UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q

________________________________________



ý☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	~~For the quarterly period ended June 30, 2019~~

For the quarterly period ended June 30, 2020



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

Commission File Number 000-52170

________________________________________

INNERWORKINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

________________________________________



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

203 North LaSalle Street, Suite 1800

Chicago, Illinois60601

Phone: (312)642-3700

(Address, zip code and telephone number, including area code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:




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

~~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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes: ý☒ No: ¨☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or ~~non-accelerated filer.~~an emerging growth company. See ~~definition~~the definitions of ~~“accelerated~~“large accelerated filer," "accelerated filer,” "smaller reporting company," and ~~large accelerated filer”~~"emerging growth company" in Rule 12b-2 of the Exchange Act. Check one:



Large accelerated ~~filer:~~ ¨ filer	☐	Accelerated ~~filer:~~ xfiler	☒
Non-accelerated ~~filer:~~ ¨ filer	☐	Smaller reporting ~~company:~~ ¨company	☐
Emerging growth ~~company:~~ ¨ 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 August ~~8, 2019,~~4, 2020, the Registrant had ~~51,941,478~~52,842,618 shares of Common Stock, par value $0.0001 per share, outstanding.

INNERWORKINGS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

TABLE OF CONTENTS



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements ~~(Unaudited)~~	4

	Condensed Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss for the three and six months ended June 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	4

	Condensed Consolidated Balance Sheets as of June 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	5

	Condensed Consolidated ~~Statement~~Statements of Stockholders' Equity for the three and six months ended June 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	8

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2526

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	3736

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3837

Item 1A.	Risk Factors	3837

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3942

Item 6.	Exhibits	4043

~~SIGNATURES~~ Signatures		4144

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

InnerWorkings, Inc. and subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(In thousands, except per share data)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue	$	203,311		$	283,861		$	464,671		$	551,072
Cost of goods sold	154,890			215,463			352,808			420,664
Gross profit	48,421			68,398			111,863			130,408
Operating expenses:
Selling, general and administrative expenses	45,117			57,404			96,756			113,235
Depreciation and amortization	3,310			3,233			6,437			5,849
Goodwill impairment	—			—			7,191			—
Intangible and other asset impairments	609			—			883			—
Restructuring charges	3,644			3,698			7,281			7,632
(Loss) income from operations	(4,259		)	4,063			(6,685		)	3,692
Other income (expense):
Interest income	53			104			109			202
Interest expense	(3,201		)	(2,486		)	(7,587		)	(5,232		)
(Loss) gain from change in fair value of warrant	(120		)	—			5,085			—
Foreign exchange gain (loss)	862			237			(1,929		)	(239		)
Other income	221			42			1,117			78
Total other expense	(2,185		)	(2,103		)	(3,205		)	(5,191		)
(Loss) income before income taxes	(6,444		)	1,960			(9,890		)	(1,499		)
Income tax expense	1,468			2,468			862			1,053
Net loss	$	(7,912	)	$	(508	)	$	(10,752	)	$	(2,552	)

Basic loss per share	$	(0.15	)	$	(0.01	)	$	(0.20	)	$	(0.05	)
Diluted loss per share	$	(0.15	)	$	(0.01	)	$	(0.30	)	$	(0.05	)

Comprehensive loss	$	(7,715	)	$	(246	)	$	(15,651	)	$	(1,578	)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands, except per share data)
Revenue $ 284,053
$ 281,967
$ 551,291
$ 556,506
Cost of goods sold 214,986
217,096
421,029
425,568
Gross profit 69,067
64,871
130,262
130,938
Operating expenses:

Selling, general and administrative expenses 58,661
59,002
114,466
120,169
Depreciation and amortization 3,233
3,514
5,849
7,173
Restructuring charges 3,698
—
7,632
—
Income from operations 3,475
2,355
2,315
3,596
Other income (expense):

Interest income 104
54
202
115
Interest expense (2,486 ) (1,517 ) (5,232 ) (3,085 )
Other income (expense), net 279
(588 ) (460 ) (1,433 )
Total other expense (2,103 ) (2,051 ) (5,490 ) (4,403 )
Income (loss) before income taxes 1,372
304
(3,175 ) (807 )
Income tax expense 2,541
603
456
1,176
Net loss $ (1,169 ) $ (299 ) $ (3,631 ) $ (1,983 )

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 loss $ (916 ) $ (5,906 ) $ (2,631 ) $ (4,226 )

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

InnerWorkings, Inc. and subsidiaries

Condensed Consolidated Balance Sheets

~~(Unaudited)~~(In thousands, except per share data)

(Unaudited)


(in thousands, except per share data)	June 30, 2019			December 31, 2018
							June 30, 2020			December 31, 2019
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	33,999		$	26,770		$	35,311		$	42,711
Accounts receivable, net of allowance for doubtful accounts of $3,697 and $4,880, respectively	188,687			193,253
Accounts receivable, net of allowance for doubtful accounts of $3,470 and $3,830, respectively							158,636			202,406
Unbilled revenue	60,911			46,474			23,900			48,396
Other receivables							9,858			28,194
Inventories	51,553			56,001			37,303			34,977
Prepaid expenses	15,132			16,982			13,021			10,680
Other current assets	28,707			34,106			6,981			7,301
Total current assets	378,989			373,586			285,010			374,665
Property and equipment, net	36,466			82,933			36,357			37,224
Intangibles and other assets:
Goodwill	152,203			152,158			144,967			152,210
Intangible assets, net	8,774			9,828			6,693			7,714
Right of use assets, net	50,460			—			46,805			51,159
Deferred income taxes	1,091			1,195			2,183			2,182
Other non-current assets	3,613			2,976			3,018			4,129
Total intangibles and other assets	216,141			166,157			203,666			217,394
Total assets	$	631,596		$	622,676		$	525,033		$	629,283
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	140,492		$	158,449		$	96,866		$	142,136
Accrued expenses	37,446			35,474			43,350			50,975
Deferred revenue	21,532			17,614			10,572			9,568
Revolving credit facility - current	157,675			142,736			76			593
Term loan - current							10,000			7,500
Other current liabilities	34,877			26,231			25,969			35,665
Total current liabilities	392,022			380,504			186,833			246,437
Lease liabilities	46,615			—			42,487			46,075
Revolving credit facility - non-current							40,476			60,086
Term loan - non-current							79,800			89,242
Deferred income taxes	8,295			8,178			8,053			8,053
Other non-current liabilities	1,995			50,903
Other long-term liabilities							1,762			1,138
Total liabilities	448,927			439,585			359,411			451,031
Commitments and contingencies
Stockholders' equity:
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, respectively	6			6
Common stock, par value $0.0001 per share, 200,000 shares authorized, 64,902 and 64,820 shares issued, and 52,688 and 52,133 shares outstanding, respectively							6			6
Additional paid-in capital	242,010			239,960			248,215			245,311
Treasury stock at cost, 12,688 and 12,688 shares, respectively	(81,471		)	(81,471		)
Treasury stock at cost, 12,215 and 12,688 shares, respectively							(78,418		)	(81,471		)
Accumulated other comprehensive loss	(23,309		)	(24,309		)	(27,348		)	(22,449		)
Retained earnings	45,433			48,905			23,167			36,855
Total stockholders' equity	182,669			183,091			165,622			178,252
Total liabilities and stockholders' equity	$	631,596		$	622,676		$	525,033		$	629,283

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

InnerWorkings, Inc. and subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(In thousands)

(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, 2019 64,534
$ 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 shares 95

(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, 2019 64,629
$ 6
12,688
$ (81,471 ) $ 242,010
$ (23,309 ) $ 45,433
$ 182,669



	Common Stock			Additional Paid-in-Capital			Treasury Stock					Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares	Amount		Additional Paid-in-Capital			Shares		Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance as of April 1, 2020	64,831	$	6	$	246,769		12,688		$	(81,471	)	$	(27,545	)	$	34,132		$	171,891
Net loss															(7,912		)	(7,912		)
Total other comprehensive income - foreign currency translation adjustments												197						197
Issuance of common stock upon exercise of stock awards, net of withheld shares	71			(108		)												(108		)
Stock-based compensation expense				1,554														1,554
Reissuance of treasury shares							(473	)	3,053						(3,053		)	—
Balance as of June 30, 2020	64,902	$	6	$	248,215		12,215		$	(78,418	)	$	(27,348	)	$	23,167		$	165,622

Common Stock Treasury Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Retained Earnings Total
(in thousands) Shares Amount Shares Amount
Balance as of December 31, 2018 64,495
$ 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 shares 134

(91 ) (91 )
Stock-based compensation expense 2,141
2,141
Cumulative effect of change related to adoption of ASC 842 159
159
Balance as of June 30, 2019 64,629
$ 6
12,688
$ (81,471 ) $ 242,010
$ (23,309 ) $ 45,433
$ 182,669



	Common Stock			Additional Paid-in-Capital			Treasury Stock					Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares	Amount		Additional Paid-in-Capital			Shares		Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance as of December 31, 2019	64,820	$	6	$	245,311		12,688		$	(81,471	)	$	(22,449	)	$	36,855		$	178,252
Net loss															(10,752		)	(10,752		)
Total other comprehensive loss - foreign currency translation adjustments												(4,899		)				(4,899		)
Issuance of common stock upon exercise of stock awards, net of withheld shares	82			(130		)												(130		)
Stock-based compensation expense				3,034														3,034
Reissuance of treasury shares							(473	)	3,053						(3,053		)	—
Cumulative effect of change related to adoption of ASC 326															117			117
Balance as of June 30, 2020	64,902	$	6	$	248,215		12,215		$	(78,418	)	$	(27,348	)	$	23,167		$	165,622

InnerWorkings, Inc. and subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(In thousands)

(Unaudited)



	Common Stock			Additional Paid-in-Capital			Treasury Stock				Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares	Amount		Additional Paid-in-Capital			Shares	Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance as of April 1, 2019	64,534	$	6	$	240,734		12,688	$	(81,471	)	$	(23,599	)	$	44,886		$	180,556
Net loss														(508		)	(508		)
Total other comprehensive income - foreign currency translation adjustments											262						262
Issuance of common stock upon exercise of stock awards, net of withheld shares	95			(126		)											(126		)
Stock-based compensation expense				1,402													1,402
Balance as of June 30, 2019	64,629	$	6	$	242,010		12,688	$	(81,471	)	$	(23,337	)	$	44,378		$	181,586



	Common Stock			Additional Paid-in-Capital			Treasury Stock				Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares	Amount		Additional Paid-in-Capital			Shares	Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at December 31, 2018	64,495	$	6	$	239,960		12,688	$	(81,471	)	$	(24,311	)	$	46,771		$	180,955
Net loss														(2,552		)	(2,552		)
Total other comprehensive income - foreign currency translation adjustments											974						974
Issuance of common stock upon exercise of stock awards, net of withheld shares	134			(91		)											(91		)
Stock-based compensation expense				2,141													2,141
Cumulative effect of change related to adoption of ASC 842														159			159
Balance as of June 30, 2019	64,629	$	6	$	242,010		12,688	$	(81,471	)	$	(23,337	)	$	44,378		$	181,586

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

InnerWorkings, Inc. and subsidiaries

Condensed Consolidated Statements of ~~Stockholders' Equity - (continued)~~Cash Flows

(In thousands)

(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, 2018 64,103
$ 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 shares 269

(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, 2018 64,372
$ 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, 2017 64,075
$ 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 shares 297

(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, 2018 64,372
$ 6
12,688
$ (81,471 ) $ 237,634
$ (21,472 ) $ 123,094
$ 257,791



