Document
false--12-31Q120200001350381P2Y383000027580000.00010.0001200000000200000000648200006483100052133000521430001268800012688000 0001350381 2020-01-01 2020-03-31 0001350381 2020-06-15 0001350381 2019-01-01 2019-03-31 0001350381 2020-03-31 0001350381 2019-12-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember 2020-03-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember 2019-12-31 0001350381 inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember 2020-03-31 0001350381 inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember 2019-12-31 0001350381 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001350381 us-gaap:RetainedEarningsMember 2018-12-31 0001350381 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001350381 us-gaap:TreasuryStockMember 2019-03-31 0001350381 us-gaap:AccountingStandardsUpdate201602Member us-gaap:RetainedEarningsMember 2019-01-01 0001350381 us-gaap:CommonStockMember 2018-12-31 0001350381 us-gaap:TreasuryStockMember 2018-12-31 0001350381 2019-03-31 0001350381 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001350381 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001350381 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001350381 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001350381 us-gaap:CommonStockMember 2019-03-31 0001350381 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001350381 2018-12-31 0001350381 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001350381 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001350381 us-gaap:RetainedEarningsMember 2019-03-31 0001350381 us-gaap:RetainedEarningsMember 2020-03-31 0001350381 us-gaap:TreasuryStockMember 2019-12-31 0001350381 us-gaap:CommonStockMember 2019-12-31 0001350381 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0001350381 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001350381 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0001350381 us-gaap:AccountingStandardsUpdate201613Member us-gaap:RetainedEarningsMember 2020-01-01 0001350381 us-gaap:CommonStockMember 2020-03-31 0001350381 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0001350381 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0001350381 us-gaap:TreasuryStockMember 2020-03-31 0001350381 us-gaap:AccountingStandardsUpdate201613Member 2020-01-01 0001350381 us-gaap:RetainedEarningsMember 2019-12-31 0001350381 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0001350381 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001350381 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember 2019-01-01 2019-03-31 0001350381 inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember 2020-01-01 2020-03-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember 2020-01-01 2020-03-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:CreditAgreementMember 2020-01-01 2020-03-31 0001350381 inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember 2019-01-01 2019-03-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:CreditAgreementMember 2019-01-01 2019-03-31 0001350381 2019-01-01 2019-12-31 0001350381 us-gaap:AccountingStandardsUpdate201613Member 2020-01-01 2020-01-01 0001350381 2020-01-01 0001350381 inwk:NorthAmericaSegmentMember 2020-01-01 2020-03-31 0001350381 inwk:LatinAmericaSegmentMember 2019-12-31 0001350381 inwk:NorthAmericaSegmentMember 2020-03-31 0001350381 inwk:EuropeMiddleEastandAfricaSegmentMember 2019-12-31 0001350381 inwk:EuropeMiddleEastandAfricaSegmentMember 2020-01-01 2020-03-31 0001350381 inwk:EuropeMiddleEastandAfricaSegmentMember 2020-03-31 0001350381 inwk:NorthAmericaSegmentMember 2019-12-31 0001350381 inwk:LatinAmericaSegmentMember 2020-01-01 2020-03-31 0001350381 inwk:LatinAmericaSegmentMember 2020-03-31 0001350381 us-gaap:TradeNamesMember 2020-03-31 0001350381 us-gaap:NoncompeteAgreementsMember 2020-03-31 0001350381 us-gaap:NoncompeteAgreementsMember 2019-12-31 0001350381 us-gaap:CustomerListsMember 2020-01-01 2020-03-31 0001350381 us-gaap:TradeNamesMember 2020-01-01 2020-03-31 0001350381 us-gaap:PatentsMember 2019-12-31 0001350381 us-gaap:CustomerListsMember 2020-03-31 0001350381 us-gaap:TradeNamesMember 2019-12-31 0001350381 us-gaap:NoncompeteAgreementsMember 2020-01-01 2020-03-31 0001350381 us-gaap:CustomerListsMember 2019-12-31 0001350381 us-gaap:PatentsMember 2020-03-31 0001350381 us-gaap:PatentsMember 2020-01-01 2020-03-31 0001350381 inwk:RestructuringPlan2018Member 2019-01-01 2019-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:RestructuringPlan2018Member inwk:NorthAmericaSegmentMember 2020-01-01 2020-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:RestructuringPlan2018Member inwk:LatinAmericaSegmentMember 2019-01-01 2019-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:RestructuringPlan2018Member inwk:EuropeMiddleEastandAfricaSegmentMember 2020-01-01 2020-03-31 0001350381 us-gaap:IntersegmentEliminationMember inwk:RestructuringPlan2018Member 2020-01-01 2020-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:RestructuringPlan2018Member inwk:EuropeMiddleEastandAfricaSegmentMember 2019-01-01 2019-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:RestructuringPlan2018Member inwk:LatinAmericaSegmentMember 2020-01-01 2020-03-31 0001350381 inwk:RestructuringPlan2018Member 2020-01-01 2020-03-31 0001350381 us-gaap:IntersegmentEliminationMember inwk:RestructuringPlan2018Member 2019-01-01 2019-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:RestructuringPlan2018Member inwk:NorthAmericaSegmentMember 2019-01-01 2019-03-31 0001350381 srt:MinimumMember us-gaap:EmployeeSeveranceMember inwk:RestructuringPlan2018Member 2020-02-24 0001350381 inwk:RestructuringPlan2018Member 2018-08-10 0001350381 srt:MaximumMember inwk:RestructuringPlan2018Member 2018-08-10 0001350381 us-gaap:EmployeeSeveranceMember inwk:RestructuringPlan2015Member 2015-12-14 2015-12-14 0001350381 inwk:RestructuringPlan2018Member 2018-08-01 2020-03-31 0001350381 srt:MaximumMember inwk:CompensationRealignmentandOtherRetentionMember inwk:RestructuringPlan2018Member 2020-02-24 0001350381 srt:MinimumMember us-gaap:ContractTerminationMember inwk:RestructuringPlan2018Member 2020-02-24 0001350381 srt:MinimumMember inwk:RestructuringPlan2018Member 2020-02-24 0001350381 inwk:RestructuringPlan2018Member 2020-02-24 0001350381 srt:MinimumMember inwk:CompensationRealignmentandOtherRetentionMember inwk:RestructuringPlan2018Member 2020-02-24 0001350381 inwk:RestructuringPlan2015Member 2015-12-14 2015-12-14 0001350381 srt:MaximumMember us-gaap:ContractTerminationMember inwk:RestructuringPlan2018Member 2020-02-24 0001350381 srt:MaximumMember inwk:RestructuringPlan2018Member 2020-02-24 0001350381 srt:MinimumMember inwk:RestructuringPlan2018Member 2018-08-10 0001350381 us-gaap:ContractTerminationMember inwk:RestructuringPlan2015Member 2015-12-14 2015-12-14 0001350381 srt:MaximumMember us-gaap:EmployeeSeveranceMember inwk:RestructuringPlan2018Member 2020-02-24 0001350381 us-gaap:OtherRestructuringMember inwk:RestructuringPlan2018Member 2020-01-01 2020-03-31 0001350381 us-gaap:EmployeeSeveranceMember inwk:RestructuringPlan2018Member 2020-03-31 0001350381 us-gaap:ContractTerminationMember inwk:RestructuringPlan2018Member 2020-01-01 2020-03-31 0001350381 inwk:RestructuringPlan2018Member 2019-12-31 0001350381 us-gaap:EmployeeSeveranceMember inwk:RestructuringPlan2018Member 2020-01-01 2020-03-31 0001350381 inwk:CompensationRealignmentandOtherRetentionMember inwk:RestructuringPlan2018Member 2020-03-31 0001350381 inwk:CompensationRealignmentandOtherRetentionMember inwk:RestructuringPlan2018Member 2019-12-31 0001350381 inwk:CompensationRealignmentandOtherRetentionMember inwk:RestructuringPlan2018Member 2020-01-01 2020-03-31 0001350381 us-gaap:OtherRestructuringMember inwk:RestructuringPlan2018Member 2020-03-31 0001350381 us-gaap:EmployeeSeveranceMember inwk:RestructuringPlan2018Member 2019-12-31 0001350381 us-gaap:ContractTerminationMember inwk:RestructuringPlan2018Member 2019-12-31 0001350381 us-gaap:ContractTerminationMember inwk:RestructuringPlan2018Member 2020-03-31 0001350381 us-gaap:OtherRestructuringMember inwk:RestructuringPlan2018Member 2019-12-31 0001350381 inwk:RestructuringPlan2018Member 2020-03-31 0001350381 us-gaap:ContractTerminationMember inwk:RestructuringPlan2015Member 2019-12-31 0001350381 inwk:RestructuringPlan2015Member 2019-12-31 0001350381 us-gaap:EmployeeSeveranceMember inwk:RestructuringPlan2015Member 2020-01-01 2020-03-31 0001350381 inwk:RestructuringPlan2015Member 2020-01-01 2020-03-31 0001350381 inwk:RestructuringPlan2015Member 2020-03-31 0001350381 us-gaap:OtherRestructuringMember inwk:RestructuringPlan2015Member 2020-01-01 2020-03-31 0001350381 us-gaap:EmployeeSeveranceMember inwk:RestructuringPlan2015Member 2020-03-31 0001350381 us-gaap:ContractTerminationMember inwk:RestructuringPlan2015Member 2020-01-01 2020-03-31 0001350381 us-gaap:OtherRestructuringMember inwk:RestructuringPlan2015Member 2019-12-31 0001350381 us-gaap:ContractTerminationMember inwk:RestructuringPlan2015Member 2020-03-31 0001350381 us-gaap:EmployeeSeveranceMember inwk:RestructuringPlan2015Member 2019-12-31 0001350381 us-gaap:OtherRestructuringMember inwk:RestructuringPlan2015Member 2020-03-31 0001350381 2019-02-21 2019-02-21 0001350381 inwk:EnovaInc.Member 2019-01-01 2019-03-31 0001350381 inwk:EnovaInc.Member 2019-12-31 0001350381 inwk:EnovaInc.Member 2020-01-01 2020-03-31 0001350381 inwk:EnovaInc.Member 2020-03-31 0001350381 inwk:EmploymentArbitrationClaimMember 2014-01-01 2014-01-31 0001350381 inwk:WrongfulTerminationLawsuitProductionsGraphicsMember 2013-12-01 2013-12-31 0001350381 inwk:WrongfulTerminationLawsuitProductionsGraphicsMember 2015-09-30 0001350381 inwk:WrongfulTerminationLawsuitProductionsGraphicsMember 2014-02-28 0001350381 country:CN us-gaap:RevolvingCreditFacilityMember 2020-03-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember 2019-07-16 2019-07-16 0001350381 srt:MaximumMember country:US us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember us-gaap:BaseRateMember 2019-07-16 2019-07-16 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember 2019-07-16 0001350381 srt:MinimumMember country:US us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember us-gaap:BaseRateMember 2019-07-16 2019-07-16 0001350381 country:US us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember 2020-03-31 0001350381 srt:MinimumMember country:GB us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember us-gaap:BaseRateMember 2019-07-16 2019-07-16 0001350381 country:CN us-gaap:RevolvingCreditFacilityMember 2019-07-16 0001350381 country:GB us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember 2020-03-31 0001350381 country:CN us-gaap:RevolvingCreditFacilityMember us-gaap:BaseRateMember 2016-02-22 2016-02-22 0001350381 srt:MaximumMember us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-07-16 2019-07-16 0001350381 srt:MaximumMember country:GB us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember us-gaap:BaseRateMember 2019-07-16 2019-07-16 0001350381 us-gaap:LetterOfCreditMember inwk:ABLCreditAgreementMember 2019-07-16 0001350381 country:GB us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember 2019-07-16 0001350381 country:CN us-gaap:RevolvingCreditFacilityMember 2016-02-22 0001350381 srt:MinimumMember us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-07-16 2019-07-16 0001350381 us-gaap:BridgeLoanMember inwk:ABLCreditAgreementMember 2019-07-16 0001350381 inwk:TermLoanFacilityMember 2020-03-31 0001350381 inwk:InitialWarrantMember inwk:TermLoanFacilityMember 2020-03-31 0001350381 inwk:TermLoanCreditAgreementMember 2019-07-16 2019-07-16 0001350381 srt:MinimumMember inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember us-gaap:PrimeRateMember 2019-07-16 2019-07-16 0001350381 inwk:TermLoanCreditAgreementMember 2020-01-01 2020-03-31 0001350381 srt:MinimumMember inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-07-16 2019-07-16 0001350381 srt:MaximumMember inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember us-gaap:PrimeRateMember 2019-07-16 2019-07-16 0001350381 inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember 2019-01-01 2019-09-30 0001350381 inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember 2019-07-16 0001350381 inwk:InitialWarrantMember 2019-07-16 2019-07-16 0001350381 srt:MaximumMember inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-07-16 2019-07-16 0001350381 inwk:TermLoanCreditAgreementMember 2019-07-16 0001350381 inwk:InitialWarrantMember 2019-07-16 0001350381 2019-07-16 2019-07-16 0001350381 srt:ScenarioForecastMember inwk:TermLoanFacilityMember inwk:TermLoanCreditAgreementMember 2020-10-01 2020-10-01 0001350381 inwk:InitialWarrantMember 2020-03-31 0001350381 inwk:InitialWarrantMember 2020-01-01 2020-03-31 0001350381 inwk:InitialWarrantMember 2019-12-31 0001350381 us-gaap:MeasurementInputExpectedDividendRateMember 2020-03-31 0001350381 us-gaap:MeasurementInputPriceVolatilityMember 2020-03-31 0001350381 us-gaap:MeasurementInputRiskFreeInterestRateMember 2020-03-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001350381 inwk:TermLoanFacilityMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001350381 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001350381 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001350381 inwk:TermLoanFacilityMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001350381 us-gaap:RevolvingCreditFacilityMember inwk:ABLCreditAgreementMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001350381 us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001350381 inwk:TermLoanFacilityMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:NorthAmericaSegmentMember 2020-01-01 2020-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:NorthAmericaSegmentMember 2019-01-01 2019-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:EuropeMiddleEastandAfricaSegmentMember 2020-01-01 2020-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:EuropeMiddleEastandAfricaSegmentMember 2019-01-01 2019-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:LatinAmericaSegmentMember 2019-01-01 2019-03-31 0001350381 us-gaap:OperatingSegmentsMember inwk:LatinAmericaSegmentMember 2020-01-01 2020-03-31 0001350381 us-gaap:IntersegmentEliminationMember 2020-01-01 2020-03-31 0001350381 us-gaap:IntersegmentEliminationMember 2019-01-01 2019-03-31 iso4217:USD xbrli:shares iso4217:USD iso4217:EUR inwk:employee xbrli:shares inwk:segment inwk:day xbrli:pure
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________ 

