

	North America		EMEA		LATAM		Other			Total
Six Months Ended June 30, 2020
Revenue from third parties	$	338,704	$	97,305	$	28,662	$	—		$	464,671
Revenue from other segments	3,047		4,169		2		(7,218		)	—
Total revenue	$	341,751	$	101,474	$	28,664	$	(7,218	)	$	464,671
Adjusted EBITDA	$	36,780	$	5,580	$	274	$	(23,596	)	$	19,038

Six Months Ended June 30, 2019
Revenue from third parties	$	388,365	$	122,662	$	40,045	$	—		$	551,072
Revenue from other segments	1,213		4,360		4		(5,577		)	—
Total revenue	$	389,578	$	127,022	$	40,049	$	(5,577	)	$	551,072
Adjusted EBITDA	$	36,332	$	7,256	$	876	$	(24,083	)	$	20,381

~~(1)~~

Adjusted EBITDA, which represents income from operations with the addition of depreciation and amortization, stock-based compensation expense, change in the fair value of contingent consideration liabilities, restructuring, business development realignment costs, and professional fees related to ASC 606 implementation, is considered a non-GAAP financial measure under SEC regulations. Income from operations is the most directly comparable financial measure calculated in accordance with GAAP. The Company presents this measure as supplemental information to help investors better understand trends in its business results over time. The Company’s management team uses Adjusted EBITDA to evaluate the performance of the 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 the Company’s overall financial performance and liquidity. Moreover, the Adjusted EBITDA definition the Company uses may not be comparable to similarly titled measures reported by other companies.

~~The table below reconciles the total of the reportable segments' Adjusted EBITDA and the Adjusted EBITDA included in Other to income before income taxes (in thousands):~~

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Three~~

The table below reconciles Adjusted EBITDA to net loss before income taxes (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Adjusted EBITDA	$	6,131		$	12,992		$	19,038		$	20,381
Depreciation and amortization	(3,310		)	(3,233		)	(6,437		)	(5,849		)
Stock-based compensation - equity classified awards	(1,554		)	(1,402		)	(3,034		)	(2,141		)
Stock-based compensation - liability classified awards (SARs)	(127		)	(46		)	513			(46		)
Goodwill impairment	—			—			(7,191		)	—
Intangible and other asset impairments	(609		)	—			(883		)	—
Restructuring charges	(3,644		)	(3,698		)	(7,281		)	(7,632		)
Merger-related transaction costs	(790		)	—			(790		)	—
Professional fees related to control remediation	(356		)	(550		)	(620		)	(916		)
Executive search fees	—			—			—			(80		)
Sales and use tax audit	—			—			—			(25		)
(Loss) income from operations	(4,259		)	4,063			(6,685		)	3,692
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
(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	)

The table below presents total assets for the Company's reportable segments and ~~Nine Months Ended September 30, 2017~~Other (in thousands):



	June 30, 2020		December 31, 2019
North America	$	353,974	$	424,775
EMEA	120,081		140,013
LATAM	32,288		46,822
Other	18,690		17,673
Total assets	$	525,033	$	629,283

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

15. Subsequent Events

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Adjusted EBITDA 18,775
16,920
47,688
43,407
Depreciation and amortization (3,317 ) (5,066 ) (9,403 ) (14,382 )
Stock-based compensation expense (2,375 ) (1,740 ) (5,296 ) (4,097 )
Change in fair value of contingent consideration 167
(788 ) (677 ) (9,975 )
Restructuring and other charges —
(466 ) —
(4,433 )
Business development realignment⁽¹⁾
(715 ) —
(715 ) —
Professional fees related to ASC 606 implementation (300 ) —
(300 ) —
Income from operations 12,235
8,860
31,297
10,520
Interest income 31
26
77
63
Interest expense (1,198 ) (1,191 ) (3,239 ) (3,252 )
Other, net 427
(114 ) (962 ) 16
Income before income taxes $ 11,495
$ 7,581
$ 27,173
$ 7,347


~~(1)~~	~~Includes accrued severance and other employee costs related to a realignment of the sales organization during the third quarter of 2017.~~

Pending acquisition

On July 15, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with HH Global Group Limited, a Company registered in England and Wales (“Parent”), HH Global Finance Limited, a Company registered in England and Wales, and Project Idaho Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Sub”). The Merger Agreement provides for, among other things, the merger of Sub with and into the Company, on the terms and subject to the conditions set forth in the Merger Agreement (the “Merger”), with the Company continuing as the surviving corporation in the Merger. As a result of the Merger, the Company would become a wholly owned subsidiary of Parent. Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of our common stock, par value $0.0001 per share, issued and outstanding immediately prior to the Effective Time will be canceled and automatically converted into the right to receive $3.00 in cash, without interest thereon, other than (i) shares that are held in the treasury of the Company or owned of record by any wholly owned subsidiary of the Company (other than those held on behalf of any third party), (ii) shares owned of record by Parent, Sub or any of their respective wholly owned subsidiaries (other than those held on behalf of any third party), and (iii) shares held by stockholders who have not voted in favor of or consented to the adoption of the Merger Agreement and who have properly demanded appraisal of such shares and complied with all the provisions of the Delaware General Corporation Law concerning the right of holders of shares to require appraisal.

Additional information about the Merger Agreement and the related transactions can be found in the Company’s Current Report on Form 8-K filed with the SEC on July 17, 2020.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that are based on beliefs, assumptions, and expectations of future events, taking into account the information currently available to the Company. All statements other than statements of current or historical fact contained in this report are forward-looking statements. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “will,” “seek,” “plan,” and similar statements are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual outcomes to differ materially from expectations of future outcomes the Company expresses or implies in any forward-looking statements. These risks and uncertainties include, but are not limited to: the satisfaction of the conditions precedent to the consummation of the proposed merger transaction involving HH Global Group Limited, including, without limitation, the receipt of stockholder and regulatory approvals; unanticipated difficulties or expenditures relating to the proposed merger; legal proceedings, judgments or settlements, including those that may be instituted against the Company, the Company’s board of directors, officers and others following the announcement of the proposed merger; disruptions of current plans and operations caused by the announcement and pendency of the proposed merger; potential difficulties in employee retention due to the announcement and pendency of the proposed merger; the response of customers, suppliers, business partners and regulators to the announcement of the proposed merger; risks related to diverting management’s attention from the Company’s ongoing business operations; and other risks, relevant factors, and uncertainties identified in the Company’s filings with the Securities and Exchange Commission (the “SEC”) (including the information set forth in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and in subsequent filings), which filings are available at the SEC’s website at www.sec.gov. Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. The Company’s forward-looking statements speak only as of the date of this document. Other than as required by law, the Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

We are a leading global marketing ~~execution~~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 ~~more than 8,000~~ 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.

Our proprietary software applications and databases create a fully-integrated solution that stores, analyzes and tracks the production capabilities of our supplier network, as well as detailed pricing data. As a result, we believe we have one of the largest independent repositories of supplier capabilities and pricing data for suppliers of marketing materials around the world. We leverage our supplier capabilities and pricing data to match our orders with suppliers that are optimally suited to meet the client’s needs at a highly competitive price. Our technology and databases of product and supplier information are designed to capitalize on excess manufacturing capacity and other inefficiencies in the traditional marketing materials supply chain to obtain favorable pricing while delivering high-quality products and services for our clients.

We use our supplier capability and pricing data to match orders with suppliers that are optimally suited to meet the client's needs at a highly competitive price. By leveraging our technology and data, our clients are able to reduce overhead costs, redeploy internal resources and obtain favorable pricing and service terms. In addition, our ability to track individual transactions and provide customized reports detailing procurement activity on an enterprise-wide basis provides our clients with greater visibility and control of their marketing materials expenditures.

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. Our clients fall into two categories, enterprise and transactional. We enter into contracts with our enterprise clients to provide some or substantially all, of their marketing materials for certain categories, geographies and/or campaigns, on a recurring basis. We provide marketing materials to our transactional clients on an order-by-order basis.

As of ~~September~~June 30, ~~2017,~~2020, we had approximately ~~1,900~~2,000 employees ~~and independent contractors~~ in ~~more than 26~~over 20 countries. ~~We organize our operations into two operating segments based on geographic regions: North America and International. The North America segment includes operations in~~For the ~~United States and Canada; the International segment includes operations in Mexico, South America, Central America, Europe, the Middle East, Africa and Asia. In 2016,~~six months ended June 30, 2020, we generated global revenue from third parties of ~~$734.2~~$338.7 million in the North America segment, ~~and $356.5~~$97.3 million in the ~~International Segment. We believe~~EMEA segment, and $28.7 million in the ~~opportunity exists to expand our business into new geographic markets.~~ LATAM segment.

Our objective is to continue to increase our sales ~~in the United States and internationally~~globally by adding new clients and increasing our sales to existing clients through additional marketing ~~execution~~ 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 executive 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 any material 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 below, the Company had liquidity of approximately $86.3 million as of June 30, 2020, comprised of cash on hand of $35.3 million and an undrawn revolving credit facility of $51.0 million.

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 ~~intend~~review these estimates on a periodic basis to ~~hire or acquire more account executives within close proximity~~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 ~~large markets.~~policies as of June 30, 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 below.

Key Components of Statement of Operations

Revenue

We generate revenue through the procurement of marketing materials for our clients. Our revenue is generated from two different types of clients: enterprise and transactional. Enterprise clients usually order marketing materials in higher dollar amounts and volume than our transactional clients. We categorize a client as an enterprise client if we have a contract with the client for the provision of marketing materials on a recurring basis; if the client has signed an open-ended purchase order or a series of related purchase orders; or if the client has enrolled in our e-stores program, which enables the client to make online purchases of marketing materials on a recurring basis. We categorize all other clients as transactional. We enter into contracts with our enterprise clients to provide some or a specific portion of their marketing products on a recurring basis. Our contracts with enterprise clients are generally three to five years, often subject to termination by either party upon prior notice ranging from 90 days to twelve months.

Several of our enterprise clients have outsourced substantially all of their recurring marketing materials needs to us. We provide marketing materials to our transactional clients on an order-by-order basis.

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 ~~in the case of some of our enterprise clients, is~~may be fixed by contract or ~~in the case of transactional clients, is dependent~~may depend on prices negotiated on a job-by-job basis. Once ~~either type of~~the client accepts our pricing terms, the selling price is established, and we ~~procure~~arrange shipment of the ~~product for our own account in order to re-sell it to the client. We take full title and risk of loss for the product upon shipment.~~product. The ~~finished~~ product is ~~typically~~ shipped directly from our supplier or from our warehouse to a destination specified by our client. ~~Upon~~The client is invoiced upon shipment ~~our supplier invoices us~~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 ~~we invoice~~conditions that limit the amount of our ~~client.~~liability for product defects. Product defects have not had a material adverse effect on our results of operations to date.

