UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2018~~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		52-0845774
(State of Incorporation)		(I.R.S. Employer Identification No.)
70 Corporate Center
11000 Broken Land Parkway, Suite 200, Columbia, MD		21044
(Address of principal executive offices)		(Zip Code)

(443) 367-9600

Registrant’s telephone number, including area code:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	x	Non-accelerated filer ¨
Smaller reporting company	¨	Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	GPX	NYSE (New York Stock Exchange)

The number of shares outstanding of the registrant’s common stock as of ~~October 30, 2018~~July 23, 2019 was as follows:



Class		Outstanding
Common Stock, par value $.01 per share		~~16,565,164~~16,894,383

GP STRATEGIES CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS



		Page

Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	1

	Condensed Consolidated Statements of Operations – Three Months and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	2

	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	3

	Condensed Consolidated Statements of ~~Cash Flows – Nine~~Stockholders' Equity - Three Months and Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	4

	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2019 and 2018	6

	Notes to Condensed Consolidated Financial Statements	57

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2522

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	3732

Item 4.	Controls and Procedures	3732

Part II.	Other Information	3833

Item 1.	Legal Proceedings	3833

Item 1A.	Risk Factors	3833

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3833

Item 6.	Exhibits	3934

Signatures		4035

Part I. Financial Information

Item 1. Financial Statements

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)


	September 30, 2018 (Unaudited)			December 31, 2017			June 30, 2019 (Unaudited)			December 31, 2018
Assets
Current assets:
Cash	$	10,323		$	23,612		$	6,111		$	13,417
Accounts and other receivables, less allowance for doubtful accounts of $2,190 in 2018 and $2,492 in 2017	127,649			119,335
Accounts and other receivables, less allowance for doubtful accounts of $2,254 in 2019 and $2,034 in 2018							119,008			107,673
Unbilled revenue	36,866			42,958			72,376			80,764
Prepaid expenses and other current assets	18,452			14,212			21,042			19,048
Total current assets	193,290			200,117			218,537			220,902
Property, plant and equipment	20,909			21,466			25,865			24,580
Accumulated depreciation	(15,310		)	(16,343		)	(20,145		)	(18,721		)
Property, plant and equipment, net	5,599			5,123			5,720			5,859
Operating lease right-of-use assets							28,867			—
Goodwill	174,975			144,835			177,258			176,124
Intangible assets, net	17,463			8,363			18,752			20,933
Other assets	10,170			6,569			12,121			10,920
	$	401,497		$	365,007		$	461,255		$	434,738
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings	$	69,044		$	37,696
Current portion of long-term debt	12,000			12,000
Accounts payable and accrued expenses	71,422			78,280			$	80,117		$	93,254
Deferred revenue	23,499			22,356			23,812			23,704
Current portion of operating lease liabilities							9,078			—
Total current liabilities	175,965			150,332			113,007			116,958
Long-term debt	25,000			16,000			119,650			116,500
Long-term portion of operating lease liabilities							23,415			—
Other noncurrent liabilities	11,334			10,621			11,419			14,711
Total liabilities	212,299			176,953			267,491			248,169

Stockholders’ equity:
Common stock, par value $0.01 per share	172			172			172			172
Additional paid-in capital	107,300			107,256			104,187			105,850
Retained earnings	115,654			106,599			119,592			116,039
Treasury stock at cost	(15,710		)	(11,118		)	(9,830		)	(13,802		)
Accumulated other comprehensive loss	(18,218		)	(14,855		)	(20,357		)	(21,690		)
Total stockholders’ equity	189,198			188,054			193,764			186,569
	$	401,497		$	365,007		$	461,255		$	434,738

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017			2019		2018			2019		2018
Revenue	$	123,566		$	124,097	$	382,289		$	377,705		$	149,413	$	133,691		$	288,886	$	258,723
Cost of revenue	104,367			105,451		322,838			317,236			126,454		111,118			244,649		218,471
Gross profit	19,199			18,646		59,451			60,469			22,959		22,573			44,237		40,252
General and administrative expenses	12,227			14,160		40,207			39,536			15,402		14,121			31,529		27,980
Sales and marketing expenses	1,297			393		3,128			1,249			1,906		1,106			3,895		1,831
Restructuring charges	—			—		2,930			—			182		2,495			1,301		2,930
Gain on change in fair value of contingent consideration, net	526			268		3,972			369			627		894			677		3,446
Operating income	6,201			4,361		17,158			20,053			6,096		5,745			8,189		10,957
Interest expense	1,095			511		1,631			1,483			1,679		(150		)	3,277		536
Other (expense) income	(760		)	74		(1,912		)	(108		)
Other income (expense)												102		(988		)	88		(1,152		)
Income before income tax expense	4,346			3,924		13,615			18,462			4,519		4,907			5,000		9,269
Income tax expense	1,102			643		4,164			5,232			1,300		1,332			1,447		3,062
Net income	$	3,244		$	3,281	$	9,451		$	13,230		$	3,219	$	3,575		$	3,553	$	6,207

Basic weighted average shares outstanding	16,536			16,750		16,555			16,736			16,747		16,510			16,710		16,565
Diluted weighted average shares outstanding	16,628			16,896		16,647			16,856			16,780		16,601			16,741		16,657

Per common share data:
Basic earnings per share	$	0.20		$	0.20	$	0.57		$	0.79		$	0.19	$	0.22		$	0.21	$	0.37
Diluted earnings per share	$	0.20		$	0.19	$	0.57		$	0.78		$	0.19	$	0.22		$	0.21	$	0.37

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019		2018
Net income	$	3,244		$	3,281		$	9,451		$	13,230		$	3,219		$	3,575		$	3,553	$	6,207
Foreign currency translation adjustments	(457		)	2,575			(3,662		)	7,051			(380		)	(5,637		)	1,333		(3,205		)
Change in fair value of interest rate cap, net of tax	47			(28		)	252			(137		)	—			57			—		205
Change in fair value of interest rate swap, net of tax	(12		)	21			$	47		$	(2	)	—			4			$	—	$	59
Comprehensive income	$	2,822		$	5,849		$	6,088		$	20,142
Comprehensive income (loss)													$	2,839		$	(2,001	)	$	4,886	$	3,266

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended June 30, 2019 and 2018

(Unaudited)

(In thousands)



	Common stock		Additional paid-in capital			Retained earnings		Treasury stock at cost			Accumulated other comprehensive loss			Total stockholders’ equity
Balance at March 31, 2019	$	172	$	104,909		$	116,373	$	(11,763	)	$	(19,977	)	$	189,714
Net income	—		—			3,219		—			—			3,219
Foreign currency translation adjustment	—		—			—		—			(380		)	(380		)
Stock-based compensation expense	—		602			—		—			—			602
Issuance of stock for employer contributions to retirement plan	—		(540		)	—		1,268			—			728
Net issuances of stock pursuant to stock compensation plans and other	—		(784		)	—		665			—			(119		)
Balance at June 30, 2019	$	172	$	104,187		$	119,592	$	(9,830	)	$	(20,357	)	$	193,764



	Common stock		Additional paid-in capital			Retained earnings		Treasury stock at cost			Accumulated other comprehensive loss			Total stockholders’ equity
Balance at March 31, 2018	$	172	$	107,369		$	108,835	$	(17,134	)	$	(12,220	)	$	187,022
Net income	—		—			3,575		—			—			3,575
Foreign currency translation adjustment	—		—			—		—			(5,637		)	(5,637		)
Change in fair value of interest rate cap, net of tax	—		—			—		—			57			57
Change in fair value of interest rate swap, net of tax	—		—			—		—			4			4
Repurchases of common stock	—		—			—		(33		)	—			(33		)
Stock-based compensation expense	—		399			—		—			—			399
Issuance of stock for employer contributions to retirement plan	—		(92		)	—		818			—			726
Net issuances of stock pursuant to stock compensation plans and other	—		(304		)	—		275			—			(29		)
Balance at June 30, 2018	$	172	$	107,372		$	112,410	$	(16,074	)	$	(17,796	)	$	186,084

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2019 and 2018

(Unaudited)

(In thousands)



	Common stock		Additional paid-in capital			Retained earnings		Treasury stock at cost			Accumulated other comprehensive loss			Total stockholders’ equity
Balance at December 31, 2018	$	172	$	105,850		$	116,039	$	(13,802	)	$	(21,690	)	$	186,569
Net income	—		—			3,553		—			—			3,553
Foreign currency translation adjustment	—		—			—		—			1,333			1,333
Stock-based compensation expense	—		956			—		—			—			956
Issuance of stock for employer contributions to retirement plan	—		(961		)	—		2,424			—			1,463
Net issuances of stock pursuant to stock compensation plans and other	—		(1,658		)	—		1,548			—			(110		)
Balance at June 30, 2019	$	172	$	104,187		$	119,592	$	(9,830	)	$	(20,357	)	$	193,764



	Common stock		Additional paid-in capital			Retained earnings			Treasury stock at cost			Accumulated other comprehensive loss			Total stockholders’ equity
Balance at December 31, 2017	$	172	$	107,256		$	106,599		$	(11,118	)	$	(14,855	)	$	188,054
Cumulative effect adjustment of adopting ASU 2014-09	—		—			(396		)	—			—			(396		)
Adjusted balance at December 31, 2017	172		107,256			106,203			(11,118		)	(14,855		)	187,658
Net income	—		—			6,207			—			—			6,207
Foreign currency translation adjustment	—		—			—			—			(3,205		)	(3,205		)
Change in fair value of interest rate cap, net of tax	—		—			—			—			205			205
Change in fair value of interest rate swap, net of tax	—		—			—			—			59			59
Repurchases of common stock	—		—			—			(7,294		)	—			(7,294		)
Stock-based compensation expense	—		1,097			—			—			—			1,097
Issuance of stock for employer contributions to retirement plan	—		(88		)	—			1,525			—			1,437
Net issuances of stock pursuant to stock compensation plans and other	—		(893		)	—			813			—			(80		)
Balance at June 30, 2018	$	172	$	107,372		$	112,410		$	(16,074	)	$	(17,796	)	$	186,084

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018

(Unaudited, in thousands)


	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	9,451		$	13,230		$	3,553		$	6,207
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Gain on change in fair value of contingent consideration, net	(3,972		)	(369		)	(677		)	(3,446		)
Depreciation and amortization	5,670			5,153			4,657			3,761
Deferred income taxes	(610		)	(421		)	(556		)	(169		)
Non-cash compensation expense	3,501			4,876			2,419			2,534
Changes in other operating items:
Accounts and other receivables	(4,644		)	11,805			(10,528		)	10,568
Unbilled revenue	6,344			(11,670		)	8,266			(2,753		)
Prepaid expenses and other current assets	(5,131		)	(6,232		)	(2,449		)	(1,755		)
Accounts payable and accrued expenses	(5,527		)	8,145
Accounts payable, accrued expenses and net change in operating leases							(11,772		)	(1,775		)
Deferred revenue	(2,215		)	(3,203		)	141			(7,067		)
Other	643			(140		)	643			1,020
Net cash provided by operating activities	3,510			21,174
Net cash (used in) provided by operating activities							(6,303		)	7,125

Cash flows from investing activities:
Additions to property, plant and equipment	(2,267		)	(2,324		)	(1,027		)	(1,514		)
Acquisitions, net of cash acquired	(42,872		)	(11,112		)	—			(39,957		)
Other investing activities	(3,229		)	(981		)	(227		)	(2,051		)
Net cash used in investing activities	(48,368		)	(14,417		)	(1,254		)	(43,522		)

Cash flows from financing activities:
Proceeds from short-term borrowings	31,410			9,749			—			24,197
Proceeds from long-term debt	18,000			—			77,050			18,000
Repayment of long-term debt	(9,000		)	(9,000		)	(73,900		)	(6,000		)
Contingent consideration payments	—			(967		)
Change in negative cash book balance	723			(2,813		)	(1,584		)	(695		)
Tax withholding payments for employee stock-based compensation in exchange for shares surrendered	(103		)	(604		)
Repurchases of common stock in the open market	(8,485		)	(2,419		)	—			(7,823		)
Premium paid for interest rate cap	—			(474		)
Other financing activities	(24		)	120			(402		)	(80		)
Net cash provided by (used in) financing activities	32,521			(6,408		)
Net cash provided by financing activities							1,164			27,599

Effect of exchange rate changes on cash and cash equivalents	(952		)	1,325			(913		)	(680		)
Net increase (decrease) in cash	(13,289		)	1,674
Net decrease in cash							(7,306		)	(9,478		)
Cash at beginning of period	23,612			16,346			13,417			23,612
Cash at end of period	$	10,323		$	18,020		$	6,111		$	14,134

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	2,465		$	1,381		$	3,197		$	1,388
Cash paid during the period for income taxes	3,320			4,874
Accrued contingent consideration	905			5,613
Cash (refunded) paid during the period for income taxes							(498		)	3,371

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(Unaudited)


(1)	Basis of Presentation

GP Strategies Corporation is a global performance improvement solutions provider of training, digital learning solutions, management consulting and engineering services. References in this report to “GP Strategies,” the “Company,” “we” and “our” are to GP Strategies Corporation and its subsidiaries, collectively.

The accompanying condensed consolidated balance sheet as of ~~September~~June 30, ~~2018 and~~2019, the condensed consolidated statements of operations, comprehensive income (loss) and stockholders' equity for the three and six months ended June 30, 2019 and 2018, and the condensed consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 have not been audited, but have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, ~~2017,~~2018, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation. The results for the ~~2018~~2019 interim period are not necessarily indicative of results to be expected for the entire year.