FORM 10-Q
________________________________________ 
  
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020  
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from                              to
 
Commission File Number 000-52170
________________________________________ 
 
INNERWORKINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
________________________________________ 
Delaware
 
20-5997364
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
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)

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
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes:       No:  
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes:        No:  
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer," "accelerated filer,” "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
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.



Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes:  No:   

As of June 15, 2020, the Registrant had 52,689,449 shares of Common Stock, par value $0.0001 per share, outstanding.




EXPLANATORY NOTE

Reliance on SEC Relief from Filing Requirements

In accordance with the Securities and Exchange Commission (the "SEC") Order under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), dated March 4, 2020 and March 25, 2020 (Release Nos. 34-88318 and 34-88465), granting exemptions from specified provisions of the Exchange Act and certain rules thereunder, InnerWorkings, Inc. (the “Company”) is relying on the relief provided by the Order to delay the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Report”).

On May 11, 2020, the Company filed a Current Report on Form 8-K stating that it is relying on the Order to delay the filing of the Report by up to 45 days. The Company was unable to compile and review certain information required in order to file the Report by the filing deadline due to difficulties in developing an updated forecast reflecting the negative impact on the Company's operations as a result of COVID-19 and the related valuation and accounting for goodwill and long-lived assets due to the sustained decrease in the Company's stock price which triggered an interim impairment assessment.






