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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 
 For the quarterly period ended June 30, 2020
or
 
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 
For the transition period from                             to                             
 
Commission File Number 1-7234
 
 GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)
 
Delaware 52-0845774
(State of Incorporation) (I.R.S. Employer Identification No.)
70 Corporate Center 
 
11000 Broken Land Parkway, Suite 200, Columbia MD 21044
(Address of principal executive offices) (Zip Code)
 
(443) 367-9600
Registrant’s telephone number, including area code:
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No   ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒ No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company in Rule 12b-2 of the Exchange Act. 
Large accelerated filer    ¨ Accelerated filer    x
Non-accelerated filer   ¨
Smaller reporting company   Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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

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

The number of shares outstanding of the registrant’s common stock as of July 21, 2020 was as follows:
Class   Outstanding  
Common Stock, par value $.01 per share   17,068,443  







GP STRATEGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
    Page
Part I. Financial Information
     
Item 1. Financial Statements (Unaudited)
     
 
1
     
 
2
   
 
3
4
     
 
6
     
 
7
     
Item 2.
     
Item 3.
     
Item 4.
     
Part II.
     
Item 1.
     
Item 1A.
     
Item 2.
     
Item 6.
     
 



Part I. Financial Information
Item 1. Financial Statements 
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
June 30, 2020 (Unaudited) December 31, 2019
Assets    
Current assets:
Cash $ 12,097    $ 8,159   
Accounts and other receivables, less allowance for credit losses of $1,814 in 2020 and $1,132 in 2019
99,828    131,852   
Unbilled revenue 40,029    57,229   
Prepaid expenses and other current assets 21,272    19,115   
Total current assets 173,226    216,355   
Property, plant and equipment 24,027    23,746   
Accumulated depreciation (18,634)   (17,943)  
Property, plant and equipment, net 5,393    5,803   
Operating lease right-of-use assets 23,591    27,251   
Goodwill 165,941    171,563   
Intangible assets, net 13,889    16,344   
Other assets 11,670    11,586   
  $ 393,710    $ 448,902   
Liabilities and Stockholders’ Equity    
Current liabilities:    
Accounts payable and accrued expenses $ 72,519    $ 92,332   
Deferred revenue 21,529    23,234   
Current portion of operating lease liabilities 6,707    7,871   
Total current liabilities 100,755    123,437   
Long-term debt 57,650    82,870   
Long-term portion of operating lease liabilities 19,824    22,159   
Other noncurrent liabilities 12,740    10,522   
Total liabilities 190,969    238,988   
Stockholders’ equity:    
Common stock, par value $0.01 per share
172    172   
Additional paid-in capital 100,023    102,319   
Retained earnings 129,328    131,228   
Treasury stock at cost (1,366)   (4,070)  
Accumulated other comprehensive loss (25,416)   (19,735)  
Total stockholders’ equity 202,741    209,914   
$ 393,710    $ 448,902   
 See accompanying notes to condensed consolidated financial statements.
1


GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended
June 30,
Six Months Ended
June 30,
  2020 2019 2020 2019
Revenue $ 106,144    $ 149,413    $ 234,425    $ 288,886   
Cost of revenue 90,247    126,454    200,914    244,649   
Gross profit 15,897    22,959    33,511    44,237   
General and administrative expenses 14,180    15,402    31,464    31,529   
Sales and marketing expenses
1,857    1,906    3,696    3,895   
Restructuring charges
855    182    855    1,301   
Gain on change in fair value of contingent consideration, net
—    627    —    677   
Gain on sale of business —    —    1,064    —   
Operating income (loss) (995)   6,096    (1,440)   8,189   
Interest expense 607    1,679    1,585    3,277   
Other income (expense) (189)   102    (689)   88   
Income (loss) before income tax expense (1,791)   4,519    (3,714)   5,000   
Income tax expense (benefit) (1,185)   1,300    (1,814)   1,447   
Net income (loss) $ (606)   $ 3,219    $ (1,900)   $ 3,553   
Basic weighted average shares outstanding 17,144    16,747    17,113    16,710   
Diluted weighted average shares outstanding 17,207    16,780    17,162    16,741   
Per common share data:        
Basic earnings (loss) per share $ (0.04)   $ 0.19    $ (0.11)   $ 0.21   
Diluted earnings (loss) per share $ (0.04)   $ 0.19    $ (0.11)   $ 0.21   
 
