InnerWorkings, Inc. Q2 2010 Earnings Call Transcript

InnerWorkings, Inc. Q2 2010 Earnings Call Transcript
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InnerWorkings Inc. (INWK)

Q2 2010 Earnings Call

August 5, 2010; 05:30 pm ET

Management

Eric Belcher - Chief Executive Officer

Joe Busky - Chief Financial Officer

Analysts

George Sutton - Craig-Hallum Capital

Nate Brochmann - William Blair & Company, L.L.C

Vance Edelson - Morgan Stanley

Naved Khan - Jefferies & Company

Jeff Blaeser - Morgan Joseph

Presentation

Operator

Good day, ladies and gentlemen and welcome to the InnerWorkings, Inc quarterly earnings call. (Operator Instructions)

I would now like to introduce our host for today’s conference, Joe Busky, Chief Financial Officer.

Joseph Busky

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Previous Statements by INWK
» InnerWorkings, Inc. Q1 2010 Earnings Call Transcript
» InnerWorkings, Inc. Q2 2009 Earnings Call Transcript
» InnerWorkings, Inc. Q1 2009 Earnings Call Transcript

Thanks Juan. Good afternoon, everyone and thank you for joining us on our second quarter 2010 earnings call. This is Joe Busky and I am Chief Financial Officer at InnerWorkings. And as always, joining me on the call today is our Chief Executive Officer, Eric Belcher.

Before we begin, I would like to note that this call will include forward-looking statements related to future results that are made pursuant to the Safe Harbor provisions of the Federal Securities laws. These statements are subject to a variety of risks, uncertainties and assumptions that may cause actual results to differ materially from those stated or implied by the forward-looking statements.

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. Listeners to the call are advised to review our SEC filings, including the risk factors contained in our most recent Form 10-K.

In this call will discuss, among other financial performance measures, adjusted EBITDA, which is a non-GAAP financial performance measure. Please refer to the company’s second quarter earnings release issued earlier today for a reconciliation of adjusted GAAP to the nearest comparable GAAP measure. And also please note that this call is intended for investors and analysts, and may not be reproduced in the media in whole or in part without our prior consent.

And now at this time, I’ll spend a few minutes on our financial results, and then Eric will highlight some of the company’s key growth initiatives and then as usual we’ll finish up with your questions.

Our revenues for quarter two 2010 were $120.5 million, an increase of 20.4% compared with the second quarter of 2009. This up-tick was attributable to an $18.5 million or 18.5% new account organic growth, as well as same customer growth of 2%. And as Eric and I have discussed in several occasions, our expectation was that 2009 new enterprise wins, these are accounts such as Unilever, Pentair, IHG, SkyPark and others will deliver a new revenue in 2010 of at least $50 million.

The $18.5 million of new account growth in quarter two, combined with the $60 million earned in quarter one highlights the extent to which these accounts are successfully ramping the plan and generating substantial revenues.

We expect this trend to continue in the months and years ahead. Year-to-date revenue is $232.7 million, a $38.3 million or 20% increase versus the same period in 2009. This increase is driven primarily by the $34.5 million in new account growth.

In quarter two, we had strong dimension in the enterprise business as we added 60 enterprise clients bringing our total number of enterprise clients at the end of Q2 to 185, versus 159 at the end of Q2 last year. These new accounts added 5 FTEs for a growing roster of employees based onsite at client locations for a total of 89, and this figure now represents approximately 25% of our operation staff, which means a significant amount of our non-sales employees are now insight with our largest clients providing excellent customer service and driving customer loyalty on a daily basis.

Now, in terms of our two primary sales channels, enterprise sales represented 72% of total revenue and transactional sales represented 28% of total revenues we saw in the quarter. And although we do not target a specific mix of enterprise versus transactional revenue, we do believe this increase in the percentage of enterprise revenue bodes well for the company’s feature, as this revenue is both contractual and recurring in nature.

Reported gross profit for the quarter was $29 million and reported gross margin was 24.1% versus $24.7 million and 24.7% in quarter 2009. The year-over-year 60 basis point decline in gross margin reflects the mixed impact of greater enterprise sales in the second quarter, slightly offset by the impact of increased early pay discounts taken with our suppliers. We expect the gross margin percentage in the second half of this year to remain consistent with the gross margin we saw in the first half.

Now, SG&A as a percentage of revenue still continues to improve as it declined to 160-basis pull versus Q2 last year. Our SG&A was $22.2 million in the quarter, a $2.2 million increase versus Q2, 2009, due primarily to increased sales commissions and higher revenue and the cost of additional procurement staff to service new enterprise clients.

SG&A expense as a percentage of revenue decreased sequentially as well from Q1 this year by 120 basis points. Our diluted earnings per share for the quarter was $0.07 versus $0.05 from the second quarter of ‘09 and previous year quarter EPS figures include approximately one penny of gain from the sale of Echo Global Logistics stock and we intend to continue to sell over time. Adjusted EBITDA excluding stock-based compensation increased 35% from $5.7 million in Q2 last year to $7.7 million in Q2 of this year.

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