INNERWORKINGS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
TABLE OF CONTENTS
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 
 
 

4


PART I. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

InnerWorkings, Inc. and subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(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
)
 
 
 
 
Basic loss per share
$
(0.05
)
 
$
(0.04
)
Diluted loss per share
$
(0.15
)
 
$
(0.04
)
 
 
 
 
Comprehensive loss
$
(7,936
)
 
$
(1,332
)
The accompanying notes form an integral part of the condensed consolidated financial statements.
 

5


InnerWorkings, Inc. and subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(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, par value $0.0001 per share, 200,000 shares authorized, 64,831 and 64,820 shares issued, and 52,143 and 52,133 shares outstanding, respectively
6

 
6

Additional paid-in capital
246,769

 
245,311

Treasury stock at cost, 12,688 and 12,688 shares, respectively
(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

The accompanying notes form an integral part of the condensed consolidated financial statements.

6


InnerWorkings, Inc. and subsidiaries 
Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
(Unaudited)

 
Common Stock
 
Additional Paid-in-Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Balance as of December 31, 2019
64,820

 
$
6

 
$
245,311

 
12,688

 
$
(81,471
)
 
$
(22,449
)
 
$
36,855

 
$
178,252

Net loss

 

 
 
 

 

 

 
(2,840
)
 
(2,840
)
Total other comprehensive loss - foreign currency translation adjustments

 

 
 
 

 

 
(5,096
)
 

 
(5,096
)
Issuance of common stock upon exercise of stock awards, net of withheld shares
11

 

 
(22
)
 


 


 

 

 
(22
)
Stock-based compensation expense

 

 
1,480

 


 

 

 

 
1,480

Cumulative effect of change related to adoption of ASC 326

 

 
 
 


 

 

 
117

 
117

Balance as of March 31, 2020
64,831

 
$
6

 
$
246,769

 
12,688

 
$
(81,471
)
 
$
(27,545
)
 
$
34,132

 
$
171,891


 
Common Stock
 
Additional Paid-in-Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Balance as of December 31, 2018
64,495

 
$
6

 
$
239,960

 
12,688

 
$
(81,471
)
 
$
(24,311
)
 
$
46,771

 
$
180,955

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
(2,044
)
 
(2,044
)
Total other comprehensive income - foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
712

 
 
 
712

Issuance of common stock upon exercise of stock awards, net of withheld shares
39

 
 
 
35

 
 
 
 
 
 
 
 
 
35

Stock-based compensation expense
 
 
 
 
739

 
 
 
 
 
 
 
 
 
739

Cumulative effect of change related to adoption of ASC 842
 
 
 
 
 
 
 
 
 
 
 
 
159

 
159

Balance as of March 31, 2019
64,534

 
$
6

 
$
240,734

 
12,688

 
$
(81,471
)
 
$
(23,599
)
 
$
44,886

 
$
180,556

The accompanying notes form an integral part of the condensed consolidated financial statements.

7


InnerWorkings, Inc. and subsidiaries
Condensed Consolidated Statements 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

The accompanying notes form an integral part of the condensed consolidated financial statements.

8

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)




1. Basis of Presentation

Basis of Presentation of Interim Financial Statements
 
The accompanying unaudited condensed consolidated financial statements of InnerWorkings, Inc. and subsidiaries (the “Company”) included herein have been prepared to conform to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles in the United States (“GAAP”) for interim financial information. Footnote disclosures that would substantially duplicate the disclosures included in the December 31, 2019 audited financial statements have been omitted from these interim unaudited financial statements pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of the accompanying unaudited financial statements have been included, and all adjustments are of a normal and recurring nature. The operating results for the three month period ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020. These condensed consolidated interim financial statements and notes should be read in conjunction with the Company’s condensed consolidated financial statements and notes thereto as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 17, 2020.

Highly Inflationary Accounting

During 2018, the Argentinian economy was classified as highly inflationary under GAAP due to multiple years of increasing inflation, resulting in the remeasurement of our Argentinian operations into U.S. dollars.  The application of highly inflationary accounting did not have a material impact on the Company’s condensed consolidated financial statements for the three months ended March 31, 2020 and 2019.

Accounts Receivable and Other Financial Assets

Accounts receivable are uncollateralized customer obligations due under normal trade terms. Payment terms with customers are generally 30 to 90 days from the invoice date. Accounts receivable are stated in the condensed consolidated financial statements at the amount billed to the customer, less an estimate for potential credit losses. Interest is not generally accrued on outstanding balances.

The Company records an allowance for credit losses at the time that accounts receivable are initially recorded based on consideration of the current economic environment, expectation of future economic conditions, the Company’s historical collection experience and a loss-rate approach whereby the allowance is calculated using an estimated historical loss rate formulated by the age of the financial asset and multiplying it by the asset’s amortized cost at the balance sheet date. The Company reassesses its allowance at each reporting period. Aged receivables are written off when it becomes evident, based on age or unique customer circumstance, that such amounts will not be collected and all reasonable collection efforts have been exhausted. The accounts receivable allowance expense is recorded within selling, general, and administrative expenses on the Company's Condensed Consolidated Statement of Comprehensive Loss.

Additionally, the Company records an allowance for credit losses on other forms of financial assets, including unbilled revenue, other receivables, and other non-current assets. These forms of financial assets require a reserve under ASC 326, Financial Instruments - Credit Losses, as the financial assets are measured at amortized cost and represent receivables that result from revenue transactions under the scope of ASC 606, Revenue from Contracts with Customers, and other off-balance-sheet credit exposures, such as third-party supplier loan commitments. The Company records an allowance at the time the financial assets are initially recorded based on consideration of qualitative factors specific to the financial asset, including, but not limited to, credit-worthiness of the customer or supplier, in addition to the economic and historical collection factors previously noted. The allowances for credit losses for unbilled revenue, other receivables, and other non-current assets are immaterial to the condensed consolidated financial statements as of March 31, 2020. The other financial asset allowance expenses are recorded within selling, general, and administrative expenses on the Company's Condensed Consolidated Statement of Comprehensive Loss.

The Company believes its allowances are appropriately stated considering the quality of its financial asset portfolio as of March 31, 2020. While credit losses have historically been within expectations and the provisions established, the Company cannot guarantee that its credit loss experience will continue to be consistent with historical experience.

9

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)




Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to measure the impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. The guidance introduces a new credit reserving methodology known as the Current Expected Credit Loss ("CECL") methodology, which will alter the estimation process, inputs, and assumptions used in estimating credit losses. For the financial assets that are under the scope of this standard, entities will be required to use a new forward-looking “expected loss” model that estimates the loss over the lifetime of the asset based on macroeconomic conditions that correlate with historical loss experience, delinquency trends and aging behavior of receivables, current conditions, and reasonable and supportable forecasts. This will result in earlier recognition of allowance for doubtful accounts and will replace the Company’s “incurred loss” model that delayed the full amount of credit loss until the loss is probable of occurring. In addition, the standard requires entities to evaluate financial instruments by recording allowance for doubtful accounts by pooling of instruments based on similar risk characteristics, rather than a specific identification approach. The effective date is for fiscal years beginning after December 15, 2019, with early adoption permitted for financial statement periods beginning after December 15, 2018. The Company adopted ASU 2016-13 and related ASUs effective January 1, 2020 using a modified-retrospective transition method. The adoption and application of this standard did not have a material impact to the condensed consolidated financial statements. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected losses.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The effective date is the first quarter of fiscal year 2020, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company adopted this guidance in the first quarter of 2020 with no material impact on its condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of adoption of this ASU on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The optional amendments are effective as of March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impacts the adoption of this guidance will have on its condensed consolidated financial statements.

2. Revenue Recognition

Nature of Goods and Services

The Company primarily generates revenue from the procurement of marketing materials for customers. Service revenue including creative, design, installation, warehousing and other services has not been material to the Company’s overall revenue to date. Products and services may be sold separately or in bundled packages. For bundled packages, the Company accounts for individual products and services separately if they are distinct - that is, if a product or service is separately identifiable from

10

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

The Company includes any fixed charges per its contracts as part of the total transaction price. The transaction price is allocated between separate products and services in a bundle based on their standalone selling prices. The standalone selling prices are generally determined based on the prices at which the Company separately sells the products and services.

