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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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08/06/2020 | 06:32pm EDT

Forward-Looking Statements


This Quarterly Report on Form 10-Q contains "forward-looking statements" that
are based on beliefs, assumptions, and expectations of future events, taking
into account the information currently available to the Company. All statements
other than statements of current or historical fact contained in this report are
forward-looking statements. The words "believe," "may," "should," "anticipate,"
"estimate," "expect," "intend," "will," "seek," "plan," and similar statements
are intended to identify forward-looking statements. Forward-looking statements
involve risks and uncertainties that may cause actual outcomes to differ
materially from expectations of future outcomes the Company expresses or implies
in any forward-looking statements. These risks and uncertainties include, but
are not limited to: the satisfaction of the conditions precedent to the
consummation of the proposed merger transaction involving HH Global Group
Limited, including, without limitation, the receipt of stockholder and
regulatory approvals; unanticipated difficulties or expenditures relating to the
proposed merger; legal proceedings, judgments or settlements, including those
that may be instituted against the Company, the Company's board of directors,
officers and others following the announcement of the proposed merger;
disruptions of current plans and operations caused by the announcement and
pendency of the proposed merger; potential difficulties in employee retention
due to the announcement and pendency of the proposed merger; the response of
customers, suppliers, business partners and regulators to the announcement of
the proposed merger; risks related to diverting management's attention from the
Company's ongoing business operations; and other risks, relevant factors, and
uncertainties identified in the Company's filings with the Securities and
Exchange Commission (the "SEC") (including the information set forth in the
"Risk Factors" section of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2019, its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2020, and in subsequent filings), which filings are
available at the SEC's website at www.sec.gov. Given the risks and uncertainties
surrounding forward-looking statements, you should not place undue reliance on
these statements. The Company's forward-looking statements speak only as of the
date of this document. Other than as required by law, the Company undertakes no
obligation to update or revise forward-looking statements, whether as a result
of new information, future events, or otherwise.

Overview


We are a leading global marketing engineering 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.

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 June 30, 2020, we had approximately 2,000 employees in over 20 countries.
For the six months ended June 30, 2020, we generated global revenue from third
parties of $338.7 million in the North America segment, $97.3 million in the
EMEA segment, and $28.7 million in the LATAM segment.

Our objective is to continue to increase our sales globally by adding new
clients and increasing our sales to existing clients through additional
marketing services or expanding into new geographic markets. Operationally, we
are integrating our product and service offerings, re-evaluating our geographic
footprint, and creating synergies across various business units.

Impact of COVID-19


The emergence of a novel coronavirus (COVID-19) around the world, and
particularly in the United States, Europe, China, and South America presents
various risks to the Company. The global impact of the outbreak has been rapidly
evolving and many countries have reacted by instituting quarantine measures,
mandating business and school closure and restricting travel, all of which have
had an adverse effect on the global economy. The Company cannot reasonably
estimate with any degree of certainty the future impact COVID-19 may have on the
Company's results of operations, financial position, and liquidity, much of
which will depend on when and to what extent current restrictions are lifted and
economic conditions improve. In response to the global pandemic, the Company has
created a COVID-19 executive task force that has implemented business continuity
plans and has taken a variety of actions to ensure the ongoing availability of
our services, while also undertaking appropriate health and safety

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measures for its employees. The executive task force has authority to make timely, informed decisions relating to our business continuity planning and actions. As a result of these actions, the Company has not experienced any material disruptions to date in its operations or ability to service our clients. In addition, the Company has been able to respond quickly to our customers' changing business demands related to the COVID-19 pandemic.


Overall, the Company maintains sufficient liquidity to continue business
operations during these uncertain economic conditions. As discussed in Liquidity
and Capital Resources below, the Company had liquidity of approximately $86.3
million as of June 30, 2020, comprised of cash on hand of $35.3 million and an
undrawn revolving credit facility of $51.0 million.

The Company will continue to monitor the situation and may take further actions
that affect our business operations and performance. These actions may result
from requirements mandated by federal, state or local authorities or that we
determine to be in the best interests of our employees, customers, and
shareholders. The situation surrounding COVID-19 remains fluid, and the
potential for a material impact on the Company increases the longer the pandemic
impacts the level of economic activity in the United States and in other
countries. For these reasons, the Company cannot reasonably estimate with any
degree of certainty the future impact COVID-19 may have on the Company's results
of operations, financial position, and liquidity. See Part II, Item 1A. Risk
Factors for further information.

