|
07.11.2019 22:15:00
|
InnerWorkings Announces Third Quarter 2019 Results
InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three and nine months ended September 30, 2019. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.
"We are successfully executing our strategy to achieve profitable growth,” said Chief Executive Officer Rich Stoddart. "Our year-to-date operating expenses have declined despite growth in revenue and we have continued to sign more business with new and existing clients, reaching a new annual record with a robust pipeline and two months remaining in the year.”
Financial and Business Highlights
- Gross revenue was $286.5 million in the third quarter of 2019, an increase of 6% compared to $270.9 million in the third quarter of 2018. Excluding currency impact, third quarter gross revenue increased 7% compared to the same period of last year.
- Gross profit (net revenue) was $68.2 million, or 23.8% of gross revenue in the third quarter of 2019, compared to $64.0 million, or 23.6% of gross revenue, in the same period of last year. Third quarter gross profit (net revenue) increased 6% over the prior period and 7% excluding currency impact.
- Net loss for the third quarter of 2019 was $(2.2) million, or $(0.04) per diluted share, compared to net loss of $(44.9) million, or $(0.87) per diluted share in the third quarter of 2018.
- Adjusted diluted earnings per share for the third quarter of 2019 was $0.05, compared to $0.04 in the third quarter of 2018. Year-to-date adjusted diluted earnings per share was $0.12, compared to $0.03 in the same period of 2018.
- Adjusted EBITDA was $11.6 million in the third quarter of 2019, compared to $12.2 million in the third quarter of 2018. Year-to-date adjusted EBITDA was $31.8 million, an increase of 15% compared to the same period of 2018.
- Additional work from new and existing clients awarded to date in 2019 amounts to approximately $142 million of annual revenue at full run-rate.
"We have already surpassed 2018's full-year adjusted EBITDA only three quarters into 2019,” said Don Pearson, Chief Financial Officer. "We expect this momentum to continue as we finish the year and into 2020 as we continue to realize the benefits of our $15 million cost reduction plan announced in March 2019. We are on track to realize $4 million of these cost savings this year, with most of the remaining $11 million to be realized next year, setting the stage for significant sustainable profitable growth in 2020 and beyond.”
Outlook
The Company is adjusting its guidance for gross revenue primarily to reflect approximately $20 million of negative currency impact sustained year to date. Gross revenue is now expected to be in a range of $1.13 to $1.15 billion for 2019, which represents 1% to 3% growth compared to 2018. The revised revenue guidance compares to prior guidance of $1.15 to $1.18 billion. The Company is maintaining its 2019 guidance for adjusted EBITDA, which is expected to be in the range of $44 to $47 million. The Company is revising its adjusted diluted earnings per share guidance to be in the range of $0.16 to $0.20 for 2019, compared to the prior guidance range of $0.20 to $0.24, primarily due to higher interest and income tax expenses than previously expected.
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, adjusted 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, adjusted diluted earnings per share, and constant currency included in this release.
