SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

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

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.

Non-accelerated filer ¨

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:

The number of shares outstanding of the registrant’s common stock as of ~~October 31, 2019~~April 21, 2020 was as follows:

GP STRATEGIES CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


			Page

Part I.		Financial Information	~~Page~~

~~Part I.~~		~~Financial Information~~

Item 1.	Financial Statements (Unaudited)

		Condensed Consolidated Balance Sheets – ~~September 30, 2019~~March 3 1 , 20 20 and December 31, ~~2018~~2019	1

		Condensed Consolidated Statements of Operations – Three Months Ended March 3 1 , 20 20 and ~~Nine Months Ended September 30, 2019 and 2018~~20 19	2

		Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended March 3 1 , 20 20 and ~~Nine Months Ended September 30, 2019 and 2018~~20 19	3

		Condensed Consolidated Statements of Stockholders' Equity - Three Months Ended March 3 1 , 20 20 and ~~Nine Months Ended September 30, 2019 and 2018~~20 19	4

		Condensed Consolidated Statements of Cash Flows – ~~Nine~~Three Months Ended ~~September 30, 2019~~March 3 1 , 20 20 and ~~2018~~20 19	65

		Notes to Condensed Consolidated Financial Statements	76

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	2318

Item 3.		Quantitative and Qualitative Disclosure About Market Risk	3427

Item 4.		Controls and Procedures	3427

Part II.		Other Information	3529

Item 1.		Legal Proceedings	3529

Item 1A.		Risk Factors	3529

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3530

Item 6.		Exhibits	3632

Signatures				3733

Part I. Financial Information

Item 1. Financial Statements

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)


	September 30, 2019 (Unaudited)			December 31, 2018				March 31, 2020 (Unaudited)		December 31, 2019
Assets							Assets
Current assets:							Current assets:
Cash	$	7,739		$	13,417		Cash	$	9,025	$	8,159
Accounts and other receivables, less allowance for doubtful accounts of $2,652 in 2019 and $2,034 in 2018	115,951			107,673
Accounts and other receivables, less allowance for credit losses of $1,500 in 2020 and $1,132 in 2019							Accounts and other receivables, less allowance for credit losses of $1,500 in 2020 and $1,132 in 2019	104,195		131,852
Unbilled revenue	59,957			80,764			Unbilled revenue	60,655		57,229

Prepaid expenses and other current assets	25,930			19,048			Prepaid expenses and other current assets	21,306		19,115
Total current assets	209,577			220,902			Total current assets	195,181		216,355
Property, plant and equipment	22,642			24,580			Property, plant and equipment	23,297		23,746
Accumulated depreciation	(16,758		)	(18,721		)	Accumulated depreciation	(17,789)		(17,943)
Property, plant and equipment, net	5,884			5,859			Property, plant and equipment, net	5,508		5,803
Operating lease right-of-use assets	27,136			—			Operating lease right-of-use assets	25,036		27,251
Goodwill	176,213			176,124			Goodwill	164,812		171,563
Intangible assets, net	17,340			20,933			Intangible assets, net	14,583		16,344
Other assets	13,423			10,920			Other assets	11,474		11,586
	$	449,573		$	434,738			$	416,594	$	448,902
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities:							Current liabilities:

Accounts payable and accrued expenses	$	77,720		$	93,254		Accounts payable and accrued expenses	$	75,328	$	92,332
Deferred revenue	21,594			23,704			Deferred revenue	25,560		23,234
Current portion of operating lease liabilities	8,429			—			Current portion of operating lease liabilities	7,739		7,871
Total current liabilities	107,743			116,958			Total current liabilities	108,627		123,437
Long-term debt	113,150			116,500			Long-term debt	74,837		82,870

Long-term portion of operating lease liabilities	22,196			—			Long-term portion of operating lease liabilities	20,776		22,159
Other noncurrent liabilities	11,441			14,711			Other noncurrent liabilities	9,862		10,522
Total liabilities	254,530			248,169			Total liabilities	214,102		238,988

Stockholders’ equity:							Stockholders’ equity:
Common stock, par value $0.01 per share	172			172			Common stock, par value $0.01 per share	172		172
Additional paid-in capital	102,991			105,850			Additional paid-in capital	100,650		102,319
Retained earnings	121,733			116,039			Retained earnings	129,934		131,228
Treasury stock at cost	(6,045		)	(13,802		)	Treasury stock at cost	(1,374)		(4,070)
Accumulated other comprehensive loss	(23,808		)	(21,690		)	Accumulated other comprehensive loss	(26,890)		(19,735)
Total stockholders’ equity	195,043			186,569			Total stockholders’ equity	202,492		209,914
	$	449,573		$	434,738			$	416,594	$	448,902

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES


	Common stock		Additional paid-in capital		Retained earnings		Treasury stock at cost		Accumulated other comprehensive loss		Total stockholders’ equity
Balance at December 31, 2019	172		102,319		131,228		(4,070)		(19,735)		209,914


Net income (loss)	—		—		(1,294)		—		—		(1,294)
Foreign currency translation adjustment	—		—		—		—		(7,155)		(7,155)



Stock-based compensation expense	—		441		—		—		—		441


Issuance of stock for employer contributions to retirement plan	—		(1,062)		—		1,877		—		815
Net issuances of stock pursuant to stock compensation plans and other	—		(1,048)		—		819		—		(229)
Balance at March 31, 2020	$	172	$	100,650	$	129,934	$	(1,374)	$	(26,890)	$	202,492


	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	—	—	334	—	—	334
Foreign currency translation adjustment	—	—	—	—	1,713	1,713

Stock-based compensation expense	—	354	—	—	—	354


Issuance of stock for employer contributions to retirement plan	—	(421)	—	1,156	—	735
Net issuances of stock pursuant to stock compensation plans and other	—	(874)	—	883	—	9
Balance at March 31, 2019	172	104,909	116,373	(11,763)	(19,977)	189,714

Common
stock

Additional
paid-in
capital

Retained
earnings

Treasury
stock
at cost

Accumulated
other
comprehensive
loss

Total
stockholders’
equity
Balance at June 30, 2018 $ 172
$ 107,372
$ 112,410
$ (16,074 ) $ (17,796 ) $ 186,084
Net income —
—
3,244
—
—
3,244
Foreign currency translation adjustment —
—
—
—
(457 ) (457 )
Change in fair value of interest rate cap, net of tax —
—
—
—
47
47
Change in fair value of interest rate swap, net of tax —
—
—
—
(12 ) (12 )
Repurchases of common stock —
—
—
(662 ) —
(662 )
Stock-based compensation expense —
247
—
—
—
247
Issuance of stock for employer contributions to retirement plan —
(210 ) —
930
—
720
Net issuances of stock pursuant to stock compensation plans and other —
(109 ) —
96
—
(13 )
Balance at September 30, 2018 $ 172
$ 107,300
$ 115,654
$ (15,710 ) $ (18,218 ) $ 189,198

See accompanying notes to condensed consolidated financial statements.

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~See accompanying notes to condensed consolidated financial statements.~~

GP STRATEGIES CORPORATION AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September 30, 2019~~March 31, 2020

(Unaudited)

(1)Basis of Presentation

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

The accompanying condensed consolidated balance sheet as of ~~September 30, 2019,~~March 31, 2020, the condensed consolidated statements of operations, comprehensive income (loss) and stockholders' equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and the condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ have not been audited, but have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, ~~2018,~~2019, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation. The results for the ~~2019~~2020 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~~

Use of Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to employ estimates and make assumptions that affect the ~~second quarter~~reported amounts of ~~2018, sales~~certain assets and ~~marketing~~liabilities, the revenues and expenses ~~have been presented separately~~reported for the periods covered by the accompanying consolidated financial statements, and certain amounts disclosed in these Notes to the Condensed Consolidated Financial Statements. Although such estimates and assumptions are based on management’s most recent assessment of the underlying facts and circumstances utilizing the most current information available and past experience including considerations for potential impacts of the coronavirus (COVID-19) pandemic, actual results could differ significantly from ~~general administrative expenses on~~those estimates and assumptions. Our estimates, judgments, and assumptions are evaluated periodically and adjusted accordingly.

Please refer to Note 1- Significant Accounting Policies of the ~~condensed consolidated statements of operations, whereas in prior periods these amounts were~~Notes to Consolidated Financial Statements included in ~~one caption titled "selling, general~~our 2019 Form 10-K for a discussion of other significant estimates and ~~administrative expenses." Amounts for the first quarter of 2018 have been reclassified to conform to the current year presentation.~~assumptions affecting our consolidated financial statements.

(2)Recent Accounting Standards

Recently Adopted Accounting Standards

~~On January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases~~

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic ~~842)~~326): Measurement of Credit Losses on Financial Instruments (ASC 326), which requires companies to record an allowance for expected credit losses over the ~~recognition~~contractual term of ~~lease rights~~financial assets, including short-term trade receivables and ~~obligations as~~contract assets, and ~~liabilities on the balance sheet. Previously, lessees were not required to recognize on the balance sheet assets and liabilities arising from operating leases.~~expands disclosure requirements for credit quality of financial assets. We adopted ~~Topic 842 using~~ the modified retrospective method of adoption applying the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these financial statements. As a result, prior period information has not been restated.

~~The new~~ standard provides several optional practical expedients for use in transition. We elected to use what the FASB has deemed the “package of practical expedients,” which allows us not to reassess our previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs. The ASU also provides several optional practical expedients for the ongoing accounting for leases. We have elected the short-term lease recognition exemption for all leases that qualify, meaning that for leases with terms of twelve months or less, we will not recognize right-of-use (ROU) assets or lease liabilities on our consolidated balance sheet. Additionally, we have elected to use the practical expedient to not separate lease and non-lease components for leases of real estate, meaning that for these leases, the non-lease components are included in the associated ROU asset and lease liability balances on our consolidated balance sheet.

The most significant impacts of adopting Topic 842 on our consolidated financial statements were (1) the recognition of new ROU assets and lease liabilities for our operating leases of $31.1 million and $34.9 million, respectively on January 1, ~~2019,~~2020 and began recognizing an allowance for credit losses based on the estimated lifetime expected credit loss related to our financial assets, which ~~included reclassifying accrued rent as a component~~primarily includes accounts receivable and unbilled revenue. The adoption of ~~the ROU asset, and (2) significant new disclosures about our leasing activities, which are provided in Note 13.~~ Topic ~~842~~326 did not have a material impact on our consolidated results of operations or ~~cash flows.~~financial condition. During the three months ended March 31, 2020, we incorporated the forecasted impact of future economic conditions into our allowance for credit losses measurement process including the expected adverse impact of COVID-19 on the global economy.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September 30, 2019~~March 31, 2020

(Unaudited)

In ~~January 2017,~~August 2018, the FASB issued ASU ~~No. 2017-04,~~ ~~Simplifying~~2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the ~~Test~~Disclosure Requirements for ~~Goodwill Impairment. The standard will remove step 2 from~~Fair Value Measurement, which modifies the ~~goodwill impairment test. Under the ASU, an entity should perform its annual goodwill impairment test by comparing the~~disclosure requirements for fair value measurements. The guidance promotes a framework to help improve the effectiveness of ~~a reporting unit with its carrying amount~~disclosures in the notes 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~~and interim periods beginning after December 15, ~~2019. Early~~2019, although early adoption is ~~permitted for goodwill impairment tests performed on testing dates after January 1, 2017.~~permitted. We adopted the standard on January 1, ~~2019.~~2020. The ~~adoption of the ASU~~new standard did not ~~have an effect on~~impact our consolidated results of operations or financial ~~condition or cash flows.~~condition.

