Document
false0001350381 0001350381 2020-03-16 2020-03-16


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): March 16, 2020
 
INNERWORKINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware
000-52170
20-5997364
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(I.R.S. Employer
Identification No.)

203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601
Phone: (312) 642-3700
(Address, zip code and telephone number, including area code, of principal executive offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value
 
INWK
 
Nasdaq Global Market





Item 2.02     Results of Operations and Financial Condition.*

On March 16, 2020, InnerWorkings, Inc. (the “Company”) issued a press release announcing its financial results for its fiscal quarter and year ended December 31, 2019. A copy of the press release is attached hereto as Exhibit 99.1.

Item 9.01     Financial Statements and Exhibits.

(d) Exhibits:

Exhibit No.
Description
 
Press Release dated March 16, 2020.

*The information furnished under Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.







SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
INNERWORKINGS, INC.
 
 
 
Dated: March 16, 2020
By:
/s/ Donald W. Pearson
 
Name:
Donald W. Pearson
 
Title:
Chief Financial Officer





Exhibit


Exhibit 99.1

InnerWorkings Announces Fourth Quarter and Full Year 2019 Results
Record $159 million in new business awarded in 2019
Multi-year transformation on track

CHICAGO, IL - March 16, 2020 - InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing execution firm, today announced financial results for the three and twelve months ended December 31, 2019. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

“The tremendous progress we made in 2019 is a demonstration of our ability to successfully execute our plans to significantly improve the business,” said Chief Executive Officer Rich Stoddart. “We drove profitable growth, reduced our costs, and improved our operating discipline. I'm proud of this team for doing the hard work to build the right foundation to drive returns for our shareholders.”

Financial and Business Highlights

Gross revenue was $319.1 million in the fourth quarter of 2019, an increase of 9% compared to $294.0 million in the fourth quarter of 2018. Fourth quarter 2019 gross revenue included $15 million of incremental revenue on bill and hold arrangements, as discussed below. Gross revenue of $1,157.8 million for the full year 2019 increased 3% over 2018, or 5% excluding currency impact.
Gross profit was $62.1 million, or 19.5% of gross revenue in the fourth quarter of 2019, compared to $59.1 million, or 20.1% of gross revenue, in the same period of last year. Gross profit for the full year 2019 was $262.0 million, or 22.6% of gross revenue, compared to $253.8 million, or 22.6% of gross revenue, for the full year 2018. Fourth quarter and full year 2019 gross profit includes $3.1 million of incremental gross profit on bill and hold arrangements, as discussed below. Also see below for discussion of warehousing and other service costs and the impact on fourth quarter gross profit.
Net loss for the fourth quarter of 2019 was $(6.5) million, or $(0.12) per diluted share, an improvement compared to net loss of $(29.4) million, or $(0.57) per diluted share in the fourth quarter of 2018. Net loss for the full year 2019 was $(10.1) million, or $(0.19) per share, an improvement compared to net loss of $(76.7) million or $(1.47) per diluted share for the full year 2018. The Company's net loss in the fourth quarter contained higher than expected foreign exchange losses, restructuring charges, and income tax expense, including the impact of valuation allowances recorded on state tax loss carryforwards.
Adjusted diluted earnings (loss) per share for the fourth quarter of 2019 was $(0.01), compared to $(0.14) in the fourth quarter of 2018. Full-year adjusted diluted earnings (loss) per share was $0.14, compared to $(0.11) in the full-year 2018. The impacts of foreign exchange losses and income taxes discussed above are not adjusted out of adjusted diluted earnings (loss) per share and are more pronounced as the Company is operating near break even on an adjusted basis.
Adjusted EBITDA was $15.5 million in the fourth quarter of 2019, compared to $(0.2) million in the fourth quarter of 2018. Fourth quarter 2019 adjusted EBITDA includes $2.8 million of incremental adjusted EBITDA on bill and hold arrangements, as discussed below. Full year adjusted EBITDA was $49.0 million, an increase of 80% compared to the full year 2018.
Additional work from new and existing clients awarded in 2019 amounts to approximately $159 million of annual revenue at full run-rate, a new annual record.
“As a result of the material weaknesses previously disclosed, insufficient evidence existed to support the recognition of revenue in arrangements containing bill and hold provisions. Therefore, we deferred the related revenue until product shipped from our warehouse. In connection with the remediation of those material weaknesses, we are now able to support earlier revenue recognition for bill and hold arrangements. Disregarding this benefit, adjusted EBITDA increased 70% in 2019 and our plan reflects at least 15% growth in 2020, excluding the impact from COVID-19,” said Don Pearson, Chief Financial Officer.

