UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 
 For the quarterly period ended March 31, 20172018
or
 
¨ Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 
For the transition period from                             to                             
 
Commission File Number 1-7234
 
 GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)
 
Delaware 52-0845774
(State of Incorporation) (I.R.S. Employer Identification No.)
70 Corporate Center 
  
11000 Broken Land Parkway, Suite 200, Columbia, MD 21044
(Address of principal executive offices) (Zip Code)
 
(443) 367-9600

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes   ¨ No   ý
 
The number of shares outstanding of the registrant’s common stock as of April 25, 201717, 2018 was as follows:
Class Outstanding 
Common Stock, par value $.01 per share 16,727,281 shares16,493,753 





GP STRATEGIES CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS
  Page
   
Part I.Financial Information 
   
Item 1.Financial Statements (Unaudited) 
   
 
Condensed Consolidated Balance Sheets – March 31, 20172018 and December 31, 20162017
1
   
 
Condensed Consolidated Statements of Operations – Three Months Ended March 31, 20172018 and 20162017
2
   
 
Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 20172018 and 20162017
3
   
 
Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 20172018 and 20162017
4
   
 
Notes to Condensed Consolidated Financial Statements
5
   
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
1620
   
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
2328
   
Item 4.
Controls and Procedures
2328
   
Part II.
Other Information
2429
   
Item 1.
Legal Proceedings
2429
   
Item 1A.
Risk Factors
2429
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
2529
   
Item 6.
Exhibits
2630
   
Signatures
2731
 

Part I. Financial Information
Item 1. Financial Statements 
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
March 31, 2017 (Unaudited) December 31, 2016March 31, 2018 (Unaudited)
December 31, 2017
Assets 
  
 

 
Current assets:   




Cash$15,452
 $16,346
$16,945

$23,612
Accounts and other receivables, less allowance for doubtful accounts of $1,252 in 2017 and $1,091 in 2016100,273
 105,549
Costs and estimated earnings in excess of billings on uncompleted contracts47,327
 39,318
Accounts and other receivables, less allowance for doubtful accounts of $2,157 in 2018 and $2,492 in 2017107,640

119,335
Unbilled revenue43,350

42,958
Prepaid expenses and other current assets11,529
 11,481
19,191

14,212
Total current assets174,581
 172,694
187,126

200,117
Property, plant and equipment20,662
 20,053
21,872

21,466
Accumulated depreciation(16,104) (15,506)(16,920)
(16,343)
Property, plant and equipment, net4,558
 4,547
4,952

5,123
Goodwill131,738
 127,772
154,590

144,835
Intangible assets, net7,659
 5,825
8,838

8,363
Other assets6,006
 4,763
7,569

6,569
$324,542

$315,601
$363,075

$365,007
Liabilities and Stockholders’ Equity 
  
 

 
Current liabilities: 
  
 

 
Short-term borrowings$23,529
 $17,694
$43,706

$37,696
Current portion of long-term debt12,000
 12,000
12,000

12,000
Accounts payable and accrued expenses61,149
 64,596
74,889

78,280
Billings in excess of costs and estimated earnings on uncompleted contracts21,677
 18,545
Deferred revenue22,563

22,356
Total current liabilities118,355
 112,835
153,158

150,332
Long-term debt25,000
 28,000
13,000

16,000
Other noncurrent liabilities8,903
 7,270
9,895

10,621
Total liabilities152,258
 148,105
176,053

176,953
   




Stockholders’ equity: 
  
 

 
Common stock, par value $0.01 per share172
 172
172

172
Additional paid-in capital106,958
 106,569
107,369

107,256
Retained earnings97,794
 93,845
108,835

106,599
Treasury stock at cost(12,134) (11,628)(17,134)
(11,118)
Accumulated other comprehensive loss(20,506) (21,462)(12,220)
(14,855)
Total stockholders’ equity172,284
 167,496
187,022

188,054
$324,542

$315,601
$363,075

$365,007
 
See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended 
 March 31,		Three Months Ended 
 March 31,
2017 20162018 2017
Revenue$122,447
 $115,756
$125,032
 $122,447
Cost of revenue103,059
 97,829
107,353
 103,059
Gross profit19,388

17,927
17,679

19,388
Selling, general and administrative expenses12,994
 11,970
14,584
 12,994
Gain (loss) on change in fair value of contingent consideration, net197
 (159)
Restructuring charges435
 —
Gain on change in fair value of contingent consideration, net2,552
 197
Operating income6,591

5,798
5,212

6,591
Interest expense438
 245
686
 438
Other income (expense)(75) 454
Other expense164
 75
Income before income tax expense6,078

6,007
4,362

6,078
Income tax expense1,992
 2,207
1,730
 1,992
Net income$4,086

$3,800
$2,632

$4,086
      
Basic weighted average shares outstanding16,741
 16,758
16,619
 16,741
Diluted weighted average shares outstanding16,841
 16,831
16,713
 16,841
      
Per common share data: 
  
 
  
Basic earnings per share$0.24
 $0.23
$0.16
 $0.24
Diluted earnings per share$0.24
 $0.23
$0.16
 $0.24
 
See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
 
Three Months Ended 
 March 31,		Three Months Ended 
 March 31,
2017 20162018 2017
Net income$4,086
 $3,800
$2,632
 $4,086
Foreign currency translation adjustments1,011
 (396)2,432
 1,011
Change in fair value of interest rate swap$(55) $—
Change in fair value of interest rate cap, net of tax148
 —
Change in fair value of interest rate swap, net of tax55
 (55)
Comprehensive income$5,042
 $3,404
$5,267
 $5,042
 
See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 20172018 and 20162017
(Unaudited, in thousands)
2017 20162018 2017
Cash flows from operating activities: 
  
 
  
Net income$4,086
 $3,800
$2,632
 $4,086
Adjustments to reconcile net income to net cash provided by operating activities: 
  
 
  
(Gain) loss on change in fair value of contingent consideration, net(197) 159
Gain on change in fair value of contingent consideration, net(2,552) (197)
Depreciation and amortization1,443
 1,765
1,842
 1,443
Deferred income taxes118
 —
(108) 118
Non-cash compensation expense1,458
 1,496
1,409
 1,458
Changes in other operating items: 
  
 
  
Accounts and other receivables5,753
 4,644
12,817
 5,753
Costs and estimated earnings in excess of billings on uncompleted contracts(7,570) 3,914
Unbilled revenue227
 (7,570)
Prepaid expenses and other current assets(330) (2,641)(6,024) (330)
Accounts payable and accrued expenses(2,481) (3,654)1,643
 (2,481)
Billings in excess of costs and estimated earnings on uncompleted contracts2,047
 (376)
Deferred revenue(2,485) 2,047
Other(209) (544)5
 (209)
Net cash provided by operating activities4,118
 8,563
9,406
 4,118
      
Cash flows from investing activities: 
  
 
  
Additions to property, plant and equipment(525) (575)(370) (525)
Acquisitions, net of cash acquired(3,193) (2,330)(10,000) (3,193)
Other investing activities(344) 13
(834) (344)
Net cash used in investing activities(4,062) (2,892)(11,204) (4,062)
      
Cash flows from financing activities: 
  
 
  
Proceeds from short-term borrowings5,820
 (992)6,022
 5,820
Repayment of long-term debt(3,000) (3,333)(3,000) (3,000)
Change in negative cash book balance(2,313) (1,659)(261) (2,313)
Repurchases of common stock in the open market(1,674) (4,291)(7,790) (1,674)
Other financing activities(134) —
(50) (134)
Net cash used in financing activities(1,301) (10,275)(5,079) (1,301)
      
Effect of exchange rate changes on cash and cash equivalents351
 44
210
 351
Net decrease in cash(894) (4,560)(6,667) (894)
Cash at beginning of period16,346
 21,030
23,612
 16,346
Cash at end of period$15,452
 $16,470
$16,945
 $15,452
      
Supplemental disclosures of cash flow information:      
Cash paid during the period for interest$624
 $175
Cash paid during the period for income taxes$491
 $2,594
1,460
 491
 See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
March 31, 20172018
(Unaudited)


(1)Basis of Presentation

GP Strategies Corporation is a global performance improvement solutions provider of training, e-Learningdigital 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 March 31, 20172018 and the condensed consolidated statements of operations, comprehensive income and cash flows for the three months ended March 31, 20172018 and 20162017 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, 2016,2017, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. 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 20172018 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.
 
(2)Recent Accounting Standards

Accounting Standard Adopted

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, Compensation—Stock Compensation (Topic 718) ("ASU 2016-09"), which simplifies several areas of accounting for share-based compensation arrangements. Upon adoption, ASU 2016-09 requires that excess tax benefits or deficiencies for share-based payments be recorded as income tax expense or benefit and reflected within operating cash flows rather than being recorded within equity and reflected within financing cash flows. The standard also requires companies to make an accounting policy election on whether to account for forfeitures on share-based payments by 1) recognizing forfeitures as they occur; or 2) estimating the number of awards expected to be forfeited and periodically adjusting the estimate, as was previously required. The standard is effective for annual and interim reporting periods of public companies beginning after December 15, 2016, although early adoption is permitted. We adopted ASU 2016-09 on January 1, 2017 and elected to make an accounting policy change to recognize forfeitures as they occur. The impact of adoption on the condensed consolidated balance sheet was a cumulative-effect adjustment of $0.1 million, decreasing opening retained earnings. We recognized an income tax benefit of $0.1 million relating to excess tax benefits on stock-based compensation awards during the first quarter of 2017 and could experience volatility in our effective income tax rate in the future as a result of this accounting change. We also elected to prospectively apply the change in presentation on the statement of cash flows and did not reclassify excess tax benefits on stock-based compensation from financing to operating cash flows for the prior period presented.


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2017
(Unaudited)

Accounting Standards Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for public companies for annual and interim periods beginning after December 15, 2017, which requires us to adopt the standard in the first quarter of 2018. Companies can elect to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with a cumulative effect adjustment recognized at the date of adoption. We plan to adopt the standard effective January 1, 2018 and are currently still finalizing which transition method to use. Based on our assessment to date, we believe the new standard could result in a change in revenue recognition on certain fixed price projects from a proportional performance method, where revenue is currently recognized over contract performance, to a completed contract method, where revenue would be recognized upon completion of our performance obligations. This change could result in a shift in the timing of revenue recognition, causing quarter to quarter revenue fluctuations. We are continuing to evaluate ASU 2014-09 and the impact of its adoption on our consolidated financial statements and plan to provide additional information at a future date.
In February 2016, the FASB issued ASU No. 2016-02, Leases. This standard will require all leases with durations greater than twelve months to be recognized on the balance sheet as a right-of-use asset and a lease liability. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. We believeplan to adopt the standard effective January 1, 2019. We expect the adoption of this standard to increase the assets and liabilities recorded on our condensed consolidated balance sheet and increase the level of disclosures related to leases. We also expect that adoption of the new standard will have a significantrequire changes to our internal controls to support recognition and disclosure requirements under the new standard. We are currently evaluating ASU No. 2016-02 and the impact of its adoption on our consolidated balance sheets because we will need to recognize substantially all of our operating leases as right-of-use assets and lease liabilities on our balance sheet. Although we have not completed our assessment, we do not expect the adoption of ASU 2016-02 to materially change the recognition and measurement of lease expense within the consolidated statements of operations.financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The standard will remove step 2 from the goodwill impairment test. Under the ASU, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for public companies for annual reporting periods beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating ASU 2017-04 and the impact of its adoption on our consolidated financial statements.