See accompanying notes to condensed consolidated financial statements.
2


GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands)
 
Three Months Ended
June 30,
Six Months Ended
June 30,
  2020 2019 2020 2019
Net income (loss) $ (606)   $ 3,219    $ (1,900)   $ 3,553   
Foreign currency translation adjustments 1,474    (380)   (5,681)   1,333   
Comprehensive income (loss)
$ 868    $ 2,839    $ (7,581)   $ 4,886   
 
See accompanying notes to condensed consolidated financial statements.
3


GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
Three Months Ended June 30, 2020 and 2019
(Unaudited)
(In thousands)

Common
stock
Additional
paid-in
capital
Retained
earnings
Treasury
stock
at cost
Accumulated
other
comprehensive
loss
Total
stockholders’
equity
Balance at March 31, 2020 172    100,650    129,934    (1,374)   (26,890)   202,492   
Net loss —    —    (606)   —    —    (606)  
Foreign currency translation adjustment —    —    —    —    1,474    1,474   
Repurchases of common stock —    —    —    (1,826)   (1,826)  
Stock-based compensation expense —    772    —    —    —    772   
Issuance of stock for employer contributions to retirement plan
—    (511)   —    1,275    —    764   
Net issuances of stock pursuant to stock compensation plans and other
—    (888)   —    559    —    (329)  
Balance at June 30, 2020 $ 172    $ 100,023    $ 129,328    $ (1,366)   $ (25,416)   $ 202,741   


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

See accompanying notes to condensed consolidated financial statements.


4



GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
Six Months Ended June 30, 2020 and 2019
(Unaudited)
(In thousands)

Common
stock
Additional
paid-in
capital
Retained
earnings
Treasury
stock
at cost
Accumulated
other
comprehensive
loss
Total
stockholders’
equity
Balance at December 31, 2019 172    102,319    131,228    (4,070)   (19,735)   209,914   
Net loss —    —    (1,900)   —    —    (1,900)  
Foreign currency translation adjustment —    —    —    —    (5,681)   (5,681)  
Repurchases of common stock —    —    —    (1,826)   —    (1,826)  
Stock-based compensation expense —    1,213    —    —    —    1,213   
Issuance of stock for employer contributions to retirement plan
—    (1,573)   —    3,152    —    1,579   
Net issuances of stock pursuant to stock compensation plans and other
—    (1,936)   —    1,378    —    (558)  
Balance at June 30, 2020 172    100,023    129,328    (1,366)   (25,416)   202,741   


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


See accompanying notes to condensed consolidated financial statements.










5




GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2020 and 2019
(Unaudited, in thousands)
  2020 2019
Cash flows from operating activities:    
Net income (loss) $ (1,900)   $ 3,553   
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Gain on change in fair value of contingent consideration, net —    (677)  
Gain on sale of business (1,064)   —   
Depreciation and amortization 4,254    4,657   
Deferred income taxes (200)   (556)  
Non-cash compensation expense 2,792    2,419   
Changes in other operating items:    
Accounts and other receivables 29,264    (10,528)  
Unbilled revenue 15,887    8,266   
Prepaid expenses and other current assets (4,206)   (2,449)  
Accounts payable, accrued expenses and net change in operating leases (12,105)   (11,772)  
Deferred revenue 142    141   
Other (99)   643   
Net cash provided by (used in) operating activities 32,765    (6,303)  
Cash flows from investing activities:    
Additions to property, plant and equipment (1,046)   (1,027)  
Proceeds from sale of business 3,328    —   
Capitalized software development costs and other (45)   (227)  
Net cash provided by (used in) investing activities 2,237    (1,254)  
Cash flows from financing activities:    
Proceeds from long-term debt 81,165    77,050   
Repayment of long-term debt (106,385)   (73,900)  
Change in negative cash book balance (2,984)   (1,584)  
Repurchases of common stock in the open market (1,826)   —   
Other financing activities (412)   (402)  
Net cash provided by (used in) financing activities (30,442)   1,164   
Effect of exchange rate changes on cash and cash equivalents (622)   (913)  
Net increase (decrease) in cash 3,938    (7,306)  
Cash at beginning of period 8,159    13,417   
Cash at end of period $ 12,097    $ 6,111   
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,502    $ 3,197   
Cash paid (refunded) during the period for income taxes 879    (498)  
 See accompanying notes to condensed consolidated financial statements.
6


