UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
or
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-38076
Emerald Holding, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
42-1775077 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
100 Broadway
14th Floor
New York, New York 10005
(Address of principal executive offices, zip code)
(Registrant’s telephone number, including area code): (949) 226-5700
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Common Stock, par value $0.01 per share |
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EEX |
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New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☐ |
Accelerated filer |
☒ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
☐ |
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Emerging growth company |
☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 28, 2021, there were 71,238,094 shares of the Registrant’s common stock, par value $0.01, outstanding.
EMERALD HOLDING, INC.
TABLE OF CONTENTS
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect”, “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek” or “should,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, including growth of our various markets, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this report are forward-looking statements. In addition, statements contained in this Quarterly Report on Form 10-Q relating to the COVID-19 pandemic, the potential impacts of which are inherently uncertain, are forward-looking statements.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements, or could affect the trading price of our common stock on the New York Stock Exchange. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:
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• |
the extent of the impact of COVID-19 on our business, including the duration, spread, severity and any variants or recurrence of the COVID-19 pandemic, the actions that governments, businesses and individuals take in response to the pandemic, including limiting or banning travel and limitations on the size of gatherings; |
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disruptions in global or local travel conditions and quarantines due to COVID-19, other communicable diseases and terrorist actions; |
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the extent of the impact of COVID-19 on overall demand for face-to-face events and related risks associated with event cancellations or postponements; |
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our ability to recover proceeds under our current event cancellation insurance policy and the timing of any such insurance recoveries, as well as our ability to obtain similar event cancellation insurance in the future; |
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the outcome of our recently-commenced litigation against the insurers to recover amounts due under our event cancellation insurance policies; |
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the potential impairment of intangible assets, including goodwill, on our balance sheet; |
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general economic conditions; |
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our ability to secure desirable dates and locations for our trade shows; |
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ability to assess and respond to changing market trends, including digital and virtual show offerings; |
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the failure to attract high-quality exhibitors and attendees; |
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the failure to fully realize the expected results and/or operating efficiencies from our strategic initiatives; |
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competition from existing operators or new competitors; |
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our top five trade shows generate a significant portion of our revenues; |
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the effect of shifts in marketing and advertising budgets to online initiatives; |
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our ability to retain our senior management team and our reliance on key full-time employees; |
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risks associated with our acquisition strategy and our ability to execute this strategy to accelerate growth; |
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our ability to use digital media and print publications to stay in close contact with our event audiences; |
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our and our exhibitors’ reliance on a limited number of outside contractors; |
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changes in legislation, regulation and government policy; |
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changes in U.S. tariff and import/export regulations; |
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our relationships with industry associations; |
1
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risks and costs associated with new trade show launches; |
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that we do not own certain of the trade shows that we operate; |
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the infringement or invalidation of proprietary rights; |
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disruption of our information technology systems; |
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the failure to maintain the integrity or confidentiality of employee or customer data; |
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risks associated with event cancellations or interruptions; our potential inability to utilize tax benefits associated with tax deductible amortization expenses; and |
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other factors beyond our control, including those listed under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) and in other filings we may make from time to time with the SEC. |
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this report are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this report, they may not be predictive of results or developments in future periods.
Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this report.
2
PART I — FINANCIAL INFORMATION
|
Item 1. |
Financial Statements |
Emerald Holding, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
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(dollars in millions, share data in thousands, except par value) |
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June 30, 2021 |
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December 31, 2020 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
302.8 |
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$ |
295.3 |
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Trade and other receivables, net of allowances of $0.9 million and $1.1 million as of June 30, 2021 and December 31, 2020, respectively |
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41.6 |
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30.7 |
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Insurance receivables |
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— |
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17.8 |
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Prepaid expenses and other current assets |
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14.2 |
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8.5 |
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Total current assets |
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358.6 |
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352.3 |
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Noncurrent assets |
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Property and equipment, net |
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3.8 |
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3.9 |
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Intangible assets, net |
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258.4 |
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275.0 |
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Goodwill |
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407.9 |
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404.3 |
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Right-of-use lease assets |
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16.0 |
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16.0 |
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Other noncurrent assets |
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2.3 |
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2.9 |
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Total assets |
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$ |
1,047.0 |
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$ |
1,054.4 |
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Liabilities and Stockholders’ Equity |
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Current liabilities |
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Accounts payable and other current liabilities |
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$ |
34.1 |
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$ |
31.1 |
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Cancelled event liabilities |
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8.5 |
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25.9 |
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Deferred revenues |
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119.2 |
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48.6 |
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Right-of-use lease liabilities, current portion |
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4.1 |
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4.3 |
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Term loan, current portion |
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5.7 |
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5.7 |
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Total current liabilities |
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171.6 |
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115.6 |
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Noncurrent liabilities |
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Term loan, net of discount and deferred financing fees |
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513.1 |
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515.3 |
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Deferred tax liabilities, net |
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3.8 |
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1.9 |
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Right-of-use lease liabilities, noncurrent portion |
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14.0 |
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13.4 |
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Other noncurrent liabilities |
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11.3 |
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13.7 |
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Total liabilities |
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713.8 |
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659.9 |
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Commitments and contingencies (Note 13) |
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Stockholders’ equity |
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7% Series A Convertible Participating Preferred stock, $0.01 par value; authorized shares at June 30, 2021 and December 31, 2020: 80,000; 71,442 and 71,445 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively |
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0.7 |
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0.7 |
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Common stock, $0.01 par value; authorized shares at June 30, 2021 and December 31, 2020: 800,000; 71,518 and 72,195 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively |
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0.7 |
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0.7 |
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Additional paid-in capital |
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1,088.8 |
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1,088.3 |
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Accumulated deficit |
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(757.0 |
) |
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(695.2 |
) |
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Total stockholders’ equity |
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333.2 |
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394.5 |
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Total liabilities and stockholders’ equity |
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$ |
1,047.0 |
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$ |
1,054.4 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Emerald Holding, Inc.
Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income
(unaudited)
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Three Months Ended |
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Six Months Ended |
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(dollars in millions, share data in thousands except earnings per share) |
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June 30, 2021 |
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June 30, 2020 |
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June 30, 2021 |
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June 30, 2020 |
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Revenues |
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$ |
15.0 |
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$ |
7.0 |
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$ |
27.9 |
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$ |
106.7 |
|
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Other income |
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2.3 |
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48.2 |
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16.4 |
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48.2 |
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Cost of revenues |
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3.6 |
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(0.8 |
) |
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7.6 |
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42.8 |
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Selling, general and administrative expense |
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33.1 |
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25.1 |
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63.9 |
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63.2 |
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Depreciation and amortization expense |
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12.1 |
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12.2 |
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23.9 |
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25.0 |
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Goodwill impairment charge |
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— |
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— |
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|
— |
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564.0 |
|
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Intangible asset impairment charges |
|
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— |
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— |
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— |
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59.4 |
|
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Operating (loss) income |
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(31.5 |
) |
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18.7 |
|
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(51.1 |
) |
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(599.5 |
) |
|
Interest expense |
|
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4.1 |
|
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5.6 |
|
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8.1 |
|
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12.3 |
|
|
(Loss) income before income taxes |
|
|
(35.6 |
) |
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13.1 |
|
|
|
(59.2 |
) |
|
|
(611.8 |
) |
|
Provision for (benefit from) income taxes |
|
|
10.9 |
|
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3.2 |
|
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2.6 |
|
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(51.6 |
) |
|
Net (loss) income and comprehensive (loss) income |
|
|
(46.5 |
) |
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9.9 |
|
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|
(61.8 |
) |
|
|
(560.2 |
) |
|
Accretion on 7% Series A Convertible Participating Preferred Stock |
|
|
(7.4 |
) |
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(0.3 |
) |
|
|
(14.6 |
) |
|
|
(0.1 |
) |
|
Net (loss) income and comprehensive (loss) income attributable to Emerald Holding, Inc. common stockholders |
|
$ |
(53.9 |
) |
|
$ |
9.6 |
|
|
$ |
(76.4 |
) |
|
$ |
(560.3 |
) |
|
Basic (loss) income per share |
|
$ |
(0.75 |
) |
|
$ |
0.13 |
|
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$ |
(1.06 |
) |
|
$ |
(7.85 |
) |
|
Diluted (loss) income per share |
|
$ |
(0.75 |
) |
|
$ |
0.13 |
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$ |
(1.06 |
) |
|
$ |
(7.85 |
) |
|
Basic weighted average common shares outstanding |
|
|
71,938 |
|
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71,444 |
|
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|
72,091 |
|
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71,413 |
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Diluted weighted average common shares outstanding |
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71,938 |
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71,470 |
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72,091 |
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71,413 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Emerald Holding, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
|
|
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Three Months Ended June 30, 2021 |
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(shares in thousands; dollars in millions) |
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Preferred Stock |
|
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Common Stock |
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Additional Paid-in |
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Accumulated |
|
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Total Stockholders’ |
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|||||||||||||
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Shares |
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Amount |
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Shares |
|
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Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||||
|
Balances at March 31, 2021 |
|
|
71,445 |
|
|
$ |
0.7 |
|
|
|
72,221 |
|
|
$ |
0.7 |
|
|
$ |
1,090.0 |
|
|
$ |
(710.5 |
) |
|
$ |
380.9 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
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|
17 |
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|
— |
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2.8 |
|
|
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— |
|
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2.8 |
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Issuance of common stock under equity plans |
|
|
— |
|
|
|
— |
|
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4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Conversion of 7% Series A Convertible Participating Preferred stock |
|
|
(3 |
) |
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
(728 |
) |
|
|
— |
|
|
|
(4.0 |
) |
|
|
— |
|
|
|
(4.0 |
) |
|
Net loss and comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(46.5 |
) |
|
|
(46.5 |
) |
|
Balances at June 30, 2021 |
|
|
71,442 |
|
|
$ |
0.7 |
|
|
|
71,518 |
|
|
$ |
0.7 |
|
|
$ |
1,088.8 |
|
|
$ |
(757.0 |
) |
|
$ |
333.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021 |
|
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(shares in thousands; dollars in millions) |
|
|||||||||||||||||||||||||
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||||
|
Balances at December 31, 2020 |
|
|
71,445 |
|
|
$ |
0.7 |
|
|
|
72,195 |
|
|
$ |
0.7 |
|
|
$ |
1,088.3 |
|
|
$ |
(695.2 |
) |
|
$ |
394.5 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
226 |
|
|
|
— |
|
|
|
5.6 |
|
|
|
— |
|
|
|
5.6 |
|
|
Issuance of common stock under equity plans |
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Conversion of 7% Series A Convertible Participating Preferred stock |
|
|
(3 |
) |
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
(930 |
) |
|
|
— |
|
|
|
(5.1 |
) |
|
|
— |
|
|
|
(5.1 |
) |
|
Net loss and comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(61.8 |
) |
|
|
(61.8 |
) |
|
Balances at June 30, 2021 |
|
|
71,442 |
|
|
$ |
0.7 |
|
|
|
71,518 |
|
|
$ |
0.7 |
|
|
$ |
1,088.8 |
|
|
$ |
(757.0 |
) |
|
$ |
333.2 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Emerald Holding, Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited)—Continued
|
|
|
Three Months Ended June 30, 2020 |
|
|||||||||||||||||||||||||
|
|
|
(shares in thousands; dollars in millions) |
|
|||||||||||||||||||||||||
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Total Stockholders’ |
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
|||||||
|
Balances at March 31, 2020 |
|
|
— |
|
|
$ |
— |
|
|
|
71,441 |
|
|
$ |
0.7 |
|
|
$ |
697.9 |
|
|
$ |
(631.8 |
) |
|
$ |
66.8 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
1.1 |
|
|
|
— |
|
|
|
1.1 |
|
|
Issuance of 7% Series A Convertible Participating Preferred stock |
|
|
47,058 |
|
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
251.5 |
|
|
|
— |
|
|
|
252.0 |
|
|
Net income and comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9.9 |
|
|
|
9.9 |
|
|
Balances at June 30, 2020 |
|
|
47,058 |
|
|
$ |
0.5 |
|
|
|
71,453 |
|
|
$ |
0.7 |
|
|
$ |
950.5 |
|
|
$ |
(621.9 |
) |
|
$ |
329.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020 |
|
|||||||||||||||||||||||||
|
|
|
(shares in thousands; dollars in millions) |
|
|||||||||||||||||||||||||
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Total stockholders’ |
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
|||||||
|
Balances at December 31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
71,352 |
|
|
$ |
0.7 |
|
|
$ |
701.1 |
|
|
$ |
(61.6 |
) |
|
$ |
640.2 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
89 |
|
|
|
— |
|
|
|
3.2 |
|
|
|
— |
|
|
|
3.2 |
|
|
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.4 |
) |
|
|
— |
|
|
|
(5.4 |
) |
|
Issuance of common stock under equity plans |
|
|
— |
|
|
|
— |
|
|
|
27 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
|
Issuance of 7% Series A Convertible Participating Preferred stock |
|
|
47,058 |
|
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
251.5 |
|
|
|
— |
|
|
|
252.0 |
|
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
(15 |
) |
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
Net loss and comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(560.2 |
) |
|
|
(560.2 |
) |
|
Balances at June 30, 2020 |
|
|
47,058 |
|
|
$ |
0.5 |
|
|
|
71,453 |
|
|
$ |
0.7 |
|
|
$ |
950.5 |
|
|
$ |
(621.9 |
) |
|
$ |
329.8 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Emerald Holding, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
(in millions) |
|
Six Months Ended June 30, 2021 |
|
|
Six Months Ended June 30, 2020 |
|
||
|
Operating activities |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(61.8 |
) |
|
$ |
(560.2 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
5.8 |
|
|
|
2.7 |
|
|
Provision for credit losses |
|
|
0.2 |
|
|
|
0.2 |
|
|
Depreciation and amortization |
|
|
23.9 |
|
|
|
25.0 |
|
|
Goodwill impairment |
|
|
— |
|
|
|
564.0 |
|
|
Intangible asset impairments |
|
|
— |
|
|
|
59.4 |
|
|
Non-cash operating lease expense |
|
|
1.6 |
|
|
|
1.7 |
|
|
Amortization of deferred financing fees and debt discount |
|
|
0.8 |
|
|
|
0.7 |
|
|
Remeasurement of contingent consideration |
|
|
1.5 |
|
|
|
0.4 |
|
|
Deferred income taxes |
|
|
1.9 |
|
|
|
(56.0 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
(10.9 |
) |
|
|
8.0 |
|
|
Insurance receivables |
|
|
17.8 |
|
|
|
(33.2 |
) |
|
Prepaid expenses and other current assets |
|
|
(5.6 |
) |
|
|
15.2 |
|
|
Other noncurrent assets |
|
|
0.4 |
|
|
|
— |
|
|
Accounts payable and other current liabilities |
|
|
2.2 |
|
|
|
7.3 |
|
|
Cancelled event liabilities |
|
|
(17.4 |
) |
|
|
45.6 |
|
|
Income tax payable |
|
|
0.7 |
|
|
|
3.4 |
|
|
Deferred revenues |
|
|
70.0 |
|
|
|
(104.4 |
) |
|
Operating lease liabilities |
|
|
(1.0 |
) |
|
|
(1.5 |
) |
|
Other noncurrent liabilities |
|
|
(3.4 |
) |
|
|
(0.9 |
) |
|
Net cash provided by (used in) operating activities |
|
|
26.7 |
|
|
|
(22.6 |
) |
|
Investing activities |
|
|
|
|
|
|
|
|
|
Acquisition of businesses |
|
|
(7.0 |
) |
|
|
— |
|
|
Purchases of property and equipment |
|
|
(0.6 |
) |
|
|
(0.8 |
) |
|
Purchases of intangible assets |
|
|
(1.7 |
) |
|
|
(1.5 |
) |
|
Net cash used in investing activities |
|
|
(9.3 |
) |
|
|
(2.3 |
) |
|
Financing activities |
|
|
|
|
|
|
|
|
|
Payment of deferred consideration for acquisition of businesses |
|
|
(2.0 |
) |
|
|
(0.5 |
) |
|
Proceeds from borrowings on revolving credit facility |
|
|
— |
|
|
|
95.0 |
|
|
Repayment of revolving credit facility |
|
|
— |
|
|
|
(105.0 |
) |
|
Repayment of principal on term loan |
|
|
(2.8 |
) |
|
|
(2.8 |
) |
|
Fees paid for revolving credit facility extension |
|
|
(0.1 |
) |
|
|
— |
|
|
Cash dividends paid |
|
|
— |
|
|
|
(5.4 |
) |
|
Repurchase of common stock |
|
|
(5.1 |
) |
|
|
(0.1 |
) |
|
Proceeds from issuance of preferred stock |
|
|
— |
|
|
|
263.5 |
|
|
Payment of preferred stock offering costs |
|
|
— |
|
|
|
(10.9 |
) |
|
Proceeds from issuance of common stock under equity plans |
|
|
0.1 |
|
|
|
0.1 |
|
|
Net cash (used in) provided by financing activities |
|
|
(9.9 |
) |
|
|
233.9 |
|
|
Net increase in cash and cash equivalents |
|
|
7.5 |
|
|
|
209.0 |
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
295.3 |
|
|
|
9.6 |
|
|
End of period |
|
$ |
302.8 |
|
|
$ |
218.6 |
|
|
Supplemental schedule of non-cash financing activities |
|
|
|
|
|
|
|
|
|
Preferred stock offering costs |
|
$ |
— |
|
|
$ |
0.7 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
1. |
Basis of Presentation |
The unaudited condensed consolidated financial statements include the operations of Emerald Holding, Inc. (the “Company” or “Emerald”) and its wholly-owned subsidiaries. These unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC for Interim Reporting. All intercompany transactions, accounts and profits/losses, if any, have been eliminated in the unaudited condensed consolidated financial statements. In the opinion of management, all recurring adjustments considered necessary for a fair statement of results for the interim period have been included.
These unaudited condensed consolidated financial statements do not include all disclosures required by GAAP, therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2020. The December 31, 2020 condensed consolidated balance sheet was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2020.
The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for a full year, any other interim periods or any future year or period.
Liquidity Position and Management’s Plans
In March 2020, the World Health Organization categorized the Coronavirus Disease 2019 (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. In conjunction with this declaration and the spread of COVID-19 across the 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 by the 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 in October 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 events 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 ended December 31, 2021 is expected. During the year ended December 31, 2020 and continuing into the six months ended June 30, 2021, 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 $382.7 million; |
|
|
• |
Reducing its expense structure across all key areas of discretionary spending; |
|
|
• |
Significantly reducing the use of outside contractors; |
|
|
• |
Suspending the previous quarterly cash dividend. |
8
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 in 2020 and 2021, totaled $123.4 million and zero, respectively. During the three and six months ended June 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 for the first half of 2021, $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 ended June 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 in July 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.
On March 27, 2020, the U.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 by December 31, 2021 and the remaining 50% due by December 31, 2022.
As of June 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 of June 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 June 30, 2021, the Company was in compliance with the covenants contained in the Amended and Restated Senior Secured Credit Facilities.
