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 for the year endedDecember 31, 2021 (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 Q4 2021 revision of our 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
Emerald is 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
those who have the authority to make purchasing decisions on the spot or
subsequent to the show. The participation of these attendees makes our trade
shows "must-attend" events for our exhibitors, further reinforcing the leading
positions of our trade shows within their respective industry verticals. Our
attendees use our shows to fulfill procurement needs, source new suppliers,
reconnect with existing suppliers, identify trends, learn about new products and
network with industry peers, which we believe are factors that make our shows
difficult to replace with non-face-to-face events. Our portfolio of trade shows
is well-balanced and diversified across both industry sectors and customers.
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 event sector. We
also offer business-to-business ("B2B") commerce and digital merchandising
solutions, serving the needs of manufacturers and retailers, through our Elastic
Suite platform creating a digital year-round transactional platform for use by
Emerald's customers regardless of their location. In addition to their
respective revenues, these products complement our live events by delivering
year-round channels for customer acquisition and development.
Reportable Segments
As described in Note 15, Segment Information, to our condensed consolidated
financial statements included herein, 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 seven executive
brand portfolios, which represent our seven operating segments. Based on an
evaluation of economic similarities and the nature of services and types of
customers, five of these operating segments have been aggregated into two
reportable segments, the Commerce reportable segment and the Design, Creative
and Technology reportable segment. The remaining two operating segments do not
meet the quantitative thresholds to be considered reportable 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. Prior year disclosures below have been updated to
reflect the current reportable segment structure described in Note 15, Segment
Information.
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The following discussion provides additional detailed disclosure for the two
reportable segments, the All Other category and the Corporate-Level Activity
category:
Commerce: This segment includes events and services covering merchandising, licensing, retail sourcing and marketing to enable professionals to make informed decisions and meet consumer demands.
Design, Creative and Technology: This segment includes events and services that support a wide variety of industries connecting businesses and professionals with products, operational strategies, and integration opportunities to drive new business and streamline processes and creative solutions. All Other: This category consists of Emerald's remaining operating segments, which provide diverse events, services and eCommerce software solutions but are not aggregated with the reportable segments. Each of the operating segments in the All Other category do not meet the criteria to be a separate reportable segment.
Corporate-Level Activity: This category consists of Emerald's finance, legal, information technology and administrative functions.
Organic Growth Drivers
We are primarily focused on generating organic growth by understanding and leveraging the drivers for increased exhibitor and attendee participation at trade shows and providing year-round services that provide incremental value to those customers. Creating new opportunities for exhibitors to influence their market, engage and transact 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, attendee registration and eCommerce software subscriptions.
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 24 strategic acquisitions, with purchase prices, excluding the$335.0 million acquisition ofGeorge Little Management ("GLM"), ranging from approximately$5.0 million to approximately$151.1 million , and annual revenues ranging from approximately$1.0 million to approximately$25.6 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. 32 --------------------------------------------------------------------------------
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 - The unprecedented and rapid spread of COVID-19 and the related government restrictions and social distancing measures implemented inthe United States and throughout the world significantly impacted Emerald's business frommid-March 2020 through the end of fiscal 2021. Late in the second quarter of 2021, management began to see the positive impacts of successful vaccination rollouts in many countries, with social distancing restrictions easing and live events resuming inthe United States . In the second half of 2021, Emerald's live events business experienced a meaningful restart with the successful execution of 56 in-person events, serving more than 129,000 attendees and 7,500 exhibiting companies. We entered 2022 planning to stage a full slate of events and successfully traded 84 in-person events during the first nine months of the year, serving more than 282,300 attendees and 13,300 exhibiting companies. While we have been able to resume our full schedule of events during 2022, the ongoing effects of COVID-19 on our operations have had, and will continue to have, a significant negative impact on our financial results and liquidity, and such negative impact may continue beyond the containment of the COVID-19 pandemic.
•
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. These acquisitions 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.
•
Increases in Inflation and Interest Rates - Heightened levels of inflation present risk for us in terms of increased labor costs, venue costs and other expenses that may not be able to be passed on to customers through increased pricing. In addition, due to inflationary pressures, rising interest rates may increase our financing and borrowing costs on new and existing debt.
•
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 fourth quarters of each calendar year, and their lowest level during the third quarter, entirely due to the timing of our trade shows. This seasonality is typical within the trade show industry. However, as a result of outside circumstances such as the COVID-19 pandemic, 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 and Organic revenue 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 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.
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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 in the 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, 2022 compared to the Three Months EndedSeptember 30, 2021 ".
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, who primarily contract directly with the general service 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 who have a 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 who are involved 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 two 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. Adjusted EBITDA Adjusted EBITDA is a key measure of our performance. Adjusted EBITDA is defined as net income (loss) 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 income
(loss). For a reconciliation of Adjusted EBITDA to net income (loss), see
Footnote 2 to the table under the heading "-Results of Operations- Three Months
Ended
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 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
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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 Ended September 30, 2022 Compared to Nine
Months Ended September 30, 2021 ."
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,
2022 2021 Variance $ Variance %
(unaudited)
(dollars in millions)
Statement of income (loss) and
comprehensive
income (loss) data:
Revenues $ 62.4 $ 76.5 $ (14.1 ) (18.4 %)
Other income, net 151.0 1.1 149.9 NM
Cost of revenues 22.7 33.7 (11.0 ) (32.6 %)
Selling, general and administrative
expense(1) 48.7 38.8 9.9 25.5 %
Depreciation and amortization expense 14.7 12.2 2.5 20.5 %
Operating income (loss) 127.3 (7.1 ) 134.4 NM
Interest expense 6.8 3.9 2.9 74.4 %
Interest income 0.8 - 0.8 NM
Other expense 0.1 - 0.1 NM
Income (loss) before income taxes 121.2 (11.0 ) 132.2 NM
Provision for (benefit from) income
taxes 28.2 (2.0 ) 30.2 (1510.0 %)
Net income (loss) and comprehensive
income (loss) $ 93.0 $ (9.0 ) $ 102.0 NM
Other financial data (unaudited):
Adjusted EBITDA(2) $ 149.7 $ 8.6 $ 141.1 NM
Organic Revenue(3) $ 56.6 $ 42.4 $ 14.2 33.5 %
(1)
Selling, general and administrative expense for the three months ended September
30, 2022 and 2021 included $6.3 million and $1.4 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 September 30, 2022 and 2021 were stock-based
compensation expenses of $1.3 million and $2.4 million , respectively.