The condensed consolidated financial statements include the operations of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

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


(2)	Recent Accounting Standards

Recently Adopted Accounting Standards

On January 1, 2019, we adopted Accounting Standards ~~Not Yet Adopted~~

~~In February 2016,~~Update (ASU) 2016-02, Leases (Topic 842), which requires the ~~FASB issued ASU No. 2016-02,~~ ~~Leases~~ ~~which establishes new accounting~~recognition of lease rights and~~disclosure requirements for leases. This standard will require leases~~ obligations as assets and liabilities on the balance sheet. Previously, lessees were not required to ~~be recognized~~recognize on the balance sheet ~~as a right-of-use asset~~assets and ~~a lease liability. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Lessees must apply a~~liabilities arising from operating leases. We adopted Topic 842 using the modified retrospective method of adoption applying the transition ~~approach for leases existing~~provisions at ~~or entered info after,~~the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in ~~the~~these financial statements. As a result, prior period information has not been restated.

The ~~FASB issued additional guidance in July 2018 which provides for an additional (and optional) transition method by allowing entities to apply the transition provisions of the~~ new standard ~~including its disclosure requirements, at its adoption date instead~~provides several optional practical expedients for use in transition. We elected to use what the FASB has deemed the “package of atpractical expedients,” which allows us not to reassess our previous conclusions about lease identification, lease classification and the ~~beginning~~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 ~~earliest comparative period presented~~practical expedient to not separate lease and ~~recognize a cumulative-effect adjustment to~~non-lease components for leases of real estate, meaning that for these leases, the ~~opening balance of retained earnings~~non-lease components are included in the period of adoption. We plan to adopt the standard effective January 1, 2019 using the additional transition method. We plan to make an accounting policy election to account for certain short-term leases (with a term of one year or less) using a method similar to the current operatingassociated ROU asset and lease ~~model and elect the package of practical expedients. The adoption of this standard is expected to increase the assets and liabilities recorded~~liability balances on our ~~condensed~~ consolidated balance ~~sheet and increase the level~~sheet.

The most significant impacts of disclosures related to leases. We also expect that adoption of the new standard will require changes to our internal controls to support recognition and disclosure requirements under the new standard. We are currently evaluating our population of leased assets in order to assess the impact of the ASU on our lease portfolio, and designing and implementing new processes and controls. Until this effort is completed, we cannot determine the effect of the ASUadopting Topic 842 on our consolidated financial ~~statements.~~statements were (1) the recognition of new ROU assets and lease liabilities for our operating leases of $31.1 million and $34.9 million, respectively on January 1, 2019, which included reclassifying accrued rent as a component of the ROU asset, and (2) significant new disclosures about our leasing activities, which are provided in Note 13. Topic 842 did not have a material impact on our results of operations or cash flows.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

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

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~

on testing dates after January 1, 2017. We ~~are currently evaluating~~adopted the standard on January 1, 2019. The adoption of the ASU ~~2017-04 and the impact of its adoption~~did not have an effect on our ~~consolidated~~results of operations, financial ~~statements.~~

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Targeted Improvements to Accounting for Hedging Activities~~. The standard will ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. ASU 2017-12 is effective for public companies for annual reporting periods beginning after December 15, 2018 but early adoption is permitted. We are currently evaluating ASU 2017-12 and the impact of its adoption on our consolidated financial statements.

~~Accounting Standard Adopted~~condition or cash flows.

~~In August 2018,~~Accounting Standards Not Yet Adopted

For a discussion of other accounting standards that have been issued by the FASB ~~issued ASU No. 2018-15,~~ ~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 amends current guidance~~but are not yet effective, refer to ~~align~~ the accounting for costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs associated with developing or obtaining internal-use software. Capitalized implementation costs must be expensed over the term of the hosting arrangement and presented in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement. Both internal and external costs for activities to develop or obtain software that allow for access to or conversion of old data by new system, as well as coding and testing during the application development stage are capitalizable. Training activities and data conversion activities will continue to be expensed as incurred. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, and the Company early adopted the ASU during the third quarter of 2018, effective July 1, 2018 on a prospective basis. In connection with the adoption of ASU 2018-15, the Company capitalized $0.9 million of implementation costs relating to a new enterprise resource planning (ERP) system that went live in October 2018.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ (Recent Accounting Standards ~~Codification (ASC) Topic 606), which provides a single comprehensive model for entities to use~~section in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We adopted ASC Topic 606our Annual Report on January 1, 2018 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. The primary impact of ASU No. 2014-09 on our financial statements is a change in revenue recognition on a small portion of our contracts from a proportional performance method, where revenue was previously recognized over contract performance, to a point in time method, where revenue is now recognized upon completion of our performance obligations. While we don't believe the adoption of ASU 2014-09 will materially impact our overall financial statements, the change in timing of revenue recognition on certain contracts could result in quarter to quarter fluctuations in revenue. See Note 3 for further details regarding our revenue recognition accounting policies and other required disclosures.

~~The cumulative effect of the changes made to our January 1, 2018 balance sheet~~Form 10-K for the ~~adoption of the new revenue standard was as follows (in thousands):~~

Balance at December 31, 2017 Adjustments due to ASC Topic 606 Balance at January 1, 2018
Assets:

Prepaid expenses and other current assets $ 14,212
$ 2,059
$ 16,271
Other assets 6,569
132
6,701
Liabilities and Stockholders’ Equity:

Deferred revenue 22,356
2,587
24,943
Retained earnings 106,599
(396 ) 106,203

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes~~year ended December 31, 2018. These standards are not expected to ~~Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~

The following tables summarize the current period impacts of adopting ASC Topic 606 on our unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2018.

Selected condensed consolidated statement of operations line items, which were impacted by the adoption of the new standard, are as follows for the three months ended September 30, 2018 (in thousands):

As reported Balances without Adoption of Topic 606 Effect of Adoption - Higher (Lower)
Revenue $ 123,566
$ 123,727
$ (161 )
Cost of revenue 104,367
104,732
(365 )
Gross profit 19,199
18,995
204
Income tax expense 1,102
1,051
51
Net income 3,244
3,091
153

Per common share data:

Basic earnings per share $ 0.20
$ 0.19
$ 0.01
Diluted earnings per share $ 0.20
$ 0.19
$ 0.01

Selected condensed consolidated statement of operations line items, which were impacted by the adoption of the new standard, are as follows for the nine months ended September 30, 2018 (in thousands):

As reported Balances without Adoption of Topic 606 Effect of Adoption - Higher (Lower)
Revenue $ 382,289
$ 381,135
$ 1,154
Cost of revenue 322,838
322,349
489
Gross profit 59,451
58,786
665
Income tax expense 4,164
3,992
172
Net income 9,451
8,958
493

Per common share data:

Basic earnings per share $ 0.57
$ 0.54
$ 0.03
Diluted earnings per share $ 0.57
$ 0.54
$ 0.03

~~The adoption of ASC Topic 606 did not~~ have a ~~significant~~material impact on our ~~condensed consolidated statement~~results of ~~comprehensive income for the three~~operations, financial condition or ~~nine months ended September 30, 2018.~~

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~

~~Selected condensed consolidated balance sheet line items, which were impacted by the adoption of the new standard, are as follows as of September 30, 2018 (in thousands):~~

As reported Balances without adoption of ASC Topic 606 Effect of Adoption - Higher (Lower)
Assets:

Prepaid expenses and other current assets $ 18,452
$ 16,816
$ 1,636
Other assets 10,170
10,210
(40 )
Total assets 401,497
399,901
1,596
Liabilities and Stockholders’ Equity:

Accounts payable and accrued expenses 71,422
70,933
489
Deferred revenue 23,499
22,489
1,010
Retained earnings 115,654
115,557
97
Total liabilities and stockholders' equity 401,497
399,901
1,596

~~The adoption of ASC Topic 606 did not impact our total~~ cash flows from operating, investing or financing activities. In addition, the impact to the individual line items within the operating activities section of our condensed consolidated statement of cash flows was not significant for the nine months ended September 30, 2018.

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~

flows.


(3)	Revenue

Significant Accounting Policy

We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC Topic 606), which we adopted on January 1, 2018, using the modified retrospective method. Revenue is measured based on the consideration specified in a contract with a customer. Most of our contracts with customers contain transaction prices with fixed consideration, however, some contracts may contain variable consideration in the form of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties and other similar items. When a contract includes variable consideration, we evaluate the estimate of variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. This can result in recognition of revenue over time as we perform services or at a point in time when the deliverable is transferred to the customer, depending on an evaluation of the criteria for over time recognition in ASC Topic 606. Further details regarding our revenue recognition for various revenue streams are discussed below.

Nature of goods and services

Over 90% of our revenue is derived from services provided to our customers for training, consulting, technical, engineering and other services. Less than 10% of our revenue is derived from various other offerings including custom magazine publications and assembly of glovebox portfolios for automotive manufacturers, licenses of software and other intellectual property, and software as a service (SaaS) arrangements.

Our primary contract vehicles are time-and-materials, fixed price (including fixed-fee per transaction) and cost-reimbursable contracts. Each contract has different terms based on the scope, deliverables and complexity of the engagement, requiring us to make judgments and estimates about recognizing revenue.

Under time-and-materials and cost-reimbursable contracts, the contractual billing schedules are based on the specified level of resources we are obligated to provide. Revenue under these contract types are recognized over time as services are performed as the client simultaneously receives and consumes the benefits provided by our performance throughout the engagement. The time and materials incurred for the period is the measure of performance and, therefore, revenue is recognized in that amount.

For fixed price contracts which typically involve a discrete project, such as development of training content and materials, design of training processes, software implementation, or engineering projects, the contractual billing schedules are not necessarily based on the specified level of resources we are obligated to provide. These discrete projects generally do not contain milestones or other measures of performance. The majority of our fixed price contracts meet the criteria in ASC Topic 606 for over time revenue recognition. For these contracts, revenue is recognized using a percentage-of-completion method

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

based on the relationship of costs incurred to total estimated costs expected to be incurred over the term of the contract. We believe this methodology is a reasonable measure of proportional performance since performance primarily involves personnel costs and services provided to the customer throughout the course of the projects through regular communications of progress toward completion and other project deliverables. In addition, the customer is required to pay us for the proportionate amount of our fees in the event of contract termination. A small portion of our fixed price contracts do not meet the criteria in ASC Topic 606 for over time revenue recognition. For these projects, we defer revenue recognition until the performance obligation is satisfied, which is generally when the final deliverable is provided to the client. The direct costs related to these projects are capitalized and then recognized as cost of revenue when the performance obligation is satisfied.

For fixed price contracts, when total direct cost estimates exceed revenues, the estimated losses are recognized immediately. The use of the percentage-of-completion method requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in estimated salaries and other costs. Estimates of total contract costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses.

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~

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 decrease to revenue of $0.2 million and a net increase to revenue of ~~$0.3 million and $1.3~~$0.5 million for the three ~~and nine~~ months ended ~~September~~June 30, 2019 and 2018, respectively, and a net increase to revenue of $0.9 million and $1.0 million for the six months ended June 30, 2019 and 2018, respectively.

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

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

Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we collect from a customer, are excluded from revenue.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. As of ~~September~~June 30, ~~2018,~~2019, we had ~~$264.4~~$330.5 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize over 95 percent of our remaining performance obligations as revenue within the next twelve months. We did not apply any of the practical expedients permitted by ASC Topic 606 in determining the amount of our performance obligations as of ~~September~~June 30, ~~2018.~~2019.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(Unaudited)

Revenue by Category

The following series of tables presents our revenue disaggregated by various categories (dollars in thousands).