Use of Estimates and Judgments
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates its estimates and judgments compared to historical experience and expected trends. The COVID-19 pandemic and related effects are dynamic and ongoing, and the Company has considered its impact when developing its estimates and assumptions. Actual results and outcomes may differ from management's estimates and assumptions.
|
2. |
Recent Accounting Pronouncements |
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions and adding further guidance to simplify the accounting for income taxes. The standard removes certain exceptions related to intra-period tax allocations, the
9
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
methodology for calculating income taxes in interim periods and the recognition of deferred taxes for investments. The standard also clarifies and amends existing guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The Company adopted ASU 2019-12 on January 1, 2021, which did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden of accounting for (or recognizing the effects of) reference rate reform. The amendments in ASU 2020-04 are effective upon issuance through December 31, 2022 and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company does not expect the adoption of this accounting standard to have a material impact on the Company’s condensed consolidated financial statements.
There have been no other new accounting pronouncements that are expected to have a significant impact on the Company’s condensed consolidated financial statements or notes thereto.
|
3. |
Revenues |
Impact of COVID-19
The COVID-19 pandemic has had, and will continue to have, a severe and unprecedented impact on the world. Measures to prevent its spread, including government-imposed restrictions on large gatherings, indefinite closures of event venues, “shelter in place” health orders and travel restrictions have had a significant effect on the production of the Company’s trade shows and other events. Due to the measures governments and private organizations implemented in order to stem the spread of COVID-19, the Company cancelled all but one of the trade shows and other events which had been scheduled to stage in the second half of March 2020 through December 2020, and also cancelled or postponed numerous trade shows and other events in the first half of 2021.
These actions have had an unprecedented and materially adverse impact on the Company’s revenues and financial position. The length of the travel restrictions and social distancing measures to prevent the spread of COVID-19 is uncertain, though management expects many of the travel restrictions and social distancing measures implemented to prevent the spread of COVID-19 to be lifted for travel within the United States in the second half of 2021. The length of the travel restrictions for international travel remains uncertain.
Revenue Recognition and Deferred Revenue
Revenue is recognized as the customer receives the benefit of the promised services and performance obligations are satisfied. Revenue is recognized at an amount that reflects the consideration the Company expects to receive in exchange for those services. Customers generally receive the benefit of the Company’s services upon the staging of each trade show or conference event and over the subscription period for access to the Company’s subscription software and services.
A significant portion of the Company’s annual revenue is generated from the production of trade shows and conference events (collectively, “trade shows”), including booth space sales, registration fees and sponsorship fees. Trade show revenues represented approximately 26% and 34% of total revenues for the three and six months ended June 30, 2021, respectively. Trade show revenues represented approximately 5.7% and 87.1% of total revenues for the three and six months ended June 30, 2020, respectively. As a result of the COVID-19 related show cancellations and postponements, trade show revenues declined significantly during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, which included the results of a first quarter relatively unaffected by COVID-19.
Deferred revenues generally consist of booth space sales, registration fees and sponsorship fees that are invoiced prior to a trade show, as well as software subscription fees, professional services and implementation fees for the Company’s subscription software and services. Current deferred revenues were $119.2 million as of June 30, 2021 and are reported
10
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
as deferred revenues on the condensed consolidated balance sheets. Long-term deferred revenues as of June 30, 2021 were $0.2 million and are reported as other noncurrent liabilities on the condensed consolidated balance sheets. Total deferred revenues, including the current and noncurrent portions, were $119.4 million as of June 30, 2021. Current and long-term deferred revenues as of December 31, 2020 were $48.6 million and zero, respectively. During the three and six months ended June 30, 2021, the Company recognized revenues of $9.3 million and $14.8 million, respectively, from amounts included in deferred revenue at the beginning of the respective period. During the three and six months ended June 30, 2020, the Company recognized revenues of $1.2 million and $84.2 million, respectively, from amounts included in deferred revenue at the beginning of the respective period.
The Company cancelled all but one of the trade shows and other events which had been scheduled to stage in the second half of March 2020 through December 2020, and also cancelled or postponed all trade shows and other events in the first half of 2021, except for several relatively small live events that staged in the six months of 2021. 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 total amount represents balances which are expected to be refunded to customers. As of June 30, 2021, cancelled event liabilities of $8.5 million represents $3.5 million of deferred revenues for cancelled trade shows and $5.0 million of related accounts receivable reclassified to cancelled event liabilities in the condensed consolidated balance sheets. As of December 31, 2020, cancelled event liabilities of $25.9 million represents $13.6 million of deferred revenues for cancelled trade shows and $12.3 million of related accounts receivable reclassified to cancelled event liabilities in the condensed consolidated balance sheets.
Performance Obligations
For the Company’s trade shows and other events, sales are deferred and recognized when performance obligations under the terms of a contract with the Company’s customers are satisfied, which is typically at the completion of a show or event. Revenue is measured as the amount of consideration the Company expects to receive upon completion of its performance obligations.
For the Company’s subscription software and services, the Company enters into contracts with customers that often include multiple performance obligations, which are generally capable of being distinct. Fees associated with implementation and professional services are deferred and recognized over the expected customer life, which is four years. Subscription revenue is generally recognized over the term of the contract. The Company’s contracts associated with the subscription software and services are generally three-year terms with one-year renewals following the initial three-year term. Revenue is measured as the amount of consideration the Company expects to receive upon completion of its performance obligations.
For the Company’s other marketing services, sales are deferred and recognized when performance obligations under the terms of a contract with the Company’s customers are satisfied. This generally occurs in the period in which the publications are issued. Revenue is measured as the amount of consideration the Company expects to receive upon completion of its performance obligations.
The Company applies a practical expedient which allows the exclusion of disclosure information regarding remaining performance obligations if the performance obligation is part of a contract that has an expected duration of one year or less. The Company’s performance obligations greater than one year are immaterial.
Disaggregation of Revenue
The Company’s primary sources of revenue are from trade shows, other events, subscription software and services and other marketing services.
11
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table represents revenues disaggregated by type:
|
|
|
Reportable Segment |
|
|
|
|
||||||||||
|
|
|
Commerce |
|
|
Design and Technology |
|
|
All Other |
|
|
Total |
|
||||
|
Three Months Ended June 30, 2021 |
|
(in millions) |
|
|||||||||||||
|
Trade shows |
|
$ |
2.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2.0 |
|
|
Other events |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
1.9 |
|
|
Subscription software and services |
|
|
— |
|
|
|
— |
|
|
|
2.8 |
|
|
|
2.8 |
|
|
Other marketing services |
|
|
1.4 |
|
|
|
4.0 |
|
|
|
2.9 |
|
|
|
8.3 |
|
|
Total revenues |
|
$ |
3.9 |
|
|
$ |
4.7 |
|
|
$ |
6.4 |
|
|
$ |
15.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade shows |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Other events |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Subscription software and services |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other marketing services |
|
|
1.5 |
|
|
|
3.9 |
|
|
|
1.6 |
|
|
|
7.0 |
|
|
Total revenues |
|
$ |
1.5 |
|
|
$ |
3.9 |
|
|
$ |
1.6 |
|
|
$ |
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade shows |
|
$ |
5.6 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5.6 |
|
|
Other events |
|
|
1.4 |
|
|
|
1.1 |
|
|
|
1.4 |
|
|
|
3.9 |
|
|
Subscription software and services |
|
|
— |
|
|
|
— |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
Other marketing services |
|
|
2.6 |
|
|
|
6.6 |
|
|
|
4.2 |
|
|
|
13.4 |
|
|
Total revenues |
|
$ |
9.6 |
|
|
$ |
7.7 |
|
|
$ |
10.6 |
|
|
$ |
27.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade shows |
|
$ |
47.9 |
|
|
$ |
28.5 |
|
|
$ |
2.3 |
|
|
$ |
78.7 |
|
|
Other events |
|
|
— |
|
|
|
4.4 |
|
|
|
9.8 |
|
|
|
14.2 |
|
|
Subscription software and services |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other marketing services |
|
|
3.1 |
|
|
|
7.8 |
|
|
|
2.9 |
|
|
|
13.8 |
|
|
Total revenues |
|
$ |
51.0 |
|
|
$ |
40.7 |
|
|
$ |
15.0 |
|
|
$ |
106.7 |
|
Contract Balances
The Company’s contract assets are primarily sales commissions incurred in connection with the Company’s subscription software and services, which are expensed over the expected customer relationship period. As of June 30, 2021, the Company does not have material contract assets.
Contract liabilities generally consist of booth space sales, registration fees, sponsorship fees that are collected prior to the trade show or other event and subscription revenue, implementation fees and professional services associated with the Company’s subscription software and services. Contract liabilities less than one year from the date of the performance obligation are reported on the condensed consolidated balance sheets as deferred revenues. Contract liabilities greater than one year from the date of the performance obligation are reported on the condensed consolidated balance sheets in other noncurrent liabilities.
The Company’s sales commission costs incurred in connection with sales of booth space, registration fees and sponsorship fees at the Company’s trade shows and other events and with sales of advertising for industry publications are generally short term, as sales generally begin up to one year prior to the date of the trade shows and other events. The Company expects the period benefited by each commission to be less than one year, and as a result, the Company expenses sales commissions associated with trade shows, other events and other marketing services as incurred. Sales commissions are reported on the condensed consolidated statements of (loss) income and comprehensive (loss) income as selling, general and administrative expense.
12
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Accounts Receivable
The Company monitors collections and payments from its customers and maintains an allowance based upon applying an expected credit loss rate to receivables based on the historical loss rate from similar higher risk customers adjusted for current conditions, including any specific customer collection issues identified, and forecasts of economic conditions. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The activities in this account, including the current-period provision for expected credit losses for the three and six months ended June 30, 2021, were not material.
|
4. |
Business Acquisitions |
In December 2020, the Company acquired the assets and assumed the liabilities of PlumRiver Technologies (“PlumRiver”) and EDspaces for total purchase prices of $46.4 million and $3.6 million, respectively. The measurement periods for PlumRiver and EDspaces were closed in the second quarter of 2021 and the fourth quarter of 2020, respectively. In April 2021, the Company acquired the assets and assumed the liabilities of Sue Bryce Education and The Portrait Masters for a total purchase price of $7.7 million, which included contingent consideration with an estimated fair value of $1.0 million. The measurement period for Sue Bryce Education and The Portrait Masters was closed in the second quarter of 2021. Each of the transactions qualified as acquisition of a business and were accounted for as business combinations.
The Company recorded goodwill of $3.4 million during the three and six months ended June 30, 2021. In the view of management, the goodwill recorded reflects the future cash flow expectations for the acquired businesses’ market positions in their respective industries, synergies and assembled workforce. Substantially all of the goodwill recorded is expected to be deductible for income tax purposes.
Sue Bryce Education and The Portrait Masters
The Company executed an asset purchase agreement on April 1, 2021, in furtherance of the Company’s strategy to provide year-round engagement for its customer base and to expand its digital commerce capabilities, the Company acquired certain assets and assumed certain liabilities associated with Sue Bryce Education and The Portrait Masters for a total estimated purchase price of $7.6 million, which included an initial cash payment of $6.9 million and contingent consideration with an estimated fair value of $0.8 million. Sue Bryce Education and The Portrait Masters is a subscription-based photography business education and e-learning service with a photography conference.
External acquisition costs of $0.1 million were expensed as incurred during the three months ended June 30, 2021 and included in selling, general and administrative expense in the consolidated statements of (loss) income and comprehensive (loss) income.
The following table summarizes the fair value of the acquired assets and liabilities on the acquisition date:
|
(in millions) |
|
April 1, 2021 |
|
|
|
Goodwill |
|
|
3.3 |
|
|
Intangible assets |
|
|
4.9 |
|
|
Deferred revenues |
|
|
(0.5 |
) |
|
Purchase price |
|
$ |
7.7 |
|
PlumRiver
The Company executed an asset purchase agreement on December 31, 2020, in furtherance of the Company’s strategy to provide year-round engagement for its customer base and to expand its digital commerce capabilities, the Company acquired certain assets and assumed certain liabilities associated with PlumRiver for a total estimated purchase price of $46.4 million, which included an initial cash payment of $30.0 million, $4.4 million in common stock, a working capital adjustment of approximately $1.1 million, a deferred payment of $2.0 million, which is due to be paid in July 2022, and contingent consideration with an estimated fair value of $10.0 million. The contingent consideration
13
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
consisted of three components with total potential future payments of $11.0 million including (i) $2.0 million for the achievement of a technological milestone expected to be paid in the second quarter of 2021, (ii) up to $2.0 million for the successful onboarding of qualified customers expected to be paid in the fourth quarter of 2021 and (iii) up to $7.0 million for the achievement of revenue targets expected to be paid in the first quarter of 2023. During the six months ended June 30, 2021, the Company determined that the technological milestone had been achieved and paid $2.0 million related to the achievement of the milestone. As of June 30, 2021, the estimated fair value of the contingent consideration was $8.3 million. The PlumRiver acquisition was financed with cash on hand and the issuance of 805,948 shares of the Company’s common stock.
External acquisition costs of $1.4 million were expensed as incurred and included in selling, general and administrative expense in the consolidated statements of (loss) income and comprehensive (loss) income.
The following table summarizes the fair value of the acquired assets and liabilities on the acquisition date:
|
(in millions) |
|
December 31, 2020 |
|
|
|
Trade and other receivables |
|
$ |
1.9 |
|
|
Goodwill |
|
|
25.3 |
|
|
Intangible assets |
|
|
20.0 |
|
|
Accounts payable and other current liabilities |
|
|
(0.3 |
) |
|
Deferred revenues |
|
|
(0.5 |
) |
|
Purchase price, including working capital adjustment |
|
$ |
46.4 |
|
|
5. |
Property and Equipment |
Property and equipment, net, consisted of the following:
|
(in millions) |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Furniture, equipment and other |
|
$ |
6.9 |
|
|
$ |
6.4 |
|
|
Leasehold improvements |
|
|
3.3 |
|
|
|
3.2 |
|
|
|
|
|
10.2 |
|
|
|
9.6 |
|
|
Less: Accumulated depreciation |
|
|
(6.4 |
) |
|
|
(5.7 |
) |
|
Property and equipment, net |
|
$ |
3.8 |
|
|
$ |
3.9 |
|
Depreciation expense related to property and equipment for the three and six months ended June 30, 2021 was $0.3 million and $0.6 million, respectively. Depreciation expense related to property and equipment for the three and six months ended June 30, 2020 was $0.3 million and $0.6 million, respectively.
14
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
6. |
Intangible Assets and Goodwill |
Intangible Assets, Net
Intangible assets, net consisted of the following:
|
(in millions) |
|
Indefinite- lived trade names |
|
|
Customer relationship intangibles |
|
|
Definite- lived trade names |
|
|
Acquired Technology |
|
|
Acquired Content |
|
|
Computer software |
|
|
Capitalized software in progress |
|
|
Total Intangible Assets |
|
||||||||
|
Gross carrying amount at June 30, 2021 |
|
$ |
65.9 |
|
|
$ |
372.1 |
|
|
$ |
91.3 |
|
|
$ |
6.4 |
|
|
$ |
1.5 |
|
|
$ |
13.0 |
|
|
$ |
3.5 |
|
|
$ |
553.7 |
|
|
Accumulated amortization |
|
|
— |
|
|
|
(273.2 |
) |
|
|
(11.4 |
) |
|
|
(0.5 |
) |
|
|
(0.1 |
) |
|
|
(10.1 |
) |
|
|
— |
|
|
|
(295.3 |
) |
|
Net carrying amount at June 30, 2021 |
|
$ |
65.9 |
|
|
$ |
98.9 |
|
|
$ |
79.9 |
|
|
$ |
5.9 |
|
|
$ |
1.4 |
|
|
$ |
2.9 |
|
|
$ |
3.5 |
|
|
$ |
258.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount at December 31, 2020 |
|
$ |
65.9 |
|
|
$ |
369.0 |
|
|
$ |
91.1 |
|
|
$ |
6.2 |
|
|
$ |
— |
|
|
$ |
12.3 |
|
|
$ |
2.5 |
|
|
$ |
547.0 |
|
|
Accumulated amortization |
|
|
— |
|
|
$ |
(253.4 |
) |
|
$ |
(9.1 |
) |
|
|
— |
|
|
|
— |
|
|
$ |
(9.5 |
) |
|
|
— |
|
|
|
(272.0 |
) |
|
Net carrying amount at December 31, 2020 |
|
$ |
65.9 |
|
|
$ |
115.6 |
|
|
$ |
82.0 |
|
|
$ |
6.2 |
|
|
$ |
— |
|
|
$ |
2.8 |
|
|
$ |
2.5 |
|
|
$ |
275.0 |
|
Amortization expense for the three and six months ended June 30, 2021 was $11.8 million and $23.3 million, respectively. Amortization expense for the three and six months ended June 30, 2020 was $11.9 million and $24.4 million, respectively.
Estimated future amortization expense as of June 30, 2021:
|
(in millions) |
|
June 30, 2021 |
|
|
|
2021 (Remaining 6 months) |
|
$ |
23.5 |
|
|
2022 |
|
|
44.8 |
|
|
2023 |
|
|
32.2 |
|
|
2024 |
|
|
13.3 |
|
|
2025 |
|
|
10.1 |
|
|
Thereafter |
|
|
65.1 |
|
|
|
|
$ |
189.0 |
|
Impairment of Indefinite-Lived Intangible Assets
During the first quarter of 2020, as a result of the COVID-19 pandemic’s impact on Emerald’s live events business, management revised its forecast for the future performance of several trade show brands. Management determined these circumstances to be a triggering event, and as a result of an interim impairment assessment, the Company recognized an impairment charge of $46.2 million related to its indefinite-lived intangible assets during the six months ended June 30, 2020. The impairment charge is recorded in intangible asset impairment charges on the condensed consolidated statements of (loss) income and comprehensive (loss) income. Indefinite-lived intangible asset impairment charges in the Commerce reportable segment and Design and Technology reportable segment were $24.1 million and $17.0 million, respectively, during the six months ended June 30, 2020. During the three and six months ended June 30, 2021, there have been no triggering events or changes in circumstances that would indicate the carrying
15
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
value of the Company’s indefinite-lived intangible assets are impaired. As such, no quantitative assessment for impairment was required during the first and second quarters of 2021.
Impairment of Long-Lived Assets Other than Goodwill
The impact of the COVID-19 pandemic on Emerald’s live events business during the first quarter of 2020 and the uncertainty around when live events would resume caused management to believe that the COVID-19 outbreak would continue have a material negative impact on the Company’s financial results once the outbreak was contained. These factors, including management’s revised forecast for the future performance of brands, indicated the carrying value of certain trade names and customer relationships may not be recoverable. As a result, the Company evaluated the recoverability of the related intangible assets to be held and used during the three months ended March 31, 2020. The recoverability test, based on an income approach indicated that certain of the customer relationship intangible assets and definite-lived trade names were impaired which resulted in an impairment charge of $13.2 million during the six months ended June 30, 2020. Long-lived asset impairments in the Commerce reportable segment and Design and Technology reportable segment were $6.7 million and $5.7 million, respectively, during the six months ended June 30, 2020. During the three and six months ended June 30, 2021, there have been no triggering events or changes in circumstances that would indicate the carrying value of the Company’s long-lived assets other than goodwill are not recoverable. As such, no quantitative assessment for impairment was required during the first and second quarters of 2021.
