Emerald Holding, Inc. (EEX) Earnings Call Transcript & Summary

Very good. Well, thank you all for joining us today. Really pleased to be here. Really pleased to be in a live events environment and one that's going very well. I wanted to share a little bit about our story, our business, what we're doing and what we plan to do. So I'll start off by giving you a description of essentially what we do. We are a company that deliver leads at scale. And the business that we're in, particularly in the Live Events business, has an extremely high ROI. So marketing executives, chief marketing officers, marketing executives across small and large businesses and like in the United States, really depend on mediums like ours to get leads, leads in a face-to-face environment, but we're going to expand that, and I'll talk a little bit more about that. The important part of leads in a live environment is that the connection is made in live environment, but we believe that leveraging our content business and the newly added commerce platform that we have, allows us to consolidate first-party data that then we can monetize. We can provide more leads to customers and we can create more solutions for customers, which adds value and allows us to monetize that. We, of course, are benefiting from a post-pandemic recovery of our live events. We have, as a matter of fact, almost 1/4 of our events that are planned for 2022, are expected to exceed pre-pandemic levels of performance. So we feel good about the recovery, and there is obviously more to come as the business continues to recover. Overall, we are very focused on growth in many ways. And so, first, there's the post-pandemic recovery that I just mentioned. Of course, it's going to drive some good growth for the business. Second, we are doing a lot in terms of commercial activities to really look at how we can optimize yields, how we can price better, offer more choices for customers in terms of how they participate with us, and that allows us to generate some improvements in revenue through pricing. We have a number of other commercial activities that I'll go through in a few minutes. We also are launching new events. So as over a couple of years ago, we launched our Xcelerator business unit, and we're very focused on looking at high-growth sectors and launching in those sectors. Again, I'll go into a bit more detail about that afterwards. We've got a rich content business. We have 19 different trade industry specific publications that are aligned with our live events, and we can do more around that in terms of generating leads to our customers. And then, we acquired a couple of years ago, a SaaS B2B e-commerce platform that allows us to close the loop. So it allows us not only to -- for customers to get leads to visit trade shows, to interact with content to get leads and to be inspired, but the e-commerce platform allows the customers to actually transact. It allows our customers to buy and sell and allows us to close that loop and see what actually is bought and sold through the activities that they perform with us. We have been focused on accretive M&A transactions. We've done 7 in the last 2 years, and we'll detail that in a few minutes. Our business has very strong economic characteristics. So high free cash flow generation. We've got a very strong balance sheet. We've got attractive margins, minimal capital spending, and our customers pay us in advance. So in many cases, so we have a negative working capital, and tax assets that result in substantial free cash flow generation. We actually expect $65 million to $70 million in free -- sorry, it's $60 million to $70 million in free cash flow, excluding insurance and onetime items in 2022. Again, we have a strong balance sheet and liquidity, total liquidity of $466 million and net leverage of 2.1x as of September 30, 2022. And we've got a strong management team. So I'm really pleased with the team that I have assembled over the last couple of years. Very strong team, a real diverse team, diverse in many ways, diverse in experiences. We've got a couple of very seasoned experienced executives, like one here on stage, our CFO, David Doft, from Wall Street and the banking background. We've got some media background. We've got 2 executives that were at American Express company, one with a consumer products company. We've got a strong team, 48% women on the senior leadership team, 26% people of color. We're really focused on diversity across all definitions of diversity for us to become the great company that we're building. Taking a step back to really outline what business we're in, I talk a lot about our connections business, our content business and our commerce business. Essentially, ultimately, it's all about integrating all these businesses and first-party data to create value to customers, to create leads for customers in a B2B environment. And so, we get data that comes from what our customers are doing, and we can build new products, provide additional insights, create things that are valuable for our clients, leveraging the data that we're collecting across all of our platforms. The platforms are largely our connections business. The 85% of our year-to-date revenues are from connections or the Live Events business, and that's a collection of trade shows across their leading trade shows in specific sectors that we operate in. We've got a content business, which is the 19 different digital and publications that I referenced, and websites across the various sectors that we operate in, and the newly acquired commerce capability, which is a SaaS software enabling B2B buyers and sellers to transact. And now we are averaging approximately $1 billion per month in wholesale growth transactional value in that platform. So that's a new addition to the Emerald family and something that really allows us to enhance the value proposition, enhance the offering and really close that loop, as I mentioned. In terms of the value of connections or of trade shows, so 80% of about 1.7 million exhibiting companies in the U.S. are small businesses. 