EMERALD HOLDING, INC. 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 ofEmerald 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/A for the year endedDecember 31, 2020 (the "Annual Report"), as filed with theSEC . 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 toEmerald Holding, Inc. , together with its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires. The following information has been adjusted to reflect the restatement to our 2020 condensed consolidated financial statements as described in Note 1, Basis of Presentation, in Notes to the Condensed Consolidated Financial Statements of this Quarterly Report. Overview
We are a leading operator of business-to-business trade shows in
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 typically held 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 verticals, we are able to attract high-quality attendees, including thosewho 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. In addition to organizing our trade shows, conferences and other events, we also operate content and content-marketing websites and related digital products, and produce publications, each of which is aligned with a specific sector for which we organize an event. We also offer B2B commerce and digital merchandising solutions, serving the needs of manufacturers and retailers, through the Elastic Suite and Flex platforms, which were recently added with the PlumRiver acquisition. 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 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 performance based on the results of six executive brand portfolios, which represent our six operating segments. Based on an evaluation of economic similarities and the nature of services and types of customers, four of these operating segments have been aggregated into two reportable segments, the Commerce reportable segment and the Design and Technology reportable segment. The remaining two operating segments do not meet the quantitative thresholds to be considered reportable 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.
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Design 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 and services 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, generally allowing 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 inJune 2013 , we have completed 21 strategic acquisitions, with purchase prices, excluding the$335.0 million acquisition ofGeorge Little Management ("GLM"), ranging from approximately$5.0 million to approximately$46.0 million , and annual revenues ranging from approximately$1.3 million to approximately$15.1 million . Historically, we have completed acquisitions at 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. 36 --------------------------------------------------------------------------------
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:
• Severe Impact of COVID-19 - In
categorized COVID-19 as a pandemic, and the President of
declared the COVID-19 outbreak a national emergency. In conjunction with
this declaration and the spread of COVID-19 across
recommendations and mandates were handed down by various local, state and
federal government agencies regarding social distancing, containment areas
and against large gatherings, as well as quarantine requirements. In
addition, travel restrictions were imposed by
foreign governments, and by companies with respect to their employees, and
various event venues announced indefinite closures. As a result of these
and various other factors, management made the decision to cancel orpostpone a significant portion of our event calendar for the remainder of
2020 and the first half of 2021. Following the reopening of most major
municipalities in
in-person events during the third quarter. As expected, the continued
effects of COVID-19 related issues, such as international travel
restrictions and the need to postpone several of our events, have
negatively impacted our third quarter financial results. While travel
restrictions on international travelers to
to be lifted in the fourth quarter of 2021, the ongoing effects of
COVID-19 on the Company's operations and event calendar have had, and
could continue to have, a material negative impact on our financial
results and liquidity. For more information, see "Risk Factors" in our
Annual Report on Form 10-K/A for the year ended
with the
material detrimental impact on our business, financial results and
liquidity, and such impact could worsen and last for an unknown period of
time" and "-Liquidity and Capital Resources."
• Market Fragmentation - The trade show industry is highly fragmented, with
the three largest companies, including Emerald, comprising only 10% of the
wider U.S. market according to the AMR International Globex Report 2018.
This has afforded us the opportunity to acquire other trade show
businesses, a growth opportunity we expect to continue pursuing. Theseacquisitions may affect our growth trends, impacting the comparability of
our financial results on a year-over-year basis.
• Overall Economic Environment and Industry Sector Cyclicality - Our results
of operations are correlated, in part, with the economic performance of
the industry sectors that our trade shows serve, as well as the state of
the overall economy.
• Lag Time - As the majority of our exhibit space is sold during the twelve
months prior to each trade show, there is often a timing difference
between changes in the economic conditions of an industry sector vertical
and their effect on our results of operations. This lag time can result in
a counter-cyclical impact on our results of operations.
• Variability in Quarterly Results - Our business is seasonal, with trade
show revenues typically reaching their highest levels during the first and
third quarters of each calendar year, and their lowest level during the
fourth quarter, entirely due to the timing of our trade shows. This
seasonality is typical within the trade show industry. However, as aresult of event cancellations and postponements due to COVID-19, future
results may not align with this historical trend. Since event revenue is
recognized when a particular event is held, we may also experience
fluctuations in quarterly revenue and cash flows based on the movement of
annual trade show dates from one quarter to another. Our presentation of
Adjusted EBITDA accounts for these quarterly movements and the timing of
shows, where applicable and material.
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, 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
sponsorship, fees for ancillary exhibition services and attendee registration
fees. Additionally, we generate revenue through a digital commerce platform,
conferences, digital media, online webinars and print publications
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--------------------------------------------------------------------------------that complement our trade shows. We also engage third-party sales agents to support our marketing efforts. More than 95% of our sales are made by our employees, with less than 5% made by third-party sales agents.
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, (iii) material show scheduling adjustments and (iv) event cancellations and postponements for which the Company has received, or expects to receive, claim proceeds from its event cancellation insurance policy. 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 Emerald's Board evaluate changes in Organic revenues to understand underlying revenue trends of its events. Organic revenue is not defined under accounting principles generally accepted inthe United States of America ("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 revenues to revenues as reported, see footnote 3 to the table under the heading "-Results of Operations- Three Months EndedSeptember 30, 2021 Compared to Three Months EndedSeptember 30, 2020 ".
Cost of Revenues
• Decorating Expenses. We work with general service contractors to both set
up communal areas of our trade shows and provide services to our
exhibitors,
contractors. We will usually select a single general service contractor
for an entire show, although it is possible to bid out packages of work
within a single show on a piecemeal basis to different task-specific
specialists.
• Sponsorship Costs. We often enter into long-term sponsorship agreements
with industry trade associations whereby the industry trade association
endorses and markets the show to its members in exchange for a percentage
of the show's revenue.
• Venue Costs. Venue costs represent rental costs for the venues, usually
convention centers or hotels, where we host our trade shows. Given that
convention centers are typically owned by local governments
vested interest in stimulating business activity in and attracting tourism
to their cities, venue costs typically represent a small percentage of our
total cost of revenues.
• Costs of Other Marketing Services. Costs of other marketing services
represent paper, printing, postage, contributor and other costs related to
digital media and print publications.
• Other Event-Related Expenses. Other event-related costs include temporary
labor for services such as security, shuttle buses, speaker fees, food and
beverage expenses and event cancellation insurance.
Selling, General and Administrative Expenses
• Labor Costs. Labor costs represent the cost of employees
in sales, marketing, planning and administrative activities. The actual
on-site set-up of the events is contracted out to third-party vendors and
is included in cost of revenues.
• Miscellaneous Expenses. Miscellaneous expenses are comprised of a variety
of other expenses, including advertising and marketing costs, promotion
costs, credit card fees, travel expenses, printing costs, office supplies
and office rental expense. Direct trade show costs are recorded in cost of
revenues. All other costs are recorded in selling, general and
administrative expenses.
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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.
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 periods of seven to 30 years from the date of each acquisition or date of change in estimated useful life under GAAP, or fifteen years for tax purposes. This amortization expense reduces our taxable income. Income Taxes
Income tax expense consists of federal, state and local taxes based on income in the jurisdictions in which we operate.
