Emerald Holding, Inc.
Q4 2017 Earnings Call Transcript

Published: 22 Feb 2018

[Operator:]

Good morning ladies and gentlemen, and welcome to the Emerald Expositions Fourth Quarter 2017 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. [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.

[Philip Evans:]

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 Investor section of our website through 11

[Philip Evans:]

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 we 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 growth rate was understated, as the 2016 comparative revenues includes our ISS Fort Worth show, which staged in the fourth quarter last year and in the third quarter of this year. On such show timing difference is adjusted, we grew revenues by 8.2% with double-digit growth in events, partially offset by a decline in other marketing services. Details of 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 event staged in the period and prior acquisitions were actually modestly diluted to the quarter’s adjusted EBITDA due to the 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. Last year's comparable quarter was probably depressed by the cost of refinancing of our senior notes. And the fourth quarter of this year also benefited from lower interest cash flows due to our reduced debt levels and lower interest rates. Combination of these factors explained some $16 million of the $24.4 million cash flow improvement between 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 recall that we will not be able to recognize the full revenues of two of our shows that partially staged in September, but which were disrupted by Hurricane Irma and needed to close two days early. The impact was fully covered our events cancellation insurance policy and had no impact on adjusted EBITDA, with the benefit reflected as other income in our income statement. We have 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 as provided in the supplemental materials on our website. Adjusted EBITDA for the year increased by 5.8 million or 3.8% to a 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 margin and declines in several of our relatively higher margin events. In addition, we absorbed more than 1.5 million of new costs from operating at a public company for eight months of the year, which reduced our adjusted EBITDA margin by approximately 40 basis points and launches, which are typically breakeven in the first year also had a modestly diluted effect on margin of approximately 30 basis points. It's worth noting that the overall adjusted EBITDA margins 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 benefitted from a substantially lower interest expense in the year driven by the reduction of our debt in May with the primarily proceeds of the IPO. In addition, we’ve refinanced our debt in May and conducted a further re-pricing in November that in aggregate reduced our interest rate by 100 basis points. Free cash flow for the year of a 107.8 million increased by 18.2 million or 20.3% over 2016, we used this cash to acquire four businesses for cash consideration of 96 million and to pay contingent consideration on 2016 acquisitions of approximately 9 million. We paid three quarterly dividends in the year each of $0.07 per share and this amounted to 15.2 million in total cash outflows. Our dividends 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 for the dividend of 3.6% starting with the second quarter dividend and that’s to $7.25. This increase will have very little impact on our cash flows; however, it meets our pre-IPO commitment to consistently and steadily increase to dividend over the longer term. Turning to debt and leverage, we finished the year with net debt of 562.2 million representing an net leverage ratio of 3.4 times our end of the year acquisition adjusted EBITDA of a 161.9 million, which is down from a 4.4 times 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 reported a 52.1 million tax credit through the income statement to reflect the benefit of re-measuring 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 tax payer at the 21% federal rate with the blended tax rate including state taxes in the range of 26 % to 28%. We expect a 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 a wide range of our mid-size 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 comprised a little over 10% of our revenues. Total revenues 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 do not incorporate this and from our full-year guidance. Our 2018 guidance for adjusted EBITDA is between $158 million and $152 million and the key factors are reflecting 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 the first year; and four, the additional 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 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 an unusual one-time expenses, offset by higher cash taxes now that our federal NOLs are being used. With modest expectations for 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 generated 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.

[David Loechner:]

Thanks, Phil. 2017 was a challenging year and although 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, although there were setbacks, and we are still seeing weakness in several of the categories that are proving to be a headwind for 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 a 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 stocks. The show is busy everyday 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 two underlying associations, we had to make certain short term price concessions that reduced the margin of this 1st even 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 the medium size shows including a number of the shows we required over the last two or three years. Our latest acquisitions CPMG is expected to increase revenues by double-digit percentage in 2018, if we were able to count CPMGs year-over-year growth as organic growth this year than it would add close to 0.5% to our organic growth rate. While our overall companywide organic growth is not in line with our recent historic levels and below with this portfolio is capable of achieving, I remain confident in our 3% to 5% organic growth medium-term target range. We will now open up the call for questions.

