Description
Gp Strategies. 10% Owner Partners, L.P. Sagard Capital bought 18200 shares on 5-17-2012 at $ 15.04
BUSINESS OVERVIEW
Company Overview
We are a leading independent provider of customized training solutions focused on performance improvement initiatives for our clients. We also provide consulting, engineering and technical services which enhance our customized training capabilities and diversify our service offerings. We serve a large customer base across a broad range of industries. We serve leading companies in the automotive, steel, oil and gas, power, chemical, electronics and technology, manufacturing, software, financial, retail, healthcare and food and beverage industries, as well as government agencies. We have over four decades of experience in developing solutions to optimize workforce performance by providing services and products to our clients that assist them in successfully integrating their employees, processes and technology.
Our training services and products support existing, as well as the launch of new, plants, products, equipment, technologies and processes. We offer a wide range of training business process outsourcing (“BPO”) services, including design, delivery and global management of comprehensive learning programs, to national and multinational businesses and government organizations and can deliver our services individually or as a complete, integrated training solution. We have global execution capabilities and currently provide custom training services in more than 40 countries to many industry leaders, such as CIGNA Corporation, Bank of America, Cisco Systems, Eli Lilly, ExxonMobil, General Motors, Microsoft, Ford and United Technologies, as well as to government agencies including the U.S. Army, Office of Personnel Management and the Skills Funding Agency in the United Kingdom. Our experience allows us to leverage our expertise across a wide variety of customer end markets ranging from heavy manufacturing such as automotive to the high tech bio-pharmaceutical industry. In 2011, for the eighth consecutive year, Training Industry, Inc., an industry trade organization, selected us as one of the Top 20 Companies in Training Outsourcing. Also in 2011, Training Industry, Inc. selected us as one of the Top Sales Training Companies for the fourth consecutive year. During 2011, Training Industry, Inc. also selected us as one of the Top 20 IT Training Companies, Top 20 Learning Portal Companies and Top 20 Content Development Companies. We also won several other industry awards including a prestigious “Learning In Practice” award from Chief Learning Officer Magazine and six Brandon Hall Excellence in Learning Awards, and were ranked a Top “Breadth of Service” Learning Provider by HRO Today .
Our consulting, engineering, and technical support services range from traditional business consulting, including lean enterprise consulting services, to specialized engineering and technical support services, such as design and evaluation services regarding facilities, processes and systems. Our consulting and engineering customers typically operate in technically complex industries such as oil and gas, power, chemical, aerospace, transportation and manufacturing industries, and include customers such as Pratt & Whitney, General Dynamics Corporation, Rockwell Automation, Luminant Energy, NRG Energy and Ameren Energy. We have a strong reputation for providing services for leading edge and emerging technologies and believe we are a leader in the rapidly developing field of design and construction of alternative fuel stations, including liquefied natural gas (“LNG”) and hydrogen fueling stations. In addition, our consulting services support regulatory and environmental compliance, modification of facilities and processes and plant performance improvement.
Operating Segments
As of December 31, 2011, we operated through five reportable business segments: (i) Learning Solutions, (ii) Professional & Technical Services, (iii) Sandy Training & Marketing (“Sandy”), (iv) RWD, and (v) Energy Services. Our Learning Solutions segment represents an aggregation of two operating groups in accordance with the aggregation criteria in U.S. GAAP, while all of the other reportable segments each represent one operating segment. We are organized by operating group, primarily based upon the markets served by each group and/or the services performed. Each operating group consists of business units which are focused on providing specific products and services to certain classes of customers or within targeted markets. Marketing and communications, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business development and sales resources are aligned with operating groups to support existing customer accounts and new customer development.
Effective October 1, 2011, we made two management reporting changes which resulted in a change to our reportable segments. Our Learning Solutions group and our Europe group which were both formerly part of the Manufacturing & BPO segment are aggregated into a separate segment named “Learning Solutions.” In addition, our Manufacturing group, which was also part of the Manufacturing & BPO segment, assumed management responsibility for the former Process & Government group and this newly combined group is a separate reportable segment named “Professional & Technical Services.” We have reclassified the segment financial information herein for all prior years to reflect this change and conform to the current year’s presentation. Further information regarding each business segment is discussed below. We continually review our reportable business segments and change them from time to time as appropriate to reflect organizational changes.
In connection with the acquisition of RWD on April 15, 2011, a portion of the acquired business constitutes a separate reportable segment which is named RWD, and certain other business units of RWD are included in the Professional & Technical Services and Sandy segments.
Learning Solutions. The Learning Solutions segment delivers training, curriculum design and development, e-Learning services, system hosting, training business process outsourcing and consulting services primarily to large companies in the electronics and semiconductors, healthcare, software, financial and other industries as well as to government agencies. This segment’s ability to deliver a wide range of training services on a global basis allows it to take over the entire learning function for the client, including their training personnel.
Professional & Technical Services. Consisting of our former Manufacturing and Process & Government groups, this segment has over four decades of experience providing training, consulting, engineering and technical services, including lean consulting, emergency preparedness, safety and regulatory compliance, chemical demilitarization and environmental services primarily to large companies in the manufacturing, steel, pharmaceutical and petrochemical industries, federal and state government agencies and large government contractors. This segment also provides services to users of alternative fuels, including designing and constructing LNG and hydrogen fueling stations, as well as supplying fuel and equipment.
Sandy Training & Marketing. The Sandy segment provides custom product sales training and has been a leader in serving manufacturing customers in the U.S. automotive industry for over 30 years. Sandy provides custom product sales training designed to better educate customer sales forces with respect to new vehicle features and designs, in effect rapidly increasing the sales force knowledge base and enabling them to address detailed customer queries. Furthermore, Sandy helps our clients assess their customer relationship marketing strategy, measure performance against competitors and connect with their customers on a one-to-one basis. This segment also provides technical training services to automotive customers.
RWD. The RWD segment represents a portion of the consulting business acquired from RWD Technologies, LLC in April 2011. Certain of the other acquired RWD business units are managed within the Professional & Technical Services and Sandy segments discussed above. The RWD segment provides human capital management and IT consulting services, end-user training, change management, knowledge management and operator effectiveness management solutions in industries such as manufacturing, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education as well as the public sector.
Energy Services. The Energy Services segment provides engineering services, products and training primarily to electric power utilities. Our proprietary EtaPro TM Performance Monitoring and Optimization System provides a suite of performance solutions for power generation plants and is installed at approximately 900 power generating units in over 30 countries. In addition to providing custom training solutions, this segment provides web-based training through our GPiLearn TM portal to over 30,000 power plant personnel in the U.S. and in over 40 countries.
Segment Financial Information
For financial information about our business segments and geographic operations and revenue, see Note 13 to the accompanying Consolidated Financial Statements.
Services and Products
Our personnel bring a wide variety of professional, technical and military backgrounds together to create cost-effective solutions for modern business and governmental challenges. Our primary service and product categories are discussed in more detail below.
Custom Training, Sales Training and Performance Improvement . We provide custom training services and products to support existing, as well as the launch of new, plants, products, equipment, technologies and processes. The range of services includes fundamental analysis of a client’s training needs, curriculum design, instructional material development (in hard copy, electronic/software or other format), information technology service support and delivery of training. Training products include custom instructor and student training manuals, and instructional materials suitable for web-based and blended learning solutions. Our instructional delivery capabilities include traditional classroom, structured on-the-job training (OJT), just-in-time methods, computer-based, web-based, video-based and the full spectrum of e-Learning technologies. Our e-Learning services enable us to function as a single-source e-Learning solutions provider through our integration services and hosting, the development and provisioning of proprietary content and the aggregation and distribution of third party content. In addition, our Sandy segment provides customer relationship marketing (CRM) products including brand loyalty publications and other related products. Sandy develops personalized publications for automotive clients which establish a link between the manufacturer/dealer and each customer.
