Company Quick10K Filing
GP Strategies
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 17 $251
10-Q 2019-11-07 Quarter: 2019-09-30
10-Q 2019-08-02 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-04-01 Annual: 2018-12-31
10-Q 2018-11-06 Quarter: 2018-09-30
10-Q 2018-08-01 Quarter: 2018-06-30
10-Q 2018-05-03 Quarter: 2018-03-31
10-K 2018-03-01 Annual: 2017-12-31
10-Q 2017-11-02 Quarter: 2017-09-30
10-Q 2017-07-27 Quarter: 2017-06-30
10-Q 2017-05-02 Quarter: 2017-03-31
10-K 2017-02-28 Annual: 2016-12-31
10-Q 2016-11-01 Quarter: 2016-09-30
10-Q 2016-07-28 Quarter: 2016-06-30
10-Q 2016-04-28 Quarter: 2016-03-31
10-K 2016-02-25 Annual: 2015-12-31
10-Q 2015-10-29 Quarter: 2015-09-30
10-Q 2015-07-30 Quarter: 2015-06-30
10-Q 2015-05-05 Quarter: 2015-03-31
10-K 2015-02-24 Annual: 2014-12-31
10-Q 2014-10-30 Quarter: 2014-09-30
10-Q 2014-07-31 Quarter: 2014-06-30
10-Q 2014-05-01 Quarter: 2014-03-31
10-K 2014-02-28 Annual: 2013-12-31
10-Q 2013-10-31 Quarter: 2013-09-30
10-Q 2013-08-01 Quarter: 2013-06-30
10-Q 2013-05-02 Quarter: 2013-03-31
10-K 2013-02-26 Annual: 2012-12-31
10-Q 2012-11-01 Quarter: 2012-09-30
10-Q 2012-08-02 Quarter: 2012-06-30
10-Q 2012-05-03 Quarter: 2012-03-31
10-Q 2011-11-03 Quarter: 2011-09-30
10-Q 2011-08-04 Quarter: 2011-06-30
10-Q 2011-05-05 Quarter: 2011-03-31
10-K 2011-03-03 Annual: 2010-12-31
10-Q 2010-11-04 Quarter: 2010-09-30
10-Q 2010-08-05 Quarter: 2010-06-30
10-Q 2010-05-06 Quarter: 2010-03-31
10-K 2010-03-04 Annual: 2009-12-31
8-K 2020-01-10 Officers, Exhibits
8-K 2020-01-08 Other Events, Exhibits
8-K 2019-11-07 Earnings, Exhibits
8-K 2019-10-31 Other Events, Exhibits
8-K 2019-08-07 Shareholder Vote
8-K 2019-08-01 Earnings, Exhibits
8-K 2019-05-15 Officers
8-K 2019-05-10 Earnings, Exhibits
8-K 2019-03-18 Earnings, Exhibits
8-K 2019-03-15 Officers
8-K 2018-11-30 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-11-06 Enter Agreement, Other Events
8-K 2018-08-08 Shareholder Vote
8-K 2018-08-08 Officers
8-K 2018-08-02 Officers, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-06-29 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-20 Officers
8-K 2018-05-03 Earnings, Exhibits
8-K 2018-04-20 Officers
8-K 2018-03-06 Other Events
8-K 2018-03-01 Earnings, Exhibits
GPX 2019-09-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 exhibit311-gpx93019.htm
EX-31.2 exhibit312-gpx93019.htm
EX-32.1 exhibit321-gpx93019.htm

GP Strategies Earnings 2019-09-30

GPX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
FC 365 188 114 160 161 -4 12 355 101% 30.5 -2%
CSV 345 957 733 268 76 11 48 664 28% 13.8 1%
ASPS 307 744 460 789 200 -9 77 544 25% 7.0 -1%
CRAI 288 486 291 431 131 22 41 272 30% 6.6 4%
GPX 251 461 267 545 82 7 26 364 15% 14.0 2%
AMBO 233 910 647 0 0 0 0 -8 0%
BPI 205 297 175 427 214 -33 -29 75 50% -2.6 -11%
RYB 174 243 128 0 0 0 0 69 0%
UTI 128 244 133 324 0 -24 -9 72 0% -7.8 -10%
ASPU 101 50 25 37 19 -9 -6 93 52% -16.4 -17%

10-Q 1 gpx-20190930.htm 10-Q Document
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 September 30, 2019
or
 
¨ 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 1-7234
 
 GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)
 
Delaware
 
52-0845774
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
70 Corporate Center 
 
 
11000 Broken Land Parkway, Suite 200, Columbia, MD
 
21044
(Address of principal executive offices)
 
(Zip Code)
 
(443) 367-9600
Registrant’s telephone number, including area code:
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   ý No   ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   ý No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company in Rule 12b-2 of the Exchange Act. 
Large accelerated filer   
¨
Accelerated filer   
x
Non-accelerated filer   ¨
Smaller reporting company  
¨
Emerging growth company  
¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
GPX
NYSE (New York Stock Exchange)

The number of shares outstanding of the registrant’s common stock as of October 31, 2019 was as follows:
Class
 
Outstanding
 
Common Stock, par value $.01 per share
 
16,974,916
 






GP STRATEGIES CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS
 
 
Page
 
 
 
Part I.
Financial Information
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II.
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 



Part I. Financial Information
Item 1. Financial Statements 
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)

September 30, 2019 (Unaudited)

December 31, 2018
Assets
 


 

Current assets:





Cash
$
7,739


$
13,417

Accounts and other receivables, less allowance for doubtful accounts of $2,652 in 2019 and $2,034 in 2018
115,951


107,673

Unbilled revenue
59,957


80,764

Prepaid expenses and other current assets
25,930


19,048

Total current assets
209,577


220,902

Property, plant and equipment
22,642


24,580

Accumulated depreciation
(16,758
)

(18,721
)
Property, plant and equipment, net
5,884


5,859

Operating lease right-of-use assets
27,136



Goodwill
176,213


176,124

Intangible assets, net
17,340


20,933

Other assets
13,423


10,920

 
$
449,573


$
434,738

Liabilities and Stockholders’ Equity
 


 

Current liabilities:
 


 

Accounts payable and accrued expenses
$
77,720


$
93,254

Deferred revenue
21,594


23,704

Current portion of operating lease liabilities
8,429



Total current liabilities
107,743


116,958

Long-term debt
113,150


116,500

Long-term portion of operating lease liabilities
22,196



Other noncurrent liabilities
11,441


14,711

Total liabilities
254,530


248,169







Stockholders’ equity:
 


 

Common stock, par value $0.01 per share
172


172

Additional paid-in capital
102,991


105,850

Retained earnings
121,733


116,039

Treasury stock at cost
(6,045
)

(13,802
)
Accumulated other comprehensive loss
(23,808
)

(21,690
)
Total stockholders’ equity
195,043


186,569


$
449,573


$
434,738

 See accompanying notes to condensed consolidated financial statements.

