Q1 2024 Emerald Holding Inc Earnings Call

Participants

Hervé Sedky; President & CEO; Emerald Holding Inc

David Doft; Chief Financial Officer; Emerald Holding Inc

Barton Crockett; Analyst; Rosenblatt Securities

Allen Klee; Analyst; Maxim Group

Presentation

Operator

Good morning, and welcome to the Emerald Holding Inc. First Quarter 2024 earnings conference call. At this (Operator Instructions)
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 2020 for our 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 recent filed for exotic reports and Form 10 K and Form 10 Q and subsequent filing s. 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 US GAAP AP. 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 14th. I'd now like to turn the call over to Mr. Herve based key President and Chief Executive Officer. Sir, please go ahead.

Hervé Sedky

Well. Thank you, Eva, 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 strateg y. And then David Doft, our CFO, will then 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 and some of our strongest category, including Kbiz, our kitchen and bath show prosper . The largest gathering of gathering of Amazon and other marketplace sellers and the international pizza expose serving thousands of American pizzeria is in their wholesale ingredients and equipment suppliers are positive trends in attendee and exhibitor counts. Square footage and pricing are all products of the exceptional value at ROI. we provide to our customers for their marketing budgets.
For many businesses trade shows are there number one, selling or marketing events of the year, and a big part of our ongoing efforts has been to highlight this value proposition and make the ROI more transparency by developing value added tools and metrics that we believe will deliver an even better trade show experience .
The results that are customers view our shows as an investment rather than our costs. 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 engagements in between events additions over the course of the year. At our trade shows, we've implemented on-site pre-bookings, which means we are already selling exhibitor space into 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 forecast for 2024. Looking ahead, we project continued increases in exhibitor count 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, experience sensing economy related softness, we're beginning to see signs of stabilization.
Importantly, we're seeing evidence in our forward bookings that our investments, and as an example, we recently launched the Small Business extent, change our first content product spending all of that 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 eCommerce business. We continue to be delayed.
Added with the performance of Elastic suites are 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 address possible market. We have also signed some large names as new customers that were announced at our Cable Show in February and led to a burgeoning pipeline for elastic in the category.
Meanwhile, our bulletin platform is gaining traction, powering your book now online with hundreds of trade or exhibitors, leveraging the platform to engage with buyers both around the time of and after our trade show overtime, 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 digit, it's to contribute to double digit annual revenue growth. Overall, May second 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 their preferred holders and greatly simplifies our capital structure such that all equity holders 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 by executing on the three pillars that underpin our value creation goals, customer centricity, three 65 engagement and portfolio optimization and customer centricity. We are focused on improving that 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 investments 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 and portfolio optimization.
Through our acquisitions and new event launches, we have targeted industries with strong, stable growth rate and product categories with recurring sales cycles. Over time, we expect new event launches to contribute one to two percentage points of annual revenue growth.
Lastly, on the personnel side, we're pleased to welcome our new General Counsel, Serra Azul, who's joining and what's next week following an impressive career as a General Counsel in the advertising and travel sectors, CROs, an outstanding addition to the executive team, and we look forward to working closely with her when she settles.
And 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, where 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 district directory 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

Thank you, Hervé, 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 connections segment, which takes into account the impact of acquisitions, scheduling adjustments and discontinued event 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 [2023], we recognized $1 million of other income, reflecting an insurance claim recovery pipelay vertical. And then during 2021, where our technology service provider had a disruption with even to a loss. For example. There are no other material into turns clean tech tenants.
First quarter adjusted EBITDA, excluding insurance proceeds, grew 9% to $39.8 million compared to $36.5 million for the same quarter last year. 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 was impacted by non-recurring costs related to acquisition integration and some restructuring charges. Turning to expenses. On a reported basis, first quarter SG&A was $55.5 million versus $48.8 million in the prior year quarter. 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 de-layer some of our senior leadership team, acquisition integration costs, and a $1.5 million increase in estimated contingent consideration payments for past acquisitions, which flows through the P&L as an expense even though the purchase price will ultimately pay.
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 addition of outdoor retailer to November instead of January and consolidating the 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 aligned with their outdoor retailer show what is the buying cycle taken together. These changes impacted the top line in Q1 2024 by $2 million in Q1 2023 by $7.2 million and can be seen and schedule one in our earnings release.
Our full calendar 2024 can be found on our website. Along these lines, given the number of industries and will serve our guidance always assume some variability in quarter-to-quarter organic growth rate forever 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 book validity to the $96.8 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 and grow our business as well as optimize the per-share value of our stock .
We expect to continue to balance capital allocation between the acquisition, investments in our own business, managing debt leverage and return 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 Hervé mentioned, we completed the conversion of all of our outstanding preferred shares subsequent to quarter and four. During 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 Q1 preferred dividend in cash, thereby avoiding the issue of an additional 2.4 million, a million common share. We expect our shareholders will benefit our newly simplified capital structure and improve free cash flow.
As of March 31, we had net debt at $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 $450 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 points drag from continued investment in the growth initiative I noted in our last call.
We believe at 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 overtime 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.

