Emerald Expositions, which operates more than 55 trade shows including Outdoor Retailer and Surf Expo, reported a loss of $19.7 million in the third quarter as sales slumped 26.7 percent. The quarter included a $26.3 million related to impairment of goodwill and certain intangible assets.
Third Quarter 2019 Highlights
- Revenues decreased 26.7 percent to $75.6 million, compared to $103.1 million for third quarter 2018
- Event scheduling differences reduced 2019 third quarter revenues by $13.3 million
- Cancellation of Surf Expo and ISS Orlando shows due to Hurricane Dorian reduced anticipated 2019 third quarter revenues by $7.1 million; financial impact fully offset by $6.1 million in event cancellation insurance proceeds recognized as Other Income in the third quarter
- Net loss of $19.7 million, compared to net income of $20.9 million for third quarter 2018 2019 third quarter net loss included a non-cash charge of $26.3 million related to impairment of goodwill and certain intangible assets
- Net cash provided by operating activities decreased 17.7 percent to $11.6 million, compared to $14.1 million for third quarter 2018
- Adjusted EBITDA, a non-GAAP measure, decreased 29.8 percent to $28.7 million, compared to $40.9 million for third quarter 2018
- Adjusted Net Income, a non-GAAP measure, decreased 47.9 percent to $12.6 million, compared to $24.2 million for third quarter 2018
- Free Cash Flow, a non-GAAP measure, decreased 21.3 percent to $10.7 million, compared to $13.6 million for third quarter 2018
“Our third quarter results were in line with our expectations, albeit adversely impacted by several transitory, one-time issues, and we believe we are firmly on a path to a more stable financial performance,” commented Sally Shankland, Emerald’s president and chief executive officer. “A highlight of the quarter was ASD Market Week, which staged in July and is benefiting from its recent sales structure changes and other execution-related initiatives introduced to improve the show’s performance. Of note, the show experienced an acceleration from its March edition and is poised to return to organic growth in 2020.”
“I am pleased with the significant and rapid progress we have achieved since I joined Emerald in June. We have strengthened our senior management team and reset Emerald’s strategy as we strive to improve our operations and deliver predictable financial performance,” added Ms. Shankland. “We are executing with urgency against a series of initiatives designed to deliver sustainable organic revenue growth and, while we acknowledge it will take time for our efforts to be reflected in our financial performance, I remain very confident that we have the right team, the right strategy and the right market positions to build our success over the coming years.”
Financial & Operational Results
For the third quarter of 2019, Emerald reported revenues of $75.6 million compared to revenues of $103.1 million for the third quarter of 2018, a decrease of $27.5 million, or 26.7 percent. The decrease partly reflected a net $13.3 million reduction from several show scheduling differences in the third quarter of 2019, most notably Outdoor Retailer Summer Market, which staged in the second quarter of 2019 versus the third quarter of 2018. In addition, anticipated revenues for the quarter were further reduced by $7.1 million as the company’s Surf Expo and ISS Orlando shows were forced to cancel due Hurricane Dorian. The company recorded the associated $6.1 million insurance settlement, under Emerald’s event cancellation insurance policy, as Other Income in the quarter. Further, acquisitions made in 2018 contributed $1.9 million of incremental revenue in the third quarter of 2019, while 2018 third quarter revenues included $5.3 million for discontinued events, primarily Emerald’s Interbike show, which did not stage in 2019. After adjusting organic revenues for the various show timing differences discussed above, the anticipated revenues of the Surf Expo and ISS Orlando shows, and the discontinuance of the company’s Interbike show, organic revenues for the third quarter of 2019 were down $3.7 million, or 4.4 percent, as compared to the prior year quarter.
The company’s July ASD Market Week show was flat in revenues despite the adverse impact on its Sourcing category of the ongoing trade dispute between the U.S. and China. Excluding the sourcing category, ASD grew revenues approximately 4 percent. The trade dispute also affected the CEDIA Expo show, whose revenues were down by a mid-single digit percentage versus the prior year. As expected, the NY NOW Summer show declined in revenues by a low double-digit percentage, partly reflecting the decision to downsize the Lifestyle category to create space to co-locate our JA Summer jewelry show. Revenues from Other Events doubled versus the comparative period last year, reflecting strong growth in Emerald’s CPMG hosted-buyer events, partly timing related, and the contribution of two Campus Security events acquired as part of our 2018 Technology Brands acquisition. Other Marketing Services revenues were flat versus the same quarter last year, excluding the incremental contribution of 2018 acquisitions.
