Emerald Holding, Inc. (EEX) Q4 2017 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Emerald Expositions Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Philip Evans, Chief Financial Officer. Thank you. You may begin.

Thank you, operator, and good morning, everyone. We appreciate your participation today in our fourth quarter 2017 earnings call. With me here in San Juan Capistrano, California, is David Loechner, our President and CEO. As a reminder, a replay of this call will be available on the Investors section of our website through 11:59 p.m. Eastern Time on March 1, 2018. 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, including our outlook for fiscal 2018. 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 our annual report on Form 10-K for the year ended December 31, 2017, that will be filed later today as well as in our periodic filings with the SEC, which can be obtained from the SEC or by visiting the Investors section of our website at www.emeraldexpositions.com. 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 David.

Thanks, Phil, and good morning to you all. Let me start by providing a brief review of our fourth quarter 2017 performance, which modestly exceeded our previously communicated expectations. As a reminder, the fourth quarter has the smallest contribution to our annual financial performance reflecting typical trade show seasonality. For 2017, the fourth quarter's revenue represented 9% of our full year revenue as we staged 10 events with no single event exceeding $5 million in revenue. Two of the events were new launches, namely a very small event called New York Virtual Reality Expo and the larger Pizza & Pasta Northeast Expo. Both shows had strong first events, and we expect them to repeat this year with good revenue growth. Overall, I was pleased with the 8% revenue growth that we delivered in the fourth quarter adjusting for show timing and the 12% organic trade show revenue growth. Reflecting on 2017 as a whole, it was a busy year from an Emerald corporate perspective and also at a brand level. At the company level, the major event last year was obviously our successful IPO. At the brand level, there were also many success stories, including our Kitchen & Bath Industry Show, ICFF, COUTURE and Pizza Expo. But also some disappointments, such as our large ASD and New York NOW brands, which declined slightly as well as our Outdoor Retailer and Interbike shows, which were impacted by some external factors. Taken together, we grew revenue by 5.6% in 2017, 7.6% if you factor in revenue, we would have recognized for the 2 September shows that were closed early due to Hurricane Irma for which we received full insurance coverage. We achieved very slightly positive organic revenue growth, increased adjusted EBITDA by almost 4% and generated nearly $108 million of free cash flow, which clearly demonstrates the strength and diversification of our portfolio of shows. We were also successful in deploying majority of that free cash flow on 4 acquisitions that further strengthened our portfolio, and which I'll talk about more in a moment. Given the various challenges that we faced, I'm satisfied with our 2017 results. And I'm glad that we were able to report numbers within guidance ranges we set out in May, albeit at the lower end of the revenue range, but above the midpoint of the adjusted EBITDA guidance range. Looking to the first quarter, we're now 7 weeks into the New Year and so far have held 12 trade shows. These include 2 of our top 5 shows by revenue: Kitchen & Bath Industry Show; New York NOW Winter; and the first Outdoor Retailer + Snow Show. KBIS staged its second show in Orlando, colocated with the International Builders’ Show and had another extremely successful event with revenues up by mid-single-digit percentage and very good early pacing for the 2019 event. We continue to benefit from a strong housing market with good growth in investment by leading brands who see our show as a key marketing vehicle. We have also introduced new lighting international categories, which were well received and bode well for future growth. The New York NOW Winter Show, which took place over the Super Bowl weekend, saw revenue decline in the mid-single digits. There was continued softness in the home furnishings and tabletop categories, partially offset by growth in the gift and personal accessory categories while the handmade category was overall flat. Of note, we engaged a third-party consulting firm last fall to conduct a deep dive into our go-to-market strategies for both New York NOW and ASD, including a review of our sales team structures and compensation as well as our approach to prioritizing sales prospecting and outreach. We're encouraged by the study's findings as well as the action items and plan that we've developed. We're currently in the process of implementing the recommendations given that it was conducted in the middle of the show cycle and expect to start seeing the benefits in our sales and marketing productivity for the coming New York NOW and ASD summer shows. At the end of January, we successfully staged the inaugural Outdoor Retailer + Snow Show, which expanded our Outdoor Retailer winter market into the snow sports market replacing the SIA Snow Show, which we acquired in May of last year. You will recall that the key reasons to acquire the SIA Snow Show were: One, to bring together 2 premier U.S. trade shows serving the outdoor sports and winter lifestyle sector; Two, to help secure our strategy to migrate to a 3-show cycle; and three, to allow us to move the Outdoor Retailer shows to Denver and away from Salt Lake City, which have been boycotted by some exhibitors for political reasons entirely unrelated to the show. I'm happy to report that the show could not have gone any better. We sold more space than we originally expected and the attendance was quite staggering. Exhibitor and attendee feedback on the event in our new Denver home has been very positive. Additionally, we've already sold more than half of the expected booth space for the July and November shows and are now even more confident that acquiring the Snow Show was the right long-term decision for the market and for the Outdoor Retailer brand. As we look forward to the remaining trade shows in the first quarter, the largest is ASD in March, which is trending down by low single digit percentage in revenue versus last year's March show. We continue to see good growth in ASD's largest category, Value & Variety, and also in the emerging sourcing category. However, these increases are offset by softness in style and beauty, jewelry and the gift segments, which continue to be challenging. As noted previously, we've introduced a new go-to-market strategy for the ASD Summer Show and are optimistic this will have a positive effect on the show's financial performance over the next several cycles. Turning to new shows. We accelerated our launch strategy in 2017, launching 6 events and generating around 2/3 of a percent of incremental organic revenue growth. This year, we're ramping up our efforts further and have the potential for 7 or 8 new events with all the 2 in the second half of the year. Several of these launches are building on the brands we've acquired over the last few years, such as Collective Shows and National Pavement Expo. In addition, 3 of last year's launches will repeat, representing 60% of the revenues from those 6 2017 launches. As I've indicated in the past, we remain optimistic about the opportunity to add to our underlying organic growth with selective launches in markets where we already have sector familiarity and existing relationships. Before I turn to M&A, let me provide some thoughts on 2018 and our full year guidance based on what we are seeing through the first 7 weeks of the year. As we indicated in our earnings release earlier today, we are guiding the full year organic revenue growth between 1.5% and 3.5%, which is comprised of 3% to 5% growth in trade shows, which make up almost 90% of our revenues and a 6% to 10% decline in other events and other marketing services. While we have good visibility to future revenues from many of our trade shows based on booth sales and sales to date, there remain several specific uncertainties in the back half of the year, particularly for shows that have yet to begin selling in earnest that will ultimately determine our overall outcome for 2018. Turning to M&A. We continue to be very active in seeking acquisitions that meet our strict financial and strategic criteria. The addition of Eric Lisman to our corporate team early last year to head up our M&A activities has helped with the development of our pipeline, enhanced our ability to move quickly to evaluate opportunities and has strengthened our capabilities in the execution of transactions. We evaluated more than 2 dozen potential acquisitions last year and ultimately pursued and closed on 4 of them. Almost all the acquisition opportunities we see and on which we spend our time are trade shows. And you'll recall that 3 of the 4 deals we closed in 2017 were trade shows, 2 of which were acquired from associations. The fourth and last acquisition that we closed back in November was an organizer of curated face-to-face events. And let me give some more details on that one. With the emergence of internet-hosted buyer events over the last decade, Connecting Point Marketing Group or CPMG has distinguished itself as a strong market leader with incredibly positive customer feedback in this highly fragmented space. The business model is very familiar and is very closely related to that of a typical trade show, with the focus of these events being facilitation of commercial interaction, education and networking between B2B buyers and sellers. The acquisition of CPMG adds a new and complementary set of skills and competencies to the Emerald portfolio. We're excited to explore ways that we can apply CPMG's expertise in our markets and gain further market penetration. The business has grown organically by double digits over the last several years, spinning off new events and building its brand. And even without incremental Emerald revenue opportunities, the business' growth and valuation is accretive to Emerald. With that said, our primary M&A goal will always be trade shows with market-leading position and good growth opportunities. Our M&A growth opportunity continues to be robust, with a large number of potential targets, including association-owned and independently owned events. While I don't anticipate closing a deal in the first quarter, based on our active pipeline of targets, I'm confident that we'll be able to apply the majority of our projected free cash flow towards acquisitions on a full year basis, consistent with prior years. I'd like to now turn the call back over to Phil for a review of our financial results.

