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 ~~September~~June 30, ~~2019~~2020

¨☐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~~

Columbia

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

Non-accelerated filer ¨

Smaller reporting company

¨☐

Emerging growth company

¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

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

Securities registered pursuant to Section 12(b) of the Act:



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

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



Class						Outstanding
Common Stock, par value $.01 per share						~~16,974,916~~17,068,443

GP STRATEGIES CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


			Page

Part I.		Financial Information	~~Page~~

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

Item 1.	Financial Statements (Unaudited)

		Condensed Consolidated Balance Sheets – ~~September 30, 2019~~June 3 0 , 2020 and December 31, ~~2018~~2019	1

		Condensed Consolidated Statements of Operations – Three Months a nd Six Months Ended June 3 0 , 2020 and ~~Nine Months Ended September 30,~~ 2019 ~~and 2018~~	2

		Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months and ~~Nine~~Six Months Ended ~~September 30,~~June 3 0 , 2020 and 2019 ~~and 2018~~	3

		Condensed Consolidated Statements of Stockholders' Equity - Three Months and ~~Nine~~Six Months Ended ~~September 30,~~June 3 0 , 2020 and 2019 ~~and 2018~~	4

		Condensed Consolidated Statements of Cash Flows – ~~Nine~~Six Months Ended ~~September 30,~~June 3 0 , 2020 and 2019 ~~and 2018~~	6

		Notes to Condensed Consolidated Financial Statements	7

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	2324

Item 3.		Quantitative and Qualitative Disclosure About Market Risk	3436

Item 4.		Controls and Procedures	3436

Part II.		Other Information	3538

Item 1.		Legal Proceedings	3538

Item 1A.		Risk Factors	3538

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3540

Item 6.		Exhibits	3641

Signatures				3742

Part I. Financial Information

Item 1. Financial Statements

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)


	September 30, 2019 (Unaudited)			December 31, 2018				June 30, 2020 (Unaudited)		December 31, 2019
Assets							Assets
Current assets:							Current assets:
Cash	$	7,739		$	13,417		Cash	$	12,097	$	8,159
Accounts and other receivables, less allowance for doubtful accounts of $2,652 in 2019 and $2,034 in 2018	115,951			107,673
Accounts and other receivables, less allowance for credit losses of $1,814 in 2020 and $1,132 in 2019							Accounts and other receivables, less allowance for credit losses of $1,814 in 2020 and $1,132 in 2019	99,828		131,852
Unbilled revenue	59,957			80,764			Unbilled revenue	40,029		57,229

Prepaid expenses and other current assets	25,930			19,048			Prepaid expenses and other current assets	21,272		19,115
Total current assets	209,577			220,902			Total current assets	173,226		216,355
Property, plant and equipment	22,642			24,580			Property, plant and equipment	24,027		23,746
Accumulated depreciation	(16,758		)	(18,721		)	Accumulated depreciation	(18,634)		(17,943)
Property, plant and equipment, net	5,884			5,859			Property, plant and equipment, net	5,393		5,803
Operating lease right-of-use assets	27,136			—			Operating lease right-of-use assets	23,591		27,251
Goodwill	176,213			176,124			Goodwill	165,941		171,563
Intangible assets, net	17,340			20,933			Intangible assets, net	13,889		16,344
Other assets	13,423			10,920			Other assets	11,670		11,586
	$	449,573		$	434,738			$	393,710	$	448,902
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities:							Current liabilities:

Accounts payable and accrued expenses	$	77,720		$	93,254		Accounts payable and accrued expenses	$	72,519	$	92,332
Deferred revenue	21,594			23,704			Deferred revenue	21,529		23,234
Current portion of operating lease liabilities	8,429			—			Current portion of operating lease liabilities	6,707		7,871
Total current liabilities	107,743			116,958			Total current liabilities	100,755		123,437
Long-term debt	113,150			116,500			Long-term debt	57,650		82,870

Long-term portion of operating lease liabilities	22,196			—			Long-term portion of operating lease liabilities	19,824		22,159
Other noncurrent liabilities	11,441			14,711			Other noncurrent liabilities	12,740		10,522
Total liabilities	254,530			248,169			Total liabilities	190,969		238,988

Stockholders’ equity:							Stockholders’ equity:
Common stock, par value $0.01 per share	172			172			Common stock, par value $0.01 per share	172		172
Additional paid-in capital	102,991			105,850			Additional paid-in capital	100,023		102,319
Retained earnings	121,733			116,039			Retained earnings	129,328		131,228
Treasury stock at cost	(6,045		)	(13,802		)	Treasury stock at cost	(1,366)		(4,070)
Accumulated other comprehensive loss	(23,808		)	(21,690		)	Accumulated other comprehensive loss	(25,416)		(19,735)
Total stockholders’ equity	195,043			186,569			Total stockholders’ equity	202,741		209,914
	$	449,573		$	434,738			$	393,710	$	448,902

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018			2019		2018				2020		2019		2020		2019
Revenue	$	139,005	$	123,566		$	427,891	$	382,289		Revenue	$	106,144	$	149,413	$	234,425	$	288,886
Cost of revenue	117,338		104,367			361,987		322,838			Cost of revenue	90,247		126,454		200,914		244,649
Gross profit	21,667		19,199			65,904		59,451			Gross profit	15,897		22,959		33,511		44,237
General and administrative expenses	15,240		12,227			46,769		40,207			General and administrative expenses	14,180		15,402		31,464		31,529
Sales and marketing expenses	1,830		1,297			5,725		3,128			Sales and marketing expenses	1,857		1,906		3,696		3,895
Restructuring charges	104		—			1,405		2,930			Restructuring charges	855		182		855		1,301
Gain on change in fair value of contingent consideration, net	—		526			677		3,972			Gain on change in fair value of contingent consideration, net	—		627		—		677
Operating income	4,493		6,201			12,682		17,158
Gain on sale of business											Gain on sale of business	—		—		1,064		—
Operating income (loss)											Operating income (loss)	(995)		6,096		(1,440)		8,189
Interest expense	1,575		1,095			4,852		1,631			Interest expense	607		1,679		1,585		3,277
Other income (expense)	184		(760		)	272		(1,912		)	Other income (expense)	(189)		102		(689)		88
Income before income tax expense	3,102		4,346			8,102		13,615
Income tax expense	961		1,102			2,408		4,164
Net income	$	2,141	$	3,244		$	5,694	$	9,451
Income (loss) before income tax expense											Income (loss) before income tax expense	(1,791)		4,519		(3,714)		5,000
Income tax expense (benefit)											Income tax expense (benefit)	(1,185)		1,300		(1,814)		1,447
Net income (loss)											Net income (loss)	$	(606)	$	3,219	$	(1,900)	$	3,553

Basic weighted average shares outstanding	16,901		16,536			16,773		16,555			Basic weighted average shares outstanding	17,144		16,747		17,113		16,710
Diluted weighted average shares outstanding	16,939		16,628			16,807		16,647			Diluted weighted average shares outstanding	17,207		16,780		17,162		16,741

Per common share data:											Per common share data:
Basic earnings per share	$	0.13	$	0.20		$	0.34	$	0.57
Diluted earnings per share	$	0.13	$	0.20		$	0.34	$	0.57
Basic earnings (loss) per share											Basic earnings (loss) per share	$	(0.04)	$	0.19	$	(0.11)	$	0.21
Diluted earnings (loss) per share											Diluted earnings (loss) per share	$	(0.04)	$	0.19	$	(0.11)	$	0.21

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net income $ 2,141
$ 3,244
$ 5,694
$ 9,451
Foreign currency translation adjustments (3,451 ) (457 ) (2,118 ) (3,662 )
Change in fair value of interest rate cap, net of tax —
47
—
252
Change in fair value of interest rate swap, net of tax —
(12 ) $ —
$ 47
Comprehensive income (loss) $ (1,310 ) $ 2,822
$ 3,576
$ 6,088


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	(606)	$	3,219	$	(1,900)	$	3,553
Foreign currency translation adjustments	1,474		(380)		(5,681)		1,333


Comprehensive income (loss)	$	868	$	2,839	$	(7,581)	$	4,886

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

(Unaudited)

(In thousands)


	Common stock		Additional paid-in capital		Retained earnings		Treasury stock at cost		Accumulated other comprehensive loss		Total stockholders’ equity
Balance at March 31, 2020	172		100,650		129,934		(1,374)		(26,890)		202,492


Net loss	—		—		(606)		—		—		(606)
Foreign currency translation adjustment	—		—		—		—		1,474		1,474


Repurchases of common stock	—		—		—		(1,826)				(1,826)
Stock-based compensation expense	—		772		—		—		—		772


Issuance of stock for employer contributions to retirement plan	—		(511)		—		1,275		—		764
Net issuances of stock pursuant to stock compensation plans and other	—		(888)		—		559		—		(329)
Balance at June 30, 2020	$	172	$	100,023	$	129,328	$	(1,366)	$	(25,416)	$	202,741

Common
stock Additional
paid-in
capital Retained
earnings Treasury
stock
at cost Accumulated
other
comprehensive
loss Total
stockholders’
equity
Balance at June 30, 2019 172
104,187
119,592
(9,830 ) (20,357 ) 193,764
Net income —
—
2,141
—
—
2,141
Foreign currency translation adjustment —
—
—
—
(3,451 ) (3,451 )
Stock-based compensation expense —
783
—
—
—
783
Issuance of stock for employer contributions to retirement plan —
(585 ) —
1,322
—
737
Net issuances of stock pursuant to stock compensation plans and other —
(1,394 ) —
2,463
—
1,069
Balance at September 30, 2019 $ 172
$ 102,991
$ 121,733
$ (6,045 ) $ (23,808 ) $ 195,043


	Common stock	Additional paid-in capital	Retained earnings	Treasury stock at cost	Accumulated other comprehensive loss	Total stockholders’ equity
Balance at March 31, 2019	172	104,909	116,373	(11,763)	(19,977)	189,714
Net income	—	—	3,219	—	—	3,219
Foreign currency translation adjustment	—	—	—	—	(380)	(380)

Stock-based compensation expense	—	602	—	—	—	602


Issuance of stock for employer contributions to retirement plan	—	(540)	—	1,268	—	728
Net issuances of stock pursuant to stock compensation plans and other	—	(784)	—	665	—	(119)
Balance at June 30, 2019	172	104,187	119,592	(9,830)	(20,357)	193,764

Common
stock

Additional
paid-in
capital

Retained
earnings

Treasury
stock
at cost

Accumulated
other
comprehensive
loss

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

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

(Unaudited)

(In thousands)


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


Net loss	—	—	(1,900)	—	—	(1,900)
Foreign currency translation adjustment	—	—	—	—	(5,681)	(5,681)


Repurchases of common stock	—	—	—	(1,826)	—	(1,826)
Stock-based compensation expense	—	1,213	—	—	—	1,213


Issuance of stock for employer contributions to retirement plan	—	(1,573)	—	3,152	—	1,579
Net issuances of stock pursuant to stock compensation plans and other	—	(1,936)	—	1,378	—	(558)
Balance at June 30, 2020	172	100,023	129,328	(1,366)	(25,416)	202,741

