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 SeptemberJune 30, 20182019
or
 
¨ Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 
For the transition period from                             to                             
 
Commission File Number 1-7234
 
 GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)
 
Delaware 52-0845774
(State of Incorporation) (I.R.S. Employer Identification No.)
70 Corporate Center 
  
11000 Broken Land Parkway, Suite 200, Columbia, MD 21044
(Address of principal executive offices) (Zip Code)
 
(443) 367-9600

Registrant’s telephone number, including area code:
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   ý No   ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   ý No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company in Rule 12b-2 of the Exchange Act. 
Large accelerated filer   ¨Accelerated filer   x
Non-accelerated filer   ¨
Smaller reporting company  ¨Emerging growth company  ¨ 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

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

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

The number of shares outstanding of the registrant’s common stock as of October 30, 2018July 23, 2019 was as follows:
Class Outstanding 
Common Stock, par value $.01 per share 16,565,16416,894,383 






GP STRATEGIES CORPORATION AND SUBSIDIARIES

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

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

September 30, 2018 (Unaudited)
December 31, 2017June 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 2017127,649

119,335
Accounts and other receivables, less allowance for doubtful accounts of $2,254 in 2019 and $2,034 in 2018119,008

107,673
Unbilled revenue36,866

42,958
72,376

80,764
Prepaid expenses and other current assets18,452

14,212
21,042

19,048
Total current assets193,290

200,117
218,537

220,902
Property, plant and equipment20,909

21,466
25,865

24,580
Accumulated depreciation(15,310)
(16,343)(20,145)
(18,721)
Property, plant and equipment, net5,599

5,123
5,720

5,859
Operating lease right-of-use assets28,867


Goodwill174,975

144,835
177,258

176,124
Intangible assets, net17,463

8,363
18,752

20,933
Other assets10,170

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 debt12,000

12,000
Accounts payable and accrued expenses71,422

78,280
$80,117

$93,254
Deferred revenue23,499

22,356
23,812

23,704
Current portion of operating lease liabilities9,078


Total current liabilities175,965

150,332
113,007

116,958
Long-term debt25,000

16,000
119,650

116,500
Long-term portion of operating lease liabilities23,415


Other noncurrent liabilities11,334

10,621
11,419

14,711
Total liabilities212,299

176,953
267,491

248,169

Stockholders’ equity: 

 
 

 
Common stock, par value $0.01 per share172

172
172

172
Additional paid-in capital107,300

107,256
104,187

105,850
Retained earnings115,654

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’ equity189,198

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 20172019 2018 2019 2018
Revenue$123,566
 $124,097
 $382,289
 $377,705
$149,413
 $133,691
 $288,886
 $258,723
Cost of revenue104,367
 105,451
 322,838
 317,236
126,454
 111,118
 244,649
 218,471
Gross profit19,199

18,646

59,451

60,469
22,959

22,573

44,237

40,252
General and administrative expenses12,227
 14,160
 40,207
 39,536
15,402
 14,121
 31,529
 27,980
Sales and marketing expenses1,297
 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, net526
 268
 3,972
 369
627
 894
 677
 3,446
Operating income6,201

4,361

17,158

20,053
6,096

5,745

8,189

10,957
Interest expense1,095
 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 expense4,346

3,924

13,615

18,462
4,519

4,907

5,000

9,269
Income tax expense1,102
 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 outstanding16,536
 16,750
 16,555
 16,736
16,747
 16,510
 16,710
 16,565
Diluted weighted average shares outstanding16,628
 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 20172019 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 tax47
 (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, 2017172
 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
NineSix Months Ended SeptemberJune 30, 20182019 and 20172018
(Unaudited, in thousands)
2018 20172019 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 amortization5,670
 5,153
4,657
 3,761
Deferred income taxes(610) (421)(556) (169)
Non-cash compensation expense3,501
 4,876
2,419
 2,534
Changes in other operating items: 
  
 
  
Accounts and other receivables(4,644) 11,805
(10,528) 10,568
Unbilled revenue6,344
 (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)
Other643
 (140)643
 1,020
Net cash provided by operating activities3,510
 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 borrowings31,410
 9,749

