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InnerWorkings Announces Third Quarter 2013 Results



  InnerWorkings Announces Third Quarter 2013 Results

 Core Enterprise Business Remains Strong; Third Quarter Results and Full Year
Guidance Impacted by Performance of the Productions Graphics Business Acquired
                                   in 2011

Business Wire

CHICAGO -- November 6, 2013

InnerWorkings, Inc. (NASDAQ: INWK), a leading global marketing supply chain
company, today reported results for the three months ended September 30, 2013.

Quarterly Highlights:

  * Revenue increased 16% to $232.6 million, compared to $199.8 million in the
    third quarter of 2012. New enterprise account growth was $20 million,
    representing 10% growth over the prior year period.
  * Non-GAAP Adjusted EBITDA was $8.5 million, compared to $11.3 million in
    the third quarter of 2012, due primarily to lower profitability from
    Productions Graphics and the spending reduction by a large retail customer
    announced in the first quarter of 2013. Please refer to the Non-GAAP
    reconciliation table below for more information.
  * Non-GAAP Adjusted Operating Cash Flow was $1.6 million, compared to
    Non-GAAP Adjusted Operating Cash Flow of $1.4 million in the third quarter
    of 2012. Please refer to the non-GAAP reconciliation table below for more
    information.
  * A restructuring and write down charge of $4.3 million, or a $0.05 impact
    to GAAP diluted earnings per share, was incurred to transition the Inside
    Sales division to a new customer acquisition strategy.
  * Non-GAAP diluted earnings per share were $0.05, compared to $0.10 in the
    third quarter of 2012. Approximately $0.05 of the Non-GAAP diluted
    earnings per share underperformance is attributable to the Productions
    Graphics business versus the same period in 2012. GAAP diluted earnings
    per share were $0.14 compared to $0.10 in the third quarter of 2012, due
    primarily to a $0.87 impact from a contingent liability release related to
    the performance of Productions Graphics, partially offset by a related
    European goodwill impairment charge of $0.73.

“While our core enterprise business continues to drive our growth globally,
the performance of Productions Graphics in Europe and the restructuring of our
Inside Sales division resulted in lower profitability for the quarter,” said
Eric D. Belcher, Chief Executive Officer of InnerWorkings. “We have already
taken action to proactively address these areas of our business. In Europe, we
have installed new leadership and, with our Inside Sales division, we are
pivoting towards a new customer acquisition strategy through a channel
partnership.”

Additional third quarter 2013 financial and recent operational highlights
include the following:

  * 78% of the Company’s revenues were generated from the enterprise channel,
    with the remaining 22% derived from the middle market channel.
  * An enterprise agreement was signed with a new global consumer package
    goods company to manage their permanent in-store display program, in
    addition to providing traditional print management services. The Company
    estimates this new agreement will generate approximately $15 million of
    annual revenue once it is fully implemented.
  * New agreements have been signed with several existing clients to expand
    into new geographies around the world. Most recently, the Company became
    the global provider of print and promotional materials for
    Intercontinental Hotel Group by expanding its relationship into Europe and
    the Middle East.
  * New client agreements were signed with two large charitable organizations
    to manage direct mail campaigns and other fundraising materials. These
    agreements further establish the Company’s growing presence in the
    non-profit sector.

“While we are disappointed by the results of Productions Graphics, we remain
confident in our long-term growth in Europe,” said Joseph M. Busky, Chief
Financial Officer. “Our year-over-year organic growth in the region was 10% in
the third quarter and the European-based businesses we have acquired this year
have exceeded our expectations.”

 
Revenue Growth - Comparing 2013 to 2012
                                     Q3                YTD     
                                     $(MM)    Q3 %     $(MM)    YTD %
                                     Change   Change   Change   Change
New Enterprise Account Growth        $20      10%      $58      10%
New Middle Market Growth             $0       0%       $1       0%
Same Customer Spend                  ($4)     -2%      ($18)    -3%
Lost Customer Spending (1)           ($11)    -6%      ($19)    -3%
Acquisitive Growth                   $28      14%      $37      6%
Total Revenue Growth                 $33      16%      $58      10%
Total Organic Revenue Growth (2)     $16      8%       $42      7%

(1) Related to spending reduction from large retail customer announced in
April 2013.
(2) Excludes lost customer spending and acquisitive growth.
 

Outlook

The Company is lowering its 2013 revenue guidance from a range of $910 to $940
million to a range of $865 to $880 million, representing 9 to 10% revenue
growth over 2012. The Company is lowering its 2013 GAAP diluted earnings per
share guidance from a range of $0.45 to $0.50 to a range of $0.16 to $0.20.
The revisions are due primarily to the performance of Productions Graphics.