Revenue is measured based on consideration specified in a contract with a customer. Contracts may include variable consideration (for example, customer incentives such as rebates), and to the extent that variable consideration is not constrained, the Company includes the expected amount within the total transaction price and updates its assumptions over the duration of the contract. The constraint will generally not result in a reduction in the estimated transaction price.

The Company’s performance obligations related to the procurement of marketing materials are typically satisfied upon shipment or delivery of its products to customers, at which time the Company recognizes revenue. Payment is typically due from the customer at this time or shortly thereafter. Unbilled revenue represents shipments or deliveries that have been made to customers for which the related account receivable has not yet been invoiced. The Company does not have material future performance obligations that extend beyond one year.

Some service revenue, including stand-alone creative and other services, may be recognized over time but the difference between recognizing that revenue over time versus at a point in time when the service is completed and accepted by the customer is not material to the Company’s overall revenue to date.

Costs to Fulfill Customer Contracts and Contract Liabilities

The Company capitalizes certain setup costs related to new customers as fulfillment costs. Capitalized contract costs are amortized over the expected period of benefit using the straight-line method which is generally three years.

Contract liabilities are referred to as deferred revenue in the condensed consolidated financial statements. We record deferred revenue when cash payments are received in advance of satisfying our performance obligations, and we recognize revenue as these obligations are satisfied.

For the three months ended March 31, 2020 and 2019, the amount of amortization was $0.1 million and $0.1 million, respectively, and there was no impairment loss in relation to the costs capitalized in either period presented.

The following table is a summary of the Company's costs to fulfill and contract liabilities (in thousands):
 
March 31, 2020
 
December 31, 2019
Costs to fulfill
$
1,224

 
$
1,238

Contract liabilities
9,495

 
9,568

Cash received
7,809

 
36,662

Revenue recognized
7,882

 
44,708



Costs to Obtain a Customer Contract

The Company incurs certain incremental costs to obtain a contract that the Company expects to recover. The Company applies a practical expedient and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs would primarily relate to commissions paid to our account executives and are included in selling, general and administrative expenses.

No incremental costs to obtain a contract incurred by the Company during the three months ended March 31, 2020 and 2019 were required to be capitalized.

Transaction Price Allocated to Remaining Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March 31, 2020. The Company does not have material future performance

11

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



obligations that extend beyond one year. Accordingly, the Company has applied the optional exemption for contracts that have an original expected duration of one year or less. The nature of the remaining performance obligations as well as the nature of the variability and how it will be resolved is described above.

3. Allowance for Expected Credit Losses

The following is a rollforward of the allowance for expected credit losses related to the Company's trade receivables for the quarter ended March 31, 2020 (in thousands):
Balance as of December 31, 2019
$
3,830

Adjustment for adoption of ASU 2016-13
(431
)
Balance as of January 1, 2020
3,399

Current provision for expected credit losses
(637
)
Recoveries and write-offs
(4
)
Balance as of March 31, 2020
$
2,758



4. Goodwill

The following is a rollforward of goodwill for each reportable segment for the quarter ended March 31, 2020 (in thousands): 
 
North America
 
EMEA
 
LATAM
 
Total
Goodwill as of December 31, 2019
 
 
 
 
 
 
 
Goodwill
$
170,642

 
$
96,225

 
$
7,109

 
$
273,976

Accumulated impairment
(18,432
)
 
(96,225
)
 
(7,109
)
 
(121,766
)
 
152,210

 

 

 
152,210

 
 
 
 
 
 
 
 
Goodwill impairment
(7,191
)
 

 

 
(7,191
)
Foreign exchange impact
(94
)
 

 

 
(94
)
 
 
 
 
 
 
 
 
Goodwill as of March 31, 2020
 
 
 
 
 
 
 
Goodwill
170,548

 
96,225

 
7,109

 
273,882

Accumulated impairment
(25,623
)
 
(96,225
)
 
(7,109
)
 
(128,957
)
 
$
144,925

 
$

 
$

 
$
144,925



2020 Goodwill Impairment Charges

As of March 31, 2020, the Company performed an interim impairment assessment due to a triggering event caused by a sustained decrease in the Company's stock price and lower outlook due to the deterioration in economic conditions caused by COVID-19. The Company determined a fair value for its North America reporting unit that considered both the discounted cash flow and guideline public company methods. The Company further compared the fair value of the reporting unit to its carrying value. The fair value for the North America reporting unit was less than its carrying value and resulted in a non-cash goodwill impairment charge of $7.2 million. No tax benefit was recognized on such charge, and this charge had no impact on the Company's cash flows or compliance with debt covenants.


12

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



5. Other Intangibles and Long-Lived Assets

The following is a summary of the Company’s intangible assets as of March 31, 2020 and December 31, 2019 (in thousands):
 
March 31, 2020
 
December 31, 2019
 
Weighted
Average Life in Years
Customer lists
$
73,192

 
$
73,678

 
13.6
Non-competition agreements
944

 
959

 
4.1
Trade names
2,510

 
2,510

 
13.3
Patents
57

 
57

 
9.0
 
76,703

 
77,204

 
 
Less accumulated amortization and impairment
 
 
 
 
 
Customer lists
(66,382
)
 
(66,382
)
 
 
Non-competition agreements
(944
)
 
(959
)
 
 
Trade names
(2,133
)
 
(2,098
)
 
 
Patents
(51
)
 
(51
)
 
 
Total accumulated amortization and impairment
(69,510
)
 
(69,490
)
 
 
Intangible assets, net
$
7,193

 
$
7,714

 
 


Amortization expense related to these intangible assets was $0.6 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively.
 
As of March 31, 2020, estimated amortization expense for the remainder of 2020 and each of the next five years and thereafter is as follows (in thousands):
Remainder of 2020
$
1,583

2021
1,782

2022
1,406

2023
960

2024
744

2025
465

Thereafter
253

 
$
7,193



6. Restructuring Activities and Charges

2018 Restructuring Plan

On August 10, 2018, the Company approved a plan to reduce the Company's cost structure while driving value for its clients and stockholders. The plan was adopted as a result of the Company's determination that its selling, general and administrative costs were disproportionately high in relation to its revenue and gross profit. At the time of adoption, the plan was expected to be completed by the end of 2019 and the Company expected to incur pre-tax cash restructuring charges of $20.0 million to $25.0 million and pre-tax non-cash restructuring charges of $0.4 million. Where required by law, the Company consults with each of the affected country’s local Works Councils prior to implementing the plan. On February 21, 2019, the Board of Directors approved a two-year extension to the restructuring plan through the end of 2021.

On February 24, 2020, the Company approved an increase in the size of the 2018 Restructuring Plan. From adoption through completion of the plan, the Company expects to incur pre-tax cash restructuring charges of $35.0 million to $45.0 million and pre-tax non-cash restructuring charges of $0.5 million. Cash charges are expected to include $9.0 million to $12.0 million for employee severance and related benefits, $8.0 million to $10.0 million for consulting fees and lease and contract terminations,

13

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



and $18.0 million to $23.0 million for compensation realignment and other retention. The Company's increased 2018 Restructuring Plan will cover cost-reduction actions associated with the COVID-19 pandemic.

The following table summarizes the accrued restructuring activities for this plan for the three months ended March 31, 2020 (in thousands):
 
 
Employee Severance and Related Benefits
 
Lease and Contract Termination Costs
 
Compensation Realignment and Other Retention
 
Other
 
Total
Balance as of December 31, 2019
 
$
666

 
$
23

 
$
3,636

 
$
258

 
$
4,583

Charges
 
534

 
358

 
2,399

 
346

 
3,637

Prepayments(1)
 

 

 
104

 

 
104

Cash payments
 
(1,117
)
 
(358
)
 
(2,876
)
 
(206
)
 
(4,557
)
Non-cash settlements/adjustments(2)
 
15

 
(2
)
 

 

 
13

Balance as of March 31, 2020
 
$
98

 
$
21

 
$
3,263

 
$
398

 
$
3,780


(1) For compensation realignment and other retention amounts, expense is recognized over a mandatory future service period, whereby payments occur at certain intervals throughout the mandatory future service period. Prepayments reflected in this line item represent payments that have occurred as of March 31, 2020.
(2) Non-cash settlements and adjustments consist of (1) differences in total lease expense per ASC 842 and cash rental payments for leases that qualify to be recorded to restructuring and (2) foreign currency impacts.

