InnerWorkings Inc
Annual Report 2012

Plain-text annual report

A N N UAL REPOR T 2 1 2 0 Here We Grow Again ’12 WHO WE ARE We’re a leading global provider of brand delivery services. INNERWORKINGS / 2012 ANNUAL REPORT Using proprietary technology, an extensive supplier network and deep domain expertise, we procure and deliver marketing materials and campaigns as part of a comprehensive outsourced solution. PAGE 01 REVENUE PERFORMANCE Delivering Growth InnerWorkings has increased its revenue from $5M in 2002 to $798M in 2012, representing a compounded annual growth rate of 66%. $798M 2012 REVENUE 66% COMPOUNdEd ANNUAL GROWTH RATE $160.5M $76.9M $38.9M $5.0M $16.2M PAGE 02 2002 2003 2004 2005 2006 Delivering Growth INNERWORKINGS / 2012 ANNUAL REPORT $797.7M $633.8M $482.2M $419.0M $400.4M $288.4M 2007 2008 2009 2010 2011 2012 PAGE 03 OUR AdVANTAGES T M A K ES US UNIQ U E Proprietary Technology Breadth of Offerings Global Platform Client Experience A H W PAGE 04 INNERWORKINGS / 2012 ANNUAL REPORT What Makes Us Unique 1 PROPRIETARY TECHNOLOGY With the largest database of supplier profiles, we can effectively match a job requirement with the right supplier at the most efficient cost. 2 BREADTH OF OFFERINGS Our portfolio offering has expanded beyond print sourcing and production to include e-commerce solutions, creative services, product packaging, warehousing and fulfillment. These additional services allow InnerWorkings to integrate offerings across a client’s marketing supply chain. 3 GLOBAL PLATFORM We now operate in more than 30 countries, covering North America, South America, Europe and Asia. This global presence allows us to offer our international clients a comprehensive solution. 4 CLIENT EXPERIENCE We have large enterprise relationships across a diverse set of industry verticals, including Consumer Package Goods, Retail, Financial Services, Not-for-Profit, Healthcare, Hospitality, Beverages and Publishing. PAGE 05 OUR PROdUCT OFFERINGS An End-to-End Solution 1 2 3 PRINT MANAGEMENT PRODuCT PACkAGING BRANDED MERCHANDISE Maximize print spending. Add power to packaging. We drive efficiency and We build our clients quality across clients’ brand equity with powerful Showcase brands. We help clients create unique and innovative brand experiences with customized marketing materials with packaging that keeps costs promotional products. our comprehensive print in check. management service. PAGE 06 INNERWORKINGS / 2012 ANNUAL REPORT 4 5 6 PRE-MEDIA & CREATIvE SERvICES POP DISPLAYS WAREHOuSING & FuLFILLMENT Captivate audiences. Our Pre-media and Creative Influence clients at the point of purchase. Streamline warehousing and fulfillment. Services help clients get the We help clients inspire We add speed, simplicity most out of their marketing action with in-store displays and savings to inventory investment. that master the art of management and fulfillment persuasion. with our integrated solution. PAGE 07 OUR GLOBAL PLATFORM A Growing Global Presence NORTH AMERICA LATIN AMERICA ~1,400 EMPLOYEES >7,000 CLIENTS >10,000 SUPPLIERS PAGE 08 INNERWORKINGS / 2012 ANNUAL REPORT ASIA PACIFIC EUROPE, MIDDLE EAST & AFRICA 33 COUNTRIES WITH EMPLOYEES 169 COUNTRIES BEING SERVEd PAGE 09 OUR CLIENT EXPERIENCE Securing Larger Contracts Across Diverse Verticals In 2012, we secured three of the largest clients in our company’s history. Today we have flagship clients in most major industry verticals. PAGE 10 INNERWORKINGS / 2012 ANNUAL REPORT NON-PROFIT CONSUMER GOOdS HEALTHCARE UTILITIES RETAIL HOSPITALITY FINANCIAL SERVICES BUSINESS SERVICES MANUFACTURING PAGE 11 OUR PEOPLE Developing the Best Talent With nearly 1,400 global employees—including 250 located onsite with clients—our people are dedicated to serving our clients and our company’s mission. We are developing the future leaders of the