INWK InnerWorkings Inc

InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing engineering firm, today announced financial results for the three and six months ended June 30, 2020. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

“As we had anticipated, a reduction in global economic activity impacted marketing spend by our clients and therefore resulted in a significant decline in our second-quarter revenue. We took swift action to dramatically reduce our costs while still meeting the high standard by which we serve our clients,” said Chief Executive Officer Rich Stoddart. “The proposed acquisition of our company by HH Global announced in July is expected to close by the end of the fourth quarter. We are excited about this combination and remain focused on delivering for our clients.”

Financial and Business Highlights

• Gross revenue was $203.3 million in the second quarter of 2020, a decrease of 28.4% compared to $283.9 million in the second quarter of 2019.
• Gross profit was $48.4 million, or 23.8% of gross revenue in the second quarter of 2020, compared to $68.4 million, or 24.1% of gross revenue, in the same period of last year.
• Selling, general and administrative expenses were $45.1 million in the second quarter, down 21.4% compared to $57.4 million in the second quarter of 2019.
• Net loss for the second quarter of 2020 was $(7.9) million, or $(0.15) per diluted share, compared to net loss of $(0.5) million, or $(0.01) per diluted share in the second quarter of 2019. Year-to-date net loss was $(10.8) million, compared to $(2.6) million in the same period of 2019.
• Adjusted diluted (loss) earnings per share for the second quarter of 2020 was $(0.07), compared to $0.05 in the second quarter of 2019.
• Adjusted EBITDA was $6.1 million in the second quarter of 2020, compared to $13.0 million in the second quarter of 2019. Year-to-date adjusted EBITDA was $19.0 million, compared to $20.4 million in the same period of 2019.
• Additional work from new and existing clients awarded so far in 2020 amounts to approximately $56 million of annual revenue at full run-rate.

Conference Call

Due to the previously announced proposed acquisition of InnerWorkings by HH Global Group Limited, the company will not conduct a conference call or webcast to discuss the second quarter results and will not provide annual guidance.

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 June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Revenue

$

203,311

 

 

$

283,861

 

 

$

464,671

 

 

$

551,072

 

Cost of goods sold

154,890

 

 

215,463

 

 

352,808

 

 

420,664

 

Gross profit

48,421

 

 

68,398

 

 

111,863

 

 

130,408

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses

45,117

 

 

57,404

 

 

96,756

 

 

113,235

 

Depreciation and amortization

3,310

 

 

3,233

 

 

6,437

 

 

5,849

 

Goodwill impairment

—

 

 

—

 

 

7,191

 

 

—

 

Intangible and other asset impairments

609

 

 

—

 

 

883

 

 

—

 

Restructuring charges

3,644

 

 

3,698

 

 

7,281

 

 

7,632

 

(Loss) income from operations

(4,259

)

 

4,063

 

 

(6,685

)

 

3,692

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

53

 

 

104

 

 

109

 

 

202

 

Interest expense

(3,201

)

 

(2,486

)

 

(7,587

)

 

(5,232

)

(Loss) gain from change in fair value of warrant

(120

)

 

—

 

 

5,085

 

 

—

 

Foreign exchange income (loss)

862

 

 

237

 

 

(1,929

)

 

(239

)

Other income

221

 

 

42

 

 

1,117

 

 

78

 

Total other expense

(2,185

)

 

(2,103

)

 

(3,205

)

 

(5,191

)

(Loss) income before income taxes

(6,444

)

 

1,960

 

 

(9,890

)

 

(1,499

)

Income tax expense

1,468

 

 

2,468

 

 

862

 

 

1,053

 

Net loss

$

(7,912

)

 

$

(508

)

 

$

(10,752

)

 

$

(2,552

)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2020

 

2019

 

2020

 

2019

Numerator:

 

 

 

 

 

 

 

 

Net loss - basic

 

$

(7,912

)

 

$

(508

)

 

$

(10,752

)

 

$

(2,552

)

Adjustments:

 

 

 

 

 

 

 

 

Change in fair value of Initial Warrant liability

 