	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities
Net loss	$	(10,752	)	$	(2,552	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	6,437			5,849
Stock-based compensation expense	2,521			2,141
Bad debt provision	426			689
Contract implementation cost amortization	135			213
Goodwill impairment	7,191			—
Long-lived asset impairment	883			—
Change in fair value of warrant	(5,085		)	—
Change in fair value of embedded derivatives	(519		)	—
Unrealized foreign exchange loss	1,184			—
Other operating activities, net	1,085			224
Change in assets and liabilities:
Accounts receivable and unbilled revenue	61,059			(10,099		)
Inventories	(3,134		)	4,582
Prepaid expenses and other assets	17,147			(4,163		)
Accounts payable	(41,351		)	(18,146		)
Accrued expenses and other liabilities	(19,190		)	22,551
Net cash provided by operating activities	18,037			1,289

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

Cash flows from financing activities
Net borrowings from old revolving credit facility	—			14,908
Net repayments on new revolving credit facility	(19,830		)	—
Net short-term secured borrowings	—			(833		)
Payments on term loan	(2,500		)	—
Proceeds from exercise of stock options	—			63
Payment of debt issuance costs	—			(935		)
Other financing activities, net	(130		)	(156		)
Net cash (used in) provided by financing activities	(22,460		)	13,047

Effect of exchange rate changes on cash and cash equivalents	2,150			(226		)
(Decrease) increase in cash and cash equivalents	(7,400		)	7,229
Cash and cash equivalents, beginning of period	42,711			26,770
Cash and cash equivalents, end of period	$	35,311		$	33,999

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

~~InnerWorkings, Inc. and subsidiaries~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

Six Months Ended June 30,
2019 2018
(in thousands)
Cash flows from operating activities

Net loss $ (3,631 )
$ (1,983 )
Adjustments to reconcile net loss to net cash from operating activities:

Depreciation and amortization 5,849

7,173
Stock-based compensation expense 2,141

2,823
Bad debt provision 689

630
Implementation cost amortization 213

263
Other operating activities 224

(154 )
Change in assets:

Accounts receivable and unbilled revenue (10,225 )
21,643
Inventories 4,488

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

Accounts payable (17,670 )
(18,735 )
Accrued expenses and other liabilities 23,529

1,643
Net cash (used in) provided by operating activities 1,289

22,640

Cash flows from investing activities

Purchases of property and equipment (6,881 ) (5,490 )
Net cash used in investing activities (6,881 ) (5,490 )

Cash flows from financing activities

Net borrowings from revolving credit facility 14,908
8,629
Net short-term secured repayments (833 ) (578 )
Repurchases of common stock —
(25,689 )
Proceeds from exercise of stock options 63
284
Payment of debt issuance costs (935 ) —
Other financing activities (156 ) (695 )
Net cash provided by (used in) financing activities 13,047
(18,049 )

Effect of exchange rate changes on cash and cash equivalents (226 ) (1,397 )
Increase (Decrease) in cash and cash equivalents 7,229
(2,296 )
Cash and cash equivalents, beginning of period 26,770
30,562
Cash and cash equivalents, end of period $ 33,999
$ 28,266

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

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Three and Six Months Ended June 30, 2019~~

1. ~~Summary~~Basis of ~~Significant Accounting Policies~~Presentation

Basis of Presentation of Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of InnerWorkings, Inc. and subsidiaries (the “Company”) included herein have been prepared to conform to the rules and regulations of the Securities and Exchange Commission ~~(“SEC”~~(the “SEC”) and generally accepted accounting principles ~~generally accepted~~ in the United States (“GAAP”) for interim financial information. ~~Certain information and footnote~~Footnote disclosures ~~normally~~that would substantially duplicate the disclosures included in the December 31, 2019 audited financial statements ~~prepared in accordance with GAAP~~ have been ~~condensed or~~ omitted from these interim unaudited financial statements pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of the accompanying unaudited financial statements have been included, and all adjustments are of a normal and recurring nature. The operating results for the three and six month ~~periods~~period ended June 30, ~~2019~~2020 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2019.~~2020. These condensed consolidated interim financial statements and notes should be read in conjunction with the Company’s ~~Consolidated Financial Statements~~condensed consolidated financial statements and ~~Notes~~notes thereto as of and for the year ended December 31, ~~2018~~2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March ~~19, 2019.~~17, 2020.

~~Description~~Liquidity and Management’s Plans

Additionally, under ASC 205, Presentation of Financial Statements, 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~~required to consider and has evaluated whether there is substantial doubt that it has the ~~world's most marketing intensive companies, including those in~~ability to meet its obligations within one year from 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 by the chief operating decision maker for purposes of resource allocation and assessing 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 aboutfinancial statement issuance date. This assessment also includes the Company’s ~~reportable segments.~~consideration of any management plans to alleviate such doubts.

~~Preparation of Financial Statements~~As further described in Note 11, Revolving Credit Facility, and ~~Use of Estimates~~

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

We have discussed the terms for a modification with our lenders, and ~~expenses during~~we believe we will receive such modification before any covenants are violated. Notwithstanding our belief that we will be successful in obtaining a modification of terms under our credit agreements, we also believe that the ~~reporting periods. On an ongoing basis,~~acquisition of 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 management believes are reasonable under the ~~circumstances. These estimates form~~Agreement and Plan of Merger with HH Global Group Limited, described in Note 15, Subsequent Events, is probable of being completed and alleviates doubts about our ability to meet our obligations over the ~~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.~~next twelve months.

~~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 where the functional currency differs from the reporting currency, these amounts 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.

~~InnerWorkings, Inc. and subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Three and Six Months Ended June 30, 2019~~

~~Argentinian~~ Highly Inflationary Accounting

~~In the second quarter of~~During 2018, the Argentinian economy was classified as highly inflationary under GAAP due to multiple years of increasing inflation, resulting in the ~~devaluation~~remeasurement 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 itsour Argentinian operations into U.S. dollars. AsThe application of ~~June 30, 2019,~~highly inflationary accounting did not have a material impact on 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~~Company’s condensed consolidated financial statements for the three and six months ended June 30, ~~2019,~~2020 and 2019.

Accounts Receivable and Other Financial Assets

Accounts receivable are uncollateralized customer obligations due under normal trade terms. Payment terms with customers are generally 30 to 90 days from the 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~~

Revenue is measured based on consideration specified in a contract with a customer and the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer which may be at a point in time or over time. Unbilled revenue represents shipments or deliveries that have been made to customers for which the related accountinvoice date. Accounts 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~~stated in the condensed consolidated financial statements ~~of operations.~~

~~In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606,~~ ~~Revenue from Contracts with Customers~~,at the Company generally reports revenue on a gross basis because the Company typically controls the goods or services before transferring to the customer. Under these arrangements, the Company is primarily responsible for the fulfillment, including the acceptability, of the marketing materials and other products or services. In addition, the Company has reasonable discretion in establishing the price, and in some transactions, the Company also has inventory risk and is involved in the determination of the nature or characteristics of the marketing materials and products. In some arrangements, the Company is not primarily responsible for fulfilling the goods or services. In arrangements of this nature, the Company does not control the goods or services before they are transferredamount billed to the customer, ~~and such revenue is reported on a net basis.~~

Some service revenue, including stand-alone creative and other services, may be earned over time; however, the difference from recognizing that revenue over time compared to a point in time (i.e., when the service is completed and accepted by the customer)less an estimate for potential credit losses. Interest is not ~~material. Service revenue has not been material to the Company's overall revenue to date.~~generally accrued on outstanding balances.

The Company records ~~taxes collected from customers and remitted to governmental authorities~~an allowance for credit losses at the time that accounts receivable are initially recorded based on ~~a net basis.~~

~~Recent Accounting Pronouncements~~

~~Recently Adopted Accounting Standards~~

~~In February 2016,~~consideration of the ~~FASB issued ASU No. 2016-02,~~ ~~Leases~~ ~~(Topic 842). This pronouncement requires lessees to recognize a liability for lease obligations, which represents~~current economic environment, expectation of future economic conditions, the ~~discounted obligation to make future lease payments,~~Company’s historical collection experience and a ~~corresponding right-of-use~~loss-rate approach whereby the allowance is calculated using an estimated historical loss rate formulated by the age of the financial asset onand multiplying it by the asset’s amortized cost at the balance ~~sheet.~~sheet date. The Company ~~adopted ASU 2016-02, along with related clarifications~~reassesses its allowance at each reporting period. Aged receivables are written off when it becomes evident, based on age or unique customer circumstance, that such amounts will not be collected, and ~~improvements, as of January 1, 2019, using the modified 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 opening balance of retained earnings in the period of adoption.~~all reasonable collection efforts have been exhausted.

The Company elected 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 (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 Company's entire population of lease assets.

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Three~~

The accounts receivable allowance expense is recorded within selling, general, and ~~Six Months Ended June 30, 2019~~

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~~administrative expenses on the Company's ~~liquidity or debt-covenant compliance~~Condensed Consolidated Statement of Comprehensive Loss.

Additionally, the Company records an allowance for credit losses on other forms of financial assets, including unbilled revenue, other receivables, and other non-current assets. These forms of financial assets require a reserve under ASC 326, Financial Instruments - Credit Losses, as the financial assets are measured at amortized cost and represent receivables that result from revenue transactions under the ~~Company's current agreements.~~

Inscope of ASC 606, Revenue from Contracts with Customers, and other off-balance-sheet credit exposures, such as third-party supplier loan commitments. The Company records an allowance at the ~~first quarter~~time the financial assets are initially recorded based on consideration of ~~2019,~~qualitative factors specific to 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~~financial asset, including, but not limited to, retained earnings for stranded tax effects resulting from tax reform. This update is effective for fiscal years beginning after December 15, 2018, including interim periods therein, and early adoption is permitted. An election was not made to reclassify the income tax effectscredit-worthiness of the ~~Tax Cuts~~customer or supplier, in addition to the economic and ~~Jobs Act (“Tax Reform Act”) from accumulated~~historical collection factors previously noted. The allowances for credit losses for unbilled revenue, other ~~comprehensive income~~receivables, and other non-current assets are immaterial to ~~retained earnings.~~the condensed consolidated financial statements as of June 30, 2020. The ~~adoption of this ASU did not have a material impact~~other financial asset allowance expenses are recorded within selling, general, and administrative expenses on the Company's ~~consolidated~~Condensed Consolidated Statement of Comprehensive Loss.

The Company believes its allowances are appropriately stated considering the quality of its financial ~~statements.~~asset portfolio as of June 30, 2020. While credit losses have historically been within expectations and the provisions established, the Company cannot guarantee that its credit loss experience will continue to be consistent with historical experience.

Treasury Shares

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

Recent Accounting Pronouncements

Recently ~~Issued~~Adopted Accounting ~~Pronouncements Not Yet Adopted~~Standards

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

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The effective date is the first quarter of fiscal year ~~2021,~~2020, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year ~~2021~~2020 permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company adopted this guidance in the first quarter of 2020 with no material impact on its condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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

2. Revenue Recognition

Nature of Goods and Services

The Company primarily generates revenue from the procurement of marketing materials for customers. Service revenue including creative, design, installation, warehousing and other services has not been material to the Company’s overall revenue to date.

Products and services may be sold separately or in bundled packages. For bundled packages, the Company accounts for individual products and services separately if they are distinct - that is, if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

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

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

~~InnerWorkings, Inc. and subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Three and Six Months Ended June 30, 2019~~

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

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

Costs to Fulfill Customer Contracts and Contract Liabilities

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

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

The following table is a summary of the Company's costs to fulfill and contract liabilities ~~as of June 30, 2019 and December 31, 2018~~ (in thousands):



	June 30, 2020		December 31, 2019
Costs to fulfill	$	567	$	1,238
Contract liabilities	10,572		9,568
Cash received	9,845		36,662
Revenue recognized	8,841		44,708

June 30, 2019 December 31, 2018

Costs to fulfill 1,258
1,152
Contract liabilities 21,532
17,614
Cash received 5,082
11,387
Revenue recognized 1,100
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.

