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MarketScreener Homepage  >  Equities  >  Nasdaq  >  InnerWorkings, Inc.    INWK

INNERWORKINGS, INC.

(INWK)
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INNERWORKINGS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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11/12/2019 | 05:27pm EST
Certain statements in this Quarterly Report on Form 10-Q are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). These statements involve a number of
risks, uncertainties and other factors that could cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by these forward-looking
statements. Factors that could materially affect such forward-looking statements
can be found in the section entitled "Risk Factors" in our Annual Report on Form
10-K for the year ended December 31, 2018 and elsewhere in this Form 10-Q.
Investors are urged to consider these factors carefully in evaluating any
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements made herein are only
made as of the date hereof and we undertake no obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances.

Overview


We are a leading global marketing execution firm for some of the world's most
marketing intensive companies, including those listed in the Fortune 1000. As a
comprehensive outsourced global solution, we leverage proprietary technology, an
extensive supplier network and deep domain expertise to streamline the creation,
production and distribution of marketing and promotional materials, signage and
displays, retail experiences, events and promotions and product packaging across
every major market worldwide. The items we source generally are procured through
the marketing supply chain and we refer to these items collectively as marketing
materials. Through our network of global suppliers, we offer a full range of
fulfillment and logistics services that allow us to procure marketing materials
of virtually any kind. The breadth of our product offerings and services and the
depth of our supplier network enable us to fulfill the marketing materials
procurement needs of our clients.

Our proprietary software applications and databases create a fully-integrated
solution that stores, analyzes and tracks the production capabilities of our
supplier network, as well as detailed pricing data. As a result, we believe we
have one of the largest independent repositories of supplier capabilities and
pricing data for suppliers of marketing materials around the world. Our
technology and databases of product and supplier information are designed to
capitalize on excess manufacturing capacity and other inefficiencies in the
traditional marketing materials supply chain to obtain favorable pricing while
delivering high-quality products and services for our clients.

We use our supplier capability and pricing data to match orders with suppliers
that are optimally suited to meet the client's needs at a highly competitive
price. By leveraging our technology and data, our clients are able to reduce
overhead costs, redeploy internal resources and obtain favorable pricing and
service terms. In addition, our ability to track individual transactions and
provide customized reports detailing procurement activity on an enterprise-wide
basis provides our clients with greater visibility and control of their
marketing materials expenditures.

We generate revenue by procuring and purchasing marketing materials from our
suppliers and selling those products to our clients. We procure products for
clients across a wide range of industries, such as retail, financial services,
hospitality, consumer packaged goods, non-profits, healthcare, pharmaceuticals,
food and beverage, broadcasting, and cable and transportation.

As of September 30, 2019, we had more than 2,100 employees in approximately 30 countries. For the nine months ended September 30, 2019 we generated global revenue from third parties of $590.5 million in the North America segment, $187.0 million in the EMEA segment, and $60.4 million in the LATAM segment.


On August 1, 2019, the Company acquired Madden Communications' ("Madden")
marketing execution business. The transaction includes certain assets, contracts
for customers in the beer, wine, and spirits sector, and logistics and creative
solutions; however, the acquisition is considered immaterial for the Company's
financial statements.

Our objective is to continue to increase our sales in the United States and
internationally by adding new clients and increasing our sales to existing
clients through additional marketing execution services or geographic markets.
In addition, we believe the opportunity exists to expand our business through
acquisition and entry into new geographic markets.


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Revenue


We generate revenue through the procurement of marketing materials for our
clients. Our revenue consists of the prices paid to us by our clients for
marketing materials. These prices, in turn, reflect the amounts charged to us by
our suppliers plus our gross profit. Our gross profit margin may be fixed by
contract or may depend on prices negotiated on a job-by-job basis. Once the
client accepts our pricing terms, the selling price is established, and we
arrange shipment of the product. The product is shipped directly from our
supplier or from our warehouse to a destination specified by our client. Upon
shipment, we invoice our client for the product as well as for shipping and
handling.

We agree to provide our clients with marketing materials that conform to the
industry standard of a "commercially reasonable quality," and our suppliers in
turn agree to provide us with products of the same quality. In addition, the
quotes we execute with our clients include customary industry terms and
conditions that limit the amount of our liability for product defects. Product
defects have not had a material adverse effect on our results of operations to
date.