(2)
In addition to net income (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 income (loss), cash
flows from operating activities or other measures determined in accordance
36
--------------------------------------------------------------------------------with GAAP. Also, Adjusted EBITDA is not necessarily comparable to similarly titled measures presented by other companies.
We define Adjusted EBITDA as net income (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,
2022 2021
(unaudited)
(dollars in millions)
Net income (loss) $ 93.0 $ (9.0 )
Add (deduct):
Interest expense, net 6.0 3.9
Provision for income taxes 28.2 (2.0 )
Depreciation and amortization expense 14.7 12.2
Stock-based compensation expense(a) 1.3
2.4
Deferred revenue adjustment(b) 0.2 0.3 Other items(c) 6.3 1.6 Scheduling adjustments - (0.8 ) Adjusted EBITDA 149.7 8.6 Deduct: Event cancellation insurance proceeds 151.0
1.1
Adjusted EBITDA excluding event cancellation insurance proceeds $ (1.3 )$ 7.5 (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 $0.2
million and $0.3 million for PlumRiver for the three months ended September 30,
2022 and 2021, would not have been required and the revenues for the three
months ended September 30, 2022 and 2021, would have been higher by $0.2
million .
(c)
Other items for the three months endedSeptember 30, 2022 included: (i)$3.7 million in gains related to the remeasurement of contingent consideration, (ii)$0.6 million in transaction costs, primarily in connection with the Advertising Week and Bulletin acquisitions; (iii)$0.8 million in non-recurring legal, audit and consulting fees, (iv)$1.6 million in transition expenses and (v)$7.0 million in insurance settlement related expenses. Other items for the three months endedSeptember 30, 2021 included: (i)$1.1 million in expense related to the remeasurement of contingent consideration, (ii)$0.4 million in non-recurring legal, audit and consulting fees and (iii)$0.1 million in transition costs in connection with previous acquisitions.
(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
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--------------------------------------------------------------------------------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,
2022 2021 Variance $ Variance %
(unaudited)
(dollars in millions)
Revenues $ 62.4 $ 76.5 $ (14.1 ) (18.4 %)
Add (deduct):
Acquisition revenues (2.6 ) -
COVID-19 prior year
cancellations(a) (3.2 ) -
COVID-19 prior year
postponements(b) - (32.8 )
Scheduling adjustments - (1.3 )
Organic revenues $ 56.6 $ 42.4 $ 14.2 33.5 %
(a)Represents the increase in 2022 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 the decrease in revenues from events that staged in the first half of 2022 but were postponed due to COVID-19 in the prior year and staged in the third quarter of 2021.
Revenues
Revenues of$62.4 million for the three months endedSeptember 30, 2022 decreased$14.1 million , from$76.5 million for the comparable period in 2021, primarily due to a more normal schedule of live events trading during the quarter. See "Commerce Segment - Revenues," "Design, Creative and Technology Segment - Revenues," and "All Other Category - Revenues" below for a discussion of the factors contributing to the changes in total revenues.
Other Income, net
Other income, net of$151.0 million during the three months endedSeptember 30, 2022 increased$149.9 million , from$1.1 million in the comparable period in 2021. Other income, net was related to event cancellation insurance claims proceeds, all of which were received during the three months endedSeptember 30, 2022 . See "Commerce Segment - Other Income, net," "Design, Creative and Technology Segment - Other Income, net," and "All Other Category - Other Income, net" below for a discussion of other income, net by segment.
Cost of Revenues
Cost of revenues of$22.7 million for the three months endedSeptember 30, 2022 decreased$11.0 million , from$33.7 million for the comparable period in 2021, primarily due to a more normal schedule of live events trading during the quarter. See "Commerce Segment - Cost of Revenues," "Design, Creative and Technology Segment - Cost of Revenues" and "All Other Category - Cost of Revenues" below for a discussion of the factors contributing to the changes in total cost of revenues.
Selling, General and Administrative Expense
Total selling, general and administrative expense consists primarily of compensation and employee-related costs, sales commissions and incentive plans, stock-based compensation expense, marketing expenses, information technology expenses, travel expenses, facilities costs, consulting fees and public reporting costs. Selling, general and administrative expenses of$48.7 million for the three months endedSeptember 30, 2022 increased$9.9 million , or 25.5%, from$38.8 million for the comparable period in 2021. See "Commerce Segment - Selling, General and Administrative Expenses", "Design, Creative and 38 -------------------------------------------------------------------------------- Technology Segment - Selling, General and Administrative Expenses", "All Other category - Selling, General and Administrative Expense" and "Corporate - Selling, General and Administrative Expense" below for a discussion of the factors contributing to the changes in total selling, general and administrative expense.
Depreciation and Amortization Expense
Depreciation and amortization expense of$14.7 million for the three months endedSeptember 30, 2022 , increased$2.5 million , or 20.5% from$12.2 million for the comparable period in 2021. See "Commerce Segment - Depreciation and Amortization Expense," "Design, Creative and Technology Segment - Depreciation and Amortization Expense," "All Other Category - Depreciation and Amortization Expense" and "Corporate - Depreciation and Amortization Expense" below for a discussion of the factors contributing to the changes in total depreciation and amortization expense.
