Good morning, ladies and gentlemen, and welcome to the Emerald Holding, Incorporated Second Quarter 2023 Earnings Call. Before we begin, let me remind everyone that this call will include certain statements that constitute forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans, and prospects. In particular, the company's statements about projected results for 2023 are forward-looking statements. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such forward-looking statements. Such risks and other factors are set forth in the company's most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, management will discuss non-GAAP measures, which it believes can be useful in evaluating the company's performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. The reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in the company's earnings release. As a reminder, this conference is being recorded, and a replay of this call will be available on the Investors section of the company's website through 11:59 p.m. Eastern Time on August 9. I would now like to turn the call over to Mr. Hervé Sedky, President and Chief Executive Officer. Sir, please go ahead.

Well, thank you, Vanessa, and good morning, everyone. It's great to be with all of you today to discuss our second-quarter results. I'll start with an overview of the trends that we're seeing so far this year and then give an update on our growth strategy focused on customer centricity, 365-day engagement, and portfolio optimization. We continue to see strength in the recovery of live events as post-COVID demand is driving meaningful year-on-year growth in our business. We expect this trend to continue into 2024 and beyond as we see the return of international attendees and further improvements in our customer supply chain lead times, as well as the impact of some of our strategic initiatives focused on enhancing customer experience and the tangible value we deliver to them. When you combine these underlying fundamentals with the improvements we've made to drive operational efficiencies and advantages of scale over the past few years, it's easy to see how Emerald is becoming a platform for multi-year outsized growth. Our success in centralizing key functions such as pricing and purchasing over the last couple of years has unlocked even greater efficiencies. We believe this provides us with strong operating leverage as we continue to grow the company both organically and through strategic acquisitions. Our business has several features that make it resilient even in an uncertain economic environment. First, we provide a tangible ROI to businesses for their marketing budgets. For many businesses, trade shows are their number one selling event of the year, and a big part of our ongoing efforts has been to clarify this value proposition and make the ROI more transparent by developing value-added tools and metrics that we believe will deliver an even better tradeshow experience to both the exhibitors and the attendees. The result is that our customers view our shows as an investment rather than a cost. Second, we have solid visibility on revenue through next year. We've been successful in encouraging customers to pre-book their space for the following year at this year's events. This not only provides our returning customers with the opportunity to reserve their ideal space on the floor but also frees up our sales force to pursue new business rather than rebookings over the coming year and increases our overall visibility on revenues up to 12 months into the future. Third, we have a diverse portfolio that serves industries with different behaviors during economic cycles. And while it's true that some of our events serve end markets that are softer in the current economic environment, others are thriving, given non-correlated factors driving demand. For example, our ASD franchise is a key marketplace for value and discount retailers of all sizes, while our design portfolio, which makes up approximately one-quarter of our revenue, has diverse exposures to various sectors such as health care and senior living that have secular growth characteristics and educational facilities, which have government funding, giving us visibility into purchasing activity. Because of these dynamics and the ongoing post-COVID recovery, we expect our business to hold up well even if some companies' advertising budgets may be restrained in the short term. As such, we continue to work towards our previously provided financial goals that are represented in our guidance and performance to date in a year where corporate earnings in many sectors will be under pressure. Our guidance reflects a more than 20% year-on-year increase in revenue and a more than 75% year-on-year increase in adjusted EBITDA, excluding insurance. In addition, we believe we have plenty of room over the next few years to bring our margins up from the 25% adjusted EBITDA levels implied in our 2023 guidance to over 35% margins that this business achieved before the pandemic based on the operating leverage I referenced earlier, being supported by us already having built an infrastructure to support a much larger revenue base. Taking all the pieces together—the organic growth in exhibitors and attendees, as well as the improvements in pricing, the post-COVID tailwinds, the M&A opportunities, and the new show launches, the scale efficiencies, and the value of our e-commerce software platform, which is not yet fully reflected in our valuation—it's not hard to believe that Emerald can become a significantly bigger and more valuable company in the next few years. We are more than the sum of our parts. That's in large part due to our strategic vision. We believe that longer term, post-full COVID recovery, we could deliver run rate organic growth in the mid- to high-single digits combined with growth from acquisitions in the mid- to high-single digits to contribute to double-digit annual revenue growth overall. In the near term, we expect this will be even higher given ongoing post-COVID trends. Moving to our second-quarter performance. In May, we announced an exciting partnership with the National Basketball Association and the launch of NBA Con, a first-of-its-kind fan event that Emerald hosted in collaboration with the NBA. We held the first NBA Con event in Las Vegas in July, with over 100 current and former players in attendance, along with musicians, fashion brands, and fans. We anticipate growing this collaboration to several events per year over time. While 2023 will be a net investment year for this project as we fund its startup costs, we expect the bottom-line benefits of our partnership with the NBA to begin ramping up in 2024. In the meantime, the successful launch of NBA Con is already providing intangible benefits to Emerald as it demonstrates to our existing customers our ability to unlock new audiences across new event types on an organic basis. We also hosted the first edition of Overland Expo West since our acquisition of the brand earlier this year when we bought Lodestone in January, with record attendance at the June show in Flagstaff, Arizona. This was followed by the strong Overland Expo Pacific Northwest event in Redmond, Oregon in July. Together, the Overland Expos and the NBA events represent a previously untapped market for Emerald in the consumer live event space that we believe can grow into a more meaningful share of our business over time and complement our B2B portfolio by offering our customers the ability to interact directly with large consumer audiences on the Emerald platform. Looking ahead, we remain focused on our three pillars of value creation that I'll briefly recap. Our first pillar is customer-centricity. This means delivering greater value to customers in the form of add-on services, actionable data and insights, and a clearer picture of the return on investment they receive from the marketing dollars that they put to work across Emerald's platform. We believe that this improves our stickiness with customers, incentivizes them to deploy more marketing dollars with Emerald, and ultimately should help drive higher revenue per customer. Our second pillar, 365-day engagement, means that we provide multiple entry points to the customer engagement cycle through trade shows, conferences, webinars, media content, and our e-commerce platform. Our e-commerce platform, called Elastic, provides buyers and sellers with a specialized digital marketplace for year-round selling, enabling significant time and cost savings while providing customers with an easier way of buying in the wholesale market. Our third pillar is portfolio optimization, where our goal is to continue to expand Emerald's portfolio and build exposure to even higher-growth end markets by acquiring complementary businesses and launching new events in high-growth sectors. Our NBA partnership is one example of this. Looking ahead into the remainder of the year, we're excited to launch the first edition of our new casino Sabrosa Latin food show entering a fast-growing and untapped food market for wholesalers, retailers, and restaurants. Over time, we expect new event launches through our accelerator unit to contribute at least one to two percentage points of annual revenue growth. On the acquisition side, we continue to evaluate a diverse pool of potential acquisitions with the ability to bring Emerald's scale and operational efficiencies to shows within our highly fragmented industry. To conclude, we've been focused on building Emerald into a powerful platform that can only benefit from the ongoing COVID recovery, but also build on that momentum for years to come. We expect to see those benefits play out in the near term as our operating leverage enables us to add more shows, grow existing brands, and drive increased revenue by delivering value to our customers' marketing budgets. If you'll allow me a moment of reflection, I'm very pleased with where we are now and where Emerald is heading. When times were tough in the midst of COVID, we came up with a bold vision; one that was both grounded by the realities of the collapse of live events and inspired by the opportunities to envision the industry differently, more creatively, better adapted to our customers' individual experiences. I think we are at a pivotal moment in our industry, one where we may look back ten years from now and think, yes, that was the moment when the industry reimagined itself.