Critical Accounting Policies


Our unaudited interim condensed consolidated financial statements have been
prepared in accordance with U.S. GAAP, which requires us to make estimates and
assumptions that affect reported amounts. The estimates and assumptions are
based on historical experience and on other factors that we believe to be
reasonable. Actual results may differ from those estimates. We review these
estimates on a periodic basis to ensure reasonableness. Although actual amounts
may differ from such estimated amounts, we believe such differences are not
likely to be material. For additional detail regarding our critical accounting
policies including revenue recognition, goodwill, other intangible assets, and
leases, see our discussion for the year ended December 31, 2019 included in the
Company's 2019 Annual Report on Form 10-K. There have been no material changes
to these policies as of June 30, 2020.

Current Expected Credit Loss (CECL)


In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which
requires entities to measure the impairment of certain financial instruments,
including trade receivables, based on expected losses rather than incurred
losses. The Company adopted the standard and all related ASUs effective January
1, 2020 using a modified-retrospective transition method. The adoption and
application of this standard did not have a material impact to the condensed
consolidated financial statements. For further discussion, refer to Note 1,
Basis of Presentation.

Key Performance Metrics


We regularly review a number of key metrics to evaluate our business, measure
progress and make strategic decisions. The measures include Revenue, Gross
Profit and Adjusted EBITDA. For additional discussion, see Key Components of
Statement of Operations and Non-GAAP Financial Measures below.

Key Components of Statement of Operations

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. The
client is invoiced upon shipment or receipt, depending on contract terms, for
the product as well as 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.


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Cost of Goods Sold and Gross Profit


Our cost of goods sold consists of the price at which we purchase products from
our suppliers, facility costs, and personnel costs for creative design services
and warehousing. We procure product for our own account and generally take full
title and risk of loss upon shipment.

Our gross profit is determined by the selling prices of the product and shipping charges less the cost of the product, direct personnel, warehousing, and shipping and handling costs.

Operating Expenses and Loss from Operations


Our selling, general and administrative expenses consist of compensation costs
for our management team, client engagement personnel, production managers,
corporate functions and operational support employees, as well as commissions
paid to our account executives. 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.

Non-GAAP Financial Measures

Adjusted EBITDA


Adjusted EBITDA, which represents loss from operations with the addition of
depreciation and amortization, stock-based compensation expense, goodwill and
long-lived asset impairment charges, restructuring charges, merger-related
transaction costs, various one-time professional fees, executive search
expenses, and other charges itemized in the reconciliation table noted within
Note 14, Business Segments, is considered a non-GAAP financial measure under SEC
regulations. Loss from operations is the most directly comparable financial
measure calculated in accordance with GAAP. The Company presents 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.

Adjusted Diluted Earnings Per Share


Adjusted diluted earnings per share, which represents net loss, with the
addition of exclusive items that are non-recurring to our operating business,
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 loss per share is the most directly comparable
financial measure calculated in accordance with GAAP. The Company presents 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.


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Comparison of Three Months Ended June 30, 2020 and 2019

Revenue

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

                                       Three Months Ended June 30,
                              2020      % of Total       2019      % of Total

North America              $ 140,995         69.4 %   $ 200,091         70.5 %
EMEA                          49,095         24.1 %      62,483         22.0 %
LATAM                         13,221          6.5 %      21,287         

7.5 % Revenue from third parties $ 203,311 100.0 % $ 283,861 100.0 %




North America. Revenue decreased by $59.1 million, or 29.5%, in the three months
ended June 30, 2020 over the corresponding period in 2019. The decrease in
revenue is driven by the negative impact of COVID-19 resulting in a decline in
spend from enterprise clients.

EMEA. Revenue decreased by $13.4 million, or 21.4%, in the three months ended
June 30, 2020 over the corresponding period in 2019. The decrease was a result
of reduced spend with certain clients and declines in marketing spend as a
result of COVID-19.

LATAM. Revenue decreased by $8.1 million, or 37.9%, in the three months ended
June 30, 2020 over the corresponding period in 2019. The decrease was a result
of reduced spend with certain clients and declines in marketing spend as a
result of COVID-19.

Cost of goods sold


Cost of goods sold decreased by $60.6 million, or 28.1%, in the three months
ended June 30, 2020 over the corresponding period in 2019. The decrease is
consistent with the decline in our revenue resulting from the negative impacts
of COVID-19 across all regions during the quarter. Our cost of goods sold as a
percentage of revenue was 76.2% and 75.9% during the three months ended June 30,
2020 and 2019, respectively.