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


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2018
(Unaudited)

Accounting Standard Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification (ASC) Topic 606), which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We adopted ASC Topic 606 on January 1, 2018 using the modified retrospective method. Under this transition method, we applied the new standard to contracts that were not completed as of the adoption date and recognized a cumulative effect adjustment which reduced retained earnings by $0.4 million on January 1, 2018. The comparative prior period information has not been restated and continues to be presented according to accounting standards in effect for those periods. The primary impact of ASU No. 2014-09 on our financial statements is a change in revenue recognition on a small portion of our contracts from a proportional performance method, where revenue was previously recognized over contract performance, to a point in time method, where revenue is now recognized upon completion of our performance obligations. While we don't believe the adoption of ASU 2014-09 will materially impact our overall financial statements, the change in timing of revenue recognition on certain contracts could result in quarter to quarter fluctuations in revenue. See Note 3 for further details regarding our revenue recognition accounting policies and other required disclosures.

The cumulative effect of the changes made to our January 1, 2018 balance sheet for the adoption of the new revenue standard was as follows (in thousands):
 Balance at December 31, 2017 Adjustments due to ASC Topic 606 Balance at January 1, 2018
Assets: 
    
Prepaid expenses and other current assets$14,212
 $2,059
 $16,271
Other assets6,569
 132
 6,701
Liabilities and Stockholders’ Equity: 
   

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

The following tables summarize the current period impacts of adopting ASC Topic 606 on our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2018.

Selected condensed consolidated statement of operations line items, which were impacted by the adoption of the new standard, are as follows for the three months ended March 31, 2018 (in thousands):
 As reported Balances without Adoption of Topic 606 Effect of Adoption - Higher (Lower)
Revenue$125,032
 $125,049
 $(17)
Cost of revenue107,353
 107,554
 (201)
Gross profit17,679
 17,495
 184
Income tax expense1,730
 1,684
 46
Net income2,632
 2,494
 138
      
Per common share data: 
    
Basic earnings per share$0.16
 $0.15
 $0.01
Diluted earnings per share$0.16
 $0.15
 $0.01

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2018
(Unaudited)

The adoption of ASC Topic 606 did not have a significant impact on our condensed consolidated statement of comprehensive income for the three months ended March 31, 2018.
Selected condensed consolidated balance sheet line items, which were impacted by the adoption of the new standard, are as follows as of March 31, 2018 (in thousands):
 As reported Balances without adoption of ASC Topic 606 Effect of Adoption - Higher (Lower)
Assets: 
    
Prepaid expenses and other current assets$19,191
 $16,934
 $2,257
Other assets7,569
 7,483
 86
Total assets363,075
 360,732
 2,343
Liabilities and Stockholders’ Equity: 
    
Accounts payable and accrued expenses74,889
 75,090
 (201)
Deferred revenue22,563
 19,761
 2,802
Retained earnings108,835
 109,093
 (258)
Total liabilities and stockholders' equity363,075
 360,732
 2,343
The adoption of ASC Topic 606 did not impact our total cash flows from operating, investing or financing activities. In addition, the impact to the individual line items within the operating activities section of our condensed consolidated statement of cash flows was not significant for the three months ended March 31, 2018.


(3)Revenue

Significant Accounting Policy
We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC Topic 606), which we adopted on January 1, 2018, using the modified retrospective method. Revenue is measured based on the consideration specified in a contract with a customer. Most of our contracts with customers contain transaction prices with fixed consideration, however, some contracts may contain variable consideration in the form of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties and other similar items. When a contract includes variable consideration, we evaluate the estimate of variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. This can result in recognition of revenue over time as we perform services or at a point in time when the deliverable is transferred to the customer, depending on an evaluation of the criteria for over time recognition in ASC Topic 606. Further details regarding our revenue recognition for various revenue streams are discussed below.
Nature of goods and services
Over 90% of our revenue is derived from services provided to our customers for training, consulting, technical, engineering and other services. Less than 10% of our revenue is derived from various other offerings including custom magazine publications and assembly of glovebox portfolios for automotive manufacturers, licenses of software and other intellectual property, and software as a service (SaaS) arrangements.
Our primary contract vehicles are time-and-materials, fixed price (including fixed-fee per transaction) and cost-reimbursable contracts. Each contract has different terms based on the scope, deliverables and complexity of the engagement, requiring us to make judgments and estimates about recognizing revenue.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2018
(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 contracts were not material, individually or in the aggregate, to our unaudited condensed consolidated financial statements for the three-month periods ended March 31, 2018 and 2017.

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 when the deliverable is met and the product is delivered based on the output method of performance. 

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. On March 31, 2018, we had $276.5 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize over 95 percent of our remaining performance obligations as revenue within the next twelve months. We did not apply any of the practical expedients permitted by ASC Topic 606 in determining the amount of our performance obligations as of March 31, 2018.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2018
(Unaudited)

Revenue by Category
The following series of tables presents our revenue disaggregated by various categories (dollars in thousands).
 Three Months Ended March 31,
 
Workforce
Excellence
 Business Transformation Services Consolidated
 2018 2017 2018 2017 2018 2017
Revenue by type of service:           
Managed learning services$48,902
 $45,329
 $—
 $—
 $48,902
 $45,329
Engineering & technical services25,529
 26,213
 —
 —
 25,529
 26,213
Sales enablement—
 —
 23,850
 24,617
 23,850
 24,617
Organizational development—
 —
 26,751
 26,287
 26,751
 26,287
 $74,431
 $71,542
 $50,601
 $50,904
 $125,032
 $122,446
            
Revenue by geographic region:           
Americas$45,440
 $44,940
 $44,182
 $46,398
 $89,622
 $91,338
Europe Middle East Africa24,957
 23,591
 8,497
 5,753
 33,454
 29,344
Asia Pacific7,711
 7,130
 72
 112
 7,783
 7,242
Eliminations(3,677) (4,119) (2,150) (1,359) (5,827) (5,478)
 $74,431
 $71,542
 $50,601
 $50,904
 $125,032
 $122,446
            
Revenue by client market sector:           
Automotive$2,838
 $2,258
 $24,346
 $24,857
 $27,184
 $27,115
Financial & Insurance21,103
 18,586
 4,070
 5,459
 25,173
 24,045
Manufacturing8,679
 8,275
 4,609
 4,261
 13,288
 12,536
Energy / Oil & Gas7,642
 9,050
 1,475
 987
 9,117
 10,037
U.S. Government6,454
 6,153
 2,386
 2,543
 8,840
 8,696
UK Government5,486
 6,730
 —
 —
 5,486
 6,730
Information & Communication3,299
 3,980
 2,375
 2,722
 5,674
 6,702
Aerospace7,598
 5,039
 761
 1,513
 8,359
 6,552
Electronics Semiconductor3,683
 4,363
 51
 395
 3,734
 4,758
Life Sciences1,849
 1,724
 2,708
 2,495
 4,557
 4,219
Other5,800
 5,384
 7,820
 5,672
 13,620
 11,056
 $74,431
 $71,542
 $50,601
 $50,904
 $125,032
 $122,446
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 three-month period ended March 31, 2018 were not materially impacted by any other factors.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2018
(Unaudited)

Revenue recognized for the three months ended March 31, 2018, that was included in the contract liability balance at the beginning of the year was $16.8 million, and primarily represented revenue from services performed during the current period for which we received advance payment from clients in a prior period.

Contract Costs
Costs to fulfill contracts which do not meet the over time revenue recognition criteria are capitalized and recognized to cost of revenue when the performance obligation is satisfied and revenue is recognized. Such costs are included in prepaid expenses and other current assets on the condensed consolidated balance sheet and totaled $2.3 million as of March 31, 2018. Recognition of such contract costs totaled $1.6 million for the first quarter of 2018 and is included in cost of revenue on the condensed consolidated statements of operations.

Applying the practical expedient in ASC Topic 606, we recognize the incremental costs of obtaining contracts (i.e. sales commissions) as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. Substantially all of our sales commission arrangements have an amortization period of one year or less. As of March 31, 2018, we did not have any capitalized sales commissions.


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

We have a market concentration of revenue in both the automotive sector and financial services & insurance sector. Revenue from the automotive industrysector accounted for approximately 22% and 20% of our consolidated revenue for both of the three monthsthree-month periods ended March 31, 20172018 and 2016, respectively.2017. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 15% and 13% of our consolidated revenue for both of the three-month periodsthree months ended March 31, 2018 and 2017, and 2016.respectively. As of March 31, 2017,2018, accounts receivable from a single automotive customer totaled $14.5$14.6 million, or 14%, of our consolidated accounts receivable balance.

Revenue from the financial services & insurance industrysector accounted for approximately 20% and 22% of our consolidated revenue for both of the three monthsthree-month periods ended March 31, 20172018 and 2016, respectively.2017. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 14% and 15% of our consolidated revenue for both of the three monthsthree-month periods ended March 31, 20172018 and 2016,2017, respectively. As of March 31, 2017,2018, billed and unbilled accounts receivable from a single financial services customer totaled $31.8$25.3 million, or 22%17%, of our consolidated accounts receivable and costs and estimated earnings in excess of billings on uncompleted contractsunbilled revenue balances.

No other single customer accounted for more than 10% of our consolidated revenue for the three months ended March 31, 20172018 or 20162017 or consolidated accounts receivable balance as of March 31, 2017.

