Welcome to Emerald Expositions' first quarter 2018 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Philip Evans, Chief Financial Officer. Please go ahead, sir.
Thank you, operator. Good morning, everyone. We appreciate your participation today in our first quarter 2018 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 May 10, 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. 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, which was filed with the SEC on February 22, 2018. 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 US GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release. I'll turn the call over to David.
Thanks, Phil. Revenue for the first quarter increased by almost 5% over the same quarter of 2017, benefiting from the first-time contribution from Connecting Point Marketing Group, or CPMG, which we acquired at the end of November last year. Adjusted EBITDA for the quarter increased by almost 2% over the first quarter of 2017. Organic revenues were flat, with solid growth in many of our trade shows, offset by declines in a few of our larger shows, which I will discuss. Starting with KBIS, which is amongst our largest five shows, revenues grew at a high single-digit rate, driven by continued strong momentum in the housing market as leading brands continue to view our show as a key marketing vehicle and increase their investments.
Sign-ups for the January 2019 event are pacing well. We have already reached 2018's booth revenue with eight more months of the 2019 show cycle still to go. Our Outdoor Retailer plus Snow Show, which staged at the end of January, was very successful in its inaugural event in Denver. The show is approximately 25% larger in net square feet than last year's Outdoor Retailer Winter Market, and attendance was approximately 60% greater than last year, which bodes well for future shows. From a revenue perspective, this year's event was down by high single-digit percentage, reflecting the transitional lower booth pricing for the show that was agreed as part of last year's acquisition of the SIA Snow Show. Over time, we expect pricing to increase commensurate with the strength and market acceptance of the show.
Looking forward, our pacing for the two remaining Outdoor Retailer shows this year is in line with our expectations, as the summer event is over 90% sold, while the November event is approximately two-thirds sold. For the full year, we expect the revenues of the three Outdoor Retailer shows to exceed those of the two shows we held in 2017 by approximately 20%. Another successful show that staged in the first quarter was our International Pizza Expo. The show grew revenues by mid to high single-digit percentage versus last year's show, and this year's show was 25% larger than the show we acquired in 2015. The new regional spinoff event we launched last year in Atlantic City is also pacing to grow nicely this year.
Turning to NY NOW, revenues for the February show were down by a mid-single digit percentage as the home section continued to be soft, while the lifestyle and handmade sections were broadly flat. As we noted in our fourth quarter earnings call, we have implemented a new go-to-market sales and marketing strategy to improve the show's sales performance. We've also made several senior management changes at NY NOW and announced a broad program of investment and innovation that is designed to improve the show's performance over time. Though the summer show is currently pacing behind our expectations, we remain optimistic that the steps we have taken to attract more new company participation and improve returning exhibitor ROI will improve sales pacing for the summer show. Our other significant show in the quarter was ASD Market Week, which declined in revenues by a mid-single digit percentage.
As I noted in our call in February, the core category and largest section of this show, value and variety, continued to show solid growth in the March edition. However, this category's growth was more than offset by softness in style and beauty and jewelry and gift, which remained challenging categories. As with NY NOW, we see an opportunity to improve ASD's performance and have just begun to execute our new go-to-market sales and marketing approach. While I would reiterate that it is too early to track any meaningful benefits to the show's performance, we are currently pacing slightly ahead of our forecast. Looking forward, we remain optimistic about our team's ability to improve the performance of ASD in subsequent editions.
Excluding the shows I have mentioned, the balance of our first quarter trade show portfolio, which includes GlobalShop and Surf Expo, grew revenues by 4% over the first quarter of 2017, which was in line with our expectations. Our non-trade show or other events category grew significantly this quarter with four CPMG events staging for the first time under our ownership, together generating $8.2 million of first quarter revenues. While we are still in the process of integrating the CPMG business and the team, we're pleased with their performance in the first quarter and remain very positive about the future organic growth potential of this business. That covers the first quarter review, and before I hand the call over to Phil to go through the financials in more detail, let me provide some thoughts on the outlook for the second quarter and the rest of the year.
