Q2 2023 Emerald Holding Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Emerald holding incorporated second quarter of 2023 earnings call before we begin let me remind everyone that this call will include certain statements that constitute forward looking statements within the meaning of the private securities.
Legislation Reform Act of 1995.
These include remarks about future expectations beliefs estimates plans and prospects in particular, the company's statements about projected results for 2000 twenty-three are forward looking statements such statements are subject to a variety of risks uncertainties and other factors that could cause actual results too.
Or materially from those indicated or implied by such forward 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 prepared in accordance with the U S gap the reconciliation.
Nation of these non-GAAP 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 August 9th.
I would now like to turn the call over to Mister or Vey said key President and Chief Executive Officer. Sir. Please go ahead.
Well, thank you Vanessa and good morning, everyone is going to be all of you today to discuss a second quarter results I'll start with an overview of the trends that we're seeing so far this year and then give an update on our growth strategy focused on customer Centricity 365 day engagement and portfolio optimization.
Dr. C. F. O will then provide more detail on the financial.
We continued to see strength and the recovery of live events as post Covid demand is driving meaningful year on year growth in our business. We expect this trend to continue into 2024 and beyond as we see the return of international attendees and further improvements in our customer.
Supply chain lead times as long as the impact of some of our strategic initiatives focus on enhancing customer experience and a tangible value we deliver it to them.
When you combine these underlying fundamentals with the improvements we've made to drive operational efficiencies and advantages of scale over the past few years, it's easy to see how Emerald is becoming a platform for multi year outsized growth.
Our success in centralizing key functions, such as pricing and purchasing.
A couple of years has unlocked even greater efficiencies. We believe this provides us with strong operating leverage as we continue to grow the company, both organically and through strategic acquisitions.
Our business has several features that make it resilience even in uncertain economic environment.
First we provide a tangible ROI to businesses for their marketing budgets for many businesses trade shows are there are a number one selling events of the year and a big part of our ongoing efforts has been to clarify this value proposition and make the R Y more transparency by developing value added tool.
And metrics that we believe will deliver an even better treat your experience to both the exhibitors and attendees <unk>.
The result is that our customers view our shows as in investments rather than a cost seconds. We have solid visibility on revenue through next year, we've been successful in encouraging customer strip pre booked their space for the following year at this year's events.
Not only provides our returning customers with the opportunity to reserve their ideal space on the floor, but also frees up our sales force to pursue new new business, rather than rebookings over the coming year and increases our overall visibility on revenues up to 12 months into the future.
Third we have a diverse portfolio that service industries with different behaviors during economic cycles, and while it's true that some of our events serving markets that are softer in the current economic environment, others are thriving given non correlated factors driving demands for example, R. A S. D franchise is a key mark.
Get place for value and discount retailers of all sizes, while our design portfolio, which makes up approximately a quarter of a revenue has diversed exposures to various sector sectors, such as health care and senior living that have secular growth characteristics and educational facilities, which have government funding, giving us.
Visibility into purchasing activity.
Because of these dynamics and the ongoing post COVID-19 recovery, we expect our business to hold up well, even if some companies advertising budgets may be restrained in the short term.
As such we continue to work towards our previously provided financial goals that are represented in our guidance and performance to date.
In a year, where corporate earnings in many sectors will be under pressure or guidance reflects a more than 20 per cent year on year increase in revenue in a more than 75% year on year increase and adjusted EBITDA X insurance.
In addition, we believe we have plenty of room over the next few years to bring our margins up from the 25% adjusted EBITDA levels implied in our 2023 guidance. This year to 35% plus margin that this business achieved before the pandemic based on the operating leverage I referenced earlier.
[noise] supported by Us already having built an infrastructure to support a much larger revenue base.
Taking all the pieces together, the organic growth and exhibitors and attendees as well as the improvements in pricing the post COVID-19 tailwinds, the M&A opportunities and a new show launches the scale efficiencies and the value of our E. Commerce software platform, which is not yet fully reflected in our valuation it's.
Not hard to believe that Emerald can become a significantly bigger and more valuable company in the next few years, we are more than the sum of our parts. That's in large part due to our strategic vision, we believe that longer term post full COVID-19 recovery we could.
Deliver run rate organic growth in the mid to high single digits combined with growth from acquisitions in the mid to high single digits to contribute to double digit annual revenue growth overall in the near term. We expect this will be even higher given ongoing post COVID-19 trends.
