Emerald Expositions Events Inc., the parent of Outdoor Retailer and a number of other trade shows, reported net income decreased 30.4 percent in the first quarter ended March 31 on a 3.4 percent decline in revenues. The company now expects its full-year performance to be in the lower half of the previously communicated guidance range.

First Quarter 2019 Highlights

• Revenues decreased 3.4 percent to $137.4 million, compared to $142.2 million for first quarter 2018
• Net income decreased 30.4 percent to $26.5 million, compared to $38.1 million for first quarter 2018
• Net cash provided by operating activities decreased 43.7 percent to $11.6 million, compared to $20.6 million for first quarter 2018
• Adjusted EBITDA, a non-GAAP measure, decreased 13.2 percent to $59.4 million, compared to $68.4 million for first quarter 2018
• Adjusted Net Income, a non-GAAP measure, decreased 17.2 percent to $38.5 million, compared to $46.5 million for first quarter 2018
• Free Cash Flow, a non-GAAP measure, decreased 43.8 percent to $11.3 million, compared to $20.1 million for first quarter 2018

“We were pleased with our first quarter performance, as we drove good growth in many of our events, including the Kitchen & Bath Industry Show, Sports Licensing & Tailgate Show, National Pavement Expo, The Original Miami Beach Antique Show and the International Pizza Expo. While our first quarter results were solidly in line with our expectations, and many of our key franchises are performing well, we are experiencing moderate softness in our Other Marketing Services portfolio and several upcoming shows, including ICFF and RetailX, which, taken together, are causing us to expect our full year financial results to be in the lower half of our previously communicated full year guidance range,” reported Phil Evans, Emerald’s interim president and chief executive officer and chief financial officer.

Evans added, “I am encouraged by the progress we have achieved in our efforts to stabilize our largest shows. While our ASD show has been adversely impacted by the trade tensions with China, we continued to grow the core Value & Variety category and have successfully stabilized the Style and Beauty category, which had previously been a weight on the show’s results. Additionally, we staged a much-improved NY NOW show at the beginning of February, which was confirmed by stronger exhibitor and attendee satisfaction scores and increased attendance. Looking forward, we are introducing a number of new features to the August NY NOW edition that we believe will continue our solid momentum towards stabilizing the franchise. To conclude, I remain confident that we are taking the right actions to position our portfolio for sustained organic growth.”

Financial & Operational Results

For the first quarter of 2019, Emerald reported revenues of $137.4 million compared to revenues of $142.2 million for the first quarter of 2018, a decrease of $4.8 million, or 3.4 percent. The decrease reflected a net $7.4 million reduction from several show scheduling differences in the first quarter of 2019, most notably GlobalShop staging in the second quarter of 2019, versus the first quarter of 2018. Acquisitions made in 2018 contributed $3.6 million of revenue in the first quarter of 2019. After adjusting organic revenues for the first quarter of each of 2018 and 2019 for the show timing differences noted above, organic revenues for the first quarter of 2019, were down $3.0 million, or 2.2 percent, versus the equivalent quarter of the prior year, reflecting good growth in events for the first quarter of 2019, including the Kitchen & Bath Industry Show (“KBIS”), Sports Licensing & Tailgate Show, National Pavement Expo, The Original Miami Beach Antique Show and the International Pizza Expo, offset by declines that were expected in NY NOW, National Stationery Show, Outdoor Retailer Snow Show and WPPI. Of note, revenues of the company’s ASD March show were virtually flat versus the prior year’s March show.

Cost of Revenues of $45.9 million for the first quarter of 2019 increased by 10.9 percent, or $4.5 million, from $41.4 million for the first quarter of 2018. This increase reflected $2.3 million of incremental costs related to 2018 acquisitions, and was partially offset by a net $1.0 million reduction attributable to the show scheduling differences noted above. The remaining $3.2 million increase in cost of revenues reflected incremental costs in several of the shows that grew in the quarter, particularly KBIS, as well as additional show investments, most notably in the NY NOW event, net of a $0.6 million reduction in non-recurring other items.

Selling, General & Administrative Expense (“SG&A”) of $35.1 million for the first quarter of 2019 increased by 8.7 percent, or $2.8 million, from $32.3 million for the first quarter of 2018. The increase in SG&A for the first quarter of 2019 reflected approximately $2.8 million in incremental costs from 2018 acquisitions, $0.4 million in higher stock-based compensation and $1.7 million in other expense increases, offset by a net $0.2 million reduction attributable to show scheduling differences and a reduction of $1.9 million in non-recurring other items.

Net income of $26.5 million for the first quarter of 2019 decreased by 30.4 percent, or $11.6 million, from $38.1 million for the first quarter of 2018. The key drivers of the decrease were the lower revenues and increased expenses described above.
For the first quarter of 2019, Adjusted EBITDA was $59.4 million, compared to $68.4 million for the first quarter of 2018, after adjusting for the show scheduling differences described above. The decrease in Adjusted EBITDA of $9.0 million, or 13.2 percent, was driven predominantly by the performance of NY NOW, as well as incremental investment spending. In addition, the company’s 2018 acquisitions resulted in incremental expenses that were $1.1 million higher than revenues in the quarter, as the larger revenue-generating activities of these acquisitions are in subsequent quarters.

Cash Flow

Net cash provided by operating activities decreased by $9.0 million to $11.6 million in the first quarter of 2019, compared to $20.6 million in the first quarter of 2018, largely reflecting the company’s operating performance in the quarter.

Capital expenditures were $0.3 million for the first quarter of 2019, compared to $0.5 million for the first quarter of 2018.

Free Cash Flow, which the company defines as net cash provided by operating activities less capital expenditures, was $11.3 million in the first quarter of 2019, compared to $20.1 million in the first quarter of 2018

Liquidity and Financial Position

As of March 31, 2019, Emerald’s cash and cash equivalents were $10.9 million and gross debt was $560.1 million, resulting in net debt (gross debt less cash and cash equivalents) of $549.2 million.

Outlook (forward-looking statements) and Key Assumptions

For the year ending December 31, 2019, Emerald management expects the company’s full year performance to be in the lower half of the previously communicated guidance range, as outlined below:

• Total revenue decline of 0.7 percent to growth of 2.5 percent, or revenue in a range of approximately $378 million to $390 million
• Organic revenue decline of 1.7 percent to growth of 1.1 percent
• Adjusted EBITDA in the range of $140 million to $150 million, representing a decrease in the range of 7.9 percent to 14.1 percent compared to 2018
• Adjusted Net Income in the range of $76 million to $88 million, representing a decrease in the range of 12.2 percent to 24.2 percent compared to 2018
• Adjusted Diluted EPS in the range of $1.02 to $1.20, representing a decrease in the range of 9.8 percent to 23.3 percent compared to 2018
• Free Cash Flow in the range of $80 million to $90 million.