Q3 2022 Emerald Holding Inc Earnings Call
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Okay.
Good morning, and welcome to the MRO Holdings, Inc. Third quarter 2022 earnings Conference call.
Before we begin let me.
We remind everyone that this call will include certain statements that constitute forward looking statements with the meaning of the private Securities Litigation Reform Act of $19 95.
These include remarks about future expectations beliefs estimates plans and prospects.
In particular, the company's statements about projected results for 2022 and 2023 are forward looking statements 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 the 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 prepared in.
In accordance with U S GAAP.
The 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 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 November 10th 2022.
I would now like to turn the call over to Mr. Herve, <unk>, President and Chief Executive Officer. Please.
Please go ahead.
Thank you Paul and good morning, everyone.
Good to be with all of you today to discuss our third quarter results. We produced another strong quarter focusing on our core services of live events.
Alongside content and commerce as our business continues to Google apps towards pre pandemic levels.
It's really simple we produced industry, leading line of business events and trade shows which are complemented by our content and e-commerce offering adding to our customers' return on investment.
We have several globally booths at our disposal, including one the multiyear post COVID-19 recovery of live events, taking place too.
Unrelenting focus on customer Centricity.
With regards to retention opportunities.
Those sponsors and participants.
Sui pricing, which has always been a tool in our toolkit.
Four new event launching.
Hi.
Continued high quality movies and acquisitions and six exciting.
Exciting growth from our E Commerce platform that is complementary to one another then and helps our customers generate higher returns on investment combined with our strong balance sheet and tremendous free cash flow characteristics.
Mistake about the pizza.
Before we begin I'd like to note that during the quarter. We received final proceeds of $149 million related to our insurance litigation settlement with the events that were impacted by the COVID-19 pandemic in 2020, and 2021, bringing total pandemic related insurance proceeds to 373 million.
David adopt our CFO will discuss this further in the financial section, but suffice to say we are pleased with the outcome that continued significant liquidity and we're looking forward to focusing on growing the business also wanted to say how pleased we were with last month's edition of advertising week in New York City. This was.
The first iteration of the events in the Emerald acquisition of that World Class brand in June and we couldn't be more pleased with the results there.
<unk> brought together 12000 attendees from 47 countries.
Over four days that included over 1000 speakers and exceeded both pre pandemic attendance and revenue levels. It was extraordinary to see the breadth of the team.
That went far beyond the traditional knee deep in the marketing space and including some included some of the biggest companies and consumer brands in the World, which is also a great example of the type of business Emerald is becoming Premier then with broad audiences that generate stable cash flows as well as growth opportunities when plugged into the.
Emerald platform the team at advertising week has been a pleasure to work with and we look forward to benefiting from the expertise and industry connections as we work together to grow and enhance the advertising business.
Now turning to our third quarter highlights we held 25 line in person event with more than 79000 attendees.
3900, exhibiting companies remind you when youre looking at year over year comps, our third quarter of last year reflects elevated levels of activity as many shows that.
Scheduled for the first half of 2021.
In Q3, Q because of Covid related delays. These shows that took place off schedule in Q3 2021 return to the regular data launched earlier in 2022 adjusting for the timing of those shows we saw a nice acceleration of our business this quarter and year to date importantly.
We continue to be pleased with the recovery of inputs and events and expect exhibitor and attendee counts to continue increasing as we close the gap and eventually surpass pre pandemic levels.
We expect to almost one quarter of our shows this year, we will meet or exceed pre pandemic revenues and while certain grants of a way to go others are already well ahead. This is consistent with what we expected and with what others in our sector are experiencing.
The market for <unk> will grow at a compound annual growth rate in the high teens from 2021 to 2026.
And these positive industry trends, we have embedded opportunities in our core trade show business to drive revenue growth to pricing for space rentals at all events, we've maintained pricing power for the simple reason that our shows on investment of January to high return for our customers. They are able to spend as long as we are able to deliver that.
Q and we are major focused on delivering greater value as I chose the ramp up back to pre pandemic capacity inhibitor attendance and stage rates are the two biggest drivers of organic revenue growth in the near term that said, we have three pillars of value creation that we're executing on daily <unk> portfolio.
