Emerald Holding, Inc. - Quarter Report: 2020 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2020

or

For the transition period from                      to                     

Commission File Number: 001-38076

Emerald Holding, Inc.

(Exact name of registrant as specified in its charter)

31910 Del Obispo Street

Suite 200

San Juan Capistrano, California 92675

(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:

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.

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 May 1, 2020, there were 71,441,518 shares of the Registrant’s common stock, par value $0.01, outstanding.

EMERALD HOLDING, INC.

TABLE OF CONTENTS

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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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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.

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PART I — FINANCIAL INFORMATION

Emerald Holding, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Emerald Holding, Inc.

Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income

(unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Emerald Holding, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Emerald Holding, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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, 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, 2019. The December 31, 2019 condensed consolidated balance sheet was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2019.

The results for the three months ended March 31, 2020 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. 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 all of the Company’s face-to-face events scheduled through the end of July 2020. 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 multiple months due to a pandemic where the timing for resolution and ultimate impact of the pandemic remains uncertain. Management cannot at present estimate (i) when the Company will be able to resume 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 U.S. GAAP basis for the year ended December 31, 2020 is expected. During the quarter ended March 31, 2020, the Company implemented several actions to preserve cash and strengthen its liquidity position, including, but not limited to:

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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, which include the outbreak of communicable diseases.  The aggregate limit under this event cancellation insurance policy is approximately $191 million per year for each of 2020 and 2021 if losses arise for reasons within the scope of this policy.  The Company is in the process of pursuing claims under this insurance policy to offset the financial impact of cancelled and postponed events as a result of COVID-19.  There is no guarantee or assurance as to the amount or timing of 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 estimates the payment of more than $2.0 million of employer payroll taxes otherwise due in 2020 will be delayed, with 50% due by December 31, 2021 and the remaining 50% due by December 31, 2022.  

As of March 31, 2020, the Company had $529.5 million of borrowings outstanding under the Amended and Restated Term Loan Facility and $50.0 million of borrowings outstanding under the Revolving Credit Facility.

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 March 31, 2020, 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. In March 2020, the COVID-19 was declared a pandemic. While the nature of the situation is dynamic, the Company has considered the impact when developing its estimates and assumptions. Actual results and outcomes may differ from management's estimates and assumptions.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard (“ASU”) 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The objective of the standard is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software over the term of the hosting arrangement, starting when the module or component of the hosting arrangement is ready for its intended use. The Company adopted ASU 2018-15 on January 1, 2020 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework, which modifies existing and includes new disclosure requirements on fair value measurements (“ASU 2018-13”). The Company adopted ASU 2018-13 on January 1, 2020 and the adoption did not have an impact on the Company’s condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 modifies how an entity accounts for credit losses for most financial assets and certain other instruments and requires entities to estimate expected credit losses for trade receivables. The Company adopted ASU 2016-13 on January 1, 2020 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 is currently evaluating the impact of this standard on its condensed consolidated financial statements and disclosures.

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.

Impact of COVID-19

The COVID-19 pandemic has had, and is likely to 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. Beginning in the second half of March 2020, as the escalating measures governments and private organizations implemented in order to stem the spread of COVID-19, the Company began cancelling and postponing trade shows and other events which had been scheduled to stage in the second half of March 2020 through July 2020.  

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; accordingly, the Company is uncertain if there will be additional cancellations and postponements of trade shows and other events beyond July 2020.

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.

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 93.2% and 95.2% of total revenues for the three months ended March 31, 2020 and 2019, respectively.

Deferred revenues generally consist of booth space sales, registration fees and sponsorship fees that are invoiced prior to a trade show. Current deferred revenues were $86.0 million and $173.9 million as of March 31, 2020 and 2019, respectively, and are reported as deferred revenues on the condensed consolidated balance sheets. Long-term deferred revenues as of March 31, 2020 and 2019 were $0.1 million and $0.3 million, respectively, and are reported as other noncurrent liabilities on the condensed consolidated balance sheets. Total deferred revenues, including the current and noncurrent portions, were $86.1 million and $174.2 million, as of March 31, 2020 and 2019, respectively. During the three months ended March 31, 2020 and 2019, the Company recognized revenues of $87.8 million and $120.7 million, respectively, from amounts included in deferred revenue at the beginning of the respective period.