[Operator:]

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

[David Chu:]

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

[David Loechner:]

So some of the other marketing services are advertising based and I think they haven't flow, we've had a good track record with the other marketing services because they are directly aligned and tied to the trade shows we operate in, but there is some fluctuation in the advertiser based for some of the other marketing services. For other events, they are probably the biggest driver and there is a single conference we acquired in 2014 and just 2015 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 a biggest driver.

[David Chu:]

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

[David Loechner:]

Well, it's not the trade shows it's a the advertiser market from the industries that we're in and that's probably isolated to two or three of the web products and our print products that we have. And then a couple of advertiser in our advertiser changes in our Pizza Magazine, but that piece to shows growing significantly, so we expect that to not be a long-term driver here. So, it's probably isolated due to a few advertiser bases and the couple of the industry is not all of them.

[David Chu:]

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 you know model for the revenue to kind of occur over the course of the year or which quarters?

[Philip Evans:]

Yes, if you kind of do the back of the envelope on the numbers we’ve given for projections in total revenue and organic revenue, you get to you know plus or minus 17 million for the revenue of CPMG for 2018 as a sort of projection, and then more heavily concentrated in the first and second quarters, so it's probably 40%, 30%, 20%, 10% as of kind of the four quarters.

[David Chu:]

And then is it fair to think of the margin profile as half or is it maybe just a little bit more insight there?

[Philip Evans:]

Well, these are different types of events and the revenue come from 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 at the venue and the paying for attendees to come in and meet with the manufacturers. So, it is a different margin profile and as you 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 is a appreciable margin growth or margin change there, it is a certain kind of profile of events and that it will continue like that.

[Operator:]

Thank you. Our next question comes from the line of Manav Patnaik from Barclays. Please go ahead.

[Ryan Leonard:]

Hi guys 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 you’re seeing further decline there. Is that at all related to the construction or is it just deteriorating in some of those industries?

[David Loechner:]

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 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 in New York now. But there is nothing fundamentally wrong with the event, but it’s a large show and a large fragmented space that 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 and I think we talked about it in the opening bit. Our new strategic plan for this business, so we’re going to setup kind of a new go to market sales strategy with a defined sales structure by which we used to have individual sales representatives by each had a book of accounts and similar of those accounts were new in some of those renewals. And now we’re going to focus the sales staff on either, renewing customers for the entire sales cycle or brand new business from 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 in 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 resources 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 this new the strategic plan that we have, I think we're going to see some improvements out of our business going forward, but this can take a little bit to get there.

[Ryan Leonard:]

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

[David Loechner:]

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 decided to change the sales structure for both events because these two shows at least double in some cases quadrupled the number of exhibiting, participating exhibiting companies, so with the sales adjustment structure across these very, very large businesses as we feel like we're going to get a pick-up in both industries. So, it’s kind of an aligned strategy to work on these big shows. We have some category shifting going on.

[Ryan Leonard:]

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 seven or eight 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?

[Philip Evans:]

I'll do that. Actually, David, you can do that.

[David Loechner:]

Sure.

[Philip Evans:]

So, yes, 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 two-thirds of the census of growth. So, a little bit of acceleration there. In 2018, some of what’s built into our range is, how our launch is doing, how many launches will be successful because we have a process whereby, we get to a go now go and in some cases that's not, we haven't reached that point with some of our plan 2018 launches. So, shows coming in and then 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 and we said that the three of the shows that are continuing next year and little bit 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 if we get to a second year the high hit rate for the second year and then because 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 would expect a third 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 its 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 you are doing what three in '16 and about five to six in '17, I think we've got that many plus the few on the board for 18 and then a considerable number of concepts we're taking for '19. So although the percentage rate hit may not change we're going to probably have a 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 it's all been an immediate feedback but if that 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.

