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Executives

Joseph M. Busky – Chief Financial Officer-InnerWorkings Inc.

Eric D. Belcher – President and Chief Executive Officer-InnerWorkings Inc.

John D. Eisel – Chief Operating Officer-InnerWorkings Inc.

Pat Richcreek – Print Manager-InnerWorkings Inc.

Brian Gillespie – Vice President-Enterprise Accounts

April Bessonny – Director-Operations On-site, IHG

Deborah Vandenberg – Strategic Print Management-PNC Bank

Michael H. TorkinInternational Risk Technology Procurement and Vendor Management

Andrew Paparozzi – Senior Vice President and Chief Economist-The National Association for Printing Leadership (NAPL)

InnerWorkings, Inc. (INWK) Investor Day Conference Call February 22, 2013 11:30 AM ET

Joseph M. Busky

Okay, let’s get started. My name is Joe Busky, and I’m the CFO of InnerWorkings, and I would like to welcome all of you to our 2013 Annual Investor Day here in Chicago. We are proud to have you all of you here at our headquarters. It’s great to show it off. We have a pretty full and informative agenda, and so for you today, we’ll hear from Eric Belcher, John Eisel, and myself talk about the growth strategy of the company, as well as the financials. We are also pleased to have Andy Paparozzi here from NAPL to talk about the state of the general commercial print industry. And most importantly, we are extremely pleased to have two senior representatives of PNC Bank here today to talk about the InnerWorkings’ business model in their own words. So thank you for coming.

So before we get started though, I have to ask all of you to please refer to page two in the presentation materials which is the Safe Harbor statements. So I ask all of you to please read through that for a minute or two before we get started.

And with that, I’m going to turn it over to Eric Belcher. Thanks, everyone.

Eric D. Belcher

Great. Thanks, Joe. Welcome everybody. Good morning on this snowy February Chicago day, and thanks in particular to those of you that flew in last night and this morning. We didn’t actually plan the weather to treat us like this, but it’s probably good time to make the announcement that we are actually doing this in Hawaii next year. So am I kidding?

We have an office in Honolulu, we have since 2006. And I haven’t for some strange reason, I have not been out there yet. But actually there is a good reason why we haven’t spent a lot of time in that office. We’ve been busy. We don’t as a company spend a tremendous amount of time looking backwards, we just don’t. It’s not in our culture.

However, we do want to share with you the demonstration of the execution of our plan that we’ve been talking about now, Joe and I and more recently John and others. And this chart for us actually looks forward. We believe that this trend is a trend that we should be able to continue for a very, very long time.

As we march toward – if we would add 2013 on our way to and through a $1 billion and we yet step that chart up – that bar up against what we think are eligible market opportunity is, of at least $500 billion a year globally, we wouldn’t even see as your chart, we wouldn’t see the bar.

So we’re just getting started. There will be a day we’ll sit on a portion of rocking chair, I imagine and look back. But as of right now, we feel we’re still early in the first quarter with respect to the growth that we’ve got in front of us. It used to sound a bit absurdly aspirational I think when would talk about becoming a billion and now more recently a multibillion dollar global power house.

Back when I joined, I joined the company and just after that $39 million year in 2000 and early 2005. And I couldn’t feel better about our prospects today. I was excited back then. I was excited back then, but much more so today given where we’re headed.

Now, one of the main reasons aside from the size of the market opportunity and the fact that we’ve got, we believe the solution for the future in our space. One of the main reasons why we’re so confident in where the business is headed is that, we’ve got a very clear and very simple elegant I believe, growth strategy. There are three pillars to our growth strategy, none of which are untested or have any sort of doubt in our minds, create any sort of doubt in our minds as to whether or not we can successfully implement it.

So the structure of the day as you can see from your agenda is that, we are going to go through these three growth engines. We’ll have John Eisel I think, many of you have met John, and perhaps last year at our Investor Day in New York or more recently, take us through the enterprise solution, which represents three quarters of our business today and is also represented over the last few years the majority of our growth by far.

We’ll hear from John and we’ll also hear from Deborah and Michael at PNC, two senior executives who’ve taken time out of their busy day. They’ve got a growing bank that they are running to come on up here and spend sometime with us and we are very, very glad that you did. It’s a testament I think to the new relationship. We’ve only been working together for about a year. We did have to ask twice. But I think with why next year, and you are invited by the way, even simpler.

So after that Joe is going to take us through our M&A strategy. What we’ve done historically and where we see it going from here. And then I will spend a little time talking about our small and medium business initiative, the inside sales business that we’ve been building over the last few years that many of you have heard quite a bit about and today, you will have a chance to actually see, as we head downstairs and take a look at the new facility that we’ve built out and the team of a couple of hundred people that we’ve got in there. Okay. So that’s our agenda for the day. We’re going to move quickly. There is a lot to cover.

And with that, I’m going to turn it over to John.

John Eisel

Good morning, everybody. So as Eric said, you all did meet me last year, hopefully so memorable that this hasn’t surprised anybody, but I was about five months into my job last year, just a quick reintroduction. My background is 10 years in consulting after being trained as an accountant for the last six of which were Mackenzie & Company. In Mackenzie I specialized in operations and supply chain management, and so that's of course, how I made my way into InnerWorking with a slight detail through the [wagering] strategy group.

As I came here, the fortunate thing from me was, I wasn't brought in to fix anything that was fundamentally broken. I actually inherited a high-quality high-performing platform. So I do want to talk a little bit today as what we personally – what I personally spend my time on – and a group we spend our time on working on since I joined. But the beauty is, since it wasn't broken, we've been able to focus on grow things like building a stronger sales pipeline and improving our execution on new account implementation. There is a few folks in the room, later you can meet who run our implementations group standing up our largest enterprise accounts.

Deepening our relationships and broadening our service offerings within established clients and within new clients, and also expanding our enterprise business across geographies, which we'll talk about.

So briefly just to retouch on what enterprise is to InnerWorkings? Enterprises is our solution for a large multinational Fortune 500 clients. You typically has a few common hallmarks to each one things like, we always have a core commitment to reduce spend with a totally transparent operating model, transparency, including into what our fees and margins are going to be. It's over a 3 to 5-year contractual term that we work with our clients. We rebadge existing employees to become employees of InnerWorkings to fuel our growth.

All of that has combined historically and we will continue to deliver 15% to 20% cost savings for our clients at equal or better quality to what they had before they joined us. This enterprise offering and the core elements have been phenomenally successful for us over the last few years and we expect it to continue to be that way. It's been the majority of our growth over the past five years, Joe disclosed recently that in 2011, new enterprise accounts accounted for $60 million of organic growth. In 2012, that was up to over $100 million of organic growth just from the enterprise side of the business alone.

In the last five quarters, we've signed our four largest clients in PNC-SUPERVALU, connect and St. Jude, you will hear from PNC later about their experiences with us. Now, they are about one year into that relationship. But this is the largest growth driver in raw dollars for our client – for our company now and it will be, you will hear about the other ones that are catching significant (inaudible) that we intend to continue to see this driving a disproportionate share of our company's growth over the years.

So I’ve talked to you about how well we have done. But today's I really want to focus on why I think we are positioned to keep the growth going and accelerate that growth in this line of business. And there is really four pillars of how I think we're going to do that. First, we've expanded the breadth of our offering beyond what it was when the company was founded in the early years. Second, I want to take you through a little bit of a view into, I know many of you have heard about our technology and expanding role of our technology offering in our solution.

Third, I want to talk about the progress we’ve made which is more of a demonstrated outcome with the progress we have made and establishing key clients in all of the major industry and product category, verticals and categories. And finally, I want to touch on the global platform and exactly how we see that contributing to our growth.

So first, I want to talk about the breadth of our offering. So initially, what was this company founded on? InnerWorkings was founded in the belief that there is natural inefficiencies and significant inefficiencies in the print supply chain. And it was founded on the belief that you could focus on the sourcing and production of print to release significant dollars that we could both return to clients and make a self-funded model and also pay for our services and our profits. Around that, we’ve been hugely successful over the years and we focus narrowly on that part of the supply chain.

Now, I can tell you today, we’ve expanded significantly around that core offering, still staying true to that core offering, but in both directions. Upstream, we’ve gone to where we now have dedicated creative services in prepress studios. You will hear from PNC and we have one of those in place of the many that we have in the field.

We’ve done a lot in e-commerce. So we have hundreds of e-stores that are out there, that are integrated, pass print production of print sourcing, downstream into warehousing and fulfillment. Further down from there and a detailed reporting that we provide all of our clients to prove to them that we are demonstrating the value that we report to demonstrate and we sign a contract with them and that really drives their desire to stay with us and keep that 98% client retention rate that you saw in that first slide.

All of these things continue to be a focus as we expand our services. But again always around that idea that the company was founded on that there is significant value to be unleashed in this print supply chain and we are expanding on that by going upstream and downstream.

So, one of the core ways that we do that is through our technology. So again, go back to where the company was founded. You’ve all heard us talk about PPM4. So PPM4 is our proprietary sourcing engine that all of our production managers everyday are logged into and are transacting their business. We have over 1,000 vendor logins per week into that system to support the production that we provide our clients.

I will tell you that despite spending millions of dollars in the past year and going forward, I’m replacing PPM4, which I’ll tell you about in a minute. We still believe that PPM4 without any of that work is the industry’s leading end technology engine for doing what we do everyday.

As far as how many millions what you asked, Joe Busky is sitting over here, I will say that is never enough. The value that we’re going to unleash would be the investments that we’re making in technology. We’ll pay back in multiples on what we’re doing, because we’re taking such a significant step change forward in what this new technology is going to be able to do.

The new technology is called [Valo]. What [Valo] does is it is integrating all of the best agreed things we’ve had in PPM4 and we built around it into one cohesive engine. So we’ve always had millions of data record that provide pricing history. We’ve always had an ability to search for banners and discover banners and have our production managers efficiently manage thousands and thousands transactions that they deal every day for us.

What we haven’t had is support for multiple languages. We haven’t had support from multiple currencies. We’ll talk about our growth. You all know we’ve expanded in to 44 countries at this point. We needed to build that into our core engine. But it’s not just about iterating what we had. We’re putting in upstream pieces like digital asset management. We’re putting in downstream pieces, where our clients will be able to log into our system, track their orders, self-service reporting. We are integrating it with the e-stores that we have to the warehousing and fulfillment punch outs that we have to our third-party logistics providers into our own warehouses.

This system is all of the things that we’ve done taking forward, we believe 5 to 10 years beyond what our competitors have in the marketplace today. We’re now in artificial intelligence. We have 39 employees, because the people add a lot to the solution, but this is just going to be an enabler to allow them to focus much more on the value-added activities and really it continue to strip away the inefficiencies that frankly we haven’t still have, we’re much better than what our clients can do without us. But we’re constantly pushing to invest and innovate on this. So we continue to get better even against ourselves, despite being the industry leaders.

So results, how do we know this is working? One of those measures is going to be the flagship clients that we have across the industries. So we now from experience that getting our first client in an industry is the hardest.

So Eric told me when I came on, that you’re going to get battle scars, and we all have battle scars in doing this, and we absolutely have them. But at the same time, we also have the proven results year-on-year to show you that this system works.

