Higher quality revenue drove 110 basis-point
increase in gross margin;
SG&A reduced by $3.9 million, with further
cost reductions actioned during the second quarter
InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing
engineering firm, today announced financial results for the three
months ended March 31, 2020. For all non-GAAP references below,
please refer to the non-GAAP reconciliation tables at the end of
this release for more information.
“Our first quarter results demonstrate improved revenue quality
and a leaner cost structure, giving us solid footing to navigate a
challenging economic environment in the second quarter,” said Chief
Executive Officer Rich Stoddart. “We have taken aggressive, swift
action since April to right-size our cost structure while
maintaining our ability to support our clients as business activity
rebounds. We are also maintaining our focus on winning new
business, with several new contracts awarded this year and
significant demand for our solution in the sales pipeline.”
Financial and Business Highlights
- Gross revenue was $261.4 million in the first quarter of 2020,
a decrease of 2% compared to $267.2 million in the first quarter of
2019. Excluding currency impact, gross revenue decreased 1% in the
first quarter of 2020.
- Gross profit was $63.4 million, or 24.3% of gross revenue in
the first quarter of 2020, compared to $62.0 million, or 23.2% of
gross revenue, in the same period of last year.
- Selling, general and administrative expenses were $51.9 million
in the first quarter, down 7% compared to $55.8 million in the
first quarter of 2019.
- Net loss for the first quarter of 2020 was $(2.8) million, or
$(0.15) per diluted share, compared to net loss of $(2.0) million,
or $(0.04) per diluted share in the first quarter of 2019.
- Adjusted diluted earnings per share for the first quarter of
2020 was $0.04, compared to $0.03 in the first quarter of
2019.
- Adjusted EBITDA was $12.9 million in the first quarter of 2020,
compared to $7.4 million in the first quarter of 2019.
- Additional work from new and existing clients awarded so far in
2020 amounts to approximately $32 million of annual revenue at full
run-rate.
“The first quarter represents sustainable cost improvement
supporting a base of high-quality revenue with the healthiest
balance sheet the company has had in two years. We have made
significant progress in our multi-year transformation, but there is
still work to do to optimize the platform. We will continue to
react quickly to changes in economic conditions, but this will not
disrupt the groundwork we have been laying for a long future of
profitable growth,” said Don Pearson, Chief Financial Officer.
Outlook
Due to continued economic uncertainty and low visibility, the
Company is not providing specific financial guidance at this
time.
“We are expecting a decline in revenue and profit in the second
quarter, but we took immediate action to reduce costs and minimize
the impact on our margins. While we feel we’ve taken the right
steps to adjust to the current environment, there is still a great
deal of uncertainty about how long the general economic downturn
will last, the extent of the adverse impact on our clients, and the
degree to which those in turn will adversely impact our business.
Although the current economic environment is volatile and the
timing and pace of recovery from the COVID-19 pandemic is unclear,
we are encouraged by our recent conversations with clients, which
indicate increasing momentum in planning for a resurgence of
marketing activity,” said Rich Stoddart. “We believe we are
well-poised for an acceleration of new client wins as marketers
become more motivated to seek ways to drive cost savings and
efficiencies in response to a difficult economy, and to benefit
from the eventual improved marketing spend by our clients. The
breadth of our work across verticals and geographies, the stability
of our longstanding client relationships, and our multi-year
transformation underway give us confidence in our ability to
navigate the near-term uncertainty and in the strength of our
business long term.”
Conference Call
Rich Stoddart, Chief Executive Officer, and Don Pearson, Chief
Financial Officer, will host a conference call to discuss the
results today at 4:00 p.m. Central time (5:00 p.m. Eastern
time).
The phone number to access the conference call is (877)
771-7024. A live audio webcast of the call will be available
through InnerWorkings' website at http://investor.inwk.com/events.
A replay of the webcast will be available later today at the same
location.
Non-GAAP Financial Measures
This press release includes the following financial measures
defined as “non-GAAP financial measures” by the SEC: adjusted
EBITDA and adjusted diluted earnings per share. The Company
believes these measures provide useful information to investors
because they provide further insights into the Company’s financial
performance. These measures are also used by management in its
financial and operational decision-making and evaluation of overall
performance. The presentation of this financial information, which
is not prepared under any comprehensive set of accounting rules or
principles, is not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with generally accepted accounting principles. For a
reconciliation of these non-GAAP financial measures to the nearest
comparable GAAP measures, please see the reconciliation of adjusted
EBITDA and adjusted diluted earnings per share included in this
release.