Accounting Standards Not Yet Adopted

For a discussion of other accounting standards that have been issued by the FASB but are not yet effective, refer to the Recent Accounting Standards section in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. These standards are not expected to have a material impact on our results of operations, financial condition or cash flows.

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~~

~~September 30, 2019~~

~~(Unaudited)~~

based on the relationship of costs incurred to total estimated costs expected to be incurred over the term of the contract. We believe this methodology is a reasonable measure of proportional performance since performance primarily involves personnel costs and services provided to the customer throughout the course of the projects through regular communications of progress toward completion and other project deliverables. In addition, the customer is required to pay

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

us for the proportionate amount of our fees in the event of contract termination. A small portion of our fixed price contracts do not meet the criteria in ASC Topic 606 for over time revenue recognition. For these projects, we defer revenue recognition until the performance obligation is satisfied, which is generally when the final deliverable is provided to the client. The direct costs related to these projects are capitalized and then recognized as cost of revenue when the performance obligation is satisfied.

For fixed price contracts, when total direct cost estimates exceed revenues, the estimated losses are recognized immediately. The use of the percentage-of-completion method requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in estimated salaries and other costs. Estimates of total contract costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses. When revisions in estimated contract revenues and costs are determined, such adjustments are recorded in the period in which they are first identified. Adjustments to our fixed price contracts in the aggregate resulted in a net ~~increases~~decrease to revenue of ~~$0.4 million and $0.3~~$0.1 million for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018, respectively, and~~a net ~~increases~~increase to revenue of ~~$1.3~~$1.1 million for ~~both of~~ the ~~nine~~three months ended ~~September 30, 2019 and 2018, respectively.~~March 31, 2019.

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

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

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

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. As of ~~September 30, 2019,~~March 31, 2020, we had ~~$338.1~~$341.2 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 9085 percent of our remaining performance obligations as revenue within the next twelve months. ~~We did not apply any of the practical expedients permitted by ASC Topic 606 in determining the amount of our performance obligations as of September 30, 2019.~~

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

~~Revenue by Category~~

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

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenue (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheet. Amounts charged to our clients become billable according to the contract terms, which usually consider the passage of time, achievement of milestones or completion of the project. When billings occur after the work has been performed, such unbilled amounts will generally be billed and collected within 60 to 120 days but typically no longer than over the next twelve months. When we advance bill clients prior to the work being performed, generally, such amounts will be earned and recognized in revenue within the next twelve months. These assets and liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the ~~nine-month~~three-month period ended ~~September 30, 2019~~March 31, 2020 were not materially impacted by any other factors.

We recognized revenue of ~~$1.5~~$8.2 million and ~~$2.3~~$11.1 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $17.2 million and $18.6 million for the nine months ended September 30, 2019 and 2018,~~ respectively, that was included in the contract liability balance at the beginning of the year and primarily represented revenue from services performed during the current period for which we received advance payment from clients in a prior period.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September 30, 2019~~March 31, 2020

(Unaudited)

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


	Three Months Ended March 31,
	Workforce Excellence						Business Transformation Services						Consolidated
	2020		2019		2020		2019		2020		2019
Revenue by type of service:
Managed learning services	$	42,498	$	44,642	$	—	$	—	$	42,498	$	44,642
Engineering & technical services	31,880		36,836		—		—		31,880		36,836
Sales enablement	—		—		32,488		35,551		32,488		35,551
Organizational development	—		—		21,415		22,444		21,415		22,444
	$	74,378	$	81,478	$	53,903	$	57,995	$	128,281	$	139,473

Revenue by geographic region:
Americas	$	56,563	$	59,664	$	36,849	$	40,620	$	93,412	$	100,284
Europe Middle East Africa	17,672		19,278		16,161		15,017		33,833		34,295
Asia Pacific	5,445		6,142		4,739		5,134		10,184		11,276
Eliminations	(5,302)		(3,606)		(3,846)		(2,776)		(9,148)		(6,382)
	$	74,378	$	81,478	$	53,903	$	57,995	$	128,281	$	139,473

Revenue by client market sector:
Automotive	$	2,453	$	3,598	$	29,702	$	34,176	$	32,155	$	37,774
Financial & Insurance	19,156		19,206		1,471		1,915		20,627		21,121
Manufacturing	9,158		9,270		2,958		5,018		12,116		14,288
Energy / Oil & Gas	6,275		11,530		1,173		1,028		7,448		12,558
U.S. Government	11,206		9,795		1,582		1,729		12,788		11,524
U.K. Government	—		—		5,267		4,043		5,267		4,043
Information & Communication	4,115		5,306		629		459		4,744		5,765
Aerospace	8,296		7,510		1,017		103		9,313		7,613
Electronics Semiconductor	2,623		4,130		217		246		2,840		4,376
Life Sciences	5,108		4,894		1,214		1,933		6,322		6,827
Other	5,988		6,239		8,673		7,345		14,661		13,584
	$	74,378	$	81,478	$	53,903	$	57,995	$	128,281	$	139,473

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(4)Significant Customers & Concentration of Credit Risk

We have a market concentration of revenue in both the automotive sector and financial & insurance sector. Revenue from the automotive sector accounted for approximately ~~28%~~25% and ~~21%~~27% of our consolidated revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately ~~13%~~14% and ~~14%~~13% of our consolidated revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. As of ~~September 30, 2019,~~March 31, 2020, accounts receivable from a single automotive customer totaled ~~$12.3~~$13.6 million, or ~~11%~~13%, of our consolidated accounts receivable balance.

Revenue from the financial & insurance sector accounted for approximately ~~17%~~16% and ~~20%~~15% of our consolidated revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately ~~11%~~9% and ~~14%~~11% of our consolidated revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. As of ~~September 30, 2019,~~March 31, 2020, billed and unbilled accounts receivable from a single financial services customer totaled ~~$17.5~~$12.4 million, or ~~10%~~8%, of our consolidated accounts receivable and unbilled revenue balances.

No other single customer accounted for more than 10% of our consolidated revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 or 2019 ~~or 2018~~ or consolidated accounts receivable balance as of ~~September 30, 2019.~~March 31, 2020.

(5)Earnings Per Share

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

Our dilutive common stock equivalent shares consist of restricted stock units computed under the treasury stock method, using the average market price during the period. Performance-based restricted stock unit awards are included in the computation of diluted shares based on the probable outcome of the underlying performance conditions being achieved.

The following table presents instruments which were not dilutive and were excluded from the computation of diluted EPS in each period, as well as the dilutive common stock equivalent shares which were included in the computation of diluted EPS:


	Three Months Ended March 31,
	2020	2019
	(In thousands)
Non-dilutive instruments	36	51

Dilutive common stock equivalents	35	31

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(In thousands)
Non-dilutive instruments 30
108
87
85

Dilutive common stock equivalents 38
92
34
92

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September 30, 2019~~March 31, 2020

(Unaudited)

Sale of Alternative Fuels Division

~~Contingent Consideration~~

~~ASC Topic 805 requires that contingent consideration be~~Effective January 1, 2020, we sold our Alternative Fuels Division pursuant to an Asset Purchase Agreement with Cryogenic Industries, LLC. The upfront cash purchase price was $4.8 million, which consisted of an advance payment of $1.5 million received on December 31, 2019 and $3.5 million received on January 2, 2020, offset by a $0.2 million cash payment to the buyer in March 2020 in settlement of the final net working capital as defined in the asset purchase agreement. In addition, up to $0.5 million of the purchase price is subject to the achievement of certain milestones under an assigned contract through the period December 31, 2021. We recognized ~~at fair value~~a pre-tax gain of $1.1 million, net of $1.3 million direct selling costs, on the ~~acquisition date~~sale of the business. The gain represents the difference between the purchase price and ~~be re-measured each reporting period with subsequent adjustments recognized in~~ the ~~condensed consolidated statement of operations. We estimate the fair~~carrying 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~~business, which primarily included net working capital of $0.1 million and goodwill of $2.6 million. The Alternative Fuels Division was part 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.Workforce Excellence segment.

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

Liability as of
December 31,

Change in
Fair Value of
Contingent

Foreign
Currency

Liability as of
September 30,
Acquisition: 2018 Additions Payments Consideration Translation 2019
IC Axon $ 594
$ —
$ —
$ (594 ) $ —
$ —
McKinney Rogers 83
—
—
(83 ) —
—
Total $ 677

$ —
$ —

$ (677 )
$ —

$ —

As of September 30, 2019 and December 31, 2018, contingent consideration considered a current liability and included in accounts payable totaled $0 and $0.6 million, respectively. As of December 31, 2018 we also had accrued contingent consideration totaling $0.1 million related to acquisitions which are included in other long-term liabilities on the condensed consolidated balance sheets and represent the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.(7)Intangible Assets

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

Changes in the carrying amount of goodwill by reportable business segment for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 were as follows (in thousands):


	Workforce Excellence		Business Transformation Services		Total
Balance as of December 31, 2019	$	119,311	$	52,252	$	171,563


Divestiture	(2,594)		—		(2,594)
Foreign currency translation	(2,921)		(1,236)		(4,157)
Balance as of March 31, 2020	$	113,796	$	51,016	$	164,812

Workforce Excellence Business Transformation Services Total
Balance as of December 31, 2018 $ 123,918
$ 52,206
$ 176,124
Purchase accounting adjustment —
810
810
Foreign currency translation (42 ) (679 ) (721 )
Balance as of September 30, 2019 $ 123,876

$ 52,337

$ 176,213

Intangible Assets Subject to Amortization

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


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
March 31, 2020
Customer relationships	$	20,071	$	(6,733)	$	13,338

Intellectual property and other	3,467		(2,222)		1,245
	$	23,538	$	(8,955)	$	14,583

December 31, 2019
Customer relationships	$	22,348	$	(7,473)	$	14,875

Intellectual property and other	3,915		(2,446)		1,469
	$	26,263	$	(9,919)	$	16,344

Gross Carrying Amount Accumulated Amortization Net Carrying Amount
September 30, 2019
Customer relationships $ 21,967
$ (6,437 ) $ 15,530
Intellectual property and other 4,505
(2,695 ) 1,810
$ 26,472

$ (9,132 )
$ 17,340

December 31, 2018

Customer relationships $ 26,524
$ (8,547 ) $ 17,977
Intellectual property and other 4,936
(1,980 ) 2,956
$ 31,460

$ (10,527 )
$ 20,933

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September 30, 2019~~March 31, 2020

(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):

Pursuant to our 2011 Stock Incentive Plan (the “2011 Plan”), we may grant awards of non-qualified stock options, incentive stock options, restricted stock, stock units, performance shares, performance units and other incentives payable in cash or in shares of our common stock to officers, employees, members of the Board of Directors and other individuals providing services to the Company. As of ~~September 30, 2019,~~March 31, 2020, we had restricted and performance stock units outstanding under these plans.

