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As filed with the Securities and Exchange Commission on March 11, 2016

Registration No. 333-206856

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 4

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

PSAV, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   7389   47-4766950

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

5100 N. River Road, Suite 300

Schiller Park, IL 60176

(847) 222-9800

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

J. Whitney Markowitz

Chief Legal Officer and Secretary

5100 N. River Road, Suite 300

Schiller Park, IL 60176

(847) 222-9800

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

Copies to:

 

Alexander D. Lynch, Esq.

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

(212) 310-8000 (Phone)

(212) 310-8007 (Fax)

 

Richard Aftanas, Esq.

Kirkland & Ellis LLP

601 Lexington Avenue

New York, NY 10022

(212) 446-4800 (Phone)

(212) 446-4900 (Fax)

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated March 11, 2016.

LOGO

 

Shares

PSAV, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of PSAV, Inc. PSAV, Inc. is offering              shares to be sold in this offering. The selling stockholders identified in this prospectus are offering an additional              shares. PSAV, Inc. will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $             and $            . PSAV, Inc. has applied to list the common stock on the New York Stock Exchange under the symbol “PSAV.”

After the completion of this offering, we expect to be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange. See “Principal and Selling Stockholders.”

 

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 20 to read about factors you should consider before buying shares of the common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discount(1)

   $                    $                

Proceeds, before expenses, to PSAV, Inc.

   $                    $                

Proceeds, before expenses, to the selling stockholders

   $                    $                

 

(1) See “Underwriting (Conflicts of Interest and Other Relationships)” for a description of the compensation payable to the underwriters.

To the extent that the underwriters sell more than              shares of common stock, the underwriters have the option to purchase up to an additional              shares from the selling stockholders at the initial price to public less the underwriting discount.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2016.

 

Goldman, Sachs & Co.     Morgan Stanley
Barclays     Credit Suisse
Macquarie Capital   Piper Jaffray   William Blair

 

 

Prospectus dated                     , 2016.


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TABLE OF CONTENTS

 

     Page  

Summary

     1   

Risk Factors

     20   

Forward-Looking Statements

     39   

Organizational Structure

     41   

Use of Proceeds

     43   

Dividend Policy

     44   

Capitalization

     45   

Dilution

     46   

Unaudited Pro Forma Condensed Consolidated Financial Statements

     47   

Selected Historical Consolidated Financial Data

     53   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     57   

Business

     91   

Management

     108   

Executive and Director Compensation

     115   

Principal and Selling Stockholders

     133   

Description of Certain Indebtedness

     136   

Certain Relationships and Related Person Transactions

     140   

Description of Capital Stock

     146   

Shares Eligible for Future Sale

     152   

Material U.S. Federal Income Tax Considerations for Non-U.S. Holders

     154   

Underwriting (Conflicts of Interest and Other Relationships)

     158   

Legal Matters

     164   

Experts

     164   

Where You Can Find More Information

     164   

Index to Financial Statements

     F-1   

 

 

Neither we (or any of our affiliates), the selling stockholders (or any of their affiliates), nor the underwriters (or any of their affiliates) have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we, the selling stockholders nor the underwriters take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, the selling stockholders are not and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information appearing in this prospectus and any free writing prospectus is only accurate as of its date. Our business, financial condition, results of operations and prospects may have changed since that date.

 

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BASIS OF PRESENTATION OF FINANCIAL INFORMATION

Prior to this offering, we conducted our business through PSAV Holdings LLC, a Delaware limited liability company, and its subsidiaries. Prior to the consummation of this offering, PSAV Holdings LLC will enter into a corporate reorganization, whereby holders of equity interests of PSAV Holdings LLC will become stockholders of PSAV, Inc., a Delaware corporation and the Registrant. See “Organizational Structure.” Except as disclosed in this prospectus, the consolidated financial statements, selected historical consolidated financial data and other financial information included in this prospectus are those of PSAV Holdings LLC and its consolidated subsidiaries, or its predecessor, AVSC Holding Corp., and do not give effect to the corporate reorganization that will be effected in connection with the offering contemplated by this prospectus. Shares of common stock of PSAV, Inc. are being offered by this prospectus. Prior to the corporate reorganization and this offering, PSAV, Inc. held no material assets and did not engage in any operations. Following the corporate reorganization, the historical financial information of PSAV Holdings LLC or AVSC Holding Corp., as applicable, will be the historical financial information for PSAV, Inc.

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

We own or have the rights to use various trademarks, service marks and trade names referred to in this prospectus. Solely for convenience, we refer to trademarks, service marks and trade names in this prospectus without the ™, SM and ® symbols. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks, service marks and trade names. Other trademarks, trade names or service marks appearing in this prospectus are the property of their respective owners.

MARKET AND INDUSTRY DATA

Unless otherwise indicated, market position, market opportunity, market size and addressable market information used throughout this prospectus are estimated based on management’s experience and knowledge of the industry and the good faith estimates of management. Management utilized industry surveys, publications and other publicly available information prepared by a number of sources, including STR Inc. (“STR”), PKF Hospitality Research, a division of CBRE (“PKF”), PricewaterhouseCoopers LLP (“PwC”), the Content Marketing Institute, MarketingProfs and TravelClick by Passkey to estimate their market position, market opportunity, market size and addressable market information. The Boston Consulting Group also provided related consulting services to us with respect to the event technology services industry and the relevant market. STR and PKF data are as of December 31, 2015. All other such market data presented in this prospectus was compiled as of June 2015 unless otherwise indicated. All of the market data used in this prospectus involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the estimated market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently uncertain and imprecise. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors,” “Forward-Looking Statements” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates prepared by independent parties and by us.

 

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SUMMARY

The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all of the information you should consider. Therefore, you should also read the more detailed information set out in this prospectus, including the risk factors, the consolidated financial statements and related notes thereto and the other documents to which this prospectus refers before making an investment decision. Unless otherwise stated in this prospectus, or as the context otherwise requires, references to “PSAV,” “we,” “us” or “our company” refer to (i) PSAV Holdings LLC and its subsidiaries or AVSC Holding Corp. prior to the corporate reorganization and (ii) PSAV, Inc. and its subsidiaries after giving effect to the corporate reorganization. Prior to the corporate reorganization and this offering, PSAV, Inc. held no material assets and did not engage in any operations. See “Organizational Structure.”

Overview

PSAV is a leading provider of audiovisual and event technology services in North America. Our highly-trained technical staff delivers innovative solutions in support of events ranging from small meetings in single conference rooms to global multi-media conference events with thousands of attendees. As our customers look to deliver more dynamic and impactful events, the event technology services we provide are a critical need and continue to grow in importance.

We are the event technology provider of choice at leading hotels, resorts and convention centers (“venues” or “venue partners”). Our business model is based on long-term partnerships with these venues, which establish us as the exclusive on-site provider of event technology services. Our customers, including corporations, event organizers, trade associations and meeting planners, hire us primarily through our on-site presence at venues to plan and execute their events. We have built a premier brand based on our comprehensive service offerings, strong track record of customer service, broad geographic footprint and on-site employee service model. Our largest market is the United States where we hold the number one position and serve more than five times the total venues of our closest competitor. In addition, we have a leading position in three of the nine countries we serve internationally.

Our market-leading position and scale is evidenced by the following:

 

    We support over 1.5 million meetings per year and are hired by over 1,100 meeting planners and event organizers on average each day.

 

    We are the exclusive on-site event technology provider to over 1,300 venues globally, including venues representing 46% of the meeting and event space across all luxury and upper upscale hotel properties within the United States.

 

    Approximately 95% of our over 7,800 employees are customer-facing, working alongside our venue partners’ sales teams and hospitality staff.

 

    We are the market leader in 19 of the top 20 U.S. hotel markets.

 

    We operate in nine international markets with leading positions in Canada, Mexico and the United Kingdom.

 

    We have averaged 98% venue retention rates and organic growth of 48 new venue openings per year since 2011.

 



 

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We offer a compelling value proposition to both our venue partners and our customers. For our venue partners, meetings and events are an important source of revenue and profit. Through our services, these venues are able to generate significant incremental revenue with limited investment on their part. For our customers, meetings and events are critical marketing and communication vehicles to reach clients, employees and other stakeholders. Our event technology services enhance the delivery of the customer’s message to its audience and increase the overall impact of the event.

Our premier brand, scale and differentiated capabilities allow us to partner with some of the most iconic, marquee venues in the world, for whom we are the exclusive on-site provider of event technology services. Our venue partners consist primarily of luxury and upper upscale hotel properties, including properties operating under all 10 of the largest hotel chains as measured by meeting space in the United States, high-profile convention centers and other meeting spaces. Our long-term contracts with venues help align our mutual interests to maximize revenue and profitability from the customer events hosted at the venues. Our on-site staff interacts with the customer directly and is entrusted with maintaining the brand equity and professional standards of that particular venue.

We offer our customers a comprehensive set of event technology solutions to address the entire scope of their events from planning to execution. The rising technological complexity and growing importance of meetings and events enhances the importance of the relationship between the customers holding an event and the venues and service providers executing the event. Leveraging our technical expertise, our sales and production teams work with customers directly to identify key messages and goals for an event and develop ways to convey those messages in a creative and compelling fashion. During the event, our technicians work to ensure the services are effectively, professionally and reliably delivered.

 



 

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Our suite of services capitalizes on the industry’s growing demand for greater technological sophistication. We believe we have the broadest suite of services and solutions to meet the varied needs of venues and to capture the majority of their customers’ event planning spend. The following graphic illustrates some of our visible, and less visible, services:

 

 

LOGO

We have experienced rapid growth as a result of our market-leading position, our contractual relationships with venues, our broad service offering and our strategic acquisitions. We have increased the number of contracted venues by approximately 60% since 2011 and averaged same venue revenue growth of 10.6% over the same period through 2015. In addition to our strong organic growth, our strategic acquisitions have enhanced our capabilities, increased our density in local markets and expanded our scale.

Internationally, our broad, established and highly scalable platform allows us to capitalize on increasing customer spending on overseas events, and the global trend towards event technology outsourcing. We are taking advantage of this opportunity by entering new markets, expanding within the international markets of our leading hotel chain partners, building relationships with new international venue partners and making strategic acquisitions. By extending our international footprint, we will further solidify our existing venue relationships. Our annual international revenue has grown 57% since 2011.

Between 2011 and 2015, our revenue increased from $645.5 million to $1,487.2 million, Adjusted EBITDA increased from $53.4 million to $174.5 million and net loss improved from $19.0 million to

 



 

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$5.8 million. For the year ended December 31, 2015, our revenue of $1,487.2 million grew 17.7% versus the prior year. In this same period, our Adjusted EBITDA of $174.5 million represented 11.7% of revenue and 11.2% growth over the prior year. The 2014 amounts reflect the combined predecessor period from January 1, 2014 through January 24, 2014 and successor period from January 25, 2014 through December 31, 2014 adjusted to give effect to the Sponsors Acquisition (as defined under “—Our Principal Stockholders”) (the “2014 Pro Forma Combined Period”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.” Adjusted EBITDA is a non-GAAP measure. For a reconciliation of Adjusted EBITDA to net income (loss), see “Selected Historical Consolidated Financial Data.”

Our History

Through our focus on innovation and customer service, we have evolved from a small, regionally-based provider of audiovisual services to a leading global event technology services provider. Initially focused on U.S. hotel venues, we started developing relationships with venues at a time when most properties still chose to provide their own, in-house audiovisual services to their customers. By the 1990s, as events and the associated technology needs grew increasingly complex, we observed that more U.S. hotels began outsourcing event technology services, bringing third-party providers on-site to work with guests directly regarding their needs for specialized technological expertise. Over the last decade, this trend has accelerated and broadened to include other venues such as convention centers, conference centers and sports stadiums. We anticipated this outsourcing trend and began establishing relationships with leading hotel chains at the corporate level. These relationships served as an endorsement of our brand and provided us access to the venues’ customers which helped fuel our growth.

In addition to our core growth, we have continued to grow our business through strategic acquisitions and through geographic expansion. Our largest acquisition was Swank Holdings, Inc. (“Swank”) in November 2012. Swank was the second largest outsourced provider of event technology services for hotels, resorts and conference centers throughout the United States and brought to us additional talent and complementary venue relationships. Additionally, we have completed four more acquisitions since 2013 that have broadened our portfolio of services and increased our density in key markets. More recently, we have focused on building our geographic footprint internationally. We continue to leverage our strong relationships with our leading international hotel chain partners in Canada, Mexico, Europe and the Middle East.

Recent Development

On February 16, 2016, we closed the previously announced acquisition of KFP Holding GmbH (“KFP”), a leading provider of creative and event technology services based in Frankfurt, Germany. KFP provides a broad suite of conference and event technology services, along with creative event management and content production solutions in approximately 100 venues in Germany, Austria, Switzerland and Hungary. For over 20 years, KFP has been working with some of the world’s most recognized hotels, corporations and event agencies.

The acquisition strengthens our leadership position and scale in Europe while adding a talented team with strong customer and venue partnerships. The transaction is consistent with our strategy to expand our international presence and execute value enhancing acquisitions.

The transaction was funded with borrowings on our revolving credit facility and available cash. We expect to repay a substantial portion of the borrowings in the first quarter of 2016.

Unless otherwise indicated, our market position and operational data in this prospectus do not give effect to our acquisition of KFP.

 



 

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Industry Background

Our Addressable Market

We believe we have an approximately $42 billion total addressable market. Our primary addressable market is an estimated $23 billion global audiovisual and event technology services industry. In addition, we selectively participate in the just under $20 billion estimated market for the design and construction of permanent audiovisual installations.

LOGO

The market for core event technology services focuses on equipment, staging and production, which we estimate to be $9.3 billion across U.S. hotels, conference and convention centers and non-traditional venues (e.g., museums, sports stadiums and wedding halls). Today, we provide event technology services primarily in hotels, with the substantial majority in the luxury and upper upscale segments. Our Domestic segment revenue for the year ended December 31, 2015 was $1,350.0 million.

We estimate the market for core event technology services at luxury and upper upscale hotels internationally is $4.6 billion. There is a significant installed base of our targeted luxury and upper upscale hotel venues that presents an attractive opportunity to generate growth, including approximately 1,750 of such hotels in Asia Pacific,1 1,670 in Europe, Middle East and Africa (collectively, “EMEA”1), 370 in Mexico and Canada, and 220 in South America.1 In these regions, our largest hotel chain partners, Starwood, Hilton, Marriott and Hyatt, have approximately 1,000 locations that may facilitate our expansion. Outside the United States, the geographies with the largest event technology spending include China, Western Europe, Southeast Asia, Japan and Canada. We expect demand for event technology services to grow faster in many regions internationally than in the United States, driven by higher economic growth rates, the trend toward more complex U.S.-style event production and the transition to outsourced event technology services. We currently operate in nine countries outside the United States, including the United Kingdom, France and Germany, and generated International segment revenue of $137.2 million for the year ended December 31, 2015.

 

(1)  Asia Pacific: Australia, China, India, Indonesia, Japan, Malaysia, New Zealand, Singapore and Thailand; EMEA: Egypt, Belgium, France, Germany, Greece, Ireland, Israel, Italy, Jordan, Russia, Spain, Switzerland, Turkey, United Arab Emirates and United Kingdom; South America: Argentina, Brazil, Chile, Colombia, Ecuador, Peru and Uruguay.

 



 

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We also participate in what we estimate to be the $9.1 billion global market for specialty services in venues, including high-speed internet, power distribution and rigging. We believe rigging constitutes nearly half of that market and has been an area of growth for us since 2011. We believe the need for these services will continue to grow in importance for events. The proportion of our venue revenue generated by specialty services has increased from 10.6% in 2011 to 13.9% in 2015. Our ability to provide these complementary services enhances our value proposition to our customers and allows us to capture a greater portion of the spend on each event.

Meeting and Event Activity Historically Correlated with RevPAR

In the United States, meeting and event activity historically has been highly correlated with the hospitality industry metric Revenue per Available Room (“RevPAR”) and Group Revenue per Available Room (“Group RevPAR”), which are calculated by STR and PKF. STR is an independent, third-party service that collects and compiles the data used to calculate RevPAR and Group RevPAR, and PKF is an independent, third-party service that collects and compiles historical data used to calculate RevPAR. Whereas RevPAR is a total industry metric, Group RevPAR measures total guest hotel room revenue generated by group bookings (blocks of guest hotel rooms sold simultaneously in a group of 10 or more rooms), divided by total number of available guest hotel rooms. Because meetings and events generally require lodging for their participants, event activity typically correlates with Group RevPAR at nearby hotels, regardless of whether the events themselves are held on-site at hotels or at other nearby venues. As we provide event technology services primarily in hotels in the luxury and upper upscale segments, we refer to Group RevPAR for hotels in these segments as they more closely align with our business.

Within the United States, RevPAR has grown on average by 5.1% annually since 1970 according to PKF. Group RevPAR is a newer industry metric and represents a segment of the RevPAR performance, but tracks closely to overall RevPAR. Since 1970, RevPAR has only decreased in times of significant downturns in travel such as after September 11, 2001 and during the global financial crisis that began in 2008. More recently, both RevPAR and Group RevPAR have demonstrated strong growth in the rebound from the financial crisis, with overall RevPAR growing at a compound annual growth rate of 9.3% since 2010. Looking ahead, RevPAR for luxury and upper upscale hotels is predicted to grow at 5.0% in 2016, according to STR data. Our revenue historically has been correlated with Group RevPAR and our same venue revenue growth has exceeded Group RevPAR growth for each of the past six years as we have increased average revenue per event and expanded the services we offer through our venues.

Industry Trends

Continued Importance of Meetings and Events.    In-person meetings and events continue to be rated as the single most effective marketing and communication vehicle. Companies recognize that face-to-face interactions are highly impactful and continue to support in-person events, despite the ubiquity of technology-based solutions such as video conferencing, social media, company websites, articles and webinars. In most cases, these technologies are used to supplement rather than replace in-person meetings. Meetings and events were estimated to contribute $280 billion of total spending in the United States in 2012, according to PwC, as companies and other organizations continued to deploy marketing budgets towards in-person meetings.

Venues are Focused on Increasing Group Revenue.    Revenues generated by group bookings (“Group Revenue”) were estimated to contribute approximately $40 billion in hotel revenue in the United States and approximately $100 billion globally as of 2013 according to research consolidated by Travel Click by Passkey. Group Revenue often constitutes a hotel’s most profitable segment because of the increased associated spend on meeting space, banquet catering and event technology services. Luxury hotels in particular have focused on expanding Group Revenue by

 



 

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growing aggregate meeting space which has grown at a 10% compounded annual growth rate (“CAGR”) from 2009 through 2015. As hotels and other venues focus on this large and profitable segment of their business, they seek expanded service offerings to support meetings and events, including event technology services.

Rising Complexity in Event Technology.    The rise in consumer technology has led to an increased demand for technological sophistication at meetings and events. These heightened expectations drive meeting and event planners to deliver a more interactive and engaging audience experience than they have in the past. For example, our customers are frequently requesting Wi-Fi access in all meeting spaces and seeking to use video, sound and staging to create branding and special effects for audience impact. The demands of tech-savvy audiences require more complex event technology solutions and trusted providers who can implement those solutions. This development has led to an increase in our average revenue per event across our domestic venues from $2,359 in 2011 to $3,407 in 2015.

Venues are Increasingly Outsourcing Event Technology Services.    Given the rising complexity in event technology services and associated capital expenditure requirements, venues are increasingly looking to partner with outsourced providers such as us. Venues and customers benefit from high-quality customer service, broad service offerings and deep domain knowledge. At the corporate level, hotel chains benefit from a consistent standard of service across their venues. In addition, outsourced providers are often able to increase venues’ event technology revenue beyond what venues could achieve on their own because of event technology providers’ expanded offerings and specific focus on meetings and events. Since 2011, we have contracted to provide event technology services at 42 venues that were previously in-sourcing these services. During the same period, approximately 25% of our new domestic venues were conversions from self-operated sites.

Internationally, Event Technology Opportunity Continues to Grow.    We forecast that spending on event technology services at international luxury and upper upscale hotels will grow from an estimated $4.6 billion in 2015 to $5.4 billion in 2020, with many individual markets growing more quickly. We believe this growth is driven primarily by outsized economic growth in developing economies, increased globalization driving more meetings and events and U.S. hotel chains seeking to expand their international footprints. We expect international venues to increasingly adopt outsourcing of event technology services to realize the benefits of the on-site model that has proven successful in the United States.

Competitive Strengths

We believe our competitive strengths are as follows:

Highly Skilled Workforce with a Focus on Customer Service.     We believe our ability to deliver high-quality, comprehensive event technology solutions is a direct result of our ability to hire, train and retain the best event technology services staff in the industry. Approximately 95% of our over 7,800 employees are in customer-facing roles. We provide numerous education and training programs to develop our personnel, focusing on hospitality and customer service as well as technical expertise. Our venue managers have an average tenure of nearly nine years and our regional vice presidents have an average tenure of approximately 15 years. Our employees’ technical expertise and familiarity with the specific venues in which they are based enable them to deliver seamless event execution to our customers.

Long-Term Relationships with High-Profile Venues and Hotel Chains.    We have a long track record of delivering high-quality, comprehensive event technology solutions at the venues with whom we partner, including luxury and upper upscale hotel chains who have high expectations for customer service and execution. In addition, hotel chains value our ability to provide a consistent level

 



 

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of service across their venues. We have long-term master service agreements (“MSAs”) signed with four of the five largest domestic hotel chains naming us as a preferred provider of event technology services at their hotels. Individual venues in the chain may then choose to contract with us as the exclusive on-site provider pursuant to the terms established in the MSA. The MSAs typically provide us with a powerful endorsement as the only chain-endorsed event technology services provider and position us well to establish new contracts with additional hotels in the chain. For the individual venues where we provide on-site service, our integration with their operations and knowledge of their customers’ event technology needs provides them with strong incentives to renew their contracts with us, resulting in our average 98% annual venue retention rate since 2011.

U.S. Market Leader with Broad Reach, Expansive Scale and Breadth of Service Offerings.    We are the audiovisual and event technology services market leader in the United States with significantly greater market share than any of our competitors. We have venue contracts representing 46% of the meeting and event space in all of the luxury and upper upscale hotel properties in the United States. Our deep and broad platform includes over 7,800 employees, over 1,300 worldwide on-site event technology venues and 44 global branch warehouse locations. Our scale and reach offers several advantages. First, it enables us to offer the broadest range of event technology services and solutions, from core audiovisual services to specialty services such as rigging and power. Second, our network density enables us to leverage our people and our specialized equipment efficiently, driving higher margins and allowing us to provide our services at a wider range of venues cost effectively. Finally, our scale provides a barrier to entry to smaller, regional providers who we believe are unable to provide comparable expertise and capabilities.

Strong Historical Same Venue Revenue Growth.    In the United States, our historical same venue revenue growth has exceeded Group RevPAR by an average of 610 basis points since 2011 as shown in the table below. We have been able to achieve this revenue growth due to our track record of outstanding customer service, increasing suite of services and sales team effectiveness. Our comprehensive solution set has enabled us to benefit from the industry-wide increase in technology spend per event as our customers migrate to more advanced technologies and purchase more of our services to support their events. For example, the proportion of our venue revenue generated by specialty services has increased from 10.6% in 2011 to 13.9% in 2015. As these underlying trends continue, we expect our differentiated capabilities will allow for continued growth in same venue revenue.

 

LOGO

 



 

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Strong and Growing International Presence.    We have a leading market position in Canada, Mexico and the United Kingdom with a presence in France, Monaco, Germany, United Arab Emirates, Dominican Republic and Singapore. We have strong relationships internationally with both venues and customers, and we provide a broad range of services at nearly 300 on-site properties outside the United States. Our contractual relationships with leading hotel chains and strong market position provide us with a competitive advantage over small, local providers who lack our scale and technological expertise.

Compelling Financial Model with Multiple Levers to Drive Profitability and Manage Free Cash Flow.    Our strong free cash flow allows us to continue to invest in our business, our people and our equipment. Furthermore, we have a flexible cost structure that allows resiliency in varied market conditions. Our overall cost of revenue is approximately 75% variable, driven by the variable nature of venue commissions, which is our primary expense. Our part-time labor force and strategic network of branch locations allow us to manage peak demand and sustain margins. Furthermore, most of our capital investment is success-based, with most significant capital investments tied to new or renewed venue contracts which are evaluated against our return requirements. The resulting flexibility in our cost structure and capital requirements allows us to deliver high-quality service to our customers while maintaining profitability and strong free cash flow.

Proven Management Team with Deep Industry Expertise.    Our management team combines deep industry expertise with specific functional experience. They have presided over significant growth in the past several years and have led our transformation into a global event technology service provider. At the same time, they have instilled a collaborative company culture focusing on innovation and customer service, which has resulted in significant growth, high levels of satisfaction across customers and venue partners and a best-in-class team. Our senior operational team has an average of 18 years of industry experience and has operated across a variety of economic conditions and geographies.

Growth Strategies

We intend to pursue the following growth strategies in order to enhance our market leading position:

Capture More Events at Existing Venues.    We believe significant opportunity exists to capture incremental events at our venues. We estimate that we currently service approximately 70% of the event technology spend in our existing venues with the remaining 30% spent by customers on other event service providers without an on-site venue presence.

Win New Venue Partners.    We intend to expand our revenue by pursuing new venue partners. We estimate we have contracts with approximately 40% of the luxury and upper upscale U.S. hotel venues, and we believe that the remaining 60% provides a significant target market in which to win new venues. In addition, with less than 10% of our revenues generated from events at non-hotel venues, we believe we have a significant opportunity in the $6.2 billion non-hotel venue market including convention centers, sports stadiums, theaters, museums and other cultural centers, as we have on-site contracts at select non-hotel venues and additionally provide services to existing customers at non-hotel venues where we are not currently the preferred on-site provider of event technology services.

Win More Customers Independent of Venue.    We manage approximately 250 customers as national accounts because their event technology needs require highly customized solutions or because they seek a consistent solution across a range of venues or geographies. This market

 



 

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represents a significant revenue opportunity as a large portion of the domestic marketplace continues to be serviced by event technology providers who are not on-site at a particular venue. We plan to leverage our broad branch network and specialized sales teams to continue to capture incremental share in this market.

Develop and Market Adjacent Services to Increase Revenue per Event.    The trend towards increased technology spend per event is creating substantial opportunities to increase our event technology revenue across our suite of services. In the near term, we believe this trend will allow us to further penetrate the $9.1 billion specialty services market. Our event technology services that are considered part of the specialty services market include rigging, power, Wi-Fi services and creative services and contributed $52.6 million of revenue in 2011, which has grown to $171.2 million of revenue in 2015. We will continue to focus on expanding our suite of services to grow our event technology revenue.

Continue to Expand Margins Through Operational Efficiencies.    We have proven our ability to leverage operational efficiencies in driving profitability as our Adjusted EBITDA margin has expanded by approximately 350 basis points between 2011 and 2015. We have several initiatives in process to continue to increase margins, focused primarily on labor and equipment utilization. For example, we are improving our labor utilization by standardizing our planning and forecasting of our hourly workforce to optimize staffing levels and introducing new initiatives on equipment sharing between venues and our branch network.

Expand International Revenue.    The $4.6 billion international event technology services market represents a compelling growth opportunity. The four largest U.S.-based hotel chains with whom we have strong domestic relationships represent approximately 25% of total hotels in key addressable international markets. We are already working with these partners to add new venues across our existing international footprint. In addition, we intend to enter new markets as we have recently done in Singapore.

Selectively Pursue Acquisitions.    We intend to pursue acquisitions to enter new markets and accelerate growth in existing markets. Over the past few years we have acquired and integrated four event technology service providers and have demonstrated a track record of achieving forecasted synergies. We maintain a pipeline of acquisitions which we evaluate based on established investment criteria including alignment with our culture and customer focus.

Our Principal Stockholders

On January 24, 2014, affiliates of The Goldman Sachs Group, Inc. (“Goldman Sachs”) and Olympus Partners (together with Goldman Sachs, the “Sponsors”), together with certain management investors and other investors formed PSAV Holdings LLC, which in turn acquired 100% of the voting equity interests in AVSC Holding Corp., which became an indirect wholly-owned subsidiary of PSAV Holdings LLC. We refer to the foregoing acquisition as the “Sponsors Acquisition.” Olympus Partners and Goldman Sachs currently each own approximately 45.53% of our equity.

In connection with the Sponsors Acquisition, one of our subsidiaries entered into a management advisory services agreement with Goldman, Sachs & Co., and Olympus Advisors LLC, affiliates of our Sponsors, to provide business and organizational strategy, financial and advisory services to us. We pay an annual advisory fee of $1.5 million apportioned equally between the Sponsors on January 24th of each year. We also paid a one-time fee of $6.0 million to Olympus Advisors LLC and $8.0 million to Goldman, Sachs & Co. under the agreement at the time of the Sponsors Acquisition. The management advisory services agreement will terminate in connection with this offering, and we believe the

 



 

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Sponsors currently intend to waive any amounts due to them pursuant to such termination. We expect the total amount of fees paid under the agreement to be $10.3 million to Goldman, Sachs & Co. and $8.3 million to Olympus Advisors LLC. For further information regarding the management advisory services agreement, see “Certain Relationships and Related Person Transactions—The Sponsors Acquisition—Management Advisory Services Agreement. In addition, in May 2015 and December 2015, we paid distributions totaling $174.1 million in the aggregate to the members of PSAV Holdings LLC, of which $79.3 million was paid to each of the Sponsors.

Following this offering, our Sponsors will continue to control our board of directors and corporate decisions. Our Sponsors may acquire or hold interests that compete directly with us, or may pursue acquisition opportunities that are complementary to our business, making such an acquisition unavailable to us. Our amended and restated certificate of incorporation will contain provisions renouncing any interest or expectancy held by our directors affiliated with our Sponsors in certain corporate opportunities. For further information, see “Management—Composition of Our Board of Directors” and “Risk Factors—Risks Related to This Offering and Ownership of Our Common Stock—Our Sponsors can significantly influence our business and affairs and may have conflicts of interest with us in the future.”

Controlled Company

Following the consummation of this offering, approximately     % of our outstanding common stock will be beneficially owned by affiliates of Goldman Sachs and Olympus Partners. In particular, affiliates of Goldman Sachs collectively will beneficially own approximately     % of our common stock (or approximately     % if the underwriters exercise their option to purchase additional shares in full) and Olympus Partners will beneficially own approximately     % of our common stock (or approximately     % if the underwriters exercise their option to purchase additional shares in full). As a result, we will be a “controlled company” within the meaning of the New York Stock Exchange’s corporate governance rules. For a discussion of the applicable limitations and risks that may result from our status as a controlled company, see “Risk Factors—Risks Related to This Offering and Ownership of Our Common Stock—We are a ‘controlled company’ within the meaning of the New York Stock Exchange rules and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.”

 



 

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Corporate Reorganization

Prior to this offering, PSAV Holdings LLC and its subsidiaries conducted our business. Prior to the completion of this offering, a series of transactions will occur pursuant to which holders of equity interests in PSAV Holdings LLC will become holders of common stock in PSAV, Inc., the issuer of shares in this offering. For a more detailed description, see “Organizational Structure.”

The diagram below reflects our organizational structure following the corporate reorganization, this offering and the use of the net proceeds therefrom as if each occurred on December 31, 2015:

 

LOGO

Risk Factors

An investment in our common stock involves a high degree of risk. Our ability to execute on our strategy also is subject to certain risks. Some of the more significant challenges and risks include the following:

 

    Unfavorable economic conditions have adversely affected, and in the future could adversely affect, our business, financial condition and results of operations.

 

    Our failure to retain current venue partners and hotel chains or renew existing venue partner contracts and hotel chain MSAs would have a material adverse effect on our business, financial condition and results of operations.

 

    Our failure to increase the number of quality of properties covered by our venue partner contracts, increase the number of hotel chains for which we are the preferred provider could have a material adverse effect on our business.

 



 

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    The widespread adoption of more effective teleconference and virtual meeting technologies could reduce the number of events held at our venue partners, the size and scope of such events, including reduced demand for our services at events, or the attendance at such events, which could adversely affect our business results of operations or financial condition.

 

    Potential venue partners may be reluctant to switch to a new preferred provider of event technology services, which may adversely affect our growth.

 

    If venues reduce their outsourcing or use of preferred providers, it could have a material adverse effect on our business, financial condition and results of operations.

 

    We have substantial indebtedness and we may incur additional indebtedness in the future, which may require us to use a substantial portion of our cash flow to service debt and limit our financial and operating flexibility.

 

    We are a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. Accordingly, stockholders will not have the same protections as stockholders of companies that are subject to such requirements.

The above list is not exhaustive. Before you invest in our common stock, you should carefully consider all of the information in this prospectus, including matters set forth under the heading “Risk Factors” immediately following this summary.

Corporate Information

PSAV, Inc. was incorporated in Delaware on August 11, 2015. Our principal executive offices are located at 5100 N. River Road, Suite 300, Schiller Park, Illinois 60176, and our telephone number is (847) 222-9800. Our website is www.psav.com. Our website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated by reference in, and is not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.

 



 

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The Offering

 

Issuer

PSAV, Inc.

 

Common Stock Offered by Us

             shares of common stock.

 

Common Stock Offered by the Selling Stockholders

             shares of common stock.

 

Common Stock to be Outstanding After This Offering

             shares of common stock.

 

Option to Purchase Additional Shares of Common Stock

The underwriters have an option to purchase a maximum of              additional shares of common stock from the selling stockholders named in this prospectus. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

 

Use of Proceeds

We estimate that the net proceeds from the sale of our common stock in this offering, after deducting the underwriting discount and estimated offering expenses payable by us, will be approximately $              million based on an assumed initial public offering price of $              per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). We intend to use the net proceeds from this offering to repay borrowings under our second lien credit facility. See “Use of Proceeds.” We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

 

Conflicts of Interest

Because Goldman, Sachs & Co. is an underwriter and its affiliates own in excess of 10% of our issued and outstanding common stock, Goldman, Sachs & Co. is deemed to have a “conflict of interest” under FINRA Rule 5121. Accordingly, this offering will be made in compliance with the applicable provisions of Rule 5121. Rule 5121 requires that a “qualified independent underwriter” meeting certain standards participate in the preparation of the registration statement and prospectus and exercise the usual standards of due diligence in respect thereto, subject to certain exceptions which are not applicable here. Morgan Stanley & Co. LLC will serve as a qualified independent

 



 

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underwriter within the meaning of Rule 5121 in connection with this offering. For more information, see “Underwriting (Conflicts of Interest and Other Relationships)—Conflicts of Interest and Other Relationships.”

