INWK InnerWorkings Inc

$85 million in new business awarded year to date;

detailed plan underway to reduce G&A expenses by $20 million to improve profitability

InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three and six months ended June 30, 2018. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

“One of the best indicators of a company's strength is its ability to grow within its existing clients. We have been awarded additional work with two existing accounts in just the last two weeks, and our pipeline is full of opportunities to further penetrate our customer base,” said Chief Executive Officer Rich Stoddart. “With the momentum of our new wins and a robust plan to improve our cost structure, InnerWorkings is poised to deliver significant value for our shareholders.”

Financial and Business Highlights

• Gross revenue was $282.0 million in the second quarter of 2018, an increase of 1% compared to $280.1 million in the second quarter of 2017. Excluding currency impacts, second quarter gross revenue increased 4% compared to the same period of last year.
• Gross profit (net revenue) was $64.9 million, or 23.0% of gross revenue in the second quarter of 2018, compared to $70.0 million, or 25.0% of revenue, in the same period of last year.
• Net loss for the second quarter of 2018 was $(0.3) million, or $(0.01) per diluted share, compared to net income of $4.4 million, or $0.08 per diluted share in the second quarter of 2017.
• Non-GAAP earnings per diluted share for the second quarter of 2018 was $0.01, compared to $0.12 in the second quarter of 2017.
• Non-GAAP adjusted EBITDA was $8.2 million in the second quarter of 2018, compared to $16.5 million in the second quarter of 2017.
• InnerWorkings has been awarded additional work from new and existing clients so far during 2018, which collectively is expected to drive $85 million of annual revenue at full run-rate. Recent new wins include two expansions with global Fortune 500 companies in the healthcare and food verticals.

Cost Reduction Plan

InnerWorkings has implemented an aggressive cost reduction plan which is expected to enable the company to reduce selling, general and administrative expenses in 2019 to be in line with 2017 expenses. The Company expects to reduce annualized G&A expenses by $20 million over the next few quarters, with reductions made across the business to optimize staffing levels, realign underperforming operations, and better leverage talent across accounts.

“We have already initiated cost reduction measures with approximately 50% of the plan to be actioned by October 1st,” said Chip Hodgkins, Interim Chief Financial Officer of InnerWorkings. “If in 2019 we achieve a similar gross revenue growth rate and gross margin as compared to this year, these cost reductions are expected to enable 2019 non-GAAP adjusted EBITDA of $65 to $70 million, or approximately 30% above our expectation for 2018.”

Outlook

The Company reaffirmed its 2018 guidance for gross revenue at a range of $1.155 billion to $1.190 billion, representing growth of 1% to 4% compared to 2017. 2018 gross margin is expected to be approximately 24%. Non-GAAP adjusted EBITDA is expected to be between $50 million and $53 million in 2018. The Company forecasts 2018 non-GAAP diluted earnings per share to be $0.30 to $0.33. Including the benefits of the cost reduction plan mentioned above, the Company expects non-GAAP adjusted EBITDA to be between $65 million and $70 million in 2019.

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 http://investor.inwk.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, non-GAAP diluted earnings per share and constant currency revenue. 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. With respect to constant currency, we believe such presentation allows investors to measure our financial performance exclusive of foreign currency exchange fluctuations more clearly. Constant currency revenue is calculated by retranslating current period revenue at a consistent rate with the prior period results. This approach is based on the pricing currency for each country, which is typically the functional currency. 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, non-GAAP diluted earnings per share, and constant currency 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/A.

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 June 30,         Six Months Ended June 30, 2018   2017         2018   2017 (as restated)           (as restated) Revenue $ 281,967 $ 280,066 $ 556,506 $ 544,471 Cost of goods sold 217,096   210,020   425,568   409,721   Gross profit 64,871 70,046 130,938 134,750 Operating expenses: Selling, general and administrative expenses 59,002 55,054 120,169 108,669 Depreciation and amortization 3,514 3,182 7,173 6,086 Change in fair value of contingent consideration —   1,884   —   844   Income from operations 2,355 9,926 3,596 19,151 Other income (expense): Interest income 54 12 115 46 Interest expense (1,517 ) (1,038 ) (3,085 ) (2,041 ) Other, net (588 ) (1,164 )         (1,433 )   (1,388 ) Total other expense (2,051 ) (2,190 )         (4,403 )   (3,383 ) (Loss) income before income taxes 304 7,736 (807 ) 15,768 Income tax expense 603   3,362           1,176     5,716   Net (loss) income $ (299 ) $ 4,374           $ (1,983 )   $ 10,052     Basic (loss) earnings per share $ (0.01 ) $ 0.08 $ (0.04 ) $ 0.19 Diluted (loss) earnings per share $ (0.01 ) $ 0.08 $ (0.04 ) $ 0.18   Weighted-average shares outstanding – basic 51,770 53,278 52,738 53,665 Weighted-average shares outstanding – diluted 51,770 55,189 52,738 55,070  