No incremental costs to obtain a contract incurred by the Company during the three and six months ended June 30, 2020 and 2019 were required to be capitalized.

Transaction Price Allocated to Remaining Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, ~~2019.~~2020. The Company does not have material future performance obligations that extend beyond one year. Accordingly, the Company has applied the optional exemption for contracts that have an original expected duration of one year or less. The nature of the remaining performance obligations as well as the nature of the variability and how it will be resolved is described above.

3. ~~Leases~~Allowance for Expected Credit Losses

The ~~Company leases office space, warehouses, automobiles, and equipment. The Company determines whether~~following is a ~~contract is or contains a lease at the inception~~rollforward of the ~~contract. A contract will be deemed~~allowance for expected credit losses related to ~~be or contain a lease if~~ the ~~contract conveys the right to control and direct the use~~Company's trade receivables as 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

June 30, 2020 (in thousands):



Balance as of December 31, 2019	$	3,830
Adjustment for adoption of ASU 2016-13	(431		)
Balance as of January 1, 2020	3,399
Current provision for expected credit losses⁽¹⁾	71
Recoveries and write-offs	—
Balance as of June 30, 2020	$	3,470

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

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 noncancelable 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 operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates incremental secured borrowing rates corresponding to the maturities of the leases. 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 material 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 commencement of the lease, such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities; instead, these are expensed as incurred and recorded as variable lease expense.

~~Supplemental balance sheet information related to 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

~~InnerWorkings, Inc. and subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Three and Six Months Ended June 30, 2019~~

~~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 discount rates were as follows:~~



	~~June 30, 2019~~
~~Weighted-average remaining lease term (years)~~
~~Operating leases~~	~~7.38~~
~~Financing leases~~	~~3.18~~
~~Weighted-average discount rate~~
~~Operating leases~~	~~6.57~~	%
~~Financing leases~~	~~12.49~~	%

~~Supplemental cash flow information related to leases 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 operating and finance leases as of June 30, 2019 are as follows (in thousands):~~

Operating Finance
Remaining 2019 $ 4,463
$ 53
2020 9,783
106
2021 10,494
106
2022 9,279
51
2023 7,856
11
Thereafter 27,491
—
Total lease payments $ 69,366
$ 327
Less: Interest 16,019
49
Present value of lease liabilities $ 53,347
$ 278

~~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
2020 5,017
2021 4,422
2022 3,245
2023 2,068
Thereafter 1,966
Total lease payments $ 23,101

4. Goodwill

The following is a ~~summary~~rollforward of ~~the~~ goodwill ~~balance~~ for each reportable segment as of June 30, ~~2019~~2020 (in thousands):



	North America			EMEA			LATAM			Total
Goodwill as of December 31, 2019
Goodwill	$	170,642		$	96,225		$	7,109		$	273,976
Accumulated impairment	(18,432		)	(96,225		)	(7,109		)	(121,766		)
	152,210			—			—			152,210

Goodwill impairment	(7,191		)	—			—			(7,191		)
Foreign exchange impact	(52		)	—			—			(52		)

Goodwill as of June 30, 2020
Goodwill	170,590			96,225			7,109			273,924
Accumulated impairment	(25,623		)	(96,225		)	(7,109		)	(128,957		)
	$	144,967		$	—		$	—		$	144,967

North America EMEA LATAM Total
Goodwill as of December 31, 2018 $ 152,158
$ —
$ —
$ 152,158
Foreign exchange impact 45
—
—
45
Goodwill as of June 30, 2019 $ 152,203
$ —
$ —
$ 152,203

~~Goodwill represents~~The Company most recently recognized a partial impairment of its goodwill in the ~~excess~~North America reportable segment as 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, goodwill is not amortized, but instead is tested~~March 31, 2020, as outlined below. The Company further considered indicators for impairment ~~annually, or more frequently if circumstances indicate a possible~~at June 30, 2020 given the significant level of goodwill remaining in the reportable segment as well as the recent impairment ~~may exist. Absent any interim indicators~~test at March 31, 2020.

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

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

The fair value estimates used in the goodwill impairment analysis require significant judgment. The fair value estimates were based on assumptions management believes to be reasonable, but that are inherently uncertain, including estimates of future revenue and operating margins and assumptions about the overall economic climate and the competitive environment for the business.

The Company most 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 North America reporting unit, the only reporting unit with goodwill remaining, primarily relies on management judgments around timing of generating revenue from recent new customer wins as well as timing of benefits expected to be received from the significant restructuring actions currently underway, ~~(see~~see Note ~~6).~~6, Restructuring Activities and Charges to the Consolidated Financial Statements.

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

~~2018~~2020 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 charges, respectively.

As of ~~December~~March 31, ~~2018,~~2020, the Company performed an interim impairment assessment due to a triggering event caused by a sustained decrease in the Company's stock ~~price.~~price and lower outlook due to the deterioration in economic conditions caused by COVID-19. The Company determined ~~an enterprise~~a fair value for its North America reporting unit that considered both the discounted cash flow and guideline public company methods. The Company further compared the fair value of the reporting unit to its carrying

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~~fair 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.~~charge of $7.2 million. No tax benefit was recognized on such charge, and this charge had no impact on the Company's cash flows or compliance with debt covenants.

~~Prior to this 2018 activity, the Company previously recorded gross and accumulated impairment losses of $75.4 million resulting from prior period goodwill impairment tests.~~

5. Other Intangibles and Long-Lived Assets

The following is a summary of the Company’s intangible assets as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):



	June 30, 2020			December 31, 2019			Weighted Average Life in Years
Customer lists	$	73,442		$	73,678		14.4
Non-competition agreements	943			959			4.1
Trade names	2,510			2,510			13.3
Patents	57			57			9.0
	76,952			77,204
Less accumulated amortization and impairment
Customer lists	(67,096		)	(66,382		)
Non-competition agreements	(943		)	(959		)
Trade names	(2,168		)	(2,098		)
Patents	(52		)	(51		)
Total accumulated amortization and impairment	(70,259		)	(69,490		)
Intangible assets, net	$	6,693		$	7,714

June 30,
2019 December 31, 2018
Weighted
Average Life
Customer lists $ 73,708
$ 73,792
14.4
Non-competition agreements 950
950
4.1
Trade names 2,510
2,510
13.3
Patents 57
57
9.0
77,225
77,309

Less accumulated amortization and impairment (68,451 ) (67,481 )
Intangible assets, net $ 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 statements of comprehensive (loss) income. The Company’s intangible assets consist of customer lists, non-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-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 $0.6 million and ~~$1.1~~$0.6 million for the three months ended June 30, ~~2019~~2020 and ~~2018, respectively,~~2019, and $1.1 million and ~~$2.3~~$1.1 million ~~for~~during the six months ended June 30, ~~2019~~2020 and ~~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.

As of June 30, ~~2019,~~2020, estimated amortization expense for the remainder of ~~2019~~2020 and each of the next five years and thereafter is as follows (in thousands):



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

Remainder of 2019 $ 1,064
2020 2,021
2021 1,783
2022 1,408
2023 962
2024 745
Thereafter 791
$ 8,774

~~2018 Intangible and Long-Lived Asset Impairment~~

~~InnerWorkings, Inc. and subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Three and Six Months Ended June 30, 2019~~

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 and Charges

2018 Restructuring Plan

On August 10, 2018, the Company approved a plan (the "2018 Restructuring Plan") to reduce the Company's cost structure while driving value for its clients and stockholders. The ~~plan~~2018 Restructuring Plan was adopted as a result of the Company's determination that its selling, general and administrative costs were disproportionately high in relation to its revenue and gross profit. ~~From~~At the time of adoption, ~~through completion of~~ the plan was expected to be completed by the end of 2019 and the Company ~~expects~~expected to incur pre-tax cash restructuring charges of $20.0 million to $25.0 million and pre-tax non-cash restructuring charges of $0.4 million. 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~~consults with each of the affected ~~countries’~~country’s 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~~

InnerWorkings, Inc. and ~~six months ended June 30, 2019,~~subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

On February 24, 2020, the Company ~~recognized $3.7~~approved an increase in the size of the 2018 Restructuring Plan. From adoption through completion of the plan, the Company expects to incur pre-tax cash restructuring charges of $35.0 million to $45.0 million and ~~$7.6~~pre-tax non-cash restructuring charges of $0.5 million. Cash charges are expected to include $9.0 million ~~respectively, in~~to $12.0 million for employee severance and related benefits, $8.0 million to $10.0 million for consulting fees and lease and contract terminations, and $18.0 million to $23.0 million for compensation realignment and other retention. The Company's increased 2018 restructuring ~~charges.~~plan will cover cost-reduction actions associated with the COVID-19 pandemic.

The following table summarizes the accrued restructuring activities for this plan for the six months ended June 30, ~~2019~~2020 (in thousands):



	Employee Severance and Related Benefits			Lease and Contract Termination Costs			Compensation Realignment and Other Retention			Other			Total
Balance as of December 31, 2019	$	666		$	23		$	3,636		$	258		$	4,583
Charges	1,969			369			4,425			518			7,281
Prepayments⁽¹⁾	—			—			36			—			36
Cash payments	(2,283		)	(402		)	(5,291		)	(494		)	(8,470		)
Non-cash settlements/adjustments⁽²⁾	58			(22		)	—			—			36
Balance as of June 30, 2020	$	410		$	(32	)	$	2,806		$	282		$	3,466

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~~⁽¹⁾For compensation realignment and other retention amounts, expense is recognized over a mandatory future service period, whereby payments occur at certain intervals throughout the ~~six months ended~~mandatory future service period. This line item represents prepayment activity that has occurred through June 30, ~~2019, the~~2020.

⁽²⁾Non-cash settlements and adjustments consist of (1) differences in total lease expense per ASC 842 and cash rental payments for leases that qualify to be recorded to restructuring and (2) foreign currency impacts.

The Company recorded the following restructuring costs ~~within loss from operations and loss before income taxes~~by segment (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
North America	$	2,247	$	1,216	$	4,483	$	1,408
EMEA	1,009		326		1,889		1,405
LATAM	143		39		307		74
Other	245		2,117		602		4,745
Total	$	3,644	$	3,698	$	7,281	$	7,632

North America EMEA LATAM Other Total
Restructuring charges $ 1,408
$ 1,405
$ 74
$ 4,745
$ 7,632

From adoption through June 30, ~~2019,~~2020, the Company recognized ~~$13.7~~$29.2 million in total restructuring charges pursuant to the 2018 Restructuring Plan.

2015 Restructuring Plan

~~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 total pre-tax cash restructuring charges of $6.7 million, the majority of which were recognized during ~~2017.~~2016. These cash charges included approximately $5.6 million for employee severance and related benefits and $1.1 million for lease and contract terminations and other associated costs. The charges were all incurred by the end of ~~2017~~2016 with the final payouts ofoccurring during the ~~charges expected~~three months ended March 31, 2020.

