Q4 2021 Emerald Holding Inc Earnings Call
Profitability and cash flow generation in the years ahead, David Daft Emerald Chief Financial Officer will review, our fourth quarter and year end results as well as our 2022 outlook, which we are initiating this morning. We will then open the call for your questions.
As I look back on the past year I am struck by the disconnect that has existed between what is said in printed in various media outlets and what I've seen in our business.
While I do not want to diminish the very real impacts of the pandemic I am in an advantageous position given that I speak to our customers every day and get to see firsthand what it is they value.
Which is in person face to face events, where they can meet with buyers and sell their products in the most efficient and productive media impossible.
We're not only an integral part of their marketing budgets, but among the highest return spend within those budgets.
While some customers remain concerned with the pandemic and have now come back to live events that concern is rapidly diminishing.
Fact, we're seeing more and more of our customers return to our shows as time has gone by.
Last quarter, we told you that we successfully staged events in the summer and fall with a 50% to 60% decline in attendees and exhibitors from pre COVID-19 levels.
That has improved to a 35% to 45% decline in the fourth quarter.
We expect to see continued improvements in attendance in our 2022 shows.
Just two weeks ago in Orlando designing construction week, which includes Emerald you on kitchen, and Bath industry show or Kpis alongside the International Builders' show drew approximately 70000 attendees the largest domestic tradeshow since the emergence from the pandemic in the United States.
At the same time, we have continued to show improvements in both attendee and exhibitor net promoter scores through the fourth quarter.
This trend further demonstrates the importance of our shows to the industries that they support and we expect to experience further improvements as we successfully stage events through the year ahead.
Ultimately, we expect to meet and eventually exceed pre COVID-19 attendance levels as we look out into.
2023, 2024 and beyond.
So what does this tell me. It tells me that we deliver value to our customers value that they could not replicate or replace when our events were unable to stage. It tells me that the customers who did not come to a recent events because of the uncertainty that existed will likely come to our events next additions.
Ultimately it tells me that we have a valuable business that is critical to both exhibitors and attendees, which has also validated in the success that we achieved in a very difficult environment, having stage 63 live events, serving more than 129000 attendees and 7500.
Third exhibiting customers through this past year again, despite the headlines the variance and the restrictions.
In the year ahead, we expect the recovery to continue and which we expect will return emerald to significant profitability before considering any incremental insurance proceeds while generating strong free cash flow.
We plan to use this cash flow to further invest in our business as we continue to aggressively transform emerald through our three pronged growth strategy focused on portfolio optimization, 365 day engagements and customer centricity as we strive to diversify our business with a focus on accelerating sales growth.
Starting with portfolio optimization, we continue to be active expanding our business through M&A and new show development, given our strong balance sheet and free cash generation. In fact, we have been very active in the past 18 months, having acquired several high growth and attractive businesses, including MJ bids.
Which is a leading <unk> media company in the cannabis industry MJ Biz hosts what we believe is a dominant events in the sector, having delivered $27 million of revenue in 2021, and accretive margins and has valuable content, which allows it to monetize its attendee base.
October 2021 event in Las Vegas, Welcome 27000 attendees, an approach to treat Covid revenues, which is a testament to the position that holds in that sector.
Looking forward, we expect strong growth out of this business and look for the 2022 addition to surpass this past year's events given the legalization trend in the U S. At the state level combined with the secular growth of the cannabis industry.
We acquired <unk> River, and it's elastic <unk> E Commerce SaaS platform in December 2020, which 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.
Throughout this past year, we accelerated growth in commerce software sales and are moving into new verticals tripled the size of our elastic salesforce enhanced the user interface and improved its functionality around analytics and campaigns importantly, we added 51, new SaaS customers.
Including Callaway golf and feel up representing 24% growth as compared to a new customer adds in 2020 experienced minimal churn and increased existing customer spend which translated into net revenue retention of 102% and elastic subscription based business.
Model.
At the same time elastic one back several key customers over the last several months, including <unk> and Spider proving the increasing strength of its offering in the market.
Impressively average growth merchandise volume of wholesale sales per brand passing through the elastic platform increased 36% in 2021 over 2020 as manufacturers and buyers ramp up adoption.
We also acquired two smaller businesses to Bryce education in that spaces, We acquired Shoebrush education in April 2021, a member based portrait photography platform that provides a valuable content to its members with a subscription based business model.
The company offers photographers both online and in person learning in a community that helps them grow creatively, while also providing them with the tools to build their own successful photography business.
