U.S. Markets closed

Edited Transcript of EEX.N earnings conference call or presentation 5-Nov-19 4:00pm GMT

Q3 2019 Emerald Expositions Events Inc Earnings Call

SAN JUAN CAPISTRANO Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Emerald Expositions Events Inc earnings conference call or presentation Tuesday, November 5, 2019 at 4:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Brian Field

Emerald Expositions Events, Inc. - COO

* Philip T. Evans

Emerald Expositions Events, Inc. - CFO & Treasurer

* Sally Shankland

Emerald Expositions Events, Inc. - CEO, President & Director

================================================================================

Conference Call Participants

================================================================================

* Ashish Sabadra

Deutsche Bank AG, Research Division - Research Analyst

* Gunnar Georg Hansen

RBC Capital Markets, Research Division - Associate VP

* Jeffrey P. Meuler

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Jitaek Chu

BofA Merrill Lynch, Research Division - VP

* Kevin Damien McVeigh

Crédit Suisse AG, Research Division - MD

* Ryan C. Leonard

Barclays Bank PLC, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and welcome to Emerald Expositions Third Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the call over to Mr. Philip Evans, Chief Financial Officer. Thank you, sir. Please go ahead.

--------------------------------------------------------------------------------

Philip T. Evans, Emerald Expositions Events, Inc. - CFO & Treasurer [2]

--------------------------------------------------------------------------------

Thank you, operator, and good morning, everyone. We appreciate your participation today in our third quarter 2019 earnings call. I'm very pleased to have Sally Shankland, Emerald's President and Chief Executive Officer; and Brian Field, our Chief Operating Officer, with me here today. As a reminder, 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 November 12, 2019. We've also posted a supplemental presentation to accompany today's discussion on our website at investor.emeraldexpositions.com.

Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans and prospects. 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 periodic reports on Form 10-K and Form 10-Q and subsequent filings. We do not undertake any duty to update such forward-looking statements.

Additionally, during today's call, we'll discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. Reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release.

Now I'll turn the call over to Sally.

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [3]

--------------------------------------------------------------------------------

Thank you, Phil. On today's call, I'll spend the majority of my time reviewing our strategic plan, which is designed to improve our execution across all facets of the business and return Emerald to sustainable organic growth. Brian Field, our COO, is here with us on the call today. Brian is overseeing the execution of our plan and is critical to its success, so I've asked him to provide some additional color on several of the initiatives that we have recently put into action. Finally, Phil will review our third quarter results in more detail and provide an update on our expectations for the full year. We will then open up the call for a question-and-answer session.

But before we start, let me provide an update on my illness and treatment. As we announced at the beginning of October, I was recently diagnosed with cancer and have begun a regimen of regular chemotherapy. I remain engaged in the strategic management of the business and in key decisions, while at the same time relying on my leadership team and Brian, in particular, to continue to support execution on a day-to-day basis. I sincerely appreciate the support and encouragement I've received from my team, our employees, customers and vendors as I work through this challenging time.

With that said, let's turn to Page 5 of the Q3 earnings call presentation. On the left-hand side of the chart, I've outlined my view of Emerald's key strengths. I believe passionately that face-to-face interaction remains a highly valued element of commerce, education and market development. Importantly, Emerald has a portfolio of strong and respected brands with the opportunity to return to the levels of growth and success that we've experienced in the past. The challenge has been execution and accountability, which has led to performance that has lagged the industry, and more importantly, our expectations. With more than 25 years of experience in this industry, I can tell you that there is nothing that I've encountered at Emerald over the last 5 months that I haven't seen or addressed before in my career. This is why I'm highly confident that our challenges can be solved with the right team, the right investments, the right strategy and the right culture.

Flipping to Page 6. Our transition has begun, and I'm very pleased with the progress we've made in such a relatively short time. Our management and our entire employee base is enthusiastic and confident that we're moving in a better direction. Over the next few pages, we will review several of the initiatives that we implemented and the changes that we're driving. To address Emerald's challenges as well as to drive a cultural change across the company, we needed to strengthen our team to ensure that we have the experience and skills to address the company's issues.

On Page 7, I've listed the most senior hires that I have made since joining Emerald back in June. This is a tremendous group of leaders with more than 120 years of relevant industry experience, and I could not be prouder they've chosen to hitch their wagons to the Emerald star. It's also worth pointing out that we have made and continue to make important changes as well as adding new skill sets deeper in the organization as we work to strengthen and upgrade our capabilities at all levels of the company in order to improve our execution across the entire organization.

Turning to Page 8, and key to our success is our redefined vision and mission. We must be focused on directing our products and services towards fueling our customer success and also that of their broader industries. We will do this by listening to them and working with them throughout the year, not just for a few days or a few weeks each year. We will improve the quality and value of what we produce and support the broader end markets and communities in which we operate. Our vision and mission puts our customers at the center of our organization and what we do every day. As our customers succeed, so will we.

