UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________ 

FORM 10-Q
________________________________________ 
  
ýQuarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended SeptemberJune 30, 20172019
  
¨Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from                              to
 
Commission File Number 000-52170
________________________________________ 
 
INNERWORKINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
________________________________________ 
Delaware 20-5997364
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
 
600 West Chicago Avenue,203 North LaSalle Street, Suite 8501800
Chicago, Illinois 6065460601
Phone: (312) 642-3700
(Address, zip code and telephone number, including area code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.0001 par valueINWKNasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes:   ý    No:   ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes:   ý      No:   ¨
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer:   ¨
Accelerated filer:   x
Non-accelerated filer:   ¨ (Do not check if a smaller reporting company)
Smaller reporting company:   ¨
Emerging growth company:   ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of November 2, 2017,August 8, 2019, the Registrant had 55,056,40551,941,478 shares of Common Stock, par value $0.0001 per share, outstanding, which includes 934,205 shares of unvested restricted stock awards that have voting rights and are held by members of the Board of Directors and certain of the Company’s employees.outstanding.

INNERWORKINGS, INC.
 
TABLE OF CONTENTS
 
  Page
PART I. FINANCIAL INFORMATION 
   
Item 1.Condensed Consolidated Financial Statements (Unaudited) and Notes to Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and 2016 (Unaudited)
Condensed Consolidated Balance Sheet as of September 30, 2017 (Unaudited) and December 31, 2016
   
 Condensed Consolidated StatementStatements of Stockholders' EquityComprehensive (Loss) Income for the three and six months ended June 30, 2019 and 2018 (Unaudited)
Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172019 (Unaudited) and December 31, 2018
   
 Condensed Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2019 and 2018 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172019 and 20162018 (Unaudited)
   
 Notes to Condensed Consolidated Financial Statements (Unaudited)
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
Item 3.Quantitative and Qualitative Disclosures about Market Risk
   
Item 4.Controls and Procedures
   
PART II. OTHER INFORMATION 
   
Item 1.Legal Proceedings
   
Item 1A.Risk Factors
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 5.Other Information
   
Item 6.Exhibits
   
SIGNATURES 
   

PART I. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

InnerWorkings, Inc. and subsidiaries
Condensed Consolidated StatementStatements of Comprehensive Income (Loss)
(In thousands, except per share data)Loss
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 20162019 2018 2019 2018
       
(in thousands, except per share data)       
Revenue$288,386
 $279,993
 $835,306
 $820,286
$284,053
 $281,967
 $551,291
 $556,506
Cost of goods sold215,867
 212,212
 628,282
 625,465
214,986
 217,096
 421,029
 425,568
Gross profit72,519
 67,781
 207,024
 194,821
69,067
 64,871
 130,262
 130,938
Operating expenses: 
  
     
  
    
Selling, general and administrative expenses57,134
 52,601
 165,647
 155,511
58,661
 59,002
 114,466
 120,169
Depreciation and amortization3,317
 5,066
 9,403
 14,382
3,233
 3,514
 5,849
 7,173
Change in fair value of contingent consideration(167) 788
 677
 9,975
Restructuring and other charges
 466
 
 4,433
Restructuring charges3,698
 
 7,632
 
Income from operations12,235
 8,860
 31,297
 10,520
3,475
 2,355
 2,315
 3,596
Other income (expense): 
  
     
  
    
Interest income31
 26
 77
 63
104
 54
 202
 115
Interest expense(1,198) (1,191) (3,239) (3,252)(2,486) (1,517) (5,232) (3,085)
Other, net427
 (114) (962) 16
Other income (expense), net279
 (588) (460) (1,433)
Total other expense(740) (1,279) (4,123) (3,173)(2,103) (2,051) (5,490) (4,403)
Income before income taxes11,495
 7,581
 27,173
 7,347
Income (loss) before income taxes1,372
 304
 (3,175) (807)
Income tax expense3,967
 3,240
 9,694
 8,023
2,541
 603
 456
 1,176
Net income (loss)$7,528
 $4,341
 $17,479
 $(676)
Net loss$(1,169) $(299) $(3,631) $(1,983)
              
Basic earnings (loss) per share$0.14
 $0.08
 $0.32
 $(0.01)
Diluted earnings (loss) per share$0.14
 $0.08
 $0.32
 $(0.01)
Basic loss per share$(0.02) $(0.01) $(0.07) $(0.04)
Diluted loss per share$(0.02) $(0.01) $(0.07) $(0.04)
      $
       
Comprehensive income (loss)$9,696
 $4,676
 $25,506
 $(2,201)
Comprehensive loss$(916) $(5,906) $(2,631) $(4,226)


SeeThe accompanying notes toform an integral part of the condensed consolidated financial statements.
 

InnerWorkings, Inc. and subsidiaries
Condensed Consolidated Balance SheetSheets
(In thousands)(Unaudited)

September 30, 2017 December 31, 2016
(unaudited)  
(in thousands, except per share data)June 30, 2019 December 31, 2018
Assets 
  
(unaudited) 
Current assets: 
  
 
  
Cash and cash equivalents$27,682
 $30,924
$33,999
 $26,770
Accounts receivable, net of allowance for doubtful accounts of $2,692 and $2,622, respectively203,306
 182,874
Accounts receivable, net of allowance for doubtful accounts of $3,697 and $4,880, respectively188,687
 193,253
Unbilled revenue50,130
 32,723
60,911
 46,474
Inventories48,744
 31,638
51,553
 56,001
Prepaid expenses22,018
 18,772
15,132
 16,982
Other current assets31,850
 24,769
28,707
 34,106
Total current assets383,730
 321,700
378,989
 373,586
Property and equipment, net37,212
 32,656
36,466
 82,933
Intangibles and other assets: 
  
 
  
Goodwill206,704
 202,700
152,203
 152,158
Intangible assets, net28,745
 31,538
8,774
 9,828
Right of use assets, net50,460
 
Deferred income taxes1,432
 1,031
1,091
 1,195
Other non-current assets1,312
 1,374
3,613
 2,976
Total intangibles and other assets238,193
 236,643
216,141
 166,157
Total assets$659,135
 $590,999
$631,596
 $622,676
Liabilities and stockholders' equity 
  
 
  
Current liabilities: 
  
 
  
Accounts payable$129,600
 $121,289
$140,492
 $158,449
Current portion of contingent consideration
 19,283
Accrued expenses32,994
 30,067
37,446
 35,474
Deferred revenue21,532
 17,614
Revolving credit facility - current157,675
 142,736
Other current liabilities43,296
 35,049
34,877
 26,231
Total current liabilities205,890
 205,688
392,022
 380,504
Revolving credit facility149,184
 107,468
Lease liabilities46,615
 
Deferred income taxes9,834
 11,291
8,295
 8,178
Other non-current liabilities1,958
 1,926
1,995
 50,903
Total liabilities366,866
 326,373
448,927
 439,585
Commitments and contingencies (See Note 11)

 

Commitments and contingencies

 

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, respectively6
 6
Common stock, par value $0.0001 per share, 200,000 and 200,000 shares authorized, 64,629, and 64,495 shares issued, and 51,941 and 51,807 shares outstanding, respectively6
 6
Additional paid-in capital232,979
 224,480
242,010
 239,960
Treasury stock at cost, 9,927 and 9,303 shares, respectively(54,938) (49,458)
Treasury stock at cost, 12,688 and 12,688 shares, respectively(81,471) (81,471)
Accumulated other comprehensive loss(12,772) (20,799)(23,309) (24,309)
Retained earnings126,994
 110,397
45,433
 48,905
Total stockholders' equity292,269
 264,626
182,669
 183,091
Total liabilities and stockholders' equity$659,135
 $590,999
$631,596
 $622,676

SeeThe accompanying notes toform an integral part of the condensed consolidated financial statements.


InnerWorkings, Inc. and subsidiaries 
Condensed Consolidated StatementStatements of Stockholders' Equity
(In thousands)(Unaudited)
(Unaudited)
 Common Stock Treasury Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Retained Earnings Total
 Shares Amount Shares Amount    
Balance at December 31, 201663,391
 $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 awards537
 
     725
     725
Issuance of common stock and treasury shares as consideration for acquisition36
 
 (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, 201763,964
 $6
 9,927
 $(54,938) $232,979
 $(12,772) $126,994
 $292,269
 Common Stock Treasury Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Retained Earnings Total
(in thousands)Shares Amount Shares Amount    
Balance as of April 1, 201964,534
 $6
 12,688
 $(81,471) $240,734
 $(23,562) $46,602
 $182,309
Net loss            (1,169) (1,169)
Total other comprehensive income - foreign currency translation adjustments          253
   253
Comprehensive loss              (916)
Issuance of common stock upon exercise of stock awards, net of withheld shares95
 

     (126)     (126)
Stock-based compensation expense        1,402
     1,402
Cumulative effect of change related to adoption of ASC 842            

 
Balance as of June 30, 201964,629
 $6
 12,688
 $(81,471) $242,010
 $(23,309) $45,433
 $182,669

See
 Common Stock Treasury Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Retained Earnings Total
(in thousands)Shares Amount Shares Amount    
Balance as of December 31, 201864,495
 $6
 12,688
 $(81,471) $239,960
 $(24,309) $48,905
 $183,091
Net loss            (3,631) (3,631)
Total other comprehensive income - foreign currency translation adjustments          1,000
   1,000
Comprehensive loss              (2,631)
Issuance of common stock upon exercise of stock awards, net of withheld shares134
 
     (91)     (91)
Stock-based compensation expense        2,141
     2,141
Cumulative effect of change related to adoption of ASC 842            159
 159
Balance as of June 30, 201964,629
 $6
 12,688
 $(81,471) $242,010
 $(23,309) $45,433
 $182,669


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














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

 Common Stock Treasury Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Retained Earnings Total
(in thousands)Shares Amount Shares Amount    
Balance as of April 1, 201864,103
 $6
 10,952
 $(64,544) $236,664
 $(15,865) $123,393
 $279,654
Net loss            (299) (299)
Total other comprehensive loss - foreign currency translation adjustments          (5,607)   (5,607)
Comprehensive loss              (5,906)
Issuance of common stock upon exercise of stock awards, net of withheld shares269
 

     (436)     (436)
Acquisition of treasury shares    1,736
 (16,927)       (16,927)
Stock-based compensation expense        1,406
     1,406
Cumulative effect of change related to adoption of ASC 606            

 
Cumulative effect of change related to adoption of ASU 2016-16            

 
Balance as of June 30, 201864,372
 $6
 12,688
 $(81,471) $237,634
 $(21,472) $123,094
 $257,791

 Common Stock Treasury Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Retained Earnings Total
(in thousands)Shares Amount Shares Amount    
Balance at December 31, 201764,075
 $6
 10,020
 $(55,873) $235,199
 $(19,229) $124,442
 $284,545
Net loss            (1,983) (1,983)
Total other comprehensive loss - foreign currency translation adjustments          (2,243)   (2,243)
Comprehensive loss              (4,226)
Issuance of common stock upon exercise of stock awards, net of withheld shares297
 

     (388)     (388)
Acquisition of treasury shares    2,668
 (25,598)       (25,598)
Stock-based compensation expense        2,823
     2,823
Cumulative effect of change related to adoption of ASC 606            482
 482
Cumulative effect of change related to adoption of ASU 2016-16            153
 153
Balance as of June 30, 201864,372
 $6
 12,688
 $(81,471) $237,634
 $(21,472) $123,094
 $257,791


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


InnerWorkings, Inc. and subsidiaries
Condensed Consolidated StatementStatements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30,Six Months Ended June 30,
2017 20162019 2018
   
(in thousands)   
Cash flows from operating activities 
  
 
  
Net income (loss)$17,479
 $(676)
Adjustments to reconcile net income (loss) to net cash used in operating activities: 
  
Net loss$(3,631)
$(1,983)
Adjustments to reconcile net loss to net cash from operating activities: 

 
Depreciation and amortization9,403
 14,382
5,849

7,173
Stock-based compensation expense5,296
 4,097
2,141

2,823
Deferred income taxes(82) 677
Bad debt provision268
 1,433
689

630
Change in fair value of contingent consideration677
 9,975
Implementation cost amortization213

263
Other operating activities157
 157
224

(154)
Change in assets: 
  
 

 
Accounts receivable and unbilled revenue(38,108) (12,798)(10,225)
21,643
Inventories(17,106) (12,050)4,488

(87)
Prepaid expenses and other assets(10,401) 3,574
(4,318)
9,424
Change in liabilities: 
  
 

 
Accounts payable8,312
 (40,264)(17,670)
(18,735)
Accrued expenses and other liabilities11,722
 7,861
23,529

1,643
Net cash used in operating activities(12,383) (23,632)
Net cash (used in) provided by operating activities1,289

22,640
      
Cash flows from investing activities 
  
 
  
Purchases of property and equipment(10,274) (10,502)(6,881) (5,490)
Net cash used in investing activities(10,274) (10,502)(6,881) (5,490)
      
Cash flows from financing activities 
  
 
  
Net borrowings from revolving credit facilities42,258
 34,722
Net short-term secured borrowings633
 (820)
Net borrowings from revolving credit facility14,908
 8,629
Net short-term secured repayments(833) (578)
Repurchases of common stock(10,041) 

 (25,689)
Payments of contingent consideration(15,345) (11,008)
Proceeds from exercise of stock options1,824
 2,002
63
 284
Payment of debt issuance costs(935) 
Other financing activities(850) (680)(156) (695)
Net cash provided by financing activities18,479
 24,216
Net cash provided by (used in) financing activities13,047
 (18,049)
      
Effect of exchange rate changes on cash and cash equivalents936
 (50)(226) (1,397)
Decrease in cash and cash equivalents(3,242) (9,968)
Increase (Decrease) in cash and cash equivalents7,229
 (2,296)
Cash and cash equivalents, beginning of period30,924
 30,755
26,770
 30,562
Cash and cash equivalents, end of period$27,682
 $20,787
$33,999
 $28,266

SeeThe accompanying notes toform an integral part of the condensed consolidated financial statements.


