Q4 2020 Emerald Holding Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to Emerald Holdings' fourth quarter 'twenty 'twenty earnings conference call. During today's call all parties will be in a listen only mode. Following the prepared remarks. The conference will be opened for questions with instructions to follow at that time before.
We begin let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These include remarks about future expectations beliefs estimates plans and prospects such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those interest.
Indicated or implied by such statements such risks and other factors are set forth in the company's most recently filed periodic reports on form 10-K, and form 10-Q, and subsequent filings. The company does not undertake any duty to update such forward looking statements.
Additionally, during today's call management will discuss non-GAAP measures, which it believes can be useful in evaluating the company's performance. The presentation of this additional information should not be considered in isolation or as a substitute for results in prepared accordance with U S. GAAP.
Yes.
Reconciliation of these non-GAAP.
The measures to the most comparable GAAP measures can be found in the company's earnings release.
As a reminder, this conference is being recorded and a replay of this call will be available on the investors section of the company's website through 11 59 P. M. Eastern time on February 20th theft.
2021, I would now like to turn the call over to her day safety, President and Chief Executive Officer. Please go ahead.
Thank you and good morning, everyone I'm very pleased to be here today and truly appreciate your participation in our fourth quarter and yearend 2020 earnings call.
Four things I'd like to accomplish today first give you a bit of background on my journey, including what attracted me to Emerald second share My vision on how we will make this strong company, an even better one by returning it to growth and improved profitability.
Third I'll turn it over to David off to our Chief Financial Officer for him to review, our fourth quarter and year end 2020 results.
And close the meeting by sharing our key priorities that build on the accomplishments of the last 18 months.
Accomplishments that are critical and that they provide emerald has shrunk foundation for the future.
David and I will then open the meeting to answer any questions that you have.
To start I'm very excited to be here today, given the opportunity that I see ahead for Emerald Andy exhibitions industry overall.
<unk> spent my entire career in VW businesses, starting with my 22 years at the American Express company, including serving as senior Vice President and General manager of American Express Global business travel and more recently in my six years at relics group at President as President of the Americas for Reed exhibitions.
I'm keenly aware of the importance of putting the customer first and obsessive Lee focusing on adding value to them.
In Emerald I see a company with a portfolio of industry, leading live events and content brands as well as the recent addition of incredibly powerful digital experiences.
Companys strong capital position allows us to also expand into new digital mediums, while taking advantage of opportunistic acquisitions.
Our industry is going through unprecedented change as a result of COVID-19, pandemic that simply cannot and should not be ignored not only because of the impact on our revenue because in unprecedented times, we need to think out of the box and respond with unprecedented creativity.
<unk> thoughtfulness and resourcefulness.
I'm very confident in our ability to come back.
Our small business customers rely on trade shows to drive their business by launching new products generating leads entering new geographies.
In addition, and according to go live together our industry is a foundational element of how business gets done with 46 percentage of small businesses participating in at least one events annually and 41% of companies in the U S. Considering event marketing as their top channel for lead generation.
Yeah.
We've seen early signs of a comeback at Emerald and we're poised to return as the pandemic begins to recede and shows start to stage once again.
In fact, their relative success that our exhibitors and attendees experienced at <unk> in November and surf Expo in January clearly highlights the vital role that face to face events play in driving connections.
Commerce and growth for our customers and communities.
This provides real optimism for the future.
The Emerald senior leadership team led by Chief Operating Officer, Brian Field, and Chief Financial Officer, David Daft drove significant and impressive change across the company. Despite the challenging pandemic environment.
Notable highlights include a reorganization of the company.
Expansion to digital mediums cost reductions and profit improvement initiatives of almost $20 million on an annualized basis, the acquisition of a digital marketplace and raising $400 million in capital to Derisk, the balance sheet and create flexibility to invest for growth.
This is a remarkable remarkable set of accomplishments and provides a strong foundation that we will build from as we continue to execute our growth plan, which I will outline shortly.
But now let me turn the meeting over to David to discuss our 2020 Q4 results and 2020 accomplishments.
Thank you Herve and good morning.
Our fourth quarter and full year results mimic much of what we have reported all year since COVID-19 began to impact our business.
