Q3 2021 Emerald Holding Inc Earnings Call
Good morning, and welcome to the Emerald holding incorporated third quarter 2021 earnings conference call.
During today's call all parties will be in a listen only mode. Following the prepared remarks. This call 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 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.
Additionally, today's call management will discuss non-GAAP measures, which it believes can be useful in evaluating the company's performance.
Presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U S. GAAP.
A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in the company's earnings release.
As a reminder, this conference is being recorded and replay of this call will be available on the investors section of the company's website through 11 59 P. M. Eastern time on November 8th 2021.
I would now like to turn the call over to your host Mr. Avi said key President and Chief Executive Officer. Please go ahead Sir.
Thank you, Rob and good morning, everyone.
This is a very busy time here at Emerald and I'm excited to be here today to provide an update on our recently a staged.
Shows through the third quarter as well as our expectations for the continued recovery of our business as we look to the year ahead.
David <unk>, our CFO will review, our third quarter results in detail and we will then open the call for your questions I'd like to start by thanking our employees for their hard work and tireless efforts as we executed one of the busiest calendars in Emerald is history through the third quarter.
Our team staged 33 live events, serving more than 92000 attendees and 5200 exhibiting companies key brands that staged include a S D.
Outdoor retailer New York now surf Expo could you and hospitality design.
Our best performing events during the quarter had attendance levels approaching pre COVID-19 levels, while other events, serving more adversely impacted industries remain challenged in the current environment.
Overall, the execution western Herb.
Exhibitor satisfaction was very high with strong N V turn outs the ratio of attendees to exhibitors increased by more than 22% as compared to the 2019 levels on average across all of our events during the quarter.
This has led to a significant increase in average exhibitor net promoter scores compared to the same events when they staged in 2019 and has accelerated our forward sales bookings looking to the year ahead.
While our third quarter was successful and that we were finally able to stage a meaningful number of events again, we were of course not operating at our full potential nonetheless, many of the headwinds that impacted attendance for our third quarter shows such as the international travel bans and the rising infection.
Rates caused by the Delta variance look to be improving of notes the binding administration announced that beginning November 8th 2021 foreign travelers will be permitted to enter the United States with proof of vaccination.
Historically, we have generated approximately 10% of our exhibitor revenues from international exhibitors. So this is a meaningful developments in the recovery of our business.
Additionally, rising vaccination rates are leading to a decline in new Delta variant cases.
While supply chain issues in many industries remains a very real challenge. The overall environment for live events continues to improve which enhances our visibility for future events and a full recovery in the fundamentals of our business.
We're also seeing enthusiasm from across the industry as our peers in the Tradeshow sector are having success staging large in person events Asia has been a good leading indicator through the pandemic as the region is typically led the U S. By several months along those lines, we are seeing very encouraging signs of the enthused.
He has them that exist by both exhibitors and participants to get back to business. The China Beauty Expo is one such example that we found encouraging there. So the show staged from July 9th to 11th in Shanghai, China and covered approximately 754000 square feet Andrew for.
<unk> hundred 79000 visitors according to data released by the Organisers.
That compares well to the 2019, China Beauty Expo show that covered approximately 853000 square feet and drew over 521000 professionals.
Another example is <unk>, which is leading platform for our baby and maternity industry that staged from July 14th to July 16th also in Shanghai.
<unk> covered approximately 872000 square feet and drew over 95000 visitors comparing to its 19 edition that covered approximately 951000 square feet and drew 108000 visitors as you can see these shows are approaching their pre pandemic levels and provide optimism.
On a continued recovery of our industry here in the United States and into the future.
Overall Emerald third quarter show attendance was about half of pre pandemic levels, while exhibitor satisfaction markedly increased some.
Some events came within 10% of pre pandemic attendance levels, while others were more impacted we believe this demonstrates a clear path to recovery and supports our expectation that our portfolio of industry, leading shows will begin to return to its pre pandemic levels looking out to 2023.
As I said on last quarter's call. Our focus has been on delivering the highest quality events that exceed our customers' expectations as we focus on our shows.
Brands and the value that our customers achieve by attending.
We delivered on that goal in the third quarter and believe that if we continue to maintain the quality of our shows and the value that we deliver to our customers. We should continue to build towards pre pandemic attendance environment as we look out towards the second half of next year.
