Company Quick10K Filing
InnerWorkings
Price4.11 EPS-1
Shares53 P/E-6
MCap219 P/FCF-22
Net Debt-38 EBIT-27
TEV181 TEV/EBIT-7
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-06-16
10-K 2019-12-31 Filed 2020-03-17
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-19
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-07-31
10-K 2017-12-31 Filed 2018-03-16
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-03-09
10-Q 2016-09-30 Filed 2016-11-08
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-10
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-08
10-K 2014-12-31 Filed 2015-03-06
10-Q 2014-09-30 Filed 2014-11-07
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-18
10-Q 2013-09-30 Filed 2013-11-12
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-10
10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-07
10-K 2011-12-31 Filed 2012-03-07
10-Q 2011-09-30 Filed 2011-11-09
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-02
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-09
8-K 2020-08-06 Earnings, Exhibits
8-K 2020-07-16 Other Events, Exhibits
8-K 2020-07-15 Enter Agreement, Officers, Exhibits
8-K 2020-06-16
8-K 2020-06-09
8-K 2020-05-13
8-K 2020-05-11
8-K 2020-03-16
8-K 2020-02-25
8-K 2019-11-07
8-K 2019-11-01
8-K 2019-08-15
8-K 2019-08-09
8-K 2019-08-08
8-K 2019-07-16
8-K 2019-06-17
8-K 2019-05-09
8-K 2019-03-05
8-K 2018-12-29
8-K 2018-11-08
8-K 2018-10-30
8-K 2018-10-16
8-K 2018-09-28
8-K 2018-09-06
8-K 2018-08-14
8-K 2018-07-31
8-K 2018-07-30
8-K 2018-06-28
8-K 2018-05-29
8-K 2018-05-18
8-K 2018-05-07
8-K 2018-03-12
8-K 2018-02-26
8-K 2018-01-31

INWK 10Q Quarterly Report

Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-4.1 innerworkings2020omnib.htm
EX-31.1 inwkq22020ex311.htm
EX-31.2 inwkq22020ex312.htm
EX-32.1 inwkq22020ex321.htm
EX-32.2 inwkq22020ex322.htm

InnerWorkings Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
68554841127413702012201420172020
Assets, Equity
3052351659525-452012201420172020
Rev, G Profit, Net Income
5538214-13-302012201420172020
Ops, Inv, Fin

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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 June 30, 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 August 4, 2020, the Registrant had 52,842,618 shares of Common Stock, par value $0.0001 per share, outstanding.




INNERWORKINGS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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.
 
 
 
 

3


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 June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Revenue
$
203,311

 
$
283,861

 
$
464,671

 
$
551,072

Cost of goods sold
154,890

 
215,463

 
352,808

 
420,664

Gross profit
48,421

 
68,398

 
111,863

 
130,408

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expenses
45,117

 
57,404

 
96,756

 
113,235

Depreciation and amortization
3,310

 
3,233

 
6,437

 
5,849

Goodwill impairment

 

 
7,191

 

Intangible and other asset impairments
609

 

 
883

 

Restructuring charges
3,644

 
3,698

 
7,281

 
7,632

(Loss) income from operations
(4,259
)
 
4,063

 
(6,685
)
 
3,692

Other income (expense):
 
 
 
 
 
 
 
Interest income
53

 
104

 
109

 
202

Interest expense
(3,201
)
 
(2,486
)
 
(7,587
)
 
(5,232
)
(Loss) gain from change in fair value of warrant
(120
)
 

 
5,085

 

Foreign exchange gain (loss)
862

 
237

 
(1,929
)
 
(239
)
Other income
221

 
42

 
1,117

 
78

Total other expense
(2,185
)
 
(2,103
)
 
(3,205
)
 
(5,191
)
(Loss) income before income taxes
(6,444
)
 
1,960

 
(9,890
)
 
(1,499
)
Income tax expense
1,468

 
2,468

 
862

 
1,053

Net loss
$
(7,912
)
 
$
(508
)
 
$
(10,752
)
 
$
(2,552
)
 


 
 
 
 
 
 
Basic loss per share
$
(0.15
)
 
$
(0.01
)
 
$
(0.20
)
 
$
(0.05
)
Diluted loss per share
$
(0.15
)
 
$
(0.01
)
 
$
(0.30
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
Comprehensive loss
$
(7,715
)
 
$
(246
)
 
$
(15,651
)
 
$
(1,578
)
The accompanying notes form an integral part of the condensed consolidated financial statements.
 

