Good morning, ladies and gentlemen, and welcome to the Emerald Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. David Doft, incoming Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate your participation today in our Fourth Quarter and Full Year 2019 Earnings Call. I'm very pleased to have Brian Field, Emerald's Interim President and Chief Executive 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 February 20, 2020. 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 recently 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 will discuss non-GAAP measures, including organic revenue, adjusted EBITDA, adjusted net income and free cash flow, 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. A 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 Brian.

Thank you, David. On today's call, we will begin by reviewing our strategic initiatives and progress we are making, followed by a review of our 2019 results, which we outlined in this morning's earnings press release. We'll then open the call to your questions. Before we begin, I would like to address Sally's resignation and our search for her replacement. Sally is continuing her treatment in her fight against cancer and continues to be an incredible mentor, visionary and leader to our team. Given the taxing nature of her treatment, however, Sally we believed it was prudent to step down as CEO, while remaining on the Board and assuming a more limited day-to-day employment role as senior adviser. She will continue to provide guidance and leadership to our team as we execute the strategic initiatives designed to return the company to sustainable organic growth. While we continue to execute on our initiatives, the Board has initiated a search for a permanent CEO. Candidates from both inside and outside the events industry are being considered, and I have personally expressed my interest in the role. Turning to Emerald's performance at this point, it is mainly about execution. Sally and I have utilized the major aspects of our current strategy successfully in the past and remain confident that we can achieve similar results here at Emerald, which we expect to drive our future success. While serving as Chief Operating Officer of UBM Americas, I was able to transform the business by enhancing marketing and sales skills, reducing overhead costs and driving new high-margin product offerings. Ultimately leading to improved customer sentiment and profitability. These are all similar points of focus in our current strategy at Emerald. We remain confident that we have the right plan and after making a series of senior…

Thank you, Brian, and good morning. First, I'd like to join Brian in thanking Phil, as he has been extremely helpful in sharing his insights with me as I've transitioned into the Emerald business over the last month. I am very excited to be here. Based on what I've already seen over the last several weeks, combined with my 12 years' experience as CFO of MDC Partners, a global marketing and communications business, I believe we have a strong team and a clear runway for growth here at Emerald. The turnaround strategy that has been previously laid out is solid, and I look forward to working with the leadership team to execute it. Given my experience at MDC, I'm a firm believer in the power and staying power of experiential marketing in the face-to-face interactions between sellers and buyers that it enables. I believe Emerald is well positioned to capitalize on a desirable portfolio of leading events in the U.S. Before I talk more about the future, let me briefly review the company's fourth quarter and full year 2019 financial results. Beginning with the fourth quarter, revenues decreased by $12.1 million or 21% over the fourth quarter of 2018, with $6 million of the variance due to shows staging in the third quarter of this year versus the fourth quarter last year. In addition, we staged the Outdoor Retailer Winter Market during the fourth quarter of 2018, which we did not repeat in 2019. Instead, we made the decision to fold it into the 2020 OR Winter Snow Show. Organic revenue growth for the quarter, adjusted for the previously noted show timing differences and excluding the discontinued Outdoor Retailer Winter Market show was down 2.5%. Our adjusted EBITDA for the quarter decreased by $6.2 million to a loss of $1.5…

Thank you, David. We have much to do in 2020 to realize our goal to return the company to growth in 2021 and beyond. I'm confident that we have the right strategy and the right team to deliver sustainable organic growth in line with or better than the industry over the medium to long term. David and I, along with the entire Emerald management team are excited, united and focused on executing the strategy we have articulated to drive our future success. Thank you once again for your time today. Operator, please open the call for questions.

[Operator Instructions]. Our first question is from David Chu, Bank of America.

So I know you're not providing guidance. But can you give us any sense of, like, revenue expectations for the year? Maybe even just discussing, if you expect trends to get worse before it gets better.

David, good morning. We're not going to comment on the outlook for the year. I apologize for that. But that's the decision that we've made. I think that if you read the quote in the earnings release and my comments, a lot of our focus on my end is on cost. And Brian's comments have been about continuing to execute against the strategic plan in order to drive revenue. That's what we're focused on both ends here. And hopefully, we'll be able to continue to report progress against that plan.

Okay. And then given that you don't provide a historic recast of just -- it looks like you guys are presenting revenue, like, in a new segment fashion. Can you provide 4Q for, like, trade show, other marketing and other events so we have, like, a base to work off of?

The new segment reporting was dictated by a change in how the company is being managed by Brian and the structure that was put in place there, and so the segments that we now report are the segments that we're going to report going forward. Given that we're really unable to break out revenue in other ways that may have been done in the past.

