Vivid Seats Inc.

Good morning and welcome to the Vivid Seats Fourth Quarter 2022 Earnings Conference Call. Following management's prepared remarks, we will open the call for Q&A. I would now like to turn the call over to Kate Kapos. Please go ahead.

Good morning and welcome to Vivid Seats Fourth Quarter 2022 Earnings Conference Call. I am Kate Kapos, Head of Investor Relations at Vivid Seats. Joining me today to discuss VividSeats results are Stan Chia, Chief Executive Officer, and Larry Fay, Chief Financial Officer. By now, everyone should have access to the company's fourth quarter earnings press release filed earlier this morning. We have also provided supplemental earnings slides. The press release and earnings slides are available on the investor relations page of VividSeats website at investors.vividseats.com. During the course of this call, management may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to the risks and uncertainties as described in the company's earnings press release and other filings with the SEC. On today's call, we will refer to adjusted EBITDA and adjusted EBITDA margins, which are non-GAAP financial measures that provide useful information for our investors. you will find a historical reconciliation of adjusted EBITDA and adjusted EBITDA margin to the corresponding gap measure in the earnings press release, supplemental earnings slides, and SEC filings. And now, I would like to turn the call over to Stan.

Good morning, everyone, and thank you for joining us today. 2022 was a stellar year for live events and an exceptional year for VividSees. Our team capitalized on strong demand continued to innovate and expand our suite of leading marketplace products, navigated the competitive landscape with agility, and delivered on financial and strategic objectives that strengthened our business for 2023 and beyond. Larry will take you through the fourth quarter and full year 2022 financial results in detail and discuss our outlook for 2023. But first, I'd like to share highlights from our first full year as a public company and discuss the progress we've made on strategic objectives. Looking first at the most recent fourth quarter, I'm proud to report that we generated $846 million of Marketplace GOV, $165 million of revenues, and $34 million of adjusted EBITDA. For the full year 2022, we delivered Marketplace GOVs of $3.2 billion, revenues of $600 million, and adjusted EBITDA of $113 million. At Vivid Seeds, we commit as a team to achieve our goals. Over the last year, we've demonstrated our ability to leverage our robust tools and execute adeptly regardless of the environment, which became more challenging as the year progressed. We continue to set new records in 2022 with Marketplace GOV and revenues both surpassing 2021's records by more than 30%. 2022 Marketplace GOV and revenues also exceeded our initial guidance midpoint by 10%. Even with unprecedented competitive pressures in the second half, we delivered adjusted EBITDA within our guidance range while making deliberate investments to drive higher customer lifetime value. As we all witnessed, 2022 was a phenomenal year for the live event industry. Live events were back, and then some. After seeing some cancellation impact from the Omicron variant in the first quarter, the risk of substantial disruption from COVID-19 waned throughout the year. As a result, fans were able and eager to get out and see the artists and teams they love. Among our event categories, which include concerts, sports, and theater, concerts were a particular standout, benefiting from strong demand as well as a tailwind from postponed events originally scheduled for 2020. As the year progressed, macroeconomic pressures grew, but live event demand remained resilient. We consistently raised our guidance from Marketplace, GOV, and revenues as we capitalized on strong demand. We are hopeful that this resiliency continues in 2023, but ultimately that will depend on how the economy evolves and where consumers prioritize their spend. That said, exciting tour announcements from top artists such as Beyonce, Madonna, Metallica, and SZA, in addition to several mega tour announcements last quarter, are promising. What's clear is that fans are passionate about their favorite artists and teams, and we continue to invest in that passion, creating exceptional experiences and enabling fans to attend more of their favorite events. Our focus on user engagement within our product ecosystem continues to be one of the pillars of our long-term strategy. In 2022, we rebranded, integrated, and enhanced VividPix while continuing to grow our user base. Year over year, we increased both our monthly active users and new accounts created by close to 300%. In the fourth quarter, we launched in-game play capability within VividPix, and now our daily fantasy sports users can place entries for contests covering the second half of the game. Whether fans are attending a live event or at home watching, fans may place entries as the game approaches and as the action evolves. This upgrade adds another level of excitement to the VividPix experience as fans engage with their favorite teams and athletes, as well as with other DFS players through social elements. This is especially beneficial for cultural touchstone events like the Super Bowl. We also create exceptional experiences through our brand partnerships, such as Rolling Stone. Collaborations on exclusive live events are a key component of our partnerships, And for the third year, we were proud to partner on the Rolling Stone Live series and bring to life one of Super Bowl weekend's most anticipated events. Through our loyalty program, Vivid Seats Rewards, we surprised loyalty members with invitations to an exclusive live experience that expertly intersected the worlds of music, culture, and sports. Brand partnerships and exclusive events such as these bring differentiated experience and value to our buyers in addition to driving brand awareness with the right audiences. As we reflect on the past year, many of our exciting announcements focus on the buyer side of our marketplace, including our Real Rewards for Real Fans campaign