This adds a valuable subscription based revenue model to enhance our year round digital offerings and live events in the photo sector and is critical to how we think about expanding the value that we provide to our customers while also growing our business.
We also experienced a strong first edition of etch spaces in November in Pittsburgh, which shows the opportunity for strategic tuck in acquisitions in sectors, where we have strength. The design sector. In this case as a reminder, at spaces is the education Industries primary conference and Expo focus on the few.
<unk> of learning environments, we acquired the business in December of 2020, and see nice growth potential in the years ahead, as we leverage our existing footprint in the design sector.
Looking to the year ahead, we expect to continue to be active as we are seeing numerous opportunities in the market and are getting increasingly proactive in building a proprietary pipeline of potential acquisitions as the free cash flow from our core business allows us to fund future deals.
Beyond acquisitions, we have green lighted the launch of several new tradeshows, which either extend from existing industries. We're in such as food or will bring us into new high growth industries, which we will announce shortly.
These are largely the result of our recently formed accelerator units, which is focused on new show development and where we expect two new show launches in 2022 and F. Three more approved for 2023.
Our first will be Seattle America food launch in partnership with kind of exposure to co locate with international Pizza Expo next month in Las Vegas.
Overtime, we expect the accelerator unit to become an impactful profitable contributor to organic growth rates paying strong returns on the upfront investments in this initiative.
Taken together these moves to optimize our portfolio are expected to increase our exposure to high growth industries and products, which we expect to translate into improved company growth and profitability in the coming years.
Beyond portfolio optimization, we're also stepping up our efforts around 365 day engagements with our customers by better operating and leveraging our content assets and providing the ability to transact via our elastic E Commerce SaaS platform on the content side not only do we see tremendous upside in red.
New from scaling viewership and monetization of our growing portfolio of content assets by better aligning with our tradeshows in adopting more advanced techniques to deliver leads to our customers. We're also believe that we can better source leads for our own events.
As marketing is one of the largest costs at Emerald there is tremendous opportunity for us to ease the burden by better selling our own products in our own media.
Additionally, there is a strong self reinforcing value to a lot of events of delivering content thought leadership in the industries. We serve it's an important tool at our disposal to be engaged with our customers year round and we consistently look for ways to deliver that incremental value to our customers.
With elastic we expect to bring the ability to transact through the platform into new industries and in time integrate the experience into our tradeshows to give customers a seamless integrated and hybrid experience to streamline their buying and selling activity and enable them to discover new products and customers and transact.
Throughout the year.
Our last initiative this customer Centricity, which includes customer service best practices like post show surveys for all events continued efforts to streamline customer interactions with Emerald experimentation with new pricing models and bundles pledging to work toward carbon.
Zero by 2030, and the rollout of matchmaking all of our large events our experience shows that matchmaking, which helps bring together buyers and exhibitors in their respective areas of interest is a meaningful driver of customer loyalty as more scheduled introductions is a strong catalyst for trade show <unk>.
Turn on investments.
We continue to step up our investments in technology to create better experiences for our customers. Overall. It is still early days on this initiative and we look forward to updating you in the coming months as our efforts begin to yield results now, let me turn over the call to David.
Thank you Herve and good morning.
<unk> discussed we are experiencing a strong recovery in the defense sector, which led to our improved fourth quarter results, where we reported revenues of $41 1 million as compared to $12 2 million in the year ago fourth quarter.
The increase in the typically seasonally lighter quarter was primarily due to $21 7 million in revenues related to live events with phased in 2021 fourth quarter, but were cancelled in the year ago fourth quarter due to COVID-19 .
Organic revenues for the fourth quarter of 2021 12.
$12 1 million.
Increased from $9 4 million in the prior year period.
Please note that our definition of organic revenue only includes advanced upstaged, both this year and in 2020, and thus excludes events that did not stage last year due to pandemic related cancellations.
A key driver to our improved organic revenue growth was a $1 $9 million increase in our print and digital advertising revenues for our content properties, which is an area of focus for our team as part of our 365 engagement strategy, which herve highlighted earlier.
Our adjusted EBITDA for the fourth quarter was $52 6 million as compared to $18 3 million in the same period last year the.
The increase in adjusted EBITDA of $34 3 million was primarily the result of profits generated from our live events that stage during the quarter and the recognition of $59 $9 million in other income in the quarter related to event cancellation insurance claim proceeds received or confirmed which compared to $42 7 million.