Thank you, David, and good morning again. As David noted earlier, the fourth quarter is our smallest. So I'll first provide some color on the quarter, but will make most of my remarks about the full year 2017 numbers and then provide some additional color on 2018. Revenues for the first quarter of 2017 were up 3.6% over the fourth quarter of 2016. Although that growth rate was understated as the 2016 comparative revenues included our ISS Fort Worth show that's staged in the fourth quarter last year and in the third quarter of this year. Once that show timing differences adjusted, we grew revenues by 8.2% with double-digit growth in events, partly offset by a decline in other marketing services. Details of the revenue growth rates by product line and by quarter are set out in the supplemental materials posted to our website this morning. Acquisitions had very little impact on our financials for the quarter, as neither CPMG nor previously acquired events staged in the period. And prior acquisitions were actually modestly diluted to the quarter's adjusted EBITDA due to their incremental SG&A costs without the benefit of an associated event in the quarter. We had a particularly strong quarter from a cash flow perspective, generating $39.2 million of free cash flow. Last year's comparable quarter was partly depressed by the cost of refinancing our senior notes. And the fourth quarter this year also benefited from lower interest cash flows due to our reduced debt levels and lower interest rates. A combination of these factors explained some $16 million of the $24.4 million cash flow improvement between the quarters with the rest mainly attributable to acquisitions and improved capital management. Turning to the full year 2017 highlights. Revenues increased by 5.6% over 2016. You'll recall that we were not able to recognize the full revenues of 2 of our shows that partially staged in September, but which were disrupted by Hurricane Irma and needed to close 2 days early. The impact was fully covered by our events cancellation insurance policy and had no impact on adjusted EBITDA with the benefit reflected as other income in our income statement. If we had been able to recognize the revenue of those shows in our revenue line, our 2017 revenue growth would have been 7.6% over 2016. This robust growth rate was almost entirely driven by acquisitions made in 2016 and 2017, with organic growth of 0.2% depressed by the third quarter show issues that we covered in detail on previous calls. The breakdown of our full year trade show revenues by industry sector is provided in the supplemental materials on our website. Adjusted EBITDA for the year increased by $5.8 million or 3.8% to $157.9 million compared to the prior year. Our adjusted EBITDA margin for the year declined from 47.0% to a normalized 45.3% compared to the prior year, as we saw more growth in events with modestly lower margins and declines in several of our relatively higher-margin events. In addition, we absorbed more than $1.5 million of new costs from operating as a public company for 8 months of the year, which reduced our adjusted EBITDA margin by approximately 40 basis points. And launches, which had typically breakeven in their first year, also had a modestly dilutive effect on margin of approximately 30 basis points. It's worth noting that the overall adjusted EBITDA margin for the incremental contributions from acquisitions we reported in the year, was closely in line with the Emerald average for the year. Adjusted diluted earnings per share for 2017 of $1.11 represented an increase of 10.6% over 2016. Our EPS benefited from the substantially lower interest expense in the year, driven by the reduction of our debt in May with the primary proceeds of the IPO. In addition, we refinanced our debt in May and conducted a further repricing in November, that in aggregate reduced our interest rate by 100 basis points. Free cash flow for the year of $107.8 million increased by $18.2 million or 20.3% over 2016. We used this cash to acquire 4 businesses for cash consideration of $96 million and to pay contingent consideration on 2016 acquisitions of approximately $9 million. We paid 3 quarterly dividends in the year, each at $0.07 a share. And this amounted to $15.2 million in total cash outflows. Our dividend for the first quarter of 2018 will also be at the $0.07 level. However, we plan to recommend to our Board of Directors an increase to the dividend of 3.6% starting with the second quarter dividend. And that's to $0.0725. This increase will have very little impact on our cash flows. However, it meets our pre-IPO commitment to consistently and steadily increase the dividend over the longer term. Turning to debt and leverage. We finished the year with net debt of $562.2 million, representing a net leverage ratio of 3.4x, our end of year acquisition adjusted EBITDA of $161.9 million, which is down from a 4.4x net leverage ratio at the beginning of the year. Before I turn to 2018, let me provide an update on the quite favorable impact of the Tax Cuts and Jobs Act on Emerald. In the fourth quarter of 2017, we recorded a $52.1 million tax credit through the income statement to reflect the benefit of remeasuring our deferred tax liability at the 21% future federal tax rate versus the 35% rate originally used to establish the liability. In 2017, we used up our remaining federal net operating losses and in 2018, we will be a normal taxpayer of the 21% federal rate with a blended tax rate including state taxes in the range of 26% to 28%. We expect the new tax act to reduce our cash taxes by some $12 million to $15 million in 2018. I'll now move to our 2018 guidance and start with organic revenue growth. As David noted, we're projecting organic growth between 1.5% and 3.5%. Overall, our 2018 growth is expected to come from the addition of the third Outdoor Retailer Show, solid performances across the wide range of our midsized events across various end markets and from an increased launch program. We expect this growth to be partially offset by a low single-digit percentage decline in aggregate in our ASD and New York NOW franchises and mid- to high single-digit declines in our other events and other marketing services, which combined, comprise a little over 10% of our revenues. Total revenue is projected to be between $367 million and $375 million, representing a growth rate between 7.4% and 9.7%. The only difference between our total revenue growth outlook and our organic revenue growth outlook is the impact of the CPMG acquisition that closed in November. We expect to complete additional acquisitions this year. But consistent with our past approach, we've not incorporated these into our full year guidance. Our 2018 guidance for adjusted EBITDA is between $158 million and $162 million. And the key factors that are affecting our profit growth and margin this year include a modestly lower aggregate adjusted EBITDA margin due to: One, the annualization of our public company and new M&A department cost that began to be incurred mid last year; two, some modest impact from portfolio mix; three, additional show launches, that as noted earlier, are usually breakeven in their first year; and four, the addition of CPMG, which despite its lower margins, has an attractive growth profile and will benefit our company, as David described earlier. We expect our adjusted EBITDA margin in 2018 to be approximately 43% for the reasons noted above. Turning to adjusted earnings per share. We expect to benefit in 2018 from a full year of interest savings from our lower debt level and improved interest rates and also from a reduced effective tax rate. Overall, we expect to report adjusted EPS between $1.20 and $1.30 for the year. Finally, free cash flow, which we expect to benefit from both lower cash interest and unusual one-time expenses, offset by higher cash taxes now that our federal NOLs have been used. With modest expectations from a cash inflow from working capital, we project that our free cash flow will be in the range of $110 million to $120 million, an improvement from 2017 and indicative of the cash generative nature of our business. Against the current market capitalization of approximately $1.6 billion, this represents a very robust 7% to 8% free cash flow yield. With that, I'll hand back to David for his concluding remarks.