1


GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
139,005

 
$
123,566

 
$
427,891

 
$
382,289

Cost of revenue
117,338

 
104,367

 
361,987

 
322,838

Gross profit
21,667


19,199


65,904


59,451

General and administrative expenses
15,240

 
12,227

 
46,769

 
40,207

Sales and marketing expenses
1,830

 
1,297

 
5,725

 
3,128

Restructuring charges
104

 

 
1,405

 
2,930

Gain on change in fair value of contingent consideration, net

 
526

 
677

 
3,972

Operating income
4,493


6,201


12,682


17,158

Interest expense
1,575

 
1,095

 
4,852

 
1,631

Other income (expense)
184

 
(760
)
 
272

 
(1,912
)
Income before income tax expense
3,102


4,346


8,102


13,615

Income tax expense
961

 
1,102

 
2,408

 
4,164

Net income
$
2,141


$
3,244


$
5,694


$
9,451

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
16,901

 
16,536

 
16,773

 
16,555

Diluted weighted average shares outstanding
16,939

 
16,628

 
16,807

 
16,647

 
 
 
 
 
 
 
 
Per common share data:
 

 
 

 
 

 
 

Basic earnings per share
$
0.13

 
$
0.20

 
$
0.34

 
$
0.57

Diluted earnings per share
$
0.13

 
$
0.20

 
$
0.34

 
$
0.57

 
See accompanying notes to condensed consolidated financial statements.

2


GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
2,141

 
$
3,244

 
$
5,694

 
$
9,451

Foreign currency translation adjustments
(3,451
)
 
(457
)
 
(2,118
)
 
(3,662
)
Change in fair value of interest rate cap, net of tax

 
47

 

 
252

Change in fair value of interest rate swap, net of tax

 
(12
)
 
$

 
$
47

Comprehensive income (loss)
$
(1,310
)
 
$
2,822

 
$
3,576

 
$
6,088

 
See accompanying notes to condensed consolidated financial statements.

3


GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
Three Months Ended September 30, 2019 and 2018
(Unaudited)
(In thousands)

 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Treasury
stock
at cost
 
Accumulated
other
comprehensive
loss
 
Total
stockholders’
equity
Balance at June 30, 2019
172

 
104,187

 
119,592

 
(9,830
)
 
(20,357
)
 
193,764

Net income

 

 
2,141

 

 

 
2,141

Foreign currency translation adjustment

 

 

 

 
(3,451
)
 
(3,451
)
Stock-based compensation expense

 
783

 

 

 

 
783

Issuance of stock for employer contributions to retirement plan

 
(585
)
 

 
1,322

 

 
737

Net issuances of stock pursuant to stock compensation plans and other

 
(1,394
)
 

 
2,463

 

 
1,069

Balance at September 30, 2019
$
172

 
$
102,991

 
$
121,733

 
$
(6,045
)
 
$
(23,808
)
 
$
195,043


 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Treasury
stock
at cost
 
Accumulated
other
comprehensive
loss
 
Total
stockholders’
equity
Balance at June 30, 2018
$
172

 
$
107,372

 
$
112,410

 
$
(16,074
)
 
$
(17,796
)
 
$
186,084

Net income

 

 
3,244

 

 

 
3,244

Foreign currency translation adjustment

 

 

 

 
(457
)
 
(457
)
Change in fair value of interest rate cap, net of tax

 

 

 

 
47

 
47

Change in fair value of interest rate swap, net of tax

 

 

 

 
(12
)
 
(12
)
Repurchases of common stock

 

 

 
(662
)
 

 
(662
)
Stock-based compensation expense

 
247

 

 

 

 
247

Issuance of stock for employer contributions to retirement plan

 
(210
)
 

 
930

 

 
720

Net issuances of stock pursuant to stock compensation plans and other

 
(109
)
 

 
96

 

 
(13
)
Balance at September 30, 2018
$
172

 
$
107,300

 
$
115,654

 
$
(15,710
)
 
$
(18,218
)
 
$
189,198


See accompanying notes to condensed consolidated financial statements.















4



GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
Nine Months Ended September 30, 2019 and 2018
(Unaudited)
(In thousands)

 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Treasury
stock
at cost
 
Accumulated
other
comprehensive
loss
 
Total
stockholders’
equity
Balance at December 31, 2018
$
172

 
$
105,850

 
$
116,039

 
$
(13,802
)
 
$
(21,690
)
 
$
186,569

Net income

 

 
5,694

 

 

 
5,694

Foreign currency translation adjustment

 

 

 

 
(2,118
)
 
(2,118
)
Stock-based compensation expense

 
1,739

 

 

 

 
1,739

Issuance of stock for employer contributions to retirement plan

 
(1,546
)
 

 
3,746

 

 
2,200

Net issuances of stock pursuant to stock compensation plans and other

 
(3,052
)
 

 
4,011

 

 
959

Balance at September 30, 2019
$
172

 
$
102,991

 
$
121,733

 
$
(6,045
)
 
$
(23,808
)
 
$
195,043


 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Treasury
stock
at cost
 
Accumulated
other
comprehensive
loss
 
Total
stockholders’
equity
Balance at December 31, 2017
$
172

 
$
107,256

 
$
106,599

 
$
(11,118
)
 
$
(14,855
)
 
$
188,054

Cumulative effect adjustment of adopting ASU 2014-09

 

 
(396
)
 

 

 
(396
)
Adjusted balance at December 31, 2017
172

 
107,256

 
106,203

 
(11,118
)
 
(14,855
)
 
187,658

Net income

 

 
9,451

 

 

 
9,451

Foreign currency translation adjustment

 

 

 

 
(3,662
)
 
(3,662
)
Change in fair value of interest rate cap, net of tax

 

 

 

 
252

 
252

Change in fair value of interest rate swap, net of tax

 

 

 

 
47

 
47

Repurchases of common stock

 

 

 
(7,956
)
 

 
(7,956
)
Stock-based compensation expense

 
1,344

 

 

 

 
1,344

Issuance of stock for employer contributions to retirement plan

 
(298
)
 

 
2,455

 

 
2,157

Net issuances of stock pursuant to stock compensation plans and other

 
(1,002
)
 

 
909

 

 
(93
)
Balance at September 30, 2018
$
172

 
$
107,300

 
$
115,654

 
$
(15,710
)
 
$
(18,218
)
 
$
189,198


See accompanying notes to condensed consolidated financial statements.


