UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019
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
(State of Incorporation)
52-0845774
(I.R.S. Employer Identification No.)
70 Corporate Center
11000 Broken Land Parkway, Suite 200, Columbia, MD
(Address of principal executive offices)
21044
(Zip Code)
(443) 367-9600
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $.01 par value
Trading Symbol
GPX
Name of each exchange on which registered:
New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
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
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
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
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
The aggregate market value of the outstanding shares of the Registrant’s Common Stock, par value $.01 per share, held by non-affiliates as of June 30,
2019 was approximately $191,101,000.
The number of shares outstanding of the registrant’s Common Stock as of February 25, 2020:
Class
Common Stock, par value $.01 per share
Outstanding
17,080,664 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2020 Annual Meeting of Stockholders are incorporated herein by reference into Part III
hereof.
Table of Contents
PART I
Cautionary Statement Regarding Forward-Looking Statements
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
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Cautionary Statement Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Private Securities Litigation
Reform Act of 1995 provides a “safe harbor” for forward looking statements. Forward–looking statements are not statements of
historical facts, but rather reflect our current expectations concerning future events and results. We use words such as “expects,”
“intends,” “believes,” “may,” “will,” “should,” “could,” “anticipates,” “estimates,” “plans” and similar expressions to indicate
forward-looking statements, but their absence does not mean a statement is not forward-looking. Because these forward-looking
statements are based upon management’s expectations and assumptions and are subject to risks and uncertainties, there are important
factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements,
including, but not limited to, those factors set forth under Item 1A - Risk Factors and those other risks and uncertainties detailed
in our periodic reports and registration statements filed with the Securities and Exchange Commission (“SEC”). We caution that
these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge
from time to time. We cannot predict these new risk factors, nor can we assess the effect, if any, of the new risk factors on our
business or the extent to which any factor or combination of factors may cause actual results to differ from those expressed or
implied by these forward-looking statements.
If any one or more of these expectations and assumptions proves incorrect, actual results will likely differ materially from those
contemplated by the forward-looking statements. Even if all of the foregoing assumptions and expectations prove correct, actual
results may still differ materially from those expressed in the forward-looking statements as a result of factors we may not anticipate
or that may be beyond our control. While we cannot assess the future impact that any of these differences could have on our
business, financial condition, results of operations and cash flows or the market price of shares of our common stock, the differences
could be significant. We do not undertake to update any forward-looking statements made by us, whether as a result of new
information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating
the information presented in this report.
Company Information Available on the Internet
Our Internet address is www.gpstrategies.com. We make available free of charge through our Internet site, our annual reports on
Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; and any amendment to those reports filed or furnished
pursuant to the Exchange Act as soon as reasonably practicable after such material is electronically filed with, or furnished to, the
SEC.
PART I
Item 1: Business
Company Overview
GP Strategies Corporation, which is a New York Stock Exchange (“NYSE”) listed company traded under the symbol GPX, 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.
We are a global performance improvement and learning solutions provider focused on improving the effectiveness of organizations
by delivering innovative and superior training, consulting and business improvement services, customized to meet the specific
needs of our clients. We also provide leadership development, sales training, platform adoption, management consulting,
engineering and technical services, learning outsourcing and multimedia solutions which enhance our customized learning
capabilities and diversify our service offerings. We have global execution capabilities and provide services to a large customer
base across a broad range of industries in over 50 countries. We serve leading companies in the automotive, financial services and
insurance, pharmaceutical, oil and gas, power, chemical, electronics and technology, manufacturing, software, retail, healthcare,
education and food and beverage industries, as well as government agencies. We have over five decades of experience in developing
solutions to optimize workforce performance by providing services and products to our clients that assist them in successfully
aligning their employees, processes and technologies.
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We have focused on building our custom performance improvement and learning business through internal growth and the
acquisition of complementary businesses. Since 2006, we have completed over 30 acquisitions to strengthen our capabilities in
specific training and technical service areas, expand our global presence, and increase our customer base and market sector reach.
As a result, we’ve added product sales training and leadership training, and strengthened our digital learning and content
development expertise, while also expanding further internationally. Our acquisitions have also expanded our market sector reach,
added new customers and enhanced our service offerings through the addition of new complementary services. We also invested
in global expansion through the establishment of over twenty new subsidiaries in select countries since 2013 to support new global
outsourcing contracts. We believe our expanded infrastructure and the ability to deliver globally will allow us to better support
our existing client base as well as win new business for our comprehensive service offerings.
In 2019, we divested certain non-core assets. We sold our tuition program management business on October 1, 2019 and our
alternative fuels design and engineering business on January 1, 2020.
Operating Segments
As of December 31, 2019, we operated through two reportable business segments: (i) Workforce Excellence and (ii) Business
Transformation Services. We are organized into two operating segments aligned by complementary service lines and supported
by a business development organization aligned by industry sector. 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.
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, 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, processes and workforce 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 customer salesforces as well as service technicians with respect
to new product features and designs, in effect rapidly increasing the salesforce and technician 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.
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• 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
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.
Segment Financial Information
For financial information about our business segments and geographic operations and revenue, see Note 15 to the accompanying
Consolidated Financial Statements.
Services and Products
Our personnel come from varied backgrounds in the corporate, technical, military and government arenas. They use their
professional knowledge to create cost-effective solutions to address modern business and governmental performance challenges.
Our training, consulting and engineering services and related product offerings are discussed in more detail below.
Training. We provide custom training services and products to support our customers’ existing operations, as well as the launch
of new plants, products, equipment, technologies and processes. Our training services are comprehensive, covering all aspects of
an organization's needs, including:
• Content and Curriculum Development. Services include a fundamental analysis of the client’s needs, curriculum design,
instructional material development (in hard copy, electronic/software or other format), information technology service
support and delivery. Our instructional delivery capabilities include traditional classroom, structured on-the-job training
(OJT), just-in-time methods, computer-based, web-based, video-based and the full spectrum of digital learning technologies.
• Digital Learning Solutions. As organizations become increasingly global and matrixed, single-source training solutions
and learning interventions don't always fit every audience and business need. Learning and Development (L&D) teams
must consider blended solutions that include a range of modalities and methodologies. In an increasingly digital world
with evolving online learning and social platforms, bots, artificial intelligence and more, we have expertise to help
organizations vet and select the right platforms to purchase, understand the best way to implement them and help teams
adapt learning strategies and approaches to business problems and training requests in order to remain relevant and respond
to disruption.
• Learning & Training Outsourcing. We offer a wide range of managed learning services, including design, delivery and
global management of comprehensive learning programs for national and multinational businesses and government
organizations. We can deliver our services individually or as a complete, integrated training solution. Solutions include the
management of our customers’ training departments, as well as administrative processes, such as vendor management, call
center/help desk administration and learning management system (LMS) administration. Our services encompass a wide
spectrum of learning engagements ranging from focusing on a single aspect of a learning process to multi-year contracts
where we manage the learning infrastructure of our customer.
• Documentation Development. Training-related documentation products include custom instructor and student training
manuals, job aids to support technical skills development and instructional materials suitable for web-based and blended
learning solutions.
•
Specialized Training Areas. Our professionals possess diverse skills in multiple industries that enable us to address
specialized training needs, including technical training, machine and equipment maintenance training, product sales training
and incentive programs, leadership development training, regulatory training, environmental training and homeland security
training.
Consulting. Our consulting services include training-related consulting services as well as strategic business transformation and
specialized consulting, including the areas of:
• Business Transformation Consulting. We partner with organizations to bridge the gap between strategy development
and execution by aligning their people, processes and technologies to business outcomes.
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• Learning & Development Transformation Consulting. We work with organizations on their learning and development
transformation encompassing strategy development, governance, and execution that align with their key performance
objectives and business goals.
• Organization & Leadership Development. We recognize that true success occurs when all parts of the organization are
aligned and prepared to tackle challenges in a unified manner. We work with organizations to design leadership development
programs to serve the strategic and culture shifts their businesses need from their leaders.
• Change Management. We offer change-management strategies to help our customer's employees accept, adopt and perform
in new ways and be open to change.
• Lean Enterprise. Our Lean and Six Sigma experts provide high-level lean enterprise consulting services, as well as training
in the concept, methods and application of lean enterprise and other quality practices, organizational development and
change management.
• Engineering. We provide engineering consulting services to support regulatory and environmental compliance,
modification of facilities and processes, plant performance improvement, reliability-centered maintenance practices and
plant start-up activities.
•
Information Technology. Consulting services include IT consulting and platform adoption services, system selection
consulting, operations continuity assessment, planning, training and procedure development.
• Customer Loyalty. Our Sales Enablement practice provides consultation on customer loyalty programs and supports those
services with brand loyalty publications, incentive programs and customer-focused sales training. We develop personalized
publications for automotive clients which establish a link between the manufacturer/dealer and each customer.
• Homeland Security and Emergency Management. We deliver consulting services from physical security assessments
to all-hazards emergency planning and preparedness. These services include training, exercises and documentation.
• Maintenance & Reliability. We help manufacturers develop strategies, assessments and leadership alignment tactics for
maintenance and reliability programs, as well as provide the training, management systems and documentation that support
an enduring culture of waste elimination and variability reduction.
Engineering and Technical Services. Our staff includes civil, mechanical and electrical engineers who are equipped to provide
engineering, technical support services, consulting expertise, design capabilities and evaluation services. Our engineering customers
typically operate in technically complex industries such as oil and gas, power, chemical, aerospace, transportation and manufacturing
industries. Our engineering services support facilities, processes and systems in multiple capacities, including:
• Power Plant Performance. We deliver multiple solutions to optimize power plant assets and mitigate risk. We have also
developed proprietary products to support the power industry, including our EtaPRO® platform, a real-time software
system for keeping equipment and facilities running efficiently and reliably through process anomaly detection, real-time
KPI’s, and early warning of potential equipment failure. EtaPRO® is installed on over 570 GW of power generation world-
wide.
• Technical Support. Services in this area include procedure writing and configuration control for capital intensive facilities,
plant start-up assistance, logistics support (e.g., inventory management and control), implementation and engineering
assistance for facility or process modifications, facility management for high technology training environments, staff
augmentation and help-desk support for standard and customized client desktop applications.
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Competitive Strengths
We believe our key competitive strengths include:
Global Delivery and Single-Source Custom Training Solutions Provider. We believe we are one of the largest independent
single-source custom training solutions providers with the capability of delivering globally in the markets in which we compete.
We provide managed learning services solutions spanning the full life-cycle of the training process, including the management of
training departments and administrative processes for our customers. We believe that the breadth of our service and product
offerings, which encompass fully integrated managed learning services solutions as well as discrete services, allows us to better
serve the needs of our clients by providing them with a single-source solution for custom training, consulting and technical and
engineering services. We believe that the integration of our services into a single platform, together with our global presence and
delivery capabilities, allows our customers to leverage an enterprise-wide solution to address their performance improvement
needs in a way that streamlines their internal operations, improves the speed and efficiency at which critical know-how is
disseminated on a firm-wide basis, and enables them to achieve their desired performance improvement goals.
Outstanding Reputation in the Industry. We have continued to build an outstanding reputation in the learning and training
industry through the delivery of our solutions and have received numerous awards. 2019 highlights include:
Industry Awards
•
•
•
Training Industry, Inc., The Top Training Companies™ lists are developed based on extensive, proprietary research
and analysis of companies around the world. They examine the capabilities, experience, and expertise of hundreds of
learning organizations. In 2019, we appeared on the Top 20 lists in the following categories: Assessment & Evaluation,
Content Development, Gamification, Health & Safety Training, IT Training, Leadership Training, Sales Training, and
Training Outsourcing.
Brandon Hall HCM Excellence recognizes the best organizations that have successfully deployed programs and
strategies that have achieved measurable results. We received ten Brandon Hall Excellence in Learning Awards and
one for Excellence in Learning Technology.
Chief Learning Officer Learning in Practice recognizes industry leaders who have demonstrated excellence in the
design and delivery of employee development programs. We won gold for excellence in technology innovation and
silver for excellence in partnership.
Customer Supplier Awards - GP Strategies has been recognized by two strategic clients with a prestigious Supplier of the
Year Award, including:
•
•
AVANGRID - Recognized as a Supplier of the Year for Health and Safety. This award is given to suppliers that have
shown commitment and have provided value to AVANGRID's strategic plan.
General Motors - Recognizes GM’s best suppliers that have consistently exceeded GM’s expectation, creating
outstanding value, or introducing innovations to the company. This is the third consecutive year GP Strategies has been
recognized.
Partner Awards - GP Strategies was presented with a Service Excellence award by one of our strategic partners, SAP. We won
the Service Excellence category in the EMEA North Awards for partner excellence. The Service Excellence award recognizes
SAP partners for their achievement in gaining solution certifications for their knowledge and expertise across all SAP
Technologies.
Scalable Technology Platform. Our training programs are delivered both online and in classroom settings. We have the ability
to work with outside information technology (IT) vendors in combination with our own proprietary software in order to deliver a
scalable technology platform capable of addressing training needs of various size and commitment, ranging from a one-time project
to a multi-year training program.
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Legacy Technical Expertise. In the 1960’s, we began providing technical services to the U.S. Navy nuclear submarine program
and the nuclear electric-power generation industry, and have since maintained and expanded our reputation for providing technically
complex consulting, engineering, and training services. Many of our employees have engineering degrees, technical training or
years of relevant technical industry experience. Through repeat projects with industry leaders we have acquired significant industry
experience in providing highly technical consulting services. We believe that our technical expertise allows us to address market
opportunities for complex business challenges that require in-depth expertise and certifications typically acquired over several
years of specialized training and many years of experience. We also believe that our ability to provide both training-related and
business consulting services allows us to gain insight into operations of our customers, understand the challenges they face and
develop optimal solutions to meet these challenges. In addition, we believe that the knowledge that we develop while working
with our clients provides us with a significant competitive advantage as those clients look to expand the scope of services outsourced
to third party service providers.
Well Positioned to Capitalize on the Large Product Sales Training Market. We believe that the introduction of new products
with advanced features, combined with the growing amount and accessibility of information available to consumers, requires
companies to maintain a highly skilled and technologically current sales force to effectively capture customer interest and
confidence. In-house implementation of product sales training programs can be expensive and time-consuming as these programs
typically involve significant levels of face-to-face training, in some cases across a large global sales force. In addition, product
sales training tends to be a continuous process, as the pace of new products and features in many cases requires year-round updating
of the sales force. We believe we have one of the industry’s leading product sales training platforms, and are well positioned to
benefit from increased training outsourcing as companies look for ways to reduce costs.
Highly Qualified and Dedicated Employees and Tenured Management Team. Our most important asset is our people, as their
wide-ranging skill sets enable us to serve our diverse and expanding global client base. As a result, we are committed to the
continued development of our employees. We offer our employees technical, functional, industry, managerial and leadership skill
development and training throughout their careers with us. We seek to reinforce our employees’ commitment to our clients, culture
and values through a comprehensive performance management system and a career philosophy that rewards both individual
performance and teamwork. We also benefit from the skill and experience of our executive management team, who together have
in excess of 100 years of experience in the training industry and have an average tenure with our company of over 20 years.
Contracts
We currently perform under fixed price (including fixed-fee per transaction), time-and-materials and cost-reimbursable contracts.
The following table illustrates the percentage of our total revenue attributable to each type of contract for the year ended
December 31, 2019:
Fixed fee per transaction
Fixed price
Time-and-materials, including fixed rate
Cost-reimbursable
Total revenue
54%
20
23
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100%
Fixed price contracts (including fixed-fee per transaction) provide for payment to us of pre-determined amounts as compensation
for the delivery of specific products or services, without regard to the actual costs incurred. We bear the risk that increased or
unexpected costs required to perform the specified services may reduce our profit or cause us to sustain a loss, but we have the
opportunity to derive increased profit if the costs required to perform the specified services are less than expected. Fixed price
contracts generally permit the client to terminate the contract on written notice; in the event of such termination we would typically
be paid a proportionate amount of the fixed price.
Time-and-materials contracts generally provide for billing of services based upon the hourly billing rates of the employees
performing the services and the actual expenses incurred multiplied by a specified mark-up factor up to a certain aggregate dollar
amount. Our time-and-materials contracts include certain contracts under which we have agreed to provide training, engineering
and technical services at fixed hourly rates. Time-and-materials contracts generally permit the client to control the amount, type
and timing of the services to be performed by us and to terminate the contract on written notice. If a contract is terminated, we are
typically paid for the services we have provided through the date of termination.
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Cost-reimbursable contracts provide for us to be reimbursed for our actual direct and indirect costs plus a fee. These contracts
also are generally subject to termination at the convenience of the client. If a contract is terminated, we are typically reimbursed
for our costs through the date of termination, plus the cost of an orderly termination, and paid a proportionate amount of the fee.
International
We conduct our business globally and outside the United States primarily through our wholly owned subsidiaries. We may continue
to create new subsidiaries as our business expands. Through these subsidiaries, we are capable of providing substantially the same
services and products as are available to clients in the United States, although modified as appropriate to address the language,
business practices and cultural factors unique to each client and country. In combination with our subsidiaries, we are able to
coordinate the delivery to multi-national clients of services and products that achieve consistency on a global, enterprise-wide
basis. Revenue from operations outside the United States represented approximately 36% and 33% of our consolidated revenue
for the years ended December 31, 2019 and 2018, respectively (see Note 15 to the accompanying Consolidated Financial
Statements).
Customers
During 2019, we provided services to over 500 customers. Significant customers include multinational automotive manufacturers,
such as General Motors Company, Hyundai Motor Company, Ford Motor Company and Fiat Chrysler; financial services companies
such as HSBC, Bank of America, SunTrust Banks and PNC Bank; governmental agencies, such as the U.S. Department of Defense,
U.S. Department of Commerce, U.S. Department of Health and Human Services and the Skills Funding Agency in the United
Kingdom; U.S. Government prime contractors, such as Lockheed Martin, Bechtel National, Inc. and General Dynamics; commercial
electric power utilities, such as Eskom, Entergy and National Grid; pharmaceutical companies, such as Novartis AG, Bristol-
Myers Squibb, Merck & Co. and Pfizer; and other large multinational companies, such as Microsoft, CIGNA Corporation, Rockwell
Automation, Deere & Company, and Boeing. During the year ended December 31, 2019, we provided services to 148 customers
in the Fortune 500 and 124 customers in the Global Fortune 500.
We have a market concentration of revenue in both the automotive sector and the financial & insurance sector. Revenue from the
automotive industry accounted for approximately 28%, 23% and 22% of our consolidated revenue for the years ended December 31,
2019, 2018 and 2017, respectively. In addition, we have a concentration of revenue from a single automotive customer, which
accounted for approximately 13%, 14% and 13% of our consolidated revenue for the years ended December 31, 2019, 2018 and
2017, respectively. As of December 31, 2019 accounts receivable from a single automotive customer totaled $17.2 million, or
13% of our consolidated accounts receivable balance. Revenue from the financial & insurance industry accounted for approximately
16%, 19% and 20% of our consolidated revenue for the years ended December 31, 2019, 2018 and 2017, respectively. In addition,
we have a concentration of revenue from a single financial services customer, which accounted for approximately 10%, 13% and
14% of our consolidated revenue for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019,
billed and unbilled accounts receivable from a single financial services customer totaled $15.4 million, or 8%, of our consolidated
accounts receivable and unbilled revenue balances. No other single customer accounted for more than 10% of our consolidated
revenue in 2019 or consolidated accounts receivable balance as of December 31, 2019.
We believe the nature of our business, which includes established relationships with our clients, provides us with a platform from
which to drive revenues and gives us visibility into our future performance. We have long-standing relationships with many of our
clients, with over 80% of our top 25 clients having used our services for five or more years. Additionally, over 90% of our annual
revenue is generated from client relationships that existed in the prior year. We also had a backlog for services under executed
contracts of $349.8 million as of December 31, 2019.
Employees
Our principal resource is our personnel. As of December 31, 2019, we had 4,856 employees. We also utilize additional adjunct
instructors and consultants as needed. Our future success depends to a significant degree upon our ability to continue to attract,
retain and integrate into our operations instructors, engineers, technical personnel and consultants who possess the skills and
experience required to meet the needs of our clients.
We utilize a variety of methods to attract and retain personnel. We believe that the compensation and benefits offered to our
employees are competitive with the compensation and benefits available from other organizations with which we compete for
personnel. In addition, we encourage the professional development of our employees, both internally via GP University (our own
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internal training resource) and through third parties, and we also offer tuition reimbursement for job-related educational costs. We
believe that we have good relations with our employees.
Competition
We face a highly competitive environment. The principal competitive factors are the experience and capability of service personnel,
performance, quality and functionality of products, reputation and price. The training industry is large, highly fragmented and
competitive, with low barriers to entry and no single competitor accounting for a significant market share. According to Training
Industry, Inc., global external training expenditures totaled approximately $99.7 billion in 2019. Our competitors include several
large publicly traded and privately held companies, vocational and technical training schools, degree-granting colleges and
universities, continuing education programs and thousands of small privately held training providers and individuals. In addition,
many of our clients maintain internal training departments, which have the resources and ability to provide the same or similar
services in-house. Some of our competitors offer services and products at lower prices, and some competitors have significantly
greater financial, managerial, technical, marketing and other resources. Moreover, we expect to face additional competition from
new entrants into the training and performance improvement market due, in part, to the evolving nature of the market and the
relatively low barriers to entry. There can be no assurance that we will be successful against such competition.
Engineering and consulting services such as those that we provide are performed by many of the customers themselves, large
architectural and engineering firms that have expanded their range of services beyond design and construction activities, large
consulting firms, information technology companies, major suppliers of equipment and individuals and independent service
companies similar to us. The engineering and construction markets are highly competitive and require substantial resources and
capital investment in equipment, technology and skilled personnel. Many of our competitors for our engineering and technical
consulting services have greater financial resources than we do. Competition also places downward pressure on our contract prices
and profit margins. We cannot provide any assurance that we will be able to compete successfully, and the failure to do so could
adversely affect our business and financial condition.
Sales & Marketing
In 2018, sales, marketing and proposal resources were centralized to better position ourselves to achieve the growth goals of the
organization. We operate as an integrated, customer-centric team to ensure our go-to-customer strategy directly supports the
business strategy. We use our online digital presence, attendance at trade shows, presentations at industry and trade association
conferences, press releases, industry award submissions, webinars and workshops given by our personnel to serve important
marketing functions. We also carry out selective print and digital advertising and conduct targeted marketing campaigns to current
and prospective clients. In addition, we use our social media channels, such as LinkedIn, Facebook, Twitter, YouTube, SlideShare
and a Company blog on our website, as a means of sharing thought leadership content, disclosing information about the Company,
our services and other topics important to our clients. By staying ahead of the market trends and engaging with clients, we are
able to identify possible opportunities to expand the services we are providing them as well as extend the current services we are
providing. In other cases, clients ask us to bid competitively. In both cases, we submit proposals to the client for evaluation. The
period between submission of a proposal to final award can range from 30 days or less (generally for noncompetitive, short-term
contracts), to a year or more (generally for large, competitive multi-year contracts).
Backlog
Our backlog for services under executed contracts and subcontracts was approximately $349.8 million and $318.0 million as of
December 31, 2019 and 2018, respectively. We anticipate that approximately 85 percent of our backlog as of December 31, 2019
will be recognized as revenue during 2020. However, the rate at which services are performed under certain contracts, and thus
the rate at which backlog will be recognized, may be at the discretion of the client and most contracts are, as mentioned above,
subject to termination by the client upon written notice.
