Earnings Call Transcript - EEX Q2 2024

Operator, Operator

Good morning and welcome to the Emerald Holding, Inc. Second Quarter 2024 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we'll conduct a question-and-answer session. Before we begin, let me remind everyone that this call will include certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This includes remarks about future expectations, beliefs, estimates, plans and prospects. In particular, the company's statements about projected results for 2024 are forward-looking statements. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company's most recently filed periodic reports on form 10-K and form 10-Q, and subsequent filings. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, management will discuss non-GAAP measures which it believes can be useful in evaluating the company's performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. The reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in the company's earnings release. As a reminder, this conference is being recorded and a replay of this call will be available on the Investors section of the company's website through 11:59 p.m. Eastern Time on August 14. I would now like to turn the call over to Mr. Herve Sedky, President and Chief Executive Officer. Sir, please go ahead.

Herve Sedky, CEO

Thank you, Julie, and good morning everyone. It's great to be with all of you today to discuss our second quarter results. I'll start with a brief overview or a review of our performance, and then give an overview of our strategy. David Doft, our CFO, will then provide more detail on our financials. We had a positive performance in what is a seasonally smaller quarter due to the relatively less significant show schedule which, combined with our Q1 performance and expectations for the second half, set us up for another full year of strong revenue and EBITDA growth. These trends reflect the exceptional value in ROI we provide our customers for their marketing budgets. For many businesses, trade shows are their number one selling or marketing event of the year. Our goal has been to underscore this value proposition and make the ROI more transparent by developing value-added tools and metrics that we believe will deliver an even better trade show experience. The result is that our customers view our shows as an investment rather than a cost. We plan to continue to maximize value for our customers and shareholders, fostering an intense sense of loyalty. Our customers' commitment to us is reflected in their continued and consistent desire to return to our shows each year, as well as their increasing engagement between event editions throughout the year. The evidence is clear. Our trade shows have a profound impact. At all of our trade shows, we've implemented onsite pre-booking, which means we have been selling exhibitor space into the first half of 2025 for some time, and just begun selling into H2 2025. Our sales pacing data offers us a highly granular view into exhibitor trends up to a year out, which gives us confidence in our forecasts for 2024 and for continued growth into 2025. Looking ahead, we project continued increases in revenue above our industry's historical run rate. Overall, as a reaffirmation of our original guidance indicates, we expect another meaningful step forward in both revenue and profitability this year. Our longer-term plan is to deliver run rate organic growth in the mid-to-high single digits, combined with growth from acquisitions, to drive double-digit annual revenue growth overall. Our strategy continues to be informed and inspired by the three pillars of our value creation; customer centricity, 365-day engagement, and portfolio optimization. In customer centricity, we are focused on improving the customer experience and delivering greater value in the form of add-on services, actionable data and insights, and a clear picture of the return on investment customers receive from the marketing dollars they put to work across Emerald's platform. This improves our stickiness with customers, incentivizes them to deploy more marketing dollars with Emerald, and ultimately should help drive higher revenue per customer. In the end, we provide a unique experience that is both financially and personally rewarding. Our customers walk away from our trade shows feeling reenergized by their future prospects and inspired by the innovations they discovered. In 365-day engagement, we are providing multiple entry points to the customer engagement cycle through trade shows, conferences, webinars, media content, and commerce. This reinforces our brands in their respective markets, increasing their reach and driving down the acquisition cost of attendees to our events. This is where we're seeing the most opportunities to scale by leveraging artificial intelligence, where we have numerous tests across our content and marketing teams. We're excited about some of the early results and expect to fully implement it in certain areas of the business in 2025. For example, by leveraging our proprietary first-party data assets, we can better personalize messages to our readers and prospective attendees. AI can help scale these personalization efforts quickly and efficiently, which we expect will improve conversion rates in the future. And in portfolio optimization, through our acquisitions and new event launches, we have targeted industries with strong, stable growth rates in order to continue to improve Emerald's growth profile overall. We're always evaluating potential attractive acquisition opportunities, and this is an important part of our growth strategy. Over time, we expect new event launches to contribute one to two percentage points of annual organic revenue growth. Through our value-added efforts and investments across our connections, content, and commerce businesses, we're positioning Emerald to be a reliable, free cash flow generator, and earnings compounder with attractive growth characteristics built in. Our modest level of financial leverage, combined with the visibility and expected stability of free cash generation, allows us to have a capital allocation strategy focused on driving per share value to our shareholders, and includes stepped-up return of capital by reinitiating Emerald's common stock dividend that was suspended during the pandemic, as David will elaborate. Also central to our strategy is the belief that the personal experience of our customers is paramount. By always putting people first, we ensure our initiatives resonate deeply and create lasting value. We are confident that we can sustain this trajectory and deliver growth in excess of our industry while enhancing our profitability year after year. And with that, let me turn the call over to David.