Our approach is to take a fact-based analytical approach that is applicable across industry verticals and across product categories, to go in reengineer supply chain, release significant value and sustain that overtime for our clients.

The demonstration if that’s working; we started out, it take us as probably two to three years ago with a number of quality brands in a subset of the industries that are out there for us to plan. Look at things like Peapod sports publishing on the bottom.

Very good client, still client of ours today, but you know that’s in representation, you fast forward that to today, and this is about two-ish year build. We now have not only meaningful clients in every industry, but significantly more clients in those industries that we were founded on.

We don’t expect this pace to stop. When you look up there, you’ve seen the announcements in the last year, but we significantly broaden our footprint in non-profits. We now serve many of the largest EPG players out there. We have a significant footprint in retail. We did over a billion pieces of direct mail across these categories, across these industries that are hitting all of Americans’ homes.

I mean this is a significant expansion, this is how we know that what we’re doing is working. These are a mix of renewed clients and new clients. We’re not churning clients that come in and leave, and come in and leave, we are the sustainable answer for these large companies across our industries, and we expect to continue to see both the pace of new client acquisition, and expansion within clients to continue.

So finally, what about our presence? So we talk about the industry presence, but what about the geographic presence? Well, up until two years ago, we were in about two countries, meaningfully, U.S. and U.K. Two years before that, we were in the U.S., and two years before that, you could have walked to the majority of business from this office. We’re centered around Illinois.

Today, you’ll see that in the last two years, we’ve had a significant increase in our presence to where now we operate in 44 countries around the world, we service over 13 clients on more than one continent. And we expect to continue to see both those numbers to grow. Eventually, we’ll run out of countries, but we will not run out of clients, we can serve them in more than one continent.

We have a footprint that spans the globe. Our approach in the last year, we’ve expanded to a few major markets, such as China and Brazil. Both of those we’ve done with our clients to begin with, so we’ve followed IHG to China, we’ve served P&G in Brazil, but at the same time, those markets are also serving new clients. This is a strategy where we’re going with our clients into these markets to help them continue to deliver on their marketing supply chain needs. But we’re also finding significant un-served potential in each of those markets that we can organically grow once we’ve established our footprint.

So now that we have an established footprint, we expect to continue to see that penetration and grow at a rapid prep.

So in summary, I believe that we’ve never had more to offer our new and existing clients.

What you’ve seen here is the progression of the last 12 to 18 months of the advancements that we’ve made. You’ve seen only the beginning of the fruits with that efforts going to bear in the clients we’ve been able to generate. I can tell you without putting the list up we’re confident that we have this strongest pipeline that this company has ever had.

It’s a mix of continuing to be recognized in the U.S., and in our core markets within our core services, but also a growing recognition in the new geographies in the new service lines of the value that we’re able to offer, and expect to able to stand up here next year and to tell you more about exactly what that expansion has meant for us both in client growth., and in our obviously in our revenue profit, so we feel very good about where we stand today.

So it means more than me sitting up here to tell you about this to have some of our clients come up here and tell you about their experience with us. So they can call me out if I’ve misrepresented exactly the value that we create. But I like to bring up here a few of our newest clients that are with PNC Bank, so we’re happy to have Deb and Michael Tomkins (inaudible) and Michael Tompkins is here to talk to you about their experience with us at PNC. Just a few highlights of what you read, and you all know who PNC Bank is.

PNC joined us about one year ago now as a new client. We started initially by servicing their print needs, so we service them for commercial print, direct mail and operational print. There has been a planned expansion that we’ve now implemented to also service them for their in-house creative studio needs.

So this is the very good representation of what I just told you about that core offering that we offer all of our clients, but also in this case a significant upstream growth into their creative space that helps us be more of an end-to-end provider for them in their marketing collateral space. So with that you guys are confident to join us and tell us a little bit about it.

Unidentified Company Representative

Great, thank you John. I appreciate it.

Unidentified Company Representative

All right welcome, welcome, welcome. And then Patrick McCusker, our Patrick McCusker who is the leading on the account as well as our enterprise operations group, is going to join Debra and Michael. So how about this, why don’t we start off. I will stay up here in all moderate, we’re going to open this up for questions after quick introductions. Perhaps Pat starting with you, if you don’t mind.

Patrick McCusker

Sure, happy to. So Patrick McCusker, I oversee our enterprise operations and new account implementations in North America. Much like John, I have a consulting background was an associate partners of McKinsey before joining InnerWorkings, Inc. and before that was involved in a number of early stages high-growth companies.

Unidentified Company Representative

McKinsey Chicago office loves us.

Patrick McCusker

Yeah right, exactly, exactly. And when I decided I wanted to move away from the advisory role and get back into an operating role, and there were a lot of things about InnerWorkings that resonated with me around the disruptive nature of the business model and a very large addressable market. And we are growing and growth is fun, so a lot more fun than the alternative and keeps things exciting.

During the past year, year and a half the leading up the conversations and ongoing relationship with PNC, going back year and a half ago when we first talked about the vision of this end-to-end solution starting with creative all the way through the production and sourcing and ultimate delivery of the collateral you see in the room here. And it’s been a very fruitful relationship on both sides and we can more talk more about it with Debra and Michael here.

Unidentified Company Representative

Great. All right. Michael?

Michael H. Torkin

Michael Torkin, responsible for international risk technology procurement and vendor management and relevant for here are outsourcing and offshoring relationships. So I’m responsible for taking new relationships and operationalize them.

Unidentified Company Representative

Excellent. All right.

Deborah Vandenberg

Good morning, I’m Deborah Vandenberg. I’m responsible for Strategic Print Management at PNC and responsible for Marketing Management through a large number of financial institutions over my career. What I oversee is a group of about 70 people all in involved in what we call the Marketing Centers of Excellence, so all of the touch points that our marketing strategies, our communication strategies and tactics need to impact.

So from traditional media, online, digital, through direct mail as well as all of our branch, merchandising as well as our collateral. So that is my set of responsibilities and how I become to work with InnerWorkings so closely.

We had a small in-house design firm that was used for small projects that we did not outsource to our Agency of Record or other resources and as the relationship again develop, we look to InnerWorkings to think about how could they take over and expand our internal resources to improve efficiency and effectively, not only as we go-to-market, but actually the results that we get by going to market from our customers.

So InnerWorkings has been a key part in finishing, actually the beginning of the chain as well as the end of the chain.

Unidentified Company Representative

Great, all right. So before we start taking your questions, I’ve got something I want to share and I asked Patrick’s permission to do this and gave it to me this morning. So when Pat and I and some others went down for our first meeting at PNC and this was a year before last year, so two years ago it was a year long conversation to get ourselves organized in detail. There was a lot of things to understand before we started working together. It was an early, early flight, it was one of those 6 am things and Pat was relatively new with the company.

Pat Richcreek

Our first meeting together.

Unidentified Company Representative

It was our first meeting together. Pat and I just getting know each other and (inaudible) with this. So I said to him. And we don't have time to do anything about it. I don't know if you seen this.

Deborah Vandenberg

I’ve heard about right now.

Unidentified Company Representative

Right over. I said, Pat I'm going to take a picture, because this is going to be funny someday and that’s today.

Pat Richcreek

That’s right. Would be in a good sport. It was early, I didn’t want to wake my wife up.

Unidentified Company Representative

All right, so let's open it up. Please questions you have for Pat or for Michael or for Deborah about the relationship anything, it’s all fair game. Please, who's going to start this off.

Question-and-Answer Session

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

Okay and by the way Deborah we have people listening in online, and there is a microphone around here somewhere, but it might be hard to get it around everybody. So I’ll just quickly repeat the question. The question was around the new creative services offering that we've implemented here with Deborah and PNC. So please take it away

Deborah Vandenberg

All right. So there were couple of things that were occurring at the same time. So from a marketing standpoint, we were looking to increase efficiency as well as effectiveness. And really go to market as one marketing organization, we haven't different silo, groups the direct mail team did not always talk to our traditional marketing group, our traditional media group or our interactive group, so that was the factor we were looking at trying to improve.

Additionally, and you can well imagine the business model for financial institutions has changed pretty dramatically. So how do we get more done with less resources, and then the course of the conversation else we talked with Pat and we talked with the team. We knew they did some creative work; we looked at our internal creative studio that basically we needed to change. We either needed to blow it up and start over, we needed to get rid of it entirely or we needed to bring a whole group of people in, because we were not getting the efficiency, the quality of work, that really would allow us to take business from high priced agencies and handled the work in-house to the much lower cost.

So as we sat down and talked with InnerWorkings, we realized that they had experienced in some smaller areas that could really bring to their managing and onsite studio for us, taking the core group we have that understood our business, our banking business and bring an increased talent from a creative standpoint, copyrighting, other design components that the team did not do and actually run it for us at less cost and with greater output and greater quality. So as we started looking at that that became the model we went forth with.

The one thing I would add is that because part of the team were existing PNC employees, I think as John talked rebadging employees. So they’re onsite, they’re visible to people. But at the same time, the people that InnerWorkings have brought in at this point, they fit our culture, they feel like PNC employees, there’s complete transparency, we’re all one of the same, we’re all working together and what this is created is just true end-to-end process where they’re starting to be involved in the creative design at the beginning. They understand the requirements for production as we go through the next suggestions and how that improved the production process as well as the cost efficiency and they’re with us at the end, in terms of print production, press checks and getting it out the door. And we’re involving them with our other outside suppliers that, they may not have the expertise front, but they are at the table with us al the time.

Unidentified Company Representative

Great. And by the way we have Mike who runs PNC’s creative studio here as well as [Linda Nazar] account manager in the room. So welcome, welcome guys. Okay, yes please.

Michael H. Torkin

Thank you. So Eric mentioned the one year sales cycle, may be you can talk about some of the impediments to originally going forward with the decision like took one year you were thinking about. And if there had been other large bank references at the time, would that have helped that decision at all?

Eric D. Belcher

I think the brown and the black shoe satisfaction, couple of months. I actually, it fits in line with a lot of our procurement outsourcing. So it typically takes us nine to 12 months to execute a deal. About six to nine months is the contractual phase and the due diligence phase. So if you look at our other outsourcing relationship that is very much in line what we do in either operations or technology. So it really fit our standard procurement cycle. That’s what it relates to other industries or within our industry there are some references in the financial services industry. But we love more at scale so we found scale with other InnerWorkings relationships.

Unidentified Company Representative

And the data in our space is never packaged up neatly in one excel spreadsheet where we show up and there is a hand over of fly and off we go. It’s generally quite spread throughout, accompanied particularly a Fortune 200 Company like PNC and so there is a lot of analysis that needs to be done on both sides to really understand in-depth what the opportunity is, and how we're going to get out of it without having the marketing campaign go sideways or some other issue that could occur, if we didn't plan the implementation appropriately, so some patience and some upfront due diligence is required, and it goes the long way.

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

So Michael for those following along on the webcast, the question was regarding the specifics of the savings being delivered both on the physical material that you see around the room as well as the labor savings?

Michael H. Torkin

So I can’t talk in percentages, but now real dollars if that's fine. So we had anticipated probably about 12% return on this investment, we're probably tracking at 15% to 15.9%, so it’s exceeded where we thought we would be. The another thing that was surprising to me is the rate at which we saw the savings, so we didn't anticipate to see those run rate savings as quickly as transpiring so we're very pleased.

