additional paid-in capital on the Consolidated Balance Sheets. Remeasurements of our redeemable noncontrolling interests are based on the fair value of the Class A common stock. Offering Costs We incurred incremental costs associated with the Merger Transaction and the PIPE Financing related for legal, accounting and other third-party fees. In accordance with Staff Accounting Bulletin (“SAB”) Topic 5.A, Expenses of Offering , we deferred certain incremental costs directly associated with the Merger Transaction and the PIPE Financing. These deferred costs were capitalized by us and subsequently charged against the gross proceeds of the 70 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Merger Transaction and the PIPE Financing as a reduction to additional paid-in capital on the Consolidated Balance Sheets. Our total transaction costs during the year ended December 31, 2021 were $ 32.7 million, of which $ 20.2 million was charged against the gross proceeds of the Merger Transaction and the PIPE Financing. Equity-Based Compensation We account for restricted stock units ("RSUs"), stock options, and profits interest at their grant date fair value. We award RSUs to our employees, directors and certain consultants. We award stock options to certain of our employees and consultants. We account for forfeitures of outstanding, but unvested grants in the period they occur. 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, which requires us to make assumptions and judgments about the variables used in the calculation, related to the volatility of the common stock, risk-free interest rate, and expected dividends. Expense related to grants of equity-based awards is recognized as equity-based compensation in the Consolidated Statements of Operations. Prior to the Merger Transaction, certain members of management received profit interests in Hoya Topco and phantom units in a cash bonus pool funded by Hoya Topco. Under ASC 718, Compensation–Stock Compensation , and ASC 480, Distinguishing Liabilities from Equity , the grants of profits interest meet the criteria to be recognized as equity-classified awards, whereas the grants of phantom units meet the criteria to be recognized as liability-classified awards. For the profit interests and phantom units, we used a market-based approach to determine the total equity value of Hoya Topco and allocated the resulting value between share classes using the Black-Scholes model to determine the grant date fair value of employee grants. The exercise prices used are based on various scenarios considering the waterfall payout structure of the units that exists at the Hoya Topco level. For phantom units with service and performance conditions, we recognize a liability for the fair value of the outstanding units only when we conclude it is probable that the performance condition will be achieved. As of December 31, 2023 and 2022, it is not probable the performance condition will be achieved. Segment Reporting Operating segments are defined as components of an entity for which discrete financial information is available and is regularly reviewed by our Chief Operating Decision Maker (our “CODM”) in making decisions regarding resource allocation and performance assessment. Our CODM is our Chief Executive Officer. We have determined that we have two operating and reportable segments: Marketplace and Resale. Revenue Recognition We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers . We report revenue on a gross or net basis based on management’s assessment of whether we are acting as a principal or agent in the transaction. Revenue is reported net of sales taxes. The timing of revenue recognition, and the determination of whether we are acting as a principal or an agent in a transaction, is based on the evaluation of control over the asset being transferred. Marketplace We act as an intermediary between buyers, sellers and partners in our online marketplaces. Revenue primarily consists of service and delivery fees and is reduced by incentives provided to buyers. Our performance obligation for marketplace transactions is facilitating the transaction between buyers, sellers and partners. For live event tickets, our performance obligation is satisfied at the time the order is confirmed, as control of the ticket, and the related rights of ownership, transfer to the buyer at that time. For hotels and tours, our performance obligation is satisfied at the time of check-in, as the buyer is unable to control the asset until that point. In all of these transactions, we act as an agent as we do not control the asset prior to facilitating the transfer to the buyer. 71 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Payment from the ticket buyer is generally due at the time of sale. Our sales terms generally provide that we will compensate the ticket buyer for the total amount of the purchase if an event is cancelled, the ticket is invalid or the ticket is delivered after the promised time. In certain circumstances for travel reservations, we may allow buyers to initiate returns or cancel. We have determined this is considered a stand-ready obligation to provide a return that is not a separate performance obligation, but is an element of variable consideration, which results in a reduction to revenue. The revenue reversal is reflected within Accrued expenses and other current liabilities in the Consolidated Balance Sheets when the buyer has yet to be compensated. We estimate the customer compensation liability, and corresponding charge against revenue, using the expected value method, which best predicts customer compensation for future cancellations. To the extent we estimate that a portion of the refund is recoverable from ticket sellers or partners, we record the recovery as revenue to align with the net presentation of the original transaction. In extreme circumstances, such as the COVID-related shutdowns during 2020, the timing of event cancellations versus new sales transactions can result in customer compensation costs exceeding current period sales resulting in negative Marketplace revenue for that period. In certain instances, ticket buyers are compensated with credit to be used on future purchases. 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, and 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 also earn referral commissions on purchases of third-party insurance services by ticket buyers at the time of sale of the associated ticket on the Marketplace platform. Referral commissions are recognized as revenue when the ticket buyer makes a purchase from the third-party insurance provider during customer checkout. Payment from the third-party provider is due to us within 30 days from being invoiced. This revenue is included within all categories of Marketplace disaggregated revenue described in Note 4, Revenue Recognition . In addition, we earn revenue from online display advertising, which revenue is recognized when an advertisement is displayed as that is when we have fulfilled our obligation. The revenue we earn from our Vivid Picks 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. Resale We sell tickets we own on secondary ticket marketplaces. The Resale business has one performance obligation, which is to transfer control of a live event ticket to a ticket buyer once an order has been confirmed. We act as a principal in these transactions as we own the ticket and therefore control the ticket prior to transferring it to the customer. Revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed in the secondary ticket marketplace. Payment from the marketplace is typically due upon delivery of the ticket or after the event has passed. Secondary ticket marketplace terms and conditions require sellers to repay amounts received for events that are cancelled or tickets that are invalid or delivered after the promised time. We have determined that this is considered a stand-ready obligation to provide a return that is not a separate performance obligation, but is an element of variable consideration, which results in a reduction to revenue. We recognize a liability for known and estimated cancellation charges within Accrued expenses and other current liabilities in the Consolidated Balance Sheets. We estimate the future customer compensation liability, and corresponding charge against revenue, using the expected value method. To the extent we estimate that a portion of the charge is recoverable from the event host, we record the estimated recovery asset to Prepaid expenses and other current assets. When our Resale business sells a ticket on our own marketplace, the service fee is recorded in Marketplace revenues and the sales price of the ticket is recorded in Resale revenues. 72 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Deferred Revenue Deferred revenue consists of fees received related to unsatisfied performance obligations at the end of the period. The majority of unsatisfied performance obligations are related to our Vivid Seats Rewards loyalty program, which allows enrolled Vivid Seats ticket buyers to earn stamps for each ticket purchased. These buyers can convert those stamps into credits upon reaching certain thresholds and then redeem those credits on future transactions. The credits earned in the program represent a material right to the ticket buyer and constitute an additional performance obligation for us. As such, we defer revenue based on expected future usage and recognize the deferred revenue as credits are redeemed. Deferred revenue also consists of service fees on hotel and tour transactions where check-in has not yet occurred. In addition, r evenue from sales of contingent events, such as postseason sporting events, is initially recorded as deferred revenue in the Consolidated Balance Sheets and is recognized when the contingency is resolved. Sales Tax Sales taxes are imposed by state, county, and city governmental authorities. We collect sales tax from ticket buyers on our marketplace where required and remit to the appropriate governmental agency. We also collect and remit sales tax on certain resale sales. Collected sales taxes are recorded as a liability until remitted. There is no impact on the Consolidated Statements of Operations as revenue is recorded net of sales taxes. Advertising Costs We utilize various forms of advertising, including paid search, brand partnerships, e-mail marketing and other forms of media. Advertising costs, which are expensed as incurred, were $ 273.5 million , $ 247.3 million and $ 180.7 million for the years ended December 31, 2023, 2022, and 2021 respectively. Advertising costs are presented as part of Marketing and selling expense in the Consolidated Statements of Operations. Shipping and Handling Shipping and handling charges to customers are included in Revenues in the Consolidated Statements of Operations. Shipping and handling costs incurred by us are treated as fulfillment activities, and as such are included in Cost of revenues in the Consolidated Statements of Operations. These costs are accrued upon recognition of revenue. Recent Accounting Pronouncements As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we are provided the option to comply with new or revised accounting guidance within the same time periods as those applicable to either public or non-public companies, including early adoption when permissible. The following provides a brief description of recent accounting pronouncements that could have a material effect on our consolidated financial statements: Issued Accounting Standards Adopted Financial Instruments-Credit Losses In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standard Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which changes how entities will measure credit losses for financial assets and certain other instruments that are not measured at fair value through net income. The new expected credit loss impairment model requires immediate recognition of estimated credit losses expected to occur. Additional disclosures are required regarding assumptions, models, and methods for estimating the credit losses. ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates , deferred the effective date for non-public companies. The standard is effective for non-public companies for fiscal years beginning after December 15, 2022. We adopted these requirements as of January 1, 2023 with no material impact on our consolidated financial statements. 73 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Reference Rate Reform In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting , as modified in January 2021. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. The guidance also establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. We adopted these requirements as of January 1, 2023 with no material impact on our consolidated financial statements. Acquired Contract Assets and Contract Liabilities In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers , as if it had originated the contracts. Under the previous guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. ASU 2021-08 allows for immediate adoption on a retrospective basis for all business combinations that have occurred since the beginning of the annual period that includes the interim period of adoption. We elected to adopt ASU 2021-08 in the fourth quarter of 2023, with no material impact on our consolidated financial statements. Issued Accounting Standards Not Yet Adopted Segment Reporting - Improvements to Reportable Segment Disclosures In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the provisions of the amendments and the impact on our future consolidated financial statements. Income Taxes In December 2023 , the FASB issued ASU 2023-09 , Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendments are intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2025 for non-public companies. We are currently evaluating the impact of the new standard, which is expected to result in enhanced disclosures, on our consolidated financial statements. 