Earnings Call Transcript - EEX Q1 2024

Operator, Operator

Good morning and welcome to the Emerald Holding Incorporated First Quarter 2024 Earnings Conference Call. 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 forth in the company's most recent 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 this 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 May 14. I'd now like to turn the call over to Mr. Herve Sedky, President & Chief Executive Officer. Sir, please go ahead.

Herve Sedky, President & CEO

Well, thank you, Ivo, and good morning everyone. It's great to be with all of you today to discuss our first quarter. I'll start as usual with a review of our performance and then give an overview of our strategy, and then David Doft, our CFO, will provide more detail on our financials. 2024 is off to a strong start, driven by our unwavering commitment to customer centricity and year-round engagements. This focus has not only fueled early rebookings into 2025, but has also provided us with excellent forward visibility into our revenue trajectory. In the first quarter alone, we hosted successful shows with record attendance in some of our strongest categories, including KBIS, our kitchen and bath show, Prosper, the largest gathering of Amazon and other marketplace sellers, and the International Pizza Expo, serving thousands of American pizzerias and their wholesale ingredients and equipment suppliers. Our positive trends in attendee and exhibitor counts, square footage, and pricing are all products of the exceptional value and ROI we provide to our customers for their marketing budgets. For many businesses, trade shows are their number one selling or marketing event of the year, and a big part of our ongoing efforts has been to highlight 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. Our goal is to continue to maximize value for our customers and shareholders, driving loyalty and not only a desire to return, but also a growing engagement in between event editions over the course of the year. At all of our trade shows, we've implemented on-site pre-bookings, which means we are already selling exhibitor space into 2025. Our sales spacing data offers us a highly granular view into exhibitor trends up to one year out, which gives us confidence in our forecasts for 2024. Looking ahead, we project continued increases in exhibitor counts and revenue above our industry's historical run rate. In our content business, where we saw advertising budgets under pressure last year in certain end markets experiencing economy-related softness, we're beginning to see signs of stabilization. Importantly, we're seeing evidence in our forward bookings that our investments and the reorganization efforts are paying off. As an example, we recently launched the Small Business Exchange, our first content product spanning all of Emerald's industry portfolio and reaching a scaled audience of small businesses across all of our events. Since launching Small Business Exchange only a few months ago, it now has over 400,000 subscribers. In our commerce business, we continue to be delighted with the performance of Elastic Suite, our software as a service offering for wholesale e-commerce transactions. From its origins in the outdoor and action sports apparel and equipment, we've expanded Elastic into the kitchen and bath and indoor design categories, more than doubling its total addressable market. We have also signed some large names as new customers that were announced at our KBIS show in February and led to a burgeoning pipeline for Elastic in the category. Meanwhile, our Bulletin platform is gaining traction, powering New York Now Online with hundreds of trade show exhibitors leveraging the platform to engage with buyers both around the time of and after our trade show. Over time, we plan to leverage Bulletin to supplement the on-site experiences for many of our events to drive commerce throughout the year. Overall, as our guidance indicates, we expect another significant 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 in the mid to high single digits to contribute to double-digit annual revenue growth overall. May 2 marked a significant milestone as we completed the conversion of all outstanding convertible preferred shares into common stock. This conversion eliminates a $34 million per year dividend that was only accruing to the benefit of the preferred holders and greatly simplifies our capital structure such that all equity holders can benefit from future value creation and cash flow generation. As we move forward, our steadfast focus remains on delivering consistent, profitable growth and building on the value of our irreplaceable portfolio of in-person events. The way we'll achieve these goals is by executing on the three pillars that underpin our value creation goals: customer centricity, 365 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 clearer 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 365-day engagement, we're providing multiple entry points to the customer engagement cycle through trade shows, conferences, webinars, media content, and our e-commerce platforms. And in portfolio optimization, through our acquisitions and new event launches, we have targeted industries with strong, stable growth rates and product categories with recurring sales cycles. Over time, we expect new event launches to contribute one percentage point to two percentage points of annual revenue growth. Lastly, on the personnel side, we're pleased to welcome our new General Counsel, Sarah Altschul, who's joining Emerald next week following an impressive career as a General Counsel in the advertising and travel sectors. Sarah is an outstanding addition to the Executive team and we look forward to working closely with her when she settles in. To conclude, we're pleased with our strong start in 2024 with the overall business tracking in line with our expectations. 