Thanks, Phil. 2017 was a challenging year. And although a few of the issues are continuing into 2018, we do expect our growth rate to improve this year relative to last. When we began 2017, we thought we were on a good trajectory with ASD and New York NOW; however, there were setbacks, and we're still seeing weakness in several of the categories that are proving to be a headwind to the financial performance of both franchises. We have work to do on those shows and we're doing it. These shows have long legacies, attractive margins, good renewal rates, strong and secure positions in their markets. Accordingly, we continue to believe that there's a good potential to, at a minimum, generate stable revenues with the benefits of our revised go-to-market strategies and other initiatives. On the positive side, we have a home run with our Outdoor Retailer January show, which positions this franchise well for later this year and for 2019. Huge credit goes out to the whole team involved in putting on the show and the folks in Denver who pulled out all the stops. The show was busy every day and feedback from exhibitors and attendees has been exceptionally good. As you know, in order to bring together these shows with the full support of the 2 underlying associations, we had to make certain short-term price concessions that reduced the margin of this first event. But we believe this was absolutely the right thing to do for the medium and long-term success of both the market and our show. I'm also excited about the opportunities for growth within our wide range of medium-sized shows, including a number of the shows we've acquired over the last 2 or 3 years. Our latest acquisition, CPMG, is expected to increase revenues by double-digit percentage in 2018. If we were able to count CPMG's year-over-year growth as organic growth this year, then it would add close to 0.5% to our organic growth rate. While our overall company-wide organic growth is not in line with our recent historic levels and below what this portfolio is capable of achieving, I remain confident in our 3% to 5% organic growth medium-term target range. We'll now open up the call for questions.