Training Business Process Outsourcing. We provide end-to-end business process outsourcing solutions, including the management of our customers’ training departments, as well as administrative processes, such as tuition assistance program management, vendor management, call center / help desk administration and learning management system (LMS) administration. Our training BPO services encompass a wide spectrum of learning engagements from transactional multi-week assignments focused on a single aspect of a learning process to multi-year contracts where we manage the learning infrastructure of our customer. In addition, we automate a large amount of our customers’ tuition reimbursement programs by utilizing our own proprietary software.
Consulting. Consulting services include not only training-related consulting services, but also more traditional business management, engineering and other disciplines. We are able to provide high-level lean enterprise consulting services, as well as training in the concept, methods and application of lean enterprise and other quality practices, organizational development and change management. We also provide engineering consulting services to support regulatory and environmental compliance, modification of facilities and processes, plant performance improvement, reliability-centered maintenance practices and plant start-up activities. Consulting services also include IT consulting and ERP implementation services, operations continuity assessment, planning, training and procedure development. Consulting products include proprietary training and reference materials.
Technical Support and Engineering . We are staffed and equipped to provide engineering and technical support services and products to clients. We have civil, mechanical and electrical engineers who provide consulting, design and evaluation services regarding facilities, processes and systems. We believe that we are a leader in the design and construction of alternative fuel stations, cryogenic systems and high pressure systems. Technical support services include procedure writing and configuration control for capital intensive facilities, plant start-up assistance, logistics support (e.g., inventory management and control), implementation and engineering assistance for facility or process modifications, facility management for high technology training environments, staff augmentation and help-desk support for standard and customized client desktop applications. Technical support products include our proprietary EtaPRO™ and Virtual Plant TM software applications that serve the power generation industry.
Competitive Strengths
We believe our key competitive strengths include:
Independent and Single-Source Custom Training Solutions Provider. We believe we are one of the largest independent single-source custom training solutions providers in the markets in which we compete. We provide business process outsourcing solutions spanning the full life-cycle of the training process, including the management of training departments and administrative processes for our customers. We believe that the breadth of our service and product offerings, which encompass fully integrated training business process outsourcing solutions as well as discrete services, allows us to better serve the needs of our clients by providing them with a single-source solution for custom training, consulting and technical and engineering services. We believe that the integration of our services into a single platform, together with our international presence and delivery capabilities, allows our customers to leverage an enterprise-wide solution to address their performance improvement needs in a way that streamlines their internal operations, improves the speed and efficiency at which critical know-how is disseminated on a firm-wide basis, and enables them to achieve their desired performance improvement goals.
Scalable Technology Platform. Our training programs are delivered online, in classroom settings or a combination of both. We have the ability to work with outside information technology (IT) vendors in combination with our own proprietary software in order to deliver a scalable technology platform capable of addressing training needs of various size and commitment, ranging from a one-time project to a multi-year training program.
Legacy Technical Expertise. In the 1960’s, we began providing technical services to the U.S. Navy nuclear submarine program and nuclear electric-power generation industry and have since maintained and expanded our reputation for providing technically complex consulting, engineering, and training services. Many of our employees have engineering degrees, technical training or years of relevant technical industry experience. Through repeat projects with industry leaders, such as ExxonMobil, Applied Materials and Pratt & Whitney, we have acquired significant industry experience in providing highly technical consulting services. We believe that our technical expertise allows us to address market opportunities for complex business challenges that require in-depth expertise and certifications typically acquired over several years of specialized training and many years of experience. We also believe that our ability to provide both training-related and business consulting services allows us to gain insight into operations of our customers, understand the challenges they face and develop optimal solutions to meet these challenges. We also believe that the knowledge that we develop while working with our clients provides us with a significant competitive advantage as those clients look to expand the scope of services outsourced to third party service providers.
Well Positioned to Capitalize on the Large Product Sales Training Market. We believe that the introduction of new products with advanced features, combined with the growing amount and accessibility of information available to consumers, requires companies to maintain a highly skilled and technologically current sales force to most effectively capture customer interest and confidence. In-house implementation of product sales training programs can be expensive and time-consuming as these programs typically involve significant levels of face-to-face training, in some cases across a large sales force that can be located around the globe. In addition, product sales training tends to be a continuous process, as the pace of new products and features in many cases requires year-round updating of the sales force. We have what we believe to be one of the industry’s leading product sales training platforms, and are well positioned to benefit from increased training outsourcing as companies look for ways to reduce costs.
Business Model Supports Visibility of Revenues. We believe the nature of our business, which includes established relationships with our clients, average project durations of one year, as well as many long term contracts with our customers, provides us with a platform from which to drive revenues and gives us visibility into our future performance. We have long-standing relationships with many of our clients, with over 60% of our top 25 clients having used our services for five or more years. Additionally, over 90% of our annual revenue is generated by clients that existed in the prior year. We also had a backlog for services under executed contracts of $203.3 million as of December 31, 2011, most of which we anticipate will be recognized as revenue during 2012 .
Highly Qualified and Dedicated Employees and Tenured Management Team. Our most important asset is our people, as their wide-ranging skill set enables us to serve our diverse and expanding global client base. As a result, we are committed to the continued development of our employees. We offer our employees technical, functional, industry, managerial and leadership skill development and training throughout their careers with us. We seek to reinforce our employees’ commitment to our clients, culture and values through a comprehensive performance management system and a career philosophy that rewards both individual performance and teamwork. We also benefit from the skill and experience of our executive management team, who together have in excess of 100 years experience in the training industry and have an average tenure with our company of over 20 years.
Contracts
We currently perform under fixed price (including fixed-fee per transaction), time-and-materials and cost-reimbursable contracts. Our contracts with the U.S. Government have predominantly been cost-reimbursable contracts and fixed price contracts. We are required to comply with Federal Acquisition Regulations and Government Cost Accounting Standards with respect to services provided to the U.S. Government and its agencies. These Regulations and Standards govern the procurement of goods and services by the U.S. Government and the nature of costs that can be charged with respect to such goods and services. All such contracts are subject to audit by a designated government audit agency, which in most cases is the Defense Contract Audit Agency (the “DCAA”). The DCAA has audited our contracts and indirect rates through 2004 without any material disallowances.
International
We conduct our business outside of the United States in over 40 countries primarily through our wholly owned subsidiaries located in the United Kingdom, France, Germany, Canada, Mexico, Colombia, Singapore, China and India. Through these subsidiaries, we are capable of providing substantially the same services and products as are available to clients in the United States, although modified as appropriate to address the language, business practices and cultural factors unique to each client and country. In combination with our subsidiaries, we are able to coordinate the delivery to multi-national clients of services and products that achieve consistency on a global, enterprise-wide basis. Revenue from operations outside the United States represented approximately 18% of our consolidated revenue for the year ended December 31, 2011 (see Note 13 to the accompanying Consolidated Financial Statements).
Customers
During 2011, we provided services to over 500 customers. Significant customers include multinational automotive manufacturers , such as General Motors Company, Ford Motor Company, Hyundai Motor Company and Chrysler Group; governmental agencies , such as the U.S. Department of Defense, U.S. Naval Undersea Warfare Center, Office of Personnel Management, U.S. Social Security Administration and the Skills Funding Agency in the United Kingdom; U.S. Government prime contractors , such as Bechtel National, Inc. and URS Corporation; commercial electric power utilities , such as Eskom, NRG Energy and Suez Energy; and other large multinational companies , such as Microsoft, CIGNA Corporation, Rockwell Automation, Hewlett Packard Company, Network Appliance, Cisco Systems, Inc., Texas Instruments, Lowe’s Companies, Inc., Eli Lilly & Co., United Technologies Corporation, Exxon Mobil and United States Steel Corporation.
We have a market concentration of revenue in the automotive sector and in prior years had a concentration of revenue from General Motors Corporation and its affiliates and successor (“General Motors”). Revenue from the automotive industry accounted for approximately 17%, 18% and 21% of our consolidated revenue for the years ended December 31, 2011, 2010 and 2009, respectively, and revenue from General Motors accounted for approximately 9%, 12% and 16% of our consolidated revenue for the years ended December 31, 2011, 2010 and 2009, respectively. No single customer accounted for more than 10% of our consolidated revenue in 2011 or accounts receivable as of December 31, 2011.