As a result of the ongoing uncertainty surrounding the impact of COVID-19 on Emerald’s operations, there can be no assurance that management will be able to conclude in future periods that it is more likely than not that the Company’s indefinite-lived intangible assets and long-lived assets other than goodwill are not impaired.
Goodwill
The table below summarizes the changes in the carrying amount of goodwill:
|
|
|
Reportable Segment |
|
|
|
|
|
|
|
|
|
|||||
|
(in millions) |
|
Commerce |
|
|
Design and Technology |
|
|
All Other |
|
|
Total |
|
||||
|
Balance at December 31, 2020 |
|
$ |
230.9 |
|
|
$ |
133.7 |
|
|
$ |
39.7 |
|
|
$ |
404.3 |
|
|
Acquisition |
|
|
— |
|
|
|
— |
|
|
|
3.4 |
|
|
|
3.4 |
|
|
Adjustments |
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
Balance at June 30, 2021 |
|
$ |
230.9 |
|
|
$ |
133.7 |
|
|
$ |
43.3 |
|
|
$ |
407.9 |
|
Impairment of Goodwill
The Company tests for impairment annually on October 31, and between annual tests if the Company becomes aware of an event or a change in circumstances that would indicate the carrying value may be impaired. During the first quarter of 2020, the impact of COVID-19 on the travel and events industry, Emerald’s cancellation of all live events through the end of the second quarter of 2020 as well as uncertainty around when the Company would be able to resume its normal operations, caused a significant and prolonged decline in the Company’s stock price, resulting in the market capitalization of the Company falling below its carrying value. As a result, management determined that a triggering event had occurred. Accordingly, the Company performed a quantitative assessment of the Company’s fair value of goodwill as of March 31, 2020 and concluded that the carrying value of several reporting units exceeded their respective fair values, resulting in a goodwill impairment of $564.0 million during the six months ended June 30, 2020. Goodwill impairment charges in the Commerce reportable segment and Design and Technology reportable segment were $340.6 million and $198.5 million, respectively, during the six months ended June 30, 2020.
During the three and six months ended June 30, 2021, management has determined there has been no triggering event. As such, no quantitative assessment for impairment was required during the first and second quarters of 2021. As a result of the ongoing uncertainty surrounding the impact of COVID-19 on Emerald’s operations, there can be no assurance that management will be able to conclude in future periods that it is more likely than not that the Company’s goodwill is not impaired.
16
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
7. |
Debt |
Long-term debt related to the Amended and Restated Term Loan Facility is comprised of the following indebtedness to various lenders:
|
(in millions) |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Amended and Restated Term Loan Facility, with interest at LIBOR plus 2.50% as of June 30, 2021 and December 31, 2020 (equal to 2.59% and 2.65% at June 30, 2021 and December 31, 2020, respectively) due 2024, net(a) |
|
$ |
518.8 |
|
|
$ |
521.0 |
|
|
Less: Current maturities |
|
|
5.7 |
|
|
|
5.7 |
|
|
Long-term debt, net of current maturities, debt discount and deferred financing fees |
|
$ |
513.1 |
|
|
$ |
515.3 |
|
|
(a) |
The Amended and Restated Term Loan Facility, a seven-year $565.0 million senior secured term loan facility, scheduled to mature on May 22, 2024 (the “Amended and Restated Term Loan Facility”), as of June 30, 2021 was recorded net of unamortized discount of $1.6 million and net of unamortized deferred financing fees of $2.0 million. The Amended and Restated Term Loan Facility as of December 31, 2020 was recorded net of unamortized discount of $2.0 million and net of unamortized deferred financing fees of $2.4 million. The fair market value of the Company’s debt under the Amended and Restated Term Loan Facility was $502.8 million as of June 30, 2021. |
Revolving Credit Facility
On February 14, 2020, Emerald Events Holding, Inc., the borrower under the Amended and Restated Senior Secured Credit Facilities, was renamed Emerald X, Inc (“Emerald X”). On June 25, 2021, Emerald X, Inc. entered into a Third Amendment to Amended and Restated Credit Agreement (the “Amendment”), by and among Emerald X, as Borrower, the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent, which amends that certain Amended and Restated Credit Agreement, dated as of May 22, 2017. Pursuant to the Amendment, the existing Credit Agreement was modified as follows:
|
|
• |
The maturity of the revolving commitments under the Credit Agreement was extended by 18 months to November 23, 2023; |
|
|
• |
The aggregate revolving commitments under the Credit Agreement was reduced from $150,000,000 to $110,000,000; |
|
|
• |
A condition to future revolving advances was added such that the Borrower is only permitted to borrow new revolving loans if the aggregate amount of unrestricted cash of the Borrower and its consolidated subsidiaries is no more than $40,000,000 (subject to certain exceptions and exclusions); and |
|
|
• |
From and after the effective date of the Amendment, certain dividends and distributions to stockholders will be limited to the greater of (i) $40,000,000 and (ii) 35% of the cumulative amount of Consolidated EBITDA (excluding proceeds of event cancellation insurance), with amounts incurred in reliance on clause (i) above not to exceed $20,000,000 in any one fiscal year. |
Emerald X had no borrowings outstanding under its Revolving Credit Facility as of June 30, 2021 and December 31, 2020, respectively. Emerald X had $1.0 million in stand-by letters of credit outstanding under the Revolving Credit Facility as of June 30, 2021 and December 31, 2020. For the period ended August 6, 2020, borrowings under the Revolving Credit Facility were subject to an interest rate equal to LIBOR plus 2.75% or ABR plus 1.75%. As a result of Company’s Total First Lien Net Leverage Ratio decreasing below 2.50 to 1.00 (as defined in the Amended and Restated Senior Secured Credit Facilities), from August 7, 2020 through June 30, 2021, borrowings under the Revolving Credit Facility were subject to an interest rate equal to LIBOR plus 2.25% or ABR plus 1.25%.
17
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Interest Expense
Interest expense reported in the condensed consolidated statements of (loss) income and comprehensive (loss) income consists of the following:
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
(in millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Senior secured term loan |
|
$ |
3.6 |
|
|
$ |
4.4 |
|
|
$ |
7.0 |
|
|
$ |
10.4 |
|
|
Non-cash interest for amortization of debt discount and debt issuance costs |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.8 |
|
|
|
0.7 |
|
|
Revolving credit facility interest and commitment fees |
|
|
0.1 |
|
|
|
0.8 |
|
|
|
0.3 |
|
|
|
1.2 |
|
|
Total interest expense |
|
$ |
4.1 |
|
|
$ |
5.6 |
|
|
$ |
8.1 |
|
|
$ |
12.3 |
|
Covenants
The Revolving Credit Facility contains a financial covenant requiring Emerald X to comply with a 5.50 to 1.00 Total First Lien Net Leverage Ratio, which is defined as the ratio of Consolidated Total Debt (as defined in the Amended and Restated Senior Secured Credit Facilities) secured on a first lien basis, net of unrestricted cash and cash equivalents to trailing four-quarter Consolidated EBITDA (as defined in the Amended and Restated Senior Secured Credit Facilities). This financial covenant is tested on the last day of each quarter only if the aggregate amount of revolving loans, swingline loans and letters of credit outstanding under the Revolving Credit Facility (net of up to $10.0 million of outstanding letters of credit) exceeds 35% of the total commitments thereunder. As of June 30, 2021, the Company was not required to test this financial covenant and Emerald X was in compliance with all covenants under the Amended and Restated Senior Secured Credit Facilities.
|
8. |
Fair Value Measurements and Financial Risk |
As of June 30, 2021, the Company’s assets measured at fair value on a recurring basis are categorized in the table below:
|
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
23.1 |
|
|
$ |
23.1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Money market mutual funds(a) |
|
|
279.7 |
|
|
|
279.7 |
|
|
|
— |
|
|
|
— |
|
|
Total assets at fair value |
|
$ |
302.8 |
|
|
$ |
302.8 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market-based share awards liability(b) |
|
$ |
0.5 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.5 |
|
|
Contingent consideration(b) |
|
|
13.8 |
|
|
|
— |
|
|
|
— |
|
|
|
13.8 |
|
|
Total liabilities at fair value |
|
$ |
14.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
14.3 |
|
|
(a) |
The fair values of the Company’s money market mutual funds are based on the closing price of these assets as of the reporting date. The Company’s money market mutual funds are quoted in an active market and classified as Level 1 assets. |
|
(b) |
Included within other noncurrent liabilities in the condensed consolidated balance sheet. The fair value of the Company’s market-based share awards and contingent consideration are derived from valuation techniques in which one or more significant inputs are unobservable, including the Company’s own assumptions. |
18
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of December 31, 2020, the Company’s assets measured at fair value on a recurring basis are categorized in the table below:
|
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4.2 |
|
|
$ |
4.2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Money market mutual funds(a) |
|
|
291.1 |
|
|
|
291.1 |
|
|
|
— |
|
|
|
— |
|
|
Total assets at fair value |
|
$ |
295.3 |
|
|
$ |
295.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market-based share awards liability(b) |
|
$ |
0.4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.4 |
|
|
Contingent consideration(b) |
|
|
13.3 |
|
|
|
— |
|
|
|
— |
|
|
|
13.3 |
|
|
Total liabilities at fair value |
|
$ |
13.7 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
13.7 |
|
|
(a) |
The fair values of the Company’s money market mutual funds are based on the closing price of these assets as of the reporting date. The Company’s money market mutual funds are quoted in an active market and classified as Level 1 assets. |
|
(b) |
Included within other noncurrent liabilities in the condensed consolidated balance sheet. The fair value of the Company’s market-based share awards and contingent consideration are derived from valuation techniques in which one or more significant inputs are unobservable, including the Company’s own assumptions. |
The market-based share awards liability of $0.5 million and $0.4 million as of June 30, 2021 and December 31, 2020, respectively, entitles the grantees of these awards the right to receive shares of common stock equal to a maximum cash value of $9.8 million, in the aggregate, upon achievement of specified targeted share prices measured over sixty days within a ninety-day trading period. The liability is measured at fair value and is re-measured to an updated fair value at each reporting period. The Company recognizes stock-based compensation expense for awards subject to market-based vesting conditions regardless of whether it becomes probable that these conditions will be achieved or not. The stock-based compensation expense is included in selling, general and administrative expense in the condensed consolidated statements of (loss) income and comprehensive (loss) income. Refer to Footnote 10, Stock-Based Compensation, under the heading Market-based Share Awards for significant unobservable inputs for the market-based share award liability.
As of June 30, 2021 and December 31, 2020, the Company had $13.8 million and $13.3 million, respectively, in contingent consideration liabilities measured at fair value related to the Company’s acquisitions of G3 Communications, PlumRiver, Sue Bryce Education and The Portrait Masters and EDspaces. The contingent consideration liability of $13.8 million as of June 30, 2021 consists of liabilities of $1.9 million, $4.4 million, $7.2 million and $0.3 million, which are expected to be settled in 2021, 2022, 2023 and 2024, respectively. The contingent consideration liability of $13.3 million as of December 31, 2020 consists of liabilities of $3.8 million, $2.9 million and $6.6 million, which are expected to be settled in 2021, 2022 and 2023, respectively. During the second quarter of 2021, the Company paid $2.0 million in contingent consideration related to the achievement of a technological functionality milestone related to PlumRiver. The liabilities are re-measured to fair value each reporting period. As a result of the Company’s remeasurements during second quarter of 2021, the Company recorded a $1.1 million increase in fair value of contingent consideration, which is included in selling, general and administrative expense in the condensed consolidated statements of (loss) income and comprehensive (loss) income.
The determination of the fair value of the contingent consideration liabilities could change in future periods. Any such changes in fair value will be reported in selling, general and administrative expense in the condensed consolidated statements of (loss) income and comprehensive (loss) income.
Financial Risk
The Company’s condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amount of assets and liabilities.
19
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
9. |
Stockholders’ Equity |
Series A Convertible Participating Preferred Stock
On June 10, 2020, the Company entered into the Investment Agreement with Onex, pursuant to which the Company agreed to (i) issue to an affiliate of Onex, in the Initial Private Placement 47,058,332 shares of Preferred Stock for the Series A Price of $5.60 per share and (ii) effect the Rights Offering to holders of its outstanding common stock of one non-transferable subscription right for each share of the Company’s common stock held, with each right entitling the holder to purchase one share of Preferred Stock at the Series A Price per share. Emerald received proceeds of $373.3 million, net of fees and expenses of $15.3 million, from the sale of 69,718,919 shares Preferred Stock to Onex and proceeds of $9.7 million pursuant to the Rights Offering, for the sale of 1,727,427 shares of Preferred Stock. Proceeds from issuance of preferred stock during the six months ended June 30, 2020 were $252.6 million, net of fees of $10.9 million. During the three and six months ended June 30, 2021, the Company recorded accretion of $7.4 million and of $14.6 million, respectively, with respect to the Preferred Stock, bringing the aggregate liquidation preference to $28.7 million as of June 30, 2021. During the three and six months ended June 30, 2020, the Company recorded accretion of $0.3 million and of $0.1 million, respectively. The accretion is reflected in the calculation of net (loss) income and comprehensive (loss) income attributable to Emerald Holding, Inc. common stockholders.
Dividends
There were no dividends paid or declared in the first or second quarters of 2021.
Dividend activity for the first and second quarters of 2020 was as follows:
|
(dollars in millions, except per share values) |
|
Three Months Ended March 31, 2020 |
|
|
Three Months Ended June 30, 2020 |
|
||
|
Dividend declared on |
|
February 7, 2020 |
|
|
|
— |
|
|
|
Stockholders of record on |
|
February 21, 2020 |
|
|
|
— |
|
|
|
Dividend paid on |
|
March 06, 2020 |
|
|
|
— |
|
|
|
Dividend per share |
|
$ |
0.0750 |
|
|
$ |
— |
|
|
Cash dividend paid |
|
$ |
5.4 |
|
|
$ |
— |
|
On March 20, 2020, due to the negative impact of COVID-19 on the Company’s business, the Company’s Board of Directors (the “Board”) suspended the Company’s regular quarterly cash dividend on its common stock for periods beginning with the second quarter of 2020.
Share Repurchases
October 2020 Share Repurchase Program (“October 2020 Share Repurchase Program”)
In October 2020, the Company’s Board authorized and approved a $20.0 million share repurchase program. Under the terms of the October 2020 Share Repurchase Program, the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed $20.0 million through December 31, 2021, subject to early termination or extension by the Board. The share repurchase program may be suspended or discontinued at any time without notice. The Company repurchased 726,895 shares and 929,103 shares for $3.9 million and $5.1 million during the three and six months ended June 30, 2021, respectively. There was $14.2 million remaining available for share repurchases under the October 2020 Share Repurchase Program as of June 30, 2021.
July 2019 Share Repurchase Program (“July 2019 Share Repurchase Program”)
In July 2019, the Company’s Board authorized and approved a $30.0 million share repurchase program. The July 2019 Share Repurchase program was terminated on July 31, 2020. The Company repurchased no shares and 14,988 shares for zero and $0.1 million during the three and six months ended June 30, 2020. There were no remaining amounts available for share repurchases as of June 30, 2021 in connection with the July 2019 Share Repurchase Program.
20
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
10. |
Stock-Based Compensation |
The Company recognizes cumulative stock-based compensation expense for the portion of the awards for which the service period and performance or market conditions, as applicable, have been satisfied. Stock-based compensation expense is included in selling, general and administrative expense in the condensed consolidated statements of (loss) income and comprehensive (loss) income. The related deferred tax benefit for stock-based compensation recognized was $0.7 million and $1.4 million for the three and six months ended June 30, 2021, respectively. The related deferred tax benefit for stock-based compensation recognized was $0.3 million and $0.2 million for the three and six months ended June 30, 2020, respectively.
2019 Employee Stock Purchase Plan (the “ESPP”)
In January 2019, the Company’s Board approved the ESPP, which was approved by the Company’s stockholders in May 2019. The ESPP requires that participating employees must be customarily employed for at least 20 hours per week, have completed at least 6 months of service, and have compensation (as defined in the ESPP) not greater than $150,000 in the 12-month period before the enrollment date to be eligible to participate in the ESPP. Under the ESPP, eligible employees will receive a 10% discount from the lesser of the closing price on the first day of the offering period and the closing price on the purchase date. The Company reserved 500,000 shares of its common stock for issuance under the ESPP. The ESPP expense recognized by the Company was not material for the three and six months ended June 30, 2021 and 2020.
Stock Options
The Company recognized stock-based compensation expense relating to stock option activity of $1.7 million and $3.3 million for the three and six months ended June 30, 2021, respectively. The Company recognized stock-based compensation expense relating to stock option activity of $0.1 million and $1.2 million for the three and six months ended June 30, 2020, respectively.
Stock option activity for the six months ended June 30, 2021, was as follows:
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|||||
|
|
|
Number of Options |
|
|
Exercise Price per Option |
|
|
Remaining Contractual Term |
|
|
Aggregate Intrinsic Value |
|
||||
|
|
|
(thousands) |
|
|
|
|
|
|
(years) |
|
|
(millions) |
|
|||
|
Outstanding at December 31, 2020 |
|
|
3,978 |
|
|
$ |
13.68 |
|
|
|
3.6 |
|
|
$ |
— |
|
|
Granted |
|
|
11,715 |
|
|
|
6.37 |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(130 |
) |
|
|
8.11 |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021 |
|
|
15,563 |
|
|
$ |
8.22 |
|
|
|
8.2 |
|
|
$ |
0.5 |
|
|
Exercisable at June 30, 2021 |
|
|
3,246 |
|
|
$ |
13.26 |
|
|
|
3.5 |
|
|
$ |
— |
|
The aggregate intrinsic value is the amount by which the fair value of the Company’s common stock exceeded the exercise price of the options as of the close of trading hours on the New York Stock Exchange on June 30, 2021 for those options for which the market price was in excess of the exercise price.
There was a total of $14.9 million unrecognized stock-based compensation expense at June 30, 2021 related to unvested stock options expected to be recognized over a weighted-average period of 3.5 years.
Restricted Stock Units (“RSUs”)
The Company periodically grants RSUs that contain service and, in certain instances, performance and market conditions to certain directors, executives and employees. Stock-based compensation expense relating to RSU activity recognized in the three and six months ended June 30, 2021 was $1.1 million and $2.4 million, respectively. Stock-based compensation expense relating to RSU activity recognized in the three and six months ended June 30, 2020 was $1.0 million and $2.3 million, respectively. There was a total of $7.0 million of unrecognized stock-based compensation expense at June 30, 2021 related to unvested RSUs expected to be recognized over a weighted-average period of 2.9 years.