Our revenue from enterprise clients tends to generate lower gross profit margins than our revenue from transactional clients because the gross profit margins established in our contracts with large enterprise clients are generally lower. Although our enterprise revenue generates lower gross profit margins, our enterprise business tends to be as profitable as our transactional business on an operating profit basis because the commission expense associated with enterprise clients is generally lower.

Cost of Goods Sold and Gross Profit

Our cost of goods sold consists ~~primarily~~ of the price at which we purchase products from our ~~suppliers. Our selling price, including~~suppliers, facility costs, and personnel costs for creative design services and warehousing. We procure product for our ~~gross profit, in the case~~own account and generally take full title and risk of some of our enterprise clients, is based on a fixed gross margin established by contract or, in the case of transactional clients, is determined at the discretion of the account executive or production manager given predetermined parameters. loss upon shipment.

Our gross profit ~~margins on our enterprise clients are typically lower than our gross profit margins on our transactional clients. As a result, our~~is determined by the selling prices of the product and shipping charges less the cost of ~~goods sold as a percentage of revenue for our enterprise clients is typically higher than those for our transactional clients.~~the product, direct personnel, warehousing, and shipping and handling costs.

Operating Expenses and Loss from Operations

Our selling, general and administrative expenses consist of ~~commissions paid to our account executives,~~ compensation costs for our management team, ~~and~~client engagement personnel, production managers, corporate functions and operational support employees, as well as ~~compensation costs for~~commissions paid to our ~~finance~~account executives. In addition, selling, general and ~~support employees,~~administrative expenses include public company expenses, facilities fees, travel and entertainment expenses, corporate systems fees, and legal and accounting ~~facilities and travel and entertainment expenses.~~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. ~~Our prepaid commission balance, net of accrued earned commissions not yet paid, increased to $0.6 million as of September 30, 2017 from $0.5 million as of December 31, 2016.~~

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 generally agree to provide us with products of the same quality. In addition, the quotes we execute with our clients typically 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.Non-GAAP Financial Measures

~~Comparison of three months ended September 30, 2017 and 2016~~

~~Revenue~~

~~Our revenue by segment for each of the periods presented was as follows:~~

Three Months Ended September 30,
2017 % of Total 2016 % of Total
(dollars in thousands)
North America $ 196,966
68.3 % $ 185,199
66.1 %
International 91,420
31.7 % 94,794
33.9 %
Revenues from third parties $ 288,386
100.0 % $ 279,993
100.0 %

~~North America~~

North America revenue increased by $11.8 million, or 6.4%, from $185.2 million during the three months ended September 30, 2016 to $197.0 million during the three months ended September 30, 2017. This increase in revenue is driven primarily by organic growth from new enterprise accounts added during the last 12 to 18 months and expansion of existing accounts.

~~International~~

International revenue decreased by $3.4 million, or 3.6%, from $94.8 million during the three months ended September 30, 2016 to $91.4 million during the three months ended September 30, 2017. This decrease in revenue is driven primarily by decreased marketing spend within certain enterprise accounts.

~~Cost of goods sold~~

Our cost of goods sold increased by $3.7 million, or 1.7%, from $212.2 million during the three months ended September 30, 2016 to $215.9 million during the three months ended September 30, 2017. Our cost of goods sold as a percentage of revenue was 74.9% and 75.8% during the three months ended September 30, 2017 and 2016, respectively.

~~Gross profit margin~~

Our gross profit margin was 25.1% and 24.2% during the three months ended September 30, 2017 and 2016, respectively. This increase was primarily driven by benefits from supply chain initiatives and favorable product category and geographical mix during the three months ended September 30, 2017.

~~Selling, general, and administrative expenses~~

Selling, general, and administrative expenses increased by $4.5 million, or 8.6%, from $52.6 million during the three months ended September 30, 2016 to $57.1 million during the three months ended September 30, 2017. This increase is primarily driven by increased investments in operational improvements and product category and geographical mix during the current quarter. As a percentage of gross profit, selling, general, and administrative expenses increased to 78.8% for the three months ended September 30, 2017 compared to 77.6% for the three months ended September 30, 2016.

~~Depreciation and amortization~~

Depreciation and amortization expense decreased by $1.7 million, or 34.5%, from $5.1 million during the three months ended September 30, 2016 to $3.3 million during the three months ended September 30, 2017. This decrease is driven by the impact of the change in useful life of certain proprietary software made during the fourth quarter of 2016 as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

~~Change in fair value of contingent consideration~~

Expense (income) from the change in fair value of contingent consideration decreased by $1.0 million from expense of $0.8 million during the three months ended September 30, 2016 to income of $0.2 million during the three months ended

~~September 30, 2017. The change in the fair value of the contingent liability is driven by the final adjustment of the EYELEVEL liability during the third quarter of 2017.~~

~~Restructuring and other charges~~

During the fourth quarter of 2015, management 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 deemed unnecessary. The realignment plan was completed during the fourth quarter of 2016. 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. The charges were all incurred by the end of 2016 with payouts of the charges occurring in 2017.

~~No restructuring charges occurred during the three months ended September 30, 2017.~~

~~During the three months ended September 30, 2016, the Company recorded restructuring and other charges of $0.5 million.~~

~~Income from operations~~

Income from operations increased by $3.4 million from $8.9 million during the three months ended September 30, 2016 to $12.2 million during the three months ended September 30, 2017. As a percentage of revenue, income from operations was 4.2% and 3.2% during the three months ended September 30, 2017 and 2016, respectively. As a percentage of gross profit, income from operations was 16.9% and 13.1% during the three months ended September 30, 2017 and 2016, respectively. This increase is primarily attributable to operating leverage and changes in depreciation and amortization, fair value of contingent consideration, and restructuring charges discussed above.

~~Other expense~~

Other expense decreased by $0.6 million from $1.3 million for the three months ended September 30, 2016 to $0.7 million during three months ended September 30, 2017. The current period expense was primarily driven by unrealized foreign exchange losses on balances denominated in foreign currencies, including intercompany loans, caused by exchange rate changes in the euro, Brazilian real, and certain other currencies.

~~Income tax expense~~

Income tax expense increased by $0.8 million from $3.2 million during the three months ended September 30, 2016 to $4.0 million during the three months ended September 30, 2017. Our effective tax rate was 34.5% and 42.7% for the three months ended September 30, 2017 and 2016, respectively. Our 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, and foreign taxes that are different than the U.S. federal statutory rate. In addition, the effective tax rate can be impacted each period by discrete factors and events.

The effective tax rates were affected by the fair value changes to contingent consideration in each period. Portions of the total amount recognized from fair value changes to contingent consideration relate to non-taxable acquisitions for which deferred taxes are not recognized, consistent with the treatment of goodwill and intangible assets for those acquisitions under U.S. GAAP. In the three months ended September 30, 2017 and 2016, $(0.2) million of income and $0.8 million of expense, respectively, was recognized from fair value changes to contingent consideration. Excluding the impact of the contingent liability, prior year restructuring charge, business development realignment costs, and ASC 606 implementation costs, the effective tax rate was 34.6% and 34.6% in the three months ended September 30, 2017 and 2016, respectively.

The effective tax rate for the three months ended September 30, 2017 was unfavorably impacted by $0.1 million of stock-based compensation activity due to the adoption ASU 2016-09 on January 1, 2017. There was no impact for the three months ended September 30, 2016.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will expire unutilized. There were no material valuation adjustments for the three months ended September 30, 2017 and 2016. 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.

~~Net income~~

Net income increased by $3.2 million, or 73.4%, from $4.3 million during the three months ended September 30, 2016 to $7.5 million during the three months ended September 30, 2017. Net income as a percentage of revenue was 2.6% and 1.6% during the three months ended September 30, 2017 and 2016, respectively. Net income as a percentage of gross profit was 10.4% and 6.4% during the three months ended September 30, 2017 and 2016, respectively. This increase is primarily attributable to changes in depreciation and amortization, change in fair value of contingent consideration, and restructuring charges, offset by an increase in selling, general, and administrative expenses discussed above.

~~Diluted earnings per share~~

Three Months Ended September 30,
2017 2016
(in thousands, except per share data)
Net income $ 7,528
$ 4,341
Denominator for dilutive earnings per share 55,189

54,772
Diluted earnings per share $ 0.14
$ 0.08

~~Diluted earnings per share increased by $0.06 from $0.08 per share during the three months ended September 30, 2016 to $0.14 per share during the three months ended September 30, 2017.~~

~~Comparison of nine months ended September 30, 2017 and 2016~~

~~Revenue~~

~~Our revenue by segment for each of the periods presented was as follows:~~

Nine Months Ended September 30,
2017 % of Total 2016 % of Total
(dollars in thousands)
North America $ 569,440
68.2 % $ 550,561
67.1 %
International 265,866
31.8 % 269,725
32.9 %
Revenue from third parties $ 835,306
100.0 % $ 820,286
100.0 %

~~North America~~

North America revenue increased by $18.9 million, or 3.4%, from $550.6 million during the nine months ended September 30, 2016 to $569.4 million during the nine months ended September 30, 2017. This increase in revenue is driven primarily by organic growth from new enterprise accounts added during the last 12 to 18 months and expansion of existing accounts.

~~International~~

International revenue decreased by $3.9 million, or 1.4%, from $269.7 million during the nine months ended September 30, 2016 to $265.9 million during the nine months ended September 30, 2017. This decrease in revenue is driven primarily by lower marketing spend within certain enterprise accounts.

~~Cost of goods sold~~

Our cost of goods sold increased by $2.8 million, or 0.5%, from $625.5 million during the nine months ended September 30, 2016 to $628.3 million during the nine months ended September 30, 2017. Our cost of goods sold as a percentage of revenue was 75.2% and 76.2% during the nine months ended September 30, 2017 and 2016, respectively.

~~Gross profit margin~~

Our gross profit margin was 24.8% and 23.8% during the nine months ended September 30, 2017 and 2016, respectively. This increase was primarily driven by benefits from supply chain initiatives and favorable product category and geographical mix during the nine months ended September 30, 2017.

~~Selling, general, and administrative expenses~~

Selling, general, and administrative expenses increased by $10.1 million, or 6.5%, from $155.5 million during the nine months ended September 30, 2016 to $165.6 million during the nine months ended September 30, 2017. This increase is primarily driven by increased investments into the infrastructure of the Company through operational improvements during the current quarter. As a percentage of gross profit, selling, general, and administrative expenses were flat at 80.0% for the nine months ended September 30, 2017 compared to 79.8% for the nine months ended September 30, 2016.