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

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

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(ii) a minimum interest expense coverage ratio. On ~~June 28, 2019~~May 7, 2020, we entered into an amendment to the Credit Agreement that ~~modified~~increases the maximum leverage ratio ~~requirements~~we are required to maintain from 3.0 to 1.0 to 3.75 to 1.0 for ~~2019.We were~~the fiscal quarters ending June 30, 2020, September 30, 2020 and December 31, 2020, and 3.00 to 1.0 for fiscal quarters ending March 31, 2021 and thereafter, and a minimum interest expense coverage ratio of 3.0 to 1.0.The leverage ratio is computed by dividing our Funded Debt by our Consolidated EBITDA, as those terms are defined in the Credit Agreement, for the trailing four fiscal quarters, and the interest coverage ratio is computed by dividing our Consolidated EBITDA by our Consolidated Interest Expense for the trailing four fiscal quarters. As of March 31, 2020, our leverage ratio was 2.3 to 1.0 and our interest expense ratio was 6.0 to 1.0, each of which was in compliance with ~~each of these financial covenants under~~the Credit Agreement. In addition, the amendment to the Credit Agreement ~~as amended, as of September 30, 2019.~~reduced the borrowing limit under the credit facility from $200 million to $140 million.

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

For the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the weighted average interest rate on our borrowings was ~~4.7%~~3.9% and ~~3.8%~~4.8%, respectively. As of ~~September 30, 2019,~~March 31, 2020, 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~~$1.1 million of unamortized debt issue costs related to the Credit Agreement as of ~~September 30, 2019~~March 31, 2020 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.

Income tax (benefit) expense was ~~$2.4~~$(0.6) million, or an effective income tax rate of ~~29.7%~~32.7%, for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$4.2~~$0.1 million, or an effective income tax rate of 30.6%, for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The ~~decrease~~increase in the effective income tax rate in ~~2019~~2020 compared to ~~2018~~2019 is primarily due to a $0.9 million increase to the provisional estimate recorded in the first quarter of 2018 relating to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, imposed by the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017 partially offset by a change in the mix of income from lower to higher taxing jurisdictions. Income tax expense for the interim quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, and modification to the net interest deduction limits. The CARES Act did not have a material impact on our consolidated financial statements for the three months ended March 31, 2020. We continue to monitor any effects that may result from the CARES Act.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense. As of ~~September 30, 2019,~~March 31, 2020, 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~~2016 through ~~2018~~2019 remain open to examination by these tax jurisdictions, and earlier years remain open to examination in certain of these jurisdictions which have longer statutes of limitations.

~~Stock Repurchase Program~~

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

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September 30, 2019~~March 31, 2020

(Unaudited)

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

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

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

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~~Some of our leases ~~commonly~~ include ~~payments~~future rent escalations that are based on the Consumer Price Index (CPI) or other similar indices. These ~~variable lease payments~~future rent escalations are not included in the calculation of the ROU asset and lease ~~liability. Other~~liability because they cannot be forecasted at the lease inception date. These are considered variable lease payments ~~such as usage-based amounts, are excluded from the ROU asset and lease liability,~~ and are expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any lease pre-payments and initial direct costs of obtaining the lease, such as commissions.

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

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

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

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


	Three Months Ended March 31,
	2020		2019
Operating lease cost	$	2,329	$	2,457
Short-term lease cost	358		353
Total lease costs	$	2,687	$	2,810

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Operating lease cost $ 1,948
$ 6,819
Short-term lease cost 580
1,140
Total lease costs $ 2,528
$ 7,959

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

The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities on our condensed consolidated balance sheet as of ~~September 30, 2019~~March 31, 2020 (in thousands):


Year ended December 31,
2020 (excluding the three months ended March 31, 2020)	$	6,435
2021	6,567
2022	5,361
2023	4,305
2024	3,957
Thereafter	5,912
Total future lease payments	32,537
Less: imputed interest	(4,022)
Present value of future lease payments	28,515
Less: current portion of lease liabilities	(7,739)
Long-term lease liabilities	$	20,776

Year ended December 31,
2019 (excluding the nine months ended September 30, 2019) $ 2,473
2020 8,287
2021 5,956
2022 4,712
2023 4,029
Thereafter 9,711
Total future lease payments 35,168
Less: imputed interest (4,543 )
Present value of future lease payments 30,625
Less: current portion of lease liabilities (8,429 )
Long-term lease liabilities $ 22,196

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September 30, 2019~~March 31, 2020

(Unaudited)

(12)Business Segments

~~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

As of ~~September 30, 2019,~~March 31, 2020, we operated through ~~two~~2 reportable business segments: (i) Workforce Excellence and (ii) Business Transformation Services. ~~In December 2017, we announced a new organizational structure and plan to improve~~Our operating ~~results by increasing organic growth and reducing operating costs. Effective January 1, 2018, we re-organized into two operating~~ segments are 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~~2 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~~We have ~~four~~4 reporting units for purposes of goodwill impairment testing, which represent our ~~four~~4 practices which are one level below the operating segments, as discussed below.

Our ~~two~~2 segments each consist of ~~two~~2 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,

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

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

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

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

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

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

•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.

Effective January 1, 2020, we transferred the management responsibility of certain business units between the two operating segments, primarily the management of our UK apprenticeship training business to the Organizational Development practice (from the Managed Learning Services practice) and the management of our platform adoption services business to the Engineering & Technical Services practice (from the Organization Development practice). We have reclassified the segment financial information herein for the prior year periods to reflect the changes in our segment reporting and conform to the current year's presentation.

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

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

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


	Three Months Ended March 31,
	2020		2019
Revenue:
Workforce Excellence	$	74,378	$	81,478
Business Transformation Services	53,903		57,995



	$	128,281	$	139,473
Gross profit:
Workforce Excellence	$	11,493	$	13,455
Business Transformation Services	6,121		7,823



Total gross profit	17,614		21,278
General and administrative expenses	17,284		16,127
Sales and marketing expenses	1,839		1,989
Restructuring charges	—		1,119
Gain on change in fair value of contingent consideration, net	—		50
Gain on sale of business	1,064		—
Operating income (loss)	(445)		2,093
Interest expense	978		1,598
Other expense	500		14
Income (loss) before income tax expense	$	(1,923)	$	481

Three Months Ended
September 30, Nine Months Ended
September 30,
2019
2018 2019 2018
Revenue:
Workforce Excellence $ 82,490
$ 80,516
$ 242,999
$ 239,044
Business Transformation Services 56,515
43,050
184,892
143,245
$ 139,005

$ 123,566

$ 427,891

$ 382,289
Gross profit:

Workforce Excellence $ 14,290
$ 13,400
$ 41,092
$ 39,682
Business Transformation Services 7,377
5,799
24,812
19,769
Total gross profit 21,667
19,199
65,904
59,451
General and administrative expenses 15,240
12,227
46,769
40,207
Sales and marketing expenses 1,830
1,297
5,725
3,128
Restructuring charges 104
—
1,405
2,930
Gain on change in fair value of contingent consideration, net —
526
677
3,972
Operating income 4,493

6,201

12,682

17,158
Interest expense 1,575
1,095
4,852
1,631
Other income (expense) 184
(760 ) 272
(1,912 )
Income before income tax expense $ 3,102
$ 4,346
$ 8,102
$ 13,615

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~


~~(15)~~	~~Subsequent Event~~

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

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.

Business Update Related to COVID-19 Pandemic

In March 2020, the World Health Organization declared the Coronavirus (COVID-19) a pandemic. The outbreak has become increasingly widespread around the world, including virtually every geography in which the Company operates. The pandemic has created uncertainty about the impact on the global economy. Governments have implemented various restrictions around the world, including closure of non-essential businesses, travel restrictions, shelter-in-place requirements and other restrictions.

The Company has taken a number of precautionary steps to safeguard its business and employees from COVID-19, including, but not limited to, implementing travel restrictions, arranging work from home capabilities and flexible work policies. We were able to make the transition to a remote workforce in response to the COVID-19 pandemic and its effects without incurring material expenses by implementing existing business continuity plans using existing resources. The safety and well-being of our employees is our first priority.

Certain of our service lines are more impacted by the restrictions noted above than others. We have services that involve bringing together groups of employees for classroom training sessions or other types of meetings and events. These types of services have been most impacted by COVID-19, however, we are actively working with our customers to support the transition of live-instructor-led training to virtual instructor-led training (VILT) or eLearning modalities. We also have integrated outsourcing solutions and face-to-face consulting services globally. These services involve individuals spending some portion of their time interfacing directly with clients and participating in activities at the client’s location. To the extent client locations are closed, or our staff are not able to interface with clients virtually, these services have experienced some disruption from COVID-19.

The service lines that have been least impacted by COVID-19 are those that do not require face-to-face contact. These service lines include human capital management system implementation services, eLearning and VILT content development services, and engineering services. Overall, these service lines have seen very little negative impacts from COVID-19 and have experienced positive momentum related to modality shifts for learning.

The Company estimates that the impact of COVID-19 on its revenue for the first quarter of 2020 was approximately an $11.5 million decrease as compared to the first quarter of 2019. In addition, we expect COVID-19 to negatively impact our revenues more significantly in the second quarter of 2020 as compared to the first quarter of 2020. We also expect to continue to experience year over year revenue declines in the second half of 2020. However, due to significant cost scaling and cost cutting measures enacted in mid-March 2020, we expect second quarter 2020 Adjusted EBITDA to be consistent with or greater than the first quarter of 2020. Refer to the definition of “Adjusted EBITDA” in the “Non-GAAP Information” section within this Item 2 for additional information.The Company’s cost cutting measures did not have a significant effect on costs for the first quarter of 2020 because the Company did not begin implementing substantial cost cutting measures until mid-March. At that time, the Company began implementing furloughs for billable employees where work had been delayed and certain layoffs of non-billable personnel. At the end of March, the Company initiated additional corporate-wide cost cutting measures effective April 1st, including permanent salary reductions for director level and above employees, temporary salary reductions for certain managers, and mandatory paid time off of one day per week by non-billable personnel and billable personnel that are not fully billable during the second quarter of 2020.

