InnerWorkings Inc
Annual Report 2013

Plain-text annual report

WE MAKE MARKETING HAPPEN 2013 ANNUAL REPORT / 0 1 Marketing execution doesn’t always get the focus it deserves. The design, sourcing, production, delivery, and installation of brand messages, across continents and formats, and the technologies that drive efficiency and impact… this is our specialty. WE MAKE MARKETING HAPPEN. 2 0 1 3 A N N U A L R E P O R T / 0 2 Strong Revenue Performance. InnerWorkings has increased its revenue from $5M in 2002 to $891M in 2013, representing a compound annual growth rate of 60 percent. 60% CAGR $ 2 8 8 . 4 M $ 16 0 . 5 M $ 7 6 . 9 M $ 3 8 . 9 M $ 5 . 0 M $ 16 . 2 M ’ 0 2 ’ 0 3 ’ 0 4 ’ 0 5 ’ 0 6 ’ 0 7 I N N E R W O R K I N G S $891M 2013 REVENUE $ 7 8 9 . 6 M / 0 3 $ 8 9 1. 0 M $ 6 3 3 . 2 M $ 4 8 2 . 2 M $ 419 . 0 M $ 4 0 0 . 4 M ’ 0 8 ’ 0 9 ’ 10 ’ 11 ’ 12 ’ 13 2 0 1 3 A N N U A L R E P O R T / 0 4 The InnerWorkings Difference TECHNOLOGY SCALE CREATIVITY EXPERTISE I N N E R W O R K I N G S / 0 5 Innovative Technology. VALOTM, our new multi-currency, multi-language technology platform, powers smarter marketing execution by applying leverage, visibility, and transparency to the full production cycle. Global Footprint. We power brand growth across borders and formats to remove the complexities associated with global marketing execution. Creative Problem Solving. Just as we disrupted the print industry with a new model for results, today we’re pioneering a smarter, more powerful approach to total marketing execution—across materials and formats. Our creativity fuels our impact. Capabilities and Vertical Expertise. With more than 1,500 experts around the world, we bring deep domain expertise across the design, production and fulfillment spectrum. 2 0 1 3 A N N U A L R E P O R T / 0 6 Technology STRATEGIC SOURCING. PROJECT MANAGEMENT. BRAND STEWARDSHIP. VALO™, our new technology platform, is available in 18 languages and 28 different currencies to optimize marketing spend and power accountability for today’s multi-national brands. We utilize the platform to produce, monitor, analyze, and execute all aspects of our clients’ marketing efforts. Through VALO™, competition and transparency drive every purchase decision. I N N E R W O R K I N G S VALO™ / 0 7 2 0 1 3 A N N U A L R E P O R T N O R T H A M E R I C A L A T I N A M E R I C A / 0 8 Scale I N N E R W O R K I N G S / 0 9 E U R O P E , M I D D L E E A S T & A F R I C A A S I A P A C I F I C Transcending Borders. With offices in over 30 countries and a data- base with more than 10,000 suppliers, we’re positioned to support our clients’ brands around the world. 2 0 1 3 A N N U A L R E P O R T / 1 0 Creativity BRINGING BIG IDEAS TO MARKET Around the globe, we are in the business of executing on our clients’ big ideas. We bring deep specialization and experience leading multi- national companies across a wide range of industries. And our client results speak for themselves… I N N E R W O R K I N G S / 1 1 Working with InnerWorkings was one of my personal highlights of the past year. It is always a pleasure when you meet a group of people that share a common DNA with a strong focus on results and cus- tomer satisfaction. —UNILEVER What I appreciate about our relationship with InnerWorkings is that they work hard, they’re smart, and they’re part of our brand. —L'ORÉAL Creating efficiencies inside our field-driven culture was no easy task. InnerWorkings invested time and care to understand local needs, and to deliver programs that improved value in the field and at corporate. Our brands are stronger than ever thanks to their innova- tion, execution, and expertise. —SERVICEMASTER InnerWorkings’ suite of capabilities both complements and extends the talent of our own marketing organization. Their track record for innovation and scale will enable us to deliver breakthrough brand expe riences across geographies, chan- nels, and formats. —ENERGIZER 2 0 1 3 A N N U A L R E P O R T 1 . 1 1 . 1 0 . 2 . 3 . / 1 2 1 3 0 2 C E O C I R C L E S R E N W IN 9 . 8 . I N N E R W O R K I N G S 4 . 5 . 6 . 