21
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
RSU activity for the six months ended June 30, 2021 was as follows:
|
(share data in thousands, except per share data) |
|
Number of RSUs |
|
|
Weighted Average Grant Date Fair Value per Share |
|
||
|
Unvested balance, December 31, 2020 |
|
|
1,303 |
|
|
$ |
10.31 |
|
|
Granted |
|
|
630 |
|
|
|
5.14 |
|
|
Forfeited |
|
|
(81 |
) |
|
|
11.78 |
|
|
Vested |
|
|
(342 |
) |
|
|
10.41 |
|
|
Unvested balance, June 30, 2021 |
|
|
1,510 |
|
|
$ |
8.05 |
|
Market-based Share Awards
In January 2020, the Company granted performance-based market condition share awards to one senior executive under the 2017 Omnibus Equity Plan, which entitle this employee the right to receive shares of common stock equal to a maximum value of $4.9 million in the aggregate, upon achievement of specified targeted share prices measured over sixty days within a ninety day trading period. In June 2019, the Company granted performance-based market condition share awards to one senior executive under the 2017 Omnibus Equity Plan, which entitle this employee the right to receive shares of common stock equal to a maximum value of $4.9 million in the aggregate, upon achievement of specified targeted share prices measured over sixty days within a ninety day trading period. As of June 30, 2021, the Company has performance-based market condition share awards outstanding with a maximum cash value of $9.8 million, in the aggregate, upon achievement of specified targeted share prices measured over sixty days within a ninety-day trading period to two senior executives. As of June 30, 2021, all outstanding performance-based market condition share awards remain unvested with an estimated weighted average conversion threshold of $21.08 per share, which would result in an estimated 78,041 shares of common stock to be issued upon vesting. Each of the estimated 78,041 shares of common stock has a weighted-average grant date fair value of $24.77 per share.
As of June 30, 2021 and December 31, 2020, the liability for these awards was $0.5 million and $0.4 million, respectively, and is reported on the condensed consolidated balance sheets in other noncurrent liabilities. The fair value of performance-based market condition share awards is estimated on the grant date using a risk-neutral Monte Carlo simulation model. The grant date fair value of the remaining outstanding awards granted in 2019 was $0.8 million. The grant date fair value of the 2020 awards was $1.1 million. The Company recognized stock-based compensation expense relating to performance-based market condition share awards of zero and $0.1 million during the three and six months ended June 30, 2021, respectively. The Company recognized a reduction of stock-based compensation expense of zero and $0.5 million for the three and six months ended June 30, 2020, respectively.
The assumptions used in determining the fair value for the performance-based market condition share awards outstanding at June 30, 2021 were as follows:
|
|
|
June 30, 2021 |
|
|
|
Expected volatility |
|
|
41.74 |
% |
|
Dividend yield |
|
|
0.00 |
% |
|
Risk-free interest rate |
|
|
1.26 |
% |
|
Weighted-average expected term (in years) |
|
3.8 |
|
|
The weighted-average expected term of the Company’s performance-based market condition share awards is the weighted-average of the derived service periods for the share awards.
|
11. |
Earnings Per Share |
Basic earnings per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding
22
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
during the period, plus the dilutive effect of outstanding options, using the treasury stock method and the average market price of the Company's common stock during the applicable period. Certain shares related to some of the Company's outstanding employee share awards were excluded from the computation of diluted earnings per share because they were antidilutive in the periods presented but could be dilutive in the future. Performance-based market condition share awards are considered contingently issuable shares, which would be included in the denominator for earnings per share if the applicable market conditions have been achieved, and the inclusion of any performance-based market condition share awards is dilutive for the respective reporting periods. For both the three and six months ended June 30, 2021 and 2020, unvested performance-based market condition share awards were excluded from the calculation of diluted earnings per share because the market conditions had not been met. There were 71,442,407 7% Series A Convertible Participating Preferred Stock shares outstanding which were convertible into 193,236,067 shares of common stock at June 30, 2021. These preferred stock shares were anti-dilutive for the three and six months ended June 30, 2021 and are therefore excluded from the diluted (loss) income per common share calculation.
The details of the computation of basic and diluted earnings per common share are as follows:
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
(dollars in millions, share data in thousands except earnings per share) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Net (loss) income and comprehensive (loss) income attributable to Emerald Holding, Inc. |
|
$ |
(46.5 |
) |
|
$ |
9.9 |
|
|
$ |
(61.8 |
) |
|
$ |
(560.2 |
) |
|
Accumulated accretion on 7% Series A Convertible Participating Preferred stock |
|
|
(7.4 |
) |
|
|
(0.1 |
) |
|
|
(14.6 |
) |
|
|
(0.1 |
) |
|
Participation rights on if-converted basis |
|
|
— |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
— |
|
|
Net (loss) income and comprehensive (loss) income attributable to Emerald Holding, Inc. common stockholders |
|
$ |
(53.9 |
) |
|
$ |
9.6 |
|
|
$ |
(76.4 |
) |
|
$ |
(560.3 |
) |
|
Weighted average common shares outstanding |
|
|
71,938 |
|
|
|
71,444 |
|
|
|
72,091 |
|
|
|
71,413 |
|
|
Basic (loss) income per share |
|
$ |
(0.75 |
) |
|
$ |
0.13 |
|
|
$ |
(1.06 |
) |
|
$ |
(7.85 |
) |
|
Net (loss) income and comprehensive (loss) income attributable to Emerald Holding, Inc. common stockholders |
|
$ |
(53.9 |
) |
|
$ |
9.6 |
|
|
$ |
(76.4 |
) |
|
$ |
(560.3 |
) |
|
Dilutive effect of stock options |
|
|
— |
|
|
|
26 |
|
|
|
— |
|
|
|
— |
|
|
Diluted weighted average common shares outstanding |
|
|
71,938 |
|
|
|
71,470 |
|
|
|
72,091 |
|
|
|
71,413 |
|
|
Diluted (loss) income per share |
|
$ |
(0.75 |
) |
|
$ |
0.13 |
|
|
$ |
(1.06 |
) |
|
$ |
(7.85 |
) |
|
Anti-dilutive employee share awards excluded from diluted earnings per share calculation |
|
|
16,221 |
|
|
|
5,978 |
|
|
|
16,228 |
|
|
|
5,957 |
|
|
12. |
Income Taxes |
The Company determines its interim income tax provision by applying the estimated effective income tax rate expected to be applicable for the full fiscal year to the loss before income taxes for the period. In determining the full year effective tax rate estimate, the Company does not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the expected relationship between income tax expense (benefit) and pre-tax (loss) income. Significant judgment is exercised in determining the income tax provision due to transactions, credits and estimates where the ultimate tax determination is uncertain.
The Company’s U.S. federal statutory corporate income tax rate was 21% as of June 30, 2021. For the three and six months ended June 30, 2021, the Company recorded provisions for income taxes of $10.9 million and $2.6 million, respectively, resulting in effective tax rates of negative 30.5% and negative 4.3%, respectively. The differences between the U.S. federal statutory and effective tax rates before discrete items are primarily attributable to changes in valuation allowances and nondeductible officer compensation. For the three and six months ended June 30, 2020, the Company recorded a provision for income taxes of $3.2 million and benefit from income taxes of $51.6 million which resulted in effective tax rates of 24.4% and 8.4%, respectively.
23
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Liabilities for unrecognized tax benefits and associated interest and penalties were $1.3 million and $1.1 million as of June 30, 2021 and December 31, 2020, respectively.
|
13. |
Commitments and Contingencies |
Leases and Other Contractual Arrangements
The Company has entered into operating leases and other contractual obligations to secure real estate facilities, equipment and trade show venues. These agreements are not unilaterally cancelable by the Company, are legally enforceable and specify fixed or minimum amounts or quantities of goods or services at fixed or minimum prices.
Legal Proceedings and Contingencies
The Company is subject to litigation and other claims in the ordinary course of business. In the opinion of management, the Company’s liability, if any, arising from regulatory matters and legal proceedings related to these matters is not expected to have a material adverse impact on the Company’s condensed consolidated balance sheets, results of operations or cash flows.
In the opinion of management, there are no claims, commitments or guarantees pending to which the Company is party that would have a material adverse effect on the condensed consolidated financial statements.
|
14. |
Accounts Payable and Other Current Liabilities |
Accounts payable and other current liabilities consisted of the following:
|
(in millions) |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Accrued personnel costs |
|
$ |
13.2 |
|
|
$ |
12.7 |
|
|
Accrued event costs |
|
|
5.6 |
|
|
|
7.3 |
|
|
Contingent consideration |
|
|
6.3 |
|
|
|
3.7 |
|
|
Other current liabilities |
|
|
5.8 |
|
|
|
3.6 |
|
|
Trade payables |
|
|
3.2 |
|
|
|
3.8 |
|
|
Total accounts payable and other current liabilities |
|
$ |
34.1 |
|
|
$ |
31.1 |
|
|
15. |
Segment Information |
The Company routinely evaluates whether its operating and reportable segments continue to reflect the way the Chief Operating Decision Maker (the “CODM”) evaluates the business. The determination is based on: (1) how the Company’s CODM evaluates the performance of the business, including resource allocation decisions, and (2) whether discrete financial information for each operating segment is available. The Company considers its Chief Executive Officer to be its CODM.
The CODM evaluates performance based on the results of six executive brand portfolios, which represent the Company’s six operating segments. The brands managed by the Company’s segment managers do not necessarily align with specific industry sectors. Due to economic similarities and the nature of services, fulfillment processes of those services and types of customers, four operating segments are aggregated into two reportable segments, the Commerce and the Design and Technology reportable segments. In addition, two operating segments did not meet the quantitative thresholds of a reportable segment and did not meet the aggregation criteria set forth in Accounting Standards Codification Topic 280, Segment Reporting. Therefore, results for these operating segments are included in the rows labeled "All Other" in the tables below for all periods presented. Each of the brand portfolios generate revenues through the production of trade show events, including booth space sales, registration fees and sponsorship fees. In addition, the segments generate revenues from marketing activities, including digital and print media.
Operating segment performance is evaluated by the Company’s CODM based on revenues and Adjusted EBITDA, a non-GAAP measure, defined as EBITDA exclusive of general corporate expenses, stock-based compensation expense, impairments and other items. These adjustments are primarily related to items that are managed on a consolidated basis
24
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
at the corporate level. The exclusion of such charges from each segment is consistent with how the CODM evaluates segment performance.
The following table presents a reconciliation of reportable segment revenues, other income, and Adjusted EBITDA to net income:
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
(in millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce |
|
$ |
3.9 |
|
|
$ |
1.5 |
|
|
$ |
9.6 |
|
|
$ |
51.0 |
|
|
Design and Technology |
|
|
4.7 |
|
|
|
3.9 |
|
|
|
7.7 |
|
|
|
40.7 |
|
|
All Other |
|
|
6.4 |
|
|
|
1.6 |
|
|
|
10.6 |
|
|
|
15.0 |
|
|
Total revenues |
|
$ |
15.0 |
|
|
$ |
7.0 |
|
|
$ |
27.9 |
|
|
$ |
106.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce |
|
$ |
— |
|
|
$ |
34.6 |
|
|
$ |
7.3 |
|
|
$ |
34.6 |
|
|
Design and Technology |
|
|
2.3 |
|
|
|
12.9 |
|
|
|
5.4 |
|
|
|
12.9 |
|
|
All Other |
|
|
— |
|
|
|
0.7 |
|
|
|
3.7 |
|
|
|
0.7 |
|
|
Total other income |
|
$ |
2.3 |
|
|
$ |
48.2 |
|
|
$ |
16.4 |
|
|
$ |
48.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce |
|
$ |
(3.1 |
) |
|
$ |
31.1 |
|
|
$ |
2.8 |
|
|
$ |
49.2 |
|
|
Design and Technology |
|
|
1.3 |
|
|
|
12.0 |
|
|
|
0.9 |
|
|
|
22.6 |
|
|
All Other |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
2.5 |
|
|
|
2.9 |
|
|
Subtotal Adjusted EBITDA |
|
$ |
(2.0 |
) |
|
$ |
42.8 |
|
|
$ |
6.2 |
|
|
$ |
74.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate and other expenses |
|
$ |
(11.6 |
) |
|
$ |
(9.6 |
) |
|
$ |
(22.5 |
) |
|
$ |
(17.9 |
) |
|
Interest expense |
|
|
(4.1 |
) |
|
|
(5.6 |
) |
|
|
(8.1 |
) |
|
|
(12.3 |
) |
|
Goodwill impairment charge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(564.0 |
) |
|
Intangible asset impairment charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(59.4 |
) |
|
Depreciation and amortization |
|
|
(12.1 |
) |
|
|
(12.2 |
) |
|
|
(23.9 |
) |
|
|
(25.0 |
) |
|
Stock-based compensation |
|
|
(2.8 |
) |
|
|
(1.1 |
) |
|
|
(5.8 |
) |
|
|
(2.7 |
) |
|
Deferred revenue adjustment |
|
|
(0.2 |
) |
|
- |
|
|
|
(1.1 |
) |
|
- |
|
||
|
Other items |
|
|
(2.8 |
) |
|
|
(1.2 |
) |
|
|
(4.0 |
) |
|
|
(5.2 |
) |
|
(Loss) income before income taxes |
|
$ |
(35.6 |
) |
|
$ |
13.1 |
|
|
$ |
(59.2 |
) |
|
$ |
(611.8 |
) |
The Company’s CODM does not receive information with a measure of total assets or capital expenditures for each operating segment as this information is not used for the evaluation of executive brand portfolio performance as the Company’s operations are not capital intensive. Capital expenditure information is provided to the CODM on a consolidated basis. Therefore, the Company has not provided asset and capital expenditure information by reportable segment. For the three and six months ended June 30, 2021 and 2020, substantially all revenues were derived from transactions in the United States.
25
Emerald Holding, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
16. |
Related Party Transactions |
Investment funds affiliated with Onex Corporation owned approximately 85.6% of the Company’s common stock on an as-converted basis as of June 30, 2021. Affiliates of Onex Corporation held a 49% ownership position in ASM Global (“ASM”), including SMG Food & Beverage, LLC, a wholly-owned subsidiary of ASM, which the Company has contracted with for catering services at certain of the Company’s trade shows and events. Additionally, certain of the Company’s future tradeshows and other events may be held at facilities managed by ASM. The Company made payments of $0.1 million and $0.1 million to ASM and ASM managed facilities during the three and six months ended June 30, 2021, respectively. The Company made payments of $0.1 million and $0.4 million to ASM and ASM managed facilities during the three and six months ended June 30, 2020, respectively. The Company had no amounts due to ASM as of June 30, 2021 and December 31, 2020, respectively.
26
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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 of Emerald 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 ended December 31, 2020 (the “Annual Report”), as filed with the SEC. 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 to Emerald 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 the United States. Leveraging our shows as key market-driven platforms, we combine our events with effective industry insights, digital tools, and data-focused solutions to create uniquely rich experiences. Emerald strives to build its customers’ businesses by creating opportunities that deliver tangible results.
All of our trade show franchises typically hold market-leading positions within their respective industry verticals, with significant brand value established over a long period of time. Each of our shows is typically held at least annually, with certain franchises offering multiple editions per year. As our shows are frequently the largest and most well attended in their respective industry verticals, we are able to attract high-quality attendees, including those who have the authority to make purchasing decisions on the spot or subsequent to the show. The participation of these attendees makes our trade shows “must-attend” events for our exhibitors, further reinforcing the leading positions of our trade shows within their respective industry verticals. Our attendees use our shows to fulfill procurement needs, source new suppliers, reconnect with existing suppliers, identify trends, learn about new products and network with industry peers, which we believe are factors that make our shows difficult to replace with non-face-to-face events. Our portfolio of trade shows is well-balanced and diversified across both industry sectors and customers.
In addition to organizing our trade shows, conferences and other events, we also operate content and content-marketing websites and related digital products, and produce publications, each of which is aligned with a specific 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.
27
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 in June 2013, we have completed 21 strategic acquisitions, with purchase prices, excluding the $335.0 million acquisition of George 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 March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. In conjunction with this declaration and the spread of COVID-19 across the 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 by the 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 or postpone 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 December 31, 2020, filed with the SEC on February 23, 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. These acquisitions may affect our growth trends, impacting the comparability of our financial results on a year-over-year basis. |
28
|
|
• |
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 a result 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 in the United States of America (“GAAP”), and has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations include that Organic revenue reflects certain adjustments that we consider not to be indicative of our ongoing operating performance. Because not all companies use identical calculations, our presentation of Organic revenue may not be comparable to other similarly titled measures used by other companies.
Organic Revenue
Organic revenue is a supplemental non-GAAP financial measure of performance and is not based on any standardized methodology prescribed by GAAP. Organic revenue should not be considered in isolation or as an alternative to revenues or other measures determined in accordance with GAAP. Also, Organic revenue is not necessarily comparable to similarly titled measures used by other companies.
The most directly comparable GAAP measure to Organic revenue is revenues. For a reconciliation of Organic revenues to revenues as reported, see footnote 3 to the table under the heading “—Results of Operations— Three Months Ended June 30, 2021 Compared to Three Months Ended June 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, who primarily contract directly with the general service contractors. We will usually select a single general service contractor for an entire show, although it is possible to bid out packages of work within a single show on a piecemeal basis to different task-specific specialists. |
|
|
• |
Sponsorship Costs. We often enter into long-term sponsorship agreements with industry trade associations whereby the industry trade association endorses and markets the show to its members in exchange for a percentage of the show’s revenue. |
|
|
• |
Venue Costs. Venue costs represent rental costs for the venues, usually convention centers or hotels, where we host our trade shows. Given that convention centers are typically owned by local governments who have a vested interest in stimulating business activity in and attracting tourism to their cities, venue costs typically represent a small percentage of our total cost of revenues. |
|
|
• |
Costs of Other Marketing Services. Costs of other marketing services represent paper, printing, postage, contributor and other costs related to digital media and print publications. |
|
|
• |
Other Event-Related Expenses. Other event-related costs include temporary labor for services such as security, shuttle buses, speaker fees, food and beverage expenses and event cancellation insurance. |
Selling, General and Administrative Expenses
|
|
• |
Labor Costs. Labor costs represent the cost of employees who are involved in sales, marketing, planning and administrative activities. The actual on-site set-up of the events is contracted out to third-party vendors and is included in cost of revenues. |
|
|
• |
Miscellaneous Expenses. Miscellaneous expenses are comprised of a variety of other expenses, including advertising and marketing costs, promotion costs, credit card fees, travel expenses, printing costs, office supplies and office rental expense. Direct trade show costs are recorded in cost of revenues. All other costs are recorded in selling, general and administrative expenses. |
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 ended June 30, 2021 was lower than the U.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 Ended June 30, 2021 Compared to Three Months Ended June 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.
31
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 Ended June 30, 2021 Compared to Six Months Ended June 30, 2020.”
Results of Operations
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
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 $2.8 million and $1.2 million, respectively, in acquisition-related transaction, transition and integration costs, including legal and advisory fees. Also included in selling, general and administrative expense for the three months ended June 30, 2021 and 2020 were stock-based compensation expenses of $2.8 million and $1.1 million, 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. |
32
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 $0.2 million for PlumRiver for the three months ended June 30, 2021 would not have been required and the revenues for the three months ended June 30, 2021 would have been higher by $0.2 million. |
|
(c) |
Other items for the three months ended June 30, 2021 included: (i) $1.1 million in expense related to the remeasurement of contingent consideration, (ii) $1.2 million in non-recurring legal, audit and consulting fees, (iii) $0.3 million in transition costs in connection with previous acquisitions and (iv) $0.2 million in transaction costs in connection with the PlumRiver LLC and Sue Bryce Education acquisitions. Other items for the three months ended June 30, 2020 included: (i) $1.0 million in transition costs, including one-time severance expense of $0.9 million, (ii) $0.6 million in non-recurring legal, audit and consulting fees offset by (iii) a $0.4 million 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. |
33
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 ended June 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 ended June 30, 2020. All $33.2 million of insurance receivables as of June 30, 2020 were received in July 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 ended June 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 ended June 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 ended June 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 June 30, 2021 Compared to Three Months Ended June 30, 2020
Commerce
The following represents the change in revenue, expenses and operating (loss) profit in the Commerce reportable segment for the three months ended June 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 ended June 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 ended June 30, 2020, of which $15.0 million was received and $19.6 million was confirmed by the insurance provider during the three months ended June 30, 2020. All $19.6 million of insurance receivables for the Commerce segment as of June 30, 2020 were received in July 2020.
