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| 8-K - 8-K - INNERWORKINGS INC | v369007_8k.htm |
InnerWorkings Announces Preliminary Fourth Quarter and Full Year 2013 Results and 2014 Guidance
Announces record revenue and adjusted operating cash flow in the fourth quarter and full year; forecasts 8 to 12 percent revenue growth in 2014
CHICAGO – February 18, 2014 – InnerWorkings, Inc. (NASDAQ: INWK), a leading global marketing supply chain company, today reported preliminary results for the fourth quarter and fiscal year ended December 31, 2013.
Quarterly Highlights:
| · | Record revenue of $245.6 million, an increase of 22% compared to $201.9 million in the fourth quarter of 2012. Organic revenue growth totaled $28 million, representing 14% growth over the prior year period. Please refer to the revenue growth table below for more information. |
| · | Record non-GAAP adjusted operating cash flow generated from operations of $27.2 million, an increase of 24% compared to $22.0 million in the fourth quarter of 2012. Please refer to the non-GAAP reconciliation table below for more information. |
| · | Non-GAAP adjusted EBITDA of $6.2 million, compared to $6.3 million in the year-earlier period. Please refer to the non-GAAP reconciliation table below for more information. |
| · | Non-GAAP diluted earnings per share of ($.02), compared to ($.01) in the fourth quarter of 2012. Please refer to the non-GAAP reconciliation table below for more information. |
Fiscal Year Highlights:
| · | Record revenue of $893.4 million, an increase of 13% compared to $789.6 million in 2012. Organic revenue growth was $72 million, representing 9% growth over the prior year. Please refer to the revenue growth table below for more information. |
| · | Record non-GAAP adjusted operating cash flow generated from operations of $39.0 million, an increase of 88% compared to $20.8 million in 2012. Please refer to the non-GAAP reconciliation table below for more information. |
| · | Non-GAAP adjusted EBITDA of $25.8 million, compared to $37.4 million in 2012, due primarily to the spending reduction by a large retail customer announced in April 2013, as well as the underperformance of the Inside Sales business. Please refer to the non-GAAP reconciliation table below for more information. |
| · | Non-GAAP diluted earnings per share of $.07, compared to $0.24 in 2012. Please refer to the non-GAAP reconciliation table below for more information. |
“Despite a number of unexpected challenges in 2013, our team was able to drive double-digit top-line growth,” said Eric D. Belcher, Chief Executive Officer of InnerWorkings. “With our focus on our growing core enterprise business, we expect to generate stronger bottom line results and shareholder value in 2014 and beyond.”
8-K Filing Relating to Financial Restatements:
In connection with the previously disclosed potential disputes between the Company and the former owner of Productions Graphics, the Company initiated a review of the former owner’s conduct relating to certain transactions impacting earn-out payments under the acquisition agreement. Based on the results of the review, the Company concluded that the former owner of Productions Graphics artificially inflated results to meet earn-out targets and induce the Company to make earn-out payments relating to the Productions Graphics acquisition. As a result, the Company filed an 8-K today summarizing estimated adjustments to be made to its prior financial statements, which the Company intends to restate in its upcoming 10-K filing. The estimated aggregate net impact on a GAAP basis of these changes across all affected periods is a net decrease in pre-tax net income of $1.6 million. The net impact on a GAAP basis includes a decrease in pre-tax net income of $0.4 million in 2011; an increase in pre-tax net income of $17.7 million in 2012; and a decrease in pre-tax net income of $18.9 million for the nine months ended September 30, 2013. All financial results included in this release reflect the estimated adjustments included in the 8-K, which are subject to change based on further analysis and review. Please see the 8-K filing for additional information.
Additional Financial and Operational Highlights:
Additional 2013 financial and recent operational highlights include the following:
| · | 77% of the Company’s revenue was generated from enterprise sales, with the remaining 23% derived from middle market sales, compared to a 76% / 24% mix in 2012. |
| · | The Company significantly broadened its relationship with Unilever by signing an agreement to expand services across all branded marketing efforts, including print and point-of-sale experiences. |
“We have proactively addressed the areas that impacted our 2013 results,” said Joseph M. Busky, Chief Financial Officer. “Our enterprise business remains firmly intact, as evidenced by the strong revenue growth in the fourth quarter. We look forward to continued growth and increased profitability in 2014.”