 24,197
Proceeds from long-term debt18,000
 
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 balance723
 (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 activities32,521
 (6,408)
Net cash provided by financing activities1,164
 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 period23,612
 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 taxes3,320
 4,874
Accrued contingent consideration905
 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
 
SeptemberJune 30, 20182019
(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 SeptemberJune 30, 2018 and2019, 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 ninesix months ended SeptemberJune 30, 20182019 and 20172018 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 20182019 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 periodperiods 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 accountingrecognition of lease rights anddisclosure requirements for leases. This standard will require leases obligations as assets and liabilities on the balance sheet. Previously, lessees were not required to be recognizedrecognize on the balance sheet as a right-of-use assetassets 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 aliabilities arising from operating leases. We adopted Topic 842 using the modified retrospective method of adoption applying the transition approach for leases existingprovisions at or entered info after,the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in thethese 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 insteadprovides 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 beginningaccounting 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 presentedpractical expedient to not separate lease and recognize a cumulative-effect adjustment tonon-lease components for leases of real estate, meaning that for these leases, the opening balance of retained earningsnon-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 recordedliability balances on our condensed consolidated balance sheet and increase the levelsheet.
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 evaluatingadopted the standard on January 1, 2019. The adoption of the ASU 2017-04 and the impact of its adoptiondid not have an effect on our consolidatedresults 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 Adoptedcondition 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 guidancebut 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 usesection 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 sheetForm 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 assets6,569
 132
 6,701
Liabilities and Stockholders’ Equity: 
   

Deferred revenue22,356
 2,587
 24,943
Retained earnings106,599
 (396) 106,203

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notesyear 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 revenue104,367
 104,732
 (365)
Gross profit19,199
 18,995
 204
Income tax expense1,102
 1,051
 51
Net income3,244
 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 revenue322,838
 322,349
 489
Gross profit59,451
 58,786
 665
Income tax expense4,164
 3,992
 172
Net income9,451
 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 significantmaterial impact on our condensed consolidated statementresults of comprehensive income for the threeoperations, 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 assets10,170
 10,210
 (40)
Total assets401,497
 399,901
 1,596
Liabilities and Stockholders’ Equity: 
    
Accounts payable and accrued expenses71,422
 70,933
 489
Deferred revenue23,499
 22,489
 1,010
Retained earnings115,654
 115,557
 97
Total liabilities and stockholders' equity401,497
 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 SeptemberJune 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 SeptemberJune 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 SeptemberJune 30, 2018.2019.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
SeptemberJune 30, 20182019
(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 20172019 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 services29,129
 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 Africa21,153
 25,540
 8,906
 7,183
 30,059
 32,723
22,468
 24,466
 12,437
 9,258
 34,905
 33,724
Asia Pacific8,205
 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 & Insurance22,364
 23,583
 2,692
 3,929
 25,056
 27,512
19,770
 23,042
 2,400
 3,251
 22,170
 26,293
Manufacturing7,558
 8,874
 3,734
 3,428
 11,292
 12,302
8,416
 8,887
 5,774
 3,760
 14,190
 12,647
Energy / Oil & Gas9,113
 8,457
 1,188
 465
 10,301
 8,922
8,687
 10,862
 1,619
 800
 10,306
 11,662
U.S. Government7,673
 6,220
 2,102
 2,352
 9,775
 8,572
9,870
 6,513
 1,981
 2,318
 11,851
 8,831
U.K. Government4,456
 6,858
 
 
 4,456
 6,858
4,357
 4,947
 
 
 4,357
 4,947
Information & Communication3,315
 3,785
 2,330
 2,509
 5,645
 6,294
4,002
 4,091
 2,073
 2,570
 6,075
 6,661
Aerospace6,705
 5,582
 1,160
 1,678
 7,865
 7,260
7,102
 7,110
 872
 569
 7,974
 7,679
Electronics Semiconductor3,719
 4,016
 241
 150
 3,960
 4,166
4,093
 3,826
 340
 229
 4,433
 4,055
Life Sciences4,892
 1,822
 1,932
 2,273
 6,824
 4,095
4,996
 2,977
 1,624
 2,527
 6,620
 5,504
Other7,983
 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
 