Turning to Slide 9. We have 4 key strategies designed to improve our execution, expand our business and return Emerald to sustainable organic growth. As we center our organization on our customers, it's imperative that we work to increase their satisfaction with their Emerald experience. As their satisfaction grows, so will our business.

Second, we see tremendous opportunities to diversify our revenues, mainly by growing our existing non-booth revenues at an accelerated pace. Third, we recognize the importance of operating efficiently and being a cost leader in our industry, and we see opportunities to improve in these areas. And finally, we expect to selectively pursue attractive tuck-in acquisitions, like the G3 Communications acquisition we announced yesterday, that add to our capabilities and drive incremental financial returns.

As we successfully implement our initiatives and improve our execution, we expect to deliver long-term organic revenue growth at/or above industry levels and to generate consistent year-over-year growth in adjusted EBITDA.

So let's drop down a level into some of the detail around our individual strategies. On Page 10, I've set out some of the tactics related to our focus on customer satisfaction. There are many initiatives here that range from simply delivering better events and experiences to reestablishing a performance-oriented culture that ties our team's compensation to our success in improving client satisfaction.

At this point, I'd like to ask Brian to outline some of the specific things that he is leading and that we expect will contribute to improved customer satisfaction. Brian?

--------------------------------------------------------------------------------

Brian Field, Emerald Expositions Events, Inc. - COO [4]

--------------------------------------------------------------------------------

Thank you, Sally, and good morning.

Turning to Page 11. A key process we are putting in place is a rigorous event planning framework. This is a standardized diagnostic and forecasting instrument for building up, planning and evaluating the health of an event. Sally and I have successfully implemented and used this kind of process in the past with great success. A foundational component of this framework is rooted in an outside-in approach, analyzing the dynamics in the markets and sectors in which each show operates and understanding our customers' needs within their industry. With a holistic understanding of our customers and their pain points and motivations, we then build up the approach in how we target our sales and marketing strategies, the kinds of opportunities and content that will resonate and the optimal channels to reach them.

Using this Event Plan framework has several benefits. First, it focuses us on our customers' needs so that everything we do is designed around what is important to them and the outcomes they seek. Second, it reinforces data-led decision-making by testing the effectiveness of every marketing channel, every partnership and every investment we make. Third, since this kind of planning requires inputs and participation from across Emerald's organization, from brand management to sales, marketing, operations and finance, it creates a unified understanding of purpose and transparency across our teams. From an overall management perspective, the Event Plan framework also provides us greater confidence in the outcomes of our events due to the rigor and thinking invested during the process, and provides a dashboard of flags should any particular metric fall below established benchmarks as the show cycle progresses. So for instance, some of the issues that drove the disappointing performances of our ICFF and RetailX shows in the second quarter could have surfaced much earlier in the show cycle, which would have allowed us to take urgent remedial actions to get things back on track.

Finally, as we implement Event Plans across all of Emerald's shows over the course of 2020, this will also become a tool for multiyear planning, improving the budgeting process and our forecasting accuracy.

Flipping to Page 12. We are beginning to implement value-based pricing across several shows. Broadly speaking, this is research and analysis of live event pricing and promotion based on customers' perceived values of available locations and packages. To use an example most of us are familiar with, we all generally understand the variations of pricing that one finds in airline seating with different seating types, classes, amenities and the expectations we have around them. When we pay more, we expect more for the first-class seats than the basic economy one, and there's transparency around that. This same thinking can be applied to locations on a trade show floor, where high-value locations in the front of a hall, near densely trafficked points, desirable locations have greater value and command higher pricing than locations in the less trafficked areas. That said, floor location is only one of many variables, which also include booth configuration, timing of sale and discounting, and bundled non-booth-related promotional products.

We partnered with some specialty consulting firms, one of which algorithmically assesses dozens of commercial data points to evaluate the effects of timing and pricing elasticity in the development of our value-based pricing model. We've begun this process with 6 shows, Outdoor Retailer, ASD, New York NOW, CEDIA Expo, Surf Expo and RetailX. Based on my previous experience, the implementation of value-based pricing models can deliver an upside of between 4% to 8% on show revenue, which would equate to a potential $5 million to $10 million in incremental revenue on these 6 shows alone based on 2019 revenues. Due to the timing of show cycles and the value-based pricing implementation, we don't expect to start seeing the financial benefits of this effort until the 2021 show editions. In the meantime, we are identifying additional show candidates to undergo this process over the course of 2020.

