UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, zip code)
(Registrant’s telephone number, including area code): (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of July 31, 2023, there were
EMERALD HOLDING, INC.
TABLE OF CONTENTS
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek” or “should,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about general economic conditions, or more specifically about the markets in which we operate, including growth of our various markets, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this report are forward-looking statements.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including the factors discussed in this report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements, or could affect the trading price of our common stock on the New York Stock Exchange. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to:
1
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this report are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this report, they may not be predictive of results or developments in future periods.
Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this report.
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Emerald Holding, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(dollars in millions, share data in thousands, except par value) |
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June 30, |
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December 31, |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Trade and other receivables, net of allowances of $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Noncurrent assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill, net |
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Right-of-use lease assets |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ |
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Current liabilities |
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Accounts payable and other current liabilities |
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$ |
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$ |
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Income tax payable |
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Cancelled event liabilities |
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Deferred revenues |
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Contingent consideration |
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Right-of-use lease liabilities, current portion |
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Term loan, current portion |
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— |
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Total current liabilities |
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Noncurrent liabilities |
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Term loan, net of discount and deferred financing fees |
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Deferred tax liabilities, net |
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Right-of-use lease liabilities, noncurrent portion |
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Other noncurrent liabilities |
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Total liabilities |
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Redeemable convertible preferred stock |
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7% Series A Redeemable Convertible Participating Preferred stock, $ |
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Stockholders’ deficit |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Total stockholders’ deficit |
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( |
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( |
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Total liabilities, redeemable convertible preferred stock and stockholders’ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Emerald Holding, Inc.
Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income
(unaudited)
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Three Months Ended |
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Six Months Ended |
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(dollars in millions, share data in thousands except earnings per share) |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Other income, net |
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— |
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— |
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Cost of revenues |
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Selling, general and administrative expense |
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Depreciation and amortization expense |
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Goodwill impairment charge |
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— |
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— |
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— |
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Intangible asset impairment charge |
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— |
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— |
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— |
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Operating (loss) income |
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Interest expense |
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Interest income |
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Loss on extinguishment of debt |
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— |
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— |
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Other expense |
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— |
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— |
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(Loss) income before income taxes |
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( |
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( |
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(Benefit from) provision for income taxes |
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( |
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Net (loss) income and comprehensive (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Accretion to redemption value of redeemable |
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( |
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( |
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( |
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( |
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Net loss and comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Basic loss per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted loss per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Basic weighted average common shares |
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Diluted weighted average common shares |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Emerald Holding, Inc.
(unaudited)
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Three Months Ended June 30, 2023 |
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(shares in thousands; dollars in millions) |
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Total Emerald Holding, Inc. Stockholders' Deficit |
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Redeemable |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balances at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock under |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Accretion to redemption value of |
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— |
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— |
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— |
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( |
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— |
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( |
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Repurchase of common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Redeemable convertible preferred |
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( |
) |
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( |
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— |
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— |
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Net loss and comprehensive |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balances at June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Six Months Ended June 30, 2023 |
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(shares in thousands; dollars in millions) |
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Total Emerald Holding, Inc. Stockholders' Deficit |
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Redeemable |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balances at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Issuance of common stock under |
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— |
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— |
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— |
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— |
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— |
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— |
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Accretion to redemption value of |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Repurchase of common stock |
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— |
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— |
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( |
) |
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( |
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( |
) |
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— |
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( |
) |
Redeemable convertible preferred |
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( |
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( |
) |
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— |
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— |
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Net loss and comprehensive |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balances at June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Emerald Holding, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit
(unaudited)—Continued
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Three Months Ended June 30, 2022 |
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(shares in thousands; dollars in millions) |
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Total Emerald Holding, Inc. Stockholders' Deficit |
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Redeemable |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balances at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Accretion to redemption value of |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Repurchase of common stock |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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( |
) |
Redeemable convertible preferred |
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( |
) |
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( |
) |
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— |
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— |
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|||
Net loss and comprehensive |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balances at June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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Six Months Ended June 30, 2022 |
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(shares in thousands; dollars in millions) |
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Total Emerald Holding, Inc. Stockholders' Deficit |
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Redeemable |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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|||||||
Balances at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
|||||
Stock-based compensation |
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— |
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— |
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— |
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— |
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Issuance of common stock under |
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— |
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— |
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— |
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— |
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— |
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— |
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Accretion to redemption value of |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Repurchase of common stock |
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— |
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— |
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( |
) |
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— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Redeemable convertible preferred |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net income and comprehensive |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balances at June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Emerald Holding, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions) |
|
Six Months |
|
|
Six Months |
|
||
Operating activities |
|
|
|
|
|
|
||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net (loss) income to net cash |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Goodwill impairments |
|
|
— |
|
|
|
|
|
Intangible asset impairments |
|
|
— |
|
|
|
|
|
Non-cash operating lease expense |
|
|
|
|
|
|
||
Amortization of deferred financing fees and debt discount |
|
|
|
|
|
|
||
Loss on extinguishment of debt |
|
|
|
|
|
— |
|
|
Deferred income taxes |
|
|
|
|
|
|
||
Loss on disposal of fixed assets |
|
|
|
|
|
— |
|
|
Remeasurement of contingent consideration |
|
|
( |
) |
|
|
( |
) |
Changes in operating assets and liabilities, net of effect of |
|
|
|
|
|
|
||
Trade and other receivables |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
Other noncurrent assets |
|
|
|
|
|
( |
) |
|
Accounts payable and other current liabilities |
|
|
( |
) |
|
|
|
|
Cancelled event liabilities |
|
|
( |
) |
|
|
( |
) |
Contingent consideration |
|
|
— |
|
|
|
( |
) |
Income tax payable |
|
|
( |
) |
|
|
|
|
Deferred revenues |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Other noncurrent liabilities |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Investing activities |
|
|
|
|
|
|
||
Acquisition of businesses, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Purchase of marketable securities |
|
|
— |
|
|
|
( |
) |
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Purchases of intangible assets |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Financing activities |
|
|
|
|
|
|
||
Payment of contingent consideration for acquisition of businesses |
|
|
( |
) |
|
|
( |
) |
Repayment of principal on Amended and Restated Term Loan Facility |
|
|
( |
) |
|
|
( |
) |
Proceeds from Extended Term Loan Facility |
|
|
|
|
|
— |
|
|
Original issuance discount |
|
|
( |
) |
|
|
— |
|
Fees paid for debt issuance |
|
|
( |
) |
|
|
— |
|
Repurchase of common stock |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock under equity plans |
|
|
— |
|
|
|
|
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents |
|
|
|
|
|
|
||
Beginning of period |
|
|
|
|
|
|
||
End of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of non-cash financing activities: |
|
|
|
|
|
|
||
Amended and Restated Term Loan Facility |
|
$ |
( |
) |
|
$ |
— |
|
Extended Term Loan Facility |
|
$ |
|
|
$ |
— |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The unaudited condensed consolidated financial statements include the operations of Emerald Holding, Inc. (the “Company” or “Emerald”) and its wholly-owned subsidiaries. These unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC for Interim Reporting. All intercompany transactions, accounts and profits/losses, if any, have been eliminated in the unaudited condensed consolidated financial statements. In the opinion of management, all recurring adjustments considered necessary for a fair statement of results for the interim period have been included.
These unaudited condensed consolidated financial statements do not include all disclosures required by GAAP, therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2022. The December 31, 2022 condensed consolidated balance sheet was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2022. Certain reclassifications have been made to prior year amounts to conform to the current year's presentation.
The results for the three and six months ended June 30, 2023 are not necessarily indicative of results to be expected for a full year, any other interim periods or any future year or period.
Recently Issued Accounting Pronouncements
There have been no new accounting pronouncements that are expected to have a significant impact on the Company’s condensed consolidated financial statements or notes thereto.
Revenue Recognition and Deferred Revenue
Revenue is recognized as the customer receives the benefit of the promised services and performance obligations are satisfied. Revenue is recognized at an amount that reflects the consideration the Company expects to receive in exchange for those services. Customers generally receive the benefit of the Company’s services upon the staging of each trade show or conference event and over the subscription period for access to the Company’s subscription software and services. Fees are typically invoiced and collected in full prior to the trade show or event.
A significant portion of the Company’s annual revenue is generated from the production of trade shows and conferences (collectively, “trade shows”), including booth space sales, registration fees and sponsorship fees. The Company recognizes revenue in the period the trade show occurs. Trade show and other events revenues represented approximately
Deferred revenues generally consist of booth space sales, registration fees and sponsorship fees that are invoiced prior to a trade show, as well as upfront payments for software subscription fees, professional services and implementation fees for the Company’s subscription software and services. Current deferred revenues were $
8
The accounts receivable and deferred revenue balances related to cancelled events are classified as cancelled event liabilities in the condensed consolidated balance sheets as the total amount represents balances which are expected to be refunded to customers. As of June 30, 2023, cancelled event liabilities of $
Performance Obligations
For the Company’s trade shows and other events, sales are deferred and recognized when performance obligations under the terms of a contract with the Company’s customers are satisfied, which is typically at the completion of a show or event. Revenue is measured as the amount of consideration the Company expects to receive upon completion of its performance obligations.
For the Company’s subscription software and services, the Company may enter into contracts with customers that may include multiple performance obligations, which are generally capable of being distinct. Fees associated with implementation and related professional services are deferred and recognized over the expected customer life, which is
For the Company’s other marketing services, revenues are deferred and recognized when performance obligations under the terms of a contract with the Company’s customers are satisfied. This generally occurs in the period in which the publications are issued. Revenue is measured as the amount of consideration the Company expects to receive upon completion of its performance obligations.
The Company applies a practical expedient which allows the exclusion of disclosure information regarding remaining performance obligations if the performance obligation is part of a contract that has an expected duration of
Disaggregation of Revenue
The Company’s primary sources of revenue are from trade shows, other events, subscription software and services and other marketing services.
9
The following table represents revenues disaggregated by type:
|
|
Reportable Segment |
|
|
|
|
||||||||||
|
|
Commerce |
|
|
Design, |
|
|
All Other |
|
|
Total |
|
||||
Three Months Ended June 30, 2023 |
|
(in millions) |
|
|||||||||||||
Trade shows |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other events |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Subscription software and services |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Other marketing services |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Three Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade shows |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other events |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Subscription software and services |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Other marketing services |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Six Months Ended June 30, 2023 |
|
|
|
|||||||||||||
Trade shows |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other events |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Subscription software and services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other marketing services |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Six Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade shows |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other events |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Subscription software and services |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Other marketing services |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Contract Balances
The Company’s contract assets are primarily sales commissions incurred in connection with the Company’s subscription software and services, which are expensed over the expected customer relationship period. As of June 30, 2023, the Company does not have material contract assets.
Contract liabilities generally consist of booth space sales, registration fees, sponsorship fees that are collected prior to the trade show or other event and subscription revenue, implementation fees and professional services associated with the Company’s subscription software and services. Contract liabilities less than one year from the date of the performance obligation are reported on the condensed consolidated balance sheets as deferred revenues. Contract liabilities greater than one year from the date of the performance obligation are reported on the condensed consolidated balance sheets in other noncurrent liabilities.
The Company’s sales commission costs incurred in connection with sales of booth space, registration fees and sponsorship fees at the Company’s trade shows and other events and with sales of advertising for industry publications are generally short term, as sales typically begin up to
10
Accounts Receivable
The Company monitors collections and payments from its customers and maintains an allowance based upon applying an expected credit loss rate to receivables based on the historical loss rate from similar customers adjusted for current conditions, including any specific customer collection issues identified, and forecasts of economic conditions. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The activities in this account, including the current-period provision for expected credit losses for the three and six months ended June 30, 2023 and 2022, were not material.
2023 Acquisition
Lodestone Events ("Lodestone")
In furtherance of the Company’s strategy to expand into the growing business-to-consumer event space, the Company executed an asset purchase agreement on January 9, 2023 to acquire certain assets and assume certain liabilities of the business known as Lodestone for a total estimated purchase price of $
The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, royalty rate and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable, however, actual results may differ from these estimates.