Common
stock Additional
paid-in
capital Retained
earnings Treasury
stock
at cost Accumulated
other
comprehensive
loss Total
stockholders’
equity
Balance at December 31, 2018 $ 172
$ 105,850
$ 116,039
$ (13,802 ) $ (21,690 ) $ 186,569
Net income —
—
5,694
—
—
5,694
Foreign currency translation adjustment —
—
—
—
(2,118 ) (2,118 )
Stock-based compensation expense —
1,739
—
—
—
1,739
Issuance of stock for employer contributions to retirement plan —
(1,546 ) —
3,746
—
2,200
Net issuances of stock pursuant to stock compensation plans and other —
(3,052 ) —
4,011
—
959
Balance at September 30, 2019 $ 172
$ 102,991
$ 121,733
$ (6,045 ) $ (23,808 ) $ 195,043


	Common stock	Additional paid-in capital	Retained earnings	Treasury stock at cost	Accumulated other comprehensive loss	Total stockholders’ equity
Balance at December 31, 2018	172	105,850	116,039	(13,802)	(21,690)	186,569
Net income	—	—	3,553	—	—	3,553
Foreign currency translation adjustment	—	—	—	—	1,333	1,333

Stock-based compensation expense	—	956	—	—	—	956


Issuance of stock for employer contributions to retirement plan	—	(961)	—	2,424	—	1,463
Net issuances of stock pursuant to stock compensation plans and other	—	(1,658)	—	1,548	—	(110)
Balance at June 30, 2019	172	104,187	119,592	(9,830)	(20,357)	193,764

Common
stock

Additional
paid-in
capital

Retained
earnings

Treasury
stock
at cost

Accumulated
other
comprehensive
loss

Total
stockholders’
equity
Balance at December 31, 2017 $ 172
$ 107,256
$ 106,599
$ (11,118 ) $ (14,855 ) $ 188,054
Cumulative effect adjustment of adopting ASU 2014-09 —
—
(396 ) —
—
(396 )
Adjusted balance at December 31, 2017 172
107,256
106,203
(11,118 ) (14,855 ) 187,658
Net income —
—
9,451
—
—
9,451
Foreign currency translation adjustment —
—
—
—
(3,662 ) (3,662 )
Change in fair value of interest rate cap, net of tax —
—
—
—
252
252
Change in fair value of interest rate swap, net of tax —
—
—
—
47
47
Repurchases of common stock —
—
—
(7,956 ) —
(7,956 )
Stock-based compensation expense —
1,344
—
—
—
1,344
Issuance of stock for employer contributions to retirement plan —
(298 ) —
2,455
—
2,157
Net issuances of stock pursuant to stock compensation plans and other —
(1,002 ) —
909
—
(93 )
Balance at September 30, 2018 $ 172
$ 107,300
$ 115,654
$ (15,710 ) $ (18,218 ) $ 189,198

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

(Unaudited, in thousands)


	2019			2018				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	5,694		$	9,451
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							Net income (loss)	$	(1,900)	$	3,553
Adjustments to reconcile net income (loss) to net cash provided by operating activities:							Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on change in fair value of contingent consideration, net	(677		)	(3,972		)	Gain on change in fair value of contingent consideration, net	—		(677)
Gain on sale of business							Gain on sale of business	(1,064)		—
Depreciation and amortization	6,992			5,670			Depreciation and amortization	4,254		4,657
Deferred income taxes	(258		)	(610		)	Deferred income taxes	(200)		(556)
Non-cash compensation expense	3,939			3,501			Non-cash compensation expense	2,792		2,419
Changes in other operating items:							Changes in other operating items:
Accounts and other receivables	(10,997		)	(4,644		)	Accounts and other receivables	29,264		(10,528)
Unbilled revenue	19,296			6,344			Unbilled revenue	15,887		8,266
Prepaid expenses and other current assets	(6,628		)	(5,131		)	Prepaid expenses and other current assets	(4,206)		(2,449)
Accounts payable, accrued expenses and net change in operating leases	(12,188		)	(5,527		)	Accounts payable, accrued expenses and net change in operating leases	(12,105)		(11,772)
Deferred revenue	(1,840		)	(2,215		)	Deferred revenue	142		141

Other	1,218			643			Other	(99)		643
Net cash provided by operating activities	4,551			3,510
Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	32,765		(6,303)

Cash flows from investing activities:							Cash flows from investing activities:
Additions to property, plant and equipment	(1,905		)	(2,267		)	Additions to property, plant and equipment	(1,046)		(1,027)
Acquisitions, net of cash acquired	850			(42,872		)

Proceeds from sale of business							Proceeds from sale of business	3,328		—
Capitalized software development costs and other	(2,261		)	(3,229		)	Capitalized software development costs and other	(45)		(227)
Net cash used in investing activities	(3,316		)	(48,368		)
Net cash provided by (used in) investing activities							Net cash provided by (used in) investing activities	2,237		(1,254)

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

Proceeds from long-term debt	120,350			18,000			Proceeds from long-term debt	81,165		77,050
Repayment of long-term debt	(123,700		)	(9,000		)	Repayment of long-term debt	(106,385)		(73,900)

Change in negative cash book balance	(1,329		)	723			Change in negative cash book balance	(2,984)		(1,584)

Repurchases of common stock in the open market	—			(8,485		)	Repurchases of common stock in the open market	(1,826)		—

Other financing activities	(421		)	(127		)	Other financing activities	(412)		(402)
Net cash (used in) provided by financing activities	(5,100		)	32,521
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	(30,442)		1,164

Effect of exchange rate changes on cash and cash equivalents	(1,813		)	(952		)	Effect of exchange rate changes on cash and cash equivalents	(622)		(913)
Net decrease in cash	(5,678		)	(13,289		)
Net increase (decrease) in cash							Net increase (decrease) in cash	3,938		(7,306)
Cash at beginning of period	13,417			23,612			Cash at beginning of period	8,159		13,417
Cash at end of period	$	7,739		$	10,323		Cash at end of period	$	12,097	$	6,111

Supplemental disclosures of cash flow information:							Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	4,681		$	1,388		Cash paid during the period for interest	$	1,502	$	3,197
Cash paid during the period for income taxes	2,148			3,371
Cash paid (refunded) during the period for income taxes							Cash paid (refunded) during the period for income taxes	879		(498)

See accompanying notes to condensed consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

(Unaudited)

(1)Basis of Presentation


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

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

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

The condensed consolidated financial statements include the operations of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

Certain prior year amounts have been reclassified to conform with the current year presentation. ~~Beginning~~

Use of Estimates and Assumptions

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

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


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

(2)Recent Accounting Standards

Recently Adopted Accounting Standards

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

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

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

The most significant impacts of adopting Topic 842 on our consolidated financial statements were (1) the recognition of new ROU assets and lease liabilities for our operating leases of $31.1 million and $34.9 million, respectively on January 1, ~~2019,~~2020 and began recognizing an allowance for credit losses based on the estimated lifetime expected credit loss related to our financial assets, which ~~included reclassifying accrued rent as a component~~primarily includes accounts receivable and unbilled revenue. The adoption of ~~the ROU asset, and (2) significant new disclosures about our leasing activities, which are provided in Note 13.~~ Topic ~~842~~326 did not have a material impact on our consolidated results of operations or ~~cash flows.~~financial condition. During the six months ended June 30, 2020, we incorporated the forecasted impact of future economic conditions into our allowance for credit losses measurement process including the expected adverse impact of COVID-19 on the global economy.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

(Unaudited)

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

Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general tax accounting principles and simplifying other specific tax scenarios. The new standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently assessing the impact that adopting this guidance will have on our consolidated financial statements.

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


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

(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

June 30, 2020

(Unaudited)

Under time-and-materials and cost-reimbursable contracts, the contractual billing schedules are based on the specified level of resources we are obligated to provide. Revenue under these contract types are recognized over time as services are performed as the client simultaneously receives and consumes the benefits provided by our performance throughout the engagement. The time and materials incurred for the period is the measure of performance and, therefore, revenue is recognized in that amount.

For fixed price contracts which typically involve a discrete project, such as development of training content and materials, design of training processes, software implementation, or engineering projects, the contractual billing schedules are not necessarily based on the specified level of resources we are obligated to provide. These discrete projects generally do not contain milestones or other measures of performance. The majority of our fixed price contracts meet the criteria in ASC Topic 606 for over time revenue recognition. For these contracts, revenue is recognized using a percentage-of-completion method

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

based on the relationship of costs incurred to total estimated costs expected to be incurred over the term of the contract. We believe this methodology is a reasonable measure of proportional performance since performance primarily involves personnel costs and services provided to the customer throughout the course of the projects through regular communications of progress toward completion and other project deliverables. In addition, the customer is required to pay us for the proportionate amount of our fees in the event of contract termination. A small portion of our fixed price contracts do not meet the criteria in ASC Topic 606 for over time revenue recognition. For these projects, we defer revenue recognition until the performance obligation is satisfied, which is generally when the final deliverable is provided to the client. The direct costs related to these projects are capitalized and then recognized as cost of revenue when the performance obligation is satisfied.

For fixed price contracts, when total direct cost estimates exceed revenues, the estimated losses are recognized immediately. The use of the percentage-of-completion method requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in estimated salaries and other costs. Estimates of total contract costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses. When revisions in estimated contract revenues and costs are determined, such adjustments are recorded in the period in which they are first identified. Adjustments to our fixed price contracts in the aggregate resulted in a net ~~increases~~decrease to revenue of $0.4 million and ~~$0.3~~$0.2 million for the three months ended ~~September~~June 30, 2020 and 2019 ~~and 2018, respectively, and~~respectively. It also resulted in a net ~~increases~~decrease to revenue of ~~$1.3~~$0.5 million and a net increase to revenue of $0.9 million for ~~both of~~ the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019 respectively.

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

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

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

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. As of ~~September~~June 30, ~~2019,~~2020, we had ~~$338.1~~$327.0 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 9085 percent of our remaining performance obligations as revenue within the next twelve months. ~~We did not apply any of the practical expedients permitted by ASC Topic 606 in determining the amount of our performance obligations as of September 30, 2019.~~

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

(Unaudited)

~~Revenue by Category~~

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

Three Months Ended September 30,

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

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

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

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

Nine Months Ended September 30,

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

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

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

Contract Balances

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

We recognized revenue of ~~$1.5~~$3.2 million and ~~$2.3~~$4.6 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$17.2~~$11.4 million and ~~$18.6~~$15.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, that was included in the contract liability balance at the beginning of the year and primarily represented revenue from services performed during the current period for which we received advance payment from clients in a prior period.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

(Unaudited)

Revenue by Category

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


	Three Months Ended June 30,
	Workforce Excellence						Business Transformation Services						Consolidated
	2020		2019		2020		2019		2020		2019
Revenue by type of service:
Managed learning services	$	38,326	$	44,789	$	—	$	—	$	38,326	$	44,789
Engineering & technical services	27,485		39,114		—		—		27,485		39,114
Sales enablement	—		—		23,368		42,113		23,368		42,113
Organizational development	—		—		16,965		23,397		16,965		23,397
	$	65,811	$	83,903	$	40,333	$	65,510	$	106,144	$	149,413

Revenue by geographic region:
Americas	$	51,781	$	64,468	$	27,218	$	46,305	$	78,999	$	110,773
Europe Middle East Africa	14,413		18,643		12,451		16,262		26,864		34,905
Asia Pacific	5,586		8,693		3,818		6,696		9,404		15,389
Eliminations	(5,969)		(7,901)		(3,154)		(3,753)		(9,123)		(11,654)
	$	65,811	$	83,903	$	40,333	$	65,510	$	106,144	$	149,413

