Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" that are based on beliefs, assumptions, and expectations of future events, taking into account the information currently available to the Company. All statements other than statements of current or historical fact contained in this report are forward-looking statements. The words "believe," "may," "should," "anticipate," "estimate," "expect," "intend," "will," "seek," "plan," and similar statements are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual outcomes to differ materially from expectations of future outcomes the Company expresses or implies in any forward-looking statements. These risks and uncertainties include, but are not limited to: the satisfaction of the conditions precedent to the consummation of the proposed merger transaction involvingHH Global Group Limited , including, without limitation, the receipt of stockholder and regulatory approvals; unanticipated difficulties or expenditures relating to the proposed merger; legal proceedings, judgments or settlements, including those that may be instituted against the Company, the Company's board of directors, officers and others following the announcement of the proposed merger; disruptions of current plans and operations caused by the announcement and pendency of the proposed merger; potential difficulties in employee retention due to the announcement and pendency of the proposed merger; the response of customers, suppliers, business partners and regulators to the announcement of the proposed merger; risks related to diverting management's attention from the Company's ongoing business operations; and other risks, relevant factors, and uncertainties identified in the Company's filings with theSecurities and Exchange Commission (the "SEC") (including the information set forth in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , its Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 , and in subsequent filings), which filings are available at theSEC's website at www.sec.gov. Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. The Company's forward-looking statements speak only as of the date of this document. Other than as required by law, the Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.
Overview
We are a leading global marketing 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. 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 ofJune 30, 2020 , we had approximately 2,000 employees in over 20 countries. For the six months endedJune 30, 2020 , we generated global revenue from third parties of$338.7 million in theNorth America segment,$97.3 million in the EMEA segment, and$28.7 million in the LATAM segment. Our objective is to continue to increase our sales globally by adding new clients and increasing our sales to existing clients through additional marketing services or expanding into new geographic markets. Operationally, we are integrating our product and service offerings, re-evaluating our geographic footprint, and creating synergies across various business units.
Impact of COVID-19
The emergence of a novel coronavirus (COVID-19) around the world, and particularly inthe United States ,Europe ,China , andSouth 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 26 --------------------------------------------------------------------------------
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 ofJune 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 inthe 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 withU.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 endedDecember 31, 2019 included in the Company's 2019 Annual Report on Form 10-K. There have been no material changes to these policies as ofJune 30, 2020 .
Current Expected Credit Loss (CECL)
InJune 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 effectiveJanuary 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 arrange shipment of the product. The product is shipped directly from our supplier or from our warehouse to a destination specified by our client. The client is invoiced upon shipment or receipt, depending on contract terms, for the product as well as shipping and handling. We agree to provide our clients with marketing materials that conform to the industry standard of a "commercially reasonable quality," and our suppliers in turn agree to provide us with products of the same quality. In addition, the quotes we execute with our clients include customary industry terms and 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. 27
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Cost of Goods Sold and Gross Profit
Our cost of goods sold consists of the price at which we purchase products from our 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 gross profit is determined by the selling prices of the product and shipping charges less the cost of the product, direct personnel, warehousing, and shipping and handling costs.
Operating Expenses and Loss from Operations
Our selling, general and administrative expenses consist of compensation costs for our management team, client engagement personnel, production managers, corporate functions and operational support employees, as well as commissions paid to our account executives. In addition, selling, general and administrative expenses include public company expenses, facilities fees, travel and entertainment expenses, corporate systems fees, and legal and accounting 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.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA, which represents 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, executive search expenses, and other charges itemized in the reconciliation table noted within Note 14, Business Segments, is considered a non-GAAP financial measure underSEC regulations. Loss from operations is the most directly comparable financial measure calculated in accordance with GAAP. 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.