CEO BACKGROUND
Scott N. Greenberg (1987) 55
Mr. Greenberg has been Chief Executive Officer since April 2005 and was the President of the Company from 2001 until February 2006. He was Chief Financial Officer from 1989 until December 2005, Executive Vice President from 1998 to 2001, Vice President from 1985 to 1998, and has held various other positions since joining the Company in 1981. From 1999 to 2008, he was a Director of GSE Systems, Inc. (“GSE”), a global provider of real-time simulation and training solutions which is a former majority-owned subsidiary of the Company that was spun off in 2005. Mr. Greenberg has also been a Director of National Patent Development Corporation (“NPDC”), a holding company, since 2004, when NPDC, formerly a wholly-owned subsidiary of the Company, was spun off. Mr. Greenberg was also Chief Financial Officer of NPDC from 2004 until August 2007. Mr. Greenberg has served on our Board of Directors since 1987. Mr. Greenberg brings to the Board significant experience and expertise in management, acquisitions and strategic planning, as well as many years of finance and related transaction experience. As our Chief Executive Officer, he brings to the Board extensive knowledge of the Company’s structure, history, major stockholders and culture.
Harvey P. Eisen (2002) 69
Mr. Eisen has been the Chairman of the Board since April 2005. He has been Chairman and Managing Member of Bedford Oak Advisors, LLC since 1998. Prior thereto, Mr. Eisen served as Senior Vice President of Travelers, Inc. and of Primerica prior to its merger with Travelers in 1993. Mr. Eisen has over thirty years of asset management experience. Mr. Eisen is a Trustee of the University of Missouri Business School, where he established the first accredited course on the Warren Buffet Principles of Investing, and of Johns Hopkins University. Mr. Eisen has also been a Director of NPDC since August 2004 and became Chairman of the Board and Chief Executive Officer of NPDC in May 2007. Mr. Eisen has served on our Board of Directors since 2002. Mr. Eisen’s long, distinguished career in the investment and finance industry, combined with his wealth of experience with companies in many sectors, make him a skilled advisor who provides critical insight into strategic planning and financial matters.
Marshall S. Geller (2002) 72
Mr. Geller is Founder and Senior Managing Director of St. Cloud Capital, a Los Angeles based private equity fund formed in December 2001. He has spent more than 40 years in corporate finance and investment banking, including 21 years as a Senior Managing Partner of Bear, Stearns & Co., with oversight of all operations in Los Angeles, San Francisco, Chicago, Hong Kong and the Far East. Mr. Geller is currently a Director on the boards of National Holdings Corporation, California Pizza Kitchen, Inc., and Guidance Software, Inc., and is on the Board of Governors of Cedars Sinai Medical Center, Los Angeles. Mr. Geller also serves on the Dean’s Advisory Council for the College of Business & Economics at California State University, Los Angeles, and on the Little Hoover Commission, an independent California state oversight agency. During the past five years, Mr. Geller has also been a director of 1 st Century Bancshares, ShopNBC-ValueVision Media, Inc., SCPIE Holdings, Inc., and Blue Holdings Inc. Mr. Geller has served on our Board of Directors since 2002. As the managing director of a private equity fund and a director of other public companies, Mr. Geller brings to the Board many years of experience and expertise as an investor in and advisor to companies in various sectors.
Richard C. Pfenniger, Jr. (2005) 56
Mr. Pfenniger was the Chairman of the Board, President and Chief Executive Officer of Continucare Corporation (Continucare), a provider of primary care physician services, until October 2011 when a merger between Continucare and Metropolitan Health Networks, Inc. became effective. Mr. Pfenniger was appointed President and Chief Executive Officer of Continucare in October 2003 after having served as a member of the board of Continucare since March 2002 and as Chairman since September 2002. Mr. Pfenniger was the Chief Executive Officer and Vice Chairman of Whitman Education Group, Inc., a provider of career-oriented higher education, from 1997 until June 2003. From 1994 to 1997, Mr. Pfenniger served as the Chief Operating Officer of IVAX Corporation, and from 1989 to 1994 he served as the Senior Vice President-Legal Affairs and General Counsel of IVAX Corporation, a multi-national pharmaceutical company. Mr. Pfenniger currently serves as a Director of Safestitch Medical, Inc. and Opko Health, Inc. and also served as a director of IVAX Corporation from 2002 to 2009. Mr. Pfenniger has served on our Board of Directors since 2005. Mr. Pfenniger’s experience as a Chief Executive Officer of a public company and prior experience in the education industry brings relevant experience managing a growth-oriented business and balancing the demands of clients, employees and investors.
Sue W. Kelly (2007) 75
Mrs. Kelly is currently President and Chief Executive Officer of Kelly Consulting LLC, an investment and consulting firm. From 1995 to January 2007 she was a member of the U.S. House of Representatives, representing the 19 th Congressional District of New York. While in Congress she served on the Board of Visitors of the U.S. Military Academy at West Point and on the House Financial Services Committee, among other assignments. Prior to becoming a Congresswoman, she worked in a variety of positions in business and education. Ms. Kelly currently serves as a Director of Magna Carta Companies, Inc. and has served on our Board of Directors since December 2007. Ms. Kelly’s experience in government provides the board with a unique perspective and insight on doing business with the U.S. government.
A. Marvin Strait (2007) 77
Mr. Strait presently practices as a Certified Public Accountant under the name A. Marvin Strait, CPA. He has practiced in the field of public accountancy in Colorado for over 40 years. He presently serves as a member of the Board of Trustees of the Colorado Springs Fine Arts Center Foundation, the Sam S. Bloom Foundation, The Penrose-St. Francis Health Foundation and Pikes Peak Educational Foundation. He also presently serves as a member of the Board of Directors and Chairman of the Audit Committee of Sturm Financial Group, Inc., and on the Board of Directors of the Denver School of Nursing and the Community Advisory Panel of American National Bank. Mr. Strait previously served as the Chairman of the Board of Directors of the American Institute of Certified Public Accountants (AICPA), as President of the Colorado Society of Certified Public Accountants and the Colorado State Board of Accountancy, and serves as a permanent member of the AICPA Governing Council. Mr. Strait served as a Director and Chairman of the Audit Committee of Continucare from 2004 to 2011, and as a Director and Chairman of the Audit Committee of RAE Systems, Inc. from 2006 to 2009. Mr. Strait has served on our Board of Directors since December 2007. Mr. Strait brings to the Board significant expertise in accounting and financial matters and in analyzing and evaluating financial statements. He has served on the audit committees of several companies, and is Chair of our Audit Committee.
Gene A. Washington (2007) 64
Mr. Washington was the Director of Football Operations with the National Football League (NFL) in New York from 1994 until his retirement in March 2009. He previously served as a professional sportscaster and as Assistant Athletic Director for Stanford University prior to joining the NFL. Mr. Washington has served on numerous corporate and civic boards, and currently serves as a Director for several NYSE-listed companies including dELiA*s, Goodrich Petroleum Corporation and the former New York Bancorp, Inc. Mr. Washington has served on our Board of Directors since December 2007. Mr. Washington brings to the Board perspectives and relationships that complement the largely financial backgrounds of our other directors, in addition to his experience serving on several public company boards.
Daniel M. Friedberg (2009) 50
Mr. Friedberg has been President and Chief Executive Officer of Sagard Capital Partners Management Corporation, the investment manager of Sagard Capital Partners, L.P., since its founding in 2005. Since 2005, he has also been a Vice President and Officer of Power Corporation of Canada, a diversified international management holding company. Prior to that, he was a Partner at Bain & Company. Mr. Friedberg joined Bain & Company in 1987 in the London office, and was a founder of the Toronto office in 1989 and the New York office in 2000. Mr. Friedberg also serves as a director of X-Rite, Incorporated. Mr. Friedberg has served on our Board of Directors since December 2009, when he was elected a director pursuant to the terms of the Securities Purchase Agreement under which Sagard Capital Partners, L.P. made an equity investment in the Company. Mr. Friedberg brings to the Board experience in investment management, which provides valuable perspective into our organizational and operational management as well as strategic planning matters.
