InnerWorkings Announces Fourth Quarter and Full-Year 2018 Results
Over $40M in new business awarded to date in 2019; $136 million
signed in 2018
CHICAGO–(BUSINESS WIRE)–InnerWorkings,
Inc. (NASDAQ: INWK), the leading global marketing execution
firm, today announced financial results for the three and twelve months
ended December 31, 2018. For all non-GAAP references below, please refer
to the non-GAAP reconciliation tables at the end of this release for
more information.
“Our solution is resonating more than ever in the marketplace and we’re
excited by the global brands we’re onboarding or who are expanding their
work with InnerWorkings already in 2019,” said Chief Executive Officer
Rich Stoddart. “It has become clear that translating this growth into
returns for our shareholders requires a multi-year transformation to
drive sustainable operating leverage in our business. Through the
progress we’ve made on our cost reduction plan, we’ve also developed a
better understanding of what is required to realize the full potential
of this business. We are committed to doing the hard work to
significantly improve the return on every dollar spent serving our
clients, while still delivering the same excellent service quality they
expect.”
Financial and Business Highlights
-
Gross revenue was $294.2 million in the fourth quarter of 2018, a
decrease of 4% compared to $305.4 million in the fourth quarter of
2017. Excluding currency impacts, fourth quarter gross revenue
decreased 2% compared to the same period of last year. Full-year gross
revenue was $1,121.6 million, a decrease of 1% compared to $1,138.4
million in 2017. -
Gross profit (net revenue) was $60.1 million, or 20.4% of gross
revenue in the fourth quarter of 2018, compared to $68.8 million, or
22.5% of revenue, in the same period of last year. -
Net loss for the fourth quarter of 2018 was $(29.3) million, or
$(0.57) per diluted share, compared to net loss of $(0.7) million, or
$(0.01) per diluted share in the fourth quarter of 2017. Fourth
quarter net loss includes $20.9 million of goodwill and other asset
impairment charges, $5.5 million of inventory and other operational
adjustments impacting gross profit, and $2.7 million of bad debt
expense. The impacts to gross profit and bad debt mainly result from
unprofitable client relationships that have been terminated. -
Non-GAAP diluted loss per share for the fourth quarter of 2018 was
$(0.11), compared to earnings of $0.01 in the fourth quarter of 2017. -
Adjusted EBITDA was $1.3 million in the fourth quarter of 2018,
compared to $10.8 million in the fourth quarter of 2017. -
Additional work from new and existing clients awarded during 2018
amounts to $136 million of annual revenue at full run-rate and more
than $40 million was awarded in year-to-date 2019. The 2019 multi-year
agreements span across five clients, including an expansion with
global premium spirits producer Beam Suntory and a new engagement with
one of the world’s top commercial and retail banks.
“At year-end 2018, we had actioned nearly $15 million of the $20 million
in previously announced cost reduction measures, with another $3 million
being actioned in the first quarter of 2019,” said Don Pearson, Chief
Financial Officer. “But this original scope is not enough as our cost to
serve our clients is still too high. With the assistance of third-party
experts, we have launched a second phase of further profit enhancement
opportunities, focused on driving consistency and sustainable
efficiencies in our operations. We expect to realize $3 million of cost
savings from this phase in the second half of 2019 and another $12
million in 2020 and beyond. These initiatives are designed to put in
place a cost structure and operating platform that will deliver
sustainable profitable growth. We look forward to updating you on our
progress.”
Outlook
The Company expects gross revenue to be in a range of $1.15 to $1.18
billion, which represents growth of 3% to 5% compared to 2018. Adjusted
EBITDA is expected to be in a range of $42 to $46 million dollars, which
represents growth of 45% to 58% compared to 2018. Non-GAAP diluted
earnings per share guidance for 2019 is expected to be $0.20 to $0.24.
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, 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 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.