Gross profit margin

Gross profit margin was 23.8% and 24.1% during the three months ended June 30, 2020 and 2019, respectively. The decrease was primarily due to temporary operational inefficiencies during the period.

Selling, general and administrative expenses


Selling, general and administrative expenses decreased by $12.3 million, or
21.4%, in the three months ended June 30, 2020 over the corresponding period in
2019. The decrease was driven by several factors, which included the realization
of cost savings and restructuring initiatives. In response to COVID-19, certain
cost savings initiatives were implemented during the quarter, such as employee
furloughs and terminations, hiring restrictions, cancellation of merit
increases, and restricted travel.

Depreciation and amortization


Depreciation and amortization expense increased by $0.1 million, or 2.4%, in the
three months ended June 30, 2020 compared to the corresponding period in 2019.
The increase is due to additional software development capitalized during the
quarter.

Intangible and other asset impairments


As of June 30, 2020, the Company recognized a $0.6 million non-cash, contract
asset impairment charge related to costs to fulfill a contract that were deemed
to be non-recoverable in North America.

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Restructuring charges


On August 10, 2018, the Company's Board of Directors approved a plan to reduce
the Company's cost structure while driving value for its clients and
stockholders. For the three months ended June 30, 2020 and 2019, we incurred
$3.6 million and $3.7 million, respectively, in restructuring charges.

(Loss) income from operations


(Loss) income from operations decreased by $8.3 million in the three months
ended June 30, 2020 over the corresponding period in 2019. As a percentage of
revenue, (loss) income from operations was (2.1)% and 1.4% during the three
months ended June 30, 2020 and 2019, respectively. As a percentage of gross
profit, (loss) income from operations was (8.8)% and 5.9% during the three
months ended June 30, 2020 and 2019, respectively. The decrease is primarily
attributable to lower gross profit during the period as a result of the decline
in revenues related to COVID-19.

Other expense


Other expense increased by $0.1 million in the three months ended June 30, 2020
over the corresponding period in 2019 primarily as a result of higher interest
expense offset by foreign currency impacts.

Income tax expense


Income tax expense decreased by $1.0 million in the three months ended June 30,
2020 over the corresponding period in 2019. Our effective tax rate was (22.8)%
and 125.9% for the three months ended June 30, 2020 and 2019, respectively. The
Company's 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 increased by $7.4 million, or 1,457.5%, in the three months ended June
30, 2020 over the corresponding period in 2019. Net loss as a percentage of
revenue was (3.9)% and (0.2)% during the three months ended June 30, 2020 and
2019, respectively. Net loss as a percentage of gross profit was (16.3)% and
(0.7)% during the three months ended June 30, 2020 and 2019, respectively. The
increase in net loss is attributable to lower gross profit as a result of the
decline in revenue related to COVID-19.

Comparison of Six Months Ended June 30, 2020 and 2019

Revenue


Third party revenue by segment for each of the periods presented was as follows
(dollars in thousands):
                                        Six Months Ended June 30,
                              2020      % of Total       2019      % of Total
North America              $ 338,704         72.9 %   $ 388,365         70.4 %
EMEA                          97,305         20.9 %     122,662         22.3 %
LATAM                         28,662          6.2 %      40,045         

7.3 % Revenue from third parties $ 464,671 100.0 % $ 551,072 100.0 %




North America. Revenue decreased by $49.7 million, or 12.8%, in the six months
ended June 30, 2020 over the corresponding period in 2019. The decrease in
revenue relates to delays and decline in market spend with various enterprise
clients as a result of COVID-19.

EMEA. Revenue decreased by $25.4 million, or 20.7%, in the six months ended June
30, 2020 over the corresponding period in 2019. The decrease was a result of
reduced spend with certain clients and declines in marketing spend as a result
of COVID-19 and foreign currency impacts.

                                       30
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LATAM. Revenue decreased by $11.4 million, or 28.4%, in the six months ended
June 30, 2020 over the corresponding period in 2019. The decrease was a result
of reduced spend with certain clients and declines in marketing spend as a
result of COVID-19.

Cost of goods sold


Cost of goods sold decreased by $67.9 million, or 16.1%, in the six months ended
June 30, 2020 over the corresponding period in 2019. The decrease is consistent
with the decline in our revenue resulting from the negative impacts of COVID-19
across all regions during the period. Cost of goods sold as a percentage of
revenue was 75.9% and 76.3% during the six months ended June 30, 2020 and 2019,
respectively.