Of.
Of insurance claim proceeds recognized in the fourth quarter of 2020.
Looking at our event cancellation insurance in more detail, we estimated $249 1 million and total claims to date. These claims represent the net amount of budgeted growth revenues less avoided costs for impacted or canceled events previously scheduled to take place in 2020 and 2021 to date.
Received insurance claim payments totaling $184 4 million of which $89 $1 million was received in 2020 and $95 $3 million was received in 2021.
Just this week, we have received confirmation of an additional $20 million of insurance claim payments, which we expect to receive shortly and book as other income in 2022.
We are actively pursuing collection of the remaining unpaid amount of insurance claims for our canceled 2020 and 2021 events. We're also completing the remainder of claims for late 2021 event, which we expect to submit for reimbursement shortly.
Turning to free cash flow in the fourth quarter, we experienced an inflow of $51 2 million.
Which compared to an inflow of $4 7 million in the year ago fourth quarter, while the quarter benefited from proceeds of insurance and survey touched on we're experiencing improving cash influence from our underlying business as we continue to book, our 2022 shows and receive advanced deposits from our exhibitor customers.
This is a working capital trend that should continue as the post Covid recovery continues in fact in the last few weeks cash collections have been hitting post COVID-19 high supporting our view of the recovery.
We also benefit from a Capex light business model as we spent $2 $5 million on Capex in the fourth quarter and $6 6 million for the full year 2021.
On the acquisition front on the last day of the fourth quarter and year, we acquired MJ Biz for initial cash consideration of $118 $2 million with the potential.
Central for additional performance based payments through 2022.
Given the cash outflow for the acquisition, we ended the year with $231 $2 million of cash on our balance sheet as compared to the fourth quarter of 2000, Twenty's cash balance of $295 3 million.
Additionally, we have the full availability of our $110 million revolving credit facility, which brings our total liquidity to more than $341 million and would provide flexibility to invest in our business.
Our acquisition of MTV is another critical step in our growth strategy to expand our market share in long term growth industries such as candidates.
We view the acquisition of MTV as a step change for our business due to the addition to our portfolio of the candidates industry established high growth Tradeshow MJ Biz Con.
As with our acquisition of the elastic SaaS platform with income River in 2020 MG bid offers a digital platform for 365 day engagement in this case must read content and data providing relevant business information about each vertical and the candidates industry the benefits from it.
Acquisition are twofold, as we anticipate a material contribution to total revenue generated from our in person events as we broaden our reach across a new industry, which includes our complementary digital platform, adding to the exciting investment opportunities that we have in front of us as we work to expand our business in the year ahead.
Overall, we are very excited with the acquisitions that we've completed over the last 18 months as we continue to optimize our portfolio towards industries and products with strong underlying growth characteristics.
Our balance sheet combined with the robust cash generation that we expect from the further normalization of the events industry and further expected insurance recoveries positions emerald to be the partner of choice for those looking to sell assets.
Those line, we've been very pleased with the properties that we are betting and see further opportunities to add attractive high growth assets to our portfolio over time.
That said, we will be balanced in our capital allocation as we weigh acquisitions investments in our own business to drive organic growth through new show and product launches as well as opportunistic share buybacks, which continue to be very attractive.
Over the last year, we repurchased two 5 million shares for an average price of $4 94 per share.
We expect to 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.
<unk> costs are largely variable typically 70% however, with enough advance notice a substantial portion of those direct costs can be avoided we continued to carefully manage commitments for those events yet to stage in order to maximize our ability to avoid further cost if necessary as the recovery continues.
As part of this we have driven a significant decline in our annual expense run rate for legacy Emerald on with other profit improvement initiatives. This has allowed us to more aggressively invest in growth initiatives that we expect will drive incremental value in the coming years and while reported SG&A has increased.
Versus pre pandemic period, due largely to the numerous acquisitions and investments. We have made we believe are scalable platform is in place that we expect to leverage and to drive margin expansion as revenues recover we will continue to review our organization for further opportunities to optimize our operations and deliver efficiencies in the year.
Go ahead.
Turning to our balance sheet, we finished the fourth quarter with net debt of $288 4 million.
Representing a net leverage ratio of two three times, our TTM consolidated EBITDA of $122 7 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 exceed 35% of our revolver capacity of $110 million at December .
