Emerald Holding, Inc. reported reduced losses in the third quarter ended September 30 as it was able to hold 32 in-person trade shows, conferences and other events in the period.

Emerald traditionally has hosted over 140 events each year. Its shows include Outdoor Retailer, Surf Expo, The Sports Licensing & Tailgate Show, Impressions, Swim Collective, and Active Collective in the active lifestyle space.

Highlights

  • During the third quarter, Emerald traded 32 in-person trade shows, conferences and other events, serving “more than 92,000 attendees and 5,200 exhibiting companies;”
  • Net loss of $9.0 million for the third quarter 2021, compared to a net loss of $15.3 million for the third quarter 2020;
  • Adjusted EBITDA, a non-GAAP measure, of $9.4 million for the third quarter 2021, compared to negative $3.2 million for the third quarter 2020;
  • Cash generation increased as bookings for returning events accelerate;
  • Emerald ended the third quarter with $303.6 million in cash as compared to the second quarter’s cash balance of $302.8 million;
  • The company bought back 1.2 million shares for an average price of $4.69 per share during the quarter;
  • Emerald’s Board of Directors approved an extension and expansion of its share repurchase program, which allows for the repurchase of $20.0 million of the company’s common stock through December 31, 2022;
  • The impact of event cancellations and date postponements on operating income were partially offset by claim payments received under its event cancellation insurance policy. Emerald said it is actively pursuing the collection of the remaining unpaid amounts of filed insurance claims for its canceled and impacted 2020 events, in addition to claims for its canceled and impacted 2021 events;
  • To date, Emerald has submitted $167 million and $76.2 million in claims, which represents the net amount of budgeted gross revenues less avoided costs for impacted or canceled events previously scheduled to take place in 2020 and 2021, respectively;
  • Insurance claim payments received to date total $184.3 million, of which $89.1 million was received in 2020, $35.4 million was received during the first nine months of 2021, and $59.8 million was received in October of 2021

Hervé Sedky, Emerald’s president and CEO, said, “It’s an exciting time. We returned to live events in the third quarter and staged 32 events serving more than 92,000 attendees and 5,200 exhibiting companies. Importantly, our exhibitor satisfaction has been very high given the strong attendee turnout with the ratio of attendees to exhibitors increasing by 22 percent as compared to 2019 levels, on average, across all of our events. This has led to an over 900 percent increase in average exhibitor net promoter scores (NPS), compared to 2019, which can also be seen in our sales pacings for 2022 which are trending better than our 2021 events. This provides real hope that we are on a path to recovery and we expect our business to begin to return to pre-Covid levels as we look toward the future. Importantly, we are not standing still. We are aggressively transforming Emerald through the implementation of a range of initiatives designed to improve our customers’ and employees’ satisfaction, accelerate organic growth, and expand margins.”

David Doft, Emerald’s CEO, added, “We are in a strong position as we ended the third quarter with more than $300 million of cash on our balance sheet and are starting to see the positive dynamics of our business model play out as forward bookings accelerate, driving negative working capital and strong free cash flow generation. Additionally, our business requires relatively little in the way of capital expenditures to maintain our shows and grow which positions our team to strategically allocate capital to our growth initiatives. We continue to evaluate attractive acquisition opportunities following the recent acquisitions of PlumRiver and its Elastic B2B commerce software and Sue Bryce Education, among others, as well as develop new, greenfield events and products as we look to reaccelerate organic sales growth. We have also been aggressive with our share buyback this quarter having repurchased 1.2 million shares and our Board has expanded our share repurchase capacity.”

COVID-19 Operational and Expected Insurance Recovery Update
Emerald said it remains focused on the health and safety of its employees and customers. It recently implemented a phased return-to-office practice for its employees, and actively returned to in-person events in July and continuing through the remainder of 2021.

The spread of COVID-19 and the resulting limitations placed on travel and gatherings had a material impact on its ability to hold large, in-person events which necessitated substantial show calendar changes. To date, Emerald canceled 130 events. Of those, 94 were scheduled to stage in 2020, representing $230.6 million of 2019 revenues, and 36 were scheduled to stage in 2021. Of the 36 events that were canceled in 2021, 12 staged in the prior year, representing $75.7 million of 2020 revenues, and 18 were canceled in 2020 and 2021, representing $44.8 million of 2019 revenues.

Emerald maintains event cancellation insurance to protect against losses from unavoidable cancellation, postponement, relocation, and enforced reduced attendance at events due to certain covered causes. Specifically, these causes include event cancellation caused by the outbreak of communicable diseases, including COVID-19. Emerald’s policy provides coverage for the budgeted amount of gross revenues (less avoided costs, plus certain costs relating to the taking of remedial action) for each of the company’s individual events and conferences occurring within a calendar year. The aggregate limit under this event cancellation insurance policy is approximately $191.1 million in 2020 and $191.4 million in 2021 if losses arise for reasons within the scope of this policy.

In addition to this primary policy, Emerald has a separate event cancellation insurance policy for the Surf Expo Summer 2020 and Surf Expo Winter 2021 shows, with respective coverage limits of $6 million and $7.7 million.