	Three Months Ended September 30,																		Three Months Ended June 30,
	Workforce Excellence						Business Transformation Services						Consolidated						Workforce Excellence						Business Transformation Services						Consolidated
	2018			2017			2018			2017			2018			2017			2019			2018			2019			2018			2019			2018
Revenue by type of service:
Managed learning services	$	51,387		$	52,524		$	—		$	—		$	51,387		$	52,524		$	52,253		$	53,080		$	—		$	—		$	52,253		$	53,080
Engineering & technical services	29,129			24,498			—			—			29,129			24,498			28,806			29,002			—			—			28,806			29,002
Sales enablement	—			—			19,944			22,768			19,944			22,768			—			—			44,764			27,799			44,764			27,799
Organizational development	—			—			23,106			24,307			23,106			24,307			—			—			23,590			23,810			23,590			23,810
	$	80,516		$	77,022		$	43,050		$	47,075		$	123,566		$	124,097		$	81,059		$	82,082		$	68,354		$	51,609		$	149,413		$	133,691

Revenue by geographic region:
Americas	$	56,064		$	48,382		$	35,380		$	40,641		$	91,444		$	89,023		$	57,799		$	54,171		$	52,974		$	44,513		$	110,773		$	98,684
Europe Middle East Africa	21,153			25,540			8,906			7,183			30,059			32,723			22,468			24,466			12,437			9,258			34,905			33,724
Asia Pacific	8,205			8,255			109			76			8,314			8,331			8,693			7,908			6,696			117			15,389			8,025
Eliminations	(4,906		)	(5,155		)	(1,345		)	(825		)	(6,251		)	(5,980		)	(7,901		)	(4,463		)	(3,753		)	(2,279		)	(11,654		)	(6,742		)
	$	80,516		$	77,022		$	43,050		$	47,075		$	123,566		$	124,097		$	81,059		$	82,082		$	68,354		$	51,609		$	149,413		$	133,691

Revenue by client market sector:
Automotive	$	2,738		$	2,399		$	20,531		$	22,777		$	23,269		$	25,176		$	2,129		$	2,962		$	43,631		$	28,357		$	45,760		$	31,319
Financial & Insurance	22,364			23,583			2,692			3,929			25,056			27,512			19,770			23,042			2,400			3,251			22,170			26,293
Manufacturing	7,558			8,874			3,734			3,428			11,292			12,302			8,416			8,887			5,774			3,760			14,190			12,647
Energy / Oil & Gas	9,113			8,457			1,188			465			10,301			8,922			8,687			10,862			1,619			800			10,306			11,662
U.S. Government	7,673			6,220			2,102			2,352			9,775			8,572			9,870			6,513			1,981			2,318			11,851			8,831
U.K. Government	4,456			6,858			—			—			4,456			6,858			4,357			4,947			—			—			4,357			4,947
Information & Communication	3,315			3,785			2,330			2,509			5,645			6,294			4,002			4,091			2,073			2,570			6,075			6,661
Aerospace	6,705			5,582			1,160			1,678			7,865			7,260			7,102			7,110			872			569			7,974			7,679
Electronics Semiconductor	3,719			4,016			241			150			3,960			4,166			4,093			3,826			340			229			4,433			4,055
Life Sciences	4,892			1,822			1,932			2,273			6,824			4,095			4,996			2,977			1,624			2,527			6,620			5,504
Other	7,983			5,426			7,140			7,514			15,123			12,940			7,637			6,865			8,040			7,228			15,677			14,093
	$	80,516		$	77,022		$	43,050		$	47,075		$	123,566		$	124,097		$	81,059		$	82,082		$	68,354		$	51,609		$	149,413		$	133,691

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(Unaudited)


	Nine Months Ended September 30,																		Six Months Ended June 30,
	Workforce Excellence						Business Transformation Services						Consolidated						Workforce Excellence						Business Transformation Services						Consolidated
	2018			2017			2018			2017			2018			2017			2019			2018			2019			2018			2019			2018
Revenue by type of service:
Managed learning services	$	156,244		$	152,713		$	—		$	—		$	156,244		$	152,713		$	104,071		$	104,857		$	—		$	—		$	104,071		$	104,857
Engineering & technical services	82,800			75,523			—			—			82,800			75,523			56,438			53,671			—			—			56,438			53,671
Sales enablement	—			—			73,566			75,756			73,566			75,756			—			—			81,928			51,649			81,928			51,649
Organizational development	—			—			69,679			73,713			69,679			73,713			—			—			46,449			48,546			46,449			48,546
	$	239,044		$	228,236		$	143,245		$	149,469		$	382,289		$	377,705		$	160,509		$	158,528		$	128,377		$	100,195		$	288,886		$	258,723

Revenue by geographic region:
Americas	$	158,935		$	147,423		$	120,814		$	131,567		$	279,749		$	278,990		$	112,484		$	102,871		$	98,956		$	85,434		$	211,440		$	188,305
Europe Middle East Africa	69,248			73,078			27,408			20,854			96,656			93,932			44,697			49,100			24,120			18,502			68,817			67,602
Asia Pacific	24,405			22,328			298			332			24,703			22,660			14,835			15,195			11,830			189			26,665			15,384
Eliminations	(13,544		)	(14,593		)	(5,275		)	(3,284		)	(18,819		)	(17,877		)	(11,507		)	(8,638		)	(6,529		)	(3,930		)	(18,036		)	(12,568		)
	$	239,044		$	228,236		$	143,245		$	149,469		$	382,289		$	377,705		$	160,509		$	158,528		$	128,377		$	100,195		$	288,886		$	258,723

Revenue by client market sector:
Automotive	$	8,614		$	7,175		$	73,134		$	75,967		$	81,748		$	83,142		$	3,822		$	5,876		$	79,712		$	52,603		$	83,534		$	58,479
Financial & Insurance	67,522			64,066			9,010			12,438			76,532			76,504			38,397			45,158			4,894			6,318			43,291			51,476
Manufacturing	25,621			26,762			11,606			11,970			37,227			38,732			16,394			18,063			12,084			7,872			28,478			25,935
Energy / Oil & Gas	27,769			26,275			3,318			1,896			31,087			28,171			20,062			18,656			2,802			2,130			22,864			20,786
U.S. Government	20,704			18,528			6,742			6,910			27,446			25,438			19,486			13,031			3,889			4,640			23,375			17,671
U.K. Government	14,889			21,789			—			—			14,889			21,789			8,412			10,433			—			—			8,412			10,433
Information & Communication	11,027			12,785			6,953			7,948			17,980			20,733			7,463			7,712			4,377			4,623			11,840			12,335
Aerospace	21,619			16,003			2,408			4,774			24,027			20,777			13,554			14,914			2,033			1,248			15,587			16,162
Electronics Semiconductor	11,228			12,371			521			610			11,749			12,981			8,215			7,509			594			280			8,809			7,789
Life Sciences	9,743			5,912			7,143			7,171			16,886			13,083			9,708			4,851			3,739			5,211			13,447			10,062
Other	20,308			16,570			22,410			19,785			42,718			36,355			14,996			12,325			14,253			15,270			29,249			27,595
	$	239,044		$	228,236		$	143,245		$	149,469		$	382,289		$	377,705		$	160,509		$	158,528		$	128,377		$	100,195		$	288,886		$	258,723

Contract Balances

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

~~Revenue~~We recognized revenue of $4.6 million and $7.3 million for the ~~nine~~three months ended ~~September~~June 30, 2019 and 2018, respectively, and $15.7 million and $16.3 million for the six months ended June 30, 2019 and 2018, respectively, that was included in the contract liability balance at the beginning of the year ~~was $18.6 million,~~ and primarily represented revenue from services performed during the current period for which we received advance payment from clients in a prior period.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(Unaudited)

~~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 condensed consolidated balance sheet and totaled $1.6 million as of September 30, 2018. Recognition of such contract costs totaled $0.7 million and $4.7 million for the three and nine months ended September 30, 2018, respectively, and is included in cost of revenue on the condensed consolidated statements of operations.

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 September 30, 2018, we did not have any capitalized sales commissions.


(4)	Significant Customers & Concentration of Credit Risk

We have a market concentration of revenue in both the automotive sector and financial & insurance sector. Revenue from the automotive sector accounted for approximately ~~21%~~29% and ~~22%~~23% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 14% and ~~13%~~15% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. As of ~~September~~June 30, ~~2018,~~2019, accounts receivable from a single automotive customer totaled ~~$13.2~~$15.5 million, or ~~10%~~13%, of our consolidated accounts receivable balance.

Revenue from the financial & insurance sector accounted for approximately 15% and 20% of our consolidated revenue for ~~both of~~ the ~~nine-month periods~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017.~~respectively. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 11% and 14% of our consolidated revenue for ~~both of~~ the ~~nine-month periods~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017.~~respectively. As of ~~September~~June 30, ~~2018,~~2019, billed and unbilled accounts receivable from a single financial services customer totaled ~~$26.4~~$23.8 million, or ~~16%~~12%, of our consolidated accounts receivable and unbilled revenue balances.

No other single customer accounted for more than 10% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 or ~~2017~~2018 or consolidated accounts receivable balance as of ~~September~~June 30, ~~2018.~~

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~

2019.


(5)	Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Our dilutive common stock equivalent shares consist of stock options and restricted stock units computed under the treasury stock method, using the average market price during the period. Performance-based restricted stock unit awards are included in the computation of diluted shares based on the probable outcome of the underlying performance conditions being achieved. The following table presents instruments which were not dilutive and were excluded from the computation of diluted EPS in each period, as well as the dilutive common stock equivalent shares which were included in the computation of diluted EPS:

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
(In thousands)
Non-dilutive instruments 108
—
85
17

Dilutive common stock equivalents 92
146
92
120


~~(6)~~	~~Acquisitions~~

~~TTi (Europe) Limited~~

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 preliminary purchase price allocation is subject to change and is expected to be finalized in the fourth quarter of 2018. 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 condensed consolidated financial statements beginning August 7, 2018. The pro-forma impact of the acquisition is not material to our results of operations.



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
	(In thousands)
Non-dilutive instruments	181	140	116	73

Dilutive common stock equivalents	33	91	31	92

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(Unaudited)

~~The following table summarizes the purchase price allocation for the acquisition (dollars in thousands).~~

Amortization
Purchase price allocation:
Period
Cash $ 125

Accounts receivable and other current assets 3,651

Fixed assets 9

Customer-related intangible assets 600
5 years
Goodwill 1,944

Total assets 6,329

Accounts payable and accrued expenses $ 3,130

Deferred revenue 126

Deferred tax liability 73

Total liabilities 3,329

Net assets acquired $ 3,000

~~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 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 condensed consolidated financial statements beginning May 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~

~~The following table summarizes the purchase price allocation for the acquisition (dollars in thousands).~~

Cash purchase price $ 30,535

Fair value of contingent consideration 905

Total purchase price $ 31,440

Amortization
Purchase price allocation:
Period
Cash $ 538

Accounts receivable and other current assets 3,072

Fixed assets 368

Customer-related intangible assets 10,365
8 years
Marketing-related intangible assets 239
3 years
Goodwill 21,657

Total assets 36,239

Accounts payable and accrued expenses 989

Deferred revenue 979

Deferred tax liability 2,831

Total liabilities 4,799

Net assets acquired $ 31,440

~~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 the operations of the acquiree with the Company. 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 condensed consolidated financial statements beginning January 2, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

~~The following table summarizes the purchase price allocation for the acquisition (dollars in thousands).~~

Amortization
Purchase price allocation:
Period
Customer-related intangible assets $ 1,367
4 years
Marketing-related intangible assets 106
2 years
Goodwill 8,527

Total assets $ 10,000

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~


(6)	Acquisitions

Contingent Consideration

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

Below is a summary of the ~~potential maximum contingent consideration we may be required to pay in connection with completed acquisitions as of September 30, 2018 (dollars in thousands):~~

Acquisition: Original range of potential undiscounted payments As of September 30, 2018 Maximum contingent consideration due in
2018 2019 2020 Total
IC Axon $0 - $3,500 $ —
$ 3,500
$ —
$ 3,500
McKinney Rogers $0 - $18,000 —
4,000
4,000
8,000
$ —
$ 7,500
$ 4,000
$ 11,500

~~Below is a summary of the~~ changes in the recorded amount of contingent consideration liabilities from December 31, ~~2017~~2018 to ~~September~~June 30, ~~2018~~2019 (dollars in thousands):


	Liability as of December 31,						Change in Fair Value of Contingent			Foreign Currency			Liability as of September 30,		Liability as of December 31,						Change in Fair Value of Contingent			Foreign Currency		Liability as of June 30,
Acquisition:	2017		Additions		Payments		Consideration			Translation			2018		2018		Additions		Payments		Consideration			Translation		2019
IC Axon	$	—	$	905	$	—	$	45		$	—		$	950	$	594	$	—	$	—	$	(594	)	$	—	$	—
Maverick	1,979		—		—		(1,979		)	—			—
McKinney Rogers	1,501		—		—		(1,308		)	—			193		83		—		—		(83		)	—		—
Emantras	76		—		—		(76		)	—			—
CLS	669		—		—		(654		)	(15		)	—
Total	$	4,225	$	905	$	—	$	(3,972	)	$	(15	)	$	1,143	$	677	$	—	$	—	$	(677	)	$	—	$	—

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, contingent consideration considered a current liability and included in accounts payable totaled ~~$1.0 million~~$0 and ~~$2.7~~$0.6 million, respectively. As of ~~September 30, 2018 and~~ December 31, ~~2017~~2018 we also had accrued contingent consideration totaling ~~$0.2~~$0.1 million ~~and $1.5 million respectively,~~ related to acquisitions which are included in other long-term liabilities on the condensed consolidated balance sheets and represent the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(Unaudited)


(7)	Intangible Assets

Goodwill

Changes in the carrying amount of goodwill by reportable business segment for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 were as follows (in thousands):

Workforce Excellence Business Transformation Services Total
Balance as of December 31, 2017 $ 105,764
$ 39,071
$ 144,835
Acquisitions 21,657
10,471
32,128
Foreign currency translation (1,476 ) (512 ) (1,988 )
Balance as of September 30, 2018 $ 125,945

$ 49,030

$ 174,975



	Workforce Excellence		Business Transformation Services			Total
Balance as of December 31, 2018	$	123,918	$	52,206		$	176,124
Purchase accounting adjustment	—		75			75
Foreign currency translation	1,115		(56		)	1,059
Balance as of June 30, 2019	$	125,033	$	52,225		$	177,258

Intangible Assets Subject to Amortization

Intangible assets with finite lives are subject to amortization over their estimated useful lives. The primary assets included in this category and their respective balances were as follows (in thousands):


	Gross Carrying Amount		Accumulated Amortization				Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
September 30, 2018	Gross Carrying Amount									Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
June 30, 2019										Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Customer relationships	$	22,558	Accumulated Amortization	$	(7,717	)	Net Carrying Amount		$	Gross Carrying Amount		14,841	Accumulated Amortization			Net Carrying Amount
Intellectual property and other	4,301		(1,679		)		2,622			4,946			(2,750		)	2,196
	$	26,859	$	(9,396	)		$	17,463		$	27,158		$	(8,406	)	$	18,752

December 31, 2017
December 31, 2018
Customer relationships	$	16,330	$	(11,140	)		$	5,190		$	26,524		$	(8,547	)	$	17,977
Intellectual property and other	4,298		(1,125		)		3,173			4,936			(1,980		)	2,956
	$	20,628	$	(12,265	)		$	8,363		$	31,460		$	(10,527	)	$	20,933

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)


(8)	Stock-Based Compensation

We recognize compensation expense for stock-based compensation awards issued to employees on a straight-line basis over the requisite service period. Compensation cost is based on the fair value of awards as of the grant date.