<unk> customer Centricity at 365 days engagements that into each of these now.
Or the first pillar of value creation is focused on portfolio optimization here I Wanna talk about both organic growth and M&A opportunities.
Starting with organic well, it's been exciting year at Emerald as we continue to leverage our accelerated accelerator group to launch several new shows with more to come next year.
Just recently, we held our inaugural edition of decentralized deciphered or <unk>. This show held in October in New York brought together <unk> financial and technology executives for an educational conference on web three including blockchain digital assets and <unk> and the <unk>.
In two weeks in partnership with our empty discount next phone conference will be hosting the inaugural edition of reminds of business, one dedicated to connect and researchers entrepreneurs policymakers and health care professionals to discuss the growing industry of psychedelics and next year, we're hosting the terror of platform apostrophe and can I.
Actions between mental health innovators and corporate leaders seeking solutions for their organizations and employees.
Each of these cases, we're targeting high growth industries with a BW components, where we see significant opportunity to apply mo's flywheel overtime, we expect newer that launches to contribute one to two percentage points of incremental organic revenue growth per year.
Another part of the portfolio optimization pillars acquisitions, we made a significant.
Opportunity to leverage Emerald scale and operational efficiencies to continue to be a leading consolidator arrive <unk> events in the United States, even at the largest U S. Based operator of three shows and won't represents only an estimated mid single digit percent of highly of the highly fragmented market portrayed shows in the country we have to.
Stanford runway to complete additional tuck in acquisitions to grow our revenues and audience.
Fourth quarter alone. In addition to the advertising week event in New York I, just mentioned MJ discounted leading candidates event and contact acquisition. We made at the end of 2021 is slated to bring together more than 30000 professionals in Las Vegas. Later this month from a financial returns perspective are acquisition have all.
Also been structured in a tax efficient way expected to provide us in excess of $70 million present value of deferred tax assets.
Looking ahead, we continue to build a pipeline of acquisition opportunities. We believe that scalable platform, where buildings gives us key advantages over other bidders and allows us to generate greater returns as we acquire more events not only can we operate with scale efficiencies, but we've been insured enhanced floor experience where exhibitors and.
Indeed, with animals technology and matchmaking capabilities.
Beyond the Tradeshow roll-up opportunity.
We've also added capabilities that will serve to increase the value of all parts of them on the platform and the third quarter, we acquired bulletin, leading wholesale e-commerce platform and the gift and home space that aligns with our nearest now events and that Bill on E. Commerce offerings, we established with elastic by adding services like both.
And we're compounding the value of our courts ratio of business, while furthering our goals of customer Centricity and 365, the engagements I'll focus on portfolio optimization helps us maintain a diverse slate of events spanning multiple industries are energy diversification means that its industries are experiencing headwinds others may be.
Entering a counter cyclical uptrend, our customer base is likewise highly diversified with no single customer representing more than 1% of revenue in our largest Rachel remains in the single digits per cent of revenue with a highly diversified exhibitor base within the event itself.
Our second pillar of value creation, it's customer Centricity, we should consistently serve to increase our revenues per customer and revenues prevents we're investing in technology to build a consolidated database of our first party dedicated to improving customer experience and value our portfolio.
Shows trade media and e-commerce platforms generate a substantial amount of data on both the buyer and the seller sides that has previously been an untapped resource for emeralds by centralizing the data, we gain better insight into our customer activity, helping them to generate more and higher quality we have them.
Find other relevant shows and content within the Emerald network and ultimately increase revenue per customer.
We are of course, very mindful of the need to protect customer data and are developing our technology includes consultation with our customers. Our end goal is to provide better service are always putting the client's privacy first.
Another way, we're making it easier for our customers to attend Emerald shows is by offering onsite Rebookings for 2000 2003 events that almost all of 2022 events.
Not only has the benefit of giving us greater visibility into the next 12 months of revenues, but it also improves the retention rates of our events and incentivise its customers to rebuild early to avoid losing their preferred space on the floor.
The third pillar of of value creation strategy is 365 day engagements. This means providing customers with multiple entry points to Emerald platform from our trade shows to accomplish his webinars media content and E Commerce software.