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Item 1A: Risk Factors
The following are some of the factors that we believe could cause our actual results to differ materially from historical results and
from the results contemplated by the forward-looking statements contained in this report and other public statements made by us.
Additional risks and uncertainties not presently known to us, or that we currently see as immaterial, may also harm our business.
Most of these risks are generally beyond our control. If any of the risks or uncertainties described below, or any such additional
risks and uncertainties actually occur, our business, results of operations and financial condition could be materially and adversely
affected.
Changing economic conditions in the United States, the United Kingdom and the other countries in which we conduct our
operations could harm our business, results of operations and financial condition.
Our revenues and profitability are related to general levels of economic activity and employment primarily in the United States
and the United Kingdom. As a result, economic recession in both of those countries could harm our business and financial condition.
A significant portion of our revenues is derived from Fortune 500 companies and their global equivalents, which historically have
decreased expenditures for external training during economic downturns. If the economies in which these companies operate are
weakened in any future period, these companies may reduce their expenditures on external training, and other products and services
supplied by us, which could materially and adversely affect our business, results of operations and financial condition. As we
expand our business globally, we might be subject to additional risks associated with economic conditions in the countries into
which we enter or in which we expand our operations. There is significant uncertainty about the economic effect of the U.K.’s
formal departure from the European Union on January 31, 2020, subject to a transition period expected to last until December 31,
2020. See “The United Kingdom’s withdrawal from the EU may adversely impact our operations in the United Kingdom and
elsewhere.”
Our revenue and financial condition could be adversely affected by the loss of business from significant customers, including
financial services institutions and automotive manufacturers.
During the years ended December 31, 2019, 2018 and 2017, revenue from our customers in the financial services & insurance
sector accounted for approximately 16%, 19% and 20%, respectively, of our consolidated revenue. In addition, we have a
concentration of revenue from a single financial services customer, which accounted for approximately 10%, 13% and 14% of our
consolidated revenue for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, billed and
unbilled accounts receivable from this customer totaled $15.4 million, or 8%, of our consolidated accounts receivable and unbilled
revenue balances. A default in payment from this client or a decline in the volume of business from this client and other major
financial services customers could adversely affect our business and financial condition.
During the years ended December 31, 2019, 2018 and 2017, revenue from our customers in the automotive industry accounted
for approximately 28%, 23% and 22%, respectively, of our consolidated revenue. In addition, we have a concentration of revenue
from a single automotive customer, which accounted for approximately 13%, 14% and 13% of our consolidated revenue for the
years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, accounts receivable from a single
automotive customer totaled $17.2 million, or 13% of our consolidated accounts receivable balance. Historically, U.S. auto
manufacturers have been negatively impacted during times of economic downturns and recession, resulting in significant reductions
in vehicle sales requiring the auto manufacturers to cut costs. A decline in the volume of business from automotive customers
could adversely affect our business and financial condition.
Substantially all of our contracts are subject to termination on written notice and, therefore, our operations are dependent upon
our customers’ continued satisfaction with our services and their continued inability or unwillingness to perform those services
themselves or to engage other third-parties to deliver such services.
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Our successful performance of learning services under our Global Master Agreement with HSBC is subject to many risks.
On July 2, 2013, we entered into an agreement (the “Global Master Agreement”) with HSBC Holdings plc (“HSBC”) to provide
global learning services. The Global Master Agreement, as originally written and as amended and restated in 2017, established a
contractual framework pursuant to which we and certain of our wholly owned subsidiaries entered into local services agreements
with certain members of HSBC’s group of companies in respect of countries in which the learning services have been provided
by us. The initial term of the Global Master Agreement was three years. In January 2016, we announced that HSBC exercised its
option to extend the Global Master Agreement for two additional years, which extended the contract to July 2018. Effective
February 23, 2018, the Global Master Agreement was extended to July 2019. On November 6, 2018, we entered into an amended
and restated Global Master Agreement with HSBC. The initial term of the Global Master Agreement, as amended and restated, is
approximately three years, two months. HSBC has the right to extend the Global Master Agreement for one additional two-year
term. The Global Master Agreement fixes the billing rates to be charged for most services to be provided by us for the initial term
(years one to three) and the first year of the option term (year four). During the second year of the option term (year five), any
increases in billing rates are restricted by reference to the level of indexation set out in the relevant local services agreement.
The Global Master Agreement includes certain minimum service level requirements that we must meet or exceed. If we fail to
meet a given performance standard, HSBC will, in certain circumstances, receive a credit against the charges otherwise due.
Additionally, HSBC has the right to periodically engage a third party to perform benchmark studies to determine whether our
services, the level and quality to which our services are being provided and the applicable charges under the Global Master
Agreement are within the top quartile for best-value-for-money for comparable services provided by our competitors. If the
benchmark report states that any benchmarked service is not within the top quartile for best-value-for-money for services comparable
to our benchmarked services etc., then we must implement changes as soon as reasonably practicable.
HSBC has the right to terminate the Global Master Agreement and the relevant HSBC contracting party has the right to terminate
any local services agreement to which it is a party, in whole or in part, for, among other things, convenience on three months’
written notice.
Our successful performance of the Global Master Agreement and the associated local services agreements, is subject to many
risks, including the effect(s) that fixed prices for four years, the indexation of rates, the service level credits and the benchmarking
requirements may have on our ability to perform services in a profitable manner; additional currency exchange rate exposure; local
tax requirements and our need to concurrently maintain reliable payroll, accounting, purchasing, tax management, employment
practices, project management, asset management and information technology infrastructure in many countries.
The price of our common stock is highly volatile and could decline regardless of our operating performance.
The market price of our common stock could fluctuate in response to, among other things:
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changes in economic and general market conditions;
changes in the outlook and financial condition of certain of our significant customers and industries in which we have a
concentration of business;
changes in financial estimates, treatment of our tax assets or liabilities or investment recommendations by securities analysts
following our business;
changes in accounting standards, policies, guidance, interpretations or principles;
sales of common stock by our directors, officers and significant stockholders;
factors affecting securities of companies included in the Russell 2000R Index, in which our common stock is included;
our failure to achieve operating results consistent with securities analysts’ projections; and
the operating and stock price performance of competitors.
These factors might adversely affect the trading price of our common stock and prevent you from selling your common stock at
or above the price at which you purchased it. In addition, in recent periods, the stock market has experienced significant price
and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies,
including ours and others in our industry. These changes can occur without regard to the operating performance of the affected
companies. As a result, the price of our common stock could fluctuate based upon factors that have little or nothing to do with
our company, and these fluctuations could materially reduce our share price.
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A substantial portion of our assets consists of goodwill and intangible assets, which are subject to impairment. We could incur
material asset impairment charges in future periods.
Our acquisitions in recent years have not involved the acquisition of significant tangible assets and, as a result, a significant portion
of the purchase price in each case was allocated to goodwill and other intangible assets. As of December 31, 2019, we had goodwill
of $171.6 million and other intangible assets of $16.3 million in connection with acquisitions. In accordance with U.S. GAAP,
goodwill is reviewed annually for impairment unless circumstances or events indicate that an impairment test should be performed
sooner to determine if there has been any impairment to value. The review for impairment is based on several factors requiring
judgment. A decrease in expected cash flows, change in market conditions, or a material decline in our stock price, among other
things, may indicate potential impairment of recorded goodwill.
We tested our goodwill at the reporting unit level as of October 1, 2019 and 2018 and there was no indication of impairment. Each
of our reporting units had a significant excess fair value over its respective carrying value, with the exception of the Organizational
Development reporting unit which had a fair value that exceeded its carrying value by 11% as of the October 1, 2019 testing date.
The Organizational Development reporting unit has a significant amount of goodwill attributable to previously completed
acquisitions. If it fails to meet its financial projections, or if other adverse market conditions occur (such as a sustained material
decrease in our stock price) which would lower the fair value of the business, we could incur material goodwill and other intangible
asset impairment charges in the future. We will continue to test for impairment on an annual basis or on an interim basis if events
and circumstances indicate a possible impairment.
Our financial results are subject to quarterly fluctuations, which may result in volatility or declines in our stock price.
We experience, and expect to continue to experience, fluctuations in quarterly operating results. Consequently, you should not
deem our results for any particular quarter to be necessarily indicative of future results. Factors that may affect quarterly operating
results in the future include:
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the overall level of services and products sold;
the volume of publications shipped by our Sales Enablement practice each quarter, because revenue and cost of
publications contracts are recognized in the quarter during which the publications ship;
fluctuations in project profitability;
the gain or loss of material clients;
the timing, structure and magnitude of acquisitions;
participant training volume and general levels of outsourcing demand from clients in the industries that we serve;
the budget and purchasing cycles of our clients, especially of the governments and government agencies that we serve;
the commencement or completion of client engagements or services and products in a particular quarter;
currency fluctuations; and
the general level of economic activity.
Accordingly, it is difficult for us to forecast our growth and results of operations on a quarterly basis. If we fail to meet expectations
of investors or analysts, our stock price may fall rapidly and without notice. Furthermore, the fluctuation of quarterly operating
results may render less meaningful period-to-period comparisons of our operating results.
Sagard Capital Partners, L.P. (“Sagard”) may exert influence over us and could delay or deter a change of control or other
business combination or otherwise cause us to take actions with which other stockholders may disagree.
As of December 31, 2019, Sagard beneficially owned 3,639,367 shares or 21.4% of our outstanding common stock. In addition,
until Sagard owns less than certain specified amounts of common stock or certain other conditions have been met, Sagard is entitled
to designate an individual to serve on our board of directors. As a result, Sagard may exert influence over our decision to enter
into any corporate transaction or with respect to any transaction that requires the approval of stockholders, regardless of whether
other stockholders believe that the transaction is in their own best interests. This could have the effect of delaying, deterring or
preventing a change of control or other business combination that might otherwise be beneficial to our stockholders.
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We are vulnerable to the cyclical nature of the markets we serve.
The demand for our services and products is dependent upon training and marketing budgets and the existence of projects with
training, engineering, procurement, construction or management needs. Although downturns can impact our entire business, the
automotive, financial and insurance, manufacturing, electronics and semiconductors, construction, alternative fuels and energy
industries are examples of sectors that are cyclical in nature and have been affected from time to time by fluctuations in either
national or worldwide demand for our services. Industries such as these and many of the others we serve have historically been
and might continue to be vulnerable to general downturns and are and might continue to be cyclical in nature. During economic
downturns, our clients might demand better terms. In addition, many of our training contracts are subject to modification in the
event of certain material changes in the business or demand for our services. Our government clients also might face budget
deficits that prohibit them from funding proposed and existing projects. As a result, our past results have varied considerably and
could continue to vary depending upon the demand for future projects in the industries that we serve.
We may continue making acquisitions as part of our growth strategy, which subjects us to numerous risks that could have a
material adverse effect on our business, financial condition and results of operations.
As part of our growth strategy, we may continue to pursue selective acquisitions of businesses that broaden our service and product
offerings, deepen our capabilities and allow us to enter attractive new domestic and international markets. Pursuit of acquisitions
exposes us to many risks, including that:
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acquisitions may require significant capital resources and divert management’s attention from our existing business;
acquisitions may not provide the benefits anticipated;
acquisitions could subject us to contingent or other liabilities, including liabilities arising from events or conduct predating
the acquisition of a business that were not known to us at the time of the acquisition;
• we may incur significantly greater expenditures in integrating an acquired business than had been initially anticipated;
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acquisitions may create unanticipated tax and accounting problems; and
acquisitions may result in a material weakness in our internal controls if we are not able to successfully establish and
implement proper controls and procedures for the acquired business.
Our failure to successfully accomplish future acquisitions or to manage and integrate completed or future acquisitions could have
a material adverse effect on our business, financial condition or results of operations. We can provide no assurances that we:
• will identify suitable acquisition candidates;
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can consummate acquisitions on acceptable terms;
can successfully compete for acquisition candidates against larger companies with significantly greater resources;
can successfully integrate any acquired business into our operations or successfully manage the operations of any acquired
business; or
• will be able to retain an acquired company’s significant client relationships, goodwill and key personnel or otherwise realize
the intended benefits of any acquisition.
In addition, acquisitions might involve our entry into new businesses that might not be as profitable as we expect. We can provide
no assurances that our expectations regarding the profitability of future acquisitions will prove to be accurate. Acquisitions might
also increase our exposure to the risks inherent in certain markets or industries.
As a result of completed and possible future acquisitions, our past performance is not indicative of future performance, and investors
should not base their expectations as to our future performance on our historical results.
Future acquisitions may require that we incur debt or issue dilutive equity.
Future acquisitions may require us to incur additional debt, under our existing credit facility or otherwise, or issue equity, resulting
in additional leverage or dilution of ownership.
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Difficulties in integrating acquired businesses could result in reduced revenues and income.
We might not be able to integrate successfully any business we have acquired or could acquire in the future. The integration of
the businesses could be complex and time consuming and will place a significant strain on our management, administrative services
personnel and information systems. This strain could disrupt our business. Furthermore, we could be adversely impacted by
liabilities of acquired businesses. We could encounter substantial difficulties, costs and delays involved in integrating common
accounting, information and communication systems, operating procedures, internal controls and human resources practices,
including incompatibility of business cultures and the loss of key employees and customers. Also, depending on the type of
acquisition, a key element of our strategy may include retaining management and key personnel of the acquired business to operate
the acquired business for us. Our inability to retain these individuals could materially impair the value of an acquired business.
In addition, small businesses acquired by us may have greater difficulty competing for new work as a result of being part of our
larger entity. These difficulties could reduce our ability to gain customers or retain existing customers, and could increase operating
expenses, resulting in reduced revenues and income and a failure to realize the anticipated benefits of acquisitions.
Our leverage could adversely affect our financial condition or operating flexibility if we fail to comply with certain
covenants under the Credit Agreement.
Our Credit Agreement contains operating covenants that may, subject to exceptions, limit our ability and the ability of our
subsidiaries to, among other things:
create, incur or assume certain liens;
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create, incur or assume additional indebtedness or guarantees;
create restrictions on the payment of dividends or other distributions to us from our restricted subsidiaries;
engage in M&A transactions, consolidations, sale-leasebacks, joint ventures, and asset and security sales and
dispositions;
pay dividends or redeem or repurchase our capital stock;
alter the business that we and our subsidiaries conduct;
engage in certain transactions with affiliates;
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• modify the terms of certain indebtedness;
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prepay, redeem or purchase certain indebtedness; and
In addition, the Credit Agreement includes a financial covenant that requires us not to exceed a maximum consolidated leverage
ratio (the ratio of funded debt to Consolidated EBITDA, as defined in the Credit Agreement). Operating results below a certain
level or other adverse factors, including a significant increase in interest rates, could result in us being unable to comply with
certain covenants. If we violate any applicable covenants and are unable to obtain waivers, our agreements governing our
indebtedness or other applicable agreement could be declared in default and could be accelerated, which could permit, in the case
of secured debt, the lenders to foreclose on our assets securing the debt thereunder. If the indebtedness is accelerated, we may not
be able to repay our debt or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on
commercially reasonable terms or on terms that are acceptable to us. If our debt is in default for any reason, our cash flows, financial
results or financial condition could be materially and adversely affected. In addition, complying with these covenants may make
it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such
restrictions.
Our business and financial condition could be adversely affected by government limitations on contractor profitability.
A significant portion of our revenue and profit is derived from contracts with the U.S. Government and subcontracts with prime
contractors of the U.S. Government. The U.S. Government places limitations on contractor profitability; therefore, government-
related contracts might have lower profit margins than the contracts we enter into with commercial customers.
A negative audit or other actions by the U.S. Government could adversely affect our future operating performance.
As a U.S. Government contractor, we must comply with laws and regulations relating to U.S. Government contracts and are subject
to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities
to which companies with solely commercial customers are not subject. We are subject to audit and investigation by the Defense
Contract Audit Agency ("DCAA") and other government agencies with respect to our compliance with federal laws, regulations
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and standards. These audits may occur several years after the period to which the audit relates. The DCAA, in particular, also
reviews the adequacy of, and our compliance with, our internal control systems and policies, including our purchasing, property,
estimating, compensation and management information systems. Any payments received by us from the U.S. Government for
allowable direct and indirect costs are subject to adjustment after audit by government auditors and repayment to the government
if the payments exceed allowable costs as defined in the government contracts, which could result in a material adjustment of the
payments received by us under such contracts. In addition, any costs found to be improperly allocated to a specific contract will
not be reimbursed. If we are found to be in violation of the law, we may be subject to civil or criminal penalties or administrative
sanctions, including contract termination, the assessment of penalties and suspension or debarment from doing business with U.S.
Government agencies. For example, many of the contracts we perform for the U.S. Government are subject to the Service Contract
Act, which requires hourly employees to be paid certain specified wages and benefits. If the Department of Labor determines that
we violated the Service Contract Act or its implementing regulations, we could be suspended for a period of time from winning
new government contracts or renewals of existing contracts, which could materially and adversely affect our future operating
performance.
Furthermore, our reputation could suffer serious harm if allegations of impropriety were made against us. If we are suspended or
prohibited from contracting with the U.S. Government, or any significant U.S. Government agency, if our reputation or relationship
with U.S. Government agencies becomes impaired or if the U.S. Government otherwise ceases doing business with us or
significantly decreases the amount of business it does with us, it could materially and adversely affect our operating performance
and could result in additional expenses and a loss of revenue.
We are a party to fixed price contracts and may enter into similar contracts in the future, which could result in reduced profits
or losses if we are not able to accurately estimate or control costs or meet specific service levels.
A significant portion of our revenue is attributable to contracts entered into on a fixed price basis, which allows us to benefit from
cost savings, but we carry the burden of cost overruns. If our initial estimates are incorrect, or if unanticipated circumstances arise,
we could experience cost overruns which would result in reduced profits or even result in losses on these contracts. Our financial
condition is dependent upon our ability to maximize our earnings from our contracts. Lower earnings or losses caused by cost
overruns could have a negative impact on our financial results.
Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses. Under cost-
reimbursable contracts, which are subject to a contract ceiling amount, we are reimbursed for allowable costs and paid a fee, which
may be fixed or performance based. However, if costs exceed the contract ceiling or are not allowable under the provisions of the
contract or applicable regulations, we may not be able to obtain reimbursement for all such costs.
Our inability to successfully estimate and manage costs on each of these contract types may materially and adversely affect our
financial condition. Cost overruns also may adversely affect our ability to sustain existing programs and obtain future contract
awards.
Also, many of our contracts include clauses that tie our compensation to the achievement of agreed-upon performance standards.
If we fail to satisfy these measures, it could significantly reduce or eliminate our fees under the contracts. Clients also often have
the right to terminate a contract and pursue damage claims under the contract for serious or repeated failure to meet these service
commitments. These provisions could increase the variability in revenues and margins earned on those contracts.
Our revenues may be adversely affected if we fail to win competitively awarded contracts or to receive renewal or follow-on
contracts.
We obtain many of our significant contracts through a competitive bidding process. Competitive bidding presents a number of
risks, including, without limitation:
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the need to compete against companies or teams of companies that may have more financial and marketing resources and
more experience in bidding on and performing major contracts than we have;
the need to compete against companies or teams of companies that may be long-term, entrenched incumbents for a particular
contract for which we are competing;
the need to compete to retain existing contracts that have in the past been awarded to us;
the expense and delay that may arise if our competitors protest or challenge new contract awards;
the need to submit proposals for scopes of work in advance of the completion of their design, which may result in unforeseen
cost overruns;
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the substantial cost and managerial time and effort, including design, development and marketing activities necessary to
prepare bids and proposals for contracts that we may not win;
the need to develop, introduce and implement new and enhanced solutions to our customers’ needs;
the need to locate and contract with teaming partners and subcontractors; and
the need to accurately estimate the resources and costs that will be required to perform over the term of the contract and
any extension periods for any fixed price or fixed rate contract that we win.
There are no assurances that we will continue to win competitively awarded contracts or to receive renewal or follow-on contracts.
Renewal and follow-on contracts are important because our contracts are for fixed terms. These terms vary from shorter than one
year to over five years, particularly for contracts with extension options. The loss of revenues from our failure to win competitively
awarded contracts or to obtain renewal or follow-on contracts may be significant because competitively awarded contracts account
for a substantial portion of our sales.
Our backlog is subject to reduction and cancellation, which could negatively impact our future revenues or earnings.
Our backlog for services under executed contracts (including subcontracts and purchase orders) was approximately $349.8 million,
$318.0 million and $268.6 million as of December 31, 2019, 2018 and 2017, respectively. There can be no assurance that the
revenues projected in our backlog will be realized or, if realized, will result in profits. Further, contract terminations or reductions
in the original scope of contracts reflected in our backlog might occur at any time as discussed below in more detail.
Our backlog consists of projects for which we have signed contracts from customers. The rate at which services are performed
under contracts, and thus the rate at which backlog will be recognized, may be at the discretion of the client. We cannot predict
with certainty when or if backlog will be performed. In addition, even where a project proceeds as scheduled, it is possible that
customers could default or otherwise fail to pay amounts owed to us. Material delays, terminations or payment defaults under
contracts included in our backlog could have a material adverse effect on our business, results of operations and financial condition.
In addition, most of our contracts are subject to termination by the client upon written notice. Reductions in our backlog due to
termination by a customer or for other reasons could materially and adversely affect the revenues and earnings we actually receive
from contracts included in our backlog. If we experience terminations of significant contracts or significant scope adjustments to
contracts reflected in our backlog, our financial condition, results of operations, and cash flow could be materially and adversely
impacted.
We rely on third parties, including subcontractors, suppliers, teaming partners, software vendors and others to deliver the
services we must provide to our customers and to operate our business, and disputes with or the failure to perform satisfactorily
of such a third party could materially and adversely affect our performance, our ability to obtain future work, and our ability
to manage our business effectively.
Many of our contracts involve subcontracts or agreements with other companies upon which we rely to perform a portion of the
services or products we must provide to our customers. We also rely on third parties to provide us services and products we use
for other functions in the operation of our business. There is a risk that we may have disputes with these third parties, including
disputes regarding the quality and timeliness of services or work provided by the third party. A failure by one or more of third
parties on whom we rely to satisfactorily provide, on a timely basis, the agreed upon services or products may materially and
adversely impact our ability to perform our obligations to our customer or effectively operate our business. Third party performance
deficiencies could expose us to liability and have a material adverse effect on our results of operations.
Also, from time to time we have entered, and expect to continue to enter, into joint venture, teaming and other similar arrangements
which involve risks and uncertainties. These risks and uncertainties could result in reduced profits or, in some cases, significant
losses for us with respect to the joint venture, teaming and other similar arrangements.
We maintain a workforce based upon anticipated staffing needs. If we do not receive future contract awards or if these awards
are delayed or reduced in scope or funding, we could incur significant costs.
Our estimates of future staffing requirements depend in part on the timing of new contract awards. We make our estimates in good
faith, but our estimates could be inaccurate or change based upon new information. In the case of larger projects, it is particularly
difficult to predict whether we will receive a contract award and when the award will be announced. In some cases the contracts
that are awarded require staffing levels that are different, sometimes lower, than the levels anticipated when the work was proposed.
The uncertainty of contract award timing and changes in scope or funding can present difficulties in matching our workforce size
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with our contract needs. If an expected contract award is delayed or not received, or if a contract is awarded for a smaller scope
of work than proposed, we could incur significant costs associated with making or failing to make reductions in staff.
Failure to continue to attract and retain qualified personnel could harm our business.