Forward-Looking Statements
This release contains statements relating to future results.
These statements are forward-looking statements under the federal
securities laws. We can give no assurance that any future results
discussed in these statements will be achieved. Any forward-looking
statements represent our views only as of today and should not be
relied upon as representing our views as of any subsequent date.
These statements are subject to a variety of risks and
uncertainties that could cause our actual results to differ
materially from the statements contained in this release. For a
discussion of important factors that could affect our actual
results, please refer to our SEC filings, including the “Risk
Factors” section of our most recently filed Form 10-K and our Form
8-K filed on May 11, 2020.
About InnerWorkings
InnerWorkings, Inc. (NASDAQ: INWK) engineers marketing for
leading brands across a wide range of industries. We dive deep into
clients’ brand strategies to deliver solutions that leverage our
global expertise, certified supplier base, proven methods, and
proprietary technology. By engineering marketing across key touch
points in the customer journey, we power campaigns that drive
value, enhance awareness and inspire action. With services that
include creative, print, direct mail, branded merchandise, luxury
packaging, retail environments, and digital solutions, we’re
elevating beyond execution to shape brand experience. For more
information visit: www.inwk.com.
Condensed Consolidated Statements of
Operations (In thousands, except per share data)
(unaudited)
Three Months Ended March
31,
2020
2019
Revenue
$
261,360
$
267,211
Cost of goods sold
197,918
205,201
Gross profit
63,442
62,010
Operating expenses:
Selling, general and administrative
expenses
51,913
55,830
Depreciation and amortization
3,127
2,617
Goodwill impairment
7,191
—
Restructuring charges
3,637
3,934
Loss from operations
(2,426
)
(371
)
Other income (expense):
Interest income
56
98
Interest expense
(4,386
)
(2,745
)
Change in fair value of warrant
5,205
—
Foreign exchange loss
(2,791
)
(476
)
Other income
896
36
Total other expense
(1,020
)
(3,087
)
Loss before income taxes
(3,446
)
(3,458
)
Income tax benefit
(606
)
(1,414
)
Net loss
$
(2,840
)
$
(2,044
)
Three Months Ended March
31,
2020
2019
Numerator:
Net loss - basic
$
(2,840
)
$
(2,044
)
Adjustments:
Change in fair value of Initial Warrant
liability
(5,205
)
—
Net loss - diluted
$
(8,045
)
$
(2,044
)
Denominator:
Weighted average shares outstanding
52,139
51,830
Issuance of Initial Warrant
1,335
—
Weighted average shares outstanding -
basic and diluted
53,474
51,830
Basic loss per share
$
(0.05
)
$
(0.04
)
Diluted loss per share
$
(0.15
)
$
(0.04
)
Condensed Consolidated Balance Sheets
(In thousands) (Unaudited)
March 31, 2020
December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$
30,775
$
42,711
Accounts receivable, net of allowance for
doubtful accounts of $2,758 and $3,830, respectively
181,604
202,406
Unbilled revenue
43,773
48,396
Inventories
34,795
34,977
Prepaid expenses
13,623
10,680
Other current assets
35,617
35,495
Total current assets
340,187
374,665
Property and equipment, net
36,671
37,224
Intangibles and other assets:
Goodwill
144,925
152,210
Intangible assets, net
7,193
7,714
Right of use assets, net
48,284
51,159
Deferred income taxes
2,182
2,182
Other non-current assets
3,864
4,129
Total intangibles and other assets
206,448
217,394
Total assets
$
583,306
$
629,283
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable
$
123,519
$
142,136
Accrued expenses
46,137
50,975
Deferred revenue
9,495
9,568
Revolving credit facility - current
69
593
Term loan - current
8,750
7,500
Other current liabilities
29,059
35,665
Total current liabilities
217,029
246,437
Lease liabilities
44,314
46,075
Revolving credit facility -
non-current
59,753
60,086
Term loan - non-current
81,762
