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, 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.
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.
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.
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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.
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. 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 its financial results and liquidity.
For more information, see "Risk Factors" in our Annual Report on Form 10-K
for the year ended
2021 - The global COVID-19 pandemic has had a 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.
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• 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 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 EndedJune 30, 2021 Compared to Three Months EndedJune 30, 2020 ". 29 --------------------------------------------------------------------------------
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.
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 endedJune 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. 30 --------------------------------------------------------------------------------
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 EndedJune 30, 2021 Compared to Three Months EndedJune 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 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.
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-------------------------------------------------------------------------------- The most directly comparable GAAP measure to Free Cash Flow is net cash provided by operating activities. For a reconciliation of Free Cash Flow to net cash provided by operating activities, see footnote 5 to the table under the heading "-Results of Operations- Six Months EndedJune 30, 2021 Compared to Six Months EndedJune 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
June 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Statement of (loss) income and
comprehensive (loss) income data:
Revenues $ 15.0 $ 7.0 $ 8.0 114.3 %
Other income 2.3 48.2 (45.9 ) NM
Cost of revenues 3.6 (0.8 ) 4.4 NM
Selling, general and administrative
expense(1) 33.1 25.1 8.0 31.9 %
Depreciation and amortization expense 12.1 12.2 (0.1 ) (0.8 %)
Operating (loss) income (31.5 ) 18.7 (50.2 ) (268.4 %)
Interest expense, net 4.1 5.6 (1.5 ) (26.8 %)
(Loss) income before income taxes (35.6 ) 13.1 (48.7 ) (371.8 %)
Provision for income taxes 10.9 3.2 7.7 240.6 %
Net (loss) income and comprehensive
(loss) income attributable to
Emerald Holdings, Inc. $ (46.5 ) $ 9.9 $ (56.4 ) NM
Other financial data (unaudited):
Adjusted EBITDA(2) $ (13.6 ) $ 33.2 $ (46.8 ) NM
Organic revenue(3) $ 11.6 $ 6.3 $ 5.3 84.1 %
(1) Selling, general and administrative expense for the three months ended June
30, 2021 and 2020 included
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 June 30, 2021 and 2020
were stock-based compensation expenses of
respectively.
(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.
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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
June 30,
2021 2020
(unaudited)
(dollars in millions)
Net (loss) income $ (46.5 ) $ 9.9
Add (deduct):
Interest expense 4.1 5.6
Provision for income taxes 10.9 3.2
Depreciation and amortization expense 12.1 12.2
Stock-based compensation expense(a) 2.8 1.1
Deferred revenue adjustment(b) 0.2 -
Other items(c) 2.8 1.2
Adjusted EBITDA $ (13.6 ) $ 33.2 (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
2021 would not have been required and the revenues for the three months ended
(c) Other items for the three months ended
million in expense related to the remeasurement of contingent consideration,
(ii)
(iv)
and Sue Bryce Education acquisitions. Other items for the three months ended
one-time severance expense of
non-recurring legal, audit and consulting fees offset by (iii) a
reduction to expense related to the remeasurement of contingent
consideration.
(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.