5






GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2019 and 2018
(Unaudited, in thousands)
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net income
$
5,694

 
$
9,451

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Gain on change in fair value of contingent consideration, net
(677
)
 
(3,972
)
Depreciation and amortization
6,992

 
5,670

Deferred income taxes
(258
)
 
(610
)
Non-cash compensation expense
3,939

 
3,501

Changes in other operating items:
 

 
 

Accounts and other receivables
(10,997
)
 
(4,644
)
Unbilled revenue
19,296

 
6,344

Prepaid expenses and other current assets
(6,628
)
 
(5,131
)
Accounts payable, accrued expenses and net change in operating leases
(12,188
)
 
(5,527
)
Deferred revenue
(1,840
)
 
(2,215
)
Other
1,218

 
643

Net cash provided by operating activities
4,551

 
3,510

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property, plant and equipment
(1,905
)
 
(2,267
)
Acquisitions, net of cash acquired
850

 
(42,872
)
Capitalized software development costs and other
(2,261
)
 
(3,229
)
Net cash used in investing activities
(3,316
)
 
(48,368
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from short-term borrowings

 
31,410

Proceeds from long-term debt
120,350

 
18,000

Repayment of long-term debt
(123,700
)
 
(9,000
)
Change in negative cash book balance
(1,329
)
 
723

Repurchases of common stock in the open market

 
(8,485
)
Other financing activities
(421
)
 
(127
)
Net cash (used in) provided by financing activities
(5,100
)
 
32,521

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(1,813
)
 
(952
)
Net decrease in cash
(5,678
)
 
(13,289
)
Cash at beginning of period
13,417

 
23,612

Cash at end of period
$
7,739

 
$
10,323

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for interest
$
4,681

 
$
1,388

Cash paid during the period for income taxes
2,148

 
3,371

 See accompanying notes to condensed consolidated financial statements.

6


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)


(1)
Basis of Presentation

GP Strategies Corporation is a global performance improvement solutions provider of training, digital learning solutions, management consulting and engineering services. References in this report to “GP Strategies,” the “Company,” “we” and “our” are to GP Strategies Corporation and its subsidiaries, collectively.
 
The accompanying condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of operations, comprehensive income (loss) and stockholders' equity for the three and nine months ended September 30, 2019 and 2018, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018 have not been audited, but have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation. The results for the 2019 interim period are not necessarily indicative of results to be expected for the entire year.
 
The condensed consolidated financial statements include the operations of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

Certain prior year amounts have been reclassified to conform with the current year presentation. Beginning in the second quarter of 2018, sales and marketing expenses have been presented separately from general administrative expenses on the condensed consolidated statements of operations, whereas in prior periods these amounts were included in one caption titled "selling, general and administrative expenses." Amounts for the first quarter of 2018 have been reclassified to conform to the current year presentation.
 
(2)
Recent Accounting Standards

Recently Adopted Accounting Standards
On January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which requires the recognition of lease rights and obligations as assets and liabilities on the balance sheet. Previously, lessees were not required to recognize on the balance sheet assets and liabilities arising from operating leases. We adopted Topic 842 using the modified retrospective method of adoption applying the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these financial statements. As a result, prior period information has not been restated.
The new standard provides several optional practical expedients for use in transition. We elected to use what the FASB has deemed the “package of practical expedients,” which allows us not to reassess our previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs. The ASU also provides several optional practical expedients for the ongoing accounting for leases. We have elected the short-term lease recognition exemption for all leases that qualify, meaning that for leases with terms of twelve months or less, we will not recognize right-of-use (ROU) assets or lease liabilities on our consolidated balance sheet. Additionally, we have elected to use the practical expedient to not separate lease and non-lease components for leases of real estate, meaning that for these leases, the non-lease components are included in the associated ROU asset and lease liability balances on our consolidated balance sheet.
The most significant impacts of adopting Topic 842 on our consolidated financial statements were (1) the recognition of new ROU assets and lease liabilities for our operating leases of $31.1 million and $34.9 million, respectively on January 1, 2019, which included reclassifying accrued rent as a component of the ROU asset, and (2) significant new disclosures about our leasing activities, which are provided in Note 13. Topic 842 did not have a material impact on our results of operations or cash flows.


7


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The standard will remove step 2 from the goodwill impairment test. Under the ASU, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for public companies for annual reporting periods beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. We adopted the standard on January 1, 2019. The adoption of the ASU did not have an effect on our results of operations, financial condition or cash flows.

Accounting Standards Not Yet Adopted
For a discussion of other accounting standards that have been issued by the FASB but are not yet effective, refer to the Recent Accounting Standards section in our Annual Report on Form 10-K for the year ended December 31, 2018. These standards are not expected to have a material impact on our results of operations, financial condition or cash flows.

(3)
Revenue

Significant Accounting Policy
We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC Topic 606), which we adopted on January 1, 2018, using the modified retrospective method. Revenue is measured based on the consideration specified in a contract with a customer. Most of our contracts with customers contain transaction prices with fixed consideration, however, some contracts may contain variable consideration in the form of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties and other similar items. When a contract includes variable consideration, we evaluate the estimate of variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. This can result in recognition of revenue over time as we perform services or at a point in time when the deliverable is transferred to the customer, depending on an evaluation of the criteria for over time recognition in ASC Topic 606. Further details regarding our revenue recognition for various revenue streams are discussed below.
Nature of goods and services
Over 90% of our revenue is derived from services provided to our customers for training, consulting, technical, engineering and other services. Less than 10% of our revenue is derived from various other offerings including custom magazine publications and assembly of glovebox portfolios for automotive manufacturers, licenses of software and other intellectual property, and software as a service (SaaS) arrangements.
Our primary contract vehicles are time-and-materials, fixed price (including fixed-fee per transaction) and cost-reimbursable contracts. Each contract has different terms based on the scope, deliverables and complexity of the engagement, requiring us to make judgments and estimates about recognizing revenue.
 
Under time-and-materials and cost-reimbursable contracts, the contractual billing schedules are based on the specified level of resources we are obligated to provide. Revenue under these contract types are recognized over time as services are performed as the client simultaneously receives and consumes the benefits provided by our performance throughout the engagement. The time and materials incurred for the period is the measure of performance and, therefore, revenue is recognized in that amount.
 
For fixed price contracts which typically involve a discrete project, such as development of training content and materials, design of training processes, software implementation, or engineering projects, the contractual billing schedules are not necessarily based on the specified level of resources we are obligated to provide. These discrete projects generally do not contain milestones or other measures of performance. The majority of our fixed price contracts meet the criteria in ASC Topic 606 for over time revenue recognition. For these contracts, revenue is recognized using a percentage-of-completion method

8


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

based on the relationship of costs incurred to total estimated costs expected to be incurred over the term of the contract. We believe this methodology is a reasonable measure of proportional performance since performance primarily involves personnel costs and services provided to the customer throughout the course of the projects through regular communications of progress toward completion and other project deliverables. In addition, the customer is required to pay us for the proportionate amount of our fees in the event of contract termination. A small portion of our fixed price contracts do not meet the criteria in ASC Topic 606 for over time revenue recognition. For these projects, we defer revenue recognition until the performance obligation is satisfied, which is generally when the final deliverable is provided to the client. The direct costs related to these projects are capitalized and then recognized as cost of revenue when the performance obligation is satisfied.
 