So we have a base class in the management fee on top of that, and then we have historical look at what we pay for products compared to what we pay now, and that we have gaining share half of that.

Unidentified Analyst

(Inaudible)

Michael H. Torkin

15 is actually just a material.

Jut a materials, but we do look at when we look at an entire outsourcing relationship, we have a base case that we use for all outsourcing relationships. So we at the end of the day, we look at NPV to calculate what the returns are.

Unidentified Analyst

(Inaudible).

Eric D. Belcher

Sure. So it’s really we’ve determined in any outsourcing relationship that we have core competencies in areas that we wouldn’t specialize in. So we see the base of what we’ve started with the relationship, but we see other areas that we’re going to grow into, now of those other areas, we may now get 15% in one area, we may get 12% or 9%. So we don’t think we’re going to just be 15% or 17% at the end of the relationship that will be by product area.

Joseph M. Busky

And I think if I’m not mistaken, there’s too fairly sizable categories that today, we’re not currently managing, but we have identified a fairly meaningful savings opportunity so as the year progresses, I hope I expect, we all expect in the relationship will also expand?

Unidentified Analyst

Yeah.

Unidentified Company Representative

So I just going to add to that, so from a creative services standpoint, there’s a core level of work that we did internally that InnerWorkings is now doing, there’s a lot of work that went outside to other A, B and C agencies, and what we’re seeing very quickly is that work can come back in to InnerWorkings, it’s a new revenue source for InnerWorkings, but it’s also at about 50% of the blended hourly rate, we would be paying outside of other resources. So it’s really a win-win for both of us. New sources of creative design revenue, new jobs that translates to print procurement, print production, but also it’s really demonstrate in savings for us at the same time.

Unidentified Analyst

(Inaudible).

Unidentified Company Representative

Five year.

Unidentified Analyst

(Inaudible)

Joseph M. Busky

So we have triggers in the contract for Callaway and other things, to adjust this as the years go out. I can tell you for a good majority of our relationships that grow. We build in financial protection into those. So whether it would be core operations or technology, we build in factors in there. So we don’t have to look back five years. We can look forward in current.

Eric D. Belcher

And so we do have four years to go before we get to that specific point that you’re referencing. So one way to answer that question is talk about some of our clients that we’ve been through numerous contract renewals with, and what our experience has been there, and what I expect in four years, we’ll see when we sit down across the table to evaluate the relationship and how we move forward.

We’ve resigned every major contract that’s come up, really throughout our history. And we’ve done so at very similar economic terms, where there might be some movement around maybe there is a payment term question or 50 basis points on a management fee and perhaps there is an area of our clients’ business that historically we haven’t been able to for whatever reason maybe it’s been politically sort of boxed out from the solution.

We look to use those opportunities to expand, and make sure that both parties are getting the most our of the relationship as possible, but to convert back to an internal solution, to go back to the internal creative studio, to go back to finding print buyers out in the marketplace, hiring them. Their underwater rex getting approved to higher print buyers any more, and of course, we don't believe there ever should be in the space.

Unidentified Company Representative

MSR.

Joseph M. Busky

In our world it is our ultimate aspiration at all print buyers in the world, all talented print buyers in the world do work for InnerWorkings, and so we find those discussions to be fruitful and smooth, and it's primarily because the savings are there, and the satisfaction with the team, the personnel, the solution is in place. So it's an area of the company that we found, if you can demonstrate you’re best-in-class, you generally don't find yourselves in discussions of, hey, I knock you down a few basis points, keep in mind, we're not, we are running at very fair transparent margins.

So it isn’t as though we've got all sorts of things priced into this relationship that PNC doesn't know about and it’s going to be a surprise in five years everything is transparent, again it eliminates, I think the traditional vendor-client relationship where everybody is always sort of guessing, how much the other person is making, and so you test it by trying to beat on them. We don't get into that kind of environment. We price our clients for the long term.

Eric D. Belcher

The other thing I may add to that is, I mean we do manage on the monthly and the quarterly basis our returns on this. But we also look at operational efficiencies so it isn’t just we're saving X amount of dollars, are we becoming more efficient, is the scenario that we don't want to build the core competency in. So we really balanced those to as we look at returns.

Unidentified Company Representative

Okay. Please start….

Unidentified Analyst

Going back to the question on the evaluation process over the first year? Can you give us a sense or I think obviously the outsourcing makes sense clearly in the print side a bit, could you give us a sense for what differentiated InnerWorkings versus maybe some other vendors that you might have considered?

Unidentified Company Representative

So I came into the relationship a little late, I can comment on how we look to expand services. So I wasn’t involved in the upfront, until the tail end. So we tend to look at expansion on a quarterly or half year stability in a process. So then we’ll start to expand on other service lines. So we really want to – not only see the returns, but we want a couple of months where service levels are being met, and very few customer complaints. So we really like to stabilize for at least a quarter or two before we expand. And Deborah you might be able to comment on the upfront contract.

Deborah Vandenberg

So as we started this, we took a look at really where we were at this point in time and where if we could see the savings, so from service level agreements from not only costs, but truly efficiency. So I can speak a little bit to our creative services side. So put in some very specific requirements, so this speaks to the efficiency of 24-hour turnaround. So instead of waiting for an outside resource to come back a week later, we could get it in. We could get the answer back, we could get the work done, a bit and within 24 hours to work done within 48 and that’s what’s really driving from the creative services side, already the growth in business and we did not anticipate new business. We expect that would take us about a year to really get the team in place and we would handle existing work in place and we’re already starting to see a lot of new work coming in that we didn’t anticipate.

So we’re in a situation within our working, so making sure that we can continue to deliver and that over promise at this point as we build out the team, but lots of efficiency issues that we think are really critical ultimately to our ability to go to market faster, improve our processes and get the results faster that we’ve not seen in the past.

Unidentified Company Representative

And I think those SOAs you’re talking about the evolution of the relationship early on, those were pieces of the contract that we had a lot of debate when what we’re really be required on the direct mail side and the commercial print side, and the ATM receipts or kind of business continuity controls need to be in there.

And there is just a lot of discussion required on what those service and all need to be and what they’ve been historically whether they were measured or not and where they need to be going forward. So there is a lot of complexity in that and developing that future state of supply chain that I think…

Deborah Vandenberg

We have to literally reconstruct a lot of baseline activities. We didn’t track it. So as we look that what were the efficiencies we wanted, we have to go back and see what it took to get some of the work in and out and the other piece is that we’ve done because we think the relationship is valuable and not only within the sourcing group, but also within marketing.

We have a dedicated relationship manager who is responsible for spending time with the InnerWorkings team, making sure there is client satisfaction on both sides. Given the investment of time, resources, capital, and people that it’s mutually beneficial to both teams. We do in our working toward a six month customer satisfaction survey, so that we can make sure that we are always growing in the right direction. So lots of underpinnings of performance are in place as part of this relationship.

Unidentified Company Representative

Lots, I mean its bank, it’s regulated and the bank was data indent. I would say.

Deborah Vandenberg

Now regulators love data.

Unidentified Company Representative

Regulators everybody does, and I would say that we probably have the brightest spotlight. So when we get to 15.9, I think you’ve actually probably got that savings measurement out to more decimals. It’s a very bright spotlight on what we are doing here, and we love it. It just helps us get that much better. PNC did look at competitors or alternative solutions fairly intensively and there was a scorecard and there was, ultimately I remember Deborah and her colleagues, Karen and some other spending time with our other clients. Now we didn’t have at the time a bank of PNC size that they were able to phone up and say well how did the implementation go and tell me more about these guys and, et cetera, et cetera. So the discussions were with clients like Unilever, I believe.

Deborah Vandenberg

Unilever, AT&T, Party City.

Unidentified Company Representative

Party City.

Deborah Vandenberg

Had a very good conversation with Party City and one of the things that we talk to Party City about a lot was that type of staffing, where they fit into our organization, will it be that transparent seamless similar culture and they assured us that it has been terrific. And we really felt comfortable after talking to your other clients.

Unidentified Company Representative

It is interesting that from operations and more about operations. But we have some rather or significant outsourcing relationships whether it be offshore. And the operating model that InnerWorkings bring is very similar to what we see with very large entities such as TCS or Tata. So the operating model and the account management model, really is very similar to a very large scaled outsourcing relationships. So for me that’s confirming, and I didn’t have to reinvent something, I could take an existing large-scale operating model and work it with InnerWorkings with very little work, I mean the models are very similar.

Unidentified Company Representative

I wonder with the bank and very conservative well run bank like PNC, whether or not if we didn’t have those clients for you to speak to, talking about such a big, maybe not big in relation some of the other things that you do, but still critical component of your business, I’m not sure five years ago, we would be here having this conversation right now. So to John’s point earlier having that referenceable client base and we’re hoping by the way that you’ll serve as a reference. I know we’ve got some folks here from Bank of America would like to talk to you guys later.

Deborah Vandenberg

Yeah.

Unidentified Company Representative

Good morning guys.

Unidentified Analyst

Good morning.

Unidentified Company Representative

So there is a snowball effect, which we’re feeling and you’re seeing in our numbers. Okay. Another question, yes please.

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

So I can’t talk about number. I can tell you that there are major initiatives within the bank to reduce operating cost. So this initiative is obviously contributing quite a bit to our strategy. We look with the expansion of other product lines with InnerWorkings to continue with that and we do have identified cost reduction takeouts, but we can’t talk about the numbers.

Deborah Vandenberg

Well, what I would add is that, if you look around the room and you look at some of the products that are promoted here, obviously people are receiving less paper today in the form of direct mail, e-mail and other forms of interactive contact. So in general we're using less paper in our marketing initiatives still large use for merchandising some collateral, but one of the things that the new studio is bringing is the interactive and video display work. So it's really kind of converting some of the their skill to new media today and what customers want, and I guess that's part of it is looking at what do customers expect today, do they want five pieces of mail in their mailbox, would they rather get an interactive touch that reaches out to them when they are shopping or browsing online. So we factor that into how we look at, how we go to market and they are key player and helping us look at that.

Unidentified Company Representative

And it's probably impossible Deborah for you to be able to project out what your budgets for in-store signage in commercial print, direct mail things of that will be able to over the next five years you have a general sense, is it going to remain flat is it going to grow a little bit, you think it's going to shrink?

Deborah Vandenberg

Well, from an in-store in-branch marketing standpoint there will be less paper, but in terms of display material, so what we call point-of-sale in the fixtures there will be much more and what we call our digital content network which is our plasma screen communications process. And today we use probably one of the premier global vendors based in Minneapolis you guys can figure out that might be. But to look at some of the work they do and transfer that over to InnerWorkings to do those things video clips, graphic video online that will really help us.

Again bring the same messages to customers, and the reason we went to video in our branches is that its interactive, it's moving, when you're standing in line in the branch, and I'm sure most of you do not stand in line at the branch today, but for those of our customers they do staring at ecstatic poster on the wall is not the most engaging way to demonstrate some of our interactive products or engage a customer with what else we have to offer. So we’ll see that as a general trend, I can’t really speak to dollars in sense of this point, but you’re going to see that just think about the way you shop, the way you browse today, where you look for information, what happens to go to the retailer, banks are no different.