Cost of Revenues
During the three months ended June 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 ended June 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 ended June 30, 2020 did not recur.
Selling, General and Administrative Expense
During each of the three months ended June 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 June 30, 2021, depreciation and amortization expense for the Commerce reportable segment decreased $0.5 million, or 7.5%, to $6.2 million from $6.7 million for the comparable period in 2020.
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 June 30, 2021 and 2020:
|
|
|
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 ended June 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 ended June 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 ended June 30, 2020 did not recur.
Selling, General and Administrative Expense
During the three months ended June 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 June 30, 2021 depreciation and amortization expense for the Design and Technology reportable segment decreased $0.2 million, or 5.0%, to $3.8 million from $4.0 million for the comparable period in 2020.
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 June 30, 2021 and 2020:
|
|
|
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 ended June 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 and Sue 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 ended June 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 and Sue Bryce acquisitions, which were closed in December 2020 and April 2021, respectively.
Depreciation and Amortization Expense
During the three months ended June 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 and Sue Bryce acquisitions, which were closed in December 2020 and April 2021, respectively.
37
Corporate Category
The following represents the change in operating expenses in the Corporate category for the three months ended June 30, 2021 and 2020:
|
|
|
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 ended June 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 ended June 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 June 30, 2021 depreciation and amortization expense for the Corporate category decreased $0.3 million, or 37.5%, to $0.5 million from $0.8 million for the comparable period in 2020.
Interest Expense
Interest expense of $4.1 million for the three months June 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 ended June 30, 2020 compared to an average interest rate of 2.60% during the three months ended June 30, 2021.
Provision for Income Taxes
For the three months ended June 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 ended June 30, 2021 and an effective tax rate of 23.9% for the three months ended June 30, 2020. The decrease in the effective tax rate for the three months ended June 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 ended June 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 ended June 30, 2021.
Adjusted EBITDA
Adjusted EBITDA of negative $13.6 million for the three months ended June 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 ended June 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 ended June 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 June 30, 2021 Compared to Six Months Ended June 30, 2020
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 Emerald Holdings, Inc. |
|
$ |
(61.8 |
) |
|
$ |
(560.2 |
) |
|
$ |
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 $4.0 million and $5.2 million, respectively, in acquisition-related transaction, transition and integration costs, including legal and advisory fees. Also included in selling, general and administrative expenses for the six months ended June 30, 2021 and 2020 were stock-based compensation expenses of $5.8 million and $2.7 million, respectively. |
|
(2) |
Goodwill impairment charge for the six months ended June 30, 2020 represents a non-cash charge of $564.0 million. |
|
(3) |
Intangible asset impairment charges for the six months ended June 30, 2020 represent non-cash charges of $46.2 million and $13.2 million for certain 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 June 30, 2020 for certain indefinite-lived intangible assets and definite-lived intangible assets of $46.2 million and $13.2 million, 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 $1.1 million for PlumRiver for the six months ended June 30, 2021 would not have been required and the revenues for the six months ended June 30, 2021 would have been higher by $1.1 million. |
|
(e) |
Other items for the six months ended June 30, 2021 included: (i) $1.5 million in expense related to the remeasurement of contingent consideration, (ii) $1.8 million in non-recurring legal, audit and consulting fees, (iii) $0.3 million in transition costs in connection with previous acquisitions and (iv) $0.4 million in transaction costs in connection with the PlumRiver, EDspaces 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
|
(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 ended June 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 ended June 30, 2020. All $33.2 million of insurance receivables as of June 30, 2020
41
were received in July 2020. See “Commerce Segment – Revenues,” “Design and Technology Segment – Revenues,” and “All Other Category – Revenues” below for a discussion of other income by segment.
Cost of Revenues
Cost of revenues of $7.6 million for the six months ended June 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 ended June 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 months June 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 June 30, 2021 Compared to Six Months Ended June 30, 2020
Commerce
The following represents the change in revenue, expenses and operating loss in the Commerce reportable segment for the six months ended June 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 ended June 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 ended June 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 ended June 30, 2021 at significantly reduced capacity due to COVID-19 precautions.
Other Income
During the six months ended June 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 ended June 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 ended June 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 of June 30, 2020 were received in July 2020.
Cost of Revenues
During the six months ended June 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 ended June 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 ended June 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 ended June 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 ended June 30, 2021.
Depreciation and Amortization Expense
During the six months ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 30, 2020 were confirmed by the insurance provider during the period. All $12.9 million of insurance receivables as of June 30, 2020 were received in July 2020.
Cost of Revenues
During the six months ended June 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 ended June 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 ended June 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 ended June 30, 2021.
Depreciation and Amortization Expense
During the six months ended June 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 June 30, 2021 and 2020:
|
|
|
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
Revenues
During the six months ended June 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 ended June 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 and Sue Bryce, which closed in December 2020 and April 2021, respectively. In addition, higher digital offering and other marketing services revenues generated $2.0 million in incremental revenue during the six months ended June 30, 2021.
Other Income
During the six months ended June 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 ended June 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 ended June 30, 2020 were confirmed by the insurance provider during the period. All $0.7 million of insurance receivables as of June 30, 2020 were received in July 2020.
Cost of Revenues
During the six months ended June 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 ended June 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 and Sue Bryce, which closed in December 2020 and April 2021, respectively.
Selling, General and Administrative Expense
During the six months ended June 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 and Sue Bryce in December 2020 and April 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 ended June 30, 2021.
Depreciation and Amortization Expense
During the six months ended June 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 and Sue 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 June 30, 2021 and 2020:
|
|
|
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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 30, 2021 was 2.62%, compared to 3.04% during the six months ended June 30, 2020. In addition, interest expense related to the revolving credit facility decreased $0.9 million during the six months ended June 30, 2021.
Provision for (Benefit from) Income Taxes
For the six months ended June 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 ended June 30, 2021 and, when adjusted for discrete items, of 25.7% for the six months ended June 30, 2020. The decrease in the effective tax rate for the six months ended June 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 ended June 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 ended June 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
Liquidity and Capital Resources
In March 2020, the World Health Organization categorized the Coronavirus Disease 2019 (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. In conjunction with this declaration and the spread of COVID-19 across the 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 by the 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 in October 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 ended December 31, 2021 is expected. During the year ended December 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 $382.7 million; |
|
|
• |
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 ended June 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 ended June 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 in July 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.
On March 27, 2020, the U.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 by December 31, 2021 and the remaining 50% due by December 31, 2022.
48
As of June 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 of June 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 June 30, 2021, the Company was in compliance with the covenants contained in the Amended and Restated Senior Secured Credit Facilities.
Previous Share Repurchase Programs
Our Board of Directors previously approved a $20.0 million share repurchase program in the fourth quarter of 2018 and a $30.0 million share repurchase program in the third quarter of 2019. We settled the repurchase of 14,988 shares of our common stock for $0.1 million during the three months ended June 30, 2020.
New Share Repurchase Plan
On October 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 including December 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 ended June 30, 2021, respectively. There was $14.2 million remaining available for share repurchases under the October 2020 Share Repurchase Program as of June 30, 2021.
Suspension of Dividend Policy
On March 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.
Cash Flows
The following table summarizes the changes to our cash flows for the periods presented:
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(unaudited) (dollars in millions) |
|
|||||
|
Statement of Cash Flows Data |
|
|
|
|||||
|
Net cash provided by (used in) operating activities |
|
$ |
26.7 |
|
|
$ |
(22.6 |
) |
|
Net cash used in investing activities |
|
$ |
(9.3 |
) |
|
$ |
(2.3 |
) |
|
Net cash (used in) provided by financing activities |
|
$ |
(9.9 |
) |
|
$ |
233.9 |
|
49
Operating Activities
Operating activities consist primarily of net loss adjusted for non-cash items that include depreciation and amortization, deferred income taxes, amortization of deferred financing fees and debt discount, stock-based compensation, provision for credit losses and goodwill and intangible asset impairment charges, plus the effect of changes during the period in our working capital.
Net cash provided by operating activities for the six months ended June 30, 2021 was $26.7 million, as compared to net cash used in operating activities of $22.6 million for the six months ended June 30, 2020. Cash provided by operating activities primarily reflects the decrease in our net loss of $498.4 million and increases in non-cash adjustments for deferred taxes of $57.9 million and $3.1 million for stock-based compensation expense during the six months ended June 30, 2021 partly offset by the non-recurrence of the goodwill impairment of $564.0 million and intangible asset impairment charges of $59.4 million incurred during the six months ended June 30, 2020, as well a $113.3 million increase in cash provided by working capital. Net loss plus non-cash items provided operating cash flows of $26.1 million and used operating cash flows of $37.9 million for the six months ended June 30, 2021 and 2020, respectively. Cash provided by operating activities reflects the generation of $52.8 million and the use of $60.5 million for working capital in the six months ended June 30, 2021 and 2020, respectively.
Investing Activities
Investing activities generally consist of business acquisitions and purchases of other productive assets, investments in information technology and capital expenditures to furnish or upgrade our offices.
Net cash used in investing activities for the six months ended June 30, 2021 increased $7.0 million to $9.3 million from $2.3 million in the comparable period in the prior year. The increase was due to acquisitions completed in the six months ended June 30, 2021. No acquisitions were completed during the six months ended June 30, 2020.
Financing Activities
Financing activities primarily consist of proceeds from issuance of preferred stock, borrowing and repayments on our debt to fund business acquisitions and our operations, payments of dividends prior to the suspension of the dividend policy and proceeds from the issuance of common stock associated with stock option exercises.
Net cash used in financing activities for the six months ended June 30, 2021 was $7.5 million, compared to cash provided by financing activities of $233.9 million for the six months ended June 30, 2020. The decrease was primarily due to proceeds from issuance of preferred stock of $263.5 in the comparable period in 2020, partly offset by repayment on revolving credit facility net of borrowings of $10.0 million during the six months ended June 30, 2020, and payment of preferred stock offering costs of $10.9 million during the six months ended June 30, 2020.
Free Cash Flow
Free Cash Flow for the six months ended June 30, 2021 increased $49.3 million, to inflow of $24.4 million from outflow of $24.9 million for the comparable period in the prior year.
Free Cash Flow is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Free Cash Flow, see footnote 5 to the table under the heading “—Results of Operations—Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020.”
Contractual Obligations and Commercial Commitments
There have been no material changes to the contractual obligations as disclosed in the Company’s Annual Report on Form 10-K, filed with the SEC on February 23, 2021, which is accessible on the SEC’s website at www.sec.gov, other than those made in the ordinary course of business.
Goodwill and Intangible Assets
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the assets acquired and liabilities assumed resulting from acquisitions. Goodwill and indefinite-lived intangible assets are not amortized but instead tested for impairment at least annually or more frequently should an event or circumstances indicate that a reduction in fair value may have occurred. We test for impairment of goodwill and indefinite-lived intangible
50
assets on October 31 of each year, or more frequently if events and circumstances warrant. The impact of COVID-19 on the travel and events industry, Emerald’s cancellation of all live events through the end of the second quarter of 2020 as well as uncertainty around when the Company would be able to resume its normal operations, caused a significant and prolonged decline in the Company’s stock price, resulting in the market capitalization of the Company falling below its carrying value. As a result, management determined that a triggering event had occurred. Accordingly, the Company performed a quantitative assessment of the Company’s fair value of goodwill as of June 30, 2020 and concluded that the carrying value of several reporting units exceeded their respective fair values, resulting in a goodwill impairment of $564.0 million during the three months ended June 30, 2020. In addition, management determined a triggering event had occurred in relation to several indefinite-lived intangible assets and as a result of an interim impairment assessment, the Company recognized an impairment charge of $46.2 million related to its indefinite-lived intangible assets during the three months ended June 30, 2020. During the three and six months ended June 30, 2021, there were no triggering events or changes in circumstances that would indicate the carrying value may be impaired. As a result, we determined that it was more likely than not that the Company’s goodwill was not impaired and, therefore, no quantitative assessment for impairment was required as of June 30, 2021. As a result of the ongoing uncertainty surrounding the impact of COVID-19 on our operations, there can be no assurance that we will be able to conclude in future periods that it is more likely than not that our goodwill is not impaired.
Long-lived assets other than goodwill held and used by the Company, including property and equipment and long-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. During the first quarter of 2020, as a result of the impact of the COVID-19 pandemic on certain of our brands, we became aware of circumstances indicating that the carrying value of certain definite-lived trade names and customer relationships may not be recoverable. We evaluate recoverability of long-lived assets to be held and used by comparing the carrying amount of an asset to the future expected net undiscounted cash flows expected to be generated by the asset to determine if the carrying value is not recoverable. The recoverability test indicated that certain of our long-lived assets were impaired and were required to be fair valued and compared to the carrying value. The recoverability test/income approach indicated that certain of the customer relationship intangible assets and definite-lived trade names were impaired which resulted in an impairment charge of $13.2 million during the three months ended June 30, 2020. During the three and six months ended June 30, 2021, there have been no triggering events or changes in circumstances that would indicate the carrying values may not be recoverable. As such, no quantitative assessment for impairment was required as of June 30, 2021.
There can be no assurance that we will not be required to recognize additional impairment charges in future periods, including in connection with the annual impairment test on October 31, or as a result of future impairment tests that may be required based on specific events and circumstances. Such events and circumstances may include the decision to cancel or postpone future live events, a significant change in our business climate, the ongoing impacts associated with the COVID-19 pandemic, economic and industry trends, legal factors, negative operating performance indicators, significant competition or changes in strategy. If the trading price of our common stock decreases significantly we may be required to recognize a non-cash charge relating to impairment of our goodwill and intangible assets, and any such charge may be material in the period in which it is recognized. A prolonged or significant decline in our stock price or market capitalization could be an indicator of goodwill and intangible asset impairment and constitute a triggering event that would require an interim assessment for potential goodwill and intangible asset impairment.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires the appropriate application of certain accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements. Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates.
We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable. Our accounting policies and estimates are reevaluated on an ongoing basis and adjustments are made when facts and circumstances dictate a change. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We considered the impacts of the COVID-19 pandemic on our significant estimates and judgments used in applying our accounting policies for the period ended June 30, 2021. However, in light of the pandemic, there is a high degree of uncertainty in applying these judgments and depending on the duration and severity of the pandemic, changes to our estimates and judgments could result in meaningful impacts to our financial statements in future periods.
The policies and estimates discussed below involve the selection or application of alternative accounting policies that are material to our consolidated financial statements. With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have a materially favorable or unfavorable impact on subsequent results of operations.
51
Our accounting policies are more fully described in Note 1, Description of Business, Basis of Presentation and Significant Accounting Policies in the notes to our audited consolidated financial statements included in the Annual Report. Management has discussed the selection of these critical accounting policies and estimates with members of our Board of Directors. Given the current impacts to our business, there is a higher degree of uncertainty as to the long-term impacts to our cash flow projections and discount rates used for determining the recoverability of goodwill and intangible assets. Changes to key assumptions, market trends, or continued impacts of macroeconomic events could produce test results in the future that differ, and we could be required to record an impairment charge. There have been no significant changes in the critical accounting policies and estimates described in the Annual Report.
Recently Issued Accounting Pronouncements
See Item 1 of Part I, “Financial Statements—Note 2 – Recent Accounting Pronouncements.”
Recently Adopted Accounting Pronouncements
See Item 1 of Part I, “Financial Statements—Note 2 – Recent Accounting Pronouncements.”
Jumpstart Our Business Act of 2012
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year; (iii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt securities or (iv) the last day of the fiscal year ending December 31, 2022. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. We have elected to take advantage of these reduced disclosure obligations and may elect to take advantage of other reduced reporting obligations in the future.
The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have chosen to irrevocably “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies.
52
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Market risk is the potential loss arising from adverse changes in market rates and prices. Our primary exposure to market risk is interest rate risk associated with our Amended and Restated Senior Secured Credit Facilities. See Note 7, Debt, in the notes to the condensed consolidated financial statements for further description of our Amended and Restated Senior Secured Credit Facilities. As of June 30, 2021, we had $522.4 million of variable rate borrowings outstanding under our Amended and Restated Senior Secured Credit Facilities with respect to which we are exposed to interest rate risk. Holding other variables constant and assuming no interest rate hedging, a 0.25% increase in the average interest rate on our variable rate indebtedness would have resulted in a $1.3 million increase in annual interest expense based on the amount of borrowings outstanding as of June 30, 2021.
Inflation rates may impact the financial statements and operating results in several areas. Inflation influences interest rates, which in turn impact the fair value of our investments and yields on new investments. Operating expenses, including payroll, are impacted to a certain degree by the inflation rate. We do not believe that inflation has had a material effect on our results of operations for the periods presented.
|
Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15(d)-15(e)), as of the end of the period covered by this report. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control Over Financial Reporting
We also carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended June 30, 2021.
There have been no changes to our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended June 30, 2021 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
53
PART II — OTHER INFORMATION
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Item 1. |
Legal Proceedings |
From time to time, we may be involved in general legal disputes arising in the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.
On February 22, 2021, the Company filed a complaint in Federal District Court in Orange County, California against its event cancellation insurers under the Company’s 2020 and 2021 event cancellation insurance policies. The insurer defendants are W.R. Berkley Syndicate Limited and Great Lakes Insurance SE. The Company believes the insurers have acted in bad faith and failed to timely pay amounts due and owing on submitted claims. Under this complaint, the Company is seeking to enforce its rights under the policies to receive the maximum applicable coverage for the 2020 and 2021 event cancellations, postponements and reductions, and to receive court-ordered payment on all outstanding submissions for 2020 and 2021 events. By Order dated May 26, 2021, the District Court in Orange County, California denied the insurers motion to transfer venue for this litigation proceeding to New York.
While there is no guarantee or assurance as to the outcome of this litigation or the amount or timing of future recoveries from the Company’s event cancellation insurance policies, the Company believes that all events that have been impacted, cancelled or postponed due to COVID-19 to date should qualify as covered losses under the event cancellation insurance policies and that, to date, the insurers have paid less than what is owed under the policies.
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Item 1A. |
Risk Factors |
Our Annual Report on Form 10-K, filed with the SEC on February 23, 2021, which are accessible on the SEC’s website at www.sec.gov, includes detailed discussions of our risk factors. At the time of this filing, there have been no material changes to the risk factors that were included in our Annual Report on Form 10-K.