Segment Results for the 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, 2022 and 2021: Three Months Ended September 30, 2022 2021 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 33.9 $ 38.8 $ (4.9 ) (12.6 %) Other income, net 2.4 1.1 1.3 118.2 % Cost of revenues 10.5 14.3 (3.8 ) (26.6 %) Selling, general and administrative expense 9.9 8.4 1.5 17.9 % Depreciation and amortization expense 8.1 5.9 2.2 37.3 % Operating income$ 7.8 $ 11.3 $ (3.5 ) (31.0 %) Revenues During the three months endedSeptember 30, 2022 , revenues for the Commerce reportable segment decreased$4.9 million , or 12.6%, to$33.9 million from$38.8 million for the comparable period in the prior year. The primary driver of the decrease was$11.5 million of prior year revenue generated by events that normally stage during the first half of the year but were postponed to the third quarter of 2021 due to COVID-19. Organic revenues increased by$6.9 million , or 26.5%, to$33.1 million from$26.1 million for the comparable period in the prior year. This growth was driven by a$7.1 million , or 28.5%, increase to$32.0 million from$24.9 million in trade show revenue from events that staged in the same period in both years, offset by lower other marketing services revenues. The acquisition of MJBiz generated incremental revenues of$0.8 million during the three months endedSeptember 30, 2022 . The Commerce reportable segment revenues were also reduced by a$1.1 million scheduling adjustment in the third quarter of 2022.
Other Income, net
Other income, net of$2.4 million was recorded for the Commerce reportable segment related to event cancellation insurance claims proceeds for the three months endedSeptember 30, 2022 . All of the$2.4 million of other income, net for the Commerce reportable segment was received during the three months endedSeptember 30, 2022 . Other income, net of$1.1 million was recorded for the Commerce reportable segment related to event cancellation insurance proceeds during the quarter endedSeptember 30, 2021 . All of the$1.1 million of other income, net for the Commerce reportable segment was received during the three months endedSeptember 30, 2021 .
Cost of Revenues
During the three months endedSeptember 30, 2022 , cost of revenues for the Commerce reportable segment decreased$3.8 million , or 26.6%, to$10.5 million from$14.3 million for the comparable period in the prior year. The primary driver of the decrease was$5.3 million of costs for events that normally stage during the first half of the year but were postponed to the third quarter of 2021 due to COVID-19 and a$1.0 million decrease in event cancellation charges. Organic cost of revenues increased 39 -------------------------------------------------------------------------------- by$2.6 million , or 35.1%, to$10.0 million from$7.4 million for the comparable period in the prior year. This growth was primarily driven by events that staged in same period in both years.
Selling, General and Administrative Expense
During the three months ended
Depreciation and Amortization Expense
During the three months endedSeptember 30, 2022 , depreciation and amortization expense for the Commerce reportable segment increased$2.2 million , or 37.3%, to$8.1 million from$5.9 million for the comparable period in 2021. The increase was driven by incremental amortization attributable to theDecember 2021 acquisition of MJBiz.
Design, Creative and Technology
The following represents the change in revenue, expenses and operating (loss) profit in the Design, Creative and Technology reportable segment for the three months endedSeptember 30, 2022 and 2021: Three Months Ended September 30, 2022 2021 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 23.0 $ 34.8 $ (11.8 ) (33.9 %) Cost of revenues 9.8 19.1 (9.3 ) (48.7 %) Selling, general and administrative expense 10.7 11.1 (0.4 ) (3.6 %) Depreciation and amortization expense 5.0 4.9 0.1 2.0 % Operating loss$ (2.5 ) $ (0.3 ) $ (2.2 ) NM Revenues During the three months endedSeptember 30, 2022 revenues for the Design, Creative and Technology reportable segment decreased$11.8 million , or 33.9%, to$23.0 million , from$34.8 million for the comparable period in 2021. The primary driver of the decrease was the non-recurrence of$21.3 million of prior year revenue generated by events that normally stage during the first half of the year but had been postponed to the third quarter of 2021 due to COVID-19 offset by$2.1 million in current year revenues from events that were cancelled in the prior year due to COVID-19. Organic revenues increased by$5.5 million , or 42.9%, to$18.4 million from$12.9 million for the comparable period in the prior year. This growth was driven by a$4.8 million , or 78.7%, increase to$10.9 million from$6.1 million in trade show revenue from events that staged in the same period in both years and$1.3 million generated from two new event launches, offset by lower other marketing services revenues. The acquisition of Advertising Week inJune 2022 generated incremental revenue of$1.8 million during the three months endedSeptember 30, 2022 .
Cost of Revenues
During the three months endedSeptember 30, 2022 , cost of revenues for the Design, Creative and Technology reportable segment decreased$9.3 million , or 48.7%, to$9.8 million from$19.1 million for the comparable period in 2021. The primary driver of the decrease was the non-recurrence of$11.7 million of costs for events that normally stage during the first half of the year but had been postponed to the third quarter of 2021 due to COVID-19 and a$1.9 million decrease in event cancellation charges during the three months endedSeptember 30, 2022 . These declines were partially offset by$0.8 million in current year costs from events that were cancelled in the prior year due to COVID-19. Organic cost of revenues increased by$2.3 million , or 51.1%, to$6.8 million from$4.5 million for the comparable period in the prior year. This growth was primarily driven by trade shows that staged in the same period in both years and the launch of two new events during the three months endedSeptember 30, 2022 . The acquisition of Advertising Week inJune 2022 generated$1.3 million of incremental cost of revenues during the three months endedSeptember 30, 2022 . 40 --------------------------------------------------------------------------------
Selling, General and Administrative Expense
During the three months endedSeptember 30, 2022 , selling, general and administrative expense for the Design, Creative and Technology reportable segment decreased$0.4 million , or 3.6%, to$10.7 million from$11.1 million for the comparable period in 2021. The primary driver of the decrease was lower higher selling, promotional and travel expenses partly offset by incremental expense from the acquisition of Advertising Week.
Depreciation and Amortization Expense
During the three months endedSeptember 30, 2022 , depreciation and amortization expense for the Design, Creative and Technology reportable segment increased$0.1 million , or 2.0%, to$5.0 million from$4.9 million for the comparable period in 2021. The increase was driven by incremental amortization attributable to theJune 2022 acquisition of Advertising Week.