8

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and NineSix Months Ended SeptemberJune 30, 20172019




1. Summary of Significant Accounting Policies

Basis of Presentation of Interim Financial Statements
 
The accompanying unaudited condensed consolidated financial statements of InnerWorkings, Inc. and subsidiaries (the “Company”) included herein have been prepared to conform to the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of the accompanying unaudited financial statements have been included, and all adjustments are of a normal and recurring nature. The operating results for the three and nine monthssix month periods ended SeptemberJune 30, 20172019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.2019. These condensed consolidated interim consolidated financial statements and notes should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto as of and for the year ended December 31, 20162018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2017.19, 2019.
 
Description of the Business
 
The Company was incorporated in the state of Delaware on January 3, 2006. The Company is a leading global marketing execution firm for some of the world's most marketing intensive companies, including those in the Fortune 1000, across a wide range of industries. As a comprehensive outsourced enterprise solution, the Company leverages proprietary technology, an extensive supplier network and deep domain expertise to streamline the creation, production and distribution of marketing and promotional materials, signage and displays, retail experiences, events and promotions and packaging across every major market worldwide. The items the Company sources are generally procured through the marketing supply chain and are referred to collectively as marketing materials. The Company’s technology and database of information is designed to capitalize on excess manufacturing capacity and other inefficiencies in the traditional marketing and print supply chain to obtain favorable pricing and to deliver high-quality products and services.
 
During the third quarter of 2018, the Company changed its reportable segments. The Company is now organized and managed as two business segments, North America and International, and is viewed as two operating segments by the chief operating decision maker for purposes of resource allocation and assessing performance.performance as three operating segments: North America, EMEA and LATAM. The Company reflected the segment change as if it had occurred in all periods presented. See Note 14 for further information about the Company’s reportable segments.

Preparation of Financial Statements and Use of Estimates
 
The preparation of the consolidated financial statements is in conformity with accounting principles generally accepted in the United States ("GAAP"). GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates, including those related to product returns, allowance for doubtful accounts, inventories and inventory valuation, valuation and impairments of goodwill and long-lived assets, income taxes, accrued bonus, contingencies, stock-based compensation and litigation costs. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. These estimates form the basis for making judgments about the carrying value of assets and liabilities when those values are not readily apparent from other sources. Actual results may differ from those estimates.
 
Foreign Currency Translation

The Company determines the functional currency for its parent company and each of its subsidiaries by reviewing the currencies in which their respective operating activities occur. Assets and liabilities ofwhere the functional currency differs from the reporting currency, these operationsamounts are translated into U.S. currency at the rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resulting translation adjustments are included in accumulated other comprehensive loss, a separate component of stockholders’ equity. Transaction gains and losses arising from activities in other than the applicable functional currency are calculated using average exchange rates for the applicable period and reported in net income as a non-operating item in each period. Non-monetary balance sheet items denominated in a currency other than the applicable functional currency are translated using the historical rate.


9

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and NineSix Months Ended SeptemberJune 30, 20172019



Argentinian Highly Inflationary Accounting

In the second quarter of 2018, the Argentinian economy was classified as highly inflationary under GAAP due to multiple years of increasing inflation, the devaluation of the Argentine peso ("ARS") and increasing borrowing rates. Effective July 1, 2018, the Company's Argentinian subsidiary is being accounted for under highly inflationary accounting rules, which principally means all transactions are recorded in U.S. dollars. The Company uses the official ARS exchange rate to translate the results of its Argentinian operations into U.S. dollars. As of June 30, 2019, the Company had a balance of net monetary assets denominated in ARS of approximately 75.4 million ARS, and the exchange rate was approximately 42.6 ARS per U.S. dollar.

During the three and six months ended June 30, 2019, the Company recorded $0.2 million and $0.1 million, respectively, of favorable currency impacts within Other income (expense). For the three and six months ended June 30, 2019, the Company's Argentinian operations generated revenue of $1.1 million and $1.7 million and gross margin of $0.1 million and $0.2 million, respectively.

Revenue Recognition

TheRevenue is measured based on consideration specified in a contract with a customer and the Company recognizes revenue upon meeting all of the following revenue recognition criteria,when it satisfies a performance obligation by transferring control over a product or service to a customer which is typically met upon shipmentmay be at a point in time or delivery of our products to customers: (i) persuasive evidence of an arrangement exists through customer contracts and orders, (ii) the customer takes title and assumes the risks and rewards of ownership, (iii) the sales price charged is fixed or determinable as evidenced by customer contracts and orders and (iv) collectability is reasonably assured.over time. Unbilled revenue represents shipments or deliveries that have been made to customers for which the related account receivable has not yet been invoiced.

Shipping and handling costs after control over a product has transferred to a customer are expensed as incurred and are included in cost of goods sold in the condensed consolidated statements of operations.    

In accordance with Financial Accounting Standards Board (“FASB”("FASB") Accounting Standards Codification (“ASC”("ASC") 605-45,Topic 606, Revenue Recognition – Principal Agent Considerationsfrom Contracts with Customers, the Company generally reports revenue on a gross basis because the Company istypically controls the primary obligor in its arrangementsgoods or services before transferring to procure marketing materials and other products for its customers.the customer. Under these arrangements, the Company is primarily responsible for the fulfillment, including the acceptability, of the printedmarketing materials and other products.products or services. In addition, the Company: (i) determines which suppliers are included in its network, (ii) has discretion to select from among the suppliers within its network, (iii) is obligated to pay its suppliers regardless of whether the Company is paid by its customers and (iv) has reasonable latitude to establish exchange price. Indiscretion in establishing the price, and in some transactions, the Company also has general inventory risk and is involved in the determination of the nature or characteristics of the printedmarketing materials and products. WhenIn some arrangements, the Company is not primarily responsible for fulfilling the primary obligor,goods or services. In arrangements of this nature, the Company does not control the goods or services before they are transferred to the customer and such revenue is reported on a net basis.

The Company recognizesSome service revenue, forincluding stand-alone creative design, installation, warehousing and other services, provided to its customers which may be deliveredearned over time; however, the difference from recognizing that revenue over time compared to a point in conjunction withtime (i.e., when the procurement of marketing materials atservice is completed and accepted by the time when delivery and customer acceptance occur and all other revenue recognition criteria are met. When provided on a stand-alone basis, the Company recognizes revenue for these services upon completion of the service.customer) is not material. Service revenue has not been material to the Company’sCompany's overall revenue to date.

The Company records taxes collected from customers and remitted to governmental authorities on a net basis.

Stock-Based CompensationRecent Accounting Pronouncements

The Company accounts for stock-based compensation awards to employees and directors in accordance with ASC 718, Compensation – Stock Compensation. Compensation expense is measured by determining the fair value of each award using the Black-Scholes option valuation model for stock options or the closing share price on the grant date for restricted shares and performance share units. The fair value is then recognized over the requisite service period of the awards, which is generally the vesting period, on a straight-line basis for the entire award.Recently Adopted Accounting Standards

On JuneIn February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet. The Company adopted ASU 2016-02, along with related clarifications and improvements, as of January 1, 2017,2019, using the Compensation Committee approved, pursuantmodified retrospective approach, which allows the Company to apply ASC 840, Leases, in the comparative periods presented in the year of adoption. The cumulative effect of adoption was recorded as an adjustment to the 2006 Stock Incentive Plan, awardsopening balance of performance share units (“PSUs”) for certain executive officers and employees. The PSUs are performance-based awards that will settleretained earnings in shares of the Company's common 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 a quarterly assessment of the likelihood of achieving the performance conditions.
Stock-based compensation cost recognized during the period is based on the full grant date fair value of the share-based payment awards adjusted for any forfeitures during the period.adoption.
 
The Company recorded $2.4 millionelected to use the package of practical expedients, which permitted the Company to not reassess: (i) whether a contract is or contains a lease, (ii) lease classification, and $1.7 million in stock-based compensation expense(iii) initial direct costs resulting from the lease. The Company has not elected the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets. The Company elected to apply the short-term lease exception, which allows the Company to keep leases with terms of 12 months or less off the balance sheet. The Company also elected to combine lease and non-lease components as a single component for the three months ended September 30, 2017 and 2016, respectively, and $5.3 million and $4.1 million for the nine months ended September 30, 2017 and 2016, respectively.Company's entire population of lease assets.

Recent Accounting Pronouncements
10

In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Scope of Modification Accounting ("ASU 2017-09"), which amends ASC 718, Compensation - Stock Compensation. This ASU amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The new guidance will allow companies to make certain changes to awards without accounting for them as modifications. It does not change the accounting for modifications. The new guidance will be applied prospectively to awards modified on or after the adoption date. This new guidance

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and NineSix Months Ended SeptemberJune 30, 20172019



Adoption of the new standard resulted in the recording of net lease assets and lease liabilities of approximately $39.4 million and $41.5 million, respectively, as of January 1, 2019. The $2.1 million difference in the lease liabilities and net lease assets represents the net ASC 840 lease liabilities at the effective date that were netted against the initial right-of-use-asset, which included: straight-line rent, prepaid rent, and lease incentives. The $0.2 million transition adjustment to retained earnings was comprised of $1.0 million of build-to-suit financing lease assets that were derecognized and recorded as operating leases in transition and $0.5 million of initial impairment to right-of-use-assets, which were partially offset by the related deferred tax effect of $0.3 million.

Adoption of ASU 2016-02 did not materially impact the Company's consolidated net earnings nor cash flows, and did not have a notable impact on the Company's liquidity or debt-covenant compliance under the Company's current agreements.

In the first quarter of 2019, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC 220, Income Statement - Reporting Comprehensive Income. This ASU allows a reclassification from accumulated OCI to retained earnings for stranded tax effects resulting from tax reform. This update is effective for interim and annual reporting periodsfiscal years beginning after December 15, 2017 with2018, including interim periods therein, and early adoption is permitted. An election was not made to reclassify the income tax effects of the Tax Cuts and Jobs Act (“Tax Reform Act”) from accumulated other comprehensive income to retained earnings. The Company is currently evaluatingadoption of this ASU did not have a material impact on the impact of adopting this standard on itsCompany's consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In January 2017,June 2016, the FASB issued Accounting Standards UpdateASU No. 2017-04,2016-13, Simplifying the Test for Goodwill ImpairmentFinancial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2017-04"), which simplifiedrequires entities to measure the accountingimpairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. The effective date is for goodwill impairment by removing Step 2 of the goodwill impairment test. This ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Earlywith early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the consolidated financial statements and related disclosures.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The guidance is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted.2018. The Company is currently in the process of evaluating the impactpotential effects of adoption of thisthe ASU on the Company's consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, ("ASU 2016-09") which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Under the standard, the income tax effect of awards is required to be recognized in the income statement when the awards vest or are settled, as opposed to in additional paid-in capital under Topic 718. The standard also provides an option to recognize gross share-based compensation expense with actual forfeitures recognized as they occur. ASU 2016-09 is effective for annual and interim periods beginning after December 15, 2016. This guidance can be applied either prospectively, retrospectively or using a modified retrospective transition method.

The Company adopted all amendments to the standard at January 1, 2017. The amendments related to the classification of excess tax benefits on the statement of cash flows were adopted prospectively and the classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes was adopted retrospectively. The adoption of both resulted in no prior period adjustments. With the adoption of the standards related to eliminating the requirement that excess tax benefits be realized before companies can recognize them and election to recognize forfeitures as they occur, the Company elected to use the modified retrospective method which resulted in changes to retained earnings, components of equity and net assets. The net cumulative effect of these changes resulted in a $2.1 million increase to additional paid in capital, a $1.5 million decrease to deferred tax liabilities and a $0.6 million decrease to retained earnings.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), ("ASU 2016-02") which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosure of key information about leasing arrangements. ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability for most leases in the balance sheet as well as other qualitative and quantitative disclosures. The update is to be applied using a modified retrospective method and is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In May 2014,August 2018, the FASB issued Accounting Standards Update 2014-09,ASU No. 2018-13, Revenue from Contracts with Customers (Topic 606) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement(“ASU 2014-09"), which outlinesamends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The effective date is the first quarter of fiscal year 2021, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2021 permitted for the new disclosures. The removed and modified disclosures will be adopted on a single comprehensive model for entities to use in accounting for revenue usingretrospective basis and the new disclosures will be adopted on a five-step process that supersedes virtually all existing revenue guidance.prospective basis. The Company is evaluating the potential effects of the ASU 2014-09 is based on principles that govern the recognitionconsolidated financial statements.

2. Revenue Recognition

Nature of revenue at an amount an entity expects to beentitled when products are transferred to customers. The FASB has issued several amendments to the standard since ASU 2014-09.Goods and Services

The guidance permits two methodsCompany primarily generates revenue from the procurement of adoption: retrospectivelymarketing materials for customers. Service revenue, including creative, design, installation, warehousing and other services, has not been material to each prior reporting period presented (full retrospective method)the Company’s overall revenue to date.

Products and services may be sold separately or retrospectivelyin bundled packages. For bundled packages, the Company accounts for individual products and services separately if they are distinct - that is, if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective transition method). customer.

The Company will adoptincludes any fixed charges per its contracts as part of the standard electing to usetotal transaction price. The transaction price is allocated between separate products and services in a bundle based on their standalone selling prices. The standalone selling prices are generally determined based on the modified retrospective transition method. The standard provides an option to apply the transition method to all contractsprices at the inception date or only to contracts that are not completed as of that date. At the current time,which the Company only intendsseparately sells the products and services.

Contracts may include variable consideration (for example, customer incentives like rebates), and to apply the standard to contractsextent that arevariable consideration is not completed as of December 31, 2017. Also,constrained, the Company anticipates disclosingincludes the aggregate effect of contract modifications that occur beforeexpected amount within the beginningtotal transaction price and updates its assumptions over the duration of the earliest reporting period presented (only for contractscontract. The constraint will generally not completed atresult in a reduction in the date of adoption).estimated transaction price.