External acquisition costs of $
Identified intangible assets associated with Lodestone included trade name and customer relationship intangible assets of $
The following table summarizes the fair value of the acquired assets and liabilities on the acquisition date:
(in millions) |
|
January 9, |
|
|
Trade and other receivables |
|
$ |
|
|
Prepaid expenses and other current assets |
|
|
|
|
Goodwill |
|
|
|
|
Intangible assets |
|
|
|
|
Deferred revenues |
|
|
( |
) |
Purchase price, including working capital adjustment |
|
$ |
|
11
Supplemental Pro-Forma Information
Supplemental information on an unaudited pro-forma basis is reflected as if the 2022 and 2023 acquisitions had occurred at the beginning of 2022, after giving effect to certain pro-forma adjustments primarily related to the amortization of acquired intangible assets and interest expense. The unaudited pro-forma supplemental information is based on estimates and assumptions that the Company believes are reasonable and reflects amortization of intangible assets as a result of the acquisition. The supplemental unaudited pro-forma financial information is presented for comparative purposes only. It is not necessarily indicative of what the Company’s financial position or results of operations actually would have been had the Company completed the acquisition at the dates indicated, nor is it intended to project the future financial position or operating results of the combined Company. Further, the supplemental pro-forma information has not been adjusted for show timing differences or discontinued events.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
|
2022 |
|
|
2022 |
|
||
(in millions) |
|
(Unaudited) |
|
|||||
Pro-forma revenues(1) |
|
|
|
|
|
|
||
Advertising Week |
|
$ |
|
|
$ |
|
||
Lodestone |
|
|
|
|
|
|
||
Emerald revenue |
|
|
|
|
|
|
||
Total pro-forma revenues |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Pro-forma net (loss) income |
|
|
|
|
|
|
||
Advertising Week |
|
$ |
— |
|
|
$ |
( |
) |
Bulletin |
|
|
( |
) |
|
|
( |
) |
Lodestone |
|
|
|
|
|
|
||
Emerald net (loss) income |
|
|
( |
) |
|
|
|
|
Total pro-forma net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
(1) Pro-forma revenues from the Bulletin acquisition were not material to the three and six months ended June 30, 2022. |
|
Property and equipment, net, consisted of the following:
(in millions) |
|
June 30, |
|
|
December 31, |
|
||
Furniture, equipment and other |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
Depreciation expense related to property and equipment for the three and six months ended June 30, 2023 was $
12
Intangible Assets, Net
Intangible assets, net consisted of the following:
(in millions) |
|
Indefinite- |
|
|
Customer |
|
|
Definite- |
|
|
Acquired |
|
|
Acquired |
|
|
Computer |
|
|
Capitalized |
|
|
Total |
|
||||||||
Gross carrying |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Accumulated |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net carrying |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gross carrying |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Accumulated |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net carrying |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Amortization expense for the three and six months ended June 30, 2023 was $
Impairment of Indefinite-Lived Intangible Assets
During the three and six months ended June 30, 2023, there were no triggering events or changes in circumstances that would indicate the carrying value of the Company’s indefinite-lived intangible assets was impaired. As such, no quantitative assessment for impairment was required during the first and second quarters of 2023.
During the first quarter of 2022, the Company identified an interim impairment trigger for three of its indefinite-lived intangible assets. As a result, the Company performed a quantitative analysis utilizing the "relief from royalty payments" method with assumptions that are considered Level 3 inputs. After performing the interim impairment assessment, the Company recognized an impairment charge of $
Impairment of Long-Lived Assets Other than Goodwill and Indefinite-Lived Intangible Assets
During the three and six months ended June 30, 2023, there were no triggering events or changes in circumstances that would indicate the carrying value of the Company’s long-lived assets other than goodwill are not recoverable. As such, no quantitative assessment for impairment was required during the first and second quarters of 2023.
During the first quarter of 2022, the Company identified an interim impairment trigger for two of its definite-lived intangible assets. After performing an interim impairment assessment, the Company determined the carrying values were recoverable. During the three months ended June 30, 2022, no additional triggering events or changes in circumstances occurred that would indicate the carrying value of the Company's long-lived assets other than goodwill were not recoverable. As such, no quantitative assessment for impairment was required during the second quarter of 2022 and
13
Goodwill
The table below summarizes the changes in the carrying amount of goodwill for each reportable segment:
|
|
Reportable Segment |
|
|
|
|
|
|
|
|||||||
(in millions) |
|
Commerce |
|
|
Design, |
|
|
All Other |
|
|
Total |
|
||||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Acquired goodwill |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance at June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Impairment of Goodwill
During the three and six months ended June 30, 2023, management determined there were no triggering events. As such, no quantitative assessment for impairment was required during the first and second quarters of 2023.
During the first quarter of 2022, the Company changed its operating segments which resulted in a change in reporting units. Due to the change in reporting units, the Company performed a quantitative assessment of the fair value of its prior and new reporting units as of January 31, 2022 using an income approach with assumptions that are considered Level 3 inputs and concluded that the carrying value of
14
Debt is comprised of the following indebtedness to various lenders:
(in millions) |
|
June 30, |
|
|
December 31, |
|
||
Extended Term Loan Facility, with |
|
$ |
|
|
$ |
— |
|
|
Amended and Restated Term Loan Facility, with |
|
|
— |
|
|
|
|
|
Less: Current maturities |
|
|
|
|
|
— |
|
|
Long-term debt, net of debt discount |
|
$ |
|
|
$ |
|
Term Loan Facility
On June 12, 2023, (the “Term Loan Amendment Effective Date”) Emerald X, Inc. (“Emerald X”), a wholly-owned subsidiary of the Company, entered into a Sixth Amendment to its Amended and Restated Credit Agreement (the “Term Loan Amendment”), by and among Emerald X, as Borrower, the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent, which amends that certain Amended and Restated Credit Agreement, dated as of May 22, 2017 (as amended from time to time, including by the RCF Amendment referred to below and by the Term Loan Amendment, the “Amended Credit Agreement”). The Term Loan Amendment extended the maturity of the term loans outstanding under the Amended Credit Agreement (such extended term loan facility, the “Extended Term Loan Facility”) from
15
The Extended Term Loan Facility proceeds of $
Revolving Credit Facility
On February 2, 2023, Emerald X entered into a Fifth Amendment to its Amended and Restated Credit Agreement (the “RCF Amendment”), by and among Emerald X, as Borrower, the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent, which amends the Amended and Restated Credit Agreement, referred to above. The RCF Amendment increased the aggregate amount of all revolving commitments under the Amended Revolving Credit Agreement from $
Emerald X had
Interest Expense
Interest expense reported in the condensed consolidated statements of (loss) income and comprehensive (loss) income consists of the following:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Extended Term Loan Facility |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Amended and Restated Term Loan Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term Loan Amendment third party fees |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Non-cash interest for amortization of debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving credit facility interest and commitment fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Covenants
The Amended and Restated Revolving Credit Facility contains a financial covenant requiring Emerald X to comply with a
16
As of June 30, 2023, the Company’s assets and liabilities measured at fair value on a recurring basis are categorized in the table below:
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Money market mutual funds(a) |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total assets at fair value |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Market-based share awards liability(b) |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Contingent consideration(b) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total liabilities at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
As of December 31, 2022, the Company’s assets and liabilities measured at fair value on a recurring basis are categorized in the table below:
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Money market mutual funds(a) |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total assets at fair value |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Market-based share awards liability(b) |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Contingent consideration(b) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total liabilities at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
17
Market-based Share Awards
The market-based share awards liability of $
Contingent Consideration
As of December 31, 2022, the Company had $
The contingent consideration paid during the first quarter of 2023 in relation to the Company's acquisition of EDspaces was not material. The Company paid $
The determination of the fair value of the contingent consideration liabilities could change in future periods. Any such changes in fair value will be reported in selling, general and administrative expense in the condensed consolidated statements of (loss) income and comprehensive (loss) income.
Financial Risk
The Company’s condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amount of assets and liabilities.
18
Redeemable Convertible Preferred Stock
On June 10, 2020, the Company entered into an investment agreement (the “Investment Agreement”) with Onex Partners V LP (“Onex”), pursuant to which the Company agreed to (i) issue to an affiliate of Onex, in a private placement transaction (the “Initial Private Placement”),
Liquidation Preference
Upon liquidation or dissolution of the Company, the holders of redeemable convertible preferred stock are entitled to receive the greater of (a) the accreted liquidation preference, and (b) the amount the holders of redeemable convertible preferred stock would have received if they had converted their redeemable convertible preferred stock into common stock immediately prior to such liquidation or dissolution.
Dividends
Each share of redeemable convertible preferred stock will accumulate dividends at a rate per annum equal to
Conversion Features
Shares of the redeemable convertible preferred stock may be converted at the option of the holder into a number of shares of common stock equal to (a) the amount of the accreted liquidation preference, divided by (b) the applicable conversion price. Each share of redeemable convertible preferred stock had an initial liquidation preference of $
19
If, at any time following the third anniversary of the First Closing Date the closing price per share of the Company’s common stock exceeds
Redemption Features
The Company has the right to redeem all, but not less than all, of the redeemable convertible preferred stock on or after June 29, 2026 for a cash purchase price equal to (a) on or after the
Voting Rights
Certain matters will require the approval of holders of a majority of the redeemable convertible preferred stock, including (i) amendments to the Company’s organizational documents in a manner adverse to the redeemable convertible preferred stock, (ii) the creation or issuance of senior or parity equity securities or (iii) the issuance of any convertible indebtedness, other class of redeemable convertible preferred stock or other equity securities in each case with rights to payments or distributions in which the redeemable convertible preferred stock would not participate on a pro-rata, as-converted basis.
In addition, for so long as the redeemable convertible preferred stock represents more than
For so long as the redeemable convertible preferred stock represents a minimum percentage of the outstanding shares of common stock on an as-converted basis as set forth in the Certificate of Designations relating to the redeemable convertible preferred stock, the holders of the redeemable convertible preferred stock shall have the right to appoint up to five members of the Company’s Board of Directors (the “Board”).
20
All decisions of the Company’s Board with respect to the exercise or waiver of the Company’s rights relating to the redeemable convertible preferred stock shall be determined by a majority of the Company’s directors that are not employees of the Company or affiliated with Onex (“Unaffiliated Directors”), or a committee of Unaffiliated Directors.
As part of the transactions contemplated by the Investment Agreement, the Company and Onex entered into a Registration Rights Agreement whereby Onex is entitled to certain demand and piggyback registration rights in respect of the redeemable convertible preferred stock and the shares of common stock issuable upon conversion thereof.
Dividends
There were
Share Repurchases
October 2020 Share Repurchase Program (“October 2020 Share Repurchase Program”)
In October 2020, the Company’s Board authorized and approved a $
October 2022 Share Repurchase Program Extension and Expansion
On October 26, 2022, the Company's Board approved an extension and expansion of its share repurchase program, which allows for the repurchase of $
The Company recognizes cumulative stock-based compensation expense for the portion of the awards for which the service period is probable of being satisfied. Stock-based compensation expense is included in selling, general and administrative expense in the condensed consolidated statements of (loss) income and comprehensive (loss) income. The related deferred tax benefit for stock-based compensation recognized was $
2019 Employee Stock Purchase Plan (the “ESPP”)
In January 2019, the Board approved the ESPP, which was approved by the Company’s stockholders in May 2019. The ESPP requires that participating employees must be employed for at least
Stock Options
The Company recognized stock-based compensation expense relating to stock option activity of $
21
Stock option activity for the six months ended June 30, 2023, was as follows:
|
|
|
|
|
Weighted-Average |
|
||||||
|
|
Number of |
|
|
Exercise Price |
|
|
Remaining |
|
|||
|
|
(thousands) |
|
|
|
|
|
(years) |
|
|||
Outstanding at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
||
Forfeited/Expired |
|
|
( |
) |
|
|
|
|
|
|
||
Outstanding at June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable at June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
There was a total of $
Restricted Stock Units (“RSUs”)
The Company grants RSUs that contain service conditions to certain executives and employees. The Company recognizes cumulative stock-based compensation expense for the portion of the awards for which the service period is probable of being satisfied. Stock-based compensation expense relating to RSU activity recognized in the three and six months ended June 30, 2023 was $
RSU activity for the six months ended June 30, 2023, was as follows:
(share data in thousands, except per share data) |
|
Number of |
|
|
Weighted |
|
||
Unvested balance, December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
Unvested balance, June 30, 2023 |
|
|
|
|
$ |
|
Market-based Share Awards
In January 2020, the Company granted performance-based market condition share awards to one senior executive under the 2017 Omnibus Equity Plan, which entitle this employee the right to receive shares of common stock equal to a maximum value of $
22
As of June 30, 2023 and December 31, 2022, the liability for these awards was $
The assumptions used in determining the fair value for the performance-based market condition share awards outstanding at June 30, 2023 were as follows:
|
|
June 30, |
Expected volatility |
|
|
Dividend yield |
|
|
Risk-free interest rate |
|
|
Weighted-average expected term (in years) |
|
The weighted-average expected term of the Company’s performance-based market condition share awards is the weighted-average of the derived service periods for the share awards.