Moving on to Page 13. As part of our focus on data-led decision-making, the third point of focus I'd like to discuss involves post-event research. We've now begun to implement a standardized process and tool set to design, deploy and measure customer surveys coupled with in-depth customer insights. This past July, we began to work with Explori, an event-specific research and analysis firm, to ensure consistency in the design and deployment of our post-show surveys and support our cycle of research to action. Explori currently collects data from over 2,700 trade shows, allowing us to measure Emerald customers' sentiment across not only our own historical benchmarks but other competitive shows as well. Explori has also established an overall show score, which is a robust customer sentiment metric combining Net Promoter Score, satisfaction, loyalty and importance metrics. This scoring demonstrates how any specific show ranks against all other shows in Explori's universe and will be a customer-led measure of Emerald's improvements against our peers. This will also be a key metric our teams will be accountable to improving from edition to edition. We currently have 27 events integrated into the Explori platform, which will be fully adopted across Emerald by the end of 2020.

Turning to Page 14. The next focal point for us as we go into 2020, and one I'm particularly excited about, is around data enrichment, augmenting our customer information through a fusion of data sources along with behavioral tracking. The results of this will provide us data-led insights and enhanced customer-led product offerings. Today, Emerald uses basic demographic and firmographic information in our marketing practices, such as name, title, company information and size and company revenues. While this information is helpful for broad segmentation, its limits are what customers explicitly tell us and can create incomplete views and mismatched marketing messages. Emerald has access to information on customer activity that is unlinked and underutilized. This kind of information includes data such as subscribing histories and online content behaviors, for example. Bringing these types of data together allows for refinement in messaging, segmentation strategy and customer insights. This is truly an exciting initiative. Based on my experience of implementing these kinds of enhancements in the past, this approach can have a transformational impact on how we understand, communicate with and nurture our customers. We're currently designing the integration path for these data sets today and plan to start rolling out enriched data to our marketing teams over the course of 2020.

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [5]

--------------------------------------------------------------------------------

Thanks, Brian. So let me pick up on Page 15 where we've set out our second growth strategy, which is to give a more concerted effort toward diversifying our revenue streams. Just to be clear, this doesn't mean that we plan to pay any less attention to our core space-based revenue streams, but rather that we see untapped opportunities in other adjacent revenue streams, that with the right attention and resources applied to them would deliver more value to our markets and drive growth opportunities for us. We now have senior executives with horizontal responsibilities for sponsorship and advertising revenues, conference revenues and hosted buyer revenues across the entire Emerald portfolio. Working with our individual brands, they're helping drive adoption of best practices and the development of new opportunities. We started several pilot programs with a number of brands. And once rolled out, I believe there will be significant opportunity to drive substantial incremental revenue over the next several years.

Let me hand over to Brian again to outline our initiatives in the area of integrated customer solutions.

--------------------------------------------------------------------------------

Brian Field, Emerald Expositions Events, Inc. - COO [6]

--------------------------------------------------------------------------------

Thanks, Sally. So one of the ways we're diversifying our revenue is through a focus on integrated customer solutions, driving increased value for customers by creating integrated packages that go beyond pure booth or conference programs. These will blend on-site sponsorship programs with digital and print solutions to reach desired customer outcomes. For our customers, this is a more holistic approach of delivering value that extends beyond event days to year-round opportunities. Examples of this are bundling at-show sponsorship options around show guides, content tracks and speed-dating pavilions with year-round opportunities, such as the sponsorship of curated topical series on our websites, extending customers' content as part of a webinar series, even extending to more traditional media offerings such as relevant section takeovers of display ads and digital wallpaper on our websites and sponsored belly bands on our print magazines and ad pages. As we're designing these integrated solutions, our focus will be on standardization and scale versus one-off bespoke efforts to maximize opportunity for new profitable revenue growth.

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [7]

--------------------------------------------------------------------------------

Thanks, Brian. On Page 17, I've set out our third growth strategy, which is to operate more efficiently and cost effectively. An important component of the strategy is strengthening the culture and discipline in the organization so that there's more financial rigor around decision-making, budgeting, forecasting and procurement. We will also structure the organization and the portfolio to be efficient and optimize profitability.

Flipping to Page 18, we plan to continue to pursue M&A opportunities that make sense for us, which means where they meaningfully strengthen the existing business that we already own or where we bring considerable value to the acquisition that dramatically enhances the acquisition's growth trajectory. We will apply an even higher level of discipline and rigor to this process than we have in the past.

On Page 19, I've set out our most recent acquisition, namely that of G3 Communications, which we announced yesterday. This is a perfect example of a tuck-in acquisition that is a great business in its own right, purchased at an attractive price, but also strengthens the Emerald business considerably. G3 has expertise and content in B2B marketing and the ongoing retail transformation. Through this acquisition, we see opportunities to expand the services and solutions that we provide our exhibitors and also to create and monetize education models for the attendees across our retail events.

Turning to Page 20. As I noted earlier, our financial objectives are quite straightforward. We aim to be a growth business, both top line and bottom line, to deploy capital responsibly and in a balanced way that drives shareholder value. What that means is that we will continue to invest in our core business to improve its trajectory and at the same time, we look for tuck-in acquisitions that fit our very specific criteria. We plan on using our remaining free cash flow, after regular quarterly dividend payments, to pay down debt. While share repurchases are not a core part of our capital allocation strategy, we may continue to buy back shares as we believe that the company is meaningfully more valuable than is reflected in the share price.