Revenue by client market sector:
Automotive	$	1,180	$	3,668	$	22,195	$	42,092	$	23,375	$	45,760
Financial & Insurance	16,027		19,931		1,914		2,239		17,941		22,170
Manufacturing	5,858		9,610		2,247		4,580		8,105		14,190
Energy / Oil & Gas	6,078		8,850		878		1,456		6,956		10,306
U.S. Government	10,698		10,060		1,437		1,791		12,135		11,851
U.K. Government	—		—		4,182		4,369		4,182		4,369
Information & Communication	4,795		5,563		566		512		5,361		6,075
Aerospace	6,141		4,684		1,714		3,290		7,855		7,974
Electronics Semiconductor	2,084		3,994		213		439		2,297		4,433
Life Sciences	5,830		5,083		992		1,537		6,822		6,620
Other	7,120		12,460		3,995		3,205		11,115		15,665
	$	65,811	$	83,903	$	40,333	$	65,510	$	106,144	$	149,413


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

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)


	Six Months Ended June 30,
	Workforce Excellence						Business Transformation Services						Consolidated
	2020		2019		2020		2019		2020		2019
Revenue by type of service:
Managed learning services	$	80,824	$	89,431	$	—	$	—	$	80,824	$	89,431
Engineering & technical services	59,365		75,950		—		—		59,365		75,950
Sales enablement	—		—		55,856		77,664		55,856		77,664
Organizational development	—		—		38,380		45,841		38,380		45,841
	$	140,189	$	165,381	$	94,236	$	123,505	$	234,425	$	288,886

Revenue by geographic region:
Americas	$	108,344	$	124,132	$	64,067	$	86,925	$	172,411	$	211,057
Europe Middle East Africa	32,085		37,921		28,612		31,279		60,697		69,200
Asia Pacific	11,031		14,835		8,557		11,830		19,588		26,665
Eliminations	(11,271)		(11,507)		(7,000)		(6,529)		(18,271)		(18,036)
	$	140,189	$	165,381	$	94,236	$	123,505	$	234,425	$	288,886

Revenue by client market sector:
Automotive	$	3,633	$	7,266	$	51,897	$	76,268	$	55,530	$	83,534
Financial & Insurance	35,183		39,137		3,385		4,154		38,568		43,291
Manufacturing	15,016		18,880		5,205		9,598		20,221		28,478
Energy / Oil & Gas	12,353		20,380		2,051		2,484		14,404		22,864
U.S. Government	21,904		19,855		3,019		3,520		24,923		23,375
U.K. Government	—		—		9,449		8,412		9,449		8,412
Information & Communication	8,910		10,869		1,195		971		10,105		11,840
Aerospace	14,437		12,194		2,731		3,393		17,168		15,587
Electronics Semiconductor	4,707		8,124		430		685		5,137		8,809
Life Sciences	10,938		9,977		2,206		3,470		13,144		13,447
Other	13,108		18,699		12,668		10,550		25,776		29,249
	$	140,189	$	165,381	$	94,236	$	123,505	$	234,425	$	288,886

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)

(4)Significant Customers & Concentration of Credit Risk

We have a market concentration of revenue in both the automotive sector and financial & insurance sector. Revenue from the automotive sector accounted for approximately ~~28%~~24% and ~~21%~~29% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 13% and 14% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. As of ~~September~~June 30, ~~2019,~~2020, accounts receivable from a single automotive customer totaled ~~$12.3~~$15.1 million, or ~~11%~~15%, of our consolidated accounts receivable balance.

Revenue from the financial & insurance sector accounted for approximately ~~17%~~16% and ~~20%~~15% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately ~~11%~~9% and ~~14%~~11% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. As of ~~September~~June 30, ~~2019,~~2020, billed and unbilled accounts receivable from a single financial services customer totaled ~~$17.5~~$8.7 million, or ~~10%~~6%, of our consolidated accounts receivable and unbilled revenue balances.

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

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


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

(5)Earnings Per Share

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

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

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


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
	(In thousands)
Non-dilutive instruments	132	181	84	116

Dilutive common stock equivalents	63	33	49	31

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

Dilutive common stock equivalents 38
92
34
92

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

(Unaudited)

(6)Divestiture


~~(6)~~	~~Acquisitions~~

Sale of Alternative Fuels Division

~~Contingent Consideration~~

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

(7)Intangible Assets

Goodwill

We are required to assess goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. We perform the annual impairment assessment for each of our reporting units as of October 1st of each year. The recent developments related to the COVID-19 pandemic have resulted in uncertainty in the global economy, and declines in equity markets, including our share price. We considered whether such events would indicate that ~~contingent consideration be recognized at~~a triggering event have occurred and require an interim goodwill impairment testing. We considered our current projections, our share price in relation to the share price when the quantitative assessment was performed as of October 1, 2019 and the margin by which the fair values of the reporting units exceeded their carrying values. Based on this analysis, the Company concluded that the current events and circumstances related to the COVID-19 pandemic indicated that a triggering event occurred during the second quarter of 2020 in the Organizational Development reporting unit. The Company performed a quantitative goodwill impairment test as of June 30, 2020 and concluded that each of its reporting units' fair values exceeded their carrying values and that there was no indication of impairment. Each of the reporting units had a significant excess fair value onover its respective carrying value, with the ~~acquisition date and be re-measured each~~exception of the Organizational Development reporting unit which had a fair value that exceeded its carrying value by 10% as of the June 30, 2020 testing date. However, if our actual results are lower than projected or our share price remains depressed for a sustained period ~~with subsequent adjustments recognized~~of time, we could incur material goodwill impairment charges in the ~~condensed consolidated statement of operations.~~ future.

We ~~estimate~~determined the fair value of ~~contingent consideration liabilities~~our reporting units using both an ~~appropriate valuation methodology, typically either an income-based~~income approach orand 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~~approach, and weighed both approaches 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 indetermine the fair value of ~~contingent consideration obligations may result from changes in discount periods~~each reporting unit. Under the income approach, we performed a discounted cash flow analysis which incorporated management’s cash flow projections over a five-year period and ~~rates~~a terminal value was calculated by applying a capitalization rate to terminal year projections based on an estimated long-term growth rate. The five-year projected cash flows and ~~changes in~~calculated terminal value were discounted using a weighted average cost of capital (“WACC”) which takes into account the ~~timing~~costs of debt and ~~amount~~equity. The cost of ~~revenue and/or earnings projections.~~

~~Below~~equity is based on the risk-free interest rate, equity risk premium, industry and size equity premiums and any additional market equity risk premiums as deemed appropriate for each reporting unit. To arrive at a ~~summary~~fair value for each reporting unit, the terminal value was discounted by the WACC and added to the present value of the ~~changes in~~estimated cash flows over the ~~recorded amount~~discrete five-year period. There are a number of ~~contingent consideration liabilities from December 31, 2018 to September 30, 2019 (dollars in thousands):~~

Liability as of
December 31,

Change in
Fair Value of
Contingent

Foreign
Currency

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

$ —
$ —

$ (677 )
$ —

$ —

~~As of September 30, 2019~~other variables which impact the projected cash flows, such as expected revenue growth and ~~December 31, 2018, contingent consideration considered~~profitability levels, working capital requirements, capital expenditures and related depreciation and amortization. Under the market approach, we performed a ~~current liability~~comparable public company analysis and ~~included in accounts payable totaled $0~~applied revenue and $0.6 million, respectively. As of December 31, 2018 we also had accrued contingent consideration totaling $0.1 million related to acquisitions which are included in other long-term liabilities on the condensed consolidated balance sheets and represent the portion of contingent consideration estimated to be payable greater than twelve monthsearnings multiples from the ~~balance sheet date.~~identified set of companies to the reporting unit’s actual and forecasted financial performance to determine the fair value of each reporting unit. We evaluated the reasonableness of the fair value calculations of our reporting units by reconciling the total of the fair values of all of our reporting units to our total market capitalization, and adjusting for an appropriate control premium. In addition, we made certain judgments in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

(Unaudited)

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


~~(7)~~	~~Intangible Assets~~

~~Goodwill~~

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


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


Divestiture	(2,594)		—		(2,594)
Foreign currency translation	(1,951)		(1,077)		(3,028)
Balance as of June 30, 2020	$	114,766	$	51,175	$	165,941

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

$ 52,337

$ 176,213

Intangible Assets Subject to Amortization

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


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
June 30, 2020
Customer relationships	$	20,425	$	(7,589)	$	12,836

Intellectual property and other	3,475		(2,422)		1,053
	$	23,900	$	(10,011)	$	13,889

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

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

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

$ (9,132 )
$ 17,340

December 31, 2018

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

$ (10,527 )
$ 20,933

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

(Unaudited)

(8)Stock-Based Compensation


~~(8)~~	~~Stock-Based Compensation~~

We recognize compensation expense for stock-based compensation awards issued to employees on a straight-line basis over the requisite service period. Compensation cost is based on the fair value of awards as of the grant date.

The following table summarizes the pre-tax stock-based compensation expense included in reported net income (in thousands):


										Three months ended June 30,						Six months ended June 30,
	Three months ended September 30,				Nine months ended September 30,					2020		2019		2020		2019
	2019		2018		2019		2018
Restricted stock units	243		196		968		1,173		Restricted stock units	418		468		529		725
Board of Directors and other stock grants	540		51		771		171		Board of Directors and other stock grants	354		134		684		231
Total stock-based compensation expense	$	783	$	247	$	1,739	$	1,344	Total stock-based compensation expense	$	772	$	602	$	1,213	$	956

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


~~(9)~~	~~Debt~~

(9)Debt

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

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

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)

(ii) a minimum interest expense coverage ratio. On ~~June 28, 2019~~May 7, 2020, we entered into an amendment to the Credit Agreement that ~~modified~~increases the maximum leverage ratio ~~requirements~~we are required to maintain from 3.0 to 1.0 to 3.75 to 1.0 for ~~2019.We were~~the fiscal quarters ending June 30, 2020, September 30, 2020 and December 31, 2020, and 3.00 to 1.0 for fiscal quarters ending March 31, 2021 and thereafter, and a minimum interest expense coverage ratio of 3.0 to 1.0.The leverage ratio is computed by dividing our Funded Debt by our Consolidated EBITDA, as those terms are defined in the Credit Agreement, for the trailing four fiscal quarters, and the interest coverage ratio is computed by dividing our Consolidated EBITDA by our Consolidated Interest Expense for the trailing four fiscal quarters. As of June 30, 2020, our leverage ratio was 2.1 to 1.0 and our interest expense coverage ratio was 6.4 to 1.0, each of which was in compliance with ~~each of these financial covenants under~~the Credit Agreement. In addition, the amendment to the Credit Agreement ~~as amended, as of September 30, 2019.~~reduced the borrowing limit under the credit facility from $200 million to $140 million.

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the weighted average interest rate on our borrowings was ~~4.7%~~3.2% and ~~3.8%~~4.7%, respectively. As of ~~September~~June 30, ~~2019,~~2020, the fair value of our borrowings under the Credit Agreement approximated its carrying value as it bears interest at variable rates. There were $1.3 million of unamortized debt issue costs related to the Credit Agreement as of ~~September~~June 30, ~~2019~~2020 which are being amortized to interest expense over the term of the Credit Agreement and are included in Other assets on our consolidated balance sheet.


