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.

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.

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 is…

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 Plans 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 provide the dashboard of flags should any particular metrics 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…

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 our 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.

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 outcome. 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 guys, 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 our 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.

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 optimized 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 acquisitions 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…

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…

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's business is fundamentally sound. We understand what we need to do to be successful. And while it may take time to feed through the 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.

[Operator Instructions]. Your first question comes from the line of Jeff Meuler with Baird.

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?

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.

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.

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 two 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 cost 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.

Okay. And then just last for me. Any kind of rough sizing of -- you've 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?

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.

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

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?

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 show. 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.

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

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?

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 the day 1.

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?

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 growing business at a slightly lower margin is worth more than a contracting business at a very high margin.

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

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.

Yes. So the overall effect, 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 2. So we're looking -- those will be 2021 and into 2022.

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.

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

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.

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

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.

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

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?

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.

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.

And what would be a more traditional mix?

Hard to say because I'm not privy to the exact details. But certainly, my model from 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.

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?

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.

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

Sally, best wishes for 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?

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 maybe a little bit soon for it 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 maybe a little soon to expect it to stabilize.

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 way as we could have.

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.

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

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

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 a fairly beneficial across the portfolio?

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.

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?

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.

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.

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 line. 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.

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