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, 2022 and 2021: Three Months Ended September 30, 2022 2021 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 5.5 $ 2.9 $ 2.6 89.7 % Cost of revenues 2.4 0.3 2.1 NM Selling, general and administrative expense 6.3 3.4 2.9 85.3 % Depreciation and amortization expense 0.9 0.7 0.2 28.6 % Operating loss$ (4.1 ) $ (1.5 ) $ (2.6 ) 173.3 % Revenues During the three months endedSeptember 30, 2022 revenues for the All Other category increased$2.6 million , or 89.7%, to$5.5 million from$2.9 million for the comparable period in 2021. The primary drivers of the increase were$1.0 million of additional software subscription revenues as well as$0.9 million in revenue generated by events that staged in the third quarter of 2022 but were cancelled due to COVID-19 in the third quarter of 2021. A newly launched event generated$0.8 million of incremental revenue during the three months endedSeptember 30, 2022 .
Cost of Revenues
During the three months endedSeptember 30, 2022 , cost of revenues for the All Other category increased$2.1 million to$2.4 million from$0.3 million for the comparable period in 2021. The primary drivers of the increase were$0.6 million of expense related to the Company's software subscription business,$0.9 million for events that staged in the third quarter of 2022 but had been cancelled due to COVID-19 in the third quarter of 2021 and$0.6 million related to the aforementioned newly launched event.
Selling, General and Administrative Expense
During the three months endedSeptember 30, 2022 , selling, general and administrative expense for the All Other category increased$2.9 million , or 85.3%, to$6.3 million from$3.4 million for the comparable period in 2021. The increase was primarily related to growth in the Company's software subscription business as well as the continued ramp of the Xcelerator division.
Depreciation and Amortization Expense
During the three months endedSeptember 30, 2022 depreciation and amortization expense for the All Other category increased$0.2 million , or 28.6%, to$0.9 million from$0.7 million for the comparable period in 2021. 41 --------------------------------------------------------------------------------
Corporate Category
The following represents the change in operating expenses in the Corporate
category for the three months ended
Three Months Ended
September 30,
2022 2021 Variance $ Variance %
(unaudited)
(dollars in millions)
Other income, net $ 148.6 $ - $ 148.6 NM
Selling, general and
administrative
expense 21.8 $ 15.9 5.9 37.1 %
Depreciation and amortization
expense 0.7 0.7 - -
Operating income (loss) $ 126.1 $ (16.6 ) $ 142.7 NM
Other Income, net
During the three months ended September 30, 2022 other income, net for the
Corporate category was $148.6 million and was related to a one-time insurance
litigation settlement. The one-time settlement payment was not specifically
attributable to any of the Company's outstanding event cancellation insurance
claims and therefore was not recorded at the segment level.
Selling, General and Administrative Expense
During the three months endedSeptember 30, 2022 selling, general and administrative expense for the Corporate category increased$5.9 million , or 37.1%, to$21.8 million from$15.9 million for the comparable period in 2021. The increase was primarily to higher one-time transaction and insurance settlement related costs, offset by contingent consideration adjustments recorded during the three months endedSeptember 30, 2022 .
Depreciation and Amortization Expense
During the three months endedSeptember 30, 2022 depreciation and amortization expense for the Corporate category was$0.7 million for both periods in 2022 and 2021. Interest Expense Interest expense of$6.8 million for the three months endedSeptember 30, 2022 increased$2.9 million , or 74.4%, from$3.9 million for the comparable period in 2021. The increase is attributable to a higher effective interest rate of 4.83% on our outstanding indebtedness for the three months endedSeptember 30, 2022 compared to 2.59% for the comparable period in the prior year.
Provision for Income Taxes
For the three months endedSeptember 30, 2022 , the Company recorded a provision for income taxes of$28.2 million which resulted in an effective tax rate of 23.3% for the three months endedSeptember 30, 2022 . The Company recorded a benefit from income taxes of$2.0 million and an effective tax rate of 17.5% for the three months endedSeptember 30, 2021 . The change in the effective tax rate for the three months endedSeptember 30, 2022 is attributable to the timing of current period and full year projected results. 42 --------------------------------------------------------------------------------
Net Income (Loss)
Net income of$93.0 million for the three months endedSeptember 30, 2022 represented a$102.0 million improvement from net loss of$9.0 million for the comparable period in 2021. The key driver of the improvement was the recognition of other income, net of$151.0 million related to event cancellation insurance litigation settlement and event cancellation insurance claim proceeds during the three months endedSeptember 30, 2022 .
Adjusted EBITDA
Adjusted EBITDA of$149.7 million for the three months endedSeptember 30, 2022 increased by$141.1 million , from negative$8.6 million for the comparable period in 2021. The increase in Adjusted EBITDA was primarily attributable to a$102.0 million increase in net income described above, as well as higher addbacks for income taxes, interest expense, depreciation and amortization and one-time costs, offset by lower add-backs stock-based compensation.
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,
2022 2021 Variance $ Variance %
(unaudited)
(dollars in millions)
Statement of income (loss) and
comprehensive
income (loss) data:
Revenues $ 232.3 $ 104.4 $ 127.9 NM
Other income, net 182.8 17.5 165.3 NM
Cost of revenues 83.3 41.3 42.0 NM
Selling, general and administrative
expenses(1) 127.6 102.7 24.9 24.2 %
Depreciation and amortization expense 43.0 36.1 6.9 19.1 %
Goodwill impairment charge(2) 6.3 - 6.3 NM
Intangible asset impairment charges(3) 1.6 - 1.6 NM
Operating income (loss) 153.3 (58.2 ) 211.5 (363.4 %)
Interest expense 15.5 12.0 3.5 29.2 %
Interest income 1.1 0.1 1.0 NM
Other expense 0.2 0.1 0.1 NM
Income (loss) before income taxes 138.7 (70.2 ) 208.9 (297.6 %)
Provision for income taxes 30.3 0.6 29.7 4950.0 %
Net income (loss) and comprehensive
income (loss) $ 108.4 $ (70.8 ) $ 179.2 (253.1 %)
Other financial data (unaudited):
Adjusted EBITDA(4) $ 214.5 $ (6.4 ) $ 220.9 NM
Free Cash Flow(5) $ 191.2 $ 32.1 $ 159.1 495.6 %
Organic revenue(6) $ 152.2 $ 107.0 $ 45.2 42.2 %
(1)
Selling, general and administrative expenses for the nine months ended September
30, 2022 and 2021 included $4.9 million and $5.6 million , 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 September 30, 2022 and 2021 were stock-based
compensation expenses of $5.0 million and $8.2 million , respectively.