In addition, the Company has taken various actions to maintain liquidity in response to the potential impacts of COVID-19, including significant cost cutting measures and working with our bank to amend our credit agreement to provide additional borrowing availability by temporarily raising our maximum leverage ratio from 3.0 to 1.0 to 3.75 to 1.0 for the remainder of 2020. Based on our leverage ratio as of March 31, 2020, this amendment would have the effect of increasing our borrowing availability by $24.4 million so that our borrowing availability would have been $46.6 million as of March 31, 2020. In

addition, there are various government assistance programs we will take advantage of to partially mitigate the cash flow effects of COVID-19, such as the deferral of employer payroll taxes in the U.S. and other subsidies in different regions of the world we operate. We are unable to quantify the financial impacts of those programs at this time.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

We are required to assess goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. We perform the annual impairment assessment for each of our reporting units as of October 1st of each year. The recent developments related to the COVID-19 pandemic have resulted in uncertainty in the global economy, and declines in equity markets, including our share price. We considered whether such events would indicate that a triggering event have occurred and require an interim goodwill impairment testing. We considered our current projections, our share price in relation to the share price when the quantitative assessment was performed as of October 1, 2019 and the margin by which the fair values of the reporting units exceeded their carrying values. Based on this analysis, the Company concluded that the current events and circumstances related to the COVID-19 pandemic did not indicate a triggering event in the first quarter of 2020 which would require it to perform a quantitative impairment test. However, if our actual results are lower than projected or our share price remains depressed for a sustained period of time, we could incur material goodwill impairment charges in the future.

The ultimate extent of the COVID-19 impact to the Company will depend on numerous evolving factors and future developments that we are not able to predict. Factors related to COVID-19 and its effects that could adversely affect our business and results of operations are outlined in “Item 1A - Risk Factors” in the Company’s Form 10-Q.

Business Segments

As of ~~September 30, 2019,~~March 31, 2020, 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~~Our operating ~~results by increasing organic growth and reducing operating costs. Effective January 1, 2018, we re-organized into two operating~~ segments are 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~~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.

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.

~~Acquisitions~~

~~TTi Global~~

~~On November 30, 2018,~~Effective January 1, 2020, we ~~entered into a Share Purchase Agreement with TTi Global, Inc. ("TTi Global") and its stockholders and acquired all~~transferred the management responsibility of certain business units between the ~~outstanding shares~~two operating segments, primarily the management of ~~TTi Global. The transaction under~~our UK apprenticeship training business to the ~~Share Purchase Agreement includes~~Organizational Development practice (from the acquisition of TTi Global’s subsidiaries (except for its UK and Spain subsidiaries and dormant entities) and certain affiliated companies. The Company purchased TTi Global’s UK and Spain subsidiaries in a separate transaction in August 2018 which is discussed further below. TTi Global is a provider of training, staffing, research and consulting solutions to industries across various sectors with automotive as a core focus. The total upfront purchase price for TTi Global was $14.2 million of cash paid upon closing on November 30, 2018. The purchase price is subject to reduction based on a minimum working capital requirement, as defined in the Share Purchase Agreement. During the third quarter of 2019, the seller paid us $0.9 million in settlement of the working capital requirement. The acquired TTi Global business is included in the Business TransformationManaged Learning Services ~~segment~~practice) and the ~~results~~management of ~~its operations~~our platform adoption services business to the Engineering & Technical Services practice (from the Organization Development practice). We have ~~been included in~~reclassified the ~~consolidated~~segment financial ~~statements beginning December 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.~~

~~TTi (Europe)~~

~~On August 7, 2018, we acquired the entire share capital of TTi (Europe) Limited, a subsidiary of TTi Global, Inc. ("TTi Europe"), a provider of training and research services primarily~~information herein for the ~~automotive industry located~~prior year periods to reflect the changes in ~~the United Kingdom. The upfront purchase price was $3.0 million in cash. The acquired TTi Europe business is included in the Business Transformation Services~~our segment reporting 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 subsequentconform to the closing of the acquisition. No contingent consideration was payable to the sellers as the earnings target was not achieved. The acquired IC Axon business is included in the Workforce Excellence segment and the results of its operations have been included in the condensed consolidated financial statements beginning May 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.current year's presentation.

Divestiture

~~On October~~Effective January 1, ~~2019,~~2020, we sold our ~~tuition program management business~~Alternative Fuels Division pursuant to an Asset Purchase Agreement with ~~Bright Horizons Children's Centers~~Cryogenic Industries, LLC. The upfront cash purchase price was ~~$20.2~~$4.8 million, which ~~was paid on closing, other than~~consisted of an advance payment of $1.5 million ~~which is being held in escrow to secure possible indemnification claims pursuant~~received on December 31, 2019 and $3.5 million received on January 2, 2020, offset by a $0.2 million cash payment to the ~~terms~~buyer in March 2020 in settlement of ~~an escrow agreement which expires October 1, 2020. The purchase price is subject to adjustment based on a~~the final ~~calculation of assumed liabilities~~net working capital as defined in the asset purchase ~~agreement~~agreement. In addition, up to $0.5 million of the purchase price is subject to the achievement of certain milestones under an assigned contract through the period December 31, 2021. We recognized a pre-tax gain of $1.1 million, net of $1.3 million direct selling costs, on the sale of the business. The gain represents the difference between the purchase price and ~~is expected to be finalized during~~ the ~~fourth quarter~~carrying value of ~~2019.~~the business, which primarily included net working capital of $0.1 million and goodwill of $2.6 million. The Alternative Fuels Division was part of the Workforce Excellence segment.

Operating Highlights

Three Months ended ~~September 30, 2019~~March 31, 2020 Compared to the Three Months ended ~~September 30, 2018~~March 31, 2019

Our revenue ~~increased $15.4~~decreased $11.2 million or ~~12.5%~~8.0% during the ~~third~~first quarter of ~~2019~~2020 compared to the ~~third~~first quarter of ~~2018.~~2019. The net ~~increase~~decrease is due to a ~~$2.0~~$7.1 million ~~increase~~decrease in our Workforce Excellence segment and a ~~$13.5~~$4.1 million ~~increase~~decrease in our Business Transformation Services segment. ~~Foreign~~We estimate that the impact of COVID-19 resulted in an approximately $11.5 million decrease in our revenue in the first quarter of 2020 compared to the first quarter of 2019 primarily due to the postponement of certain training events and other delays in client projects. In addition, our revenue decreased $3.9 million during the first quarter of 2020 due to discontinued revenue streams from the sale of our alternative fuels division on January 1, 2020 and the sale of our tuition program management business on October 1, 2019. In addition, foreign currency exchange rate changes resulted in a total ~~$1.8~~$0.6 million decrease in U.S. dollar reported revenue during the ~~third~~first quarter of ~~2019.~~2020. The changes in revenue and gross profit are discussed in further detail below by segment.

Operating income (loss), the components of which are discussed below, decreased ~~$1.7~~$2.5 million or ~~27.5%~~121.3% to ~~$4.5~~an operating loss of $0.4 million for the ~~third~~first quarter of ~~2019~~2020 compared to ~~$6.2~~operating income of $2.1 million for the ~~third~~first quarter of ~~2018.~~2019. The net decrease ~~in operating income~~ is primarily due to a ~~$3.0~~$3.7 million decrease in gross profit and a $1.2 million increase in general and administrative expenses, partially offset by a ~~$0.5~~$1.1 million ~~increase~~gain on the sale of our alternative fuels division, $1.1 million of restructuring charges in 2019 that did not recur in 2020 and a $0.2 million decrease in sales and marketing ~~expenses and a $0.5 million decrease in the gain on change in fair value of contingent consideration, partially offset by a $2.5 million increase in gross profit.~~expenses.

For the three months ended ~~September 30, 2019,~~March 31, 2020, we had a loss before income tax expense of $1.9 million compared to income before income tax expense of ~~$3.1 million compared to $4.3~~$0.5 million for the three months ended ~~September 30, 2018.~~March 31, 2019. Net ~~income~~loss was ~~$2.1~~$1.3 million, or ~~$0.13~~$(0.08) per diluted share, for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to net income of ~~$3.2~~$0.3 million, or ~~$0.20~~$0.02 per diluted share, for the three months ended ~~September 30, 2018.~~March 31, 2019. Diluted weighted average shares outstanding were ~~16.9 million~~ ~~for the third quarter of 2019 compared to 16.6~~17.1 million for the ~~third~~first quarter of ~~2018.~~2020 compared to 16.7 million for the first quarter of 2019.

Revenue


(Dollars in thousands)	Three months ended
	March 31,
	2020		2019
Workforce Excellence	$	74,378	$	81,478
Business Transformation Services	53,903		57,995



	$	128,281	$	139,473

(Dollars in thousands) Three months ended
September 30,
2019 2018
Workforce Excellence $ 82,490
$ 80,516
Business Transformation Services 56,515
43,050
$ 139,005
$ 123,566

Workforce Excellence revenue ~~increased $2.0~~decreased $7.1 million or ~~2.5%~~8.7% during the ~~third~~first quarter of ~~2019~~2020 compared to the ~~third~~first quarter of ~~2018.~~2019. The revenue ~~increase~~decrease is due to the following:

•a ~~$5.6~~$7.9 million decrease in revenue due to the cancellation or postponement of training events and other project related work due to COVID-19 shutdowns;

•a $3.9 million net decrease in revenue due to discontinued revenue streams from the divestiture of our alternative fuels division on January 1, 2020 and tuition program management business on October 1, 2019; and

•a $0.4 million net decrease in revenue due to changes in foreign currency exchange rates.

These decreases were offset by a $5.1 million net increase in revenue in our Managed Learning Services practice primarily due to ~~the following:~~


◦	~~a $4.8 million net increase in revenue for managed learning and training content development services primarily due to new content development and outsourcing contracts; and~~


◦	~~a $0.8 million increase in vocational skills training services provided to the UK government; partially offset by~~

a $2.2 million net increase due to increased demand for eLearning and virtual instructor-led training (VILT) content development services, and a $2.9 million increase in managed learning services primarily due to new outsourcing contracts awarded in 2019 that are now fully ramped up.

Business Transformation Services revenue decreased $4.1 million or 7.1% during the first quarter of 2020 compared to the first quarter of 2019. The revenue decrease is due to the following:

•a $3.6 million decrease in revenue due to the cancellation or postponement of training events and other project related work due to COVID-19 shutdowns;

•a $0.3 million net decrease in our ~~Engineering & Technical Services~~Sales Enablement practice primarily due to ~~the following:~~


◦	~~a $1.1 million decrease in revenue from alternative fuels projects; and~~


◦	~~a $1.1 million net decrease in disaster recovery services and software license sales; and~~

a ~~$1.4~~decline in automotive sales training; and

•a $0.2 million net decrease in revenue due to changes in foreign currency exchange ~~rates.~~rates; partially offset by

~~Business Transformation Services revenue increased $13.5 million or 31.3% during the third quarter of 2019 compared to the third quarter of 2018. The revenue increase is due to the following:~~

•a ~~$13.9~~$0.1 million net increase in our ~~Sales Enablement~~Organization Development practice primarily due to ~~the following:~~


◦	~~a $13.3 million increase due to incremental revenue contributed by the TTi Global and TTi Europe acquisitions completed on December 1, 2018 and August 7, 2018, respectively; and~~


◦	a $0.6 million net increase in automotive sales training services largely due to a $1.5 million increase in new vehicle launch events and training services for automotive clients offset by a $0.9 million decrease in publications revenue due to a shift in the timing of magazine publication mailings as compared to 2018; partially offset by

a ~~$0.4~~$1.7 million increase in UK apprenticeship training services which was largely offset by a $1.6 million net ~~decrease~~decline primarily in ~~revenue due to changes in foreign currency exchange rates.~~strategic consulting services.