Our principal resource is our personnel. A significant portion of our revenue is derived from services and products that are delivered
by instructors, engineers, technical personnel and consultants. Our consulting, technical training and engineering services require
the employment of individuals with specific skills, training, licensure and backgrounds. An inability to hire or maintain employees
with the required skills, training, licensure or backgrounds could have a material adverse effect on our ability to provide quality
services, to expand the scope of our service offerings or to attract or retain customers or to accept contracts, which could negatively
impact our business and financial condition. In order to initiate and develop client relationships and execute our growth strategy,
we must continue to hire and maintain qualified salespeople. We must also continue to attract and develop capable management
personnel to guide our business and supervise the use of our resources.
Similarly, our U.S. Government contracts require employment of individuals with specified skills, work experience, licensures,
security clearances and backgrounds. An inability to hire or maintain employees with the required skills, work experience, licensure,
security clearances or backgrounds could have a material adverse effect on our ability to win new contracts or satisfy existing
contractual obligations, and could result in additional expenses or possible loss of revenue.
Competition for qualified personnel can be intense. We cannot assure you that qualified personnel will continue to be available
to us or will be available to us when our needs arise or on terms favorable to us. Any failure to attract or retain qualified instructors,
engineers, technical personnel, consultants, salespeople and managers in sufficient numbers could have a material adverse effect
on our business and financial condition.
The loss of our key personnel, including our executive management team, could harm our business.
Our success is largely dependent upon the experience and continued services of our executive management team and our other
key personnel. The loss of one or more of our key personnel and a failure to attract, develop or promote suitable replacements for
them could materially and adversely affect our business, results of operation or financial condition. Since 2017, we have had
significant changes in our executive management team. In 2017, our President indicated an intention to leave in 2019 and in
November 2017 we promoted one of our senior vice presidents to be our new President. We also removed two Executive Vice
Presidents who each had led one of our business segments, hired a new Chief Sales Officer, replaced our Chief Financial Officer
and reorganized our business from four into two segments effective January 1, 2018.
Competition could materially and adversely affect our performance.
The training industry is highly fragmented and competitive, with low barriers to entry and no single competitor accounting for a
significant market share. Our competitors include divisions of several large publicly traded and privately held companies, vocational
and technical training schools, degree-granting colleges and universities, continuing education programs and thousands of small
privately held training providers and individuals. In addition, many of our clients maintain internal training departments, which
have the resources and ability to provide the same or similar services in-house. Some of our competitors offer similar services
and products at lower prices, and some competitors have significantly greater financial, managerial, technical, marketing and other
resources. Moreover, we expect to face additional competition from new entrants into the training and performance improvement
market due, in part, to the evolving nature of the market and the relatively low barriers to entry.
The engineering and construction markets in which we compete are also highly competitive. Many of our competitors are niche
engineering and construction companies. In some instances, it is necessary for us to partner with those competitors who meet the
small business administration’s criteria for a small business in order to win contract awards. This competition places downward
pressure on our contract prices and profit margins. Intense competition is expected to continue in our training, engineering and
technical services markets, presenting us with significant challenges in our ability to maintain strong growth rates and acceptable
profit margins. If we are unable to meet these competitive challenges, we could lose market share to our competitors and experience
an overall reduction in our profits.
We cannot provide any assurance that we will be able to compete successfully in the industries or markets in which we compete,
and the failure to do so could materially and adversely affect our business, results of operations and financial condition.
16
Failure to keep pace with technology and changing market needs could harm our business.
Our future success will depend upon our ability to adapt to changing client needs, to gain expertise in technological advances
rapidly and to respond quickly to evolving industry trends and market needs. Many of our clients are demanding that our services
be available across the U.S. and worldwide. We cannot assure you that we will be able to expand our operations into all geographic
areas into which our multinational clients seek to use our services or that we will be able to attract and retain qualified personnel
to provide our services in all such geographic areas. We also cannot assure you that we will be successful in adapting to advances
in technology or marketing our services and products in advanced formats. In addition, services and products delivered in the
newer formats might not provide comparable training results. Furthermore, subsequent technological advances might render moot
any successful expansion of the methods of delivering our services and products. If we are unable to develop new means of
delivering our services and products due to capital, personnel, technological or other constraints, our business, results of operations
and financial condition could be materially and adversely affected.
We have only a limited ability to protect the intellectual property rights that are important to our success, and we face the risk
that our services or products may infringe upon the intellectual property rights of others.
Our future success depends, in part, upon our ability to protect our proprietary methodologies and other intellectual property,
including our EtaPRO™ software. Existing laws of some countries in which we provide or license or intend to provide or license
our services or products may offer only limited protection of our intellectual property rights. We rely upon a combination of trade
secrets, confidentiality policies, non-disclosure and other contractual arrangements and copyright and trademark laws to protect
our intellectual property rights. The steps we take in this regard might not be adequate to prevent or deter infringement or other
misappropriation of our intellectual property, and we may not be able to detect unauthorized use or take appropriate and timely
steps to enforce our intellectual property rights. Protecting our intellectual property rights might also consume significant
management time and resources.
We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the
intellectual property rights of third parties, and we might have infringement claims asserted against us or against our clients. These
claims might harm our reputation, result in financial liabilities and prevent us from offering some services or products. We have
generally agreed in our contracts to indemnify our clients against expenses or liabilities resulting from claimed infringements of
the intellectual property rights of third parties. In some instances, the amount of these indemnities could be greater than the
revenues we receive from the client. Any claims or litigation in this area, whether we ultimately win or lose, could be time-
consuming and costly, injure our reputation or require us to enter into royalty or licensing arrangements. We might not be able to
enter into these royalty or licensing arrangements on acceptable terms. Any limitation on our ability to provide or license a service
or product could cause us to lose revenue-generating opportunities and require us to incur additional expenses to develop new or
modified solutions for future projects.
Our information technology systems are subject to risks that we cannot control.
Our information technology systems, including technology systems provided by third parties, are dependent upon global
communications providers, web browsers, telephone systems, and other aspects of the Internet infrastructure that have experienced
system failures and electrical outages in the past. Our systems are susceptible to slow access and download times, outages from
fire, floods, power loss, telecommunications failures, hacking, and similar events. Our servers are vulnerable to computer viruses,
hacking, and similar disruptions from unauthorized tampering with our computer systems. The occurrence of any of these events
could disrupt or damage our information technology systems and inhibit our internal operations, our ability to provide services to
our customers, and the ability of our customers to access our information technology systems. This could result in our loss of
customers, loss of revenue or a reduction in demand for our services, or affect the ability to manage our business effectively.
17
We identified material weaknesses in our internal control over financial reporting related to our implementation of a new global
enterprise resource planning system (ERP) on October 1, 2018, and subsequent post-implementation processing as well as our
risk assessment over certain key financial processes. Until remediated, there is the possibility that a material misstatement in
our consolidated financial statements may not be prevented or detected on a timely basis, which could result in loss of investor
confidence and adversely impact our stock price.
Internal controls related to the operation of technology systems and risk assessment over key financial processes are critical to
maintaining adequate internal control over financial reporting. As disclosed in Part II, Item 9A, management identified material
weaknesses in internal control related to ineffective controls over the implementation of the ERP system in the areas of user access
and program change-management as well as ineffective risk assessment to ensure controls were designed and implemented to
respond to the risks within the revenue and human resources processes as well as other processes within TTi Global, Inc. As a
result, management concluded that our internal control over financial reporting was not effective as of December 31, 2019 and
2018. We remediated a material weakness related to system development lifecycle controls, and are implementing remedial
measures to address the current material weaknesses. While there can be no assurance that our efforts will be successful, we plan
to remediate the material weaknesses prior to the end of 2020. However, certain material weaknesses that we had planned to
remediate by the end of 2019 continue to exist and we may not be able to remediate the current material weaknesses by the end
of 2020. These remediation efforts could result in additional expenses. If we are unable to remediate the material weaknesses, or
are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability
to record, process and report financial information accurately, and to prepare financial statements within required time periods,
could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment
of legal and other expenses, negatively affecting investor confidence in our financial statements and adversely impact our stock
price.
A breach of our security measures (or security measures of third-parties we have engaged) could harm our business, results
of operations and financial condition.
Our databases contain our confidential data and confidential data of our clients and our clients’ customers, employees and vendors,
including sensitive personal data. As a result, we are subject to numerous laws and regulations designed to protect this information,
such as the European Union General Data Protection Regulation, the California Consumer Privacy Act and various U.S. federal
and state laws governing the protection of health or other personally identifiable information. These laws and regulations are
increasing in complexity and number, change frequently and sometimes conflict among the various countries in which we operate.
We have implemented security measures, both directly and with third-party subcontractors and service providers, with the intent
of maintaining the security of any confidential information which has been entrusted to us against unauthorized access through
our information systems or by other electronic transmission or through the misdirection, theft or loss of physical media. A party,
including one of our employees, who is able to circumvent our security measures could misappropriate such confidential information
or interrupt our operations. Many of our contracts require us to comply with specific data security requirements. If we are unable
to maintain our compliance with these data security requirements or any person, including any of our current or former employees,
penetrates our network security or misappropriates sensitive data, we could be subject to significant liabilities to our clients or
other parties or subject to legal actions for breaching these data security requirements or other contractual confidentiality provisions.
These liabilities might not be subject to a contractual limit of liability or an exclusion of consequential or indirect damages and
could be significant. Furthermore, unauthorized disclosure of sensitive or confidential data of our clients or other parties, whether
through breach of our computer systems, systems failure or otherwise, could also damage our reputation and cause us to lose
existing and potential clients. We may also be subject to civil actions, regulatory enforcement actions, and criminal prosecution
for breaches related to such data or need to expend significant capital and other resources to continue to protect against security
breaches or to address any problem they may cause. In addition, our liability insurance, which includes cyber insurance, might
not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches.
Our international sales and operations expose us to various political and economic risks, which could have a material adverse
effect on our business, results of operations and financial condition.
Our revenue outside of the U.S. was approximately 36%, 33% and 31% of our total revenue for the years ended December 31,
2019, 2018 and 2017, respectively. We conduct our business globally. We may continue to expand our global operations into
countries other than those in which we currently operate. It could also involve expanding into less developed countries, which
may have less political, social or economic stability and less developed infrastructure and legal systems. We may encounter
challenges adapting to cultural differences compared to the U.S. International sales and operations might be subject to a variety
of risks, including:
•
greater difficulty in staffing and managing foreign operations;
18
•
•
•
•
•
•
•
•
•
•
•
•
•
greater risk of uncollectible accounts;
longer collection cycles;
logistical and communications challenges;
potential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs
and tax laws;
changes in labor conditions, burdens and costs of compliance with a variety of foreign laws;
political and economic instability;
increases in duties and taxation;
exchange rate risks;
greater difficulty in protecting intellectual property;
general economic and political conditions in these foreign markets;
acts of war or terrorism or natural disasters, and limits on the ability of governments to respond to such acts;
restrictions on the transfer of funds into or out of a particular country; or
nationalization of foreign assets and other forms of governmental protectionism.
As we expand our business into new countries, we may increase our exposure to the risks discussed above. An adverse development
relating to one or more of these risks could affect our relationships with our customers or could have a material adverse effect on
our business, results of operations and financial condition.
The United Kingdom’s withdrawal from the EU may adversely impact our operations in the United Kingdom and elsewhere.
On January 31, 2020, the United Kingdom formally left the European Union and the U.K. is in the process of negotiating its exit
from the EU (generally referred to as “Brexit”). The U.K. will remain subject to the EU’s rules and regulations during a transition
period ending December 31, 2020. The impact of Brexit on our business will depend, in part, on the outcome of tariff, trade,
regulatory and other negotiations during this transition period and on the ultimate manner and terms of the U.K.’s withdrawal from
the EU.
The UK withdrawal from the EU could create new challenges in our operations, such as instability in global financial and foreign
exchange markets. This instability could include volatility in the value of the British pound and European euro, legal uncertainty
and potentially divergent national laws and regulations. In addition, the absence of trade agreements between the UK and other
EU countries may adversely affect the operation of our cross-border engagements between certain of these countries, including
as a result of the potential loss of the E.U. “passport,” or any other potential restriction on free travel of U.K. citizens to Europe,
and vice versa.
At the time of this filing, we cannot predict the impact that the UK’s actual exit from the EU will have on our business generally
and our UK and European operations more specifically, and no assurance can be given that our operating results, financial condition
and prospects would not be adversely impacted by the result.
We are subject to risks associated with currency fluctuations, which could have a material adverse effect on our results of
operations and financial condition.
Approximately 36% of our revenue for the year ended December 31, 2019 was denominated in foreign currencies. British Pound
Sterling-denominated revenue represented approximately 15% of our revenue for the year ended December 31, 2019. As a result,
changes in the exchange rates of foreign currencies to the U.S. dollar will affect our reported consolidated U.S. dollar revenue,
cost of revenue and operating margins and could result in exchange gains or losses. The impact of future exchange rate fluctuations
on our results of operations cannot be accurately predicted.
Business disruptions could adversely affect our future sales, financial condition, reputation or stock price or increase costs
and expenses.
Our business, and that of our key suppliers and customers, may be impacted by disruptions including, but not limited to, threats
to physical security, information technology attacks or failures, damaging weather or other acts of nature and pandemics or other
public health crises. Such disruptions could affect our internal operations or services provided to customers, adversely impacting
our sales, financial condition, reputation or stock price or increase our costs and expenses.
19
Our financial condition and results of operations for fiscal 2020 could be adversely affected by the recent coronavirus
outbreak.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. While initially concentrated in
China, at the time of this filing, the outbreak has now spread to other countries and infections have been reported globally including
in the United States. The outbreak has resulted in increased travel restrictions and extended shutdown of certain businesses. While
these restrictions and closures are expected to be temporary, the duration of the business disruption, reduced customer activity and
related financial impact cannot be reasonably estimated at this time but could negatively affect the results of our operations. The
extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot
be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain
the coronavirus or treat its impact, among others.
We are subject to potential liabilities which are not covered by our insurance.
We engage in activities in which there are substantial risks of potential liability. We have provided services involving electric
power distribution and generation, nuclear power, chemical weapons destruction, petrochemical process training, pipeline
operations, volatile fuels such as hydrogen and liquefied natural gas (“LNG”), environmental remediation, engineering design and
construction management. We maintain a global insurance program (including general liability coverage) covering the businesses
we currently own. Claims by or against any covered insured could reduce the amount of available insurance coverage for the other
insureds and for other claims. In addition, certain liabilities might not be covered at all, such as deductibles, self-insured retentions,
amounts in excess of applicable insurance limits and claims that fall outside the coverage of our policies.
Although we believe that we currently have appropriate insurance coverage, we do not have coverage for all of the risks to which
we are subject and we may not be able to obtain appropriate coverage on a cost-effective basis in the future.
Some of our policies, such as our professional liability insurance policy, provide coverage on a “claims-made” basis covering only
claims actually made during the policy period then in effect. To the extent that a risk is not insured within our then-available
coverage limits, insured under a low-deductible policy, indemnified against by a third party or limited by an enforceable waiver
or limitation of liability, claims could be material and could materially and adversely affect our business, results of operations and
financial condition.
Our authorized preferred stock and certain provisions in our amended and restated by-laws could make a third party acquisition
of us difficult.
Our restated certificate of incorporation, as amended, (“restated certificate”), allows us to issue up to 10,000,000 shares of preferred
stock, the rights, preferences, qualifications, limitations and restrictions of which may be fixed by the Board of Directors without
any further vote or action by the stockholders. In addition, our amended and restated bylaws provide, among other things, that
stockholders seeking to bring business before or to nominate candidates for election as directors at an annual meeting of stockholders
must provide us with timely advance written notice of their proposal in a prescribed form. Our amended and restated bylaws also
provide that stockholders desiring to call a special meeting for any purpose, must submit to us a request in writing of stockholders
representing at least 50% of the combined voting power of all issued and outstanding classes of capital stock and stating the purpose
of such meeting. The ability to issue preferred stock and such provisions in our bylaws might have the effect of delaying,
discouraging or preventing a change in control that might otherwise be beneficial to stockholders and might materially and adversely
affect the market price of our common stock.
In addition, some provisions of Delaware law, particularly the “business combination” statute in Section 203 of Delaware General
Corporation Law, might also discourage, delay or prevent someone from acquiring us or merging with us. As a result of these
provisions in our charter documents and Delaware law, the price investors might be willing to pay in the future for shares of our
common stock might be limited.
20
Our restated certificate allows us to redeem or otherwise dispose shares of our common stock owned by a foreign stockholder
if certain U.S. Government agencies threaten termination of any of our contracts as a result of such an ownership interest.
The United States Departments of Energy and Defense have policies regarding foreign ownership, control or influence over
government contractors who have access to classified information, and might conduct an inquiry as to whether any foreign interest
has beneficial ownership of 5% or more of a contractor’s or subcontractor’s voting securities. If either Department determines
that an undue risk to the defense and security of the United States exists as a result of foreign ownership, control or influence over
a government contractor (including as a result of a potential acquisition), it might, among other things, terminate the contractor’s
or subcontractor’s existing contracts. Our restated certificate allows us to redeem or require the prompt disposition of all or any
portion of the shares of our common stock owned by a foreign stockholder beneficially owning 5% or more of the outstanding
shares of our common stock if either Department threatens termination of any of our contracts as a result of such an ownership
interest. These provisions may have the additional effect of delaying, discouraging or preventing a change in control and might
materially and adversely affect the market price of our common stock. In connection with the sale of shares of common stock to
Sagard in December 2009, we agreed to render these provisions, as well as other anti-takeover measures, inapplicable to Sagard.
Item 1B: Unresolved Staff Comments
None.
Item 2: Properties
We do not own any significant real property, but we and our subsidiaries lease an aggregate of approximately 568,000 square feet
of primarily office and related space at various locations throughout the United States and Europe and other countries in which
we have operations. We occupy approximately 45,000 square feet in an office building in Columbia, Maryland for our corporate
headquarters under a lease which expires in 2025. We also lease offices to support our operations in 25 other cities across the U.S.,
including Troy, Michigan and Indianapolis, Indiana, and we lease office space to support our international locations in Canada,
the United Kingdom, France, Germany, the Netherlands, Denmark, Poland, Switzerland, South Africa, the United Arab Emirates,
Romania, Turkey, Australia, mainland China, Hong Kong, India, Japan, Malaysia, Singapore, Thailand, the Philippines, Argentina,
Brazil, Chile, Colombia, and Mexico.
We believe that our properties have been well maintained, are suitable and adequate for us to operate at present levels and the
productive capacity and extent of utilization of the facilities are appropriate for our existing real estate requirements. Upon expiration
of these leases, we do not anticipate any difficulty in obtaining renewals or alternative space.
Item 3: Legal Proceedings
None.
Item 4: Mine Safety Disclosures
None.
21
PART II
Item 5: Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock, $0.01 par value, is traded on the New York Stock Exchange. The following table presents our high and low
market prices for the last two fiscal years. During the periods presented below, we have not paid any cash dividends.
Quarter
Quarter
First
Second
Third
Fourth
First
Second
Third
Fourth
$
$
2019
High
Low
$
17.13
16.03
16.68
14.47
11.92
12.03
12.33
10.94
2018
High
Low
$
26.80
23.00
19.55
18.39
20.30
17.50
16.40
11.77
The number of shareholders of record of our common stock as of February 25, 2020 was 616. Shares of our common stock that
are registered in the name of a broker or other nominee are listed as a single shareholder on our record listing, even though they
are held for a number of individual shareholders. As such, our actual number of shareholders is higher than the number of
shareholders of record.
We have not declared or paid any cash dividends on our common stock during the two most recent fiscal years. We do not anticipate
paying cash dividends on our common stock in the foreseeable future and intend to retain future earnings to finance the growth
and development of our business.
22
Performance Graph
The following graph assumes $100 was invested on December 31, 2014 in GP Strategies Common Stock, and compares the share
price performance with the NYSE Market Index and a peer group index which consists of the companies included in Standard
Industrial Classification (SIC) 8200, Educational Services. Values are as of December 31 of the specified year assuming that all
dividends were reinvested.
*$100 invested on 12/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Company / Index
Name
GP Strategies Corp.
NYSE Market Index
Peer Group Index
Year ended December 31,
2014
2015
2016
2017
2018
2019
$
$
100.00
100.00
100.00
$
74.01
95.91
97.97
$
84.29
107.36
129.88
$
68.38
127.46
227.91
$
37.16
116.06
193.08
38.99
145.66
302.06
23
Issuer Purchases of Equity Securities
The following table provides information about our share repurchase activity for the three months ended December 31, 2019:
Issuer Purchases of Equity Securities
Total number
of shares
purchased as
part of publicly
announced program (1)
Average
price paid
per share
Approximate
dollar value of
shares that may yet
be purchased under
the program
Total number
of shares
purchased
— $
$
$
3,114(2)
8,069(2)
—
12.58
13.18
— $
— $
— $
3,755,000
3,755,000
3,755,000
Month
October 1 - 31, 2019
November 1 - 30, 2019
December 1 - 31, 2019
(1) Represents shares repurchased in the open market in connection with our 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. There is no expiration date for the repurchase program.
(2)
Includes shares surrendered to satisfy tax withholding obligations on restricted stock units which vested during these periods.
24
Item 6: Selected Financial Data
The selected financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Item 7 and our consolidated financial statements and the notes thereto included elsewhere
in this report. Our consolidated statement of operations data for the years ended December 31, 2019, 2018, and 2017 and our
consolidated balance sheet data as of December 31, 2019 and 2018 have been derived from our audited consolidated financial
statements included elsewhere in this report. Our consolidated statement of operations data for the years ended December 31, 2016
and 2015 and our consolidated balance sheet data as of December 31, 2017, 2016, and 2015 have been derived from audited
consolidated financial statements which are not presented in this report.
Statement of Operations Data
2019
Years ended December 31,
2018
2016
2017
(In thousands, except per share amounts)
Revenue
Gross profit
Interest expense
Income before income taxes (1)
Net income
Diluted earnings per share
$
$
583,290
89,213
6,058
22,369
15,189
0.90
$
515,160
77,743
2,945
14,763
9,836
0.59
$
509,208
82,027
3,132
19,689
12,891
0.76
$
490,559
80,157
1,568
30,034
20,247
1.21
2015
490,280
81,992
1,381
29,623
18,789
1.09
(1) Includes a $12.1 million gain on the sale of our tuition program management business on October 1, 2019 which is described
more fully in Note 4 to the Consolidated Financial Statements.
Balance Sheet Data
2019
2018
Cash
Short-term borrowings
Working capital
Total assets
Long-term debt, including current
maturities
Stockholders’ equity
$
$
8,159
—
92,918
448,902
82,870
209,914
13,417
—
103,944
434,738
116,500
186,569
December 31,
2017
(In thousands)
23,612
$
37,696
49,785
365,007
$
28,000
188,054
2016
2015
$
16,346
17,694
59,859
315,601
40,000
167,496
21,030
34,084
40,322
302,969
24,444
158,344
25
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our
consolidated results of operations and financial condition. The discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto for the year ended December 31, 2019 which are located in Item 8 of this report.
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 December 31, 2019, we operated through two reportable business segments: (i) Workforce Excellence and (ii) Business
Transformation Services. We are organized into two operating segments aligned by complementary service lines and supported
by a business development organization aligned by industry sector. 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, 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, processes and workforce 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 customer salesforces as well as service technicians with respect
to new product features and designs, in effect rapidly increasing the salesforce and technician 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.
26
• 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
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 discuss our business in more detail in Item 1. Business and the risk factors affecting our business in Item 1A. Risk Factors.