Condensed Consolidated Balance Sheets

          December 31, (in thousands) June 30, 2018 2017 (unaudited) (as restated) Assets Current assets: Cash and cash equivalents $ 28,266 $ 30,562 Accounts receivable, net 185,222 205,386 Unbilled revenue 47,906 50,016 Inventories 40,781 40,694 Prepaid expenses 20,584 18,565 Other current assets 26,296   37,865   Total current assets 349,055 383,088 Property and equipment, net 68,028 36,714 Intangibles and other assets: Goodwill 199,135 199,946 Intangible assets, net 25,068 27,563 Deferred income taxes 1,084 691 Other non-current assets 2,047   1,636   Total intangibles and other assets 227,334   229,836   Total assets $ 644,417   $ 649,638   Liabilities and stockholders' equity Current liabilities: Accounts payable $ 122,452 $ 141,164 Accrued expenses 34,386 34,391 Deferred revenue 20,022 17,620 Revolving credit facility - current 136,538 — Other current liabilities 22,770   24,078   Total current liabilities 336,168 217,253 Revolving credit facility - non-current — 128,398 Financing obligation - build-to-suit leases 31,147 — Deferred income taxes 12,236 12,043 Other non-current liabilities 7,075   7,399   Total liabilities 386,626 365,093 Stockholders' equity: Common stock 6 6 Additional paid-in capital 237,634 235,199 Treasury stock at cost (81,471 ) (55,873 ) Accumulated other comprehensive loss (21,472 ) (19,229 ) Retained earnings 123,094   124,442   Total stockholders' equity 257,791   284,545   Total liabilities and stockholders' equity $ 644,417   $ 649,638   Condensed Consolidated Statement of Cash Flows (Unaudited)   (in thousands)     Six Months Ended June 30, 2018     2017 (as restated) Cash flows from operating activities Net income (loss) $ (1,983 ) $ 10,052 Adjustments to reconcile net (loss) income to net cash from operating activities: Depreciation and amortization 7,173 6,086 Stock-based compensation expense 2,823 2,921 Deferred income taxes — 624 Bad debt provision 630 82 Implementation cost amortization 263 — Change in fair value of contingent consideration — 844 Payments of contingent consideration — (662 ) Other operating activities (154 ) 104 Change in assets: Accounts receivable and unbilled revenue 21,643 (26,620 ) Inventories (87 ) 1,890 Prepaid expenses and other assets 9,424 (971 ) Change in liabilities: Accounts payable (18,735 ) 3,370 Accrued expenses and other liabilities 1,643   (69 ) Net cash provided by (used in) operating activities 22,640 (2,349 )   Cash flows from investing activities Purchases of property and equipment (5,490 ) (7,024 ) Net cash used in investing activities (5,490 ) (7,024 )   Cash flows from financing activities Net borrowings from revolving credit facility 8,629 11,491 Net short-term secured (repayments) borrowings (578 ) 37 Repurchases of common stock (25,689 ) (10,041 ) Payments of contingent consideration — (1,427 ) Proceeds from exercise of stock options 284 1,319 Other financing activities (695 ) (119 ) Net cash (used in) provided by financing activities (18,049 ) 1,260   Effect of exchange rate changes on cash and cash equivalents (1,397 ) 726   Decrease in cash and cash equivalents (2,296 ) (7,387 ) Cash and cash equivalents, beginning of period 30,562   30,924   Cash and cash equivalents, end of period $ 28,266   $ 23,537     Reconciliation of Non-GAAP Adjusted EBITDA, Non-GAAP Diluted Earnings Per Share and Constant Currency (Unaudited)   (in thousands)     Three Months Ended June 30,         Six Months Ended June 30, 2018   2017         2018   2017   (as restated)           (as restated) Net (loss) income $ (299 ) $ 4,374 $ (1,983 ) $ 10,052 Income tax expense 603 3,362 1,176 5,716 Interest income (54 ) (12 ) (115 ) (46 ) Interest expense 1,517 1,038 3,085 2,041 Other, net 588 1,164 1,433 1,388 Depreciation and amortization 3,514 3,182 7,173 6,086 Stock-based compensation expense 1,406 1,503 2,823 2,921 Change in fair value of contingent consideration — 1,884 — 844 Professional fees related to ASC 606 implementation 60 — 1,092 — Executive search fees 234 — 234 — Restatement-related professional fees 537 — 537 — Other professional fees 80     —           80     —   Non-GAAP Adjusted EBITDA $ 8,186     $ 16,493           $ 15,535     $ 29,002     (in thousands, except per share amounts)     Three Months Ended June 30,         Six Months Ended June 30, 2018   2017         2018   2017   (as restated)           (as restated) Net (loss) income $ (299 ) $ 4,374 $ (1,983 ) $ 10,052 Change in fair value of contingent consideration — 1,884 — 844 Czech exit from exchange rate commitment, net of tax — 294 — 294 Professional fees related to ASC 606 implementation, net of tax 45 — 819 — Executive search fees, net of tax 176 — 176 — Restatement-related professional fees, net of tax 403 — 403 — Other professional fees, net of tax 60     —           60     — Adjusted net income (loss) $ 385 $ 6,552 $ (526 ) $ 11,190 Weighted-average shares outstanding, diluted 52,528     55,189           52,738     55,070 Non-GAAP diluted earnings (loss) per share $ 0.01 $ 0.12 $ (0.01 ) $ 0.20   (in thousands)     Three Months Ended June 30,         Six Months Ended June 30, 2018         2018 Revenue as reported $ 281,967 $ 556,506 Currency impact 10,580           4,421 Constant currency revenue $ 292,547           $ 560,927  

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InnerWorkings, Inc.Bridget Freas312.589.5613bfreas@inwk.com