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 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 June 30, 2020, the condensed consolidated statements of operations, comprehensive income (loss) and stockholders' equity for the three and six months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 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, 2019, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 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 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.

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 reported amounts of certain assets and liabilities, the revenues and expenses 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 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 Notes to Consolidated Financial Statements included in our 2019 Form 10-K for a discussion of other significant estimates and assumptions affecting our consolidated financial statements.

(2)Recent Accounting Standards

        Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326), which requires companies to record an allowance for expected credit losses over the contractual term of financial assets, including short-term trade receivables and contract assets, and expands disclosure requirements for credit quality of financial assets. We adopted the standard on January 1, 2020 and began recognizing an allowance for credit losses based on the estimated lifetime expected credit loss related to our financial assets, which primarily includes accounts receivable and unbilled revenue. The adoption of Topic 326 did not have a material impact on our consolidated results of operations or financial condition. During the six months ended June 30, 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.

7


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements. The guidance promotes a framework to help improve the effectiveness of disclosures in the notes and is effective for annual and interim periods beginning after December 15, 2019, although early adoption is permitted. We adopted the standard on January 1, 2020. The new standard did not impact our consolidated results of operations or financial condition.

Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general tax accounting principles and simplifying other specific tax scenarios. The new standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently assessing the impact that adopting this guidance will have on our consolidated financial statements.
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, 2019. These standards are not expected to have a material impact on our results of operations, financial condition or cash flows.


(3)Revenue

Significant Accounting Policy
We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC Topic 606). 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.
 
8


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)
Under time-and-materials and cost-reimbursable contracts, the contractual billing schedules are based on the specified level of resources we are obligated to provide. Revenue under these contract types are recognized over time as services are performed as the client simultaneously receives and consumes the benefits provided by our performance throughout the engagement. The time and materials incurred for the period is the measure of performance and, therefore, revenue is recognized in that amount.
 
For fixed price contracts which typically involve a discrete project, such as development of training content and materials, design of training processes, software implementation, or engineering projects, the contractual billing schedules are not necessarily based on the specified level of resources we are obligated to provide. These discrete projects generally do not contain milestones or other measures of performance. The majority of our fixed price contracts meet the criteria in ASC Topic 606 for over time revenue recognition. For these contracts, revenue is recognized using a percentage-of-completion method based on the relationship of costs incurred to total estimated costs expected to be incurred over the term of the contract. We believe this methodology is a reasonable measure of proportional performance since performance primarily involves personnel costs and services provided to the customer throughout the course of the projects through regular communications of progress toward completion and other project deliverables. In addition, the customer is required to pay us for the proportionate amount of our fees in the event of contract termination. A small portion of our fixed price contracts do not meet the criteria in ASC Topic 606 for over time revenue recognition. For these projects, we defer revenue recognition until the performance obligation is satisfied, which is generally when the final deliverable is provided to the client. The direct costs related to these projects are capitalized and then recognized as cost of revenue when the performance obligation is satisfied.
 
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 decrease to revenue of $0.4 million and $0.2 million for the three months ended June 30, 2020 and 2019 respectively. It also resulted in a net decrease to revenue of $0.5 million and a net increase to revenue of $0.9 million for the six months ended June 30, 2020 and 2019 respectively.