~~(10)~~	~~Income Taxes~~

(10)Income Taxes

Income tax (benefit) expense was ~~$2.4~~$(1.8) million, or an effective income tax rate of ~~29.7%~~48.8%, for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$4.2~~$1.4 million, or an effective income tax rate of ~~30.6%~~28.9%, for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The decrease in ~~the effective~~ income tax ~~rate in 2019 compared to 2018 is~~expense was primarily due to ~~a $0.9 million increase to the provisional estimate recorded~~changes in the first quarter of 2018 relating to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, imposed by the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017 partially offset by a change in thejurisdictional mix of ~~income from lower to higher taxing jurisdictions.~~earnings and the tax effects of a decrease in pre-tax earnings. Income tax expense for the interim quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes various income and payroll tax provisions, as well as provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, and modification to the net interest deduction limits. The CARES Act resulted in the recognition of a tax benefit of $0.2 million on our condensed consolidated financial statements for the six months ended June 30, 2020 related to carrying back losses to prior years. Tax payment deferrals provided for under the Cares Act resulted in liabilities for deferred payroll tax payments and other deferred tax payments under other government relief programs in different regions of the world where we operate, totaled $12.3 million as of June 30, 2020, of which approximately $9.7 million is included in accounts payable and accrued expenses and $2.6 million is in other noncurrent liabilities. We continue to monitor any effects that may result from the CARES Act.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense. As of ~~September~~June 30, ~~2019,~~2020, we had no uncertain tax positions reflected on our condensed consolidated balance sheet. The Company files income tax returns in U.S. federal, state and local jurisdictions, and various non-U.S. jurisdictions, and is subject to audit by tax authorities in those jurisdictions. Tax years ~~2015~~2016 through ~~2018~~2019 remain open to examination by these tax jurisdictions, and earlier years remain open to examination in certain of these jurisdictions which have longer statutes of limitations.


~~(11)~~	~~Stockholders’ Equity~~

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)

(11)Stockholders’ Equity

Stock Repurchase Program

We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. During the ~~nine~~six months ended ~~September~~June 30, ~~2019 we did not repurchase shares and during the nine months ended September 30, 2018,~~2020 we repurchased approximately ~~350,000~~255,000 shares of our common stock in the open market for a total cost of approximately ~~$8.0~~$1.8 million. During the six months ended June 30, 2019 we did not repurchase shares of our common stock in the open market. As of ~~September~~June 30, ~~2019,~~2020, there was approximately ~~$3.8~~$1.9 million available for future repurchases under the buyback program.

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~(12)Restructuring

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~


~~(12)~~	~~Restructuring~~

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

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

~~In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic growth and reducing operating costs, and~~second quarter of 2020, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth. ~~These restructuring activities were substantially complete as~~We recorded severance expense of $0.9 million for the three months ended June 30, ~~2018. The total remaining liability under this restructuring plan was $0.3 million and $1.9 million as of September 30, 2019 and December 31, 2018, respectively.~~

~~In connection with the acquisition of TTi Global, Inc.~~2020 which is included in December 2018, we initiated restructuring and transition activities in the first quarter of 2019 to reduce costs and eliminate redundant positions to realize synergies with the acquired business. For the nine months ended September 30, 2019, we recorded $1.4 million of restructuring charges ~~in connection with these activities.~~on the condensed consolidated statements of operations and which is expected to be paid by the end of 2020. The total remaining liability under these restructuring activities was ~~$0.1~~$0.5 million as of ~~September~~June 30, ~~2019.~~2020, which is included in accounts payable and accrued expenses on the condensed consolidated balance sheet. We expect ~~the~~these restructuring activities ~~associated with the TTi Global acquisition~~ to be substantially ~~complete by~~completed in the ~~end~~second half of ~~2019.~~2020. In addition to these restructuring charges, we also incurred $2.4 million of severance expense during the three months ended June 30, 2020 relating to cost scaling measures due to the impact of COVID-19 which are included in cost of revenue, general & administrative expenses and sales and marketing expenses on our condensed consolidated statements of operations.


~~(13)~~	~~Leases~~

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)

(13)Leases

We determine at its inception whether an arrangement that provides us control over the use of an asset is a lease. We recognize at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. We have elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. Certain of our leases include options to extend the term of the lease or to terminate the lease prior to the end of the initial term. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining total future lease payments. As most of our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate on the commencement date to calculate the present value of future payments.

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

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

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

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Operating lease cost	$	2,355	$	2,414	$	4,684	$	4,871
Short-term lease cost	102		207		460		560
Total lease costs	$	2,457	$	2,621	$	5,144	$	5,431

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)

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

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


	Nine Months Ended September 30, 2019				June 30, 2020			December 31, 2019
Operating lease right-of-use assets	$	27,136		Operating lease right-of-use assets	$	23,591		$	27,251

Current portion of operating lease liabilities	$	8,429		Current portion of operating lease liabilities	$	6,707		$	7,871
Non-current portion of operating lease liabilities	22,196			Non-current portion of operating lease liabilities	19,824			22,159
Total operating lease liabilities	$	30,625		Total operating lease liabilities	$	26,531		$	30,030

Cash paid for amounts included in the measurement of operating lease liabilities	$	7,494		Cash paid for amounts included in the measurement of operating lease liabilities	$	5,162		$	10,137

Right-of-use assets obtained in exchange for operating lease liabilities	$	2,656		Right-of-use assets obtained in exchange for operating lease liabilities	$	2,206		$	4,353

Weighted-average remaining lease term for operating leases (years)	5.7 years
Weighted-average remaining lease term for operating leases				Weighted-average remaining lease term for operating leases	5.3 years			5.5 years

Weighted-average discount rate for operating leases	4.77		%	Weighted-average discount rate for operating leases	4.5		%	4.7		%

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


Year ended December 31,
2020 (excluding the six months ended June 30, 2020)	$	3,832
2021	6,589
2022	5,352
2023	4,295
2024	3,929
Thereafter	6,305
Total future lease payments	30,302
Less: imputed interest	(3,771)
Present value of future lease payments	26,531
Less: current portion of lease liabilities	(6,707)
Long-term lease liabilities	$	19,824

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

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

(Unaudited)

(14)Business Segments

~~Under Topic 840, our future minimum payments for all operating lease obligations as of December 31, 2018 were as follows (in thousands):~~

Year ended December 31,
2019 $ 10,646
2020 7,833
2021 5,520
2022 4,528
2023 3,898
Thereafter 8,671
Total $ 41,096


~~(14)~~	~~Business Segments~~

As of ~~September~~June 30, ~~2019,~~2020, we operated through ~~two~~2 reportable business segments: (i) Workforce Excellence and (ii) Business Transformation Services. ~~In December 2017, we announced a new organizational structure and plan to improve~~Our operating ~~results by increasing organic growth and reducing operating costs. Effective January 1, 2018, we re-organized into two operating~~ segments are aligned by complementary service lines and supported by a ~~new~~ business development organization aligned by industry sector. The Workforce Excellence segment includes the majority of the former Learning Solutions and Professional & Technical Services segments. The Business Transformation Services segment includes the majority of the former Performance Readiness Solutions and Sandy Training & Marketing segments. Certain business units transferred between the

former operating segments to better align with the service offerings of the two new segments. In addition, effective July 1, 2018, we transferred the management responsibility of certain additional business units between the two operating segments primarily to consolidate our non-technical content design and development businesses into one global digital learning strategies and solutions service line. We have reclassified the segment financial information herein for the prior year periods to reflect the changes in our segment reporting during 2018 and conform to the current year's presentation.

Each of our ~~two~~2 reportable segments represents an operating segment under ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other. ~~In connection with the new organizational structure that went into effect on January 1, 2018, we determined that we~~We have ~~four~~4 reporting units for purposes of goodwill impairment testing, which represent our ~~four~~4 practices which are one level below the operating segments, as discussed below.

Our ~~two~~2 segments each consist of ~~two~~2 global practice areas which are focused on providing similar and/or complementary products and services across our diverse customer base and within targeted markets. Within each practice are various service lines having specific areas of expertise. Marketing and communications, sales, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business development and sales resources are aligned by industry sector to support existing customer accounts and new customer development across both segments. Further information regarding our business segments is discussed below.

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

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

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

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

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

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

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

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)

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

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

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

~~GP STRATEGIES CORPORATION AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenue:
Workforce Excellence	$	65,811	$	83,903	$	140,189	$	165,381
Business Transformation Services	40,333		65,510		94,236		123,505



	$	106,144	$	149,413	$	234,425	$	288,886
Gross profit:
Workforce Excellence	$	11,402	$	13,763	$	22,895	$	27,218
Business Transformation Services	4,495		9,196		10,616		17,019



Total gross profit	15,897		22,959		33,511		44,237
General and administrative expenses	14,180		15,402		31,464		31,529
Sales and marketing expenses	1,857		1,906		3,696		3,895
Restructuring charges	855		182		855		1,301
Gain on change in fair value of contingent consideration, net	—		627		—		677
Gain on sale of business	—		—		1,064		—
Operating income (loss)	(995)		6,096		(1,440)		8,189
Interest expense	607		1,679		1,585		3,277
Other income (expense)	(189)		102		(689)		88
Income (loss) before income tax expense	$	(1,791)	$	4,519	$	(3,714)	$	5,000

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

$ 123,566

$ 427,891

$ 382,289
Gross profit:

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

6,201

12,682

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

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

(Unaudited)


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

(15)Subsequent Event

Effective June 9, 2020, Scott N. Greenberg stepped down from his role as Chief Executive Officer (CEO) and remained as Chairman of the Board and assumed a new role as Senior Advisor to the Company. On ~~October 1,~~July 21, 2020, Mr. Greenberg and the Company entered into a new transition agreement. The agreement has a term of three years and for that period Mr. Greenberg will serve as a Senior Advisor, providing advisory services to the Board and the CEO and assisting with various projects including corporate transactions and engagement in the finance function of the Company. The transition agreement provides that the Company will pay Mr. Greenberg a continued annual salary of $560,000 for three years even in the event of termination for any reason. The agreement also provides that the performance-based restricted stock units granted to Mr. Greenberg on April 20, 2018 and on May 15, 2019 we sold our tuition program management business pursuant to an Asset Purchase Agreement with Bright Horizons Children's Centers LLC. The purchase price was $20.2 million which was paid on closing, other than $1.5 million which is being held in escrow to secure possible indemnification claims pursuant to the ~~terms~~Company’s Long Term Incentive Program (“LTIP”) were cancelled. In addition, the Company granted Mr. Greenberg a new award of ~~an escrow agreement which expires October 1, 2020. The purchase price is subject to adjustment~~restricted stock units ("RSUs") with a grant date value of $1.5 million, with one-third of the RSU's vesting after one year and two-thirds vesting based on ~~a final calculation of assumed liabilities as defined in the asset purchase agreement and is expected to be finalized during the fourth quarter of 2019.~~certain stock price appreciation targets.

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

Results of Operations

General Overview

We are a global performance improvement solutions provider of training, digital learning solutions, management consulting and engineering services that seeks to improve the effectiveness of organizations by providing services and products that are customized to meet the specific needs of clients. Clients include Fortune 500 companies and governmental and other commercial customers in a variety of industries. We believe we are a global leader in performance improvement, with over five decades of experience in providing solutions to optimize workforce performance.