Gross profit margin

Gross profit margin was 24.1% and 23.7% during the six months ended June 30,
2020 and 2019, respectively. The increase was primarily driven by more favorable
mix of services in North America.

Selling, general and administrative expenses


Selling, general and administrative expenses decreased by $16.5 million, or
14.6%, in the six months ended June 30, 2020 over the corresponding period in
2019. The decrease was driven by several factors, which included the realization
of cost savings and restructuring initiatives. In response to COVID-19, certain
cost savings initiatives were implemented during the period, such as employee
furloughs and terminations, hiring restrictions, cancellation of merit
increases, and restricted travel.

Depreciation and amortization


Depreciation and amortization expense increased by $0.6 million, or 10.1%, in
the six months ended June 30, 2020 over the corresponding period in 2019. The
increase is due to additional software development capitalized during the
quarter.

Goodwill Impairment


During the first quarter of 2020, the Company performed an interim impairment
assessment due to a triggering event caused by a sustained decrease in the
Company's stock price and lower outlook due to the deterioration in economic
conditions caused by COVID-19. Based on the assessment, the Company determined
that the enterprise value for the North America reporting unit was less than its
carrying value and resulted in a goodwill impairment charge of $7.2 million.
Refer to Note 4, Goodwill for further discussion.
Intangible and other asset impairments
As of June 30, 2020, the Company recognized a $0.6 million non-cash, contract
asset impairment charge related to costs to fulfill a contract that were deemed
to be non-recoverable in North America. In addition, during the first quarter of
2020, the Company recognized $0.3 million right-of-use asset impairment within
EMEA and LATAM segments due to a triggering event caused by a sustained decrease
in our Company's stock price and lower outlook due to the deterioration in
economic conditions caused by COVID-19.
Restructuring charges

On August 10, 2018, the Company's Board of Directors approved a plan to reduce
the Company's cost structure while driving value for its clients and
stockholders. For the six months ended June 30, 2020 and 2019, we incurred $7.3
million and $7.6 million, respectively, in restructuring charges.

(Loss) income from operations


(Loss) income from operations decreased by $10.4 million in the six months ended
June 30, 2020 over the corresponding period in 2019. As a percentage of revenue,
(loss) income from operations was (1.4)% and 0.7% during the six months ended
June 30, 2020 and 2019, respectively. The decrease is primarily attributable to
lower gross profit during the period due to the decline in revenue related to
COVID-19, along with goodwill and intangible and other asset impairment charges,
partially offset by cost reduction efforts across the regions.

                                       31
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Other expense


Other expense decreased by $2.0 million in the six months ended June 30, 2020
over the corresponding period in 2019. The decrease in expense was primarily
driven by the change in fair value of the warrant and derivative liabilities,
partially offset by foreign exchange losses and an increase in interest expense.

Income tax expense


Income tax expense decreased by $0.2 million in the six months ended June 30,
2020 over the corresponding period in 2019. Our effective tax rate was (8.7)%
and (70.2)% for the six months ended June 30, 2020 and 2019, respectively. The
Company's 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 increased by $8.2 million, or 321.3%, in the six months ended June 30,
2020 over the corresponding period in 2019. Net loss as a percentage of revenue
was (2.3)% and (0.5)% during the six months ended June 30, 2020 and 2019,
respectively. Net loss as a percentage of gross profit was (9.6)% and (2.0)%
during the six months ended June 30, 2020 and 2019, respectively. The increase
in net loss is primarily attributable to goodwill and intangible and other asset
impairment charges and foreign exchanges losses, offset by the change in fair
value of warrant and derivative liabilities, and decrease in operating expenses
due to cost savings and restructuring initiatives during the period.

Adjusted EBITDA

Adjusted EBITDA by segment for each of the periods presented was as follows (dollars in thousands):

                            Three Months Ended June 30,
                   2020      % of Total       2019      % of Total
North America   $ 13,140        214.3  %   $ 20,315        156.4  %
EMEA               4,218         68.8  %      4,480         34.5  %
LATAM               (155 )       (2.5 )%        611          4.7  %

Other(1) (11,072 ) (180.6 )% (12,414 ) (95.6 )% Adjusted EBITDA $ 6,131 100.0 % $ 12,992 100.0 %


                           Six Months Ended June 30,
                   2020     % of Total      2019     % of Total
North America   $ 36,780       193.2  %  $ 36,332       178.3  %
EMEA               5,580        29.3  %     7,256        35.6  %
LATAM                274         1.4  %       876         4.3  %

Other(1) (23,596 ) (123.9 )% (24,083 ) (118.2 )% Adjusted EBITDA $ 19,038 100.0 % $ 20,381 100.0 %

(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 June 30, 2020 and 2019. Adjusted EBITDA decreased by $6.9 million, or 52.8%, in the three months ended June 30, 2020 over the corresponding period in 2019.