(2)
Goodwill impairment charge for the nine months ended September 30, 2022 and 2021
represents a non-cash charge of $6.3 million and zero, respectively.
(3)
Intangible asset impairment charges for the nine months ended September 30, 2022
and 2021 represent non-cash charges of $1.6 million and zero for certain
indefinite-lived intangible assets and definite-lived intangible assets,
respectively, in connection with the Company's interim testing of intangibles
for impairment.
(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 September 30, 2022 Compared to Three Months Ended September 30,
2021 ."
43
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Nine Months Ended
September 30,
2022 2021
(unaudited)
(dollars in millions)
Net income (loss) $ 108.4 $ (70.8 )
Add:
Interest expense, net 14.4 11.9
Provision for income taxes 30.3 0.6
Goodwill impairment charge(a) 6.3 -
Intangible asset impairment charge(b) 1.6 -
Depreciation and amortization expense 43.0 36.1
Stock-based compensation expense(c) 5.0
8.2
Deferred revenue adjustment(d) 0.6 1.4 Other items(e) 4.9 5.6 Scheduling adjustments - 0.6 Adjusted EBITDA$ 214.5 $ (6.4 ) Deduct: Event cancellation insurance proceeds 182.8
17.5
Adjusted EBITDA excluding event cancellation insurance proceeds $ 31.7$ (23.9 ) (a) Represents non-cash goodwill impairment charges for the nine months endedSeptember 30, 2022 , in connection with the Company's interim testing of goodwill for impairment. (b) Represents non-cash intangible asset impairment charges for the nine months endedSeptember 30, 2022 , 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 marked down to the acquisition date fair value due to purchase accounting rules. If the business had been continuously owned by us throughout the periods presented, the fair value adjustments of$0.6 million and$1.4 million for PlumRiver for the nine months endedSeptember 30, 2022 and 2021, respectively, would not have been required and the revenues for the nine months endedSeptember 30, 2022 and 2021, would have been higher by$0.6 million and$1.4 million , respectively. (e) Other items for the nine months endedSeptember 30, 2022 included: (i)$9.5 million in gains related to the remeasurement of contingent consideration; (ii)$3.4 million in transaction costs, primarily in connection with the MJBiz, Advertising Week and Bulletin acquisitions; (iii)$2.0 million in non-recurring legal, audit and consulting fees; (iv)$1.9 million in transition expenses and (v)$7.0 million in insurance litigation settlement related expenses. Other items for the nine months endedSeptember 30, 2021 included: (i)$2.6 million in expense related to the remeasurement of contingent consideration; (ii)$2.2 million in non-recurring legal, audit and consulting fees; (iii)$0.4 million in transition costs in connection with previous acquisitions and (iv)$0.4 million in transaction costs in connection withPlumRiver LLC , EDspaces andSue Bryce Education acquisitions. (5) In addition to net cash provided by operating activities presented in accordance with GAAP, we present Free Cash Flow because we believe it is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after capital expenditures, can be used for the repayment of indebtedness and strategic initiatives, including investing in our business, payment of dividends, making strategic acquisitions and strengthening our balance sheet. Free Cash Flow is a supplemental non-GAAP financial measure of liquidity and is not based on any standardized methodology prescribed by GAAP. Free Cash Flow should not be considered in isolation or as an alternative to cash 44 -------------------------------------------------------------------------------- flows from operating activities or other measures determined in accordance with GAAP. Also, Free Cash Flow is not necessarily comparable to similarly titled measures used by other companies. Nine Months Ended September 30, 2022 2021 (unaudited) (dollars in millions) Net Cash Provided by Operating Activities 198.7$ 36.3 Less: Capital expenditures 7.5 4.2 Free Cash Flow$ 191.2 $ 32.1 (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 EndedSeptember 30, 2022 Compared to Three Months EndedSeptember 30, 2021 " Nine Months Ended September 30, 2022 2021 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 232.3 $ 104.4 $ 127.9 122.5 % Add (deduct): Acquisition revenues (4.8 ) - COVID-19 prior year cancellations(a) (75.3 ) - Scheduling adjustments - 2.6 Organic revenues$ 152.2 $ 107.0 $ 45.2 42.2 % (a) Represents the increase in 2022 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 the increase in revenues from events that staged in the second quarter of 2022 but were also postponed and staged in the second half of 2021 due to COVID-19. Revenues Revenues of$232.3 million for the nine months endedSeptember 30, 2022 increased$127.9 million , from$104.4 million for the comparable period in 2021, primarily due to a more normal schedule of live events trading during 2022. 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, net
For the nine months endedSeptember 30, 2022 , other income, net of$182.8 million was recorded related to event cancellation insurance claims proceeds, all of which was received during the period. During the prior year period, other income, net of$17.5 million was recorded related to event cancellation insurance claims proceeds, all of which was received during the nine months endedSeptember 30, 2021 . See "Commerce Segment - Revenues," "Design and Technology Segment - Revenues," and "All Other Category - Revenues" below for a discussion of other income, net by segment.
Cost of Revenues
Cost of revenues of$83.3 million for the nine months endedSeptember 30, 2022 increased$42.0 million , from$41.3 million for the comparable period in 2021, primarily due to a more normal schedule of live events trading during 2022. 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. 45 --------------------------------------------------------------------------------
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$127.6 million for the nine months endedSeptember 30, 2022 increased$24.9 million , or 24.2%, from$102.7 million for the comparable period in 2021. 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$43.0 million for the nine months endedSeptember 30, 2022 increased$6.9 million , or 19.1%, from$36.1 million for the comparable period in 2021. 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. Goodwill Impairment During the nine months endedSeptember 30, 2022 , in connection with the change in operating segments that resulted in a change in reporting units, we performed an interim goodwill impairment assessment. As a result of this assessment, the Company recorded a$6.3 million non-cash goodwill impairment charge. The impairment consisted of the write-down of goodwill, equal to the excess carrying value of goodwill above fair value, of all of the reporting units included in our Design, Creative and Technology reportable segment and the All Other category. See "Design, Creative and Technology Segment - Goodwill Impairment," and "All Other Category - Goodwill Impairment" below for further discussion of goodwill impairment. No goodwill impairment charges were recorded during the nine months endedSeptember 30, 2021 .