—

 

 

—

 

 

(5,085

)

 

—

 

Net loss - diluted

 

$

(7,912

)

 

$

(508

)

 

$

(15,837

)

 

$

(2,552

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

52,327

 

 

51,773

 

 

52,233

 

 

51,830

 

Issuance of Initial Warrant

 

1,335

 

 

—

 

 

1,335

 

 

—

 

Weighted average shares outstanding - basic and diluted

 

53,662

 

 

51,773

 

 

53,568

 

 

51,830

 

 

 

 

 

 

 

 

 

 

Basic loss per share

 

$

(0.15

)

 

$

(0.01

)

 

$

(0.20

)

 

$

(0.05

)

Diluted loss per share

 

$

(0.15

)

 

$

(0.01

)

 

$

(0.30

)

 

$

(0.05

)

 

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

June 30, 2020

 

December 31, 2019

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

35,311

 

 

$

42,711

 

Accounts receivable, net of allowance for doubtful accounts of $3,470 and $3,830, respectively

158,636

 

 

202,406

 

Unbilled revenue

23,900

 

 

48,396

 

Other receivables

9,858

 

 

28,194

 

Inventories

37,303

 

 

34,977

 

Prepaid expenses

13,021

 

 

10,680

 

Other current assets

6,981

 

 

7,301

 

Total current assets

285,010

 

 

374,665

 

Property and equipment, net

36,357

 

 

37,224

 

Intangibles and other assets:

 

 

 

Goodwill

144,967

 

 

152,210

 

Intangible assets, net

6,693

 

 

7,714

 

Right of use assets, net

46,805

 

 

51,159

 

Deferred income taxes

2,183

 

 

2,182

 

Other non-current assets

3,018

 

 

4,129

 

Total intangibles and other assets

203,666

 

 

217,394

 

Total assets

$

525,033

 

 

$

629,283

 

Liabilities and stockholders' equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

96,866

 

 

$

142,136

 

Accrued expenses

43,350

 

 

50,975

 

Deferred revenue

10,572

 

 

9,568

 

Revolving credit facility - current

76

 

 

593

 

Term loan - current

10,000

 

 

7,500

 

Other current liabilities

25,969

 

 

35,665

 

Total current liabilities

186,833

 

 

246,437

 

Lease liabilities

42,487

 

 

46,075

 

Revolving credit facility - non-current

40,476

 

 

60,086

 

Term loan - non-current

79,800

 

 

89,242

 

Deferred income taxes

8,053

 

 

8,053

 

Other long-term liabilities

1,762

 

 

1,138

 

Total liabilities

359,411

 

 

451,031

 

Commitments and contingencies

 

 

 

Stockholders' equity:

 

 

 

Common stock

6

 

 

6

 

Additional paid-in capital

248,215

 

 

245,311

 

Treasury stock at cost

(78,418

)

 

(81,471

)

Accumulated other comprehensive loss

(27,348

)

 

(22,449

)

Retained earnings

23,167

 

 

36,855

 

Total stockholders' equity

165,622

 

 

178,252

 

Total liabilities and stockholders' equity

$

525,033

 

 

$

629,283

 

 

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

 

 

Six Months Ended June 30,

 

2020

 

2019

Cash flows from operating activities

 

 

 

Net loss

$

(10,752

)

 

$

(2,552

)

Adjustments to reconcile net loss to net cash from operating activities:

 

 

 

Depreciation and amortization

6,437

 

 

5,849

 

Stock-based compensation expense

2,521

 

 

2,141

 

Bad debt provision

426

 

 

689

 

Contract implementation cost amortization

135

 

 

213

 

Goodwill impairment

7,191

 

 

—

 

Long-lived asset impairment

883

 

 

—

 

Change in fair value of warrant

(5,085

)

 

—

 

Change in fair value of embedded derivatives

(519

)

 

—

 

Unrealized foreign exchange loss

1,184

 

 

—

 

Other operating activities, net

1,085

 

 

224

 

Change in assets and liabilities:

 

 

 