~~Revenue in our Organizational Development practice for the third quarter of 2019 was consistent with the third quarter of 2018.~~

Gross Profit


(Dollars in thousands)	Three months ended								(Dollars in thousands)	Three months ended
	September 30,									March 31,
	2019				2018					2020						2019
			% Revenue				% Revenue					% Revenue				% Revenue
Workforce Excellence	$	14,290	17.3	%	$	13,400	16.6	%	Workforce Excellence	$	11,493	15.5	%	$	13,455	16.5	%
Business Transformation Services	7,377		13.1	%	5,799		13.5	%	Business Transformation Services	6,121		11.4	%	7,823		13.5	%
	$	21,667	15.6	%	$	19,199	15.5	%

										$	17,614	13.7	%	$	21,278	15.3	%

Workforce Excellence gross profit of ~~$14.3~~$11.5 million or ~~17.3%~~15.5% of revenue for the ~~third~~first quarter of ~~2019 increased~~2020 decreased by ~~$0.9~~$2.0 million or ~~6.6%~~14.6% compared to gross profit of ~~$13.4~~$13.5 million or ~~16.6%~~16.5% of revenue for the ~~third~~first quarter of ~~2018~~2019 primarily due to ~~a net increase in gross profit in our Managed Learning Services practice due to~~ the COVID-19 related revenue ~~increases~~decreases noted above.

Business Transformation Services gross profit of ~~$7.4~~$6.1 million or ~~13.1%~~11.4% of revenue for the ~~third~~first quarter of ~~2019 increased~~2020 decreased by ~~$1.6~~$1.7 million or ~~27.2%~~21.8% compared to gross profit of ~~$5.8~~$7.8 million or 13.5% of revenue for the ~~third~~first quarter ~~2018~~2019 primarily due to ~~gross profit contributed by~~ the ~~acquired TTi business and an increase in gross profit in our Organizational Development practice.~~COVID-19 related revenue decreases noted above.

General and Administrative Expenses

General and administrative expenses increased ~~$3.0~~$1.2 million or ~~24.6%~~7.2% from ~~$12.2~~$16.1 million in the ~~third~~first quarter of ~~2018~~2019 to ~~$15.2~~$17.3 million in the ~~third~~first quarter of ~~2019.~~2020. The increase in general and administrative expenses is primarily due to ~~a $1.2 million increase in G&A expense associated with the acquired TTi business, a~~ $1.0 million of legal and other transaction fees incurred in the first quarter of 2020 related to a potential transaction that was aborted in March 2020 and a $0.2 million net increase primarily due to ~~internal labor costs that were capitalized in connection with our financial system implementation~~higher IT expense in the ~~third~~first quarter of ~~2018 but that are included in G&A expense in 2019, a $0.4 million increase in bad debt expense, and a $0.4 million increase in various other expenses.~~2020 compared to the first quarter of 2019.

Sales and Marketing Expenses

Sales and marketing expenses ~~increased $0.5~~decreased $0.2 million or ~~41.1%~~7.5% from ~~$1.3~~$2.0 million for the ~~third~~first quarter of ~~2018~~2019 to $1.8 million for the ~~third~~first quarter of 2020 primarily due to a decrease in labor costs.

Restructuring Charges

During the first quarter of 2019, ~~primarily resulting from centralizing marketing resources that were previously recorded in cost~~we incurred restructuring charges of ~~revenue during 2018.~~

~~Restructuring charges~~

~~Restructuring charges increased $0.1~~$1.1 million in ~~the third quarter of 2019 compared to the third quarter of 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 reduce costs and eliminate redundant positions to realize synergies with the acquired business. ~~We recognized restructuring charges of $0.1 million in the third quarter of 2019 relating to these restructuring activities.~~

Change in Fair Value of Contingent Consideration

During the ~~third~~first quarter of 2019, the net gain on the change in fair value of contingent consideration related to acquisitions ~~decreased $0.5 million compared to the third quarter of 2018.~~was$0.1 million. As of ~~September 30, 2019,~~March 31, 2020, we didn't have any outstanding contingent consideration ~~arrangements~~liabilities related to prior acquisitions.

Gain on Sale of Business

Effective January 1, 2020, we sold our Alternative Fuels Division pursuant to an Asset Purchase Agreement with Cryogenic Industries, LLC. We recognized a pre-tax gain of $1.1 million, net of $1.3 million direct selling costs, on the sale of the business. See Note 6 to the condensed consolidated financial statements for further ~~details regarding our accounting for contingent consideration.~~details.

Interest Expense

Interest expense was $1.0 million for the first quarter of 2020 compared to $1.6 million for the ~~third~~first quarter of ~~2019 compared to $1.1 million for the third quarter of 2018.~~2019. The ~~increase~~decrease is due to ~~an increase in~~lower borrowings and interest rates ~~and borrowings~~ under the Company's credit ~~agreement~~facility as compared to the ~~third~~first quarter of ~~2018.~~2019.

Other Expense

Other ~~Income (Expense)~~

~~Other income~~expense was ~~$0.2~~$0.5 million for the ~~third~~first quarter of ~~2019~~2020 compared to ~~other expense of $0.8~~$0.0 million for the ~~third~~first quarter of ~~2018.~~2019. The increase in other ~~income~~expense is primarily due to a ~~$0.5~~$0.2 million ~~gain~~increase in the third quarter of 2019 related to a divested business for which a $0.3 million loss on disposal was included in other income (expense) during the third quarter of 2018. Other income (expense) also includes $0.5 million of foreign currency losses in the ~~third quarters~~first quarter of ~~both 2019~~2020 and ~~2018.~~a $0.3 million impairment loss on an operating lease right-of-use asset related to the consolidation of our TTi Global headquarters with our Troy, Michigan office. 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 (Benefit)

~~Income~~We had an income tax ~~expense was $1.0~~benefit of $0.6 million for the ~~third~~first quarter of ~~2019~~2020 compared to ~~$1.1~~income tax expense of $0.1 million for the ~~third~~first quarter of ~~2018.~~2019. The effective income tax rate was ~~31.0%~~32.7% and ~~25.4%~~30.6% for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The increase in the effective income tax rate in ~~2019~~2020 compared to ~~2018~~2019 is primarily due to a change in the mix of income from lower to higher taxing jurisdictions. Income tax expense for the interim quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

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

Our revenue increased $45.6 million or 11.9% during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The net increase in revenue is due to a $4.0 million increase in our Workforce Excellence segment and a $41.6 million increase in our Business Transformation Services segment. Foreign currency exchange rate changes resulted in a total $7.1 million decrease in U.S. dollar reported revenue during the nine months ended September 30, 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 $4.5 million or 26.1% to $12.7 million for the nine months ended September 30, 2019 compared to $17.2 million for the same period in 2018. The net decrease in operating income is primarily due to a $6.6 million increase in general and administrative expenses, a $2.6 million increase in sales and marketing expenses and a $3.3 million decrease in the gain on change in fair value of contingent consideration, partially offset by a $6.5 million net increase in gross profit and a $1.5 million decrease in restructuring costs.

For the nine months ended September 30, 2019, we had income before income tax expense of $8.1 million compared to $13.6 million for the nine months ended September 30, 2018. Net income was $5.7 million, or $0.34 per diluted share, for the nine months ended September 30, 2019, compared to net income of $9.5 million, or $0.57 per diluted share, for the nine months ended September 30, 2018. Diluted weighted average shares outstanding were 16.8 million and 16.6 million for the nine months ended September 30, 2019 and 2018, respectively.

~~Revenue~~

(Dollars in thousands) Nine months ended
September 30,
2019 2018
Workforce Excellence $ 242,999
$ 239,044
Business Transformation Services 184,892
143,245
$ 427,891
$ 382,289

~~Workforce Excellence revenue increased $4.0 million or 1.7% during the nine months ended September 30, 2019 compared to the same period in 2018. The revenue increase is due to the following:~~

~~a $8.0 million net increase in revenue in our Managed Learning Services practice primarily due to the following:~~


◦	~~a $5.1 million increase in revenue from the IC Axon business acquired on May 1, 2018;~~


◦	~~a $3.4 million net increase in revenue for managed learning and training content development services; partially offset by~~


◦	~~a $0.5 million decrease in vocational skills training services provided to the UK government.~~

a $1.4 million net increase in revenue in our Engineering & Technical Services practice primarily due to an increase in disaster relief services and an increase in chemical demilitarization training services for a U.S. government client, partially offset by a net decrease in engineering and technical training services for various clients.

~~These increases were offset by a $5.4 million net decrease in revenue due to changes in foreign currency exchange rates.~~

Business Transformation Services revenue increased $41.6 million or 29.1% during the nine months ended September 30, 2019 compared to the same period in 2018. The revenue increase is due to the following:

~~a $44.2 million net increase in our Sales Enablement practice primarily due to the following:~~


◦	~~a $40.1 million increase due to incremental revenue contributed by the TTi Global and TTi Europe acquisitions completed on December 1, 2018 and August 7, 2018, respectively; and~~

~~a $4.1 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 $0.9 million decrease in revenue in our Organizational Development practice primarily due to a decline in human capital management system implementation services offset by an increase in strategic consulting services; and

~~a $1.7 million net decrease in revenue due to changes in foreign currency exchange rates.~~

~~Gross Profit~~

(Dollars in thousands) Nine months ended
September 30,
2019 2018
% Revenue % Revenue
Workforce Excellence $ 41,092
16.9 % $ 39,682
16.6 %
Business Transformation Services 24,812
13.4 % 19,769
13.8 %
$ 65,904
15.4 % $ 59,451
15.6 %

Workforce Excellence gross profit of $41.1 million or 16.9% of revenue for the nine months ended September 30, 2019 increased by $1.4 million or 3.6% when compared to gross profit of $39.7 million or 16.6% of revenue for the same period in 2018 primarily due to the following:

a $2.2 million net increase in gross profit in our Managed Learning Services practice primarily due to the revenue increases noted above, partially offset by a decline in vocational skills training services provided to the UK government as a result of the lower revenue as noted above; partially offset by

~~a $0.8 million net decrease in gross profit due to changes in foreign currency exchange rates.~~

Business Transformation Services gross profit of $24.8 million or 13.4% of revenue for the nine months ended September 30, 2019 increased by $5.0 million or 25.5% when compared to gross profit of $19.8 million or 13.8% of revenue for the same period in 2018 primarily due to $3.2 million of gross profit contributed by the acquired TTi business, a $1.2 million increase in gross profit in our Organizational Development practice and a $0.6 million increase in gross profit in our Sales Enablement practice.

~~General and Administrative Expenses~~

General and administrative expenses increased $6.6 million or 16.3% from $40.2 million for the nine months ended September 30, 2018 to $46.8 million for the same period in 2019. The increase in general and administrative expenses is primarily due to a $4.0 million increase in G&A expense associated with the acquired TTi businesses, a $1.8 million increase due to internal labor costs that were capitalized in connection with our financial system implementation in 2018 but that are included in G&A expense in 2019, and a $0.8 million increase in bad debt expense.