~~Depreciation and amortization~~

Depreciation and amortization expense decreased by $5.0 million, or 34.6%, from $14.4 million during the nine months ended September 30, 2016 to $9.4 million during the nine months ended September 30, 2017. This decrease is driven by the impact of the change in useful life of certain proprietary software made during the fourth quarter of 2016 as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

~~Change in fair value of contingent consideration~~

Expense from the change in fair value of contingent consideration decreased by $9.3 million from $10.0 million during the nine months ended September 30, 2016 to $0.7 million during the nine months ended September 30, 2017. The change in the fair value of the contingent liability is driven by the final adjustment of the DB Studios liability during the first quarter of 2017 and the final adjustment of the EYELEVEL liability during the second and third quarters of 2017.

~~Restructuring and other charges~~

~~No restructuring activities occurred during the nine months ended September 30, 2017.~~

~~During the nine months ended September 30, 2016, the Company recorded restructuring and other charges of $4.4 million.~~

~~Income from operations~~

Income from operations increased by $20.8 million from $10.5 million during the nine months ended September 30, 2016 to $31.3 million during the three months ended September 30, 2017. As a percentage of revenue, income from operations was 3.7% and 1.3% during the nine months ended September 30, 2017 and 2016, respectively. As a percentage of gross profit, income from operations was 15.1% and 5.4% during the nine months ended September 30, 2017 and 2016, respectively. This increase is primarily attributable to operating leverage and changes in depreciation and amortization, fair value of contingent consideration, and restructuring charges discussed above.

~~Other expense~~

Other expense increased by $0.9 million from $3.2 million for the nine months ended September 30, 2016 to $4.1 million for the nine months ended September 30, 2017. This increase included a $0.4 million foreign exchange loss due to the Czech National Bank's decision to discontinue the Czech koruna's peg to the euro during the second quarter of 2017. The remaining expense was primarily driven by unrealized foreign exchange losses on balances denominated in foreign currencies, including intercompany loans, caused by exchange rate changes in the euro, Brazilian real, and certain other currencies.

~~Income tax expense~~

Income tax expense increased by $1.7 million from $8.0 million during the nine months ended September 30, 2016 to $9.7 million during the nine months ended September 30, 2017. Our effective tax rate was 35.7% and 109.2% for the nine months ended September 30, 2017 and 2016, respectively. Our 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, and foreign taxes that are different than the U.S. federal statutory rate. In addition, the effective tax rate can be impacted each period by discrete factors and events.

The effective tax rates were affected by the fair value changes to contingent consideration in each period. Portions of the total amount recognized from fair value changes to contingent consideration relate to non-taxable acquisitions for which deferred taxes are not recognized, consistent with the treatment of goodwill and intangible assets for those acquisitions under U.S. GAAP. In the nine months ended September 30, 2017 and 2016, expense of $0.7 million and $10.0 million, respectively, was recognized from fair value changes to contingent consideration. Excluding the impact of the contingent liability, prior year restructuring charge, the Czech koruna's exit from the exchange rate commitment, business development realignment costs, and ASC 606 implementation costs, the effective tax rate was 34.6% and 34.9% in the nine months ended September 30, 2017 and 2016, respectively.

The effective tax rate for the nine months ended September 30, 2017 was unfavorably impacted by $0.1 million of stock-based compensation activity due to the adoption ASU 2016-09 on January 1, 2017. There was no impact for the nine months ended September 30, 2016.

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. During the second quarter of 2017, the valuation allowance balance was decreased for a Peruvian valuation allowance adjustment. The Company believes sufficient positive evidence existed to release the valuation allowance, therefore, the Company adjusted the valuation allowance by $0.8 million resulting in a $0.2 million benefit to income tax expense for the nine months ended September 30, 2017. There were no material valuation adjustments for the nine months ended September 30, 2016. 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.

~~Net income (loss)~~

Net income (loss) increased by $18.2 million, or 2,686.4%, from a net loss of $0.7 million during the nine months ended September 30, 2016 to net income of $17.5 million during the nine months ended September 30, 2017. Net income (loss) as a percentage of revenue was 2.1% and (0.1)% during the nine months ended September 30, 2017 and 2016, respectively. Net income (loss) as a percentage of gross profit was 8.4% and (0.3)% during the nine months ended September 30, 2017 and 2016, respectively. This increase is primarily attributable to changes in depreciation and amortization, change in fair value of contingent consideration, and restructuring charges discussed above.

~~Diluted earnings (loss) per share~~

Nine months ended September 30,
2017 2016
(in thousands, except per share data)
Net income (loss) $ 17,479
$ (676 )
Denominator for dilutive earnings per share 55,127
53,536
Diluted earnings (loss) per share $ 0.32
$ (0.01 )

Diluted earnings (loss) per share increased by $0.33 from a loss of $(0.01) per share during the nine months ended September 30, 2016 to earnings of $0.32 per share during the nine months ended September 30, 2017.

Adjusted EBITDA

Adjusted EBITDA, which represents ~~income~~loss from operations with the addition of depreciation and amortization, stock-based compensation expense, ~~change in the fair value of contingent consideration liabilities,~~goodwill and long-lived asset impairment charges, restructuring charges, ~~business development realignment~~merger-related transaction costs, ~~and~~various one-time professional fees, ~~relating to ASC 606 implementation~~executive search expenses, and other charges itemized in the reconciliation table ~~below,~~noted within Note 14, Business Segments, is considered a non-GAAP financial measure under SEC regulations. ~~Net income (loss)~~Loss from operations is the most directly comparable

financial measure calculated in accordance with GAAP. ~~We present~~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. ~~Our Adjusted EBITDA by segment for each of the periods presented was as follows:~~

Three Months Ended September 30,
2017 % of Total 2016 % of Total
(dollars in thousands)
North America $ 20,827
110.9 % $ 16,411
97.0 %
International 6,865
36.6
7,444
41.2
Other⁽¹⁾
(8,917 ) (47.5 ) (6,935 ) (41.0 )
Adjusted EBITDA $ 18,775
100.0 % $ 16,920
100.0 %

Nine Months Ended September 30,
2017 % of Total 2016 % of Total
(dollars in thousands)
North America $ 57,827
121.3 % $ 48,209
111.1 %
International 16,314
34.2
17,482
40.3
Other⁽¹⁾
(26,453 ) (55.5 ) (22,284 ) (51.3 )
Adjusted EBITDA $ 47,688
100.0 % $ 43,407
100.0 %

(1) “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.

~~Comparison of three months ended September 30, 2017 and 2016.~~ Adjusted EBITDA increased by $1.9 million, or 11.0%, from $16.9 million during the three months ended September 30, 2016 to $18.8 million during the three months ended September 30, 2017. North America Adjusted EBITDA increased by $4.4 million, or 26.9%, from $16.4 million during the three months ended September 30, 2016 to $20.8 million during the three months ended September 30, 2017 due to improved gross margins. International Adjusted EBITDA decreased by $0.6 million, or 7.8%, from $7.4 million during the three months ended September 30, 2016 to $6.9 million during the three months ended September 30, 2017 due to lower revenue during the period. Other Adjusted EBITDA decreased by $2.0 million, or 28.6%, from a loss of $6.9 million during the three months ended September 30, 2016 to a loss of $8.9 million during the three months ended September 30, 2017 due to investments in operational infrastructure and service line capabilities .

~~Comparison of nine months ended September 30, 2017 and 2016.~~ Adjusted EBITDA increased by $4.3 million, or 9.9%, from $43.4 million during the nine months ended September 30, 2016 to $47.7 million during the nine months ended September 30, 2017. North America Adjusted EBITDA increased by $9.6 million, or 20.0%, from $48.2 million during the nine months ended September 30, 2016 to $57.8 million during the nine months ended September 30, 2017 due to improved gross margins. International Adjusted EBITDA decreased by $1.2 million, or 6.7%, from $17.5 million during the nine months ended September 30, 2016 to $16.3 million during the nine months ended September 30, 2017 due to lower revenue and client mix. Other Adjusted EBITDA decreased by $4.2 million, or 18.7%, from a loss of $22.3 million during the nine months ended September 30, 2016 to a loss of $26.5 million during the nine months ended September 30, 2017 due to investments in operational infrastructure and service line capabilities.

~~The table below provides a reconciliation of Adjusted EBITDA to net income (loss) for each of the periods presented (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) $ 7,528
$ 4,341
$ 17,479
$ (676 )
Income tax expense 3,967
3,240
9,694
8,023
Interest income (31 ) (26 ) (77 ) (63 )
Interest expense 1,198
1,191
3,239
3,252
Other, net (427 ) 114
962
(16 )
Depreciation and amortization 3,317
5,066
9,403
14,382
Stock-based compensation expense 2,375
1,740
5,296
4,097
Change in fair value of contingent consideration (167 ) 788
677
9,975
Restructuring and other charges —
466
—
4,433
Business development realignment⁽¹⁾
715
—
715
—
Professional fees related to ASC 606 implementation 300
—
300
—
Non-GAAP Adjusted EBITDA $ 18,775
$ 16,920
$ 47,688
$ 43,407

Adjusted Diluted Earnings Per Share

Adjusted diluted earnings per share, which represents net ~~income (loss),~~loss, with the addition of ~~the change in the fair value of contingent consideration liabilities, impairment charges, and other amounts itemized in the reconciliation table below,~~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 ~~earnings~~loss per share is the most directly comparable financial measure calculated in accordance with GAAP. ~~We present~~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 June 30, 2020 and 2019

Revenue

Our ~~adjusted~~third party revenue by segment for each of the periods presented was as follows (dollars in thousands):



	Three Months Ended June 30,
	2020		% of Total		2019		% of Total

North America	$	140,995	69.4	%	$	200,091	70.5	%
EMEA	49,095		24.1	%	62,483		22.0	%
LATAM	13,221		6.5	%	21,287		7.5	%
Revenue from third parties	$	203,311	100.0	%	$	283,861	100.0	%

North America. Revenue decreased by $59.1 million, or 29.5%, in the three months ended June 30, 2020 over the corresponding period in 2019. The decrease in revenue is driven by the negative impact of COVID-19 resulting in a decline in spend from enterprise clients.

EMEA. Revenue decreased by $13.4 million, or 21.4%, in the three months ended June 30, 2020 over the corresponding period in 2019. The decrease was a result of reduced spend with certain clients and declines in marketing spend as a result of COVID-19.

LATAM. Revenue decreased by $8.1 million, or 37.9%, in the three months ended June 30, 2020 over the corresponding period in 2019. The decrease was a result of reduced spend with certain clients and declines in marketing spend as a result of COVID-19.

Cost of goods sold

Cost of goods sold decreased by $60.6 million, or 28.1%, in the three months ended June 30, 2020 over the corresponding period in 2019. The decrease is consistent with the decline in our revenue resulting from the negative impacts of COVID-19 across all regions during the quarter. Our cost of goods sold as a percentage of revenue was 76.2% and 75.9% during the three months ended June 30, 2020 and 2019, respectively.