Go here it should drive a lot.
We look back to Emerald is offering buyers and sellers multiple avenue to stay engaged with their industries and customers and year round inbetween attending one or two teachers per year, we want to offer our customers the opportunity to make connections.
The cutting edge of industry changes build a sales pipeline and convert leads to actual sales at a higher rates, thus amplifying our branch and lifting their value for example, a customer and they come to Emerald by attending one of our trade shows for the first time in generating needs. Some there we can help them deeply believed to R E.
<unk> platform.
<unk>, Sweden, a buyer can scan items at the show and been things to their board and the elastic platform and can I go home and see how those items.
To shop environment, they can message the seller with questions on the products and ultimately place an order through the platform in the meantime, Emerald can use the inside we gathered on those streets will attend to open them relevant content newsletters and advertisements to drive further engagement outside of the annual show cycle.
We can even costa them on other Emerald events, where our data shows that the best potential for regeneration.
This is very powerful flywheel and I want to emphasize that most of these benefits will be realized in the near future as we begin to product the technology. Indeed advantages that we've been building for the past two years, we expect to have more material updates to share on these funds as we progress into next year.
Concludes we're very pleased with the fundamental trends in our industry and our delivering the higher attendance and space rates that ultimately pull through our revenues. If you add a revenue recovery to all the investments that we've made since the start of Covid. We are a much larger business then before the pandemic and with a highly efficient cost structures and negative work.
And capital profile, where we collect revenues for events up to a year in advance we have a business model that support substantial free cash flow generation on top of that we have a balance sheet strength to invest in our business and enhance the capability and we believe should drive ultimate growth for emerald above and beyond industry growth rates.
That let me turn to call me, which date adopt.
Thank you have a good morning.
Add survey mentioned earlier, we're very pleased with our results fifth quarter and year to date and believe they point to a robust recovery and the live events.
Jumping right into our results third quarter revenue was $62.4 million as compared to $76 $5 million in the prior year quarter.
Have they mentioned an important piece of context for our year over year comparisons is that we stay significantly more shows than usual during the third quarter of last year. It shows that were originally scheduled for the first half of the year were pushed into Q3, given COVID-19 related timing delays that uniquely affected 2021.
This year against were back in their normal time slots, which means many of them that staged and <unk> staged in the first half of this year.
To provide a better comparison, we have given a breakdown of organic revenues and non-GAAP measure that takes into account the priming ship.
The impact of acquisitions in our earnings release. It also includes our content e-commerce subscription software businesses.
On that basis, and adjusting for the scheduling mismatches between 2022 and 2021 organic revenues for the third quarter of 2022 $56.6 million, an increase of $14.2 million or 34% as compared to organic revenues of $42.4 million in the same period last year.
Ultimately that 34% organic growth in the corner and 42% year to date is the best indicator of the continued recovery of the business and while our commerce software business continues to contribute mid twenties organic growth.
Our content business has reduced overall growth somewhat largely due to the technology issues, we discussed earlier in the year.
Adjusted EBITDA was $149 $7 million in the third quarter as compared to $8.6 million in the prior year quarter, reflecting the impact of the insurance proceeds received in September X.
Excluding insurance proceeds adjusted EBITDA would have been negative $1.3 million as compared to $7.5 million in the prior year with $13.3 million of the decline attributable attributable to the timing of trade shows as I previously described.
Therefore on a normal basis predict scheduling issue adjusted EBITDA in two three of last year would have been negative for.
Negative for $7 million.
You have to date, which absorbs the bulk of the calendar shifts Chuck discussed we generated adjusted EBITDA, excluding insurance proceeds a positive $31.7 million as compared to a loss of $23.8 million in the first three quarters of last year, So it's $55 million improvement through the.
First nine months of 2022.
Add survey noted we received final proceeds from our insurance litigation settlement of $149 to $5 million in the third quarter, bringing total proceeds received to $372 $9 million.
After $149 to $5 million 140, $854 million is recognized that other income you will notice that we have a $28 million tax payable on the balance sheet. This relates to be expected tax payment for the profits earned from the insurance proceeds received.