For the second quarter, the three largest trade shows are Hospitality Design Expo, Couture, and IRCE, all of which are currently pacing to grow by a mid-single-digit % over last year. Taken together with the previously indicated decline in our HOW Design Live event reported within our other events, we expect fairly flat organic revenue growth for the business as a whole in the second quarter. Our CPMG acquisition has two events staging in the second quarter with first-time revenues for Emerald of more than $4 million. Consequently, we expect to report robust total revenue growth for the second quarter. Looking forward to the rest of the year, we have ramped up our show launch activities and are planning eight or nine new events, including the new Outdoor Retailer Winter Market, which compares with six new events launched last year.
OR's November show is not a typical launch and is expected to deliver revenues in the $6 million to $8 million range in its first staging, in line with our original expectations. Our other more traditional launches are pacing well for the remainder of the year. In terms of their cadence, we have one new event planned in the second quarter, two in the third quarter, and four or five in the fourth quarter. In total, the revenues of these launches, excluding the Outdoor Retailer event, are expected to be between $2.5 million and $4 million, assuming all the events take place. Lastly, let me say a few words about our M&A strategy. While we did not close an acquisition in the first quarter of the year, we remain active in discussions with sellers and potential sellers, and we evaluated a number of deals in the quarter.
We continue to be discerning buyers and are determined to wait for the right acquisition opportunities. While the timing of transactions is always uncertain, our pipeline is robust, and our M&A strategy remains intact. I would like to turn the call over to Phil now for a review of our first quarter financial results.
Thank you, David, and good morning again. We reported first quarter revenues of $142.2 million, which compared to $135.7 million in the same quarter of last year, representing an increase of $6.5 million or 4.8%. Organic revenues were flat, excluding the CPMG acquired revenues, discontinued events, and a small show scheduling difference. As David explained earlier, the quarter's organic growth was particularly affected by lower revenues from the first quarter additions of ASD Market Week, NY NOW, and Outdoor Retailer, which offset an otherwise solid performance across the trade show portfolio. Organic growth for all the other trade shows that staged in the quarter, excluding these three shows, was 5.9%. Other events which represented 9% of the quarter's revenues included $8.2 million of revenues from our fourth quarter 2017 acquisition, CPMG, which is heavily weighted to the first quarter of the year.
Organic revenue growth for other events was 2.1%. Other marketing services, which represented only 4% of the revenues in the first quarter, declined $0.7 million or 11%. The first quarter decline was steeper than we expect to be the case for the full year. Our Adjusted EBITDA for the quarter of $73.6 million was $1.2 million or 1.7% ahead of the first quarter of 2017, after adjusting for a small show scheduling difference. This increase largely reflected the strong contribution from our CPMG acquisition, offset by approximately $1 million of incremental public company costs and a modest reduction in Adjusted EBITDA from the rest of our portfolio. Our adjusted diluted earnings per share for the quarter increased by 10%, from $0.60 to $0.66. This strong increase partly reflected the benefits of lower interest and tax expenses.
The $3.1 million decrease in interest expense was a result of our reduced outstanding debt balance and lower interest rates due to the refinancing and repricing transactions last year. The $6.1 million decrease in income tax expense mainly reflected the change in U.S. federal income tax rates from 35% to 21% starting at the beginning of the year. Free cash flow, which we define as net cash provided by operating activities less capital expenditures, was $20.1 million for the first quarter of 2018, compared to $28.5 million in the first quarter of 2017. The key items affecting the quarter's cash flow were $2.4 million of lower cash interest and $3.4 million of lower cash taxes, which were offset by $16.1 million of timing differences in working capital that we expect to reverse during the remainder of the year.