We also 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. Our effective tax rate adjusted for discrete items for the three months endedSeptember 30, 2021 was lower than theU.S. federal statutory rate of 21% primarily due to the net effects of current period actual and full year projected results, state income taxes, permanent book-to-tax differences (e.g., nondeductible officer compensation), change in valuation allowances and tax deficiencies realized upon the vesting of certain share-based payment awards.
Adjusted EBITDA
Adjusted EBITDA is a key measure of our performance. Adjusted EBITDA is defined as net income before interest expense, income tax expense, goodwill and intangible asset impairment charges, depreciation and amortization, stock-based compensation, deferred revenue adjustment, and other items that management believes 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. The most directly comparable GAAP measure to Adjusted EBITDA is net loss. For a reconciliation of Adjusted EBITDA to net loss, see footnote 2 to the table under the heading "-Results of Operations- Three Months EndedSeptember 30, 2021 Compared to Three Months EndedSeptember 30, 2020 ."
Cash Flow Model
We typically have favorable cash flow characteristics, as described below (see
"-Cash Flows"), as a result of our high profit margins, low capital expenditures
and generally negative working capital. Our working capital is negative as 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, borrowings under our Amended and
Restated Revolving Credit Facility ("Revolving Credit Facility") 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
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-------------------------------------------------------------------------------- having negative working capital 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. We believe that our business interruption insurance proceeds will largely mitigate this liability. The primary driver for our negative working capital 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. Most of our exhibitors pay in full in advance of each trade show, whereas the bulk of 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 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. 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- Nine Months EndedSeptember 30, 2021 Compared to Nine Months EndedSeptember 30, 2020 ."
Results of Operations
Three Months Ended
The tables in this section summarize key components of our results of operations
for the periods indicated.
Three Months Ended
September 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Statement of loss and comprehensive
loss data:
Revenues $ 76.5 $ 8.5 $ 68.0 NM
Other income 1.1 16.1 (15.0 ) NM
Cost of revenues 33.7 4.3 29.4 NM
Selling, general and administrative
expense(1) 38.8 25.6 13.2 51.6 %
Depreciation and amortization expense 12.2 12.2 0.0 -
Operating loss (7.1 ) (17.5 ) 10.4 (59.4 %)
Interest expense, net 3.9 4.2 (0.3 ) (7.1 %)
Loss before income taxes (11.0 ) (21.7 ) 10.7 (49.3 %)
Benefit from income taxes (2.0 ) (6.4 ) 4.4 (68.8 %)
Net loss and comprehensive loss
6.3 NM
Other financial data (unaudited):
Adjusted EBITDA(2) $ 9.4 $ (3.2 ) $ 12.6 NM
Organic revenue(3) $ 12.1 $ 13.7 $ (1.6 ) (11.7 )%
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(1) Selling, general and administrative expense for the three months ended
September 30, 2021 and 2020 included$1.4 million and$0.6 million , respectively, in acquisition-related transaction, transition and integration costs, including legal and advisory fees. Also included in
selling, general and administrative expense for the three months ended
million and
(2) In addition to net loss presented in accordance with GAAP, we use Adjusted
EBITDA to measure our financial performance. Adjusted EBITDA is a
supplemental non-GAAP financial measure of operating performance and is not
based on any standardized methodology prescribed by GAAP. Adjusted EBITDA
should not be considered in isolation or as alternatives to net loss, cash
flows from operating activities or other measures determined in accordance
with GAAP. Also, Adjusted EBITDA is not necessarily comparable to similarly
titled measures presented by other companies.
We define Adjusted EBITDA as net loss before (i) interest expense, (ii) income
tax (benefit) expense, (iii) goodwill impairment charges, (iv) intangible asset
impairment charges, (v) depreciation and amortization, (vi) stock-based
compensation, (vii) deferred revenue adjustment and (viii) other items that
management believes 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 they are 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 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
September 30,
2021 2020
(unaudited)
(dollars in millions)
Net loss $ (9.0 ) $ (15.3 )
Add (deduct):
Interest expense 3.9 4.2
Benefit from income taxes (2.0 ) (6.4 )
Depreciation and amortization expense 12.2 12.2
Stock-based compensation expense(a) 2.4 1.5
Deferred revenue adjustment(b) 0.3 -
Other items(c) 1.6 0.6
Adjusted EBITDA $ 9.4 $ (3.2 ) (a) Represents costs related to stock-based compensation associated with certain
employees' participation in the 2013 Stock Option Plan ("2013 Plan"), the
2017 Omnibus Equity Plan (the "2017 Plan") and the 2019 Employee Stock
Purchase Plan (the "ESPP").
(b) Represents deferred revenue acquired in the PlumRiver Technologies
("PlumRiver") acquisition that was marked down to the acquisition date fair
value due to purchase accounting rules. If the business had been continuously
owned by us throughout the quarter periods presented, the fair value
adjustments of
three months ended
(c) Other items for the three months ended
million in expense related to the remeasurement of contingent consideration,
(ii)
Other items for the three months ended
million in non-recurring legal, audit and consulting fees and (ii) $0.2
million in transition costs, offset by (iii) a $0.3 million reduction to
expense related to the remeasurement of contingent consideration.
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(3) In addition to revenues presented in accordance with GAAP, we present
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 Emerald's Board evaluate changes in
Organic revenues to understand underlying revenue trends of its events.
Our presentation of Organic Revenue adjusts revenue for (i) acquisition
revenue, (ii) discontinued events, (iii) COVID-19 cancellations (iv)
COVID-19 postponements and (v) scheduling adjustments.
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. 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.
Three Months Ended
September 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Revenues $ 76.5 $ 8.5 $ 68.0 800.0 %
Add (deduct):
Acquisition revenues (3.7 ) - (3.7 )
Discontinued events - (2.1 ) 2.1
COVID-19 prior year
cancellations(a) (60.7 ) - (60.7 )
COVID-19 postponements(b) - 7.3 (7.3 )
Organic revenues $ 12.1 $ 13.7 $ (1.6 ) (11.7 %)
(a) Represents the increase in 2021 revenues as a result of events that staged in
the current year and were cancelled due to COVID-19 in the prior year.
(b) Represents revenues of certain events that staged in the first quarter of
2020 and were postponed to the third quarter of 2021 as a result of COVID-19.
Revenues Revenues of$76.5 million for the three months endedSeptember 30, 2021 increased$68.0 million , from$8.5 million for the comparable period in 2020, primarily due to a more normal schedule of live events trading during the quarter as well as the acquisition ofPlum River and Sue Bryce Education. See "Commerce Segment - Revenues," "Design 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
Other income of$1.1 million was recorded related to event cancellation insurance claims proceeds, all of which were received during the three months endedSeptember 30, 2021 . Other income of$16.1 million was recorded related to event cancellation insurance claims proceeds, of which$6.6 million was received and$9.5 million was confirmed by the insurance company during the three months endedSeptember 30, 2020 . All$9.5 million of insurance receivables as ofSeptember 30, 2020 were received inOctober 2020 . See "Commerce Segment - Other Income," "Design and Technology Segment - Other Income," and "All Other Category - Other Income" below for a discussion of other income by segment.