Free cash flow, including insurance in the third quarter was $150 $9 million as compared to $7.7 million in the prior year quarter <unk>.
Excluding insurance and other items free cash flow would have been $6 $2 million as compared to $8 $2 million in the prior year quarter again impacted by the timing of events in 2021.
As we've moved back toward a normal cadence of event bookings hour working capital had very from quarter to quarter given that we received booking deposits up to a year ahead of when we recognize the revenue for event staged.
Historically, given the heavy calendar of events in the first quarter, we've seen a meaningful swinging working capital in our favor during the fourth quarter, which flows through the cash flow. We continue to benefit from our Capex life business model and generating strong free cash flow. However, I note that as a result of rising interest rates and the impact on our interest <unk>.
Due to our floating rate that we now expect to generate free cash flow of between $60 million and $70 million, excluding insurance and one time items in 2000, and 2002 versus our prior estimate of $70 million.
On the expense side, we continue to prudently manage our cost structure, it's inflationary environment, our largest exposures labor costs, either through our own FTE or full time equivalents or via contractors onsite at all.
In general we expect to maintain the ability to utilize value based pricing to offset cost increases, which combined with our procurement efforts should allow us to protect margins.
Looking ahead to currency exposure, while our brand portfolio operate globally, we are fortunate to be a U S based company with minimal exposure to currency fluctuations.
Our elastic business generate some revenue can have some expenses and euros, which could have a net impact in the low six figures over the course of the year if the U S. Dollar maintains its strength.
Turning to the balance sheet, we had $366 million of cash and cash equivalents as of September 30th.
<unk> is $232 million in cash and marketable securities as of June 30th of this year.
To optimize interest income as your interest rates began to rise we continued to hold some longer maturity bank products. However, this quarter. None are over 90 days. So we no longer have any marketable securities noted on the balance sheet as they have all been shipped into cash.
We have full capacity on a $110 million revolving credit facility and as a quarter and our total liquidity was $476 million, we do not expect to drawn a revolver in the near term we have historic historically start to maintain a strong balance sheet supported by our cash flow generation, which should allow us to.
The new funding, our strategic growth initiatives and any economic scenario.
We will continue to thoughtfully balance our capital allocation between debt reduction acquisitions investments in our own business and opportunistic share buybacks, which have been attractive at these levels.
We repurchased 1.6 million shares of our common stock in the quarter at an average price of $3.74 bring our total repurchases since the beginning of 2021 to 5.3 million shares.
We're also pleased to announce that our board has approved an extension and expansion of our share repurchase program to allow for the repurchase of $20 million a common stock through December 31 2023.
As a corner and we had net debt of $149 million and a net leverage ratio of 2.07 times are trailing 12 months consolidated EBITDA of $72.0 million as defined in our credit agreement.
At this time I'd like to briefly review our capital structure. So that those who are needle a story can more easily value of the business.
At quarter, and we had 67 6 million shares of common stock outstanding.
As well as 71.4 million shares of convertible preferred stock outstanding the convertible preferred shares have a liquidation preference per share of $6.55 as of September 30th 2022, while recruiting at an annual rate of 7% which compounds quarterly.
When you divide that liquidation preference by the initial conversion price of $3.52 per share. It acquaints the each share a convertible preferred stock being convertible into approximately 186 shares of common stock.
When multiplied by the total number of shares of convertible preferred stock outstanding as of September 30th It equates to $132 9 million shares of common stock on a as converted basis.
Add to that the 67 6 million common shares already outstanding and Emerald has a total of 200.5 million shares of common stock outstanding on the ads converted basis as of September 30th 2022.
As of yesterday's closing price on our common stock this convert to a market cap of approximately $722 million. We have an estimated contingent consideration on our balance sheet of $36 $4 million for acquisitions made in the past three years as well as a deferred tax asset.
Work over $70 million discounted the present value based on the tax treatment of certain of our acquisitions.
This leads to an enterprise value of $838 million, given our net debt outstanding as.
As a reminder, we have the right to force conversion of the convertible preferred stock starting on June 29th of next year, if a common stock price exceeds $6.16 for 20 consecutive trading days.