For fixed price contracts, when total direct cost estimates exceed revenues, the estimated losses are recognized immediately. The use of the percentage-of-completion method requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in estimated salaries and other costs. Estimates of total contract costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses. When revisions in estimated contract revenues and costs are determined, such adjustments are recorded in the period in which they are first identified. Adjustments to our fixed price contracts in the aggregate resulted in a net increases to revenue of $0.4 million and $0.3 million for the three months ended September 30, 2019 and 2018, respectively, and net increases to revenue of $1.3 million for both of the nine months ended September 30, 2019 and 2018, respectively.

For certain fixed-fee per transaction contracts, such as delivering training courses or conducting workshops, revenue is recognized during the period in which services are delivered in accordance with the pricing outlined in the contracts.

For certain fixed-fee per transaction and fixed price contracts in which the output of the arrangement is measurable, such as for the shipping of publications and print materials, revenue is recognized at the point in time at which control is transferred which is upon delivery. 

Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we collect from a customer, are excluded from revenue.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. As of September 30, 2019, we had $338.1 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 90 percent of our remaining performance obligations as revenue within the next twelve months. We did not apply any of the practical expedients permitted by ASC Topic 606 in determining the amount of our performance obligations as of September 30, 2019.

9


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

Revenue by Category
The following series of tables presents our revenue disaggregated by various categories (dollars in thousands).
 
Three Months Ended September 30,
 
Workforce
Excellence
 
Business Transformation Services
 
Consolidated
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Revenue by type of service:
 
 
 
 
 
 
 
 
 
 
 
Managed learning services
$
55,901

 
$
51,387

 
$

 
$

 
$
55,901

 
$
51,387

Engineering & technical services
26,589

 
29,129

 

 

 
26,589

 
29,129

Sales enablement

 

 
33,826

 
19,944

 
33,826

 
19,944

Organizational development

 

 
22,689

 
23,106

 
22,689

 
23,106

 
$
82,490

 
$
80,516

 
$
56,515

 
$
43,050

 
$
139,005

 
$
123,566

 
 
 
 
 
 
 
 
 
 
 
 
Revenue by geographic region:
 
 
 
 
 
 
 
 
 
 
 
Americas
$
58,469

 
$
56,064

 
$
43,625

 
$
35,380

 
$
102,094

 
$
91,444

Europe Middle East Africa
21,721

 
21,153

 
12,560

 
8,906

 
34,281

 
30,059

Asia Pacific
9,558

 
8,205

 
4,753

 
109

 
14,311

 
8,314

Eliminations
(7,258
)
 
(4,906
)
 
(4,423
)
 
(1,345
)
 
(11,681
)
 
(6,251
)
 
$
82,490

 
$
80,516

 
$
56,515

 
$
43,050

 
$
139,005

 
$
123,566

 
 
 
 
 
 
 
 
 
 
 
 
Revenue by client market sector:
 
 
 
 
 
 
 
 
 
 
 
Automotive
$
2,354

 
$
2,738

 
$
32,143

 
$
20,531

 
$
34,497

 
$
23,269

Financial & Insurance
24,450

 
22,364

 
2,890

 
2,692

 
27,340

 
25,056

Manufacturing
9,001

 
7,558

 
4,945

 
3,734

 
13,946

 
11,292

Energy / Oil & Gas
7,910

 
9,113

 
1,488

 
1,188

 
9,398

 
10,301

U.S. Government
9,282

 
7,673

 
2,002

 
2,102

 
11,284

 
9,775

U.K. Government
4,654

 
4,456

 

 

 
4,654

 
4,456

Information & Communication
2,909

 
3,315

 
1,961

 
2,330

 
4,870

 
5,645

Aerospace
8,644

 
6,705

 
1,317

 
1,160

 
9,961

 
7,865

Electronics Semiconductor
3,229

 
3,719

 
389

 
241

 
3,618

 
3,960

Life Sciences
5,091

 
4,892

 
1,321

 
1,932

 
6,412

 
6,824

Other
4,966

 
7,983

 
8,059

 
7,140

 
13,025

 
15,123

 
$
82,490

 
$
80,516

 
$
56,515

 
$
43,050

 
$
139,005

 
$
123,566



10


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

 
Nine Months Ended September 30,
 
Workforce
Excellence
 
Business Transformation Services
 
Consolidated
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Revenue by type of service:
 
 
 
 
 
 
 
 
 
 
 
Managed learning services
$
159,972

 
$
156,244

 
$

 
$

 
$
159,972

 
$
156,244

Engineering & technical services
83,027

 
82,800

 

 

 
83,027

 
82,800

Sales enablement

 

 
115,754

 
71,593

 
115,754

 
71,593

Organizational development

 

 
69,138

 
71,652

 
69,138

 
71,652

 
$
242,999

 
$
239,044

 
$
184,892

 
$
143,245

 
$
427,891

 
$
382,289

 
 
 
 
 
 
 
 
 
 
 
 
Revenue by geographic region:
 
 
 
 
 
 
 
 
 
 
 
Americas
$
170,953

 
$
158,935

 
$
142,581

 
$
120,814

 
$
313,534

 
$
279,749

Europe Middle East Africa
66,418

 
70,253

 
36,680

 
27,408

 
103,098

 
97,661

Asia Pacific
24,393

 
23,400

 
16,583

 
298

 
40,976

 
23,698

Eliminations
(18,765
)
 
(13,544
)
 
(10,952
)
 
(5,275
)
 
(29,717
)
 
(18,819
)
 
$
242,999

 
$
239,044

 
$
184,892

 
$
143,245

 
$
427,891

 
$
382,289

 
 
 
 
 
 
 
 
 
 
 
 
Revenue by client market sector:
 
 
 
 
 
 
 
 
 
 
 
Automotive
$
6,176

 
$
8,614

 
$
111,855

 
$
73,134

 
$
118,031

 
$
81,748

Financial & Insurance
62,847

 
67,522

 
7,784

 
9,010

 
70,631

 
76,532

Manufacturing
25,395

 
25,621

 
17,029

 
11,606

 
42,424

 
37,227

Energy / Oil & Gas
27,972

 
27,769

 
4,290

 
3,318

 
32,262

 
31,087

U.S. Government
28,768

 
20,704

 
5,891

 
6,742

 
34,659

 
27,446

U.K. Government
13,066

 
14,889

 

 

 
13,066

 
14,889

Information & Communication
10,372

 
11,027

 
6,338

 
6,953

 
16,710

 
17,980

Aerospace
22,198

 
21,619

 
3,350

 
2,408

 
25,548

 
24,027

Electronics Semiconductor
11,444

 
11,228

 
983

 
521

 
12,427

 
11,749

Life Sciences
14,799

 
9,743

 
5,060

 
7,143

 
19,859

 
16,886

Other
19,962

 
20,308

 
22,312

 
22,410

 
42,274

 
42,718

 
$
242,999

 
$
239,044

 
$
184,892

 
$
143,245

 
$
427,891

 
$
382,289


Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenue (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheet. Amounts charged to our clients become billable according to the contract terms, which usually consider the passage of time, achievement of milestones or completion of the project. When billings occur after the work has been performed, such unbilled amounts will generally be billed and collected within 60 to 120 days but typically no longer than over the next twelve months. When we advance bill clients prior to the work being performed, generally, such amounts will be earned and recognized in revenue within the next twelve months. These assets and liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the nine-month period ended September 30, 2019 were not materially impacted by any other factors.
We recognized revenue of $1.5 million and $2.3 million for the three months ended September 30, 2019 and 2018, respectively, and $17.2 million and $18.6 million for the nine months ended September 30, 2019 and 2018, respectively, that was included in the contract liability balance at the beginning of the year and primarily represented revenue from services performed during the current period for which we received advance payment from clients in a prior period.

