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Edited Transcript of EEX.N earnings conference call or presentation 4-May-20 8:30pm GMT

Q1 2020 Emerald Holding Inc Earnings Call

SAN JUAN CAPISTRANO May 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Emerald Holding Inc earnings conference call or presentation Monday, May 4, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Field

Emerald Holding, Inc. - Interim President & CEO

* David B. Doft

Emerald Holding, Inc. - CFO

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Conference Call Participants

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* Emily Gretchen McLaughlin

RBC Capital Markets, Research Division - Assistant VP

* Jeffrey P. Meuler

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Robert Weaver;INTL FCStone;Analyst

* Ryan C. Leonard

Barclays Bank PLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Emerald First Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. David Doft, Chief Financial Officer. Please go ahead, sir.

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David B. Doft, Emerald Holding, Inc. - CFO [2]

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Thank you, operator, and good afternoon, everyone. We appreciate your participation today in our first quarter 2020 earnings call. I'm very pleased to have Brian Field, Emerald's Interim President and Chief Executive Officer, with me here today.

As a reminder, a replay of this call will be available on the Investors section of the company's website through 11:59 p.m. Eastern Time on May 18, 2020.

Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the applicable securities laws. These include remarks about future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company's most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings. We do not undertake any duty to update such forward-looking statements.

Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release.

Now I'll turn the call over to Brian.

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Brian Field, Emerald Holding, Inc. - Interim President & CEO [3]

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Thank you, David, and good afternoon, everyone. On today's call, I will review the steps that we've taken to ensure the health and safety of our employees and customers as COVID-19 has quickly spread across the country as well as the actions that we are taking to ensure that we have the liquidity and resources necessary to manage through an extended downturn. I will then briefly review our first quarter results before turning the call back to David, who will discuss our financials in more detail. We will then open the call to your questions.

Before we begin, I would like to extend my deepest condolences to Sally Shankland's family as Sally passed away on April 20. Sally had been a mentor to me for many years and was a great leader, colleague and friend with relentless energy, curiosity, intelligence and empathy. She was a positive influence on many, her absence will be keenly felt.

Turning to today's announcement. I would like to start by thanking our employees for their tireless work and dedication during such a challenging time. The rapid spread of COVID-19 has had a severe negative impact on our ability to deliver large, in-person experiences, including cancellations and substantial changes to our show calendar. Our team has been working with our customers and partners to determine if and how best to reschedule our shows in the second half of the year should conditions permit. This has been a tremendous undertaking to accomplish in a very short period of time, and I'm deeply appreciative of our employees' agility and focus, as they have steadfastly supported our customers' needs.

Through April, we have postponed 14 events to the second half of 2020, which equates to approximately $12 million of 2019 revenue. In total, we now have 82 events scheduled from July through December, which in 2019, delivered total revenues of $124 million. We have also made the decision to cancel 29 events, including the March edition of ASD, JA New York Spring, Couture, Retail X and Outdoor Retailer Summer Market, which in total, accounted for approximately $118 million of 2019 revenue.

While these have been difficult decisions, we are very encouraged by the strong support that we have received from our customer communities, which demonstrates the importance of our shows to their respective markets. Our customers consistently tell us how eager they are to get back to business, which is a strong indication that the demand for our marketplaces remains intact and should recover over time.

The commentary from our customers is not just anecdotal. We have done some very recent survey work, which bolsters our positive view on the long-term prospects for the trade show business. The feedback we have received tells us the following. First, trade shows are a significant component of marketing spend for exhibitors, and most exhibitors have either increased or maintained their spend on trade shows over recent years.

Second, while exhibitors are suggesting a decrease in trade show related spend in the interim period, which is not surprising, they nonetheless continue to view trade shows as a key component of their marketing mix strategy post-COVID-19 and expect to return to their pre-COVID spending levels once the health situation has resolved.

Third, many exhibitors are eager to return to trade shows as soon as possible and practical. While most exhibitors still see value exhibiting at trade shows with reduced sizes, they are likely to prioritize larger industry shows, such as those produced by Emerald, as tightening budgets lead exhibitors to cut their participation in regional and smaller shows first.

