Emerald Holding, Inc.

Good morning and welcome to the Emerald Holding, Inc. Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 2023 are forward-looking statements. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company's most recently filed periodic reports on Form 10-K, 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. The 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 March 21st, 2023. I'd now like to turn the call over to Mr. Irve Sedky, President and Chief Executive Officer. Sir, please go ahead.

Thank you, Melissa, and good morning, everyone. It's great to be with all of you today to discuss our fourth quarter and four year results. We're pleased with our 2022 performance that exceeded our guidance and demonstrates that the B2B live events sector is back with a vengeance post-COVID. We're excited by what we anticipate being a very strong growth year in 2023 and are satisfied with our progress on all key strategic pillars. Our 2022 performance reflects the early stages of an accelerating recovery in our live events business, as well as a successful year in terms of progress towards our core strategic initiatives of customer centricity, 365 years engagement, and portfolio optimization. We hosted 124 events in 2022, including all major trade shows in our portfolio and almost doubling our 2021 total of 63 as we continue to return to a full slate of events after two years of COVID disruptions. Importantly, we believe this recovery trend has not reached its full potential. We finished the year strong and business momentum is continuing to pick up in early 2023. We expect that the reopening of international travel, the easing of supply chain constraints, and their removal of the COVID overhang will help drive incremental attendance and revenue growth in 2023 and beyond. In fact, we're already seeing this in our pre-booking trends, as exhibitors are paying to reserve their space up to a year out. This performance is highly encouraging and points to the long-term growth potential of these shows. Since the new year, we have also seen a significant acceleration of buyer attendance at shows. which further supports our value proposition for exhibitors and has supported strong early rebook rates for future events. For example, for the most recent kitchen and bath industry show, KBiz, held on January 30th through February 2nd, 2023, we saw a 26% increase in attendees as compared to the last pre-pandemic edition, which directly led to onsite rebooking square foot space for 2024 events and then we had in 2023 and we still have 11 more months before the next event to sell. While David will provide more details on the outlook, let me begin with some highlights. I will then discuss our roadmap for 2023 and beyond. Overall, we view 2022 as validating the exceptional value of in-person events. As we expected, our industry was not permanently impaired by COVID-related shifts in work habits. If anything, in an increasingly remote workplace, people are looking for opportunities for in-person connections and learning. While routine business meetings have shifted online, trade shows continue to provide an essential in-person venue for buyers to touch and feel the products that they're buying in large volumes and for sellers to establish high-quality leads. Customers have been eager to get back to in-person buying and selling that is essential to sourcing and completing high volume transactions. Recent studies and our 2022 results support this trend. A Freeman study conducted this year found that 63% of attendees prioritize discovering new products at live events. 69% view in-person events as the best source of training and content. while 75% view them as the most trustworthy information source. As a result of these positive trends, our event revenues in 2022 were approximately 73% of pre-COVID levels and aggregate square footage was approximately 64%. We consider this a great success and in line with our expectations and those of the industry broadly. The recovery in 2022 actively demonstrates that the industry is back post-COVID and there remains significant growth ahead for 2023, 2024, and beyond as the industry covers two and surpasses pre-COVID levels. We expect to make additional progress towards pre-COVID levels this year, with 2024 expected to be the year we surpass them. If you consider all the acquisitions we've made since 2019, What that means is that we are a larger and more diversified company than we were before the pandemic. Let me spend a few minutes on our strategy and how we're using all available levers of internal and external growth to get there. In addition to the recovery of live events driving significant organic growth, we've been active in expanding our offerings and capabilities to make Emerald stronger than ever through acquisitions, new show launches, and greater growth at our embedded e-commerce SaaS platform, Elastic. On the last day of 2021, we acquired MJBizCon, the leading B2B trade show in the cannabis industry, along with its associated contents platform. In May of 2022, we created Accelerator Division, which is focused on launching new brands with an expected run rate of four to six new shows per year as it ramps up. In June, we also acquired Advertising Week, a premier global event and content platform focused on the marketing, media, and technology industries. We hosted a highly successful edition of Advertising Week New York in October, bringing together over 12,000 attendees and exceeding both pre-pandemic attendance and revenues, and launched Advertising Week Africa last month in Johannesburg, South Africa. Last July, we also acquired Bulletin, a wholesale e-commerce platform that we're integrating into our New York Now show and eventually the broader portfolio to enhance the experience for buyers and sellers with solid early results at last month's New York Now winter show and momentum building for the summer one. And in January 2023, we acquired Lodestone