Emerald Holding, Inc.

Good morning and welcome to the Emerald Holding Inc. First Quarter 2022 Earnings Conference Call. During today's call, all parties will be in listen-only mode. Following the prepared remarks, the call will be open for questions with instructions to follow at that time. 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 Litigation 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 2022 and 2023 are forward-looking statements. Such statements are subject to 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 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 compatible 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 investor's section of the company's website through 1159 p.m. Eastern Time on May 16, 2022. I'd now like to turn the call over to Mr. Harvey Sattke, President and Chief Executive Officer. Sir, please go ahead.

Thank you, Vikram, and good morning, everyone. I'm thrilled to be speaking with you this morning to share our first quarter results, which clearly corroborate what we've been saying for more than a year, our business is back. Emerald's journey is a simple one. There are three reasons that make us excited about our future and our ability to deliver increasing shareholder value. First, we're returning to and sometimes exceeding pre-pandemic revenues. While our business was obviously severely impacted by the pandemic, it's now coming back in a significant way. Our revenue is rapidly returning to normalized levels as our customers return to our live events. We believe that roughly 25% of the trade shows we plan to stage in 2022 will likely exceed pre-pandemic revenues, which is a strong indicator for our recovery of our overall business. Second, our new products and services, including events, content, and technology, both acquired and organically launched, are generating additive, fast-growing revenue streams that we expect will further scale our business beyond our pre pandemic baseline. And third, we are generating substantial free cash flow, which at our current guidance level and share price represents a free cash flow yield of 14% on an as converted basis and based on our expectation of at least 70 million of free cash flow in 2022, notably before the benefit of any insurance proceeds. To illustrate the return of our business in Q1, we successfully staged 31 in-person trade shows, conferences, and other events, serving more than 141,000 attendees and 5,700 exhibiting companies. Importantly, this translated into over 98 million of revenue and meaningful adjusted EBITDA of 25.6 million before insurance recoveries. Our performance in the quarter further validates the fact that our customers value in-person, face-to-face live events where they can meet with buyers and sell their products in a highly efficient and productive medium. Our events continue to be an integral part of our customers' marketing budgets and provide high return on investment through delivery of new business leads at scale. Show participation is growing steadily towards pre-pandemic levels quarter after quarter. We're seeing consistent improvements and have closed the gap to pre-pandemic levels of qualified attendees and exhibiting companies participating in our first quarter events on average of seven to 10% versus Q4 2021. This follows on the 10 to 15% relative improvement of Q4 2021 as compared to Q3. Importantly, several of our first quarter events have delivered revenue in line or better than their pre-pandemic levels which provides further confidence that our business is recovering and our current sales pacings point to continued quarter-over-quarter improvement as we move through the rest of the year. We're also pleased to report that our customer net promoter scores also continue to improve, which provide a strong indicator for rebooking. This momentum is playing out as we continue to implement on-site rebooking across all of our events, further accelerating our sales pipeline and improving revenue visibility for future events. Overall, our first quarter results highlight the significant traction that is building within our business and gives us further confidence that we will deliver on our full-year financial expectations of achieving fiscal year 2022 revenues in excess of $300 million, adjusted EBITDA in excess of $50 million, net of $10 million of investments in growth initiatives, that are incorporated in this EBITDA and free cash flow in excess of $70 million, excluding insurance proceeds, which have continued to get paid. Additionally, our forward bookings point to a further recovery as we look out to the year ahead and which supports our expectation of 2023 adjusted EBITDA in excess of $100 million as we work back towards historical margin levels over time. As our business continues to recover, we're also poised to benefit from the positive dynamics of our business model as we receive customer deposits in advance of our events, which we expect to drive strong free cash flows as we return to a normal booking cycle. This functional dynamic was clear in our first quarter results and implied in our full-year free cash flow expectations. It's also important to note that our business model requires little in the way of CapEx as we spent $3 million in the first quarter while staging a full slate of events and funding our software development initiatives. Our cash generation, combined with our strong balance sheet consisting of $254 million of cash at quarter end, provides significant liquidity and flexibility as we invest to drive organic growth and vet potential M&A opportunities so we can further expand into new high growth end markets. To transform our business and accelerate growth, we have outlined a three-pronged strategy focused on portfolio optimization, 365-day engagement, and customer centricity, which we have been discussing on our earnings call for over a year. I would like to spend a few moments this morning on several aspects of our short-term and long-term strategy where we've made significant progress. The first is in portfolio optimization. where we're developing and launching new trade shows as either an extension of existing events in strong sectors or first time launches into new high growth industries. Launching new shows is critical to accelerating organic revenue growth and the key focus of our recently formed accelerator units. We expect to launch four new shows in 2022 