11


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)



(4)
Significant Customers & Concentration of Credit Risk

We have a market concentration of revenue in both the automotive sector and financial & insurance sector. Revenue from the automotive sector accounted for approximately 28% and 21% of our consolidated revenue for the nine months ended September 30, 2019 and 2018, respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 13% and 14% of our consolidated revenue for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, accounts receivable from a single automotive customer totaled $12.3 million, or 11%, of our consolidated accounts receivable balance.

Revenue from the financial & insurance sector accounted for approximately 17% and 20% of our consolidated revenue for the nine months ended September 30, 2019 and 2018, respectively. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 11% and 14% of our consolidated revenue for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, billed and unbilled accounts receivable from a single financial services customer totaled $17.5 million, or 10%, of our consolidated accounts receivable and unbilled revenue balances.

No other single customer accounted for more than 10% of our consolidated revenue for the nine months ended September 30, 2019 or 2018 or consolidated accounts receivable balance as of September 30, 2019.


(5)
Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
 
Our dilutive common stock equivalent shares consist of restricted stock units computed under the treasury stock method, using the average market price during the period. Performance-based restricted stock unit awards are included in the computation of diluted shares based on the probable outcome of the underlying performance conditions being achieved. The following table presents instruments which were not dilutive and were excluded from the computation of diluted EPS in each period, as well as the dilutive common stock equivalent shares which were included in the computation of diluted EPS: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Non-dilutive instruments
30

 
108

 
87

 
85

 
 
 
 
 
 
 
 
Dilutive common stock equivalents
38

 
92

 
34

 
92


12


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)


(6)
Acquisitions

Contingent Consideration
ASC Topic 805 requires that contingent consideration be recognized at fair value on the acquisition date and be re-measured each reporting period with subsequent adjustments recognized in the condensed consolidated statement of operations. We estimate the fair value of contingent consideration liabilities using an appropriate valuation methodology, typically either an income-based approach or a simulation model, such as the Monte Carlo model, depending on the structure of the contingent consideration arrangement. Contingent consideration is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. We believe our estimates and assumptions are reasonable; however, there is significant judgment involved. At each reporting date, the contingent consideration obligation is revalued to estimated fair value, and changes in fair value subsequent to the acquisitions are reflected in income or expense in the condensed consolidated statements of operations, and could cause a material impact to, and volatility in, our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates and changes in the timing and amount of revenue and/or earnings projections.

Below is a summary of the changes in the recorded amount of contingent consideration liabilities from December 31, 2018 to September 30, 2019 (dollars in thousands):
 
Liability as of
December 31,
 
 
 
 
 
Change in
Fair Value of
Contingent
 
Foreign
Currency
 
Liability as of
September 30,
Acquisition:
2018
 
Additions
 
Payments
 
Consideration
 
Translation
 
2019
IC Axon
$
594

 
$

 
$

 
$
(594
)
 
$

 
$

McKinney Rogers
83

 

 

 
(83
)
 

 

Total
$
677


$

 
$


$
(677
)

$


$

As of September 30, 2019 and December 31, 2018, contingent consideration considered a current liability and included in accounts payable totaled $0 and $0.6 million, respectively. As of December 31, 2018 we also had accrued contingent consideration totaling $0.1 million related to acquisitions which are included in other long-term liabilities on the condensed consolidated balance sheets and represent the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.

13


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)



(7)
Intangible Assets

Goodwill
 
Changes in the carrying amount of goodwill by reportable business segment for the nine months ended September 30, 2019 were as follows (in thousands):
 
Workforce Excellence
 
Business Transformation Services
 
Total
Balance as of December 31, 2018
$
123,918

 
$
52,206

 
$
176,124

Purchase accounting adjustment

 
810

 
810

Foreign currency translation
(42
)
 
(679
)
 
(721
)
Balance as of September 30, 2019
$
123,876


$
52,337


$
176,213

 
Intangible Assets Subject to Amortization
 
Intangible assets with finite lives are subject to amortization over their estimated useful lives. The primary assets included in this category and their respective balances were as follows (in thousands):
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
September 30, 2019
 
 
Customer relationships
$
21,967

 
$
(6,437
)
 
$
15,530

Intellectual property and other
4,505

 
(2,695
)
 
1,810

 
$
26,472


$
(9,132
)

$
17,340

 
 
 
 
 
 
December 31, 2018
 

 
 

 
 

Customer relationships
$
26,524

 
$
(8,547
)
 
$
17,977

Intellectual property and other
4,936

 
(1,980
)
 
2,956

 
$
31,460


$
(10,527
)

$
20,933


14


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)


(8)
Stock-Based Compensation

We recognize compensation expense for stock-based compensation awards issued to employees on a straight-line basis over the requisite service period. Compensation cost is based on the fair value of awards as of the grant date.
 
The following table summarizes the pre-tax stock-based compensation expense included in reported net income (in thousands): 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Restricted stock units
243

 
196

 
968

 
1,173

Board of Directors and other stock grants
540

 
51

 
771

 
171

Total stock-based compensation expense
$
783


$
247


$
1,739


$
1,344

 
Pursuant to our 2011 Stock Incentive Plan (the “2011 Plan”), we may grant awards of non-qualified stock options, incentive stock options, restricted stock, stock units, performance shares, performance units and other incentives payable in cash or in shares of our common stock to officers, employees, members of the Board of Directors and other individuals providing services to the Company. As of September 30, 2019, we had restricted and performance stock units outstanding under these plans.