Cost of Goods Sold and Gross Profit


Our cost of goods sold consists primarily of the price at which we purchase
products from our suppliers. We procure product for our own account and
generally take full title and risk of loss upon shipment. Cost of goods sold
also includes shipping and handling costs. Our gross profit is determined by the
selling prices of the product and shipping charges less the cost of the product
and shipping costs.

Operating Expenses and Income (Loss) from Operations


Our selling, general and administrative expenses consist of commissions paid to
our account executives, compensation costs for our management team and
production managers as well as compensation costs for our finance and support
employees. In addition, selling, general and administrative expenses include
public company expenses, facilities fees, travel and entertainment expenses,
corporate systems fees, and legal and accounting fees.

We accrue for commissions when we recognize the related revenue. Some of our
account executives receive a monthly draw to provide them with a more consistent
income stream. The cash paid to our account executives in advance of commissions
earned is reflected as a prepaid expense on our balance sheet. As our account
executives earn commissions, a portion of their commission payment is withheld
and offset against their prepaid commission balance, if any.

Comparison of three months ended September 30, 2019 and 2018

Revenue

Our third party revenue by segment for each of the periods presented was as follows (dollars in thousands):

                                     Three Months Ended September 30,
                              2019       % of Total       2018      % of Total

North America              $  201,868         70.4 %   $ 181,363         67.0 %
EMEA                           64,352         22.5 %      68,890         25.4 %
LATAM                          20,305          7.1 %      20,597          7.6 %
Revenue from third parties $  286,525        100.0 %   $ 270,850        100.0 %



North America

North America revenue increased by $20.5 million, or 11.3%, in the three months
ended September 30, 2019 over the corresponding period in 2018. The increase in
revenue relates primarily to new business as well as growth from existing
enterprise clients.


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EMEA

EMEA revenue decreased by $4.5 million, or 6.6%, in the three months ended September 30, 2019 over the corresponding period in 2018. The decrease was a result of growth that was more than offset by foreign currency impacts and declines or delays in marketing spend by certain clients.

LATAM

LATAM revenue decreased by $0.3 million, or 1.4%, in the three months ended September 30, 2019 over the corresponding period in 2018.

Cost of goods sold


Cost of goods sold increased by $11.5 million, or 5.6%, in the three months
ended September 30, 2019 over the corresponding period in 2018. The increase is
related to the increase in our revenue. Our cost of goods sold as a percentage
of revenue was 76.2% and 76.4% during the three months ended September 30, 2019
and 2018, respectively.

Gross profit margin

Gross profit margin was 23.8% and 23.6% during the three months ended September
30, 2019 and 2018, respectively. The increase was primarily driven by operating
efficiencies in North America and improved customer mix in EMEA.

Selling, general and administrative expenses


Selling, general and administrative expenses increased by $3.8 million, or 6.8%,
in the three months ended September 30, 2019 over the corresponding period in
2018. The increase was driven by an increase in bonus expense and increases in
salaries and benefits related to our acquisition of Madden Communications on
August 1, 2019 (the "Madden acquisition") and temporary finance professional
staff necessary to build out of the finance organization and support the
Company's remediation and transformation efforts. As a percentage of gross
profit, selling, general and administrative expenses also increased to 87.9% for
the three months ended September 30, 2019 compared to 87.7% for the three months
ended September 30, 2018.

Depreciation and amortization


Depreciation and amortization expense decreased by $0.2 million, or 5.4%, in the
three months ended September 30, 2019 compared to the corresponding period in
2018. The decrease is due to lower amortization resulting from impairment
charges to intangible assets in 2018.

Goodwill impairment


During the quarter ended September 30, 2018, we recognized a $27.9
million non-cash, goodwill impairment charge. Of the total charge, $7.1 million
related to the LATAM segment, and $20.8 million related to the EMEA segment.
No tax benefit was recognized on such charge, and this charge had no impact on
our cash flows or compliance with debt covenants.

Intangible and long-lived asset impairment


During the quarter ended September 30, 2018, we recognized a $13.8 million
non-cash, intangible asset impairment charge related to certain customer lists.
Of the total charge, $0.6 million related to the LATAM segment, and $13.2
million related to the EMEA segment. In the third quarter of 2018, we also
recognized a $3.0 million non-cash, long-lived asset impairment charge related
to a legacy ERP system in EMEA.