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Item 2. |
Unregistered Sale of Equity Securities and Use of Proceeds |
Share Repurchase Program
In October 2020, we announced that our Board of Directors had authorized a $20 million share repurchase program. Share repurchases may be made from time to time through and including December 31, 2021, subject to early termination or extension by our Board of Directors. The share repurchase program may be suspended or discontinued at any time without notice. There is no minimum number of shares that we are required to repurchase. Shares may be purchased from time to time in the open market or in privately negotiated transactions. Such purchases will be at times and in amounts as we deem appropriate, based on factors such as market conditions, legal requirements and other business considerations.
The following table presents our purchases of common stock during the second quarter ended June 30, 2021, as part of the publicly announced share repurchase program:
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(Dollars in millions, except per share data) |
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Total Number of Shares Purchased as Part of Publicly Announced Program |
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Average Price Paid Per Share |
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Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (in millions) |
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April 1, 2021 - April 30, 2021 |
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124,897 |
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$ |
5.57 |
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$ |
17.4 |
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May 1, 2021 - May 31, 2021 |
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304,763 |
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5.27 |
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15.8 |
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June 1, 2021 - June 30, 2021 |
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297,235 |
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5.41 |
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14.2 |
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Total |
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726,895 |
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Item 3. |
Defaults Upon Senior Securities |
None.
54
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Item 4. |
Mine Safety Disclosures |
None.
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Item 5. |
Other Information |
None.
55
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Item 6. |
Exhibits |
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10.1 |
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*10.2 |
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*31.1 |
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*31.2 |
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*32.1 |
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*101.INS |
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Inline XBRL Instance Document |
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*101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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*101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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*101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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*101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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*101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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*101 |
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The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL included: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Loss and Comprehensive Loss, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements |
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*104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* |
Filed herewith. |
56
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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EMERALD HOLDING, INC. |
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Date: July 30, 2021 |
By: |
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/s/ David Doft |
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David Doft |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
57
Exhibit 10.2
EMERALD HOLDING, INC.
2017 OMNIBUS EQUITY PLAN
(Adopted as of April 10, 2017; Amended and Restated as of March 23, 2021
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1. |
Purpose. |
The purpose of the Plan is to assist the Company with attracting, retaining, incentivizing and motivating officers and employees of, consultants to, and non-employee directors providing services to, the Company and its Subsidiaries and to promote the success of the Company’s business by providing such participating individuals with a proprietary interest in the performance of the Company. The Company believes that this incentive program will cause participating officers, employees, consultants and non-employee directors to increase their interest in the welfare of the Company and its Subsidiaries and to align those interests with those of the stockholders of the Company and its Subsidiaries.
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2. |
Definitions. |
For purposes of the Plan:
2.1.“Adjustment Event” shall have the meaning ascribed to such term in Section 12.1.
2.2. “Award” means, individually or collectively, a grant of an Option, Restricted Stock, a Restricted Stock Unit, a Stock Appreciation Right, a Performance Award, a Dividend Equivalent Right, a Share Award or any or all of them.
2.3.“Award Agreement” means a written or electronic agreement between the Company and a Participant evidencing the grant of an Award and setting forth the terms and conditions thereof.
2.4.“Base Price” shall have the meaning ascribed to such term in Section 6.4.
2.5.“Board” means the Board of Directors of the Company.
2.6.“Change in Control” means the occurrence of any of the following:
(a)An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any Person, immediately after which such Person first acquires “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of the combined voting power of the Company’s then-outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred pursuant to this Section 2.7(a), the acquisition of Voting Securities in a Non-Control Acquisition (as hereinafter defined) shall not constitute a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is
owned, directly or indirectly, by the Company (for purposes of this definition, a “Related Entity”), (ii) the Company or any Related Entity or (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined);
(b)The individuals who, as of the Effective Date, are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the election, or nomination for election by the Company’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Proxy Contest;
(c)The consummation of:
(i)A merger, consolidation or reorganization (x) with or into the Company or (y) in which securities of the Company are issued (a “Merger”), unless such Merger is a Non-Control Transaction. A “Non-Control Transaction” shall mean a Merger in which:
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(A) |
the stockholders of the Company immediately before such Merger own directly or indirectly immediately following such Merger at least a majority of the combined voting power of the outstanding voting securities of (1) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (a “Parent Corporation”), or (2) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; |
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(B) |
the individuals who were members of the Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (1) the Surviving Corporation, if there is no Parent Corporation, or (2) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and |
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(C) |
no Person other than (1) the Company or another corporation that is a party to the agreement of Merger, (2) any Related Entity, (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to the Merger, was maintained by the Company or any Related Entity or (4) any Person who, immediately prior to the Merger, had Beneficial Ownership of Voting Securities representing more than fifty percent (50%) of the |
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combined voting power of the Company’s then-outstanding Voting Securities, has Beneficial Ownership, directly or indirectly, of fifty percent (50%) or more of the combined voting power of the outstanding voting securities of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; |
(ii)A complete liquidation or dissolution of the Company; or
(iii)The sale or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any Person (other than (x) a transfer to a Related Entity or (y) the distribution to the Company’s stockholders of the stock of a Related Entity or any other assets).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person; provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company and, after such acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities and such Beneficial Ownership increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.
2.7.“Code” means the Internal Revenue Code of 1986, as amended.
2.8.“Committee” means the Committee which administers the Plan as provided in Section 3.
2.9.“Company” means Emerald Holding, Inc., a Delaware corporation, or any successor thereto.
2.10.“Consultant” means any consultant or advisor, other than an Employee or Director, who is a natural person and who renders services to the Company or a Subsidiary that (a) are not in connection with the offer and sale of the Company’s securities in a capital raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company’s securities.
2.11.“Corporate Transaction” means (a) a merger, consolidation, reorganization, recapitalization or other transaction or event having a similar effect on the Company’s capital stock or (b) a Change in Control.
2.12. “Director” means a member of the Board.
2.13.“Disability” means, with respect to a Participant, a permanent and total disability as defined in Code Section 22(e)(3). A determination of Disability may be made by a physician selected or approved by the Committee and, in this respect, the Participant shall submit to any
reasonable examination(s) required by such physician upon request. Notwithstanding the foregoing provisions of this Section 2.15, in the event any Award is considered to be “deferred compensation” as that term is defined under Section 409A and the terms of the Award are such that the definition of “disability” is required to comply with the requirements of Section 409A then, in lieu of the foregoing definition, the definition of “Disability” for purposes of such Award shall mean, with respect to a Participant, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months.
2.14.“Division” means any of the operating units or divisions of the Company designated as a Division by the Committee.
2.15.“Dividend Equivalent Right” means a right to receive cash or Shares based on the value of dividends that are paid with respect to Shares.
2.16.“Effective Date” means the date of the Plan’s approval by the Board, subject to the approval of the Company’s stockholders.
2.17.“Eligible Individual” means any Employee, Director or Consultant.
2.18.“Employee” means any individual performing services for the Company or a Subsidiary and designated as an employee of the Company or the Subsidiary on its payroll records. An Employee shall not include any individual during any period he or she is classified or treated by the Company or Subsidiary as an independent contractor, a consultant or an employee of an employment, consulting or temporary agency or any other entity other than the Company or Subsidiary, without regard to whether such individual is subsequently determined to have been, or is subsequently retroactively reclassified, as a common-law employee of the Company or Subsidiary during such period. An individual shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or any Subsidiary, or between the Company and any Subsidiaries.
2.19.“Exchange Act” means the Securities Exchange Act of 1934, as amended.
2.20.“Fair Market Value” on any date means:
(a)if the Shares are listed for trading on a national securities exchange, the closing price at the close of the primary trading session of the Shares on the date of determination on the principal national securities exchange on which the common stock is listed or admitted to trading as officially quoted in the consolidated tape of transactions on such exchange or such other source as the Committee deems reliable for the applicable date, or if there has been no such closing price of the Shares on such date, on the next preceding date on which there was such a closing price; provided that for purposes of the grant of Options, the applicable date of determination shall be the trading day immediately prior to the date on which the Award is granted; or
(b)if the Shares are not listed for trading on a national securities exchange, the fair market value of the Shares as determined in good faith by the Committee, and, if applicable, in accordance with Sections 409A and 422 of the Code.
Notwithstanding the foregoing, with respect to Awards granted in connection with an Initial Public Offering, if any, unless the Committee determines otherwise, Fair Market Value shall mean the price at which Shares are offered to the public by the underwriters in the Initial Public Offering..
2.21.“Incentive Stock Option” means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee as an Incentive Stock Option.
2.22.“Initial Public Offering” means the consummation of the first public offering of Shares pursuant to a registration statement (other than a Form S-8 or successor forms) filed with, and declared effective by, the United States Securities and Exchange Commission.
2.23.“Nonemployee Director” means a Director of the Board who is a “nonemployee director” within the meaning of Rule 16b-3 promulgated under the Exchange Act.
2.24.“Nonqualified Stock Option” means an Option which is not an Incentive Stock Option.
2.25.“Option” means a Nonqualified Stock Option or an Incentive Stock Option.
2.26.“Option Price” means the price at which a Share may be purchased pursuant to an Option.
2.27.“ “Parent” means any corporation which is a “parent corporation” (within the meaning of Section 424(e) of the Code) with respect to the Company.
2.28.“Participant” means an Eligible Individual to whom an Award has been granted under the Plan.
2.29.“Performance Awards” means Performance Share Units, Performance Units, Performance-Based Restricted Stock or any or all of them.
2.30. “Performance-Based Restricted Stock” means Shares issued or transferred to an Eligible Individual under Section 9.2.
2.31.“Performance Cycle” means the time period specified by the Committee at the time Performance Awards are granted during which the performance of the Company, a Subsidiary or a Division will be measured.
2.32.“Performance Objectives” means the objectives set forth in Section 9.3 for the purpose of determining, either alone or together with other conditions, the degree of payout and/or vesting of Performance Awards.
2.33.“Performance Share Units” means Performance Share Units granted to an Eligible Individual under Section 9.1(b).
2.34.“Performance Units” means Performance Units granted to an Eligible Individual under Section 9.1(a).
2.35.“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) of the Exchange Act.
2.36.“Plan” means this Emerald Expositions Events, Inc. 2017 Omnibus Equity Plan, as amended from time to time.
2.37.“Plan Termination Date” means the date that is ten (10) years after the Effective Date, unless the Plan is earlier terminated by the Board pursuant to Section 15 hereof.
2.38.“Restricted Stock” means Shares issued or transferred to an Eligible Individual pursuant to Section 8.1.
2.39.“Restricted Stock Units” means rights granted to an Eligible Individual under Section 8.2 representing a number of hypothetical Shares.
2.40.“SAR Payment Amount” shall have the meaning ascribed to such term in Section 6.4.
2.41. “Section 409A” means Section 409A of Code, and all regulations, guidance, and other interpretative authority issued thereunder.
2.42.“Securities Act” means the Securities Act of 1933, as amended.
2.43.“Share Award” means an Award of Shares granted pursuant to Section 10.
2.44.“Shares” means the common stock, par value $0.01 per share, of the Company and any other securities into which such shares are changed or for which such shares are exchanged.
2.45.“Stock Appreciation Right” means a right to receive all or some portion of the increase, if any, in the value of the Shares as provided in Section 6 hereof.
2.46.“Subsidiary” means (a) except as provided in subsection (b) below, any corporation which is a subsidiary corporation within the meaning of Section 424(f) of the Code with respect to the Company and (b) in relation to the eligibility to receive Awards other than Incentive Stock Options and continued employment or the provision of services for purposes of Awards (unless the Committee determines otherwise), any entity, whether or not incorporated, in which the Company directly or indirectly owns at least twenty-five percent (25%) of the outstanding equity or other ownership interests.
2.47.“Ten-Percent Shareholder” means an Eligible Individual who, at the time an Incentive Stock Option is to be granted to him or her, owns (within the meaning of Section
422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, a Parent or a Subsidiary.
2.48.“Termination”, “Terminated” or “Terminates” shall mean (a) with respect to a Participant who is an Employee, the date such Participant ceases to be employed by the Company and its Subsidiaries, (b) with respect to a Participant who is a Consultant, the date such Participant ceases to provide services to the Company and its Subsidiaries or (c) with respect to a Participant who is a Director, the date such Participant ceases to be a Director, in each case, for any reason whatsoever (including by reason of death, Disability or adjudicated incompetency). Unless otherwise set forth in an Award Agreement, (a) if a Participant is both an Employee and a Director and terminates as an Employee but remains as a Director, the Participant will be deemed to have continued in employment without interruption and shall be deemed to have Terminated upon ceasing to be a Director and (b) if a Participant who is an Employee or a Director ceases to provide services in such capacity and becomes a Consultant, the Participant will thereupon be deemed to have been Terminated.
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3. |
Administration. |
3.1.Committee. The Plan shall be administered by a Committee appointed by the Board. The Committee shall consist of at least two Directors of the Board and may consist of the entire Board; provided, however, that if the Committee consists of less than the entire Board, then, with respect to any Award granted to an Eligible Individual who is subject to Section 16 of the Exchange Act, the Committee shall consist solely of two or more Nonemployee Directors, or such Awards shall be approved by the Board. For purposes of the preceding sentence, if one or more members of the Committee is not a Nonemployee Director but recuses himself or herself or abstains from voting with respect to a particular action taken by the Committee, then the Committee, with respect to that action, shall be deemed to consist only of the members of the Committee who have not recused themselves or abstained from voting. The acts of a majority of the total membership of the Committee at any meeting, or the acts approved in writing by all of its members, shall be the acts of the Committee. All decisions and determinations by the Committee in the exercise of its powers hereunder shall be final, binding and conclusive upon the Company, its Subsidiaries, the Participants and all other Persons having any interest therein.
3.2.Board Reservation and Delegation.
(a)The Board may, in its discretion, reserve to itself or exercise any or all of the authority and responsibility of the Committee hereunder. To the extent the Board has reserved to itself or exercises the authority and responsibility of the Committee, the Board shall be deemed to be acting as the Committee for purposes of the Plan and references to the Committee in the Plan shall be to the Board.
(b)Subject to applicable law, the Board may delegate, in whole or in part, any of the authority of the Committee hereunder (subject to such limits as may be determined by the Board) to any individual or committee of individuals (who need not be Directors), including without limitation the authority to make Awards to Eligible Individuals who are not officers or directors of the Company or any of its Subsidiaries and who are not subject to Section 16 of the Exchange Act. To the extent that the Board delegates any
such authority to make Awards as provided by this Section 3.2(b), all references in the Plan to the Committee’s authority to make Awards and determinations with respect thereto shall be deemed to include the Board’s delegate.
3.3.Committee Powers. Subject to the express terms and conditions set forth herein, the Committee shall have all of the powers necessary to enable it to carry out its duties under the Plan, including, without limitation, the power from time to time to:
(a)determine those Eligible Individuals to whom Awards shall be granted under the Plan and determine the number of Shares or amount of cash in respect of which each Award is granted, prescribe the terms and conditions (which need not be identical) of each such Award, including, (i) in the case of Options, the Option Price and the duration of the Option and (ii) in the case of Stock Appreciation Rights, the Base Price per Share and the duration of the Stock Appreciation Right, and make any amendment or modification to any Award Agreement consistent with the terms of the Plan;
(b)construe and interpret the Plan and the Awards granted hereunder, establish, amend and revoke rules, regulations and guidelines as it deems are necessary or appropriate for the administration of the Plan, including, but not limited to, correcting any defect, supplying any omission or reconciling any inconsistency in the Plan or in any Award Agreement in the manner and to the extent it shall deem necessary or advisable, including so that the Plan and the operation of the Plan comply with Rule 16b-3 under the Exchange Act, the Code to the extent applicable and other applicable law, and otherwise make the Plan fully effective;
(c)determine the duration and purposes for leaves of absence which may be granted to a Participant on an individual basis without constituting a Termination for purposes of the Plan;
(d)cancel, with the consent of the Participant, outstanding Awards or as otherwise permitted under the terms of the Plan;
(e)exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and
(f)generally, exercise such powers and perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan.
3.4.Non-Uniform Determinations. The Committee’s determinations under the Plan need not be uniform and may be made by it selectively among Persons who receive, or are eligible to receive, Awards (whether or not such Persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Agreements, as to the Eligible Individuals to receive Awards under the Plan and the terms and provision of Awards under the Plan.
3.5.Non-U.S. Employees. Notwithstanding anything herein to the contrary, with respect to Participants working outside the United States, the Committee may establish subplans, determine the terms and conditions of Awards, and make such adjustments to the terms thereof as are necessary or advisable to fulfill the purposes of the Plan taking into account matters of local law or practice, including tax and securities laws of jurisdictions outside the United States.
3.6.Indemnification. No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to the Plan or any transaction hereunder. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiating for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any actions in administering the Plan or in authorizing or denying authorization to any transaction hereunder.
3.7.No Repricing of Options or Stock Appreciation Rights. The Committee shall have no authority to (i) make any adjustment (other than in connection with an Adjustment Event, a Corporate Transaction or other transaction where an adjustment is permitted or required under the terms of the Plan) or amendment, and no such adjustment or amendment shall be made, that reduces or would have the effect of reducing the Option Price of an Option or Base Price of a Stock Appreciation Right previously granted under the Plan, whether through amendment, cancellation or replacement grants or other means, or (ii) cancel for cash or other consideration any Option whose Option Price is greater than the then Fair Market Value of a Share or Stock Appreciation Right whose Base Price is greater than the then Fair Market Value of a Share unless, in either case the Company’s stockholders shall have approved such adjustment, amendment or cancellation.
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4. |
Stock Subject to the Plan; Grant Limitations. |
4.1.Aggregate Number of Shares Authorized for Issuance. Subject to any adjustment as provided in the Plan, the maximum number of Shares that may be issued pursuant to Awards granted under the Plan shall not exceed 18,000,0001 Shares, all of which may granted as Incentive Stock Options. The Shares to be issued under the Plan may be, in whole or in part, authorized but unissued Shares or issued Shares which shall have been reacquired by the Company and held by it as treasury shares.
4.2.Individual Nonemployee Director Limit. With respect to Awards granted to a Nonemployee Director, who is not a Consultant, the aggregate number of Shares that may be issued pursuant to Awards granted under the Plan in any calendar year may not exceed 250,000 Shares. A Nonemployee Director who is a Consultant may, in the discretion of the Committee, receive Awards in respect of additional Shares as consideration for services provided as a Consultant..
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1 |
5,000,000 original shares plus 13,000,000. |
4.3.Calculating Shares Available. If an Award or any portion thereof that is granted under the Plan (i) expires or otherwise terminates without all of the Shares covered by such Award having been issued or (ii) is settled in cash (i.e., the Participant receives cash rather than Shares), such expiration, termination or settlement will not reduce (or otherwise offset) the number of Shares that may be available for issuance under the Plan. If any Shares issued pursuant to an Award are forfeited and returned back to or reacquired by the Company because of the failure to meet a contingency or condition required to vest such Shares in the Participant, then the Shares that are forfeited or reacquired will again become available for issuance under the Plan. Any Shares tendered or withheld (i) to pay the Option Price of an Option or (ii) to satisfy tax withholding obligations associated with an Award granted under this Plan will again become available again for issuance under this Plan.
