As the Trade Show Proposition Changes, Would You Want to Own More of Them? Emerald Expositions’ Quarterly Results

As you probably know, Emerald Expositions (EE) is the owner and manager of Surf Expo, Outdoor Retailer, and now what was formerly SIA’s Snow Show.  Overall, they operate over 50 shows as well as other events.  They’ve grown by acquisition, and expect to continue to do so.  Their shows are in many industries and include the International Drone Conference and Exposition (kind of cool!), the National Pavement Expo (who knew there was one?), American Craft Retailers’ Expo, and the Digital Dealer Conference and Expo (no idea what they do there).  These, along with the Snow Show, are among their most recent acquisitions.

Until it went public on May 3^rd at $17 a share, EE was owned by private equity firm Onex.  EE raised $159.1 million in the offering, using it all to pay down debt.  Onex sold an additional almost 7.5 million shares and received $127.4 million itself.  It still owns 18% of EE.

EE has a pretty interesting business model; a gross profit margin of around 70% and an attractive cash flow resulting from the fact that it receives money from show exhibitors well before it must spend money to put on the show.  This leaves them with a current ratio at June 30 of 0.46.  That’s unsustainable to impossible for most businesses, but not for EE and it’s cash flow model.  Net cash provided by operations in the six months ended June 30 was $56 million, down from $70 million in last year’s six months.

In the quarter ended June 30, revenue rose 14.1% compared to last year’s quarter from $65 to $74.1 million.  Net interest expense was $16.8 million, up from $13.3 million in last year’s quarter.    A net loss of $370,000 in last year’s quarter grew to $5.8 million in this year’s quarter.  But there’s some seasonality to the business and the earning for the six months ending June 30 were $22.5 million, down from $27.8 million in the same six months last year.  Interest expense was a bit over $26 million for both six-month periods.

Due to the IPO, their balance sheet has strengthened since the December 31, 2016 balance sheet.  Long term debt is down from $693 to $550 million and equity is up from $528 to $706 million.

EE would like you to know that their “adjusted” results were better than their results according to GAAP- generally accepted accounting principles.  I’m not much for eliminating so called one-time items and various “non-operating” stuff.  Seems like there’s always more of them the next year, and that will certainly be true of a company like EE that’s acquisition focused.

EE says they are “…the largest operator of business-to-business trade shows in the United States…”  and that the four largest trade show operators in the U.S., including EE, account for only 9% of trade shows.  As they see it, then, there’s some room for growth by acquisition- further industry consolidation.   They are right.  What might slow them down?

Perhaps, at some level of acquisition, their debt and the associated interest expense.  They used the proceeds of the IPO to pay down debt.  Good.  They’ve got that great cash flow model going for them, but I wonder at what level of acquisitions there might be some more financing required.

EE’s mission “…is to deliver value to our exhibitors and attendees by producing highly-relevant, industry-leading events that enhance the productivity of an industry’s participants and facilitate interaction between its most influential stakeholders on a regular, scheduled basis.”

In addition to making acquisitions, they are expecting to grow revenues from their existing trade show.

“We are also focused on generating organic growth by understanding and leveraging the drivers for increased exhibitor and attendee participation at trade shows. Creating new opportunities for exhibitors to influence their market, engage with significant buyers, generate incremental sales and expand their brand’s awareness in their industry builds further demand for exhibit space and strengthens the value proposition of a trade show, generally allowing us to modestly increase booth space pricing annually across our portfolio. At the same time, our trade shows provide attendees with the opportunity to enhance their industry connectivity, develop relationships with targeted suppliers and distributors, discover new products, learn about new industry developments, celebrate their industry’s achievements and, in certain cases, obtain continuing professional education credits, which we believe increases their propensity to return and, consequently, drives high recurring participation among our exhibitors.”

Long quote.  Basically, EE believes that that they can add value to trade shows that will increase attendance and let them boost pricing even as the trade show business, at least in our industry, changes around them for all the reasons we know.  Maybe yes, maybe no.

Perhaps their opportunity and strategy involves doing what they did with The Snow Show- buying it and consolidating it with another show they own (Outdoor Retailer).  That is friendly and cost efficient for most exhibitors and retailers.

Consolidation from EE’s viewpoint, then, wouldn’t just mean buying shows. It would mean buying related shows that could be combined, reducing EE’s costs of putting them on and responding to their customer’s requirements.

That might make some sense.  If I could chat with the people at EE, I’d ask them what the opportunities to purchase and combine were like.  That would be an interesting kind of strategic analysis.