Restructuring charges


On August 10, 2018, the Company approved a plan to reduce the Company's cost
structure while driving value for its clients and stockholders. For the three
months ended September 30, 2019 and 2018, we recognized $3.1 million and $3.1
million, respectively, in restructuring charges.


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Income (loss) from operations


Income (loss) from operations increased by $45.3 million in the three months
ended September 30, 2019 over the corresponding period in 2018. As a percentage
of revenue, income (loss) from operations was 0.7% and (16.0)% during the three
months ended September 30, 2019 and 2018, respectively. As a percentage of gross
profit, income (loss) from operations was 3.1% and (67.5)% during the three
months ended September 30, 2019 and 2018, respectively. The increase is
primarily attributable to the impairment charges recognized during the quarter
ended September 30, 2018, lower amortization resulting from the impairment and
higher gross profit offset by an increase in selling, general and administrative
expenses.

Other expense

Other expense increased by $4.0 million in the three months ended September 30, 2019 over the corresponding period in 2018 primarily as a result of higher interest expense and foreign currency impacts.

Income tax expense


Income tax expense decreased by $(1.5) million in the three months ended
September 30, 2019 over the corresponding period in 2018. Our effective tax rate
was 45.5% and 0.7% for the three months ended September 30, 2019 and 2018,
respectively. Our effective income tax rate differs from the U.S. federal
statutory rate each year due to certain operations that are subject to tax
incentives, state and local taxes, valuation allowances, impacts of the Tax
Reform Act, and foreign tax rates that are different than the U.S. federal
statutory tax rate. In addition, the effective tax rate can be impacted each
period by discrete factors and events such as a write-off of a deferred tax
asset for stock­based compensation due to the expiration of unexercised stock
options and prior year provision to return adjustments.

Net loss


Net loss decreased by $42.8 million, or 95.2%, in the three months ended
September 30, 2019 over the corresponding period in 2018. Net loss as a
percentage of revenue was (0.8)% and (16.6)% during the three months ended
September 30, 2019 and 2018, respectively. Net loss as a percentage of gross
profit was (3.2)% and (70.2)% during the three months ended September 30, 2019
and 2018, respectively. The decrease in net loss is attributable to the
impairment charges recognized during the quarter ended September 30, 2018, lower
amortization resulting from the impairment and higher gross profit, offset by
higher selling, general and administrative expenses.

Comparison of nine months ended September 30, 2019 and 2018

Revenue

Our third party revenue by segment for each of the periods presented was as follows (dollars in thousands):

                                     Nine Months Ended September 30,
                              2019      % of Total       2018      % of Total

North America              $ 590,452         70.5 %   $ 565,243         68.3 %
EMEA                         187,014         22.3 %     198,229         24.0 %
LATAM                         60,350          7.2 %      63,884         

7.7 % Revenue from third parties $ 837,816 100.0 % $ 827,356 100.0 %




North AmericaNorth America revenue increased by $25.2 million, or 4.5%, in the nine months
ended September 30, 2019 over the corresponding period in 2018. The increase in
revenue relates to new business as well as continued growth from existing
enterprise clients.


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EMEA

EMEA revenue decreased by $11.2 million, or 5.7%, in the nine months ended September 30, 2019 over the corresponding period in 2018. The decrease was primarily related to foreign currency impacts and declines or delays in marketing spend by certain clients.

LATAM

LATAM revenue decreased by $3.5 million, or 5.5%, in the nine months ended September 30, 2019 over the corresponding period in 2018. The decrease was a result of declines in marketing spend by certain clients.

Cost of goods sold


Cost of goods sold increased by $7.0 million, or 1.1%, in the nine months ended
September 30, 2019 over the corresponding period in 2018. Cost of goods sold as
a percentage of revenue was 76.3% and 76.4% during the nine months ended
September 30, 2019 and 2018, respectively.

Gross profit margin


Gross profit margin was 23.7% and 23.6% during the nine months ended September
30, 2019 and 2018, respectively. The increase was primarily driven by better
customer mix in EMEA.