And finally, four, exhibitors have stayed connected with customers during this time, primarily through virtual mediums, e-mails, webinars, digital products, et cetera, but many recognize that these formats cannot replicate the value of face-to-face interactions in the long term, especially as the building of new relationships or discovering new products requires the in-person interactions that trade shows bring. Inherently, digital tools are limited, given the lack of personal contact, the challenges in highlighting product quality and the difficulty in gathering potential buyers.

Next, I want to highlight our insurance coverage. As we have discussed on prior calls, Emerald maintains event cancellation insurance. This policy provides coverage for the gross revenues less avoided costs plus certain costs relating to the taking of remedial action for each of the company's individual events and conferences occurring within a calendar year. This event cancellation insurance covers up to an aggregate limit of $191 million per year for each of 2020 and 2021 if losses arise for reasons within the scope of Emerald's policy.

The coverage has no deductible and covers the cancellation, postponement and movement of an event as well as enforced reduced attendance. Importantly, our coverage expressly includes losses resulting from the outbreak of communicable diseases. While there is no assurance that the insurance carriers will agree that all of Emerald's claims are covered under the policy, we believe that all shows that have been canceled or postponed due to COVID-19 to date should qualify as covered losses with respect to this event cancellation insurance.

Since the middle of March, our team has been assembling our insurance claims for each of our canceled shows. This is an in-depth process that includes a variety of information, including our budget for the events, costs incurred and costs avoided. Thus far, we have submitted $66 million of claims and expect to submit further claims representing an estimated $20 million to $30 million of losses over the coming weeks. These claims, if successful, would cover the lost profit contribution that was expected for the impacted events. We will remain transparent and plan to update the investment community as our claims are processed.

It is important to point out that while our policy covers 50% of our total portfolio revenues, we also have the ability to mitigate expenses, sometimes avoiding them all together for canceled events when there is adequate lead time to an event's scheduled staging. Examples of such avoidable expenses include freelance event personnel, general contractor expenses associated with the physical event space, along with food and beverage costs, to name just a few. As a result, when we submit a claim, we reflect all costs that have been mitigated. This reduces the amounts we request as part of our claim, thus preserving our insurance dollars, while maintaining our margin and cash flow from each event.

Though the economic environment and trade show industry remains very uncertain, we feel fortunate both to have made the decision to purchase communicable disease coverage as part of our event cancellation insurance policy last year and also that this coverage is bound and in effect through the end of 2021.

We expect this coverage will provide Emerald with critical cash flow until the environment begins to return to normal. Ahead of the COVID-19 outbreak this quarter. We successfully staged all of our events through early March, and they performed in line or better than our expectations. This was largely driven by the new upfront rigor and data-led decision-making around our events.

As we've noted in earlier calls, we have implemented event plans that have standardized our strategic planning around our markets, along with the supporting marketing and sales strategy and tactics for each of our events across Emerald's entire portfolio. Coupled with our enhanced customer research capabilities, we saw strong performance and customer sentiment in our Q1 shows that took place. One particular call-out here was the exhibitor feedback from our Surf Expo event in January, which given the prior summer's cancellation due to Hurricane Dorian, was particularly satisfying and validated our enhanced customer-centric approach.

Given the spread of the COVID-19 pandemic and its impact on our business, we have maintained critical focus on our internal transformation initiatives to deliver our events in a more efficient way. We have earlier outlined how we are integrating our customer data, enriching customer profiles with behavioral touch points and through intelligent automation, creating more relevant and personalized experiences.

This will allow us for the first time to effectively cross-sell across our brands as well as at the enterprise level. We believe this can be a meaningful driver of incremental revenue in coming years. We have maintained our investments in this important strategic growth initiative and are on schedule for rollout in the second half of this year.

While we work to streamline our operations, we are also accelerating our digital product offerings during this pandemic. These digital offerings provide value to our customers through education, networking and connecting our buying and selling customers. This, in turn, will strengthen our customer relationships by delivering valuable content and services. These digital products are also driving new customers to us, which we will be able to nurture and will look to extend into our live events as they return.