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. We are very confident that we can sustain this trajectory and deliver meaningful 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. Turning to our results for the first quarter, which is our seasonally largest quarter of the year, total revenue was $133.4 million compared to $122.3 million in the prior year quarter. The increase was driven primarily by organic revenue growth with a small contribution from acquisitions. Organic revenue for the connection segment, which takes into account the impact of acquisitions, scheduling adjustments, and discontinued events, was $118.6 million for the first quarter of 2024, an increase of $13.6 million or 13% versus the prior year period. In the first quarter of 2024, we recognized $1 million of other income reflecting an insurance claim recovery tied to a virtual event during 2021 where our technology service provider had a disruption leading to a loss for Emerald. There are no other material insurance claims outstanding. First quarter adjusted EBITDA excluding insurance proceeds grew 9% to $39.8 million compared to $36.5 million for the same quarter last year. This equated to an adjusted EBITDA margin of approximately 30% for the quarter. First quarter free cash flow excluding event cancellation insurance proceeds was $3.8 million compared to $5.2 million in the prior year quarter. First quarter free cash flow is impacted by nonrecurring costs related to acquisition integration and some restructuring charges. Turning to expenses. On a recorded basis, first quarter SG&A was $55.5 million versus $48.8 million in the prior year quarter. The year-over-year increase is largely due to the impact of the acquisition of Hotel Interactive, which closed in January, severance expense related to recent changes to delayer some of our senior leadership teams, acquisition integration costs, and a $1.5 million increase in estimated contingent consideration payments for past acquisitions, which flows through the P&L at an expense, even though it will be purchase price when ultimately paid. We thought it would be helpful to briefly review our show calendar and seasonality, given some shifts in the timing of certain large shows in recent years, as well as our acquisition activity. This past year, we moved the winter edition of Outdoor Retailer to November instead of January and consolidated a number of smaller shows in Q1. Note that our other outdoor retailer event held in June remains unchanged on the calendar. We believe these changes better align the winter outdoor retailer show with the industry buying cycle. Taken together, these changes impacted the top line in Q1 2024 by $2 million and Q1 2023 by $7.2 million and can be seen in schedule 1 in our earnings releases. Our full show calendar for 2024 can be found on our website. Along these lines, given the number of industries Emerald serves, our guidance always assumes some variability in quarter-to-quarter organic growth rates. While Q1 contributed strong double-digit organic revenue growth, other quarters are not expected to reach that level based on the mix of business in each specific period, all consistent with the assumptions that underpin our annual guidance, which we reaffirmed today. Turning to the balance sheet, we had $186.8 million in cash as of March 31, 2024, versus $204.2 million as of December 31, 2023. After funding the $8.6 million dividend on our convertible preferred stock and the Hotel Interactive acquisition, our total liquidity is $296.8 million, including full availability on our $110 million credit facility. 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. We expect to continue to balance capital allocation between acquisitions, investments in our own business, managing debt leverage, and returns of capital. At quarter end, we had $23 million remaining on our existing buyback authorization, after buying back approximately 295,000 shares in the first quarter. As Herve mentioned, we completed the conversion of all of our outstanding preferred shares subsequent to quarter end. Following the conversion, our total outstanding share count is approximately 203.8 million, equating to a market cap of $1.2 billion as of yesterday's close. We paid the final first quarter preferred dividend in cash, thereby avoiding the issuing of an additional 2.4 million common shares. We expect our shareholders will benefit from our newly simplified capital structure and improved free cash flow. As of March 31, we had net debt of $225.4 million, leading to a net leverage ratio as defined in our credit agreement of 2.17 times our trailing 12-month consolidated EBITDA, based on the definition in our credit agreement of $103.9 million. Turning to guidance, we are reaffirming our full-year guidance for 2024 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% and includes a 300 basis point drag from continued investment in the growth initiatives I noted on our last call. 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

Your first question comes from the line of Barton Crockett of Rosenblatt.