11

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and NineSix Months Ended SeptemberJune 30, 20172019



The Company continuesCompany’s performance obligations related to review the impactprocurement of marketing materials are typically satisfied upon shipment or delivery of its products to customers. Payment is typically due from the standard on allcustomer at this time or shortly thereafter. Unbilled revenue transactions as well as assessing and implementing any potential changesrepresents shipments or deliveries that have been made to systems, processes and internal controls required to meetcustomers for which the standard’s reporting and disclosure requirements. While the review isrelated account receivable has not fully complete, the Company has identified certain areas of the standard that the Company is evaluating further such as principle versus agent considerations and the timing of revenue recognition.yet been invoiced. The Company does not currently expect significant changes in financial statement presentation and expectshave material future performance obligations that extend beyond one year.

Some service revenue will typically continue tomay be recognized over time, but the difference between recognizing that revenue over time versus at a point in time rather than over time.  Those conclusions are subject to change aswhen the reviewservice is completed inand accepted by the fourth quarter of 2017.customer is not material to the Company’s overall revenue to date.

Under the current guidance, the Company defers revenue for inventory billed but not yet shipped. Under the standard, in certain situations the Company may be ableCosts to recognize revenue for inventory billed but not yet shipped, which could accelerate the timing, but not the total amount, of revenue recognizedFulfill Customer Contracts and would not impact the timing of cash flows. The Company cannot reasonably estimate quantitative information related to the impact of the standard on our financial statements at this time.Contract Liabilities

The standardCompany capitalizes certain setup costs related to new customers as fulfillment costs. Capitalized contract costs are amortized over the expected period of benefit using the straight-line method which is generally three years. For the three and six months ended June 30, 2019, the amount of amortization was $0.1 million and $0.2 million, respectively, and there was no impairment loss in relation to the capitalized costs in either period presented.

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

The following is a summary of Company's costs to fulfill and contract liabilities as of June 30, 2019 and December 31, 2018 (in thousands):
 June 30, 2019 December 31, 2018
    
Costs to fulfill1,258
 1,152
Contract liabilities21,532
 17,614
Cash received5,082
 11,387
Revenue recognized1,100
 11,850

Costs to Obtain a Customer Contract

The Company incurs certain incremental costs to obtain a contract that the Company expects to recover. The Company applies a practical expedient and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. No incremental costs to obtain a contract incurred by the Company during the six months ended June 30, 2019 and 2018 were required to be capitalized. These costs would primarily relate to commissions paid to our account executives and are included in selling, general and administrative expenses.

Transaction Price Allocated to Remaining Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, 2019. The Company does not have material future performance obligations that extend beyond one year. Accordingly, the Company has applied the optional exemption for contracts that have an original expected duration of one year or less. The nature of the remaining performance obligations as well as the nature of the variability and how it will be effective for annual reporting periods beginning after December 15, 2017. Earlier applicationresolved is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company will adopt the standard in the first quarter of 2018.described above.

2. Contingent Consideration3. Leases

In connectionThe Company leases office space, warehouses, automobiles, and equipment. The Company determines whether a contract is or contains a lease at the inception of the contract. A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use of identified office space, warehouse or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all the economic benefits from the use of the office space, warehouse and equipment. The leases are recorded as right-of-use ("ROU") assets and lease liabilities for leases with terms greater than 12 months. The Company’s leases generally have terms of 1-10 years, with certain leases including

12

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2019



renewal options to extend the leases for additional periods at the Company’s discretion. Generally, the lease term is the minimum of the Company’s acquisitions, contingent consideration is payable in cash or common stocknoncancelable period of the lease, as the Company is not reasonably certain to exercise renewal options. Sublease income is not significant.

Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Tenant allowances used to fund leasehold improvements are recognized when earned and reduce the right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term.
Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the achievementoperating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of certain performance measures over future periods. The Company recordedoperating lease assets. To determine the acquisition date fairpresent value of the contingent consideration liability as additional purchase price. As discussed in Note 10, the process for determining the fair value of the contingent consideration liability consists of reviewing financial forecasts and assessing the likelihood of reaching the required performance measures based on factors specific to each acquisition as well as the Company’s historical experience with similar arrangements. Subsequent to the acquisition date,lease payments not yet paid, the Company estimates incremental secured borrowing rates corresponding to the fair valuematurities of the contingent consideration liability each reporting period andleases. The Company estimates this rate based on prevailing financial market conditions as rates are not implicitly stated in most leases. The Company’s lease agreements do not contain any adjustments made tomaterial residual value guarantees or material restrictive covenants. Leased assets are presented net of accumulated amortization. Variable lease payment amounts that cannot be determined at the fair valuecommencement of the lease, such as increases in lease payments based on changes in index rates or usage, are recordednot included in the Company’s results of operations. If an acquisition reaches the required performance measures within the reporting period, the fair value of the contingent consideration liability is increasedROU assets or liabilities; instead, these are expensed as incurred and recorded as variable lease expense.
Supplemental balance sheet information related to 100%, the maximum potential payment, and reclassified to due to seller.leases was as follows (in thousands):
  June 30, 2019
Right of use assets:  
Operating leases:  
Right of use assets $50,451
Finance leases:  
Right of use assets:  
Right of use asset, cost $19
   Accumulated amortization (10)
Right of use asset, net $9
Total right of use assets, net 50,460
   
Lease liabilities:  
Current  
   Operating $6,928
   Finance 82
Non-current 
   Operating $46,419
   Finance 196
Total lease liabilities $53,625

On












13

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2017, the EYELEVEL acquisition reached the required performance measures at the end of its earnout period and the balance of the fair value of the contingent consideration liability was reclassified to due to seller. During the third quarter of 2017, the Company paid $17.7 million to settle the final balance owed to the sellers. As of September 30, 2017, no contingent consideration or due to seller balances remain on the Company's balance sheet and all liabilities have been settled.2019

During the three months ended September 30, 2017

The components of lease cost were as follows:
(in thousands) June 30, 2019
Operating lease cost $4,693
Variable lease cost 578
Short-term lease cost 1,143
Finance lease cost: 
   Amortization of right-of-use assets 1
   Interest on lease liabilities 17
  Total financing lease cost $18
Sublease income 35
Total lease cost $6,397

Average lease terms and 2016, the Company recorded (income) expense of $(0.2) million and $0.8 million, respectively. During the nine months ended September 30, 2017 and 2016, the Company recorded expense of $0.7 million and $10.0 million, respectively. Please refer to Note 10 for a further summary of activitiesdiscount rates were as follows:
June 30, 2019
Weighted-average remaining lease term (years)
   Operating leases7.38
   Financing leases3.18
Weighted-average discount rate
   Operating leases6.57%
   Financing leases12.49%

Supplemental cash flow information related to the contingent consideration balanceleases was as follows (in thousands):
  June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:  
   Operating cash flows from finance leases $53
   Operating cash flows from operating leases 3,624
Total $3,677

The aggregate future lease payments for the nine months ended Septemberoperating and finance leases as of June 30, 2017.2019 are as follows (in thousands):
 Operating Finance
Remaining 2019$4,463
 $53
20209,783
 106
202110,494
 106
20229,279
 51
20237,856
 11
Thereafter27,491
 
Total lease payments$69,366
 $327
Less: Interest16,019
 49
Present value of lease liabilities$53,347
 $278




14

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2019



The aggregate future lease payments for operating and capital leases as of December 31, 2018 were as follows (in thousands):
 Operating
2019$6,383
20205,017
20214,422
20223,245
20232,068
Thereafter1,966
Total lease payments$23,101

3.4. Goodwill 

The following is a summary of the goodwill balance for each reportable segment as of SeptemberJune 30, 20172019 (in thousands): 
 North America International Total
Net goodwill as of December 31, 2016$170,757
 $31,943
 $202,700
Foreign exchange impact52
 3,953
 4,004
Net goodwill as of September 30, 2017$170,807
 $35,897
 $206,704
 North America EMEA LATAM Total
Goodwill as of December 31, 2018$152,158
 $
 $
 $152,158
Foreign exchange impact45
 
 
 45
Goodwill as of June 30, 2019$152,203
 $
 $
 $152,203
 
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. In accordance with ASC 350, Intangibles – Goodwill and Other("ASC 350"), goodwill is not amortized, but instead is tested for impairment annually, or more frequently if circumstances indicate a possible impairment may exist. Absent any interim indicators of impairment, the Company tests for goodwill impairment as of the first day of the fourth fiscal quarter of each year.

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2017



The fair value estimates used in the goodwill impairment analysis require significant judgment. The Company's fair value estimates for purposes of performing the analysis are considered Level 3 fair value measurements. The fair value estimates were based on assumptions that management believes to be reasonable, but that are inherently uncertain, including estimates of future revenuesrevenue and operating margins and assumptions about the overall economic climate and the competitive environment for the business.

The Company assessesmost recently recognized an impairment of a portion of its goodwill in the North America reportable segment as of December 31, 2018, as outlined below. The Company further considered indicators for impairment at June 30, 2019 given the significant level of goodwill remaining in the reportable segment as well as the recent impairment test. The fair value determination of the reporting unit primarily relies on management judgments around timing of generating revenue from recent new customer wins as well as timing of benefits expected to be received from the significant restructuring actions currently underway (see Note 6). If assumptions surrounding either of these factors change, then a future impairment charge may occur.

2018 Goodwill Impairment Charges

During the quarter ended September 30, 2018, the Company changed its segments and re-evaluated its reporting units. This change required an interim impairment assessment of goodwill. The Company determined an enterprise value for its North America, EMEA and LATAM reporting units that considered both discounted cash flow and guideline public company methods. The Company further compared the enterprise value of each reporting unit to its respective carrying value. The enterprise value for North America exceeded its carrying value, which indicated that there was no impairment, whereas enterprise values for the EMEA and LATAM reporting units were less than their respective carrying values, and as a result the Company recognized $20.8 million and $7.1 million goodwill impairment eachcharges, respectively.

As of December 31, 2018, the Company performed an interim impairment assessment due to a triggering event caused by a sustained decrease in the Company's stock price. The Company determined an enterprise value for its North America reporting unit that considered both the discounted cash flow and guideline public company methods. The Company further

15

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2019



compared the enterprise value of the reporting unit to its carrying value. The enterprise value for the North America reporting unit was less than its carrying value and resulted in a $18.4 million non-cash goodwill impairment charge. No tax benefit was recognized on such charge, and this charge had no impact on the Company's cash flows or compliance with debt covenants.

Prior to this 2018 activity, the Company previously recorded gross and accumulated impairment losses of $75.4 million resulting from prior period and does not believe that goodwill is impaired as of September 30, 2017.impairment tests.

4.5. Other IntangibleIntangibles and Long-Lived Assets

The following is a summary of the Company’s other intangible assets as of SeptemberJune 30, 20172019 and December 31, 20162018 (in thousands):
September 30,
2017
 December 31, 2016 
Weighted
Average Life
June 30,
2019
 December 31, 2018 
Weighted
Average Life
Customer lists$74,408
 $72,667
 13.6$73,708
 $73,792
 14.4
Non-compete agreements962
 943
 4.1
Non-competition agreements950
 950
 4.1
Trade names2,510
 2,510
 13.32,510
 2,510
 13.3
Patents57
 57
 9.057
 57
 9.0
77,938
 76,177
 77,225
 77,309
 
Less accumulated amortization(49,193) (44,639) 
Less accumulated amortization and impairment(68,451) (67,481) 
Intangible assets, net$28,745
 $31,538
 $8,774
 $9,828
 

In accordance with ASC 350,Intangibles - Goodwill and Other, the Company amortizes its intangible assets with finite lives over their respective estimated useful lives and reviews for impairment whenever impairment indicators exist. Impairment indicators could include significant under-performance relative to the historical or projected future operating results, significant changes in the manner of use of assets, significant negative industry or economic trends or significant changes in the Company’s market capitalization relative to net book value. Any changes in key assumptions used by the Company, including those set forth above, could result in an impairment charge and such a charge could have a material adverse effect on the Company’s condensed consolidated resultsstatements of operations.comprehensive (loss) income. The Company’s intangible assets consist of customer lists, non-competenon-competition agreements, trade names, and patents. The Company’s customer lists, which have an estimated weighted-average useful life of approximately fourteen years, are being amortized using the economic life method. The Company’s non-competenon-competition agreements, trade names, and patents are being amortized on a straight-line basis over their estimated weighted-average useful lives of approximately four years, thirteen years, and nine years, respectively.
 
Amortization expense related to these intangible assets was $1.2$0.6 million and $1.4$1.1 million for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively, and $3.7$1.1 million and $4.2$2.3 million for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. The Company's customer lists had accumulated amortization and impairment of $65.4 million and $64.5 million as of June 30, 2019 and December 31, 2018, respectively. The Company's trade names, non-competition agreements and patents were fully amortized or impaired as of June 30, 2019 and December 31, 2018, respectively.

TheAs of June 30, 2019, estimated amortization expense for the remainder of 20172019 and each of the next five years and thereafter is as follows (in thousands):
Remainder of 2017$1,234
20184,559
20194,326
20204,316
20214,194
Thereafter10,117
 $28,745
5. Restructuring Activities and Other Charges 
Remainder of 2019$1,064
20202,021
20211,783
20221,408
2023962
2024745
Thereafter791
 $8,774

2018 Intangible and Long-Lived Asset Impairment


16

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and NineSix Months Ended SeptemberJune 30, 20172019



In the third quarter of 2018, the Company changed its reporting units as part of a segment change, which required an interim impairment assessment. The Company's intangible and long-lived assets associated with the reporting units assessed were also reviewed for impairment. It was determined that the fair value of intangible assets in EMEA and LATAM was less than the recorded book value of certain customer lists. Additionally, it was determined that the fair value of capitalized costs related to a legacy ERP system in EMEA was less than the recorded book value of such assets. As a result, the Company recognized a $13.8 million non-cash, intangible asset impairment charge related to certain customer lists, which is included in the accumulated amortization balance and impairment above. Of the total charge, $0.6 million related to the LATAM reportable segment, and $13.2 million related to the EMEA reportable segment. During the third quarter of 2018, the Company also recognized a $3.0 million non-cash, long-lived asset impairment charge related to a legacy ERP system in the EMEA reportable segment.

