InnerWorkings Announces First Quarter 2016 Results

InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three months ended March 31, 2016. For all Non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

“InnerWorkings is off to a very strong start in 2016 in terms of profitable organic growth and new contracts signed,” said Eric D. Belcher, Chief Executive Officer of InnerWorkings. “By leveraging our technology, breadth of capabilities, and strong reputation, we are on track to achieve our financial targets in 2016 while continuing to deliver greater value for large, marketing-intensive companies globally.”

First Quarter 2016 Highlights

  • Revenue was $271.1 million, an increase of 12.0% compared with $242.1 million in the first quarter of 2015.
  • Gross profit was $61.9 million, or 22.9% of revenue, a 12.5% increase compared to $55.1 million, or 22.7% of revenue, in the same period of last year.
  • Non-GAAP adjusted EBITDA was $12.6 million, reflecting 32.5% growth as compared to $9.5 million in the first quarter of 2015.
  • GAAP net loss per share was $0.04 and GAAP net loss was $2.1 million, mainly due to an after-tax cash charge of $3.0 million related to the global realignment strategy and a $1.9 million increase in our earnout obligation due to the strong performance of two previously-acquired businesses. Non-GAAP diluted earnings per share were $0.06, an increase of 112.2% compared to $0.03 in the first quarter of 2015.

Operational Highlights

  • InnerWorkings has been awarded several new enterprise contracts so far during 2016, which collectively are expected to exceed $30 million of annual revenue at full run-rate, with nearly half stemming from expanded relationships with active clients.
  • The largest of the new client wins includes managing several marketing execution services for a large direct and franchise consumer and commercial services company through a dedicated onsite team of seven production managers and technology professionals.

“We succeeded in growing the top line while managing our cost structure to achieve meaningful operating leverage in the first quarter,” said Jeffrey P. Pritchett, Chief Financial Officer of InnerWorkings. “We expect to achieve additional margin improvement as we move through the year, and to increase operating leverage beyond 2016 as we on-board a growing list of new enterprise clients and continue to expand our partnerships with current clients.”

Financial Results

First quarter non-GAAP diluted earnings per share were $0.06 and GAAP net loss per share was $0.04. The two largest components of the difference between the GAAP and non-GAAP earnings per share were the strong financial performance of two businesses acquired several years ago, which created an increase in the value of our contingent consideration balance, and employee severance and contract termination costs in connection with the global realignment strategy announced in December 2015. InnerWorkings expects the realignment to be substantially complete by the end of the second quarter, leading to at least $3.0 million in profit improvement realized during 2016 and $5.0 - $6.0 million annually thereafter.

Outlook

The Company’s guidance for 2016 remains unchanged. InnerWorkings expects 2016 annual revenue to range between $1.06 billion and $1.08 billion, non-GAAP adjusted EBITDA to be between $58.0 million and $62.0 million, and non-GAAP diluted earnings per share to be $0.30 to $0.33.

Conference Call

Eric D. Belcher, Chief Executive Officer, and Jeffrey P. Pritchett, 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).

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 Securities and Exchange Commission: Non-GAAP Adjusted EBITDA and Non-GAAP diluted earnings per share. We believe these measures provide useful information to investors because they provide information about the estimated financial performance of the Company's ongoing business. These measures are used by management in its financial and operational decision-making and evaluation of overall operating 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 “GAAP to Non-GAAP Reconciliation” 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 financial 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 based in Chicago, IL and employs more than 1,500 individuals to support global clients in the execution of multi-faceted brand campaigns in every major market around the world. Among the many industries InnerWorkings serves are: retail, financial services, hospitality, consumer packaged goods, not-for-profits, healthcare, food & beverage, broadcasting & cable, and transportation. For more information visit: www.inwk.com.

Condensed Consolidated Statements of Income

(in thousands) Three Months Ended March 31,
20162015
(unaudited) (unaudited)
Revenue $ 271,073 $ 242,095
Cost of goods sold 209,127 187,031
Gross profit 61,946 55,064
Operating expenses:
Selling, general and administrative expenses 50,627 47,647
Depreciation and amortization 4,596 4,091
Change in fair value of contingent consideration 1,911 313
Restructuring and other charges 3,344
Income from operations 1,468 3,013
Other income (expense):
Interest income 14 21
Interest expense (1,077 ) (1,145 )
Other, net (161 ) 84
Total other expense (1,224 ) (1,040 )
Income before income taxes 244 1,973
Income tax expense 2,393 834
Net income (loss) $ (2,149 ) $ 1,139
Basic earnings (loss) per share $ (0.04 ) $ 0.02
Diluted earnings (loss) per share $ (0.04 ) $ 0.02
Weighted-average shares outstanding basic 53,145 52,754
Weighted-average shares outstanding diluted 53,145 53,879