7 . / 1 3 Expertise WITH MORE THAN 1,500 EMPLOYEES—INCLUDING OVER 250 LOCATED ONSITE WITH OUR CLIENTS—WE TAKE PRIDE IN DRIVING INNOVATION, IMPACT, AND EXCELLENCE IN EXECUTION. Through our CEO Circle Award, each year we celebrate the contributions of employees who excel in delivering value to our customers and our organization. 1. JON GINGERY/ROCKAWAY, NJ 7. PETRA DENISON/NEW YORK, NY 2. MIKE KOSTECKI/SAN FRANCISCO, CA 8. GUSTAVO COSTA VICTER/SÃO PAULO, BRAZIL 3. 4. PAM VANDOME/SOLIHULL, UK 9. MARIA HERNANDEZ/LIMA, PERU JEFF SMITH/CINCINNATI, OH 10. MARION MALLET/PARIS, FRANCE 5. MANDY VILLA/HONOLULU, HI 11. COLLEEN MILHAUSEN/SAN FRANCISCO, CA 6. ERIK CHIN/CHICAGO, IL 2 0 1 3 A N N U A L R E P O R T / 1 4 D E A R S H A R E H O L D E R S THROUGHOUT 2013, WE OVERCAME CHALLENGES AND EXCELLED TO NEW HEIGHTS AS OUR UNIQUE APPROACH TO OUTSOURCED MARKETING EXECUTION CONTINUED TO DRIVE VALUE, INNOVATION AND BRAND IMPACT FOR OUR CLIENTS AROUND THE WORLD. E R I C B E L C H E R / P R E S I D E N T & C E O I N N E R W O R K I N G S / 1 5 M Y F E L L O W S H A R E H O L D E R S / InnerWorkings continues to disrupt and redefine the marketing supply chain, and I’m proud of our accomplishments in 2013. The year included a few challenges that impacted our results, yet we still delivered double-digit revenue growth, setting the company up nicely for strong future performance. D R I V I N G N E W G R O W T H Our core enterprise business continued to perform at a high level, winning nearly $80 million of new business during the year. In addition to welcoming an impressive roster of new clients, we expanded into new global markets with a number of our existing clients. As a result, our Latin America region generated over 50 percent of organic revenue growth, while our Europe and Middle East region realized nearly 20 percent. Our relatively new global platform is a true differentiator for us, and we expect it will create many more opportunities for shareholder value creation moving forward. During the year, we also meaningfully expanded our capabilities through the acquisi- tions of DB Studios and EYELEVEL. As a result, InnerWorkings is now one of the world’s leading providers of permanent brand display fixtures for the retail environment. This capability has already helped us win major new client agreements, and it will play an important role in both new and existing client growth strategies going forward. 2 0 1 3 A N N U A L R E P O R T / 1 6 We also re-engineered our approach to the middle market. After determining that our customer acquisition strategy could not be profitably scaled by relying primarily on an inside sales team, we entered into a strategic alliance with a Fortune 500 company that serves small and medium-sized companies through hundreds of retail locations across the United States. This new long-term contractual arrangement provides us access to a meaningful supply of new customers at the moment they’re seeking to make a purchase, and allows us to leverage our powerful technology platform, best-in-class pricing, and broad supplier network for small and medium-sized companies. Q U I C K A D J U S T M E N T S Alongside these great accomplishments, we encountered a few challenges during 2013. We lost the majority of spending from our then-largest customer last year, triggered by that company selling most of its assets to a private equity firm. This was an isolated event and, consistent with our company’s outstanding track record of client satisfaction and retention, we continue to serve the customer under the assets that weren’t part of the sale. We also were challenged by leadership and performance issues within Productions Graphics, the business headquartered in France that we acquired in 2011. We replaced management with new seasoned leaders and we are confident in our future throughout the European region, where we continue to expand with many of our multi- national clients. L O O K I N G A H E A D We enter 2014 with a lot of momentum. With a focus on execution of our core enterprise business, I expect us to have an excellent year and return to our pattern of delivering on our targets. We have outstanding new client prospects around the globe, we