4


InnerWorkings, Inc. and subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
 
June 30, 2020
 
December 31, 2019
Assets

 

Current assets:
 

 
 

Cash and cash equivalents
$
35,311

 
$
42,711

Accounts receivable, net of allowance for doubtful accounts of $3,470 and $3,830, respectively
158,636

 
202,406

Unbilled revenue
23,900

 
48,396

Other receivables
9,858

 
28,194

Inventories
37,303

 
34,977

Prepaid expenses
13,021

 
10,680

Other current assets
6,981

 
7,301

Total current assets
285,010

 
374,665

Property and equipment, net
36,357

 
37,224

Intangibles and other assets:
 

 
 

Goodwill
144,967

 
152,210

Intangible assets, net
6,693

 
7,714

Right of use assets, net
46,805

 
51,159

Deferred income taxes
2,183

 
2,182

Other non-current assets
3,018

 
4,129

Total intangibles and other assets
203,666

 
217,394

Total assets
$
525,033

 
$
629,283

Liabilities and stockholders' equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
96,866

 
$
142,136

Accrued expenses
43,350

 
50,975

Deferred revenue
10,572

 
9,568

Revolving credit facility - current
76

 
593

Term loan - current
10,000

 
7,500

Other current liabilities
25,969

 
35,665

Total current liabilities
186,833

 
246,437

Lease liabilities
42,487

 
46,075

Revolving credit facility - non-current
40,476

 
60,086

Term loan - non-current
79,800

 
89,242

Deferred income taxes
8,053

 
8,053

Other long-term liabilities
1,762

 
1,138

Total liabilities
359,411

 
451,031

Commitments and contingencies


 


Stockholders' equity:
 

 
 

Common stock, par value $0.0001 per share, 200,000 shares authorized, 64,902 and 64,820 shares issued, and 52,688 and 52,133 shares outstanding, respectively
6

 
6

Additional paid-in capital
248,215

 
245,311

Treasury stock at cost, 12,215 and 12,688 shares, respectively
(78,418
)
 
(81,471
)
Accumulated other comprehensive loss
(27,348
)
 
(22,449
)
Retained earnings
23,167

 
36,855

Total stockholders' equity
165,622

 
178,252

Total liabilities and stockholders' equity
$
525,033

 
$
629,283

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

5


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 April 1, 2020
64,831

 
$
6

 
$
246,769

 
12,688

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

 
$
171,891

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
(7,912
)
 
(7,912
)
Total other comprehensive income - foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
197

 
 
 
197

Issuance of common stock upon exercise of stock awards, net of withheld shares
71

 
 
 
(108
)
 
 
 
 
 
 
 
 
 
(108
)
Stock-based compensation expense
 
 
 
 
1,554

 
 
 
 
 
 
 
 
 
1,554

Reissuance of treasury shares
 
 
 
 
 
 
(473
)
 
3,053

 
 
 
(3,053
)
 

Balance as of June 30, 2020
64,902

 
$
6

 
$
248,215

 
12,215

 
$
(78,418
)
 
$
(27,348
)
 
$
23,167

 
$
165,622


 
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
 
 
 
 
 
 
 
 
 
 

 
(10,752
)
 
(10,752
)
Total other comprehensive loss - foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
(4,899
)
 
 
 
(4,899
)
Issuance of common stock upon exercise of stock awards, net of withheld shares
82