InnerWorkings, Inc. and subsidiaries

Notes to ~~occur in 2019. As required by law, the Company consulted with each of the affected countries’ local Works Councils throughout the plan.~~Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the accrued restructuring activities for this plan for the six months ended June 30, ~~2019~~2020 (in thousands), all of which relate to EMEA:



	Employee Severance and Related Benefits			Lease and Contract Termination Costs		Other		Total
Balance as of December 31, 2019	$	122		$	—	$	—	$	122
Charges	(36		)	—		—		(36		)
Cash payments	(86		)	—		—		(86		)
Balance as of June 30, 2020	$	—		$	—	$	—	$	—

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

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 ~~185.2%~~(22.8)% and ~~198.4%~~125.9% for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company’s reported effective income tax rate was ~~(14.4)~~(8.7)% and ~~(145.7)~~(70.2)% for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company’s effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, valuation allowances, impacts of the Tax Reform Act, and foreign tax rates that are different than the U.S. federal statutory tax rate. In addition, the effective tax rate can be impacted each period by discrete factors and events such as a write-off of a deferred tax asset for stock‑based compensation due to the expiration of unexercised stock ~~options.~~options and prior year provision to return adjustments.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will expire unutilized. At the end of each reporting period, the Company reviews the realizability of its deferred tax assets. There were no material valuation adjustments for the three months ended June 30, ~~2019~~2020 and ~~2018.~~2019. Additionally, the Company continues to incur losses in jurisdictions which have valuation allowances against tax loss carryforwards, so a tax benefit has not been recognized in the financial statements for these losses.

8. Loss Per Share

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

There were no dilutive effects for securities during the three and six months ended June 30, 2019 ~~and 2018~~ as a result of a net loss incurred in ~~each~~the period. ~~The number~~In connection with the closing of ~~antidilutive securities excluded from~~ the ~~computation~~term loan in the third quarter of 2019, the Company issued the Initial Warrant which is classified and recorded as a liability at fair value with subsequent changes in fair value recognized in earnings. Refer to Note 12, Long-Term Debt, for additional information.For diluted earnings per share, changes in fair value related to the Initial Warrant are adjusted out of earnings when the adjustment would not result in an increase to earnings and thus be considered antidilutive. For the three months ended June 30, 2020, the adjustment to exclude the change in fair value would increase earnings, and thus net loss for the period was not adjusted. For the six months ended June 30, 2020, the adjustment to exclude the change in fair value would decrease earnings, and thus net loss for the period was adjusted.

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Three and Six Months Ended June 30, 2019~~

~~amounts was not material.~~

The ~~computations~~computation of basic and diluted loss per share ~~for the three and six months ended June 30, 2019 and 2018 are~~is as follows (in thousands, except per share amounts):



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Numerator:
Net loss - basic	$	(7,912	)	$	(508	)	$	(10,752	)	$	(2,552	)
Adjustments:
Change in fair value of Initial Warrant liability	—			—			(5,085		)	—
Net loss - diluted	$	(7,912	)	$	(508	)	$	(15,837	)	$	(2,552	)

Denominator:
Weighted average shares outstanding	52,327			51,773			52,233			51,830
Issuance of Initial Warrant	1,335			—			1,335			—
Weighted average shares outstanding - basic and diluted	53,662			51,773			53,568			51,830

Basic loss per share	$	(0.15	)	$	(0.01	)	$	(0.20	)	$	(0.05	)
Diluted loss per share	$	(0.15	)	$	(0.01	)	$	(0.30	)	$	(0.05	)

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 – basic 51,883

51,770

51,857

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

—

—

—
Weighted-average shares outstanding – diluted 51,883

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 June 30, 2019 and 2018 was $0.5 million and $0.5 million, respectively, and $0.9 million and $0.7 million during the six months ended June 30, 2019 and 2018, respectively. The amounts receivable from Arthur J. Gallagher & Co. were $0.4 million and $0.3 million as of June 30, 2019 and December 31, 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, 2020 and 2019 ~~and 2018~~ was ~~$3.4~~$1.1 million and ~~$2.2~~$3.4 million, respectively, and ~~$6.1~~$4.8 million and ~~$4.0~~$6.1 million during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The amounts receivable from Enova were ~~$2.7 million~~nominal and ~~$2.0~~$4.6 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~10. Fair Value Measurement~~

~~ASC 820,~~ ~~Fair Value Measurement, includes~~In the second quarter of 2020, the Company began providing product procurement to Byline Bancorp, Inc. ("Byline"). Lindsay Corby, 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~~member of the ~~following~~Company's Board of Directors, is the Chief Financial Officer of Byline and has a direct ownership interest in Byline. The total amount billed for such services during the 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 principallymonths ended June 30, 2020 was $0.1 million. There were no amounts receivable 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.~~

~~The book value of the debt under the Credit Agreement (as defined herein) is considered to approximate its fair value~~Byline as of June 30, ~~2019 as the interest rates are considered in line with current market rates.~~

2020.

~~11.~~

10. Commitments and Contingencies

Self-insurance

~~InnerWorkings, Inc.~~The Company is self-insured for medical claims which is subject to stop-loss protection. An actuarial calculation of the estimated claims incurred but not reported is provided to the Company each period. The estimated claims incurred is currently updated semi-annually as it is immaterial in relation to the liability due to the limited population of claims since moving to the self-funded model on January 1, 2020. Further, the Company considered COVID-19's effect on insurance claims and ~~subsidiaries~~

~~Notes to~~recorded an immaterial additional liability based on actuarial estimates of the impact it will have on our claims. As of June 30, 2020, the medical claims liability was $1.0 million, and the liability is recorded within other current liabilities on the Company's Condensed Consolidated ~~Financial Statements (Unaudited)~~Balance Sheet.

~~Three and Six Months Ended June 30, 2019~~

Legal Contingencies

In October 2013, the Company removed the former owner of Productions Graphics from his role as President of Productions Graphics, the Company’s French subsidiary. He had been in that role since the Company’s 2011 acquisition of Productions Graphics, a European business then principally owned by him. In December 2013, the former owner of Productions Graphics initiated a wrongful termination claim in the Commercial Court of Paris seeking approximately €0.7 million (approximately $1.0 million) in fees and damages. 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

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 ~~agreemen~~t agreement was €34.5 million (approximately $37.6 million at the time) and the Company has determined that none of this amount was earned and payable.

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

~~12.~~11. Revolving Credit ~~Facilities~~Facility

ABL Credit Agreement

On July 16, 2019, the Company and ~~Going Concern~~

~~The Company~~certain of its direct and indirect subsidiaries entered into a loan and security agreement (the “ABL Credit ~~Agreement, dated as of August 2, 2010, subsequently amended most recently as of March 15, 2019, among the Company, the lenders party thereto and~~Agreement”) with Bank of America, N.A., as ~~Administrative Agent~~administrative agent, lender, issuing bank and collateral agent, and JPMorgan Chase Bank, N.A. and PNC Bank, National Association, as lenders (the ~~“Credit Agreement”~~“ABL Credit Facility”) ~~refinanced its debt,~~.

The ABL Credit Facility consists of a $105.0 million asset-based revolving line of credit, of which ~~is further discussed~~up to (i) $15.0 million may be used for UK Revolver Loans (as defined in ~~Note 15. At June 30, 2019~~ the ABL Credit Agreement), (ii) $10.5 million may be used for Swingline Loans (as defined in the ABL Credit Agreement), and (iii) $10.0 million may be used for letters of credit. The ABL Credit Agreement ~~included a~~provides that the revolving ~~commitment amount~~line of ~~$175~~credit may be increased by up to an additional $20.0 million ~~and $160 million~~following satisfaction of certain conditions. The ABL Credit Facility matures on July 16, 2024. Advances under the ABL Credit Facility bear interest at either: (a) LIBOR (as defined in the ~~aggregate through September 25, 2019~~ABL Credit Agreement), plus an applicable margin ranging from 2.00% to 2.50% for US LIBOR Loans and September 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 were guaranteed by the Company’s material domestic subsidiaries,UK LIBOR Loans (each as defined in the ABL Credit ~~Agreement.~~ Agreement); (b) the US Base Rate (as defined in the ABL Credit Agreement), plus an applicable margin ranging from 1.00% to 1.50% for US Base Rate Loans (as defined in the ABL Credit Agreement); or (c) the UK Base Rate (as defined in the ABL Credit Agreement), plus an applicable margin ranging from 2.00% to 2.50% for UK Base Rate Loans (as defined in the ABL Credit Agreement).

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

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 March 31, 2019 and (iii) decreased theABL Credit Agreement contains a minimum ~~interest~~fixed charge coverage ratio ~~to which~~financial covenant that must be maintained when excess availability falls below a specified amount. In addition, the ~~Company is subject for the trailing twelve month periods ended December 31, 2018 and March 31, 2019. All ratios for fiscal periods thereafter remained unchanged.~~

~~The terms of the~~ABL Credit Agreement ~~included various~~contains negative covenants ~~including covenants that require the Company to maintain a maximum leverage ratio~~limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and ~~a minimum interest coverage ratio.~~advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The most recent amendment to the Credit Agreement modified the maximum leverage ratio from 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 1.00 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 theABL Credit Agreement also ~~modified~~contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the ~~minimum interest coverage ratio from 5.00~~ABL Credit Agreement to ~~1.00 to 4.00 to 1.00 for~~be in full force and effect, and a change of control of the ~~trailing twelve months ended December 31, 2018~~Company’s business. The usage and ~~from 5.00 to 1.00 to 3.50 to 1.00 for~~total commitment of these Loans shall not exceed the ~~trailing twelve months ended March 31, 2019.~~respective borrowing base set forth in the ABL Credit Agreement.

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Three~~

Within the ABL Credit Agreement, there is a cash dominion requirement for the United States ("US") and ~~Six Months Ended~~United Kingdom ("UK"). In the United States, Bank of America, N.A. (the agent) shall only exercise cash dominion and apply all customer collections of the US borrowers to US obligations when a Trigger Period exists, as defined in the ABL Credit Agreement. In the United Kingdom, all customer collections of the UK borrowers will be applied on a daily basis to any outstanding UK obligations and any credit balance will be transferred back to an account of the UK borrowers. The customer collections of the UK borrowers are only applied against the UK obligations. As a result of the cash dominion, the amount outstanding under the ABL Credit Agreement for UK borrowers has been classified as a current obligation. The amount outstanding under the ABL Credit Agreement for US borrowers has been classified as a long-term obligation, as no Trigger Period has yet occurred nor is considered probable. The amounts outstanding under the ABL Credit Agreement as of June 30, ~~2019~~2020 for the UK borrowers and the US borrowers are $0.1 million and $40.7 million, respectively.

The ~~minimum~~Company's deferred financing fees of approximately $2.0 million are presented as an asset and amortized on a straight-line basis over the term of the ABL Credit Agreement. Amortization of deferred financing fees is recorded in interest ~~coverage ratio is 5.00 to 1.00~~expense and was approximately $0.1 million and $0.2 million for the ~~trailing twelve~~three and six months ended June 30, ~~2019 and each period thereafter.~~ 2020, respectively.

The Company ~~was~~has determined that the interest rate reset features embedded in ~~violation~~the ABL Credit Agreement constitute an embedded derivative (collectively, the “ABL Embedded Derivative”) which has been bifurcated from the ABL Credit Facility and recorded as a derivative liability at fair value, with a corresponding discount recorded to the associated debt. The Company recorded a nominal amount and approximately $0.1 million in interest expense for the amortization of the ~~debt covenants under~~ABL Embedded Derivative discount for the ~~credit agreement as of~~three and six months ended June 30, ~~2019; however,~~2020, respectively.

The following schedule shows the ~~Company successfully completed refinancing of its debt, which is further discussed~~change in ~~Note 15, prior to the 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 repaymentfair value of the ~~outstanding debt. Accordingly, the outstanding balance under the Credit Agreement is presented as a current liability as of~~ABL Embedded Derivative at June 30, ~~2019 based on the guidance~~2020 (in thousands):



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

The change in ~~ASC 470,~~ ~~Debt~~.