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

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

Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we collect from a customer, are excluded from revenue.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. As of June 30, 2020, we had $327.0 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 85 percent of our remaining performance obligations as revenue within the next twelve months.


9


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenue (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheet. Amounts charged to our clients become billable according to the contract terms, which usually consider the passage of time, achievement of milestones or completion of the project. When billings occur after the work has been performed, such unbilled amounts will generally be billed and collected within 60 to 120 days but typically no longer than over the next twelve months. When we advance bill clients prior to the work being performed, generally, such amounts will be earned and recognized in revenue within the next twelve months. These assets and liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the six-month period ended June 30, 2020 were not materially impacted by any other factors.
We recognized revenue of $3.2 million and $4.6 million for the three months ended June 30, 2020 and 2019, respectively, and $11.4 million and $15.7 million for the six months ended June 30, 2020 and 2019, 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.
10


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)
Revenue by Category
The following series of tables presents our revenue disaggregated by various categories (dollars in thousands).
Three Months Ended June 30,
Workforce
Excellence
Business Transformation Services Consolidated
2020 2019 2020 2019 2020 2019
Revenue by type of service:    
Managed learning services $ 38,326    $ 44,789    $ —    $ —    $ 38,326    $ 44,789   
Engineering & technical services 27,485    39,114    —    —    27,485    39,114   
Sales enablement —    —    23,368    42,113    23,368    42,113   
Organizational development —    —    16,965    23,397    16,965    23,397   
  $ 65,811    $ 83,903    $ 40,333    $ 65,510    $ 106,144    $ 149,413   
Revenue by geographic region:
Americas $ 51,781    $ 64,468    $ 27,218    $ 46,305    $ 78,999    $ 110,773   
Europe Middle East Africa 14,413    18,643    12,451    16,262    26,864    34,905   
Asia Pacific 5,586    8,693    3,818    6,696    9,404    15,389   
Eliminations (5,969)   (7,901)   (3,154)   (3,753)   (9,123)   (11,654)  
$ 65,811    $ 83,903    $ 40,333    $ 65,510    $ 106,144    $ 149,413   
Revenue by client market sector:
Automotive $ 1,180    $ 3,668    $ 22,195    $ 42,092    $ 23,375    $ 45,760   
Financial & Insurance 16,027    19,931    1,914    2,239    17,941    22,170   
Manufacturing 5,858    9,610    2,247    4,580    8,105    14,190   
Energy / Oil & Gas 6,078    8,850    878    1,456    6,956    10,306   
U.S. Government 10,698    10,060    1,437    1,791    12,135    11,851   
U.K. Government —    —    4,182    4,369    4,182    4,369   
Information & Communication 4,795    5,563    566    512    5,361    6,075   
Aerospace 6,141    4,684    1,714    3,290    7,855    7,974   
Electronics Semiconductor 2,084    3,994    213    439    2,297    4,433   
Life Sciences 5,830    5,083    992    1,537    6,822    6,620   
Other 7,120    12,460    3,995    3,205    11,115    15,665   
$ 65,811    $ 83,903    $ 40,333    $ 65,510    $ 106,144    $ 149,413   




