Emerald Holding Inc (EEX) 2021 Q4 法說會逐字稿

Good morning, and welcome to the Emerald Holding, Inc. Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions)

Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company's most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings. The company does not undertake any duty to update such forward-looking statements.

Additionally, during today's call, management will discuss non-GAAP measures, which we believe 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 U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in the company's earnings release.

As a reminder, this conference is being recorded, and 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 March 3, 2022.

I would now like to turn the call over to Mr. Herve Sedky, President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator, and Good morning, everyone. On today's call, I will first provide an update on our recently staged shows. And second, we'll outline the progress we have achieved executing upon our strategic initiatives designed to transform our business while positioning Emerald for accelerated growth and a return to strong profitability and cash flow generation in the years ahead. David Doft, Emerald's Chief Financial Officer, will review our fourth quarter and year-end results as well as our 2022 outlook, which we're initiating this morning. We will then open the call for your questions.

As I look back on the past year, I'm struck by the disconnect that has existed between what is said and printed in various media outlets and what I've seen in our business. While I do not want to diminish the very real impact to 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 medium possible. We're not only an integral part of their marketing budgets, but among the highest return spends within those budgets. While some customers remain concerned with the pandemic and have not come back to live events, that concern is rapidly diminishing. In 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 levels. That has improved to a 35% to 45% decline in the fourth quarter, and we expect to see continued improvements in attendance in our 2022 shows. Just 2 weeks ago in Orlando, Design & Construction Week, which includes Emerald's run Kitchen & Bath Industry Show, or KBIS alongside the International Builders' Show, drew approximately 70,000 attendees, the largest domestic trade show 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 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 our recent events because of the uncertainty that existed will likely come to our events next editions. Ultimately, it tells me that we have a valuable business that is critical to both exhibitors and attendees, which is also validated in the success that we achieved in a very difficult environment having stage 63 live events, serving more than 129,000 attendees and 7,500 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 3-pronged growth strategy focused on portfolio optimization, 365-day engagement 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 MJBiz which is a leading B2B media company in the cannabis industry MJBiz hosts what we believe is a dominant event 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. It's October 2021 event in Las Vegas, welcomed 27,000 attendees and approach to pre-COVID revenues, which is a testament to the position it holds in its sector.

Looking forward, we expect strong growth out of this business and look for the 2022 addition to surpass this past year's event given the legalization trend in the U.S. at the state level, combined with the secular growth of the cannabis industry. We acquired PlumRiver and its elastic B2B 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's sales force, enhanced the user interface and improved its functionality around analytics and campaigns.

Importantly, we added 51 new SaaS customers, including Callaway Golf and FILA, representing 24% growth as compared to new customer adds in 2020, experienced minimal churn and increased existing customer spends, which translated into net revenue retention of 102% in Elastic's subscription-based business model.

At the same time, Elastic won back several key customers over the last several months, including Ariat and Spyder 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 2 smaller businesses, Sue Bryce Education and EDspaces. We acquired Sue Bryce Education in April 2021, a member-based portrait photography platform that provides valuable content to its members with a subscription-based business model. The company offers photographies both online and in-person learning and 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 EDspaces in November in Pittsburgh, which shows the opportunity for strategic tuck-in acquisitions and sectors where we have strength, the design sector in this case. As a reminder, EDspaces is the education industry's primary Conference and Expo, focused on the future 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 greenlighted the launch of several new trade shows, 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 results of our recently formed accelerator units, which is focused on new show development and where we expect 2 new show launches in 2022 and have 3 more approved for 2023. Our first will be SIAL America, a food launch in partnership with Comexposium to co-locate with International Pizza Expo next month in Las Vegas. Over time, 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 revenue from scaling viewership and monetization of our growing portfolio of content assets by better aligning with our trade shows and adopting more advanced techniques to deliver leads to our customers, we 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 our live events of delivering contents, 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 trade shows 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 is 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 for 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 a trade show return 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. As Herve discussed, we are experiencing a strong recovery in the event 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 this typically seasonally lighter quarter was primarily due to $21.7 million in revenues related to live events, which staged in 2021 fourth quarter but were canceled in the year ago fourth quarter due to COVID.

Organic revenues for the fourth quarter of 2021 were $12.1 million, an increase from $9.4 million in the prior year period. Please note that our definition of organic revenue only includes events that staged 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 increase in adjusted EBITDA of $34.3 million was primarily the result of profits generated from the live events that staged 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 insurance claim proceeds recognized in the fourth quarter of 2020.

Looking at our event cancellation insurance in more detail, we have submitted $249.1 million in total claims to date. These claims represent the net amount of budgeted gross revenues, less avoided costs for impacted or canceled events previously scheduled to take place in 2020 and 2021. To date, we have 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 amounts of filed insurance claims for our canceled 2020 and 2021 events. We are also completing the remainder of claims for late 2021 events, 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 compares to an inflow of $4.7 million in the year ago fourth quarter. While the quarter benefited from the proceeds of insurance, as Herve touched on, we are experiencing improving cash inflows 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 highs, 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 MJBiz for initial cash consideration of $118.2 million, with the potential 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 2020'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 which provides flexibility to invest in our business. Our acquisition of MJBiz is another critical step in our growth strategy to expand our market share in long-term growth industries such as cannabis. We view the acquisition of MJBiz as a step change for our business due to the addition to our portfolio of the cannabis industry's established high-growth trade show, MJBizCon.