45% of small businesses participate in at least 1 trade show per year. And you see here on the slide behind me some of the results. So 40% of businesses say that B2B exhibitions provide the highest value of their marketing objectives. 18% of chief marketing officers site customer acquisition retention and engagement as the #1 top priority in 2022, up from 10% in '21. And you see the growth expectation for the trade show industry from '21 to '26 CAGR projected growth of 17.6%. That's because of the value that we deliver to both customers. We've got 2 main customers in our Live Events or Connections business. We've got exhibitors, and we have attendees. On the exhibitor side, the exhibitors are really looking for leads. They're looking to sell. They're looking for leads. They want to meet new people. They want to remeet and see their existing clients. They want to introduce new products. They're really using these platforms to build brands, to strengthen relationships, to educate. There's a learning component in a lot of our shows, and of course, to service customers. On the attendee side, attendees are looking to be inspired. They're looking for new things. This is a great open marketplace for them to discover. And so they're looking for new suppliers to reconnect with existing suppliers. They want to understand trends and where the markets are going. They want to learn about new products and services, and, of course, fulfill their core procurement needs. So the value and the reason why it's such one of the highest ROIs in terms of marketing categories is because of all these different things that this particular platform does for both exhibitors and for attendees. We've got some strong customer feedback. I'll let you read some of the feedback that we get from customers. Obviously, there's a lot that we get. And one of the things that I like to point out, and I have on various earnings calls, is really the constant improvement that we've had over the last few quarters of -- in our Net Promoter Score. So we are very, very focused, and I'll talk about this on customer centricity, doing the right thing for customers, offering value, adding value and the feedback in terms of the value of the platform, and what we do for them is seen by our customers. There are many ways that our customers can engage in our cycle. And so, if you think about our live events, again, being the core business that we're in, the vast majority of our revenues generates leads through the live events. But then the -- we can continue to leverage these 19 different media content capabilities to constantly add leads and generate leads for our customers year round. This was a big learning for us during the pandemic. When we didn't have live events, customers were relying, in essence, on non-live events. Lead-generating capabilities allowed us to really practice test different things that we realize offer immense value and now are part of what we do on a day-to-day basis. So you have the live events and also complemented year-round by this content business that continues to drive leads. And as I mentioned, then enabling this B2B buying and selling through the SaaS platform that we acquired, allowing us to then close the loop. We look at our business through a tech stack. Our tech stack really starts with -- at the top, you see here the live events. So you've got the trade shows, the conferences, all the ways that we interact with our customers in the live environment, also the remote environment or the non-live events. So people are dialing in either the remote [ living ] in during the conference or remote in -- later on after the live events, but those are delivered through webinars, through our media assets, et cetera. All of that data is captured through our customer database. We've spent a lot of time over the last couple of years consolidating all the data for Emerald into one customer database, our customer data hub. That is really, really important, allowing us to do some of the things that I mentioned around providing leads and intelligence to customers. We -- this first-party data also allows us to offer a lot more intelligent matchmaking. What's really critical is making the live experience a lot more effective when people are there in a live environment. So you want intelligent matching. You want to leverage AI to provide really intelligent recommendations so that when customers are coming to our events, they're getting immense value and not leaving it to chance in terms of who they could meet or what value or what purpose they have out of attending live events. We closed a loop through the e-commerce platform -- Elastic B2B e-commerce platform that we