Q3 2024 Emerald Holding Inc Earnings Call
Speaker Change: 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.
Speaker Change: This includes remarks about future expectations, beliefs, estimates, plans and prospects.
Speaker Change: In particular, the company's statements about projected results for 2024 are forward-looking statements.
Speaker Change: Susstatements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially, and both indicated or amide by such statements.
Speaker Change: for discussion of these with The End.
Speaker Change: and Serenities and other factors is a fit to the company's SEC Finance.
Speaker Change: including its most recently filed periodic reports on Form 10K and Form 10Q, as well as the companies in English release. All of which can be found on the company's investor relations website.
Speaker Change: The company does not undertake any duty to update such forward-looking statements.
Speaker Change: to
Speaker Change: Additionally, during today's call, management will discuss non-GAAP measures which it believes can be useful in evaluating the company's performance.
Speaker Change: The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with USGAP.
Speaker Change: As a reminder, this conference is being recorded, and the replay of this call will be available on the Investors section of the company's website.
Speaker Change: Thank you, Eric, and good morning, everyone.
Speaker Change: This is Herve Sedky. It's good to be with you and to discuss our third quarter results.
Speaker Change: I'll start with a brief review of our performance, and then give an overview of our strategy. David Doft, our CFO, will then provide more detail on our financials.
Speaker Change: We've spoken often about the concept of portfolio optimization here at Emerald. And today I want to fill you in on some of the more aggressive steps that we're taking to position the company for better growth and profitability in the future, which had near-term implications on our expected 2024 results.
Speaker Change: As a result, we're reducing our previously communicated expectations for full year 2024. This update is primarily driven by two factors. First...
Speaker Change: of proactive decisions to optimize our portfolio mix and second, certain macroeconomic and operational impacts on our content business.
Speaker Change: Let me address each of these in more detail now.
Speaker Change: First, to optimize the long-term organic growth and margin trajectory of our portfolio, earlier this year we conducted a thorough review of our entire catalog event catalog.
Speaker Change: An outcome of this review was the decision to accelerate certain portfolio optimization activities by pruning several smaller and unprofitable events.
Speaker Change: Over the past several months, we have permanently discontinued 20 events totaling $20 million in historic run rate revenue.
Speaker Change: is for events that will not stage in 2024, but did stage in 2023, and 3 million is for events that did stage in 2024, but we have decided not to stage in 2025.
Speaker Change: In aggregate, these events were not growing and had negative margin at the EBITDA level. As a result, we expect these actions to positively impact growth and margin in 2025.
Speaker Change: Additionally, we had to cancel one of our hosted buyer events in early October, which was set to stage in Florida during Hurricane Milton. The impact was just under a million in revenue, with high contribution margins.
Speaker Change: We are now in the process of submitting a corresponding insurance claim given that
Speaker Change: A state of emergency and evacuation orders were issued. Our view is that this cancellation will fall under our event cancellation insurance policy and we expect to be reimbursed as we have been several times in the past following similar weather related disruptions.
Speaker Change: Moving forward, our priority remains growing the business. Our actions are consistent with our stated objective of portfolio optimization, which we believe puts us at an even stronger foundation for expansion next year and beyond.
Speaker Change: We expect solid growth and a return to margin enhancement in 2025, aided by the removal of these unprofitable assets. David will touch on the near-term impact to the business in a moment.
Speaker Change: Despite these challenges, our existing show portfolio continues to thrive.
Speaker Change: Just a few weeks ago, we completed the New York edition of Advertising Week. We had a great turnout with several new tracks added, including an Investor Summit, and leading voices from some of the most prominent industry players, including Meta, Google, Amazon, TikTok, and Netflix.
Speaker Change: among many others. We're now excited for the upcoming slate of fourth quarter events, including BDNY, Healthcare Design Expo, and MJBizCon, and feel confident about the strength of our portfolio as we move into the first half of 2025. In fact,
Speaker Change: Our pacing into 2025 is stronger and more broad-based than at this point last year and reinforces our view that growth should improve in the new year.
Speaker Change: Currently, we expect solid revenue growth in 2025 with a return to margin expansion aided by an improved mix of business from our portfolio optimization efforts.
Speaker Change: Second, beyond our event business,
Speaker Change: We made significant organizational changes over the last 18 months that were expected to drive a recovery in the second half of the year. However, the advertising environment in several end markets has remained challenging and our expectations for near-term growth are modest.