3. Business Acquisitions During the fiscal year 2023, we acquired VDC Holdco, LLC, the parent company of Vegas.com, LLC (together, “Vegas.com”), and WD Holdings Co., Ltd., the parent company of Wavedash Co., Ltd. (together, “Wavedash”). These transactions have been accounted for under the acquisition method of accounting in accordance with ASC 805 , Business Combinations. 74 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Vegas.com On November 3, 2023 (the "Vegas.com Acquisition Date"), we acquired 100 % of the outstanding shares of Vegas.com, an online ticket marketplace headquartered in Las Vegas, Nevada (the “Vegas.com Acquisition”). The purchase price was $ 248.3 million, comprising $ 152.8 million in cash and approximately 15.6 million shares of Class A common stock. We financed the cash portion of the Vegas.com Acquisition at closing with cash on hand, as well as cash balances acquired. The goodwill acquired in the Vegas.com Acquisition is not expected to be deductible for income tax purposes. The goodwill, which is included in our Marketplace segment, is primarily attributable to revenue opportunities with the Vegas.com services offerings and the assembled workforce. The purchase consideration allocation is preliminary because the evaluations necessary to assess the fair values of the net assets acquired are still in process. The primary areas that are not yet finalized relate to the valuations of certain intangible assets and acquired income tax assets and liabilities. Acquired assets and liability amounts are also still being finalized. We expect to finalize the allocation of the purchase price as soon as practicable, but no later than one year from the Vegas.com Acquisition Date. Acquisition costs directly related to the Vegas.com Acquisition were $ 1.9 million for the year ended December 31, 2023 and are included in General and administrative expenses in the Consolidated Statements of Operations. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the Vegas.com Acquisition Date (in thousands): Cash $ 1,868 Accounts receivable 2,469 Prepaid expenses and other current assets 2,711 Property and equipment 264 Intangible assets 130,549 Goodwill 184,740 Right-of-use assets – net 779 Other non-current assets 449 Accounts payable ( 34,589 ) Accrued expenses and other current liabilities ( 11,291 ) Deferred revenue ( 1,864 ) Long-term lease liabilities ( 69 ) Deferred tax liability ( 27,721 ) Net assets acquired $ 248,295 The following table sets forth the components of identifiable intangible assets acquired (in thousands) and their estimated useful lives (in years) as of the Vegas.com Acquisition Date: Cost Estimated Useful Life Tradename $ 43,669 Indefinite Supplier relationships 37,160 4 years Customer relationships 27,590 3 years Acquired developed technology 22,130 4 years Total acquired intangible assets $ 130,549 Since the date of acquisition, Vegas.com has contributed revenue and income before income taxes of $ 15.7 million and $ 1.0 million, respectively. 75 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Unaudited Pro forma Financial Information The following table summarizes, on an unaudited pro forma basis, the condensed combined results of our operations for the years ended December 31, 2023 and 2022, assuming the Vegas.com Acquisition had occurred on January 1, 2022 (in thousands): Years Ended December 31, 2023 2022 Revenues $ 797,879 $ 688,629 Income before income taxes 79,007 74,026 The unaudited pro forma financial information presented above is for informational purposes only and is not necessarily indicative of the actual results of operations that might have occurred had the Vegas.com Acquisition occurred on January 1, 2022, nor are they necessarily indicative of future results. The unaudited pro-forma information for all periods presented above reflects the following adjustments, where applicable, assuming the acquisition of Vegas.com had occurred on January 1, 2022: (i) incremental amortization expense related to the long-lived intangible assets acquired in the Vegas.com Acquisition; (ii) reclassification of transaction costs incurred in connection to the Vegas.com Acquisition to the earliest year presented; (iii) alignment of Vegas.com’s revenue recognition with our policies; and (iv) elimination of interest expense incurred by Vegas.com prior to the Vegas.com Acquisition. Wavedash On September 8, 2023 (the "Wavedash Acquisition Date"), we acquired 100 % of the outstanding shares of Wavedash, an online ticket marketplace headquartered in Tokyo, Japan (the “Wavedash Acquisition”). The purchase price was JPY 10,946.1 million, or approximately $ 74.3 million based on the exchange rate in effect on the Wavedash Acquisition Date, before considering the net effect of cash acquired equal to the amount in the table below. We financed the Wavedash Acquisition at closing with cash on hand. The goodwill recognized in the Wavedash Acquisition is not expected to be deductible for income tax purposes. The goodwill, which is included in our Marketplace segment, is primarily attributable to revenue opportunities associated with Wavedash’s service offerings and assembled workforce. The fair values of the assets acquired and liabilities assumed are preliminary and subject to change because the evaluations necessary to assess the fair values of the net assets acquired are still in process. The primary areas that are not yet finalized relate to the valuations of certain intangible assets and acquired income tax assets and liabilities. Acquired assets and liability amounts are also still being finalized. We expect to finalize the allocation of the purchase price as soon as practicable, but no later than one year from the Wavedash Acquisition Date. In connection with the Wavedash Acquisition, we also assumed long-term debt which matures in the second quarter of 2026, subject to a fixed interest rate. See Note 13, Debt, for more information. Acquisition costs directly related to the Wavedash Acquisition were $ 2.7 million for the year ended December 31, 2023, and are included in General and administrative expenses in the Consolidated Statements of Operations. 76 VIVID SEATS INC. NOTES to the Consolidated Financial Statements The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the Wavedash Acquisition Date (in thousands ): Cash $ 18,390 Accounts receivable 2,182 Inventory 49 Prepaid expenses and other current assets 259 Property and equipment 67 Right-of-use assets 1,927 Other net assets 675 Intangible assets 31,846 Goodwill 45,351 Accounts payable ( 7,427 ) Accrued expenses and other current liabilities ( 3,901 ) Current maturities of long-term debt ( 566 ) Long-term debt ( 2,546 ) Other non-current liabilities ( 11,981 ) Net assets acquired $ 74,325 The following table sets forth the components of identifiable intangible assets acquired (in thousands) and their estimated useful lives (in years) as of the Wavedash Acquisition Date: Cost Estimated Useful Life Tradename $ 2,173 Indefinite Supplier relationships 19,963 5 years Customer relationships 5,500 4 years Acquired developed technology 4,210 3 years Total acquired intangible assets $ 31,846 Pro forma financial information for the Wavedash Acquisition was not considered material to our consolidated financial statements and has not been presented. Vivid Picks On December 13, 2021 (the “Vivid Picks Acquisition Date"), we acquired 100 % ownership of Betcha (the "Vivid Picks Acquisition"). In August 2022, we rebranded Betcha as Vivid Picks. Vivid Picks is a real money daily fantasy sports app with social and gamification features that enhance fans' connection with their favorite live sports. The Vivid Picks Acquisition was accounted for as an acquisition of a business in accordance with the acquisition method of accounting. Acquisition costs directly related to the Vivid Picks Acquisition for the year ended December 31, 2022 were not material and are included in General and administrative expenses in the Consolidated Statements of Operations. The Vivid Picks Acquisition Date fair value of the consideration consisted of $ 0.8 million in cash and 2.1 million shares of Class A common stock. The total consideration included cash earnouts of $ 3.4 million as of the Vivid Picks Acquisition Date representing the estimated fair value that we would be obligated to pay if Vivid Picks met certain earnings objectives. The cash earnouts are measured at fair value using a Monte Carlo simulation model. The change in fair value of cash earnouts is presented in Change in fair value of contingent consideration on the Consolidated Statements of Operations. As of December 31, 2023 the estimated fair value of cash earnouts was zero. For the years ended December 31, 2023 and 2022, the estimated fair value of cash earnouts decreased by $ 1.0 million and $ 2.1 million, respectively. For the years ended December 31, 2023 and 2022, we made no payments related to cash earnouts. 77 VIVID SEATS INC. NOTES to the Consolidated Financial Statements In addition, the consideration included future milestone payments of $ 9.5 million as of the Vivid Picks Acquisition Date representing the estimated fair value that we would be obligated to pay upon the achievement of certain integration objectives. For the year ended December 31, 2023, we paid milestone payments of $ 6.0 million in cash. For the year ended December 31, 2022, we paid milestone payments which consisted of 0.3 million shares of Class A common stock and $ 1.1 million in cash. As of December 31, 2023, the integration objectives were fully met, and we do not have future liabilities related to milestone payments. As part of the Vivid Picks Acquisition, we agreed to pay cash bonuses to certain Vivid Picks employees over three years following the anniversary of the employee start date. The payouts are subject to continued service, and therefore treated as compensation and expensed. Pro forma financial information has not been presented as the Vivid Picks Acquisition was not considered material to our consolidated financial statements. The consideration was allocated to the assets acquired and liabilities assumed based on their fair value as of the Vivid Picks Acquisition Date. The excess of the purchase price over the net assets acquired was recorded as goodwill in the Marketplace segment. The goodwill recorded is not deductible for tax purposes as the Vivid Picks Acquisition was primarily a stock acquisition and is attributable to the assembled workforce as well as the anticipated synergies from the integration of Vivid Picks' technology with our technology. During the year ended December 31, 2022, we recognized adjustments related to the estimated fair values of the assets acquired and liabilities assumed at the Vivid Picks Acquisition Date . The adjustments primarily consisted of $ 0.9 million in definite-lived intangible assets and $ 2.9 million in goodwill. See Note 9, Goodwill and Intangible Assets , for the acquisition adjustment. We have finalized acquisition accounting for the Vivid Picks Acquisition in the fourth quarter of 2022. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the Vivid Picks Acquisition Date (in thousands): Cash $ 48 Restricted cash 245 Accounts receivable 78 Prepaid expenses and other current assets 60 Intangible assets 4,430 Goodwill 31,931 Accounts payable ( 1,180 ) Accrued expenses and other current liabilities ( 677 ) Net assets acquired $ 34,935 The following table summarizes the purchase consideration as of the Vivid Picks Acquisition Date (in thousands): Fair value of common stock $ 21,306 Cash consideration 759 Fair value of milestone payments 9,470 Fair value of earnouts 3,400 Total purchase consideration $ 34,935 The following table sets forth the components of identifiable intangible assets acquired (in thousands) and their estimated useful lives (in years) as of the Vivid Picks Acquisition Date (in thousands): Cost Estimated Useful Life Customer relationships $ 1,530 2 years Acquired developed technology 2,900 5 years Total acquired intangible assets $ 4,430 78 VIVID SEATS INC. NOTES to the Consolidated Financial Statements 4. Revenue Recognition During the years ended December 31, 2023, 2022 and 2021, Marketplace revenues consisted of the following (in thousands): 2023 2022 2021 Marketplace revenues: Owned Properties $ 462,263 $ 400,413 $ 308,226 Private Label 135,125 110,681 81,442 Total Marketplace revenues $ 597,388 $ 511,094 $ 389,668 During the years ended December 31, 2023, 2022 and 2021, Marketplace revenues consisted of the following event categories (in thousands): 2023 2022 2021 Marketplace revenues: Concerts $ 308,507 $ 251,423 $ 171,149 Sports 199,837 196,467 175,471 Theater 83,273 61,483 41,745 Other 5,771 1,721 1,303 Total Marketplace revenues $ 597,388 $ 511,094 $ 389,668 Within the Resale segment, we sell tickets we hold in inventory on resale ticket marketplaces. Resale revenues were $ 115.5 million , $ 89.2 million , and $ 53.4 million during the years ended December 31, 2023, 2022 and 2021, respectively. At December 31, 2023, Deferred revenue in the Consolidated Balance Sheets was $ 34.7 million , which primarily relates to our Vivid Seats Rewards loyalty program. Stamps earned under the loyalty program expire in two to three years , if not converted to credits, and credits expire in two to four years , if not redeemed. We expect to recognize all outstanding deferred revenue in the next seven years . At December 31, 2022, $ 32.0 million was recorded as Deferred revenue, of which $ 17.6 million was recognized as revenue during the year ended December 31, 2023. At December 31, 2021, $ 25.1 million was recorded as deferred revenue, of which $ 16.2 million was recognized as revenue during the year ended December 31, 2022. 