INNERWORKINGS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - February 23, 2017

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InnerWorkings Announces Fourth Quarter and Full-Year 2016 Results
Fourth quarter gross profit (net revenue) increased 10% compared to prior year;
record $140 million in new enterprise contracts signed in 2016 positions company for strong 2017
CHICAGO, IL - February 23, 2017 - InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three months and year ended December 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.
“2016 was another record year of profitable growth and new client wins,” said Eric D. Belcher, Chief Executive Officer of InnerWorkings. “The success of our strategy in developing global scale across a full suite of marketing execution solutions has yielded improving margins and we expect this trend to continue in 2017.”
Fourth Quarter 2016 Highlights
•
Gross revenue was $270.4 million in the fourth quarter of 2016, slightly above $270.3 million in the fourth quarter of 2015.
•
Gross profit (net revenue) was $68.7 million, or 25.4% of gross revenue in the fourth quarter of 2016, a 10% increase compared to $62.5 million, or 23.1% of gross revenue, in the same period of last year.
•
Net income for the fourth quarter of 2016 was $5.0 million, or $0.09 per diluted share, which included a $0.8 million reduction in after-tax depreciation expense due to an estimate change (see page 2).
•
Non-GAAP diluted earnings per share for the fourth quarter of 2016 were $0.12, a 100% increase compared to $0.06 in the fourth quarter of 2015.
•
Non-GAAP adjusted EBITDA was $15.7 million in the fourth quarter of 2016, reflecting 20% growth as compared to $13.1 million in the fourth quarter of 2015.
Full-Year 2016 Highlights
•
Gross revenue in 2016 was $1,090.7 million, an increase of 6% compared with $1,029.4 million in 2015.
•
2016 gross profit (net revenue) was $263.5 million, or 24.2% of gross revenue, an increase of 10% compared to $240.2 million, or 23.3% of gross revenue, in 2015.
•
Net income in 2016 was $4.4 million, or $0.08 per diluted share, and was heavily impacted by the accounting adjustment related to the increase in the value of contingent consideration for prior acquisitions.
•
2016 non-GAAP diluted earnings per share were $0.38, an increase of 58% compared to $0.24 in 2015.
•
2016 non-GAAP adjusted EBITDA was a record $59.2 million, a 16% increase compared to $50.8 million in 2015.
•
InnerWorkings signed new enterprise contracts during 2016 totaling $140 million of annual revenue at full run-rate, with nearly half stemming from expanded relationships with active clients.
“We ended the year on a very strong note, exceeding our revenue and non-GAAP diluted earnings per share guidance for 2016, even after raising our expectations in November,” said Jeffrey P. Pritchett, Chief Financial Officer of InnerWorkings. “We enter 2017 well positioned to execute against our plan, with a robust backlog of new contractual revenue and a very strong balance sheet.”
Outlook
The Company expects 2017 annual revenue to range between $1.155 billion and $1.185 billion, representing growth of 6% to 9% compared to 2016. Non-GAAP adjusted EBITDA is expected to be between $65.0 million and $68.0 million in 2017, representing growth of 10% to 15% compared to 2016. The Company forecasts 2017 non-GAAP diluted earnings per share to be $0.44 to $0.47, representing growth of 16% to 24% compared to 2016.





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.
Depreciation Expense - Change in Accounting Estimate
In accordance with the Company’s fixed asset policy, the Company reviews the estimated useful lives of all the fixed assets, including internally developed software at least once a year or if there are indicators that a useful life has changed. The review during the fourth quarter of 2016 indicated that the estimated useful lives of certain proprietary internally developed software were longer than the current estimated useful lives. As a result, effective October 1, 2016, the Company changed the estimated useful lives of a portion of its internally developed software. The estimated useful lives of such assets were increased by an average of approximately 4.5 years. These assets had a net book value of $20.8 million as of October 1, 2016. The effect of this change in estimate resulted in a reduction of depreciation expense by $1.4 million, increase in net income by $0.8 million, and increase in basic and diluted earnings per share by $0.02 for the quarter and year ended December 31, 2016.
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, including potential changes in contingent consideration value. 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, except per share data)

 
Three Months Ended December 31,
 
Year Ended December 31,
 
2016
 
2015
 
2016
 
2015
 
(unaudited)
 
(unaudited)
 
 
 