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) | |||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| (unaudited) | (as restated) | (unaudited) | |||||||||||||
| Revenue | $ | 294,195 | $ | 305,367 | $ | 1,121,551 | $ | 1,138,361 | |||||||
| Cost of goods sold | 234,077 | 236,580 | 866,453 | 862,903 | |||||||||||
| Gross profit | 60,118 | 68,787 | 255,098 | 275,458 | |||||||||||
| Operating expenses: |
|
|
|
|
|
||||||||||
| Selling, general and administrative expenses | 61,651 | 61,398 | 237,963 | 227,253 | |||||||||||
| Depreciation and amortization | 2,551 | 3,987 | 12,988 | 13,390 | |||||||||||
| Change in fair value of contingent consideration | — | — | — | 677 | |||||||||||
| Goodwill impairment charge | 19,574 | — | 47,461 | — | |||||||||||
|
Intangible and other asset impairments |
1,303 | — | 18,121 | — | |||||||||||
| Restructuring and other charges | 2,889 | — | 6,031 | — | |||||||||||
| Income from operations | (27,850 | ) | 3,402 | (67,466 | ) | 34,138 | |||||||||
| Other income (expense): | |||||||||||||||
| Interest income | 84 | 20 | 218 | 97 | |||||||||||
| Interest expense | (2,895 | ) | (1,490 | ) | (7,749 | ) | (4,729 | ) | |||||||
| Other, net | 118 | (826 | ) | (1,616 | ) | (1,788 | ) | ||||||||
| Total other expense | (2,693 | ) | (2,297 | ) | (9,147 | ) | (6,420 | ) | |||||||
| Income (loss) before income taxes | (30,543 | ) | 1,105 | (76,613 | ) | 27,718 | |||||||||
| Income tax expense | (1,284 | ) | 1,843 | (434 | ) | 11,288 | |||||||||
| Net income (loss) | $ | (29,259 | ) | $ | (738 | ) | $ | (76,179 | ) | $ | 16,430 | ||||
| Basic (loss)/earnings per share | $ | (0.57 | ) | $ | (0.01 | ) | $ | (1.46 | ) | $ | 0.31 | ||||
| Diluted (loss)/earnings per share | $ | (0.57 | ) | $ | (0.01 | ) | $ | (1.46 | ) | $ | 0.30 | ||||
| Weighted average shares outstanding, basic | 51,773 | 54,113 | 52,230 | 53,851 | |||||||||||
| Weighted average shares outstanding, diluted | 51,773 | 54,113 | 52,230 | 54,944 | |||||||||||
|
Condensed Consolidated Balance Sheets |
|||||||
| December 31, | December 31, | ||||||
| (in thousands) | 2018 | 2017 | |||||
| (unaudited) | |||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 26,770 | $ | 30,562 | |||
| Accounts receivable, net of allowance for doubtful accounts | 193,253 | 205,386 | |||||
| Unbilled revenue | 46,474 | 50,016 | |||||
| Inventories | 56,001 | 40,694 | |||||
| Prepaid expenses | 17,274 | 18,565 | |||||
| Other current assets | 33,727 | 37,865 | |||||
| Total current assets | 373,499 | 383,088 | |||||
| Property and equipment, net | 82,933 | 36,714 | |||||
| Intangibles and other assets: | |||||||
| Goodwill | 151,016 | 199,946 | |||||
| Intangible assets, net | 9,828 | 27,563 | |||||
| Deferred income taxes | 1,195 | 691 | |||||
| Other assets | 2,976 | 1,636 | |||||
| Total intangibles and other assets | 165,015 | 229,836 | |||||
| Total assets | $ | 621,447 | $ | 649,638 | |||
| Liabilities and stockholders’ equity | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 158,449 | $ | 141,164 | |||
| Current portion of contingent consideration | — | — | |||||
| Revolving credit facility – current | 142,736 | — | |||||
| Other current liabilities | 26,205 | 24,078 | |||||
| Deferred revenue | 17,614 | 17,620 | |||||
| Accrued expenses | 34,605 | 34,391 | |||||
