EEX - NYSE

Thank you, Hervé, and good morning. Starting with the top line. Our second quarter revenue was $86.5 million compared to $71.4 million in the prior year quarter. The increase was almost entirely due to organic revenue growth as well as some modest revenue from new acquisitions. Organic revenue, which takes into account the impact of acquisitions and scheduling adjustments, was $79.2 million, an increase of $7.9 million or 11.1% versus the second quarter of 2022. Year-to-date, our organic growth was 16.6%. As a reminder, the second and third quarters are seasonally slower following the busy Q1 trade show calendar. Our acquisitions have slightly shifted the seasonality dynamics compared to our historical performance. In general, from a revenue standpoint, we expect Q2 to represent just over 20% of our annual revenues. Q3 to be slightly smaller, Q4 to be our second largest quarter in Q1 to be our largest. Second quarter adjusted EBITDA almost doubled to $14.6 million compared to $7.5 million, excluding insurance proceeds in the prior year quarter. The increase in adjusted EBITDA was primarily driven by flow-through of organic revenue as we leveraged the fixed cost of running events as well as prior investments. Year-to-date, adjusted EBITDA, excluding event cancellation insurance proceeds has increased 54.4% to $51.1 million, reflective of the operating leverage in the business. Second quarter free cash flow was $4.6 million compared to $2.4 million, excluding insurance proceeds in the prior year quarter. Turning to expenses. We continue to effectively manage our cost structure in this inflationary environment. While second quarter SG&A was $41.8 million versus $32.3 million in the prior year quarter. The increase was due to the fact that last year's SG&A benefited from a negative $10 million offset due to a markdown of estimated earnout payments and due to the initial SG&A in 2023 as a result of the acquisitions of Advertising Week, which closed at the end of Q2 2022, Bulletin, which closed in July of 2022 and Lodestone, which closed earlier this year. Excluding these items, SG&A was flat to down. As for the balance sheet, we had $204.7 million in cash as of June 30, 2023, versus $217.3 million as of December 31. Our total liquidity is $314.7 million, including full availability on our $110 million credit facility. In June, we completed the extension of our term loan facility to May of 2026 with an outstanding balance of $415.3 million as of June 30 at a rate of SOFR plus 500 plus a 10-basis point credit spread adjustment for the transition from LIBOR to SOFR. There are numerous financial impacts in the second quarter financials as a result of the term loan extension transaction. Given the nature of the term loan extension, it had certain accounting impacts that led to the costs related to the transaction to be accounted for in numerous places. First, we recorded a $2.3 million loss on extinguishment of debt as an expense in our income statement, which is an allocation of a portion of the original issue discount we paid on the term loan. We also recognized $2.1 million of third-party fees related to the financing transaction and interest expense in the quarter, and as a result, impacted our free cash flow. The remainder of the cost of the transaction were capitalized on the balance sheet. Without these term loan extension-related costs, free cash flow would have been $6.7 million in the quarter. We believe our balance sheet strength and cash flow generation support our ability to opportunistically invest in and grow our business. We will continue to balance capital allocation between acquisitions, investments in our own business and opportunistic share buybacks. We have $3 million remaining on our current share repurchase authorization. As of June 30, we had net debt of $210.6 million, leading to a net leverage ratio as defined in our credit agreement of 1.9x our trailing 12-month consolidated EBITDA based on our credit agreement of $110.3 million. One balance sheet-related item I'd like to highlight is that as of July 1 of this year, the company now has the right to choose to pay the quarterly dividend of our convertible preferred stock in cash or PIC. Up until now, we were required to pay in kind. The company also has the right to choose each quarter how it would like to pay. Given the conversion price of the convertible preferred stock of $3.52 as compared to the current share price, the independent members of our Board have approved management's decision to pay the upcoming September 30 payment in cash. The total payment this quarter is $8.6 million, which means that we are avoiding the issuance of 2.4 million shares on an as-converted basis. This is an option we will carefully consider in our capital allocation analysis going forward. With respect to our capital structure, an overview can be found on Slide 11 of our earnings presentation deck. Factoring in $62.9 million of common shares outstanding at June 30 and had an additional 139.9 million common shares represented by the convertible preferred shares as of June 30. Our total share count on an as-converted basis would be $202.8 million. Based on yesterday's closing price, this equates to a market cap of $982 million. Adding in our debt, estimated contingent consideration on our balance sheet for acquisitions and deferred tax asset worth approximately $70 million. This leads to an enterprise value of approximately $1.1 billion. In our full-year guidance for 2023, as we stated on our last earnings call, we continue to expect in excess of $400 million in revenue and over $100 million of adjusted EBITDA. This guidance reflects a more than 75% increase over 2022 EBITDA, excluding insurance proceeds. Our guidance implies an adjusted EBITDA margin of approximately 25%, and we believe we have runway to improving on this number as we work our way back to the 35% plus margins we saw prior to COVID. We also continue to expect free cash flow in 2023 of over $60 million before accounting for the benefits of working capital inflows. As we move forward, we will continue to closely monitor the one-time financing and acquisition-related costs that I outlined earlier in my remarks and keep you abreast of any relevant updates in the coming months. Thank you very much for your time. And with that, we'll now open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question from Barton Crockett with Rosenblatt.

I was wondering if you could give us an update on where you see your recovery relative to pre-pandemic on a few kinds of measures, where you think you are in terms of shows your operating now versus pre-pandemic exclusive of acquisitions and where you see pricing and attendance. Just give us kind of a baseline? Are you 3/4 recovered or 90%, just where would you say you are at this point?