The company has submitted insurance claims for each of its 2020 canceled shows. For events previously scheduled to take place in 2020, Emerald has submitted approximately $167 million in claims, which represents the net amount of expected gross revenues less avoided costs for canceled events scheduled to take place in 2020. Insurance claim payments for 2020 events received to date total $141.3 million, of which $89.1 million was received in 2020, and $52.2 million was received in 2021. The company has also submitted additional claims of approximately $76 million for events canceled or otherwise impacted in the first three quarters of 2021. In October 2021, the company received an interim payment of $43.0 million allocated to outstanding 2021 event cancellation claims.

Emerald is pursuing collection of the remaining unpaid amounts of filed insurance claims for its canceled 2020 events, in addition to claims for its canceled 2021 events. On February 22, 2021, the company filed a complaint in Federal District Court in Orange County, CA against its event cancellation insurers under the company’s 2020 and 2021 event cancellation insurance policy. The company believes the insurers have acted in bad faith and failed to timely pay amounts due and owing on submitted claims. Under its complaint, the company is seeking to enforce its rights under the policies to receive the maximum applicable coverage for the 2020 and 2021 event cancellations, postponements and reductions, and to receive court-ordered payment on all outstanding submissions for 2020 and 2021 events.

The company believes that all events that have been impacted, canceled or postponed due to COVID-19 to date should qualify as covered losses under the event cancellation insurance policies and that, to date, the insurers have paid less than what is owed under the policies.

Financial & Operational Results, Quarter Ended September 30, 2021
For the third quarter of 2021, Emerald reported revenues of $76.5 million compared to revenues of $8.5 million for the third quarter of 2020, an increase of $68.0 million. The primary driver of the increase was $60.7 million in revenues related to live events that were staged in the third quarter of 2021 but had been canceled in the prior year due to COVID-19. When compared to its last in-person edition, revenue for these events was down $87.3 million, or 59.0 percent. Organic revenues for the third quarter of 2021 of $12.1 million, decreased $1.6 million, or 11.7 percent, as compared to the prior year third quarter organic revenues of $13.7 million, due primarily to a $3.3 million, or 46.3 percent, a decline in revenues generated by several events that staged in the first quarter of 2020 but were postponed to the third quarter of 2021 as a result of COVID-19. On-going international travel restrictions and date postponements related to the pandemic had a significant impact on many of the events that were staged during the third quarter of 2021. These organic declines were offset by higher print and digital advertising revenues as well as several new virtual offerings. The PlumRiver, LLC (“PlumRiver”) and Sue Bryce Education (“Sue Bryce”) acquisitions, which closed in the fourth quarter of 2020 and second quarter of 2021, respectively, contributed $3.7 million of revenue in the third quarter of 2021. Discontinued Other Marketing Services business representing $2.1 million of third-quarter 2020 revenues also impacted third quarter 2021 results.

The company recognized a net loss of $9.0 million for the third quarter of 2021 compared to a net loss of $15.3 million for the third quarter of 2020. The decrease in loss was primarily attributable to the increase in revenues related to the return of live events in the third quarter of 2021 offset by lower event cancellation insurance claims being confirmed or received during the third quarter of 2021. The company recorded $1.1 million of Other Income during the third quarter of 2021 as a result of the receipt or confirmation of event cancellation insurance claims proceeds related to events canceled in the second half of 2020 compared to $16.1 million of Other Income recorded during the third quarter of 2020 as a result of the receipt or confirmation of event cancellation insurance claims proceeds related to events canceled in the first half of 2020. In addition, the decrease in net loss was partially offset by a $4.4 million decrease in benefit for income taxes compared to the third quarter of 2020.

For the third quarter of 2021, Adjusted EBITDA was $9.4 million, compared to a negative $3.2 million for the third quarter of 2020. The increase in Adjusted EBITDA of $12.6 million was mainly due to profits generated by the live events that were staged during the quarter partially offset by the lower confirmed or received event cancellation insurance claim proceeds described above. The company’s Adjusted EBITDA throughout 2021 has been and will continue to be heavily impacted by the timing and receipt of approved claim payments under the company’s event cancellation insurance policy.

Cash Flow
Net cash provided by operating activities was $9.6 million in the third quarter of 2021, compared to cash used in operating activities of $20.1 million in the comparable period of the prior year. This improvement largely reflected increased liabilities related to a large number of shows staged during the third quarter of 2021, continued receipt of prepayments for future events, and higher cancellation liabilities for events that were canceled during the period, partially offset by outflows related to the release of deferred revenues related to the live events that staged during the quarter. Primarily as a result of additional cancellations during the quarter, as of September 30, 2021, canceled event liabilities increased to $21.2 million as compared to $8.5 million at June 30, 2021.

Capital expenditures were $1.9 million for the third quarter of 2021, compared to $0.8 million for the third quarter of 2020.

Free Cash Flow, which the company defines as net cash provided by (used in) operating activities less capital expenditures, was an inflow of $7.7 million in the third quarter of 2021, compared to an outflow of $20.9 million in the third quarter of 2020.

Emerald ended the third quarter of 2021 with $303.6 million of cash as compared to the second quarter of 2021’s cash balance of $302.8 million.