Concluding with our guidance, we continued to be on track for full year 2022 revenues in excess of $300 million as first guided at the beginning of the year, we expect adjusted EBITDA of over $50 million, which is net of over $10 million, a projected investment and growth initiatives on our elastic staff product.
A new show launches a new verticals also consistent with our original expectations. We now expect free cash flow to be in the range of $60 million to $70 million largely due to the impact of higher interest rates. As a reminder, this guidance excludes the proceeds received from our bank cancellation insurance this year as well as the renegade.
<unk> settlement.
Our free cash flow guidance also excludes several one time items included in the other items lines of our EBITDA reconciliation.
Looking ahead to 2023, we continue to progress against our objective of meaningfully improve margins and adjusted EBITDA of over $100 million with that I will now turn the call back to her bed.
Thank you David.
Conclude we're very pleased with the trends in attendance and space rates with seeing a crossroad events. These provide a solid foundation for revenue growth as we continue to make investments in our business and strategic acquisitions to expand on our advantages as a leading platform <unk> events and content in the United States are bad.
Shoot strength supplemented by the proceeds from our insurance litigation settlements gives us the ability to continue funding. These investments in any economic scenario, where evaluating a large set of promising external growth opportunities, where we can leverage our scale and operational efficiencies to drive more and more events and brands Archie BMO.
Platform, we're very pleased with how we position heading into the end of the year and we look forward to delivering on our initiatives to drive further Margaret expansion and value for our shareholders. Thank you very much for your time today and with that we'll open the lines for questions.
If you would like to ask a question. Please press star one on your telephone keypad now.
You'll be placed into the queue in the order received.
Please be prepared to ask your question when prompted.
Once again, if you have a question. Please press star one on your phone now.
And we have a question from Allen key.
Your line is open.
Hi, This is diet Greenberg Entre Alan My first question is if you could just provide a little more color may be on the the level of presenters in spots as compared to pre pandemic, maybe on a percentage basis and if you see essentially further recovery there.
But I I think the best way to look at it is it probably next square feet at.
At our events, because we generate the bulk of our revenues from.
From exhibitors at the events as opposed to sponsors and speakers.
And while revenues overall are tracking 70% to 75% of pre pandemic because of price increases NSF is tracking.
No more like 65 ish per cent.
Two thirds to pre pandemic. So what that means is there is actually a significant amount of incremental leverage to the recovery for us.
Versus just looking at revenues.
Relative to pre night.
Pre pandemic.
Yeah.
Okay, Great and I was also wondering what's your recent acquisitions of add we can <unk>. If you could just go.
But I can color on the annualized financial impact you expect from those.
Time disclosed the impact of that.
I think as we go into 2023 and presenter formal full year guidance for 2023 will give more color on the pro for and the impact of the acquisition.
Okay.
Sure some of your newer events emerging areas.
Hello is progressing in maybe the difficulty of building interest church scratch scrubbed sponsors and attempting to just the process involved with that.
Yeah the.
The launches other than to really.
Largely due.
Due to the creation of the accelerator business unit, which we announced last year. So we have a dedicated team that identified opportunities inspectors for us to enter in.
We're very very pleased with the performance of that team not only for the launches that we've already announced but a number of others that are under consideration.
Will be announced in the future.
Okay great.
With your <unk> segments compared to trade shows.
How do you see the margins at scale between that so.
The the trade show business is a is a really powerful financial model.
Historically you know.
Run EBITDA margin of 35% to 45%.
Emerald depending on the year.
We expect that the incremental offerings that we've added.
Over time.
Will be equivalent margin.
To the trade show margin, though the higher end of that historical margarine, we don't think is reasonable because.
We prefer to optimize margin versus growth and reinvest in the business and new launches for example that when you are.
One and two don't really make money or lose money, so, but it's key to building longterm value for the business and for our shareholders.
So we think we could operate 35% to 40% margin in time, we that you need to build back towards that of course, given the pandemic impact on the business.
And the other offerings, we have it should be equivalent to that.
Okay. Thank you that's very helpful.
