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InnerWorkings Announces Fourth Quarter and Full Year 2019 Results

Record $159 million in new business awarded in 2019

Multi-year transformation on track

InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three and twelve months ended December 31, 2019. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

"The tremendous progress we made in 2019 is a demonstration of our ability to successfully execute our plans to significantly improve the business," said Chief Executive Officer Rich Stoddart. "We drove profitable growth, reduced our costs, and improved our operating discipline. I'm proud of this team for doing the hard work to build the right foundation to drive returns for our shareholders."

Financial and Business Highlights

  • Gross revenue was $319.1 million in the fourth quarter of 2019, an increase of 9% compared to $294.0 million in the fourth quarter of 2018. Fourth quarter 2019 gross revenue included $15 million of incremental revenue on bill and hold arrangements, as discussed below. Gross revenue of $1,157.8 million for the full year 2019 increased 3% over 2018, or 5% excluding currency impact.
  • Gross profit was $62.1 million, or 19.5% of gross revenue in the fourth quarter of 2019, compared to $59.1 million, or 20.1% of gross revenue, in the same period of last year. Gross profit for the full year 2019 was $262.0 million, or 22.6% of gross revenue, compared to $253.8 million, or 22.6% of gross revenue, for the full year 2018. Fourth quarter and full year 2019 gross profit includes $3.1 million of incremental gross profit on bill and hold arrangements, as discussed below. Also see below for discussion of warehousing and other service costs and the impact on fourth quarter gross profit.
  • Net loss for the fourth quarter of 2019 was $(6.5) million, or $(0.12) per diluted share, an improvement compared to net loss of $(29.4) million, or $(0.57) per diluted share in the fourth quarter of 2018. Net loss for the full year 2019 was $(10.1) million, or $(0.19) per share, an improvement compared to net loss of $(76.7) million or $(1.47) per diluted share for the full year 2018. The Company's net loss in the fourth quarter contained higher than expected foreign exchange losses, restructuring charges, and income tax expense, including the impact of valuation allowances recorded on state tax loss carryforwards.
  • Adjusted diluted earnings (loss) per share for the fourth quarter of 2019 was $(0.01), compared to $(0.14) in the fourth quarter of 2018. Full-year adjusted diluted earnings (loss) per share was $0.14, compared to $(0.11) in the full-year 2018. The impacts of foreign exchange losses and income taxes discussed above are not adjusted out of adjusted diluted earnings (loss) per share and are more pronounced as the Company is operating near break even on an adjusted basis.
  • Adjusted EBITDA was $15.5 million in the fourth quarter of 2019, compared to $(0.2) million in the fourth quarter of 2018. Fourth quarter 2019 adjusted EBITDA includes $2.8 million of incremental adjusted EBITDA on bill and hold arrangements, as discussed below. Full year adjusted EBITDA was $49.0 million, an increase of 80% compared to the full year 2018.
  • Additional work from new and existing clients awarded in 2019 amounts to approximately $159 million of annual revenue at full run-rate, a new annual record.

"As a result of the material weaknesses previously disclosed, insufficient evidence existed to support the recognition of revenue in arrangements containing bill and hold provisions. Therefore, we deferred the related revenue until product shipped from our warehouse. In connection with the remediation of those material weaknesses, we are now able to support earlier revenue recognition for bill and hold arrangements. Disregarding this benefit, adjusted EBITDA increased 70% in 2019 and our plan reflects at least 15% growth in 2020, excluding the impact from COVID-19," said Don Pearson, Chief Financial Officer.

Outlook

The Company's 2020 outlook excludes the impact from COVID-19, as it is a rapidly evolving situation that is difficult to predict at this time. Gross revenue is expected to be in a range of $1.150 to $1.175 billion for 2020, which reflects approximately $100 million of new revenue from the ramp up of recently signed contracts, partially offset by a reduction in revenue from work being exited as well as revenue headwinds mainly outside North America. Adjusted EBITDA is expected to be in the range of $54 to $58 million, mainly driven by the success of the Company's cost initiatives and high-quality revenue growth. Excluding the 2019 benefit from earlier revenue recognition of bill and hold arrangements, 2020 gross revenue is expected to grow 1% to 3% and 2020 adjusted EBITDA is expected to increase approximately $8 to $12 million compared to 2019.