Accounts receivable and unbilled revenue

61,059

 

 

(10,099

)

Inventories

(3,134

)

 

4,582

 

Prepaid expenses and other assets

17,147

 

 

(4,163

)

Accounts payable

(41,351

)

 

(18,146

)

Accrued expenses and other liabilities

(19,190

)

 

22,551

 

Net cash provided by operating activities

18,037

 

 

1,289

 

 

 

 

 

Cash flows from investing activities

 

 

 

Purchases of property and equipment

(5,127

)

 

(6,881

)

Net cash used in investing activities

(5,127

)

 

(6,881

)

 

 

 

 

Cash flows from financing activities

 

 

 

Net borrowings from old revolving credit facility

—

 

 

14,908

 

Net repayments on new revolving credit facility

(19,830

)

 

—

 

Net short-term secured borrowings

—

 

 

(833

)

Payments on term loan

(2,500

)

 

—

 

Proceeds from exercise of stock options

—

 

 

63

 

Payment of debt issuance costs

—

 

 

(935

)

Other financing activities, net

(130

)

 

(156

)

Net cash (used in) provided by financing activities

(22,460

)

 

13,047

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

2,150

 

 

(226

)

Decrease in cash and cash equivalents

(7,400

)

 

7,229

 

Cash and cash equivalents, beginning of period

42,711

 

 

26,770

 

Cash and cash equivalents, end of period

$

35,311

 

 

$

33,999

 

 

Reconciliation of Adjusted EBITDA and Adjusted Diluted Earnings Per Share

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Net loss

$

(7,912

)

 

$

(508

)

 

$

(10,752

)

 

$

(2,552

)

Benefit for income tax

1,468

 

 

2,468

 

 

862

 

 

1,053

 

Interest income

(53

)

 

(104

)

 

(109

)

 

(202

)

Interest expense

3,201

 

 

2,486

 

 

7,587

 

 

5,232

 

Change in fair value of warrant

120

 

 

—

 

 

(5,085

)

 

—

 

Foreign exchange loss

(862

)

 

(237

)

 

1,929

 

 

239

 

Depreciation and amortization

3,310

 

 

3,233

 

 

6,437

 

 

5,849

 

Stock-based compensation - equity classified awards

1,554

 

 

1,402

 

 

3,034

 

 

2,141

 

Stock-based compensation - liability classified awards (SARs)

127

 

 

46

 

 

(513

)

 

46

 

Goodwill impairment

—

 

 

—

 

 

7,191

 

 

—

 

Intangible and other asset impairments

609

 

 

—

 

 

883

 

 

—

 

Restructuring charges

3,644

 

 

3,698

 

 

7,281

 

 

7,632

 

Merger-related transaction costs

790

 

 

—

 

 

790

 

 

—

 

Professional fees related to control remediation

356

 

 

550

 

 

620

 

 

916

 

Executive search fees

—

 

 

—

 

 

—

 

 

80

 

Sales and use tax audit

—

 

 

—

 

 

—

 

 

25

 

Other income

(221

)

 

(42

)

 

(1,117

)

 

(78

)

Adjusted EBITDA

$

6,131

 

 

$

12,992

 

 

$

19,038

 

 

$

20,381

 

 

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

 

Executive search fees

—

 

 

—

 

 

—

 

 

80

 

Merger-related transaction costs

790

 

 

—

 

 

790

 

 

—

 

Professional fees related to control remediation

356

 

 

550

 

 

620

 

 

916

 

Sales and use tax audit

—

 

 

—

 

 

—

 

 

25

 

Change in fair value of warrant and derivatives

36

 

 

—

 

 

(5,604

)

 

—

 

Goodwill impairment

—

 

 

—

 

 

7,191

 

 

—

 

Intangible and other asset impairments

609

 

 

—

 

 

883

 

 

—

 

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 earnings per share

$

(0.07

)

 

$

0.05

 

 

$

(0.03

)

 

$

0.08

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200806006101/en/

InnerWorkings, Inc. Bridget Freas 312.589.5613 bfreas@inwk.com