Barton Crockett, Analyst

I was curious if you guys could elaborate a little bit more on some of the variability you flagged in the organic growth rate expectations for this year. If there's any quarter that looks particularly stronger, particularly weaker, and a little bit of color underneath that. And then, on top of that, I do note that you've got this acquisition of a Hotel Interactive here in January. And so I was wondering if you could maybe give us a little bit more color around the materiality of that and the importance of that. And also, around the acquisition contributions do you expect for this year and how those kind of compare to your long-term kind of aspirations.

David Doft, CFO

Sure. Thank you, Barton. One of the things we've talked about, I think a bit over the last several quarters is the volatility, quarter-to-quarter of organic growth relates entirely to the sectors in which we have events in a particular quarter. So if you recall, in the fourth quarter, our organic growth was lower than it was in the first quarter, but we gave visibility of an acceleration ahead and it's purely based on the business mix. One thing about our business is that while what we execute are events, they're all different businesses with different dynamics based on the industry they serve, and they happen once or twice a year typically. And so the quarter that a particular event stages in would greatly impact the results of that quarter, but have nothing to do with the quarter before and the quarter after. And so with that, the way we see the year playing out is the first and fourth quarter; we're expecting the strongest growth rates. And then the middle two quarters of the year have a bit more muted organic growth but still expect organic growth in those quarters based on the mix of the business and what's staging at the different times in the year. From an acquisition standpoint, Hotel Interactive is a series of about 15 smaller hosted buyer events. For those not aware, the hosted buyer model is a really attractive high ROI model for our sponsors and attendees, but by their nature, they're smaller, where we bring together a couple of hundred executives with buying budgets in a particular niche industry for a couple of days at a venue with education and networking, as well as one-on-one meetings with sponsors who are selling the products that the buyers are in market looking for. So very direct, tangible ROI for sponsors and a really effective and high NPS score model for attendees and sponsors alike. And so they're spread out pretty much evenly over the course of the year for Hotel Interactive. And you can assume that the run rate that you see here in Q1 is pretty similar spread out over the course of the rest of the year. There's no other acquisitions at this point that we've closed on this year. And so time will tell what other impacts there would be from acquisition revenue in future quarters. We are ambitious on the M&A front; there are a number of opportunities that we're pursuing. And our hope is that we can close on two, three, or four more smaller opportunities like this over the course of the year.

Barton Crockett, Analyst

And just to follow-up on the acquisition commentary relative to your guidance, do you have acquisition revenues in your guidance?

David Doft, CFO

We don't have guidance for future acquisitions. The guidance has always included Hotel Interactive because the deal closed in January, and we provided the guidance in early March, having already announced the deal, which was reflected in our numbers.

Barton Crockett, Analyst

And then if I could ask another question, you were referring to growth in some of the key metrics, square footage and others. I was just wondering if you could provide a bit more detail about what you're observing in those metrics and if there are any specific numbers you can share to support what you mentioned on that point.

David Doft, CFO

So this is David. I'll take this. So we continue to see a strong opportunity on the pricing front. We're seeing pricing up better than mid-single-digit so far, year-to-date, and would expect at least a mid-single-digit pricing improvement over the course of the year. And that's on top of the more meaningful price improvements we were able to get over the last couple of years as we rolled out what we think is a more sophisticated pricing algorithm than we operated under prior to the pandemic. NSF's up a few percent. There is variability there, event-to-event, and that's kind of the part of what drives the organic growth commentary based on industry exposures, but we're continuing to see better than historical growth rates in NSF for the year and implying there's still a little bit of tailwind from a pandemic recovery in certain sectors, as well as we hope and expect benefit from some of the initiatives that we've begun to put in place over the last couple of years to drive incremental growth for Emerald longer term. I'll give a shout out in particular to our international sales team, which has particular momentum on driving improvements to our mix of business from international exhibitors coming to our events here in the U.S.