 

Dividend Policy

We do not intend to pay dividends on our common stock. However, we may change this policy in the future. See “Dividend Policy.”

 

Listing

We have applied to have our common stock listed on the New York Stock Exchange under the symbol “PSAV.”

 

Risk Factors

Investing in our common stock involves a high degree of risk. See the “Risk Factors” section of this prospectus for a discussion of factors you should carefully consider before deciding to purchase shares of our common stock.

Except as otherwise indicated, all information in this prospectus:

 

    excludes              shares of restricted common stock to be granted to a director under our 2016 PSAV, Inc. Equity Incentive Plan, or the 2016 Equity Plan, in connection with this offering;

 

    excludes an aggregate of              additional shares of common stock that will be available for future awards pursuant to the 2016 Equity Plan;

 

    gives effect to our amended and restated certificate of incorporation, which will be in effect prior to the consummation of this offering; and

 

    assumes an initial public offering price of $             per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus).

 



 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth our summary historical consolidated financial and other data for the periods and as of the dates indicated. The periods prior to and including January 24, 2014, the date of the Sponsors Acquisition, are referred to in the following table as “Predecessor,” and all periods after such date are referred to in the following table as “Successor.” The consolidated financial statements for all Successor periods are not comparable to those of the Predecessor periods.

We derived the summary consolidated statement of operations and other data for the year ended December 31, 2013, the period from January 1, 2014 through January 24, 2014, the period from January 25, 2014 through December 31, 2014 and the year ended December 31, 2015 from our audited consolidated financial statements contained elsewhere in this prospectus.

Our historical results are not necessarily indicative of future operating results. You should read the information set forth below in conjunction with “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Condensed Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto contained elsewhere in this prospectus.

 

          Twelve Months Ended
December 31, 2014
       
    Predecessor     Predecessor          Successor     Successor  
    Year Ended
December 31,

2013
    January 1,
through
January 24,
2014
         January 25,
through
December 31,
2014
    Year Ended
December 31,
2015
 
           
    (dollars in thousands)  

Consolidated Statement of Operations Data:

           

Revenue

  $ 1,096,374      $ 75,622          $ 1,188,283      $ 1,487,170   

Income (loss) from operations

    53,998        (33,960         33,755        52,815   

Income (loss) before income taxes

    14,576        (36,424         (10,673     (2,838

Net income (loss)

    17,596        (25,921         (10,566     (5,801
 

Consolidated Statement of Cash Flows Data:

           

Net cash provided by (used in):

           

Operating activities

  $ 51,330      $ (2,018       $ 46,271      $ 62,699   

Investing activities

    (77,219     (4,268         (911,732     (105,762

Financing activities

    35,750                   935,071        17,200   
 

Other Financial Data:

           

Capital expenditures

  $ 36,506      $ 4,268          $ 34,130      $ 61,869   

Venue incentive payments

    6,361        99            15,542        22,777   

Adjusted EBITDA(1)

    130,381        7,892            149,047        174,511   

Adjusted EBITDA margin(1)

    11.9     10.4         12.5     11.7
 

Operating Data:

           

Domestic:

           

Revenue

  $ 991,682      $ 70,240          $ 1,087,737      $ 1,350,008   

Adjusted EBITDA(1)

    118,618        7,280            138,594        159,750   
 

International:

           

Revenue

    104,692        5,382            100,546        137,162   

Adjusted EBITDA(1)

    11,763        612            10,453        14,761   

 



 

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     As of December 31,
2015
 
     (in thousands)  

Consolidated Balance Sheet Data:

  

Cash and cash equivalents

   $ 40,895   

Total assets

     1,235,168   

Long-term debt (including current portion)

     863,489   

Total liabilities

     1,158,031   

Total members’ equity

     77,137   

 

(1) Adjusted EBITDA represents net income before interest expense, income taxes, depreciation, amortization of intangibles, transaction-related expenses, long-term incentive plan payments, gain or loss on disposal of assets, gains or losses on foreign currency transactions, changes in the fair value of our interest rate caps, amortization of venue incentives including the expense impact of certain venue incentive payments for which deferred expense recognition was not applicable under U.S. GAAP, management fees paid to our Sponsors, equity-based compensation expense, executive severance and certain consulting and professional fee costs. Certain of the arrangements with venue operators to secure the right to be the exclusive on-site provider of event technology services contain up-front incentive payments which are not deferred over the contract term as they do not contain a contractual requirement to repay a ratable portion of the incentive. Management excludes these incentive payments from the calculation of Adjusted EBITDA as they are expensed at the beginning of the contract period and are therefore not indicative of the ongoing operations. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of revenue. Management believes Adjusted EBITDA and Adjusted EBITDA margin are useful because they allow management to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods, capital structure, investments in securing and renewing venue relationships or other items that we believe are not indicative of our ongoing operating performance. In addition, the determination of Adjusted EBITDA is consistent with the definition of a similar measure in our credit agreements other than pro forma adjustments for acquisitions and certain forward-looking adjustments permitted by the credit agreements but not considered by management in evaluating our performance using Adjusted EBITDA.

Adjusted EBITDA is a “non-GAAP financial measure” as defined under the rules of the SEC. Our presentation of Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to income (loss) from operations, net income (loss), earnings per share or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or operating cash flows or as measures of liquidity. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by these items. Adjusted EBITDA is included in this prospectus because it is a key metric used by management to assess our operating performance.

Management believes the inclusion of Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance. Although Adjusted EBITDA is not necessarily a measure of liquidity or our ability to fund our operations, we understand that it is frequently used by securities analysts, investors and other interested parties as a supplemental measure of financial performance.

 



 

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Adjusted EBITDA has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

Adjusted EBITDA:

 

    does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

 

    does not reflect our cash expenditures for venue incentives or the amortization of those venue incentive payments;

 

    although depreciation and amortization of intangibles are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

 

    does not reflect the costs of acquisitions of businesses or other capital market transactions;

 

    does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

 

    does not reflect our income tax expense or the cash requirements to pay our income taxes;

 

    does not reflect changes in, or cash requirements for, our working capital needs;

 

    does not reflect the cash requirements for other excluded items;

 

    does not reflect the impact of equity-based compensation upon our operations; and

 

    may not be consistent with how other companies in our industry calculate Adjusted EBITDA.

In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation.

The following table reconciles net income (loss) to Adjusted EBITDA for the periods presented:

 

          Twelve Months Ended
December 31, 2014
       
    Predecessor     Predecessor          Successor     Successor  
    Year Ended
December 31,

2013
    January 1,
through
January 24,
2014
         January 25,
through
December 31,
2014
    Year Ended
December 31,
2015
 
           
    (in thousands)  

Net income (loss)

  $ 17,596      $ (25,921       $ (10,566   $ (5,801

Income tax (benefit) expense

    (3,020     (10,503         (107     2,963   

Interest expense, net

    40,700        2,830            40,536        51,024   

Depreciation and amortization of intangibles

    47,502        3,222            71,950        84,541   

Transaction-related expenses(a)

    12,004        14,243            20,410        3,590   

Long-term incentive plan payments(b)

           18,021            42          

Loss on disposal of assets

    2,052        127            2,918        3,164   

Foreign currency transactions (gain)/loss(c)

    (1,278     (366         2,075        2,659   

Changes in fair value of interest rate caps(d)

                      1,817        1,350   

Amortization of venue incentives(e)

    9,318        705            8,306        8,420   

Management fee(f)

                      1,405        1,500   

Equity-based compensation expense(g)

           5,365            299        326   

Severance expense(h)

    2,334        163            798        2,331   

Consulting fees and other(i)

    3,173        6            9,164        18,444   
 

 

 

   

 

 

       

 

 

   

 

 

 

Adjusted EBITDA

  $ 130,381      $ 7,892          $ 149,047      $ 174,511   
 

 

 

   

 

 

       

 

 

   

 

 

 

 



 

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(a) Expenses incurred in connection with acquisitions, including the Sponsors Acquisition, such as pre-acquisition professional fees and costs to integrate these businesses.
(b) Expenses associated with our long-term incentive plans for certain members of management paid in connection with the Sponsors Acquisition in 2014.
(c) Gains and losses on transactions settled in foreign currencies.
(d) Refer to Note 11 and Note 12 to our audited consolidated financial statements included elsewhere in this prospectus for further information on our interest rate caps.
(e) Amortization of signing incentive payments made to venues over the term of related agreements, including the expense impact of $4.1 million for the twelve months ended December 31, 2014 and $2.7 million for the year ended December 31, 2015 in venue incentive payments for which deferred expense recognition was not applicable under U.S. GAAP.
(f) Annual management fee paid to our Sponsors.
(g) For the period from January 1, 2014 through January 24, 2014, relates to distributions received on equity-based awards in connection with the Sponsors Acquisition.
(h) Severance expense related to employees terminated subsequent to acquisitions.
(i) Consulting fees and other related to interim management and strategic initiatives. For 2013 and 2014, includes costs related to an insurance policy purchased by the Predecessor.

 



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline and you may lose some or all of your investment.

Risks Related to Our Business and Industry

Unfavorable economic conditions have adversely affected, and in the future could adversely affect, our business, financial condition and results of operations.

A national or international economic downturn has reduced, and in the future could reduce, demand for our services, which may result in the loss of business or increased pressure to negotiate new contracts or renewals on less favorable terms than our generally preferred terms. Economic hardship among our venue partners and customers can also adversely affect our business. For example, we provide services in hotels and convention centers that are sensitive to an economic downturn, as expenditures to hold or attend conventions or other events requiring our event technology services are funded to a partial or total extent by discretionary income. The last economic downturn negatively affected the number of events held at our venue partners and the amount of spending on such events. Further, because our exposure to customers of our event technology services is limited in large part by our dependence on our venue partners to attract those customers to hold their events at their properties, our ability to respond to such a reduction in events, and therefore our revenue, is limited. There are many other factors that could reduce the numbers of events at a venue or attendance at any such events, including acts of terrorism, particularly acts that impact hotels or the travel industry, and the national and global military, diplomatic and financial response to such acts or other threats or natural disasters, including hurricanes and earthquakes, and global calamities, such as an Ebola outbreak or a flu pandemic, which could adversely affect our business, financial condition and results of operations.

Our failure to retain our current venue partners and hotel chains or renew our existing venue partner contracts and hotel chain MSAs would have a material adverse effect on our business, financial condition and results of operations.

Our business depends on our ability to retain our current venue partners and hotel chains and renew our existing venue partner contracts and hotel chain MSAs. We may not be able to renew existing venue partner contracts and hotel chain MSAs on the same or more favorable terms. Our current venue partners may work with our competitors, cease operations, elect to provide event technology services in-house, diversify their preferred providers, reduce their cooperation with our sales representatives or terminate contracts with us. Also, consolidation within the hotel industry may result in our current venue partners being owned by hotel chains that we do not have an MSA with, that work with our competitors or that provide their event technology services in-house. While our MSAs and individual service agreements generally do not provide for termination upon a change of control, we may not be able to enter into an MSA with the hotel chain or renew our venue partner contracts with the individual hotel properties when they expire.

In addition, while we enter into MSAs with major hotel chains, individual hotel properties typically make separate decisions as to their event technology services providers. Therefore, our inability to renew hotel chain MSAs will not automatically terminate our relationships with the individual hotel properties. However, the corporate offices of major hotel chains may influence the decisions of their individual properties. For example, if the hotel chain discontinues its relationship with us in favor of another service provider or an in-house solution, our relationship with the properties under that brand

 

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may suffer even though, in nearly all cases, we negotiate with each property individually. This may lead to significant lost revenue or result in additional costs to complete sales of our event technology services, any of which would adversely affect our results of operations.

The failure to renew a significant number of our existing contracts or MSAs would have a material adverse effect on our business, financial condition and results of operations.

Our failure to increase the number or quality of properties covered by our venue partner contracts, increase the number of hotel chains for which we are the preferred provider could have a material adverse effect on our business, financial condition and results of operations.

Our business and revenue growth depends on our ability to increase the services for which we are the preferred provider at our venue partners and obtain new venue partners. While our contracts with our venue partners and hotel chain MSAs generally allow us to be the exclusive on-site provider of services, customers can bring in their own technologies or use other parties that are not located on-site at these locations. In addition, such contracts do not generally provide any minimum revenue or event commitments. Accordingly, our ability to generate or increase revenue at these venues depends on a variety of factors, including:

 

    our ability to obtain and retain attractive venues for which we serve as preferred provider;

 

    our ability to obtain leads for events from our venue partners;

 

    the quality, price and appeal of our event technology services;

 

    our ability to integrate new technologies into our event technology services to avoid obsolescence and provide scalability and meet evolving customer preferences; and

 

    our ability to market our services effectively and differentiate ourselves from our competitors or the venue’s in-house solutions.

This risk is heightened by the concentrated nature of the hospitality industry, which is dominated by a relatively small number of major hotel chains that are focused on hosting large business-oriented events. If we are unable to maintain and grow our network of hotel chains and venues, we may be unable to satisfy our customers’ needs, lose market share or incur additional costs to support our customers, all of which could have a material adverse effect on our business, results of operations or financial condition.

The widespread adoption of more effective teleconference and virtual meeting technologies could reduce the number of events held at our venue partners, the size and scope of such events, including reduced demand for our services at events, or the attendance at such events, which could adversely affect our business, financial condition and results of operations.

Our business and growth strategies rely in part upon our customers’ continued need for in-person meetings and conferences. Should more effective teleconference and virtual meeting technologies be developed, customers could choose to substitute these technologies for part or all of their in-person meetings and conferences. The emergence of more effective teleconference or virtual meeting technologies, the widespread adoption of teleconference and virtual meeting technologies or changes in preferences of our customers could adversely affect our business, financial condition and results of operations.

In addition, existing or potential venue partners and customers may elect to use self-operated solutions, eliminating business opportunities for us. As technology advances, demand for our services at events at venue partners could be reduced as customers become more able to substitute readily available products for our services. If it becomes easier and more cost-effective for customers to host

 

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events without the type of services we provide, our business, financial condition and results of operations could be adversely affected.

Potential venue partners may be reluctant to switch to a new preferred provider of event technology services, which may adversely affect our growth.

Many large hotel chains, convention centers and other venues have existing relationships with event technology services providers and may be reluctant to switch to a new preferred provider due to a variety of factors, including service disruptions associated with a change of providers and potential impact on revenue during the transition period. If we are unable to overcome these concerns, we may not be able to attract new venue partners, which could have a material adverse effect on our growth.

If venues reduce their outsourcing or use of preferred providers, it could have a material adverse effect on our business, financial condition and results of operations.

Our business and growth strategies depend in part on the continuation of a current trend toward outsourcing services in general and event technology services in particular. Venues will outsource if they perceive that outsourcing allows them to provide quality services at a lower cost, generates incremental revenue for them and permits them to focus on their core business activities. Potential venue partners may seek to provide event technology services in-house in order to maintain control over the quality of the event technology services provided at their venues, enhance their customer relationships and increase their revenue. If the trend to outsource does not continue or our venue partners elect to perform these event technology services in-house (due to consolidation in the hotel industry or otherwise), it could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, some of our large hotel chain partners have retained a limited number of preferred partners to provide all or a large part of their required services across their portfolio of hotels. If we are not selected and retained as a preferred partner to provide event technology services or if hotel chains that have agreements with other providers acquire our existing venue partners, it could limit our ability to pursue and enter into venue contracts and have a material adverse effect on our business, financial condition and results of operations.

Our success depends on our ability to maintain the value and reputation of our brand.

Our success depends on the value and reputation of the PSAV brand. Brand and name recognition is an important differentiator in the event technology services business as prospective venue partners may only outsource to well-known and established event technology service providers. The PSAV name is integral to our business as well as to the implementation of our strategies for expanding our business. Maintaining, promoting and positioning our brand will depend largely on the success of venue partner and customer relationships and our ability to provide consistent, high quality and innovative services. Our brand could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity, which could have a material adverse effect on our business, financial condition and results of operations.

Competition in our industry could adversely affect our results of operations.

There is competition in the event technology services business from local, regional, national and international companies, of varying sizes, many of which have substantial technical capabilities, venue relationships or financial resources. We compete with such providers for preferred provider contracts with venue partners and hotel chains as well as for event contracts with our customers. Our ability to successfully compete for venue partners and hotel chains depends on our ability to provide the event technology services demanded by their customers at a competitive price, our experience and expertise, the availability of adequately trained personnel, access to equipment and our ability to generate revenue opportunities. Certain of our competitors have been and may in the future be willing to underbid us or accept a lower profit margin or expend more capital in order to obtain or retain venue

 

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or customer relationships. Also, certain regional and local service providers may be better established than we are within a specific geographic region. In addition, existing or potential venue partners and customers may elect to use self-operated solutions, eliminating business opportunities for us. While we have a significant U.S. presence, certain of our competitors may offer a broader range of services or have more established presences in certain international markets than we do. Therefore, we may be placed at a competitive disadvantage for venue partners and customers who require services in multiple international markets. While most venue partners and customers focus primarily on quality of service, venue partners and customers are also price-sensitive. If existing or future competitors seek to gain venue partners, customers or accounts by reducing prices, we may be required to lower prices, which could reduce our revenue and profits, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

Any acquisition that we make or strategic relationship that we enter into could disrupt our business and have a material adverse effect on our business, financial condition and results of operations.

In recent years, we have expanded our business through acquisitions, having completed four acquisitions since 2013, including our February 2016 acquisition of KFP. We may seek to acquire companies or interests in companies or enter into strategic relationships in the future that complement our business, and our inability to complete acquisitions, integrate acquired companies successfully or enter into strategic relationships may render us less competitive. We may not realize the anticipated benefits from our recent or future acquisitions or strategic relationships. Likewise, we may not be able to obtain necessary financing for acquisitions on commercially reasonable terms, or at all. In addition, our ability to control the planning and operations of our strategic relationships and other less than majority-owned affiliates may be subject to numerous restrictions imposed by the applicable agreements and majority stockholders. The parties to any strategic relationships that we may enter into may also have interests which differ from ours, which could adversely impact the success of any such strategic relationship.

The process of integrating acquired operations into our existing operations may result in operating and contract difficulties, such as the failure to retain venue partners, customers or management and technical personnel and problems coordinating services, personnel and technology. Also, in connection with any acquisition, we could fail to discover liabilities of the acquired company for which we may be responsible as a successor owner or operator in spite of any investigation we make prior to the acquisition. In addition, labor laws in certain countries may require us to retain more employees than would otherwise be optimal from entities we acquire. Such difficulties may divert significant financial, operational and managerial resources from our existing operations and make it more difficult to achieve our operating and strategic objectives. The diversion of management attention, particularly in a difficult operating environment, may affect our revenue and our business. Similarly, our business depends on effective information technology systems, and implementation delays or poor execution of the integration of different information technology systems could disrupt our operations and increase costs. Possible future acquisitions could result in the incurrence of additional debt and related interest expense or contingent liabilities and amortization expenses related to intangible assets, which could have a material adverse effect on our financial condition, results of operations and cash flow. In addition, goodwill resulting from business combinations represents a significant portion of our assets. If the goodwill were deemed to be impaired, we would need to take a charge to earnings to write down the goodwill to its fair value, which would adversely affect our results of operations. To the extent we pay for any acquisitions using cash, it would reduce our cash reserves, and to the extent the purchase price is paid in stock, it could be dilutive to our then existing stockholders. We cannot ensure that any acquisition or strategic relationship that we enter into will not have a material adverse effect on our business, financial condition and results of operations.

 

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We often face a long cycle to secure new agreements with venues and hotel chains as well as long implementation periods that require significant resource commitments, which result in a long lead time before we generate revenue from new relationships.

We often face a long cycle to secure a new contract with a venue or a hotel chain, and when we first execute an MSA with a new hotel chain, it may take 30 days to six months or longer before we can enter into agreements with individual venues. If we are successful in obtaining a new venue partner, that is generally followed by a long implementation period in which the services are planned in detail and we obtain the requisite equipment and personnel. During this time, a venue contract is also negotiated and agreed. As a result, there is an extended period before we commence providing the related services and receiving related revenue. We typically incur significant business development expenses during this period with both venues and hotel chains. Furthermore, even if we succeed in developing a relationship with a potential new venue partner or hotel chain and begin to plan the services in detail, a potential venue partner may choose a competitor or decide to perform the event technology services in-house prior to the time a final contract is signed. If we enter into an MSA with a new hotel chain, we still need to enter into new contracts with venues within the hotel chain before we can generate revenue. If we enter into a contract with a venue partner, we will not generate any revenue until we are successful in selling our services to the customers holding events at the venue partner’s property, which can be 30 days to six months once the contract is signed. Our venue partners may also experience delays in obtaining internal approvals or delays associated with technology or system implementations, further lengthening the implementation cycle. Once a contract is signed, we generally incur upfront costs and prepayments at the outset of the contract, hire new employees and obtain new equipment in order to provide services to a new venue partner. We may face significant difficulties in hiring such employees and incur significant costs before we generate corresponding revenue. If we are not successful in obtaining contractual commitments, in maintaining contractual commitments after the implementation cycle or in reducing the duration of unprofitable initial periods in our contracts, it could have a material adverse effect on our business, financial condition and results of operations.

Our business may suffer if we are unable to hire and retain sufficient qualified personnel or if labor costs increase.

We are dependent on a large and skilled workforce to implement our services at our venue locations. Our success depends in part upon our ability to attract, train and retain a sufficient number of employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our venue partners and customers. If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business, financial condition and results of operations. From time to time, we have had difficulty in hiring and retaining qualified technical and sales personnel. We will continue to have significant requirements to hire such personnel. In the past, at times when the United States or other geographic regions have periodically experienced reduced levels of unemployment, there has been a shortage of qualified workers at all levels. Given that our workforce requires large numbers of skilled workers and managers, low levels of unemployment when such conditions exist or mismatches between the labor markets and our skill requirements can compromise our ability in certain areas of our businesses to continue to provide quality service or compete for new business. We also regularly hire a large number of part-time and seasonal workers. Any difficulty we may encounter in hiring such workers could result in significant increases in labor costs, which could have a material adverse effect on our business, financial condition and results of operations. Competition for labor has at times resulted in wage increases in the past and competition could substantially increase our labor costs in the future.

 

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We rely on third-party equipment suppliers.

Some of the equipment we utilize in providing our services consists of equipment that we rent from various suppliers. To the extent our suppliers cannot supply us with equipment or necessary replacement parts in a timely manner or significantly increase their prices or provide us with faulty equipment, our equipment costs may increase and we may be unable to provide our services in a timely manner or may be liable for our inability to provide the contracted services. This could result in a material adverse effect on our business, financial condition and results of operations.

We rely on our venue partners for billing and collection for event technology services provided at their venues, which exposes us to certain risks.

Under the majority of our venue partner contracts, the venue partners are responsible for billing and payment collection for the event technology services that we provide at their venues. The venues’ commissions are typically not dependent on such collections. As a result, if our venue partners do not bill and collect on a timely basis, do not vigorously pursue such billing and collection activities, do not pay us on a timely basis after collection, do not pay us at all or experience financial difficulty, our receipt of revenue for the services that we have provided may be delayed or may not occur. In addition, such billing and collection activities could adversely impact our relationships with our customers in the event of billing or collection disputes. We also retain the risk that our customers may default on the payment for our services. As a result, these billing and collection activities could have a material adverse effect on our business, financial condition and results of operations.

If we fail to comply with requirements imposed by applicable law or other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.

We are subject to governmental regulation at the federal, state, international, national, provincial and local levels in many areas of our business, such as employment laws, wage and hour laws, discrimination laws, immigration laws, human health and safety laws, import and export controls and customs laws, environmental laws, false claims or whistleblower statutes, minority, women and disadvantaged business enterprise statutes, tax codes, antitrust and competition laws, consumer protection statutes, procurement regulations, intellectual property laws, the Foreign Corrupt Practices Act, the U.K. Bribery Act, other anti-corruption laws, lobbying laws and data privacy laws.

From time to time, governmental agencies have conducted reviews and audits of certain of our practices as part of routine investigations of providers of services under government contracts, or otherwise. We also receive requests for information from government agencies in connection with these reviews and audits. While we attempt to comply with all applicable laws and regulations, we may not be in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or we may not be able to comply with any future laws, regulations or interpretations of these laws and regulations.

If we fail to comply with applicable laws and regulations, including those referred to above, we may be subject to investigations, criminal sanctions or civil remedies, including fines, penalties, damages, reimbursement, injunctions, seizures, disgorgements or debarments from government contracts. The cost of compliance or the consequences of non-compliance, including debarments, could have a material adverse effect on our business, financial condition and results of operations. In addition, government agencies may make changes in the regulatory frameworks within which we operate that may require either the corporation as a whole or individual businesses to incur substantial increases in costs in order to comply with such laws and regulations.

 

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We conduct a portion of our business in foreign countries, and we expect to expand our operations into additional foreign countries where we may be impacted by operational and political risks that are greater than in the United States.

We have international operations and are further expanding our business internationally. Conducting and expanding our international operations subjects us to other risks that we do not generally face in the United States. These include:

 

    difficulties in managing the staffing of our international operations, including hiring and retaining qualified employees;

 

    difficulties in establishing our services at new venues and hotel chains and developing brand recognition in new jurisdictions;

 

    difficulties and increased expense introducing corporate policies and controls in our international operations;

 

    increased expense related to localization of our services, including language translation and the creation of localized agreements;

 

    potentially adverse tax consequences, including the complexities of foreign value added tax systems, restrictions on the repatriation of earnings and changes in tax rates;

 

    exchange rate fluctuations;

 

    increased expense to comply with foreign laws and legal standards, including laws that regulate pricing and promotion activities, and the import and export of information technology, which can be difficult to monitor and are often subject to change;

 

    increased expense to comply with U.S. laws that apply to foreign operations, including the Foreign Corrupt Practices Act and Office of Foreign Assets Control regulations;

 

    increased expense to comply with U.K. laws that apply to foreign operations, including the U.K. Bribery Act;

 

    longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

 

    increased financial accounting and reporting burdens and complexities;

 

    political, social and economic instability;

 

    terrorist attacks and security concerns in general; and

 

    reduced or varied protection for intellectual property rights.

The occurrence of one or more of these events could negatively affect our international operations and, consequently, have a material adverse effect on our business, financial condition and results of operations. Further, operating in international markets requires significant management attention and financial resources. Due to the additional uncertainties and risks of doing business in foreign jurisdictions, international acquisitions tend to entail risks and require additional oversight and management attention that are typically not attendant to acquisitions made within the United States. In addition, the rate of usage of event technology services in international markets and the pricing of such services may be significantly lower than in the United States. We cannot be certain that the investment and additional resources required to establish, acquire or integrate operations in other countries will produce desired levels of revenue or profitability.

 

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Continued or further unionization of our workforce may increase our costs and work stoppages could damage our business.

Employees in the United States representing 8% of our direct labor costs are represented by unions and covered by collective bargaining agreements. The continued or further unionization of a significantly greater portion of our workforce could increase our overall costs at the affected locations and adversely impact our flexibility to run our business in the most efficient manner to remain competitive or acquire new business. In addition, any significant increase in the number of work stoppages at our various operations could adversely affect our business, financial condition and results of operations.

We may incur significant liability as a result of our participation in multiemployer defined benefit pension plans.

Under some of the collective bargaining agreements to which we are a party, we are obligated to contribute to multiemployer defined benefit pension plans. As a contributing employer to such plans, should we trigger either a “complete” or a “partial withdrawal,” we would be subject to withdrawal liability (or partial withdrawal liability) for our proportionate share of any unfunded vested benefits. In addition, if a multiemployer defined benefit pension plan fails to satisfy the minimum funding standards, we could be liable to increase our contributions to meet minimum funding standards. Also, if a participating employer withdraws from the plan or experiences financial difficulty, including bankruptcy, our obligation could increase. In addition, we have received notices from some of the plans pursuant to which we are a contributing employer that such plans are in critical status. Should we withdraw from these plans or any others in critical status, it would subject us to withdrawal liability, which is discussed in Note 16 to our audited consolidated financial statements included elsewhere in the prospectus. In addition, any increased funding obligations for underfunded multiemployer defined benefit pension plans could have a material adverse effect on our financial condition and results of operations.

Healthcare reform legislation could have an impact on our business.

During 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law in the United States. Certain of the provisions that have increased our healthcare costs include the removal of annual plan limits and the mandate that health plans provide 100% coverage on expanded preventative care. In addition, our healthcare costs could increase as the new legislation and accompanying regulations require us to apply new eligibility rules, which could potentially cover more variable hour employees than we do currently or pay penalty amounts in the event that employees do not elect our offered coverage. While much of the cost of the healthcare legislation enacted has not had an effect yet due to provisions of the legislation being delayed or phased in over time, such changes, once fully effected, could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to periodic litigation and regulatory proceedings, including Fair Labor Standards Act and state wage and hour class action lawsuits, which may adversely affect our business and financial performance.

From time to time, we may be involved in lawsuits and regulatory actions, including class action lawsuits that are brought or threatened against us for alleged violations of the Fair Labor Standards Act and state wage and hour laws. We have been a party to such actions in the past, and an adverse outcome of any such claim in the future could have a material effect on our business, financial condition or results of operations.

 

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Changes in accounting standards, subjective assumptions and estimates used by management related to complex accounting matters could have a material adverse effect on our business, financial condition and results of operations.

U.S. GAAP and related accounting pronouncements, implementation guidance and interpretations with regard to a wide range of matters, such as stock-based compensation, asset impairments, valuation reserves, income taxes and fair value accounting, are highly complex and involve many subjective assumptions, estimates and judgments made by management. Changes in these rules or their interpretations or changes in underlying assumptions, estimates or judgments made by management could have a material adverse effect on our business, financial condition and results of operations. We will also be affected by changes to U.S. GAAP as a result of the convergence with International Financial Reporting Standards.

Our business is contract intensive and may lead to disputes with venue partners or customers.

Our business is contract intensive, and we are party to many contracts with venue partners, hotel chains and customers in the U.S. and international markets. Venue partners generally have the right to audit our contracts, and we periodically review our compliance with contract terms and provisions. If venue partners or customers were to dispute our contract determinations, the resolution of such disputes in a manner adverse to our interests could negatively affect sales and operating results. While we do not believe any reviews, audits or other such matters should result in material adjustments, if a large number of our venue partner or customer arrangements were modified in response to any such matter, it could have a material adverse effect on our business, financial condition or results of operations.

Our business is subject to seasonal and cyclical fluctuations, which may contribute to variation in our financial condition and results of operations.

The event and convention industries are seasonal in nature. The periods during which our venue partners experience higher volumes of events vary from property to property, depending principally upon location and the customer base that they serve. We generally expect our revenue to be lower in the third quarter of each year due to the slower summer meeting season than the other quarters with the second quarter generally being the highest. In addition, the hospitality industry is cyclical and demand generally follows the general economy on a lagged basis. The seasonality and cyclicality of our business and our ability to effectively manage these trends may contribute to fluctuations in our financial condition and results of operations.

Our operations and reputation may be adversely affected by disruptions to or breaches of our information security systems or if our customer data is otherwise compromised.

We are increasingly utilizing information technology systems to enhance the efficiency of our business. We maintain confidential, proprietary and personal information about our potential, current and former customers, employees and other third parties in these systems. Our systems are subject to damage or interruption from power outages, computer or telecommunication failures, computer viruses and catastrophic events. Our systems are also vulnerable to an increasing threat of rapidly evolving cyber-based attacks, including malicious software, attempts to gain unauthorized access to data and other electronic security breaches. The development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. In addition, we provide confidential, proprietary and personal information to third parties when it is necessary to pursue business objectives. While we obtain assurances that these third parties will protect this information, there is also risk the confidentiality of data held by third parties may be compromised. In addition, data and security breaches can also occur as the result of non-technical issues, including intentional or inadvertent breach by our employees or others with whom we have a relationship. For example, in the audit of our 2014 consolidated financial

 

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statements, we identified a material weakness related to the general controls over information systems, including access security controls over financial applications. While we have remediated the material weakness and no material weaknesses were identified in the most recent audit of our consolidated financial statements, any damage to, or compromise or breach of, our systems compromising our, customer or other data could impair our ability to conduct our business. Any such damage to, or compromise or breach of, our systems could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, including litigation and other potential liability, and a loss of confidence in our security measures, which could have a material adverse effect on our business, financial condition and results of operations and our reputation as a brand, business partner or an employer.

Our success will depend on our ability to protect our intellectual property rights.

We rely on a combination of contractual provisions, confidentiality procedures and patent copyright, trademark, service mark and trade secret laws to protect the proprietary aspects of our brands, technology and data. These legal measures afford only limited protection, and competitors or others may gain access to or use our intellectual property and proprietary information. Our success will depend, in part, on preserving our trade secrets and maintaining the security of our data and know-how. Our trade secrets, data and know-how could be subject to unauthorized use, misappropriation, or disclosure to unauthorized parties, despite our efforts to enter into confidentiality agreements with our employees, consultants, venue partners, customers and collaborators who have access to such information. Our trademarks could be challenged, forcing us to re-brand services, resulting in loss of brand recognition and requiring us to devote resources to advertising and marketing new brands. Failure to protect, monitor and control the use of our intellectual property rights could negatively impact our ability to compete and cause us to incur significant expenses. The intellectual property laws and other statutory and contractual arrangements we currently depend upon may not provide sufficient protection in the future to prevent the infringement, use or misappropriation of our trademarks, data, technology and other services, and may not provide an adequate remedy if our intellectual property rights are infringed, misappropriated or otherwise violated. In addition, the growing need for product integration and global data, along with increased competition and technological advances, puts increasing pressure on us to share our intellectual property with others, including venue partners and customers who wish to integrate our services with their systems. Policing unauthorized use of intellectual property rights can be difficult and expensive, and adequate remedies may not be available. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. Any future litigation, regardless of outcome, could result in substantial expense and diversion of resources and management attention and we may not prevail in any such litigation, which could have a material adverse effect on our business, financial condition and results of operations.