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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
June 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Revenues $ 15.0 $ 7.0 $ 8.0 114.3 %
Add (deduct):
Acquisition revenues (3.4 ) - (3.4 )
Discontinued events - (0.7 ) 0.7
COVID-19 cancellations - - -
COVID-19 postponements - - -
Scheduling adjustments - -
Organic revenues $ 11.6 $ 6.3 $ 5.3 84.1 %
Revenues
Revenues of $15.0 million for the three months ended June 30, 2021 increased
$8.0 million , or 114.3% from $7.0 million for the comparable period in 2020,
primarily due to higher organic revenues as well as the acquisition of Plum
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$2.3 million was recorded related to event cancellation insurance claims proceeds, all of which was received during the three months endedJune 30, 2021 . Other income of$48.2 million was recorded related to event cancellation insurance claims proceeds, of which$15.0 million was received and$33.2 million was confirmed by the insurance provider during the quarter endedJune 30, 2020 . All$33.2 million of insurance receivables as ofJune 30, 2020 were received inJuly 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
Cost of revenues of$3.6 million for the three months endedJune 30, 2021 increased$4.4 million , from negative$0.8 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$33.1 million for the three months endedJune 30, 2021 increased$8.0 million , or 31.9%, from$25.1 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. 34 --------------------------------------------------------------------------------
Depreciation and Amortization Expense
Depreciation and amortization expense of$12.1 million for the three months endedJune 30, 2021 decreased$0.1 million , or 0.8%, from$12.2 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 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 endedJune 30, 2021 and 2020: Three Months Ended June 30, 2021 2020 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 3.9 $ 1.5 $ 2.4 160.0 % Other income - 34.6 (34.6 ) NM Cost of revenues 1.5 (0.5 ) 2.0 NM Selling, general and administrative expense 5.5 5.5 - - Depreciation and amortization expense 6.2 6.7 (0.5 ) (7.5 %) Operating (loss) income$ (9.3 ) $ 24.4 $ (33.7 ) (138.1 %) Revenues During the three months endedJune 30, 2021 , revenues for the Commerce reportable segment increased$2.4 million , or 160.0%, to$3.9 million from$1.5 million for the comparable period in the prior year. The primary driver of the increase was$2.6 million of organic growth from several small live events that staged during the quarter, higher digital offering and other marketing services revenues. These increases were offset by$0.2 million in discontinued other marketing services revenue
Other Income
Other income of$34.6 million was recorded for the Commerce reportable segment related to event cancellation insurance claims proceeds for the three months endedJune 30, 2020 , of which$15.0 million was received and$19.6 million was confirmed by the insurance provider during the three months endedJune 30, 2020 . All$19.6 million of insurance receivables for the Commerce segment as ofJune 30, 2020 were received inJuly 2020 .
Cost of Revenues
During the three months endedJune 30, 2021 , cost of revenues for the Commerce reportable segment increased$2.0 million , to$1.5 million from negative$0.5 million for the comparable period in the prior year. The primary driver of the increase was$0.7 million related to several small live events that staged during the three months endedJune 30, 2021 . In addition, negotiated refunds and rebates related to events cancelled in the first quarter of 2020 that were realized in the three months endedJune 30, 2020 did not recur.
Selling, General and Administrative Expense
During each of the three months endedJune 30, 2021 and 2020, selling, general and administrative expense for the Commerce reportable segment were$5.5 million . Compensation and benefits savings attributable to the centralization initiatives implemented over the prior year were offset by increased selling and promotional expenses as the Company prepares to resume a more regular event schedule. 35 --------------------------------------------------------------------------------
Depreciation and Amortization Expense
During the three months ended
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
June 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Revenues $ 4.7 $ 3.9 $ 0.8 20.5 %
Other income 2.3 12.9 (10.6 ) (82.2 %)
Cost of revenues 1.4 (0.1 ) 1.5 NM
Selling, general and
administrative
expense 4.3 4.9 (0.6 ) (12.2 %)
Depreciation and amortization
expense 3.8 4.0 (0.2 ) (5.0 %)
Operating (loss) income $ (2.5 ) $ 8.0 $ (10.5 ) NM
Revenues
During the three months ended June 30, 2021 revenues for the Design and
Technology reportable segment increased $0.8 million , or 20.5%, to $4.7 million
from $3.9 million for the comparable period in 2020. The primary driver of the
increase was $1.3 million in organic growth, primarily from other marketing
services and several small live events that staged during the quarter. These
increases were offset by $0.5 million in discontinued other marketing services
revenue.
Other Income
During the three months ended June 30, 2021 other income for the Design and
Technology reportable segment decreased $10.6 million , or 82.2%, to $2.3 million
from $12.9 million for the comparable period in the prior year. Other income for
both quarterly 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 Design and
Technology reportable segment during the three months ended June 30, 2021 were
received during the quarter. All $12.9 million of event cancellation insurance
proceeds recognized as other income for the Design and Technology reportable
segment during the three months ended June 30, 2020 was received in July 2020 .
