Emerald Expositions Events Inc., which owns and operates the Outdoor Retailer shows, on Thursday reported financial results for the third quarter ended September 30, 2018.

Third Quarter 2018 Highlights

  • Revenues increased 2.7 percent to $103.1 million, compared to $100.4 million for third quarter 2017
  • Net income increased by 8.9 percent to $20.9 million, compared to $19.2 million for third quarter 2017
  • Net cash provided by operating activities increased 30.6 percent to $14.1 million, compared to $10.8 million for third quarter 2017
  • Adjusted EBITDA, a non-GAAP measure, decreased 2.5 percent to $51.6 million, compared to $52.9 million for third quarter 2017
  • Adjusted Net Income, a non-GAAP measure, increased 18.1 percent to $32.0 million, compared to $27.1 million for third quarter 2017
  • Free Cash Flow, a non-GAAP measure, increased 28.3 percent to $13.6 million, compared to $10.6 million for third quarter 2017

“For the third quarter of the year, our trade show portfolio performed in line with our expectations as robust growth from several of our trade shows, including Outdoor Retailer Summer Market and CEDIA Expo, was offset by softness in NY NOW and ASD. Importantly, we believe that our initiatives designed to address the challenges in NY NOW and ASD are starting to have an effect and, while they may take a few cycles to fully take hold, we are on the right long-term path to stabilize the performance of these important franchises,” reported Philip Evans, Emerald’s CFO, who will assume the additional roles of interim president and CEO of Emerald Expositions, effective November 8, 2018.

Evans added, “In August, we were pleased to acquire a group of technology brands that uniquely complement our CEDIA Expo trade show and, approximately two weeks ago, we were delighted to follow this with the acquisition of a portfolio of leading trade shows in the hospitality and design sector. We expect these two transactions, which together took our M&A spend this year to more than $70 million, to be immediately additive to earnings and free cash flow, and to positively affect our future growth trajectory. Looking forward, our pipeline of potential acquisitions is strong and we remain committed to driving increased shareholder returns through our selective M&A strategy.”

Financial & Operational Results

For the third quarter of 2018, Emerald reported revenues of $103.1 million compared to revenues of $100.4 million for the third quarter of 2017, an increase of $2.7 million, or 2.7 percent. Organic revenues for the trade show portfolio declined approximately 2.0 percent over the prior year, after adjusting for insurance proceeds related to two shows that were impacted by Hurricane Irma and a show scheduling difference for an event that staged in the third quarter of 2017 and will stage in the fourth quarter of the current year. The underlying performance reflected good growth in several of the quarter’s shows, most notably Outdoor Retailer Summer Market and CEDIA Expo, offset by declines, as expected, in a few of our other third quarter shows, particularly NY NOW and ASD. Overall organic revenues, which represents revenues after excluding $2.0 million in the quarter from the CPMG and technology brands acquisitions, decreased approximately 3 percent as the Other Events and Other Marketing Services revenues declined at a modestly higher rate than trade show revenues.

Cost of Revenues of $25.9 million for the third quarter of 2018 decreased by 4.8 percent, or $1.3 million, from $27.2 million for the third quarter of 2017. This decrease was largely driven by cost reductions in several shows and the timing effect of a show staging in the fourth quarter of this year versus the third quarter of last year, partly offset by incremental costs attributable to acquisitions.

Selling, General & Administrative Expense (“SG&A”) of $29.7 million for the third quarter of 2018 increased by 1.0 percent, or $0.3 million, from $29.4 million for the third quarter of 2017. SG&A for the third quarter of 2018 included incremental costs attributable to acquisitions and an increase in stock-based compensation, largely offset by one-time acquisition transaction costs, public company and other related activities costs and transition costs that, in aggregate, were modestly lower than in the third quarter of 2017.

Net Income of $20.9 million for the third quarter of 2018 increased by 8.9 percent or $1.7 million, from $19.2 million for the third quarter of 2017. The key driver of the increase was a $5.6 million decrease in income tax expense, mainly reflecting the change in US federal income tax rates from 35 percent to 21 percent effective January 1, 2018. This benefit was partially offset by a decline in operating income and higher interest expense related to higher average borrowing rates under Emerald’s senior secured credit facilities in the third quarter of 2018.