The Company has not quantitatively reconciled its guidance for adjusted EBITDA and adjusted diluted earnings per share to their most comparable GAAP measures because certain of the reconciling items that impact these measures, including restructuring charges, stock-based compensation expense and control remediation-related fees affecting the period, have not occurred, are outside the Company’s control, or cannot be reasonably predicted. Accordingly, reconciliations to the nearest GAAP financial measures are not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the Company’s 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 headquartered in Chicago, IL and employs 2,000 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) (unaudited) |
|||||||||||||||
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||
|
|
|
|
|
|
|
|
||||||||
Revenue |
$ |
286,525 |
|
|
$ |
270,850 |
|
|
$ |
837,816 |
|
|
$ |
827,356 |
|
Cost of goods sold |
218,356 |
|
|
206,808 |
|
|
639,385 |
|
|
632,376 |
|
||||
Gross profit |
68,169 |
|
|
64,042 |
|
|
198,431 |
|
|
194,980 |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
||||||||
Selling, general and administrative expenses |
59,938 |
|
|
56,142 |
|
|
174,404 |
|
|
176,312 |
|
||||
Depreciation and amortization |
3,090 |
|
|
3,265 |
|
|
8,939 |
|
|
10,438 |
|
||||
Goodwill impairment |
— |
|
|
27,887 |
|
|
— |
|
|
27,887 |
|
||||
Intangible and other asset impairments |
— |
|
|
16,818 |
|
|
— |
|
|
16,818 |
|
||||
Restructuring charges |
3,055 |
|
|
3,142 |
|
|
10,687 |
|
|
3,142 |
|
||||
Income (loss) from operations |
2,086 |
|
|
(43,212 |
) |
|
4,401 |
|
|
(39,617 |
) |
||||
Other income (expense): |
|
|
|
|
|
|
|
||||||||
Interest income |
37 |
|
|
19 |
|
|
239 |
|
|
135 |
|
||||
Interest expense |
(4,376 |
) |
|
(1,769 |
) |
|
(9,608 |
) |
|
(4,854 |
) |
||||
Other expense |
(1,736 |
) |
|
(301 |
) |
|
(2,196 |
) |
|
(1,734 |
) |
||||
Total other expense |
(6,075 |
) |
|
(2,051 |
) |
|
(11,565 |
) |
|
(6,453 |
) |
||||
Loss before income taxes |
(3,989 |
) |
|
(45,263 |
) |
|
(7,164 |
) |
|
(46,070 |
) |
||||
Income tax expense (benefit) |
(1,815 |
) |
|
(326 |
) |
|
(1,359 |
) |
|
851 |
|
||||
Net loss |
$ |
(2,174 |
) |
|
$ |
(44,937 |
) |
|
$ |
(5,805 |
) |
|
$ |
(46,921 |
) |
|
|
|
|
|
|
|
|
||||||||
Basic and diluted net loss per share |
$ |
(0.04 |
) |
|
$ |
(0.87 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.90 |
) |
|
|
|
|
|
|
|
|
||||||||
Weighted-average shares outstanding – basic |
53,320 |
|
|
51,688 |
|
|
53,235 |
|
|
52,384 |
|
||||
Weighted-average shares outstanding – diluted |
53,320 |
|
|
51,688 |
|
|
53,235 |
|
|
52,384 |
|
||||
Condensed Consolidated Balance Sheets (In thousands) |
|||||||
|
September 30, 2019 |
|
December 31, 2018 |
||||
|
(unaudited) |
|
|
||||
Assets |
|
|
|
||||
Current assets: |
|
|
|
||||
Cash and cash equivalents |
$ |
38,488 |
|
|
$ |
26,770 |
|
Accounts receivable, net of allowance for doubtful accounts of $4,247 and $4,880, respectively |
190,992 |
|
|
193,253 |
|
||
Unbilled revenue |
65,584 |
|
|
46,474 |
|
||
Other receivables |
39,317 |
|
|
23,727 |
|
||
Inventories |
64,136 |
|
|
56,001 |
|
||
Prepaid expenses |
13,973 |
|
|
16,982 |
|
||
Other current assets |
13,271 |
|
|
10,379 |
|
||
Total current assets |
425,761 |
|
|
373,586 |
|
||
Property and equipment, net |
36,714 |
|
|
82,933 |
|
||
Intangibles and other assets: |
|
|
|
||||
Goodwill |
152,191 |
|
|
152,158 |
|
||
Intangible assets, net |
8,230 |
|
|
9,828 |
|
||
Right of use assets, net |
51,726 |
|
|
— |
|
||
Deferred income taxes |
1,112 |
|
|
1,195 |
|
||
Other non-current assets |
4,333 |
|
|
2,976 |
|
||
Total intangibles and other assets |
217,592 |
|
|
166,157 |
|
||
Total assets |
$ |
680,067 |
|
|
$ |
622,676 |
|
Liabilities and stockholders' equity |
|
|
|
||||
Current liabilities: |
|
|
|
||||
Accounts payable |
169,173 |
|
|
158,449 |
|
||
Accrued expenses |