Speaker Change: Even with such small exposure, we're experiencing a low-to-mid single-digit million dollar shortfall versus expectations for the full year 2024 which had called for growth this year.
Speaker Change: As a result, we now anticipate that 2024 content revenue will decline on a year-over-year basis.
Speaker Change: Our content portfolio remains an important component of our operations due to the leverage it gives us in event marketing and the proprietary data assets it generates.
Speaker Change: As growth in other, much larger parts of Emerald continues, content is naturally becoming an increasingly smaller component of our overall revenue, which means that variances here should have a limited impact on our overall performance in the future.
Speaker Change: As a result of these factors, we're adjusting our full-year revenue and adjusted EBITDA guidance to at least $400 million and $100 million, respectively.
Speaker Change: Our updated guidance still implies year-over-year growth in both revenue and adjusted EBITDA, albeit at a lower level than previously anticipated.
Speaker Change: We expect the changes...
Speaker Change: David Doft, M.D., MPH, Financial Planning & Managing Director, Accenture
Speaker Change: We believe that the value proposition for Emerald's large and diverse collection of events is strong.
Speaker Change: And our customers understand and appreciate the strong ROI that in-person events offer as is evidenced by the solid growth we're experiencing in 2025 bookings.
Speaker Change: As I've said before, trade shows are often the number one selling and marketing events of the year for our customers.
Speaker Change: According to a recent survey by the Boston Consulting Group, 87% of CMOs are reporting that traditional channels like email campaigns and display ads offer diminishing returns due to the rise of ad blockers and algorithmic changes.
Speaker Change: As a result, CMOs are reallocating spend toward more effective channels like in-person events and experiential marketing.
Speaker Change: Nearly 65% of CMOs, according to Deloitte's, are reported increasing their investment in in-person events to improve brand loyalty and customer engagements.
Speaker Change: In-person events are also no longer seen as large cost centers, but rather as a necessary and incredibly valuable part of a company's marketing strategy. To under-invest in them is viewed by many C-suites as a competitive disadvantage.
Speaker Change: In short, in-person events provide a real opportunity for long-term value creation through knowledge sharing, innovation, and relationship building, the key building blocks for any growing business.
Speaker Change: As we look forward, we continue to believe in the strength and value of our portfolio.
Speaker Change: We are confident in the positive mid to long-term trends for in-person events as we get further removed from the volatile comps created during and immediately following the pandemic. And we believe in the deep value Emerald brings to the market.
Speaker Change: Ultimately, we're not afraid to make difficult decisions based on data that strengthen our prospects for growth. This quarter was no exception.
Speaker Change: We are a profitable portfolio on the EBITDA level of some of the industry's most well-known and respected events in the markets they serve, and we are committed to building this portfolio through accretive acquisitions alongside new event launches.
Speaker Change: More importantly, recent transactions in the industry serve to further validate the value of the live event space.
Speaker Change: I'm excited for the path forward and continue harnessing the power and impact of in-person events. With that, let me turn things over to David Doft. David?
David Doft: Thank you, Hervé, and good morning. I will start with a financial overview of the most recent quarter and then discuss capital allocation as well as our guidance.
David Doft: For the third quarter total revenue was $72.6 million compared to $72.5 million in the prior year quarter.
David Doft: These gains were offset by $5 million in discontinued event revenue that was not contributing to profitability as part of our portfolio optimization strategy, and organic decline of $3.3 million.
David Doft: Organic revenue, which takes into account the impact of acquisitions, scheduling adjustments, and discontinued events, declined 5.3 percent in the third quarter to 58.7 million dollars as compared to 62 million dollars in the prior year quarter.
Speaker Change: Besides the items Herve reviewed, growth in the quarter was also impacted by construction at one of the venues where we hold large events, which has temporarily caused disruption for a small number of events in the short term.
Speaker Change: Year-to-date organic revenue is up 4.8% as compared to the same period last year.
Speaker Change: Third quarter adjusted EBITDA, excluding insurance proceeds, grew 56.3%, or $4.5 million to $12.5 million versus the prior quarter.
Speaker Change: This equates to an adjusted EBITDA margin of approximately 17.2%.
Speaker Change: As Hervé discussed, we conducted a thorough review of our entire event catalog as part of a proactive review of our nearly 150-show portfolio. As a result, we removed 20 unprofitable events this year.
Speaker Change: For the events that were discontinued, there was some positive contribution at the event level, which means we're in the process of reducing overhead related to those changes, and we expect the full benefits should be seen in 2025.