11


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)
Six Months Ended June 30,
Workforce Excellence Business Transformation Services Consolidated
2020 2019 2020 2019 2020 2019
Revenue by type of service:
Managed learning services $ 80,824    $ 89,431    $ —    $ —    $ 80,824    $ 89,431   
Engineering & technical services 59,365    75,950    —    —    59,365    75,950   
Sales enablement —    —    55,856    77,664    55,856    77,664   
Organizational development —    —    38,380    45,841    38,380    45,841   
$ 140,189    $ 165,381    $ 94,236    $ 123,505    $ 234,425    $ 288,886   
Revenue by geographic region:
Americas $ 108,344    $ 124,132    $ 64,067    $ 86,925    $ 172,411    $ 211,057   
Europe Middle East Africa 32,085    37,921    28,612    31,279    60,697    69,200   
Asia Pacific 11,031    14,835    8,557    11,830    19,588    26,665   
Eliminations (11,271)   (11,507)   (7,000)   (6,529)   (18,271)   (18,036)  
$ 140,189    $ 165,381    $ 94,236    $ 123,505    $ 234,425    $ 288,886   
Revenue by client market sector:
Automotive $ 3,633    $ 7,266    $ 51,897    $ 76,268    $ 55,530    $ 83,534   
Financial & Insurance 35,183    39,137    3,385    4,154    38,568    43,291   
Manufacturing 15,016    18,880    5,205    9,598    20,221    28,478   
Energy / Oil & Gas 12,353    20,380    2,051    2,484    14,404    22,864   
U.S. Government 21,904    19,855    3,019    3,520    24,923    23,375   
U.K. Government —    —    9,449    8,412    9,449    8,412   
Information & Communication 8,910    10,869    1,195    971    10,105    11,840   
Aerospace 14,437    12,194    2,731    3,393    17,168    15,587   
Electronics Semiconductor 4,707    8,124    430    685    5,137    8,809   
Life Sciences 10,938    9,977    2,206    3,470    13,144    13,447   
Other 13,108    18,699    12,668    10,550    25,776    29,249   
$ 140,189    $ 165,381    $ 94,236    $ 123,505    $ 234,425    $ 288,886   
12


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 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 24% and 29% of our consolidated revenue for the six months ended June 30, 2020 and 2019, respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 13% and 14% of our consolidated revenue for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, accounts receivable from a single automotive customer totaled $15.1 million, or 15%, of our consolidated accounts receivable balance.

Revenue from the financial & insurance sector accounted for approximately 16% and 15% of our consolidated revenue for the six months ended June 30, 2020 and 2019, respectively. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 9% and 11% of our consolidated revenue for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, billed and unbilled accounts receivable from a single financial services customer totaled $8.7 million, or 6%, of our consolidated accounts receivable and unbilled revenue balances.

The Company also has a concentration of revenue from the United States government. For the six months ended June 30, 2020 and 2019, respectively, sales to the United States government and its agencies represented approximately 11% and 8%, of the Company’s consolidated revenue. Revenue was derived from many separate contracts with a variety of government agencies that are regarded by the Company as separate customers.

No other single customer accounted for more than 10% of our consolidated revenue for the six months ended June 30, 2020 or 2019 or consolidated accounts receivable balance as of June 30, 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
June 30,
Six Months Ended
June 30,
  2020 2019 2020 2019
  (In thousands)
Non-dilutive instruments 132    181    84    116   
Dilutive common stock equivalents 63    33    49    31   



13


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)
(6)Divestiture

Sale of Alternative Fuels Division

Effective January 1, 2020, we sold our Alternative Fuels Division pursuant to an Asset Purchase Agreement with Cryogenic Industries, LLC. The 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 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 the carrying value of 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.



(7)Intangible Assets

Goodwill
 
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 indicated that a triggering event occurred during the second quarter of 2020 in the Organizational Development reporting unit. The Company performed a quantitative goodwill impairment test as of June 30, 2020 and concluded that each of its reporting units' fair values exceeded their carrying values and that there was no indication of impairment. Each of the reporting units had a significant excess fair value over its respective carrying value, with the exception of the Organizational Development reporting unit which had a fair value that exceeded its carrying value by 10% as of the June 30, 2020 testing date. 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.