On Page 21, I've set out an indicative time line, showing some of the key milestones on the path to growth. I believe that much of our success will be driven by new processes, new discipline and accountability throughout the organization and better use of data and technology. Frankly, this is simply driving better data-informed execution. While our return to growth will take time, given the need to drive change across many show cycles, we're considering what key performance indicators we can provide to the investment community so you can track our success. I will have more to say on this in February when we release our fourth quarter and full year 2019 earnings results.

Flipping to Page 22. I have told our employees from the first day that I joined Emerald, there are 4 important constituencies that need to be addressed if we are to be successful. Starting with our customer is fairly obvious. But we also need to value our employees and make Emerald a great place to work, including to expand the training and development opportunities. Next, we need to put more effort into our communities, both the industry communities in which we operate and the local communities where we have offices and where we live. And if we do all this right, we expect to have a highly valuable and sustainable business that will benefit all of our stakeholders.

Now I will turn the call over to Phil to discuss our third quarter results.

--------------------------------------------------------------------------------

Philip T. Evans, Emerald Expositions Events, Inc. - CFO & Treasurer [8]

--------------------------------------------------------------------------------

Thank you, Sally, and good morning, again. I'll pick up on Page 24 and begin with a brief review of our third quarter shows.

Starting with ASD, the show's revenues were flat versus the equivalent show last year. When excluding the sourcing category that was adversely affected by the ongoing U.S.-China trade dispute, revenues grew 4%, which is a great result. Our changes to the sales structure have now taken hold. And together with other execution improvements and the further implementation of the initiatives that Brian discussed earlier, we feel confident that the franchise has stabilized and is poised for growth in 2020. In fact, our revenues for the next show in March are already pacing well.

Our second-largest show in the quarter was the summer edition of New York NOW. As expected, revenues declined by a low double-digit percentage, with around 40% of the decline attributable to our curation of the gift section in the lifestyle category to both improve the overall quality of the show and to allow for the JA summer show to co-locate with New York NOW. While the home category continued to be the most challenging, there was some clear positive momentum in the show. Based on our post-show research, the overall show score that Brian mentioned earlier increased by approximately 30% over the previous summer show for New York NOW exhibitors and by just less than 10% for New York NOW attendees. Looking forward, we continue to see an opportunity to improve New York NOW and have taken extra time to assess the enhanced post-show research and analysis before opening the sales process for the next show in February 2020. While this has impacted short-term booth, pacing and revenues, we remain focused on the long-term health of the brand and are confident that we can return New York NOW to growth longer term.

Turning to our third-largest show in the quarter, Surf Expo. We announced in early September that we were canceling this year's show and also the co-located ISS Orlando show due to Hurricane Dorian, which was threatening to imminently strike Florida. This is a difficult decision, but we worked closely with various stakeholders to ensure that we put the safety of our customers, our staff and our suppliers first. While we were disappointed to cancel the shows, our financial loss was covered by event cancellation insurance, and we've recorded the agreed net insurance proceeds as other income in the quarter. As a result of this insurance coverage, our profitability and cash flows were not adversely affected by these show cancellations. On a positive note, we're pleased to see that our booth revenues for the next Surf Expo show in January are pacing very nicely.

Finally, let me give a brief update on our CEDIA Expo show, which took place in September. While the communities seemed to really enjoy moving to the show's latest venue in Denver, the home tech industry has been particularly affected by the recent U.S.-China trade dispute. This can be seen in the show's revenues, which were down by a mid-single-digit percentage. Looking forward, we'd expect the trade tensions to remain a modest overhang on the show's performance next year.

Turning to our third quarter results on Page 25, and in the interest of time, I'll just touch on a few of these items. More detail is available in our earnings release issued this morning.

Revenues decreased by $27.5 million or 26.7% to $75.6 million compared to the year ago quarter. The decline reflected a net $13.3 million reduction due to several show scheduling differences in the third quarter of 2019, most notably Outdoor Retailer Summer Market, which staged in the second quarter this year versus the third quarter of 2018. Our revenues this quarter were also adversely affected by shows discontinued in 2018 that did not repeat in 2019, particularly Interbike, and also by the $7.1 million of anticipated revenues of the Surf Expo and ISS Orlando shows that we weren't able to book due to the cancellation of both shows, which I noted a moment ago.

Organic revenues declined by $3.7 million or 4.4% after adjusting for the aforementioned items and excluding the $1.9 million of incremental revenues in the third quarter on the 2 acquisitions we completed in the second half of last year.

Adjusted EBITDA for the third quarter of 2019 of $28.7 million compared with $40.9 million for the equivalent 2018 period, adjusted for the impact of show timing differences. The decrease of $12.2 million or 29.8% was mainly driven by the flow-through of our shortfall in organic revenues, higher operating cost, mainly due to our planned incremental event and organizational investments, and the lost contribution on our discontinued events.