I mean, the other marketing services, other events, do they just like fall into the three buckets? Is that how we should think about it? I know -- I mean, the majority of your business is trade show, but just trying to get a sense of how to think about those two segments.

Sure. I think I can help you on that. Ultimately, the two primary segments are a split up of the trade show portfolio. And all other bucket is essentially the other marketing services and other revenue streams of the company. It's not perfect in that way. That's because this is -- the segments are dictated by how individual parts of the portfolio are managed and who the leaders of those portfolios are. And so it's a little bit of crossover. But generally, that's going to work as a rule of thumb in how you look at the business. So I think if you aggregated the two named segments, you generally will have a trade show bucket. If you looked at all other, you will generally have everything else.

And just lastly. Are you guys going to provide, like, more detailed information by shows so we can kind of think about the 2 main segments? Or is it just going to be kind of a high-level look similar to what we've had in the past?

Sure. We're not really going to go into show level financial information going forward. Ultimately, if you think about the strategy that's been put forth by Brian and Sally. It's about extending our shows out and leveraging our customer base exhibitors and attendees at those shows with more products and services. And so thinking about it at trade show level type financials is actually limiting the opportunity that we see in those properties. And so that's why the segment actually is -- over time, going to, I think, give a lot more clarity and color because you'll be able to see in the growth numbers. And hopefully, the growth numbers will be there in the future that the strategy is working through that extension. And as part of kind of portfolio management and optimizing performance, the reality is, is that we may choose to change how one show work to benefit another show because the total is better for us. And so that's also why the show level metrics, we believe, are not as relevant going forward. And so we're going to shift away from commenting at that level.

Okay. So should we expect, like, a historical 2019 by quarter and maybe 2018, so we have a sense of what happened over time?

Yes, we're working on finalizing some of the historical trending. And I think it's reasonable to believe that we'll provide some aspect of that.

Our next question is from Seth Weber, RBC Capital Markets.

Brian, you talked about outpacing industry growth a couple of times. I mean, can you just, big picture, talk about what do you think the industry growth really is here going forward? I mean, do you feel like the -- kind of the dynamics of the industry have changed or softened at all? Or do you feel like this is still kind of a low single-digit industry grower and big picture you guys ultimately could be back in that, I think you used to target like a 3% to 5% type number. So long question, but where do you think industry growth is, I guess?

Yes. I mean, overall, the industry seems to be continuing to pace at those same levels. Ours is a little bit different than some of the other big global players because we're specifically focused on United States versus international markets. The likes of an Informa or a Reed, for example, are highly globally distributed. Certainly, our aspiration is to return to overall growth along the lines that you've mentioned. The -- some of the areas that are likely to impact some of those international players, particularly those with a heavy Asian footprint, will be areas we'll be able to ideally -- hopefully, the coronavirus stays contained, continue to -- we won't have those kinds of impacts that those international and heavily Asian weighted companies will have. But we believe this is a growth industry and we're committed to seeing that through. Okay.

And then I guess, just a question maybe for David. How you're thinking about leverage and the balance sheet? I mean, you're a little bit over four turns here. Are you comfortable at that level? Does that impact your appetite for M&A? Do you need -- do you feel like you want to get that lower? It sounds like you're pretty focused on cost control. But can you just talk about operating the business at 4 turns leverage? Or do you feel like it needs to be lower?

Sure. Thank you. Ultimately, the leverage for the company increased over the course of the year by 0.8 turn of EBITDA. I think that we're better off a little bit lower than here. There is no -- I don't think there is much risk where we sit right now, but the -- but ultimately, if we're lower, we have more flexibility. We're able to be more nimble to pursue opportunities whether it's increased investment organically or increased investment from an acquisition standpoint. Part of the mindset of returning this business to growth is making sure that we have the wherewithal to make the right investments at the right time and that's a combination of factors. One of them is balance sheet, the other of those is cost structure. And I actually believe they go hand-in-hand. And my view is not really that it's about an absolute cutting of cost. It's about a cutting of unproductive costs so that we can redeploy to growth investment in a way that really from what I can see hasn't really been taking place here at the sort of level that I think we need to do.

Right. So following up on that, should we expect some more aggressive pruning of the portfolio? It sounds like you're adding some new shows, but should we expect a more aggressive tact on just exiting shows that are not returning an adequate -- not providing an adequate return?

So we have -- and this is public knowledge, we've closed off some media properties, for example, that have been unprofitable and that have been misaligned with customer sentiment. So those things that are misaligned to our customers' sentiment and are unprofitable, are things that we've taken charge of very early on this year. And to David's point, so that we can redeploy those assets into areas of growth.