[Operator:]

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

[Anj Singh:]

One on your implied 2018 margin, they are trending about a point lower than what you've 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 factor? And then more broadly, how should we be thinking about when you resume margin expansion? And what's the necessary for that to become to materialize?

[David Loechner:]

So I think, so bridging from the 2017 to the 2018 margin, we talked about of the company called of being that which would probably be about 30 basis points in launches and those are the 100 basis points the acquisition of CPMG was a lower average margin brings the aggregate number down by about 90 basis points. So the balance is really around kind of mix product mix and particularly we've talked about some softness in ISD 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 that's a very high margins are coming down, and you have now an ISD that has an overall effect. I mean I think in terms of the overall margin philosophy as we our business is made up of the lot of different products and events of different margins as we acquire businesses and some of those maybe higher margin than our average, some of those maybe lower but they could still be good businesses with good growth dynamics and you know we won’t be making decisions not to acquire things just because they may have a different margin profile over the overall profile. In general, I think if - when we get through this kind of period with [indiscernible] now and you know 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 you know 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 inside. 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.

[Unidentified Analyst:]

Okay, understood 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 that you’re concerned about or not really?

[Philip Evans:]

I mean certainly retail is changing, it’s really hard to kind of pin point it but industry data suggests that there are still store openings at a greater pace than store closing store. Store closings have been limited to a couple of dozen key changes. We largely serve the independent retail updates in our retail parts of the portfolio that by in large sales differentiated inventory from each other and non-commoditized business. So you know kind of from our perspective that stores are going to improve their user experience in the technology that they employee along the businesses and they are showing signs that they are and those 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 effective marketplace where we serve. For the most part our businesses is relying on the change, 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.

[Unidentified Analyst:]

Okay, got it. That’s helpful. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Kevin McVeigh from Deutsche Bank. Please go ahead.

[Kevin McVeigh:]

Great, thanks. Could 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 openly how do you get back to that 3 to 5?

[Philip Evans:]

So I think as this kind of three things maybe that account for the range that low to high range. First of all, we need to start it selling now in ASP as for the summer shows and so you know those are large shows that could impact the overall growth rate by a point or so in either directions. 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 at 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 that I have just said, we have a number of launches that we are really hopeful and excited about in the back half of the year, we do need to do work to make sure that there is sufficient to 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, whether it's a little bit of uncertainty at the Outdoor Retailer November show. As David said, we’ve had a really good start coming out of the January show, we did what’s called space drove, where people could can sign up for space and that was very successful, but again it's the first time to we’ve held this event and it could be on either side of what we think is a reasonable expectation for a successful show. And so that's built into our guidance range. So I’d say approximately one-third of the guidance range is New York Now and ASD, a third of the kind of breadth to the range is related to launch and then the Outdoor Retailer is probably the largest component of the remaining third, but it's not the whole amount, because there are obviously some other puts and takes within the whole guidance range.

[David Loechner:]

Maybe I could just add to that, I mean, the portfolio of trade shows is delivering a 3% to 5% kind of organic growth range as is, even at the ASD and New York Now were simply to be in the flat range, it would exceed 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.

[Kevin McVeigh:]

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?

[Philip Evans:]

That they’re relatively ahead of lower margins, but I think if you stacked up about other marketing services against anyone else’s we would be at the highest margin. So that’s probably 30% plus in those kind of product lines.

[Kevin McVeigh:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Katherine Tait from Goldman Sachs. Please go ahead.