Selling, general and administrative expenses


Selling, general and administrative expenses decreased by $1.9 million, or 1.1%,
in the nine months ended September 30, 2019 over the corresponding period in
2018. The decrease was driven by the Company's restructuring and other cost
reduction initiatives, partially offset by an increase in bonus expense and
increases in salaries and benefits related to the Madden acquisition, higher
legal fees and additional sales tax resulting from a sales tax audit. As a
percentage of gross profit, selling, general and administrative expenses also
decreased to 87.9% for the nine months ended September 30, 2019 compared to
90.4% for the nine months ended September 30, 2018.

Depreciation and amortization


Depreciation and amortization expense decreased by $1.5 million, or 14.4%, in
the nine months ended September 30, 2019 over the corresponding period in 2018.
The decrease is due to lower amortization resulting from impairment charges to
intangible assets in 2018.

Goodwill impairment

During the quarter ended September 30, 2018, we recognized a $27.9
million non-cash, goodwill impairment charge. Of the total charge, $7.1 million
related to the LATAM segment, and $20.8 million related to the EMEA segment.
No tax benefit was recognized on such charge, and this charge had no impact on
our cash flows or compliance with debt covenants.

Intangible and long-lived asset impairment


During the quarter ended September 30, 2018, we recognized a $13.8 million
non-cash, intangible asset impairment charge related to certain customer lists.
Of the total charge, $0.6 million related to the LATAM segment, and $13.2
million related to the EMEA segment. In the third quarter of 2018, we also
recognized a $3.0 million non-cash, long-lived asset impairment charge related
to a legacy ERP system in EMEA.

Restructuring charges


On August 10, 2018, the Company approved a plan to reduce the Company's cost
structure while driving value for its clients and stockholders. For the nine
months ended September 30, 2019 and 2018, we recognized $10.7 million and $3.1
million, respectively, in restructuring charges.


                                       32
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Income (loss) from operations


Income (loss) from operations increased by $44.0 million in the nine months
ended September 30, 2019 over the corresponding period in 2018. As a percentage
of revenue, income (loss) from operations was 0.5% and 4.8% during the nine
months ended September 30, 2019 and 2018, respectively. As a percentage of gross
profit, income (loss) from operations was 2.2% and 20.3% during the nine months
ended September 30, 2019 and 2018, respectively. The increase is primarily
attributable to impairment charges recognized during the nine months ended
September 30, 2018, lower amortization resulting from the impairment and higher
gross profit.

Other expense

Other expense increased by $5.1 million in the nine months ended September 30, 2019 over the corresponding period in 2018. The increase in expense was primarily driven by an increase in interest expense.

Income tax expense


Income tax expense decreased by $2.2 million in the nine months ended September
30, 2019 over the corresponding period in 2018. Our effective tax rate was 19.0%
and (1.8)% for the nine months ended September 30, 2019 and 2018, respectively.
Our effective income tax rate differs from the U.S. federal statutory rate each
year due to certain operations that are subject to tax incentives, state and
local taxes, valuation allowances, impacts of the Tax Reform Act, and foreign
tax rates that are different than the U.S. federal statutory tax rate. In
addition, the effective tax rate can be impacted each period by discrete factors
and events such as a write-off of a deferred tax asset for stock­based
compensation due to the expiration of unexercised stock options and prior year
provision to return adjustments.

Net loss


Net loss decreased by $41.1 million, or 87.6%, in the nine months ended
September 30, 2019 over the corresponding period in 2018. Net loss as a
percentage of revenue was (0.7)% and (5.7)% during the nine months ended
September 30, 2019 and 2018, respectively. Net loss as a percentage of gross
profit was (2.9)% and (24.1)% during the nine months ended September 30, 2019
and 2018, respectively. The decrease in net loss is primarily attributable to
impairment charges recognized during the nine months ended September 30, 2018,
lower amortization resulting from the impairment and higher gross profit offset
by higher interest expense.