Barton Crockett, Analyst

And then if I could just ask one final question. And this one, I'll also offer to Herve if it makes sense for you. But I know that the visa situation has been problematic. It's something that you've had some interest in. And I was just wondering if you could update us on what's happening in terms of the visa timing backlog and the impact that has on you guys in the industry at this point and what the prospects are going forward there.

Herve Sedky, President & CEO

Visa processing continues to be a challenge for the industry, not just for Emerald, and we are actively involved in efforts to address this issue. The Exhibitions and Conference Alliance, which I chair, is dedicated to lobbying the government to modernize visa processing and return operations to pre-pandemic levels. There are several bills in Congress that are receiving bipartisan support, with some already securing substantial funding, which is encouraging. We are making progress, but more action is needed. I recently spent time on Capitol Hill and there is an upcoming Exhibitions Day where many industry peers will advocate for continued focus on this issue. Overall, we believe it is moving in a positive direction, and as David mentioned, the whole industry stands to gain from increased international participation at our events, which is a priority for us and can certainly benefit Emerald.

Operator, Operator

Your next question comes from the line of Allen Klee of Maxim Group LLC.

Allen Klee, Analyst

Can you talk a little about the new launches you did last year from Accelerator, kind of what you're looking to improve upon them and how you're thinking about potential performance from them in '24?

Herve Sedky, President & CEO

Certainly. We have several launches that we want to showcase. For instance, Casino Sabrosa, an event focused on the Latin food and beverage market, had a very successful launch in September 2023, and we anticipate continued growth in 2024. Another successful launch was the Commercial Integrator, which was held alongside our CEDIA events, allowing us to utilize existing infrastructure while attracting a different clientele—specifically professional customers in the integration channel rather than residential ones. We’re optimistic about seeing good growth in this area in 2024. Additionally, we launched an event called Decentralization Deciphered, which aims to educate businesses on Web3 innovation. This one has a unique platform and is being scaled across multiple events, making it possible to launch alongside others that have corresponding audiences, like RICE. Overall, the launches we’re emphasizing present strong growth opportunities, which are exciting for us because we believe they can contribute one to two points of organic growth for Emerald in the long term.

Allen Klee, Analyst

For the content business that faced challenges last year, you seem to be a bit more optimistic now. Could you elaborate on why you believe it may have reached a low point?

Herve Sedky, President & CEO

Yes, I’ll start and then hand it over to David. We are feeling more optimistic about our content business for two main reasons. First, we have invested in this area. Previously, our content business was tied to the trade show business. Over the past year, we have fully separated it, established a dedicated leadership team with the relevant expertise, and invested in its infrastructure. This separation allows us to reduce our reliance on advertising and develop a lead-generating capability, which is our goal. We are encouraged by the success we have seen in creating a unified brand using our existing databases, which has been fruitful. The focus, leadership, and product launches have shown promising initial results, boosting our confidence. The second reason is that we now have some forward visibility and are beginning to observe recovery in sectors that were particularly impacted last year, especially technology. This gives us greater assurance in the content business moving forward. Now, I’ll pass it to David as well.

David Doft, CFO

Yes, to elaborate on the reorganization of the business and the successful separation from the events, we transitioned from 20 independent businesses to a single entity operating on a shared technology platform, utilizing best practices that allow each industry vertical to benefit collectively. This represents a significant shift in our approach, enabling us to improve operations substantially and modernize our framework to align with today's media industry rather than that of 10 or 15 years ago. We view this as a substantial opportunity. Consequently, this modernization will lead to enhanced and more versatile editorial content, as well as greater understanding of analytics that will inform our editorial calendar and strategic direction. Additionally, we have consolidated our sales efforts, allowing for cross-platform selling instead of solely focusing on individual verticals, which we anticipate will generate meaningful incremental opportunities. As a result, we have observed improvements in our forward bookings. Although Q1 showed a year-over-year decline, our overall bookings for the year are increasing, leading us to believe that this will contribute to our growth, thanks to the team's efforts. While it takes some time to establish a solid foundation, we are beginning to witness significant momentum in sales that we expect will result in substantially better performance throughout the rest of the year.