[Katherine Tait:]

Good morning, everyone. Thanks for taking my questions. Just wondering if you can give us an update on the [indiscernible] that you're seeing with respect to Interbike, and that was sort of the one that includes a little bit of volatility last year in terms of expectations? And then secondly when you think about acquisitions more broadly, clearly your portfolio is already have any skew towards guess time in general merchandise, when you think about acquisitions, are you looking to diversify your portfolio or build within your existing verticals and just some sort of insight into how you think about that would be great. And then finally, we’ve talked about and this is the margin profile a little bit already, but with CPMG, the new share launches portfolio mix shifts and I think historically, you’ve also talked about potential and international growth. You talked about a sort of medium-term organic growth expectations you have but, but can you talk a little bit about there is a medium-term margin expectations you have given these sort of various factors? Thank you.

[David Loechner:]

Hi, Katherine. This is David. A couple of points here, so Interbike, I think it’s worth noting Interbike is a midsize show for us, it's not on 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 Pete Expo, our Imprinted Sportswear Show, K-Bizz, 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 a show or two have a shift. But Interbike, with that context, so I think the oversupply of bicycles that we talked about kind of affecting the cycling market seems to us have mostly worked through. However, it really drove down prices and dealer margins significantly affecting their individual dealer profitability. I think there is going to be some time involved to work through that. There is probably an increasing document of the three of four bike brands at retail and we talked about kind of the slow growth of these high margins high-end load bike businesses. So, I think there is going to be some more - it's going to take some more time for the help 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 are in the many environments. We still have the many retail environments and bikes are only component of the store or all the components and all the accessories and their service are 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 conservative effort to secure kind of the mid-tier bike brands that are not one of the top four as well as we’ve developed a couple of elements at the 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 weak concept around the events. 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’s cash generative and it has the opportunity for growth and that were applying these things accretively with the right eye to the 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 along 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 out in the future, sound platforms that provide the right opportunity for us to establish a beach at overseas to continue to export our portfolio globally and see if there was another question.

[Philip Evans:]

Yes. And I think the other one with the medium-term market. 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 mixed effect growth to CPMG is relatively less in the average margin, okay there is [indiscernible] some of our kind of leading shows that are showing really good growth in the short-term, probably relatively lower margins to the higher margin shows. So, it may be clearly difficult to say that what it will play out. But we certainly aspire to margin growth through revenue growth and profitable revenue growth. So, we aspire to at this point we’re a little rest into talk about margin growth given the portfolio mix effects that we’ve seen over the last period or two.

[Katherine Tait:]

Thank you very much.

[David Loechner:]

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

[Katherine Tait:]

Yes.

[Operator:]

Thank you. Our next question comes from the line of Gary Bisbee from RBC Capital Markets. Please go ahead.

[Gary Bisbee:]

Hey guys, good morning.

[David Loechner:]

Hi, Gary.

[Gary Bisbee:]

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

[David Loechner:]

Sure. We certainly have a fair number of online resellers depending our shows. Our individual exhibitors may or may not have a online distribution strategy. But the audience that's coming to both ASD, New York Now and even our other retail base shows is increasing. But 85% of the retailers that come to our shows today have under four 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 retailers coming in and purchasing goods on a wholesale level from our exhibiting base.

[Philip Evans:]

And I think I recall ASD something like mid-single digit percentage online only sellers. And then more than 30% of the people coming off both online and bricks and mortars, so they kind of have a hybrid model. So we certainly see a lot of attendees, who have some e-commerce aspects to the way they do business.

[David Loechner:]

And keeping in mind that our internet retailer conference next, but also attracts brick and mortar stores getting further in online as well as online resellers.

[Gary Bisbee:]

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

[David Loechner:]

I think it's all three. They operate in retail, they operate in hotel, and they operate in healthcare environments, and those industries are industries we already operate in today, and they're attracting customers that we also have been doing with in a large scale and the trade show is 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 the exhibit, they buy the opportunity, 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 a many-to-many and a few-to-few opportunity, it’s just not being served. So although they do eight 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’re 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.

[Unidentified Analyst:]

And then that the 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, and how they’ve been delivering in that at this point?