marketing supply chain industry. BRIAN SzUBINSKI CHICAGO, IL EdUARdO RANGEL dALLAS, TX BAL PARMAR BIRMINGHAM, UK TRACI TARNOK NORWALK, CT ROBERT O’dONNELL BOSTON, MA JOdI STINELY NEWPORT NEWS, VA GABRIELLA LA CRUz CARACAS, VE 2012 CEO CIRCLE Each year, we celebrate the contributions of employees who excel in delivering value to our customers and our organization. ANdREA STEVENS ROANOKE, VA CHIRAG GULIANI CHICAGO, IL JAMES dEANS AURORA, IL PAGE 12 OUR RESULTS INNERWORKINGS / 2012 ANNUAL REPORT 2012 in Review +$100M NEW ENTERPRISE REVENUE 26% REVENUE GROWTH BRAZIL + CHINA NEW GLOBAL MARKETS PAGE 13 26% OPERATING INCOME GROWTH A MESSAGE FROM OUR CEO ERIC BELCHER PRESIdENT & CEO MY FELLOW STOCKHOLdERS: With record performance across the most important components of our business, 2012 was our best year yet. We continued to execute against our focused growth plan: Powerful Organic Growth New Growth Opportunities Strong Financial Performance PAGE 14 INNERWORKINGS / 2012 ANNUAL REPORT dRIVE ORGANIC GROWTH Our Enterprise business is a powerful organic growth engine and the foundation of the company. In 2012, we recorded over $100 million of organic revenue from new clients. And we signed three of the largest new enterprise contracts in our history. Our client retention rate is outstanding, which demonstrates the ongoing innovation and value we deliver for our clients. We now have flagship clients serving as references in most major industries, and our pipeline for new enterprise business is stronger than ever. This past year, we made investments to fuel our global enterprise growth. First, we entered Brazil and China, which strengthens our global platform and our ability to serve clients on multiple continents. Second, we’ve invested in the development of our next-generation technology platform, which handles all currencies and languages, and will allow for seamless collaboration of client concepts and reporting across our clients’ regions. Lastly, we added talented new leadership in Europe, Asia and Latin America. Today, we have employees in 33 countries and are providing services for clients in 169 countries. We believe the future of the industry is a global solution and we intend to be the preeminent provider. dEVELOP NEW GROWTH OPPORTUNITIES We continue to develop new ways to expand our sales and product capabilities. The Inside Sales initiative that we launched in 2010 to serve small and medium-sized businesses saw revenues more than double in 2012. We believe this solution represents the way of the future for this market segment, and stands as yet another example of InnerWorkings blazing the trail in our industry. We’ve also added important service capabilities in the past year. For example, we now offer a comprehensive internal creative studio service for Fortune 500 companies. This aligns with our vision of becoming an end-to-end marketing supply chain provider. We will continue to evaluate and deploy new product and service offerings through both internal development and acquisition strategies. ACHIEVE STRONG FINANCIAL PERFORMANCE I am proud of what we accomplished in 2012. Our revenues grew 26% to $798 million, with the majority of the growth being organic in nature. Operating income also expanded 26% to $28 million. And our return on invested capital grew while we reduced our debt. Importantly, none of these improved metrics were realized at the expense of our future opportu- nities as we made meaningful investments in our future throughout the year. We expect these resource allocation decisions to drive stockholder returns in the future. Our talented employees—including the hundreds onsite with our clients—remain focused on delivering value to our clients. We are committed to becoming a global powerhouse with the most respected name in the industry. 