Basic earnings per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding options, using the treasury stock method and the average market price of the Company's common stock during the applicable period. Certain shares related to some of the Company's outstanding employee share awards were excluded from the computation of diluted earnings per share because they were antidilutive in the periods presented but could be dilutive in the future. Performance-based market condition share awards are considered contingently issuable shares, which would be included in the denominator for earnings per share if the applicable market conditions have been achieved, and the inclusion of any performance-based market condition share awards is dilutive for the respective reporting periods. For both the three and six months ended June 30, 2023 and 2022, unvested performance-based market condition share awards were excluded from the calculation of diluted earnings per share because the market conditions had not been met. There were
23
The details of the computation of basic and diluted earnings per common share are as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(dollars in millions, share data in thousands except earnings per share) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net (loss) income and comprehensive (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Accretion to redemption value of redeemable |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss and comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss and comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Anti-dilutive employee share awards excluded |
|
|
|
|
|
|
|
|
|
|
|
|
The Company determines its interim income tax provision by applying the estimated effective income tax rate expected to be applicable for the full fiscal year to the income before income taxes for the period. In determining the full year effective tax rate estimate, the Company does not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the expected relationship between income tax expense (benefit) and pre-tax income (loss). Significant judgment is exercised in determining the income tax provision due to transactions, credits and estimates where the ultimate tax determination is uncertain.
The Company’s U.S. federal statutory corporate income tax rate was
Liabilities for unrecognized tax benefits and associated interest and penalties were
Leases and Other Contractual Arrangements
The Company has entered into operating leases and other contractual obligations to secure real estate facilities, equipment and trade show venues. These agreements are not unilaterally cancelable by the Company, are legally enforceable and specify fixed or minimum amounts or quantities of goods or services at fixed or minimum prices.
24
Legal Proceedings and Contingencies
The Company is subject to litigation and other claims in the ordinary course of business. In the opinion of management, there are no claims, commitments or guarantees pending to which the Company is party that would have a material adverse effect on the condensed consolidated financial statements.
Accounts payable and other current liabilities consisted of the following:
(in millions) |
|
June 30, |
|
|
December 31, |
|
||
Trade payables |
|
$ |
|
|
$ |
|
||
Other current liabilities |
|
|
|
|
|
|
||
Accrued event costs |
|
|
|
|
|
|
||
Accrued personnel costs |
|
|
|
|
|
|
||
Total accounts payable and other |
|
$ |
|
|
$ |
|
The Company routinely evaluates whether its operating and reportable segments continue to reflect the way the Chief Executive Officer, who is considered the Company’s Chief Operating Decision Maker ("CODM"), evaluates the business. The determination is based on: (1) how the Company’s CODM evaluates the performance of the business, including resource allocation decisions, and (2) whether discrete financial information for each operating segment is available. The Company considers its Chief Executive Officer to be its CODM.
The CODM evaluates performance based on the results of
25
Operating segment performance is evaluated by the Company’s CODM based on Adjusted EBITDA, a non-GAAP measure, defined as EBITDA exclusive of general corporate expenses, stock-based compensation expense, impairments and other items. These adjustments are primarily related to items that are managed on a consolidated basis at the corporate level. The exclusion of such charges from each segment is consistent with how the CODM evaluates segment performance.
The following table presents a reconciliation of reportable segment revenues, other income, net, and Adjusted EBITDA to net (loss) income:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commerce |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Design, Creative, and Technology |
|
|
|
|
|
|
|
|
|
|
|
|
||||
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commerce |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Design, Creative, and Technology |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
All Other |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total other income, net |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commerce |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Design, Creative, and Technology |
|
|
|
|
|
|
|
|
|
|
|
|
||||
All Other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Subtotal Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
General corporate and other expenses |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loss on extinguishment of debt |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Goodwill impairment charge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Intangible asset impairment charge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Depreciation and amortization expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred revenue adjustment |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other items |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
(Loss) income before income taxes |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
The Company’s CODM does not receive information with a measure of total assets or capital expenditures for each operating segment as this information is not used for the evaluation of executive brand portfolio performance as the Company’s operations are not capital intensive. Capital expenditure information is provided to the CODM on a consolidated basis. Therefore, the Company has not provided asset and capital expenditure information by reportable segment. Intersegment revenues were immaterial for the three months ended June 30, 2023 and 2022. For the three months ended June 30, 2023 and 2022, substantially all revenues were derived from transactions in the United States.
26
Investment funds affiliated with Onex Corporation owned approximately
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis of the financial condition and results of our operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of Emerald Holding, Inc. included in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”), as filed with the SEC. You should review the disclosures under the headings “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” in the Annual Report, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. All references to the “Company”, “us,” “we,” “our,” and all similar expressions are references to Emerald Holding, Inc., together with its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.
Recent Events
Refinancing
On June 12, 2023 (the “Term Loan Amendment Effective Date”), our wholly-owned subsidiary, Emerald X, Inc. (“Emerald X”), entered into a Sixth Amendment to its existing Amended and Restated Credit Agreement (the “Term Loan Amendment”). The Term Loan Amendment, which was entered into with a syndicate of lenders and Bank of America, N.A., as administrative agent, extended the maturity of the term loans outstanding under the Amended Credit Agreement (such extended term loan facility, the “Extended Term Loan Facility”) from May 22, 2024 to May 22, 2026. The aggregate outstanding principal amount of the Extended Term Loan Facility was approximately $415.3 million as of June 30, 2023. The Term Loan Amendment also replaced the interest rate applicable to the term loans with a rate equal to, at the option of Emerald X, (i) the Term Secured Overnight Financing Rate (“Term SOFR”) plus 5.00% per annum plus a credit spread adjustment of 0.10% per annum or (ii) an alternate base rate (“ABR”) plus 4.00% per annum. Prior to the Amendment, the interest rate applicable to the term loans was a rate equal to, at the option of Emerald X, (i) LIBOR plus 2.75% or 2.50% per annum, depending on Emerald X’s first lien net leverage ratio or (ii) ABR plus 1.75% or 1.50% per annum, depending on Emerald X’s first lien net leverage ratio. The Term Loan Amendment additionally reset scheduled quarterly payments, each equal to 0.25% of the original principal amount of the Extended Term Loan Facility. Further, the Term Loan Amendment modified the prepayment provisions so that, upon the occurrence of a repricing transaction, subject to certain specified exceptions, Emerald X will have to pay a prepayment fee of 2%, in the event of a repricing transaction occurring within the first twelve months after the Term Loan Amendment Effective Date, or 1%, in the event of a repricing transaction occurring on a date that is between twelve months after the Term Loan Amendment Effective Date and eighteen months after the Term Loan Amendment Effective Date. No prepayment premium is payable for prepayments made after the eighteen month anniversary of the Term Loan Amendment Effective Date. See Note 7, Long-Term Debt.
On February 2, 2023, Emerald X entered into a Fifth Amendment to its Amended and Restated Credit Agreement (the “RCF Amendment”). The RCF Amendment increased the aggregate amount of all revolving commitments under the Amended Revolving Credit Agreement from $100.4 million to $110.0 million. The increased revolving commitments have the same terms as the existing revolving commitments. The RCF Amendment does not change any other material terms of the Existing Revolving Credit Agreement. See Note 7, Long-Term Debt.
Overview
Emerald is a leading operator of business-to-business trade shows in the United States. Leveraging our shows as key market-driven platforms, we combine our events with effective industry insights, digital tools, and data-focused solutions to create uniquely rich experiences. Emerald strives to build its customers’ businesses by creating opportunities that deliver tangible results.
All of our trade show franchises typically hold market-leading positions within their respective industry verticals, with significant brand value established over a long period of time. Each of our shows is scheduled to stage at least annually, with certain franchises offering multiple editions per year. As our shows are frequently the largest and most well attended in their respective industry, we are able to attract high-quality attendees, including those who have the authority to make purchasing decisions on the spot or subsequent to the show. The participation of these attendees makes our trade shows “must-attend” events for our exhibitors, further reinforcing the leading positions of our trade shows within their respective industry verticals. Our attendees use our shows to fulfill procurement needs, source new suppliers, reconnect with existing suppliers, identify trends, learn about new products and network with industry peers, which we believe are factors that make our shows difficult to replace with non-face-to-face events. Our portfolio of trade shows is well-balanced and diversified across both industry sectors and customers.
28
In addition to organizing our trade shows, conferences and other events, we also operate content and content-marketing websites, related digital products, and produce publications, each of which is aligned with a specific sector for which we organize an event. We also offer business-to-business commerce and digital merchandising solutions, serving the needs of manufacturers and retailers, through our Elastic Suite platform. In addition to their respective revenues, these products complement our live events and provide us year-round channels of customer acquisition and development.
Reportable Segments
As described in Note 15, Segment Information, our business is organized into two reportable segments, consistent with the information provided to our Chief Executive Officer, who is considered the chief operating decision-maker ("CODM"). The CODM evaluates our performance based on the results of seven executive brand portfolios, which represent our seven operating segments. Based on an evaluation of economic similarities and the nature of services and types of customers, five of these operating segments have been aggregated into two reportable segments, the "Commerce" reportable segment and the "Design, Creative and Technology" reportable segment. The remaining two operating segments do not meet the quantitative thresholds to be considered reportable operating segments and are included in the “All Other” category. In addition, we have a "Corporate-Level Activities" category consisting of finance, legal, information technology and administrative functions.
The following discussion provides additional detailed disclosure for the two reportable segments, the "All Other" category and the "Corporate-Level Activity" category:
Commerce: This segment includes events and services covering merchandising, licensing, retail sourcing and marketing to enable professionals to make informed decisions and meet consumer demands.
Design, Creative and Technology: This segment includes events and services that support a wide variety of industries connecting businesses and professionals with products, operational strategies, and integration opportunities to drive new business and streamline processes and creative solutions.
All Other: This category consists of Emerald’s remaining operating segments, which provide diverse events, services and e-commerce software solutions, but are not aggregated with the reportable segments. Each of the operating segments in the All Other category do not meet the criteria to be a separate reportable segment.
Corporate-Level Activity: This category consists of Emerald’s finance, legal, information technology and administrative functions.
Organic Growth Drivers
We are primarily focused on generating organic growth by understanding and leveraging the drivers for increased exhibitor and attendee participation at trade shows and providing year-round services that provide incremental value to those customers. Creating new opportunities for exhibitors to influence their market, engage with significant buyers, generate incremental sales and expand their brand’s awareness in their industry builds further demand for exhibit space and strengthens the value proposition of a trade show, which generally allows us to modestly increase booth space pricing annually across our portfolio. At the same time, our trade shows provide attendees with the opportunity to enhance their industry connectivity, develop relationships with targeted suppliers and distributors, discover new products, learn about new industry developments, celebrate their industry’s achievements and, in certain cases, obtain continuing professional education credits, which we believe increases their propensity to return and, consequently, drives high recurring participation among our exhibitors. By investing in and promoting these tangible and return-on-investment linked outcomes, we believe we will be able to continue to enhance the value proposition for our exhibitors and attendees alike, thereby driving strong demand and premium pricing for exhibit space, sponsorship opportunities and attendee registration.
Acquisitions
We are also focused on growing our national footprint through the acquisition of high-quality events that are leaders in their specific industry verticals. Since the Onex Acquisition in June 2013, we have completed 25 strategic acquisitions, with purchase prices, excluding the $335.0 million acquisition of George Little Management, ranging from approximately $5.0 million to approximately $142.2 million, and annual revenues ranging from approximately $1.3 million to approximately $25.6 million. Historically, we have completed acquisitions at earnings before interest, taxes, depreciation, and amortization ("EBITDA") purchase multiples that are typically in the mid-to-high single digits. Our acquisitions have historically been structured as asset deals that have resulted in the generation of long-lived tax assets, which in turn have reduced our purchase multiples when incorporating the value of the created tax assets. In the future, we intend to look for acquisitions with similarly attractive valuation multiples.
29
Trends and Other Factors Affecting Our Business
There are a number of existing and developing factors and trends which impact the performance of our business, and the comparability of our results from year to year and from quarter to quarter, including:
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are revenues, Organic revenue, cost of revenues, selling, general and administrative expenses, interest expense, depreciation and amortization, income taxes, Adjusted EBITDA and Free Cash Flow.
Revenues
We generate revenues primarily from selling trade show exhibit space to exhibitors on a per square foot basis. Other trade show revenue streams include conferences, sponsorships, ancillary exhibition fees and attendee registration fees. Exhibitors contract for their booth space and sponsorships up to a year in advance of the trade show. Fees are typically invoiced and collected in full prior to the trade show or event. Additionally, we generate revenue through digital media and print publications that complement our trade shows. We also engage third-party sales agents to support our marketing efforts. Other marketing service revenue contracts are invoiced and recognized in the period the advertising services are delivered. Typically, the fees we charge are collected after the publications are issued.