| Total current liabilities | 379,609 | 217,253 | |||||
| Revolving credit facility – noncurrent | — | 128,398 | |||||
| Deferred income taxes | 6,056 | 12,043 | |||||
| Other long-term liabilities | 52,698 | 7,399 | |||||
| Total liabilities | 438,363 | 365,093 | |||||
| Stockholders’ equity: | |||||||
| Common stock | 6 | 6 | |||||
| Additional paid-in capital | 239,960 | 235,199 | |||||
| Treasury stock at cost | (81,471 | ) | (55,873 | ) | |||
| Accumulated other comprehensive loss | (24,309 | ) | (19,229 | ) | |||
| Retained earnings | 48,898 | 124,442 | |||||
| Total stockholders’ equity | 183,084 | 284,545 | |||||
| Total liabilities and stockholders’ equity | $ | 621,447 | $ | 649,638 | |||
|
Condensed Consolidated Statement of Cash Flows |
||||||||
| Twelve Months Ended | ||||||||
| (in thousands) | December 31, | |||||||
| 2018 | 2017 | |||||||
| (unaudited) | ||||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | (76,179 | ) | $ | 16,430 | |||
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization | 12,988 | 13,390 | ||||||
| Stock-based compensation expense | 5,302 | 6,820 | ||||||
| Deferred income taxes | (6,562 | ) | 4,072 | |||||
| Change in fair value of contingent consideration liability | — | 677 | ||||||
| Goodwill impairment | 47,461 | — | ||||||
| Intangible and other asset impairments | 18,121 | — | ||||||
| Bad debt provision | 3,601 | 454 | ||||||
| Implementation cost amortization | 433 | — | ||||||
| Other operating activities | 254 | 210 | ||||||
| Change in assets, net of acquisitions: | ||||||||
| Accounts receivable and unbilled revenue | 4,112 | (41,877 | ) | |||||
| Inventories | (16,325 | ) | (4,245 | ) | ||||
| Prepaid expenses and other assets | 1,518 | (13,547 | ) | |||||
| Change in liabilities, net of acquisitions: | ||||||||
| Accounts payable | 21,959 | 18,152 | ||||||
| Accrued expenses and other liabilities | 6,374 | 11,162 | ||||||
| Net cash provided by operating activities | 23,057 | 11,698 | ||||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | (11,263 | ) | (12,483 | ) | ||||
| Proceeds from sale of property and equipment | 122 | — | ||||||
| Net cash used in investing activities | (11,141 | ) | (12,483 | ) | ||||
| Cash flows from financing activities | ||||||||
| Net borrowing (repayments) of revolving credit facility | 14,539 | (867 | ) | |||||
| Net short-term secured borrowings | (1,525 | ) | 20,709 | |||||
| Repurchases of common stock | (25,689 | ) | (10,885 | ) | ||||
| Payments of contingent consideration | — | (10,989 | ) | |||||
| Proceeds from exercise of stock options | 545 | 2,663 | ||||||
| Other financing activities | (1,606 | ) | (1,156 | ) | ||||
| Net cash (used in) provided by financing activities | (13,736 | ) | (525 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (1,972 | ) | 948 | |||||
| (Decrease) increase in cash and cash equivalents | (3,792 | ) | (362 | ) | ||||
| Cash and cash equivalents, beginning of period | 30,562 | 30,924 | ||||||
| Cash and cash equivalents, end of period | $ | 26,770 | $ | 30,562 | ||||
|
Reconciliation of Adjusted EBITDA and Non-GAAP Diluted Earnings Per Share |
||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| (in thousands) | December 31, | December 31, | ||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (as restated) | ||||||||||||||||