Rich Stoddart concluded, "As we look forward, we remain committed to driving higher quality revenue to deliver an improved profitability profile. This will include better discipline regarding new clients and client renewals. It will also include an evaluation of our international operations and their ability to reach the profitability level we have achieved in North America. With a more disciplined cost culture, a focus on more profitable revenue, and a continued opportunity to welcome new enterprise clients to our solution, we believe we can significantly enhance our profitability profile over the next few years."

Warehousing and Other Service Costs

During 2019, InnerWorkings acquired Madden Communications, which brought with it a highly developed logistics capability that has allowed the Company to make warehousing a core service offering. As such, costs relating to warehousing and certain other services dedicated to specific clients are now classified as cost of goods sold, whereas similar costs incurred historically were included in selling, general and administrative (SG&A) expenses. As disclosed in Note 20, Quarterly Selected Financial Information (Unaudited), of the Notes to the Consolidated Financial Statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC, in the fourth quarter of 2019, the Company reclassified $13.8 million of these costs, of which $9.4 million was recorded in SG&A in the first three quarters. Similar costs in prior years were not material.

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 and adjusted diluted earnings per share. 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. 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 and adjusted diluted earnings per share included in this release.

The Company has not quantitatively reconciled its guidance for adjusted EBITDA to its most comparable GAAP measure, net income, because certain of the reconciling items that impact this measure, including restructuring charges and stock-based compensation expense affecting the period, have not occurred, are outside the Company’s control, or cannot be reasonably predicted. Accordingly, a reconciliation to the nearest GAAP financial measure is 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.

Revision of Prior Period Financial Statements

In connection with the preparation of the consolidated financial statements, the Company identified errors within our North America and EMEA segments in the quarterly and annual periods of 2019, 2018 and 2017. The Company considered the errors identified and determined the impact was immaterial to the previously issued consolidated financial statements, however, correcting the cumulative error in the current period would be significant. As such, the Company has revised the previously reported financial information included herein. Refer to Note 2, Summary of Significant Accounting Policies, and Note 21, Revision of Prior Period Financial Statements, of the Notes to the Consolidated Financial Statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC for further information.

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 approximately 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.

Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Revenue

$

319,074

 

 

$

293,977

 

 

$

1,157,834

 

 

$

1,121,106

 

Cost of goods sold

256,968

 

 

234,911

 

 

895,825

 

 

867,293

 

Gross profit

62,106

 

 

59,066

 

 

262,009

 

 

253,813

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses

49,735

 

 

62,124

 

 

222,721

 

 

238,537

 

Depreciation and amortization

3,389

 

 

2,550

 

 

12,328

 

 

12,988

 

Goodwill impairment

 

 

18,432

 

 

 

 

46,319

 

Intangible and other asset impairments

 

 

1,303

 

 

 

 

18,121

 

Restructuring charges

5,394

 

 

2,889

 

 

15,918

 

 

6,031

 

Income (loss) from operations

3,588

 

 

(28,232

)

 

11,042

 

 

(68,183

)

Other income (expense):

 

 

 

 

 

 

 

Interest income

127

 

 

83

 

 

366

 

 

218

 

Interest expense

(4,489

)

 

(2,895

)

 

(14,097

)

 

(7,749

)

Other, net

(1,790

)

 

118

 

 

(3,686

)

 

(1,616

)

Total other expense

(6,152

)

 

(2,694

)

 

(17,417

)

 

(9,147

)

Loss before income taxes

(2,564

)

 

(30,926

)

 

(6,375

)

 

(77,330

)

Provision (benefit) for income tax

3,897

 

 

(1,536

)

 

3,700

 

 

(647

)

Net loss

$

(6,461

)

 

$

(29,390

)

 

$

(10,075

)

 

$

(76,683

)

 

 

 

 

 

 

 

 

Basic loss per share

$

(0.12

)

 

$

(0.57

)

 

$

(0.19

)

 

$

(1.47

)

Diluted loss per share

$

(0.12

)

 

$

(0.57

)

 

$

(0.19

)

 

$

(1.47

)

 

 

 

 

 

 

 

 

Weighted-average shares outstanding - basic

53,467

 

 

51,773

 

 

53,293

 

 

52,230

 

Weighted-average shares outstanding - diluted

53,467

 

 

51,773

 

 

53,293

 

 

52,230

 

Consolidated Balance Sheets

(In thousands)