Free cash flow, which we define 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, a decrease of $2.9 million or 21.3%. This reduction largely reflected the operating performance of the business in the quarter.

On Page 26, I've set out the uses of cash in the quarter. Most notably, we repurchased over 400,000 shares of our common stock at an average price of $9.43 during the quarter. Since the end of the quarter, we've acquired approximately 250,000 additional shares, leaving the company with approximately $24 million of the approved program still available.

At the end of September, our outstanding term loan balance was $532.3 million, and we had $6 million outstanding on the revolving credit facility. With cash on hand of $13.6 million, this resulted in a net debt of $524.7 million and a net leverage ratio of approximately 3.9x our last 12 months adjusted EBITDA.

Turning to the fourth quarter and our full year guidance. Our largest shows in Q4 are pacing well Both BDNY, which we acquired last year, and Healthcare Design take place in the next couple of weeks and are expected to grow nicely against their respective previous year events. Back in August, we announced that following considerable consultation with the outdoor community, we decided to combine our planned Outdoor Retailer Winter Market trade show that staged the first week of November, with our Outdoor Retailer + Snow Show, which stages at the end of January next year. This decision represented a financial setback for 2019 as the Winter Market show had revenues over $5 million last year and was solidly profitable, but it was the right decision for our customers and the industry. Ultimately, we believe a single winter season show will be more successful for Outdoor Retailer and its customers versus staging 2 winter season shows. So far, we've been successful in converting around 80% of the exhibitors who had signed up just for the winter 2019 show into the January 2020 show. And a number of those exhibitors who were signed up for both winter shows have now upsized their January presence. Overall, the Outdoor Retailer + Snow Show 2020 is pacing well ahead of the 2019 edition.

I'm pleased to note that we've been able to absorb the 2019 impact within our guidance and have not adjusted our guidance ranges for the full year 2019. That said, the cancellation of Surf Expo and ISS Orlando due to Hurricane Dorian reduced anticipated third quarter revenues by approximately $7 million. And consequently, we currently expect total revenue to fall modestly below the low end of that guidance range. However, as a result of our events cancellation coverage for these shows, management doesn't expect the show cancellations to impact any of the other measures.

At this point, I'll hand back to Sally for her final remarks.

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [9]

--------------------------------------------------------------------------------

Thanks, Phil, and thanks to everyone on the call for your time today. I hope that what you have taken away from this call is that we have reset the table and are on a path to improve our execution and deliver better financial results. I appreciate that it will take time for us to prove that to you and to regain your trust and confidence. But I believe the Emerald business is fundamentally sound. We understand what we need to do to be successful. And while it may take time to feed through to performance, we are doing the right things to return the business to growth and to achieve our financial objectives.

Thank you again. Operator, please open the call for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Jeff Meuler with Baird.

--------------------------------------------------------------------------------

Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [2]

--------------------------------------------------------------------------------

Sally, just first, best wishes on the personal challenges you're fighting through. On the business, so I get that it's kind of early, and you're going to wait till February to give us the KPIs to track and measure your progress against. Just from the changes that you've made thus far, any early indicators that you can kind of share or is it just too soon?

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [3]

--------------------------------------------------------------------------------

I think it's a little soon, Jeff. I mean, certainly, there are some green shoots that we're seeing in terms of improvement in customer experience scores. At New York NOW summer, we saw a 30% improvement among exhibitors. So some of those things that we're doing and the measurements we're putting in place are starting to show some positive effect. But it's really going to be 2021 before we've got everything implemented and really rolling out to its full impact as you've heard, as we've gone through the list of various initiatives that we're undertaking.

--------------------------------------------------------------------------------

Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [4]

--------------------------------------------------------------------------------

Got it. And then Phil, I guess I'm a little confused by just the cancellation -- the hurricane cancellation math and insurance. So I know that you're insured for lost profitability and business disruption. I guess I'm just surprised that there would be a $6 million insurance benefit on $7 million of lost revenue, that sounds high. So is that right? And there was something in the Q about maybe needing at some point to reimburse exhibitors for out-of-pocket expenses. So what I'm wondering is, is the $6 million benefit all recognized this quarter, but there's some future expense against that that's not accrued? Just trying to help understand the -- why the $6 million insurance proceeds would be so high on $7 million of lost revenue.

--------------------------------------------------------------------------------

Philip T. Evans, Emerald Expositions Events, Inc. - CFO & Treasurer [5]

--------------------------------------------------------------------------------

Sure. I mean the anticipated revenue we didn't book was the $7.1 million. We saved $1 million in running the show. We didn't -- that show didn't take place, but obviously most of the costs were incurred beforehand. So we saved $1 million versus the lost revenue, and that's why -- that's how the event cancellation works. It's the net financial impact to us. So you'll see in the commentary around cost of revenues that it says one of the items affecting the quarter versus the previous quarter was the savings in the show. So that's how we get to $6.1 million. The reimbursement to exhibitors is -- we had 2 insurance policies. We had one which was for us to reimburse us for having to give refunds to customers and then we purchased a secondary policy, and that's the one that we will receive cash in Q4 and we will pay out exhibitors for the costs they had that were incremental to the booth cost. So the primary pays their booth costs back to them and sponsorship costs, what they paid us. And then we had a secondary one, which is what is referenced in the Q.