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5. |
Stock Options. |
5.1.Authority of Committee. The Committee may grant Options to Eligible Individuals in accordance with the Plan, the terms and conditions of the grant of which shall be set forth in an Award Agreement. Incentive Stock Options may be granted only to Eligible Individuals who are employees of the Company or any of its Subsidiaries on the date the Incentive Stock Option is granted. Options shall be subject to the following terms and provisions:
5.2.Option Price. The Option Price or the manner in which the Option Price is to be determined shall be determined by the Committee and set forth in the Award Agreement; provided, however, that the Option Price shall not be less than the greater of (i) the par value of a Share and (ii) 100% of the Fair Market Value of a Share on the date the Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder).
5.3.Maximum Duration. Options granted hereunder shall be for such term as the Committee shall determine; provided that an Incentive Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder) and a Nonqualified Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted; provided, further, however, that unless the Committee provides otherwise,(i) an Option (other than an Incentive Stock Option) may, upon the death of the Participant prior to the expiration of the Option, be exercised for up to one (1) year following the date of the Participant’s death (but in no event beyond the date on which the Option otherwise would expire by its terms), and (ii) if, at the time an Option (other than an Incentive Stock Option) would otherwise expire at the end of its term, the exercise of the Option is prohibited by applicable law or the Company’s insider trading policy, the term shall be extended until thirty (30) days after the prohibition no longer applies. The Committee may, subsequent to the granting of any Option, extend the period within which the Option may be exercised (including following a Participant’s Termination), but in no event shall the period be extended to a date that is later than the earlier of the latest date on which the Option could have been exercised and the 10th anniversary of the date of grant of the Option, except as otherwise provided herein in this Section 5.3.
5.4.Vesting. The Committee shall determine and set forth in the applicable Award Agreement the time or times at which an Option shall become vested and exercisable; provided
that no Option granted to an Employee that vests solely based on the performance of services shall have a vesting period of less than one year. To the extent not exercised, vested installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time.
5.5.Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the date of the grant) of Shares with respect to which Incentive Stock Options granted under the Plan and “incentive stock options” (within the meaning of Section 422 of the Code) granted under all other plans of the Company or its Subsidiaries (in either case determined without regard to this Section 5.5) are exercisable by a Participant for the first time during any calendar year exceeds $100,000, such Incentive Stock Options shall be treated as Nonqualified Stock Options. In applying the limitation in the preceding sentence in the case of multiple Option grants, unless otherwise required by applicable law, Options which were intended to be Incentive Stock Options shall be treated as Nonqualified Stock Options according to the order in which they were granted such that the most recently granted Options are first treated as Nonqualified Stock Options.
5.6.Method of Exercise. The exercise of an Option shall be made only by giving notice in the form and to the Person designated by the Company, specifying the number of Shares to be exercised and, to the extent applicable, accompanied by payment therefor and otherwise in accordance with the Award Agreement pursuant to which the Option was granted. The Option Price for any Shares purchased pursuant to the exercise of an Option shall be paid in any of, or any combination of, the following forms: (a) cash or its equivalent (e.g., a check) or (b) if permitted by the Committee, the transfer, either actually or by attestation, to the Company of Shares that have been held by the Participant for at least six (6) months (or such lesser period as may be permitted by the Committee) prior to the exercise of the Option, such transfer to be upon such terms and conditions as determined by the Committee or (c) in the form of other property as determined by the Committee. In addition, (i) the Committee may provide for the payment of the Option Price through Share withholding as a result of which the number of Shares issued upon exercise of an Option would be reduced by a number of Shares having a Fair Market Value equal to the Option Price and (ii) an Option may be exercised through a registered broker-dealer pursuant to such cashless exercise procedures that are, from time to time, deemed acceptable by the Committee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded down to the nearest number of whole Shares.
5.7.Rights of Participants. No Participant shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (a) the Option shall have been exercised with respect to such Shares pursuant to the terms of the applicable Award Agreement, (b) the Company shall have issued and delivered Shares (whether or not certificated) to the Participant, a securities broker acting on behalf of the Participant or such other nominee of the Participant and (c) the Participant’s name, or the name of his or her broker or other nominee, shall have been entered as a shareholder of record on the books of the Company. Thereupon, the Participant shall have full voting, dividend and other ownership rights with respect to such Shares, subject to such terms and conditions as may be set forth in the applicable Award Agreement.
5.8.Effect of Change in Control. Any specific terms applicable to an Option in the event of a Change in Control and not otherwise provided in the Plan shall be set forth in the applicable Award Agreement.
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6. |
Stock Appreciation Rights. |
6.1.Grant. The Committee may grant Stock Appreciation Rights to Eligible Individuals in accordance with the Plan, the terms and conditions of which shall be set forth in an Award Agreement. A Stock Appreciation Right may be granted (a) at any time if unrelated to an Option or (b) if related to an Option, either at the time of grant or at any time thereafter during the term of the Option. Awards of Stock Appreciation Rights shall be subject to the following terms and provisions.
6.2.Terms; Duration. Stock Appreciation Rights shall contain such terms and conditions as to exercisability, vesting and duration as the Committee shall determine, but in no event shall they have a term of greater than ten (10) years; provided, however, that unless the Committee provides otherwise, (i) a Stock Appreciation Right may, upon the death of the Participant prior to the expiration of the Award, be exercised for up to one (1) year following the date of the Participant’s death (but in no event beyond the date on which the Stock Appreciation Right otherwise would expire by its terms) and (ii) if, at the time a Stock Appreciation Right would otherwise expire at the end of its term, the exercise of the Stock Appreciation Right is prohibited by applicable law or the Company’s insider trading policy, the term shall be extended until thirty (30) days after the prohibition no longer applies. The Committee may, subsequent to the granting of any Stock Appreciation Right, extend the period within which the Stock Appreciation Right may be exercised (including following a Participant’s Termination), but in no event shall the period be extended to a date that is later than the earlier of the latest date on which the Stock Appreciation Right could have been exercised and the 10th anniversary of the date of grant of the Stock Appreciation Right, except as otherwise provided herein in this Section 6.2.
6.3.Vesting. The Committee shall determine and set forth in the applicable Award Agreement the time or times at which a Stock Appreciation Right shall become vested and exercisable. To the extent not exercised, vested installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Stock Appreciation Right expires. The Committee may accelerate the exercisability of any Stock Appreciation Right or portion thereof at any time.
6.4.Amount Payable. Upon exercise of a Stock Appreciation Right, the Participant shall be entitled to receive an amount determined by multiplying (i) the excess of the Fair Market Value of a Share on the last business day preceding the date of exercise of such Stock Appreciation Right over the Fair Market Value of a Share on the date the Stock Appreciation Right was granted (the “Base Price”) by (ii) the number of Shares as to which the Stock Appreciation Right is being exercised (the “SAR Payment Amount”). Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the Award Agreement evidencing the Stock Appreciation Right at the time it is granted.
6.5.Method of Exercise. Stock Appreciation Rights shall be exercised by a Participant only by giving notice in the form and to the Person designated by the Company, specifying the number of Shares with respect to which the Stock Appreciation Right is being exercised.
6.6.Form of Payment. Payment of the SAR Payment Amount may be made in the discretion of the Committee solely in whole Shares having an aggregate Fair Market Value equal to the SAR Payment Amount, solely in cash or in a combination of cash and Shares. If the Committee decides to make full payment in Shares and the amount payable results in a fractional Share, payment shall be rounded down to the nearest whole Share.
6.7.Effect of Change in Control. Any specific terms applicable to a Stock Appreciation Right in the event of a Change in Control and not otherwise provided in the Plan shall be set forth in the applicable Award Agreement.
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7. |
Dividend Equivalent Rights. |
The Committee may grant Dividend Equivalent Rights, either in tandem with an Award or as a separate Award, to Eligible Individuals in accordance with the Plan. The terms and conditions applicable to each Dividend Equivalent Right shall be specified in the Award Agreement evidencing the Award. Amounts payable in respect of Dividend Equivalent Rights may be payable currently or may be deferred until the lapsing of restrictions on such Dividend Equivalent Rights or until the vesting, exercise, payment, settlement or other lapse of restrictions on the Award to which the Dividend Equivalent Rights relate. In the event that the amount payable in respect of Dividend Equivalent Rights is to be deferred, the Committee shall determine whether such amount is to be held in cash or reinvested in Shares or deemed (notionally) to be reinvested in Shares. Dividend Equivalent Rights may be settled in cash or Shares or a combination thereof, in a single installment or multiple installments, as determined by the Committee.
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8. |
Restricted Stock; Restricted Stock Units. |
8.1.Restricted Stock. The Committee may grant Awards of Restricted Stock to Eligible Individuals in accordance with the Plan, the terms and conditions of which shall be set forth in an Award Agreement. Each Award Agreement shall contain such restrictions, terms and conditions as the Committee may, in its discretion, determine and (without limiting the generality of the foregoing) such Award Agreements may require that an appropriate legend be placed on Share certificates. With respect to Shares in a book entry account in a Participant’s name, the Committee may cause appropriate stop transfer instructions to be delivered to the account custodian, administrator or the Company’s corporate secretary as determined by the Committee in its sole discretion. Awards of Restricted Stock shall be subject to the following terms and provisions:
(a)Rights of Participant. Shares of Restricted Stock granted pursuant to an Award hereunder shall be issued in the name of the Participant as soon as reasonably practicable after the Award is granted provided that the Participant has executed an Award Agreement evidencing the Award and any other documents which the Committee may require as a condition to the issuance of such Shares. At the discretion of the
Committee, Shares issued in connection with an Award of Restricted Stock may be held in escrow by an agent (which may be the Company) designated by the Committee. Unless the Committee determines otherwise and as set forth in the Award Agreement, upon the issuance of the Shares, the Participant shall have all of the rights of a shareholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares.
(b)Terms and Conditions. Each Award Agreement shall specify the number of Shares of Restricted Stock to which it relates, the conditions which must be satisfied in order for the Restricted Stock to vest and the circumstances under which the Award will be forfeited.
(c)Delivery of Shares. Upon the lapse of the restrictions on Shares of Restricted Stock, the Committee shall cause a stock certificate or evidence of book entry Shares to be delivered to the Participant with respect to such Shares of Restricted Stock, free of all restrictions hereunder.
(d)Treatment of Dividends. At the time an Award of Restricted Stock is granted, the Committee may, in its discretion, determine that the payment to the Participant of dividends, or a specified portion thereof, declared or paid on such Shares by the Company shall be paid currently or instead shall be (i) deferred until the lapsing of the restrictions imposed upon such Shares and (ii) held by the Company for the account of the Participant until such time; provided, however, that a dividend payable in respect of Restricted Stock that vests based on the achievement of performance goals shall be subject to restrictions and risk of forfeiture to the same extent as the Restricted Stock with respect to which such dividends are payable. In the event that dividends are to be deferred, the Committee shall determine whether such dividends are to be reinvested in Shares (which shall be held as additional Shares of Restricted Stock) or held in cash. Payment of deferred dividends in respect of Shares of Restricted Stock (whether held in cash or as additional Shares of Restricted Stock), shall be made upon the lapsing of restrictions imposed on the Shares in respect of which the deferred dividends were paid, and any dividends deferred in respect of any Shares of Restricted Stock shall be forfeited upon the forfeiture of such Shares.
(e)Effect of Change in Control. Any specific terms applicable to Restricted Stock in the event of a Change in Control and not otherwise provided in the Plan shall be set forth in the applicable Award Agreement.
8.2.Restricted Stock Unit Awards. The Committee may grant Awards of Restricted Stock Units to Eligible Individuals in accordance with the Plan, the terms and conditions of which shall be set forth in an Award Agreement. Each such Award Agreement shall contain such restrictions, terms and conditions as the Committee may, in its discretion, determine. Awards of Restricted Stock Units shall be subject to the following terms and provisions:
(a)Payment of Awards. Each Restricted Stock Unit shall represent the right of the Participant to receive one Share upon vesting of the Restricted Stock Unit or on any later date specified by the Committee; provided, however, that the Committee may
provide for the settlement of Restricted Stock Units in cash equal to the Fair Market Value of the Shares that would otherwise be delivered to the Participant (determined as of the date the Shares would have been delivered), or a combination of cash and Shares. The Committee may, at the time a Restricted Stock Unit is granted, provide a limitation on the amount payable in respect of each Restricted Stock Unit.
(b)Effect of Change in Control. Any specific terms applicable to Restricted Stock Units in the event of a Change in Control and not otherwise provided in the Plan shall be set forth in the applicable Award Agreement.
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9. |
Performance Awards. |
9.1.Performance Units and Performance Share Units. The Committee may grant Awards of Performance Units and/or Performance Share Units to Eligible Individuals in accordance with the Plan, the terms and conditions of which shall be set forth in an Award Agreement. Awards of Performance Units and Performance Share Units shall be subject to the following terms and provisions:
(a)Performance Units. Performance Units shall be denominated in a specified dollar amount and, contingent upon the attainment of specified Performance Objectives within the Performance Cycle and such other vesting conditions as may be determined by the Committee (including without limitation, a continued employment requirement following the end of the applicable Performance Cycle), represent the right to receive payment as provided in Sections 9.1(c) and (d) of the specified dollar amount or a percentage or multiple of the specified dollar amount depending on the level of Performance Objective attained. The Committee may at the time a Performance Unit is granted specify a maximum amount payable in respect of a vested Performance Unit.
(b)Performance Share Units. Performance Share Units shall be denominated in Shares and, contingent upon the attainment of specified Performance Objectives within the Performance Cycle and such other vesting conditions as may be determined by the Committee, (including without limitation, a continued employment requirement following the end of the applicable Performance Cycle), represent the right to receive payment as provided in Sections 9.1(c) and (d) of the Fair Market Value of a Share on the date the Performance Share Unit became vested or any other date specified by the Committee. The Committee may at the time a Performance Share Unit is granted specify a maximum amount payable in respect of a vested Performance Share Unit.
(c)Terms and Conditions; Vesting and Forfeiture. Each Award Agreement shall specify the number of Performance Units or Performance Share Units to which it relates, the Performance Objectives and other conditions which must be satisfied in order for the Performance Units or Performance Share Units to vest and the Performance Cycle within which such Performance Objectives must be satisfied and the circumstances under which the Award will be forfeited.
(d)Payment of Awards. Subject to Section 9.3(c), payment to Participants in respect of vested Performance Share Units and Performance Units shall
be made as soon as practicable after the last day of the Performance Cycle to which such Award relates or at such other time or times as the Committee may determine that the Award has become vested. Such payments may be made entirely in Shares valued at their Fair Market Value, entirely in cash or in such combination of Shares and cash as the Committee in its discretion shall determine at any time prior to such payment.
9.2.Performance-Based Restricted Stock. The Committee, may grant Awards of Performance-Based Restricted Stock to Eligible Individuals in accordance with the Plan, the terms and conditions of which shall be set forth in an Award Agreement. Each Award Agreement may require that an appropriate legend be placed on Share certificates. With respect to Shares in a book entry account in a Participant’s name, the Committee may cause appropriate stop transfer instructions to be delivered to the account custodian, administrator or the Company’s corporate secretary as determined by the Committee in its sole discretion. Awards of Performance-Based Restricted Stock shall be subject to the following terms and provisions:
(a)Rights of Participant. Performance-Based Restricted Stock shall be issued in the name of the Participant as soon as reasonably practicable after the Award is granted or at such other time or times as the Committee may determine; provided, however, that no Performance-Based Restricted Stock shall be issued until the Participant has executed an Award Agreement evidencing the Award, and any other documents which the Committee may require as a condition to the issuance of such Performance-Based Restricted Stock. At the discretion of the Committee, Shares issued in connection with an Award of Performance-Based Restricted Stock may be held in escrow by an agent (which may be the Company) designated by the Committee. Unless the Committee determines otherwise and as set forth in the Award Agreement, upon issuance of the Shares, the Participant shall have all of the rights of a shareholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares.
(b)Terms and Conditions. Each Award Agreement shall specify the number of Shares of Performance-Based Restricted Stock to which it relates, the Performance Objectives and other conditions which must be satisfied in order for the Performance-Based Restricted Stock to vest, the Performance Cycle within which such Performance Objectives must be satisfied and the circumstances under which the Award will be forfeited; provided, however, that no Performance Cycle for Performance-Based Restricted Stock shall be less than one (1) year.
(c)Treatment of Dividends. At the time the Award of Performance-Based Restricted Stock is granted, the Committee may, in its discretion, determine that the payment to the Participant of dividends, or a specified portion thereof, declared or paid on Shares represented by such Award which have been issued by the Company to the Participant shall be (i) deferred until the lapsing of the restrictions imposed upon such Performance-Based Restricted Stock and (ii) held by the Company for the account of the Participant until such time; provided, however, that a dividend payable in respect of Performance-Based Restricted Stock shall be subject to restrictions and risk of forfeiture to the same extent as the Performance-Based Restricted Stock with respect to which such dividends are payable. In the event that dividends are to be deferred, the Committee shall
determine whether such dividends are to be reinvested in Shares (which shall be held as additional Shares of Performance-Based Restricted Stock) or held in cash. Payment of deferred dividends in respect of Shares of Performance-Based Restricted Stock (whether held in cash or in additional Shares of Performance-Based Restricted Stock) shall be made upon the lapsing of restrictions imposed on the Performance-Based Restricted Stock in respect of which the deferred dividends were paid, and any dividends deferred in respect of any Performance-Based Restricted Stock shall be forfeited upon the forfeiture of such Performance-Based Restricted Stock.
(d)Delivery of Shares. Upon the lapse of the restrictions on Shares of Performance-Based Restricted Stock awarded hereunder, the Committee shall cause a stock certificate or evidence of book entry Shares to be delivered to the Participant with respect to such Shares, free of all restrictions hereunder.
9.3.Performance Objectives.
(a)Establishment. With respect to any Performance Awards Performance Objectives for Performance Awards may be expressed in terms of (i) earnings per share; (ii) operating income; (iii) return on equity or assets; (iv) free cash flow; (v) net cash flow; (vi) cash flow from operations; (vii) EBITDA and/or adjusted EBITDA (including any adjusted EBITDA metric reported by the Company to securityholders or lenders); (viii) revenue growth; (ix) revenue ratios; (x) cost reductions; (xi) cost ratios or margins; (xii) overall revenue or sales growth; (xiii) expense reduction or management; (xiv) market position or market share; (xv) total shareholder return; (xvi) return on investment; (xvii) earnings before interest and taxes (EBIT); (xviii) net income (before or after taxes); (xix) return on assets or net assets; (xx) economic value added; (xxi) shareholder value added; (xxii) cash flow return on investment; (xxiii) net operating profit; (xxiv) net operating profit after tax; (xxv) return on capital; (xxvi) return on invested capital; (xxvii) customer growth; (xxviii) financial ratios, including those measuring liquidity, activity, profitability or leverage; (xxix) financing and other capital raising transactions; (xxx) strategic partnerships or transactions; (xxxi) successful completion of acquisitions; or (xxxii) any combination of or a specified increase in any of the foregoing or any other performance criteria as may be established by the Committee. Performance Objectives may be in respect of the performance of the Company, any of its Subsidiaries, any of its Divisions or any combination thereof. Performance Objectives may be absolute or relative (to prior performance of the Company or to the performance of one or more other entities or external indices) and may be expressed in terms of a progression within a specified range. The Performance Objectives with respect to a Performance Cycle shall be established by the Committee while the performance relating to the Performance Objectives remains substantially uncertain.