The following table summarizes the pre-tax stock-based compensation expense included in reported net income (in thousands):


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Non-qualified stock options	$	—	$	1	$	—	$	6
Restricted stock units	196		891		1,173		2,569		468		346		725		976
Board of Directors stock grants	51		93		171		248
Board of Directors and other stock grants									134		53		231		121
Total stock-based compensation expense	$	247	$	985	$	1,344	$	2,823	$	602	$	399	$	956	$	1,097

Pursuant to our 2011 Stock Incentive Plan (the “2011 Plan”), we may grant awards of non-qualified stock options, incentive stock options, restricted stock, stock units, performance shares, performance units and other incentives payable in cash or in shares of our common stock to officers, employees or members of the Board of Directors. As of ~~September~~June 30, ~~2018,~~2019, we had ~~non-qualified stock options and~~ restricted and performance stock units outstanding under these plans.

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~


(9)	Debt ~~and Financial Instruments~~

On ~~June 29,~~November 30, 2018, we entered into a ~~Second Amendment to Fifth Amended~~Credit Agreement with PNC Bank, National Association, as administrative agent and ~~Restated Financing~~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 ~~Security Agreement~~June 29, 2018 (the ~~"Credit~~"Original Credit Agreement"). The Credit ~~Agreement~~agreement provides for ~~an extension of the expiration date of the existing~~a revolving credit facility, ~~in the maximum principal amount of $100 million, from December 31, 2021 to June 1,~~which expires on November 29, 2023, and consists of: a ~~new term~~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 ~~principal amount~~credit facility by up to an additional $100 million; a $20 million letter of ~~$40 million maturing on October 1, 2021.~~credit sublimit; and a swingline loan credit sublimit of $20 million. The obligations under the Credit Agreement ~~is secured~~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 ~~our~~their tangible and intangible assets.

The ~~maximum interest rate on~~proceeds of the Credit Agreement iswere used, in part, to repay in full all outstanding borrowings under the ~~daily one-month LIBOR market index rate (for borrowings~~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 ~~Dollars~~the form of Base Rate loans or Euro-Rate loans, at the option of the borrowers, and ~~Sterling)~~bear interest at the Base Rate plus 0.25% to 1.25% or the ~~daily one month EURIBOR (for borrowings in Euros)~~Daily LIBOR Rate plus ~~2.50%. Based on our financial performance, the interest rate can be reduced~~1.25% to a minimum rate of the daily one-month LIBOR market index rate plus 1.25%, with the rate being determined based on our maximum leverage ratio for the preceding four quarters. Each unpaid advance on the revolving loan2.25% respectively. Base Rate loans will bear interest ~~until repaid. The term loan~~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 ~~payable in monthly installments~~based on a pricing grid that is generally dependent upon the Company's Leverage Ratio (as defined) as of ~~principal in~~ the ~~amount~~end of ~~$1.0 million plus applicable interest, beginning on July 1, 2018.~~the fiscal quarter for which consolidated financial statements have been most recently delivered. We may prepay ~~the term loan or~~ the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions. ~~Amounts repaid or prepaid on the term loan may not be reborrowed.~~

The Credit Agreement contains customary representations, warranties and affirmative ~~and~~covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including ~~covenants that limit or restrict our~~but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and ~~our subsidiaries’ (subject to~~acquisitions, (v) dispositions, (vi) restricted payments, including stock dividends, and (vii) certain ~~exceptions) ability to, among~~ other ~~things, grant liens, make investments, incur indebtedness, merge or consolidate, dispose of assets or make acquisitions. We are~~restrictive agreements. The Credit Agreement also ~~required~~requires the Company to maintain compliance with ~~a minimum fixed charge coverage ratio and~~the following financial covenants; (i) a maximum leverage ratio, and (ii) a minimum interest expense coverage ratio. WeOn 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 ~~all~~each of ~~the~~these financial covenants under the Credit Agreement, as of September 30, 2018. As of September 30, 2018, our total long-term debt outstanding under the term loan was $37.0 million. In addition, there were $69.0 million of borrowings outstanding and $26.3 million of available borrowings under the Credit Agreement. For the nine months ended September 30, 2018, the weighted average interest rate on our borrowings was 3.8%.

In March 2017, we entered into an interest rate swap agreement which effectively fixed our interest rate on the remaining $37 million outstanding on our term loan to a fixed LIBOR of 1.59% plus the applicable margin under the Credit Agreement. We have designated the interest rate swap, which expires on April 1, 2020, as a cash flow hedge and have applied hedge accounting. The fair value of the derivative asset associated with the interest rate swap was $0.2 million and $0.1 millionamended, as of ~~September~~June 30, 2018 and December 31, 2017, respectively, and is included in other assets on the condensed consolidated balance sheet. The derivative asset is classified within Level 2 of the fair value hierarchy in which fair value is measured using quoted prices in active markets for similar assets and liabilities.2019.

In April 2017, we entered into an interest rate cap agreement and paid a premium of $0.5 million which caps the daily one-month LIBOR at 2.0% for an aggregate notional amount of $20.0 million of our variable rate debt under our credit facility. The interest rate cap agreement matures on December 31, 2021. We have designated the interest rate cap as a cash flow hedge and have applied hedge accounting. The fair value of the derivative asset associated with the interest rate cap was $0.6 million and $0.3 million as of September 30, 2018 and December 31, 2017, respectively, and is included in other assets on the condensed consolidated balance sheet. The derivative asset is classified within Level 2 of the fair value hierarchy in which fair value is measured using quoted prices in active markets for similar assets and liabilities.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(Unaudited)

As of June 30, 2019, there were $119.7 million of borrowings outstanding and $14.2 million of available borrowings under the revolving loan facility based on our Leverage Ratio.

For the six months ended June 30, 2019 and 2018, the weighted average interest rate on our borrowings was 4.7% and 3.7%, respectively. As of June 30, 2019, the fair value of our borrowings under the Credit Agreement approximated its carrying value as it bears interest at variable rates. There were $1.3 million of unamortized debt issue costs related to the Credit Agreement as of June 30, 2019 which are being amortized to interest expense over the term of the Credit Agreement and are included in Other assets on our consolidated balance sheet.


(10)	Income Taxes

Income tax expense was ~~$4.2~~$1.4 million, or an effective income tax rate of ~~30.6%~~28.9%, for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$5.2~~$3.1 million, or an effective income tax rate of ~~28.3%~~33.0%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~increase~~decrease in the effective income tax rate in ~~2018~~2019 compared to ~~2017~~2018 is primarily due to a ~~$0.4~~$0.9 million increase to the provisional estimate recorded in the ~~fourth~~first quarter of ~~2017~~2018 relating to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, imposed by the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, ~~2017. The increase is~~2017 partially offset by a ~~decrease~~change in the ~~U.S. statutory tax rate~~mix of income from ~~35%~~lower to ~~21% and other discrete items.~~higher taxing jurisdictions. Income tax expense for the interim quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

~~The increase to the provisional estimate of the one-time transition tax on the mandatory deemed repatriation of cumulative~~

foreign earnings during the nine months ended September 30, 2018 is the result of further analysis of earnings and profits related to the calculation of the transition tax. As we complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make adjustments to the provisional amounts.

The Tax Act creates a new 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. Because of the complexity of the new GILTI tax rules, we are continuing to evaluate these provisions of the Tax Act and whether taxes due on future U.S. inclusions related to GILTI should be recorded as a current-period expense when incurred, or factored into the company’s measurement of its deferred taxes. At September 30, 2018, because the Company is still evaluating the GILTI provisions, the Company has included tax expense related to GILTI for the current year in its estimated annual effective tax rate and has not provided additional GILTI on deferred items.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense. As of ~~September~~June 30, ~~2018,~~2019, we had no uncertain tax positions reflected on our condensed consolidated balance sheet. The Company files income tax returns in U.S. federal, state and local jurisdictions, and various non-U.S. jurisdictions, and is subject to audit by tax authorities in those jurisdictions. Tax years 2015 through ~~2017~~2018 remain open to examination by these tax jurisdictions, and earlier years remain open to examination in certain of these jurisdictions which have longer statutes of limitations.

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~


(11)	Stockholders’ Equity

~~Changes in stockholders’ equity during the nine months ended September 30, 2018 were as follows (in thousands):~~

Common
stock

Additional
paid-in
capital

Retained
earnings

Treasury
stock
at cost

Accumulated
other
comprehensive
loss

Total
stockholders’
equity
Balance at December 31, 2017 $ 172
$ 107,256
$ 106,599
$ (11,118 ) $ (14,855 ) $ 188,054
Cumulative effect adjustment of adopting ASU 2014-09 —
—
(396 ) —
—
(396 )
Adjusted balance at December 31, 2017 172
107,256
106,203
(11,118 ) (14,855 ) 187,658
Net income —
—
9,451
—
—
9,451
Foreign currency translation adjustment —
—
—
—
(3,662 ) (3,662 )
Change in fair value of interest rate cap, net of tax —
—
—
—
252
252
Change in fair value of interest rate swap, net of tax —
—
—
—
47
47
Repurchases of common stock —
—
—
(7,956 ) —
(7,956 )
Stock-based compensation expense —
1,344
—
—
—
1,344
Issuance of stock for employer contributions to retirement plan —
(298 ) —
2,455
—
2,157
Net issuances of stock pursuant to stock compensation plans and other —
(1,002 ) —
909
—
(93 )
Balance at September 30, 2018 $ 172

$ 107,300

$ 115,654

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

Stock Repurchase Program

We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. During the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 we did not repurchase shares and ~~2017,~~during the six months ended June 30, 2018, we repurchased approximately ~~350,000 and 101,000~~313,000 shares ~~respectively,~~ of our common stock in the open market for a total cost of approximately ~~$8.0 million and $2.4 million, respectively.~~$7.3 million. As of ~~September~~June 30, ~~2018,~~2019, there was approximately $3.8 million available for future repurchases under the buyback program.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(Unaudited)


(12)	Restructuring

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


	Employee Severance and Related Benefits			Excess Facilities and Other Costs			Total			Employee Severance and Related Benefits			Excess Facilities and Other Costs			Total
Liability as of December 31, 2017	$	2,840		$	—		$	2,840
Liability as of December 31, 2018										$	1,266		$	591		$	1,857
Additional restructuring charges	1,678			1,252			2,930			1,301			—			1,301
Reclassification to operating lease liabilities										—			(557		)	(557		)
Payments	(2,791		)	(360		)	(3,151		)	(1,874		)	—			(1,874		)
Liability as of September 30, 2018	$	1,727		$	892		$	2,619
Liability as of June 30, 2019										$	693		$	34		$	727

In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic growth and reducing operating ~~costs. During the fourth quarter of 2017,~~costs, and we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth and we recorded restructuring charges, consisting primarily of severance expense of $3.3 million for the fourth quarter ended December 31, 2017. During the second quarter of 2018, the Company downsized its headquarters office from three floors to two floors, vacated certain other under-utilized field offices and incurred additional severance expense.

For the nine months ended September 30, 2018, we recorded an additional $2.9 million of restructuring charges which is included in restructuring charges on the condensed consolidated statements of operations. The total remaining liability under these restructuring activities was $2.6 million as of September 30, 2018, of which $2.0 million is included in accounts payable and accrued expenses and $0.6 million is included in other noncurrent liabilities on the condensed consolidated balance sheet.growth. These restructuring activities were substantially complete as of June 30, 2018. The total remaining liability under this restructuring plan was $0.5 million and $1.9 million as of June 30, 2019 and December 31, 2018, respectively.

In connection with the acquisition of TTi Global, Inc. in December 2018, we initiated restructuring and transition activities in the first quarter of 2019 to reduce costs and eliminate redundant positions to realize synergies with the acquired business. For the six months ended June 30, 2019, we recorded $1.3 million of restructuring charges in connection with these activities. The total remaining liability under these restructuring activities was $0.2 million as of June 30, 2019. We expect the restructuring activities associated with the TTi Global acquisition to be substantially complete by the end of 2019.


(13)	Leases

We determine at its inception whether an arrangement that provides us control over the use of an asset is a lease. We recognize at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. We have elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. Certain of our leases include options to extend the term of the lease or to terminate the lease prior to the end of the initial term. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining total future lease payments. As most of our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate on the commencement date to calculate the present value of future payments.

Our leases commonly include payments that are based on the Consumer Price Index (CPI) or other similar indices. These variable lease payments are included in the calculation of the ROU asset and lease liability. Other variable lease payments, such as usage-based amounts, are excluded from the ROU asset and lease liability, and are expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease, such as commissions.

In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. For our real estate leases, we apply a practical expedient to include these non-lease components in calculating the ROU asset and lease liability. For all other types of leases, non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.