                                       33
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Adjusted EBITDA


Adjusted EBITDA, which represents income from operations with the addition of
depreciation and amortization, stock-based compensation expense, restructuring
charges, various one-time professional fees, executive search expenses, and
other charges itemized in the reconciliation table below, is considered a
non-GAAP financial measure under SEC regulations. Income from operations is the
most directly comparable financial measure calculated in accordance with GAAP.
We present this measure as supplemental information to help our investors better
understand trends in our business over time. Our management team uses Adjusted
EBITDA to evaluate the performance of our business. Adjusted EBITDA is not
equivalent to any measure of performance required to be reported under GAAP, nor
should this data be considered an indicator of our overall financial performance
and liquidity. Moreover, the Adjusted EBITDA definition we use may not be
comparable to similarly titled measures reported by other companies. Our
Adjusted EBITDA by segment for each of the periods presented was as follows
(dollars in thousands):
                         Three Months Ended September 30,
                    2019      % of Total      2018     % of Total
North America   $   18,363       158.2  %  $ 14,627       119.5  %
EMEA                 3,907        33.7  %     4,619        37.7  %
LATAM                  571         4.9  %     1,082         8.8  %
Other(1)           (11,233 )     (96.8 )%    (8,085 )     (66.0 )%
Adjusted EBITDA $   11,608       100.0  %  $ 12,243       100.0  %


                          Nine Months Ended September 30,
                   2019      % of Total       2018      % of Total
North America   $ 54,964        172.7  %   $ 50,215        180.8  %
EMEA              10,726         33.7  %      6,929         24.9  %
LATAM              1,447          4.6  %      2,913         10.5  %
Other(1)         (35,315 )     (111.0 )%    (32,278 )     (116.2 )%
Adjusted EBITDA $ 31,822        100.0  %   $ 27,779        100.0  %

(1) "Other" consists of intersegment eliminations, shared service activities, and corporate expenses which are not allocated to the operating segments as management does not consider them in evaluating segment performance.


Comparison of three months ended September 30, 2019 and 2018. Adjusted EBITDA
decreased by $0.6 million, or 5.2%, in the three months ended September 30, 2019
over the corresponding period in 2018. North America Adjusted EBITDA increased
by $3.7 million, or 25.5%, in the three months ended September 30, 2019 over the
corresponding period in 2018 due to an increase in bonus expense and increases
in selling, general and administrative expenses resulting from the Madden
acquisition and additional customer account executives to support new business
partially offset by higher revenue and an increase in gross margin . EMEA
Adjusted EBITDA decreased by $0.7 million, or 15.4%, in the three months ended
September 30, 2019 over the corresponding period in 2018 due to lower revenue
offset by reduced operating expenses as a result of restructuring efforts. LATAM
Adjusted EBITDA decreased by $0.5 million, or 47.2%, in the three months ended
September 30, 2019 over the corresponding period in 2018 due to lower revenue
and resulting lower gross profit. Other Adjusted EBITDA decreased by $3.1
million, or 38.9%, in the three months ended September 30, 2019 over the
corresponding period in 2018 primarily due to increased expenses related to
temporary finance professional staff necessary to build out of the finance
organization and support the Company's remediation and transformation efforts.

Comparison of nine months ended September 30, 2019 and 2018. Adjusted EBITDA
increased by $4.0 million, or 14.6%, in the nine months ended September 30, 2019
over the corresponding period in 2018. North America Adjusted EBITDA increased
by $4.7 million, or 9.5%, in the nine months ended September 30, 2019 over the
corresponding period in 2018 due to higher revenue, partially offset by an
increase in bonus expense and an increase in selling, general and administrative
expenses resulting from the Madden acquisition and additional customer account
executives to support new business. EMEA Adjusted EBITDA increased by $3.8
million, or 54.8%, in the nine months ended September 30, 2019 over the
corresponding period in 2018 due to customer mix and reduced expenses related to
restructuring efforts. LATAM Adjusted EBITDA decreased by $1.5 million, or
50.3%, in the nine months ended September 30, 2019 over the corresponding period
in 2018 due to lower revenue. Other Adjusted EBITDA decreased by $3.0 million,
or 9.4%, due to increased expenses related to temporary finance professional
staff necessary to build out of the finance organization and support the
Company's remediation and transformation efforts.