Of note, we have already grown net new customers by 15% over the same period last year through these initiatives and at a fraction of the cost per lead. Some of these products include webinars, podcasts, [easings] and paid research. We are also spending time refining our strategic priorities and innovating additional new revenue streams, which we look forward to updating you on in the future.

It is important to point out that these digital initiatives in no way suggest a change in our view or confidence in the viability and long-term outlook for the events industry. These are merely accelerations of our previously articulated strategy to provide year-round customer value and create new revenue streams.

We have been reviewing our operations and cost structure even before the outbreak of COVID-19 as part of our strategy to improve Emerald's execution and have accelerated a variety of measures to reduce our cash burn, improve our financial flexibility and successfully navigate the current environment, while meeting all financial obligations. David will go into more detail on our cost structure and the expense saving initiatives that we are implementing in a moment.

Before I hand off, I want to reaffirm our focus and commitment to the health and safety of our staff and our customers during this time and also our resolve to listen to and understand the needs of our customer communities, to play a key role for them today and demonstrate valuable long-term partnership as we support the return to growth tomorrow. There's nothing we have heard or seen from our customers to change our view of the viability of and need for our events in the marketplace. In our view, the only question is when we will be able to safely stage them again, as the safety and well-being of our employees, customers and communities is our top priority.

Now let me turn the call over to David.

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David B. Doft, Emerald Holding, Inc. - CFO [4]

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Thank you, Brian, and good afternoon. During the first quarter, revenues decreased by $37.7 million or 27.4% as compared to the first quarter of 2019. The decrease primarily reflected a $34.3 million reduction from the cancellation of 7 first quarter events due to the COVID-19 crisis. Most notable among these cancellations are ASD March, the International Pizza Expo and JA Spring. In addition, $3.6 million of the first quarter decline was due to the postponement of 2 first quarter 2020 events to the second half of the year. Our first quarter results were also negatively impacted by $2.3 million as a result of discontinued loss-making print publications and events.

Lastly, the G3 Communications acquisition, which closed in the fourth quarter of 2019, contributed $3.9 million of revenue in the first quarter of 2020. Organic revenues for the first quarter declined $2.6 million or 2.6% as compared to the prior year first quarter.

Our adjusted EBITDA for the first quarter was $23.6 million as compared to $57.5 million in the same period last year, adjusted for show scheduling differences including the Shell postponement due to COVID-19. The decrease in adjusted EBITDA of $33.9 million was mainly related to the cancellation of 7 first quarter events, representing prior year profit contribution of $27.5 million as well as the acceleration of approximately $2 million of previously deferred expenses related to second quarter events, which we're forced to cancel as a result of the COVID-19 crisis. Our first quarter 2020 adjusted EBITDA also reflected the combined effect of the postponed events, lower organic revenues, incremental investment in events that took place in the quarter and increased marketing costs.

Next, impairment charges. In the first quarter, we booked a $564 million noncash goodwill impairment charge and $59.4 million noncash charge related to certain intangible assets in the first quarter in connection with the triggering event caused by the impact of the COVID-19 crisis on the travel and events industry, the company's forecasted results and its market value. Free cash flow for the first quarter was $7.7 million as compared to $11.3 million in the year ago first quarter and was aided by strong working capital management. We finished the quarter with net debt of $549.5 million, representing a net leverage ratio of 4.1x our TTM consolidated EBITDA of $127.7 million per the terms of our credit agreement.

As a reminder, our credit agreement has a springing total net leverage covenant of no more than 5.5x, which kicks in only if borrowings under our credit facility exceed 35% of our revolving capacity of $150 million. At March 31, our borrowing levels were below that threshold, meaning that no covenant was in place.

Additionally, our definition of consolidated EBITDA in the agreement allows for various adjustments, including those for anticipated proceeds of insurance claims under our event cancellation policy, the impact of shifts in our event calendar, the add-back of certain onetime costs as well as the run rate savings of restructuring initiatives. This serves to bolster our TTM consolidated EBITDA calculation in the face of COVID-related cancellations and postponements.