Cost of Revenues of $24.6 million for the third quarter of 2019 decreased by 5.0 percent, or $1.3 million, from $25.9 million for the third quarter of 2018. This decrease reflected $2.0 million of net lower costs due to show scheduling differences and $1.6 million and $1.0 million, respectively, of cost savings on discontinued events and the cancellation of Surf Expo and ISS Orlando shows, offset by an incremental $0.6 million related to 2018 acquisitions. The remaining $2.7 million increase in cost of revenues partly reflected the additional costs of the company’s 2019 show-improvement initiatives.
Selling, General & Administrative Expense (“SG&A”) of $33.7 million for the third quarter of 2019 increased by 13.5 percent, or $4.0 million, from $29.7 million for the third quarter of 2018. The increase in SG&A for the third quarter of 2019 reflected approximately $1.6 million in incremental costs from 2018 acquisitions and $1.2 million in higher non-recurring other items, offset by $0.6 million of lower costs attributable to show scheduling differences and $0.9 million in reduced costs related to discontinued events. The remaining $2.7 million increase in 2019 partly reflected additional senior management costs and incremental investment initiatives.
Net loss of $19.7 million for the third quarter of 2019 represented a decrease compared to net income of $20.9 million for the third quarter of 2018. In the third quarter, in connection with a triggering event caused by reduced performance expectations in the current year, the company recorded a $26.3 million non-cash charge related to the impairment of certain trade names, customer-related intangible assets and goodwill. Other key drivers of the quarter-over-quarter decrease were lower revenues due to show scheduling differences and increased expenses, as described above.
For the third quarter of 2019, Adjusted EBITDA was $28.7 million, compared to $40.9 million for the third quarter of 2018, after adjusting for the show scheduling differences described above. The decrease in Adjusted EBITDA of $12.2 million, or 29.8 percent, was mainly driven by the combined effect of lower organic revenues, incremental investments in the events that took place in the quarter and in marketing costs incurred for future events.
Net cash provided by operating activities decreased by $2.5 million to $11.6 million in the third quarter of 2019, compared to $14.1 million in the third quarter of 2018, largely reflecting the company’s operating performance in the quarter.
Capital expenditures were $0.9 million for the third quarter of 2019, compared to $0.5 million for the third quarter of 2018.
Free Cash Flow, which the company defines as net cash provided by operating activities less capital expenditures, was $10.7 million in the third quarter of 2019, compared to $13.6 million in the third quarter of 2018.
For a discussion of the company’s presentation of Free Cash Flow, which is a non-GAAP measure, see below under the heading “Non-GAAP Financial Information.” For a reconciliation of Free Cash Flow to net cash provided by operating activities, see Appendix I attached hereto.
Liquidity and Financial Position
As of September 30, 2019, Emerald’s cash and cash equivalents were $13.6 million and gross debt was $538.3 million, resulting in net debt (gross debt less cash and cash equivalents) of $524.7 million.
Outlook (forward-looking statements) and Key Assumptions
For the year ending December 31, 2019, Emerald management is maintaining its full year guidance as set out below, subject to noting the impact on total revenue of the cancellation of Surf Expo and ISS Orlando due to Hurricane Dorian. The company did not report anticipated third quarter revenues of approximately $7 million due to the cancellation of the aforementioned shows and, consequently, management expects total revenue to fall modestly below the low end of the respective guidance range.
Since the net financial effects of the hurricane were covered by insurance proceeds, reported as Other Income in the quarter, management expects no material impact on the other performance metrics due to the show cancellations.
- Total revenue decline in the range of 3.1 percent to 4.9 percent, or revenue in a range of approximately $362 million to $369 million
- Organic revenue decline in the range of 3.9 percent to 5.6 percent
- Adjusted EBITDA in the range of $118 million to $125 million, representing a decrease of 23.3 percent to 27.6 percent compared to 2018
- Adjusted Net Income in the range of $64 million to $69 million, representing a decrease of 31.1 percent to 36.1 percent compared to 2018
- Adjusted Diluted EPS in the range of $0.88 to $0.95, representing a decrease of 28.6 percent to 33.8 percent compared to 2018
- Free Cash Flow in the range of $60 million to $65 million