The Company recorded the following restructuring costs by segment (in thousands):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
North America
 
$
2,236

 
$
192

EMEA
 
880

 
1,079

LATAM
 
164

 
35

Other
 
357

 
2,628

Total
 
$
3,637

 
$
3,934



From adoption through March 31, 2020, the Company recognized $25.6 million in total restructuring charges pursuant to the 2018 Restructuring Plan.

2015 Restructuring Plan

On December 14, 2015, the Company approved a global realignment plan that allowed the Company to more efficiently meet client needs across its international platform. Through improved integration of global resources, the plan created back office and other efficiencies and allowed for the elimination of approximately 100 positions. In connection with these actions, the Company incurred total pre-tax cash restructuring charges of $6.7 million, the majority of which were recognized during 2016. These cash charges included approximately $5.6 million for employee severance and related benefits and $1.1 million for lease and contract terminations and other associated costs. The charges were all incurred by the end of 2016 with the final payouts occurring during the three months ended March 31, 2020.

14

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)




The following table summarizes the accrued restructuring activities for this plan for the three months ended March 31, 2020 (in thousands), all of which relate to EMEA:
 
 
Employee Severance and Related Benefits
 
Lease and Contract Termination Costs
 
Other
 
Total
Balance as of December 31, 2019
 
$
122

 
$

 
$

 
$
122

Charges
 
(36
)
 

 

 
(36
)
Cash payments
 
(86
)
 

 

 
(86
)
Balance as of March 31, 2020
 
$

 
$

 
$

 
$



7. Income Taxes
 
The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The Company’s reported effective income tax rate was 17.6% and 40.9% for the three months ended March 31, 2020 and 2019, respectively. The Company’s effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, valuation allowances, impacts of the Tax Reform Act, and foreign tax rates that are different than the U.S. federal statutory tax rate. In addition, the effective tax rate can be impacted each period by discrete factors and events such as a write-off of a deferred tax asset for stock‑based compensation due to the expiration of unexercised stock options and prior year provision to return adjustments.
   
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will expire unutilized. At the end of each reporting period, the Company reviews the realizability of its deferred tax assets. There were no material valuation adjustments for the three months ended March 31, 2020 and 2019. Additionally, the Company continues to incur losses in jurisdictions which have valuation allowances against tax loss carryforwards, so a tax benefit has not been recognized in the financial statements for these losses.

8. Loss Per Share
 
Basic loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. The Initial Warrant, as defined in Note 12, Long-Term Debt, was issued at a nominal exercise price and is considered outstanding at the date of issuance. Diluted loss per share is calculated by dividing net loss by the weighted average shares outstanding assuming dilution. Dilutive common shares outstanding is computed using the treasury stock method and reflects the additional shares that would be outstanding if dilutive stock options were exercised and restricted stock and restricted stock units were settled for common shares during the period. In addition, dilutive shares include any shares issuable related to performance share units ("PSUs") for which the performance conditions have been met as of the end of the period.

There were no dilutive effects for securities during the three months ended March 31, 2019 as a result of a net loss incurred in the period. In connection with the closing of the term loan in the third quarter of 2019, the Company issued the Initial Warrant which is classified and recorded as a liability at fair value with subsequent changes in fair value recognized in earnings. Refer to Note 12, Long-Term Debt, for additional information. For diluted earnings per share, changes in fair value related to the Initial Warrant are adjusted out of earnings when the adjustment would not result in an increase to earnings and thus be considered antidilutive. As the adjustment to exclude the change in fair value would decrease earnings this period, net loss for the period was adjusted for the three months ended March 31, 2020.

15

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)




The computation of basic and diluted loss per share is as follows (in thousands, except per share amounts):
 
 
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
)


9. Related Party Transactions
 
In the fourth quarter of 2017, the Company began providing marketing execution services to Enova International, Inc. ("Enova"). David Fisher, a member of the Company's Board of Directors, is the Chairman and Chief Executive Officer of Enova and has a direct ownership interest in Enova. The total amount billed for such services during the three months ended March 31, 2020 and 2019 was $3.7 million and $2.7 million, respectively. The amounts receivable from Enova were $2.3 million and $4.6 million as of March 31, 2020 and December 31, 2019, respectively.
 
10. Commitments and Contingencies
 
Self-insurance

The Company is self-insured for medical claims which is subject to stop-loss protection. An actuarial calculation of the estimated claims incurred but not reported is provided to the Company each period. The estimated claims incurred is currently updated semi-annually as it is immaterial in relation to the liability due to the limited population of claims since moving to the self-funded model on January 1, 2020. Further, the Company considered COVID-19's effect on insurance claims and recorded an immaterial additional liability based on actuarial estimates of the impact it will have on our claims. As of March 31, 2020, the medical claims liability was $1.1 million, and the liability is recorded within other current liabilities on the Company's Condensed Consolidated Balance Sheet.

Legal Contingencies

In October 2013, the Company removed the former owner of Productions Graphics from his role as President of Productions Graphics, the Company’s French subsidiary. He had been in that role since the Company’s 2011 acquisition of Productions Graphics, a European business then principally owned by him. In December 2013, the former owner of Productions Graphics initiated a wrongful termination claim in the Commercial Court of Paris seeking approximately 0.7 million (approximately $1.0 million) in fees and damages. The Company disputes the allegations of the former owner of Productions Graphics and intends to vigorously defend these matters. In February 2014, based on a review the Company initiated into certain transactions associated with the former owner of Productions Graphics, the Company concluded that he had engaged in fraud by inflating the results of the Productions Graphics business in order to induce the Company to pay him 7.1 million in contingent consideration pursuant to the acquisition agreement. In light of those findings, in February 2014, the Company filed a criminal complaint in France seeking to redress the harm caused by his conduct and this proceeding is currently pending. In addition, in September 2015, the Company initiated a civil claim in the Paris Commercial Court against the former owner of Productions Graphics, seeking civil damages to redress these same harms. In addition to these pending matters, there may be other potential

16

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



disputes between the Company and the former owner of Productions Graphics relating to the acquisition agreement. The Company had paid 5.8 million (approximately $8.0 million) in fixed consideration and 7.1 million (approximately $9.4 million) in contingent consideration to the former owner of Productions Graphics; the remaining maximum contingent consideration under the acquisition agreement was 34.5 million (approximately $37.6 million at the time) and the Company has determined that none of this amount was earned and payable.

In January 2014, a former finance employee of Productions Graphics initiated wrongful termination and overtime claims in the Labor Court of Boulogne-Billancourt, and he currently seeks damages of approximately 0.6 million (approximately $0.7 million). The Company disputes these allegations and intends to vigorously defend these matters. In addition, the Company’s criminal complaint in France, described above, seeks to redress harm caused by this former employee in light of his participation in the fraudulent transactions described above. The labor claim has been stayed in deference to the Company’s related criminal complaint.

11. Revolving Credit Facility

ABL Credit Agreement

On July 16, 2019, the Company and certain of its direct and indirect subsidiaries entered into a loan and security agreement (the “ABL Credit Agreement”) with Bank of America, N.A., as administrative agent, lender, issuing bank and collateral agent, and JPMorgan Chase Bank, N.A. and PNC Bank, National Association, as lenders (the “ABL Credit Facility”).

The ABL Credit Facility consists of a $105.0 million asset-based revolving line of credit, of which up to (i) $15.0 million may be used for UK Revolver Loans (as defined in the ABL Credit Agreement), (ii) $10.5 million may be used for Swingline Loans (as defined in the ABL Credit Agreement), and (iii) $10.0 million may be used for letters of credit. The ABL Credit Agreement provides that the revolving line of credit may be increased by up to an additional $20.0 million following satisfaction of certain conditions. The ABL Credit Facility matures on July 16, 2024. Advances under the ABL Credit Facility bear interest at either: (a) LIBOR (as defined in the ABL Credit Agreement), plus an applicable margin ranging from 2.00% to 2.50% for US LIBOR Loans and UK LIBOR Loans (each as defined in the ABL Credit Agreement); (b) the US Base Rate (as defined in the ABL Credit Agreement), plus an applicable margin ranging from 1.00% to 1.50% for US Base Rate Loans (as defined in the ABL Credit Agreement); or (c) the UK Base Rate (as defined in the ABL Credit Agreement), plus an applicable margin ranging from 2.00% to 2.50% for UK Base Rate Loans (as defined in the ABL Credit Agreement).