31, 2021, 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 are very pleased with our success in executing our strategic initiatives designed to streamline our operations and to expand and diversify into high growth industry and new digital mediums, while keeping a tight rein on our expenses as we look to the year ahead, we are focused on accelerating our investment.
And new growth initiatives to drive improved revenue growth to help the investment community better understand the trajectory of the recovery, we have decided to initiate selected guidance. This morning.
As our growth initiatives take hold and the exhibition industry continues to recover in 2022, we expect to achieve fiscal year 2022 revenues in excess of $300 million.
And adjusted EBITDA in excess of $50 million.
Importantly, this adjusted EBITDA guidance is net of $10 million of projected investment in growth initiatives on elastic SaaS product and new shown launching new verticals, we expect to achieve fiscal year 2022 free cash flow in excess of $70 million.
Also importantly, these adjusted EBITDA and free cash flow figures exclude any future recoveries from insurance, which we expect to secure such as to just approve amount I indicated earlier.
Further looking ahead to fiscal 2023, we expect to build on our full year return of our events to deliver improved margins and in excess of $100 million of adjusted EBITDA as we work back towards historical margin levels over time.
With that I'll now turn the call back to Harvey.
Thank you David.
This is an exciting time at <unk> as we plan for a full slate of events in 2022 as the recovery is taking hold in.
In fact, our stronger events set the stage in the first quarter are pacing within 20% of their pre COVID-19 levels, while certain other brands are taking a bit longer to fully bounce back due to the industry specific issues types of lingering supply chain challenges and changes in sales cycles. In addition to pandemic related reasons.
Importantly, we are tracking to substantial year over year revenue and adjusted EBITDA growth as our guidance implies.
While we are enjoying strong cyclical growth, we're working hard to expand our business and our revenue streams.
Historically emerald's growth was dependent on price increases minimal new show developments and accretive M&A, we see a much more open ended growth opportunity as we work to grow our total addressable market by tapping into larger pools of our clients' marketing budgets to do this we are working to engage with our customers 300.
65 days a year to boost the volume of leads we can provide through our live events are SaaS digital marketplace as well as the publications and the digital offerings and.
And have made significant progress towards achieving our goal over the past year, we have diversified our business by acquiring and launching events as well as purchasing several complementary businesses through the pandemic and are coming out with strong organic growth led by the importance and high growth SaaS platform embedded in our <unk>.
Business entry into new high growth industries, and improved digital assets that we expect will provide a more robust model and sustained growth as we look into the future.
Thank you again for your time today and now operator, please open the meeting for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchstone.
If you are using a speakerphone please pick up your handset before pressing the key.
Jonathan Your question can you. Please press Star then two.
So first question is from Annick Maas of BNP Paribas. Please go ahead.
Hi, good afternoon, and thank you for the presentation. So my first question you suggested that this year you expect to do more M&A and can you maybe comment that youre seeing in the industry or is it fair to assume that the latest acquisition the multiple that you've disclosed.
Sort of range that you can see these dates in the industry.
And secondly, you've suggested.
Suggested that one of the growth opportunity is to basically increase your Tam by I guess I would put it going more into digital.
What makes you say that this is an incremental.
<unk> opportunity as opposed to just a switch from maybe you've done lead generation before via going to face to face exhibition.
And then finally can you comment on whether you were able to raise your prices I guess 2019 put it shows that you ran already this year. Thank you.
Hi, Good morning, this is David I'll take.
The first and last question and I'll leave the middle one for Herve.
On the M&A front the range of multiples continue to be fairly wide, depending on the asset the scale of the asset the industry that it's in.
So I would say that from a smaller tuck under standpoint, there is surely our deals in the in the mid single.
Single digit EBITDA multiple range we're in.
<unk> scaled higher growth assets.
And in the high single digit multiple range is generally what we're seeing out there. Ultimately every deal is unique in and of itself.
And has its own facts and circumstances, but that's generally what we're seeing and it continues to be a wide range, depending on the type of business.
Thats available in the marketplace in terms of pricing.
Okay can I just clarify so when you think about this most of it at the one year point in my prepared remarks.
Well it depends again on the asset there are still.
Some assets that did not trade.
During the pandemic or traded in a very different form during the pandemic and so.
Sometimes you're looking at a combination of a pre pandemic.
The performance of the business combined with an expected solar look in.
And come up with some sort of blend so.
There is no clear and clean way to answer that question because of the unique circumstances of the pandemic and.
And how each business was able to manage through it.
Okay. Thank you.
In terms of pricing.