David Doft, CFO

Thank you, Herve, and good morning. I'll continue with a financial overview of the most recent quarter, and then discuss our dividend initiation and guidance. For the second quarter, total revenue was $86 million, compared to $86.5 million in the prior year quarter. The very slight decrease was primarily driven by scheduling adjustments, where events staged in different quarters this year versus last year on our show calendar, and several small, unprofitable discontinued events as we look to optimize resource allocation and profitability of the Emerald portfolio. Organic revenue, which takes into account the impact of acquisitions, scheduling adjustments, and discontinued events, was $82.1 million for the second quarter 2024, an increase of $2.6 million, or 3.3%, versus the prior year period. As we've discussed, we have a broad portfolio of shows, some of which are experiencing faster growth rates than others as a function of where their industries are in the business cycle, as well as other factors. Therefore, any one quarter's organic growth rate is not necessarily indicative of the growth in the overall portfolio, and we would encourage you to look at our business on a full-year basis. Second quarter adjusted EBITDA, excluding insurance proceeds, grew approximately 4.8% to $15.3 million, compared to $14.6 million for the same quarter last year. This equates to an adjusted EBITDA margin of approximately 17.8% for the quarter, given our seasonally lower revenue against a fixed component of our cost base. Second quarter free cash flow was $7.1 million, compared to $4.6 million in the prior year quarter. Turning to expenses, in the second quarter, SG&A was $39.5 million versus $41.8 million in the prior year quarter. The year-over-year decrease in SG&A is largely due to ongoing efficiency initiatives, as well as the benefit of a $1.7 million increase in re-measurement of estimated contingent consideration for past acquisitions, offset by incremental SG&A from the Hotel Interactive acquisition that closed in January of this year. Given the number of industries Emerald serves, our guidance has always assumed some variability in quarter-to-quarter organic growth rates. As we discussed in our last earnings call, while Q1 contributed strong double-digit organic revenue growth, other quarters, including Q2 and Q3, were not expected to reach that level based on the mix of business in each specific period, with Q4 growth expected to re-accelerate, all consistent with the assumptions that underpin our annual guidance. Turning to the balance sheet, we had $193.2 million in cash as of June 30, 2020, versus $186.8 million as of March 31. As a reminder, in early May, we completed the conversion of our convertible preferred stock, eliminating the preferred dividend and resulting in a simpler, all-common equity structure. Our total liquidity is $303.2 million, including full availability on our $110 million credit facility. As of June 30, we had net debt of $218 million, leading to a net leverage ratio as defined in our credit agreement of 2.10 times our trailing 12-month consolidated EBITDA, based on the definition in our credit agreement of $104.0 million. We believe our balance sheet strength and cash flow generation support our ability to opportunistically invest in and grow our business, as well as optimize the per share value of our stock. On that note, we are pleased to announce that our board of directors has authorized the re-initiation of a regular quarterly dividend at an initial rate of $1.5 per share, which would imply an annualized cash dividend amount of $12 million, reflecting a dividend yield of 1.3%, based on yesterday's closing price. Prior to COVID, Emerald was historically a dividend payer, and given our strong cash generation, coupled with our organic and inorganic growth, it is our intention to grow the quarterly dividend over time with a target payout ratio of up to 25% of free cash flow. As Herve said, we believe the visibility and expected stability of the company's free cash generation positions us to return capital to shareholders on an ongoing basis. This quarter, we added a slide to our earnings presentation deck outlining our capital allocation and financial policy that we've discussed over the past several quarters. We expect to continue to balance capital allocation between acquisitions, investments in our own business, managing debt leverage below 3.0 times net debt to EBITDA, and returns on capital, which includes dividends and opportunities for share buybacks. At quarter-end, we had $23 million remaining on our existing buyback authorization after not buying back any shares in the second quarter. Turning to guidance, we continue to expect that our 2024 performance will be within our full-year guidance in the range of $415 million to $425 million of revenue and $110 million to $115 million of adjusted EBITDA. This guidance implies an adjusted EBITDA margin of approximately 27%. We believe, as our business continues to scale and we leverage the investments we have made, that we have runway to improve this number as we work our way back, over time, to the margins we saw prior to COVID. Thank you very much for your time. And with that, we'll now open the line for questions.

