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InnerWorkings Announces Second Quarter 2020 Results

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

Contacts:

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

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