We have operating leases for office facilities, vehicles and computer and office equipment. We do not have any finance leases.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

Lease expense is included in Cost of Revenue and General & Administrative Expenses on the condensed consolidated statements of operations, and is recorded net of immaterial sublease income. The components of lease expense were as follows (in thousands):



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	2,414	$	4,871
Short-term lease cost	207		560
Total lease costs	$	2,621	$	5,431

Supplemental information related to leases was as follows (dollars in thousands):



	Six Months Ended June 30, 2019
Operating lease right-of-use assets	$	28,867

Current portion of operating lease liabilities	$	9,078
Non-current portion of operating lease liabilities	23,415
Total operating lease liabilities	$	32,493

Cash paid for amounts included in the measurement of operating lease liabilities	$	5,006

Right-of-use assets obtained in exchange for operating lease liabilities	$	2,146

Weighted-average remaining lease term for operating leases (years)	5.8 years

Weighted-average discount rate for operating leases	4.77		%

The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities on our condensed consolidated balance sheet as of June 30, 2019 (in thousands):



Year ended December 31,
2019 (excluding the six months ended June 30, 2019)	$	5,002
2020	8,171
2021	5,809
2022	4,614
2023	4,045
Thereafter	9,810
Total future lease payments	37,451
Less: imputed interest	(4,958		)
Present value of future lease payments	32,493
Less: current portion of lease liabilities	(9,078		)
Long-term lease liabilities	$	23,415

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

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



Year ended December 31,
2019	$	10,646
2020	7,833
2021	5,520
2022	4,528
2023	3,898
Thereafter	8,671
Total	$	41,096


~~(13)~~(14)	Business Segments

former operating segments to better align with the service offerings of the two new segments. In addition, effective July 1, 2018, we transferred the management responsibility of certain additional business units between the two operating segments primarily to consolidate our non-technical content design and development businesses into one global digital learning strategies and solutions service line. We have reclassified the segment financial information herein for the prior year periods to reflect the changes in our segment reporting during 2018 and conform to the current year's presentation.

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

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2018~~

~~(Unaudited)~~

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,

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

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

Engineering & Technical Services - this practice focuses on capital intensive, inherently hazardous and/or highly complex technical services in support of both U.S. government and global commercial industries. Our products and services include design, development and delivery of technical work-based learning, CapEx (plant launch) initiatives, engineering design and construction management, fabrication, and management services, operational excellence consulting, chemical demilitarization services, homeland security services, emergency management support services along with all forms of technical documentation. We deliver world-class asset management and performance improvement consulting to a host of industries. Our proprietary EtaPRO® Performance and Condition Monitoring System provides a suite of real-time digital solutions for hundreds of facilities and is installed in power-generating units around the world. We also provide thousands of technical courses in a web-based off the shelf delivery format through our GPiLEARN+™ portal.

Business Transformation Services. The Business Transformation Services segment works with organizations to execute complex business strategies by linking business systems, process and people’s performance to clear and measurable results. We have a holistic methodology to establishing direction and closing the gap between strategy and execution. Our approach equips business leaders and teams with the tools and capability to deliver high-performance results. This segment consists of two practices:

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

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

We do not allocate the following items to the segments: general & administrative expenses, sales & marketing expenses, restructuring charges, other expense, interest expense, gain on change in fair value of contingent consideration and income tax expense.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(Unaudited)

The following table sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated income before income tax expense (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017			2019		2018			2019		2018
Revenue:
Workforce Excellence	$	80,516		$	77,022	$	239,044		$	228,236		$	81,059	$	82,082		$	160,509	$	158,528
Business Transformation Services	43,050			47,075		143,245			149,469			68,354		51,609			128,377		100,195
	$	123,566		$	124,097	$	382,289		$	377,705		$	149,413	$	133,691		$	288,886	$	258,723
Gross profit:
Workforce Excellence	$	13,400		$	11,892	$	39,682		$	39,324		$	13,393	$	14,927		$	26,802	$	26,282
Business Transformation Services	5,799			6,754		19,769			21,145			9,566		7,646			17,435		13,970
Total gross profit	19,199			18,646		59,451			60,469			22,959		22,573			44,237		40,252
General and administrative expenses	12,227			14,160		40,207			39,536			15,402		14,121			31,529		27,980
Sales and marketing expenses	1,297			393		3,128			1,249			1,906		1,106			3,895		1,831
Restructuring charges	—			—		2,930			—			182		2,495			1,301		2,930
Gain on change in fair value of contingent consideration, net	526			268		3,972			369			627		894			677		3,446
Operating income	6,201			4,361		17,158			20,053			6,096		5,745			8,189		10,957
Interest expense	1,095			511		1,631			1,483			1,679		(150		)	3,277		536
Other (expense) income	(760		)	74		(1,912		)	(108		)
Other income (expense)												102		(988		)	88		(1,152		)
Income before income tax expense	$	4,346		$	3,924	$	13,615		$	18,462		$	4,519	$	4,907		$	5,000	$	9,269

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

Results of Operations

General Overview

We are a global performance improvement solutions provider of training, digital learning solutions, management consulting and engineering services that seeks to improve the effectiveness of organizations by providing services and products that are customized to meet the specific needs of clients. Clients include Fortune 500 companies and governmental and other commercial customers in a variety of industries. We believe we are a global leader in performance improvement, with over five decades of experience in providing solutions to optimize workforce performance.

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

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.

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.

Acquisitions

TTi Global

On November 30, 2018, we entered into a Share Purchase Agreement with TTi Global, Inc. ("TTi Global") and its stockholders and acquired all of the outstanding shares of TTi Global. The transaction under the Share Purchase Agreement includes the acquisition of TTi Global’s subsidiaries (except for its UK and Spain subsidiaries and dormant entities) and certain affiliated companies. The Company purchased TTi Global’s UK and Spain subsidiaries in a separate transaction in August 2018 which is discussed further below. TTi Global is a provider of training, staffing, research and consulting solutions to industries across various sectors with automotive as a core focus. The total upfront purchase price for TTi Global was $14.2 million of cash paid upon closing on November 30, 2018. The purchase price is subject to reduction based on a minimum working capital requirement, as defined in the Share Purchase Agreement, which is expected to be settled during the third quarter of 2019. 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)~~("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 preliminary purchase price allocation is subject to change and is expected to be finalized in the fourth quarter of 2018. 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 condensed consolidated financial statements beginning August 7, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

IC Axon

~~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. 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.

~~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.~~

~~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 requires 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 earnout was payable for the twelve-month period following the acquisition as the earnings target was 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.

~~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 requires up to an additional $0.3 million of consideration, contingent upon the achievement of an earnings target during the twelve-month period ending June 30, 2018, plus a percentage of any earnings in excess of the specified earnings target. No contingent consideration was payable with respect to the twelve-month period following the acquisition 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.

~~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 requires 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. For the twelve-month period ended January 31, 2018, McKinney Rogers did not achieve the minimum earnings target and therefore, there was zero contingent consideration payable in respect of the first twelve-month period following completion of the acquisition. 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.

Operating Highlights

Three Months ended ~~September~~June 30, ~~2018~~2019 Compared to the Three Months ended ~~September~~June 30, ~~2017~~2018

Our revenue ~~decreased $0.5~~increased $15.7 million or ~~0.4%~~11.8% during the ~~third~~second quarter of ~~2018~~2019 compared to the ~~third~~second quarter of ~~2017.~~2018. The net ~~decrease~~increase is due to a ~~$4.0~~$16.7 million ~~decline~~increase in our Business Transformation Services segment offset by a ~~$3.5~~$1.0 million ~~increase~~decrease in our Workforce Excellence segment. Foreign currency exchange rate changes resulted in a total ~~$0.6~~$2.3 million decrease in U.S. dollar reported revenue during the ~~third~~second quarter of ~~2018.~~2019. The changes in revenue and gross profit are discussed in further detail below by segment.

Operating income, the components of which are discussed below, increased ~~$1.8~~$0.4 million or ~~42.2%~~6.1% to ~~$6.2~~$6.1 million for the ~~third~~second quarter of ~~2018~~2019 compared to ~~$4.4~~$5.7 million for the ~~third~~second quarter of ~~2017.~~2018. The net increase in operating income is primarily due to ~~a$0.6~~a $0.4 million increase in gross profit and a ~~$1.9~~$2.3 million decrease in restructuring charges, partially offset by a $1.3 million increase in general and administrative expenses, a $0.8 million increase in sales and marketing expenses, and a $0.3 million ~~increase~~decrease in the gain on change in fair value of contingent ~~consideration, partially offset by a $0.9 million increase in sales and marketing expenses.~~consideration.

For the three months ended ~~September~~June 30, ~~2018,~~2019, we had income before income tax expense of ~~$4.3~~$4.5 million compared to ~~$3.9~~$4.9 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Net income was $3.2 ~~million, or $0.20 per diluted share, for the three months ended September 30, 2018, compared to net income of $3.3~~ million, or $0.19 per diluted share, for the three months ended

~~September~~ June 30, ~~2017.~~2019, compared to net income of $3.6 million, or $0.22 per diluted share, for the three months ended June 30, 2018. Diluted weighted average shares outstanding were ~~16.6~~16.8 million for the ~~third~~second quarter of ~~2018~~2019 compared to ~~16.9~~16.6 million for the ~~third~~second quarter of ~~2017.~~2018.

Revenue


(Dollars in thousands)	Three months ended				Three months ended
	September 30,				June 30,
	2018		2017		2019		2018
Workforce Excellence	$	80,516	$	77,022	$	81,059	$	82,082
Business Transformation Services	43,050		47,075		68,354		51,609
	$	123,566	$	124,097	$	149,413	$	133,691

Workforce Excellence revenue ~~increased $3.5~~decreased $1.0 million or ~~4.5%~~1.2% during the ~~third~~second quarter of ~~2018~~2019 compared to the ~~third~~second quarter of ~~2017.~~2018. The revenue ~~increase~~decrease is due to the following:

a ~~$4.7~~$1.7 million net ~~increase~~decrease in revenue ~~in our Engineering & Technical Services practice primarily~~ due to ~~a $1.8 million increase~~changes in ~~hurricane relief services, a $1.0 million increase in chemical demilitarization training services for a U.S. government client and a $1.9 million increase in alternative fuels projects;~~foreign currency exchange rates; partially offset by a

a ~~$0.6~~$0.5 million net ~~decrease~~increase in revenue in our Managed Learning Services practice primarily due to the following:


◦	a ~~$2.5~~$1.6 million increase in revenue from the IC Axon business acquired on May 1, 2018; partially offset by


◦	a $0.2 million decrease in vocational skills training services provided to the UK government; and


◦	a ~~$1.6~~$0.9 million net decrease in revenue ~~in the U.S.~~ for ~~digital~~managed learning and training content development services; and

a $0.2 million net increase in revenue in our Engineering & Technical Services practice primarily due to the following:


◦	a $1.5 million increase in disaster relief services; and


◦	a $1.3 million increase in chemical demilitarization training services for a U.S. government client; partially offset by


◦	~~an estimated $3.5~~a $1.2 million decrease in our Energy business due to a software license sale during the second quarter of 2018 that did not recur in 2019; and


◦	a net decrease of $1.4 million in engineering and technical training services.

Business Transformation Services revenue increased $16.7 million or 32.4% during the second quarter of 2019 compared to the second quarter of 2018. The revenue increase is due to the following:

a $17.0 million net increase in our Sales Enablement practice primarily due to the following:

◦

a $14.3 million increase in revenue contributed by the TTi Global and TTi Europe acquisitions completed in this segment within the last twelve months that wasn't in the prior year comparative period, consisting of $2.9 million of revenue from the IC Axon acquisition completed on May 1, 2018 and $0.6 million of revenue from the YouTrain acquisition completed on August 31, 2017 (since the acquisitions are integrated into our operations, the estimated revenue contribution is based on a pro forma trailing twelve month revenue run rate at the time of acquisition);2018; and


◦	a $2.7 million net increase in automotive sales training services largely due to new vehicle launch events for automotive clients; and

a $0.3 million increase in revenue in our Organizational Development practice primarily due to an increase in strategic consulting services, partially offset by a decline in human capital management system implementation services.

These revenue increases were partially offset by a $0.6 million net decrease in revenue due to changes in foreign currency exchange rates.

~~Business Transformation Services revenue decreased $4.0 million or 8.6% during the third quarter of 2018 compared to the third quarter of 2017. The revenue decrease is due to the following:~~

~~a $2.8 million net decrease in our Sales Enablement practice primarily due to the following:~~


◦	~~a $2.5 million decline due to the completion of non-recurring vehicle launch events in 2017; and~~


◦	~~a $2.1 million decline in magazine publications due to a change in the timing of shipment in certain publications from third quarter of 2018 to the fourth quarter of 2018; partially offset by~~


◦	~~a $1.2 million increase in training services for automotive clients; and~~


◦	an estimated $0.6 million increase in revenue contributed by the TTi Europe acquisition completed on August 7, 2018 (since the acquisitions are integrated into our operations, the estimated revenue contribution is based on a pro forma trailing twelve month revenue run rate at the time of acquisition).