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

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

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

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

Okay. Thank you for that. I was also wondering about the accelerator initiative, 1 to 2 percentage points kind of increment through accelerator. Could you talk a little bit about these new kinds of events? Is the idea that these are loss leaders and evolve over time into profits? How should we think about the profit contribution from this portion of your growth opportunity?

Yes, I'll take that. And maybe we have an echo here. Barton, this is Hervé. So yes, what we see with our accelerator business unit is, in essence, an investment in growth and really creating a much bigger and valuable asset over time. So we started investing in this initiative a couple of years ago. We've launched nine different brands. And those brands on a year-to-date or by end of '23 will overall lose some money. So it's definitely a net investment. By 2026, they will now be producing revenue and earnings. And so what we'll have by the end of 2026 is a new asset that will have been paid for over the period of 2021 to 2026. And so we see it definitely as a net investment in the short term. It starts to pay off in the outer years. And then in a couple of years, we'll be left with an asset that will continue to grow and drive value.

Just to build on that, Barton. So in 2023, implied in our numbers, does assume a low to mid-single-digit million-dollar investment for new event launches. And so it is a drag. It's implied in the numbers. And we do expect that those losses will moderate over the next couple of years before becoming a more meaningful contributor, more on the timeframe that Hervé noted. But as you said, it's building an asset at very low cost with a very high return, and the whole philosophy here around investing in growth and launching new events is we could wait five years and buy an event from an entrepreneur who launched into a greenfield market and pay them a multiple, or we can be the entrepreneurs ourselves, launch into those markets, and have those businesses essentially self-fund over a couple of years and own the business for nothing. And so that's the idea. That's what we're pursuing. And so with nine event launches, they may not all become meaningful contributors, but we surely expect a few of them will. We talked a lot about the NBA partnership, and we are very high on the opportunity to build a sustainable asset there as well as in some of the other areas where we've launched new events.

I think the key here, Barton, from our perspective, is, I would say, the discipline around this business that we've built. It's a separate team; it's a focused team. We have a research function within that team. We have a very disciplined three-gate review process to go through them. To David's point, if brands are not delivering, then we have absolutely no issue moving on from them. But overall, it's a meaningful growth driver for us.

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

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

We have our next question from Allen Klee with Maxim Group.

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

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

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

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

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

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

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

So I mentioned pricing earlier. Pricing versus 2019 is up over 20%; pricing versus 2022 is up around 10%. And so there is a nice step forward in pricing this year as we catch up a bit on the opportunity there with our new initiatives focused on price. In terms of attendees, attendees almost doubled from last year in the quarter. And MSF was up more in the high single-digit percent in the quarter. And so it's great to see attendees coming back. It's a bit of chicken and egg in terms of the growth of these businesses. If we can bring the attendees, the exhibitors follow; if we have the right scale of the exhibitors, the attendees follow. And so it's good to see the progress on that front in the quarter. The number of exhibitors, you should use the number of attendees as the tracker; I'm sorry, the number of the NSF is a tracker of exhibitors. I guess the other thing I'd add on that is, it depends on the calendar quarter-to-quarter. We've talked a bit about the mix of the business and different industries coming back at different trajectories. Q2 does happen to have some of the areas that are coming back a little bit slower. And so we would expect some of those metrics to bounce around a little bit quarter-to-quarter.

We have no further questions at this time. Presenters, please proceed with your closing remarks.

Okay. Well, thank you all very much. In closing, I'm very happy with the progress that we've made. I'm also very excited about the opportunities that are ahead. I thank you all for your time and speak with you next quarter. Have a great rest of your day, and goodbye.

And thank you, ladies and gentlemen. This concludes your conference. Please disconnect your lines.