Cost of Revenues
During the three months endedJune 30, 2021 cost of revenues for the Design and Technology reportable segment increased$1.5 million , to$1.4 million from negative$0.1 million for the comparable period in 2020. The primary driver of the increase was$0.3 million related to several small live events and higher digital offerings revenue during the three months endedJune 30, 2021 . In addition, negotiated refunds and rebates related to events cancelled in the first quarter of 2020 that were realized in the three months endedJune 30, 2020 did not recur.
Selling, General and Administrative Expense
During the three months endedJune 30, 2021 selling, general and administrative expense for the Design and Technology reportable segment decreased$0.6 million , or 12.2%, to$4.3 million from$4.9 million for the comparable period in 2020. The decrease was primarily attributable to lower sales commission expense.
Depreciation and Amortization Expense
During the three months ended
36
--------------------------------------------------------------------------------All Other Category
The following represents the change in revenue, expenses and operating loss in
the All Other category for the three months ended
Three Months Ended
June 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Revenues $ 6.4 $ 1.6 $ 4.8 300.0 %
Other income - 0.7 - NM
Cost of revenues 0.8 (0.2 ) 1.0 NM
Selling, general and
administrative
expense 6.0 2.8 3.2 114.3 %
Depreciation and amortization
expense 1.6 0.7 0.9 128.6 %
Operating loss $ (2.0 ) $ (1.0 ) $ (1.0 ) 100.0 %
Revenues
During the three months ended June 30, 2021 revenues for the All Other category
increased $4.8 million , or 300.0%, to $6.4 million from $1.6 million for the
comparable period in 2020. The primary driver of the increase was $3.4 million
of incremental revenues from the December 2020 acquisition of PlumRiver, LLC
("PlumRiver") and the April 2021 acquisition of Sue Bryce Education ("Sue
Bryce"). Organic revenue growth of $1.4 million was primarily related to other
marketing services.
Other Income
Other income of $0.7 million was recorded for the All Other category related to
event cancellation insurance claims proceeds, which were confirmed by the
insurance provider during the quarter ended June 30, 2020 . All $0.7 million of
insurance receivables for the All Other category as of June 30, 2020 were
received in July 2020 .
Cost of Revenues
During the three months endedJune 30, 2021 cost of revenues for the All Other category increased$1.0 million , to$0.8 million from negative$0.2 million for the comparable period in 2020. The primary driver of the increase was$0.3 million of incremental expense related to the PlumRiver andSue Bryce acquisitions. The remaining increase related to higher other marketing services costs and prior year vendor refunds related to cancelled events that did not recur.
Selling, General and Administrative Expense
During the three months endedJune 30, 2021 selling, general and administrative expense for the All Other category increased$3.2 million , or 114.3%, to$6.0 million from$2.8 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.
Depreciation and Amortization Expense
During the three months endedJune 30, 2021 depreciation and amortization expense for the All Other category increased$0.9 million , or 128.6%, to$1.6 million from$0.7 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. 37
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Corporate Category
The following represents the change in operating expenses in the Corporate
category for the three months ended
Three Months Ended
June 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Selling, general and
administrative
expense 17.2 11.9 5.3 44.5 %
Depreciation and amortization
expense 0.5 0.8 (0.3 ) (37.5 %)
Total operating expenses $ 17.7 $ 12.7 $ 5.0 39.4 %
Selling, General and Administrative Expense
During the three months endedJune 30, 2021 selling, general and administrative expense for the Corporate category increased$5.3 million , or 44.5%, to$17.2 million from$11.9 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 and software expenses during the three months endedJune 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.
Depreciation and Amortization Expense
During the three months ended
Interest Expense
Interest expense of$4.1 million for the three monthsJune 30, 2021 decreased$1.5 million , or 26.8%, from$5.6 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 3.30% for the three months endedJune 30, 2020 compared to an average interest rate of 2.60% during the three months endedJune 30, 2021 .