| Revenue Growth - Comparing 2013 to 2012 | ||||
| Q4 $(MM) Change | Q4 % Change | FY'13 (MM) Change | FY'13 % Change | |
| Organic New Enterprise Growth | $20 | 10% | $77 | 10% |
| Organic Middle Market Growth | ($4) | (2%) | ($2) | 0% |
| Same Customer Spend | $12 | 6% | ($3) | 0% |
| Loss of Spend from Large Customer 1 | ($10) | (5%) | ($34) | (4%) |
| Acquisitive Growth | $26 | 13% | $66 | 8% |
| Total Revenue Growth | $44 | 22% | $104 | 13% |
| Total Organic Revenue Growth 2 | $28 | 14% | $72 | 9% |
1 Includes loss of spending from large retail customer previously announced in April 2013.
2 Excludes Acquisitive Growth & Loss of Spend from Large Customer.
Outlook
The Company anticipates 2014 annual revenue of $965 million to $1 billion, which reflects 8 to 12 percent growth. Non-GAAP diluted earnings per share, which exclude contingent liability impacts, are expected to be $0.23 to $0.27 in 2014, compared to $.07 in 2013.
Conference Call
A conference call will be broadcast live on Tuesday, February 18, 2014 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 “Events & Presentations” section of InnerWorkings’ website at investor.inwk.com/events.cfm.
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.
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 67 global offices in 30 countries. 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.
Contact:
InnerWorkings, Inc.
Brad Moore
312-277-1510
bmoore@inwk.com
| Consolidated Statements of Income | ||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2012 | 2013 | 2012 | 2013 | |||||||||||||
| Revenue | $ | 201,852,083 | $ | 245,599,528 | $ | 789,565,872 | $ | 893,421,067 | ||||||||
| Cost of goods sold | 158,683,629 | 191,150,497 | 611,992,663 | 691,684,285 | ||||||||||||
| Gross profit | 43,168,454 | 54,449,031 | 177,573,209 | 201,736,782 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | 39,842,949 | 49,969,019 | 145,775,957 | 183,695,203 | ||||||||||||
| Depreciation and amortization | 2,713,120 | 4,669,365 | 10,790,452 | 13,663,859 | ||||||||||||
| Change in fair value of contingent consideration | (28,486,250 | ) | (838,547 | ) | (27,688,774 | ) | (31,506,109 | ) | ||||||||
| Preference claim settlement charge | 1,099,386 | - | 1,099,386 | - | ||||||||||||
| VAT settlement charge | 1,485,088 | - | 1,485,088 | - | ||||||||||||
| Goodwill impairment charge | - | - | - | 37,908,000 | ||||||||||||
| Restructuring and asset write down charges | - | - | - | 4,321,862 | ||||||||||||
| Income (loss) from operations | 26,514,161 | 649,194 | 46,111,100 | (6,346,033 | ) | |||||||||||
| Total other expense | (159,936 | ) | (1,095,006 | ) | (1,081,138 | ) | (3,235,749 | ) | ||||||||
| Income (loss) before income taxes | 26,354,225 | (445,812 | ) | 45,029,962 | (9,581,782 | ) | ||||||||||
| Income tax expense | 17,652 | (435,814 | ) | 6,398,310 | (304,592 | ) | ||||||||||
| Net income (loss) | $ | 26,336,573 | $ | (9,998 | ) | $ | 38,631,652 | $ | (9,277,190 | ) | ||||||
| Basic earnings (loss) per share | $ | 0.53 | $ | - | $ | 0.79 | $ | (0.18 | ) | |||||||
| Diluted earnings (loss) per share | $ | 0.51 | $ | - | $ | 0.75 | $ | (0.18 | ) | |||||||
| Weighted average shares outstanding, basic | 50,012,513 | 51,264,934 | 48,811,218 | 50,875,131 | ||||||||||||
| Weighted average shares outstanding, diluted | 51,612,009 | 52,125,182 | 51,240,076 | 52,186,994 | ||||||||||||
| Consolidated Balance Sheets | ||||||||
| December 31, | ||||||||
| 2012 | 2013 | |||||||
| Cash and cash equivalents | $ | 17,218,899 | $ | 18,755,841 | ||||
| Accounts receivable, net of allowance for doubtful accounts | 142,059,473 | 174,878,823 | ||||||
| Unbilled revenue | 30,798,230 | 25,798,546 | ||||||
| Inventories | 18,362,282 | 26,123,000 | ||||||
| Prepaid expenses | 15,947,013 | 12,334,943 | ||||||
| Other current assets | 22,600,945 | 25,351,884 | ||||||
| Total long-term assets | 268,706,648 | 332,938,721 | ||||||
| Total assets | $ | 515,693,490 | $ | 616,181,758 | ||||
| Accounts payable-trade | $ | 122,087,470 | $ | 166,799,798 | ||||
| Other current liabilities | 32,834,796 | 49,648,225 | ||||||
| Revolving credit facility | 65,000,000 | 69,000,000 | ||||||