Unidentified Company Representative

And now we are going to hear a little bit from Andy Paparozzi who has been studying the industry and making forecast for 30 years – 29 years, and so we’ll get a little bit more into the overall U.S expectations going forward for printing materials. Yes Kevin.

Unidentified Analyst

So how novel was the concept of outsource print procurement that InnerWorkings brought to you and when you were evaluating alternatives in the marketplace that you see anything at all comparable out there.

Unidentified Company Representative

I would say rather no, because I’ve been doing outsourcing relationships for the last 10 years. So I think the market is growing, and I will give you an example. So I said on a Financial Services Board, the Duke University sponsors, and we were talking about not only these kind of relationships, but other things that happen within financial institutions, and they view this is an upside. And a matter of fact Bank of America made in there. But I think there is a lot of growth in this area, and a lot of large institutions are now just starting to talk about it. So we were rather known, but I think the up sides rather large.

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

So the question is how do the macroeconomic environment in the U.S. over the last few years, the challenges associated with it factor into the decision to outsource is non-core function?

Deborah Vandenberg

I think it was one of many factors. I don’t think it was exclusively the only factor. I think as PNC became larger over the last five years, and significantly almost doubled, if not maybe close to tripled in size. That was a factor, but the business models have changed, the competitive nature of the marketplace has changed. We have to get to Michael’s point, there were things that we do really well, and there is things we have no business doing.

And I think as we look at focusing our efforts becoming far more disciplined and the things that we do from our financial management standpoint from a risk management standpoint looking to see where we can strengthen that. But also then find the right partners who have that core expertise, and bring them in and to work with them very closely, as if they were part of the organization overall.

And I think we saw that in the production, the procurement side, creative services side and I know as we go forward, at least from my standpoint in the marketing side, the people they are bringing in the talent will probably expand far beyond marketing to some of our other areas, where there is large needs for communications development.

So corporate communication, our HR group, and that’s what we’re really looking for lot of the client development to actually come through as part of the new design studio, but again it also allows us to go to market as one organization. We’ve got one core internal vendor, that knows us, knows our brand, keeps our brand solid, keeps it forward-looking, and it just allows us, again, as I said before, to go to market much faster, much more efficiently.

Unidentified Company Representative

Our general outsourcing strategy, I mean financial returns are always nice. But it’s really about access to market, and access the talent and speed to market. Those are all big drivers of PNC that will help with operating efficiencies.

Unidentified Analyst

There’s been a lot of recruiting, that’s going on, a lot of new faces at PNC with InnerWorkings business card, but effectively PNC employees, how has that gone?

Deborah Vandenberg

I would say from my standpoint outstanding. So we had a staff of five people, and the new structure they are more engaged. They are doing a lot more work, a lot more energy, they are on my floor, I see them all the time. I’ve worked with them over the last five years. It’s just a different sense and I think from a design standpoint, I know you are all in the investor side, but from the design side for them, it was being part of an organization that understood design and creativity. You wouldn’t normally think about design and creativity at a bank, and so they were a unique set, and what I am saying is that they are really blossoming, and they are adding so much more to the process of finding the right communication solutions, because they feel they are a part of the design group. They are not a design group in a bank, where design is not something we do every single day.

So I think we are seeing great employee engagement, we’re attracting talent that would probably not have been interested in working in a bank marketing department in the past. So it’s just coming along very well, very well.

Unidentified Company Representative

I would say the integration of the staff has been very well. One thing I always judge in outsourcing relationship is when you have challenges, and do you have one side doing root cause analysis or the other side and with any relationship, our challenge is that with those issues, the reports are one side or the other, they are really collaborative. So I look at that as success, if that makes sense on that for operational people that may reside better.

Unidentified Company Representative

All right, it does. And we’ll do one last question here.

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

I’d say we’re probably only 15% to 20% into the relationship.

Deborah Vandenberg

I would agree, I would agree. I think there’s enormous upside potential both in the area of procurement, and that whole side as well as just how the studio works with the rest of the organization.

Unidentified Company Representative

Catch that, Pat.

Pat Richcreek

Okay. Can we have a round of applause for our executive staffs at PNC, we really appreciate you coming up here today. Thank you very much.

Eric D. Belcher

All right. And then you guys are going to take off, now head back.

Unidentified Company Representative

Okay. Thanks a lot.

Eric D. Belcher

Okay, great. Thank you, good seeing you.

Unidentified Company Representative

Thanks for the hospitality, okay.

Eric D. Belcher

Thank you very much, safe travels. Okay. We’re going to ask Joe now to come up and we’re going to transition from our enterprise solution into M&A. And then after that we’ll talk about the third leg of our growth strategy, which is our inside sales or middle market business. So Joe, it’s all yours.

Joseph M. Busky

Thanks, Eric, and Deb and Mike thanks again for participating, I really appreciate it. So sometimes in all the excitement and sexiness of the other two growth areas of large new enterprise contracts being added and the super high growth rates we’re seeing in the inside sales area, which we'll talk about in a minute. The other leg of our growth strategy gets lost and that's the M&A strategy, and I thought we share a little more information about the M&A strategy, not sure we have shared a lot of this information, I'll show you. As a reminder it is a very important part of our growth strategy this company has been and will be going forward. And there are no targets here, we don't set internal targets, we don't set external targets for M&A activity, it’s very opportunistic in nature

One final point on the slide I would like to remind folks is that the M&A strategy although it’s a vehicle for growth for us. It's also a very important source of entrepreneurial talent in the company. It is our best source and we've bought in some of our best people in the last five or six years through the acquisitions that we've done.

Now this next slide here it's a summary of the history of our M&A at InnerWorkings, and I have to say Eric and John and I are quite proud of showing this slide. Again I'm not sure we've shown a lot of this data in the past, but there’s a lot of things to be proud on the slide. First of all, the EBITDA multiple paid of 5.7 obviously is extremely attractive relative to our own EBITDA multiple.

So second point I’d like to make here is that the EBITDA multiple realized the 3.9 on these 29 deals, we've done in the last six years. It evidences that we've been able to grow on average these companies about 46% their earnings that is grow their earnings about 46% since we've own them, and we're quite proud of that as well.

If you look at the bubbles and the percentages on the right side of the chart it's also in my opinion very impressive that nearly 90% of these former owners of these business have achieved their annual EBITDA targets or performance targets which our EBITDA, and nearly 70% of the enterprise deals that we’ve signed in the last three years, and somewhere or another have touched these former owners of these businesses. So it’s extremely important for us to continue to do this M&A, and not only again to provide growth, but to bring in talented entrepreneurial growth that continue the enterprise growth going forward.

Now the bubble in the middle there, on the right side, the 82%, that’s made possible by the 87% and the 68% bubbles you see on the right side, and that is we’re able to retain these former owners, even after their earn outs are complete. And these former owners are not just sitting in a part-time role within the Company somewhere; they’re actually in key management positions within the Company and running the Company. There are several here and all around the world they are in key management role, so a lot of times these owners, they see not so much this transaction is selling their Company, but more as joining our Company over a three-year process.

And I’ve said this before, Eric said this as well, it’s an opportunistic approach and it’s very difficult to bring some of these entrepreneurs into the company, we’re not looking for the companies that are for sale quite honestly, we’re looking for the companies that aren’t for sale. Those are the ones we want, and it sometimes takes years to bring these former owners into InnerWorkings. So we’re extremely proud of the fact that we’ve been able to retain 82% of these folks, even after their earn outs are complete.

One final point here that a lot of you in this room and others on the webcast have asked me over the years well, if you’re seeing this amount of success, why not do more. The answer is what I said previously, we don’t target any goals here. It’s very opportunistic, and we’re extremely selective in who we bring into the company, and it does typically take a long time to close one of these deals. It just doesn’t take a few days, few weeks or months. It does sometimes take – it takes years.

So M&A looking forward, 2012 for us was not a very active year on the M&A front. We close six fairly small deals, most of which were closed earlier in 2012. The exquisite impact from those 12 deals was pretty small, and it was about 1% of our revenue. 2013 however we do expect to get more active in this area, and we can say that because we see the pipeline.

And again I’m not sure anyone has ever seen these stats before, but we do have approximately 5,000 companies in our pipeline, and we’ve talked to almost half of those companies, and these are companies around the world. And we’re actually in very active dialog with dozens of these companies, where we think those owners will be a very good fit with InnerWorkings and what we do.

The structure of the deals in 2013, and moving forward will be consistent with what we’ve done. This is clearly a case of if it ain’t broke, don’t fix it. We think that the strategy that we’re using here, the structure we’re using is very financially sound, and very safe for our shareholders.

And so we’ll continue to structure deals at five to six times, trailing 12 month EBITDA, total valuation putting down upfront 50% or less of the purchase price, and paying the remainder out over a three year earn out. That structure will continue.

Now our team of three in the M&A group here, they are all here in Chicago, they are very focused on increasing the activity here. Again we're not going to do just for the sake of doing it, we're going to be selective, but we're looking to areas to fill out new geographies and maybe were highlighted on the John Eisel’s map, he showed earlier looking to bring in new capabilities in areas such as permanent displays and packaging, and others that we think we’ll provide meaningful growth opportunities not only in the top line, but on the bottom line as well.

With that, I think we are switching to small and medium business services with Eric. Thank you.

Eric D. Belcher

So the third engine that we’ve historically relied upon and going forward couldn't be more excited about. Before I start talking about our middle market solution, a couple of words about these three growth strategies, and how they interrelate. We believe we could build a fantastic business in any one of the three alone. We believe that if we’ve focused all of our energy on the Bank of America's, I’m going to pick on you guys now the rest of the meeting. The Bank of America's of the world we could build a fantastic thriving very successful high growth business.

We think with the numbers that Joe just shared with you, that there is an opportunity to pool the top one 1% to 2% of the talent in the entrepreneurs that exist in our related space. These are print distributors or related companies around the world, and we think that there is a business in and out itself in the world of M&A, and we also believe that what we're doing now with the middle market, which is the small to medium size companies that are paying a premium for print, and they are getting the least amount of service and quality, we believe we could build the thriving business just right there alone. But all three together, interrelate, the entrepreneurs that we bring in through our M&A practice help fuel as Joe showed us our enterprise business.

And as we add new accounts like PNC and we are able to take that data, that success, that information and buying leverage on and on, and use that to the benefit of, may be a small regional community bank. It also feeds in together. And we also like the fact that we have three growth strategies contributing in unison.

InnerWorkings was very dependent on the middle market in its first few years, as a company. We were heavily M&A intensive as we built out our domestic platform in the 2006 to 2009 and 2010 years. These last few years of course, we’ve seen the vast majority of our growth, come from our enterprise solutions. We believe we now in 2013 and moving forward, have all three working in unison contributing in an interrelated manner, and a fashion that internal leaders about 1,400 of us now, were all very familiar with the three growth levers, and how they work and why they exist, and how they interrelate, and what our historical experiences have been.

The newest of the three, really the piece of the puzzle that is just come together most recently is the middle market. As those of you who have been following InnerWorkings now for some years, know it was an area of our business that we did not focus on for at least five years. I would say from 2005 to 2010. We did not spend a lot of energy on growing our middle market business, in part because we were having so much success on our enterprise side and the M&A opportunities we saw. But really I think more so because we didn’t have that simple elegant solution that we saw as being efficient and scalable away to interact with the middle market where the spends aren’t as large as PNC of course and so, decline acquisition costs do become prohibitive with the middle market. We just hadn’t put it together and by the way no one else in the industry had put it together either before.

