Subjects: EARNINGS, Conference Call, Webcast
InnerWorkings Announces First Quarter 2020 Results
InnerWorkings, Inc. (NASDAQ: INWK), the leading global marketing engineering firm, today announced financial results for the three months ended March 31, 2020. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.
"Our first quarter results demonstrate improved revenue quality and a leaner cost structure, giving us solid footing to navigate a challenging economic environment in the second quarter," said Chief Executive Officer Rich Stoddart. "We have taken aggressive, swift action since April to right-size our cost structure while maintaining our ability to support our clients as business activity rebounds. We are also maintaining our focus on winning new business, with several new contracts awarded this year and significant demand for our solution in the sales pipeline."
Financial and Business Highlights
- Gross revenue was $261.4 million in the first quarter of 2020, a decrease of 2% compared to $267.2 million in the first quarter of 2019. Excluding currency impact, gross revenue decreased 1% in the first quarter of 2020.
- Gross profit was $63.4 million, or 24.3% of gross revenue in the first quarter of 2020, compared to $62.0 million, or 23.2% of gross revenue, in the same period of last year.
- Selling, general and administrative expenses were $51.9 million in the first quarter, down 7% compared to $55.8 million in the first quarter of 2019.
- Net loss for the first quarter of 2020 was $(2.8) million, or $(0.15) per diluted share, compared to net loss of $(2.0) million, or $(0.04) per diluted share in the first quarter of 2019.
- Adjusted diluted earnings per share for the first quarter of 2020 was $0.04, compared to $0.03 in the first quarter of 2019.
- Adjusted EBITDA was $12.9 million in the first quarter of 2020, compared to $7.4 million in the first quarter of 2019.
- Additional work from new and existing clients awarded so far in 2020 amounts to approximately $32 million of annual revenue at full run-rate.
"The first quarter represents sustainable cost improvement supporting a base of high-quality revenue with the healthiest balance sheet the company has had in two years. We have made significant progress in our multi-year transformation, but there is still work to do to optimize the platform. We will continue to react quickly to changes in economic conditions, but this will not disrupt the groundwork we have been laying for a long future of profitable growth," said Don Pearson, Chief Financial Officer.
Outlook
Due to continued economic uncertainty and low visibility, the Company is not providing specific financial guidance at this time.
"We are expecting a decline in revenue and profit in the second quarter, but we took immediate action to reduce costs and minimize the impact on our margins. While we feel we've taken the right steps to adjust to the current environment, there is still a great deal of uncertainty about how long the general economic downturn will last, the extent of the adverse impact on our clients, and the degree to which those in turn will adversely impact our business. Although the current economic environment is volatile and the timing and pace of recovery from the COVID-19 pandemic is unclear, we are encouraged by our recent conversations with clients, which indicate increasing momentum in planning for a resurgence of marketing activity," said Rich Stoddart. "We believe we are well-poised for an acceleration of new client wins as marketers become more motivated to seek ways to drive cost savings and efficiencies in response to a difficult economy, and to benefit from the eventual improved marketing spend by our clients. The breadth of our work across verticals and geographies, the stability of our longstanding client relationships, and our multi-year transformation underway give us confidence in our ability to navigate the near-term uncertainty and in the strength of our business long term."
Conference Call
Rich Stoddart, Chief Executive Officer, and Don Pearson, Chief Financial Officer, will host a conference call to discuss the results today at 4:00 p.m. Central time (5:00 p.m. Eastern time).
The phone number to access the conference call is (877) 771-7024. A live audio webcast of the call will be available through InnerWorkings' website at http://investor.inwk.com/events. A replay of the webcast will be available later today at the same location.
Non-GAAP Financial Measures
This press release includes the following financial measures defined as "non-GAAP financial measures" by the SEC: adjusted EBITDA and adjusted diluted earnings per share. The Company believes these measures provide useful information to investors because they provide further insights into the Company's financial performance. These measures are also used by management in its financial and operational decision-making and evaluation of overall performance. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles. For a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP measures, please see the reconciliation of adjusted EBITDA and adjusted diluted earnings per share included in this release.