We expect.
More fulsome recovery to emerge through 2023, and expect our revenues will recover to pre pandemic levels as long as we maintain the quality of our shows and the value that we deliver to our customers.
We remain confident in our ability of our events to deliver a strong return on our customers' marketing investments and are pleased to see this confirmed in the very strong satisfaction levels that we've seen in our third quarter post events surveys.
This is also being confirmed in the strong acceleration.
That we continue to see in our forward bookings calendar.
Looking to the fourth quarter.
We have another strong slate of events to stage.
Those seasonally fewer than last quarter, including etch spaces, which we acquired last year J, a new York All ICF F N B D N Y amongst others at this point exhibitor pacings for fourth quarter events are moderately better than what we saw in Q3 when compare it.
Against their pre pandemic conditions.
More importantly, we're not standing still we are aggressively transforming emerald's through the implementation of our stated strategic initiatives centered around customer centricity deliver.
Delivering 365 day customer engagement and portfolio optimization.
Our initiatives are designed to improve our customer satisfaction with our products.
Accelerate organic growth and expand our margins.
While the investment community is focused on when the exhibition industry will return to 2019 revenues and earnings we see 2019 as a starting point our aspirations are far greater as we strive to transform our business three immediate goals I'd like to emphasize firstly.
Our customer Centricity initiative includes postal surveys for all events continued efforts to streamline customer interactions with emeralds experimentation with new pricing models and bundles and the rollout of matchmaking at all of our large events.
Our experience shows that adding matchmaking, which helps bring together buyers and exhibitors in their specific areas of interest is a meaningful driver of customer loyalty as more scheduled introduction is a strong catalyst for trade show return on investment.
Secondly.
Our 365 day customer engagement strategy continues to deliver solid progress. We have for example hired a new pan Emerald to content leader with significant experience in building modern digital media businesses to optimize our planning and execution across all of our content assets.
We have also stepped up investments in the elastic <unk> E Commerce platform development to add key drivers of value for our customers.
And have developed a plan for better integration of our Tradeshow in content online presence is with new web templates expected to be rolled out over the coming months elastic which is the go to market brand of our recent Plum River technologies acquisition, and the online marketplace platform with which we.
Were supplementing our live events is building momentum with an accelerating number of new clients wins relative to last year and is at the early days of extending into new industry categories.
Lastly, our portfolio optimization efforts include numerous new event launches planned for 2022, as we accelerate organic growth as well as continue efforts to strategically grow the portfolio via acquisition, we maintain ample liquidity as we ended the third quarter with more than 300 million.
Dollars of cash on our balance sheets and are starting to see the positive dynamics of our business model play out as forward bookings accelerate driving cash generation through negative working capital.
Importantly, our business requires little in the way of Capex investments and generates strong free cash flows.
As we begin to book customers for our upcoming shows we are receiving deposits in advance which can be seen in our strong positive free cash generation this quarter.
We are beginning to build cash on our balance sheets, which should have a long tail as we gradually returned to pre COVID-19 levels.
This places us in a flexible and opportunistic position, where we can strategically allocate capital to attractive acquisitions organic growth initiatives and share repurchases when we see our stock trading well below what we view as intrinsic value such as where it has traded through the third quarter. Despite.
The improving fundamentals that we continue to experience now.
Now, let me turn the call over to David to review, our third quarter results.
Ladies and gentlemen, we are experiencing technical difficulties. Please remain online your conference will resume momentarily.
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Yeah.
Hi, we're back sorry about that.
Operator can you, let me know where we cut off.
I think it was why did you just start off David at the beginning for your portion.
Okay. Thank you Youre welcome. Thank you.
For the third quarter, we reported revenues of $76 $5 million, which compares to $8 $5 million in the year ago quarter.
After reporting six consecutive quarters of significant revenue declined due to the pandemic I'm thrilled to be able to talk about revenue increases again.
<unk> revenues for the third quarter were $12 $1 million, a decrease of $1 6 million as.
<unk> organic revenues of $13 7 million in the third quarter of 2020.
The decrease was due primarily to lower revenues generated by several events that staged in the first quarter of 2020, but were postponed out of the first quarter to the third quarter in 2021 as a result of COVID-19.