SeptemberJune 30, 20182019
(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 20172019 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 services82,800
 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 Africa69,248
 73,078
 27,408
 20,854
 96,656
 93,932
44,697
 49,100
 24,120
 18,502
 68,817
 67,602
Asia Pacific24,405
 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 & Insurance67,522
 64,066
 9,010
 12,438
 76,532
 76,504
38,397
 45,158
 4,894
 6,318
 43,291
 51,476
Manufacturing25,621
 26,762
 11,606
 11,970
 37,227
 38,732
16,394
 18,063
 12,084
 7,872
 28,478
 25,935
Energy / Oil & Gas27,769
 26,275
 3,318
 1,896
 31,087
 28,171
20,062
 18,656
 2,802
 2,130
 22,864
 20,786
U.S. Government20,704
 18,528
 6,742
 6,910
 27,446
 25,438
19,486
 13,031
 3,889
 4,640
 23,375
 17,671
U.K. Government14,889
 21,789
 
 
 14,889
 21,789
8,412
 10,433
 
 
 8,412
 10,433
Information & Communication11,027
 12,785
 6,953
 7,948
 17,980
 20,733
7,463
 7,712
 4,377
 4,623
 11,840
 12,335
Aerospace21,619
 16,003
 2,408
 4,774
 24,027
 20,777
13,554
 14,914
 2,033
 1,248
 15,587
 16,162
Electronics Semiconductor11,228
 12,371
 521
 610
 11,749
 12,981
8,215
 7,509
 594
 280
 8,809
 7,789
Life Sciences9,743
 5,912
 7,143
 7,171
 16,886
 13,083
9,708
 4,851
 3,739
 5,211
 13,447
 10,062
Other20,308
 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-monthsix-month period ended SeptemberJune 30, 20182019 were not materially impacted by any other factors.
RevenueWe recognized revenue of $4.6 million and $7.3 million for the ninethree months ended SeptemberJune 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
 
SeptemberJune 30, 20182019
(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 ninesix months ended SeptemberJune 30, 20182019 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 ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. As of SeptemberJune 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 periodssix months ended SeptemberJune 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 periodssix months ended SeptemberJune 30, 2019 and 2018, and 2017.respectively. As of SeptemberJune 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 ninesix months ended SeptemberJune 30, 20182019 or 20172018 or consolidated accounts receivable balance as of SeptemberJune 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 instruments108
 
 85
 17
        
Dilutive common stock equivalents92
 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 instruments181
 140
 116
 73
        
Dilutive common stock equivalents33
 91
 31
 92

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
SeptemberJune 30, 20182019
(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
   201820192020Total
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, 20172018 to SeptemberJune 30, 20182019 (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 20182018 Additions Payments Consideration Translation 2019
IC Axon$
 $905
 $
 $45
 $
 $950
$594
 $
 $
 $(594) $
 $
Maverick1,979
 
 
 (1,979) 
 
McKinney Rogers1,501
 
 
 (1,308) 
 193
83
 
 
 (83) 
 
Emantras76
 
 
 (76) 
 
CLS669
 
 
 (654) (15) 
Total$4,225

$905
 $

$(3,972)
$(15)
$1,143
$677

$
 $

$(677)
$

$
As of SeptemberJune 30, 20182019 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, 20172018 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
 
SeptemberJune 30, 20182019
(Unaudited)



(7)Intangible Assets

Goodwill
 
Changes in the carrying amount of goodwill by reportable business segment for the ninesix months ended SeptemberJune 30, 20182019 were as follows (in thousands):
 Workforce Excellence Business Transformation Services Total
Balance as of December 31, 2017$105,764
 $39,071
 $144,835
Acquisitions21,657
 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 translation1,115
 (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 AmountGross Carrying Amount Accumulated Amortization Net Carrying Amount
September 30, 2018 
June 30, 2019Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Customer relationships$22,558
 $(7,717) $14,841
 