Of course there are companies in this building like ECHO and Groupon and many others that we know from other industries that have had a lot of success within site sales and I for one even with the Board saying, we should explore this solution for the print community, (inaudible) being somewhat from the industry. I like to think of myself as creative and innovative, but in reality I was too deep into the industry to really see it I always felt that a transaction in this space that involves a brand and physical printed material that involves art work that sometimes could have been worked on for months prior to it being sent to a printer.

It could not be done in a transaction that did not involve a face to face interaction. And I don’t know where the LIFO went on maybe Joe, maybe some others finally I got tired about hearing about it and so we started testing it and sure enough, we found that there is a segment of the community. A segment that spends billions upon billions of dollars in the U.S. alone on printed material that is highly receptive to a solution like an inside sales, telephonic relationship with customer service in a method of transacting mostly electronically and over the phone and so at that point in time about in 2011, once I realized that this is really the way of the future, it’s not the high touch expensive method that’s been employed for centuries. Now with a local regional manufactures rep working with the small community bankers. Things are trending toward a different method of having a more efficient method of supplying this middle market or at least a segment of it, there will always be middle market companies that require that interaction and the physical touch and handling the proof and going to the press check. No, that will always be the case, but there is this emerging area of the world as people get comfortable buying their cars online where it is conceivable to say, look if you handle PNC’s print and Citigroup’s print, I think you can handle mine, I’m moving up a little, my hard work to your FTP. So let’s go to InnerWorkings and by the way, I love the fact that you save in your tremendous amount of money here along the way as well. And so now we’re back in the middle market business in a hyper growth mode with what we’re now calling our small and medium business services group.

As I mentioned earlier, this is a market that as you might well imagine, I imagine it’s not just in the commercial printing and promotional world that this market is paying a premium versus corporations, but certainly in our space, that is the fact. we generally know more about the supplier community in a small town in the United States than our clients are prospects that are sitting in that small town. And that’s the right database; none of this would be possible without the database that we’ve built up.

We couldn’t have launched this in 2011 and have been successful, we didn’t have the information. But now we know more in a local market that we’ve never been to and more by far, we know equipment profiles, we know quality scores of providers, we know historical pricing from those providers and maybe even more importantly on the pricing front, we know pricing across the way in another town.

And so the amount of information that we have are sales force and production managers in our SMB business have at their fingertips real-time while they’re talking to a prospect is the difference, it’s the answer. So and again, we also find that in a world where if I’m tied to a physical meeting, if I get two or three calls in a day, I’m probably pretty happy with that. I work pretty hard, I go home tired.

however, over the telephone, we find that we’re averaging about 30 to 40 prospecting calls a day and engaging in a number of those prospects with an extended conversation about in our workings. and so it’s extremely efficient and extremely scalable, and I’ve got a little bit of information on the business, you’ll see the headline there is that we fit in an inflection point. we really believe that this is the year for a number of reasons that we see.

Our inside sales business actually show up on the radar screen as a percentage of our overall company. This year, we expect in revenues that we’ll have the equivalent of the top five enterprise account, and it’s highly possible, I think only John with a larger contract would make this not be the case that next year, it will be effectively our largest client at operating margins, which are higher than our Company average.

we’re not of course, going under contract with savings, guarantees and exposed pricing in this market, it is a transactional world of lower ticket items, but not meaningfully, lower ticket. and so you can see our expectations for the group in terms of people, profitability and revenue this year. and so what I’d like to do now. is this the time? Are we ready? So what I’d like to do now is help us out, get up and walk down to the sixth floor, and take a look now, i.e., we’ve got one of our board members here in Charlie and we had a Board Meeting recently, and I made the same suggestion Let’s go and take a look at it and I kind of saw the faces say to me, we know what an office looks like Belcher. I mean, why don’t we just stay here?

But then I think after going down, it gave our board, and I think it will with all of you, a visual impression of what we’re doing of what we’re building and why and just to walk through the floor of this team, and look at what they’re doing and look on to their screens at their PPM4 and sales force, and we’re going to say hello to the gentleman, Brian Sims who runs inside sales. you can hit him with a couple of questions. we don’t have a ton of time, but we just moved into this facility about four weeks ago I think, it’s 21,000 square feet. we had the groups split between the area right outside the room here, which you can see now has got some holes and it’s little bit empty, that’s because we just moved downstairs and we had about hundred people that were over in the loop in a different building.

We now have everybody together and once base downstairs. so we’ll run down there, I think what we will do is we’ll ask maybe the first group of, I don’t know how many people do we have here about 50 or 60, maybe the first group of 15 or so to go with Brad down, will take the stairs down, will take a walk through, will come back, and when we come back, there is going to be food set up right outside the room. So grab your lunch, please not too many phone calls and e-mails, we still have a long way to go. so let’s head right on back in here and have our lunch in here and we’ll get back to it.

Okay. so we’ll have about 10 or 15 people go with Brad. for those of you following along online, we’ll be back at about 12:15. And then the second group will go down with Mr. Busky and I’ll take the stragglers here. Okay.

[Break-out Session]

Eric D. Belcher

But not much. So I’d like to introduce Andy Paparozzi. Andy has been with NAPL, which is the National Association of Print Leadership, an association primarily made up of Print Manufacturers from the United States for 29 years now. And it’s generally recognized within the print industry is being the (inaudible) in terms of forecasting, where things are headed in our industry, so Andy if you wouldn’t mind come on up.

You welcome.

Andrew Paparozzi

And we’re going to talk briefly about the state of the commercial printing industry, and to understand what’s happening in the industry, and what’s ahead, who is going to make it, and who is going to fail. We have to understand that the printing industry is not simply changing, it is being redefined, it is being transformed. It is becoming something fundamentally different from what it was, something even more competitive despite record consolidation, and something more complex in many ways, and that is creating historic opportunity for the prepared, and profound threats for the unprepared.

Now in this new industry clearly many traditional markets are shrinking we all know what’s happening to newspapers, and directories, and business forums, and newsletters, and pretty much any other type of commodity printing or copying, as the Internet and digitization create elctronical alternatives to print or allow print buyers or media buyers to dramatically shorten their press runs by targeting their markets much more precisely, but that’s not the whole story, see that’s like looking at the music industry, and saying all they were fewer CDs and there are fewer albums, therefore people are listening to less music, just as clearly, new markets are emerging that allow us to get involved in our clients jobs earlier, staying a while longer, and satisfy a broader range of their communications needs that allow us to manage not just the printing, but the art, design and creative, the mailing, the fulfillment, the database management, tracking the response to that direct mail campaign, and I put it very, very simply. There are plenty of opportunities in the new printing industry just not in the same old places or by doing the same old things. And in this new industry, market share is being profoundly redistributed, not according to Company’s size or equipment configuration or ownership structure, but according to who understands that we are in the communications business, not the ink on paper business.

Who understands that all opportunity is to help our clients communicate more effectively and more efficiently with their clients? And I’m very surprised at the degree of resistance to I get to that simple and what I think is very obvious statement that we are in the communications business. And my response to that resistance is you show me the piece of printing that is not intended to communicate something to someone somewhere, and I will then gladly agree we are in the ink on paper business. So if it affects how people communicate, it affects the printing industry and is an opportunity for the printing industry at least for the members of the industry who get it.

Numbers, now two things, this is a graph of industry sales, two things, these are data strictly for the United States, I only track America is enough happening in the American printing industry to keep me very, very busy. And they represent everything the industry does now, mailing, fulfillment, creative, web for the video, web page development, not just ink on paper. I don’t talk about just ink on paper, because that’s an industry that doesn’t really exist anymore.

Total industry sales increased six-tenths of 1% last year, a fractional increase, a modest increase, an increased that in a different time, we might have dismissed as insignificant, but in fact, our industry’s first increase in five years, and moreover industry sales accelerated as the year progressed growing by 1.3% in the fourth quarter, our industry’s fastest growth rate since the fourth quarter of 2007.

NAPL’s forecast for 2013 is that the printing industry will continue to gradually strengthen with industry sales rising between 1.5% and 2.5% for the year overall, that number may have to be revised. It looks like we are going to do more like 2% to 3%, and if the economy is stronger than I think it’s going to be and pricing power is more than I think its going to be we made for the first time in a long, long time actually nudge above 3%. But what’s most exciting ladies and gentlemen is the diversity of the opportunities that will contribute to the industry’s growth, and I am going to list just few of them. Cross-media campaigns, these are campaigns that include personalized direct mail, personalized e-mail, personalized landing pages, QR Codes, real-time response tracking to a direct marketing campaign; things we could not do when our old industry, but are vital source of revenue and profitability in our new industry. Direct mail now not the generic static undifferentiated direct mail of our old industry, but targeted relevant compelling direct mail of our new industry that is personalized for each group and if appropriate for each individual in the target audience.

I will give you an example, one of my sons applying to college, he is interested in studying Middle Eastern and North African cultures, he now receives letters from colleges that are very different from the generic letters I received all those years ago. His letters say, generally, we understand you are interested in studying North African and Middle Eastern cultures, but why don't you go to this website and you can hear an interview with one of our students who just won a state department scholarship to study Urdu in Lucknow, India. Why don't you go to this website and hear from a dozen of our graduates who are now language specialists with United States Department of State. And why don’t you go to this website or stand this QR Code and we will send you guess what a beautifully printed handsome catalogue on our complete North African and Middle Eastern studies program.

And while you are at this website or while you are this QRO take a look around, there may be something else that you are interested and we will send you information on that, but we are not going to send the information on French literature, because you are not interested in that. So you see what's happening in the new printing industry ladies and gentlemen, then the old industry, our communication, our products needs to be static, needs to be generic. In our new industry, they are interactive, and they are personalized and they are relevant and they are compelling and they’re not junk mail. And we notice the other thing from my little example. What happens in the new printing industry? Engagement does not end with the mailbox any more, engagement now begins with the mailbox as the new industry integrates multimedia, that’s the new printing industry, mailing, our staff is the complex little beast over there. And we are figuring out how to help our clients, get those compelling and relevant direct mail pieces to their clients in the most efficient and most timely manner.

Science, banners, reps isn’t extraordinary, what is happening with the wide format, inkjet capabilities that are being developed now. The stunning color on remarkable substrates, again, things we didn’t do in the old printing industry, point-of-purchase displays obviously. We make impulse wise, we always will. We’re doing more and more in that area as well, packaging tags and labels, I just had the privilege of being upper to Rochester Institute of Technology. they are doing cutting-edge work on radio frequency identification.

Packaging, label, tags, not just to identify products anymore, smart packaging unheard of opportunities in the new printing industry, web storefronts makes it a whole lot easier for our clients could do business with us, product design and creative get involved in the client’s job earlier, fulfillments stay involved longer, database management let them get back to their core capabilities, let them get back to what they do best. Digital asset management, video for the web, these are all what the new printing industry is about.

Now opportunity is one thing, capitalizing on opportunity is something else. And quite frankly and I say this to printing industry owners and executives all the time, the huge majority of you are not prepared to capitalize on these opportunities. The companies that will win in this industry, the companies for which the opportunities I just outlined or reserved, they’ll do three things. Number one, they will cultivate a deep understanding of the clients communications need. So in the old industry ladies and gentlemen what was it? It was my sales rep talking to your print buyer and bringing the doughnuts and bringing the ball tickets and wondering what can I bid on today.