(9)
Debt

On November 30, 2018, we entered into a Credit Agreement with PNC Bank, National Association, as administrative agent and a syndicate of lenders (the “Credit Agreement”), replacing the prior credit agreement with Wells Fargo dated December 21, 2016, as amended on April 28, 2018 and June 29, 2018 (the "Original Credit Agreement"). The Credit agreement provides for a revolving credit facility, which expires on November 29, 2023, and consists of: a revolving loan facility with a borrowing limit of $200 million, including a $20 million sublimit for foreign borrowings; an accordion feature allowing the Company to request increases in commitments to the credit facility by up to an additional $100 million; a $20 million letter of credit sublimit; and a swingline loan credit sublimit of $20 million. The obligations under the Credit Agreement are guaranteed by certain of the Company's subsidiaries (the "Guarantors"). As collateral security under the Credit Agreement and the guarantees thereof, the Company and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in substantially all of their tangible and intangible assets. The proceeds of the Credit Agreement were used, in part, to repay in full all outstanding borrowings under the Original Credit Agreement, and additional proceeds of the revolving credit facility are expected to be used for working capital and other general corporate purposes of the Company and its subsidiaries, including the issuance of letters of credit and Permitted Acquisitions, as defined.

Borrowings under the Credit Agreement may be in the form of Base Rate loans or Euro-Rate loans, at the option of the borrowers, and bear interest at the Base Rate plus 0.25% to 1.25% or the Daily LIBOR Rate plus 1.25% to 2.25% respectively. Base Rate loans will bear interest at a fluctuating per annum Base Rate equal to the highest of (i) the Overnight Bank Funding Rate, plus 0.5%, (ii) the Prime Rate, and (iii) the Daily LIBOR Rate, plus 100 basis points (1.0%); plus an Applicable Margin. Determination of the Applicable Margin is based on a pricing grid that is generally dependent upon the Company's Leverage Ratio (as defined) as of the end of the fiscal quarter for which consolidated financial statements have been most recently delivered. We may prepay the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions.

The Credit Agreement contains customary representations, warranties and affirmative covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stock dividends, and (vii) certain other restrictive agreements. The Credit Agreement also requires the Company to maintain compliance with the following financial covenants; (i) a maximum leverage ratio, and (ii) a minimum interest expense coverage ratio. On June 28, 2019 we entered into an amendment to the Credit Agreement that modified the maximum leverage ratio requirements for 2019.We were in compliance with each of these financial covenants under the Credit Agreement, as amended, as of September 30, 2019.

15


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

As of September 30, 2019, there were $113.2 million of borrowings outstanding and $8.5 million of available borrowings under the revolving loan facility based on our Leverage Ratio.
 
For the nine months ended September 30, 2019 and 2018, the weighted average interest rate on our borrowings was 4.7% and 3.8%, respectively. As of September 30, 2019, the fair value of our borrowings under the Credit Agreement approximated its carrying value as it bears interest at variable rates. There were $1.3 million of unamortized debt issue costs related to the Credit Agreement as of September 30, 2019 which are being amortized to interest expense over the term of the Credit Agreement and are included in Other assets on our consolidated balance sheet.

(10)
Income Taxes

Income tax expense was $2.4 million, or an effective income tax rate of 29.7%, for the nine months ended September 30, 2019 compared to $4.2 million, or an effective income tax rate of 30.6%, for the nine months ended September 30, 2018. The decrease in the effective income tax rate in 2019 compared to 2018 is primarily due to a $0.9 million increase to the provisional estimate recorded in the first quarter of 2018 relating to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, imposed by the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017 partially offset by a change in the mix of income from lower to higher taxing jurisdictions. Income tax expense for the interim quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense. As of September 30, 2019, we had no uncertain tax positions reflected on our condensed consolidated balance sheet. The Company files income tax returns in U.S. federal, state and local jurisdictions, and various non-U.S. jurisdictions, and is subject to audit by tax authorities in those jurisdictions. Tax years 2015 through 2018 remain open to examination by these tax jurisdictions, and earlier years remain open to examination in certain of these jurisdictions which have longer statutes of limitations.


(11)
Stockholders’ Equity

Stock Repurchase Program

We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. During the nine months ended September 30, 2019 we did not repurchase shares and during the nine months ended September 30, 2018, we repurchased approximately 350,000 shares of our common stock in the open market for a total cost of approximately $8.0 million. As of September 30, 2019, there was approximately $3.8 million available for future repurchases under the buyback program.



16


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)


(12)
Restructuring

The following table shows the balances and activity for our restructuring liability (in thousands):

 
 
Employee Severance and Related Benefits
 
Excess Facilities and Other Costs
 
Total
Liability as of December 31, 2018
 
$
1,266

 
$
591

 
$
1,857

Additional restructuring charges
 
1,405

 

 
1,405

Reclassification to operating lease liabilities
 

 
(554
)
 
(554
)
Payments
 
(2,317
)
 
(7
)
 
(2,324
)
Liability as of September 30, 2019
 
$
354

 
$
30

 
$
384


In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic growth and reducing operating costs, and we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth. These restructuring activities were substantially complete as of June 30, 2018. The total remaining liability under this restructuring plan was $0.3 million and $1.9 million as of September 30, 2019 and December 31, 2018, respectively.

In connection with the acquisition of TTi Global, Inc. in December 2018, we initiated restructuring and transition activities in the first quarter of 2019 to reduce costs and eliminate redundant positions to realize synergies with the acquired business. For the nine months ended September 30, 2019, we recorded $1.4 million of restructuring charges in connection with these activities. The total remaining liability under these restructuring activities was $0.1 million as of September 30, 2019. We expect the restructuring activities associated with the TTi Global acquisition to be substantially complete by the end of 2019.

(13)
Leases

We determine at its inception whether an arrangement that provides us control over the use of an asset is a lease. We recognize at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. We have elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. Certain of our leases include options to extend the term of the lease or to terminate the lease prior to the end of the initial term. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining total future lease payments. As most of our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate on the commencement date to calculate the present value of future payments.
Our leases commonly include payments that are based on the Consumer Price Index (CPI) or other similar indices. These variable lease payments are included in the calculation of the ROU asset and lease liability. Other variable lease payments, such as usage-based amounts, are excluded from the ROU asset and lease liability, and are expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any lease pre-payments and initial direct costs of obtaining the lease, such as commissions.
In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. For our real estate leases, we apply a practical expedient to include these non-lease components in calculating the ROU asset and lease liability. For all other types of leases, non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.
We have operating leases for office facilities, vehicles and computer and office equipment. We do not have any finance leases.