We determined the fair value of our reporting units using both an income approach and a market approach, and weighed both approaches to determine the fair value of each reporting unit. Under the income approach, we performed a discounted cash flow analysis which incorporated management’s cash flow projections over a five-year period and a terminal value was calculated by applying a capitalization rate to terminal year projections based on an estimated long-term growth rate. The five-year projected cash flows and calculated terminal value were discounted using a weighted average cost of capital (“WACC”) which takes into account the costs of debt and equity. The cost of equity is based on the risk-free interest rate, equity risk premium, industry and size equity premiums and any additional market equity risk premiums as deemed appropriate for each reporting unit. To arrive at a fair value for each reporting unit, the terminal value was discounted by the WACC and added to the present value of the estimated cash flows over the discrete five-year period. There are a number of other variables which impact the projected cash flows, such as expected revenue growth and profitability levels, working capital requirements, capital expenditures and related depreciation and amortization. Under the market approach, we performed a comparable public company analysis and applied revenue and earnings multiples from the identified set of companies to the reporting unit’s actual and forecasted financial performance to determine the fair value of each reporting unit. We evaluated the reasonableness of the fair value calculations of our reporting units by reconciling the total of the fair values of all of our reporting units to our total market capitalization, and adjusting for an appropriate control premium. In addition, we made certain judgments in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.

14


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and  assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. A significant assumption in our goodwill impairment test as of June 30, 2020 was an estimate of how long and the extent to which we expect COVID-19 to impact our revenues and gross margins. If the pandemic lasts longer than we assumed or has an adverse impact for a longer period than assumed in our projections, we could incur material goodwill impairment charges in the future. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. The timing and frequency of our goodwill impairment tests are based on an ongoing assessment of events and circumstances that would indicate a possible impairment. We will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present.

Changes in the carrying amount of goodwill by reportable business segment for the six months ended June 30, 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 (1,951)   (1,077)   (3,028)  
Balance as of June 30, 2020 $ 114,766    $ 51,175    $ 165,941   


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
June 30, 2020
Customer relationships $ 20,425    $ (7,589)   $ 12,836   
Intellectual property and other 3,475    (2,422)   1,053   
  $ 23,900    $ (10,011)   $ 13,889   
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   



15


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 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): 
Three months ended June 30, Six months ended June 30,
  2020 2019 2020 2019
Restricted stock units 418    468    529    725   
Board of Directors and other stock grants 354    134    684    231   
Total stock-based compensation expense $ 772    $ 602    $ 1,213    $ 956   
 
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 June 30, 2020, we had restricted and performance stock units outstanding under these plans.


(9)Debt

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

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

The Credit Agreement contains customary representations, warranties and affirmative covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stock dividends, and (vii) certain other restrictive agreements. The Credit Agreement also requires the Company to maintain compliance with the following financial covenants; (i) a maximum leverage ratio, and
16


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)
(ii) a minimum interest expense coverage ratio. On May 7, 2020, we entered into an amendment to the Credit Agreement that increases the maximum leverage ratio we are required to maintain from 3.0 to 1.0 to 3.75 to 1.0 for 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 June 30, 2020, our leverage ratio was 2.1 to 1.0 and our interest expense coverage ratio was 6.4 to 1.0, each of which was in compliance with the Credit Agreement. In addition, the amendment to the Credit Agreement reduced the borrowing limit under the credit facility from $200 million to $140 million.

As of June 30, 2020, there were $57.7 million of borrowings outstanding and $44.9 million of available borrowings under the revolving loan facility based on our leverage ratio.
 
For the six months ended June 30, 2020 and 2019, the weighted average interest rate on our borrowings was 3.2% and 4.7%, respectively. As of June 30, 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 million of unamortized debt issue costs related to the Credit Agreement as of June 30, 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.


(10)Income Taxes

Income tax (benefit) expense was $(1.8) million, or an effective income tax rate of 48.8%, for the six months ended June 30, 2020 compared to $1.4 million, or an effective income tax rate of 28.9%, for the six months ended June 30, 2019. The decrease in income tax expense was primarily due to changes in the jurisdictional mix of earnings and the tax effects of a decrease in pre-tax earnings. 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 various income and payroll tax provisions, as well as provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, and modification to the net interest deduction limits. The CARES Act resulted in the recognition of a tax benefit of $0.2 million on our condensed consolidated financial statements for the six months ended June 30, 2020 related to carrying back losses to prior years. Tax payment deferrals provided for under the Cares Act resulted in liabilities for deferred payroll tax payments and other deferred tax payments under other government relief programs in different regions of the world where we operate, totaled $12.3 million as of June 30, 2020, of which approximately $9.7 million is included in accounts payable and accrued expenses and $2.6 million is in other noncurrent liabilities. 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 June 30, 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 2016 through 2019 remain open to examination by these tax jurisdictions, and earlier years remain open to examination in certain of these jurisdictions which have longer statutes of limitations.