Adjusted Diluted Earnings Per Share
Adjusted diluted earnings per share, which represents net loss, with the addition of exclusive items that are non-recurring to our operating business, divided by the weighted average shares outstanding plus share equivalents that would arise from the exercise of stock options and restricted stock and other contingently issuable shares, is considered a non-GAAP financial measure underSEC regulations. Diluted loss per share is the most directly comparable financial measure calculated in accordance with GAAP. 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. 28 --------------------------------------------------------------------------------
Comparison of Three Months Ended
Revenue
Our 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
North America . Revenue decreased by$59.1 million , or 29.5%, in the three months endedJune 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 endedJune 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 endedJune 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 endedJune 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 endedJune 30, 2020 and 2019, respectively.
Gross profit margin
Gross profit margin was 23.8% and 24.1% during the three months ended
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by$12.3 million , or 21.4%, in the three months endedJune 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 endedJune 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 ofJune 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 inNorth America . 29 --------------------------------------------------------------------------------
Restructuring charges
OnAugust 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 endedJune 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 endedJune 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 endedJune 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 endedJune 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 endedJune 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 endedJune 30, 2020 over the corresponding period in 2019. Our effective tax rate was (22.8)% and 125.9% for the three months endedJune 30, 2020 and 2019, respectively. The Company's effective income tax rate differs from theU.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 theU.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 stockbased compensation due to the expiration of unexercised stock options and prior year provision to return adjustments.
Net loss
Net loss increased by$7.4 million , or 1,457.5%, in the three months endedJune 30, 2020 over the corresponding period in 2019. Net loss as a percentage of revenue was (3.9)% and (0.2)% during the three months endedJune 30, 2020 and 2019, respectively. Net loss as a percentage of gross profit was (16.3)% and (0.7)% during the three months endedJune 30, 2020 and 2019, respectively. The increase in net loss is attributable to lower gross profit as a result of the decline in revenue related to COVID-19.
Comparison of Six Months Ended
Revenue
Third party revenue by segment for each of the periods presented was as follows (dollars in thousands): Six Months Ended June 30, 2020 % of Total 2019 % of Total North America$ 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
North America . Revenue decreased by$49.7 million , or 12.8%, in the six months endedJune 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 endedJune 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. 30 -------------------------------------------------------------------------------- LATAM. Revenue decreased by$11.4 million , or 28.4%, in the six months endedJune 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 endedJune 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 endedJune 30, 2020 and 2019, respectively. Gross profit margin Gross profit margin was 24.1% and 23.7% during the six months endedJune 30, 2020 and 2019, respectively. The increase was primarily driven by more favorable mix of services inNorth America .
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by$16.5 million , or 14.6%, in the six months endedJune 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 endedJune 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 theNorth 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 ofJune 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 inNorth 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 OnAugust 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 endedJune 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 endedJune 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 endedJune 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. 31 --------------------------------------------------------------------------------
Other expense
Other expense decreased by$2.0 million in the six months endedJune 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 endedJune 30, 2020 over the corresponding period in 2019. Our effective tax rate was (8.7)% and (70.2)% for the six months endedJune 30, 2020 and 2019, respectively. The Company's effective income tax rate differs from theU.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 theU.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 stockbased compensation due to the expiration of unexercised stock options and prior year provision to return adjustments.
Net loss
Net loss increased by$8.2 million , or 321.3%, in the six months endedJune 30, 2020 over the corresponding period in 2019. Net loss as a percentage of revenue was (2.3)% and (0.5)% during the six months endedJune 30, 2020 and 2019, respectively. Net loss as a percentage of gross profit was (9.6)% and (2.0)% during the six months endedJune 30, 2020 and 2019, respectively. The increase in net loss is primarily attributable to goodwill and intangible and other asset impairment charges and foreign exchanges losses, offset by the change in fair value of warrant and derivative liabilities, and decrease in operating expenses due to cost savings and restructuring initiatives during the period.
Adjusted EBITDA
Adjusted EBITDA by segment for each of the periods presented was as follows (dollars in thousands):
Three Months Ended June 30, 2020 % of Total 2019 % of Total North America$ 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
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
(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
North America . Adjusted EBITDA decreased by$7.2 million , or 35.3%, in the three months endedJune 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. 32 -------------------------------------------------------------------------------- EMEA. Adjusted EBITDA decreased by$0.3 million , or 5.8%, in the three months endedJune 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 endedJune 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 endedJune 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
North America . Adjusted EBITDA increased by$0.4 million , or 1.2%, in the six months endedJune 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 endedJune 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 endedJune 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$0.5 million , or 2.0%, in the six months endedJune 30, 2020 over the corresponding period in 2019 primarily due to cost savings initiatives during the period as a result of COVID-19.