Outlook
The Company's 2020 outlook excludes the impact from COVID-19, as it is a rapidly evolving situation that is difficult to predict at this time. Gross revenue is expected to be in a range of $1.150 to $1.175 billion for 2020, which reflects approximately $100 million of new revenue from the ramp up of recently signed contracts, partially offset by a reduction in revenue from work being exited as well as revenue headwinds mainly outside North America. Adjusted EBITDA is expected to be in the range of $54 to






$58 million, mainly driven by the success of the Company's cost initiatives and high-quality revenue growth. Excluding the 2019 benefit from earlier revenue recognition of bill and hold arrangements, 2020 gross revenue is expected to grow 1% to 3% and 2020 adjusted EBITDA is expected to increase approximately $8 to $12 million compared to 2019.

Rich Stoddart concluded, “As we look forward, we remain committed to driving higher quality revenue to deliver an improved profitability profile. This will include better discipline regarding new clients and client renewals. It will also include an evaluation of our international operations and their ability to reach the profitability level we have achieved in North America. With a more disciplined cost culture, a focus on more profitable revenue, and a continued opportunity to welcome new enterprise clients to our solution, we believe we can significantly enhance our profitability profile over the next few years.”

Warehousing and Other Service Costs
During 2019, InnerWorkings acquired Madden Communications, which brought with it a highly developed logistics capability that has allowed the Company to make warehousing a core service offering. As such, costs relating to warehousing and certain other services dedicated to specific clients are now classified as cost of goods sold, whereas similar costs incurred historically were included in selling, general and administrative (SG&A) expenses. As disclosed in Note 20, Quarterly Selected Financial Information (Unaudited), of the Notes to the Consolidated Financial Statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC, in the fourth quarter of 2019, the Company reclassified $13.8 million of these costs, of which $9.4 million was recorded in SG&A in the first three quarters. Similar costs in prior years were not material.

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.

The Company has not quantitatively reconciled its guidance for adjusted EBITDA to its most comparable GAAP measure, net income, because certain of the reconciling items that impact this measure, including restructuring charges and stock-based compensation expense affecting the period, have not occurred, are outside the Company’s control, or cannot be reasonably predicted. Accordingly, a reconciliation to the nearest GAAP financial measure is not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the Company’s results.

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.





Revision of Prior Period Financial Statements

In connection with the preparation of the consolidated financial statements, the Company identified errors within our North America and EMEA segments in the quarterly and annual periods of 2019, 2018 and 2017. The Company considered the errors identified and determined the impact was immaterial to the previously issued consolidated financial statements, however, correcting the cumulative error in the current period would be significant. As such, the Company has revised the previously reported financial information included herein. Refer to Note 2, Summary of Significant Accounting Policies, and Note 21, Revision of Prior Period Financial Statements, of the Notes to the Consolidated Financial Statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC for further information.

About InnerWorkings

InnerWorkings, Inc. (NASDAQ: INWK) is the leading global marketing execution firm serving Fortune 1000 brands across a wide range of industries. As a comprehensive outsourced enterprise solution, the Company leverages proprietary technology, an extensive supplier network and deep domain expertise to streamline the production of branded materials and retail experiences across geographies and formats. InnerWorkings is headquartered in Chicago, IL and employs approximately 2,100 individuals to support global clients in the execution of multi-faceted brand campaigns in every major market around the world. InnerWorkings serves many industries, including: retail, financial services, hospitality, consumer packaged goods, nonprofit, healthcare, food & beverage, broadcasting & cable, automotive, and transportation. For more information visit: www.inwk.com.
CONTACT:
InnerWorkings, Inc.
Bridget Freas
312.589.5613
bfreas@inwk.com





Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenue
$
319,074

 
$
293,977

 
$
1,157,834

 
$
1,121,106

Cost of goods sold
256,968

 
234,911

 
895,825

 
867,293

Gross profit
62,106

 
59,066

 
262,009

 
253,813

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expenses
49,735

 
62,124

 
222,721

 
238,537

Depreciation and amortization
3,389

 
2,550

 
12,328

 
12,988

Goodwill impairment

 
18,432

 