As a result of the measures to prevent the spread of COVID-19, the Company has experienced an unprecedented low level of booth space sales, registration fees and sponsorship fees and the associated cash received for future trade shows. At the same time, the Company began cancelling trade shows beginning in the second half of March 2020, which led to a significant decrease in deferred revenues.  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 are expected to be refunded to customers. As of March 31, 2020, a total of $72.1 million of deferred revenues for cancelled trade shows was reclassified to Cancelled event liabilities in the condensed consolidated balance sheets.

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 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 and other marketing services.

The following table represents revenues disaggregated by type:

Contract Balances

Due to the nature of the Company’s revenue from contracts with customers, the Company does not have material contract assets that fall under the scope of ASC Topic 606, Revenue from Contracts with Customers. Contract liabilities generally consist of booth space sales, registration fees and sponsorship fees that are collected prior to the trade show or other event. 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 incurs sales commission costs in connection with sales of booth space, registration fees and sponsorship fees at the Company’s trade shows and events and with sales of advertising for industry publications. The Company’s contracts with customers 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 as incurred. Sales commissions are reported on the condensed consolidated statements of (loss) income and comprehensive (loss) income as selling, general and administrative expenses.

Accounts Receivable

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company performs ongoing credit evaluations of its customers and assesses each customer’s credit worthiness. 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 months ended March 31, 2020, were not material.

The Company acquired the assets and assumed the liabilities of one company during 2019 (collectively, the “2019 Acquisition”). The transaction qualified as an acquisition of a business and was accounted for as a business combination.

2019 Acquisition

G3 Communications (“G3”)

On November 1, 2019, the Company acquired certain assets and assumed certain liabilities associated with G3 for a total purchase price of $15.7 million, which included a negative working capital adjustment of approximately $1.4 million and contingent consideration of $4.3 million. The contingent consideration is based upon a multiple of estimated EBITDA and is payable on March 31, 2022. There were no remeasurement adjustments or payments of earnout liabilities during the three months ended March 31, 2020. The acquisition was financed with cash from operations and a draw of $5.0 million on the Company’s revolving credit facility.

External acquisition costs of $0.4 million were expensed as incurred and included in selling, general and administrative expenses in the condensed consolidated statements of (loss) income and comprehensive (loss) income as incurred. The Company completed purchase accounting in the fourth quarter of 2019.

The following table summarizes the fair value of the assets and liabilities at the date of acquisition:

Property and equipment, net, consisted of the following:

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Depreciation expense related to property and equipment for the three months ended March 31, 2020 and 2019 was $0.3 million and $0.2 million, respectively.

Goodwill

The table below summarizes the changes in the carrying amount of goodwill:

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 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 as it was more likely than not that the carrying values of all the Company’s reporting units exceeded their fair values.  Accordingly, the Company performed a quantitative assessment of the Company’s fair value of goodwill as of March 31, 2020 using an income approach with assumptions that are considered level 3 inputs 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 March 31, 2020. The fair values of the respective reporting units were determined primarily by discounting estimated future cash flows, which were determined based on revenue and expense growth assumptions ranging from negative growth of 20.0% to growth of 5.0%, at a weighted average cost of capital (discount rate) ranging from 12.9% to 14.5%. The Company’s goodwill impairment analysis is performed, and related impairment charges recorded, after the impairment analysis and recognition of impairment charges for long-lived assets other than goodwill and indefinite-lived intangible assets. Refer to the sections under the headings Impairment of Long-Lived Assets Other than Goodwill and Impairment of Indefinite-Lived Intangible Assets in this Footnote 6 for further information on impairment of these assets.

Goodwill impairments in the Commerce reportable segment and Design and Technology reportable segment were $340.6 million and $198.5 million, respectively, during the three months ended March 31, 2020.

The Company also considers the amount of headroom for a reporting unit when considering whether a risk of impairment exists. Headroom is the difference between the fair value of a reporting unit and its carrying value. Based on the results of the interim impairment test performed as of March 31, 2020, the carrying value of the Company’s reporting units exceeded their fair values by $564.0 million. The carrying value of goodwill for all reporting units had no headroom as of March 31, 2020.  Accordingly, a relatively small change in the underlying assumptions, including if the financial performance of the reporting unit does not meet expectations in future years or a further decline occurs in the market price of the Company’s common stock, may cause a change in the results of the impairment assessment in future periods and, as such, could result in an impairment of goodwill, for which the carrying amount is $416.3 million as of March 31, 2020.

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Intangible Assets, Net

Intangible assets, net consisted of the following:

Amortization expense for the three months ended March 31, 2020 and 2019 was $12.5 million and $12.9 million, respectively.