Cost of Revenues
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Cost of revenues of $33.7 million for the three months ended September 30, 2021
increased $29.4 million , from $4.3 million for the comparable period in 2020.
See "Commerce Segment - Cost of Revenues," "Design 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$38.8 million for the three months endedSeptember 30, 2021 increased$13.2 million , or 51.6%, from$25.6 million for the comparable period in 2020. See "Commerce Segment - Selling, General and Administrative Expenses", "Design 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 was$12.2 million for both the three months endedSeptember 30, 2021 and the comparable period in 2020. See "Commerce Segment - Depreciation and Amortization Expense," "Design 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 Three Months Ended
Commerce
The following represents the change in revenue, expenses and operating (loss) profit in the Commerce reportable segment for the three months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 40.9 $ 1.8 $ 39.1 NM Other income 1.0 10.7 (9.7 ) (90.7 %) Cost of revenues 14.1 1.9 12.2 NM Selling, general and administrative expense 8.4 4.6 3.8 82.6 % Depreciation and amortization expense 6.2 6.7 (0.5 ) (7.5 %) Operating income (loss)$ 13.2 $ (0.7 ) $ 13.9 NM Revenues During the three months endedSeptember 30, 2021 , revenues for the Commerce reportable segment increased$39.1 million , to$40.9 million from$1.8 million for the comparable period in the prior year. The primary driver of the increase was$39.4 million of revenue generated by events that staged in the third quarter of 2021 but were cancelled due to COVID-19 in the third quarter of 2020, partly offset by a decrease of$0.6 million for discontinued virtual events and other marketing services. Other Income Other income of$1.0 million was recorded for the Commerce reportable segment related to event cancellation insurance claims proceeds for the three months endedSeptember 30, 2021 . All$1.0 million was received during the three months endedSeptember 30, 2021 . Other income of$10.7 million was recorded for the Commerce reportable segment related to event cancellation insurance proceeds, of which$3.6 million was received and$7.1 million was confirmed by the insurance provider, during the quarter endedSeptember 30, 2020 . All$7.1 million of insurance receivables for the Commerce segment as ofSeptember 30, 2020 was received inOctober 2020 . 43 --------------------------------------------------------------------------------
Cost of Revenues
During the three months endedSeptember 30, 2021 , cost of revenues for the Commerce reportable segment increased$12.2 million , to$14.1 million from$1.9 million for the comparable period in the prior year. The primary driver of the increase was$12.3 million for events that staged in the third quarter of 2021 but were cancelled due to COVID-19 in the third quarter of 2020, offset by a decrease of$0.1 million for discontinued virtual events and other marketing services costs.
Selling, General and Administrative Expense
During the three months endedSeptember 30, 2021 , selling, general and administrative expense for the Commerce reportable segment increased$3.8 million , or 82.6%, to$8.4 million , from$4.6 million for the comparable period in 2020. Increased selling and promotional expenses are primarily attributable to the return to a more regular event schedule.
Depreciation and Amortization Expense
During the three months endedSeptember 30, 2021 , depreciation and amortization expense for the Commerce reportable segment decreased$0.5 million , or 7.5%, to$6.2 million from$6.7 million for the comparable period in 2020. The decrease was attributable to the definite-lived intangible asset impairment charges recorded in the first quarter of 2020.
Design and Technology
The following represents the change in revenue, expenses and operating (loss)
profit in the Design and Technology reportable segment for the three months
ended
Three Months Ended
September 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Revenues $ 22.8 $ 5.0 $ 17.8 NM
Other income - 3.1 (3.1 ) -
Cost of revenues 12.5 1.9 10.6 NM
Selling, general and
administrative
expense 7.0 4.6 2.4 52.2 %
Depreciation and amortization
expense 3.8 4.1 (0.3 ) (7.3 %)
Operating loss $ (0.5 ) $ (2.5 ) $ 2.0 (80.0 %)
Revenues
During the three months ended September 30, 2021 revenues for the Design and
Technology reportable segment increased $17.8 million , to $22.8 million , from
$5.0 million for the comparable period in 2020. The primary drivers of the
increase were $17.1 million of revenue generated by events that staged in the
third quarter of 2021 but were cancelled due to COVID-19 in the third quarter of
2020, $1.3 million of revenue generated by events that staged in the first
quarter of 2020 but were postponed to the third quarter of 2021 due to COVID-19,
and $0.5 million in organic growth, primarily from other marketing services.
These increases were offset by a decrease of $1.2 million for discontinued
virtual events and other marketing services revenue.
Other Income
Other income of$3.1 million was recorded for the Design and Technology reportable segment related to event cancellation insurance claims proceeds, of which$1.3 million was received and$1.8 million was confirmed by the insurance provider during the three months endedSeptember 30, 2020 . All$1.8 million of insurance receivables for the Design and Technology segment were received inOctober 2020 . There was no Other income recorded for the Design and Technology reportable segment during the three months endedSeptember 30, 2021 .
Cost of Revenues
During the three months endedSeptember 30, 2021 cost of revenues for the Design and Technology reportable segment increased$10.6 million , to$12.5 million from$1.9 million for the comparable period in 2020. The primary drivers of the 44 -------------------------------------------------------------------------------- increase were$9.5 million for events that staged in the third quarter of 2021 but were cancelled due to COVID-19 in the third quarter of 2020,$0.9 million for events that staged in the first quarter of 2020 but were postponed to the third quarter of 2021 due to COVID-19 and$0.9 million for an event that cancelled immediately prior to its scheduled date in the third quarter of 2021 due to COVID-19. These increases were offset by a decrease of$0.5 million for nonrecurring expenses relating to discontinued virtual events and other marketing services.
Selling, General and Administrative Expense
During the three months ended
Depreciation and Amortization Expense
During the three months endedSeptember 30, 2021 depreciation and amortization expense for the Design and Technology reportable segment decreased$0.3 million , or 7.3%, to$3.8 million from$4.1 million for the comparable period in 2020. The decrease was attributable to the definite-lived intangible asset impairment charges recorded in the first quarter of 2020.
All Other Category
The following represents the change in revenue, expenses and operating loss in the All Other category for the three months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 12.8 $ 1.8 $ 11.0 NM Other income 0.1 2.3 (2.2 ) (95.7 %) Cost of revenues 7.0 0.5 6.5 NM Selling, general and administrative expense 7.3 3.4 3.9 114.7 % Depreciation and amortization expense 1.6 0.6 1.0 166.7 % Operating loss$ (3.0 ) $ (0.4 ) $ (2.6 ) NM Revenues During the three months endedSeptember 30, 2021 revenues for the All Other category increased$11.0 million , to$12.8 million from$1.8 million for the comparable period in 2020. The primary drivers of the increase were$4.0 million of revenue generated by events that staged in the third quarter of 2021 but were cancelled due to COVID-19 in the third quarter of 2020,$2.5 million of revenue generated by events that staged in the first quarter of 2020 but were postponed to the third quarter of 2021 due to COVID-19,$3.8 million of incremental revenues from theDecember 2020 acquisition ofPlumRiver, LLC ("PlumRiver") and theApril 2021 acquisition of Sue Bryce Education ("Sue Bryce") and organic revenue growth of$0.7 million related to other marketing services revenues. 45 --------------------------------------------------------------------------------
Other Income
Other income of$0.1 million was recorded for the All Other category related to event cancellation insurance claims proceeds, which were paid by the insurance provider during the quarter endedSeptember 30, 2021 . Other income of$2.3 million was recorded for the All Other category related to event cancellation insurance claims proceeds, of which$1.7 million was received and$0.5 million was confirmed by the insurance provider during the three months endedSeptember 30, 2020 . All$0.5 million of insurance receivables for the All Other category as ofSeptember 30, 2020 were received inOctober 2020 .