 
46,319

Intangible and other asset impairments

 
1,303

 

 
18,121

Restructuring charges
5,394

 
2,889

 
15,918

 
6,031

Income (loss) from operations
3,588

 
(28,232
)
 
11,042

 
(68,183
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
127

 
83

 
366

 
218

Interest expense
(4,489
)
 
(2,895
)
 
(14,097
)
 
(7,749
)
Other, net
(1,790
)
 
118

 
(3,686
)
 
(1,616
)
Total other expense
(6,152
)
 
(2,694
)
 
(17,417
)
 
(9,147
)
Loss before income taxes
(2,564
)
 
(30,926
)
 
(6,375
)
 
(77,330
)
Provision (benefit) for income tax
3,897

 
(1,536
)
 
3,700

 
(647
)
Net loss
$
(6,461
)
 
$
(29,390
)
 
$
(10,075
)
 
$
(76,683
)
 
 
 
 
 
 
 
 
Basic loss per share
$
(0.12
)
 
$
(0.57
)
 
$
(0.19
)
 
$
(1.47
)
Diluted loss per share
$
(0.12
)
 
$
(0.57
)
 
$
(0.19
)
 
$
(1.47
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
53,467

 
51,773

 
53,293

 
52,230

Weighted-average shares outstanding - diluted
53,467

 
51,773

 
53,293

 
52,230

 




Consolidated Balance Sheets
(In thousands)
 
December 31, 2019
 
December 31, 2018
 
(unaudited)
 
 
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
42,711

 
$
26,770

Accounts receivable, net of allowance for doubtful accounts of $3,830 and $4,880, respectively
202,406

 
193,186

Unbilled revenue
48,396

 
46,252

Other receivables
28,194

 
23,727

Inventories
34,977

 
55,715

Prepaid expenses
10,680

 
16,256

Other current assets
7,301

 
10,733

Total current assets
374,665

 
372,639

Property and equipment, net
37,224

 
82,933

Intangibles and other assets:
 
 
 
Goodwill
152,210

 
152,158

Intangible assets, net
7,714

 
9,828

Right of use assets, net
51,159

 

Deferred income taxes
2,182

 
1,195

Other non-current assets
4,129

 
2,976

Total intangibles and other assets
217,394

 
166,157

Total assets
$
629,283

 
$
621,729

Liabilities and stockholders' equity
 

 
 
Current liabilities:
 
 
 
Accounts payable
142,136

 
158,028

Accrued expenses
50,975

 
35,698

Deferred revenue
9,568

 
17,614

Revolving credit facility - current
593

 
142,736

Term loan - current
7,500

 

Other current liabilities
35,665

 
28,190

Total current liabilities
246,437

 
382,266

Lease liabilities
46,075

 

Revolving credit facility - non-current
60,086

 

Term loan - non-current
89,242

 

Deferred income taxes
8,053

 
7,605

Other long-term liabilities
1,138

 
50,903

Total liabilities
451,031

 
440,774

Commitments and contingencies
 
 
 
Stockholders' equity:
 
 
 
Common stock
6

 
6

Additional paid-in capital
245,311

 
239,960

Treasury stock at cost
(81,471
)
 
(81,471
)
Accumulated other comprehensive loss
(22,449
)
 
(24,311
)
Retained earnings
36,855

 
46,771

Total stockholders' equity
178,252

 
180,955

Total liabilities and stockholders' equity
$
629,283

 
$
621,729

 




Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
 
Year Ended December 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(10,075
)
 
$
(76,683
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
12,328

 
12,988

Stock-based compensation expense
6,281

 
5,302

Deferred income taxes
(879
)
 
(4,604
)
Goodwill impairment

 
46,319

Intangible and other asset impairments

 
18,121

Bad debt provision
1,068

 
3,601

Contract implementation cost amortization
300

 
433

Change in fair value of warrant
2,233

 

Change in fair value of embedded derivative
(176
)
 

Unrealized foreign exchange loss
834

 

Other operating activities, net
1,150

 
255

Changes in assets and liabilities:
 
 
 
Accounts receivable and unbilled revenue
(12,254
)
 
4,470

Inventories
20,980

 
(16,039
)
Prepaid expenses and other assets
(6,529
)
 
2,120

Accounts payable
(15,634
)
 
21,585

Accrued expenses and other liabilities
22,843

 
5,190

Net cash provided by operating activities
22,470

 
23,058

Cash flows from investing activities:
 