and have already approved three new shows for launch in 2023. We expect our new show launch strategy to add, over time, two to three points of organic revenue growth annually. In March, we held our first new show of the year, Ciel America. Co-located with our International Pizza Expo in Las Vegas, Ciel America is a food services event we launched in collaboration with ComExposium, a leading French event organizer. CL America achieved all of our internal metrics with 176 exhibiting companies over 4600 attendees representation from over 60 countries and the fulfillment of hundreds of one on one meetings between sellers and buyers. Following the very positive results we look forward to the second edition of CL America in March of 2023. I'm also pleased to announce The next two of our new event launches will target the decentralized finance and mental health sectors. The second launch is branded Decentralization Deciphered, or D2. It's an educational platform that bridges business and Web3 innovation through in-person events, digital content, and an engaged community. The show is geared towards C-suite financial and technology executives who are curious about Web3 and want to learn amongst peers to grow their organizations and careers by unlocking the potential of decentralized technologies. D2 is focused on connecting C-suite executives with Web3 companies and visionaries who want to be a trusted source for blue chip companies to safely explore decentralized solutions. The third launch is in the mental health sector and branded Mentera. Mentera is meant to be a community that fosters relationships across the mental health ecosystem, including employers, payers, providers, and everyone in between, focused on today's most pressing mental health needs for the business sector. Through digital and in-person experiences, Mentera brings together mental health innovators, thought leaders, and disruptors to unite, find solutions, and take actions to improve mental well-being for all. In its inaugural year, Mentera is especially focused on connecting chief human resources officers, CEOs, and people leaders with the education and solution partners they need to design and implement optimal mental health solutions for their organizations and employees. Now let me take a step back and focus on the big picture. We believe the acceleration of our organic growth through new event launches over the next few years will be a meaningful driver to improve the value of our business as we aim to deliver higher rates of sustainable organic growth. In addition to the organic growth, we continue to evaluate acquisition candidates in attractive, high-growth industries to further diversify and optimize Emerald's portfolio. Our recent acquisition of MJBiz, which provides Emerald an opportunity to serve the rapidly growing cannabis space is a prime example. Looking forward, we have a robust M&A pipeline supported by a favorable balance sheet position and expect to be active throughout 2022. With respect to our 365 engagement strategy, our year-round content business is experiencing accelerated growth as we improve scaling of industry best practices and launch new advertising and sponsorship offerings to our customers across verticals, while improving and increasing the industry-specific journalistic content that our audiences crave. Similarly, our e-commerce SaaS platform Elastic is gaining traction with organic revenue growth in excess of 20% in the quarter, which is visible in triple the number of new customers generating revenue in comparison to the first quarter of last year, declining churn, growing net revenue retention, and enrollments providing recurring revenue as we leverage our investment in the functionality of its technology platform. This platform provides an attractive opportunity to generate additional revenue and is a critical component to accomplishing our goal of an all-access, 24-7 digital environment for buyers and sellers to transact. As I hand it over to David Doft to review our first quarter results, I am very proud of the turnaround that we're driving here at Emerald and can be seen in our financials this quarter. While we're benefiting from the recovery in our industry, we believe that the implementation of our strategies I have just discussed puts Emerald in an excellent position to outpace our industry over time. We have turned a corner and I'm looking forward to the journey that awaits us. Now, let me turn the call over to David.

Thank you, Hervé, and good morning. As Hervé discussed, we are firmly in recovery mode within the event space, which led to further improvement in our first quarter results where we reported revenues of $98.5 million as compared to $12.9 million in the first quarter of last year. The increase was primarily due to $62.7 million in revenues related to live events, which staged in the 2022 first quarter but were canceled in the prior year due to COVID. Organic revenues for the first quarter of 2022 were $21.5 million, an increase from $13.8 million in the prior year period. Please note that our definition of organic revenue only includes events that staged during the first quarter of 2022 and in 2021, and thus excludes events that did not stage last year in Q1 due to pandemic-related cancellations and postponements. It also includes the growth in our content and e-commerce subscription software businesses. The increase was primarily due to $3.4 million in revenue growth from several events that staged in the first quarter of 2022, as well as the first quarter of 2021. In addition, we have seen consistent growth in subscription software and services and additional marketing services and content revenue, which increased by $2.1 million when compared to the first quarter of 2021. We also note that acquisitions which closed after the first quarter of 2021 generated incremental revenues of $2.0 million. Our adjusted EBITDA for the first quarter was $54.4 million as compared to a loss of $2.5 million in the same period last year. The increase in adjusted EBITDA of $56.9 million was primarily the result of profits generated from the live events that staged during the quarter and the recognition of $28.8 million in other income in the quarter related to event cancellation insurance claim proceeds received or confirmed, which is double the $14.1 million of insurance claim proceeds recognized in the first quarter of 2021. Excluding insurance proceeds, adjusted EBITDA increased $42.2 million to $25.6 million as compared to a loss of $16.6 million in the first quarter of last year. A reminder, Q1 and Q3 tend to have the busiest event calendars for Emerald, so our financial performance is seemingly weighted to those quarters. Looking at our event cancellation insurance in more detail, we have submitted $347.5 million in total claims to date, which includes $98 million of incremental claims submitted in 2022. 