In the new industry, the new printing industry, it’s not about transaction, it’s about a consultative relationship. It’s about my expertise. It’s about my marketing expert talking not to your print buyer or your purchasing agent but to your Vice President of Marketing. It’s about my database expert, my logistics expert, my mailing expert, my fulfillment expert talking to the appropriate people in your organization.

Totally different way of doing business, totally different industry, I told you, the industry is being redefined. The companies that are winning this new industry will integrate services. Too many are adding services. The companies that win in this industry will integrate services into the communications programs that their clients value most. And that help their clients communicate more effectively with their clients. And they will also help their clients get back to what they do best. It’s about reducing costs, it’s about helping the client communicate more effectively, it’s about letting the client do exactly what Deborah and Michael talked about. Those are the companies for who the historic opportunities in new printing industry are reserved.

So what’s the state of the industry? People ask me that all the time and then my response is always the same. The state of the industry is whatever we make it. If we are waiting for the economy to solve our problems or consolidation to solve our problems or the things to somehow go back to the way they used to be, it’s not going to happen. The companies that are waiting for that to happen, the state of the industry is not very promising at all and frankly they are not likely to be around way more.

For companies that understand their clients communication needs recognize the opportunities this new industry is creating and can marshal both the financial and human resources, because remember I said this is about expertise now, it’s consultative, not transactional, it’s about expertise now. That can marshal the financial and human resources to understand what their clients need, to understand how to make that client more successful and to document what they have done for that client. For those companies, the state of the industry has never been brighter. Thank you. I believe, if I am not going to be excited about the wide schedule. go ahead, sir.

Unidentified Analyst

Hi, you posted some growth rate forecasts for 2013. If we were to strip out some of those categories that InnerWorkings doesn’t really participate in whether it’s newspapers, books and things like that. What do you see is kind of the relevant growth rate for company like InnerWorkings for those categories?

Unidentified Company Representative

InnerWorkings is growing so much faster than the industry at large. The categories they’re in – the growth rates are remarkable for what the industry at large is doing in those categories. Even when we strip out newspapers and directories and business forms, overall the industry is still growing by about 3.5% to 4% in part because of very severe pricing pressure and in part because the industry is still very, very depended on the economy.

So even if we would take out everything that’s particularly susceptible to alternatives to print, the industry’s growth rate is still very moderate at best. They improve as the economy improves, but we are not looking at something that’s going to be growing like 6%, 7%, 8% like the industry used to do every year in 1980s and 1990s.

Now newspapers probably – that’s a different category. They’re not in those numbers, that’s commercial printing?

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

All right.

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

Right.

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

That’s right.

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

It is. This is a dramatic new business model. The Internet was a dramatic new technology. I can go back to the days when the Apple developed prepress desktop and changed the way we down prepress and that was a dramatic new technology. There was resistance because the people are very, very difficult to give up on what they know and what they know is taking a piece of equipment and trying to fill that equipment with printing and they are resistant to give up on the idea that if it’s not pushing ink and paper through my lithographic press it doesn’t count and it’s not part of my business. And that’s the resistance I am talking to.

And it’s sad, because these are good people and they are hard working people, but that’s what they know and see I said something else earlier. I said that so many of these companies are not prepared to capitalize on the opportunities that I bulleted and the reason is, this sales force is not prepared to go in and start talking to a Vice President of marketing, they don’t have anyone on staff who knows database management, they don’t know anyone on staff who knows how to deal with the interactive elements of direct mail campaigns. So that’s best where the resistance comes from. The tendency is to say no, that can’t work, because that’s not what I know. And that’s where always start this presentation for sake you take nothing else away. Understand. If this industry is not changing it’s being redefined in every way. The competition is being redefined, the kind of kills you need to succeed, it’s being redefined. Our clients are being redefined, then what we can do for our clients is being redefined. And when I talked to a group of printing owners and executives my point is everything happening in this industry is either an opportunity or we’re going to put you out of business, and you beside which is going to be.

Unidentified Analyst

Great, okay. Thank you.

Unidentified Company Representative

You’re welcome. Thank you.

Unidentified Company Representative

Okay thanks Annie. It was great up there. Okay little bit on the financials, before we head into the wrap up and the Q&A. We thought we’ve shown improvement as a management team that we are able to execute on strategies as evidenced by the facts that you are seeing on this slide right now. We’ve grown the revenue significantly in the last three years most of it organic in nature. We’ve grown the adjusted EBITDA margin in the last three years and all the way we’ve been investing for the growth going forward to. We’ve done all that at the same time. 2012 the most recently completed fiscal year was a very successful year for us. We grew 26% on the top line, 19% was organic in nature. And, as John mentioned earlier, over a 100 million of new organic enterprise account revenue in the year.

So we are pretty pleased with where 2012 ended up and again we made meaningful wise investments in the areas of inside sales which you all just saw. China, Brazil is going to provide meaningful growth opportunities going forward in 2013 and beyond.

Now just because we had a successful 2012, it doesn’t mean we are going to take our foot off the accelerator in 2013. We gave out our 2013 guidance on the earnings call last week. So this is not new information, I’m just reiterating the revenue guidance of $930 million to $960 million, which is coming off at 26% year growth this represents 16% to 20% growth, most of which is organic in nature. And again this does not assume any new acquisitions in these numbers. It solely includes the run rate effect of the acquisitions we did in 2012.

The EPS and this is a GAAP EPS guidance of $0.57 to $0.61 per share, represents 39% to 49% growth over 2012, and again that’s a GAAP EPS. Now the next two slides, I will give you a little more of a build on both the revenue and EPS, so if you look at the build on the revenue first, the base revenue was just under 800 million, the run rate from the 2012 M&A we’ve done again we were not very active in this space in 2012. So it’s a fairly small number. And there is no new 2013 acquisition revenue contemplated in this guidance. The new global enterprise growth of $105 million to $120 million, just a reminder there and I have said this before but just a reminder that that includes growth from existing enterprise customers in new geographies or new categories where we are signing a new legal contract with that customer.

So moving into Brazil moving, moving into China, moving into other categories of PMC, they are not currently under contract. That is organic growth that rose into that $105 million to $120 million. The final line, the new middle market growth organic in nature, again most of that growth is going to be inside sales, which you all just walk through a few minutes ago. So there’s a 930 to 960 of total revenue guidance for the year. Now one of the assumptions built into this revenue guidance is the same customer spend of zero increase or break-even if you will for the entire company. Now underneath that by region, it’s different.

So for the EMEA region, we’re looking at near 10% same customer decline, which is a rate that will run we expect a little bit less than what we saw in 2012, but still we’re anticipating some continuous same customer drop in that region of the world/ and in the U.S., a 1% to 2% same customer spend increase, in the Latin America of 3% to 4% same customer spend increase, which again, it’s going to net out to around the world, basically break-even for the total company.

Now the EPS build the $0.41 that’s a non-GAAP number that excludes the legal settlements that we saw in the fourth quarter of 2012. That number was disclosed in the press release, though we talked about early in the earning call that’s the base $0.41, still $0.11 to $0.15 of growth. That’s a result of the revenue growth I just showed you on the previous slide. That revenue growth is driving that $0.11 to $0.15 of earnings is the revenue drop in that reasonable net profit margin.

Now the other two bars there, the two and the three to get you to the $0.57 to the $0.61 full-year EPS guidance. those are the investments that we’ve talked about Brazil and China inside sales for which we did lose money in 2012, we expect to turn those areas to a break-even or better in 2013, which provide another $0.05.

Now if you were to exclude those two items and just look at the $0.11 to $0.15 resulting from the revenue growth, you’d be looking at roughly 27% to 37% EPS growth, which is more in line with the revenue growth, more in line with the EPS growth we’ve seen in previous years. But with those investments now turning from a loss to a break-even or better that's what you get that much higher percentage growth on EPS that may be we haven't seen in the past.

On the balance sheet and liquidity, we finished Q4 2012 at $65 million of gross debt and $48 million of net debt. We’re quite proud of the fact that the net debt came down at 25% sequentially Q3 to Q4 we generated a significant amount of operating cash flow in the fourth quarter.

And just a reminder of the credits availability that we have is $150 million line of credit, and $50 million AR securitization line for total capacity of $200 million again we’ve only borrowed $65 million on that. So we have a significant amount of liquidity left in this business. The credit agreement extends out to August of 2015 and the borrowing rate is very attractive at LIBOR plus 120. So it is extremely inexpensive financing right now.

CapEx needs will continue to be low at or below 1% of revenue and nearly all of that CapEx is related to technology enhancements that John mentioned earlier that will either increase revenue streams or increase productivity, decrease costs.

The DSOs we made some progress in 2012. We’re certainly not pleased with where we are. We're not done yet. We have a lot of opportunity left with DSOs. There are a lot of ongoing projects within the Company right now, some internal, some external to the Company. And we are doing things like just simply re-prioritizing the invoicing process within our production managers day-to-day lives, making that the first thing to do is suppose to the last.

We are not mailing invoices to our customers anymore. That adds too many days, too much time to the process. We are not providing pro forma invoices to our customers before we give them a real invoice. Once again slows down the cash conversion cycle. We are not waiting for the final last dollar invoice from our supplier, before we invoice our customer. These are the types of the projects that we have ongoing that we are looking to continue to reduce DSOs in this company throughout 2013. And so with a careful and wise management of the balance sheet and use of cash, we are looking to continue to grow ROIC as we’ve done for the last three years.

Unidentified Company Representative

This slide I am pulling up right now, the long-term model. I am usually not a big fan of showing repeat slides that I’ve shown in the past. However I think it’s appropriate here because the strategy really is unchanged. The long term goals are unchanged. The strategy is one balanced, and that is to grow the top line. And also continue to grow the bottom line, and that balance is manifested in these goals of growing the top line at least 15% organically per year, and growing the adjusted EBITDA line at least 50 basis points on the core business.

So with growth in mind, we are growth company. We are going to keep our eye on that growth and continue to the growth of the Company on the top line. We will also continue to drive down DSOs. We will continue to drive down the effective tax rate through tax planning, and we’ll continue to increase adjusted EBITDA margin through just plan old blocking and tackling of growing the top line, and a great faster than we’re growing the G&A line, so continue to see leverage coming out the G&A lines we move forward. And all that translates to something that I know is very important to me, this team, and all of you that’s increased return on invested capital, we’ll continue to grow that ROIC each year to benefit the shareholder.

So, with that I am going to turn it back to Eric.

Eric D. Belcher

Okay, thank you Joe. So a couple of minutes here in closing and then we’ll open it up to questions. How many of you have spoken to our clients as you do your due diligence on our company, how may of you, so maybe a dozen or so. Well without knowing who you spoke to or when you spoke to on, I’m pretty sure I know what they said, and it’s the hallmark of our company and probably the thing that I’m the most proud of at the end of the day its what our clients think of us, and our customer service focus.