We could incur costs as a result of any claim of infringement of another party’s intellectual property rights.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. Companies are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, and third parties may hold patents or have pending patent applications, which could be related to the use of equipment, related software or content in our events. These risks have been amplified by the increase in third parties, which we refer to as non-practicing entities, whose sole primary business is to assert such claims. From time to time, intellectual property suits alleged against us will involve us at the outset of such litigation. Regardless of the merits of any such intellectual property litigation, we may be required to expend management time and financial resources on the defense of such claims, and any adverse outcome of any such claim or the above referenced review could have a material adverse effect on our business, financial condition or results of operations.

 

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Changes in, new interpretations of or changes in the enforcement of the governmental regulatory framework may affect our contracts and contract terms and may reduce our revenue or profits.

A portion of our revenue is derived from business with U.S. federal, state and local governments and agencies. Changes or new interpretations in, or changes in the enforcement of, the statutory or regulatory framework applicable to services provided under government contracts or bidding procedures, including an adverse change in government spending policies or appropriations, budget priorities or revenue levels, could result in fewer new contracts or contract renewals, modifications to the methods we apply to price government contracts, or in contract terms of shorter duration than we have historically experienced. Any of these changes could result in lower revenue or profits than we have historically achieved, which could have an adverse effect on our business, financial condition and results of operations.

Our senior leadership team is critical to our continued success, and the loss of such personnel could have a material adverse effect on our business, financial condition and results of operations.

Our future success substantially depends on the continued service and performance of the members of our senior leadership team. These personnel possess business and technical capabilities that are difficult to replace. If we lose key members of our senior management team, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Indebtedness

We have substantial indebtedness and we may incur additional indebtedness in the future, which may require us to use a substantial portion of our cash flow to service debt and limit our financial and operating flexibility.

We have substantial indebtedness and we may incur additional indebtedness in the future. As of December 31, 2015, after giving effect to this offering and the application of our estimated net proceeds therefrom, we would have had $         million of debt outstanding under our senior secured credit facilities. Our existing and future indebtedness will require interest payments and need to be repaid or refinanced, could require us to divert funds identified for other purposes to service our debt, could result in cash demands and impair our liquidity position and could result in financial risk for us. Diverting funds identified for other purposes for debt service may adversely affect our growth prospects. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we would be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all.

Our level of indebtedness has important consequences to you and your investment in our common stock. For example, our level of indebtedness might:

 

    increase our vulnerability to adverse economic, industry or competitive developments;

 

    require us to use a substantial portion of our cash flow from operations to pay interest and principal on our debt, which would reduce the funds available to us for working capital, capital expenditures and other general corporate purposes;

 

    expose us to the risk of increased interest rates because certain of our borrowings, including and most significantly borrowings under our senior secured credit facilities, are at variable rates of interest;

 

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    limit our ability to pay future dividends;

 

    limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, expansion plans and other investments, which may limit our ability to implement our business strategy;

 

    prevent us from taking advantage of business opportunities as they arise or successfully carrying out our plans to expand our business; and

 

    limit our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to competitors that are less leveraged.

Our business may not generate sufficient cash flow from operations or future borrowings may be unavailable to us in amounts sufficient to enable us to make payments on our indebtedness or to fund our operations. If we are unable to service our debt or repay or refinance our indebtedness when due, it could have a material adverse effect on our business, financial condition and results of operations.

The terms of our existing senior secured credit facilities do, and the terms of any additional debt financing may, restrict our current and future operations, and our debt may be downgraded, which could adversely affect our ability to manage our operations and respond to changes in our business.

Our existing senior secured credit facilities contain, and any additional debt financing we may incur would likely contain, covenants that restrict our operations, including limitations on our ability to grant liens, incur additional debt, pay dividends, redeem our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. A failure by us to comply with the covenants or financial ratios contained in our existing senior secured credit facilities or any additional debt financing we may incur could result in an event of default, which could have a material adverse effect on our business, financial condition and results of operations. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding to be due and payable and exercise other remedies. If the indebtedness under our existing senior secured credit facilities or any additional debt financing we may incur were to be accelerated, it could have a material adverse effect on our business, financial condition and results of operations.

A decrease in the ratings that rating agencies assign to our short or long-term debt may negatively impact our access to the debt capital markets and increase our cost of borrowing, which could have a material adverse effect on our business, financial condition and results of operations.

Despite our high indebtedness level, we still may be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although our existing senior secured credit facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. For example, pursuant to an incremental facility under our existing senior secured credit facilities, we may incur (i) up to $150.0 million of additional debt and (ii) unlimited additional debt, subject to compliance with certain leverage ratios, as described in the credit agreements governing the senior secured credit facilities. If new debt is added to our outstanding debt levels, the risks related to our indebtedness that we will face would increase.

 

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We are a holding company with no operations of our own and depend on our subsidiaries for cash.

As a holding company, most of our assets are held by our direct and indirect subsidiaries and we will primarily rely on dividends and other payments or distributions from our subsidiaries to meet our debt service and other obligations and to enable us to pay dividends, if any. The ability of our subsidiaries to pay dividends or make other payments or distributions to us will depend on their respective operating results and may be restricted by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of dividends or other payments), agreements of those subsidiaries and the terms of any indebtedness we or our subsidiaries have incurred or may incur in the future.

Risks Related to This Offering and Ownership of Our Common Stock

There may not be an active, liquid trading market for our common stock.

Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the New York Stock Exchange or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you purchase. The initial public offering price of shares of our common stock will be determined by negotiation between us and the underwriters and may not be indicative of market prices of our common stock that will prevail following the completion of this offering. The market price of shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of our common stock at or above the initial offering price.

Our share price may change significantly following the offering, and you could lose all or part of your investment as a result.

The trading price of our common stock could be highly volatile and could fluctuate due to a number of factors such as those listed in “—Risks Related to Our Business and Industry” and the following, some of which are beyond our control:

 

    quarterly variations in our results of operations;

 

    results of operations that vary from the expectations of securities analysts and investors;

 

    results of operations that vary from those of our competitors;

 

    changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

 

    announcements by us, our competitors or our venues of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;

 

    announcements by third parties of significant claims or proceedings against us;

 

    future sales of our common stock;

 

    general domestic and international economic conditions; and

 

    unexpected and sudden changes in senior management.

Furthermore, the stock market has experienced extreme volatility that, in some cases, has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance.

 

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In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we are involved in any securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

If we are unable to implement and maintain the effectiveness of our internal control over financial reporting, our investors may lose confidence in the accuracy and completeness of our financial reports, which could adversely affect our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC and the PCAOB, starting with the second annual report that we file with the SEC after the consummation of this offering, our management will be required to report on the effectiveness of our internal control over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to our internal control over financial reporting to conclude such controls are effective. For example, in the audit of our 2014 consolidated financial statements, we identified a material weakness related to the adequacy of the technical accounting knowledge and resources to complete a timely and accurate financial close as well as the existing internal control processes around the review and reconciliation of certain accounts. While we have remediated the material weakness and no material weaknesses were identified in the most recent audit of our consolidated financial statements, we cannot guarantee that we will not have additional material weaknesses in the future. If we identify additional material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investor confidence and our stock price could decline.

Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of New York Stock Exchange rules, and result in a breach of the covenants under our financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect the price of our common stock.

If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.

After the completion of this offering, we will have              shares of common stock outstanding. This number includes              shares of common stock that are being sold in this offering, which may be resold immediately in the public market. If our Sponsors sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly. The perception in the public market that our Sponsors might sell shares of common stock could also depress the market price of our common stock. Our directors, executive officers, Sponsors and substantially all of our other stockholders will be subject to the lock-up agreements described in the “Underwriting” section and are subject to the Rule 144 holding period requirements described in “Shares Eligible for Future Sale—Rule 144.” After these lock-up agreements have expired and holding periods have elapsed,              additional shares will be eligible for sale in the public market. The Sponsors (and certain permitted transferees thereof) will have registration rights with respect to common stock they hold. See “Shares Eligible for Future Sale—Registration Rights.” We also intend to file a registration statement on Form S-8 under the Securities Act of 1933, as amended, or the Securities Act, covering all of the

 

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common stock to be awarded under our 2016 Equity Plan. Once we register these shares, they can be freely sold in the public market upon issuance and vesting, subject to the lock-up agreements described in the “Underwriting” section of this prospectus and contained in the terms of such plans, or unless they are held by “affiliates,” as that term is defined in Rule 144 of the Securities Act.

The market price of shares of our common stock may drop significantly when the restrictions on resale by our existing investors lapse as a result of sales by our stockholders in the market or the perception that such sales could or will occur. Any decline in the price of shares of our common stock could impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

Our Sponsors can significantly influence our business and affairs and may have conflicts of interest with us in the future.

Following the completion of this offering, our Sponsors will collectively own approximately     % of our common stock (or approximately     % if the underwriters exercise their option to purchase additional shares in full). As a result, the Sponsors have the ability to prevent any transaction that requires the approval of stockholders, including the election of directors, mergers and takeover offers, regardless of whether others believe that approval of those matters is in our best interests. In addition, under the Stockholders Agreement that we will adopt in connection with this offering, each of the Sponsors will be entitled to designate between one to three members of our board of directors depending upon their ownership percentage at such time. See “Management—Composition of Our Board of Directors.”

In addition, the Sponsors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. One or more of the Sponsors may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as the Sponsors, or funds controlled by or associated with the Sponsors, continue to own a significant amount of the outstanding shares of our common stock, even if such amount is less than 50%, the Sponsors will continue to be able to strongly influence us. Our amended and restated certificate of incorporation provides that none of the Sponsors or any of their affiliates will have any duty to refrain from (i) engaging in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage or (ii) otherwise competing with us or our affiliates. See “Description of Capital Stock—Corporate Opportunities.”

Anti-takeover provisions in our amended and restated certificate of incorporation and bylaws and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws will include provisions that:

 

    authorize our board of directors to issue, without further action by the stockholders, up to              shares of undesignated preferred stock;

 

    subject to certain exceptions, require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

 

    specify that special meetings of our stockholders can be called only by a majority of our board of directors or the chairman of the board of directors;

 

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    establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

 

    establish that our board of directors is divided into three classes, with each class serving three-year staggered terms;

 

    prohibit cumulative voting in the election of directors;

 

    provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

    allow for the removal of directors only for cause and upon the affirmative vote of the holders of at least 66 23% in voting power of all the then-outstanding common stock entitled to vote thereon, voting together as a single class, if the Sponsors and their affiliates beneficially own, in the aggregate, more than 50% in voting power of our common stock entitled to vote generally in the election of directors; and

 

    certain provisions may be amended only by the affirmative vote of the holders of at least 66 23% in voting power of all the then-outstanding common stock of the Company entitled to vote thereon, voting together as a single class, if the Sponsors and their affiliates beneficially own, in the aggregate, more than 50% in voting power of our common stock entitled to vote generally in the election of directors.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder (any stockholder with 15% or more of our capital stock) for a period of three years following the date on which the stockholder became an “interested” stockholder. However, our amended and restated certificate of incorporation will contain a provision that provides that the Sponsors, or any successor to all or substantially all of the Sponsor’s assets, or any affiliates thereof, or any person or entity to which any of the foregoing stockholders transfers shares of our voting stock (subject to specified exceptions), in each case regardless of the total percentage of our voting stock owned by such stockholder or such person or entity, shall not be deemed an “interested stockholder” and therefore not subject to the restrictions set forth in section 203 of the DGCL.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our amended and restated certificate of incorporation will provide that, with certain limited exceptions, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any stockholder (including any beneficial owner) to bring (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any director or officer owed to us or our stockholders, creditors or other constituents, (iii) any action asserting a claim against us or any of our directors or officers arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or our amended and restated bylaws, or (iv) any action asserting a claim against us or any of our directors or officers governed by the internal affairs doctrine. Any person or

 

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entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

We are a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After completion of this offering, the Sponsors will continue to control a majority of the voting power of all outstanding shares of our common stock. Under New York Stock Exchange corporate governance standards, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

    the requirement that a majority of the board of directors consist of independent directors as defined under the rules of the New York Stock Exchange;

 

    the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions. As a result, we may not have a majority of independent directors, our nominating and corporate governance committee and compensation committee may not consist entirely of independent directors and such committees may not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the New York Stock Exchange.

We will incur increased costs and our management will face increased demands as a result of operating as a listed company.

As a listed company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, our administrative staff will be required to perform additional tasks. For example, in anticipation of becoming a listed company, we will need to adopt additional internal controls and disclosure controls and procedures and bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under applicable securities laws. We will be required to ensure that we have the ability to prepare consolidated financial statements that comply with SEC reporting requirements on a timely basis. We will also be subject to other reporting and corporate governance requirements, including the applicable stock exchange listing standards and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which impose significant compliance obligations upon us.

 

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As a public company, we will be required to commit significant resources and management time and attention to these requirements, which will cause us to incur significant costs and which may place a strain on our systems and resources. As a result, our management’s attention might be diverted from other business concerns. In addition, we might not be successful in implementing these requirements. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act, the Dodd-Frank Act and related regulations implemented by the SEC, and the stock exchanges are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. We are currently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. We also expect that being a listed company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and attract and retain qualified executive officers.

The increased costs associated with operating as a listed company may decrease our net income, and may cause us to reduce costs in other areas of our business or increase the prices of our services to offset the effect of such increased costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.

Our management team currently manages a private company and the transition to managing a public company will present new challenges.

Following the completion of this offering, we will be subject to various regulatory requirements, including those of the SEC and the New York Stock Exchange. These requirements include record keeping, financial reporting and corporate governance rules and regulations. Our management team has limited experience managing a public company and we may be unable to hire, train or retain necessary staff and may be reliant on engaging outside consultants or professionals to overcome our lack of experience or employees. If we are unable to engage outside consultants or are otherwise unable to fulfill our public company obligations, it could have a material adverse effect on our business, financial condition and results of operations.

If securities or industry research analysts do not publish or cease publishing research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, our share price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that securities and industry research analysts publish about us, our industry, our competitors and our business. We do not have any control over these analysts. Our share price and trading volumes could decline if one or more securities or industry analysts downgrade our common stock, issue unfavorable commentary about us, our industry or our business, cease to cover our company or fail to regularly publish reports about us, our industry or our business.

 

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We do not expect to pay any cash dividends for the foreseeable future.

Because we do not expect to pay any cash dividends for the foreseeable future, investors may be forced to sell their shares in order to realize a return on their investment, if any. Any payment of cash dividends will be at the discretion of our board of directors and will depend on our and our subsidiaries’ financial condition, capital requirements, legal requirements, contractual limitations, earnings and other factors. Our ability to pay dividends is restricted by the terms of our senior secured credit facilities and might be restricted by the terms of any indebtedness that we incur in the future. Consequently, you should not rely on dividends in order to receive a return on your investment. See “Dividend Policy.”

If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.

The initial public offering price per share is substantially higher than the pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per share that substantially exceeds the book value of our assets after subtracting the book value of our liabilities. Based on our pro forma net tangible book value as of December 31, 2015 and assuming an offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, you will incur immediate and substantial dilution in the amount of $         per share. See “Dilution.”

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements.” Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:

 

    our failure to retain current venue partners and hotel chains or renew our existing venue partner contracts and hotel chain MSAs;

 

    our failure to increase the number of quality of properties covered by our venue partner contracts and the number of hotel chains for which we are the preferred event technology services provider;

 

    reduced demand for our services at events or reduced attendance at such events due to the widespread adoption of more effective teleconference and virtual meeting technologies;

 

    reluctance by potential venue partners to switch to a new preferred provider of event technology services;

 

    reduced outsourcing of event technology services or use of preferred providers by venues;

 

    damage to our reputation or brand;

 

    competition in the event technology services market;

 

    risks related to potential acquisitions;

 

    risks related to our long cycle to secure new agreements with venues and hotel chains as well as long implementation periods that require significant resource commitments;

 

    our inability to hire and retain sufficient qualified personnel;

 

    our reliance on third-party equipment suppliers;

 

    our reliance on venue partners for billing and collection for event technology services we provide at their venues;

 

    our failure to comply with laws and regulations;

 

    risks related to our business in foreign countries;

 

    contract disputes with venue partners and customers;

 

    disruptions to or breaches of our information security systems;

 

    our substantial indebtedness;

 

    our failure to service our debt or inability to comply with agreements contained in our credit agreements;

 

    volatility and weakness in the capital markets; and

 

    the other factors described in “Risk Factors.”

 

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See “Risk Factors” for a further description of these and other factors. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this prospectus. Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.

 

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ORGANIZATIONAL STRUCTURE

Prior to this offering, PSAV Holdings LLC and its subsidiaries conducted our business. The diagram below reflects our organizational structure prior to the transactions described below and this offering as of December 31, 2015.

 

LOGO

Prior to the completion of this offering, we intend to complete an internal restructuring, which we refer to as the corporate reorganization. Pursuant to the corporate reorganization, the holders of equity interests in PSAV Holdings LLC will become stockholders of PSAV, Inc., the issuer of shares in this offering, which is currently a wholly-owned subsidiary of PSAV Holdings LLC and was incorporated in Delaware on August 11, 2015. PSAV, Inc. has not engaged in any business or other activities except in connection with its formation and in preparation for this offering. In connection with the corporate reorganization, the following steps will occur:

 

    PSAV, Inc. will form a new limited liability company, PSAV Intermediate LLC, as a wholly-owned subsidiary;

 

    PSAV Intermediate Corp., a wholly-owned subsidiary of PSAV Holdings LLC, will merge with and into PSAV Intermediate LLC, with PSAV Intermediate LLC surviving, and in the merger shares of PSAV Intermediate Corp. will be cancelled with PSAV Intermediate LLC becoming an indirect wholly-owned subsidiary of PSAV Holdings LLC;

 

    PSAV, Inc. will effect a stock split of its outstanding shares of common stock; and

 

    PSAV Holdings LLC will merge with and into PSAV, Inc., with PSAV, Inc. surviving, and in the merger Class A Units, Class B Units and Phantom Units will be cancelled and holders of such units will receive shares of common stock of PSAV, Inc.

 

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In connection with the corporate reorganization and this offering, we will adopt the 2016 Equity Plan. The shares of our common stock, some of which will be subject to vesting, received by the holders of Class B Units and Phantom Units in the corporate reorganization will be issued under the 2016 Equity Plan.

The corporate reorganization will not materially affect our operations, which we will continue to conduct through our operating subsidiaries.

The diagram below reflects our organizational structure following the corporate reorganization, this offering and the use of net proceeds therefrom as if each occurred on December 31, 2015.

 

LOGO

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from our sale of             shares of common stock in this offering will be approximately $         million after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering. This assumes an initial public offering price of $         per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus).

We intend to use the net proceeds from this offering to repay borrowings under our second lien credit facility. Our second lien credit facility matures on January 24, 2022. As of December 31, 2015, we had $180.0 million of borrowings outstanding under our second lien credit facility with a current interest rate of 9.25%.

Each $1.00 increase (decrease) in the public offering price per share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, by $         million (assuming no exercise of the underwriters’ option to purchase additional shares).

We will not receive any proceeds from the sale of shares by the selling stockholders.

 

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DIVIDEND POLICY

After this offering, we intend to retain all available funds and any future earnings to reduce debt and fund the development and growth of our business, and we do not anticipate paying any dividends on our common stock. However, in the future, subject to the factors described below and our future liquidity and capitalization, we may change this policy and choose to pay dividends. We are a holding company that does not conduct any business operations of our own. As a result, our ability to pay cash dividends on our common stock, if any, will be dependent upon cash dividends and distributions and other transfers from our subsidiaries. The amounts available to us to pay cash dividends are restricted by our credit facilities and may be further restricted by any future indebtedness we incur. The declaration and payment of dividends also is subject to the discretion of our board of directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors.

In addition, under Delaware law, our board of directors may declare dividends only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal year.

Any future determination to pay dividends will be at the discretion of our board of directors and will take into account:

 

    restrictions in our credit facilities;

 

    general economic and business conditions;

 

    our financial condition and results of operations;

 

    our capital requirements;

 

    the ability of our operating subsidiaries to pay dividends and make distributions to us; and

 

    such other factors as our board of directors may deem relevant.

In May 2015, we used the proceeds from incremental loans under our first lien credit facility to pay a distribution of $149.1 million in the aggregate to the members of PSAV Holdings LLC, of which $2.3 million was a tax distribution to holders of Class B Units. In December 2015, we used the remaining $25.0 million of proceeds from the incremental loans under our first lien credit facility to pay a distribution to Class A unit holders.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2015:

 

    on an actual basis; and

 

    on a pro forma basis to give effect to the corporate reorganization as more fully described in “Organizational Structure” and the sale of                  shares of our common stock in this offering, based upon the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds received by us from this offering as described under “Use of Proceeds.”

This table should be read in conjunction with “Organizational Structure,” “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Condensed Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Capital Stock” and the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.

 

     As of December 31, 2015  
         Actual             Pro Forma      
     (unaudited; in thousands, except
share and per share data)
 

Cash and cash equivalents

   $ 40,895      $                
  

 

 

   

 

 

 

Debt:

    

Total long-term debt, including current portion, net of unamortized loan discount and deferred financing costs of $26,047 and          on a pro forma basis

   $ 863,489      $     
  

 

 

   

 

 

 

Members’ equity:

    

Class A Units, 270,159 units issued and outstanding, actual; no units issued and outstanding, pro forma

     83,019     

Class B Units, 15,371 units issued and outstanding; no units issued and outstanding, pro forma

     (1,688  

Accumulated other comprehensive loss

     (4,194  
  

 

 

   

 

 

 

Total members’ equity

     77,137     

Stockholders’ equity:

    

Common stock, $0.01 par value per share, no shares authorized, issued and outstanding, actual;          shares authorized and shares issued and outstanding, pro forma

     —       

Preferred stock, $0.01 par value per share, no shares authorized, issued and outstanding, actual and pro forma

     —       

Additional paid-in capital

     —       

Retained earnings

     —       

Accumulated other comprehensive loss

     —       
  

 

 

   

 

 

 

Total stockholders’ equity

     —       
  

 

 

   

 

 

 

Total capitalization

   $ 940,626     
  

 

 

   

 

 

 

 

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DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after the corporate reorganization described in “Organizational Structure” and this offering. Dilution results from the fact that the per share offering price of the common stock is substantially in excess of the book value per share attributable to our existing investors.

Our pro forma net tangible book value as of December 31, 2015 would have been approximately $        , or $         per share of our common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, and pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of common stock outstanding, in each case, after giving effect to the corporate reorganization but not this offering.

After giving effect to (i) the completion of the corporate reorganization more fully described in “Organizational Structure,” (ii) the sale of                  shares of common stock in this offering at the assumed initial public offering price of $         per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) and (iii) the application of the net proceeds from this offering, our pro forma net tangible book value would have been $        , or $         per share. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing investors and an immediate dilution in pro forma net tangible book value of $         per share to new investors.

The following table illustrates this dilution on a per share of common stock basis:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value per share as of December 31, 2015

   $                   

Increase in pro forma net tangible book value per share attributable to new investors

     
  

 

 

    

Pro forma net tangible book value per share after this offering

     
     

 

 

 

Dilution in pro forma net tangible book value per share to new investors

      $            
     

 

 

 

The following table summarizes, on a pro forma basis as of December 31, 2015, after giving effect to the corporate reorganization and this offering, the total number of shares of common stock purchased from us, the total cash consideration paid to us and the average price per share paid by our existing investors and by new investors purchasing shares in this offering.

 

     Shares Purchased     Total Consideration     Average
Price

Per Share
 
     Number    Percent     Amount      Percent    

Existing stockholders

                   $                                 $                

New investors

             $                
  

 

  

 

 

   

 

 

    

 

 

   

Total

        100.0   $                      100.0  
  

 

  

 

 

   

 

 

    

 

 

   

If the underwriters were to fully exercise their option to purchase             additional shares of our common stock, the percentage of shares of our common stock held by existing investors would be     %, and the percentage of shares of our common stock held by new investors would be     %.

The above discussion and tables are based on the number of shares outstanding at December 31, 2015 on a pro forma basis. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma condensed consolidated financial statements of PSAV, Inc. reflect the historical financial statements of PSAV Holdings LLC on a pro forma basis to give effect to the corporate reorganization, the Distribution (as defined below), this offering and the use of proceeds therefrom as described under “Use of Proceeds.”

Corporate Reorganization

Prior to the completion of this offering, a series of transactions will occur pursuant to which holders of equity interests in PSAV Holdings LLC will become holders of common stock in PSAV, Inc., the issuer of shares in this offering. See “Organizational Structure.”

Distribution

In May 2015, we used a portion of the proceeds from $180.0 million of incremental borrowings under our first lien credit agreement to make a $149.1 million distribution to the members of PSAV Holdings LLC, with $2.3 million distributed to holders of Class B Units as a tax distribution and $146.8 million distributed to holders of Class A Units. In December 2015, we used the remaining $25.0 million of proceeds to pay a distribution to holders of Class A Units. We refer to the May and December distributions as the “Distribution.” The $2.3 million distributed to holders of Class B Units in May 2015 is treated as an advance against future distributions to Class B Units that exceed the distribution threshold for those units.

The Offering

For purposes of the unaudited pro forma condensed consolidated financial statements, the “Offering” is defined as the issuance and sale to the public of common stock of PSAV, Inc. based upon the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds from such issuance as described in “Use of Proceeds.”

The pro forma adjustments and the assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed consolidated financial statements.

The unaudited pro forma condensed consolidated balance sheet of PSAV, Inc. is based on the historical consolidated balance sheet of PSAV Holdings LLC as of December 31, 2015 and includes pro forma adjustments to give effect to the corporate reorganization and the Offering as if they occurred on December 31, 2015.

The unaudited pro forma condensed consolidated statement of operations of PSAV, Inc. for the year ended December 31, 2015 is based on the historical consolidated statement of operations of PSAV Holdings LLC and includes pro forma adjustments to give effect to the corporate reorganization, the Distribution and the Offering as if they occurred on January 1, 2015.

The pro forma adjustments to the historical consolidated financial statements are based on currently available information and certain estimates and assumptions and should not be relied upon as being indicative of our results of operations had the corporate reorganization, the Distribution or the Offering occurred on January 1, 2015 or December 31, 2015, as applicable. Management believes that the assumptions used to prepare the pro forma adjustments provide a reasonable basis for presenting

 

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the significant effects of the corporate reorganization and the Offering as currently contemplated and that the unaudited pro forma adjustments are factually supportable, give appropriate effect to the expected impact of events that are directly attributable to the corporate reorganization and the Offering, and reflect those items expected to have a continuing impact on PSAV, Inc.

The unaudited pro forma consolidated financial statements should be read in conjunction with “Organizational Structure,” “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Capitalization” and the financial statements and notes thereto appearing elsewhere in this prospectus.

 

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PSAV, Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

December 31, 2015

 

     PSAV Holdings
LLC
December 31,
2015
    Corporate
Reorganization
and
Offering
Adjustments
    PSAV, Inc.
Pro Forma
December 31,
2015
     (in thousands, except unit, share and per share
amounts)

Assets

      

Current assets:

      

Cash and cash equivalents

   $ 40,895       

Trade accounts receivable, net of allowance for doubtful accounts of $1,646

     103,420       

Deferred tax assets

     15,442       

Prepaid expenses

     13,600       

Income taxes receivable

    
10,536
  
   

Other current assets

     841       
  

 

 

   

 

 

   

 

Total current assets

     184,734       

Property and equipment, net

     118,786       

Goodwill

     385,948       

Trade names, net

     159,958       

Customer relationships, net

     53,561       

Venue contracts, net

     295,606       

Other intangible assets, net

     3,000       

Venue incentives

     31,850       

Other assets

     1,725       
  

 

 

   

 

 

   

 

Total assets

   $ 1,235,168       
  

 

 

   

 

 

   

 

Liabilities and members’/stockholders’ equity

      

Current liabilities:

      

Current portion of long-term debt

   $ 7,218                     (a)   

Trade accounts payable

     22,094       

Accrued expenses

     91,792       
  

 

 

   

 

 

   

 

Total current liabilities

     121,104       

Long-term debt

     856,271                     (a)   

Deferred tax liabilities

     167,271       

Other liabilities

     13,385       
  

 

 

   

 

 

   

 

Total liabilities

     1,158,031       

Members’ equity:

      

Class A Units, 270,159 units issued and outstanding

     83,019                     (b)   

Class B Units, 15,371 units issued and outstanding

     (1,688                  (b)   

Accumulated other comprehensive loss

     (4,194                  (b)   
  

 

 

   

 

 

   

 

Total members’ equity

     77,137       

Stockholders’ equity:

      

Common stock, $0.01 par value per share, no shares authorized issued and outstanding, actual;          shares issued and outstanding, pro forma

                         (a)(b)   

Preferred stock, $0.01 par value per share, no shares authorized issued and outstanding, actual, pro forma

      

Additional paid-in capital

                         (b)   

Retained earnings

                         (b)   

Accumulated other comprehensive loss

                    (b)   
  

 

 

   

 

 

   

 

Total stockholders’ equity

           
  

 

 

   

 

 

   

 

Total liabilities and members’/stockholders’ equity

   $ 1,235,168       
  

 

 

   

 

 

   

 

 

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PSAV, Inc.

Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet

 

(a) Represents the sale of              shares of our common stock in this offering, based upon the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds to repay long-term debt. See “Use of Proceeds.”
(b) Represents the change in equity accounts to reflect the corporate reorganization, including the shares of common stock of PSAV, Inc. issued to holders of Class A Units, in exchange for their interests in PSAV Holdings LLC. Additionally, this adjustment reflects shares of unrestricted common stock issued to holders of Class B Units and Phantom Units, in exchange for their interests in PSAV Holdings LLC.

 

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PSAV, Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

Year Ended December 31, 2015

 

     PSAV Holdings
LLC
Year Ended
December 31,
2015
    Corporate
Reorganization,
Distribution

and
Offering
Adjustments
    PSAV, Inc.
Pro Forma
Year Ended
December 31,
2015
 
    

(in thousands, except share

and per share amounts)

 

Statement of Operations Data:

      

Revenue

   $ 1,487,170      $                   $                

Cost of revenue

     (1,265,083    
  

 

 

   

 

 

   

 

 

 

Gross profit

     222,087       

Operating expenses:

      

Selling, general, and administrative expenses

     133,671                     (a)   

Acquisition-related expenses

     2,076       

Depreciation

     6,853       

Amortization of intangibles

     26,672       
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     169,272       
  

 

 

   

 

 

   

 

 

 

Income from operations

     52,815       

Other expense, net

     (4,629    

Interest expense, net

     (51,024                  (b)   
  

 

 

   

 

 

   

 

 

 

Loss before tax expense

     (2,838    

Income tax expense

     (2,963                  (c)   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (5,801    
  

 

 

   

 

 

   

 

 

 

Pro forma basic and diluted net loss per common share(d)

       $     

Pro forma weighted average common shares outstanding – basic and diluted(d)

      

 

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PSAV, Inc.

Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations

 

(a) Additional equity-based compensation expense related to unvested restricted common stock that will be issued to holders of Class B Units and Phantom Units in connection with the corporate reorganization. Additionally, we expect to record equity-based compensation expense of approximately $         related to Class B Units and Phantom Units that vest immediately in connection with the corporate reorganization. As the impact of this expense is non-recurring, it is excluded from the unaudited pro forma consolidated statement of operations.
(b) Additional interest expense for the period from January 1, 2015 through May 17, 2015, related to the incremental borrowings under our first lien credit facility incurred in connection with the distribution on May 18, 2015, offset by the elimination of interest expense on $         of     % borrowings under our second lien credit facility to be repaid from the proceeds of the Offering.
(c) Reduction of federal income taxes related to foregoing adjustments based upon the statutory rate of 35%. The corporate reorganization does not result in pro forma adjustments to income taxes. Although PSAV Holdings LLC was organized as a limited liability company, which is a pass-through entity for federal and state income tax purposes, we conduct our business through subsidiaries that are subject to income taxes in both the United States and numerous foreign jurisdictions.
(d) Unaudited pro forma net loss per share and weighted average share information gives effect to the corporate reorganization, the Distribution and the Offering.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected historical financial data for the periods and as of the dates indicated. The periods prior to and including January 24, 2014, the date of the Sponsors Acquisition, are referred to in the following table as “Predecessor,” and all periods after such date are referred to in the following table as “Successor.” The consolidated financial statements for all Successor periods are not comparable to those of the Predecessor periods.

We derived the consolidated statement of operations and other data for the year ended December 31, 2013, the period from January 1, 2014 through January 24, 2014, the period from January 25, 2014 through December 31, 2014 and the year ended December 31, 2015 and the balance sheet data as of December 31, 2014 and 2015 from our audited consolidated financial statements contained elsewhere in this prospectus. We derived the consolidated statement of operations data for the year ended December 31, 2012 and the consolidated balance sheet data as of December 31, 2013 from our audited consolidated financial statements that are not included in this prospectus. We derived the consolidated statement of operations data for the year ended December 31, 2011 and the consolidated balance sheet data as of December 31, 2011 and 2012 from our unaudited consolidated financial statements that are not included in this prospectus.

Our historical results are not necessarily indicative of future operating results. You should read the information set forth below in conjunction with “Unaudited Pro Forma Condensed Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto contained elsewhere in this prospectus.