| Other long-term liabilities | 53,112,550 | 86,129,585 | ||||||
| Total stockholders' equity | 242,658,674 | 244,604,150 | ||||||
| Total liabilities and stockholders' equity | $ | 515,693,490 | $ | 616,181,758 | ||||
| Cash Flow Data | ||||||||
| Twelve Months Ended December 31, | ||||||||
| 2012 | 2013 | |||||||
| Net cash provided by operating activities | $ | 9,411,735 | $ | 37,520,747 | ||||
| Net cash used in investing activities | (14,706,533 | ) | (31,526,947 | ) | ||||
| Net cash provided by (used in) financing activities | 9,583,488 | (4,647,458 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | (289,176 | ) | 190,600 | |||||
| Increase in cash and cash equivalents | 3,999,514 | 1,536,942 | ||||||
| Cash and cash equivalents, beginning of period | 13,219,385 | 17,218,899 | ||||||
| Cash and cash equivalents, end of period | $ | 17,218,899 | $ | 18,755,841 | ||||
| Reconciliation of Adjusted EBITDA, Adjusted Operating Cash Flows and Adjusted Diluted EPS | ||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2012 | 2013 | 2012 | 2013 | |||||||||||||
| Operating income (loss) | $ | 26,514,161 | $ | 649,194 | $ | 46,111,100 | $ | (6,346,033 | ) | |||||||
| Depreciation and amortization | 2,713,120 | 4,669,365 | 10,790,452 | 13,663,859 | ||||||||||||
| Stock-based compensation expense | 3,021,797 | 1,696,843 | 6,192,870 | 4,733,031 | ||||||||||||
| Change in fair value of contingent consideration | (28,486,250 | ) | (838,547 | ) | (27,688,774 | ) | (31,506,109 | ) | ||||||||
| Preference claim settlement charge | 1,099,386 | - | 1,099,386 | - | ||||||||||||
| VAT settlement charge | 1,485,088 | - | 1,485,088 | - | ||||||||||||
| Payments to former owner of Productions Graphics, net of cash recovered | - | - | (598,345 | ) | 2,068,799 | |||||||||||
| Goodwill impairment charge | - | - | - | 37,908,000 | ||||||||||||
| Restructuring and asset write down charges | - | - | - | 4,321,862 | ||||||||||||
| Legal fees in connection with patent infringement defense | - | - | - | 961,295 | ||||||||||||
| Adjusted EBITDA | $ | 6,347,302 | $ | 6,176,855 | $ | 37,391,777 | $ | 25,804,704 | ||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2012 | 2013 | 2012 | 2013 | |||||||||||||
| Net cash provided by operating activities | $ | 23,636,924 | $ | 28,056,897 | $ | 9,411,735 | $ | 37,520,747 | ||||||||
| Excess tax benefit from exercise of stock awards * | (1,685,306 | ) | (850,502 | ) | 6,666,884 | (2,618,779 | ) | |||||||||
| Cash paid for settlement of preference claim | - | - | - | 900,000 | ||||||||||||
| Prepayment (refund) of VAT assessment in United Kingdom** | - | - | 3,604,866 | (2,166,664 | ) | |||||||||||
| Cash payment to former owner of Productions Graphics | - | - | 1,124,705 | 5,395,019 | ||||||||||||
| Adjusted net cash provided by operating activities | $ | 21,951,618 | $ | 27,206,395 | $ | 20,808,190 | $ | 39,030,323 | ||||||||
* 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 December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2012 | 2013 | 2012 | 2013 | |||||||||||||
| Net income (loss) | $ | 26,336,573 | $ | (9,998 | ) | $ | 38,631,652 | $ | (9,277,190 | ) | ||||||
| Change in fair value of contingent consideration, net of tax | (28,468,621 | ) | (786,419 | ) | (27,718,771 | ) | (29,833,060 | ) | ||||||||
| Preference claim settlement charge, net of tax | 668,449 | - | 668,449 | - | ||||||||||||
| VAT settlement charge, net of tax | 1,121,241 | - | 1,121,241 | - | ||||||||||||
| Payments to former owner of Productions Graphics, net of cash recovered, net of tax | - | - | (448,759 | ) | 1,551,599 | |||||||||||
| Goodwill impairment charge | - | - | - | 37,908,000 | ||||||||||||
| Restructuring and asset write down charges, net of tax | - | - | - | 2,614,726 | ||||||||||||
| Legal fees in connection with patent infringement defense, net of tax | - | - | - | 625,033 | ||||||||||||
| Adjusted net income (loss) | $ | (342,358 | ) | $ | (796,417 | ) | $ | 12,253,812 | $ | 3,589,108 | ||||||
| Weighted average shares outstanding, diluted | 51,612,009 | 52,125,182 | 51,240,076 | 52,186,994 | ||||||||||||
| Adjusted Diluted EPS | $ | (0.01 | ) | $ | (0.02 | ) | $ | 0.24 | $ | 0.07 | ||||||