2018.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
March 31, 20172018
(Unaudited)



(4)(5)Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
 
Our dilutive common stock equivalent shares consist of stock options and restricted stock units computed under the treasury stock method, using the average market price during the period. Performance-based restricted stock unit awards are included in the computation of diluted shares based on the probable outcome of the underlying performance conditions being achieved. The following table presents instruments which were not dilutive and were excluded from the computation of diluted EPS in each period, as well as the dilutive common stock equivalent shares which were included in the computation of diluted EPS: 
Three Months Ended 
 March 31,		Three Months Ended 
 March 31,
2017 20162018 2017
(In thousands)(In thousands)
Non-dilutive instruments35
 106
7
 35
      
Dilutive common stock equivalents100
 73
94
 100

(6)Acquisitions

Hula Partners
On January 2, 2018 we acquired the business and certain assets of Hula Partners, a provider of SAP Success Factors Human Capital Management (HCM) implementation services. The purchase price was $10.0 million which was paid in cash at closing. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree with the Company. All of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired Hula Partners business is included in the Business Transformation Services segment and the results of its operations have been included in the condensed consolidated financial statements beginning January 2, 2018. The pro-forma impact of the acquisition is not material to our results of operations.
The following table summarizes the purchase price allocation for the acquisition (dollars in thousands).
Amortization
Purchase price allocation:
Period
Customer-related intangible assets1,367
4 years
Marketing-related intangible assets106
2 years
Goodwill8,527
Total assets10,000

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
March 31, 20172018
(Unaudited)

(5)Acquisitions

McKinney Rogers
On February 1, 2017, we acquired the business and certain assets of McKinney Rogers, a provider of strategic consulting services with offices in New York and London. This acquisition will expand our solutions offerings, giving us the ability to leverage McKinney Rogers' intellectual property and consulting methodologies to help our global client base meet strategic business goals. The upfront purchase price was $3.2 million in cash. In addition, the purchase agreement requires up to an additional $18.0 million of consideration, $6.0 million of which is contingent upon the achievement of certain earnings targets during the five-month period ending April 30, 2017 and $12.0 million of which is contingent upon the achievement of certain earnings targets during the three twelve-month periods following completion of the acquisition. We recorded a preliminary purchase price allocation for the acquisition in the first quarter of 2017 which we expect to finalize in the second quarter of 2017 as we have not fully completed the valuation of intangible assets and contingent consideration. The acquired McKinney Rogers business is included in the Performance Readiness Solutions segment, and the results of its operations have been included in the consolidated financial statements beginning February 1, 2017. The pro-forma impact of the acquisition is not material to our results of operations.
Emantras
Effective April 1, 2017, we acquired the business and certain assets of Emantras, a digital education company that provides engaging learning experiences and effective knowledge delivery through award-winning digital and mobile solutions with offices in Fremont, California and Chennai, India. This acquisition strengthens our eLearning development capabilities, allowing us to better serve our customer base with the latest digital learning solutions. The upfront purchase price was $3.2 million in cash. In addition, the purchase agreement requires up to an additional $0.3 million of consideration, contingent upon the achievement of an earnings target during the twelve-month period following completion of the acquisition, plus a percentage of any earnings in excess of the specified earnings target. The acquired Emantras business will be included in the Learning Solutions segment effective April 1, 2017.

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

Below is a summary of the potential maximum contingent consideration we may be required to pay in connection with completed acquisitions as of March 31, 20172018 (dollars in thousands):
Acquisition:Original range of potential undiscounted payments As of March 31, 2017 Maximum contingent consideration due in
   201720182019-2020Total
Maverick$0 - $10,000 $5,000
$5,000
$—
$10,000
McKinney Rogers$0 - $18,000 6,000
4,000
8,000
18,000
   $11,000
$9,000
$8,000
$28,000

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2017
(Unaudited)


Acquisition:Original range of potential undiscounted payments As of March 31, 2018 Maximum contingent consideration due in
   201820192020Total
Maverick$0 - $10,000 $5,902
$—
$—
$5,902
McKinney Rogers$0 - $18,000 —
4,000
4,000
8,000
Emantras  *
—
—
—
CLS$0 - $2,312 2,312
—
—
2,312
   $8,214
$4,000
$4,000
$16,214
       
* There is no maximum contingent consideration payable to the seller.
Below is a summary of the changes in the recorded amount of contingent consideration liabilities from December 31, 20162017 to March 31, 20172018 (dollars in thousands):
Liability as of
December 31,
 Additions 
Change in
Fair Value of
Contingent
 
Foreign
Currency
 
Liability as of
March 31,
Liability as of
December 31,
     
Change in
Fair Value of
Contingent
 
Foreign
Currency
 
Liability as of
March 31,
Acquisition:2016 (Payments) Consideration Translation 20172017 Additions Payments Consideration Translation 2018
Maverick$5,258
 $—
 $(197) $—
 $5,061
$1,979
 $—
 $—
 $(1,325) $—
 $654
McKinney Rogers—
 2,063
 —
 —
 2,063
1,501
 —
 —
 (1,168) —
 333
Emantras76
 —
 —
 (76) —
 —
CLS669
 —
 —
 17
 26
 712
Total$5,258

$2,063

$(197)
$—

$7,124
$4,225

$—
 $—

$(2,552)
$26

$1,699
As of March 31, 20172018 and December 31, 2016,2017, contingent consideration considered a current liability and included in accounts payable totaled $4.5$1.4 million and $3.6$2.7 million, respectively. As of March 31, 20172018 and December 31, 20162017 we also had accrued contingent consideration totaling $2.6$0.3 million and $1.7$1.5 million respectively, related to acquisitions which are included in other long-term liabilities on the condensed consolidated balance sheetsheets and represent the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2018
(Unaudited)


(6)(7)Intangible Assets

Goodwill
 
Changes in the carrying amount of goodwill by reportable business segment for the three months ended March 31, 20172018 were as follows (in thousands):
Learning
Solutions
 
Professional
& Technical
Services
 Sandy Training & Marketing 
Performance
Readiness
Solutions
 TotalWorkforce Excellence Business Transformation Services Total
Balance as of December 31, 2016$49,079
 $42,364
 $653
 $35,676
 $127,772
Balance as of December 31, 2017$96,330
 $48,505
 $144,835
Acquisitions—
 —
 —
 3,515
 3,515
—
 8,527
 8,527
Foreign currency translation359
 79
 —
 13
 451
778
 450
 1,228
Balance as of March 31, 2017$49,438

$42,443

$653

$39,204

$131,738
Balance as of March 31, 2018$97,108

$57,482

$154,590
 
Intangible Assets Subject to Amortization
 
Intangible assets with finite lives are subject to amortization over their estimated useful lives. The primary assets included in this category and their respective balances were as follows (in thousands):
 Gross Carrying Amount Accumulated Amortization Net Carrying Amount
March 31, 2017  
Customer relationships$15,136
 $(10,531) $4,605
Intellectual property and other4,507
 (1,453) 3,054
 $19,643

$(11,984)
$7,659
      
December 31, 2016 
  
  
Customer relationships$14,595
 $(9,855) $4,740
Intellectual property and other2,311
 (1,226) 1,085
 $16,906

$(11,081)
$5,825

GP STRATEGIES CORPORATION AND SUBSIDIARIES
 Gross Carrying Amount Accumulated Amortization Net Carrying Amount
March 31, 2018  
Customer relationships$16,432
 $(10,610) $5,822
Intellectual property and other4,404
 (1,388) 3,016
 $20,836

$(11,998)
$8,838
      
December 31, 2017 
  
  
Customer relationships$16,330
 $(11,140) $5,190
Intellectual property and other4,298
 (1,125) 3,173
 $20,628

$(12,265)
$8,363

Notes to Condensed Consolidated Financial Statements
March 31, 2017
(Unaudited)

(7)(8)Stock-Based Compensation

We recognize compensation expense for stock-based compensation awards issued to employees that are expected to vest.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 March 31,Three months ended March 31,
2017 20162018 2017
Non-qualified stock options$4
 $47
$—
 $4
Restricted stock units716
 598
630
 716
Board of Directors stock grants76
 82
68
 76
Total stock-based compensation expense$796

$727
$698

$796
 
Pursuant to our 2011 Stock Incentive Plan (the “2011 Plan”), we may grant awards of non-qualified stock options, incentive stock options, restricted stock, stock units, performance shares, performance units and other incentives payable in cash or in shares of our common stock to officers, employees or members of the Board of Directors. As of March 31, 2017,2018, we had non-qualified stock options and restricted and performance stock units outstanding under these plans as discussed below.plans.

Non-Qualified Stock Options
Summarized information for the Company’s non-qualified stock options is as follows:
 Number of options 
Weighted
average exercise price
 
Weighted
average
remaining
contractual term
 
Aggregate
intrinsic value
Stock Options   
Outstanding at December 31, 201667,550
 $15.34
    
Granted—
 —
    
Exercised(29,850) 13.73
    
Forfeited(100) 19.38
    
Expired—
 —
    
Outstanding at March 31, 201737,600
 $16.61
 0.43 $327,000
Exercisable at March 31, 201737,000
 $16.56
 0.42 $323,000

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
March 31, 20172018
(Unaudited)

Restricted Stock Units
In addition to stock options, we issue restricted stock units to key employees and members of the Board of Directors. The stock units vest to the recipients at various dates, up to five years, based on fulfilling service requirements. We recognize the value of the market price of the underlying stock on the date of grant as compensation expense over the requisite service period. Upon vesting, the stock units are settled in shares of our common stock. Summarized share information for our restricted stock units is as follows:
 Three Months Ended March 31, 2017 
Weighted
average
grant date
fair value
 (In shares) (In dollars)
Outstanding and unvested, beginning of period207,016
 $29.85
Granted23,814
 23.65
Vested(6,431) 26.58
Forfeited(4,107) 24.30
Outstanding and unvested, end of period220,292
 $29.38

Performance Stock Units

We issue performance-based stock units to certain executives under a long-term incentive program. Under the program, a target level of equity compensation is set for each officer. The total equity compensation is divided into performance-based and time-based restricted stock units. Under the program, the Compensation Committee sets the performance-based goals within the first 90 days of each year. Vesting of performance-based stock units (PSU's) is contingent upon the employee's continued employment and the Company's achievement of certain performance goals during a three-year performance period. The performance goals are established by the Compensation Committee for a three-year performance period based on financial targets, including an average annual return on invested capital ("ROIC") and average annual growth in earnings before interest, taxes, depreciation and amortization (adjusted to exclude the effect of acquisitions, dispositions, and certain other nonrecurring or extraordinary items) ("Adjusted EBITDA"). We recognize compensation expense for PSU's on a straight line basis over the performance period based on the probable outcome of achievement of the financial targets. At the end of each reporting period, we estimate the number of PSU's expected to vest, based on the probability and extent to which the performance goals will be met, and take into account these estimates when calculating the expense for the period. If the number of shares expected to be earned changes during the performance period, we will make a cumulative adjustment to compensation expense based on the revised number of shares expected to be earned.