Intangible Asset Impairment
Due to the change in operating segments described above, management performed impairment assessments of our indefinite-lived intangible assets during the nine months endedSeptember 30, 2022 . These assessments resulted in the recognition of a non-cash impairment charge of$1.6 million , which included non-cash impairment charges for certain of our indefinite-lived trade name intangible assets. See "Design, Creative and Technology Segment - Intangible Asset Impairments," below for further discussion of total intangible asset impairments. No intangible asset impairment charges were recorded during the nine months endedSeptember 30, 2021 . 46 --------------------------------------------------------------------------------
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, 2022 and 2021: Nine Months Ended September 30, 2022 2021 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 110.3 $ 48.3 $ 62.0 128.4 % Other income, net 8.0 7.8 0.2 2.6 % Cost of revenues 32.3 17.3 15.0 86.7 % Selling, general and administrative expenses 28.3 19.0 9.3 48.9 % Depreciation and amortization expense 23.9 17.9 6.0 33.5 % Operating income$ 33.8 $ 1.9 $ 31.9 NM Revenues During the nine months endedSeptember 30, 2022 , revenues for the Commerce reportable segment increased$62.0 million , or 128.4%, to$110.3 million from$48.3 million for the comparable period in the prior year. The primary driver of the increase was$39.1 million of revenue generated by events that staged during the nine months endedSeptember 30, 2022 but were cancelled in the prior year due to COVID-19. Organic revenues increased by$21.4 million , or 48.6%, to$65.4 million from$44.0 million for the comparable period in the prior year. This growth was driven by a$19.9 million , or 49.7%, increase to$60.1 million from$40.2 million in trade show revenue from events that staged in the same period in both years and$2.0 million from two new events that launched in the first half of 2022, offset by lower other marketing services revenues. The remaining increase was attributable to$2.6 million of incremental revenues from the acquisition of MJBiz inDecember 2021 . The Commerce reportable segment revenues were also impacted by a$1.1 million scheduling adjustment in the nine months endedSeptember 30, 2022 . Other Income, net During the nine months endedSeptember 30, 2022 other income, net for the Commerce reportable segment increased$0.2 million , or 2.6%, to$8.0 million from$7.8 million for the comparable period in the prior year. Other income, net 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, net for the Commerce reportable segment during the nine months endedSeptember 30, 2022 were received during the period. All of the$7.8 million , of event cancellation insurance proceeds recognized as other income, net during the nine months endedSeptember 30, 2021 were received during the period.
Cost of Revenues
During the nine months endedSeptember 30, 2022 , cost of revenues for the Commerce reportable segment increased$15.0 million , or 86.7%, to$32.3 million from$17.3 million for the comparable period in the prior year. The primary driver of the increase was$10.0 million of costs for events that staged during the nine month endedSeptember 30, 2022 but were cancelled in the prior year due to COVID-19. Organic cost of revenues increased by$4.5 million , or 29.8%, to$19.6 million from$15.1 million for the comparable period in the prior year. This growth was primarily driven by events that staged in the same period in both years and two new events that launched in the first half of 2022. The remaining increase in revenues was attributable to the acquisition of MJBiz inDecember 2021 .
Selling, General and Administrative Expense
During the nine months ended
47
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driver of the increase was driven by the acquisition of MJBiz in
Depreciation and Amortization Expense
During the nine months endedSeptember 30, 2022 , depreciation and amortization expense for the Commerce reportable segment increased$6.0 million , or 33.5%, to$23.9 million from$17.9 million for the comparable period in 2021. The increase was driven by incremental amortization attributable to theDecember 2021 acquisition of MJBiz.
Design, Creative 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, 2022 and 2021: Nine Months Ended September 30, 2022 2021 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 108.1 $ 48.0 $ 60.1 125.2 % Other income, net 25.3 9.2 16.1 175.0 % Cost of revenues 44.9 23.1 21.8 94.4 % Selling, general and administrative expenses 31.6 26.4 5.2 19.7 % Depreciation and amortization expense 14.6 14.4 0.2 1.4 % Goodwill impairment charge 5.8 - 5.8 NM Intangible asset impairment charges 1.6 - 1.6 NM Operating income (loss)$ 34.9 $ (6.7 ) $ 41.6 NM Revenues During the nine months endedSeptember 30, 2022 revenues for the Design, Creative and Technology reportable segment increased$60.1 million , or 125.2%, to$108.1 million from$48.0 million for the comparable period in 2021. The primary driver of the increase was$34.4 million of revenue generated by events that staged during the nine months endedSeptember 30, 2022 but were cancelled in the prior year due to COVID-19. Organic revenues increased by$19.8 million , or 41.8%, to$67.2 million from$47.4 million for the comparable period in the prior year. This growth was primarily driven by a$17.9 million , or 60.5%, increase to$47.4 million from$29.5 million in trade show revenue from events that staged in the same period in both years and$1.3 million from two new events that launched in the first half of 2022. The remaining increase was attributable to$2.2 million of incremental revenues from the acquisition of Advertising Week inJune 2022 . Revenues also include$3.6 million from events that staged during the nine months endedSeptember 30, 2022 , but staged in the fourth quarter of 2021. Other Income, net During the nine months endedSeptember 30, 2022 other income, net for the Design, Creative and Technology reportable segment increased$16.1 million , or 175.0% to$25.3 million from$9.2 million for the comparable period in the prior year. Other income, net 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, net for the Design, Creative and Technology reportable segment during the nine months endedSeptember 30, 2022 were received during the period. All event cancellation insurance proceeds recognized as other income, net for the Design, Creative and Technology reportable segment during the nine months endedSeptember 30, 2021 were received during the period.