and our partnerships with Bleacher Report and the New York Post. This quarter, we are pleased to share a substantial development on the seller side of our marketplace. Skybox has been the industry-leading ERP for professional sellers for years, And this quarter, we are excited to announce Skybox Drive, an intelligent automation that optimizes revenue for our sellers on Skybox. Our broad swath of industry data has allowed us to develop a product that provides sellers a turnkey solution to customize and automate their revenue optimization strategies, seamlessly integrated into Skybox and powered by our marketplace data. Together, Skybox and Skybox Drive present a unique and unmatched offering that will further deepen our seller relationships as well as continue growing our install base. Skybox, combined with our proprietary marketing algorithms, provide us with the most complete view of the industry in real time, allowing us the ability to efficiently and effectively acquire new buyers. And recently, with unified user profiles across VividSeats and VividPix, We have unique insights into fan preferences that power an evolving personalization engine that nurtures our relationship with sports and music enthusiasts. These capabilities continue to differentiate us in the highly competitive ticketing landscape. We continue to invest in superior product and service for both buyers and sellers to drive long-term differentiation and stickiness in our marketplace. We are seeing encouraging signs of that stickiness with a large and growing base of sellers on Skybox and increasing buyer repeat rates. In 2022, particularly in the second half, we saw competitors ramp aggressiveness in performance marketing channels, which elevated customer acquisition costs across the industry. Meanwhile, we continue to build differentiated product, drive brand affinity, and target high value audiences with attractive repeat tendencies to create value in the long term. Loyal buyers making repeat purchases are accretive to margins, and we believe we can temper near-term CAC headwinds with increased customer lifetime value as our initiatives continue taking hold. Next, I'll address some of those initiatives in more detail. 2022 was an exciting year for VividSeeds as we used new and expanded strategies to drive engagement and grow affinity for our brand. Beyond integrating VividPix, we also expanded and invigorated our social and experiential presence. These efforts included new platforms such as TikTok, expanded partnerships with influencers and creators, and new experiential activations on-site at events and festivals. With unified customer profiles across VividSeats and VividPix, we became more selective and sophisticated in targeting high-value sports and music enthusiasts. We continue to grow our suite of tools to target the right buyers in accretive channels. Regardless of channel, we communicate a proven and compelling message. Vivid Seats is the only ticketing company to offer rewards, and our rewards offer real and differentiated value. With our multifaceted brand investments in play, we are seeing traction in driving targeted brand awareness and affinity. Fans are engaging with Vivid Seats more often while expressing positive sentiment toward the brand. In fact, our net social sentiment is highest amongst our main ticketing competitors. While opportunity to optimize our marketing capabilities and continue growing brand awareness remains, we are pleased with the results we've achieved thus far with a relatively modest brand marketing budget. We are proud of our ability to drive long-term brand affinity while remaining highly profitable and will continue to do so. Ultimately, our strategy to drive higher repeat rates is twofold. First, recruit the right buyers. Second, once inside our ecosystem, nurture each buyer with differentiated product, service, and value. We are excited that our repeat rates continue to trend higher across event categories. This includes repeat rates for new Q4 cohorts despite competitive pressures. Even in the current landscape with higher tax, momentum from our brand investments is building. As we look to the future, we expect CAC to normalize, which in conjunction with brand momentum will lead to substantial margin leverage in the medium to long term. Larry will discuss our outlook for 2023 in detail, but I want to reiterate that we are steadfast in our strategy, delivering a differentiated product with a compelling value proposition that fosters value in the long term. As the landscape eventually rationalizes, we are well positioned to capture disproportionate growth and deliver long-term margin expansion. In the near term, we are well equipped with a strong balance sheet and will continue to look for opportunities to accelerate growth for our current offerings, as well as to expand our TAM through both organic and inorganic investments. Before I wrap up, I want to touch on the ways we are creating exceptional experiences for all of those within our ecosystem Most importantly, our people. In December, we celebrated the grand opening of our new Chicago headquarters, and it has been so energizing to bring our employees together in a state-of-the-art collaborative workspace. This is another example of our commitment to fostering talent and encouraging innovation at all levels in our business. We have been recognized for these efforts. We earned a place on Fast Company's Best Workplaces for Innovators list, and recently we were named to four of Builtin's 2023 Best Places to Work lists in both Chicago and Dallas. Lastly, we remain committed to giving back. As a marketplace that truly connects people, we understand just how much joy live events create and how they enhance the quality of life for so many. This year, we were proud to expand our CSR efforts with a partnership with Make-A-Wish, the global organization responsible for creating life-changing wishes for children with critical illnesses. Through our charitable foundation, Vivid Cheers, we are providing once-in-a-lifetime experiences by sending these children and their families to their favorite live events. With that, I will turn it over to Larry.