~~Additionally, under ASC 205,~~ ~~Presentation of Financial Statements, the Company~~fair value is ~~required to consider and has evaluated whether there is substantial doubt that it has the ability to meet its obligations~~recorded 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 doubtother expense on the Company’s ~~ability~~Condensed Consolidated Statement of Comprehensive Loss. Refer 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~~13, Fair Value Measurement, for further discussion.

The Company’s ~~ability to continue~~ABL Credit Facility at June 30, 2020 is summarized 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.follows (in thousands):



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

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

At June 30, ~~2019,~~2020, the Company had ~~$1.5~~$1.7 million of letters of credit outstanding 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, the Company entered into a Revolving Credit Facility (the “Facility”) with Bank of America N.A. to support ongoing working capital needs of the Company's operations in China. The Facility includes a revolving commitment amount of $5.0 million whereby maturity dates vary based on each individual drawdown. On July 16, 2019, the Company modified the Facility to decrease the total revolving commitment amount from $5.0 million to $1.0 million. All other terms of the Facility remained unchanged. Outstanding borrowings under the Facility are guaranteed by the Company’s assets. Borrowings and repayments are made in renminbi, the official Chinese currency. The applicable interest rate is 110% of the People’s Bank of China’s base rate. The terms of the Facility include limitations on use of funds for working capital purposes as well as customary representations and warranties made by the Company. At June 30, ~~2019,~~2020, the Company had ~~$4.5~~$0.5 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 an increase in its authorized share repurchase program of up to an additional $30.0 million of the 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 three and six months ended June 30, 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"), 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 three operating segments: North America, EMEA and LATAM. The North America segment includes operations in the United States

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Three and Six Months Ended June 30, 2019~~

and Canada; the EMEA segment includes operations in the United Kingdom, continental Europe, the Middle East, Africa, and Asia; and the LATAM segment includes operations in Mexico, Central America, and South America. Other consists of intersegment eliminations, shared service activities, and 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.12. Long-Term Debt

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, goodwill, 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 ASC 606 implementation, executive search expenses, restatement of prior period financial statements, and other expenses related to investment in operational and financial process improvements. Management does not evaluate the performance of its operating segments using asset measures.

~~The table below presents financial information for the Company’s reportable segments and Other for the three and six months ended June 30, 2019 and 2018 (in thousands):~~

North America EMEA LATAM
Other⁽²⁾
Total
Three Months Ended June 30, 2019:
Revenue from third parties $ 200,283
$ 62,483
$ 21,287
$ —
$ 284,053
Revenue from other segments 650
2,713
2
(3,365 ) —
Total revenue 200,933
65,196
21,289
(3,365 ) 284,053
Adjusted EBITDA⁽¹⁾
21,151
4,292
611
(12,414 ) 13,640

Three Months Ended June 30, 2018:
Revenue from third parties $ 194,735
$ 65,039

$ 22,193
$ —
$ 281,967
Revenue from other segments 951
2,696

(48 ) (3,599 ) —
Total revenue 195,686
67,735

22,145
(3,599 ) 281,967
Adjusted EBITDA⁽¹⁾
18,372
805

1,244
(12,235 ) 8,186

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 segments 1,213
4,360
4
(5,577 ) —
Total revenue 389,797
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 segments 2,371
5,346

78
(7,795 ) —
Total revenue 386,383
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, restructuring charges, 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

~~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 loss before income taxes (in thousands):~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018

Adjusted EBITDA 13,640
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 operations 3,475
2,355
2,315
3,596
Interest income 104
54
202
115
Interest expense (2,486 ) (1,517 ) (5,232 ) (3,085 )
Other, net 279
(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~~loan 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~~security agreement (the “Term Loan Credit Agreement”) with TCW Asset Management Company LLC, as administrative agent and collateral agent, and the financial institutions party thereto as lenders (the “Term Loan Credit Facility”).

The Term Loan Credit Facility consists of a $100.0 million term loan ~~facility~~facility. The Term Loan Credit Facility matures on July 16, 2024. Principal on the Term Loan Credit Facility is due in quarterly installments, commencing on September 30, 2019, in an amount equal to $1.3 million per quarter during the first year of the Term Loan Credit Facility and $2.5 million each quarter thereafter. The loans under the Term Loan Credit Facility bear interest at either: (a) the LIBOR Rate (as defined in the Term Loan Credit Agreement), plus an applicable margin ranging from 6.25% to 10.75%; or (b) the Prime Rate (as defined in the Term Loan Credit Agreement), plus an applicable margin ranging from 5.25% to 9.75%.

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

The Term Loan Credit Agreement contains a minimum fixed charge coverage ratio financial covenant, a maximum total leverage ratio financial covenant, a minimum liquidity financial covenant and a maximum capital expenditures covenant, each of which must be maintained for the periods described in the Term Loan Credit Agreement. In addition, the Term Loan Credit Agreement contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The Term Loan Credit Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the Term Loan Credit Agreement to be in full force and effect, and a change of control of the Company’s business. The principal outstanding as of June 30, 2020 is $95.0 million.

The Company has determined the interest rate reset features embedded in the Term Loan Credit Agreement constitute an embedded derivative (collectively, the “Term Loan Embedded Derivative”) which has been bifurcated from Term Loan Credit Facility and recorded as a derivative liability at fair value, with a ~~maturity date~~corresponding discount recorded to the associated debt. The Company recorded a nominal amount and $0.1 million in interest expense for the amortization of ~~July 16, 2024.~~the Term Loan Embedded Derivative discount for the three and six months ended June 30, 2020, respectively.

The following schedule shows the change in fair value of the Term Loan Embedded Derivative at June 30, 2020 (in thousands):



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

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

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

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

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Three and Six Months Ended June 30, 2019~~

~~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” or “Contingent Warrant” and together with the Initial Warrant, the “Warrant”). The Company did not trigger any of the provisions defined in the Term Loan Credit Agreement that would cause the Additional Warrant to be exercisable at March 31, 2020 and, accordingly, the additional warrant expired by its terms.

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.

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

The Initial Warrant was recorded as a liability at fair value and will be treated as a discount on the associated debt. The following schedule shows the change in fair value of the Initial Warrant at June 30, 2020 (in thousands):



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

The Additional Warrant was no longer outstanding as of March 31, 2020 and therefore has no associated fair value at June 30, 2020.

The Term Loan is presented net of the related original issue discount (“OID”), which was $8.5 million on the issuance date of July 16, 2019. Accretion of OID is included in interest expense. The Company ~~used~~incurred $3.7 million of deferred financing fees related to the ~~initial proceeds~~Term Loan Credit Agreement that has been recorded as a debt discount. The combined debt discount from the ~~ABL Credit Facility~~Initial Warrant liability, the Term Loan Embedded Derivative liability, and the debt issuance fees is being amortized into interest expense over the term of the Term Loan Credit Facility ~~to repay in full all amounts outstanding under~~using the effective interest method. The Company recorded interest expense for the amortization of the Initial Warrant liability and Term Loan Embedded Derivative liability debt discounts of $0.3 million and $0.5 million for the three and six months ended June 30, 2020, respectively, and recorded an additional $0.2 million and $0.4 million of interest expense for the amortization of the debt issuance fees for the three and six months ended June 30, 2020, respectively.

The Company’s Term Loan Credit ~~Agreement, to pay fees and transaction expenses in connection with~~Facility at June 30, 2020is summarized as follows (in thousands):



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

⁽¹⁾ Original value of OID attributable to debt issuance costs, warrant liability and embedded derivatives at July 16, 2019, less amortization. ⁽²⁾ Value of warrant liability and embedded derivatives as of June 30, 2020.

13. Fair Value Measurement

The Company estimates the ~~closing~~fair value of the ABL Credit Facility and ~~the~~ Term Loan Credit Facility using current market yields. These current market yields are considered Level 2 inputs.

InnerWorkings, Inc. and ~~for working capital purposes.~~subsidiaries

~~Refer~~Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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



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

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

The table below sets forth the total fair value of the ABL Credit Facility, ABL Embedded Derivative, Term Loan Credit Facility, Term Loan Embedded Derivative, and Initial Warrant as of June 30, 2020 (in thousands):



	June 30, 2020
	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
ABL Credit Facility	$	115,270	$	—	$	115,270
ABL Embedded Derivative	—		219		219
Term Loan Credit Facility	85,164		—		85,164
Initial Warrant	—		1,452		1,452
Term Loan Embedded Derivative	—		166		166
Total	$	200,434	$	1,837	$	202,271

14. Business Segments

Segment information is prepared on the same basis that our Chief Executive Officer, who is our chief operating decision maker ("CODM"), manages the segments, evaluates financial results, and makes key operating decisions. The Company is organized and managed by the CODM as 3 operating segments: North America, EMEA and LATAM. The North America segment includes operations in the United States and Canada; the EMEA segment includes operations in the United Kingdom, continental Europe, the Middle East, Africa, and Asia; and the LATAM segment includes operations in Mexico, Central America, and South America. Other consists of intersegment eliminations, shared service activities, and corporate expenses which are not allocated to the operating segments as management does not consider them in evaluating segment performance.

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

The table below presents financial information for the Company’s reportable segments and Other for the three and six months ended June 30, 2020 and 2019 (in thousands):



	North America		EMEA		LATAM			Other			Total
Three Months Ended June 30, 2020
Revenue from third parties	$	140,995	$	49,095	$	13,221		$	—		$	203,311
Revenue from other segments	1,822		1,608		1			(3,431		)	—
Total revenue	$	142,817	$	50,703	$	13,222		$	(3,431	)	$	203,311
Adjusted EBITDA	$	13,140	$	4,218	$	(155	)	$	(11,072	)	$	6,131

Three Months Ended June 30, 2019
Revenue from third parties	$	200,091	$	62,483	$	21,287		$	—		$	283,861
Revenue from other segments	650		2,713		2			(3,365		)	—
Total revenue	$	200,741	$	65,196	$	21,289		$	(3,365	)	$	283,861
Adjusted EBITDA	$	20,315	$	4,480	$	611		$	(12,414	)	$	12,992



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

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

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Adjusted EBITDA	$	6,131		$	12,992		$	19,038		$	20,381
Depreciation and amortization	(3,310		)	(3,233		)	(6,437		)	(5,849		)
Stock-based compensation - equity classified awards	(1,554		)	(1,402		)	(3,034		)	(2,141		)
Stock-based compensation - liability classified awards (SARs)	(127		)	(46		)	513			(46		)
Goodwill impairment	—			—			(7,191		)	—
Intangible and other asset impairments	(609		)	—			(883		)	—
Restructuring charges	(3,644		)	(3,698		)	(7,281		)	(7,632		)
Merger-related transaction costs	(790		)	—			(790		)	—
Professional fees related to control remediation	(356		)	(550		)	(620		)	(916		)
Executive search fees	—			—			—			(80		)
Sales and use tax audit	—			—			—			(25		)
(Loss) income from operations	(4,259		)	4,063			(6,685		)	3,692
Interest income	53			104			109			202
Interest expense	(3,201		)	(2,486		)	(7,587		)	(5,232		)
(Loss) gain from change in fair value of warrant	(120		)	—			5,085			—
Foreign exchange gain (loss)	862			237			(1,929		)	(239		)
Other income	221			42			1,117			78
(Loss) income before income taxes	(6,444		)	1,960			(9,890		)	(1,499		)
Income tax expense	1,468			2,468			862			1,053
Net loss	$	(7,912	)	$	(508	)	$	(10,752	)	$	(2,552	)

The table below presents total assets for the Company's reportable segments and Other (in thousands):



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

InnerWorkings, Inc. and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

15. Subsequent Events

Pending acquisition

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

Additional information about the Merger Agreement and the related transactions can be found in the Company’s Current Report on Form 8-K filed with the SEC on July ~~16, 2019 for more information surrounding the debt refinancing agreements.~~17, 2020.