For the fourth quarter, we reported revenues of $12 2 million, which compares to $44 9 million in the year ago quarter.
The decrease was primarily due to the cancellation of almost all fourth quarter events due to COVID-19, including boutique design New York.
Health care design Expo photo plus eastern med trade among others.
During the fourth quarter, we were able to successfully stage I Ges in Pigeon Forge, Tennessee, where we experienced a 50% decline in revenues, while the number of buyers per exhibitor increased by 15%.
This increase drove a strong rise in exhibitor satisfaction given the increase in sales generated.
Subsequent to yearend, we staged surf Expo in Orlando, which experienced similar dynamics to IGT es and further demonstrate the value of in person face to face events, which is so important to our customers' businesses.
Needless to say our customer communities are eager to get back to live events and business as usual.
Our adjusted EBITDA for the fourth quarter was $18 $3 million as compared to a negative one $5 million in the same period last year.
The increase in adjusted EBITDA of $19 8 million was mainly due to the recognition of $42 $7 million in other income related to event cancellation insurance claim proceeds received or confirmed.
This amount was offset by the COVID-19 related cancellation of 19 fourth quarter events, representing prior year fourth quarter, adjusted EBITDA of $18 $2 million all in for the full year, we canceled 94 events representing prior year adjusted EBITDA of 141.
$8 million.
Fourth quarter of 2020, adjusted EBITDA also reflected the benefit of cost savings measures that we have implemented throughout the year.
Looking at our event cancellation insurance in more detail, we have submitted 167 $4 million in claims.
These claims represent the net amount of budgeted gross revenues less avoided costs for impacted or canceled events previously scheduled to take place in 2020.
Through the end of January we have received insurance claim payments totaling $107 million of which $89 $1 million was received in 2020 and $17 $9 million has been received thus far in 2021.
Subsequent to this we have also received approval for an additional $5 $3 million and insurance claim payments.
We are actively pursuing collection of the remaining unpaid amounts of filed insurance claims for our canceled 2020 events. In addition to claims for our cancelled 2021 events.
Looking to the year ahead, we have canceled or postponed all of our first quarter of 2021 events, except surf Expo, which as I just discussed successfully staged in January. Additionally, many of our second quarter events have also been postponed until later in the year.
We remain hopeful that the rollout of the vaccine will mitigate the spread of the COVID-19 pandemic and allow for more activities through the second half of this year in the meantime, we maintained $191 $4 million of event cancellation insurance for the full year 2021, which we expect to continue to ensue.
Our business from the adverse effects of the pandemic that continues to impact much of the country.
We will also be vigilant as we work to mitigate expenses related to canceled events in order to preserve our event cancellation insurance coverage given the uncertain environment.
Turning to free cash flow in the fourth quarter, we experienced an inflow of $4 $7 million, which compares to an inflow of $14 $1 million in the year ago per quarter.
During the fourth quarter, we acquired edge spaces, and Palm River for a total consideration of $37 7 million, which consisted of $33 $3 million in cash payment and the issuance of approximately 800000 common shares.
Given the cash outflow for these acquisitions, we ended the year with $295 $3 million of cash on our balance sheet as compared to the third quarter of 2000, twenty's cash balance of $326 $7 million.
Additionally, we have full availability of our $150 million revolving credit facility. This brings our total liquidity to more than $445 million.
As we have discussed our $400 million capital raise combined with our event cancellation insurance policies has allowed our team to opportunistically invest in the business and position Emerald for growth as the pandemic has brought under control and the exhibition industry begins to normal.
Hi.
Our acquisition of Plum River, and it's elastic suite technology is a key step in our strategy to bring buyers and sellers together in a digital environment year round and provide them with a platform where they can transact.
Plum River is expected to meaningfully enhance our digital initiatives and it's just one of the exciting investment opportunities that we have in front of us as we work to expand our business in the year ahead.
We plan to invest an elastic suite to expand the platform across our brands as well as make other strategic growth investments in our business as we work to position Emerald for return to organic growth.
We will also remain disciplined and keep a tight rein on our expenses as we strive to balance investment and profitability.