Business Strategy
We seek to increase shareholder value by pursuing the following strategies:
Continuously enhance our learning services offerings and capabilities. We believe the demand for learning and development
services will continue to increase. In a knowledge based economy, this demand is driven by ever increasing technology, processes,
products, and turnover of personnel. The rate and effectiveness of the transfer of knowledge to the workforce of our clients, their
partners, and even their customers can positively impact their performance. We plan to meet this demand by continuously expanding
our services and capabilities through organic growth initiatives based upon our technical expertise as well as through targeted
acquisitions. Our acquisitions in recent years have added automotive industry training and platform adoption capabilities to our
services offerings, strengthened our digital learning and custom training content development services in both the commercial and
government sectors, and expanded our geographical reach. We believe that the breadth of our service and product offerings allows
us to effectively compete for customers by offering a comprehensive solution for custom training, consulting, engineering and
technical services. We will continue to focus on increasing our capabilities to drive incremental growth from new, as well as
existing, clients.
Develop and maintain strong client relationships. We plan to preserve and grow our business by cross-selling our services and
capabilities across and within our existing client base. We have a successful track record of increasing our share of wallet with a
number of our clients, many of whom we estimate currently outsource only a fraction of their training expenditures. We believe
that as our clients benefit from the efficient, cost-effective and flexible training solutions and services that we provide, many of
them will find it beneficial to increase the scope of training services that they outsource to third party providers. We believe that
the strength of our relationships with our existing clients, including the insight and knowledge into their operations that we have
developed through these relationships, when combined with the broad range of our service and product offerings, provide us with
an advantage when competing for these additional expenditures.
Leverage managed learning capabilities. We have a demonstrated ability to provide training services across a wide spectrum of
learning engagements from transactional multi-week assignments focused on a single aspect of a learning process to multi-year
contracts where we manage the learning infrastructure of our customer. Integrated managed learning engagements typically require
us to assume responsibility for the development, delivery and administration of learning functions and are generally carried out
under multi-year agreements. We intend to leverage our managed learning capabilities to expand the customers and markets we
serve.
Expand global platform. We believe international markets offer growth opportunities for our services. We established over twenty
new subsidiaries in select countries since 2013 to support new global outsourcing contracts.We intend to leverage our enhanced
infrastructure as well as to further establish our global platform in order to deliver our comprehensive offerings to new and existing
clients on a global basis. In our experience, many of our clients are seeking access to additional international markets and as such
we intend to enhance our international capabilities. In order to support their business expansion we are providing employee training
solutions across organizations in different countries and different languages, while maintaining quality and consistency in the
overall training program. By moving into specific international markets with our existing clients, we are able to not only deepen
our relationships with those clients, but are also able to develop expertise in those markets that we can leverage to additional
customers. We believe that following this strategy provides us with opportunities to gain access to international markets with
established client relationships in those markets.
27
Significant Events
Restructuring Plan
In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic
growth and reducing operating costs. We also hired a chief sales officer in January 2018 to establish a structured and more centralized
business development capability that will align our diverse market sector expertise with our service offerings. In connection with
the reorganization, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better
position the Company to drive future revenue growth. During the fourth quarter of 2017, we incurred restructuring charges of $3.3
million consisting primarily of severance costs and during the year ended December 31, 2018, we incurred restructuring charges
of $2.9 million, consisting primarily of facility consolidation costs and severance expense. These restructuring activities were
complete as of June 30, 2018. The total remaining liability under this restructuring plan was $0.1 million and $1.9 million as of
December 31, 2019 and 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 year
ended December 31, 2019, we recorded $1.6 million of restructuring charges in connection with these activities. The total remaining
liability under these restructuring activities was $0.2 million as of December 31, 2019. These restructuring activities associated
with the TTi Global acquisition were substantially complete as of December 31, 2019.
Divestitures
Sale of Tuition Program Management Business
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 "buyer"). The purchase price was $20.0 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. An additional $0.1 million was paid to the buyer in January 2020 based on the final calculation of
assumed liabilities as defined in the asset purchase agreement. We recognized a pre-tax gain of $12.1 million, net of $0.1 million
of direct selling costs, on the sale of the business. The gain recorded represents the difference between the purchase price and the
carrying value of the business, which primarily included goodwill of $7.7 million.
Sale of Alternative Fuels Division
Effective January 1, 2020, we closed the sale of our Alternative Fuels Division pursuant to an Asset Purchase Agreement with
Cryogenic Industries, LLC. The purchase price is up to $6.0 million, subject to adjustment based on a final calculation of net
working capital as defined in the asset purchase agreement. Of the total purchase consideration, we received an advance payment
of $1.5 million on December 31, 2019 and the remaining upfront consideration of $3.5 million on January 2, 2020 based on the
estimated net working capital. In addition, up to $0.5 million of the purchase price is subject to the achievement of certain milestones
under an assigned contract through the period December 31, 2021. The purchase price adjustment for closing net working capital
is expected to be finalized during the first quarter of 2020.
Acquisitions
Below is a summary of the acquisitions we completed during 2018 and 2017. We did not complete any acquisitions in 2019. See
Note 3 to the accompanying Consolidated Financial Statements for further details, including the purchase price allocations.
2018 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, subject to reduction based on a minimum working capital requirement, as defined in the Share
28
Purchase Agreement. During the third quarter of 2019, the seller paid us $0.9 million in settlement of the working capital adjustment.
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 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 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 consolidated financial statements beginning May 1, 2018. The pro-forma impact of the acquisition is not material to our
results of operations.
Hula Partners
On January 2, 2018, we acquired the business and certain assets of Hula Partners, a provider of SAP Success Factors Human
Capital Management (HCM) implementation services. The purchase price was $10.0 million which was paid in cash at closing.
The acquired Hula Partners business is included in the Business Transformation Services segment and the results of its operations
have been included in the consolidated financial statements beginning January 2, 2018. The pro-forma impact of the acquisition
is not material to our results of operations.
2017 Acquisitions
YouTrain
On August 31, 2017, we acquired the entire share capital of YouTrain Limited ("YouTrain"), an independent training company
delivering IT, digital and life sciences skills training in Scotland and North West England. The upfront purchase price was $4.9
million which was paid in cash at closing and a completion accounts payment of $0.2 million which was paid to the sellers during
the fourth quarter of 2017. The acquired YouTrain business is included in the Workforce Excellence segment and the results of its
operations have been included in the consolidated financial statements beginning September 1, 2017. The pro-forma impact of
the acquisition is not material to our results of operations. The acquired YouTrain business is included in our acquiring United
Kingdom subsidiary and its functional currency is the British Pound Sterling.
CLS Performance Solutions Limited
On August 31, 2017, we acquired the business and certain assets of CLS Performance Solutions Limited ("CLS"), an independent
provider of Enterprise Resource Planning (ERP) end user adoption and training services in the United Kingdom. The upfront
purchase price was $0.4 million which was paid in cash at closing. In addition, the purchase agreement required up to an additional
$2.2 million of consideration contingent upon the achievement of certain earnings targets during the twelve-month period following
the completion of the acquisition. No contingent consideration was paid as the earnings targets were not achieved. The acquired
CLS business is included in the Business Transformation Services segment, and the results of its operations have been included
in the consolidated financial statements beginning September 1, 2017. The pro-forma impact of the acquisition is not material to
our results of operations. The acquired CLS business is included in our acquiring United Kingdom subsidiary and its functional
currency is the British Pound Sterling.
Emantras
Effective April 1, 2017, we acquired the business and certain assets of Emantras, a digital education company that provides engaging
learning experiences and effective knowledge delivery through award-winning digital and mobile solutions with offices in Fremont,
California and Chennai, India. This acquisition strengthens our eLearning development capabilities, allowing us to better serve
our customer base with the latest digital learning solutions. The upfront purchase price was $3.2 million in cash. In addition, the
29
purchase agreement required up to an additional $0.3 million of consideration, contingent upon the achievement of an earnings
target during the twelve-month period following completion of the acquisition, plus a percentage of any earnings in excess of the
specified earnings target. No contingent consideration was paid as the earnings target was not achieved. The acquired Emantras
business is included in the Workforce Excellence segment, and the results of its operations have been included in the consolidated
financial statements beginning April 1, 2017. The pro-forma impact of the acquisition is not material to our results of operations.
The India-based operations of the acquired Emantras business is included in our India subsidiary and its functional currency is the
Indian Rupee.
McKinney Rogers
On February 1, 2017, we acquired the business and certain assets of McKinney Rogers, a provider of strategic consulting services
with offices in New York and London. This acquisition expands our solutions offerings, giving us the ability to leverage McKinney
Rogers' intellectual property and consulting methodologies to help our global client base meet strategic business goals. The upfront
purchase price was $3.3 million in cash. In addition, the purchase agreement required up to an additional $18.0 million of
consideration, $6.0 million of which was contingent upon the achievement of certain earnings targets during the five-month period
ended April 30, 2017 and $12.0 million of which is contingent upon the achievement of certain earnings targets during the three
twelve-month periods following completion of the acquisition. In July 2017, we paid the seller $1.0 million in respect of the
contingent consideration for the five-month period ended April 30, 2017. No contingent consideration was paid with respect to
the two twelve-month periods following the acquisition as the earnings targets for those periods were not achieved. In July 2019,
we entered into an amendment to the asset purchase agreement that implemented certain changes, including the elimination of the
third year earnout for the period ended January 31, 2020. The acquired McKinney Rogers business is included in the Business
Transformation Services segment, and the results of its operations have been included in the consolidated financial statements
beginning February 1, 2017. The pro-forma impact of the acquisition is not material to our results of operations.
Share 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 year ended December 31, 2019 we did
not repurchase shares and during the years ended December 31, 2018 and 2017, we repurchased approximately 354,000 and
182,000 shares, respectively, of our common stock in the open market for a total cost of approximately $8.0 million and $4.3
million, respectively. As of December 31, 2019, there was approximately $3.8 million available for future repurchases under the
buyback program. There is no expiration date for the repurchase program.
30
Results of Operations
Operating Highlights
Year ended December 31, 2019 compared to the year ended December 31, 2018
During the year ended December 31, 2019, our revenue increased $68.1 million, or 13.2%, to $583.3 million compared to $515.2
million for the year ended December 31, 2018. The revenue increase was comprised of a $13.0 million increase in our Workforce
Excellence segment and a $55.1 million increase in our Business Transformation Services segment. Foreign currency exchange
rate changes resulted in a total $7.5 million decrease in U.S. dollar reported revenue during 2019. The changes in revenue and
gross profit are discussed in further detail below by segment.
Operating income, the components of which are discussed in detail below, increased $8.4 million or 42.9% during the year ended
December 31, 2019. The increase in operating income is largely due to a $12.1 million pre-tax gain on the sale of our tuition
program management business in October 2019. In addition, we had a $11.5 million increase in gross profit and a $1.3 million
decrease in restructuring charges during 2019 compared to 2018. These increases in operating income were partially offset by a
$9.6 million increase in general and administrative expenses, a $3.1 million increase in sales and marketing expense, and a $3.8
million decrease in the gain on change in fair value of contingent consideration during 2019 compared to 2018.
For the year ended December 31, 2019, we had income before income taxes of $22.4 million compared to $14.8 million for the
year ended December 31, 2018. Net income was $15.2 million, or $0.90 per diluted share, for the year ended December 31, 2019
compared to $9.8 million, or $0.59 per diluted share, for 2018. Diluted weighted average shares outstanding were $16.9 million
for the year ended December 31, 2019 compared to $16.7 million for the year ended December 31, 2018.
Revenue
Workforce Excellence
Business Transformation Services
Years ended December 31,
2018
2019
(Dollars in thousands)
$
$
329,795
253,495
583,290
$
$
316,814
198,346
515,160
Workforce Excellence revenue increased $13.0 million or 4.1% during the year ended December 31, 2019 compared to 2018. The
increase in revenue is comprised of the following:
•
a $16.6 million net increase in revenue in our Managed Learning Services practice primarily due to the following:
a $5.1 million increase in revenue from the IC Axon business acquired on May 1, 2018;
a $10.2 million net increase in revenue for managed learning and training content development services primarily
due to new training outsourcing contracts; and
a $1.3 million increase in vocational skills training services provided to the UK government.
•
a $1.9 million net increase in revenue in our Engineering & Technical Services practice primarily due to an increase in
chemical demilitarization training services for the U.S. government and an increase in disaster relief services, partially
offset by a net decrease in engineering and technical training services.
These increases were offset by a $5.5 million net decrease in revenue due to changes in foreign currency exchange rates.
Business Transformation Services revenue increased $55.1 million or 27.8% during the year ended December 31, 2019 compared
to 2018. The net increase in revenue is comprised of the following:
a $57.7 million net increase in our Sales Enablement practice primarily due to the following:
a $49.1 million increase due to incremental revenue contributed by the TTi Global and TTi Europe acquisitions
completed on December 1, 2018 and August 7, 2018, respectively; and
31
•
a $8.6 million net increase in automotive sales training services largely due to new vehicle launch events and
other new projects for automotive clients.
a $0.6 million net decrease in revenue in our Organizational Development practice primarily due to a decline in human
capital management system implementation services, partially offset by an increase in strategic consulting services.
These revenue increases were offset by a $2.0 million net decrease in revenue due to changes in foreign currency exchange
rates.
Gross profit
Years ended December 31,
2019
2018
% Revenue
% Revenue
Workforce Excellence
Business Transformation Services
$
$
55,855
33,358
89,213
(Dollars in thousands)
16.9%
13.2%
15.3%
$
$
50,875
26,868
77,743
16.1%
13.5%
15.1%
Workforce Excellence gross profit of $55.9 million, or 16.9%, of revenue for the year ended December 31, 2019 increased by $5.0
million, or 9.8%, compared to gross profit of $50.9 million or 16.1% of revenue for the year ended December 31, 2018. The net
increase in gross profit is primarily due to the following:
•
•
•
a $4.3 million net increase in gross profit in our Managed Learning Services practice primarily due to the revenue increases
noted above, partially offset by a decline in gross profit for our vocational skills training services provided to the UK
government due to a change in the funding model; and
a $1.6 million net increase in gross profit in our Engineering & Technical Services practice primarily due to the revenue
increases noted above, as well as improved profitability in our alternative fuels business; partially offset by
a $0.9 million net decrease in gross profit due to changes in foreign currency exchange rates.
Business Transformation Services gross profit of $33.4 million, or 13.2%, of revenue for the year ended December 31, 2019
increased by $6.5 million, or 24.2%, when compared to gross profit of $26.9 million, or 13.5%, of revenue for the year ended
December 31, 2018. The increase is primarily due to $4.6 million of gross profit contributed by the acquired TTi business, a $0.6
million increase in gross profit in our Sales Enablement practice, and a $1.3 million increase in gross profit in our Organizational
Development practice.
General and administrative expenses
General and administrative expenses increased $9.6 million or 17.6% from $54.8 million for the year ended December 31, 2018
to $64.5 million for the year ended December 31, 2019. The increase in general and administrative expenses is primarily due to a
$4.5 million increase in G&A expense associated with the acquired TTi businesses and a $2.0 million increase due to internal labor
costs that were capitalized in connection with our financial system implementation in 2018 but that are included in G&A expense
in 2019. In addition, there was a $2.8 million increase in bad debt expense primarily due to an additional reserve of $2.2 million
recognized in the fourth quarter of 2019 resulting from a settlement agreement relating to outstanding accounts receivable on a
contract that was previously terminated by a foreign oil and gas client in 2017. There was also a $0.3 million net increase in
miscellaneous other G&A expenses largely due to an increase in external accounting and tax consulting fees.
Sales and marketing expenses
Sales and marketing expenses increased $3.1 million or 64.1% from $4.8 million for the year ended December 31, 2018 to $7.9
million for the year ended December 31, 2019. The increase in sales and marketing expenses is primarily due to labor and benefits
expense relating to the hiring of additional business development personnel as well as marketing personnel, some of which represents
new investments and some of which results from centralizing marketing resources that were previously recorded in cost of revenue.
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Restructuring charges
Restructuring expense were $1.6 million and $2.9 million for the years ended December 31, 2019 and 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. We recognized
restructuring charges of $1.6 million during the year ended December 31, 2019 relating to these restructuring activities. During
the year ended December 31, 2018, we recognized $2.9 million of restructuring charges in connection with the reorganization that
was initiated in December 2017.
Gain on change in fair value of contingent consideration, net
During the years ended December 31, 2019 and 2018, we recognized a net gain of $0.7 million and $4.4 million, respectively, on
the change in fair value of contingent consideration related to acquisitions. The gains are due to lower earnings for the acquired
businesses compared to our original forecasts, resulting in a reversal of the contingent consideration liabilities. See Note 3 to the
Consolidated Financial Statements for a detailed discussion of the accounting for the changes in fair value of contingent
consideration during the year ended December 31, 2019.
Interest expense
Interest expense increased $3.1 million to $6.1 million for the year ended December 31, 2019 compared to $2.9 million for the
year ended December 31, 2018. The net increase is due to a $2.0 million increase in interest expense due to both an increase in
interest rates and higher borrowings under the Credit Agreement, as well as a $1.1 million non-recurring reversal of an interest
accrual during the second quarter of 2018 related to an unremitted value-added tax associated with prior year client billings which
was favorably settled during the second quarter of 2018.
Other income (expense)
Other income was $0.4 million compared to other expense of $1.9 million for the years ended December 31, 2019 and 2018,
respectively. The increase in other income was primarily due to a $1.6 million decrease in foreign currency losses primarily related
to the effect of exchange rates on intercompany receivables and payables and third party receivables and payables that are
denominated in currencies other than the functional currency of our legal entities. There was also a net $0.8 million improvement
in other income due to a $0.5 million gain in the third quarter of 2019 related to a divested business for which a $0.3 million loss
on disposal was included in other expense during the third quarter of 2018. In addition, there was a $0.4 million increase in
miscellaneous other income. Partially offsetting these improvements was a $0.4 million loss on a litigation settlement, including
legal costs, during the fourth quarter of 2019, which is included in other income (expense).
Gain on sale of business
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 "buyer"). The purchase price was $20.0 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. An additional $0.1 million was paid to the buyer in January 2020 based on the final calculation of
assumed liabilities as defined in the asset purchase agreement. We recognized a pre-tax gain of $12.1 million, net of $0.1 million
of direct selling costs, on the sale of the business. The gain recorded represents the difference between the purchase price and the
carrying value of the business, which primarily included goodwill of $7.7 million.
Income taxes
Income tax expense was $7.2 million for the year ended December 31, 2019 compared to $4.9 million for the year ended
December 31, 2018. Our effective income tax rate was 32.1% and 33.4% for the years ended December 31, 2019 and 2018,
respectively. The decrease in the effective income tax rate in 2019 compared to 2018 is primarily due to a change in the mix of
income from higher to lower taxing jurisdictions. See Note 10 to the accompanying Consolidated Financial Statements for further
information regarding income taxes.
33
Results of Operations for Fiscal 2018 compared to 2017
For a comparison of our results of operations for the years ended December 31, 2018 and 2017, see "Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the fiscal year
ended December 31, 2018, filed with the SEC on April 1, 2019.
Liquidity and Capital Resources
Working Capital
For the year ended December 31, 2019, our working capital decreased $11.0 million from $103.9 million at December 31, 2018
to $92.9 million at December 31, 2019. We believe that cash generated from operations and borrowings available under our Credit
Agreement ($25.8 million of available borrowings as of December 31, 2019 based on our consolidated leverage ratio) will be
sufficient to fund our working capital and other requirements for at least the next twelve months.
As of December 31, 2019, the amount of cash held outside of the U.S. by foreign subsidiaries was $7.6 million. The Tax Cuts and
Jobs Act of 2017 includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously
unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding
the U.S. taxation of these amounts, we intend to continue to invest these earnings, as well as our capital in these subsidiaries,
indefinitely outside of the U.S. and do not expect to incur any significant, additional taxes related to such amounts.
Share 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. Repurchases are made at management’s discretion
in accordance with applicable federal securities law. The amount and timing of share repurchases depend on a variety of factors,
including market conditions and prevailing stock prices. The share repurchase authorization does not obligate us to acquire any
specific number of shares in any period, and may be modified, suspended or discontinued at any time at the discretion of our Board
of Directors. During the year ended December 31, 2019, we did not repurchase shares of our common stock in the open market.
During the years ended 2018 and 2017, we repurchased approximately 354,000 and 182,000 shares, respectively, of our common
stock in the open market for a total cost of approximately $8.0 million and $4.3 million respectively. As of December 31, 2019,
there was approximately $3.8 million available for future repurchases under the current buyback program. There is no expiration
date for the repurchase program.
Acquisition-Related Payments
As of December 31, 2019, we didn't have any remaining contingent consideration liabilities outstanding in connection with
previously completed acquisitions.
Proceeds from Divestitures
In connection with the sale of our tuition program management business which is discussed further in Note 4 to the Consolidated
Financial Statements, we received cash proceeds of $18.7 million in October 2019. In addition, $1.5 million of the purchase price
is being held in escrow to secure possible indemnification claims pursuant to the terms of an escrow agreement which expires
October 1, 2020.
In connection with the sale of our Alternative Fuels Division effective January 1, 2020, we received upfront cash proceeds of $1.5
million on December 31, 2019 and $3.5 million of cash proceeds on January 2, 2020. In addition, up to $0.5 million of the purchase
price is subject to the achievement of certain milestones under an assigned contract through the period December 31, 2021. The
purchase price is also subject to adjustment for closing net working capital which is expected to be finalized during the first quarter
of 2020.
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Significant Customers & Concentration of Credit Risk
We have a market concentration of revenue in both the automotive sector and the financial services & insurance sector. Revenue
from the automotive industry accounted for approximately 28%, 23% and 22% of our consolidated revenue for the years ended
December 31, 2019, 2018 and 2017, respectively. In addition, we have a concentration of revenue from a single automotive
customer, which accounted for approximately 13%, 14% and 13% of our consolidated revenue for the years ended December 31,
2019 , 2018 and 2017, respectively. As of December 31, 2019, accounts receivable from a single automotive customer totaled
$17.2 million, or 13% of our consolidated accounts receivable balance.
Revenue from the financial services & insurance industry accounted for approximately 16%, 19% and 20% of our consolidated
revenue for the years ended December 31, 2019, 2018 and 2017, respectively. In addition, we have a concentration of revenue
from a single financial services customer, which accounted for approximately 10%, 13% and 14% of our consolidated revenue
for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, billed and unbilled accounts
receivable from a single financial services customer totaled $15.4 million, or 8%, of our consolidated accounts receivable and
unbilled revenue balances. No other single customer accounted for more than 10% of our consolidated revenue in 2019 or
consolidated accounts receivable balance as of December 31, 2019.
Cash Flows
Year ended December 31, 2019 compared to the year ended December 31, 2018
Our cash balance decreased $5.3 million from $13.4 million as of December 31, 2018 to $8.2 million as of December 31, 2019.
The decrease in cash during the year ended December 31, 2019 resulted from cash provided by operating activities of $13.4 million,
cash provided by investing activities of $16.0 million, cash used in financing activities of $32.3 million and a $2.3 million negative
effect due to exchange rate changes on cash.
Cash provided by operating activities was $13.4 million for the year ended December 31, 2019 compared to $11.2 million in 2018.
The increase in cash provided by operating activities is primarily due to an increase in net income and non-cash add backs to net
income and favorable changes in working capital accounts during 2019 compared to 2018.
Cash provided by investing activities was $16.0 million for the year ended December 31, 2019 compared to cash used in investing
activities of $61.8 million in 2018. The increase in cash from investing activities is due to $20.0 million of cash proceeds from
divestitures in 2019 compared to $55.3 million of cash used to complete acquisitions in 2018. In addition, there was $0.9 million
decrease in capitalized software development costs in 2019 compared to 2018.