~~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~~Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that are ~~"forward-looking statements" within~~based on beliefs, assumptions, and expectations of future events, taking into account the ~~meaning~~information currently available to the Company. All statements other than statements of ~~Section 27A~~current or historical fact contained in this report are forward-looking statements. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “will,” “seek,” “plan,” and similar statements are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual outcomes to differ materially from expectations of future outcomes the Company expresses or implies in any forward-looking statements. These risks and uncertainties include, but are not limited to: the satisfaction of the ~~Securities Act of 1933, as amended (the "Securities Act"), and Section 21E~~conditions precedent to the consummation of the ~~Securities Exchange Act~~proposed merger transaction involving HH Global Group Limited, including, without limitation, the receipt of ~~1934, as amended (the "Exchange Act"). These statements involve a number~~stockholder and regulatory approvals; unanticipated difficulties or expenditures relating to the proposed merger; legal proceedings, judgments or settlements, including those that may be instituted against the Company, the Company’s board of directors, officers and others following the announcement of the proposed merger; disruptions of current plans and operations caused by the announcement and pendency of the proposed merger; potential difficulties in employee retention due to the announcement and pendency of the proposed merger; the response of customers, suppliers, business partners and regulators to the announcement of the proposed merger; risks ~~uncertainties~~related to diverting management’s attention from the Company’s ongoing business operations; and other risks, relevant 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 foundand uncertainties identified in the Company’s filings with the Securities and Exchange Commission (the “SEC”) (including the information set forth in the “Risk Factors” section ~~entitled "Risk Factors" in our~~of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and ~~elsewhere~~ in ~~this Form 10-Q. Investors~~subsequent filings), which filings are ~~urged to consider these factors carefully in evaluating any~~available at the SEC’s website at www.sec.gov. Given the risks and uncertainties surrounding forward-looking statements, ~~and are cautioned~~you should not to place undue reliance on ~~such forward-looking~~these statements. The Company’s forward-looking statements ~~made herein are~~speak only ~~made~~ as of the date ~~hereof and we undertake~~of this document. Other than as required by law, the Company undertakes no obligation to ~~publicly~~ update ~~such~~or revise forward-looking statements, ~~to reflect subsequent~~whether as a result of new information, future events, or ~~circumstances.~~otherwise.

Overview

We are a leading global marketing ~~execution~~engineering firm for some of the world's most marketing intensive companies, including those listed in the Fortune 1000. As a comprehensive outsourced global solution, we leverage proprietary technology, an extensive supplier network and deep domain expertise to streamline the creation, production and distribution of marketing and promotional materials, signage and displays, retail experiences, events and promotions and product packaging across every major market worldwide. The items we source generally are procured through the marketing supply chain and we refer to these items collectively as marketing materials. Through our network of 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. 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.

As of June 30, ~~2019,~~2020, we had approximately 2,000 employees in ~~more than 30~~over 20 countries. For the six months ended June 30, ~~2019~~2020, we generated global revenue from third parties of ~~$388.6~~$338.7 million in the North America segment, ~~$122.7~~$97.3 million in the EMEA segment, and ~~$40.0~~$28.7 million in the LATAM segment.

Our objective is to continue to increase our sales ~~in the United States and internationally~~globally by adding new clients and increasing our sales to existing clients through additional marketing ~~execution~~ services or ~~geographic markets. In addition, we believe the opportunity exists to expand our business through acquisition and entry~~expanding into new geographic markets. Operationally, we are integrating our product and service offerings, re-evaluating our geographic footprint, and creating synergies across various business units.

Impact of COVID-19

The emergence of a novel coronavirus (COVID-19) around the world, and particularly in the United States, Europe, China, and South America presents various risks to the Company. The global impact of the outbreak has been rapidly evolving and many countries have reacted by instituting quarantine measures, mandating business and school closure and restricting travel, all of which have had an adverse effect on the global economy. The Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity, much of which will depend on when and to what extent current restrictions are lifted and economic conditions improve. In response to the global pandemic, the Company has created a COVID-19 executive task force that has implemented business continuity plans and has taken a variety of actions to ensure the ongoing availability of our services, while also undertaking appropriate health and safety

measures for its employees. The executive task force has authority to make timely, informed decisions relating to our business continuity planning and actions. As a result of these actions, the Company has not experienced any material disruptions to date in its operations or ability to service our clients. In addition, the Company has been able to respond quickly to our customers’ changing business demands related to the COVID-19 pandemic.

Overall, the Company maintains sufficient liquidity to continue business operations during these uncertain economic conditions. As discussed in Liquidity and Capital Resources below, the Company had liquidity of approximately $86.3 million as of June 30, 2020, comprised of cash on hand of $35.3 million and an undrawn revolving credit facility of $51.0 million.

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

Critical Accounting Policies

Our unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that we believe to be reasonable. Actual results may differ from those estimates. We review these estimates on a periodic basis to ensure reasonableness. Although actual amounts may differ from such estimated amounts, we believe such differences are not likely to be material. For additional detail regarding our critical accounting policies including revenue recognition, goodwill, other intangible assets, and leases, see our discussion for the year ended December 31, 2019 included in the Company's 2019 Annual Report on Form 10-K. There have been no material changes to these policies as of June 30, 2020.

Current Expected Credit Loss (CECL)

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

Key Performance Metrics

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

Key Components of Statement of Operations

Revenue

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

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

Cost of Goods Sold and Gross Profit

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

Our ~~selling price, including our~~ gross profit ~~may be established~~is determined by ~~contract based on a fixed gross profit as a percentage of revenue, which we refer to as gross margin, or may be determined at~~ the ~~discretion~~selling prices of the ~~account executive or production manager within predetermined parameters.~~product and shipping charges less the cost of the product, direct personnel, warehousing, and shipping and handling costs.

Operating Expenses and ~~Income~~Loss from Operations

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

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

~~Comparison of three months ended June 30, 2019 and 2018~~Non-GAAP Financial Measures

~~Revenue~~

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

Three Months Ended June 30,
2019 % of Total 2018 % of Total

North America $ 200,283
70.5 % $ 194,735
69.0 %
EMEA 62,483
22.0
65,039
23.1
LATAM 21,287
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 $5.6 million, or 2.9%, from $194.7 million during the three months ended June 30, 2018 to $200.3 million during the three months ended June 30, 2019. This increase in revenue relates primarily to growth from new and existing enterprise clients.

~~EMEA~~

EMEA revenue decreased by $2.5 million, or 3.8%, from $65.0 million during the three months ended June 30, 2018 to $62.5 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.

~~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 decreased by $2.1 million, or 1.0%, from $217.1 million during the three months ended June 30, 2018 to $215.0 million during the three months ended June 30, 2019. Our cost of goods sold as a percentage of revenue was 75.7% and 77.0% during the three months ended June 30, 2019 and 2018, respectively.

~~Gross profit margin~~

Our gross profit margin was 24.3% and 23.0% during the three months ended June 30, 2019 and 2018, respectively. This increase was primarily driven by operating efficiencies in North America and improved customer mix in EMEA.

~~Selling, general, and administrative expenses~~

Selling, general, and administrative expenses decreased by $0.3 million, or 0.5%, from $59.0 million during the three months ended June 30, 2018 to $58.7 million during the three months ended June 30, 2019. This decrease was driven by the Company’s restructuring efforts, partially offset by higher legal fees and additional sales tax resulting from sales tax audit of prior periods. As a percentage of gross profit, selling, general, and administrative expenses also decreased to 84.9% for the three months ended June 30, 2019 compared to 90.9% for the three months ended June 30, 2018.

~~Depreciation and amortization~~

Depreciation and amortization expense decreased by $0.3 million, or 8.6%, from $3.5 million during the three months ended June 30, 2018 to $3.2 million during the three months ended June 30, 2019. This decrease is due to lower amortization resulting from impairment charges to intangible assets in 2018.

~~Restructuring charges~~

On August 10, 2018, the Company 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 the three months ended June 30, 2018. For the three months ended June 30, 2019, we recognized $3.7 million in restructuring charges.

~~Income from operations~~

Income from operations increased by $1.1 million from $2.4 million during the three months ended June 30, 2018 to $3.5 million during the three months ended June 30, 2019. As a percentage of revenue, income from operations was 1.2% and 0.9% during the three months ended June 30, 2019 and 2018, respectively. As a percentage of gross profit, income from operations was 5.1% and 3.7% during the three months ended June 30, 2019 and 2018, respectively. This increase is primarily attributable to higher gross profit and lower selling, general and administrative expenses, offset by restructuring charges.

~~Other expense~~

~~Other expense did not materially change from the three months ended June 30, 2018 to three months ended June 30, 2019.~~

~~Income tax expense~~

Income tax expense increased by $1.9 million from $0.6 million during the three months ended June 30, 2018 to $2.5 million during the three months ended June 30, 2019. Our effective tax rate was 185.2% and 198.4% for the three months ended June 30, 2019 and 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 tax rates that are different than the U.S. federal statutory tax rate. In addition, the effective tax rate can be impacted each period by discrete factors and events such as a write-off of a deferred tax asset for stock‑based compensation due to the expiration of unexercised stock options.

~~Net loss~~

Net loss increased by $0.9 million, or 300.0%, from net loss of $0.3 million during the three months ended June 30, 2018 to a $1.2 million net loss during the three months ended June 30, 2019. Net loss as a percentage of revenue was (0.4)% and (0.1)% during the three months ended June 30, 2019 and 2018, respectively. Net loss as a percentage of gross profit was (1.7)% and (0.5)% during the three months ended June 30, 2019 and 2018, respectively. The increase in net loss is attributable to the increase in income taxes, offset by higher income from operations.

~~Comparison of six months ended June 30, 2019 and 2018~~

~~Revenue~~

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

Six Months Ended June 30,
2019 % of Total 2018 % of Total

North America $ 388,584
70.5 % $ 384,012
69.0 %
EMEA 122,662
22.2
129,207
23.2
LATAM 40,045
7.3
43,287
7.8
Revenue from third parties $ 551,291
100.0 % $ 556,506
100.0 %

~~North America~~

North America revenue increased by $4.6 million, or 1.2%, from $384.0 million during the six months ended June 30, 2018 to $388.6 million during the six months ended June 30, 2019. This increase in revenue relates primarily to continued growth from new and existing enterprise clients.

~~EMEA~~

EMEA revenue decreased by $6.5 million, or 5.0%, from $129.2 million during the six months ended June 30, 2018 to $122.7 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.

~~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 decreased by $4.6 million, or 1.1%, from $425.6 million during the six months ended June 30, 2018 to $421.0 million during the six months ended June 30, 2019. Our cost of goods sold as a percentage of revenue was 76.4% and 76.5% during the six months ended June 30, 2019 and 2018, respectively.

~~Gross profit margin~~

Our gross profit margin was 23.6% and 23.5% during the six months ended June 30, 2019 and 2018, respectively. This increase was primarily driven by operating efficiencies in North America and better customer mix in EMEA.

~~Selling, general, and administrative expenses~~

Selling, general, and administrative expenses decreased by $5.7 million, or 4.7%, from $120.2 million during the six months ended June 30, 2018 to $114.5 million during the six months ended June 30, 2019. This decrease was driven by the Company’s restructuring efforts, partially offset by higher legal fees and additional sales tax resulting from a sales tax audit of prior periods. As a percentage of gross profit, selling, general, and administrative expenses also decreased to 87.9% for the six months ended June 30, 2019 compared to 91.8% for the six months ended June 30, 2018.