Summarized share information for our performance-based restricted stock units is as follows:
  Three Months Ended March 31, 2017 
Weighted
average
grant date
fair value
  (In shares) (In dollars)
Outstanding and unvested, beginning of period 124,394
 $31.08
Granted 104,590
 23.65
Vested —
 —
Forfeited —
 —
Outstanding and unvested, end of period 228,984
 $27.69



GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2017
(Unaudited)



(8)(9)Debt and Financial Instruments

On December 15, 2016, we entered intoWe have a Fifth Amended and Restated Financing and Security Agreement (the “Credit Agreement”). The Credit Agreementcredit agreement with a bank which provides for a revolving credit facility up to a maximum principal amount of $100 million expiring on December 31, 2021 and for a term loan in the principal amount of $40 million maturing on April 30, 2020.2020 (the "Credit Agreement"). The Credit Agreement is secured by substantially all of our assets.
The maximum interest rate on the Credit Agreement is the daily one-month LIBOR market index rate (for borrowings in Dollars and Sterling) or the daily one month EURIBOR (for borrowings in Euros) plus 2.50%. Based on our financial performance, the interest rate can be reduced to a minimum rate of the daily one-month LIBOR market index rate plus 1.25%, with the rate being determined based on our maximum leverage ratio for the preceding four quarters. Each unpaid advance on the revolving loan will bear interest until repaid. The term loan is payable in monthly installments of principal in the amount of $1.0 million plus applicable interest, beginning on January 1, 2017. We may prepay the term loan or the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions. Amounts repaid or prepaid on the term loan may not be reborrowed.
The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our and our subsidiaries’ (subject to certain exceptions) ability to, among other things, grant liens, make investments, incur indebtedness, merge or consolidate, dispose of assets or make acquisitions. We are also required to maintain compliance with a minimum fixed charge coverage ratio and a maximum leverage ratio. We were in compliance with all of the financial covenants under the Credit Agreement as of March 31, 2017.2018. As of March 31, 2017,2018, our total long-term debt outstanding under the term loan was $37.0$25.0 million. In addition, there were $23.5$43.7 million of borrowings outstanding and $71.3$50.3 million of available borrowings under the Credit Agreement. For the three months ended March 31, 2017,2018, the weighted average interest rate on our borrowings was 2.5%3.4%.
EffectiveIn March 1, 2017, we entered into an interest rate swap agreement which effectively fixed our interest rate on the remaining $37 million outstanding on our term loan to a fixed LIBOR of 1.59% plus the applicable margin under the Credit Agreement. We have designated the interest rate swap, which expires on April 1, 2020, as a cash flow hedge and have applied hedge accounting. The fair value of the derivative liabilityasset associated with the interest rate swap was $0.2 million and $0.1 million as of March 31, 2018 and December 31, 2017, respectively, and is included in other liabilitiesassets on the condensed consolidated balance sheet. The derivative liabilityasset is classified within Level 2 of the fair value hierarchy in which fair value is measured using quoted prices in active markets for similar assets and liabilities.
In April 2017, we entered into an interest rate cap agreement and paid a premium of $0.5 million which caps the daily one-month LIBOR at 2.0% for an aggregate notional amount of $20.0 million of our variable rate debt under our credit facility. The interest rate cap agreement matures on December 31, 2021. We have designated the interest rate cap as a cash flow hedge and have applied hedge accounting. The fair value of the derivative asset associated with the interest rate cap was $0.5 million and $0.3 million as of March 31, 2018 and December 31, 2017, respectively, and is included in other assets on the condensed consolidated balance sheet. The derivative asset is classified within Level 2 of the fair value hierarchy in which fair value is measured using quoted prices in active markets for similar assets and liabilities.


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2018
(Unaudited)

(9)(10)Income Taxes

Income tax expense was $1.7 million, or an effective income tax rate of 39.7%, for the three months ended March 31, 2018 compared to $2.0 million, or an effective income tax rate of 32.8%, for the three months ended March 31, 20172017. The increase in the effective income tax rate in 2018 compared to $2.22017 is primarily due to a $0.9 million increase, or an effective income tax rate of 36.7%19.7%, forto the three months ended March 31, 2016.provisional estimate recorded in the fourth quarter of 2017 relating to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, imposed by the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017. The increase is partially offset by a decrease in the U.S. statutory tax rate from 35% to 21% and other discrete items. Excluding the discrete items included in tax expense in the first quarter of 2018, the Company's effective income tax rate in 2017 compared to 2016 is primarily due to a change in the mix of taxable income from higher taxing jurisdictions to lower taxing jurisdictions.was 25.9%. Income tax expense for the quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

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

The Tax Act creates a new requirement that Global Intangible Low-Taxed Income (“GILTI”) earned by a controlled foreign corporation (“CFC”) must be included in the gross income of the U.S. shareholder. Because of the complexity of the new GILTI tax rules, we are continuing to evaluate these provisions of the Tax Act and whether taxes due on future U.S. inclusions related to GILTI should be recorded as a current-period expense when incurred, or factored into the company’s measurement of its deferred taxes. At March 31, 2018, because the Company is still evaluating the GILTI provisions, the Company has included tax expense related to GILTI for the current year in its estimated annual effective tax rate and has not provided additional GILTI on deferred items.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense. As of March 31, 2017,2018, 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 20132014 through 20152017 remain open to examination by these tax jurisdictions, and earlier years remain open to examination in certain of these jurisdictions which have longer statutes of limitations.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
March 31, 20172018
(Unaudited)




(10)(11)Stockholders’ Equity

Changes in stockholders’ equity during the three months ended March 31, 20172018 were as follows (in thousands):
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Treasury
stock
at cost
 
Accumulated
other
comprehensive
loss
 
Total
stockholders’
equity
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Treasury
stock
at cost
 
Accumulated
other
comprehensive
loss
 
Total
stockholders’
equity
Balance at December 31, 2016$172
 $106,569
 $93,845
 $(11,628) $(21,462) $167,496
Balance at December 31, 2017$172
 $107,256
 $106,599
 $(11,118) $(14,855) $188,054
Cumulative effect adjustment of adopting ASU 2014-09—
 —
 (396) —
 —
 (396)
Adjusted balance at December 31, 2017172
 107,256
 106,203
 (11,118) (14,855) 187,658
Net income—
 —
 4,086
 —
 —
 4,086
—
 —
 2,632
 —
 —
 2,632
Cumulative effect adjustment of adopting ASU 2016-09—
 234
 (137) —
 —
 97
Foreign currency translation adjustment—
 —
 —
 —
 1,011
 1,011
—
 —
 —
 —
 2,432
 2,432
Change in fair value of interest rate swap—
 —
 —
 —
 (55) (55)
Change in fair value of interest rate cap, net of tax—
 —
 —
 —
 148
 148
Change in fair value of interest rate swap, net of tax—
 —
 —
 —
 55
 55
Repurchases of common stock—
 —
 —
 (1,674) —
 (1,674)—
 —
 —
 (7,261) —
 (7,261)
Stock-based compensation expense—
 796
 —
 —
 —
 796
—
 698
 —
 —
 —
 698
Issuance of stock for employer contributions to retirement plan—
 (51) —
 713
 —
 662
—
 4
 —
 707
 —
 711
Net issuances of stock pursuant to stock compensation plans and other—
 (590) —
 455
 —
 (135)—
 (589) —
 538
 —
 (51)
Balance at March 31, 2017$172

$106,958

$97,794

$(12,134)
$(20,506)
$172,284
Balance at March 31, 2018$172

$107,369

$108,835

$(17,134)
$(12,220)
$187,022

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 three months ended March 31, 20172018 and 2016,2017, we repurchased approximately 70,000312,000 and 181,00070,000 shares, respectively, of our common stock in the open market for a total cost of approximately $1.7$7.3 million and $4.3$1.7 million, respectively. As of March 31, 2017,2018, there was approximately $4.4$4.5 million available for future repurchases under the buyback program.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
March 31, 20172018
(Unaudited)



(11)(12)Restructuring

The following table shows the balances and activity for our restructuring liability (in thousands):
  Total
Liability as of December 31, 2017 $2,840
Payments (1,211)
Additional restructuring charges 435
Liability as of March 31, 2018 $2,064

In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic growth and reducing operating costs. During the fourth quarter of 2017, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth and we recorded restructuring charges, consisting primarily of severance expense of $3.3 million for the fourth quarter ended December 31, 2017. During the three months ended March 31, 2018, we recorded an additional $0.4 million of restructuring charges, consisting primarily of severance expense, which is included in restructuring charges on the condensed consolidated statements of operations. The total remaining liability under these restructuring activities was $2.1 million as of March 31, 2018, of which $1.7 million is included in accounts payable and accrued expenses and $0.4 million is included in other noncurrent liabilities on the condensed consolidated balance sheet. We expect these restructuring activities to be substantially completed in the first half of 2018.


(13)Business Segments

As of March 31, 2017,2018, we operated through fourtwo reportable business segments: (i) Workforce Excellence and (ii) Business Transformation Services. In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic growth and reducing operating costs. Effective January 1, 2018, we re-organized into two operating segments aligned by complementary service lines and supported by a new business development organization aligned by industry sector. The Workforce Excellence segment includes the majority of the former Learning Solutions (ii)and Professional & Technical Services (iii)segments. The Business Transformation Services segment includes the majority of the former Performance Readiness Solutions and Sandy Training & Marketing and (iv) Performance Readiness Solutions.segments. Certain business units transferred between the
former operating segments to better align with the service offerings of the two new segments. Each of our two reportable segments represents an operating segment under U.S. GAAP.ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other. In connection with the new organizational structure that went into effect on January 1, 2018, we determined that we have four reporting units for purposes of goodwill impairment testing, which represent our four practices which are organized byone level below the operating groups primarily based upon the markets served bysegments, as discussed below.

Our two segments each group and/or the services performed. Each operating group consistsconsist of business unitstwo global practice areas which are focused on providing specificsimilar and/or complementary products and services to certain classes of customers oracross 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 with operating groupsby industry sector to support existing customer accounts and new customer development.

development across both segments. We have reclassified the segment financial information herein for the prior year periods to reflect the changes in our segments and conform to the current year's presentation. Further information regarding our business segments is discussed below.

Learning Solutions. The Learning Solutions segment delivers training, curriculum design and development, eLearning services, system hosting, training business process outsourcing and consulting services globally. This segment serves large companies in the electronics and semiconductors, healthcare, software, financial services and other industries, as well as government agencies. This segment also provides apprenticeship and vocational skills training for the United Kingdom government. The ability to deliver a wide range of training services on a global basis allows this segment to take over the entire learning function for the client, including their training personnel.
Professional & Technical Services. The Professional & Technical Services segment provides 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, energy and petrochemical industries; federal and state government agencies; and large government contractors. Our proprietary EtaPRO™ Performance and Condition Monitoring System provides a suite of real-time software solutions for power generation facilities and is installed on power-generating units across the world. In addition to providing custom training solutions, this segment provides web-based training through our GPiLEARN™ portal, which offers a variety of courses to power plant personnel in the U.S. and other countries. This segment also provides services to users of alternative fuels, including designing and constructing liquefied natural gas (LNG), liquid to compressed natural gas (LCNG) and hydrogen fueling stations, as well as supplying equipment.
Sandy Training & Marketing. The Sandy Training & Marketing 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 salesforces with respect to new vehicle features and designs, in effect rapidly increasing the salesforce knowledge base and enabling them to address detailed customer queries. Furthermore, Sandy helps our clients assess their customer relationship marketing strategy and connect with their customers on a one-to-one basis, including through custom publications. This segment also provides technical training services to automotive manufacturers as well as customers in other industries.
Performance Readiness Solutions. This segment provides performance consulting and technology consulting services, including platform adoption, end-user training, change management, knowledge management, customer product training outsourcing, training content development and sales enablement solutions. This segment also offers organizational performance solutions, including leadership development training and employee engagement tools and services. Industries served include manufacturing, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education, as well as government agencies.
We do not allocate the following items to the segments: selling, general & administrative expenses, other income (expense), interest expense, restructuring charges, loss on change in fair value of contingent consideration and income tax expense. Inter-segment revenue is eliminated in consolidation and is not significant.