Conference Call

A conference call to discuss the Company’s third quarter 2013 results will be
broadcast live on Wednesday, November 6, 2013, at 4:30 p.m. Central Time (5:30
p.m. Eastern Time). The live webcast discussion, which will include a Q&A
session, will be hosted by Eric D. Belcher, Chief Executive Officer, and
Joseph M. Busky, Chief Financial Officer.

To access the conference call by telephone, interested parties may dial (877)
771-7024. Interested parties are also invited to listen to the live webcast by
visiting the Investor "Events & Presentations" section of InnerWorkings'
website at investor.inwk.com/events.cfm. A replay of the webcast will be
available later that day in the same section of the website.

About InnerWorkings

InnerWorkings, Inc. (NASDAQ: INWK) is a leading global marketing supply chain
company servicing corporate clients across a wide range of industries. With
proprietary technology, an extensive supplier network and deep domain
expertise, the Company procures, manages and delivers printed materials and
promotional products as part of a comprehensive outsourced enterprise
solution. InnerWorkings is based in Chicago, IL, employs approximately 1,500
individuals, and maintains 60 global offices. Among the many industries
InnerWorkings services are: retail, financial services, hospitality,
non-profits, healthcare, food & beverage, broadcasting & cable, education,
transportation and utilities.

For more information visit: www.inwk.com[.]

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, Non-GAAP Adjusted Operating Cash Flow and Non-GAAP
diluted earnings per share. We believe that Non-GAAP Adjusted EBITDA, Non GAAP
Adjusted Operating Cash Flow and Non-GAAP diluted earnings per share provide
useful information to investors because they provide information about the
estimated financial performance of the Company's ongoing business. Non-GAAP
Adjusted EBITDA, Non-GAAP Adjusted Operating Cash Flow and Non-GAAP diluted
earnings per share are used by management in its financial and operational
decision-making and evaluation of overall operating performance. Non-GAAP
Adjusted EBITDA, Non-GAAP Adjusted Operating Cash Flow and Non-GAAP diluted
earnings per share may be different from similar measures used by other
companies. 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, see "Reconciliation of
Non-GAAP Adjusted EBITDA, Non-GAAP Adjusted Operating Cash Flow 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.

 
Consolidated Statements of Income (Unaudited)
                                                                        
                   Three Months Ended September 30,    Nine Months Ended September 30,
                   2012              2013              2012              2013
Revenue            $ 199,768,676     $ 232,629,788     $ 589,712,549     $ 647,821,539
Cost of goods        152,887,337       179,511,134       453,591,764       500,533,788  
sold
Gross profit         46,881,339        53,118,654        136,120,785       147,287,751
Operating
expenses:
  Selling,
  general and        36,253,631        45,832,645        106,514,313       130,866,672
  administrative
  expenses
  Depreciation
  and                2,696,255         3,880,431         8,077,332         8,994,494
  amortization
  Change in fair
  value of           330,791           (46,793,951 )     797,476           (47,834,508 )
  contingent
  consideration
  Goodwill
  impairment         -                 37,908,000        -                 37,908,000
  charge
  Restructuring
  and asset          -                 4,321,862         -                 4,321,862    
  write down
  charges
Income from          7,600,662         7,969,667         20,731,664        13,031,231   
operations
Total other          (166,915    )     (728,047    )     (921,202    )     (2,140,743  )
expense
Income before        7,433,747         7,241,620         19,810,462        10,890,488
income taxes
Income tax           2,457,403         (50,301     )     6,672,030         800,092      
expense
Net income         $ 4,976,344       $ 7,291,921       $ 13,138,432      $ 10,090,396   
                                                                          
Basic earnings     $ 0.10            $ 0.14            $ 0.27            $ 0.20
per share
Diluted earnings   $ 0.10            $ 0.14            $ 0.26            $ 0.19
per share
                                                                          
Weighted average
shares               49,406,180        51,157,933        48,408,532        50,743,576
outstanding,
basic
Weighted average
shares               51,244,909        52,217,066        51,038,573        52,122,553
outstanding,
diluted

                                                                
Consolidated Balance Sheets
                                                                  
                                                 December 31,    September 30,
                                                 2012            2013
                                                                 (unaudited)
Cash and cash equivalents                        $ 17,218,899    $ 19,224,801
Accounts receivable, net of allowance for          149,246,568     167,059,275
doubtful accounts
Unbilled revenue                                   30,798,230      28,920,833
Inventories                                        17,406,863      29,423,436
Prepaid expenses                                   16,210,053      10,689,569
Other current assets                               22,565,321      26,806,150
Total long-term assets                             268,797,648     331,054,159
Total assets                                     $ 522,243,582   $ 613,178,223
                                                                  