The Company’s obligations under the ABL Credit Agreement are guaranteed by certain of its subsidiaries pursuant to a guaranty included in the ABL Credit Agreement. As security for the Company’s and its subsidiaries’ obligations under the ABL Credit Agreement, each of the Company and the subsidiaries party thereto have granted: (i) a first priority lien on the Company’s and such subsidiaries’ accounts receivable, chattel paper (to the extent evidencing accounts receivable), inventory, deposit accounts, general intangibles related to the foregoing and proceeds related thereto; and (ii) a second-priority lien on substantially all its other tangible and intangible personal property, including the capital stock of certain of the Company’s direct and indirect subsidiaries. The priority of the liens is described in an intercreditor agreement between Bank of America, N.A. as ABL Agent and TCW Asset Management Company LLC as Term Agent (the “Intercreditor Agreement”).

The ABL Credit Agreement contains a minimum fixed charge coverage ratio financial covenant that must be maintained when excess availability falls below a specified amount. In addition, the ABL Credit Agreement contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The ABL Credit Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the ABL Credit Agreement to be in full force and effect, and a change of control of the Company’s business. The usage and total commitment of these Loans shall not exceed the respective borrowing base set forth in the ABL Credit Agreement.

Within the ABL Credit Agreement, there is a cash dominion requirement for the United States ("US") and United Kingdom ("UK"). In the United States, Bank of America, N.A. (the agent) shall only exercise cash dominion and apply all customer collections of the US borrowers to US obligations when a Trigger Period exists, as defined in the ABL Credit Agreement. In the United Kingdom, all customer collections of the UK borrowers will be applied on a daily basis to any outstanding UK obligations and any credit balance will be transferred back to an account of the UK borrowers. The customer collections of the UK borrowers are only applied against the UK obligations. As a result of the cash dominion, the amount outstanding under the ABL Credit

17

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



Agreement for UK borrowers has been classified as a current obligation. The amount outstanding under the ABL Credit Agreement for US borrowers has been classified as a long-term obligation, as no Trigger Period has yet occurred nor is considered probable. The amounts outstanding under the ABL Credit Agreement as of March 31, 2020 for the UK borrowers and the US borrowers are $0.1 million and $60.0 million, respectively.

The Company's deferred financing fees of approximately $2.0 million are presented as an asset and amortized on a straight-line basis over the term of the ABL Credit Agreement. Amortization of deferred financing fees is recorded in interest expense and was approximately $0.1 million.

The Company has determined that the interest rate reset features embedded in the ABL Credit Agreement constitute an embedded derivative (collectively, the “ABL Embedded Derivative”) which has been bifurcated from the ABL Credit Facility and recorded as a derivative liability at fair value, with a corresponding discount recorded to the associated debt. The Company recorded immaterial interest expense for the amortization of the ABL Embedded Derivative discount through March 31, 2020.

The following schedule shows the change in fair value of the ABL Embedded Derivative at March 31, 2020 (in thousands):
December 31, 2019
$
497

Change in fair value
(230
)
March 31, 2020
$
267



The change in fair value is recorded within other expense on the Company’s Condensed Consolidated Statement of Comprehensive Loss. Refer to Note 13, Fair Value Measurement, for further discussion.

The Company’s ABL Credit Facility at March 31, 2020 is summarized as follows (in thousands):
ABL Credit Facility outstanding
$
60,069

Less: Current portion of ABL Credit Facility for UK Borrowings
(69
)
Long-term portion of ABL Credit Facility
60,000

Less: ABL Embedded Derivative Discount(1)
(514
)
ABL Embedded Derivative Liability(2)
267

Total Revolving credit facility - non-current
$
59,753

 
 
(1) Original value of embedded derivative at July 16, 2019, less amortization.
(2) Value of embedded derivative as of March 31, 2020.


At March 31, 2020, the Company had $1.7 million of letters of credit outstanding which have not been drawn upon.

On February 22, 2016, the Company entered into a Revolving Credit Facility (the “Facility”) with Bank of America N.A. to support ongoing working capital needs of the Company's operations in China. The Facility includes a revolving commitment amount of $5.0 million whereby maturity dates vary based on each individual drawdown. On July 16, 2019, the Company modified the Facility to decrease the total revolving commitment amount from $5.0 million to $1.0 million. All other terms of the Facility remained unchanged. Outstanding borrowings under the Facility are guaranteed by the Company’s assets. Borrowings and repayments are made in renminbi, the official Chinese currency. The applicable interest rate is 110% of the People’s Bank of China’s base rate. The terms of the Facility include limitations on use of funds for working capital purposes as well as customary representations and warranties made by the Company. At March 31, 2020, the Company had $0.5 million of unused availability under the Facility.

12. Long-Term Debt

On July 16, 2019, the Company and certain of its direct and indirect subsidiaries entered into a loan and security agreement (the “Term Loan Credit Agreement”) with TCW Asset Management Company LLC, as administrative agent and collateral agent, and the financial institutions party thereto as lenders (the “Term Loan Credit Facility”).

The Term Loan Credit Facility consists of a $100.0 million term loan facility. The Term Loan Credit Facility matures on July 16, 2024. Principal on the Term Loan Credit Facility is due in quarterly installments, commencing on September 30, 2019, in an amount equal to $1.3 million per quarter during the first year of the Term Loan Credit Facility and $2.5 million each quarter

18

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



thereafter. The loans under the Term Loan Credit Facility bear interest at either: (a) the LIBOR Rate (as defined in the Term Loan Credit Agreement), plus an applicable margin ranging from 6.25% to 10.75%; or (b) the Prime Rate (as defined in the Term Loan Credit Agreement), plus an applicable margin ranging from 5.25% to 9.75%.

The Company’s obligations under the Term Loan Credit Agreement are guaranteed by certain of its subsidiaries pursuant to a guaranty included in the Term Loan Credit Agreement. As security for the Company’s and its subsidiaries’ obligations under the Term Loan Credit Agreement, each of the Company and the subsidiaries party thereto have granted: (i) a first priority lien on substantially all its tangible and intangible personal property (other than the assets described in the following clause (ii)), including the capital stock of certain of the Company’s direct and indirect subsidiaries, and (ii) a second priority lien on its accounts receivable, chattel paper (to the extent evidencing accounts receivable), inventory, deposit accounts, general intangibles related to the foregoing and proceeds related thereto. The priority of the liens is described in the Intercreditor Agreement.

The Term Loan Credit Agreement contains a minimum fixed charge coverage ratio financial covenant, a maximum total leverage ratio financial covenant, a minimum liquidity financial covenant and a maximum capital expenditures covenant, each of which must be maintained for the periods described in the Term Loan Credit Agreement. In addition, the Term Loan Credit Agreement contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The Term Loan Credit Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the Term Loan Credit Agreement to be in full force and effect, and a change of control of the Company’s business. The principal outstanding as of March 31, 2020 is $96.3 million.

The Company has determined the interest rate reset features embedded in the Term Loan Credit Agreement constitute an embedded derivative (collectively, the “Term Loan Embedded Derivative”) which has been bifurcated from Term Loan Credit Facility and recorded as a derivative liability at fair value, with a corresponding discount recorded to the associated debt. The Company recorded immaterial interest expense for the amortization of the Term Loan Embedded Derivative discount through March 31, 2020.

The following schedule shows the change in fair value of the Term Loan Embedded Derivative at March 31, 2020 (in thousands):
December 31, 2019
$
407

Change in fair value
(205
)
March 31, 2020
$
202



The change in fair value is recorded within other expense on the Company’s Condensed Consolidated Statement of Comprehensive Loss. Refer to Note 13, Fair Value Measurement, for further discussion.

In connection with the closing of the Term Loan Credit Agreement, the Company issued a Warrant (as defined below) to Macquarie US Trading LLC, an affiliate of TCW Asset Management Company LLC, to purchase fully paid and non-assessable shares of common stock of the Company. The Warrant is initially exercisable for an aggregate of 1,335,337 shares of the Company’s common stock with a per share exercise price of $0.01 (the “Initial Warrant”). The Initial Warrant is exercisable on or after (A) the date which is 10 days after the earlier of (x) the date that the Company delivers its financial statements for the fiscal quarter ended March 31, 2020 to the administrative agent and (y) May 15, 2020 (the “First Quarter Reporting Period End Date”) through (B) July 16, 2024. The initial warrant has not been exercised.