Intellectual property and other4,301
 (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 other4,298
 (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 20172019 2018 2019 2018
Non-qualified stock options$
 $1
 $
 $6
Restricted stock units196
 891
 1,173
 2,569
468
 346
 725
 976
Board of Directors stock grants51
 93
 171
 248
Board of Directors and other stock grants134
 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 SeptemberJune 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 AmendedCredit Agreement with PNC Bank, National Association, as administrative agent and Restated Financinga 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 AgreementJune 29, 2018 (the "Credit"Original Credit Agreement"). The Credit Agreementagreement provides for an extension of the expiration date of the existinga 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 termrevolving 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 amountcredit 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 securedare 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 ourtheir tangible and intangible assets.
The maximum interest rate onproceeds 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 borrowingsOriginal 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 Dollarsthe 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 reduced1.25% 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 loanat 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 installmentsbased on a pricing grid that is generally dependent upon the Company's Leverage Ratio (as defined) as of principal in the amountend 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 andcovenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including covenants that limit or restrict ourbut not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and our subsidiaries’ (subject toacquisitions, (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 arerestrictive agreements. The Credit Agreement also requiredrequires the Company to maintain compliance with a minimum fixed charge coverage ratio andthe 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 alleach of thethese 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 SeptemberJune 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
 
SeptemberJune 30, 20182019
(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 ninesix months ended SeptemberJune 30, 20182019 compared to $5.2$3.1 million, or an effective income tax rate of 28.3%33.0%, for the ninesix months ended SeptemberJune 30, 2017.2018. The increasedecrease in the effective income tax rate in 20182019 compared to 20172018 is primarily due to a $0.4$0.9 million increase to the provisional estimate recorded in the fourthfirst quarter of 20172018 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 is2017 partially offset by a decreasechange in the U.S. statutory tax ratemix 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 SeptemberJune 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 20172018 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, 2017172
 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 ninesix months ended SeptemberJune 30, 20182019 we did not repurchase shares and 2017,during the six months ended June 30, 2018, we repurchased approximately 350,000 and 101,000313,000 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 SeptemberJune 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
 
SeptemberJune 30, 20182019
(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 cost207
 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 liabilities23,415
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 leases4.77%

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

As of SeptemberJune 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 segment reporting during 2018 and conform to the current year's presentation.

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

Our two segments each consist of two global practice areas which are focused on providing similar and/or complementary products and services across our diverse customer base and within targeted markets. Within each practice are various service lines having specific areas of expertise. Marketing and communications, sales, accounting, finance, legal, human resources,

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
 
SeptemberJune 30, 20182019
(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 20172019
2018 2019 2018
Revenue:              
Workforce Excellence$80,516
 $77,022
 $239,044
 $228,236
$81,059
 $82,082
 $160,509
 $158,528
Business Transformation Services43,050
 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 Services5,799
 6,754
 19,769
 21,145
9,566
 7,646
 17,435
 13,970
Total gross profit19,199
 18,646
 59,451
 60,469
22,959
 22,573
 44,237
 40,252
General and administrative expenses12,227
 14,160
 40,207
 39,536
15,402
 14,121
 31,529
 27,980
Sales and marketing expenses1,297
 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, net526
 268
 3,972
 369
627
 894
 677
 3,446
Operating income6,201

4,361

17,158

20,053
6,096

5,745

8,189

10,957
Interest expense1,095
 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 SeptemberJune 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.

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

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

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

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

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

System provides a suite of real-time digital solutions for hundreds of facilities and is installed in power-generating

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

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

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

Acquisitions

TTi Global
On November 30, 2018, we entered into a Share Purchase Agreement with TTi Global, Inc. ("TTi Global") and its stockholders and acquired all of the outstanding shares of TTi Global. The transaction under the Share Purchase Agreement includes the acquisition of TTi Global’s subsidiaries (except for its UK and Spain subsidiaries and dormant entities) and certain affiliated companies. The Company purchased TTi Global’s UK and Spain subsidiaries in a separate transaction in August 2018 which is discussed further below. TTi Global is a provider of training, staffing, research and consulting solutions to industries across various sectors with automotive as a core focus. The total upfront purchase price for TTi Global was $14.2 million of cash paid upon closing on November 30, 2018. The purchase price is subject to reduction based on a minimum working capital requirement, as defined in the Share Purchase Agreement, 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
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.