Adjusted Diluted Earnings Per Share
Adjusted diluted earnings per share for each of the periods presented was as follows (in thousands, except per share amounts):
Three Months EndedJune 30 ,
Six Months Ended
2020 2019 2020 2019 Net loss$ (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
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 33
-------------------------------------------------------------------------------- Comparison of three months endedJune 30, 2020 and 2019. Adjusted diluted earnings per share decreased by$0.12 in the three months endedJune 30, 2020 over the corresponding period in 2019. The decrease is related to an increase in net loss, partially offset by new merger-related transaction costs and intangible and other asset impairment charges incurred during the period. Comparison of six months endedJune 30, 2020 and 2019. Adjusted diluted earnings per share decreased by$0.11 in the six months endedJune 30, 2020 over the corresponding period in 2019. The decrease was primarily attributable to an increase in net loss, along with change in fair value of warrant and embedded derivatives, partially offset by goodwill impairment and restructuring costs during the period.
Liquidity and Capital Resources
While uncertainty exists as to the full impact of the COVID-19 pandemic on our liquidity and capital resources, the Company believes it has maintained sufficient liquidity to satisfy our working capital and other funding requirements with internally generated cash flow and, as necessary, cash on hand and borrowings under our revolving credit facility.
Cash Flow Summary
The following table presents cash flows for the six months ended
Six Months Ended
2020
2019
Net cash provided by operating activities$ 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
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 endedJune 30, 2020 was$18.0 million and consisted of net loss of$10.8 million , offset by$14.3 million of non-cash items and$14.5 million used to fund working capital. The working capital changes consisted of a decrease in accounts receivable and unbilled revenue of$61.1 million , a decrease in prepaid expenses and other assets of$17.1 million , an increase in inventory of$3.1 million , a decrease in accounts payable and accrued expenses and other liabilities of$60.5 million . Cash provided by operating activities for the six months endedJune 30, 2019 was$1.3 million and consisted of a net loss of$2.6 million , offset by$9.1 million of non-cash items and by$5.3 million 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$10.1 million and an increase in prepaid expenses and other assets of$4.2 million , partially offset by a decrease in accounts payable of$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
Financing Activities. Cash used in financing activities for the six months endedJune 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 endedJune 30, 2019 of$13.0 million was primarily attributable to net borrowings under the revolving credit facility of$14.9 million and$0.9 million of payments for debt issuance costs, partially offset by$0.8 million in net short-term secured borrowings.
Revolving Credit Facilities and Long-Term Debt
34 -------------------------------------------------------------------------------- OnJuly 16, 2019 . the Company refinanced its debt, which is further discussed in Note 11, Revolving Credit Facility and in Note 12, Long-Term Debt. The debt structure provides long-term capital with improved flexibility to support the Company's growth plans. The Company intends to use excess cash from operations to pay off debt and support working capital needs. The ABL Credit Agreement contains a minimum fixed charge coverage ratio financial covenant that must be maintained when excess availability falls below a specified amount. The Term Loan Credit Agreement includes a 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. The Company is in compliance with all debt covenants in the ABL Credit Agreement and Term Loan Credit Agreement as ofJune 30, 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 funds available under our new debt 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, Subsequent Events, we may find it necessary to obtain additional equity or debt financing in the future. We earn a portion of our operating income outsidethe 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 inthe 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 cash equivalents are amounts held by foreign subsidiaries. We had$33.3 million and$39.9 million foreign cash and cash equivalents as ofJune 30, 2020 andDecember 31, 2019 , respectively, which are generally denominated in the local currency where the funds are held. Treasury Shares
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 endedDecember 31, 2019 , under the caption "Contractual Obligations."
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 theSEC 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 theSEC . In addition, theSEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically. 35
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