As Brian has discussed, we are reviewing our ongoing expense structure to identify opportunities to optimize and further reduce our expenses. To date, we have made significant progress. Our cost structure is made up of the direct cost needed to execute events and the SG&A or overhead needed to run the company and manage our portfolio of assets. Direct costs are largely variable, typically 70%. However, with enough advanced notice, almost all direct costs can be avoided. To date, we've avoided over $30 million of direct costs for events that we had to cancel, and we are carefully managing commitment capabilities at this stage in order to avoid further costs given the current circumstances.

Our overhead is more fixed. Specifically, we estimate a little over 50% of it is given the leadership team, IT infrastructure, rent and public company requirements, among other things. That said, we have reorganized how we operate in order to reduce the run rate of SG&A by over $15 million since the beginning of the year. This includes approximately 18% of our headcount through a combination of staff reductions, eliminating the open positions and furloughs. We continue to look at areas where we can manage the business more efficiently, while also increasing our investment in growth and diversification initiatives. We look forward to updating you on our progress in the coming months.

One last item. Our balance sheet looks a little different this quarter. Given the event cancellations, we have had a significant decline in deferred revenue. Our business typically has favorable cash flow dynamics with exhibitors paying for booth space ahead of the production events -- production of our events. When events are canceled, we must refund those payments. Given the high volume of event cancellation, the amount of pending refund is substantial. As a result, we have broken out the refund or canceled event liability of $72 million on our balance sheet. We believe that the anticipated proceeds of our event cancellation insurance claims will offset the pending refunds and when combined with the cost saving moves I just discussed, should provide the company with ample liquidity to manage through the current environment.

With that, I'll now turn the call back to Brian.

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Brian Field, Emerald Holding, Inc. - Interim President & CEO [5]

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Thank you, David. While the first quarter was off to a strong start with our events delivering results in line to better than expectations, the global economy and the events industry along with it has encountered severe headwinds as a result of the COVID-19 pandemic. Our team has done an incredible job rescheduling many of our shows to the second half of the year, accelerating into our digital product offering, while nurturing our existing customers and growing new customer relationships.

I am very proud of our employees for their efforts in such a challenging environment. I'm also very confident in our expected insurance coverage, our solid liquidity position and the future viability of our industry. While there is clearly much uncertainty in the world today, I'm confident that we, at Emerald, have the financial flexibility to weather this unprecedented time while maintaining our industry leadership.

Thank you once again for your time today. Operator, please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Seth Weber of RBC Capital Markets.

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Emily Gretchen McLaughlin, RBC Capital Markets, Research Division - Assistant VP [2]

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This is Emily McLaughlin on for Seth tonight. My first question is just in a scenario where the world reopens, but people remain worry about traveling, would Emerald still put on a show if it looked like participation levels are going to be significantly lower than prior additions? I guess we assume there will be some impact to exhibitor ROIs in the event of materially lower attendance. So just wondering how you're thinking about managing that, particularly as you move toward more sophisticated value-based pricing models.

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Brian Field, Emerald Holding, Inc. - Interim President & CEO [3]

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Sure. So it's very much going to be a case of the facts and circumstances as we get closer to a particular show staging and the amount of customer interest and the viability of the event. I think at this point, most customers, as our survey has indicated, aren't expecting that we're going to return overnight to pre-COVID levels of participation. And in fact, as I mentioned on the call just a moment ago, most of them expect that there'll be less attendance.

That said, the question is really around the value that a particular brand has, the kind of customers, both buying and attending, attached to that quality of event, the quality of the brand that come together that result in a meaningful connection and transactions essentially. People are really hungry to do business. And so while the attendance may come up or down, a lot of that expectation is to the type of business that can be done.