30
We define “Organic revenue growth” and “Organic revenue decline” as the growth or decline, respectively, in our revenue from one period to the next, adjusted for the revenue impact of: (i) acquisitions and dispositions, (ii) discontinued events and (iii) material show scheduling adjustments. We disclose changes in Organic revenue because we believe it assists investors and analysts in comparing Emerald’s operating performance across reporting periods on a consistent basis by excluding items that we do not believe reflect a true comparison of the trends of the existing event calendar given changes in timing or strategy. Management and our Board of Directors evaluate changes in Organic revenue to understand underlying revenue trends of its events. Organic revenue is not defined under GAAP, and has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations include that Organic revenue reflects certain adjustments that we consider not to be indicative of our ongoing operating performance. Because not all companies use identical calculations, our presentation of Organic revenue may not be comparable to other similarly titled measures used by other companies.
Organic Revenue
Organic revenue is a supplemental non-GAAP financial measure of performance and is not based on any standardized methodology prescribed by GAAP. Organic revenue should not be considered in isolation or as an alternative to revenues or other measures determined in accordance with GAAP. Also, Organic revenue is not necessarily comparable to similarly titled measures used by other companies.
The most directly comparable GAAP measure to Organic revenue is revenues. For a reconciliation of Organic revenue to revenues as reported, see Footnote 3 to the table under the heading “Results of Operations—Three Months Ended June 30, 2023, Compared to the Three Months Ended June 30, 2022.”
Other Income
We maintain event cancellation insurance to protect against losses due the unavoidable cancellation, postponement, relocation and enforced reduced attendance at events due to certain covered causes, including losses caused by natural disasters such as hurricanes. While these causes included event cancellation caused by the outbreak of communicable diseases, including COVID-19, for the years ended December 31, 2021 and 2020, Emerald’s renewed event cancellation insurance policies for 2022 and 2023 do not cover losses due to event cancellations caused by the outbreak of communicable diseases, including COVID-19. Our Other Income during the three and six months ended June 30, 2022, as presented in this Quarterly Report is primarily comprised of received or confirmed event cancellation insurance claim and insurance litigation settlement proceeds. During the three and six months ended June 30, 2023, we did not record any Other Income relating to event cancellation insurance claim and insurance litigation settlement proceeds.
Cost of Revenues
31
Selling, General and Administrative Expenses
Interest Expense
For the periods presented in this report, interest expense principally represents interest payments and certain other fees paid to lenders under our Amended and Restated Senior Secured Credit Facilities (as amended, in the case of the current year periods presented in this report, by the Term Loan Amendment).
Depreciation and Amortization
We have historically grown our business through acquisitions and, in doing so, have acquired significant intangible assets, the value of some of which is amortized over time. These acquired intangible assets, unless determined to be indefinite-lived, are amortized over extended periods of three to thirty years from the date of each acquisition for reporting under accounting principles generally accepted in the United States of America (“GAAP”) purposes, or fifteen years for tax purposes. This amortization expense reduces our taxable income.
Income Taxes
Income tax expense consists of U.S. federal, state, local and foreign taxes based on income in the jurisdictions in which we operate.
We record deferred tax charges or benefits primarily associated with our utilization or generation of net operating loss carryforwards and book-to-tax differences related to amortization of goodwill, amortization of intangible assets, depreciation, stock-based compensation charges and deferred financing costs.
Adjusted EBITDA
Adjusted EBITDA is a key measure of our performance. We define Adjusted EBITDA as net (loss) income before (i) interest expense, (ii) provision for (benefit from) income taxes, (iii) goodwill impairments, (iv) intangible asset impairments, (v) depreciation and amortization, (vi) stock-based compensation, (vii) deferred revenue adjustment and (viii) other items that we believe are not part of our core operations. We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.
Management and our Board of Directors use Adjusted EBITDA to assess our financial performance and believe it is helpful in highlighting trends because it excludes the results of decisions that are outside the control of management, while other performance metrics can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. We reference Adjusted EBITDA frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods.
Adjusted EBITDA is not defined under GAAP and has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations include that Adjusted EBITDA excludes certain normal recurring expenses and one-time cash adjustments that we consider not to be indicative of our ongoing operating performance. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies.
32
The most directly comparable GAAP measure to Adjusted EBITDA is net (loss) income. For a reconciliation of Adjusted EBITDA to net (loss) income, see Footnote 2 to the table under the heading “Results of Operations—Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022.”
Cash Flow Model
We typically have favorable cash flow characteristics, as described below (see “Liquidity and Capital Resources—Cash Flows”), as a result of our high profit margins, low capital expenditures and consistent negative working capital, excluding cash on hand. Our working capital, excluding cash on hand, is negative due to the fact that our current assets are generally lower than our current liabilities. Current assets primarily include accounts receivable and prepaid expenses, while current liabilities primarily include accounts payable and deferred revenues. Cash received prior to an event is recorded as deferred revenue on our balance sheet and recognized as revenue upon completion of each trade show. The implication of having negative working capital, excluding cash on hand, is that changes in working capital represent a source of cash as our business grows. As a result of COVID-19, the accounts receivable and deferred revenue balances related to cancelled events have been reclassified to Cancelled event liabilities in the condensed consolidated balance sheets, as the net amount represents balances which we expect will be refunded to our customers.
The primary driver for our negative working capital, excluding cash on hand, is the sales cycle for a trade show, which typically begins during the twelve months prior to a show. In the interim period between the current show and the following show, we continue to sell to new and past exhibitors and collect payments on contracted exhibit space. Our exhibitors pay in full in advance of each trade show, whereas the bulk of direct expenses are paid close to or after the show. Cash deposits start to be received as early as twelve months prior to a show taking place and the balance of booth space fees are typically received in cash one month prior to a show taking place. This highly efficient cash flow model, where cash is received in advance of expenses to be paid, creates a working capital benefit.
Free Cash Flow
In addition to net cash provided by operating activities presented in accordance with GAAP, we present Free Cash Flow because we believe it is a useful indicator of liquidity that provides information to our management and investors about the amount of cash generated from our core operations that, after capital expenditures, can be used for the repayment of indebtedness, paying of dividends, repurchasing of shares of our common stock and strategic initiatives, including investing in our business and making strategic acquisitions.
Free Cash Flow is a supplemental non-GAAP financial measure of liquidity and is not based on any standardized methodology prescribed by GAAP. Free Cash Flow should not be considered in isolation or as an alternative to net cash provided by operating activities or other measures determined in accordance with GAAP. Also, Free Cash Flow is not necessarily comparable to similarly titled measures used by other companies.
33
The most directly comparable GAAP measure to Free Cash Flow is net cash provided by operating activities. For a reconciliation of Free Cash Flow to net cash provided by operating activities, see Footnote 5 to the table under the heading “Results of Operations—Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022.”
Results of Operations
Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022
The tables in this section summarize key components of our results of operations for the periods indicated.
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|||||||||||||
Statement of loss and comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
$ |
86.5 |
|
|
$ |
71.4 |
|
|
$ |
15.1 |
|
|
|
21.1 |
% |
Other income, net |
|
|
— |
|
|
|
8.1 |
|
|
|
(8.1 |
) |
|
NM |
|
|
Cost of revenues |
|
|
32.8 |
|
|
|
26.4 |
|
|
|
6.4 |
|
|
|
24.2 |
% |
Selling, general and administrative expenses(1) |
|
|
41.8 |
|
|
|
32.3 |
|
|
|
9.5 |
|
|
|
29.4 |
% |
Depreciation and amortization expense |
|
|
12.9 |
|
|
|
14.0 |
|
|
|
(1.1 |
) |
|
|
(7.9 |
%) |
Operating (loss) income |
|
|
(1.0 |
) |
|
|
6.8 |
|
|
|
(7.8 |
) |
|
NM |
|
|
Interest expense |
|
|
11.4 |
|
|
|
4.8 |
|
|
|
6.6 |
|
|
|
137.5 |
% |
Interest income |
|
|
2.3 |
|
|
|
0.2 |
|
|
|
2.1 |
|
|
|
1050.0 |
% |
Loss on extinguishment of debt |
|
|
2.3 |
|
|
|
— |
|
|
|
2.3 |
|
|
NM |
|
|
Other expense |
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
|
NM |
|
|
(Loss) income before income taxes |
|
|
(12.5 |
) |
|
|
2.2 |
|
|
|
(14.7 |
) |
|
NM |
|
|
(Benefit from) provision for income taxes |
|
|
(4.4 |
) |
|
|
2.9 |
|
|
|
(7.3 |
) |
|
|
(251.7 |
%) |
Net loss and comprehensive loss |
|
$ |
(8.1 |
) |
|
$ |
(0.7 |
) |
|
$ |
(7.4 |
) |
|
|
1057.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other financial data (unaudited): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA(2) |
|
$ |
14.6 |
|
|
$ |
15.6 |
|
|
$ |
(1.0 |
) |
|
NM |
|
|
Organic revenue(3) |
|
$ |
79.2 |
|
|
$ |
71.3 |
|
|
$ |
7.9 |
|
|
|
11.1 |
% |
34
We define Adjusted EBITDA as net (loss) income before (i) interest expense, net, (ii) provision for (benefit from) income taxes, (iii) goodwill impairments, (iv) intangible asset impairments, (v) depreciation and amortization, (vi) stock-based compensation, (vii) deferred revenue adjustment and (viii) other items that we believe are not part of our core operations. We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management and our Board of Directors use Adjusted EBITDA to assess our financial performance and believe it is helpful in highlighting trends because it excludes the results of decisions that are outside the control of our management, while other performance metrics can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. We reference Adjusted EBITDA frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods. Adjusted EBITDA is not defined under GAAP and has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations include that Adjusted EBITDA excludes certain normal recurring expenses and one-time cash adjustments that we consider not to be indicative of our ongoing operative performance. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies.
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(unaudited) |
|
|||||
|
|
(dollars in millions) |
|
|||||
Net loss |
|
$ |
(8.1 |
) |
|
$ |
(0.7 |
) |
Add (deduct): |
|
|
|
|
|
|
||
Interest expense, net |
|
|
9.1 |
|
|
|
4.6 |
|
Loss on extinguishment of debt |
|
|
2.3 |
|
|
|
|
|
(Benefit from) provision for income taxes |
|
|
(4.4 |
) |
|
|
2.9 |
|
Depreciation and amortization expense |
|
|
12.9 |
|
|
|
14.0 |
|
Stock-based compensation expense(a) |
|
|
1.9 |
|
|
|
1.6 |
|
Deferred revenue adjustment(b) |
|
|
— |
|
|
|
0.2 |
|
Other items(c) |
|
|
0.9 |
|
|
|
(7.0 |
) |
Adjusted EBITDA |
|
$ |
14.6 |
|
|
$ |
15.6 |
|
Deduct: |
|
|
|
|
|
|
||
Event cancellation insurance proceeds |
|
|
— |
|
|
|
8.1 |
|
Adjusted EBITDA excluding event cancellation insurance proceeds |
|
$ |
14.6 |
|
|
$ |
7.5 |
|
35
Organic revenue is a supplemental non-GAAP financial measure of performance and is not based on any standardized methodology prescribed by GAAP. Organic revenue should not be considered in isolation or as an alternative to revenues or other measures determined in accordance with GAAP. Also, Organic revenue is not necessarily comparable to similarly titled measures used by other companies.
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|||||||||||||
Revenues |
|
$ |
86.5 |
|
|
$ |
71.4 |
|
|
$ |
15.1 |
|
|
|
21.1 |
% |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition revenues |
|
|
(7.3 |
) |
|
|
|
|
|
|
|
|
|
|||
Discontinued events |
|
|
|
|
|
(0.8 |
) |
|
|
|
|
|
|
|||
Scheduling adjustments(1) |
|
|
— |
|
|
|
0.7 |
|
|
|
|
|
|
|
||
Organic revenue |
|
$ |
79.2 |
|
|
$ |
71.3 |
|
|
$ |
7.9 |
|
|
|
11.1 |
% |
Revenues
Revenues of $86.5 million for the three months ended June 30, 2023 increased $15.1 million, or 21.1%, from $71.4 million for the comparable period in 2022, primarily due to an increase in Organic revenue. See “Commerce Segment – Revenues,” “Design, Creative and Technology Segment – Revenues,” and “All Other Category – Revenues” below for a discussion of the factors contributing to the changes in total revenues.
Other Income, net
Other income, net, for the three months ended June 30, 2022 of $8.1 million was related to event cancellation insurance claims proceeds, all of which were received during the period. No Other income, net, was recognized during the three months ended June 30, 2023. See “Commerce Segment – Other Income, net,” “Design, Creative and Technology Segment – Other Income, net,” and “All Other Category – Other Income, net” below for a discussion of other income, net by segment.