In addition, if either (x) the Total Leverage Ratio (as defined in the Term Loan Credit Agreement) as of March 31, 2020 for the four (4) consecutive fiscal quarter period then ended is greater than 4.25 to 1.00 or (y) the Company fails to deliver financial statements to the administrative agent as required by the Term Loan Credit Agreement for the fiscal quarter ended March 31, 2020, then from the First Quarter Reporting Period End Date through July 16, 2024, the Warrant shall also be exercisable for an additional 2.49% of the Company’s common stock calculated on a fully-diluted basis (the “Additional Warrant” or “Contingent Warrant” and together with the Initial Warrant, the “Warrant”). The Company did not trigger any of the provisions defined in the Term Loan Credit Agreement that would cause the Additional Warrant to be exercisable at March 31, 2020.

The Warrant may be exercised on a cashless basis, and the number of shares for which the Warrant are exercisable and the associated exercise price are subject to certain proportional adjustments as set forth in the Warrant. In addition, the holder of the Warrant is entitled to certain piggyback registration rights.


19

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



In the event that the Total Leverage Ratio is less than 4.00 to 1.00 at any time between April 1, 2020 and March 31, 2021 (the “Buyback Period”) based on financial statements delivered to agent pursuant to the terms of the Term Loan Credit Agreement, and calculated on a pro forma basis factoring in the repurchase described in the Warrant, then on any day during the Buyback Period, the Company shall be permitted, upon 5 business days prior written notice given to Holder, to repurchase either (x) any portion of the Warrant not yet exercised and/or (y) any shares of common stock received from the Company pursuant to prior exercise of the Warrant, in each case at the Applicable Buyback Price (as defined in the Warrant) by paying cash to the Holder (“Buyback Option”).

The Initial Warrant was recorded as a liability at fair value and will be treated as a discount on the associated debt. The following schedule shows the change in fair value of the Initial Warrant at March 31, 2020 (in thousands):
December 31, 2019
$
6,537

Change in fair value
(5,205
)
March 31, 2020
$
1,332



The Additional Warrant is no longer outstanding as of March 31, 2020 and therefore has no associated fair value.

The Term Loan is presented net of the related original issue discount (“OID”), which was $8.5 million on the issuance date of July 16, 2019. Accretion of OID is included in interest expense. The Company incurred $3.7 million of deferred financing fees related to the Term Loan Credit Agreement that has been recorded as a debt discount. The combined debt discount from the Initial Warrant liability, the Term Loan Embedded Derivative liability, and the debt issuance fees is being amortized into interest expense over the term of the Term Loan Credit Facility using the effective interest method. The Company recorded interest expense for the amortization of the Initial Warrant liability and Term Loan Embedded Derivative liability debt discounts of $0.2 million for the three months ended March 31, 2020 and recorded an additional $0.2 million of interest expense for the amortization of the debt issuance fees for the three months ended March 31, 2020.

The Company’s Term Loan Credit Facility at March 31, 2020 is summarized as follows (in thousands):
Term Loan Credit Facility outstanding
$
96,250

Less: Current portion of Term Loan Credit Facility
(8,750
)
Long-term portion of Term Loan Credit Facility
87,500

Less: Original Issue Discount(1)
(7,272
)
Term Loan Embedded Derivative Liability(2)
202

Initial Warrant Liability(2)
1,332

Total Term Loan Credit Facility - Non-current
$
81,762

 
 
(1) Original value of OID attributable to debt issuance costs, warrant liability and embedded derivatives at July 16, 2019, less amortization.
(2) Value of warrant liability and embedded derivatives as of March 31, 2020.


13. Fair Value Measurement

The Company estimates the fair value of the ABL Credit Facility and Term Loan Credit Facility, as defined in Note 11, Revolving Credit Facility, and Note 12, Long-Term Debt, respectively, using current market yields. These current market yields are considered Level 2 inputs.

The fair value of the Company’s Initial Warrant liability recorded in the Company’s financial statements is determined using the Black-Scholes-Merton option pricing model. The quoted price of the Company’s common stock in an active market, volatility and expected life is a Level 3 measurement. Volatility is based on the actual market activity of the Company’s stock. The expected life is based on the remaining contractual term of the Initial Warrant, and the risk-free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the Initial Warrant’s expected life. The fair value of the Company's Initial Warrant liability may significantly fluctuate based on the unobservable inputs described above including the Company's share price, expected volatility and risk-free interest rate.
 

20

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



The table below sets forth the assumptions used within the Black-Scholes-Merton option pricing model to value the Company’s Initial Warrant liability:
Stock price
$
1.17

Exercise price
$
0.01

Time until expiration (years)
4.29

Expected volatility
66.0
%
Risk-free interest rate
0.34
%
Expected dividend yield
%


The fair value of the Company’s embedded derivative liabilities recorded in the Company’s financial statements is determined using a probability-weighted discounted cash flow approach utilizing inputs outlined in Note 11, Revolving Credit Facility and Note 12, Long-Term Debt. To derive the fair value of the embedded derivatives, the Company estimates the fair value of the ABL Credit Facility and Term Loan Credit Facility with and without the embedded derivatives. The difference between the “with” and “without” fair values determines the fair value of the embedded derivative liabilities. Key inputs for the ABL Credit Facility and Term Loan Credit Facility valuation are the applicable margin, LIBOR and US Prime yield curves, default rates of comparable securities and the assumed cost of debt. The fair value of the Company's embedded derivative liabilities may significantly fluctuate based on unobservable inputs including assumed cost of debt.

The table below sets forth the total fair value of the ABL Credit Facility, ABL Embedded Derivative, Term Loan Credit Facility, Term Loan Embedded Derivative, and Initial Warrant as of March 31, 2020 (in thousands):
 
 
March 31, 2020
 
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total Fair Value
ABL Credit Facility
 
$
109,023

 
$

 
$
109,023

ABL Embedded Derivative
 

 
267

 
267

Term Loan Credit Facility
 
82,822

 

 
82,822

Initial Warrant
 

 
1,332

 
1,332

Term Loan Embedded Derivative
 

 
202

 
202

Total
 
$
191,845

 
$
1,801

 
$
193,646



14. Business Segments
 
Segment information is prepared on the same basis that our Chief Executive Officer, who is our chief operating decision maker ("CODM"), manages the segments, evaluates financial results, and makes key operating decisions. The Company is organized and managed by the CODM as three operating segments: North America, EMEA and LATAM. The North America segment includes operations in the United States and Canada; the EMEA segment includes operations in the United Kingdom, continental Europe, the Middle East, Africa, and Asia; and the LATAM segment includes operations in Mexico, Central America, and South America. Other consists of intersegment eliminations, shared service activities, and corporate expenses which are not allocated to the operating segments as management does not consider them in evaluating segment performance.

21

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



The table below presents financial information for the Company’s reportable segments and Other for the three months ended March 31, 2020 and 2019 (in thousands):
 
North America
 
EMEA
 
LATAM
 
Other
 
Total
Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
 
Revenue from third parties
$
197,709

 
$
48,210

 
$
15,441

 
$

 
$
261,360

Revenue from other segments
1,269

 
2,556

 

 
(3,825
)
 

Total revenue
$
198,978

 
$
50,766

 
$
15,441

 
$
(3,825
)
 
$
261,360

Adjusted EBITDA
$
23,640

 
$
1,362

 
$
428

 
$
(12,524
)
 
$
12,906

 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
Revenue from third parties
$
188,274

 
$
60,179

 
$
18,758

 
$

 
$
267,211

Revenue from other segments
563

 
1,647

 
2

 
(2,212
)
 

Total revenue
$
188,837

 
$
61,826

 
$
18,760

 
$
(2,212
)
 
$
267,211

Adjusted EBITDA
$
16,018

 
$
2,774

 
$
265

 
$
(11,668
)
 
$
7,389



The table below reconciles Adjusted EBITDA to net loss before income taxes (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Adjusted EBITDA
$
12,906

 
$
7,389

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
)
Loss from operations
(2,426
)
 
(371
)
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

Loss before income taxes
(3,446
)
 
(3,458
)
Income tax benefit
(606
)
 
(1,414
)
Net loss
$
(2,840
)
 
$
(2,044
)



22


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements involve a number of risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that could materially affect such forward-looking statements can be found in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019 and elsewhere in this Form 10-Q. Investors are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date hereof and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Overview

We are a leading global marketing engineering firm for some of the world's most marketing intensive companies, including those listed in the Fortune 1000. As a comprehensive outsourced global solution, we leverage proprietary technology, an extensive supplier network and deep domain expertise to streamline the creation, production and distribution of marketing and promotional materials, signage and displays, retail experiences, events and promotions and product packaging across every major market worldwide. The items we source generally are procured through the marketing supply chain and we refer to these items collectively as marketing materials. Through our network of global suppliers, we offer a full range of fulfillment and logistics services that allow us to procure marketing materials of virtually any kind. The breadth of our product offerings and services and the depth of our supplier network enable us to fulfill the marketing materials procurement needs of our clients.