Provision for Income Taxes
For the three months endedJune 30, 2021 and 2020, the Company recorded a provision for income taxes of$10.9 million and$3.2 million , respectively, which resulted in an effective tax rate of negative 39.5% for the three months endedJune 30, 2021 and an effective tax rate of 23.9% for the three months endedJune 30, 2020 . The decrease in the effective tax rate for the three months endedJune 30, 2021 is attributable to the timing of current period and full year projected results. Net Loss Net loss of$46.5 million for the three months endedJune 30, 2021 represented a$56.4 million decrease from net income of$9.9 million for the comparable period in 2020. Key drivers of the year-over-year decrease were the reduction in other income related to event cancellation insurance proceeds deemed realizable by management and higher income tax expense during the three months endedJune 30, 2021 . Adjusted EBITDA Adjusted EBITDA of negative$13.6 million for the three months endedJune 30, 2021 decreased by$46.8 million , from$33.2 million for the comparable period in 2020. The decrease in Adjusted EBITDA was primarily attributable to a$45.9 million decrease in other income related to lower event cancellation insurance claims being confirmed or received during the period. The Company recorded$2.3 million of other income during the three months endedJune 30, 2021 as a result of the receipt or confirmation of event cancellation insurance claims proceeds related to events cancelled in the second half of 2020 compared to$48.2 million of other income recorded during the three months endedJune 30, 2020 as a result of the receipt or confirmation of event cancellation insurance claims proceeds related to events cancelled in the first half of 2020. 38 --------------------------------------------------------------------------------
Six Months Ended
The tables in this section summarize key components of our results of operations
for the periods indicated:
Six Months Ended
June 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Statement of loss and comprehensive loss
data:
Revenues $ 27.9 $ 106.7 $ (78.8 ) (73.9 %)
Other income 16.4 48.2 (31.8 ) (66.0 %)
Cost of revenues 7.6 42.8 (35.2 ) (82.2 %)
Selling, general and administrative
expenses(1) 63.9 63.2 0.7 1.1 %
Depreciation and amortization expense 23.9 25.0 (1.1 ) (4.4 %)
Goodwill impairment charge(2) - 564.0 (564.0 ) NM
Intangible asset impairment charges(3) - 59.4 (59.4 ) NM
Operating loss (51.1 ) (599.5 ) 548.4 (91.5 %)
Interest expense 8.1 12.3 (4.2 ) (34.1 %)
Loss before income taxes (59.2 ) (611.8 ) 552.6 (90.3 %)
Provision for (benefit from) income
taxes 2.6 (51.6 ) 54.2 NM
Net loss and comprehensive loss
attributable to
498.4 (89.0 %)
Other financial data (unaudited):
Adjusted EBITDA(4) $ (16.3 ) $ 56.8 $ (73.1 ) NM
Free Cash Flow(5) $ 24.4 $ (24.9 ) $ 49.3 NM
Organic revenue(6) $ 22.3 $ 101.2 $ (78.9 ) (78.0 %)
(1) Selling, general and administrative expenses for the six months ended June
30, 2021 and 2020 included
acquisition-related transaction, transition and integration costs, including
legal and advisory fees. Also included in selling, general and administrative
expenses for the six months ended
compensation expenses of
(2)
a non-cash charge of
(3) Intangible asset impairment charges for the six months ended
represent non-cash charges of
indefinite-lived intangible assets and definite-lived intangible assets,
respectively, in connection with the Company's interim testing of intangibles
for impairment.
39
--------------------------------------------------------------------------------
(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 June 30, 2021 Compared to Three Months Ended
June 30, 2020 ."
Six Months Ended
June 30,
2021 2020
(unaudited)
(dollars in millions)
Net loss $ (61.8 ) $ (560.2 )
Add:
Interest expense 8.1 12.3
Provision for (benefit from) income taxes 2.6 (51.6 )
Goodwill impairment charge(a) - 564.0
Intangible asset impairment charge(b) - 59.4
Depreciation and amortization expense 23.9 25.0
Stock-based compensation expense(c) 5.8 2.7
Deferred revenue adjustment(d) 1.1 -
Other items(e) 4.0 5.2
Adjusted EBITDA $ (16.3 ) $ 56.8 (a) Represents non-cash goodwill impairment charges for the six months ended June
30, 2020, in connection with the Company's interim testing of goodwill for
impairment.