Our next question is from Manav Patnaik, Barclays.

This is Ryan Leonard on for Manav. Yes, I'm just curious, and I appreciate that, obviously, there's some moving pieces and you can provide guidance on Q1. I think historically, part of the benefit here is that there's been 80% of booth sales are completed by March, has the visibility in the business changed at all in the last couple of years?

In looking at the data here, and I'm really trying to bring some fresh eyes to some of these things. Under the core revenue stream, I think the visibility has been fairly consistent. For example, the retention rates have been stable, 2019 versus 2018. I think that's an important data point in the wake of what was not the greatest year for the company that there is an underlying stability that's going on there that we can build off of. At the same time, though, some of the other revenue streams are a little less predictable, a little more near-term to when they get booked and reported around the other marketing services and around the publications. And I think that's where there's been a lot of the variance over the last couple of years versus what the company was hoping for. So going forward, we're going to try to put in place some processes to enhance our visibility around that. Part of that is some of the initiatives that are already underway around centralizing certain functions that allow us to have consistent views of pipelines and things of that nature going forward. That will allow us to be, hopefully, even better at forecasting than we have been in the past.

One thing I'd like to chime in on this topic as well, is that historically -- I mean, if you look at our top customer inside of the company. It represents 0.28% of our overall revenue last year. And our top 10 customers represented only 1.81% of our revenue. Now that's a huge opportunity for us as we're expanding out cross-platform sales. Taking individual customers who maybe only have one piece of the business and expanding them to multiple parts of our business. And that ties back to the overall element of diversifying our revenue and focusing on cross-platform sponsorships, on multi-brand sales. So there is -- that's one example where there is tremendous amount of upside for us.

Got it.

And I would just add that those sort of initiatives add visibility, right? When you could sign clients up to multiple shows with broader marketing services around it, that's -- you have to plan ahead for that. You're looking at things over the course of the year, those sort of things will add visibility to our business going forward.

Got it. And if I could just clarify a little bit on the coronavirus. So there had been some impact from Chinese trade tensions this year. To your comment on the revenue at risk, is that as of the ending of 2019, meaning there's some incremental risk? And then I thought you said some of that could be insured against. I just want to confirm that your insurance applies to exhibitors, either not showing up because of this? So I just want to clarify that.

Of course. So the metric I gave was that our revenue in 2019, for the full year, from exhibitors from China was between 2% and 3% of our total revenue. Not a lot, but not inconsequential, right? That's real money. And last year, as the company talked about throughout the year on their earnings calls, there was pressure on Chinese exhibitors because of the trade war and the tariffs. And so 2019 was down from 2018 because of that issue. So there was a higher number in 2018 modestly than what I said. It was a little north of 3% as opposed to between 2% and 3%. And -- but in terms of year-over-year risk, we're looking at the 2019 metric. And we're looking at it in total. I would say that not 100% of that revenue is at risk because some shows have already traded, but as we sit right now, there's a travel ban. People can't come from China here. And so they're not going to come to our shows as long as that travel ban is in place. When it comes to the insurance, if somebody has already contracted to be an exhibitor and has to cancel because of the travel ban, which they can't control and we can't control. We believe that there is recoverability from our insurance. We're working through that. There's no guarantee of that. And that will play out over the coming weeks, I would expect. And what insurance would not cover is the theoretical person who never signs up and come to our show. And so there's likely to be some impact during the year with or without insurance because of that dynamic, that's really hard to quantify. But the totality, as I said, of all our revenue over the course of the full year last year from Chinese exhibitors was between 2% and 3%.

Got it. And if I could sneak in just kind of a broader question. Obviously, you've said the business has underperformed your expectations. We're now in a little bit of a gap period where we don't really have a 2020 guidance or anything to kind of put a base on, what do you think -- what do you tell investors -- what are the metrics that people will see in 2020 to see that the plans you've laid out are on track to grow the business in 2021?

So the principal plans, since this is really an executional year. The things that we're focused on right now and we'll be continuing to talk about how we're progressing are the very things I outlined earlier in today's call. So how we're advancing in deploying our research tools, our Explori tools, how we're progressing against value-based pricing studies across the portfolio. How we're tracking against joining all of our data so that we have a full 360-degree view of the customer. All of these things inherently will be elements that drive the growth in 2021, which is what we're focused on.

Our next question is from Ashish Sabadra, Deutsche Bank.

So just a quick follow-up question on earlier question on the industry trend. So even if the exhibition industry is growing low single-digit, based on the industry report, it seems like the discretionary consumer goods and services have been declining. And given your -- some of the top shows, including ASD and New York NOW being focused on discretionary consumer goods and services, how do you think about the industry trend and turning around with your strategic initiative despite secular headwinds in this business?