For the third quarter of 2018, Adjusted EBITDA was $51.6 million, compared to $52.9 million for the third quarter of 2017, a decrease of 2.5 percent, or $1.3 million. The decrease partly reflected a slightly unfavorable show mix and net excess expenses in the quarter for acquisitions.

For a discussion of the company’s presentation of Adjusted EBITDA, which is a non-GAAP measure, see below under the heading “Non-GAAP Financial Information.” For a reconciliation of Adjusted EBITDA to net income see Appendix I attached hereto.

Cash Flow

Net cash provided by operating activities increased by $3.3 million to $14.1 million in the third quarter of 2018, compared to $10.8 million in the third quarter of 2017. The key items affecting the quarter’s cash flow were a $1.7 million reduction in the amount of one-time acquisition transaction costs, public company and other related activities costs and transition costs paid in the third quarter of 2018, partly offset by the impact of $2.8 million of increased cash used for tax payments, now that the company has utilized all its tax assets relating to net operating losses in prior periods. The balance of the increase was mainly attributable to an improvement in working capital.

Capital expenditures were $0.5 million for the third quarter of 2018, compared to $0.2 million for the third quarter of 2017.

Free Cash Flow, which we define as net cash provided by operating activities less capital expenditures, was $13.6 million for the third quarter of 2018, compared to $10.6 million in the third quarter of 2017.

For a discussion of our 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, 2018, Emerald’s cash and cash equivalents were $13.8 million and gross debt was $537.9 million, resulting in net debt (gross debt less cash and cash equivalents) of $524.1 million.

Dividend

On October 26, 2018, the Board of Directors approved the payment of a cash dividend of $0.0725 per share for the quarter ending December 31, 2018 to holders of the company’s common stock. The dividend is expected to be paid on or about November 28, 2018 to stockholders of record on November 14, 2018.

Outlook (forward-looking statements) and Key Assumptions

The company’s outlook for the year ending December 31, 2018 has been updated to reflect the latest expectations for the full year, including the impact of the two acquisitions completed since the company’s second quarter earnings call on August 2, 2018. Emerald management now expects the financial performance metrics outlined below:

  • Total revenue growth of 10.3 percent to 11.5 percent, or revenue in a range of approximately $377 million to $381 million
    • Includes combined revenue for the two recent acquisitions estimated in the range of approximately $15 million to $18 million
  • Organic revenue growth of 0.6 percent to 1.0 percent
  • Adjusted EBITDA in the range of $161 million to $164 million, or growth of 2.0 percent to 3.9 percent
    • Includes combined Adjusted EBITDA for the two recent acquisitions estimated in the range of approximately $5 million to $6 million
  • Adjusted Net Income in the range of $99 million to $101 million, or growth of 23.3 percent to 25.8 percent
    • Includes combined Adjusted Net Income for the two recent acquisitions estimated in the range of approximately $3 million to $4 million
  • Adjusted Diluted EPS in the range of $1.29 to $1.34, or growth of 16.2 percent to 20.7 percent
    • Includes a combined impact on Adjusted Diluted EPS due to the two recent acquisitions estimated in the range of approximately $0.04 to $0.06
  • Free Cash Flow in the range of $100 million to $110 million

The above outlook does not incorporate the impact of any further acquisitions that Emerald may pursue or other unforeseen developments. See discussion of non-GAAP financial measures at the end of this release.

Commenting on the updated guidance, Evans noted, “In a couple of weeks’ time, we will stage our new Outdoor Retailer Winter Market, adding a third show to our successful Outdoor Retailer trade show franchise. This first November-timed show, while debuting as the twelfth largest show in our portfolio, will be somewhat smaller than we had anticipated. This fact, together with the cancellation of two of our planned fourth quarter launches, has combined to reduce our organic revenue growth expectation for the 2018 full year, as noted in our updated guidance.” Evans added, “The portfolio of recently acquired hospitality and design shows includes two trade shows that stage in November, namely BDNY and HX: The Hotel Experience. Consequently, the expected results from these two shows are also reflected in our 2018 financial outlook.”