INWK InnerWorkings Inc

Record $142 million in new business awarded to date in 2019

Adjusted EBITDA up 15% year to date

InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three and nine months ended September 30, 2019. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

“We are successfully executing our strategy to achieve profitable growth,” said Chief Executive Officer Rich Stoddart. “Our year-to-date operating expenses have declined despite growth in revenue and we have continued to sign more business with new and existing clients, reaching a new annual record with a robust pipeline and two months remaining in the year.”

Financial and Business Highlights

• Gross revenue was $286.5 million in the third quarter of 2019, an increase of 6% compared to $270.9 million in the third quarter of 2018. Excluding currency impact, third quarter gross revenue increased 7% compared to the same period of last year.
• Gross profit (net revenue) was $68.2 million, or 23.8% of gross revenue in the third quarter of 2019, compared to $64.0 million, or 23.6% of gross revenue, in the same period of last year. Third quarter gross profit (net revenue) increased 6% over the prior period and 7% excluding currency impact.
• Net loss for the third quarter of 2019 was $(2.2) million, or $(0.04) per diluted share, compared to net loss of $(44.9) million, or $(0.87) per diluted share in the third quarter of 2018.
• Adjusted diluted earnings per share for the third quarter of 2019 was $0.05, compared to $0.04 in the third quarter of 2018. Year-to-date adjusted diluted earnings per share was $0.12, compared to $0.03 in the same period of 2018.
• Adjusted EBITDA was $11.6 million in the third quarter of 2019, compared to $12.2 million in the third quarter of 2018. Year-to-date adjusted EBITDA was $31.8 million, an increase of 15% compared to the same period of 2018.
• Additional work from new and existing clients awarded to date in 2019 amounts to approximately $142 million of annual revenue at full run-rate.

“We have already surpassed 2018's full-year adjusted EBITDA only three quarters into 2019,” said Don Pearson, Chief Financial Officer. “We expect this momentum to continue as we finish the year and into 2020 as we continue to realize the benefits of our $15 million cost reduction plan announced in March 2019. We are on track to realize $4 million of these cost savings this year, with most of the remaining $11 million to be realized next year, setting the stage for significant sustainable profitable growth in 2020 and beyond.”

Outlook

The Company is adjusting its guidance for gross revenue primarily to reflect approximately $20 million of negative currency impact sustained year to date. Gross revenue is now expected to be in a range of $1.13 to $1.15 billion for 2019, which represents 1% to 3% growth compared to 2018. The revised revenue guidance compares to prior guidance of $1.15 to $1.18 billion. The Company is maintaining its 2019 guidance for adjusted EBITDA, which is expected to be in the range of $44 to $47 million. The Company is revising its adjusted diluted earnings per share guidance to be in the range of $0.16 to $0.20 for 2019, compared to the prior guidance range of $0.20 to $0.24, primarily due to higher interest and income tax expenses than previously expected.

Conference Call

Rich Stoddart, Chief Executive Officer, and Don Pearson, 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: adjusted EBITDA, adjusted 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 adjusted EBITDA, adjusted diluted earnings per share, and constant currency included in this release.

The Company has not quantitatively reconciled its guidance for adjusted EBITDA and adjusted diluted earnings per share to their most comparable GAAP measures because certain of the reconciling items that impact these measures, including restructuring charges, stock-based compensation expense and control remediation-related fees affecting the period, have not occurred, are outside the Company’s control, or cannot be reasonably predicted. Accordingly, reconciliations to the nearest GAAP financial measures are 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 Operations

(In thousands, except per share data)

(unaudited)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Revenue

$

286,525

 

 

$

270,850

 

 

$

837,816

 

 

$

827,356

 

Cost of goods sold

218,356

 

 

206,808

 

 

639,385

 

 

632,376

 

Gross profit

68,169

 

 

64,042

 

 

198,431

 

 

194,980

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses

59,938

 

 

56,142

 

 

174,404

 

 

176,312

 

Depreciation and amortization

3,090

 

 

3,265

 

 

8,939

 

 

10,438

 

Goodwill impairment

—

 

 

27,887

 

 

—

 

 

27,887

 

Intangible and other asset impairments

—

 

 

16,818

 

 

—

 

 

16,818

 

Restructuring charges

3,055

 

 

3,142

 

 

10,687

 

 

3,142

 

Income (loss) from operations

2,086

 

 

(43,212

)

 

4,401

 

 

(39,617

)

Other income (expense):

 

 

 

 

 

 

 

Interest income

37

 

 

19

 

 

239

 

 

135

 

Interest expense

(4,376

)

 

(1,769

)

 

(9,608

)

 

(4,854

)

Other expense

(1,736

)

 

(301

)

 

(2,196

)

 

(1,734

)

Total other expense

(6,075

)

 

(2,051

)

 

(11,565

)