Thanks, Dan. I'll begin with a discussion of our fourth quarter and full year 2022 results. before turning to our outlook for 2023. The fourth quarter was a compelling capstone to our first year as a public company. We delivered another strong quarter, and with that, hit our revised full-year guidance for each of marketplace GOV, revenues, and adjusted EBITDA. Our fourth quarter 2022 marketplace GOV of 846 million decreased 3% year-over-year, driven by a 4% decline in total marketplace orders, which was impacted by a lower than normal number of MLB championship series games, along with competitive dynamics. For the full year 2022, we delivered 3.2 billion of marketplace GOV, up 33% year over year, and 40% higher than pre-pandemic levels. Fourth quarter average order size came in at $388, up slightly year-over-year, and 9% above Q4 2019. Our quarterly AOS was volatile throughout 2020 and 2021, but has since returned to the 3% to 4% annual CAGR we have seen historically. Our fourth quarter 2022 revenues of $165 million increased 1% year-over-year, and our take rate was 16.6%. For the full year, revenues of $600 million increased 35% year over year, and our take rate was 16.0%. Our full year take rate, which is calculated by dividing our marketplace revenues by our marketplace GOV, was consistent with historical levels when considering the impact of our loyalty program, which is accounted for as a reduction to revenue. Some quarterly variation in our take rate is normal due to the mix of event categories. We also experienced additional quarterly take rate variation in 2022 as we refined our loyalty program assumptions throughout the year, resulting in relative take rate headwinds in the first half of the year compared to the second half. In the fourth quarter, we generated 34 million of adjusted EBITDA at a 20% adjusted EBITDA margin. For the full year 2022, we generated 113 million of adjusted EBITDA at a 19% adjusted EBITDA margin. We continued to focus on cost discipline in the fourth quarter with flat sequential G&A expense, net of EBITDA adjustments, and expect that trajectory to continue into next year. On the marketing front, we selectively targeted opportunities that provided the proper balance of volume and profitability. This resulted in sequentially higher adjusted EBITDA margins despite continued pressure and performance marketing channels throughout the quarter. We entered 2022 targeting EBITDA margins of around 21% as we returned the business to scale, layered in public company costs, and made deliberate brand investments to position Vivid Seats to win in the long term. Despite marketplace GOV and revenue coming in above expectation, EBITDA margins came in at 19%, somewhat below our original target, primarily due to elevated marketing activity across the industry. We ended 2022 with $252 million of cash and $273 million of gross debt on our balance sheet. Our cash balance reflects $32 million worth of share repurchases in 2022, including $29 million worth of repurchases in Q4. As of year end, we had repurchased 4.3 million Class A shares, at a volume weighted average price of $7.46, and $8 million remained under our repurchase authorization. Our share repurchase program reduced our total shares outstanding net of treasury stock to 196 million shares as of year end. This share balance includes 78 million Class A shares, which are publicly traded, and 118 million Class B shares, which are held by our private equity investors and are not publicly traded. Holders of Class A and Class B shares have equivalent per share economic interest in our operating entity. The Class B holder's interest is shown as a redeemable, non-controlling interest on our financial statements, and Class B shares are convertible one-for-one into Class A shares. We present consolidated financial statements which include the entirety of our operations, and we also present earnings per share for our Class A shares only. This EPS calculation reflects the approximately 40% economic interest in our operating entity attributable to Class A shares divided by the number of Class A shares outstanding, which is approximately 40% of total shares. Our EBITDA to cash conversion in 2022 was below typical levels due to several non-recurring items, including sales tax payments, pandemic-related store credit redemptions, and normalization of seller payables as pandemic postponements fully resolved. In aggregate, we estimate these non-recurring items represented $73 million of non-recurring reductions to cash flow in 2022. We have low levels of net interest expense in CapEx, And as we grow, working capital is typically a positive contributor to cash flow. With these dynamics, we expect to see normalizing cash conversion in 2023. In addition to future cash generation, we have a sizable cash balance and low levels of debt such that we can seize on strategic opportunities that may arise in ticketing or adjacent areas. VividPix is just one example of an adjacent TAM-enhancing opportunity that is complementary to our ecosystem of buyers, sellers, and partners. In addition, we will continue to evaluate all available options to optimize our capital structure and enhance long-term shareholder returns. Turning to our 2023 financial guidance, we anticipate 2023 marketplace GOV in the range of $3.0 to $3.3 billion. revenues in the range of $580 to $610 million, and adjusted EBITDA in the range of $110 to $115 million. The live event industry had a stellar 2022 with strong consumer demand and excess supply driven by postponed events originally scheduled for 2020. We believe the secondary market has grown well above the long-term trend line of 7% to 10% annual growth since reopening after the pandemic. As we enter 2023, coming off several years of record demand, we currently anticipate industry growth to moderate with 2023 volumes approximating 2022 levels. Of note, postponed pandemic events, which mostly consisted of concerts, provided a one-time tailwind during the second and third quarters in 2022. This dynamic will not recur in 2023 and will offset some underlying market growth. We anticipate adjusted EBITDA will be roughly flat year over year. Within this steady level of profitability, we expect a continued shift in our marketing spend towards brand investments in 2023. We are excited to have multiple avenues to build long-term value, including a growing array of marketing channels, along with strategic opportunities afforded by our profitability and strong balance sheet. The day-to-day excellence and agility our team demonstrated in 2022 gives us confidence in our ability to seize opportunities in 2023. While we cannot precisely predict how and when the competitive landscape will evolve, history suggests customer acquisition costs will eventually subside. In the meantime, we will tactically balance volume, growth, and profitability while directing marketing spend to channels with attractive economics and investing for long-term stickiness on our platform. We continue to expect long-term adjusted EBITDA margins will approach or exceed 30% as the competitive landscape normalizes. Back to you, Stan.