Of note our cost structure is made up of the direct cost needed to execute events and the SG&A or overhead needed to run the company and manage our portfolio of assets direct costs are largely variable typically 70%, however, with enough advance notice.
A substantial portion of those direct costs can be avoided we continue to carefully manage commitments for those events you at this stage in order to maximize our ability to avoid further costs given the current circumstances.
As part of this we have driven a significant decline in our annual expense run rate, which we've reduced by almost $20 million along with other profit improvement initiatives. We will continue to review our organization for further opportunities to optimize our operations and deliver efficiencies in the year ahead. We also expect.
To reinvest some of the savings and organic growth initiatives to benefit future years.
We finished the fourth quarter with net debt of $230 million, representing a net leverage ratio of 1.7 times, our TTM consolidated EBITDA of $134 $2 million per the terms of our credit agreement.
As a reminder, our credit agreement has a springing total net leverage covenant of no more than five five times, which kicks in with borrowings under our credit facility exceeds 35% of our revolver capacity of $150 million.
At December 31, we had no borrowings under our revolver and do not expect to draw on our revolver in the near term given our strong liquidity position.
To conclude we're very pleased with our success executing our strategic initiatives designed to streamline our operations improve the performance of our events and more importantly, our customers satisfaction expanding into new digital mediums, while also reducing our expense structure and preserving capital as we look to the year ahead, we are focused on it.
So our investments into new growth initiatives that we expect to deliver at least mid single digit organic growth annually over the coming years. We will also manage our capital structure as we work to maintain modest leverage between two to three times normalized EBITDA as events return and our growth accelerates we.
Cash generation of our business to markedly improve given the low capital intensity of our business model.
With that I'll now turn the call back to her day.
Thank you David.
Looking ahead, we've developed a growth focused framework that builds on the strong accomplishments that David outlined in.
Hyper focused on three key imperatives. The first is customer centricity, our customers must be at the center of everything that we do.
To this end, we will focus on identifying our customers' needs and delivering against them to increase value, which we expect will allow us to better retain customers and acquire new ones.
Additionally, we will have three year operating plans for each brands' established customer advisory boards and optimized SKU relationships by providing pan Emerald solutions to meet their business needs.
We will also implement a value based pricing structure that will give our customers the opportunity to choose how they want to do business with assembled an insurer and pricing will be developed specifically around the value that we deliver.
The second key strategic imperative is delivering 365 day customer engagement.
Central to this initiative our force strategies one.
Scaling our <unk> marketplace, which we acquired through from river to support year round Commerce and product discovery.
This acquisition was a truly innovative move for Emerald because it demonstrates the insights that we have into our current customer needs and the foresight to secure resources that drive change through.
Through the elastic suite beta <unk> E Commerce platform, we expanded our digital commerce capabilities and accelerated Emerald strategy to provide a 365.
Day per year engagement, while delivering a new heightened degree of customer experience and value the benefits of our acquisition of Clark from River are twofold first the new depth and breadth of resources available to our customers from both the brand and the buyer side, we'll provide a full spec.
From a bundled solutions from discovery.
Connection and lead generation to transaction.
<unk>, both in person face to face events as well as year round digital opportunities.
Second Emerald and Plumbed rivers combined reach in a diverse and vast number of key industries will provide our customers a deeper reach into their existing market penetration, while fueling discovery and growth into new market segments.
To further developing and refining our existing content <unk> media business by building insights into the model.
This should support the shift from an advertising only revenue stream to an advertising and subscription based revenue stream through the collection and analysis and adaptation of insights.
Three we plan to also increase the cadence of digital and hybrid products leveraging what we learned in the past year and for all of this should benefit from the optimized marketing efforts leveraging data and persona based journey mapping.
Lastly, the third key strategic imperative is portfolio optimization, we are working hard to develop a culture of innovation at Emerald with additional growth driven by accretive M&A, including attractive tuck in acquisition that strength in Emerald position in our core categories and support.
Our 365 day engagement strategy.
Entering new markets with attractive industry dynamics and growth trends focusing on targets that have already achieved scale create.