If you could maybe just discuss some of the actions you take him to grow danek growth rates by 1% to 2% a year.
Well I I I I want to clarify uhm, we expect to grow organic growth mid single digits or better.
As we normalized.
Once we.
Recover fully from the pandemic, obviously as you can see we're growing at a much faster rate. This year and we would expect to grow at a much faster rate next year. The one to two percentage just review event launches.
And the other components of organic growth will be driven by the.
The other initiatives that we talked about and customer centricity and driving the attention and value based pricing, which gives us leverage on growth of our events. In addition to.
Net square footage.
On the 365 engagement strategy, which is providing other means for us.
To provide value to our customers and thus monetize for animals.
Okay.
Okay. Thanks for clarifying that I just have two more the fast is related to <unk> environment, maybe some areas you would like to add.
Tangela accretive acquisition was tailing, maybe just how you view evaluations and the financial criteria you apply.
Maybe just how you integrate those acquisitions once.
<unk>.
Alright.
We prefer not to talk about where we are looking at M&A because that's.
Competitive in many cases.
Well, we'll announce them as they come up but we are open about the fact.
That given our strong balance sheet physician and given the incremental value.
We can provide to an acquisition get an hour scale on our platform and our technology and data and our resources.
We are active in the marketplace looking at opportunities. So so will be clearer about that but where we prefer to keep to ourselves for now in terms of multiple is it really does depend on.
The size of.
Of a of a business the growth profile.
Generally we are looking at.
Mid to high single digit EBITDA multiple.
Which.
Given our potential opportunity for synergies and.
And driving incremental value, we think we can bring those multiple down quickly once we own businesses.
That seems to be the marketplace, but it has a wide range immediately and because there's a wide range of types of businesses that we're looking at that would warrant that and.
And in terms of integration, you're one of the real benefits of BMO platform is.
We do have scale.
In areas like.
Operating five events, we had scale in areas like.
Marketing technology.
And the data.
Around our customer base and across sectors and businesses.
And our sales organization and all those things allow us to bring.
Value to businesses, we bring in.
Some are great at those things and not all of them get incremental value from every service, we offer but there's always something somewhere.
We could have best practices, we can leverage the scale of our resources and drive better utilization and Thats margin, we surely based on our scale have.
Our contracts and most and we can often get incremental savings by consolidated vendors into our into our bed.
Et cetera, so there's a number of ways.
That we can add value as a business and.
And and and ultimately drive incremental growth and value for our shareholders.
Things up at at David's comments are one we're building a proprietary database of opportunities which is.
Which is really important as we look to invest and grow through acquisition.
And also the reverse impact of what we can benefit how the envelope.
Platform can benefit from acquisitions. There are some best practices that acquired companies have that we are quickly able to look at review and integrate and benefit across the entire.
Portfolio.
Okay, great. Thanks for the color of their.
Just my last question is what plan teenager proceeds from some cash on hand, and make any insurance reimbursements nowadays.
Sure.
In the script to the look for areas.
That we balance and use the proceeds in with the.
Thank you the strong cash then we expect to generate from the business.
Surely given the current environment.
Looking at our debt levels and whether that reduction makes sense, we have a share buyback program that we've been active with and.
You know given the trading liquidity of our of our stock.
It is hard to buy a lot on that front, but it sure is.
An arrow in our quiver.
We're looking at acquisitions.
For sure.
In terms of of the business as we set about and we're looking at organic investment into.
Into the business in areas like accelerator.
<unk> B R use of capital in the short term, but traders of value in immediately.
As we said before you were paying mid to high single digits for for asset to acquire but if we can successfully build those businesses ourselves we can build it at one or two times.
EBITDA delivered the last three or four years from now which is a great return.
For our shareholders.
And surely would be really attractive if we can find more opportunities to do that and so we've definitely allocated and will continue to allocate some capital to that.
As a reminder, if you do have a question. Please press star one on your telephone keypad now.
And we have no further questions in queue.
Okay.
I wanted to thank you all for joining for your interest in.
And I look forward to speaking with you next quarter.
Very good day.
That concludes today's conference call. Thank you for attending and have a pleasant day.
The House has ended this call goodbye.