~~Sales and Marketing Expenses~~

Sales and marketing expenses increased $2.6 million or 83.0% from $3.1 million for the nine months ended September 30, 2018 to $5.7 million for the same period in 2019 primarily due to labor and benefits expense relating to the hiring of additional business development personnel as well as marketing personnel, some of which represents new investments and some of which results from centralizing marketing resources that were previously recorded in cost of revenue.

~~Restructuring charges~~

Restructuring charges decreased $1.5 million in the first half of 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 reduce costs and eliminate redundant positions to realize synergies with the acquired business. We recognized restructuring charges of $1.4 million during the nine months ended September 30, 2019 relating to these restructuring activities. During the nine months ended September 30, 2018, we recognized $2.9 million of restructuring charges in connection with the reorganization that was initiated in 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 $0.7 million and $4.0 million for the nine months ended September 30, 2019 and 2018, respectively. See Note 6 for further details regarding our accounting for contingent consideration.

~~Interest Expense~~

Interest expense increased $3.2 million from $1.6 million for the nine months ended September 30, 2018 to $4.9 million for the same period in 2019. The net increase is due to a $2.1 million increase in interest expense due to both an increase in interest rates and higher borrowings under the Credit Agreement, as well as a $1.1 million non-recurring reversal of a interest accrual during the second quarter of 2018 related to an unremitted value-added tax associated with prior year client billings which was favorably settled during the second quarter of 2018.

~~Other Income (Expense)~~

Other income was $0.3 million for the nine months ended September 30, 2019 compared to other expense of $1.9 million for the same period in 2018. The increase in other income is partially due to a $0.5 million gain in the third quarter of 2019 related to a divested business for which a $0.3 million loss on disposal was included in other income (expense) during the third quarter of 2018. The increase in other income is also due to a $1.0 million decrease in foreign currency losses and a $0.2 million increase in income from a joint venture during the nine months ended September 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.

~~Income Tax Expense~~

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

Liquidity and Capital Resources

Working Capital

Our working capital was ~~$101.8~~$86.6 million at ~~September 30, 2019~~March 31, 2020 compared to ~~$103.9~~$92.9 million at December 31, ~~2018.~~2019. As of ~~September 30, 2019~~March 31, 2020 we had ~~$113.2~~$74.8 million of long-term debt outstanding. We believe that cash generated from operations and borrowings available under our Credit Agreement ($~~8.5~~22.3 million of available borrowings as of ~~September 30, 2019~~March 31, 2020 based on our consolidated leverage ratio) will be sufficient to fund our working capital and other requirements for at least the next twelve months.This belief does not take into account exacerbation of, or additional or prolonged disruptions caused by, the COVID-19 pandemic that result in a material adverse impact on our business, which are events beyond our control, or unanticipated uses of cash. The anticipated cash needs of our business could change significantly if events, including economic disruptions, arising from the COVID-19 pandemic worsen, or if other economic conditions change from those currently prevailing or from those now anticipated, or if other unexpected circumstances arise that may have a material effect on the cash flow or profitability of our business, including material negative changes in the health and welfare of our employees or those of our clients, and the operating performance or financial results of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to raise additional debt or equity funding to meet those needs. Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:

•our future results of operations;

•the quality of our accounts receivable;

•our relative levels of debt and equity;

•the volatility and overall condition of the capital markets; and

•the market price of our securities.

Any new debt funding, if available, may be on terms less favorable to us than our Credit Facility. See “Forward-Looking Statements” in Part I, Item 2 of this Quarterly Report on Form 10-Q, and the information contained under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

As of ~~September 30, 2019,~~March 31, 2020, the amount of cash and cash equivalents held outside of the U.S. by foreign subsidiaries was ~~$7.6~~$8.2 million. The 2017 Tax Cuts and Jobs 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.

~~Divestiture~~

Stock Repurchase Program

We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, we did not repurchase ~~shares and during the nine months ended September 30, 2018, we repurchased approximately 350,000~~ shares of our common stock in the open ~~market for a total cost of approximately $8.0 million.~~market. As of ~~September 30, 2019,~~March 31, 2020, there was approximately $3.8 million available for future repurchases under the buyback program.

Significant Customers & Concentration of Credit Risk

Revenue from the financial & insurance sector accounted for approximately ~~17%~~16% and ~~20%~~15% of our consolidated revenue for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately ~~11%~~9% and ~~14%~~11% of our consolidated revenue for the ~~nine-months~~three-months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. As of ~~September 30, 2019,~~March 31, 2020, billed and unbilled accounts receivable from a single financial services customer totaled ~~$17.5~~$12.4 million, or ~~10%~~8%, of our consolidated accounts receivable and unbilled revenue balances. No other single customer accounted for more than 10% of our consolidated revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 or 2019 ~~or 2018~~ or consolidated accounts receivable balance as of ~~September 30, 2019.~~March 31, 2020.

Cash Flows

~~Nine~~Three Months ended ~~September 30, 2019~~March 31, 2020 Compared to the ~~Nine~~Three Months ended ~~September 30, 2018~~March 31, 2019

Our cash and cash equivalents balance ~~decreased $5.7~~increased $0.9 million from ~~$13.4~~$8.2 million as of December 31, ~~2018~~2019 to ~~$7.7~~$9.0 million as of ~~September 30, 2019.~~March 31, 2020. The ~~decrease~~increase in cash and cash equivalents during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 resulted from cash provided by operating activities of ~~$4.6~~$9.8 million, cash ~~used in~~provided by investing activities of ~~$3.3~~$2.8 million, cash used in financing activities of ~~$5.1~~$11.7 million and a negative effect of exchange rate changes on cash of ~~$1.8~~$0.1 million.

Cash provided by operating activities was ~~$4.6~~$9.8 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$3.5~~$2.6 million cash used in operating activities for the same period in ~~2018.~~2019. The increase in cash from operations is primarily due to an ~~increase~~improvement in ~~net income after adjusting for non-cash items, partially offset by a net decrease in working capital balances~~cash collections of accounts receivable during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to the same period in ~~2018.~~2019.

Cash provided by investing activities was $2.8 million for the three months ended March 31, 2020 compared to cash used in investing activities ~~was $3.3 million for the nine months ended September 30, 2019 compared to $48.4~~of $0.8 million for the same period in ~~2018.~~2019. The ~~decrease~~increase in cash ~~used in~~from investing activities is primarily due to a ~~$44.0~~$3.3 million ~~decrease in~~of cash ~~paid to complete acquisitions and a $1.0 million decrease in other investing activities primarily for capitalized software development costs.~~proceeds from the sale of our alternative fuels division on January 1, 2020.

Cash used in financing activities was ~~$5.1~~$11.7 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~cash provided by financing activities of $32.5~~$0.7 million for the same period in ~~2018.~~2019. The ~~decrease~~increase in cash ~~provided by~~used in financing activities is primarily due to a$8.0 million of net ~~decrease in~~repayments of borrowings under our credit agreement, ~~partially offset by $8.8~~and a $3.0 million decrease in negative cash book balances during the first quarter of ~~cash used for share repurchases in 2018 that did not recur in~~2020 compared to the first quarter of 2019.

Debt

security interest in substantially all of their tangible and intangible assets. The proceeds of the Credit Agreement were used, in part, to repay in full all outstanding borrowings under the Original Credit Agreement, and additional proceeds of the revolving credit facility are expected to be used for working capital and other general corporate purposes of the Company and its subsidiaries, including the issuance of letters of credit and Permitted Acquisitions, as defined.

The Credit Agreement contains customary representations, warranties and affirmative covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stock dividends, and (vii) certain other restrictive agreements. On ~~June 28, 2019~~May 7, 2020 we entered into an amendment to the Credit Agreement that ~~requires~~increases the ~~company to maintain compliance with a~~ maximum leverage ratio ofwe are required to maintain from 3.0 to 1.0 to 3.75 to 1.0 for the fiscal ~~quarter~~quarters ending June 30, ~~2019, 3.5 to 1.0 for the fiscal quarter ending~~2020, September 30, ~~2019,~~2020 and December 31, 2020, and 3.00 to 1.0 for fiscal quarters ending ~~December~~March 31, ~~2019~~2021 and thereafter, and a minimum interest expense coverage ratio of 3.0 to 1.0. The leverage ratio is computed by dividing our Funded Debt by our Consolidated EBITDA, as those terms are defined in the Credit Agreement, for the trailing four fiscal quarters, and the interest coverage ratio is computed by dividing our Consolidated EBITDA by our Consolidated Interest Expense for the trailing four fiscal quarters. As of ~~September 30, 2019,~~March 31, 2020, our leverage ratio was ~~3.3~~2.3 to 1.0 and our interest expense

ratio was ~~5.7~~6.0 to 1.0, each of which was in compliance with the Credit Agreement. ~~We expect~~In addition, the amendment to ~~be in compliance with~~ the ~~lower maximum leverage ratio of 3.0~~Credit Agreement reduced the borrowing limit under the credit facility from $200 million to 1.0 as of December 31, 2019 due to a reduction in our debt from the proceeds of the sale of our tuition program management business in October 2019, as well as anticipated operating cash flow during the fourth quarter of 2019.$140 million.

As of ~~September 30, 2019,~~March 31, 2020, there were ~~$113.2~~$74.8 million of borrowings outstanding and ~~$8.5~~$22.3 million of available borrowings under the revolving loan facility based on our Leverage Ratio. After the amendment to the revolving loan facility on May 7, 2020, we would have had $46.6 million of available borrowings based on our Leverage Ratio as of March 31, 2020. For the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the weighted average interest rate on our borrowings was ~~4.7%~~3.9% and ~~3.8%~~4.8%, respectively. As of ~~September 30, 2019,~~March 31, 2020, 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~~$1.1 million of unamortized debt issue costs related to the Credit Agreement as of ~~September 30, 2019~~March 31, 2020 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.

Off-Balance Sheet Commitments

As of ~~September 30, 2019~~,March 31, 2020, we did not have any off-balance sheet commitments except for 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.

Non-GAAP Information

This Form 10-Q references Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization), a widely used non-GAAP financial measure of operating performance. It is presented as supplemental information that the Company believes is useful to investors to evaluate its results because it excludes certain items that are not directly related to the Company’s core operating performance. In particular, with regard to our comparison of our first quarter 2020 Adjusted EBITDA to our currently anticipated second quarter 2020 Adjusted EBITDA, we believe that certain gains and charges in the first quarter and certain anticipated gains and charges in the second quarter, such as the gain on sale of business, legal acquisition and transaction costs, restructuring charges and severance expense, while difficult to predict in the current environment, will vary significantly and make a quarter to quarter comparison of net income less useful to investors than a comparison of Adjusted EBITDA in understanding the impact of COVID-19 and related effects on our results of operations. The Company is unable without unreasonable efforts to estimate specific line items in Adjusted EBITDA which are necessary to a quantitative reconciliation for the forward-looking information above, due to factors including the COVID-19 pandemic and its rapidly-changing effects. Without the availability of this significant information, the Company is unable to provide such a reconciliation.