Cost of Revenues
Cost of revenues of $32.8 million for the three months ended June 30, 2023 increased $6.4 million, or 24.2%, from $26.4 million for the comparable period in 2022, primarily due to an increase in Organic revenue. See “Commerce Segment – Cost of Revenues,” “Design, Creative and Technology Segment – Cost of Revenues” and “All Other Category – Cost of Revenues” below for a discussion of the factors contributing to the changes in total cost of revenues.
Selling, General and Administrative Expense
Total selling, general and administrative expense consists primarily of compensation and employee-related costs, sales commissions and incentive plans, stock-based compensation expense, marketing expenses, information technology expenses, travel expenses, facilities costs, consulting fees and public reporting costs. Selling, general and administrative expenses of $41.8 million for the three months ended June 30, 2023 increased $9.5 million, or 29.4%, from $32.3 million for the comparable period in 2022. See “Commerce Segment – Selling, General and Administrative Expenses”, “Design, Creative and Technology Segment – Selling, General and Administrative Expenses”, “All Other category – Selling, General and Administrative Expense” and “Corporate – Selling, General and Administrative Expense” below for a discussion of the factors contributing to the changes in total selling, general and administrative expense.
Depreciation and Amortization Expense
Depreciation and amortization expense of $12.9 million for the three months ended June 30, 2023, decreased $1.1 million, or 7.9%, from $14.0 million for the comparable period in 2022. See “Commerce Segment – Depreciation and Amortization Expense,” “Design, Creative and Technology Segment – Depreciation and Amortization Expense,” “All Other Category – Depreciation and Amortization Expense” and “Corporate – Depreciation and Amortization Expense” below for a discussion of the factors contributing to the changes in total depreciation and amortization expense.
36
Segment Results for the Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022
Commerce
The following represents the change in revenue, expenses and operating income in the Commerce reportable segment for the three months ended June 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|
|
|
|
|
|
|||||||
Revenues |
|
$ |
21.1 |
|
|
$ |
19.4 |
|
|
$ |
1.7 |
|
|
|
8.8 |
% |
Other income, net |
|
|
— |
|
|
|
4.5 |
|
|
|
(4.5 |
) |
|
NM |
|
|
Cost of revenues |
|
|
6.1 |
|
|
|
5.9 |
|
|
|
0.2 |
|
|
|
3.4 |
% |
Selling, general and administrative |
|
|
8.5 |
|
|
|
7.9 |
|
|
|
0.6 |
|
|
|
7.6 |
% |
Depreciation and amortization expense |
|
|
6.4 |
|
|
|
9.9 |
|
|
|
(3.5 |
) |
|
|
(35.4 |
%) |
Operating income |
|
$ |
0.1 |
|
|
$ |
0.2 |
|
|
$ |
(0.1 |
) |
|
|
(50.0 |
%) |
Revenues
During the three months ended June 30, 2023, revenues for the Commerce reportable segment increased $1.7 million, or 8.8%, to $21.1 million from $19.4 million for the comparable period in the prior year. The primary driver was revenue from acquisitions of $3.3 million. This growth was offset by continued weakness in other marketing services as well as the nonrecurrence of one discontinued event that had generated $0.8 million during the three months ended June 30, 2022.
Other Income, net
Other income, net of $4.5 million was recorded for the Commerce reportable segment related to event cancellation insurance proceeds during the quarter ended June 30, 2022. All of the $4.5 million of other income, net for the Commerce reportable segment was received during the three months ended June 30, 2022.
Cost of Revenues
During the three months ended June 30, 2023, cost of revenues for the Commerce reportable segment increased $0.2 million, or 3.4%, to $6.1 million from $5.9 million for the comparable period in the prior year. The primary driver was cost of revenues of $1.2 million relating to acquisitions. This growth was offset by lower cost of revenues from recurring events of $0.4 million and savings of $0.5 million from one discontinued event.
Selling, General and Administrative Expense
During the three months ended June 30, 2023, selling, general and administrative expense for the Commerce reportable segment increased $0.6 million, or 7.6%, to $8.5 million from $7.9 million for the comparable period in 2022. The primary driver of the increase was the cost of salaries and benefits associated with the acquisitions of Bulletin in July 2022 and Lodestone in January 2023, partially offset by lower salary, benefits and travel expenses resulting from savings initiatives implemented at the beginning of 2023.
Depreciation and Amortization Expense
During the three months ended June 30, 2023, depreciation and amortization expense for the Commerce reportable segment decreased $3.5 million, or 35.4%, to $6.4 million from $9.9 million for the comparable period in 2022. The decrease was driven by lower amortization expense attributable to the December 2021 acquisition of MJBiz.
37
Design, Creative and Technology
The following represents the change in revenue, expenses and operating income in the Design, Creative and Technology reportable segment for the three months ended June 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|
|
|
|
|
|
|||||||
Revenues |
|
$ |
59.5 |
|
|
$ |
47.6 |
|
|
$ |
11.9 |
|
|
|
25.0 |
% |
Other income, net |
|
|
— |
|
|
|
3.4 |
|
|
|
(3.4 |
) |
|
NM |
|
|
Cost of revenues |
|
|
24.6 |
|
|
|
18.6 |
|
|
|
6.0 |
|
|
|
32.3 |
% |
Selling, general and administrative |
|
|
12.0 |
|
|
|
10.6 |
|
|
|
1.4 |
|
|
|
13.2 |
% |
Depreciation and amortization expense |
|
|
4.4 |
|
|
|
2.6 |
|
|
|
1.8 |
|
|
|
69.2 |
% |
Operating income |
|
$ |
18.5 |
|
|
$ |
19.2 |
|
|
$ |
(0.7 |
) |
|
|
(3.6 |
%) |
Revenues
During the three months ended June 30, 2023, revenues for the Design, Creative and Technology reportable segment increased $11.9 million, or 25.0%, to $59.5 million from $47.6 million for the comparable period in 2022. The primary driver was an increase in Organic revenue of $7.2 million, or 15.4%, to $54.1 million from $46.9 million for the comparable period in the prior year. This growth was driven by a $9.1 million, or 25.9%, increase to $44.2 million from $35.1 million in trade show revenue from events that staged in the same period in both years, partially offset by lower other marketing services revenues. Acquisitions contributed incremental revenues of $4.0 million during the three months ended June 30, 2023. The Design, Creative and Technology reportable segment revenues were also increased by a $0.6 million scheduling adjustment in the second quarter of 2023.
Other Income, net
Other income, net of $3.4 million was recorded for the Design, Creative and Technology reportable segment related to event cancellation insurance proceeds during the quarter ended June 30, 2022. All of the $3.4 million of other income, net for the Design, Creative and Technology reportable segment was received during the three months ended June 30, 2022.
Cost of Revenues
During the three months ended June 30, 2023, cost of revenues for the Design, Creative and Technology reportable segment increased $6.0 million, or 32.3%, to $24.6 million from $18.6 million for the comparable period in 2022. The primary driver of the increase was $3.7 million of incremental cost of revenues from acquisitions during the three months ended June 30, 2023. In addition, recurring cost of revenues increased $1.9 million, or 10.3%, to $20.3 million from $18.4 million for the comparable period in the prior year. This growth was driven by a $2.0 million, or 13.0%, increase to $17.4 million from $15.4 million in trade show cost of revenue from events that staged in the same period in both years, slightly offset by lower other marketing services cost of revenues. The Design, Creative and Technology reportable segment cost of revenues were also increased by a $0.5 million scheduling adjustment in the second quarter of 2023.
Selling, General and Administrative Expense
During the three months ended June 30, 2023, selling, general and administrative expense for the Design, Creative and Technology reportable segment increased $1.4 million, or 13.2%, to $12.0 million from $10.6 million for the comparable period in 2022. The primary driver of the increase was the cost of salaries and benefits associated with the acquisition of Advertising Week in June 2022 offset slightly by lower salary, benefits and software expenses resulting from savings initiatives implemented at the beginning of 2023.
Depreciation and Amortization Expense
During the three months ended June 30, 2023, depreciation and amortization expense for the Design, Creative and Technology reportable segment increased $1.8 million, or 69.2%, to $4.4 million from $2.6 million for the comparable period in 2022. The increase was driven by incremental amortization attributable to the June 2022 acquisition of Advertising Week.
38
All Other Category
The following represents the change in revenue, expenses and operating loss in the All Other category for the three months ended June 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|
|
|
|
|||||||||
Revenues |
|
$ |
5.9 |
|
|
$ |
4.4 |
|
|
$ |
1.5 |
|
|
|
34.1 |
% |
Other income, net |
|
|
— |
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
NM |
|
|
Cost of revenues |
|
|
2.1 |
|
|
|
1.9 |
|
|
|
0.2 |
|
|
|
10.5 |
% |
Selling, general and administrative |
|
|
4.9 |
|
|
|
5.8 |
|
|
|
(0.9 |
) |
|
|
(15.5 |
%) |
Depreciation and amortization expense |
|
|
1.3 |
|
|
|
0.8 |
|
|
|
0.5 |
|
|
|
62.5 |
% |
Operating loss |
|
$ |
(2.4 |
) |
|
$ |
(3.9 |
) |
|
$ |
1.5 |
|
|
|
(38.5 |
%) |
Revenues
During the three months ended June 30, 2023, revenues for the All Other category increased $1.5 million, or 34.1%, to $5.9 million from $4.4 million for the comparable period in 2022. The primary driver of the increase was $1.2 million of additional software subscription revenues as well as one new launch in the second quarter of 2023.
Other Income, net
Other income, net of $0.2 million was recorded for the All Other category related to event cancellation insurance proceeds during the quarter ended June 30, 2022. All of the $0.2 million of other income, net for the All Other category was received during the three months ended June 30, 2022.
Cost of Revenues
During the three months ended June 30, 2023, cost of revenues for the All Other category increased $0.2 million, or 10.5%, to $2.1 million from $1.9 million for the comparable period in 2022. The primary driver of the increase was costs related to the launch of a new event in the second quarter of 2023.
Selling, General and Administrative Expense
During the three months ended June 30, 2023, selling, general and administrative expense for the All Other category decreased $0.9 million, or 15.5%, to $4.9 million from $5.8 million for the comparable period in 2022. The decrease was primarily related to a reduction in contracting and consulting expenses in the Company’s software subscription business.
Depreciation and Amortization Expense
During the three months ended June 30, 2023, depreciation and amortization expense for the All Other category increased $0.5 million, or 62.5%, to $1.3 million from $0.8 million for the comparable period in 2022. The increase was attributable to the continued development of the Company's Elastic software subscription platform.
39
Corporate Category
The following represents the change in operating expenses in the Corporate category for the three months ended June 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|
|
|
||||||||||
Selling, general and administrative |
|
$ |
16.4 |
|
|
$ |
8.0 |
|
|
$ |
8.4 |
|
|
|
105.0 |
% |
Depreciation and amortization expense |
|
|
0.8 |
|
|
|
0.7 |
|
|
|
0.1 |
|
|
|
14.3 |
% |
Total operating expenses |
|
$ |
17.2 |
|
|
$ |
8.7 |
|
|
$ |
8.5 |
|
|
|
97.7 |
% |
Selling, General and Administrative Expense
During the three months ended June 30, 2023, selling, general and administrative expense for the Corporate category increased $8.4 million, or 105.0%, to $16.4 million from $8.0 million for the comparable period in 2022. The increase was primarily attributable to $10.0 million of gains related to the remeasurement of contingent consideration recorded during the three months ended June 30, 2022, offset in the current year period by lower salary, travel and rent expenses resulting from savings initiatives implemented at the beginning of 2023.
Depreciation and Amortization Expense
During the three months ended June 30, 2023, depreciation and amortization expense for the Corporate category increased $0.1 million, or 14.3%, to $0.8 million from $0.7 million for the comparable period in 2022. The increase is attributable to higher corporate capitalized software.
Interest Expense
Interest expense of $11.4 million for the three months ended June 30, 2023 increased $6.6 million, or 137.5%, from $4.8 million for the comparable period in 2022. The increase was attributable to a higher effective interest rate of 8.14% on our outstanding indebtedness for the three months ended June 30, 2023 compared to 3.26% for the comparable period in the prior year as a result of the Term Loan Amendment described above and higher prevailing interest rates. In addition, as a result of the Term Loan Amendment, we incurred $2.1 million in third party fees which were recorded as interest expense during the three months ended June 30, 2023.
Interest Income
Interest income of $2.3 million for the three months ended June 30, 2023 increased from $0.2 million for the comparable period in 2022. The increase was primarily attributable to an increase in our cash balance due to the receipt of event cancellation insurance claim and insurance litigation settlement proceeds in 2022 as well as rising interest rates during fiscal 2023.