No our definition of organic revenue only includes event that staged both this year and in 2020, and thus excludes events that did not stage last year due to pandemic related cancellations.
When looking at all events as compared to their previous Restaged addition, irrespective of year average event revenue declined approximately 60%.
Despite this decline we were able to run our events profitably and generate free cash flow in the quarter, even excluding insurance recoveries, our adjusted EBITDA for the third quarter with $9 4 million as compared to negative $3 2 million in the same period last year the increase in adjusted EBITDA.
<unk> of $12 $6 million was mainly due to profits generated by the live events that stage during the quarter, partially offset by a lower amount of confirmed or received event cancellation insurance claim proceeds compared to the prior year.
We recorded $1 1 million of other income during the third quarter of 2021 as a result of event cancellation insurance claims proceeds related to events canceled in the second half of 2020, which compares to $16 1 million of other income recorded during the year ago third quarter as a result of event.
<unk> insurance claims proceeds related to events canceled in the first half of 2020.
Looking at our event cancellation insurance in more detail, we have submitted $243 million in claims to date for impacted or canceled events previously scheduled to take place in 2020 and 2021. We also continue to work on finalizing claims submissions for several more.
Work canceled postponed and otherwise impacted 2021 events.
These claims represent the net amount of budgeted gross revenues less avoided costs for impacted our canceled events previously scheduled to take place in 2020 in 2021.
To date, we have received insurance claim payments totaling $184 $3 million or 76% of submitted claims of which $89 1 million was received in 2020 $35 $4 million has been received in the first nine months of 2021.
And $59 $8 million was.
It was received in October and not booked in the third quarter, we expect to recognize the monies received in October in the fourth quarter. We are actively pursuing collection of the remaining unpaid amounts of submitted insurance claims for our canceled 2020 and 2021 events that currently total an incremental $58 four.
<unk> million dollars.
And we'll continue to submit additional claims for impacted 2021 events in due course.
Turning to our events schedule and as <unk> discussed we are in the midst of planning selling and executing a very aggressive calendar and our results through the third quarter and into the fourth quarter have been positive with enthusiastic feedback from our customers, albeit with lower levels of attendance and revenue in general.
Relative to their pre pandemic conditions.
As Jorge mentioned, we've been very pleased with the execution of our third quarter shows and have been very focused on delivering an outstanding customer experience, which can be seen in our improved pacings for future shows while the execution has been outstanding and the customers respond strong our shows have underperformed their pre COVID-19 levels.
Which we are expected that said, we have policies that provide up to almost $200 million of event cancellation insurance for the full year 2021, which helped us to insulate our results from certain adverse effects of the pandemic.
Turning to free cash flow in the third quarter, we experienced a net inflow of $7 7 million.
Which compares to an outflow of $20 9 million in the year ago third quarter.
We are experiencing strong positive net cash inflows as our shows begin to stage and we receive customer deposits. The impact of this is best seen in the increase in deferred revenue from $48 6 million at year end to $83 million at September 30, while this is down from the second quarter. It is.
<unk> with the seasonality of our business given the lighter schedule that is typically in the fourth quarter, which is the case again. This year importantly, this improvement in deferred revenue and its benefits to our free cash flow should have a long tail as we look to ramp our events back to pre COVID-19 levels overtime.
We have ramped investment in technology, both in the elastic suite business acquired with <unk> River and within Emerald's core Tradeshow and content business, which has led to a moderate increase in capital expenditures in the quarter in which you should expect for the coming year that said our business model is still a capital light model and our Capex runs at <unk>.
Low levels in the third quarter of 2021, we spent $1 9 million as compared to zero point $8 million in the year ago third quarter.
We ended the third quarter of 2021 with $303 $6 million of cash as compared to the second quarter of 2021 cash balance of $302 8 million.
This is before receiving the incremental insurance proceeds of $59 8 million, which came post quarter close. Additionally, we have full availability of our $110 million revolving credit facility.
Our strong liquidity and balance sheet with more than $300 million of cash combined with our 2021 insurance coverage provides us with the flexibility to be opportunistic in the current environment along those lines, we repurchased almost one 2 million shares of common stock at an average price of $4 69.
Per share for a total cash use of $5 6 million in the quarter.
Year to date, we have repurchased two 9% of common shares outstanding we plan to continue to allocate capital to our share repurchase plan and to that effect. Our board has authorized a reload of our share buyback authorization to $20 million and extended it to the end of 2022.