And so I wanted to take a minute as I’ve done every year at our Investor Day to thank some of the individuals in our company what’s different this year about the CEO Circle Award Winners over the last 12 months is that there from Venezuela and places like that, but it’s the same experience around the world and working with our company and that is a very, very positive one the way we measure or success in terms of client satisfaction, quantitatively as through our client retention rates in the resigning of our client tracks as well as qualitatively on a regular basis with our quarterly business reviews.

So congratulations to our CEO Circle Award Winners not just the focus on site supporting our clients of which we’re now look to about 300, but also the people in our implementation and technology and finance teams that are making it happen.

So my last comments before your questions. We are thinking big. We view ourselves as a very small company with a huge opportunity in front of us and it’s inevitable that the industry is going to transform and adopt a solution like ours, what’s not obvious or what’s not been determined at this stage as who is going to capitalize on that. Is it going to be some of the print manufacturers that Andy interacts with? Is it going to be a massive corporation that decides to enter our market in a meaningful way or maybe an advertising agency or a BPO consulting firm or is it going to be us? And we think we are right now with the clear leadership in this phase, undeniable at this stage that InnerWorkings is the pioneer.

It is the company with the track record, with the momentum. It’s undeniable at this stage. We need to fight for that everyday, but we think this is a once-in-a-lifetime opportunity. For us as a leadership team and we feel that all the way through the company and through our geographies that we really have found ourselves in a very fortunate space and we don’t intend to give up on that. We don’t intend to watch somebody else essentially capitalize on the market that we’ve pioneered.

So we’re just getting started and we’re happy that you all came, particularly those of you that had to fly in. And so, why don’t we now open it up? I think we’ve got about 30 minutes or so for questions. So why don’t we open it up for questions and I’m going to ask Pat to come on up as well in case, there are any questions as it relates to implementation or enterprise PNC or any other things that Pat’s involved in.

Pat Richcreek

Okay. so we get going, we’d start here, and then we’ll move over here.

Unidentified Analyst

What do you consider your greater sources of competitive advantage and the biggest barriers to entry for copy cats?

Pat Richcreek

Why don’t, shall I start, and then one of the – and then somebody else can build on that. I think that the barriers to entry or first of all, the data that we’ve accumulated and the power behind it, the intelligence that we have on the marketplace in our ability to sift through it and utilize it to be able to realize that 15.9% savings or more?

I also think that we have established ourselves as the clear market leader, and we do see new entrants out there. and we are not upset about their existence. We have now landed. this is the new dynamic, is just within maybe the last 24 months. we have now planned the new clients, as a result of someone else maybe a printer advocating our model or a startup or a European entrant into the U.S. marketplace or anybody out there that might possibly claim to expertise in this field.

We’ve seen them stimulate interest, and then the award come to us as a client does their due diligence and you’ve got all these providers, and then you’ve got this one company, which has a long list of hundreds of clients, which you can phone up and hear the results of our interaction with. So we don’t worry a lot right now about increasing competition. we’re a little surprised we haven’t seen more of it. we think it could stimulate our growth possibly, but even if it doesn’t, there is room in a $500 billion global marketplace for more than one InnerWorkings. However, we do expect to have the reputation as the clear leader, the McKinsey if you will of our space. And so I don’t know, is there anything else to add to that?

Unidentified Company Representative

I would add that the significant amount of print that we’re currently buying around the world creates an advantage with the suppliers. There is not many folks who are buying as much print as we are, and that does create a lot of advantage, not only just on the U.S., but in China, say with promo and promotional in point-of-sale goods. So there’s definitely, there’s an advantage there.

Unidentified Company Representative

We do feel as though there is some form of a land grab right now as well. As four years from now, when the contract that was mentioned earlier comes up for renewal, we expect to have delivered a tremendous amount of savings, all sorts of new creative designs, managing their video on say, within their retail locations. And we don’t expect there to be any reason for them to want to go through the headache of transitioning away from our 20 to 25, or maybe 50 people at that time, and into a new group of people whether they’ve got to relearn the brand. we have e-commerce sites already set up within that account. we do expect to be managing fulfillment in the number of other things on their behalf before long. And so we do think that it will be difficult for somebody else after we’ve established our presence as the partner in a global Fortune 500 company for example, to come in and unseat us.

Unidentified Company Representative

Okay. we’ll go here and then back here.

Unidentified Analyst

Have you talked internally or modeled internally your ability to grow, let’s say $2 billion, $3 billion, $4 billion of revenue without ever accessing the equity market specifically?

Unidentified Company Representative

Yeah. At this point, with the growth targets we have in mind, we feel completely comfortable with the liquidity we have and there can be more liquidity available in the debt market if we needed it to continue to grow.

Joseph M. Busky

Yes.

Unidentified Analyst

The woman from (inaudible) she talked about, there being enormous opportunity within that organization for doing more work with you maybe 15% to 20% penetrated, and I think that how do you say that number across your client basis maybe 20% penetrated? Can you help me reconcile that with the flattish same customer sales year-over-year, even if the economy is pulling there, printing down? Are you not penetrating? is that 20% not moving higher to offset better even grow it?

Unidentified Company Representative

Well, let me ask a question, and then in response to your question, Joe, when we move into Brazil of Procter & Gamble. Do you include in your same customer sales number that growth? Are you just looking at the footprint that we worked with that client and if we take over an additional service or something of that nature? How is that calculation done?

Joseph M. Busky

It’s the latter. so if we move into a new geography or into a new category with an existing customer that falls into my organic enterprise growth bucket. So it’s the existing campaigns that we’ve been working on in the past, that’s that same customer spend up or down. It was a 1% across the total company in 2012.

Unidentified Analyst

(Inaudible)

Joseph M. Busky

Well, the new step would fall into the new organic enterprise account growth.

Unidentified Analyst

So the 100 million or so of new enterprise organic growth last year. I don’t know that we’ve calculated at what percentages we’ve taken over new categories of business units or geographies versus what came from a new client signing?

Joseph M. Busky

Yeah I don’t have that.

Eric D. Belcher

It’s a mix, it’s a mix. Both were huge opportunities for us.

Unidentified Analyst

Hey, Eric, when you talk a little bit you’ve been very consistent in your message about the growth opportunities once in a lifetime, land grab kind of seeing similar message that you’ve been talking about for last several years, and clearly you…?

Eric D. Belcher

Not boring.

Unidentified Analyst

No, no clearly you’ve shown the opportunity you are delivering on the revenue. My question is like with the earnings outside that you’ve given in your guidance this year, which is very impressive in terms of letting some how leverage really fall through in the bottom line at least. I understand that you never know what the new opportunities might be.

But why is it now for the first time that you’re willing to think about at least drop and that much leverage or that much the up side on revenue down to the earnings line versus their continued opportunity to go after this land grab, and the once in the lifetime opportunity?

Eric D. Belcher

Well, there is still a lot of investment in our P&L, in our business. The P&L that we’re projecting for 2013 is the P&L of the growth company. We could be delivering a tremendous amount more in the way of profitability. So there is investment in those numbers.

Now it’s just not to the tune of what it was in 2012. In 2012 because of primarily China, Brazil and what you just saw downstairs, we had I would say a slightly higher year of investment than we anticipate in 2013. But there is still quite a bit of investment in 2013 and beyond.

Now of course if we were to come up with a fourth synergistic complementary growth strategy that required, our shareholders to get behind that idea. We come back and we should share that, and we will discuss it with you. But as of right now, we’ve broken the back on inside sales in terms of building out to scale. You have to build out the scale, prior to being able to monetize and we’ve done that and it’s been a few years, it wasn’t just last year with inside sales.

And in terms of China and Brazil, we made a decision to go in a major way, not just to support new client contracts, which we had in hand. But to go in, in a way, which says we’re here for a lot more than that, and to do it right if you will.

I wish I could take you through our Brazilian office for our sourcing center in Guangzhou. I think that would be more impressive than what we saw downstairs; those were major investments made last year. We don’t see those recurring. We see many more investments throughout the year, but just not of that scale.

Unidentified Company Representative

(Inaudible) investments where I mean I’m hopefully not replacing it with more, but it’s kind of this one-time chunk to support the PNC’s interconnects, but we have to build out these implementation teams that we never had before and now as we’re signing the next, three, four, five, six of those same teams, there’s not the incremental investment. So those are assets to take 12 to 18 months even capitalized to become productive on the income statement, but that cycle we’ve now started that why are in his teams, move and continue to be the part of that growth.

So it’s a little bit of a different version, but it’s a same thing as what you saw downstairs what you have, we have our own curve, and we’re now up that curve with the investments that we made in the last 12 to 18 months in these two functions.

Unidentified Analyst

And then just one maybe, one follow-up if I could, kind of referring back to like the PNC example of where you’re probably only doing about 10% to 15% of the total opportunity. Do you think that that’s fairly representative with a lot of your larger customers within that enterprise bucket? Thanks.

Unidentified Company Representative

I personally will look to sit down with Deb with a pencil and paper, and show the 15 to 20 and see what the other 80 is. I think that was a wonderful number. I think a lot of it is in these expanded categories that we haven’t done before.

So I would not say it and I wouldn’t said if Deb here, there is not another 80% of print per se that we need to go expand into, but when we think about creative services as some of those other adjacent functions, that’s where there is additional penetration, and we haven’t had those services before, so to the prior question. Until we got into those services of that scale, we couldn’t provide them. So we were providing the full suite of print supports those middle two buckets, the print sourcing and print production, but now as we have services on the side, that addressable pile changes even it installed clients where we have been there for years, I do more there is no there that I can go address with clients have had forever in those other spaces.

Joseph M. Busky

Yeah, ironically we had our best year last year at expanding within an existing client base and we have always talked about that 15% to 20% number as being, what we think we have in the way of share of our clients spend that we would be eligible for, and ironically even though we have done a better job at penetrating our existing accounts, I think that number actually has gone down, because we have expanded geographies, right there four times the eligible market. We have expanded into these new services, and so we are now looking at packaging and labels in Brazil, and creative and on and on and so there is huge opportunity within our existing accounting base.

Unidentified Analyst

Is it correct then to assume that because of these new services overtime, your same-store sales should start to ramp?

Joseph M. Busky

Yes.

Unidentified Analyst

In existing accounts? That might not happen this year, but let’s say looking out three to four years has become more established in these areas, you became a more accepted provider and your same-store sales would ramp then?

Eric D. Belcher

Yes, though not the way the Joe is reporting the metric. His metric is effectively for the business that we had previous year. If we just looked at that business again in the next year, but what we're doing is penetrating deeper into our accounts that trend is being going on for the last couple of years, and most likely it will accelerate.

Unidentified Analyst

Two questions. First, you did go through, John went through the slide earlier of all the different services, and I wondered, if you could go back to that slide, and possibly walk us through kind of when we should expect you to be pursuing some of these just within some sense of context, why you are pointing that. Joe, on the M&A side, you mentioned dozens of potential acquisitions, which I will equate to the number 24 to 36. So what do you expect to have happen with those, just in a historical context, how many of those will you actually buy those that you don't why won’t to buy them, what will end up occurring?

John D. Eisel

George I wish I could give you a target number, but we don't know ourselves, I mean we are pursuing these entrepreneurs as I said earlier in the process is long and somewhat unpredictable at times, so I can’t give you the number on how many we are going to close this year versus next year, it's completely opportunistic in nature. But if you find the right fit with the owners and we find the right valuations we’ll do the deal.