Business Update Related to COVID-19 Pandemic

In March 2020, the World Health Organization declared the Coronavirus (COVID-19) a pandemic. During the first half of 2020 and through the date of this report, the outbreak has adversely affected the economy in virtually every geography in which the Company operates, although the timing and severity of the adverse effects have varied across countries and regions. The pandemic has created uncertainty about the impact on the global economy. Governments have implemented various restrictions around the world, including closure of non-essential businesses, travel restrictions, shelter-in-place requirements and other restrictions.

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

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

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

The Company estimates that the impact of COVID-19 on its revenue for the three and six months ended June 30, 2020 was approximately a $32.5 million and $44.0 million, respectively, decrease as compared to the same periods in 2019. We expect to continue to experience year over year revenue declines in the second half of 2020. However, we currently believe the quarter ended June 30, 2020 will be the most negatively impacted by COVID-19 due to the widespread global shutdowns during most of the second quarter of 2020. We currently expect our revenues in the third and fourth quarters of 2020 to improve compared to revenue for the second quarter of 2020. In addition, due to significant cost scaling and cost cutting measures enacted in mid-March 2020, we expect Adjusted EBITDA for the second half of 2020 to be greater than the first half of 2020. Refer to the definition of “Adjusted EBITDA” in the “Non-GAAP Information” section within this Item 2 for additional information. The Company’s cost cutting measures did not have a significant effect on costs for the first quarter of 2020 because the Company did not begin implementing substantial cost cutting measures until mid-March. At that time, the Company began implementing furloughs for billable employees where work had been delayed and certain layoffs of non-billable personnel. At the end of March, the Company initiated additional corporate-wide cost cutting measures effective April 1st, including permanent salary reductions for director level and above employees, temporary salary reductions for certain managers, and mandatory paid time off of one day per week by non-billable personnel and billable personnel that are not fully billable during the second quarter of 2020.

In addition, the Company has taken various actions to maintain liquidity in response to the potential impacts of COVID-19, including significant cost cutting measures and working with our bank to amend our credit agreement to provide additional borrowing availability by temporarily raising our maximum leverage ratio from 3.0 to 1.0 to 3.75 to 1.0 for the remainder of 2020. As of ~~September~~June 30, 2020, our borrowing availability was $44.9 million. In addition, there are various government assistance programs we have taken advantage of to partially mitigate the cash flow effects of COVID-19, such as the deferral of employer payroll taxes in the U.S. and other subsidies in different regions of the world where we operate. Tax payment deferrals provided for under the Cares Act resulted in liabilities for deferred payroll tax payments and other deferred tax payments under other government relief programs in different regions of the world where we operate totaled $12.3 million as of June 30, 2020, of which we expect to pay approximately $5.9 million in the second half of 2020, $5.2 million in 2021 and $1.2 million in 2022.

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

We are required to assess goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. We perform the annual impairment assessment for each of our reporting units as of October 1st of each year. The recent developments related to the COVID-19 pandemic have resulted in uncertainty in the global economy, and declines in equity markets, including our share price. We considered whether such events would indicate that a triggering event has occurred and require an interim goodwill impairment testing. We considered our current projections, our share price in relation to the share price when the quantitative assessment was performed as of October 1, 2019 and the margin by which the fair values of the reporting units exceeded their carrying values. Based on this analysis, the Company concluded that the current events and circumstances related to the COVID-19 pandemic indicated that a triggering event occurred during the second quarter of 2020. The Company performed a quantitative goodwill impairment test as of June 30, 2020 and concluded that there was no indication of impairment. Each of its reporting units' had a significant excess fair value over its respective carrying value, with the exception of the Organization Development reporting unit which had a fair value that exceeded its carrying value by 10%. However, if our actual results are lower than projected or our share price remains depressed for a sustained period of time, we could incur material goodwill impairment charges in the future. See Note 7 for further discussion of the methods and assumptions used in the impairment test.

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

Business Segments

As of June 30, 2020, we operated through two reportable business segments: (i) Workforce Excellence and (ii) Business Transformation Services. ~~In December 2017, we announced a new organizational structure and plan to improve~~Our operating ~~results by increasing organic growth and reducing operating costs. Effective January 1, 2018, we re-organized into two operating~~ segments are aligned by complementary service lines and supported by a ~~new~~ business development organization aligned by industry sector. The Workforce Excellence segment includes the majority of the former Learning Solutions and Professional & Technical Services segments. The Business Transformation Services segment includes the majority of the former Performance Readiness Solutions and Sandy Training & Marketing segments. Certain business units transferred between the former operating segments to better align with the service offerings of the two new segments. In addition, effective July 1, 2018, we transferred the management responsibility of certain additional business units between the two operating segments primarily to consolidate our non-technical content design and development businesses into one global digital learning strategies and solutions service line. We have reclassified the segment financial information herein for the prior year periods to reflect the changes in our segments and conform to the current year's presentation.

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

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

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

System provides a suite of real-time digital solutions for hundreds of facilities and is installed in power-generating units around the world. We also provide thousands of technical courses in a web-based off the shelf delivery format through our GPiLEARN+™ portal.

~~Acquisitions~~

~~TTi Global~~

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

~~TTi (Europe)~~

~~On August 7, 2018, we acquired the entire share capital of TTi (Europe) Limited, a subsidiary of TTi Global, Inc. ("TTi Europe"), a provider of training and research services primarily~~information herein for the ~~automotive industry located~~prior year periods to reflect the changes in ~~the United Kingdom. The upfront purchase price was $3.0 million in cash. The acquired TTi Europe business is included in the Business Transformation Services~~our segment reporting and the results of its operations have been included in the condensed consolidated financial statements beginning August 7, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

~~IC Axon~~

On May 1, 2018, we acquired the entire share capital of IC Acquisition Corporation, a Delaware corporation, and its subsidiary, IC Axon Inc., a Canadian corporation (IC Axon). IC Axon develops science-driven custom learning solutions for pharmaceutical and life science customers. The upfront purchase price was $30.5 million in cash. In addition, the purchase agreement requires up to an additional $3.5 million of consideration, contingent upon the achievement of an earnings target during a twelve-month period subsequentconform to the closing of the acquisition. No contingent consideration was payable to the sellers as the earnings target was not achieved. The acquired IC Axon business is included in the Workforce Excellence segment and the results of its operations have been included in the condensed consolidated financial statements beginning May 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.current year's presentation.

Divestiture

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

Operating Highlights

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

Our revenue ~~increased $15.4~~decreased $43.3 million or ~~12.5%~~29.0% during the ~~third~~second quarter of ~~2019~~2020 compared to the ~~third~~second quarter of ~~2018.~~2019. The net ~~increase~~decrease is due to a ~~$2.0~~$18.1 million ~~increase~~decrease in our Workforce Excellence segment and a ~~$13.5~~$25.2 million ~~increase~~decrease in our Business Transformation Services segment. ~~Foreign~~We estimate that the impact of COVID-19 resulted in an approximately $32.5 million decrease in our revenue in the second quarter of 2020 compared to the second quarter of 2019 primarily due to the postponement of certain training events and other delays in client projects. In addition, our revenue decreased $4.6 million during the second quarter of 2020 due to discontinued revenue streams from the sale of our alternative fuels division on January 1, 2020 and the sale of our tuition program management business on October 1, 2019. In addition, foreign currency exchange rate changes resulted in a total $1.8 million decrease in U.S. dollar reported revenue during the ~~third~~second quarter of ~~2019.~~2020. The changes in revenue and gross profit are discussed in further detail below by segment.

Operating income (loss), the components of which are discussed below, decreased ~~$1.7~~$7.1 million or ~~27.5%~~116.3% to ~~$4.5~~an operating loss of $1.0 million for the ~~third~~second quarter of ~~2019~~2020 compared to ~~$6.2~~operating income of $6.1 million for the ~~third~~second quarter of ~~2018.~~2019. The net decrease ~~in operating income~~ is primarily due to a ~~$3.0~~$7.1 million decrease in gross profit, a $0.7 million increase in ~~general and administrative expenses, a $0.5 million increase in sales and marketing expenses~~restructuring charges, and a ~~$0.5~~$0.6 million ~~decrease in the~~ gain on the change in fair value of contingent consideration in 2019 that did not recur in 2020, partially offset by a ~~$2.5~~$1.2 million ~~increase~~decrease in ~~gross profit.~~general and administrative expenses.

For the three months ended ~~September~~June 30, ~~2019,~~2020, we had a loss before income tax expense of $1.8 million compared to income before income tax expense of ~~$3.1 million compared to $4.3~~$4.5 million for the three months ended ~~September~~June 30, ~~2018.~~2019. Net ~~income~~loss was ~~$2.1~~$0.6 million, or ~~$0.13~~$(0.04) per diluted share, for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to net income of $3.2 million, or ~~$0.20~~$0.19 per diluted share, for the three months ended ~~September~~June 30, ~~2018.~~2019. Diluted weighted average shares outstanding were ~~16.9 million~~ ~~for the third quarter of 2019 compared to 16.6~~17.2 million for the ~~third~~second quarter of ~~2018.~~2020 compared to 16.8 million for the second quarter of 2019.

Revenue


(Dollars in thousands)	Three months ended
	June 30,
	2020		2019
Workforce Excellence	$	65,811	$	83,903
Business Transformation Services	40,333		65,510



	$	106,144	$	149,413

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

Workforce Excellence revenue ~~increased $2.0~~decreased $18.1 million or ~~2.5%~~21.6% during the ~~third~~second quarter of ~~2019~~2020 compared to the ~~third~~second quarter of ~~2018.~~2019. The revenue ~~increase~~decrease is due to the following:

•a $13.2 million decrease in revenue due to the cancellation or postponement of training events and other project related work due to COVID-19 shutdowns;

•a ~~$5.6~~$4.6 million net decrease in revenue due to discontinued revenue streams from the divestiture of our alternative fuels division on January 1, 2020 and tuition program management business on October 1, 2019;

•$0.7 million net decrease in our Engineering & Technical Services practices primarily due to project completions for government clients; and

•a $1.3 million net decrease in revenue due to changes in foreign currency exchange rates.

These decreases were offset by a $1.7 million net increase in revenue in our Managed Learning Services practice primarily due to a $0.2 million net increase due to increased demand for eLearning and virtual instructor-led training (VILT) content development services, and a $1.5 million increase in managed learning services primarily due to new outsourcing contracts awarded in 2019 that are now fully ramped up.

Business Transformation Services revenue decreased $25.2 million or 38.4% during the second quarter of 2020 compared to the second quarter of 2019. The revenue decrease is due to the following:


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


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

•a ~~$2.2~~$19.3 million decrease in revenue due to the cancellation or postponement of training events and other project related work due to COVID-19 shutdowns;

•a $4.9 million net decrease in ~~revenue in~~ our ~~Engineering & Technical Services~~Sales Enablement practice primarily due to ~~the following:~~


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


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

a ~~$1.4~~decline in automotive sales training due to project completions;

•a $0.5 million net decrease in our Organization Development practice primarily due to a decline in leadership development and strategic consulting services; and

•a $0.5 million net decrease in revenue due to changes in foreign currency exchange rates.