 

December 31, 2019

 

December 31, 2018

 

(unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

42,711

 

 

$

26,770

 

Accounts receivable, net of allowance for doubtful accounts of $3,830 and $4,880, respectively

202,406

 

 

193,186

 

Unbilled revenue

48,396

 

 

46,252

 

Other receivables

28,194

 

 

23,727

 

Inventories

34,977

 

 

55,715

 

Prepaid expenses

10,680

 

 

16,256

 

Other current assets

7,301

 

 

10,733

 

Total current assets

374,665

 

 

372,639

 

Property and equipment, net

37,224

 

 

82,933

 

Intangibles and other assets:

 

 

 

Goodwill

152,210

 

 

152,158

 

Intangible assets, net

7,714

 

 

9,828

 

Right of use assets, net

51,159

 

 

 

Deferred income taxes

2,182

 

 

1,195

 

Other non-current assets

4,129

 

 

2,976

 

Total intangibles and other assets

217,394

 

 

166,157

 

Total assets

$

629,283

 

 

$

621,729

 

Liabilities and stockholders' equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

142,136

 

 

158,028

 

Accrued expenses

50,975

 

 

35,698

 

Deferred revenue

9,568

 

 

17,614

 

Revolving credit facility - current

593

 

 

142,736

 

Term loan - current

7,500

 

 

 

Other current liabilities

35,665

 

 

28,190

 

Total current liabilities

246,437

 

 

382,266

 

Lease liabilities

46,075

 

 

 

Revolving credit facility - non-current

60,086

 

 

 

Term loan - non-current

89,242

 

 

 

Deferred income taxes

8,053

 

 

7,605

 

Other long-term liabilities

1,138

 

 

50,903

 

Total liabilities

451,031

 

 

440,774

 

Commitments and contingencies

 

 

 

Stockholders' equity:

 

 

 

Common stock

6

 

 

6

 

Additional paid-in capital

245,311

 

 

239,960

 

Treasury stock at cost

(81,471

)

 

(81,471

)

Accumulated other comprehensive loss

(22,449

)

 

(24,311

)

Retained earnings

36,855

 

 

46,771

 

Total stockholders' equity

178,252

 

 

180,955

 

Total liabilities and stockholders' equity

$

629,283

 

 

$

621,729

 

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

 

Year Ended December 31,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net loss

$

(10,075

)

 

$

(76,683

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

Depreciation and amortization

12,328

 

 

12,988

 

Stock-based compensation expense

6,281

 

 

5,302

 

Deferred income taxes

(879

)

 

(4,604

)

Goodwill impairment

 

 

46,319

 

Intangible and other asset impairments

 

 

18,121

 

Bad debt provision

1,068

 

 

3,601

 

Contract implementation cost amortization

300

 

 

433

 

Change in fair value of warrant

2,233

 

 

 

Change in fair value of embedded derivative

(176

)

 

 

Unrealized foreign exchange loss

834

 

 

 

Other operating activities, net

1,150

 

 

255

 

Changes in assets and liabilities:

 

 

 

Accounts receivable and unbilled revenue

(12,254

)

 

4,470

 

Inventories

20,980

 

 

(16,039

)

Prepaid expenses and other assets

(6,529

)

 

2,120

 

Accounts payable

(15,634

)

 

21,585

 

Accrued expenses and other liabilities

22,843

 

 

5,190

 

Net cash provided by operating activities

22,470

 

 

23,058

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

(13,378

)

 

(11,263

)

Payments for acquisitions, net of cash acquired

(721

)

 

 

Proceeds from sale of property and equipment

 

 

122

 

Net cash used in investing activities

(14,099

)

 

(11,141

)

Cash flows from financing activities:

 

 

 

Net borrowings (repayments) from prior revolving credit facility

(142,583

)

 

14,539

 

Net borrowings from new revolving credit facility

60,563

 

 

 

Net short-term secured repayments

(833

)

 

(1,525

)

Proceeds from term loan

100,000

 

 

 

Payments on term loan

(2,500

)

 

 

Repurchases of common stock

 

 

(25,689

)

Payment of debt issuance costs

(5,488

)

 

(545

)

Proceeds from exercise of stock options

63

 

 

545

 

Other financing activities, net

(245

)

 

(1,061

)

Net cash provided by (used in) financing activities

8,977

 