Unidentified Analyst

But when they go away why did they go away?

John D. Eisel

They don't know always go away fully. It tend to sort of pave the way for a while and maybe come back, because if you think about the types of companies, we are looking to buy, these are companies that are not for sale, and so we're coming to them with an offer, would you like to come and join InnerWorkings with us, usually the first response is, no thanks. I'm fine, my business is doing quite well, and it takes a long time and sometimes they may pull away for several quarters or even a couple of years until we come back, and have more conversations. So we don't really see a whole lot of people going away forever they just kind of paved in and out sometimes.

Joseph M. Busky

And when they see the structure, if they’ve already said no thanks, then they sometimes say no, no thanks right, because it’s like, we are going to do this overtime guys. There is no financial windfall. This is a long-term partnership, and so really it’s recruiting. It’s not they have to share the vision of where they can take their business with our help.

Okay and then John, do you want to take through the first part.

John D. Eisel

We have this solution in place today. So we are actively selling all of these offerings. We are not necessarily actively going to every client to try and give them the full solution. There are still clients we are only print sourcing and print production. So I think, it’s when do we do it. We do it now. We do it in every new opportunity we have. We custom design the solution for that client as well as we do for existing clients. There is not a need for all of this, with every client. So I wouldn’t think of it as user discrete business units.

This is it really truly is each time a custom solution that what we can provide to given client. And so the nice thing as we have the capability. So there is additional option for what we can offer, but you shouldn’t expect that everyone, of these when I release a new statement of a new client. We are going to say the whatever that is seven stages, we have all in every single time. We are still doing custom solutions where we may just go in and takeover one business unit, and only their print production, and their print sourcing. We may only take it with each store and warehousing around print.

There is always going to be this component of print, but the other ones are really, we implement kind of as needed and as frankly, the clients willing to accept, I mean not every client wants to be takeover their creative studio.

Unidentified Analyst

How are you positioning yourself and how much energy, you are spending on looking at the sort of going away of the traditional print centric businesses, reemerging as digital centric, as Andy pointed out, as Deborah from PNC said that she is trying to look at marketing in a non-silo basis, but there is a big chunk in a very fast growing chunk, which is the digital component. How are you positioning for that?

Eric D. Belcher

Well, right now we see the $500 billion eligible market that we’re participating in is neither shrinking nor declining meaningfully in the years ahead and we’ve got a brilliant solution for that market, and so we’re focused on it. Now that said, we are naturally getting deeper involved at our client’s request in the marketing departments.

And as a result, they’re outsourcing more of the marketing function if you will to us, then we originally expected. And so we’re aggressively pursuing that broader solution. It’s better for our clients. It’s better for our shareholders, and so it’s a balance. We are not worried about our core markets evaporating underneath us, in any meaningful way. But that said when we opportunistically find situations like the one that we reviewed earlier today, its full speed ahead.

Unidentified Analyst

So when you look at the M&A pipeline, are you actively looking at companies that are in the digital media space adjacent to yours or not yet?

Eric D. Belcher

I would say we are looking at companies that are clearly in the digital media space as a part of our broader suite of offerings that they provide their clients similar to us, but not pure play our companies. Kevin? I’m sorry, you’ve got the mike. All right, we’ll go over here and then over to you Matt, or other way around.

Unidentified Analyst

So you talked about moving into China with an existing client, but I believe on your last call you also talked about some new contracts in China that you’re excited about. Is that again moving our existing clients into China just covering more geography with them or you also seeing the opportunity to add new clients that are based in China or other Asian regions at the world?

Eric D. Belcher

Well, I’d says it’s both as well as one of the biggest matching efforts was the sourcing from Asia for rest of world, what we’ve done – I talked about driving out additional in efficiencies in the supply chain. We created our own sourcing office, because China has historically been run heavily through brokers in order to navigate the complex base as well as regulatory space.

We’ve actually not only followed existing clients and support them in new geographies. We found new clients, net new to us in that geography. We’ve also going much deeper in that geography for warrants to help us provide covered for the rest of the world in a more efficient way that we did just one year ago.

Joseph M. Busky

Our preference is to go into a market knowing that we have committing client behind us. However, once in the market, we are aggressively pursuing corporations that are indigenous to that market as well, and that’s the ordering of it, that’s the staggering.

Unidentified Analyst

As we look at the $105 million to $120 million in enterprise revenue growth, how much of that should we assume is from accounted or even signed?

Joseph M. Busky

Matt, there is a significant portion of the growth that we’ve already contractually entered into in 2012 and all of that obviously, but there is a significant amount. So I think we’ll just leave with that.

Unidentified Analyst

More than half?

Joseph M. Busky

Yes.

Unidentified Analyst

When you going to the new country, you don’t have the advantage that you have in the U.S. such as the database or the purchase volume? So when you try to get new clients in a new country, what is the competitive dynamic is like, and then how do you address the advantage and disadvantage there?

Unidentified Company Representative

Well, still we don’t have that advantage, that’s an advantage we have to go over time, but no one else has that advantage either, so from a relative standpoint we’re one leg up and that we’ve developed our track record with our existing clients in other markets and they are willing to invest together with us if you will. So our capabilities of buying in Brazil next year are going to be substantially better than our capabilities we had last year, but our ability to buy in Brazil last year was much better than anybody else’s capabilities in the region.

Unidentified Analyst

It looks like if we find some of your inside sales hiring targets, and I’m just wondering what kind of considerations may be went into that?

Unidentified Company Representative

Let me talk about Joe…

Unidentified Company Representative

Well, I don’t know that we’ve refined them, we most likely will add slightly less this year than we did last year. The numbers that we put up earlier are net of attrition and there is some turnover more so than we would see in other elements of our business by far in that space.

Right now we feel like we have a large core team an army out canvassing this new wide open marketplace for us. We believe that after several years of investment it’s a year in which the management team, the Board we believe shareholders too would also like to see us benefit from that investment. And so we think the growth rate that we’ve established for that business which is more than doubling, what we did last year and potentially next year, more than doubling again, it’s pretty fast. Where is that balance between growth and returns and the client satisfaction model holds up is a bit of an art, it’s more that been a science, it can be done too quickly, it can be done in a sloppy fashion, and that’s not the way we intend to do it. So that’s where we are right now. Now, it’s a lever that we reserve the right to move as we see opportunity or as we learn things on a day-to-day basis, but the current strategy is the one that we laid out and we feel good with.

Unidentified Analyst

Okay. And then just one follow-up; the new VELO platform coming out in 2013, you mentioned how you thought this would be a lead frog versus anything that’s out there today. So what are some of the key competitive advantages that you think that will bring to the market?

Unidentified Company Representative

So take advantage of the fact that I rewind this presentation and come back to this page right here. I mean first and – so what I will do is instead of speaking broadly, because I think sometimes it’s hard to digest exactly what that means in the day-to-day. I’ll just use an example of an existing client. We have a client that we are doing business within 40 countries right now, and we hope to be doing a lot more. We are in discussions to expand that. Right now, there is no sharing or gang running of their purchasing.

They may buy in one country next door to another country the same product at much higher price than they would if we combine the artwork same place at one set of time with minimal distribution costs.

There is no sharing of ideas. There maybe a Spanish language display going up in Argentina that would be a perfect fit in Spain. The marketing team within this client has no idea that that display has not only been conceived of, but purchased and to be able to collaborate internally is something that our clients are looking for. It’s got to be a multi-language system. It’s got to have all currencies and tax codes and there is a lot of complexity to being able to erect a global platform for our clients and our suppliers and of course, our team, our management team, and our procurement professionals to utilize. But ultimately, that is the advantage.

And then the reports that come out for this client, no longer our 40 separate reports coming from all around the world and maybe one of them is missing, it’s all captured in one central database that they have access to. And so there is a holistic cleanliness to it. It’s something that’s never been done before the collaboration, the gang running, and the sourcing across borders and they are reporting in an aggregated format. Again, this is one of the categories within our clients. It’s a category of indirect spend. But even within an indirect spend, it is the most complicated category to gather information on and to know who is buying, what and when and how much they paid versus last year.

And so, ultimately what we’re doing is, we’re developing on a macro global basis, a technology solution, which integrates us with our clients and our suppliers in their global business. It will be a game changer for us. There is no doubt about it that some of the expansion you see going on right now internationally is due to the fact that, our clients have seen the development that we are doing on this front and want to be a part of it.

Unidentified Analyst

Okay, how you are doing on time? Couple of more questions.

Unidentified Company Representative

All right.

Unidentified Analyst

Hey, just Joe, I was hoping you can talk a little bit more about the cash flow and get into some of the movers there. I know a year ago, you also talked about kind of focus on DSOs and some of those things. And I see – I don’t think this is bad this year, and is about flat year-over-year, but just an improved, I mean, what kind of improvement are you expecting in the future? And then secondly, when we look at the adjusted EBITDA versus the operating cash flow, which I guess the adjusted EBITDA was up about $8 million, and operating cash flow was down $19 million, is that all explained by the DSO or is there something else about with your enterprises and having to maybe at different terms as that piece of business grows?

Joseph M. Busky

Yes, so to address the first question Kelly, the DSO we’re not done with – yeah, we made some improvement – we made a few days improvement in 2012, that good. But certainly not done, there is a lot more room for improvement there. If you look at other larger business services type companies like us, the DSOs can be much lower into the tune of easily 10 days to 15 days. And so those projects I mentioned earlier when I was talking through the financial, those are the types of things that we are doing internally with our people and working with our customer as well more difficult when you are dealing with an outside party – our employees.

So, there is definitely more room for DSO improvement as we move to 2013. The operating cash flow has a whole, there is a lot of noise in the operating cash flow saving for 2012 and I tried to take out some of that noise in the press releases by showing an adjusted operating cash flow as it takes out the, for instance the VAT payment we made in the UK back in the third quarter of $4 million. And there is some excess tax benefits that are related to stock option that’s in there, that a decrease of operating and increase in financing, so I’ve taken that noise out. And so when you take some of that noise out, she get to about $21 million of operating cash flow for 2012, now that number is down versus 2011, but we see it as the operating cash flow should always be starting with the EBITDA obviously and then reducing it for a normal need for working capital to growth the top line. There’s always going to be that need this year. We actually put a little more in 2012 – I’m sorry we put a little more money into accounts payable to generate more early paid discounts for instance and so that offset some of the early pay or some of the operating cash flow we might have had.

So these are decisions as Eric said, before they ebb and flow somewhat during the year that we look at financial decisions and then the ROIC of each and if it makes sense like for instance, those are early paid discounts and ROIC of less than 20%. So that’s a great investment for us and the shareholders, so we took that investment on the cash flow. That may happen again next year, this year, it may not, but we’re always going to be looking for those investments and looking for the areas of growth that we can use of our cash price. but generally that, that operating cash flows should be some formula of EBITDA minus needs for working capital to fill the growth.

Unidentified Company Representative

Okay, good. Well, there are planes to catch I know and there is weather creeping up on is here. so why don’t we close there, somebody left me a little note. So quotes are in the lobby and we also have this presentation on a memory stick for you in the lobby.

Thank you very much everybody for coming and spending the day with us here today. I really appreciate it. It’s good to seeing a lot of you again and we’ll see you next year at our Investor Day in Hawaii. Okay, thank you.

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