Accounts payable-trade                           $ 121,132,051   $ 143,507,594
Other current liabilities                          44,262,065      54,614,732
Revolving credit facility                          65,000,000      91,500,000
Other long-term liabilities                        68,870,021      81,401,452
Total stockholders' equity                         222,979,445     242,154,445
Total liabilities and stockholders' equity       $ 522,243,582   $ 613,178,223

                                                              
Cash Flow Data (Unaudited)
                                                                
                                             Nine Months Ended September 30,
                                             2012              2013
Net cash provided by (used in) operating     $ (13,100,484 )   $ 14,858,869
activities
Net cash used in investing activities          (10,793,609 )     (28,486,508 )
Net cash provided by financing activities      20,163,365        15,512,553   
Effect of exchange rate changes on cash        (332,194    )     120,988      
and cash equivalents
Increase (decrease) in cash and cash           (4,062,922  )     2,005,902
equivalents
Cash and cash equivalents, beginning of        13,219,385        17,218,899   
period
Cash and cash equivalents, end of period     $ 9,156,463       $ 19,224,801   

                                                                    
Reconciliation of Adjusted EBITDA, Adjusted Operating Cash Flows and Adjusted
Diluted EPS (Unaudited)
                                 
                 Three Months Ended September 30,  Nine Months Ended September 30,
                 2012             2013             2012              2013
                                                                      
Operating        $ 7,600,662      $ 7,969,667      $ 20,731,664      $ 13,031,231
income
Depreciation
and                2,696,255        3,880,431        8,077,332         8,994,494
amortization
Stock-based
compensation       719,699          982,082          3,171,073         3,036,188
expense
Change in fair
value of           330,791          (46,793,951 )    797,476           (47,834,508 )
contingent
consideration
Goodwill
impairment         -                37,908,000       -                 37,908,000
charge
Restructuring
and asset          -                4,321,862        -                 4,321,862
write down
charges
Legal fees in
connection
with patent        -                209,075          -                 961,295      
infringement
defense
Adjusted         $ 11,347,407     $ 8,477,166      $ 32,777,545      $ 20,418,562   
EBITDA
                                                                      
                                                                      
                 Three Months Ended September 30,  Nine Months Ended September 30,
                 2012             2013             2012              2013
                                                                      
Net cash
provided by
(used in)        $ (3,103,935 )   $ 6,553,846      $ (13,100,484 )   $ 14,858,869
operating
activities
Excess tax
benefit from       905,122          (2,834,634  )    8,352,190         (1,768,277  )
exercise of
stock awards *
Cash paid for
settlement of      -                -                -                 900,000
preference
claim
Prepayment
(refund) of
VAT assessment     3,604,866        (2,166,664  )    3,604,866         (2,166,664  )
in United
Kingdom**
Adjusted net
cash provided
by (used in)     $ 1,406,053      $ 1,552,548      $ (1,143,428  )   $ 11,823,928   
operating
activities
                                                                      
* Represents a U.S. tax deduction in an amount equal to the excess of the market
price of the stock on the date of exercise over exercise price.
** Represents a payment made to Her Majesty's Revenue and Customers for VAT
assessments in the U.K. and the refund of the prepayment less the final assessment.
                                                                      
                 Three Months Ended September 30,  Nine Months Ended September 30,
                 2012             2013             2012              2013
Net income       $ 4,976,344      $ 7,291,921      $ 13,138,432      $ 10,090,396
Change in fair
value of
contingent         203,767          (45,457,561 )    491,245           (46,498,118 )
consideration,
net of tax
Goodwill
impairment         -                37,908,000       -                 37,908,000
charge
Restructuring
and asset
write down         -                2,627,692        -                 2,627,692
charges, net
of tax
Legal fees in
connection
with patent        -                127,118          -                 584,467      
infringement
defense, net
of tax
Adjusted net     $ 5,180,111      $ 2,497,170      $ 13,629,677      $ 4,712,437
income
                                                                      
Weighted
average shares     51,244,909       52,217,066       51,038,573        52,122,553
outstanding,
diluted
                                                                      
Adjusted         $ 0.10           $ 0.05           $ 0.27            $ 0.09         
Diluted EPS

Contact:

InnerWorkings, Inc.
Brad Moore
(312) 277-1510
bmoore@inwk.com
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