Gross profit margin

Gross profit margin was 23.8% and 24.1% during the three months ended June 30, 2020 and 2019, respectively. The decrease was primarily due to temporary operational inefficiencies during the period.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $12.3 million, or 21.4%, in the three months ended June 30, 2020 over the corresponding period in 2019. The decrease was driven by several factors, which included the realization of cost savings and restructuring initiatives. In response to COVID-19, certain cost savings initiatives were implemented during the quarter, such as employee furloughs and terminations, hiring restrictions, cancellation of merit increases, and restricted travel.

Depreciation and amortization

Depreciation and amortization expense increased by $0.1 million, or 2.4%, in the three months ended June 30, 2020 compared to the corresponding period in 2019. The increase is due to additional software development capitalized during the quarter.

Intangible and other asset impairments

As of June 30, 2020, the Company recognized a $0.6 million non-cash, contract asset impairment charge related to costs to fulfill a contract that were deemed to be non-recoverable in North America.

Restructuring charges

On August 10, 2018, the Company's Board of Directors approved a plan to reduce the Company's cost structure while driving value for its clients and stockholders. For the three months ended June 30, 2020 and 2019, we incurred $3.6 million and $3.7 million, respectively, in restructuring charges.

(Loss) income from operations

(Loss) income from operations decreased by $8.3 million in the three months ended June 30, 2020 over the corresponding period in 2019. As a percentage of revenue, (loss) income from operations was (2.1)% and 1.4% during the three months ended June 30, 2020 and 2019, respectively. As a percentage of gross profit, (loss) income from operations was (8.8)% and 5.9% during the three months ended June 30, 2020 and 2019, respectively. The decrease is primarily attributable to lower gross profit during the period as a result of the decline in revenues related to COVID-19.

Other expense

Other expense increased by $0.1 million in the three months ended June 30, 2020 over the corresponding period in 2019 primarily as a result of higher interest expense offset by foreign currency impacts.

Income tax expense

Income tax expense decreased by $1.0 million in the three months ended June 30, 2020 over the corresponding period in 2019. Our effective tax rate was (22.8)% and 125.9% for the three months ended June 30, 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.

Net loss

Net loss increased by $7.4 million, or 1,457.5%, in the three months ended June 30, 2020 over the corresponding period in 2019. Net loss as a percentage of revenue was (3.9)% and (0.2)% during the three months ended June 30, 2020 and 2019, respectively. Net loss as a percentage of gross profit was (16.3)% and (0.7)% during the three months ended June 30, 2020 and 2019, respectively. The increase in net loss is attributable to lower gross profit as a result of the decline in revenue related to COVID-19.

Comparison of Six Months Ended June 30, 2020 and 2019

Revenue

Third party revenue by segment for each of the periods presented was as follows (dollars in thousands):



	Six Months Ended June 30,
	2020		% of Total		2019		% of Total
North America	$	338,704	72.9	%	$	388,365	70.4	%
EMEA	97,305		20.9	%	122,662		22.3	%
LATAM	28,662		6.2	%	40,045		7.3	%
Revenue from third parties	$	464,671	100.0	%	$	551,072	100.0	%

North America. Revenue decreased by $49.7 million, or 12.8%, in the six months ended June 30, 2020 over the corresponding period in 2019. The decrease in revenue relates to delays and decline in market spend with various enterprise clients as a result of COVID-19.

EMEA. Revenue decreased by $25.4 million, or 20.7%, in the six months ended June 30, 2020 over the corresponding period in 2019. The decrease was a result of reduced spend with certain clients and declines in marketing spend as a result of COVID-19 and foreign currency impacts.

LATAM. Revenue decreased by $11.4 million, or 28.4%, in the six months ended June 30, 2020 over the corresponding period in 2019. The decrease was a result of reduced spend with certain clients and declines in marketing spend as a result of COVID-19.

Cost of goods sold

Cost of goods sold decreased by $67.9 million, or 16.1%, in the six months ended June 30, 2020 over the corresponding period in 2019. The decrease is consistent with the decline in our revenue resulting from the negative impacts of COVID-19 across all regions during the period. Cost of goods sold as a percentage of revenue was 75.9% and 76.3% during the six months ended June 30, 2020 and 2019, respectively.

Gross profit margin

Gross profit margin was 24.1% and 23.7% during the six months ended June 30, 2020 and 2019, respectively. The increase was primarily driven by more favorable mix of services in North America.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $16.5 million, or 14.6%, in the six months ended June 30, 2020 over the corresponding period in 2019. The decrease was driven by several factors, which included the realization of cost savings and restructuring initiatives. In response to COVID-19, certain cost savings initiatives were implemented during the period, such as employee furloughs and terminations, hiring restrictions, cancellation of merit increases, and restricted travel.

Depreciation and amortization

Depreciation and amortization expense increased by $0.6 million, or 10.1%, in the six months ended June 30, 2020 over the corresponding period in 2019. The increase is due to additional software development capitalized during the quarter.

Goodwill Impairment

During the first quarter of 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. Based on the assessment, the Company determined that the enterprise value for the North America reporting unit was less than its carrying value and resulted in a goodwill impairment charge of $7.2 million. Refer to Note 4, Goodwill for further discussion.

Intangible and other asset impairments

As of June 30, 2020, the Company recognized a $0.6 million non-cash, contract asset impairment charge related to costs to fulfill a contract that were deemed to be non-recoverable in North America. In addition, during the first quarter of 2020, the Company recognized $0.3 million right-of-use asset impairment within EMEA and LATAM segments due to a triggering event caused by a sustained decrease in our Company's stock price and lower outlook due to the deterioration in economic conditions caused by COVID-19.

Restructuring charges

On August 10, 2018, the Company's Board of Directors approved a plan to reduce the Company's cost structure while driving value for its clients and stockholders. For the six months ended June 30, 2020 and 2019, we incurred $7.3 million and $7.6 million, respectively, in restructuring charges.

(Loss) income from operations

(Loss) income from operations decreased by $10.4 million in the six months ended June 30, 2020 over the corresponding period in 2019. As a percentage of revenue, (loss) income from operations was (1.4)% and 0.7% during the six months ended June 30, 2020 and 2019, respectively. The decrease is primarily attributable to lower gross profit during the period due to the decline in revenue related to COVID-19, along with goodwill and intangible and other asset impairment charges, partially offset by cost reduction efforts across the regions.

Other expense

Other expense decreased by $2.0 million in the six months ended June 30, 2020 over the corresponding period in 2019. The decrease in expense was primarily driven by the change in fair value of the warrant and derivative liabilities, partially offset by foreign exchange losses and an increase in interest expense.

Income tax expense

Income tax expense decreased by $0.2 million in the six months ended June 30, 2020 over the corresponding period in 2019. Our effective tax rate was (8.7)% and (70.2)% for the six months ended June 30, 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.

Net loss

Net loss increased by $8.2 million, or 321.3%, in the six months ended June 30, 2020 over the corresponding period in 2019. Net loss as a percentage of revenue was (2.3)% and (0.5)% during the six months ended June 30, 2020 and 2019, respectively. Net loss as a percentage of gross profit was (9.6)% and (2.0)% during the six months ended June 30, 2020 and 2019, respectively. The increase in net loss is primarily attributable to goodwill and intangible and other asset impairment charges and foreign exchanges losses, offset by the change in fair value of warrant and derivative liabilities, and decrease in operating expenses due to cost savings and restructuring initiatives during the period.

Adjusted EBITDA

Adjusted EBITDA by segment for each of the periods presented was as follows (dollars in thousands):



	Three Months Ended June 30,
	2020			% of Total		2019			% of Total
North America	$	13,140		214.3	%	$	20,315		156.4	%
EMEA	4,218			68.8	%	4,480			34.5	%
LATAM	(155		)	(2.5	)%	611			4.7	%
Other⁽¹⁾	(11,072		)	(180.6	)%	(12,414		)	(95.6	)%
Adjusted EBITDA	$	6,131		100.0	%	$	12,992		100.0	%



	Six Months Ended June 30,
	2020			% of Total		2019			% of Total
North America	$	36,780		193.2	%	$	36,332		178.3	%
EMEA	5,580			29.3	%	7,256			35.6	%
LATAM	274			1.4	%	876			4.3	%
Other⁽¹⁾	(23,596		)	(123.9	)%	(24,083		)	(118.2	)%
Adjusted EBITDA	$	19,038		100.0	%	$	20,381		100.0	%

⁽¹⁾“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.

Comparison of three months ended June 30, 2020 and 2019. Adjusted EBITDA decreased by $6.9 million, or 52.8%, in the three months ended June 30, 2020 over the corresponding period in 2019.

North America. Adjusted EBITDA decreased by $7.2 million, or 35.3%, in the three months ended June 30, 2020 over the corresponding period in 2019 due to lower revenue and gross profit, partially offset by decreases in selling, general and administrative expenses due to commissions expense as a result of restructuring initiatives, and other cost savings initiatives during the period as a result of COVID-19.

EMEA. Adjusted EBITDA decreased by $0.3 million, or 5.8%, in the three months ended June 30, 2020 over the corresponding period in 2019 due to lower revenue, partially offset by decreases in selling, general and administrative expenses due to cost savings initiatives during the period as a result of COVID-19.

LATAM. Adjusted EBITDA decreased by $0.8 million, or 125.4%, in the three months ended June 30, 2020 over the corresponding period in 2019 due to lower revenue, partially offset by cost savings initiatives during the period as a result of COVID-19.

Other. Adjusted EBITDA increased by $1.3 million, or 10.8%, in the three months ended June 30, 2020 over the corresponding period in 2019 primarily due to cost savings initiatives as a result of COVID-19, along with lower professional fees during the period.

Comparison of six months ended June 30, 2020 and 2019. Adjusted EBITDA decreased by $1.3 million, or 6.6%, in the six months ended June 30, 2020 over the corresponding period in 2019.

North America. Adjusted EBITDA increased by $0.4 million, or 1.2%, in the six months ended June 30, 2020 over the corresponding period in 2019 due to lower revenue and gross profit, offset by decreases in selling, general and administrative expenses due to lower commissions expense as a result of restructuring initiatives, and other cost savings as a result of COVID-19.

EMEA. Adjusted EBITDA decreased by $1.7 million, or 23.1%, in the six months ended June 30, 2020 over the corresponding period in 2019 due to lower revenue, offset by cost savings initiatives during the period as a result of COVID-19.

LATAM. Adjusted EBITDA decreased by $0.6 million, or 68.7%, in the six months ended June 30, 2020 over the corresponding period in 2019 due to lower revenue, partially offset by cost savings initiatives during the period as a result of COVID-19.

Other. Adjusted EBITDA increased by $0.5 million, or 2.0%, in the six months ended June 30, 2020 over the corresponding period in 2019 primarily due to cost savings initiatives during the period as a result of COVID-19.