As with our acquisition of the Elastic SaaS platform within PlumRiver in 2020, MJBiz offers a digital platform for 365-day engagement. In this case, must-read content and data, providing relevant business information about each vertical in the cannabis industry. The benefits from this 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 a 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 have 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 event industry and further expected insurance recoveries, positions Emerald to be the partner of choice for those looking to sell assets. Along those lines, 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 2.5 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. Direct costs are largely variable, typically 70%. However, with enough advanced notice, a substantial portion of those direct costs can be avoided. We continue 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 along 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 periods due largely to the numerous acquisitions and investments we have made, we believe a 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 ahead.

Turning to our balance sheet. We finished the fourth quarter with net debt of $288.4 million, representing a net leverage ratio of 2.3x 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 5.5x, which kicks in if 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 industries 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 investments in 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 show launches in 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 the just approved amount I indicated earlier.

Further, looking ahead to fiscal 2023, we expect to build on a 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 will now turn the call back to Herve.

Thank you, David. This is an exciting time at Emerald as we plan for a full slate of events in 2022 as the recovery is taking hold. In fact, our stronger events set the stage in the first quarter are pacing within 20% of their pre-COVID levels while certain other brands are taking a bit longer to fully bounce back due to the industry-specific issues tied to 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're 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're working to engage with our customers 365 days a year to boost the volume of leads we can provide through our live events, our SaaS digital marketplace as well as the publications and the digital offerings 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 important and high-growth SaaS platform embedded in our business, enter 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.

(Operator Instructions) The first question is from Annick Maas of BNP Paribas.

So my first question is, you suggested that this year, you expect to do more M&A. Can you maybe comment on the multiples you're seeing in the industry? Or is it fair to assume that your latest acquisition and multiple that you've disclosed there is the sort of range that you can see these days in the industry?

And secondly, you've suggested that one of the growth opportunity is to basically increase your TAM by, I guess, I would put it going more into digital lead generation. What makes you say that this is an incremental opportunity as opposed to just a switch from maybe we've done lead generation before by going to a face-to-face exhibition.

And then finally, can you comment on whether you were able to raise your prices, I guess, versus 2019 for the first shows that you ran already this year?

Annick, 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 continues to be fairly wide depending on the asset, the scale of the asset, the industry that it's in. So I'd say that from a smaller tuck-under standpoint, there surely are deals in the mid-single-digit EBITDA multiple range, where more scaled, higher-growth assets 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 that's available in the marketplace. In terms of pricing...

Can I just clarify, so when you speak about this multiple, it's the 1-year forward multiple wise.

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 performance of the business combined with an expected forward look 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 how each business was able to manage through it.

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. Part of 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 are, I believe in our positioning ourselves to price to the value that we deliver. And that has allowed us to continue to have a favorable environment on that front for our business.

With respect to the content question that you raised Annick. 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 MJBiz that we just acquired or existing Emerald brands. What we see is the ability for us to provide leads to our 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 through live events, there is incremental opportunity to do so through content, capturing leads and providing leads to our customers through the content platform. So we really see the revenue streams as live events, content and marketplace as 3 distinct revenue streams for us.

(Operator Instructions) The next question is from Katherine Tait of Goldman Sachs.

A couple of questions from me. Firstly, you very helpfully gave the figures for the decline in attendees versus prepandemic levels for Q4. Can you also give the sort of versus prepandemic for exhibitor figures as well? Just keen to understand the sort of different dynamic there between the number of attendees and also the exhibitors.

And then as it's linked to that, can you give us a sense of what your forward bookings are looking like for the first half of 2022.

I suppose linked to that are exhibitors leaving it more to the last minute to really sign up? And to that point, how much visibility do you really feel you have kind of going into the year ahead?

And then a 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 or so?

Great. Thank you, Katherine. From an attendee standpoint versus exhibitor standpoint, the ranges that we gave in the script is actually the range for both. And I would say that the attendees is at the better end of the range and the exhibitors were at the worst end of those ranges. And the reason for that is that exhibitors in many cases, were uncertain that the attendees would show up. And given the pandemic and the impacts of it, while surely, there were some exhibitors that didn't attend because of health and safety concerns, and hopefully, those continue to alleviate over time.

Some also didn't attend because they were concerned about ROI and who would attend on the other side. And so to us, 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 just tremendous experiences for the exhibitors who did come and tremendous buzz and word-of-mouth coming out of the events, which 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.

And so that translates directly into the forward bookings question that you asked. And it's true, people are waiting a little bit longer because of the uncertainty out there to book. And so we don't have as early a 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 on-site rebooking for the next event at about 1/4 of its shows, and we now do it for all of our shows. And so we're getting out ahead of 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, the further out we look, generally the better we're pacing. And so we are seeing incrementally better expectations for 1Q than we had in 4Q. And then similarly, we would expect as we move towards the back half of the year, it would continue to improve from the earlier parts of the year as well.

And to your last question on inflation. For sure, inflation is something that we're watching very closely. We're managing it aggressively. One of the areas we've been able to counterbalance it is 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 our contracts and our pricing in them. And that's a key tool for us to offset inflationary pressures.

But the other one and going back to Annick's question is around pricing. And we're very focused on delivering value to our customers. And when you deliver value, you can price to that value. And so we're also ensuring that we're able to price effectively to offset any cost pressures that may come on the vendor side.

This concludes the question-and-answer session. I would like to turn the conference back over to Herve Sedky 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.