Because of numerous event cancellations due to the COVID-19 pandemic, San Juan Capistrano, CA-based Emerald Holding Inc.—the operator of Outdoor Retailer, Surf Expo and other trade shows—reported revenue for the first quarter declined 27.4 percent to $99.7 million.
- Revenues decreased 27.4 percent to $99.7 million, compared to $137.4 million for the first quarter 2019;
- Cancellation of seven live events due to the COVID-19 crisis represents the loss of $34.3 million in comparable period prior year revenues;
- Postponement of two live events due to the COVID-19 crisis expected to push $3.6 million in comparable period prior year revenues to the second half of 2020;
- Organic revenues, a non-GAAP measure, decreased 2.6 percent to $95.8 million for the first quarter 2020, compared to $98.4 million for the first quarter 2019;
- Net loss of $570.1 million for the first quarter 2020, compared to net income of $26.5 million for the first quarter 2019;
- First-quarter 2020 includes non-cash charges of $564 million and $59.4 million, respectively, related to the impairment of goodwill and certain intangible asset;
- Adjusted EBITDA, a non-GAAP measure, decreased 59 percent to $23.6 million for the first quarter 2020, compared to $57.5 million for first quarter 2019;
- The financial impact of event cancellations in the first quarter is expected to be partially offset in future periods by $31.1 million of event cancellation insurance proceeds, based on claims filed and subject to final claim adjustment, which represents the net amount of expected gross revenues less avoided costs for canceled events;
- Adjusted Net Income, a non-GAAP measure, was $27.2 million for the first quarter 2020, compared to income of $37 million for the first quarter 2019;
- Net cash provided by operating activities of $8.8 million for the first quarter 2020 decreased by 24.1 percent, compared to net cash provided by operating activities of $11.6 million for the first quarter 2019; and
- Free Cash Flow, a non-GAAP measure, decreased 31.9 percent to $7.7 million for the first quarter 2020, compared to $11.3 million for the first quarter 2019.
First Quarter 2020 Financial Performance
Brian Field, Emerald’s interim president and CEO, said, “We are living in unprecedented times, which has had significant implications across industries given current restrictions on in-person group events. Despite these challenges, I have been deeply impressed by the agility and focus of our teams to support our customers’ needs and innovate new digital product solutions. Through online education, networking and connecting our buying and selling customers, we continue to build and grow our relationships across our industry segments, which I expect will pay long-term dividends when conditions improve. At the same time, our cost-cutting efforts have paid off with an annualized reduction of over $15 million in SG&A and over $30 million in direct cost avoidance to date.”
David Doft, Emerald’s CFO, added, “We are very fortunate to have a comprehensive insurance policy which expressly covers event cancellation and postponement as a result of communicable disease, and we are filing claims for all of our impacted shows. We are also working to optimize our operations and cost structure for both the short and long term to ensure we have adequate liquidity to run Emerald for an extended period without any shows staging while staying in compliance with our financial covenants.”
COVID-19 Operational and Expected Insurance Recovery Update
Emerald is focused on the health and safety of its employees and customers have given this unprecedented environment. As a result, the company implemented its business continuity plan under which all employees have been transitioned to a remote working environment and Emerald is actively engaging the company’s communities with new online offerings and planning for future events.
The rapid spread of COVID-19 has had a material impact on Emerald’s ability to deliver large, in-person experiences that have necessitated substantial changes to the company’s show calendar. To date, Emerald has canceled 29 events, including ASD March, JA New York, Couture, Retail X, and Outdoor Retailer Summer Market. In total, these events accounted for approximately $118 million of 2019 revenues. Emerald has also postponed 14 events to the second half of 2020, which events accounted for approximately $12 million of 2019 revenues.