 
Revenue
$
270,418

 
$
270,311

 
$
1,090,704

 
$
1,029,353

Cost of goods sold
201,691

 
207,772

 
827,156

 
789,159

Gross profit
68,727

 
62,539

 
263,548

 
240,194

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expenses
54,456

 
52,456

 
209,967

 
197,291

Depreciation and amortization
3,534

 
4,629

 
17,916

 
17,472

Change in fair value of contingent consideration
442

 
(1,961
)
 
10,417

 
(270
)
Goodwill impairment charge
—

 
37,539

 
—

 
37,539

Intangible asset impairment charges
70

 
202

 
70

 
202

Restructuring and other charges
1,181

 
1,053

 
5,615

 
1,053

Income (loss) from operations
9,044

 
(31,379
)
 
19,563

 
(13,093
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
23

 
14

 
86

 
69

Interest expense
(918
)
 
(1,230
)
 
(4,171
)
 
(4,612
)
Other, net
(169
)
 
(2,143
)
 
(153
)
 
(3,135
)
Total other expense
(1,064
)
 
(3,359
)
 
(4,238
)
 
(7,678
)
Income (loss) before income taxes
7,980

 
(34,738
)
 
15,325

 
(20,771
)
Income tax expense
2,933

 
6,192

 
10,955

 
12,292

Net income (loss)
$
5,047

 
$
(40,930
)
 
$
4,370

 
$
(33,063
)
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.09

 
$
(0.77
)
 
$
0.08

 
$
(0.63
)
Diluted earnings (loss) per share
$
0.09

 
$
(0.77
)
 
$
0.08

 
$
(0.63
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding – basic
54,025

 
53,093

 
53,607

 
52,791

Weighted-average shares outstanding – diluted
55,019

 
53,093

 
54,460

 
52,791

 



Condensed Consolidated Balance Sheets
(in thousands)
December 31, 2016
 
December 31, 2015
 
 
 
 
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
30,924

 
$
30,755

Accounts receivable, net
182,874

 
188,819

Unbilled revenue
32,723

 
30,758

Inventories
31,638

 
33,327

Prepaid expenses
18,772

 
14,353

Other current assets
24,769

 
31,825

Total current assets
321,700

 
329,837

Property and equipment, net
32,656

 
32,681

Intangibles and other assets:
 
 
 

Goodwill
202,700

 
206,257

Intangible assets, net
31,538

 
37,715

Deferred income taxes
1,031

 
586

Other non-current assets
1,374

 
1,391

Total intangibles and other assets
236,643

 
245,949

Total assets
$
590,999

 
$
608,467

Liabilities and stockholders' equity
 
 
 

Current liabilities:
 
 
 

Accounts payable
121,289

 
170,244

Current portion of contingent consideration
19,283

 
11,387

Due to seller
—

 
402

Accrued expenses
30,067

 
31,363

Other current liabilities
35,049

 
17,866

Total current liabilities
205,688

 
231,262

Revolving credit facility
107,468

 
99,258

Deferred income taxes
11,291

 
10,526

Contingent consideration, net of current portion
—

 
10,775

Other non-current liabilities
1,926

 
2,510

Total liabilities
326,373

 
354,331

Stockholders' equity:
 
 
 
Common stock
6

 
6

Additional paid-in capital
224,480

 
213,566

Treasury stock at cost
(49,458
)
 
(52,207
)
Accumulated other comprehensive loss
(20,799
)
 
(13,993
)
Retained earnings
110,397

 
106,764

Total stockholders' equity
264,626

 
254,136

Total liabilities and stockholders' equity
$
590,999

 
$
608,467

 
 
 
 
 



Condensed Consolidated Statement of Cash Flows

(in thousands)
Three Months Ended December 31,
 
Year Ended December 31,
 
2016
 
2015
 
2016
 
2015
 
(unaudited)
 
(unaudited)
 
 
 
 
Cash flows from operating activities
 

 
 

 
 
 
 
Net income (loss)
$
5,047

 
$
(40,930
)
 
$
4,370

 
$
(33,063
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 

Depreciation and amortization
3,534

 
4,629

 
17,916

 
17,472

Stock-based compensation expense
1,474

 
1,019

 
5,572

 
5,873

Deferred income taxes
3,407

 
6,179

 
4,084

 
6,947

Change in fair value of contingent consideration liability
442

 
(1,961
)
 
10,417

 
(270
)
Goodwill impairment charge
—

 
37,539

 
—

 
37,539

Intangible asset impairment charges
70

 
202

 
70

 
202

Bad debt provision
738

 
734

 
2,171

 
1,949

Secured asset reserve
—

 
2,023

 
—

 
2,023

Venezuela remeasurement charges
—

 
890

 
—

 
890

Excess tax benefit from exercise of stock awards
(4,030
)
 