5. Segment Reporting Our reportable segments are Marketplace and Resale. Through the Marketplace segment, we act as an intermediary between ticket buyers and sellers within our online ticket marketplace. Through the Resale segment, we acquire tickets from primary sellers, which we then sell through secondary ticket marketplaces, including our own. Revenues and contribution margin (which is defined as revenues less cost of revenues and marketing and selling expenses) are used by our CODM to assess performance of the business. We do not report our assets, capital expenditures, general and administrative expenses or related depreciation and amortization expenses by segment, because our CODM does not use this information to evaluate the performance of our operating segments. 79 VIVID SEATS INC. NOTES to the Consolidated Financial Statements The following table represents our segment information for the year ended December 31, 2023 (in thousands): Marketplace Resale Consolidated Revenues $ 597,388 $ 115,491 $ 712,879 Cost of revenues (exclusive of depreciation and amortization shown separately below) 94,557 87,627 182,184 Marketing and selling 274,096 — 274,096 Contribution margin $ 228,735 $ 27,864 256,599 General and administrative 159,081 Depreciation and amortization 17,178 Change in fair value of contingent consideration ( 998 ) Income from operations 81,338 Interest expense – net 13,505 Other income ( 3,109 ) Income before income taxes $ 70,942 The following table represents our segment information for the year ended December 31, 2022 (in thousands): Marketplace Resale Consolidated Revenues $ 511,094 $ 89,180 $ 600,274 Cost of revenues (exclusive of depreciation and amortization shown separately below) 73,126 67,382 140,508 Marketing and selling 248,375 — 248,375 Contribution margin $ 189,593 $ 21,798 211,391 General and administrative 127,619 Depreciation and amortization 7,732 Change in fair value of contingent consideration ( 2,065 ) Income from operations 78,105 Interest expense – net 12,858 Loss on extinguishment of debt 4,285 Other expenses ( 8,227 ) Income before income taxes $ 69,189 The following table represents our segment information for the year ended December 31, 2021 (in thousands): Marketplace Resale Consolidated Revenues $ 389,668 $ 53,370 $ 443,038 Cost of revenues (exclusive of depreciation and amortization shown separately below) 51,702 38,915 90,617 Marketing and selling 181,358 — 181,358 Contribution margin $ 156,608 $ 14,455 171,063 General and administrative 92,170 Depreciation and amortization 2,322 Loss from operations 76,571 Interest expense – net 58,179 Loss on extinguishment of debt 35,828 Other expenses 1,389 Loss before income taxes $ ( 18,825 ) Substantially all of our sales occur and assets reside in the United States. 80 VIVID SEATS INC. NOTES to the Consolidated Financial Statements 6. Accounts Receivable – Net The following table summarizes our accounts receivable balance, net of allowance for doubtful accounts at December 31, 2023 and 2022 (in thousands): 2023 2022 Uncollateralized payment processor obligations $ 32,810 $ 18,910 Due from marketplace ticket sellers for cancellation charges 5,632 1,019 Due from distribution partners for cancellation charges 12,736 11,704 Event insurance and other commissions receivable 11,414 4,298 Allowance for doubtful accounts ( 10,074 ) ( 3,630 ) Other 5,963 4,230 Total Accounts Receivable $ 58,481 $ 36,531 We recorded an allowance for credit losses of $ 10.0 million and $ 3.6 million at December 31, 2023 and 2022, respectively, to reflect potential challenges in collecting funds from distribution partners and ticket sellers, particularly for amounts due upon usage of store credit previously issued to buyers. The allowance for credit losses increased during the year as certain ticket sellers on the marketplace platform generated balances in excess of their existing payables, creating a greater risk of credit losses on these receivables. Write-offs were $ 0.3 million , $ 4.9 million and $ 1.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. 7. Property and Equipment The following table summarizes our major classes of property and equipment, net of accumulated depreciation at December 31, 2023 and 2022 (in thousands): 2023 2022 Computer equipment $ 2,792 $ 1,935 Furniture 1,705 1,625 Leasehold Improvements 7,655 7,467 Total property and equipment 12,152 11,027 Less: accumulated depreciation 1,996 596 Total property and equipment – net $ 10,156 $ 10,431 Depreciation expense related to property and equipment was $ 1.4 million , $ 0.6 million and $ 0.1 million for the years ended December 31, 2023, 2022, and 2021, respectively, and is presented in Depreciation and amortization expense in the Consolidated Statements of Operations. There were no impairment charges for the years ended December 31, 2023, 2022 and 2021. During the years ended December 31, 2023 and 2022 we incurred a loss of $ 0.1 million and $ 0.1 million, respectively, on asset disposals related to property and equipment, which are included in General and administrative expenses in the Consolidated Statements of Operations. There were no losses on asset disposals related to property and equipment during the year ended December 31, 2021. 8. Leases On January 1, 2022, we adopted ASC 842 using a modified retrospective transition approach that allows for a cumulative-effect adjustment in the period of adoption without revising prior period presentation. Therefore, for reporting periods beginning after December 31, 2021, our consolidated financial statements are prepared in accordance with the current lease standard (ASC 842) and we elected to present our consolidated financial statements for all periods prior to January 1, 2022 under the previous lease standard (ASC 840). We elected the practical expedient package, which permits us to not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, and any initial direct costs for any existing leases as of the effective date. 81 VIVID SEATS INC. NOTES to the Consolidated Financial Statements We entered into all of our lease contracts as a lessee. We are not acting as a lessor under any of our leasing arrangements. The vast majority of our lease contracts are real estate leases for office space. All of our leases are classified as operating. None of our leases contain any material residual value guarantees or restrictive covenants. The following table presents the lease-related assets and liabilities on the Consolidated Balance Sheets at December 31, 2023 and 2022 (in thousands): 2023 2022 Right-of-use assets – net $ 9,826 $ 7,859 Current lease liabilities in Accrued expenses and other current liabilities $ 2,059 $ 579 Long-term lease liabilities 16,215 14,911 Total operating lease liabilities $ 18,274 $ 15,490 Most leases have one or more options to renew, with renewal terms that can initially extend the lease term for various periods up to five years . The exercise of renewal options is at our discretion and are included if they are reasonably certain to be exercised. The following table summarizes the weighted average remaining minimum lease term and the weighted average incremental borrowing rate at December 31, 2023 and 2022: 2023 2022 Weighted average remaining minimum lease term 8.1 years 9.7 years Weighted average incremental borrowing rate 7.4 % 7.0 % In December 2021, we entered into a lease agreement for our new corporate headquarters in Chicago, Illinois. The lease commenced in the first quarter of 2022 when we obtained control of the premises, and runs through December 31, 2033 with a five-year renewal option. The aggregate lease payments for the initial term are approximately $ 16.2 million with no rent due until March 2024. The lease agreement provides for a tenant improvement allowance from the landlord in an amount equal to $ 6.5 million towards the design and construction on the leased premises. As of December 31, 2022, we incurred leasehold improvement costs of $ 6.5 million related to the tenant improvement allowance. This amount is recorded in Property and equipment – net in the Consolidated Balance Sheets. On the commencement date, we recognized the ROU asset and corresponding lease liability of $ 3.4 million in Right-of-use assets — net and Long-term lease liabilities, respectively, in the Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term and is recorded under General and administrative expenses in the Consolidated Statements of Operations. Operating and variable lease expenses for the years ended December 31, 2023, 2022 and 2021 were $ 2.0 million , $ 3.6 million and $ 3.7 million, respectively. Cash payments for operating lease liabilities, which are presented as a component of cash flows from operating activities within the Consolidated Statements of Cash Flows, were $ 1.2 million and $ 3.1 million during the years ended December 31, 2023 and 2022, respectively. 82 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Future lease payments at December 31, 2023 are as follows (in thousands): Operating Leases 2024 $ 3,333 2025 3,006 2026 3,024 2027 2,806 2028 2,541 Thereafter 9,906 Total remaining lease payments 24,616 Less: Imputed interest 6,342 Present value of lease liabilities $ 18,274 9. Goodwill and Intangible Assets Goodwill Our goodwill is inclu ded in our Marketplace segment. The following table summarizes the changes in the carrying amount of goodwill at December 31, 2023 and 2022 (in thousands): Goodwill Balance at January 1, 2022 $ 718,204 Acquisition adjustment ( 2,946 ) Balance at December 31, 2022 715,258 Business acquisitions 230,091 Foreign currency translation 2,010 Balance at December 31, 2023 $ 947,359 We had recorded $ 377.1 million of cumulative impairment charges related to our goodwill as of December 31, 2023 and 2022. 83 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Definite-lived intangible assets The following table summarizes components of our definite-lived intangible assets (in thousands) and weighted average remaining life (in years) at December 31, 2023: 2023 Weighted Average Remaining Life (in years) Definite-lived Intangible Assets Supplier relationships $ 57,123 4.1 Customer relationships 34,620 3.0 Acquired developed technology 29,240 3.6 Capitalized development costs 28,912 1.5 Capitalized development costs – Work in progress ("WIP") 4,795 Foreign currency translation 1,315 Total gross book value $ 156,005 Less: Accumulated amortization Supplier relationships ( 2,881 ) Customer relationships ( 3,522 ) Acquired developed technology ( 2,551 ) Capitalized development costs ( 16,433 ) Foreign currency translation ( 97 ) Total accumulated amortization $ ( 25,484 ) Indefinite-lived Intangible Assets Trademarks 110,538 Foreign currency translation 96 Intangible assets – net $ 241,155 The following table summarizes components of our definite-lived intangible assets (in thousands) and weighted average remaining life (in years) at December 31, 2022: 2022 Weighted Average Remaining Life (in years) Definite-lived Intangible Assets Customer relationships $ 1,530 1.0 Acquired developed technology 2,900 4.0 Capitalized development costs 22,564 1.6 Total gross book value $ 26,994 Less: Accumulated amortization Customer relationships ( 765 ) Acquired developed technology ( 580 ) Capitalized development costs ( 8,339 ) Total accumulated amortization $ ( 9,684 ) Indefinite-lived Intangible Assets Trademark 64,666 Intangible assets – net $ 81,976 We had recorded $ 78.7 million of cumulative impairment charges related to our trademarks as of December 31, 2023 and 2022 . 84 VIVID SEATS INC. NOTES to the Consolidated Financial Statements During the year ended December 31, 2023, intangible assets increased primarily due to the Vegas.com Acquisition, the Wavedash Acquisition and our investments in capitalized development costs. Amortization expense on our definite-lived intangible assets was $ 15.7 million , $ 7.1 million and $ 2.3 million for the years ended December 31, 2023, 2022 and 2021, respectively, and is presented in Depreciation and amortization in the Consolidated Statements of Operations. During the years ended December 31, 2023 and 2022, we incurred a loss of $ 0.6 million and $ 0.3 million, respectively, on asset disposals related to definite-lived intangible assets, which is included in General and administrative expenses in the Consolidated Statements of Operations. There were no losses on asset disposals related to definite-lived intangible assets during the year ended December 31, 2021. The estimated future amortization expense related to the definite-lived intangible assets as of December 31, 2023, except WIP, is as follows (in thousands): Future amortization expense: 2024 $ 39,047 2025 35,548 2026 30,922 2027 17,479 2028 2,730 Total $ 125,726 10. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets at December 31, 2023 and 2022 consist of the following (in thousands): 2023 2022 Recovery of future customer compensation $ 25,750 $ 23,311 Prepaid expenses 8,218 6,032 Other current assets 93 569 Total prepaid expenses and other current assets $ 34,061 $ 29,912 Recovery of future customer compensation represents expected recoveries of compensation to be paid to customers for event cancellations or other service issues related to previously recorded sales transactions. Recovery of future customer compensation costs increased by $ 2.4 million at December 31, 2023 compared to December 31, 2022 due to an increase in the reserve for future cancellations driven by higher volume of sales for future events . The provision related to these expected recoveries is included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. 