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spk02: Good morning and welcome to the Emerald Holding Inc. Second Quarter 2021 Earnings Conference Call. During today's call, all parties will be in a listen-only mode. Following the prepared remarks, the conference will be open for questions with instructions to follow at that time. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company's most recently filed periodic reports on Form 10-K and 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 U.S. GAAP. A reconciliation 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 investor section of the company's website through 1159 p.m. Eastern Time on August 6, 2021. I'd now like to turn the call over to Mr. Hervé Sedky, President and Chief Executive Officer. Please go ahead, sir.
spk01: Thank you, Melissa, and good morning, everyone. I have to say it's great to be back to business. On today's call, I'll provide an update on our event schedule as our team has been preparing for what is expected to be the largest number of shows staged in the second half of a year in Emerald's history. Due to the numerous events being moved from earlier in the year to the second half, and which we began staging over the last few weeks. David Doft, Emerald's CFO, will review our second quarter results, and we will then open the call for questions. To start, our second quarter results continue to be impacted by the COVID-19 pandemic as we canceled or postponed all of our live events except for our hosting a regional ASD Market Week Southeast in Orlando in April and Digital Dealer in Tampa in June. While these are two of our smaller shows, our customers' clear enthusiasm for returning to live events was evident. The more recent Digital Dealer Show, which brings together automotive dealers, OEMs, and thought leaders over three days, demonstrated a vital role that face-to-face events continue to play in driving connections, commerce, and growth for our customers and communities. Attendance reached 65% of the pre-COVID edition, impacted by supply chain issues and the auto industry combined with international travel restrictions. However, we experienced a significant increase in the show's net promoter score based upon the quality and value of the events to attendees, leading to much stronger pacing for the next iteration later this year. Providing valuable events to our customers is critical to our long-term success and the focus of our team as we are set to stage 86 live events through the second half of this year. The rollout of the COVID vaccine has created the confidence that we can move forward with in-person events as all of the states where we host events have reopened and approved the allowance for large in-person indoor events. In fact, Emerald events are the first or among the first large scale events to stage post reopening in New York, Chicago, and Las Vegas, among other locations. The vaccine and data points around its efficacy are creating confidence for our second half show schedule. That said, there is still some near-term caution among our customers given the rise of the Delta variant, and we're closely monitoring any near-term impacts on our event calendar. To be clear, safety remains a core priority and is a focus for all of our shows as we work to provide a safe environment for our exhibitors, attendees, our team, and other participants. It's important to note that planning and staging this quantity of events while also working through significant logistical issues given the shortened lead time that now exists is presenting our team and our customers with challenges which will also impact attendance given some of the uncertainty that continues to exist. Given this backdrop, our clear goal is to deliver high-quality events that meet and exceed our customers' expectations as we focus on our show's brands and the value that our customers achieve by attending. As we've said, we need to keep our customers at the center of everything that we do as a company, and that is our priority. We're cognizant that we will see lower attendance and revenue in the near term relative to pre-pandemic levels given the dislocation that has taken place, show postponements that in some cases have shifted events outside of typical buying seasons, travel restrictions that still exist, as well as shorter selling cycles for some events impacted by the timing of cities permitting large gatherings. As a result, our focus for 2021 is not on the level of attendance or even revenues. It's on delivering the highest quality event for our customers as we focus on getting back to live events with a view that we're building toward a more normal attendance environment as we look out to next year. We expect the full recovery will come and our revenues are poised to recover to pre-pandemic levels as long as we maintain the quality of our shows and value to our customers. We remain confident in our event's position as a strong driver of return on our customers' marketing investment. As we start the third quarter, we continue to see positive signs highlighted by our Prosper show, which staged in Las Vegas two weeks ago. Prosper is an annual conference aimed at online sellers seeking to improve their business on Amazon and was essentially in line with pre-COVID edition in 2019 with expectations of a very strong edition next year, which is certainly not surprising given the move to e-commerce that we've experienced through the pandemic. Looking to the weeks ahead, notable shows that will stage include ASD Market Week, New York Now, OR Summer Market, HD Expo, Retail X, Cedia, and Surf Expo, among others. As I mentioned, all of our near-term shows are seeing constraints and impacts resulting from the incredibly short lead time to plan, sell, and stage with pacing, ranging between 30 and 70% of pre-pandemic levels for most events in 2021. What