Moving to our second quarter performance and May we announced an exciting partnership with a national Basketball Association and the launch of N. B a con a first of its kind fan events that Emerald hosted in collaboration with the N. B a we help the first N b a con events in Las Vegas in July .
With over 100 current and former players and attendance along with musicians fashion brands and fans.
We anticipate growing this collaboration to several events per year overtime, while 2023 will be a net investment year for this project is refund at startup costs. We expect the bottom line benefits of our partnership with the N. B a should begin ramping up in 2024 in the meantime, the successful launch a N b.
<unk> is already providing intangible benefits to emerald as it demonstrates to our existing customers our ability to unlock new audiences across new event types on an organic basis.
We also hosted the first edition of Overland Expo West since our acquisition of the branch earlier this year when we bought lodestone in January with a record attendance at the June show in Flagstaff, Arizona. This was followed by the strong Overland Expo Pacific Northwest event in Redmond, Oregon in July .
Together, the overland to expose and the N b a events represents a previously untapped market for Emerald into consumer live events space that we believe can grow into a more meaningful share of our business over time and complements arvida be portfolio by offering our customers the ability to interact directly.
<unk> large consumer audience is on the Emerald platform.
Looking ahead, we remained focused on our three pillars of value creation that I'll briefly recap. Our first pillar is customer centricity. This means delivering greater value to customers in the form of add on services actionable data and insights and a clearer picture of the return on investment they risk.
<unk> from the marketing dollars that they put to work across Emerald platform. We believe that this improves our stickiness with customers incentivise them to deploy more marketing dollars with Emerald and ultimately should help drive a higher revenue per customer.
Our second pillar 365 day engagement means that we provide multiple entry points to the customer engagements cycle through Tradeshows conferences, Webinars media content and R. E Commerce platform R. E Commerce platform called elastic provides buyers and sellers with a specialized digital marketplace for year round selling.
Enabling significant time and cost savings, while providing customers with an easier way of buying in the wholesale market.
Our third pillar is portfolio optimization, where our goal is to continue to expand emerald portfolio and build exposure to even higher growth and markets by acquiring complimentary businesses and launching new events in high growth sectors. R&B. A partnership is one example of this looking ahead.
Into the remainder of the year, we're excited to launch the first edition of our new Cassena sub Rosa Latin food show entering a fast growing and untapped food market for wholesalers retailers and restaurants overtime, we expect new event launches through our accelerator unit to contribute.
At least one to two percentage points of annual revenue growth.
On the acquisition sides, we continue to evaluate a diverse pool of potential acquisitions with the ability to bring emerald scale and operational efficiencies two shows within a highly fragmented industry.
To conclude we've been focused on building emerald into a powerful platform that can only benefit from the ongoing COVID-19 recovery, but also build on that momentum for years to come we expect to see those benefits play out in the near term as our operating leverage enables us to add more shows grow existing.
<unk> and drive increased revenue by delivering value to our customers marketing budgets.
If you'll allow me a moment of reflection I'm very pleased with where we are now and where Emerald is headed heading when times were tough in the midst of Covid. We came up with a bold vision one that was both grounded by the realities of the collapse of live events and inspired by the opportunities to envision the.
Industry differently more creatively better adapt it to our customers individual experiences I think we are at a pivotal pivotal moment in our industry, one where we may look back 10 years from now and think yes.
That was the moment when the industry re imagined itself.
With that let me turn the call over to David Daft Art CFO .
Thank you Herve and good morning <unk>.
Starting with the top line, our second quarter revenue with $86.5 million compared to $71.4 million in the prior year quarter. The increase was almost entirely due to organic revenue growth as well as some modest revenue from new acquisitions.
Organic revenue, which takes into account the impact of acquisitions in scheduling adjustments with $79.2 million, an increase of $7.9 million or 11.1%.
<unk> the second quarter of 2022 year.
Year to date or organic growth was 16.6%.
As a reminder, the second and third quarters are seasonally slower following the busy Q1 trade show calendar, our acquisitions has slightly shifted the seasonality dynamics compared to our historical performance in general from a revenue standpoint, we expect you to to represent just over 20 per cent of our annual revenues do three to be <unk>.
The smaller Q for it to be our second largest quarter in Q1 to be our oranges.
Second quarter, adjusted EBITDA, almost doubled to $14.6 million compared to $7.5 million, including insurance proceeds in the prior year quarter the.
The increase in adjusted EBITDA was primarily driven by flow through of organic revenue as we leveraged the fixed costs of running events as well as prior investments year to date adjusted EBITDA. Excluding event cancellation insurance proceeds has increased $54, 4% to $51.1 million reflective of the operating leverage in the.