[Operator Instructions] Our first question comes from the line of David Chu from Bank of America.

So Phil and Dave, you mentioned expectations for mid- to high single-digit declines for other events and other marketing services, but don't really think you gave a reason. Can you elaborate a little bit?

Some of the other marketing services are advertising based, and I think they ebb and flow. We've had a good track record with the other marketing services because they're directly aligned and tied to the trade shows we operate in. But there is some fluctuation in the advertising -- advertiser base for some of the other marketing services. For other events, probably the biggest driver in there is the single conference we acquired in 2014 -- or just '15, that has not been performing very well for us. And so I think that's a kind of a key driver in the other marketing services. We have some work to do on that and we've hired a new leader in that -- on that brand and we would expect better performance out of that in the future. But I think that's the biggest driver.

Okay. And then so on the other marketing services. So are you just seeing kind of less advertising dollars flow through from these trade shows?

Well, no, it's not the trade shows. It's the advertiser market from the industries that we're in. And it's probably isolated to 2 or 3 of the web products and print products that we have. And then a couple of advertiser changes in our Pizza Magazine. But that Pizza Show is growing significantly. So expect that to not be a long-term driver here. So it's probably isolated to a few advertiser bases and a couple of the industries, not all of them.

Got it. Okay. And then can you just give us some highlights on CPMG? What type of revenue in terms of total dollars? I think the margin profile is around half, but just to confirm. And then just kind of the timing of events, if we should model for the revenue to kind of occur over the course of the year? Or which quarters?

The -- if you kind of do the back of the envelope on the numbers we've given for projections and total revenue and organic revenue, you get to plus or minus $17 million for the revenue of CPMG for 2018 as a sort of projection. And they're more heavily concentrated in the first and second quarters. So it's probably 40%, 30%, 20%, 10%, for kind of the 4 quarters.

Okay, great. And is it fair to think of the margin profile as half? Or is it -- maybe just a little bit more insight there?

Well, these are different types of events. And the revenue come from sort of sponsorships and the folks wanting to get exposure to the attendees in terms of time and other sponsorship opportunities. So that's the revenue side of it. The expense side is more around the venue and the -- paying for the attendees to come in and meet with the manufacturers. So it is a different margin profile. And as we've said, it's like -- it's approximately half of where the Emerald rate is. But it's not really a large fixed-cost business. So as the business grows and we expect it to grow strongly, I don't think that there's an appreciable margin growth or margin change there. It is a certain kind of profile of event and it will continue like that.

Our next question comes from the line of Manav Patnaik from Barclays.

This is Ryan Leonard filling in for Manav. Just a question on the New York NOW Show. I mean, obviously, there were some construction implications last year. But are you seeing a further decline there? Is that at all related to the construction? Or is this just deterioration in some of those industries?