 
 
 
(130
)
 
 
 
 
 
 
 
 
 
(130
)
Stock-based compensation expense
 
 
 
 
3,034

 
 
 
 
 
 
 
 
 
3,034

Reissuance of treasury shares
 
 
 
 
 
 
(473
)
 
3,053

 
 
 
(3,053
)
 

Cumulative effect of change related to adoption of ASC 326
 
 
 
 
 
 
 
 
 
 
 
 
117

 
117

Balance as of June 30, 2020
64,902

 
$
6

 
$
248,215

 
12,215

 
$
(78,418
)
 
$
(27,348
)
 
$
23,167

 
$
165,622


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 April 1, 2019
64,534

 
$
6

 
$
240,734

 
12,688

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

 
$
180,556

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
(508
)
 
(508
)
Total other comprehensive income - foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
262

 
 
 
262

Issuance of common stock upon exercise of stock awards, net of withheld shares
95

 
 
 
(126
)
 
 
 
 
 
 
 
 
 
(126
)
Stock-based compensation expense
 
 
 
 
1,402

 
 
 
 
 
 
 
 
 
1,402

Balance as of June 30, 2019
64,629

 
$
6

 
$
242,010

 
12,688

 
$
(81,471
)
 
$
(23,337
)
 
$
44,378

 
$
181,586


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

 
$
6

 
$
239,960

 
12,688

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

 
$
180,955

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
(2,552
)
 
(2,552
)
Total other comprehensive income - foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
974

 
 
 
974

Issuance of common stock upon exercise of stock awards, net of withheld shares
134

 
 
 
(91
)
 
 
 
 
 
 
 
 
 
(91
)
Stock-based compensation expense
 
 
 
 
2,141

 
 
 
 
 
 
 
 
 
2,141

Cumulative effect of change related to adoption of ASC 842
 
 
 
 
 
 
 
 
 
 
 
 
159

 
159

Balance as of June 30, 2019
64,629

 
$
6

 
$
242,010

 
12,688

 
$
(81,471
)
 
$
(23,337
)
 
$
44,378

 
$
181,586

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)
 
Six Months Ended June 30,

2020
 
2019
Cash flows from operating activities
 

 
 

Net loss
$
(10,752
)
 
$
(2,552
)
Adjustments to reconcile net loss to net cash from operating activities:
 

 
 

Depreciation and amortization
6,437

 
5,849

Stock-based compensation expense
2,521

 
2,141

Bad debt provision
426

 
689

Contract implementation cost amortization
135

 
213

Goodwill impairment
7,191

 

Long-lived asset impairment
883

 

Change in fair value of warrant
(5,085
)
 

Change in fair value of embedded derivatives
(519
)
 

Unrealized foreign exchange loss
1,184

 

Other operating activities, net
1,085

 
224

Change in assets and liabilities:
 

 
 

Accounts receivable and unbilled revenue
61,059

 
(10,099
)
Inventories
(3,134
)
 
4,582

Prepaid expenses and other assets
17,147

 
(4,163
)
Accounts payable
(41,351
)
 
(18,146
)
Accrued expenses and other liabilities
(19,190
)
 
22,551

Net cash provided by operating activities
18,037

 
1,289

 
 
 
 
Cash flows from investing activities
 

 
 

Purchases of property and equipment
(5,127
)
 
(6,881
)
Net cash used in investing activities
(5,127
)
 
(6,881
)
 
 
 
 
Cash flows from financing activities
 

 
 

Net borrowings from old revolving credit facility

 
14,908

Net repayments on new revolving credit facility
(19,830
)
 

Net short-term secured borrowings

 
(833
)
Payments on term loan
(2,500
)
 

Proceeds from exercise of stock options

 
63

Payment of debt issuance costs

 
(935
)
Other financing activities, net
(130
)
 
(156
)
Net cash (used in) provided by financing activities
(22,460
)
 
13,047

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
2,150

 
(226
)
(Decrease) increase in cash and cash equivalents
(7,400
)
 
7,229

Cash and cash equivalents, beginning of period
42,711

 
26,770

Cash and cash equivalents, end of period
$
35,311

 
$
33,999

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 and six month period ended June 30, 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.