11. Investments In July 2023, we invested $ 6.0 million in a privately held company in the form of a convertible promissory note (the “Note”) and a warrant to purchase up to 1,874,933 shares of the company's stock (the "Warrant"). Interest on the Note accrues at 8 % per annum and outstanding principal and accrued interest is due and payable at the earlier of July 3, 2030 or a change in control of the company. The Warrant is exercisable until the date three years after the Note is repaid, subject to certain accelerating events. We account for the Note in accordance with ASC 320, Investments - Debt and Equity Securities . The Note is classified as an available-for-sale security and is recorded at fair value with the change in unrealized gains and losses reported as a separate component on the Consolidated Statements of Comprehensive Income until realized. The Note's unrealized gain for the year ended December 31, 2023 was $ 0.2 million . The Note's amortized cost amounted to $ 2.7 million at December 31, 2023. We did not recognize any credit losses related to the Note during the year ended December 31, 2023. 85 VIVID SEATS INC. NOTES to the Consolidated Financial Statements We account for the Warrant in accordance with ASC 815, Derivatives and Hedging , pursuant to which we record the derivative instrument on the Consolidated Balance Sheets at fair value with changes in fair value recognized in Other (income) expense on the Consolidated Statements of Operations on a recurring basis. The classification of the derivative instrument, including whether it should be recorded as an asset or a liability, is evaluated at the end of each reporting period. We measure our investments at fair value on recurring basis, and the balances at December 31, 2023 are as follows (in thousands): Fair Value Measurements Using Level 1 Level 2 Level 3 Total December 31, 2023 Note $ — $ — $ 2,868 $ 2,868 Warrant — — 4,125 4,125 $ — $ — $ 6,993 $ 6,993 The fair value of the Note is determined using the income approach, utilizing Level 3 inputs. The estimated fair value of the Warrant is determined using the Black-Scholes model, which 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. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material. The following table presents quantitative information about the significant unobservable inputs applied to these Level 3 fair value measurements at December 31, 2023: Assets Significant Unobservable Inputs 2023 Note Expected terms (years) 6.5 Implied Yield 21.7 % Warrant Expected terms (years) 6.5 Estimated volatility 56.0 % Risk-free rate 3.9 % Expected dividend yield 0 % The following table provides a reconciliation of the financial instruments measured at fair value using Level 3 significant unobservable inputs for the year ended December 31, 2023 (in thousands): Note Warrant Balance at July 3, 2023 (inception) $ 2,411 $ 3,589 Accretion of discount 23 — Interest paid-in-kind 238 — Total unrealized gains or losses: Recognized in earnings — 536 Recognized in Other comprehensive income (loss) 196 — Balance at December 31, 2023 $ 2,868 $ 4,125 86 VIVID SEATS INC. NOTES to the Consolidated Financial Statements 12. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities at December 31, 2023 and 2022 consist of the following (in thousands): 2023 2022 Accrued marketing expense $ 39,210 $ 26,873 Accrued customer credits 64,318 88,167 Accrued future customer compensation 33,010 30,181 Accrued contingencies — 5,898 Accrued payroll 17,381 10,660 Accrued operating expenses 20,828 13,753 Other current liabilities 16,895 6,438 Total accrued expenses and other current liabilities $ 191,642 $ 181,970 Accrued customer credits represent credits issued and outstanding for event cancellations or other service issues related to recorded sales transactions. The accrued amount is reduced by the amount of credits estimated to go unused, or breakage, provided that the credits are not subject to escheatment. We estimate breakage based on historical usage trends and available data on comparable programs, and recognize breakage in proportion to the pattern of redemption for customer credits. Our breakage estimates could be impacted by future activity differing from our estimates, the effects of which could be material. During the year ended December 31, 2023, $ 15.1 million of accrued customer credits were redeemed and we recognized $ 20.6 million of revenue from breakage. During the year ended December 31, 2022, $ 24.3 million of accrued customer credits were redeemed and we recognized $ 11.5 million of revenue from breakage. During the year ended December 31, 2021, $ 55.9 million of accrued customer credits were redeemed and we recognized $ 3.3 million of revenue from breakage. Breakage amounts are net of reductions in associated accounts receivable balances. Accrued future customer compensation represents an estimate of the amount of customer compensation due from cancellation charges in the future. These provisions, which are based on historic experience, revenue volumes for future events, and management’s estimate of the likelihood of future event cancellations, are recognized as a component of Revenues in the Consolidated Statements of Operations. The expected recoveries of these obligations are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets. This estimated accrual could be impacted by future activity differing from our estimates, the effects of which co uld be material. During the years ended December 31, 2023, 2022 and 2021, we recognized a net increase in revenue of $ 0.1 million, $ 2.3 million and $ 5.1 million, respectively, from the reversals of previously recorded revenue and changes to accrued future customer compensation related to event cancellations where the performance obligations were satisfied in prior periods. Accrued future customer compensation increased by $ 2.8 million due to an increase in the estimated rate of future cancellations as of December 31, 2023. Accrued contingencies decreased as a result of Betcha milestone payments of $ 6.0 million in cash during the year ended December 31, 2023. Other current liabilities primarily increased as a result of adding accrued expenses for Vegas.com vendors, an increase in the liability for uncollected local admissions taxes and higher accrued interest. 87 VIVID SEATS INC. NOTES to the Consolidated Financial Statements 13. Debt Our outstanding debt at December 31, 2023 and 2022 consisted of the following (in thousands): 2023 2022 February 2022 First Lien Loan $ 270,188 $ 272,938 Shoko Chukin Bank Loan 2,954 — Total long-term debt, gross 273,142 272,938 Less: unamortized debt issuance costs ( 4,577 ) ( 5,290 ) Total long-term debt, net of issuance costs 268,565 267,648 Less: current portion ( 3,933 ) ( 2,750 ) Total long-term debt, net $ 264,632 $ 264,898 June 2017 Term Loans On June 30, 2017, we entered into a $ 575.0 million first lien debt facility, comprising a $ 50.0 million revolving credit facility and a $ 525.0 million term loan (the “June 2017 First Lien Loan”), and a second lien credit facility, comprising a $ 185.0 million second lien term loan (the “June 2017 Second Lien Loan”). The June 2017 First Lien Loan was amended to upsize the committed amount by $ 115.0 million on July 2, 2018. On October 28, 2019 , we paid off the June 2017 Second Lien Loan balance. The revolving credit facility component of the first lien debt facility was retired on May 22, 2020. On October 18, 2021, we made an early principal payment related to the June 2017 First Lien Loan of $ 148.2 million in connection with, and using the proceeds from, the Merger Transaction and the PIPE Financing. On February 3, 2022, we repaid the outstanding balance of $ 190.7 million from the June 2017 First Lien Loan and refinanced the remaining balance with a new $ 275.0 million term loan. February 2022 First Lien Loan On February 3, 2022, we entered into an amendment which refinanced the remaining balance of the June 2017 First Lien Loan with a new $ 275.0 million term loan (the "February 2022 First Lien Loan"), which has a maturity date of February 3, 2029, and added a new $ 100.0 million revolving credit facility (the “Revolving Facility”) with a maturity date of February 3, 2027. At December 31, 2023, we had no outstanding borrowings under the Revolving Facility. The terms of the February 2022 First Lien Loan specify a secured overnight financing rate (“SOFR”)-based floating interest rate and contain a springing financial covenant that requires compliance with a first lien net leverage ratio when revolver borrowings exceed certain levels. All obligations under the February 2022 First Lien Loan are unconditionally guaranteed by Hoya Intermediate and substantially all of Hoya Intermediate’s existing and future direct and indirect wholly owned domestic subsidiaries. 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 (subject to a 0.5 % floor) plus 3.25 %. The effective interest rate on the February 2022 First Lien Loan was 9.05 % and 7.98 % per annum at December 31, 2023 and 2022, respectively. The February 2022 First Lien Loan is held by third-party financial institutions and is carried at the outstanding principal balance, less debt issuance costs and any unamortized discount or premium. The fair value was estimated using quoted prices that are directly observable in the marketplace. Therefore, the fair value is estimated on a Level 2 basis. At December 31, 2023 and 2022, the fair value of the February 2022 First Lien Loan approximated the carrying value. We are subject to certain reporting and compliance-related covenants to remain in good standing under the February 2022 First Lien Loan. These covenants, among other things, limit our ability to incur additional indebtedness and, in certain circumstances, to enter into transactions with affiliates, create liens, merge or consolidate and make certain payments. Non-compliance with these covenants and failure to remedy could result in the acceleration of the loans or foreclosure on the collateral. As of December 31, 2023, we were in compliance with all debt covenants related to the February 2022 First Lien Loan. 88 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Due to the refinancing of the June 2017 First Lien Loan with the February 2022 First Lien Loan, we incurred a loss of $ 4.3 million for the year ended December 31, 2022, which is presented in Loss on extinguishment of debt in the Consolidated Statements of Operations. Shoko Chukin Bank Loan In connection with our acquisition of Wavedash, we assumed long-term debt of JPY 458.3 million (approximately $ 3.1 million), which has a maturity date of June 24, 2026, and is subject to a fixed interest rate of 1.27 % per annum. The fair value was estimated using quoted prices that are directly observable in the marketplace. Therefore, the fair value is estimated on a Level 2 basis. At December 31, 2023 the fair value of our Shoko Chukin Bank Loan approximated the carrying value. Future maturities of our outstanding debt, excluding interest, as of December 31, 2023 were as follows (in thousands): 2024 $ 3,933 2025 3,933 2026 3,338 2027 2,750 2028 2,750 Thereafter 256,438 Total $ 273,142 14. Employee Benefit Plan We have a defined contribution and profit-sharing 401(k) plan that covers substantially all employees who meet eligibility requirements. Participants may contribute to the plan, through regular payroll deductions, an amount subject to limitations imposed by the Internal Revenue Service (the "IRS"). The plan also provides for discretionary profit-sharing contributions and matching contributions. We contributed approximately $ 1.6 million, $ 1.3 million and $ 0.8 million in matching contributions for the years ended December 31, 2023, 2022 and 2021, respectively. Matching contributions expense is included in General and administrative expense in the Consolidated Statements of Operations. For the years ended December 31, 2023, 2022 and 2021 there were no discretionary profit-sharing contributions. 15. Financial Instruments Derivatives The financial instruments entered into by us are typically executed over-the-counter. All financial instruments are measured at fair value on a recurring basis. The fair value is derived from discounted cash flows adjusted for nonperformance risk. The fair value models primarily use market observable inputs and, therefore, are classified as Level 2 assets. These models incorporate a variety of factors, including, where applicable, maturity, interest rate yield curves, and counterparty credit risks. The credit valuation adjustment associated with the derivatives, related to the likelihood of default by us and the counterparty, was not significant to the overall valuation. Interest Rate Cap On November 26, 2018, we paid $ 1.0 million to enter into an interest rate cap with an effective date of September 30, 2020 (the "Interest Rate Cap"). The notional value of the Interest Rate Cap was $ 516.8 million on September 30, 2021. The Interest Rate Cap matured on September 30, 2021. The Interest Rate Cap had a strike rate of 3.5 %. The Interest Rate Cap was purchased to reduce a portion of the exposure to fluctuations in LIBOR interest rates associated with our variable-rate term loan. 89 VIVID SEATS INC. NOTES to the Consolidated Financial Statements The objective in using the Interest Rate Cap was to add stability to interest expense and to manage the exposure to interest rate movements. Interest rate caps involve the borrower paying the hedge provider an initial one-time fee in exchange for the hedge provider paying the borrower the excess of the floating interest rate payment above a strike rate, in the event that the floating interest rate is greater than the strike rate during the period between the effective date and maturity date. We performed a regression analysis at the inception of the hedging relationship to assess the effectiveness. The design of this analysis addressed the effectiveness of the hedging relationship by considering how the hedge instrument performs against the forecasted transaction or hypothetical interest rate cap over historical months. Historical changes in the fair value of the hedge instrument and the underlying item demonstrated the effectiveness of the hedging relationship. On an ongoing basis, we assess hedge effectiveness prospectively and retrospectively. The hedge