Business Sir.
Second quarter free cash flow was $4.6 million compared to $2.4 million, excluding insurance proceeds in the prior year quarter.
Turning to expenses, we continued to effectively manage our cost structure in this inflationary environment, while second quarter, SG&A was $41.8 million versus $32 $3 million in the prior year quarter. The increase was due to the fact that last year's SG&A benefited from a negative 10 million dollar off set.
Due to a mark down of estimated or now payments and and due to the initial SG&A in 2023 as a result of the acquisitions of advertising week, which closed at the end of Q2, 2022, Bolton, which closed in July of 2022, and Lodestone, which was earlier this year, excluding these items SG&A.
With flat to down <unk>.
<unk> for the balance sheet, we had $204 $7 million in cash as of June 30th 2023 versus $217.3 million as of December 31.
Our total liquidity is $214 $7 million, including full availability on our 110 million dollar credit facility.
June we completed the extension of our term loan facility to May of 2026, with an outstanding balance of $415 $3 million as of June 30th.
At a rate of sofa, plus 500, plus 10 basis points credit spread adjustment for the transition from LIBOR to sulfur.
There are numerous financial impact in the second quarter financials as a result of the term loan extension transaction.
Given the nature of the term one extension it had certain accounting impacts that led to the costs related to the transaction to be accounted for in numerous places first we recorded a 2.3 million dollar loss on extinguishment of debt as an expense in our income statement, which is an allocation of a portion of the original issue discount we paid on the terminal.
We also recognize $2.1 million, a third party fees related to the financing transaction and interest expense in the corner and as a result impacted our free cash flow the remainder of the cost of the transaction were capitalized on the balance sheet without these term loan extension related costs <unk>.
Free cash flow would've been $6 $7 million in the corner.
We believe our balance sheet strength in cash flow generation support our ability to opportunistically invest in and grow our business. We will continue to balance capital allocation between acquisitions investments in our own business and opportunistic share buybacks, we have $3 million remaining on our current share repurchase authorization.
As of June 30th we had net debt of $210 $6 million waiting to a net leverage ratio as defined in our credit agreement of 1.9 times are trailing 12 months consolidated EBITDA based on our credit agreement of $110 $3 million.
One balance sheet related item I'd like to highlight is that as of July one of this year. The company now has the right to choose to pay the quarterly dividend of our convertible preferred stock and cash or pit.
Up until now.
We were required to pay in-kind.
The company also has the right to choose each quarter, how it would like to pay.
Given the conversion price of the convertible preferred stock of $3.52 as compared to the current share price. The independent members of our board have approved managements decision to pay the upcoming September September 30 payment in cash.
The total payment this quarter is $8.6 million, which means that we are avoiding the issuing of 2.4 million shares on an as converted basis.
This is an option we will carefully consider in our capital allocation analysis going forward.
With respect to our capital structure, an overview can be found on slide 11 of our earnings presentation deck factoring in 62.9 million of common shares outstanding at June 30th and then an additional $139 9 million common shares represented by the convertible preferred shares as of June 3rd.
Our total share count on and as converted basis would be $202.8 million.
Based on yesterday's closing price this equates to a market cap of $982 million.
Adding in our debt.
Estimated contingent consideration on our balance sheet for acquisitions.
And deferred tax asset worth approximately 7 million $70 million. This leads to an enterprise value of approximately $1.1 billion.
In our full year guidance for 202003 as we stated on our last earnings call. We continue to expect in excess of $400 million in revenue in over $100 million of adjusted EBITDA. This.
This guidance reflects them more than 75% increase over 2000 2000 to EBITDA excluding insurance proceeds.
Our guidance implies an adjusted EBITDA margin of approximately 25% and we believe we have runway to improving on this number as we work our way back to the 35% plus margins we saw prior to Covid.
We also continue to expect free cash flow and 2023 of over $60 million before accounting for the benefits of working capital inflows as.
As we move forward, we will continue to closely monitor the onetime financing an acquisition related costs that I outlined earlier in my remarks, and keep you abreast of any relevant updates in the coming months.
Thank you very much for your time and with that will now open the line for questions.
And thank you ladies and gentlemen, we will now begin the question and answer session.
A question. Please press star followed by one on your Touchtone phone, you'll hear a three tone prompt acknowledging your request questions will be taken any order received should you wish to reach withdrawal from the question queue. Please press start followed by two and if you're using a speaker phone. Please lift the handset first before pressing.