Thanks, Larry. In conclusion, it was a record 2022 for Vivid Seeds and the broader live event industry, and I'm proud of what our committed and talented team achieved. I'm confident that our team, our strategy, our investments, our technology, and our balance sheet put us in an excellent strategic position to capture and deliver value both in the near and long term. And with that, operator, I will open it up for questions.

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In order to accommodate participants in the question queue, we ask that you please limit yourself to questions only. Please stand by while we compile the Q&A roster. And our first question coming from the line of Steven Chu with Credit Suisse, Yolanda Sopin.

Okay, thank you. So, well, I guess, you know, concerts, as you guys mentioned, particularly strong in 2022. Can you talk about what the mix of events might look like for this year? And if we are indeed going to be looking at a scenario in which, you know, sports begin to index higher and concerts lower, maybe even back to what the mix was in 2019, can you talk about how your customer retention rates may change? Because I would imagine there's probably greater frequency among the sports fans. And I think both you and Stan, you know, Stan and Larry, you guys have both mentioned expectation that customer acquisition costs will otherwise normalize. So, You know, what gives you the confidence that we will see that perhaps even this year or maybe over the longer term, because not all of it's within your control, but if you can speak to what's driving that confidence, that would be helpful. Thanks.

Yeah, good morning, Stephen. Thanks for the question. You know, I think to start from maybe I'll take a little bit of where we think, you know, our investments and some of the repeat rate dynamics have been, and then certainly let Larry kind of talk to you about how we anticipate the full year and the mix shaking out. Yeah, I mean, in a world where you see rising customer acquisition like we talked about, I think it's really important that you continue to invest in the long-term sustainable things. And I think what we talked about this quarter, which we're really thrilled about, is our investments are really starting to pay dividends, most notably in the form of our highest repeat rates that we've ever seen amongst our customers. And that's really spread across the categories, right? I think it would be different if we said we saw... higher repeat rates in sports versus concerts, and we're mixing into a total higher repeat rate. But if we look at our investments in the loyalty program, some of our engagement protocols, what we're happy to see is that we're seeing repeat rates higher in every single category that we participate in. And beyond that, as we continue to drive that repeat behavior, we also continue to mix more profitably into a repeat segment of customers. All of that, frankly, allowing us to participate in a very CAC-intensive environment where some of those effects might look muted at the bottom line, but internally, all of that core strength is there, which I think allows us to, one, sustain for the very long term, and two, when that environment rationalizes, you'll see a lot of leverage in terms of what we're driving into repeat users as it flows through to the bottom line.

