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InnerWorkings Announces Fourth Quarter and Full-Year 2017 Results

March 12, 2018
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Record fourth quarter revenue increased 11% compared to prior year; strong growth in profitability expected in 2018

CHICAGO--(BUSINESS WIRE)--Mar. 12, 2018-- InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three months and year ended December 31, 2017. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

“We had a strong finish to 2017 with a growth rate that exceeded our expectations. In addition, we’ve won several large new contracts in recent months, and we’re well down the path on a number of exciting sales pursuits,” said Chief Executive Officer Eric D. Belcher. “This combination sets us up for strong growth in 2018.”

Fourth Quarter 2017 Results

  • Record gross revenue was $301.0 million in the fourth quarter, an increase of 11% compared with $270.4 million in the fourth quarter of 2016.
  • Gross profit (net revenue) was $71.3 million, or 23.7% of gross revenue, in the fourth quarter, an increase of 4% compared to $68.7 million, or 25.4% of revenue, in the same period of 2016.
  • Net income for the fourth quarter was $1.5 million, or $0.03 per diluted share, compared to $5.0 million, or $0.09 per diluted share, in the prior year period.
  • Non-GAAP adjusted EBITDA was $14.6 million in the fourth quarter, compared to $15.7 million in the fourth quarter of 2016.
  • Non-GAAP diluted earnings per share for the fourth quarter was $0.06, compared to $0.12 in the fourth quarter of 2016.

Full-Year 2017 Results and Recent Highlights

  • Gross revenue was $1,136.3 million in 2017, an increase of 4% compared with $1,090.7 million in 2016.
  • Gross profit (net revenue) was $278.3 million, or 24.5% of gross revenue, in 2017, a 6% increase compared to $263.5 million, or 24.2% of revenue, in 2016.
  • Net income in 2017 was $19.0 million, or $0.35 per diluted share, compared to $4.4 million, or $0.08 per diluted share, in 2016.
  • Non-GAAP adjusted EBITDA was $62.3 million in 2017, reflecting growth of 5% compared to $59.2 million in 2016.
  • Non-GAAP diluted earnings per share for 2017 was $0.41, compared to $0.38 in 2016.
  • Cash flow from operations was $16.1 million in 2017, compared to $10.5 million in the year before.
  • InnerWorkings signed new client contracts during 2017 totaling $130 million of annual revenue at full run-rate. This growth is a blend of expansions with existing accounts as well as the addition of a number of first time clients.
  • In 2018 to date, InnerWorkings has already signed several new client contracts totaling $41 million of annual revenue at full run-rate.

“Our expected growth in 2018 will generate meaningful operating leverage and free cash flow in 2018, giving us the ability to reinvest in our business on behalf of our clients, employees and shareholders,” said Chip Hodgkins, Interim Chief Financial Officer of InnerWorkings.

Rich Stoddart, incoming Chief Executive Officer, added, “InnerWorkings has evolved its business over the past five years to be at the forefront of software, digital, and other growing components of marketing execution. I look forward to helping the company capitalize on its early lead in this emerging market.”

Outlook

InnerWorkings reaffirms the existing full-year 2018 guidance announced previously. The Company expects 2018 annual gross revenue to range between $1,195 million and $1,230 million, representing growth of 5% to 8% compared to 2017. Non-GAAP adjusted EBITDA is expected to be between $74 million and $77 million in 2018, representing growth of 19% to 24% compared to 2017. The Company forecasts 2018 non-GAAP diluted earnings per share to be $0.56 to $0.59, representing growth of 37% to 44% compared to 2017.

Conference Call

Eric D. Belcher, Chief Executive Officer, and Chip Hodgkins, Interim Chief Financial Officer, will host a conference call to discuss the results today at 4:30 p.m. Central time (5:30 p.m. Eastern time). Incoming Chief Executive Officer, Rich Stoddart, will also join the call.

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 http://investor.inwk.com/events.cfm. 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.