6. Restructuring Activities

2018 Restructuring Plan

On August 10, 2018, the Company approved a plan to reduce the Company's cost structure while driving value for its clients and stockholders. The plan was adopted as a result of the Company's determination that its selling, general and administrative costs were disproportionately high in relation to its revenue and gross profit. From adoption through completion of the plan, the Company expects to incur pre-tax cash restructuring charges of $20.0 million to $25.0 million and pre-tax non-cash restructuring charges of $0.4 million. Cash charges are expected to include $12.0 million to $15.0 million for employee severance and related benefits and $8.0 million and $10.0 million for consulting fees and lease and contract terminations. Where required by law, the Company will consult with each of the affected countries’ local Works Councils prior to implementing the plan. The plan was expected to be completed by the end of 2019. On February 21, 2019, the Board of Directors approved a two-year extension to the restructuring plan through the end of 2021.

For the three and six months ended June 30, 2019, the Company recognized $3.7 million and $7.6 million, respectively, in restructuring charges.

The following table summarizes the accrued restructuring activities for this plan for the six months ended June 30, 2019 (in thousands):
  Employee Severance and Related Benefits Lease and Contract Termination Costs Other Total
Balance at December 31, 2018 $357
 $286
 $706
 $1,349
Charges 2,174
 759
 4,699
 7,632
Cash payments (1,282) (763) (4,815) (6,860)
Non-cash settlements/adjustments (194) (168) 
 (362)
Balance as of June 30, 2019 $1,055
 $114
 $590
 $1,759

During the six months ended June 30, 2019, the Company recorded the following restructuring costs within loss from operations and loss before income taxes (in thousands):
  North America EMEA LATAM Other Total
Restructuring charges $1,408
 $1,405
 $74
 $4,745
 $7,632

From adoption through June 30, 2019, the Company recognized $13.7 million in total restructuring charges pursuant to the 2018 Restructuring Plan.

2015 Restructuring Plan


17

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2019



On December 14, 2015, the Company approved a global realignment plan that allowed the Company to more efficiently meet client needs across its international platform. Through improved integration of global resources, the plan created back office and other efficiencies and allowed for the elimination of approximately 100 positions. In connection with these actions, the Company incurred pre-tax cash restructuring charges of $6.7 million, the majority of which were recognized during 2016.2017. These cash charges included approximately $5.6 million for employee severance and related benefits and $1.1 million for lease and contract terminations and other associated costs. The charges were all incurred by the end of 20162017 with the final payouts of the charges occurringexpected to occur in 2017.2019. As required by law, the Company consulted with each of the affected countries’ local Works Councils throughout the plan.
For the three and nine months ended September 30, 2017, the Company recognized no additional restructuring charges related to this plan, as the plan was completed by the end of 2016.

The following table summarizes the accrued restructuring activities for this plan for the ninesix months ended SeptemberJune 30, 20172019 (in thousands):, all of which relate to EMEA:
  Employee Severance and Related Benefits Lease and Contract Termination Costs Other Total
Balance at December 31, 2016 $1,349
 $17
 $200
 $1,566
Cash payments (397) (17) (200) (614)
Balance at September 30, 2017 $952
 $
 $
 $952

As of September 30, 2016, the Company recognized $5.5 million in restructuring charges related to this plan, of which $0.3 million, $4.2 million and $1.0 million related to the North America, International and Other segments, respectively.
  Employee Severance and Related Benefits Lease and Contract Termination Costs Other Total
Balance as of December 31, 2018 $486
 $
��$
 $486
Cash payments (364) 
 
 (364)
Balance as of June 30, 2019 $122
 $
 $
 $122

6.7. Income Taxes
 
On December 22, 2017, the Tax Reform Act was enacted into law. The Tax Reform Act significantly revises the U.S. corporate income tax laws by, amongst other things, reducing the corporate income tax rate from 35.0% to 21.0%. In addition to the tax rate reduction, the legislation establishes new provisions that affect our 2019 results, including but not limited to: the creation of a new minimum tax called the base erosion anti-abuse tax ("BEAT"); a new provision that taxes U.S. allocated expenses (e.g., interest and general administrative expenses) and currently taxes certain income greater than 10% return on assets from foreign operations called Global Intangible Low-Tax Income (“GILTI”); a new limitation on deductible interest expense; and limitations on the deductibility of certain employee compensation and benefits.

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The Company’s reported effective income tax rate was 34.5%185.2% and 42.7%198.4% for the three months ended SeptemberJune 30, 20172019 and 2016, respectively,2018, respectively. The Company’s reported effective income tax rate was (14.4)% and 35.7% and 109.2%(145.7)% for the ninesix months ended SeptemberJune 30, 20172019 and 2016 .2018, 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 taxestax 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.
The effectiveevents such as a write-off of a deferred 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 acquisitionsasset 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. 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.
The effective tax rate for the three and nine months ended September 30, 2017 was favorably impacted by $0.1 million and unfavorably impacted by $0.1 million, respectively, of stock-basedstock‑based compensation activity due to the adoption ASU 2016-09 on January 1, 2017.expiration of unexercised stock options.

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, theThere were no material valuation allowance balance was decreased for a Peruvian valuation allowance adjustment. The Company believed 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 expenseadjustments for the ninethree months ended SeptemberJune 30, 2017.2019 and 2018. 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.

7. Earnings8. Loss Per Share
 
Basic earnings (loss)loss per common share is calculated by dividing net income (loss)loss by the weighted average number of common shares outstanding for the period. Diluted earnings (loss)loss per share is calculated by dividing net income (loss)loss by the
InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2017



weighted average shares outstanding assuming dilution. Dilutive common shares outstanding is computed using the Treasury Stock Method and reflects the additional shares that would be outstanding if dilutive stock options were exercised and restricted stock and restricted stock units were settled for common shares during the period. In addition, dilutive shares would include any shares issuable related to PSUs for which the performance conditions have been met as of the end of the period. During

There were no dilutive effects during the three and six months ended SeptemberJune 30, 20172019 and 2016, an aggregate2018 as a result of 1.3 million and 2.5 million options and restricted common shares, respectively, and during the nine months ended September 30, 2017 and 2016, an aggregatea net loss incurred in each period. The number of 2.4 million and 4.0 million options and restricted common shares, respectively, wereantidilutive securities excluded from the calculation as these options and restricted common shares were anti-dilutive. The computationscomputation of basic and diluted earnings (loss) per common share for three and nine months ended September 30, 2017 and 2016 are as follows (in thousands, except per share amounts): 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Numerator:       
Net income (loss)$7,528
 $4,341
 $17,479
 $(676)
        
Denominator:       
Weighted-average shares outstanding  basic
53,964
 53,818
 53,962
 53,536
Effect of dilutive securities:       
Employee and director stock options and restricted common shares1,225
 817
 1,165
 
Contingently issuable shares
 137
 
 
Weighted-average shares outstanding  diluted
55,189
 54,772
 55,127
 53,536
        
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)

8. Accumulated Other Comprehensive Loss
The table below presents changes in the components of accumulated other comprehensive loss for the three and nine months ended September 30, 2017 and 2016 (in thousands):
 Three Months Ended September 30,
 2017 2016
 Foreign currency translation adjustments Foreign currency translation adjustments
Balance, beginning of period$(14,940) $(15,853)
Other comprehensive income before reclassifications2,168
 335
Net current-period other comprehensive income2,168
 335
Balance, end of period$(12,772) $(15,518)

18
 Nine Months Ended September 30,
 2017 2016
 Foreign currency translation adjustments Foreign currency translation adjustments
Balance, beginning of period$(20,799) $(13,993)
Other comprehensive income (loss) before reclassifications8,027
 (1,525)
Net current-period other comprehensive income (loss)8,027
 (1,525)
Balance, end of period$(12,772) $(15,518)

9. Related Party Transactions

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and NineSix Months Ended SeptemberJune 30, 20172019



amounts was not material. The computations of basic and diluted loss per share for the three and six months ended June 30, 2019 and 2018 are as follows (in thousands, except per share amounts):
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
Numerator:       
Net loss$(1,169) $(299) $(3,631) $(1,983)
        
Denominator:       
Weighted-average shares outstanding – basic51,883

51,770

51,857

52,738
Effect of dilutive securities:       
Employee stock options and restricted common shares






Weighted-average shares outstanding – diluted51,883

51,770

51,857

52,738
        
Basic loss per share$(0.02)
$(0.01)
$(0.07)
$(0.04)
Diluted loss per share$(0.02)
$(0.01)
$(0.07)
$(0.04)

9. Related Party Transactions
The Company provides print procurement services to Arthur J. Gallagher & Co. J. Patrick Gallagher, Jr., a member of the Company’s Board of Directors, is the Chairman, President, and Chief Executive Officer of Arthur J. Gallagher & Co. and has a direct ownership interest in Arthur J. Gallagher & Co. The total amount billed for such print procurement services during the three months ended SeptemberJune 30, 20172019 and 20162018 was $0.5 million and $0.4$0.5 million, respectively, and $1.3$0.9 million and $1.3$0.7 million during the ninesix months ended SeptemberJune 30, 20172019 and 2016, respectively. Additionally, Arthur J. Gallagher & Co. has provided insurance brokerage and risk management services to the Company. As consideration of these services, Arthur J. Gallagher & Co. billed the Company $0.1 million and $0.0 million for the three months ended September 30, 2017 and 2016, respectively, and $0.1 million and $0.2 million for the nine months ended September 30, 2017 and 2016,2018, respectively. The net amountamounts receivable from Arthur J. Gallagher & Co. was $0.3were $0.4 million and $0.4$0.3 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.

In the fourth quarter of 2017, the Company began providing marketing execution services to Enova International, Inc. ("Enova"). David Fisher, a member of the Company's Board of Directors, is the Chairman and Chief Executive Officer of Enova and has a direct ownership interest in Enova. The total amount billed for such services during the three months ended June 30, 2019 and 2018 was $3.4 million and $2.2 million, respectively, and $6.1 million and $4.0 million during the six months ended June 30, 2019 and 2018, respectively. The amounts receivable from Enova were $2.7 million and $2.0 million as of June 30, 2019 and December 31, 2018, respectively.
 
10. Fair Value Measurement
 
ASC 820,Fair Value Measurement, includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on observable or unobservable inputs to valuation techniques that are used to measure fair value. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions.
 
The fair value hierarchy consists of the following three levels:
 
Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable and market-corroborated inputs, which are derived principally from or corroborated by observable market data.
Level 3: Inputs that are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

As of September 30, 2017 the Company no longer has any Level 3 assets or liabilities remaining on its condensed consolidated financial statements as a result of the finalization of the contingent consideration liabilities discussed in Note 2. As of December 31, 2016, the only Level 3 liabilities on the Company's financial statements related to its potential contingent consideration payments from acquisitions occurring subsequent to January 1, 2009. The fairbook value of the liabilities determined by this analysis was primarily driven bydebt under the probabilityCredit Agreement (as defined herein) is considered to approximate its fair value as of reaching the performance measures required by the applicable purchase agreements and the associated discount rates. Probabilities were estimated by reviewing financial forecasts and assessing the likelihood of reaching the required performance measures based on factors specific to each acquisition as wellJune 30, 2019 as the Company’s historical experienceinterest rates are considered in line with similar arrangements. If an acquisition reached the required performance measure, the estimated probability would be increased to 100% and reclassified to due to seller, and if the measure was not reached, the probability would have been reduced to reflect the amount earned, if any, depending on the terms of the agreement. Discount rates were determined by applying a risk premium to a risk-free interest rate.
The following table sets forth the Company’s financial assets and financial liabilities measured at fair value on a recurring basis and the basis of measurement at September 30, 2017 and December 31, 2016 (in thousands):
At September 30, 2017Total Fair Value MeasurementQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
Liabilities:










Contingent consideration$

$

$

$
current market rates.

11. Commitments and Contingencies

19

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and NineSix Months Ended SeptemberJune 30, 20172019



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
Legal Contingencies

The following table provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3) (in thousands): 
 
Fair Value Measurements at Reporting Date Using Significant Unobservable Inputs
(Level 3)
 Contingent Consideration
Balance as of December 31, 2016$(19,283)
Change in fair value(1)
(677)
Contingent Consideration paid in cash15,345
Contingent Consideration paid in stock4,678
Foreign exchange impact(2)
(63)
Balance as of September 30, 2017$
(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. 
InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2017




11. Commitments and Contingencies
In October 2013, the Company removed the former owner of Productions Graphics from his role as President of Productions Graphics, the Company’s French subsidiary. He had been in that role since the Company’s 2011 acquisition of Productions Graphics, a European business then principally owned by him. In December 2013, the former owner of Productions Graphics initiated a wrongful termination claim in the Commercial Court of Paris seeking approximately €0.7 million (approximately $0.7$1.0 million) in fees and damages. In anticipation of this claim, in November 2013, he also obtained a judicial asset attachment order in the amount of €0.7 million (approximately $1.0 million) as payment security; the attachment order was confirmed in January 2014, and the Company filed an appeal of the order. In March 2015, the appellate court ruled in the Company’s favor in the attachment proceedings, releasing all attachments. The Company disputes the allegations of the former owner of Productions Graphics and intends to vigorously defend these matters. In February 2014, based on a review the Company initiated into certain transactions associated with the former owner of Productions Graphics, the Company concluded that he had engaged in fraud by inflating the results of the Productions Graphics business in order to induce the Company to pay him €7.1 million in contingent consideration pursuant to the acquisition agreement. In light of those findings, in February 2014, the Company filed a criminal complaint in France seeking to redress the harm caused by his conduct and this proceeding is currently pending. In addition, in September 2015, the Company initiated a civil claim in the Paris Commercial Court against the former owner of Productions Graphics, seeking civil damages to redress these same harms. In addition to these pending matters, there may be other potential disputes between the Company and the former owner of Productions Graphics relating to the acquisition agreement. The Company had paid €5.8 million (approximately $8.0 million) in fixed consideration and €7.1 million (approximately $9.4 million) in contingent consideration to the former owner of Productions Graphics; the remaining maximum contingent consideration under the acquisition agreement was €34.5 million (approximately $37.6 million)million at the time) and the Company has determined that none of this amount was earned and payable.