Loss on Extinguishment of Debt
Loss on extinguishment of debt of $2.3 million was recognized during the three months ended June 30, 2023 as a result of the Term Loan Amendment described above. Loss on extinguishment of debt was comprised of $2.1 million of original issuance discount ("OID") related to the Extended Term Loan Facility and $0.2 million of previously capitalized OID and debt issuance costs, allocated to lenders in the syndicate whose balances were extinguished in conjunction with the Term Loan Amendment.
Provision for (benefit from) Income Taxes
For the three months ended June 30, 2023, the Company recorded a benefit from income taxes of $4.4 million which resulted in an effective tax rate of 35.2% for the three months ended June 30, 2023. The Company recorded a provision for income taxes of $2.9 million and an effective tax rate of 131.8% for the three months ended June 30, 2022. The change in the effective tax rate for the three months ended June 30, 2023 is attributable to the timing of current period and full year projected results.
40
Net Loss
Net loss of $8.1 million for the three months ended June 30, 2023 represented a $7.4 million decline from net loss of $0.7 million for the comparable period in 2022. The key drivers of the increase in net loss were the nonrecurrence of other income, net of $8.1 million related to event cancellation insurance claim proceeds recognized during the three months ended June 30, 2022, higher interest expense in the current year period and the $2.3 million loss on debt extinguishment recognized during the three months ended June 30, 2023, partially offset by higher income from on-going operations.
Adjusted EBITDA
Adjusted EBITDA of $14.6 million for the three months ended June 30, 2023 decreased by $1.0 million from $15.6 million for the comparable period in 2022. The decrease in Adjusted EBITDA was primarily attributable to the decrease in other income, net due to the nonrecurrence of $8.1 million of event cancellation insurance claim proceeds that were recognized during the three months ended June 30, 2022, offset by increased Adjusted EBITDA from on-going operations in the current year period.
Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022
The tables in this section summarize key components of our results of operations for the periods indicated.
|
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|||||||||||||
Statement of income and comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
$ |
208.8 |
|
|
$ |
169.9 |
|
|
$ |
38.9 |
|
|
|
22.9 |
% |
Other income, net |
|
|
— |
|
|
|
31.8 |
|
|
|
(31.8 |
) |
|
NM |
|
|
Cost of revenues |
|
|
76.0 |
|
|
|
60.6 |
|
|
|
15.4 |
|
|
|
25.4 |
% |
Selling, general and administrative expenses(1) |
|
|
90.6 |
|
|
|
78.9 |
|
|
|
11.7 |
|
|
|
14.8 |
% |
Depreciation and amortization expense |
|
|
26.4 |
|
|
|
28.3 |
|
|
|
(1.9 |
) |
|
|
(6.7 |
%) |
Goodwill impairment charge(2) |
|
|
— |
|
|
|
6.3 |
|
|
|
(6.3 |
) |
|
NM |
|
|
Intangible asset impairment charges(3) |
|
|
— |
|
|
|
1.6 |
|
|
|
(1.6 |
) |
|
NM |
|
|
Operating income |
|
|
15.8 |
|
|
|
26.0 |
|
|
|
(10.2 |
) |
|
|
(39.2 |
%) |
Interest expense |
|
|
19.4 |
|
|
|
8.7 |
|
|
|
10.7 |
|
|
|
123.0 |
% |
Interest income |
|
|
3.4 |
|
|
|
0.2 |
|
|
|
3.2 |
|
|
|
1600.0 |
% |
Loss on extinguishment of debt |
|
|
2.3 |
|
|
|
— |
|
|
|
2.3 |
|
|
NM |
|
|
Other expense |
|
|
0.2 |
|
|
|
— |
|
|
|
0.2 |
|
|
NM |
|
|
(Loss) income before income taxes |
|
|
(2.7 |
) |
|
|
17.5 |
|
|
|
(20.2 |
) |
|
|
(115.4 |
%) |
(Benefit from) provision for income taxes |
|
|
(1.7 |
) |
|
|
2.1 |
|
|
|
(3.8 |
) |
|
|
(181.0 |
%) |
Net (loss) income and comprehensive (loss) income |
|
$ |
(1.0 |
) |
|
$ |
15.4 |
|
|
$ |
(16.4 |
) |
|
|
(106.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other financial data (unaudited): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA(4) |
|
$ |
51.1 |
|
|
$ |
64.9 |
|
|
$ |
(13.8 |
) |
|
|
(21.3 |
%) |
Free Cash Flow(5) |
|
$ |
9.8 |
|
|
$ |
40.3 |
|
|
$ |
(30.5 |
) |
|
|
(75.7 |
%) |
Organic revenue(6) |
|
$ |
201.3 |
|
|
$ |
172.6 |
|
|
$ |
28.7 |
|
|
|
16.6 |
% |
41
|
|
Six Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(unaudited) |
|
|||||
|
|
(dollars in millions) |
|
|||||
Net (loss) income |
|
$ |
(1.0 |
) |
|
$ |
15.4 |
|
Add (deduct): |
|
|
|
|
|
|
||
Interest expense, net |
|
|
16.0 |
|
|
|
8.5 |
|
Loss on extinguishment of debt |
|
|
2.3 |
|
|
|
— |
|
(Benefit from) provision for income taxes |
|
|
(1.7 |
) |
|
|
2.1 |
|
Goodwill impairment charge(a) |
|
|
— |
|
|
|
6.3 |
|
Intangible asset impairment charge(b) |
|
|
— |
|
|
|
1.6 |
|
Depreciation and amortization expense |
|
|
26.4 |
|
|
|
28.3 |
|
Stock-based compensation expense(c) |
|
|
4.0 |
|
|
|
3.7 |
|
Deferred revenue adjustment(d) |
|
|
— |
|
|
|
0.4 |
|
Other items(e) |
|
|
5.1 |
|
|
|
(1.4 |
) |
Adjusted EBITDA |
|
$ |
51.1 |
|
|
$ |
64.9 |
|
Deduct: |
|
|
|
|
|
|
||
Event cancellation insurance proceeds |
|
|
— |
|
|
|
31.8 |
|
Adjusted EBITDA excluding event cancellation insurance proceeds |
|
$ |
51.1 |
|
|
$ |
33.1 |
|
42
|
|
Six Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(unaudited) |
|
|||||
|
|
(dollars in millions) |
|
|||||
Net Cash Provided by Operating Activities |
|
$ |
16.2 |
|
|
$ |
45.2 |
|
Less: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
6.4 |
|
|
|
4.9 |
|
Free Cash Flow |
|
$ |
9.8 |
|
|
$ |
40.3 |
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|||||||||||||
Revenues |
|
$ |
208.8 |
|
|
$ |
169.9 |
|
|
$ |
38.9 |
|
|
|
22.9 |
% |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition revenues |
|
|
(7.5 |
) |
|
|
— |
|
|
|
|
|
|
|
||
Discontinued events |
|
|
|
|
|
(0.8 |
) |
|
|
|
|
|
|
|||
Scheduling adjustments(1) |
|
|
— |
|
|
|
3.5 |
|
|
|
|
|
|
|
||
Organic revenue |
|
$ |
201.3 |
|
|
$ |
172.6 |
|
|
$ |
28.7 |
|
|
|
16.6 |
% |
Revenues
Revenues of $208.8 million for the six months ended June 30, 2023 increased $38.9 million, or 22.9%, from $169.9 million for the comparable period in 2022, primarily due to an increase in Organic revenue. See “Commerce Segment – Revenues,” “Design, Creative and Technology Segment – Revenues,” and “All Other Category – Revenues” below for a discussion of the factors contributing to the changes in total revenues.
Other Income, net
Other income, net, for the six months ended June 30, 2022 of $31.8 million was related to event cancellation insurance claims proceeds, all of which were received during the period. No Other income, net, was recognized during the six months ended June 30, 2023. See “Commerce Segment – Other Income, net,” “Design, Creative and Technology Segment – Other Income, net,” and “All Other Category – Other Income, net” below for a discussion of other income, net by segment.
Cost of Revenues
Cost of revenues of $76.0 million for the six months ended June 30, 2023 increased $15.4 million, or 25.4%, from $60.6 million for the comparable period in 2022, primarily due to an increase in Organic revenue. See “Commerce Segment – Cost of Revenues,” “Design, Creative and Technology Segment – Cost of Revenues” and “All Other Category – Cost of Revenues” below for a discussion of the factors contributing to the changes in total cost of revenues.
43
Selling, General and Administrative Expense
Total selling, general and administrative expense consists primarily of compensation and employee-related costs, sales commissions and incentive plans, stock-based compensation expense, marketing expenses, information technology expenses, travel expenses, facilities costs, consulting fees and public reporting costs. Selling, general and administrative expenses of $90.6 million for the six months ended June 30, 2023 increased $11.7 million, or 14.8%, from $78.9 million for the comparable period in 2022. See “Commerce Segment – Selling, General and Administrative Expenses”, “Design, Creative and Technology Segment – Selling, General and Administrative Expenses”, “All Other category – Selling, General and Administrative Expense” and “Corporate – Selling, General and Administrative Expense” below for a discussion of the factors contributing to the changes in total selling, general and administrative expense.
Depreciation and Amortization Expense
Depreciation and amortization expense of $26.4 million for the six months ended June 30, 2023, decreased $1.9 million, or 6.7%, from $28.3 million for the comparable period in 2022. See “Commerce Segment – Depreciation and Amortization Expense,” “Design, Creative and Technology Segment – Depreciation and Amortization Expense,” “All Other Category – Depreciation and Amortization Expense” and “Corporate – Depreciation and Amortization Expense” below for a discussion of the factors contributing to the changes in total depreciation and amortization expense.
Segment Results for the Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
Commerce
The following represents the change in revenue, expenses and operating income in the Commerce reportable segment for the six months ended June 30, 2023 and 2022:
|
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|
|
|
||||||||||
Revenues |
|
$ |
91.2 |
|
|
$ |
76.0 |
|
|
$ |
15.2 |
|
|
|
20.0 |
% |
Other income, net |
|
|
— |
|
|
|
5.6 |
|
|
|
(5.6 |
) |
|
NM |
|
|
Cost of revenues |
|
|
25.3 |
|
|
|
21.5 |
|
|
|
3.8 |
|
|
|
17.7 |
% |
Selling, general and administrative |
|
|
20.0 |
|
|
|
18.2 |
|
|
|
1.8 |
|
|
|
9.9 |
% |
Depreciation and amortization expense |
|
|
13.3 |
|
|
|
15.8 |
|
|
|
(2.5 |
) |
|
|
(15.8 |
%) |
Operating income |
|
$ |
32.6 |
|
|
$ |
26.1 |
|
|
$ |
6.5 |
|
|
|
24.9 |
% |
Revenues
During the six months ended June 30, 2023, revenues for the Commerce reportable segment increased $15.2 million, or 20.0%, to $91.2 million from $76.0 million for the comparable period in the prior year. The primary driver was an increase in Organic revenue of $11.7 million, or 15.4%, to $87.8 million from $76.1 million for the comparable period in the prior year. This growth was driven by a $12.2 million, or 16.9%, increase to $84.5 million from $72.3 million in trade show revenue from events that staged in the same period in both years, offset by lower other marketing services revenues. The Commerce reportable segment revenues also include incremental revenues of $3.3 million related to acquisitions.
Other Income, net
Other income, net of $5.6 million was recorded for the Commerce reportable segment related to event cancellation insurance proceeds during the six months ended June 30, 2022. All of the $5.6 million of other income, net for the Commerce reportable segment was received during the six months ended June 30, 2022.
44
Cost of Revenues
During the six months ended June 30, 2023, cost of revenues for the Commerce reportable segment increased $3.8 million, or 17.7%, to $25.3 million from $21.5 million for the comparable period in the prior year. The primary driver was an increase in recurring cost of revenues of $2.6 million, or 12.1%, to $24.1 million from $21.5 million for the comparable period in the prior year. This growth was driven by events that staged in same period in both years and a new event that launched during the six months ended June 30, 2023. The Commerce reportable segment cost of revenues also include incremental cost of revenues of $1.2 million related to acquisitions.
Selling, General and Administrative Expense
During the six months ended June 30, 2023, selling, general and administrative expense for the Commerce reportable segment increased $1.8 million, or 9.9%, to $20.0 million from $18.2 million for the comparable period in 2022. The primary driver of the increase was the salaries and benefits associated with the acquisitions of Bulletin in July 2022 and Lodestone in January 2023, offset by lower salary expense resulting from saving initiatives implemented at the beginning of 2023.
Depreciation and Amortization Expense
During the six months ended June 30, 2023, depreciation and amortization expense for the Commerce reportable segment decreased $2.5 million, or 15.8%, to $13.3 million from $15.8 million for the comparable period in 2022. The decrease was driven by a decrease in amortization expense attributable to the December 2021 acquisition of MJBiz.