Speaker Change: Turning to expenses, third-quarter SG&A was $40.8 million versus $41.6 million in the prior year period, driven by continued management of overhead costs and lower stock-based compensation expense.
Speaker Change: This was partially offset by lower gains from the remeasurement of contingent consideration for prior acquisitions.
Speaker Change: As many of you know, the Federal Reserve recently reduced their interest rate by 50 basis points, which delivers an immediate boost to our free cash flow as we have a floating interest rate on our debt.
Speaker Change: Specifically, we have 410 million dollars of term loans. So every point reduction from the Federal Reserve leads to approximately four million dollars of incremental cash flow for Emerald. This is good for our equity holders and provides added fuel for investing in value-added initiatives.
Speaker Change: Turning to the balance sheet, we had a healthy cash balance of $188.9 million as of September 30th versus $193.2 million as of June 30th.
Speaker Change: I should also highlight that in the third quarter, S&P upgraded Emerald's debt from a B rating to B+, reinforcing the strength of our model and liquidity position.
Speaker Change: Our total liquidity is $298.9 million, including full availability on our $110 million credit facility.
Speaker Change: Our balance sheet strength and cash flow generation support our ability to opportunistically invest in and grow our business.
Speaker Change: Going forward, we expect to continue to balance our capital allocation priorities between acquisitions to bolster our portfolio of events.
Speaker Change: investments in our own business, managing debt leverage to 3.0 times net debt to EBITDA or below, and returns of capital to shareholders which includes dividends and opportunistic share buybacks.
Speaker Change: Our Board of Directors authorized an extension and expansion of that existing share repurchase program through December 31, 2025, for the repurchase of $25 million of Emeralds Common Stock, representing approximately 3% of the current equity market capitalization.
Speaker Change: Additionally, on October 29th, Emerald's Board of Directors declared a regular quarterly dividend of 1.5 cents per share for the quarter ending December 31, 2024, which would imply an annualized cash dividend amount of $12 million and reflecting a dividend yield of 1.3 percent based on yesterday's closing price.
Speaker Change: Turning to guidance, as Herve noted, we now expect that our 2024 performance will be at least $400 million of revenue and at least $100 million of adjusted EBITDA.
Speaker Change: Our revised guidance reflects the impact of the discontinued events, the aforementioned content softness, and the cancellation of one hosted by our event in October due to Hurricane Milton.
Speaker Change: As Herve also noted, we believe this cancellation should fall under our event cancellation insurance policy and we expect to file an insurance claim for this event shortly.
Speaker Change: Our guidance implies an adjusted EBITDA margin of approximately 25%. Note that we continue to believe that we can achieve an adjusted EBITDA margin in the range of 35% in the coming years, as we continue to leverage our existing cost base, realize the benefits of our investments, and reap the benefits from the pruning of our portfolio.
Speaker Change: Thank you very much for your time, and with that, we'll now open the line for questions.
Speaker Change: At this time, I would like to remind everyone in order to ask a question, press star followed by the number one on your telephone keypad.
Speaker Change: Your first question comes from the line of Barton Crockett with Rosenblatt.
Speaker Change: Please go ahead.
Barton Crockett: Okay, thanks for taking the question. I guess a couple of things. One, I was wondering if you could
Barton Crockett: explain a little bit more about why your outlook for EBITDA is reduced if so much of this is really tied to cancelling unprofitable shows and I think you were kind of getting at it.
Barton Crockett: So...
Speaker Change: There's really three components here, Barton, and so one of them is the cancellation of events and
Speaker Change: And so by not having the events and the related
Speaker Change: contribution margin, as modest as many of these were. We were not generating the money to fund SG&A we've already burned. And so, as we adjust the SG&A, which is ongoing and will
Speaker Change: be done prior to entry next year, we'll be able to realize the full benefit on a bottom-line basis in 2025. So it's really a timing...
Speaker Change: Difference.
Speaker Change: David Doft, M.D.: Around when events were canceled and when money's been spent, but on an ongoing basis. This we expect to be beneficial to us in absolute dollars and surely margin because of that.
Speaker Change: The second is, there was real softness in the content business, that is a business that has become volatile over the last decade.
Speaker Change: David Doft, M.D.: That has made it a little more difficult for us to forecast admittedly and and so you know, there is some bottom line impact from that, as we mentioned in the call a load of his single digit million dollar impact versus our our prior expectations.