Estimated future amortization expense as of March 31, 2020:

Impairment of Long-Lived Assets Other than Goodwill

Long-lived assets other than goodwill and indefinite-lived intangible assets, 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. The Company evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset to determine if the carrying value is not recoverable. If the carrying value is not recoverable, the Company fair values the asset and compares to the carrying value. If the asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. The analysis for impairment of long-lived assets other than goodwill and indefinite-lived intangible assets is the first impairment analysis performed and related impairment charges are recognized before the impairment of indefinite-lived intangible assets analysis and impairment of goodwill analysis.

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

During the first quarter of 2020, as a result of the COVID-19 pandemic and the measures implemented to prevent its spread, management made the decision to cancel or postpone all of the Company’s face-to-face events scheduled through the end of July 2020.  In addition, management believes that the COVID-19 outbreak will [continue to] have a material negative impact on the Company’s financial results once the outbreak is 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. The Company evaluated the recoverability of the related intangible assets to be held and used by using level 3 inputs and comparing the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset to determine if the carrying value is not recoverable. 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. As a result, the Company recognized an impairment charge of $13.2 million during the three months ended March 31, 2020. The long-lived assets impaired during the three months ended March 31, 2020 had a remaining fair value of $4.2 million as of March 31, 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 three months ended March 31, 2020.

Impairment of Indefinite-Lived Intangible Assets

During the first quarter of 2020, as a result of the COVID-19 pandemic, and the measures implemented to prevent its spread, management made the decision to cancel or postpone all of the Company’s face-to-face events scheduled through the end of July 2020.  In addition, management believes that the COVID-19 outbreak will have a material negative impact on the Company’s financial results once the outbreak is contained.  As such, in the first quarter of 2020, management revised its forecast for the future performance of several trade show brands. Management determined these circumstances to be a triggering event and an indicator it was more likely than not that the carrying amount of certain of its indefinite-lived intangible asset groups exceeded their fair value. The Company performed a quantitative analysis using “a relief from royalty payments” method with assumptions that are considered level 3 inputs and concluded certain of the indefinite-lived trade names had a fair value below the carrying values as of March 31, 2020. As a result, the Company recognized an impairment charge of $46.2 million during the three months ended March 31, 2020. The decline in fair value in certain indefinite-lived intangible assets compared to the carrying value is the result of changes in forecasted revenues and expenses.  The impairment charge is recorded in intangible asset impairment charges on the condensed consolidated statements of (loss) income and comprehensive (loss) income.  There were no indefinite-lived intangible asset impairment charges recognized during the three months ended March 31, 2019.  

The fair values of the Company’s indefinite-lived trade names are calculated using a form of the income approach referred to as the “relief from royalty payments” method. The royalty rate is estimated using market evidence of identifiable transactions in the marketplace involving the licensing of trade names similar to those owned by the Company. This fair value of the trade name is then compared to the carrying value of each trade name.  If the carrying amount of the trade name exceeds its fair value, an impairment loss would be reported. Determining the fair value of an indefinite-lived intangible asset group requires the application of judgment and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates, planned use of assets to support revenue growth, weighted average cost of capital, tax rates and royalty rates. The Company bases its fair value estimates on assumptions it believes to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from the estimates. The Company performs its indefinite-lived intangible assets impairment test at the asset group level and has determined it has multiple asset groups that are typically at the trade show brand level. The Company’s impairment of indefinite-lived intangible assets analysis is performed, and related impairment charge, is recorded, after the analysis and recognition of impairment of long-lived assets other than goodwill and indefinite-lived intangible assets and before the impairment of goodwill.

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 three months ended March 31, 2020.

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Long-term debt related to the Amended and Restated Term Loan Facility is comprised of the following indebtedness to various lenders:

Revolving Credit Facility

On February 14, 2020, Emerald Events Holding, Inc., the borrower under our Amended and Restated Senior Secured Credit Facilities, was renamed Emerald X, Inc.  Emerald X, Inc. had $50.0 million and $10.0 million in borrowings outstanding under its Revolving Credit Facility as of March 31, 2020 and December 31, 2019, respectively.  During the three months ended March 31, 2020, Emerald X, Inc. had net borrowings of $40.0 million under the Revolving Credit Facility. Emerald X, Inc. had $1.0 million in stand-by letters of credit outstanding under the Revolving Credit Facility as of March 31, 2020 and December 31, 2019.

Interest Expense

Interest expense reported in the condensed consolidated statements of (loss) income and comprehensive (loss) income consists of the following:

Covenants

The Revolving Credit Facility contains a financial covenant requiring Emerald X, Inc. 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 March 31, 2020, the Company was not required to test this financial covenant and Emerald X, Inc. was in compliance with all covenants under the Amended and Restated Senior Secured Credit Facilities.