 

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           Twelve Months
Ended
December 31, 2014
       
     Predecessor     Predecessor          Successor     Successor  
     Year Ended December 31,     January 1,
through

January 24,
2014
         January 25,
through

December 31,
2014
    Year
Ended

December 31,

2015
 
     2011     2012     2013          
     (dollars in thousands, except per share amounts)  

Statement of Operations Data:

                

Revenue

   $ 645,469      $ 724,848      $ 1,096,374      $ 75,622          $ 1,188,283      $ 1,487,170   

Income (loss) from operations

     (3,758     18,507        53,998        (33,960         33,755        52,815   

Income (loss) before income taxes

     (18,164     (196     14,576        (36,424         (10,673     (2,838

Net income (loss)

     (19,025     9,703        17,596        (25,921         (10,566     (5,801

Basic net income (loss) per common share

     (5,543.41     2,814.10        2,462.42        (7,628.85                  

Diluted net income (loss) per common share

     (5,543.41     2,793.84        2,462.42        (7,628.85                  

Pro forma basic and diluted net loss per common share

                                    
 

Statement of Cash Flows Data:

                

Net cash provided by (used in):

                

Operating activities

   $ 27,373      $ 57,431      $ 51,330      $ (2,018       $ 46,271      $ 62,699   

Investing activities

     (28,910     (304,596     (77,219     (4,268         (911,732     (105,762

Financing activities

     (2,250     232,693        35,750                   935,071        17,200   
 

Other Financial Data:

                

Capital expenditures

   $ 29,105      $ 29,354      $ 36,506      $ 4,268          $ 34,130      $ 61,869   

Venue incentive payments

     6,754        4,578        6,361        99            15,542        22,777   

Adjusted EBITDA(1)

     53,386        72,467        130,381        7,892            149,047        174,511   

Adjusted EBITDA margin(1)

     8.3     10.0     11.9     10.4         12.5     11.7
 

Operating Data:

                

Domestic:

                

Revenue

     558,270        631,105        991,682        70,240            1,087,737        1,350,008   

Adjusted EBITDA(1)

     45,664        62,933        118,618        7,280            138,594        159,750   

Venue count

     574        947        1,010        1,012            995        1,055   
 

International:

                

Revenue

     87,199        93,743        104,692        5,382            100,546        137,162   

Adjusted EBITDA(1)

     7,722        9,534        11,763        612            10,453        14,761   

Venue count

     241        234        233        231            221        269   

 

     Predecessor            Successor  
     December 31,     

 

   December 31,
2014
     December 31,
2015
 
     2011     2012      2013              
     (in thousands)  

Balance Sheet Data:

                  

Cash and cash equivalents

   $ 28,316      $ 14,027       $ 23,733            $ 68,818       $ 40,895   

Total assets

     292,788        571,847         642,283              1,195,857         1,235,168   

Long-term debt (including current portion)

     293,976        429,064         468,842              668,267         863,489   

Total liabilities

     368,741        535,730         590,774              937,089         1,158,031   

Total equity (deficit)

     (75,953     36,117         51,509              258,768         77,137   

 

(1)

Adjusted EBITDA represents net income before interest expense, income taxes, depreciation, amortization of intangibles, transaction-related expenses, long-term incentive plan payments, gain or loss on disposal of assets, gains or losses on foreign currency transactions, changes in the fair value of our interest rate caps, amortization of venue incentives, including the expense impact of certain venue incentive payments for which deferred expense recognition was not applicable under U.S. GAAP, management fees paid to our Sponsors, equity-based compensation expense, executive severance and certain consulting and professional fee costs. Certain of the arrangements with venue operators to secure the right to be the exclusive on-site provider of event technology services contain up-front incentive payments which are not deferred over the contract term as they do not contain a contractual requirement to repay a ratable portion of the incentive. Management excludes these incentive payments from the calculation of Adjusted EBITDA as they are expensed at the beginning of the contract period and are therefore not

 

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  indicative of the ongoing operations. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of revenue. Management believes Adjusted EBITDA and Adjusted EBITDA margin are useful because they allow management to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods, capital structure, investments in securing and renewing venue relationships or other items that we believe are not indicative of our ongoing operating performance. In addition, the determination of Adjusted EBITDA is consistent with the definition of a similar measure in our credit agreements other than pro forma adjustments for acquisitions and certain forward-looking adjustments permitted by the credit agreements but not considered by management in evaluating our performance using Adjusted EBITDA.

Adjusted EBITDA is a “non-GAAP financial measure” as defined under the rules of the SEC. Our presentation of Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to income (loss) from operations, net income (loss), earnings per share or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or operating cash flows or as measures of liquidity. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by these items. Adjusted EBITDA is included in this prospectus because it is a key metric used by management to assess our operating performance.

Management believes the inclusion of Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance. Although Adjusted EBITDA is not necessarily a measure of liquidity or our ability to fund our operations, we understand that it is frequently used by securities analysts, investors and other interested parties as a supplemental measure of financial performance.

Adjusted EBITDA has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

Adjusted EBITDA:

 

    does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

 

    does not reflect our cash expenditures for venue incentives or the amortization of those venue incentive payments;

 

    although depreciation and amortization of intangibles are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

 

    does not reflect the costs of acquisitions of businesses or other capital market transactions;

 

    does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

 

    does not reflect our income tax expense or the cash requirements to pay our income taxes;

 

    does not reflect changes in, or cash requirements for, our working capital needs;

 

    does not reflect the cash requirements for other excluded items;

 

    does not reflect the impact of equity-based compensation upon our operations; and

 

    may not be consistent with how other companies in our industry calculate Adjusted EBITDA.

In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation.

 

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The following table reconciles net income (loss) to Adjusted EBITDA for the periods presented:

 

          Twelve Months
Ended
December 31, 2014
       
    Predecessor     Predecessor          Successor     Successor  
    Year Ended December 31,     January 1,
through

January 24,

2014
         January 25,
through

December 31,
2014
    Year
Ended

December 31,

2015
 
    2011     2012     2013          
    (in thousands)  

Net income (loss)

  $ (19,025   $ 9,703      $ 17,596      $ (25,921       $ (10,566   $ (5,801

Income tax (benefit) expense

    862        (9,899     (3,020     (10,503         (107     2,963   

Interest expense, net

    13,453        20,011        40,700        2,830            40,536        51,024   

Depreciation and amortization of intangibles

    39,971        30,174        47,502        3,222            71,950        84,541   

Transaction-related expenses(a)

           4,004        12,004        14,243            20,410        3,590   

Long-term incentive plan payments(b)

           6,850               18,021            42          

Loss on disposal of assets

    455        1,695        2,052        127            2,918        3,164   

Foreign currency transactions (gain)/loss(c)

    954        (1,308     (1,278     (366         2,075        2,659   

Changes in fair value of interest rate caps(d)

                                    1,817        1,350   

Amortization of venue incentives(e)

    8,366        8,623        9,318        705            8,306        8,420   

Management fee(f)

                                    1,405        1,500   

Equity-based compensation expense(g)

                         5,365            299        326   

Severance expense(h)

    5,934        978        2,334        163            798        2,331   

Consulting fees and other(i)

    2,416        1,636        3,173        6            9,164        18,444   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Adjusted EBITDA

  $ 53,386      $ 72,467      $ 130,381      $ 7,892          $ 149,047      $ 174,511   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

 

(a) Expenses incurred in connection with acquisitions, including the Sponsors Acquisition, such as pre-acquisition professional fees and costs to integrate these businesses.
(b) Expenses associated with our long-term incentive plans for certain members of management paid in connection with the acquisition of Swank in 2012 and the Sponsors Acquisition in 2014.
(c) Gains and losses on transactions settled in foreign currencies.
(d) Refer to Note 11 and Note 12 to our audited consolidated financial statements included elsewhere in this prospectus for further information on our interest rate caps.
(e) Amortization of incentive payments made to venues over the term of related agreements, including the expense impact of $4.1 million for the twelve months ended December 31, 2014 and $2.7 million for the year ended December 31, 2015 in venue incentive payments for which deferred expense recognition was not applicable under U.S. GAAP.
(f) Annual management fee paid to our Sponsors.
(g) For the period from January 1, 2014 through January 24, 2014, relates to distributions received on equity-based awards in connection with the Sponsors Acquisition.
(h) Severance expense related to employees terminated subsequent to acquisitions.
(i) Consulting fees and other related to interim management and strategic initiatives. For 2011 through 2014, includes costs related to an insurance policy purchased by the Predecessor.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We conduct business through PSAV Holdings LLC and its subsidiaries and, except as indicated, this discussion and analysis does not give effect to the corporate reorganization. See “Organizational Structure.” Prior to January 25, 2014, we conducted business through AVSC Holding Corp. See “—Basis of Presentation.” As a result of both of the foregoing changes, our historical results of operations may not be comparable and may not be indicative of our future results of operations. In addition, this discussion and analysis contains forward-looking statements regarding the industry outlook, our expectations for the performance of our business, our liquidity and capital resources and the other non-historical statements. These forward-looking statements are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in “Risk Factors” and “Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by these forward-looking statements as a result of various factors, including those set forth under “Risk Factors,” “Forward-Looking Statements” and elsewhere in this prospectus. You should read the following discussion and analysis of our financial condition and results of operations together with the sections entitled “Summary—Summary Historical Consolidated Financial and Other Data,” “Risk Factors,” “Forward-Looking Statements,” “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Condensed Consolidated Financial Statements” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.

Business Overview

We are the event technology provider of choice at leading hotels, resorts and convention centers. Our business model is based on long-term partnerships with these venues, which establish us as the exclusive on-site provider of event technology services. Our customers, including corporations, event organizers, trade associations and meeting planners, hire us primarily through our on-site presence at venues to plan and execute their events. We have built a premier brand based on our comprehensive service offerings, strong track record of customer service, broad geographic footprint and on-site employee service model. We are the exclusive on-site provider to over 1,300 venues and support approximately 1.5 million meetings each year. (Note that a meeting represents individual rooms or event spaces where we provide event technology services. A single customer event may have multiple rooms and thus consist of multiple meetings.)

We offer our customers a comprehensive set of event technology solutions to address the entire scope of their events from planning to execution. The rising technological complexity and growing importance of meetings and events enhances the importance of the relationships between the customers holding an event and the venues and service providers executing the event. Our sales and production teams work with customers directly to identify key messages and goals for an event and develop ways to convey those messages in a creative and compelling fashion, leveraging our technical expertise. During the event, our technicians ensure the services are effectively, professionally and reliably delivered.

We have experienced significant growth from the year ended December 31, 2011 to the year ended December 31, 2015. See “—Basis of Presentation” and “—Results of Operations.”

 

    Revenue increased from $645.5 million to $1,487.2 million, a CAGR of 23.2%, and our same venue revenue increased by an average of 10.6% annually over the same period;

 

    Adjusted EBITDA increased from $53.4 million to $174.5 million, a CAGR of 34.5%, and Adjusted EBITDA Margin increased from 8.3% to 11.7%;

 

    Net loss improved from $19.0 million to $5.8 million; and

 

    Venue count increased from 815 as of December 31, 2011 to 1,324 as of December 31, 2015.

 

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Our History

Through our focus on innovation and customer service, we have evolved from a small, regionally-based provider of audiovisual services to a leading global event technology services provider. Initially focused on U.S. hotel venues, we started developing relationships with venues at a time when most properties still chose to provide their own, in-house audiovisual services to their customers. By the 1990s, as events and the associated technology needs grew increasingly complex, we observed that more U.S. hotels began outsourcing event technology services, bringing third-party providers on-site to work with guests directly regarding their need for specialized technological expertise. Over the last decade, this trend has accelerated and broadened to include other venues such as convention centers, conference centers and sports stadiums. We anticipated this outsourcing trend and began establishing relationships with leading hotel chains at the corporate level. These relationships served as an endorsement of our brand and provided us access to their venues which helped fuel our growth.

In addition to our core growth, we have continued to grow our business through strategic acquisitions and through geographic expansion. Our largest acquisition was Swank in November 2012, and we have completed four more acquisitions since 2013 that have broadened our portfolio of services and increased our density in key markets. See “—Our Recent Acquisitions.” More recently, we have focused on building our geographic footprint internationally. We continue to leverage our strong relationships with our leading international hotel chain partners in Canada, Mexico, Europe and the Middle East.

On January 24, 2014, affiliates of The Goldman Sachs Group, Inc. and Olympus Partners, members of management and other investors formed PSAV Holdings LLC, which in turn acquired 100% of the voting equity interests in our wholly-owned subsidiary AVSC Holding Corp. for $877.6 million. We refer to the affiliates of The Goldman Sachs Group, Inc. and Olympus Partners collectively as our “Sponsors” and the foregoing acquisition as the “Sponsors Acquisition.” The Sponsors Acquisition was financed in part by $269.4 million of equity investments from the Sponsors, management and other investors. We also entered into debt agreements totaling $685.0 million and repaid AVSC Holding Corp.’s outstanding debt of $492.1 million.

Factors Affecting Our Business

Hotel Group RevPAR Performance

In the United States, meeting and event activity historically has been highly correlated with the hospitality industry metric Revenue per Available Room (“RevPAR”) and Group Revenue per Available Room (“Group RevPAR”), which are calculated by STR and PKF. STR is an independent, third-party service that collects and compiles the data used to calculate RevPAR and Group RevPAR and PKF is an independent, third-party service that collects and compiles historical data used to calculate RevPAR. Whereas RevPAR is a total industry metric, Group RevPAR measures total guest hotel room revenue generated by group bookings (blocks of guest hotel rooms sold simultaneously in a group of ten or more rooms), divided by total number of available guest hotel rooms. Because meetings and events generally require lodging for their participants, event activity typically correlates with Group RevPAR at nearby hotels, regardless of whether the events themselves are held on-site at hotels or at other nearby venues. As we provide event technology services primarily in hotels in the luxury and upper upscale segments, we refer to Group RevPAR for hotels in these segments as they more closely align with our business.

Within the United States, RevPAR has grown on average by 5.1% annually since 1970 according to PKF. Group RevPAR is a newer industry metric and represents a segment of the RevPAR performance, but tracks closely to overall RevPAR. Since 1970, RevPAR has only decreased in times

 

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of significant downturns in travel such as after September 11, 2001 and during the global financial crisis that began in 2008. More recently, both RevPAR and Group RevPAR have demonstrated strong growth in the rebound from the financial crisis, with overall RevPAR growing at a CAGR of 9.3% since 2010. Looking ahead, RevPAR for luxury and upper upscale hotels is predicted to grow at 5.0% in 2016, according to STR data. Our revenue historically has been correlated with Group RevPAR and our same venue revenue growth has exceeded Group RevPAR growth for each of the past six years as we have increased average revenue per event and expanded the services we offer through our venues.

Master Service and Venue Agreements

We enter into MSAs with hotel chain owners, operators or franchises, which provide the framework (including commission rates, incentives and other key terms) for individual property level agreements with owned, managed and franchised venues. During 2014, we renewed MSAs with four of our largest hotel chain partners and corresponding agreements with their related venues. Due in large part to these renewals, approximately 55% of 2015 domestic revenue was generated in venues with contracts that have expirations in 2019 or later.

We may pay incentives to venues in connection with the execution of new contracts or renewals. The incentives typically represent up-front cash payments, costs for capital equipment or installation services provided to venues which generally provide us with the right to be the exclusive on-site provider of event technology services and are deferred and amortized over the life of the contract. Incentives paid in connection with executing these and other agreements for the year ended December 31, 2015, the period from January 25, 2014 through December 31, 2014, the period from January 1, 2014 through January 24, 2014 and the year ended December 31, 2013 were $22.8 million, $15.5 million, $0.1 million and $6.4 million, respectively. We also made additional incentive payments totaling $2.7 million and $4.1 million for the year ended December 31, 2015 and the period from January 25, 2014 through December 31, 2014, respectively, for which deferred expense recognition was not applicable under U.S. generally accepted accounting principles (“U.S. GAAP”) as these incentive payments did not contain a contractual requirement for the venue operators to repay a ratable portion of the up-front cash payment. The level of incentives track with our five to six year MSA renewal cycle, which peaked in 2014 and the first half of 2015. As such, we expect our levels of incentives over the next several years to return to historic levels as a percentage of our revenue. See “—Basis of Presentation” below.

General Economic Conditions

Because a significant portion of our revenue is derived from corporate meetings and events, our business may also be more generally impacted by global economic conditions, particularly economic conditions in the United States, that impact these corporations. While we believe our diverse customer base limits our exposure to any particular industry or geography, global economic conditions may impact overall levels of corporate spending, which can directly affect our results of operations.

Unemployment

Employment levels can impact our ability to recruit the necessary talent to staff our venues. When the employment market is strong, with unemployment at low levels, corporations may raise wages and expand the geographic scope of their recruitment efforts resulting in higher labor costs.

Globalization

Our ability to grow our business globally is impacted by both our venue partners’ continued expansion into new markets as well as the international continuation of the trends towards outsourcing event technology services that started in the United States.

 

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Outsourcing

The ability to grow our business is impacted by our continued ability to enter into contracts with new venue partners, which is partially impacted by the continued trend of venues electing to outsource event technology services and bring third-party providers on-site to manage event technology services directly with customers.

Our Segments

We operate our business through two segments: Domestic and International. They are organized based on the geographic location of the operations and both segments provide event technology services.

 

    Domestic: Operates in the United States and Puerto Rico and is the preferred provider of event technology services to customers at over 1,000 venues in the geographies.

 

    International: Operates in Canada, Mexico, the Caribbean, Europe and the Middle East, in addition to providing non-venue based services in Asia, where we are the preferred provider of event technology services to customers in nearly 300 venues.

These segments are based on the geographic markets we serve, our management structure and the financial information that is reviewed by the chief operating decision maker in deciding how to allocate resources and assess performance.

 

            Twelve Months Ended
December 31, 2014
        
     Predecessor      Predecessor            Successor      Successor  
     Year Ended
December 31,

2013
     January 1,
through
January 24,

2014
           January 25,
through
December 31,

2014
     Year Ended
December 31,

2015
 
                
     (in thousands)  

Domestic:

                

Revenue

   $ 991,682       $ 70,240            $ 1,087,737       $ 1,350,008   

Adjusted EBITDA

     118,618         7,280              138,594         159,750   
 

International:

                

Revenue

     104,692         5,382              100,546         137,162   

Adjusted EBITDA

     11,763         612              10,453         14,761   

How We Evaluate Our Business

In addition to revenue, our management uses a variety of financial and operational metrics to analyze our performance.

We evaluate the performance of each segment and the performance of our business as a whole based on revenue, same venue revenue growth, gross profit and gross profit margin, Adjusted EBITDA and Adjusted EBITDA Margin and venue count. We view these metrics as important factors in evaluating our profitability and growth, and we review these measurements frequently to analyze trends and make decisions.

Same Venue Revenue Growth

We calculate the revenue of our venues on a comparable basis versus the prior period in order to help measure our performance excluding the impact of new venues and acquisitions as well as to help

 

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benchmark our performance against Group RevPAR growth. We define same venues as locations where we have been the exclusive on-site provider for at least 13 months. A new location or a location from an acquisition is not included in same venue revenue until the 13th month post-opening or acquisition. Locations that are closed (either permanently due to the venue closing or loss of the contract or for three or more months for renovations) are removed from same venue revenue from the month of closure (and the corresponding period of the prior year). Revenue from non-venue based services is not included in this metric.

Gross Profit and Gross Profit Margin

Gross profit (revenue less cost of revenue) and gross profit margin (gross profit as a percentage of revenue) are impacted by a number of factors, including those noted below for revenue and cost of revenue as well as mix of services provided during the period.

Adjusted EBITDA and Adjusted EBITDA Margin

We define EBITDA as net income (loss) before interest expense, income tax expense, depreciation and amortization. We define Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation, amortization of intangibles, transaction-related expenses, long-term incentive plan payments, gain or loss on disposal of assets, gains or losses on foreign currency transactions, changes in the fair value of our interest rate caps, amortization of venue incentives, including the expense impact of certain venue incentive payments for which deferred expense recognition not applicable under U.S. GAAP, management fees paid to our Sponsors, equity-based compensation expense, executive severance and certain consulting and professional fee costs. Certain of the arrangements with venue operators to secure the right to be the exclusive on-site provider of event technology services contain up-front incentive payments which are not deferred over the contract term as they do not contain a contractual requirement to repay a ratable portion of the incentive. Management excludes these incentive payments from the calculation of Adjusted EBITDA as they are expensed at the beginning of the contract period and are therefore not indicative of the ongoing operations. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of revenue. Management believes Adjusted EBITDA and Adjusted EBITDA Margin are useful because they allow management to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods, capital structure, investments in securing and renewing venue relationships or other items that we believe are not indicative of our ongoing operating performance. In addition, the determination of Adjusted EBITDA is consistent with the definition of a similar measure in our credit agreements other than pro forma adjustments for acquisitions and certain forward-looking adjustments permitted by the credit agreements but not considered by management in evaluating our performance using Adjusted EBITDA. Management also believes the inclusion of Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance. Although Adjusted EBITDA is not necessarily a measure of liquidity or our ability to fund our operations, we understand that it is frequently used by securities analysts, investors and other interested parties as a supplemental measure of financial performance. For a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, see “Summary—Summary Consolidated Historical Financial and Other Data” and “Selected Historical Consolidated Financial Data.”

Venue Count

We define venues as locations where we are contracted to provide event technology services (including locations where the contract has lapsed but we continue to provide services). For venues where the contract has lapsed and there has been no revenue attributed to services delivered at that venue in the quarter, management inquires as to whether the venue should remain as an active venue or

 

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should be classified as closed and removed from the count. A venue would remain in the count if we still have equipment or personnel dedicated to the venue and/or we expect to have revenue going forward, for example, in a highly seasonal location or one closed for short-term renovation. Management believes venue count is a useful measure of our ability to maintain our existing revenue base and continue to grow our revenue by expanding the venues at which we provide event technology services to our customers.

Our Recent Acquisitions

Acquisition of Swank

On November 9, 2012, we acquired 100% of the stock of Swank for an aggregate purchase price of $275.4 million. Swank was a premier provider of event technology services, primarily through exclusive on-site venues in the United States. The Swank acquisition allowed us to enhance our market leadership position, strengthen and broaden our strategic relationships with leading venue clients while realizing significant synergies from the consolidation of operations.

Acquisition of Visual Aids Electronics Corp. (“VAE”)

On November 7, 2013, we acquired 100% of the stock of VAE for $40.9 million. VAE was a provider of event technology services, including communication systems, primarily through exclusive on-site venues in the United States. The acquisition of VAE added to our portfolio of operating locations and enabled us to provide greater service coverage for venue partners and customers. VAE was headquartered in Germantown, Maryland, with operations in 24 states.

Acquisition of American Audio Visual Center, Inc. (“AAVC”)

On January 14, 2015, we acquired 100% of the stock of AAVC for $30.7 million comprised of cash and contingent consideration. AAVC was a premier provider of event technology services, primarily at exclusive on-site venues in the United States, with a small presence in the Caribbean and Canada, and was based in Scottsdale, Arizona.

Acquisition of AVC Live Limited (“AVC Live”)

On April 14, 2015, we acquired 100% of the stock of AVC Live for $20.6 million comprised of cash, Class A Units of PSAV Holdings LLC valued at $1.5 million and contingent consideration. AVC Live is based near London, England and is a premier provider of event technology services at 38 venues in the United Kingdom and to customers executing events outside of those venues. AVC Live also provides off-site client direct presentation services. The acquisition increased our property portfolio in the United Kingdom.

Acquisition of KFP Holding GmbH (“KFP”)

On February 16, 2016, we acquired 100% of the stock of KFP. KFP is based in Frankfurt, Germany, and is a market leading provider of event technology services in Germany. KFP also has operations in Switzerland, Austria and Hungary. The acquisition will extend our existing presence in Europe that includes operations in the United Kingdom, Germany, France and Monaco. The purchase price to effect the transaction was 29 million, including 3 million of contingent payments related to the acquisition, net of cash, debt and certain additional adjustments for working capital.

 

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Basis of Presentation

The Sponsors Acquisition was accounted for as a business combination in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations.

The accompanying consolidated financial statements are presented as “Predecessor” or “Successor” to indicate whether they are related to the period preceding the Sponsors Acquisition or the period succeeding the Sponsors Acquisition, respectively. The periods from January 1, 2013 through January 24, 2014 represent the financial statements of AVSC Holding Corp., and are referred to as the “Predecessor Periods.” The periods from January 25, 2014, the date of the Sponsors Acquisition, through December 31, 2015 represent the financial statements of PSAV Holdings LLC and are referred to as the “Successor Periods.” The period from January 1, 2014 through January 24, 2014 is referred to as the “2014 Predecessor Period” and the period from January 25, 2014 through December 31, 2014 is referred to as the “2014 Successor Period.”

We conduct our business through PSAV Holdings LLC, a Delaware limited liability company, and its subsidiaries. Immediately prior to the consummation of this offering, the following corporate reorganization steps will occur:

 

    PSAV, Inc., our wholly-owned subsidiary formed to be the issuer in this offering, will form a new limited liability company, PSAV Intermediate LLC, as a wholly-owned subsidiary;

 

    PSAV Intermediate Corp. will merge with and into PSAV Intermediate LLC, with PSAV Intermediate LLC surviving, and in the merger shares of PSAV Intermediate Corp. will be cancelled with PSAV Intermediate LLC becoming an indirect wholly-owned subsidiary of PSAV Holdings LLC;

 

    PSAV, Inc. will effect a stock split of its outstanding shares of common stock; and

 

    PSAV Holdings LLC will merge with and into PSAV, Inc., with PSAV, Inc. surviving, and in the merger Class A Units, Class B Units and Phantom Units will be cancelled and holders of such units will receive shares of common stock of PSAV, Inc.

The corporate reorganization will not materially affect our operations, which we will continue to conduct through our operating subsidiaries, and will not materially change the basis of presentation of our financial results.

Factors Affecting the Comparability of Our Results of Operations

As a result of a number of factors, our results of operations for the Predecessor Periods are not comparable to the Successor Periods, the results of our operations within each of the Predecessor and Successor Periods may not be comparable from period to period, and our historical results of operations may not be comparable to our results of operations in future periods. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.

Historical Acquisitions

 

    Our historical results do not reflect all of our acquisitions – Our results of operations only include the results of operations from our acquisitions from the date of such acquisition. Accordingly, the timing of acquisitions impacts our results of operations for such periods.

 

   

Acquisition-related costs – In connection with each of the historical acquisitions, we incurred acquisition-related expenses necessary to close the transaction, principally professional fees for legal and financial diligence work, investment banking fees, and sponsor fees. We incurred

 

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$2.1 million of acquisition-related expenses as part of the acquisitions of AVC Live and KFP, which are included in our results in the year ended December 31, 2015. We incurred $1.2 million of acquisition-related expenses as part of the acquisition of AAVC, which are included in our results for the 2014 Successor Period. Acquisition-related costs of $3.1 million, $14.2 million and $17.8 million related to the Sponsors Acquisition are included in our results of operations in the year ended December 31, 2013, the 2014 Predecessor Period and the 2014 Successor Period, respectively. Acquisition-related expenses related to the acquisition of VAE of $0.3 million are included in our results of operations in the year ended December 31, 2013.

 

    Other transaction and integration costs – In addition to the costs to close each of our historical acquisitions, there have been additional costs related to integrating those acquisitions into our business, including system integration, training, severance, relocation, consulting, facility closure and other integration costs as well as other costs triggered by certain acquisitions such as incentive compensation costs and use of outside experts for purchase accounting valuations. In the 2014 Pro Forma Combined Period (as defined under “—Results of Operations”), we incurred $18.1 million related to long-term incentive plan payments triggered by the Sponsors Acquisition.

 

    Increased interest expense – We financed the Sponsors Acquisition as well as the acquisitions of AAVC and Swank partially with new debt. Additionally, in May 2015 and December 2015 we used the proceeds from incremental borrowings under our credit facilities to pay a distribution to unit holders of PSAV Holdings LLC. Our interest expense has increased as a result of the additional indebtedness.

 

    Increased depreciation and amortization expense – Each of the historical acquisitions was accounted for as a business combination, whereby the acquired assets and assumed liabilities were measured and reported in the consolidated financial statements at fair value. As a result, we significantly increased the recorded value of property and equipment and intangible assets, which has significantly increased our depreciation and amortization expense.

 

    Income taxes – In connection with each of the historical transactions, significant book and tax differences were accounted for in deferred taxes.

Seasonality

Our business is subject to seasonal fluctuations. Historically, operating results have been strongest in the second quarter (approximately 28% of full year revenue) and lowest during the third quarter (approximately 20% of full year revenue) due to the slower summer meeting seasons, with the balance of revenue split equally between the first and fourth quarters. A significant portion of the expenses we incur, such as venue commissions, sub-rental and some of our labor costs, are directly related to the number of events that occur in a given period and therefore vary with revenue. However, certain of our other expenses, such as interest payments, facilities costs and certain personnel-related costs, are fixed and cannot be easily reduced during a seasonal slowdown. Consequently, our net income is generally higher in the second quarter of each year than in other quarters, and we typically operate at a net loss during the third quarter.

Interest Rate Fluctuations

Our indebtedness contains variable interest rate provisions. As a result, our interest expense may vary from period to period due to variations in prevailing interest rates. Since April 2014, we have maintained two interest rate caps covering a portion of our interest rate exposure. The caps are not designated as hedges and as a result changes in the fair value of the interest rate caps flow through other income/expense creating additional variability.

 

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Foreign Currency Fluctuations

As a result of our global operations, we generate a portion of our revenue and incur a portion of our expenses in currencies other than the U.S. dollar. As a result, our revenue, cost of revenue, operating expenses and certain assets, liabilities and commitments fluctuate as the value of such currencies fluctuate in relation to the U.S. dollar and changes in currency exchange rates may impact our results of operations. In addition, the results of operations of some of our operating entities are reported in currencies other than the U.S. dollar and then translated into U.S. dollars at the applicable exchange rate for inclusion in our financial statements. As a result, appreciation of the U.S. dollar against these other currencies generally will have a negative impact on our reported revenue and profits while depreciation of the U.S. dollar against these other currencies will generally have a positive effect on reported revenue and profits. We do not enter into foreign currency exchange contracts to mitigate this risk. Unless otherwise indicated the effect of foreign currency translation on the period to period comparisons presented below are not material.

Equity-Based Compensation

The PSAV Holdings LLC 2014 Management Incentive Plan and the PSAV Holdings LLC Phantom Unit Appreciation Plan provide management with an incentive to contribute to and participate in our success. Under these plans, we are authorized to issue, in the aggregate, 29,938 profits interests in the form of Class B Units and Phantom Units. We have issued Class B Service Units, Class B Performance Units, Phantom Service Units and Phantom Performance Units. Generally, Class B Service Units vest ratably over five years. Class B Performance Units will vest upon a distribution event exceeding certain threshold amounts and the achievement of a targeted multiple of invested capital. We account for the Class B Units as equity-based awards and the Phantom Units as a contingent bonus; therefore, the Phantom Units are not within the scope of ASC Topic 718.

How We Generate Revenue

We generate revenue primarily by providing event technology services, which can include audiovisual services, audiovisual equipment rental, staging and meeting services and event related communications systems as well as related technical support, to our customers. We primarily provide these services in venues, including hotels and convention centers, which we have contracted with to be the exclusive on-site provider of event technology services. Our customers, including corporations, event organizers, trade associations and meeting planners, hire us primarily through our on-site presence at those venues to plan and execute their events. We also provide event technology services to certain customers at other locations where we do not have a contractual relationship. Our revenue is impacted by the mix of event technology services (i.e., number or types of pieces of equipment and level of technical support) demanded by our customers.

We enter into long-term contracts (typically three to six years) with venues to be the exclusive on-site provider of audiovisual and event technology services. We also sign MSAs with top hotel chains (including four of the five largest U.S. hotel companies) naming us as a preferred event technology services provider for each of the venues in a given hotel chain. Each local venue then executes an individual contract if it elects to partner with us.

As the exclusive on-site provider, we provide staff (including a director of event technology, audiovisual equipment technicians and sales staff) and equipment located on-site at the venue. Our employees meet with guests that are holding events at the venue to determine the scope of services required for the event and provide a quote for the agreed upon scope. We execute written agreements with the event organizer based on the agreed upon scope of services for their event. Our employees set up all equipment and provide services throughout the course of the event.

 

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The Costs of Conducting Our Business

Cost of Revenue

Cost of revenue principally includes commissions paid to venues, direct labor costs, the cost of equipment sub-rentals, depreciation of equipment, amortization of venue incentives, as well as other costs such as supplies, freight, travel and other overhead from our venue and customer facing operations and any losses on equipment disposal. For the year ended December 31, 2015, venue commissions, direct labor costs, cost of equipment sub-rentals, depreciation of operating equipment and amortization of venue incentives were 39.1%, 30.4%, 5.0%, 3.4% and 0.6%, respectively, as a percentage of revenue.

We pay commissions to our venue partners from revenue generated from our customers within the respective venue. The commission is typically based on a percentage of revenue that is established in our contract with the venue. Commission rates typically vary by the different types of venues and event technology services, and our overall commission expense is impacted accordingly. We may reduce the commission rates upon mutual agreement or set formulas to reflect discounts we give to a particular customer. Under certain contracts with our venue partners, minimum commission rates or amounts may apply. We are generally the only event technology provider that is permitted to pay a commission to that venue. We believe this commission aligns the incentives of our venue partners with our own as we both seek to maximize revenue.

Our direct labor costs are comprised of the wages of our workforce that is directly associated with providing services to our customers. Approximately 40% of our labor costs are for fixed salaries with the balance for variable expenses, including hourly employees and outside labor. Direct labor costs also include associated benefits, payroll taxes and workers compensation insurance. Less than 10% of our direct labor costs are associated with unionized labor. Labor costs are impacted by our ability to efficiently staff events, market wage conditions, our union agreements and by the costs of benefits and insurance.

Equipment sub-rental includes our cost to rent equipment required to deliver services to our customers. While we own most of the equipment used to provide our services, we rent equipment in situations where we either do not own the required equipment (usually more specialized equipment) or where our owned equipment is being used for other events. Our equipment sub-rental costs are impacted by our ability to maximize the utilization of owned equipment as well as the pricing we are able to obtain from providers of rental equipment. We maintain a network of 44 branch warehouses in key markets to help maximize our equipment utilization.

Depreciation included in cost of revenue includes the depreciation on equipment used in providing services to our customers. We depreciate our equipment on a straight-line basis over the useful life of the equipment, which ranges from three to five years.

We defer certain up-front incentive payments, and the estimated costs of capital equipment provided to venues and/or installation services obligations incurred in connection with signing or renewing venue contracts (collectively referred to as venue incentives), which generally provide us with the right to be the exclusive on-site provider of event technology services at the venue. The venue incentive payments are deferred on our financial statements. The venue incentive payments are amortized over the life of the contract, typically three to six years. The venue incentives are refundable to us, on a pro rata basis, in the rare event the venue cancels the exclusivity arrangement before the end of the contract period.

 

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Other cost of revenue includes supplies, freight, travel and other overhead from our venue and customer facing operations such as rent, utilities, telecom, repairs and maintenance, property taxes and credit card processing fees.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consist of salary and benefits of our sales, marketing, management and administrative personnel, travel costs for the same personnel, professional fees, corporate level rent and other occupancy costs, equity-based compensation expense and certain insurance costs. After the consummation of this offering, we expect to incur significant additional expenses in connection with being a public company that we have previously not incurred, including compliance with the Sarbanes-Oxley Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), increased investor relations functions, stock exchange fees, registrar and transfer agent fees, incremental audit fees, incremental director and officer liability insurance costs and director and officer compensation. In conjunction with this offering and in future periods, we expect to issue long-term equity incentive awards in the form of restricted stock or stock options to our directors, officers, key employees and consultants. The result will be an increase in our SG&A in future periods as the grant-date value of the awards are recognized as an expense over the vesting term of the awards.