has become more apparent is events staging in their normal time slot are pacing better than those postponed out of their normal dates. Events in cities that reopened early are pacing better than those that reopened late. and that events with more of a domestic audience are pacing better than those with significant international attendance, given travel restrictions that remain in place. What is very encouraging is that the pacings are better the further out we look, especially with our 2022 first quarter events pacing much closer, although still below pre-COVID levels on average, and where we expect to see a more substantial recovery in our business, assuming the situation with COVID facilitates a normal operating environment. An important point to highlight, and which David will expand upon, is our very attractive business model that features negative working capital, requires little in the way of capex investments, and generates strong free cash flows. As we begin to book customers for our upcoming shows, we're receiving deposits in advance which can be seen in our strong, positive free cash flow generation score. We're beginning to build cash on our balance sheet, which will have a long tail as we gradually return to pre-COVID levels. We are in the sweet spot of this now, which is welcome relief as compared to a year ago. Now I'd like to provide you with an update on our strategic imperatives that we're implementing to drive growth and profitability, and which are centered on customer centricity, delivering 365 customer engagements, and portfolio optimization. On customer centricity, we have now essentially completed the data integration of our customer data hub. This was a significant undertaking, as we will have integrated all of our customer data from more than 50 sources into one database. With completion, we are moving to operationalize the customer data hub in the latter part of the year as we get back to selling our full suite of events and content. This will allow our teams to deliver greater service and value to our customers due simply to the fact that we'll have improved visibility into all areas of our customers who are doing business with us. We're also making technology investments and upgrades to more seamlessly interact with our customers, enhance the value we provide them, and make it easier to do business with us in ways that our customers want. The second strategic imperative is our goal of engaging with our customers 365 days a year through utilizing digital mediums. Our acquisition of Plum River and its Elastic Suite technology platform is central to accomplishing this goal and a key component of our strategy of bringing buyers and sellers together in a digital environment year-round while providing them with a platform where they can transact. Although we're still in the early days, we're making good progress on this front and continuing to work towards rolling this digital marketplace across brands such that it becomes an integral and cohesive 365-day tool with recurring subscription-based revenues to complement our live events. We expect this to become a powerful feature of our model with time. Through the second quarter, Plum River's core enterprise offering, Elastic Suite, continued to deliver on our expectations with more than double the number of new client wins as compared to this point last year. This area of B2B e-commerce software is beginning to make real traction in the marketplace, and we are in a great position to accelerate growth here further as we continue to build out our sales and development capabilities and roll out Elastic to more categories in the coming quarters. Our third strategic imperative is portfolio optimization, where we're cultivating a culture of innovation with additional growth driven by accretive M&A and new event launches through our newly created Emerald Accelerator business unit. Given our strong balance sheets and liquidity, we're also in the enviable position to acquire attractive assets. As we discussed in our first quarter earnings call, we acquired Sue Brice Education in April. This is a member-based portrait photography platform that provides valuable content to its members with a subscription-based business model. While focused on photography, we believe this e-learning concept can be expanded across our portfolio of shows, adding valuable subscription-based revenue model that will enhance our year-round digital offerings. This was a relatively small acquisition, but one that believed provides a platform for expansion across our portfolio of industry-leading shows, which is critical to how we think about expanding the value that we provide to our customers while also growing our business. During the second quarter, we also announced a strategic partnership with ComExposition to launch CL America in March of next year in Las Vegas. We expect CL America will be the first large-scale, generalist food show focused on supporting the 1.5 trillion food and beverage market. This show will co-locate with our International Pizza Expo and International Artisan Bakery Expo and is expected to focus on organic and wellness, beverages, grocery, sweets and bakery, seafood, meats, and snacks, to name a few. We expect Seattle America to be very meaningful over time and are excited to launch it next year. Overall, we continue to be in the individual position with our strong balance sheets, cash generation, content and commerce offerings, and portfolio of industry-leading shows. We will continue to vet potential acquisitions as there remains dislocation across the events sector. We will remain disciplined and opportunistic as we focus on enhancing the value of our portfolio and accelerating the growth of our business as we look to the recovery of the events industry, which we believe is clearly at hand. Now, let me turn the call over to David.