MANAGEMENT DISCUSSION FROM LATEST 10K
General Overview
We are a global performance improvement solutions provider of sales and technical training, e-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 four decades of experience in providing solutions to optimize workforce performance.
As of December 31, 2011, we operated through five reportable business segments: (i) Learning Solutions, (ii) Professional & Technical Services, (iii) Sandy Training & Marketing (“Sandy”), (iv) RWD, and (v) Energy Services. Our Learning Solutions segment represents an aggregation of two operating groups in accordance with the aggregation criteria in U.S. GAAP, while all of the other reportable segments each represent one operating segment. We are organized by operating group, primarily based upon the markets served by each group and/or the services performed. Each operating group consists of business units which are focused on providing specific products and services to certain classes of customers or within targeted markets. Marketing and communications, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business development and sales resources are aligned with operating groups to support existing customer accounts and new customer development.
Effective October 1, 2011, we made two management reporting changes which resulted in a change to our reportable segments. Our Learning Solutions group and our Europe group which were both formerly part of the Manufacturing & BPO segment are aggregated into a separate segment named “Learning Solutions.” In addition, our Manufacturing group, which was also part of the Manufacturing & BPO segment, assumed management responsibility for the former Process & Government group and this newly combined group is a separate reportable segment named “Professional & Technical Services.” We have reclassified the segment financial information herein for all prior years to reflect this change and conform to the current year’s presentation. Further information regarding each business segment is discussed below. We continually review our reportable business segments and change them from time to time to reflect organizational changes.
In connection with the acquisition of RWD on April 15, 2011, a portion of the acquired business constitutes a separate reportable segment which is named RWD, and certain other business units of RWD are included in the Professional & Technical Services and Sandy segments.
Learning Solutions. The Learning Solutions segment delivers training, curriculum design and development, e-Learning services, system hosting, training business process outsourcing and consulting services primarily to large companies in the electronics and semiconductors, healthcare, software, financial and other industries as well as to government agencies. This segment’s ability to deliver a wide range of training services on a global basis allows it to take over the entire learning function for the client, including their training personnel.
Professional & Technical Services. Consisting of our former Manufacturing and Process & Government groups, this segment has over four decades of experience providing training, consulting, engineering and technical services, including lean consulting, emergency preparedness, safety and regulatory compliance, chemical demilitarization and environmental services primarily to large companies in the manufacturing, steel, pharmaceutical and petrochemical industries, federal and state government agencies and large government contractors. This segment also provides services to users of alternative fuels, including designing and constructing LNG and hydrogen fueling stations, as well as supplying fuel and equipment.
Sandy Training & Marketing. The Sandy segment provides custom product sales training and has been a leader in serving manufacturing customers in the U.S. automotive industry for over 30 years. Sandy provides custom product sales training designed to better educate customer sales forces with respect to new vehicle features and designs, in effect rapidly increasing the sales force knowledge base and enabling them to address detailed customer queries. Furthermore, Sandy helps our clients assess their customer relationship marketing strategy, measure performance against competitors and connect with their customers on a one-to-one basis. This segment also provides technical training services to automotive customers.
RWD. The RWD segment represents a portion of the consulting business acquired from RWD Technologies, LLC in April 2011. Certain of the other acquired RWD business units are managed within the Professional & Technical Services and Sandy segments discussed above. The RWD segment provides human capital management and IT consulting services, end-user training, change management, knowledge management and operator effectiveness management solutions in industries such as manufacturing, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education as well as the public sector.
Energy Services. The Energy Services segment provides engineering services, products and training primarily to electric power utilities. Our proprietary EtaPro TM Performance Monitoring and Optimization System provides a suite of performance solutions for power generation plants and is installed at approximately 900 power generating units in over 30 countries. In addition to providing custom training solutions, this segment provides web-based training through our GPiLearn TM portal to over 30,000 power plant personnel in the U.S. and in over 40 countries.
We discuss our business in more detail in Item 1.Business and the risk factors affecting our business in Item 1A. Risk Factors .
Business Strategy
We seek to increase shareholder value by pursuing the following strategies:
Continuously enhance our service offerings and capabilities. We believe the demand for learning and development services will continue to increase. In a knowledge based economy, this demand is driven by ever increasing technology, processes, products, and attrition of personnel. The rate and effectiveness of the transfer of knowledge to the workforce of our clients, their partners, and even their customers can positively impact their performance. We plan to meet this demand by continuously expanding our services and capabilities through organic growth initiatives based upon our technical expertise as well as through targeted acquisitions. Our acquisitions in recent years have added product sales training to our services offering, strengthened our e-Learning and custom training content development services in both the commercial and government sectors, and expanded our geographical reach. We believe that the breadth of our service and product offerings allows us to effectively compete for customers by offering a comprehensive solution for custom training, consulting, engineering and technical services. We will continue to focus on increasing our capabilities to drive incremental growth from new, as well as existing, clients.
Develop and maintain strong customer relationships. We plan to preserve and grow our business by cross-selling our services and capabilities across and within our existing client base. We have a successful track record of increasing the scope of our work for a number of our clients, many of whom we estimate currently outsource only a fraction of their training expenditures. We believe that as our clients benefit from the efficient, cost-effective and flexible training solutions and services that we provide, many of them will find it beneficial to increase the scope of training services that they outsource to third party providers. We believe that the strength of our relationships with our existing clients, including the insight and knowledge into their operations that we have developed through these relationships, when combined with the broad range of our service and product offerings, provide us with an advantage when competing for these additional expenditures. We realize that many companies have reduced their external training expenditures due to the economic recession; however, we will strive to preserve our relationships and increase our proportion of our customers’ total spend.
Remain competitive in the current economic environment. We experienced a reduction in revenue during 2009 as a result of the economic recession, primarily due to a slowdown in certain of the end market sectors we serve, such as automotive, manufacturing and electronics and semiconductors. At the beginning of 2009, we implemented a cost management strategy to ensure that we remained competitive in this economic environment and are well positioned when the economy recovers. We have continued to manage costs to ensure we remain competitive and will continue to invest in what we believe are key areas of growth.
Leverage BPO capabilities. We have a demonstrated ability to provide training services across a wide spectrum of learning engagements from transactional multi-week assignments focused on a single aspect of a learning process to multi-year contracts where we manage the learning infrastructure of our customer. Integrated BPO engagements typically require us to assume responsibility for the development, delivery and administration of learning functions and are generally carried out under multi-year agreements. We intend to leverage our BPO capabilities to expand the customers and markets we serve.
Maintain our international presence. We believe international markets offer growth opportunities for our services. We intend to leverage our current international presence as well as continue pursuing our strategy of enhancing our international platform by selectively acquiring businesses in targeted geographies and following our current clients into new geographic markets. In our experience, many of our clients are seeking access to these and other attractive international markets and as such we intend to enhance our international capabilities. In order to support their business expansion we are providing employee training solutions across organizations in different countries and different languages, while maintaining quality and consistency in the overall training program. By moving into specific international markets with our existing clients, we are able to not only deepen our relationships with those clients, but are also able to develop expertise in those markets that we can leverage to additional customers. We believe that following this strategy provides us with opportunities to gain access to international markets with established client relationships in those markets.
Continue our disciplined acquisition strategy. We plan to continue to focus on evaluating compelling strategic acquisition targets to enhance our service offerings and delivery capabilities and to expand our geographic footprint.
We have followed a disciplined approach to target selection and have been able to acquire complementary businesses at what we believe are attractive valuations. Since 2006, we have acquired 18 businesses which have expanded our e-Learning capabilities and added complementary services such as product sales training. Ten of these businesses are in the United Kingdom and have strengthened our international platform, enabling us to meet the needs of our global clients while providing additional client opportunities. We also believe that our current operating structure, which utilizes a centralized infrastructure of corporate services to support our various platforms, enhances our ability to quickly and cost-effectively integrate acquisitions. We look to identify acquisitions to augment our capabilities when we believe acquisitions are the quickest and most efficient way of expanding our platform and service offerings.