North America. Adjusted EBITDA decreased by $7.2 million, or 35.3%, in the three
months ended June 30, 2020 over the corresponding period in 2019 due to lower
revenue and gross profit, partially offset by decreases in selling, general and
administrative expenses due to commissions expense as a result of restructuring
initiatives, and other cost savings initiatives during the period as a result of
COVID-19.

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EMEA. Adjusted EBITDA decreased by $0.3 million, or 5.8%, in the three months
ended June 30, 2020 over the corresponding period in 2019 due to lower revenue,
partially offset by decreases in selling, general and administrative expenses
due to cost savings initiatives during the period as a result of COVID-19.

LATAM. Adjusted EBITDA decreased by $0.8 million, or 125.4%, in the three months
ended June 30, 2020 over the corresponding period in 2019 due to lower revenue,
partially offset by cost savings initiatives during the period as a result of
COVID-19.

Other. Adjusted EBITDA increased by $1.3 million, or 10.8%, in the three months
ended June 30, 2020 over the corresponding period in 2019 primarily due to cost
savings initiatives as a result of COVID-19, along with lower professional fees
during the period.

Comparison of six months ended June 30, 2020 and 2019. Adjusted EBITDA decreased by $1.3 million, or 6.6%, in the six months ended June 30, 2020 over the corresponding period in 2019.


North America. Adjusted EBITDA increased by $0.4 million, or 1.2%, in the six
months ended June 30, 2020 over the corresponding period in 2019 due to lower
revenue and gross profit, offset by decreases in selling, general and
administrative expenses due to lower commissions expense as a result of
restructuring initiatives, and other cost savings as a result of COVID-19.

EMEA. Adjusted EBITDA decreased by $1.7 million, or 23.1%, in the six months
ended June 30, 2020 over the corresponding period in 2019 due to lower revenue,
offset by cost savings initiatives during the period as a result of COVID-19.

LATAM. Adjusted EBITDA decreased by $0.6 million, or 68.7%, in the six months
ended June 30, 2020 over the corresponding period in 2019 due to lower revenue,
partially offset by cost savings initiatives during the period as a result of
COVID-19.

Other. Adjusted EBITDA increased by $0.5 million, or 2.0%, in the six months
ended June 30, 2020 over the corresponding period in 2019 primarily due to cost
savings initiatives during the period as a result of COVID-19.

Adjusted Diluted Earnings Per Share

Adjusted diluted earnings per share for each of the periods presented was as follows (in thousands, except per share amounts):

                                         Three Months Ended June 30,        

Six Months Ended June 30,

                                           2020                2019              2020              2019
Net loss                             $       (7,912 )$       (508 )$     (10,752 )$    (2,552 )
Restructuring charges                         3,644              3,698             7,281             7,632
Professional fees related to control
remediation                                     356                550               620               916
Merger-related transaction costs                790                  -               790                 -
Change in fair value of warrant and
derivatives                                      36                  -            (5,604 )               -
Goodwill impairment                               -                  -             7,191                 -
Intangible and other asset
impairments                                     609                  -               883                 -
Executive search fees                             -                  -                 -                80
Sales and use tax audit                           -                  -                 -                25
Income tax effects of adjustments            (1,115 )             (961 )          (2,071 )          (1,994 )
Adjusted net (loss) income           $       (3,592 )$      2,779

$ (1,662 )$ 4,107


GAAP weighted-average shares
outstanding - diluted                        53,662             51,773            53,568            51,830
Effect of dilutive securities:
Employee stock options and
restricted common shares                          -                156                 -               104
Adjusted weighted-average shares
outstanding - diluted                        53,662             51,929            53,568            51,934
Adjusted diluted (loss) earnings per
share                                $        (0.07 )$       0.05$       (0.03 )$      0.08



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Comparison of three months ended June 30, 2020 and 2019. Adjusted diluted
earnings per share decreased by $0.12 in the three months ended June 30, 2020
over the corresponding period in 2019. The decrease is related to an increase in
net loss, partially offset by new merger-related transaction costs and
intangible and other asset impairment charges incurred during the period.