Acquisition-Related Expenses

Acquisition-related expenses consist of direct expenses necessary to close the transaction, principally professional fees for legal and financial diligence work, investment banking fees and sponsor fees. The acquisition-related expenses include costs related to both completed acquisitions and acquisitions that we did not consummate but do not include costs incurred post-closing related to integration and related activity.

Other Expense, Net

Other expense, net primarily consists of foreign currency translation gains and losses and gains and losses attributable to the changes in fair value of our interest rate caps.

Interest Expense, Net

Interest expense, net primarily consists of interest on borrowings and the amortization of costs incurred to obtain long-term financing. Our interest income has been de minimis.

Income Tax Expense (Benefit)

We are currently organized as a limited liability company, which is a pass-through entity for federal and state income tax purposes. However, we conduct our business through subsidiaries that are subject to income taxes. Income tax expense (benefit) consists of federal, state and local taxes based on income in multiple jurisdictions. Our income tax expense is impacted by the pre-tax earnings in jurisdictions with varying tax rates. Our current and future provision for income taxes will vary from statutory rates due to the impact of valuation allowances in certain countries, income and certain non-deductible expenses. Furthermore, as a result of the Sponsors Acquisition and other acquisitions, we have significant book and tax accounting differences that impact the amount of deferred taxes.

 

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Results of Operations

The following table sets forth our results of operations for the periods presented. Our consolidated financial statements will not be directly comparable to the consolidated financial statements of the Predecessor due to the effects of the Sponsors Acquisition in January 2014. For purposes of the revenue, SG&A expenses and Adjusted EBITDA discussions, we compared the year ended December 31, 2013 to the combined Predecessor period from January 1, 2014 through January 24, 2014 and Successor period from January 25, 2014 through December 31, 2014 adjusted to give effect to the Sponsors Acquisition (“2014 Pro Forma Combined Period”). Similarly, we compared the 2014 Pro Forma Combined Period to the year ended December 31, 2015. The pro forma adjustments made to the Predecessor period to give effect to the Sponsors Acquisition for the 2014 Pro Forma Combined Period included: (a) additional depreciation and amortization expense resulting from the step-up of property and equipment and intangible assets; (b) removal of acquisition-related expenses and other incentive payments settled in connection with the Sponsors Acquisition; and (c) reduction in interest expense resulting from a decrease in the interest rate on the debt issued in connection with the Sponsors Acquisition. We believe this comparison assists readers in understanding and assessing the trends and significant changes in our results of operations and provides a more meaningful method of comparison in those categories. We compare the other categories within results of operations separately for the Predecessor and Successor periods, as these categories are not comparable for the periods before and after the Sponsors Acquisition due to changes in depreciation, amortization and incentive amortization caused by the change in the carrying value of our assets resulting from the Sponsors Acquisition.

 

          Twelve Months Ended
December 31, 2014
             
    Predecessor          Successor           Successor  
    Year
Ended
December 31,

2013
    January 1,
through
January 24,

2014
         January 25,
through
December 31,

2014
    Twelve
Months
Ended
December 31,
2014

Pro Forma
    Year
Ended
December 31,

2015
 
                
          2014
Predecessor
Period
         2014
Successor
Period
    2014 Pro
Forma
Combined
Period

(unaudited)
       
    (dollars in thousands)  
 

Statement of Operations Data:

             

Revenue

  $ 1,096,374      $ 75,622          $ 1,188,283      $ 1,263,905      $ 1,487,170   

Cost of revenue

    (929,871     (63,684         (1,012,548     (1,077,418     (1,265,083
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Gross profit

    166,503        11,938            175,735        186,487        222,087   

Gross profit margin

    15.2     15.8         14.8     14.8     14.9
 

Operating expenses:

             

Selling, general, and administrative expenses

    92,781        30,448            96,657        103,677        133,671   

Acquisition-related expenses

    3,316        14,160            18,977        1,226        2,076   

Depreciation

    3,917        340            3,740        4,080        6,853   

Amortization of intangibles

    12,491        950            22,606        24,217        26,672   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Total operating expenses

    112,505        45,898            141,980        133,200        169,272   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    53,998        (33,960         33,755        53,287        52,815   
 

Other income (expense), net

    1,278        366            (3,892     (3,526     (4,629

Interest expense, net

    (40,700     (2,830         (40,536     (42,894     (51,024
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) before tax (expense) benefit

    14,576        (36,424         (10,673     6,867        (2,838

Income tax (expense) benefit

    3,020        10,503            107        (8,277     (2,963
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 17,596      $ (25,921       $ (10,566   $ (1,410   $ (5,801
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 
 

Other Financial Data (unaudited):

             

Adjusted EBITDA

  $ 130,381      $ 7,892          $ 149,047      $ 156,939      $ 174,511   

Adjusted EBITDA margin

    11.9     10.4         12.5     12.4     11.7

Venue count

    1,243        1,243            1,216        1,216        1,324   

 

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Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

As noted above, we make use of 2014 Pro Forma Combined Period financial statements in comparing our results to the year ended December 31, 2015. The following key points highlight our results on a pro forma basis:

 

    17.7% increase in revenue from the 2014 Pro Forma Combined Period to the year ended December 31, 2015, driven approximately 55% by organic growth, including 8.9% Domestic same venue revenue growth, and with approximately 45% coming from the acquisitions of AAVC and AVC Live in 2015;

 

    11.2% increase in Adjusted EBITDA from $156.9 million in the 2014 Pro Forma Combined Period to $174.5 million in the year ended December 31, 2015, with Adjusted EBITDA margin declining slightly from 12.4% to 11.7%, respectively, on strong revenue growth partially offset by higher commissions on significant venue contract renewals as well as an increase in SG&A expenses;

 

    Net loss increased from $1.4 million to $5.8 million primarily due to an increase in SG&A expenses and interest expense as described below; and

 

    Venue count increased by 8.9% from 1,216 to 1,324, largely driven by the acquisitions of AAVC and AVC Live.

Revenue

Revenue increased $223.3 million, or 17.7%, from $1,263.9 million for the 2014 Pro Forma Combined Period to $1,487.2 million for the year ended December 31, 2015. Of the increase, $192.0 million was from the Domestic segment, which grew 16.6% from $1,158.0 million for the 2014 Pro Forma Combined Period to $1,350.0 million for the year ended December 31, 2015. The increase in the Domestic segment was due to $91.1 million (8.9%) same venue revenue growth, $87.2 million in growth related to venues acquired as part of the AAVC acquisition in January 2015, $15.4 million in growth from net new venues ($31.2 million in revenue from new venues less $15.8 million in lost revenue from closed venues) and a $1.7 million decline in other revenue primarily from events executed outside of our venues. The growth in same venue revenue was driven primarily by an increase in revenue per event with a slight increase in the number of events. The increase in revenue per event was driven by customers holding more complex events requiring more event technology services, the mix of event technology services provided and our ability to charge more for our services. The 8.9% same venue revenue growth was favorable compared to an increase of 4.5% in Group RevPAR, which is consistent with our historical outperformance of Group RevPAR over the last six years. The outperformance to Group RevPAR was driven by our continued ability to grow average spend per event and capture more revenue through the growth of specialty services. The remaining $31.3 million revenue increase resulted from 29.5% growth in our International segment from $105.9 million to $137.2 million. Of this increase, $20.5 million relates to a single event in the fourth quarter of 2015. An additional $13.7 million of the increase in International segment revenue relates to the impact of the AAVC and AVC Live acquisitions with the offsetting $2.9 million decline coming from existing operations in Canada and Europe largely due to strengthening of the U.S. dollar versus the Canadian dollar and the euro.

 

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Cost of Revenue and Gross Profit Margin

 

     Twelve Months Ended
December 31, 2014
       
     Predecessor           Successor     Successor  
     January 1,
through
January 24,
2014
          January 25,
through
December 31,
2014
    Year
Ended
December 31,
2015
 
             (dollars in thousands)  

Revenue

   $ 75,622           $ 1,188,283      $ 1,487,170   

Cost of revenue

           

Commissions

     (29,756          (461,310     (581,214

Labor

     (25,111          (366,516     (452,563

Equipment sub-rental

     (2,318          (53,542     (74,458

Depreciation

     (1,932          (45,604     (51,016

Amortization of incentive payments

     (705          (8,306     (8,420

Other

     (3,862          (77,270     (97,412
  

 

 

        

 

 

   

 

 

 

Total cost of revenue

     (63,684          (1,012,548     (1,265,083
  

 

 

        

 

 

   

 

 

 

Gross profit

   $ 11,938           $ 175,735      $ 222,087   
  

 

 

        

 

 

   

 

 

 

Gross profit margin

     15.8          14.8     14.9

The gross profit margin decreased from 15.8% for the 2014 Predecessor Period to 14.8% for the 2014 Successor Period. As previously noted, the 24 day period in January 2014 is not comparable to the remainder of the year due to seasonal fluctuations.

The gross profit margin increased from 14.8% for the 2014 Successor Period to 14.9% for the year ended December 31, 2015, primarily due to a decrease in labor related costs as a percentage of revenue resulting from our ability to leverage fixed salaries on increased revenue while controlling variable hourly labor. The increase in gross profit margin was partially offset by an increase in Domestic venue commission costs from new contract renewals and an increase in equipment sub-rental costs, both as a percentage of revenue.

The gross profit margin for our Domestic segment remained flat at 15.0% for the 2014 Successor Period and the year ended December 31, 2015, driven by an increase in venue commission costs, offset by a decrease in labor related costs and other costs of revenue, all as a percentage of revenue. The gross profit margin for our International segment increased from 12.8% to 14.3%, driven by a decline in venue commission costs, primarily as a result of the single $20.5 million event in the fourth quarter of 2015 where we did not pay venue commissions. The increase in gross profit margin was partially offset by increases in sub-rental costs and other costs of revenue, all as a percentage of revenue.

Selling, General and Administrative Expenses

SG&A expenses were $103.7 million, or 8.2% of revenue, for the 2014 Pro Forma Combined Period and $133.7 million, or 9.0% of revenue, for the year ended December 31, 2015. SG&A expenses for the Domestic segment increased from $91.8 million to $119.1 million while SG&A expenses for the International segment increased from $11.9 million to $14.6 million. The absolute increase in SG&A expenses for the Domestic segment is the result of higher salary and related costs to support growth as well as certain non-recurring costs associated with our initial public offering and implementing various strategic initiatives. The increase in SG&A expenses for the International segment is in line with the growth of the business as well as the acquisition of AVC Live.

 

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Acquisition-Related Expenses

Acquisition-related expenses were $14.2 million, $19.0 million and $2.1 million for the 2014 Predecessor Period, the 2014 Successor Period and the year ended December 31, 2015, respectively. Acquisition-related costs for the 2014 Predecessor Period primarily related to seller expenses for the Sponsors Acquisition. Acquisition-related costs for the 2014 Successor Period primarily related to buyer expenses for the Sponsors Acquisition and the acquisition of AAVC in January 2015. Acquisition-related costs for the year ended December 31, 2015 related to the acquisitions of AVC Live in April 2015 and KFP in February 2016.

Depreciation

Depreciation (excluding depreciation reported in Cost of Revenue) as a percentage of revenue was consistent at 0.4%, 0.3% and 0.5% for the 2014 Predecessor Period, the 2014 Successor Period and the year ended December 31, 2015, respectively.

Amortization of Intangibles

Amortization of intangibles was $1.0 million, $22.6 million and $26.7 million for the 2014 Predecessor Period, the 2014 Successor Period and the year ended December 31, 2015, respectively. The increase from $1.0 million for the 2014 Predecessor Period to $22.6 million for the 2014 Successor Period beyond that to be expected as a result of a longer period of time covered was primarily the result of the write-up of the value of intangible assets as part of the accounting for the Sponsors Acquisition. The increase in amortization of intangibles in the year ended December 31, 2015 is a result of new intangible assets arising from the acquisitions of AAVC and AVC Live.

Interest Expense

Interest expense was $2.8 million, $40.5 million and $51.0 million for the 2014 Predecessor Period, the 2014 Successor Period and the year ended December 31, 2015, respectively, and reflects the new debt structure put into place on January 24, 2014 in connection with the Sponsors Acquisition. The increase in interest expense during the year ended December 31, 2015 is a result of additional debt added in January 2015 and May 2015 of $35 million and $180 million, respectively ($208.0 million combined, net of original issue discount and deferred financing fees), as described in “—Factors Affecting the Comparability of Our Results of Operations” above.

Income Taxes

Our income tax benefit was $10.5 million and $0.1 million for the 2014 Predecessor and Successor Periods, respectively, while income tax expense was $3.0 million for the year ended December 31, 2015. Our effective income tax rate was 28.8%, 1.0% and (104.4%) for the 2014 Predecessor Period, the 2014 Successor Period and the year ended December 31, 2015. The rates differ from the U.S. federal statutory rate due to state income taxes (net of federal benefit), the impact of non-deductible expenses (including disallowed transaction costs and meals and entertainment expenses), the foreign rate differential and the increase of valuation allowance for foreign net operating losses (“NOLs”). The (104.4%) effective income tax rate in the year ended December 31, 2015 was primarily driven by state income taxes and non-deductible meal and entertainment expenses applied against a decreased loss compared to prior periods. The 1.0% effective income tax rate in the 2014 Successor Period was primarily driven by non-deductible transaction costs from the Sponsors Acquisition and the AAVC acquisition.

 

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Net Income

Net loss was $25.9 million for the 2014 Predecessor Period, $10.6 million for the 2014 Successor Period and $5.8 million for the year ended December 31, 2015, primarily due to the factors discussed above.

Adjusted EBITDA and Adjusted EBITDA Margin

For purposes of the discussion of Adjusted EBITDA, we compared the Adjusted EBITDA for the year ended December 31, 2015 to the Adjusted EBITDA for the 2014 Pro Forma Combined Period. When considering the effects of the Sponsors Acquisition, the Adjusted EBITDA for the 2014 Pro Forma Combined Period is equal to the sum of the Adjusted EBITDA for the 2014 Predecessor Period and the 2014 Successor Period. We believe the comparison to Adjusted EBITDA assists readers in understanding and assessing the trends and significant changes in our Adjusted EBITDA and provides a more meaningful method of comparison.

Adjusted EBITDA increased $17.6 million from $156.9 million for the 2014 Pro Forma Combined Period to $174.5 million for the year ended December 31, 2015, with Adjusted EBITDA margin declining from 12.4% to 11.7%, respectively. Within our segments, Adjusted EBITDA in the Domestic segment increased $13.9 million, or 9.5%, from $145.9 million for the 2014 Pro Forma Combined Period to $159.8 million for the year ended December 31, 2015, with Adjusted EBITDA margin decreasing from 12.6% to 11.8%, respectively. Of the increase in Adjusted EBITDA, $24.2 million was due to higher revenue offset by a $10.3 million decline resulting from higher venue commission costs and higher SG&A driven by investment in infrastructure, partially offset by declines in labor costs from continued efficiencies in handling higher revenue, all as a percentage of revenue.

Adjusted EBITDA in the International segment increased $3.7 million, or 33.4%, from $11.1 million for the 2014 Pro Forma Combined Period to $14.8 million for the year ended December 31, 2015, with Adjusted EBITDA margin increasing from 10.4% to 10.8%, respectively. Of the increase in Adjusted EBITDA, $3.3 million was due to higher revenue from the single $20.5 million event in the fourth quarter of 2015 as well as the acquisitions of AAVC and AVC Live. The additional $0.4 million increase was primarily due to a decline in venue commission costs.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 (Predecessor)

As noted above, we make use of the 2014 Pro Forma Combined Period financial statements in comparing our results to the year ended December 31, 2013. The following key points highlight our results on a pro forma basis:

 

    15.3% increase in revenue from 2013 to the 2014 Pro Forma Combined Period is driven primarily by 11.9% organic growth, including 14.5% Domestic same venue revenue growth, with 3.4% coming from the acquisition of VAE;

 

    20.4% increase in Adjusted EBITDA from $130.4 million in 2013 to $156.9 million in the 2014 Pro Forma Combined Period with Adjusted EBITDA margin increasing from 11.9% to 12.4%, respectively, on strong revenue growth and improvements in labor and sub-rental costs as a percentage of revenue;

 

    Net income declined from $17.6 million to a loss of $1.4 million due to in large part to the increase in amortization expense from the intangible assets arising from the Sponsors Acquisition; and

 

    Venue count declined by 2.2% from 1,243 to 1,216 as we exited some smaller or lower profit venues following the Swank and VAE acquisitions.

 

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Revenue

Revenue increased $167.5 million, or 15.3%, from $1,096.4 million for the year ended December 31, 2013 to $1,263.9 million for the 2014 Pro Forma Combined Period. Of this increase, $166.3 million was from the Domestic segment, which grew 16.8% from $991.7 million in 2013 to $1,158.0 million in 2014. The increase in the Domestic segment was due to $123.2 million, or 14.5%, in same venue revenue growth, $37.5 million in growth from venues from the acquisition of VAE in November 2013, $7.7 million of growth from net new venues ($24.3 million in revenue from new venues less $16.6 million in lost revenue from closed venues) and $2.1 million decline in other revenue, largely driven by shedding lower profit margin clients executed outside of our partner venues, partially offset by added outside communication services revenue from the VAE acquisition. The growth in same venue revenue was driven in large part by an increase in revenue per event with modest growth in the number of events. The increase in revenue per event was driven by customers holding more complex events requiring more event technology services, the mix of event technology services provided and our ability charge more for our services. The 14.5% same venue revenue growth was favorable compared to an increase of 6.7% in Group RevPAR. The excess of our same venue revenue growth versus Group RevPAR was slightly above our average outperformance since 2010 as we were able to continue to drive additional growth from specialty services, upsell our core audiovisual services and capture a greater share of the audiovisual spend in our venues.

The remaining $1.2 million revenue increase resulted from 1.2% growth in our International segment from $104.7 million in 2013 to $105.9 million in 2014. Growth of 8.5% in Mexico and 5.3% in Europe and the Middle East, both largely driven by same venue revenue growth, were offset by a 3.6% decline in revenue in Canada, driven primarily by the loss of a nine hotel ownership group in March 2014 and the decline of the Canadian dollar in 2014 compared to 2013.

Cost of Revenue and Gross Profit Margin

 

           Twelve Months Ended
December 31, 2014
 
     Predecessor              Successor  
     Year
Ended
December 31,
2013
    January 1,
through
January 24,
2014
             January 25,
through
December 31,
2014
 
     (dollars in thousands)  

Revenue

   $ 1,096,374      $ 75,622            $ 1,188,283   

Cost of revenue

            

Commissions

     (412,763     (29,756           (461,310

Labor

     (350,717     (25,111           (366,516

Equipment sub-rental

     (53,504     (2,318           (53,542

Depreciation

     (31,095     (1,932           (45,604

Amortization of incentive payments

     (9,318     (705           (8,306

Other

     (72,474     (3,862           (77,270
  

 

 

   

 

 

         

 

 

 

Total cost of revenue

     (929,871     (63,684           (1,012,548
  

 

 

   

 

 

         

 

 

 

Gross profit

   $ 166,503      $ 11,938            $ 175,735   
  

 

 

   

 

 

         

 

 

 

Gross profit margin

     15.2     15.8           14.8

The gross profit margin increased from 15.2% for the year ended December 31, 2013 to 15.8% for the 2014 Predecessor Period. This increase is primarily the result of seasonal dynamics that make comparing a single 24-day period to a full year not relevant.

 

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The gross profit margin decreased by 0.4% as a percentage of revenue from 15.2 % for the year ended December 31, 2013 to 14.8% for the 2014 Successor Period. This decrease is the result of a 1.2% increase in venue commissions as a percentage of revenue due to certain contract renewals occurring during 2014 at higher commission rates than the prior contracts, as well as a 1.0% increase in depreciation as a percentage of revenue due to the step-up in basis of the our fixed assets as a result of purchase accounting from the Sponsors Acquisition. The increases in commissions and depreciation were offset by a 1.1% decline in labor related costs as a percentage of revenue resulting from our ability to leverage fixed salaries on increased revenue while controlling variable hourly labor. Additionally, equipment sub-rental costs decreased 0.4% as a percentage of revenue as we continued efforts to maximize utilization of our owned equipment through better internal equipment sharing and as targeted equipment purchases reduced rental requirements.

The gross profit margin for our Domestic segment declined from 15.3% for the year ended December 31, 2013 to 15.0% for the 2014 Successor Period on similar factors as noted for the consolidated results. The gross profit margin for our International segment declined from 13.9% to 12.8% over the same period, primarily driven by increasing labor and depreciation costs as well as the unfavorable impact of foreign exchange.

Selling, General and Administrative Expenses

SG&A expenses were $92.8 million, or 8.5% of revenue for the year ended December 31, 2013 and $103.7 million, or 8.2% of revenue, in the 2014 Pro Forma Combined Period. SG&A expenses for the Domestic segment increased from $81.7 million to $91.8 million while SG&A expenses for the International segment increased from $11.1 million to $11.9 million. The absolute increase in SG&A expenses for both segments is the result of investment in administrative infrastructure to support the continued growth of the business as well as some non-recurring costs associated with implementing various strategic initiatives and filling certain management positions on an interim basis for a period of time after the Sponsors Acquisition.

Acquisition-Related Expenses

Acquisition-related expenses were $3.3 million, $14.2 million and $19.0 million for the year ended December 31, 2013, the 2014 Predecessor Period and the 2014 Successor Period, respectively. Acquisition-related costs for the 2014 Predecessor Period primarily related to seller expenses related to the Sponsors Acquisition. Acquisition-related costs for the 2014 Successor Period primarily related to buyer expenses related to the Sponsors Acquisition as well as expenses associated with the acquisition of AAVC in January 2015.

Depreciation

Depreciation (excluding depreciation reported in cost of revenue), as a percentage of revenue was consistent at 0.4%, 0.4% and 0.3% for the year ended December 31, 2013, the 2014 Predecessor Period and the 2014 Successor Period, respectively. The decrease from 0.4% for the 2014 Predecessor Period to 0.3% for the 2014 Successor Period is the result of increased revenue.

Amortization of Intangibles

Amortization of intangibles was $12.5 million, $1.0 million and $22.6 million for the year ended December 31, 2013, the 2014 Predecessor Period and the 2014 Successor Period. The increase from $12.5 million for the year ended December 31, 2013 to $22.6 million for the 2014 Successor Period was primarily the result of the write-up of the value of intangible assets as part of the purchase accounting for the Sponsors Acquisition.

 

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Interest Expense

Interest expense was $40.7 million, $2.8 million and $40.5 million for the year ended December 31, 2013, the 2014 Predecessor Period and the 2014 Successor Period, respectively, and reflects the new debt structure put into place on January 25, 2014 as a result of the Sponsors Acquisition, which resulted in incremental debt of $192.9 million, partially offset by a reduction in interest rate.

Income Taxes

Our income tax benefit was $3.0 million, $10.5 million and $0.1 million for the year ended December 31, 2013, the 2014 Predecessor Period and the 2014 Successor Period, respectively. Our effective income tax rate was (20.7%), 28.8% and 1.0% for the year ended December 31, 2013, the 2014 Predecessor Period and the 2014 Successor Period, respectively. The rates differ from the U.S. federal statutory rate due to state income taxes (net of federal benefit), the impact of non-deductible expenses (including disallowed transaction costs and meals and entertainment expenses) and the increase of valuation allowance for foreign NOLs. The 1.0% effective tax rate in the 2014 Successor Period was significantly lower than the other two periods as a result of permanent book to tax differences related to transaction costs from the Sponsors Acquisition and the AAVC acquisition.

Net Income

Net income decreased $54.1 million from net income of $17.6 million for the year ended December 31, 2013 to net loss of $25.9 million for the 2014 Predecessor Period and a net loss of $10.6 million for the 2014 Successor Period. The loss in the 2014 Predecessor Period was driven by $14.2 million in acquisition-related costs and $23.4 million of long-term incentive and stock compensation costs triggered by the Sponsors Acquisition. The loss in the 2014 Successor Period was driven by $19.0 million in acquisition-related costs, the significant increase in depreciation and amortization triggered by the Sponsors Acquisition as well as the other factors discussed above.

Adjusted EBITDA and Adjusted EBITDA Margin

For purposes of the discussion of Adjusted EBITDA, we compared the Adjusted EBITDA of the Predecessor for the fiscal year ended December 31, 2013 to the 2014 Pro Forma Combined Period. When considering the effects of the Sponsors Acquisition, the Adjusted EBITDA for the 2014 Pro Forma Combined Period is equal to the sum of the Adjusted EBITDA for the 2014 Predecessor Period and the 2014 Successor Period. We believe the comparison to Adjusted EBITDA assists readers in understanding and assessing the trends and significant changes in our Adjusted EBITDA and provides a more meaningful method of comparison.

Adjusted EBITDA increased $26.6 million from $130.4 million for the year ended December 31, 2013 to $156.9 million for the 2014 Pro Forma Combined Period and Adjusted EBITDA margin increasing from 11.9% to 12.4%, respectively. Within our segments, Adjusted EBITDA in the Domestic segment increased $27.3 million, or 23.0%, from $118.6 million for the year ended December 31, 2013 to $145.9 million for the 2014 Pro Forma Combined Period, with Adjusted EBITDA margin increasing from 12.0% to 12.6%, respectively. Of the increase in Adjusted EBITDA, $19.9 million was due to higher revenue while $7.4 million resulted from improvements in gross profit margin, prior to depreciation, largely driven by improvements in labor and equipment sub-rental costs partially offset by increased venue commission expense as discussed above.

Adjusted EBITDA in the International segment decreased $0.7 million, or 5.9%, from $11.8 million for the year ended December 31, 2013 to $11.1 million for the 2014 Pro Forma Combined Period, with Adjusted EBITDA margin decreasing from 11.2% to 10.4%, respectively. Of the decrease in Adjusted EBITDA, $0.8 million was due to higher SG&A offset by $0.1 million in EBITDA growth from higher revenue.

 

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Liquidity and Capital Resources

Overview

Our principal liquidity requirements historically have been to service our debt, to meet our working capital, venue incentives and capital expenditure needs and to finance acquisitions. Our principal sources of liquidity are cash generated from operating activities, funds from borrowings and existing cash on hand. As of December 31, 2015, we had $40.9 million of cash and cash equivalents and approximately $58.7 million of available borrowing capacity under our $75 million Revolving Facility (as defined under “—Credit Facilities”) (with no draws and $16.3 million of letters of credit outstanding). Impacting our future liquidity, in February 2016 to effect the acquisition of KFP, we borrowed $25.5 million on our Revolving Facility and used approximately $5.0 million of available cash. We expect to repay a substantial portion of these borrowings under the Revolving Facility using available cash in the first quarter of 2016.

Our liquidity is also favorably impacted by our U.S. NOL carryforward. We had $71.6 million of gross NOL carryforwards as of December 31, 2015. The cash benefits associated with those NOLs is $25.0 million. These NOLs are generally limited under Section 382 of the Internal Revenue Code, and we anticipate being able to use $28.6 million ($10.0 million cash benefit) each year.

We believe that cash generated through operations and our financing arrangements will be sufficient to meet working capital requirements, anticipated venue incentives, capital expenditures and scheduled debt payments for at least the next 12 months. We anticipate that to the extent that we require additional liquidity it will be funded through the incurrence of other indebtedness, equity financings or a combination thereof. We cannot assure you that we will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available under our credit facilities or otherwise to meet our liquidity needs. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions.

 

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Working Capital

Working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. Our working capital was $33.4 million at December 31, 2013, $66.2 million at December 31, 2014 and $63.6 million at December 31, 2015. The following table presents the components of our working capital as of December 31, 2013, 2014 and 2015:

 

     Predecessor          Successor  
     December 31,
2013
         December 31,
2014
     December 31,
2015
 
     (in thousands)  

Current assets

           

Cash and cash equivalents

   $ 23,733          $ 68,818       $ 40,895   

Trade accounts receivable, net

     77,319            76,946         103,420   

Deferred tax assets

     10,597            13,471         15,442   

Prepaid expenses

     11,655            15,487         13,600   

Income taxes receivable

                6,440         10,536   

Other current assets

     264            400         841   
  

 

 

       

 

 

    

 

 

 

Total current assets

     123,568            181,562         184,734   
  

 

 

       

 

 

    

 

 

 
 

Current liabilities

           

Current portion of long-term debt

     3,400            15,050         7,218   

Trade accounts payable

     26,183            29,921         22,094   

Accrued expenses

     60,599            70,411         91,792   
  

 

 

       

 

 

    

 

 

 

Total current liabilities

     90,182            115,382         121,104   
  

 

 

       

 

 

    

 

 

 

Working capital

   $ 33,386          $ 66,180       $ 63,630   
  

 

 

       

 

 

    

 

 

 

The increase of $30.2 million in working capital from $33.4 million at December 31, 2013 to $63.6 million at December 31, 2015 primarily reflects a combination of improved cash position of $17.2 million and net growth in other short term assets and liabilities of $16.8 million as well as an increase in the current portion of long-term debt of $3.8 million. The changes in other short term assets and liabilities reflect a combination of growth in the business, including the acquisitions of AAVC and AVC Live during 2015.

Trade Accounts Receivable

Trade accounts receivable decreased $0.4 million from $77.3 million at December 31, 2013 to $76.9 million at December 31, 2014, primarily due to a focused effort to reduce days sales outstanding (“DSO”) in both the Domestic and International segments, which offset the impact of revenue growth. Trade accounts receivable increased $26.5 million from $76.9 million at December 31, 2014 to $103.4 million at December 31, 2015 as a result of revenue growth and an increase in DSO driven by slower collections in the International segment.

Trade Accounts Payable

Trade accounts payable increased $3.7 million from $26.2 million at December 31, 2013 to $29.9 million at December 31, 2014 in line with the growth in cost of revenue. Trade accounts payable decreased $7.8 million from $29.9 million at December 31, 2014 to $22.1 million at December 31, 2015, primarily due to timing of payments to suppliers, including higher capital expenditures paid in early January 2015.

 

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Accrued Expenses

Accrued expenses increased $9.8 million from $60.6 million at December 31, 2013 to $70.4 million at December 31, 2014, primarily due to increased accrued interest expense due to timing of our interest rate elections which impacts timing of payment and higher accrued payroll and related cost due to timing of the pay period versus the prior period end. Accrued expenses increased $21.4 million from $70.4 million at December 31, 2014 to $91.8 million at December 31, 2015, primarily due to the timing of payroll cycles, the acquisitions of AAVC and AVC Live and general growth of the business.

Cash Flow Analysis

 

          Twelve Months Ended
December 31, 2014
       
    Predecessor          Successor     Successor  
    Year Ended
December 31,

2013
    January 1,
through
January 24,

2014
         January 25,
through
December 31,

2014
    Year Ended
December 31,

2015
 
           
    (in thousands)  

Net cash provided by (used in):

           

Operating activities

  $ 51,330      $ (2,018       $ 46,271      $ 62,699   

Investing activities

    (77,219     (4,268         (911,732     (105,762

Financing activities

    35,750                   935,071        17,200   

Net Cash Provided By (Used In) Operating Activities

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, cash outflows for venue incentives and the effect of working capital changes. The variability in net cash provided by operating activities, other than the overall growth of the business, is primarily driven by the level of venue incentives, which peaked in 2014 and the first half of 2015 due to the concentration of contract renewals that occurs every five to six years, and acquisition-related costs which are unique to each period based on the occurrence of an acquisition.

Net cash provided by operating activities for the year ended December 31, 2015 was $62.7 million. This principally reflects the results of operations exclusive of non-cash income and expenses, primarily depreciation and amortization, less $22.8 million in venue signing incentives, the change in deferred income taxes and the slight decrease in working capital.

Net cash provided by operating activities for the 2014 Successor Period was $46.3 million. This principally reflects the results of operations exclusive of non-cash income and expenses, primarily depreciation and amortization, less $15.5 million in venue signing incentives, the change in deferred income taxes and the increase in working capital. The cash provided by operating activities is offset by $19.0 million of acquisition-related expenses, primarily related to the Sponsors Acquisition.

Net cash used in operating activities for the 2014 Predecessor Period was $2.0 million. This principally reflects the results of operations, burdened by significant acquisition-related expenses, exclusive of non-cash income and expenses, primarily depreciation, amortization and stock-based compensation expense, less $0.1 million in venue signing incentives and the change in deferred income taxes, partially offset by a decrease in working capital. The cash provided by operating activities is offset by $14.2 million of acquisition-related expenses related to the Sponsors Acquisition.

Net cash provided by operating activities for the year ended December 31, 2013 was $51.3 million. This principally reflects the results of operations exclusive of non-cash income and expenses, primarily depreciation and amortization, less $6.4 million in venue signing incentives, the change in deferred income taxes and the increase in working capital.

 

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Net Cash Used in Investing Activities

Investing activities consist primarily of capital expenditures for growth and maintenance, and in certain periods, acquisitions of other businesses. Growth capital expenditures generally are for purchase of equipment for new venues and other new facilities. Maintenance capital expenditures generally are for replacement of existing equipment at the end of its useful life, equipment upgrades and service expansion at existing venues as well as corporate systems and related infrastructure.

We anticipate that our capital expenditures for the year ending December 31, 2016 will be approximately $60 million. We believe that cash flows from operations will be sufficient to fund our anticipated capital expenditures, but additional borrowings may be required to fund future acquisitions.

Net cash used in investing activities for the year ended December 31, 2015 was $105.8 million. This is principally due to $61.9 million of capital expenditures, $26.9 million used for the acquisition of AAVC and $17.0 million used for the acquisition of AVC Live. The $61.9 million of capital expenditures includes $11.1 million related to the build out of our new headquarters in Schiller Park, Illinois, of which $4.5 million was paid for by the landlord as part of a tenant improvement allowance resulting in an offsetting operating cash inflow. The balance of the capital expenditures relates to equipment for new venues, upgrading and replacement of existing equipment, including equipment for expanded service offerings at existing venues, such as additional services, and information technology infrastructure and software.

Net cash used in investing activities for the 2014 Successor Period was $911.7 million. This was principally due to $877.6 million used for the Sponsors Acquisition and $34.1 million in capital expenditures.

Net cash used in investing activities for the 2014 Predecessor Period was $4.3 million, all for capital expenditures, primarily for equipment for new and existing venues. In aggregate for both the Successor and Predecessor Periods, capital expenditures increased $1.9 million over 2013 driven by the growth of the business, while declining as a percentage of revenue from 3.3% to 3.0% on continued improvements in equipment utilization.