 

(6,453

)

Loss before income taxes

(3,989

)

 

(45,263

)

 

(7,164

)

 

(46,070

)

Income tax expense (benefit)

(1,815

)

 

(326

)

 

(1,359

)

 

851

 

Net loss

$

(2,174

)

 

$

(44,937

)

 

$

(5,805

)

 

$

(46,921

)

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

$

(0.04

)

 

$

(0.87

)

 

$

(0.11

)

 

$

(0.90

)

 

 

 

 

 

 

 

 

Weighted-average shares outstanding – basic

53,320

 

 

51,688

 

 

53,235

 

 

52,384

 

Weighted-average shares outstanding – diluted

53,320

 

 

51,688

 

 

53,235

 

 

52,384

 

Condensed Consolidated Balance Sheets

(In thousands)

 

September 30, 2019

 

December 31, 2018

 

(unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

38,488

 

 

$

26,770

 

Accounts receivable, net of allowance for doubtful accounts of $4,247 and $4,880, respectively

190,992

 

 

193,253

 

Unbilled revenue

65,584

 

 

46,474

 

Other receivables

39,317

 

 

23,727

 

Inventories

64,136

 

 

56,001

 

Prepaid expenses

13,973

 

 

16,982

 

Other current assets

13,271

 

 

10,379

 

Total current assets

425,761

 

 

373,586

 

Property and equipment, net

36,714

 

 

82,933

 

Intangibles and other assets:

 

 

 

Goodwill

152,191

 

 

152,158

 

Intangible assets, net

8,230

 

 

9,828

 

Right of use assets, net

51,726

 

 

—

 

Deferred income taxes

1,112

 

 

1,195

 

Other non-current assets

4,333

 

 

2,976

 

Total intangibles and other assets

217,592

 

 

166,157

 

Total assets

$

680,067

 

 

$

622,676

 

Liabilities and stockholders' equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

169,173

 

 

158,449

 

Accrued expenses

44,096

 

 

35,474

 

Deferred revenue

18,526

 

 

17,614

 

Revolving credit facility - current

4,585

 

 

142,736

 

Term loan - current

6,250

 

 

—

 

Other current liabilities

32,325

 

 

26,231

 

Total current liabilities

274,955

 

 

380,504

 

Lease liabilities

47,094

 

 

—

 

Revolving credit facility - non-current

76,829

 

 

—

 

Term loan - non-current

89,991

 

 

—

 

Deferred income taxes

8,257

 

 

8,178

 

Other non-current liabilities

2,486

 

 

50,903

 

Total liabilities

499,612

 

 

439,585

 

Commitments and contingencies

 

 

 

Stockholders' equity:

 

 

 

Common stock

6

 

 

6

 

Additional paid-in capital

243,706

 

 

239,960

 

Treasury stock at cost

(81,471

)

 

(81,471

)

Accumulated other comprehensive loss

(25,045

)

 

(24,309

)

Retained earnings

43,259

 

 

48,905

 

Total stockholders' equity

180,455

 

 

183,091

 

Total liabilities and stockholders' equity

$

680,067

 

 

$

622,676

 

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

 

Nine Months Ended September 30,

 

2019

 

2018

 

 

 

 

Cash flows from operating activities

 

 

 

Net loss

$

(5,805

)

 

$

(46,921

)

Adjustments to reconcile net loss to net cash from operating activities:

 

 

 

Depreciation and amortization

8,939

 

 

10,438

 

Stock-based compensation expense

4,219

 

 

3,624

 

Bad debt provision

1,447

 

 

888

 

Implementation cost amortization

250

 

 

344

 

Goodwill impairment

—

 

 

27,887

 

Intangible and long-lived asset impairment

—

 

 

16,818

 

Change in fair value of warrant

950

 

 

—

 

Change in fair value of embedded derivative

(97

)

 

—

 

Unrealized foreign exchange loss

986

 

 

—

 

Other operating activities

705

 

 

(189

)

Change in assets:

 

 

 

Accounts receivable and unbilled revenue

(21,245

)

 

5,810

 

Inventories

(8,767

)

 

(16,469

)

Prepaid expenses and other assets

(29,141

)

 

(7,903

)

Change in liabilities:

 

 

 

Accounts payable

12,403

 

 

20,350

 

Accrued expenses and other liabilities

25,378

 

 

(4,572

)

Net cash (used in) provided by operating activities

(9,778

)

 

10,105

 

 

 

 

 

Cash flows from investing activities

 

 

 

Purchases of property and equipment

(10,012

)

 

(7,835

)

Payments for acquisition, net of cash acquired

(390

)

 

—

 

Net cash used in investing activities

(10,402

)

 

(7,835

)

 

 

 

 

Cash flows from financing activities

 

 

 

Net borrowings (repayments) from old revolving credit facility

(142,583

)

