INNERWORKINGS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 15, 2016

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InnerWorkings Announces Second Quarter 2016 Results
Record second quarter gross profit increased 10%; expanded scope with several existing clients

CHICAGO, IL - August 15, 2016 - InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three months ended June 30, 2016. For all Non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

Financial Highlights
•
Gross revenue was $269.2 million in the second quarter, an increase of 6.7% compared with $252.2 million in the second quarter of 2015.  Year-to-date gross revenue was $540.3 million, a 9.3% increase compared with $494.3 million in the prior period.

•
Gross profit (net revenue) was $65.1 million, or 24.2% of gross revenue in the second quarter, a 10.4% increase compared to $59.0 million, or 23.4% of gross revenue, in the same period of last year. Year-to-date gross profit (net revenue) was $127.0 million, or 23.5% of gross revenue, an increase of 11.4% compared to the prior-year period.

•
Diluted net loss per share was $0.04 and diluted net loss was $2.3 million in the second quarter, mainly due to a $7.3 million increase in our earnout obligation due to the strong performance of our previously-acquired businesses. Year-to-date net loss per share was $0.09 and net loss was $5.0 million, primarily due to a $9.2 million increase in our earnout obligation and a $3.6 million after-tax charge related to the global realignment strategy.

•
Non-GAAP diluted earnings per share were $0.11 in the second quarter, an increase of 37.5% compared to $0.08 in the second quarter of 2015. Year-to-date non-GAAP diluted earnings per share were $0.15, an increase of 66.7% compared to $0.09 in the same period of 2015.

•
Non-GAAP adjusted EBITDA was $14.8 million, reflecting 10.3% growth as compared to $13.4 million in the second quarter of 2015. Year-to-date non-GAAP adjusted EBITDA was $26.5 million, an increase of 22.5% compared to $21.6 million in the same period of 2015.

Business Highlights
•
InnerWorkings has continued to sign new enterprise contracts in recent months, bringing the year-to-date collective total to more than $60 million of annual gross revenue at full run-rate, with nearly half stemming from expanded relationships with active clients.

•
The largest of the new contracts is an expansion of the Company's long-term business relationship with a large food and beverage company, sourcing events and promotions, as well as providing all branded merchandise and printed materials in an additional 16 countries throughout Latin America.

•
The Company hired a team of executives in Japan during August to initiate its business plan to reach new customers and begin supporting existing clients in the Japanese market, similar to previous successful launches the Company has executed in other international markets.

“We continue to win more business with new and existing clients on the strength of our global capabilities and our technology,” said Eric D. Belcher, Chief Executive Officer of InnerWorkings. “The expansion of our work with the large food and beverage company demonstrates our commitment to serve as an extension of our clients’ brands, executing comprehensive marketing campaigns all around the world.”

“Our second quarter financial results reflect continued strong execution of our strategy,” said Jeffrey P. Pritchett, Chief Financial Officer of InnerWorkings. “We are on track to achieve our financial targets for 2016 with additional profit improvement in the second half of the year, particularly in our International segment where the combination of a more efficient hub structure and strong organic growth is starting to create meaningful operating leverage.”





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 reconciliation of Non-GAAP Adjusted EBITDA and Non-GAAP Diluted Earnings Per Share 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
(Unaudited)
(in thousands)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
(as revised)
 
 
 
(as revised)

Revenue
$
269,220

 
$
252,227

 
$
540,292

 
$
494,323

Cost of goods sold
204,126

 
193,248

 
413,253

 
380,278

Gross profit
65,094

 
58,979

 
127,039

 
114,045

Operating expenses:
 

 
 

 
 
 
 
Selling, general and administrative expenses
51,418

 
47,134

 
102,910

 
96,049

Depreciation and amortization
4,721

 
4,266

 
9,316

 
8,357

Change in fair value of contingent consideration
7,276

 
676

 
9,187

 
990

Restructuring and other charges
623

 
—

 
3,967

 
—

Income (loss) from operations
1,056

 
6,903

 
1,659

 
8,649

Other income (expense):
 

 
 

 
 
 
 
Interest income
24

 
27

 
38

 
48

Interest expense
(985
)
 
(1,105
)
 
(2,062
)
 
(2,251
)
Other, net
291

 
13

 
130

 
97

Total other expense
(670
)
 
(1,065
)
 
(1,894
)
 
(2,106
)
Income (loss) before income taxes
386

 
5,838

 
(235
)
 
6,543

Income tax expense
2,710

 
2,183

 
4,782

 
2,613

Net income (loss)
$
(2,324
)
 
$
3,655

 
$
(5,017
)
 
$
3,930

 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
(0.04
)
 
$
0.07

 
$
(0.09
)
 
$
0.07

Diluted earnings (loss) per share
$
(0.04
)
 
$
0.07

 
$
(0.09
)
 
$
0.07

 
 
 
 
 
 
 
 
Weighted-average shares outstanding – basic
53,411

 
52,588

 
53,278

 
52,651

Weighted-average shares outstanding – diluted
53,411

 
54,212

 
53,278

 
53,915

 




Condensed Consolidated Balance Sheets
(in thousands)
June 30,
2016
 
December 31, 2015
 
(unaudited)
 
(as revised)
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
31,606

 
$
30,755

Accounts receivable, net
193,297

 
188,819

Unbilled revenue
27,857

 
30,758

Inventories
35,901

 
33,327

Prepaid expenses
12,145

 
14,353

Other current assets
17,647

 
31,825

Total current assets
318,453

 
329,837

Property and equipment, net
33,089

 
32,681

Intangibles and other assets:
 

 
 