Secondly, I want to point out that, as David mentioned, a lot of our costs are scalable. And as we begin to get closer to the anticipated volume of overall participation, we'll be able to scale a lot of those variable costs accordingly so that we're not planning for an event of 100,000 people when we know that far fewer may show up. So we're going to try to manage the margins to each one of these shows as they come closer so that in the end, what we're trying to really manage is customer expectation and customer experience because that, over the long term, is going to be the thing that is a long-term and enduring aspect of the business.

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Emily Gretchen McLaughlin, RBC Capital Markets, Research Division - Assistant VP [4]

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Okay. That's helpful. And just switching over to the insurance side of things. We understand that the cancellation insurance is bound through 2021. I'm not sure when the discussions take place as you look to roll policies to 2022. I just want to get your thoughts on the ability to obtain the same breadth of coverage in the future, ensuring such circumstances as pandemic, any impact on policy pricing and if any inflation there is something that could materially affect profitability as you look several years ahead.

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David B. Doft, Emerald Holding, Inc. - CFO [5]

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Thank you. This is David. The total unknown at this point is the reality. I think that we need to wait and see how the next few months play out and how much impact it has had on our industry and others to understand yet what the ability of or cost of that type of insurance is for 2022 and beyond. We're very pleased that we're already locked in for 2021. But it's unclear what that's going to look like. If that insurance is still available to us, it will surely cost more. But there's no certainty it will be available beyond our current contract.

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Operator [6]

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The next question is from Ryan Leonard of Barclays.

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Ryan C. Leonard, Barclays Bank PLC, Research Division - Research Analyst [7]

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I was just wondering if you could provide maybe a little bit more near-term liquidity update. You mentioned the revolver at the end of March, but through April. And I guess what are the assumptions you make in terms of when you start hosting shows again that underlie your confidence in liquidity in the near term?

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David B. Doft, Emerald Holding, Inc. - CFO [8]

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Sure. So at the end of the quarter, our net revolver balance was essentially 0, right? We drew down proactively in order to have cash on the balance sheet. And while we've used a little bit of cash since quarter end, it's not meaningfully different at this point in time as we have begun to send some refunds and we'll continue to as we move through the quarter. And then ultimately, our belief is insurance proceeds will come and offset those refunds and replace that cash with the company.

We've run scenarios that have no shows the rest of the year and shows in 2021 down significantly and are building scenarios around all of that, of what we would look like, what moves we would make, et cetera. And so we've taken significant amount of cost out of the system already and materially reduced our cash burn, especially when you combine with the suspension of our dividend and the elimination of our share buyback program. There are other moves that we could and will make, if necessary, if this looks like it's going to extend well into 2021.

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Ryan C. Leonard, Barclays Bank PLC, Research Division - Research Analyst [9]

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And I guess maybe on that specifically, I mean, can you give us more information on your cash burn today, what that looks like if events don't come back into the third quarter? And then just on the insurance piece, specifically, you have filed claims before, they've typically been fast. I mean, I know these are different times, but what is the time line? If this takes a year if we have to go through the legal proceedings, how does that kind of alter some of the math you just gave us?

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David B. Doft, Emerald Holding, Inc. - CFO [10]

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Sure. Well, I think we'll start with we don't expect to take a year. And our scenarios do not contemplate insurance taking a year. We have already submitted a substantial amount of claims and do not believe that it will drag out like that. I think when you look at the circumstances going on in the near term, the events in which our -- the venues in which our events were supposed to stage in March and in April, they're all closed. And every single government authority in those locales has made it illegal to have gathering sometimes more than 5 people, sometimes more than 10 people, then a little bit more.

In our mind, that's pretty clear. And I think, in our view, why would someone pay for this insurance if that did not qualify. I mean that's our view. Now ultimately, they're -- there's no guarantee, and there might be different levels of what might ultimately be covered. But I think surely for these near-term events, we would have a hard time believing you would extend like that. If it did, then we'd have to potentially take incremental moves to reduce cash flow further in order to ensure that we can manage to that point where that money comes in.

In the short term, we have taken on the cash burden, as I said. The -- if you look at the direct cost line of our P&L, you should assume on those shows are staging that, that goes to essentially 0. And while their show is planned to begin in July, we're being very careful in our commitments around those experiences, given the uncertainty that those will stage. Hopefully, they do, but they may not. And so we're going to manage that as appropriate.

