Business Wire | Aug 6, 2020 05:28PM EDT

InnerWorkings Announces Second Quarter 2020 Results

Aug. 06, 2020

CHICAGO--(BUSINESS WIRE)--Aug. 06, 2020--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 Six Months Ended June 30, 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 45,117 57,404 96,756 113,235 administrative expenses

Depreciation and 3,310 3,233 6,437 5,849 amortization

Goodwill impairment - - 7,191 -

Intangible and other 609 - 883 - asset impairments

Restructuring charges 3,644 3,698 7,281 7,632

(Loss) income from (4,259 ) 4,063 (6,685 ) 3,692 operations

Other income (expense):

Interest income 53 104 109 202

Interest expense (3,201 ) (2,486 ) (7,587 ) (5,232 )

(Loss) gain from change (120 ) - 5,085 - in fair value of warrant

Foreign exchange income 862 237 (1,929 ) (239 )(loss)

Other income 221 42 1,117 78

Total other expense (2,185 ) (2,103 ) (3,205 ) (5,191 )

(Loss) income before (6,444 ) 1,960 (9,890 ) (1,499 )income taxes

Income tax expense 1,468 2,468 862 1,053

Net loss $ (7,912 ) $ (508 ) $ (10,752 ) $ (2,552 )

Three Months Ended Six Months Ended June June 30, 30,

2020 2019 2020 2019

Numerator:

Net loss - basic $ (7,912 ) $ (508 ) $ (10,752 ) $ (2,552 )

Adjustments:

Change in fair value of - - (5,085 ) - Initial Warrant liability

Net loss - diluted $ (7,912 ) $ (508 ) $ (15,837 ) $ (2,552 )



Denominator:

Weighted average shares 52,327 51,773 52,233 51,830 outstanding

Issuance of Initial Warrant 1,335 - 1,335 -

Weighted average sharesoutstanding - basic and 53,662 51,773 53,568 51,830 diluted



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, December 2020 31, 2019

Assets

Current assets:

Cash and cash equivalents $ 35,311 $ 42,711

Accounts receivable, net of allowance for doubtful 158,636 202,406 accounts of $3,470 and $3,830, respectively

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 2,150 (226 )equivalents

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 Six Months Ended June 30, 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 120 - (5,085 ) - warrant

Foreign exchange loss (862 ) (237 ) 1,929 239

Depreciation and 3,310 3,233 6,437 5,849 amortization

Stock-based compensation - 1,554 1,402 3,034 2,141 equity classified awards

Stock-based compensation -liability classified awards 127 46 (513 ) 46 (SARs)

Goodwill impairment - - 7,191 -

Intangible and other asset 609 - 883 - impairments

Restructuring charges 3,644 3,698 7,281 7,632

Merger-related transaction 790 - 790 - costs

Professional fees related to 356 550 620 916 control remediation

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 Six Months Ended June June 30, 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 790 - 790 - costs

Professional fees related to 356 550 620 916 control remediation

Sales and use tax audit - - - 25

Change in fair value of 36 - (5,604 ) - warrant and derivatives

Goodwill impairment - - 7,191 -

Intangible and other asset 609 - 883 - impairments

Income tax effects of (1,115 ) (961 ) (2,071 ) (1,994 )adjustments

Adjusted net (loss) income $ (3,592 ) $ 2,779 $ (1,662 ) $ 4,107



GAAP weighted-average shares 53,662 51,773 53,568 51,830 outstanding - diluted

Effect of dilutive securities:

Employee stock options and - 156 - 104 restricted common shares

Adjusted weighted-average 53,662 51,929 53,568 51,934 shares outstanding - diluted

Adjusted diluted earnings per $ (0.07 ) $ 0.05 $ (0.03 ) $ 0.08 share

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