Keyes, we have our first question from that part and Crockett.
And black.
Okay. Thanks.
Okay. Thank you for taking the question.
I was wondering if you could give us.
Update on where you see your recovery relative to pre pandemic.
On a few kind of measures where you think you are in terms of shows your operating now versus pre pandemic kind of exclusive of acquisitions.
And where are you see kind of pricing and attendance just give us kind of a baseline are you like three quarters will cover 90% just where would you say you are at this point.
Thanks partner, David So on revenues as we've indicated earlier, we expect to be in the eighties percent relative.
Relative to pre pandemic.
And a large portion of our banks are actually add for exceeding pre pandemic and.
And others based on the dynamic with their industry coming out of the pandemic are are performing a little lower and taking a little bit longer to bounce back which is we need to available more of an elongated recovery curb for us and one of the reasons why we think 2024 25, I will continue to see accelerated growth at Emerald.
On top of the organic initiatives that we've undertaken to drive growth.
In terms of attendance, it's it's around there a little bit better.
On square footage, it's a little bit less which means that pricing has been higher since pre pandemic, we've talked before about our efforts to optimize pricing versus value. It's one of the reasons why we focus so much on customer centric customer centricity as part of our growth.
Liturgy, and one of our growth pillars.
We believe that if we can continue to drive more value to our customers, we not only will retain more of them and drive NSF growth, but we also will be able to price against that and so pricing is up over 20% relative to pre pandemic in 2023.
Okay.
And then thank you for that I was also wondering about the initiative to accelerate our initiative one to two percentage points kind of increments through accelerator Uhm could you talk a little bit about this these new kind of events are these <unk>.
Yeah that these are kind of lost leaders.
And above over time and two profits how should we think about the the profit contribution from this portion of your growth opportunity.
Yeah I'll take that.
We have an echo here.
Barton. This is her base so yes, what we see with our accelerator business unit is in essence, an investment in growth and really creating a much bigger you know and valuable asset overtime. So we started investing in this initiative a couple of years ago, We've launched nine different brands.
And those brands on a on a year to date or by end of twenty-three will overall lose lose some money. So it's a it's a definitely a net investments by you know by 2026, they will now be producing revenue and earnings and so what will <unk>.
Have by the end of 26 is a a new wrote asset that that is will have been paid for over that over that period over the period of 2021 to 2026 and so we see it definitely is a net investment in the short term.
It starts to pay off in the outer years, and and then in a couple of years will be left with with an asset that will continue to grow and drive value.
Just to build on that Barton.
So in 2023 implied in our numbers does assume a low to mid single digit million dollar investment.
For new event launches and so it is a drag it is implied in the numbers.
And and we do expect that those losses will moderate.
Over the next couple of years before becoming a more meaningful contributor moral on the timeframe that Herve noted, but as you said it it's building.
Building, an asset at very low cost with very high return and the whole philosophy here around investing in growth and watching new advances, we could wait five years and by an event from an entrepreneur who launched into a greenfield market and pay them a multiple or we can be the entrepreneur is ourselves.
Launch into those market and Pat those businesses essentially self fund over a couple of years and own the business for nothing and so that's the idea that we're pursuing and so with nine event launches they.
They may not all become meaningful contributors, but we surely expect a few of them will we.
We talked a lot about the NBA partnership and we are very high on the opportunity to build a sustainable asset there as well as some of the other areas, where we've launched new events.
And I think the key here Barton from our perspective is is I would say the discipline around this business that we built it's it's a separate team. It's a focus team we have a research function within that team. We have a very disciplined three gate review process to go through.
For them to David's point, if it brands are not delivering then we we have absolutely no no issue moving on from them, but overall, it's gonna, it's a meaningful growth driver for us.
Okay. That's helpful. And then just one final question if I could.
Could you help.
<unk> walk me through what drives your EBITDA margin it up to the 35 per cent plus.
Does that require revenue growth you know as a cost opportunities just walk me through how you think you'd get their overtime.
Absolutely.
So one of the other core focuses of our team over the last couple of years has been to transform Emerald from what had been more of a loose Federation.
Events into events that run on a common platform.
So we've embarked on a number of centralization initiatives, we've talked about purchasing and pricing.
Centralize operations, we have centralized marketing operations and data management and <unk>.
Whole bunch of other areas aware we've created.
Create a platform upscale and best practices in order to optimize performance coming forward. We've also set over the last couple of years that because of the benefits of the insurance proceeds.
We received.