 

23,230

 

Net borrowings (repayments) from new revolving credit facility

81,472

 

 

—

 

Net short-term secured (repayments) borrowings

(833

)

 

55

 

Proceeds from term loan

100,000

 

 

—

 

Payments on term loan

(1,250

)

 

—

 

Repurchases of common stock

—

 

 

(25,689

)

Proceeds from exercise of stock options

63

 

 

416

 

Payment of debt issuance costs

(5,488

)

 

(545

)

Other financing activities

(242

)

 

(746

)

Net cash provided by (used in) financing activities

31,139

 

 

(3,279

)

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

759

 

 

(1,958

)

Increase (Decrease) in cash and cash equivalents

11,718

 

 

(2,967

)

Cash and cash equivalents, beginning of period

26,770

 

 

30,562

 

Cash and cash equivalents, end of period

$

38,488

 

 

$

27,595

 

Reconciliation of Adjusted EBITDA and Adjusted Diluted Earnings Per Share

(In thousands, except per share amounts)

(Unaudited)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Net loss

$

(2,174

)

 

$

(44,937

)

 

$

(5,805

)

 

$

(46,921

)

Income tax (benefit) expense

(1,815

)

 

(326

)

 

(1,359

)

 

851

 

Interest income

(37

)

 

(19

)

 

(239

)

 

(135

)

Interest expense

4,376

 

 

1,769

 

 

9,608

 

 

4,854

 

Other expense

1,736

 

 

301

 

 

2,196

 

 

1,734

 

Depreciation and amortization

3,090

 

 

3,265

 

 

8,939

 

 

10,438

 

Stock-based compensation expense

1,783

 

 

801

 

 

3,924

 

 

3,624

 

Stock appreciation rights marked to market

248

 

 

—

 

 

294

 

 

—

 

Goodwill impairment

—

 

 

27,887

 

 

—

 

 

27,887

 

Intangible and long-lived asset impairment

—

 

 

16,818

 

 

—

 

 

16,818

 

Restructuring charges

3,055

 

 

3,142

 

 

10,687

 

 

3,142

 

Professional fees related to ASC 606 implementation

—

 

 

—

 

 

—

 

 

1,092

 

Senior leadership transition and other employee-related costs

—

 

 

1,153

 

 

—

 

 

1,153

 

Obsolete retail inventory

—

 

 

950

 

 

—

 

 

950

 

Executive search fees

—

 

 

—

 

 

80

 

 

235

 

Control remediation-related fees

378

 

 

1,358

 

 

918

 

 

1,895

 

Sales and use tax audit

—

 

 

—

 

 

1,235

 

 

—

 

Other professional fees

967

 

 

81

 

 

1,343

 

 

162

 

Adjusted EBITDA

$

11,607

 

 

$

12,243

 

 

$

31,821

 

 

$

27,779

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Net loss

$

(2,174

)

 

$

(44,937

)

 

$

(5,805

)

 

$

(46,921

)

Goodwill impairment

—

 

 

27,887

 

 

—

 

 

27,887

 

Intangible and long-lived asset impairment, net of tax

—

 

 

14,037

 

 

—

 

 

14,037

 

Restructuring charges, net of tax

2,401

 

 

2,584

 

 

8,203

 

 

2,584

 

Senior leadership transition and other employee-related costs, net of tax

—

 

 

844

 

 

—

 

 

844

 

Obsolete inventory, net of tax

—

 

 

769

 

 

—

 

 

769

 

Professional fees related to ASC 606 implementation, net of tax

—

 

 

—

 

 

—

 

 

819

 

Executive search fees, net of tax

—

 

 

—

 

 

60

 

 

176

 

Control remediation-related fees, net of tax

281

 

 

984

 

 

683

 

 

1,387

 

Sales and use tax audit, net of tax

—

 

 

—

 

 

920

 

 

—

 

Other professional fees, net of tax

721

 

 

59

 

 

1,001

 

 

119

 

Fair value of warrants and derivatives

853

 

 

—

 

 

853

 

 

—

 

Foreign exchange loss

773

 

 

—

 

 

773

 

 

—

 

Adjusted net income

$

2,855

 

 

$

2,227

 

 

$

6,688

 

 

$

1,701

 

 

 

 

 

 

 

 

 

GAAP Weighted-average shares outstanding – diluted

53,320

 

 

51,688

 

 

53,235

 

 

52,384

 

Effect of dilutive securities:

 

 

 

 

 

 

 

Employee stock options and restricted common shares

4

 

 

304

 

 

280

 

 

633

 

Adjusted Weighted-average shares outstanding – diluted

53,324

 

 

51,992

 

 

53,515

 

 

53,017

 

Adjusted diluted earnings per share

$

0.05

 

 

$

0.04

 

 

$

0.12

 

 

$

0.03

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20191107005954/en/

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