 

(13,736

)

Effect of exchange rate changes on cash and cash equivalents

(1,407

)

 

(1,973

)

Increase (decrease) in cash and cash equivalents

15,941

 

 

(3,792

)

Cash and cash equivalents, beginning of period

26,770

 

 

30,562

 

Cash and cash equivalents, end of period

$

42,711

 

 

$

26,770

 

Reconciliation of Adjusted EBITDA and Adjusted Diluted (Loss) Earnings Per Share

(In thousands, except per share amounts)

(Unaudited)

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Net loss

$

(6,461

)

 

$

(29,390

)

 

$

(10,075

)

 

$

(76,683

)

Provision (benefit) for income tax

3,897

 

 

(1,536

)

 

3,700

 

 

(647

)

Interest income

(127

)

 

(83

)

 

(366

)

 

(218

)

Interest expense

4,489

 

 

2,895

 

 

14,097

 

 

7,749

 

Depreciation and amortization

3,389

 

 

2,550

 

 

12,328

 

 

12,988

 

Stock-based compensation - equity classified awards

1,608

 

 

1,678

 

 

5,533

 

 

5,302

 

Stock-based compensation - SARs market-to-market

454

 

 

 

 

748

 

 

 

Restructuring charges

5,394

 

 

2,889

 

 

15,918

 

 

6,031

 

Executive search fees

 

 

 

 

80

 

 

235

 

Professional fees related to control remediation

212

 

 

535

 

 

1,130

 

 

2,430

 

Sales and use tax audit

 

 

12

 

 

25

 

 

113

 

Other professional fees

898

 

 

345

 

 

2,241

 

 

507

 

Goodwill impairment

 

 

18,432

 

 

 

 

46,319

 

Intangible and long-lived asset impairment

 

 

1,303

 

 

 

 

18,121

 

Senior leadership transition and other employee-related costs

 

 

257

 

 

 

 

1,410

 

Obsolete retail inventory

 

 

 

 

 

 

950

 

Professional fees related to ASC 606 implementation

 

 

 

 

 

 

1,092

 

Other, net

1,790

 

 

(118

)

 

3,686

 

 

1,616

 

Adjusted EBITDA

$

15,543

 

 

$

(231

)

 

$

49,045

 

 

$

27,315

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Net loss

$

(6,461

)

 

$

(29,390

)

 

$

(10,075

)

 

$

(76,683

)

Restructuring charges

5,394

 

 

2,889

 

 

15,918

 

 

6,031

 

Executive search fees

 

 

 

 

80

 

 

235

 

Professional fees related to control remediation

213

 

 

535

 

 

1,130

 

 

2,430

 

Sales and use tax audit

 

 

12

 

 

25

 

 

113

 

Other professional fees

898

 

 

345

 

 

2,241

 

 

507

 

Fair value of warrants and derivatives

1,204

 

 

 

 

2,057

 

 

 

Foreign exchange loss

 

 

 

 

773

 

 

 

Goodwill impairment

 

 

18,432

 

 

 

 

46,319

 

Intangible and other asset impairments

 

 

1,303

 

 

 

 

18,121

 

Senior leadership transition and other employee-related costs

 

 

257

 

 

 

 

1,410

 

Obsolete retail inventory

 

 

 

 

 

 

950

 

Professional fees related to ASC 606 implementation

 

 

 

 

 

 

1,092

 

Income tax effects of adjustments

(1,627

)

 

(1,542

)

 

(4,852

)

 

(6,280

)

Adjusted net (loss) income

$

(379

)

 

$

(7,159

)

 

$

7,297

 

 

$

(5,755

)

 

 

 

 

 

 

 

 

GAAP Weighted-average shares outstanding – diluted

53,467

 

 

51,773

 

 

53,293

 

 

52,230

 

Effect of dilutive securities:

 

 

 

 

 

 

 

Employee stock options and restricted common shares

 

 

 

 

486

 

 

 

Adjusted weighted-average shares outstanding – diluted

53,467

 

 

51,773

 

 

53,779

 

 

52,230

 

Adjusted diluted (loss) earnings per share

$

(0.01

)

 

$

(0.14

)

 

$

0.14

 

 

$

(0.11

)

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200316005812/en/

Contacts

InnerWorkings, Inc.
Bridget Freas
312.589.5613
bfreas@inwk.com