No, -- yes, -- I mean, I agree on some of the continued softness on New York NOW. I just want to point out a couple of things before I answer that. I think to keep in mind that the portfolio is still as a whole is going to continue to have solid growth and solid free cash flow as a result of the changes that are occurring with the New York NOW. But there's really nothing fundamentally wrong with the event. It's a large show in a large fragmented space. It has high renewal rates. We should have a better penetration into this universe. There is nothing related to the construction on the business as a whole. I think probably our issues here are some execution issues around sales. And that's selling more new business in such a large universe. I want to talk about the categories just a little bit. As you know, these shows are made up of many categories and I think part of our execution issues are around resourcing and resourcing the growth categories and better supporting changes within categories that we're seeing, and we're actually going to implement. I think we talked about it in the opening a bit, a new strategic plan for this business. And we're going to set up kind of a new go-to-market sales strategy with a defined sales structure by which we used to have individual's sales representatives that each had a book of accounts and some of those accounts were new and some of those were renewals. And now we're going to focus the sales staff on either renewing customers for the entire sales cycle or brand new business for the entire sales cycle. So that's kind of a new approach for us. Some call that the hunter and farmer method. But at the end of the day, it's really about putting an emphasis on both the renewing customers and the new business that I think these very, very large markets have the opportunity to give us. We've really not only changed our go-to-market sales strategy, but our strategic plan talks about kind of the full market penetration with additional resourcing, resourcing around the strongest and growing categories, putting more so to speak gas on those fires to accelerate the strengthening categories. And you're going to have category mix shifts across the business. But we have to support those categories where we see any softness or any weakness with additional marketing emphasis and primarily around the audience acquisition. Not every attendee wants to see every exhibitor, but we have to be conscious of those attendees that want to see specific categories and better resource around the quality and quantity of attendees in any specific soft categories that we have. So no, it's not ultimately related to the construction and that won't return for several years. We shouldn't have a continuing construction drag on the business because that was kind of a one-time adjustment that we took on last year. But with the strategic plan that we have, I think we're going to see some improvements out of our business going forward. But it's going to take a little bit to get there.

And then I guess similarly, on ASD. I mean, does that -- are you seeing the same issues or are they unique to each show?

They're similar issues. New York really has a high cost base. And so we really have to watch the cost of companies participating in New York against the ROI that they received. ASD is a different environment, but it's still a mix of categories. And it's fairly common again to have category shifts there. So we're going to see some commonalities. And so we've decided to change the sale structure for both events because these 2 shows are at least double, and in some cases quadruple, the number of exhibiting -- participating exhibiting companies. So with the sales adjustment structure across these very, very large businesses, we feel like we're going to get a pickup in both industries. So it's kind of an aligned strategy to work on these big shows with some category shifting going on.

Got it. And then just on some of the new show launches. So I mean, I guess, is that a meaningful impact to revenue growth at all if you launched 7 or 8 in any one year? And then you mentioned about 60% are coming back. Is that the right rate to assume going forward? Or what makes the show not come back or succeed beyond your expectation?

I'll do that and actually you can do the...

Sure.

So I think we've -- in 2016, we probably had 50 basis points of organic growth that came from acquisitions in 2017. It was more like 2/3 of a percent of growth. So a little bit of acceleration there. In 2018, some of what's built into our range is how will launches doing, and how many launches will be successful because we have a process whereby we get to a go, no-go. And in some cases, that's not -- we haven't reached that point with some of our planned 2018 launches. So if those come in, we'll have a better story to tell around launches. But in general, I think we can expect to get somewhere in the 0.5% to 1% of growth from launches. We said that the 3 of the shows are continuing next year and they've got more than half of the revenue. I think we expect to have a hit rate that is 50% or close to in terms of launches. And often, we get to a second year, we have a high hit rate for the second year and then because it -- the launches justified having a second event, but by the third event, you really know whether you have something that's enduring. And so of our 2016 events that continued into 2017, we have a lesser success rate by the time we get to 2018. So I think that's normal. And probably at the end of the day, we'd expect 1/3 of these to stick permanently. And 50% plus to stick in the second year.

So what makes a successful event is that the market feels like it's added value to what that show is providing to the customer base. I think I talked about this last year that we're just really ramping up our launch efforts here, doing what, 3 in '16 and what, 5, 6 in '17. I think we've got that many, plus a few on the board for '18 and then a considerable number of concepts we're baking for '19. So although the percentage rate hit may not change, we're going to probably have an accelerating benefit from the more that we do. And as Phil said, as these events continue, they kind of start off as breakeven to prove their concept in the market and work their way up from there. And if -- it's sort of an immediate feedback loop that if it doesn't work, it doesn't work. And we cut and move on to another idea. So that's kind of how we determine what the go forward strategy is.

Our next question comes from the line of Anj Singh from Credit Suisse.

One on your implied 2018 margins. They're trending about 1 point lower than what you'd guided to on your last call. Is this all related to some of the investments and recent M&A you referenced earlier? Or are there any other gating factors? And then more broadly, how should we be thinking about when you resume margin expansion? And what's necessary for that to begin to materialize?

So I think -- so bridging from the 2017 to the 2018 margin, we talked the company costs being about -- which would probably be about 30 basis points in launches, another 100 basis points. The acquisition of CPMG with a lower average margin brings the aggregate number down by about 90 basis points. So and the balance is really around kind of mix, product mix. And particularly, we've talked about some softness in ASD and New York NOW, which are higher-margin events being kind of offset by growth in large parts of the -- kind of middle of the portfolio. But some of those are relatively kind of lower margin events, still kind of good margins. But relative to revenue, it's very high margins coming down in New York NOW and ASD that has an overall effect. I mean, I think in terms of the overall margin philosophy, we -- our business is made up of a lot of different products and events of different margins. And as we acquire businesses, and some of those may be higher margin than our average, some of them may be lower, but they can still be good businesses with good growth dynamics and we won't be making decisions not to acquire things just because they may have a different margin profile than the overall profile. In general, I think if -- when we get through this kind of period with ASD and New York NOW, and we move to a little bit kind of more solid position with those shows, I think that will help us from a margin perspective. But at this point, the product mix and the growth profile across what is obviously a very broad portfolio, it's difficult for us to predict how the overall margin will move. And so I don't think we're trying to kind of make any kind of assessment of how the overall margin will move in the short term on that basis.