And just building on that, on the mixed question, I don't think we anticipate a meaningful shift from the 2022 mix into 2023. And it's been reasonably balanced. We in our business have talked about 60% between concerts and beer, 40% in sports at the pre-pandemic level. And we are almost right on top of that for 2022. So... Maybe a few basis points here and there of variance, but nothing that would impact overall mix in a meaningful way worth noting.

Thank you.

Thank you. One moment, please, for our next question. And our next question coming from the line of Rob Shackert with William Blair. Your line is open.

Good morning. Thanks for taking the question. First question, just curious, now that Jerome's through a Q1, how is the quarter trending, I guess, after coming off of 2022? And then as you think about 2023, can you just remind us what we expect for seasonality through the year? Then I'd follow up, please.

Yeah, thanks, Ralph. The seasonality, I would say, is pretty similar to what we historically pointed to, 23% to 24% of our full-year GOV in each of quarters one, two, and three, and then the balance coming in Q4, which we expect will remain our strongest quarter of the year. Against that, I'd say we've seen robust performance and demand continue into Q1, which we're excited to see. What do you think about the year-over-year comparison that we're lapping? Last Q1, and this will hopefully be the last time we ever say this, we were fighting COVID, the Omicron variant, which impacted the January volumes, and then we had abnormal cancellations from non-COVID reasons to MLB issues between beyond food fighters. So we have not seen those recur. We did see just the fever cancel, but in general, much lower cancels than prior year, no COVID impact. So I think we are... expecting a pretty healthy year-over-year Q1 performance. The other part I'd note is we've been a little lighter on some of our marketing efforts out of the gate in Q1 to make sure we have powder dry as we get them back after the year with the full sports season. So we may actually see some margins above full-year levels in the quarter.

Great. And then Stan, you talked about brand investments helping repeat rates. Maybe just kind of help us think through those investments for 2023 and, you know, how they could continue to, I guess, benefit the repeat rates and potentially offset some of the higher levels of CAC that you're seeing.

Yeah, sure thing, Ralph. You know, I think we've seen a lot of success, you know, when we look at our loyalty program, the components of that driving increase to repeat, right? I think, you know, whether... We're building that into the economics of our buy 10, get one free program, whether it's the experiential components. I think we continue to look to innovate along those dimensions. Can we find new things that drive differentiated value to users? And I think you'll see us continue to drive integrated and innovative play options through VividPix. We've talked about having our user base there on that platform just grow 300% on a year-over-year basis. where we can then use those two ecosystems to drive engagements where we're looking at that with now I think on average close to 15 entries per month on that. So when you put together kind of innovation in the loyalty program itself combined with an engagement vehicle with 15 entries per month, I think we feel pretty good about the ability to continue to drive increased engagement and loyalty to our collective ecosystem and platform.

Great. Thanks, Dan. Thanks, Larry.

Thank you. And our next question coming from the line of Maria Ribs from Canaccord. The line is open.

Great. Thanks so much for taking my questions. First, I appreciate all the call around the 2023 outlook. Can you maybe just talk about how sort of competitor marketing span has been trending so far this year and what is embedded in your outlook in terms of expectations for competitor marketing activity? And then I have a quick follow-up.

Yeah, thanks, Maria. I think throughout 22, we saw a fairly consistent trend where competitor intensity was increasing with a particular shift upward starting in early Q3. That intensity continued through Q4. I'd say for the large part, it's continued into Q1. And so we have presumed that that persists throughout the year in our guidance. I know we've alluded to it before, but we continue to be of the mindset that one can only lose money for so long before gravity catches you. And so we don't want to predict the wind with too much precision, but it does feel like the current environment that has persisted in the Q1 feels unsustainable. given our understanding of some of the profitability implications of those decisions for others.

Got it. That makes sense. Thanks, Larry. And then secondly, there's been a lot of sort of increased regulatory scrutiny on the music industry of late with the Justice Department sort of having recently opened an antitrust investigation into Live Nation. So I would love to hear your view on sort of the government potentially taking some form of action to promote increased competition, and how might that impact your business and the secondary ticketing market more broadly?