Operator, Operator

Thank you. Your first question comes from Barton Crockett from Rosenblatt Securities. Please go ahead.

Barton Crockett, Analyst

Thank you for the information. David, could you elaborate more on your quarterly cadence? Specifically, what factors are contributing to the slower growth anticipated for the next quarter, and what do you expect to drive the acceleration in the fourth quarter? Also, for either you or Herve, considering the current macro environment, you have a unique perspective given the various verticals you engage with in pre-bookings. Could you discuss any pressure points you're noticing, including industries that might be experiencing challenges versus those that appear to be doing well? Additionally, how is the broader macro landscape affecting your clients?

Herve Sedky, CEO

Why don't I start with that, and then pass it on to David. Barton, thank you very much for the question. One of the benefits of the Emerald portfolio is that we, in fact, have this highly diversified portfolio of B2B events, and the event in and of themselves have this leadership in and across a broad range of verticals. And so, for us, while clearly there are different parts and different ranges of performance across the industries that they service, David mentioned in his prepared remarks, we are seeing different events at different verticals perform at different rates. And the example that I'll use is the sectors that are more consumer-oriented haven't recovered as well since the pandemic as some of the other sectors, for sure. The design sector for us is a big sector and has been growing at double digits and has been doing extraordinarily well. While some of the consumer-oriented sectors have just not rebounded as nicely. So, another example would be some of the tech marketing spend that got impacted, for instance, last year, while it has seen a bounce back, is not fully bounced back. So, we're definitely seeing different performance in different sectors. But on the whole, the beauty of the portfolio is that it's a highly diversified portfolio. And because the events have leadership positions in their respective sectors, that positions Emerald to do well on the whole. And now I'll turn it over to David to maybe add more to that, and then also to address the second question.

David Doft, CFO

Yes, this brings us to your initial question about the growth rates from one quarter to the next, which are influenced by the timing of our shows throughout the year. When we assess our overall performance and our full-year guidance—which, as you know, we don’t provide on a quarterly basis—it reflects this mix. We can confidently reaffirm our full-year guidance from the beginning of the year due to the consistent performance across our entire portfolio, regardless of when the events occur. Hervé makes a valid point that some sectors are experiencing strong double-digit growth while others are not, and our portfolio falls somewhere in between. The timing of these shows allows us to project that Q4 will reflect a reacceleration of organic growth. This isn't a broad statement about the overall trade show market, but rather an insight into the specific industries we operate in each quarter that influence our performance. Additionally, as Hervé mentioned, our three growth pillars, one of which is portfolio optimization, are crucial. We specifically use the term optimization because we're focused not just on acquiring or launching new events, but on doing so in industries that will enhance Emerald's growth profile. We aim to improve our portfolio mix continuously to drive business growth overall, and there are many opportunities ahead. We have made significant strides in recent years with our initiatives, but there is still much more we can accomplish if our strategy succeeds. This is why we maintain an active launch capability within our Accelerator group and continuously pursue M&A opportunities to enhance our business mix, understanding that perfection is an ongoing goal.

Barton Crockett, Analyst

Thank you for that. I would like to follow up and ask if you could share the key trade shows scheduled for the third and fourth quarters, as I believe the growth trajectories in the second half are likely influenced by these events. Additionally, if you have any metrics regarding square footage bookings, rates per booking, or the number of exhibitors, that would help us better understand your outlook.

