Good afternoon, ladies and gentlemen, and welcome to the Emerald First Quarter 2020 Earnings Conference Call. During today's call, all parties will be in a listen-only mode. Following the prepared remarks, the conference will be opened for questions with instructions to follow at that time. 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.

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.

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 and 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 customer's 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…

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 seven 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 declining was due to the postponement of two 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 was closed in the fourth quarter of 2019 contributed $3.9 million of revenues 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 show postponements due to COVID-19. The decrease in adjusted EBITDA was $33.9 million which was evenly related to the cancellation of seven first quarter events, representing prior year profit contribution of $27.5 million, as well as the acceleration of approximately $2 million of previously deferred [ph] expenses related to second quarter events, which was forced to cancel due to the COVID-19 crisis. Our first quarter 2020 adjusted EBITDA also reflected the combined effect of the postponed events, lower organic revenues, incremental investments in events that took place in the quarter, and increased marketing costs. Next, impairment charges. In the first quarter, we booked a $554 million non-cash goodwill impairment charge, and $59.4 million non-cash charge related to certain intangible assets…

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.

Certainly. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question is from Seth Webber of RBC Capital Markets. Please go ahead.

Hi, this is Emily McLaughlin on for Seth tonight. My first question is just in a scenario where the world reopens but people remain vary about traveling; will Emerald still put on the show if it looks like participation levels are going to be significantly lower than prior additions? I guess we assume there'd 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 towards more sophisticated value-based pricing models?

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, attach the quality of events, the quality of the brands 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, but 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 margin 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 endurance aspect to the business.

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. So I just want to get your thoughts and 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?

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 that it's had on our industry and others to understand yet what the ability onboard 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 is no certainty it will be available beyond our current contract.

Okay, thanks very much. That was helpful. I'll pass it on.

[Operator Instructions] The next question is from Ryan Leonard of Barclays. Please go ahead.

Hey, guys. Thanks. I was just wondering if you could try [ph] 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 -- show -- you start hosting shows again that underlie your confidence in liquidity in the near-term?

Sure. So at the end of the quarter, our net revolver balance was essentially zero, right, we drew down proactively in order to have the 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 etcetera. Until while we take -- taking significant amount of costs out of the system already and materially reduced our cash burns, 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.

And I guess maybe on that survey, 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 typically been passed [ph]; I mean, I know these were different times but what is the timeline if this takes a year? If we have to go through legal proceedings, how does that kind of alter some of the math you just gave us?

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 we're supposed to stage in March and then April, they're all closed. And every single government authority in those work house has made it illegal to have gatherings; sometimes more than five people, sometime more than 10 people, and sometimes 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 are total guarantee and there might be different levels that might ultimately be covered but I do surely believe near-term events, we would have a hard time believing you would extend out like that. If it did, then we'd have to potentially take incremental moves to produce cash further in order to ensure that we can get to that point where that money comes in. In the short-term, we have taken on the cash burn; as I said, if you look at the direct cost line of our [Technical Difficulty], you should assume on those shows at stadium that that goes to essentially zero. And while their show is planned to begin in July, we're being very careful about commitments and annual expenses given the uncertainty that those will face. 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; you'll have tens of million dollars of direct costs that we're looking to avoid in order to minimize the cash burn versus what otherwise might have been in a normal year. And at the same time, our SG&A is down meaningfully, during some of the moves to 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 that similarly reduce the rest of the year.

Got it, thanks.

[Operator Instructions] The next question is from Jeff Meuler of Baird. Please go ahead.

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

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

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 were something about over I think 50% of SG&A is fixed or variable; and you gave us something on like direct expenses. Could you just -- David, just break that down again for us, please? That wasn't coming through clearly to me.

Sure, sorry about that. We're all remote, so I'm doing the best thing on a cell phone. We -- so we basically see, or generally look at our direct costs to put in 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 snore [ph], even at 30% calling fixed can't be variable, right. That's kind of initial marketing spend, the rent on the facility, things like that where there is a certain amount you're just going to spend that you're putting on the event. And in my mind, I fixed that -- but if you know you're not happy then also that can become variable if your [Technical Difficulty]. And can become more variable if you hadn't been on a show that could be small or you can commit to a smaller amount of space, you can have a smaller marketing plan from day one where you're never getting ahead of yourself from that. And so that's what I was talking about in terms of direct costs. On SG&A, the way we look at it, it's more than half is fixed cost of the senior team, IT, rights; [Technical Difficulty] costs are generally the things that fall within that. And rest we look at it more variable, and again, is scaling around the number of shows we produced, the amount of marketing that we spend, the effort we put time sales, etcetera, 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 plan or if you foresee producing less events overtime.

Okay. And then, on the insurance policy, you gave us the amount and put it into context of revenue but it's -- I am 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 is a maximum depending upon -- I guess stripping out the direct or avoidable costs, and that's structured that way to incent [ph] you to get rid of those costs? Can you just maybe let me know if I'm interpreting that correctly or not; where is my error?

Sure. So, I'm going to try to simplify it. We have $191 million of coverage in 2020 for events cancelled, 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 run rate is the loss to Emerald from those circumstances, right. So, that's what you think about the asset contribution or gross profit of that show to Emerald is what's covered. Heading into a year, we supplied budgets for our events through 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 $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 and fall under the circumstances that would trigger the policy.

Okay. And then, a different variation of an earlier question but -- if the show attendance remains depressed, intermediate term; so -- like I don't know if this is an attendees per show or revenue per show kind of in 2022 is a particular 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 added a show level like it's -- 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 shown revenue return to 100% of prior baseline anytime soon? Thanks.

Yes. I don't think I'm going to start playing the scenario game about what percent it was for 2022, which is a long time from now. And hopefully there is the popular pharmaceutical reaction to this problem at that time. Ultimately, we just talked about a 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 insurers [ph] are saying -- staging again, and might not be back to full force. But one thing I do want to reinforce right is, with enough lead time that 30% that I am saying said is fixed on a show, it can be more variable. And so, if it becomes clear that events are coming back at levels lower than we anticipate, we can book store venues, we can adjust our costs around pay on the event, but in order to protect the margin a bit more, of any surprise shortfall of revenue at the last minute would otherwise allow us to commence.

Okay, thank you for taking the questions.

The next question is from Robert Leaver [ph] of International FCStone. Please go ahead.

Hi guys, thank you for taking like my question. 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 pre-payments; 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?

That is essentially how the policy is constructed.

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?

I'm sorry, I'm not -- to be honest, I'm not quite sure what you're asking.

You've noticed that you have the spring in financial covenant on your revolver.

Yes.

But the financial covenant takes into account expected insurance proceeds as well as deferrals of events or costs associated -- one-time cost 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 did note that you're below the amount of the springing financial covenant right now? Do you think you could take it up beyond that at any point in this year, even if for one quarter or so?

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.

Okay, thank you very much. Appreciate it.

Sure.

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

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 in support of that attention to our customers is something that I am 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.

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