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

12. Revolving Credit Facilities and Going Concern

The Company entered into a Credit Agreement, dated as of August 2, 2010, subsequently amended most recently as of February 3, 2017,March 15, 2019, among the Company, the lenders party thereto and Bank of America, N.A., as Administrative Agent (the “Credit Agreement”). The refinanced its debt, which is further discussed in Note 15. At June 30, 2019 the Credit Agreement includesincluded a revolving commitment amount of $175 million and $160 million in the aggregate with a maturity date ofthrough September 25, 2019 and providesSeptember 25, 2020, respectively. The Credit Agreement also provided the Company the right to increase the aggregate commitment amount by an additional $50 million. Outstanding borrowings under the revolving credit facility arewere guaranteed by the Company’s material domestic subsidiaries, as defined in the Credit Agreement. The Company’s obligations under the Credit Agreement and such domestic subsidiaries’ guaranty obligations arewere secured by substantially all of their respective assets. The ranges of applicable rates charged for interest on outstanding loans and letters of credit are 125-250were 50-225 basis point spread for loans based on the base rate and 150-325 basis point spread for letter of credit fees and loans based on the Eurodollar raterate.

The most recent amendment (i) modified the definition of the term “Consolidated EBITDA” as used in the covenant calculations, (ii) increased the maximum leverage ratio to which the Company is subject for the trailing twelve month periods ended December 31, 2018 and 25-150 basis point spreadMarch 31, 2019 and (iii) decreased the minimum interest coverage ratio to which the Company is subject for loans based on the base rate.trailing twelve month periods ended December 31, 2018 and March 31, 2019. All ratios for fiscal periods thereafter remained unchanged.

The terms of the Credit Agreement includeincluded various covenants, including covenants that require the Company to maintain a maximum leverage ratio and a minimum interest coverage ratio. The most recent amendment to the Credit Agreement requiresmodified the Company to maintain amaximum leverage ratio of no more than 3.0from 3.50 to 1.01.00 to 4.50 to 1.00 for the trailing twelve months ended SeptemberDecember 31, 2018, and from 3.00 to 1.00 to 4.75 to 1.00 for the trailing twelve months ended March 31, 2019. The maximum leverage ratio is 3.00 to 1.00 for the trailing twelve months ended June 30, 20172019 and 3.0each period thereafter. The most recent amendment to 1.0the Credit Agreement also modified the minimum interest coverage ratio from 5.00 to 1.00 to 4.00 to 1.00 for the trailing twelve months ended December 31, 2018 and from 5.00 to 1.00 to 3.50 to 1.00 for the trailing twelve months ended March 31, 2019.

20

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2019



The minimum interest coverage ratio is 5.00 to 1.00 for the trailing twelve months ended June 30, 2019 and each period thereafter. The Company was in violation of the debt covenants under the credit agreement as of June 30, 2019; however, the Company successfully completed refinancing of its debt, which is also requiredfurther discussed in Note 15, prior to maintain anthe financial statement issuance date.

The revised covenants only affected the fourth quarter of 2018 and the first quarter of 2019. Therefore, the covenant for the second quarter of 2019 remains unchanged and the Company concluded that it has exceeded the maximum leverage ratio and the minimum interest coverage ratio, allowing the lenders to demand repayment of no less than 5.0 to 1.0. The Company is in compliance with all debt covenants as of September 30, 2017.
At September 30, 2017, the Company had $24.0 million of unused availabilityoutstanding debt. Accordingly, the outstanding balance under the Credit Agreement is presented as a current liability as of June 30, 2019 based on the guidance in ASC 470, Debt.

Additionally, under ASC 205, Presentation of Financial Statements, the Company is required to consider and $0.8has evaluated whether there is substantial doubt that it has the ability to meet its obligations within one year from the financial statement issuance date. This assessment also includes the Company’s consideration of any management plans to alleviate such doubts. As of December 31, 2018, the inability of the Company to meet its covenant obligations beyond the covenant waiver periods cast substantial doubt on the Company’s ability to meet its obligations within one year from the financial statement issuance date. However, following the successful refinancing of its debt described in Note 15, management completed an updated evaluation of the Company’s ability to continue as a going concern and has concluded the factors that raised substantial doubts about the Company’s ability to continue as a going concern have been successfully remediated as of the financial statement issuance date.

At June 30, 2019, the Company had $1.5 million of letters of credit which have not been drawn upon.
The book valueamount outstanding under the Company's' revolving credit facility was $157.7 million and $142.7 million as of June 30, 2019 and December 31, 2018, respectively. The Company had unamortized deferred financing fees associated with the debt under this Credit Agreement is considered to approximate its fair valueof $1.4 million and $0.7 million as of SeptemberJune 30, 2017 as the interest rates are considered in line with current market rates.2019 and December 31, 2018, respectively.

On February 22, 2016, the Company entered into a Revolving Credit Facility (the “Facility”) with Bank of America N.A. to support ongoing working capital needs of the Company.Company's operations in China. The Facility includes a revolving commitment amount of $5.0 million
InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2017



whereby maturity dates vary based on each individual drawdown. Outstanding borrowings under the Facility are guaranteed by the Company’s assets. Borrowings and repayments are made in renminbi, the official Chinese currency. The applicable interest rate is 110% of the People’s Bank of China’s base rate. The terms of the Facility include limitations on use of funds for working capital purposes as well as customary representations and warranties made by the Company. At SeptemberJune 30, 2017,2019, the Company had $3.9$4.5 million of unused availability under the Facility.

13. 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 thean increase in its authorized share repurchase program of up to an additional $30.0 million of itsthe Company's 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. As of June 30, 2019 the program purchase period had lapsed and shares are no longer available for purchase under this plan.
 
During the ninethree and six months ended SeptemberJune 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, 2016,2019, respectively, the Company did not repurchase any shares of its common stock under this program. During the three and six months ended June 30, 2018 the Company repurchased 1,735,983 and 2,667,732 shares of its common stock for $16.9 million and $25.6 million in the aggregate at an average cost of $9.75 and $9.60, respectively. Shares repurchased under this program are recorded at acquisition cost, including related expenses.

14. Business Segments
 
Segment information is prepared on the same basis that our Chief Executive Officer, who is our chief operating decision maker (“CODM”("CODM"), manages the segments, evaluates financial results, and makes key operating decisions. During the third quarter of 2018, the Company changed its reportable segments. The Company is now organized and managed by the CODM as two businessthree operating segments: North America, EMEA and International.LATAM. The North America segment includes operations in the United States

21

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2019



and Canada; the InternationalEMEA segment includes all other operations acrossin the United Kingdom, continental Europe, Asia,the Middle East, Africa, and Asia; and the LATAM segment includes operations in Mexico, Central America, and South America;America. Other consists of intersegment eliminations, shared service activities, and unallocated corporate expenses. All transactions between segments are presented at their gross amounts and eliminated through Other. We have reflected the segment change as if it had occurred in all periods presented.
 
Management evaluates the performance of its operating segments based on revenues and Adjusted EBITDA, which is a non-GAAP financial measure. The accounting policies of each of the operating segments are the same as those described in the summary of significant accounting policies in Note 1. Adjusted EBITDA represents income from operations excluding depreciation and amortization, stock-based compensation expense, income/expensegoodwill, intangible and long-lived asset impairment charges, restructuring charges, senior leadership transition and other employee-related expenses, business development realignment, obsolete retail inventory writeoff, professional fees related to changes in the fair valueASC 606 implementation, executive search expenses, restatement of contingent consideration liabilities and restructuringprior period financial statements, and other charges.expenses related to investment in operational and financial process improvements. Management does not evaluate the performance of its operating segments using asset measures.
InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2017



The table below presents financial information for the Company’s reportable segments and Other for the three and nine month periods notedsix months ended June 30, 2019 and 2018 (in thousands):
North America International Other TotalNorth America EMEA LATAM 
Other(2)
 Total
Three Months Ended September 30, 2017:       
Three Months Ended June 30, 2019:         
Revenue from third parties$196,966
 $91,420
 $
 $288,386
$200,283
 $62,483
 $21,287
 $
 $284,053
Revenue from other segments1,294
 4,761
 (6,055) 
650
 2,713
 2
 (3,365) 
Total revenue198,260
 96,181
 (6,055) 288,386
200,933
 65,196
 21,289
 (3,365) 284,053
Adjusted EBITDA(1)
20,827
 6,865
 (8,917) 18,775
21,151
 4,292
 611
 (12,414) 13,640
                
Three Months Ended September 30, 2016:       
Three Months Ended June 30, 2018:         
Revenue from third parties$185,199
 $94,794
 $
 $279,993
$194,735
 $65,039

$22,193
 $
 $281,967
Revenue from other segments3,401
 9,065
 (12,466) 
951
 2,696

(48) (3,599) 
Total revenue188,600
 103,859
 (12,466) 279,993
195,686
 67,735

22,145
 (3,599) 281,967
Adjusted EBITDA(1)
16,411
 7,444
 (6,935) 16,920
18,372
 805

1,244
 (12,235) 8,186
       
North America International Other Total
Nine Months Ended September 30, 2017       
Revenue from third parties$569,440
 $265,866
 $
 $835,306
Revenue from other segments4,136
 11,108
 (15,244) 
Total revenue573,576
 276,974
 (15,244) 835,306
Adjusted EBITDA(1)
57,827

16,314
 (26,453) 47,688
       
Nine Months Ended September 30, 2016       
Revenue from third parties$550,561
 $269,725
 $
 $820,286
Revenue from other segments5,048
 16,573
 (21,621) 
Total revenue555,609
 286,298
 (21,621) 820,286
Adjusted EBITDA(1)
48,209
 17,482
 (22,284) 43,407

 North America EMEA LATAM 
Other(2)
 Total
Six Months Ended June 30, 2019:

 

 

 

 

Revenue from third parties$388,584
 $122,662
 $40,045
 $
 $551,291
Revenue from other segments1,213
 4,360
 4
 (5,577) 
Total revenue389,797
 127,022
 40,049
 (5,577) 551,291
Adjusted EBITDA(1)
36,602
 6,819
 876
 (24,083) 20,214
          
Six Months Ended June 30, 2018         
Revenue from third parties$384,012
 $129,207

$43,287
 $
 $556,506
Revenue from other segments2,371
 5,346

78
 (7,795) 
Total revenue386,383
 134,553

43,365
 (7,795) 556,506
Adjusted EBITDA(1)
35,588
 2,310

1,830
 (24,193) 15,535


(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, andcharges, professional fees related to ASC 606 implementation, executive search costs and restatement-related professional fees 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.

22

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2019



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.

(2)“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.

The table below reconciles the total of the reportable segments' Adjusted EBITDA and the Adjusted EBITDA included in Other to incomeloss before income taxes (in thousands):
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
        
Adjusted EBITDA13,640
 8,186
 20,214
 15,535
Depreciation and amortization(3,233) (3,514) (5,849) (7,173)
Stock-based compensation expense(1,402) (1,406) (2,141) (2,823)
Stock appreciation rights market-to-market(46) 
 (46) 
Restructuring charges(3,698) 
 (7,632) 
Control remediation-related fees
(175) (537) (540) (537)
Executive search fees
 (234) (80) (234)
Professional fees related to ASC 606 implementation
 (60)   (1,092)
Sales and use tax audit(1,235) 
 (1,235) 
Other professional fees(376) (80) (376) (80)
Income (Loss) from operations3,475
 2,355
 2,315
 3,596
Interest income104
 54
 202
 115
Interest expense(2,486) (1,517) (5,232) (3,085)
Other, net279
 (588) (460) (1,433)
Income (Loss) before income taxes$1,372
 $304
 $(3,175) $(807)

15. Subsequent Event

Debt Refinancing

On July 16, 2019, the Company and certain of its direct and indirect subsidiaries entered into a credit agreement (the “ABL Credit Agreement”) with Bank of America, N.A., as administrative agent, lender, issuing bank and collateral agent, and JPMorgan Chase Bank, N.A. and PNC Bank, National Association, as lenders (the “ABL Credit Facility”). The ABL Credit Facility consists of a $105.0 million asset-based revolving line of credit with a maturity date of July 16, 2024.
Further, on July 16, 2019, the Company and certain of its direct and indirect subsidiaries entered into a credit agreement (the “Term Loan Credit Agreement”) with TCW Asset Management Company LLC, as administrative agent and collateral agent, and the financial institutions party thereto as lenders (the “Term Loan Credit Facility”).  The Term Loan Credit Facility consists of a $100.0 million term loan facility with a maturity date of July 16, 2024.
In connection with the Term Loan Credit Agreement, the Company issued a Warrant (as defined below) to Macquarie US Trading LLC, an affiliate of TCW Asset Management Company LLC, to purchase fully paid and non-assessable shares of common stock of the Company. The Warrant is initially exercisable for an aggregate of 1,335,337 shares of the Company’s common stock with a per share exercise price of $0.01 (the “Initial Warrant”). The Initial Warrant is exercisable on or after (A) the date which is 10 days after the earlier of (x) the date that the Company delivers its financial statements for the fiscal quarter ending March 31, 2020 to the administrative agent and (y) May 15, 2020 (the “First Quarter Reporting Period End Date”) through (B) July 16, 2024.