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

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


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


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

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

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

Gross Profit


(Dollars in thousands)	Three months ended								(Dollars in thousands)	Three months ended
	September 30,									June 30,
	2019				2018					2020						2019
			% Revenue				% Revenue					% Revenue				% Revenue
Workforce Excellence	$	14,290	17.3	%	$	13,400	16.6	%	Workforce Excellence	$	11,402	17.3	%	$	13,763	16.4	%
Business Transformation Services	7,377		13.1	%	5,799		13.5	%	Business Transformation Services	4,495		11.1	%	9,196		14.0	%
	$	21,667	15.6	%	$	19,199	15.5	%

										$	15,897	15.0	%	$	22,959	15.4	%

Workforce Excellence gross profit of ~~$14.3~~$11.4 million or 17.3% of revenue for the ~~third~~second quarter of ~~2019 increased~~2020 decreased by ~~$0.9~~$2.4 million or ~~6.6%~~17.2% compared to gross profit of ~~$13.4~~$13.8 million or ~~16.6%~~16.4% of revenue for the ~~third~~second quarter of ~~2018~~2019 primarily due to ~~a net increase in gross profit in our Managed Learning Services practice~~the COVID-19 related revenue decreases noted above. Gross margin increased during the second quarter of 2020 due to cost cutting initiatives. In addition, we incurred severance expense of $1.0 million in this segment which is included in cost of revenue during the ~~revenue increases noted above.~~second quarter of 2020.

Business Transformation Services gross profit of ~~$7.4~~$4.5 million or ~~13.1%~~11.1% of revenue for the ~~third~~second quarter of ~~2019 increased~~2020 decreased by ~~$1.6~~$4.7 million or ~~27.2%~~51.1% compared to gross profit of ~~$5.8~~$9.2 million or ~~13.5%~~14.0% of revenue for the ~~third~~second quarter ~~2018~~2019 primarily due to ~~gross profit contributed by~~ the ~~acquired TTi business and an increase~~COVID-19 related revenue decreases noted above. In addition, we incurred severance expense of $1.0 million in ~~gross profit~~this segment which is included in ~~our Organizational Development practice.~~cost of revenue during the second quarter of 2020.

General and Administrative Expenses

General and administrative expenses ~~increased $3.0~~decreased $1.2 million or ~~24.6%~~7.9% from ~~$12.2~~$15.4 million in the ~~third~~second quarter of ~~2018~~2019 to ~~$15.2~~$14.2 million in the ~~third~~second quarter of ~~2019.~~2020. The ~~increase~~decrease in general and administrative expenses is primarily due to a ~~$1.2 million increase~~decrease in ~~G&A~~labor and benefits expense ~~associated with the acquired TTi business, a $1.0 million increase~~and lower overall spending due to ~~internal labor costs that were capitalized in connection with our financial system implementation in~~ the ~~third quarter of 2018 but that are included in G&A expense in 2019, a $0.4 million increase in bad debt expense, and a $0.4 million increase in various other expenses.~~COVID-19 related shutdowns.

Sales and Marketing Expenses

Sales and marketing expenses ~~increased $0.5 million or 41.1% from $1.3~~were consistent at $1.9 million for both the ~~third~~second quarters of 2020 and 2019.

Restructuring Charges

During the second quarter of ~~2018 to $1.8 million for the third quarter of 2019 primarily resulting from centralizing marketing resources that were previously recorded in cost of revenue during 2018.~~

~~Restructuring charges~~

~~Restructuring charges increased $0.1 million in the third quarter of 2019 compared to the third quarter of 2018. In connection with the acquisition of TTi Global, Inc. in December 2018,~~2020, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth. We recorded severance expense of $0.9 million for the three months ended June 30, 2020 which is included in restructuring charges on the ~~first~~condensed consolidated statements of operations and which is expected to be paid by the end of 2020. During the second quarter of 2019, ~~to reduce costs and eliminate redundant positions to realize synergies~~we incurred $0.2 million of restructuring charges in connection with the ~~acquired business. We recognized restructuring charges of $0.1 million in the third quarter of 2019 relating to these restructuring activities.~~TTi Global acquisition.

Change in Fair Value of Contingent Consideration

During the ~~third~~second quarter of 2019, the net gain on the change in fair value of contingent consideration related to acquisitions ~~decreased $0.5 million compared to~~was $0.6 million. For the ~~third quarter of 2018. As of September~~three months ended June 30, ~~2019,~~2020, we didn't have any outstanding contingent consideration ~~arrangements~~liabilities related to prior acquisitions. ~~See Note 6 for further details regarding our accounting for contingent consideration.~~

Interest Expense

Interest expense was ~~$1.6~~$0.6 million for the ~~third~~second quarter of ~~2019~~2020 compared to ~~$1.1~~$1.7 million for the ~~third~~second quarter of ~~2018.~~2019. The ~~increase~~decrease is due to ~~an increase in~~lower borrowings and interest rates ~~and borrowings~~ under the Company's credit ~~agreement~~facility as compared to the ~~third~~second quarter of ~~2018.~~2019.

Other Income (Expense)

Other ~~income~~expense was $0.2 million for the ~~third~~second quarter of ~~2019~~2020 compared to other ~~expense~~income of ~~$0.8~~$0.1 million for the ~~third~~second quarter of ~~2018.~~2019. The increase in other ~~income~~expense is primarily due to a ~~$0.5~~$0.2 million ~~gain~~increase in the third quarter of 2019 related to a divested business for which a $0.3 million loss on disposal was included in other income (expense) during the third quarter of 2018. Other income (expense) also includes $0.5 million of foreign currency losses in the ~~third quarters~~second quarter of ~~both 2019 and 2018.~~2020. Foreign currency gains and losses primarily relate to the effect of exchange rates on intercompany receivables and payables and third party receivables and payables that are denominated in currencies other than the functional currency of our foreign subsidiaries.

Income Tax Expense (Benefit)

~~Income~~We had an income tax ~~expense was $1.0~~benefit of $1.2 million for the ~~third~~second quarter of ~~2019~~2020 compared to ~~$1.1~~income tax expense of $1.3 million for the ~~third~~second quarter of ~~2018.~~2019. The effective income tax rate was ~~31.0%~~66.2% and ~~25.4%~~28.8% for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~increase~~change in ~~the effective income~~ tax rate ~~in 2019 compared to 2018 is~~was primarily due to ~~a change~~changes in the jurisdictional mix of ~~income from lower to higher taxing jurisdictions.~~earnings and the tax effects of a decrease in pretax earnings. Income tax expense for the interim quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

~~Nine~~Six Months ended ~~September~~June 30, ~~2019~~2020 Compared to the ~~Nine~~Six Months ended ~~September~~June 30, ~~2018~~2019

Our revenue ~~increased $45.6~~decreased $54.5 million or ~~11.9%~~18.9% during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The net ~~increase~~decrease in revenue is due to a ~~$4.0~~$25.2 million ~~increase~~decrease in our Workforce Excellence segment and a ~~$41.6~~$29.3 million ~~increase~~decrease in our Business Transformation Services segment. We estimate that the impact of COVID-19 resulted in an approximately $44.0 million decrease in our revenue in the six months ended June 30, 2020 compared to the same period of 2019 primarily due to the postponement of certain training events and other delays in client projects. In addition, our revenue decreased $8.6 million during the six months ended June 30, 2020 due to discontinued revenue streams from the sale of our alternative fuels division on January 1, 2020 and the sale of our tuition program management business on October 1, 2019. Foreign currency exchange rate changes resulted in a total ~~$7.1~~$2.4 million decrease in U.S. dollar reported revenue during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The changes in revenue and gross profit are discussed in further detail below by segment.

Operating income (loss), the components of which are discussed in detail below, decreased ~~$4.5~~$9.6 million or ~~26.1%~~117.6% to ~~$12.7~~an operating loss of $1.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$17.2~~operating income of $8.2 million for the same period in ~~2018.~~2019. The net decrease in operating income is primarily due to a ~~$6.6~~$10.7 million ~~increase~~net decrease in ~~general and administrative expenses, a $2.6 million increase in sales and marketing expenses~~gross profit and a ~~$3.3~~$0.7 million ~~decrease in the~~ gain on change in fair value of contingent consideration in 2019 that did not recur in 2020, partially offset by a ~~$6.5~~$1.1 million ~~net increase~~gain on the sale of the alternative fuels business in ~~gross profit~~the first quarter of 2020, a $0.1 million decrease in general and administrative expenses, a $0.2 million decrease in sales and marketing expenses and a ~~$1.5~~$0.4 million decrease in restructuring costs.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we had a loss before income taxes of $3.7 million compared to income before income ~~tax expense~~taxes of ~~$8.1 million compared to $13.6~~$5.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Net ~~income~~loss was ~~$5.7~~$1.9 million, or ~~$0.34~~$(0.11) per diluted share, for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to net income of ~~$9.5~~$3.6 million, or ~~$0.57~~$0.21 per diluted share, for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Diluted weighted average shares outstanding were ~~16.8~~17.2 million and ~~16.6~~16.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Revenue


(Dollars in thousands)	Nine months ended				(Dollars in thousands)	Six months ended
	September 30,					June 30,
	2019		2018			2020		2019
Workforce Excellence	$	242,999	$	239,044	Workforce Excellence	$	140,189	$	165,381
Business Transformation Services	184,892		143,245		Business Transformation Services	94,236		123,505
	$	427,891	$	382,289

						$	234,425	$	288,886

Workforce Excellence revenue ~~increased $4.0~~decreased $25.2 million or ~~1.7%~~15.2% during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019. The revenue increase is due to the following:

•a ~~$8.0~~$21.1 million decrease in revenue due to the cancellation or postponement of training events and other project related work due to COVID-19 shutdowns;

•a $8.5 million net decrease in revenue due to discontinued revenue streams from the divestiture of our alternative fuels division on January 1, 2020 and tuition program management business on October 1, 2019;

•$0.7 million net decrease in our Engineering & Technical Services practices primarily due to project completions for government clients; and

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

These decreases were offset by a $6.8 million net increase in revenue in our Managed Learning Services practice primarily due to ~~the following:~~


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


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


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

a ~~$1.4~~$2.4 million net increase due to increased demand for eLearning and virtual instructor-led training (VILT) content development services, and a $4.4 million increase in managed learning services primarily due to new outsourcing contracts awarded in 2019 that are now fully ramped up.

Business Transformation Services revenue decreased $29.3 million or 23.7% during the six months ended June 30, 2020 compared to the same period in 2019. The revenue increase is due to the following:

•a $22.9 million decrease in revenue due to the cancellation or postponement of training events and other project related work due to COVID-19 shutdowns;

•a $5.2 million net decrease in our ~~Engineering & Technical Services~~Sales Enablement practice primarily due to ~~an increase~~a decline in ~~disaster relief services and an increase in chemical demilitarization~~automotive sales training ~~services for~~ primarily due to project completions;

•a ~~U.S. government client, partially offset by a~~$0.5 million net decrease in ~~engineering~~our Organization Development practice primarily due to a decline in leadership development and ~~technical training services for various clients.~~strategic consulting services; and

~~These increases were offset by~~ •a ~~$5.4~~$0.7 million net decrease in revenue due to changes in foreign currency exchange rates.