~~a $1.1 million net decrease in our Organizational Development practice primarily due to the following:~~


◦	a $3.1 million decline in platform adoption, strategic consulting and leadership development services (if we continue to experience declines in revenue and gross profit in the Organization Development practice, we could incur goodwill and other intangible asset impairment charges in the future); partially offset by

◦

an estimated $2.0 million increase in revenue contributed by the acquisitions completed in this segment within the last twelve months that wasn't in the prior year comparative period, consisting of $1.6 million of revenue from the Hula Partners acquisition completed on January 2, 2018 and $0.4 million from the CLS acquisition completed on August 31, 2017 (since the acquisitions are integrated into our operations, the estimated revenue contribution is based on a pro forma trailing twelve month revenue run rate at the time of acquisition); and

~~a $0.1 million net decrease in revenue due to changes in foreign currency exchange rates.~~

Gross Profit


(Dollars in thousands)	Three months ended								Three months ended
	September 30,								June 30,
	2018				2017				2019				2018
			% Revenue				% Revenue				% Revenue				% Revenue
Workforce Excellence	$	13,400	16.6	%	$	11,892	15.4	%	$	13,393	16.5	%	$	14,927	18.2	%
Business Transformation Services	5,799		13.5	%	6,754		14.3	%	9,566		14.0	%	7,646		14.8	%
	$	19,199	15.5	%	$	18,646	15.0	%	$	22,959	15.4	%	$	22,573	16.9	%

Workforce Excellence gross profit of $13.4 million or ~~16.6%~~16.5% of revenue for the ~~third~~second quarter of ~~2018 increased~~2019 decreased by $1.5 million or ~~12.7%~~10.3% compared to gross profit of ~~$11.9~~$14.9 million or ~~15.4%~~18.2% of revenue for the ~~third~~second quarter of ~~2017~~2018 primarily due to the following:

a ~~$2.6~~$1.2 million ~~increase~~decrease in gross profit in our Engineering & Technical Services practice primarily due to a ~~$2.6 million loss on a contract with a foreign oil and gas client~~software license sale in our Energy business during the ~~third~~second quarter of ~~2017 which~~2018 that did not recur in ~~2018; partially offset by~~2019; and

a ~~$1.1~~$0.3 million net decrease in gross profit in our Managed Learning Services practice primarily due to ~~a $1.5 million decline in vocational skill training services provided to~~ the ~~UK government as a result of the lower~~ revenue decreases noted ~~above, offset by a gross profit increase in the rest of the practice during the third quarter of 2018.~~above.

Business Transformation Services gross profit of ~~$5.8~~$9.6 million or ~~13.5%~~14.0% of revenue for the ~~third~~second quarter of ~~2018 decreased~~2019 increased by ~~$1.0~~$1.9 million or ~~14.1%~~25.1% compared to gross profit of ~~$6.8~~$7.6 million or ~~14.3%~~14.8% of revenue for the ~~third~~second quarter ~~2017. The gross profit decrease is~~2018 primarily due to gross profit contributed by the ~~revenue declines noted above.~~acquired TTi business and improved gross margins in our Organizational Development practice.

General and Administrative Expenses

General and administrative expenses ~~decreased $1.9~~increased $1.3 million or ~~13.7%~~9.1% from ~~$14.2~~$14.1 million in the ~~third~~second quarter of ~~2017~~2018 to ~~$12.2~~$15.4 million in the ~~third~~second quarter of ~~2018.~~2019. The ~~decrease~~increase in general and administrative expenses is primarily due to a ~~$1.7~~$1.5 million ~~reduction~~increase in ERP implementation costs related to our new financial system which went live on October 1, 2018 (consisting of a $1.2 million decrease in third party costs and a net $0.5 million decrease in internal labor costs). The decrease in ERP costs is primarily due to the capitalization of $1.9 million of implementation costs during the third quarter of 2018. The $1.9 million consisted of $1.0 million of costs related to development of certain on-premise solutions associated with the new cloud-based ERP system and $0.9 million of implementation costs due to the adoption of ASU 2018-15G&A expense in the third quarter of 2018 which permits capitalization of certain eligible implementation costs related to cloud-based systems. See Note 2 to the condensed consolidated financial statements for further details. Other decreases in G&A expenses included a $0.6 million net decrease in other miscellaneous G&A expenses, including bad debt expense, which wasacquired TTi business, partially offset by a ~~$0.4~~net $0.2 million ~~increase~~decrease in ~~legal acquisition costs during the third quarter of 2018 compared to the third quarter of 2017.~~various other expenses.

Sales and Marketing Expenses

Sales and marketing expenses increased ~~$0.9~~$0.8 million or ~~230.0%~~72.3% from ~~$0.4~~$1.1 million for the ~~third~~second quarter of ~~2017~~2018 to ~~$1.3~~$1.9 million for the ~~third~~second quarter of ~~2018~~2019 primarily due to labor and benefits expense relating to the hiring of ~~a Chief Sales Officer and other new~~additional business development personnel ~~as well as marketing personnel, some~~due to the establishment of ~~which represents~~a new ~~investments~~sales organization in 2018.

Restructuring charges

Restructuring charges decreased $2.3 million in the second quarter of 2019 compared to the second quarter of 2018. In connection with the acquisition of TTi Global, Inc. in December 2018, we initiated restructuring and ~~some~~transition activities in the first quarter of ~~which results from centralizing marketing resources~~2019 to reduce costs and eliminate redundant positions to realize synergies with the acquired business. We recognized restructuring charges of $0.2 million in the second quarter of 2019 relating to these restructuring activities. In the second quarter of 2018, we recognized $2.5 million of restructuring charges in connection with the reorganization that ~~were previously recorded~~was initiated in ~~cost of revenue.~~December 2017.

Change in Fair Value of Contingent Consideration

We recognized a ~~$0.5~~$0.6 million net gain on the change in fair value of contingent consideration related to acquisitions during the ~~third~~second quarter of ~~2018~~2019 compared to ~~$0.3~~$0.9 million in the ~~third~~second quarter of 2017. The gain on change in fair value of contingent consideration during the third quarter of 2018 is primarily due to a $0.3 million reversal of the remaining liability for the Maverick acquisition and a $0.2 million reversal of the remaining liability for the CLS acquisition, due to the earnings targets not being achieved for both of these acquisitions.2018. See Note 6 for further details regarding our accounting for contingent consideration.

Interest Expense

Interest expense was ~~$1.1~~$1.7 million for the ~~third~~second quarter of ~~2018~~2019 compared to ~~$0.5~~$(0.2) million for the ~~third~~second quarter of ~~2017.~~2018. The increase ~~in interest expense~~ is ~~primarily~~ due to ~~both~~ an increase in interest rates and ~~higher~~ borrowings under the ~~Credit Agreement.~~Company's credit agreement, as well as a $1.0 million non-recurring reversal of an interest accrual associated with unremitted value-added tax during the second quarter of 2018.

Other Income (Expense)

Other ~~(Expense) Income~~

~~Other expense increased $0.8~~income was $0.1 million ~~during~~for the ~~third~~second quarter of ~~2018~~2019 compared to other expense of $1.0 million for the second quarter of 2018. The increase in other income is primarily due to a ~~$0.5~~$1.0 million ~~increase~~decrease in foreign currency losses ~~and a $0.3 million loss on~~in the ~~divestiture~~second quarter of ~~a business unit during the third quarter of~~2019 compared to 2018. Foreign currency gains and

losses primarily relate 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 foreign subsidiaries.

Income Tax Expense

Income tax expense was ~~$1.1~~$1.3 million for the ~~third quarter~~second quarters of ~~2018 compared to $0.6 million for the third quarter of 2017.~~both 2019 and 2018. The effective income tax rate was ~~25.4%~~28.8% and ~~16.4%~~27.1% for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The increase in the effective income tax rate in ~~2018~~2019 compared to ~~2017~~2018 is primarily due to ~~certain discrete items that occurred~~a change in the ~~third quarter~~mix of ~~2017.~~income from lower to higher taxing jurisdictions. Income tax expense for the interim quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

~~Nine~~Six Months ended ~~September~~June 30, ~~2018~~2019 Compared to the ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2018

Our revenue increased ~~$4.6~~$30.2 million or ~~1.2%~~11.7% during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~nine~~the six months ended ~~September~~June 30, ~~2017.~~2018. The net increase in revenue is due to a ~~$10.8~~$2.0 million increase in our Workforce Excellence segment ~~partially offset by~~and a ~~$6.2~~$28.2 million ~~decrease~~increase in our Business Transformation Services segment. Foreign currency exchange rate changes resulted in a total ~~$5.7~~$5.3 million ~~increase~~decrease in U.S. dollar reported revenue during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~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, decreased ~~$2.9~~$2.8 million or ~~14.4%~~25.3% to ~~$17.2~~$8.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$20.1~~$11.0 million for the same period in ~~2017.~~2018. The net decrease in operating income is primarily due to a ~~$1.0 million net decrease in gross profit, a $0.7~~$3.5 million increase in general and administrative expenses, a ~~$1.9~~$2.1 million increase in sales and marketing expenses and a ~~$2.9~~$2.8 million ~~increase in restructuring costs, partially offset by a $3.6 million increase~~decrease in the gain on change in fair value of contingent ~~consideration.~~consideration, partially offset by a $4.0 million net increase in gross profit and a $1.6 million decrease in restructuring costs.

For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we had income before income tax expense of ~~$13.6~~$5.0 million compared to ~~$18.5~~$9.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Net income was ~~$9.5~~$3.6 million, or ~~$0.57~~$0.21 per diluted share, for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to net income of ~~$13.2~~$6.2 million, or ~~$0.78~~$0.37 per diluted share, for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Diluted weighted average shares outstanding were ~~16.6~~16.7 million for both the ~~nine~~six months ended ~~September~~June 30, ~~2018 compared to 16.9 million for the same period in 2017.~~2019 and June 30, 2018.

Revenue


(Dollars in thousands)	Nine months ended				Six months ended
	September 30,				June 30,
	2018		2017		2019		2018
Workforce Excellence	$	239,044	$	228,236	$	160,509	$	158,528
Business Transformation Services	143,245		149,469		128,377		100,195
	$	382,289	$	377,705	$	288,886	$	258,723

Workforce Excellence revenue increased ~~$10.8~~$2.0 million or ~~4.7%~~1.2% during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the same period in ~~2017.~~2018. The revenue increase is due to the following:

a ~~$6.4~~$3.6 million net increase in revenue in our Engineering & Technical Services practice primarily due to a ~~$2.8~~$2.2 million increase in ~~hurricane~~disaster relief services, ~~$2.0~~a $2.6 million ~~increase in alternative fuels projects and a net $1.6 million net increase in engineering and technical services, primarily due to an~~ increase in chemical demilitarization training services for a U.S. government ~~client;~~client and a $0.8 million increase in alternative fuels projects, partially offset by a $1.2 million decrease in our Energy business due to a software license sale during the second quarter of 2018 that did not recur in 2019 and a net decrease of $0.8 million in various other revenue streams; and

a ~~$4.4~~$2.3 million net increase in revenue ~~due to changes in foreign currency exchange rates.~~

~~Revenue~~ in our Managed Learning Services ~~practice was flat during the first nine months of 2018 compared to the same period in 2017 and consisted primarily of the following changes:~~

◦

an estimated $7.9 million increase in revenue contributed by the acquisitions completed in this segment within the last twelve months that wasn't in the prior year comparative period, consisting of $4.8 million of revenue from the IC Axon acquisition completed on May 1, 2018 and $2.4 million of revenue from the YouTrain acquisition completed on August 31, 2017, and $0.7 million from the Emantras acquisition completed on April

~~1, 2017 (since the acquisitions are integrated into our operations, the estimated revenue contribution is based on a pro forma trailing twelve month revenue run rate at the time of acquisition)~~


◦	~~a $1.1 million net increase in revenue in the U.S. for digital learning and training content development services; partially offset by~~


◦	~~a $9.0 million decrease in vocational skills training services provided to the UK government.~~

Business Transformation Services revenue decreased $6.2 million or 4.2% during the nine months ended September 30, 2018 compared to the same period in 2017. The net decrease in revenue is due to the following:

~~a $4.1 million net decrease in our Sales Enablement~~ practice primarily due to the following:


◦	a ~~$7.2~~$5.1 million ~~decline due to~~increase in revenue from the ~~completion of non-recurring vehicle launch events in 2017; and~~


◦	~~a $2.2 million decline in magazine publications due to a change in the timing of shipment in certain publications from third quarter of 2018 to the fourth quarter of~~IC Axon business acquired on May 1, 2018; partially offset by


◦	a ~~$4.7~~$1.3 million ~~increase~~decrease in vocational skills training services ~~for automotive clients;~~provided to the UK government; and


◦	~~an estimated $0.6~~a $1.5 million ~~increase~~net decrease in revenue contributed by the TTi Europe acquisition completed on August 7, 2018 (since the acquisitions are integrated into our operations, the estimated revenue contribution is based on a pro forma trailing twelve month revenue run rate at the time of acquisition).for managed learning and training content development services.

These increases were offset by a ~~$3.5~~$4.0 million net decrease in revenue due to changes in foreign currency exchange rates.

Business Transformation Services revenue increased $28.2 million or 28.1% during the six months ended June 30, 2019 compared to the same period in 2018. The revenue increase is due to a $30.3 million net increase in our Sales Enablement practice primarily due to the following:

a $27.0 million increase in revenue contributed by the TTi Global and TTi Europe acquisitions completed in 2018; and

a $3.3 million net increase in automotive sales training services largely due to new vehicle launch events for automotive clients.

These revenue increases were offset by the following decreases:

a $0.8 million decrease in revenue in our Organizational Development practice primarily due to ~~the following:~~


◦	~~a $10.4 million decline in platform adoption, strategic consulting and leadership development~~a decline in human capital management system implementation services (if we continue to experience declines in revenue and gross profit in the Organization Development practice, we could incur goodwill and other intangible asset impairment charges in the future); partially offset by

◦

an estimated $6.9 million increase in revenue contributed by the acquisitions completed in this segment within the last twelve months that wasn't in the prior year comparative period, consisting of $4.8 million of revenue from the Hula Partners acquisition completed on January 2, 2018 and $1.5 million from the CLS acquisition completed on August 31, 2017 ad $0.6 million from the McKinney Rogers acquisition completed on February 1, 2017 (since the acquisitions are integrated into our operations, the estimated revenue contribution is based on a pro forma trailing twelve month revenue run rate at the time of acquisition).