Adjusted Diluted Earnings Per Share

Adjusted diluted earnings per share for each of the ~~years~~periods presented was as follows (in thousands, except per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) $ 7,528
$ 4,341
$ 17,479
$ (676 )
Change in fair value of contingent consideration (167 ) 788
677
9,975
Czech exit from exchange rate commitment, net of tax —
—
294
—
Restructuring and other charges, net of tax —
382
—
3,964
Realignment-related income tax charges —
263
—
898
Business development realignment, net of tax 875
—
875
—
Professional fees related to ASC 606 implementation, net of tax 204
—
204
—
Adjusted net income $ 8,440
$ 5,774
$ 19,529
$ 14,162
Weighted-average shares outstanding, diluted 55,189
54,772
55,127
54,359
Non-GAAP Diluted Earnings Per Share $ 0.15
$ 0.11
$ 0.35
$ 0.26



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net loss	$	(7,912	)	$	(508	)	$	(10,752	)	$	(2,552	)
Restructuring charges	3,644			3,698			7,281			7,632
Professional fees related to control remediation	356			550			620			916
Merger-related transaction costs	790			—			790			—
Change in fair value of warrant and derivatives	36			—			(5,604		)	—
Goodwill impairment	—			—			7,191			—
Intangible and other asset impairments	609			—			883			—
Executive search fees	—			—			—			80
Sales and use tax audit	—			—			—			25
Income tax effects of adjustments	(1,115		)	(961		)	(2,071		)	(1,994		)
Adjusted net (loss) income	$	(3,592	)	$	2,779		$	(1,662	)	$	4,107

GAAP weighted-average shares outstanding – diluted	53,662			51,773			53,568			51,830
Effect of dilutive securities:
Employee stock options and restricted common shares	—			156			—			104
Adjusted weighted-average shares outstanding – diluted	53,662			51,929			53,568			51,934
Adjusted diluted (loss) earnings per share	$	(0.07	)	$	0.05		$	(0.03	)	$	0.08

Comparison of three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~ 2019. Adjusted ~~EPS increased~~diluted earnings per share decreased by ~~$0.05 or 45.7% from $0.11 during~~$0.12 in the three months ended ~~September~~June 30, ~~2016~~2020 over the corresponding period in 2019. The decrease is related to ~~$0.15~~an increase in net loss, partially offset by new merger-related transaction costs and intangible and other asset impairment charges incurred during the ~~three~~period.

Comparison of six months ended ~~September~~June 30, ~~2017. This increase is~~2020 and 2019. Adjusted diluted earnings per share decreased by $0.11 in the six months ended June 30, 2020 over the corresponding period in 2019. The decrease was primarily attributable to ~~improved gross margin~~an increase in net loss, along with change in fair value of warrant and ~~the reduction in depreciation expense as discussed above.~~

~~Comparison of nine months ended September 30, 2017~~embedded derivatives, partially offset by goodwill impairment and ~~2016.~~ ~~Adjusted EPS increased by $0.09, or 33.6%, from $0.26~~restructuring costs during the nine months ended September 30, 2016 to $0.35 during the nine months ended September 30, 2017. This increase is primarily attributable to improved gross margin and the reduction in depreciation expense as discussed above.period.

Liquidity and Capital Resources

While uncertainty exists as to the full impact of the COVID-19 pandemic on our liquidity and capital resources, the Company believes it has maintained sufficient liquidity to satisfy our working capital and other funding requirements with internally generated cash flow and, as necessary, cash on hand and borrowings under our revolving credit facility.

Cash Flow Summary

The following table presents cash flows for the six months ended June 30, 2020 and 2019, respectively (in thousands):



	Six Months Ended June 30,
	2020			2019
Net cash provided by operating activities	$	18,037		$	1,289
Net cash used in investing activities	(5,127		)	(6,881		)
Net cash (used in) provided by financing activities	(22,460		)	13,047

At ~~September~~June 30, ~~2017,~~2020, we had ~~$27.7~~$35.3 million of cash and cash equivalents.

Operating Activities. Cash ~~used in~~provided by operating activities primarily consists of net ~~income (loss)~~loss adjusted for certain non-cash items, including depreciation and amortization and share-based compensation and the effect of changes in working capital and other activities. Cash ~~used in~~provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 was ~~$12.4~~$18.0 million and consisted of net ~~income~~loss of ~~$17.5~~$10.8 million, ~~and $15.7~~offset by $14.3 million of non-cash items and $14.5 million used to fund working capital. The working capital changes consisted of a decrease in accounts receivable and unbilled revenue of $61.1 million, a decrease in prepaid expenses and other assets of $17.1 million, an increase in inventory of $3.1 million, a decrease in accounts payable and accrued expenses and other liabilities of $60.5 million.

Cash provided by operating activities for the six months ended June 30, 2019 was $1.3 million and consisted of a net loss of $2.6 million, offset by ~~$45.6~~$9.1 million of non-cash items and by $5.3 million used byin working capital and other activities. The most significant impact on working capital and other activities consisted of a decrease in inventories of $4.6 million, an increase in accounts receivable and unbilled revenue of ~~$38.1 million, an increase in inventory of $17.1~~$10.1 million and an increase in prepaid expenses and other assets of ~~$10.4~~$4.2 million, partially offset by ~~an increase~~a decrease in accounts payable of ~~$8.3~~$18.1 million and an increase in accrued expenses and other liabilities of ~~$11.7 million.~~

Cash used in operating activities for the nine months ended September 30, 2016 was $23.6 million and consisted of a net loss of $0.7 million and $30.7 million of non-cash items, offset by $53.7 million used by working capital and other activities. The most significant impact on working capital and other activities consisted of an increase in accounts receivable and unbilled revenue of $12.8 million, an increase in inventory of $12.1 million and a decrease in accounts payable of $40.3 million, offset by and a decrease in prepaid expenses and other assets of $3.6 million and an increase in accrued expenses and other liabilities of $7.9$22.6 million.

Investing Activities. Cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and 2019 of ~~$10.3~~$5.1 million and $6.9 million, respectively, was ~~entirely~~ attributable to capital ~~expenditures.~~expenditures and software capitalization.

Financing Activities.Cash used in ~~investing~~financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2020 of ~~$10.5~~$22.5 million was ~~entirely~~primarily attributable to ~~capital expenditures.~~net repayments under the new revolving credit facility of $19.8 million and payments on the term loan of $2.5 million.

~~Financing Activities.~~Cash provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 of ~~$18.5~~$13.0 million was primarily attributable to net borrowings under the revolving credit facility of ~~$42.3~~$14.9 million and $0.9 million of payments for debt issuance costs, partially offset by ~~payments of contingent consideration of $15.3~~$0.8 million ~~and repurchases of common stock of $10.0 million.~~

Cash provided by financing activities for the nine months ended September 30, 2016 of $24.2 million was primarily attributable to net borrowings under the revolving credit facility of $34.7 million, offset by payments of contingent consideration of $11.0 million andin net short-term secured ~~repayments of $0.8 million.~~borrowings.

~~Share Repurchase Program~~

On February 12, 2015, the Company announced that its Board of Directors approved a share repurchase program authorizing the repurchase of up to an aggregate of $20 million of its common stock through open market and privately negotiated transactions over a two-year period. On November 2, 2016, the Board of Directors approved a two-year extension to the share repurchase program through February 28, 2019. On May 4, 2017, the Board of Directors authorized the repurchase of up to an additional $30.0 million of its common stock through open market and privately negotiated transactions over a two-year period ending May 31, 2019. The timing and amount of any share repurchases will be determined based on market conditions, share price and other factors, and the program may be discontinued or suspended at any time. Repurchases will be made in compliance with SEC rules and other legal requirements.

During the nine months ended September 30, 2017, the Company repurchased 1,028,654 shares of its common stock for $10.0 million in the aggregate at an average cost of $9.76 per share under this program. No shares were repurchased under this plan for the three months ended September 30, 2017. During the three and nine months ended September 30, 2016, the Company did not repurchase any shares of its common stock under this program. Shares repurchased under this program are recorded at acquisition cost, including related expenses.

An additional 27,862 and 102,629 shares of common stock was repurchased to satisfy the mandatory tax withholding requirements upon vesting of restricted stock for $316,284 and $1.1 million at an average cost of $11.35 and $10.63 per share for the three and nine months ended September 30, 2017, respectively.

Revolving Credit Facilities and Long-Term Debt

~~We entered into a~~

On July 16, 2019. the Company refinanced its debt, which is further discussed in Note 11, Revolving Credit Facility and in Note 12, Long-Term Debt. The debt structure provides long-term capital with improved flexibility to support the Company’s growth plans. The Company intends to use excess cash from operations to pay off debt and support working capital needs.

The ABL Credit Agreement dated as of August 2, 2010, subsequently amended most recently as of February 3, 2017, among us, the lenders party thereto and Bank of America, N.A., as Administrative Agent (the “Credit Agreement”).contains a minimum fixed charge coverage ratio financial covenant that must be maintained when excess availability falls below a specified amount. The Term Loan Credit Agreement includes a ~~revolving commitment amount~~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 ~~$175 million~~which must be maintained for the periods described in the aggregate with a maturity date of September 25, 2019, and provides us the right to increase the aggregate commitment amount by an additional $50 million. Outstanding borrowings under the revolving credit facility are guaranteed by our material domestic subsidiaries. Our obligations under theTerm Loan Credit ~~Agreement and such domestic subsidiaries’ guaranty obligations are secured by substantially all of their respective assets.~~Agreement. The ranges of applicable rates charged for interest on outstanding loans and letters of credit are 125-250 basis point spread for letter of credit fees and loans based on the Eurodollar rate and 25-150 basis point spread for loans based on the base rate.

The terms of the Credit Agreement include various covenants, including requirements to maintain a maximum leverage ratio and a minimum interest coverage ratio. The Credit Agreement requires us to maintain a leverage ratio of no more than 3.00 to 1.0. We are also required to maintain an interest coverage ratio of no less than 5.0 to 1.0. We wereCompany is in compliance with all debt covenants ~~as of September 30, 2017.~~

~~At September 30, 2017, we had $24.0 million of unused availability under~~in the ABL Credit Agreement and ~~$0.8 million~~Term Loan Credit Agreement as of ~~letters of credit which have not been drawn upon.~~June 30, 2020.

On February 22, 2016, we entered into a Revolving Credit Facility (the “Facility”) with Bank of America N.A. to support our ongoing working capital needs. The Facility includes a revolving commitment amount of $5 million whereby maturity dates vary based on each individual drawdown. Outstanding borrowings under the Facility are guaranteed by our 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 us. At September 30, 2017, the Company had $3.9 million of unused availability under the Facility.

In addition, we will continue to utilize cash, in part, to invest in our innovative technology platform, fund ~~acquisitions~~our working capital needs, and expand our ~~operations. We~~sales force. Although we can provide no assurances, we believe that our available cash and cash equivalents and the ~~availability~~funds available under our ~~revolving credit facility~~new debt structure will be sufficient to meet our working capital and operating expenditure requirements for the ~~foreseeable future. Thereafter,~~next 12 months. Absent the pending acquisition discussed in Note 15, Subsequent Events, we may find it necessary to obtain additional equity or debt ~~financing.~~financing in the future.