Adjusted EBITDA is calculated by adding back to net income interest expense, income tax expense, depreciation and amortization, non-cash stock compensation expense, gain or loss on the change in fair value of contingent consideration and other unusual or infrequently occurring items. For the periods presented, these other items are restructuring charges, severance expense, ERP implementation costs, foreign currency transaction losses, legal acquisition and transaction costs, and gain on sale of business. Adjusted EBITDA should not be considered as a substitute either for net income, as an indicator of the Company’s operating performance, or for cash flow, as a measure of the Company’s liquidity. In addition, because Adjusted EBITDA may not be calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Non-GAAP Reconciliation – Adjusted EBITDA

(In thousands)

(Unaudited)


	Quarters ended
			March 31,

	2020		2019
Net income (loss)	$	(1,294)	$	334
Interest expense	978		1,598
Income tax expense (benefit)	(629)		147
Depreciation and amortization	2,177		2,341
EBITDA	1,232		4,420
Adjustments:
Non-cash stock compensation expense	1,256		1,089
Restructuring charges	—		1,119
Severance expense	211		1,011
Gain on change in fair value of contingent consideration, net	—		(50)
ERP implementation costs	—		684
Foreign currency transaction losses	496		345
Legal acquisition and transaction costs	1,038		153
Impairment of operating lease right-of-use asset	255		—
Gain on divested business	(1,064)		—

Adjusted EBITDA	$	3,424	$	8,771

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.~~amended, including statements about the anticipated effects of the COVID-19 pandemic and related events on our business and results of operations. 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~~impact of the COVID-19 pandemic and related events that are beyond our control and difficult to predict, and the other 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, ~~2018~~2019 and Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (including but not limited to Risks Related to Coronavirus Disease 2019 ("COVID-19")) 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. On November 30, 2018, we entered into a new credit agreement with a bank which provides for a five-year secured revolving loan facility in an aggregate principal amount of up to $200.0 million. As of ~~September 30, 2019,~~March 31, 2020, we had ~~$113.2~~$74.8 million outstanding under the credit facility. We may draw funds from our revolving credit facility under interest rates based on either the Federal Funds Rate or the Adjusted London Interbank Offered Rate (“LIBOR rate”). If these rates increase significantly, our costs to borrow these funds will also increase. In an effort to manage our exposure to this risk, we have previously entered into interest rate derivative contracts. As of ~~September 30, 2019~~March 31, 2020 we did not have any interest rate hedging instruments in place but may enter into new hedging instruments in the future to mitigate our exposure to interest rate risk.

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, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal control over financial reporting disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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 $22.0 million of total assets and $40.6 million of revenue as of and for the nine months ended September 30, 2019. Management's evaluation and conclusion as to the effectiveness of the design and operation of the Company's disclosure controls and procedures as of and for the period covered by this report excludes any evaluation of the internal control over financial reporting related to process level controls over the activity of TTi Global, Inc. post-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~~years ended December 31, 2018, and December 31, 2019, we ~~have begun~~are implementing a remediation plan to address the material weaknesses disclosed in such Annual ~~Report.~~Reports. 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 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 Controls

~~During~~As a result of the ~~nine months ended September 30, 2019, we implemented new~~COVID-19 pandemic, the majority of our workforce began working remotely in March 2020. These changes to the working environment did not have a material effect on our internal controls ~~to facilitate our adoption~~over financial reporting during the first quarter of ~~ASU 2016-02 to ensure the proper identification, accounting, and reporting of material lease arrangements.~~2020. 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 have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

The ~~Company has no material changes~~following risk factors are in addition to the ~~disclosure on this matter made~~risk factors set forth in ~~its~~our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2018.~~2019, filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2020. We may disclose changes to risk factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Coronavirus Disease 2019 ("COVID-19")

The COVID-19 pandemic adversely affected our results of operations in the first quarter of 2020 and could potentially have a material adverse impact on our business, financial condition and results of operations for at least the remainder of 2020, the extent of which is not now known or predictable.

The COVID-19 pandemic has created volatility, uncertainty and economic disruption for GP Strategies, our customers and vendors, and the markets in which we do business. The scope and impact of the COVID-19 pandemic changed quickly during the first quarter of 2020, as travel restrictions, stay at home orders and other limitations on conducting business came into effect in different forms at different times in the different places where we conduct business. We estimate that the effects of COVID-19 resulted in an approximately $11.5 million decrease in our revenue in the first quarter of 2020 compared to the first quarter of 2019, primarily due to the postponement of certain training events and other delays in client projects. During the first quarter of 2020 and through the date of this report, health and economic conditions in the United States and around the world worsened, and government and customer actions and related events have adversely impacted, and we expect will continue to adversely impact, how we do business and the services that we provide, more significantly than in the first quarter and for a sustained period.

It continues to be too early to assess the full impact that the COVID-19 pandemic, the actions taken in response to it, and the overall effect on the global and regional economies will have on our employees, our operating segments and practices, our customers and vendors, the industries and regions that we serve, or our financial condition and results of operations as a whole. The full impact depends on many factors that are uncertain or not yet identifiable, and in many cases are out of our control. Those factors could include, among other things:

•the duration of the COVID-19 pandemic and the types and magnitude of adverse impacts on regional economies, individually, and the global economy, as a whole;

•the health and welfare of our employees and contractors and those of our customers and vendors;

•evolving business and government actions in response to the pandemic, including stay at home orders, social distancing measures and travel bans;

•the varying impact that the pandemic may have on our customers and the industries we serve, including the effect on the automotive and financial industries, which are areas of significant focus for our business;

•the response of our customers or prospective clients to the pandemic and its economic effects, including delays, stoppages or terminations of existing engagements or hiring decisions;

•the varying demand for the types of services we offer in the geographic regions in which we offer them and whether such services might be deemed essential under applicable government orders or considered more discretionary spending by our customers;

•our ability to sell and provide our services and solutions and maintain adequate utilization levels, including as a result of travel restrictions and people working from home;

•our ability to scale and cut costs to effectively maintain profitability in light of anticipated revenue reductions;

•our ability to continue to effectively market our services;

•our ability to replace engagements as they end or are terminated, stopped or delayed;

•the ability of our employees to effectively provide services, including as a result of travel restrictions or the need to work remotely;

•the ability of our clients to pay, to make timely payments or to pay in full;

•any disruption to the Internet and related systems, which may impact our ability to provide our services and solutions remotely, and increased vulnerability to hackers or third parties seeking to disrupt operations; and

•the timing of finding effective treatments or a cure or a vaccine.

Such factors may increase the currently anticipated duration and severity of the pandemic and its effects. If the pandemic and its effects are worse or last longer, that could result in fewer or delayed engagements, less profitable engagements, reduction of existing or new work, a less profitable mix of work, or an overall reduction in operations. Any of these factors and others we have not yet identified could cause or contribute to the risks and uncertainties facing the Company and our clients and could materially adversely affect our business or portions thereof, and our financial condition, results of operations or stock price.

The COVID-19 pandemic could impact our segments and practices, the types of services they provide, and the regions in which we operate, differently.

Each of our two segments consists of two global practice areas, and each global practice area contains various service lines with varying expertise and industry and geographic focus.We expect that disruptions arising out of the COVID-19 pandemic could affect the operations of our business segments, practices and service lines or the regions in which we operate, differently.

The Company may encounter operational risks arising from changes in the way the Company conducts business during the COVID-19 pandemic.

The majority of our employees are working remotely and rely heavily on technology to perform their jobs. Risks arising from our reliance on remote communications, virtual meetings and other forms of technology could include elevated cybersecurity risks and difficulty protecting company and client confidential communications. The Company may also experience impairments or declines in the effectiveness, capabilities and capacity of certain technology we employ, including issues with virtual meetings or other remote communications systems. Certain employees or regions could experience difficulties accessing and maintaining Internet connections or issues with saving and retrieving information from cloud-based and other computing systems relied on by the Company. Furthermore, the Company’s increased reliance during the pandemic on technology may not be as effective as our historical practice of reliance on a combination of technology and in-person resources. The Company’s investment of time and resources to assure the functionality of the Company’s systems and mitigate technological risks may be more difficult to achieve or not wholly successful. If the Company experiences cybersecurity issues, is unable to protect confidential information, or is unable to adequately provide services or perform corporate functions, all or portions of the Company’s ability to conduct business and operate may be impaired. In such event, the Company’s financial condition and results of operations could be materially adversely affected.

The COVID-19 pandemic could adversely impact the health and welfare of our key employees of the Company, which could have a material adverse effect on our ability to secure or perform client engagements and our results of operations.

We rely heavily on our customer-facing employees to secure and perform customer engagements. If the health and welfare of customer-facing employees or employees providing critical corporate functions, including our executive officers, deteriorates, the number of employees affected becomes significant, or an employee with skills and knowledge that are difficult to replicate becomes unavailable due to the COVID-19 pandemic, our ability to win business and provide services, as well as utilization, employee morale, customer relationships, business prospects, and results of operations of one or more of our segments or practices, or the Company as a whole, could be materially adversely affected.

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

The following table provides information about the Company's share repurchase activity for the three months ended ~~September 30, 2019:~~March 31, 2020:

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, 2019 —
$ —
—
$ 3,755,000
August 1 - 31, 2019 586
(2) $ 13.99
—
$ 3,755,000
September 1 - 30, 2019 —
$ —
—
$ 3,755,000


	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
January 1 - 31, 2020	517	(2)	$	12.83	—	$	3,755,000
February 1 - 29, 2020	—		$	—	—	$	3,755,000
March 1 - 31, 2020	—		$	—	—	$	3,755,000


~~(1)~~	We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market subject to prevailing business and market conditions and other factors. There is no expiration date for the repurchase program.


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

(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 first quarter of 2020.