Cash used in financing activities was $32.3 million for the year ended December 31, 2019 compared to cash provided by financing
activities of $40.0 million in 2018. The decrease in cash from financing activities is primarily due to $33.6 million of net repayments
of borrowings under our Credit Agreement in 2019 compared to $50.9 million of net borrowings on our line of credit during 2018
to fund acquisitions. In addition, there was a $8.5 million decrease in cash used for open market share repurchases in 2019 compared
to 2018 and a $3.2 million change in negative cash book balances during 2019 compared to 2018.
Cash Flow Comparison for Fiscal 2018 compared to 2017
For a comparison of our cash flows for the years ended December 31, 2018 and 2017, see "Part II, Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the fiscal year ended
December 31, 2018, filed with the SEC on April 1, 2019.
Debt
On November 30, 2018, we entered into a Credit Agreement with PNC Bank, National Association, as administrative agent for 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
35
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 Pime 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. On June 28, 2019, we entered into an amendment to the
Credit Agreement that requires the company to maintain compliance with a maximum leverage ratio of 3.75 to 1.0 for the fiscal
quarter ended June 30, 2019, 3.5 to 1.0 for the fiscal quarter ending September 30, 2019 and 3.0 to 1.0 for the fiscal quarters ended
December 31, 2019 and thereafter, and a minimum interest expense coverage ratio of 3.0 to 1.0. The leverage ratio is computed
by dividing our Funded Debt by our Consolidated EBITDA, as those terms are defined in the Credit Agreement, for the trailing
four fiscal quarters, and the interest coverage ratio is computed by dividing our Consolidated EBITDA by our Consolidated Interest
Expense for the trailing four fiscal quarters. As of December 31, 2019, our leverage ratio was 2.3 to 1.0 and our interest expense
ratio was 6.1 to 1.0, each of which was in compliance with the Credit Agreement.
As of December 31, 2019, we had $82.9 million of borrowings outstanding and $25.8 million of available borrowings under the
revolving credit facility based on our consolidated leverage ratio. For the years ended December 31, 2019 and 2018, the weighted
average interest rate on our borrowings was 4.5% and 4.0%, respectively. There were $1.2 million of unamortized debt issue costs
related to the Credit Agreement as of December 31, 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.
Contractual Payment Obligations
We enter into various agreements that result in contractual obligations in connection with our business activities. These obligations
primarily relate to debt and interest payments under our Credit Agreement, operating leases and purchase commitments under non-
cancelable contracts for certain products and services. The following table summarizes our total contractual payment obligations
as of December 31, 2019 (in thousands):
Payments due in
2020
2021-2022
2023-2024
After
2024
Operating lease commitments
Purchase commitments (1)
Total
8,411
8,175
16,586
$
11,703
9,252
20,955
$
8,268
1,878
10,146
$
$
6,060
—
6,060
$
Total
34,442
19,305
53,747
(1) Excludes purchase orders for goods and services entered into by us in the ordinary course of business, which are non-
binding and subject to amendment or termination within a reasonable notification period.
Off-Balance Sheet Commitments
As of December 31, 2019, we had outstanding letters of credit totaling approximately $0.1 million, which expire in 2022. In
addition, as of December 31, 2019, we had three outstanding performance bonds totaling $12.4 million primarily for contracts in
our alternative fuels business. We do not have any off-balance sheet financing except for short-term operating leases and letters
of credit entered into in the normal course of business.
36
Management Discussion of Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates, judgments
and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent
in the financial reporting process, actual results could differ from those estimates.
Certain of our accounting policies require higher degrees of judgment than others in their application. These include revenue
recognition, impairment of intangible assets, including goodwill, valuation of contingent consideration for business acquisitions,
and income taxes, which are summarized below. In addition, Note 1 to the accompanying Consolidated Financial Statements
includes further discussion of our significant accounting policies.
Revenue Recognition
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 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.
37
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 increase (decrease) to revenue of $1.8 million,
$1.5 million, and $(0.8) million for the years ended December 31, 2019, 2018 and 2017, 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.
Contract Related Assets and Liabilities
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 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 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 year ended December 31, 2019 were not materially impacted by any other factors,
except for a significant decrease in unbilled revenue as of December 31, 2019 compared to 2018 due to a delay in billings at the
end of 2018 in connection with the implementation of a new ERP system in the fourth quarter of 2018.
Impairment of Intangible Assets, Including Goodwill
We review goodwill for impairment annually as of October 1st and whenever events or changes in circumstances indicate the
carrying value of an asset may not be recoverable. We test goodwill at the reporting unit level. A reporting unit is an operating
segment, or one level below an operating segment, as defined by U.S. GAAP. We have four reporting units for purposes of goodwill
impairment testing, which represent our four practices which are one level below our operating segments.
Our goodwill balances as of December 31, 2019 for each reporting unit were as follows (in thousands):
Reporting Unit
Managed Learning Services
Engineering & Technical Services
Sales Enablement
Organizational Development
$
$
75,209
42,804
7,516
46,034
171,563
ASC 350 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill
impairment test. Under ASC 350, an entity is not required to perform a quantitative goodwill impairment test for a reporting unit
if it is more likely than not that its fair value is greater than its carrying amount. For our annual goodwill impairment tests as of
October 1, 2019 and 2018, we performed a quantitative goodwill impairment test and concluded that the fair values of each of our
reporting units exceeded their respective carrying values. Each of the reporting units had a significant excess fair value over its
respective carrying value, with the exception of the Organizational Development reporting unit which had a fair value that exceeded
its carrying value by 11% as of the October 1, 2019 testing date. The Organizational Development reporting unit has a significant
amount of goodwill attributable to previously completed acquisitions. If it continues to experience declines, fails to meet its financial
38
projections, or if other adverse market conditions occur which would lower the fair value of the business, we could incur material
goodwill and other intangible asset impairment charges in the future.
In the quantitative impairment test, we compare the fair value of each reporting unit to its carrying value. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and we are not required
to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting
unit, then we record an impairment loss equal to the difference, however, the loss recognized would not exceed the total amount
of goodwill allocated to the reporting unit.
We determine the fair value of our reporting units using both an income approach and a market approach, and weigh both approaches
to determine the fair value of each reporting unit. Under the income approach, we perform a discounted cash flow analysis which
incorporates management’s cash flow projections over a five-year period and a terminal value is calculated by applying a
capitalization rate to terminal year projections based on an estimated long-term growth rate. The five-year projected cash flows
and calculated terminal value are discounted using a weighted average cost of capital (“WACC”) which takes into account the
costs of debt and equity. The cost of equity is based on the risk-free interest rate, equity risk premium, industry and size equity
premiums and any additional market equity risk premiums as deemed appropriate for each reporting unit. To arrive at a fair value
for each reporting unit, the terminal value is discounted by the WACC and added to the present value of the estimated cash flows
over the discrete five-year period. There are a number of other variables which impact the projected cash flows, such as expected
revenue growth and profitability levels, working capital requirements, capital expenditures and related depreciation and
amortization. Under the market approach, we perform a comparable public company analysis and apply revenue and earnings
multiples from the identified set of companies to the reporting unit’s actual and forecasted financial performance to determine the
fair value of each reporting unit. We evaluate the reasonableness of the fair value calculations of our reporting units by reconciling
the total of the fair values of all of our reporting units to our total market capitalization, and adjusting for an appropriate control
premium. In addition, we make certain judgments in allocating shared assets and liabilities to determine the carrying values for
each of our reporting units.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions.
These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows,
risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We
base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual
future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets
and liabilities to determine the carrying values for each of our reporting units. The timing and frequency of our goodwill impairment
tests are based on an ongoing assessment of events and circumstances that would indicate a possible impairment. We will continue
to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present.
Valuation of Contingent Consideration for Business Acquisitions
Acquisitions may include contingent consideration payments based on future financial measures of an acquired company.
Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these
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. We believe our estimates and
assumptions are reasonable; however, there is significant judgment involved. At each reporting date, the contingent consideration
obligation are revalued to estimated fair value and changes in fair value subsequent to the acquisition are reflected in income or
expense in the consolidated statements of operations, and could cause a material impact to 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.
Income Taxes
We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
39
The measurement of deferred taxes often involves an exercise of judgment related to the computation and realization of tax basis.
Our deferred tax assets and liabilities reflect our assessment that tax positions taken, and the resulting tax basis, are more likely
than not to be sustained if they are audited by taxing authorities. We establish accruals for uncertain tax positions taken or expected
to be taken in a tax return 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.
A number of years may elapse before a particular matter, for which we have or have not established an accrual, is audited and
finally resolved. Favorable or unfavorable adjustment of the accrual for any particular issue would be recognized as an increase
or decrease to our income tax expense in the period of a change in facts and circumstances.
In assessing the realizability of our deferred tax assets, we consider whether it is more likely than not that some portion or all of
the deferred tax assets may not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of
future income during the periods in which temporary differences are deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon these
factors, we believe it is more likely than not that we will realize the benefits of our deferred tax assets, net of the valuation allowance.
The valuation allowance primarily relates to both foreign and domestic net operating loss carryforwards for which we do not
believe the benefits may be realized.
The above matters, and others, involve the exercise of significant judgment. Any changes in our practices or judgments involved
in the measurement of deferred tax assets and liabilities could materially impact our financial condition or results of operations.
Accounting Standards Issued and Adopted
We discuss recently issued and adopted accounting standards in Note 1 to the accompanying Consolidated Financial Statements.
40
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
Our primary exposure to market risk relates to changes in interest rates and foreign currency exchange rates.
Interest Rate Risk
We are exposed to interest rate risk related to our outstanding debt obligations. On November 30, 2018, we entered into a new
credit agreement with a bank which provides for a five-year secured revolving loan facility in an aggregate principal amount of
up to $200.0 million. As of December 31, 2019, we had $82.9 million outstanding under the credit facility. We may draw funds
from our revolving credit facility under interest rates based on either the Federal Funds Rate or the Adjusted London Interbank
Offered Rate (“LIBOR rate”). If these rates increase significantly, our costs to borrow these funds will also increase. In an effort
to manage our exposure to this risk, we have entered into interest rate derivative contracts. As of December 31, 2019, we did not
have any interest rate hedging instruments in place but may enter into new hedging instruments in the future to mitigate our
exposure to interest rate risk.
We estimate that the fair value of our borrowings under our revolving credit facility approximates its carrying value as of
December 31, 2019 as it bears interest at variable rates.
Foreign Currency Exchange Rate Risk
We operate in various foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations.
Our foreign currency exposure primarily relates to intercompany receivables and payables and third party receivables and payables
that are denominated in currencies other than the functional currency of our legal entities. Our largest foreign currency exposure
is unsettled intercompany payables and receivables which are reviewed on a regular basis. Gains and losses from foreign currency
transactions are included in "Other income (expense)" on our Consolidated Statements of Operations. We had foreign currency
transaction losses totaling $0.7 million, $2.3 million and $0.3 million for the years ended December 31, 2019, 2018 and 2017,
respectively.
Most of our foreign subsidiaries operate in a currency other than the United States dollar; therefore, increases or decreases in the
value of the U.S. dollar against other major currencies will affect our operating results and the value of our balance sheet items
denominated in foreign currencies. Our most significant exposures to translation risk relates to functional currency assets and
liabilities that are denominated in the British Pound Sterling, Euro and Canadian dollar. The changes in the net investments of
foreign subsidiaries whose currencies are denominated in currencies other than the U.S. dollar are reflected in "Foreign currency
translation adjustments” on our Consolidated Statements of Comprehensive Income. We have not used any exchange rate hedging
programs to mitigate the effect of exchange rate fluctuations.
41
Item 8: Financial Statements and Supplementary Data
Financial Statements of GP Strategies Corporation and Subsidiaries:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – December 31, 2019 and 2018
Consolidated Statements of Operations – Years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income – Years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows – Years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Page
43
46
47
48
49
50
52
42
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
GP Strategies Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of GP Strategies Corporation and subsidiaries (the Company) as
of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity,
and cash flows for each of the years in the three year period ended December 31, 2019, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each
of the years in the three year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 10, 2020 expressed an adverse opinion on the effectiveness of the Company’s internal
control over financial reporting.
Change in Accounting Principle
As discussed in Notes 1 and 14 to the consolidated financial statements, effective January 1, 2019, the Company adopted Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, Leases. This change was adopted
using the modified retrospective method.
As discussed in Notes 1 and 2 to the consolidated financial statements, effective January 1, 2018, the Company adopted FASB
ASC Topic 606, Revenue from Contracts with Customers. This change was adopted using the modified retrospective method.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We or our predecessor firms have served as the Company’s auditor since 1970.
Baltimore, Maryland
March 10, 2020
43
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
GP Strategies Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited GP Strategies Corporation and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described
below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements
of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated March 10,
2020 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented
or detected on a timely basis. The following material weaknesses were identified and included in management’s assessment:
Our risk assessment process was not effective in considering changes to the business operations, personnel and other factors
affecting certain financial reporting processes, and we did not have sufficient resources available to perform the risk assessment
process and implement controls in the requisite timeframe. This resulted in:
•
•
•
•
Ineffective program change management controls over program and data changes affecting the enterprise resource planning
(ERP) financial IT applications. Specifically, the change management process was not designed properly to demonstrate
the completeness and approval of all configuration changes that have occurred. The related detective control to monitor
changes was not implemented. Also, the control over access to migrate changes into the production environment was
determined to be ineffective.
Ineffective user access controls to adequately restrict user access to financial applications and related data commensurate
with job responsibilities. Management did not perform appropriate user access reviews.
Ineffective general information technology controls over the ERP system resulting in ineffective automated controls and
manual controls that are dependent upon the completeness and accuracy of information derived from the ERP system.
This includes automated and manual controls over all significant accounts presented in the consolidated financial
statements.
Ineffective risk assessment to ensure controls were designed and implemented to respond to the risks within the revenue
and human resources processes company-wide as well as other processes specific to only TTi Global, Inc., which was
acquired on November 30, 2018.
The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the
2019 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
44
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Baltimore, Maryland
March 10, 2020
45
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2019 and 2018
(In thousands, except shares and par value per share)
Current assets:
Assets
Cash
Accounts and other receivables, less allowance for doubtful accounts of $1,132 in
2019 and $2,034 in 2018
Unbilled revenue
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Deferred tax assets
Other assets, net
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
Current portion of operating lease liability
Deferred revenue
Total current liabilities
Long-term debt
Long-term portion of operating lease liability
Deferred tax liabilities
Other noncurrent liabilities
Total liabilities
Stockholders’ equity:
Preferred stock, par value $0.01 per share;
Authorized 10,000,000 shares; no shares issued
Common stock, par value $0.01 per share; Authorized 35,000,000 shares;
issued 17,222,781 shares in 2019 and 2018
Additional paid-in capital
Retained earnings
Treasury stock, at cost (190,115 shares in 2019 and 603,041 shares in 2018)
Accumulated other comprehensive loss
Total stockholders’ equity
See accompanying notes to consolidated financial statements.
46
2019
2018
$
8,159
$
13,417
$
131,852
57,229
19,115
216,355
5,803
27,251
171,563
16,344
1,121
10,465
448,902
92,332
7,871
23,234
123,437
82,870
22,159
7,439
3,083
238,988
107,673
80,764
19,048
220,902
5,859
—
176,124
20,933
1,077
9,843
434,738
93,254
—
23,704
116,958
116,500
—
8,817
5,894
248,169
—
—
172
102,319
131,228
(4,070)
(19,735)
209,914
448,902
$
172
105,850
116,039
(13,802)
(21,690)
186,569
434,738
$
$
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2019, 2018 and 2017
(In thousands, except per share data)
Revenue
Cost of revenue
Gross profit
General and administrative expenses
Sales and marketing expenses
Restructuring charges
Gain on change in fair value of contingent consideration, net
Gain on sale of business
Operating income
Interest expense
Other income (expense) (including interest income of $50 in 2019, $8 in
2018 and $43 in 2017)
Income before income taxes
Income tax expense
Net income
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
Per common share data:
Basic earnings per share
Diluted earnings per share
See accompanying notes to consolidated financial statements.
2019
2018
2017
$
$
583,290
494,077
89,213
64,492
7,875
1,639
677
12,126
28,010
6,058
417
22,369
7,180
15,189
16,827
16,861
$
515,160
437,417
77,743
54,848
4,798
2,930
4,438
—
19,605
2,945
(1,897)
14,763
4,927
9,836
$
16,608
16,696
509,208
427,181
82,027
55,753
1,666
3,317
1,620
—
22,911
3,132
(90)
19,689
6,798
12,891
16,748
16,873
0.90
0.90
$
$
0.59
0.59
$
$
0.77
0.76
$
$
$
$
47
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2019, 2018 and 2017
(In thousands)
Net income
Foreign currency translation adjustments
Change in fair value of interest rate cap, net of tax
Change in fair value of interest rate swap, net of tax
Comprehensive income
See accompanying notes to consolidated financial statements.
2019
2018
2017
$
$
15,189
1,955
—
—
17,144
$
$
9,836
(6,914)
142
(63)
3,001
$
$
12,891
6,686
(142)
63
19,498
48
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years ended December 31, 2019, 2018 and 2017
(In thousands, except for par value per share)
Retained
earnings
93,708
12,891
—
Treasury
stock at cost
$
(11,628) $
—
—
$
$
$
$
Balance at December 31, 2016
Net income
Foreign currency translation adjustments
Change in fair value of interest rate cap, net of tax
Change in fair value of interest rate swap, net of tax
Repurchases of common stock in the open market
Stock-based compensation expense
Shares withheld in exchange for tax withholding
payments on stock-based compensation
Issuance of stock for employer contributions to
retirement plan
Net issuances of stock pursuant to stock
compensation plans and other
Balance at December 31, 2017
Cumulative effect adjustment of adopting ASU
2014-09
Adjusted balance at December 31, 2017
Net income
Foreign currency translation adjustments
Change in fair value of interest rate cap, net of tax
Change in fair value of interest rate swap, net of tax
Repurchases of common stock in the open market
Stock-based compensation expense
Shares withheld in exchange for tax withholding
payments on stock-based compensation
Issuance of stock for employer contributions to
retirement plan
Net issuances of stock pursuant to stock
compensation plans and other
Balance at December 31, 2018
Net income
Foreign currency translation adjustments
Stock-based compensation expense
Shares withheld in exchange for tax withholding
payments on stock-based compensation
Issuance of stock for employer contributions to
retirement plan
Common
stock
($0.01 par)
172
—
—
—
—
—
—
—
172
—
172
—
—
—
—
—
—
—
172
—
—
—
—
—
$
$
$
$
Additional
paid-in capital
106,803
$
—
—
—
3,589
(1,168)
40
(2,008)
107,256
—
107,256
—
—
—
1,350
(416)
(867)
(1,473)
105,850
—
—
2,617
(278)
(2,251)
$
$
$
—
—
—
—
—
106,599
(396)
106,203
9,836
—
—
—
—
—
—
116,039
15,189
—
—
—
—
$
$
$
Accumulated
other
comprehensive
loss
(21,462) $
—
6,686
(142)
63
—
—
Total
stockholders’
equity
167,593
12,891
6,686
(142)
63
(4,302)
3,589
—
—
(1,168)
2,725
(4,302)
—
—
2,685
2,127
(11,118) $
—
(14,855) $
119
188,054
—
(11,118) $
—
—
(7,993)
—
—
3,827
—
(14,855) $
—
(6,914)
142
(63)
—
—
—
—
(396)
187,658
9,836
(6,914)
142
(63)
(7,993)
1,350
(416)
2,960
1,482
(13,802) $
—
—
—
—
(21,690) $
—
1,955
—
9
186,569
15,189
1,955
2,617
—
5,229
—
—
(278)
2,978
Net issuances of stock pursuant to stock
compensation plans and other
—
Balance at December 31, 2019
172
See accompanying notes to consolidated financial statements.
$
(3,619)
102,319
$
—
131,228
$
$
4,503
(4,070) $
—
(19,735) $
884
209,914
49
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2019, 2018 and 2017
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
2019
2018
2017
$
15,189
$
9,836
$
12,891
Gain on change in fair value of contingent consideration, net
Gain on sale of business
Depreciation and amortization
Non-cash compensation expense
Deferred income taxes
Changes in other operating items, net of acquired amounts:
Accounts and other receivables
Unbilled revenue
Prepaid expenses and other current assets
Accounts payable, accrued expenses and net change in
operating leases
Deferred revenue
Contingent consideration payments in excess of fair value on
acquisition date
Other
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Proceeds from sale of business
Acquisitions, net of cash acquired
Capitalized software development costs
Other investing activities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from (repayment of) short-term borrowings
Proceeds from long-term debt
Repayments of long-term debt
Contingent consideration payments
Change in negative cash book balance
Repurchases of common stock
Tax withholding payments for employee stock-based compensation in
exchange for shares surrendered
Premium paid on interest rate cap
Cash proceeds from termination of interest rate derivatives
Payment of debt issuance costs
Other financing activities
Net cash provided by (used in) financing activities
50
(677)
(12,126)
9,482
5,595
(1,086)
(23,803)
23,473
421
(4,859)
(326)
—
2,117
13,400
(2,315)
20,048
850
(2,632)
—
15,951
—
178,750
(212,380)
—
1,932
—
(278)
—
—
(303)
—
(32,279)
(4,438)
—
7,921
4,310
876
23,092
(36,868)
705
8,110
(2,094)
—
(240)
11,210
(2,834)
—
(55,290)
(3,544)
(86)
(61,754)
(37,577)
146,000
(57,500)
—
(1,278)
(8,522)
(416)
—
544
(1,231)
10
40,030
(1,620)
—
6,974
6,314
(313)
(10,977)
(1,893)
(2,297)
15,392
2,520
(408)
(323)
26,260
(2,734)
—
(11,111)
(1,313)
(295)
(15,453)
19,864
—
(12,000)
(4,657)
(2,138)
(3,773)
(1,168)
(474)
—
—
120
(4,226)
Effect of exchange rate changes on cash
Net change in cash
Cash at beginning of year
Cash at end of year
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income taxes
Non-cash financing activities:
Accrued share repurchases
Accrued contingent consideration
See accompanying notes to consolidated financial statements.
2019
2018
2017
(2,330)
(5,258)
13,417
8,159
5,831
4,327
$
$
$
319
(10,195)
23,612
13,417
3,741
4,528
$
$
$
— $
— $
(529) $
$
905
685
7,266
16,346
23,612
1,841
6,256
529
5,613
$
$
$
$
$
51
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(1) Description of Business and Significant Accounting Policies
Business
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.
FASB Codification
We follow generally accepted accounting principles (“GAAP”) set by the Financial Accounting Standards Board (“FASB”).
References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification, sometimes
referred to as ASC.
Basis of Consolidation
The consolidated financial statements include the operations of our wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
Significant Customers & Concentration of Credit Risk
We have a market concentration of revenue in both the automotive sector and financial services & insurance sector. Revenue
from the automotive industry accounted for approximately 28%, 23% and 22% of our consolidated revenue for the years
ended December 31, 2019, 2018 and 2017, respectively. In addition, we have a concentration of revenue from a single
automotive customer, which accounted for approximately 13%, 14% and 13% of our consolidated revenue for the years ended
December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019 accounts receivable from a single automotive
customer totaled $17.2 million, or 13%, of our consolidated accounts receivable balance.
Revenue from the financial services and insurance industry accounted for approximately 16%, 19% and 20% of our consolidated
revenue for the years ended December 31, 2019, 2018 and 2017, respectively. In addition, we have a concentration of revenue
from a single financial services customer, which accounted for approximately 10%, 13% and 14% of our consolidated revenue
for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, billed and unbilled accounts
receivable from a single financial services customer totaled $15.4 million, or 8%, of our consolidated accounts receivable and
unbilled revenue balances.