Forward-Looking Statements
This release contains statements relating to future results. These statements are forward-looking statements under the federal securities laws. We can give no assurance that any future results discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this release. For a discussion of important factors that could affect our actual results, please refer to our SEC filings, including the "Risk Factors" section of our most recently filed Form 10-K and our Form 8-K filed on May 11, 2020.
About InnerWorkings
InnerWorkings, Inc. (NASDAQ: INWK) engineers marketing for leading brands across a wide range of industries. We dive deep into clients' brand strategies to deliver solutions that leverage our global expertise, certified supplier base, proven methods, and proprietary technology. By engineering marketing across key touch points in the customer journey, we power campaigns that drive value, enhance awareness and inspire action. With services that include creative, print, direct mail, branded merchandise, luxury packaging, retail environments, and digital solutions, we're elevating beyond execution to shape brand experience. For more information visit: www.inwk.com.
Condensed Consolidated Statements of Operations
|
|||||||
|
Three Months Ended March 31, |
||||||
|
2020 |
|
2019 |
||||
Revenue |
$ |
261,360 |
|
|
$ |
267,211 |
|
Cost of goods sold |
197,918 |
|
|
205,201 |
|
||
Gross profit |
63,442 |
|
|
62,010 |
|
||
Operating expenses: |
|
|
|
||||
Selling, general and administrative expenses |
51,913 |
|
|
55,830 |
|
||
Depreciation and amortization |
3,127 |
|
|
2,617 |
|
||
Goodwill impairment |
7,191 |
|
|
? |
|
||
Restructuring charges |
3,637 |
|
|
3,934 |
|
||
Loss from operations |
(2,426 |
) |
|
(371 |
) |
||
Other income (expense): |
|
|
|
||||
Interest income |
56 |
|
|
98 |
|
||
Interest expense |
(4,386 |
) |
|
(2,745 |
) |
||
Change in fair value of warrant |
5,205 |
|
|
? |
|
||
Foreign exchange loss |
(2,791 |
) |
|
(476 |
) |
||
Other income |
896 |
|
|
36 |
|
||
Total other expense |
(1,020 |
) |
|
(3,087 |
) |
||
Loss before income taxes |
(3,446 |
) |
|
(3,458 |
) |
||
Income tax benefit |
(606 |
) |
|
(1,414 |
) |
||
Net loss |
$ |
(2,840 |
) |
|
$ |
(2,044 |
) |
|
Three Months Ended March 31, |
||||||
|
2020 |
|
2019 |
||||
Numerator: |
|
|
|
||||
Net loss - basic |
$ |
(2,840 |
) |
|
$ |
(2,044 |
) |
Adjustments: |
|
|
|
||||
Change in fair value of Initial Warrant liability |
(5,205 |
) |
|
? |
|
||
Net loss - diluted |
$ |
(8,045 |
) |
|
$ |
(2,044 |
) |
|
|
|
|
||||
Denominator: |
|
|
|
||||
Weighted average shares outstanding |
52,139 |
|
|
51,830 |
|
||
Issuance of Initial Warrant |
1,335 |
|
|
? |
|
||
Weighted average shares outstanding - basic and diluted |
53,474 |
|
|
51,830 |
|
||
|
|
|
|
||||
Basic loss per share |
$ |
(0.05 |
) |
|
$ |
(0.04 |
) |
Diluted loss per share |
$ |
(0.15 |
) |
|
$ |
(0.04 |
) |
Condensed Consolidated Balance Sheets
|
|||||||
|
March 31, 2020 |
|
December 31, 2019 |
||||
Assets |
|
|
|
||||
Current assets: |
|
|
|
||||
Cash and cash equivalents |
$ |
30,775 |
|
|
$ |
42,711 |
|
Accounts receivable, net of allowance for doubtful accounts of $2,758 and $3,830, respectively |