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
March 31, 20172018
(Unaudited)

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

Managed Learning Services - this practice focuses on creating value for our customers by delivering a suite of talent management and learning design, development, operational and support services that can be delivered as large scale outsourcing arrangements, managed services contracts and project-based service engagements. The Managed Learning Services offerings include strategic learning and development consulting services, digital learning content design and development solutions and a suite of managed learning operations services, including: managed facilitation and delivery, managed training administration and logistics, help desk support, tuition reimbursement management services, event management and vendor management.
Engineering & Technical Services - this practice focuses on capital intensive, inherently hazardous and/or highly complex technical services in support of both U.S. government and global commercial industries. Our products and services include design, development and delivery of technical work-based learning, CapEx (plant launch) initiatives, engineering design and construction management, fabrication, and management services, operational excellence consulting, chemical demilitarization services, homeland security services, emergency management support services along with all forms of technical documentation. We deliver world-class asset management and performance improvement consulting to a host of industries. Our proprietary EtaPRO® Performance and Condition Monitoring System provides a suite of real-time digital solutions for hundreds of facilities and is installed in power-generating units around the world. We also provide thousands of technical courses in a web-based off the shelf delivery format through our GPiLEARN+™ portal.
Business Transformation Services. The Business Transformation Services segment works with organizations to execute complex business strategies by linking business systems, process and people’s performance to clear and measurable results. We have a holistic methodology to establishing direction and closing the gap between strategy and execution.  Our approach equips business leaders and teams with the tools and capability to deliver high-performance results. This segment consists of two practices:

Sales Enablement - this practice provides custom product sales training and service technical training, primarily to automotive manufacturers, designed to better educate the customer salesforces as well as the service technicians with respect to new product features and designs, in effect rapidly increasing the salesforce and technicians knowledge base and enabling them to address retail customer needs. Furthermore, this segment helps our clients assess their customer relationship marketing strategy and connect with their customers on a one-to-one basis, including  custom print and digital publications. We have been a custom product sales and service technical training provider and leader in serving manufacturing customers in the U.S. automotive industry for over 40 years.
Organizational Development - this practice works with organizations to design and execute an integrated people performance system.  This translates to helping organizations set strategy, carry that strategy through every level of the organization and ensure that their people have the right skills, knowledge, tools, processes and technology to enable the transformation and achieve business results. Solutions include strategy, leadership, employee engagement and culture consulting, enterprise technology implementation and adoption solutions, learner experience design and development, and organization design and business performance consulting.
We do not allocate the following items to the segments: selling, general & administrative expenses, restructuring charges, other expense, interest expense, gain on change in fair value of contingent consideration and income tax expense.


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2018
(Unaudited)

The following table sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated income before income tax expense (in thousands):
 Three Months Ended 
 March 31,
 2017
2016
Revenue:   
Learning Solutions$49,746
 $49,906
Professional & Technical Services25,309
 25,829
Sandy Training & Marketing24,601
 21,824
Performance Readiness Solutions22,791
 18,197
 $122,447

$115,756
Gross profit: 
  
Learning Solutions$8,756
 $9,704
Professional & Technical Services4,599
 3,884
Sandy Training & Marketing2,876
 2,451
Performance Readiness Solutions3,157
 1,888
     Total gross profit19,388
 17,927
Selling, general and administrative expenses12,994
 11,970
Gain (loss) on change in fair value of contingent consideration, net197
 (159)
Operating income6,591

5,798
Interest expense438
 245
Other income (expense)(75) 454
Income before income tax expense$6,078
 $6,007
 Three Months Ended 
 March 31,
 2018
2017
Revenue:   
Workforce Excellence$74,431
 $71,543
Business Transformation Services50,601
 50,904
 $125,032

$122,447
Gross profit: 
  
Workforce Excellence$11,109
 $13,007
Business Transformation Services6,570
 6,381
     Total gross profit17,679
 19,388
Selling, general and administrative expenses14,584
 12,994
Restructuring charges435
 —
Gain on change in fair value of contingent consideration, net2,552
 197
Operating income5,212

6,591
Interest expense686
 438
Other expense164
 75
Income before income tax expense$4,362
 $6,078

(12) Subsequent Event
(14)Subsequent Event

Effective AprilOn May 1, 2017,2018, we acquired the businessentire share capital of IC Acquisition Corporation, a Delaware corporation, and certain assetsits subsidiary, IC Axon Inc., a Canadian corporation (IC Axon). IC Axon develops science-driven custom learning solutions for pharmaceutical and life science customers. The upfront purchase price is $30.0 million in cash, subject to a working capital adjustment to be calculated within 90 days following the closing of Emantras,the acquisition. In addition, the purchase agreement requires up to an additional $3.5 million of consideration, contingent upon the achievement of an earnings target during a digital education company with offices in Fremont, California and Chennai, India. For further details see Note 5twelve-month period subsequent to the Condensed Consolidated Financial Statements.closing of the acquisition.


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Results of Operations
 
General Overview
 
We are a global performance improvement solutions provider of training, e-Learningdigital 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 fourfive decades of experience in providing solutions to optimize workforce performance.
 
As of March 31, 2017,2018, we operated through fourtwo reportable business segments: (i) Workforce Excellence and (ii) Business Transformation Services. In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic growth and reducing operating costs. Effective January 1, 2018, we re-organized into two operating segments aligned by complementary service lines and supported by a new business development organization aligned by industry sector. The Workforce Excellence segment includes the majority of the former Learning Solutions (ii)and Professional & Technical Services (iii)segments. The Business Transformation Services segment includes the majority of the former Performance Readiness Solutions and Sandy Training & Marketing and (iv) Performance Readiness Solutions.segments. Certain business units transferred between the former operating segments to better align with the service offerings of the two new segments. Each of our two reportable segments represents an operating segment under U.S. GAAP.ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other. In connection with the new organizational structure that went into effect on January 1, 2018, we determined that we have four reporting units for purposes of goodwill impairment testing, which represent our four practices which are organized byone level below the operating group primarily based upon the markets served bysegments, as discussed below.

Our two segments each group and/or the services performed. Each operating group consistsconsist of business unitstwo global practice areas which are focused on providing specificsimilar and/or complementary products and services to certain classes of customers oracross 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 with operating groupsby industry sector to support existing customer accounts and new customer development.
development across both segments. We have reclassified the segment financial information herein for the prior year periods to reflect the changes in our segments and conform to the current year's presentation. Further information regarding our business segments is discussed below.

Learning Solutions.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 Solutions segment delivers training, curriculumServices - 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 eLearningsolutions and a suite of managed learning operations services, system hosting,including: managed facilitation and delivery, managed training business process outsourcingadministration and consultinglogistics, help desk support, tuition reimbursement management services, globally. This segment serves large companies in the electronicsevent management and semiconductors, healthcare, software, financial services and other industries, as well as government agencies. This segment also provides apprenticeship and vocational skills training for the United Kingdom government. The ability to deliver a wide range of training services on a global basis allows this segment to take over the entire learning function for the client, including their training personnel.vendor management.
ProfessionalEngineering & Technical Services.Services The Professional & Technical Services segment provides training, consulting, engineering and- this practice focuses on capital intensive, inherently hazardous and/or highly complex technical services including leanin 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, emergency preparedness, safety and regulatory compliance, chemical demilitarization services, homeland security services, emergency management support services along with all forms of technical documentation. We deliver world-class asset management and environmental services primarilyperformance improvement consulting to large companies in the manufacturing, steel, pharmaceutical, energy and petrochemical industries; federal and state government agencies; and large government contractors.a host of industries. Our proprietary EtaPRO™EtaPRO® Performance and Condition Monitoring System provides a suite of real-time softwaredigital solutions for power generationhundreds of facilities and is installed onin power-generating units acrossaround the world. In addition to providing custom training solutions, this segment providesWe also provide thousands of technical courses in a web-based trainingoff the shelf delivery format through our GPiLEARN™ portal, which offersGPiLEARN+™ 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 variety of coursesholistic methodology to power plant personnel inestablishing direction and closing the U.S.gap between strategy and other countries.execution.  Our approach equips business leaders and teams with the tools and capability to deliver high-performance results. This segment also provides services to usersconsists of alternative fuels, including designing and constructing liquefied natural gas (LNG), liquid to compressed natural gas (LCNG) and hydrogen fueling stations, as well as supplying equipment.two practices:

Sandy Training & Marketing.Sales Enablement The Sandy Training & Marketing segment- this practice provides custom product sales training and has been a leader in serving manufacturing customers in the U.S.service technical training, primarily to automotive industry for over 30 years. Sandy provides custom product sales trainingmanufacturers, designed to better educate the customer salesforces as well as the service technicians with respect to new vehicleproduct features and designs, in effect rapidly increasing the salesforce and technicians knowledge base and enabling them to address detailedretail customer queries.needs. Furthermore, Sandythis segment helps our clients assess their customer relationship marketing strategy and connect with their customers on a one-to-one basis, including  through custom print and digital publications. This segment also providesWe have been a custom product sales and service technical training services to automotive manufacturers as well asprovider and leader in serving manufacturing customers in other industries.the U.S. automotive industry for over 40 years.
Performance Readiness Solutions.Organizational Development - this practice works with organizations to design and execute an integrated people performance system.  This segment provides performance consultingtranslates 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, services, including platformenterprise technology implementation and adoption end-user training, change management, knowledge management, customer product training outsourcing, training contentsolutions, learner experience design and development, and sales enablement solutions. This segment also offers organizationalorganization design and business performance solutions, including leadership development training and employee engagement tools and services. Industries served include manufacturing, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education, as well as government agencies.consulting.


Acquisitions

Hula Partners
On January 2, 2018, we acquired the business and certain assets of Hula Partners, a provider of SAP Success Factors Human Capital Management (HCM) implementation services. The purchase price was $10.0 million which was paid in cash at closing. The goodwill recognized is due to the expected synergies from combining operations of the acquiree with the Company. All of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired Hula Partners business is included in the Business Transformation Services segment and the results of its operations have been included in the consolidated financial statements beginning January 2, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

YouTrain
On August 31, 2017, we acquired the entire share capital of YouTrain Limited ("YouTrain"), an independent training company
delivering IT, digital and life sciences skills training in Scotland and North West England. The upfront purchase price was $4.9 million which was paid in cash at closing and a completion accounts payment of $0.2 million which was paid to the sellers during the fourth quarter of 2017. The acquired YouTrain business is included in the Workforce Excellence segment and the results of its operations have been included in the consolidated financial statements beginning September 1, 2017. The pro-forma impact of the acquisition is not material to our results of operations.