~~These decreases in revenue were~~ offset by an increase in strategic consulting services; and

a ~~$1.4~~$1.3 million net ~~increase~~decrease in revenue due to changes in foreign currency exchange rates.

Gross Profit


(Dollars in thousands)	Nine months ended								Six months ended
	September 30,								June 30,
	2018				2017				2019				2018
			% Revenue				% Revenue				% Revenue				% Revenue
Workforce Excellence	$	39,682	16.6	%	$	39,324	17.2	%	$	26,802	16.7	%	$	26,282	16.6	%
Business Transformation Services	19,769		13.8	%	21,145		14.1	%	17,435		13.6	%	13,970		13.9	%
	$	59,451	15.6	%	$	60,469	16.0	%	$	44,237	15.3	%	$	40,252	15.6	%

Workforce Excellence gross profit of ~~$39.7~~$26.8 million or 16.7% of revenue for the six months ended June 30, 2019 increased by $0.5 million or 2.0% when compared to gross profit of $26.3 million or 16.6% of revenue for the ~~nine months ended September 30, 2018 increased by $0.4 million or 0.9% when compared to gross profit of $39.3 million or 17.2% of revenue for the~~ same period in ~~2017~~2018 primarily due to the following:

a $2.9 million increase in gross profit in our Engineering & Technical Services practice primarily due to a $2.6 million loss on a contract with a foreign oil and gas client during the third quarter of 2017 which did not recur in 2018; and

a ~~$0.8~~$1.0 million net increase ~~in revenue due to changes in foreign currency exchange rates; offset by~~

~~a $3.3 million net decrease~~ in gross profit in our Managed Learning Services practice ~~(consisting~~ primarily ofdue to the revenue increases noted above, partially offset by a ~~$5.4 million~~ decline in ~~gross profit on~~ vocational ~~skill~~skills training services provided to the UK government as a result of the lower revenue as noted ~~above,~~above; partially offset by

a $0.5 million net ~~$2.1 million increase~~decrease in ~~the other business units within this practice~~gross profit due to ~~cost cutting initiatives).~~

changes in foreign currency exchange rates.

Business Transformation Services gross profit of ~~$19.8~~$17.4 million or ~~13.8%~~13.6% of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2018 decreased~~2019 increased by ~~$1.4~~$3.5 million or ~~6.5%~~24.8% when compared to gross profit of ~~$21.1~~$14.0 million or ~~14.1%~~13.9% of revenue for the same period in ~~2017. The gross profit decrease is~~2018 primarily due to $1.6 million of gross profit contributed by the ~~revenue declines noted above.~~acquired TTi business, a $1.0 million increase in gross profit in our Organizational Development practice and a $0.9 million increase in gross profit in our Sales Enablement practice.

General and Administrative Expenses

General and administrative expenses increased ~~$0.7~~$3.5 million or ~~1.7%~~12.7% from ~~$39.5~~$28.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$40.2~~$31.5 million for the same period in ~~2018.~~2019. The increase in general and administrative expenses is primarily due to ~~the following:~~

a ~~$0.8~~$2.7 million increase in ~~legal expenses relating to acquisitions;~~

~~a $0.4 million increase due to increases~~G&A expense in ~~foreign currency exchange rates compared to~~ the ~~prior year;~~

acquired TTi businesses, a $0.4 million increase in ~~amortization expense.~~

~~These increases were offset by~~bad debt expense, a ~~$0.5~~$0.2 million ~~decrease~~increase in ~~G&A~~severance expense, ~~due to a reduction in ERP implementation costs related to our new financial system which went live on October 1, 2018 (consisting of $0.3 million decrease in third party costs~~ and a ~~net~~ $0.2 million ~~decrease~~net increase in ~~internal labor costs). In addition, there was a $0.4 million net decrease in~~various other ~~miscellaneous G&A expenses, including bad debt expense.~~expenses.

Sales and Marketing Expenses

Sales and marketing expenses increased ~~$1.9~~$2.1 million or ~~150.4%~~112.7% from ~~$1.2~~$1.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$3.1~~$3.9 million for the same period in ~~2018. The increase in sales and marketing expenses is~~2019 primarily due to labor and benefits expense relating to the hiring of ~~a Chief Sales Officer and other new~~additional business development personnel ~~as well as marketing personnel, some~~due to the establishment of ~~which represents~~a new ~~investments and some of which results from centralizing marketing resources that were previously recorded~~sales organization in ~~cost of revenue.~~2018.

Restructuring charges

~~During~~Restructuring charges decreased $1.6 million in the ~~fourth quarter~~first half of ~~2017,~~2019 compared to the same period in 2018. 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 ~~improve operational efficiency,~~ reduce costs and ~~better position~~eliminate redundant positions to realize synergies with the ~~company to drive future revenue growth and we recorded~~acquired business. We recognized restructuring charges ~~consisting primarily~~ of ~~severance expense, of $3.3~~$1.3 million ~~for~~during the ~~year ended December 31, 2017. For the nine~~six months ended ~~September~~June 30, 2019 relating to these restructuring activities. During the six months ended June 30, 2018, we ~~incurred an additional~~recognized $2.9 million of restructuring charges ~~which consisted of $1.3 million of facility related charges and $1.6 million of severance expense. The total remaining liability under these restructuring activities~~in connection with the reorganization that was ~~$2.6 million as of September 30, 2018, of which $2.0 million is included~~initiated in accounts payable and accrued expenses and $0.6 million is included in other noncurrent liabilities on the condensed consolidated balance sheet. These restructuring activities were substantially complete as of June 30, 2018.December 2017.

Change in Fair Value of Contingent Consideration

We recognized a net gain on the change in fair value of contingent consideration related to acquisitions of ~~$4.0~~$0.7 million and ~~$0.4~~$3.4 million for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017,~~ respectively. The increase in the gain is primarily due to a $2.0 million gain related to the earnout for the Maverick acquisition, a $1.3 million gain related to the earnout for the McKinney Rogers acquisition and a $0.7 million gain related to the earnout for the CLS acquisition due to a decrease in projected earnings for these acquired businesses compared to our prior forecasts, resulting in a lower fair value of the liabilities as of September 30, 2018. See Note 6 for further details regarding our accounting for contingent consideration.

Interest Expense

Interest expense increased ~~$0.1~~$2.7 million from ~~$1.5~~$0.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$1.6~~$3.3 million for the same period in ~~2018.~~2019. The net increase is due to a ~~$1.2~~$1.6 million increase in interest expense due to both an increase in interest rates and higher borrowings under the Credit Agreement, ~~which was offset by~~as well as a $1.1 million non-recurring reversal of ana interest accrual during the second quarter of 2018 related to ~~contingent interest associated with~~an unremitted value-added tax ~~(VAT) related to undercharged VAT from~~associated with prior year client billings which was favorably settled during the second quarter of 2018.

Other Income (Expense) ~~Income~~

Other ~~expense~~income was ~~$1.9~~$0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$0.1~~other expense of $1.2 million for the same period in ~~2017.~~2018. The increase in other ~~expense consisted~~income is primarily ofdue to a ~~$1.8~~$0.9 million ~~increase~~decrease in foreign currency losses and a ~~$0.3~~$0.2 million ~~loss on the divestiture of~~increase in income from a ~~business unit~~joint venture during the ~~third quarter of~~six months ended June 30, 2019 compared to the corresponding period in 2018. Foreign currency gains and losses primarily relate 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 foreign subsidiaries. ~~The increase in other expense was offset by a $0.2 million increase in income from a joint venture during the nine months ended September 30, 2018 compared to the corresponding period in 2017.~~

Income Tax Expense

Income tax expense was ~~$4.2~~$1.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$5.2~~$3.1 million for the same period in ~~2017. The decrease in income tax expense is due to a decline in income before income taxes during the nine months ended September 30, 2018 compared to the same period in 2017.~~2018. The effective income tax rate was ~~30.6%~~28.9% and ~~28.3%~~33.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The ~~increase~~decrease in the effective income tax rate in ~~2018~~2019 compared to ~~2017~~2018 is primarily due to a ~~$0.4~~$0.9 million increase to the provisional estimate recorded in the ~~fourth~~first quarter of ~~2017~~2018 relating to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, imposed by the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017. The increase is partially offset by a decrease in the U.S. statutory tax rate from 35% to 21% and other discrete items. Income tax expense for the interim quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

The increase to the provisional estimate of the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings during 2018 is the result of further analysis of earnings and profits related to the calculation of the transition tax. As we complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make adjustments to the provisional amounts.

Liquidity and Capital Resources

Working Capital

Our working capital was ~~$17.3~~$105.5 million at ~~September~~June 30, ~~2018~~2019 compared to ~~$49.8~~$103.9 million at December 31, ~~2017.~~2018. As of ~~September~~June 30, ~~2018~~2019 we had ~~$69.0 million of short-term borrowings and $37.0~~$119.7 million of long-term debt outstanding. We believe that cash generated from operations and borrowings available under our Credit Agreement ($~~26.3~~14.2 million of available borrowings as of ~~September~~June 30, ~~2018)~~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 ~~September~~June 30, ~~2018,~~2019, the amount of cash and cash equivalents held outside of the U.S. by foreign subsidiaries was ~~$10.3~~$5.9 million. 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 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.

Stock Repurchase Program

~~Acquisition-Related Payments~~

~~Below is a summary of the potential maximum contingent consideration we may be required to pay in connection with completed acquisitions as of September 30, 2018 (dollars in thousands):~~

Significant Customers & Concentration of Credit Risk

Revenue from the financial & insurance sector accounted for approximately 15% and 20% of our consolidated revenue for ~~both of~~ the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 11% and 14% of our consolidated revenue for ~~both of~~ the ~~nine-month periods~~six-months ended ~~September~~June 30, 2019 and 2018, ~~and 2017.~~respectively. As of ~~September~~June 30, ~~2018,~~2019, billed and unbilled accounts receivable from a single financial services customer totaled ~~$26.4~~$23.8 million, or ~~16%~~12%, of our consolidated accounts receivable and unbilled revenue balances. No other single customer accounted for more than 10% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 or ~~2017~~2018 or consolidated accounts receivable balance as of ~~September~~June 30, ~~2018.~~

2019.

Cash Flows

~~Nine~~Six Months ended ~~September~~June 30, ~~2018~~2019 Compared to the ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2018

Our cash and cash equivalents balance decreased ~~$13.3~~$7.3 million from ~~$23.6~~$13.4 million as of December 31, ~~2017~~2018 to ~~$10.3~~$6.1 million as of ~~September~~June 30, ~~2018.~~2019. The decrease in cash and cash equivalents during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 resulted from cash ~~provided by~~used in operating activities of ~~$3.5~~$6.3 million, cash used in investing activities of ~~$48.4~~$1.3 million, cash provided by financing activities of ~~$32.5~~$1.2 million and a negative effect of exchange rate changes on cash of ~~$1.0~~$0.9 million.

Cash used in operating activities was $6.3 million for the six months ended June 30, 2019 compared to cash provided by operating activities ~~was $3.5 million for the nine months ended September 30, 2018 compared to $21.2~~of $7.1 million for the same period in ~~2017.~~2018. The decrease in cash from operations is primarily due to a decrease in net income and a net decrease in working capital balances during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the same period in ~~2017.~~2018.

Cash used in investing activities was ~~$48.4~~$1.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$14.4~~$43.5 million for the same period in ~~2017.~~2018. The ~~increase~~decrease in cash used in investing activities is primarily due to a ~~$31.8~~$40.0 million ~~increase~~decrease in cash paid to complete acquisitions and a ~~$2.2~~$1.8 million ~~increase~~decrease in other investing activities primarily for capitalized software development costs. As of September 30, 2018, we had capitalized ERP implementation costs of $3.3 million, which consists of $2.4 million of costs related to development of certain on-premise solutions associated with the new cloud-based ERP system and $0.9 million of implementation costs due to the adoption of ASU 2018-15 in the third quarter of 2018 which permits capitalization of certain eligible implementation costs related to cloud-based systems. The $2.4 million of capitalized costs related to on-premise solutions is included in cash used in investing activities and the $0.9 million of capitalized costs related to the cloud ERP implementation is included as a cash use in the cash flow from operating activities section of the statement of cash flows in accordance with guidance in ASU 2018-15.

Cash provided by financing activities was ~~$32.5~~$1.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~cash used of $6.4~~$27.6 million for the same period in ~~2017.~~2018. The ~~increase~~decrease in cash inprovided by financing activities is primarily due to ~~an increase~~a net decrease in borrowings under our credit agreement, ~~to fund acquisitions,~~ partially offset by ~~a $6.1~~$7.8 million ~~increase in~~of cash used for share ~~repurchases.~~repurchases in 2018 that did not recur in 2019.