                                       34
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The table below provides a reconciliation of net loss to Adjusted EBITDA for each of the periods presented (in thousands):

                                        Three Months Ended September 30,           Nine Months Ended September 30,
                                           2019                  2018                2019                  2018

Net loss                             $       (2,174 )$        (44,937 )$       (5,805 )$        (46,921 )
Income tax (benefit) expense                 (1,815 )                 (326 )           (1,359 )                  851
Interest income                                 (37 )                  (19 )             (239 )                 (135 )
Interest expense                              4,376                  1,769              9,608                  4,854
Other expense (1)                             1,736                    301              2,196                  1,734
Depreciation and amortization                 3,090                  3,265              8,939                 10,438
Stock-based compensation expense              1,784                    801              3,925                  3,624
Stock appreciation rights marked to
market                                          248                      -                294                      -
Goodwill impairment                               -                 27,887                  -                 27,887
Intangible and long-lived asset
impairment                                        -                 16,818                  -                 16,818
Restructuring charges                         3,055                  3,142             10,687                  3,142
Professional fees related to ASC 606
implementation                                    -                      -                  -                  1,092
Senior leadership transition and
other employee-related costs                      -                  1,153                  -                  1,153
Obsolete retail inventory                         -                    950                  -                    950
Executive search fees                             -                      -                 80                    235
Professional fees related to control
remediation                                     378                  1,358                918                  1,895
Sales and use tax audit                           -                      -              1,235                      -
Other professional fees                         967                     81              1,343                    162
Adjusted EBITDA                      $       11,608       $         12,243     $       31,822       $         27,779

(1) Comprised primarily of foreign exchange (gain)/loss, change in fair value for warrants and derivatives features on the Company's debt facilities, and intercompany royalty recharges.

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Adjusted Diluted Earnings Per Share


Adjusted diluted earnings per share, which represents net loss, with the
addition of goodwill, intangible and long-lived asset impairment charges,
restructuring charges, senior leadership transition and other employee-related
costs, obsolete inventory write-off, professional fees related to ASC 606
implementation, executive search fees, restatement-related professional fees,
sales and use tax resulting from an audit and other professional fees divided by
the weighted average shares outstanding plus share equivalents that would arise
from the exercise of stock options and restricted stock and other contingently
issuable shares, is considered a non-GAAP financial measure under SEC
regulations. Diluted earnings per share is the most directly comparable
financial measure calculated in accordance with GAAP. We present this measure as
supplemental information to help our investors better understand trends in our
business over time. Our management team uses adjusted diluted earnings per share
to evaluate the performance of our business. Adjusted diluted earnings per share
is not equivalent to any measure of performance required to be reported under
GAAP, nor should this data be considered an indicator of our overall financial
performance and liquidity. Moreover, the adjusted diluted earnings per share
definition we use may not be comparable to similarly titled measures reported by
other companies. Our adjusted diluted earnings per share for each of the periods
presented was as follows (in thousands, except per share amounts):

                                        Three Months Ended September 30,    

Nine Months Ended September 30,

                                           2019                  2018                2019                  2018
Net loss                             $       (2,174 )$        (44,937 )$       (5,805 )$        (46,921 )
Goodwill impairment                               -                 27,887                  -                 27,887
Intangible and long-lived asset
impairment, net of tax                            -                 14,037                  -                 14,037
Restructuring charges, net of tax             2,401                  2,584              8,203                  2,584
Senior leadership transition and
other employee-related costs, net of
tax                                               -                    844                  -                    844
Obsolete inventory, net of tax                    -                    769                  -                    769
Professional fees related to ASC 606
implementation, net of tax                        -                      -                  -                    819
Executive search fees, net of tax                 -                      -                 60                    176
Professional fees related to control
remediation, net of tax                         281                    984                683                  1,387
Sales and use tax audit, net of tax               -                      -                920                      -
Other professional fees, net of tax             721                     59              1,001                    119
Fair value of warrants and
derivatives                                     853                      -                853                      -
Foreign exchange loss (1)                       773                      -                773                      -
Adjusted net income                  $        2,855       $          2,227     $        6,688       $          1,701

GAAP Weighted-average shares
outstanding - diluted                        53,320                 51,688             53,235                 52,384
Effect of dilutive securities:
Employee stock options and
restricted common shares                          4                    304                280                    633
Adjusted Weighted-average shares
outstanding - diluted                        53,324                 51,992             53,515                 53,017
Adjusted diluted earnings per share  $         0.05       $           0.04     $         0.12       $           0.03


(1) Foreign exchange losses that represent a one-time loss and are related to
foreign exchange risk in intercompany loans that are denominated in non-USD
currencies as a result of the debt refinancing. The Company intends to convert
these loans to equity by the end of 2019.