Design, Creative and Technology
The following represents the change in revenue, expenses and operating income in the Design, Creative and Technology reportable segment for the six months ended June 30, 2023 and 2022:
|
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|
|
|
||||||||||
Revenues |
|
$ |
106.1 |
|
|
$ |
85.1 |
|
|
$ |
21.0 |
|
|
|
24.7 |
% |
Other income, net |
|
|
— |
|
|
|
25.3 |
|
|
|
(25.3 |
) |
|
NM |
|
|
Cost of revenues |
|
|
46.4 |
|
|
|
35.1 |
|
|
|
11.3 |
|
|
|
32.2 |
% |
Selling, general and administrative |
|
|
23.8 |
|
|
|
21.0 |
|
|
|
2.8 |
|
|
|
13.3 |
% |
Depreciation and amortization expense |
|
|
9.2 |
|
|
|
9.5 |
|
|
|
(0.3 |
) |
|
|
(3.2 |
%) |
Goodwill impairment charge |
|
|
— |
|
|
|
5.8 |
|
|
|
(5.8 |
) |
|
NM |
|
|
Intangible asset impairment charges |
|
|
— |
|
|
|
1.6 |
|
|
|
(1.6 |
) |
|
NM |
|
|
Operating income |
|
$ |
26.7 |
|
|
$ |
37.4 |
|
|
$ |
(10.7 |
) |
|
|
(28.6 |
%) |
Revenues
During the six months ended June 30, 2023, revenues for the Design, Creative and Technology reportable segment increased $21.0 million, or 24.7%, to $106.1 million from $85.1 million for the comparable period in 2022. The primary driver was an increase in Organic revenue of $13.3 million, or 15.8%, to $97.6 million from $84.3 million for the comparable period in the prior year. This growth was driven by a $14.8 million, or 20.7%, increase to $86.4 million from $71.6 million in trade show revenue from events that staged in the same period in both years and $0.3 million generated from newly launched events, offset by lower other marketing services revenues. Acquisitions generated incremental revenues of $4.1 million during the six months ended June 30, 2023. The Design, Creative and Technology reportable segment revenues were also increased by $3.5 million in scheduling adjustments in the first half of 2023.
Other Income, net
Other income, net of $25.3 million was recorded for the Design, Creative and Technology reportable segment related to event cancellation insurance proceeds during the six months ended June 30, 2022. All of the $25.3 million of other income, net for the Design, Creative and Technology reportable segment was received during the six months ended June 30, 2022.
45
Cost of Revenues
During the six months ended June 30, 2023, cost of revenues for the Design, Creative and Technology reportable segment increased $11.3 million, or 32.2%, to $46.4 million from $35.1 million for the comparable period in 2022. The primary driver was an increase in recurring cost of revenues of $5.7 million, or 16.4%, to $40.5 million from $34.8 million for the comparable period in the prior year. This growth was driven by a $5.2 million, or 16.0%, increase to $37.7 million from $32.5 million in trade show cost of revenue from events that staged in the same period in both years and $0.5 million from newly launched events. Acquisitions generated $3.9 million of incremental cost of revenues during the six months ended June 30, 2023. The Design, Creative and Technology reportable segment cost of revenues were also increased by $1.7 million in scheduling adjustments in the first half of 2023.
Selling, General and Administrative Expense
During the six months ended June 30, 2023, selling, general and administrative expense for the Design, Creative and Technology reportable segment increased $2.8 million, or 13.3%, to $23.8 million from $21.0 million for the comparable period in 2022. The primary driver of the increase was the salaries and benefits associated with the acquisition of Advertising Week in June 2022, offset by lower salary and software expenses resulting from cost saving initiatives implemented at the beginning of 2023.
Depreciation and Amortization Expense
During the six months ended June 30, 2023, depreciation and amortization expense for the Design, Creative and Technology reportable segment decreased $0.3 million, or 3.2%, to $9.2 million from $9.5 million for the comparable period in 2022. The decrease was driven by lower amortization attributable to the June 2022 acquisition of Advertising Week.
Goodwill Impairment Charge
Due to a change in operating segments and reporting units, management was required to perform an interim goodwill impairment assessment of its old and new reporting units during the first quarter of 2022. As a result of this assessment, a $5.8 million non-cash goodwill impairment charge was recorded in connection with reporting units under the Design, Creative and Technology reportable segment. No goodwill impairment charges were recorded in the Design, Creative and Technology reportable segment during the six months ended June 30, 2023.
Intangible Asset Impairment Charge
In connection with the change in operating segments described above, management performed impairment assessments of indefinite-lived intangible assets during the first quarter of 2022, and as a result, recognized a non-cash impairment charge related to certain indefinite-lived intangible assets under the Design, Creative and Technology segment of $1.6 million. No intangible asset impairment charges were recorded in the Design, Creative and Technology reportable segment during the six months ended June 30, 2023.
All Other Category
The following represents the change in revenue, expenses and operating loss in the All Other category for the six months ended June 30, 2023 and 2022:
|
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|
|
|
||||||||||
Revenues |
|
$ |
11.5 |
|
|
$ |
8.8 |
|
|
$ |
2.7 |
|
|
|
30.7 |
% |
Other income, net |
|
|
— |
|
|
|
0.9 |
|
|
|
(0.9 |
) |
|
|
(100.0 |
%) |
Cost of revenues |
|
|
4.3 |
|
|
|
4.0 |
|
|
|
0.3 |
|
|
|
7.5 |
% |
Selling, general and administrative |
|
|
9.3 |
|
|
|
11.3 |
|
|
|
(2.0 |
) |
|
|
(17.7 |
%) |
Depreciation and amortization expense |
|
|
2.5 |
|
|
|
1.6 |
|
|
|
0.9 |
|
|
|
56.3 |
% |
Goodwill impairment charge |
|
|
— |
|
|
|
0.5 |
|
|
|
(0.5 |
) |
|
NM |
|
|
Operating loss |
|
$ |
(4.6 |
) |
|
$ |
(7.7 |
) |
|
$ |
3.1 |
|
|
|
(40.3 |
%) |
46
Revenues
During the six months ended June 30, 2023, revenues for the All Other category increased $2.7 million, or 30.7%, to $11.5 million from $8.8 million for the comparable period in 2022. The primary driver of the increase was $2.3 million of additional software subscription revenues and $0.5 million from a new event launch.
Other Income, net
Other income, net of $0.9 million was recorded for the All Other category related to event cancellation insurance proceeds during the six months ended June 30, 2022. All of the $0.9 million of other income, net for the All Other category was received during the six months ended June 30, 2022.
Cost of Revenues
During the six months ended June 30, 2023, cost of revenues for the All Other category increased $0.3 million, or 7.5%, to $4.3 million from $4.0 million for the comparable period in 2022. The primary driver of the increase was growth in costs associated with the launch of a new event during the current year period.
Selling, General and Administrative Expense
During the six months ended June 30, 2023, selling, general and administrative expense for the All Other category decreased $2.0 million, or 17.7%, to $9.3 million from $11.3 million for the comparable period in 2022. The decrease was primarily related to contractor and consulting expense savings in the Company’s software subscription business.
Depreciation and Amortization Expense
During the six months ended June 30, 2023, depreciation and amortization expense for the All Other category increased $0.9 million, or 56.3%, to $2.5 million from $1.6 million for the comparable period in 2022. The increase was attributable to the continued development of the Company's Elastic software subscription platform.
Goodwill Impairment Charge
Due to the change in operating segments and reporting units described above, management was required to perform an interim goodwill impairment assessment of its old and new reporting units during the first quarter of 2022. As a result of this assessment, a $0.5 million non-cash goodwill impairment charge was recorded in connection with trade show brands in reporting units under the All Other category. No goodwill impairment charges were recorded in the All Other category during the six months ended June 30, 2023.
Corporate Category
The following represents the change in operating expenses in the Corporate category for the six months ended June 30, 2023 and 2022:
|
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Variance $ |
|
|
Variance % |
|
||||
|
|
(unaudited) |
|
|
|
|
||||||||||
Selling, general and administrative |
|
$ |
37.5 |
|
|
$ |
28.4 |
|
|
$ |
9.1 |
|
|
|
32.0 |
% |
Depreciation and amortization expense |
|
|
1.4 |
|
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
$ |
38.9 |
|
|
$ |
29.8 |
|
|
$ |
9.1 |
|
|
NM |
|
Selling, General and Administrative Expense
During the six months ended June 30, 2023, selling, general and administrative expense for the Corporate category increased $9.1 million, or 32.0%, to $37.5 million from $28.4 million for the comparable period in 2022. The increase was primarily attributable to $5.8 million of gains related to the remeasurement of contingent consideration during the six months ended June 30, 2022 as well as higher audit fees incurred during the six months ended June 30, 2023.
47
Depreciation and Amortization Expense
During the six months ended June 30, 2023, depreciation and amortization expense for the Corporate category of $1.4 million remained unchanged from the comparable period in 2022.
Interest Expense
Interest expense of $19.4 million for the six months ended June 30, 2023 increased $10.7 million, or 123.0%, from $8.7 million for the comparable period in 2022. The increase was attributable to a higher effective interest rate of 7.58% on our outstanding indebtedness for the six months ended June 30, 2023 compared to 2.95% for the comparable period in the prior year as a result of the Term Loan Amendment described above and higher prevailing interest rates. In addition, as a result of the Term Loan Amendment, we incurred $2.1 million in third party fees which were recorded as interest expense during the six months ended June 30, 2023.
Interest Income
Interest income of $3.4 million for the six months ended June 30, 2023 increased $3.2 million, or 1600.0%, from $0.2 million for the comparable period in 2022. The increase was primarily attributable to an increase in our cash balance due to the receipt of event cancellation insurance claim and insurance litigation settlement proceeds in 2022 as well as rising interest rates during fiscal 2023.
Loss on Extinguishment of Debt
Loss on extinguishment of debt of $2.3 million was recognized during the six months ended June 30, 2023 as a result of the Amendment described above. The loss on extinguishment of debt was comprised of $2.1 million of original issuance discount ("OID") related to the Extended Term Loan Facility and $0.2 million of previously capitalized OID and debt issuance costs, allocated to lenders in the syndicate whose balances were extinguished in conjunction with the Amendment.
Provision for (benefit from) Income Taxes
For the six months ended June 30, 2023, the Company recorded a benefit from income taxes of $1.7 million which resulted in an effective tax rate of 63.0% for the six months ended June 30, 2023. The Company recorded a provision for income taxes of $2.1 million and an effective tax rate of 12.0% for the six months ended June 30, 2022. The change in the effective tax rate for the six months ended June 30, 2023 is attributable to the timing of current period and full year projected results.
Net (Loss) Income
Net loss of $1.0 million for the six months ended June 30, 2023 represented a $16.4 million decline from net income of $15.4 million for the comparable period in 2022. The key drivers of the decrease were the recognition of other income, net of $31.8 million related to event cancellation insurance claim proceeds during the six months ended June 30, 2022 and higher interest expense during the six months ended June 30, 2023, partially offset by higher income from on-going operations and the absence of non-cash goodwill and intangible asset impairment charges in the six months ended June 30, 2023.
Adjusted EBITDA
Adjusted EBITDA of $51.1 million for the six months ended June 30, 2023 decreased by $13.8 million from $64.9 million for the comparable period in 2022. The decrease in Adjusted EBITDA was primarily attributable to the decrease in the first half of 2023 of other income, net of $31.8 million related to event cancellation insurance claim proceeds that were recognized during the six months ended June 30, 2022, offset by increased adjusted EBITDA from on-going operations.
Liquidity and Capital Resources
The assumptions used to estimate the Company’s liquidity in recent years have been subject to greater uncertainty as a result of COVID-19, because the Company had never previously cancelled or postponed all upcoming events for a period of over a year due to a pandemic. While the Company was able to resume a full schedule of events during 2022, the ongoing effects of COVID-19 on the Company’s operations continued to negatively affect its financial results and liquidity. In particular, the uncertainty of timing and amount of proceeds from event cancellation insurance caused significant variability in the Company’s year to year and quarter to quarter results that continued throughout 2022 and into the first part of 2023, which has affected the comparability of results in these periods to pre-COVID-19 results and may affect comparability in future periods.
48
Management cannot estimate with certainty whether event exhibitors and attendees will attend the Company’s events in numbers similar to pre-pandemic editions now that events have fully resumed. Therefore, current estimates of revenues and the associated impact on liquidity could differ significantly in the future.
On August 3, 2022, the Company reached an agreement to settle outstanding insurance litigation relating to event cancellation insurance for proceeds of $148.6 million. Other income, net recognized through December 31, 2022 related to insurance claim and settlement proceeds received totaled $367.2 million. During the three and six months ended June 30, 2022, we recorded other income, net of $8.1 million and $31.8 million, respectively, related to event cancellation insurance claim proceeds deemed to be realizable by management. All of the other income, net recognized during the three and six months ended June 30, 2022 was received during the period. There was no other income, net, related to insurance claim and settlement proceeds recognized during the three and six months ended June 30, 2023.