CLS Performance Solutions Limited
On August 31, 2017, we acquired the business and certain assets of CLS Performance Solutions Limited ("CLS"), an independent provider of Enterprise Resource Planning (ERP) end user adoption and training services in the United Kingdom. The upfront purchase price was $0.4 million which was paid in cash at closing. In addition, the purchase agreement requires up to an additional $2.3 million of consideration contingent upon the achievement of certain earnings targets during the twelve-month period following the completion of the acquisition. The acquired CLS business is included in the Business Transformation Services segment, and the results of its operations have been included in the consolidated financial statements beginning September 1, 2017. The pro-forma impact of the acquisition is not material to our results of operations.

Emantras
Effective April 1, 2017, we acquired the business and certain assets of Emantras, a digital education company that provides engaging learning experiences and effective knowledge delivery through award-winning digital and mobile solutions with offices in Fremont, California and Chennai, India. This acquisition strengthens our eLearning development capabilities, allowing us to better serve our customer base with the latest digital learning solutions. The upfront purchase price was $3.2 million in cash. In addition, the purchase agreement requires up to an additional $0.3 million of consideration, contingent upon the achievement of an earnings target during the twelve-month period ending June 30, 2018, plus a percentage of any earnings in excess of the specified earnings target. The acquired Emantras business is included in the Workforce Excellence segment, and the results of its operations have been included in the consolidated financial statements beginning April 1, 2017. The pro-forma impact of the acquisition is not material to our results of operations.

McKinney Rogers
On February 1, 2017, we acquired the business and certain assets of McKinney Rogers, a provider of strategic consulting services with offices in New York and London. This acquisition will expandexpands our solutions offerings, giving us the ability to leverage McKinney Rogers' intellectual property and consulting methodologies to help our global client base meet strategic business goals. The upfront purchase price was $3.2$3.3 million in cash. In addition, the purchase agreement requires up to an additional $18.0 million of consideration, $6.0 million of which iswas contingent upon the achievement of certain earnings targets during the five-month period endingended April 30, 2017 and $12.0 million of which is contingent upon the achievement of certain earnings targets during the three twelve-month periods following completion of the acquisition. We recorded a preliminary purchase price allocationIn July 2017, we paid the seller $1.0 million in respect of the contingent consideration for the acquisitionfive-month period ended April 30, 2017. For the twelve-month period ended January 31, 2018, McKinney Rogers did not achieve the minimum earnings target and therefore, there was zero contingent consideration payable in respect of the first quartertwelve-month period following completion of 2017 which we expect to finalize in the second quarter of 2017 as we have not fully completed the valuation of intangible assets and contingent consideration.acquisition. The acquired McKinney Rogers business is included in the Performance Readiness SolutionsBusiness Transformation Services segment and the results of its operations have been included in the consolidated financial statements beginning February 1, 2017. The pro-forma impact of the acquisition is not material to our results of operations.

Maverick Solutions
Effective October 1, 2016, we acquired the business and certain assets of Maverick Solutions, a U.S.-based provider of Enterprise Resource Planning (ERP) product training services. This acquisition strengthens our eLearning development capabilities, allowing us to better serve our customer base with the latest digital learning solutions. The upfront purchase price was $4.6 million in cash. In addition, the purchase agreement requires up to an additional $10.0 million of consideration, contingent upon the achievement of certain earnings targets during the two twelve-month periods following completion of the acquisition. The acquired Maverick Solutions business is included in the Performance Readiness Solutions segment and the results of its operations have been included in the consolidated financial statements beginning October 1, 2016. The pro-forma impact of the acquisition is not material to our results of operations.

Jencal Training
On March 1, 2016, we acquired the share capital of Jencal Training Limited (Jencal Training) and its subsidiary B2B Engage Limited (B2B), an independent provider of vocational skills training in the United Kingdom. The upfront purchase price was $2.5 million in cash. In addition, we paid an additional $0.2 million of deferred consideration in the fourth quarter of 2016. The acquired Jencal Training business is included in the Learning Solutions segment and the results of its operations have been included in the consolidated financial statements beginning March 1, 2016. The pro-forma impact of the acquisition is not material to our results of operations.

Operating Highlights
 
Three Months ended March 31, 20172018 Compared to the Three Months ended March 31, 20162017
 
Our revenue increased $6.7$2.6 million or 5.8%2.1% during the first quarter of 20172018 compared to the first quarter of 2016.2017. The net increase is due to a $2.8 million revenue increase in our Sandy Training & Marketing segment and a $4.6$2.9 million increase in our Performance Readiness SolutionsWorkforce Excellence segment offset by a $0.2 million revenue decrease in our Learning Solutions segment and a $0.5$0.3 million decline in our Professional & TechnicalBusiness Transformation Services segment. Foreign currency exchange rate declineschanges resulted in a total $3.7$4.1 million decreaseincrease in U.S. dollar reported revenue during the first quarter of 2017.2018. The changes in revenue and gross profit are discussed in further detail below by segment, which is included in the fluctuations discussed above.segment.

Operating income, the components of which are discussed below, increased $0.8decreased $1.4 million or 13.7%20.9% to $5.2 million for the first quarter of 2018 compared to $6.6 million for the first quarter of 2017 compared to $5.8 million for the first quarter of 2016.2017. The net increasedecrease in operating income is primarily due to a $1.5$1.7 million increasedecrease in gross profit, and a $0.4 million increase in the change in fair value of contingent consideration, offset by a $1.0$1.6 million increase in selling, general and administrative expenses and $0.4 million of restructuring charges, offset by a $2.4 million increase in the gain on change in fair value of contingent consideration during the first quarter of 2017.2018.

For the three months ended March 31, 2017,2018, we had income before income tax expense of $6.1$4.4 million compared to $6.0$6.1 million for the three months ended March 31, 2016.2017. Net income was $2.6 million, or $0.16 per diluted share, for the three months ended March 31, 2018, compared to net income of $4.1 million, or $0.24 per diluted share, for the three months ended March 31, 2017, compared to net income of $3.8 million, or $0.23 per diluted share, for the three months ended March 31, 2016.2017. Diluted weighted average shares outstanding were 16.816.7 million for boththe first quarter of 2018 compared to 16.8 million for the three-month periods ended March 31, 2017 and 2016.first quarter of 2017.
 

Revenue
(Dollars in thousands)Three months ended
 March 31,
 2017 2016
Learning Solutions$49,746
 $49,906
Professional & Technical Services25,309
 25,829
Sandy Training & Marketing24,601
 21,824
Performance Readiness Solutions22,791
 18,197
 $122,447
 $115,756
(Dollars in thousands)Three months ended
 March 31,
 2018 2017
Workforce Excellence$74,431
 $71,543
Business Transformation Services50,601
 50,904
 $125,032
 $122,447
 
Learning SolutionsWorkforce Excellence revenue decreased $0.2increased $2.9 million or 0.3%4.0% during the first quarter of 20172018 compared to the first quarter of 2016.2017. The revenue increase is due to the following:
a $3.3 million net increase in revenue due to favorable changes in foreign currency exchange rates; and
a $1.3 million increase in revenue contributed by the acquisitions completed in this segment within the last twelve months (consisting of $1.0 million of revenue from the YouTrain acquisition completed on August 31, 2017 and $0.3 million of revenue from the Emantras acquisition completed on April 1, 2017); offset by
a $0.3 million net decrease in revenue in our Managed Learning Services practice (we experienced a net increase in revenue in the U.S. for digital learning and training content development services which was more than offset by decrease in vocational skills training services provided to the UK government); and

a $1.4 million net decrease in revenue in our Engineering & Technical Services practice primarily due to a decrease in software license and implementation services in our Energy business unit and a reduction in revenue from a contract with a foreign oil and gas client which was terminated in the fourth quarter of 2017.
Business Transformation Services revenue decreased $0.3 million or 0.6% during the first quarter of 2018 compared to the first quarter of 2017. The revenue decrease is due to the following:
A $2.7a $3.5 million net decrease in revenueour Organizational Development practice due to unfavorable changesa decline in foreign currency exchange rates; partiallyplatform adoption, strategic consulting and leadership development services;
a $0.8 million net decrease in our Sales Enablement practice primarily due to the completion of non-recurring vehicle launch events in 2017; offset by
A $1.7a $3.2 million net increase in e-Learning content development and training business process outsourcing (BPO) services; and
A $0.8revenue contributed by the acquisitions completed in this segment within the last twelve months (consisting of $1.4 million of revenue increase attributable tofrom the Jencal TrainingHula Partners acquisition completed on March 1, 2016.
Professional & Technical Services revenue decreased $0.5January 2, 2018, $1.4 million or 2.0% duringfrom the first quarter of 2017 compared to the first quarter of 2016. The revenue decrease is due to the following:
A $0.4 million decrease in training and technical services for oil and gas clients; and
A $0.7 million decrease in revenue due to unfavorable changes in foreign currency exchange rates; partially offset by
A $0.6 million increase in alternative fuels design and build projects.
Sandy Training & Marketing revenue increased $2.8 million or 12.7% during the first quarter of 2017 compared to the first quarter of 2016. The net increase is primarily due to an increase in training services for an automotive client related to a luxury vehicle launch.

Performance Readiness Solutions revenue increased $4.6 million or 25.2% during the first quarter of 2017 compared to the first quarter of 2016. The revenue increase is due to the following:
A $1.6 million increase attributable to the MaverickCLS acquisition completed on October 1, 2016;
A $1.7August 31, 2018 and $0.4 million increase attributable toof revenue from the McKinney Rogers acquisition completed on February 1, 2017;
A $1.2 million increase in technical training services largely due to a new contract with an aerospace client;
A $0.6 million increase in platform adoption training services;2018); and
A $0.2a $0.8 million net increase in leadership development services; partially offset by
A $0.4 million decrease in performance consulting services; and
A $0.3 million decrease in revenue due to unfavorablefavorable changes in foreign currency exchange rates.


Gross Profit
(Dollars in thousands)Three months ended
 March 31,
 2017 2016
   % Revenue   % Revenue
Learning Solutions$8,756
 17.6% $9,704
 19.4%
Professional & Technical Services4,599
 18.2% 3,884
 15.0%
Sandy Training & Marketing2,876
 11.7% 2,451
 11.2%
Performance Readiness Solutions3,157
 13.9% 1,888
 10.4%
 $19,388
 15.8% $17,927
 15.5%
(Dollars in thousands)Three months ended
 March 31,
 2018 2017
   % Revenue   % Revenue
Workforce Excellence$11,109
 14.9% $13,007
 18.2%
Business Transformation Services6,570
 13.0% 6,381
 12.5%
 $17,679
 14.1% $19,388
 15.8%
 
Learning SolutionsWorkforce Excellence gross profit was $8.8of $11.1 million or 17.6%14.9% of revenue for the first quarter of 20172018 decreased by $0.9$1.9 million or 9.8%14.6% compared to gross profit of $9.7 million or 19.4% of revenue for the first quarter of 2016. The decrease in gross profit is primarily due to a one-time cost reduction of $0.6 million in the first quarter of 2016 related to a UK government funded skills training contract which did not recur in 2017. In addition, there was a $0.7 million decrease in gross profit due to unfavorable changes in foreign currency exchange rates.

