2023-12-08 12:29:01 ET
Summary
- Emerald Holding, Inc. has reported Q3 2023 financial results, missing revenue but beating earnings estimates.
- The company provides live event-related services, production, and software.
- Softness in advertising and content, especially in the technology industry, may delay the generation of strong revenue growth.
- I'm Neutral [Hold] on Emerald Holding for the near term.
A Quick Take On Emerald Holding
Emerald Holding, Inc. ( EEX ) reported its Q3 2023 financial results on November 6, 2023, missing revenue but beating consensus earnings estimates.
The firm provides a range of live event-related services and production.
Given the continued softness in advertising and content, particularly related to the technology industry, it will likely take some time for Emerald Holding, Inc. to generate a meaningful revenue catalyst.
As a result, I’m currently Neutral [Hold] on EEX.
Emerald Holding Overview And Market
New York-based Emerald Holding was founded in 2013 to provide trade shows and related services to businesses in the United States.
The firm is headed by Chief Executive Officer Herve Sedky, who joined the firm in 2021 and was previously President of the Americas for Reed Exhibitions.
The company’s primary offerings include the following:
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Commerce
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Design, Creative and Technology
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Software - Elastic Suite.
Emerald acquires customers via its direct sales, marketing and business development efforts.
According to a 2020 market research report by Research And Markets, the global market for exhibitions and events was an estimated $42 billion in 2019 and is forecasted to reach $50 billion by 2025.
This represents a forecast CAGR (Compound Annual Growth Rate) of around 3% from 2019 to 2025.
The main drivers for this expected growth are a rebound after the global pandemic, increasing sophistication in the design of exhibition models and integration of trade shows with digital technologies.
Also, the industry generates four revenue streams:
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Exhibitor fees
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Sponsorship fees
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Entrance fees
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Services.
Entrance fees accounted for over $30 billion of revenue in 2019.
Major competitive or other industry participants include:
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Informa ( IFJPY )
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Reed Exhibitions ( RELX )
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Clarion Events
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Messe
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Hyve Group
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DMGT Events (DMG Events)
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GL Events
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MCH Group.
Emerald Holding’s Recent Financial Trends
Total revenue by quarter (blue columns) has risen year-over-year; Operating income by quarter (red line) has fluctuated materially:
Gross profit margin by quarter (green line) has varied within a narrow range; Selling and G&A expenses as a percentage of total revenue by quarter (amber line) have fluctuated substantially, as shown below:
Earnings per share (Diluted) have turned significantly lower in recent quarters:
(All data in the above charts is GAAP.)
In the past 12 months, EEX’s stock price has risen 36.27% versus that of the Informa plc ((IFJPY)) rise of 29.54%:
For balance sheet results, the firm ended the quarter with $200.3 million in cash and equivalents and $398.8 million in total debt, all of which was long term.
Over the trailing twelve months, free cash flow was $0.3 million, during which capital expenditures were $0.8 million. The company paid $6.7 million in stock-based compensation in the last four quarters.
Valuation And Other Metrics For Emerald Holding
Below is a table of relevant capitalization and valuation figures for the company:
Measure (Trailing Twelve Months) | Amount |
Enterprise Value / Sales | 2.8 |
Enterprise Value / EBITDA | 14.7 |
Price / Sales | 0.9 |
Revenue Growth Rate | 37.1% |
Net Income Margin | 8.6% |
EBITDA % | 18.7% |
Market Capitalization | $320,120,000 |
Enterprise Value | $1,030,000,000 |
Operating Cash Flow | $1,100,000 |
Earnings Per Share (Fully Diluted) | -$0.27 |
Forward EPS Estimate | -$0.26 |
Free Cash Flow Per Share | -$0.30 |
SA Quant Score | Hold - 3.41 |
(Source - Seeking Alpha.)
A publicly held comparable to Emerald would be much larger, Informa plc:
Metric (Trailing Twelve Months) | Informa plc | Emerald Holding | Variance |
Enterprise Value / Sales | 4.3 | 2.8 | -35.9% |
Enterprise Value / EBITDA | 16.6 | 14.7 | -11.1% |
Revenue Growth Rate | 42.2% | 37.1% | -12.0% |
Net Income Margin | 24.8% | 8.6% | -65.5% |
Operating Cash Flow | $559,290,000 | $1,100,000 | -99.8% |
(Source - Seeking Alpha.)
Commentary On Emerald Holding
In its last earnings call (Source - Seeking Alpha ), covering Q3 2023’s results, management’s prepared remarks highlighted substantial year-over-year growth in live event revenue and profitability due to growth in exhibitors, attendees and price increases.
The firm is also implementing next year's pre-booking at most trade shows, giving management confidence and greater visibility into the next twelve months.
However, the company is seeing "softness" in its content business, particularly from technology clients.
I prepared a chart showing the frequency of various keywords and terms mentioned by management and analysts on the company's most recent conference call:
The chart indicates "headwinds" that management characterized as related to advertising spending, at least in the near term.
Analysts questioned the leadership about growth guidance, software progress and plans for its advertising efforts.
Management said that free cash flow guidance had softened somewhat due to headwinds in advertising.
The firm plans to transition away from advertising and convert that segment to more of a lead generation model and has hired new leadership to effect that change.
About its software effort, management cited a 110% net revenue retention figure, which is a solid result, and the company appears to have new customers ready to sign in additional verticals.
For the quarter’s results, total revenue for Q3 2023 rose by 16.2% year-over-year, while gross profit margin increased by 0.7%.
Selling and G&A expenses as a percentage of revenue fell by 22.3% YoY, a significant improvement, and operating losses were sharply reduced compared to the same quarter in 2022, to $3.4 million for the quarter.
The company's financial position is solid, with ample liquidity, a fair amount of long-term debt and virtually breakeven on free cash flow.
Looking ahead, 2023 full-year revenue growth consensus estimates suggest 18.9% growth over 2022’s results.
In the past twelve months, the firm's EV/Sales valuation multiple has dropped by a net of 15%, as the chart from Seeking Alpha shows below:
A potential upside catalyst to the stock could include greater events activity in Q1 2024, or substantial customer wins announced for its software segment.
However, given the continued softness in advertising and content, particularly related to the technology industry, it will likely take some time to generate a revenue catalyst.
As a result, I’m currently Neutral [Hold] on Emerald Holding, Inc.
For further details see:
Emerald Holding Aims For Advertising Segment Revamp