[David Loechner:]

So, by definition, it's a few-to-few. So you're not going to expand in a critical mass way. So 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, that may be a larger event that they’ve been divided into two different events whether it's healthcare or restaurant or building and design. So they’ve done a little bit of combination of both. I mean, 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 that would help establish that.

[Unidentified Analyst:]

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

[David Loechner:]

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 SI show was fairly unique the CBS 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 is going to be a mix of products we acquire we said in the opening that our priority is really on trade shows whether they are 50% margin or 60% margin is in our core focus its really is it sustainable as it in the growth opportunity as it number one and it's space, does it provide real value and services to the industry, does it have pricing power or all of those things embedded in the business.

[Philip Evans:]

And if you look at what we spent in 2017 it was from 96 million if you take the 16 million to SIA because that's kind of the a different animal and so you've got the 18 million and we gained 9 million plus of EBITDA that so I think the model did play out in 2017 or even though that it looked to little different than you might have been expecting. So as David said there are good opportunities that they have at trade shows on the proceeding notes and I think we will look back and say 2017 the acquisitions were a little funkier than maybe a normal year.

[David Loechner:]

But also because the 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 and it for a long-term sustainable business it has growth opportunities that is important to those customers it's not something that we're going to see as a something that isn’t going to be relevant going forward and it has to be in the industry we also believe it has the right model for us to operate. so we still have a very tight criteria around making sure of these products fit within the portfolio regardless of one box might be checked or not.

[Unidentified Analyst:]

Okay. That’s helpful color. Thanks guys.

[Operator:]

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

[Unidentified Analyst:]

Hey good morning guys, [indiscernible] on for Jeff. Just A couple of quick ones. Well make to the organic outlook can you talk about the visibility you guys have on the other events and marketing line items and as you look to get organic growth accelerating going forward is there anything structurally that you are looking to do different there as if is that improved growth grows more so going to be driven by kind of New York now and ASD improvement?

[Philip Evans:]

So I think the first question was visibility on other some of the marketing tips, so I just to reiterate on the I'll make a point. On the business revenues were very nice pacing where we were at the same time last year it's pretty much $0.80 of the years so we have great visibility on a lot of the booth business 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 to later in the year we are generally selling kind of the closer in additions of magazine publications and online products. So we have less visibility than we do on booth business revenue and 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 years is really based on where the period we can see and not necessarily have a visibility on the backend of the year. Other than whether it’s a large conference components to events. What we find is that decisions are made by attendees much closer to the event. And then four to six weeks before an event is the large proportion of the revenues that come into play. And so one of the events that David talking about was how it takes place in May. So that's one of the things we're kind calling in terms of adverse trends is around that show. But having said that, we really have only seen third of the revenues at this point and there is a lot still to play for in terms of between now and the event. But this is same for other events that category tend to be things where the decision making by attendees and they have been more attendee type component to the revenue is made late from the date and so we just clearly then have a little bit less visibility than we do on trade shows.

[Unidentified Analyst:]

Okay. And just with CPMG, the double digit growth. Do you guys view that as sustainable going forward especially to get the deleveraged across some of the existing portfolios [indiscernible]?

[David Loechner:]

Sure. I think that's a near term reality. It's probably the long-term reality too.

[Philip Evans:]

They have a good pipeline of new events. And whether they wanted or not, we have a bunch of other ideas to add on to that pipeline. So I think we're going to see good sustained growth in that business for some time to come, because it's a nice model, it's really good team and we're very optimistic about that.

[Unidentified Analyst:]

Okay. Thanks for taking the questions.

[David Loechner:]

Sure.

[Operator:]

Thank you. 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.

[Philip Evans:]

Thank you operator. I'd like to just a couple of things since we talked about 2017 and closing out 2017. We're pleased where we strengthen the portfolio with attractive acquisition. We've got organic growth accelerating this year off of last year. And the strategic initiatives we talked about around our two largest sales we're very optimistic about. So we're really looking forward to continuing this dialogue in 2018 we'll see you on the roads.

[Operator:]

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.