Question and Answer Session

Operator

(Operator Instructions) Barton Crockett, Rosenblatt.

Barton Crockett

Okay. Thanks for taking the questions. 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 strong or 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 have 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 contribution you expect for this year and how that's kind of compare to your long-term kind of aspirations.

Hervé Sedky

Thank you, Barton. One of the things we've talked about, I think a bit over the last several quarters is on 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, organic growth was lower than it was the first quarter. But we do have visibility of an acceleration ahead and it's purely based on the business mix.
One thing about our business is that while we execute our events, they're all different businesses with different dynamic based on the industries they serve. And they happened once or twice a year typically until one to quarter, that a particular event stages in what would only impact the results of that quarter, but have nothing to do with the quarter the fourth quarter after and so on.
With that, the way we see the year playing out in the first and fourth quarter, we're expecting the strongest growth rates and then the middle two quarters of the year on a half a bit more muted at our organic growth . But still expect organic growth in those quarters are based on on the mix of business and what stage into different times in the year.
At from an acquisition standpoint, our HoldCo Interactive is a series of about 15 smalle r hosted by their events. For those not aware of the hosted by our model is a really attractive high ROI model for our sponsors and attend. These are, by their nature . They're smaller where we bring together a couple of hundred executives with buying budgets in a particular niche industry offer a couple of days that a venue with education and networking, as well as our one-on-one meetings with sponsors on who are selling the products that the buyers are in market looking for .
So very direct tangible ROI offer sponsors and a really effective and high NPS score model for for attendees and sponsors alike hub. And so they're proud about pretty much evenly over the course of the year for hotel interactive. And you can assume that the or the run rate that you see here are in Q1 eye is pretty similar spread out over the course of the rest of the year are there's no other acquisitions at this point that we've closed on this year and so on time will tell what other impacts that 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. Our and our hope is that we can close on two three, four more severe competition.

Barton Crockett

Commentary relative to your guidance, you have acquisition revenues in your guidance now?

Hervé Sedky

We don't have a guidance on. We don't have acquisitions of future, so we don't know future acquisitions in the guidance. The guidance has always had hotel interactive because the deal closed in January and we gave the guidance in early March and I had already announced the deal and it was implied in our numbers.

Barton Crockett

Okay. And then if I could ask another question, you were referring Harvey. I think you're referring to growth in some of the key metrics on square footage and others . And I was just wondering if you could give us a little bit of detail around what you're seeing in those metrics, percentage numbers you can give us to kind of underlies what you were talking about on that point.

David Doft

David, I'll take this. We continue to see strong opportunity on the pricing front, overseeing our 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 .
At the end that's on top of the more meaningful price improvements were able to get over the last couple of years as we rolled out of what we think it's a more sophisticated pricing algorithm, then we operated under a prior to the pandemic, and that's up 2% and that there is variability there then 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 a better than historical growth rate in excess of four for the year. And I'm implying there's still a little bit of tailwind from a pandemic recovery in certain sectors as well as we hope and expect to benefit from some of the initiatives that we have begun to put in place over the last couple of years to drive incremental growth for Emerald all longer term.
I'll give a shout out, in particular to our international sales team, which has a particular momentum on driving improvements to our mix of business from international exhibitors coming to our events here in the US.