Professional & Technical Services gross profit of $4.6$13.0 million or 18.2% of revenue for the first quarter of 2017 increased byprimarily due to the following:
a $1.3 million decrease in gross profit for vocational skill training services provided to the UK government as a result of the lower revenue noted above;
a $1.1 million decrease in gross profit for software license and implementation services in our energy business;
a $0.7 million or 18.4% when compareddecrease in gross profit in our oil and gas business primarily due to lower revenues and ongoing costs to support the closeout of a contract with a foreign oil and gas client which was terminated in the fourth quarter of 2017; partially offset by
a $0.6 million increase to gross profit due to favorable changes in foreign currency exchange rates; and
a net $0.6 million increase in gross profit primarily due to margin improvements in our other business units within this segment and cost savings initiatives implemented in the fourth quarter of $3.92017.

Business Transformation Services gross profit of $6.6 million or 15.0%13.0% of revenue for the first quarter of 2016.2018 increased by $0.2 million or 3.0% compared to gross profit of $6.4 million or 12.5% of revenue for the first quarter 2017. Despite the net declineslight revenue decrease in revenue,this segment, gross profit increased primarily due to a decreasean increase in overhead costs and indirect labor expense in the first quarter of 2017.
Sandy Training & Marketing gross profit of $2.9 million or 11.7% of revenue for the first quarter of 2017 increased by $0.4 million or 17.3% whenon projects with higher margins replacing projects with lower margins within our Sales Enablement practice compared to gross profit of $2.5 million or 11.2% of revenue for the first quarter of 2016 due to the organic revenue increases noted above.
Performance Readiness Solutions gross profit of $3.2 million or 13.9% of revenue for the first quarter of 2017 increased by $1.3 million or 67.2% when compared to gross profit of $1.9 million or 10.4% of revenue for the first quarter of 2016. The increase in gross profit is primarily due to a $0.6 million increase attributable to acquisitions and the remaining $0.7 million increase is due to the organic revenue growth noted above.prior year.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses increased $1.0$1.6 million or 8.6%12.2% from $12.0 million for the first quarter of 2016 to $13.0 million for the first quarter of 2017.2017 to $14.6 million for the first quarter of 2018. The increase in SG&A expenses is primarily due to the following:
a $0.4$1.2 million increase in third party costs relating to our new financial system implementation which we anticipate will go live in 2018, the fourth quarter of 2018;
a $0.3 million increase in bad debtlabor and benefits expense for internal resources charging into G&A to develop training and process maps in support of the ERP implementation;
a $0.4 million of labor and benefits expense relating to new business development personnel as well as marketing personnel, some of which represents new investments and some of which results from centralizing marketing resources that were previously recorded in cost of revenue;
a $0.3 million increase due to increases in foreign currency exchange rates compared to the prior year; and
a $0.2 million net increase in labor, benefitsamortization expense for intangible assets; partially offset by
a $0.5 million decrease in bad debt expense; and other

a $0.3 million net decrease in SG&A expense as a result of the restructuring efforts initiated in the fourth quarter of 2017.

Restructuring charges

During the fourth quarter of 2017, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth and we recorded restructuring charges, consisting primarily of severance expense, of $3.3 million for the year ended December 31, 2017. During the three months ended March 31, 2018, we incurred an additional $0.4 million of restructuring charges, consisting primarily of severance expense, which is included in restructuring charges on the condensed consolidated statements of operations. The total remaining liability under these restructuring activities was $2.1 million as of March 31, 2018, of which $1.7 million is included in accounts payable and accrued expenses and a $0.1$0.4 million increaseis included in legal costs relatedother noncurrent liabilities on the condensed consolidated balance sheet. We expect these restructuring activities to acquisitions.be substantially completed in the first half of 2018.

Change in Fair Value of Contingent Consideration
 
We recognized a $0.2$2.6 million net gain on the change in fair value of contingent consideration related to acquisitions during the first quarter of 20172018 compared to a loss of 0.2net gain $0.2 million in the first quarter of 2016. Changes2017. The increase in the gain is primarily due to a $1.3 million gain related to the earnout for the Maverick acquisition and a $1.1 million gain related to the earnout for the McKinney Rogers acquisition due to a decrease in projected earnings for these acquired businesses compared to our prior forecasts, resulting in a lower fair value of contingent consideration obligations result from changes in discount periods and rates and changes in the timing and amountliabilities as of revenue and/or earnings projections.March 31, 2018. See Note 5 to the Condensed Consolidated Financial Statements6 for further details regarding the potentialour accounting for contingent consideration payments and the changes in fair value of the related liabilities during the three months ended March 31, 2017.consideration.

Interest Expense
 
Interest expense increased $0.2to $0.7 million tofor the first quarter of 2018 from $0.4 million for the first quarter of 2017 from $0.2 million for the first quarter of 2016.2017. The increase in interest expense is due to both an increase in interest rates and higher borrowings under the Credit Agreement which is disclosed in more detail in Note 8 to the Condensed Consolidated Financial Statements.Agreement.
 

Other Income (Expense)Expense
 
Other expense wasincreased $0.1 million forduring the first quarter of 2017 comparedprimarily due to other income of $0.5 million for the first quarter of 2016, andan increase in foreign currency losses. Other expense consists primarily of income from a joint venture offset byand foreign currency gains and losses in both periods. During the three months ended March 31, 2017, we had a $0.3 million net decrease in foreign currency gains and a $0.1 million decrease in income from a joint venture compared to the corresponding period in 2016.losses. Foreign currency gains and losses primarily relate to the effect of exchange rates on intercompany receivables and payables and third party receivables and payables that are denominated in currencies other than the functional currency of our legalforeign subsidiaries.
 
Income Tax Expense
 
Income tax expense was $1.7 million for the first quarter of 2018 compared to $2.0 million for the first quarter of 2017 compared to $2.2 million for the first quarter of 2016.2017. The effective income tax rate was 32.8%39.7% and 36.7%32.8% for the three months ended March 31, 20172018 and 2016,2017, respectively. The decreaseincrease in the effective income tax rate in 20172018 compared to 20162017 is primarily due to a change$0.9 million increase, or an effective income tax rate of 19.7%, to the provisional estimate recorded in the mixfourth quarter of taxable2017 relating to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, imposed by the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017. The increase is partially offset by a decrease in the U.S. statutory tax rate from 35% to 21% and other discrete items. Excluding the discrete items included in tax expense in the first quarter of 2018, the Company's effective income from higher taxing jurisdictions to lower taxing jurisdictions.tax rate was 25.9%. Income tax expense for the quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

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

Liquidity and Capital Resources
 
Working Capital
 
Our working capital was $56.2$34.0 million at March 31, 20172018 compared to $59.9$49.8 million at December 31, 2016.2017. As of March 31, 20172018 we had $23.5$43.7 million of short-term borrowings and $37.0$25.0 million of long-term debt outstanding. We believe that cash generated from operations and borrowings available under our Credit Agreement ($71.350.3 million of available borrowings as of March 31, 2017)2018) will be sufficient to fund our working capital and other requirements for at least the next twelve months.
 
As of March 31, 2017,2018, the amount of cash and cash equivalents held outside of the U.S. by foreign subsidiaries was $15.5$16.9 million. AtThe 2017 Tax Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding the present time,U.S. taxation of these amounts, we intend to continue to invest these earnings, as well as our capital in these subsidiaries, indefinitely outside of the U.S. and do not anticipate repatriating these balancesexpect to fund domestic operations. We would be requiredincur any significant, additional taxes related to accrue for and pay taxes in the U.S. in the event we repatriated these funds.such amounts.

Stock Repurchase Program

We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. During the three months ended March 31, 20172018 and 2016,2017, we repurchased approximately 70,000312,000 and 181,00070,000 shares, respectively, of our common stock in the open market for a total cost of approximately $1.7$7.3 million and $4.3$1.7 million, respectively. As of March 31, 2017,2018, there was approximately $4.4$4.5 million available for future repurchases under the buyback program.
 
Acquisition-Related Payments
 
Below is a summary of the potential maximum contingent consideration we may be required to pay in connection with completed acquisitions as of March 31, 20172018 (dollars in thousands):
Acquisition:Original range of potential undiscounted payments As of March 31, 2017 Maximum contingent consideration due inOriginal range of potential undiscounted payments As of March 31, 2018 Maximum contingent consideration due in
 201720182019-2020Total 201820192020Total
Maverick$0 - $10,000 $5,000
$5,000
$—
$10,000
$0 - $10,000 $5,902
$—
$—
$5,902
McKinney Rogers$0 - $18,000 6,000
4,000
8,000
18,000
$0 - $18,000 —
4,000
4,000
8,000
Emantras *
—
—
—
CLS$0 - $2,312 2,312
—
—
2,312
 $11,000
$9,000
$8,000
$28,000
 $8,214
$4,000
$4,000
$16,214
  
* There is no maximum contingent consideration payable to the seller.* There is no maximum contingent consideration payable to the seller.

On May 1, 2018, we acquired the entire share capital of IC Acquisition Corporation, a Delaware corporation, and its subsidiary, IC Axon Inc., a Canadian corporation (IC Axon). IC Axon develops science-driven custom learning solutions for pharmaceutical and life science customers. The upfront purchase price is $30.0 million in cash, subject to a working capital adjustment to be calculated within 90 days following the closing of the acquisition. In addition, the purchase agreement requires up to an additional $3.5 million of consideration, contingent upon the achievement of an earnings target during a twelve-month period subsequent to the closing of the acquisition.


Significant Customers & Concentration of Credit Risk
 
We have a market concentration of revenue in both the automotive sector and financial services & insurance sector. Revenue from the automotive industrysector accounted for approximately 22% and 20% of our consolidated revenue for both of the three monthsthree-month periods ended March 31, 20172018 and 2016, respectively.2017. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 15% and 13% of our consolidated revenue for both of the three-month periodsthree months ended March 31, 2018 and 2017, and 2016.respectively. As of March 31, 2017,2018, accounts receivable from a single automotive customer totaled $14.5$14.6 million, or 14%, of our consolidated accounts receivable balance.

Revenue from the financial services & insurance industrysector accounted for approximately 20% and 22% of our consolidated revenue for both of the three monthsthree-month periods ended March 31, 20172018 and 2016, respectively.2017. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 14% and 15% of our consolidated revenue for both of the three monthsthree-month periods ended March 31, 20172018 and 2016, respectively.2017. As of March 31, 2017,2018, billed and unbilled accounts receivable from a single financial services customer totaled $31.8$25.3 million, or 22%17%, of our consolidated accounts receivable and costs and estimated earnings in excess of billings on uncompleted contractsunbilled revenue balances. No other single customer accounted for more than 10% of our consolidated revenue for the three months ended March 31, 20172018 or 20162017 or consolidated accounts receivable balance as of March 31, 2017.2018.