2012 was a tremendous year, but we’re just getting started. We have a huge market opportunity in front of us, and we intend to capitalize on it. On behalf of everyone at InnerWorkings, I’d like to thank you for your continued support. My regards, PAGE 15 MARKET INFORMATION INWK Our common stock is listed and traded on the NASDAQ Global Market under the symbol “INWK.” The following table sets forth the high and low sales prices of our common stock as reported by the NASDAQ Global Market for each of the periods listed. $12.24 HIGH $13.67 HIGH $13.95 HIGH $15.06 HIGH $9.38 LOW $10.04 LOW $11.01 LOW $11.86 LOW 2012 Q1 Q2 Q3 Q4 2011 $6.24 LOW $7.33 LOW $6.52 LOW $7.28 LOW $8.76 HIGH $9.17 HIGH $9.05 HIGH $10.06 HIGH PAGE 16 INNERWORKINGS / 2012 ANNUAL REPORT INNERWORKINGS / 2012 ANNUAL REPORT Stock Performance $140 120 100 80 60 40 20 0 DEC. 31, 2007 DEC. 31, 2008 DEC. 31, 2009 DEC. 31, 2010 DEC. 31, 2011 DEC. 31, 2012 DEC. 31, 2007 DEC. 31, 2008 DEC. 31, 2009 DEC. 31, 2010 DEC. 31, 2011 DEC. 31, 2012 INWK NASDAQ MARKET INDEX DOW JONES BUSINESS SUPPORT SERVICES INDEX $100 $100 $100 $38 $59 $74 $34 $86 $90 $ 38 $100 $ 99 $ 54 $ 98 $103 $ 80 $114 $129 This graph assumes $100 was invested on December 31, 2007 in the common stock of the Company and each of the above indices and assumes reinvestment of dividends. The stock performance on the graph above is not necessarily indicative of future stock price performance. PAGE 17 PAGE 03 FINANCIAL STATEMENTS Consolidated Statements of Income Revenue Cost of goods sold Gross profit Operating expenses Years Ended December 31, 2010 2011 2012 $ 482,212,101 $ 633,846,120 $ 797,698,870 366,199,728 484,483,592 612,275,393 116,012,373 149,362,528 185,423,477 Selling, general and administrative expenses 91,796,566 115,624,276 143,632,284 Depreciation and amortization 9,008,514 10,171,758 10,790,452 Preference claim charge VAT settlement charge Income from operations Other income (expense) Gain on sale of investment Interest income Interest expense Other, net — — 950,000 — 1,099,386 1,485,088 15,207,293 22,616,494 28,416,267 3,578,431 3,948,082 1,196,196 150,506 182,050 66,489 (1,928,210) (2,251,010) (2,438,234) (48,725) — 94,411 Total other income (expense) 1,752,002 1,879,122 (1,081,138) Income before taxes Income tax expense Net income Basic earnings per share Diluted earnings per share 16,959,295 24,495,616 27,335,129 5,748,806 8,102,609 8,223,241 $ 11,210,489 $ 16,393,007 $ 19,111,888 $ $ 0.25 0.24 $ $ 0.35 0.34 $ $ 0.39 0.37 Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com PAGE 18 INNERWORKINGS / 2012 ANNUAL REPORT Consolidated Statements of Operations Data Revenue Cost of goods sold Gross profit Selling, general and administrative expenses Depreciation and amortization Preference claim settlement charge VAT settlement charge Income from operations Total other income (expense) Income before income taxes Income tax expense Years Ended December 31, 2008 2009 2010 2011 2012 (in thousands, except per share and headcount amounts) $ 419,017 $ 400,447 $ 482,212 $ 633,846 $ 797,699 314,996 301,672 366,200 484,483 612,275 104,021 79,655 4,761 — — 98,775 81,288 8,031 — — 116,012 149,363 185,424 91,796 115,624 143,632 9,009 10,172 10,791 — — 950 — 19,605 6,445 9,456 (439) 15,207 1,752 22,617 1,879 26,050 9,017 16,959 24,496 (10,097) (2,708) (5,749) (8,103) 1,099 1,485 28,417 (1,082) 27,335 (8,223) Net income $ 15,953 $ 6,309 $ 11,210 $ 16,393 $ 19,112 Net income per share of common stock Basic Diluted $ $ 0.34 0.32 $ $ 0.14 0.13 $ $ 0.25 0.24 $ $ 0.35 0.34 $ $ 0.39 0.37 Shares used in per share calculations Basic Diluted Other data 47,137 49,141 45,535 47,157 45,704 47,582 46,428 48,827 48,811 51,410 Employees and independent contractors 761 667 743 1,034 1,379 Other Financial and Operational Data Income from operations Depreciation and amortization Stock-based