continued to be highly effective through its maturity. Effect of Derivative Contracts on Accumulated Other Comprehensive Income (Loss) ("AOCL") and Earnings Since we designated the Interest Rate Cap as an effective cash flow hedge that qualifies for hedge accounting, net interest payments were recorded in Interest expense – net in the Consolidated Statements of Comprehensive Income (Loss), and unrealized gains or losses resulting from adjusting the financial instruments to fair value are recorded as a component of Other comprehensive loss and subsequently reclassified into earnings in the same period during which the hedged transaction affects earnings. During the year ended December 31, 2021, we reclassified losses of $ 0.8 million into Interest expense – net from AOCL related to the Interest Rate Cap. Cash flows resulting from settlements are presented as a component of cash flows from operating activities within the Consolidated Statements of Cash Flows. The following table presents the effects of the Interest Rate Cap hedge accounting on AOCL for the year ended December 31, 2021 (in thousands): Interest rate cap Beginning accumulated derivative loss in AOCL $ ( 822 ) Amount of gain (loss) recognized in AOCL — Less: Amount of loss reclassified from AOCL to income ( 822 ) Ending accumulated derivative loss in AOCL $ — Warrants We issued the following warrants during the year ended December 31, 2021 in connection with the Merger Transaction: Public Warrants W e issued to former warrant holders of Horizon Public Warrants to purchase 18,132,776 shares of Class A common stock at an exercise price of $ 11.50 per share, of which Public Warrants to purchase 5,166,666 shares of Class A common stock were issued to Horizon Sponsor. The Public Warrants are traded on the Nasdaq Stock Market ("Nasdaq") under the symbol “SEATW.” On May 26, 2022, we announced the commencement of an offer to the holders of outstanding Public Warrants to receive 0.240 shares of Class A common stock in exchange for each properly tendered outstanding Public Warrant (the “Offer”). On July 5, 2022, 11,365,913 Public Warrants were tendered in exchange for 2,727,785 shares of Class A common stock (the “Exchange”). Following the Exchange, 6,766,853 Public Warrants remained outstanding. During the year ended December 31, 2022, 10 Public Warrants were exercised. The exercise of the Public Warrants are accounted for as a transaction within Additional paid-in capital in the Consolidated Balance Sheets. As of December 31, 2023, there were 6,766,853 o utstanding Public Warrants. We may, in our sole discretion, reduce the exercise price of the Public Warrants to induce early exercise, provided that we provide at least five days' advance notice. The exercise price and number of shares of Class A common stock 90 VIVID SEATS INC. NOTES to the Consolidated Financial Statements issuable upon exercise of the Public Warrants may also be adjusted in certain circumstances including in the event of a share dividend, recapitalization, reorganization, merger or consolidation. In no event are we required to net cash settle the Public Warrants. The Public Warrants became exercisable 30 days following the Merger Transaction and expire at the earliest of five years following the Merger Transaction, our liquidation or the date of our optional redemption thereof provided that the value of the Class A common stock exceeds $ 18.00 per share. There is an effective registration statement and prospectus relating to the shares of Class A common stock issuable upon exercise of the Public Warrants. Under certain circumstances, we may elect to redeem the Public Warrants at a redemption price of $ 0.01 per Public Warrant at any time during the term of the Public Warrants in which the trading price of the Class A common stock has been at least $ 18.00 per share for 20 trading days within a 30 trading-day period. If we elect to redeem the Public Warrants, we must notify the Public Warrant holders in advance, who would then have at least 30 days from the date of such notification to exercise their respective Public Warrants. Any Public Warrants not exercised within that 30-day period will be redeemed pursuant to this provision. As part of the Merger Transaction, we modified the terms of the Public Warrants. The modification resulted in a transfer of incremental value of $ 1.3 million to the holders of the Public Warrants, which we recorded as Other expenses in the Consolidated Statements of Operations during the year ended December 31, 2021. Private Warrants We issued to Horizon Sponsor Private Warrants to purchase 6,519,791 shares of Class A common stock at an exercise price of $ 11.50 per share. The Private Warrants have similar terms to the Public Warrants, except that they are not redeemable by us. As of December 31, 2023, there were 6,519,791 outstanding Private Warrants. As part of the Merger Transaction, we modified the terms of the Private Warrants. The modification did not result in a transfer of incremental value to the holders of the Private Warrants. Exercise Warrants We issued to Horizon Sponsor (i) $ 10 Exercise Warrants to purchase 17.0 million shares of Class A common stock at an exercise price of $ 10.00 per share and (ii) $ 15 Exercise Warrants to purchase 17.0 million shares of Class A common stock at an exercise of $ 15.00 per share. The Exercise Warrants have similar terms to the Public Warrants, except that they have different exercise prices, an initial term of 10 years , are not redeemable by us and are fully transferable. As of December 31, 2023, there were outstanding 17.0 million $ 10 Exercise Warrants and 17.0 million $ 15 Exercise Warrants. Mirror Warrants Hoya Intermediate issued to us warrants to purchase 17.0 million Intermediate Units at an exercise price of $ 10.00 per unit (the “$ 10 Mirror Warrants”), warrants to purchase 17.0 million Intermediate Units at an exercise of $ 15.00 per unit (the “$ 15 Mirror Warrants”), warrants to purchase 24,652,557 Intermediate Units at an exercise price of $ 11.50 per unit (the “$ 11.50 Mirror Warrants” and, together with the $ 10 Mirror Warrants and the $ 15 Mirror Warrants, the “Mirror Warrants”). The number and terms of the Mirror Warrants are identical to the Public Warrants, the Private Warrants and the Exercise Warrants, respectively. Upon the valid exercise of a Public Warrant, Private Warrant or Exercise Warrant, Hoya Intermediate will issue to us an equivalent number of Intermediate Units. Similarly, if a Public Warrant, Private Warrant or Exercise Warrant is tendered, an equivalent number of Mirror Warrants will be tendered. In connection with the Exchange, we tendered 11,365,913 $ 11.50 Mirror Warrants and received 2,727,785 Intermediate Units. As of December 31, 2023, there were outstanding 17.0 million $ 10 Mirror Warrants, 17.0 million $ 15 Mirror Warrants and 13,286,644 $ 11.50 Mirror Warrants. 91 VIVID SEATS INC. NOTES to the Consolidated Financial Statements As the Public Warrants, the Private Warrants and the Exercise Warrants are indexed to our equity and meet the equity classification guidance of ASC 815-40, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, we reflect these warrants as a component of equity within additional paid-in capital. The Mirror Warrants eliminate in consolidation and do not impact the presentation of our consolidated financial statements. Hoya Intermediate Warrants Hoya Intermediate issued to Hoya Topco 3.0 million $ 10 Hoya Intermediate Warrants and 3.0 million $ 15 Hoya Intermediate Warrants, which are classified as Other Liabilities in the Consolidated Balance Sheets. A portion of the Hoya Intermediate Warrants, consisting of the Option Contingent Warrants to purchase 1.0 million Intermediate Units at exercise prices of $ 10.00 and $ 15.00 per unit, respectively, were issued in tandem with Management Options we issued to members of our management team. The Option Contingent Warrants only become exercisable by Hoya Topco if a Management Option is forfeited or expires unexercised. Upon the valid exercise of a Hoya Intermediate Warrant for Intermediate Units, we will issue an equivalent number of shares of Class B common stock to Hoya Topco. As of December 31, 2022, 0.2 million Management Options had been forfeited. Because the Hoya Intermediate Warrants allow for cash redemption at the option of the warrant holder, they are classified as a liability in Other liabilities on the Consolidated Balance Sheets. Upon consummation of the Merger Transaction, we recorded a warrant liability of $ 20.4 million reflecting the fair value of the Hoya Intermediate Warrants determined using the Black-Scholes model. Upon consummation of the Merger Transaction, the fair value of the Hoya Intermediate Warrants included Option Contingent Warrants of $ 1.6 million. The estimated fair value of the Option Contingent Warrants was adjusted to reflect the probability of forfeiture of the Management Options based on historical forfeiture rates for Hoya Topco profit interests. On December 7, 2023, Hoya Topco voluntarily terminated a portion of the Hoya Intermediate Warrants, consisting of Option Contingent Warrants to purchase 1.0 million Intermediate Units at exercise prices of $ 10.00 and $ 15.00 per unit, respectively. Immediately before such termination the fair value of the Option Contingent Warrants liability was determined using the Black-Scholes m odel and was estimated at $ 1.1 million. Upon termination, we recorded a reduction in this liability to zero, along with an increase in Redeemable noncontrolling interests. As of December 31, 2023, there were outstanding 2.0 million $ 10 Hoya Intermediate Warrants and 2.0 million $ 15 Hoya Intermediate Warrants. The following assumptions were used to calculate the fair value of the Hoya Intermediate Warrants at: December 31, 2023 December 7, 2023 December 31, 2022 Estimated volatility 48.0 % 48.0 % 39.0 % Expected term (years) 7.8 7.9 8.8 Risk-free rate 3.9 % 4.2 % 3.9 % Expected dividend yield 0.0 % 0.0 % 0.0 % For the year ended December 31, 2023, the fair value of the Hoya Intermediate Warrants decreased by $ 1.0 million, which is presented in Other (income) expense on the Consolidated Statements of Operations. For the year ended December 31, 2022, the fair value of the Hoya Intermediate Warrants and the Option Contingent Warrants decreased by $ 8.2 million, which is presented in Other (income) expense on the Consolidated Statements of Operations. For the period fro m October 18, 2021 until December 31, 2021, we recognized a charge to Other (income) expense on the Consolidated Statements of Operations resulting from an increase in the fair value of the Hoya Intermediate Warrants and the Option Contingent Warrants of $ 0.1 million. 92 VIVID SEATS INC. NOTES to the Consolidated Financial Statements 16. Redeemable noncontrolling Interests As of December 31, 2023, Hoya Topco held 100 % of the Class B common stock and 36.3 % of the Intermediate Units, representing a redeemable noncontrolling interest in VSI. Hoya Topco has the right to exchange its Intermediate Units for shares of VSI’s Class A common stock on a one-to-one basis or for cash proceeds of equal value at the time of redemption. The ability to exchange Intermediate Units for shares of Class A common stock is solely within the control of Hoya Topco. The option to redeem Intermediate Units for cash proceeds must be approved by VSI's Board of Directors (the "Board"), which as of December 31, 2023 consisted of a majority of directors nominated by affiliates of Hoya Topco and GTCR, LLC pursuant to our stockholders’ agreement. The ability to put the Intermediate Units is solely within the control of the holder of the redeemable noncontrolling interest. If Hoya Topco elects the redemption to be settled in cash, the cash used to settle the redemption must be funded through a private or public offering of Class A common stock and is subject to the Board's approval. Net income (loss) attributable to redeemable noncontrolling interests is calculated by multiplying Hoya Intermediate's net income (loss) incurred in the period by Hoya Topco's weighted average percentage allocation of Intermediate Units during the period. See Note 22, Earnings per Share , for computation of net income (loss) attributable to redeemable noncontrolling interests. 17. Equity For periods prior to the Merger Transaction, Hoya Intermediate had Senior Preferred Units, Preferred Units and Common Units, described below, authorized, issued and outstanding. Subsequent to the Merger Transaction, VSI has two classes of common stock authorized and issued: Class A common stock and Class B common stock. Hoya Intermediate Senior Preferred Units, Preferred Units, and Common Units Prior to the Merger Transaction, Hoya Intermediate had authorized and issued 100 units of Redeemable Senior Preferred Units, 100 units of Redeemable Preferred Units and 100 common units. In connection with the Merger Transaction, the Senior Preferred Units and the Preferred Units were redeemed and no longer remain outstanding. As of December 31, 2023, 210,100,814 Intermediate Units are outstanding, equivalent to the total number of shares of Class A and Class B common stock outstanding (net of treasury stock). VSI holds 63.7 % of the outstanding Intermediate Units as of December 31, 2023, with the remainder held by Hoya Topco. VSI Class A Common Stock Holders of Class A common stock are entitled to full economic rights in VSI, including the right to receive dividends when and if declared by the Board, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. Each holder of Class A common stock is entitled to one vote for each share held. VSI Class B Common Stock Holders of Class B common stock are entitled to one vote for each share held but do not have economic rights in VSI. However, holders of Class B common stock receive one Intermediate Unit for each share, entitling them to economic rights in our operating entity, Hoya Intermediate (see Note 16, Redeemable Noncontrolling Interest ). Holders of Class A common stock and Class B common stock vote as a single class on all matters requiring a shareholder vote. Following the Merger Transaction, the number of shares of Class A common stock and Class B common stock outstanding, net of treasury stock, is equal to the quantity of Intermediate Units outstanding. Share Repurchase Program On May 25, 2022, the Board authorized a share repurchase program for up to $ 40.0 million of Class A common stock (the "Repurchase Program"). The Repurchase Program was announced on May 26, 2022 and its authorization was fully utilized during 2022 and the three months ended March 31, 2023. As of December 31, 2023 and 2022, we have repurchas ed 5.3 million shares of Class A common stock for $ 40.0 million a nd 4.3 million shares of Class A common stock for $ 32.5 million, respectively. The share repurchases are accounted for as Treasury stock in the Consolidated Balance Sheets. 