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 SeptemberJune 30, 20182019 Compared to the Three Months ended SeptemberJune 30, 20172018
 
Our revenue decreased $0.5increased $15.7 million or 0.4%11.8% during the thirdsecond quarter of 20182019 compared to the thirdsecond quarter of 2017.2018. The net decreaseincrease is due to a $4.0$16.7 million declineincrease in our Business Transformation Services segment offset by a $3.5$1.0 million increasedecrease 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 thirdsecond 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 thirdsecond quarter of 20182019 compared to $4.4$5.7 million for the thirdsecond quarter of 2017.2018. The net increase in operating income is primarily due to a$0.6a $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 increasedecrease 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 SeptemberJune 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 SeptemberJune 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 16.616.8 million for the thirdsecond quarter of 20182019 compared to 16.916.6 million for the thirdsecond quarter of 2017.2018.
 
Revenue
(Dollars in thousands)Three months endedThree months ended
September 30,June 30,
2018 20172019 2018
Workforce Excellence$80,516
 $77,022
$81,059
 $82,082
Business Transformation Services43,050
 47,075
68,354
 51,609
$123,566
 $124,097
$149,413
 $133,691

Workforce Excellence revenue increased $3.5decreased $1.0 million or 4.5%1.2% during the thirdsecond quarter of 20182019 compared to the thirdsecond quarter of 2017.2018. The revenue increasedecrease is due to the following:
a $4.7$1.7 million net increasedecrease in revenue in our Engineering & Technical Services practice primarily due to a $1.8 million increasechanges 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 decreaseincrease 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 digitalmanaged 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 $3.5a $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 endedThree months ended
September 30,June 30,
2018 20172019 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 Services5,799
 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 thirdsecond quarter of 2018 increased2019 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 thirdsecond quarter of 20172018 primarily due to the following:

a $2.6$1.2 million increasedecrease 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 clientsoftware license sale in our Energy business during the thirdsecond quarter of 2017 which2018 that did not recur in 2018; partially offset by2019; 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 thirdsecond quarter of 2018 decreased2019 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 thirdsecond quarter 2017. The gross profit decrease is2018 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 $1.9increased $1.3 million or 13.7%9.1% from $14.2$14.1 million in the thirdsecond quarter of 20172018 to $12.2$15.4 million in the thirdsecond quarter of 2018.2019. The decreaseincrease in general and administrative expenses is primarily due to a $1.7$1.5 million reductionincrease 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 $0.4net $0.2 million increasedecrease 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 thirdsecond quarter of 20172018 to $1.3$1.9 million for the thirdsecond quarter of 20182019 primarily due to labor and benefits expense relating to the hiring of a Chief Sales Officer and other newadditional business development personnel as well as marketing personnel, somedue to the establishment of which representsa new investmentssales 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 sometransition activities in the first quarter of which results from centralizing marketing resources2019 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 recordedwas 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 thirdsecond quarter of 20182019 compared to $0.3$0.9 million in the thirdsecond 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 thirdsecond quarter of 20182019 compared to $0.5$(0.2) million for the thirdsecond 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 $0.8income was $0.1 million duringfor the thirdsecond quarter of 20182019 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 increasedecrease in foreign currency losses and a $0.3 million loss onin the divestituresecond quarter of a business unit during the third quarter of2019 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 quartersecond 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 SeptemberJune 30, 20182019 and 2017,2018, respectively. The increase in the effective income tax rate in 20182019 compared to 20172018 is primarily due to certain discrete items that occurreda change in the third quartermix 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.


NineSix Months ended SeptemberJune 30, 20182019 Compared to the NineSix Months ended SeptemberJune 30, 20172018
 
Our revenue increased $4.6$30.2 million or 1.2%11.7% during the ninesix months ended SeptemberJune 30, 20182019 compared to ninethe six months ended SeptemberJune 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 byand a $6.2$28.2 million decreaseincrease in our Business Transformation Services segment. Foreign currency exchange rate changes resulted in a total $5.7$5.3 million increasedecrease in U.S. dollar reported revenue during the ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 20182019 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 increasedecrease 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 ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 2017.2018. Net income was $9.5$3.6 million, or $0.57$0.21 per diluted share, for the ninesix months ended SeptemberJune 30, 2018,2019, compared to net income of $13.2$6.2 million, or $0.78$0.37 per diluted share, for the ninesix months ended SeptemberJune 30, 2017.2018. Diluted weighted average shares outstanding were 16.616.7 million for both the ninesix months ended SeptemberJune 30, 2018 compared to 16.9 million for the same period in 2017.2019 and June 30, 2018.

