InnerWorkings Announces First Quarter 2016 Results
First quarter revenue grew 12%; significant profit improvement; continued momentum of new contract wins
CHICAGO, IL - May 9, 2016 - 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
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| • | Revenue was $271.1 million, an increase of 12.0% compared with $242.1 million in the first quarter of 2015. |
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| • | 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. |
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| • | Non-GAAP adjusted EBITDA was $12.6 million, reflecting 32.5% growth as compared to $9.5 million in the first quarter of 2015. |
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| • | 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
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| • | 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. |
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| • | 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.
CONTACT:
Bridget Freas
InnerWorkings, Inc.
312.589.5613
bfreas@inwk.com
Condensed Consolidated Statements of Income
|
| | | | | | | |
| (in thousands) | Three Months Ended March 31, |
| | 2016 | | 2015 |
| | (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
|
| | | | | | | |
| (in thousands) | March 31,
2016 | | December 31, 2015 |
| | (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
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| | | | | | | |
| (in thousands) | Three Months Ended March 31, |
| | 2016 | | 2015 |
| | (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, |
| | 2016 | | 2015 |
| 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, |
| | 2016 | | 2015 |
| 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 |
|