15

Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

As of March 31, 2020, the Company’s assets measured at fair value on a recurring basis are categorized in the table below:

As of December 31, 2019, the Company’s assets measured at fair value on a recurring basis are categorized in the table below:

The contingent consideration liability of $4.3 million as of March 31, 2020 and December 31, 2019 is expected to be settled in 2022. The unobservable inputs used in calculating contingent consideration include probability weighted estimates regarding a multiple of the estimated EBITDA for the 2019 Acquisition. The fair value of $4.3 million was determined using a Monte Carlo simulation using a volatility rate of 30% and a discount rate of 10%. The liability is re-measured to fair value each reporting period using the Company’s most recent internal operational budget. The determination of the fair value of the contingent consideration liabilities could change in future periods based upon the Company’s ongoing evaluation of the changes in the probability of achieving the revenue or earnings targets that quantify the estimated EBITDA component. Any such changes in fair value will be recorded in selling, general and administrative expense in the condensed consolidated statements of (loss) income and comprehensive (loss) income. There were no remeasurement adjustments or payments of earn out liabilities during the three months ended March 31, 2020 or the year ended December 31, 2019.

The market-based share awards liability of $0.1 million as of March 31, 2020 entitles the grantees of these awards the right to receive shares of common stock equal to a maximum cash value of $23.8 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 expenses in the condensed consolidated statements of (loss) income and comprehensive (loss) income. Refer to Footnote 9, Shareholders’ Equity and Stock-Based Compensation, sections under the headings Market-based Share Awards for significant unobservable inputs for the market-based share award liability.

16

Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The market-based share awards liability of $0.6 million as of December 31, 2019 entitles the grantees of these awards the right to receive shares of common stock equal to a maximum cash value of $16.9 million, in the aggregate, upon achievement of specified targeted share prices measured over sixty days within a ninety-day trading period.

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.

Dividends

Dividend activity for the first quarter of 2020 was as follows:

Dividend activity for the first quarter of 2019 was as follows:

On March 20, 2020, due to the negative impact of COVID-19 on our business, the Company’s Board of Directors (the “Board”) determined to temporarily suspend the Company’s regular quarterly cash dividend on its common stock.

Share Repurchases

July 2019 Share Repurchase Program

In July 2019, the Company’s Board authorized and approved a $30.0 million share repurchase program.  Under the terms of the July 2019 Share Repurchase Program, the Company has the ability to repurchase shares through open market purchases (either with or without a 10b5-1 plan), block transactions, privately negotiated purchases or otherwise, through July 31, 2020, subject to early termination or extension by the Board. The July 2019 Share Repurchase Program does not obligate the Company to purchase any specific number of shares. The Company settled the repurchase of 14,988 shares for $0.1 million during the three months ended March 31, 2020 related to the July 2019 Share Repurchase Program. There was $22.1 million remaining available for share repurchases under the program as of March 31, 2020.

November 2018 Share Repurchase Program

In November 2018, the Company’s Board authorized a $20.0 million share repurchase program. Under the terms of the November 2018 Share Repurchase Program, the Company had the ability to repurchase shares through open market purchases (either with or without a 10b5-1 plan), block transactions, privately negotiated purchases or otherwise, through December 31, 2019. The November 2018 Share Repurchase Program did not require the Company to acquire any specific number of shares. Pursuant to the November 2018 Share Repurchase Program, the Company did not settle the repurchase of any shares during the three months ended March 31, 2020, and settled the repurchase of 5,346 shares for $0.1 million during the three months ended March 31, 2019. There were no remaining amounts available for share repurchases as of March 31, 2020 in connection with the November 2018 Share Repurchase Program.

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Suspension of Share Repurchase Program

On March 20, 2020, due to the negative impact of COVID-19 on the Company’s business, the Board determined to temporarily suspend share repurchases under the Company’s July 2019 Share Repurchase Program.

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 $0.4 million for both the three months ended March 31, 2020 and 2019.

Emerald Expositions Events, Inc. 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 months ended March 31, 2020 and 2019. The Company’s initial ESPP offering period began in February 2019 and ended in August 2019.  The Company issued 8,426 shares to employees in August 2019 at the end of the initial ESPP offering period. The Company issued 8,212 shares to employees in February 2020 at the end of the second ESPP offering period.  The next ESPP offering period began in February 2020 and will end in August 2020.

Stock Options

The Company recognized stock-based compensation expense relating to stock option activity of $1.1 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively.