Thanks, Barton. This is David. So on revenues, as we've indicated earlier, we expect to be in the 80s percent relative to pre-pandemic. And a large portion of our events are actually at or exceeding pre-pandemic and others based on the dynamics of their industry coming out of the pandemic are performing a little lower and taking a little bit longer to bounce back, which is leading to a little bit more of an elongated recovery curve for us. And one of the reasons why we think 2024 or '25, we'll continue to see accelerated growth at Emerald on top of the organic initiatives that we've undertaken to drive growth. In terms of attendance, it's around there, a little bit better on square footage. It's a little bit less, which means that pricing has been higher since pre-pandemic. We've talked before about our efforts to optimize pricing versus value. It's one of the reasons why we focus so much on customer centricity as part of our growth strategy and one of our growth pillars. We believe that if we can continue to drive more value to our customers, we not only will retain more of them and drive NSF growth, but we also will be able to price against that. And so pricing is up over 20% relative to pre-pandemic in 2023.

Okay. That's helpful. And then just one final question, if I could. Could you help walk me through what drives your EBITDA margin up to the 35% plus? Does that require revenue growth? Is there cost opportunities? Just walk me through how you think you get there over time.

Absolutely. So one of the other core focuses of our team over the last couple of years has been to transform Emerald from what had been more of a loose federation of events into events that run on a common platform. And so we've embarked on a number of centralization initiatives. We've talked about purchasing and pricing, and we've centralized operations. We have centralized marketing operations and data management and a whole bunch of other areas where we've created a platform of scale and best practices in order to optimize performance going forward. We've also said over the last couple of years that because of the benefits of the insurance proceeds that we received from the events that we canceled during the pandemic. We also had the luxury of investing for the future, not going into austerity. And so we believe that we have the overhead in place for scaling this business going forward. And so as our businesses ramp back towards pre pandemic levels and beyond, we do not expect to need to add meaningful incremental costs to SG&A. And we'll have some normal wage inflation. We might need to add a person or 2 along the way. But surely, SG&A will grow at a much slower rate is our expectation than revenue. And that is the largest source of the operating leverage that we have as the business bounces back and growth beyond.

[Operator Instructions] We have our next question from Allen Klee with Maxim Group.

When I look at how you break out your revenues by segment, the biggest increase was in other events. Could you just explain what that's attributed to? Thank you.

Sure. So the quarter-over-quarter results largely rely on the event schedule, the timing of when events are. Other does have our new event launches. And so it does benefit when we launch new events in the quarter. This quarter, we launched OAX, which was outdoor adventure Expo, which is a consumer outdoor festival that stage the weekend before our outdoor retailer event in June in Utah. All other also includes our Elastic e-commerce software business, which is among the highest, if not highest growing asset within Emerald. And so that's the other contributor for all other.

And then just following up on the e-commerce software business, how should we think about how much that's -- I don't think it's profitable now. Can you give us a sense of what the drag is now, but what that could turn into maybe next year or the year after?

Sure. That's correct. We are running the Elastic business this year at around breakeven. It was operating at a loss last year. So we've made a meaningful progress of leveraging the investments we made and the scalability of the business last year to have a majority of the incremental revenue growth this year for the bottom line and bring it to breakeven. That is another driver of margin expansion going forward. I should have mentioned with Barton's question is we have a business that's about 5% of revenue operating at breakeven is surely holding back margins this year. We do believe that over the next 3, 4 years, the business will become a margin contributor that's equivalent to the rest of the company. And so as with many SaaS software businesses, revenue scale brings significant operating leverage in the business, and we're on the cusp of achieving that.

Is there a way to think about for next quarter, the amount of events you'll have relative to the year before? How much that will be up?

I don't have the event calendar in front of me. There may be 1 or 2 small launches in the quarter but launches typically are not meaningful contributors in year one. They might be a few hundred thousand dollars each. So the number of events should be fairly consistent to last year. Keep in mind, Q3 is typically our smallest quarter of the year as a percent of revenue for the year and what we think about, as I mentioned in the prepared remarks, it's somewhere in the high teens, so smaller than Q2. So I think you should keep that in mind as you're modeling out the business.

Okay. Just a couple of data points from 2Q, can you provide the number of events, I have a couple of metrics, number of events versus last year, attendees, how much of that was net square footage, how much of that was a number of exhibiting companies, same thing and pricing. Thank you.

So I mentioned pricing earlier. Pricing versus 2019 is up over 20% pricing versus 22% is up around 10-ish percent. And so there is a nice step forward in pricing this year as we catch up a bit on the opportunity there with our new initiatives focused on price. In terms of attendees, attendees almost doubled from last year in the quarter. And MSF was up more in the high single-digit percent in the quarter. And so it's great to see attendees coming back. It's a bit of chicken and egg in terms of the growth of these businesses. If we can bring the attendees, the exhibitors follow, if we have the right scale of the exhibitors, the attendees follow. And so it's good to see the progress on that front in the quarter. The number of exhibitors, you should use the number of attendees as the tracker, I'm sorry, the number of the NSF is a tracker of exhibitors. I guess the other thing I'd add on that is, it depends on the calendar quarter-to-quarter. And we've talked a bit about the mix of the business and different industries coming back at different trajectories. Q2 does happen to have some of the areas that are coming back a little bit slower. And so we would expect some of those metrics to bounce around a little bit quarter-to-quarter.