17


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

Lease expense is included in Cost of Revenue and General & Administrative Expenses on the condensed consolidated statements of operations, and is recorded net of immaterial sublease income. The components of lease expense were as follows (in thousands):
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost
$
1,948

 
$
6,819

Short-term lease cost
580

 
1,140

Total lease costs
$
2,528

 
$
7,959


Supplemental information related to leases was as follows (dollars in thousands):
 
Nine Months Ended September 30, 2019
Operating lease right-of-use assets
$
27,136

 
 
Current portion of operating lease liabilities
$
8,429

Non-current portion of operating lease liabilities
22,196

Total operating lease liabilities
$
30,625

 
 
Cash paid for amounts included in the measurement of operating lease liabilities
$
7,494

 
 
Right-of-use assets obtained in exchange for operating lease liabilities
$
2,656

 
 
Weighted-average remaining lease term for operating leases (years)
5.7 years

 
 
Weighted-average discount rate for operating leases
4.77
%

The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities on our condensed consolidated balance sheet as of September 30, 2019 (in thousands):
Year ended December 31,
 
 
2019 (excluding the nine months ended September 30, 2019)
 
$
2,473

2020
 
8,287

2021
 
5,956

2022
 
4,712

2023
 
4,029

Thereafter
 
9,711

Total future lease payments
 
35,168

Less: imputed interest
 
(4,543
)
Present value of future lease payments
 
30,625

Less: current portion of lease liabilities
 
(8,429
)
Long-term lease liabilities
 
$
22,196


18


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

Under Topic 840, our future minimum payments for all operating lease obligations as of December 31, 2018 were as follows (in thousands):
Year ended December 31,
 
 
2019
 
$
10,646

2020
 
7,833

2021
 
5,520

2022
 
4,528

2023
 
3,898

Thereafter
 
8,671

Total
 
$
41,096



(14)
Business Segments

As of September 30, 2019, we operated through two reportable business segments: (i) Workforce Excellence and (ii) Business Transformation Services. In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic growth and reducing operating costs. Effective January 1, 2018, we re-organized into two operating segments aligned by complementary service lines and supported by a new business development organization aligned by industry sector. The Workforce Excellence segment includes the majority of the former Learning Solutions and Professional & Technical Services segments. The Business Transformation Services segment includes the majority of the former Performance Readiness Solutions and Sandy Training & Marketing segments. Certain business units transferred between the
former operating segments to better align with the service offerings of the two new segments. In addition, effective July 1, 2018, we transferred the management responsibility of certain additional business units between the two operating segments primarily to consolidate our non-technical content design and development businesses into one global digital learning strategies and solutions service line. We have reclassified the segment financial information herein for the prior year periods to reflect the changes in our segment reporting during 2018 and conform to the current year's presentation.

Each of our two reportable segments represents an operating segment under ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other. In connection with the new organizational structure that went into effect on January 1, 2018, we determined that we have four reporting units for purposes of goodwill impairment testing, which represent our four practices which are one level below the operating segments, as discussed below.

Our two segments each consist of two global practice areas which are focused on providing similar and/or complementary products and services across our diverse customer base and within targeted markets. Within each practice are various service lines having specific areas of expertise. Marketing and communications, sales, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business development and sales resources are aligned by industry sector to support existing customer accounts and new customer development across both segments. Further information regarding our business segments is discussed below.

Workforce Excellence. The Workforce Excellence segment advises and partners with leading organizations in designing, implementing, operating and supporting their talent management and workforce strategies, enabling them to gain greater competitive edge in their markets. This segment consists of two practices:

Managed Learning Services - this practice focuses on creating value for our customers by delivering a suite of talent management and learning design, development, operational and support services that can be delivered as large scale outsourcing arrangements, managed services contracts and project-based service engagements. The Managed Learning Services offerings include strategic learning and development consulting services, digital learning content design and development solutions and a suite of managed learning operations services, including: managed facilitation and delivery,

19


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

managed training administration and logistics, help desk support, tuition reimbursement management services, event management and vendor management.

Engineering & Technical Services - this practice focuses on capital intensive, inherently hazardous and/or highly complex technical services in support of both U.S. government and global commercial industries. Our products and services include design, development and delivery of technical work-based learning, CapEx (plant launch) initiatives, engineering design and construction management, fabrication, and management services, operational excellence consulting, chemical demilitarization services, homeland security services, emergency management support services along with all forms of technical documentation. We deliver world-class asset management and performance improvement consulting to a host of industries. Our proprietary EtaPRO® Performance and Condition Monitoring System provides a suite of real-time digital solutions for hundreds of facilities and is installed in power-generating units around the world. We also provide thousands of technical courses in a web-based off the shelf delivery format through our GPiLEARN+™ portal.
 
Business Transformation Services. The Business Transformation Services segment works with organizations to execute complex business strategies by linking business systems, process and people’s performance to clear and measurable results. We have a holistic methodology to establishing direction and closing the gap between strategy and execution.  Our approach equips business leaders and teams with the tools and capability to deliver high-performance results. This segment consists of two practices:

Sales Enablement - this practice provides custom product sales training and service technical training, primarily to automotive manufacturers, designed to better educate the customer salesforces as well as the service technicians with respect to new product features and designs, in effect rapidly increasing the salesforce and technicians knowledge base and enabling them to address retail customer needs. Furthermore, this segment helps our clients assess their customer relationship marketing strategy and connect with their customers on a one-to-one basis, including  custom print and digital publications. We have been a custom product sales and service technical training provider and leader in serving manufacturing customers in the U.S. automotive industry for over 40 years.

Organizational Development - this practice works with organizations to design and execute an integrated people performance system.  This translates to helping organizations set strategy, carry that strategy through every level of the organization and ensure that their people have the right skills, knowledge, tools, processes and technology to enable the transformation and achieve business results. Solutions include strategy, leadership, employee engagement and culture consulting, enterprise technology implementation and adoption solutions, and organization design and business performance consulting.
 
We do not allocate the following items to the segments: general & administrative expenses, sales & marketing expenses, restructuring charges, other expense, interest expense, gain on change in fair value of contingent consideration and income tax expense.


20


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

The following table sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated income before income tax expense (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019

2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Workforce Excellence
$
82,490

 
$
80,516

 
$
242,999

 
$
239,044

Business Transformation Services
56,515

 
43,050

 
184,892

 
143,245

 
$
139,005


$
123,566


$
427,891


$
382,289

Gross profit:
 

 
 

 
 

 
 

Workforce Excellence
$
14,290

 
$
13,400

 
$
41,092

 
$
39,682

Business Transformation Services
7,377

 
5,799

 
24,812

 
19,769

     Total gross profit
21,667

 
19,199

 
65,904

 
59,451

General and administrative expenses
15,240

 
12,227

 
46,769

 
40,207

Sales and marketing expenses
1,830

 
1,297

 
5,725

 
3,128

Restructuring charges
104

 

 
1,405

 
2,930

Gain on change in fair value of contingent consideration, net

 
526

 
677

 
3,972

Operating income
4,493


6,201


12,682


17,158

Interest expense
1,575

 
1,095

 
4,852

 
1,631

Other income (expense)
184

 
(760
)
 
272

 
(1,912
)
Income before income tax expense
$
3,102

 
$
4,346

 
$
8,102

 
$
13,615




21


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2019
(Unaudited)

(15)
Subsequent Event

On October 1, 2019, we sold our tuition program management business pursuant to an Asset Purchase Agreement with Bright Horizons Children's Centers LLC. The purchase price was $20.2 million which was paid on closing, other than $1.5 million which is being held in escrow to secure possible indemnification claims pursuant to the terms of an escrow agreement which expires October 1, 2020. The purchase price is subject to adjustment based on a final calculation of assumed liabilities as defined in the asset purchase agreement and is expected to be finalized during the fourth quarter of 2019.