--------------------------------------------------------------------------------

Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [6]

--------------------------------------------------------------------------------

Okay. And then just last for me. Any kind of rough sizing of -- you obviously are in-flight with implementing lots of initiatives. Like how much of the expense related to them is recognized in year-end 2019 versus how much will be incremental for initiatives expense in 2020?

--------------------------------------------------------------------------------

Philip T. Evans, Emerald Expositions Events, Inc. - CFO & Treasurer [7]

--------------------------------------------------------------------------------

So we have approximately $2 million of the cost of the new team and the initiatives that started to be kicked off. If we annualize that, it's probably another $3 million next year. So $5 million is a run rate, subject to other initiatives or investments that become -- could start to be implemented next year. We've talked about a lot of the things that we are already kicked off, but there are other things in the pipeline that maybe will have an impact in 2020 as well.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Your next question comes from the line of Manav Patnaik with Barclays.

--------------------------------------------------------------------------------

Ryan C. Leonard, Barclays Bank PLC, Research Division - Research Analyst [9]

--------------------------------------------------------------------------------

This is Ryan Leonard on for Manav, and also wishing you the best, Sally. Just in terms of the long-term targets, I was wondering if you could just help us out. I mean, we've -- this mid-single-digit has been thrown out there before. So I'm just wondering if you can break that down at all in terms of, is that from volume growth, is it from pricing, is it expect new show launches. Can you just help us think about how we get there, just in terms of some buckets?

--------------------------------------------------------------------------------

Philip T. Evans, Emerald Expositions Events, Inc. - CFO & Treasurer [10]

--------------------------------------------------------------------------------

I mean I'll start and then you can add. I mean in terms of where does mid-single-digit growth come from, I think we talked about the opportunities within value-based pricing over time. The initiatives are focused on improving the shows. So we would expect volume growth within shows over the longer term. And we have a number of new show ideas, new show launches that are being considered. So I think it's a combination of all of those things, one no more than the others at this point.

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [11]

--------------------------------------------------------------------------------

Plus the diversification of the revenue stream, which Brian discussed earlier, we believe is going to also lead to growth.

--------------------------------------------------------------------------------

Ryan C. Leonard, Barclays Bank PLC, Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

Got it. And then just on that diversification, is that really focused on existing shows that exist today? Or do you think there is a need to diversify the current portfolio of shows?

--------------------------------------------------------------------------------

Brian Field, Emerald Expositions Events, Inc. - COO [13]

--------------------------------------------------------------------------------

The current outlook right now is we're looking at how we can diversify revenue in all of our existing shows, wherever those opportunities arise. And then as we contemplate new launches that may happen in the future, of course, we'll be looking to contemplate how those types of bundles are built into them from day 1.

--------------------------------------------------------------------------------

Ryan C. Leonard, Barclays Bank PLC, Research Division - Research Analyst [14]

--------------------------------------------------------------------------------

Got it. And then finally for me, just on the cost management side and the growing at a profitable margin, is it safe to say that if revenue growth is mid-single-digit, EBITDA growth should be in line with that, if not better?

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [15]

--------------------------------------------------------------------------------

So I think that's a good question because, ultimately what matters is EBITDA growth. That's our primary focus. And I think, obviously, revenue growth is key. Margin plays a role. But when you're looking at revenue -- at EBITDA growth over time, getting the growth rates, I would suggest, is probably slightly more important than pushing for the highest possible margin because a growing business at a slightly lower margin is worth more than a contracting business at a very high margin.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

Your next question comes from the line of David Chu with Bank of America.

--------------------------------------------------------------------------------

Jitaek Chu, BofA Merrill Lynch, Research Division - VP [17]

--------------------------------------------------------------------------------

So based on this value-based pricing, I mean, how should we think about price increases for like the total show portfolio in '20 and '21? I know that it's not really being implemented until 2021, but just thoughts over the next 2 years would be helpful.

--------------------------------------------------------------------------------

Brian Field, Emerald Expositions Events, Inc. - COO [18]

--------------------------------------------------------------------------------

Yes. So the overall effects, you're right, aren't really going to bear out until 2021 based upon the cyclicality of the way the shows run, whereas I mentioned earlier, introducing the value-based pricing modeling across a handful of our shows at this very moment. Can't do everything at once. So we're doing this in batches. We'll be moving forward into additional shows and how value-based pricing rolls on to them over the course of next year, which will have effect forward as those shows stage, too. So we're looking -- those will be 2021 and into 2022.