Our last 12 months free cash flow through the end of March was $100 million, and we remain confident in our full year guidance range. In the first quarter, we paid a dividend of $0.07 a share, which totaled approximately $5.1 million, and our board has recently approved an increase of 3.6% in the second quarter dividend to $0.0725 a share, which will increase the cash dividend to approximately $5.3 million for the quarter. At the end of March, our outstanding term loan balance was $560.8 million, and we had cash on hand of $27 million. Our leverage ratio with net debt of $533.8 million, based on the calculations in our credit agreement, was 3.4 times our last 12 months Adjusted EBITDA, which was unchanged from the previous quarter's ratio. Turning to the full-year outlook, our guidance is unchanged from our fourth quarter earnings call.
Accordingly, we're projecting revenue growth between 7.4% and 9.7%, with organic revenue growth between 1.5% and 3.5%. Adjusted EBITDA in the range of $158 million-$162 million, adjusted diluted earnings per share in the range of $1.20 to $1.30, and free cash flow between $110 million and $120 million. At this point in the year, we've sold approximately 90% of our 2018 forecast annual booth revenues, which typically comprise approximately 70% of our total revenues. This year's pacing versus our full-year expectations is in line with our pacing at the same time last year relative to where we finished the year. This gives us good visibility into the likely full-year revenue outcome. The primary remaining uncertainties, which are the key reasons for our guidance range, are the same items that were built into our original thinking.
Namely, the performance of the summer ASD Market Week and NY NOW shows, the outlook for our new Outdoor Retailer show in November, and the success of our fourth quarter launches. These are all third and fourth quarter items, and we expect to provide more color on a tighter full-year guidance range when we announce our second quarter earnings at the beginning of August. I'll now hand back to David for his closing remarks.
Thanks, Phil. There have really been very few surprises so far this year. We knew coming into the year that our focus would be on delivering solid organic growth across the majority of our trade show portfolio, the move to a three-show format for Outdoor Retailer, a more active launch program, and strengthening our execution in our two largest franchises, ASD Market Week and NY NOW. We've made good progress towards all of these initiatives, and I'm particularly pleased with how the Outdoor Retailer move to Denver was executed and the favorable reaction of the industry. Lastly, we continue to see good M&A opportunities in the U.S. and even outside the U.S., and we will continue to seek to deploy our free cash flow on high-quality acquisitions that will drive future shareholder value. We'll now open up the call for any questions. Operator?
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is with David Chu with Bank of America Corporation. Please proceed with your question.
Great. Thanks. Based on what you are seeing today, just wanted to see if there are any new one-time disruptions we should expect for 2018.
I don't see anything on the horizon that we haven't already discussed, David.
Okay, great. You mentioned expectations for ASD and NY NOW for the third quarter. Just wanted to see if you can share that with us.
I think we're broadly seeing the same outcomes for the summer shows, or we forecast kind of the same outcomes for the summer shows as we saw in the winter shows, as we talked about implementing kind of our new go-to-market strategy as an ongoing effort. We're just beginning it, so we'll see it roll out over the next several editions and should see some lift in that over time. We're confident the initiatives we're putting into place will have some improvement. I mean, our real goal here is to stabilize these shows while relying on the rest of the portfolio to drive the overall growth at Emerald.
Okay. That's fair. Just lastly, I think the general outlook is that we're near late cycle in the economy at this point. Typically, how would you characterize your performance kind of when we get to late cycle and maybe in a recessionary environment?
Other than the great recession that we saw, I've been through multiple recessions in my career. The portfolio really performs quite well in recessionary times. I'm not sure I can speak on what will happen in the future, but we're set up nicely with important shows to fragmented markets. That doesn't really change during recessionary times.
Okay, great. Thank you very much.
Our next question is with Jeff Meuler with Robert W. Baird. Please proceed with your question.
Hey, guys. Thanks. This is Nick Nikitas on for Jeff. Going back to ASD in the quarter, can you talk about how that compared to your expectations? I think it was trending down low single digits last quarter, not too much of a change. Wondering if there was any further weakness there, if it's just more so a continuation of what you were seeing and kind of limited time to implement some of the changes that you're expecting for later in the year.