and its Overland Expo consumer events, extending our action sports franchise and expanding our offering to reach consumers in addition to our core B2B focus. Our e-commerce SaaS business called Elastic that we acquired in late 2020 continues to generate revenue growth in the high 20% range in a mid-teens millions of dollars revenue base with over 30% growth in its customer base. We offer Elastic as a subscription-based product. providing customers with a specialized wholesale e-commerce environment that dovetails nicely with our trade show business. In 2022, active customers using the platform grew from 185 to 248 in 2021. Elastic has proven to be incredibly sticky with its customer base and finished the year with a net revenue retention rate of 110%. For Emerald overall, Our growth rate is expected to be in the 20% in the immediate term, as we benefit from the rebound in live events. This flows through to our organic growth in the form of higher attendance and better pricing, combined with the benefit of our new offerings. Our longer range growth plan Post full recovery coming out of COVID is to 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. Looking ahead to the rest of 2023, we remain focused on executing on our three pillars of value creation, customer centricity, 365 day engagements and portfolio optimization. In customer centricity, our goal is to make the customer's experience uniquely engaging and to continuously increase the value they extract from our events and other supporting properties. By intelligently investing in our brands, we can readily deliver on what the customer ultimately needs. We are a company that delivers marketing and sales leads at scale, and the live events business has an extremely high ROI. As a result, marketing executives across small and large businesses really depend on mediums like ours to garner leads in a face-to-face environment. Ultimately, what's most critical is making the experience a lot more effective when people are there in a live environment. We've made substantial progress in building up our technology resources by consolidating the large amount of first-party data we generate across all of Emerald's events, contents, and e-commerce platforms. Our next step is to productize these valuable first-party data assets to better serve our customers, which is an ongoing effort being led by our head of product, a new role here at Emerald. These efforts include ID tagging customers to track their activity across Emerald's various events and products, which will help generate a continuous stream of first-party data related to transactions and lead generation. We're also creating a single sign-on portal for exhibitors and attendees to manage their interactions with Emerald across shows, content, and transactions. Over time, our goal is to provide our customers with more intelligent matchmaking and a clearer picture of the return on investments they receive from the marketing dollars they put to work across Emerald's platform. This improves our stickiness with customers, incentivizes them to deploy more marketing dollars with Emerald, and ultimately should help drive higher revenue per customer. An outcome of this can already be seen in our pricing, where at our events in 2022, we were able to drive space rate pricing at mid-teens percent growth over pre-pandemic levels. Our second pillar of value creation, 365-day engagement, means that we provide multiple entry points to the customer engagement cycle throughout the year through trade shows, conferences, webinars, media content, and our e-commerce offerings. Our trade shows and conferences offer valuable in-person meeting time to make connections, build a sales pipeline, and stay on the cutting edge of industry changes. Through media content and webinars, our platform allows advertisers to reach our audiences in 20 different industry sectors where we have events to share knowledge, industry innovations, and new products outside of the trade show environments. Leveraging our media content capabilities, We can constantly add and generate new leads for our customers on a year-round basis, which is an invaluable resource. Our e-commerce platform also gives buyers and sellers a digital marketplace for year-round selling. We are planning to launch a more sophisticated virtual showroom that will allow customers to see, interact, and buy and sell products at any point during the year. Together, these offerings create a flywheel effect, keeping our customers engaged year-round delivering greater value through our complementary products our third pillar of value creation is portfolio optimization which includes neutral launches and acquisitions our new event launches led by our accelerator unit are progressing and delivering a new means of driving growth and value creation in 2022 we launched four new brands including seattle launched in march is a food services event co-located with our International Pizza Expo and featuring 176 exhibiting companies and over 4,600 attendees. Decentralized Deciphered, or D2, a Web3-oriented platform targeted towards C-suite financial and technology executives, which we launched in October. In November, we launched Remind, a business resource platform dedicated to the fast-growing psychedelics business community. Remind was co-located with MJBizCon last year, leveraging their shared audiences across the two regulated industries. And finally, we launched Mentera, a mental health-focused content platform and virtual summit. Customers here are chief human resources officers and CEOs that are looking for solutions to better optimize employee mental health solutions. Mentera is scheduled to host its inaugural conference and exhibition in May of this year. These new event launches require very little in terms of new capital commitments from Emerald. Though they often initially operate at a loss while ramping up, new event launches offer the potential to rapidly scale by leveraging our