--------------------------------------------------------------------------------

Philip T. Evans, Emerald Expositions Events, Inc. - CFO & Treasurer [19]

--------------------------------------------------------------------------------

And David, this is Phil. The current pricing yield growth is in the 2% to 3%, which is pretty typical and pretty -- we've always seen over the last couple of years. So I think that's sort of our expectation going into 2020 and then a little bit of a boost potentially in 2021 from the introduction of value-based pricing in a bunch of the shows.

--------------------------------------------------------------------------------

Jitaek Chu, BofA Merrill Lynch, Research Division - VP [20]

--------------------------------------------------------------------------------

Okay, great. That's helpful. And then just given the current assessment of the portfolio, just any update on potentially discontinuing any shows?

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [21]

--------------------------------------------------------------------------------

We're always looking at what makes the most sense for our portfolio. At this point, we don't see anything that makes sense to discontinue. At the same time, it's always an open question. And as we continue to analyze and go and continue to look for proof points about the effectiveness of the tactics we're employing, that may change. But at this point, no.

--------------------------------------------------------------------------------

Jitaek Chu, BofA Merrill Lynch, Research Division - VP [22]

--------------------------------------------------------------------------------

Got it. Okay. And just last one, just a quick housekeeping. What was organic growth for the 3 segments?

--------------------------------------------------------------------------------

Philip T. Evans, Emerald Expositions Events, Inc. - CFO & Treasurer [23]

--------------------------------------------------------------------------------

I don't have the supplemental materials right in front of me right now, but it's on the website, the breakdown between trade shows, other events and other marketing services.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Your next question comes from the line of Kevin McVeigh with Crédit Suisse.

--------------------------------------------------------------------------------

Kevin Damien McVeigh, Crédit Suisse AG, Research Division - MD [25]

--------------------------------------------------------------------------------

Sally, best wishes on the road to recovery. In terms of the revenue, kind of the non-booth revenue at an accelerated rate, Sally, any sense of -- what's been your experience there? And then within the context of that, what does the revenue look like on the non-booth versus booth? And does it change the seasonality of the business and/or the predictability as you start -- as that becomes a bigger percentage of the contribution?

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [26]

--------------------------------------------------------------------------------

So we're in the process of running pilots right now and in 2020. Those pilots will help us size the opportunity and help us see which of the various things we could pursue will be most effective at what shows because there will be some variability. So I think that the opportunity is considerable over time because for Emerald, overall, it's a smaller percentage of our revenue than it is for many trade show producers.

--------------------------------------------------------------------------------

Philip T. Evans, Emerald Expositions Events, Inc. - CFO & Treasurer [27]

--------------------------------------------------------------------------------

Our booth revenue -- our pure booth revenues are about 2/3 of our revenues. And then some of the non-booth includes commissions and other things related to really the trade show. So the 1/3 or a little bit less than 1/3 is what we have to work with in terms of kind of non-booth.

--------------------------------------------------------------------------------

Kevin Damien McVeigh, Crédit Suisse AG, Research Division - MD [28]

--------------------------------------------------------------------------------

And what would be a more traditional mix?

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [29]

--------------------------------------------------------------------------------

Hard to say because I'm not privy to the exact details. But certainly, my model for what it should look like in future years would be that we continue to grow our booth revenue, but decrease our dependence on it. So I could see us in a place where our booth revenue is 50% of our total revenue, and the other half comes from conferences, from education, from sponsorships, from content marketing, from a whole list of things that we can be doing, given the fact that we have a digital presence, that we're not offering today.

--------------------------------------------------------------------------------

Kevin Damien McVeigh, Crédit Suisse AG, Research Division - MD [30]

--------------------------------------------------------------------------------

Got it. And then would you -- Sally, theoretically, would there be similar revenue growth contribution? And would you expect that non-booth obviously would grow faster?

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [31]

--------------------------------------------------------------------------------

It's really hard to predict at this point until our pilots are done. So if we do it right, there's -- obviously, we're in changing markets where things like education matter. And it's hard to predict how much growth we'll see where. But we're confident that it's there and that we can gather it over time.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Your next question comes from the line of Ashish Sabadra with Deutsche Bank.

--------------------------------------------------------------------------------

Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [33]

--------------------------------------------------------------------------------

Sally, best wishes for a speedy recovery as well. Just a question on New York NOW, just -- if you can provide some color on the expectations for revenues, how much revenue could decline in -- for the Feb show? And when should we start to see the turnaround for the New York NOW? Is summer 2020 when we can start to see it turn around there?