compensation expense Preference claim charge VAT settlement charge Change in fair value of contingent consideration Adjusted EBITDA Years Ended December 31, 2010 2011 2012 (dollars in thousands) $15,207 $22,616 $28,416 9,009 3,148 — — 10,172 3,976 950 — 10,790 6,193 1,099 1,485 (1,987) (148) (2,724) $25,377 $37,566 $45,259 Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com PAGE 19 FINANCIAL STATEMENTS Consolidated Statements of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES 2010 2011 2012 Net income $ 11,210,489 $ 16,393,007 $ 19,111,888 Years Ended December 31, Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Stock-based compensation expense Deferred income taxes Gain on sale of investment Bad debt provision 9,008,514 10,171,758 10,790,452 3,148,619 801,406 3,976,187 1,228,443 6,192,870 1,090,502 (3,578,431) (3,948,082) (1,196,196) 2,901,216 2,414,710 1,681,942 Excess tax benefit from exercise of stock awards (862,458) (1,144,344) (6,666,884) Change in fair value of contingent consideration liability (1,987,042) (147,529) (2,724,978) Other operating activities 259,806 255,949 533,842 Change in assets, net of acquisitions: Accounts receivable and unbilled revenue (21,385,6 88) (24,785,185) (23,278,410) Inventories Prepaid expenses and other Change in liabilities, net of acquisitions: Accounts payable Accrued expenses and other 368,909 (3,326,116) (2,134,490) 5,360,326 (2,715,853) (13,063,957) 1,079,820 25,432,811 13,582,947 2,027,038 4,024,780 6,616,912 Net cash provided by operating activities $ 8,352,524 $ 27,830,536 $ 10,536,440 Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com PAGE 20 INNERWORKINGS / 2012 ANNUAL REPORT Years Ended December 31, CASH FLOWS FROM INVESTING ACTIVITIES 2010 2011 2012 Purchases of property and equipment $ (4,897,251) $ (8,182,832) $ (11,823,646) Payments for acquisitions, net of cash acquired (4,188,455) (17,097,159) (1,127,954) Payments to seller for acquisitions closed prior to 2009 (12,511,168) (12,247,533) (3,000,000) Proceeds from sale of marketable securities 3,595,427 3,952,172 1,213,501 Proceeds from sale of short-term investments Proceeds from sale of property and equipment 13,818,771 — — — — 31,566 Net cash used in investing activities (4,182,676) (33,575,352) (14,706,533) CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) from revolving credit facility and short-term debt Payments of contingent consideration (2,098,107) 12,600,000 5,000,000 — — (8,303,112) Principal payments on capital lease obligations (106,693) (31,217) (7,270) Proceeds from exercise of stock options Excess tax benefit from exercise of stock awards Payment of debt issuance costs 195,561 862,458 (633,600) 354,584 5,458,981 1,144,345 6,666,884 — (356,700) Net cash provided by (used in) financing activities (1,780,381) 14,067,712 8,458,783 Effect of exchange rate changes on cash and cash equivalents (34,101) (362,783) (289,176) Increase in cash and cash equivalents Cash and cash equivalents, beginning of period 2,355,366 2,903,906 7,960,113 3,999,514 5,259,272 13,219,385 Cash and cash equivalents, end of period $ 5,259,272 $ 13,219,385 $ 17,218,899 Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com PAGE 21 FINANCIAL STATEMENTS Consolidated Balance Sheets ASSETS Current assets Cash and cash equivalents Short-term investments Accounts receivable1 Unbilled revenue Inventories Prepaid expenses Deferred income taxes Other current assets Total current assets Property and equipment, net Intangibles and other assets Goodwill Intangible assets2 Deferred income taxes Other assets Total assets DEC. 31, 2011 DEC. 31, 2012 $ 13,219,385 $ 17,218,899 1,129,757 — 124,946,621 149,246,568 28,318,751 30,798,230 14,201,606 17,406,863 11,066,451 16,210,053 1,729,349 1,513,414 13,875,918 21,051,907 208,487,838 253,445,934 12,086,627 17,078,384 