Emerald Holding, Inc.

Good morning and welcome to the Emerald Olding Inc. second quarter 2024 earnings conference call. At this time, all lines in a listen-only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Before we begin, let me remind everyone that this call will include certain statements that constitute forelooking statements. within the meeting 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 maturely from those indicated are 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 provoking 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 investor section of the company's website to 11.59 p.m. Eastern Time on August 14th. I would now like to turn the call over to Mr. Irvi Sedky, President and Chief Executive Officer. Sir, please go ahead.

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 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 and 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 in between event conditions throughout the year. The evidence is clear. Our trade shows have a profound impact. At all of our trade shows, we've implemented on-site 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 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 Emeralds, 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 re-energized by their future prospects and inspired by the innovations they discovered. In 365-day engagements, 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. 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.

Thank you, Hervé, 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 with $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 the 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 remeasurement 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 reaccelerate, 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 30th, 2024, 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 30th, 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 reinitiation of a regular quarterly dividend at an initial rate of one and a half cents 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 Hervé said, We believe the visibility and expected stability of the company's free cash generation position 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 opportunistic 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.

Thank you, ladies and gentlemen. If you'd like to ask a question, please press star one. To withdraw your question, please press star two. One moment, please, for your first question. Your first question comes from Barton Crockett from Rosenbolt Securities. Please go ahead.

Thanks for this information. David, I was wondering if you could talk a little bit more in terms of your quarterly kind of cadence here, if you could give us a little bit more kind of detail around what drives the slower growth for the next quarter and then the speed up in the fourth quarter. Just give us a little, unpack a little bit more, give us a little bit more kind of sense of what's underneath that. That's one question. And then, you know, for either you or for Herve, you know, obviously we're in an interesting kind of macro, broader macro environment you guys have. a lot of sense, obviously, from the range of verticals that you deal with and the pre-bookings of what people might be feeling. I was just wondering if you could talk about just what you're seeing in terms of pressure points, some industries that are maybe a little bit, feeling a little bit of pressure or industries that are still feeling healthy and just your broad sense of kind of how the macro is impacting your clients.

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 events themselves have this leadership position 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 serve, as David mentioned in his prepared remarks. We are seeing different events and different verticals perform at different rates. 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 has just not rebounded as nicely. So, and another example would be some of the tech marketing spend that got impacted, for instance, last year, while has seen a bounce back, has not bounced, is not, you know, fully bounced back. So, we're definitely seeing, you know, 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's what positions Emerald to do well on the whole. And I'll turn it over to David to maybe add more to that and also to address the second question.

Yeah, I mean, that really leads into your first question around the cadence of the quarter-to-quarter growth rates. It depends which shows are staging when in the calendar year. So when we look at overall performance in our full-year guidance, and as you know, we don't guide quarters, is, you know, it's because of this mix overall. And so we're able to reiterate our full year guidance that we gave at the beginning of the year because of that continued visibility in the performance of the entire portfolio irrespective of where in the year those events stage. And so, you know, Hervé's point is a really good one. There are some sectors that are growing very strong double digits and there are others that are not. And the mix is that we fall somewhere in between as a portfolio. And so it's because of the timing of those shows that we're able to make a statement that 4Q should show reacceleration of organic growth. It's not making a macro call on the broader trade show business. It's taking a view of the specific industries we serve within each quarter that drives that performance overall. The other thing I'd add is, you know, we, you know, Hervé talked about our three growth pillars and we talk about them every call. And one of them is a really important one. It's called portfolio optimization. And we use that word optimization very specifically because not only are we looking to acquire incremental events and not only are we looking to launch incremental events, but we're looking to do so within industries that enhance the growth profile of the Emerald portfolio. We're looking to continue to tilt our portfolio to a better and better place in terms of its mix so that we can continue to drive growth overall for the business. And there's lots of opportunity to do that, and we've done a lot in the last few years with some of the work we've done, but there's a lot more that we can do if we're successful in that strategy. And that's why we continue to have a launch machine here in our accelerator group. That's why we continue to actively look at M&A opportunities, because it behooves us to continue to look for more and more opportunity to improve the mix of the business, because there's never perfection there.