Net cash used in investing activities for the year ended December 31, 2013 was $77.2 million. This was principally due to $40.9 million used for the acquisition of VAE and $36.5 million of capital expenditures.

Net Cash Provided by Financing Activities

Financing activities consist primarily of borrowings and repayments under our first lien and second lien credit facilities and our Revolving Facility. Outside of mandatory principal payments on our first lien credit facilities, our financing activities relate to the financing of specific transactions as discussed below.

Net cash provided by financing activities for the year ended December 31, 2015 was $17.2 million. This was principally due to two incremental first lien term loan borrowings of $35.0 million and $180.0 million, respectively ($208.0 million combined, net of original issue discount and debt issuance costs), and a distribution of $174.1 million, all described in “—Factors Affecting the Comparability of Our Results of Operations” above. In addition, we repaid $10.0 million of borrowings under our Revolving Facility and made $6.7 million of mandatory principal payments under our first lien credit facility. We also issued $1.5 million of Class A Units as part of the acquisition of AVC Live.

Net cash provided by financing activities for the 2014 Successor Period was $935.1 million. This was principally due to the initial borrowing under our new $505.0 million first lien credit facility and

 

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$180 million second lien credit facility ($679.8 million net of $5.2 million of original issue discount), a $269.4 million capital contribution from our Sponsors as part of the Sponsors Acquisition, and borrowings of $10.0 million on our Revolving Facility. In addition, there were $20.6 million of debt issuance associated with the new loans under our credit facilities and $3.8 million of mandatory principal payments under our first lien credit facility.

There were no financing activities for the 2014 Predecessor Period.

Net cash provided by financing activities for the year ended December 31, 2013 was $35.8 million. This is principally due to $40.0 million of net borrowings under the Revolving Facility offset by $4.3 million of principal payments on long-term debt.

Credit Facilities

Successor Borrowing Arrangements

On January 24, 2014, we entered into (i) a First Lien Credit Agreement (the “First Lien Credit Agreement”) and (ii) a Second Lien Credit Agreement (the “Second Lien Credit Agreement,” and together with the First Lien Credit Agreement the “Credit Agreements”) with the lenders party thereto (the “Lenders”), including Barclay’s Bank PLC, as administrative and collateral agent, and Goldman Sachs Lending Partners LLC, Barclays Bank PLC, Macquarie Capital (USA) Inc. and Morgan Stanley Senior Funding, Inc., as joint bookrunners and joint lead arrangers, in connection with the Sponsors Acquisition. The Lenders also extended credit in the form of a revolving facility (the “Revolving Facility”) with aggregate commitments of $60.0 million as part of the First Lien Credit Agreement.

Pursuant to the terms of the Credit Agreements, the Lenders provided us with term loan facilities in an aggregate principal amount of $685.0 million, consisting of a $505.0 million first lien term loan (“First Lien Loan”) and a $180.0 million second-lien term loan (“Second Lien Loan”). Net proceeds from the First Lien Loan and the Second Lien Loan were $659.2 million ($685.0 million aggregate principal amount less $5.2 million stated discount and $20.6 million in debt issuance costs). The proceeds were used to finance the Sponsors Acquisition and to pay off the Predecessor Borrowing Arrangements.

On January 16, 2015, we amended our First Lien Loan to obtain additional first lien term loans in an aggregate principal amount of $35.0 million for purposes of financing our acquisition of AAVC as well as fees and expenses associated with the borrowings and general corporate purposes.

On May 18, 2015, we amended our First Lien Loan to obtain additional first lien term loans in an aggregate principal amount of $180.0 million for purposes of funding a distribution to our equity holders as well as the fees and expenses associated with the borrowing and related transactions. The amendment also increased the maximum borrowing capacity under the Revolving Facility by $15.0 million to a maximum of $75.0 million and increased the sublimit on capacity of letters of credit by $10.0 million to a sublimit of $25.0 million.

First Lien Loan

The First Lien Loan bears interest at either, at our election, (a) the Alternate Base Rate plus 2.5% or (b) the Eurocurrency Rate plus 3.5%. The Alternate Base Rate is defined as the highest of (1) Federal Funds Effective Rate plus 0.5%, (2) LIBOR plus 1%, (3) Prime Rate (as defined in the First Lien Credit Agreement) or (4) 2%. The Eurocurrency Rate is defined as adjusted LIBOR (at a period of one, two, three, six or 12 months at our election) subject to a floor of 1%. Interest is due either monthly, for one month elections, every two months, for two month elections, or every three months for all other elections. The maturity of the First Lien Loan is January 24, 2021.

 

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Depending on the Senior Secured Leverage Ratio as defined in the First Lien Term Agreement, we are required to make mandatory prepayments on the outstanding First Lien Loan in an aggregate principal amount equal to 50% of excess cash flow, as defined in the First Lien Credit Agreement, less any principal prepayments made for the year then ended and less any prepayment made pursuant to the Second Lien Credit Agreement, subject to certain other exceptions and deductions. The percentage is reduced to 25% of excess cash flow if the Senior Secured Leverage Ratio is less than or equal to 4.00 to 1.00, but greater than 3.25 to 1.00, and it is reduced to 0% if the Senior Secured Leverage Ratio is less than or equal to 3.25 to 1.00. Subject to certain exceptions and reinvestment rights, the First Lien Credit Agreement also requires 100% of the net cash proceeds from certain asset sales, insurance recoveries and debt issuances be used to pay down outstanding borrowings. No mandatory prepayments were made during the 2014 Successor Period or the year ended December 31, 2015.

We must make mandatory quarterly amortization payments on the First Lien Loan in an amount of $1.8 million. We made $3.8 million and $6.7 million of amortization payments on the First Lien Loan during the 2014 Successor Period and the year ended December 31, 2015, respectively.

Second Lien Loan

The Second Lien Loan bears interest at either, at our election, (a) the Alternate Base Rate plus 7.25% or (b) the Eurocurrency Rate plus 8.25%. The Alternate Base Rate is defined as the highest of (1) Federal Funds Effective Rate plus 0.5%, (2) LIBOR plus 1%, (3) Prime Rate (as defined in the Second Lien Credit Agreement) or (4) 2%. The Eurocurrency Rate is defined as adjusted LIBOR (at a period of one, two, three, six or 12 months at our election) subject to a floor of 1%. Interest is due either monthly, for one month elections, every two months, for two month elections, or every three months for all other elections. The maturity of the Second Lien Loan is January 24, 2022.

The mandatory prepayment requirements under the Second Lien Loan are substantially the same as under the First Lien Loan, except that no mandatory prepayment is required to be made under the Second Lien Loan until the First Lien Loan has been repaid in full, unless such amounts are declined by the Lenders under the First Lien Loan.

If we prepay or reprice any portion of the Second Lien Loan on or prior to January 24, 2017, we are required to pay a premium equal to 1.00% of the aggregate principal amount of the Second Lien Loan voluntarily prepaid or repriced.

We did not make any prepayments on the Second Lien Loan during the 2014 Successor Period or the year ended December 31, 2015. We intend to use the proceeds from this offering to repay borrowings under our Second Lien Loan. See “Use of Proceeds.”

Revolving Facility

The Revolving Facility, which has a maximum borrowing limit of $75.0 million, was established on January 24, 2014 pursuant to the terms included in the First Lien Credit Agreement. The Revolving Facility bears interest at either, at our election (a) the Alternate Base Rate plus 2.5% or (b) the Eurocurrency Rate plus 3.5%. The Alternate Base Rate is defined as the highest of (1) Federal Funds Effective Rate plus 0.5% or (2) Prime Rate (as defined in the First Lien Credit Agreement). The Eurocurrency Rate is defined as adjusted LIBOR (at a period of one, two, three, six or 12 months at our election). The interest rate spread on the Revolving Facility is reduced if we meet certain leverage ratios. The Revolving Facility also includes an option to borrow funds under the terms of a swingline loan subfacility, subject to a sublimit of $10.0 million. We had $10.0 million in borrowings under the Revolving Facility as of December 31, 2014 and no borrowings outstanding under the Revolving Facility as of December 31, 2015.

 

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The Revolving Facility also includes capacity for $25.0 million of letters of credit. As of December 31, 2015, we had issued letters of credit with an aggregate face value of $16.3 million. These letters of credit were issued to support various insurance programs, the security deposit on our new office lease and to support our obligations related to a major customer event.

As of December 31, 2015, there was $58.7 million available for borrowing on the Revolving Facility, which matures on January 24, 2019.

The Revolving Facility is subject to a commitment fee that varies based on our Senior Secured Leverage Ratio, as defined in the First Lien Credit Agreement, of which we paid $0.3 million during both the 2014 Successor Period and the year ended December 31, 2015.

Financial Covenants and Terms

The Senior Secured Leverage Ratio may not exceed 6.75 to 1.00 if more than 25% of Revolving Facility is utilized (borrowings plus the amount of outstanding letters of credit in excess of $17.5 million). We utilized less than 25% of the Revolving Facility as of December 31, 2014 and 2015. The Senior Secured Leverage Ratio is calculated as Consolidated Senior Secured Debt to Consolidated Adjusted EBITDA, as each term is defined in the First Lien Credit Agreement, for the trailing 12 months.

Obligations under the Credit Agreements are secured by a first and second lien, respectively, on substantially all of our assets, including the capital stock of our subsidiaries, subject to customary exceptions and carve outs.

The Credit Agreements contain customary affirmative and negative covenants, including limitations on our ability to incur indebtedness, create liens, dispose of assets, make restricted payments and make investments or acquisitions, among other things. Events of default under the Credit Agreements include, among other things and subject to customary grace periods, failure to make applicable principal or interest payments when they are due, cross defaults, breach of certain covenants and representations or change in control. At the occurrence of such an event, the administrative agent, at the request of the Lenders, may terminate the commitments and declare the outstanding principal and accrued interest thereon and all fees and other obligations to be due and payable and exercise other rights and remedies provided for in the Credit Agreements. We were in compliance with the Credit Agreements at December 31, 2015.

Predecessor Borrowing Arrangements

In November 2012, our Predecessor entered into two credit agreements with Barclays Bank PLC, as Administrative Agent and Collateral Agent, as part of the Swank acquisition that occurred on November 9, 2012. The agreements consisted of a $340.0 million First Lien Term Loan Facility (the “Predecessor First Lien Loan”), a $115.0 million Second Lien Term Loan Facility (the “Predecessor Second Lien Loan”) and a $40.0 million Revolving Credit Facility (the “Predecessor Revolving Facility” and collectively with the Predecessor First Lien Loan and the Predecessor Second Lien Loan, the “Predecessor Borrowing Arrangements”). Our Predecessor had pledged substantially all of its assets as collateral for the facilities. The agreements contained restrictive covenants providing for quarterly and annual measures of financial condition and also limited the payment of dividends, permitted acquisitions financed by the agreement, the sale of certain assets and other loans, advances and indebtedness. The agreements also contained maximum leverage and interest coverage ratio covenants, which became effective for the first quarter of 2013. The maximum leverage ratio was scheduled to be 4.5x trailing 12 months EBITDA at the end of each quarter in 2014. The leverage ratio was scheduled to decrease annually. The interest coverage ratio was not to be less than 3.0 at the end

 

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of each quarter in 2014. The interest coverage ratio increased annually. We were in compliance with all applicable financial covenants through the date the Predecessor Borrowing Arrangements were extinguished.

In connection with the Sponsors Acquisition, all outstanding obligations under the Predecessor Borrowing Arrangements were fulfilled with proceeds from the Successor Borrowing Arrangements.

Predecessor First Lien Loan

The Predecessor First Lien Loan dated November 9, 2012, was scheduled to mature in November 2018. Amounts borrowed under the First Lien Loan bore interest at an annual rate equal to, at our Predecessor’s option, LIBOR plus 5.5% with a LIBOR floor of 1.25% or the Base Rate plus 4.5% with a 2.25% Base Rate floor. Principal repayments in $0.9 million installments were due for each quarter of 2013.

Predecessor Second Lien Loan

The Predecessor Second Lien Loan dated November 9, 2012, was scheduled to mature in May 2018. Amounts borrowed under the Second Lien Loan bore interest at an annual rate equal to, at our Predecessor’s option, LIBOR plus 9.5% with a 1.25% LIBOR floor or the Base Rate plus 8.5% with a 2.25% Base Rate floor. No principal repayments were required prior to maturity.

Predecessor Revolving Facility

The Predecessor Revolving Facility dated November 9, 2012, was scheduled to mature in November 2017. Our Predecessor was subject to a commitment fee of 0.50% per annum on the average daily amount of the available revolving commitment during 2013.

Contractual Obligations

The following table summarizes our contractual obligations and commitments as of December 31, 2015:

 

     Payments Due by Period  
     (in thousands)  

Contractual Obligations

   Total      Less than
1 year
     1 - 3
years
     3 - 5
years
     More than
5 years
 

Long-term debt(1)

   $ 889,536       $ 7,218       $ 14,436       $ 14,436       $ 853,446   

Estimated interest payments(2)

     266,937         50,122         98,964         97,780         20,071   

Operating lease obligations

     43,928         9,227         15,401         10,174         9,126   

Venue contracts(3)

     20,630         8,159         7,477         3,911         1,083   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,221,031       $ 74,726       $ 136,278       $ 126,301       $ 883,726   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Payments are based on debt balances outstanding at December 31, 2015. We expect to use proceeds from this offering to repay $         of principal on our Second Lien Loan, which is scheduled to mature in 2022.
(2) Estimated interest payments are based on debt balances outstanding at December 31, 2015 and the interest rate in effect at that time. We expect to use proceeds from this offering to repay $         of principal on our Second Lien Loan which will reduce future interest payments.
(3) Venue contracts include fixed annual incentives, fixed minimum guarantees and other incentives that are paid over time.

 

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We have excluded our liability for uncertain tax positions from the table above because we are unable to make a reasonably reliable estimate of the timing of payments.

The above table does not reflect estimated contractual obligations under the multi-employer pension plans in which our union employees participate. We are party to various collective bargaining agreements that require us to provide to the employees subject to these agreements specified wages and benefits, as well as to make contributions to multi-employer pension plans. Our multi-employer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions are made to the plans on a “pay-as-you-go” basis based on our union employee payrolls. Our obligations for contributions to multi-employer pension plans cannot be determined for future periods because the location and number of union employees that we have employed at any given time and the plans in which they may participate vary depending on the need for union resources.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.

Listed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and are critical to the understanding of our operations.

Revenue Recognition

We generate revenue by providing event technology services, such as audiovisual services, audiovisual equipment rental, staging and meeting services and event related communication systems as well as related technical support, to our customers in various venues, including hotels and convention centers. We recognize revenue when persuasive evidence of an arrangement exists, services have been rendered, the fee is fixed or determinable and collectability is reasonably assured. Revenue is recognized in the period in which services are provided pursuant to the terms of the contractual arrangements with our customers. Revenue related to multi-day events is recognized using the proportional performance model as services are provided over the course of the event. Revenue related to contracts for rigging, power and network installations is recognized when the installation is complete.

 

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We also evaluate whether it is appropriate to present as revenue the gross amount that our customers pay for our services as revenue, and the related commissions paid to the venue as cost of revenue, or to recognize the net amount (gross revenue less the related commissions paid to the venue) as revenue. In our standard arrangement, we contract directly with the customers, and we are responsible for the delivery of the services, including providing the necessary labor and equipment to perform the services. We are subject to inventory risk, have latitude in establishing prices and selecting suppliers and, while in many cases the venue bills the end customer on our behalf, we bear the risk of collection from the customer. The venues’ commissions are not dependent on collections. As a result, our revenue is primarily reported on a gross basis.

Venue Incentives

We enter into long-term contracts with venue operators for the right to be the exclusive on-site provider of audiovisual and event technology services and to receive customer referrals from the venue operator over the contract period. We defer certain up-front cash payments and the estimated cost of capital equipment and/or installation services obligations incurred in connection with signing new venue contracts or renewing existing venue contracts. In the event the contract is early terminated by the venue operator, the venue operator must repay a ratable portion of the cash payment and the value of the capital equipment and/or installation services obligations based on the remaining contract period. Venue incentives are amortized into cost of revenue over the life of the contract with the venue operator, which typically range from three to six years. We review our venue incentives for impairment whenever events or changes in circumstances indicate the carrying amount of the venue incentives may not be recoverable. For agreements that do not contain a contractual requirement for the venue operator to repay a ratable portion of the up-front cash payment in the event of early termination, the entire payment is recognized immediately into cost of revenue.

Acquisitions

The recording of an acquisition entails the allocation of the purchase price of an acquired business to its identifiable assets and liabilities based on the fair value of those assets and liabilities on the acquisition date. Any excess amount of the purchase price over the fair value is recognized as goodwill.

Determination of identifiable assets and liabilities and the respective fair values requires us to make significant judgments and estimates. We estimate the fair value of assets and liabilities using widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Other estimates used in determining fair value include, but are not limited to, future cash flows or income related to intangibles, market rate assumptions and appropriate discount rates. These estimates and assumptions are subject to a considerable degree of uncertainty.

The following table presents the valuation techniques that we typically use to value assets acquired as part of business combinations:

 

Asset Class

  

Valuation Technique

Tangible personal property    Replacement cost, reproduction cost and market approach
Venue contracts    Discounted cash flow
Customer relationships    Discounted cash flow
Trade name    Relief from royalty

Impairment of Goodwill and Other Indefinite-Lived Intangible Assets

We evaluate goodwill and other indefinite lived assets for impairment annually or more often if a triggering even occurs between annual tests. The annual tests are performed as of October 1.

 

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We evaluate goodwill for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment if discrete financial information is prepared and regularly reviewed by segment management. Each of our segments, Domestic and International, is made up of a single reporting unit. We assess goodwill for possible impairment using a two-step method. The first step of the goodwill impairment test compares the fair value of each reporting unit with its carrying value, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an indication of impairment exists. The second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any. If the carrying value of goodwill exceeds its implied fair value, an impairment loss is recognized equal to the excess. The implied fair value of goodwill is determined by allocating the fair value of each reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. We use combination of discounted cash flows and market multiples to estimate the fair value of each reporting unit.

We are also permitted to make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value prior to applying the quantitative assessment. If based on our qualitative assessment it is not more likely than not that the carrying value of the reporting unit is less than its fair value, then a quantitative assessment is not required. Our Predecessor performed a qualitative assessment for the annual impairment tests in the year ended December 31, 2013. We did not use the qualitative assessment to assess goodwill for impairment at our annual test in 2014 and 2015.

Determination of our reporting units, impairment indicators and fair value measurements require us to make significant judgments and estimates, including the extent and timing of future cash flows. As part of the determination of future cash flows, we make assumptions relating to the following:

 

    future general economic conditions;

 

    industry specific economic conditions;

 

    business projections;

 

    growth rates; and

 

    discount rates.

These assumptions are subject to a considerable degree of uncertainty and different assumptions could materially affect our conclusions. No impairment charges were recorded in the year ended December 31, 2013, the 2014 Predecessor Period, the 2014 Successor Period or the year ended December 31, 2015. In our most recent annual impairment test of goodwill performed as of the fourth quarter of 2015, the estimated fair value of our Domestic and International reporting units exceeded the carrying values of those reporting units by 47% and 67%, respectively.

Intangible assets have been acquired through various business acquisitions and include contractual relationships, customer relationships and trade names. Intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually. We test intangible assets with indefinite useful lives for impairment by comparing the fair value of the intangible asset with the carrying value. If the carrying value exceeds the fair value, an impairment loss is recognized equal to the excess. We test intangible assets with indefinite useful lives for impairment each year. The impairment test would be conducted more frequently if an event or circumstances indicate that an impairment loss has been incurred. Conditions that would trigger an impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the fair value of an asset. No such conditions occurred during the year ended December 31, 2013, the 2014 Predecessor Period, the 2014 Successor Period or the year ended December 31, 2015.

 

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Impairment of Long-Lived Assets

We periodically evaluate whether current events or circumstances indicate that the carrying value of our property, plant and equipment and definite-lived intangible assets may not be recoverable. If circumstances indicate that the carrying value may not be recoverable, we estimate future undiscounted net cash flows using estimates of related revenue and operating costs. If the undiscounted cash flows are less than the carrying value of the assets, we recognize an impairment loss equal to the amount by which the carrying value exceeds the fair value of the assets.

Our estimates of future cash flows are subject to certain risks and uncertainties which may affect the recoverability of our long lived assets. Although we have made our best estimate of these factors based on current conditions, it is reasonably possible that changes could occur, which could adversely affect our estimate of the net cash flows expected to be generated from our operating assets. No impairment charges were recorded during the year ended December 31, 2013, the 2014 Predecessor Period, the 2014 Successor Period or the year ended December 31, 2015.

Income Taxes

We are currently organized as a limited liability company, which is a pass-through entity for federal and state income tax purposes. However, we conduct our business through subsidiaries that are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgment is required in determining provision for income taxes and income tax assets and liabilities, including evaluating uncertainties with the application of accounting principles and corporate laws.

We record a provision for income taxes for the anticipated tax results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.

We evaluate the realizability of our deferred tax assets quarterly by assessing the need for a valuation allowance and by adjusting the amount of such allowance, if necessary. We consider the four sources of taxable income used in determining whether a valuation allowance is required and are able to rely on a single source of taxable income to determine if a valuation allowance is required. Because our deferred tax liability provides for existing taxable temporary differences greater than our deductible temporary differences and loss carryforwards and the general reversal patterns are such that offset would be expected under the tax law, a valuation allowance is not necessary.

We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the position. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. To the extent that the final tax outcome of these matters is different than the amounts recorded, it could have a material impact on our operating results. In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended time to resolve. We believe that adequate provisions for income taxes have been made for all years.

 

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Equity-Based Compensation

The PSAV Holdings LLC 2014 Management Incentive Plan and the PSAV Holdings LLC Phantom Unit Appreciation Plan provide management with an incentive to contribute to and participate in our success. Under these plans, we are authorized to issue, in the aggregate, 29,938 profits interests in the form of Class B Units and Phantom Units. We have issued Class B Service Units, Class B Performance Units, Phantom Service Units and Phantom Performance Units. Generally, Class B Service Units vest ratably over five years. Class B Performance Units will vest upon a distribution event exceeding certain threshold amounts and the achievement of a targeted multiple of invested capital.

Equity-based compensation expense related to the Class B Service Units is recorded based upon the fair value of the award at grant date. Such costs are recognized as expense over the corresponding requisite service period. The fair value of the awards granted in connection with the Sponsors Acquisition of $212 per share was calculated utilizing a Black-Scholes Option Pricing Model (OPM). The application of the OPM involves inputs and assumptions that are judgmental and highly sensitive in the valuation of incentive awards and affects compensation expense related to these awards. These inputs and assumptions for the awards granted in connection with the Sponsors Acquisition include the following:

Value of PSAV Holdings LLC equity—The value of PSAV Holdings LLC equity was determined based on the total fair value of equity derived from the Sponsors Acquisition.

Exercise price—The exercise price input considers the distribution threshold assigned to the Class B units and the multiples of invested capital that must be achieved with respect to the performance units.

Expected volatility—In estimating the expected volatility applicable to the Class B Units, we considered (a) the historical volatility of comparable, publicly traded companies share prices; (b) implied volatility of comparable, publicly traded companies share prices determined from the longest dated publicly traded call options; and (c) relevered volatilities that adjust the public companies levered volatilities to be more consistent with our expected leverage over the expected term. A volatility factor of 45.0% was selected for application in our OPM.

Risk free interest rate—We utilized the five-year U.S. Treasury bond yield consistent with the expected term described below to estimate a risk-free rate of return of 1.6%.

Expected term—Our equity interests do not have a contractual term and rather represent economic interests in a privately held company without an active market for its equity which will benefit from a liquidation event. Since we are controlled by private equity affiliates of Goldman Sachs and Olympus Partners, the expected term utilized in our analysis is estimated to be five years which is based on the typical period private equity firms hold their investments.

Dividend yield—We have no current plans to declare a dividend that would require a dividend yield assumption other than zero.

Incorporating each of these inputs into the Black-Scholes Model yields a call option value for the publicly traded equivalent value of our equity as of the grant date. We calculated the incremental option value between the concluded call option values at each of the exercise prices. These incremental option values were then allocated amongst our Class A and Class B Units. A discount for lack of marketability was applied which yielded the fair value of the Class B Units.

 

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We will continue to use judgment in evaluating the inputs and assumptions into our OPM on a prospective basis. However, once our shares are publicly traded, we will use the actual market price and will no longer need to estimate the value of our common stock.

As of December 31, 2015, we have determined that a distribution event relating to Class B Performance Units was not probable, and accordingly, no compensation cost has been recognized.

The Phantom Units act as an incentive for holders that are employed as of a distribution date to receive a cash payment. We are accounting for the Phantom Units as a contingent bonus; therefore, the Phantom Units are not within the scope of ASC Topic 718. Accordingly, related expense will be recognized only when payments become probable to Phantom Unit holders.

New Accounting Standard Updates

See Note 4 to our audited consolidated financials included in this prospectus for a full description of recent accounting standard updates, including the expected dates of adoption.

Quantitative and Qualitative Disclosure About Market Risk

We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through variable rate debt instruments and denominate our transactions in a variety of foreign currencies. Changes in these interest rates and foreign currency exchange rates may have an impact on future cash flow and earnings.

We manage these risks through normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. By their nature, all such instruments involve risk, including the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract (credit risk) or the possibility that future changes in market price may make a financial instrument less valuable or more onerous (market risk). As is customary for these types of instruments, we do not require collateral or other security from other parties to these instruments. In management’s opinion, there is no significant risk of loss in the event of nonperformance of the counterparties to these financial instruments. We do not use derivative financial instruments for trading or speculative purposes.

Interest Rate Risk

We are subject to market risks from fluctuation in interest rates on our variable-rate term loan borrowings. Our risk management philosophy is to limit our exposure to rising interest rates and minimize the negative impact on its earnings and cash flows. We currently use deferred premium interest rate caps agreements to limit this exposure. The fair value of the interest rate caps, which are not designated as hedging instruments, are included in other liabilities in the consolidated balance sheet as of December 31, 2014 and 2015 (net liabilities of $1.7 million and $2.2 million, respectively). The two caps limit our exposure to fluctuations in the U.S. dollar LIBOR rate above 3% through April 2018 on $342.5 million of debt. As we did not designate these as hedge instruments, the impact of changes in the fair values the interest rate caps is included in other income (expense), net.

A hypothetical increase in interest rates of 100 basis points would have increased our interest expense in the 2014 Successor Period and the year ended December 31, 2015 by $1.4 million and $2.0 million, respectively (with no impact to our interest rate caps which are set at a higher level).

 

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Foreign Currency Risk

As a result of our global operations, we generated approximately 9.2% of our sales and incurred a similar portion of our expenses in currencies other than the U.S. dollar in the year ended December 31, 2015. As a result, our revenue, cost of sales, operating expenses and certain assets and liabilities fluctuate as the value of such currencies fluctuate in relation to the U.S. dollar. In addition, the results of operations of some of our operating entities are reported in currencies other than the U.S. dollar and then translated into U.S. dollars at the applicable exchange rate for inclusion in our financial statements. As a result, appreciation of the U.S. dollar against these other currencies generally will have a negative impact on our reported sales and profits while depreciation of the U.S. dollar against these other currencies will generally have a positive effect on reported sales and profits. We do not currently hedge our foreign currency exposure. Our exposure is primarily related to the Canadian dollar, Mexican peso, Dominican peso, British pound, euro, Emirati dirham and Singapore dollar.

During the year ended December 31, 2013, the 2014 Predecessor Period, the 2014 Successor Period and the year ended December 31, 2015, exchange rate changes did not have a material impact on our financial statements.

 

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BUSINESS

Overview

PSAV is a leading provider of audiovisual and event technology services in North America. Our highly-trained technical staff delivers innovative solutions in support of events ranging from small meetings in single conference rooms to global multi-media conference events with thousands of attendees. As our customers look to deliver more dynamic and impactful events, the event technology services we provide are a critical need and continue to grow in importance.

We are the event technology provider of choice at leading hotels, resorts and convention centers (“venues” or “venue partners”). Our business model is based on long-term partnerships with these venues, which establish us as the exclusive on-site provider of event technology services. Our customers, including corporations, event organizers, trade associations and meeting planners, hire us primarily through our on-site presence at venues to plan and execute their events. We have built a premier brand based on our comprehensive service offerings, strong track record of customer service, broad geographic footprint and on-site employee service model. Our largest market is the United States where we hold the number one position and serve more than five times the total venues of our closest competitor. In addition, we have a leading position in three of the nine countries we serve internationally.

Our market-leading position and scale is evidenced by the following:

 

    We support over 1.5 million meetings per year and are hired by over 1,100 meeting planners and event organizers on average each day.

 

    We are the exclusive on-site event technology provider to over 1,300 venues globally, including venues representing 46% of the meeting and event space across all luxury and upper upscale hotel properties within the United States.

 

    Approximately 95% of our over 7,800 employees are customer-facing, working alongside our venue partners’ sales teams and hospitality staff.

 

    We are the market leader in 19 of the top 20 U.S. hotel markets.

 

    We operate in nine international markets with leading positions in Canada, Mexico and the United Kingdom.

 

    We have averaged 98% venue retention rates and organic growth of 48 new venue openings per year since 2011.

We offer a compelling value proposition to both our venue partners and our customers. For our venue partners, meetings and events are an important source of revenue and profit. Through our services, these venues are able to generate significant incremental revenue with limited investment on their part. For our customers, meetings and events are critical marketing and communication vehicles to reach clients, employees and other stakeholders. Our event technology services enhance the delivery of the customer’s message to its audience and increase the overall impact of the event.

Our premier brand, scale and differentiated capabilities allow us to partner with some of the most iconic, marquee venues in the world, for whom we are the exclusive on-site provider of event technology services. Our venue partners consist primarily of luxury and upper upscale hotel properties, including properties operating under all 10 of the largest hotel chains as measured by meeting space in the United States, high-profile convention centers and other meeting spaces. Our long-term contracts with venues help align our mutual interests to maximize revenue and profitability from the customer events hosted at the venues. Our on-site staff interacts with the customer directly and is entrusted with maintaining the brand equity and professional standards of that particular venue. As a result of our

 

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strong customer service provided by our on-site staff, we have a +69 Net Promoter Score for the twelve months ended February 22, 2016,2 which we believe is a very strong measure of our customers’ willingness to recommend our company to others.

We offer our customers a comprehensive set of event technology solutions to address the entire scope of their events from planning to execution. The rising technological complexity and growing importance of meetings and events enhances the importance of the relationship between the customers holding an event and the venues and service providers executing the event. Leveraging our technical expertise, our sales and production teams work with customers directly to identify key messages and goals for an event and develop ways to convey those messages in a creative and compelling fashion. During the event, our technicians work to ensure the services are effectively, professionally and reliably delivered.

Our suite of services capitalizes on the industry’s growing demand for greater technological sophistication. We believe we have the broadest suite of services and solutions to meet the varied needs of venues and to capture the majority of their customers’ event planning spend. The following graphic illustrates some of our visible, and less visible, services:

 

LOGO

 

(2)  A Net Promoter Score ranges from negative 100 to 100. It is a measure of customer satisfaction and willingness to recommend us based on our “Likelihood to Recommend” question provided to customers following an event. Our Net Promoter Score is obtained from the Medallia Guest Satisfaction Survey System.

 

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We have experienced rapid growth as a result of our market-leading position, our contractual relationships with venues, our broad service offering and our strategic acquisitions. We have increased the number of contracted venues by approximately 60% since 2011 and averaged same venue revenue growth of 10.6% over the same period through 2015. In addition to our strong organic growth, our strategic acquisitions have enhanced our capabilities, increased our density in local markets and expanded our scale.

Internationally, our broad, established and highly scalable platform allows us to capitalize on increasing customer spending on overseas events, and the global trend towards event technology outsourcing. We are taking advantage of this opportunity by entering new markets, expanding within the international markets of our leading hotel chain partners, building relationships with new international venue partners and making strategic acquisitions. By extending our international footprint, we will further solidify our existing venue relationships. Our annual international revenue has grown 57% since 2011.

Between 2011 and 2015, our revenue increased from $645.5 million to $1,487.2 million, Adjusted EBITDA increased from $53.4 million to $174.5 million and net loss improved from $19.0 million to $5.8 million. For the year ended December 31, 2015, our revenue of $1,487.2 million grew 17.7% versus the 2014 Pro Forma Combined Period. In this same period, our Adjusted EBITDA of $174.5 million represented 11.7% of revenue and 11.2% growth over the 2014 Pro Forma Combined Period. Adjusted EBITDA is a non-GAAP measure. For a reconciliation of Adjusted EBITDA to net income (loss), see “Selected Historical Consolidated Financial Data.”

Our History

Through our focus on innovation and customer service, we have evolved from a small, regionally-based provider of audiovisual services to a leading global event technology services provider. Initially focused on U.S. hotel venues, we started developing relationships with venues at a time when most properties still chose to provide their own, in-house audiovisual services to their customers. By the 1990s, as events and the associated technology needs grew increasingly complex, we observed that more U.S. hotels began outsourcing event technology services given the need for specialized technical expertise and equipment. Over the last decade, this trend has accelerated. Hotels and other venues (such as convention centers, conference centers and sports stadiums) have increasingly outsourced a broader suite of event technology services to third parties in order to focus on their own core services. The majority of luxury and upper upscale U.S. hotels now outsource event technology services.

We anticipated this outsourcing trend and began establishing relationships with leading hotel chains at the corporate level, providing them with high quality and consistent services across multiple locations. These relationships served as an endorsement of our brand and provided access to their venues which helped fuel our growth. Over time, we have enhanced our original audiovisual services with more technically complex capabilities to meet our venue partners’ and customers’ evolving demands. The expansion of our service offering has increased the revenues for both us and our venue partners and has further solidified our long-standing relationships.

In addition to our core growth, we have continued to expand our business through strategic acquisitions. Our largest acquisition was Swank in November 2012. Swank was the second largest outsourced provider of event technology services for hotels, resorts and conference centers throughout the United States and brought to us additional talent and complementary venue relationships. Additionally, we acquired VAE in 2013, which broadened our portfolio of services, and we acquired AAVC in 2015, which increased our density in key U.S. markets. Each of these businesses has been fully integrated and allows us to offer our expanded suite of services across all venues.