Herve Sedky, CEO

Our trade show calendar is available on our website, where you can find a list of all the events and their dates. It's easy to see which shows are taking place at different locations. While we avoid mentioning specific events during our earnings call due to segment reporting, the information is available in the data we publish online. Regarding metrics, we don't disclose the exact figures, but we have discussed our progress on pricing, showing strong yield improvements year-over-year, typically in the mid-single digits or higher across our events. This year, as the benefits of the post-pandemic phase diminish, we see that NSF growth is slower than last year, which aligns with our expectations as we return to the normal pace of the trade show industry.

Barton Crockett, Analyst

Okay, all right. Well, thank you very much.

Herve Sedky, CEO

Thank you.

Operator, Operator

Your next question comes from Allen Klee from Maxim Group. Please go ahead.

Allen Klee, Analyst

Good morning. I recently spoke with the CEO of another company I cover, and he shared that his confidence in revenue growth stems from signing two potential customers at a trade show. This seems to support what your team has mentioned. To begin, I wanted to follow up on something Barton mentioned regarding the quarter. You pointed out that one impact during the quarter was due to changes in the scheduling of some conferences. My question is, if those events were rescheduled, to which quarters were they moved, and what new events can we expect in upcoming quarters that weren't scheduled before?

David Doft, CFO

So, every year there are events that in one year might have been in March, and the next year are in April, or they might have been in June, and they're in July. The timing could shift a couple of weeks in the calendar, and it shifted in and out of quarters. Or sometimes one day shift the quarter.

Herve Sedky, CEO

So, there were several events that were rescheduled between quarters this year for the second quarter. The primary one was one of the Overland Expos we run, which moved from Q3 last year into Q2 this year. Additionally, there were several smaller hosted buyer events and other types of events that were removed from Q2 this year that had taken place in Q2 last year. Overall, these changes collectively had an impact. In our analysis of organic growth, you can observe the financial effect of those events in each quarter, whether it affected the previous year's base or this year's results due to the rescheduling. So, those calculations can be made.

Allen Klee, Analyst

Thank you. In the past, you said that one of the opportunities that you've had was growing your international. Can you talk about what you're doing there and how you think about that now?

Herve Sedky, CEO

Yes, of course. So, what we have done over the course of the last 18 months is really invested in creating an international sales division. And we've resourced that by putting a head of and resourced it with a number of sales leaders underneath that are geographically focused. So, we have leadership that is assigned to different territories around the world while they're U.S.-based. They own different territories and work with different representatives, whether they're agents or counsel offices or government representatives around the world to do a couple of things. One, sign agents so that these agents can help put feet on the streets and bring businesses, imports businesses into the U.S., help us really drive international business into the U.S., but also allow us to tap funds, some governments, international government sponsorship funds that some governments have to encourage their companies to really grow and to access the U.S. market. And so, this new group is in fact helping access these funds and attract these companies to the U.S. So, while it's a fairly new group for us, they've had some good success in the short time that we've had them up and running. And that team is about half a dozen strong now. And yes, we're very pleased. It's an area where Emerald was underweight relative to peers, and we're looking forward to continuing to strengthen that.

Allen Klee, Analyst

Great, thank you. In your remarks, you guys talked about some testing you're doing with AI and to better personalize and improve some of the metrics. Could you just go into that a little bit more? Thank you.

Herve Sedky, CEO

Yes, of course. So, we have a number of tests, and like I'm sure many, if not all companies, are testing different ways to leverage technology. So, we're leveraging off-the-shelf technology, AI technology. And in order for us to really be more effective and efficient, and it's largely around, as I mentioned in my opening remarks, around our content business and marketing. So, it's really how do we write copy more effectively and efficiently? How do we allow this copy to be more personalized? And the whole concept is to be more effective and efficient so that we can personalize the messaging so that we can attract more people to attend our events in a more efficient and effective way. That's, in a nutshell, what we're trying to do.

David Doft, CFO

So, that's one example.

Herve Sedky, CEO

One example.

David Doft, CFO

There's a number of other areas. Some areas we've not been successful in finding use cases as when you test, not everything works. But, and there are a few areas where there is some real opportunity, and this is one of them. And when you talk about the promise of our proprietary data that we generate here at Emerald, one of the benefits is we can better attract leads for our customers. But the other benefit is we could better attract leads for Emerald, and that's what this is about, which has some nice long-term implications for us.

Allen Klee, Analyst

Thank you. Just last quarter, you talked about your acquisition of Hotel. And I was just wondering if you could give an update on how that looks, Hotel Interactive, and just a reminder of when they're having their events. Thank you. And what they're called, the names of their events. Thank you.