existing core competencies. This allows us to calibrate our investments in response to real-time demand without making multi-million dollar per year commitments. While we're not While not all of our new shows will become a permanent fixture of our portfolio, we do expect event launches to contribute one to two percent points of organic revenue growth per year while delivering higher returns on our capital as compared to a typical acquisition. Lastly, our approach to acquisitions is central to our portfolio optimization strategy. Over the last two years, we've focused intently on adding stability and scalability to the core Emerald platform allowing us to integrate new businesses and to do so in an efficient and effective manner to build real value. Today, we're one of the leading consolidators of live events with a portfolio of some of the most prominent trade shows. In a highly fragmented industry, Emerald can continue growing through acquisitions as we represent only a mid-single digit percent of the US market. We continue to build out our pipeline of acquisitions, highlighting our operational efficiencies and scale as a key advantage over other bidders. Acquisitions have generally been structured in a tax effective way, providing us with over $70 million of present value of tax benefits. Our current trade show portfolio is highly diverse, spanning a wide breadth of industries, and we continue to expand our reach. No single customer is more than 1% of revenue, and our largest trade show is in the single digit percent of revenue. Generally, in the private, market in our industry, there is an arbitrage opportunity between public market multiples for scaled assets like ours. And so it's truly conducive to buy things to create value, and we generate the cash, which also allows us to do so. We're operating in an industry that's benefiting from an ongoing post-COVID recovery, and that has also shown signs that it will not only recover fully, but continue to grow well beyond its pre-pandemic size. We've demonstrated the ability to scale up many of our shows beyond their pre-COVID levels, and we have the visibility into pre-bookings to expect that this trend will continue. In the meantime, we've been building up our capabilities with strategic acquisitions that are not only going to make us a bigger company than we were pre-COVID, but a better one. Content and commerce flywheel should continue to drive higher revenue per customer as we demonstrate our ability to deliver substantial ROI for our customers' marketing budgets. We have a capital light business model supported by strong balance sheets and multiple avenues to drive cash flow growth, both organically and through acquisitions. Finally, I should highlight that we recently launched a new ESG page on our investor relations websites. The new page provides details on our latest commitments and progress against our future goals in sustainability, social responsibility, and governance. We hope you find this resource beneficial and do not hesitate to reach out if you'd like to discuss it. With that, let me turn the call over to David Doft, our CFO.

Thank you, Hervé, and good morning. Our fourth quarter revenue was $93.6 million compared to $41.1 million in the prior year quarter. The increase was primarily due to the ongoing recovery of our underlying business that delivered 27% organic growth and the acquisitions of MJBiz and Advertising Week, which staged their largest events in the fourth quarter. For the full year 2022, revenue was $325.9 million as compared to $145.5 million in 2021. Note that this revenue figure excludes the insurance proceeds recognized on the other income line. The increase in 2022 revenue is primarily due to events that staged in 2022 that had been canceled in 2021 due to COVID, as well as organic growth, which, as just noted, benefited from the ongoing recovery of the live events business. Fourth quarter adjusted EBITDA was $25 million as compared to $51 million in the prior year quarter. The decrease was due to insurance proceeds received in the prior year period, partially offset by higher revenue from acquisitions and organic growth. Excluding insurance proceeds, adjusted EBITDA in the fourth quarter of 2021 would have been negative $8.9 million, resulting in a $34 million improvement year over year. Full year 2022 adjusted EBITDA, including insurance proceeds, was $239.6 million versus $44.1 million for the full year 2021, primarily due to events staged in 2022 that were canceled due to COVID in the prior year. Excluding insurance proceeds, adjusted EBITDA for the full year 2022 would have been $56.8 million, compared to negative $33.3 million in 2021. a $90 million improvement. Free cash flow for the full year 2022 included numerous unusual items related to our insurance litigation settlement and other items. Free cash flow was $25.3 million as compared to $12.0 million in 2021 after excluding insurance proceeds net of cash taxes, other items and contingent consideration paid in excess of the original estimate for acquisitions. This was below our fiscal year 2022 free cash flow guidance of $60 to $70 million due to working capital shifts related to the timing of event sign-ups and contractual deposit due dates. Let me offer a bit more context on what this all means. As a business, we typically have a solid line of sight into the timing of customer payments. Our exhibitors make advance down payments to reserve a booth and are required to have paid in full before moving into their designated event space. This happens as much as one year in advance, which is a highly attractive working capital attribute. However, the COVID-19 pandemic significantly impacted Emerald's marketing and sales calendars, while our customers struggled with lingering pandemic-related issues like travel and supply chain disruptions. This led to shifts in the timing of event signups, as well as contractual deposit due dates, making it difficult for