We have in fact been able to continue to improve yield at our events based on the value that the events are providing.
What we've successfully been able to do.
Throughout the pandemic is work to improve our offerings to our customers, adding things like matchmaking, which herve alluded to in his comments that provide incremental value.
And we very strongly believe in our positioning ourselves to price to the value that we deliver.
That has allowed us to continue to have a favorable environment on that front for our business.
With reference to the content question that you raised in <unk>.
We do see that as incremental revenue for a couple of reasons. The primary reason is that in working with the brands that we have that have good strong content either acquired brands like MTO visit we just acquired or existing Emerald brands. What we see is the ability for us to provide leads to our <unk>.
Customers all year.
And so while we continue to invest in live events continue to provide these live events and price for the value that we create a lot of events. There is incremental opportunity to do so through content, capturing leads and providing leads to our customers.
Through a content platform, so we really see the.
The revenue streams as live events content and marketplace as three distinct.
Revenue streams for us.
Okay. Thank you.
Okay. We do have a question. Please press Star then one the next question is from Katherine Tait of Goldman Sachs. Please go ahead.
Good morning, David couple of questions from me.
Thank you very helpfully gave the figures for the decline in attendees versus pre pandemic levels for Q4.
Can you also give the sort.
Is this sort of versus pre pandemic.
Just I guess as well just keen to understand the sort of different Tim dynamic there between the number of attendees and exhibitors.
Exhibitors.
And then I suppose linked to that and can you give us a sense of what your forward bookings are looking like for the first half of 2020 case.
I think linked to that are exhibiting leaving it more till the last minute to already sign up.
To that point, how much visibility do you really feel you have kind of going into the year ahead.
And then slightly different question.
Can you just touch on inflation and sort of what you're seeing from that perspective.
Is that sort of impacting the way you're thinking about the cost base over the next 12 months. Okay. Thank you very much.
Great. Thank you Catherine and good morning from an attendee standpoint first exhibitor standpoint, the ranges that we gave in the script is actually the range for both and I would say that the attendees at the better end of the range and the exhibitors were at the worst ends of those ranges and the reason for that is that exhibitor.
In many cases, we're uncertain with the attendees would show up and given the.
Pandemic.
And the impacts of it.
While we will surely there were some exhibitors that.
Independent because of health and safety concerns and hopefully those continue to alleviate overtime.
I'm also going to 10, because they were concerned about ROI and who would depend on the other side and so.
The big success of the year and in the return of live events post the reopening of the pandemic is that attendees came and they generally came in droves and in much larger numbers than exhibitors, which made for a just tremendous experiences for the exhibitors, who did come and tremendous buzz and word of mouth coming out of the events.
<unk> has proven to be a catalyst to bookings for the next event in 2022, which is one of the reasons why we're looking for such a strong incremental recovery in the coming year.
So that translates directly into the forward bookings question.
You asked in an industry, where people are waiting a little bit longer.
Because of the uncertainty out there to book and so we don't have as early view now we've been able to counterbalance that with some things.
In terms of best practices of how we're selling so for example.
Before the pandemic Emerald only did onsite rebooking for the next event that about a quarter of it shows that we now do it for all of our shows and so we're getting out ahead.
The sales cycle that we had before and trying to bring incremental visibility and build off of the enthusiasm of the existing event.
As we look out farther out we will generally the better we're pacing and so we are seeing incrementally better.
Expectations for <unk>, and we had in <unk> and then similarly, we would expect as we move towards the back half of the year. It would continue to improve from from the earlier parts of the year.
As well.
To your last question on inflation.
For sure.
<unk> is something that we're watching very closely we're managing it aggressively.
One of the areas, we've been able to counterbalance it.
Through our new procurement function, which for those who have been paying attention to us know that we rolled out in the middle of 2020 for the first time in Emerald and so we're increasingly leveraging our scale to consolidate contracts and optimize and optimize our contracts and our pricing in them and thats a key tool for us to offset inflation.
Larry pressures, but the other one and coming back to <unk> question is around pricing and we're very focused on delivering value to our customers and when you deliver value.
And price for that value and so we're also.
Ensuring that we are able to price effectively to offset any cost pressures that may come on the vendor side.
Okay. Thanks very much.
This concludes the question and answer questions I would like to turn the conference back over to Jorge <unk> for closing remarks.
Thank you Kate and thank you all for joining us today, and we look forward to speaking with you next quarter.
Thank you and goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.