93 VIVID SEATS INC. NOTES to the Consolidated Financial Statements June 2023 Secondary Offering We completed a public offering of 18.4 million shares of Class A common stock, comprising 16.0 million shares sold on May 22, 2023 and 2.4 million shares sold on June 15, 2023 pursuant to the full exercise of the underwriters' option to purchase additional shares (the "June 2023 Secondary Offering"). The shares were purchased by the underwriters from Hoya Topco, the selling stockholder, at a price of $ 7.68 per share and were sold at a public offering price of $ 8.00 per share. Hoya Topco exchanged 18.4 million shares of Class B common stock and 18.4 million Intermediate Units for the shares of Class A common stock that it sold in the June 2023 Secondary Offering. We did no t receive any proceeds from the sale of the shares by Hoya Topco in the June 2023 Secondary Offering. In connection with the June 2023 Secondary Offering, we incurred $ 1.5 million of expenses during the year ended December 31, 2023, which are included within General and administrative expenses in the Consolidated Statements of Operations . December 2023 Secondary Offering and Share Repurchase On December 12, 2023, we completed a public offering of 23.575 million shares of Class A common stock, which included 3.1 million shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares (the "December 2023 Secondary Offering" and, together with the June 2023 Secondary Offering, the “2023 Secondary Offerings”) and 2.0 million shares subject to the Share Repurchase (as defined below) . The shares were purchased by the underwriters from Hoya Topco, the selling stockholder, at a price of $ 6.24 per share and, other than the shares subject to the Share Repurchase, were sold at a public offering price of $ 6.50 per share. Hoya Topco exchanged 23.575 million shares of Class B common stock and 23.575 million Intermediate Units for the shares of Class A common stock that it sold in the December 2023 Secondary Offering. We did no t receive any proceeds from the sale of the shares by Hoya Topco in the December 2023 Secondary Offering. In connection with the December 2023 Secondary Offering, we incurred $ 0.7 million of expenses during the year ended December 31, 2023, which are included within General and administrative expenses in the Consolidated Statements of Operations. Pursuant to the underwriting agreement for the December 2023 Secondary Offering, we repurchased 2.0 million shares of Class A common stock from the underwriters at a price of $ 6.24 per share (the same price per share paid by the underwriters to Hoya Topco) (the “Share Repurchase”). We funded the Share Repurchase with cash on hand. The shares repurchased pursuant to the Share Repurchase are accounted for as Treasury stock in the Consolidated Balance Sheets. Accumulated Other Comprehensive Income (Loss) The following table presents the changes in each component of AOCL attributable to Class A Common Stockholders (in thousands): Unrealized gain on investments Foreign currency translation adjustment Total Balance at January 1, 2023 $ — $ — $ — Other comprehensive income 106 641 747 Balance at December 31, 2023 $ 106 $ 641 $ 747 18. Commitments and Contingencies Purchase Obligations We enter into non-cancelable arrangements, primarily related to the purchase of marketing services and tickets at an agreed upon pr ice. Our purchase obligations are $ 7.2 million payable in the next 12 months and $ 8.2 million payable thereafter. 94 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Litigation From time to time, we are involved in various claims and legal actions arising in the ordinary course of business, none of which, in the opinion of management, could have a material effect on our business, financial position or results of operations other than those matters discussed herein. We are a co-defendant in a class action lawsuit in Canada alleging a failure to disclose service fees prior to checkout. A final order approving the settlement of this lawsuit was entered by the court in August 2020. In January 2022, we issued coupons to certain members of the class. Other members of the class were notified in 2022 that they are eligible to submit a claim for a coupon, which they will receive in 2023. As of December 31, 2023 and 2022, a liability of $ 0.9 million was recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets related to expected claim submissions and credit redemptions as of the measurement date. We received multiple class action lawsuits related to customer compensation for cancellations, primarily as a result of COVID-19 restrictions. A final order approving the settlement of one of the lawsuits was entered by the court in November 2021 . As such, after insurance, $ 4.5 million was funded to a claims settlement pool in 2021 and fully disbursed in 2022. A settlement was reached in another of the lawsuits in July 2022 and received final approval from the court on January 31, 2023. After insurance, we paid $ 3.3 million to cover legal and administrative fees and approved claims. Payments for approved claims were made in August 2023. We had an accrued liability of zero and $ 1.6 million as of December 31, 2023 and 2022, respectively, within Accrued expenses and other current liabilities in the Consolidated Balance Sheets related to these matters. We are a defendant in a lawsuit related to an alleged violation of the Illinois Biometric Information Privacy Act. We deny these allegations and intend to vigorously defend against this lawsuit. Based on the information currently available, we are unable to reasonably estimate a possible loss or range of possible losses and no litigation reserve has been recorded in the Consolidated Balance Sheets related to this matter. Other In 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair Inc., which overturned previous case law that had precluded state and local governments from imposing sales tax collection requirements on retailers without a physical presence. In response, most jurisdictions have adopted laws that attempt to impose tax collection obligations on out-of-state companies, and we have registered and begun collecting tax, where required by statute. It is reasonably possible that state or local governments will continue to adopt or interpret laws such that we are required to calculate, collect, and remit taxes on sales in their jurisdictions. A successful assertion by one or more jurisdictions could result in material tax liabilities, including uncollected taxes on past sales, as well as penalties and interest. Based on our analysis of certain state and local regulations, specifically related to marketplace facilitators and ticket sales, we have recorded liabilities in all jurisdictions where we believe a risk of loss is probable. We continuously monitor state regulations and will implement required collection and remittance procedures if and when we are subject to such regulations. As of December 31, 2023, we have recorded a liability of $ 3.2 million related to uncollected local admissions taxes. This liability is recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. The related non-income tax expense was $ 3.2 million for the year ended December 31, 2023 . 19. Related –Party Transactions Viral Nation Inc. Viral Nation Inc. ("Viral Nation") is a marketing agency that creates viral and social media influencer campaigns and provides advertising, marketing, and technology services. Todd Boehly, a member of the Board, serves on the board of directors of Viral Nation and is the Co-Founder, Chairman and CEO of Eldridge Industries, LLC (“Eldridge”), which owns approximately 19% of Viral Nation. We incurred an expense of $ 1.7 million, $ 0.8 million and $ 0.2 million for the years ended December 31, 2023, 2022 and 2021, respectively, which is presented in Marketing and selling expenses in the Consolidated Statements of Operations. 95 VIVID SEATS INC. NOTES to the Consolidated Financial Statements Rolling Stone Rolling Stone, LLC ("Rolling Stone") is a high-profile magazine and media platform that focuses on music, film, television, and news coverage. Todd Boehly, a member of the Board, is the Co-Founder, Chairman and CEO of Eldridge, which owns in excess of 20% of Rolling Stone. We incurred an expense of $ 0.7 million, $ 0.9 million and $ 0.1 million as part of our multifaceted partnership with Rolling Stone for the years ended December 31, 2023, 2022 and 2021, respectively, which is presented in Marketing and selling expenses in the Consolidated Statements of Operations. Los Angeles Dodgers The Los Angeles Dodgers (the “Dodgers”) is a Major League Baseball team based in Los Angeles, California. Todd Boehly, a member of the Board, is a minority owner of the Dodgers. As part of our strategic partnership with the Dodgers, including our designation as the Official Ticket Marketplace of the Dodgers and certain other advertising, marketing, promotional and sponsorship benefits, we incurred an expense of $ 1.5 million for the year ended December 31, 2023, which is presented in Marketing and selling expenses on the Consolidated Statements of Operations. Tax Receivable Agreement In connection with the Merger Transaction, we entered into the TRA with the existing Hoya Intermediate shareholders that provides for our payment to such shareholders of 85 % of the amount of the tax savings, if any, that we realize (or, under certain circumstances, are 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 us making payments under the TRA. In connection with the 2023 Secondary Offerings, Hoya Topco exchanged Intermediate Units, and as a result, we recorded a liability of $ 165.2 million, a deferred tax asset of $ 75.2 million related to the 2023 Secondary Offerings as well as the projected payments under the TRA, a decrease to additional paid-in capital of $ 95.8 million, and a $ 5.8 million income tax benefit related to valuation allowance releases on the portion of the deferred tax asset associated with the basis difference in the investment in the partnership excluded from the disclosure of deferred tax asset and valuation allowance. We also recognized an income tax benefit of $ 14.0 million related to the release of valuation allowances at the time of the 2023 Secondary Offerings. Due to an increase in the applicable state and local tax rate, there was a remeasurement of the TRA liability recorded for the 2023 June Secondary Offering, which resulted in an increase in the liability of $ 0.6 million, with the corresponding expense included in other income in the Consolidated Statements of Operations for the year ended December 31, 2023. As a result of the increase in the TRA liability, we recorded an increase in deferred tax assets of $ 0.3 million which was recorded to deferred tax expense. The TRA-related liabilities are classified as current or long-term based on the expected date of payment. At December 31, 2023, the amount due within the next 12 months was $ 0.1 million and is included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets. Share Repurchase Hoya Topco controls 36.3 % of the voting power of our outstanding common stock. On December 12, 2023, we repurchased 2.0 million shares of Class A common stock from the underwriters of the December 2023 Secondary Offering. The shares were initially purchased by the underwriters from Hoya Topco, the selling stockholder in the 96 VIVID SEATS INC. NOTES to the Consolidated Financial Statements December 2023 Secondary Offering, at a price of $ 6.24 per share. We paid the same price per share to the underwriters, which was funded with cash on hand. See Note 17, Equity, for more information regarding the December 2023 Secondary Offering and the Share Repurchase. 