Cost of Revenues
During the three months endedSeptember 30, 2021 cost of revenues for the All Other category increased$6.5 million , to$7.0 million from$0.5 million for the comparable period in 2020. The primary drivers of the increase were$1.7 million for events that staged in the third quarter of 2021 but were cancelled due to COVID-19 in the third quarter of 2020,$2.2 million for events that staged in the first quarter of 2020 but were postponed to the third quarter of 2021 due to COVID-19,$2.0 million for events that cancelled due to COVID-19 in the third quarter of 2021 and$3.8 million of incremental expense related to the PlumRiver andSue Bryce acquisitions.
Selling, General and Administrative Expense
During the three months endedSeptember 30, 2021 selling, general and administrative expense for the All Other category increased$3.9 million , or 114.7%, to$7.3 million from$3.4 million for the comparable period in 2020. The increase in selling, general and administrative expense was primarily due to costs associated with the PlumRiver andSue Bryce acquisitions, which were closed inDecember 2020 andApril 2021 , respectively, and our return to a more regular event schedule.
Depreciation and Amortization Expense
During the three months endedSeptember 30, 2021 depreciation and amortization expense for the All Other category increased$1.0 million , or 166.7%, to$1.6 million from$0.6 million for the comparable period in 2020. The increase was primarily due to the PlumRiver andSue Bryce acquisitions, which were closed inDecember 2020 andApril 2021 , respectively. Corporate Category
The following represents the change in operating expenses in the Corporate
category for the three months ended
Three Months Ended
September 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Selling, general and
administrative
expense 16.1 13.1 3.0 22.9 %
Depreciation and amortization
expense 0.6 0.8 (0.2 ) (25.0 %)
Total operating expenses $ 16.7 $ 13.9 $ 2.8 20.1 %
Selling, General and Administrative Expense
During the three months endedSeptember 30, 2021 selling, general and administrative expense for the Corporate category increased$3.0 million , or 22.9%, to$16.1 million from$13.1 million for the comparable period in 2020. The increase was primarily attributable to higher stock-based compensation, increases to contingent consideration liabilities and higher promotional expenses and software expenses during the three months endedSeptember 30, 2021 . The increase in stock-based compensation expense is primarily due to stock option and restricted stock unit grants made in the first quarter of 2021. 46 --------------------------------------------------------------------------------
Depreciation and Amortization Expense
During the three months ended
Interest Expense
Interest expense of$3.9 million for the three months endedSeptember 30, 2021 decreased$0.3 million , or 7.1%, from$4.2 million for the comparable period in 2020. The decrease was primarily attributable to lower interest expense on the Amended and Restated Term Loan Facility primarily resulting from the decrease in the average interest rate of 2.66% for the three months endedSeptember 30, 2020 compared to an average interest rate of 2.59% during the three months endedSeptember 30, 2021 .
Benefit from Income Taxes
For the three months endedSeptember 30, 2021 and 2020, the Company recorded a benefit from income taxes of$2.0 million and$6.4 million , respectively, which resulted in an effective tax rate of 18.2% for the three months endedSeptember 30, 2021 and an effective tax rate of 29.5% for the three months endedSeptember 30, 2020 . The decrease in the effective tax rate for the three months endedSeptember 30, 2021 is attributable to the timing of current period and full year projected results. Net Loss Net loss of$9.0 million for the three months endedSeptember 30, 2021 represented a$6.3 million improvement from net loss of$15.3 million for the comparable period in 2020. The key driver of the improvement was the increase in revenue, partly offset by the reduction in other income related to event cancellation insurance proceeds deemed realizable by management, higher cost of revenues and selling, general and administrative expense and lower benefit from income taxes during the three months endedSeptember 30, 2021 .
Adjusted EBITDA
Adjusted EBITDA of$9.4 million for the three months endedSeptember 30, 2021 increased by$12.6 million , from negative$3.2 million for the comparable period in 2020. The increase in Adjusted EBITDA was primarily attributable to a$6.3 million decrease in net loss during the period and higher deductions for stock-based compensation and other items, as well as a decrease in the amount of benefit from income taxes. 47
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Nine Months Ended
The tables in this section summarize key components of our results of operations for the periods indicated:
Nine Months Ended
September 30,
2020
2021 (As Restated) Variance $ Variance %
(unaudited)
(dollars in millions)
Statement of loss and comprehensive loss
data:
Revenues $ 104.4 $ 115.2 $ (10.8 ) (9.4 %)
Other income 17.5 64.3 (46.8 ) (72.8 %)
Cost of revenues 41.3 47.1 (5.8 ) (12.3 %)
Selling, general and administrative
expenses(1) 102.7 88.8 13.9 15.7 %
Depreciation and amortization expense 36.1 37.2 (1.1 ) (3.0 %)
Goodwill impairment charge(2) - 588.2 (588.2 ) NM
Intangible asset impairment charges(3) - 59.4 (59.4 ) NM
Operating loss (58.2 ) (641.2 ) 583.0 (90.9 %)
Interest expense 12.0 16.5 (4.5 ) (27.3 %)
Loss before income taxes (70.2 ) (657.7 ) 587.5 (89.3 %)
Provision for (benefit from) income
taxes 0.6 (58.0 ) 58.6 NM
Net loss and comprehensive loss $ (70.8 ) $ (599.7 ) $ 528.9 (88.2 %)
Other financial data (unaudited):
Adjusted EBITDA(4) $ (6.9 ) $ 53.6 $ (60.5 ) NM
Free Cash Flow(5) $ 32.1 $ (45.8 ) $ 77.9 NM
Organic revenue(6) $ 31.7 $ 34.7 $ (3.0 ) (8.6 %)
(1) Selling, general and administrative expenses for the nine months ended
respectively, in acquisition-related transaction, transition and integration
costs, including legal and advisory fees. Also included in selling, general
and administrative expenses for the nine months ended
2020 were stock-based compensation expenses of
respectively.
(2)
represents a non-cash charge of
(3) Intangible asset impairment charges for the nine months ended
2020 represent non-cash charges of
certain indefinite-lived intangible assets and definite-lived intangible
assets, respectively, in connection with the Company's interim testing of
intangibles for impairment.
48
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(4) For a definition of Adjusted EBITDA and the reasons management uses this
metric, see footnote 2 to the table under the heading "- Results of
Operations - Three Months Ended
Ended September 30, 2020 ."