 

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More recently, we have focused on building our geographic footprint internationally. We continue to leverage our strong relationships with our leading international hotel chain partners in Canada, Mexico, Europe and the Middle East. In addition, we recently entered the Asian market by opening a location in Singapore. In April 2015, we acquired AVC Live to increase our venue footprint and customer relationships in the United Kingdom. In February 2016, we acquired KFP to extend our presence in Germany, Switzerland, Austria and Hungary. We intend to continue to selectively pursue international acquisitions to further our growth.

Industry Background

Our Addressable Market

We believe we have an approximately $42 billion total addressable market. Our primary addressable market is an estimated $23 billion global audiovisual and event technology services industry. In addition, we selectively participate in the just under $20 billion estimated market for the design and construction of permanent audiovisual installations.

LOGO

The market for core event technology services focuses on equipment, staging and production, which we estimate to be $9.3 billion across U.S. hotels, conference and convention centers and non-traditional venues (e.g., museums, sports stadiums and wedding halls). Today, we provide event technology services primarily in hotels, with the substantial majority in the luxury and upper upscale segments. These segments comprise more than half of the hotel meeting space in the United States and tend to be a location of choice for business meetings and conferences which typically have more significant event technology requirements. Our Domestic segment revenue for the year ended December 31, 2015 was $1,350.0 million.

We estimate the market for core event technology services at luxury and upper upscale hotels internationally is $4.6 billion. There is a significant installed base of our targeted luxury and upper upscale hotel venues that presents an attractive opportunity to generate growth, including approximately 1,750 of such hotels in Asia Pacific,3 1,670 in Europe, Middle East and Africa

 

(3)  Asia Pacific: Australia, China, India, Indonesia, Japan, Malaysia, New Zealand, Singapore and Thailand; EMEA: Egypt, Belgium, France, Germany, Greece, Ireland, Israel, Italy, Jordan, Russia, Spain, Switzerland, Turkey, United Arab Emirates and United Kingdom; South America: Argentina, Brazil, Chile, Colombia, Ecuador, Peru and Uruguay.

 

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(collectively, “EMEA”3), 370 in Mexico and Canada, and 220 in South America.3 In these regions, our largest hotel chain partners, Starwood, Hilton, Marriott and Hyatt, have approximately 1,000 locations that may facilitate our expansion. Outside the United States, the geographies with the largest event technology spending include China, Western Europe, Southeast Asia, Japan and Canada. We expect demand for event technology services to grow faster in many regions internationally than in the United States, driven by higher economic growth rates, the trend toward more complex U.S.-style event production and the transition to outsourced event technology services. We currently operate in nine countries outside the United States, including the United Kingdom, France and Germany, and generated International segment revenue of $137.2 million for the year ended December 31, 2015.

We also participate in what we estimate to be the $9.1 billion global market for specialty services in venues, including high-speed internet, power distribution and rigging. We believe rigging constitutes nearly half of that market and has been an area of growth for us since 2011. We believe the need for these services will continue to grow in importance for events. The proportion of our venue revenue generated by specialty services has increased from 10.6% in 2011 to 13.9% in 2015. Our ability to provide these complementary services enhances our value proposition to our customers and allows us to capture a greater portion of the spend on each event.

Meeting and Event Activity Historically Correlated with RevPAR

In the United States, meeting and event activity historically has been highly correlated with the hospitality industry metric Revenue per Available Room (“RevPAR”) and Group Revenue per Available Room (“Group RevPAR”), which are calculated by STR and PKF. STR is an independent, third-party service that collects and compiles the data used to calculate RevPAR and Group RevPAR, and PKF is an independent, third-party service that collects and compiles historical data used to calculate RevPAR. Whereas RevPAR is a total industry metric, Group RevPAR measures total guest hotel room revenue generated by group bookings (blocks of guest hotel rooms sold simultaneously in a group of ten or more rooms), divided by total number of available guest hotel rooms. Because meetings and events generally require lodging for their participants, event activity typically correlates with Group RevPAR at nearby hotels, regardless of whether the events themselves are held on-site at hotels or at other nearby venues. As we provide event technology services primarily in hotels in the luxury and upper upscale segments, we refer to Group RevPAR for hotels in these segments as they more closely align with our business.

 

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Within the United States, RevPAR has grown on average by 5.1% annually since 1970 according to PKF. Group RevPAR is a newer industry metric and represents a segment of the RevPAR performance, but tracks closely to overall RevPAR. Since 1970, RevPAR has only decreased in times of significant downturns in travel such as after September 11, 2001 and during the global financial crisis that began in 2008. More recently, both RevPAR and Group RevPAR have demonstrated strong growth in the rebound from the financial crisis, with overall RevPAR growing at a CAGR of 9.3% since 2010. Looking ahead, RevPAR for luxury and upper upscale hotels is predicted to grow at 5.0% in 2016, according to STR data. Our revenue historically has been correlated with Group RevPAR and our same venue revenue growth has exceeded Group RevPAR growth for each of the past six years as we have increased average revenue per event and expanded the services we offer through our venues.

 

LOGO

Industry Trends

Continued Importance of Meetings and Events.    In-person meetings and events continue to be rated as the single most effective marketing and communication vehicle. Companies recognize that face-to-face interactions are highly impactful and continue to support in-person events, despite the ubiquity of technology-based solutions such as video conferencing, social media, company websites, articles and webinars. In most cases these technologies are used to supplement rather than replace in-person meetings. Meetings and events were estimated to contribute $280 billion of total spending in the United States in 2012, according to PwC, as companies and other organizations continue to deploy marketing budgets towards in-person meetings.

Venues are Focused on Increasing Group Revenue.    Revenues generated by group bookings (“Group Revenue”) were estimated to contribute approximately $40 billion in hotel revenue in the United States and approximately $100 billion globally as of 2013 according to research consolidated by Travel Click by Passkey. Group Revenue often constitutes a hotel’s most profitable segment because of the increased associated spend on meeting space, banquet catering and event technology services. Luxury hotels in particular have focused on expanding Group Revenue by growing aggregate meeting space which has grown at a 10% CAGR from 2009 through 2015. As hotels and other venues focus on this large and profitable segment of their business, they seek expanded service offerings to support meetings and events, including event technology services.

Rising Complexity in Event Technology.    The rise in consumer technology has led to an increased demand for technological sophistication at meetings and events. These heightened expectations drive meeting and event planners to deliver a more interactive and engaging audience experience than they have in the past. For example, our customers are frequently requesting Wi-Fi access in all meeting spaces and seeking to use video, sound and staging to create branding and

 

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special effects for audience impact. The demands of tech-savvy audiences require more complex event technology solutions and trusted providers who can implement those solutions. This development has led to an increase in our average revenue per event across our domestic venues from $2,359 in 2011 to $3,407 in 2015.

Venues are Increasingly Outsourcing Event Technology Services.    Given the rising complexity in event technology services and associated capital expenditure requirements, venues are increasingly looking to partner with outsourced providers such as us. Venues and customers benefit from high-quality customer service, broad service offerings and deep domain knowledge. At the corporate level, hotel chains benefit from a consistent standard of service across their venues. In addition, outsourced providers are often able to increase venues’ event technology revenue beyond what venues could achieve on their own because of event technology providers’ expanded offerings and specific focus on meetings and events. Since 2011, we have contracted to provide event technology services at 42 venues that were previously in-sourcing these services. During the same period, approximately 25% of our new domestic venues were conversions from self-operated sites.

Internationally, Event Technology Opportunity Continues to Grow.    We forecast that spending on event technology services at international luxury and upper upscale hotels will grow from an estimated $4.6 billion in 2015 to $5.4 billion in 2020, with many individual markets growing more quickly. We believe this growth is driven primarily by outsized economic growth in developing economies, increased globalization driving more meetings and events and U.S. hotel chains seeking to expand their international footprints. We expect international venues to increasingly adopt outsourcing of event technology services to realize the benefits of the on-site model that has proven successful in the United States.

Competitive Strengths

We believe our competitive strengths are as follows:

Highly Skilled Workforce with a Focus on Customer Service.    We believe our ability to deliver high-quality, comprehensive event technology solutions is a direct result of our ability to hire, train and retain the best event technology services staff in the industry. Approximately 95% of our over 7,800 employees are in customer-facing roles. We provide numerous education and training programs to develop our personnel, focusing on hospitality and customer service as well as technical expertise. Our venue managers have an average tenure of nearly nine years and our regional vice presidents have an average tenure of approximately 15 years. Our employees’ technical expertise and familiarity with the specific venues in which they are based enable them to deliver seamless event execution to our customers.

Long-Term Relationships with High-Profile Venues and Hotel Chains.    We have a long track record of delivering high-quality, comprehensive event technology solutions at the venues with whom we partner, including luxury and upper upscale hotel chains who have high expectations for customer service and execution. In addition, hotel chains value our ability to provide a consistent level of service across their venues. We have long-term master service agreements (“MSAs”) signed with four of the five largest domestic hotel chains naming us as a preferred provider of event technology services at their hotels. Individual venues in the chain may then choose to contract with us as the exclusive on-site provider pursuant to the terms established in the MSA. The MSAs typically provide us with a powerful endorsement as the only chain-endorsed event technology services provider and position us well to establish new contracts with additional hotels in the chain. Our average relationship with our largest 20 venues is approximately 11 years. For the individual venues where we provide on-site service, our integration with their operations and knowledge of their customers’ event technology needs provides them with strong incentives to renew their contracts with us, resulting in our average 98% annual venue retention rate since 2011.

 

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U.S. Market Leader with Broad Reach, Expansive Scale and Breadth of Service Offerings.    We are the audiovisual and event technology services market leader in the United States with significantly greater market share than any of our competitors. We have venue contracts representing 46% of the meeting and event space in all of the luxury and upper upscale hotel properties in the United States. Our deep and broad platform includes over 7,800 employees, over 1,300 worldwide on-site event technology venues and 44 global branch warehouse locations. Our scale and reach offers several advantages. First, it enables us to offer the broadest range of event technology services and solutions, from core audiovisual services to specialty services such as rigging and power. Second, our network density enables us to leverage our people and our specialized equipment efficiently, driving higher margins and allowing us to provide our services at a wider range of venues cost effectively. Finally, our scale provides a barrier to entry to smaller, regional providers who we believe are unable to provide comparable expertise and capabilities.

Strong Historical Same Venue Revenue Growth.    In the United States, our historical same venue revenue growth has exceeded Group RevPAR by an average of 610 basis points since 2011 as shown in the table below. We have been able to achieve this revenue growth due to our track record of outstanding customer service, increasing suite of services and sales team effectiveness. Our comprehensive solution set has enabled us to benefit from the industry-wide increase in technology spend per event as our customers migrate to more advanced technologies and purchase more of our services to support their events. For example, the proportion of our venue revenue generated by specialty services has increased from 10.6% in 2011 to 13.9% in 2015. As these underlying trends continue, we expect our differentiated capabilities will allow for continued growth in same venue revenue.

 

LOGO

Strong and Growing International Presence.    We have a leading market position in Canada, Mexico and the United Kingdom with a presence in France, Monaco, Germany, United Arab Emirates, Dominican Republic and Singapore. We have strong relationships internationally with both venues and customers, and we provide a broad range of services at nearly 300 on-site properties outside the United States. Our contractual relationships with leading hotel chains and strong market position provide us with a competitive advantage over small, local providers who lack our scale and technological expertise.

Compelling Financial Model with Multiple Levers to Drive Profitability and Manage Free Cash Flow.    Our strong free cash flow allows us to continue to invest in our business, our people and our equipment. Furthermore, we have a flexible cost structure that allows resiliency in varied market

 

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conditions. Our overall cost of revenue is approximately 75% variable, driven by the variable nature of venue commissions, which is our primary expense. Our part-time labor force and strategic network of branch locations allow us to manage peak demand and sustain margins. Furthermore, most of our capital investment is success-based, with most significant capital investments tied to new or renewed venue contracts which are evaluated against our return requirements. The resulting flexibility in our cost structure and capital requirements allows us to deliver high-quality service to our customers while maintaining profitability and strong free cash flow.

Proven Management Team with Deep Industry Expertise.    Our management team combines deep industry expertise with specific functional experience. They have presided over significant growth in the past several years and have led our transformation into a global event technology service provider. At the same time, they have instilled a collaborative company culture focusing on innovation and customer service, which has resulted in significant growth, high levels of satisfaction across customers and venue partners and a best-in-class team. Our senior operational team has an average of 18 years of industry experience and has operated across a variety of economic conditions and geographies.

Growth Strategies

We intend to pursue the following growth strategies in order to enhance our market leading position:

Capture More Events at Existing Venues.    We believe significant opportunity exists to capture incremental events at our venues. We estimate that we currently service approximately 70% of the event technology spend in our existing venues with the remaining 30% spent by customers on other event service providers without an on-site venue presence. In particular, capturing a greater percentage of large events (i.e., those with more than 500 attendees) represents a significant opportunity as we believe our current capture rate for these events is just over 50%. We are developing a number of initiatives with our on-site sales teams and our venue partners to increase our capture rate at existing venues.

Win New Venue Partners.    We intend to expand our revenue by pursuing new venue partners. We estimate we have contracts with approximately 40% of the luxury and upper upscale U.S. hotel venues, and we believe that the remaining 60% provides a significant target market in which to win new venues. In addition, with less than 10% of our revenues generated from events at non-hotel venues, we believe we have a significant opportunity in the $6.2 billion non-hotel venue market including convention centers, sports stadiums, theaters, museums and other cultural centers, as we have on-site contracts at select non-hotel venues and additionally provide services to existing customers at non-hotel venues where we are not currently the preferred on-site provider of event technology services.

Win More Customers Independent of Venue.    Certain customers choose to work directly with us because their event technology needs require highly customized solutions or because they seek a consistent solution across a range of venues or geographies. We currently engage with approximately 250 of these customers by assigning a single PSAV point of contact to manage the customer’s events regardless of their venue selection. This market represents a significant revenue opportunity as a large portion of the domestic marketplace continues to be serviced by event technology providers who are not on-site at a particular venue. We plan to leverage our broad branch network and specialized sales teams to continue to capture incremental market share through established relationships with large corporations, associations and meeting planners.

 

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Develop and Market Adjacent Services to Increase Revenue per Event.    The trend towards increased technology spend per event is creating substantial opportunities to increase our event technology revenue across our suite of services. In the near term, we believe this trend will allow us to further penetrate the $9.1 billion specialty services market. Our event technology services that are considered part of the specialty services market include rigging, power, Wi-Fi services and creative services and contributed $52.6 million of revenue in 2011, which has grown to $171.2 million of revenue in 2015. We will continue to focus on expanding our suite of services to grow our event technology revenue. Over the longer term, we believe that our close relationships with customers and extensive market presence will enable us to continue to anticipate event technology trends and innovate new services, thereby capturing additional revenue opportunities.

Continue to Expand Margins Through Operational Efficiencies.    We have proven our ability to leverage operational efficiencies in driving profitability as our Adjusted EBITDA margin has expanded by approximately 350 basis points between 2011 and 2015. We have several initiatives in process to continue to increase margins, focused primarily on labor and equipment utilization. For example, we are improving our labor utilization by standardizing our planning and forecasting of our hourly workforce to optimize staffing levels. We are improving our equipment utilization by increasing the sharing of equipment between individual venues within a market and improving the use of our branch network to serve multiple, nearby venues. We also expect growth in our free cash flow as we implement further capital expenditure efficiencies.

Expand International Revenue.    The $4.6 billion international event technology services market represents a compelling growth opportunity. The four largest U.S.-based hotel chains with whom we have strong domestic relationships represent approximately 25% of total hotels in key addressable international markets. We intend to leverage our relationships with these and other U.S.-based hotel chains to expand our footprint into their international locations. In addition, we intend to enter new markets as we have recently done in Singapore. Our brand recognition, industry expertise and scale make us well-positioned to seize this significant growth opportunity.

Selectively Pursue Acquisitions.    We intend to pursue acquisitions to enter new markets and accelerate growth in existing markets. Over the past few years we have acquired and integrated four event technology service providers and have demonstrated a track record of achieving forecasted synergies. We maintain a pipeline of acquisitions which we evaluate based on established investment criteria including alignment with our culture and customer focus. We source acquisition targets through market research, direct relationships within our industry and reverse inquiry from founders and CEOs of smaller event technology service providers. We believe international markets represent a compelling opportunity for acquisitions given their highly fragmented nature and early stages in outsourcing of event technology services.

 

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Our Platform

Our highly trained and skilled workforce and our extensive venue and branch network establish a differentiated platform to deliver event technology services.

Our people are the most important asset in developing and maintaining our venue and customer relationships and in delivering high quality service. More than 40% of our full-time domestic workforce has worked with us for more than five years and has an average tenure of 11.3 years. We recruit highly motivated people who have expertise in selling tailored solutions to customers, and we train them in sophisticated technical solutions. We are fully committed to the ongoing professional development of our personnel. In 2014, we hired new leadership to focus on training and the further enhancement of our systems. We have also recently implemented a learning management system, which includes technical, general business, sales leadership and management training.

Our global delivery network consists of an unmatched footprint of more than 1,300 venue partners and 44 global branch network locations strategically located in the key meeting and event geographies where we operate. This network provides our customers access to a broad range of service capabilities and equipment, including specialized or less frequently used equipment and enables us to service even small venues efficiently.

We enter into long-term contracts with our venues to be the exclusive on-site provider of audiovisual and event technology services. In exchange for exclusivity, we pay a commission to our venues based on event technology revenue we generate at their meeting facilities. We believe this commission aligns the incentives of our venue partners with our own as we both seek to maximize revenue. We also sign MSAs with top hotel chains (including four of the five largest U.S. hotel companies) naming us as a preferred event technology services provider for each of the venues in a given hotel chain. Each local venue then executes an individual contract if it elects to partner with us.

We believe that entering into an MSA with the corporate hotel chain provides an endorsement of our brand that individual properties will consider when determining whether to enter into a contract for us to be their exclusive on-site provider of event technology services.

 

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The MSAs typically have terms of three to six years and provide the framework (including commission rates, incentives, reporting and execution obligations, insurance and indemnification obligations and obligations of the hotel chain to endorse us to their properties). The MSAs typically include the form of individual property level service agreements which specify our equipment and service levels, commission rates and each parties’ obligations for the individual hotel properties within the hotel chain that choose to partner with us. Our contracts with venues typically have terms of three to six years. MSAs and individual service agreements can typically be terminated by the hotel chain or partner venue for a breach by us of a material provision of the agreement (following a cure period of typically 30-60 days) or specified bankruptcy events with respect to us. We generally can terminate the MSA or individual service agreements for a breach of a material provision by the hotel chain or individual property (following a cure period of typically 30-60 days) and in connection with specified bankruptcy events of the hotel chain or individual property.

Our Venue Model

 

LOGO

Our services are deployed as follows by our team during the event planning and execution phases:

 

    Event Planning.    Our sales personnel meet customers during the planning phase to provide consultation around our portfolio of event technology services. The sales personnel then communicate the customer’s vision to our production team, which consists of industry experts such as staff producers, stage managers, video editors and graphic designers. These staff members can also work in concert with our innovative creative services team to collaborate with customers to establish ways in which the technical solutions and services can convey key messages in a more compelling fashion. We also embed a senior relationship manager at each venue whose responsibility is the general oversight of all the functions associated with servicing our customers at the venue.

 

    Event Execution.    During the actual event, our trained technicians achieve a high level of execution by closely monitoring and troubleshooting the event to address any issues promptly as they occur. Our customers rely on our experience at venues to advise them on event technology needs. Our equipment is either already held on-site or delivered from our branch network to support the event. Our skilled technicians focus on service delivery and have earned a reputation for customer satisfaction.

 

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Sales and Marketing

Our sales and marketing team is organized across three different dimensions: winning new venues; increasing sales at existing venues; and selling to customers directly independent of venue.

To continue to expand our venue footprint, our regionally-based sales and marketing teams foster relationships with key executives, solicit prospects and execute direct marketing campaigns at the venue level. These teams are focused on adding venues to our network across hotels, convention centers, conference centers and non-traditional venues. The sales team pursues a disciplined sales process and utilizes economic models to evaluate capital investment against projected cash flow over a specific target payback period.

Within our venues, our on-site event sales team leads the sales process with customers. Working in partnership with the venue’s own staff, our sales professionals analyze the venue’s reservations and together identify strategies to best manage group meetings and events. This relationship allows our sales team to secure more business. To help service over 1.5 million meetings per year, our sales team leverages our advanced customer relationship management (“CRM”) platform, which contains proprietary customer and industry information, along with an innovative suite of e-tools, which includes tailored websites and a mobile app to track customer history and preferences within our network. Once the scope of services is contracted with the customer, our sales team will work with our technicians to plan and execute the event.

For a small but growing number of repeat customers, we have begun selling directly through a single, PSAV point of contact. These customers are holding either very large shows with thousands of attendees or frequent, smaller shows that require consistent services replicated across the globe. They are covered by our most experienced event sales managers who are organized by customer segment to create distinct strategies based on the customers’ requests. Our sales managers become intimately familiar with the specific needs of each customer and our dedicated support staff delivers a high-touch customer experience regardless of venue. Today, we serve over 250 national accounts through this channel, including national associations and trade shows, international government agencies, leading corporations and production companies.

Our Services

Our large and highly trained workforce delivers the industry’s broadest suite of event technology services to allow our customers maximum flexibility in creatively designing and executing events. Customers use an increasing number of our services, depending on the scope and complexity of the event, to accomplish their meeting or event objective.

The following are some examples of customer uses of our service offerings:

 

    A small and growing business holding its leadership meeting will use our digital projection and sound technology to ensure all attendees leave with a clear message.

 

    A consumer goods company announcing a product launch will use lighting and visual imagery to create the right branding for the event while leveraging our rigging and power capabilities to transform the physical meeting space.

 

    A technology company holding a major developers’ conference will engage our creative services team to design messaging and content that will impact audience engagement to reinforce its culture.

 

    A global pharmaceutical company training its sales force will work with us to stream video to an audience around the world while using interactive tools and our simultaneous language translation platform to enable any viewer to ask questions.

 

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Regardless of our customers’ event size or objective, our services deliver an exceptional experience to their attendees. The service offerings that we offer our customers are detailed below:

 

Video

 

Audio

LOGO   Technology includes front and rear projection from large format HD high lumen projection to boardroom-style projectors, playback systems, image magnification, digital capture, cameras and display systems, including LED displays and video walls   LOGO   Full range of microphone and sound solutions with digital mixers, wireless microphones, networked audio and proprietary software to control live sound systems

Rigging Solutions

 

Lighting

LOGO   Solutions include design and installation of permanently installed rig points in meeting venues, day-to-day deployment of rigging systems to safely transform meeting and event spaces for larger and more sophisticated set and lighting designs and certified trainers and inspectors   LOGO   Speaker and stage lighting, intelligent lighting and decorative and theatrical lighting through gel lights and LED lights

Wi-Fi Solutions

 

Power Distribution Solutions

LOGO   Our capabilities include managing our venues’ entire network to provide customers secure and reliable wired and wireless solutions. Our Meeting Room Manager configuration allows bandwidth allocation for mission-critical applications   LOGO   Streamlining of special event power distribution for event and production power across events, meeting rooms and trade shows

Staging

 

Event Consultation and Support

LOGO   With one of the largest collections of custom screens and the ability to provide concert sound, broadcast quality projection, seasoned stage producers, CAD drawing and the experienced production team, staging incorporates the elements listed above but in large, technically complex settings   LOGO   Trained staff (including producers and stage managers) consult with customers for the entire scope of their event from planning to execution. This includes meeting accessories necessary to create a productive environment, including simple flip charts, laptop computers, dongles, printers and teleconference support

Creative Services

 

Virtual Meetings and Events

LOGO   Thematic creation, PowerPoint display, video creation, stage sets and a team of producers engage to deliver a customer’s marketing and communication goals   LOGO   Webcasting, webstreaming and social media display support this growing non-traditional segment that complements face-to-face events. Capabilities give customers streamable, playable and recordable solutions for delivering on-site audio, video and presentations to off-site viewers and listeners

 

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Mobile Device Applications

 

Video Mapping / Simultaneous Translation

LOGO   Custom-designed mobile device applications tailored to the specific events that provide the schedule of events, maps, sponsors and detailed information on the host customer   LOGO  

Video Mapping: Advanced projection technologies (including 3D projection mapping) allows images to be projected on to a variety of building surfaces to provide illusion of movement

 

Simultaneous Translation: Leading provider of simultaneous interpretation equipment and services in the United States in support of key global and governmental customers

Competition

We are the largest provider of event technology services in the United States, and we compete with a limited number of global event technology providers. We have more than five times the total venues of our closest competitor, which is Freeman Company. Beyond Freeman, the market is highly fragmented and includes a number of smaller regional providers with limited service offerings. Additionally, a number of venues still in-source event technology services, including many Marriott properties in the United States. Internationally, the market is even more fragmented than in the United States, as numerous small staging companies support venues and customers in single regions.

Within some regions we also compete with regionally-based staging companies, which support selected events within our contracted venues. We estimate that 30% of the event technology services spend taking place within our venues is spent with outside vendors. Many of our larger geographic markets have several small staging companies ranging from simple rental companies that will drop off equipment to production companies that will manage and produce the event for a customer.

We believe that we have a competitive advantage over local providers given our scale, network locations, breadth of services and highly-skilled and stable workforce. We also believe that venues will continue to shift away from in-sourcing of event technology services as they realize the benefits of the outsourced model.

Customers and Venue Partners

Our venue partners include hotel chains, convention centers, meeting spaces and sport facilities. We have entered into long-term contracts with many of these venues, which establish us as the exclusive on-site provider of event technology services. For some of the larger hotel chains, we have entered into long-term MSAs, whereby they have agreed to name us as the preferred event technology services provider to their hotels. Individual hotels in the chain may then choose to contract with us as the exclusive on-site provider of their event technology services and provide us with access to the customers who book events at their hotels. See “—Our Platform” for further information regarding our MSAs and individual property level service agreements.

We operate in venues belonging to all 10 of the top hotel chains in the United States. In 2014, we renewed our MSAs with, among others, Starwood Hotels & Resorts Worldwide, Inc., Hilton Worldwide Holdings Inc., Fairmont Hotels and InterContinental Hotels Group PLC, extending our MSAs with these partners to 2019 or later. Approximately 38% of 2015 domestic revenue was generated in venues affiliated with these four hotel chains. For the year ended December 31, 2015, sales through locations affiliated with the following hotels as a percentage of total domestic revenues were: Starwood (17.4%), Hilton (16.0%), Marriott (14.4%), Hyatt (10.1%), Gaylord (3.2%), Four Seasons (2.9%), Loews (2.6%),

 

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Fairmont (2.4%) and the InterContinental Hotels Group (2.0%). Furthermore, with more than 1.5 million meetings per year at 1,300 venues globally, as of December 31, 2015, no contract with any individual venue accounted for more than 1% of our consolidated revenue for the year ended December 31, 2015.

Our customers include corporations, event organizers, trade associations and meeting planners.

Regulation

Although we do not believe that significant existing laws or government regulations adversely impact us, our business could be affected by different interpretations or applications of existing laws or regulations, future laws or regulations or actions by domestic or foreign regulatory agencies. Failure to comply with these and other laws and regulations may result in, among other consequences, administrative enforcement actions and fines, class action lawsuits and civil and criminal liability.

Many jurisdictions impose an obligation on any entity that holds personally identifiable information or payment card information to adopt appropriate security to protect such data against unauthorized access, misuse, destruction, or modification. Many jurisdictions have enacted laws requiring holders of such information to take certain actions in response to data breach incidents, such as providing prompt notification of the breach to affected individuals and government authorities. We are implementing and maintaining physical, technical and administrative safeguards intended to protect all personal data and have processes in place to assist us in complying with applicable laws and regulations regarding the protection of this data and properly responding to any security incidents. We are adopting a system security plan and security breach incident response plans to address our compliance with these laws.

Employees

As of December 31, 2015, we employed approximately 7,800 people, more than 6,500 of which were on a full-time basis. In the United States, approximately 8% of our direct labor costs related to employees who are covered by union agreements that expire at various times from 2016 to 2026. We have not experienced any work stoppages, strikes or labor disputes. We consider our relations with employees to be good.

 

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Properties

Our corporate headquarters are located at 5100 N. River Road, Suite 300, Schiller Park, Illinois 60176, in a leased facility. We lease all of our properties. The following table summarizes information regarding our significant leased properties as of December 31, 2015.

 

Location

 

Type

 

Location

 

Type

Domestic

    Domestic  
Scottsdale, Arizona (Phoenix)  

Office

  Erlanger, Kentucky (Cincinnati)   Branch
Scottsdale, Arizona (Phoenix)  

Office

  Metairie, Louisiana (New Orleans)   Branch
Scottsdale, Arizona (Phoenix)  

Branch

  Dedham, Massachusetts (Boston)   Branch
Tempe, Arizona (Phoenix)   Warehouse   Newton, Massachusetts (Boston)   Warehouse
Tempe, Arizona (Phoenix)   Branch   Germantown, Maryland  

Warehouse

Cerritos, California (Los Angeles)   Branch   Lanham, Maryland (Washington D.C.)   Branch
Long Beach, California   Field Support   New Brighton, Minnesota   Branch
Oakland, California   Field Support   Fenton, Missouri (St. Louis)   Branch
San Bruno, California   Warehouse   St. Louis, Missouri   Warehouse
San Diego, California   Branch   Asheville, North Carolina   Branch
San Francisco, California   Branch   Cary, North Carolina   Branch
Denver, Colorado   Branch   Charlotte, North Carolina   Branch
Vail, Colorado   Branch   Las Vegas, Nevada   Branch
Davie, Florida (South Florida)   Branch   New York, New York   Branch
Orlando, Florida   Branch   Philadelphia, Pennsylvania   Branch
Norcross, Georgia (Atlanta)   Branch   Charleston, South Carolina   Branch
Honolulu, Hawaii   Branch  

Hilton Head Island, South Carolina

 

Branch

Kawaihae, Hawaii (Big Island)   Warehouse  

Coppell, Texas (Dallas)

 

Branch

Maui, Hawaii   Warehouse  

Houston, Texas

 

Branch

Elgin, Illinois   Warehouse  

San Antonio, Texas

 

Branch

Elmhurst, Illinois (Chicago)   Branch  

Salt Lake City, Utah

 

Branch

Schiller Park, Illinois   Corporate  

Alexandria, Virginia

 

Warehouse

    Fairfax, Virginia   Sales Office
    Tukwila, Washington (Seattle)   Branch

International

    International  
Calgary, Canada   Branch   Guadalajara, Mexico   Warehouse
Montreal, Canada   Branch   Monterrey, Mexico  

Warehouse

Vancouver, Canada   Branch   Monterrey, Mexico   Sales Office
Vaughan, Canada (Toronto)   Branch/Corporate   Naucalpan, Mexico   Branch/Corporate
Alfortville, France (Paris)   Branch   Vallarta, Mexico  

Warehouse

Büro, Germany (Frankfurt)   Branch   London, United Kingdom   Corporate
Freising-Pulling, Germany (Munich)   Branch   London, United Kingdom   Branch
Cabos, Mexico   Branch   Slough, United Kingdom   Branch
Cancun, Mexico   Branch   Surrey, United Kingdom   Branch
     

Intellectual Property

Our ability to protect our intellectual property is and will be an important factor in the success and continued growth of our business. We rely on a combination of copyright, trademark, patent and trade secret laws, as well as employee and third-party non-disclosure, confidentiality and other types of contractual arrangements to establish, maintain and enforce our intellectual property rights.

Legal Proceedings

From time to time, we are subject to claims in legal proceedings, including employment claims, wage and hour claims, contractual and commercial disputes and other matters that arise in the ordinary course of our business. While the outcome of these and other claims cannot be predicted with certainty, we do not believe that the outcome of these matters will have a material adverse effect on our business, results of operations or financial condition.

 

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MANAGEMENT

Directors and Executive Officers

The following table sets forth the names, ages and positions as of March 1, 2016, of the individuals who will serve as our executive officers and directors at the time of this offering.

 

Name

   Age   

Position

J. Michael McIlwain    50    President, Chief Executive Officer and Director
Benjamin E. Erwin    38    Chief Financial Officer
Skylar Cunningham    57    Chief Operating Officer
J. Whitney Markowitz    47    Chief Legal Officer and Secretary
Manu Bettegowda    42    Chairman
Louis J. D’Ambrosio    51    Director
Evan Eason    41    Director
John J. Gavin    59    Director
Bradley J. Gross    43    Director
Larry B. Porcellato    57    Director
Leonard Seevers    32    Director

J. Michael McIlwain has served as our President and Chief Executive Officer and as a member of our board of directors since May 2011. In addition, Mr. McIlwain served as our Chief Financial Officer from August 2009 to May 2011. Prior to joining us, Mr. McIlwain served as Chief Financial Officer of Motor Coach Industries International Inc. Mr. McIlwain has more than 20 years of financial and managerial experience, and began his career as a Certified Public Accountant with KPMG. Mr. McIlwain was elected to serve on our board of directors due to his role as our President and Chief Executive Officer, his experience in the event technology services industry, his executive leadership experience and his intimate knowledge of the operational, financial and strategic development of our company.

Benjamin E. Erwin has served as our Chief Financial Officer since February 2015. Prior to joining us, Mr. Erwin served as Chief Financial Officer of TestAmerica Laboratories, Inc. from April 2011 to January 2015, where he led all accounting, finance, treasury, information technology and legal functions. Prior to 2011, Mr. Erwin joined the Cornell Companies Inc. in 2002 and served as Senior Vice President Corporate Development from March 2007 to December 2010, where he managed corporate strategy, financial planning and analysis, public market capital transactions and investor relations. Additionally, Mr. Erwin held various positions at Enron Corporation and Trilogy Software Inc.

Skylar Cunningham has served as our Chief Operating Officer since July 2009. Since joining us in 1997, Mr. Cunningham has held a variety of positions with us, including Senior Vice President of Operations, Senior Vice President of Finance, Divisional President and Executive Vice President of Hotel Operations. Prior to joining us, Mr. Cunningham served as President of Bauer Audio Visual, Inc. before its acquisition by us in 1997. Additionally, Mr. Cunningham served as Vice President of Finance for Pratt Hotel Corporation.