Comparison of three months ended September 30, 2019 and 2018. Adjusted diluted
earnings per share increased by $0.01 in the three months ended September 30,
2019 over the corresponding period in 2018. The increase is primarily
attributable to higher revenues, improved gross margin, and restructuring.


                                       36
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Comparison of nine months ended September 30, 2019 and 2018. Adjusted diluted
earnings per share increased by $0.09 in the nine months ended September 30,
2019 over the corresponding period in 2018. The increase is primarily due to
lower operating costs and restructuring.

Liquidity and Capital Resources

At September 30, 2019, we had $38.5 million of cash and cash equivalents.


Operating Activities. Cash used in operating activities primarily consists of
net loss adjusted for certain non-cash items, including depreciation and
amortization and share-based compensation and the effect of changes in working
capital and other activities. Cash used in operating activities for the nine
months ended September 30, 2019 was $9.8 million and consisted of a net loss of
$5.8 million, offset by $17.4 million of non-cash items less an increase in
working capital of $21.4 million. The working capital changes consisted of an
increase in accounts receivable and unbilled revenue of $21.2 million, an
increase in prepaid expenses and other assets of $29.1 million and an increase
in inventory of $8.8 million less an increase in accounts payable and accrued
expenses and other liabilities of $37.8 million. The change in other receivables
is driven by an increase in product receivables for a consumer packaged goods
client, which is a pass-through activity and is representative of the seasonal
nature of the client's business.

Cash provided by operating activities for the nine months ended September 30,
2018 was $10.1 million and consisted of a net loss of $46.9 million, offset by
$59.8 million of non-cash items and by $2.8 million used in working capital and
other activities. The most significant impact on working capital and other
activities consisted of an increase in accounts payable of $20.4 million, an
increase in inventories of $16.5 million, and an increase in prepaid expenses
and other assets of $7.9 million, all of which were partially offset by a
decrease in accounts receivable and unbilled revenue of $5.8 million and a
decrease in accrued expenses and other liabilities of $4.6 million.

Investing Activities. Cash used in investing activities for the nine months ended September 30, 2019 and 2018 of $10.4 million and $7.8 million, respectively, was primarily attributable to capital expenditures and software development.


Financing Activities. Cash provided by financing activities for the nine months
ended September 30, 2019 of $31.1 million was primarily attributable to proceeds
from the term loan of $100.0 million, net borrowings under the new revolving
credit facility of $81.5 million, partially offset by net repayments under the
old revolving credit facility of $142.6 million, the payment of debt issuance
costs of $5.5 million and payments on the term loan of $1.3 million.

Cash used in financing activities for the nine months ended September 30, 2018
of $3.3 million was primarily attributable to repurchases of common stock of
$25.7 million, partially offset by net borrowings under the revolving credit
facility of $23.2 million.

Share Repurchase Program

The share repurchase program described in Note 14, Share Repurchase Program,
expired on May 31, 2019. During the three and nine months ended September 30,
2019 and the three months ended September 30, 2018, the Company did not
repurchase any shares of its common stock under this program. During the nine
months ended September 30, 2018, the Company repurchased 2.7 million shares of
its common stock for $25.6 million in the aggregate at an average cost of $9.60
per share under this program.

Revolving Credit Facilities and Long-Term Debt


On July 16, 2019. the Company refinanced its debt, which is further discussed in
Note 12, Revolving Credit Facilities and in Note 13, Long-Term Debt. The new
debt structure provides long-term capital with improved flexibility to support
the Company's growth plans. The Company intends to use excess cash from
operations to pay off debt and supporting working capital needs.

The ABL Credit Agreement contains a minimum fixed charge coverage ratio
financial covenant that must be maintained when excess availability falls below
a specified amount. The Term Loan Credit Agreement includes a minimum fixed
charge coverage ratio financial covenant, a maximum total leverage ratio
financial covenant, a minimum liquidity financial covenant and a maximum capital
expenditures covenant, each of which must be maintained for the periods
described in the Term Loan

                                       37
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Credit Agreement. The Company is in compliance with all debt covenants in the ABL Credit Agreement and Term Loan Credit Agreement as of September 30, 2019.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

Contractual Obligations


There have been no material changes outside the normal course of business in the
contractual obligations disclosed in Item 7 to our Annual Report on Form 10-K
for the fiscal year ended December 31, 2018, under the caption "Contractual
Obligations."