Barton Crockett

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

Hervé Sedky

Sure. The visa processing is still an issue for us as an industry, not just for Emerald, and it's something that we participate in as part of some of an industry effort. The association and ECA, the exhibitions and conference Alliance, which I happen to chair, is very focused on on lobbying, really government to modernize visa processing and restore Visa operations to pre-pandemic levels.
And there are a number of bills that are sitting in Congress that are getting some support on from both Democrats and Republicans. We need there's some that have already secured some really good funding, which we're excited about and others that we continue to push for. And so I think we're making some very good progress, but more in some more is needed.
And I spent a little bit of time on Capitol Hill, actually last week, I think it was and there is some exhibitions Day coming up and the months where a lot of industry colleagues will be lobbying Congress to continue to push. But I think it's moving in the room direction. It's something to David's point. We all as an industry can benefit from the tailwind of increasing international participation in all of our events. And it's top of mind for our industry and certainly can benefit Emerald.

Operator

Allen Klee, Maxim Group LLC.

Allen Klee

Good morning. Can you talk a little about high new the new launches you did last year on from accelerator, kind of what you're looking to to home improve upon them and and how you're thinking about some potential performance from them in '24?

Hervé Sedky

Sure. So we have a number of launches that we that would be that we highlighted. And so let me highlight a couple. Casino Sub Rosa, which was a and events that subs dedicated to the Latin food market. Leading food and beverage market was the successful launch in September of 2023. It was a very, very successful launch, and we expect that that will continue to grow in 2024 commercial integrator is another one that was successful that was a Jason's to our CDO events .
Another successful launch, leveraging the CDA infrastructure, another way to launch successfully leveraging an existing infrastructure, existing customer base, existing cost base and but still attracting a different customer. In this case, it was a professional customer already come in and then in the integration of channel space that that we're excited about, and we'll see some some good growth and expecting some good growth in 2024 ends at the same with one, what we call the two within the decentralization, Decipher, it is the name of the events.
And it's really all about educating businesses around Web 3.0 innovation. And in that one is a little different as well in terms of its platform, one that we that we're scaling across multi both events . So it has its own unique conference, but we're also able to launch it alongside other events where it makes sense where we have audiences like RIC. and others where that are interested in that content.
And so in those particular instances, the launches that we're highlighting, where we're seeing some really good growth opportunities . And that's what I mentioned in my opening remarks . Launches like this, our Rx waiting for us because they they really provide us with growth opportunities, which we believe over time will will give us one to two points of organic growth benefit to Emerald overall.

Allen Klee

Thank you. For the content business that struggled last year, but it sounded like you sound a little more positive on that . Could you just go into that a little a little bit more detail of why you think that's kind of bottomed out?

Hervé Sedky

Yes, I'll start and I'll turn it over to David. We are more positive about our content business for really two primary reasons. The first and foremost reason is that on we have made some investments in that business. We -- basically content for Emerald was a business that was attached to the trade show business. So the content business was was inside of the trade show business.
What we did over the course of the last year plus is we separated it. We compete clearly separated it into a separate business, hired leadership that have expertise in that business and made some investments in that business from a leadership and an infrastructure perspective.
So that we can ship that business and be less overtime, reliant on pure advertising and really create more of a lead generating type capability, which is where we intend to go with that business. So we feel and the example that I gave in terms of creating this one brands, leveraging all of the databases that we have have across Emerald's to create this one brand and one product has been really successful.
So the focus that we've put on at the leadership that we've put on at the product that we launch was had some good successes out of the gate gives us some on some early signs of success there give us confidence. The second part is that we do have some forward visibility and we feel and we are starting to see some of the sectors that were harder hit, particularly tech last year from start to start to open up. And so we feel more confident in that in that business with some forward visibility in the content business. But I'll turn it over to David as well.

David Doft

Yes. I think the on it to build on the reorg of the business and the separation out from the events and essentially went from 20 different businesses being run on their own one business are being run on shared technology platform, best practices, et cetera, that can where each industry vertical can leverage the whole.
It's a massive change in approach that has allowed us to meaningfully improve the operation, but also modernize it to new and modern media business, not a new business of tenured access networks, offer editorial editorial, understanding the analytics and of leadership and how that should drive an editorial calendar and strategy and Huaweis of consolidated sales effort that can sell across the platform, not just selling their own individual vertical, which we expect will drive meaningful incremental opportunity.
And so with that, we've seen the forward bookings turn it into law. Q1, I still had a decline year over year on our bookings for the year are up. And so we are confident that this will be a contributor to growth this year based on the efforts and the team that always takes a long time to get it putting up once it does. And then once it has, we start to see some real momentum on the sales front that should lead that meaningfully better and for freight.