Allen Klee, Analyst

And then also under commerce, I heard you say that you've expanded some of your verticals, which could double the audience you're going after. Two things, could you talk a little about when the new verticals were added and sort of think about when they can start contributing? And then second, for Bulletin, you talked about how that was gaining traction and powering New York Now and some other users and trade shows. Could you just go into a little more detail explaining what that all means?

Herve Sedky, President & CEO

Sure, happy to. On the last call, we discussed Elastic and how we're broadening our market focus. Elastic has typically concentrated on outdoor apparel, but we're now moving into the indoor space, specifically kitchen and bath. This industry presents a significant opportunity for us, and we've partnered with several major brands that we previously announced. This sector alone allows us to more than double our addressable market for that product, which aligns with our strategy to leverage our excellent, highly integrated product for large customers across various industries. We're making good progress on that front. Regarding Bulletin, it serves a different purpose. It's aimed at smaller businesses, making it easier to scale with a wider range of products. Since over 85% of our customers are small businesses, we needed a solution that could grow more quickly and meet their needs. We initiated this with New York Now, as Bulletin began in the home space, and it has shown significant success. Going forward, we plan to scale Bulletin across other categories, similar to our approach with Elastic.

Allen Klee, Analyst

And then just one of your pillars is to try to get full-year engagement from customers. How would you feel about where you are in that process and where you're getting the benefits from that?

Herve Sedky, President & CEO

Yes, I think the 365-day engagement essentially consists of two components that we discussed. Customers participate in our events, which are periodic. Our goal is to maintain communication with them and provide value through our content business, accomplished via editorial, leads, and our commerce business. These elements working together with our events enable us to offer a 365-platform. I believe we are progressing well in this area. It's a journey, and while we continue to expand our efforts, we are on track to realize our plan. We monitor the value we offer our customers closely. As David mentioned, pricing is a crucial element of our strategy, and our focus on value creation allows us to justify price increases. We set prices based on the value we deliver to customers, and we aim to be intensely focused on providing that value and being compensated accordingly. This is our approach, and we consistently seek ways to generate value year-round. Consequently, our content and commerce businesses enable us to serve our entire customer base effectively.

Allen Klee, Analyst

My last question is, you use a matching technology for those who are at trade shows. Can you talk about where you are in terms of like, the feedback you've gotten, how this adds value to those at the trade shows, and what you're doing going forward with that?

Herve Sedky, President & CEO

Yes, we are now utilizing matchmaking tools and lead sharing solutions at all of our trade shows. All trade shows have implemented these solutions, which are related to value creation, and they are performing very well. We measure net promoter scores and loyalty to gauge success, and we can see that customers who use these solutions rate us higher. They have better net promoter scores and loyalty scores compared to those who don't use them. Our efforts thus far have been to ensure these tools are present at all our events. We are now focused on increasing adoption and usage to ensure as many customers as possible, both exhibitors and visitors, are using these tools. We are making significant progress in achieving this adoption across all our events.

Allen Klee, Analyst

Congrats on the strong quarter.

Operator, Operator

We don't have any further questions at this time. Presenters, please continue.

Herve Sedky, President & CEO

Great. Well, I just wanted to thank you all for your questions. Thank you all for your interest in Emerald. I'm very pleased with what our teams have accomplished this quarter. And I'm glad that we've been able to deliver on the expectations and the commitments that we've made. And I look forward to speaking with you all next quarter. Have a great day.

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.