Liquidity and Management’s Plans

Additionally, under ASC 205, Presentation of Financial Statements, the Company is required to consider and has evaluated whether there is substantial doubt that it has the ability to meet its obligations within one year from the financial statement issuance date. This assessment also includes the Company’s consideration of any management plans to alleviate such doubts.

As further described in Note 11, Revolving Credit Facility, and Note 12, Long-Term Debt, within the notes to the financial statements included within this Form 10-Q, the agreements governing the Company's debt contain various restrictive covenants. Although we are in compliance with all of our debt covenants as of June 30, 2020, we have determined that it is probable we will violate certain financial covenants under our credit agreements within the next twelve months if covenant modifications are not obtained. If we were to violate one or more financial covenants, the lenders could declare us in default and could accelerate the amounts due under a portion or all of our outstanding debt.

We have discussed the terms for a modification with our lenders, and we believe we will receive such modification before any covenants are violated. Notwithstanding our belief that we will be successful in obtaining a modification of terms under our credit agreements, we also believe that the acquisition of the Company under the Agreement and Plan of Merger with HH Global Group Limited, described in Note 15, Subsequent Events, is probable of being completed and alleviates doubts about our ability to meet our obligations over the next twelve months.

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 and six months ended June 30, 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.

9

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



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 June 30, 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 June 30, 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.

Treasury Shares

Common shares repurchased by the Company are recorded at cost as treasury shares and result in a reduction of equity. When treasury shares are reissued, the Company determines the cost using the first-in, first-out cost method. The difference between the cost of the treasury shares and reissuance price is included in Additional paid-in capital or Retained earnings.

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


10

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



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 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.


11

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



The amount of amortization during the three months ended June 30, 2020 and 2019 was $0.1 million and $0.1 million, and $0.1 million and $0.2 million during the six months ended June 30, 2020 and 2019 respectively. There was an incremental $0.6 million impairment loss during the six months ended June 30, 2020 in relation to contract implementation costs in the North America reportable segment. The impairment was calculated as the difference between the carrying amount of the asset and the recoverable amount.

The following table is a summary of the Company's costs to fulfill and contract liabilities (in thousands):
 
June 30, 2020
 
December 31, 2019
Costs to fulfill
$
567

 
$
1,238

Contract liabilities
10,572

 
9,568

Cash received
9,845

 
36,662

Revenue recognized
8,841

 
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 and six months ended June 30, 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 June 30, 2020. The Company does not have material future performance 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 as of June 30, 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(1)
71

Recoveries and write-offs

Balance as of June 30, 2020
$
3,470



(1) The current provision for expected credit losses includes the effect of exchange rate changes on accounts receivable through June 30, 2020.


12

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



4. Goodwill

The following is a rollforward of goodwill for each reportable segment as of June 30, 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
(52
)
 

 

 
(52
)
 
 
 
 
 
 
 
 
Goodwill as of June 30, 2020
 
 
 
 
 
 
 
Goodwill
170,590

 
96,225

 
7,109

 
273,924

Accumulated impairment
(25,623
)
 
(96,225
)
 
(7,109
)
 
(128,957
)
 
$
144,967

 
$

 
$

 
$
144,967




The Company most recently recognized a partial impairment of its goodwill in the North America reportable segment as of March 31, 2020, as outlined below. The Company further considered indicators for impairment at June 30, 2020 given the significant level of goodwill remaining in the reportable segment as well as the recent impairment test at March 31, 2020.