Stock option activity for the three months ended March 31, 2020, was as follows:

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 March 31, 2020, for those options for which the market price was in excess of the exercise price.

There was a total of $2.5 million unrecognized stock-based compensation expense at March 31, 2020 related to unvested stock options expected to be recognized over a weighted-average period of 0.8 years.

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 months ended March 31, 2020 and 2019 was $1.0 million and $0.8 million, respectively. There was a total of $12.1 million of unrecognized stock-based compensation expense at March 31, 2020 related to unvested RSUs expected to be recognized over a weighted-average period of 3.3 years.

RSU activity for the three months ended March 31, 2020 was as follows:

Market-based Share Awards

In January 2020, the Company granted performance-based market condition share awards to one senior executive under the Emerald Expositions Events, Inc. 2017 Omnibus Equity Plan, which entitle this employee the right to receive shares of common stock equal to a maximum cash 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. The performance-based market condition share awards granted in January 2020 remain unvested with an estimated weighted average conversion threshold of $21.09 per share, which would result in an estimated 45,718 shares of common stock to be issued upon vesting. Each of the estimated 45,718 shares of common stock has a weighted-average grant date fair value of $24.53 per share.    

In total, the Company has granted performance-based market condition share awards with a maximum cash value of $23.8 million, in the aggregate, upon achievement of specified targeted share prices measured over sixty days within a ninety day trading period to three senior executives. As of March 31, 2020, the $23.8 million of the performance-based market condition share awards remain unvested with an estimated weighted average conversion threshold of $21.07 per share, which would result in an estimated 235,718 shares of common stock to be issued upon vesting. Each of the estimated 235,718 shares of common stock has a weighted-average grant date fair value of $25.01 per share.

As of March 31, 2020, the liability for these awards was $0.1 million 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 awards granted in 2019 was $5.9 million. The grant date fair value of the 2020 awards was $0.7 million. The Company recognized a reduction to stock-based compensation expense relating to performance-based market condition share awards of $0.5 million for the three months ended March 31, 2020 and recognized no stock-based compensation expense during the three months ended March 31, 2019.

The assumptions used in determining the fair value for the performance-based market condition share awards granted during the three months ended March 31, 2020 were as follows:

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.  

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Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 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 months ended March 31, 2020 and 2019, 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.

The details of the computation of basic and diluted earnings per common share are as follows:

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 income (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 income (loss). 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 March 31, 2020. For the three months ended March 31, 2020 and 2019, the Company recorded a benefit from income taxes of $54.8 million and a provision for income taxes of $8.7 million, respectively, which resulted in effective tax rates adjusted for discrete items of 25.3% and 24.7%, respectively. The differences between the U.S. federal statutory and effective tax rates before discrete items are primarily attributable to the net effects of state income taxes and nondeductible officer compensation.  The decrease in the Company’s deferred income tax liabilities during the three months ended March 31, 2020 was primarily attributable to impairment charges recorded to tax deductible goodwill, which together with impairment charges to the non-deductible goodwill were treated as discrete items during the quarter and not as part of the estimated annual effective tax rate. Additionally, as a result of the impairment charges recorded for the three months ended March 31, 2020, the Company recorded a valuation allowance against its deferred tax assets as management has determined that it is not more likely than not that there will be sufficient sources of future taxable income to support their realizability.

Liabilities for unrecognized tax benefits and associated interest and penalties were $1.2 million and $1.1 million as of March 31, 2020 and December 31, 2019, respectively.

20

Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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.

Other Commitments and Contingencies

The Company has an agreement with the seller of G3 based on EBITDA results for the years ending December 31, 2020 and 2021. Based on the terms of the agreement and achievement of performance conditions, the estimated fair value of the payments the Company would be required to make in 2022 is $4.3 million as of March 31, 2020. Refer to Note 8, Fair Value Measurements, for further discussion on the contingent consideration related to the acquisition of G3.

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.

Accounts payable and other current liabilities consisted of the following:

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 ASC 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.

21

Emerald Holding, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 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:

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 months ended March 31, 2020 and 2019, substantially all revenues were derived from transactions in the United States.

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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, 2019 (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, and “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q, 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. We strive 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 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 online webinars, 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.  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.

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 represents less than 10% of consolidated revenue and does 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.

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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. 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 18 strategic acquisitions, with purchase prices, excluding the $335.0 million acquisition of GLM, ranging from approximately $5.0 million to approximately $54.0 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:

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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, Adjusted Net Income 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 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 7 to the table under the heading “—Results of Operations— Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019”.