Acquisitions
Below is a summary of the acquisitions we completed during 2011, 2010 and 2009. See Note 2 to the accompanying Consolidated Financial Statements for further details, including the purchase price allocations.
2011 Acquisitions
Communication Consulting
On February 1, 2011, through our wholly-owned subsidiaries in Hong Kong and Shanghai, we acquired the training business and certain related assets of Cathay/Communication Consulting Limited (“Communication Consulting”), a Hong Kong-based training and consulting company with offices in Shanghai and Beijing, China, and Haryana (New Delhi) in India. Communication Consulting designs and delivers customized training solutions and specializes in the areas of leadership, communication skills, sales and customer service training. The purchase price for the acquired business and assets was $1.5 million in cash. In addition, the purchase agreement requires us to pay up to an additional $0.7 million, which would be payable subsequent to the two twelve-month periods following completion of the acquisition, contingent upon our Shanghai operations achieving specified revenue targets during those periods, as defined in the purchase agreement. Communication Consulting is included in the Professional & Technical Services segment and the results of its operations have been included in the consolidated financial statements since February 1, 2011.
Ultra Training Ltd.
On April 1, 2011, we acquired Ultra Training Ltd., an independent skills training provider located in the United Kingdom. We acquired 100% ownership of Ultra Training Ltd. for a purchase price of $3.4 million in cash. Ultra Training Ltd. is included in the Learning Solutions segment and its results of operations have been included in the consolidated financial statements since April 1, 2011.
RWD Technologies
On April 15, 2011, we completed the acquisition of certain assets of the consulting business of RWD Technologies, LLC, a Delaware limited liability company, and certain of its subsidiaries (collectively, “RWD”). RWD is a provider of human capital management and IT consulting services, business transformation and lean process improvement, end-user training, change management, knowledge management and operator effectiveness management solutions in industries such as manufacturing, energy, automotive, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education as well as the public sector. We paid $28.0 million at closing, which was financed with $20.4 million of cash on hand and $7.6 million of borrowings under our revolving credit facility. The purchase price was subsequently adjusted based on the final determination of the working capital of the acquired business as of the closing date in accordance with the Asset Purchase Agreement. In September 2011, the seller paid us $2.2 million based on the final determination of working capital as of the acquisition date.
A portion of the acquired business is reported as a separate reportable segment named RWD, and the remaining other business units of RWD are included in the Professional & Technical Services and Sandy segments. The results of RWD’s operations have been included in the consolidated financial statements since April 16, 2011.
Van Hee
On July 29, 2011, we entered into an Asset Purchase Agreement with Van Hee Transport Limited (“Van Hee”), an independent skills training provider located in the United Kingdom, to acquire a contract to provide government funded training services. The purchase price was $0.8 million in cash at closing and was recorded as an intangible asset which is being amortized over an estimated useful life of three years subsequent to the acquisition date.
2010 Acquisitions
Marton House
On April 1, 2010, we completed the acquisition of Marton House Plc (“Marton House”), a provider of custom e-Learning content development with expertise in leadership and product sales training in the United Kingdom. We acquired 100% ownership of Marton House for a purchase price of $2.8 million in cash. In addition, the purchase agreement requires us to pay up to an additional $3.7 million, of which approximately $1.2 million would be payable subsequent to each of the three twelve-month periods following completion of the acquisition, contingent upon Marton House achieving certain earnings targets during those periods, as defined in the purchase agreement. We paid $1.3 million of contingent consideration in April 2011 with respect to the earnings achieved for the first twelve-month period following completion of the acquisition. Marton House is included in our Learning Solutions segment and its results of operations have been included in the consolidated financial statements since April 1, 2010.
Bath Consulting
On November 1, 2010, we completed the acquisition of Bath Consulting Group (“Bath Consulting”), a niche leadership and organizational development consulting firm in the United Kingdom. We acquired 100% ownership of Bath Consulting for a purchase price of $1.4 million in cash. In addition, the purchase agreement requires us to pay up to an additional $2.4 million, which would be payable subsequent to each of the three twelve-month periods following completion of the acquisition, contingent upon Bath Consulting achieving certain earnings targets during those periods, as defined in the purchase agreement. We expect to pay $0.3 million of contingent consideration in the first quarter of 2012 with respect to the earnings achieved for the first twelve-month period following completion of the acquisition. Bath Consulting is included in our Learning Solutions segment and its results of operations have been included in the consolidated financial statements since November 1, 2010.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
General Overview
We are a global performance improvement solutions provider of sales and technical training, e-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 four decades of experience in providing solutions to optimize workforce performance.
As of March 31, 2012, we operated through five reportable business segments: (i) Learning Solutions, (ii) Professional & Technical Services, (iii) Sandy Training & Marketing (“Sandy”), (iv) RWD, and (v) Energy Services. Our Learning Solutions segment represents an aggregation of two operating groups in accordance with the aggregation criteria in U.S. GAAP, while all of the other reportable segments each represent one operating segment. We are organized by operating group, primarily based upon the markets served by each group and/or the services performed. Each operating group consists of business units which are focused on providing specific products and services to certain classes of customers or within targeted markets. Marketing and communications, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business development and sales resources are aligned with operating groups to support existing customer accounts and new customer development.
Further information regarding each business segment is discussed below.
Learning Solutions. The Learning Solutions segment delivers training, curriculum design and development, e-Learning services, system hosting, training business process outsourcing and consulting services primarily to large companies in the electronics and semiconductors, healthcare, software, financial and other industries as well as to government agencies. This segment’s ability to deliver a wide range of training services on a global basis allows it to take over the entire learning function for the client, including their training personnel.
Professional & Technical Services. Consisting of our former Manufacturing and Process & Government groups, this segment has over four decades of experience providing training, consulting, engineering and technical services, including lean consulting, emergency preparedness, safety and regulatory compliance, chemical demilitarization and environmental services primarily to large companies in the manufacturing, steel, pharmaceutical and petrochemical industries, federal and state government agencies and large government contractors. This segment also provides services to users of alternative fuels, including designing and constructing LNG and hydrogen fueling stations, as well as supplying fuel and equipment.
Sandy Training & Marketing. The Sandy segment provides custom product sales training and has been a leader in serving manufacturing customers in the U.S. automotive industry for over 30 years. Sandy provides custom product sales training designed to better educate customer sales forces with respect to new vehicle features and designs, in effect rapidly increasing the sales force knowledge base and enabling them to address detailed customer queries. Furthermore, Sandy helps our clients assess their customer relationship marketing strategy, measure performance against competitors and connect with their customers on a one-to-one basis. This segment also provides technical training services to automotive customers.
RWD. The RWD segment represents a portion of the consulting business acquired from RWD Technologies, LLC in April 2011. Certain of the other acquired RWD business units are managed within the Professional & Technical Services and Sandy segments discussed above. The RWD segment provides human capital management and IT consulting services, end-user training, change management, knowledge management and operator effectiveness management solutions in industries such as manufacturing, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education as well as the public sector.
Energy Services. The Energy Services segment provides engineering services, products and training primarily to electric power utilities. Our proprietary EtaPro TM Performance Monitoring and Optimization System provides a suite of performance solutions for power generation plants and is installed at approximately 900 power generating units in over 30 countries. In addition to providing custom training solutions, this segment provides web-based training through our GPiLearn TM portal to over 30,000 power plant personnel in the U.S. and in over 40 countries.