While I am talking about the balance sheet I want to highlight the form 8-K filing we put out prior to our earnings release. This morning, which indicates a restatement of our 2020 and year to date 2021 financials.
This is due to an error. We determined was made in the booking of the series a convertible preferred stock issued last year, when we capitalize the balance sheet to protect the business during the height of the Covid breakout initially we booked the security is permanent equity due to the fact that existing holders of the series a preferred stock do not currently have an ability to redeem.
The security for cash.
We've consulted outside experts in this determination, which makes this situation all the more frustrating. However, given the fact that in certain DAU currently unlikely change of control situations as defined in the terms of the preferred stock the holders can require that we redeemed their shares as a result of circumstances outside of the comp.
These control even if those conditions do not exist today, we are reclassifying the convertible preferred stock the temporary equity on the balance sheet between liabilities and equity. This is a noncash adjustment and has no impact on our revenues EBITDA and operating cash flows or free cash flow and minimal impact on EPS.
As a result of technical differences in accounting for accreted preference on the series a shares.
As you can see our strong balance sheet combined with our attractive business model, which is set to drive free cash flow growth as the industry continues to recover positions emerald to be opportunistic we will continue to take advantage of attractive acquisition opportunities like Chrome River and supervise education, which are key steps towards <unk>.
Aging with our customers 365 days a year. We will also continue to invest in these businesses to expand them across our brands as well as make other strategic growth investments in our business as we work to position Emerald for a return to organic growth.
With that I'll now turn the call back to Herve.
Thank you David to conclude we successfully staged 32 love events in the third quarter, while our customer satisfaction with our shows increased markedly versus 2019.
This clearly demonstrates not only the importance of our industry, leading shows to our customers, but also the path of recovery that we're tracking.
We are working diligently to bring our <unk> back to the pre pandemic levels. While also aggressively working to drive change across our organization designed to deliver improved growth and profitability I'm very encouraged with where we sit today and filled with optimism for the future. Thanks again for your time today and Rob.
Please open the meeting up for questions.
At this time, we'll be conducting a question and answer session. If you'd 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 you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Annick Maas Exane. Please proceed with your question.
Hi, Good morning. So my first question is just I think you seem to suggest that exhibit the pacing for Q4 is better than Q2.
Can you tell us what that is driven by is that you think driven by the fact that now you have international attendance in Florida.
The second one is just going back on Q3 in the event that actually what cancers throughout Q3, what was the commonality around defense, where they just say months, where they in the same industry would even say that typically having more internationally dependent.
And then my last question just with regards to forward bookings can you tell us.
Whether you have changed the share of the first installment of charging these days.
Thank you.
Thanks <unk>.
I'll take the.
I think I'll, probably take all of them.
And Vale chime in if I Miss something.
Q4, pacings, we view the improvement.
Really coming from a couple of areas.
One is the fact that many events have staged successfully in <unk> is giving exhibitors and attendees more confidence that we will it will be a successful event.
Second is the.
Increase vaccination rates throughout the United States. The declining infection rates has also been a catalyst and kind of going to your second question I'll blend the two and some of the cancellations in Q3 really came at the height of the concerns around the Delta variant.
Which led us to conclude that the events would not be successful and so we.
Does have the impact of the pandemic and that way determined that the events needed to be canceled.
Ultimately the international impact absolutely events that had larger weighting of international exhibitors were much more impacted in the third quarter and amongst those canceled events or some of those as well, but it's too early really to see the impact of.
Bookings of international exhibitors on Q4, because the changes just happened.
And only in the last few days have they been clarified with an exact date and so were hopeful from here, we could see further improvement.
And final question.
It was.
In terms of.
Probably yes.
In terms of forward bookings, we have not changed our pricing or deposit strategy related to future events and so it's very important to us.
That we protect and maintain the integrity of our contracts, which allow us to effectively plan. These events.
To have the best experience for our customers and so we have stuck with our historical practices around that.
Okay, great. Thank you very much.
Thanks, John we reached the end of the question and answer session. At this time I'd like to turn the conference call back over to management for closing comments.
Great well. Thank you Andy for your question and thank you all for your.
<unk> for your time today and attention today much appreciated goodbye.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.