Condensed Consolidated Balance Sheets

March 31,December 31,
(in thousands) 20162015
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 20,929 $ 30,755
Accounts receivable, net 200,629 188,819
Unbilled revenue 34,548 30,758
Inventories 34,715 33,327
Prepaid expenses 12,957 14,353
Other current assets 16,707 31,825
Total current assets 320,485 329,837
Property and equipment, net 33,208 32,681
Intangibles and other assets:
Goodwill 206,069 206,257
Intangible assets, net 36,577 37,715
Deferred income taxes 788 586
Other non-current assets 1,469 1,391
Total intangibles and other assets 244,903 245,949
Total assets $ 598,596 $ 608,467
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 130,048 $ 170,244
Current portion of contingent consideration 11,131 11,387
Due to seller 3,604 402
Accrued expenses 17,129 11,603
Other current liabilities 35,377 31,363
Total current liabilities 197,288 224,999
Revolving credit facility 118,615 99,258
Deferred income taxes 13,168 12,898
Contingent consideration, net of current portion 9,187 10,775
Other non-current liabilities 2,773 2,510
Total liabilities 341,031 350,440
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 215,723 213,566
Treasury stock at cost (52,207 ) (52,207 )
Accumulated other comprehensive loss (14,463 ) (13,993 )
Retained earnings 108,506 110,655
Total stockholders' equity 257,565 258,027
Total liabilities and stockholders' equity $ 598,596 $ 608,467

Cash Flow Data

(in thousands) Three Months Ended March 31,
20162015
(unaudited) (unaudited)
Cash flows from operating activities
Net income (loss) $ (2,149 ) $ 1,139
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 4,596 4,091
Stock-based compensation expense 1,241 2,061
Deferred income taxes (68 ) (7 )
Bad debt provision 656 875
Change in fair value of contingent consideration 1,911 313
Other operating activities 52 52
Change in assets:
Accounts receivable and unbilled revenue (16,256 ) (3,952 )
Inventories (1,388 ) (6,489 )
Prepaid expenses and other assets 16,382 3,100
Change in liabilities:
Accounts payable (40,196 ) (3,850 )
Accrued expenses and other liabilities 10,653 (3,608 )
Net cash used in operating activities (24,566 ) (6,275 )
Cash flows from investing activities
Purchases of property and equipment (3,987 ) (3,719 )
Net cash used in investing activities (3,987 ) (3,719 )
Cash flows from financing activities
Net borrowings from revolving credit facility 19,358 5,580
Net short-term secured borrowings (repayments) (1,803 ) 89
Repurchases of common stock (3,500 )
Payments of contingent consideration (525 ) (438 )
Proceeds from exercise of stock options 984 39
Other financing activities 382 (99 )
Net cash provided by financing activities 18,396 1,671
Effect of exchange rate changes on cash and cash equivalents 331 (849 )
Decrease in cash and cash equivalents (9,826 ) (9,172 )
Cash and cash equivalents, beginning of period 30,755 22,578
Cash and cash equivalents, end of period $ 20,929 $ 13,406
Reconciliation of Non-GAAP Adjusted EBITDA and Non-GAAP Diluted Earnings Per Share
(Unaudited)
(in thousands) Three Months Ended March 31,
20162015
Net income (loss) $ (2,149 ) $ 1,139
Income tax expense 2,393 834
Total other expense 1,224 1,040
Depreciation and amortization 4,596 4,091
Stock-based compensation expense 1,241 2,061
Change in fair value of contingent consideration 1,911 313
Restructuring and other charges 3,344
Non-GAAP Adjusted EBITDA $ 12,560 $ 9,478
(in thousands, except per share amounts) Three Months Ended March 31,
20162015
Net income (loss) $ (2,149 ) $ 1,139
Change in fair value of contingent consideration, net of tax 1,911 311
Restructuring and other charges, net of tax 2,964
Realignment-related income tax charges 397
Adjusted net income $ 3,123 $ 1,450
Weighted-average shares outstanding diluted 54,688 53,879
Non-GAAP Diluted Earnings Per Share $ 0.06 $ 0.03

Contacts:

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

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