No other single customer accounted for more than 10% of our consolidated revenue in 2019 or consolidated accounts receivable
balance as of December 31, 2019.
Cash
We maintain our cash balances in bank accounts at various financial institutions. Outstanding checks which have been issued
but not presented to the banks for payment in excess of amounts on deposit may create negative book cash balances. We
transfer cash on an as-needed basis to fund these items as they clear the bank in subsequent periods. Such negative cash
balances are included in accounts payable and accrued expenses and totaled $3.7 million and $1.8 million as of December 31,
2019 and 2018, respectively. Changes in negative book cash balances from period to period are reported as a financing activity
in the consolidated statement of cash flows.
52
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Allowance for Doubtful Accounts Receivable
Trade accounts receivable are recorded at invoiced amounts. We evaluate the collectability of trade accounts receivable based
on a combination of factors. When we are aware that a specific customer may be unable to meet its financial obligations to
us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, we
evaluate the need to record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe
is collectible. We also record reserves for bad debt for all other customers based on a variety of factors, including the length
of time the receivables are past due, historical collection experience and trends of past due accounts, write-offs and specific
identification and review of past due accounts. Actual collections of trade receivables could differ from management’s estimates
due to changes in future economic or industry conditions or specific customers’ financial conditions.
Activity in our allowance for doubtful accounts was comprised of the following for the periods indicated:
Beginning balance
Additions
Deductions
Ending balance
$
$
2019
Year ended December 31,
2018
(In thousands)
2,492
$
234
(692)
2,034
2,034
2,871
(3,773)
1,132
$
$
$
2017
1,091
1,720
(319)
2,492
During the fourth quarter ended December 31, 2017, we recognized a $1.3 million bad debt reserve related to accounts
receivable on a contract with a foreign oil and gas client which was terminated. During the third quarter of 2017, we also
recognized a $2.6 million revenue and gross profit reduction related to this contract due to a performance dispute resulting in
an increase in estimated costs to complete the project. During the fourth quarter of 2019, we entered into a settlement agreement
with the client and recognized an additional bad debt reserve of $2.2 million to reflect the accounts receivable at its recoverable
amount as of December 31, 2019. The remaining accounts receivable, net of the reserve, totaling $1.6 million was collected
in January 2020.
Foreign Currency Translation
The functional currencies of our international operations are the respective local currencies of the countries in which we
operate. The translation of the foreign currency into U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts using the weighted average exchange rates
prevailing during the year. The unrealized gains and losses resulting from such translation are included as a component of
comprehensive income. Transaction gains and losses arising from currency exchange rate fluctuations on transactions
denominated in a currency other than the local functional currency are included in “Other income (expense)" on our
Consolidated Statements of Operations. We had foreign currency transaction losses totaling $0.7 million, $2.3 million and
$0.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Revenue Recognition
On January 1, 2018, we adopted FASB Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with
Customers ("Topic 606") using the modified retrospective method. Under this transition method, we applied the new standard
to contracts that were not completed as of the adoption date and recognized a cumulative effect adjustment which reduced
retained earnings by $0.4 million on January 1, 2018. The comparative prior period information has not been restated and
continues to be presented according to accounting standards in effect for those periods. Further information regarding our
revenue recognition, including our full accounting policy description, can be found in Note 2.
53
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Contract Related Assets and Liabilities
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 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 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 twelve-month period ended December 31,
2019 were not materially impacted by any other factors, except for a significant decrease in unbilled contract receivables as
of December 31, 2019 compared to 2018 due to higher unbilled balances at December 31, 2018 resulting from a delay in
billings at the end of 2018 in connection with the implementation of a new ERP system in the fourth quarter of 2018.
Comprehensive Income
Comprehensive income consists of net income, foreign currency translation adjustments, and the change in fair value of interest
rate derivatives, net of tax.
Other Current Assets
Prepaid expenses and other current assets on our consolidated balance sheet include prepaid expenditures for goods or services
before the goods are used or the services are received, inventories and work in progress on customer contracts. Prepaid expenses
are charged to expense in the periods the benefits are realized. Inventories are stated at lower of cost or market. Provision is
made to reduce excess and obsolete inventories to their estimated net realizable value. Costs included in work in progress on
customer contracts are recognized to cost of revenue when the performance obligation is satisfied and revenue is recognized.
Property, Plant and Equipment
Property, plant and equipment are carried at cost (or fair value at acquisition date for assets obtained through business
combinations). Major additions and improvements are capitalized, while maintenance and repairs which do not extend the
lives of the assets are expensed as incurred. Gain or loss on the disposition of property, plant and equipment is recognized in
operations when realized.
Depreciation of property, plant and equipment is recognized on a straight-line basis over the following estimated useful lives:
Class of assets
Buildings and improvements
Machinery, equipment, and furniture and fixtures
Leasehold improvements
Useful life
5 to 40 years
3 to 10 years
Shorter of asset life or term of lease
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant, and equipment, and intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized at the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Impairment of long-lived assets is assessed at the lowest level for which there are identifiable cash
flows that are independent from other groups of assets. Assets to be disposed of would be separately presented in the balance
sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated.
54
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Goodwill and Intangible Assets
Our intangible assets include amounts recognized in connection with acquisitions, including customer relationships,
tradenames, technology and intellectual property. Intangible assets are initially valued at fair market value using generally
accepted valuation methods appropriate for the type of intangible asset. Amortization is recognized on a straight-line basis
over the estimated useful life of the intangible assets. Intangible assets with definite lives are reviewed for impairment if
indicators of impairment arise. Except for goodwill, we do not have any intangible assets with indefinite useful lives.
Goodwill represents the excess of costs over fair value of assets of businesses acquired. We review our goodwill for impairment
annually as of October 1 and whenever events or changes in circumstances indicate the carrying value of an asset may not be
recoverable. We test goodwill at the reporting unit level.
ASC 350 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative
goodwill impairment test. Under ASC 350, an entity is not required to perform a quantitative goodwill impairment test for a
reporting unit if it is more likely than not that its fair value is greater than its carrying amount. For our annual goodwill
impairment tests as of both October 1, 2019 and 2018, we performed quantitative goodwill impairment tests and concluded
that the fair values of each of our reporting units exceeded their respective carrying values.
In the quantitative impairment test, we compare the fair value of each reporting unit to its carrying value. If the fair value of
the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and we are not
required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value
of the reporting unit, then we record an impairment loss equal to the difference, however, the loss recognized would not exceed
the total amount of goodwill allocated to the reporting unit.
We determine the fair value of our reporting units using both an income approach and a market approach, and weigh both
approaches to determine the fair value of each reporting unit. Under the income approach, we perform a discounted cash flow
analysis which incorporates management’s cash flow projections over a five-year period and a terminal value is calculated
by applying a capitalization rate to terminal year projections based on an estimated long-term growth rate. The five-year
projected cash flows and calculated terminal value are discounted using a weighted average cost of capital (“WACC”) which
takes into account the costs of debt and equity. The cost of equity is based on the risk-free interest rate, equity risk premium,
industry and size equity premiums and any additional market equity risk premiums as deemed appropriate for each reporting
unit. To arrive at a fair value for each reporting unit, the terminal value is discounted by the WACC and added to the present
value of the estimated cash flows over the discrete five-year period. There are a number of other variables which impact the
projected cash flows, such as expected revenue growth and profitability levels, working capital requirements, capital
expenditures and related depreciation and amortization. Under the market approach, we perform a comparable public company
analysis and apply revenue and earnings multiples from the identified set of companies to the reporting unit’s actual and
forecasted financial performance to determine the fair value of each reporting unit. We evaluate the reasonableness of the fair
value calculations of our reporting units by reconciling the total of the fair values of all of our reporting units to our total
market capitalization, and adjusting for an appropriate control premium. In addition, we make certain judgments in allocating
shared assets and liabilities to determine the carrying values for each of our reporting units.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and
assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected
future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market
comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and
inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and
assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. The
timing and frequency of our goodwill impairment tests are based on an ongoing assessment of events and circumstances that
would indicate a possible impairment. We will continue to monitor our goodwill and intangible assets for impairment and
conduct formal tests when impairment indicators are present.
55
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Contingent Consideration for Business Acquisitions
Acquisitions may include contingent consideration payments based on future financial measures of an acquired company.
Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of
these 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. At each reporting
date, the contingent consideration obligation is revalued to estimated fair value and changes in fair value subsequent to the
acquisition are reflected in income or expense in the consolidated statements of operations, and could cause a material impact
to 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.
Other Assets
Other assets primarily include an investment in a joint venture, certain software development costs, and unamortized debt
issuance costs relating to our revolving credit facility. We account for a 10% interest in a joint venture partnership under the
equity method of accounting because significant influence exists due to certain factors, including representation on the
partnership’s Management Board and voting rights. We capitalize the cost of internal-use software in accordance with ASC
Topic 350-40, Internal-Use Software and ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a
Cloud Computing Arrangement That is a Service Contract. These costs consist of internal labor costs and payments made to
third parties for software development and implementation and are amortized using the straight-line method over their estimated
useful lives, ranging from three to eight years. We amortize debt issuance costs to interest expense on a straight-line basis
over the term of our revolving credit facility.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
We establish accruals for uncertain tax positions taken or expected to be taken in a tax return 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. Favorable or unfavorable adjustment of the
accrual for any particular issue would be recognized as an increase or decrease to income tax expense in the period of a change
in facts and circumstances. Interest and penalties related to income taxes are accounted for as income tax expense.
Earnings per Share
Basic earnings per share (“EPS”) are computed by dividing earnings by the weighted average number of common shares
outstanding during the periods. 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 stock options and restricted stock units outstanding under our stock-
based incentive plans and are 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 weighted average dilutive common
stock equivalent shares which were included in the computation of diluted EPS:
56
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Non-dilutive instruments
Dilutive common stock equivalents
Stock-Based Compensation
2019
Year ended December 31,
2018
(In thousands)
82
88
103
34
2017
13
125
Pursuant to our stock-based incentive plans which are described more fully in Note 12, we grant stock options, restricted stock
units, performance-based stock units (PSU's) and equity to officers, employees, and members of the Board of Directors. We
compute compensation expense for all equity-based compensation awards issued to employees using the fair-value
measurement method. We recognize compensation expense on a straight-line basis over the requisite service period for stock-
based compensation awards with both graded and cliff vesting terms. We recognize forfeitures as they occur with a reduction
in compensation expense in the period of forfeiture. We do not capitalize any material portion of our stock-based compensation.
We recognize compensation expense for PSU's on a straight-line basis over the performance period based on the probable
outcome of achievement of the financial targets. At the end of each reporting period, we estimate the number of PSU's expected
to vest, based on the probability and extent to which the performance goals will be met, and take into account these estimates
when calculating the expense for the period. If the number of shares expected to be earned changes during the performance
period, we will make a cumulative adjustment to compensation expense based on the revised number of shares expected to
be earned.
We estimate the fair value of our stock options on the date of grant using the Black-Scholes option pricing model, which
requires various assumptions such as expected term, expected stock price volatility and risk-free interest rate. We estimate
the expected term of stock options granted taking into consideration historical data related to stock option exercises. We use
historical stock price data in order to estimate the expected volatility factor of stock options granted. The risk-free interest
rate for the periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of
grant.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing
basis, we evaluate the estimates used, including but not limited to those related to revenue recognition, the allowance for
doubtful accounts receivable, impairments of goodwill and other intangible assets, valuation of intangible assets acquired and
contingent consideration liabilities assumed in business acquisitions, valuation of stock-based compensation awards and
income taxes. Actual results could differ from these estimates.
Fair Value Estimates
ASC Topic 820, Fair Value Measurements and Disclosure (“Topic 820”), defines fair value, establishes a market-based
framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants. The guidance within Topic 820 is applicable whenever another accounting pronouncement requires or permits
assets and liabilities to be measured at fair value. The fair value hierarchy prioritizes the inputs used in valuation techniques
into three levels as follows:
• Level 1 – unadjusted quoted prices for identical assets or liabilities in active markets;
• Level 2 – quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can
be corroborated by observable market data by correlation; and
57
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
• Level 3 – unobservable inputs based upon the reporting entity’s internally developed assumptions which market
participants would use in pricing the asset or liability.
The carrying value of financial instruments including cash, accounts receivable and accounts payable approximate estimated
market values because of short-term maturities and interest rates that approximate current rates. In addition, the fair value of
our long-term debt approximated its carrying value as of December 31, 2019 as it bears interest at variable rates. Our fair
value measurements related to goodwill, intangible assets and contingent consideration are recognized in connection with
acquisitions and are valued using Level 3 inputs. Our interest rate derivatives are valued using Level 2 inputs.
Leases
On January 1, 2019, we adopted FASB Accounting Standards Update ("ASU") 2016-02, Leases ("Topic 842") and all the
related amendments. The impact of adoption is discussed below under the "Recent Accounting Standards" section. Further
information regarding our lease accounting, including our full accounting policy description, can be found in Note 14.
Legal Expenses
We are involved, from time to time, in litigation and proceedings arising out of the ordinary course of business. Costs for
legal services rendered in the course of these proceedings are charged to expense as they are incurred.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
Recent 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 effects 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 14. Topic 842 did not have a material impact on our results of operations or
cash flows.
58
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which requires companies to record an allowance for expected credit losses over the
contractual term of financial assets, including short-term trade receivables and contract assets, and expands disclosure
requirements for credit quality of financial assets. Upon adoption of the new standard on January 1, 2020, we began recognizing
an allowance for credit losses based on the estimated lifetime expected credit loss related to our financial assets. Based on
our analysis of Topic 326 and due to the nature and extent of our financial instruments in scope of this ASU (primarily accounts
receivable) and the historical, current and expected credit quality of our customers, we do not expect this ASU to have a
material impact on our consolidated results of operations and financial condition.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to
the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value
measurements. The guidance promotes a framework to help improve the effectiveness of disclosures in the notes and is effective
for annual and interim periods beginning after December 15, 2019, although early adoption is permitted. The new standard
will impact our disclosures but is not anticipated to impact on our operating results, financial position or cash flows.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The standard removes
step two 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.
(2) 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.
59
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
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
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 increase (decrease) to revenue
of $1.8 million, $1.5 million, and $(0.8) million for the years ended December 31, 2019, 2018 and 2017, 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 December 31, 2019 we had $349.8 million of remaining performance
obligations, which we also refer to as total backlog. We expect to recognize approximately 85 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 December 31, 2019.
Contract Balances
Revenue recognized for the years ended December 31, 2019 and 2018, that was included in the contract liability balance at
the beginning of the year was $18.9 million and $20.0 million, respectively, and primarily represented revenue from services
performed during the current period for which we received advance payment from clients in a prior period.
Contract Costs
Costs to fulfill contracts which do not meet the over time revenue recognition criteria are capitalized and recognized to cost
of revenue when the performance obligation is satisfied and revenue is recognized. Such costs are included in prepaid expenses
and other current assets on the consolidated balance sheet and totaled $0.6 million and $1.6 million as of December 31, 2019
and 2018, respectively.
Applying the practical expedient in ASC Topic 606, we recognize the incremental costs of obtaining contracts (i.e. sales
commissions) as an expense when incurred if the amortization period of the assets that we otherwise would have recognized
is one year or less. Substantially all of our sales commission arrangements have an amortization period of one year or less.
As of December 31, 2019 and 2018, we did not have any capitalized sales commissions.
60
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Revenue by Category
The following series of tables presents our revenue disaggregated by various categories (dollars in thousands).
Years Ended December 31,
Workforce
Excellence
2018
2017
2019
Business Transformation
Services
2018
2017
2019
Consolidated
2018
2017
2019
Revenue by type of service:
Managed learning services
$218,730
206,388
207,007
$
Engineering & technical services
111,065
110,426
101,252
—
—
—
—
— $218,730
206,388
207,007
— 111,065
110,426
101,252
Sales enablement
Organizational development
—
—
—
—
— 161,295
103,740
101,196
161,295
103,740
101,196
—
92,200
94,606
99,753
92,200
94,606
99,753
$329,795
316,814
308,259
$253,495
198,346
200,949
$583,290
515,160
509,208
Revenue by geographic region:
Americas
$230,236
213,938
198,653
$193,129
165,807
175,027
$423,365
379,745
373,680
Europe Middle East Africa
Asia Pacific
Eliminations
91,947
34,300
91,764
100,296
30,688
29,828
50,160
25,354
38,171
30,461
142,107
129,935
130,757
2,634
376
59,654
33,322
30,204
(26,688)
(19,576)
(20,518)
(15,148)
(8,266)
(4,915)
(41,836)
(27,842)
(25,433)
$329,795
316,814
308,259
$253,495
198,346
200,949
$583,290
515,160
509,208
Revenue by client market sector:
Automotive
Financial & Insurance
Manufacturing
Energy / Oil & Gas
U.S. Government
U.K. Government
Information & Communication
Aerospace
Electronics Semiconductor
Life Sciences
Other
$ 10,024
82,434
34,154
35,604
39,432
18,153
14,294
27,511
13,906
19,560
34,723
10,646
87,813
33,055
37,088
29,584
18,733
14,083
25,989
15,070
15,009
29,744
10,102
$155,105
105,431
101,285
$165,129
116,077
111,387
86,718
35,795
34,195
25,254
27,734
18,123
22,142
16,449
8,420
23,327
10,715
21,894
12,303
16,156
5,693
7,964
—
7,913
7,754
1,495
6,370
4,752
8,782
—
9,510
3,683
857
8,750
16,339
17,134
2,429
9,475
—
10,490
6,549
1,069
9,377
28,592
28,122
26,802
93,149
100,116
103,057
56,048
41,297
47,396
18,153
22,207
35,265
15,401
25,930
63,315
49,211
41,840
38,366
18,733
23,593
29,672
15,927
23,759
57,866
52,929
36,624
34,729
27,734
28,613
28,691
17,518
17,797
50,129
$329,795
316,814
308,259
$253,495
198,346
200,949
$583,290
515,160
509,208
61
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(3) Acquisitions
We did not complete any acquisitions in 2019. Below is a summary of the acquisitions we completed during 2018 and 2017
respectively.
2018 Acquisitions
The following table summarizes the purchase prices and purchase price allocations for the acquisitions completed during the
year ended December 31, 2018. A description of the acquired businesses is summarized below the table.
Acquired company
TTi Global
TTi Europe
IC Axon
Hula
Acquisition date
11/30/2018
8/7/2018
5/1/2018
1/2/2018
Cash purchase price
Fair value of contingent consideration
Working capital adjustment
Total purchase price
Purchase price allocation:
Cash
Accounts receivable and other assets
Fixed assets
Customer-related intangible assets
Marketing-related intangible assets
(tradename)
Goodwill
Total assets
Accounts payable and accrued expenses
Deferred revenue
Deferred tax liability
Total liabilities
$
$
$
$
$
$
14,195
—
(850)
13,345
1,780
14,218
300
4,428
454
4,655
25,835
10,066
219
2,205
12,490
$
$
$
3,000
—
—
3,000
125
1,684
9
762
45
2,179
4,804
1,609
126
69
1,804
$
$
$
30,535
905
—
31,440
538
3,110
368
10,365
239
21,613
36,233
983
979
2,831
4,793
10,000
—
—
10,000
—
—
—
1,367
106
8,527
10,000
—
—
—
—
Net assets acquired
$
13,345
$
3,000
$
31,440
$
10,000
62
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
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 at closing on November 30, 2018. The final purchase price allocation above was adjusted during 2019 based on the
finalization of the working capital adjustment, as defined in the Share Purchase Agreement, and other purchase accounting
adjustments identified during the measurement period. During the third quarter of 2019, the seller paid us $0.9 million in
settlement of the working capital adjustment. The purchase price allocation for the acquisition includes $4.4 million of a
customer-related intangible asset which is being amortized over nine years and $0.5 million of a marketing-related intangible
asset which was amortized over one year from the acquisition date. The goodwill recognized is due to the expected synergies
from combining the operations of the acquiree with the company. None of the goodwill recorded for financial statement
purposes is deductible for tax purposes. 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 purchase price allocation for the acquisition primarily includes $0.8 million of
a customer-related intangible asset which is being amortized over nine years from the acquisition date. The goodwill recognized
is due to the expected synergies from combining the operations of the acquiree with the company. None of the goodwill
recorded for financial statement purposes is deductible for tax purposes. The acquired TTi Europe business is included in the
Business Transformation Services segment and the results of its operations have been included in the 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. The purchase price allocation for the acquisition
includes $10.4 million of a customer-related intangible asset which is being amortized over eight years and $0.2 million of a
marketing-related intangible assets being amortized over three years from the acquisition date. The goodwill recognized is
due to the expected synergies from combining the operations of the acquiree with the company. None of the goodwill recorded
for financial statement purposes is deductible for tax purposes. The acquired IC Axon business is included in the Workforce
Excellence segment and the results of its operations have been included in the consolidated financial statements beginning
May 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.
Hula Partners
On January 2, 2018, we acquired the business and certain assets of Hula Partners, a provider of SAP Success Factors Human
Capital Management (HCM) implementation services. The purchase price was $10.0 million which was paid in cash at closing.
The goodwill recognized is due to the expected synergies from combining operations of the acquiree with the Company. The
purchase price allocation for the acquisition includes $1.4 million of a customer-related intangible asset which is being
amortized over four years and $0.1 million of a marketing-related intangible asset which is being amortized over two years
from the acquisition date. All of the goodwill recorded for financial statement purposes is deductible for tax purposes. The
acquired Hula Partners business is included in the Business Transformation Services segment and the results of its operations
have been included in the consolidated financial statements beginning January 2, 2018. The pro-forma impact of the acquisition
is not material to our results of operations.
63
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
2017 Acquisitions
The following table summarizes the purchase prices and purchase price allocations for the acquisitions completed during the
year ended December 31, 2017. A description of the acquired businesses is summarized below the table.
Acquired company
YouTrain
CLS
Emantras
McKinney
Rogers
Acquisition date
8/31/2017
8/31/2017
4/1/2017
2/1/2017
Cash purchase price
Fair value of contingent consideration
Working capital adjustment
Total purchase price
Purchase price allocation:
Cash
Accounts receivable and other assets
Fixed assets
Technology-related intangible assets
Customer-related intangible assets
Marketing-related intangible assets
(tradename)
Goodwill
Total assets
Accounts payable and accrued expenses
Deferred revenue
Deferred tax liability
Total liabilities
$
$
$
4,898
—
180
5,078
673
234
215
—
1,313
—
3,268
5,703
348
28
249
625
$
$
$
436
888
—
1,324
$
$
3,191
220
—
3,411
$
$
— $
—
—
—
253
— $
—
50
—
818
—
1,090
1,343
19
—
—
19
—
3,156
4,024
558
55
—
613
3,259
4,505
—
7,764
—
—
—
2,704
653
121
5,196
8,674
44
866
—
910
Net assets acquired
$
5,078
$
1,324
$
3,411
$
7,764
YouTrain
On August 31, 2017, we acquired the entire share capital of YouTrain Limited ("YouTrain"), an independent training company
delivering IT, digital and life sciences skills training in Scotland and North West England. The upfront purchase price was
$4.9 million which was paid in cash at closing and a completion accounts payment of $0.2 million was paid to the sellers
during the fourth quarter of 2017. The purchase price allocation for the acquisition includes $1.3 million of a customer-related
intangible asset which is being amortized over five years from the acquisition date. The goodwill recognized is due to the
expected synergies from combining the operations of the acquiree with the Company. None of the goodwill recorded for
financial statement purposes is deductible for tax purposes. The acquired YouTrain business is included in the Workforce
Excellence segment and the results of its operations have been included in the consolidated financial statements beginning
September 1, 2017. The pro-forma impact of the acquisition is not material to our results of operations. The acquired YouTrain
business is included in our acquiring United Kingdom subsidiary and its functional currency is the British Pound Sterling.
