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InnerWorkings Announces First Quarter 2018 Results

July 31, 2018
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Cash flow provided by operating activities was a record $50.2 million for the trailing 12-month period

CHICAGO--(BUSINESS WIRE)--Jul. 31, 2018-- InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three months ended March 31, 2018. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

“My first few months as CEO have confirmed to me that the market opportunity has never been better for InnerWorkings,” said Chief Executive Officer Rich Stoddart. “We continue to grow our gross and net revenue and win additional work, but our growth in operating expense is unacceptable in my view and we are taking the necessary actions to put us on a path to maximize shareholder value.”

Financial and Business Highlights

  • Gross revenue was $274.5 million, an increase of 4% compared to $264.4 million in the first quarter of 2017.
  • Gross profit (net revenue) was $66.1 million, or 24.1% of gross revenue in the first quarter of 2018, a 2% increase compared to $64.7 million, or 24.5% of revenue, in the same period of last year.
  • Net loss for the first quarter of 2018 was $(1.7) million, or $(0.03) per diluted share, compared to net income of $5.7 million, or $0.10 per diluted share in the first quarter of 2017.
  • Non-GAAP loss per diluted share for the first quarter was $(0.02), compared to earnings of $0.08 in the first quarter of 2017.
  • Non-GAAP adjusted EBITDA was $7.4 million in the first quarter 2018, compared to $12.5 million in the first quarter of 2017.
  • Cash flow provided by operating activities was $34.3 million in the first quarter of 2018, compared to $0.1 million in the same quarter of last year. Cash flow provided by operating activities for the trailing twelve months ended March 31, 2018 was a record $50.2 million.
  • InnerWorkings has been awarded additional work from new and existing clients so far during 2018, which collectively is expected to exceed $70 million of annual revenue at full run-rate.

“Our first quarter financial results reflect initial investments we are making to drive operational improvements, but also the need for aggressive actions to lower our SG&A expenses,” said Chip Hodgkins, Interim Chief Financial Officer of InnerWorkings. “We are in the final stages of developing a plan and leveraging third-party expertise to reduce our cost structure while driving returns for our clients and our shareholders. We will provide further details in conjunction with our second quarter 2018 financial results.”

Outlook

The Company is lowering its 2018 guidance for gross revenue to a range of $1.155 billion and $1.190 billion, down from previous guidance of $1.195 billion and $1.230 billion, representing growth of 1% to 4% compared to 2017. This decrease in guidance is mainly due to a significant reduction in marketing spend from one of the Company's largest clients. Due to growth in SG&A expenses, 2018 profitability is expected to be lower than 2017. Following completion of a cost reduction and business improvement plan currently being developed, the Company expects to provide specific 2018 guidance for non-GAAP adjusted EBITDA and non-GAAP earnings per diluted share.

Conference Call

Rich Stoddart, Chief Executive Officer, and Chip Hodgkins, Interim Chief Financial Officer, will host a conference call to discuss the results today at 4:00 p.m. Central time (5:00 p.m. Eastern time).

The phone number to access the conference call is (877) 771-7024. A live audio webcast of the call will be available through InnerWorkings' website at https://inwk.gcs-web.com/events. A replay of the webcast will be available later today at the same location.

Non-GAAP Financial Measures

This press release includes the following financial measures defined as “non-GAAP financial measures” by the SEC: non-GAAP adjusted EBITDA and non-GAAP diluted earnings per share. The Company believes these measures provide useful information to investors because they provide further insights into the Company’s financial performance. These measures are also used by management in its financial and operational decision-making and evaluation of overall performance. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles. For a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP measures, please see the reconciliation of non-GAAP adjusted EBITDA and non-GAAP diluted earnings per share included in this release.

Forward-Looking Statements

This release contains statements relating to future results. These statements are forward-looking statements under the federal securities laws. We can give no assurance that any future results discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this release. For a discussion of important factors that could affect our actual results, please refer to our SEC filings, including the “Risk Factors” section of our most recently filed Form 10-K.

About InnerWorkings

InnerWorkings, Inc. (NASDAQ: INWK) is the leading global marketing execution firm serving Fortune 1000 brands across a wide range of industries. As a comprehensive outsourced enterprise solution, the Company leverages proprietary technology, an extensive supplier network and deep domain expertise to streamline the production of branded materials and retail experiences across geographies and formats. InnerWorkings is headquartered in Chicago, IL and employs 2,100 individuals to support global clients in the execution of multi-faceted brand campaigns in every major market around the world. InnerWorkings serves many industries, including: retail, financial services, hospitality, consumer packaged goods, nonprofit, healthcare, food & beverage, broadcasting & cable, automotive, and transportation. For more information visit: www.inwk.com.