Speaker Change: We took down our expectations on a percent basis fairly meaningfully for that business.
Speaker Change: The third, and it is a much smaller one,
Speaker Change: The hurricane in Florida did cause a small event to be cancelled. It's hitting us about a million bucks.
Speaker Change: Okay. And in terms of the content, is that...
Speaker Change: revenue largely come out of EBITDA, those, you know, low to mid single-digit millions.
Speaker Change: It does at this point, yeah.
Speaker Change: Digital media is a high contribution margin business again given the timing it's late in the year and so it's a bit hard to get the the cost basis adjusted in time to benefit this year and so there is a high flow through in the short term of that shortfall versus what we thought.
Speaker Change: Okay, so second question I'm wondering about is the, you know, the commentary you've offered that, you know, the pacings look good for 2025.
Speaker Change: Is there anything different?
Speaker Change: that you see now or that you know now that should give us, you know, any different level of confidence in what you see for 2025 relative to what you saw when you were starting 2024. I know you said pacings are better.
Speaker Change: Or is that just the nature of the beast? I mean, it can look good and it can still change, you know, a few months later.
Speaker Change: So,
Speaker Change: Pacings are, you know, they build over time.
Speaker Change: When we're looking into the first half,
Speaker Change: David Doft, M.D.: All events in market and have been in market for some time and have high visibility where the back half, we have a little less visibility, right now, as we.
Speaker Change: move through the next few months and when we give our next update.
Speaker Change: David Doft, M.D.: At on the year end results will have more visibility on the back half the year than we do today so we're not making a comment on the back half of the year and and.
Speaker Change: And as a reminder...
Speaker Change: And so we do have some time before we can make a call in the back half next year. However, in the first half next year, what's different is that the pacing strength, it's not only
Speaker Change: higher as a percent of growth versus where we sat at this point last year, on this day last year, right? Because we track this every day. It's also more broad-based. There are more events.
Speaker Change: outperforming in their pacing for next year than there were at this point last year. And for us, when we talk about...
Speaker Change: portfolio optimization and portfolio mix and the number of events we run across a number of sectors, that's a really good sign.
Speaker Change: Okay, and then switching gears a little bit, I was just wanting to make sure I understand, there's been some...
Speaker Change: Press releases around blockchain futurist where
Speaker Change: suggesting, you know, one, you know, suggesting, you know, an acquisition which I'm just not clear that that's exactly what's happened so I was wondering if you could talk a little bit about what you're doing with that event which is, you know, obviously popular in Canada and I think expanding to Miami, you know, what is your engagement there?
Speaker Change: I'll start and then I'll turn it to Herve. There's a nuance that I think is also important as we think about portfolio optimization is
Speaker Change: We've talked a lot about investing in new launches in our accelerator unit. There's been a slight shift in thinking where if we can identify emerging assets that are a couple years in.
Speaker Change: and kind of do more of an acqui-hire type and bring them into the portfolio, we can accelerate.
Speaker Change: launch activity in a way where it doesn't burn.
Speaker Change: as much on the bottom line.
Speaker Change: because we recognize that we've invested quite a bit.
Speaker Change: and Accelerate path to market by finding the right emerging brands, we would do that. And so we had a launch in the...
Speaker Change: David Doft, CEO Alphabet and Google
Speaker Change: And again, the accelerator team, which is our launch team, is investing and pushing that launch. So it is part of our, to David's point, our launch strategy. This just fuels and accelerates our launches.
Speaker Change: Okay. All right. Thank you, guys.
Speaker Change: Sure.
Speaker Change: Please go ahead.
Speaker Change: Hey guys, thanks for taking my question. To start, could you just give a little bit more color in terms of the profile of the events that were discontinued and why you think they were underperforming?
Speaker Change: Hope to see you soon. Bye.
Speaker Change: I'll cover that. We're not going to get into the detail of the launches that were discontinued because largely...
Speaker Change: The, they are adjacency to existing brands. So just to give you a little bit of color, largely, not all, but largely the brands that were discontinued.
Speaker Change: were added brands that were either
Speaker Change: GeoExtensions, so brands that were extended in other cities.
Speaker Change: that the brands initially thought they were. And as such, they weren't really driving the returns to the customers or to us that we were expecting.
Speaker Change: The large one that I will call out that doesn't fit this profile is NBAKhan.
Speaker Change: One, it's the largest one in the group, and it doesn't meet the profile that I just described. But other than that, we're not going to go through the detail of the list of the brands that we've discontinued.
