Emerald Expositions Events Inc. (NYSE: EEX) is spending plenty of green, and its in-flux executive team thinks the aggressive growth strategy the trade show operator has undertaken over the past few years is still the best course.
Wall Street still needs convincing, based on the lackluster stock performance this year for the company, which went public last year.
Its shares are down nearly 50% this year, giving it a market value of about $830 million.
Midmonth in November, Emerald bottomed out at about $11—its lowest price since its April 2017 initial public offering.
The stock stumble hasn’t slowed its buying activities.
The San Juan Capistrano-based business-to-business trade show, event and conference producer has been on an acquisition spree this year, spending more than $70 million.
Its most recent buy was trade show assets of Cincinnati-based ST Media Group International and Hospitality Media Group. The deal includes Boutique Design New York, a show and conference catering to boutique hospitality design professionals.
The deal with ST Media and Hospitality is its largest this year; Emerald estimates the final cost will be $45.1 million. It’s largely funding the deal through a $50 million revolving credit facility with several participating banks.
Chief Financial Officer and Interim Chief Executive Philip Evans said the company has spent about $73 million on deals this year, bringing its total to more than $600 million spent on acquisiions since 2014.
“It’s part of our growth thesis,” he told the Business Journal. “I think it’s a way to add businesses in, and [add] good growth opportunities to our portfolio and diversify. We think acquiring businesses is the best thing for our shareholders.”
Its stock’s downward trajectory this year came as Emerald executives gave earnings guidance on the low end of projections for total revenue.
The new deals should add “to the growth profile of our portfolio” and improve revenue growth, Evans said during an earnings call this month. The Boutique Design deal was for “one of the few independently-owned U.S. top 250 trade shows,” he said.
Emerald operates more than 55 trade shows in industries such as technology, sports, design and construction, gift, home and general merchandise.
Local shows this year included the Hospitality Design Summit at Monarch Beach Resort in Dana Point and the Swim and Active Collective at the Anaheim Convention Center.
More than 500,000 people attended its shows last year, which took up nearly 7 million square feet of exhibition space.
Emerald is one of the largest U.S.-based operators in the trade show industry; it ranks seventh globally of the top 20 exhibition organizers, based on 2017 revenue and mergers and acquisitions activity up to October. It’s also the only U.S.-based company on the list, according to a 2018 study by AMR International Globex.
Exec Changes
Before its third-quarter earnings call this month, Emerald announced David Loechner would resign as president, chief executive and member of the company’s board.
While ceding executive roles, he’s still an employee through year-end and working with Evans, who was named interim president.
Loechner had led Emerald for eight years.
“We’ve executed on our acquisition strategy to enhance the growth profile of the company while continuing to build the portfolio,” Loechner said this month on the conference call. “That said, we’ve not achieved all of the successes that I know are possible for this portfolio of brands. There is more to be accomplished, and I believe that a change in leadership will allow the portfolio to achieve its full potential.”
Emerald said in regulatory filings it’s “undertaking a search for a permanent chief executive officer.”
Evans told the Business Journal that his focus is on continuing the company’s growth strategy until it finds Loechner’s successor and that he’s “excited about the opportunity to get a different set of eyes on the business to help [it] grow faster and be more successful.”
Biggest Quarter
Emerald reported third-quarter revenue of $103.1 million, up 2.7% year-over-year. Net income increased by 8.9%, or $1.7 million, to $20.9 million.
The company’s latest quarterly report showed it had $13.8 million in cash and gross debt of $537.9 million.
As of September, it had the ability to borrow an additional $149.1 million from credit lines.
Evans said the company has a debt ratio running a little higher than three times its annual earnings before interest, taxes, depreciation and leverage.
“Our long-term goal is two to three times leverage, so we’re getting close to that range,” he said.
When the company was acquired by Toronto-based private equity firm Onex Corp. in 2013 for $950 million, it was “more than six times earnings leveraged,” Evans said. Following the IPO, Onex cut its stake in the company to about 65%.
Proceeds from its IPO helped cut Emerald’s debt by $159.2 million.
“During the IPO, we reduced the debt to a little over three times, which I think is very manageable for a business with our cash flow profile,” he said.
The company generates $100 million to $110 million in cash annually that is used mainly to fund acquisitions. It’s also been used to reduce debt and to pay nearly $20 million in dividends, according to Evans.
The company announced last week that it would buy up to $20 million in shares.
“We’re in a big fragmented market, and so we see opportunities to apply that cash without too much difficulty,” he said.
The company said it anticipates full-year revenue growth of 10.3% to 11.5%, or $377 million to $381 million, which includes $15 million to $18 million in revenue from its latest acquisitions.
“I believe we’re taking the right actions and pursuing the right initiatives to achieve our objectives, though it may take longer than we would like,” Evans told analysts following the earnings call.