J. Whitney Markowitz has served as our Chief Legal Officer and Secretary since July 2000, overseeing legal and compliance for us, including legal services, risk management and internal audit. Prior to joining us, Mr. Markowitz served as the Assistant General Counsel for KSL Resorts. Prior to KSL Resorts, Mr. Markowitz worked in both the public and private sectors, where he practiced general corporate, transactional, labor and employment, real estate and land use planning law.

Manu Bettegowda has served on our board of directors since January 2014, and as Chairman of our board of directors since May 2015. Mr. Bettegowda joined Olympus Partners in 1998 and has served as Partner since 2005. Previously, Mr. Bettegowda focused on mergers and acquisitions,

 

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leveraged buyouts, and refinancing of middle market companies at Bowles Hollowell Conner & Co. Mr. Bettegowda was selected to serve on our board of directors due to his experience in private equity fund management, his financial expertise and his affiliation with Olympus Partners.

Louis J. D’Ambrosio has served on our board of directors since August 2014. Mr. D’Ambrosio currently serves as the Executive Chairman of the board of directors of Sensus, a smart metering company. Mr. D’Ambrosio served as Chief Executive Officer and President of Sears Holdings Corporation from February 2011 to February 2013 and as the Chief Executive Officer and President of Avaya Inc. from July 2006 to June 2008. Mr. D’Ambrosio previously served in various other roles for Avaya Inc., joining the company in December 2002. Before joining Avaya Inc., Mr. D’Ambrosio spent 16 years at International Business Machines Corporation, where he held several executive posts and was a member of the worldwide management committee. His roles included leading strategy for global services, sales and marketing for software, and industry operations for Asia Pacific. Mr. D’Ambrosio was selected to serve on our board of directors due to his valuable experience in leading Fortune 500 companies, his experience serving as a director of public and private companies and overall business acumen.

Evan Eason has served on our board of directors since January 2014. Mr. Eason joined Olympus Partners in 2006 and has served as Partner since 2012. Previously, Mr. Eason was a Vice President at American Capital Strategies, where he focused on leveraged buyouts and financings of middle market companies. Prior to that, Mr. Eason worked at FdG Associates, a middle market private equity firm, and as an investment banker and research analyst at Montgomery Securities. Mr. Eason has served on the board of directors of NPC Restaurant Holdings LLC since December 2011. Mr. Eason was selected to serve on our board of directors due to his experience in private equity fund management, his financial expertise and his affiliation with Olympus Partners.

John J. Gavin has served on our board of directors since July 2015 and as chair of our audit committee since July 2015. Mr. Gavin has served as Chairman and former Chief Executive Officer and President of Strategic Distribution, Inc. since 2011 and as a Senior Operating Advisor of LLR Partners, LLC since 2010. Prior to joining LLR Partners, Mr. Gavin served as Vice Chairman of Drake Beam Morin, Inc., where he had previously served as Chief Executive Officer and President since 2006. Prior to joining Drake Beam Morin, Inc., Mr. Gavin spent eight years at Right Management Consultants Inc. as Director, President and Chief Operating Officer. Mr. Gavin was employed at Arthur Andersen LLP for 18 years in which he served as the Partner-in-Charge of the Manufacturing, Distribution and Consumer Products Practice, from 1995 to 1996. Mr. Gavin currently serves on the board of directors of CareerMinds, Inc. and Strategic Distribution, Inc. since 2011, Ameriquest Business Services, Inc. since 2012 and Gypsum Management and Supply, Inc. since 2014. He served on the board of directors of Tribridge, Inc. from 2010 to 2015, DFC Global Corp. from 2007 to 2014, CSS Industries, Inc. from 2007 to 2013, GCA Services, Inc. from 2004 to 2012 and Interline Brands, Inc. from 2005 to 2012. Mr. Gavin was selected to serve on our board of directors due to his significant experience and expertise in international operations, finance and human capital management.

Bradley J. Gross has served on our board of directors since January 2014. Mr. Gross first joined Goldman, Sachs & Co. in 1995 and has served as a Managing Director in the Principal Investment Area of Goldman, Sachs & Co. since 2007. Mr. Gross has also served as a director of Americold Realty Trust since December 2010, Griffon Corporation since September 2008, Neovia Logistics Services, LLC since February 2015 and Proquest, LLC since December 2013. During the last five years, Mr. Gross served as a director of Aeroflex Holding Corporation, Cequel Communications, LLC, Flynn Restaurant Group, LLC and Interline Brands, Inc. Mr. Gross was selected to serve on our board of directors due to his service on a variety of corporate boards, his financial expertise and his affiliation with Goldman, Sachs & Co.

 

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Larry B. Porcellato has served on our board of directors since August 2014. He served as Chief Executive Officer of The Homax Group, Inc., a specialty application consumer products supplier to the home care and repair markets, from January 2009 to July 2014. Prior to that, Mr. Porcellato served as Chief Executive Officer of ICI Paints North America, a manufacturer and distributor of decorative coatings, from December 2000 to January 2007, and as an independent business consultant from February 2007 to December 2008. Mr. Porcellato has served on the board of directors of HNI Corporation since 2004 and OMNOVA Solutions, Inc. since September 2008. Mr. Porcellato was selected to serve on our board of directors due to his chief executive officer experience, his service as a director of other publicly traded companies and his significant knowledge and expertise in the areas of strategy, general management and finance, accounting and financial reporting.

Leonard Seevers has served on our board of directors since January 2014. Mr. Seevers joined Goldman, Sachs & Co. in 2005 and is currently a Managing Director in the Principal Investment Area. Mr. Seevers also serves on the board of directors of Sensus, PSS Companies and Cell Site Solutions. Mr. Seevers was selected to serve on our board of directors due to his service on a variety of corporate boards, his financial expertise and his affiliation with Goldman, Sachs & Co.

Composition of Our Board of Directors

Our business and affairs are managed under the direction of the board of directors. Our board currently consists of eight directors and will consist of nine directors at the time of this offering. Under the stockholders agreement, entities affiliated with Goldman Sachs will have the right to designate (i) three directors if it owns at least 50% of the common stock it holds at the closing of this offering (the “Closing Date Shares”), (ii) two directors if it owns at least 25% but less than 50% of its Closing Date Shares and (iii) one director if it owns at least 15% but less than 25% of its Closing Date Shares. Olympus Partners will have the right to designate (i) three directors if it owns at least 50% of its Closing Date Shares, (ii) two directors if it owns at least 25% but less than 50% of its Closing Date Shares and (iii) one director if it owns at least 15% but less than 25% of its Closing Date Shares. The Goldman Sachs director designees are initially Bradley J. Gross and Leonard Seevers. The Olympus Partners director designees are initially Manu Bettegowda and Evan Eason. One additional Olympus designee will be appointed contemporaneously with this offering.

Our amended and restated certificate of incorporation that will be in effect prior to the consummation of this offering provides that the number of directors may be fixed from time to time by resolution of our board of directors. In the case of a vacancy on our board of directors created by the removal or resignation of a director designated by entities affiliated with Goldman Sachs or Olympus Partners, as applicable, the stockholders agreement will require us to fill such vacancy with an individual designated by such entity. Upon the completion of this offering, our board of directors will have nine members and the terms of office of members of our board of directors will be divided into three classes:

 

    Class I directors, whose terms will expire at the annual meeting of stockholders to be held in 2017;

 

    Class II directors, whose terms will expire at the annual meeting of stockholders to be held in 2018; and

 

    Class III directors, whose terms will expire at the annual meeting of stockholders to be held in 2019.

Our Class I directors will be Messrs. Bettegowda, Gavin and Gross, our Class II directors will be Messrs. D’Ambrosio, McIlwain and Porcellato and our Class III directors will be Messrs. Eason, Seevers and the new Olympus designee appointed contemporaneously with this offering. At each annual meeting of stockholders, the successors to the directors whose terms will then expire will be

 

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elected to serve from the time of election and qualification until the third annual meeting following such election and until their successors are duly elected and qualified or until his or her earlier death, resignation or removal. Subject to the stockholders agreement, any vacancies in our classified board of directors will be filled by the remaining directors, and the elected person will serve the remainder of the term of the class to which he or she is appointed. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

Controlled Company Exemption

Following this offering, we will be considered a “controlled company” under the New York Stock Exchange listing standards. “Controlled companies” under those rules are companies of which more than 50% of the voting power is held by an individual, a group or another company. On this basis, we will avail ourselves of the “controlled company” exception under the New York Stock Exchange listing standards, and we are not subject to the New York Stock Exchange listing requirements that would otherwise require us to have: (a) a board of directors comprised of a majority of independent directors; (b) a compensation committee composed solely of independent directors; and (c) a nominating committee composed solely of independent directors.

Role of the Board in Risk Oversight

One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors will administer this oversight function directly, with support from its three standing committees, the audit committee, the compensation committee and the nominating and corporate governance committee, each of which addresses risks specific to its respective areas of oversight.

The audit committee will monitor compliance with legal and regulatory requirements. Our compensation committee will assess and monitor whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. Our nominating and corporate governance committee will monitor the effectiveness of our corporate governance guidelines and recommend amendments to our board of directors as necessary.

Independent Directors

As a controlled company, our board of directors is not required to consist of a majority of directors who meet the definition of independent under the New York Stock Exchange listing requirements, but will become subject to certain independence requirements relating to the audit committee. The audit committee is currently required to consist of only one director who satisfies the independence requirements under the New York Stock Exchange listing requirements and Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, until the date that is 90 days after the date of this public offering, after which time the audit committee must consist of a majority of directors who satisfy the independence requirements under the New York Stock Exchange listing requirements and Rule 10A-3 under the Exchange Act. The audit committee is required to consist solely of independent directors by the first anniversary of the initial public offering.

Our corporate governance guidelines will provide that after we cease to be a controlled company and following any phase-in period permitted under the New York Stock Exchange listing standards, our board of directors will consist of a majority of independent directors. Our board of directors will carefully consider all relevant facts and circumstances in evaluating the relationships of each director and nominee before making an affirmative determination that such director or nominee is independent. Under our corporate governance guidelines, an “independent” director will be one who meets the qualification requirements for being independent under applicable laws and the corporate governance listing standards of the New York Stock Exchange.

 

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Our board of directors will evaluate the independence of directors and director nominees under the criteria established by the New York Stock Exchange for director independence and for audit committee membership.

Our board of directors has affirmatively determined that Messrs. D’Ambrosio, Gavin and Porcellato are independent directors under the applicable rules of the New York Stock Exchange and as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.

Board Committees

Prior to the completion of this offering, our board of directors will establish an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee will operate under a charter approved by our board of directors. Following this offering, copies of each committee’s charter will be posted on the Corporate Governance section of our website.

Audit Committee.    The primary purpose of our audit committee is to assist the board’s oversight of:

 

    the audits and integrity of our financial statements;

 

    our processes relating to risk management;

 

    our processes relating the systems of internal control over financial reporting and disclosure controls and procedures;

 

    the qualifications, engagement, compensation, independence and performance of our independent auditor;

 

    the auditor’s conduct of the annual audit of our financial statements and any other auditor services provided;

 

    the performance of our internal audit function;

 

    our legal and regulatory compliance; and

 

    the application of our codes of business conduct and ethics as established by management and the board of directors.

Our audit committee will also produce the annual report of the audit committee as required by SEC rules. Upon the consummation of this offering, our audit committee will consist of Messrs. Gavin, D’Ambrosio and Porcellato. Mr. Gavin will serve as chairman of the audit committee and also qualifies as an “audit committee financial expert” as such term has been defined by the SEC in Item 401(h)(2) of Regulation S-K and each audit committee member meets the financial literacy requirements of the New York Stock Exchange. Our board of directors has affirmatively determined that Messrs. Gavin, D’Ambrosio and Porcellato meet the definition of an “independent director” for the purposes of serving on the audit committee under applicable SEC and New York Stock Exchange rules. The audit committee is governed by a charter that complies with the rules of the New York Stock Exchange. Following this offering, both our independent registered public accounting firm and management personnel will periodically meet privately with our audit committee.

Compensation Committee.    The primary purposes of our compensation committee are to:

 

    oversee our employee compensation policies and practices;

 

    determine, approve or recommend to the board of directors for approval the compensation of our chief executive officer and other executive officers; review, approve or recommend to the board of directors for approval incentive compensation and equity compensation policies and programs; and

 

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    produce the annual report of the compensation committee as required by SEC rules.

Upon the consummation of this offering, our compensation committee will consist of Messrs. Gross, Bettegowda, Eason and Seevers. Mr. Gross will serve as chair of the compensation committee. The compensation committee is governed by a charter.

Nominating and Corporate Governance Committee.     The primary purposes of our nominating and corporate governance committee are to:

 

    identify and screen individuals qualified to serve as directors and recommend to the board of directors candidates for nomination for election;

 

    evaluate, monitor and make recommendations to the board of directors with respect to our corporate governance guidelines;

 

    coordinate and oversee the annual self-evaluation of the board of directors and its committees and management; and

 

    review our overall corporate governance and recommend improvements for approval by the board of directors where appropriate.

Upon the consummation of this offering, our nominating and corporate governance committee will consist of Messrs. Bettegowda, Gross, Eason and Seevers. Mr. Bettegowda will serve as chair of the nominating and corporate governance committee. The nominating and corporate governance committee is governed by a charter.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves, or in the past year has served, as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our board of directors or compensation committee. No interlocking relationship exists between any member of the compensation committee (or other committee performing equivalent functions) and any executive, member of the board of directors or member of the compensation committee (or other committee performing equivalent functions) and of any other company.

Code of Business Conduct and Ethics

We intend to adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. These standards are designed to deter wrongdoing and to promote honest and ethical conduct. The code of business conduct and ethics will be available on our website. Any waiver of the code for directors or executive officers may be made only by our board of directors and will be promptly disclosed to our stockholders as required by applicable U.S. federal securities laws and the corporate governance rules of the New York Stock Exchange. Amendments to the code must be approved by our board of directors and will be promptly disclosed (other than technical, administrative or non-substantive changes). Any amendments to the code, or any waivers of its requirements, will be disclosed on our website.

Corporate Governance Guidelines

Our board of directors will adopt corporate governance guidelines in accordance with the corporate governance rules of the New York Stock Exchange that serve as a flexible framework within which our board of directors and its committees operate. These guidelines will cover a number of areas including the size and composition of the board of directors, board membership criteria and director

 

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qualifications, director responsibilities, board agenda, roles of the Chairman of the Board, Chief Executive Officer and presiding director, meetings of independent directors, committee responsibilities and assignments, board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. A copy of our corporate governance guidelines will be posted on our website.

Indemnification of Officers and Directors

Our amended and restated bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the DGCL. We have established directors’ and officers’ liability insurance that insures such persons against the costs of defense, settlement or payment of a judgment under certain circumstances.

Our amended and restated certificate of incorporation provides that our directors will not be liable for monetary damages for breach of fiduciary duty, except for liability relating to any breach of the director’s duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, violations under Section 174 of the DGCL or any transaction from which the director derived an improper personal benefit.

Prior to the completion of this offering, we will enter into indemnification agreements with each of our directors and executive officers. The indemnification agreements will provide the directors and executive officers with contractual rights to indemnifications, expense advancement and reimbursement to the fullest extent permitted under the DGCL.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

The following discussion and analysis of compensation arrangements should be read with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current plans and expectations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from the programs summarized in this discussion. Except with respect to disclosure related to awards to be granted in connection with this offering or unless otherwise noted, all unit award numbers and related values do not give effect to our corporate reorganization. See “Organizational Structure.”

Compensation Discussion and Analysis

This section explains the material elements of our executive compensation program and our compensation-setting process. It provides qualitative information regarding the manner in which compensation is earned by, paid to or awarded to our named executive officers and explains the decisions we made for compensation with respect to 2015 for each of the named executive officers listed below.

Named Executive Officers

For 2015, our named executive officers were:

 

    J. Michael McIlwain, President and Chief Executive Officer;

 

    Benjamin E. Erwin, Chief Financial Officer;

 

    Skylar Cunningham, Chief Operating Officer; and

 

    J. Whitney Markowitz, Chief Legal Officer and Secretary.

Overview, Objectives and Design

The objective of our overall compensation program is to attract, motivate and retain highly qualified executive officers by providing pay which is strongly aligned with our success and the executive officer’s contribution to that success. We believe compensation should be designed to ensure that a significant portion of compensation opportunity will be related to factors that directly and indirectly influence stockholder value. Accordingly, a significant portion of each named executive officer’s compensation is tied directly to the increase in stockholder value as well as to the financial performance of our company.

During 2015, we were a privately-held company. We were acquired by our Sponsors on January 24, 2014, and the compensation practices for our named executive officers, other than Mr. Erwin, were determined at that time in association with the Sponsors Acquisition. Our compensation plan design for named executive officers reflects this private ownership and was not reflective of typical practices for publicly held companies. We anticipate transitioning over time to a more market comparable compensation program in the future following the completion of this offering.

Most significantly, each of our named executive officers, other than Mr. Erwin who joined us in 2015, was awarded a substantial interest in our equity, in the form of Class B Units of PSAV Holdings LLC at the time of the Sponsors Acquisition, which represented the majority of their compensation for 2014 and represented approximately 5.8% of our total equity. These Class B Units were structured as “profits interests” and only have value to the extent that the value of the stockholder’s equity increases after issuance. These equity interests were designed to incent and reward our named executive officer

 

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for significantly increasing stockholder value over a long-term time horizon. Each of our named executive officers, other than Mr. Erwin, was also provided the opportunity to make a capital investment in PSAV Holdings LLC in connection with the Sponsors Acquisition. Accordingly, no equity awards were granted to Messrs. McIlwain, Cunningham and Markowitz in 2015.

When Mr. Erwin joined us in February 2015, he received a grant of 1,946 Phantom Units and a one-time signing bonus of $200,000. Phantom Units act as an incentive for holders that are employed as of a distribution date to receive a cash payment equal to the cash distribution for a Class B Unit with the same distribution threshold, as further described in “Long-Term Incentives” below.

In connection with the corporate reorganization, holders of the Class B Units and Phantom Units will receive shares of our common stock, some of which will be subject to vesting. In connection with the corporate reorganization, our named executive officers will receive the following shares of common stock and restricted common stock with respect to their Class B Units or Phantom Units, as applicable, in PSAV Holdings LLC.

 

Named Executive Officer

   Shares of
Common
Stock
   Shares of
Restricted
Common
Stock

J. Michael McIlwain

     

Benjamin E. Erwin

     

Skylar Cunningham

     

J. Whitney Markowitz

     

The shares of restricted common stock received by each of Messrs. McIlwain, Cunningham and Markowitz will vest in equal installments over three years on January 24, 2017 and on each of the first two anniversaries following such date, subject to continued employment on each applicable vesting date. The shares of restricted common stock received by Mr. Erwin will vest in equal installments over five years on February 9, 2016 and on each of the four anniversaries following such date, subject to continued employment on each applicable vesting date.

The total compensation for our named executive officers consists of both cash and equity compensation (though equity awards have not been granted each year), providing a balance between short-term and long-term incentives to drive our financial performance and to align the interests of management with the interests of stockholders.

 

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Principal Components of Compensation

The following table provides a summary of our executive compensation structure.

 

Compensation Component

 

Description

 

Objectives

Base Salary

 

  Fixed salary paid in biweekly installments for service as an executive.

 

  Attract and retain individuals with superior talent.

 

  Recognize performance of job responsibilities.

Executive Incentive Plan

 

  Annual cash incentive—plan based on financial and qualitative individual objectives.

 

  The award is tied to financial objectives based on Compensation EBITDA (as defined below) performance goals.

 

  Targeted between 65% and 100% of annual base salary for named executive officers, with an opportunity to earn between 0% and 250% of target based on our performance.

 

  Encourage individual effort and group teamwork toward the accomplishment of our goals.

 

  Focus the attention of plan participants on achieving the budgeted levels of Compensation EBITDA.

 

  Reward outstanding managerial performance.

 

  Provide an incentive to the participant to make a positive contribution to our goals and objectives during the plan year.

Long-term Incentive Plan

 

  One-time award of Class B Units or Phantom Units, as applicable, half of which are subject to time-based vesting and half of which are subject to performance-based vesting, subject to continued employment on each vesting date.

 

  Performance-based vesting measured based on capital returns to the Sponsors.

 

  Time-based portion vesting over a five-year time horizon.

 

  Class B Units structured as “profits interests,” which reward participants based on the increase in value since the acquisition.

 

  Motivate, incentivize and reward management for building towards our long-term business goals and delivering significant financial return to our stockholders.

 

  Mix of time-based and performance based equity intended to provide added retention incentive while also requiring that performance goals are met in order for executive officers to realize a significant portion of the award.

Retirement Savings

Benefits

 


  Participation in our defined contribution plan, which has a quarterly discretionary match of 25% up to 6% of earnings. The plan has a graded five-year vesting schedule.

 

 

  Provide an opportunity for tax-efficient savings and long-term financial security.

Other Elements of

Compensation and

Perquisites

 



  Automobile allowance.

 

 

  Attract and retain talented executive officers in a cost-efficient manner by providing benefits with high perceived values at a relatively low cost to us.

 

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Process for Determining Compensation

The compensation committee, which consisted exclusively of representatives of our Sponsors in 2015, does not benchmark pay against a peer group and did not use a compensation consultant to make pay decisions. The compensation committee did review pay data from survey sources provided by our human resources department in evaluating pay decisions for 2015, although the compensation committee did not explicitly target any specific percentile of market practices in determining pay. Rather, in setting the 2015 compensation, the compensation committee determined the total amount and structure of compensation for our named executive officers, the judgment and general industry knowledge of its members, based on experience with comparably-sized companies and other private investments of the Sponsors to ensure we attract, develop and retain superior talent.

2015 Compensation Determinations

Base Salaries

Base salaries are intended to provide competitive fixed compensation for the performance of an executive officer’s regular job duties. The annual base salaries for our named executive officers in 2015 were as follows:

 

Named Executive Officer

   2015
Salary
 

J. Michael McIlwain

   $ 669,500   

Benjamin E. Erwin

   $ 400,000   

Skylar Cunningham

   $ 437,750   

J. Whitney Markowitz

   $ 412,000   

2015 Executive Incentive Plan

The 2015 Executive Incentive Plan is designed to reward executive officers and managers for their role in helping us achieve our financial goals. Each participant in the plan has an annual target bonus amount, expressed as a percentage of his or her annual base salary. Target bonuses for the named executive officers are set at 100% of annual base salary for Mr. McIlwain and 65% of annual base salary for the other named executive officers.

 

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For 2015, incentive plan payments to our named executive officers will be based 75% on Compensation EBITDA performance versus budget and 25% on individual goals set for each named executive officer, which goals include executing strategic priorities and organizational priorities for our company.

 

Goal

  

Mechanics

EBITDA vs. Budget

  

  Based on PSAV worldwide performance.

  Compensation EBITDA is defined as income before interest, income taxes, depreciation and amortization (but inclusive of accruals for all bonuses) and before:

 

  foreign currency and interest rate hedge gains or losses,

 

  fees and expenses associated with any business acquisitions,

 

  cash restructuring charges and other non-cash add backs and deductions (nonrecurring items) as permitted by our credit facilities; provided, however, forward looking cost savings, operating improvements and expense reductions are not an eligible add back for Compensation EBITDA.

 

A participant’s achievement against his or her target bonus amount is determined by our actual reported EBITDA performance against budget.

Actual payouts are determined based on performance against the compensation EBITDA budget established at the beginning of the year, with a 50% multiplier for achieving 90% of budget and a maximum multiplier of 250% for achieving 125% of budget for the year. No payout is made for performance below 90% of budget for the year. For 2015, the compensation committee determined that the payout under the incentive plan was 75% of target based upon the achievement of the financial and individual performance objectives. See the column “Non-Equity Incentive Plan Compensation” under “—Summary Compensation Table” for the amounts earned by our named executive officers under the 2015 Executive Incentive Plan.

In addition, each of Messrs. McIlwain, Erwin and Markowitz received one-time cash incentive payments in connection with services provided in connection with various corporate transactions in 2015 that are reflected in the “Bonus” column under “—Summary Compensation Table.”

Long-Term Incentives

In 2014, we granted long-term incentive awards in the form of Class B Units in PSAV Holdings LLC under our 2014 Management Incentive Plan to Messrs. McIlwain, Cunningham and Markowitz. As noted above, the Class B Units were structured to qualify as “profits interests” for U.S. federal income tax purposes and only have value to the extent a distribution threshold is met and equity value of PSAV Holdings LLC increases after issuance. Profits interests are used regularly in private equity investments as a means of tying compensation to value creation and thereby aligning the interests of key leaders and managers with the interests of investors. Half of the Class B Units vest equally on each of the first five anniversaries of the grant date (the “Service Units”) and half of the Class B Units vest upon the achievement of certain returns to investors (the “Performance Units”), in each case

 

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subject to continued employment and the terms and conditions of the 2014 Management Incentive Plan, the applicable grant agreement and the Amended and Restated Limited Liability Company Agreement of PSAV Holding LLC. Half of the performance based Class B Units vest upon the Sponsors achieving a multiple of their invested capital of at least 1.5 times and half of the Performance Units vest upon the Sponsors achieving multiple of their invested capital of at least 2.0 times.

The number of Class B Units for such named executive officer was determined based on the share of the equity appreciation that such units would represent and relative to the overall pool of equity allocated to the management team and employees of our company as a whole. The goal was to provide significant incentives for value creation over a long-term time horizon of up to five years. The value of the Class B Units reflected in the Summary Compensation Table below was determined based on the requirements of FASB ASC Topic 718 Compensation – Stock Compensation (“FASB ASC Topic 718”) using a Black-Scholes valuation but was not a consideration of the compensation committee in determining the number of Class B Units to award.

We also granted Phantom Units, which are comprised of both Phantom Service Units and Phantom Performance Units, to certain employees pursuant to the Phantom Unit Appreciation Plan and applicable grant agreements. The holders of Phantom Units are generally entitled to receive a cash payment equal to the amount (if any) that a holder of a corresponding Class B Service Unit or Performance Unit, as applicable, would receive, subject to the holder’s continued employment. None of the named executive officers received Phantom Units in 2014, and Mr. Erwin received Phantom Units in 2015.

In connection with this offering, holders of Phantom Units will receive an aggregate of                     shares of our common stock, of which                      shares will be restricted and subject to time-based vesting.

Transaction Bonuses

Each of our named executive officers, other than Mr. Erwin, was a participant under the AVSC Holding Corp. 2012 Long-Term Incentive Bonus Plan, or the AVSC Bonus Plan. In connection with the AVSC Bonus Plan, a bonus pool was formed that would only be paid if an exit event occurred and the prior private equity owners of AVSC Holding Corp. received an investment multiple equal to or greater than one.

The Sponsors Acquisition constituted an exit event for purposes of the AVSC Bonus Plan and the investment multiple was met. See footnote 4 to the column “All Other Compensation” under “—Summary Compensation Table” for the amounts paid to our named executive officers under the AVSC Bonus Plan in 2014. The bonus pool under the AVSC Plan was paid out in full and terminated in connection with the Sponsors Acquisition.

Retirement and Other Benefits

Each named executive officer is entitled to benefits consistent with the benefits offered to other employees. These include medical, dental, prescription drug and vision insurance, long- and short-term disability, life insurance, and a defined contribution plan. In addition, each named executive officer receives an automobile allowance with a value of up to $1,000 per month.

Tax and Accounting Considerations

Our compensation committee considers the impact of tax and accounting treatments when determining executive compensation.

Our Class B Units were structured as “profits interests” in PSAV Holdings LLC, which are treated as capital investments for the purpose of federal taxes and provide tax benefits to the participants.

 

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Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount that can be deducted in any one year for compensation paid to certain executive officers. As a private company Section 162(m) did not apply to us during 2014 or 2015. We will consider the implications of 162(m) in the future as a public company. However, our compensation committee may recommend or approve compensation that will not meet these requirements.

Our compensation committee also considers the accounting impact when structuring and approving awards. We account for share-based payments, including long-term incentive grants, in accordance with FASB ASC Topic 718, which governs the appropriate accounting treatment of share-based payments under U.S. GAAP. We account for the Phantom Units as a contingent bonus; therefore, the Phantom Units are not within the scope of FASB ASC Topic 718.

Summary Compensation Table

The following table sets forth certain information with respect to compensation awarded to, earned by or paid to our named executive officers for the years ended December 31, 2015 and 2014.

 

Name and Principal Position

  Year     Salary
($)
    Bonus
($)(1)
    Stock
Awards

($)(2)
    Non-Equity Incentive
Plan Compensation

($)(3)
    All Other
Compensation

($)(4)
    Total
($)(3)
 

J. Michael McIlwain,
President and Chief Executive Officer

    2015        662,690        250,000        —          502,125        10,200        1,425,015   
    2014        638,072        —          761,610        617,500        3,661,715        5,678,897   

Benjamin E. Erwin,
Chief Financial Officer

    2015        354,023        600,000        —          195,000        330,267        1,479,290   

Skylar Cunningham,
Chief Operation Officer

    2015        434,136        —          —          213,403        12,000        659,539   
    2014        418,325        —          380,858        262,438        2,377,758        3,439,379   

J. Whitney Markowitz,
Chief Legal Officer and Secretary

    2015        479,935        250,000        —          200,850        12,000        942,785   
    2014        394,552        —          380,858        247,000        1,839,629        2,862,039   

 

(1) Represents one-time cash incentive payment made to Messrs. McIlwain, Erwin and Markowitz in connection with services provided in connection with various corporate transactions in 2015. In addition, we also paid Mr. Erwin a one-time $200,000 signing bonus upon his employment in 2015.
(2) Represents the grant date fair value of the Class B Units calculated in accordance with FASB ASC Topic 718 granted to our named executive officers in 2014. Because required distribution events and the achievement of a targeted return for holders of units in PSAV Holdings LLC were not deemed probable to occur as of the grant date, the values in this column are attributable only to the Service Units that were granted to our named executive officers in 2014. For a description of the vesting terms associated with the Service Units and the Performance Units, see footnotes 2 and 3 to the “Outstanding Equity Awards at Year-End Table.” See Note 14 to our audited consolidated financials included in this prospectus for further information on the assumptions used to calculate the grant date fair value of the Class B Units. We account for the Phantom Units as a contingent bonus; therefore, the Phantom Units granted to Mr. Erwin in 2015 are not within the scope of FASB ASC Topic 718.
(3) For 2015, represents performance-based annual bonuses earned by the named executive officer under the terms of the 2015 Executive Incentive Plan as described under “—Compensation Discussion and Analysis—2015 Compensation Determinations—2015 Executive Incentive Plan.” In 2014, represents performance-based annual bonuses earned by the named executive officer under the terms of the 2014 Executive Incentive Plan.

 

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(4) In 2015, consists of perks whose value exceeds $10,000. In 2014, consists of a transaction bonus paid pursuant to the 2012 Long Term Incentive Plan in connection with the Sponsors Acquisition and perks whose value exceeds $10,000. We paid health insurance premiums on behalf of Mr. Markowitz in 2014 that are reflected below. In addition, we reimbursed Mr. Erwin $322,306 in relocation expenses in 2015.

 

Named Executive Officer

   Year      Transaction
Bonus
     Auto
Allowance
     Health
Insurance
Premiums
     Relocation      Total  

J. Michael McIlwain

     2015       $ —         $ 10,200       $ —         $ —         $ 10,200   
     2014       $   3,651,515       $ 10,200       $ —         $ —         $ 3,661,715   

Benjamin E. Erwin

     2015       $ —         $ 7,961       $ —         $ 322,306       $ 330,267   

Skylar Cunningham

     2015       $ —         $ 12,000       $ —         $ —         $ 12,000   
     2014       $ 2,365,758       $ 12,000       $ —         $ —         $   2,377,758   

J. Whitney Markowitz

     2015       $ —         $ 12,000       $ —         $ —         $ 12,000   
     2014       $ 1,825,758       $ 12,000       $ 1,871       $ —         $ 1,839,629   

Grants of Plan-Based Awards Table

The following table sets forth information concerning awards granted to the named executive officers during the fiscal year ended December 31, 2015.

 

         

 

Estimated Future Payouts
Under Non-Equity Incentive Plan Awards(1)

    All Other Stock
Awards:
Number of
Shares of
Stock or Units

(#)(2)
    Grant Date
Fair Value of
Stock Awards

($)(3)
 

Name

  Grant
Date
    Threshold
($)
    Target
($)
    Maximum
($)
     

J. Michael McIlwain

           

2015 Executive Incentive Plan

    n/a      $ 334,750      $ 669,500      $ 1,673,750       

Benjamin E. Erwin

           

2015 Executive Incentive Plan

    n/a      $ 130,000      $ 260,000      $ 650,000       

Phantom Performance Units

            973.0        —     

Phantom Service Units

            973.0        —     

Skylar Cunningham

           

2015 Executive Incentive Plan

    n/a      $ 142,269      $ 284,538      $ 711,344       

J. Whitney Markowitz

           

2015 Executive Incentive Plan

    n/a      $ 133,900      $ 267,800      $ 669,500       

 

(1) All such potential payouts are pursuant to the 2015 Executive Incentive Plan, as more particularly described under “—Compensation Discussion and Analysis—2015 Compensation Determinations—2015 Executive Incentive Plan” above, and actual payouts are recorded under “Non-Equity Incentive Plan Compensation” under “—Summary Compensation Table.”
(2) Subject to Mr. Erwin’s continued service through the applicable vesting date, (i) Phantom Service Units vest ratably over a five-year period on each of the first five anniversaries of the grant date of February 9, 2015, and (ii) Phantom Performance Units vest when a corresponding Class B Performance Unit vests.
(3) We account for the Phantom Units as a contingent bonus; therefore, the Phantom Units granted to Mr. Erwin in 2015 are not within the scope of FASB ASC Topic 718 and no grant date fair value was required to be determined.

 

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Outstanding Equity Awards at Year-End Table

The following table sets forth certain information with respect to outstanding equity awards held by our named executive officers at December 31, 2015.

 

Name

  Number of
Shares or Units
of Stock That
Have Not
Vested

(#)
    Market Value of
Shares or Units of
Stock That Have Not
Vested

($)(1)
    Equity Incentive Plan
Awards: Number of
Unearned Shares,
Units or Other Rights
That Have Not Vested

(#)
    Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have Note
Vested

($)(1)
 

J. Michael McIlwain

       

Performance Units(2)

    —          —          3,592.5      $                        

Service Units(3)

    2,874.0      $          —          —     
Benjamin E. Erwin           &