Market Overview

InnerWorkings Announces Second Quarter 2018 Results

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$85 million in new business awarded year to date;

detailed plan underway to reduce G&A expenses by $20 million to
improve profitability

InnerWorkings,
Inc.
(NASDAQ:INWK), the leading global marketing execution
firm, today announced financial results for the three and six months
ended June 30, 2018. For all non-GAAP references below, please refer to
the non-GAAP reconciliation tables at the end of this release for more
information.

"One of the best indicators of a company's strength is its ability to
grow within its existing clients. We have been awarded additional work
with two existing accounts in just the last two weeks, and our pipeline
is full of opportunities to further penetrate our customer base," said
Chief Executive Officer Rich Stoddart. "With the momentum of our new
wins and a robust plan to improve our cost structure, InnerWorkings is
poised to deliver significant value for our shareholders."

Financial and Business Highlights

  • Gross revenue was $282.0 million in the second quarter of 2018, an
    increase of 1% compared to $280.1 million in the second quarter of
    2017. Excluding currency impacts, second quarter gross revenue
    increased 4% compared to the same period of last year.
  • Gross profit (net revenue) was $64.9 million, or 23.0% of gross
    revenue in the second quarter of 2018, compared to $70.0 million, or
    25.0% of revenue, in the same period of last year.
  • Net loss for the second quarter of 2018 was $(0.3) million, or $(0.01)
    per diluted share, compared to net income of $4.4 million, or $0.08
    per diluted share in the second quarter of 2017.
  • Non-GAAP earnings per diluted share for the second quarter of 2018 was
    $0.01, compared to $0.12 in the second quarter of 2017.
  • Non-GAAP adjusted EBITDA was $8.2 million in the second quarter of
    2018, compared to $16.5 million in the second quarter of 2017.
  • InnerWorkings has been awarded additional work from new and existing
    clients so far during 2018, which collectively is expected to drive
    $85 million of annual revenue at full run-rate. Recent new wins
    include two expansions with global Fortune 500 companies in the
    healthcare and food verticals.

Cost Reduction Plan

InnerWorkings has implemented an aggressive cost reduction plan which is
expected to enable the company to reduce selling, general and
administrative expenses in 2019 to be in line with 2017 expenses. The
Company expects to reduce annualized G&A expenses by $20 million over
the next few quarters, with reductions made across the business to
optimize staffing levels, realign underperforming operations, and better
leverage talent across accounts.

"We have already initiated cost reduction measures with approximately
50% of the plan to be actioned by October 1st," said Chip Hodgkins,
Interim Chief Financial Officer of InnerWorkings. "If in 2019 we achieve
a similar gross revenue growth rate and gross margin as compared to this
year, these cost reductions are expected to enable 2019 non-GAAP
adjusted EBITDA of $65 to $70 million, or approximately 30% above our
expectation for 2018."

Outlook

The Company reaffirmed its 2018 guidance for gross revenue at a range of
$1.155 billion to $1.190 billion, representing growth of 1% to 4%
compared to 2017. 2018 gross margin is expected to be approximately 24%.
Non-GAAP adjusted EBITDA is expected to be between $50 million and $53
million in 2018. The Company forecasts 2018 non-GAAP diluted earnings
per share to be $0.30 to $0.33. Including the benefits of the cost
reduction plan mentioned above, the Company expects non-GAAP adjusted
EBITDA to be between $65 million and $70 million in 2019.

Conference Call

Rich Stoddart, Chief Executive Officer, and Chip Hodgkins, Interim 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: non-GAAP adjusted EBITDA,
non-GAAP 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 non-GAAP adjusted EBITDA, non-GAAP
diluted earnings per share, and constant currency 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/A.

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 2,100
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.

 
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
 
    Three Months Ended June 30,         Six Months Ended June 30,
2018   2017         2018   2017
(as restated)           (as restated)
Revenue $ 281,967 $ 280,066 $ 556,506 $ 544,471
Cost of goods sold 217,096   210,020   425,568   409,721  
Gross profit 64,871 70,046 130,938 134,750
Operating expenses:
Selling, general and administrative expenses 59,002 55,054 120,169 108,669
Depreciation and amortization 3,514 3,182 7,173 6,086
Change in fair value of contingent consideration   1,884     844  
Income from operations 2,355 9,926 3,596 19,151
Other income (expense):
Interest income 54 12 115 46
Interest expense (1,517 ) (1,038 ) (3,085 ) (2,041 )
Other, net (588 ) (1,164 )         (1,433 )   (1,388 )
Total other expense (2,051 ) (2,190 )         (4,403 )   (3,383 )
(Loss) income before income taxes 304 7,736 (807 ) 15,768
Income tax expense 603   3,362           1,176     5,716  
Net (loss) income $ (299 ) $ 4,374           $ (1,983 )   $ 10,052  
 
Basic (loss) earnings per share $ (0.01 ) $ 0.08 $ (0.04 ) $ 0.19
Diluted (loss) earnings per share $ (0.01 ) $ 0.08 $ (0.04 ) $ 0.18
 
Weighted-average shares outstanding basic 51,770 53,278 52,738 53,665
Weighted-average shares outstanding diluted 51,770 55,189 52,738 55,070
 