In addition, if either (x) the Total Leverage Ratio (as defined in the Term Loan Credit Agreement) as of March 31, 2020 for the four (4) consecutive fiscal quarter period then ended is greater than 4.25 to 1.00 or (y) the Company fails to deliver financial statements to the administrative agent as required by Term Loan Credit Agreement for the fiscal quarter

23

InnerWorkings, Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three and NineSix Months Ended SeptemberJune 30, 20172019



ending March 31, 2020, then from the First Quarter Reporting Period End Date through July 16, 2024, the Warrant shall also be exercisable for an additional 2.49% of the Company’s common stock calculated on a fully-diluted basis (the “Additional Warrant” and together with the Initial Warrant, the “Warrant”).
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Adjusted EBITDA18,775
 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 consideration167
 (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 operations12,235
 8,860
 31,297
 10,520
Interest income31
 26
 77
 63
Interest expense(1,198) (1,191) (3,239) (3,252)
Other, net427
 (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.
The Warrant may be exercised on a cashless basis, and the number of shares for which the Warrant are exercisable and the associated exercise price are subject to certain proportional adjustments as set forth in the Warrant. In addition, the holder of the Warrant is entitled to certain piggyback registration rights.

The Company used the initial proceeds from the ABL Credit Facility and the Term Loan Credit Facility to repay in full all amounts outstanding under the Credit Agreement, to pay fees and transaction expenses in connection with the closing of the ABL Credit Facility and the Term Loan Credit Facility and for working capital purposes.
Refer to the Company’s Form 8-K filed on July 16, 2019 for more information surrounding the debt refinancing agreements.
Remediation of Going Concern
The Company’s independent registered public accounting firm’s report on the Company’s December 31, 2018 consolidated financial statements contains an emphasis of a matter regarding substantial doubt about the Company’s ability to continue as a going concern. Following the successful refinancing of its debt described above, management completed an updated evaluation of the Company’s ability to continue as a going concern and has concluded the factors that raised substantial doubts about the Company’s ability to continue as a going concern that existed as of December 31, 2018 have successfully been remediated. The new debt structure provides long-term capital with improved flexibility to support the Company’s growth plans.


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

Certain statements in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements involve a number of risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that could materially affect such forward-looking statements can be found in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018 and elsewhere in this Form 10-Q. Investors are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date hereof and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Overview
 
We are a leading global marketing execution 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 SeptemberJune 30, 2017,2019, we had approximately 1,9002,000 employees and independent contractors in more than 2630 countries. We organize our operations into two operating segments based on geographic regions: North America and International. The North America segment includes operations inFor 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, 2019 we generated global revenue from third parties of $734.2$388.6 million in the North America segment, and $356.5$122.7 million in the International Segment. We believeEMEA segment, and $40.0 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 by adding new clients and increasing our sales to existing clients through additional marketing execution services or geographic markets. We intendIn addition, we believe the opportunity exists to hire or acquire more account executives within close proximity to these largeexpand our business through acquisition and entry into new geographic markets.
 








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, ismay be fixed by contract or in the case of transactional clients, is dependentmay depend on prices negotiated on a job-by-job basis. Once either type ofthe client accepts our pricing terms, the selling price is established, and we procure the product for our own account in order to re-sell it to the client. We generally take full title and risk of loss for the product upon shipment. The finished product is typically shipped directly from our supplier to a destination specified by our client. Upon shipment, our supplier invoices us for the products and we invoice our client.

Our revenue from enterpriseWe agree to provide our clients tendswith marketing materials that conform to generate lower gross profit margins thanthe industry standard of a “commercially reasonable quality,” and our revenue from transactionalsuppliers in turn agree to provide us with products of the same quality. In addition, the quotes we execute with our clients becauseinclude customary industry terms and conditions that limit the gross profit margins established inamount of our contracts with large enterprise clients are generally lower. Althoughliability for product defects. Product defects have not had a material adverse effect on our enterprise revenue generates lower gross profit margins, our enterprise business tendsresults of operations to be as profitable as our transactional business on an operating profit basis because the commission expense associated with enterprise clients is generally lower.date.

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 our gross profit, in the case of some of our enterprise clients, ismay be established by contract based on a fixed gross profit as a percentage of revenue, which we refer to as gross margin, established by contract or in the case of transactional clients, ismay be determined at the discretion of the account executive or production manager givenwithin predetermined parameters. Our gross profit margins on our enterprise clients are typically lower than our gross profit margins on our transactional clients. As a result, our cost of goods sold as a percentage of revenue for our enterprise clients is typically higher than those for our transactional clients.

Operating Expenses and Income from Operations
 
Our selling, general and administrative expenses consist of commissions paid to our account executives, compensation costs for our management team and production managers as well as compensation costs for our finance and support employees, public company expenses and corporate systems, legal and accounting, facilities and travel, and entertainment expenses.

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.

Comparison of three months ended SeptemberJune 30, 20172019 and 20162018
 
Revenue
 
Our third party revenue by segment for each of the periods presented was as follows:follows (dollars in thousands):  
 Three Months Ended September 30,
 2017 % of Total 2016 % of Total
 (dollars in thousands)
North America$196,966
 68.3% $185,199
 66.1%
International91,420
 31.7% 94,794
 33.9%
Revenues from third parties$288,386
 100.0% $279,993
 100.0%
 Three Months Ended June 30,
 2019 % of Total 2018 % of Total
 
      
North America$200,283
 70.5% $194,735
 69.0%
EMEA62,483
 22.0
 65,039
 23.1
LATAM21,287
 7.5
 22,193
 7.9
Revenue from third parties$284,053
 100.0% $281,967
 100.0%
 
North America
 
North America revenue increased by $11.8$5.6 million, or 6.4%2.9%, from $185.2$194.7 million during the three months ended SeptemberJune 30, 20162018 to $197.0$200.3 million during the three months ended SeptemberJune 30, 2017.2019. This increase in revenue is drivenrelates primarily by organicto growth from new and existing enterprise accounts added during the last 12 to 18 months and expansion of existing accounts.clients.

International

International

EMEA

EMEA revenue decreased by $3.4$2.5 million, or 3.6%3.8%, from $94.8$65.0 million during the three months ended SeptemberJune 30, 20162018 to $91.4$62.5 million during the three months ended SeptemberJune 30, 2017. This2019. The decrease in revenue is driven primarilywas a result of growth that was more than offset by decreasedforeign currency impact and declines in marketing spend withinby certain enterprise accounts.clients.

LATAM
LATAM revenue decreased by $0.9 million, or 4.1%, from $22.2 million during the three months ended June 30, 2018 to $21.3 million during the three months ended June 30, 2019. The decrease was a result of growth that was more than offset by foreign currency impact and declines in marketing spend by certain clients.

Cost of goods sold
 
Our cost of goods sold increaseddecreased by $3.7$2.1 million, or 1.7%1.0%, from $212.2$217.1 million during the three months ended SeptemberJune 30, 20162018 to $215.9$215.0 million during the three months ended SeptemberJune 30, 2017.2019. Our cost of goods sold as a percentage of revenue was 74.9%75.7% and 75.8%77.0% during the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
 
Gross profit margin
 
Our gross profit margin was 25.1%24.3% and 24.2%23.0% during the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. This increase was primarily driven by benefits from supply chain initiativesoperating efficiencies in North America and favorable product category and geographicalimproved customer mix during the three months ended September 30, 2017.in EMEA.
 
Selling, general, and administrative expenses
 
Selling, general, and administrative expenses increaseddecreased by $4.5$0.3 million, or 8.6%0.5%, from $52.6$59.0 million during the three months ended SeptemberJune 30, 20162018 to $57.1$58.7 million during the three months ended SeptemberJune 30, 2017.2019. This increase is primarilydecrease was driven by increased investments in operational improvementsthe Company’s restructuring efforts, partially offset by higher legal fees and product category and geographical mix during the current quarter.additional sales tax resulting from sales tax audit of prior periods. As a percentage of gross profit, selling, general, and administrative expenses increasedalso decreased to 78.8%84.9% for the three months ended SeptemberJune 30, 20172019 compared to 77.6%90.9% for the three months ended SeptemberJune 30, 2016.2018.

Depreciation and amortization
 
Depreciation and amortization expense decreased by $1.7$0.3 million, or 34.5%8.6%, from $5.1$3.5 million during the three months ended SeptemberJune 30, 20162018 to $3.3$3.2 million during the three months ended SeptemberJune 30, 2017.2019. This decrease is driven by the impact of the changedue to lower amortization resulting from impairment charges to intangible assets 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, 2016.2018.

Change in fair value of contingent considerationRestructuring charges
 
Expense (income) fromOn August 10, 2018, the changeCompany approved a plan to reduce the Company's cost structure while driving value for its clients and stockholders. Consequently, no restructuring charges were recognized in fair value of contingent consideration decreased by $1.0 million from expense of $0.8 million during the three months ended SeptemberJune 30, 2016 to income of $0.2 million during2018. For the three months ended

September June 30, 2017. The change2019, we recognized $3.7 million 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.charges.

Income from operations

Income from operations increased by $3.4$1.1 million from $8.9$2.4 million during the three months ended SeptemberJune 30, 20162018 to $12.2$3.5 million during the three months ended SeptemberJune 30, 2017.2019. As a percentage of revenue, income from operations was 4.2%1.2% and 3.2%0.9% during the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. As a percentage of gross profit, income from operations was 16.9%5.1% and 13.1%3.7% during the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. This increase is primarily attributable to operating leveragehigher gross profit and changes in depreciationlower selling, general and amortization, fair value of contingent consideration, andadministrative expenses, offset by restructuring charges discussed above.charges.

Other expense
 
Other expense decreased by $0.6 milliondid not materially change from $1.3 million for the three months ended SeptemberJune 30, 20162018 to $0.7 million during three months ended SeptemberJune 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.2019.


 

Income tax expense

Income tax expense increased by $0.8$1.9 million from $3.2$0.6 million during the three months ended SeptemberJune 30, 20162018 to $4.0$2.5 million during the three months ended SeptemberJune 30, 2017.2019. Our effective tax rate was 34.5%185.2% and 42.7%198.4% for the three months ended SeptemberJune 30, 20172019 and 2016,2018, 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, valuation allowances, impacts of the Tax Reform Act, and foreign taxestax 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.

The effectiveevents such as a write-off of a deferred 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 acquisitionsasset 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-basedstock‑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.expiration of unexercised stock options.

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 Net loss carryforwards, so a tax benefit has not been recognized in the financial statements for these losses.

Net income
 
Net incomeloss increased by $3.2$0.9 million, or 73.4%300.0%, from $4.3net loss of $0.3 million during the three months ended SeptemberJune 30, 20162018 to $7.5a $1.2 million net loss during the three months ended SeptemberJune 30, 2017.2019. Net incomeloss as a percentage of revenue was 2.6%(0.4)% and 1.6%(0.1)% during the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. Net incomeloss as a percentage of gross profit was 10.4%(1.7)% and 6.4%(0.5)% during the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. ThisThe increase in net loss is primarily attributable to changesthe increase in depreciation and amortization, change in fair value of contingent consideration, and restructuring charges,income taxes, 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 share55,189

54,772
Diluted earnings per share$0.14
 $0.08

Diluted earnings per share increased by $0.06higher income 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.operations.

Comparison of ninesix months ended SeptemberJune 30, 20172019 and 20162018

Revenue
 
Our third party revenue by segment for each of the periods presented was as follows:follows (dollars in thousands):  
Nine Months Ended September 30,Six Months Ended June 30,
2017 % of Total 2016 % of Total2019 % of Total 2018 % of Total
(dollars in thousands)
      
North America$569,440
 68.2% $550,561
 67.1%$388,584
 70.5% $384,012
 69.0%
International265,866
 31.8% 269,725
 32.9%
EMEA122,662
 22.2
 129,207
 23.2
LATAM40,045
 7.3
 43,287
 7.8
Revenue from third parties$835,306
 100.0% $820,286
 100.0%$551,291
 100.0% $556,506
 100.0%
 
North America
 
North America revenue increased by $18.9$4.6 million, or 3.4%1.2%, from $550.6$384.0 million during the ninesix months ended SeptemberJune 30, 20162018 to $569.4$388.6 million during the ninesix months ended SeptemberJune 30, 2017.2019. This increase in revenue is drivenrelates primarily by organicto continued growth from new and existing enterprise accounts added during the last 12 to 18 months and expansion of existing accounts.clients.

InternationalEMEA

InternationalEMEA revenue decreased by $3.9$6.5 million, or 1.4%5.0%, from $269.7$129.2 million during the ninesix months ended SeptemberJune 30, 20162018 to $265.9$122.7 million during the ninesix months ended SeptemberJune 30, 2017. This2019. The decrease in revenue is driven primarilywas a result of growth that was more than offset by lowerforeign currency impacts and declines in marketing spend withinby certain enterprise accounts.clients.

LATAM
LATAM revenue decreased by $3.3 million, or 7.6%, from $43.3 million during the six months ended June 30, 2018 to $40.0 million during the six months ended June 30, 2019. The decrease was a result of growth that was more than offset by foreign currency impacts and declines in marketing spend by certain clients.






Cost of goods sold
 
Our cost of goods sold increaseddecreased by $2.8$4.6 million, or 0.5%1.1%, from $625.5$425.6 million during the ninesix months ended SeptemberJune 30, 20162018 to $628.3$421.0 million during the ninesix months ended SeptemberJune 30, 2017.2019. Our cost of goods sold as a percentage of revenue was 75.2%76.4% and 76.2%76.5% during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
 
Gross profit margin
 

Our gross profit margin was 24.8%23.6% and 23.8%23.5% during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. This increase was primarily driven by benefits from supply chain initiativesoperating efficiencies in North America and favorable product category and geographicalbetter customer mix during the nine months ended September 30, 2017.in EMEA.
 
