Several law firms say they’re investigating Top 40 distributor InnerWorkings (asi/168860) after the company delayed its first quarter earnings release upon discovering that financial statements it issued during the previous three years contained errors.
The investigating firms include Radnor PA-based Kaskela Law LLC, New York-based Bernstein Liebhard LLP, San Diego-based Johnson Fistel LLP, New York-based Bronstein, Gewitz and Grossman, and New York City-based Rosen Law Firm.
In a statement, Kaskela Law said that it’s investigating on behalf of InnerWorkings’ shareholders. “The investigation concerns whether InnerWorkings and its senior executive officers issued false and misleading financial statements to investors and thereby violated the federal securities laws,” the statement said.
Rosen Law Firm went a step further, saying in a statement that it’s “preparing a class action lawsuit to recover losses suffered by InnerWorkings investors.”
Chicago-based InnerWorkings was scheduled to release Q1 earnings when markets closed on Tuesday, May 8. But before that could happen, the company announced that it would be delaying the release due to accounting errors in “its historical statements identified during the course of its first quarter financial reporting close process.” In the wake of the discoveries, InnerWorkings plans to reissue financial statements for the years 2017, 2016 and 2015, as well as the interim reporting periods within those years. InnerWorkings’ stock fell following the announcement.
Based on a preliminary assessment, InnerWorkings expects the corrections will result in annual decreases in pre-tax income. The year 2017 could see an income decrease of $2.5 to $4.5 million, the company said. Meanwhile, 2016 income could decline by $1.5 to $2.5 million. For 2015, income could drop by $500,000 to $1.5 million.
Rich Stoddart recently became president and CEO of InnerWorkings.
Despite the anticipated income drops, InnerWorkings said in a statement that the accounting errors related to recording a portion of costs of goods sold in the wrong period and will “have no material impact on InnerWorkings’ cash flow, revenue, or liquidity.” The company said it found other errors that will be corrected too, though added that these issues are “immaterial individually and in the aggregate.”
InnerWorkings did not immediately respond to a request for comment from Counselor. Going forward, InnerWorkings expects to file an amendment to its 2017 Form 10-K reflecting the corrected financial statements. It also plans to reschedule its first quarter earnings release to later this month, though no definite date has been announced. Earlier this year, InnerWorkings announced that it increased overall company revenue, profit and earnings per share in 2017.
In December 2017, then InnerWorkings’ Chief Financial Officer Jeffrey P. Pritchett (at left) resigned. Pritchett had joined the company in 2015. At the time of Pritchett’s resignation, InnerWorkings told Counselor that the CFO departed because of a personal conduct issue that was inconsistent with company policy. The company said then that Pritchett’s activities did not impact InnerWorkings’ business, operations, financial performance or reporting. Pritchett reportedly joined InnerWorkings in August 2015.
With estimated 2016 North American promotional products revenue of $147 million, InnerWorkings ranked 15th on Counselor’s most recent list of the largest distributors in the industry. The new list is due out in July.