Okay, I appreciate that. That's fair. And maybe a higher level, longer-term question. What sort of impact, if any, do you expect on your attendees and clients from Amazon? Is this something you're concerned about or not really?

I mean, certainly, retail is changing. It's really, really hard to kind of pinpoint. But industry data suggests that there's still store openings at a greater pace than store closings. Store closings have been limited to a couple of dozen key chains. We largely serve the independent retail base in our retail part of the portfolio that by and large sells differentiated inventory from each other and non-commoditized business. So kind of from our perspective that stores are going to have to improve their user experience and the technology that they employ along the businesses and they're showing signs that they are. And those that continue to accelerate that part of the brick-and-mortar experience are the ones that are going to continue to thrive. And we feel bullish about the long-term effect of the marketplace where we serve. We are not in -- for the most part, our business isn't relying on the chains. We're not in fashion, we're not in the grocery business in any meaningful ways. And so the things that have had the biggest disruptions, we haven't seen a net effect on.

Our next question comes from the line of Kevin McVeigh from Deutsche Bank.

Can you just help us understand what would get you from the low end to kind of the high end, the organic growth to kind of -- you guided 1.5% to 3.5%, what's the swing factor there? And then ultimately, how do you get back to that 3% to 5%?

Kevin, I think there's kind of 3 things may be that account for the range, that low to high range. First of all, we only just started selling New York NOW and ASD for the summer shows. And so those are large shows that can impact the overall growth rate by 1 point or so in either direction. So as David said, we have some new strategies that we're employing there. And in our approach to guidance, we've assumed that at the high end, that will have some modest effect. It will take some time, I think, over a number of cycles, but we're -- the higher end would have some effect and the lower end of the range would have actually probably a little bit worsening of the pacing that we're seeing and the middle would be kind of more current pacing. The second thing is around launches. As I just said, we have a number of launches that we're really hopeful and excited about in the back half of the year. We do need to do work to make sure that there's sufficient market demand and that we can have a good first event. And so the range is affected by, at the lower end not doing any of those and at the higher end, doing quite a few of those. And then the third one, I think, is what is a little bit of uncertainty at the Outdoor Retailer November show. We -- as David said, we've had a really good start coming out of the January show. We did what's called Space Draw where people could sign up for space and that was very successful. But again, it's the first time we've held this event. And it could be on either side of what we think is a reasonable expectation for a successful show. So that's built into our guidance range. So I'd say approximately 1/3 of the guidance range is on New York NOW and ASD, 1/3 of the kind of breadth of the range is related to launches. And then the Outdoor Retailer is probably the largest component of the remaining 1/3. But it's not the whole amount because there are obviously some other puts and takes within the whole guidance range.

Maybe I can just add to that. I mean, the trade show -- the portfolio of trade shows is delivering a 3% to 5% kind of organic growth range as is. Even if ASD and New York NOW were simply to be in the flat range, it would exceed the kind of the expectations as a whole. And so we feel like the strategic plan that we're implementing is going to give us some benefit here. Like we said, these are big events and they're going to take some time to move. But we think we have the right environment to get us into that 3% to 5% historical range given some time.

Got it. Then just can you remind us in the other category, the 6% to 10%, what's the margin profile of them relative to the core trade show business?

They are relatively kind of lower margins. But I think if you stacked up our other marketing services against anyone else's, we would be -- have the highest margin. So it's probably 30% plus in those kind of product lines.

Our next question comes from the line of Katherine Tait from Goldman Sachs.

Firstly, just wondering if you can give us an update on the sort of forward-looking trends that you're seeing with respect to Interbike? I know that was sort of one that caused a little bit of volatility last year in terms of expectations. And then secondly, when you're thinking about acquisitions more broadly, clearly your portfolio is already heavily skewed towards gift, home, and general merchandise. When you think about acquisitions, are you looking to diversify your portfolio or build within your existing verticals? Just some sort of insight into how you're thinking about that would be great. And then finally, we've talked about the sort of margin profile a little bit already. But with CPMG, the new show launches, portfolio mix shifts and I think historically, we also talked about potential international growth. You've talked about the sort of organic -- medium-term organic growth expectations you have. But can you talk a little bit about the medium-term margin expectations you have given these sort of various factors?