205,282,587 214,086,880 26,565,315 36,396,865 4,246,592 984,227 413,244 822,275 237,078,721 251,719,264 $ 457,653,186 $ 522,243,582 Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com PAGE 22 INNERWORKINGS / 2012 ANNUAL REPORT LIABILITIES AND STOCKHOLDERS’ EQUITY DEC. 31, 2011 DEC. 31, 2012 Liabilities Accounts payable-trade Current portion of contingent consideration Due to seller Other liabilities Accrued expenses Total current liabilities Revolving credit facility Deferred income taxes Contingent consideration, net of current portion Total liabilities Stockholders’ equity Common stock, par value $0.0001 per share3 Additional paid-in capital Treasury stock at cost4 Accumulated other comprehensive income Retained earnings Total stockholders’ equity $ 102,290,443 $ 121,132,051 14,232,980 7,795,489 7,554,000 10,796,850 6,979,516 8,111,051 17,324,598 17,558,675 148,381,537 165,394,116 60,000,000 65,000,000 — 5,000,740 67,769,862 63,869,281 276,151,399 299,264,137 4,700 5,020 179,688,593 198,118,990 (71,241,947) (67,071,323) 268,331 205,462 72,782,110 91,721,296 181,501,787 222,979,445 Total liabilities and stockholders’ equity $ 457,653,186 $ 522,243,582 1. Net of allowance for doubtful accounts of $3,293,241 and $1,553,926, respectively 2. Net of accumulated amortization of $13,503,735 and $18,195,508, respectively 3. 200,000,000 and 200,000,000 shares authorized, 57,903,418 and 60,735,561 shares issued, 46,998,011 and 50,200,098 shares outstanding, respectively 4. 10,905,407 and 10,535,463 shares, respectively Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com PAGE 23 OUR SUSTAINABILITY EFFORTS HELPI N G O U R C LIENTS BE G R E E N Utilize the right manufacturers to reduce waste. Source locally to reduce fuel consumption. Optimize production quantities to minimize waste. Advocate for recycled and eco-friendly materials. PAGE 24 CORPORATE INfORmATION innerWorKinGs / 2012 ANNUAL REPORT BoArd of directors executive officers JACK m. GREENbERG Chairman of the Board Retired Chairman and CEO, McDonald’s Corporation ERIC D. bELCHER President and Chief Executive Officer, InnerWorkings CHARLES K. bObRINSKOy Vice Chairman and Director of Research, Ariel Investments JULIE m. HOWARD Chief Executive Officer, Navigant Consulting, Inc. LINDA S. WOLf Retired Chairman and CEO, Leo Burnett Worldwide J. PATRICK GALLAGHER JR. Chairman and CEO, Arthur J. Gallagher & Co. DAVID fISHER CEO, Enova International, Inc. committees AUDIT COmmITTEE Charles K. Bobrinskoy (Chair) David Fisher Linda S. Wolf COmPENSATION COmmITTEE J. Patrick Gallagher Jr. (Chair) Charles K. Bobrinskoy Jack M. Greenberg Julie M. Howard Linda S. Wolf David Fisher NOmINATING & CORPORATE GOVERNANCE COmmITTEE Linda S. Wolf (Chair) J. Patrick Gallagher Jr. Jack M. Greenberg Julie M. Howard ERIC D. bELCHER President and Chief Executive Officer JOSEPH m. bUSKy Chief Financial Officer JOHN D. EISEL Chief Operating Officer RONALD C. PROVENzANO General Counsel sHAreHolder i nformAtion CORPORATE HEADqUARTERS InnerWorkings, Inc. 600 W. Chicago Avenue Suite 850 Chicago, IL 60654 312.642.3700 AUDITOR Ernst & Young LLP Chicago, IL ANNUAL mEETING InnerWorkings’ shareholders are invited to attend our annual meeting, which will be held June 20, 2013, at 11:00am (CT) at our Chicago Headquarters. COmmON STOCK The common stock of InnerWorkings, Inc. is traded on the NASDAQ Global Market under the name “INWK.” TRANSfER AGENT American Stock Transfer and Trust Company, LLC Shareholder Services 6201 15th Avenue Brooklyn, NY 112 Phone: 800.937.5449 www.amstock.com m o c . s r o n n o c - n a r r u c . w w w / . c n I , s r o n n o C & n a r r u C y b n g i s e D t r o p e R l a u n n A 600 WEST CHICAGO AVENUE, SUITE 850 CHICAGO, IL 60654 INWK.COm LISTED ON NASDAQ® UNDER THE SYMBOL “INWK” 

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