Nine Months Ended
September 30,
2020
2021 (As Restated)
(unaudited)
(dollars in millions)
Net loss $ (70.8 ) $ (599.7 )
Add:
Interest expense 12.0 16.5
Provision for (benefit from) income taxes 0.6 (58.0 )
Goodwill impairment charge(a) - 588.2
Intangible asset impairment charge(b) - 59.4
Depreciation and amortization expense 36.1 37.2
Stock-based compensation expense(c) 8.2 4.2
Deferred revenue adjustment(d) 1.4 -
Other items(e) 5.6 5.8
Adjusted EBITDA $ (6.9 ) $ 53.6
(a) Represents non-cash goodwill impairment charges for the nine months ended
goodwill for impairment.
(b) Represents non-cash intangible asset impairment charges for the nine months
ended
definite-lived intangible assets of
respectively, in connection with the Company's interim testing of intangibles
for impairment.
(c) Represents costs related to stock-based compensation associated with certain
employees' participation in the 2013 Plan, the 2017 Plan and the ESPP.
(d) Represents deferred revenue acquired in the PlumRiver acquisition that was
recorded at the acquisition date fair value in accordance with purchase
accounting rules. If the business had been continuously owned by us
throughout the periods presented, the fair value adjustments of
for PlumRiver for the nine months ended
been required and the revenues for the nine months ended
would have been higher by
(e) Other items for the nine months ended
million in expense related to the remeasurement of contingent consideration,
(ii) 2.2 million in non-recurring legal, audit and consulting fees, (iii)
(iv)
EDspaces and Sue Bryce Education acquisitions. Other items for the nine
months ended
costs, including one-time severance expense of
million in non-recurring legal, audit and consulting fees and (iii)
million in transaction costs in connection with certain acquisition
transactions offset by (iv)
remeasurement of contingent consideration.
(5) 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 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 and
strategic initiatives, including investing in our business, payment of
dividends, making strategic acquisitions and strengthening our balance sheet.
49
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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 cash flows from
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.
Nine Months Ended
September 30,
2021 2020
(unaudited)
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities $ 36.3 $ (42.7 )
Less:
Capital expenditures 4.2 3.1
Free Cash Flow $ 32.1 $ (45.8 ) (6) For a definition of Adjusted Organic revenue and the reasons management uses
this metric, see footnote 3 to the table under the heading "-Results of
Operations-Three Months Ended
Ended September 30, 2020 ."
Nine Months Ended
September 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Revenues $ 104.4 $ 115.2 $ (10.8 ) (9.4 %)
Add (deduct):
Acquisition revenues (9.3 ) - (9.3 )
Discontinued events - (4.8 ) 4.8
COVID-19 prior year
cancellations(a) (63.4 ) - (63.4 )
COVID-19 current year
cancellations (b) - (75.7 ) 75.7
Organic revenues $ 31.7 $ 34.7 $ (3.0 ) (8.6 %)
(a) Represents the increase in 2021 revenues as a result of events that staged in
the current year and were cancelled due to COVID-19 in the prior year.
(b) Represents reduction in revenues as a result of the cancellation of certain
events in the first, second and third quarters of fiscal 2021 due to
COVID-19, compared to all events that staged in the first nine months of
2020. The Company believes the financial impact of such cancellations, net of
costs saved, will be partially offset by event cancellation insurance
proceeds from pending claims.
Revenues
Revenues of$104.4 million for the nine months endedSeptember 30, 2021 decreased$10.8 million , or 9.4%, from$115.2 million for the comparable period in 2020, primarily due to the negative impact of COVID-19 and the related cancellation and rescheduling of certain events. See "Commerce Segment - Revenues," "Design 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 For the nine months endedSeptember 30, 2021 , other income of$17.5 million was recorded related to event cancellation insurance claims proceeds, all of which was received during the period. Other income of$64.3 million was recorded related to event cancellation insurance claims proceeds, of which$54.8 million was received and$9.5 million was confirmed by the insurance provider during the nine months endedSeptember 30, 2020 . All$9.5 million of insurance receivables as ofSeptember 30, 2020 were received inOctober 2020 . See "Commerce Segment - Revenues," "Design and Technology Segment - Revenues," and "All Other Category - Revenues" below for a discussion of other income by segment. 50 --------------------------------------------------------------------------------
Cost of Revenues
Cost of revenues of$41.3 million for the nine months endedSeptember 30, 2021 decreased$5.8 million , or 12.3%, from$47.1 million for the comparable period in 2020. See "Commerce Segment - Cost of Revenues," "Design 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 expenses consist 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$102.7 million for the nine months endedSeptember 30, 2021 increased$13.9 million , or 15.7%, from$88.8 million for the comparable period in 2020. See "Commerce Segment - Selling, General and Administrative Expenses", "Design and Technology Segment - Selling, General and Administrative Expenses", "All Other category - Selling, General and Administrative Expenses" and "Corporate - Selling, General and Administrative Expenses" below for a discussion of the factors contributing to the changes in total selling, general and administrative expenses.
Depreciation and Amortization Expense
Depreciation and amortization expense of$36.1 million for the nine monthsSeptember 30, 2021 decreased$1.1 million , or 3.0%, from$37.2 million for the comparable period in 2020. See "Commerce Segment - Depreciation and Amortization Expense," "Design 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 Nine Months Ended
Commerce
The following represents the change in revenue, expenses and operating loss in the Commerce reportable segment for the nine months endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, 2020 2021 (As Restated) Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 50.5 $ 52.7$ (2.2 ) (4.2 %) Other income 8.3 45.3 (37.0 ) (81.7 %) Cost of revenues 17.4 20.5 (3.1 ) (15.1 %) Selling, general and administrative expenses 19.2 22.3 (3.1 ) (13.9 %) Depreciation and amortization expense 18.6 20.7 (2.1 ) (10.1 %) Goodwill impairment charge - 354.1 (354.1 ) NM Intangible asset impairment charges - 30.7 (30.7 ) NM Operating income (loss)$ 3.6 $ (350.3 ) $ 353.9 NM 51
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Revenues During the nine months endedSeptember 30, 2021 , revenues for the Commerce reportable segment decreased$2.2 million , or 4.2%, to$50.5 million from$52.7 million for the comparable period in the prior year. The primary drivers of the decrease were a$38.7 million decline in revenues for events that staged in the nine months endedSeptember 30, 2020 but were cancelled due to COVID-19 in the comparable period in 2021, a$3.6 million decline in organic revenues primarily comprised of lower revenues from an event that staged in early 2021 and$2.1 million in revenue for discontinued virtual events and other marketing services. These declines were offset by an increase in revenues of$42.0 million for events that staged during the nine months endedSeptember 30, 2021 but were cancelled due to COVID-19 in the comparable prior year period.