Sure. Katherine, this is David. A couple of points here. So Interbike. I think it's worth noting, Interbike is a midsized show for us. It's not in the gift and home segment. It's generating mid-single digits for us. And we have many of these shows across the portfolio that are in the non-gift and home, our Hospitality Design, our Pizza Expo, our Imprinted Sportswear show, KBIS, ICFF, we have a lot of shows that are performing quite well in the middle of the portfolio. So it's not unusual to have some -- a show or two to have a shift. But Interbike, with that context, I think the oversupplied bicycles that we've talked about kind of affecting the cycling market seems to have mostly worked through. However, it really drove down prices and dealer margins significantly affecting their individual dealer profitability. I think there's going to be some time involved to work through that. There's probably an increasing dominance of the 3 or 4 bike brands at retail and we talked about kind of the slow growth of these high margin, high-end road bike businesses. So I think there's going to be some more -- it's going to take some more time for the health of that market to improve. It's highly unusual to have consolidation in any of our markets. I mean, markets obviously operate best when they're in the many-to-many environment. We still have the many retail environment. And bikes are only one component of a store. All the components and all the accessories and the service, also other areas. So the show itself will continue to probably reflect the challenges that are being faced in that sector. But we're making a concerted effort to secure kind of a mid-tier bike brands that are not one of the top 4 as well as we've developed a couple of elements at Interbike to make it more attractive to the industry at large. We're adding a consumer festival. We have a dealer demo day. We're adding a leadership conference around the event and creating a market week concept around the event. So we're not going to sit and just wait for the market to improve. We're going to make the show better and improve its benefit to the market as we go forward. Skewed around gift and home, our M&A philosophy is, it's a good, solid business that is cash generative and is -- has the opportunity for growth and that we're buying these things accretively with the eye to long-term growth. So we will add to a position if it adds to the value of the position we have in the market. But diversifying is one of our goals. We've been diversifying the portfolio quite well, diversifying not just in the industries we serve, but the geographies and the way we serve those markets. CPMG is an example of serving some of the same industries we support in a new and unique way. And you also ask about geography or international. We've long said that the U.S. is the largest trade show market in the world. We're focused in the U.S. But we've also said that we probably wouldn't acquire a single trade show asset overseas. It's difficult for us to operate here. But we've looked at in the past and we'll look at in the future sound platforms that provide the right opportunity for us to establish a beachhead overseas to continue to export our portfolio globally. Let's see, there was another question.

Yes. No, I think the other one was medium-term margins. And so I think our business model and the assets we have has inherently some modest margin growth opportunity. But having said that, in the short term, I think it's difficult to predict the show mix effect. Growth at CPMG is relatively less than the average margin. KBIS, ICFF, some of our kind of leading shows that are showing really good growth in the short term, probably relatively low margin to the higher margin show. So it's really difficult to say that -- where it will play out. But we certainly aspire to margin growth through revenue growth and profitable revenue growth. So we aspire to it, but at this point we're a little reticent to talk about margin growth given the portfolio mix effects that we've seen over the last period or two.

We're growing the business to grow cash flow and the free cash flow is really expected to continue to grow as well.

Yes.

Our next question comes from the line of Gary Bisbee from RBC Capital Markets.

I guess the first question, just going back to the sort of e-commerce risk that was asked about a bit earlier. Any update on New York NOW, ASD and those types of shows about either the mix of people who are going and their intentions of being there, people looking at stuff to sell it online versus buyers for physical stores. I don't know if it's just your survey results or exit surveys or anything would shed any light to confirm the views that you've expressed in the past that whether it's sold or bought online, this is still an important business to be in to connect to those buyers and sellers.

Sure. We certainly have a fair number of online resellers attending our shows. Our individual exhibitors may or may not have an online distribution strategy. But the audience that's coming to both ASD, New York NOW and even our other retail-based shows is increasing. But 85% of the retailers that come to our shows today have under 4 brick-and-mortar stores. So obviously, the vast majority of retail goods sold today are still largely in brick-and-mortar and that's the basis. But we're okay with the online resellers coming and purchasing goods on a wholesale level from our exhibiting base.

I mean, I think -- I recall the ASD something like mid-single-digit percentage or online only resellers. And then more than 30% of the people coming are both online and bricks-and-mortar. So they're kind of a hybrid model. So we certainly see a lot of attendees who have some e-commerce aspect to the way they do business.

And keeping in mind that our Internet Retailer Conference and Expo also attracts brick-and-mortar stores getting further in online as well as online new sellers.

Okay, that's helpful. And then on the CPMG acquisition. Can you just go in a little more detail about the strategic fit and potential? I think given the growth challenges, certainly the top line growth aspect that you've described would be logical. But is there really like a synergy with what they're doing that can help other parts of the base? Or is this really more putting some money to work and what you think is a quality asset that can grow?

I think it's all 3. They operate in retail, they operate in hotel and they operate in health care environment. And those industries are industries we already operate in today. And they're attracting customers that we also have been dealing with in a large scale. And the trade show is a many-to-many environment. This is a few-to-few environment. But it's still a face-to-face environment where people get together and exchange critical business information, present their products and services to an audience base. It's just a very focused audience base and instead of buying an exhibit, they buy the opportunity to be in front of key attendees from those markets. We have plenty of other markets where that model can work quite nicely where there's both many-to-many and few-to-few opportunity, it's just not being served. So although they do 8 individual events today, it's not uncommon to think that they'll be doing more events in industries that we're not in as well as looking at industries we are in. It's also a good business, putting some money to work and a great opportunity to provide great growth and to serve their customers substantially.

And then that double-digit growth they've been delivering, is that largely a factor of expanding that base of events? Or is there pricing or expanding the size of them? How they have been delivering that consistently?

