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InnerWorkings Second Quarter Indicates the Business is Pointed in the Right Direction

InnerWorkings Second Quarter Indicates the Business is Pointed in the Right Direction
August 18
06:52 2014

InnerWorkings reported EPS of $0.03, in line with our estimate, but a penny better at $0.04 when excluding the impact of contingent liabilities. Overall, this was a pretty solid quarter, driven by strong revenue growth and profit improvement as a result of costcontrol efforts and benefits from additional leverage. The company’s vision regarding building a platform to expand with its global customers to new geographies and into new services seems to be paying off, as 35% of its organic growth this quarter was further penetration within existing accounts. It is possible if current trends continue that there could be some upside to our estimates, but we do not want to get too far ahead yet, as the company is only two quarters into stabilizing the business following a difficult 2013.

At $9, the stock trades at 25 times our 2015 EPS estimate. While the business appears to be headed in the right direction and problem areas are being fixed, we would like a few more quarters of successes before being more constructive on the stock. However, for longer-term investors the risk/reward balance appears to be better following first-half results. Beyond execution, the only large risk we see at this point is the possible loss of a large customer.

Despite the upside during the quarter, management maintained guidance, expecting revenue in the range of $965 million to $1 billion, with adjusted EPS of $0.23-$0.27. At this point, guidance appears reasonable to us. Revenue guidance seems to have some upside, but there is some seasonality with recent acquisitions and we are cautious not to get too far ahead yet. EPS should benefit from better profitability the second half of the year, but the share count will likely increase as some of the earnout payments related to past acquisitions are payable in stock the second half of the year. While we normally do not project any increase/decrease in contingent liabilities, it is prudent to consider the elevated share count in forecasts.

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Paul Cole

Paul Cole

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