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
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