So by definition, it's a few-to-few. So you're not going to expand in a critical mass ways. Do you have pricing? But they've also been able to grow to a point where they can spin out another segment of one of the events. It may be a larger event that they've been divided into 2 different events, whether it's health care or restaurant or building and design. So they've been a little bit of combination of both. And now we think we have the opportunity to leverage some of the relationships and -- that we have in other industries and apply this model to some of the other markets that we operate in so they won't have to start from scratch developing a new industry. When they do an industry structure, we'll have the database and the customer contact base that would help establish that.

And then just one final one on the bigger picture M&A strategy. So you proposed at the time of the IPO that over time trying to put $80 million or so to work a year and that should deliver $10 million or so of EBITDA. I realize pegging the timing and what they exactly look for is impossible to do ahead of time. But given that you've done a couple of industry association shows, I know there are some concerns about the profitability level, you do those. Given that CPMG looks a little different at the margin level, I get the question a lot, hey, is it really harder to deliver $80 million plain vanilla, 40% to 50% margin shows that are real cash flow accretive that the company talked about? Is -- should we just think that this was a first year that had a few different moving parts, but there's no change in how you think about it and -- in terms of the potential over the next couple of years?

Look, our pipeline really is made up of a fair mix of products, but we kind of use our fairly tight criteria to ensure it's a good business. And they don't all come available at the same time. Some are going to take plenty of time. The SIA show is fairly unique. The CEDIA show is a fairly strong high-margin show. So we only have a couple of association shows under our belt for a track record. But I think that there's going to be a mix of products we acquire. We said in the opening that our priority is really on trade shows. Whether they're 50% margin or 60% margin isn't our core focus. It's really, is it sustainable, is it in a growth opportunity, is it #1 in its space, does it provide real value and services to the industry, does that have pricing power. All those things embedded in the business.

And if you look at what we spent in 2017, it was some $96 million. If you take the $16 million to SIA, because that's kind of a different animal, so you've got the $80 million. And we gained $9-plus million of EBITDA there. So I think the model did play out in 2017 even though it looked a little different than you might have been expecting. So as David said, the -- there are good opportunities out there that are trade shows and we're pursuing those. And I think we'll look back and say, 2017, the acquisitions were a little funkier than maybe a normal year.

But also, because a show has a good margin doesn't necessarily make it the right candidate for us. We want to make sure it has all the criteria in it for a long-term sustainable business, that has growth opportunities that is important to its customers. It's not something that we're going to see as something that isn't going to be relevant going forward. It has to be in an industry we also believe is -- has the right model for us to operate. So we're still -- we still have a very tight criteria around making sure these products fit within the portfolio regardless of whether one box might be checked or not.

[Operator Instructions] Our next question comes from the line of Jeff Meuler from Robert W. Baird & Co.

You got Nick Nikitas on for Jeff. Just a couple of quick ones. Going back to the organic growth outlook. Can you talk about the visibility you guys have to kind of the other events and marketing line items? And as you look to get organic growth accelerating going forward, is there anything structurally that you're looking to do different there? Is the improved growth more so going to be driven by kind of New York NOW and ASD improvement?

So I think the first question was visibility on other events and other marketing services. So just to reiterate on -- or make the point -- on the booth revenues, we're very much pacing where we were at the same time last year with pretty much 80% for the year. So we have great visibility on a lot of the booth revenues aside from some of the shows that haven't got going yet. On the other marketing services, we do have some visibility on an advertising that's placed later in the year. We're generally selling kind of the closer end additions of magazine publications and online products. So we have less visibility than we do on booth revenues than on the trade show for the back half of the year. And so that's some of what we have to do in terms of guidance. And thinking about the year is really based on the period we can see and not necessarily have as much visibility on the back end of the year. Other events, whether it's a large conference component to events, what we find is that decisions are made by attendees much closer to the event. And then 4 to 6 weeks before an event, there's a large proportion of the revenues that come into play. And so one of the events that Dave was talking about was HOW. HOW takes place in May. So that's one of the things we're kind of calling in terms of adverse trends is around that show because -- but having said that, we really have only seen 1/3 of the revenues at this point and there's a lot still to play for in terms of between now and the event. But it's the same for other events. That category tend to be things where the decision making by attendees and they have some more attendee kind of component to the revenue is made later in the day. And so we just clearly then have a little bit less visibility than we do on the trade shows.

Okay. And then just on the CPMG, the double-digit growth, do you guys view that as sustainable going forward, especially, I guess, if you leverage it across some of the existing portfolio events you have?

Sure. I think that's a near-term reality. But it probably is a long-term reality too.

They have a good pipeline of new events. And whether they are -- they want it or not, we have a bunch of other ideas to add onto that pipeline. And so I think we're going to see good, sustained growth in that business for some time to come. Because it really is -- it's a nice model. It's a really good team. And we're very optimistic about that.

Ladies and gentlemen, at this time, we have no more questions in queue. I'd like to turn the floor back over to management for closing comments.

Thank you, operator. Just a couple of things since we talked about 2017 and closing out '17. We're pleased that we strengthened the portfolio with attractive acquisitions. We've got organic growth accelerating this year off of last year. And the strategic initiatives we talked around -- talked about around are, our 2 largest shows we're very optimistic about. So we're really looking forward to continuing this dialogue in 2018. We'll see you on the road.

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.