64
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
CLS Performance Solutions Limited
On August 31, 2017, we acquired the business and certain assets of CLS Performance Solutions Limited ("CLS"), an
independent provider of Enterprise Resource Planning (ERP) end user adoption and training services in the United Kingdom.
The upfront purchase price was $0.4 million which was paid in cash at closing. In addition, the purchase agreement required
up to an additional $2.2 million of consideration contingent upon the achievement of certain earnings targets during the twelve-
month period following the completion of the acquisition. No contingent consideration was payable as the earnings target was
not achieved for the twelve-month period subsequent to the acquisition. The purchase price allocation for the acquisition
includes $0.3 million of a customer-related intangible asset which is being amortized over three years from the acquisition
date. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree with the Company.
None of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired CLS business is
included in the Business Transformation Services segment, and the results of its operations have been included in the
consolidated financial statements beginning September 1, 2017. The pro-forma impact of the acquisition is not material to
our results of operations. The acquired CLS business is included in our acquiring United Kingdom subsidiary and its functional
currency is the British Pound Sterling.
Emantras
Effective April 1, 2017, we acquired the business and certain assets of Emantras, a digital education company that provides
engaging learning experiences and effective knowledge delivery through award-winning digital and mobile solutions with
offices in Fremont, California and Chennai, India. This acquisition strengthens our eLearning development capabilities,
allowing us to better serve our customer base with the latest digital learning solutions. The upfront purchase price was $3.2
million in cash. In addition, the purchase agreement required up to an additional $0.3 million of consideration, contingent
upon the achievement of an earnings target during the twelve-month period following completion of the acquisition, plus a
percentage of any earnings in excess of the specified earnings target. No contingent consideration was paid as the earnings
target for the twelve-month period subsequent to the acquisition was not achieved. The purchase price allocation for the
acquisition includes $0.8 million of a customer-related intangible asset which is being amortized over four years from the
acquisition date. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree
with the Company. The portion of the goodwill recorded for financial statement purposes that is deductible for tax purposes
is $0.8 million. The acquired Emantras business is included in the Workforce Excellence segment, and the results of its
operations have been included in the consolidated financial statements beginning April 1, 2017. The pro-forma impact of the
acquisition is not material to our results of operations. The India-based operations of the acquired Emantras business is included
in our India subsidiary and its functional currency is the Indian Rupee.
McKinney Rogers
On February 1, 2017, we acquired the business and certain assets of McKinney Rogers, a provider of strategic consulting
services with offices in New York and London. This acquisition expands our solutions offerings, giving us the ability to
leverage McKinney Rogers' intellectual property and consulting methodologies to help our global client base meet strategic
business goals. The upfront purchase price was $3.3 million in cash. In addition, the purchase agreement required up to an
additional $18.0 million of consideration, $6.0 million of which was contingent upon the achievement of certain earnings
targets during the five-month period ended April 30, 2017 and $12.0 million of which is contingent upon the achievement of
certain earnings targets during the three twelve-month periods following completion of the acquisition. In 2017, we paid the
seller $1.0 million in respect of the contingent consideration for the five-month period ended April 30, 2017. No contingent
consideration was payable with respect to the two twelve-month periods following completion of the acquisition as the earnings
targets were not achieved. In July 2019, we entered into an amendment to the asset purchase agreement that implemented
certain changes, including the elimination of the third year earnout for the period ended January 31, 2020.
The purchase price allocation for the acquisition includes $2.7 million of a technology-related intangible asset and $0.7 million
of a customer-related intangible asset which are both being amortized over five years and $0.1 million of a marketing-related
intangible asset which is being amortized over three years from the acquisition date. The goodwill recognized is due to the
expected synergies from combining the operations of the acquiree with the Company. The portion of the goodwill recorded
for financial statement purposes that is deductible for tax purposes is $1.6 million. The acquired McKinney Rogers business
is included in the Business Transformation Services segment, and the results of its operations have been included in the
consolidated financial statements beginning February 1, 2017. The pro-forma impact of the acquisition is not material to our
results of operations.
65
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Contingent Consideration
Contingent consideration is recognized at fair value on the acquisition date and is re-measured each reporting period with
subsequent adjustments recognized in the 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 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 December 31, 2019 for each acquisition (dollars in thousands):
Acquisition:
IC Axon
McKinney Rogers
Liability as of
Dec. 31, 2018
594
$
83
677
$
$
2019
Additions
$
— $
—
— $
Change in
Fair Value of
Contingent
Consideration
Foreign
Currency
Translation
2019
Payments
Liability as of
Dec. 31, 2019
(594) $
(83)
(677) $
— $
—
— $
— $
—
— $
—
—
—
As of December 31, 2019, there were no remaining contingent consideration liabilities. As of December 31, 2018, contingent
consideration included in accounts payable and accrued expenses on the consolidated balance sheet totaled $0.6 million and
we also had accrued contingent consideration totaling $0.1 million included in other long-term liabilities on the consolidated
balance sheet which represented the portion of contingent consideration estimated to be payable greater than twelve months
from the balance sheet date.
66
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(4) Divestitures & Assets Held for Sale
Sale of Tuition Program Management Business
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 "buyer"). The purchase price was $20.0 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. An additional $0.1 million was paid to the buyer in January 2020 based on the final
calculation of assumed liabilities as defined in the asset purchase agreement. We recognized a pre-tax gain of $12.1 million,
net of $0.1 million of direct selling costs, on the sale of the business. The gain recorded represents the difference between the
purchase price and the carrying value of the business, which primarily included goodwill of $7.7 million. The tuition program
management business was part of the Workforce Excellence segment.
Sale of Alternative Fuels Division
Effective January 1, 2020, we sold our Alternative Fuels Division pursuant to an Asset Purchase Agreement with Cryogenic
Industries, LLC. The purchase price is up to $6.0 million, subject to adjustment based on a final calculation of net working
capital as defined in the asset purchase agreement. Of the total purchase consideration, we received an advance payment of
$1.5 million on December 31, 2019 and the remaining upfront consideration of $3.5 million on January 2, 2020 based on the
estimated net working capital. In addition, up to $0.5 million of the purchase price is subject to the achievement of certain
milestones under an assigned contract through the period December 31, 2021. The purchase price adjustment for closing net
working capital is expected to be finalized during the first quarter of 2020.
The major classes of assets and liabilities sold in connection with our Alternative Fuels Division included accounts receivable,
net of $0.9 million, other current assets of $0.9 million, estimated goodwill of approximately $2.7 million, deferred revenue
of $1.3 million and other current liabilities of $0.2 million as of December 31, 2019. The Alternative Fuels Division was part
of the Workforce Excellence segment.
67
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(5) Goodwill & Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by reportable business segment for the years ended December 31, 2019 and 2018
were as follows (in thousands):
Net book value at
January 1, 2018
Goodwill
Accumulated impairment losses
Total
2018 Activity:
Acquisitions
Foreign currency translation
Net book value at
December 31, 2018
Goodwill
Accumulated impairment losses
Total
2019 Activity:
Purchase accounting adjustments
Divestitures
Foreign currency translation
Net book value at
December 31, 2019
Goodwill
Accumulated impairment losses
Total
Workforce
Excellence
Business
Transformation
Services
Total
$
$
$
114,814
(9,050)
105,764
$
45,438
(6,367)
39,071
21,613
(3,459)
132,968
(9,050)
123,918
—
(7,681)
1,776
14,033
(898)
58,573
(6,367)
52,206
1,327
—
17
127,063
(9,050)
118,013
$
59,917
(6,367)
53,550
$
160,252
(15,417)
144,835
35,646
(4,357)
191,541
(15,417)
176,124
1,327
(7,681)
1,793
186,980
(15,417)
171,563
68
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
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):
December 31, 2019
Customer relationships
Intellectual property and other
December 31, 2018
Customer relationships
Intellectual property and other
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
$
$
22,348
3,915
26,263
26,524
4,936
31,460
$
$
$
$
(7,473) $
(2,446)
(9,919) $
(8,547) $
(1,980)
(10,527) $
14,875
1,469
16,344
17,977
2,956
20,933
Amortization expense for intangible assets was $5.0 million, $4.6 million and $4.0 million for the years ended December 31,
2019, 2018 and 2017, respectively. Estimated future amortization expense for intangible assets included in our consolidated
balance sheet as of December 31, 2019 is as follows (in thousands):
Fiscal year ending:
2020
2021
2022
2023
2024
Thereafter
Total
$
$
3,908
3,290
2,086
1,852
1,852
3,356
16,344
As of December 31, 2019, our intangible assets with definite lives had a weighted average remaining useful life of 5.7 years.
We have no amortizable intangible assets with indefinite useful lives.
(6) Property, Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
Machinery, equipment and vehicles
Furniture and fixtures
Leasehold improvements
Buildings
Accumulated depreciation and amortization
December 31,
2019
2018
17,170
3,530
2,725
321
23,746
(17,943)
5,803
$
$
18,121
3,779
2,369
311
24,580
(18,721)
5,859
$
$
Depreciation expense was $2.4 million, $2.2 million and $2.6 million for the years ended December 31, 2019, 2018 and 2017,
respectively.
69
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(7) 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 December 31, 2019.
As of December 31, 2019, there were $82.9 million of borrowings outstanding and $25.8 million of available borrowings
under the revolving loan facility based on our Leverage Ratio.
For the years ended December 31, 2019 and 2018, the weighted average interest rate on our borrowings was 4.5% and 4.0%,
respectively. As of December 31, 2019, the fair value of our borrowings under the Credit Agreement approximated its carrying
value as it bears interest at variable rates. There were $1.2 million of unamortized debt issue costs related to the Credit
Agreement as of December 31, 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.
70
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(8) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
Trade accounts payable
Accrued salaries, vacation and benefits
Other accrued expenses
Accrued contingent consideration
Negative cash book balance
(9) Employee Benefit Plan
December 31,
2019
2018
$
$
37,792
22,322
28,517
—
3,701
92,332
$
$
40,969
21,550
28,372
594
1,769
93,254
We offer the GP Retirement Savings Plan (the “Plan”) to our employees in the United States. Eligible employees are
automatically enrolled unless they elect to not participate in the Plan, and contributions begin as soon as administratively
feasible after enrollment. The Plan permits pre-tax contributions to the Plan by participants pursuant to Section 401(k) of the
Internal Revenue Code (IRC). We make matching contributions at our discretion. In 2019, 2018 and 2017, we contributed
219,427, 162,572, and 104,751 shares, respectively, of our common stock directly to the Plan which had a value of
approximately $3.0 million, $3.0 million and $2.7 million, respectively, and is recognized as compensation expense in the
consolidated statements of operations for matching contributions to the Plan.
We also maintain several defined contribution pension plans for our employees in the United States, United Kingdom and
other countries. We contributed to these plans $2.7 million, $2.7 million and $2.5 million during the years ended December 31,
2019, 2018 and 2017, respectively.
71
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(10) Income Taxes
The components of income before income taxes and income tax expense for the years ended December 31, 2019, 2018 and
2017 are as follows (in thousands):
Income before income taxes:
Domestic
Foreign
Total income before income taxes
Income tax expense (benefit):
Current:
Federal
State and local
Foreign
Total current
Deferred:
Federal
State and local
Foreign
Total deferred
Total income tax expense
Years ended December 31,
2018
2017
2019
$
$
$
$
12,814
9,555
22,369
2,634
586
5,046
8,266
(338)
(99)
(649)
(1,086)
7,180
$
$
$
$
5,577
9,186
14,763
388
378
3,285
4,051
813
258
(195)
876
4,927
$
$
$
$
2,901
16,788
19,689
3,210
256
3,645
7,111
(241)
(176)
104
(313)
6,798
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income
before income taxes. The sources and tax effects of the differences are as follows:
Federal income tax rate
State and local taxes net of federal benefit
Domestic production deduction
Valuation allowance
Foreign tax credits
Foreign tax rate differential
Permanent differences
Other
Global Intangible Low-taxed Income
Tax Cuts and Jobs Act of 2017
Effective tax rate
2019
December 31,
2018
2017
21.0%
3.0
—
6.3
(5.0)
4.1
3.5
(1.0)
0.2
—
32.1%
21.0%
1.9
—
0.4
—
1.8
2.7
2.2
1.5
1.9
33.4%
35.0%
0.2
(1.1)
0.9
—
(8.8)
(6.2)
(1.8)
—
16.3
34.5%
The Tax Cuts and Jobs Act of 2017 created a requirement that Global Intangible Low-Taxed Income (“GILTI”) earned by a
controlled foreign corporation (“CFC”) must be included in the gross income of the U.S. shareholder. The FASB Staff Q&A
Topic 740, No. 5, “Accounting for Global Intangible Low-Taxed Income” states that an entity can make an accounting policy
election to either recognize deferred taxes for temporary basis difference expected to reverse as GILTI in future years, or to
provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected
to account for GILTI as a current period expense when incurred.
72
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Income tax expense was $7.2 million for the year ended December 31, 2019 compared to $4.9 million for the year ended
December 31, 2018. Our effective income tax rate was 32.1% and 33.4% for the years ended December 31, 2019 and 2018,
respectively. The decrease in the effective income tax rate compared to 2018 is primarily due to a change in the mix of
income from higher to lower taxing jurisdiction.
Uncertain Tax Positions
As of December 31, 2019 and 2018, we had no uncertain tax positions reflected on our 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 2016 through 2019 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.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for tax purposes. Significant components of our deferred tax assets and
liabilities are as follows (in thousands):
Deferred tax assets:
Allowance for doubtful accounts
Accrued liabilities and other
Stock-based compensation expense
Net federal, state and foreign operating loss carryforwards
Foreign tax credit carryforwards
Deferred tax assets
Valuation allowance on deferred tax assets
Deferred tax liabilities:
Other
Intangible assets, property and equipment, principally
due to difference in depreciation and amortization
Net deferred tax liabilities
December 31,
2019
2018
$
$
$
291
2,066
297
2,825
1,379
6,858
(4,025)
531
2,564
296
1,953
266
5,610
(1,385)
182
1,181
8,969
(6,318) $
10,784
(7,740)
As of December 31, 2019, we had foreign and U.S. state net operating loss carryforwards of $11.5 million for tax purposes,
which will be available to offset future taxable income. If not used, these carryforwards will expire beginning in 2020.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets may not be realized. The ultimate realization of the deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary differences are deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. Based upon these factors, management placed a valuation allowance of $4.0 million and $1.4 million as of the
years ended December 31, 2019 and 2018, respectively, against certain deferred tax assets, including net operating loss
carryforwards, due to the uncertainty of future profitability in foreign jurisdictions. Management believes it is more likely
than not that the Company will realize the benefits of the remaining deferred tax assets.
Foreign Income
The 2017 Tax Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all
previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax.
Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest these earnings, as well as the capital
invested in these subsidiaries, indefinitely outside of the U.S. and do not expect to incur any significant, additional taxes
related to such amounts. The Company has not provided for any additional outside basis difference inherent in its foreign
subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of
unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable.
73
(11) Restructuring
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
The following table shows the balances and activity for our restructuring liability (in thousands):
Liability as of December 31, 2018
Additional restructuring charges
Reclassification to operating lease liabilities
Payments
Liability as of December 31, 2019
Employee
Severance and
Related Benefits
Excess
Facilities and
Other Costs
$
$
1,266
1,639
—
(2,675)
230
$
$
591
—
(554)
(9)
28
$
$
Total
1,857
1,639
(554)
(2,684)
258
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 completed
by June 30, 2018. The total remaining liability under this restructuring plan was $0.1 million as of December 31, 2019 and
$1.9 million as of December 31, 2018. As of December 31, 2019, $0.1 million is included in accounts payable and accrued
expenses. As of December 31, 2018, $1.5 million was included in accounts payable and accrued expenses and $0.4 million
was included in other noncurrent liabilities.
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 year ended December 31, 2019, we recorded $1.6 million of restructuring charges in connection with these activities.
The total remaining liability under these restructuring activities was $0.2 million as of December 31, 2019 which is included
in accounts payable and accrued expenses. These restructuring activities were substantially complete as of December 31,
2019.
(12) Stock-Based Compensation
Under 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 or members of the Board of Directors. We are authorized to grant an aggregate
of 2,205,764 shares under the 2011 Plan. As of December 31, 2019, there were 827,855 shares available for issuance of future
grants of awards under the 2011 Plan and 568,812 shares representing outstanding awards under the 2011 Plan. We may issue
new shares or use shares held in treasury to deliver shares to employees for our equity grants or upon exercise of non-qualified
stock options.
The following table summarizes the pre-tax stock-based compensation expense included in reported net income (in thousands):
Cost of revenue
General and administrative expenses
Total stock-based compensation expense
Years ended December 31,
2018
2017
2019
$
$
1,995
622
2,617
$
$
992
358
1,350
$
$
2,832
757
3,589
We recognized a deferred income tax benefit of $0.4 million, $0.3 million and $1.2 million, respectively, during the years
ended December 31, 2019, 2018, and 2017 associated with the compensation expense recognized in our consolidated financial
statements. As of December 31, 2019, we had restricted stock units outstanding under these plans as discussed below.
74
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Non-Qualified Stock Options
Non-qualified stock options are granted with an exercise price not less than the fair market value of our common stock at the
date of grant, vest over a period up to ten years, and expire at various terms up to ten years from the date of grant. There were
no outstanding stock options as of December 31, 2019. We received cash for the exercise price associated with stock options
exercised of less than $0.1 million during the year ended December 31, 2018 and $0.1 million during the year ended
December 31, 2017. During the year ended December 31, 2017, we settled 55,050 outstanding stock options held by our
employees by issuing 13,482 fully vested shares which represented the fair value of those stock options upon settlement, net
of required income tax withholdings. The total intrinsic value realized by participants on stock options exercised and/or settled
was less than $0.1 million and $0.7 million during the years ended December 31, 2018 and 2017 respectively.
Restricted Stock Units
In addition to stock options, we issue restricted stock units to key employees and members of the Board of Directors based
on meeting certain service goals. The stock units vest to the recipients at various dates, up to five years, based on fulfilling
service requirements. We recognize the value of the market price of the underlying stock on the date of grant to compensation
expense over the requisite service period. Upon vesting, the stock units are settled in shares of our common stock. Summarized
share information for our restricted stock units is as follows:
Outstanding and unvested, beginning of period
Granted
Vested
Forfeited
Outstanding and unvested, end of period
Year ended
December 31,
2019
(In shares)
Weighted
average
grant date
fair value
(In dollars)
132,753
132,394
(161,584)
(11,462)
92,101
$
$
20.91
15.52
18.00
21.53
18.19
The total intrinsic value realized by participants upon the vesting of restricted stock units was $2.3 million, $1.3 million and
$2.7 million during the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, we had
unrecognized compensation cost of $1.8 million related to the unvested portion of our outstanding restricted stock units to be
recognized over a weighted average remaining service period of 1.3 years. During the years ended December 31, 2019, 2018,
and 2017, we realized excess income tax benefits (deficiencies) of $(0.1) million, $(0.3) million and $0.1 million respectively,
related to stock option exercises or expirations and restricted stock vesting.
We have a long-term incentive program (LTIP) which provides for the issuance of performance-based stock units under the
2011 Plan to certain executives. Under the LTIP, a target level of equity compensation is set for each officer. Under the program,
the Compensation Committee typically sets the performance-based goals within the first 90 days of each year. Vesting of the
performance-based stock units (PSU's) is contingent upon the employee's continued employment and the Company's
achievement of certain performance goals during a three-year performance period. The performance goals are established by
the Compensation Committee for a three-year performance period based on certain financial targets. We recognize
compensation expense, net of estimated forfeitures, for PSU's on a straight-line basis over the performance period based on
the probable outcome of achievement of the financial targets. At the end of each reporting period, we estimate the number of
PSU's expected to vest, based on the probability and extent to which the performance goals will be met, and take into account
these estimates when calculating the expense for the period. If the number of shares expected to be earned changes during the
performance period, we make a cumulative adjustment to compensation expense based on the revised number of shares
expected to be earned.
75
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Summarized share information for our performance-based restricted stock units is as follows:
Outstanding and unvested, beginning of period
Granted
Vested
Forfeited
Outstanding and unvested, end of period
Year ended
December 31,
2019
(In shares)
Weighted
average
grant date
fair value
(In dollars)
266,963
270,572
—
(60,824)
476,711
$
$
23.80
15.41
—
26.66
18.67
As of December 31, 2019, we had unrecognized compensation cost of $1.6 million related to the unvested portion of our
outstanding performance-based restricted stock units to be recognized over a weighted average remaining service period of
2.0 years.
(13) Common Stock
The holders of common stock are entitled to one vote per share. As of December 31, 2019, there were 17,032,666 shares of
common stock issued and outstanding. In addition, as of December 31, 2019, there were 568,812 shares reserved for issuance
under outstanding equity compensation awards for unvested restricted stock units and an additional 827,855 shares available
for issuance for future grants of awards under the 2011 Plan.
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 year ended December 31,
2019 we did not repurchase shares and during the years ended December 31, 2018 and 2017, we repurchased approximately
354,000 and 182,000 shares, respectively, of our common stock in the open market for a total cost of approximately $8.0
million and $4.3 million, respectively. As of December 31, 2019, there was approximately $3.8 million available for future
repurchases under the buyback program. There is no expiration date for the repurchase program.
Securities Purchase Agreement
On December 30, 2009, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a single accredited
investor, Sagard Capital Partners, L.P. (“Sagard”), pursuant to which we sold to Sagard, in a private placement, an aggregate
of 2,857,143 shares (the “Shares”) of our common stock, par value $0.01, at a price of $7.00 per share (the “Offering”), for
an aggregate purchase price of $20.0 million. The Offering closed on December 30, 2009. The Purchase Agreement prohibits
Sagard from acquiring beneficial ownership of more than 23% of our common stock (calculated on a fully diluted basis). As
of December 31, 2019, Sagard beneficially owned 3,639,367 shares or 21.4% of our outstanding common stock.
In connection with the Offering, on December 30, 2009, we entered into a Registration Rights Agreement (the “Registration
Rights Agreement”) with Sagard. Pursuant to the Registration Rights Agreement, we filed a registration statement with the
Securities and Exchange Commission (the “SEC”) for purposes of registering the resale of the Shares and any shares of
common stock issued pursuant to the preemptive rights under Section 4(l) of the Purchase Agreement (or any shares of common
stock issuable upon exercise, conversion or exchange of securities issued pursuant to the preemptive rights). We filed the
registration statement with the SEC on September 27, 2010 and it was declared effective by the SEC on October 8, 2010. If
we fail to meet filing or effectiveness deadlines with respect to any additional registration statements required by the Registration
Rights Agreement, or fail to keep any registration statements continuously effective (with limited exceptions), we will be
obligated to pay to the holders of the Shares liquidated damages in the amount of 1% of the purchase price for the Shares per
month, up to a maximum of $2.4 million. We also agreed, among other things, to indemnify the selling holders under the
registration statements from certain liabilities and to pay all fees and expenses (excluding underwriting discounts and selling
commissions and all legal fees of the selling holders in excess of $25,000) incident to our obligations under the Registration
Rights Agreement.
76
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(14) 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.
Some of our leases include future rent escalations that are based on the Consumer Price Index (CPI) or other similar indices.