Debt

Borrowings under the Credit Agreement may be in ~~Dollars~~the form of Base Rate loans or Euro-Rate loans, at the option of the borrowers, and ~~Sterling)~~bear interest at the Base Rate plus 0.25% to 1.25% or the ~~daily one month EURIBOR (for borrowings in Euros)~~Daily LIBOR Rate plus ~~2.50%. Based on our financial performance, the interest rate can be reduced~~1.25% to a minimum rate of the daily one-month LIBOR market index rate plus 1.25%, with the rate being determined based on our maximum leverage ratio for the preceding four quarters. Each unpaid advance on the revolving loan2.25% respectively. Base Rate loans will bear interest ~~until repaid. The term loan is payable in monthly installments~~at a fluctuating per annum Base Rate equal to ~~$1.0 million~~the highest of (i) the Overnight Bank Funding Rate, plus ~~applicable interest, beginning~~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 ~~July 1, 2018.~~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 term loan or~~ the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions. ~~Amounts repaid or prepaid on the term loan may not be reborrowed.~~

The Credit Agreement contains customary representations, warranties and affirmative ~~and~~covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including ~~covenants~~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 limit or restrict our and our subsidiaries’ (subject to certain exceptions) ability to, among other things, grant liens, make investments, incur indebtedness, merge or consolidate, dispose of assets, make acquisitions. We are also requiredrequires the company to maintain compliance with a ~~minimum fixed charge coverage~~maximum leverage ratio of ~~1.5~~3.75 to 1.0 for the fiscal quarter ending June 30, 2019, 3.5 to 1.0 for the fiscal quarter ending September 30, 2019, and 3.00 to 1.0 for fiscal quarters ending December 31, 2019 and thereafter, and a ~~maximum leverage~~minimum interest expense coverage ratio of 3.0 to 1.0. As of ~~September~~June 30, ~~2018,~~2019, our ~~fixed coverage charge~~leverage ratio was ~~1.6~~3.4 to 1.0 and our ~~leverage~~interest expense ratio was ~~2.7~~6.1 to 1.0, ~~all~~each of which ~~were~~was in compliance with the Credit Agreement.

As of ~~September~~June 30, ~~2018, our total long-term debt outstanding under the term loan was $37.0 million. In addition,~~2019, there were ~~$69.0~~$119.7 million of borrowings outstanding and ~~$26.3~~$14.2 million of available borrowings under the ~~Credit Agreement.~~revolving loan facility based on our Leverage Ratio. For the ~~nine~~three months ended ~~September~~June 30, 2019 and 2018, the weighted average interest rate on our borrowings was ~~3.8%.~~

~~In March 2017, we entered into an interest rate swap agreement which effectively fixed~~4.7% and 3.7%, respectively. As of June 30, 2019, the fair value of our ~~interest rate on the remaining $37 million outstanding on our term loan to a fixed LIBOR of 1.59% plus the applicable margin~~borrowings under the Credit ~~Agreement. We have designated~~Agreement approximated its carrying value as it bears interest at variable rates. There were $1.3 million of unamortized debt issue costs related to the Credit Agreement as of June 30, 2019 which are being amortized to interest ~~rate swap, which expires on April 1, 2020, as a cash flow hedge and have applied hedge accounting. The fair value~~expense over the term of the ~~derivative asset associated with the interest rate swap was $0.2 million~~Credit Agreement and ~~$0.1 million as of September 30, 2018 and December 31, 2017, respectively, and is~~are included in ~~other~~Other assets on ~~the condensed consolidated balance sheet.~~

~~In April 2017, we entered into an interest rate cap agreement and paid a premium of $0.5 million which caps the daily one-month LIBOR at 2.0% for an aggregate notional amount of $20.0 million of~~ our variable rate debt under our credit facility. The interest rate cap agreement matures on December 31, 2021. We have designated the interest rate cap as a cash flow hedge and have applied hedge accounting. The fair value of the derivative asset associated with the interest rate cap was $0.6 million and $0.3 million as of September 30, 2018 and December 31, 2017, respectively, and is included in other assets on the condensed consolidated balance sheet.

Off-Balance Sheet Commitments

As of ~~September~~June 30, ~~2018~~2019, we did not have any off-balance sheet commitments except for ~~operating leases and~~ letters of credit entered into in the normal course of business.

Accounting Standards Issued

We discuss recently issued accounting standards in Note 2 to the accompanying condensed consolidated financial statements.

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 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 in Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 and those other risks and uncertainties detailed in our periodic reports and registration statements filed with the Securities and Exchange Commission. 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.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Interest rate risk

We are exposed to interest rate risk related to our outstanding debt obligations. ~~Borrowings~~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 June 30, 2019, we had $119.7 million outstanding under the credit facility. We may draw funds from our ~~Credit Agreement bear~~revolving credit facility under interest rates based on ~~a variable rate. The maximum interest rate on our borrowings under~~either the ~~Credit Agreement is the daily one-month LIBOR market index rate (for borrowings in Dollars and Sterling)~~Federal Funds Rate or the ~~daily one month EURIBOR (for borrowings in Euros) plus 2.50%~~Adjusted London Interbank Offered Rate (“LIBOR rate”). ~~Based on~~If these rates increase significantly, our ~~financial performance, the interest rate can be reduced~~costs to a minimum rate of the daily one-month LIBOR market index rate plus 1.25%, with the rate being determined based on our maximum leverage ratio for the preceding four quarters. As such, we are exposed to interest rate risk relating to the fluctuations in the LIBOR rate.borrow these funds will also increase. In an effort to manage our exposure to this risk, we have previously entered into interest rate derivative ~~contracts discussed in further detail below.~~

~~In March 2017,~~contracts. As of June 30, 2019 we ~~entered into an~~did not have any interest rate ~~swap agreement which effectively fixed~~hedging instruments in place but may enter into new hedging instruments in the future to mitigate our exposure to interest rate on the remaining $37 million outstanding on our term loan to a fixed LIBOR of 1.59% plus the applicable margin under the Credit Agreement. We have designated the interest rate swap, which expires on April 1, 2020, as a cash flow hedge and have applied hedge accounting. The fair value of the derivative asset associated with the interest rate swap was $0.2 million and $0.1 million as of September 30, 2018 and December 31, 2017, respectively, and is included in other assets on the condensed consolidated balance sheet.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and under the Securities Exchange Act of 1934 (“Exchange Act”)) designed to provide reasonable assurance that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC’s rules and forms. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, ~~the~~our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal control over financial reporting disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

SEC guidance permits the exclusion of an evaluation of the effectiveness of a registrant's disclosure controls and procedures as they relate to the internal control over financial reporting for an acquired business during the first year following such acquisition. In the fourth quarter of 2018, we acquired TTi Global, Inc. This acquisition represented $22.3 million of total assets and $24.9 million of revenue as of and for the six months ended June 30, 2019. Management's evaluation and conclusion as to the effectiveness of the design and operation of ~~these~~the Company's disclosure controls and procedures ~~are effective in providing reasonable assurance~~as of and for the period covered by this report excludes any evaluation of the ~~achievement~~internal control over financial reporting of this acquisition.

Material Weaknesses and Status of Remediation

As described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, we have begun implementing a remediation plan to address the material weaknesses disclosed in such Annual Report. These material weaknesses will not be considered fully remediated until the applicable controls operate for a sufficient period of time and management concludes, through testing, that these controls are operating effectively. Management is committed to remediating the material weaknesses related to the implementation of the ~~objectives described above.~~ERP system and has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated.

Changes in Internal ~~Control Over Financial Reporting~~Controls

During the ~~quarter~~six months ended ~~September~~June 30, ~~2018,~~2019, we implemented new internal controls to facilitate our adoption of ASU 2016-02 to ensure the proper identification, accounting, and reporting of material lease arrangements. Other than as disclosed above under “Material Weaknesses and Status of Remediation” and the new internal controls related to our adoption of ASU 2016-02, there ~~was~~have been no ~~change~~changes in our internal control over financial reporting (as ~~such term is~~ defined in Rules 13a-15(f) and ~~15d—15(f)~~15d-15(f) under the Exchange Act) during the six months ended June 30, 2019 that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting. Effective October 1, 2018, we went live on a new Enterprise Resource Planning (ERP) system. The implementation of this new financial system will result in changes in our internal control over financial reporting which will be disclosed in more detail in our Form 10-K for the year ending December 31, 2018.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

The Company has ~~no material changes~~added the below risk factor to the disclosure on this matter made in its Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

We may encounter cash flow or liquidity issues due to delays in invoicing arising in connection with the new ERP system.

We have experienced delays in invoicing our clients arising in connection with our new ERP system which went live on October 1, 2018. These delays have led to a significant increase in unbilled revenue compared to September 30, 2018 just prior to the ERP implementation, and to decreased accounts receivable and delayed cash collections. The Company has been required to divert resources that it would have dedicated to preparing and sending customer invoices to several ERP system related initiatives. These diversions include resolving technical issues with the new ERP system, learning to use the new ERP system, dedicating extra effort to close the Company’s financial books and providing support to the remediation efforts for material weaknesses we described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The Company believes that it is now dedicating sufficient resources to preparing and sending invoices to customers to be able to reduce unbilled revenue to appropriate levels and promptly and properly invoice customers in the future. If the Company is unable to do this, whether due to continued diversion of resources to ERP system matters or other causes, the Company will continue to incur difficulties in timely receiving payment for its services, which could lead to difficulties in timely paying the Company’s obligations, increased need to borrow under the Company’s credit facility, or other liquidity problems.

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

The following table provides information about the Company's share repurchase activity for the three months ended ~~September~~June 30, ~~2018:~~2019:

Issuer Purchases of Equity Securities

Total number
of shares purchased

Average
price paid per share

Total number
of shares
purchased as
part of publicly announced program

Approximate
dollar value of
shares that may yet
be purchased under the program (1)
Month
July 1 - 31, 2018 —
$ —
—
$ 4,454,000
August 1 - 31, 2018 26,675
(2) $ 17.64
25,897
$ 3,995,000
September 1 - 30, 2018 11,310
$ 17.96
11,310
$ 3,792,000



	Issuer Purchases of Equity Securities
	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced program	Approximate dollar value of shares that may yet be purchased under the program (1)
Month	Total number of shares purchased		Average price paid per share
April 1 - 30, 2019	6,494	(2)	$	12.35	—	$	3,755,000
May 1 - 31, 2019	2,477	(2)	$	14.19	—	$	3,755,000
June 1 - 30, 2019	75	(2)	$	14.31	—	$	3,755,000


(1)	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. There is no expiration date for the repurchase program.


(2)	Includes shares surrendered by employees to satisfy minimum tax withholding obligations on restricted stock units which vested during the ~~third~~second quarter of ~~2018.~~2019.


Item 6.	Exhibits

10.1

~~Short Term Incentive Plan adopted on August 8,~~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.*


31.1	Certification of Chief Executive Officer of the Company dated ~~November 6, 2018~~August 1, 2019 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*


31.2	Certification of Executive Vice President and Chief Financial Officer of the Company dated ~~November 6, 2018~~August 1, 2019 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*


32.1	Certification of Chief Executive Officer and Chief Financial Officer of the Company dated ~~November 6, 2018~~August 1, 2019 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101

The following materials from GP Strategies Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018,~~2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders' Equity, (v) Condensed Consolidated Statements of Cash Flows; and ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements.*

*Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	GP STRATEGIES CORPORATION

~~November 6, 2018~~August 2, 2019	/s/ Scott N. Greenberg
	Scott N. Greenberg
	Chief Executive Officer

~~November 6, 2018~~August 2, 2019	/s/ Michael R. Dugan
	Michael R. Dugan
	Executive Vice President and Chief Financial Officer

4035



	Balance at December 31, 2017		Adjustments due to ASC Topic 606			Balance at January 1, 2018
Assets:
Prepaid expenses and other current assets	$	14,212	$	2,059		$	16,271
Other assets	6,569		132			6,701
Liabilities and Stockholders’ Equity:
Deferred revenue	22,356		2,587			24,943
Retained earnings	106,599		(396		)	106,203



	As reported		Balances without Adoption of Topic 606		Effect of Adoption - Higher (Lower)
Revenue	$	123,566	$	123,727	$	(161	)
Cost of revenue	104,367		104,732		(365		)
Gross profit	19,199		18,995		204
Income tax expense	1,102		1,051		51
Net income	3,244		3,091		153

Per common share data:
Basic earnings per share	$	0.20	$	0.19	$	0.01
Diluted earnings per share	$	0.20	$	0.19	$	0.01



	As reported		Balances without adoption of ASC Topic 606		Effect of Adoption - Higher (Lower)
Assets:
Prepaid expenses and other current assets	$	18,452	$	16,816	$	1,636
Other assets	10,170		10,210		(40		)
Total assets	401,497		399,901		1,596
Liabilities and Stockholders’ Equity:
Accounts payable and accrued expenses	71,422		70,933		489
Deferred revenue	23,499		22,489		1,010
Retained earnings	115,654		115,557		97
Total liabilities and stockholders' equity	401,497		399,901		1,596



			Amortization
Purchase price allocation:			Period
Cash	$	125
Accounts receivable and other current assets	3,651
Fixed assets	9
Customer-related intangible assets	600		5 years
Goodwill	1,944
Total assets	6,329

Accounts payable and accrued expenses	$	3,130
Deferred revenue	126
Deferred tax liability	73
Total liabilities	3,329

Net assets acquired	$	3,000



Cash purchase price	$	30,535
Fair value of contingent consideration	905
Total purchase price	$	31,440
			Amortization
Purchase price allocation:			Period
Cash	$	538
Accounts receivable and other current assets	3,072
Fixed assets	368
Customer-related intangible assets	10,365		8 years
Marketing-related intangible assets	239		3 years
Goodwill	21,657
Total assets	36,239

Accounts payable and accrued expenses	989
Deferred revenue	979
Deferred tax liability	2,831
Total liabilities	4,799

Net assets acquired	$	31,440



Acquisition:	Original range of potential undiscounted payments	As of September 30, 2018 Maximum contingent consideration due in
		2018		2019		2020		Total
IC Axon	$0 - $3,500	$	—	$	3,500	$	—	$	3,500
McKinney Rogers	$0 - $18,000	—		4,000		4,000		8,000
		$	—	$	7,500	$	4,000	$	11,500