David Doft, CFO

Sure. So, Hotel Interactive is a series of events that are called hosted buyer events. We've talked about these from time to time. They're smaller events where we invite a small group of in-market executives that have budget authority, buying authority, to a resort location for a couple of days. We pay for them to come. That's why it's called hosted buyer, because we host them. And it's funded by sponsors who want to get in front of them with their products and services. And so, we build a conference schedule that's of interest to the attendees to learn best practices, to hear from their peers on case studies. And then, in exchange for us paying for them to come to this conference, they have to do a number of short meetings with suppliers to learn about their products and services. And the reality is it's amongst the highest ROI products that we offer. Our sponsors love these because it is in-market buyers that we're bringing in. It's part of the vetting process that we go through in recruiting attendees to the event. And so, it's a very high return on their investment. We have phenomenal NPS scores at these events. And Emerald already runs a bunch of events like this through a business that was acquired in 2018 called CPMG, Connected Point Marketing Group. And it's gone so well for us that we were looking to expand our footprint in this area. And so, we acquired Hotel Interactive. They run about 15 events a year that are evenly spread throughout the year. Most of them under the BITAC, B-I-T-A-C brand name, and a lot of hospitality-related and design-related type events, which as Herve mentioned, has been a really strong organic growth category for us.

Allen Klee, Analyst

Thank you. Any updates in the commerce area?

David Doft, CFO

The commerce area continues to progress per our strategy. The underlying subscription software business at Elastic continues to perform well, continues to drive its product roadmap that's leading to a strong pipeline extension into new industries. As we've mentioned before, we've broken into the kitchen and bath category that we're very excited about. And we think increases the growth opportunity for that sector in the coming quarters. So, we're very excited about that. The other side of commerce is the Bulletin platform. This week is actually a big week for them because Bulletin first brand that it integrated into was New York Now. And the New York Now event is going on as we speak. And Herve and I were there on Monday and there was tremendous amount of activity around the incubator section, which was driven by a lot of the original brands from Bulletin, but also has a kind of a demo area for buyers and vendors of the platform to continue to drive traction of that. But for this show, it is integrated into the event website. So, the site is commerce enabled for approved buyers and transactions are taking place, and it's been an exciting week for us.

Allen Klee, Analyst

That's great. My last question would be just, how do you think about the pipeline or opportunity for new trade shows that in your accelerator that you create yourself and then also on the M&A side?

Herve Sedky, CEO

Both have some good strong pipeline. We, as you know, on the accelerator side, we have a very disciplined process that we use with a three-gate review process. And we have a number of candidates that are going through. I'm looking it up as we speak here. I think it's about a dozen different concepts that are going through the different gates for an accelerator in gate one. I think, yes, it's about 12 to 15 different ideas that are in the very initial phases of review. And there are three or four in the more advanced phases. That means that they've gone through the initial vetting and now in more advanced research and going through the next steps of putting budgets together and formal business cases and final approvals to launch. And so, those hopefully you'll be hearing more about in the short term. As it relates to M&A, we have a good strong pipeline. I would say they're a mix of small to midsize assets. And it's a growing pipeline. And we continue to pursue those aggressively and hope to announce transactions as we've committed because M&A is an important part of our portfolio optimization strategy, as David mentioned. We want to continue to diversify the portfolio and we'll continue to do that through both launching and acquiring events.

Allen Klee, Analyst

Okay, great. Thank you very much. Congrats on the quarter, initiating a dividend, reiterating your guidance. So, it seems I like what I'm hearing. Thank you so much.

David Doft, CFO

Thanks, Allen.

Herve Sedky, CEO

Thank you very much, Allen.

Operator, Operator

And there are no further questions at this time. I will turn the call back over to Herve for closing remarks.

Herve Sedky, CEO

Well, thank you very much. In closing, over the last few years, as many of you know, we've continued to optimize performance of the business, upgrading our go-to-market capabilities, driving best practices throughout the organization, optimizing the mix of the portfolio, as we've mentioned. And I believe that this has positioned us very well for sustained growth for the foreseeable future. I want to thank you all for your participation today and look forward to talking to you on the next call. Have a great day.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.