Ultimately, shows that have not yet staged that are still in the calendar to be staged have tens of million dollars of direct costs that we're looking to avoid in order to minimize the cash burn versus what it otherwise might have been in a normal year. And at the same time, our SG&A down meaningfully. Given some of the moves in the short term, we've been able to reduce Q2 SG&A by 25%, 30% type levels. And depending on how the rest of the year plays out, we'd be willing to make moves to similarly reduce the rest of the year.

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Operator [11]

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The next question is from Jeff Meuler of Baird.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [12]

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Yes. This might be already covered by saying that your insurance covers communicable disease. But is there any pandemic exclusion in your policy?

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David B. Doft, Emerald Holding, Inc. - CFO [13]

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No. I want to be very clear. We paid extra for a rider that specifically covers pandemic.

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Brian Field, Emerald Holding, Inc. - Interim President & CEO [14]

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Both diseases.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [15]

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Got it. That's helpful. And then you're kind of breaking up, at least for me. Can you just run through the expense base again? There was something about over, I think, 50% of SG&A is fixed or variable when you gave us something on like direct expenses. Could you just -- David, just break that down again for us, please? It wasn't coming through clearly to me.

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David B. Doft, Emerald Holding, Inc. - CFO [16]

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For sure. Sorry about that. We're all remote. So I'm doing the best thing kind of on a cell phone. The -- so basically -- so you generally look at our direct cost to put on an event is about 30% fixed and 70% variable. But that's how you get closer to -- closer and closer to an event. Ultimately, if there are -- if you have visibility well ahead of time around an event not happening or be [explored], even at 30%, what I'm calling fixed can be variable, right?

That's kind of initial marketing spend, the rent on the facility, things like that, where there's a certain amount you're just going to spend if you're putting on the event. And in my mind, that's fixed. But as you know, you're not [going to have these guys] also and that can become variable if you're [ahead far enough] and can become more variable if you hadn't been on a show that would be smaller. You can commit to smaller amount of space, you can have a smaller marketing plan from day 1 where you're never getting ahead of yourselves on that. And so that's what I was talking about in terms of direct costs.

On SG&A, the way we look at it, a bit more than half is fixed. That's the cost of the senior team, IT, rent, people company costs or generally the things that fall within that. And the rest, we look at it more variable. And again, scaling around the number of shows we produce, the amount of marketing that we spend, the effort we put, time, sales, et cetera, are all things that are a bit more variable in nature and with proper planning can be reduced if you foresee revenue is going to be lower than you planned or if you foresee producing less events over time.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [17]

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Okay. And then on the insurance policy, you gave us the amount and you put it in the context of revenue, but I'm not interpreting it that revenue -- or shows that account for half of your revenue are covered. It sounds like, correct me if I'm wrong, like all of your revenue is covered, but then there's a maximum depending upon, I guess, stripping out the direct or avoidable costs and that's structured that way to incent you to get rid of those costs. Can you just maybe let me know if I'm interpreting that correctly? Or if not, where is my error?

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David B. Doft, Emerald Holding, Inc. - CFO [18]

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Sure. So let me try to simplify it. We have $191 million of coverage in 2020 for events canceled or for events damaged or for enforced reduced attendance due to things out of the company's control that are laid out in the insurance policy.

One of those items is the impact of a pandemic. And so ultimately, what is covered then with that $191 million limit is the lost profits to Emerald from those circumstances, right? So perhaps you can think about that as the profit contribution or gross profit of that show to Emerald is what's covered.