acquired, allowing us to buy and -- allowing our customers to buy and sell in a year-round environment, allowing us to capture even more data not only in terms of intent, but actually what people are buying and selling across multiple events. And also, we're launching a lot more sophisticated virtual showroom, again, digital showroom that allows us to -- which we're expanding to all of our customers, allowing our customers to see products, to interaction with products and then to buy and sell products year-round. And then eventually, this allows us to build a much more immersive environment. So our goal, the future vision in terms of where we're headed, is to have a significantly more and enhanced immersive environment for our face-to-face business, are always on business 365 days a year, augmented expos and other tracks that we're building for our customers. In terms of our value creation, our strategy is very clear. We've been consistent for the last couple of years in terms of the 3 things that are going to continue to evolve and drive growth for Emerald. They are: customer centricity, 365 engagement and portfolio optimization. Around customer centricity, it's obvious in terms of why this is important. We need to continue to improve our retention rates. We want higher revenue per customer, and we want to continue to invest in our brands in intelligent ways so that they're delivering on what the customer needs are. And we have a number of tactics that range from brand operating plans to investments in enhanced pricing methodologies and structures, and of course, the customer database, the central database that allows us to capture all of the data for our customers, which will allow us to do a lot more for our customers in terms of delivering a strong return on investment. 365 Engagement is all about making sure that, while live events and core events is a core part of our business, absolutely and will continue to be, however, we need to do more, and we are doing more 365 days a year, leveraging content, leveraging digital and leveraging our marketplace. And finally, like many of you, we are portfolio managers, and we're always looking to optimize our portfolio. So we need to add new assets -- new growth assets to our portfolio and de-risk some of the existing assets when necessary. So we are invested in launching. We've announced a number of launches. I'll go through a couple in a minute, which is exciting to -- it's really an R&D in a facility that we have inside of our own business unit that allows us to look at what are some of the trends, where should we launch, what are the sectors that are underserved or not served at all that we should be playing in. And some we've introduced a few launches. And of course, we are acquiring both in terms of large-scale events, content businesses, the marketplace that have a #1 position in the particular category or smaller tuck-in acquisitions, and I'll go through a couple of examples here. So 7 acquisitions, as I said on the right-hand side of that chart, over the last 18 months. The top left and the bottom right are e-commerce platforms. Elastic, highly integrated e-commerce platform that allows customers to streamline their procurement process, allow buyers to buy very effectively, and Bulletin, which is a new acquisition, which will allow us to offer enhanced buying and -- capabilities for our customers on a year-round basis. We have a couple of tuck-in acquisitions in the tech field. And in the design space is 2 sectors that are important for us. AV-iQ, which is a data business, and EDspaces, which is a tuck-in acquisition in our design, as -- the same as Sue Bryce actually tuck-in acquisition and a subscription-based model for our photography business. So you're seeing some diversification in terms of what we're buying to complement the sectors that we already operate in. And then entering new areas like MJBiz, which is a leading media company as well as events company in the cannabis space. And this summer, we closed on Advertising Week. While we had some assets already in the marketing space, this really allows us to expand in a high growth and very interesting space of MarTech, of advertising, of media, and very excited about that acquisition. In terms of launches, we've announced 4. So Mentera is really a mental health. It's a conference that's designed around optimizing mental health solutions for employers. And so the customers there are chief human resources officers, CEOs that are really looking to address some of the needs that many companies are facing today in a proactive way. reMind is really a conference focused on breakthrough medicine that we've co-located with our MJBiz business that we just hosted a couple of weeks ago. And D2 is a Decentralization Deciphered. That's focused on CEOs, CFOs, CIOs, on safely exploring decentralized solutions. It's really an educational platform that allows us, and allows CEOs and CFOs and CIOs to enter a new space and really unlock the opportunities around Web 3.0. And SIAL was a food launch -- a horizontal food launch that we did in partnership through a joint venture with a French company Comexposium, and we launched that in Vegas earlier this year and are very excited about that opportunity as well. So that concludes the opening comments, and I'll turn it over to David Doft, our CFO, to go through some of the financial results.