The Company has not quantitatively reconciled its guidance for non-GAAP adjusted EBITDA or non-GAAP diluted earnings per share to their most comparable GAAP measure because the Company does not provide specific guidance for the various reconciling items as certain items that impact these measures have not occurred, are out of the Company’s control, or cannot be reasonably predicted. Accordingly, a reconciliation to the nearest GAAP financial metric is not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the Company’s results.

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 2,000 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 Income

(In thousands, except per share data)
         
    Three Months Ended December 31,   Year Ended December 31,
    2017   2016   2017   2016
    (unaudited)   (unaudited)        
Revenue   $ 300,950     $ 270,418     $ 1,136,256     $ 1,090,704  
Cost of goods sold   229,639     201,691     857,921     827,156  
Gross profit   71,311     68,727     278,335     263,548  
Operating expenses:                
Selling, general and administrative expenses   60,091     54,456     225,738     209,967  
Depreciation and amortization   3,987     3,534     13,390     17,916  
Change in fair value of contingent consideration   —     442     677     10,417  
Intangible asset impairment charges   —     70     —     70  
Restructuring and other charges   —     1,181     —     5,615  
Income from operations   7,233     9,044     38,530     19,563  
Other income (expense):                
Interest income   20     23     97     86  
Interest expense   (1,491 )   (918 )   (4,729 )   (4,171 )
Other, net   (826 )   (168 )   (1,788 )   (153 )
Total other expense   (2,297 )   (1,064 )   (6,420 )   (4,238 )
Income before income taxes   4,936     7,980     32,110     15,325  
Income tax expense   3,437     2,933     13,131     10,955  
Net income   $ 1,499     $ 5,047     $ 18,979     $ 4,370  
                 
Basic earnings per share   $ 0.03     $ 0.09     $ 0.35     $ 0.08  
Diluted earnings per share   $ 0.03     $ 0.09     $ 0.35     $ 0.08  
                 
Weighted-average shares outstanding – basic   54,113     54,025     53,851     53,607  
Weighted-average shares outstanding – diluted   55,175     55,019     54,944     54,460  
           
           

Condensed Consolidated Balance Sheets

          
           
           
(in thousands)     December 31, 2017   December 31, 2016
           
Assets          
Current assets:          
Cash and cash equivalents     $ 30,562     $ 30,924  
Accounts receivable, net     206,712     182,874  
Unbilled revenue     49,389     32,723  
Inventories     34,807     31,638  
Prepaid expenses     19,638     18,772  
Other current assets     32,694     24,769  
Total current assets     373,802     321,700  
Property and equipment, net     36,714     32,656  
Intangibles and other assets:          
Goodwill     207,162     202,700  
Intangible assets, net     27,563     31,538  
Deferred income taxes     612     1,031  
Other non-current assets     1,382     1,374  
Total intangibles and other assets     236,719     236,643  
Total assets     $ 647,235     $ 590,999  
Liabilities and stockholders' equity          
Current liabilities:          
Accounts payable     134,609     121,289  
Current portion of contingent consideration     —     19,283  
Accrued expenses     33,694     30,067  
Other current liabilities     39,538     35,049  
Total current liabilities     207,841     205,688  
Revolving credit facility     128,398     107,468  
Deferred income taxes     12,348     11,291  
Other non-current liabilities     1,874     1,926  
Total liabilities     350,461     326,373  
Stockholders' equity:          
Common stock     6     6  
Additional paid-in capital     235,199     224,480  
Treasury stock at cost     (55,873 )   (49,458 )
Accumulated other comprehensive loss     (11,863 )   (20,799 )
Retained earnings     129,305     110,397  
Total stockholders' equity     296,774     264,626  
Total liabilities and stockholders' equity     $ 647,235     $ 590,999  
         
         

Condensed Consolidated Statement of Cash Flows
         
         
         