Selling, general, and administrative expenses
 
Selling, general, and administrative expenses increaseddecreased by $10.1$5.7 million, or 6.5%4.7%, from $155.5$120.2 million during the ninesix months ended SeptemberJune 30, 20162018 to $165.6$114.5 million during the ninesix months ended SeptemberJune 30, 2017.2019. This increase is primarilydecrease was driven by increased investments into the infrastructureCompany’s restructuring efforts, partially offset by higher legal fees and additional sales tax resulting from a sales tax audit of the Company through operational improvements during the current quarter.prior periods. As a percentage of gross profit, selling, general, and administrative expenses were flat at 80.0%also decreased to 87.9% for the ninesix months ended SeptemberJune 30, 20172019 compared to 79.8%91.8% for the ninesix months ended SeptemberJune 30, 2016.2018.

Depreciation and amortization
 
Depreciation and amortization expense decreased by $5.0$1.4 million, or 34.6%19.4%, from $14.4$7.2 million during the ninesix months ended SeptemberJune 30, 20162018 to $9.4$5.8 million during the ninesix months ended SeptemberJune 30, 2017. This2019. The decrease is driven by the impact of the changedue to lower amortization resulting from impairment charges to intangible assets 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 2017.2018.

Restructuring and other charges
 
DuringOn August 10, 2018, the fourth quarter of 2015, managementCompany approved a global realignment plan that allowedto reduce the Company to more efficiently meet client needs acrossCompany's cost structure while driving value for its international platform. Through improved integration of global resources, the plan created back officeclients 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 cashstockholders. Consequently, no restructuring charges of $6.7 million, the majority of which were recognized during 2016.

No restructuring activities occurred duringin the ninesix months ended SeptemberJune 30, 2017.

During2018. For the ninesix months ended SeptemberJune 30, 2016, the Company recorded2019, we recognized $7.6 million in restructuring and other charges of $4.4 million.charges.

Income from operations

Income from operations increaseddecreased by $20.8$1.3 million from $10.5$3.6 million during the ninesix months ended SeptemberJune 30, 20162018 to $31.3$2.3 million during the threesix months ended SeptemberJune 30, 2017.2019. As a percentage of revenue, income from operations was 3.7%0.4% and 1.3%0.6% during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. As a percentage of gross profit, income from operations was 15.1%1.8% and 5.4%2.8% during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. This increase is primarily attributable to operating leveragelower selling, general and changes in depreciation and amortization, fair value of contingent consideration, andadministrative expenses, offset by restructuring charges discussed above.charges.

Other expense
 
Other expense increased by $0.9$1.1 million from $3.2$4.4 million for the ninesix months ended SeptemberJune 30, 20162018 to $4.1$5.5 million forduring the ninesix months ended SeptemberJune 30, 2017.2019. 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 remainingin expense was primarily driven by unrealizedan increase in interest expense, offset by 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.gains.

Income tax expense


Income tax expense increaseddecreased by $1.7$0.7 million from $8.0$1.2 million during the ninesix months ended SeptemberJune 30, 20162018 to $9.7$0.5 million during the ninesix months ended SeptemberJune 30, 2017.2019. Our effective tax rate was 35.7%(14.4)% and 109.2%(145.7)% for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, 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, valuation allowances, impacts of the Tax Reform Act, and foreign taxestax 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.

The effectiveevents such as a write-off of a deferred 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 acquisitionsasset 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-basedstock‑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.expiration of unexercised stock options.

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 Net loss carryforwards, so a tax benefit has not been recognized in the financial statements for these losses.
 
Net income (loss)

Net income (loss)loss increased by $18.2$1.6 million, or 2,686.4%80.0%, from a net loss of $0.7$2.0 million during the ninesix months ended SeptemberJune 30, 20162018 to net income of $17.5$3.6 million during the ninesix months ended SeptemberJune 30, 2017.2019. Net income (loss)loss as a percentage of revenue was 2.1%(0.7)% and (0.1)(0.4)% during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. Net income (loss)loss as a percentage of gross profit was 8.4%(2.8)% and (0.3)(1.5)% during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. ThisThe increase in net loss is primarily attributable to changes in depreciationlower selling, general and amortization, change in fair value of contingent consideration, andadministrative expenses, offset by restructuring charges discussed above.and higher interest expense.

Diluted earnings (loss) per share Adjusted EBITDA 
 Nine months ended September 30,
 2017 2016
(in thousands, except per share data)   
Net income (loss)$17,479
 $(676)
Denominator for dilutive earnings per share55,127
 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 from operations with the addition of depreciation and amortization, stock-based compensation expense, change in the fair value of contingent consideration liabilities, restructuring charges, business development realignment costs, and professional fees relatingrelated to ASC 606 implementation, executive search expenses and restatement-related professional fees itemized in the reconciliation table below, is considered a non-GAAP financial measure under SEC regulations. Net income (loss)Income from operations is the most directly comparable

financial measure calculated in accordance with GAAP. We present 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:follows (dollars in thousands):

Three Months Ended September 30,Three Months Ended June 30,
2017 % of Total 2016 % of Total2019
% of Total
2018
% of Total
(dollars in thousands)






North America$20,827
 110.9 % $16,411
 97.0 %$21,151

155.0 %
$18,372

224.5 %
International6,865
 36.6
 7,444
 41.2
EMEA4,292

31.5

805

9.8
LATAM611

4.5

1,244

15.2
Other(1)
(8,917) (47.5) (6,935) (41.0)(12,414)
(91.0)
(12,235)
(149.5)
Adjusted EBITDA$18,775
 100.0 % $16,920
 100.0 %$13,640

100.0 %
$8,186

100.0 %

Nine Months Ended September 30,Six Months Ended June 30,
2017 % of Total 2016 % of Total2019 % of Total 2018 % of Total
(dollars in thousands)       
North America$57,827
 121.3 % $48,209
 111.1 %$36,602
 181.1 % $35,588
 229.0 %
International16,314
 34.2
 17,482
 40.3
EMEA6,819
 33.7
 2,310
 14.9
LATAM876
 4.3
 1,830
 11.8
Other(1)
(26,453) (55.5) (22,284) (51.3)(24,083) (119.1) (24,193) (155.7)
Adjusted EBITDA$47,688
 100.0 % $43,407
 100.0 %$20,214
 100.0 % $15,535
 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 SeptemberJune 30, 20172019 and 2016.2018. Adjusted EBITDA increased by $1.9$5.4 million, or 11.0%66.0%, from $16.9$8.2 million during the three months ended SeptemberJune 30, 20162018 to $18.8$13.6 million during the three months ended SeptemberJune 30, 2017.2019. North America Adjusted EBITDA increased by $4.4$2.8 million, or 26.9%15.2%, from $16.4$18.4 million during the three months ended SeptemberJune 30, 20162018 to $20.8$21.2 million during the three months ended SeptemberJune 30, 20172019 mainly from higher revenue and higher Gross margin. EMEA Adjusted EBITDA increased by $3.5 million, or 437.5%, from $0.8 million during the three months ended June 30, 2018 to $4.3 million during the three months ended June 30, 2019 due to improved gross margins. Internationalcustomer mix and reduced operating expenses as a result of restructuring efforts. LATAM Adjusted EBITDA decreased by $0.6 million, or 7.8%50.0%, from $7.4$1.2 million during the three months ended SeptemberJune 30, 20162018 to $6.9$0.6 million during the three months ended SeptemberJune 30, 20172019 due to lower revenue during the period.revenues and resulting lower Gross profit. Other Adjusted EBITDA decreased by $2.0$0.2 million, or 28.6%1.6%, from a loss of $6.9$12.2 million during the three months ended SeptemberJune 30, 20162018 to a loss of $8.9$12.4 million during the three months ended SeptemberJune 30, 20172019 primarily due to investments in operational infrastructurereduced employee compensation and service line capabilities .incentive expenses.


Comparison of ninesix months ended SeptemberJune 30, 20172019 and 2016.2018. Adjusted EBITDA increased by $4.3$4.7 million, or 9.9%30.3%, from $43.4$15.5 million during the ninesix months ended SeptemberJune 30, 20162018 to $47.7$20.2 million during the ninesix months ended SeptemberJune 30, 2017.2019. North America Adjusted EBITDA increased by $9.6$1.0 million, or 20.0%2.8%, from $48.2$35.6 million during the ninesix months ended SeptemberJune 30, 20162018 to $57.8$36.6 million during the ninesix months ended SeptemberJune 30, 20172019 as a result of lower operating expenses. EMEA Adjusted EBITDA increased by $4.5 million, or 195.7%, from $2.3 million during the six months ended June 30, 2018 to $6.8 million during the six months ended June 30, 2019 due to improved gross margins. Internationalcustomer mix and reduced expenses related to restructuring efforts. LATAM Adjusted EBITDA decreased by $1.2$0.9 million, or 6.7%50.0%, from $17.5$1.8 million during the ninesix months ended SeptemberJune 30, 20162018 to $16.3$0.9 million during the ninesix months ended SeptemberJune 30, 20172019 due to lower revenue and client mix.revenues. 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. remained virtually unchanged period over period.

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

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 20162019 2018 2019 2018
Net income (loss)$7,528
 $4,341
 $17,479
 $(676)
       
Net loss$(1,169) $(299) $(3,631) $(1,983)
Income tax expense3,967
 3,240
 9,694
 8,023
2,541
 603
 456
 1,176
Interest income(31) (26) (77) (63)(104) (54) (202) (115)
Interest expense1,198
 1,191
 3,239
 3,252
2,486
 1,517
 5,232
 3,085
Other, net(427) 114
 962
 (16)
Other income (expense), net(279) 588
 460
 1,433
Depreciation and amortization3,317
 5,066
 9,403
 14,382
3,233
 3,514
 5,849
 7,173
Stock-based compensation expense2,375
 1,740
 5,296
 4,097
1,402
 1,406
 2,141
 2,823
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
 
Stock appreciation rights marked to market46
 
 46
 
Restructuring charges3,698
 
 7,632
 
Professional fees related to ASC 606 implementation300
 
 300
 

 60
 
 1,092
Non-GAAP Adjusted EBITDA$18,775
 $16,920
 $47,688
 $43,407
Executive search fees
 234
 80
 234
Control remediation-related fees
175
 537
 540
 537
Sales and use tax audit1,235
 
 1,235
 
Other professional fees376
 80
 376
 80
Adjusted EBITDA$13,640
 $8,186
 $20,214
 $15,535


Adjusted Diluted Earnings (Loss) Per Share
 
Adjusted diluted earnings (loss) per share, which represents net income (loss),loss, with the addition of the change in the fair value of contingent consideration liabilities, impairmentrestructuring charges, professional fees related to ASC 606 implementation, executive search expenses and other amounts itemized in the reconciliation table below,restatement-related professional fees 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 per share is the most directly comparable financial measure calculated in accordance with GAAP. We present 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. Our adjusted diluted (loss) earnings per share for each of the yearsperiods 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 tax875
 
 875
 
Professional fees related to ASC 606 implementation, net of tax204
 
 204
 
Adjusted net income$8,440
 $5,774
 $19,529
 $14,162
Weighted-average shares outstanding, diluted55,189
 54,772
 55,127
 54,359
Non-GAAP Diluted Earnings Per Share$0.15
 $0.11
 $0.35
 $0.26
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
Net loss$(1,169) $(299) $(3,631) $(1,983)
Restructuring charges, net of tax2,772
 
 5,802
 
Control remediation-related fees130
 403
 402
 403
Executive search fees, net of tax
 176
 60
 176
Professional fees related to ASC 606 implementation, net of tax
 45
 
 819
Sales and use tax audit, net of tax920
 
 920
 
Other professional fees, net of tax280
 60
 280
 60
Adjusted net income (loss)2,933
 385
 3,833
 (525)
Weighted-average shares outstanding, diluted52,038
 52,528
 51,961
 52,738
Non-GAAP diluted earnings (loss) per share$0.06
 $0.01
 $0.07
 $(0.01)

Comparison of three months ended SeptemberJune 30, 20172019 and 2016.2018. Adjusted EPSdiluted earnings (loss) per share increased by $0.05 or 45.7% from $0.11$0.01 during the three months ended SeptemberJune 30, 20162018 to $0.15$0.06 during the three months ended SeptemberJune 30, 2017.2019. This increase is primarily attributable to higher revenues, improved gross margin and the reduction in depreciation expense as discussed above.restructuring.


Comparison of ninesix months ended SeptemberJune 30, 20172019 and 2016.2018. Adjusted EPSdiluted earnings (loss) per share increased by $0.09, or 33.6%,$0.08 from $0.26$(0.01) during the ninesix months ended SeptemberJune 30, 20162018 to $0.35$0.07 during the ninesix months ended SeptemberJune 30, 2017.2019. This increase is primarily attributabledue to improved gross marginlower operating costs and the reduction in depreciation expense as discussed above.restructuring.

Liquidity and Capital Resources
 
At SeptemberJune 30, 2017,2019, we had $27.7$34.0 million of cash and cash equivalents.

Operating Activities. Cash used inprovided 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 inprovided by operating activities for the ninesix months ended SeptemberJune 30, 20172019 was $12.4$1.3 million and consisted of a net incomeloss of $17.5$3.6 million, and $15.7offset by $9.1 million of non-cash items offset by $45.6 million used byless an increase in working capital and other activities.of $4.2 million. The most significant impact on working capital and other activities consisted of an increase in accounts receivable and unbilled revenue of $38.1$10.2 million an increase in inventory of $17.1 million and an increase in prepaid expenses and other assets of $10.4 million partially offset byless an increase in accounts payable of $8.3 million and an increase in accrued expenses and other liabilities of $11.7$5.9 million.

Cash used inprovided by operating activities for the ninesix months ended SeptemberJune 30, 20162018 was $23.6$22.6 million and consisted of a net loss of $0.7$2.0 million, and $30.7offset by $10.7 million of non-cash items offsetand by $53.7$13.9 million usedprovided by working capital and other activities. The most significant impact on working capital and other activities consisted of an increasea decrease in accounts receivable and unbilled revenue of $12.8$21.6 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$9.4 million, and an increaseall of which was partially offset by a decrease in accrued expenses and other liabilitiesaccounts payable of $7.9$18.7 million.