Thank you, Herve, and good morning. So as Herve mentioned, our business continued to bounce back post pandemic. And year-to-date is a great indicator of that success after going through a period of 18 months where we had essentially no live events. Year-to-date, we've saved 74 events over the trailing 12 months, well over 100 events. The events this year have attracted 282,000 attendees, over 13,000 exhibiting companies, and we've been able to stage every major event in our portfolio this year. So it's really exciting times being back to business. Herve highlighted the efforts of Xcelerator on the recent acquisitions, so I'll skip over that. In terms of financial performance, we thought it would be helpful to show on a TTM basis. versus year-to-date just to show the overall run rate of the business as we enter 4Q and into 2023. But over the last 12 months, we generated $273 million of revenue, about $23 million of adjusted EBITDA, excluding insurance. With the success of our insurance claims, we did have insurance for the pandemic. Adjusted EBITDA on a reported basis is over $265 million, and free cash flow ex-insurance is about breakeven. And why I thought it was important to show TTM is also to highlight the fact that as we enter 4Q of this year, it should be clear that we're actually a very different business because of some of the businesses that we've acquired. Historically, Emerald 4Q is seasonally its smallest quarter of the year. But because of the acquisitions of MJBiz, Advertising Week and Elastic, 4Q is actually now one of our largest quarters of the year. And the main revenue and profit generators for Advertising Week and MJBiz are actually in the fourth quarter. And so, as we report year-end 2022, investors will get a much better sense of the true run rate of our business as it stands today going forward., and as indicated in the guidance, which I'll talk to in a minute. The other aspect of the financial performance of the business we're very proud of is, given that we're probably the most impacted business or one of the most impacting businesses in the world from the pandemic, where our revenues went to almost 0, the fact that we've been able to protect our balance sheet through that period puts us in a really strong position going forward. Sitting here today, while we have a term loan that's a bit over $500 million in the amount outstanding, we have $366 million of cash on the balance sheet as of September 30, and an untapped revolving credit facility of $110 million, which brings total liquidity to $466 million. The COVID recovery, as Herve indicated, continues for us, and we continue to progress towards more normalized levels. And while almost 1/4 of our events have exceeded pre-pandemic revenue, much less so have done in terms of pre-pandemic square footage, which is how we measure -- the other way we measure size of our events. And so we've had pricing power that's allowed us to drive revenue forward. And so, as square footage recovers back towards pre-pandemic levels, and we're confident that it will, we see a lot of leverage in incremental revenue from what we had prior to the pandemic because of the pricing power that we have. And that pricing power has also allowed us to manage against the inflationary pressures, which we've seen largely on the labor side, and allow us to protect our margin going forward. And so, we continue to believe that we should be able to work towards historical 35% plus EBITDA margins over the next several years. The -- and so with that, we're proud that even with the uncertainty around the recovery trajectory, and it's not a straight line, and even with the economic pressures that are out there, which, frankly, we've been dealing with since the pandemic anyway and is part of why we're not back to full already and has been implied in our numbers all along, we've been able to maintain our financial guidance for the year all year long. And so we continue to expect in excess of $300 million of revenue in 2023 and in excess of $50 million of adjusted EBITDA, excluding insurance. And as Herve mentioned, free cash flow between $60 million and $70 million, excluding insurance as well, excluding onetime items related to that for the year. And we've also maintained our preliminary look into 2023 all year long, which gives you an indication of the sharp trajectory that we see our business bouncing back both in terms of revenue, but then the operating leverage we have to the bottom line where we're looking for in excess of $100 million of adjusted EBITDA, excluding insurance recoveries in 2023. As noted, our balance sheet is in great shape as we sit right now, and though there is some complexity to our capital structure, given that one of the ways we protected the balance sheet in addition to the insurance recoveries was when the pandemic initially hit in early 2020, we raised incremental capital in the form of convertible preferred stock. It is an equity structure, not a debt structure, and so, a credit positive event in our view. But with that, it does mean that our market cap on an adjusted basis on an as-converted basis is meaningfully higher than it would seem based on the common shares outstanding. And so while there's 67.5 million shares outstanding of common stock. There is another 132 million shares in essence on an as-converted basis and so about 200 million shares in total on an as-converted basis, which is really how, at least on the equity side, investors should be thinking about valuing our company. From a debt standpoint, as I mentioned before, about $515 million of term debt outstanding and $366 million of cash. And so net debt is only $149 million as of September 30, which is just over 2x net debt to TTM EBITDA per the definition in our credit agreement. So we're really excited to put ourselves in this position and allows us the flexibility to continue to not only invest in growth organically in our business, but also on the M&A strategy, which we view as key to our growth profile and value creation opportunity going forward. And so that's the end of our formal remarks. With that, we've left a few minutes for any questions.