We earn a ~~significant amount~~portion of our operating income outside the United States, which is deemed to be permanently reinvested in foreign jurisdictions. We do not currently foresee a need to repatriate funds; however, should we require more capital in the United States than is generated by our operations locally or through debt or equity issuances, we could elect to repatriate funds held in foreign jurisdictions. ~~If foreign earnings were to be remitted to the United States, foreign tax credits would be available to reduce any U.S. tax due upon repatriation.~~ Included in our cash and cash equivalents are amounts held by foreign subsidiaries. We had ~~$25.7~~$33.3 million and ~~$18.1~~$39.9 million of foreign cash and cash equivalents as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, which are generally denominated in the local currency where the funds are held.

Treasury Shares

Treasury shares decreased $3.1 million due to the reissuance of treasury stock as of June 30, 2020.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

Contractual Obligations

~~With the exception of the contingent consideration in connection with our historical business acquisitions discussed in Note 2 in the Notes to Consolidated Financial Statements, there~~There have been no material changes outside the normal course of business in the contractual obligations disclosed in Item 7 to our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2019, under the caption “Contractual Obligations.”

~~Critical Accounting Policies and Estimates~~

~~Stock-Based Compensation~~

On June 1, 2017, the Compensation Committee approved, pursuant to the 2006 Stock Incentive Plan, awards of performance share units (“PSUs”) for certain executive officers and employees. The PSUs are performance-based awards that will settle in shares of our stock, in an amount between 0% and 200% of the target award level, based on the cumulative adjusted earnings per share and the return on invested capital achieved by the Company between April 1, 2017 and December 31, 2019. Compensation expense for PSUs is measured by determining the fair value of the award using the closing share price on the grant date and is recognized ratably from the grant date to the vesting date for the number of awards expected to vest. ~~The amount of compensation expense recognized for PSUs is dependent upon our quarterly assessment of the likelihood of achieving the performance conditions.~~

As of September 30, 2017, except for the new critical accounting policy for PSUs described above and the adoption of ASU 2016-09 disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, there were no material changes to our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

~~Forward-Looking Statements~~

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains words such as “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “project,” “estimate” and “objective” or the negative thereof or similar terminology concerning the Company’s future financial performance, business strategy, plans, goals and objectives. These expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning our possible or assumed future performance or results of operations and are not guarantees. While these statements are based on assumptions and judgments that management has made in light of industry experience as well as perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances, they are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different. Some of the factors that would cause future results to differ from the recent results or those projected in forward-looking statements include, but are not limited to, the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2016.

Additional Information

We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, other reports and information filed with the SEC and amendments to those reports available, free of charge, through our Internet website (http://www.inwk.com) as soon as reasonably practical after we electronically file or furnish such materials to the SEC. ~~All of our filings may be read or copied at~~In addition, the ~~SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Information on the operation of the Public Filing Room can be obtained by calling the SEC at 1-800-SEC-0330. The~~ SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~Commodity Risk~~

~~We are dependent upon~~There have been no material changes to the ~~availability of paper,~~Company's market risks, which include commodity risk, interest rate risk and ~~paper prices represent a substantial portion~~foreign currency risk subsequent to the filing of the ~~cost of our products. The supply and price of paper depend~~2019 Annual Report on a variety of factors over which we have no control, including environmental and conservation regulations, natural disasters and weather. We believe a 10% increase in the price of paper would not have a significant effect on our condensed consolidated statements of income or cash flows, as these costs are generally passed through to our clients.Form 10-K.

~~Interest Rate Risk~~

We have exposure to changes in interest rates on our revolving credit facility. Interest is payable at the adjusted LIBOR rate or the alternate base rate. Assuming our $175.0 million revolving credit facility was fully drawn, a 1.0% increase in the interest rate would increase our annual interest expense by $1.75 million.

Our interest income is sensitive to changes in the general level of U.S. interest rates, in particular because all of our investments are in cash equivalents and marketable securities. The average duration of our investments as of September 30, 2017 was less than one year. Due to the short-term nature of our investments, we believe that there is no material risk exposure.

~~Foreign Currency Risk~~

We transact business in various foreign currencies other than the U.S. dollar, principally the euro, British pound sterling, Czech koruna, Brazilian real, Peruvian nuevo sol, Mexican peso, Colombian peso and Chilean peso, which exposes us to foreign currency risk. For the nine months ended September 30, 2017, we derived approximately 31.8% of our revenue from international customers, and we expect the percentage of revenue derived from outside the United States to increase in future periods as we continue to expand globally. Revenue and related expenses generated from our international operations are denominated in the functional currencies of the corresponding country. The functional currency of our subsidiaries that either operate or support these markets is generally the same as the corresponding local currency. The results of operations of, and certain of our intercompany balances associated with, our international operations are exposed to foreign exchange rate fluctuations. Changes in exchange rates could negatively affect our revenue and other operating results as expressed in U.S. dollars. We may record significant gains or losses on the remeasurement of intercompany balances. Foreign exchange gains and losses recorded to date have been immaterial to our financial statements. At this time we do not, but in the future we may enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2017.~~2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~September~~June 30, ~~2017,~~2020, our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer~~Chief Financial Officer concluded that ~~as of such date, the Company's~~our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

We continue to implement a new global enterprise resource planning system which includes the implementation of shared service centers in some regions and, beginning in January 2017, includes a cloud-based consolidation and reporting tool. This multi-year initiative will be conducted in phases and will include modifications to the design and operation of internal controls over financial reporting. We are testing internal controls over financial reporting for design effectiveness prior to implementation of each phase, and we have monitoring controls in place over the implementation of these changes.

~~Except as described above, there have been~~There were no ~~other~~ changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) during the quarter ended ~~September~~June 30, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For information concerning our legal proceedings, see Note 1110, Commitments and Contingencies, to the ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements included in Part I of this Form 10-Q.

Item 1A. Risk Factors

~~There have been no material changes in~~In addition to the risk factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, the risk factors below could cause the Company’s actual results to vary materially from recent results or from anticipated future results. The risks described below are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

A significant or prolonged economic downturn or a decline in the demand for marketing materials, could adversely affect our revenue and results of operations.

Our results of operations are affected directly by the level of business activity of our clients, which in turn is affected by the level of economic activity and cyclicality in the industries and markets that they serve. Certain of our products are sold to industries, including the advertising, retail, consumer products, housing, financial and pharmaceutical industries, that experience significant fluctuations in demand based on general economic conditions, cyclicality and other factors beyond our control. On July 30, 2020, the Bureau of Economic Analysis estimated that real gross domestic product for the United States declined at an annual rate of 32.9% during the second quarter of 2020, and as of June 2020 the International Monetary Fund was projecting that the global economy would contract by 4.9% for 2020 as a whole. Economic uncertainty or an economic downturn could result in a reduction of the marketing budgets of our clients or a decrease in the volume of marketing materials that our clients order from us. Reduced demand from one of these industries or markets could negatively affect our revenue, operating income and profitability.

Our results could be negatively impacted by a global or regional epidemic or similar event.

For the fiscal year ended December 31, 2019, over 71% of our sales and over 85% of our Adjusted EBITDA were attributable to the United States. Internationally, we operate in approximately 50 countries, including substantial operations in the Czech Republic, the United Kingdom, Spain, China, Russia, Brazil and Mexico. As a result, an epidemic, pandemic or similar event affecting the United States or any location where we, our suppliers, or our clients operate, could result in serious harm to our business and operating results if it depresses demand for marketing materials or results in major disruptions or delays in our supply chain.

The spread of COVID-19 in the United States, our largest market, has led to state level restrictions on economic activity and a sharp rise in new unemployment claims, leading many observers to anticipate a substantial contraction of the U.S. economy for 2020 as a whole. The sharp contraction in the U.S. economy has created substantial uncertainty about the expectations for marketing spend in the near term. In the second quarter of 2020, as real U.S. GDP decreased sharply, the Company’s revenues in its North American segment declined by 28.7% sequentially from the first quarter. The uncertainty regarding U.S. economic conditions and marketing spend has been exacerbated by a number of factors, including:

•the resurgence of new cases in many U.S. states since the partial lifting of restrictions on commercial activity and gatherings;

•concerns about a potential second wave of infections even after the spread of the COVID-19 virus is considered to have been brought under control; and

•concerns about the amount of time it may take to develop and broadly distribute an effective and trusted vaccine.

Some of the other markets in which we operate, including those in Latin America, continue to see high infection rates, increasing the risk that economic conditions could continue to deteriorate or additional restrictions on commercial activity may need to be implemented to bring the spread of COVID-19 under control.

Although it is not yet possible to quantify the impact on our sales for future fiscal periods, some clients have deferred or declined to place orders that had previously been anticipated for such periods, and our sales for the remainder of 2020 and beyond could be adversely impacted by reductions in marketing spend by our clients. While we have taken action to reduce our expenses in order to reflect the potential for reduced sales volumes, there can be no assurance that such actions will be sufficient to avoid an adverse impact on our operating income for the duration of the economic downturn.

Some of our enterprise clients operate retail stores or travel businesses that have been significantly affected by recent restrictions on travel and other activities deemed non-essential under state or local governmental orders. Such companies have experienced closures and reduced sales as a result of the COVID-19 pandemic, and some may be experiencing substantial financial strain as a result. Some of our clients have reduced spending that is considered non-essential, including marketing spend, and continued or further reductions in such spend may occur. We generally extend credit to our clients and, in some cases, hold inventories of branded marketing materials for sale to specific clients. Due to the challenging financial environment faced by these or other clients, we could experience increased difficulty in collecting accounts receivable on a timely basis, could experience an increase in inventory write-offs, or could see an increase in contract terminations by clients that anticipate reduced marketing spend.

For some of the products and services we sell, including branded merchandise, retail displays and luxury packaging, we have historically sourced many of our goods from manufacturers and other suppliers in China. Following the early 2020 outbreak of COVID-19, many of our suppliers in China temporarily halted manufacturing. In addition, the cost and availability of shipping from China has at times been adversely affected by the shutdown and uneven restart of Chinese manufacturing and transportation capacity. Some public health authorities have expressed concern about the possibility of a second wave of COVID-19 infections, in China or elsewhere. If a resurgence of COVID-19 infections leads to renewed restrictions affecting Chinese manufacturers or freight transportation providers, our supply chain for the product categories above could be significantly disrupted, and we may be unable to fulfill client orders on a timely basis or at prices consistent with our clients’ expectations.