       
       

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)
       
       
      Three Months Ended March 31,
      2018   2017
          (as restated)
Revenue     $ 274,539     $ 264,405  
Cost of goods sold     208,472     199,701  
Gross profit     66,067     64,704  
Operating expenses:          
Selling, general and administrative expenses     61,167     53,615  
Depreciation and amortization     3,659     2,904  
Change in fair value of contingent consideration     —     (1,040 )
Income from operations     1,241     9,225  
Other income (expense):          
Interest income     62     34  
Interest expense     (1,568 )   (1,003 )
Other, net     (846 )   (224 )
Total other expense     (2,352 )   (1,193 )
(Loss) income before income taxes     (1,111 )   8,032  
Income tax expense     573     2,354  
Net (loss) income     $ (1,684 )   $ 5,678  
           
Basic (loss) earnings per share     $ (0.03 )   $ 0.11  
Diluted (loss) earnings per share     $ (0.03 )   $ 0.10  
           
Weighted-average shares outstanding – basic     53,716     54,056  
Weighted-average shares outstanding – diluted     53,716     54,729  
           
           

Condensed Consolidated Balance Sheets
           
           
(in thousands)     March 31, 2018   December 31, 2017
     

(unaudited)

   (as restated)
Assets          
Current assets:          
Cash and cash equivalents     $ 43,474     $ 30,562  
Accounts receivable, net     183,012     205,386  
Unbilled revenue     47,685     50,016  
Inventories     38,563     40,694  
Prepaid expenses     19,846     18,565  
Other current assets     33,716     37,865  
Total current assets     366,296     383,088  
Property and equipment, net     37,207     36,714  
Intangibles and other assets:          
Goodwill     200,743     199,946  
Intangible assets, net     26,641     27,563  
Deferred income taxes     947     691  
Other non-current assets     2,139     1,636  
Total intangibles and other assets     230,470     229,836  
Total assets     $ 633,973     $ 649,638  
Liabilities and stockholders' equity          
Current liabilities:          
Accounts payable     120,260     141,164  
Accrued expenses     40,081     34,391  
Deferred revenue     31,524     17,620  
Other current liabilities     24,073     24,078  
Total current liabilities     215,938     217,253  
Revolving credit facility     118,886     128,398  
Deferred income taxes     12,208     12,043  
Other non-current liabilities     7,287     7,399  
Total liabilities     354,319     365,093  
Stockholders' equity:          
Common stock     6     6  
Additional paid-in capital     236,664     235,199  
Treasury stock at cost     (64,544 )   (55,873 )
Accumulated other comprehensive loss     (15,865 )   (19,229 )
Retained earnings     123,393     124,442  
Total stockholders' equity     279,654     284,545  
Total liabilities and stockholders' equity     $ 633,973     $ 649,638  
       
       

Condensed Consolidated Statement of Cash Flows

(Unaudited)
       
       
(in thousands)     Three Months Ended March 31,
      2018   2017
          (as restated)
Cash flows from operating activities          
Net (loss) income     $ (1,684 )   $ 5,678  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:          
Depreciation and amortization     3,659     2,904  
Stock-based compensation expense     1,417     1,419  
Deferred income taxes     30     478  
Bad debt provision     538     175  
Implementation cost amortization     125     —  
Change in fair value of contingent consideration liability     —     (1,040 )
Other operating activities     52     52  
Change in assets, net of acquisitions:          
Accounts receivable and unbilled revenue     24,165     (4,680 )
Inventories     2,131     (226 )
Prepaid expenses and other assets     2,941     (1,167 )
Change in liabilities, net of acquisitions:          
Accounts payable     (20,922 )   (8,396 )
Accrued expenses and other liabilities     21,857     4,923  
Net cash provided by operating activities     34,309     120  
           
Cash flows from investing activities          
Purchases of property and equipment     (2,874 )   (3,042 )
Net cash used in investing activities     (2,874 )   (3,042 )
           
Cash flows from financing activities          
Net borrowing (repayments) of revolving credit facility     (9,023 )   6,519  
Net short-term secured borrowings (repayments)     (1,986 )   (801 )
Repurchases of common stock     (8,048 )   (4,342 )
Proceeds from exercise of stock options     7     189  
Other financing activities     (67 )   (95 )
Net cash (used in) provided by in financing activities     (19,117 )   1,470  
           
Effect of exchange rate changes on cash and cash equivalents     594     448  
Increase (decrease) in cash and cash equivalents     12,912     (1,004 )
Cash and cash equivalents, beginning of period     30,562     30,924  
Cash and cash equivalents, end of period     $ 43,474     $ 29,920  
       
       

Reconciliation of Non-GAAP Adjusted EBITDA and Non-GAAP Diluted Earnings Per Share

(Unaudited)
       
       
(in thousands)     Three Months Ended March 31,
      2018   2017
          (as restated)
Net (loss) income     $ (1,684 )   $ 5,678  
Income tax expense     573     2,354  
Interest income     (62 )   (34 )
Interest expense     1,568     1,003  
Other, net     846     224  
Depreciation and amortization     3,659     2,904  
Stock-based compensation expense     1,417     1,419  
Change in fair value of contingent consideration     —     (1,040 )
Professional fees related to ASC 606 implementation     1,033     —  
Non-GAAP Adjusted EBITDA     $ 7,350     $ 12,508  
       
       
(in thousands, except per share amounts)     Three Months Ended March 31,
      2018   2017
          (as restated)
Net (loss) income     $ (1,684 )   $ 5,678  
Change in fair value of contingent consideration, net of tax     —     (1,040 )
Professional fees related to ASC 606 implementation, net of tax     760     —  
Adjusted net (loss) income     $ (924 )   $ 4,638  
Weighted average shares outstanding, diluted     53,716     54,729  
Non-GAAP Diluted (Loss) Earnings Per Share     $ (0.02 )   $ 0.08  

 

Source: InnerWorkings, Inc.

InnerWorkings, Inc.
Bridget Freas, 312.589.5613
bfreas@inwk.com