44,096 |
|
|
35,474 |
|
||
Deferred revenue |
18,526 |
|
|
17,614 |
|
||
Revolving credit facility - current |
4,585 |
|
|
142,736 |
|
||
Term loan - current |
6,250 |
|
|
— |
|
||
Other current liabilities |
32,325 |
|
|
26,231 |
|
||
Total current liabilities |
274,955 |
|
|
380,504 |
|
||
Lease liabilities |
47,094 |
|
|
— |
|
||
Revolving credit facility - non-current |
76,829 |
|
|
— |
|
||
Term loan - non-current |
89,991 |
|
|
— |
|
||
Deferred income taxes |
8,257 |
|
|
8,178 |
|
||
Other non-current liabilities |
2,486 |
|
|
50,903 |
|
||
Total liabilities |
499,612 |
|
|
439,585 |
|
||
Commitments and contingencies |
|
|
|
||||
Stockholders' equity: |
|
|
|
||||
Common stock |
6 |
|
|
6 |
|
||
Additional paid-in capital |
243,706 |
|
|
239,960 |
|
||
Treasury stock at cost |
(81,471 |
) |
|
(81,471 |
) |
||
Accumulated other comprehensive loss |
(25,045 |
) |
|
(24,309 |
) |
||
Retained earnings |
43,259 |
|
|
48,905 |
|
||
Total stockholders' equity |
180,455 |
|
|
183,091 |
|
||
Total liabilities and stockholders' equity |
$ |
680,067 |
|
|
$ |
622,676 |
|
Condensed Consolidated Statement of Cash Flows (In thousands) (Unaudited) |
|||||||
|
Nine Months Ended September 30, |
||||||
|
2019 |
|
2018 |
||||
|
|
|
|
||||
Cash flows from operating activities |
|
|
|
||||
Net loss |
$ |
(5,805 |
) |
|
$ |
(46,921 |
) |
Adjustments to reconcile net loss to net cash from operating activities: |
|
|
|
||||
Depreciation and amortization |
8,939 |
|
|
10,438 |
|
||
Stock-based compensation expense |
4,219 |
|
|
3,624 |
|
||
Bad debt provision |
1,447 |
|
|
888 |
|
||
Implementation cost amortization |
250 |
|
|
344 |
|
||
Goodwill impairment |
— |
|
|
27,887 |
|
||
Intangible and long-lived asset impairment |
— |
|
|
16,818 |
|
||
Change in fair value of warrant |
950 |
|
|
— |
|
||
Change in fair value of embedded derivative |
(97 |
) |
|
— |
|
||
Unrealized foreign exchange loss |
986 |
|
|
— |
|
||
Other operating activities |
705 |
|
|
(189 |
) |
||
Change in assets: |
|
|
|
||||
Accounts receivable and unbilled revenue |
(21,245 |
) |
|
5,810 |
|
||
Inventories |
(8,767 |
) |
|
(16,469 |
) |
||
Prepaid expenses and other assets |
(29,141 |
) |
|
(7,903 |
) |
||
Change in liabilities: |
|
|
|
||||
Accounts payable |
12,403 |
|
|
20,350 |
|
||
Accrued expenses and other liabilities |
25,378 |
|
|
(4,572 |
) |
||
Net cash (used in) provided by operating activities |
(9,778 |
) |
|
10,105 |
|
||
|
|
|
|
||||
Cash flows from investing activities |
|
|
|
||||
Purchases of property and equipment |
(10,012 |
) |
|
(7,835 |
) |
||
Payments for acquisition, net of cash acquired |
(390 |
) |
|
— |
|
||
Net cash used in investing activities |
(10,402 |
) |
|
(7,835 |
) |
||
|
|
|
|
||||
Cash flows from financing activities |
|
|
|
||||
Net borrowings (repayments) from old revolving credit facility |
(142,583 |
) |
|
23,230 |
|
||
Net borrowings (repayments) from new revolving credit facility |
81,472 |
|
|
— |
|
||
Net short-term secured (repayments) borrowings |
(833 |
) |
|
55 |
|
||
Proceeds from term loan |
100,000 |
|
|
— |
|
||
Payments on term loan |
(1,250 |
) |
|
— |
|
||
Repurchases of common stock |
— |
|
|
(25,689 |
) |
||
Proceeds from exercise of stock options |
63 |
|
|
416 |
|
||
Payment of debt issuance costs |
(5,488 |
) |
|
(545 |
) |
||
Other financing activities |
(242 |
) |
|
(746 |
) |
||
Net cash provided by (used in) financing activities |
31,139 |
|
|
(3,279 |
) |
||
|
|
|
|
||||
Effect of exchange rate changes on cash and cash equivalents |
759 |
|
|
(1,958 |
) |
||
Increase (Decrease) in cash and cash equivalents |
11,718 |
|
|
(2,967 |
) |
||
Cash and cash equivalents, beginning of period |
26,770 |
|
