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Penton's Progress

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When David Nussbaum took over as CEO of Penton Media on July 1, 2004, he assumed control of a company that had been delisted from the New York Stock Exchange, had endured rounds of layoffs that damaged morale and had failed to grow its overall revenue since 2000.

Now, after almost a year on the job, he can point to some modestly positive financial results as well as the fostering of a more entrepreneurial culture at the company.

In 2004, a year split between Nussbaum and his predecessor, Thomas L. Kemp, the company posted a 3.2% gain in revenue, to $212.7 million-the first year-over-year increase since 2000. That trend has continued this year. In the first quarter, Penton's revenue totaled $53.3 million, an increase of 1% over the year-earlier period. The company's adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased 25.8% to $15.5 million in the first quarter.

Also in the first quarter, the company increased its online revenue by 19.8% from the year-earlier period. For full-year 2004, online revenue comprised 8.3% of total revenues in a company that has such products as American Machinist balanced by tech-savvy publications such as Windows IT Pro.

On the financing front, the company generated some positive news when it repurchased $5.5 million of its bonds for $3.9 million in February. After several years of struggling thanks to ill-fated technology deals, including the $85 million purchase of Streaming Media in 2000, Penton seems to be moving in the right direction, observers said.

That improvement raises two questions: How much of the credit should go to Nussbaum and his team? And how much is due to the previous management team and a general recovery in b-to-b media, as evidenced by the go-go mergers and acquisitions market and the 1.44% growth in ad pages in 2004, as tracked by American Business Media?

Royce Yudkoff, Penton's nonexecutive chairman, gives much of the credit to Nussbaum. "David has done a terrific job," he said, "and he has exceeded my high expectations."

And, Yudkoff added, "In fairness, it's not just about David. He had the good fortune to take charge of a deeply experienced management team that runs the different business units, and they have performed very well."

In addition to his chairman position at Penton, Yudkoff is president of media investment firm ABRY Partners, which led a group investing about $40 million in Penton in 2002. He once called Penton's continued slide after that investment "a near death experience." But, pointing to three key changes made under Nussbaum, Yudkoff said he has become much more optimistic about the company's future over the past year.

Flattening the management structure

First, Penton immediately cut costs last year with the departure of several executives and their salaries after Nussbaum took over. Due to severance obligations, the company took a large cash hit on the moves, but in the long term the cuts boosted EBITDA. In April, Nussbaum made another cost-cutting move, divesting the money-losing Penton Media Europe. "Early on, he brought the company expenses in line with where they ought to be," Yudkoff said.

Nussbaum also flattened the management structure to encourage more entrepreneurial behavior at Penton. In addition, he has available a seven-figure discretionary fund to invest in promising new projects. "He has fostered a culture of entrepreneurship in the company that was not there before," said Eric Shanfelt, Penton's VP-e-media strategy.

Shanfelt figures prominently in the changes Nussbaum has instituted at Penton. Shortly after taking the helm, Nussbaum appointed Shanfelt as the company's Internet guru. His job was to spread effective and profitable online practices across Penton's market sectors, from technology to manufacturing to health food.

In addition to encouraging a more Internet-savvy and entrepreneurial culture, Nussbaum has also fostered a culture of openness. Even though he works in New York, while the company's headquarters is in Cleveland, he has paid special attention to being accessible. He has held regular "town hall meetings" with employees and has his own blog on the Penton intranet.

The changes appear to be playing well with employees and customers. A recent employee survey found that 75% of respondents said they felt the company was better today than it was a year ago. "I was hoping for 80%," Nussbaum said.

One person who receives a Penton paycheck said the change was not directly due to new management, explaining the improved outlook this way: "People are just happy they're no longer in danger of being laid off."

Mike Shirkey, CEO of Orbitform, a manufacturer of pivoting joints used in everything from pliers to car hood hinges, runs a schedule with Machine Design and is happy with the magazine's overall approach-in particular with its Internet orientation. "They introduced us to the concept of the Webcast," he said.

The archived Webcast that Orbitform sponsored and participated in is still generating responses. "Those kinds of leads are like pennies from heaven," Shirkey said.

Who deserves the credit?

How much have Nussbaum's changes contributed to the financial improvement at Penton? Would the previous management team have realized the same gains, especially considering that Kemp and his team planned the budget for 2004?

"Frankly, the fact that they've exhibited some slight improvement indicates that the tide has risen somewhat," said one industry observer who spoke on condition of anonymity. "They're talking about a new strategy and growing the Internet, but I think that's true in most companies."

Roland DeSilva, managing partner of media investment bank DeSilva & Phillips, countered, "One can argue that a rising tide lifts all boats. However, I've seen and I know a number of boats that are being swamped today because of poor management. Nussbaum's efforts have enabled the boat at Penton to rise and rise faster than most others."

For his part, Nussbaum disputes the fact that the tide is rising that much and said that Penton, like most b-to-b media companies these days, must fight for every page, every online program and every trade show booth. "The market is OK," he said, "but it's not going gangbusters. This is not '98 or '99, but it is better than '01 and '02."

Aside from the tough markets it is in, particularly technology and manufacturing, Penton must contend with its debt-$327.0 million in total indebtedness, according to the company's last 10-Q filing-that was built up during its acquisition spree. In the past, the debt has hindered Penton in launching new products and making acquisitions.

Standard & Poor's ratings service said last month that the outlook is "negative" for Penton. "The very low speculative-grade rating on Penton reflects its uncertain ability to continue to meet its operating and financial obligation beyond the near term, given its limited liquidity and significant cash flow deficits," S&P said. Between the end of 2003 and the end of 2004, Penton's cash dwindled from $29.6 million to $7.7 million.

But Yudkoff and Nussbaum said they aren't preoccupied with the debt. For one thing, Penton has a largely unused $40 million line of credit. "The debt load is not that onerous," Yudkoff said. "I don't see it as that hard to overcome. The reason is that the company's earnings have rebounded quite rapidly over the past three years."

What Penton does have going for it are some very strong brands, such as Machine Design, Industry Week and Electronic Design, according to industry observers. "Over the last few years, too much of the focus has been consumed by the capital structure of Penton, and what's been lost is the size and quality of the brands in its portfolio," said former CEO Kemp, who is now a managing director with media merchant bank Veronis Suhler Stevenson.

Despite the debt, Nussbaum said, Penton is looking seriously into launching two old-fashioned trade shows in the near future and perhaps, in the process, creating new, strong brands. Some insiders, however, believe that the company is a bit hamstrung in its ability to grow because it can't pay to hire enough Web developers to pursue all the online opportunities that exist.

Shanfelt seemed to confirm this viewpoint when he said, "There are so many opportunities for growth in so many places, but there are only 24 hours in a day."

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