Emerald’s renewed event cancellation insurance policies for 2023 do not cover losses due to event cancellations caused by the outbreak of communicable diseases, including COVID-19. In the event of a future outbreak of communicable disease, including variants or resurgences of COVID-19, forced cancellations or reductions in attendance of our in-person events would negatively impact our financial results and liquidity, and we would not have the benefit of cancellation insurance coverage to mitigate this impact.
On June 12, 2023, Emerald X, a wholly owned subsidiary of the Company entered into a Sixth Amendment (the “Term Loan Amendment”) to its Amended and Restated Credit Agreement, which amends the previously existing Amended and Restated Credit Agreement, dated as of May 22, 2017. The Amendment extended the maturity of the term loans outstanding under the Amended Credit Agreement (the extended term loan facility, the “Extended Term Loan Facility”) from May 22, 2024 to May 22, 2026. The Term Loan Amendment replaced the interest rate applicable to the term loans with a rate equal to, at the option of Emerald X, (i) the Term Secured Overnight Financing Rate (“Term SOFR”) plus 5.00% per annum plus a credit spread adjustment of 0.10% per annum or (ii) an alternate base rate (“ABR”) plus 4.00% per annum. Prior to the Term Loan Amendment, the interest rate applicable to the term loans was a rate equal to, at the option of Emerald X (i) LIBOR plus 2.75% or 2.50% per annum, depending on Emerald X’s first lien net leverage ratio or (ii) ABR plus 1.75% or 1.50% per annum, depending on Emerald X’s first lien net leverage ratio. The Term Loan Amendment additionally reset scheduled quarterly payments, each equal to 0.25% of the original principal amount of the Extended Term Loan Facility.
On February 2, 2023, the Company entered into a Fifth Amendment to its Amended and Restated Credit Agreement (the “RCF Amendment”). The RCF Amendment increased the aggregate amount of all revolving commitments under the Amended Revolving Credit Agreement from $100.4 million to $110.0 million. The increased revolving commitments have the same terms as the existing revolving commitments. The RCF Amendment does not change any other material terms of the Existing Revolving Credit Agreement.
As of June 30, 2023, the Company had $415.3 million of borrowings outstanding under the Extended Term Loan Facility and no borrowings outstanding under the Amended and Restated Revolving Credit Facility. In addition, as of June 30, 2023, the Company had cash and cash equivalents of $204.7 million. As of June 30, 2023, the Company was in compliance with the covenants contained in the Amended and Restated Senior Secured Credit Facilities.
Based on our available sources of financing, cash from operations and receipt of insurance recoveries, management believes that the Company’s current financial resources will be sufficient to fund its liquidity requirements for the next twelve months.
Share Repurchase Plan
On October 5, 2020, our Board authorized and approved a new $20.0 million share repurchase program (the “October 2020 share repurchase program”). Share repurchases may be made from time to time through and including December 31, 2021, subject to early termination or extension by the Board, through open market purchases, block transactions, privately negotiated purchases or otherwise. On October 29, 2021, our Board approved an extension and expansion of the October 2020 share repurchase program, which allowed for the repurchase of an additional $20.0 million of our common stock through December 31, 2022. The share repurchase program may be suspended or discontinued at any time without notice. We settled the repurchase of 982,622 shares and 1,238,206 shares for $3.4 million and $4.3 million during the three and six months ended June 30, 2022, respectively, under this repurchase program.
49
On October 26, 2022, our Board approved an extension and expansion of the October 2020 share repurchase program, which allows for the repurchase of $20.0 million of our common stock through December 31, 2023, subject to early termination or extension by the Board. We settled the repurchase of 5,064,140 shares for $16.9 million during the six months ended June 30, 2023 under this repurchase program. There were no share repurchases settled during the second quarter of 2023. There was $3.0 million remaining available for share repurchases under the October 2022 Share Repurchase Program as of June 30, 2023. The share repurchase program may be suspended or discontinued at any time without notice.
Cash Flows
The following table summarizes the changes to our cash flows for the periods presented:
|
|
Six Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(unaudited) |
|
|||||
Statement of Cash Flows Data |
|
|
|
|||||
Net cash provided by operating activities |
|
$ |
16.2 |
|
|
$ |
45.2 |
|
Net cash used in investing activities |
|
$ |
(15.9 |
) |
|
$ |
(83.3 |
) |
Net cash used in financing activities |
|
$ |
(34.7 |
) |
|
$ |
(11.4 |
) |
Operating Activities
Operating activities consist primarily of net income adjusted for non-cash items that include depreciation and amortization, deferred income taxes, amortization of deferred financing fees and debt discount, stock-based compensation, provision for credit losses and goodwill and intangible asset impairment charges, plus the effect of changes during the period in our working capital.
Net cash provided by operating activities for the six months ended June 30, 2023 was $16.2 million, as compared to net cash provided by operating activities of $45.2 million for the six months ended June 30, 2022. The decrease in cash provided by operating activities primarily reflects the $16.4 million decrease in net income, from net income of $15.4 million for the six months ended June 30, 2022 to net loss of $1.0 million for the six months ended June 30, 2023. Net income plus non-cash items provided operating cash flows of $34.4 million and $52.1 million for the six months ended June 30, 2023 and 2022, respectively. Cash provided by operating activities reflects the use of $18.2 million and $6.9 million for working capital in the six months ended June 30, 2023 and 2022, respectively.
Investing Activities
Investing activities generally consist of business acquisitions and purchases of other productive assets, investments in information technology and capital expenditures to furnish or upgrade our offices.
Net cash used in investing activities for the six months ended June 30, 2023 decreased $67.4 million to $15.9 million from $83.3 million in the comparable period in the prior year. The decrease was primarily attributable to nonrecurrence of the purchase of marketable securities of $50.0 million and a decrease of $18.9 million associated with acquisition of businesses.
Financing Activities
Financing activities primarily consist of proceeds from issuance of preferred stock, borrowing and repayments on our debt, common stock repurchases and proceeds from the issuance of common stock associated with stock option exercises.
Net cash used in financing activities for the six months ended June 30, 2023 increased $23.3 million to $34.7 million, compared to $11.4 million for the six months ended June 30, 2022. The increase was primarily due to a $12.6 million increase in repurchases of common stock, the payment of $12.5 million of original issuance discount and $1.6 million in debt issuance costs related to the Sixth Amendment to our Amended and Restated Credit Agreement during the six months ended June 30, 2023.
50
Free Cash Flow
Free Cash Flow for the six months ended June 30, 2023 decreased $30.5 million, to $9.8 million from an inflow of $40.3 million for the comparable period in the prior year.
Free Cash Flow is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Free Cash Flow, see Footnote 5 to the table under the heading “Results of Operations—Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022.”
Contractual Obligations and Commercial Commitments
There have been no material changes to the contractual obligations as disclosed in the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2023, which is accessible on the SEC’s website at www.sec.gov, other than those made in the ordinary course of business.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the appropriate application of certain accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements. Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates.
We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable. Our accounting policies and estimates are reevaluated on an ongoing basis and adjustments are made when facts and circumstances dictate a change. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.
The policies and estimates discussed below involve the selection or application of alternative accounting policies that are material to our consolidated financial statements. With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have a materially favorable or unfavorable impact on subsequent results of operations.
Our accounting policies are more fully described in Note 1, Description of Business and Summary of Significant Accounting Policies, in the notes to our audited consolidated financial statements included in the Annual Report on Form 10-K. Management has discussed the selection of these critical accounting policies and estimates with members of our Board of Directors. There have been no significant changes in the critical accounting policies and estimates described in the Annual Report on Form 10-K.
Recently Adopted Accounting Pronouncements
See Item 1 of Part I, “Financial Statements—Note 2 – Recent Accounting Pronouncements.”
Recently Issued Accounting Pronouncements
See Item 1 of Part I, “Financial Statements—Note 2 – Recent Accounting Pronouncements.”
51
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices. Our primary exposure to market risk is interest rate risk associated with our Amended and Restated Senior Secured Credit Facilities. See Note 7, Debt, in the notes to the condensed consolidated financial statements for further description of our Amended and Restated Senior Secured Credit Facilities.
As of June 30, 2023, we had $415.3 million of variable rate borrowings outstanding under our Amended and Restated Senior Secured Credit Facilities and no variable rate borrowings outstanding under our Amended and Restated Revolving Credit Facility with respect to which we are exposed to interest rate risk. Holding other variables constant and assuming no interest rate hedging, a 0.25% increase in the average interest rate on our variable rate indebtedness would have resulted in a $1.1 million increase in annual interest expense based on the amount of borrowings outstanding as of June 30, 2023.
Recently, interest rates have remained at relatively low levels on a historical basis. However, since March 2022, the Federal Reserve has approved multiple rate increases, raising the Federal Funds Rate to between 5.25%-5.50%. The Federal Reserve has indicated that, in light of increasing signs of inflation, it foresees further increases in interest rates throughout this year and possibly into 2024.
Historically, inflation did not have a material effect on our business, results of operations, or financial condition. During 2021, inflation began to increase. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. While the Company has strategies to manage and offset these pressures, our inability or failure to do so could harm our business, results of operations and financial condition. For example, inflation influences interest rates, which in turn impact the fair value of our investments and yields on new investments. Operating expenses, including payroll, are impacted to a certain degree by the inflation rate as well. We do not believe that inflation has had a material effect on our results of operations for the periods presented. However, recent economic trends have resulted in inflationary conditions, including pressure on wages, and sustained inflationary conditions in future periods could affect our business.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to provide reasonable assurance that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company will be detected.
As of the end of the period covered by this report, management, under the supervision of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2023 the disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the Company’s second fiscal quarter of 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
52
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in general legal disputes arising in the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.
Item 1A. Risk Factors
Our Annual Report on Form 10-K, filed with the SEC on March 15, 2023 is accessible on the SEC’s website at www.sec.gov, and includes detailed discussions of our risk factors. At the time of this filing, there have been no material changes to the risk factors that were included in our Annual Report on Form 10-K.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
Share Repurchase Program
In October 2020, we announced that our Board of Directors had authorized a $20.0 million share repurchase program. Share repurchases may be made from time to time through and including December 31, 2021, subject to early termination or extension by our Board of Directors. In October 2021, our Board approved an extension and expansion of the share repurchase program, which allows for the repurchase of $20.0 million of the Company's common stock through December 31, 2022. In October 2022, our Board approved an extension and expansion of the share repurchase program, which allows for the repurchase of $20.0 million of the Company's common stock through December 31, 2023. The share repurchase program may be suspended or discontinued at any time without notice. There is no minimum number of shares that we are required to repurchase. Shares may be purchased from time to time in the open market or in privately negotiated transactions. Such purchases will be at times and in amounts as we deem appropriate, based on factors such as market conditions, legal requirements and other business considerations. We did not repurchase any shares of our common stock during the three months ended June 30, 2023. There was $3.0 million remaining available for share repurchases under the Share Repurchase Program as of June 30, 2023.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the quarterly period ended June 30, 2023, none of the Company’s directors or executive officers have informed us that they have
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Form 8-K Item 8.01 - Other Events
On August 1, 2023, the Board of Directors of the Company approved the payment in cash of a dividend on the Company’s Redeemable Convertible Preferred Stock (the “Preferred Stock” and such dividend, the “Preferred Stock Cash Dividend”) for the period ending September 30, 2023. Each share of Preferred Stock accumulates dividends at a rate per annum equal to 7% of the accreted liquidation preference, compounding quarterly by adding to the accreted liquidation preference until July 1, 2023 and thereafter, at the Company’s option, paid either in cash or by adding to the accreted liquidation preference. The amount of the Preferred Stock Cash Dividend is expected to be $0.12 per share of Preferred Stock, based on the accreted liquidation preference per share of Preferred Stock $6.90 as of June 30, 2023, and will be payable on September 30, 2023 to holders of record of Preferred Stock as of August 1, 2023. The Preferred Stock is not listed on any stock exchange.
No dividends have been declared or will be payable with respect to shares of the Company’s common stock in connection with the Preferred Stock Cash Dividend. The payment of dividends on the Preferred Stock in cash is at the discretion of the Company’s Board of Directors and there can be no assurance that dividends on shares of Preferred Stock will be paid in cash in future periods.
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Item 6. Exhibits
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10.1 |
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*31.1 |
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*31.2 |
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*32.1 |
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*101.INS |
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Inline XBRL Instance Document |
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*101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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*101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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*101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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*101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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*101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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*101 |
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The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL included: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements |
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*104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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EMERALD HOLDING, INC. |
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Date: August 3, 2023 |
By: |
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/s/ David Doft |
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David Doft |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
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