(b) Represents non-cash intangible asset impairment charges for the six 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 six months ended
required and the revenues for the six months ended
been higher by
(e) Other items for the six months ended
in expense related to the remeasurement of contingent consideration, (ii)
million in transition costs in connection with previous acquisitions and (iv)
and Sue Bryce Education acquisitions. Other items for the six months ended
June 30, 2020 included: (i)$4.4 million in transition costs, including one-time severance expense of$2.8 million , (ii)$0.8 million in non-recurring legal, audit and consulting fees and (iii)$0.4 million in
transaction costs in connection with certain acquisition transactions offset
by (iv) a $0.4 million reduction to expense related to the remeasurement of
contingent consideration.
40
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(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 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.
Six Months Ended
June 30,
2021 2020
(unaudited)
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities $ 26.7 $ (22.6 )
Less:
Capital expenditures 2.3 2.3
Free Cash Flow $ 24.4 $ (24.9 ) (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 June 30, 2021 Compared to Three Months Ended
June 30, 2020 ."
Six Months Ended
June 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Revenues $ 27.9 $ 106.7 $ (78.8 ) (73.9 %)
Add (deduct):
Acquisition revenues (5.6 ) - (5.6 )
Discontinued events - (2.7 ) 2.7
COVID-19 cancellations(a) - (71.8 ) 71.8
COVID-19 postponements(b) - (11.3 ) 11.3
Scheduling adjustments - - -
Organic revenues $ 22.3 $ 20.9 $ 1.4 6.7 %
(a) Represents reduction in revenues as a result of the cancellation of certain
events that staged in the first quarter of 2020, due to COVID-19. We believe
the financial impact, net of costs saved, will be partially offset by event
cancellation insurance proceeds from pending claims.
(b) Represents deferral of revenues to the second half of 2021 as a result of the
postponement of certain events that staged during the first quarter of 2020,
due to COVID-19.
Revenues
Revenues of $27.9 million for the six months ended June 30, 2021 decreased $78.8
million , or 73.9%, from $106.7 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 six months endedJune 30, 2021 , other income of$16.4 million was recorded related to event cancellation insurance claims proceeds, all of which was received during the period. Other income of$48.2 million was recorded related to event cancellation insurance claims proceeds, of which$15.0 million was received and$33.2 million was confirmed by the insurance provider during the quarter endedJune 30, 2020 . All$33.2 million of insurance receivables as ofJune 30, 2020 41
--------------------------------------------------------------------------------
were received in
Cost of Revenues
Cost of revenues of$7.6 million for the six months endedJune 30, 2021 decreased$35.2 million , or 82.2%, from$42.8 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$63.9 million for the six months endedJune 30, 2021 increased$0.7 million , or 1.1%, from$63.2 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$23.9 million for the six monthsJune 30, 2021 decreased$1.1 million , or 4.4%, from$25.0 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 Six Months Ended
Commerce The following represents the change in revenue, expenses and operating loss in the Commerce reportable segment for the six months endedJune 30, 2021 and 2020: Six Months Ended June 30, 2021 2020 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 9.6 $ 51.0 $ (41.4 ) (81.2 %) Other income 7.3 34.6 (27.3 ) (78.9 %) Cost of revenues 3.3 18.6 (15.3 ) (82.3 %) Selling, general and administrative expenses 10.8 17.8 (7.0 ) (39.3 %) Depreciation and amortization expense 12.4 14.0 (1.6 ) (11.4 %) Goodwill impairment charge - 340.6 (340.6 ) NM Intangible asset impairment charges - 30.7 (30.7 ) NM Operating loss$ (9.6 ) $ (336.1 ) $ 326.5 NM 42
--------------------------------------------------------------------------------
Revenues During the six months endedJune 30, 2021 , revenues for the Commerce reportable segment decreased$41.4 million , or 81.2%, to$9.6 million from$51.0 million for the comparable period in the prior year. The primary driver of the decline was the cancellation or postponement of nearly all live events scheduled to stage during the six months endedJune 30, 2021 due to COVID-19. These cancelled and postponed events represented$37.8 million and$0.9 million in prior year revenues, respectively. The remaining$2.7 million decline in revenues was primarily attributable to a$2.5 million decrease in revenues from events that staged during the six months endedJune 30, 2021 at significantly reduced capacity due to COVID-19 precautions.