~~Depreciation and amortization~~

Depreciation and amortization expense decreased by $1.4 million, or 19.4%, from $7.2 million during the six months ended June 30, 2018 to $5.8 million during the six months ended June 30, 2019. The decrease is due to lower amortization resulting from impairment charges to intangible assets in 2018.

~~Restructuring charges~~

On August 10, 2018, the Company 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 the six months ended June 30, 2018. For the six months ended June 30, 2019, we recognized $7.6 million in restructuring charges.

~~Income from operations~~

Income from operations decreased by $1.3 million from $3.6 million during the six months ended June 30, 2018 to $2.3 million during the six months ended June 30, 2019. As a percentage of revenue, income from operations was 0.4% and 0.6% during the six months ended June 30, 2019 and 2018, respectively. As a percentage of gross profit, income from operations was 1.8% and 2.8% during the six months ended June 30, 2019 and 2018, respectively. This increase is primarily attributable to lower selling, general and administrative expenses, offset by restructuring charges.

~~Other expense~~

Other expense increased by $1.1 million from $4.4 million for the six months ended June 30, 2018 to $5.5 million during the six months ended June 30, 2019. This increase in expense was primarily driven by an increase in interest expense, offset by foreign exchange gains.

~~Income tax expense~~

Income tax expense decreased by $0.7 million from $1.2 million during the six months ended June 30, 2018 to $0.5 million during the six months ended June 30, 2019. Our effective tax rate was (14.4)% and (145.7)% for the six months ended June 30, 2019 and 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 tax rates that are different than the U.S. federal statutory tax rate. In addition, the effective tax rate can be impacted each period by discrete factors and events such as a write-off of a deferred tax asset for stock‑based compensation due to the expiration of unexercised stock options.

~~Net loss~~

Net loss increased by $1.6 million, or 80.0%, from $2.0 million during the six months ended June 30, 2018 to $3.6 million during the six months ended June 30, 2019. Net loss as a percentage of revenue was (0.7)% and (0.4)% during the six months ended June 30, 2019 and 2018, respectively. Net loss as a percentage of gross profit was (2.8)% and (1.5)% during the six months ended June 30, 2019 and 2018, respectively. The increase in net loss is primarily attributable to lower selling, general and administrative expenses, offset by restructuring charges and higher interest expense.

Adjusted EBITDA

Adjusted EBITDA, which represents ~~income~~loss from operations with the addition of depreciation and amortization, stock-based compensation expense, goodwill and long-lived asset impairment charges, restructuring charges, merger-related transaction costs, various one-time professional fees, ~~related to ASC 606 implementation,~~ executive search expenses, and ~~restatement-related professional fees~~other charges itemized in the reconciliation table ~~below,~~noted within Note 14, Business Segments, is considered a non-GAAP financial measure under SEC regulations. ~~Income~~Loss from operations is the most directly comparable financial measure calculated in accordance with GAAP. ~~We present~~The Company presents this measure as supplemental information to help our investors better understand trends in our business over time. Our management team uses Adjusted EBITDA to evaluate the performance of our business. Adjusted EBITDA is not equivalent to any measure of performance required to be reported under GAAP, nor should this data be considered an indicator of our overall financial performance and liquidity. Moreover, the Adjusted EBITDA definition we use may not be comparable to similarly titled measures reported by other companies. ~~Our Adjusted EBITDA by segment for each of the periods presented was as follows (dollars in thousands):~~

Three Months Ended June 30,
2019
% of Total
2018
% of Total

North America $ 21,151

155.0 %
$ 18,372

224.5 %
EMEA 4,292

31.5

805

9.8
LATAM 611

4.5

1,244

15.2
Other⁽¹⁾
(12,414 )
(91.0 )
(12,235 )
(149.5 )
Adjusted EBITDA $ 13,640

100.0 %
$ 8,186

100.0 %

Six Months Ended June 30,
2019 % of Total 2018 % of Total

North America $ 36,602
181.1 % $ 35,588
229.0 %
EMEA 6,819
33.7
2,310
14.9
LATAM 876
4.3
1,830
11.8
Other⁽¹⁾
(24,083 ) (119.1 ) (24,193 ) (155.7 )
Adjusted EBITDA $ 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 June 30, 2019 and 2018.~~ Adjusted EBITDA increased by $5.4 million, or 66.0%, from $8.2 million during the three months ended June 30, 2018 to $13.6 million during the three months ended June 30, 2019. North America Adjusted EBITDA increased by $2.8 million, or 15.2%, from $18.4 million during the three months ended June 30, 2018 to $21.2 million during the three months ended June 30, 2019 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 customer mix and reduced operating expenses as a result of restructuring efforts. LATAM Adjusted EBITDA decreased by $0.6 million, or 50.0%, from $1.2 million during the three months ended June 30, 2018 to $0.6 million during the three months ended June 30, 2019 due to lower revenues and resulting lower Gross profit. Other Adjusted EBITDA decreased by $0.2 million, or 1.6%, from a loss of $12.2 million during the three months ended June 30, 2018 to a loss of $12.4 million during the three months ended June 30, 2019 primarily due to reduced employee compensation and incentive expenses.

~~Comparison of six months ended June 30, 2019 and 2018.~~ Adjusted EBITDA increased by $4.7 million, or 30.3%, from $15.5 million during the six months ended June 30, 2018 to $20.2 million during the six months ended June 30, 2019. North America Adjusted EBITDA increased by $1.0 million, or 2.8%, from $35.6 million during the six months ended June 30, 2018 to $36.6 million during the six months ended June 30, 2019 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 customer mix and reduced expenses related to restructuring efforts. LATAM Adjusted EBITDA decreased by $0.9 million, or 50.0%, from $1.8 million during the six months ended June 30, 2018 to $0.9 million during the six months ended June 30, 2019 due lower revenues. Other Adjusted EBITDA remained virtually unchanged period over period.

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

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018

Net loss $ (1,169 ) $ (299 ) $ (3,631 ) $ (1,983 )
Income tax expense 2,541
603
456
1,176
Interest income (104 ) (54 ) (202 ) (115 )
Interest expense 2,486
1,517
5,232
3,085
Other income (expense), net (279 ) 588
460
1,433
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 marked to market 46
—
46
—
Restructuring charges 3,698
—
7,632
—
Professional fees related to ASC 606 implementation —
60
—
1,092
Executive search fees —
234
80
234
Control remediation-related fees
175
537
540
537
Sales and use tax audit 1,235
—
1,235
—
Other professional fees 376
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 loss, with the addition of ~~restructuring charges, professional fees related~~exclusive items that are non-recurring to ~~ASC 606 implementation, executive search expenses and restatement-related professional fees~~our operating business, divided by the weighted average shares outstanding plus share equivalents that would arise from the exercise of stock options and restricted stock and other contingently issuable shares, is considered a non-GAAP financial measure under SEC regulations. Diluted ~~earnings~~loss per share is the most directly comparable financial measure calculated in accordance with GAAP. ~~We present~~The Company presents this measure as supplemental information to help our investors better understand trends in our business over time. Our management team uses adjusted diluted earnings per share to evaluate the performance of our business. Adjusted diluted earnings per share is not equivalent to any measure of performance required to be reported under GAAP, nor should this data be considered an indicator of our overall financial performance and liquidity. Moreover, the adjusted diluted earnings per share definition we use may not be comparable to similarly titled measures reported by other companies.

Comparison of Three Months Ended June 30, 2020 and 2019

Revenue

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



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

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

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

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

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

Cost of goods sold

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

Gross profit margin

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

Selling, general and administrative expenses

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

Depreciation and amortization

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

Intangible and other asset impairments

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

Restructuring charges

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

(Loss) income from operations

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

Other expense

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

Income tax expense

Income tax expense decreased by $1.0 million in the three months ended June 30, 2020 over the corresponding period in 2019. Our effective tax rate was (22.8)% and 125.9% for the three months ended June 30, 2020 and 2019, respectively. The Company's effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, valuation allowances, impacts of the Tax Reform Act, and foreign tax rates that are different than the U.S. federal statutory tax rate. In addition, the effective tax rate can be impacted each period by discrete factors and events such as a write-off of a deferred tax asset for stock‑based compensation due to the expiration of unexercised stock options and prior year provision to return adjustments.

Net loss

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

Comparison of Six Months Ended June 30, 2020 and 2019

Revenue

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



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

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

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

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

Cost of goods sold

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

Gross profit margin

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

Selling, general and administrative expenses

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

Depreciation and amortization

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

Goodwill Impairment

During the first quarter of 2020, the Company performed an interim impairment assessment due to a triggering event caused by a sustained decrease in the Company's stock price and lower outlook due to the deterioration in economic conditions caused by COVID-19. Based on the assessment, the Company determined that the enterprise value for the North America reporting unit was less than its carrying value and resulted in a goodwill impairment charge of $7.2 million. Refer to Note 4, Goodwill for further discussion.

Intangible and other asset impairments

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

Restructuring charges

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

(Loss) income from operations

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

Other expense

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

Income tax expense

Income tax expense decreased by $0.2 million in the six months ended June 30, 2020 over the corresponding period in 2019. Our effective tax rate was (8.7)% and (70.2)% for the six months ended June 30, 2020 and 2019, respectively. The Company's effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, valuation allowances, impacts of the Tax Reform Act, and foreign tax rates that are different than the U.S. federal statutory tax rate. In addition, the effective tax rate can be impacted each period by discrete factors and events such as a write-off of a deferred tax asset for stock‑based compensation due to the expiration of unexercised stock options and prior year provision to return adjustments.

Net loss

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

Adjusted EBITDA

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



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



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

⁽¹⁾“Other” consists of intersegment eliminations, shared service activities, and corporate expenses which are not allocated to the operating segments as management does not consider them in evaluating segment performance.

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

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

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

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

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

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

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

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

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

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

Adjusted Diluted Earnings Per Share

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

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 tax 2,772
—
5,802
—
Control remediation-related fees 130
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 tax 920
—
920
—
Other professional fees, net of tax 280
60
280
60
Adjusted net income (loss) 2,933
385
3,833
(525 )
Weighted-average shares outstanding, diluted 52,038
52,528
51,961
52,738
Non-GAAP diluted earnings (loss) per share $ 0.06
$ 0.01
$ 0.07
$ (0.01 )



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

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

Comparison of three months ended June 30, ~~2019~~2020 and ~~2018.~~ 2019. Adjusted diluted earnings ~~(loss)~~ per share ~~increased~~decreased by ~~$0.05 from $0.01 during~~$0.12 in the three months ended June 30, ~~2018~~2020 over the corresponding period in 2019. The decrease is related to ~~$0.06~~an increase in net loss, partially offset by new merger-related transaction costs and intangible and other asset impairment charges incurred during the ~~three months ended June 30, 2019. This increase is primarily attributable to higher revenues, improved gross margin and restructuring.~~period.

Comparison of six months ended June 30, ~~2019~~2020 and ~~2018.~~ 2019. Adjusted diluted earnings ~~(loss)~~ per share ~~increased~~decreased by ~~$0.08 from $(0.01) during~~$0.11 in the six months ended June 30, ~~2018~~2020 over the corresponding period in 2019. The decrease was primarily attributable to ~~$0.07~~an increase in net loss, along with change in fair value of warrant and embedded derivatives, partially offset by goodwill impairment and restructuring costs during the period.

Liquidity and Capital Resources

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

Cash Flow Summary

The following table presents cash flows for the six months ended June 30, ~~2019. This increase is primarily due to lower operating costs~~2020 and ~~restructuring.~~2019, respectively (in thousands):

~~Liquidity and Capital Resources~~



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

At June 30, ~~2019,~~2020, we had ~~$34.0~~$35.3 million of cash and cash equivalents.