Allen Klee

Thank you very much . And then also under commerce, I heard you say that you've expanded some of your verticals, which could double the audio. Again, you're going after could. Two things. Could you talk a little about when the new verticals were added and, so to think about when when they can start contributing?
And then second, for over 10, you talked about has that was gaining traction and and power in New York now and some other users and tradeshows. Could. Could you just go into a little more detail explaining what that all means?

Hervé Sedky

Thank. Sure. Happy to do so . In the last call, we spend a little bit time on on the app on their last stake and how we come, how we are expanding the addressable market. But we were very focused . Elastic has traditionally been very focused on the outside space and in its roots have been in outdoor apparel and so forth. And so we've moved inside .
We have moved to the to the kitchen and bath and really focusing on this very large asset that that we have with that particular industry and signed some very large brands in that space that we announced in the last on the last earnings call and at the last KBis events.
So that industry and of itself allows us just the kitchen and bath industry and of itself allows us to double the the addressable market or actually more than double the addressable market for that particular product. That has always been our strength. Our strategy has been to to leverage this excellent products, which is a highly integrated product for very large customers from for and go from industry to industry that that we serve.
And and so we're on track there in terms of bulletin bulletin has a different type product bulletin is now is not an integrated product bulletin is is really a product for much, much smaller businesses, much easier to scale, scale across a much wider range of products as you as with customers. As you know, 5% plus of our customers are small businesses.
And so we needed something that can scale faster and easier to on to our smaller customers . And so we started with our New York now given that bulletins entry point was in the in the home space and come in. And so that has, as I mentioned in my opening remarks, has been quite successful. And so what we are looking to do now, as I mentioned, is to then do exactly as we've done with Elastic, is then to scale that across other categories over time.

Allen Klee

That's great. And then just one of your pillars is to them probably get 24 hour, the I'm sorry, for full year engagement from from customers . How high would you feel about where you are in that process and where you're getting the benefits from that?

Hervé Sedky

Yes, I think that the 365 day engagement is based. They are basically the two parts that we just talked about. So customers attend our events. Those are episodic, the ability for us to stay in touch with them and offer them a value through our contents business. Those happen to be through the editorial through leads and also through the commerce business.
And those two working in tandem with our connections business or with the events business, allows us then to to offer this 365 platform. So I think we're tracking very well to that. Obviously, it's a journey. We we continue to do more and but we are very well on track to deliver on our plan. And and we feel good about, as I mentioned, we track the values that we create to our customers.
David mentioned pricing. That's a that's a big part of our pricing strategy . And the reason why we're able to command increasing in pricing is that we are very focused on pricing for value creation. We price based on the value that we create to customers. What we want to do is be maniacally focused on delivering value to our customers and then and getting compensated for the value that we create.
And so that is our strategy . And so we constantly look for how do we constantly create value new 365 days a year. And therefore, the content business, the commerce business allows us to do that for our entire customer pool of some of connections customers.

Allen Klee

That's great. And my last question is you use a matching technology to on for those who were at the pre-close, um, can you talk about where you are in terms of like the feedback you've gotten? And how does that add value to those at the trade shows and what you're doing on going forward with that? Thank you.

Hervé Sedky

Yes, we do. We use we now are using matchmaking, um, tools and solutions as well as our lead. Lead sharing tools at all of our trade shows for all tradeshows now have implemented these types of solutions. Again, that's linked to the value creation, and they're doing really well. Where we and the reason we know it's going well is because we measure our Net Promoter Scores and we measure loyalty and we can see that customers that utilize such solutions have a higher rate, us a stronger.
They have a higher Net Promoter Score, higher loyalty score than those that don't. And so our efforts are not our efforts to date have been to make sure that we have it across all of our events. And now we're very focused on adoption and usage and making sure that as many customers as possible across both the exhibitors and the visitors are using these tools. And we're making really good progress on making sure that we've got this adoption across all of our events.

Operator

We don't have any further questions at this time.

Hervé Sedky

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

Operator

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