20. Income Taxes VSI is subject to U.S. federal and state income taxes with respect to our allocable share of any taxable income or loss of Hoya Intermediate, as well as any stand-alone income or loss we generate. Hoya Intermediate is organized as a limited liability company and treated as a partnership for federal and state income tax purposes. Generally, entities characterized as a partnership for federal and state income tax purposes are not subject to entity-level income taxes. Hoya Intermediate’s taxable income or loss is passed through to its members, including VSI and Hoya Topco, each of whom are responsible for their own U.S. federal and state income taxes. Other subsidiaries of VSI are treated as corporations and will separately file and pay taxes apart from VSI in various jurisdictions, including the United States (federal, state, and local), Canada, and Japan. We anticipate this structure to remain in existence for the foreseeable future. Components of income (loss) from operations before income taxes for the years ended December 31 2023, 2022 and 2021 were as follows (in thousands): 2023 2022 2021 United States $ 68,166 $ 68,416 $ ( 17,859 ) Foreign 2,776 773 ( 966 ) Total income (loss) before income taxes $ 70,942 $ 69,189 $ ( 18,825 ) During the years ended December 31, 2023, 2022 and 2021, significant components of income tax expense (benefit) were as follows (in thousands): 2023 2022 2021 Current U.S. Federal $ 1,084 $ 15 $ — State & Local 326 248 304 Foreign 1,250 — — Total current income tax expense (benefit) 2,660 263 304 Deferred U.S. Federal ( 38,915 ) — — State & Local ( 5,572 ) — — Foreign ( 372 ) ( 1,853 ) — Total deferred income tax expense (benefit) ( 44,859 ) ( 1,853 ) — Total income tax expense (benefit) $ ( 42,199 ) $ ( 1,590 ) $ 304 97 VIVID SEATS INC. NOTES to the Consolidated Financial Statements A reconciliation of income taxes computed at the U.S. federal statutory income tax rate of 21 % for the years ended December 31, 2023, 2022 and 2021 to our income tax (expense) benefit was as follows: 2023 2022 2021 At U.S. statutory tax rate 21.0 % 21.0 % 21.0 % State income taxes 2.2 % 1.8 % ( 1.1 )% Foreign rate differential 0.4 % 0.1 % 0.3 % Pass-through loss / (income) — % — % ( 14.3 )% Noncontrolling interests ( 10.9 )% ( 12.3 )% ( 2.7 )% Change in valuation allowance ( 131.9 )% ( 23.1 )% ( 3.5 )% Deferred tax partnership adjustment 30.8 % 10.1 % — % Warrants remeasurement — % — % ( 1.4 )% Research & Development Credit ( 1.1 )% ( 0.5 )% — % Impact of restructuring 28.6 % — % — % Limitation on compensation deductions 1.5 % — % — % Other ( 0.1 )% 0.6 % 0.1 % Total income tax expense (benefit) ( 59.5 )% ( 2.3 )% ( 1.6 )% As of December 31, 2023 and 2022, our deferred tax balances consisted of the following (in thousands): 2023 2022 Deferred Tax Assets Net operating loss $ 11,972 $ 12,740 Interest carryforwards 16,689 15,919 Investment in partnerships 44,894 91,302 Tax Receivable Agreement 40,994 — Stock-based compensation 2,665 — Other 1,914 748 Total deferred tax assets 119,128 120,709 Valuation allowance ( 32,318 ) ( 118,734 ) Total deferred tax assets net of valuation allowance 86,810 1,975 Deferred Tax Liabilities Intangibles 9,841 — Other 1,848 122 Total Deferred Tax Liabilities 11,689 122 Net Deferred Tax Assets / (Liabilities) $ 75,121 $ 1,853 We recognize deferred tax assets to the extent we believe these assets are more likely than not to be realized. Valuation allowances have been established primarily with regard to the tax benefits of a portion of our investment in partnership and certain foreign tax attributes. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. After considering all those factors, we recorded a $ 32.3 million valuation allowance against our deferred tax assets, as we have determined these assets are not more likely than not to be realized as of December 31, 2023. Excluded from the deferred tax asset for investment in partnerships above is a portion of the income tax basis in the partnership investment which will only reverse upon sale as a capital loss. As we do not expect to have sufficient sources of future capital gains to offset this future capital loss, we have not disclosed a deferred tax asset for this portion of the basis difference in the investment in the partnership, nor the associated valuation allowance. However, reflected in Income tax expense (benefit) for the year ended December 31, 2023 is a valuation allowance release of $ 6.1 million related to the excluded portion of the deferred tax asset and valuation allowance on the basis difference in the investment in the partnership, which $ 5.8 million resulted from the 2023 Secondary Offerings and 98 VIVID SEATS INC. NOTES to the Consolidated Financial Statements $ 0.3 million resulted from the Share Repurchase. We estimate that up to $ 12.7 million of future valuation allowance release associated with the excluded portion of the deferred tax asset and valuation allowance may result from future ownership changes. We continue to disclose the deferred tax asset associated with items expected to be recovered through ordinary business operations; however, the portion of deferred tax asset disclosed for which no ordinary tax benefit is expected due to partnership allocation rules is offset by a valuation allowance. The deferred tax asset valuation allowance and changes were as follows (in thousands): 2023 2022 2021 Balance at beginning of period $ 118,734 $ 145,668 $ 1,828 Prior period adjustments (1) ( 14,536 ) ( 6,154 ) — (Credited) charged to costs and expenses ( 72,968 ) ( 15,961 ) 646 (Credited) charged to other accounts 1,088 ( 4,819 ) 143,194 Deductions — — — Ending balance $ 32,318 $ 118,734 $ 145,668 (1) In 2022, this adjustment relates to a true-up of the investment in partnership deferred tax asset and related valuation allowance which has been updated to remove partnership tax basis that we expect will only reverse upon sale as a capital loss. In 2023, there was an adjustment to the investment in partnership and net operating loss deferred tax assets and related valuation allowance. These adjustments had no net impact to tax expense (benefit) in either period. As of December 31, 2023, our deferred tax assets were primarily the result of our investment in partnership, Tax Receivable Agreement, net operating losses, interest limitations, and tax credit carryforwards. As of December 31, 2022, a full valuation allowance was maintained against our U.S. deferred tax assets on the basis of our reassessment of the amount of the deferred tax assets that are more likely than not to be realized. As of each reporting date we consider new evidence, both positive and negative, that could affect our view of the future realization of deferred tax assets. As of June 30, 2023, in part because in the current year we entered into a cumulative income position in the U.S. federal tax jurisdiction, we determined that there is sufficient positive evidence to conclude that it is more likely than not that deferred tax assets of $ 31.3 million associated with our investment in partnership, U.S. net operating losses, interest limitations, and tax credit carryforwards are realizable. We therefore reduced the valuation allowance accordingly . As of December 31, 2022, we determined that there was sufficient positive evidence to conclude that it is more likely than not that our Canadian deferred taxes of $ 1.9 million are realizable. We therefore reduced the valuation allowance accordingly. At December 31, 2023, we had U.S. state operating loss carryforwards totaling $ 17.5 million, and U.S. federal operating loss carryforwards totaling $ 38.6 million. Certain of the U.S. federal and state operating loss carryforwards begin to expire in 2029 with the remainder of the federal and state net operating loss carryforwards having no expiration date. Certain tax attributes remain subject to an annual limitation under Internal Revenue Code section 382 as a result of the historical acquisitions. At December 31, 2023, with respect to our operations outside the United States, we had foreign operating loss carryforwards totaling $ 8.1 million, which begin to ex pire in 2037 . At December 31, 2023, we were not indefinitely reinvested on undistributed earnings from our foreign operations and the deferred tax liability associated with the future repatriation of these earnings is immaterial. ASC 740, Income Taxes , prescribes a recognition threshold of more-likely-than not to be sustained upon examination as it relates to the accounting for uncertainty in income tax benefits recognized in an enterprise’s financial statements. Our unrecognized tax benefits which relate to a tax refund are as follows: 99 VIVID SEATS INC. NOTES to the Consolidated Financial Statements 2023 2022 Balance at beginning of the year $ 7,500 $ — Tax positions taken in the prior year — 7,500 Balance at end of the year $ 7,500 $ 7,500 We classified interest and penalties associated with income taxes in income tax expense (benefit) within the Consolidated Statements of Operations. A liability of $ 0.5 million has been recognized related to interest and penalties as of December 31, 2023, all of which was accrued in 2023. The total amount of gross unrecognized tax benefits that, if recognized, would impact the effective tax rate is $ 7.5 million as of December 31, 2023. We are subject to routine audits by taxing jurisdictions. The periods subject to tax audits are 2019 through 2023. There are currently no audits for any tax periods in progress. Tax Receivable Agreement In connection with the Merger Transaction, we entered into the TRA 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, are 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 VSI making payments under the TRA. In connection with the 2023 Secondary Offerings, Hoya Topco exchanged Intermediate Units, and as a result, we recorded a liability of $ 165.2 million, a deferred tax asset of $ 75.2 million related to the 2023 Secondary Offerings as well as the projected payments under the TRA, a decrease to additional paid-in capital of $ 95.8 million, and a $ 5.8 million income tax benefit related to valuation allowance releases on the portion of the deferred tax asset associated with the basis difference in the investment in the partnership excluded from the disclosure of deferred tax asset and valuation allowance. We also recognized an income tax benefit of $ 14.0 million related to the release of valuation allowances at the time of the 2023 Secondary Offerings. Due to an increase in the applicable state and local tax rate, there was a remeasurement of the TRA liability recorded for the 2023 June Secondary Offering, which resulted in an increase in the liability of $ 0.6 million, with the corresponding expense included in other income in the Consolidated Statements of Operations for the year ended December 31, 2023. As a result of the increase in the TRA liability, we recorded an increase in deferred tax assets of $ 0.3 million . TRA-related liabilities are classified as current or long-term based on the expected date of payment. As of December 31, 2023, $ 0.1 million is due within 12 months and included as a current liability. The remaining liability is included in TRA liability within long-term liabilities in the Consolidated Balance Sheets. Amounts payable under the TRA are contingent upon the generation of future taxable income over the term of the TRA and future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related payments. As of December 31, 2023, we estimate that the tax savings associated with all tax attributes described above would aggregate to approximately $ 195.0 million. Under this scenario we would be required to pay approximately 85 % of such amount, or $ 165.8 million, primarily over the next 15 years. 21. Equity-Based Compensation The 2021 Incentive Award Plan, which was approved and adopted to facilitate the grant of equity incentive awards to our employees, directors and consultants, became effective on October 18, 2021 upon closing of the Merger Transaction. RSUs 100 VIVID SEATS INC. NOTES to the Consolidated Financial Statements We award RSUs to our employees, directors and certain consultants. RSUs generally vest over periods from one to four years from issuance. We account for forfeitures of outstanding, but unvested grants in the period they occur. A summary of activity for RSUs is as follows (in thousands, except per share data): Shares Weighted-Average Grant Date Fair Value Per Share Unvested at December 31, 2021 1,378 $ 12.86 Granted 1,787 9.92 Forfeited ( 290 ) 11.24 Vested ( 324 ) 12.86 Unvested at December 31, 2022 2,551 $ 10.99 Granted 2,775 7.22 Forfeited ( 232 ) 8.81 Vested ( 1,228 ) 10.62 Unvested at December 31, 2023 3,866 $ 8.35 Stock options Our stock options provide for the purchase of shares of Class A common stock in the future at an exercise price set on the grant (or modification) date. Our stock option awards vest over three years, with one-third vesting on the one-year anniversary of the grant date and the remaining options vesting on a quarterly basis thereafter, with the exception of the October 2021 Options (as defined below), which vest in equal quarterly installments over four years. Stock options granted to employees have a contractual term of ten years from the grant date, subject to the employee’s continued service through the applicable vesting date. Stock options granted to consultants have a contractual term of seven years from the grant date, subject to the consultant’s continued service through the applicable vesting date. October 2021 Options . On October 19, 2021, we granted to certain employees 3.1 million stock options at an exercise price of $ 13.09 per share and 1.0 million stock options at an exercise price of $ 15.00 per share (collectively, the "October 2021 Options"). The fair value of the October 2021 Options was estimated on the grant date using the Hull-White model. The Board declared a special dividend of $ 0.23 per share to holders of Class A common stock on October 18, 2021, which we paid on November 2, 2021 . On November 2, 2021, the exercise price of the outstanding October 2021 Options with an exercise price of $ 13.09 per share was modified and reduced by the same $ 0.23 per share to $ 12.86 per share. The amount recognized in the compensation expense relating to stock option modification for the year ended December 31, 2021 is immaterial. March 2022 Options . On March 11, 2022, we granted to certain employees 2.6 million stock options at an exercise price of $ 10.26 per share and a grant date fair value of $ 3.99 per option (the "March 2022 Options"). The fair value of the March 2022 Options was estimated on the grant date using the Black-Scholes model. November 2022 Options. On November 11, 2022, we granted to certain employees 0.1 million stock options at an exercise price of $ 8.22 per share and a grant date fair value of $ 3.66 (the "November 2022 Options"). The fair value of the November 2022 Options was estimated on the grant date using the Black-Scholes model. March 2023 Options . In March 2023, we granted to certain employees 3.6 million stock options at an exercise price of $ 7.17 per share and a grant date fair value of $ 3.30 per option. The fair value of these stock options was estimated on the grant date using the Black-Scholes model. June 2023 Options. In June 2023, we granted to certain consultants 0.9 million stock options, divided into three tranches of 0.2 million, 0.3 million and 0.4 million options at exercise prices of $ 7.98 , $ 17.00 and $ 23.00 per share, respectively, and grant date fair values of $ 3.22 , $ 1.87 and $ 1.44 per option, respectively. The fair value of these stock options was estimated on the grant date using the Hull-White model. 