Further, based on the terms of the Agreement and Plan of Merger with HH Global Limited, see Note 15, Subsequent Events, the Company determined the enterprise value of the North America reporting unit to be consistent with the enterprise value as of the March 31, 2020 impairment test and compared the enterprise value of the reporting unit to its respective carrying value.  As a result, as of June 30, 2020, the enterprise value for the North America reporting unit does not exceed the carrying value by more than 30% and is therefore considered at risk.

At June 30, 2020, the Company performed a qualitative assessment to determine whether it is more likely than not that the fair value of our North America reportable segment is less than the carrying value. We considered the current and expected future economic and market conditions surrounding COVID-19 and the Agreement and Plan of Merger with HH Global Group Limited. See Note 15, Subsequent Events. After performing this qualitative goodwill impairment assessment, the Company determined that it did not have an interim goodwill triggering event as June 30, 2020.

The fair value estimates used in the goodwill impairment analysis require significant judgment. The fair value estimates were based on assumptions management believes to be reasonable, but that are inherently uncertain, including estimates of future revenue and operating margins and assumptions about the overall economic climate and the competitive environment for the business. The fair value determination of the North America reporting unit, the only reporting unit with goodwill remaining, primarily relies on management judgments around timing of generating revenue from recent new customer wins as well as timing of benefits expected to be received from the significant restructuring actions currently underway, see Note 6, Restructuring Activities and Charges to the Consolidated Financial Statements.

At June 30, 2020, the Company had $145.0 million of goodwill on its consolidated balance sheet, all of which relates to the North America reportable segment. If assumptions surrounding any of these factors or assumptions change, then a future impairment charge may occur.

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

13

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



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.

5. Other Intangibles and Long-Lived Assets

The following is a summary of the Company’s intangible assets as of June 30, 2020 and December 31, 2019 (in thousands):
 
June 30, 2020
 
December 31, 2019
 
Weighted
Average Life in Years
Customer lists
$
73,442

 
$
73,678

 
14.4
Non-competition agreements
943

 
959

 
4.1
Trade names
2,510

 
2,510

 
13.3
Patents
57

 
57

 
9.0
 
76,952

 
77,204

 
 
Less accumulated amortization and impairment
 
 
 
 
 
Customer lists
(67,096
)
 
(66,382
)
 
 
Non-competition agreements
(943
)
 
(959
)
 
 
Trade names
(2,168
)
 
(2,098
)
 
 
Patents
(52
)
 
(51
)
 
 
Total accumulated amortization and impairment
(70,259
)
 
(69,490
)
 
 
Intangible assets, net
$
6,693

 
$
7,714

 
 


Amortization expense related to these intangible assets was $0.6 million and $0.6 million for the three months ended June 30, 2020 and 2019, and $1.1 million and $1.1 million during the six months ended June 30, 2020 and 2019 respectively.
 
As of June 30, 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
$
1,007

2021
1,783

2022
1,407

2023
961

2024
744

2025
467

Thereafter
324

 
$
6,693



6. Restructuring Activities and Charges

2018 Restructuring Plan

On August 10, 2018, the Company approved a plan (the "2018 Restructuring Plan") to reduce the Company's cost structure while driving value for its clients and stockholders. The 2018 Restructuring 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.


14

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



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, 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 six months ended June 30, 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
 
1,969

 
369

 
4,425

 
518

 
7,281

Prepayments(1)
 

 

 
36

 

 
36

Cash payments
 
(2,283
)
 
(402
)
 
(5,291
)
 
(494
)
 
(8,470
)
Non-cash settlements/adjustments(2)
 
58

 
(22
)
 

 

 
36

Balance as of June 30, 2020
 
$
410

 
$
(32
)
 
$
2,806

 
$
282

 
$
3,466



(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. This line item represents prepayment activity that has occurred through June 30, 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 June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
North America
 
$
2,247

 
$
1,216

 
$
4,483

 
$
1,408

EMEA
 
1,009

 
326

 
1,889

 
1,405

LATAM
 
143

 
39

 
307

 
74

Other
 
245

 
2,117

 
602

 
4,745

Total
 
$