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

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


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

~~a $4.1 million net increase in automotive sales training services largely due to new vehicle launch events for automotive clients.~~

~~These revenue increases were offset by the following decreases:~~

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

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

Gross Profit


(Dollars in thousands)	Nine months ended								(Dollars in thousands)	Six months ended
	September 30,									June 30,
	2019				2018					2020						2019
			% Revenue				% Revenue					% Revenue				% Revenue
Workforce Excellence	$	41,092	16.9	%	$	39,682	16.6	%	Workforce Excellence	$	22,895	16.3	%	$	27,218	16.5	%
Business Transformation Services	24,812		13.4	%	19,769		13.8	%	Business Transformation Services	10,616		11.3	%	17,019		13.8	%
	$	65,904	15.4	%	$	59,451	15.6	%

										$	33,511	14.3	%	$	44,237	15.3	%

Workforce Excellence gross profit of ~~$41.1~~$22.9 million or ~~16.9%~~16.3% of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019 increased~~2020 decreased by ~~$1.4~~$4.3 million or ~~3.6%~~15.9% when compared to gross profit of ~~$39.7~~$27.2 million or ~~16.6%~~16.5% of revenue for the same period in ~~2018~~2019 primarily due to the ~~following:~~COVID-19 related revenue decreases noted above. In addition, we incurred severance expense of $1.2 million in this segment which is included in cost of revenue during the six months ended June 30, 2020.

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

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

Business Transformation Services gross profit of ~~$24.8~~$10.6 million or ~~13.4%~~11.3% of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019 increased~~2020 decreased by ~~$5.0~~$6.4 million or ~~25.5%~~37.6% when compared to gross profit of ~~$19.8~~$17.0 million or 13.8% of revenue for the same period in ~~2018~~2019 primarily due to ~~$3.2~~the COVID-19 related revenue decreases noted above. In addition, we incurred severance expense of $1.0 million in this segment which is included in cost of ~~gross profit contributed by~~revenue during the ~~acquired TTi business, a $1.2 million increase in gross profit in our Organizational Development practice and a $0.6 million increase in gross profit in our Sales Enablement practice.~~six months ended June 30, 2020.

General and Administrative Expenses

General and administrative expenses ~~increased $6.6~~were $31.5 million for both the six months ended June 30, 2020 and 2019. We had a decrease in labor and benefits expense and lower overall spending due to the COVID-19 related shutdowns partially offset by a $1.0 million increase in legal and other transaction fees incurred in the first quarter of 2020 related to a potential transaction that was aborted in March 2020.

Sales and Marketing Expenses

Sales and marketing expenses decreased $0.2 million or ~~16.3%~~5.1% from ~~$40.2~~$3.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 to ~~$46.8~~$3.7 million for the same period in ~~2019. The increase in general and administrative expenses is~~2020 primarily due to a $4.0 million increase in G&A expense associated with the acquired TTi businesses, a $1.8 million increase due to internal labor costs that were capitalized in connection with our financial system implementation in 2018 but that are included in G&A expense in 2019, and a $0.8 million increase in bad debt expense.

~~Sales and Marketing Expenses~~

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

Restructuring charges

~~Restructuring charges decreased $1.5 million in~~During the ~~first half~~second quarter of ~~2019 compared to the same period in 2018. In connection with the acquisition of TTi Global, Inc. in December 2018,~~2020, we initiated restructuring and transition activities ~~in the first quarter of 2019~~ to improve operational efficiency, reduce costs and ~~eliminate redundant positions~~better position the company to ~~realize synergies with~~drive future revenue growth. We recorded severance expense of $0.9 million for the ~~acquired business. We recognized~~six months ended June 30, 2020 which is included in restructuring charges on the condensed consolidated statements of ~~$1.4 million during~~operations and which is expected to be paid by the ~~nine months ended September 30, 2019 relating to these restructuring activities.~~end of 2020. During the ~~nine months ended September 30, 2018,~~same period in 2019, we ~~recognized $2.9~~incurred $1.3 million of restructuring charges in connection with the ~~reorganization that was initiated in December 2017.~~TTi Global acquisition.

Change in Fair Value of Contingent Consideration

We recognized a net gain on the change in fair value of contingent consideration related to acquisitions of $0.7 million ~~and $4.0 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2019 and 2018, respectively.~~2019. For the six months ended June 30, 2020, we didn't have any outstanding contingent consideration liabilities related to prior acquisitions.

Gain on Sale of Business

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

Interest Expense

Interest expense ~~increased $3.2~~decreased $1.7 million from $3.3 million for the six months ended June 30, 2019 to $1.6 million for the ~~nine~~same period in 2020. The net decrease is due to lower borrowings and interest rates under the Company's credit facility as compared to the same period in 2019.

Other Income (Expense)

Other expense was $0.7 million for the six months ended ~~September~~June 30, ~~2018~~2020 compared to ~~$4.9~~other income of $0.1 million for the same period in 2019. The net increase is due to a $2.1 million increase in interest expense due to both an increase in interest rates and higher borrowings under the Credit Agreement, as well as a $1.1 million non-recurring reversal of a interest accrual during the second quarter of 2018 related to an unremitted value-added tax associated with prior year client billings which was favorably settled during the second quarter of 2018.

~~Other Income (Expense)~~

~~Other income was $0.3 million for the nine months ended September 30, 2019 compared to other expense of $1.9 million for the same period in 2018. The~~ increase in other ~~income~~expense is partially due to a ~~$0.5~~$0.3 million ~~gain~~impairment loss on an operating lease right-of-use asset related to the consolidation of our TTi Global headquarters with our Troy, Michigan office in the ~~third~~first quarter of ~~2019 related to a divested business for which~~2020, and a $0.3 million ~~loss on disposal was included in other income (expense) during the third quarter of 2018. The~~ increase ~~in other income is also due to a $1.0 million decrease~~ in foreign currency losses ~~and a $0.2 million increase in income from a joint venture~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the corresponding period in ~~2018.~~2019. Foreign currency gains and losses primarily relate to the effect of exchange rates on intercompany receivables and payables and third party receivables and payables that are denominated in currencies other than the functional currency of our foreign subsidiaries.

Income Tax Expense (Benefit)

Income tax ~~expense~~benefit was ~~$2.4~~$(1.8) million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$4.2~~income tax expense of $1.4 million for the same period in ~~2018.~~2019. The effective income tax rate was ~~29.7%~~48.8% and ~~30.6%~~28.9% for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~decrease~~change in ~~the effective income~~ tax rate ~~in 2019 compared to 2018 is~~was primarily due to ~~a $0.9 million increase to the provisional estimate recorded~~changes in the first quarter of 2018 relating to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, imposed by the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017, partially offset by a change in thejurisdictional mix of ~~income from lower to higher taxing jurisdictions.~~earnings and the tax effects of a decrease in pretax earnings. Income tax expense for the interim quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

Liquidity and Capital Resources

Working Capital

Our working capital was ~~$101.8~~$72.5 million at ~~September~~June 30, ~~2019~~2020 compared to ~~$103.9~~$92.9 million at December 31, ~~2018.~~2019. As of ~~September~~June 30, ~~2019~~2020 we had ~~$113.2~~$57.7 million of long-term debt outstanding. We believe that cash generated from operations and borrowings available under our Credit Agreement ($~~8.5~~44.9 million of available borrowings as of ~~September~~June 30, ~~2019~~2020 based on our consolidated leverage ratio) will be sufficient to fund our working capital and other requirements for at least the next twelve months.This belief does not take into account exacerbation of, or additional or prolonged disruptions caused by, the COVID-19 pandemic that result in a material adverse impact on our business, which are events beyond our control, or unanticipated uses of cash. The anticipated cash needs of our business could change significantly if events, including economic disruptions, arising from the COVID-19 pandemic worsen, or if other economic conditions change from those currently prevailing or from those now anticipated, or if

other unexpected circumstances arise that may have a material effect on the cash flow or profitability of our business, including material negative changes in the health and welfare of our employees or those of our clients, and the operating performance or financial results of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to raise additional debt or equity funding to meet those needs. Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:

•our future results of operations;

•the quality of our accounts receivable;

•our relative levels of debt and equity;

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

•the market price of our securities.

Any new debt funding, if available, may be on terms less favorable to us than our Credit Facility. See “Forward-Looking Statements” in Part I, Item 2 of this Quarterly Report on Form 10-Q, and the information contained under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

As of ~~September~~June 30, ~~2019,~~2020, the amount of cash and cash equivalents held outside of the U.S. by foreign subsidiaries was ~~$7.6~~$11.1 million. The 2017 Tax Cuts and Jobs Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest these earnings, as well as our capital in these subsidiaries, indefinitely outside of the U.S. and do not expect to incur any significant, additional taxes related to such amounts.

~~Divestiture~~

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

Stock Repurchase Program

Significant Customers & Concentration of Credit Risk

Revenue from the financial & insurance sector accounted for approximately ~~17%~~16% and ~~20%~~15% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately ~~11%~~9% and ~~14%~~11% of our consolidated revenue for the ~~nine-months~~six-months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. As of ~~September~~June 30, ~~2019,~~2020, billed and unbilled accounts receivable from a single financial services customer totaled ~~$17.5~~$8.7 million, or ~~10%~~6%, of our consolidated accounts receivable and unbilled revenue balances.

Cash Flows

~~Nine~~Six Months ended ~~September~~June 30, ~~2019~~2020 Compared to the ~~Nine~~Six Months ended ~~September~~June 30, ~~2018~~2019

Our cash and cash equivalents balance ~~decreased $5.7~~increased $3.9 million from ~~$13.4~~$8.2 million as of December 31, ~~2018~~2019 to ~~$7.7~~$12.1 million as of ~~September~~June 30, ~~2019.~~2020. The ~~decrease~~increase in cash and cash equivalents during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 resulted from cash provided by operating activities of ~~$4.6~~$32.8 million, cash ~~used in~~provided by investing activities of ~~$3.3~~$2.2 million, cash used in financing activities of ~~$5.1~~$30.4 million and a negative effect of exchange rate changes on cash of ~~$1.8~~$0.6 million.

Cash provided by operating activities was ~~$4.6~~$32.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$3.5~~$6.3 million cash used in operating activities for the same period in ~~2018.~~2019. The increase in cash from operations is primarily due to an ~~increase~~improvement in ~~net income after adjusting for non-cash items, partially offset by a net decrease in working capital balances~~cash collections of accounts receivable during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019.

Cash provided by investing activities was $2.2 million for the six months ended June 30, 2020 compared to cash used in investing activities ~~was $3.3 million for the nine months ended September 30, 2019 compared to $48.4~~of $1.3 million for the same period in ~~2018.~~2019. The ~~decrease~~increase in cash ~~used in~~from investing activities is primarily due to a ~~$44.0~~$3.3 million ~~decrease in~~of cash ~~paid to complete acquisitions and a $1.0 million decrease in other investing activities primarily for capitalized software development costs.~~proceeds from the sale of our alternative fuels division on January 1, 2020.

Cash used in financing activities was ~~$5.1~~$30.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to cash provided ~~by financing activities~~ of ~~$32.5~~$1.2 million for the same period in ~~2018.~~2019. The ~~decrease~~increase in cash ~~provided by~~used in financing activities is primarily due to a $28.4 million increase in net ~~decrease in~~repayments of borrowings under our credit agreement, ~~partially offset by $8.8~~a $1.4 million decrease in negative cash book balances during the first half of ~~cash~~2020 compared to the same period in 2019 and $1.8 million used for share repurchases in ~~2018 that did not recur in 2019.~~the first half of 2020.