17


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)

(11)Stockholders’ Equity

Stock Repurchase Program

We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. During the six months ended June 30, 2020 we repurchased approximately 255,000 shares of our common stock in the open market for a total cost of approximately $1.8 million. During the six months ended June 30, 2019 we did not repurchase shares of our common stock in the open market. As of June 30, 2020, there was approximately $1.9 million available for future repurchases under the buyback program.



(12)Restructuring

During the second quarter of 2020, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth. We recorded severance expense of $0.9 million for the three months ended June 30, 2020 which is included in restructuring charges on the condensed consolidated statements of operations and which is expected to be paid by the end of 2020. The total remaining liability under these restructuring activities was $0.5 million as of June 30, 2020, which is included in accounts payable and accrued expenses on the condensed consolidated balance sheet. We expect these restructuring activities to be substantially completed in the second half of 2020. In addition to these restructuring charges, we also incurred $2.4 million of severance expense during the three months ended June 30, 2020 relating to cost scaling measures due to the impact of COVID-19 which are included in cost of revenue, general & administrative expenses and sales and marketing expenses on our condensed consolidated statements of operations.





18


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)
(13)Leases

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

Lease expense is included in Cost of Revenue and General & Administrative Expenses on the condensed consolidated statements of operations, and is recorded net of immaterial sublease income. The components of lease expense were as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Operating lease cost $ 2,355    $ 2,414    $ 4,684    $ 4,871   
Short-term lease cost 102    207    460    560   
Total lease costs $ 2,457    $ 2,621    $ 5,144    $ 5,431   


19


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)
Supplemental information related to leases was as follows (dollars in thousands):
June 30, 2020 December 31, 2019
Operating lease right-of-use assets $ 23,591    $ 27,251   
Current portion of operating lease liabilities $ 6,707    $ 7,871   
Non-current portion of operating lease liabilities 19,824    22,159   
Total operating lease liabilities $ 26,531    $ 30,030   
Cash paid for amounts included in the measurement of operating lease liabilities $ 5,162    $ 10,137   
Right-of-use assets obtained in exchange for operating lease liabilities $ 2,206    $ 4,353   
Weighted-average remaining lease term for operating leases 5.3 years 5.5 years
Weighted-average discount rate for operating leases 4.5  % 4.7  %


The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities on our condensed consolidated balance sheet as of June 30, 2020 (in thousands):
Year ended December 31,
2020 (excluding the six months ended June 30, 2020) $ 3,832   
2021 6,589   
2022 5,352   
2023 4,295   
2024 3,929   
Thereafter 6,305   
Total future lease payments 30,302   
Less: imputed interest (3,771)  
Present value of future lease payments 26,531   
Less: current portion of lease liabilities (6,707)  
Long-term lease liabilities $ 19,824   




20


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 2020
(Unaudited)
(14)Business Segments

As of June 30, 2020, we operated through two reportable business segments: (i) Workforce Excellence and (ii) Business Transformation Services. Our operating segments are aligned by complementary service lines and supported by a business development organization aligned by industry sector. Each of our two reportable segments represents an operating segment under ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other. We have four reporting units for purposes of goodwill impairment testing, which represent our four practices which are one level below the operating segments, as discussed below.

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

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

Managed Learning Services - this practice focuses on creating value for our customers by delivering a suite of talent management and learning design, development, operational and support services that can be delivered as large scale outsourcing arrangements, managed services contracts and project-based service engagements. The Managed Learning Services offerings include strategic learning and development consulting services, digital learning content design and development solutions and a suite of managed learning operations services, including: managed facilitation and delivery, managed training administration and logistics, help desk support, 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.
21


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
June 30, 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.

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
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019
Revenue:        
Workforce Excellence $ 65,811    $