Yeah. We didn't really have any of the new strategies implemented for the first quarter show. Although, like I said, it's going to be an ongoing effort as we see it. No, it finished broadly in line with what our expectations were. There wasn't anything material that changed from what we saw.
Okay. With trade shows roughly flat, I guess up a little bit in Q1, do you still feel confident that kind of the 3%-5% target growth for the full year for that product line is still achievable?
Yeah. This is Phil. Hey, Nick. We indicated that in the second quarter, we'll get some decent growth in the trade show portfolio. Q3 will be a little bit more challenging, obviously, because of the ASD and NY NOW, some shows. The fourth quarter, we have a big contribution from our new Outdoor Retailer show, and we also have quite an active launch program in the fourth quarter. I think you'll see quite a lot of the growth come in the fourth quarter this year.
Okay, that's helpful. Just one last one for me, a little bit higher level, but now that you've had some time to integrate CPMG, can you guys just talk about any potential opportunities you're seeing maybe to leverage the brand and business model across your existing portfolio of events?
Sure. They had quite a busy first quarter. They do quite a few of their events in the first quarter, and each one of the events grew nicely in the first quarter. We tried not to overburden them on the very first quarter that they were part of our company. However, we found a number of actionable opportunities that we've identified and really, we're hoping to start as soon as possible, and there may even be something coming about later this year. Certainly, we've identified opportunities to expand their portfolio, both inside what Emerald currently operates in the industries, and outside. We're confident that it's a great acquisition, it's performing well, and we've already seen some opportunities to expand it.
Okay. Good to hear. Thanks for taking the questions.
Yep.
Our next question is with Manav Patnaik with Barclays. Please proceed with your question.
This is Ryan Leonard on for Manav. I guess, as you look out to the rest of the year at this point, you obviously have a lot of visibility. What do you think would need to happen for upside to your expectations or risk? Is it about executing on all of the new shows, or is it about implementing some of these new strategies you've talked about?
Well, I think one of the things that we've built in is a number of new launches. They're going to be smaller towards the portfolio as a whole. At the end of the day, they're still new. We feel good about what we've got in terms of what we've launched and what we're going to launch. There's a little bit of unknown there and the uncertainties around that. NY NOW and ASD, running around the edges, could have come in plus or minus a little bit. The other part of the portfolio is still behaving very well, and there's some strong products in there. We're not really, at this point, seeing any material surprises, and we've built in the uncertainties to our guidance. We feel like we're on track.
Yeah. The only other thing I would add is Outdoor Retailer.
True.
Obviously, that show is in a different time slot. It has a different type of show in some ways than-
November
The November show than the shows we've done before. We're getting a lot of interest, but we don't have any track record against which to say where that will come out. We're hopeful that we'll get a really strong outcome there. As David said, we built a number of these things into our guidance range, and the things that get us to sort of outperform the mid-point are stronger ASD in NY NOW than potentially currently pacing a strong NY NOW show, and the launch is really killing it. That's obviously what we're working on.
Understood. I guess specifically on ASD in NY NOW, are you hearing things from clients who are saying, "This is why we're not coming back"? Or is it a case where the communication kind of stops, and it's all about building the new sales pipeline?
I wouldn't paint both shows, nor all the categories within the shows, with the same paintbrush. We deconstruct each one of the shows and each one of the categories, and we focus individually on those. There's really a couple of categories at each show that have some headwinds, and they're not even really the same between the two shows. There's a bit of an oversupply of companies within the ASD market in a couple of the sections, the fashion accessories, and jewelry sections. We're focusing on the growth sections of ASD with our new sales resourcing and our new kind of go-to-market strategy. Working on the stronger categories for growth and bringing in more new companies.
At ASD, with NY NOW, it's a bit of the economics around the large home or furniture companies. Our job there is to better satisfy their ROI and bring in a growing audience around that group. There's some strong categories within that show, I think that's why our increased emphasis on sales and new company participation is going to be important. Some of those larger home categories are simply buying less square footage, we'll need to bring in more new companies to fill that in some of the better categories that we have within those shows.