Okay. All right. Thank you for that. You know, if I could just follow up. You know, I was wondering if... Certainly, I think the growth trajectories in the back half are probably influenced by the leading trade shows that you have in each of the quarters. I was wondering if you could tell us what are going to be the important trade shows in the third quarter and in the fourth quarter. And then if you have any kind of metrics you can use to kind of expand upon what you're seeing in terms of square footage booking or rates paid per booking or number of exhibitors booking, if there's any metrics you can give us to give us a sense of what's undergirds kind of your outlook here?

So our trade show calendar is on our website. All of the events are listed there with their dates. I think it's pretty – if you take a look, I think it's pretty easy to see which shows are where. We – given the segment reporting, we try not to name individual events. on our earnings calls, but it's surely there in the data that we publish online for you to see. In terms of metrics, we don't publish the exact details of those metrics. I think we have talked quite a bit about our work on the pricing front, and we continue to see strong yield improvements year over year, surely mid-single-digit or better across the portfolio of the events. This year, because the tailwind of post-pandemic world gets smaller and smaller as we've moved to two or three years out from the pandemic, the NSF growth is slower than it has been last year, but that's as we expected because we're settling back into kind of the normalcy of the trade show business.

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

Your next question comes from Alan Clee from Maxim Group. Please go ahead.

Yes. Hi. Good morning. I just mentioned there's another company I cover, and I was talking to the CEO the other day, and he's basically telling me the main reason why he's confident in his revenue improvement was two potential customers he signed up from a trade show. So I think it kind of corroborates a lot of what what you guys say. So to start off with, I wanted to just follow up on something Barton said and something that you guys said during your describing the quarter. And you mentioned that one of the impacts of the quarter was some scheduling changes of some conferences. So the question I had is, if some things were moved, like Where would they move to? Which quarter or what type of new events would we expect to see in new quarters that weren't there last time?

So, you know, every year there are events that, you know, in one year might have been in March and the next year in April or they might have been in June and then in July. you know, the timing could shift a couple weeks in the calendar and it shifts it in and out of quarters. Or sometimes one day. Or one day, yeah, exactly. So it really has to do with that. So there were a half a dozen or so events that moved between quarters this year for the second quarter that You know, probably the main one was one of the Overland Expos that we run, which moved from Q3 last year into Q2. But then there was a number of things that moved out of Q2 that were in Q2 last year. Some of our hosted buyer events, some of the smaller type events, but in aggregate, it all adds up. So in our reconciliation of organic growth, you could see the dollar impact of those shows in each of the quarters, whether it impacted the base from last year or it impacted this year based on the movement so you can make those calculations.

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?

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 consular offices or representatives, 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, import 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 US. 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 yeah, 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.

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

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 you know, to leverage technology. So we're leveraging off-the-shelf technology, AI technology, in order for us to really be more effective and efficient. And so, 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.

But that's one example. 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. 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 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.

Thank you. Just last quarter, you talked about your acquisition of a 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. 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 BTAC, B-I-T-A-C, brand name. And a lot of hospitality-related and design-related type events, As Herve mentioned, it's been a really strong organic growth category for us.

Thank you. Any updates in the commerce area?

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 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 and This week is actually a big week for them because Bulletin's first brand that it integrated into was New York Now, and the New York Now event is going on as we speak. Hervé and I were there on Monday, and there was a tremendous amount of activity around the incubator section, which was driven by a lot of the original brands from Bulletin, but also has 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. So the site is commerce-enabled for approved buyers, and transactions are taking place, and it's been an exciting week for us.

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

Both have 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 candidates different concepts that are going through the different gates for an accelerator in gate one. I think, yeah, 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 phases. 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 mid-size 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's 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.

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

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

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.

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