spk00: Thank you, Hervé, and good morning. For the second quarter, we reported revenues of $15 million, which compares to $7 million in the year-ago quarter. Organic revenues for the second quarter were $11.6 million, an increase of $5.3 million as compared to the second quarter of 2020 organic revenues of $6.3 million. The increase was due to several small live events that staged, which Hervé touched on. as well as higher print and digital advertising revenues combined with several new virtual offerings. Our adjusted EBITDA for the second quarter was negative $13.6 million as compared to a positive $33.2 million in the same period last year. The decrease in adjusted EBITDA of $46.8 million was mainly due to the lower confirmed or received event cancellation insurance claim proceeds in the second quarter of 2021. We recorded $2.3 million of other income during the second quarter of 2021 as a result of event cancellation insurance claims proceeds related to events canceled in the second half of 2020, which compares to $48.2 million of other income recorded during the year-ago second quarter as a result of event cancellation insurance claims proceeds related to events canceled in the first half of 2020. Looking at our event cancellation insurance in more detail, we have submitted $242 million in claims to date. We also continue to work on finalizing claims submissions for several more canceled, postponed, and otherwise impacted 2021 events. 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. Through June of 2021, we have received insurance claim payments totaling $123.4 million, of which $89.1 million was received in 2020, $29.6 million has been received in the first quarter of 2021, and $4.7 million was received in the second quarter of 2021. We have also received or expect to receive an additional $1.3 million in insurance payments in July. We are actively pursuing collection of the remaining unpaid amounts of filed insurance claims for our canceled 2020 events in addition to claims for our canceled 2021 events that currently totals an incremental $120 million. As part of these collection efforts, this past February, we commenced litigation against the insurers. We, supported by the views of our outside counsel, have strong conviction in our position and believe the insurers have improperly failed to timely pay amounts due and owing on submitted claims as covered losses, and we intend to vigorously pursue full collection on these insured claims. Turning to our event schedule, and as Hervé discussed, we are in the middle of planning, selling, and executing a very aggressive calendar in the second half of this year, and the early results have been positive with enthusiastic feedback from our customers, albeit with lower levels of attendance and revenue in general. As Hervé mentioned, we have a range of expected outcomes for near-term events, with some events off meaningfully from pre-COVID levels, while others are pacing much closer to what we have seen in the past. That said, we maintain almost $200 million of event cancellation insurance for the full year of 2021, which we expect to continue to insulate our business from certain adverse effects of the pandemic, especially if the Delta variant were to intensify. We will also be vigilant as we work to mitigate expenses related to canceled events in order to preserve our event cancellation insurance coverage given the uncertain environment, which you can see in the sharp decline in our cost of revenues. Turning to free cash flow in the second quarter, which is really the breakthrough metric to focus on this quarter, we experienced a net inflow of $23.8 million, which compares to an outflow of $32.6 million in the year-ago second quarter. As Irving noted, we are experiencing strong, positive net cash inflows as our shows begin to stage and we receive customer deposits. The impact of this is best seen in the increase in deferred revenue from $48.6 million at year end to $119.2 million at June 30. This should have a long tail as we ramp our events back to pre-COVID levels over time. Additionally, our business model is a capital light model as our CapEx runs at very low levels, as can be seen by our CapEx in the second quarter of 2021, which was $1.3 million. as compared to $1.2 million in the year-ago second quarter. We ended the second quarter of 2021 with $302.8 million of cash as compared to the first quarter of 2021's cash balance of $293.6 million. Additionally, we have full availability of our $110 million revolving credit facility, which brings our total liquidity to almost $413 million. Note that in June we extended the maturity of our revolving credit facility by 18 months to November of 2023. As part of the extension, we reduced capacity of the facility to $110 million, which given our strong liquidity, we believe is more than appropriate. As we have discussed, our $400 million capital raise in 2020 combined with our event cancellation insurance policy has allowed our team to remain on its front foot and opportunistically invest in the business and position Emerald for growth as the exhibition industry begins to normalize through the second half of 2021 and into next year. Hervé outlined the benefits of our acquisitions of Palm River and Super Rice Education, which are key steps towards engaging with our customers 365 days a year. We plan to invest in these businesses to expand them across our brands, as well as make other strategic growth investments in our business as we work to position Emeralds for a return to organic growth. We also plan to remain disciplined and keep a tight rein on our expenses as we strive to balance investment and profitability. We finished the second quarter with net debt of $219.6 million, down from the first quarter of 2021 and representing a net leverage ratio of 1.5 times our TTM consolidated EBITDA of $148.5 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 5.5 times, which kicks in if borrowings under our credit facility exceed 35% of our revolver capacity of $110 million. At June 30, 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. With that, I'll now turn the call back to Hervé.
spk01: Thank you, David. To conclude, the return to live events this summer is an important inflection point for Emerald as we reengage with our customers and remind them of the value that our shows provide. And while near-term show attendance continues to be impacted by COVID-19 concerns, timing issues, travel bans, and other pandemic-related items, those that do attend have so far enthusiastically done so with increased satisfaction. As I said last quarter, we have built a strong foundation which will allow us to expand the value we offer to our customers, engage with them year-round, and ultimately better monetize the value that we're providing. We are building new digital businesses that are expected to provide high-margin subscription revenue streams to complement our live events. And we believe this will allow us to greatly expand our addressable market and position Emerald to deliver accelerating organic revenue growth with improved profitability over time. Thank you again for your time today. And Melissa, now please open the meeting for questions.
spk02: Thank you, gentlemen. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. gentlemen it seems there are no questions at this time I'll turn the floor back to management for any final comments very good thank you Melissa and thank you all for your participation today have a very good Friday and a good weekend goodbye thank you this concludes today's conference you may disconnect your lines at this time thank you for your
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