Cost of Revenues
During the nine months endedSeptember 30, 2022 cost of revenues for the Design, Creative and Technology reportable segment increased$21.8 million , or 94.4%, to$44.9 million from$23.1 million for the comparable period in 2021. The primary driver of the increase was$13.0 million of cost of revenue generated by events that staged during the nine months endedSeptember 30, 2022 but were cancelled in the prior year due to COVID-19. Organic cost of revenues increased by$6.2 million , or 32.0%, to$25.6 million from$19.4 million for the comparable period in the prior year. This growth was primarily driven 48 -------------------------------------------------------------------------------- by events that staged in the same period in both years and two new events that launched in the first half of 2022. The remaining increase in cost of revenues was attributable to the acquisition of Advertising Week inJune 2022 . Design, Creative and Technology segment cost of revenues also include$2.2 million from events that staged during the nine months endedSeptember 30, 2022 , but staged in the fourth quarter of 2021.
Selling, General and Administrative Expense
During the nine months endedSeptember 30, 2022 selling, general and administrative expenses for the Design, Creative and Technology reportable segment increased$5.2 million , or 19.7%, to$31.6 million from$26.4 million for the comparable period in 2021. The primary driver of the increase was driven by the acquisition of Advertising Week inJune 2022 as well as higher promotional, salaries and commission expenses.
Depreciation and Amortization Expense
Depreciation and amortization expense for the Design, Creative and Technology reportable segment was$14.6 million and$14.4 million for the nine months endedSeptember 30, 2022 and 2021, respectively.
Goodwill Impairment
Due to the change in operating segments and reporting units described in Note 6, Intangible Assets andGoodwill , above, management was required to perform an interim goodwill impairment assessment of its old and new reporting units during the nine months endedSeptember 30, 2022 . As a result of this assessment, a$5.8 million non-cash goodwill impairment charge was recorded in connection with reporting units under the Design, Creative and Technology reportable segment. No goodwill impairment charges were recorded in the Design, Creative and Technology reportable segment during the nine months endedSeptember 30, 2021 .
Intangible Asset Impairments
In connection with the change in operating segments described above, management performed impairment assessments of indefinite-lived intangible assets during the nine months endedSeptember 30, 2022 , and as a result, recognized a non-cash impairment charge related to certain indefinite-lived intangible assets under the Design, Creative and Technology reportable segment of$1.6 million . No intangible asset impairment charges were recorded in the Design, Creative and Technology reportable segment during the nine months endedSeptember 30, 2021 .
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, 2022 and 2021: Nine Months Ended September 30, 2022 2021 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 13.9 $ 8.1 $ 5.8 71.6 % Other income, net 0.9 0.5 0.4 80.0 % Cost of revenues 6.1 0.9 5.2 NM Selling, general and administrative expenses 17.3 9.4 7.9 84.0 % Depreciation and amortization expense 2.5 2.1 0.4 19.0 % Goodwill impairment charge 0.5 - 0.5 NM Operating loss$ (11.6 ) $ (3.8 ) $ (7.8 ) 205.3 % Revenues During the nine months endedSeptember 30, 2022 revenues for the All Other category increased$5.8 million , or 71.6%, to$13.9 million from$8.1 million for the comparable period in 2021. Organic revenues increased by$4.1 million , or 51.9%, to$12.0 million from$7.9 million for the comparable period in the prior year. This growth was primarily driven by a$2.8 million , 49 -------------------------------------------------------------------------------- or 35.9%, increase to$10.7 million from$7.9 million in software subscription revenue and$1.2 million from new events launched by the Company's Xcelerator division. All other category revenues also increased by$1.9 million from events that staged during the nine months endedSeptember 30, 2022 but were cancelled in the prior year due to COVID-19.
Other Income, net
During the nine months endedSeptember 30, 2022 other income, net for the All Other category increased$0.4 million , or 80.0%, to$0.9 million from$0.5 million for the comparable period in the prior year. Other income, net for both nine-month periods related to event cancellation insurance claim proceeds received during the period.
Cost of Revenues
During the nine months endedSeptember 30, 2022 , cost of revenues for the All Other category increased$5.2 million to$6.1 million from$0.9 million for the comparable period in 2021. The primary drivers of the increase were$2.1 million of costs related to the growth of the Company's software subscription business,$1.9 million related to the events that staged in the current year but were cancelled in the prior year due to COVID-19 and$1.1 million of costs related to new event launches.
Selling, General and Administrative Expense
During the nine months endedSeptember 30, 2022 selling, general and administrative expenses for the All Other category increased$7.9 million , or 84.0%, to$17.3 million from$9.4 million for the comparable period in 2021. The increase in selling, general and administrative expense was primarily driven by higher costs associated with the growth of the Company's software subscription business and as well as the continued ramp of the Xcelerator division.
Depreciation and Amortization Expense
During the nine months endedSeptember 30, 2022 depreciation and amortization expense for the All Other category increased$0.4 million , or 19.0%, to$2.5 million from$2.1 million for the comparable period in 2021.
Corporate Category
The following represents the change in operating expenses in the Corporate
category for the nine months ended
Nine Months Ended
September 30,
2022 2021 Variance $ Variance %
(unaudited)
(dollars in millions)
Other income, net $ 148.6 $ - $ 148.6 NM
Selling, general and
administrative
expenses 50.4 47.9 2.5 5.2 %
Depreciation and amortization
expense 2.0 1.7 0.3 17.6 %
Operating income (loss) $ 96.2 $ (49.6 ) $ 145.8 NM
Other Income, net
During the nine months ended September 30, 2022 other income, net for the
Corporate category was $148.6 million and was related to a one-time insurance
litigation settlement. The one-time settlement payment was not specifically
attributable to any of the Company's outstanding event cancellation insurance
claims and therefore was not recorded at the segment level.