Yes. So all of these elements -- the research, the value-based pricing, tracking and being closer, and understanding the needs of our customers will allow us to pivot and continue to refine and define as the industries evolve and change around them. The new types of offerings, the new types of things we do around our customers and to service their ongoing needs. To David's point around portfolio management, this is all around how we begin to evolve and define and grow the portfolio overall, as opposed to just focusing on 1 particular show who are a couple of sectors inside of -- part of our overall company. So as we're pushing, as we're evolving, as we continue to do our bolt-on tuck-in acquisitions, we'll -- the overall makeup of the portfolio will shift. The dynamics of individual shows and products will shift depending on overall secular trends. But we're going to be very focused on the needs of our customer markets based upon the intelligence we're gathering. And those are things that we believe will continue to drive organic revenue.

That's helpful, Brian. And maybe just a quick question. I was wondering if you could just provide any color on the New York NOW winter show or the ASD, which is coming up in March. Any preliminary colors on those shows? How those are trending compared to your expectations?

So generally speaking, for the shows that have occurred already, the overall customer sentiment across that portfolio of shows has been very strong. It's been very supportive and, actually, is reflective of the kind of deeper understanding we now have now -- that we now have through the Explori research around what our customers need, which has been very gratifying. That said, as David alluded to earlier, we're not going to speak specifically about individual shows.

Okay, that's helpful. And maybe a final question on leverage. There was a question earlier on leverage as wellbeing slightly on the higher side, but as we think about leverage, particularly, given the investment, should we think about leverage going up before it comes down? Any thoughts on that, David?

Sure. This is still a strong free cash flow generating business. And even with the hiccup in EBITDA last year, still a pretty strong free cash-generating business. And so I don't believe that our leverage will go up meaningfully from here. I can't -- I'm not going to speak the next quarter or quarter after, but I think as we look to the end of the year, our hope would be that, that leverage is down.

Our next question is from Jeff Mueler, Baird.

Jeff on for Stephen. As we think about sort of the growth investments and sort of the incremental spending, is that going to occur mostly sort of in the first part of the year and then sort of roll off or reach a more normalized level in the back half of 2020? Or is -- are we sort of getting to a rebase level at consistent quarter-to-quarter?

Sure. Well, I think a lot of the incremental investment flowed through the year post the arrival of Sally and Brian and some of the changes they've put in place, and so we're surely going to annualize that as we move through the first half of 2020. There are some things that -- and really through the third quarter, right? So -- but first half is going to get the brunt of that year-over-year increase of the investment that came in last year. So you can think about the model that way. The other thing I want to point out just around kind of seasonality. We did make a tweak to the supplemental deck that we posted to our website where we gave color for the entire -- all four quarters of the year recasted 2019 for shows that moved between quarters in 2020. So you have the base of revenue, adjusted EBITDA and operating income, off of which to model the quarters of 2020. So I hope that's helpful. We'll continue to look for ways that we could aid in modeling of our business, which I know has been tough given how often shows move around.

Great. And then as far as the value-based pricing goes, yes, I understand that most of the benefits are not going to come until 2021. But I assume that a lot of this will be taking place in 2020, so is there some benefit from value-based pricing in 2020 versus 2019? Or is it pretty flat? And then, like I said, all of it comes through in 2021? And then I just want to clarify, that low to mid-single-digit that you referenced, is that going to be the benefit for revenue? Or is that just to the yield and retention?

That's for the yield. As far as the overall benefit -- financial benefit, it will happen almost entirely in 2021 based upon the seasonality of the shows. There's the mechanics of understanding what the pricing is. But then there's the communication process to the customers. And so that's the part that actually is the ramp-up.

And keep in mind, our -- the revenue recognition around our shows are when the show actually happens. And so we might be selling for 12 months ahead of the show, but we don't book the revenue until the show actually is put on.

And I actually want to amend the comment I made about it just being yield because -- frankly, also, there is a retention benefit too. Now it's slightly harder to quantify. But based upon the overall customers' appreciation and acknowledgment of the amount they paid for the value they've received, and that's what value-based pricing is all about. There generally is a trend of greater customer satisfaction, so that ought to also translate into retention.

We have reached the end of the question-and-answer session. And I will now turn the call back over to Brian Field for closing remarks.

So I want to thank everyone for dialing in and attending today's call. I just wanted to reiterate that David and I, and the entire senior management team, are confident around the strategy that this is really an executional year and that we're extremely focused on delivering that. So we look forward to updating you all in progress over the course of this year. Thank you very much, everyone.

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