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 $213.2 million, and we are actively pursuing collection of the remaining unpaid amounts of filed insurance claims for our canceled and adversely impacted 2020 and 2021 events. Turning to free cash flow in the first quarter, We experienced an inflow of $29.8 million, which compares to an inflow of $0.6 million in the year-ago first quarter. While the quarter benefited from the $28.8 million in proceeds from insurance claims, as Hervé touched on, we are experiencing improving cash inflows from our underlying business, including a pickup in advance deposits from our exhibitor customers for shows that are on the schedule for the remainder of 2022 and 2023. This is a working capital trend that we expect to continue as the post-COVID recovery continues. We also benefit from a CapEx life business model as we spend $3.2 million on CapEx in the first quarter of 2022. We ended the first quarter of 2022 with $254.4 million of cash on our balance sheet as compared to the fourth quarter of 2021's cash balance of $231.2 million. Additionally, we have the full availability of our $110 million revolving credit facility, which brings our total liquidity to more than $364 million and which provides flexibility to invest in our business. Overall, we're very excited with the progress we have achieved relative to the successful staging of live events through early 2022 in combination with attractive acquisitions and new launches that are forming a durable growth model as we continue to optimize our portfolio towards industries and products with strong underlying growth characteristics. The strength of our balance sheet combined with the return to cash generation from our underlying business and expected insurance recoveries supports Emerald's ability to opportunistically invest in and grow its business. As we continue to pursue further expansion opportunities, we will remain mindful of balanced capital allocation among acquisitions, investments in our own business to drive organic growth through new show and product launches, as well as opportunistic share buybacks, which we believe continue to be very attractive. During the first quarter of 2022, we repurchased 0.3 million shares for an average price of $3.63 per share. Since the beginning of 2021, we have repurchased a total of 2.7 million shares with $17.4 million remaining in the share buyback authorization. We finished the first quarter with net debt of $263.8 million, representing a net leverage ratio of 2.5 times our TTM consolidated EBITDA of $105.9 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 March 31, 2022, 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. At this time, I thought it would make sense to review our capital structure so that those new to our story can more easily value the business. As of March 31, 2022, we have a little over 70.1 million shares of common stock outstanding. We also have 71.4 million shares of convertible preferred stock outstanding, which we issued during the early days of the pandemic and which has successfully bolstered our business while much of the world was shut down. Our convertible preferred stock had a liquidation preference per share of $6.33 as of March 31, 2022, while accreting at 7% annually. When you divide that liquidation preference by the initial conversion price of $3.52 per share, it equates to each share of convertible preferred stock being convertible into approximately 1.80 shares of common stock. When multiplied by the total number of shares of convertible preferred stock currently outstanding, It equates to 128.4 million shares of common stock on an as-converted basis. Add to that the 70.1 million common shares already outstanding, and Emerald has a total of 198.5 million shares of common stock outstanding on an as-converted basis. At Friday's closing price, this equates to a market cap of $504 million. This compares to our expectation of at least $70 million in free cash flow available to equity this year before considering any insurance receipts. We also have estimated contingent consideration on our balance sheet for acquisitions we have made over the last three years, which totals $42.9 million and is tied to future growth forecasts for the acquired businesses. We estimate that given the tax treatment of many of our acquisitions, we have a deferred tax asset worth approximately $70 million discounted to present value. This leads to an enterprise value of around $737 million given our net debt outstanding. Emerald has the right to force conversion of the convertible preferred stock to common stock starting three years after the date of issuance or June 29, 2023, if the common stock price exceeds $6.16 per share for 20 consecutive trading days. To conclude, we are pleased with the momentum at Emerald, driven by the continued recovery of our core business and our strategic initiatives to build a growing and profitable company. We are further diversifying our business as we enter high-growth industries and new digital mediums, while prudently investing in high return opportunities. Our first quarter results in sales pipeline, we've enrolled on track 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 for projected investment and growth initiatives on Elastic SaaS product and new show launches in new verticals. We also reiterate our expectation to achieve fiscal year 2022 free cash flow in excess of $70 million. Importantly, these adjusted EBITDA and free cash flow figures exclude any future recoveries from insurance, which we expect to secure, such as the recently received $28.8 million I discussed earlier. Looking ahead to fiscal 2023, we expect to build on a full year return of our events to deliver meaningfully improved margins and an excess of $100 million of adjusted EBITDA as we work back towards historical margin levels over time. With that, I'll now turn the call back to Hervé.