us to have a high level of precision on the exact timing of cash flows in 2022, particularly in the second half of the year as the recovery gained momentum given the lack of historical precedent for such a situation. To be clear, all customer monies are still due prior to moving at our events and a large portion of the timing issues have begun to normalize in the new year. Over time, we expect working capital changes and fluctuations affecting free cash flow to become more predictable as sales and payment cycles normalize. We expect to achieve at least $60 million of free cash flow in 2023 before the benefit of working capital improvements, which we do believe will be additive to cash flow this year, given the trade show business enjoys negative working capital, which means this is a source of cash as revenue grows. Turning to the expense side, we continue to effectively manage our cost structure in this inflationary environment. Our largest exposure is labor costs, either through our own FTEs or via contractors on-site at our events. Also, we have some minimal exposure to paper and ink costs for our content assets. In general, we expect to maintain the ability to pass along inflation-linked price increases, which combined with our procurement efforts should allow us to protect margin. At the corporate level, we've made significant strides in improving our cost structure. The work we did in 2020 to centralize our purchasing has led to meaningful annual savings and helps us limit increases going forward. We've opened an offshore hub in Manila to ramp a number of functions, including telemarketing, sales support and data management. We've also rationalized our real estate footprint, including exiting six office properties in the fourth quarter and shifting towards a more remote workforce. In addition to estimated cost savings of $2 million per year, we expect this shift to further enhance Emerald's ability to attract top talent nationwide. Our fourth quarter results reflect the impact of a one-time lease abandonment cost of approximately $3 million. Turning to the balance sheet, we had $239.1 million of cash as of December 31, 2022, versus $366.1 million as of September 30 of 2022. Our total liquidity including our undrawn $110 million revolver is $348.7 million. During the quarter, we completed the extension of $100 million of our credit facility with the remaining $10 million completed in January. We also repaid $100 million of the outstanding balance of our term loan, which is now $415.3 million as of December 31st. and serves to reduce our gross leverage and interest expense. The strength of our balance sheet and cash flow generation support our ability to opportunistically invest in and grow the business. We plan to continue to balance capital allocation between acquisitions, investments in our own business, opportunistic share buybacks, and debt reduction. On buybacks, We repurchased 2.9 million shares in the full year 2022 at an average price of $3.60, bringing our total buyback to 5.4 million shares since the start of 2021. Last quarter, our board of directors approved an extension and expansion of our share repurchase program to allow for the repurchase of $20 million of common stock through December 31, 2023. Our net debt as of year end was $176.2 million, reflecting a net leverage ratio of 1.89 times trailing 12 months consolidated EBITDA as defined in our credit agreement. We do not expect to draw on our revolver in the near term. At this time, I'd like to briefly review our capital structure so that those who are new to our story can more easily value the business. At quarter end, we had 67.6 million shares of common stock outstanding, as well as 71.4 million shares of convertible preferred stock outstanding. The convertible preferred shares have a liquidation preference per share of $6.66 as of December 31, 2022, while accreting at an annual rate of 7%, which compounds quarterly. When you divide that liquidation preference by the initial conversion price of $3.52 per share, it equates to each share of convertible preferred stock being convertible into approximately 1.89 shares of common stock. When multiplied by the total number of shares of convertible preferred stock outstanding as of December 31st, it equates to 135.0 million shares of common stock on an as-converted basis. Add to that the 67.6 million common shares already outstanding, and Emerald has a total of 202.6 million shares of common stock outstanding on an as-converted basis as of December 31, 2022. As of yesterday's closing price on our common stock, this converts to a market cap of approximately $709 million. We have an estimated contingent consideration on our balance sheet of $12.3 million for acquisitions made in the past three years, as well as a deferred tax asset worth over $70 million discounted the present value based on the tax treatment of certain of our acquisitions. This leads to an enterprise value of $825 million, given our net debt outstanding. As a reminder, We have the right to force conversion of the convertible preferred stock starting June 29th of this year if our common stock price exceeds $6.16 for 20 consecutive trading days. Turning now to guidance. We expect to generate revenue in excess of $400 million in 2023 and adjusted EBITDA in excess of $100 million. The growth in adjusted EBITDA reflects an approximately 76% increase over 2022 adjusted EBITDA, excluding insurance proceeds. Our guidance implies an adjusted EBITDA margin of approximately 25%, and we believe we have substantial runway to continue improving on this number as we work our way back to 35% plus margins we saw prior to COVID. We expect free cash flow in 2023 of over $60 million, before accounting for the benefits of working capital inflows. This would bring our net debt to adjusted EBITDA ratio closer to one times, assuming no incremental M&A. Thank you very much for your time. And with that, we'll now open the line for questions.