Yeah, sure. Hey, Maria. Look, you know, I think it starts from just fundamentally, you know, a belief that, you know, I think we have strongly that promoting competition is a good thing. And when fair competition exists, you see platforms like Vivid Seats, you know, continue to innovate on behalf of fans with, you know, as we talk a lot about here, you know, best-in-class customer service, a loyalty program that continues to drive differentiated value, that all exists when there's fair competition. You know, I would say, you know, rather than comment directly on what they're doing, I think, you know, look, a bunch of senators recently reviewed the industry, and I think the focus and the perspective of that investigation is fairly clear. I think when you have large vertically integrated players who potentially leverage their advantages to cycle competition, you know, I think the end result for that is that anyone who plays by the rules is going to benefit. And in our space, you know, I think about things which have great momentum, like legislated ticket transferability, transparency into real supply and demand, transparency into pricing, where in particular our lean cost structure always allows us to be competitive. I look at that and say, as there continues to be scrutiny, anything that promotes fair competition in this space, I think VividSeats is well-poised to take advantage of, and we look forward to seeing how that plays out.

Great. Thank you very much.

Thank you. And our next question coming from the line of Thomas Forte with DA Davidson. Your line is now open.

Great. Thanks. So first off, Ben and Larry, congrats on the quarter and year. I have two compare and contrast questions. I'll ask one and then the second is a follow up. So first, can you compare and contrast the sales and profitability of performance marketing versus brand marketing?

Yeah, I'd say as we've experimented, there's a little bit of a time longitudinal answer, Tom. As we've gone deeper into brand marketing, one of our tenets has been we don't want to put too much gas on the fire until we feel like we've at a minimum replicated the lifetime economics. And so as we talked about some of our experimenting and trying to unlock that brand marketing angle, that was part of the journey. With some of the experiments that we've been able to complete throughout 2022, we feel pretty good that we've achieved that and that the economics on the brand side will at least replicate what we've been able to deliver on the performance marketing side. Within that, there may still be different timing where you spend some of the brand dollars up front with a little more of a lag before you get the return relative to performance marketing that's more immediate feedback. But alongside that, we think the brand, a customer acquired through brand channels likely has higher repeat, higher longevity, higher LCD. So on a dollar and percentage term basis, we think it'll be at these people. And the data we're seeing now actually suggests it may be better.

Great. And then for my second question, Can you compare and contrast consumers returning to live events from influences, historical influences like fear of missing out versus a reflection of COVID-19, not unlike revenge travel?

Yeah, I can take a first crack at that. You know, I think as we've looked at our guide for the year, There's a combination of both order, volume, and ALS dynamics that could tie into a pent-up demand thesis. And our view has been that average order size, I think, it looks like that's largely normalized. And we exited 2022 as what I'd consider our historical trend line. On the order side, you know, similarly, sports is now entering its third year of being reopened. So I think we're well through that. We did, I think, express some caution relative to perhaps other perspectives out in the market on what the concert vibrance fee may look like this year. But overall, in a world where we think 7% to 10% annual long-term growth is where this industry sits, and we were up 40% in 22 relative to 2019, having 23 as a flattish year kind of touches you up the trend line and in no way changes our expectation of trend line. And I think we alluded to a few doses of caution around exactly what the lack of postponed concerts can do to overall industry volumes, a little bit of caution around what competitor posture may look like. But that's not to say there's not opportunity for outperformance on both of those metrics.

Thank you.

Thank you. And our next question coming from the lineup.

I know there's a little complexity analyzing this. Sales and marketing costs as a percentage of revenue. I say complexity just given the impact of the loyalty being booked as contra revenue, but the sales and marketing as a percentage of your revenue seems like it's been bouncing around between 40% and 42% over the last four quarters. It doesn't sound as bad as your rhetoric about the higher competitive intensity and higher CAC. So I was just wondering if you could just unpack that a little bit, or maybe I'm looking at the wrong metrics.

Yeah, I think it's an astute question. And, you know, when you make our comments around some of our agility and the levers that we have to pull, I think that's exactly what We're speaking to, in Q4 as an example, we made a conscious decision to let some volume that was of unattractive profitability go in favor of maintaining profitability and holding the line on that marketing efficiency. I think the other thing that we've seen is a shift in terms of our customer mix towards CP customers. and away from fishing in the free agent pool that has gotten particularly expensive. And so it gets us really excited, again, without trying to predict exactly which quarter it happens, but with a strong sense that that's actually what happens. When the cap normalizes, I think we expect to really see that benefit in the new customer acquisition where we've pulled back a bit. I got it. That's super helpful. Thank you.