Revenue
(Dollars in thousands)Nine months endedSix months ended
September 30,June 30,
2018 20172019 2018
Workforce Excellence$239,044
 $228,236
$160,509
 $158,528
Business Transformation Services143,245
 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 ninesix months ended SeptemberJune 30, 20182019 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 hurricanedisaster relief services, $2.0a $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 toincrease 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 ofIC Axon business acquired on May 1, 2018; partially offset by
a $4.7$1.3 million increasedecrease in vocational skills training services for automotive clients;provided to the UK government; and
an estimated $0.6a $1.5 million increasenet 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 developmenta 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 increasedecrease in revenue due to changes in foreign currency exchange rates.
 
Gross Profit
(Dollars in thousands)Nine months endedSix months ended
September 30,June 30,
2018 20172019 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 Services19,769
 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 20172018 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 skillskills 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 increasedecrease in the other business units within this practicegross 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 ninesix months ended SeptemberJune 30, 2018 decreased2019 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 is2018 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 ninesix months ended SeptemberJune 30, 20172018 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 increasesG&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 bybad debt expense, a $0.5$0.2 million decreaseincrease in G&Aseverance 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 decreasenet increase in internal labor costs). In addition, there was a $0.4 million net decrease invarious 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 ninesix months ended SeptemberJune 30, 20172018 to $3.1$3.9 million for the same period in 2018. The increase in sales and marketing expenses is2019 primarily due to labor and benefits expense relating to the hiring of a Chief Sales Officer and other newadditional business development personnel as well as marketing personnel, somedue to the establishment of which representsa new investments and some of which results from centralizing marketing resources that were previously recordedsales organization in cost of revenue.2018.

Restructuring charges

DuringRestructuring charges decreased $1.6 million in the fourth quarterfirst 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 positioneliminate redundant positions to realize synergies with the company to drive future revenue growth and we recordedacquired business. We recognized restructuring charges consisting primarily of severance expense, of $3.3$1.3 million forduring the year ended December 31, 2017. For the ninesix months ended SeptemberJune 30, 2019 relating to these restructuring activities. During the six months ended June 30, 2018, we incurred an additionalrecognized $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 activitiesin connection with the reorganization that was $2.6 million as of September 30, 2018, of which $2.0 million is includedinitiated 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 ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 20172018 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 byas well as a $1.1 million non-recurring reversal of ana interest accrual during the second quarter of 2018 related to contingent interest associated withan unremitted value-added tax (VAT) related to undercharged VAT fromassociated with prior year client billings which was favorably settled during the second quarter of 2018.

Other Income (Expense) Income
 
Other expenseincome was $1.9$0.1 million for the ninesix months ended SeptemberJune 30, 20182019 compared to $0.1other expense of $1.2 million for the same period in 2017.2018. The increase in other expense consistedincome is primarily ofdue to a $1.8$0.9 million increasedecrease in foreign currency losses and a $0.3$0.2 million loss on the divestiture ofincrease in income from a business unitjoint venture during the third quarter ofsix 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 ninesix months ended SeptemberJune 30, 20182019 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 ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The increasedecrease in the effective income tax rate in 20182019 compared to 20172018 is primarily due to a $0.4$0.9 million increase to the provisional estimate recorded in the fourthfirst quarter of 20172018 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 SeptemberJune 30, 20182019 compared to $49.8$103.9 million at December 31, 2017.2018. As of SeptemberJune 30, 20182019 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 ($26.314.2 million of available borrowings as of SeptemberJune 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 SeptemberJune 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

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 ninesix months ended SeptemberJune 30, 20182019 we did not repurchase shares and 2017,during the six months ended June 30, 2018, we repurchased approximately 350,000 and 101,000313,000 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 SeptemberJune 30, 2018,2019, there was approximately $3.8 million available for future repurchases under the buyback 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):
Acquisition:Original range of potential undiscounted payments As of September 30, 2018 Maximum contingent consideration due in
   201820192020Total
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
       
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 ninesix months ended SeptemberJune 30, 20182019 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 ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. As of SeptemberJune 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 ninesix months ended SeptemberJune 30, 20182019 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 periodssix-months ended SeptemberJune 30, 2019 and 2018, and 2017.respectively. As of SeptemberJune 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 ninesix months ended SeptemberJune 30, 20182019 or 20172018 or consolidated accounts receivable balance as of SeptemberJune 30, 2018.