Emerald maintains event cancellation insurance which provides coverage for the 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, up to an aggregate limit of approximately $191 million per year for each of 2020 and 2021 if losses arise for reasons within the scope of Emerald’s policy. Emerald’s coverage expressly includes losses resulting from the unavoidable cancellation, postponement, change in event venue and enforced reduced attendance due to certain covered causes, one of which is the outbreak of communicable diseases. While there is no assurance that the insurance carriers will agree that all of Emerald’s claims are covered, the company believes that all shows that have been canceled or postponed due to COVID-19 to date should qualify as covered losses with respect to this event cancellation insurance policy.
The company has been preparing and submitting insurance claims for each of its canceled shows. To date, Emerald has submitted approximately $66 million in claims, which represents the net amount of expected gross revenues less avoided costs for canceled events, and expects to submit further claims over the next several weeks.
Emerald also continues to analyze a range of initiatives to improve its long-term operating efficiency while also reducing the company’s cash burn and improving its financial flexibility. The company has implemented a broad range of cost reduction initiatives, including furloughs and permanent reductions in headcount, to support its ability to manage against these challenges while meeting and complying with its financial obligations and covenants under its credit agreement.
Financial and Operational Results, Quarter Ended March 31, 2020
For the first quarter of 2020, Emerald reported revenues of $99.7 million compared to revenues of $137.4 million for the first quarter of 2019, a decrease of $37.7 million, or 27.4 percent. The decrease primarily reflected a $34.3 million reduction from the cancellation of seven first-quarter events due to the COVID-19 crisis, most notably ASD March, the International Pizza Expo, and JA Spring, as well as a $3.6 million decline due to the postponement of two first-quarter 2020 events to the second half of the year. Discontinued events representing $2.3 million of first-quarter 2019 revenues also impacted the first quarter 2020 results. The G3 Communications acquisition, which closed in the fourth quarter of 2019, contributed $3.9 million in revenue in the first quarter of 2020. Organic revenues for the first quarter of 2020 declined $2.6 million, or 2.6 percent, as compared to the prior year first quarter.
The company incurred a net loss of $570.1 million for the first quarter of 2020 compared to the net income of $26.5 million for the first quarter of 2019. In the first quarter of 2020, in connection with a triggering event caused by the anticipated impact of the COVID-19 crisis on the travel and events industry, the company’s forecasted results and the market value of its common stock, the company performed an interim goodwill impairment assessment and recorded a $564 million non-cash charge related to the impairment of goodwill and a $59.4 million non-cash charge related to the impairment of certain trade names and customer-relationship intangible assets.
For the first quarter of 2020, Adjusted EBITDA was $23.6 million, compared to $57.5 million for the first quarter of 2019, adjusted for show scheduling differences, including COVID-19 related postponements. The decrease in Adjusted EBITDA of $33.9 million was mainly related to the cancellation of seven first-quarter events, representing prior year first quarter Adjusted EBITDA of $25.7 million as well as the acceleration of previously deferred expenses related to second-quarter events which Emerald was forced to cancel as a result of the COVID-19 crisis. First-quarter 2020 Adjusted EBITDA also reflected the combined effect of lower organic revenues, incremental investments in the events that took place in the quarter, and increased marketing costs.
Net cash provided by operating activities decreased by $2.8 million to $8.8 million in the first quarter of 2020, compared to $11.6 million in the first quarter of 2019, largely reflecting the company’s close management of operating cash flows given the challenging circumstances presented by the COVID-19 crisis offset by lower income.
Capital expenditures were $1.1 million for the first quarter of 2020, compared to $0.3 million for the first quarter of 2019.
Free Cash Flow, which the company defines as net cash provided by operating activities less capital expenditures, was $7.7 million in the first quarter of 2020, compared to $11.3 million in the first quarter of 2019.
Suspension of Dividend and Share Repurchase Programs
On March 20, 2020, due to uncertainty caused by the impact of the COVID-19 crisis on the travel and events industry, Emerald’s board of directors made the decision to temporarily suspend the company’s regular quarterly cash dividend on its common stock as well as its share repurchase program. The board of directors announced that it would re-assess the dividend suspension throughout the year to determine, in light of facts and circumstances at that time, whether and when to reinstate the dividend.
Photo courtesy Emerald