are rolling out our powerful new global technology platform, and we have the best talent in our industry. We continue to deliver breakthrough brand experiences for some of the world’s most well-known companies across formats, experiences and geographies. We expect to drive profitability and shareholder value as a result of these impactful capabilities. On behalf of all of us at InnerWorkings, I’d like to thank you for your continued support. My regards / Eric Belcher I N N E R W O R K I N G S / 1 7 13% Revenue Growth $77M New Enterprise Business $39M Adjusted Operating Cash Flow 2 0 1 3 A N N U A L R E P O R T / 1 8 CONSOLIDATED STATEMENTS OF INCOME Revenue Cost of goods sold Gross profit Operating expenses: Years Ended December 31, 2011 2012 2013 (as restated) (as restated) $ 632,313,722 $ 789,585,041 $ 890,959,963 484,931,838 612,026,494 688,933,899 147,381,884 177,558,547 202,026,064 Selling, general and administrative expenses 115,818,065 146,123,614 183,443,438 Depreciation and amortization 10,171,758 10,790,452 13,663,859 Change in fair value of contingent consideration (1,701,529) (27,688,774) (31,330,567) Preference claim settlement charge 950,000 VAT settlement charge Goodwill impairment charge Restructuring and other charges — — — 1,099,386 1,485,088 — — — — 37,908,000 4,321,862 Income (loss) from operations 22,143,590 45,748,781 (5,980,528) Other income (expense): Gain on sale of investment Interest income Interest expense Other, net Total other income (expense) Income (loss) before taxes Income tax expense (benefit) 3,948,082 1,196,196 182,050 66,489 — 75,931 (2,251,010) (2,438,234) (2,954,339) — 94,411 (357,341) 1,879,122 (1,081,138) (3,235,749) 24,022,712 44,667,643 (9,216,277) 7,406,686 5,873,621 (555,928) Net income (loss) $ 16,616,026 $ 38,794,022 $ (8,660,349) Basic earnings (loss) per share Diluted earnings (loss) per share $ $ 0.36 0.34 $ $ 0.79 0.76 $ $ (0.17) (0.17) Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2013 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com I N N E R W O R K I N G S CONSOLIDATED STATEMENTS OF OPERATIONS DATA 2009 $ 400,447 301,672 Years Ended December 31, 2010 2011 2012 (in thousands, except per share amounts) (as restated) $ 632,314 484,932 (as restated) $ 789,585 612,026 $ 482,212 366,200 98,775 81,288 8,031 — — — — — 9,456 746 412 (1,478) (119) 116,012 91,796 9,009 — — — — — 15,207 3,578 151 (1,928) (49) 147,382 115,818 10,172 (1,702) 950 — — — 22,144 3,948 182 (2,251) — 177,559 146,124 10,790 (27,689) 1,099 1,485 — — 45,750 1,196 66 (2,438) 94 / 1 9 2013 $ 890,960 688,934 202,026 183,443 13,664 (31,331) — — 37,908 4,322 (5,980) — 76 (2,954) (357) Revenue Cost of goods sold Gross profit Selling, general and administrative expenses Depreciation and amortization Change in fair value of contingent consideration Preference claim settlement charge VAT settlement charge Goodwill impairment charge Restructuring and other charges Income (loss) from operations Gain on sale of investments Interest income Interest expense Other, net Total other income (expense) (439) 1,752 1,879 (1,082) (3,235) Income (loss) before income taxes Income tax expense (benefit) 9,017 2,708 16,959 5,749 24,023 7,407 44,668 5,874 (9,215) (556) Net income (loss) $ 6,309 $ 11,210 $ 16,616 $ 38,794 $ (8,659) Net income (loss) per share of common stock: Basic Diluted $ $ 0.14 0.13 $ $ 0.25 0.24 $ $ 0.36 0.34 $ $ 0.79 0.76 $ $ (0.17) (0.17) Shares used in per share calculations: Basic Diluted OTHER FINANCIAL DATA 45,535 47,157 45,704 47,582 46,428 48,818 48,811 51,240 50,875 50,875 Years Ended December 31, 2011 2012 2013 Income (loss) from operations Depreciation and amortization Stock-based compensation expense Change in fair value of contingent consideration Preference claim charge VAT settlement charge Payments to former owner of Productions Graphics, net of cash recovered Goodwill impairment charge Restructuring and other charges Legal fees in connection with patent infringement Adjusted EBITDA1 (as restated) $22,144 10,172 3,976 (1,702) 950 — (402) — — — (in thousands) (as restated) $ 45,749 10,791 6,193 (27,689) 1,099 1,485 (411) — — — $ (5,981) 13,664 4,733 (31,330) — — 2,624 37,908 4,322 961 $35,138 $ 37,217 $ 26,901 1 Adjusted EBITDA is considered a non-GAAP financial measure under SEC regulations and is not equivalent to any measure of perfor- mance required to be reported under GAAP. This data should not be considered an indicator of our overall financial performance and liquidity. The Adjusted EBITDA definition we use may not be comparable to similarly titled measures reported by other companies. Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2013 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com 2 0 1 3 A N N U A L R E P O R T / 2 0 CONSOLIDATED STATEMENTS OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES 2011 2012 2013 Years Ended December 31, (as restated) (as restated) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Net income (loss) Depreciation and amortization Stock-based compensation expense Deferred income taxes Gain on sale of investment Bad debt provision $ 16,616,026 $ 38,794,022 $ (8,660,349) 10,171,758 10,790,452 13,663,859 3,976,187 6,192,870 4,733,031 749,876 (995,218) (652,395) (3,948,082) (1,196,196) — 2,414,710 1,681,942 1,285,326 Excess tax benefit from exercise of stock awards (1,144,344) (6,666,884) 2,618,779 Change in fair value of contingent consideration liability (1,701,529) (27,688,774) (31,330,567) Goodwill impairment charge Reduction of prepaid commissions Other operating activities Change in assets, net of acquisitions: — — — — 255,949 533,842 37,908,000 3,939,974 238,778 Accounts receivable and unbilled revenue (25,406,527) (14,846,005) (4,843,040) Inventories Prepaid expenses and other (2,854,634) (3,089,909) (1,383,994) (2,635,853) (13,077,541) 2,331,672 Change in liabilities, net of acquisitions: Accounts payable Accrued expenses and other 27,451,575 14,818,713 29,642,545 3,885,424 4,160,421 (12,120,684) Net cash provided by operating activities $ 27,830,536 $ 9,411,735 $ 37,370,935 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (8,182,832) (11,823,646) (12,226,083) Payments for acquisitions, net of cash acquired (14,782,797) (1,127,954) (19,300,864) Payments to seller for acquisitions closed prior to 2009 (12,247,533) (3,000,000) Proceeds from sale of marketable securities 3,952,172 1,213,501 Other investing activities — 31,566 — — — Net cash used in investing activities $ (31,260,990) $ (14,706,533) $ (31,526,947) Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2013 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com I N N E R W O R K I N G S / 2 1 CASH FLOWS FROM FINANCING ACTIVITIES 2011 2012 2013 Years Ended December 31, Net borrowings from revolving credit facility and short-term debt Payments of contingent consideration Proceeds from exercise of stock options (as restated) (as restated) $ 12,600,000 $ 5,000,000 $ 4,000,000 (2,314,362) (7,178,407) (7,297,803) 354,584 5,458,981 2,005,114 Excess tax benefit from exercise of stock awards 1,144,345 6,666,884 (2,618,779) Payment of debt issuance costs Other financing activities — (356,700) (31,217) (7,270) (325,240) (410,750) Net cash provided by (used in) financing activities 11,753,350 9,583,488 (4,647,458) Effect of exchange rate changes on cash and cash equivalents (362,783) (289,176) 190,601 Increase in cash and cash equivalents 7,960,113 3,999,514 1,387,131 Cash and cash equivalents, beginning of period 5,259,272 13,219,385 17,218,899 Cash and cash equivalents, end of period $ 13,219,385 $ 17,218,899 $ 18,606,030 ADJUSTED OPERATING CASH FLOWS Net cash provided by operating activities 27,830,536 9,411,735 37,370,935 Excess tax benefit from exercise of stock awards* 1,144,344 6,666,884 (2,618,779) Cash paid for settlement of preference claim Prepayment (refund) of VAT assessment in United Kingdom** Cash payment to former owner of Productions Graphics — — — — 900,000 3,604,866 (2,166,664) 1,124,705 5,395,019 Adjusted net cash provided by operating activities1 $ 28,974,880 $ 20,808,190 $ 38,880,511 *Represents a U.S. tax deduction in an amount equal to the excess of the market price of the stock on the date of exercise over exercise price. ** Represents a payment made to Her Majesty’s Revenue and Customers for VAT assessments in the U.K. and the refund of the prepayment less the final assessment. 