| Net (loss) income | $ | (29,259 | ) | $ | (738 | ) | $ | (76,179 | ) | $ | 16,430 | |||||
| Income tax expense | (1,284 | ) | 1,843 | (434 | ) | 11,288 | ||||||||||
| Interest income | (84 | ) | (20 | ) | (218 | ) | (97 | ) | ||||||||
| Interest expense | 2,895 | 1,491 | 7,749 | 4,729 | ||||||||||||
| Other, net | (118 | ) | 826 | 1,616 | 1,788 | |||||||||||
| Depreciation and amortization | 2,551 | 3,987 | 12,988 | 13,390 | ||||||||||||
| Stock-based compensation expense | 1,677 | 1,524 | 5,302 | 6,820 | ||||||||||||
| Goodwill impairment | 19,574 | — | 47,461 | — | ||||||||||||
| Intangible and other asset impairments | 1,303 | — | 18,121 | — | ||||||||||||
| Restructuring charges | 2,889 | — | 6,031 | — | ||||||||||||
| Senior leadership transition and other employee-related costs | 267 | — | 1,420 | — | ||||||||||||
| Business development realignment | — | 529 | — | 715 | ||||||||||||
| Obsolete retail inventory | — | — | 950 | — | ||||||||||||
| Change in fair value of contingent consideration | — | — | — | 677 | ||||||||||||
| Professional fees related to ASC 606 implementation | — | — | 1,093 | 829 | ||||||||||||
| Executive search costs | — | 454 | 235 | 454 | ||||||||||||
| Restatement-related professional fees | 402 | — | 2,297 | — | ||||||||||||
| Other professional fees | 467 | — | 629 | — | ||||||||||||
| Czech currency impact on procurement margin | — | 860 | 860 | |||||||||||||
| Adjusted EBITDA | $ | 1,280 | $ | 10,756 | $ | 29,061 | $ | 57,883 | ||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||
| (in thousands, except per share amounts) | December 31, | December 31, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| (as restated) | |||||||||||||||
| Net (loss) income | $ | (29,259 | ) | $ | (738 | ) | $ | (76,179 | ) | $ | 16,430 | ||||
| Czech exit from exchange rate commitment, net of tax | — | — | — | 294 | |||||||||||
| Goodwill impairment | 19,574 | — | 47,461 | — | |||||||||||
| Intangible and other asset impairments, net of tax | 977 | — | 15,014 | — | |||||||||||
| Restructuring charges, net of tax | 2,025 | — | 4,609 | — | |||||||||||
|
Senior leadership transition and other employee-related costs, net of tax |
221 | — | 1,065 | — | |||||||||||
| Business development realignment, net of tax | — | — | — | 875 | |||||||||||
| Change in fair value of contingent consideration | — | — | — | 677 | |||||||||||
| Obsolete retail inventory, net of tax | — | — | 769 | — | |||||||||||
| Professional fees related to ASC 606 implementation, net of tax | — | 324 | 819 | 528 | |||||||||||
| Executive search fees, net of tax | — | 282 | 176 | 282 | |||||||||||
| Restatement-related professional fees, net of tax | 336 | — | 1,723 | — | |||||||||||
| Other professional fees, net of tax | 353 | 472 | — | ||||||||||||
| Czech currency impact on procurement margin, net of tax | — | 697 | — | 697 | |||||||||||
| Accelerated depreciation of internal use software, net of tax | — | 246 | — | 246 | |||||||||||
| Non-GAAP net (loss) income | $ | (5,773 | ) | $ | 811 | $ | (4,071 | ) | $ | 20,029 | |||||
| Weighted-average shares outstanding, diluted | 51,773 | 55,175 | 52,230 | 54,944 | |||||||||||
| Non-GAAP diluted (loss) earnings per share | $ | (0.11 | ) | $ | 0.01 | $ | (0.08 | ) | $ | 0.36 | |||||
Contacts
InnerWorkings, Inc.
Bridget Freas
312.589.5613
[email protected]