 
 

Purchases of property and equipment
(13,378
)
 
(11,263
)
Payments for acquisitions, net of cash acquired
(721
)
 

Proceeds from sale of property and equipment

 
122

Net cash used in investing activities
(14,099
)
 
(11,141
)
Cash flows from financing activities:
 
 
 

Net borrowings (repayments) from prior revolving credit facility
(142,583
)
 
14,539

Net borrowings from new revolving credit facility
60,563

 

Net short-term secured repayments
(833
)
 
(1,525
)
Proceeds from term loan
100,000

 

Payments on term loan
(2,500
)
 

Repurchases of common stock

 
(25,689
)
Payment of debt issuance costs
(5,488
)
 
(545
)
Proceeds from exercise of stock options
63

 
545

Other financing activities, net
(245
)
 
(1,061
)
Net cash provided by (used in) financing activities
8,977

 
(13,736
)
Effect of exchange rate changes on cash and cash equivalents
(1,407
)
 
(1,973
)
Increase (decrease) in cash and cash equivalents
15,941

 
(3,792
)
Cash and cash equivalents, beginning of period
26,770

 
30,562

Cash and cash equivalents, end of period
$
42,711

 
$
26,770






Reconciliation of Adjusted EBITDA and Adjusted Diluted (Loss) Earnings Per Share
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net loss
$
(6,461
)
 
$
(29,390
)
 
$
(10,075
)
 
$
(76,683
)
Provision (benefit) for income tax
3,897

 
(1,536
)
 
3,700

 
(647
)
Interest income
(127
)
 
(83
)
 
(366
)
 
(218
)
Interest expense
4,489

 
2,895

 
14,097

 
7,749

Depreciation and amortization
3,389

 
2,550

 
12,328

 
12,988

Stock-based compensation - equity classified awards
1,608

 
1,678

 
5,533

 
5,302

Stock-based compensation - SARs market-to-market
454

 

 
748

 

Restructuring charges
5,394

 
2,889

 
15,918

 
6,031

Executive search fees

 

 
80

 
235

Professional fees related to control remediation
212

 
535

 
1,130

 
2,430

Sales and use tax audit

 
12

 
25

 
113

Other professional fees
898

 
345

 
2,241

 
507

Goodwill impairment

 
18,432

 

 
46,319

Intangible and long-lived asset impairment

 
1,303

 

 
18,121

Senior leadership transition and other employee-related costs

 
257

 

 
1,410

Obsolete retail inventory

 

 

 
950

Professional fees related to ASC 606 implementation

 

 

 
1,092

Other, net
1,790

 
(118
)
 
3,686

 
1,616

Adjusted EBITDA
$
15,543

 
$
(231
)
 
$
49,045

 
$
27,315

 




 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net loss
$
(6,461
)
 
$
(29,390
)
 
$
(10,075
)
 
$
(76,683
)
Restructuring charges
5,394

 
2,889

 
15,918

 
6,031

Executive search fees

 

 
80

 
235

Professional fees related to control remediation
213

 
535

 
1,130

 
2,430

Sales and use tax audit

 
12

 
25

 
113

Other professional fees
898

 
345

 
2,241

 
507

Fair value of warrants and derivatives
1,204

 

 
2,057

 

Foreign exchange loss

 

 
773

 

Goodwill impairment

 
18,432

 

 
46,319

Intangible and other asset impairments

 
1,303

 

 
18,121

Senior leadership transition and other employee-related costs

 
257

 

 
1,410

Obsolete retail inventory

 

 

 
950

Professional fees related to ASC 606 implementation

 

 

 
1,092

Income tax effects of adjustments
(1,627
)
 
(1,542
)
 
(4,852
)
 
(6,280
)
Adjusted net (loss) income
$
(379
)
 
$
(7,159
)
 
$
7,297

 
$
(5,755
)
 
 
 
 
 
 
 
 
GAAP Weighted-average shares outstanding – diluted
53,467

 
51,773

 
53,293

 
52,230

Effect of dilutive securities:
 
 
 
 
 
 
 
Employee stock options and restricted common shares

 

 
486

 

Adjusted weighted-average shares outstanding – diluted
53,467

 
51,773

 
53,779

 
52,230

Adjusted diluted (loss) earnings per share
$
(0.01
)
 
$
(0.14
)
 
$
0.14

 
$
(0.11
)