Innerworkings has responded to the Barron's report in a press release today.
Full text of the press release:
A column on InnerWorkings was published in Barron's magazine dated January 15, 2007 ("The Inner Workings of InnerWorkings"). InnerWorkings believes the column contains numerous factual errors and mischaracterizes our technology and business. The following addresses certain of the material errors and mischaracterizations contained in the column:
Our Technology. The column suggests our technology may not be proprietary and may not function as claimed. Since our inception in 2001, we have invested significant dollars and man hours in the development of our customized software and database. We believe these proprietary assets provide us with a competitive advantage in the marketplace. In addition, the functionality and value of our business solution is validated every day in the jobs we execute for our clients.
Our Business Solution. A variety of factors clearly distinguish us from the role of a traditional print broker:
-- Utilizing our proprietary technology and database, which consists of a front-end Java application and a back-end SQL server database, we are able to create a competitive bid process to procure printed products for our clients.
-- We use our technology and the competitive bid process to:
- greatly increase the number of suppliers that our clients can
- efficiently access;
- aggregate our purchasing power; and
- obtain favorable pricing.
-- The breadth of our product offerings and services and the depth of our supplier network enable us to fulfill up to 100% of the print procurement needs of our clients.
-- By leveraging our technology platform, our clients are able to reduce overhead costs and redeploy internal resources.
-- Our ability to track individual transactions and provide customized reports detailing print procurement activity on an enterprise-wide basis provides our clients with greater visibility and control of their print expenditures.
Our Supplier Network. The column implies that the number of vendors in our supplier network was inflated in our IPO offering documents. We categorically deny this assertion. Since the completion of our IPO in August 2006, the number of vendors in our supplier network has continued to increase. Our supplier network currently includes over 4,500 vendors.
Impact of Acquisitions. The column incorrectly states that acquisitions have driven much of the Company's growth. For the nine months ended September 30, 2006, our revenues increased by approximately 82% over the prior year period. A substantial majority of this revenue growth was unrelated to acquisitions. In 2005, we experienced revenue growth of approximately 97% without the benefit of any acquisitions. As the Company has previously disclosed, acquisitions will continue to be a component of our growth strategy.
Related Party Transaction. The column erroneously alleges that a related party transaction accounted for a significant portion of the Company's profits in the months preceding the IPO. In March 2006, the Company entered into a strategic agreement with SNP Corporation Ltd., a Singapore corporation. Our non-executive Chairman also serves as the non-executive Chairman of SNP. For the nine months ended September 30, 2006, this transaction accounted for less than 7% of the Company's income from operations.
Role of Eric P. Lefkofsky. The article mischaracterizes the role that Eric P. Lefkofsky plays with respect to the Company. Mr. Lefkofsky is not an officer or a director of InnerWorkings, and he does not have any decision-making authority or responsibility for any management function. Mr. Lefkofsky and Richard A. Heise, Jr. were instrumental in the formation of the business, and the senior management team and the Board of Directors regularly consult with them.
Discussion
By JR on Jan 30, 2007
Barron's responds to InnerWorkings: The printing-services broker InnerWorkings priced its follow-on stock offering Thursday at $13.50. The firm sold 3 million shares for the business and 5 million shares for insiders -- including the company founders whose histories of underdelivering software have been underreported by InnerWorkings and its bankers at Morgan Stanley. Last week, I told readers how founder Eric Lefkofsky had the cheek to name his previous venture Starbelly, in apparent tribute to a bamboozling huckster in a Dr. Seuss story, before that venture imploded and took its parent company into bankruptcy. Numerous ex-employees of InnerWorkings (ticker: INWK) had told me how the company, which claims to develop groundbreaking software to help procure printing services, has misrepresented its "PPM4" software's utility. For instance, InnerWorkings says its software database provides its account managers with instant cost estimates on print jobs, based on historical data. But ex-employees said the estimates were usually not relevant and were scrapped -- claims the company has declined to discuss. Since my first story, I've heard from still others around the printing industry who confirm what I reported. InnerWorkings spent last weekend meeting with its bankers and lawyers, before issuing a press release Monday that complained of "numerous factual errors" in my column. But the release contained little in the way of rebuttal evidence. One of its more concrete complaints was with my saying that a "big part" of the company's profits came from a related-party transaction in the months before= the August 2006 initial offering. In this transaction, a Singapore printing business that's tied to InnerWorkings' chairman licensed the company's software for $1 million. About a half-million dollars' worth of the shares sold last week were the Singapore printer's, so it's already been rewarded for its propitious license deal. According to InnerWorkings' IPO prospectus, it got $600,000 in payments under the deal during that June 2006 quarter, the last-reported period before the IPO. Typical profit margins on a software or technology license would be more than 80%, which after another 40% cut for the tax man would leave $300,000 net profit from that deal in the quarter, I figure. By my back-of-the-envelope math, that would have been about 17.5% of the quarter's reported net profit of $1.72 million. In contrast, the company's press release said that the Singapore deal contributed only 7% of its operating profits in the nine months ended September. Friday, I asked InnerWorkings spokesman Mark Desky to tell me the deal's contribution to the quarter ended June 2006. After noting that the company was still in the "quiet period" of its secondary offering, he said that the Singapore deal brought in less than 9% of June operating profits. That 9% is only half of what I figure. . . but I'm just a writer sitting here in New York; their books, their auditors and now $100 million of some investors' savings are over there in Chicago. You may have noticed that these quibbles concern rather small amounts of earnings. Let's not lose sight of the forest for the trees: InnerWorkings has produced feeble profits for all its hooey about disrupting the printing industry with software technology. After my story's disclosures led investors to cut InnerWorkings' stock-market capitalization from about $700 million to $600 million, the company is still valued at 100 times trailing earnings. No ink-stained columnist can deter insiders (and their bankers) from printing money at that kind of a price.
Discussion
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