Selling, General and Administrative Expense
During the nine months endedSeptember 30, 2022 selling, general and administrative expenses for the Corporate category decreased$2.5 million , or 5.2%, to$50.4 million from$47.9 million for the comparable period in 2021. The increase was primarily attributable to higher salary and bonus expense offset by gains attributable to the remeasurement of contingent consideration. 50 --------------------------------------------------------------------------------
Depreciation and Amortization Expense
During the nine months endedSeptember 30, 2022 depreciation and amortization expense for the Corporate category increased$0.3 million , or 17.6%, to$2.0 million from$1.7 million for the comparable period in 2021.
Interest Expense, net
Interest expense, net of$15.5 million for the nine months endedSeptember 30, 2022 increased$3.5 million , or 29.2%, from$12.0 million for the comparable period in 2021. The increase was primarily attributable to an increase in the variable interest rate on our Amended and Restated Term Loan Facility, for which the average rate during the nine months endedSeptember 30, 2022 was 3.59%, compared to 2.61% during the nine months endedSeptember 30, 2021 . The increase in interest expense was offset by interest income of$1.1 million during the nine months endedSeptember 30, 2022 .
Provision for Income Taxes
For the nine months endedSeptember 30, 2022 and 2021, the Company recorded a provision for income taxes of$30.3 million and$0.6 million , respectively, which resulted in an effective tax rates of 21.8% and negative 0.9% for the nine months endedSeptember 30, 2022 and 2021, respectively. The change in the effective tax rate for the nine months endedSeptember 30, 2022 is attributable to the timing of current period and full year projected results.
Net Income / (Loss)
Net income of$108.4 million for the nine months endedSeptember 30, 2022 represented a$179.2 million improvement from net loss of$70.8 million for the comparable period in 2021. Key drivers of the year-over-year increase were an increase in revenues of$127.9 million and other income, net of$165.3 million offset by increases in cost of revenues of$42.0 million , a$29.7 million increase in provision for income taxes, selling, general and administrative expenses of$24.9 million , depreciation and amortization of$6.9 million , non-cash goodwill change of$6.3 million and non-cash intangible asset impairment charges of$1.6 million .
Adjusted EBITDA
Adjusted EBITDA of$214.5 million for the nine months endedSeptember 30, 2022 increased by$220.9 million , from Adjusted EBITDA of negative$6.4 million for the comparable period in 2021. The increase in Adjusted EBITDA, was mainly driven by the$179.2 million increase in net income described above during the nine months endedSeptember 30, 2022 , as well as higher addbacks for income taxes, interest expense, depreciation and amortization and one-time costs offset by lower addbacks for stock-based compensation.
Liquidity and Capital Resources
The unprecedented and rapid spread of COVID-19 and the related government restrictions and social distancing measures implemented in the United Stated and throughout the world significantly impacted Emerald's business frommid-March 2020 through the end of fiscal year 2021. Late in the second quarter of 2021, management began to see the positive impacts of successful vaccination rollouts in many countries, with social distancing restrictions easing and live events resuming inthe United States . In the second half of 2021, Emerald's live events business experienced a meaningful restart with the successful execution of 56 in-person events, serving more than 129,000 attendees and 7,500 exhibiting companies. We entered 2022 planning to stage a full slate of events and successfully traded 84 in-person events during the first nine months of the year, serving more than 282,300 attendees and 13,300 exhibiting companies. While we have been able to resume our full schedule of events in the first quarter of 2022, the ongoing effects of COVID-19 on our operations have had, and will continue to have, a significant negative impact on our financial results and liquidity, and such negative impact may continue beyond the containment of the COVID-19 pandemic. 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. Management cannot estimate with certainty whether event exhibitors and attendees will attend the Company's events in numbers similar to pre-pandemic editions now that our events have fully resumed. Therefore, current estimates of revenues and the associated impact on liquidity could differ significantly in the future. 51 -------------------------------------------------------------------------------- OnAugust 3, 2022 , the Company reached an agreement to settle outstanding insurance litigation relating to event cancellation insurance for proceeds of$148.6 million . Other income, net recognized throughSeptember 30, 2022 related to insurance claim and settlement proceeds received totaled$367.1 million . During the three and nine months endedSeptember 30, 2022 , we recorded other income, net of$151.0 million and$182.8 million , respectively, related to event cancellation insurance claim proceeds deemed to be realizable by management. All of the other income, net recognized during the three and nine months endedSeptember 30, 2022 was received during the period. During the three and nine months endedSeptember 30, 2021 , we recorded other income, net of$1.1 million and$17.5 million , respectively, related to event cancellation insurance claim proceeds deemed to be realizable by management. All of the other income, net recognized during the three and nine months endedSeptember 30, 2021 was received during the period. Emerald's renewed event cancellation insurance policies for the year 2022 do not cover losses due to event cancellations caused by the outbreak of communicable diseases, including COVID-19. The aggregate limit for our renewed 2022 primary event cancellation insurance policy is$100.0 million . We have also obtained a similar separate event cancellation insurance policy for the Surf Expo Winter 2022 and Surf Expo Summer 2022 shows, with a coverage limit of$8.4 million and$6.5 million , for each respective event. As ofSeptember 30, 2022 , the Company had$515.3 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, 2022 , the Company had cash and cash equivalents of$366.1 million . As ofSeptember 30, 2022 , 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 receipt of insurance recoveries, management believes that the Company's current financial resources will be sufficient to fund its liquidity requirements for the next twelve months. Share Repurchase Plan 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 1,590,030 shares and 1,193,861 shares of our common stock for$5.9 million and$5.5 million during the three months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively. We settled the repurchase of 2,828,236 shares and 2,122,964 shares of our common stock for$10.2 million and$10.7 million during the nine months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively. There was$9.2 million remaining available for share repurchases under theOctober 2020 Share Repurchase Program as ofSeptember 30, 2022 . 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 . OnOctober 26, 2022 , our Board approved the extension and expansion of theOctober 2020 share repurchase program, which allows for the repurchase of$20.0 million of our Common Stock throughDecember 31, 2023 , 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. 52
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