(in thousands)       Year Ended December 31,
        2017   2016
             
Cash flows from operating activities            
Net income       $ 18,979     $ 4,370  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization       13,390     17,916  
Stock-based compensation expense       6,820     5,572  
Deferred income taxes       3,752     4,084  
Change in fair value of contingent consideration liability       677     10,417  
Intangible asset impairment charges       —     70  
Bad debt provision       454     2,171  
Excess tax benefit from exercise of stock awards       —     (4,030 )
Other operating activities       210     210  
Change in assets, net of acquisitions:            
Accounts receivable and unbilled revenue       (40,959 )   1,809  
Inventories       (3,169 )   1,690  
Prepaid expenses and other assets       (8,989 )   2,442  
Change in liabilities, net of acquisitions:            
Accounts payable       13,320     (48,955 )
Accrued expenses and other liabilities       11,662     12,759  
Net cash provided by operating activities       16,147     10,525  
             
Cash flows from investing activities            
Purchases of property and equipment       (12,483 )   (13,319 )
Net cash used in investing activities       (12,483 )   (13,319 )
             
Cash flows from financing activities            
Net short-term secured borrowings (repayments)       (867 )   405  
Payments of contingent consideration       (15,345 )   (11,374 )
Net borrowing of revolving credit facility       20,709     8,739  
Proceeds from exercise of stock options       2,663     2,636  
Repurchases of common stock       (10,976 )   —  
Excess tax benefit from exercise of stock awards       —     4,030  
Other financing activities       (1,156 )   (866 )
Net cash provided by (used) in financing activities       (4,972 )   3,570  
             
Effect of exchange rate changes on cash and cash equivalents       947     (607 )
Increase (decrease) in cash and cash equivalents       (362 )   169  
Cash and cash equivalents, beginning of period       30,924     30,755  
Cash and cash equivalents, end of period       $ 30,562     $ 30,924  
               
               

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

(Unaudited)
               
               
(in thousands)         Three Months Ended December 31,   Year Ended December 31,
          2017   2016   2017   2016
Net income         $ 1,499     $ 5,047     $ 18,979     $ 4,370  
Income tax expense         3,437     2,933     13,131     10,955  
Interest income         (20 )   (23 )   (97 )   (86 )
Interest expense         1,491     918     4,729     4,171  
Other, net         826     168     1,788     153  
Depreciation and amortization         3,987     3,534     13,390     17,916  
Stock-based compensation expense         1,524     1,474     6,820     5,572  
Change in fair value of contingent consideration         —     442     677     10,417  
Intangible asset impairment charges         —     70     —     70  
Restructuring and other charges         —     1,181     —     5,615  
Professional fees related to ASC 606 implementation         529     —     829     —  
Business development realignment         —     —     715     —  
CEO search costs         454     —     454     —  
Czech currency impact on procurement margin         860     —     860     —  
Non-GAAP Adjusted EBITDA         $ 14,587     $ 15,745     $ 62,275     $ 59,153  
           
(in thousands, except per share amounts)     Three Months Ended December 31,   Year Ended December 31,
      2017   2016   2017   2016
Net income     $ 1,499     $ 5,047     $ 18,979     $ 4,370
Change in fair value of contingent consideration, net of tax     —     442     677     10,417
Intangible asset impairment charges, net of tax     —     56     —     56
Restructuring and other charges, net of tax     —     909     —     4,873
Realignment-related income tax charges     —     282     —     1,179
Czech exit from exchange rate commitment, net of tax     —     —     294     —
Business development realignment, net of tax     —     —     875     —
Professional fees related to ASC 606 implementation, net of tax     324     —     528     —
CEO search costs, net of tax     282     —     282     —
Czech currency impact on procurement margin, net of tax     697     —     697     —
Accelerated depreciation of internal use software, net of tax     246     —     246     —
Adjusted net income     $ 3,048     $ 6,736     $ 22,578     $ 20,895
Weighted average shares outstanding, diluted     55,175     55,019     54,944     54,460
Non-GAAP Diluted Earnings Per Share     $ 0.06     $ 0.12     $ 0.41     $ 0.38

 

Source: InnerWorkings, Inc.

InnerWorkings, Inc.
Chip Hodgkins
312.676.5774
chodgkins@inwk.com
or
Bridget Freas
312.589.5613
bfreas@inwk.com