Operating Highlights
Three Months ended March 31, 2012 compared to the Three Months ended March 31, 2011
For the three months ended March 31, 2012, we had income before income tax expense of $7.3 million compared to $4.4 million for the three months ended March 31, 2011. The increase was primarily due to a $3.0 million increase in operating income, the components of which are discussed below. Net income was $4.4 million, or $0.23 per diluted share, for the three months ended March 31, 2012, compared to net income of $2.6 million, or $0.14 per diluted share, for the three months ended March 31, 2011. During the three months ended March 31, 2012, diluted weighted average shares outstanding increased by 296,000 to 19,188,000 shares outstanding compared to 18,892,000 shares for the same period in 2011, primarily due to the issuance of shares for stock-based compensation and the effect of the increase in our stock price compared to the prior year on the results of the calculation of diluted weighted average shares outstanding.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1.5 million or 22.8% from $6.7 million for the first quarter of 2011 to $8.3 million for the first quarter of 2012. The increase is primarily due to the acquisitions we completed in 2011 which resulted in a $0.9 million increase in labor and benefits expense, a $0.5 million increase in intangible asset amortization expense and increases in other various costs such as IT infrastructure, software, accounting, business insurance and depreciation during the first quarter of 2012 compared to the first quarter of 2011. The increase in SG&A expenses was partially offset by a net $0.4 million decrease in legal expenses related to the completion of acquisitions in 2011.
Change in Fair Value of Contingent Consideration
We recognized a net loss on the change in fair value of contingent consideration related to acquisitions of less than $0.1 million for the three months ended March 31, 2012 compared to a net gain of $0.2 million for the three months ended March 31, 2011. Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“Topic 805”) requires that contingent consideration be recognized at fair value on the acquisition date and be re-measured each reporting period with subsequent adjustments recognized in the consolidated statement of operations. We estimate the fair value of contingent consideration liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable; however, there is significant judgment involved. At each reporting date, the contingent consideration obligation will be revalued to estimated fair value and changes in fair value subsequent to the acquisitions will be reflected in income or expense in the consolidated statements of operations, and could cause a material impact to, and volatility in, our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. See Note 5 to the Condensed Consolidated Financial Statements for further details regarding the potential contingent consideration payments and the changes in fair value of the related liabilities for each acquisition during the three months ended March 31, 2012.
Interest Expense
Interest expense was consistent at less than $0.1 million for the first quarters of both 2012 and 2011.
Other Income
Other income was $0.1 million for the first quarter of 2012 compared to $0.2 million for the first quarter of 2011 and consisted primarily of income from a joint venture and foreign currency gains and losses in both years.
Income Tax Expense
Income tax expense was $3.0 million for the first quarter of 2012 compared to $1.8 million for the first quarter of 2011. The effective income tax rate was 40.2% and 41.6% for the three months ended March 31, 2012 and 2011, respectively. The increase in income tax expense and decrease in the effective income tax rate is due to an increase in pre-tax income for the first quarter of 2012 compared to the first quarter of 2011 and a larger portion of our 2012 income expected to be derived from foreign jurisdictions which are taxed at lower rates. Income tax expense for the quarterly periods is based on an estimated annual effective tax rate which includes the federal, state and foreign statutory rates, permanent differences, and other items that may have an impact on income tax expense.
Liquidity and Capital Resources
Working Capital
For the quarter ended March 31, 2012, our working capital increased $5.7 million from $36.0 million at December 31, 2011 to $41.6 million at March 31, 2012 primarily due to cash generated from operations. As of March 31, 2012, we had no long-term debt or short-term borrowings outstanding. We believe that cash generated from operations and borrowings available under our Credit Agreement ($34.5 million of available borrowings as of March 31, 2012), will be sufficient to fund our working capital and other requirements for at least the next twelve months.
As of March 31, 2012, the amount of cash and cash equivalents held outside of the U.S. by foreign subsidiaries was $7.9 million. At the present time, we do not anticipate repatriating these balances to fund domestic operations. We would be required to accrue for and pay taxes in the U.S. in the event we decided to repatriate these funds.
Significant Customers & Concentration of Credit Risk
We have a market concentration of revenue in the automotive sector and in prior years had a concentration of revenue from General Motors Corporation and its affiliates and successor (“General Motors”). Revenue from the automotive industry accounted for approximately 14% and 18% of our consolidated revenue for the three months ended March 31, 2012 and 2011, respectively, and revenue from General Motors accounted for approximately 7% and 11%, respectively, of our consolidated revenue for the three months ended March 31, 2012 and 2011. No other customer accounted for more than 10% of our revenue in the first quarter of 2012 or accounts receivable as of March 31, 2012.
For the three months ended March 31, 2012 and 2011, sales to the United States government and its agencies represented approximately 14% and 19%, respectively, of our consolidated revenue. Revenue was derived from many separate contracts with a variety of government agencies that are regarded by us as separate customers.
Cash Flows
Three months ended March 31, 2012 compared to the Three Months ended March 31, 2011
Our cash balance increased $4.1 million during the first quarter of 2012 from $4.2 million as of December 31, 2011 to $8.3 million as of March 31, 2012. The increase in cash and cash equivalents during the first quarter of 2012 resulted from cash provided by operating activities of $7.0 million, cash used in investing activities of $0.9 million, cash used in financing activities of $2.1 million and a $0.1 million positive effect due to exchange rate changes on cash and cash equivalents.
Cash provided by operating activities was $7.0 million for the first quarter of 2012 compared to $2.4 million for the first quarter of 2011. The increase in cash provided by operating activities compared to the prior year is due to a $1.8 million increase in net income, an increase in non-cash add backs to net income including an $0.8 million increase in depreciation and amortization expense, and favorable changes in working capital items during the first quarter of 2012 compared to the first quarter of 2011, largely due to a decrease in net receivables during the first quarter of 2012.
Cash used in investing activities was $0.9 million for the first quarter of 2012 compared to $2.2 million for the first quarter of 2011. The decrease in cash used in investing activities is primarily due to no cash used for acquisitions during the first quarter of 2012 compared to $1.5 million of cash used for acquisitions during the first quarter of 2011. Fixed asset additions were $0.9 million for the first quarter of 2012 compared to $0.8 million for the first quarter of 2011.
Cash used in financing activities was $2.1 million for the first quarter of 2012 compared to cash provided by financing activities of $0.2 million for the first quarter of 2011. The increase in cash used in financing activities is primarily due to a $1.0 million increase in the change in negative cash book balance during the first quarter of 2012 and $0.8 million of contingent consideration payments during the first quarter of 2012 for previously completed acquisitions.
Short-term Borrowings
As of March 31, 2012, we had a $35 million Credit Agreement with a bank that was due to expire on October 31, 2013. The maximum interest rate on borrowings under the Credit Agreement is at the daily LIBOR Market Index Rate plus 2.25%. Based upon our financial performance, the interest rate can be reduced. As of March 31, 2012, the rate was LIBOR plus 1.0%. The Credit Agreement contains covenants which require us to maintain a minimum tangible net worth of no less than $30.0 million, a total liabilities to tangible net worth ratio of no more than 3.0 to 1.0, and an interest coverage ratio of no less than 5.0 to 1.0. As of March 31, 2012, our tangible net worth was $41.5 million, our total liabilities to tangible net worth ratio was 1.61 to 1.0 and our interest coverage ratio was 187.4 to 1.0, all of which were in compliance with the Credit Agreement. As of March 31, 2012, there were no borrowings outstanding and $34.5 million of available borrowings under the Credit Agreement.
On April 30, 2012, we entered into a Third Amended and Restated Financing and Security Agreement (the “Amended Credit Agreement”) for a maximum principal amount of $50 million with a provision to increase to $75 million upon lender approval. The Amended Credit Agreement expires on October 31, 2014 and is secured by certain of our assets. The maximum interest rate on borrowings under the Amended Credit Agreement is the daily LIBOR market index rate plus 2.25%. Based upon our financial performance, the interest rate can be reduced to a minimum of LIBOR plus 1.0%. The Amended Credit Agreement contains covenants with respect to our minimum tangible net worth, total liabilities to tangible net worth ratio and cash flow to debt service ratio.
Accounting Standard Adopted
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The previous option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. Although the new standard changed the presentation of comprehensive income, there were no changes to the components that are recognized in net income or other comprehensive income under existing guidance. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011 and will be applied retrospectively. We adopted ASU 2011-05 in the first quarter of 2012 and have included two separate, but consecutive statements of operations and comprehensive income in this report. The adoption of ASU 2011-05 changed our financial statement presentation of comprehensive income but did not impact our net income, financial position or cash flows.