--------------------------------------------------------------------------------

Philip T. Evans, Emerald Expositions Events, Inc. - CFO & Treasurer [34]

--------------------------------------------------------------------------------

It's Phil, I'll try this and then Sally, you can come in. I mean, we have a new leader over the show. So -- and as we said in the prepared remarks, we're really taking some time to look at what we've got and what we need to do. We believe in the long-term growth opportunities of this franchise. It's really difficult to say when that will come through. And certainly, 2020 may be a little bit soon for us to see that flow through. But there's a lot of initiatives going into the first show in February, new things happening. We're responding to the research and really detailed research and analysis. And so it's -- we're playing the long game on New York NOW, and we'll continue to move forward. But I think 2020 and summer 2020, which was your question, may be a little soon to expect it to stabilize.

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [35]

--------------------------------------------------------------------------------

In general, we feel good about retail as we've seen with ASD, which is now returning to growth. So I want to be clear that we think our New York NOW issues are not related to retail as a category, but more to the fact that we haven't executed in as customer-focused a way as we could have.

--------------------------------------------------------------------------------

Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [36]

--------------------------------------------------------------------------------

That's really helpful, Sally. And maybe -- again, thanks for providing the details on the strategic initiatives. My question was some of these, including value-based pricing or integrated customer solution, does that require exhibitors -- may require exhibitors to spend more money and just some thoughts around that, just propensity for the exhibitors to spend more money, particularly in an environment where businesses seem to be slowing down their spend. So any thoughts on that front.

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [37]

--------------------------------------------------------------------------------

So I'm going to ask Brian to address that. My only remark is that it's all about ROI.

--------------------------------------------------------------------------------

Brian Field, Emerald Expositions Events, Inc. - COO [38]

--------------------------------------------------------------------------------

Yes. And so it's really about, again, the value that the exhibitor gets in the package that, that company purchases. We've seen in the past, as we've rolled these out before in a variety of different sectors, that as long as there's transparency, the expectation around what the customer will receive and the value for that is something that -- is well welcome because there -- again, there's transparency. There's a set of packages, not just in the space but other types of things, promotional opportunities that come along with that oftentimes, and that aggregate package and the value that it brings is something that customers tend to find very attractive when they are considering a value-based price model.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from the line of Seth Weber with RBC Capital Markets.

--------------------------------------------------------------------------------

Gunnar Georg Hansen, RBC Capital Markets, Research Division - Associate VP [40]

--------------------------------------------------------------------------------

This is Gunnar Hansen in for Seth. And again, best wishes to you, Sally, on your recovery. Brian, I guess, just with the value-based pricing, to follow-on that, are there certain sectors or categories or even show sizes that are best suited and positioned to benefit from value-based pricing? Is it -- maybe give us some color on the success you've had among different categories or even size of shows? Is it easier to implement this sort of strategy in various types of shows, et cetera? Or should it be fairly beneficial across the portfolio?

--------------------------------------------------------------------------------

Brian Field, Emerald Expositions Events, Inc. - COO [41]

--------------------------------------------------------------------------------

It should be fairly beneficial across the portfolio. That said, there may be shows that are extremely small, mostly ones that are conference-led or educational-led, where there isn't a large trade show type of component to it, where a value-based pricing model wouldn't make a whole lot of sense, where we spend most of our time on the educational element, particularly in conference revenue. The expo floor plays a supportive role, but not a major role in the contribution of that kind of an event.

--------------------------------------------------------------------------------

Gunnar Georg Hansen, RBC Capital Markets, Research Division - Associate VP [42]

--------------------------------------------------------------------------------

Okay, fair enough. And I guess, is this going to require you guys to kind of retrain kind of your sales staff in some of the commission plans that you guys have in place? I mean, how easily or quickly can some of the existing salespeople kind of communicate a different, more dynamic message regarding the value-based pricing?

--------------------------------------------------------------------------------

Brian Field, Emerald Expositions Events, Inc. - COO [43]

--------------------------------------------------------------------------------

Yes, that's a good question. And that's part of the reason why it's not a light switch where you don't turn it on overnight, right? There's the cyclicality of the events piece of it, which is one component. The other part is that the actual -- the design of the floor plan, the messaging around how to communicate value to customers, that also takes time for the sales teams to be able to communicate effectively. And so while we're designing this and looking at pricing elasticity models, at the same time, the sales team themselves are very involved in the process, and so they're seeing the kinds of packages and value delivery that these customers are going to receive. So they're becoming tuned to it even as the discussions are happening internally so that they're then able to deliver that message much more effectively, crisply and communicate that value to customers as the packages become available to them some months in the future.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I'd like to turn the call back to management for closing remarks.

--------------------------------------------------------------------------------

Sally Shankland, Emerald Expositions Events, Inc. - CEO, President & Director [45]

--------------------------------------------------------------------------------

Thank you all for participating today. We know we've historically delivered unacceptable results, and we're grateful for your patience. We believe absolutely that this is a portfolio that can grow and that we've found the right path forward in order to get there, but we also want to be realistic about time lines. This is a multiyear turnaround story, as I think you've heard, but excited about the things we are achieving and where we're going. So thank you, again, for your participation, and have a good afternoon, everyone.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.