Goodwill
204,897

 
206,257

Intangible assets, net
34,831

 
37,715

Deferred income taxes
882

 
586

Other non-current assets
1,415

 
1,391

Total intangibles and other assets
242,025

 
245,949

Total assets
$
593,567

 
$
608,467

Liabilities and stockholders' equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
136,260

 
$
170,244

Current portion of contingent consideration
3,862

 
11,387

Due to seller
8,527

 
402

Accrued expenses
17,818

 
17,866

Other current liabilities
35,993

 
31,363

Total current liabilities
202,460

 
231,262

Revolving credit facility
111,566

 
99,258

Deferred income taxes
11,620

 
10,526

Contingent consideration, net of current portion
14,699

 
10,775

Other non-current liabilities
2,639

 
2,510

Total liabilities
342,984

 
354,331

Stockholders' equity:
 

 
 

Common stock
6

 
6

Additional paid-in capital
216,540

 
213,566

Treasury stock at cost
(51,724
)
 
(52,207
)
Accumulated other comprehensive loss
(15,853
)
 
(13,993
)
Retained earnings
101,614

 
106,764

Total stockholders' equity
250,583

 
254,136

Total liabilities and stockholders' equity
$
593,567

 
$
608,467

 




Condensed Consolidated Statement of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
(as revised)
 
 
 
(as revised)
Cash flows from operating activities
 

 
 

 
 
 
 
Net income (loss)
$
(2,324
)
 
$
3,655

 
$
(5,017
)
 
$
3,930

Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
 
 

 
 

Depreciation and amortization
4,721

 
4,266

 
9,316

 
8,357

Stock-based compensation expense
1,117

 
1,567

 
2,358

 
3,628

Deferred income taxes
839

 
1,778

 
450

 
1,366

Bad debt provision
133

 
174

 
789

 
1,049

Change in fair value of contingent consideration
7,276

 
676

 
9,187

 
990

Other operating activities
52

 
52

 
105

 
104

Change in assets:
 
 
 
 
 
 
 

Accounts receivable and unbilled revenue
13,890

 
(6,360
)
 
(2,366
)
 
(10,311
)
Inventories
(1,185
)
 
(4,356
)
 
(2,573
)
 
(10,845
)
Prepaid expenses and other assets
(127
)
 
(2,379
)
 
16,255

 
720

Change in liabilities:
 
 
 
 
 
 
 

Accounts payable
6,212

 
9,823

 
(33,984
)
 
5,973

Accrued expenses and other liabilities
(6,885
)
 
(1,634
)
 
4,632

 
(3,974
)
Net cash provided by (used in) operating activities
23,719

 
7,262

 
(848
)
 
987

 
 
 
 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 

 
 

Purchases of property and equipment
(3,458
)
 
(4,937
)
 
(7,445
)
 
(8,656
)
Net cash used in investing activities
(3,458
)
 
(4,937
)
 
(7,445
)
 
(8,656
)
 
 
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 

 
 

Net borrowings from revolving credit facility
(6,805
)
 
1,816

 
12,553

 
7,396

Net short-term secured borrowings
1,906

 
580

 
104

 
669

Repurchases of common stock
—

 
(1,397
)
 
—

 
(4,897
)
Payments of contingent consideration
(3,619
)
 
(1,739
)
 
(4,144
)
 
(2,177
)
Proceeds from exercise of stock options
106

 
560

 
1,090

 
599

Other financing activities
(854
)
 
(80
)
 
(474
)
 
(179
)
Net cash provided by (used in) financing activities
(9,266
)
 
(260
)
 
9,129

 
1,411

 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(318
)
 
95

 
15

 
(754
)
Increase (decrease) in cash and cash equivalents
10,677

 
2,160

 
851

 
(7,012
)
Cash and cash equivalents, beginning of period
20,929

 
13,406

 
30,755

 
22,578

Cash and cash equivalents, end of period
$
31,606

 
$
15,566

 
$
31,606

 
$
15,566






Reconciliation of Non-GAAP Adjusted EBITDA and Non-GAAP Diluted Earnings Per Share
(Unaudited)

(in thousands)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
(as revised)
 
 
 
(as revised)
Net income (loss)
$
(2,324
)
 
$
3,655

 
$
(5,017
)
 
$
3,930

Income tax expense
2,710

 
2,183

 
4,782

 
2,613

Total other expense
670

 
1,065

 
1,894

 
2,106

Depreciation and amortization
4,721

 
4,266

 
9,316

 
8,357

Stock-based compensation expense
1,117

 
1,567

 
2,358

 
3,628

Change in fair value of contingent consideration
7,276

 
676

 
9,187

 
990

Restructuring and other charges
623

 
—

 
3,967

 
—

Non-GAAP Adjusted EBITDA
$
14,793

 
$
13,412

 
$
26,487

 
$
21,624

 
(in thousands, except per share amounts)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
(as revised)
 
 
 
(as revised)
Net income (loss)
$
(2,324
)
 
$
3,655

 
$
(5,017
)
 
$
3,930

Change in fair value of contingent consideration, net of tax
7,276

 
669

 
9,187

 
979

Restructuring and other charges, net of tax
618

 
—

 
3,582

 
—

Realignment-related income tax charges
238

 
—

 
635

 
—

Adjusted net income
$
5,808

 
$
4,324

 
$
8,387

 
$
4,909

Weighted-average shares outstanding – diluted
54,297

 
54,212

 
54,139

 
53,915

Non-GAAP Diluted Earnings Per Share
$
0.11

 
$
0.08

 
$
0.15

 
$
0.09




INNERWORKINGS INC Reports