[indiscernible].

Sure. So one of the great things about our business is where we sit in the budgets of our clients. And the reason we really emphasize to investors, frankly, and to our customers, the lead generating aspects of it and are investing so much and be able to quantify those things for our customers, it's measurable ROI, and marketing dollars that deliver measurable ROI do a whole lot better in economic downturns than other parts of the marketing budget. And so, trade shows because -- and then the recent trade shows have been resilient, frankly, for millennia, not years or decades. Trade shows have been around for thousands of years is because they work, they drive business, right? And so trade shows tend to handle recessions fairly well. It's not that there might not be some top line pressure, and we believe we actually -- that's -- we're already dealing with that from the post-pandemic ramp. We're already impacted by the restrictions in China. We haven't seen a Chinese exhibitor in an event since 2019. As they come back, we will -- that will help the ramp back up of our business to pre-pandemic levels. We're already impacted by international travel restrictions that were heavier earlier in the year, and we've been impacted by supply chain issues all along, which is very much a pandemic-related issue for many of the industries that we serve. And that's why not all of our events are back yet, and they need some time to ramp. So we're already seeing a lot of it. But generally, trade shows are a little bit later into economic downturns because clients sign up well ahead of time, and so they tend to be locked in. And it tends to be fairly shallow because there's a lot of value when coming to trade shows, and there's a lot of stickiness in coming year after year because there is benefit to loyalty in that you get to choose your space in the trade show for first, and that has a high level of perceived value to customers.

[indiscernible]

Absolutely. We don't talk about specific sectors publicly in terms of which sectors we're looking at, but we are looking at entering high-growth sectors. So we've got a rich pipeline of M&A that we're looking at now across multiple sectors, and we look at either, do we buy or build. So we always look at acquisitions, but also compare that with what it would take to actually launch an interest base in an organic way.

[indiscernible]

So I think we put ourselves in a great position to manage that with the cash on hand that we have and the liquidity that we have. Ultimately, we've been working to prove out the recovery of the business, to build up the TTM EBITDA base and watching market conditions and what's going on out there in the world. But it gives us a lot of optionality and it gives us the ability to be patient and wait for the right time and opportunity to get the right outcome for the business. So obviously, the maturity dates of our debt is on our mind, and we'll take care of it when the time is right, but we put ourselves in a really strong position to do so successfully. In terms of uses of cash, we -- so we have an active M&A strategy. This is a business where we've focused very much over the last 2 years of adding stability and scalability to the core platform of Emerald to allow us to ingest new businesses, whether we launch them or buy them on top of our platform, and to do that efficiently and effectively to build value. 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. And so, M&A will remain a key aspect of our use of cash. But at the same time, we are looking at what's the right amount of gross debt going forward, given the position we're in right now, do we need the amount we have, and we'll weigh that against M&A opportunities against the markets -- the financial markets and what they -- and how they play out. And then we do have a small share buyback authorization. It's not meaningful to the grand scheme, but we've happily and opportunistically bought that stock at lower levels than we are at now, and would be opportunistic again going forward. Thank you so much.