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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Results of Operations
 
General Overview
 
We are a global performance improvement solutions provider of training, digital learning solutions, management consulting and engineering services that seeks to improve the effectiveness of organizations by providing services and products that are customized to meet the specific needs of clients. Clients include Fortune 500 companies and governmental and other commercial customers in a variety of industries. We believe we are a global leader in performance improvement, with over five decades of experience in providing solutions to optimize workforce performance.
 
As of September 30, 2019, we operated through two reportable business segments: (i) Workforce Excellence and (ii) Business Transformation Services. In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic growth and reducing operating costs. Effective January 1, 2018, we re-organized into two operating segments aligned by complementary service lines and supported by a new business development organization aligned by industry sector. The Workforce Excellence segment includes the majority of the former Learning Solutions and Professional & Technical Services segments. The Business Transformation Services segment includes the majority of the former Performance Readiness Solutions and Sandy Training & Marketing segments. Certain business units transferred between the former operating segments to better align with the service offerings of the two new segments. In addition, effective July 1, 2018, we transferred the management responsibility of certain additional business units between the two operating segments primarily to consolidate our non-technical content design and development businesses into one global digital learning strategies and solutions service line. We have reclassified the segment financial information herein for the prior year periods to reflect the changes in our segments and conform to the current year's presentation.

Each of our two reportable segments represents an operating segment under ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other. In connection with the new organizational structure that went into effect on January 1, 2018, we determined that we have four reporting units for purposes of goodwill impairment testing, which represent our four practices which are one level below the operating segments, as discussed below.

Our two segments each consist of two global practice areas which are focused on providing similar and/or complementary products and services across our diverse customer base and within targeted markets. Within each practice are various service lines having specific areas of expertise. Marketing and communications, sales, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business development and sales resources are aligned by industry sector to support existing customer accounts and new customer development across both segments. Further information regarding our business segments is discussed below.

Workforce Excellence. The Workforce Excellence segment advises and partners with leading organizations in designing, implementing, operating and supporting their talent management and workforce strategies, enabling them to gain greater competitive edge in their markets. This segment consists of two practices:

Managed Learning Services - this practice focuses on creating value for our customers by delivering a suite of talent management and learning design, development, operational and support services that can be delivered as large scale outsourcing arrangements, managed services contracts and project-based service engagements. The Managed Learning Services offerings include strategic learning and development consulting services, digital learning content design and development solutions and a suite of managed learning operations services, including: managed facilitation and delivery, managed training administration and logistics, help desk support, tuition reimbursement management services, event management and vendor management.

Engineering & Technical Services - this practice focuses on capital intensive, inherently hazardous and/or highly complex technical services in support of both U.S. government and global commercial industries. Our products and services include design, development and delivery of technical work-based learning, CapEx (plant launch) initiatives, engineering design and construction management, fabrication, and management services, operational excellence consulting, chemical demilitarization services, homeland security services, emergency management support services along with all forms of technical documentation. We deliver world-class asset management and performance improvement consulting to a host of industries. Our proprietary EtaPRO® Performance and Condition Monitoring

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System provides a suite of real-time digital solutions for hundreds of facilities and is installed in power-generating units around the world. We also provide thousands of technical courses in a web-based off the shelf delivery format through our GPiLEARN+™ portal.
 
Business Transformation Services. The Business Transformation Services segment works with organizations to execute complex business strategies by linking business systems, process and people’s performance to clear and measurable results. We have a holistic methodology to establishing direction and closing the gap between strategy and execution.  Our approach equips business leaders and teams with the tools and capability to deliver high-performance results. This segment consists of two practices:

Sales Enablement - this practice provides custom product sales training and service technical training, primarily to automotive manufacturers, designed to better educate the customer salesforces as well as the service technicians with respect to new product features and designs, in effect rapidly increasing the salesforce and technicians knowledge base and enabling them to address retail customer needs. Furthermore, this segment helps our clients assess their customer relationship marketing strategy and connect with their customers on a one-to-one basis, including  custom print and digital publications. We have been a custom product sales and service technical training provider and leader in serving manufacturing customers in the U.S. automotive industry for over 40 years.

Organizational Development - this practice works with organizations to design and execute an integrated people performance system.  This translates to helping organizations set strategy, carry that strategy through every level of the organization and ensure that their people have the right skills, knowledge, tools, processes and technology to enable the transformation and achieve business results. Solutions include strategy, leadership, employee engagement and culture consulting, enterprise technology implementation and adoption solutions, and organization design and business performance consulting.

Acquisitions

TTi Global
On November 30, 2018, we entered into a Share Purchase Agreement with TTi Global, Inc. ("TTi Global") and its stockholders and acquired all of the outstanding shares of TTi Global. The transaction under the Share Purchase Agreement includes the acquisition of TTi Global’s subsidiaries (except for its UK and Spain subsidiaries and dormant entities) and certain affiliated companies. The Company purchased TTi Global’s UK and Spain subsidiaries in a separate transaction in August 2018 which is discussed further below. TTi Global is a provider of training, staffing, research and consulting solutions to industries across various sectors with automotive as a core focus. The total upfront purchase price for TTi Global was $14.2 million of cash paid upon closing on November 30, 2018. The purchase price is subject to reduction based on a minimum working capital requirement, as defined in the Share Purchase Agreement. During the third quarter of 2019, the seller paid us $0.9 million in settlement of the working capital requirement. The acquired TTi Global business is included in the Business Transformation Services segment and the results of its operations have been included in the consolidated financial statements beginning December 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

TTi (Europe)
On August 7, 2018, we acquired the entire share capital of TTi (Europe) Limited, a subsidiary of TTi Global, Inc. ("TTi Europe"), a provider of training and research services primarily for the automotive industry located in the United Kingdom. The upfront purchase price was $3.0 million in cash. The acquired TTi Europe business is included in the Business Transformation Services segment and the results of its operations have been included in the condensed consolidated financial statements beginning August 7, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

IC Axon
On May 1, 2018, we acquired the entire share capital of IC Acquisition Corporation, a Delaware corporation, and its subsidiary, IC Axon Inc., a Canadian corporation (IC Axon). IC Axon develops science-driven custom learning solutions for pharmaceutical and life science customers. The upfront purchase price was $30.5 million in cash. In addition, the purchase agreement requires up to an additional $3.5 million of consideration, contingent upon the achievement of an earnings target during a twelve-month period subsequent to the closing of the acquisition. No contingent consideration was payable to the sellers as the earnings target was not achieved. The acquired IC Axon business is included in the Workforce Excellence segment and the results of its operations have been included in the condensed consolidated financial statements beginning May 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.


24