Speaker Change: Hopefully that gives you the color that you're looking for.
Speaker Change: Yeah, that's definitely helpful. Thank you. And then, can you just comment on how the business is tracking relative to pre-pandemic and some of the steps that could make it get back to full performance there?
Speaker Change: Pre-pandemic is, at this point, a very long time ago, and our business looks very different, so it's not really that relevant for many of our parts of our portfolio, especially as we shift the mix.
Speaker Change: of what we're of what we're executing on. It is, you know, per the discontinued events comments...
Speaker Change: There's clearly some events that were...
Speaker Change: Frankly, they were underperformers before the pandemic.
Speaker Change: And after the pandemic, they're still underperformers, and while stronger brands have bounced back and many, many, many of our brands across the portfolio are exceeding pre-pandemic levels, you know, this group is
Speaker Change: a big part of the group that hasn't been.
Speaker Change: There are still a small number that still have not gotten back and each industry has its own issue, each industry that we have our events have their own dynamics of what's going on and we continue to work to drive growth and more growth out of those assets.
Speaker Change: David Doft, MD, MPH, Financial Planner & Investment Advisor
Barton Crockett: Got it. And then in terms of getting international to return and driving that side of the business, I was just wondering how you're progressing that.
Barton Crockett: All right.
Speaker Change: How we're progressing in terms of international?
Speaker Change: So as we've shared in the past, we've invested in an international sales team, so we've invested
Speaker Change: In that, because we said that we were underweight in terms of emeralds international.
Speaker Change: penetration that that takes a bit of time in terms of really building building the international
Speaker Change: David Doft, M.D.: network, but the network is built, we have over.
Speaker Change: 50 sales agents now around the world. I forget the exact number, but it's north of 50 sales agents that are representing Emerald brands around the world.
Speaker Change: and we are...
Speaker Change: David Doft, MSWordDoc Word.Document.8
Speaker Change: for us to see the full impact of that investment but we expect to see that over the coming few years. Now we do see we have a team that just came back from China and we do expect some headwinds from China. I think some of it will depend on the the outcome of the election next week.
Speaker Change: We're watching that closely, but we're hearing from China that they're watching that closely, and while it's a small part of total emerald revenues, it's a large part of the international revenue.
Speaker Change: and so we are taking active steps to diversify our international revenues from China as we speak.
Speaker Change: Got it. And then in terms of the hosted buyer event that was impacted by the hurricane, is that something you plan on still trying to host this year or is it just canceled until next year?
Speaker Change: No, we've canceled it. We've canceled the events altogether for this year.
Speaker Change: Okay, got it. And then my last question would just be how you're progressing with integrating and using AI across the business.
Speaker Change: So that's a that's a good question that is work in progress. AI for us is a hot topic and we have a number of tests
Speaker Change: For instance, our marketing teams are using it for email copy and for headlines and landing page copy and some of those types of things, but AI can really help.
Speaker Change: David Doft, M.D.: Scale our personalization efforts in marketing and and more quickly and and effectively and efficiently help improve
Speaker Change: David Doft, M.D.: Some of the conversion rates that we see from our marketing team, so we really think that you know from a from an internal use.
Speaker Change: It will help on the marketing side and we're testing a number of initiatives and we'll continue to test.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: Of course.
Speaker Change: Thank you. Bye.
Speaker Change: David Doft, MD, MPH, FAO, Co-Founder & General Consultant
Speaker Change: I will now turn the call back over to Herve Sedky for closing remarks. Please go ahead.
Herve Sedky: Thank you, sir.
Herve Sedky: Thank you very much. Well, I wanted to thank you all for for joining the call. Over the course of the last few years, we've talked a lot about our three pillars of growth, which
Herve Sedky: Our portfolio optimization, customer centricity, and 365.
Herve Sedky: day engagement and the reality is this quarter we've really focused more on
David Doft: David Doft, MSWordDoc Word.Document.8
David Doft: We've made difficult decisions, but these difficult decisions were important to optimize the mix of our portfolio, to really position us well for sustained growth.
David Doft: for the foreseeable future. So while they were difficult decisions, they were important. And we look forward to updating you as we continue to make progress on our growth strategy in the upcoming quarters. So thank you again for joining the call, and I look forward to speaking to you next quarter.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
David Doft: David Doft, MD, MPH
Speaker Change: Music Music Music Music Music Music Music Music Music