Item 6. Exhibits

31.1Certification of Chief Executive Officer of the Company dated May 11, 2020 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*

31.2Certification of Executive Vice President and Chief Financial Officer of the Company dated May 11, 2020 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*

32.1Certification of Chief Executive Officer and Chief Financial Officer of the Company dated May 11, 2020 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101The following materials from GP Strategies Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, 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 (Loss), (iv) Condensed Consolidated Statements of Stockholders' Equity, (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.*


~~Item 6.~~			~~Exhibits~~


~~31.1~~	Certification of Chief Executive Officer of the Company dated November 7, 2019 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*


~~31.2~~	Certification of Executive Vice President and Chief Financial Officer of the Company dated November 7, 2019 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*


~~32.1~~	Certification of Chief Executive Officer and Chief Financial Officer of the Company dated November 7, 2019 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

~~101~~

The following materials from GP Strategies Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 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 (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 7, 2019~~May 11, 2020			/s/ Scott N. Greenberg
			Scott N. Greenberg
			Chief Executive Officer

~~November 7, 2019~~May 11, 2020			/s/ Michael R. Dugan
			Michael R. Dugan
			Executive Vice President and Chief Financial Officer



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)



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



Class						Outstanding
Common Stock, par value $.01 per share						~~16,974,916~~17,173,072


	2019			2018				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	5,694		$	9,451
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							Net income (loss)	$	(1,294)	$	334
Adjustments to reconcile net income (loss) to net cash provided by operating activities:							Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on change in fair value of contingent consideration, net	(677		)	(3,972		)	Gain on change in fair value of contingent consideration, net	—		(50)
Gain on sale of business							Gain on sale of business	(1,064)		—
Depreciation and amortization	6,992			5,670			Depreciation and amortization	2,177		2,341
Deferred income taxes	(258		)	(610		)	Deferred income taxes	(414)		(102)
Non-cash compensation expense	3,939			3,501			Non-cash compensation expense	1,256		1,089
Changes in other operating items:							Changes in other operating items:
Accounts and other receivables	(10,997		)	(4,644		)	Accounts and other receivables	25,290		6,104
Unbilled revenue	19,296			6,344			Unbilled revenue	(5,252)		(2,553)
Prepaid expenses and other current assets	(6,628		)	(5,131		)	Prepaid expenses and other current assets	(3,602)		(5,600)
Accounts payable, accrued expenses and net change in operating leases	(12,188		)	(5,527		)	Accounts payable, accrued expenses and net change in operating leases	(10,917)		498
Deferred revenue	(1,840		)	(2,215		)	Deferred revenue	4,429		(5,589)

Other	1,218			643			Other	(762)		923
Net cash provided by operating activities	4,551			3,510
Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	9,847		(2,605)

Cash flows from investing activities:							Cash flows from investing activities:
Additions to property, plant and equipment	(1,905		)	(2,267		)	Additions to property, plant and equipment	(467)		(542)
Acquisitions, net of cash acquired	850			(42,872		)

Proceeds from sale of business							Proceeds from sale of business	3,328		—
Capitalized software development costs and other	(2,261		)	(3,229		)	Capitalized software development costs and other	(24)		(226)
Net cash used in investing activities	(3,316		)	(48,368		)
Net cash provided by (used in) investing activities							Net cash provided by (used in) investing activities	2,837		(768)

Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from short-term borrowings	—			31,410

Proceeds from long-term debt	120,350			18,000			Proceeds from long-term debt	62,187		33,038
Repayment of long-term debt	(123,700		)	(9,000		)	Repayment of long-term debt	(70,220)		(33,000)

Change in negative cash book balance	(1,329		)	723			Change in negative cash book balance	(3,701)		(701)
Repurchases of common stock in the open market	—			(8,485		)

Other financing activities	(421		)	(127		)	Other financing activities	(8)		(27)
Net cash (used in) provided by financing activities	(5,100		)	32,521
Net cash used in financing activities							Net cash used in financing activities	(11,742)		(690)

Effect of exchange rate changes on cash and cash equivalents	(1,813		)	(952		)	Effect of exchange rate changes on cash and cash equivalents	(76)		(927)
Net decrease in cash	(5,678		)	(13,289		)
Net increase (decrease) in cash							Net increase (decrease) in cash	866		(4,990)
Cash at beginning of period	13,417			23,612			Cash at beginning of period	8,159		13,417
Cash at end of period	$	7,739		$	10,323		Cash at end of period	$	9,025	$	8,427

Supplemental disclosures of cash flow information:							Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	4,681		$	1,388		Cash paid during the period for interest	$	938	$	1,552
Cash paid during the period for income taxes	2,148			3,371			Cash paid during the period for income taxes	570		816



	Three Months Ended September 30,
	Workforce Excellence						Business Transformation Services						Consolidated
	2019			2018			2019			2018			2019			2018
Revenue by type of service:
Managed learning services	$	55,901		$	51,387		$	—		$	—		$	55,901		$	51,387
Engineering & technical services	26,589			29,129			—			—			26,589			29,129
Sales enablement	—			—			33,826			19,944			33,826			19,944
Organizational development	—			—			22,689			23,106			22,689			23,106
	$	82,490		$	80,516		$	56,515		$	43,050		$	139,005		$	123,566

Revenue by geographic region:
Americas	$	58,469		$	56,064		$	43,625		$	35,380		$	102,094		$	91,444
Europe Middle East Africa	21,721			21,153			12,560			8,906			34,281			30,059
Asia Pacific	9,558			8,205			4,753			109			14,311			8,314
Eliminations	(7,258		)	(4,906		)	(4,423		)	(1,345		)	(11,681		)	(6,251		)
	$	82,490		$	80,516		$	56,515		$	43,050		$	139,005		$	123,566

Revenue by client market sector:
Automotive	$	2,354		$	2,738		$	32,143		$	20,531		$	34,497		$	23,269
Financial & Insurance	24,450			22,364			2,890			2,692			27,340			25,056
Manufacturing	9,001			7,558			4,945			3,734			13,946			11,292
Energy / Oil & Gas	7,910			9,113			1,488			1,188			9,398			10,301
U.S. Government	9,282			7,673			2,002			2,102			11,284			9,775
U.K. Government	4,654			4,456			—			—			4,654			4,456
Information & Communication	2,909			3,315			1,961			2,330			4,870			5,645
Aerospace	8,644			6,705			1,317			1,160			9,961			7,865
Electronics Semiconductor	3,229			3,719			389			241			3,618			3,960
Life Sciences	5,091			4,892			1,321			1,932			6,412			6,824
Other	4,966			7,983			8,059			7,140			13,025			15,123
	$	82,490		$	80,516		$	56,515		$	43,050		$	139,005		$	123,566


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended March 31,
	2019		2018			2019		2018				2020		2019
Revenue	$	139,005	$	123,566		$	427,891	$	382,289		Revenue	$	128,281	$	139,473
Cost of revenue	117,338		104,367			361,987		322,838			Cost of revenue	110,667		118,195
Gross profit	21,667		19,199			65,904		59,451			Gross profit	17,614		21,278
General and administrative expenses	15,240		12,227			46,769		40,207			General and administrative expenses	17,284		16,127
Sales and marketing expenses	1,830		1,297			5,725		3,128			Sales and marketing expenses	1,839		1,989
Restructuring charges	104		—			1,405		2,930			Restructuring charges	—		1,119
Gain on change in fair value of contingent consideration, net	—		526			677		3,972			Gain on change in fair value of contingent consideration, net	—		50
Operating income	4,493		6,201			12,682		17,158
Gain on sale of business											Gain on sale of business	1,064		—
Operating income (loss)											Operating income (loss)	(445)		2,093
Interest expense	1,575		1,095			4,852		1,631			Interest expense	978		1,598
Other income (expense)	184		(760		)	272		(1,912		)
Income before income tax expense	3,102		4,346			8,102		13,615
Income tax expense	961		1,102			2,408		4,164
Net income	$	2,141	$	3,244		$	5,694	$	9,451
Other expense											Other expense	500		14
Income (loss) before income tax expense											Income (loss) before income tax expense	(1,923)		481
Income tax expense (benefit)											Income tax expense (benefit)	(629)		147
Net income (loss)											Net income (loss)	$	(1,294)	$	334

Basic weighted average shares outstanding	16,901		16,536			16,773		16,555			Basic weighted average shares outstanding	17,082		16,672
Diluted weighted average shares outstanding	16,939		16,628			16,807		16,647			Diluted weighted average shares outstanding	17,117		16,703

Per common share data:											Per common share data:
Basic earnings per share	$	0.13	$	0.20		$	0.34	$	0.57
Diluted earnings per share	$	0.13	$	0.20		$	0.34	$	0.57
Basic earnings (loss) per share											Basic earnings (loss) per share	$	(0.08)	$	0.02
Diluted earnings (loss) per share											Diluted earnings (loss) per share	$	(0.08)	$	0.02



	Nine Months Ended September 30,
	Workforce Excellence						Business Transformation Services						Consolidated
	2019			2018			2019			2018			2019			2018
Revenue by type of service:
Managed learning services	$	159,972		$	156,244		$	—		$	—		$	159,972		$	156,244
Engineering & technical services	83,027			82,800			—			—			83,027			82,800
Sales enablement	—			—			115,754			71,593			115,754			71,593
Organizational development	—			—			69,138			71,652			69,138			71,652
	$	242,999		$	239,044		$	184,892		$	143,245		$	427,891		$	382,289

Revenue by geographic region:
Americas	$	170,953		$	158,935		$	142,581		$	120,814		$	313,534		$	279,749
Europe Middle East Africa	66,418			70,253			36,680			27,408			103,098			97,661
Asia Pacific	24,393			23,400			16,583			298			40,976			23,698
Eliminations	(18,765		)	(13,544		)	(10,952		)	(5,275		)	(29,717		)	(18,819		)
	$	242,999		$	239,044		$	184,892		$	143,245		$	427,891		$	382,289

Revenue by client market sector:
Automotive	$	6,176		$	8,614		$	111,855		$	73,134		$	118,031		$	81,748
Financial & Insurance	62,847			67,522			7,784			9,010			70,631			76,532
Manufacturing	25,395			25,621			17,029			11,606			42,424			37,227
Energy / Oil & Gas	27,972			27,769			4,290			3,318			32,262			31,087
U.S. Government	28,768			20,704			5,891			6,742			34,659			27,446
U.K. Government	13,066			14,889			—			—			13,066			14,889
Information & Communication	10,372			11,027			6,338			6,953			16,710			17,980
Aerospace	22,198			21,619			3,350			2,408			25,548			24,027
Electronics Semiconductor	11,444			11,228			983			521			12,427			11,749
Life Sciences	14,799			9,743			5,060			7,143			19,859			16,886
Other	19,962			20,308			22,312			22,410			42,274			42,718
	$	242,999		$	239,044		$	184,892		$	143,245		$	427,891		$	382,289


~~(4)~~	~~Significant Customers & Concentration of Credit Risk~~



	Liability as of December 31,						Change in Fair Value of Contingent			Foreign Currency		Liability as of September 30,
Acquisition:	2018		Additions		Payments		Consideration			Translation		2019
IC Axon	$	594	$	—	$	—	$	(594	)	$	—	$	—
McKinney Rogers	83		—		—		(83		)	—		—
Total	$	677	$	—	$	—	$	(677	)	$	—	$	—



	Employee Severance and Related Benefits			Excess Facilities and Other Costs			Total
Liability as of December 31, 2018	$	1,266		$	591		$	1,857
Additional restructuring charges	1,405			—			1,405
Reclassification to operating lease liabilities	—			(554		)	(554		)
Payments	(2,317		)	(7		)	(2,324		)
Liability as of September 30, 2019	$	354		$	30		$	384



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	1,948	$	6,819
Short-term lease cost	580		1,140
Total lease costs	$	2,528	$	7,959



Year ended December 31,
2019 (excluding the nine months ended September 30, 2019)	$	2,473
2020	8,287
2021	5,956
2022	4,712
2023	4,029
Thereafter	9,711
Total future lease payments	35,168
Less: imputed interest	(4,543		)
Present value of future lease payments	30,625
Less: current portion of lease liabilities	(8,429		)
Long-term lease liabilities	$	22,196



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



(Dollars in thousands)	Nine months ended
	September 30,
	2019		2018
Workforce Excellence	$	242,999	$	239,044
Business Transformation Services	184,892		143,245
	$	427,891	$	382,289


~~(1)~~	~~Basis of Presentation~~


~~(2)~~	~~Recent Accounting Standards~~


~~(3)~~	~~Revenue~~


~~(5)~~	~~Earnings Per Share~~