From the events that we cancelled during the pandemic. We also had the luxury of investing for the future not coming into our Saturday and so we believe that we have the overhead in place for scaling this business going forward and so as our businesses ramp back towards pre pandemic levels and beyond we.
Do not expect to need to add meaningful incremental costs to SG&A and we'll have some normal wage inflation, we might need to add a person or two along the way, but surely SG&A will grow at a much slower rate is our expectation than revenue and that is the largest source.
The operating leverage that we have at the business bounces back and grows beyond.
That's great. Thank you.
Ladies and gentlemen, as a reminder, I should you have a question. Please press star one.
We have our next question from Alan clean.
Group.
Yes, good morning, when when I look at the How're you break out your revenues by segment. The biggest increase was in other a fence could.
Could you just explain what what Ah that's attributed to thank you.
Sure so the quarter over quarter results.
Largely rely on the event schedule the timing of one events or other.
Other does have our new event launches and so it does benefit when we launched new events in the quarter. This quarter, we launched Oh, a X, which was outdoor adventure Expo, which is a consumer outdoor festival that stage the weekend before our outdoor retailer event.
In June .
In Utah.
Yeah. All other also includes our elastic E Commerce software business, which is among the highest if that highest growing asset with an emerald and so that's the other contributor for all other.
Thank you and then just following up on E Commerce software business.
How should we think about how much that's.
No I don't think it's profitable now could you give us a sense of what the drag is now, but but what that could turn into maybe next year or the year after.
Sure that that's correct, we are running the elastic business this year at around breakeven.
It was operating at a loss last year. So we've made meaningful progress of leveraging the investments we made in the scalability of the business last year too.
To have the majority of the incremental revenue growth this year for the bottom line and bring it to breakeven that is another driver of margin expansion going forward I Should've mentioned with Barton's question is we have a business that's about 5% of revenue operating at breakeven is Shirley holding back margins. This.
Here, we do believe that over the next three or four years the business will become.
Become a margin contributor that's equivalent to the rest of the company and so uhm as with many.
Many SAS software businesses revenue scale brings significant operating leverage in the business and we're on the cusp of achieving that.
Is there a way to think about for for next quarter.
The amount of a sense, you'll have relative to the gear before how much that will be up.
I I don't have the event calendar in front of me there may be one or two small launches in the quarter, but launches typically are are not meaningful contributors in your one they might be a few hundred thousand dollars each.
The number of events should be fairly consistent to.
The last year.
Keep in mind Q3 is typically our smallest quarter of the year as a percent of revenue for the year.
All of our of what was the.
What we think about as I mentioned the prepared remarks.
Somewhere in the in the high teens, so smaller than Q too.
So I think that you should keep that in mind as you're modeling out the business.
Okay. Thank you are are you able to just a couple of <unk>.
Data points from two Q can you provide the number of events <unk> I have a couple of metrics number of events versus last year Ah candies, how much that was net square footage how much of that was.
Number of it it's riveting.
Companies same thing in in pricing.
Okay.
So I mentioned the pricing earlier.
Pricing on <unk>.
2019 is is up over 20% pricing versus 22.
Is up.
Around 10 ish percent.
And so there is a.
A nice step forward and pricing this year as we can.
Catch up a bed on on the opportunity there with our new initiatives focused on price.
In terms of attendees attendees almost doubled.
From last year in the quarter.
And NSF was was up more in the high single digit percent.
In the quarter.
So it's great to see attendees coming back, it's a bit of chicken and egg in.
In terms of the groceries businesses.
We can bring the attendees the exhibitors follow if we have the right scale of exhibitors the attendees follow and so it's good to see the progress on that front.
In the quarter.
The the number of exhibitors you should use the the number of attendees as kind of the tracker I'm sorry, the number of the NSF is kind of a tracker of exhibitors.
I guess the other thing I'd add on that is is.
Oh it is it depends on the calendar quarter to quarter.
And we've talked a bit about the mix of of the business and different industries coming back at different trajectories Uhm. It Q2 does happen to have some of the areas that are coming back a little bit slower and so we would expect some of those metrics to bounce around a little bit quarter to quarter.
<unk>.
Thank you. Thank you very much.
And thank you.
We have no further questions at this time for centers. Please proceed with your closing remarks.
Okay, well. Thank you all very much in closing I'm very happy with the progress that we've made I'm also very excited about the opportunities that are ahead I. Thank you all for your time and speak with you next quarter have a great rest of your day and Goodbye.
Thank you ladies and gentlemen does conclude your conference. Please disconnect your lines.