Other Income
During the six months endedJune 30, 2021 other income for the Commerce reportable segment decreased$27.3 million , or 78.9%, to$7.3 million from$34.6 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 six months endedJune 30, 2021 were received during the period. Of the$34.6 million of event cancellation insurance proceeds recognized as other income during the six months endedJune 30, 2020 ,$15.0 million was received and$19.6 million was confirmed by the insurance provider during the period. All$19.6 million of insurance receivables as ofJune 30, 2020 were received inJuly 2020 .
Cost of Revenues
During the six months endedJune 30, 2021 , cost of revenues for the Commerce reportable segment decreased$15.3 million , or 82.3%, to$3.3 million from$18.6 million for the comparable period in the prior year. The primary driver of the decline was the cancellation or postponement of nearly all live events scheduled to stage during the six months endedJune 30, 2021 due to COVID-19. These cancelled and postponed events represented$12.8 million and$0.4 million of prior year costs, respectively. The remaining$2.1 million decrease was related to unavoidable event cancellation expenses incurred during the six months endedJune 30, 2020 , offset by higher costs associated with several small events that staged during the current year.
Selling, General and Administrative Expense
During the six months endedJune 30, 2021 , selling, general and administrative expenses for the Commerce reportable segment decreased$7.0 million , or 39.3%, to$10.8 million from$17.8 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 six months endedJune 30, 2021 .
Depreciation and Amortization Expense
During the six months endedJune 30, 2021 , depreciation and amortization expense for the Commerce reportable segment decreased$1.6 million , or 11.4%, to$12.4 million from$14.0 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$340.6 million non-cash goodwill impairment charge was recorded in connection with reporting units under the Commerce segment. 43 --------------------------------------------------------------------------------
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 six months endedJune 30, 2021 and 2020: Six Months Ended June 30, 2021 2020 Variance $ Variance % (unaudited) (dollars in millions) Revenues$ 7.7 $ 40.7 $ (33.0 ) (81.1 %) Other income 5.4 12.9 (7.5 ) (58.1 %) Cost of revenues 3.0 18.1 (15.1 ) (83.4 %) Selling, general and administrative expenses 9.2 12.9 (3.7 ) (28.7 %) Depreciation and amortization expense 7.4 8.3 (0.9 ) (10.8 %) Goodwill impairment charge - 198.5 (198.5 ) NM Intangible asset impairment charges - 22.7 (22.7 ) NM Operating loss$ (6.5 ) $ (206.9 ) $ 200.4 NM Revenues During the six months endedJune 30, 2021 revenues for the Design and Technology reportable segment decreased$33.0 million , or 81.1%, to$7.7 million from$40.7 million for the comparable period in 2020. The primary driver of the decline was the cancellation or postponement of nearly all live events scheduled to stage during the six months endedJune 30, 2021 due to COVID-19. These cancelled and postponed events represented$30.2 million and$1.9 million in prior year revenues, respectively. Discontinued other marketing services representing$1.1 million of prior year revenue also contributed to the decrease.
Other Income
During the six months endedJune 30, 2021 other income for the Design and Technology reportable segment decreased$7.5 million , or 58.1%, to$5.4 million from$12.9 million for the comparable period in the prior year. Other income for both six 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 Design and Technology reportable segment during the six months endedJune 30, 2021 were received during the period. All$12.9 million of event cancellation insurance proceeds recognized as other income for the Design and Technology reportable segment during the six months endedJune 30, 2020 were confirmed by the insurance provider during the period. All$12.9 million of insurance receivables as ofJune 30, 2020 were received inJuly 2020 .