—

 
(4,030
)
 
—

Other operating activities
52

 
52

 
210

 
210

Change in assets, net of acquisitions:
 
 
 
 
 
 
 
Accounts receivable and unbilled revenue
14,607

 
7,198

 
1,809

 
(10,361
)
Inventories
13,739

 
4,928

 
1,690

 
(8,188
)
Prepaid expenses and other assets
(1,131
)
 
7,298

 
2,442

 
(6,138
)
Change in liabilities, net of acquisitions:
 
 
 
 
 
 
 
Accounts payable
(8,691
)
 
21,728

 
(48,955
)
 
26,199

Accrued expenses and other liabilities
4,898

 
(871
)
 
12,759

 
2,118

Net cash provided by operating activities
34,156

 
50,657

 
10,525

 
43,402

 
 
 
 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 
 
 

Purchases of property and equipment
(2,817
)
 
(2,908
)
 
(13,319
)
 
(15,034
)
Net cash used in investing activities
(2,817
)
 
(2,908
)
 
(13,319
)
 
(15,034
)
 
 
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
 
 

Net short-term secured borrowings (repayments)
1,225

 
(248
)
 
405

 
(799
)
Payments of contingent consideration
(366
)
 
—

 
(11,374
)
 
(8,010
)
Net borrowing (repayments) of revolving credit facility
(25,983
)
 
(28,770
)
 
8,739

 
(5,281
)
Proceeds from exercise of stock options
634

 
544

 
2,636

 
1,195

Repurchases of common stock
—

 
—

 
—

 
(4,897
)
Excess tax benefit from exercise of stock awards
4,030

 
—

 
4,030

 
—

Other financing activities
(186
)
 
(169
)
 
(866
)
 
(594
)
Net cash provided by (used) in financing activities
(20,646
)
 
(28,643
)
 
3,570

 
(18,386
)
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(556
)
 
(989
)
 
(607
)
 
(1,805
)
Increase in cash and cash equivalents
10,137

 
18,117

 
169

 
8,177

Cash and cash equivalents, beginning of period
20,787

 
12,638

 
30,755

 
22,578

Cash and cash equivalents, end of period
$
30,924

 
$
30,755

 
$
30,924

 
$
30,755





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

(in thousands)
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
5,047

 
$
(40,930
)
 
$
4,370

 
$
(33,063
)
Income tax expense
 
2,933

 
6,192

 
10,955

 
12,292

Total other expense
 
1,064

 
3,359

 
4,238

 
7,678

Depreciation and amortization
 
3,534

 
4,629

 
17,916

 
17,472

Stock-based compensation expense
 
1,474

 
1,019

 
5,572

 
5,873

Change in fair value of contingent consideration
 
442

 
(1,961
)
 
10,417

 
(270
)
Goodwill impairment charge
 
—

 
37,539

 
—

 
37,539

Intangible asset impairment charges
 
70

 
202

 
70

 
202

Restructuring and other charges
 
1,181

 
1,053

 
5,615

 
1,053

Secured asset reserve
 
—

 
2,023

 
—

 
2,023

Non-GAAP Adjusted EBITDA
 
$
15,745

 
$
13,125

 
$
59,153

 
$
50,799

 
(in thousands, except per share amounts)
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
5,047

 
$
(40,930
)
 
$
4,370

 
$
(33,063
)
Change in fair value of contingent consideration, net of tax
 
442

 
(1,962
)
 
10,417

 
(282
)
Goodwill impairment charge
 
—

 
37,539

 
—

 
37,539

Intangible asset impairment charges, net of tax
 
56

 
153

 
56

 
153

Restructuring and other charges, net of tax
 
909

 
873

 
4,873

 
873

Venezuela remeasurement charges
 
—

 
1,521

 
—

 
1,521

Secured asset reserve, net of tax(1)
 
—

 
1,239

 
—

 
1,239

Realignment-related income tax charges
 
$
282

 
$
4,685

 
$
1,179

 
$
4,685

Adjusted net income
 
$
6,736

 
$
3,118

 
$
20,895

 
$
12,665

Weighted average shares outstanding, diluted
 
55,019

 
53,093

 
54,460

 
52,791

Non-GAAP Diluted Earnings Per Share
 
$
0.12

 
$
0.06

 
$
0.38

 
$
0.24



INNERWORKINGS INC Reports