|
30,562 |
|
||
Cash and cash equivalents, end of period |
$ |
38,488 |
|
|
$ |
27,595 |
|
Reconciliation of Adjusted EBITDA and Adjusted Diluted Earnings Per Share (In thousands, except per share amounts) (Unaudited) |
|||||||||||||||
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||
|
|
|
|
|
|
|
|
||||||||
Net loss |
$ |
(2,174 |
) |
|
$ |
(44,937 |
) |
|
$ |
(5,805 |
) |
|
$ |
(46,921 |
) |
Income tax (benefit) expense |
(1,815 |
) |
|
(326 |
) |
|
(1,359 |
) |
|
851 |
|
||||
Interest income |
(37 |
) |
|
(19 |
) |
|
(239 |
) |
|
(135 |
) |
||||
Interest expense |
4,376 |
|
|
1,769 |
|
|
9,608 |
|
|
4,854 |
|
||||
Other expense |
1,736 |
|
|
301 |
|
|
2,196 |
|
|
1,734 |
|
||||
Depreciation and amortization |
3,090 |
|
|
3,265 |
|
|
8,939 |
|
|
10,438 |
|
||||
Stock-based compensation expense |
1,783 |
|
|
801 |
|
|
3,924 |
|
|
3,624 |
|
||||
Stock appreciation rights marked to market |
248 |
|
|
— |
|
|
294 |
|
|
— |
|
||||
Goodwill impairment |
— |
|
|
27,887 |
|
|
— |
|
|
27,887 |
|
||||
Intangible and long-lived asset impairment |
— |
|
|
16,818 |
|
|
— |
|
|
16,818 |
|
||||
Restructuring charges |
3,055 |
|
|
3,142 |
|
|
10,687 |
|
|
3,142 |
|
||||
Professional fees related to ASC 606 implementation |
— |
|
|
— |
|
|
— |
|
|
1,092 |
|
||||
Senior leadership transition and other employee-related costs |
— |
|
|
1,153 |
|
|
— |
|
|
1,153 |
|
||||
Obsolete retail inventory |
— |
|
|
950 |
|
|
— |
|
|
950 |
|
||||
Executive search fees |
— |
|
|
— |
|
|
80 |
|
|
235 |
|
||||
Control remediation-related fees |
378 |
|
|
1,358 |
|
|
918 |
|
|
1,895 |
|
||||
Sales and use tax audit |
— |
|
|
— |
|
|
1,235 |
|
|
— |
|
||||
Other professional fees |
967 |
|
|
81 |
|
|
1,343 |
|
|
162 |
|
||||
Adjusted EBITDA |
$ |
11,607 |
|
|
$ |
12,243 |
|
|
$ |
31,821 |
|
|
$ |
27,779 |
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||
|
|
|
|
|
|
|
|
||||||||
Net loss |
$ |
(2,174 |
) |
|
$ |
(44,937 |
) |
|
$ |
(5,805 |
) |
|
$ |
(46,921 |
) |
Goodwill impairment |
— |
|
|
27,887 |
|
|
— |
|
|
27,887 |
|
||||
Intangible and long-lived asset impairment, net of tax |
— |
|
|
14,037 |
|
|
— |
|
|
14,037 |
|
||||
Restructuring charges, net of tax |
2,401 |
|
|
2,584 |
|
|
8,203 |
|
|
2,584 |
|
||||
Senior leadership transition and other employee-related costs, net of tax |
— |
|
|
844 |
|
|
— |
|
|
844 |
|
||||
Obsolete inventory, net of tax |
— |
|
|
769 |
|
|
— |
|
|
769 |
|
||||
Professional fees related to ASC 606 implementation, net of tax |
— |
|
|
— |
|
|
— |
|
|
819 |
|
||||
Executive search fees, net of tax |
— |
|
|
— |
|
|
60 |
|
|
176 |
|
||||
Control remediation-related fees, net of tax |
281 |
|
|
984 |
|
|
683 |
|
|
1,387 |
|
||||
Sales and use tax audit, net of tax |
— |
|
|
— |
|
|
920 |
|
|
— |
|
||||
Other professional fees, net of tax |
721 |
|
|
59 |
|
|
1,001 |
|
|
119 |
|
||||
Fair value of warrants and derivatives |
853 |
|
|
— |
|
|
853 |
|
|
— |
|
||||
Foreign exchange loss |
773 |
|
|
— |
|
|
773 |
|
|
— |
|
||||
Adjusted net income |
$ |
2,855 |
|
|
$ |
2,227 |
|
|
$ |
6,688 |
|
|
$ |
1,701 |
|
|
|
|
|
|
|
|
|
||||||||
GAAP Weighted-average shares outstanding – diluted |
53,320 |
|
|
51,688 |
|
|
53,235 |
|
|
52,384 |
|
||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
||||||||
Employee stock options and restricted common shares |
4 |
|
|
304 |
|
|
280 |
|
|
633 |
|
||||
Adjusted Weighted-average shares outstanding – diluted |
53,324 |
|
|
51,992 |
|
|
53,515 |
|
|
53,017 |
|
||||
Adjusted diluted earnings per share |
$ |
0.05 |
|
|
$ |
0.04 |
|
|
$ |
0.12 |
|
|
$ |
0.03 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20191107005954/en/
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