Comparison of six months ended June 30, 2020 and 2019. Adjusted diluted earnings
per share decreased by $0.11 in the six months ended June 30, 2020 over the
corresponding period in 2019. The decrease was primarily attributable to an
increase in net loss, along with change in fair value of warrant and embedded
derivatives, partially offset by goodwill impairment and restructuring costs
during the period.

Liquidity and Capital Resources


While uncertainty exists as to the full impact of the COVID-19 pandemic on our
liquidity and capital resources, the Company believes it has maintained
sufficient liquidity to satisfy our working capital and other funding
requirements with internally generated cash flow and, as necessary, cash on hand
and borrowings under our revolving credit facility.

Cash Flow Summary

The following table presents cash flows for the six months ended June 30, 2020 and 2019, respectively (in thousands):

                                                        Six Months Ended 

June 30,

                                                          2020              

2019

Net cash provided by operating activities           $      18,037       $   

1,289

Net cash used in investing activities                      (5,127 )          (6,881 )
Net cash (used in) provided by financing activities       (22,460 )         

13,047

At June 30, 2020, we had $35.3 million of cash and cash equivalents.


Operating Activities. Cash provided by 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 provided by operating activities for the six
months ended June 30, 2020 was $18.0 million and consisted of net loss of $10.8
million, offset by $14.3 million of non-cash items and $14.5 million used to
fund working capital. The working capital changes consisted of a decrease in
accounts receivable and unbilled revenue of $61.1 million, a decrease in prepaid
expenses and other assets of $17.1 million, an increase in inventory of $3.1
million, a decrease in accounts payable and accrued expenses and other
liabilities of $60.5 million.

Cash provided by operating activities for the six months ended June 30, 2019 was
$1.3 million and consisted of a net loss of $2.6 million, offset by $9.1 million
of non-cash items and by $5.3 million used in working capital and other
activities. The most significant impact on working capital and other activities
consisted of a decrease in inventories of $4.6 million, an increase in accounts
receivable and unbilled revenue of $10.1 million and an increase in prepaid
expenses and other assets of $4.2 million, partially offset by a decrease in
accounts payable of $18.1 million and an increase in accrued expenses and other
liabilities of $22.6 million.

Investing Activities. Cash used in investing activities for the six months ended June 30, 2020 and 2019 of $5.1 million and $6.9 million, respectively, was attributable to capital expenditures and software capitalization.


Financing Activities. Cash used in financing activities for the six months ended
June 30, 2020 of $22.5 million was primarily attributable to net repayments
under the new revolving credit facility of $19.8 million and payments on the
term loan of $2.5 million.

Cash provided by financing activities for the six months ended June 30, 2019 of
$13.0 million was primarily attributable to net borrowings under the revolving
credit facility of $14.9 million and $0.9 million of payments for debt issuance
costs, partially offset by $0.8 million in net short-term secured borrowings.

Revolving Credit Facilities and Long-Term Debt

                                       34
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On July 16, 2019. the Company refinanced its debt, which is further discussed in
Note 11, Revolving Credit Facility and in Note 12, Long-Term Debt. The 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 support 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 Credit Agreement. The Company is in compliance with
all debt covenants in the ABL Credit Agreement and Term Loan Credit Agreement as
of June 30, 2020.

In addition, we will continue to utilize cash, in part, to invest in our
innovative technology platform, fund our working capital needs, and expand our
sales force. Although we can provide no assurances, we believe that our
available cash and cash equivalents and the funds available under our new debt
structure will be sufficient to meet our working capital and operating
expenditure requirements for the next 12 months. Absent the pending acquisition
discussed in Note 15, Subsequent Events, we may find it necessary to obtain
additional equity or debt financing in the future.

We earn a portion of our operating income outside the United States, which is
deemed to be permanently reinvested in foreign jurisdictions. We do not
currently foresee a need to repatriate funds; however, should we require more
capital in the United States than is generated by our operations locally or
through debt or equity issuances, we could elect to repatriate funds held in
foreign jurisdictions. Included in our cash and cash equivalents are amounts
held by foreign subsidiaries. We had $33.3 million and $39.9 million foreign
cash and cash equivalents as of June 30, 2020 and December 31, 2019,
respectively, which are generally denominated in the local currency where the
funds are held.

Treasury Shares

Treasury shares decreased $3.1 million due to the reissuance of treasury stock as of June 30, 2020.

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, 2019, under the caption "Contractual
Obligations."

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.

                                       35

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© Edgar Online, source Glimpses


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