In addition, for some products and services we sell, including retail displays and warehouse and logistics services, our ability to complete orders and earn revenues depends in part on the physical performance of services by our personnel at a specific location, such as a client retail location or one of our warehouses. Due to temporary travel restrictions imposed by various countries in Europe and elsewhere, including the Czech Republic where our retail displays business is based, we may face delays in our ability to complete retail display installations for some clients.

Moreover, we have historically relied on in-person selling efforts by our sales executives to secure long-term client contracts. In the short-term, precautionary measures taken by many companies around the world to limit in-person workplace contact in order to reduce the potential for employee exposure to COVID-19 could extend the time required to secure new client contracts.

As of August 5, 2020, we had $53.4 million of undrawn availability under our asset-backed loan facility. There can be no assurance that our current availability will be sufficient to provide adequate liquidity to support the needs of our business.

If our business is materially affected by the impacts of COVID-19, or by similar widespread outbreaks of contagious disease in the future, it could have a material adverse impact on our operating results or financial condition.

The proposed acquisition of the Company by Parent may disrupt our business.

The Merger Agreement generally requires us, subject to certain exceptions, from the date of the Merger Agreement through the Effective Time, to use commercially reasonable efforts to, and cause each of our subsidiaries to, use commercially reasonable efforts to conduct our operations in all material respects in the ordinary course of business consistent with past practice, and restricts us, without Parent’s consent, from taking certain specified actions until the proposed Merger is completed. These restrictions may affect our ability to execute our business strategies, respond effectively to competitive pressures and industry developments, undertake significant capital projects, undertake significant financing transactions, modify our lease arrangements and otherwise pursue other actions that are not in the ordinary course of business, even if such actions would constitute appropriate changes to our business and help us attain our financial and other goals, and, as a result, these restrictions may impact our financial condition, results of operations and cash flows.

Employee retention, motivation and recruitment may be challenging before the completion of the proposed Merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company. If, despite our retention and recruiting efforts, key employees depart or prospective key employees fail to accept employment with

the Company because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, or if an insufficient number of employees is retained to maintain effective operations, our business, financial condition and results of operations could be adversely affected.

The proposed Merger could also cause disruptions to our business or business relationships, which could have an adverse impact on our business, financial condition and results of operations. Parties with which we have business relationships, including customers and suppliers, may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties. Customers, suppliers, vendors, lenders and other business partners may also seek to change existing agreements with us as a result of the proposed Merger. Any such delay or deferral of those decisions or changes in existing agreements or relationships could adversely impact our business, regardless of whether the proposed Merger is ultimately consummated. The pendency of the proposed Merger may adversely affect our relationship with our customers, vendors, suppliers, lenders or other business partners.

The pursuit of the proposed Merger and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s time, efforts, resources and attention away from day-to-day business concerns that could have been otherwise beneficial to us could adversely affect our business, financial condition and results of operations.

We could also be subject to litigation related to the proposed Merger, which could prevent or delay the consummation of the proposed Merger or result in significant costs and expenses. It is possible that the stockholders of either party may file lawsuits challenging the proposed Merger or the other transactions contemplated by the Merger Agreement, which may name us and/or our board of directors (the “Company Board”) as defendants. We cannot assure you as to the outcome of such lawsuits, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the proposed Merger on the agreed-upon terms, such an injunction may delay the consummation of the proposed Merger in the expected timeframe, or may prevent the proposed Merger from being consummated altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and divert management’s attention and resources, which could adversely affect the operation of our business. In addition to potential litigation-related expenses, we have incurred and will continue to incur other significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Merger, and many of these fees and costs are payable regardless of whether or not the proposed Merger is consummated.

Failure to consummate the proposed Merger within the expected timeframe or at all could negatively impact the market price of shares of our common stock, as well as our business, financial condition and results of operations.

We cannot be certain when or if the conditions for the proposed Merger will be satisfied or (if permissible under applicable law) waived in a timely manner or at all. The proposed Merger cannot be completed until the conditions to closing, many of which are not within our control, are satisfied or (if permissible under applicable law) waived, including (i) the affirmative vote in favor of the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of common stock entitled to vote thereon, (ii) any applicable waiting periods (or extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 having expired or been terminated and any applicable approval having been obtained or any applicable waiting period having expired or been terminated under the competition, antitrust, merger control or investment laws of certain other jurisdictions, (iii) the absence of any judgment issued or entered by a court or similar governmental entity of competent jurisdiction that is in effect and that enjoins or prohibits the consummation of the proposed Merger, (iv) there not having been a Company Material Adverse Effect (as such term is defined in the Merger Agreement) following the date of the Merger Agreement, (v) the accuracy of the Company’s representations and warranties and its compliance with its covenants and agreements contained in the Merger Agreement (generally subject to qualifications as to materiality); (vi) the absence of a bankruptcy petition or similar proceeding being filed by or against the Company that has not been dismissed; and (vii) certain other customary closing conditions.

If the proposed Merger is not consummated, under certain circumstances, we may be required to pay Parent a termination fee of $6,191,000 (the “Company Termination Fee”). If we are required to make this payment, doing so may adversely affect our business, financial condition and results of operations. Although the Company may, in certain circumstances, seek specific performance to cause Parent to consummate the merger or seek recourse against Parent under the Merger Agreement for a termination fee of $15,000,000 or for certain damages, there can be no assurance that a remedy will be available to us in the

event of a breach of the Merger Agreement by Parent. In the event that the proposed Merger is not completed for any reason, the holders of shares of our common stock will not receive any payment for their shares in connection with the proposed Merger. Instead, we expect the Company will remain an independent public company and holders of shares of our common stock will continue to own such shares. If the proposed Merger or a similar transaction is not completed, the share price of our common stock would likely decline to the extent that the current market price of our common stock reflects an assumption that the proposed Merger will be completed.

Additionally, if the proposed Merger is not consummated in a timely manner or at all, any disruptions to or other adverse effects on our business resulting from the announcement and pendency of the proposed Merger, including any adverse changes in our relationships with our customers, financing sources, vendors, suppliers and employees, could occur, continue or accelerate in the event of a failed transaction, including due to:

•negative reactions from financial markets and a decline in the price of shares of our common stock;

•negative reactions from employees, customers, suppliers or other third parties;

•the diversion of management’s focus from pursuing other opportunities that could have been beneficial to us;

•higher than anticipated costs of pursuing the proposed Merger; or

changed perceptions about our competitive position, our management, our liquidity or other aspects of our business.

If the proposed Merger is not completed, there can be no assurance that these risks will not materialize and will not adversely affect the price of shares of our common stock or our business, financial condition or results of operations. Investors should not place undue reliance on the consummation of the proposed Merger. The historical share price of our common stock has experienced significant volatility. We cannot predict or give any assurances as to the market price of our common stock at any time before or after the completion of the proposed Merger.

We have incurred and will continue to incur substantial transaction fees and costs in connection with the proposed Merger.

We have incurred and expect to continue to incur significant costs, expenses and fees for professional services, such as legal, financial and accounting fees, and other transaction costs in connection with the proposed Merger. A material portion of these expenses are payable by us whether or not the proposed Merger is completed and may relate to activities that we would not have undertaken other than to complete the proposed Merger. If the proposed Merger is not completed, we will have received little or no benefit from such expenses. Further, although we have assumed that a certain amount of transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These costs could adversely affect our business, financial condition and results of operations.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of the Company.

The Merger Agreement contains covenants by the Company not to enter into, engage in, knowingly encourage, continue or otherwise participate in any discussions or negotiations with any person with respect to any Competing Proposal (as such term is defined in the Merger Agreement) made by such person or any inquiry from such person that could reasonably be expected to lead to a Competing Proposal, and requiring the Company Board to recommend to the Company’s stockholders that they approve the transactions contemplated by the Merger Agreement, in each case subject to certain exceptions. The Merger Agreement further contains an obligation on the Company to promptly notify Parent following the receipt of any inquiries, Competing Proposal or request for non-public information in connection with a Competing Proposal. At any time prior to obtaining the approval by the Company’s stockholders of the Merger, the Company Board may change its recommendation in certain circumstances specified in the Merger Agreement in response to a bona fide Competing Proposal that the Company Board determines in good faith, after consultation with its financial advisor and outside legal counsel, constitutes a Superior Proposal or following an Intervening Event (as each such term is defined in the Merger Agreement), but only if certain conditions and obligations are satisfied with respect thereto, including compliance with Parent’s matching rights with respect to any such events.

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of the Company from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the per share consideration payable upon consummation of the proposed Merger, or might otherwise result in a potential third-party acquirer proposing to pay a lower price to our stockholders than it might otherwise

have proposed to pay because of the added expense of the Company Termination Fee that may become payable in certain circumstances.

If the Merger Agreement is terminated and we decide to seek another business combination, we may not be able to negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of the Company's equity securities during the period covered by this report.

~~Issuer Purchases of Equity Securities~~

On February 12, 2015, we announced that our Board of Directors approved a share repurchase program providing us authorization to repurchase up to an aggregate of $20.0 million of our common stock through open market and privately negotiated transactions over a two-year period. On November 2, 2016, the Board of Directors approved a two-year extension to the share repurchase program through February 28, 2019.

On May 4, 2017, the Board of Directors authorized the repurchase of up to an additional $30.0 million of its common stock through open market and privately negotiated transactions over a two-year period ending May 31, 2019. The timing and amount of any share repurchases will be determined based on market conditions, share price and other factors, and the program may be discontinued or suspended at any time. Repurchases will be made in compliance with SEC rules and other legal requirements.

During the nine months ended September 30, 2017, the Company repurchased 1,028,654 shares of its common stock for $10.0 million in the aggregate at an average cost of $9.76 per share under this program. An additional 102,629 shares of its common stock was repurchased to satisfy the mandatory tax withholding requirements upon vesting of restricted stock for $1.1 million at an average cost of $10.63 per share.

The following table provides information relating to our purchase of shares of our common stock in the ~~third~~second quarter of ~~2017 (in thousands, except per share amounts).~~2020:

Period
Number of Shares Purchased⁽¹⁾
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
7/1/17-7/31/17 9
$ 11.74
—
4,120
8/1/17-8/31/17 9
11.54
—
3,953
9/1/17-9/30/17 10
10.86
—
3,722
Total 28
$ 11.35
—



Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
April 1 - April 30, 2020	12,875	$	1.02	—	—
May 1 - May 31, 2020	—	—		—	—
June 1 - June 30, 2020	79,628	1.26		—	—
Total	92,503	$	1.22	—	—


~~(1)~~	~~Includes 27,862 shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of restricted stock.~~


~~(2)~~	The share repurchase plan authorized by our Board of Directors allows repurchases of up to $50 million of our common stock. The maximum number of shares that may yet be repurchased under the plan is estimated using the closing share price on the last day of each period presented.

~~Item 5. Other Information~~

~~William C. Atkins, 34, was appointed as Global Controller and Principal Accounting Officer~~⁽¹⁾Represents shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of InnerWorkings on November 3, 2017. The principle accounting officer role was previously held by our Chief Financial Officer, Jeffrey Pritchett; Mr. Pritchett will continue to serve as Executive Vice President and Chief Financial Officer.