We generate revenue by procuring and purchasing marketing materials from our suppliers and selling those products to our clients. We procure products for clients across a wide range of industries, such as retail, financial services, hospitality, consumer packaged goods, non-profits, healthcare, pharmaceuticals, food and beverage, broadcasting, and cable and transportation.

As of March 31, 2020, we had more than 2,100 employees in over 20 countries. For the three months ended March 31, 2020, we generated global revenue from third parties of $197.7 million in the North America segment, $48.2 million in the EMEA segment, and $15.4 million in the LATAM segment.

Outlook

Our objective is to continue to increase our sales globally by adding new clients and increasing our sales to existing clients through additional marketing services or expanding into new geographic markets. Operationally, we are integrating our product and service offerings, re-evaluating our geographic footprint, and creating synergies across various business units.

Impact of COVID-19

The emergence of a novel coronavirus (COVID-19) around the world, and particularly in the United States, Europe, China, and South America presents various risks to the Company. The global impact of the outbreak has been rapidly evolving and many countries have reacted by instituting quarantine measures, mandating business and school closure and restricting travel, all of which have had an adverse effect on the global economy. The Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity, much of which will depend on when and to what extent current restrictions are lifted and economic conditions improve. In response to the global pandemic, the Company has created a COVID-19 executive task force that has implemented business continuity plans and has taken a variety of actions to ensure the ongoing availability of our services, while also undertaking appropriate health and safety measures for its employees. The task force has authority to make timely, informed decisions relating to our business continuity planning and actions. As a result of these actions, the Company has not experienced disruptions to date in its operations or ability to service our clients. In addition, the Company has been able to respond quickly to our customers’ changing business demands related to the COVID-19 pandemic.

Overall, the Company maintains sufficient liquidity to continue business operations during these uncertain economic conditions. As discussed in Liquidity and Capital Resources section below, the Company had liquidity of approximately $71.9 million as of March 31, 2020, comprised of cash on hand of $30.8 million and an undrawn revolving credit facility of $41.1 million.


23


The Company will continue to monitor the situation and may take further actions that affect our business operations and performance. These actions may result from requirements mandated by federal, state or local authorities or that we determine to be in the best interests of our employees, customers, and shareholders. The situation surrounding COVID-19 remains fluid, and the potential for a material impact on the Company increases the longer the pandemic impacts the level of economic activity in the United States and in other countries. For these reasons, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity. See Part II, Item 1A. Risk Factors for further information.

Critical Accounting Policies 

Our unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that we believe to be reasonable. Actual results may differ from those estimates. We review these estimates on a periodic basis to ensure reasonableness. Although actual amounts may differ from such estimated amounts, we believe such differences are not likely to be material. For additional detail regarding our critical accounting policies including revenue recognition, goodwill, other intangible assets, and leases, see our discussion for the year ended December 31, 2019 included in the Company's 2019 Annual Report on Form 10-K. There have been no material changes to these policies as of March 31, 2020.

Current Expected Credit Loss (CECL)

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to measure the impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. The Company adopted the standard and all related ASUs effective January 1, 2020 using a modified-retrospective transition method. The adoption and application of this standard did not have a material impact to the condensed consolidated financial statements. For further discussion, refer to Note 1, Basis of Presentation.

Key Performance Metrics

We regularly review a number of key metrics to evaluate our business, measure progress and make strategic decisions. The measures include Revenue, Gross Profit and Adjusted EBITDA. For additional discussion, see Key Components of Statement of Operations and Non-GAAP Financial Measures sections below.

Key Components of Statement of Operations

Revenue

We generate revenue through the procurement of marketing materials for our clients. Our revenue consists of the prices paid to us by our clients for marketing materials. These prices, in turn, reflect the amounts charged to us by our suppliers plus our gross profit. Our gross profit margin may be fixed by contract or may depend on prices negotiated on a job-by-job basis. Once the client accepts our pricing terms, the selling price is established, and we arrange shipment of the product. The product is shipped directly from our supplier or from our warehouse to a destination specified by our client. The client is invoiced upon shipment or receipt, depending on contract terms, for the product as well as shipping and handling.

We agree to provide our clients with marketing materials that conform to the industry standard of a “commercially reasonable quality,” and our suppliers in turn agree to provide us with products of the same quality. In addition, the quotes we execute with our clients include customary industry terms and conditions that limit the amount of our liability for product defects. Product defects have not had a material adverse effect on our results of operations to date.

Cost of Goods Sold and Gross Profit
 
Our cost of goods sold consists of the price at which we purchase products from our suppliers, facility costs, and personnel costs for creative design services and warehousing. We procure product for our own account and generally take full title and risk of loss upon shipment.

Our gross profit is determined by the selling prices of the product and shipping charges less the cost of the product, direct personnel, warehousing, and shipping and handling costs.


24


Operating Expenses and Loss from Operations
 
Our selling, general and administrative expenses consist of compensation costs for our management team, client engagement personnel, production managers, corporate functions and operational support employees, as well as commissions paid to our account executives. In addition, selling, general and administrative expenses include public company expenses, facilities fees, travel and entertainment expenses, corporate systems fees, and legal and accounting fees.

We accrue for commissions when we recognize the related revenue. Some of our account executives receive a monthly draw to provide them with a more consistent income stream. The cash paid to our account executives in advance of commissions earned is reflected as a prepaid expense on our balance sheet. As our account executives earn commissions, a portion of their commission payment is withheld and offset against their prepaid commission balance, if any.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA, which represents loss from operations with the addition of depreciation and amortization, stock-based compensation expense, goodwill and long-lived asset impairment charges, restructuring charges, various one-time professional fees, executive search expenses, and other charges itemized in the reconciliation table noted within Note 14, Business Segments, is considered a non-GAAP financial measure under SEC regulations. Loss from operations is the most directly comparable financial measure calculated in accordance with GAAP. The Company presents this measure as supplemental information to help our investors better understand trends in our business over time. Our management team uses Adjusted EBITDA to evaluate the performance of our business. Adjusted EBITDA is not equivalent to any measure of performance required to be reported under GAAP, nor should this data be considered an indicator of our overall financial performance and liquidity. Moreover, the Adjusted EBITDA definition we use may not be comparable to similarly titled measures reported by other companies. 

Adjusted Diluted Earnings Per Share

Adjusted diluted earnings per share, which represents net loss, with the addition of exclusive items that are non-recurring to our operating business, divided by the weighted average shares outstanding plus share equivalents that would arise from the exercise of stock options and restricted stock and other contingently issuable shares, is considered a non-GAAP financial measure under SEC regulations. Diluted loss per share is the most directly comparable financial measure calculated in accordance with GAAP. The Company presents this measure as supplemental information to help our investors better understand trends in our business over time. Our management team uses adjusted diluted earnings per share to evaluate the performance of our business. Adjusted diluted earnings per share is not equivalent to any measure of performance required to be reported under GAAP, nor should this data be considered an indicator of our overall financial performance and liquidity. Moreover, the adjusted diluted earnings per share definition we use may not be comparable to similarly titled measures reported by other companies.

Comparison of Three Months Ended March 31, 2020 and 2019
 
Revenue
 
Third party revenue by segment for each of the periods presented was as follows (dollars in thousands):  </