Cash Flows
 
Three Months ended March 31, 20172018 Compared to the Three Months ended March 31, 20162017
 
Our cash and cash equivalents balance decreased $0.9$6.7 million from $16.3$23.6 million as of December 31, 20162017 to $15.5$16.9 million as of March 31, 2017.2018. The decrease in cash and cash equivalents during the three months ended March 31, 20172018 resulted from cash provided by operating activities of $4.1$9.4 million, cash used in investing activities of $4.1$11.2 million, cash used in financing activities of $1.3$5.1 million and a positive effect of exchange ratesrate changes on cash of $0.4$0.2 million.
 
Cash provided by operating activities was $4.1$9.4 million for the three months ended March 31, 20172018 compared to $8.6$4.1 million for the same period in 2016.2017. The decreaseincrease in cash from operations is primarily due to a net unfavorablefavorable change in working capital balances during the three months ended March 31, 20172018 compared to the same period in 2016 largely due to a increase in costs and estimated earnings in excess of billings on uncompleted contracts.2017.
 
Cash used in investing activities was $4.1$11.2 million for the three months ended March 31, 20172018 compared to $2.9$4.1 million for the same period in 2016.2017. The increase in cash used is primarily due to $0.9a $6.8 million increase in cash usedpaid to complete acquisitions and $0.3a $0.5 million ofincrease in other investing activities primarily for capitalized software development costs in the first quarter of 2017.costs.
 
Cash used in financing activities was $1.3$5.1 million for the three months ended March 31, 20172018 compared to $10.3$1.3 million for the same period in 2016.2017. The decreaseincrease in cash used in financing activities is primarily due a $6.8$6.1 million increase in short-term borrowings and a $2.6 million decrease in cash used for share repurchases during the first quarter of 2017three months ended March 31, 2018 compared to the first quarter of 2016.same period in 2017, partially offset by a $2.0 decrease in the change in negative cash book balances.
 
Debt

On December 15, 2016, we entered intoWe have a Fifth Amended and Restated Financing and Security Agreement (the “Credit Agreement”). The Credit Agreementcredit agreement with a bank which provides for a revolving credit facility up to a maximum principal amount of $100 million expiring on December 31, 2021 and for a term loan in the principal amount of $40 million maturing on April 30, 2020 and(the "Credit Agreement"). The Credit Agreement is secured by substantially all of our assets.

The maximum interest rate on the Credit Agreement is the daily one-month LIBOR market index rate (for borrowings in Dollars and Sterling) or the daily one month EURIBOR (for borrowings in Euros) plus 2.50%. Based on our financial performance, the interest rate can be reduced to a minimum rate of the daily one-month LIBOR market index rate plus 1.25%, with the rate being determined based on our maximum leverage ratio for the preceding four quarters. Each unpaid advance on the revolving loan will bear interest until repaid. The term loan is payable in monthly installments equal to $1.0 million plus applicable interest, beginning on January 1, 2017. We may prepay the term loan or the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions. Amounts repaid or prepaid on the term loan may not be reborrowed.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our and our subsidiaries’ (subject to certain exceptions) ability to, among other things, grant liens, make investments, incur indebtedness, merge or consolidate, dispose of assets, make acquisitions. We are also required to maintain compliance with a minimum fixed

charge coverage ratio of 1.5 to 1.0 and a maximum leverage ratio of 3.0 to 1.0. As of March 31, 2017,2018, our fixed coverage charge ratio was 1.91.8 to 1.0 and our leverage ratio was 1.51.7 to 1.0, all of which were in compliance with the Credit Agreement.

As of March 31, 2017,2018, our total long-term debt outstanding under the term loan was $37.0$25.0 million. In addition, there were $23.5$43.7 million of borrowings outstanding and $71.3$50.3 million of available borrowings under the Credit Agreement. For the three months ended March 31, 2017,2018, the weighted average interest rate on our borrowings was 2.5%3.4%.

EffectiveIn March 1, 2017, we entered into an interest rate swap agreement which effectively fixed our interest rate on the remaining $37 million outstanding on our term loan to a fixed LIBOR of 1.59% plus the applicable margin under the Credit Agreement. We have designated the interest rate swap, which expires on April 1, 2020, as a cash flow hedge and have applied hedge accounting. The fair value of the derivative liabilityasset associated with the interest rate swap was $0.2 million and $0.1 million as of March 31, 2018 and December 31, 2017, respectively, and is included in other liabilitiesassets on the condensed consolidated balance sheet.
In April 2017, we entered into an interest rate cap agreement and paid a premium of $0.5 million which caps the daily one-month LIBOR at 2.0% for an aggregate notional amount of $20.0 million of our variable rate debt under our credit facility. The interest rate cap agreement matures on December 31, 2021. We have designated the interest rate cap as a cash flow hedge and have applied hedge accounting. The fair value of the derivative asset associated with the interest rate cap was $0.5 million and $0.3 million as of March 31, 2018 and December 31, 2017, respectively, and is included in other assets on the condensed consolidated balance sheet.

Off-Balance Sheet Commitments
 
As of March 31, 20172018, we did not have any off-balance sheet commitments except for operating leases and letters of credit entered into in the normal course of business.
 
Accounting Standards Issued

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

Forward-Looking Statements
 
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward looking statements. Forward–looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results. We use words such as “expects,” “intends,” “believes,” “may,” “will,” “should,” “could,” “anticipates,” “estimates,” “plans” and similar expressions to indicate forward-looking statements, but their absence does not mean a statement is not forward-looking. Because these forward-looking statements are based upon management’s expectations and assumptions and are subject to risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including, but not limited to, those factors set forth in Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20162017 and those other risks and uncertainties detailed in our periodic reports and registration statements filed with the Securities and Exchange Commission. We caution that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict these new risk factors, nor can we assess the effect, if any, of the new risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ from those expressed or implied by these forward-looking statements.
 
If any one or more of these expectations and assumptions proves incorrect, actual results will likely differ materially from those contemplated by the forward-looking statements. Even if all of the foregoing assumptions and expectations prove correct, actual results may still differ materially from those expressed in the forward-looking statements as a result of factors we may not anticipate or that may be beyond our control. While we cannot assess the future impact that any of these differences could have on our business, financial condition, results of operations and cash flows or the market price of shares of our common stock, the differences could be significant. We do not undertake to update any forward-looking statements made by us, whether as a result of new information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report.



Item 3.    Quantitative and Qualitative Disclosure About Market Risk
 
Interest rate risk

We are exposed to interest rate risk related to our outstanding debt obligations. Borrowings under our Credit Agreement bear interest based on a variable rate. The Company has no material changesmaximum interest rate on our borrowings under the Credit Agreement is the daily one-month LIBOR market index rate (for borrowings in Dollars and Sterling) or the daily one month EURIBOR (for borrowings in Euros) plus 2.50%. Based on our financial performance, the interest rate can be reduced to a minimum rate of the daily one-month LIBOR market index rate plus 1.25%, with the rate being determined based on our maximum leverage ratio for the preceding four quarters. As such, we are exposed to interest rate risk relating to the disclosurefluctuations in the LIBOR rate. In an effort to manage our exposure to this risk, we entered into interest rate derivative contracts discussed in further detail below.
In March 2017, we entered into an interest rate swap agreement which effectively fixed our interest rate on this matter made in its Annual Reportthe remaining $37 million outstanding on Form 10-K forour term loan to a fixed LIBOR of 1.59% plus the fiscal year endedapplicable margin under the Credit Agreement. We have designated the interest rate swap, which expires on April 1, 2020, as a cash flow hedge and have applied hedge accounting. The fair value of the derivative asset associated with the interest rate swap was less than $0.2 million and $0.1 million as of March 31, 2018 and December 31, 2016.2017, respectively, and is included in other assets on the condensed consolidated balance sheet.
In April 2017, we entered into an interest rate cap agreement and paid a premium of $0.5 million which caps the daily one-month LIBOR at 2.0% for an aggregate notional amount of $20.0 million of our variable rate debt under our credit facility. The interest rate cap agreement matures on December 31, 2021. We have designated the interest rate cap as a cash flow hedge and have applied hedge accounting. The fair value of the derivative asset associated with the interest rate cap was $0.5 million and $0.3 million as of March 31, 2018 and December 31, 2017, respectively, and is included in other assets on the condensed consolidated balance sheet.
 
Item 4.    Controls and Procedures
 
Disclosure Controls and Procedures 
 
We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and under the Securities Exchange Act of 1934 (“Exchange Act”)) designed to provide reasonable assurance that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC’s rules and forms. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures are effective in providing reasonable assurance of the achievement of the objectives described above.
 
Internal Control Over Financial Reporting
 
During the quarter ended March 31, 2017,2018, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d—15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
 

PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
 
None.
 
Item 1A. Risk Factors
 
The Company has no material changes to the disclosure on this matter made in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
2017.


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

The following table provides information about the Company's share repurchase activity for the three months ended March 31, 2017:2018: 
  Issuer Purchases of Equity Securities
  
Total number
of shares purchased
  
Average
price paid per share
 
Total number
of shares
purchased as
part of publicly announced program
 
Approximate
dollar value of
shares that may yet
be purchased under the program (1)
Month     
January 1 - 31, 2017 202
(2) $29.35
 —
 $6,050,000
February 1 - 28, 2017 5,230
(2) $25.93
 —
 $6,050,000
March 1 - 31, 2017 86,777
(2) $23.88
 70,205
 $4,376,000
  Issuer Purchases of Equity Securities
  
Total number
of shares purchased
  
Average
price paid per share
 
Total number
of shares
purchased as
part of publicly announced program
 
Approximate
dollar value of
shares that may yet
be purchased under the program (1)
Month     
January 1 - 31, 2018 64,933
(2) $24.48
 64,751
 $10,160,000
February 1 - 28, 2018 190,000
  $23.27
 190,000
 $5,729,000
March 1 - 31, 2018 58,794
(2) $21.86
 56,801
 $4,487,000
 
(1)We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market subject to prevailing business and market conditions and other factors. There is no expiration date for the repurchase program.
(2)Includes shares surrendered by employees to satisfy minimum tax withholding obligations on restricted stock units which vested and shares surrendered to exercise stock options and satisfy the related minimum tax withholding obligations during the first quarter of 2017.2018.






Item 6.Exhibits

10.1
Amendment to Fifth Amended and Restated Financing and Security Agreement.*
31.1
Certification of Chief Executive Officer of the Company dated May 2, 20173, 2018 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*
31.2
Certification of Executive Vice President and Chief Financial Officer of the Company dated May 2, 20173, 2018 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*
32.1
Certification of Chief Executive Officer and Chief Financial Officer of the Company dated May 2, 20173, 2018 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101The following materials from GP Strategies Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017,2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements.*
*Filed herewith.


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 GP STRATEGIES CORPORATION
  
May 2, 20173, 2018/s/  Scott N. Greenberg
 Scott N. Greenberg
 Chief Executive Officer
  
May 2, 20173, 2018/s/  Sharon Esposito-MayerMichael R. Dugan
 Sharon Esposito-MayerMichael R. Dugan
 Executive Vice President and Chief Financial Officer

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