Cost of Revenues
During the six months endedJune 30, 2021 cost of revenues for the Design and Technology reportable segment decreased$15.1 million , or 83.4%, to$3.0 million from$18.1 million for the comparable period in 2020. The primary driver of the decline was the cancellation or postponement of nearly all live events scheduled to stage during the six months endedJune 30, 2021 due to COVID-19. These cancelled and postponed events represented$14.1 million and$0.7 million of prior year costs, respectively. Discontinued other marketing services business representing$0.4 million of prior year costs also contributed to the decrease. 44 --------------------------------------------------------------------------------
Selling, General and Administrative Expense
During the six months endedJune 30, 2021 selling, general and administrative expenses for the Design and Technology reportable segment decreased$3.7 million , or 28.7%, to$9.2 million from$12.9 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 six months endedJune 30, 2021 .
Depreciation and Amortization Expense
During the six months endedJune 30, 2021 depreciation and amortization expense for the Design and Technology reportable segment decreased$0.9 million , or 10.8%, to$7.4 million from$8.3 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$198.5 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 six months ended
Six Months Ended
June 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Revenues $ 10.6 $ 15.0 $ (4.4 ) (29.3 %)
Other income 3.7 0.7 3.0 428.6 %
Cost of revenues 1.4 6.1 (4.7 ) (77.0 %)
Selling, general and
administrative
expenses 11.7 6.7 5.0 74.6 %
Depreciation and amortization
expense 2.9 1.4 1.5 107.1 %
Goodwill impairment charge - 24.9 (24.9 ) NM
Intangible asset impairment
charges - 6.0 (6.0 ) NM
Operating loss $ (1.7 ) $ (29.4 ) $ 27.7 (94.2 %)
45
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Revenues During the six months endedJune 30, 2021 revenues for the All Other category decreased$4.4 million , or 29.3%, to$10.6 million from$15.0 million for the comparable period in 2020. The primary driver of the decline was the cancellation or postponement of nearly all live events scheduled to stage during the six months endedJune 30, 2021 due to COVID-19. These cancelled and postponed events represented$2.7 million and$9.3 million in prior year revenues, respectively. The decrease was offset by incremental revenues of$5.6 million from the acquisitions of PlumRiver andSue Bryce , which closed inDecember 2020 andApril 2021 , respectively. In addition, higher digital offering and other marketing services revenues generated$2.0 million in incremental revenue during the six months endedJune 30, 2021 .
Other Income
During the six months endedJune 30, 2021 other income for the All Other category increased$3.0 million , or 428.6%, to$3.7 million from$0.7 million for the comparable period in the prior year. Other income for both six-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 six months endedJune 30, 2021 were received during the period. All$0.7 million of event cancellation insurance proceeds recognized as other income for the All Other category during the six months endedJune 30, 2020 were confirmed by the insurance provider during the period. All$0.7 million of insurance receivables as ofJune 30, 2020 were received inJuly 2020 .
Cost of Revenues
During the six months endedJune 30, 2021 cost of revenues for the All Other category decreased$4.7 million , or 77.0%, to$1.4 million from$6.1 million for the comparable period in 2020. The primary driver of the decline was the cancellation or postponement of nearly all live events scheduled to stage during the six months endedJune 30, 2021 due to COVID-19. These cancelled events represented$0.6 million and$4.5 million of prior year costs, respectively. The decrease was offset by incremental costs of$0.6 million from the acquisitions of PlumRiver andSue Bryce , which closed inDecember 2020 andApril 2021 , respectively.
Selling, General and Administrative Expense
During the six months endedJune 30, 2021 selling, general and administrative expenses for the All Other category increased$5.0 million , or 74.6%, to$11.7 million from$6.7 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 six months endedJune 30, 2021 .