Heading into the year, we supply budgets for our events to the insurance carriers. That is what -- how the premium is determined that we pay for coverage, right? So that's how we come up with the amount of the $191 million. That's how we come up with the premium that we paid for that insurance based on $191 million and now we have $191 million of coverage over the course of the year across any and all events that are potentially impacted that fall under the circumstances that will trigger the policy.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [19]

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Okay. And then a different variation of an earlier question. But if the show attendance remains depressed intermediate term, so I don't know if this is in attendees per show or revenue per show kind of in 2022 is, pick your number, 25 or 40 or whatever percent below the 2019 revenue level for that same show, whatever kind of numbers you've run through some of your sensitivity analysis, what would that imply for gross profit or EBITDA kind of at a show level? Like if revenue is down 25, is EBITDA down 50? Or just any sort of sensitivity around what the financial implications would be if you wouldn't have show revenue return to 100% of prior baseline anytime soon?

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David B. Doft, Emerald Holding, Inc. - CFO [20]

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I don't think I'm going to start playing the scenario game about what percent of what for 2022, which is a long time from now. And hopefully, there's the popular pharmaceutical direction to this problem at that time. Ultimately, we just talked about the fixed versus variable component of our events. And I think if you use that as a starting point, you can run some scenarios of what things could look like if revenues are hit, looking out a couple of years and when shows are staging again and might not be back in full force.

But one thing I do want to reinforce, right, is with enough lead time that 30% that I'm saying is fixed on a show can be more variable. And so if it becomes clear that events are coming back at levels lower than we anticipate, we can book smaller venues. We can adjust our costs around pay on the event in order to protect the margin a bit more than a surprise shortfall of revenue at the last minute would otherwise allow us to [prevent].

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Operator [21]

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The next question is from Robert Weaver of INTL FCStone.

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Robert Weaver;INTL FCStone;Analyst, [22]

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I know there has been a lot of questions asked on the insurance, but just -- I'll take one more stab at it. Basically, you're covered at $191 million of lost revenue. It is -- the purpose of the insurance is to cover the gross profit effectively associated with that lost revenue after the -- like you're saying, you have to pay back the deferred revenue, the prepayments. After all that is done, the gross profit from that $191 million in revenue should be protected. Is that the correct way to look at that?

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David B. Doft, Emerald Holding, Inc. - CFO [23]

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That is essentially how the policy is constructed.

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Robert Weaver;INTL FCStone;Analyst, [24]

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Okay. And then on your revolver utilization, I don't know if it's too much of a projection to ask. But given these -- given the expected proceeds that you can get from the insurance coverage, do you think you would have availability beyond the current draw, which I understand is $50 million beyond the current $50 million draw going forward like, let's say, past 2Q?

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David B. Doft, Emerald Holding, Inc. - CFO [25]

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I'm sorry, I'm not -- could you reword that? I'm not quite sure what you're asking.

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Robert Weaver;INTL FCStone;Analyst, [26]

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You noticed that you have the springing financial covenant on your revolver. But the financial covenant takes into account expected insurance proceeds as well as deferrals of events or cost associated -- onetime costs associated with deferral of events. Given all those expectations, do you think you would have availability on that revolver greater than the current amount that you've drawn down? Like you noted that you're below the amount of the springing financial covenant right now.

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David B. Doft, Emerald Holding, Inc. - CFO [27]

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Correct.

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Robert Weaver;INTL FCStone;Analyst, [28]

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Do you think you could take it up beyond that at any point in this year, even if -- for one quarter or so?

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David B. Doft, Emerald Holding, Inc. - CFO [29]

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Sure. It's surely possible. Everything depends on the amount and timing of insurance recoveries. So there are surely scenarios depending on the flow of insurance proceeds, assuming that they're coming, like we expect, that could lead us to be borrowing above the threshold for the covenant to kick in.

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Operator [30]

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This concludes the question-and-answer session. I would like to turn the floor back over to Mr. Brian Fields for closing comments.

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Brian Field, Emerald Holding, Inc. - Interim President & CEO [31]

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Yes, I'd just like to thank everyone for joining us today and reaffirming our confidence in Emerald over the long term, and the kind of attention that we're delivering to our customers and through all of our staff activity and support of that attention to our customers is something I'm deeply grateful for and that I am confident will pay dividends over the long term as we keep those customer relationships very close to us and nurtured. Thank you very much.

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Operator [32]

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This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.