Got it. One more if I could. On the M&A front, we've seen, I guess, some private equity involved in this space. Are you seeing any increased competition for deals? Maybe could you just talk about pricing that you're seeing out there, relative to maybe a year ago?
I'll just cover the pricing really. We're not seeing our conversations really are any different from a multiple perspective than they have been in the past. On Blackstone specifically, obviously they've had a fairly aggressive kind of global strategy building on Clarion in particular, and then with PennWell. We don't talk about specific deals in the market, but as you might imagine, anything that's of any size, we would see as well. There are reasons why things may not work for us and work for other people. I think they are more active, but we're not necessarily looking at the same things and thinking about an M&A strategy in quite the same way.
In the U.S., we're still focused on the potential tuck-ins, either individually owned or association owned, and we haven't seen anybody up against those as we've looked through those opportunities and are in discussions with those opportunities.
Great. Thanks.
Our next question is with Katherine Tait with Goldman Sachs. Please proceed with your question.
Hi, everyone. Just a couple questions from me. With the Outdoor Retailer and Snow Show, I think you talked about attendance being 60% higher. Just keen to understand, is that new attendance coming from new sort of areas of attendees, or is that sort of existing companies represented by attendees bringing more people? Secondly, I think with NY NOW, you talked about new innovation investments. Just keen to get a little bit more insight into what those might include. Then finally, on CPMG, you talked about some discontinued events within that during the first quarter. Just keen to understand if there are more events throughout the remaining quarters of the year, which are likely to be discontinued within that. Thank you very much.
I'll just do the first one, because the first one's sort of a math question, partly. We're comparing to the Outdoor Retailer show that we held in January last year and saying, compared to that show, the attendance was 60% higher. Obviously, there were some people who went to the SIA show last year, and so, we picked up those people, and we'll be spreading the combined Outdoor Retailer and SIA kind of attendee base over our two winter shows. With our first combined show, we got an uplift of additional retailers and buyers from the snow community that may not have gone to the Outdoor Retailer show previously. That's one of the reasons behind the attendance.
Also, as a combined show, it really attracted the attention of the entire kind of outdoor winter market, and so there were definitely people there that hadn't been to either of the shows before.
On NY NOW, I think there's a couple of things. One, of course, we're obviously investing in sales and attacking new customers, and we have a couple of new resources around sales as well. We're also putting some investment towards audience acquisition or audience market, or attracting a bigger or more quality attendee base. There's also the experiential part of the event for everybody and providing a better outcome for people as they go through the show. Some of those include the lounges, the networking, some of the content or seminar sessions that we'll be providing on the show floor and networking lounges. We're going to have more food options, coffee service, beverage carts, more maps for the buyers. We're also going to be providing some increased shuttle service and better greeters and some matchmaking desks.
We're really trying to ensure we've kind of covered as many of the experiential parts of the business that just improve the overall outcome. We'll be putting out more social media posts and just kind of looking around the edges of things we can improve the experience of the customer on. What was the third question?
The third, I think the way that we wrote the release, it kind of suggested that the discontinued activities were related to CPMG, they weren't related to the CPMG. CPMG was obviously a positive contribution in the quarter. We had like three very small events, that were about $800,000 in revenue, but that were discontinued. Nothing to do with CPMG. There was a small scheduling difference, the Environments for Aging event was in Q1 last year and is in Q2 this year. That was the other adjustment that we were kind of qualifying when we talked about growth for the quarter.
Perfect. Thanks very much.
Ladies and gentlemen, this concludes our question and answer session. I would like to now call back over to David Loechner for closing remarks.
Thank you very much. We're pleased with our results and our progress. We look forward to speaking to everybody again soon. Thanks, everybody.
This concludes today's teleconference. You may disconnect your lines at this time.