181,604 |
|
|
202,406 |
|
||
Unbilled revenue |
43,773 |
|
|
48,396 |
|
||
Inventories |
34,795 |
|
|
34,977 |
|
||
Prepaid expenses |
13,623 |
|
|
10,680 |
|
||
Other current assets |
35,617 |
|
|
35,495 |
|
||
Total current assets |
340,187 |
|
|
374,665 |
|
||
Property and equipment, net |
36,671 |
|
|
37,224 |
|
||
Intangibles and other assets: |
|
|
|
||||
Goodwill |
144,925 |
|
|
152,210 |
|
||
Intangible assets, net |
7,193 |
|
|
7,714 |
|
||
Right of use assets, net |
48,284 |
|
|
51,159 |
|
||
Deferred income taxes |
2,182 |
|
|
2,182 |
|
||
Other non-current assets |
3,864 |
|
|
4,129 |
|
||
Total intangibles and other assets |
206,448 |
|
|
217,394 |
|
||
Total assets |
$ |
583,306 |
|
|
$ |
629,283 |
|
Liabilities and stockholders' equity |
|
|
|
||||
Current liabilities: |
|
|
|
||||
Accounts payable |
$ |
123,519 |
|
|
$ |
142,136 |
|
Accrued expenses |
46,137 |
|
|
50,975 |
|
||
Deferred revenue |
9,495 |
|
|
9,568 |
|
||
Revolving credit facility - current |
69 |
|
|
593 |
|
||
Term loan - current |
8,750 |
|
|
7,500 |
|
||
Other current liabilities |
29,059 |
|
|
35,665 |
|
||
Total current liabilities |
217,029 |
|
|
246,437 |
|
||
Lease liabilities |
44,314 |
|
|
46,075 |
|
||
Revolving credit facility - non-current |
59,753 |
|
|
60,086 |
|
||
Term loan - non-current |
81,762 |
|
|
89,242 |
|
||
Deferred income taxes |
8,053 |
|
|
8,053 |
|
||
Other long-term liabilities |
504 |
|
|
1,138 |
|
||
Total liabilities |
411,415 |
|
|
451,031 |
|
||
Commitments and contingencies |
|
|
|
||||
Stockholders' equity: |
|
|
|
||||
Common stock |
6 |
|
|
6 |
|
||
Additional paid-in capital |
246,769 |
|
|
245,311 |
|
||
Treasury stock at cost |
(81,471 |
) |
|
(81,471 |
) |
||
Accumulated other comprehensive loss |
(27,545 |
) |
|
(22,449 |
) |
||
Retained earnings |
34,132 |
|
|
36,855 |
|
||
Total stockholders' equity |
171,891 |
|
|
178,252 |
|
||
Total liabilities and stockholders' equity |
$ |
583,306 |
|
|
$ |
629,283 |
|
Condensed Consolidated Statement of Cash Flows
|
|||||||
|
Three Months Ended March 31, |
||||||
|
2020 |
|
2019 |
||||
Cash flows from operating activities |
|
|
|
||||
Net loss |
$ |
(2,840 |
) |
|
$ |
(2,044 |
) |
Adjustments to reconcile net loss to net cash from operating activities: |
|
|
|
||||
Depreciation and amortization |
3,127 |
|
|
2,617 |
|
||
Stock-based compensation expense |
840 |
|
|
739 |
|
||
Bad debt provision |
(438 |
) |
|
385 |
|
||
Contract implementation cost amortization |
67 |
|
|
143 |
|
||
Goodwill impairment |
7,191 |
|
|
? |
|
||
Long-lived asset impairment |
273 |
|
|
? |
|
||
Change in fair value of warrant |
(5,205 |
) |
|
? |
|
||
Change in fair value of embedded derivatives |
(435 |
) |
|
? |
|
||
Unrealized foreign exchange loss |
2,075 |
|
|
? |
|
||
Other operating activities, net |
531 |
|
|
102 |
|
||
Change in assets and liabilities: |
|
|
|
||||
Accounts receivable and unbilled revenue |
17,728 |
|
|
3,928 |
|
||
Inventories |
(1,277 |
) |
|
9,165 |
|
||
Prepaid expenses and other assets |
(5,302 |
) |
|
274 |
|
||
Accounts payable |
(14,089 |
) |
|
(9,207 |
) |
||
Accrued expenses and other liabilities |
(11,991 |
) |
|
(610 |
) |
||