Debt

The Credit Agreement contains customary representations, warranties and affirmative covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stock dividends, and (vii) certain other restrictive agreements. On ~~June 28, 2019~~May 7, 2020 we entered into an amendment to the Credit Agreement that ~~requires~~increases the ~~company to maintain compliance with a~~ maximum leverage ratio ofwe are required to maintain from 3.0 to 1.0 to 3.75 to 1.0 for the fiscal ~~quarter~~quarters ending June 30, ~~2019, 3.5 to 1.0 for the fiscal quarter ending~~2020, September 30, ~~2019,~~2020 and December 31, 2020, and 3.00 to 1.0 for fiscal quarters ending ~~December~~March 31, ~~2019~~2021 and thereafter, and a minimum interest expense coverage ratio of 3.0 to 1.0. The leverage ratio is computed by dividing our Funded Debt by our Consolidated EBITDA, as those terms are defined in the Credit Agreement, for the trailing four fiscal quarters, and the interest coverage ratio is computed by dividing our Consolidated EBITDA by our Consolidated Interest Expense for the trailing four fiscal quarters. As of ~~September~~June 30, ~~2019,~~2020, our leverage ratio was ~~3.3~~2.1 to 1.0 and our

interest expense

ratio was ~~5.7~~6.4 to 1.0, each of which was in compliance with the Credit Agreement. ~~We expect~~In addition, the amendment to ~~be in compliance with~~ the ~~lower maximum leverage ratio of 3.0~~Credit Agreement reduced the borrowing limit under the credit facility from $200 million to 1.0 as of December 31, 2019 due to a reduction in our debt from the proceeds of the sale of our tuition program management business in October 2019, as well as anticipated operating cash flow during the fourth quarter of 2019.$140 million.

As of ~~September~~June 30, ~~2019,~~2020, there were ~~$113.2~~$57.7 million of borrowings outstanding and ~~$8.5~~$44.9 million of available borrowings under the revolving loan facility based on our Leverage Ratio. For the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the weighted average interest rate on our borrowings was ~~4.7%~~3.2% and ~~3.8%~~4.7%, respectively. As of ~~September~~June 30, ~~2019,~~2020, the fair value of our borrowings under the Credit Agreement approximated its carrying value as it bears interest at variable rates. There were $1.3 million of unamortized debt issue costs related to the Credit Agreement as of ~~September~~June 30, ~~2019~~2020 which are being amortized to interest expense over the term of the Credit Agreement and are included in Other assets on our consolidated balance sheet.

Off-Balance Sheet Commitments

As of ~~September~~June 30, ~~2019~~,2020, we did not have any off-balance sheet commitments except for letters of credit entered into in the normal course of business.

Accounting Standards Issued

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

Non-GAAP Information

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

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

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Non-GAAP Reconciliation – Adjusted EBITDA

(In thousands)

(Unaudited)


	Quarters ended						Years ended
			June 30,						June 30,

	2020		2019		2020		2019
Net income (loss)	$	(606)	$	3,219	$	(1,900)	$	3,553
Interest expense	607		1,679		1,585		3,277
Income tax expense (benefit)	(1,185)		1,300		(1,814)		1,447
Depreciation and amortization	2,077		2,316		4,254		4,657
EBITDA	893		8,514		2,125		12,934
Adjustments:
Non-cash stock compensation expense	1,536		1,330		2,792		2,419
Restructuring charges	855		182		855		1,301
Severance expense	2,354		—		2,565		1,011
Gain on change in fair value of contingent consideration, net	—		(627)		—		(677)
ERP implementation costs	—		464		—		1,148
Foreign currency transaction losses	346		207		842		552
Legal acquisition and transaction costs	—		365		1,038		518
Impairment of operating lease right-of-use asset	—		—		255		—
Gain on sale of business	—		—		(1,064)		—

Adjusted EBITDA	$	5,984	$	10,435	$	9,408	$	19,206

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as ~~amended.~~amended, including statements about the anticipated effects of the COVID-19 pandemic and related events on our business and results of operations. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward looking statements. Forward–looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results. We use words such as “expects,” “intends,” “believes,” “may,” “will,” “should,” “could,” “anticipates,” “estimates,” “plans” and similar expressions to indicate forward-looking statements, but their absence does not mean a statement is not forward-looking. Because these forward-looking statements are based upon management’s expectations and assumptions and are subject to risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including, but not limited to, ~~those~~impact of the COVID-19 pandemic and related events that are beyond our control and difficult to predict, and the other factors set forth in Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 and Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (including but not limited to Risks Related to "COVID-19") and those other risks and uncertainties detailed in our periodic reports and registration statements filed with the Securities and Exchange Commission. We caution that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict these new risk factors, nor can we assess the effect, if any, of the new risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ from those expressed or implied by these forward-looking statements.

If any one or more of these expectations and assumptions proves incorrect, actual results will likely differ materially from those contemplated by the forward-looking statements. Even if all of the foregoing assumptions and expectations prove correct, actual results may still differ materially from those expressed in the forward-looking statements as a result of factors we may not anticipate or that may be beyond our control. While we cannot assess the future impact that any of these differences could have on our business, financial condition, results of operations and cash flows or the market price of shares of our common stock, the differences could be significant. We do not undertake to update any forward-looking statements made by us, whether as a result of new information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Interest rate risk

We are exposed to interest rate risk related to our outstanding debt obligations. On November 30, 2018, we entered into a new credit agreement with a bank which provides for a five-year secured revolving loan facility in an aggregate principal amount of up to ~~$200.0~~$140.0 million. As of ~~September~~June 30, ~~2019,~~2020, we had ~~$113.2~~$57.7 million outstanding under the credit facility. We may draw funds from our revolving credit facility under interest rates based on either the Federal Funds Rate or the Adjusted London Interbank Offered Rate (“LIBOR rate”). If these rates increase significantly, our costs to borrow these funds will also increase. In an effort to manage our exposure to this risk, we have previously entered into interest rate derivative contracts. As of ~~September~~June 30, ~~2019~~2020 we did not have any interest rate hedging instruments in place but may enter into new hedging instruments in the future to mitigate our exposure to interest rate risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and under the Securities Exchange Act of 1934 (“Exchange Act”)) designed to provide reasonable assurance that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC’s rules and forms. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal control over financial reporting disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

SEC guidance permits the exclusion of an evaluation of the effectiveness of a registrant's disclosure controls and procedures as they relate to the internal control over financial reporting for an acquired business during the first year following such acquisition. In the fourth quarter of 2018, we acquired TTi Global, Inc. This acquisition represented $22.0 million of total assets and $40.6 million of revenue as of and for the nine months ended September 30, 2019. Management's evaluation and conclusion as to the effectiveness of the design and operation of the Company's disclosure controls and procedures as of and for the period covered by this report excludes any evaluation of the internal control over financial reporting related to process level controls over the activity of TTi Global, Inc. post-acquisition.

Material Weaknesses and Status of Remediation

As described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal ~~year~~years ended December 31, 2018, and December 31, 2019, we ~~have begun~~are implementing a remediation plan to address the material weaknesses disclosed in such Annual ~~Report.~~Reports. These material weaknesses will not be considered fully remediated until the applicable controls operate for a sufficient period of time and management concludes, through testing, that these controls are operating effectively. Management is committed to remediating the material weaknesses ~~related to the implementation of the ERP system~~ and has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated.

Changes in Internal Controls

~~During~~As a result of the ~~nine~~COVID-19 pandemic, the majority of our workforce began working remotely in March 2020 and continues to do so as of the date of this filing. These changes to the working environment did not have a material effect on our internal controls over financial reporting during the six months ended ~~September~~June 30, ~~2019, we implemented new internal controls to facilitate our adoption of ASU 2016-02 to ensure the proper identification, accounting, and reporting of material lease arrangements.~~2020. Other than as disclosed above under “Material Weaknesses and Status of Remediation” ~~and the new internal controls related to our adoption of ASU 2016-02,~~, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

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

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

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

The COVID-19 pandemic has created volatility, uncertainty and economic disruption for GP Strategies, our customers and vendors, and the markets in which we do business. The scope and impact of the COVID-19 pandemic changed quickly during the first half of 2020, as travel restrictions, stay at home orders and other limitations on conducting business came into effect in different forms at different times in the different places where we conduct business. We estimate that the effects of COVID-19 resulted in an approximately $11.5 million decrease in our revenue in the first quarter of 2020 and $32.6 million decrease in our revenue in the second quarter of 2020 compared to the same periods of 2019, primarily due to the postponement of certain training events and other delays in client projects. During the first half of 2020 and through the date of this report, health and economic conditions in the United States and around the world have been adversely affected, and government and customer actions and related events have adversely impacted, and we expect will continue to adversely impact, how we do business and the services that we provide for a sustained period.

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

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

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

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

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

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

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

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

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

•our ability to continue to effectively market our services;

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

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

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

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

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

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

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

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

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

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

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

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

The COVID-19 pandemic and its economic effects could increase the likelihood that we could incur material asset impairment charges in future periods.

In the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2020 we stated that a substantial portion of our assets consists of goodwill and intangible assets, which are subject to impairment and that we could incur material asset impairment charges in future periods. The COVID-19 pandemic has caused and could continue to cause a decrease in expected cash flows, adverse changes in market conditions, and a material decline in our stock price, all of which could increase the likelihood that we could incur material goodwill and other intangible asset impairment charges in the future.

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

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

Issuer Purchases of Equity Securities

Total number
of shares purchased

Average
price paid per share

Total number
of shares
purchased as
part of publicly announced program

Approximate
dollar value of
shares that may yet
be purchased under the program (1)
Month
July 1 - 31, 2019 —
$ —
—
$ 3,755,000
August 1 - 31, 2019 586
(2) $ 13.99
—
$ 3,755,000
September 1 - 30, 2019 —
$ —
—
$ 3,755,000


	Issuer Purchases of Equity Securities
	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced program	Approximate dollar value of shares that may yet be purchased under the program (1)
Month
April 1 - 30, 2020	8,743	(2)	$	6.61	—	$	3,755,000
May 1 - 31, 2020	128,274	(2)	$	6.31	120,742	$	2,988,000
June 1 - 30, 2020	133,819		$	7.87	133,819	$	1,929,000


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


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

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

(2)Includes shares surrendered by employees to satisfy minimum tax withholding obligations on restricted stock units which vested during the second quarter of 2020.

Item 6. Exhibits


~~Item 6.~~10.1			~~Exhibits~~

Fourth Amendment to Credit Agreement, dated May 7, 2020, by and among GP Strategies Corporation, General Physics (UK) Ltd., GP Strategies Holdings Limited, GP Strategies Limited, GP Strategies Training Limited and TTi Global, Inc., as Borrowers, and the Guarantors party hereto and the lenders party hereto and PNC Bank, National Association, as Administrative Agent, dated as of November 30, 2018.*


31.1			Certification of Chief Executive Officer of the Company dated ~~November~~August 7, ~~2019~~2020 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*


31.2			Certification of Executive Vice President and Chief Financial Officer of the Company dated ~~November~~August 7, ~~2019~~2020 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*


32.1			Certification of Chief Executive Officer and Chief Financial Officer of the Company dated ~~November~~August 7, ~~2019~~2020 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


101			The following materials from GP Strategies Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Stockholders' Equity, (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.*



*Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			GP STRATEGIES CORPORATION

~~November~~August 7, ~~2019~~2020			/s/ ~~Scott N. Greenberg~~Adam H. Stedham
			~~Scott N. Greenberg~~Adam H. Stedham
			Chief Executive Officer and President

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



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



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



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



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



Year ended December 31,
2019	$	10,646
2020	7,833
2021	5,520
2022	4,528
2023	3,898
Thereafter	8,671
Total	$	41,096