Off-Balance Sheet Commitments
As of March 31, 2012, we do not have any off-balance sheet commitments except for operating leases and letters of credit entered into in the normal course of business.
CONF CALL
Ann Blank
Thank you. Good morning everyone and welcome to GP Strategies second quarter 2008 earnings call. Financial results for the second quarter were released this morning before the market opened. You can access a copy of this result in the press release which is posted on our website at www.gpwordwide.com. On the call today for GP Strategies are Scott Greenberg, Chief Executive Officer; Doug Sharp, President and Sharon Esposito-Mayer, Chief Financial Officer.
Before I turn over the call to Scott, let me remind you that today’s comments will include forward looking statements which are subject to certain risks and uncertainties that could cause our actual results to be materially different from expectations. For a complete discussion of these risks, we encourage you to read our documents on file with the SEC.
And with that, I would like to turn the call over to Scott.
Scott Greenberg
Thank you, Ann. Good morning everybody and welcome to our conference call for the quarter ended June 30, 2008. To begin the call, I will give a brief overview of the quarter then Sharon will present a detailed financial analysis of the result and then Doug will give an update on new initiatives and contract awards.
I think you are going to be very pleased with some great news from our United Kingdom operations. After their presentation, I will discuss the future vision of the Company and conclude with a Q&A period. This morning, we came out with our earnings release and we believe the performance was quite impressive. GP Strategies announced net income for the second quarter of $0.18 per share that was after a $0.01 per share nonrecurring charge. This compares to $0.14 per share or roughly a 36% increase in earnings per share compared to the corresponding quarter in 2007 before that nonrecurring charge. We were quite pleased.
In addition to the strong financial results, we announced that the Board of Directors have authorized an additional $5 million dollars available for repurchases under our share buyback program. The thing to realize is since January 2006, we have actually repurchased the total of $33 million inclusive of the private transactions retiring on Class B stock which was $20.3 million and in addition, we had open market purchases of $30 million. We bought back the stock from $6.60 to over $11 dollars per share. The amazing part is we have been able to accomplish this buyback and also fund five acquisitions due to the strong cash flow generated from operations.
When we look at the buyback program, the Company analyzed and the Board analyzed a lot of things. Our ratio of market cap to trailing 12 month EBITDA is currently at approximately $6.5 to $1. At the same time last year, we were roughly $9 to $1. Obviously at this level, we find the stocks very attractive and we will continue to repurchase it.
In addition in today’s press release, we announce that as of June 30, 2008 we have approximately $7.6 million of short-term borrowings outstanding. That was up from the first quarter due to the early extinguishment of the ManTech debt obligation of approximately $5.2 million. But right now, I am pleased to report that as of yesterday, the amount outstanding was reduced to $1.2 million further showing our ability to generate cash. So from June 30, 2008 to yesterday, we have paid down our line $6.4 million.
Revenue for the quarter increased to $72 million which was up from $63.7 million or a 13% increase demonstrating the stability of our revenue base despite the current economic environment. Oil groups of the Company had organic growth in the second quarter of 2008. On the operations front, we continue to invest in our international operations specifically in the Asia Pacific region. We believe that expanding the Asia Pacific operations will provide us with the key differentiator in the future and winning work in both America and Europe, so we will continue with this investment. We are able to make this investment due to the significant accounts we have been able to bring in Europe and Asia Pacific.
Now, I would like to turn it over to Sharon who will give details of the financial results for the quarter.
Sharon Esposito-Mayer
Thanks, Scott. As Scott mentioned, revenue for the second quarter of 2008 increased by $8.4 million or 13%, resulting on a year-to-date revenue increase of $21.7 million or 19%, and organic year-to-date revenue growth of 10%. Revenue in the manufacturing and BPO segment increased during the second quarter by $5.2 million or 19%. This increase was a result of a $2.5 million increase from our United Kingdom operation with $1 million attributable to the SmallPiece acquisition completed in June 2007 and the remaining $1.5 million due to the increase in UK government funded training services and revenue increases with European BPO client.
Other significant increases in this segment include $1.6 million of increased revenue attributable to Via acquisition completed in October 2007 and a $1.3 million net increase in BPO and E-learning services with new and existing US customers. Organic revenue growth this quarter was 9% in this segment excluding the revenue derived form the Via and SmallPiece acquisition. Revenue also increased in the process, energy and government segment by $2.3 million or 14%.
The increase in revenue in this segment was due to $900,000 in net increases in products and services for the energy sector which includes approximately $370,000 of revenue related to PCS acquisition completed on March 1st of this year. A $700,000 increased in engineering services related to LNG and hydrogen construction projects; a $900,000 increase in engineering and technical services primarily for customers in the aerospace industry and a $500,000 increase in the emergency preparedness training for federal and state agencies. These increases were offset by a $700,000 decline in services for customers in the petroleum and refining industry.
Revenue in the Sandy segment increased $800,000 or 4%. Revenue in the acquired Sandy business increase $1.3 million due to the expansion of sales training programs with existing customers. Sandy's results include $3.6 million of second quarter publication revenue in comparison to $4.1 million in the second quarter of 2007 and third quarter publication revenue is projected at $1.3 million. Sandy’s revenue increase is offset by a $500,000 decline in technical automotive training related to the business unit which was transferred into the Sandy segment in 2008.
If you exclude decline in technical automotive training, the acquired Sandy business achieved 7% revenue growth during the quarter. Gross profit increased in the quarter by $1 million or 11%. Gross profit in the manufacturing and BPO segment increased $600,000 or 15% from $4 million to$ 4.6 million primarily due to the revenue increases discussed. Gross profit as a percentage of revenue decreased slightly in this segment due to some courses running below full capacity combined with a lower volume of courses provided in the quarter. The acquired Via business is also running at a lower profit margin than the other business lines within this segment.
Process, energy and government gross profit decreased by $200,000 or 6% to $3.5 million from $3.7 million largely due to a decrease in margin on certain LNG construction projects and the decrease in high margin services provided to petroleum and refining customers during the second quarter of 2008 compared to the second quarter of 2007. Sandy's gross profit increased $700,000 or 40% to $2.3 million from $1.6 million in 2007 primarily due to the increase in revenue.
Second quarter operating income increased $800,000 or 18% and operating income as the percentage of revenue increased from 6.8% in 2007 to 7.1% in 2008. The increase was primarily due to the increase in gross profit of $1 million offset by a $250,000 increase in SG&A expense. SG&A expense increased during the quarter largely due to the $355,000 of deferred financing cost consisting mostly of legal expenses related to an equity offering to be used primarily to finance perspective acquisitions. This offering was aborted during the second quarter of 2008 as a result of market and other conditions.
Interest expense decreased a $140,000 due to a decrease in the debt and a decrease in interest related to short-term borrowing and other income increased approximately a $110,000 due to a negotiated discount on the early retirement of the ManTech note. Income tax expense for the quarter was $2.1 million compared to $1.7 million in 2007 and the projected 2008 tax rate is 41.4% in comparison to 42.3 % in the second quarter of 2007. Net income increased 27% in the second quarter or $636,000 resulting in a 29% increase in earnings per share for the second quarter and a 35% increase in earnings per share year-to-date.
Second quarter EBITDA also increased $700,000 or 14% to $6.1 million in 2008 and with a $16.766 million diluted shares outstanding for the second quarter. We generated $0.37 of EBITDA per share in the second quarter. Leaving on to just some brief balance sheet highlights, our cash balances decreased $360,000 and borrowings increased $4.7 million from December 31, 2007. Cash uses in the year included the $5.2 million early repayment of the ManTech note, $2.5 million related to the year when Sandy are announced, $1.1 million to fund the purchased prize and acquisition cost related to the PCS acquisition and $3.3 million of open-market share repurchases.