Critical Accounting Policies and Estimates

Leases


In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU
No. 2016-02, Leases (Topic 842). This pronouncement requires lessees to
recognize a liability for lease obligations, which represents the discounted
obligation to make future lease payments, and a corresponding right-of-use asset
on the balance sheet. The Company adopted ASU 2016-02, along with related
clarifications and improvements, as of January 1, 2019, using the modified
retrospective approach, which allows the Company to apply Accounting Standards
Codification ("ASC") 840, Leases, in the comparative periods presented in the
year of adoption. The cumulative effect of adoption was recorded as an
adjustment to the opening balance of retained earnings in the period of
adoption.

The Company elected to use the package of practical expedients, which permitted
the Company to not reassess: (i) whether a contract is or contains a lease, (ii)
lease classification, and (iii) initial direct costs resulting from the lease.
The Company has not elected the hindsight practical expedient, which permits the
use of hindsight when determining lease term and impairment of operating lease
assets. The Company elected to apply the short-term lease exception, which
allows the Company to keep leases with terms of 12 months or less off the
balance sheet. The Company also elected to combine lease and non-lease
components as a single component for the Company's entire population of lease
assets.

Warrants, Embedded Derivatives and Fair Value


In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company
applies fair value accounting for all financial assets and liabilities and
non-financial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a recurring basis.

The Company accounts for warrants issued in conjunction with its long-term debt
and certain embedded derivatives in its revolving credit facility and long-term
debt in accordance with the guidance contained in ASC Topic 815, Derivatives and
Hedging. Warrants that are not deemed to be indexed to the Company's own stock
are classified as liabilities at their fair values at the time of issuance.
Embedded derivatives that are not deemed to be clearly and closely related to
the host debt contract are bifurcated and recorded separately as a discount on
the related debt facility. These liabilities were subject to re-measurement at
each balance sheet date, and any change in fair value is recognized in the
Company's statement of operations. The fair values of the warrants and
derivative liabilities are estimated using a Black-Scholes model and other
valuation techniques. Further, the Company also discloses the fair value of its
revolving credit facility and long-term debt facility using current market
rates. Refer to Note 10, Fair Value Measurement.

Deferred Financing Fees and Debt Discounts


The Company accounts for debt issuance costs, warrants, and embedded derivative
features as a discount on its long-term debt (the "original issue discount" or
"OID"). Embedded derivative features related the Company's revolving credit
facility are also treated as a discount on the long-term portion of the
revolving credit facility. The OID on long-term debt is amortized using the
effective interest rate method and is recognized in interest expense. The
discount on the revolving credit facility is amortized using the straight line
method and is recognized in interest expense. Deferred financing fees related to
the Company's revolving credit facility are included in other assets and
amortized using the straight line method over the term of the revolving credit
facility.

                                       38
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As of September 30, 2019, except for the new critical accounting policies described above, there were no material changes to our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.


Forward-Looking Statements

This Quarterly Report on Form 10-Q, including Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains words such
as "may," "will," "believe," "expect," "anticipate," "intend," "plan,"
"project," "estimate" and "objective" or the negative thereof or similar
terminology concerning the Company's future financial performance, business
strategy, plans, goals and objectives. These expressions are intended to
identify forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include information
concerning our possible or assumed future performance or results of operations
and are not guarantees. While these statements are based on assumptions and
judgments that management has made in light of industry experience as well as
perceptions of historical trends, current conditions, expected future
developments and other factors believed to be appropriate under the
circumstances, they are subject to risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially
different. Some of the factors that would cause future results to differ from
the recent results or those projected in forward-looking statements include, but
are not limited to, the risk factors described in our Annual Report on Form 10-K
for the year ended December 31, 2018.

Additional Information


We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, other reports and information filed with the SEC and
amendments to those reports available, free of charge, through our Internet
website (http://www.inwk.com) as soon as reasonably practical after we
electronically file or furnish such materials to the SEC. In addition, the SEC
maintains an Internet website (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding issuers that file
electronically.

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