Prior to becoming Global Controller and Principal Accounting Officer, Mr. Atkins served in various roles at the Company, including as Corporate Controller from February 2016 to October 2017, International Controller, Director of SEC Reporting from January 2015 to January 2016, and Assistant Controller from October 2011 to December 2014. Before joining InnerWorkings, Mr. Atkins was a manager at PricewaterhouseCoopers LLP, a large global accounting firm. Mr. Atkins is a Certified Public Accountant and holds a Bachelor of Science in Business Administration and a Master of Accountancy from the Haslam College of Business at the University of Tennessee.

There is no arrangement or understanding between Mr. Atkins and any other person pursuant to which Mr. Atkins was appointed as Global Controller and Principal Accounting Officer of the Company. There are no family relationships between Mr. Atkins and any director or executive officer of the Company, and Mr. Atkins has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.

restricted stock.

Item 6. Exhibits



Exhibit No		Description of Exhibit
4.1		InnerWorkings 2020 Omnibus Incentive Plan

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**101.INS		XBRL Instance Document

101.SCH***101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL***101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF***101.LAB		XBRL Taxonomy Extension Label Linkbase Document

**101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

**101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**104		~~XBRL Taxonomy Extension Label Linkbase Document~~Cover Page Interactive Data File

101.PRE**		*The XBRL ~~Taxonomy Extension Presentation Linkbase~~Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document.
		**Submitted electronically with the Report.

**Submitted electronically with this Quarterly Report on Form 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	INNERWORKINGS, INC.

Date: ~~November 7, 2017~~August 6, 2020	By:	/s/ ~~Eric D. Belcher~~Richard S. Stoddart
		~~Eric D. Belcher~~Richard S. Stoddart
		Chief Executive Officer

Date: ~~November 7, 2017~~August 6, 2020	By:	/s/ ~~Jeffrey P. Pritchett~~Donald W. Pearson
		~~Jeffrey P. Pritchett~~Donald W. Pearson
		Chief Financial Officer



Delaware		20-5997364
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)




Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value	INWK	Nasdaq Global Market



Large accelerated ~~filer:~~ ¨ filer	☐	Accelerated ~~filer:~~ xfiler	☒
Non-accelerated ~~filer:~~ ¨ ~~(Do not check if a smaller reporting company)~~ filer	☐	Smaller reporting ~~company:~~ ¨company	☐
Emerging growth ~~company:~~ ¨ company	☐



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements ~~(Unaudited) and Notes to Condensed Consolidated Financial Statements (Unaudited)~~	3

	~~Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and 2016 (Unaudited)~~	3

	~~Condensed Consolidated Balance Sheet as of September 30, 2017 (Unaudited) and December 31, 2016~~	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019 (Unaudited)	4
	Condensed Consolidated ~~Statement of Stockholders' Equity~~Balance Sheets as of ~~September~~June 30, ~~2017~~2020 (Unaudited) and December 31, 2019	5

	Condensed Consolidated ~~Statement~~Statements of ~~Cash Flows~~Stockholders' Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited)	8
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	79

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2026

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3236

Item 4.	Controls and Procedures	3336

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3437

Item 1A.	Risk Factors	3437

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3442

~~Item 5.~~	~~Other Information~~	35

Item 6.	Exhibits	3543

~~SIGNATURES~~ Signatures		3644



	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



ý☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	~~For the quarterly period ended September 30, 2017~~



¨☐	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from to



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Revenue	$	288,386		$	279,993		$	835,306		$	820,286
Cost of goods sold	215,867			212,212			628,282			625,465
Gross profit	72,519			67,781			207,024			194,821
Operating expenses:
Selling, general and administrative expenses	57,134			52,601			165,647			155,511
Depreciation and amortization	3,317			5,066			9,403			14,382
Change in fair value of contingent consideration	(167		)	788			677			9,975
Restructuring and other charges	—			466			—			4,433
Income from operations	12,235			8,860			31,297			10,520
Other income (expense):
Interest income	31			26			77			63
Interest expense	(1,198		)	(1,191		)	(3,239		)	(3,252		)
Other, net	427			(114		)	(962		)	16
Total other expense	(740		)	(1,279		)	(4,123		)	(3,173		)
Income before income taxes	11,495			7,581			27,173			7,347
Income tax expense	3,967			3,240			9,694			8,023
Net income (loss)	$	7,528		$	4,341		$	17,479		$	(676	)

Basic earnings (loss) per share	$	0.14		$	0.08		$	0.32		$	(0.01	)
Diluted earnings (loss) per share	$	0.14		$	0.08		$	0.32		$	(0.01	)
										$	—
Comprehensive income (loss)	$	9,696		$	4,676		$	25,506		$	(2,201	)



	September 30, 2017			December 31, 2016
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	27,682		$	30,924
Accounts receivable, net of allowance for doubtful accounts of $2,692 and $2,622, respectively	203,306			182,874
Unbilled revenue	50,130			32,723
Inventories	48,744			31,638
Prepaid expenses	22,018			18,772
Other current assets	31,850			24,769
Total current assets	383,730			321,700
Property and equipment, net	37,212			32,656
Intangibles and other assets:
Goodwill	206,704			202,700
Intangible assets, net	28,745			31,538
Deferred income taxes	1,432			1,031
Other non-current assets	1,312			1,374
Total intangibles and other assets	238,193			236,643
Total assets	$	659,135		$	590,999
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	129,600		$	121,289
Current portion of contingent consideration	—			19,283
Accrued expenses	32,994			30,067
Other current liabilities	43,296			35,049
Total current liabilities	205,890			205,688
Revolving credit facility	149,184			107,468
Deferred income taxes	9,834			11,291
Other non-current liabilities	1,958			1,926
Total liabilities	366,866			326,373
Commitments and contingencies (See Note 11)
Stockholders' equity:
Common stock, par value $0.0001 per share, 200,000 and 200,000 shares authorized, 63,964 and 63,391 shares issued, and 54,037 and 54,088 shares outstanding, respectively	6			6
Additional paid-in capital	232,979			224,480
Treasury stock at cost, 9,927 and 9,303 shares, respectively	(54,938		)	(49,458		)
Accumulated other comprehensive loss	(12,772		)	(20,799		)
Retained earnings	126,994			110,397
Total stockholders' equity	292,269			264,626
Total liabilities and stockholders' equity	$	659,135		$	590,999



	Common Stock			Treasury Stock					Additional Paid-in-Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares	Amount		Shares		Amount			Additional Paid-in-Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at December 31, 2016	63,391	$	6	9,303		$	(49,458	)	$	224,480	$	(20,799	)	$	110,397		$	264,626
Net income														17,479			17,479
Total other comprehensive income, net of tax											8,027						8,027
Comprehensive income																	25,506
Issuance of common stock upon exercise of stock awards	537	—							725								725
Issuance of common stock and treasury shares as consideration for acquisition	36	—		(405	)	4,561			385					(269		)	4,678
Acquisition of treasury shares				1,029		(10,041		)									(10,041		)
Stock-based compensation expense									5,296								5,296
Cumulative effect of change related to adoption of ASU 2016-09									2,093					(613		)	1,480
Balance at September 30, 2017	63,964	$	6	9,927		$	(54,938	)	$	232,979	$	(12,772	)	$	126,994		$	292,269



	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



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



	North America		International		Total
Net goodwill as of December 31, 2016	$	170,757	$	31,943	$	202,700
Foreign exchange impact	52		3,953		4,004
Net goodwill as of September 30, 2017	$	170,807	$	35,897	$	206,704



	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



	September 30, 2017			December 31, 2016			Weighted Average Life
Customer lists	$	74,408		$	72,667		13.6
Non-compete agreements	962			943			4.1
Trade names	2,510			2,510			13.3
Patents	57			57			9.0
	77,938			76,177
Less accumulated amortization	(49,193		)	(44,639		)
Intangible assets, net	$	28,745		$	31,538



Remainder of 2020	$	1,007
2021	1,783
2022	1,407
2023	961
2024	744
2025	467
Thereafter	324
	$	6,693



Remainder of 2017	$	1,234
2018	4,559
2019	4,326
2020	4,316
2021	4,194
Thereafter	10,117
	$	28,745



	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



At December 31, 2016	Total Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent consideration	$	19,283	$	—	$	—	$	19,283



	Fair Value Measurements at Reporting Date Using Significant Unobservable Inputs (Level 3)
	Contingent Consideration
Balance as of December 31, 2016	$	(19,283	)
Change in fair value⁽¹⁾	(677		)
Contingent Consideration paid in cash	15,345
Contingent Consideration paid in stock	4,678
Foreign exchange impact⁽²⁾	(63		)
Balance as of September 30, 2017	$	—


~~(1)~~	Adjustments to original contingent consideration obligations recorded were the result of using revised financial forecasts and actuals and updated fair value measurements. These changes are recognized within operating expenses on the condensed consolidated statement of comprehensive income (loss).


~~(2)~~	~~Changes in the contingent consideration liability which are caused by foreign exchange rate fluctuations are recognized in other comprehensive loss.~~



December 31, 2019	$	497
Change in fair value	(278		)
June 30, 2020	$	219



ABL Credit Facility outstanding	$	40,817
Less: Current portion of ABL Credit Facility for UK Borrowings	(76		)
Long-term portion of ABL Credit Facility	40,741
Less: ABL Embedded Derivative Discount⁽¹⁾	(484		)
ABL Embedded Derivative Liability⁽²⁾	219
Total Revolving credit facility - non-current	$	40,476

⁽¹⁾Original value of embedded derivative at July 16, 2019, less amortization. ⁽²⁾ Value of embedded derivative as of June 30, 2020.



December 31, 2019	$	407
Change in fair value	(241		)
June 30, 2020	$	166



December 31, 2019	$	6,537
Change in fair value	(5,085		)
June 30, 2020	$	1,452



Term Loan Credit Facility outstanding	$	95,000
Less: Current portion of Term Loan Credit Facility	(10,000		)
Long-term portion of Term Loan Credit Facility	85,000
Less: Original Issue Discount⁽¹⁾	(6,818		)
Term Loan Embedded Derivative Liability⁽²⁾	166
Initial Warrant Liability⁽²⁾	1,452
Total Term Loan Credit Facility - Non-current	$	79,800

⁽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 June 30, 2020.



Stock price	$	1.32
Exercise price	$	0.01
Time until expiration (years)	4.04
Expected volatility	79.0		%
Risk-free interest rate	0.24		%
Expected dividend yield	—		%



Period	Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
7/1/17-7/31/17	9	$	11.74	—	4,120
8/1/17-8/31/17	9	11.54		—	3,953
9/1/17-9/30/17	10	10.86		—	3,722
Total	28	$	11.35	—