1 Adjusted net cash provided by operating activities is considered a non-GAAP financial measure under SEC regulations and is not equivalent to any measure of performance required to be reported under GAAP. This data should not be considered an indicator of our overall financial performance and liquidity. The Adjusted net cash provided by operating activities definition we use may not be comparable to similarly titled measures reported by other companies. Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2013 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com 2 0 1 3 A N N U A L R E P O R T / 2 2 CONSOLIDATED BALANCE SHEETS ASSETS Current assets: Cash and cash equivalents Accounts receivable Unbilled revenue Inventories Prepaid expenses Deferred income taxes Other current assets Total current assets Property and equipment, net Intangibles and other assets: Goodwill Intangible assets, net Deferred income taxes Other assets Total assets December 31, 2012 2013 (as restated) $ 17,218,899 $ 18,606,030 142,104,621 173,569,905 30,798,230 25,746,546 18,362,282 26,473,732 16,028,013 11,746,965 1,513,414 1,119,333 21,247,531 22,408,692 247,272,990 279,671,203 17,078,384 23,724,750 212,796,422 251,228,698 36,396,865 56,575,534 413,244 822,275 2,319,515 1,147,078 250,428,806 311,270,825 $ 514,780,180 $ 614,666,778 Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2013 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com I N N E R W O R K I N G S LIABILITIES AND STOCKHOLDERS’ EQUITY Current 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 Other long-term liabilities Total liabilities Stockholders’ equity: Common stock, par value $0.0001 per share Additional paid-in capital Treasury stock at cost Accumulated other comprehensive income Retained earnings Total stockholders’ equity / 2 3 December 31, 2012 2013 (as restated) $ 122,367,817 $ 166,154,959 7,795,489 16,718,516 3,000,000 — 6,793,796 15,818,791 14,890,150 20,206,268 154,847,252 218,898,534 65,000,000 69,000,000 3,961,281 9,061,535 46,702,335 70,613,945 1,317,255 1,651,190 271,828,123 369,225,204 6,074 6,140 198,117,936 202,042,296 (67,071,323) (62,312,101) 272,921 2,777,000 111,626,449 102,928,239 242,952,057 245,441,574 Total liabilities and stockholders’ equity $ 514,780,180 $ 614,666,778 Audited financial statements and notes, along with management’s discussion and analysis of results of operations and financial condition, are available in our 2013 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission, accessible on our website, www.inwk.com 2 0 1 3 A N N U A L R E P O R T / 2 4 BOARD OF DIRECTORS 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 DAVID FISHER Chief Executive Officer, Enova International, Inc. DAN FRIEDBERG President and Chief Executive Officer, Sagard Capital Partners J. PATRICK GALLAGHER JR. Chairman and CEO, Arthur J. Gallagher & Co. JULIE M. HOWARD Chief Executive Officer, Navigant Consulting, Inc. LINDA S. WOLF Retired Chairman and CEO, Leo Burnett Worldwide COMMITTEES AUDIT COMMITTEE Charles K. Bobrinskoy (Chair) David Fisher Julie M. Howard Linda S. Wolf COMPENSATION COMMITTEE J. Patrick Gallagher Jr. (Chair) Charles K. Bobrinskoy David Fisher Jack M. Greenberg Julie M. Howard Linda S. Wolf I N N E R W O R K I N G S NOMINATING & CORPORATE GOVERNANCE COMMITTEE Linda S. Wolf (Chair) J. Patrick Gallagher Jr. Jack M. Greenberg Julie M. Howard EXECUTIVE OFFICERS 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 INFORMATION 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 on June 13, 2014, at 11:00 a.m. (CT) at our Corporate Headquarters. COMMON STOCK The common stock of InnerWorkings, Inc. is traded on the NASDAQ Global Market under the symbol “INWK.” TRANSFER AGENT American Stock Transfer and Trust Company, LLC Shareholder Services 6201 15th Avenue Brooklyn, NY 11219 Phone: 800.937.5449 www.amstock.com 600 WEST CHICAGO AVENUE, SUITE 850 CHICAGO, IL 60654 INWK.COM LISTED ON NASDAQ ® UNDER THE SYMBOL “INWK” 

Continue reading text version or see original annual report in PDF format above