These future rent escalations are not included in the calculation of the ROU asset and lease liability because they be cannot
be forecasted at the lease inception date. These are considered variable lease payments 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 material finance
leases.
Lease expense is included in Cost of Revenue and General & Administrative Expenses on the consolidated statements of
operations, and is recorded net of immaterial sublease income. The components of lease expense were as follows (in thousands):
Operating lease cost
Short-term lease cost
Total lease costs
Supplemental information related to leases was as follows (dollars in thousands):
Operating lease right-of-use assets
Current portion of operating lease liabilities
Non-current portion of operating lease liabilities
Total operating lease liabilities
Cash paid for amounts included in the measurement of operating lease liabilities
Right-of-use assets obtained in exchange for operating lease liabilities
Weighted-average remaining lease term for operating leases (years)
Weighted-average discount rate for operating leases
77
Year Ended
December 31, 2019
9,148
$
1,695
10,843
$
Year Ended
December 31, 2019
27,251
$
$
$
$
$
7,871
22,159
30,030
10,137
4,353
5.5 years
4.7%
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities on our consolidated
balance sheet as of December 31, 2019 (in thousands):
Year ended December 31,
2020
2021
2022
2023
2024
Thereafter
Total future lease payments
Less: imputed interest
Present value of future lease payments
Less: current portion of lease liabilities
Long-term lease liabilities
$
$
8,411
6,583
5,120
4,276
3,992
6,060
34,442
(4,412)
30,030
(7,871)
22,159
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
2020
2021
2022
2023
Thereafter
Total
$
$
10,646
7,833
5,520
4,528
3,898
8,671
41,096
Rent expense was approximately $10.9 million and $11.0 million for the years ended December, 31, 2018 and 2017,
respectively.
78
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(15) Business Segments
As of December 31, 2019, we operated through two reportable business segments: (i) Workforce Excellence and (ii) Business
Transformation Services. We are organized into two operating segments aligned by complementary service lines and supported
by a business development organization aligned by industry sector. 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. We have four reporting units for purposes of
goodwill impairment testing, which represent our four practices which are one level below our 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, 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, processes and workforce 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 customer salesforces as well as service technicians with respect
to new product features and designs, in effect rapidly increasing the salesforce and technician 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.
79
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
• 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
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 income (expense), interest expense, gain on change in fair value of contingent consideration, net
and income tax expense.
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):
Revenue:
Workforce Excellence
Business Transformation Services
Gross Profit:
Workforce Excellence
Business Transformation Services
Total gross profit
General and administrative expenses
Sales and marketing expenses
Restructuring charges
Gain on change in fair value of contingent consideration, net
Gain on sale of business
Operating income
Interest expense
Other income (expense)
Income before income tax expense
Years ended December 31,
2018
2017
2019
$
$
$
$
329,795
253,495
583,290
55,855
33,358
89,213
64,492
7,875
1,639
677
12,126
28,010
6,058
417
22,369
$
$
$
$
316,814
198,346
515,160
50,875
26,868
77,743
54,848
4,798
2,930
4,438
—
19,605
2,945
(1,897)
14,763
$
$
$
$
308,259
200,949
509,208
52,958
29,069
82,027
55,753
1,666
3,317
1,620
—
22,911
3,132
(90)
19,689
Additional information relating to our business segments is as follows (in thousands):
Identifiable assets:
Workforce Excellence
Business Transformation Services
Total assets
December 31,
2019
2018
$
$
290,465
158,437
448,902
$
$
283,039
151,699
434,738
Corporate and other assets which consist primarily of cash, other assets, and deferred tax assets and liabilities are allocated
to the segments based on their respective percentage of consolidated revenues.
80
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
Additions to property, plant and equipment:
Workforce Excellence
Business Transformation Services
Corporate and other
Depreciation and amortization:
Workforce Excellence
Business Transformation Services
Corporate and other
Years ended December 31,
2018
2017
2019
$
$
$
$
1,657
395
263
2,315
3,865
3,641
1,976
9,482
$
$
$
$
1,321
625
888
2,834
3,664
2,827
1,430
7,921
$
$
$
$
1,609
184
941
2,734
2,643
2,770
1,561
6,974
Information about our revenue in different geographic regions, which is attributable to our operations located primarily in the
United States, United Kingdom and other countries is as follows (in thousands):
United States
United Kingdom
Other
Years ended December 31,
2018
2017
2019
$
$
374,017
86,511
122,762
583,290
$
$
344,720
92,059
78,381
515,160
$
$
350,632
100,466
58,110
509,208
Information about our total assets in different geographic regions is as follows (in thousands):
United States
United Kingdom
Canada
Other
(16) Fair Value Measurements
December 31,
2019
2018
255,649
72,939
43,503
76,811
448,902
$
$
248,657
72,048
41,974
72,059
434,738
$
$
Our financial instruments measured at fair value include contingent consideration in connection with business
combinations. The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis
as of December 31, 2019 and 2018, and the level they fall within the fair value hierarchy (in thousands):
Financial Instrument
Contingent consideration
Contingent consideration
Financial Statement Classification
Accounts payable and accrued expenses
Other noncurrent liabilities
Fair Value
Hierarchy
Level 3
Level 3
$
Fair Value
December 31,
2019
2018
— $
—
594
83
81
GP STRATEGIES CORPORATION
Notes to Consolidated Financial Statements
(17) Commitments, Guarantees, and Contingencies
As of December 31, 2019, we had outstanding letters of credit totaling $0.1 million, which expire in 2022. In addition, as of
December 31, 2019, we had three outstanding performance bonds totaling $12.4 million primarily for contracts in our
alternative fuels business.
(18) Quarterly Information (unaudited)
Our quarterly financial information has not been audited but, in management’s opinion, includes all adjustments necessary
for a fair presentation.
(In thousands)
2019
Revenue
Gross profit
Net income
Earnings per share:
Basic
Diluted
2018
Revenue
Gross profit
Net income
Earnings per share:
Basic
Diluted
Three months ended
March 31
June 30
139,473
21,278
334
0.02
0.02
125,032
17,679
2,632
0.16
0.16
$
$
$
$
$
$
149,413
22,959
3,219
0.19
0.19
133,691
22,573
3,575
0.22
0.22
$
$
$
$
$
$
September 30
139,005
$
21,667
2,141
December 31
155,399
$
23,309
9,495 (a)
$
$
$
$
$
0.13
0.13
123,566
19,199
3,244
0.20
0.20
$
$
$
$
$
0.56
0.56
132,871
18,292
385
0.02
0.02
Year ended
December 31
583,290
$
89,213
15,189
$
$
$
$
$
0.90
0.90
515,160
77,743
9,836
0.59
0.59
The sum of the quarterly earnings per share amounts may not equal the total for the year due to the effects of rounding and
dilution as a result of issuing common shares during the year.
(a) Includes a $12.1 million pre-tax gain on the sale of our tuition program management business on October 1, 2019 which
is described more fully in Note 4 to the Consolidated Financial Statements.
82
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A:
Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, we have evaluated,
under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were not effective due to material weaknesses in our internal control over financial reporting, which are described
below under “Management’s Annual Report on Internal Control Over Financial Reporting.”
As a result of the material weaknesses identified, we performed additional analysis and other post-closing procedures intended to
ensure that our consolidated financial statements were prepared in accordance with U.S. GAAP. Accordingly, management believes
that the consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K fairly present,
in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented.
Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed
by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is
recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon
the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and
procedures were not effective as of December 31, 2019 at the reasonable assurance level due to the material weaknesses described
below. Notwithstanding these material weaknesses, management concluded that the consolidated financial statements included in
this Annual Report present fairly, in all material respects, the financial position of the Company at December 31, 2019 in conformity
with GAAP and our external auditors have issued an unqualified opinion on our consolidated financial statements as of and for
the year ended December 31, 2019.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those
policies and procedures that: (1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves
human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal
control over financial reporting also can be circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though not eliminate, this risk.
83
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented
or detected on a timely basis.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer,
and with the oversight of our Board of Directors, we conducted an evaluation of internal control over financial reporting as
of December 31, 2019 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control - Integrated Framework (2013) (“COSO Framework”). As a result of our evaluation, we identified the following
material weaknesses related to financial processing and enterprise resource planning (ERP) systems management:
Our risk assessment process was not effective in considering changes to the business operations, personnel and other factors
affecting certain financial reporting processes, and we did not have sufficient resources available to perform the risk assessment
process and implement controls in the requisite timeframe. This resulted in:
•
•
•
•
Ineffective program change management controls over program and data changes affecting the ERP financial IT
applications. Specifically, the change management process was not designed properly to demonstrate the completeness
and approval of all configuration changes that have occurred. The related detective control to monitor changes was not
implemented. Also, the control over access to migrate changes into the production environment was determined to be
ineffective.
Ineffective user access controls to adequately restrict user access to financial applications and related data commensurate
with job responsibilities. Management did not perform appropriate user access reviews.
Ineffective general information technology controls over the ERP system resulting in ineffective manual controls that are
dependent upon the completeness and accuracy of information derived from the ERP system. This includes automated
and manual controls over all significant accounts presented in the consolidated financial statements.
Ineffective risk assessment to ensure controls were designed and implemented to respond to the risks within the revenue
and human resources processes company-wide as well as other processes specific to only TTi Global, Inc., which was
acquired on November 30, 2018.
Certain of these control deficiencies resulted in immaterial and material misstatements to the preliminary consolidated financial
statements that were corrected in the audited consolidated financial statements prior to the release of our annual report in Form
10-K. These control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements
will not be prevented or detected on a timely basis. Accordingly, we have concluded that our internal control over financial
reporting is not effective as of December 31, 2019.
KPMG LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements and
has issued an adverse report on the effectiveness of internal control over financial reporting, which is included on page 44 in this
Form 10-K.
Remediation Plan
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing
to the material weaknesses are remediated. The remediation actions include:
Risk Assessment Activities: ensuring appropriate internal and external resources are assigned to identify risks, changes, and
other factors affecting business operations and financial reporting processes, and improving accountability of process owners
and control operators.
Logical Access: during 2019, we redesigned user access roles to address segregation of duties conflicts. We are implementing
timely logical access reviews to ensure appropriate assignment to user access roles and performing additional reviews over
user roles.
Program Change Management: ensuring that change management review controls are fully refined and implemented; testing
and approving configuration changes prior to promotion to the ERP system; validating that configuration of reports utilized
in control are complete and accurate; completing manual reviews of transactions to ensure processing and reporting of data
is complete and accurate.
84
Additionally, we continue to enhance internal training programs to improve the knowledge of our personnel and to reduce our
dependency on external service providers, to improve processes, and to emphasize the importance of IT general controls in the
Company’s internal control over financial reporting. We are providing timely reporting to the Audit Committee of the Board of
Directors of results of remediation efforts.
We believe that these actions will remediate the material weaknesses. The weaknesses will not be considered remediated, however,
until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these
controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Except for the material weaknesses that were identified in fourth quarter but that arose earlier in 2019, there have been no changes
in our internal control over financial reporting during the year ended December 31, 2019 that have materially affected or are
reasonably likely to materially affect our internal control over financial reporting.
Item 9B:
Other Information
None.
85
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The additional information required by this item will be either set forth under the Election of Directors section in the Proxy
Statement for the 2020 Annual Meeting of Shareholders and incorporated herein by reference or provided in an amendment to this
Form 10-K to be filed no later than April 29, 2020.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class
of our securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”)
and the New York Stock Exchange (“NYSE”), and to furnish us with such reports. Based solely on a review of copies of such
reports for 2019, we believe that during 2019 all reports applicable to our officers, directors and greater than 10% beneficial owners
were filed on a timely basis, with the exception of six Form 4's reporting our quarterly share issuance to our directors which were
filed two days late.
Item 11. Executive Compensation
The information required by this item will be either set forth under the Executive Compensation section in the Proxy Statement
for the 2020 Annual Meeting of Shareholders and incorporated herein by reference or provided in an amendment to this Form 10-
K to be filed no later than April 29, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The additional information required by this item will be either set forth under the Principal Stockholders and Security Ownership
of Directors and Named Executive Officers sections in the Proxy Statement for the 2020 Annual Meeting of Stockholders and
incorporated herein by reference or provided in an amendment to this Form 10-K to be filed no later than April 29, 2020.
Equity Compensation Plan information as of December 31, 2019
Plan category:
Equity compensation plans not approved by security holders:
(a) Number of securities to be issued upon exercise of outstanding options
(b) Weighted average exercise price of outstanding options
(c) Number of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in row (a))
Equity compensation plans approved by security holders:
(a) Number of securities to be issued upon exercise of outstanding options
(b) Weighted average exercise price of outstanding options
(c) Number of securities remaining available for future issuance under equity
compensation plans
$
$
—
—
—
—
—
827,855
For a description of the material terms of our stock-based compensation plans, see Note 12 to the Consolidated Financial Statements
in Item 8 of this report.
86
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be either set forth in the Certain Relationships and Related Transactions section of the
Proxy Statement for the 2020 Annual Meeting of Shareholders and incorporated herein by reference or provided in an amendment
to this Form 10-K to be filed no later than April 29, 2020.
Item 14. Principal Accounting Fees and Services
The information required by this item will be either set forth in the Ratification of Independent Registered Public Accounting Firm
section of the Proxy Statement for the 2020 Annual Meeting of Shareholders and incorporated herein by reference or provided in
an amendment to this Form 10-K to be filed no later than April 29, 2020.
87
Part IV
Item 15: Exhibits and Financial Statement Schedules
(a)
(1)
The following documents are filed as a part of this Report:
Financial Statements of GP Strategies Corporation and Subsidiaries (Part II, Item 8):
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – December 31, 2019 and 2018
Consolidated Statements of Operations – Years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income – Years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows – Years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules:
Other financial statement schedules are omitted because they are not required or applicable, or the required information
is shown in the financial statements or notes thereto, or contained in this report.
(3)
Exhibits required by Item 601 of Regulation S-K.
Exhibit number
3.1
3.2
4.1
10.1
10.2
10.3
10.4
Composite of the Restated Certificate of Incorporation of GP Strategies Corporation including all
amendments through December 31, 2011. Incorporated herein by reference to Exhibit 3.1 of GP Strategies
Corporation’s Form 8-K filed on January 3, 2012.
GP Strategies Corporation Amended and Restated By-Laws, including all amendments through August 8,
2017. Incorporated herein by reference to Exhibit 3.1 of GP Strategies Corporation’s Form 8-K filed on
August 14, 2017.
Description of Securities.*
Employment Agreement, dated as of July 1, 1999, between GP Strategies Corporation’s and Scott N.
Greenberg. Incorporated herein by reference to Exhibit 10.1 of GP Strategies Corporation’s Form 10-Q for
the quarter ended September 30, 1999.
Amendment, dated January 21, 2005, to Employment Agreement dated as of July 1, 1999 between GP
Strategies Corporation and Scott N. Greenberg. Incorporated herein by reference to Exhibit 10.1 of GP
Strategies Corporation’s Form 8-K filed on January 25, 2005.
Amendment, dated June 20, 2007, to Employment Agreement dated as of July 1, 1999 between GP Strategies
Corporation and Scott N. Greenberg. Incorporated herein by reference to Exhibit 10.1 of GP Strategies
Corporation’s Form 8-K filed on June 26, 2007.
Amendment, dated December 30, 2008, to Employment Agreement by and between GP Strategies
Corporation and Scott N. Greenberg dated July 1, 1999. Incorporated herein by reference to Exhibit 10.1
of GP Strategies Corporation’s Form 8-K filed on January 6, 2009.
88
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
Amendment, dated December 30, 2009, to Employment Agreement by and between GP Strategies
Corporation and Scott N. Greenberg dated July 1, 1999. Incorporated herein by reference to Exhibit 10.3
to GP Strategies Corporation’s Form 8-K filed December 31, 2009.
Amendment, dated December 30, 2011, to Employment Agreement dated as of July 1, 1999 between General
Physics Corporation and Scott N. Greenberg. Incorporated herein by reference to Exhibit 10.1 of GP
Strategies Corporation’s Form 8-K filed on January 3, 2012.
Form of Employment Agreement between General Physics Corporation and certain of its executive vice
presidents. Incorporated herein by reference to Exhibit 10.1 of GP Strategies Corporation’s Form 8-K filed
on October 4, 2007.
Form of Employment Agreement between General Physics Corporation and certain of its senior vice
presidents. Incorporated herein by reference to Exhibit 10.4 of GP Strategies Corporation’s Form 10-Q for
the quarter ended September 30, 2007.
Amendment, dated December 30, 2011, to Form of Employment Agreement between General Physics
Corporation and certain of its executive officers. Incorporated herein by reference to Exhibit 10.3 of GP
Strategies Corporation’s Form 8-K filed on January 3, 2012.
Form of Stock Unit Agreement between GP Strategies Corporation and certain officers, dated November
7, 2008. Incorporated herein by reference to Exhibit 10.15 of GP Strategies Corporation’s Form 10-K for
the year ended December 31, 2008.
Lease Agreement, entered into as of February 28, 2013 by and between 70 CC, LLC, a Delaware limited
liability company (“Landlord”) and GP Strategies Corporation, a Delaware corporation (“Tenant”).
Incorporated herein by reference to Exhibit 10.1 to GP Strategies Corporation’s Form 8-K filed on March
5, 2013.
Securities Purchase Agreement, dated as of December 30, 2009, between GP Strategies Corporation and
Sagard Capital Partners, L.P. Incorporated herein by reference to Exhibit 10.1 to GP Strategies Corporation’s
Form 8-K filed December 31, 2009.
Amendment, dated December 30, 2011, to Securities Purchase Agreement, dated as of December 30, 2009,
between GP Strategies Corporation and Sagard Capital Partners, L.P. Incorporated herein by reference to
Exhibit 10.4 of GP Strategies Corporation’s Form 8-K filed on January 3, 2012.
Registration Rights Agreement, dated as of December 30, 2009, between GP Strategies Corporation and
Sagard Capital Partners, L.P. Incorporated herein by reference to Exhibit 10.2 to GP Strategies Corporation’s
Form 8-K filed December 31, 2009.
Code of Ethics Policy. Incorporated herein by reference to Exhibit 14.1 of GP Strategies Corporation’s Form
10-K for the year ended December 31, 2003.
Form of Indemnification Agreement. Incorporated herein by reference to Exhibit 10.1 of GP Strategies
Corporation’s Form 8-K dated December 23, 2005.
Employment Agreement by and between the Company and Adam H. Stedham dated August 2, 2018.
Incorporated herein by reference to Exhibit 10.1 to GP Strategies Corporation's Form 8-K filed August 8,
2018.
Long Term Incentive Plan adopted on April 20, 2018. Incorporated herein by reference to Exhibit 10.1 of
GP Strategies Corporation's Form 10-Q for the quarter ended June 30, 2018.
Short Term Incentive Plan adopted on August 8, 2018. Incorporated herein by reference to Exhibit 10.1 of
GP Strategies Corporation's Form 10-Q for the quarter ended September 30, 2018.
Further Amended and Restated Agreement by and between HSBC Global Services (UK) Limited and GP
Strategies Limited relating to the Provision of Global Learnings Services, dated as of November 5, 2018.
Incorporated herein by reference to Exhibit 10.39 of GP Strategies Corporation's Form 10-K for the year
ended December, 31, 2018.
Credit Agreement by and among GP Strategies Corporation, General Physics (UK) Ltd., GP Strategies
Holdings Limited, GP Strategies Limited and GP Strategies Training Limited, as Borrowers, and the
Guarantors party hereto and the lenders party hereto and PNC Bank, National Association, as Administrative
Agent, dated as of November 30, 2018. Incorporated herein by reference to Exhibit 10.40 of GP Strategies
Corporation's Form 10-K for the year ended December, 31, 2018.
Share purchase agreement by and among GP Strategies Corporation, as Buyer, TTi Global, Inc., as the
Company, the Lori A. Blaker Trust dated October 4, 2000, as amended, and Lori A. Blaker, as Sellers, and
Lori A. Blaker, as Sellers' Representative, dated November 30, 2018. Incorporated herein by reference to
Exhibit 10.41 of GP Strategies Corporation's Form 10-K for the year ended December, 31, 2018.
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10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
21
23
31.1
31.2
32.1
101
* Filed herewith.
First Amendment to Credit Agreement, dated April 1, 2019, by and among GP Strategies Corporation,
General Physics (UK) Ltd., GP Strategies Holdings Limited, GP Strategies Limited and GP Strategies
Training Limited, as Borrowers, and the Guarantors party hereto and the lenders party hereto and PNC
Bank, National Association, as Administrative Agent, dated as of November 30, 2018. Incorporated herein
by reference to Exhibit 10.1 of GP Strategies Corporation's Form 10-Q for the quarter ended March 31,
2019.
Second Amendment to Credit Agreement, dated June 28, 2019, by and among GP Strategies Corporation,
General Physics (UK) Ltd., GP Strategies Holdings Limited, GP Strategies Limited, GP Strategies Training
Limited and TTi Global, Inc., as Borrowers, and the Guarantors party hereto and the lenders party hereto
and PNC Bank, National Association, as Administrative Agent, dated as of November 30, 2018. Incorporated
herein by reference to Exhibit 10.1 of GP Strategies Corporation's Form 10-Q for the quarter ended June
30, 2019.
GP Strategies Corporation 2011 Stock Incentive Plan, As Amended. Incorporated herein by reference to
Appendix A of the Registrant’s Form DEF 14A filed on June 25, 2019.
GP Strategies Corporation 2018 Amended Long Term Incentive Plan, as amended January 10, 2020.
Incorporated herein by reference to Exhibit 10.1 of GP Strategies Corporation's Form 8-K filed on January
16, 2020.
Third Amendment to Credit Agreement, dated June 28, 2019, by and among GP Strategies Corporation,
General Physics (UK) Ltd., GP Strategies Holdings Limited, GP Strategies Limited, GP Strategies Training
Limited and TTi Global, Inc., as Borrowers, and the Guarantors party hereto and the lenders party hereto
and PNC Bank, National Association, as Administrative Agent, dated as of December 24, 2019. *
Employment Agreement between GP Strategies Corporation and Russell Becker. *
Employment Agreement between GP Strategies Corporation and Patricia Begley. *
Form of Performance-Based Restricted Stock Unit Agreement. *
Subsidiaries of GP Strategies Corporation*
Consent of KPMG LLP, Independent Registered Public Accounting Firm*
Certification of Chief Executive Officer*
Certification of Chief Financial Officer*
Certification Pursuant to Section 18 U.S.C. Section 1350*
The following materials from GP Strategies Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated
Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive
Income, (iv) Consolidated Statements of Stockholders’ Equity; (v) Consolidated Statements of Cash Flows;
and (vi) Notes to Consolidated Financial Statements.*
90
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: March 10, 2020
GP STRATEGIES CORPORATION
By /s/ Scott N. Greenberg
Scott N. Greenberg
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ Scott N. Greenberg
Scott N. Greenberg
/s/ Michael R. Dugan
Michael R. Dugan
/s/ Samuel D. Robinson
Samuel D. Robinson
/s/ Tamar Elkeles
Tamar Elkeles
/s/ Marshall S. Geller
Marshall S. Geller
/s/ Steven E. Koonin
Steven E. Koonin
/s/ Jacques Manardo
Jacques Manardo
/s/ Richard C. Pfenniger, Jr.
Richard C. Pfenniger, Jr.
Chairman of the Board & Chief Executive Officer
(Principal Executive Officer and Director)
March 10, 2020
Executive Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
March 10, 2020
Lead Independent Director
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
March 10, 2020
Director
Director
Director
Director
Director
91