89,242
Deferred income taxes
8,053
8,053
Other long-term liabilities
504
1,138
Total liabilities
411,415
451,031
Commitments and contingencies
Stockholders' equity:
Common stock
6
6
Additional paid-in capital
246,769
245,311
Treasury stock at cost
(81,471
)
(81,471
)
Accumulated other comprehensive loss
(27,545
)
(22,449
)
Retained earnings
34,132
36,855
Total stockholders' equity
171,891
178,252
Total liabilities and stockholders'
equity
$
583,306
$
629,283
Condensed Consolidated Statement of
Cash Flows (In thousands) (Unaudited)
Three Months Ended March
31,
2020
2019
Cash flows from operating
activities
Net loss
$
(2,840
)
$
(2,044
)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization
3,127
2,617
Stock-based compensation expense
840
739
Bad debt provision
(438
)
385
Contract implementation cost
amortization
67
143
Goodwill impairment
7,191
—
Long-lived asset impairment
273
—
Change in fair value of warrant
(5,205
)
—
Change in fair value of embedded
derivatives
(435
)
—
Unrealized foreign exchange loss
2,075
—
Other operating activities, net
531
102
Change in assets and liabilities:
Accounts receivable and unbilled
revenue
17,728
3,928
Inventories
(1,277
)
9,165
Prepaid expenses and other assets
(5,302
)
274
Accounts payable
(14,089
)
(9,207
)
Accrued expenses and other liabilities
(11,991
)
(610
)
Net cash (used in) provided by operating
activities
(9,745
)
5,492
Cash flows from investing
activities
Purchases of property and equipment
(3,190
)
(3,345
)
Net cash used in investing activities
(3,190
)
(3,345
)
Cash flows from financing
activities
Net repayments on old revolving credit
facility
—
(3,800
)
Net repayments on new revolving credit
facility
(633
)
—
Net short-term secured borrowings
—
1,256
Payments on term loan
(1,250
)
—
Proceeds from exercise of stock
options
—
63
Payment of debt issuance costs
—
(585
)
Other financing activities, net
(22
)
(29
)
Net cash used in financing activities
(1,905
)
(3,095
)
Effect of exchange rate changes on cash
and cash equivalents
2,904
29
Decrease in cash and cash equivalents
(11,936
)
(919
)
Cash and cash equivalents, beginning of
period
42,711
26,770
Cash and cash equivalents, end of
period
$
30,775
$
25,851
Reconciliation of Adjusted EBITDA and
Adjusted Diluted Earnings Per Share (In thousands, except per share
amounts) (Unaudited)
Three Months Ended March
31,
2020
2019
Net loss
$
(2,840
)
$
(2,044
)
Benefit for income tax
(606
)
(1,414
)
Interest income
(56
)
(98
)
Interest expense
4,386
2,745
Change in fair value of warrant
(5,205
)
—
Foreign exchange loss
2,791
476
Depreciation and amortization
3,127
2,617
Stock-based compensation - equity
classified awards
1,480
739
Stock-based compensation - liability
classified awards (SARs)
(640
)
—
Goodwill impairment
7,191
—
Long-lived asset impairment
273
—
Restructuring charges
3,637
3,934
Professional fees related to control
remediation
264
365
Executive search fees
—
80
Sales and use tax audit
—
25
Other income
(896
)
(36
)
Adjusted EBITDA
$
12,906
$
7,389
Three Months Ended March
31,
2020
2019
Net loss
$
(2,840
)
$
(2,044
)
Restructuring charges
3,637
3,934
Professional fees related to control
remediation
264
365
Change in fair value of warrant and
derivatives
(5,640
)
—
Goodwill impairment
7,191
—
Long-lived asset impairment
273
—
Executive search fees
—
80
Sales and use tax audit
—
25
Income tax effects of adjustments
(971
)
(1,024
)
Adjusted net income
$
1,914
$
1,336
GAAP weighted-average shares outstanding –
diluted
53,474
51,830
Effect of dilutive securities:
Employee stock options and restricted
common shares
762
65
Adjusted weighted-average shares
outstanding – diluted
54,236
51,895
Adjusted diluted earnings per share
$
0.04
$
0.03
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200616005936/en/
InnerWorkings, Inc. Bridget Freas 312.589.5613
bfreas@inwk.com
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