Operating Activities. Cash provided by operating activities primarily consists of net 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 provided by operating activities for the six months ended June 30, ~~2019~~2020 was ~~$1.3~~$18.0 million and consisted of a net loss of ~~$3.6~~$10.8 million, offset by ~~$9.1~~$14.3 million of non-cash items ~~less an increase in~~and $14.5 million used to fund working capital. The working capital ~~of $4.2 million. The most significant impact on working capital and other activities~~changes consisted of ~~an increase~~a decrease in accounts receivable and unbilled revenue of ~~$10.2~~$61.1 million, ~~less~~a decrease in prepaid expenses and other assets of $17.1 million, an increase in inventory of $3.1 million, a decrease in accounts payable and accrued expenses and other liabilities of ~~$5.9~~$60.5 million.

Cash provided by operating activities for the six months ended June 30, ~~2018~~2019 was ~~$22.6~~$1.3 million and consisted of a net loss of ~~$2.0~~$2.6 million, offset by ~~$10.7~~$9.1 million of non-cash items and by ~~$13.9~~$5.3 million ~~provided by~~used in working capital and other activities. The most significant impact on working capital and other activities consisted of a decrease in inventories of $4.6 million, an increase in accounts receivable and unbilled revenue of ~~$21.6~~$10.1 million and ~~a decrease~~an increase in prepaid expenses and other assets of ~~$9.4~~$4.2 million, ~~all of which was~~ partially offset by a decrease in accounts payable of ~~$18.7~~$18.1 million and an increase in accrued expenses and other liabilities of $22.6 million.

Investing Activities. Cash used in investing activities for the six months ended June 30, 2020 and 2019 of $5.1 million and ~~2018 of~~ $6.9 million, ~~and $5.5 million~~ respectively, was ~~entirely~~ attributable to capital expenditures ~~primarily~~and software ~~development.~~capitalization.

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

Cash provided by financing activities for the six months ended June 30, 2019 of $13.0 million was primarily attributable to net borrowings under the revolving credit facility of $14.9 million ~~offset by the payment~~and $0.9 million of payments for debt issuance costs, ~~of $0.9 million and repayment of secured borrowing arrangements of~~partially offset by $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 $25.7 million less net borrowings under the revolving credit facility of $8.6 million.

~~Share Repurchase Program~~

The share repurchase program described in Note 13 expired on May 31, 2019. During the three and six months ended June 30, 2019, the Company did not repurchase any shares of its common stock under this program. During the six months ended June 30, 2018, the Company repurchased 2.7 million shares of its common stock for $25.6 million in the aggregate at an average cost of $9.60 per share under this program. During the three months ended June 30, 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.net short-term secured borrowings.

Revolving Credit Facilities and Long-Term Debt

~~The Company entered into a Credit Agreement, dated as of August 2, 2010, subsequently amended most recently as of March 15, 2019, among~~

On July 16, 2019. the Company ~~the lenders party thereto and Bank of America, N.A., as Administrative Agent (the “Credit Agreement”)~~ refinanced its debt, which is further discussed in Note ~~16. At June 30, 2019~~11, Revolving Credit Facility and in Note 12, Long-Term Debt. The debt structure provides long-term capital with improved flexibility to support the Company’s growth plans. The Company intends to use excess cash from operations to pay off debt and support working capital needs.

The ABL Credit Agreement ~~included~~contains a ~~revolving commitment amount~~minimum fixed charge coverage ratio financial covenant that must be maintained when excess availability falls below a specified amount. The Term Loan Credit Agreement includes a minimum fixed charge coverage ratio financial covenant, a maximum total leverage ratio financial covenant, a minimum liquidity financial covenant and a maximum capital expenditures covenant, each of ~~$175 million and $160 million~~which must be maintained for the periods described in the aggregate through September 25, 2019 and September 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 were guaranteed by the Company’s material domestic subsidiaries, as defined in theTerm Loan Credit Agreement. The ~~Company’s obligations under~~Company is in compliance with all debt covenants in the ABL Credit Agreement and such domestic subsidiaries’ guaranty obligations were secured by substantially all of their respective assets. The ranges of applicable rates charged for interest on outstanding loans and letters of credit were 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 rate.

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 March 31, 2019 and (iii) decreased the minimum interest coverage ratio to which the Company is subject for the trailing twelve month periods ended December 31, 2018 and March 31, 2019. All ratios for fiscal periods thereafter remained unchanged.

~~The terms of the~~Term Loan Credit Agreement included 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 modified the maximum leverage ratio from 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 1.00 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 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. 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,~~2020.

In addition, we will continue to utilize cash, in part, to invest in our innovative technology platform, fund our working capital needs, and expand our sales force. Although we can provide no assurances, we believe that our available cash and cash equivalents and the ~~Company successfully completed refinancing of its~~funds available under our new debt ~~which is further~~structure will be sufficient to meet our working capital and operating expenditure requirements for the next 12 months. Absent the pending acquisition discussed in Note 15, ~~prior~~Subsequent Events, we may find it necessary to obtain additional equity or debt financing in the ~~financial statement issuance date.~~future.

~~The revised covenants only affected~~We earn a portion of our operating income outside the ~~fourth quarter of 2018~~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. Included in our cash and ~~the first quarter of 2019. Therefore, the covenant for the second quarter of 2019 remains unchanged~~cash equivalents are amounts held by foreign subsidiaries. We had $33.3 million and ~~the Company concluded that it has exceeded the maximum leverage ratio~~$39.9 million foreign cash 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 liabilitycash equivalents 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~~2020 and has evaluated whether there is substantial doubt that it has the ability to meet its obligations within one year from the financial statement issuance date. This assessment also includes the Company’s consideration of any management plans to alleviate such doubts. As of December 31, ~~2018,~~2019, respectively, which are generally denominated in the ~~inability~~local currency where the funds are held.

Treasury Shares

Treasury shares decreased $3.1 million due to the reissuance 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 milliontreasury stock 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.2020.

On February 22, 2016, the Company entered into a Revolving Credit Facility (the “Facility”) with Bank of America N.A. to support ongoing working capital needs of the Company's operations in China. The Facility includes a revolving commitment amount of $5.0 million whereby maturity dates vary based on each individual drawdown. 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 June 30, 2019, the Company had $4.5 million of unused availability under the Facility.

Off-Balance Sheet Arrangements

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

Contractual Obligations

There have been no material changes outside the normal course of business in the contractual obligations disclosed in Item 7 to our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, under the caption “Contractual Obligations.”

~~Critical Accounting Policies and Estimates~~

~~In 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.~~

As of June 30, 2019, except for the new critical accounting policy for Leases described above, 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, 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, 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. In addition, the SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~Commodity Risk~~

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

~~Interest Rate Risk~~

We have exposure to changes in interest rates on our revolving credit facility. Interest is payable at the adjusted LIBOR rate or the alternate base rate. Assuming our $175.0 million revolving credit facility were 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 June 30, 2019 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, Peruvian nuevo sol, Colombian peso, Brazilian real, Mexican peso and Chilean peso, which exposes us to foreign currency risk. For the six months ended June 30, 2019, we derived approximately 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~~Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2019.~~2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2020, our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer~~Chief Financial Officer concluded that ~~due to material weaknesses in internal control over financial reporting described below,~~ our disclosure controls and procedures were ~~not~~ effective ~~as of June 30, 2019.~~at the reasonable assurance level.

~~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 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

~~Except as described above, there have been~~There were no ~~other~~ changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) during the quarter ended June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

~~There have been no material changes in~~In addition to the risk factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, the risk factors below could cause the Company’s actual results to vary materially from recent results or from anticipated future results. The risks described below are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

~~Issuer Purchases~~The following table provides information relating to our purchase 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~~shares of our common stock ~~through open market and privately negotiated transactions over a two-year period. On November 2, 2016,~~in the ~~Board~~second quarter of ~~Directors approved a two-year extension~~2020:



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

⁽¹⁾Represents shares delivered to us by employees to satisfy the ~~share repurchase program through February 28, 2019.~~mandatory tax withholding requirement upon vesting of restricted stock.

On May 4, 2017, the Board of Directors authorized authorized an increase in its authorized share repurchase program of up to an additional $30.0 million of our 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.

~~The Company did not make any repurchases of its common stock during the three and six months ended June 30, 2019.~~

Item 6. Exhibits



Exhibit No		Description of Exhibit
~~10.1~~4.1		~~Form of 2019 Performance Share Unit Award Agreement under the~~ InnerWorkings ~~Inc. 2006 Stock~~2020 Omnibus Incentive Plan as amended.*

~~10.2~~		Form of 2019 Restricted Stock Unit Award Agreement under the InnerWorkings, Inc. 2006 Stock Incentive Plan, as amended.*

~~10.3~~		Form of 2019 Stock Appreciation Right Agreement under the InnerWorkings, Inc. 2006 Stock Incentive Plan, as amended.*

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

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

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

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

101.INS**101.INS		XBRL Instance Document

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

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

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

**101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

**101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

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

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

* 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: August ~~9, 2019~~6, 2020	By:	/s/ Richard S. Stoddart
		Richard S. Stoddart
		Chief Executive Officer

Date: August ~~9, 2019~~6, 2020	By:	/s/ Donald W. Pearson
		Donald W. Pearson
		Chief Financial Officer



	Six Months Ended June 30,
	2019			2018
(in thousands)
Cash flows from operating activities
Net loss	$	(3,631	)	$	(1,983	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	5,849			7,173
Stock-based compensation expense	2,141			2,823
Bad debt provision	689			630
Implementation cost amortization	213			263
Other operating activities	224			(154		)
Change in assets:
Accounts receivable and unbilled revenue	(10,225		)	21,643
Inventories	4,488			(87		)
Prepaid expenses and other assets	(4,318		)	9,424
Change in liabilities:
Accounts payable	(17,670		)	(18,735		)
Accrued expenses and other liabilities	23,529			1,643
Net cash (used in) provided by operating activities	1,289			22,640

Cash flows from investing activities
Purchases of property and equipment	(6,881		)	(5,490		)
Net cash used in investing activities	(6,881		)	(5,490		)

Cash flows from financing activities
Net borrowings from revolving credit facility	14,908			8,629
Net short-term secured repayments	(833		)	(578		)
Repurchases of common stock	—			(25,689		)
Proceeds from exercise of stock options	63			284
Payment of debt issuance costs	(935		)	—
Other financing activities	(156		)	(695		)
Net cash provided by (used in) financing activities	13,047			(18,049		)

Effect of exchange rate changes on cash and cash equivalents	(226		)	(1,397		)
Increase (Decrease) in cash and cash equivalents	7,229			(2,296		)
Cash and cash equivalents, beginning of period	26,770			30,562
Cash and cash equivalents, end of period	$	33,999		$	28,266



	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



(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



	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



	Operating		Finance
Remaining 2019	$	4,463	$	53
2020	9,783		106
2021	10,494		106
2022	9,279		51
2023	7,856		11
Thereafter	27,491		—
Total lease payments	$	69,366	$	327
Less: Interest	16,019		49
Present value of lease liabilities	$	53,347	$	278



	Operating
2019	$	6,383
2020	5,017
2021	4,422
2022	3,245
2023	2,068
Thereafter	1,966
Total lease payments	$	23,101



	June 30, 2019			December 31, 2018			Weighted Average Life
Customer lists	$	73,708		$	73,792		14.4
Non-competition agreements	950			950			4.1
Trade names	2,510			2,510			13.3
Patents	57			57			9.0
	77,225			77,309
Less accumulated amortization and impairment	(68,451		)	(67,481		)
Intangible assets, net	$	8,774		$	9,828



Remainder of 2019	$	1,064
2020	2,021
2021	1,783
2022	1,408
2023	962
2024	745
Thereafter	791
	$	8,774