Year-to-date fixed asset additions totaled $1.8 million in comparison to $700,000 year-to-date June 2007. The increase in additions year-over-year is primarily due to $330,000 of leasehold improvements and other fixed asset additions related to the move and consolidation of our Troy, Michigan facility and a $500,000 purchase of office based in the UK to support expansion. We generated cash flow from operations year-to-date of $8.1 million compared to a cash used year-to-date 2007 of $8.3 million. The $8.1 million in cash generated is comprised of income of $5.8 million, non cash add back to net income including depreciation and amortization of $1.8 million, deferred taxes of $2.9 million and non cash compensation expense of $1.3 million offset by a decreased in other operating items of $3.8 million largely driven by a $6.5 million increased in AR Aging.
During the second quarter, we repurchased approximately a 193,000 shares for a cost of approximately $1.9 million bringing the open market repurchases to date to approximately 1,443,000 shares or $13 million with a full $5 million recently authorized remaining for future share repurchases. On August 14 of this month, our debt comes due to the belly which currently totals $2.3 million prior to the exercise of the approximate remaining $61,000 warrant which has the potential to reduce the debt by approximately $300,000.
Our funded backlog grew slightly with $136 million of backlog as of June 30, 2008 compared to $134 million at June 30, 2007. Our largest market sector continues to be automotive comprising 29% of revenue in comparison to 31% in 2007 and government comprised 17% of revenue in comparison to 18% in 2007. General Motors remains our largest customer comprising 21% of our year-to date revenue in 2008.
And that completes the overview of the financial result. So, at this time I will turn the call over to Doug.
Doug Sharp
Thank you, Sharon. I will take a couple of minutes and discuss with you some good news items that should be followed by more detailed press release in the days to come and to expand on a couple of points made by Scott and Sharon. You have now heard of our increased revenue in UK from our government funded initiatives, the good news is that we expect the continued significant growth in this area.
In UK, we support regionally-based learning skills councils. These councils are funded by the UK government to propose the developments of apprentice-level skills in a variety of occasions. Recognizing that regulatory changes are going to increase the eligible student population and the funding was going to be available, GP worked hard to keep our quality metrics high and more importantly, win contracts with more regional councils. Last year, we had five contracts; now, we have eight with three additional pending contracts.
The vocational qualifications we currently support with both assessment and training include business administration, customer service, care for the elderly, retail distribution, warehousing and ITQ. Again, 2008 and 2009 should see significant growth in this business area.
Back in the United States, as you know we have been pursuing homeland security funded-state run programs and we have had some good success in the second quarter. In Q2, we were informed that we were the successful bidder on a Midwest state contract for public health and safety training exercise support. The contract requires more than 40 instructors and planners. We have since completed negotiations and we are pleased to announce that yesterday, we received a signed contract for this significant effort.
Once approved by the state, we will release more detail on the press release. I will close with a few words on our energy services specifically electric power generation services. As you know, there is a national desire to increase all available alternatives for power generation and for improving the efficiency and cleanliness from all power sources. The result is additional technology in the industry and therefore, additional demand on skilled workers. In addition to that, expansion of use of power generation technologies, industry is facing a skilled labor shortage driven by an aging workforce.
We wanted to let our investors know that we are acutely aware and we will be putting initiatives together to capitalize on this opportunity. We will leverage our four decades of power generation experience. We are adding new content for renewable sources; wind and solar and etc; we are refreshing our content for fossil and nuclear technologies. We have also aligned all power generation services into one business unit that includes our nuclear services unit and the recently acquired acquisition, PSC. But we are also in the process of adding strategic business partner resources to our team and you will be hearing more about that in the future as well.
Finally, in closing we see a potential market trend of outsourcing training in the sector, a combination of technical skills training in this area with the back office administration. We think that is an opportunity that is going to be presenting itself in this industry. As such, our BPO business process outsourcing business unit and our energy services organizations are working closely in anticipation of this potential opportunity.
Those are the three good news items I wanted to tell you a little bit more detail about and I will now turn it over back to Scott.
Scott Greenberg
Thanks Doug. Just so everybody knows the significance of the work in the UK, we believe that 2009, if all the contract are awarded that we expected to that this government work in the UK will become a major account of the corporation. We believe that account could triple from the run rate in 2007 going into 2009. So, that is a very positive significant event that is occurring in the Company. So, thanks Doug.
Right now, what I would like to do is discuss the vision of management and the Board of Directors and where we see GP going forward.
We believe, right now, we are really in a unique position of being a global provider of training and performance improvement services. Right now in our environment, the world is changing. Now, it is changing rapidly, is being driven by new technologies and procedures. This situation is being compounded. There are many corporations particularly in the energy side as well are suffering from an aging workforce.
At the same time this is happening, the companies are saying to themselves that they want to focus on their core competencies and they are willing to outsource these services if a provider could do it efficiently and cost effectively and that this is where GP comes in. Due to our ability to leverage our resources and our systems, we believe we give corporations a viable alternative. When you look at the world today, over 60% of all training services are done internally but we believe more companies will outsource a greater percentage of this solution in year to come.
Basically, what GP has is key differentiator. These key differentiators are enabling us to win work in this marketplace. Well, our differentiators are our strong technical expertise, our global reach, our full line of complimentary services, and the administrative services we provide. On the technical expertise side, GP is providing over 40 years of services in the energy and government sector. About 20 years ago, we branched into the commercial industry but we have maintained and expanded out technical expertise over the years.
When you look at GP, the Company now has over 1700 fulltime employees and a significant number of our employee have a military background. Therefore, we believe our ability is unique. Our senior leadership team that consists of about five people have over 20 years experience with the Company on the average. Global reach, this has been a major initiative of the Company. Few years ago, we had very little global reach. We have expanded it dramatically. We have opened up offices in Shanghai. We have just opened up an office in Ireland. Last year, we opened up an office in Chennai, India. We have expanded our offices in Malaysia and Singapore. We have offices in Canada and Mexico as well. Our fastest growing area has been in the UK and in Europe.
Today, about 85% of our revenue being derived in North America and about 15% international but having this global reach helps us win accounts on a worldwide basis. Even if today, the account is just domestic US work, they want to know if you have the ability to expand with them. We believe that the global revenue will expand in the coming year. The second thing we tried to do was to be a full-service provider. Basically, what we could do is come in and train anyone in the organization. Our motto is we could train from the factory floor to the board room and we offer a full range of complimentary services.
In addition, a unique service that we started doing a few years ago is what we called training BPO services, Business Process Outsourcing. You have heard of business process outsourcing in other industry whether it is HR, IT, finance. What we are able to do is takeover the back office of companies training departments. That will include everything from vendor management, to running their learning management system, to doing tuition reimbursement system. So, what we do here is we takeover the administrative work, alleviate the major companies of the paper work involved, but also cross sell our other services.
And then next, Doug talked about our initiative in energy and that is very important to the Company. Another major initiative, is what I just discussed, is cross selling. Basically, what we are able to do is do everything from product sales training, E-learning, engineering services, lean line six sigma and basically, we go to these customers with a full line of services. So, even if we are only involved in one area today, we hope to expand. When you look at our customer base, we only represent a small percentage of most our clients spend. So, our largest customers that were doing $10 million to $20 million a year in revenue, we probably represent less than 10% of their total training spend. So, we have a lot of room to grow with these customers.
Before I turn it over to questions, I just wanted to talk about out acquisition strategy. In the latest 24 months, we have made five acquisitions. They have been accretive to earnings and we have maintained our strong liquidity position even after making the acquisition. We believe we have a very experienced acquisition team and are looking at acquisitions to expand our global reach. So far to date, the major success of our acquisition strategy has been in product sales training.
When we look at the Company about three years ago, we thought the major hold that we had was we were not involve in product sales training and we took that as a major initiative. Thru three acquisitions, with the principal one being Sandy and organic growth, we have now built a $90 million successful sales training company. Sales training is anticipated to be one of the fastest growing outsourcing training areas and your company GP is there. So, obviously we are very excited about the future of the Company.
Before I turn it over to Q&A, I like to thank the shareholders, the Board of Directors and the employees of GP for their support. So now moderator, let us turn it over to the Q&A session.
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Fund Letters