Condensed Consolidated Balance Sheets

 
        December 31,
(in thousands) June 30, 2018 2017
(unaudited) (as restated)
Assets
Current assets:
Cash and cash equivalents $ 28,266 $ 30,562
Accounts receivable, net 185,222 205,386
Unbilled revenue 47,906 50,016
Inventories 40,781 40,694
Prepaid expenses 20,584 18,565
Other current assets 26,296   37,865  
Total current assets 349,055 383,088
Property and equipment, net 68,028 36,714
Intangibles and other assets:
Goodwill 199,135 199,946
Intangible assets, net 25,068 27,563
Deferred income taxes 1,084 691
Other non-current assets 2,047   1,636  
Total intangibles and other assets 227,334   229,836  
Total assets $ 644,417   $ 649,638  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 122,452 $ 141,164
Accrued expenses 34,386 34,391
Deferred revenue 20,022 17,620
Revolving credit facility - current 136,538
Other current liabilities 22,770   24,078  
Total current liabilities 336,168 217,253
Revolving credit facility - non-current 128,398
Financing obligation - build-to-suit leases 31,147
Deferred income taxes 12,236 12,043
Other non-current liabilities 7,075   7,399  
Total liabilities 386,626 365,093
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 237,634 235,199
Treasury stock at cost (81,471 ) (55,873 )
Accumulated other comprehensive loss (21,472 ) (19,229 )
Retained earnings 123,094   124,442  
Total stockholders' equity 257,791   284,545  
Total liabilities and stockholders' equity $ 644,417   $ 649,638  

Condensed Consolidated Statement of Cash Flows
(Unaudited)
 
(in thousands)     Six Months Ended June 30,
2018     2017
(as restated)
Cash flows from operating activities
Net income (loss) $ (1,983 ) $ 10,052
Adjustments to reconcile net (loss) income to net cash from
operating activities:
Depreciation and amortization 7,173 6,086
Stock-based compensation expense 2,823 2,921
Deferred income taxes 624
Bad debt provision 630 82
Implementation cost amortization 263
Change in fair value of contingent consideration 844
Payments of contingent consideration (662 )
Other operating activities (154 ) 104
Change in assets:
Accounts receivable and unbilled revenue 21,643 (26,620 )
Inventories (87 ) 1,890
Prepaid expenses and other assets 9,424 (971 )
Change in liabilities:
Accounts payable (18,735 ) 3,370
Accrued expenses and other liabilities 1,643   (69 )
Net cash provided by (used in) operating activities 22,640 (2,349 )
 
Cash flows from investing activities
Purchases of property and equipment (5,490 ) (7,024 )
Net cash used in investing activities (5,490 ) (7,024 )
 
Cash flows from financing activities
Net borrowings from revolving credit facility 8,629 11,491
Net short-term secured (repayments) borrowings (578 ) 37
Repurchases of common stock (25,689 ) (10,041 )
Payments of contingent consideration (1,427 )
Proceeds from exercise of stock options 284 1,319
Other financing activities (695 ) (119 )
Net cash (used in) provided by financing activities (18,049 ) 1,260
 
Effect of exchange rate changes on cash and cash equivalents (1,397 ) 726  
Decrease in cash and cash equivalents (2,296 ) (7,387 )
Cash and cash equivalents, beginning of period 30,562   30,924  
Cash and cash equivalents, end of period $ 28,266   $ 23,537  
 

Reconciliation of Non-GAAP Adjusted EBITDA, Non-GAAP Diluted
Earnings Per Share and Constant Currency
(Unaudited)
 
(in thousands)     Three Months Ended June 30,         Six Months Ended June 30,
2018   2017         2018   2017
  (as restated)           (as restated)
Net (loss) income $ (299 ) $ 4,374 $ (1,983 ) $ 10,052
Income tax expense 603 3,362 1,176 5,716
Interest income (54 ) (12 ) (115 ) (46 )
Interest expense 1,517 1,038 3,085 2,041
Other, net 588 1,164 1,433 1,388
Depreciation and amortization 3,514 3,182 7,173 6,086
Stock-based compensation expense 1,406 1,503 2,823 2,921
Change in fair value of contingent consideration 1,884 844
Professional fees related to ASC 606 implementation 60 1,092
Executive search fees 234 234
Restatement-related professional fees 537 537
Other professional fees 80               80      
Non-GAAP Adjusted EBITDA $ 8,186     $ 16,493           $ 15,535     $ 29,002  
 
(in thousands, except per share amounts)     Three Months Ended June 30,         Six Months Ended June 30,
2018   2017         2018   2017
  (as restated)           (as restated)
Net (loss) income $ (299 ) $ 4,374 $ (1,983 ) $ 10,052
Change in fair value of contingent consideration 1,884 844
Czech exit from exchange rate commitment, net of tax 294 294
Professional fees related to ASC 606 implementation, net of tax 45 819
Executive search fees, net of tax 176 176
Restatement-related professional fees, net of tax 403 403
Other professional fees, net of tax 60               60    
Adjusted net income (loss) $ 385 $ 6,552 $ (526 ) $ 11,190
Weighted-average shares outstanding, diluted 52,528     55,189           52,738     55,070
Non-GAAP diluted earnings (loss) per share $ 0.01 $ 0.12 $ (0.01 ) $ 0.20
 
(in thousands)     Three Months Ended June 30,         Six Months Ended June 30,
2018         2018
Revenue as reported $ 281,967 $ 556,506
Currency impact 10,580           4,421
Constant currency revenue $ 292,547           $ 560,927
 

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