Creating a new group called Emerald accelerator to launch new events more aggressively than we have in the past both sub expos and greenfields.
And evaluating other <unk> marketing solutions that support our 365 day engagement strategy and diversification of our product suite.
Over the next 12 months, we will continue to evolve and refine our infrastructure to ensure we become the industry leader in building dynamic market driven platforms that integrate face to face events with a broad array of industry insights did.
Digital tools and data focused solutions to create uniquely rich experiences our commitment is to progressively and strategically secure emerald emerald future viability, while ensuring our industry partners and customers continued growth and resilience.
In closing <unk>.
Honored to be leading emerald today and into the future and look forward to further harnessing emerald vast potential a rock solid foundation has been firmly built through the nimble actions of our management team over the past year and I'm excited to build upon the successful strategy that is in place to return Emerald to organic growth in <unk>.
<unk> profitability as the exhibition industry recovers.
As we will look back at this historic moment in time, I want Emerald to be seen not only as having successfully improved profitability in the face of tremendous ards caused by a global pandemic, but the industry leader that took the additional step of prioritizing creativity ingenuity and innovation when the world.
Came to a halt.
Thank you again for your time today and now I'll ask the operator to please open the meeting up for questions.
Thank you and see you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star. He is our first question is from Kevin Mcveigh with Credit Suisse. Please proceed.
Great. Thank you. Thank you so much and very helpful.
Hey, I Wonder if you could talk a little bit more about the structural impact of the business as you transition from more kind of physical to the digital experience and then within the context of the physical is there any way to think about.
How much of the experience goes outside versus internal and just any way to maybe frame. What we think the revenue contribution can be.
Going forward as things normalize as opposed to maybe where they've been in the past.
Sure. So let me let me answer that question by helping define what business. We're in where we're essentially in the beta be marketing solutions business. So if you really think about what we do and how we serve customers, it's really about supplier discovery and lead generation.
<unk>.
And the tools that we've had in the past.
The live events the trade publications those are with the core tools of core assets that allow us to deliver against our customers' goals of supplier discovery and lead generation. What we now have is the ability to amplify and you add the transactional portion and that's really key.
Critical to see the entire process from beginning to end the transactional piece, which was.
Not there allows us to.
To see the entire cycle and to observe what customer behavior is across the process of identifying suppliers getting leads and then transacting that gives us enormous amount of insights that we can then turn around and see how we continuously add products and value to the customers that are.
And that entire chain.
This is David I'll I'll add that day.
Hey, Thanks for the question.
I'll add and I'll reinforce what we've said the last couple of quarters, we very much believe that the live events are going to come back and come back strong I think the timing is the question right given.
The.
The pandemic and the timing of vaccine rollout is crucial to that but all the feedback we're getting from our customer base from independent studies or that trade shows will remain a crucial part of the marketing mix of our customers, but the everybody's point it doesn't mean, we can't do better.
And by adding in the 365 day year engagement.
We can drive more value for our customers and more value for us historically about 10% of our revenue has been non trade show related our media properties.
We think that could be double or triple over the next few years in terms of our exposure based on continuing to build out these broader capabilities.
Yeah.
And then.
Yes.
Right.
$191 million of the event cancellation insurance from 2021 is that right David net.
Just can you remind us.
How long do those policies day in effect for the renewal process on them just any any thoughts on that.
Sure. So you're correct that is the limit.
Our policy for 2021, and the policy does expire at the end of 2021.
Given the pandemic the renewal cycle beyond 'twenty, one has been a little slower than usual and we.
We continue to be in conversations with our insurance broker and various parties about extending it beyond 2021, no immediately I would not expect pandemic coverage beyond 'twenty, one it will likely be a more normal course event cancellation type policy.
That we'd be able to get.
Yeah.
So unless you've got the bridge and I've said that.
Yes.
Adjusted business, where you may not necessarily need that 'twenty, one is that fair as well.
Yeah.
That's right.
Thank you.
Alright, thanks, so much.
We have reached the end of our question and answer session I would like to turn the call back over to management for closing remarks.
Great well I just wanted to thank you all for your time for your participation.
On today's call.
And wish you a very good rest of your day.
Yes.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.