2019.

Cash Flows
 
NineSix Months ended SeptemberJune 30, 20182019 Compared to the NineSix Months ended SeptemberJune 30, 20172018
 
Our cash and cash equivalents balance decreased $13.3$7.3 million from $23.6$13.4 million as of December 31, 20172018 to $10.3$6.1 million as of SeptemberJune 30, 2018.2019. The decrease in cash and cash equivalents during the ninesix months ended SeptemberJune 30, 20182019 resulted from cash provided byused 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 $21.2of $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 ninesix months ended SeptemberJune 30, 20182019 compared to the same period in 2017.2018.
 
Cash used in investing activities was $48.4$1.3 million for the ninesix months ended SeptemberJune 30, 20182019 compared to $14.4$43.5 million for the same period in 2017.2018. The increasedecrease in cash used in investing activities is primarily due to a $31.8$40.0 million increasedecrease in cash paid to complete acquisitions and a $2.2$1.8 million increasedecrease 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 ninesix months ended SeptemberJune 30, 20182019 compared to cash used of $6.4$27.6 million for the same period in 2017.2018. The increasedecrease in cash inprovided by financing activities is primarily due to an increasea net decrease in borrowings under our credit agreement, to fund acquisitions, partially offset by a $6.1$7.8 million increase inof cash used for share repurchases.repurchases in 2018 that did not recur in 2019.
 
Debt

On June 29,November 30, 2018, we entered into a Second Amendment to Fifth AmendedCredit Agreement with PNC Bank, National Association, as administrative agent and Restated Financinga 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 AgreementJune 29, 2018 (the "Credit"Original Credit Agreement"). The Credit Agreementagreement provides for an extension of the expiration date of the existinga 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 termrevolving 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 amountcredit 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 securedare 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 ourtheir tangible and intangible assets.

The maximum interest rate onproceeds 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 borrowingsOriginal 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 Dollarsthe 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 reduced1.25% 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 installmentsat a fluctuating per annum Base Rate equal to $1.0 millionthe highest of (i) the Overnight Bank Funding Rate, plus applicable interest, beginning0.5%, (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 andcovenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including covenantsbut 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 coveragemaximum leverage ratio of 1.53.75 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 leverageminimum interest expense coverage ratio of 3.0 to 1.0. As of SeptemberJune 30, 2018,2019, our fixed coverage chargeleverage ratio was 1.63.4 to 1.0 and our leverageinterest expense ratio was 2.76.1 to 1.0, alleach of which werewas in compliance with the Credit Agreement.

As of SeptemberJune 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 ninethree months ended SeptemberJune 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 fixed4.7% 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 marginborrowings under the Credit Agreement. We have designatedAgreement 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 valueexpense over the term of the derivative asset associated with the interest rate swap was $0.2 millionCredit Agreement and $0.1 million as of September 30, 2018 and December 31, 2017, respectively, and isare included in otherOther 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 SeptemberJune 30, 20182019, 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, 20172018 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. BorrowingsOn 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 bearrevolving credit facility under interest rates based on a variable rate. The maximum interest rate on our borrowings undereither 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 onIf these rates increase significantly, our financial performance, the interest rate can be reducedcosts 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 andid not have any interest rate swap agreement which effectively fixedhedging 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.
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.risk.
 
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, theour 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 thesethe Company's disclosure controls and procedures are effective in providing reasonable assuranceas of and for the period covered by this report excludes any evaluation of the achievementinternal 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 ReportingControls

During the quartersix months ended SeptemberJune 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 washave been no changechanges 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 hashave materially affected, or isare reasonably likely to materially affect, ourthe 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 changesadded 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 SeptemberJune 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     
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 thirdsecond quarter of 2018.2019.






Item 6.Exhibits

10.1
31.1
31.2
32.1
101The following materials from GP Strategies Corporation’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 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, 2018August 2, 2019/s/  Scott N. Greenberg
 Scott N. Greenberg
 Chief Executive Officer
  
November 6, 2018August 2, 2019/s/  Michael R. Dugan
 Michael R. Dugan
 Executive Vice President and Chief Financial Officer

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