Other Income
During the nine months endedSeptember 30, 2021 other income for the Commerce reportable segment decreased$37.0 million , or 81.7%, to$8.3 million from$45.3 million for the comparable period in the prior year. Other income for both periods related to event cancellation insurance claim proceeds received or confirmed by the insurance provider during the period. All event cancellation insurance proceeds recognized as other income for the Commerce reportable segment during the nine months endedSeptember 30, 2021 were received during the period. Cost of Revenues During the nine months endedSeptember 30, 2021 , cost of revenues for the Commerce reportable segment decreased$3.1 million , or 15.1%, to$17.4 million from$20.5 million for the comparable period in the prior year. The primary drivers of the decrease were a$14.8 million decline in expense for events that were cancelled due to COVID-19 in the nine months endedSeptember 30, 2021 , but staged in 2020, a$0.9 million decline in expense for discontinued virtual events and other marketing services and a$0.2 million decline in cost of organic revenues. These declines were offset by an increase in revenues of$42.0 million for events that staged in the nine months endedSeptember 30, 2021 but were cancelled due to COVID-19 in the comparable period of 2020.
Selling, General and Administrative Expense
During the nine months endedSeptember 30, 2021 , selling, general and administrative expenses for the Commerce reportable segment decreased$3.1 million , or 13.9%, to$19.2 million from$22.3 million for the comparable period in 2020. The decrease was primarily driven by lower compensation and benefits expense attributable to the centralization initiatives implemented over the prior year, lower sales commissions related to lower revenues, avoided promotional and travel costs related to cancelled events, as well as credit card fee savings during the nine months endedSeptember 30, 2021 .
Depreciation and Amortization Expense
During the nine months endedSeptember 30, 2021 , depreciation and amortization expense for the Commerce reportable segment decreased$2.1 million , or 10.1%, to$18.6 million from$20.7 million for the comparable period in 2020. The decrease was attributable to the definite-lived intangible asset impairment charges recorded in the first and fourth quarters of 2020.
Goodwill Impairment
In the first quarter of 2020, in connection with a triggering event caused by the impact of the COVID-19 pandemic on the travel and events industry, the Company's forecasted results and the market value of its common stock, management performed an interim goodwill impairment assessment. As a result of this assessment, a$354.1 million non-cash goodwill impairment charge was recorded in connection with reporting units under the Commerce segment. 52 --------------------------------------------------------------------------------
Intangible Asset Impairments In connection with the triggering event described above, management performed impairment assessments of long-lived assets and indefinite-lived intangible assets during the first quarter of 2020 and recognized a non-cash impairment charge related to long-lived assets and indefinite-lived intangible assets under the Commerce segment of$6.7 million and$24.0 million , respectively.
Design and Technology
The following represents the change in revenue, expenses and operating loss in the Design and Technology reportable segment for the nine months endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, 2020 2021 (As Restated) Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 30.5 $ 45.7$ (15.2 ) (33.3 %) Other income 5.4 16.0 (10.6 ) (66.3 %) Cost of revenues 15.6 20.0 (4.4 ) (22.0 %) Selling, general and administrative expenses 16.2 17.6 (1.4 ) (8.0 %) Depreciation and amortization expense 11.2 12.4 (1.2 ) (9.7 %) Goodwill impairment charge - 203.9 (203.9 ) NM Intangible asset impairment charges - 22.7 (22.7 ) NM Operating loss$ (7.1 ) $ (214.9 ) $ 207.8 NM Revenues During the nine months endedSeptember 30, 2021 revenues for the Design and Technology reportable segment decreased$15.2 million , or 33.3%, to$30.5 million from$45.7 million for the comparable period in 2020. The primary drivers of the decrease were a$30.3 million decline in revenues for events that were cancelled due to COVID-19 in the nine months endedSeptember 30, 2021 , but staged in the comparable period in 2020, and a$2.4 million decline relating to discontinued virtual events and lower other marketing services revenue. These declines were offset by increases in revenues of$17.3 million for events that staged in the nine months endedSeptember 30, 2021 but were cancelled due to COVID-19 in 2020, and a$0.6 million increase in organic revenues.
Other Income
During the nine months endedSeptember 30, 2021 other income for the Design and Technology reportable segment decreased$10.6 million , or 66.3%, to$5.4 million from$16.0 million for the comparable period in the prior year. Other income for both nine month periods related to event cancellation insurance claim proceeds received or confirmed by the insurance provider during the period. All event cancellation insurance proceeds recognized as other income for the All Other category during the nine months endedSeptember 30, 2021 were received during the period. Of the$16.0 million of other income recorded during the nine months endedSeptember 30, 2020 ,$14.2 million was received and$1.8 million was confirmed by the insurance provider during the period. All$1.8 million of insurance receivables as ofSeptember 30, 2020 was received inOctober 2020 .
Cost of Revenues
During the nine months endedSeptember 30, 2021 cost of revenues for the Design and Technology reportable segment decreased$4.4 million , or 22.0%, to$15.6 million from$20.0 million for the comparable period in 2020. The primary drivers of the decline were a decrease of$13.7 million in expense for events that were cancelled due to COVID-19 in the nine months endedSeptember 30, 2021 , but staged in 2020, and a$0.4 million decrease in the amount of expense for discontinued virtual events and other marketing services compared to the prior year period. These declines were offset by an increase in expense of$8.8 million related to events that staged in the nine months endedSeptember 30, 2021 but were cancelled due to COVID-19 in 2020, and$0.8 million of expense related to an event that cancelled immediately prior to its scheduled date in the third quarter of 2021 due to COVID-19. 53 --------------------------------------------------------------------------------
Selling, General and Administrative Expense
During the nine months endedSeptember 30, 2021 selling, general and administrative expenses for the Design and Technology reportable segment decreased$1.4 million , or 8.0%, to$16.2 million from$17.6 million for the comparable period in 2020. The decrease was primarily related to lower compensation and benefits expense attributable to the centralization initiatives implemented over the prior year, lower sales commissions related to lower revenues, avoided promotional and travel costs related to cancelled events, as well as credit card fee savings during the nine months endedSeptember 30, 2021 .
Depreciation and Amortization Expense
During the nine months endedSeptember 30, 2021 depreciation and amortization expense for the Design and Technology reportable segment decreased$1.2 million , or 9.7%, to$11.2 million from$12.4 million for the comparable period in 2020. The decrease was attributable to the definite-lived intangible asset impairment charges recorded in the first and fourth quarters of 2020.
Goodwill Impairment
In the first quarter of 2020, in connection with a triggering event caused by the impact of the COVID-19 crisis on the travel and events industry, the Company's forecasted results and the market value of its common stock, management performed an interim goodwill impairment assessment. As a result of this assessment, a$203.9 million non-cash goodwill impairment charge was recorded in connection with reporting units under the Design and Technology segment. Intangible Asset Impairments In connection with the triggering event described above, management performed impairment assessments of long-lived assets and indefinite-lived intangible assets during the first quarter of 2020, and recognized a non-cash impairment charge related to long-lived assets and indefinite-lived intangible assets under the Design and Technology segment of$5.7 million and$17.0 million , respectively.