Net cash (used in) provided by operating activities |
(9,745 |
) |
|
5,492 |
|
||
|
|
|
|
||||
Cash flows from investing activities |
|
|
|
||||
Purchases of property and equipment |
(3,190 |
) |
|
(3,345 |
) |
||
Net cash used in investing activities |
(3,190 |
) |
|
(3,345 |
) |
||
|
|
|
|
||||
Cash flows from financing activities |
|
|
|
||||
Net repayments on old revolving credit facility |
? |
|
|
(3,800 |
) |
||
Net repayments on new revolving credit facility |
(633 |
) |
|
? |
|
||
Net short-term secured borrowings |
? |
|
|
1,256 |
|
||
Payments on term loan |
(1,250 |
) |
|
? |
|
||
Proceeds from exercise of stock options |
? |
|
|
63 |
|
||
Payment of debt issuance costs |
? |
|
|
(585 |
) |
||
Other financing activities, net |
(22 |
) |
|
(29 |
) |
||
Net cash used in financing activities |
(1,905 |
) |
|
(3,095 |
) |
||
|
|
|
|
||||
Effect of exchange rate changes on cash and cash equivalents |
2,904 |
|
|
29 |
|
||
Decrease in cash and cash equivalents |
(11,936 |
) |
|
(919 |
) |
||
Cash and cash equivalents, beginning of period |
42,711 |
|
|
26,770 |
|
||
Cash and cash equivalents, end of period |
$ |
30,775 |
|
|
$ |
25,851 |
|
Reconciliation of Adjusted EBITDA and Adjusted Diluted Earnings Per Share
|
|||||||
|
Three Months Ended March 31, |
||||||
|
2020 |
|
2019 |
||||
Net loss |
$ |
(2,840 |
) |
|
$ |
(2,044 |
) |
Benefit for income tax |
(606 |
) |
|
(1,414 |
) |
||
Interest income |
(56 |
) |
|
(98 |
) |
||
Interest expense |
4,386 |
|
|
2,745 |
|
||
Change in fair value of warrant |
(5,205 |
) |
|
? |
|
||
Foreign exchange loss |
2,791 |
|
|
476 |
|
||
Depreciation and amortization |
3,127 |
|
|
2,617 |
|
||
Stock-based compensation - equity classified awards |
1,480 |
|
|
739 |
|
||
Stock-based compensation - liability classified awards (SARs) |
(640 |
) |
|
? |
|
||
Goodwill impairment |
7,191 |
|
|
? |
|
||
Long-lived asset impairment |
273 |
|
|
? |
|
||
Restructuring charges |
3,637 |
|
|
3,934 |
|
||
Professional fees related to control remediation |
264 |
|
|
365 |
|
||
Executive search fees |
? |
|
|
80 |
|
||
Sales and use tax audit |
? |
|
|
25 |
|
||
Other income |
(896 |
) |
|
(36 |
) |
||
Adjusted EBITDA |
$ |
12,906 |
|
|
$ |
7,389 |
|
|
Three Months Ended March 31, |
||||||
|
2020 |
|
2019 |
||||
Net loss |
$ |
(2,840 |
) |
|
$ |
(2,044 |
) |
Restructuring charges |
3,637 |
|
|
3,934 |
|
||
Professional fees related to control remediation |
264 |
|
|
365 |
|
||
Change in fair value of warrant and derivatives |
(5,640 |
) |
|
? |
|
||
Goodwill impairment |
7,191 |
|
|
? |
|
||
Long-lived asset impairment |
273 |
|
|
? |
|
||
Executive search fees |
? |
|
|
80 |
|
||
Sales and use tax audit |
? |
|
|
25 |
|
||
Income tax effects of adjustments |
(971 |
) |
|
(1,024 |
) |
||
Adjusted net income |
$ |
1,914 |
|
|
$ |
1,336 |
|
|
|
|
|
||||
GAAP weighted-average shares outstanding ? diluted |
53,474 |
|
|
51,830 |
|
||
Effect of dilutive securities: |
|
|
|
||||
Employee stock options and restricted common shares |
762 |
|
|
65 |
|
||
Adjusted weighted-average shares outstanding ? diluted |
54,236 |
|
|
51,895 |
|
||
Adjusted diluted earnings per share |
$ |
0.04 |
|
|
$ |
0.03 |
|
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