Investing Activities. Cash used in investing activities for the ninesix months ended SeptemberJune 30, 20172019 and 2018 of $10.3$6.9 million and $5.5 million respectively, was entirely attributable to capital expenditures.expenditures, primarily software development.
Cash used in investing activities for the nine months ended September 30, 2016 of $10.5 million was entirely attributable to capital expenditures.
 
Financing Activities. Cash provided by financing activities for the ninesix months ended SeptemberJune 30, 20172019 of $18.5$13.0 million was primarily attributable to net borrowings under the revolving credit facility of $42.3$14.9 million offset by paymentsthe payment of contingent considerationdebt issuance costs of $15.3$0.9 million and repayment of secured borrowing arrangements of $0.8 million.
Cash used in financing activities for the six months ended June 30, 2018 of $18.0 million was primarily attributable to repurchases of common stock of $10.0 million.
Cash provided by financing activities for the nine months ended September 30, 2016 of $24.2$25.7 million was primarily attributable toless net borrowings under the revolving credit facility of $34.7 million, offset by payments of contingent consideration of $11.0 million and net short-term secured repayments of $0.8$8.6 million.

Share Repurchase Program
 
On February 12, 2015, the Company announced that its Board of Directors approved aThe 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 endingdescribed in Note 13 expired on 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 ninesix months ended SeptemberJune 30, 2016,2019, the Company did not repurchase any shares of its common stock under this program. SharesDuring the six months ended June 30, 2018, the Company repurchased under this program are recorded at acquisition cost, including related expenses.


An additional 27,862 and 102,6292.7 million shares of its common stock was repurchased to satisfyfor $25.6 million in the mandatory tax withholding requirements upon vesting of restricted stock for $316,284 and $1.1 millionaggregate at an average cost of $11.35 and $10.63$9.60 per share forunder this program. During the three and nine months ended SeptemberJune 30, 2017, respectively.

2018, the Company repurchased 1.7 million shares of its common stock for $16.9 million in the aggregate at an average cost of 9.75 per share under this program.

Revolving Credit Facilities

WeThe Company entered into a Credit Agreement, dated as of August 2, 2010, subsequently amended most recently as of February 3, 2017,March 15, 2019, among us,the Company, the lenders party thereto and Bank of America, N.A., as Administrative Agent (the “Credit Agreement”). The refinanced its debt, which is further discussed in Note 16. At June 30, 2019 the Credit Agreement includesincluded a revolving commitment amount of $175 million and $160 million in the aggregate with a maturity date ofthrough September 25, 2019 and provides usSeptember 25, 2020, respectively. The Credit Agreement also provided the Company the right to increase the aggregate commitment amount by an additional $50 million. Outstanding borrowings under the revolving credit facility arewere guaranteed by ourthe Company’s material domestic subsidiaries. Oursubsidiaries, as defined in the Credit Agreement. The Company’s obligations under the Credit Agreement and such domestic subsidiaries’ guaranty obligations arewere secured by substantially all of their respective assets. The ranges of applicable rates charged for interest on outstanding loans and letters of credit are 125-250were 50-225 basis point spread for loans based on the base rate and 150-325 basis point spread for letter of credit fees and loans based on the Eurodollar raterate.

The most recent amendment (i) modified the definition of the term “Consolidated EBITDA” as used in the covenant calculations, (ii) increased the maximum leverage ratio to which the Company is subject for the trailing twelve month periods ended December 31, 2018 and 25-150 basis point spreadMarch 31, 2019 and (iii) decreased the minimum interest coverage ratio to which the Company is subject for loans based on the base rate.trailing twelve month periods ended December 31, 2018 and March 31, 2019. All ratios for fiscal periods thereafter remained unchanged.

The terms of the Credit Agreement includeincluded various covenants, including requirementscovenants that require the Company to maintain a maximum leverage ratio and a minimum interest coverage ratio. The most recent amendment to the Credit Agreement requires us to maintain amodified the maximum leverage ratio of no more thanfrom 3.50 to 1.00 to 4.50 to 1.00 for the trailing twelve months ended December 31, 2018, and from 3.00 to 1.0. We are1.00 to 4.75 to 1.00 for the trailing twelve months ended March 31, 2019. The maximum leverage ratio is 3.00 to 1.00 for the trailing twelve months ended June 30, 2019 and each period thereafter. The most recent amendment to the Credit Agreement also required to maintain anmodified the minimum interest coverage ratio from 5.00 to 1.00 to 4.00 to 1.00 for the trailing twelve months ended December 31, 2018 and from 5.00 to 1.00 to 3.50 to 1.00 for the trailing twelve months ended March 31, 2019. The minimum interest coverage ratio is 5.00 to 1.00 for the trailing twelve months ended June 30, 2019 and each period thereafter. The Company was in violation of no less than 5.0 to 1.0. We were in compliance with allthe debt covenants under the credit agreement as of SeptemberJune 30, 2017.2019; however, the Company successfully completed refinancing of its debt, which is further discussed in Note 15, prior to the financial statement issuance date.

At September 30, 2017, we had $24.0 millionThe revised covenants only affected the fourth quarter of unused availability2018 and the first quarter of 2019. Therefore, the covenant for the second quarter of 2019 remains unchanged and the Company concluded that it has exceeded the maximum leverage ratio and the minimum interest coverage ratio, allowing the lenders to demand repayment of the outstanding debt. Accordingly, the outstanding balance under the Credit Agreement is presented as a current liability as of June 30, 2019 based on the guidance in ASC 470, Debt.



Additionally, under ASC 205, Presentation of Financial Statements, the Company is required to consider and $0.8has evaluated whether there is substantial doubt that it has the ability to meet its obligations within one year from the financial statement issuance date. This assessment also includes the Company’s consideration of any management plans to alleviate such doubts. As of December 31, 2018, the inability of the Company to meet its covenant obligations beyond the covenant waiver periods cast substantial doubt on the Company’s ability to meet its obligations within one year from the financial statement issuance date. However, following the successful refinancing of its debt described in Note 16, management completed an updated evaluation of the Company’s ability to continue as a going concern and has concluded the factors that raised substantial doubts about the Company’s ability to continue as a going concern have been successfully remediated as of the financial statement issuance date.

At June 30, 2019, the Company had $1.5 million of letters of credit which have not been drawn upon. The amount outstanding under the Company's' revolving credit facility was $157.7 million and $142.7 million as of June 30, 2019 and December 31, 2018, respectively. The Company had unamortized deferred financing fees associated with the Credit Agreement of $1.4 million and $0.7 million as of June 30, 2019 and December 31, 2018, respectively.

On February 22, 2016, wethe Company entered into a Revolving Credit Facility (the “Facility”) with Bank of America N.A. to support our ongoing working capital needs.needs of the Company's operations in China. The Facility includes a revolving commitment amount of $5$5.0 million whereby maturity dates vary based on each individual drawdown. Outstanding borrowings under the Facility are guaranteed by ourthe Company’s assets. Borrowings and repayments are made in renminbi, the official Chinese currency. The applicable interest rate is 110% of the People’s Bank of China’s base rate. The terms of the Facility include limitations on use of funds for working capital purposes as well as customary representations and warranties made us.by the Company. At SeptemberJune 30, 2017,2019, the Company had $3.9$4.5 million of unused availability under the Facility.

In addition, we will continue to utilize cash, in part, to fund acquisitions and expand our operations. We believe that our available cash and cash equivalents and the availability under our revolving credit facility will be sufficient to meet our working capital and operating expenditure requirements for the foreseeable future. Thereafter, we may find it necessary to obtain additional equity or debt financing.
We earn a significant amount 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 million and $18.1 million of foreign cash and cash equivalents as of September 30, 2017 and December 31, 2016, respectively, which are generally denominated in the local currency where the funds are held.
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, thereThere 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, 2016,2018, under the caption “Contractual Obligations.”
 
Critical Accounting Policies and Estimates

Stock-Based CompensationIn February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). This pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet. The Company adopted ASU 2016-02, along with related clarifications and improvements, as of January 1, 2019, using the modified retrospective approach, which allows the Company to apply Accounting Standards Codification (“ASC”) 840, Leases, in the comparative periods presented in the year of adoption. The cumulative effect of adoption was recorded as an adjustment to the opening balance of retained earnings in the period of adoption.
 
On June 1, 2017,The Company elected to use the Compensation Committee approved, pursuant to the 2006 Stock Incentive Plan, awardspackage 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 bypractical expedients, which permitted the Company between April 1, 2017to not reassess: (i) whether a contract is or contains a lease, (ii) lease classification, 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(iii) initial direct costs resulting from the grant datelease. The Company has not elected the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets. The Company elected to apply the vesting dateshort-term lease exception, which allows the Company to keep leases with terms of 12 months or less off the balance sheet. The Company also elected to combine lease and non-lease components as a single component for the numberCompany's entire population 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.lease assets.

As of SeptemberJune 30, 2017,2019, except for the new critical accounting policy for PSUsLeases 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, 2016.2018.





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, 2016.2018.
 
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 atIn 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 the availability of paper, and paper prices represent a substantial portion of the cost of our products. The supply and price of paper depend 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.
 
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 waswere 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 SeptemberJune 30, 20172019 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, MexicanColombian peso, ColombianBrazilian real, Mexican peso and Chilean peso, which exposes us to foreign currency risk. For the ninesix months ended SeptemberJune 30, 2017,2019, we derived approximately 31.8%29.5% 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 and chief financial officer, we evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2019. 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 30, 2017, our chief executive officer and chief financial officer concluded that, as of such date, the Company'sdue to material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective atas of June 30, 2019.

Material Weaknesses and Related Remediation Efforts

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the reasonable assurance level.annual or interim financial statements will not be prevented or detected on a timely basis.

As previously reported in our Annual Report on Form 10-K (the "Form 10-K"), as of December 31, 2018, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2018, because of the material weaknesses described therein related to revenue recognition and commissions expense, which were initially reported on Item 9A of our Form 10-K for the year ended December 31, 2017 and have not yet been fully remediated.

Material Weaknesses

With respect to revenue recognition material weakness, the Company’s controls were ineffective to: (1) ensure that a contract was appropriately approved and identified prior to revenue being recognized; (2) retain and review customer order documentation, including support for assessing whether the transaction price was determinable; (3) ensure that revenue was recognized subsequent to the transfer of control of the goods or services; and (4) estimate the impact of future credit memos. These deficiencies also contributed to control deficiencies identified in related accounts receivable, unbilled accounts receivable, accrued accounts payable, inventory and cost of sales. With respect to commissions expenses material weakness, the Company’s controls were not designed and operating effectively to: (1) ensure the completeness and accuracy of underlying data used for computing the commission expenses and (2) sufficiently review and approve arrangements with respect to commission expenses.

Remediation Efforts

Our management has worked, and continues to work, to strengthen our internal control over financial reporting.  We are committed to ensuring that such controls are operating effectively.

We have continued executing a plan to remediate the material weaknesses noted above.  Specifically, to remediate deficiencies in revenue recognition controls, the Company is developing and implementing controls to: (i) compile and process shipping data and delivery terms in customer contracts and improve related operational processes; (ii) improve review processes and related documentation supporting customer orders and pricing; (iii) improve process for estimating future credit memos; and (iv) implement an improved system, process, and related controls to categorize and track customer contracts based on delivery terms. As of the filing date, we have made progress toward remediating the material weaknesses by:

implementing new policies over the operational processes supporting revenue recognition,
adding resources to train the process owners and to monitor compliance with the Company’s policies,

developing enhancements to the Company’s systems, including approval workflows, validation of shipping data, and preventative controls over data inputs, and
implementing a new system for tracking customer contract terms and improved contract review process.

To remediate deficiencies in the controls over the commissions process, the Company has developed and is in the process of implementing controls to ensure that systems used for commissions are updated with accurate data to reflect approved compensation arrangements. We have made progress toward remediating the material weakness by:

purchasing and implementing a third-party system to manage the administration of commissions,
reviewing sales rep agreements and obtaining confirmation from sales reps of their key terms,
improving the review process over commissions expense and the related balance sheet accounts, and
evaluating the accuracy of the reports and underlying data that support the commissions process.

We will continue to actively identify, develop, and implement additional measures to materially improve and strengthen our internal control over financial reporting. The material weaknesses discussed above cannot be considered remediated until the controls have operated for a sufficient period of time and management has concluded, through testing, that such controls are operating effectively. We expect to complete this remediation during 2019.

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 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 SeptemberJune 30, 20172019 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 11 to the Condensed Consolidated Financial Statements in this Form 10-Q.
 
Item 1A.         Risk Factors
 
There have been no material changes in the risk factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
 

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 theauthorized an increase in its authorized share repurchase program of up to an additional $30.0 million of itsour 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, theThe Company repurchased 1,028,654 sharesdid not make any repurchases of its common stock for $10.0 million induring 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.three and six months ended June 30, 2019.

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

(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 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.


Item 6.            Exhibits
 
Exhibit No   Description of Exhibit
Form of 2019 Performance Share Unit Award Agreement under the InnerWorkings, Inc. 2006 Stock Incentive Plan, as amended.*


Form of 2019 Restricted Stock Unit Award Agreement under the InnerWorkings, Inc. 2006 Stock Incentive Plan, as amended.*

Form of 2019 Stock Appreciation Right Agreement under the InnerWorkings, Inc. 2006 Stock Incentive Plan, as amended.*

 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
 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.
   
 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** XBRL Instance Document
   
101.SCH** XBRL Taxonomy Extension Schema Document
   
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
 
* Management contract or compensatory plan or arrangement of the Company.
**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, 2017August 9, 2019By: /s/    Eric D. BelcherRichard S. Stoddart
  Eric D. BelcherRichard S. Stoddart
  Chief Executive Officer
   
Date: November 7, 2017August 9, 2019By:/s/    Jeffrey P. PritchettDonald W. Pearson
  Jeffrey P. PritchettDonald W. Pearson
  Chief Financial Officer