All Other Category
The following represents the change in revenue, expenses and operating loss in the All Other category for the nine months endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, 2020 2021 (As Restated) Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 23.4 $ 16.8$ 6.6 39.3 % Other income 3.8 3.0 0.8 26.7 % Cost of revenues 8.4 6.6 1.8 27.3 % Selling, general and administrative expenses 19.0 10.1 8.9 88.1 % Depreciation and amortization expense 4.5 2.0 2.5 125.0 % Goodwill impairment charge - 30.2 (30.2 ) NM Intangible asset impairment charges - 6.0 (6.0 ) NM Operating loss$ (4.7 ) $ (35.1 )$ 30.4 (86.6 %) 54
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Revenues During the nine months endedSeptember 30, 2021 revenues for the All Other category increased$6.6 million , or 39.3%, to$23.4 million from$16.8 million for the comparable period in 2020. The primary drivers of the increase were incremental revenues of$9.3 million from the acquisitions of PlumRiver andSue Bryce , which closed inDecember 2020 andApril 2021 , respectively,$4.1 million of revenue derived from events that staged in the nine months endedSeptember 30, 2021 but were cancelled due to COVID-19 in 2020, and a$0.3 million organic revenues increase. These increases were offset by decreases in revenues of$6.6 million for events that staged in the nine months endedSeptember 30, 2020 but were cancelled due to COVID-19 in 2021 and a$0.3 million decline attributable to discontinued other marketing services.
Other Income
During the nine months endedSeptember 30, 2021 other income for the All Other category increased$0.8 million , or 26.7%, to$3.8 million from$3.0 million for the comparable period in the prior year. Other income for both nine-month periods related to event cancellation insurance claim proceeds received or confirmed by the insurance provider during the period. All event cancellation insurance proceeds recognized as other income for the All Other category during the nine months endedSeptember 30, 2021 were received during the period. Of the$3.0 million of other income recorded during the nine months endedSeptember 30, 2020 ,$2.5 million was received and$0.5 million was confirmed by the insurance provider during the period. All$0.5 million of insurance receivables as ofSeptember 30, 2020 was received inOctober 2020 .
Cost of Revenues
During the nine months endedSeptember 30, 2021 cost of revenues for the All Other category increased$1.8 million , or 27.3%, to$8.4 million from$6.1 million for the comparable period in 2020. The primary drivers of the increase were$1.9 million in additional expense for events that staged in the nine months endedSeptember 30, 2021 , but were cancelled due to COVID-19 in 2020,$1.4 million for events that staged in 2021 but were cancelled due to COVID-19 in 2020, and incremental costs of$1.0 million from the acquisitions of PlumRiver andSue Bryce , which closed inDecember 2020 andApril 2021 , respectively. These increases were partly offset by decreases of$2.0 million in expense related to events that were cancelled due to COVID-19 in the nine months endedSeptember 30, 2021 , but staged in the comparable period of 2020,$0.3 million decrease in organic expense and a decrease of$0.2 million in expense related to discontinued virtual events and other marketing services.
Selling, General and Administrative Expense
During the nine months endedSeptember 30, 2021 selling, general and administrative expenses for the All Other category increased$8.9 million , or 88.1%, to$19.0 million from$10.1 million for the comparable period in 2020. The increase in selling, general and administrative expense was primarily driven by the acquisitions of PlumRiver andSue Bryce inDecember 2020 andApril 2021 , respectively. These increases were offset by lower promotional and credit card fee expenses due to the cancellation and postponement of events during the nine months endedSeptember 30, 2021 .
Depreciation and Amortization Expense
During the nine months endedSeptember 30, 2021 depreciation and amortization expense for the All Other category increased$2.5 million , or 125%, to$4.5 million from$2.0 million for the comparable period in 2020. The increase was primarily attributable to definite-lived intangible assets acquired in the PlumRiver andSue Bryce acquisitions.
Goodwill Impairment
In the first quarter of 2020, in connection with a triggering event caused by the impact of the COVID-19 pandemic on the travel and events industry, the Company's forecasted results and the market value of its common stock, management performed an interim goodwill impairment assessment. As a result of this assessment, a$30.2 million non-cash goodwill impairment charge was recorded in connection with reporting units under the All Other category.
Intangible Asset Impairments
In connection with the triggering event described above, management performed
impairment assessments of long-lived assets and indefinite-lived intangible
assets during the first quarter of 2020, and recognized a non-cash impairment
charge related to
55
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long-lived assets and indefinite-lived intangible assets under the All Other
category of
Corporate Category
The following represents the change in operating expenses in the Corporate
category for the nine months ended
Nine Months Ended
September 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Selling, general and
administrative
expenses 48.3 38.9 9.4 24.2 %
Depreciation and amortization
expense 1.8 2.1 (0.3 ) (14.3 %)
Total operating expenses $ 50.1 $ 41.0 $ 9.1 22.2 %
Selling, General and Administrative Expense
During the nine months endedSeptember 30, 2021 selling, general and administrative expenses for the Corporate category increased$9.4 million , or 24.2%, to$48.3 million from$38.9 million for the comparable period in 2020. The increase was primarily attributable to higher compensation and benefits expenses related to the centralization initiatives implemented over the last year and increased stock-based compensation expenses during the nine-months endedSeptember 30, 2021 . The increase in stock-based compensation expense is primarily due to stock option and restricted stock unit grants made in the first quarter of 2021. These increases were offset by lower one-time severance expense.
Depreciation and Amortization Expense
During the nine months endedSeptember 30, 2021 depreciation and amortization expense for the Corporate category decreased$0.3 million , or 14.3%, to$1.8 million from$2.1 million for the comparable period in 2020.
Interest Expense
Interest expense of$12.0 million for the nine months endedSeptember 30, 2021 decreased$4.5 million , or 27.3%, from$16.5 million for the comparable period in 2020. The decrease was primarily attributable to a decrease in the variable interest rate on our Amended and Restated Term Loan Facility, for which the average rate during the nine months endedSeptember 30, 2021 was 2.61%, compared to 3.49% during the nine months endedSeptember 30, 2020 . In addition, interest expense related to the revolving credit facility decreased$0.9 million during the nine months endedSeptember 30, 2021 .
Provision for (Benefit from) Income Taxes
For the nine months endedSeptember 30, 2021 and 2020, the Company recorded a provision for income taxes of$0.6 million and benefit from income taxes of$58.0 million , respectively, which resulted in an effective tax rate of negative 0.9% for the nine months endedSeptember 30, 2021 and an effective tax rate of 9.2% for the nine months endedSeptember 30, 2020 . The decrease in the effective tax rate for the nine months endedSeptember 30, 2021 is attributable to the timing of current period and full year projected results.
Net Loss
Net loss of$70.8 million for the nine months endedSeptember 30, 2021 represented a$528.9 million improvement from net loss of$599.7 million for the comparable period in 2020. Key drivers of the year-over-year decrease in net loss were the absence of non-cash goodwill and intangible asset impairment charges in the current year and lower cost of revenues and lower interest expense in the current year period, partly offset by the impact of lower cost of revenues and the decrease in benefit from income taxes in the nine months endedSeptember 30, 2021 compared to 2020. 56 --------------------------------------------------------------------------------
Adjusted EBITDA
Adjusted EBITDA of negative$6.9 million for the nine months endedSeptember 30, 2021 decreased by$60.5 million , from Adjusted EBITDA of$53.6 million for the comparable period in 2020. The decrease in Adjusted EBITDA, was mainly driven by lower other income related to event cancellation insurance proceeds and the cancellation or postponement of nearly all live events scheduled to stage in the first six months of 2021. These declines were offset by Adjusted EBITDA from the 32 in-person events that staged during the third quarter of 2021.