Depreciation and Amortization Expense
During the six months endedJune 30, 2021 depreciation and amortization expense for the All Other category increased$1.5 million , or 107.1%, to$2.9 million from$1.4 million for the comparable period in 2020. The increase was 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$24.9 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 long-lived assets and indefinite-lived intangible assets under the All Other category of$0.8 million and$6.0 million , respectively. 46 --------------------------------------------------------------------------------
Corporate Category
The following represents the change in operating expenses in the Corporate
category for the six months ended
Six Months Ended
June 30,
2021 2020 Variance $ Variance %
(unaudited)
(dollars in millions)
Selling, general and
administrative
expenses 32.2 25.9 6.3 24.3 %
Depreciation and amortization
expense 1.2 1.4 (0.2 ) (14.3 %)
Total operating expenses $ 33.4 $ 27.3 $ 6.1 22.3 %
Selling, General and Administrative Expense
During the six months endedJune 30, 2021 selling, general and administrative expenses for the Corporate category increased$6.3 million , or 24.3%, to$32.2 million from$25.9 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 six-months endedJune 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 six months endedJune 30, 2021 depreciation and amortization expense for the Corporate category decreased$0.2 million , or 14.3%, to$1.2 million from$1.4 million for the comparable period in 2020.
Interest Expense
Interest expense of$8.1 million for the six months endedJune 30, 2021 decreased$4.2 million , or 34.1%, from$12.3 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 six months endedJune 30, 2021 was 2.62%, compared to 3.04% during the six months endedJune 30, 2020 . In addition, interest expense related to the revolving credit facility decreased$0.9 million during the six months endedJune 30, 2021 .
Provision for (Benefit from) Income Taxes
For the six months endedJune 30, 2021 and 2020, the Company recorded a provision for income taxes of$2.6 million and benefit from income taxes of$51.6 million , respectively, which resulted in an effective tax rate of negative 4.3% for the six months endedJune 30, 2021 and, when adjusted for discrete items, of 25.7% for the six months endedJune 30, 2020 . The decrease in the effective tax rate for the six months endedJune 30, 2021 is attributable to the timing of current period and full year projected results.
Net Loss
Net loss of$61.8 million for the six months endedJune 30, 2021 represented a$498.4 million improvement from net loss of$560.2 million for the comparable period in 2020. Key drivers of the year-over-year increase were the absence of non-cash goodwill and intangible asset impairment charges in the current year, and lower interest expense, offset by lower revenues due to COVID-19 related event cancellations and a higher provision for income taxes.
Adjusted EBITDA
Adjusted EBITDA of negative$16.3 million for the six months endedJune 30, 2021 decreased by$73.1 million , from Adjusted EBITDA of$56.8 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. 47
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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, including all but several relatively small live event staging in the first six months 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;
• 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, 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$72.7 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$123.4 million and zero, respectively. During the three and six months endedJune 30, 2021 , the Company recorded other income of$2.3 million and$16.4 million , respectively, related to event cancellation insurance claim proceeds deemed to be realizable by management. Of the$16.4 million in other income,$11.7 million was received during the first quarter of 2021 and$4.7 million was received during the second quarter of 2021. During each of the three and six months endedJune 30, 2020 , the Company recorded other income of$48.2 million related to event cancellation insurance claim proceeds deemed to be realizable by management. Of the$48.2 million ,$15.0 million was received during the second quarter of 2020 and$33.2 million was received inJuly 2020 . 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 . 48 -------------------------------------------------------------------------------- As ofJune 30, 2021 , the Company had$522.4 million of borrowings outstanding under the Amended and Restated Term Loan Facility and no borrowings outstanding under the Revolving Credit Facility. In addition, as ofJune 30, 2021 , the Company had cash and cash equivalents of$302.8 million . 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.
As of
Previous Share Repurchase Programs
Our Board of Directors previously approved a
New Share Repurchase Plan
OnOctober 5, 2020 , our Board authorized and approved a new$20.0 million 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 726,895 shares and 929,103 shares of our common stock for$3.9 million and$5.1 million during the three months endedJune 30, 2021 , respectively. There was$14.2 million remaining available for share repurchases under theOctober 2020 Share Repurchase Program as ofJune 30, 2021 .
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.
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