(b)Effect of Certain Events. The Committee may adjust, the Performance Objectives to reflect the impact of specified events, including any one or more of the following with respect to the Performance Period: (i) the gain, loss, income or expense resulting from changes in accounting principles or tax laws that become effective during the Performance Period; (ii) the gain, loss, income or expense reported publicly by the Company with respect to the Performance Period that are extraordinary or unusual in
nature or infrequent in occurrence; (iii) the gains or losses resulting from and the direct expenses incurred in connection with, the disposition of a business, or the sale of investments or non-core assets; (iv) the gain or loss from all or certain claims and/or litigation and all or certain insurance recoveries relating to claims or litigation; or (v) the impact of investments or acquisitions made during the year or, to the extent provided by the Committee, any prior year. The events may relate to the Company as a whole or to any part of the Company’s business or operations, as determined by the Committee at the time the Performance Objectives are established. Any adjustments based on the effect of certain events are to be determined in accordance with generally accepted accounting principles and standards, unless another objective method of measurement is designated by the Committee.
(c)Determination of Performance. Prior to the vesting, payment, settlement or lapsing of any restrictions with respect to any Performance Award, the Committee shall determine that the applicable Performance Objectives have been satisfied. In respect of a Performance Award, the Committee may, in its sole discretion, (i) reduce the amount of cash paid or number of Shares to be issued or that have been issued and that become vested or on which restrictions lapse, and/or (ii) establish rules and procedures that have the effect of limiting the amount payable to any Participant to an amount that is less than the amount that otherwise would be payable under an Award granted under this Section 9. The Committee may exercise such discretion in a non-uniform manner among Participants.
(d)Effect of Change in Control. Any specific terms applicable to a Performance Award in the event of a Change in Control and not otherwise provided in the Plan shall be set forth in the applicable Award Agreement.
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10. |
Share Awards. |
The Committee may grant a Share Award to any Eligible Individual on such terms and conditions as the Committee may determine in its sole discretion. Share Awards may be made as additional compensation for services rendered by the Eligible Individual or may be in lieu of cash or other compensation to which the Eligible Individual is entitled from the Company.
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11. |
Effect of Termination of Employment; Transferability. |
11.1.Termination. The Award Agreement evidencing the grant of each Award shall set forth the terms and conditions applicable to such Award upon Termination, which shall be as the Committee may, in its discretion, determine at the time the Award is granted or at anytime thereafter.
11.2.Transferability of Awards and Shares.
(a)Non-Transferability of Awards. Except as set forth in Section 11.2(c) or (d) or as otherwise permitted by the Committee and as set forth in the applicable Award Agreement, either at the time of grant or at anytime thereafter, no Award (other than Restricted Stock or Performance-Based Restricted Stock with respect to which the restrictions have lapsed) shall be (i) sold, transferred or otherwise disposed of, (ii)
pledged or otherwise hypothecated or (iii) subject to attachment, execution or levy of any kind; and any purported transfer, pledge, hypothecation, attachment, execution or levy in violation of this Section 11.2 shall be null and void.
(b)Restrictions on Shares. The Committee may impose such restrictions on any Shares acquired by a Participant under the Plan as it may deem advisable, including, without limitation, minimum holding period requirements, restrictions under applicable federal securities laws, restrictions under the requirements of any stock exchange or market upon which such Shares are then listed or traded and restrictions under any blue sky or state securities laws applicable to such Shares.
(c)Transfers By Will or by Laws of Descent or Distribution. Any Award may be transferred by will or by the laws of descent or distribution; provided, however, that (i) any transferred Award will be subject to all of the same terms and conditions as provided in the Plan and the applicable Award Agreement; and (ii) the Participant’s estate or beneficiary appointed in accordance with this Section 11.2(c) will remain liable for any withholding tax that may be imposed by any federal, state or local tax authority.
(d)Beneficiary Designation. To the extent permitted by applicable law, the Company may from time to time permit each Participant to name one or more individuals (each, a “Beneficiary”) to whom any benefit under the Plan is to be paid or who may exercise any rights of the Participant under any Award granted under the Plan in the event of the Participant’s death before he or she receives any or all of such benefit or exercises such Award. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. In the absence of any such designation or if any such designation is not effective under applicable law as determined by the Committee, benefits under Awards remaining unpaid at the Participant’s death and rights to be exercised following the Participant’s death shall be paid to or exercised by the Participant’s estate.
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12. |
Adjustment upon Changes in Capitalization. |
12.1.In the event that (a) the outstanding Shares are changed into or exchanged for a different number or kind of Shares or other stock or securities or other equity interests of the Company or another corporation or entity, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, substitution or other similar corporate event or transaction or (b) there is an extraordinary dividend or distribution by the Company in respect of its Shares or other capital stock or securities convertible into capital stock in cash, securities or other property (any event described in (a) or (b), an “Adjustment Event”), the Committee shall determine the appropriate adjustments to (i) the maximum number and kind of shares of stock or other securities or other equity interests as to which Awards may be granted under the Plan, (ii) the maximum number and class of Shares or other stock or securities that may be issued upon exercise of Incentive Stock Options, (iii) the number and kind of Shares or other securities covered by any or all outstanding Awards that have been granted under the Plan, (iv) the Option Price of outstanding Options and
the Base Price of outstanding Stock Appreciation Rights, and (v) the Performance Objectives applicable to outstanding Performance Awards.
12.2.Any such adjustment in the Shares or other stock or securities (a) subject to outstanding Incentive Stock Options (including any adjustments in the exercise price) shall be made in a manner intended not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code, and (b) with respect to any Award that is not subject to Section 409A, in a manner intended not to subject the Award to Section 409A and, with respect to any Award that is subject to Section 409A, in a manner intended to comply with Section 409A.
12.3.If, by reason of an Adjustment Event, pursuant to an Award, a Participant shall be entitled to, or shall be entitled to exercise an Award with respect to, new, additional or different shares of stock or securities of the Company or any other corporation, such new, additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Shares subject to the Award prior to such Adjustment Event, as may be adjusted in connection with such Adjustment Event in accordance with this Section 12.
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13. |
Effect of Certain Transactions. |
13.1.Except as otherwise provided in the applicable Award Agreement, in connection a Corporate Transaction, either:
(a)outstanding Awards shall, unless otherwise provided in connection with the Corporate Transaction, continue following the Corporate Transaction and shall be adjusted if and as provided for in the agreement or plan (in the case of a liquidation or dissolution) entered into or adopted in connection with the Corporate Transaction (the “Transaction Agreement”), which may include, in the sole discretion of the Committee or the parties to the Corporate Transaction, the assumption or continuation of such Awards by, or the substitution for such Awards of new awards of, the surviving, successor or resulting entity, or a parent or subsidiary thereof, with such adjustments as to the number and kind of shares or other securities or property subject to such new awards, exercise prices and other terms of such new awards as the Committee or the parties to the Corporate Transaction shall agree, or
(b)outstanding Awards shall terminate upon the consummation of the Corporate Transaction; provided, however, that vested Awards shall not be terminated without:
(i)in the case of vested Options and Stock Appreciation Rights (including those Options and Stock Appreciation Rights that would become vested upon the consummation of the Corporate Transaction), (1) providing the holders of affected Options and Stock Appreciation Rights a period of at least fifteen (15) calendar days prior to the date of the consummation of the Corporate Transaction to exercise the Options and Stock Appreciation Rights, or (2) providing the holders of affected Options and Stock Appreciation Rights payment
(in cash or other consideration upon or immediately following the consummation of the Corporate Transaction, or, to the extent permitted by Section 409A, on a deferred basis) in respect of each Share covered by the Option or Stock Appreciation Rights being cancelled an amount equal to the excess, if any, of the per Share consideration to be paid or distributed to stockholders in the Corporate Transaction (the value of any non-cash consideration, if not otherwise distributed to the Participant, to be determined by the Committee in good faith) over the Option Price of the Option or the Base Price of the Stock Appreciation Rights, or
(ii)in the case of vested Awards other than Options or Stock Appreciation Rights (including those Awards that would become vested upon the consummation of the Corporate Transaction), providing the holders of affected Awards payment (in cash or other consideration upon or immediately following the consummation of the Corporate Transaction, or, to the extent permitted by Section 409A, on a deferred basis) in respect of each Share covered by the Award being cancelled of the per Share consideration to be paid or distributed to stockholders in the Corporate Transaction, in each case with the value of any non-cash consideration, if not otherwise distributed to the Participant, to be determined by the Committee in good faith.
(c)For the avoidance of doubt, if the amount determined pursuant to clause (b)(i)(2) above is zero or less, the affected Option or Stock Appreciation Rights may be terminated without any payment therefor.
13.2.Without limiting the generality of the foregoing or being construed as requiring any such action, in connection with any such Corporate Transaction the Committee may, in its sole and absolute discretion, cause any of the following actions to be taken effective upon or at any time prior to any Corporate Transaction (and any such action may be made contingent upon the occurrence of the Corporate Transaction):
(a)cause any or all unvested Options and Stock Appreciation Rights to become fully vested and immediately exercisable (as applicable) and/or provide the holders of such Options and Stock Appreciation Rights a reasonable period of time prior to the date of the consummation of the Corporate Transaction to exercise the Options and Stock Appreciation Rights;
(b)with respect to unvested Options and Stock Appreciation Rights that are terminated in connection with the Corporate Transaction, provide to the holders thereof a payment (in cash and/or other consideration) in respect of each Share covered by the Option or Stock Appreciation Right being terminated in an amount equal to all or a portion of the excess, if any, of the per Share consideration to be paid or distributed to stockholders in the Corporate Transaction (the value of any non-cash consideration, if not otherwise distributed to the Participant, to be determined by the Committee in good faith) over the exercise price of the Option or the Base Price of the Stock Appreciation Right, which may, to the extent permitted by Section 409A, be paid in accordance with the vesting schedule of the Award as set forth in the applicable Award Agreement, upon the
consummation of the Corporate Transaction or at such other time or times as the Committee may determine;
(c)with respect to unvested Awards (other than Options or Stock Appreciation Rights) that are terminated in connection with the Corporate Transaction, provide to the holders thereof a payment (in cash and/or other consideration) in respect of each Share covered by the Award being terminated in an amount equal to all or a portion of the per Share consideration to be paid or distributed to stockholders in the Corporate Transaction (the value of any non-cash consideration, if not otherwise distributed to the Participant, to be determined by the Committee in good faith), which may, to the extent permitted by Section 409A, be paid in accordance with the vesting schedule of the Award as set forth in the applicable Award Agreement, upon the consummation of the Corporate Transaction or at such other time or times as the Committee may determine.
(d)For the avoidance of doubt, if the amount determined pursuant to clause (b) above is zero or less, the affected Option or Stock Appreciation Rights may be terminated without any payment therefor.
13.3.Notwithstanding anything to the contrary in this Plan or any Agreement,
(a)the Committee may, in its sole discretion, provide in the Transaction Agreement or otherwise for different treatment for different Awards or Awards held by different Participants and, where alternative treatment is available for a Participant’s Awards, may allow the Participant to choose which treatment shall apply to such Participant’s Awards;
(b)any action permitted under this Section 13 may be taken without the need for the consent of any Participant. To the extent a Corporate Transaction also constitutes an Adjustment Event and action is taken pursuant to this Section 13 with respect to an outstanding Award, such action shall conclusively determine the treatment of such Award in connection with such Corporate Transaction notwithstanding any provision of the Plan to the contrary (including Section 12).
(c)to the extent the Committee chooses to make payments to affected Participants pursuant to Section 13.1(b)(i)(2) or (ii) or Section 13.2(b) or (c) above, any Participant who has not returned any letter of transmittal or similar acknowledgment that the Committee requires be signed in connection with such payment within the time period established by the Committee for returning any such letter or similar acknowledgement shall forfeit his or her right to any payment and his or her associated Awards may be cancelled without any payment therefor.
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14. |
Interpretation. |
14.1.Section 16 Compliance. The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Award Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan.
14.2.Compliance with Section 409A. All Awards granted under the Plan are intended either not to be subject to Section 409A or, if subject to Section 409A, to be administered, operated and construed in compliance with Section 409A. Notwithstanding this or any other provision of the Plan or any Award Agreement to the contrary, the Committee may amend the Plan or any Award granted hereunder in any manner or take any other action that it determines, in its sole discretion, is necessary, appropriate or advisable (including replacing any Award) to cause the Plan or any Award granted hereunder to comply with Section 409A and all regulations and other guidance issued thereunder or to not be subject to Section 409A. Any such action, once taken, shall be deemed to be effective from the earliest date necessary to avoid a violation of Section 409A and shall be final, binding and conclusive on all Eligible Individuals and other individuals having or claiming any right or interest under the Plan.
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15. |
Term; Plan Termination and Amendment of the Plan; Modification of Awards. |
15.1.Term. The Plan shall terminate on the Plan Termination Date and no Award shall be granted after that date. The applicable terms of the Plan and any terms and conditions applicable to Awards granted prior to the Plan Termination Date shall survive the termination of the Plan and continue to apply to such Awards.
15.2.Plan Amendment or Plan Termination. The Board may earlier terminate the Plan and the Board may at any time and from time to time amend, modify or suspend the Plan; provided, however, that:
(a)no such amendment, modification, suspension or termination shall materially and adversely alter any Awards theretofore granted under the Plan, except with the consent of the Participant, nor shall any amendment, modification, suspension or termination deprive any Participant of any Shares which he or she may have acquired through or as a result of the Plan; and
(b)to the extent necessary under any applicable law, regulation or exchange requirement or as provided in Section 3.7, no other amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law, regulation or exchange requirement.
15.3.Modification of Awards. No modification of an Award shall materially and adversely alter or impair any rights or obligations under the Award without the consent of the Participant.
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16. |
Non-Exclusivity of the Plan. |
The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
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17. |
Limitation of Liability. |
As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(a)give any person any right to be granted an Award other than at the sole discretion of the Committee;
(b)limit in any way the right of the Company or any of its Subsidiaries to terminate the employment of or the provision of services by any person at any time;
(c)be evidence of any agreement or understanding, express or implied, that the Company will pay any person at any particular rate of compensation or for any particular period of time; or
(d)be evidence of any agreement or understanding, express or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time.
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18. |
Regulations and Other Approvals; Governing Law. |
18.1.Governing Law. Except as to matters of federal law, the Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles thereof.
18.2.Compliance with Law.
(a)The obligation of the Company to sell or deliver Shares with respect to Awards granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee.
(b)The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain for Eligible Individuals granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder.
(c)Each grant of an Award and the issuance of Shares or other settlement of the Award is subject to compliance with all applicable federal, state and foreign law. Further, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any federal, state or foreign law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Award or the issuance of Shares, no Awards shall be or shall be deemed to be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions that are not acceptable to the Committee. Any person
exercising an Option or receiving Shares in connection with any other Award shall make such representations and agreements and furnish such information as the Board or Committee may request to assure compliance with the foregoing or any other applicable legal requirements.
18.3.Transfers of Plan Acquired Shares. Notwithstanding anything contained in the Plan or any Award Agreement to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulations promulgated thereunder. The Committee may require any individual receiving Shares pursuant to an Award granted under the Plan, as a condition precedent to receipt of such Shares, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under the Securities Act or pursuant to an exemption applicable under the Securities Act or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately amended or have an appropriate legend placed thereon to reflect their status as restricted securities as aforesaid.
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19. |
Miscellaneous. |
19.1.Award Agreements. Each Award Agreement shall either be (a) in writing in a form approved by the Committee and executed on behalf of the Company by an officer duly authorized to act on its behalf, or (b) an electronic notice in a form approved by the Committee and recorded by the Company (or its designee) in an electronic recordkeeping system used for the purpose of tracking Awards as the Committee may provide. If required by the Committee, an Award Agreement shall be executed or otherwise electronically accepted by the recipient of the Award in such form and manner as the Committee may require. The Committee may authorize any officer of the Company to execute any or all Award Agreements on behalf of the Company.
19.2.Forfeiture Events; Clawback. The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, clawback or recoupment upon the occurrence of certain specified events or as required by law, in addition to any otherwise applicable forfeiture provisions that apply to the Award. Without limiting the generality of the foregoing, any Award under the Plan shall be subject to the terms of any clawback policy maintained by the Company or as required by law, as it may be amended from time to time.
19.3.Multiple Agreements. The terms of each Award may differ from other Awards granted under the Plan at the same time or at some other time. The Committee may also grant more than one Award to a given Eligible Individual during the term of the Plan, either in addition to or, subject to Section 3.7, in substitution for one or more Awards previously granted to that Eligible Individual.
19.4.Withholding of Taxes. The Company or any of its Subsidiaries may withhold from any payment of cash or Shares to a Participant or other Person under the Plan an amount sufficient to cover any withholding taxes which may become required with respect to such
payment or take any other action it deems necessary to satisfy any income or other tax withholding requirements as a result of the grant, exercise, vesting or settlement of any Award under the Plan. The Company or any of its Subsidiaries shall have the right to require the payment of any such taxes or to withhold from wages or other amounts otherwise payable to a Participant or other Person, and require that the Participant or other Person furnish all information deemed necessary by the Company or any of its Subsidiaries to meet any tax reporting obligation as a condition to exercise or before making any payment or the issuance or release of any Shares pursuant to an Award. If the Participant or other Person shall fail to make such tax payments as are required, the Company or its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant or other Person or to take such other action as may be necessary to satisfy such withholding obligations. If specified in an Award Agreement at the time of grant or otherwise approved by the Committee in its sole discretion, a Participant may, in satisfaction of his or her obligation to pay withholding taxes in connection with the exercise, vesting or other settlement of an Award, elect to (i) make a cash payment to the Company, (ii) have withheld a portion of the Shares then issuable to him or her or the cash otherwise payable to him or her pursuant to an Award or (iii) deliver Shares owned by the Participant prior to the exercise, vesting or other settlement of an Award, in each case having an aggregate Fair Market Value equal to the withholding taxes. To the extent that Shares are used to satisfy withholding obligations of a Participant pursuant to this Section 19.4 (whether previously-owned Shares or Shares withheld from an Award), they may only be used to satisfy the minimum tax withholding required by law (or such other amount as will not have any adverse accounting impact as determined by the Committee).
19.5.Disposition of ISO Shares. If a Participant makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Participant pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of the grant or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Participant pursuant to such exercise, the Participant shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office.
19.6.Plan Unfunded. The Plan shall be unfunded. Except for reserving a sufficient number of authorized Shares to the extent required by law to meet the requirements of the Plan, the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure payment of any Award granted under the Plan.
EXHIBIT 31.1
SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Hervé Sedky, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 of Emerald Holding, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 30, 2021
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/s/ Hervé Sedky |
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Hervé Sedky Chief Executive Officer |
EXHIBIT 31.2
SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, David Doft, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 of Emerald Holding, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 30, 2021
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/s/ David Doft |
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David Doft Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Emerald Holding, Inc. (the “Company”), for the quarterly period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ Hervé Sedky |
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Hervé Sedky, |
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Chief Executive Officer (Principal Executive Officer) |
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Date: July 30, 2021 |
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/s/ David Doft |
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David Doft |
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Chief Financial Officer (Principal Financial Officer) |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.