INWK InnerWorkings Inc

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