As Tech Goes, so Goes Key3Media

Trade show producer Key3-Media Group Inc., which puts on the huge Comdex technology event in Las Vegas, said Wednesday that a downtrodden tech industry is leading to reduced operating results that will soon cause it to violate the terms of its bank loans.

The Los Angeles company’s latest woes, including much-weaker-than-expected results in the first quarter, turned the stock into the biggest percentage loser on the New York Stock Exchange on Wednesday, falling 31.6%, or $1.02, to $2.21. During trading, it hit a 52-week low of $2.15 a share.

The company’s blunt-spoken chairman, Fredric D. Rosen, attributed problems to the drop in corporate spending on information technology and promotions, as well as the overall malaise in the tech industry.

“I’ve never seen a more difficult environment, and I’m not having fun,” said Rosen, who built Ticketmaster into a powerhouse. “If the industry is not going to be healthy, then we’re not going to be healthy.”

Rosen acknowledged that he is interested in acquiring House of Blues, which is up for sale, and diversifying into concert promotions, but experts say Key3’s current problems make an acquisition unlikely. Although he told analysts in a conference call that he couldn’t discuss the issue, he said in an interview, “If it gets into a severe bidding war, we won’t stay in it.”

Key3 reported a loss of $360 million, or $5.29 a share, for the first quarter, most of it tied to a new accounting mandate to write off goodwill from acquisitions. The company wrote off $344.6 million of goodwill, the premium it already paid for the Comdex brand. Excluding that, Key3 lost $5.9 million, compared with a $22.9-million loss a year earlier.

The company said the write-off and a change in the timing of three major trade shows mean the results cannot be compared with last year’s first quarter, when Key3Media lost $24 million, or 37 cents a share.

The company moved three major events normally held during the second quarter to the first quarter, causing revenue in the cyclical business to soar to $34.4 million from last year’s first-quarter revenue of $8 million.

But even factoring in all the changes, the company still fell short of Wall Street expectations, said Todd Morgan, a fixed-income analyst at CIBC World Markets in New York. He was expecting a loss of $3 million, excluding the accounting change, and sales of $37 million. Stock analysts, he said, were anticipating even better numbers.

“The real question, though, is if 2003 is going to be the year that tech-related shows come back,” Morgan said. “Comdex has been eroding for several years,” though it is still the biggest draw in terms of attendance and near the top in the amount of square feet sold to exhibitors.

Morgan questioned Key3’s strategy of continuing to put on big, all-encompassing shows such as Comdex, Networld+Interop and Seybold Seminars that charge exhibitors premiums for space. The sagging tech industry is responding better to smaller shows that are more focused on single areas, such as server-maintenance meetings.

Comdex, which has become as much a media event as a place where companies can check out and perhaps buy the latest business tech gear, went from 2,337 exhibitors using 1.2 million square feet of space two years ago to 1,685 exhibitors in 806,000 square feet last fall, according to trade publication Trade Show Week.

Rosen doesn’t believe that the size of an event determines whether it is a financial success.

“In the end, it’s an industry event, and the events reflect the industry,” he said. “If the industry contracts, business contracts. It doesn’t matter how big the event is, you have to manage your costs to the size of the event.”

Rosen said the company probably would fall out of compliance with its bank loans this quarter and next with provisions in loans totaling $80 million, but he said executives were talking with the consortium of banks to change or waive terms.

Analysts expect that the company will resolve the issue favorably. And Rosen noted, “You can be out of compliance in the second and third quarters and be in compliance in the fourth quarter.”