Liquidity and Capital Resources
InMarch 2020 , theWorld Health Organization categorized the Coronavirus Disease 2019 ("COVID-19") as a pandemic, and the President ofthe United States declared the COVID-19 outbreak a national emergency. In conjunction with this declaration and the spread of COVID-19 acrossthe United States , recommendations and mandates were handed down by various local, state and federal government agencies regarding social distancing, containment areas and against large gatherings, as well as quarantine requirements. In addition, travel restrictions were imposed bythe United States and foreign governments, and by companies with respect to their employees, and various event venues announced indefinite closures. As a result of these and various other factors, management made the decision to cancel substantially all of the Company's face-to-face events scheduled through the end of 2020. In addition, beginning inOctober 2020 , management announced the cancellation or postponement of numerous live events that were scheduled for the first half of 2021. Following the reopening of most major municipalities inthe United States inJune 2021 , the Company traded 32 in-person events during the third quarter. As expected, the continued effects of COVID-19 related issues such as international travel restrictions and the need to postpone several of our events, negatively impacted the financial results of our third quarter. While travel restrictions on international travelers tothe United States are expected to be lifted in the fourth quarter of 2021, the ongoing effects of COVID-19 on the Company's operations and event calendar have had, and will continue to have, a material negative impact on its financial results and liquidity, and such negative impact may continue beyond the containment of such outbreak. The assumptions used to estimate the Company's liquidity are subject to greater uncertainty because the Company has never previously cancelled or postponed all upcoming events for a period of over a year due to a pandemic where the timing for resolution and ultimate impact of the pandemic remains uncertain. Management cannot estimate with certainty (i) when the Company will be able to resume full event operations and, once resumed, (ii) whether event exhibitors and attendees will attend the Company's events. Therefore, current estimates of revenues and the associated impact on liquidity could differ materially in the future. As a consequence, management cannot estimate the ultimate impact on the Company's business, financial condition or near or longer term financial or operational results, but a net loss on a GAAP basis for the year endedDecember 31, 2021 is expected. During the year endedDecember 31, 2020 , the Company implemented several actions to preserve cash and strengthen its liquidity position, including, but not limited to:
• Completing the sale of its 7% Series A Convertible Participating Preferred
Stock, generating net proceeds of
• Reducing its expense structure across all key areas of discretionary
spending;
• Significantly reducing the use of outside contractors; and
• Suspending the previous quarterly cash dividend.
Further, Emerald maintains event cancellation insurance to protect against losses due to the unavoidable cancellation, postponement, relocation and enforced reduced attendance at events due to certain covered events. Specifically, through the end of 2021 Emerald is insured for losses due to event cancellations caused by the outbreak of communicable diseases, including COVID-19.
The aggregate limit under these event cancellation insurance policies is approximately$191.1 million in 2020 and$191.4 million in 2021 if losses arise for reasons within the scope of this policy. In addition to this primary policy, Emerald maintains a separate event cancellation insurance policy for the Surf Expo Summer 2020 and Surf Expo Winter 2021 shows, with a coverage limit of$6.0 million and$7.7 million , for each respective event. The Company is in the process of pursuing claims under these insurance policies to offset the financial impact of cancelled and postponed events as a result of COVID-19. To date, the Company has submitted claims related to impacted or cancelled events previously scheduled to take place in 2020 and 2021 of$166.8 million and$76.2 million , respectively. Other income recognized to date, related to insurance proceeds received or confirmed on the claims related to events previously scheduled to take place 2020 and 2021, totaled$124.5 million and zero, respectively. During the three and nine months endedSeptember 30, 2021 , the Company recorded other income of$1.1 million and$17.5 million , respectively, related to event cancellation insurance claim proceeds deemed to be realizable by management. During each of the three and nine months 57 -------------------------------------------------------------------------------- endedSeptember 30, 2020 , the Company recorded other income of$16.1 million and$64.3 million , respectively, related to event cancellation insurance claim proceeds deemed to be realizable by management. Outstanding claims are subject to review and adjustment and there is no guarantee or assurance as to the amount or timing of future recoveries from Emerald's event cancellation insurance policy. OnMarch 27, 2020 , theU.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which provides for the ability of employers to delay payment of employer payroll taxes during 2020 after the date of enactment. The Company deferred the payment of more than$1.9 million of employer payroll taxes otherwise due in 2020, with 50% due byDecember 31, 2021 and the remaining 50% due byDecember 31, 2022 . As ofSeptember 30, 2021 , the Company had$521.0 million of borrowings outstanding under the Amended and Restated Term Loan Facility and no borrowings outstanding under the Revolving Credit Facility. In addition, as ofSeptember 30, 2021 , the Company had cash and cash equivalents of$303.6 million . As ofSeptember 30, 2021 , the Company was in compliance with the covenants contained in the Amended and Restated Senior Secured Credit Facilities. Based on these actions, assumptions regarding the impact of COVID-19, and expected insurance recoveries, management believes that the Company's current financial resources will be sufficient to fund its liquidity requirements for the next twelve months.
Previous Share Repurchase Programs
Our Board of Directors previously approved a$20.0 million share repurchase program in the fourth quarter of 2018 and a$30.0 million share repurchase program in the third quarter of 2019. We settled the repurchase of no shares and 14,988 shares of our common stock for zero and$0.1 million during the three and nine months endedSeptember 30, 2020 , respectively.
New Share Repurchase Plan
OnOctober 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 includingDecember 31, 2021 , subject to early termination or extension by the Board, through open market purchases, block transactions, privately negotiated purchases or otherwise. We settled the repurchase of 1,193,861 shares and 2,122,964 shares of our common stock for$5.5 million and$10.6 million during the three months endedSeptember 30, 2021 , respectively. There was$8.7 million remaining available for share repurchases under theOctober 2020 Share Repurchase Program as ofSeptember 30, 2021 . OnOctober 29, 2021 , our Board approved extension and expansion of theOctober 2020 share repurchase program, which allows for the repurchase of$20.0 million of our Common Stock throughDecember 31, 2022 , subject to early termination or extension by the Board. The share repurchase program may be suspended or discontinued at any time without notice.
Suspension of Dividend Policy
OnMarch 20, 2020 , due to the negative impact of COVID-19 on our business, the Board temporarily suspended the Company's regular quarterly cash dividend on its common stock. The payment of dividends in future quarters is subject to the discretion of our Board and depending upon our results of operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by applicable laws and other factors that our Board may deem relevant. Our business is conducted through our subsidiaries. Dividends, distributions and other payments from, and cash generated by, our subsidiaries will be our principal sources of cash to repay indebtedness, fund operations and pay dividends. Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and distributions of funds from our subsidiaries. In addition, the covenants in the agreements governing our existing indebtedness, including the Amended and Restated Senior Secured Credit Facilities, significantly restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us. We cannot assure you that we will resume paying dividends on our common stock in the future, and our indebtedness could limit our ability to pay dividends on our common stock. 58
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