101 VIVID SEATS INC. NOTES to the Consolidated Financial Statements December 2023 Cancellation and Repricing. On December 7, 2023 (the "Effective Date"), 894,840 of the October 2021 Options with an exercise price of $ 15.00 per share and 894,840 of the October 2021 Options with an exercise price of $ 12.86 per share were cancelled. Also on the Effective Date, the exercise price of the remaining October 2021 Options, as well as all outstanding March 2022 Options and November 2022 Options, was reduced to $ 6.76 per share, the closing price of the Class A common stock on the Effective Date, provided that if any of such stock options are exercised prior to the one-year anniversary of the Effective Date, the holder will be required to pay the original exercise price (the “Cancellation and Repricing”). The Cancellation and Repricing were treated as a modification of the affected stock options. The incremental fair value of the modification, which was calculated based on the difference between the fair value of each affected stock option immediately before and after the Cancellation and Repricing using the Hull-White model, w as less than $ 0.1 million. The cancelled October 2021 Options had a grant date fair value of $ 6.6 million, of which $ 3.0 million had not yet been recognized as of the Effective Date. That amount will be recognized over the remaining requisite service period of the remaining October 2021 Options and March 2022 Options. The following assumptions were used to calculate the fair value of our stock options: December 7, 2023 June 14, 2023 March 10, 2023 November 11, 2022 March 11, 2022 October 19, 2021 Estimated volatility 47.0 % - 48.0 % 42.0 % 42.0 % 40.0 % 37.5 % 28.0 % Expected term (years) 7.87 - 8.93 7.0 5.9 5.9 5.9 10.0 Risk-free rate 4.2 % 4.0 % 3.9 % 3.9 % 2.0 % 1.7 % Expected dividend yield 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % A summary of activity for stock options is as follows (in thousands, except price per option data): Outstanding Options Weighted Average Exercise Price Per Option Weighted Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value Outstanding at December 31, 2021 4,061 $ 13.39 Granted 2,716 10.17 Forfeited ( 597 ) 12.03 Expired ( 55 ) 13.39 Outstanding at December 31, 2022 6,125 $ 12.09 9 $ — Granted 4,501 9.23 Forfeited — — Expired ( 29 ) 13.35 Cancelled ( 1,790 ) 13.93 Outstanding at December 31, 2023 8,807 $ 8.02 9 $ — Vested and exercisable at December 31, 2023 2,329 $ 11.26 — $ — The weighted-average grant date fair value per stock options outstanding as of December 31, 2023, 2022 and 2021 was $ 2.88 , $ 3.82 and $ 3.71 , respectively. The weighted-average grant date fair value for stock options forfeited was $ 3.83 during the year ended December 31, 2022. The weighted-average grant-date fair value for stock options vested was $ 3.89 a nd $ 3.71 during the years ended December 31, 2023 and 2022, respectively. The weighted-average grant-date fair value for stock options cancelled was $ 3.68 during the year ended December 31, 2023. Profits Interests and Phantom Units Prior to the Merger Transaction, certain members of management received equity-based compensation awards for profits interest in Hoya Topco in the form of Incentive Units, phantom units, Class D Units, and Class E Units. Each incentive unit vests ratably over five years and accelerates upon a change in control of Hoya Topco. We do not expect 102 VIVID SEATS INC. NOTES to the Consolidated Financial Statements any future profits interest to be granted after the Merger Transaction. The fair value of the incentive units granted is estimated using the Black-Scholes model. The Black-Scholes model requires certain subjective inputs and assumptions, including the fair value Hoya Topco's equity, the expected term, risk-free interest rates, and expected equity volatility. The fair value of incentive units is recognized as equity-based compensation expense on a straight-line basis over the requisite service period. We account for forfeitures as they occur. Changes in assumptions made on expected term, the risk-free rate of interest, and expected volatility can materially impact the estimate of fair value and ultimately how much share-based compensation expense is recognized. The expected term is estimated based on the timing and probabilities until a major liquidity event. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and corresponds to the expected term. The expected volatility is estimated on the date of grant based on the average historical stock price volatility of comparable publicly-traded companies. The following table summarizes the Hoya Topco Incentive Units, Class D Units, and Class E Units for the years ended December 31, 2023, 2022, and 2021: Class B-1 Units Class D Units Class E Units Number of Incentive Units Weighted Average Grant Date Fair Value Number of Incentive Units Weighted Average Grant Date Fair Value Number of Incentive Units Weighted Average Grant Date Fair Value Balances at January 1, 2021 855,000 $ 2.32 2,048,240 $ 4.67 500,765 $ 25.46 Units granted — — — — — — Units repurchased — — — — — — Units forfeited ( 10,000 ) 2.32 ( 60,400 ) 7.01 — — Balances at December 31, 2021 845,000 $ 2.32 1,987,840 $ 4.60 500,765 $ 25.46 Units granted — — — — — — Units repurchased — — — — — — Units forfeited ( 9,000 ) 2.32 ( 35,510 ) 2.91 — — Balances at December 31, 2022 836,000 $ 2.32 1,952,330 $ 4.60 500,765 $ 25.46 Units granted — — — — — — Units repurchased — — — — — — Units forfeited — — — — — — Balances at December 31, 2023 836,000 $ 2.32 1,952,330 $ 4.60 500,765 $ 25.46 Compensation expense For the years ended December 31, 2023, 2022 and 2021, equity-based compensation expense related to RSUs was $ 14.3 million, $ 8.4 million and $ 0.8 million, respectively. Unrecognized compensation expense relating to unvested RSUs as of December 31, 2023 was approximately $ 32.3 million, which is expected to be recognized over a weighted average period of approximately two years . For the years ended December 31, 2023, 2022 and 2021, equity-based compensation expense related to stock options was $ 10.2 million, $ 6.2 million and $ 0.8 million, respectively. Unrecognized compensation expense relating to unvested stock options as of December 31, 2023 was approximately $ 22.6 million, which is expected to be recognized over a weighted average period of approximately two years . For the years ended December 31, 2023, 2022 and 2021, equity-based compensation expense related to profit interests was $ 3.5 milli on, $ 4.5 million and $ 4.4 million, respectively. Unrecognized compensation expense as of 103 VIVID SEATS INC. NOTES to the Consolidated Financial Statements December 31, 2023 related to these incentive units was $ 1.0 million , which is expected to be recognized over a weighted average period of approximately two years . For the years ended December 31, 2023 and 2022, equity-based compensation expense excludes $ 0.4 million and $ 0.1 million related to capitalized development costs. 22. Earnings Per Share We calculate basic and diluted net income (loss) per share of Class A common stock in accordance with ASC 260, Earnings per Share. Class B common stock does not have economic rights in VSI and, as a result, is not considered a participating security for basic and diluted income (loss) per share. As such, basic and diluted income (loss) per share of Class B common stock has not been presented. However, holders of Class B common stock are allocated income in Hoya Intermediate (our operating entity) according to their weighted average percentage ownership of Intermediate Units during each quarter. Net income (loss) attributable to redeemable noncontrolling interests is calculated by multiplying Hoya Intermediate's net income (loss) for each quarterly period by Hoya Topco's weighted average percentage ownership of Intermediate Units during the period. See Note 16, Redeemable Noncontrolling Interest, for detail on Hoya Topco’s right to exchange its Intermediate Units. The following table provides the net income (loss) attributable to Hoya Topco's redeemable noncontrolling interests for the years ended December 31, 2023 and 2022, and the period from October 18, 2021 to December 31, 2021: 2023 2022 2021 Net income (loss)—Hoya Intermediate $ 69,420 $ 70,794 $ ( 5,024 ) Hoya Topco’s weighted average % allocation of Hoya Intermediate's net income (loss) 55.6 % 59.5 % 59.9 % Net income (loss) attributable to Hoya Topco's redeemable noncontrolling interests $ 38,605 $ 42,117 $ ( 3,010 ) Net income (loss) attributable to Class A common stockholders–basic is calculated by subtracting the portion of Hoya Intermediate's net income (loss) attributable to redeemable noncontrolling interests from our total net income, which includes our net income for activities outside of our investment in Hoya Intermediate, including income tax expense for VSI's portion of income, as well as the full results of Hoya Intermediate on a consolidated basis. Net income (loss) per Class A common stock–diluted is based on the average number of shares of Class A common stock used for the basic earnings per share calculation, adjusted for the weighted-average number of Class A common share equivalents outstanding for the period determined using the treasury stock and if-converted methods, as applicable. Net income (loss) attributable to Class A common stockholders–diluted is adjusted for (i) our share of Hoya Intermediate’s consolidated net income (loss) after giving effect to Intermediate Units that convert into potential shares of Class A common stock, to the extent it is dilutive, and (ii) the impact of changes in the fair value of Hoya Intermediate Warrants, to the extent they are dilutive. 104 VIVID SEATS INC. NOTES to the Consolidated Financial Statements The following tables set forth the computation of basic and diluted net income (loss) per share of Class A common stock for the years ended December 31, 2023 and 2022, and the period from October 18, 2021 to December 31, 2021 (in thousands, except share and per share data): 2023 2022 2021 Numerator—basic: Net income (loss) $ 113,141 $ 70,779 $ ( 6,293 ) Less: (Income) loss attributable to redeemable noncontrolling interests ( 38,605 ) ( 42,117 ) 3,010 Net income (loss) attributable to Class A Common Stockholders—basic 74,536 28,662 ( 3,283 ) Denominator—basic: Weighted average Class A common stock outstanding—basic 92,678,514 80,257,247 77,498,775 Net income (loss) per Class A common stock—basic $ 0.80 $ 0.36 $ ( 0.04 ) Numerator—diluted: Net income (loss) attributable to Class A Common Stockholders—basic $ 74,536 $ 28,662 $ ( 3,283 ) Net income (loss) effect of dilutive securities: Effect of dilutive Exercise Warrants — 55 — Effect of dilutive RSUs 79 6 — Effect of dilutive noncontrolling interests ( 23,401 ) 42,056 — Effect of dilutive Hoya Intermediate Warrants — — ( 123 ) Net income (loss) attributable to Class A Common Stockholders—diluted 51,214 70,779 ( 3,406 ) Denominator—diluted: Weighted average Class A common stock outstanding—basic 92,678,514 80,257,247 77,498,775 Weighted average effect of dilutive securities: Effect of dilutive Exercise Warrants — 258,906 — Effect of dilutive RSUs 424,954 28,228 — Effect of dilutive noncontrolling interests 105,773,973 118,200,000 — Weighted average Class A common stock outstanding—diluted 198,877,441 198,744,381 77,498,775 Net income (loss) per Class A common stock—diluted $ 0.26 $ 0.36 $ ( 0.04 ) Potential shares of our Class A common stock are excluded from the computation of diluted net income (loss) per share of Class A common stock if their effect would have been anti-dilutive for the period presented or if the issuance of shares is contingent upon events that did not occur by the end of the period. The dilution reflected in diluted net income per share of Class A common stock during the year ended December 31, 2023 relates primarily to an assumed conversion of our noncontrolling interests to shares of our Class A common stock, which would not have a commensurate effect on net income, primarily due to the release of the valuation allowance which benefit is attributable to VSI only. The Vegas.com Acquisition and the subsequent pushdown of the acquired entity to Hoya Intermediate primarily results in incremental deferred tax expense. 105 VIVID SEATS INC. NOTES to the Consolidated Financial Statements The following table presents potentially dilutive securities excluded from the computation of diluted net income (loss) per share of Class A common stock for the periods presented that could potentially dilute earnings per share in the future: 2023 2022 2021 RSUs 734,588 1,224,919 1,378,111 Stock options 8,807,848 6,300,837 4,061,486 Public Warrants and Private Warrants 13,286,644 13,286,644 24,652,569 Exercise Warrants 34,000,000 17,000,000 34,000,000 Hoya Intermediate Warrants 4,000,000 6,000,000 4,000,000 Shares of Class B common stock — — 118,200,000 We analyzed the calculation of income (loss) per share for periods prior to the Merger Transaction and determined that it resulted in values that would not be meaningful to the users of our consolidated financial statements. Therefore, income (loss) per share information has not been presented for periods prior to the Merger Transaction. 106 Item 9. Changes in Disagreements With Accountants on Accounting and Financial Disclos ure None.